Document:

Filed by Automated Filing Services Inc. (604) 609-0244 - Regi U.S., Inc. - Exhibit 10.1

EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT 

SECURITIES PURCHASE AGREEMENT 

     This Securities Purchase
Agreement (this “Agreement”) is dated as of November 14, 2006 by and
between Regi U.S., Inc., an Oregon corporation (the “Company”) and
Dresden Investments Ltd. (the “Purchaser”). Capitalized terms used in
this Agreement and not otherwise defined shall have the meanings ascribed to
them in Article 1. 

     WHEREAS, the parties
desire that, upon the terms and subject to the conditions contained herein, the
Company shall have the right to issue and sell to Purchaser from time to time as
provided herein, and Purchaser shall be obligated to purchase from the Company
up to $10,000,000 worth of shares of Common Stock on a private placement basis
pursuant to an exemption from registration under Section 4(2) of the Security
Act of 1933; and 

     WHEREAS, the Purchaser
shall be entitled to resell shares of Common Stock acquired hereunder pursuant
to a resale registration statement established by the Company pursuant to the
terms of the Registration Rights Agreement between the Company and the Purchaser
which shall be declared effective by the Commission prior to the delivery of the
first Draw Down Notice. 

     NOW, THEREFORE, in
consideration of the foregoing premises, and the promises and covenants herein
contained, the receipt and sufficiency of which are hereby acknowledged by the
parties hereto, the parties, intending to be legally bound, hereby agree as
follows: 

ARTICLE I.
DEFINITIONS 

     1.1      
Definitions. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms have the
meanings indicated in this Section 1.1: 

    
“Action” shall have the meaning ascribed to such term in Section 3.1(j) .

     “Affiliate” means any Person
that, directly or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with a Person as such terms are used in
and construed under Rule 144 under the Securities Act. With respect to the
Purchaser, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as the Purchaser will be
deemed to be an Affiliate of the Purchaser. 

     “Business Day” means any day
except Saturday, Sunday, any day which shall be a federal legal holiday in the
United States or any day on which banking institutions in the State of New York
are authorized or required by law or other governmental action to close. 

     “Closing Price” means on any
particular date (a) the last reported closing bid price per share of Common
Stock on such date on the Trading Market (as reported by Bloomberg L.P. at 4:15
PM (New York time)), or (b) if there is no such price on such date, then the
closing bid price on the Trading Market on the date nearest preceding such 

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date (as reported by Bloomberg L.P. at
4:15 PM (New York time)), or (c) if the Common Stock is not then listed or
quoted on the Trading Market and if prices for the Common Stock are then
reported in the “pink sheets” published by Pink Sheets LLC (or a similar
organization or agency succeeding to its functions of reporting prices), the
most recent bid price per share of the Common Stock so reported, or (d) if the
shares of Common Stock are not then publicly traded the fair market value of a
share of Common Stock as determined by an appraiser selected in good faith by
the Purchaser of a majority in interest of the Shares then outstanding. 

    
“Commission” means the Securities and Exchange Commission. 

     “Commencement Date” shall
mean the Trading Day immediately following the date on which the applicable Draw
Down Notice is delivered to the Purchaser. 

     “Commitment Amount” shall
have the meaning assigned to such term in Section 2.1 hereof. 

     “Commitment Period” shall
mean the period of 36 consecutive months commencing immediately after the
Effective Date but in no event later than the four year anniversary of the date
hereof. 

     “Common Stock” means the
common stock of the Company, no par value per share, and any other class of
securities into which such securities may hereafter be reclassified or changed
into. 

     “Common Stock Equivalents”
means any securities of the Company or the Subsidiaries which would entitle the
holder thereof to acquire at any time Common Stock, including, without
limitation, any debt, preferred stock, rights, options, warrants or other
instrument that is at any time convertible into or exercisable or exchangeable
for, or otherwise entitles the holder thereof to receive, Common Stock. 

     “Company
Counsel” means The Otto Law Group PLLC. 

     “Consolidation Event” shall
mean a sale of all or substantially all of the Company’s assets or a merger
pursuant to which the holders of the voting securities of the Company prior to
the merger do not own a majority of the voting securities of the surviving
entity. 

     “Disclosure Schedules” means
the Disclosure Schedules of the Company delivered concurrently herewith. 

     “Draw
Down” shall have the meaning assigned to such term in Section 6.1(a) hereof.

     “Draw
Down Notice” shall have the meaning assigned to such term in Section 6.1(e)
hereof. 

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     “Draw
Down Pricing Period” shall mean a period of up to 10 consecutive Trading
Days, beginning on the date specified in the Draw Down Notice; provided,
however, the Draw Down Pricing Period shall not begin before the day on
which receipt of such notice is delivered to Purchaser pursuant to Section 8.3
herein. 

     “Draw
Down Shares” shall mean the shares of Common Stock issuable pursuant to a
Draw Down. 

     
“DTC” shall have the meaning assigned to such term in Section 6.1(f) .

     “DWAC”
shall have the meaning assigned to such term in Section 6.1(f) . 

     “Effective Date” means the
date that the initial Registration Statement filed by the Company pursuant to
the Registration Rights Agreement is first declared effective by the Commission.

     “Equity Conditions” shall
mean, during the period in question, (i) all liquidated damages and other
amounts owing to the Purchaser pursuant to the Transaction Documents have been
paid, (ii) there is an effective Registration Statement pursuant to which the
Purchaser is permitted to utilize the prospectus thereunder to resell all of the
Draw Down Shares (issued and to be issued pursuant to the applicable Draw Down),
the Shares and the Warrant Shares (and the Company believes, in good faith, that
such effectiveness will continue uninterrupted for the foreseeable future),
(iii) the Common Stock is trading on the Trading Market and all of the shares
issuable pursuant to the Transaction Documents are listed or quoted (if
applicable) for trading on a Trading Market (and the Company believes, in good
faith, that trading of the Common Stock on a Trading Market will continue
uninterrupted for the foreseeable future), (iv) there is a sufficient number of
authorized but unissued and otherwise unreserved shares of Common Stock for the
issuance of all of the Draw Down Shares (issued and to be issued pursuant to the
applicable Draw Down), the Shares and the Warrant Shares, (v) the issuance of
the Draw Down Shares subject to the applicable Draw Down would not violate the
limitations set forth in Section 4.12; (vi) the average daily trading volume for
each Trading Day during such period shall equal or exceed the lesser of (A)
75,000 shares of Common Stock, subject to adjustment for reverse and forward
stock splits, stock dividends, stock combinations and other similar transactions
of the Common Stock that occur after the date of this Agreement and (B) $75,000
of Common Stock (based on the VWAP) and (vii) the Company, directly or
indirectly, has not provided the Purchaser with any material, non-public
information that has not been made publicly available in a widely disseminated
release. 

     “Evaluation
Date” shall have the meaning ascribed to such term in Section 3.1(r) .

     “Exchange Act” means the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder. 

     “Exempt Issuance” means the
issuance of (a) shares of Common Stock or options to employees, officers or
directors of the Company pursuant to any stock or option plan 

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duly adopted by a majority of the
non-employee members of the Board of Directors of the Company or a majority of
the members of a committee of non-employee directors established for such
purpose, (b) securities upon the exercise or exchange of or conversion of any
Securities issued hereunder and/or other securities exercisable or exchangeable
for or convertible into shares of Common Stock issued and outstanding on the
date of this Agreement, provided that such securities have not been amended
since the date of this Agreement to increase the number of such securities or to
decrease the exercise, exchange or conversion price of any such securities, (c)
securities issued pursuant to acquisitions or strategic transactions approved by
a majority of the disinterested directors, provided any such issuance shall only
be to a Person which is, itself or through its subsidiaries, an operating
company in a business synergistic with the business of the Company and in which
the Company receives benefits in addition to the investment of funds, but shall
not include a transaction in which the Company is issuing securities primarily
for the purpose of raising capital or to an entity whose primary business is
investing in securities and (d) securities issued pursuant to this Agreement.

     
“FWS” means Feldman Weinstein & Smith LLP with offices located at 420
Lexington Avenue, Suite 2620, New York, New York 10170-0002. 

     
“GAAP” shall have the meaning ascribed to such term in Section 3.1(h) .

     “Initial Closing” shall have
the meaning assigned to such term in Section 2.2 hereof. 

     “Initial Closing Date” shall
have the meaning assigned to such term in Section 2.2 hereof. 

     
“Intellectual Property Rights” shall have the meaning ascribed to such
term in Section 3.1(o) . 

     “Investment Amount” shall
have the meaning assigned to such term in Section 6.1(e) hereof. 

     “Legend Removal Date” shall
have the meaning ascribed to such term in Section 4.1(c) .

     “Liens” means a lien, charge,
security interest, encumbrance, right of first refusal, preemptive right or
other restriction. 

     “Material Adverse Effect”
shall have the meaning assigned to such term in Section 3.1(b) . 

     “Material Permits” shall have
the meaning ascribed to such term in Section 3.1(m) . 

     “Person” means an individual
or corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind. 

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“Proceeding” means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened. 

     “Purchaser
Party” shall have the meaning ascribed to such term in Section 4.7. 

     “Registration Rights
Agreement” means the Registration Rights Agreement, dated the date hereof,
between the Company and the Purchaser, in the form of Exhibit A attached
hereto. 

     “Registration Statement”
means a registration statement meeting the requirements set forth in the
Registration Rights Agreement and covering the resale by the Purchaser of the
Shares and the Warrant Shares.

     “Required Approvals” shall
have the meaning ascribed to such term in Section 3.1(e) . 

     “Rule
144” means Rule 144 promulgated by the Commission pursuant to the Securities
Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same
effect as such Rule.

     “Rule
424” means Rule 424 promulgated by the Commission pursuant to the Securities
Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same
effect as such Rule. 

     “SEC
Reports” shall have the meaning ascribed to such term in Section 3.1(h) .

     
“Securities” means the Shares, the Warrants and the Warrant Shares. 

     “Securities Act” means the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder. 

     “Settlement” shall mean the
delivery of the Draw Down Shares into the Purchaser’s DTC account via DTC’s DWAC
system and the Purchaser’s delivery of payment therefor. 

     “Settlement
Date” shall have the meaning assigned to such term in Section 6.1(b) . 

     
“Shares” shall mean the Draw Down Shares. 

     
“Subsidiary” shall have the meaning ascribed to such term in Section
3.1(a) . 

     “Threshold Price” shall mean
the price per Share designated by the Company as the lowest VWAP during any Draw
Down Pricing Period at which the Company shall sell its Common Stock in
accordance with this Agreement, which shall be in no event less than $0.50. 

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     “Trading Cushion” shall mean
the mandatory 5 Trading Days between Draw Down Pricing Periods. “Short
Sales” shall include all “short sales” as defined in Rule 200 of Regulation
SHO under the Exchange Act (but shall not be deemed to include the location
and/or reservation of borrowable shares of Common Stock). 

     
“Subsidiary” means any subsidiary of the Company as set forth on
Schedule 3.1(a). 

     “Trading Day” means a day on
which the Common Stock is traded on a Trading Market. 

     “Trading Market” means the
following markets or exchanges on which the Common Stock is listed or quoted for
trading on the date in question: the Nasdaq Capital Market, the American Stock
Exchange, the New York Stock Exchange, the Nasdaq National Market or the OTC
Bulletin Board. 

     “Transaction Documents” means
this Agreement, the Warrants and the Registration Rights Agreement and any other
documents or agreements executed in connection with the transactions
contemplated hereunder. 

     “VWAP” means, for any date,
the price determined by the first of the following clauses that applies: (a) if
the Common Stock is then listed or quoted on a Trading Market, the daily volume
weighted average price of the Common Stock for such date (or the nearest
preceding date) on the Trading Market on which the Common Stock is then listed
or quoted for trading as reported by Bloomberg Financial L.P. (based on a
Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City
time); (b) if the Common Stock is not then quoted for trading on a Trading
Market and if prices for the Common Stock are then reported in the “Pink Sheets”
published by Pink Sheets, LLC (or a similar organization or agency succeeding to
its functions of reporting prices), the most recent bid price per share of the
Common Stock so reported; or (c) in all other cases, the fair market value of a
share of Common Stock as determined by an independent appraiser selected in good
faith by the Holder and reasonably acceptable to the Company.

     “Warrants” means collectively
the Common Stock purchase warrants, in the form of Exhibit C delivered to
the Purchaser at the Initial Closing in accordance with Section 2.2 hereof,
which Warrants shall be exercisable immediately and have a term of exercise
equal to 5 years. 

     “Warrant Shares” means the
shares of Common Stock issuable upon exercise of the Warrants. 

ARTICLE II.
PURCHASE AND SALE 

     2.1 Purchase and Sale of Draw
Down Shares. Upon the terms and subject to the conditions of this Agreement,
the Company may sell and issue to the Purchaser and the Purchaser shall be
obligated to purchase from the Company, up to an aggregate of $10,000,000 worth
of shares of Common Stock (the “Commitment Amount”). 

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     2.2 Initial Closing. The
execution and delivery of this Agreement and the other agreements referred to
herein (the “Initial Closing”) shall take place at the offices of FWS,
420 Lexington Avenue, Suite 2620, New York, New York 10170 (i) at 10:00 a.m.
local time within 5 Trading Days of the date hereof, or (ii) at such other time
and place or on such date as the Purchaser and the Company may agree upon (the
“Initial Closing Date”). Each party shall deliver the following
documents, instruments and writings at or prior to the Initial Closing: 

     (a) the
Company shall deliver or cause to be delivered to the Purchaser the following:

     (i) this
Agreement duly executed by the Company; 

     (ii) a
legal opinion of Company Counsel, in the form of Exhibit B attached
hereto; 

     (iii) a
certificate evidencing Warrants registered in the name of the Purchaser to
purchase up to 1,000,000 shares of Common Stock with an exercise price equal to
$1.30, subject to adjustment therein; and 

     (iv) the
Registration Rights Agreement duly executed by the Company. 

     (b) the
Purchaser shall deliver or cause to be delivered to the Company the following:

     (i) this
Agreement duly executed by the Purchaser; and 

    (ii) the
Registration Rights Agreement duly executed by the Purchaser. 

ARTICLE III.
REPRESENTATIONS AND WARRANTIES 

     3.1 Representations and
Warranties of the Company. Except as set forth under the corresponding
section of the Disclosure Schedules which Disclosure Schedules shall be deemed a
part hereof and to qualify any representation or warranty otherwise made herein
to the extent of such disclosure, the Company hereby makes the representations
and warranties set forth below to the Purchaser: 

     (a)
Subsidiaries. All of the direct and indirect subsidiaries of the Company
are set forth on Schedule 3.1(a). The Company owns, directly or
indirectly, all of the capital stock or other equity interests of each
Subsidiary free and clear of any Liens, and all the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and are fully
paid, non-assessable and free of preemptive and similar rights to subscribe for
or purchase securities. If the Company has no subsidiaries, then all other
references in the Transaction Documents to the Subsidiaries or any of them will
be disregarded. 

     (b)
Organization and Qualification. The Company and each of the Subsidiaries
is an entity duly incorporated or otherwise organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization (as 

7

applicable), with the requisite power
and authority to own and use its properties and assets and to carry on its
business as currently conducted. Neither the Company nor any Subsidiary is in
violation or default of any of the provisions of its respective certificate or
articles of incorporation, bylaws or other organizational or charter documents.
Each of the Company and the Subsidiaries is duly qualified to conduct business
and is in good standing as a foreign corporation or other entity in each
jurisdiction in which the nature of the business conducted or property owned by
it makes such qualification necessary, except where the failure to be so
qualified or in good standing, as the case may be, could not have or reasonably
be expected to result in (i) a material adverse effect on the legality, validity
or enforceability of any Transaction Document, (ii) a material adverse effect on
the results of operations, assets, business, prospects or condition (financial
or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a
material adverse effect on the Company’s ability to perform in any material
respect on a timely basis its obligations under any Transaction Document (any of
(i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding
has been instituted in any such jurisdiction revoking, limiting or curtailing or
seeking to revoke, limit or curtail such power and authority or qualification.

     (c)
Authorization; Enforcement. The Company has the requisite corporate power
and authority to enter into and to consummate the transactions contemplated by
each of the Transaction Documents and otherwise to carry out its obligations
hereunder and thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
action on the part of the Company and no further action is required by the
Company, its board of directors or its stockholders in connection therewith
other than in connection with the Required Approvals. Each Transaction Document
has been (or upon delivery will have been) duly executed by the Company and,
when delivered in accordance with the terms hereof and thereof, will constitute
the valid and binding obligation of the Company enforceable against the Company
in accordance with its terms except (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors’ rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable law.

     (d) No
Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company, the issuance and sale of the Shares and the
consummation by the Company of the other transactions contemplated hereby and
thereby do not and will not (i) conflict with or violate any provision of the
Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws
or other organizational or charter documents, or (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, result in the creation of any Lien upon any of
the properties or assets of the Company or any Subsidiary, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which 

8

the Company or any Subsidiary is a
party or by which any property or asset of the Company or any Subsidiary is
bound or affected, or (iii) subject to the Required Approvals, conflict with or
result in a violation of any law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or governmental authority to which the
Company or a Subsidiary is subject (including federal and state securities laws
and regulations), or by which any property or asset of the Company or a
Subsidiary is bound or affected; except in the case of each of clauses (ii) and
(iii), such as could not have or reasonably be expected to result in a Material
Adverse Effect. 

     (e)
Filings, Consents and Approvals. The Company is not required to obtain
any consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other than
(i) filings required pursuant to Section 4.4 of this Agreement, (ii) the filing
with the Commission of the Registration Statement, (iii) application(s) to each
applicable Trading Market for the listing of the Securities for trading thereon
in the time and manner required thereby, and (iv) the filing of Form D with the
Commission and such filings as are required to be made under applicable state
securities laws (collectively, the “Required Approvals”). 

     (f)
Issuance of the Securities. The Securities are duly authorized and, when
issued and paid for in accordance with the applicable Transaction Documents,
will be duly and validly issued, fully paid and nonassessable, free and clear of
all Liens imposed by the Company other than restrictions on transfer provided
for in the Transaction Documents. The Warrant Shares, when issued in accordance
with the terms of the Transaction Documents, will be validly issued, fully paid
and nonassessable, free and clear of all Liens imposed by the Company. The
Company has reserved from its duly authorized capital stock the maximum number
of shares of Common Stock issuable pursuant to this Agreement and the Warrants.

     (g)
Capitalization. The capitalization of the Company is as set forth on
Schedule 3.1(g). The Company has not issued any capital stock since its
most recently filed periodic report under the Exchange Act, other than pursuant
to the exercise of employee stock options under the Company’s stock option
plans, the issuance of shares of Common Stock to employees pursuant to the
Company’s employee stock purchase plan and pursuant to the conversion or
exercise of Common Stock Equivalents outstanding as of the date of the most
recently filed periodic report under the Exchange Act. No Person has any right
of first refusal, preemptive right, right of participation, or any similar right
to participate in the transactions contemplated by the Transaction Documents.
Except as a result of the purchase and sale of the Securities and except as set
forth on Schedule 3.1(g), there are no outstanding options, warrants,
script rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or
exercisable or exchangeable for, or giving any Person any right to subscribe for
or acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of Common Stock or Common Stock
Equivalents. The issuance and sale of the Securities will not obligate the
Company to 

9

issue shares of Common Stock or other
securities to any Person (other than the Purchaser) and will not result in a
right of any holder of Company securities to adjust the exercise, conversion,
exchange or reset price under any of such securities. All of the outstanding
shares of capital stock of the Company are validly issued, fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, and none of such outstanding shares was issued in violation of
any preemptive rights or similar rights to subscribe for or purchase securities.
No further approval or authorization of any stockholder, the Board of Directors
of the Company or others is required for the issuance and sale of the
Securities. There are no stockholders agreements, voting agreements or other
similar agreements with respect to the Company’s capital stock to which the
Company is a party or, to the knowledge of the Company, between or among any of
the Company’s stockholders. 

     (h)
SEC Reports; Financial Statements. The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it
under the Securities Act and the Exchange Act, including pursuant to Section
13(a) or 15(d) thereof, for the two years preceding the date hereof (or such
shorter period as the Company was required by law or regulation to file such
material) (the foregoing materials, including the exhibits thereto and documents
incorporated by reference therein, being collectively referred to herein as the
“SEC Reports”) on a timely basis or has received a valid extension of
such time of filing and has filed any such SEC Reports prior to the expiration
of any such extension. As of their respective dates, the SEC Reports complied in
all material respects with the requirements of the Securities Act and the
Exchange Act, as applicable, and none of the SEC Reports, when filed, contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC Reports
comply in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect at the
time of filing. Such financial statements have been prepared in accordance with
United States generally accepted accounting principles applied on a consistent
basis during the periods involved (“GAAP”), except as may be otherwise
specified in such financial statements or the notes thereto and except that
unaudited financial statements may not contain all footnotes required by GAAP,
and fairly present in all material respects the financial position of the
Company and its consolidated subsidiaries as of and for the dates thereof and
the results of operations and cash flows for the periods then ended, subject, in
the case of unaudited statements, to normal, immaterial, year-end audit
adjustments. 

     (i)
Material Changes; Undisclosed Events, Liabilities or Developments. Since
the date of the latest audited financial statements included within the SEC
Reports, except as specifically disclosed in a subsequent SEC Report, (i) there
has been no event, occurrence or development that has had or that could
reasonably be expected to result in a Material Adverse Effect, (ii) the Company
has not incurred any liabilities (contingent or otherwise) other than (A) trade
payables and accrued expenses incurred in the ordinary course of business
consistent with past practice and (B) liabilities not required to be reflected
in the Company’s financial statements pursuant to GAAP or disclosed in filings

10

made with the Commission, (iii) the
Company has not altered its method of accounting, (iv) the Company has not
declared or made any dividend or distribution of cash or other property to its
stockholders or purchased, redeemed or made any agreements to purchase or redeem
any shares of its capital stock and (v) the Company has not issued any equity
securities to any officer, director or Affiliate, except pursuant to existing
Company stock option plans. The Company does not have pending before the
Commission any request for confidential treatment of information. Except for the
issuance of the Securities contemplated by this Agreement or as set forth on
Schedule 3.1(i), no event, liability or development has occurred or
exists with respect to the Company or its Subsidiaries or their respective
business, properties, operations or financial condition, that would be required
to be disclosed by the Company under applicable securities laws at the time this
representation is made that has not been publicly disclosed at least 1 Trading
Day prior to the date that this representation is made. 

     (j)
Litigation. There is no action, suit, inquiry, notice of violation,
proceeding or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company, any Subsidiary or any of their
respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an “Action”) which (i) adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Securities or (ii) could, if there were an unfavorable
decision, have or reasonably be expected to result in a Material Adverse Effect.
Neither the Company nor any Subsidiary, nor any director or officer thereof, is
or has been the subject of any Action involving a claim of violation of or
liability under federal or state securities laws or a claim of breach of
fiduciary duty. There has not been, and to the knowledge of the Company, there
is not pending or contemplated, any investigation by the Commission involving
the Company or any current or former director or officer of the Company. The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.

     (k)
Labor Relations. No material labor dispute exists or, to the knowledge of
the Company, is imminent with respect to any of the employees of the Company
which could reasonably be expected to result in a Material Adverse Effect. None
of the Company’s or its Subsidiaries’ employees is a member of a union that
relates to such employee’s relationship with the Company, and neither the
Company or any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that their relationships
with their employees are good. No executive officer, to the knowledge of the
Company, is, or is now expected to be, in violation of any material term of any
employment contract, confidentiality, disclosure or proprietary information
agreement or non-competition agreement, or any other contract or agreement or
any restrictive covenant, and the continued employment of each such executive
officer does not subject the Company or any of its Subsidiaries to any liability
with respect to any of the foregoing matters. The Company and its Subsidiaries
are in compliance with all U.S. federal, state, local and foreign laws and
regulations relating to employment and employment practices, terms and
conditions of employment and wages and hours, except 

11

where the failure to be in compliance
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. 

     (l)
Compliance. Neither the Company nor any Subsidiary (i) is in default
under or in violation of (and no event has occurred that has not been waived
that, with notice or lapse of time or both, would result in a default by the
Company or any Subsidiary under), nor has the Company or any Subsidiary received
notice of a claim that it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other agreement or instrument to
which it is a party or by which it or any of its properties is bound (whether or
not such default or violation has been waived), (ii) is in violation of any
order of any court, arbitrator or governmental body, or (iii) is or has been in
violation of any statute, rule or regulation of any governmental authority,
including without limitation all foreign, federal, state and local laws
applicable to its business and all such laws that affect the environment, except
in each case as could not have or reasonably be expected to result in a Material
Adverse Effect. 

     (m)
Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not have or reasonably be expected to result in a
Material Adverse Effect (“Material Permits”), and neither the
Company nor any Subsidiary has received any notice of proceedings relating to
the revocation or modification of any Material Permit. 

     (n)
Title to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them that is
material to the business of the Company and the Subsidiaries and good and
marketable title in all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and clear of all
Liens, except for Liens as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made of
such property by the Company and the Subsidiaries and Liens for the payment of
federal, state or other taxes, the payment of which is neither delinquent nor
subject to penalties. Any real property and facilities held under lease by the
Company and the Subsidiaries are held by them under valid, subsisting and
enforceable leases with which the Company and the Subsidiaries are in
compliance. 

     (o)
Patents and Trademarks. The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, trade secrets, inventions, copyrights,
licenses and other intellectual property rights and similar rights necessary or
material for use in connection with their respective businesses as described in
the SEC Reports and which the failure to so have could have a Material Adverse
Effect (collectively, the “Intellectual Property Rights”). Neither the
Company nor any Subsidiary has received a notice (written or otherwise) that the
Intellectual Property Rights used by the Company or any Subsidiary violates or
infringes upon the rights of any Person. To the knowledge of the Company, all
such Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights. The
Company and its 

12

Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of all of
their intellectual properties, except where failure to do so could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. 

     (p)
Insurance. The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which the Company and
the Subsidiaries are engaged, including, but not limited to, directors and
officers insurance coverage at least equal to the aggregate Subscription Amount.
Neither the Company nor any Subsidiary has any reason to believe that it will
not be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business without a significant increase in cost. 

     (q)
Transactions With Affiliates and Employees. Except as set forth in the
SEC Reports, none of the officers or directors of the Company and, to the
knowledge of the Company, none of the employees of the Company is presently a
party to any transaction with the Company or any Subsidiary (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner, in each case in excess of $60,000 other than (i) for payment of salary
or consulting fees for services rendered, (ii) reimbursement for expenses
incurred on behalf of the Company and (iii) for other employee benefits,
including stock option agreements under any stock option plan of the Company.

     (r)
Sarbanes-Oxley; Internal Accounting Controls. The Company is in material
compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are
applicable to it as of the Closing Date. The Company and the Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management’s general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
GAAP and to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management’s general or specific authorization, and (iv)
the recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
designed such disclosure controls and procedures to ensure that information
required to be disclosed by the Company in the reports it files or submits under
the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the Commission’s rules and forms. The Company’s
certifying officers have evaluated the effectiveness of the Company’s disclosure
controls and procedures as of the end of the period covered by the Company’s
most recently filed periodic report under the Exchange 

13

Act (such date, the “Evaluation
Date”). The Company presented in its most recently filed periodic report
under the Exchange Act the conclusions of the certifying officers about the
effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date. Since the Evaluation Date, there have
been no changes in the Company’s internal control over financial reporting (as
such term is defined in the Exchange Act) that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting. 

     (s)
Certain Fees. Except as set forth on Schedule 3.1(s), no brokerage
or finder’s fees or commissions are or will be payable by the Company to any
broker, financial advisor or consultant, finder, placement agent, investment
banker, bank or other Person with respect to the transactions contemplated by
the Transaction Documents. The Purchaser shall have no obligation with respect
to any fees or with respect to any claims made by or on behalf of other Persons
for fees of a type contemplated in this Section that may be due in connection
with the transactions contemplated by the Transaction Documents. 

     (t)
Private Placement. Assuming the accuracy of the Purchaser representations
and warranties set forth in Section 3.2, no registration under the Securities
Act is required for the offer and sale of the Securities by the Company to the
Purchaser as contemplated hereby. The issuance and sale of the Securities
hereunder does not contravene the rules and regulations of the Trading Market.

     (u)
Investment Company. The Company is not, and is not an Affiliate of, and
immediately after receipt of payment for the Securities, will not be or be an
Affiliate of, an “investment company” within the meaning of the Investment
Company Act of 1940, as amended. The Company shall conduct its business in a
manner so that it will not become subject to the Investment Company Act. 

     (v)
Registration Rights. Other than each of the Purchaser, no Person has any
right to cause the Company to effect the registration under the Securities Act
of any securities of the Company. 

     (w)
Listing and Maintenance Requirements. The Company’s Common Stock is
registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is likely to
have the effect of, terminating the registration of the Common Stock under the
Exchange Act nor has the Company received any notification that the Commission
is contemplating terminating such registration. The Company has not, in the 12
months preceding the date hereof, received notice from any Trading Market on
which the Common Stock is or has been listed or quoted to the effect that the
Company is not in compliance with the listing or maintenance requirements of
such Trading Market. The Company is, and has no reason to believe that it will
not in the foreseeable future continue to be, in compliance with all such
listing and maintenance requirements. 

     (x)
Application of Takeover Protections. The Company and its Board of
Directors have taken all necessary action, if any, in order to render
inapplicable any 

14

control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Company’s Certificate of
Incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to the Purchaser as a result of
the Purchaser and the Company fulfilling their obligations or exercising their
rights under the Transaction Documents, including without limitation as a result
of the Company’s issuance of the Securities and the Purchaser’s ownership of the
Securities. 

     (y)
Disclosure. Except with respect to the material terms and conditions of
the transactions contemplated by the Transaction Documents, the Company confirms
that, neither it nor any other Person acting on its behalf has provided any of
the Purchaser or their agents or counsel with any information that it believes
constitutes or might constitute material, non-public information. The Company
understands and confirms that the Purchaser will rely on the foregoing
representation in effecting transactions in securities of the Company. All
disclosure furnished by or on behalf of the Company to the Purchaser regarding
the Company, its business and the transactions contemplated hereby, including
the Disclosure Schedules to this Agreement, with respect to the representations
and warranties made herein are true and correct with respect to such
representations and warranties and do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. The press releases disseminated by the Company during the
twelve months preceding the date of this Agreement taken as a whole do not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements, in
light of the circumstances under which they were made and when made, not
misleading. The Company acknowledges and agrees that no Purchaser makes or has
made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section 3.2
hereof. 

     (z) No
Integrated Offering. Assuming the accuracy of the Purchaser’s
representations and warranties set forth in Section 3.2, neither the Company,
nor any of its affiliates, nor any Person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would cause this
offering of the Securities to be integrated with prior offerings by the Company
for purposes of the Securities Act or any applicable shareholder approval
provisions of any Trading Market on which any of the securities of the Company
are listed or designated. 

     (aa)
Solvency. Based on the financial condition of the Company as of the
Closing Date after giving effect to the receipt by the Company of the proceeds
from the sale of the Securities hereunder, (i) the fair saleable value of the
Company’s assets exceeds the amount that will be required to be paid on or in
respect of the Company’s existing debts and other liabilities (including known
contingent liabilities) as they mature; (ii) the Company’s assets do not
constitute unreasonably small capital to carry on its business as now conducted
and as proposed to be conducted including its capital needs taking into account
the particular capital requirements of the business conducted by the Company,
and projected capital requirements and capital availability thereof; and (iii)
the 

15

current cash flow of the Company,
together with the proceeds the Company would receive, were it to liquidate all
of its assets, after taking into account all anticipated uses of the cash, would
be sufficient to pay all amounts on or in respect of its liabilities when such
amounts are required to be paid. The Company does not intend to incur debts
beyond its ability to pay such debts as they mature (taking into account the
timing and amounts of cash to be payable on or in respect of its debt). The
Company has no knowledge of any facts or circumstances which lead it to believe
that it will file for reorganization or liquidation under the bankruptcy or
reorganization laws of any jurisdiction within one year from the Closing Date.
The SEC Reports set forth as of the dates thereof all outstanding secured and
unsecured Indebtedness of the Company or any Subsidiary, or for which the
Company or any Subsidiary has commitments. For the purposes of this Agreement,
“Indebtedness” shall mean (a) any liabilities for borrowed money or
amounts owed in excess of $50,000 (other than trade accounts payable incurred in
the ordinary course of business), (b) all guaranties, endorsements and other
contingent obligations in respect of Indebtedness of others, whether or not the
same are or should be reflected in the Company’s balance sheet (or the notes
thereto), except guaranties by endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of business; and
(c) the present value of any lease payments in excess of $50,000 due under
leases required to be capitalized in accordance with GAAP. Neither the Company
nor any Subsidiary is in default with respect to any Indebtedness. 

     (bb)
Tax Status. Except for matters that would not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company and each Subsidiary has filed all necessary federal, state
and foreign income and franchise tax returns and has paid or accrued all taxes
shown as due thereon, and the Company has no knowledge of a tax deficiency which
has been asserted or threatened against the Company or any Subsidiary. 

     (cc)
No General Solicitation. Neither the Company nor any person acting on
behalf of the Company has offered or sold any of the Securities by any form of
general solicitation or general advertising. The Company has offered the
Securities for sale only to the Purchaser and certain other “accredited
investors” within the meaning of Rule 501 under the Securities Act. 

     (dd)
Foreign Corrupt Practices. Neither the Company, nor to the knowledge of
the Company, any agent or other person acting on behalf of the Company, has (i)
directly or indirectly, used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is in violation of law, or (iv) violated in
any material respect any provision of the Foreign Corrupt Practices Act of 1977,
as amended. 

     (ee)
Accountants. The Company’s accountants are set forth on Schedule
3.1(ee) of the Disclosure Schedule. To the knowledge of the Company, such
accountants, who the Company expects will express their opinion with respect to
the 

16

financial statements to be included in
the Company’s Annual Report on Form 10-KSB for the year ending April 30, 2006,
are a registered public accounting firm as required by the Exchange Act. 

     (ff)
Acknowledgment Regarding Purchaser’s Purchase of Securities. The Company
acknowledges and agrees that each of the Purchaser is acting solely in the
capacity of an arm’s length purchaser with respect to the Transaction Documents
and the transactions contemplated thereby. The Company further acknowledges that
no Purchaser is acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to the Transaction Documents and the
transactions contemplated thereby and any advice given by any Purchaser or any
of their respective representatives or agents in connection with the Transaction
Documents and the transactions contemplated thereby is merely incidental to the
Purchaser’s purchase of the Securities. The Company further represents to the
Purchaser that the Company’s decision to enter into this Agreement and the other
Transaction Documents has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its representatives. 

     (gg)
Acknowledgement Regarding Purchaser’s Trading Activity. Anything in this
Agreement or elsewhere herein to the contrary notwithstanding (except for
Sections 3.2(f) and 4.15 hereof), it is understood and acknowledged by the
Company (i) that none of the Purchaser have been asked to agree, nor has any
Purchaser agreed, to desist from purchasing or selling, long and/or short,
securities of the Company, or “derivative” securities based on securities issued
by the Company or to hold the Securities for any specified term; (ii) that past
or future open market or other transactions by any Purchaser, including Short
Sales, and specifically including, without limitation, Short Sales or
“derivative” transactions, before or after the closing of this or future private
placement transactions, may negatively impact the market price of the Company’s
publicly-traded securities; and (iii) that the Purchaser shall not be deemed to
have any affiliation with or control over any arm’s length counter-party in any
“derivative” transaction. The Company further understands and acknowledges that
(a) the Purchaser may engage in hedging activities at various times during the
period that the Securities are outstanding, including, without limitation,
during the periods that the value of the Shares deliverable with respect to
Securities are being determined and (b) such hedging activities (if any) could
reduce the value of the existing stockholders’ equity interests in the Company
at and after the time that the hedging activities are being conducted. The
Company acknowledges that such aforementioned hedging activities do not
constitute a breach of any of the Transaction Documents. 

     (hh)
Regulation M Compliance. The Company has not, and will not during the
term of this Agreement, and to its knowledge no one acting on its behalf has, or
will during the term of this Agreement, (i) taken, directly or indirectly, any
action designed to cause or to result in the stabilization or manipulation of
the price of any security of the Company to facilitate the sale or resale of any
of the Securities, (ii) sold, bid for, purchased, or, paid any compensation for
soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay
to any person any compensation for soliciting another to purchase any other
securities of the Company, other than, in the case of clauses (ii) and 

17

(iii), compensation paid to the
Company’s placement agent in connection with the placement of the Securities.

     3.2 Representations and
Warranties of the Purchaser. Purchaser hereby represents and warrants as of
the date hereof and as of each Closing Date to the Company as follows: 

     (a)
Organization; Authority. Purchaser is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization with full right, corporate or partnership power and authority to
enter into and to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations hereunder and thereunder.
The execution, delivery and performance by the Purchaser of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate or similar action on the part of the Purchaser. Each Transaction
Document to which it is a party has been duly executed by the Purchaser, and
when delivered by the Purchaser in accordance with the terms hereof, will
constitute the valid and legally binding obligation of the Purchaser,
enforceable against it in accordance with its terms, except (i) as limited by
general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law. 

     (b)
Own Account. Purchaser understands that the Securities are “restricted
securities” and have not been registered under the Securities Act or any
applicable state securities law and is acquiring the Securities at the Initial
Closing as principal for its own account and not with a view to or for
distributing or reselling such Securities or any part thereof in violation of
the Securities Act or any applicable state securities law, has no present
intention of distributing any of such Securities in violation of the Securities
Act or any applicable state securities law and has no direct or indirect
arrangement or understandings with any other persons to distribute or regarding
the distribution of such Securities (this representation and warranty not
limiting the Purchaser’s right to sell the Securities pursuant to the
Registration Statement or otherwise in compliance with applicable federal and
state securities laws) in violation of the Securities Act or any applicable
state securities law. Purchaser is acquiring the Securities hereunder in the
ordinary course of its business. 

     (c)
Purchaser Status. At the time the Purchaser was offered the Securities,
it was, and at the date hereof it is, and on each date on which it exercises any
Warrants, it will be either: (i) an “accredited investor” as defined in Rule
501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a
“qualified institutional buyer” as defined in Rule 144A(a) under the Securities
Act. Purchaser is not required to be registered as a broker-dealer under Section
15 of the Exchange Act.

     (d)
Experience of Purchaser. Purchaser, either alone or together with its
representatives, has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of
the prospective investment in the Securities, and has so evaluated the merits
and risks of such investment.

18

Purchaser is able to bear the economic
risk of an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment. 

     (e)
General Solicitation. Purchaser is not purchasing the Securities as a
result of any advertisement, article, notice or other communication regarding
the Securities published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement. 

     (f)
Short Sales and Confidentiality Prior To The Date Hereof. Other than the
transaction contemplated hereunder, the Purchaser has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with the Purchaser, executed any transaction, including Short
Sales, in the securities of the Company during the period commencing from the
time that the Purchaser first received a term sheet (written or oral) from the
Company or any other Person setting forth the material terms of the transactions
contemplated hereunder until the date hereof (“Discussion Time”). Other
than to other Persons party to this Agreement, the Purchaser has maintained the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction). 

ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES 

4.1 Transfer Restrictions.

     (a) The
Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Securities other than
pursuant to an effective registration statement or Rule 144, to the Company or
to an affiliate of the Purchaser or in connection with a pledge as contemplated
in Section 4.1(b), the Company may require the transferor thereof to provide to
the Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such transferred Securities under the Securities
Act. As a condition of transfer, any such transferee shall agree in writing to
be bound by the terms of this Agreement and shall have the rights of the
Purchaser under this Agreement and the Registration Rights Agreement, as to
issued Securities only. 

     (b) The
Purchaser agrees to the imprinting, so long as is required by this Section 4.1,
of a legend on any of the Securities in the following form: 

THESE SECURITIES HAVE NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR 

19

PURSUANT TO AN AVAILABLE EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A
REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN
“ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR
OTHER LOAN SECURED BY SUCH SECURITIES. 

     The
Company acknowledges and agrees that the Purchaser may from time to time pledge
pursuant to a bona fide margin agreement with a registered broker-dealer or
grant a security interest in some or all of the Securities to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this Agreement
and the Registration Rights Agreement and, if required under the terms of such
arrangement, the Purchaser may transfer pledged or secured Securities to the
pledgees or secured parties. Such a pledge or transfer would not be subject to
approval of the Company and no legal opinion of legal counsel of the pledgee,
secured party or pledgor shall be required in connection therewith. Further, no
notice shall be required of such pledge. At the Purchaser’s expense, the Company
will execute and deliver such reasonable documentation as a pledgee or secured
party of Securities may reasonably request in connection with a pledge or
transfer of the Securities, including, if the Securities are subject to
registration pursuant to the Registration Rights Agreement, the preparation and
filing of any required prospectus supplement under Rule 424(b)(3) under the
Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of Selling Stockholders thereunder. 

     (c)
Certificates evidencing the Shares and Warrant Shares shall not contain any
legend (including the legend set forth in Section 4.1(b)), (i) while a
registration statement (including the Registration Statement) covering the
resale of such security is effective under the Securities Act, or (ii) following
any sale of such Shares or Warrant Shares pursuant to Rule 144, or (iii) if such
Shares or Warrant Shares are eligible for sale under Rule 144(k), or (iv) if
such legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the Commission). The Company shall cause its counsel to issue a legal opinion to
the Company’s transfer agent promptly after the Effective Date if required by
the Company’s transfer agent to effect the removal of the legend hereunder. If
all or any portion of a Warrant is exercised at a time when there is an
effective registration statement to cover the resale of the Warrant Shares, such
Warrant Shares shall be issued free of all legends. The Company agrees that
following the Effective Date or at such time as such legend is no longer
required under this Section 4.1(c), it will, no later than three Trading Days
following the delivery by the Purchaser to the Company or the Company’s transfer
agent of a certificate representing Shares or Warrant Shares, as the case may
be, issued with a restrictive legend (such third Trading Day, the “Legend
Removal Date”), deliver or cause 

20

to be delivered to the Purchaser a
certificate representing such shares that is free from all restrictive and other
legends. All Draw Down Shares shall be delivered without any restrictive
legends. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company that enlarge the restrictions
on transfer set forth in this Section. Certificates for Securities subject to
legend removal hereunder shall be transmitted by the transfer agent of the
Company to the Purchaser by crediting the account of the Purchaser’s prime
broker with the Depository Trust Company System. 

     (d) In
addition to the Purchaser’s other available remedies, the Company shall pay to
the Purchaser, in cash, as partial liquidated damages and not as a penalty, for
each $1,000 of Shares or Warrant Shares (based on the Closing Price of the
Common Stock on the date such Securities are submitted to the Company’s transfer
agent) delivered for removal of the restrictive legend and subject to Section
4.1(c), $10 per Trading Day (increasing to $20 per Trading Day five (5) Trading
Days after such damages have begun to accrue) for each Trading Day after the
2nd Trading Day following the Legend Removal Date until such
certificate is delivered without a legend. Nothing herein shall limit the
Purchaser’s right to pursue actual damages for the Company’s failure to deliver
certificates representing any Securities as required by the Transaction
Documents, and the Purchaser shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief. 

     (e)
Purchaser agrees that the removal of the restrictive legend from certificates
representing Securities as set forth in this Section 4.1 is predicated upon the
Company’s reliance that the Purchaser will sell any Securities pursuant to
either the registration requirements of the Securities Act, including any
applicable prospectus delivery requirements, or an exemption therefrom, and that
if Securities are sold pursuant to a Registration Statement, they will be sold
in compliance with the plan of distribution set forth therein. 

     4.2 Furnishing of
Information. As long as Purchaser owns any Securities, the Company covenants
to timely file (or obtain extensions in respect thereof and file within the
applicable grace period) all reports required to be filed by the Company after
the date hereof pursuant to the Exchange Act. As long as the Purchaser owns any
Securities, if the Company is not required to file reports pursuant to the
Exchange Act, it will prepare and furnish to the Purchaser and make publicly
available in accordance with Rule 144(c) such information as is required for the
Purchaser to sell the Securities under Rule 144. The Company further covenants
that it will take such further action as any holder of Securities may reasonably
request, to the extent required from time to time to enable such Person to sell
such Securities without registration under the Securities Act within the
requirements of the exemption provided by Rule 144. 

     4.3 Integration. The
Company shall not sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Securities in a
manner that would require the registration under the Securities Act of the sale
of the Securities to the Purchaser or that would be integrated with the offer or
sale of the Securities for purposes of the rules and regulations of any Trading
Market such that it would require shareholder approval prior to the closing of
such 

21

other transaction unless shareholder approval is obtained
before the closing of such subsequent transaction. 

     4.4 Securities Laws
Disclosure; Publicity. The Company shall, by 8:30 a.m. Eastern time on the
Trading Day immediately following the date hereof, issue a Current Report on
Form 8-K, disclosing the material terms of the transactions contemplated hereby,
and shall attach the Transaction Documents thereto. The Company and the
Purchaser shall consult with each other in issuing any other press releases with
respect to the transactions contemplated hereby, and neither the Company nor the
Purchaser shall issue any such press release or otherwise make any such public
statement without the prior consent of the Company, with respect to any press
release of the Purchaser, or without the prior consent of the Purchaser, with
respect to any press release of the Company, which consent shall not
unreasonably be withheld or delayed, except if such disclosure is required by
law, in which case the disclosing party shall promptly provide the other party
with prior notice of such public statement or communication.

     4.5 Shareholder Rights
Plan. No claim will be made or enforced by the Company or, with the consent
of the Company, any other Person, that the Purchaser is an “Acquiring Person”
under any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or similar anti-takeover
plan or arrangement in effect or hereafter adopted by the Company, or that the
Purchaser could be deemed to trigger the provisions of any such plan or
arrangement, by virtue of receiving Securities under the Transaction Documents
or under any other agreement between the Company and the Purchaser. 

     4.6 Non-Public
Information. Except with respect to the material terms and conditions of the
transactions contemplated by the Transaction Documents, the Company covenants
and agrees that neither it nor any other Person acting on its behalf will
provide the Purchaser or its agents or counsel with any information that the
Company believes constitutes material non-public information, unless prior
thereto the Purchaser shall have executed a written agreement regarding the
confidentiality and use of such information. The Company understands and
confirms that the Purchaser shall be relying on the foregoing representations in
effecting transactions in securities of the Company. 

     4.7 Indemnification of
Purchaser. Subject to the provisions of this Section 4.7, the Company will
indemnify and hold the Purchaser and its directors, officers, shareholders,
members, partners, employees and agents (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title), each Person who controls the Purchaser
(within the meaning of Section 15 of the Securities Act and Section 20 of the
Exchange Act), and the directors, officers, shareholders, agents, members,
partners or employees (and any other Persons with a functionally equivalent role
of a Person holding such titles notwithstanding a lack of such title or any
other title) of such controlling persons (each, a “Purchaser Party”)
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation that any the Purchaser Party may suffer or incur as a result of or
relating to (a) any breach of any of the representations, warranties, covenants
or agreements made by the Company in this Agreement or in the other Transaction
Documents or (b) any action instituted against the Purchaser, or any of its
Affiliates, by any stockholder of the Company who is not an Affiliate of the
Purchaser, with 

22

respect to any of the transactions contemplated by the
Transaction Documents (unless such action is based upon a breach of the
Purchaser’s representations, warranties or covenants under the Transaction
Documents or any agreements or understandings the Purchaser may have with any
such stockholder or any violations by the Purchaser of state or federal
securities laws or any conduct by the Purchaser which constitutes fraud, gross
negligence, willful misconduct or malfeasance). If any action shall be brought
against any Purchaser Party in respect of which indemnity may be sought pursuant
to this Agreement, the Purchaser Party shall promptly notify the Company in
writing, and the Company shall have the right to assume the defense thereof with
counsel of its own choosing reasonably acceptable to the Purchaser Party. Any
Purchaser Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of the Purchaser Party except to the extent that
(i) the employment thereof has been specifically authorized by the Company in
writing, (ii) the Company has failed after a reasonable period of time to assume
such defense and to employ counsel or (iii) in such action there is, in the
reasonable opinion of such separate counsel, a material conflict on any material
issue between the position of the Company and the position of the Purchaser
Party, in which case the Company shall be responsible for the reasonable fees
and expenses of no more than one such separate counsel. The Company will not be
liable to any Purchaser Party under this Agreement (i) for any settlement by the
Purchaser Party effected without the Company’s prior written consent, which
shall not be unreasonably withheld or delayed; or (ii) to the extent, but only
to the extent that a loss, claim, damage or liability is attributable to any
Purchaser Party’s breach of any of the representations, warranties, covenants or
agreements made by the Purchaser Party in this Agreement or in the other
Transaction Documents. 

     4.8 Reservation of Common
Stock. As of the date hereof, the Company has reserved and the Company shall
continue to reserve and keep available at all times, free of preemptive rights,
a sufficient number of shares of Common Stock for the purpose of enabling the
Company to issue Shares pursuant to this Agreement and Warrant Shares pursuant
to any exercise of the Warrants.

     4.9 Listing of Common
Stock. The Company hereby agrees to use best efforts to maintain the listing
of the Common Stock on a Trading Market, and as soon as reasonably practicable
following the Initial Closing (but not later than the Effective Date) to list
all of the Shares and Warrant Shares on such Trading Market. The Company further
agrees, if the Company applies to have the Common Stock traded on any other
Trading Market, it will include in such application all of the Shares and
Warrant Shares, and will take such other action as is necessary to cause all of
the Shares and Warrant Shares to be listed on such other Trading Market as
promptly as possible. The Company will take all action reasonably necessary to
continue the listing and trading of its Common Stock on a Trading Market and
will comply in all respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of the Trading Market. 

     4.10 Short Sales and
Confidentiality After The Date Hereof. Purchaser covenants that neither it
nor any Affiliate acting on its behalf or pursuant to any understanding with it
will execute any Short Sales during the period commencing at the Discussion Time
and ending at the time that the transactions contemplated by this Agreement are
first publicly announced as described in Section 4.4. Purchaser covenants that
until such time as the transactions 

23

contemplated by this Agreement are publicly disclosed by the
Company as described in Section 4.4, the Purchaser will maintain the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction). Purchaser
understands and acknowledges that the Commission currently takes the position
that coverage of short sales of shares of the Common Stock “against the box”
prior to the Effective Date of the Registration Statement with the Securities is
a violation of Section 5 of the Securities Act, as set forth in Item 65, Section
A, of the Manual of Publicly Available Telephone Interpretations, dated July
1997, compiled by the Office of Chief Counsel, Division of Corporation Finance.
Notwithstanding the foregoing, the Purchaser makes no representation, warranty
or covenant hereby that it will not engage in Short Sales in the securities of
the Company after the time that the transactions contemplated by this Agreement
are first publicly announced as described in Section 4.4. 

     4.11 Form D; Blue Sky
Filings. The Company agrees to timely file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof,
promptly upon request of any Purchaser. The Company shall take such action as
the Company shall reasonably determine is necessary in order to obtain an
exemption for, or to qualify the Securities for, sale to the Purchaser at the
Closing under applicable securities or “Blue Sky” laws of the states of the
United States, and shall provide evidence of such actions promptly upon request
of Purchaser. 

     4.12 The Shares. Anything
in this Agreement to the contrary notwithstanding, the Company may not make a
Draw Down to the extent that such Draw Down exceeds 4.999% of the then issued
and outstanding shares of Common Stock as reported in the Company’s most recent
periodic report filed with the Commission. 

     4.13 Accuracy of Registration
Statement. On each Settlement Date, the Registration Statement and the
prospectus therein (including any prospectus supplement) shall not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein not
misleading in light of the circumstances under which they were made; and on such
Settlement Date the Registration Statement and the prospectus therein will not
include any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however, the
Company makes no representations or warranties as to the information contained
in or omitted from the Registration Statement and the prospectus therein in
reliance upon and in conformity with the information furnished in writing to the
Company by the Purchaser specifically for inclusion in the Registration
Statement and the prospectus therein. 

     4.14 Notice of Certain Events
Affecting Registration; Suspension of Right to Request a Draw Down.
The Company will promptly notify the Purchaser in writing upon the occurrence of
any of the events set forth in Section 3(d) of the Registration Rights
Agreement. The Company shall not deliver to the Purchaser any Draw Down Notice
during the continuation of any of the foregoing events. The Company shall
promptly make available to the Purchaser any such supplements or amendments to
the related prospectus, at which time, provided that the registration statement
and any supplements and amendments thereto are then effective, the Company may
recommence the delivery of Draw Down Notices. 

24

4.15 Participation in Future
Financing.

     (a)
During the Commitment Period, upon any issuance by the Company or any of its
Subsidiaries of Common Stock or Common Stock Equivalents for cash consideration
of less than $5 million (a “Subsequent Financing”), each Purchaser shall
have the right to participate in up to an amount of the Subsequent Financing
equal to 100% of the Subsequent Financing (the “Participation Maximum”)
on the same terms, conditions and price provided for in the Subsequent
Financing. 

     (b) At
least 5 Trading Days prior to the closing of the Subsequent Financing, the
Company shall deliver to each Purchaser a written notice of its intention to
effect a Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask
such Purchaser if it wants to review the details of such financing (such
additional notice, a “Subsequent Financing Notice”). Upon the
request of a Purchaser, and only upon a request by such Purchaser, for a
Subsequent Financing Notice, the Company shall promptly, but no later than 1
Trading Day after such request, deliver a Subsequent Financing Notice to such
Purchaser. The Subsequent Financing Notice shall describe in reasonable detail
the proposed terms of such Subsequent Financing, the amount of proceeds intended
to be raised thereunder and the Person or Persons through or with whom such
Subsequent Financing is proposed to be effected and shall include a term sheet
or similar document relating thereto as an attachment. 

     (c) Any
Purchaser desiring to participate in such Subsequent Financing must provide
written notice to the Company by not later than 5:30 p.m. (New York City time)
on the 5th Trading Day after all of the Purchasers have received the
Pre-Notice that the Purchaser is willing to participate in the Subsequent
Financing, the amount of the Purchaser’s participation, and that the Purchaser
has such funds ready, willing, and available for investment on the terms set
forth in the Subsequent Financing Notice. If the Company receives no notice from
a Purchaser as of such 5th Trading Day, such Purchaser shall be
deemed to have notified the Company that it does not elect to participate. 

     (d) If by
5:30 p.m. (New York City time) on the 5th Trading Day after all of
the Purchasers have received the Pre-Notice, notifications by the Purchasers of
their willingness to participate in the Subsequent Financing (or to cause their
designees to participate) is, in the aggregate, less than the total amount of
the Subsequent Financing, then the Company may effect the remaining portion of
such Subsequent Financing on the terms and with the Persons set forth in the
Subsequent Financing Notice. 

     (e) If by
5:30 p.m. (New York City time) on the 5th Trading Day after all of
the Purchasers have received the Pre-Notice, the Company receives responses to a
Subsequent Financing Notice from Purchasers seeking to purchase more than the
aggregate amount of the Participation Maximum, each such Purchaser shall have
the right to purchase the greater of (a) their Pro Rata Portion (as defined
below) of the Participation Maximum and (b) the difference between the
Participation Maximum and the aggregate amount of participation by all other
Purchasers. “Pro Rata Portion” is the ratio of (x) the Subscription
Amount of Securities purchased on the Closing Date by a Purchaser participating
under this Section 4.15 and (y) the sum of the aggregate 

25

Subscription Amounts of Securities
purchased on the Closing Date by all Purchasers participating under this Section
4.15. 

     (f) The
Company must provide the Purchasers with a second Subsequent Financing Notice,
and the Purchasers will again have the right of participation set forth above in
this Section 4.15, if the Subsequent Financing subject to the initial Subsequent
Financing Notice is not consummated for any reason on the terms set forth in
such Subsequent Financing Notice within 60 Trading Days after the date of the
initial Subsequent Financing Notice. 

     (g)
Notwithstanding the foregoing, this Section 4.15 shall not apply in respect of
(i) an Exempt Issuance or (ii) an underwritten public offering of Common Stock.

4.16 Subsequent Equity
Sales.

     (a) From
the date hereof until 3 months after the Effective Date and during the 60 day
period following any Draw Down Pricing Period, neither the Company nor any
Subsidiary shall issue shares of Common Stock or Common Stock Equivalents;
provided, however, the 3 month period set forth in this Section
4.16 shall be extended for the number of Trading Days during such period in
which (i) trading in the Common Stock is suspended by any Trading Market, or
(ii) following the Effective Date, the Registration Statement is not effective
or the prospectus included in the Registration Statement may not be used by the
Purchasers for the resale of the Shares and Warrant Shares. Notwithstanding the
foregoing, this Section 4.16(a) shall not apply in respect of (i) an Exempt
Issuance, except that no Variable Rate Transaction shall be an Exempt Issuance,
and (ii) a private placement of Common Stock or Common Stock Equivalents
provided that the Company does not grant registration rights in respect of such
securities to the holders thereof. 

     (b) Until
the earlier of (i) the expiration of the Commitment Period or (ii) the sale of
$5,000,000 of Securities to the Purchaser pursuant to this Agreement, the
Company shall be prohibited from effecting or entering into an agreement to
effect any Subsequent Financing involving a “Variable Rate Transaction”. The
term “Variable Rate Transaction” shall mean a transaction in which
the Company issues or sells (i) any debt or equity securities that are
convertible into, exchangeable or exercisable for, or include the right to
receive additional shares of Common Stock either (A) at a conversion, exercise
or exchange rate or other price that is based upon and/or varies with the
trading prices of or quotations for the shares of Common Stock at any time after
the initial issuance of such debt or equity securities, or (B) with a
conversion, exercise or exchange price that is subject to being reset at some
future date after the initial issuance of such debt or equity security or upon
the occurrence of specified or contingent events directly or indirectly related
to the business of the Company or the market for the Common Stock or (ii) enters
into any agreement, including, but not limited to, an equity line of credit,
whereby the Company may sell securities at a future determined price. Any
Purchaser shall be entitled to obtain injunctive relief against the Company to
preclude any such issuance, which remedy shall be in addition to any right to
collect damages.

26

ARTICLE V.
CONDITIONS TO INITIAL CLOSING AND DRAW
DOWNS 

     5.1 Conditions Precedent to
the Obligation of the Company to Sell the Shares. The obligation hereunder
of the Company to proceed to close this Agreement and to issue and sell the
Shares to the Purchaser is subject to the satisfaction or waiver, at or before
the Initial Closing, and as of each Settlement Date of each of the conditions
set forth below. These conditions are for the Company's sole benefit and may be
waived by the Company in writing at any time in its sole discretion. 

     (a)
Accuracy of the Purchaser's Representations and Warranties. The
representations and warranties of the Purchaser shall be true and correct in all
material respects as of the date when made and as of the Initial Closing and as
of each Settlement Date as though made at that time (except for representations
and warranties that speak as of a particular date, which shall be true and
correct in all material respects as of such dates). 

     (b)
Performance by the Purchaser. The Purchaser shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Purchaser at or prior to the Initial Closing and as of each
Settlement Date. 

     (c) No
Injunction. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement. 

     (d) No
Proceedings or Litigation. No material Action shall have been commenced
against the Purchaser or the Company or any subsidiary, or any of the officers,
directors or affiliates of the Company or any subsidiary, seeking to restrain,
prevent or change the transactions contemplated by this Agreement, or seeking
damages in connection with such transactions.

     (e)
Initial Closing Deliveries. The delivery by the Purchaser of the items
set forth in Section 2.2(b) of this Agreement. 

     5.2 Conditions Precedent to
the Obligation of the Purchaser to Close. The obligation hereunder of the
Purchaser to perform its obligations under this Agreement and to purchase the
Shares is subject to the satisfaction or waiver, at or before the Initial
Closing, of each of the conditions set forth below. These conditions are for the
Purchaser's sole benefit and may be waived by the Purchaser in writing at any
time in its sole discretion. 

     (a) Accuracy of the Company's
Representations and Warranties. Each of the representations and warranties
of the Company shall be true and correct in all material respects as of the date
when made and as of the Initial Closing as though made at that time (except for
representations and warranties that speak as of a particular date, which shall
be true and correct in all material respects as of such date). 

27

     (b) Performance by the
Company. The Company shall have performed, satisfied and complied in all
material respects with all material covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Initial Closing. 

     (c) No Injunction. No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation of any of
the transactions contemplated by this Agreement. 

     (d) No Proceedings or
Litigation. No material Action shall have been commenced, against the
Purchaser or the Company or any subsidiary, or any of the officers, directors or
affiliates of the Company or any subsidiary seeking to restrain, prevent or
change the transactions contemplated by this Agreement, or seeking damages in
connection with such transactions. 

     (e) Initial Closing
Deliveries. The delivery by the Company of the items set forth in Section
2.2(a) of this Agreement.

     5.3 Conditions Precedent to
the Obligation of the Purchaser to Accept a Draw Down and Purchase the
Shares. The obligation hereunder of the Purchaser to accept a Draw Down
request and to acquire and pay for the Shares is subject to the satisfaction at
or before each Settlement Date, of each of the conditions set forth below. 

     (a) Satisfaction of Conditions
to Initial Closing. The Company shall have satisfied at the Initial Closing,
or the Purchaser shall have waived at the Initial Closing, the conditions set
forth in Section 5.2 hereof. 

     (b) No Suspension. Trading
in the Common Stock shall not have been suspended by the SEC or the Trading
Market (except for any suspension of trading of limited duration agreed to by
the Company, which suspension shall be terminated prior to the delivery of each
Draw Down Notice), and, at any time prior to such Draw Down Notice, trading in
securities generally as reported on the Trading Market shall not have been
suspended or limited, or minimum prices shall not have been established on
securities whose trades are reported on the Trading Market unless the general
suspension or limitation shall have been terminated prior to the delivery of
such Draw Down Notice. 

     (c) Material Adverse
Effect. No Material Adverse Effect and no Consolidation Event where the
successor entity has not agreed to deliver to the Purchaser such shares of stock
and/or securities as the Purchaser is entitled to receive pursuant to this
Agreement. 

     (d) Opinion of Counsel.
The Purchaser shall have received a “bring-down” letter from the Company’s
counsel, confirming that there is no change from the counsel’s previously
delivered opinion, or else specifying with particularity the reason for any
change and an opinion as to the additional items specified in Exhibit B
hereto. 

28

     (e) Minimum Investment
Amount. The Investment Amount for the applicable Draw Down Notice, as
permitted pursuant to Section 6.1(c), shall exceed $150,000. For purposes of
clarification, if the maximum Investment Amount as determined pursuant to
Section 6.1(c) is less than $150,000, then the Company shall be precluded from
exercising a Draw Down at such time. 

     (f) Prior Issuances.
During the 60 days immediately prior to the Draw Down Pricing Period the Company
shall have not issued shares of Common Stock or Common Stock Equivalents other
than pursuant to an Exempt Issuance. 

     (g) Equity Conditions.
During the Draw Down Pricing Period through the Settlement Date, all of the
Equity Conditions shall have been met. 

ARTICLE VI.

DRAW DOWN TERMS 

     6.1 Draw Down Terms.
Subject to the satisfaction of the conditions set forth in this Agreement, the
parties agree as follows: 

     (a) The
Company may, in its sole discretion, issue and exercise draw downs against the
Commitment Amount (each a “Draw Down”) during the Commitment Period,
which Draw Downs the Purchaser shall be obligated to accept, subject to the
terms and conditions of this Agreement. Before the Company shall exercise a Draw
Down, the Company shall have caused a sufficient number of shares of Common
Stock to be registered to cover the Shares to be issued in connection with such
Draw Down, and, on or before the Trading Day that such request is made, the
Company shall have filed with the Commission a prospectus supplement pursuant to
Rule 424 under the Securities Act setting forth the terms of the Draw Down. 

     (b) Only
one Draw Down shall be allowed in each Draw Down Pricing Period and the Company
may not exercise a Draw Down until the applicable Trading Cushion has elapsed
since the end of the previous Draw Down Pricing Period. The number of shares of
Common Stock purchased by the Purchaser with respect to each Draw Down shall be
determined as set forth in Section 6.1(d) herein and settled on the first
Trading Day immediately after each Draw Down Pricing Period (each such
settlement date, a “Settlement Date”). 

     (c)
Subject to Section 4.12, the maximum Investment Amount as to each Draw Down
shall be equal to the lesser of (i) $750,000 or (ii) 200% of the product of the
(A) the average of the 20 VWAPs immediately prior to the date that the
applicable Draw Down Notice is delivered to the Purchaser and (B) the average
daily trading volume during such 20 Trading Days immediately prior to the date
that the applicable Draw Down Notice is delivered to the Purchaser. 

     (d)
Subject to the adjustment set forth below, the number of Shares to be issued on
each Settlement Date shall be the greater of (i) the Investment Amount divided

29

by 85% of the average of the 3 lowest
Closing Prices during the applicable Draw Down Pricing Period provided that if,
on account of the adjustments set forth below, the number of Trading Days in a
Draw Down Pricing Period is less than 3, 85% of the average of the Trading
Day(s) in such Draw Down Pricing Period; and (ii) the number of shares equal to
the sum of the quotients (for each Trading Day within the Draw Down Pricing
Period) of (x) 1/10th of the Investment Amount and (y) 85% of the
VWAP on each Trading Day within the Draw Down Pricing Period. The number of
Shares issuable as to any Draw Down Pricing Period shall be adjusted as follows:

     (i) if
the Closing Price on a given Trading Day during a Draw Down Pricing Period is
less than the Threshold Price, then that portion of the Investment Amount to be
paid on the immediately pending Settlement Date shall be reduced by
1/10th for each such Trading Day during the Draw Down Pricing Period
and such Trading Day(s) shall be withdrawn from the Draw Down Pricing Period
calculations set forth above; 

     (ii) if
during any Trading Day during the Draw Down Pricing Period trading of the Common
Stock on the Trading Market is suspended for more than 3 hours, in the
aggregate, or if any Trading Day during the Draw Down Pricing Period is
shortened because of a public holiday, then that portion of the Investment
Amount to be paid on the immediately pending Settlement Date shall be reduced by
an amount equal to 1/10th for each such Trading Day during the Draw
Down Pricing Period and such Trading Day(s) shall be withdrawn from the Draw
Down Pricing Period calculations set forth above; and 

     (iii) if
during any Trading Day during the Draw Down Pricing Period sales of Draw Down
Shares pursuant to the Registration Statement are suspended by the Company for
more than three (3) hours, in the aggregate, then that portion of the Investment
Amount to be paid on the immediately pending Settlement Date shall be reduced by
an amount equal to 1/10th for each such Trading Day during the Draw
Down Pricing Period and such Trading Day(s) shall be withdrawn from the Draw
Down Pricing Period calculations set forth above. 

     (e) The
Company must inform the Purchaser by delivering a draw down notice, in the form
of Exhibit D hereto (the “Draw Down Notice”), via facsimile
transmission in accordance with Section 8.3, as to the amount of the Draw Down
(the “Investment Amount”) the Company wishes to exercise. The Draw Down
Notice shall also inform the Purchaser of the first day of the Draw Down Pricing
Period (the “Commencement Date”); provided; however, if the
Commencement Date is the date on which the Draw Down Notice is delivered, the
Draw Down Notice must delivered to the Purchaser at least 1 hour before trading
commences on such Trading Day. At no time shall the Purchaser be required to
purchase more than the maximum Investment Amount for a given Draw Down Pricing
Period. 

     (f) On
the Trading Day immediately following the last day of the Draw Down Pricing
Period, the Company shall deliver and the Purchaser shall acknowledge a
settlement statement (the “Settlement Statement”) setting forth the
number of Draw 

30

Down Shares issuable and the
calculation thereof. Promptly upon execution of the Settlement Statement (but in
no event more than 1 Trading day after the execution of such Settlement
Statement), the Draw Down Shares purchased pursuant to such Settlement Statement
shall be: 

     (i)
delivered to the Depository Trust Company (“DTC”) account of the
Purchaser, or its designees, as designated by the Purchaser in the Settlement
Statement, via DTC’s Deposit Withdrawal Agent Commission system (“DWAC”).
Upon the Company electronically delivering such Draw Down Shares to the DTC
account of the Purchaser, or its designees, via DWAC by 1:00 p.m. ET, the
Purchaser shall, on the same day (or the next Business Day if such day is not a
Business Day) wire transfer immediately available funds to the Company’s bank
account, as designated by the Company in the Settlement Statement, for the
amount of the aggregate Investment Amount of such Draw Down Shares less an
origination fee equal to 1% of the aggregate Investment Amount of such Draw Down
which shall be retained by the Purchaser. Upon the Company electronically
delivering the Draw Down Shares to the Purchaser or its designee’s DTC account
via DWAC after 1:00 p.m. ET, the Purchaser shall wire transfer next day
available funds to the Company’s designated account on such day; or 

     (ii)
With the prior consent of the Purchaser, delivered by the Company to Purchaser
(or its designee) to the address as designated in the Settlement Statement, the
unlegended physical certificate for the Shares which shall be so delivered in
lieu of the electronic delivery via DTC’s DWAC and in accordance with the terms
of this Agreement. 

     (g) The
Company understands that a delay in the delivery of the Shares to the Purchaser
beyond the Settlement Date could result in economic loss to the Purchaser. In
addition to the Purchaser’s other available remedies, the Company shall pay to
the Purchaser, in cash, as partial liquidated damages and not as a penalty, for
each $1,000 of Shares (based on the Closing Price of the Common Stock on the
applicable Settlement Date) required to be delivered on the Settlement Date, $10
per Trading Day (increasing to $20 per Trading Day five (5) Trading Days after
such damages have begun to accrue) for each Trading Day after the 2nd
Trading Day following the Settlement Date until such Shares are delivered
pursuant to this Article VI. Nothing herein shall limit the Purchaser’s right to
pursue actual damages for the Company’s failure to deliver certificates
representing any Securities as required by the Transaction Documents, and the
Purchaser shall have the right to pursue all remedies available to it at law or
in equity including, without limitation, a decree of specific performance and/or
injunctive relief. 

ARTICLE VII. 

TERMINATION 

31

     7.1 Term. The term of this
Agreement shall begin on the date hereof and shall end 36 months from the
Effective Date or as otherwise set forth in Section 7.2. 

     7.2 Other Termination. 

     (a) This
Agreement shall terminate if (i) the Common Stock is de-listed from the Trading
Market unless such de-listing is in connection with a subsequent listing on
another Trading Market, (ii) the Company files for protection from creditors
under any applicable law, (iii) the Registration Statement is not declared
effective by the Commission on the 9-month anniversary of the date hereof or
(iv) at the sole option of the Company with notice to the Purchaser, the
Registration Statement is not declared effective by the Commission on the 6
month anniversary of the date hereof. 

     (b) The
Company may terminate this Agreement upon 5 Trading Day’s notice if the
Purchaser shall fail to fund a properly noticed Draw Down within 5 Trading Days
of the end of the applicable Draw Down Pricing Period. 

     7.3 Effect of Termination.
In the event of termination of this Agreement pursuant to Section 7.2 herein,
written notice thereof shall forthwith be given to the other party and the
transactions contemplated by this Agreement shall be terminated without further
action by either party. If this Agreement is terminated as provided in Section
7.1 or 7.2 herein, this Agreement shall become void and of no further force and
effect, except for Section 4.7 and Article 8 herein, which shall survive the
termination of this Agreement. Nothing in this Section 7.3 shall be deemed to
release the Company or the Purchaser from any liability for any breach under
this Agreement, or to impair the rights of the Company or the Purchaser to
compel specific performance by the other party of its obligations under this
Agreement. 

ARTICLE VIII. 

MISCELLANEOUS 

     8.1 Fees and Expenses. At
the Closing, the Company has agreed to reimburse the Purchaser the
non-accountable sum of $15,000, for its legal fees and expenses, $10,000 which
has been paid prior to the Closing. The Company shall deliver, prior to the
Closing, a completed and executed copy of the Closing Statement, attached hereto
as Annex A. Except as expressly set forth in the Transaction Documents to
the contrary, each party shall pay the fees and expenses of its advisers,
counsel, accountants and other experts, if any, and all other expenses incurred
by such party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all transfer agent fees,
stamp taxes and other taxes and duties levied in connection with the delivery of
any Securities to the Purchaser. 

     8.2 Entire Agreement. The
Transaction Documents, together with the exhibits and schedules thereto, contain
the entire understanding of the parties with respect to the subject matter
hereof and supersede all prior agreements and understandings, oral or written,
with respect to such matters, which the parties acknowledge have been merged
into such documents, exhibits and schedules. 

32

     8.3 Notices. Any and all
notices or other communications or deliveries required or permitted to be
provided hereunder shall be in writing and shall be deemed given and effective
on the earliest of (a) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile number set forth on the signature
pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading Day,
(b) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth on
the signature pages attached hereto on a day that is not a Trading Day or later
than 5:30 p.m. (New York City time) on any Trading Day, (c) the 2nd
Trading Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service, or (d) upon actual receipt by the party to whom such
notice is required to be given. The address for such notices and communications
shall be as set forth on the signature pages attached hereto. 

     8.4 Amendments; Waivers.
No provision of this Agreement may be waived or amended except in a written
instrument signed, in the case of an amendment, by the Company and the Purchaser
or, in the case of a waiver, by the party against whom enforcement of any such
waived provision is sought. No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of any party to exercise any right hereunder in any manner
impair the exercise of any such right. 

     8.5 Headings. The headings
herein are for convenience only, do not constitute a part of this Agreement and
shall not be deemed to limit or affect any of the provisions hereof. 

     8.6 Successors and
Assigns. This Agreement shall be binding upon and inure to the benefit of
the parties and their successors. Neither party may assign this Agreement or any
rights or obligations hereunder (other than by merger).

     8.7 No Third-Party
Beneficiaries. This Agreement is intended for the benefit of the parties
hereto and their respective successors and permitted assigns and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person,
except as otherwise set forth in Section 4.7. 

     8.8 Governing Law. All
questions concerning the construction, validity, enforcement and interpretation
of the Transaction Documents shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York, without regard to
the principles of conflicts of law thereof. Each party agrees that all legal
proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement and any other Transaction Documents
(whether brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced exclusively in
the state and federal courts sitting in the City of New York. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper or is an 

33

inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any other manner permitted by law. The
parties hereby waive all rights to a trial by jury. If either party shall
commence an action or proceeding to enforce any provisions of the Transaction
Documents, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its reasonable attorneys’ fees and other costs
and expenses incurred with the investigation, preparation and prosecution of
such action or proceeding. 

     8.9 Survival. The
representations and warranties contained herein shall survive the Closing and
the delivery of the Shares and Warrant Shares. 

     8.10 Execution. This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission or by e-mail delivery of a “.pdf” format data file, such signature
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) with the same force and effect as if such
facsimile or “.pdf” signature page were an original thereof. 

     8.11 Severability. If any
term, provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their commercially reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable. 

     8.12 Replacement of
Securities. If any certificate or instrument evidencing any Securities is
mutilated, lost, stolen or destroyed, the Company shall issue or cause to be
issued in exchange and substitution for and upon cancellation thereof (in the
case of mutilation), or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction. The applicant for a new certificate
or instrument under such circumstances shall also pay any reasonable third-party
costs (including customary indemnity) associated with the issuance of such
replacement Securities. 

     8.13 Remedies. In addition
to being entitled to exercise all rights provided herein or granted by law,
including recovery of damages, each of the Purchaser and the Company will be
entitled to specific performance under the Transaction Documents. The parties
agree that monetary damages may not be adequate compensation for any loss
incurred by reason of any 

34

breach of obligations contained in the Transaction Documents
and hereby agrees to waive and not to assert in any action for specific
performance of any such obligation the defense that a remedy at law would be
adequate. 

     8.14 Liquidated Damages.
The Company’s obligations to pay any partial liquidated damages or other amounts
owing under the Transaction Documents is a continuing obligation of the Company
and shall not terminate until all unpaid partial liquidated damages and other
amounts have been paid notwithstanding the fact that the instrument or security
pursuant to which such partial liquidated damages or other amounts are due and
payable shall have been canceled. 

     8.15 Construction. The
parties agree that each of them and/or their respective counsel has reviewed and
had an opportunity to revise the Transaction Documents and, therefore, the
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of the Transaction Documents or any amendments hereto. 

(Signature Pages Follow) 

35

      IN WITNESS WHEREOF, the parties
hereto have caused this Securities Purchase Agreement to be duly executed by
their respective authorized signatories as of the date first indicated above.

	REGI U.S., INC. 	Address for Notice: 
	  	1103-11871 Horseshoe Way 
	  	Richmond, British Columbia 
	  	V7A 5H5, Canada 
	By: __________________________________________ 	Tel: (604) 278-5996 
	       Name: 	Fax: 
	       Title: 	Attn: 
	  	E-Mail: 

With a copy to (which shall not constitute notice): 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE
FOR PURCHASER FOLLOWS] 

36

[PURCHASER SIGNATURE PAGES TO RGUS SECURITIES PURCHASE
AGREEMENT] 

     IN WITNESS WHEREOF, the
undersigned have caused this Securities Purchase Agreement to be duly executed
by their respective authorized signatories as of the date first indicated above.

	Name of Purchaser: Dresden Investments Ltd. 	 
	 	 
	Signature of Authorized Signatory of Purchaser: 	 
	 	 
	Name of Authorized Signatory: 	 
	 	 
	Title of Authorized Signatory: 	 
	 	 
	Email Address of Purchaser: 	 
	 	 
	Fax Number of Purchaser: 	 

Address for Notice of Purchaser: 

Address for Delivery of Securities for Purchaser (if not same
as above): 

[SIGNATURE PAGES CONTINUE] 

37

SECURITY PURCHASE AGREEMENT

SCHEDULE 3.1(a)

Subsidiaries

 

None 

38

SECURITY PURCHASE AGREEMENT

SCHEDULE 3.1(g)

Capitalization 

The total issued and outstanding shares of common stock of the
Company as of November 2, 2006, is 25,939,625. 

As of November 2, 2006, the following share purchase warrants
were outstanding: 

	             
       Number of Warrants 	           
       Exercise Price 	           
           Expiry Date 
	315,000 	$0.80/$1.00 	November 30, 2006/2007 
	405,000 	$0.80/$1.00 	April 26, 2007/2008 

As of November 2, 2006, the following options were outstanding:

	               
       Number of Options 	           
       Exercise Price 	           
           Expiry Date 
	18,750 	$0.20 	November 29, 2006 
	570,000 	$0.20 	March 15, 2007 
	75,000 	$0.20 	May 10, 2007 
	150,000 	$0.25 	September 10, 2008 
	100,000 	$0.35 	December 2, 2008 
	13,500 	$0.25 	May 25, 2009 
	50,000 	$0.35 	September 30, 2009 
	62,500 	$0.45 	May 27, 2010 
	75,000 	$2.20 	April 21, 2011 
	25,000 	$2.09 	June 29, 2011 
	125,000 	$1.37 	November 1, 2011 

Voting Trust Agreement dated August 31, 2006 whereby Access
Information Services Inc.,
Rainbow Network, JGR Petroleum, Inc., Information
Highway.com, Inc. and IAS
Communication, Inc. assigned their voting rights in
REGI US, Inc. to Rand Energy Group Inc.

39

SECURITY PURCHASE AGREEMENT 

SCHEDULE 3.1(i) 

Material Changes; Undisclosed Events, Liabilities or
Developments 

None

40

SECURITY PURCHASE AGREEMENT

SCHEDULE 3.1(s)

Fees 

For the Three Hundred Thousand Dollar ($300,000) loan
financing, the Company is obligated to pay JH Darbie and Co. a cash fee equal to
eight percent (8%) of the aggregate gross proceeds and warrants to purchase the
number of shares of stock equal to eight percent (8%) of the aggregate gross
proceeds.

For the Equity Line of Credit, the Company is obligated to pay
JH Darbie warrants to purchase a number of shares of stock equal to eight
percent (8%) of the equity line of credit and a cash fee equal to five percent
(5%) of each draw down by the Company. 

41

SECURITY PURCHASE AGREEMENT

SCHEDULE 3.1(ee)

Accountants 

For fiscal year 2006: 

Smythe Ratcliffe LLP
355 Burrard Street
Vancouver, BC V6E
2G8
Canada 

For fiscal year 2005 and prior: 

Manning Elliot LLP
1050 West Pender Street
Vancouver, BC
V6E 3S7
Canada 

42Filed by Automated Filing Services Inc. (604) 609-0244 - Regi U.S., Inc. - Exhibit 10.2

EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT 

EXHIBIT A 

REGISTRATION RIGHTS AGREEMENT 

     This Registration Rights
Agreement (this “Agreement”) is made and entered into as of November 14,
2006, among Regi U.S., an Oregon corporation (the “Company”) and Dresden
Investments Ltd. (“Purchaser”). 

     This Agreement is made pursuant
to the Securities Purchase Agreement, dated as of the date hereof between the
Company and the Purchaser (the “Purchase Agreement”). 

     The Company and Purchaser hereby
  agrees as follows: 

     1. Definitions.
Capitalized terms used and not otherwise defined herein that are defined in the
Purchase Agreement shall have the meanings given such terms in the Purchase
Agreement. As used in this Agreement, the following terms shall have the
following meanings: 

    
“Advice” shall have the meaning set forth in Section 6(d). 

     “Effectiveness Date” means,
with respect to the initial Registration Statement required to be filed
hereunder, the 120th calendar day following the date hereof. 

    
“Effectiveness Period” shall have the meaning set forth in Section 2(a).

     “Filing Date” means, with
respect to the Registration Statement required hereunder, the 45th
calendar day following the date hereof. 

     “Holder” or “Holders”
means the holder or holders, as the case may be, from time to time of
Registrable Securities. 

    
“Indemnified Party” shall have the meaning set forth in Section 5(c).
“Indemnifying Party” shall have the meaning set forth in Section 5(c).
“Losses” shall have the meaning set forth in Section 5(a). 

     “Plan of
Distribution” shall have the meaning set forth in Section 2(a).

     
“Prospectus” means the prospectus included in a Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by a
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus. 

1 

     “Registrable Securities”
means all of (i) the Draw Down Shares issuable, (ii) the Warrant Shares
issuable, (iii) any additional shares issuable in connection with any
anti-dilution provisions in the Warrants (without giving effect to any
limitations on exercise set forth in the Warrant) and (iv) any shares of Common
Stock issued or issuable upon any stock split, dividend or other distribution,
recapitalization or similar event with respect to the foregoing.

     “Registration Statement”
means the registration statement required to be filed hereunder, including (in
each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement. 

     “Rule
415” means Rule 415 promulgated by the Commission pursuant to the Securities
Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same
purpose and effect as such Rule. 

     “Rule
424” means Rule 424 promulgated by the Commission pursuant to the Securities
Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same
purpose and effect as such Rule. 

     “Selling Shareholder
Questionnaire” shall have the meaning set forth in Section 3(a). 

2. Shelf Registration. 

     (a) On or
prior to the Filing Date, the Company shall prepare and file with the Commission
a “Shelf” Registration Statement covering the resale of the Registrable
Securities for an offering to be made by the Holder(s) on a continuous basis
pursuant to Rule 415. The Registration Statement shall be on Form S-3 (except if
the Company is not then eligible to register for resale the Registrable
Securities on Form S-3, in which case such registration shall be on another
appropriate form in accordance herewith) and shall contain substantially the
“Plan of Distribution” attached hereto as Annex A. Subject to the
terms of this Agreement, the Company shall use its best efforts to cause a
Registration Statement to be declared effective under the Securities Act as
promptly as possible after the filing thereof, but in any event prior to the
applicable Effectiveness Date, and shall use its best efforts to keep such
Registration Statement continuously effective under the Securities Act until all
Registrable Securities covered by such Registration Statement have been sold, or
may be sold without volume restrictions pursuant to Rule 144(k), or the
Commitment Period has expired and no Registrable Securities are then outstanding
or may become outstanding on the exercise of any Warrant, as determined by the
counsel to the Company pursuant to a written opinion letter to such effect,
addressed and acceptable to the Company’s transfer agent and the affected Holder
(the “Effectiveness Period”). The Company shall promptly notify the
Holder via facsimile of the effectiveness of a Registration Statement on the
same Trading 

2 

Day that the Company telephonically
confirms effectiveness with the Commission. The Company shall file a final
Prospectus with the Commission as required by Rule 424. 

     (b) If
after the Effective Date, a Registration Statement ceases for any reason to
remain continuously effective as to all Registrable Securities for which it is
required to be effective, or the Holder is otherwise not permitted to utilize
the Prospectus therein to resell such Registrable Securities, for more than 10
consecutive calendar days or more than an aggregate of 15 calendar days during
any 12-month period (which need not be consecutive calendar days) (any such
failure or breach being referred to as an “Event” and the date on which
such 10 or 15 calendar day period, as applicable, is exceeded being referred to
as “Event Date”), then, in addition to any other rights the Holder may
have hereunder or under applicable law, on each such Event Date and on each
monthly anniversary of each such Event Date (if the applicable Event shall not
have been cured by such date) until the applicable Event is cured, the Company
shall pay to the Holder an amount in cash, as partial liquidated damages and not
as a penalty, equal to 2% of the aggregate purchase price paid by such Holder
for any Registrable Securities then held by such Holder. If the Company fails to
pay any partial liquidated damages pursuant to this Section in full within seven
days after the date payable, the Company will pay interest thereon at a rate of
18% per annum (or such lesser maximum amount that is permitted to be paid by
applicable law) to the Holder, accruing daily from the date such partial
liquidated damages are due until such amounts, plus all such interest thereon,
are paid in full. The partial liquidated damages pursuant to the terms hereof
shall apply on a daily pro-rata basis for any portion of a month prior to the
cure of an Event. 

3. Registration Procedures 

     In
connection with the Company’s registration obligations hereunder, the Company
shall: 

     (a) Not
less than five Trading Days prior to the filing of the Registration Statement
and not less than 1 Trading Day prior to the filing of any related Prospectus or
any amendment or supplement thereto (including any document that would be
incorporated or deemed to be incorporated therein by reference), the Company
shall, (i) furnish to Holder copies of all such documents proposed to be filed,
which documents (other than those incorporated or deemed to be incorporated by
reference) will be subject to the review of Holder, and (ii) cause its officers
and directors, counsel and independent certified public accountants to respond
to such inquiries as shall be necessary, in the reasonable opinion of respective
counsel to Holder to conduct a reasonable investigation within the meaning of
the Securities Act. The Company shall not file a Registration Statement or any
such Prospectus or any amendments or supplements thereto to which the Holder
shall reasonably object in good faith, provided that, the Company is notified of
such objection in writing no later than 5 Trading Days after the Holder has been
so furnished copies of a Registration Statement or 1 Trading Day after the
Holder has been so furnished copies of any related Prospectus or amendment or
supplement thereto. Holder agrees to furnish to the Company a completed
Questionnaire in the form attached to this Agreement as Annex B (a “Selling
Shareholder Questionnaire”) not less than two 

3 

Trading Days prior to the Filing Date
or by the end of the fourth Trading Day following the date on which such Holder
receives draft materials in accordance with this Section. 

     (b) (i)
Prepare and file with the Commission such amendments, including post-effective
amendments, to the Registration Statement and the Prospectus used in connection
therewith as may be necessary to keep the Registration Statement continuously
effective as to the applicable Registrable Securities for the Effectiveness
Period and prepare and file with the Commission such additional Registration
Statements in order to register for resale under the Securities Act all of the
Registrable Securities; (ii) cause the related Prospectus to be amended or
supplemented by any required Prospectus supplement (subject to the terms of this
Agreement), and as so supplemented or amended to be filed pursuant to Rule 424;
(iii) respond as promptly as reasonably possible to any comments received from
the Commission with respect to the Registration Statement or any amendment
thereto and as promptly as reasonably possible provide the Holder true and
complete copies of all correspondence from and to the Commission relating to the
Registration Statement (provided that the Company may excise any information
contained therein which would constitute material non-public information as to
Holder); and (iv) comply in all material respects with the provisions of the
Securities Act and the Exchange Act with respect to the disposition of all
Registrable Securities covered by a Registration Statement during the applicable
period in accordance (subject to the terms of this Agreement) with the intended
methods of disposition by the Holder set forth in such Registration Statement as
so amended or in such Prospectus as so supplemented. 

     (c) If
during the Effectiveness Period, the number of Registrable Securities at any
time exceeds 100% of the number of shares of Common Stock then registered in a
Registration Statement, then the Company shall file as soon as reasonably
practicable but in any case prior to the applicable Filing Date, an additional
Registration Statement covering the resale by the Holder of not less than 100%
of the number of such Registrable Securities. 

     (d)
Notify the Holder of Registrable Securities to be sold (which notice shall,
pursuant to clauses (iii) through (vi) hereof, be accompanied by an instruction
to suspend the use of the Prospectus until the requisite changes have been made)
as promptly as reasonably possible (and, in the case of (i)(A) below, not less
than 1 Trading Day prior to such filing) and (if requested by any such Person)
confirm such notice in writing no later than one Trading Day following the day
(i)(A) when a Prospectus or any Prospectus supplement or post-effective
amendment to a Registration Statement is proposed to be filed; (B) when the
Commission notifies the Company whether there will be a “review” of such
Registration Statement and whenever the Commission comments in writing on such
Registration Statement; and (C) with respect to a Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to a Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission or any other
federal or state governmental authority of any stop order suspending the
effectiveness of a Registration Statement covering any or all of the Registrable
Securities or the initiation of any Proceedings for that purpose; (iv) of the
receipt by the Company of any notification with respect to the suspension of the

4 

qualification or exemption from
qualification of any of the Registrable Securities for sale in any jurisdiction,
or the initiation or threatening of any Proceeding for such purpose; (v) of the
occurrence of any event or passage of time that makes the financial statements
included in a Registration Statement ineligible for inclusion therein or any
statement made in a Registration Statement or Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to a Registration Statement,
Prospectus or other documents so that, in the case of a Registration Statement
or the Prospectus, as the case may be, it will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and (vi) the
occurrence or existence of any pending corporate development with respect to the
Company that the Company believes may be material and that, in the determination
of the Company, makes it not in the best interest of the Company to allow
continued availability of a Registration Statement or Prospectus; provided that
any and all of such information shall remain confidential to Holder until such
information otherwise becomes public, unless disclosure by Holder is required by
law; provided, further, notwithstanding Holder’s agreement to keep
such information confidential, the Holder makes no acknowledgement that any such
information is material, non-public information. 

     (e) Use
its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal
of (i) any order suspending the effectiveness of a Registration Statement, or
(ii) any suspension of the qualification (or exemption from qualification) of
any of the Registrable Securities for sale in any jurisdiction, at the earliest
practicable moment. 

     (f)
Furnish to Holder, without charge, at least one conformed copy of each such
Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference to the extent requested by such Person, and
all exhibits to the extent requested by such Person (including those previously
furnished or incorporated by reference) promptly after the filing of such
documents with the Commission. 

     (g)
Subject to the terms of this Agreement, the Company hereby consents to the use
of such Prospectus and each amendment or supplement thereto by the Holder in
connection with the offering and sale of the Registrable Securities covered by
such Prospectus and any amendment or supplement thereto, except after the giving
of any notice pursuant to Section 3(d). 

     (h) If
NASDR Rule 2710 requires any broker-dealer to make a filing prior to executing a
sale by Holder, the Company shall (i) make an Issuer Filing with the NASDR, Inc.
Corporate Financing Department pursuant to proposed NASDR Rule
2710(b)(10)(A)(i), (ii) respond within five Trading Days to any comments
received from NASDR in connection therewith, and (iii) pay the filing fee
required in connection therewith. 

     (i) Prior
to any resale of Registrable Securities by Holder, use its commercially
reasonable efforts to register or qualify or cooperate with the Holder in 

5 

connection with the registration or
qualification (or exemption from the Registration or qualification) of such
Registrable Securities for the resale by the Holder under the securities or Blue
Sky laws of such jurisdictions within the United States as Holder reasonably
requests in writing, to keep each registration or qualification (or exemption
therefrom) effective during the Effectiveness Period and to do any and all other
acts or things reasonably necessary to enable the disposition in such
jurisdictions of the Registrable Securities covered by the Registration
Statement; provided, that the Company shall not be required to qualify generally
to do business in any jurisdiction where it is not then so qualified, subject
the Company to any material tax in any such jurisdiction where it is not then so
subject or file a general consent to service of process in any such
jurisdiction. 

     (j) If
requested by the Holder, cooperate with the Holder to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be delivered to a transferee pursuant to the Registration Statement, which
certificates shall be free, to the extent permitted by the Purchase Agreement,
of all restrictive legends, and to enable such Registrable Securities to be in
such denominations and registered in such names as Holder may request. 

     (k) Upon
the occurrence of any event contemplated by this Section 3, as promptly as
reasonably possible under the circumstances taking into account the Company’s
good faith assessment of any adverse consequences to the Company and its
stockholders of the premature disclosure of such event, prepare a supplement or
amendment, including a post-effective amendment, to the Registration Statement
or a supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. If the Company notifies the Holder in accordance with clauses
(iii) through (vi) of Section 3(d) above to suspend the use of any Prospectus
until the requisite changes to such Prospectus have been made, then the Holder
shall suspend use of such Prospectus. The Company will use its best efforts to
ensure that the use of the Prospectus may be resumed as promptly as is
practicable.

     (l) Comply
with all applicable rules and regulations of the Commission. 

     (m) The
Company may require the Holder to furnish to the Company a certified statement
as to the number of shares of Common Stock beneficially owned by the Holder and,
if required by the Commission, the natural persons thereof that have voting and
dispositive control over the Shares. The Holder acknowledges that it will be
named as an “underwriter” of the Registrable Securities in the Prospectus, as
requried by Commission policies. 

     4. Registration Expenses.
All fees and expenses incident to the performance of or compliance with this
Agreement by the Company shall be borne by the Company whether or not any
Registrable Securities are sold pursuant to the Registration Statement. The fees
and 

6 

expenses referred to in the foregoing sentence shall include,
without limitation, (i) all registration and filing fees (including, without
limitation, fees and expenses (A) with respect to filings required to be made
with any Trading Market on which the Common Stock is then listed for trading,
(B) in compliance with applicable state securities or Blue Sky laws reasonably
agreed to by the Company in writing (including, without limitation, fees and
disbursements of counsel for the Company in connection with Blue Sky
qualifications or exemptions of the Registrable Securities) and (C) if not
previously paid by the Company in connection with an Issuer Filing, with respect
to any filing that may be required to be made by any broker through which a
Holder intends to make sales of Registrable Securities with NASD Regulation,
Inc. pursuant to the NASD Rule 2710, so long as the broker is receiving no more
than a customary brokerage commission in connection with such sale, (ii)
printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities, (iii) messenger, telephone and delivery
expenses, (iv) fees and disbursements of counsel for the Company, (v) Securities
Act liability insurance, if the Company so desires such insurance, and (vi) fees
and expenses of all other Persons retained by the Company in connection with the
consummation of the transactions contemplated by this Agreement. In addition,
the Company shall be responsible for all of its internal expenses incurred in
connection with the consummation of the transactions contemplated by this
Agreement (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit and the fees and expenses incurred in connection with the
listing of the Registrable Securities on any securities exchange as required
hereunder. In no event shall the Company be responsible for any broker or
similar commissions of Holder or, except to the extent provided for in the
Transaction Documents, any legal fees or other costs of the Holder. 

5. Indemnification 

     (a)
Indemnification by the Company. The Company shall, notwithstanding any
termination of this Agreement, indemnify and hold harmless Holder, the officers,
directors, members, partners, agents, brokers (including brokers who offer and
sell Registrable Securities as principal as a result of a pledge or any failure
to perform under a margin call of Common Stock), investment advisors and
employees (and any other Persons with a functionally equivalent role of a Person
holding such titles, notwithstanding a lack of such title or any other title) of
Holder, each Person who controls Holder (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) and the officers, directors,
members, shareholders, partners, agents and employees (and any other Persons
with a functionally equivalent role of a Person holding such titles,
notwithstanding a lack of such title or any other title)of each such controlling
Person, to the fullest extent permitted by applicable law, from and against any
and all losses, claims, damages, liabilities, costs (including, without
limitation, reasonable attorneys’ fees) and expenses (collectively,
“Losses”), as incurred, arising out of or relating to (1) any untrue or
alleged untrue statement of a material fact contained in a Registration
Statement, any Prospectus or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading, or (2) any violation
or alleged violation by the Company of the Securities 

7 

Act, Exchange Act or any state
securities law, or any rule or regulation thereunder, in connection with the
performance of its obligations under this Agreement, except to the extent, but
only to the extent, that (i) such untrue statements or omissions are based
solely upon information regarding Holder furnished in writing to the Company by
Holder expressly for use therein, or to the extent that such information relates
to Holder or Holder’s proposed method of distribution of Registrable Securities
and was reviewed and expressly approved in writing by Holder expressly for use
in a Registration Statement, such Prospectus or such form of Prospectus or in
any amendment or supplement thereto (it being understood that the Holder has
approved Annex A hereto for this purpose) or (ii) in the case of an occurrence
of an event of the type specified in Section 3(d)(iii)-(vi), the use by Holder
of an outdated or defective Prospectus after the Company has notified Holder in
writing that the Prospectus is outdated or defective and prior to the receipt by
Holder of the Advice contemplated in Section 6(d). The Company shall notify the
Holder promptly of the institution, threat or assertion of any Proceeding
arising from or in connection with the transactions contemplated by this
Agreement of which the Company is aware. 

     (b)
Indemnification by Holder. Holder shall, severally and not jointly,
indemnify and hold harmless the Company, its directors, officers, agents and
employees, each Person who controls the Company (within the meaning of Section
15 of the Securities Act and Section 20 of the Exchange Act), and the directors,
officers, agents or employees of such controlling Persons, to the fullest extent
permitted by applicable law, from and against all Losses, as incurred, to the
extent arising out of or based solely upon: (x) Holder’s failure to comply with
the prospectus delivery requirements of the Securities Act or (y) any untrue or
alleged untrue statement of a material fact contained in any Registration
Statement, any Prospectus, or any form of prospectus, or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein not misleading (i) to
the extent, but only to the extent, that such untrue statement or omission is
contained in any information so furnished in writing by Holder to the Company
specifically for inclusion in such Registration Statement or such Prospectus or
(ii) to the extent that such information relates to Holder’s proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by Holder expressly for use in a Registration Statement (it being
understood that the Holder has approved Annex A hereto for this purpose), such
Prospectus or such form of Prospectus or in any amendment or supplement thereto
or (iii) in the case of an occurrence of an event of the type specified in
Section 3(d)(iii)-(vi), the use by Holder of an outdated or defective Prospectus
after the Company has notified Holder in writing that the Prospectus is outdated
or defective and prior to the receipt by Holder of the Advice contemplated in
Section 6(d). In no event shall the liability of Holder hereunder be greater in
amount than the dollar amount of the net proceeds received by Holder upon the
sale of the Registrable Securities giving rise to such indemnification
obligation. 

     (c)
Conduct of Indemnification Proceedings. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an
“Indemnified Party”), such Indemnified Party shall promptly notify
the Person from whom indemnity 

8 

is sought (the “Indemnifying
Party”) in writing, and the Indemnifying Party shall have the right to
assume the defense thereof, including the employment of counsel reasonably
satisfactory to the Indemnified Party and the payment of all fees and expenses
incurred in connection with defense thereof; provided, that the failure of any
Indemnified Party to give such notice shall not relieve the Indemnifying Party
of its obligations or liabilities pursuant to this Agreement, except (and only)
to the extent that it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal or further review)
that such failure shall have prejudiced the Indemnifying Party. 

     An
Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless: (1) the Indemnifying Party has agreed in writing to pay such fees and
expenses; (2) the Indemnifying Party shall have failed promptly to assume the
defense of such Proceeding and to employ counsel reasonably satisfactory to such
Indemnified Party in any such Proceeding; or (3) the named parties to any such
Proceeding (including any impleaded parties) include both such Indemnified Party
and the Indemnifying Party, and counsel to the Indemnified Party shall
reasonably believe that a material conflict of interest is likely to exist if
the same counsel were to represent such Indemnified Party and the Indemnifying
Party (in which case, if such Indemnified Party notifies the Indemnifying Party
in writing that it elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the right to assume
the defense thereof and the reasonable fees and expenses of no more than one
separate counsel shall be at the expense of the Indemnifying Party). The
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be unreasonably
withheld or delayed. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any pending
Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on claims that are the subject matter of such Proceeding. 

     Subject
to the terms of this Agreement, all reasonable fees and expenses of the
Indemnified Party (including reasonable fees and expenses to the extent incurred
in connection with investigating or preparing to defend such Proceeding in a
manner not inconsistent with this Section) shall be paid to the Indemnified
Party, as incurred, within ten Trading Days of written notice thereof to the
Indemnifying Party; provided, that the Indemnified Party shall promptly
reimburse the Indemnifying Party for that portion of such fees and expenses
applicable to such actions for which such Indemnified Party is judicially
determined to be not entitled to indemnification hereunder. 

     (d)
Contribution. If the indemnification under Section 5(a) or 5(b) is
unavailable to an Indemnified Party or insufficient to hold an Indemnified Party
harmless for any Losses, then each Indemnifying Party shall contribute to the
amount paid or payable by such Indemnified Party, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified 

9 

Party shall be determined by reference
to, among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission of a
material fact, has been taken or made by, or relates to information supplied by,
such Indemnifying Party or Indemnified Party, and the parties’ relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a result
of any Losses shall be deemed to include, subject to the limitations set forth
in this Agreement, any reasonable attorneys’ or other fees or expenses incurred
by such party in connection with any Proceeding to the extent such party would
have been indemnified for such fees or expenses if the indemnification provided
for in this Section was available to such party in accordance with its terms.

     The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 5(d) were determined by pro rata allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), Holder shall not be
required to contribute, in the aggregate, any amount in excess of the amount by
which the net proceeds actually received by Holder from the sale of the
Registrable Securities subject to the Proceeding exceeds the amount of any
damages that Holder has otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission, except in the case
of fraud by Holder. 

     The
indemnity and contribution agreements contained in this Section are in addition
to any liability that the Indemnifying Parties may have to the Indemnified
Parties. 

6. Miscellaneous 

     (a)
Remedies. In the event of a breach by the Company or by the Holder, of
any of their respective obligations under this Agreement, Holder or the Company,
as the case may be, in addition to being entitled to exercise all rights granted
by law and under this Agreement, including recovery of damages, will be entitled
to specific performance of its rights under this Agreement. The Company and
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall not assert or shall
waive the defense that a remedy at law would be adequate. 

     (b) No
Piggyback on Registrations. Neither the Company nor any of its security
holders (other than the Holder in such capacity pursuant hereto) may include
securities of the Company in the Registration Statement other than the
Registrable Securities. The Company shall not file any other registration
statements until 90 days following the date that the Registration Statement
required hereunder is declared effective by the Commission, provided that this
Section 6(b) shall not prohibit the Company from filing amendments to
registration statements already filed. 

10 

     (c)
Compliance. Holder covenants and agrees that it will comply with the
prospectus delivery requirements of the Securities Act as applicable to it in
connection with sales of Registrable Securities pursuant to a Registration
Statement. 

     (d)
Discontinued Disposition. Holder agrees by its acquisition of Registrable
Securities that, upon receipt of a notice from the Company of the occurrence of
any event of the kind described in Section 3(d), Holder will forthwith
discontinue disposition of such Registrable Securities under a Registration
Statement until it is advised in writing (the “Advice”) by the Company
that the use of the applicable Prospectus (as it may have been supplemented or
amended) may be resumed. The Company will use its best efforts to ensure that
the use of the Prospectus may be resumed as promptly as it practicable.

     (e)
Amendments and Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the same shall be in writing and signed by the Company and each Holder of
the then outstanding Registrable Securities. Notwithstanding the foregoing, a
waiver or consent to depart from the provisions hereof with respect to a matter
that relates exclusively to the rights of Holder and that does not directly or
indirectly affect the rights of other Holder may be given by Holder of all of
the Registrable Securities to which such waiver or consent relates;
provided, however, that the provisions of this sentence may not be
amended, modified, or supplemented except in accordance with the provisions of
the immediately preceding sentence. 

     (f)
Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be delivered as set forth
in the Purchase Agreement. 

     (g)
Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors. Neither party may assign this
Agreement or any rights or obligations hereunder (other than by merger). 

     (h) No
Inconsistent Agreements. Neither the Company nor any of its Subsidiaries has
entered, as of the date hereof, nor shall the Company or any of its
Subsidiaries, on or after the date of this Agreement, enter into any agreement
with respect to its securities, that would have the effect of impairing the
rights granted to the Holder in this Agreement or otherwise conflicts with the
provisions hereof. Except as set forth on Schedule 6(i), neither the
Company nor any of its subsidiaries has previously entered into any agreement
granting any registration rights with respect to any of its securities to any
Person that have not been satisfied in full. 

     (i)
Execution and Counterparts. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission or by e-mail delivery of a “.pdf” format
data file, such signature shall create a valid and 

11 

binding obligation of the party
executing (or on whose behalf such signature is executed) with the same force
and effect as if such facsimile or “.pdf” signature page were an original
thereof. 

     (j)
Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be determined in
accordance with the provisions of the Purchase Agreement. 

     (k)
Cumulative Remedies. The remedies provided herein are cumulative and not
exclusive of any other remedies provided by law. 

     (l)
Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable. 

     (m)
Headings. The headings in this Agreement are for convenience only, do not
constitute a part of this Agreement, and shall not be deemed to limit or affect
any of the provisions hereof. 

************************* 

12 

     IN WITNESS WHEREOF, the parties
have executed this Registration Rights Agreement as of the date first written
above. 

	 	REGI U.S., INC. 
	 	  
	 	By:__________________________________________
    
	 	       Name: 
	 	       Title:

[SIGNATURE PAGE OF HOLDERS FOLLOWS] 

[SIGNATURE PAGE OF HOLDERS TO RGUS RRA] 

Name of Holder: __________________________
Signature of
Authorized Signatory of Holder: __________________________
Name of
Authorized Signatory: _________________________
Title of Authorized
Signatory: __________________________

[SIGNATURE PAGES CONTINUE] 

14

ANNEX A 

Plan of Distribution 

     The Selling Stockholder (the
“Selling Stockholders”) of the common stock and any of their pledgees,
assignees and successors-in-interest may, from time to time, sell any or all of
their shares of common stock on the [principal Trading Market] or any other
stock exchange, market or trading facility on which the shares are traded or in
private transactions. These sales may be at fixed or negotiated prices. The
Selling Stockholder may use any one or more of the following methods when
selling shares: 

	ordinary brokerage transactions and transactions in which the
  broker-dealer solicits purchasers;
  
	block trades in which the broker-dealer will attempt to sell the shares as
  agent but may position and resell a portion of the block as principal to
  facilitate the transaction;
  
	purchases by a broker-dealer as principal and resale by the broker-dealer
  for its account;
  
	an exchange distribution in accordance with the rules of the applicable
  exchange;
  
	privately negotiated transactions;
  
	settlement of short sales entered into after the effective date of the
  registration statement of which this prospectus is a part;
  
	broker-dealers may agree with the Selling Stockholder to sell a specified
  number of such shares at a stipulated price per share;
  
	through the writing or settlement of options or other hedging
  transactions, whether through an options exchange or otherwise;
  
	a combination of any such methods of sale; or
  
	any other method permitted pursuant to applicable law. 

     The Selling Stockholder may also
sell shares under Rule 144 under the Securities Act of 1933, as amended (the
“Securities Act”), if available, rather than under this prospectus. 

     Broker-dealers engaged by the
Selling Stockholder may arrange for other brokers-dealers to participate in
sales. Broker-dealers may receive commissions or discounts from the Selling
Stockholder (or, if any broker-dealer acts as agent for the purchaser of shares,
from the purchaser) in amounts to be negotiated, but, except as set forth in a
supplement to this Prospectus, in the case of an agency transaction not in
excess of a customary brokerage commission in compliance with NASDR Rule 2440;
and in the case of a principal transaction a markup or markdown in compliance
with NASDR IM-2440.

15 

     In connection with the sale of
the common stock or interests therein, the Selling Stockholder may enter into
hedging transactions with broker-dealers or other financial institutions, which
may in turn engage in short sales of the Common Stock in the course of hedging
the positions they assume. The Selling Stockholder may also sell shares of the
common stock short and deliver these securities to close out its short position,
or loan or pledge the common stock to broker-dealers that in turn may sell these
securities. The Selling Stockholder may also enter into option or other
transactions with broker-dealers or other financial institutions or the creation
of one or more derivative securities which require the delivery to such
broker-dealer or other financial institution of shares offered by this
prospectus, which shares such broker-dealer or other financial institution may
resell pursuant to this prospectus (as supplemented or amended to reflect such
transaction). 

     The Selling Stockholder is an
underwriter within the meaning of the Securities Act and any broker-dealers or
agents that are involved in selling the shares may be deemed to be
“underwriters” within the meaning of the Securities Act in connection with such
sales. In such event, any commissions received by such broker-dealers or agents
and any profit on the resale of the shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act. The Selling
Stockholder has informed the Company that it does not have any written or oral
agreement or understanding, directly or indirectly, with any person to
distribute the Common Stock. In no event shall any broker-dealer receive fees,
commissions and markups which, in the aggregate, would exceed eight percent
(8%). 

     The Company is required to pay
certain fees and expenses incurred by the Company incident to the registration
of the shares. The Company has agreed to indemnify the Selling Stockholder
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.

     Because the Selling Stockholder
is an “underwriter” within the meaning of the Securities Act, it will be subject
to the prospectus delivery requirements of the Securities Act including Rule 172
thereunder. In addition, any securities covered by this prospectus which qualify
for sale pursuant to Rule 144 under the Securities Act may be sold under Rule
144 rather than under this prospectus. There is no underwriter or coordinating
broker acting in connection with the proposed sale of the resale shares by the
Selling Stockholder. 

     We agreed to keep this prospectus
effective until the earlier of (i) the date on which the shares may be resold by
the Selling Stockholder without registration and without regard to any volume
limitations by reason of Rule 144(k) under the Securities Act or any other rule
of similar effect or (ii) all of the shares have been sold pursuant to this
prospectus or Rule 144 under the Securities Act or any other rule of similar
effect. The resale shares will be sold only through registered or licensed
brokers or dealers if required under applicable state securities laws. In
addition, in certain states, the resale shares may not be sold unless they have
been registered or qualified for sale in the applicable state or an exemption
from the registration or qualification requirement is available and is complied
with. 

     Under applicable rules and
regulations under the Exchange Act, any person engaged in the distribution of
the resale shares may not simultaneously engage in market making activities with
respect to the common stock for the applicable restricted period, as defined in
Regulation 

16 

M, prior to the commencement of the distribution. In addition,
the Selling Stockholder will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, including Regulation M, which may
limit the timing of purchases and sales of shares of the common stock by the
Selling Stockholder or any other person. We will make copies of this prospectus
available to the Selling Stockholder and have informed them of the need to
deliver a copy of this prospectus to each purchaser at or prior to the time of
the sale. 

17

Annex B 

REGI US, INC.

Selling Securityholder Notice and Questionnaire 

     The undersigned beneficial owner
of common stock, no par value per share (the “Common Stock”), of Regi
U.S., Inc., an Oregon corporation (the “Company”), (the “Registrable
Securities”) understands that the Company has filed or intends to file with
the Securities and Exchange Commission (the “Commission”) a registration
statement on Form SB-2 (the “Registration Statement”) for the
registration and resale under Rule 415 of the Securities Act of 1933, as amended
(the “Securities Act”), of the Registrable Securities, in accordance with
the terms of the Registration Rights Agreement, dated as of October __, 2006
(the “Registration Rights Agreement”), among the Company and the
Purchasers named therein. A copy of the Registration Rights Agreement is
available from the Company upon request at the address set forth below. All
capitalized terms not otherwise defined herein shall have the meanings ascribed
thereto in the Registration Rights Agreement. 

     Certain legal consequences arise
from being named as a selling securityholder in the Registration Statement and
the related prospectus. Accordingly, holders and beneficial owners of
Registrable Securities are advised to consult their own securities law counsel
regarding the consequences of being named or not being named as a selling
securityholder in the Registration Statement and the related prospectus. 

NOTICE 

     The undersigned beneficial owner
(the “Selling Securityholder”) of Registrable Securities hereby elects to
include the Registrable Securities owned by it and listed below in Item 3
(unless otherwise specified under such Item 3) in the Registration Statement.

18

The undersigned hereby provides the following information to
the Company and represents and warrants that such information is accurate: 

QUESTIONNAIRE 

	1. 	Name. 

	 	(a) 	
      Full Legal Name of Selling Securityholder

	 	 	 
	 	 	 
	 	(b) 	
      Full Legal Name of Registered Holder (if not the same as
      (a) above) through which Registrable Securities Listed in Item 3 below are
      held:

	 	 	 
	 	 	 
	 	(c) 	
      Full Legal Name of Natural Control Person (which means a
      natural person who directly or indirectly alone or with others has power
      to vote or dispose of the securities covered by the
  questionnaire):

	 	 	 
	 	 	 

	2. 	Address for Notices to Selling
      Securityholder: 

	 
	 
	 
	Telephone: 
	Fax: 
	Contact Person:
  

	3. 	Beneficial Ownership of Registrable
      Securities: 

	 	(a) 	
      Type and Number of Registrable Securities beneficially
      owned (not including the Registrable Securities that are issuable pursuant
      to the Purchase Agreement):

	 	 	 
	 	 	 
	 	 	 

19

	4. 	Broker-Dealer Status:

	 	(a) 	
      Are you a broker-dealer?

Yes [ ]     No [ ]

	 	(b) 	
      If “yes” to Section 4(a), did you receive your
      Registrable Securities as compensation for investment banking services to
      the Company.

Yes [ ]     No [ ]

	 	Note: 	If no, the Commission’s staff has indicated
      that you should be identified as an underwriter in the Registration
      Statement. 

	 	(c) 	Are you an affiliate of a broker-dealer?
  

Yes [ ]     No [ ]

	 	(d) 	
      If you are an affiliate of a broker-dealer, do you
      certify that you bought the Registrable Securities in the ordinary course
      of business, and at the time of the purchase of the Registrable Securities
      to be resold, you had no agreements or understandings, directly or
      indirectly, with any person to distribute the Registrable
    Securities?

Yes [ ]     No [ ]

	 	Note: 	If no, the Commission’s staff has indicated
      that you should be identified as an underwriter in the Registration
      Statement. 

	5. 	Beneficial Ownership of Other Securities of
      the Company Owned by the Selling Securityholder.
  

Except as set forth below in this
Item 5, the undersigned is not the beneficial or registered owner of any
securities of the Company other than the Registrable Securities listed above in
Item 3. 

	 	(a) 	
      Type and Amount of Other Securities beneficially owned by
      the Selling Securityholder:

	 	 	 
	 	 	 
	 	 	 

20

	6. 	Relationships with the Company:
  

Except as set forth below, neither
the undersigned nor any of its affiliates, officers, directors or principal
equity holders (owners of 5% of more of the equity securities of the
undersigned) has held any position or office or has had any other material
relationship with the Company (or its predecessors or affiliates) during the
past three years. 

	 	State any exceptions here: 
	 	 
	 	 
	 	 

     The undersigned agrees to
promptly notify the Company of any inaccuracies or changes in the information
provided herein that may occur subsequent to the date hereof at any time while
the Registration Statement remains effective. 

     By signing below, the undersigned
consents to the disclosure of the information contained herein in its answers to
Items 1 through 6 and the inclusion of such information in the Registration
Statement and the related prospectus and any amendments or supplements thereto.
The undersigned understands that such information will be relied upon by the
Company in connection with the preparation or amendment of the Registration
Statement and the related prospectus. 

     IN WITNESS WHEREOF the
undersigned, by authority duly given, has caused this Notice and Questionnaire
to be executed and delivered either in person or by its duly authorized agent.

	Dated: 	 	Beneficial Owner: 
	  	 	  
	  	 	By:
  
	  	 	         Name: 
	  	 	         Title:
  

PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND
QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO: 

21

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