Document:

Unassociated Document

     

    STANDBY
      EQUITY DISTRIBUTION AGREEMENT

     

    THIS
      AGREEMENT
      dated as
      of the 11th
      day of
      April 2008 (the “Agreement”)
      between
      YA GLOBAL INVESTMENTS, L.P.,
      a
      Cayman Islands exempt limited partnership (the “Investor”),
      and
      HYDROGEN ENGINE CENTER, INC.,
      a
      corporation organized and existing under the laws of the State of Nevada (the
      “Company”).

     

    WHEREAS,
      the
      parties desire that, upon the terms and subject to the conditions contained
      herein, the Company shall issue and sell to the Investor, from time to time
      as
      provided herein, and the Investor shall purchase from the Company up to Four
      Million Dollars ($4,000,000) of the Company’s common stock, par value
      $0.001 per share (the “Common
      Stock”);
      and

     

    WHEREAS,
      such
      investments will be made in reliance upon the provisions of Regulation D
      (“Regulation
      D”)
      of the
      Securities Act of 1933, as amended, and the regulations promulgated thereunder
      (the “Securities
      Act”),
      and
      or upon such other exemption from the registration requirements of the
      Securities Act as may be available with respect to any or all of the investments
      to be made hereunder; and

     

    WHEREAS,
      the
      Company has engaged Growth Energy Capital Advisors (the “Placement
      Agent”),
      to
      act as the Company’s exclusive placement agent in connection with the sale of
      the Company’s Common Stock to the Investor hereunder pursuant to the Placement
      Agent Agreement dated the date hereof by and among the Company, the Placement
      Agent and the Investor (the “Placement
      Agent Agreement”);
      and

     

    WHEREAS,
      on
      ____________________ the Company and Farmer’s State Bank (“FSB”)
      entered into a loan (the “Original
      FSB Agreement”)
      pursuant to which the Company owes FSB Five Hundred Ninety-Four Thousand Two
      Hundred Forty-Six Dollars ($594,246); and

     

    WHEREAS,
      on
      March
      27, 2008, the Original FSB Agreement was amended (as amended, the “FSB
      Agreement”)
      to
      extend the due date of the loan to March 27, 2009; and

     

    WHEREAS,
      the
      Company has applied to the Iowa State Bank (“ISB”)
      for a
      credit line of at least Two Hundred Fifty Thousand Dollars ($250,000) (the
      “ISB
      Credit Line”).

     

    NOW,
      THEREFORE,
      the
      parties hereto agree as follows:

     

     

    Article
      I. Certain
      Definitions

     

    Section
      1.01 “Advance”
shall
      mean the portion of the Commitment Amount requested by the Company in the
      Advance Notice.

     

    Section
      1.02 “Advance
      Date”
shall
      mean the first (1st)
      Trading
      Day after expiration of the applicable Pricing Period for each
      Advance.

     

    Section
      1.03 “Advance
      Notice”
shall
      mean a written notice in the form of Exhibit
      A
      attached
      hereto to the Investor executed by an officer of the Company and setting forth
      the Advance amount that the Company requests from the Investor.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    Section
      1.04 “Advance
      Notice Date”
shall
      mean each date the Company delivers (in accordance with Section 2.02(b) of
      this
      Agreement) to the Investor an Advance Notice requiring the Investor to advance
      funds to the Company, subject to the terms of this Agreement. No Advance Notice
      Date shall be less than five (5) Trading Days after the prior Advance Notice
      Date.

     

    Section
      1.05 “Bid
      Price”
shall
      mean, on any date, the closing bid price (as reported by Bloomberg L.P.) of
      the
      Common Stock on the Principal Market or if the Common Stock is not traded on
      a
      Principal Market, the highest reported bid price for the Common Stock, as
      furnished by the Financial Industry Regulatory Authority.

     

    Section
      1.06 “Closing”
shall
      mean one of the closings of a purchase and sale of Common Stock pursuant to
      Section 2.03.

     

    Section
      1.07 “Commitment
      Amount”
shall
      mean the aggregate amount of up to Four Million Dollars ($4,000,000) which
      the
      Investor has agreed to provide to the Company in order to purchase the Company’s
      Common Stock pursuant to the terms and conditions of this
      Agreement.

     

    Section
      1.08 “Commitment
      Period”
shall
      mean the period commencing on the Effective Date, and expiring on the date
      this
      Agreement is terminated pursuant to Section 10.02.

     

    Section
      1.09 “Common
      Stock”
shall
      mean the Company’s common stock, par value $0.001 per share.

     

    Section
      1.10 “Condition
      Satisfaction Date”
shall
      have the meaning set forth in Section 7.02.

     

    Section
      1.11 “Damages”
shall
      mean any loss, claim, damage, liability, costs and expenses (including, without
      limitation, reasonable attorney’s fees and disbursements and costs and expenses
      of expert witnesses and investigation).

     

    Section
      1.12 “Effective
      Date”
shall
      mean the date on which the SEC first declares effective a Registration Statement
      registering the resale of the Registrable Securities as set forth in Section
      7.2(a). 

     

    Section
      1.13 “Exchange
      Act”
shall
      mean the Securities Exchange Act of 1934, as amended, and the rules and
      regulations promulgated thereunder.

     

    Section
      1.14 “FINRA”
shall
      mean the Financial Industry Regulatory Authority.

     

    Section
      1.15 “Material
      Adverse Effect”
shall
      mean any condition, circumstance, or situation that is likely to result in,
      or
      reasonably is expected to result in (i) a material adverse effect on the
      legality, validity or enforceability of the Agreement, (ii) a material adverse
      effect on the results of operations, assets, business or condition (financial
      or
      otherwise) of the Company, 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 this Agreement or the Registration Rights Agreement in
      any
      material respect.

     

    
      
         

      

      
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    Section
      1.16 “Market
      Price”
shall
      mean the lowest daily VWAP of the Common Stock during the Pricing
      Period.

     

    Section
      1.17 “Maximum
      Advance Amount”
shall
      be Three Hundred Fifty Thousand Dollars ($350,000) per Advance Notice.

     

    Section
      1.18 “Person”
shall
      mean an individual, a corporation, a partnership, an association, a trust or
      other entity or organization, including a government or political subdivision
      or
      an agency or instrumentality thereof.

     

    Section
      1.19 “Placement
      Agent”
shall
      mean Growth Energy Capital Advisors, a registered broker-dealer.

     

    Section
      1.20 “Pricing
      Period”
shall
      mean the five (5) consecutive Trading Days after the Advance Notice Date,
      subject to any reduction pursuant to Section 2.02(c).

     

    Section
      1.21 “Principal
      Market”
shall
      mean the Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq
      Capital Market, the American Stock Exchange, the OTC Bulletin Board or the
      New
      York Stock Exchange, whichever is at the time the principal trading exchange
      or
      market for the Common Stock.

     

    Section
      1.22 “Purchase
      Price”
shall
      be set at ninety three percent (93%) of the Market Price during the Pricing
      Period.

     

    Section
      1.23 “Registrable
      Securities”
shall
      mean the shares of Common Stock to be issued hereunder (i)
      in
      respect of which the Registration Statement has not been declared effective
      by
      the SEC, (ii) which have not been sold under circumstances meeting all of the
      applicable conditions of Rule 144 (or any similar provision then in force)
      under
      the Securities Act (“Rule
      144”)
      or
      (iii) which have not been otherwise transferred to a holder who may trade such
      shares without restriction under the Securities Act, and the Company has
      delivered a new certificate or other evidence of ownership for such securities
      not bearing a restrictive legend.

     

    Section
      1.24 “Registration
      Rights Agreement”
shall
      mean the Registration Rights Agreement dated the date hereof, regarding the
      filing of the Registration Statement for the resale of the Registrable
      Securities, entered into between the Company and the Investor.

     

    Section
      1.25 “Registration
      Statement”
shall
      mean a registration statement on Form S-1 or SB-2 (if use of such form is then
      available to the Company pursuant to the rules of the SEC and, if not, on such
      other form promulgated by the SEC for which the Company then qualifies and
      which
      counsel for the Company shall deem appropriate, and which form shall be
      available for the resale of the Registrable Securities to be registered
      thereunder in accordance with the provisions of this Agreement and the
      Registration Rights Agreement, and in accordance with the intended method of
      distribution of such securities), for the registration of the resale by the
      Investor of the Registrable Securities under the Securities Act.

     

    Section
      1.26 “Regulation
      D”
shall
      have the meaning set forth in the recitals of this Agreement.

     

    Section
      1.27 “SEC”
shall
      mean the United States Securities and Exchange Commission.

     

    
      
         

      

      
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    Section
      1.28 “Securities
      Act”
shall
      have the meaning set forth in the recitals of this Agreement.

     

    Section
      1.29 “Trading
      Day”
shall
      mean any day during which the New York Stock Exchange shall be open for
      business.

     

    Section
      1.30 “VWAP”
means,
      as of any date, the daily dollar volume-weighted average price for such security
      as reported by Bloomberg, LP through its “Historical Price Table Screen (HP)”
with Market: Weighted Ave function selected, or, if no dollar volume-weighted
      average price is reported for such security by Bloomberg, LP, the average of
      the
      highest closing bid price and the lowest closing ask price of any of the market
      makers for such security as reported in the “pink sheets” by Pink Sheets
      LLC.

     

     

    Article
      II. Advances

     

    Section
      2.01 Advances.
      Subject
      to the terms and conditions of this Agreement (including, without limitation,
      the provisions of Article VII hereof), the Company, at its sole and exclusive
      option, may issue and sell to the Investor, and the Investor shall purchase
      from
      the Company, shares of the Company’s Common Stock by the delivery, in the
      Company’s sole discretion, of Advance Notices. The number of shares of Common
      Stock that the Investor shall purchase pursuant to each Advance shall be
      determined by dividing the amount of the Advance by the Purchase Price. No
      fractional shares shall be issued. Fractional shares shall be rounded to the
      next higher whole number of shares. The aggregate maximum amount of all Advances
      that the Investor shall be obligated to make under this Agreement shall not
      exceed the Commitment Amount.

     

    Section
      2.02 Mechanics.

     

    
      	 	
              (a)

            	
              Advance
                Notice.
                At any time during the Commitment Period, the Company may require
                the
                Investor to purchase shares of Common Stock by delivering an Advance
                Notice to the Investor, subject to the conditions set forth in
                Section 7.02; provided,
                however,
                the amount for each Advance as designated by the Company in the applicable
                Advance Notice shall not be more than the Maximum Advance Amount
                and the
                aggregate amount of the Advances pursuant to this Agreement shall
                not
                exceed the Commitment Amount. The Company acknowledges that the Investor
                may sell shares of the Company’s Common Stock corresponding with a
                particular Advance Notice after the Advance Notice is received by
                the
                Investor. There shall be a minimum of five (5) Trading Days between
                each
                Advance Notice Date.

            

    

     

    
      	 	
              (b)

            	
              Date
                of Delivery of Advance Notice.
                An Advance Notice shall be deemed delivered on (i) the Trading Day
                it is
                received by facsimile or otherwise by the Investor if such notice
                is
                received prior to 5:00 pm Eastern Time, or (ii) the immediately succeeding
                Trading Day if it is received by facsimile or otherwise after 5:00
                pm
                Eastern Time on a Trading Day or at any time on a day which is not
                a
                Trading Day. No Advance Notice may be deemed delivered on a day that
                is
                not a Trading Day. 

            

    

     

    
      
         

      

      
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    (c) Minimum
      Acceptable Price. For
      the
      purposes of this Agreement, the term “Minimum
      Acceptable Price”
shall
      mean, in connection with each Advance Notice delivered by the Company, eighty
      five percent (85%) of the VWAP of the Common Stock on
      the
      Trading Day immediately preceding the Advance Notice Date for such Advance
      Notice. Upon the issuance by the Company of an Advance Notice, the Minimum
      Acceptable Price with respect to that Advance Notice shall be determined and
      (i)
      the Company shall automatically reduce the amount of the Advance set forth in
      such Advance Notice by twenty percent (20%) (such reduced Advance, the
“Adjusted
      Advance”)
      for
      each Trading Day during the Pricing Period that the VWAP of the Common Stock
      is
      below the Minimum Acceptable Price (each such day, an “Excluded
      Day”),
      and
      (ii) each Excluded Day shall be excluded from the Pricing Period for purposes
      of
      determining the Market Price. The number of shares of Common Stock to be
      delivered to the Investor at the Closing (in accordance with Section 2.03 of
      this Agreement) shall be equal to the Adjusted Advance divided by the Purchase
      Price; provided,
      however,
      that if
      the Investor has sold shares of Common Stock on an Excluded Day the Company
      shall automatically increase the Adjusted Advance by the number obtained by
      multiplying the number of shares of Common Stock sold by the Investor on such
      Excluded Day by ninety-three (93%) of the Minimum Acceptable Price.

     

    Section
      2.03 Closings.
      On each
      Advance Date (i) the Company shall deliver to the Investor such number of shares
      of the Common Stock registered in the name of the Investor as shall equal (x)
      the amount of the Advance specified in such Advance Notice pursuant to Section
      2.01 herein, divided by (y) the Purchase Price and (ii) upon receipt of such
      shares, the Investor shall deliver to the Company the amount of the Advance
      specified in the Advance Notice by wire transfer of immediately available funds.
      In addition, on or prior to the Advance Date, each of the Company and the
      Investor shall deliver to the other all documents, instruments and writings
      required to be delivered by either of them pursuant to this Agreement in order
      to implement and effect the transactions contemplated herein. To the extent
      the
      Company has not paid the fees, expenses, and disbursements of the Investor
      in
      accordance with Section 12.04, the amount of such fees, expenses, and
      disbursements may be deducted by the Investor (and shall be paid to the relevant
      party) directly out of the proceeds of the Advance with no reduction in the
      amount of shares of the Company’s Common Stock to be delivered on such Advance
      Date. 

     

    
      	 	
              (a)

            	
              Company’s
                Obligations Upon Closing.

            

    

     

    
      	 	
              (i)

            	
              The
                Company shall deliver to the Investor the shares of Common Stock
                applicable to the Advance in accordance with Section 2.03. The
                certificates evidencing such shares shall be free of restrictive
                legends.

            

    

     

    
      	 	
              (ii)

            	
              the
                Registration Statement filed pursuant to the Registration Rights
                Agreement
                shall be effective and available for the resale of all applicable
                shares
                of Common Stock to be issued in connection with the Advance and
                certificates evidencing such shares shall be free of restrictive
                legends;

            

    

     

    
      	 	
              (iii)

            	
              the
                Company shall have obtained all material permits and qualifications
                required by any applicable state for the offer and sale of the Registrable
                Securities, or shall have the availability of exemptions therefrom.
                The
                sale and issuance of the Registrable Securities shall be legally
                permitted
                by all laws and regulations to which the Company is subject;
                

            

    

     

    
      
         

      

      
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              (iv)

            	
              the
                Company shall have filed with the SEC in a timely manner all reports,
                notices and other documents required of a “reporting company” under the
                Exchange Act and applicable Commission
                regulations;

            

    

     

    
      	 	
              (v)

            	
              the
                Company shall pay any unpaid fees set forth in Section 12.04 below
                or
                shall withhold such amounts as provided in Section 2.03;
                and

            

    

     

    (b) Investor’s
      Obligations Upon Closing.  Upon
      receipt of the shares referenced in Section 2.03(a)(i) above and provided the
      Company is in compliance with its obligations in Section 2.03, the Investor
      shall deliver to the Company the amount of the Advance specified in the Advance
      Notice by wire transfer of immediately available funds. 

     

    Section
      2.04 Lock
      Up Period.
      On the
      date hereof, the Company shall obtain from each officer and director a lock-up
      agreement, as defined below, in the form annexed hereto as
      Schedule 2.4.

     

    Section
      2.05 Hardship.
      In the
      event the Investor sells shares of the Company’s Common Stock after receipt of
      an Advance Notice and the Company fails to perform its obligations as mandated
      in Section 2.03, and specifically the Company fails to deliver to the Investor
      on the Advance Date the shares of Common Stock corresponding to the applicable
      Advance pursuant to Section 2.03(a)(i), the Company acknowledges that the
      Investor shall suffer financial hardship and therefore shall be liable for
      any
      and all losses, commissions, fees, or financial hardship caused to the
      Investor.

     

     

    Article
      III. Representations
      and Warranties of Investor

     

    Investor
      hereby represents and warrants to, and agrees with, the Company that the
      following are true and correct as of the date hereof and as of each Advance
      Date:

     

    Section
      3.01 Organization
      and Authorization.
      The
      Investor is duly incorporated or organized and validly existing in the
      jurisdiction of its incorporation or organization and has all requisite power
      and authority to purchase and hold the securities issuable hereunder. The
      decision to invest and the execution and delivery of this Agreement by such
      Investor, the performance by such Investor of its obligations hereunder and
      the
      consummation by such Investor of the transactions contemplated hereby have
      been
      duly authorized and requires no other proceedings on the part of the Investor.
      The undersigned has the right, power and authority to execute and deliver this
      Agreement and all other instruments (including, without limitations, the
      Registration Rights Agreement), on behalf of the Investor. This Agreement has
      been duly executed and delivered by the Investor and, assuming the execution
      and
      delivery hereof and acceptance thereof by the Company, will constitute the
      legal, valid and binding obligations of the Investor, enforceable against the
      Investor in accordance with its terms.

     

    Section
      3.02 Evaluation
      of Risks.
      The
      Investor has such knowledge and experience in financial, tax and business
      matters as to be capable of evaluating the merits and risks of, and bearing
      the
      economic risks entailed by, an investment in the Company and of protecting
      its
      interests in connection with this transaction. It recognizes that its investment
      in the Company involves a high degree of risk.

     

    Section
      3.03 No
      Legal Advice From the Company.
      The
      Investor acknowledges that it had the opportunity to review this Agreement
      and
      the transactions contemplated by this Agreement with his or its own legal
      counsel and investment and tax advisors. The Investor is relying solely on
      such
      counsel and advisors and not on any statements or representations of the Company
      or any of its representatives or agents for legal, tax or investment advice
      with
      respect to this investment, the transactions contemplated by this Agreement
      or
      the securities laws of any jurisdiction.

     

    
      
         

      

      
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    Section
      3.04 Investment
      Purpose.
      The
      securities are being purchased by the Investor for its own account, and for
      investment purposes. The Investor agrees not to assign or in any way transfer
      the Investor’s rights to the securities or any interest therein and acknowledges
      that the Company will not recognize any purported assignment or transfer except
      in accordance with applicable Federal and state securities laws. No other person
      has or will have a direct or indirect beneficial interest in the securities.
      The
      Investor agrees not to sell, hypothecate or otherwise transfer the Investor’s
      securities unless the securities are registered under Federal and applicable
      state securities laws or unless, in the opinion of counsel satisfactory to
      the
      Company, an exemption from such laws is available.

     

    Section
      3.05 Accredited
      Investor.
      The
      Investor is an “Accredited
      Investor”
as
      that
      term is defined in Rule 501(a)(3) of Regulation D of the Securities
      Act.

     

    Section
      3.06 Information.
      The
      Investor and its advisors (and its counsel), if any, have been furnished with
      all materials relating to the business, finances and operations of the Company
      and information it deemed material to making an informed investment decision.
      The Investor and its advisors, if any, have been afforded the opportunity to
      ask
      questions of the Company and its management. Neither such inquiries nor any
      other due diligence investigations conducted by such Investor or its advisors,
      if any, or its representatives shall modify, amend or affect the Investor’s
      right to rely on the Company’s representations and warranties contained in this
      Agreement. The Investor understands that its investment involves a high degree
      of risk. The Investor is in a position regarding the Company, which, based
      upon
      employment, family relationship or economic bargaining power, enabled and
      enables such Investor to obtain information from the Company in order to
      evaluate the merits and risks of this investment. The Investor has sought such
      accounting, legal and tax advice, as it has considered necessary to make an
      informed investment decision with respect to this transaction.

     

    Section
      3.07 Receipt
      of Documents.
      The
      Investor and its counsel have received and read in their entirety: (i) this
      Agreement and the Exhibits annexed hereto; (ii) all due diligence and other
      information necessary to verify the accuracy and completeness of such
      representations, warranties and covenants; (iii) the Company’s Form 10-KSB for
      the year ended December 31, 2006 and Form 10-QSB for the period ended September
      30, 2007; and (iv) answers to all questions the Investor submitted to the
      Company regarding an investment in the Company; and the Investor has relied
      on
      the information contained therein and has not been furnished any other
      documents, literature, memorandum or prospectus. 

     

    Section
      3.08 Registration
      Rights Agreement.
      The
      parties have entered into the Registration Rights Agreement dated the date
      hereof.

     

    Section
      3.09 No
      General Solicitation.
      Neither
      the Company, nor any of its affiliates, nor any person acting on its or their
      behalf, has engaged in any form of general solicitation or general advertising
      (within the meaning of Regulation D under the Securities Act) in connection
      with
      the offer or sale of the shares of Common Stock offered hereby.

     

    
      
         

      

      
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    Section
      3.10 Not
      an
      Affiliate.
      The
      Investor is not an officer, director or a person that directly, or indirectly
      through one or more intermediaries, controls or is controlled by, or is under
      common control with the Company or any “Affiliate”
of
      the
      Company (as that term is defined in Rule 405 of the Securities Act).

     

    Section
      3.11 Trading
      Activities.
      The
      Investor’s trading activities with respect to the Company’s Common Stock shall
      be in compliance with all applicable federal and state securities laws, rules
      and regulations and the rules and regulations of the Principal Market on which
      the Company’s Common Stock is listed or traded. Neither
      the Investor nor its affiliates has an open short position in the Common Stock
      of the Company, the Investor agrees that it shall not, and that it will cause
      its affiliates not to, engage in any short sales of or hedging transactions
      with
      respect to the Common Stock, provided
      that the
      Company acknowledges and agrees that upon receipt of an Advance Notice the
      Investor has the right to sell the shares to be issued to the Investor pursuant
      to the Advance Notice
      during
      the applicable Pricing Period. 

     

     

    Article
      IV. Representations
      and Warranties of the Company

     

    Except
      as
      stated below, on the disclosure schedules attached hereto or in the SEC
      Documents (as defined herein), the Company hereby represents and warrants to,
      and covenants with, the Investor that the following are true and correct as
      of
      the date hereof:

     

    Section
      4.01 Organization
      and Qualification.
      The
      Company is duly incorporated or organized and validly existing in the
      jurisdiction of its incorporation or organization and has all requisite
      corporate power to own its properties and to carry on its business as now being
      conducted. Each of the Company and its subsidiaries is duly qualified as a
      foreign corporation to do business and is in good standing in every jurisdiction
      in which the nature of the business conducted by it makes such qualification
      necessary, except to the extent that the failure to be so qualified or be in
      good standing would not have a Material Adverse Effect on the Company and its
      subsidiaries taken as a whole.

     

    Section
      4.02 Authorization,
      Enforcement, Compliance with Other Instruments.
      (i) The
      Company has the requisite corporate power and authority to enter into and
      perform this Agreement, the Registration Rights Agreement, the Placement Agent
      Agreement and any related agreements, in accordance with the terms hereof and
      thereof, (ii) the execution and delivery of this Agreement, the Registration
      Rights Agreement, the Placement Agent Agreement and any related agreements
      by
      the Company and the consummation by it of the transactions contemplated hereby
      and thereby, have been duly authorized by the Company’s Board of Directors and
      no further consent or authorization is required by the Company, its Board of
      Directors or its stockholders, (iii) this Agreement, the Registration
      Rights Agreement, the Placement Agent Agreement and any related agreements
      have
      been duly executed and delivered by the Company, (iv) this Agreement, the
      Registration Rights Agreement, the Placement Agent Agreement and assuming the
      execution and delivery thereof and acceptance by the Investor and any related
      agreements constitute the valid and binding obligations of the Company
      enforceable against the Company in accordance with their terms, except as such
      enforceability may be limited by general principles of equity or applicable
      bankruptcy, insolvency, reorganization, moratorium, liquidation or similar
      laws
      relating to, or affecting generally, the enforcement of creditors’ rights and
      remedies.

     

    
      
         

      

      
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    Section
      4.03 Capitalization.
      The
      authorized capital stock of the Company consists of 100,000,000 shares of Common
      Stock and 10,000,000 shares of Preferred Stock, $0.01 par value per share
      (“Preferred
      Stock”),
      of
      which 27,590,164 shares of Common Stock and 1,932,846 shares of Preferred Stock
      are issued and outstanding. All of such outstanding shares have been validly
      issued and are fully paid and nonassessable. Except as disclosed in the SEC
      Documents, no shares of Common Stock are subject to preemptive rights or any
      other similar rights or any liens or encumbrances suffered or permitted by
      the
      Company. Except as disclosed in the SEC Documents, as of the date hereof,
      (i) there are no outstanding options, warrants, scrip, rights to subscribe
      to, calls or commitments of any character whatsoever relating to, or securities
      or rights convertible into, any shares of capital stock of the Company or any
      of
      its subsidiaries, or contracts, commitments, understandings or arrangements
      by
      which the Company or any of its subsidiaries is or may become bound to issue
      additional shares of capital stock of the Company or any of its subsidiaries
      or
      options, warrants, scrip, rights to subscribe to, calls or commitments of any
      character whatsoever relating to, or securities or rights convertible into,
      any
      shares of capital stock of the Company or any of its subsidiaries, (ii) there
      are no outstanding debt securities (iii) there
      are no outstanding registration statements other than on Form S-8 and (iv)
      there
      are no agreements or arrangements under which the Company or any of its
      subsidiaries is obligated to register the sale of any of their securities under
      the Securities Act (except pursuant to the Registration Rights Agreement).
      Except as disclosed in the SEC Documents, there are no securities or instruments
      containing anti-dilution or similar provisions that will be triggered by this
      Agreement or any related agreement or the consummation of the transactions
      described herein or therein. The Company has furnished to the Investor true
      and
      correct copies of the Company’s Certificate of Incorporation, as amended and as
      in effect on the date hereof (the “Certificate
      of Incorporation”),
      and
      the Company’s By-laws, as in effect on the date hereof (the “By-laws”),
      and
      the terms of all securities convertible into or exercisable for Common Stock
      and
      the material rights of the holders thereof in respect thereto.

     

    Section
      4.04 No
      Conflict.
      The
      execution, delivery and performance of this Agreement by the Company and the
      consummation by the Company of the transactions contemplated hereby will not
      (i)
      result in a violation of the Certificate of Incorporation, any certificate
      of
      designations of any outstanding series of preferred stock of the Company or
      By-laws or (ii) conflict with or constitute a default (or an event which with
      notice or lapse of time or both would become a default) under, or give to others
      any rights of termination, amendment, acceleration or cancellation of, any
      agreement, indenture or instrument to which the Company or any of its
      subsidiaries is a party, or result in a violation of any law, rule, regulation,
      order, judgment or decree (including federal and state securities laws and
      regulations and the rules and regulations of the Principal Market on which
      the
      Common Stock is quoted) applicable to the Company or any of its subsidiaries
      or
      by which any material property or asset of the Company or any of its
      subsidiaries is bound or affected and which would cause a Material Adverse
      Effect. Except as disclosed in the SEC Documents, neither the Company nor its
      subsidiaries is in violation of any term of or in default under its Articles
      of
      Incorporation or By-laws or their organizational charter or by-laws,
      respectively, or any material contract, agreement, mortgage, indebtedness,
      indenture, instrument, judgment, decree or order or any statute, rule or
      regulation applicable to the Company or its subsidiaries. The business of the
      Company and its subsidiaries is not being conducted in violation of any material
      law, ordinance, regulation of any governmental entity. Except as specifically
      contemplated by this Agreement and as required under the Securities Act and
      any
      applicable state securities laws, the Company is not required to obtain any
      consent, authorization or order of, or make any filing or registration with,
      any
      court or governmental agency in order for it to execute, deliver or perform
      any
      of its obligations under or contemplated by this Agreement or the Registration
      Rights Agreement in accordance with the terms hereof or thereof. All consents,
      authorizations, orders, filings and registrations which the Company is required
      to obtain pursuant to the preceding sentence have been obtained or effected
      on
      or prior to the date hereof. The Company and its subsidiaries are unaware of
      any
      fact or circumstance which might give rise to any of the foregoing.

     

    
      
         

      

      
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    Section
      4.05 SEC
      Documents; Financial Statements.
      The
      Company has filed all reports, schedules, forms, statements and other documents
      required to be filed by it with the SEC under the Securities Exchange Act 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) (all of the foregoing
      filed prior to the date hereof or amended after the date hereof and all exhibits
      included therein and financial statements and schedules thereto and documents
      incorporated by reference therein, being hereinafter referred to as the
“SEC
      Documents”)
      on
      timely basis or has received a valid extension of such time of filing and has
      filed any such SEC Document prior to the expiration of any such extension.
      The
      Company has delivered to the Investor or its representatives, or made available
      through the SEC’s website at http://www.sec.gov, true and complete copies of the
      SEC Documents. As of their respective dates, the SEC Documents complied in
      all
      material respects with the requirements of the Exchange Act and the rules and
      regulations of the SEC promulgated thereunder applicable to the SEC Documents,
      and none of the SEC Documents, at the time they were filed with the SEC,
      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. As of their respective dates, the financial statements of the
      Company included in the SEC Documents (the “Financial
      Statements”)
      complied as to form in all material respects with applicable accounting
      requirements and the published rules and regulations of the SEC with respect
      thereto. Such financial statements have been prepared in accordance with
      generally accepted accounting principles, consistently applied, during the
      periods involved (except (i) as may be otherwise indicated in such financial
      statements or the notes thereto, or (ii) in the case of unaudited interim
      statements, to the extent they may exclude footnotes or may be condensed or
      summary statements) and, fairly present in all material respects the financial
      position of the Company as of the dates thereof and the results of its
      operations and cash flows for the periods then ended (subject, in the case
      of
      unaudited statements, to normal year-end audit adjustments). No other
      information provided by or on behalf of the Company to the Investor which is
      not
      included in the SEC Documents contains any untrue statement of a material fact
      or omits to state any material fact necessary in order to make the statements
      therein, in the light of the circumstances under which they are or were made,
      not misleading.

     

    Section
      4.06 10b-5.
      The SEC
      Documents do not include any untrue statements of material fact, nor do they
      omit to state any material fact required to be stated therein necessary to
      make
      the statements made, in light of the circumstances under which they were made,
      not misleading.

     

    
      
         

      

      
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    Section
      4.07 No
      Default.
      Except
      as disclosed in the SEC Documents, the Company is not in default in the
      performance or observance of any material obligation, agreement, covenant or
      condition contained in any indenture, mortgage, deed of trust or other material
      instrument or agreement to which it is a party or by which it is or its property
      is bound and neither the execution, nor the delivery by the Company, nor the
      performance by the Company of its obligations under this Agreement or any of
      the
      exhibits or attachments hereto will conflict with or result in the breach or
      violation of any of the terms or provisions of, or constitute a default or
      result in the creation or imposition of any lien or charge on any assets or
      properties of the Company under its Certificate of Incorporation, By-Laws,
      any
      material indenture, mortgage, deed of trust or other material agreement
      applicable to the Company or instrument to which the Company is a party or
      by
      which it is bound, or any statute, or any decree, judgment, order, rules or
      regulation of any court or governmental agency or body having jurisdiction
      over
      the Company or its properties, in each case which default, lien or charge is
      likely to cause a Material Adverse Effect on the Company’s business or financial
      condition.

     

    Section
      4.08 Absence
      of Events of Default.
      Except
      for matters described in the SEC Documents and/or this Agreement, to the
      knowledge of the Company no Event of Default, as defined in the respective
      agreement to which the Company is a party, and no event which, with the giving
      of notice or the passage of time or both, would become an Event of Default
      (as
      so defined), has occurred and is continuing, which would have a Material Adverse
      Effect on the Company’s business, properties, prospects, financial condition or
      results of operations.

     

    Section
      4.09 Intellectual
      Property Rights.
      The
      Company and its subsidiaries own or possess adequate rights or licenses to
      use
      all material trademarks, trade names, service marks, service mark registrations,
      service names, patents, patent rights, copyrights, inventions, licenses,
      approvals, governmental authorizations, trade secrets and rights necessary
      to
      conduct their respective businesses as now conducted. The Company and its
      subsidiaries do not have any knowledge of any infringement by the Company or
      its
      subsidiaries of trademark, trade name rights, patents, patent rights,
      copyrights, inventions, licenses, service names, service marks, service mark
      registrations, trade secret or other similar rights of others, and, to the
      knowledge of the Company, there is no claim, action or proceeding being made
      or
      brought against, or to the Company’s knowledge, being threatened against, the
      Company or its subsidiaries regarding trademark, trade name, patents, patent
      rights, invention, copyright, license, service names, service marks, service
      mark registrations, trade secret or other infringement; and the Company and
      its
      subsidiaries are unaware of any facts or circumstances which might give rise
      to
      any of the foregoing. 

     

    Section
      4.10 Employee
      Relations.
      Neither
      the Company nor any of its subsidiaries is involved in any labor dispute nor,
      to
      the knowledge of the Company or any of its subsidiaries, is any such dispute
      threatened. None of the Company’s or its subsidiaries’ employees is a member of
      a union and the Company and its subsidiaries believe that their relations with
      their employees are good.

     

    Section
      4.11 Environmental
      Laws.
      The
      Company and its subsidiaries are (i) in compliance with any and all applicable
      material foreign, federal, state and local laws and regulations relating to
      the
      protection of human health and safety, the environment or hazardous or toxic
      substances or wastes, pollutants or contaminants (“Environmental
      Laws”),
      (ii)
      have received all permits, licenses or other approvals required of them under
      applicable Environmental Laws to conduct their respective businesses and (iii)
      are in compliance with all terms and conditions of any such permit, license
      or
      approval.

     

    
      
         

      

      
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    Section
      4.12 Title.
      Except
      as set forth in the SEC Documents, the Company has good and marketable title
      to
      its properties and material assets owned by it, free and clear of any pledge,
      lien, security interest, encumbrance, claim or equitable interest other than
      such as are not material to the business of the Company. Any real property
      and
      facilities held under lease by the Company and its subsidiaries are held by
      them
      under valid, subsisting and enforceable leases with such exceptions as are
      not
      material and do not interfere with the use made and proposed to be made of
      such
      property and buildings by the Company and its subsidiaries.

     

    Section
      4.13 Insurance.
      The
      Company and each of its subsidiaries are insured by insurers of recognized
      financial responsibility against such losses and risks and in such amounts
      as
      management of the Company believes to be prudent and customary in the businesses
      in which the Company and its subsidiaries are engaged. Neither the Company
      nor
      any such subsidiary has been refused any insurance coverage sought or applied
      for and neither the Company nor any such 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 at a cost that would not materially and
      adversely affect the condition, financial or otherwise, or the earnings,
      business or operations of the Company and its subsidiaries, taken as a
      whole.

     

    Section
      4.14 Regulatory
      Permits.
      The
      Company and its subsidiaries possess all material certificates, authorizations
      and permits issued by the appropriate federal, state or foreign regulatory
      authorities necessary to conduct their respective businesses, and neither the
      Company nor any such subsidiary has received any notice of proceedings relating
      to the revocation or modification of any such certificate, authorization or
      permit.

     

    Section
      4.15 Internal
      Accounting Controls.
      The
      Company and each of its 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 generally accepted accounting principles 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.

     

    Section
      4.16 No
      Material Adverse Breaches, etc.
      Except
      as set forth in the SEC Documents, neither the Company nor any of its
      subsidiaries is subject to any charter, corporate or other legal restriction,
      or
      any judgment, decree, order, rule or regulation which in the judgment of the
      Company’s officers has or is expected in the future to have a Material Adverse
      Effect on the business, properties, operations, financial condition, results
      of
      operations or prospects of the Company or its subsidiaries. Except as set forth
      in the SEC Documents, neither the Company nor any of its subsidiaries is in
      breach of any contract or agreement which breach, in the judgment of the
      Company’s officers, has or is expected to have a Material Adverse Effect on the
      business, properties, operations, financial condition, results of operations
      or
      prospects of the Company or its subsidiaries.

     

    
      
         

      

      
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    Section
      4.17 Absence
      of Litigation.
      Except
      as set forth in the SEC Documents, there is no action, suit, proceeding, inquiry
      or, to the knowledge of the Company, investigation before or by any court,
      public board, government agency, self-regulatory organization or body pending
      against or affecting the Company, the Common Stock or any of the Company’s
      subsidiaries, wherein an unfavorable decision, ruling or finding would (i)
      have
      a Material Adverse Effect on the transactions contemplated hereby (ii) adversely
      affect the validity or enforceability of, or the authority or ability of the
      Company to perform its obligations under, this Agreement or any of the documents
      contemplated herein, or (iii) except as expressly disclosed in the SEC
      Documents, have a Material Adverse Effect on the business, operations,
      properties, financial condition or results of operation of the Company and
      its
      subsidiaries taken as a whole.

     

    Section
      4.18 Subsidiaries.
      Except
      as disclosed in the SEC Documents, the Company does not presently own or
      control, directly or indirectly, any interest in any other corporation,
      partnership, association or other business entity.

     

    Section
      4.19 Tax
      Status.
      Except
      as disclosed in the SEC Documents, the Company and each of its subsidiaries
      has
      made or filed all federal and state income and all other tax returns, reports
      and declarations required by any jurisdiction to which it is subject and (unless
      and only to the extent that the Company and each of its subsidiaries has set
      aside on its books provisions reasonably adequate for the payment of all unpaid
      and unreported taxes) has paid all taxes and other governmental assessments
      and
      charges that are material in amount, shown or determined to be due on such
      returns, reports and declarations, except those being contested in good faith
      and has set aside on its books provision reasonably adequate for the payment
      of
      all taxes for periods subsequent to the periods to which such returns, reports
      or declarations apply. There are no unpaid taxes in any material amount claimed
      to be due by the taxing authority of any jurisdiction, and the officers of
      the
      Company know of no basis for any such claim.

     

    Section
      4.20 Certain
      Transactions.
      Except
      as set forth in the SEC Documents none of the officers, directors, or employees
      of the Company is presently a party to any transaction with the Company (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 corporation, partnership, trust or other entity
      in
      which any officer, director, or any such employee has a substantial interest
      or
      is an officer, director, trustee or partner.

     

    Section
      4.21 Fees
      and Rights of First Refusal.
      The
      Company is not obligated to offer the securities offered hereunder on a right
      of
      first refusal basis or otherwise to any third parties including, but not limited
      to, current or former shareholders of the Company, underwriters, brokers, agents
      or other third parties.

     

    Section
      4.22 Use
      of
      Proceeds.
      The
      Company shall use the net proceeds from this offering for general corporate
      purposes, including, without limitation, the payment of loans incurred by the
      Company. However, in no event shall the Company use the net proceeds from this
      offering for the payment (or loan to any such person for the payment) of any
      judgment, or other liability, incurred by any executive officer, officer,
      director or employee of the Company, except for any liability owed to such
      person for services rendered, or if any judgment or other liability is incurred
      by such person originating from services rendered to the Company, or the Company
      has indemnified such person from liability.

     

    
      
         

      

      
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    Section
      4.23 Further
      Representation and Warranties of the Company.
      For so
      long as any securities issuable hereunder held by the Investor remain
      outstanding, the Company acknowledges, represents, warrants and agrees that
      it
      will maintain the listing of its Common Stock on the Principal
      Market.

     

    Section
      4.24 Opinion
      of Counsel.
      Investor shall receive an opinion letter from counsel to the Company on the
      date
      hereof.

     

    Section
      4.25 Opinion
      of Counsel.
      The
      Company will obtain for the Investor, at the Company’s expense, any and all
      opinions of counsel which may be reasonably required in order to sell the
      securities issuable hereunder without restriction.

     

    Section
      4.26 Dilution.
      The
      Company is aware and acknowledges that issuance of shares of the Company’s
      Common Stock could cause dilution to existing shareholders and could
      significantly increase the outstanding number of shares of Common Stock.

     

    Section
      4.27 Acknowledgment
      Regarding Investor’s Purchase of Shares.
      The
      Company acknowledges and agrees that the Investor is acting solely in the
      capacity of an arm’s length investor with respect to this Agreement and the
      transactions contemplated hereunder. The Company further acknowledges that
      the
      Investor is not acting as a financial advisor or fiduciary of the Company (or
      in
      any similar capacity) with respect to this Agreement and the transactions
      contemplated hereunder and any advice given by the Investor or any of its
      representatives or agents in connection with this Agreement and the transactions
      contemplated hereunder is merely incidental to the Investor’s purchase of the
      Common Stock hereunder. The Company is aware and acknowledges that it may not
      be
      able to request Advances under this Agreement if it cannot obtain an effective
      Registration Statement or if any issuances of Common Stock pursuant to any
      Advances would violate any rules of the Principal Market. The Company further
      is
      aware and acknowledges that any fees paid pursuant to Section 12.4 hereunder
      or
      shares issued pursuant to Section 12.4(b) hereunder shall be earned on the
      date
      hereof and not refundable or returnable under any circumstances.

     

     

    Article
      V. Indemnification

     

    The
      Investor and the Company represent to the other the following with respect
      to
      itself:

     

    Section
      5.01 Indemnification.

     

    
      	 	
              (a)

            	
              In
                consideration of the Investor’s execution and delivery of this Agreement,
                and in addition to all of the Company’s other obligations under this
                Agreement, the Company shall defend, protect, indemnify and hold
                harmless
                the Investor, and all of its officers, directors, partners, employees
                and
                agents (including, without limitation, those retained in connection
                with
                the transactions contemplated by this Agreement) (collectively, the
                “Investor
                Indemnitees”)
                from and against any and all actions, causes of action, suits, claims,
                losses, costs, penalties, fees, liabilities and damages, and expenses
                in
                connection therewith (irrespective of whether any such Investor Indemnitee
                is a party to the action for which indemnification hereunder is sought),
                and including reasonable attorneys’ fees and disbursements (the
                “Indemnified
                Liabilities”),
                incurred by the Investor Indemnitees or any of them as a result of,
                or
                arising out of, or relating to (a) any misrepresentation or breach
                of any
                representation or warranty made by the Company in this Agreement
                or the
                Registration Rights Agreement or any other certificate, instrument
                or
                document contemplated hereby or thereby, (b) any breach of any covenant,
                agreement or obligation of the Company contained in this Agreement
                or the
                Registration Rights Agreement or any other certificate, instrument
                or
                document contemplated hereby or thereby, or (c) any cause of action,
                suit
                or claim brought or made against such Investor Indemnitee not arising
                out
                of any action or inaction of an Investor Indemnitee, and arising
                out of or
                resulting from the execution, delivery, performance or enforcement
                of this
                Agreement or any other instrument, document or agreement executed
                pursuant
                hereto by any of the Investor Indemnitees. To the extent that the
                foregoing undertaking by the Company may be unenforceable for any
                reason,
                the Company shall make the maximum contribution to the payment and
                satisfaction of each of the Indemnified Liabilities, which is permissible
                under applicable law.

            

    

     

    
      
         

      

      
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              (b)

            	
              In
                consideration of the Company’s execution and delivery of this Agreement,
                and in addition to all of the Investor’s other obligations under this
                Agreement, the Investor shall defend, protect, indemnify and hold
                harmless
                the Company and all of its officers, directors, shareholders, employees
                and agents (including, without limitation, those retained in connection
                with the transactions contemplated by this Agreement) (collectively,
                the
                “Company
                Indemnitees”)
                from and against any and all Indemnified Liabilities incurred by
                the
                Company Indemnitees or any of them as a result of, or arising out
                of, or
                relating to (a) any misrepresentation or breach of any representation
                or
                warranty made by the Investor in this Agreement, the Registration
                Rights
                Agreement, or any instrument or document contemplated hereby or thereby
                executed by the Investor, (b) any breach of any covenant, agreement
                or
                obligation of the Investor contained in this Agreement, the Registration
                Rights Agreement or any other certificate, instrument or document
                contemplated hereby or thereby executed by the Investor, or (c) any
                cause
                of action, suit or claim brought or made against such Company Indemnitee
                based on misrepresentations or due to a breach by the Investor and
                arising
                out of or resulting from the execution, delivery, performance or
                enforcement of this Agreement or any other instrument, document or
                agreement executed pursuant hereto by any of the Company Indemnitees.
                To
                the extent that the foregoing undertaking by the Investor may be
                unenforceable for any reason, the Investor shall make the maximum
                contribution to the payment and satisfaction of each of the Indemnified
                Liabilities, which is permissible under applicable
                law.

            

    

     

    
      	 	
              (c)

            	
              The
                obligations
                of
                the parties to indemnify or make contribution under this Section
                5.01
                shall survive termination.

            

    

     

     

    Article
      VI. 

     

    
      
         

      

      
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    Covenants
      of the Company

     

    Section
      6.01 Registration
      Rights.
      The
      Company shall cause the Registration Rights Agreement to remain in full force
      and effect and the Company shall comply in all material respects with the terms
      thereof.

     

    Section
      6.02 Listing
      of Common Stock.
      The
      Company shall maintain the Common Stock’s authorization for quotation on the
      Principal Market. 

     

    Section
      6.03 Exchange
      Act Registration.
      The
      Company will cause its Common Stock to continue to be registered under Section
      12(g) of the Exchange Act, will file in a timely manner all reports and other
      documents required of it as a reporting company under the Exchange Act and
      will
      not take any action or file any document (whether or not permitted by Exchange
      Act or the rules thereunder) to terminate or suspend such registration or to
      terminate or suspend its reporting and filing obligations under said Exchange
      Act.

     

    Section
      6.04 Transfer
      Agent Instructions.
      Upon
      effectiveness of the Registration Statement the Company shall deliver
      instructions to its transfer agent to issue shares of Common Stock to the
      Investor free of restrictive legends on or before each Advance
      Date.

     

    Section
      6.05 Corporate
      Existence.
      The
      Company will take all steps necessary to preserve and continue the corporate
      existence of the Company.

     

    Section
      6.06 Notice
      of Certain Events Affecting Registration; Suspension of Right to Make an
      Advance.
      The
      Company will immediately notify the Investor upon its becoming aware of the
      occurrence of any of the following events in respect of a registration statement
      or related prospectus relating to an offering of Registrable Securities: (i)
      receipt of any request for additional information by the SEC or any other
      Federal or state governmental authority during the period of effectiveness
      of
      the Registration Statement for amendments or supplements to the registration
      statement or related prospectus; (ii) the issuance by the SEC or any other
      Federal or state governmental authority of any stop order suspending the
      effectiveness of the Registration Statement or the initiation of any proceedings
      for that purpose; (iii) receipt of any notification with respect to the
      suspension of the 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; (iv) the happening of any event
      that makes any statement made in the Registration Statement or related
      prospectus of any document incorporated or deemed to be incorporated therein
      by
      reference untrue in any material respect or that requires the making of any
      changes in the Registration Statement, related prospectus or documents so that,
      in the case of the Registration Statement, 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 not misleading,
      and
      that in the case of the related prospectus, 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 the light of
      the
      circumstances under which they were made, not misleading; and (v) the Company’s
      reasonable determination that a post-effective amendment to the Registration
      Statement would be appropriate; and the Company will promptly make available
      to
      the Investor any such supplement or amendment to the related prospectus. The
      Company shall not deliver to the Investor any Advance Notice during the
      continuation of any of the foregoing events.

     

    
      
         

      

      
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    Section
      6.07 Restriction
      on Sale of Capital Stock.
      During
      the Commitment Period, the Company shall not, without the prior written consent
      of the Investor, (i) issue or sell any Common Stock or Preferred Stock without
      consideration or for a consideration per share less than the Bid Price of the
      Common Stock determined
      immediately prior to its issuance, (ii) issue or sell any Preferred Stock
      warrant, option, right, contract, call, or other security or instrument granting
      the holder thereof the right to acquire Common Stock without consideration
      or
      for a consideration per share less than the Bid
      Price
      of the Common Stock determined
      immediately prior to its issuance, or (iii) file any registration statement
      on
      Form S-8 except for the registration of shares to be issued pursuant to the
      Company’s 2005 Incentive Compensation Plan. Notwithstanding this Section 6.07,
      during the Commitment Period, the Company may enter into private sales of Common
      Stock or Preferred Stock provided that the Investor is notified of such
      sales.

     

    Section
      6.08 Consolidation;
      Merger.
      The
      Company shall not, at any time after the date hereof, effect any merger or
      consolidation of the Company with or into, or a transfer of all or substantially
      all the assets of the Company to another entity (a “Consolidation
      Event”)
      unless
      the resulting successor or acquiring entity (if not the Company) assumes by
      written instrument the obligation to deliver to the Investor such shares of
      stock and/or securities as the Investor is entitled to receive pursuant to
      this
      Agreement.

     

    Section
      6.09 Issuance
      of the Company’s Common Stock.
      The sale
      of the shares of Common Stock under this Agreement shall be made in accordance
      with the provisions and requirements of Regulation D and any applicable
      state securities law.

     

    Section
      6.10 Review
      of Public Disclosures.
      All SEC
      filings (including, without limitation, all filings required under the Exchange
      Act, which include Forms 10-Q and 10-QSB, 10-K and 10K-SB, 8-K, etc) and other
      public disclosures made by the Company, including, without limitation, all
      press
      releases, investor relations materials, and scripts of analysts meetings and
      calls, shall be reviewed and approved for release by the Company’s attorneys
      and, if containing financial information, the Company’s independent certified
      public accountants. 

     

    Section
      6.11 Market
      Activities. The
      Company will not, directly or indirectly, (i) take any action designed to cause
      or result in, or that constitutes or might reasonably be expected to constitute,
      the stabilization or manipulation of the price of any security of the Company
      to
      facilitate the sale or resale of the Common Stock or (ii) sell, bid for or
      purchase the Common Stock, or pay anyone any compensation for soliciting
      purchases of the Common Stock under this Agreement.

     

     

    Article
      VII. Conditions
      for Advance and Conditions to Closing

     

    Section
      7.01 Conditions
      Precedent to the Obligations of the Company.
      The
      obligation hereunder of the Company to issue and sell the shares of Common
      Stock
      to the Investor incident to each Closing is subject to the satisfaction, or
      waiver by the Company, at or before each such Closing, of each of the conditions
      set forth below.

     

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

    

     

    
      	 	
              (a)

            	
              Accuracy
                of the Investor’s Representations and Warranties.
                The representations and warranties of the Investor shall be true
                and
                correct in all material respects.

            

    

     

    
      	 	
              (b)

            	
              Performance
                by the Investor.
                The Investor shall have performed, satisfied and complied in all
                respects
                with all covenants, agreements and conditions required by this Agreement
                and the Registration Rights Agreement to be performed, satisfied
                or
                complied with by the Investor at or prior to such
                Closing.

            

    

     

    Section
      7.02 Conditions
      Precedent to the Right of the Company to Deliver an Advance
      Notice.
      The
      right of the Company to deliver an Advance Notice is subject to the fulfillment
      by the Company, on such Advance Notice (a “Condition
      Satisfaction Date”),
      of
      each of the following conditions:

     

    
      	 	
              (a)

            	
              Registration
                of the Common Stock with the SEC.
                The Company shall have filed with the SEC a Registration Statement
                with
                respect to the resale of the Registrable Securities in accordance
                with the
                terms of the Registration Rights Agreement. The Company shall engage
                Davis, Brown, Koehn, Shors & Roberts, P.C. (“Davis
                Brown”)
                as its counsel and Davis Brown shall consult with Kirkpatrick &
                Lockhart Preston Gates Ellis LLP for purposes of filing the Registration
                Statement. As set forth in the Registration Rights Agreement, the
                Registration Statement shall have previously become effective and
                shall
                remain effective on each Condition Satisfaction Date and (i) neither
                the
                Company nor the Investor shall have received notice that the SEC
                has
                issued or intends to issue a stop order with respect to the Registration
                Statement or that the SEC otherwise has suspended or withdrawn the
                effectiveness of the Registration Statement, either temporarily or
                permanently, or intends or has threatened to do so (unless the SEC’s
                concerns have been addressed and the Investor is reasonably satisfied
                that
                the SEC no longer is considering or intends to take such action),
                and (ii)
                no other suspension of the use or withdrawal of the effectiveness
                of the
                Registration Statement or related prospectus shall exist. The Registration
                Statement must have been declared effective by the SEC prior to the
                first
                Advance Notice Date.

            

    

     

    
      	 	
              (b)

            	
              Authority.
                The Company shall have obtained all permits and qualifications required
                by
                any applicable state in accordance with the Registration Rights Agreement
                for the offer and sale of the shares of Common Stock, or shall have
                the
                availability of exemptions therefrom. The sale and issuance of the
                shares
                of Common Stock shall be legally permitted by all laws and regulations
                to
                which the Company is subject.

            

    

     

    
      	 	
              (c)

            	
              Fundamental
                Changes.
                There shall not exist any fundamental changes to the information
                set forth
                in the Registration Statement which would require the Company to
                file a
                post-effective amendment to the Registration Statement.
                

            

    

     

    
      	 	
              (d)

            	
              Performance
                by the Company.
                The Company shall have performed, satisfied and complied in all material
                respects with all covenants, agreements and conditions required by
                this
                Agreement and the Registration Rights Agreement to be performed,
                satisfied
                or complied with by the Company at or prior to each Condition Satisfaction
                Date.

            

    

     

    
      	 	
              (e)

            	
              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 that
                prohibits or directly and adversely affects any of the transactions
                contemplated by this Agreement, and no proceeding shall have been
                commenced that may have the effect of prohibiting or adversely affecting
                any of the transactions contemplated by this
                Agreement.

            

    

     

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

    

     

    
      	 	
              (f)

            	
              No
                Suspension of Trading in or Delisting of Common Stock.
                The trading of the Common Stock is not suspended by the SEC or the
                Principal Market (if the Common Stock is traded on a Principal Market).
                The issuance of shares of Common Stock with respect to the applicable
                Closing, if any, shall not violate the shareholder approval requirements
                of the Principal Market (if the Common Stock is traded on a Principal
                Market). The Company shall not have received any notice threatening
                the
                continued listing of the Common Stock on the Principal Market (if
                the
                Common Stock is traded on a Principal
                Market).

            

    

     

    
      	 	
              (g)

            	
              Maximum
                Advance Amount.
                The amount of an Advance requested by the Company shall not exceed
                the
                Maximum Advance Amount. In addition, in no event shall the number
                of
                shares issuable to the Investor pursuant to an Advance cause the
                aggregate
                number of shares of Common Stock beneficially owned by the Investor
                and
                its affiliates to exceed 9.99% of the then outstanding Common Stock
                of the
                Company. For the purposes of this section beneficial ownership shall
                be
                calculated in accordance with Section 13(d) of the Exchange
                Act.

            

    

     

    
      	 	
              (h)

            	
              No
                Knowledge.
                The Company has no knowledge of any event which would be more likely
                than
                not to have the effect of causing such Registration Statement to
                be
                suspended or otherwise ineffective.

            

    

     

    
      	 	
              (i)

            	
              Executed
                Advance Notice.
                The Investor shall have received the Advance Notice executed by an
                officer
                of the Company and the representations contained in such Advance
                Notice
                shall be true and correct as of each Condition Satisfaction
                Date.

            

    

     

    
      	 	
              (j)

            	
              FSB
                Agreement.
                The Company shall not be in breach of or in default under the FSB
                Agreement; provided, however, that if the Company and FSB have entered
                into an amendment pursuant to which FSB agrees to forebear, until
                the
                termination of this Agreement in accordance with Section 10.02 hereof,
                from exercising its rights and remedies as a result of such breach
                or
                default, this condition shall be deemed satisfied.
                

            

    

     

    
      	 	
              (k)

            	
              ISB
                Loan.
                ISB shall have granted the ISB Credit Line to the
                Company.

            

    

     

     

    Article
      VIII. Due
      Diligence Review; Non-Disclosure of Non-Public Information

     

    Section
      8.01 Non-Disclosure
      of Non-Public Information.

     

    
      	 	
              (a)

            	
              The
                Company covenants and agrees that it shall refrain from disclosing,
                and
                shall cause its officers, directors, employees and agents to refrain
                from
                disclosing, any material non-public information to the Investor without
                also disseminating such information to the public, unless prior to
                disclosure of such information the Company identifies such information
                as
                being material non-public information and provides the Investor with
                the
                opportunity to accept or refuse to accept such material non-public
                information for review.

            

    

     

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

    

     

    
      	 	
              (b)

            	
              Nothing
                herein shall require the Company to disclose non-public information
                to the
                Investor or its advisors or representatives, and the Company represents
                that it does not disseminate non-public information to any investors
                who
                purchase stock in the Company in a public offering, to money managers
                or
                to securities analysts, provided, however, that notwithstanding anything
                herein to the contrary, the Company will, as hereinabove provided,
                immediately notify the advisors and representatives of the Investor
                and,
                if any, underwriters, of any event or the existence of any circumstance
                (without any obligation to disclose the specific event or circumstance)
                of
                which it becomes aware, constituting non-public information (whether
                or
                not requested of the Company specifically or generally during the
                course
                of due diligence by such persons or entities), which, if not disclosed
                in
                the prospectus included in the Registration Statement would cause
                such
                prospectus to include a material misstatement or to omit a material
                fact
                required to be stated therein in order to make the statements, therein,
                in
                light of the circumstances in which they were made, not misleading.
                Nothing contained in this Section 8.01 shall be construed to mean
                that
                such persons or entities other than the Investor (without the written
                consent of the Investor prior to disclosure of such information)
                may not
                obtain non-public information in the course of conducting due diligence
                in
                accordance with the terms of this Agreement and nothing herein shall
                prevent any such persons or entities from notifying the Company of
                their
                opinion that based on such due diligence by such persons or entities,
                that
                the Registration Statement contains an untrue statement of material
                fact
                or omits a material fact required to be stated in the Registration
                Statement or necessary to make the statements contained therein,
                in light
                of the circumstances in which they were made, not
                misleading.

            

    

     

     

    Article
      IX. Choice
      of Law/Jurisdiction

     

    Section
      9.01 Governing
      Law.
      This
      Agreement shall be governed by and interpreted in accordance with the laws
      of
      the State of New Jersey without regard to the principles of conflict of laws.
      The parties further agree that any action between them shall be heard in Hudson
      County, New Jersey, and expressly consent to the jurisdiction and venue of
      the
      Superior Court of New Jersey, sitting in Hudson County, New Jersey and the
      United States District Court of New Jersey, sitting in Newark, New Jersey,
      for
      the adjudication of any civil action asserted pursuant to this
      paragraph.

     

     

    Article
      X. Assignment;
      Termination

     

    Section
      10.01 Assignment.
      Neither
      this Agreement nor any rights of the Company hereunder may be assigned to any
      other Person. 

     

    Section
      10.02 Termination.
      

     

    
      	 	
              (a)

            	
              Unless
                earlier terminated as provided hereunder, this Agreement shall terminate
                automatically on the earliest of (i) the first day of the month next
                following the 24-month anniversary of the Effective Date, or (ii)
                the date
                on which the Investor shall have made payment of Advances pursuant
                to this
                Agreement in the aggregate amount of the Commitment Amount.
                

            

    

     

    
      
         

      

      
        20

        
          

        

      

      
         

      

    

    

     

    
      	 	
              (b)

            	
              The
                Company may terminate this Agreement effective upon fifteen Trading
                Days’
                prior written notice to the Investor; provided that (i) there are
                no
                Advances outstanding, and (ii) the Company has paid all amounts then
                due
                and owing to the Investor pursuant to this Agreement. This Agreement
                may
                be terminated at any time by the mutual written consent of the parties,
                effective as of the date of such mutual written consent unless otherwise
                provided in such written consent. In the event of any termination
                of this
                Agreement by the Company hereunder, so long as the Investor owns
                any
                shares of Common Stock issued hereunder, unless all of such shares
                of
                Common Stock may be resold by the Investor without registration and
                without any time, volume or manner limitations pursuant to Rule 144,
                the Company shall not suspend, except as provided for in the Registration
                Rights Agreement and the conditions and limitations set forth therein,
                or
                withdraw the Registration Statement or otherwise cause the Registration
                Statement to become ineffective, or voluntarily delist the Common
                Stock
                from, the Principal Market without listing the Common Stock on another
                Principal Market. 

            

    

     

    
      	 	
              (c)

            	
              The
                obligation of the Investor to make an Advance to the Company pursuant
                to
                this Agreement shall terminate permanently (including with respect
                to an
                Advance Date that has not yet occurred) in the event that (i) there
                shall
                occur any stop order or suspension of the effectiveness of the
                Registration Statement for an aggregate of fifty (50) Trading Days,
                other
                than due to the acts of the Investor, during the Commitment Period,
                or
                (ii) the Company shall at any time fail materially to comply with
                the
                requirements of Article VI and such failure is not cured within thirty
                (30) days after receipt of written notice from the Investor, provided,
                however,
                that this termination provision shall not apply to any period commencing
                upon the filing of a post-effective amendment to such Registration
                Statement and ending upon the date on which such post effective amendment
                is declared effective by the SEC.

            

    

     

    
      	 	
              (d)

            	
              Nothing
                in this Section 10.02 shall be deemed to release the Company or the
                Investor from any liability for any breach under this Agreement or
                to
                impair the rights of the Company and the Investor to compel specific
                performance by the other party of its obligations under this Agreement.
                The indemnification provisions contained in Sections 5.1 and 5.2
                shall
                survive termination hereunder. 

            

    

     

     

    Article
      XI. Notices

     

    Section
      11.01 Notices.
      Any
      notices, consents, waivers, or other communications required or permitted to
      be
      given under the terms of this Agreement must be in writing and will be deemed
      to
      have been delivered (i) upon receipt, when delivered personally; (ii) upon
      receipt, when sent by facsimile, provided a copy is mailed by U.S. certified
      mail, return receipt requested; (iii) three (3) days after being sent by U.S.
      certified mail, return receipt requested, or (iv) one (1) day after deposit
      with
      a nationally recognized overnight delivery service, in each case properly
      addressed to the party to receive the same. The addresses and facsimile numbers
      for such communications shall be:

     

    
      	
              If
                to the Company, to:

            	
              Hydrogen
                Engine Center, Inc.

            
	 	
              2502
                East Poplar Street

            
	 	
              Algona,
                Iowa 50511

            
	 	
              Attention:
                Donald Vanderbrook, CEO

            
	 	
              Telephone:
                (515) 295-3178

            
	 	
              Facsimile:
                (515) 395-1877

            

    

    

    
      
         

      

      
        21

        
          

        

      

      
         

      

    

    

    
      	 	 
	
              With
                a copy to:

            	
              Kirkpatrick
                & Lockhart Preston
                Gates Ellis
                LLP

            
	 	
              200
                South Biscayne Blvd. - Suite 2000

            
	 	
              Miami,
                FL 33131

            
	 	
              Attention: Clay
                E. Parker, Esq.

            
	 	
              Telephone: (305)
                539-3306

            
	 	
              Facsimile: (305)
                358-7095

            
	 	 
	
              with
                a copy to:

            	
              Davis,
                Brown, Koehn, Shors & Roberts PC

            
	 	
              The
                Financial Center - Suite 2500

            
	 	
              666
                Walnut Street

            
	 	
              Des
                Moines, Iowa 50309-3993

            
	 	
              Attention:
                Beverly Evans

            
	 	
              Telephone: (515)
                288-2500

            
	 	
              Facsimile: (515)
                243-0654

            
	 	 
	
              If
                to the Investor(s):

            	
              YA
                Global Investments, LP

            
	 	
              101
                Hudson Street -Suite 3700

            
	 	
              Jersey
                City, NJ 07302

            
	 	
              Attention: Mark
                Angelo

            
	 	
              Portfolio
                Manager

            
	 	
              Telephone: (201)
                985-8300 

            
	 	
              Facsimile: (201)
                985-8266 

            
	 	 
	
              With
                a Copy to:

            	
              David
                Gonzalez, Esq.

            
	 	
              101
                Hudson Street - Suite 3700

            
	 	
              Jersey
                City, NJ 07302

            
	 	
              Telephone: (201)
                985-8300

            
	 	
              Facsimile: (201)
                985-8266

            
	 	 

    

    

    Each
      party shall provide five (5) days’ prior written notice to the other party of
      any change in address or facsimile number.

     

     

    Article
      XII. Miscellaneous

     

    Section
      12.01 Counterparts.
      This
      Agreement may be executed in two or more identical counterparts, all of which
      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.
      In
      the event any signature page is delivered by facsimile transmission, the party
      using such means of delivery shall cause four (4) additional original executed
      signature pages to be physically delivered to the other party within five (5)
      days of the execution and delivery hereof, though failure to deliver such copies
      shall not affect the validity of this Agreement.

     

    
      
         

      

      
        22

        
          

        

      

      
         

      

    

    

     

    Section
      12.02 Entire
      Agreement; Amendments.
      This
      Agreement supersedes all other prior oral or written agreements between the
      Investor, the Company, their affiliates and persons acting on their behalf
      with
      respect to the matters discussed herein, and this Agreement and the instruments
      referenced herein contain the entire understanding of the parties with respect
      to the matters covered herein and therein and, except as specifically set forth
      herein or therein, neither the Company nor the Investor makes any
      representation, warranty, covenant or undertaking with respect to such matters.
      No provision of this Agreement may be waived or amended other than by an
      instrument in writing signed by the party to be charged with
      enforcement.

     

    Section
      12.03 Reporting
      Entity for the Common Stock.
      The
      reporting entity relied upon for the determination of the trading price or
      trading volume of the Common Stock on any given Trading Day for the purposes
      of
      this Agreement shall be Bloomberg, L.P. or any successor thereto. The written
      mutual consent of the Investor and the Company shall be required to employ
      any
      other reporting entity.

     

    Section
      12.04 Fees
      and Expenses.
      The
      Company hereby agrees to pay the following fees:

     

    
      	 	
              (a)

            	
              Structuring
                Fees.
                Each of the parties shall pay its own fees and expenses (including
                the fees of any attorneys, accountants, appraisers or others engaged
                by
                such party) in connection with this Agreement and the transactions
                contemplated hereby, except that on the date hereof the Company shall
                pay
                a structuring fee of Ten Thousand Dollars ($10,000) to Yorkville
                Advisors, LLC (“Yorkville”).

            

    

     

    
      	 	
              (b)

            	
              Due
                Diligence Fee.
                Company shall pay the Investor a non-refundable due diligence fee
                of Five
                Thousand Dollars ($5,000) upon submission of the due diligence documents
                to the Investor.

            

    

     

    
      	 	
              (c)

            	
              Commitment
                Fees.
                No later than the earlier of: (i) sixty (60) days from the date hereof
                and
                (ii) the date that the Registration Statement is deemed effective
                by the
                SEC (such earlier date is hereinafter referred to as the “Delivery
                Date”),
                the Company shall pay to the Investor One Hundred Sixty Thousand
                Dollars
                ($160,000) in shares of Common Stock, the number which shall be determined
                by dividing One Hundred Sixty Thousand Dollars ($160,000) by the
                VWAP of
                the Common Stock, as quoted by Bloomberg, LP, on the Delivery Date.
                Such
                shares if issued are hereinafter referred to as the “Investor’s
                Shares”.
                The Investor’s Shares shall be deemed fully earned as of the date hereof
                regardless of the amount of Advances, if any, that the Company is
                able to,
                or choices to, request hereunder. 

            

    

     

    
      	 	
              (d)

            	
              Monitoring
                Fee.
                The Company shall pay Yorkville, upon the receipt of an invoice therefore,
                a monthly monitoring fee (“Monitoring
                Fee”)
                for its continuing due diligence, structuring, monitoring and managing
                of
                the SEDA commitment for the Investor pursuant to Yorkville’s existing
                advisory obligations to the Investor. The Monitoring Fee shall be
                changed
                as follows: (a) $3,333 (the “Effective
                Date Monitoring Fee”)
                on the first business day of the first month following the Effective
                Date
                and (b) $3,333 on the first business day of each month following
                payment
                of the Effective Date Monitoring Fee.

            

    

     

    
      
         

      

      
        23

        
          

        

      

      
         

      

    

    

     

    Section
      12.05 Brokerage.
      Each of
      the parties hereto represents that it, except Gen Cap Solutions LP, it has
      had
      no dealings in connection with this transaction with any finder or broker who
      will demand payment of any fee or commission from the other party. The Company
      on the one hand, and the Investor, on the other hand, agree to indemnify the
      other against and hold the other harmless from any and all liabilities to any
      person claiming brokerage commissions or finder’s fees on account of services
      purported to have been rendered on behalf of the indemnifying party in
      connection with this Agreement or the transactions contemplated
      hereby.

     

    Section
      12.06 Confidentiality.
      If for
      any reason the transactions contemplated by this Agreement are not consummated,
      each of the parties hereto shall keep confidential any information obtained
      from
      any other party (except information publicly available or in such party’s domain
      prior to the date hereof, and except as required by court order) and shall
      promptly return to the other parties all schedules, documents, instruments,
      work
      papers or other written information without retaining copies thereof, previously
      furnished by it as a result of this Agreement or in connection
      herein.

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK]

    

    

    
      
         

      

      
        24

        
          

        

      

      
         

      

    

    

    IN
      WITNESS WHEREOF,
      the
      parties hereto have caused this Standby Equity Distribution Agreement to be
      executed by the undersigned, thereunto duly authorized, as of the date first
      set
      forth above.

     

    
      	 	
              COMPANY:

            
	 	
              Hydrogen
                Engine Center, Inc.

            
	 	 	 
	 	
              By:

            	  

	 	
              Name:

            
	 	
              Title:

            
	 	 	 
	 	 	 
	 	
              INVESTOR:

            
	 	
              YA
                Global Investments, L.P.

            
	 	 	 
	 	
              By:

            	
              Yorkville
                Advisors, LLC

            
	 	
              Its:

            	
              Investment
                Manager

            
	 	 	 
	 	
              By:

            	  

	 	
              Name:
                Mark Angelo

            
	 	
              Title:
                Portfolio Manager

            

    

     

    

    

    
      
         

      

      
        25

        
          

        

      

      
         

      

    

    

     

    EXHIBIT
      A

     

    ADVANCE
      NOTICE

     

    HYDROGEN
      ENGINGE CENTER INC.

     

    The
      undersigned, _______________________ hereby certifies, with respect to the
      sale
      of shares of Common Stock of HYDROGEN
      ENGINGE CENTER, INC. (the
      “Company”)
      issuable in connection with this Advance Notice, delivered pursuant to the
      Standby Equity Distribution Agreement (the “Agreement”),
      as
      follows: 

     

    1. The
      undersigned is the duly elected ______________ of the Company.

     

    2. There
      are
      no fundamental changes to the information set forth in the Registration
      Statement which would require the Company to file a post effective amendment
      to
      the Registration Statement. 

     

    3.
       The
      Company has performed in all material respects all covenants and agreements
      to
      be performed by the Company and has complied in all material respects with
      all
      obligations and conditions contained in the Agreement on or prior to the Advance
      Notice Date, and shall continue to perform in all material respects all
      covenants and agreements to be performed by the Company through the applicable
      Advance Date. All conditions to the delivery of this Advance Notice are
      satisfied as of the date hereof.

     

    4. The
      undersigned hereby represents, warrants and covenants that it has made all
      filings (“SEC
      Filings”)
      required to be made by it pursuant to applicable securities laws (including,
      without limitation, all filings required under the Securities Exchange Act
      of
      1934, which include Forms 10-Q or 10-QSB, 10-K or 10-KSB, 8-K, etc.). All SEC
      Filings and other public disclosures made by the Company, including, without
      limitation, all press releases, analysts meetings and calls, etc. (collectively,
      the “Public
      Disclosures”),
      have
      been reviewed and approved for release by the Company’s attorneys and, if
      containing financial information, the Company’s independent certified public
      accountants. None of the Company’s Public Disclosures 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 the light of
      the
      circumstances under which they were made, not misleading.

     

    5. The
      Advance requested is _____________________.

     

    The
      undersigned has executed this Certificate this ____ day of
      _________________.

     

    
      	 	
              HYDROGEN
                ENGINE CENTER, INC.

            
	 	 	 
	 	
              By:

            	  

	 	
              Name:

            
	 	
              Title:

            

    

     

    If
      Returning this Advance Notice via Facsimile Please
      Send To: (201) 946-0851

    

      
        	
                If
                  by Mail, via Federal Express To:

              	
                YA
                  Global Investments, L.P.

              
	 	
                101
                  Hudson Street, Suite 3700, Jersey City, NJ
                  07302

              

      

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    

     

    SCHEDULE
      2.4

     

    HYDROGEN
      ENGINE CENTER, INC.

     

    The
      undersigned hereby agrees that for a period commencing on April ___, 2008 and
      expiring on the termination of the Standby Equity Distribution Agreement dated
      April ___, 2008 between the Company and the Investor (the “Lock-up
      Period”),
      except for any private sales of common stock of the Company, he, she or it
      will
      not, directly or indirectly, without the prior written consent of the Investor,
      issue, offer, agree or offer to sell, sell, grant an option for the purchase
      or
      sale of, transfer, pledge, assign, hypothecate, distribute or otherwise encumber
      or dispose of any securities of the Company held by them, including common
      stock
      or options, rights, warrants or other securities underlying, convertible into,
      exchangeable or exercisable for or evidencing any right to purchase or subscribe
      for any common stock (whether or not beneficially owned by the undersigned),
      or
      any beneficial interest therein (collectively, the “Securities”)
      except
      in accordance with the volume limitations set forth in Rule 144(e) of the
      General Rules and Regulations under the Securities Act of 1933, as
      amended.

     

    In
      order
      to enable the aforesaid covenants to be enforced, the undersigned hereby
      consents to the placing of legends and/or stop-transfer orders with the transfer
      agent of the Company’s securities with respect to any of the Securities
      registered in the name of the undersigned or beneficially owned by the
      undersigned, and the undersigned hereby confirms the undersigned’s investment in
      the Company.

     

    Dated:
      _______________, 2008

    

    
      	 	
              Signature

            
	 	 	 
	 	 	 
	 	   

	 	
              Name:
                

            	   

	 	
              Address:

            	   

    

    
      	 	
              City,
                State, Zip Code:

            	  

	 	 	 
	 	 	 
	 	  

	 	
              Print
                Social Security Number 

            
	 	
              or
                Taxpayer I.D. NumberUnassociated Document

    Exhibit
      10.4

     

    REGISTRATION
      RIGHTS AGREEMENT

     

    REGISTRATION
      RIGHTS AGREEMENT
      (this
“Agreement”),
      dated
      as of April 11, 2008, by and between
      HYDROGEN ENGINE CENTER, INC.,
      a Nevada
      corporation (the “Company”),
      and
      YA GLOBAL INVESTMENTS, LP,
      a
      Cayman Islands exempt limited partnership (the “Investor”).

     

    WHEREAS:

     

    A. In
      connection with the Standby Equity Distribution Agreement by and between the
      parties hereto of even date herewith (the “Standby
      Equity Distribution Agreement”),
      the
      Company has agreed, upon the terms and subject to the conditions of the Standby
      Equity Distribution Agreement, to issue and sell to the Investor shares of
      the
      Company’s common stock, par value $0.001 per share (the “Common
      Stock”),
      which
      can be purchased pursuant to the terms of the Standby Equity Distribution
      Agreement. Capitalized terms not defined herein shall have the meaning ascribed
      to them in the Standby Equity Distribution Agreement.

     

    B. To
      induce
      the Investor to execute and deliver the Standby Equity Distribution Agreement,
      the Company has agreed to provide certain registration rights under the
      Securities Act of 1933, as amended, and the rules and regulations thereunder,
      or
      any similar successor statute (collectively, the “Securities
      Act”),
      and
      applicable state securities laws.

     

    NOW,
      THEREFORE,
      in
      consideration of the premises and the mutual covenants contained herein and
      other good and valuable consideration, the receipt and sufficiency of which
      are
      hereby acknowledged, the Company and the Investor hereby agree as
      follows:

     

    1. DEFINITIONS.

     

    As
      used
      in this Agreement, the following terms shall have the following
      meanings:

     

    a. “Person”
means
      a
      corporation, a limited liability company, an association, a partnership, an
      organization, a business, an individual, a governmental or political subdivision
      thereof or a governmental agency.

     

    b. “Register,”
      “registered,”
and
      “registration”
refer
      to a registration effected by preparing and filing one or more Registration
      Statements (as defined below) in compliance with the Securities Act and pursuant
      to Rule 415 under the Securities Act or any successor rule providing for
      offering securities on a continuous or delayed basis (“Rule
      415”),
      and
      the declaration or ordering of effectiveness of such Registration Statement(s)
      by the United States Securities and Exchange Commission (the “SEC”).

     

    c. “Registration
      Period”
means
      the period beginning on the date the Registration Statement is declared
      effective by the SEC and continuing through the date on which all of the
      Registrable Securities have been sold, or may be sold without restriction
      pursuant to Rule 144. 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    d. “Registrable
      Securities”
means
      one-half of the Investor’s Shares, as defined in the Standby Equity Distribution
      Agreement, and shares of Common Stock issuable to Investors pursuant to the
      Standby Equity Distribution Agreement.

     

    e. “Registration
      Statement”
means
      a
      registration statement under the Securities Act which covers the Registrable
      Securities.

     

    f. “Rule
      144”
shall
      mean Rule 144 promulgated under the Securities Act.

     

    2. REGISTRATION.

     

    a. Filing
      of a Registration Statement.
      The
      Company shall prepare and file with the SEC a Registration Statement on Form
      S-1, SB-2 or on such other form as is available. The Company shall cause such
      Registration Statement to be declared effective by the SEC prior to the first
      sale to the Investor of the Company’s Common Stock pursuant to the Standby
      Equity Distribution Agreement. After a Registration Statement is declared
      effective, the Company shall insure that the Registration Statement and any
      subsequent Registration Statements remain in effect until all of the Registrable
      Securities have been sold, or may be sold without restriction pursuant to Rule
      144. 

     

    b. Sufficient
      Number of Shares Registered.
      In the
      event the number of shares available under a Registration Statement filed
      pursuant to Section 2(a) is insufficient to cover all of the Registrable
      Securities, the Company shall amend the Registration Statement, or file a new
      Registration Statement, or both, so as to cover all of such Registrable
      Securities as soon as practicable, but in any event not later than fifteen
      (15)
      days after the necessity therefore arises. The Company shall use it best efforts
      to cause such amendment and/or new Registration Statement to become effective
      as
      soon as practicable following the filing thereof. For purposes of the foregoing
      provision, the number of shares available under a Registration Statement shall
      be deemed “insufficient to cover all of the Registrable Securities” if at any
      time the number of Registrable Securities issuable on an Advance Notice Date
      is
      greater than the number of shares available for resale under such Registration
      Statement.

     

    3. RELATED
      OBLIGATIONS.

     

    a. The
      Company shall prepare and file with the SEC such amendments (including
      post-effective amendments) and supplements to a Registration Statement and
      the
      prospectus used in connection with such Registration Statement, which prospectus
      is to be filed pursuant to Rule 424 promulgated under the Securities Act, as
      may
      be necessary to keep such Registration Statement effective at all times during
      the Registration Period, and, during such period, comply with the provisions
      of
      the Securities Act with respect to the disposition of all Registrable Securities
      of the Company covered by such Registration Statement until such time as all
      of
      such Registrable Securities shall have been disposed of in accordance with
      the
      intended methods of disposition by the seller or sellers thereof as set forth
      in
      such Registration Statement. In the case of amendments and supplements to a
      Registration Statement which are required to be filed pursuant to this Agreement
      (including pursuant to this Section 3(a)) by reason of the Company’s filing a
      report on Form 10-KSB, Form 10-QSB or Form 8-K or any analogous report under
      the
      Securities Exchange Act of 1934, as amended (the “Exchange
      Act”),
      the
      Company shall have incorporated such report by reference into the Registration
      Statement, if applicable, or shall file such post-effective amendments or
      supplements with the SEC prior to the date any information contained in the
      Registration Statement becomes stale.

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    

     

    b. The
      Company shall furnish to the Investor without charge, (i) at least one copy
      of
      such Registration Statement as declared effective by the SEC and any
      amendment(s) thereto, including financial statements and schedules, all
      documents incorporated therein by reference, all exhibits and each preliminary
      prospectus, (ii) ten (10) copies of the final prospectus included in such
      Registration Statement and all amendments and supplements thereto (or such
      other
      number of copies as such Investor may reasonably request) and (iii) such other
      documents as such Investor may reasonably request from time to time in order
      to
      facilitate the disposition of the Registrable Securities owned by such
      Investor.

     

    c. The
      Company shall use its best efforts to (i) register and qualify the Registrable
      Securities covered by a Registration Statement under such other securities
      or
“blue sky” laws of such jurisdictions in the United States as the Investor
      reasonably requests, (ii) prepare and file in those jurisdictions, such
      amendments (including post-effective amendments) and supplements to such
      registrations and qualifications as may be necessary to maintain the
      effectiveness thereof during the Registration Period, (iii) take such other
      actions as may be necessary to maintain such registrations and qualifications
      in
      effect at all times during the Registration Period, and (iv) take all other
      actions reasonably necessary or advisable to qualify the Registrable Securities
      for sale in such jurisdictions; provided, however, that the Company shall not
      be
      required in connection therewith or as a condition thereto to (w) make any
      change to its certificate of incorporation or by-laws, (x) qualify to do
      business in any jurisdiction where it would not otherwise be required to qualify
      but for this Section 3(c), (y) subject itself to general taxation in any such
      jurisdiction, or (z) file a general consent to service of process in any such
      jurisdiction. The Company shall promptly notify the Investor of the receipt
      by
      the Company of any notification with respect to the suspension of the
      registration or qualification of any of the Registrable Securities for sale
      under the securities or “blue sky” laws of any jurisdiction in the United States
      or its receipt of actual notice of the initiation or threat of any proceeding
      for such purpose.

     

    d. As
      promptly as practicable after becoming aware of such event or development,
      the
      Company shall notify the Investor in writing of the happening of any event
      as a
      result of which the prospectus included in a Registration Statement, as then
      in
      effect, includes an untrue statement of a material fact or omission 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 (provided that in no event shall such notice contain any material,
      nonpublic information), and promptly prepare a supplement or amendment to such
      Registration Statement to correct such untrue statement or omission, and deliver
      ten (10) copies of such supplement or amendment to each Investor. The Company
      shall also promptly notify the Investor in writing (i) when a prospectus or
      any
      prospectus supplement or post-effective amendment has been filed, and when
      a
      Registration Statement or any post-effective amendment has become effective
      (notification of such effectiveness shall be delivered to the Investor by
      facsimile on the same day of such effectiveness), (ii) of any request by the
      SEC
      for amendments or supplements to a Registration Statement or related prospectus
      or related information, and (iii) of the Company’s reasonable determination
      that a post-effective amendment to a Registration Statement would be
      appropriate. 

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    

     

    e. The
      Company shall use its best efforts to prevent the issuance of any stop order
      or
      other suspension of effectiveness of a Registration Statement, or the suspension
      of the qualification of any of the Registrable Securities for sale in any
      jurisdiction within the United States of America and, if such an order or
      suspension is issued, to obtain the withdrawal of such order or suspension
      at
      the earliest possible moment and to notify the Investor of the issuance of
      such
      order and the resolution thereof or its receipt of actual notice of the
      initiation or threat of any proceeding for such purpose.

     

    f. At
      the
      reasonable request of the Investor, the Company shall furnish to the Investor,
      on the date of the effectiveness of the Registration Statement and thereafter
      from time to time on such dates as the Investor may reasonably request (i)
      a
      letter, dated such date, from the Company’s independent certified public
      accountants in form and substance as is customarily given by independent
      certified public accountants to underwriters in an underwritten public offering,
      and (ii) an opinion, dated as of such date, of counsel representing the Company
      for purposes of such Registration Statement, in form, scope and substance as
      is
      customarily given in an underwritten public offering, addressed to the
      Investor.

     

    g. The
      Company shall make available to the Investor (and will deliver to Investor’s
      counsel), (i) copies of any Registration Statement at least 3 business days
      prior to filing thereof, and (ii)  subject to restrictions imposed by the
      United States federal government or any agency or instrumentality thereof,
      copies of all public correspondence between the Commission and the Company
      concerning the Registration Statement. The Company will make available for
      inspection by the Investor and any attorney, accountant or other professional
      retained by the Investor (collectively, the “Inspectors”)
      all
      pertinent financial and other records, and pertinent corporate documents and
      properties of the Company (collectively, the “Records”), as shall be reasonably
      necessary to enable them to exercise their due diligence responsibility, and
      cause the Company’s officers, directors and employees to supply all information
      which any Inspector may reasonably request in connection with the Registration
      Statement. The Investor agrees that Records obtained by it as a result of such
      inspections which is conspicuously marked by the Company as "Confidential"
      (subject to the Company’s obligations with respect to material non-public
      information set forth in Section 8.01(a) of the Standby Equity Distribution
      Agreement) shall be deemed confidential and held in strict confidence by the
      Investor, unless (a) the disclosure of such Records is necessary to avoid or
      correct a misstatement or omission in any Registration Statement or is otherwise
      required under the Securities Act, (b) the release of such Records is ordered
      pursuant to a final, non-appealable subpoena or order from a court or government
      body of competent jurisdiction, or (c) the information in such Records has
      been
      made generally available to the public other than by disclosure in violation
      of
      this or any other agreement of which the Inspector and the Investor has
      knowledge. The Investor agrees that it shall, upon learning that disclosure
      of
      such Records is sought in or by a court or governmental body of competent
      jurisdiction or through other means, give prompt notice to the Company and
      allow
      the Company, at its expense, to undertake appropriate action to prevent
      disclosure of, or to obtain a protective order for, the Records deemed
      confidential.

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    

     

    h. The
      Company shall hold in confidence and not make any disclosure of information
      concerning the Investor provided to the Company unless (i) disclosure of such
      information is necessary to comply with federal or state securities laws, (ii)
      the disclosure of such information is necessary to avoid or correct a
      misstatement or omission in any Registration Statement, (iii) the release of
      such information is ordered pursuant to a subpoena or other final,
      non-appealable order from a court or governmental body of competent
      jurisdiction, or (iv) such information has been made generally available to
      the
      public other than by disclosure in violation of this Agreement or any other
      agreement. The Company agrees that it shall, upon learning that disclosure
      of
      such information concerning the Investor is sought in or by a court or
      governmental body of competent jurisdiction or through other means, give prompt
      written notice to the Investor and allow the Investor, at the Investor’s
      expense, to undertake appropriate action to prevent disclosure of, or to obtain
      a protective order for, such information.

     

    i. The
      Company shall use its best efforts either to cause all the Registrable
      Securities covered by a Registration Statement (i) to be listed on each
      securities exchange on which securities of the same class or series issued
      by
      the Company are then listed, if any, if the listing of such Registrable
      Securities is then permitted under the rules of such exchange or to secure
      the
      inclusion for quotation on a Primary Market. The Company shall pay all fees
      and
      expenses in connection with satisfying its obligation under this Section
      3(i).

     

    j. The
      Company shall cooperate with the Investor to the extent applicable, to
      facilitate the timely preparation and delivery of certificates (not bearing
      any
      restrictive legend) representing the Registrable Securities to be offered
      pursuant to a Registration Statement and enable such certificates to be in
      such
      denominations or amounts, as the case may be, as the Investor may reasonably
      request and registered in such names as the Investor may request.

     

    k. The
      Company shall use its best efforts to cause the Registrable Securities covered
      by the applicable Registration Statement to be registered with or approved
      by
      such other governmental agencies or authorities as may be necessary to
      consummate the disposition of such Registrable Securities.

     

    l. The
      Company shall make generally available to its security holders as soon as
      practical, but not later than ninety (90) days after the close of the period
      covered thereby, an earnings statement (in form complying with the provisions
      of
      Rule 158 under the Securities Act) covering a twelve-month period beginning
      not
      later than the first day of the Company’s fiscal quarter next following the
      effective date of the Registration Statement.

     

    m. The
      Company shall otherwise use its best efforts to comply with all applicable
      rules
      and regulations of the SEC in connection with any registration
      hereunder.

     

    n. Within
      two (2) business days after a Registration Statement which covers Registrable
      Securities is ordered effective by the SEC, the Company shall deliver, and
      shall
      cause legal counsel for the Company to deliver, to the transfer agent for such
      Registrable Securities (with copies to the Investor) confirmation that such
      Registration Statement has been declared effective by the SEC in the form
      attached hereto as Exhibit
      A.

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    

     

    o. The
      Company shall take all other reasonable actions necessary to expedite and
      facilitate disposition by the Investor of Registrable Securities pursuant to
      a
      Registration Statement.

     

    4. OBLIGATIONS
      OF THE INVESTOR.

     

    The
      Investor agrees that, upon receipt of any notice from the Company of the
      happening of any event of the kind described in Section 3(d) or the first
      sentence of 3(e), the Investor will immediately discontinue disposition of
      Registrable Securities pursuant to any Registration Statement(s) covering such
      Registrable Securities until the Investor’s receipt of the copies of the
      supplemented or amended prospectus contemplated by Section 3(d) or receipt
      of
      notice that no supplement or amendment is required. Notwithstanding anything
      to
      the contrary, the Company shall cause its transfer agent to deliver unlegended
      certificates for shares of Common Stock to a transferee of the Investor in
      accordance with the terms of the Standby Equity Distribution Agreement in
      connection with any sale of Registrable Securities with respect to which the
      Investor has entered into a contract for sale prior to the Investor’s receipt of
      a notice from the Company of the happening of any event of the kind described
      in
      Section 3(d) or the first sentence of 3(e) and for which the Investor has not
      yet settled.

     

    5. EXPENSES
      OF REGISTRATION.

     

    All
      expenses incurred in connection with registrations, filings or qualifications
      pursuant to Sections 2 and 3, including, without limitation, all registration,
      listing and qualifications fees, printers, legal and accounting fees shall
      be
      paid by the Company. 

     

    6. INDEMNIFICATION.

     

    With
      respect to Registrable Securities which are included in a Registration Statement
      under this Agreement:

     

    a. To
      the
      fullest extent permitted by law, the Company will, and hereby does, indemnify,
      hold harmless and defend the Investor, the directors, officers, partners,
      employees, agents, representatives of, and each Person, if any, who controls
      the
      Investor within the meaning of the Securities Act or the Exchange Act (each,
      an
“Indemnified
      Person”),
      against any losses, claims, damages, liabilities, judgments, fines, penalties,
      charges, costs, reasonable attorneys’ fees, amounts paid in settlement or
      expenses, joint or several (collectively, “Claims”)
      incurred in investigating, preparing or defending any action, claim, suit,
      inquiry, proceeding, investigation or appeal taken from the foregoing by or
      before any court or governmental, administrative or other regulatory agency,
      body or the SEC, whether pending or threatened, whether or not an indemnified
      party is or may be a party thereto (“Indemnified
      Damages”),
      to
      which any of them may become subject insofar as such Claims (or actions or
      proceedings, whether commenced or threatened, in respect thereof) arise out
      of
      or are based upon: (i) any untrue statement or alleged untrue statement of
      a
      material fact in a Registration Statement or any post-effective amendment
      thereto or in any filing made in connection with the qualification of the
      offering under the securities or other “blue sky” laws of any jurisdiction in
      which Registrable Securities are offered (“Blue
      Sky Filing”),
      or
      the omission or alleged omission to state a material fact required to be stated
      therein or necessary to make the statements therein not misleading;
      (ii) any untrue statement or alleged untrue statement of a material fact
      contained in any final prospectus (as amended or supplemented, if the Company
      files any amendment thereof or supplement thereto with the SEC) or the omission
      or alleged omission to state therein any material fact necessary to make the
      statements made therein, in light of the circumstances under which the
      statements therein were made, not misleading; or (iii) any violation or alleged
      violation by the Company of the Securities Act, the Exchange Act, any other
      law,
      including, without limitation, any state securities law, or any rule or
      regulation there under relating to the offer or sale of the Registrable
      Securities pursuant to a Registration Statement (the matters in the foregoing
      clauses (i) through (iii) being, collectively, “Violations”).
      The
      Company shall reimburse the Investor and each such controlling person promptly
      as such expenses are incurred and are due and payable, for any legal fees or
      disbursements or other reasonable expenses incurred by them in connection with
      investigating or defending any such Claim. Notwithstanding anything to the
      contrary contained herein, the indemnification agreement contained in this
      Section 6(a): (x) shall not apply to a Claim by an Indemnified Person arising
      out of or based upon a Violation which occurs in reliance upon and in conformity
      with information furnished in writing to the Company by such Indemnified Person
      expressly for use in connection with the preparation of the Registration
      Statement or any such amendment thereof or supplement thereto; (y) shall not
      be
      available to the extent such Claim is based on a failure of the Investor to
      deliver or to cause to be delivered the prospectus made available by the
      Company, if such prospectus was timely made available by the Company pursuant
      to
      Section 3(d); and (z) shall not apply to amounts paid in settlement of any
      Claim
      if such settlement is effected without the prior written consent of the Company,
      which consent shall not be unreasonably withheld. Such indemnity shall remain
      in
      full force and effect regardless of any investigation made by or on behalf
      of
      the Indemnified Person and shall survive termination of the Standby Equity
      Distribution Agreement. Notwithstanding anything to the contrary contained
      herein, the indemnification agreement contained in this Section 6(a) with
      respect to any prospectus shall not inure to the benefit of any Indemnified
      Party if the untrue statement or omission of material fact contained in the
      prospectus was corrected and such new prospectus was delivered to the Investor
      prior to the Investor’s use of the prospectus to which the Claim
      relates.

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    

     

    b. In
      connection with a Registration Statement, the Investor agrees to indemnify,
      hold
      harmless and defend, to the same extent and in the same manner as is set forth
      in Section 6(a), the Company, each of its directors, each of its officers who
      signs the Registration Statement and each Person, if any, who controls the
      Company within the meaning of the Securities Act or the Exchange Act (each
      an
“Indemnified
      Party”),
      against any Claim or Indemnified Damages to which any of them may become
      subject, under the Securities Act, the Exchange Act or otherwise, insofar as
      such Claim or Indemnified Damages arise out of or is based upon any Violation,
      in each case to the extent, and only to the extent, that such Violation occurs
      in reliance upon and in conformity with written information furnished to the
      Company by the Investor expressly for use in connection with such Registration
      Statement; and, subject to Section 6(d), the Investor will reimburse any legal
      or other expenses reasonably incurred by them in connection with investigating
      or defending any such Claim; provided, however, that the indemnity agreement
      contained in this Section 6(b) and the agreement with respect to contribution
      contained in Section 7 shall not apply to amounts paid in settlement of any
      Claim if such settlement is effected without the prior written consent of the
      Investor, which consent shall not be unreasonably withheld; provided, further,
      however, that the Investor shall be liable under this Section 6(b) for only
      that
      amount of a Claim or Indemnified Damages as does not exceed the net proceeds
      to
      the Investor as a result of the sale of Registrable Securities pursuant to
      such
      Registration Statement. Such indemnity shall remain in full force and effect
      regardless of any investigation made by or on behalf of such Indemnified Party
      and shall survive termination of the Standby Equity Distribution Agreement.
      Notwithstanding anything to the contrary contained herein, the indemnification
      agreement contained in this Section 6(b) with respect to any prospectus shall
      not inure to the benefit of any Indemnified Party if the untrue statement or
      omission of material fact contained in the prospectus was corrected and such
      new
      prospectus was delivered to the Investor prior to the Investor’s use of the
      prospectus to which the Claim relates.

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    

     

    c. Promptly
      after receipt by an Indemnified Person or Indemnified Party under this Section
      6
      of notice of the commencement of any action or proceeding (including any
      governmental action or proceeding) involving a Claim, such Indemnified Person
      or
      Indemnified Party shall, if a Claim in respect thereof is to be made against
      any
      indemnifying party under this Section 6, deliver to the indemnifying party
      a
      written notice of the commencement thereof, and the indemnifying party shall
      have the right to participate in, and, to the extent the indemnifying party
      so
      desires, jointly with any other indemnifying party similarly noticed, to assume
      control of the defense thereof with counsel mutually satisfactory to the
      indemnifying party and the Indemnified Person or the Indemnified Party, as
      the
      case may be; provided, however, that an Indemnified Person or Indemnified Party
      shall have the right to retain its own counsel with the fees and expenses of not
      more than one counsel for such Indemnified Person or Indemnified Party to be
      paid by the indemnifying party, if, in the reasonable opinion of counsel
      retained by the indemnifying party, the representation by such counsel of the
      Indemnified Person or Indemnified Party and the indemnifying party would be
      inappropriate due to actual or potential differing interests between such
      Indemnified Person or Indemnified Party and any other party represented by
      such
      counsel in such proceeding. The Indemnified Party or Indemnified Person shall
      cooperate fully with the indemnifying party in connection with any negotiation
      or defense of any such action or claim by the indemnifying party and shall
      furnish to the indemnifying party all information reasonably available to the
      Indemnified Party or Indemnified Person which relates to such action or claim.
      The indemnifying party shall keep the Indemnified Party or Indemnified Person
      fully apprised at all times as to the status of the defense or any settlement
      negotiations with respect thereto. No indemnifying party shall be liable for
      any
      settlement of any action, claim or proceeding effected without its prior written
      consent, provided, however, that the indemnifying party shall not unreasonably
      withhold, delay or condition its consent. No indemnifying party shall, without
      the prior written consent of the Indemnified Party or Indemnified Person,
      consent to entry of any judgment or enter into any settlement or other
      compromise which does not include as an unconditional term thereof the giving
      by
      the claimant or plaintiff to such Indemnified Party or Indemnified Person of
      a
      release from all liability in respect to such claim or litigation. Following
      indemnification as provided for hereunder, the indemnifying party shall be
      subrogated to all rights of the Indemnified Party or Indemnified Person with
      respect to all third parties, firms or corporations relating to the matter
      for
      which indemnification has been made. The failure to deliver written notice
      to
      the indemnifying party within a reasonable time of the commencement of any
      such
      action shall not relieve such indemnifying party of any liability to the
      Indemnified Person or Indemnified Party under this Section 6, except to the
      extent that the indemnifying party is prejudiced in its ability to defend such
      action.

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    

     

    d. The
      indemnification required by this Section 6 shall be made by periodic payments
      of
      the amount thereof during the course of the investigation or defense, as and
      when bills are received or Indemnified Damages are incurred.

     

    e. The
      indemnity agreements contained herein shall be in addition to (i) any cause
      of
      action or similar right of the Indemnified Party or Indemnified Person against
      the indemnifying party or others, and (ii) any liabilities the indemnifying
      party may be subject to pursuant to the law.

     

    7. CONTRIBUTION.

     

    To
      the
      extent any indemnification by an indemnifying party is prohibited or limited
      by
      law, the indemnifying party agrees to make the maximum contribution with respect
      to any amounts for which it would otherwise be liable under Section 6 to the
      fullest extent permitted by law; provided, however, that: (i) no seller of
      Registrable Securities guilty of fraudulent misrepresentation (within the
      meaning of Section 11(f) of the Securities Act) shall be entitled to
      contribution from any seller of Registrable Securities who was not guilty of
      fraudulent misrepresentation; and (ii) contribution by any seller of Registrable
      Securities shall be limited in amount to the net amount of proceeds received
      by
      such seller from the sale of such Registrable Securities.

     

    8. REPORTS
      UNDER THE EXCHANGE ACT.

     

    With
      a
      view to making available to the Investor the benefits of Rule 144 or any similar
      rule or regulation of the SEC that may at any time permit the Investors to
      sell
      securities of the Company to the public without registration the Company agrees
      to:

     

    a. make
      and
      keep public information available, as those terms are understood and defined
      in
      Rule 144;

     

    b. file
      with
      the SEC in a timely manner all reports and other documents required of the
      Company under the Securities Act and the Exchange Act so long as the Company
      remains subject to such requirements (it being understood that nothing herein
      shall limit the Company’s obligations under Section 6.3 of the Standby Equity
      Distribution Agreement) and the filing of such reports and other documents
      is
      required for the applicable provisions of Rule 144; and

     

    c. furnish
      to the Investor so long as the Investor owns Registrable Securities, promptly
      upon request, (i) a written statement by the Company that it has complied with
      the reporting requirements of Rule 144, the Securities Act and the Exchange
      Act,
      (ii) a copy of the most recent annual or quarterly report of the Company and
      such other reports and documents so filed by the Company, and (iii) such other
      information as may be reasonably requested to permit the Investor to sell such
      securities pursuant to Rule 144 without registration.

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    

     

    9. AMENDMENT
      OF REGISTRATION RIGHTS.

     

    Provisions
      of this Agreement may be amended and the observance thereof may be waived
      (either generally or in a particular instance and either retroactively or
      prospectively), only by a written agreement between the Company and the
      Investor. Any amendment or waiver effected in accordance with this Section
      9
      shall be binding upon the Investor and the Company. No consideration shall
      be
      offered or paid to any Person to amend or consent to a waiver or modification
      of
      any provision of any of this Agreement unless the same consideration also is
      offered to all of the parties to this Agreement.

     

    10. MISCELLANEOUS.

     

    a. A
      Person
      is deemed to be a holder of Registrable Securities whenever such Person owns
      or
      is deemed to own of record such Registrable Securities. If the Company receives
      conflicting instructions, notices or elections from two or more Persons with
      respect to the same Registrable Securities, the Company shall act upon the
      basis
      of instructions, notice or election received from the registered owner of such
      Registrable Securities.

     

    b. Any
      notices, consents, waivers or other communications required or permitted to
      be
      given under the terms of this Agreement must be in writing and will be deemed
      to
      have been delivered: (i) upon receipt, when delivered personally; (ii) upon
      receipt, when sent by facsimile (provided confirmation of transmission is
      mechanically or electronically generated and kept on file by the sending party);
      or (iii) one business day after deposit with a nationally recognized overnight
      delivery service, in each case properly addressed to the party to receive the
      same. The addresses and facsimile numbers for such communications shall
      be:

     

    
      	
              If
                to the Company, to:

            	
              Hydrogen
                Engine Center, Inc.

            
	 	
              2502
                East Poplar Street

            
	 	
              Algona,
                Iowa 50511

            
	 	
              Attention:
                Donald Vanderbrook, CEO

            
	 	
              Telephone:
                (515) 295-3178

            
	 	
              Facsimile:
                (515) 395-1877

            
	 	 
	
              with
                a copy to:

            	
              Davis,
                Brown, Koehn, Shors & Roberts PC

            
	 	
              The
                Financial Center - Suite 2500

            
	 	
              666
                Walnut Street

            
	 	
              Des
                Moines, Iowa 50309-3993

            
	 	
              Attention:
                Beverly Evans

            
	 	
              Telephone: (515)
                288-2500

            
	 	
              Facsimile: (515)
                243-0654

            
	 	 
	
              With
                a copy to:

            	
              Kirkpatrick
                & Lockhart Preston Gates Ellis LLP

            
	 	
              200
                South Biscayne Blvd. - Suite 2000

            
	 	
              Miami,
                Florida 33131

            
	 	
              Attention: Clayton
                E. Parker, Esq.

            
	 	
              Telephone: (305)
                539-3306

            
	 	
              Facsimile: (305)
                358-7095

            
	 	 

    

    

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    

    
      	
              If
                to the Investor, to:

            	
              YA
                Global Investments, LP

            
	 	
              101
                Hudson Street - Suite 3700

            
	 	
              Jersey
                City, New Jersey 07302

            
	 	
              Attention: Mark
                Angelo

            
	 	
              Portfolio
                Manager

            
	 	
              Telephone: (201)
                985-8300

            
	 	
              Facsimile: (201)
                985-8266

            
	 	 
	
              With
                a copy to:

            	
              YA
                Global Investments, LP

            
	 	
              101
                Hudson Street - Suite 3700

            
	 	
              Jersey
                City, NJ 07302

            
	 	
              Attention: David
                Gonzalez, Esq.

            
	 	
              Telephone: (201)
                985-8300

            
	 	
              Facsimile: (201)
                985-8266

            
	 	 
	 	 

    

    Any
      party
      may change its address by providing written notice to the other parties hereto
      at least five days prior to the effectiveness of such change. Written
      confirmation of receipt (A) given by the recipient of such notice, consent,
      waiver or other communication, (B) mechanically or electronically generated
      by
      the sender’s facsimile machine containing the time, date, recipient facsimile
      number and an image of the first page of such transmission or (C) provided
      by a
      courier or overnight courier service shall be rebuttable evidence of personal
      service, receipt by facsimile or receipt from a nationally recognized overnight
      delivery service in accordance with clause (i), (ii) or (iii) above,
      respectively.

     

    c. Failure
      of any party to exercise any right or remedy under this Agreement or otherwise,
      or delay by a party in exercising such right or remedy, shall not operate as
      a
      waiver thereof.

     

    d. The
      corporate laws of the State of New Jersey shall govern all issues concerning
      the
      relative rights of the Company and the Investor. All other questions concerning
      the construction, validity, enforcement and interpretation of this Agreement
      shall be governed by the internal laws of the State of New Jersey, without
      giving effect to any choice of law or conflict of law provision or rule (whether
      of the State of New Jersey or any other jurisdiction) that would cause the
      application of the laws of any jurisdiction other than the State of New Jersey.
      Each party hereby irrevocably submits to the non-exclusive jurisdiction of
      the
      Superior Courts of the State of New Jersey, sitting in Hudson County, New Jersey
      and the Federal District Court for the District of New Jersey sitting in Newark,
      New Jersey, for the adjudication of any dispute hereunder or in connection
      herewith or with any transaction contemplated hereby or discussed herein, 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 brought in an
      inconvenient forum or that the venue of such suit, action or proceeding is
      improper. 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 to such party at the address for such 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 manner permitted by law.
      If any provision of this Agreement shall be invalid or unenforceable in any
      jurisdiction, such invalidity or unenforceability shall not affect the validity
      or enforceability of the remainder of this Agreement in that jurisdiction or
      the
      validity or enforceability of any provision of this Agreement in any other
      jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
      AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
      HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY
      TRANSACTION CONTEMPLATED HEREBY.

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    

     

    e. This
      Agreement, the Standby Equity Distribution Agreement and the Placement Agent
      Agreement constitute the entire agreement among the parties hereto with respect
      to the subject matter hereof and thereof. There are no restrictions, promises,
      warranties or undertakings, other than those set forth or referred to herein
      and
      therein. This Agreement, the Standby Equity Distribution Agreement and the
      Placement Agent Agreement supersede all prior agreements and understandings
      among the parties hereto with respect to the subject matter hereof and
      thereof.

     

    f. This
      Agreement shall inure to the benefit of and be binding upon the permitted
      successors and assigns of each of the parties hereto.

     

    g. The
      headings in this Agreement are for convenience of reference only and shall
      not
      limit or otherwise affect the meaning hereof.

     

    h. This
      Agreement may be executed in identical counterparts, each of which shall be
      deemed an original but all of which shall constitute one and the same agreement.
      This Agreement, once executed by a party, may be delivered to the other party
      hereto by facsimile transmission of a copy of this Agreement bearing the
      signature of the party so delivering this Agreement.

     

    i. Each
      party shall do and perform, or cause to be done and performed, all such further
      acts and things, and shall execute and deliver all such other agreements,
      certificates, instruments and documents, as the other party may reasonably
      request in order to carry out the intent and accomplish the purposes of this
      Agreement and the consummation of the transactions contemplated
      hereby.

     

    j. The
      language used in this Agreement will be deemed to be the language chosen by
      the
      parties to express their mutual intent and no rules of strict construction
      will
      be applied against any party.

     

    k. This
      Agreement is intended for the benefit of the parties hereto and their respective
      permitted successors and assigns, and is not for the benefit of, nor may any
      provision hereof be enforced by, any other Person.

     

    

    

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK]

    

    

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    

    IN
      WITNESS WHEREOF,
      the
      parties have caused this Registration Rights Agreement to be duly executed
      as of
      day and year first above written.

     

    
      	 	
              Hydrogen
                Engine Center, Inc.

            
	 	 	 
	 	
              By:

            	  

	 	
              Name:

            
	 	
              Title:

            
	 	 	 
	 	 	 
	 	
              YA
                Global Investments, LP

            
	 	 	 
	 	
              By:

            	
              Yorkville
                Advisors, LLC

            
	 	
              Its:

            	
              Investment
                Manager

            
	 	 	 
	 	
              By:

            	  

	 	
              Name:
                Mark Angelo

            
	 	
              Title:
                Portfolio Manager

            
	 	 	 

    

    

    

    

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    

    EXHIBIT
      A

    FORM
      OF NOTICE OF EFFECTIVENESS

     

    OF
      REGISTRATION STATEMENT

     

    

    

    Attention: 

    

    Re: HYDROGEN
      ENGINE CENTER, INC.

    

    Ladies
      and Gentlemen:

    

    We
      are
      counsel to Hydrogen Engine Center, Inc. (the “Company”),
      and
      have represented the Company in connection with that certain Standby Equity
      Distribution Agreement (the “Standby
      Equity Distribution Agreement”)
      entered into by and between the Company and YA Global Investments, LP (the
      “Investor”)
      pursuant to which the Company issued to the Investor shares of its Common Stock,
      par value $0.001 per share (the “Common
      Stock”).
      Pursuant to the Standby Equity Distribution Agreement, the Company also has
      entered into a Registration Rights Agreement with the Investor (the
“Registration
      Rights Agreement”)
      pursuant to which the Company agreed, among other things, to register the
      Registrable Securities (as defined in the Registration Rights Agreement) under
      the Securities Act of 1933, as amended (the “Securities
      Act”).
      In
      connection with the Company’s obligations under the Registration Rights
      Agreement, on ____________ ____, the Company filed a Registration Statement
      on
      Form ________ (File No. 333-_____________) (the “Registration
      Statement”)
      with
      the Securities and Exchange Commission (the “SEC”)
      relating to the Registrable Securities which names the Investor as a selling
      stockholder thereunder.

     

    In
      connection with the foregoing, we advise you that a member of the SEC’s staff
      has advised us by telephone that the SEC has entered an order declaring the
      Registration Statement effective under the Securities Act at [ENTER
      TIME OF EFFECTIVENESS]
      on
[ENTER
      DATE OF EFFECTIVENESS]
      and we
      have no knowledge, after telephonic inquiry of a member of the SEC’s staff, that
      any stop order suspending its effectiveness has been issued or that any
      proceedings for that purpose are pending before, or threatened by, the SEC
      and
      the Registrable Securities are available for resale under the Securities Act
      pursuant to the Registration Statement.

     

    
      	 	
              Very
                truly yours,

            
	 	 	 
	 	 	 
	 	 	 
	 	
              By:

            	  

    

    

    cc: YA
      Global Investments, L.P.

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