EXHIBIT 10.1

 

SECURITIES PURCHASE AGREEMENT

 

This SECURITIES PURCHASE AGREEMENT (this “Agreement”) is dated as of May 12,
2015, by and among NEPHROS, INC., a Delaware corporation (the “Company”), and
each purchaser identified on the signature pages hereto (each, including its
successors and assigns, a “Purchaser” and collectively, the “Purchasers”).

 

RECITALS

 

A.           The Company and each Purchaser is executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) of the Securities Act of 1933, as amended (the “Securities
Act”), and Rule 506 of Regulation D (“Regulation D”) as promulgated by the
United States Securities and Exchange Commission under the Securities Act.

 

B.           The Company desires to raise gross proceeds of up to $1,500,000
pursuant to the issuance and sale of (i) shares of the Common Stock, par value
$0.001 per share (the “Common Stock”), of the Company (which shares of Common
Stock and shall be collectively referred to herein as the “Shares”), and (ii)
and warrants, in substantially the form attached hereto as Exhibit A (the
“Warrants”).

 

C.           Each Purchaser, severally and not jointly, wishes to purchase, and
the Company wishes to sell, upon the terms and conditions stated in this
Agreement, (i) that aggregate number of Shares set forth below such Purchaser’s
name on the signature page of this Agreement, and (ii) Warrants to acquire up to
that number of additional shares of Common Stock equal to 50% of the number of
Shares purchased by such Purchaser (rounded down to the nearest whole share)
(the shares of Common Stock issuable upon exercise of or otherwise pursuant to
the Warrants, collectively, the “Warrant Shares”).

 

D.           The Company is offering the Shares and the Warrants on a “best
efforts” basis.

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchasers hereby
agree as follows:

 

ARTICLE I.
DEFINITIONS

 

In addition to the terms defined elsewhere in this Agreement, for all purposes
of this Agreement, the following terms shall have the meanings indicated in this
ARTICLE I:

 

“Action” means any action, suit, inquiry, notice of violation, proceeding
(including any partial proceeding such as a deposition) or investigation pending
or, to the Company’s Knowledge, threatened in writing against or affecting the
Company or any of its properties before or by any court, arbitrator,
governmental or administrative agency, regulatory authority (federal, state,
county, local or foreign), stock market, stock exchange or trading facility.

 

 

 

 

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

 

“Business Day” means a day, other than a Saturday or Sunday, on which banks in
New York City are open for the general transaction of business.

 

“Closing” means the closing of the purchase and sale of the Shares and the
Warrants pursuant to this Agreement.

 

“Closing Date” means the Trading Day when all of the Transaction Documents have
been executed and delivered by the applicable parties thereto, and all of the
conditions set forth in Sections 2.1, 2.2, 6.1 and 6.2 hereof are satisfied, or
such other date as the parties may agree.

 

“Commission” means the United States Securities and Exchange Commission.

 

“Common Stock” has the meaning set forth in the Recitals, and also includes any
securities into which the Common Stock may hereafter be reclassified or changed.

 

“Company Counsel” means Fredrikson & Byron, P.A.

 

“Company Deliverables” has the meaning set forth in Section 2.2(a).

 

“Company’s Knowledge” means with respect to any statement made to the knowledge
of a party, that the statement is based upon the actual knowledge of the
executive officers of such party having responsibility for the matter or matters
that are the subject of the statement.

 

“Control” (including the terms “controlling”, “controlled by” or “under common
control with”) means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.

 

“Disclosure Materials” means the SEC Reports together with this Agreement and
the Schedules to this Agreement (if any).

 

“Effective Date” means the date on which the initial Registration Statement
required by Section 4.1(a) is first declared effective by the Commission.

 

“Environmental Laws” has the meaning set forth in Section 3.1(l).

 

“Equity Incentive Plan” means (i) any equity incentive, stock option or similar
plan and (ii) any other agreement, arrangement, understanding or other document
pursuant to which the Company is obligated to grant or issue Common Stock,
including any securities or instruments convertible into, exchangeable for or
otherwise entitles the holder thereof to receive Common Stock, to current or
former employees in connection with their services to the Company, in each case
adopted or approved by a majority of the non-employee members of the board of
directors of the Company or a majority of the members of a committee of
non-employee directors established.

 

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

 

“GAAP” means U.S. generally accepted accounting principles, as applied by the
Company on a consistent basis during the financial periods involved.

 

“Intellectual Property” has the meaning set forth in Section 3.1(r).

 

“Irrevocable Transfer Agent Instructions” means, with respect to the Company,
the Irrevocable Transfer Agent Instructions, in the form of Exhibit D, executed
by the Company and delivered to and acknowledged in writing by the Transfer
Agent.

 

“Lien” means any lien, charge, claim, encumbrance, security interest, right of
first refusal, preemptive right or other restrictions of any kind.

 

“Material Adverse Effect” means any of (i) a material and adverse effect on the
legality, validity or enforceability of any Transaction Document, (ii) a
material and adverse effect on the results of operations, assets, prospects,
business or financial condition of the Company or any of its subsidiaries, taken
as a whole, or (iii) any material adverse impairment to the Company's ability to
perform in any material respect on a timely basis its obligations under any
Transaction Document.

 

“Material Permits” has the meaning set forth in Section 3.1(p).

 

“New York Courts” means the state and federal courts sitting in the City of New
York, Borough of Manhattan.

 

“Outside Date” means five Trading Days following the date of this Agreement.

 

“Person” means an individual, corporation, partnership, limited liability
company, trust, business trust, association, joint stock company, joint venture,
sole proprietorship, unincorporated organization, governmental authority or any
other form of entity not specifically listed herein.

 

“Principal Trading Market” means the Trading Market on which the Common Stock is
primarily listed on and quoted for trading, which, as of the date of this
Agreement and the Closing Date, shall be the OTCQB Tier of the OTC Markets Group
(“OTCQB”).

 

“Purchase Price” means $0.67.

 

“Purchaser Deliverables” has the meaning set forth in Section 2.2(b).

 

“Registration Statement” means a registration statement meeting the requirements
set forth in Section 4.1(a) and covering the resale by the Purchasers of the
Registrable Securities (as such term is defined in Section 4.1(c)).

 

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“Required Approvals” has the meaning set forth in Section 3.1(e).

 

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

 

“SEC Reports” has the meaning set forth in Section 3.1(h).

 

“Secretary’s Certificate” has the meaning set forth in Section 2.2(a)(vi).

 

“Securities” mean the Shares, the Warrants and the Warrant Shares issued
pursuant to this Agreement.

 

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

 

“Short Sales” include, without limitation, all “short sales” as defined in Rule
200 promulgated under Regulation SHO under the Exchange Act, whether or not
against the box, and all types of direct and indirect stock pledges, forward
sale contracts, options, puts, calls, short sales, swaps, “put equivalent
positions” (as defined in Rule 16a-1(h) under the Exchange Act) and similar
arrangements (including on a total return basis), and sales and other
transactions through non-US broker dealers or foreign regulated brokers.

 

“Subscription Amount” means with respect to each Purchaser, the aggregate amount
to be paid for the Shares and the related Warrants purchased hereunder as
indicated on such Purchaser’s signature page to this Agreement next to the
heading “Purchase Price (Subscription Amount)”.

 

“Trading Affiliate” has the meaning set forth in Section 3.2(g).

 

“Trading Day” means (i) a day on which the Common Stock is listed or quoted and
traded on its primary Trading Market (other than an over-the-counter market
system), or (ii) if the Common Stock is not listed on a Trading Market (other
than an over-the-counter market system), a day on which the Common Stock is
traded in the over-the-counter market, as reported by the OTCQB, or (iii) if the
Common Stock is not quoted on any Trading Market, a day on which the Common
Stock is quoted in the over-the-counter market as reported by the OTC Markets
Group (or any similar organization or agency succeeding to its functions of
reporting prices); provided, that in the event that the Common Stock is not
listed or quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day
shall mean a Business Day.

 

“Trading Market” means whichever of the New York Stock Exchange, the American
Stock Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market, the
NASDAQ Capital Market or the over-the-counter market system on which the Common
Stock is listed or quoted for trading on the date in question.

 

“Transaction Documents” means this Agreement, the schedules and exhibits
attached hereto, the Warrants, the Irrevocable Transfer Agent Instructions and
any other documents or agreements executed in connection with the transactions
contemplated hereunder.

 

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“Transfer Agent” means American Stock Transfer and Trust Company or any
successor transfer agent for the Company.

 

“Warrants” has the meaning set forth in the Preamble to this Agreement.

 

ARTICLE II.
PURCHASE AND SALE

 

2.1         Closing.

 

(a)          Subject to the terms and conditions set forth in this Agreement, at
the Closing, the Company shall issue and sell to each Purchaser, and each
Purchaser shall, severally and not jointly, purchase from the Company, such
number of Shares of Common Stock equal to the quotient resulting from dividing
(i) the Subscription Amount for such Purchaser, as indicated below such
Purchaser’s name on the signature page of this Agreement by (ii) the Purchase
Price, rounded down to the nearest whole Share. In addition, each Purchaser
shall receive a Warrant to purchase a number of Warrant Shares equal to 50% of
the number of Shares purchased by such Purchaser, as indicated below such
Purchaser’s name on the signature page of this Agreement, rounded down to the
nearest whole Warrant Share. The Warrants shall have an initial exercise price
equal to $0.85 per share (subject to adjustment as provided therein) and shall
be exercisable at any time on or prior to the fifth anniversary of the date of
issuance.

 

(b)          Each Purchaser must complete and return a duly executed, unaltered
copy of this Agreement (including without limitation the completed Accredited
Investor Questionnaire, the Stock Certificate Questionnaire and the Selling
Stockholder Questionnaire included as Exhibits B-1, B-2 and B-3 hereto,
respectively) to the Company. The Company retains complete discretion to accept
or reject any subscription unless and until the Company executes a counterpart
to this Agreement that includes such Purchaser’s signature. On or prior to the
Outside Date, each Purchaser shall deposit the amount of readily available funds
equal to such Purchaser’s Subscription Amount into the Company’s account
described on Exhibit D attached hereto by wire transfer of immediately available
funds. The Company shall hold such funds pending the Closing.

 

(c)          The Closing shall be held at a date and time designated by the
Company prior to 11:59 p.m. EDT on the Outside Date. The Closing shall occur
remotely by facsimile transmission or other electronic means as the parties may
mutually agree. Upon satisfaction or waiver of all conditions to the Closing,
each Purchaser’s funds shall be deemed released to the Company. Interest, if
any, that has accrued with respect to the Subscription Amount while in escrow
shall also be distributed to the Company at the Closing and the Purchaser will
have no right to such interest, even if there is no Closing. If the Closing does
not occur prior to 11:59 p.m. EDT on the Outside Date, the Company shall, on the
Business Day immediately following the Outside Date, return to each Purchaser
its Subscription Amount pursuant to the wire instructions provided by each
Purchaser from which such funds were received, without any deduction therefrom.

 

(d)           The Company shall deliver, or cause to be delivered, a certificate
or certificates, registered in such name or names as the Purchasers may
designate, representing the Shares and Warrants purchased by the Purchaser
hereunder as soon as practical after the Closing, and in any event within five
Business Days, to the Purchaser’s mailing address indicated on the Stock
Certificate Questionnaire included as Exhibit B-2 hereto.

 

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2.2         Closing Deliveries.   

 

(a)          On or prior to the Closing, the Company shall issue, deliver or
cause to be delivered to each Purchaser the following (collectively, the
“Company Deliverables”):

 

(i)          this Agreement, duly executed by the Company;

 

(ii)         a Warrant, executed by the Company and registered in the name of
such Purchaser as set forth on the Stock Certificate Questionnaire included as
Exhibit B-2 hereto, pursuant to which such Purchaser shall have the right to
acquire such number of Warrant Shares equal to 50% of the number of Shares
issuable to such Purchaser pursuant to Section 2.1(a)(ii), rounded down to the
nearest whole share, on the terms set forth therein;

 

(iii)        duly executed Irrevocable Transfer Agent Instructions acknowledged
in writing by the Transfer Agent;

 

(iv)        a certificate of the Secretary of the Company (the “Secretary’s
Certificate”), dated as of the Closing Date, (A) certifying the resolutions
adopted by the Board of Directors of the Company approving the transactions
contemplated by this Agreement and the other Transaction Documents and the
issuance of the Securities, (B) certifying the current versions of the
certificate of incorporation and by-laws of the Company, each as amended to date
and (C) certifying as to the signatures and authority of persons signing the
Transaction Documents and related documents on behalf of the Company;

 

(v)         the Compliance Certificate referred to in Section 6.1(h); and

 

(vi)        a certificate evidencing the formation and good standing of the
Company in the State of Delaware issued by the Secretary of State (or comparable
office), as of a date within 10 days of the Closing Date.

 

(b)          On or prior to the Closing, each Purchaser shall deliver or cause
to be delivered to the Company the following (the “Purchaser Deliverables”):

 

(i)          this Agreement, duly executed by such Purchaser;

 

(ii)         its Subscription Amount, in United States dollars and in
immediately available funds, in the amount set forth as the “Purchase Price”
indicated below such Purchaser’s name on the applicable signature page hereto by
wire transfer to an account designated in writing by the Company for such
purpose, as set forth on Exhibit D attached hereto;

 

(iii)        a fully completed and duly executed Accredited Investor
Questionnaire and Stock Certificate Questionnaire in the forms attached hereto
as Exhibits B-1 and B-2, respectively; and

 

(iv)        a fully completed and duly executed Selling Stockholder
Questionnaire in the form attached hereto as Exhibit B-3.

 

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ARTICLE III.
REPRESENTATIONS AND WARRANTIES

 

3.1         Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchasers that, except as set forth in the
Schedules delivered herewith:

 

(a)          Subsidiaries. Except as described in the SEC Reports, the Company
has no direct or indirect subsidiaries.

 

(b)          Organization and Qualification. The Company is an entity duly
incorporated or otherwise organized, validly existing and in good standing under
the laws of the State of Delaware, with the requisite power and authority to own
or lease and use its properties and assets and to carry on its business as
currently conducted. The Company is not in violation of any of the provisions of
its certificate of incorporation, bylaws or other organizational or charter
documents. The Company is duly qualified to conduct business and is in good
standing as a foreign corporation or other entity in each jurisdiction in which
the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not have or reasonably be expected to have,
individually or in the aggregate, resulted in a Material Adverse Effect, and no
Action has been instituted in any such jurisdiction revoking, limiting or
curtailing or seeking to revoke, limit or curtail such power and authority or
qualification.

 

(c)          Authorization; Enforcement; Validity. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents to which it is a party and
otherwise to carry out its obligations hereunder and thereunder. The execution
and delivery of each of the Transaction Documents to which it is a party by the
Company and the consummation by it of the transactions contemplated hereby and
thereby (including, but not limited to, the sale and delivery of the Shares and
the Warrants and the subsequent issuance of the Warrant Shares upon exercise of
the Warrants) have been duly authorized by all necessary corporate action on the
part of the Company, and no further corporate action is required by the Company,
its Board of Directors or its stockholders in connection therewith other than in
connection with the Required Approvals. Each of the Transaction Documents to
which it is a party has been (or upon delivery will have been) duly executed by
the Company and is, or when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors’ rights and remedies or by other equitable principles of general
application. There are no stockholder agreements, voting agreements, or other
similar arrangements with respect to the Company’s capital stock to which the
Company is a party or, to the Company’s Knowledge, between or among any of the
Company’s stockholders.

 

(d)          No Conflicts. The execution, delivery and performance by the
Company of the Transaction Documents to which it is a party and the consummation
by the Company of the transactions contemplated hereby or thereby (including,
without limitation, the issuance of the Shares and the reservation for issuance
and issuance of the Warrant Shares) do not and will not (i) conflict with or
violate any provision of the Company’s certificate of incorporation, bylaws or
other organizational or charter documents, (ii) conflict with, or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, result in the creation of any Lien upon any of the properties or
assets of the Company or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of,
any agreement, credit facility, debt or other instrument (evidencing a Company
debt or otherwise) to which the Company is a party or by which any property or
asset of the Company is bound or affected, or (iii) subject to the Required
Approvals, conflict with or result in a violation of any law, rule, regulation,
order, judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company is subject (including federal and
state securities laws and regulations and the rules and regulations, assuming
the correctness of the representations and warranties made by the Purchasers
herein, of any self-regulatory organization to which the Company or its
securities are subject, including all applicable Trading Markets), or by which
any property or asset of the Company is bound or affected, except in the case of
clauses (ii) and (iii), such as would not, individually or in the aggregate,
have or reasonably be expected to result in a Material Adverse Effect.

 

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(e)          Filings, Consents and Approvals. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal, state, local
or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction Documents
(including the issuance of the Securities), other than (i) the filing with the
Commission of one or more Registration Statements in accordance with the
requirements of ARTICLE IV hereof, (ii) filings required by applicable state
securities laws, (iii) the filing of a Notice of Sale of Securities on Form D
with the Commission under Regulation D of the Securities Act, (iv) the filing of
any requisite notices and/or application(s) to the Principal Trading Market for
the issuance and sale of the Shares and the Warrants and the listing of the
Shares and Warrant Shares for trading or quotation, as the case may be, thereon
in the time and manner required thereby, (v) the filings required in accordance
with Section 5.7 of this Agreement and (vi) those that have been made or
obtained prior to the date of this Agreement (collectively, the “Required
Approvals”).

 

(f)          Issuance of the Securities. The Shares have been duly authorized
and, when issued and paid for in accordance with the terms of the Transaction
Documents, will be duly and validly issued, fully paid and nonassessable, free
and clear of all Liens, other than restrictions on transfer provided for in the
Transaction Documents or imposed by applicable securities laws, and shall not be
subject to preemptive or similar rights of stockholders. The Warrants have been
duly authorized and, when issued and paid for in accordance with the terms of
the Transaction Documents, will be duly and validly issued, free and clear of
all Liens, other than restrictions on transfer provided for in the Transaction
Documents or imposed by applicable securities laws, and shall not be subject to
preemptive or similar rights of stockholders. The Warrant Shares issuable upon
exercise of the Warrants have been duly authorized and, when issued and paid for
in accordance with the terms of the Transaction Documents and the Warrants, will
be duly and validly issued, fully paid and nonassessable, free and clear of all
Liens, other than restrictions on transfer provided for in the Transaction
Documents or imposed by applicable securities laws, and shall not be subject to
preemptive or similar rights of stockholders. Assuming the accuracy of the
representations and warranties of the Purchasers in this Agreement, the
Securities will be issued in compliance with applicable federal and state
securities laws. The Company shall, so long as any of the Warrants are
outstanding, take all action reasonably necessary to reserve and keep available
out of its authorized and unissued capital stock, solely for the purpose of
effecting the exercise of the Warrants, 100% of the Warrant Shares issuable upon
exercise of the Warrants.

 

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(g)          Capitalization. The number of shares and type of all authorized,
issued and outstanding capital stock, options and other securities of the
Company (whether or not presently convertible into or exercisable or
exchangeable for shares of capital stock of the Company) has been set forth in
the SEC Reports and has changed since the date of such SEC Reports only to
reflect stock option and warrant exercises that do not, individually or in the
aggregate, have a material affect on the issued and outstanding capital stock,
options and other securities. All of the outstanding shares of capital stock of
the Company are duly authorized, validly issued, fully paid and non-assessable,
have been issued in compliance in all material respects with all applicable
federal and state securities laws, and none of such outstanding shares was
issued in violation of any preemptive rights or similar rights to subscribe for
or purchase any capital stock of the Company. Except as specified in the SEC
Reports or as contemplated by the Transaction Documents: (i) no shares of the
Company's capital stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company; (ii)
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, or exercisable or exchangeable for, any shares of capital
stock of the Company, or contracts, commitments, understandings or arrangements
by which the Company is or may become bound to issue additional shares of
capital stock of the Company or options, warrants, scrip, rights to subscribe
to, calls or commitments of any character whatsoever relating to, or securities
or rights convertible into, or exercisable or exchangeable for, any shares of
capital stock of the Company; (iii) there are no outstanding debt securities,
notes, credit agreements, credit facilities or other agreements, documents or
instruments evidencing indebtedness of the Company or by which the Company is or
may become bound; (iv) there are no financing statements securing obligations in
any material amounts, either singly or in the aggregate, filed in connection
with the Company; (v) there are no agreements or arrangements under which the
Company is obligated to register the sale of any of its securities under the
Securities Act (except ARTICLE IV of this Agreement), except for obligations to
maintain previously filed registration statements; (vi) there are no outstanding
securities or instruments of the Company or which contain any redemption or
similar provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company is or may become bound to redeem a security of
the Company; (vii) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities; (viii) the Company does not have any stock appreciation rights
or “phantom stock” plans or agreements or any similar plan or agreement; and
(ix) the Company has no liabilities or obligations required to be disclosed in
the SEC Reports (as defined herein) but not so disclosed in the SEC Reports,
other than those incurred in the ordinary course of the Company's businesses and
which, individually or in the aggregate, do not or would not have a Material
Adverse Effect.

 

(h)          SEC Reports. The Company has filed all reports, schedules, forms,
statements and other documents required to be filed by it under the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was required by
law or regulation to file such material) on a timely basis or has received a
valid extension of such time of filing and has filed any such SEC Reports prior
to the expiration of any such extension. As of their respective dates, or to the
extent corrected by a subsequent restatement or other amendment, the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2013, and all
other reports of the Company filed with the Commission pursuant to the Exchange
Act from January 1, 2014 through the date of this Agreement (including the
exhibits thereto and documents incorporated by reference therein, being
collectively referred to herein as the “SEC Reports”) complied in all material
respects with the requirements of the Exchange Act, and none of the SEC Reports,
when filed, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.

 

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(i)          Financial Statements.  The financial statements of the Company
included in the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the Commission with
respect thereto as in effect at the time of filing (or to the extent corrected
by a subsequent restatement). Such financial statements have been prepared in
accordance with GAAP applied on a consistent basis during the periods involved,
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company of and for the dates thereof and the results
of operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, year-end audit adjustments. All material
agreements to which the Company is a party or to which the property or assets of
the Company are subject are included as part of or specifically identified in
the SEC Reports.

 

(j)          Tax Matters   The Company (i) has accurately and timely prepared
and filed all foreign, federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject,
(ii) 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, with respect to which
adequate reserves have been set aside on the books of the Company and (iii) has
set aside on its books provisions reasonably adequate for the payment of all
taxes for periods subsequent to the periods to which such returns, reports or
declarations apply, except, in the case of clauses (i) and (ii) above, where the
failure to so pay or file any such tax, assessment, charge or return would not
result in a Material Adverse Effect. There are no unpaid taxes in any material
amount claimed to be due by the Company by the taxing authority of any
jurisdiction.

 

(k)          Material Changes.   Since the date of the latest audited financial
statements included within the SEC Reports and except as disclosed in a
subsequent SEC Report filed prior to the date of this Agreement, (i) there have
been no events, occurrences or developments that have had or that could
reasonably be expected to result, either individually or in the aggregate, in a
Material Adverse Effect, (ii) the Company has not incurred any liabilities
(contingent or otherwise) other than (A) trade payables, accrued expenses and
other liabilities incurred in the ordinary course of business consistent with
past practice and (B) liabilities not required to be reflected in the Company's
financial statements pursuant to GAAP or required to be disclosed in filings
made with the Commission, (iii) the Company has not altered its method of
accounting or the manner in which it keeps its accounting books and records,
(iv) the Company has not declared or made any dividend or distribution of cash
or other property to its stockholders or purchased, redeemed or made any
agreements to purchase or redeem any shares of its capital stock (other than in
connection with repurchases of unvested stock issued to employees of the
Company) and (v) the Company has not issued any equity securities to any
officer, director or Affiliate, except pursuant to an Equity Incentive Plan or
executive and director corporate arrangements disclosed in the SEC Reports and
(vi) there has not been any material change or amendment to, or any waiver of
any material right under, any contract under which the Company or any of their
assets is bound or subject. Except for the issuance of the Securities
contemplated by this Agreement, no event, liability or development has occurred
or exists with respect to the Company or its business, properties, operations or
financial condition that would be required to be disclosed by the Company under
applicable securities laws at the time this representation is made that has not
been publicly disclosed at least one Trading Day prior to the date that this
representation is made.

 

10

 

 

(l)          Environmental Matters. To the Company’s Knowledge, the Company (i)
is not in violation of any statute, rule, regulation, decision or order of any
governmental agency or body or any court, domestic or foreign, relating to the
use, disposal or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to hazardous or
toxic substances (collectively, “Environmental Laws”), (ii) does not own or
operate any real property contaminated with any substance that is in violation
of any Environmental Laws, (iii) is not liable for any off-site disposal or
contamination pursuant to any Environmental Laws, and (iv) is not subject to any
claim relating to any Environmental Laws; which violation, contamination,
liability or claim has had or could reasonably be expected to have a Material
Adverse Effect, individually or in the aggregate; and there is no pending or, to
the Company’s Knowledge, threatened investigation that might lead to such a
claim.

 

(m)          Litigation. There is no Action which (i) adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Securities or (ii) except as specifically disclosed in the SEC
Reports, would, if there were an unfavorable decision, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect. The Company, nor, to the Company’s Knowledge, any current director or
officer thereof (in his or her capacity thereof), is or has been during the
five-year period prior to the Closing Date the subject of any Action involving a
claim of violation of or liability under federal or state securities laws or a
claim of breach of fiduciary duty. There has not been and, to the Company’s
Knowledge, there is not pending or contemplated, any investigation by the
Commission involving the Company or, to the Company’s Knowledge, any current or
former director or officer of the Company (in his or her capacity as such). The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company under the
Exchange Act or the Securities Act.

 

(n)          Employment Matters. No material labor dispute exists or, to the
Company’s Knowledge, is imminent with respect to any of the employees of the
Company which could reasonably be expected to result in a Material Adverse
Effect. None of the Company’s employees is a member of a union that relates to
such employee’s relationship with the Company, the Company is not a party to a
collective bargaining agreement, and the Company believes that its relationship
with its employees is satisfactory. No executive officer, to the Company’s
Knowledge, is, or is now expected to be, in violation of any material term of
any employment contract, confidentiality, disclosure or proprietary information
agreement or non-competition agreement, or any other contract or agreement or
any restrictive covenant, and the continued employment of each such executive
officer does not subject the Company to any liability with respect to any of the
foregoing matters. To the Company’s Knowledge, the Company is in compliance with
all U.S. federal, state, local and foreign laws and regulations relating to
employment and employment practices, terms and conditions of employment and
wages and hours, except where the failure to be in compliance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.

 

11

 

 

(o)          Compliance.  The Company is not (i) in default under or in
violation of (and no event has occurred that has not been waived that, with
notice or lapse of time or both, would result in a default by the Company), nor
has the Company received notice of a claim that it is in default under or that
it is in violation of, any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its
properties is bound (whether or not such default or violation has been waived),
(ii) in violation of any order of any court, arbitrator or governmental body
having jurisdiction over the Company or its properties or assets, or (iii) in
violation of, or in receipt of notice that it is in violation of, any statute,
rule or regulation of any governmental authority applicable to the Company,
except in each case as could not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect.

 

(p)          Regulatory Permits.  The Company possesses all certificates,
authorizations and permits issued by the appropriate federal, state, local or
foreign regulatory authorities necessary to conduct its business as described in
the SEC Reports, except where the failure to possess such permits, individually
or in the aggregate, has not and could not reasonably be expected to result in a
Material Adverse Effect (“Material Permits”), and the Company has not received
any notice of proceedings relating to the revocation or modification of any such
Material Permits.

 

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

 

(r)          Intellectual Property.  The Company owns, possesses, licenses or
has other rights to use all foreign and domestic patents, patent applications,
trade and service marks, trade and service mark registrations, trade names,
copyrights, licenses, inventions, trade secrets, technology, Internet domain
names, know-how and other intellectual property (collectively, the “Intellectual
Property”) necessary for the conduct of its business as now conducted or as
proposed to be conducted. Except as set forth in the SEC Reports and except
where such violations or infringements would not reasonably be expected to
result, either individually or in the aggregate, in a Material Adverse Effect,
(i) to the Company’s Knowledge, there are no rights of third parties to any such
Intellectual Property; (ii) to the Company’s Knowledge, there is no infringement
by third parties of any such Intellectual Property; (iii) there is no pending
or, to the Company’s Knowledge, threatened Action challenging the Company’s
rights in or to any such Intellectual Property, and the Company is unaware of
any facts which would form a reasonable basis for any such Action; (iv) there is
no pending or, to the Company’s Knowledge, threatened Action challenging the
validity or scope of any such Intellectual Property; and (v) there is no pending
or, to the Company’s Knowledge, threatened Action that the Company infringes or
otherwise violates any patent, trademark, copyright, trade secret or other
proprietary rights of others, and the Company is unaware of any other fact which
would form a reasonable basis for any such Action.

 

12

 

 

(s)          Insurance.   The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
are prudent and customary in the businesses and location in which the Company is
engaged. The Company does not have any knowledge that it will be unable to renew
its existing insurance coverage for the Company as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business without a significant increase in cost.

 

(t)          Transactions With Affiliates and Employees.  Except as set forth in
the SEC Reports or reported on a Form 3, 4 or 5 filed with the Commission, in
either case at least ten days prior to the date hereof, and except as disclosed
on Schedule 3.1(t), none of the executive officers, directors or employees of
the Company is presently a party to any transaction with the Company (other than
for ordinary course services as employees, officers or 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 such executive officer, director
or employee or, to the Company’s Knowledge, any corporation, partnership, trust
or other entity in which any such officer, director, or employee has a
substantial interest or is an officer, director, trustee or partner.

 

(u)          Internal Accounting Controls.  The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.

 

(v)         Sarbanes-Oxley; Disclosure Controls.   The Company is in compliance
in all material respects with all of the provisions of the Sarbanes-Oxley Act of
2002 which are applicable to it as of the Closing Date. Except as described in
the SEC Reports, the Company maintains disclosure controls and procedures (as
such term is defined in Rule 13a-15(e) under the Exchange Act) that are
effective in ensuring that information required to be disclosed by the Company
in the reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
rules and forms of the Commission, including, without limitation, controls and
procedures designed to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the Company's management, including its
principal executive officer or officers and its principal financial officer or
officers, as appropriate, to allow timely decisions regarding required
disclosure.

 

(w)          Certain Fees.   No person or entity will have, as a result of the
transactions contemplated by this Agreement, any valid right, interest or claim
against or upon the Company or a Purchaser for any commission, fee or other
compensation pursuant to any agreement, arrangement or understanding entered
into by or on behalf of the Company. The Company shall pay, and hold each
Purchaser harmless against, any liability, loss or expense (including, without
limitation, attorneys’ fees and out-of-pocket expenses) arising in connection
with any such right, interest or claim.

 

13

 

 

(x)          Private Placement. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2 of this Agreement, no
registration under the Securities Act is required for the offer and sale of the
Securities by the Company to the Purchasers under the Transaction Documents.
Other than each of the Purchasers (with respect to the Shares and the Warrant
Shares), no Person has any right to cause the Company to effect the registration
under the Securities Act of any securities of the Company other than those
securities which are currently registered on an effective registration statement
on file with the Commission.

 

(y)          No Directed Selling Efforts or General Solicitation.  Neither the
Company, nor any of its Affiliates, nor any Person acting on its or their behalf
has conducted any “general solicitation” or “general advertising” (as those
terms are used in Regulation D) in connection with the offer or sale of any of
the Securities.

 

(z)          No Integrated Offering.  Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, neither the Company,
its Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, at any time within the past six months, made any offers or sales of
any Company security or solicited any offers to buy any security under
circumstances that would (i) eliminate the availability of the exemption from
registration under Regulation D under the Securities Act in connection with the
offer and sale by the Company of the Securities as contemplated hereby or (ii)
cause the offering of the Securities pursuant to the Transaction Documents to be
integrated with prior offerings by the Company for purposes of any applicable
law, regulation or stockholder approval provisions, including, without
limitation, under the rules and regulations of any Trading Market on which any
of the securities of the Company are listed or designated.

 

(aa)         Listing and Maintenance Requirements.  The Company’s Common Stock
is registered pursuant to Section 12(g) of the Exchange Act, and the Company has
taken no action designed to terminate the registration of the Common Stock under
the Exchange Act nor has the Company received any notification that the
Commission is contemplating terminating such registration. Except as specified
in the SEC Reports, the Company has not, in the two years preceding the date
hereof, received written notice from any Trading Market on which the Common
Stock is or has been listed or quoted to the effect that the Company is not in
compliance with the listing or maintenance requirements of such Trading Market.
The Company is, and has no reason to believe that following the Closing it will
not in the foreseeable future continue to be, in compliance in all material
respects with the listing and maintenance requirements for continued trading of
the Common Stock on the Principal Trading Market.

 

(bb)         Investment Company  The Company is not required to be registered
as, and is not an Affiliate of, and immediately following the Closing will not
be required to register as, an “investment company” within the meaning of the
Investment Company Act of 1940, as amended.

 

(cc)         Questionable Payments.  Neither, the Company, nor, to the Company’s
Knowledge, any directors, executive officers, employees, agents or other Persons
acting on behalf of the Company has, in the course of its actions for, or on
behalf of, the Company: (a) directly or indirectly, used any corporate funds for
unlawful contributions, gifts, entertainment or other unlawful expenses relating
to foreign or domestic political activity; (b) made any direct or indirect
unlawful payments to any foreign or domestic governmental officials or employees
or to any foreign or domestic political parties or campaigns from corporate
funds; (c) violated in any material respect any provision of the Foreign Corrupt
Practices Act of 1977, as amended, or (d) made any other unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.

 

14

 

 

(dd)         Application of Takeover Protections; Rights Agreements.  The
Company and its board of directors have taken all necessary action, if any, in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Company's charter documents
or the laws of its state of incorporation that is or could reasonably be
expected to become applicable to any of the Purchasers as a result of the
Purchasers and the Company fulfilling their obligations or exercising their
rights under the Transaction Documents, including, without limitation, the
Company's issuance of the Securities and the Purchasers' ownership of the
Securities. The Company has not adopted a stockholder rights plan or similar
arrangement relating to accumulations of beneficial ownership of Common Stock or
a change in control of the Company.

 

(ee)         Disclosure.  The Company confirms that neither it nor any of its
executive officers or directors nor any other Person acting on its or their
behalf has provided any Purchaser with information that it believes constitutes
or could reasonably be expected to constitute material, non-public information
except insofar as the existence, provisions and terms of the Transaction
Documents and the proposed transactions hereunder may constitute such
information, all of which will be disclosed by the Company in the Press Release
as contemplated by Section 5.7 hereof. The Company understands and confirms that
the Purchasers will rely on the foregoing representations in effecting
transactions in securities of the Company. All disclosure provided to the
Purchasers regarding the Company, its business and the transactions contemplated
hereby furnished by the Company (including the Company’s representations and
warranties set forth in this Agreement) are true and correct in all material
respects and do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading. To the
Company’s Knowledge, no event or circumstance has occurred or information exists
with respect to the Company or its business, properties, operations or financial
conditions, which, under applicable law, rule or regulation, requires public
disclosure or announcement by the Company but which has not been so publicly
announced or disclosed, except for the announcement of this Agreement and
related transactions.

 

(ff)         Off Balance Sheet Arrangements.  There is no transaction,
arrangement, or other relationship between the Company and an unconsolidated or
other off balance sheet entity that is required to be disclosed by the Company
in its Exchange Act filings and is not so disclosed or that otherwise would be
reasonably likely to have a Material Adverse Effect.

 

(gg)         No Additional Agreements.  The Company does not have any agreement
or understanding with any Purchaser with respect to the transactions
contemplated by the Transaction Documents other than as specified in the
Transaction Documents.

 

15

 

 

3.2         Representations and Warranties of the Purchasers.  Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:

 

(a)          Organization; Authority.  If such Purchaser is not a natural
person, (i) such Purchaser is an entity duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization with the
requisite corporate or partnership power and authority to enter into and to
consummate the transactions contemplated by the applicable Transaction Documents
and otherwise to carry out its obligations hereunder and thereunder, and (ii)
the execution, delivery and performance by such Purchaser of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate or, if such Purchaser is not a corporation, such partnership, limited
liability company or other applicable like action, on the part of such
Purchaser. Each of this Agreement and the Warrant has been duly executed by such
Purchaser, and when delivered by such Purchaser in accordance with the terms
hereof, will constitute the valid and legally binding obligation of such
Purchaser, enforceable against it in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors’ rights and remedies or by
other equitable principles of general application.

 

(b)          Investment Intent.  Such Purchaser understands that the Securities
are “restricted securities” and have not been registered under the Securities
Act or any applicable state securities law and is acquiring the Securities and,
upon exercise of the Warrants, will acquire the Warrant Shares issuable upon
exercise thereof as principal for its own account and not with a view to, or for
distributing or reselling such Securities or any part thereof in violation of
the Securities Act or any applicable state securities laws, provided, however,
that by making the representations herein, such Purchaser does not agree to hold
any of the Securities for any minimum period of time and reserves the right,
subject to the provisions of this Agreement, at all times to sell or otherwise
dispose of all or any part of such Securities or Warrant Shares pursuant to an
effective registration statement under the Securities Act or under an exemption
from such registration and in compliance with applicable federal and state
securities laws, subject to the limitations set forth herein or in such
securities laws. Such Purchaser is acquiring the Securities hereunder in the
ordinary course of its business. Such Purchaser does not presently have any
agreement, plan or understanding, directly or indirectly, with any Person to
distribute or effect any distribution of any of the Securities (or any
securities which are derivatives thereof) to or through any person or entity.
Such Purchaser is not a registered broker-dealer under Section 15 of the
Exchange Act or an entity engaged in a business that would require it to be so
registered as a broker-dealer.

 

(c)          Purchaser Status.  At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, and on each date on which it
exercises the Warrants it will be, an “accredited investor” as defined in Rule
501(a) under the Securities Act.

 

(d)          General Solicitation.    Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper, magazine or
similar media or broadcast over television or radio or presented at any seminar
or any other general advertisement. Such Purchaser represents that it has a
pre-existing relationship with the Company.

 

16

 

 

(e)          Experience of Such Purchaser.  Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment. Such Purchaser is able to
bear the economic risk of an investment in the Securities and, at the present
time, is able to afford a complete loss of such investment.

 

(f)          Access to Information.  Such Purchaser acknowledges that it has had
the opportunity to review the Disclosure Materials and has been afforded (i) the
opportunity to ask such questions as it has deemed necessary of, and to receive
answers from, representatives of the Company concerning the terms and conditions
of the offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and its financial
condition, results of operations, business, properties, management and prospects
sufficient to enable it to evaluate its investment; and (iii) the opportunity to
obtain such additional information that the Company possesses or can acquire
without unreasonable effort or expense that is necessary to make an informed
investment decision with respect to the investment. Neither such inquiries nor
any other investigation conducted by or on behalf of such Purchaser or its
representatives or counsel shall modify, amend or affect such Purchaser's right
to rely on the Company's representations and warranties contained in the
Transaction Documents.

 

(g)          Certain Trading Activities.  Other than with respect to the
transactions contemplated herein, since the earlier to occur of (1) the time
that such Purchaser was first contacted by the Company or any other Person
regarding the transactions contemplated hereby and (2) the tenth (10th) day
prior to the date of this Agreement, neither the Purchaser nor any Affiliate of
such Purchaser which (x) had knowledge of the transactions contemplated hereby,
(y) has or shares discretion relating to such Purchaser’s investments or trading
or information concerning such Purchaser’s investments, including in respect of
the Securities, and (z) is subject to such Purchaser’s review or input
concerning such Affiliate’s investments or trading (collectively, “Trading
Affiliates”), has directly or indirectly, nor has any Person acting on behalf of
or pursuant to any understanding with such Purchaser or Trading Affiliate,
effected or agreed to effect any transactions in the securities of the Company
(including, without limitation, any Short Sales involving the Company’s
securities). Notwithstanding the foregoing, in the case of a Purchaser and/or
Trading Affiliate that is, individually or collectively, a multi-managed
investment vehicle whereby separate portfolio managers manage separate portions
of such Purchaser’s or Trading Affiliate’s assets and the portfolio managers
have no direct knowledge of the investment decisions made by the portfolio
managers managing other portions of such Purchaser’s or Trading Affiliate’s
assets, the representation set forth above shall apply only with respect to the
portion of assets managed by the portfolio manager that have knowledge about the
financing transaction contemplated by this Agreement. Other than to other
Persons party to this Agreement, such Purchaser has maintained the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction).
Notwithstanding the foregoing, no Purchaser makes any representation, warranty
or covenant hereby that it will not engage in Short Sales in the securities of
the Company after the time that the transactions contemplated by this Agreement
are first publicly announced as described in Section 5.7, subject to the
restrictions set forth in Section 5.10.

 

17

 

 

(h)          Brokers and Finders.  No Person will have, as a result of the
transactions contemplated by this Agreement, any valid right, interest or claim
against or upon the Company or any Purchaser for any commission, fee or other
compensation pursuant to any agreement, arrangement or understanding entered
into by or on behalf of the Purchaser.

 

(i)          Limited Ownership.  The purchase by such Purchaser of the
Securities issuable to it at the Closing will not result in such Purchaser
(individually or together with other Person with whom such Purchaser has
identified, or will have identified, itself as part of a “group” in a public
filing made with the Commission involving the Company’s securities) acquiring,
or obtaining the right to acquire, in excess of 19.99% of the outstanding shares
of Common Stock or the voting power of the Company on a post transaction basis
that assumes that the Closing shall have occurred. Such Purchaser does not
presently intend to, alone or together with others, make a public filing with
the Commission to disclose that it has (or that it together with such other
Persons have) acquired, or obtained the right to acquire, as a result of the
Closing (when added to any other securities of the Company that it or they then
own or have the right to acquire), in excess of 19.99% of the outstanding shares
of Common Stock or the voting power of the Company on a post transaction basis
that assumes that the Closing shall have occurred.

 

(j)          Independent Investment Decision.  Such Purchaser has independently
evaluated the merits of its decision to purchase Securities pursuant to the
Transaction Documents, and such Purchaser confirms that it has not relied on the
advice of any other Purchaser’s business and/or legal counsel in making such
decision. Such Purchaser understands that nothing in this Agreement or any other
materials presented by or on behalf of the Company to the Purchaser in
connection with the purchase of the Securities constitutes legal, tax or
investment advice. Such Purchaser has consulted such legal, tax and investment
advisors as it, in its sole discretion, has deemed necessary or appropriate in
connection with its purchase of the Securities.

 

(k)          Reliance on Exemptions.  Such Purchaser understands that the
Securities being offered and sold to it in reliance on specific exemptions from
the registration requirements of United States federal and state securities laws
and that the Company is relying in part upon the truth and accuracy of, and such
Purchaser’s compliance with, the representations, warranties, agreements,
acknowledgements and understandings of such Purchaser set forth herein in order
to determine the availability of such exemptions and the eligibility of such
Purchaser to acquire the Securities.

 

(l)          No Governmental Review.  Such Purchaser understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.

 

18

 

 

(m)          Residency; Foreign Securities Laws.  Unless such Purchaser resides,
in the case of individuals, or is headquartered or formed, in the case of
entities, in the United States, such Purchaser acknowledges that the Company
will not issue any Securities in compliance with the laws of any jurisdiction
outside of the United States and the Company makes no representation or warranty
that any Securities issued outside of the United States have been offered or
sold in compliance with the laws of the jurisdiction into which such Shares were
issued. Any Purchaser not a resident of or formed in the United States warrants
to the Company that no filing is required by the Company with any governmental
authority in such Purchaser’s jurisdiction in connection with the transactions
contemplated hereby. If such Purchaser is domiciled or was formed outside of the
United States, such Purchaser has satisfied itself as to the full observance of
the laws of its jurisdiction in connection with the acquisition of the
Securities or any use of this Agreement, including (i) the legal requirements
within its jurisdiction for the purchase of the Securities, (ii) any foreign
exchange restrictions applicable to such purchase, (iii) any governmental or
other consents that may need to be obtained and (iv) the income tax and other
tax consequences, if any, that may be relevant to the purchase, holding,
redemption, sale or transfer of the Securities. If such Purchaser is domiciled
or was formed outside the United States, such Purchaser’s acquisition of and
payment for, and its continued ownership of the Securities, will not violate any
applicable securities or other laws of his, her or its jurisdiction.

 

The Company acknowledges and agrees that no Purchaser has made or makes any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 3.2.

 

ARTICLE IV.
REGISTRATION RIGHTS

 

4.1         Registration; Definitions.

 

(a)          No later than sixty (60) days following the Closing Date (the
“Registration Due Date”), the Company shall prepare and file with the Commission
a registration statement covering the resale of all of the Registrable
Securities (the “Registration Statement”); provided, however, that if the
Registration Due Date falls on a Saturday, Sunday or other day on which the
Commission is not open for business, then the Registration Due Date shall be
extended to the next day on which the Commission is open for business. The
Registration Statement required hereunder shall be on Form S-3 (or Form S-1 or
any other applicable form, at the sole discretion of the Company, if Form S-3 is
not available to the Company). Subject to the terms of this Agreement, the
Company shall use its commercially reasonable efforts to cause the Registration
Statement to be declared effective under the Securities Act as promptly as
possible after the filing thereof, and shall use its commercially reasonable
efforts to keep the Registration Statement continuously effective under the
Securities Act until the date when all Registrable Securities covered by the
Registration Statement have been sold or may be sold without volume restrictions
pursuant to Rule 144, as determined by the counsel to the Holder (as defined
below) pursuant to a written opinion letter to such effect, addressed and
acceptable to the Company’s counsel, the Company’s transfer agent and the
affected Holders (the “Effectiveness Period”). By 9:30 a.m. EDT on the Business
Day following the date that the Registration Statement is declared effective by
the Commission, the Company shall file with the Commission in accordance with
Rule 424 under the Securities Act the final prospectus to be used in connection
with sales pursuant to such Registration Statement.

 

(b)          In the event the Company fails to file the Registration Statement
with the Commission on or before the Registration Due Date, the Company shall
pay to each Purchaser, as liquidated damages and not as a penalty, an amount,
for each month (or portion of a month) in which such delay shall occur, equal to
one percent (1%) of the aggregate Purchase Price paid by each such Purchaser,
until the point in time when the Company has filed the Registration Statement
with the Commission or the expiration of the Effectiveness Period, whichever
occurs first.

 

19

 

 

(c)          The term “Registrable Securities” shall mean (i) all Shares sold in
the Offering, (ii) the Warrant Shares issuable upon exercise of all Warrants
sold in the Offering, and (iii) any shares of Common Stock issued or issuable
upon any stock split, dividend or other distribution, recapitalization or
similar event with respect to the foregoing; provided, however, that securities
shall only be treated as Registrable Securities if and only for so long as they
(i) have not been sold (A) pursuant to a registration statement; (B) to or
through a broker, dealer or underwriter in a public distribution or a public
securities transaction; and/or (C) in a transaction exempt from the registration
and prospectus delivery requirements of the Securities Act under Section 4(1)
thereof so that all transfer restrictions and restrictive legends with respect
thereto, if any, are removed upon the consummation of such sale; (ii) are held
by a Holder (as defined below) or a permitted transferee; and (iii) are not
eligible for sale without volume limitations pursuant to Rule 144 (or any
successor thereto) under the Securities Act.

 

(d)          The term “Holder” shall mean any person owning or having the right
to acquire Registrable Securities or any permitted transferee of a Holder.

 

4.2         Registration Procedures; Company. In connection with the Company’s
registration obligations set forth in Section 4.1 above, the Company shall:

 

(a)          Not less than five (5) business days prior to the filing of the
Registration Statement or any related prospectus or any amendment or supplement
thereto (i) furnish to the Holders copies of all such documents proposed to be
filed (other than those documents incorporated or deemed incorporated by
reference to the extent requested by such Person) which documents will be
subject to the review of such Holders and (ii) cause its officers, directors,
counsel and independent certified public accountants to respond to such
inquiries as shall be necessary, in the reasonable opinion of respective
counsel, to conduct a reasonable investigation within the meaning of the
Securities Act. The Company shall not file the Registration Statement or any
such prospectus or any amendments or supplements thereto to which the Holders of
a majority of the Registrable Securities shall reasonably object in good faith,
provided that the Company is notified of such objection in writing no later than
three (3) business days after the Holders have been so furnished copies of such
documents.

 

(b)          Prepare and file with the Commission such amendments, including
post-effective amendments, to the Registration Statement and the prospectus used
in connection therewith as may be necessary to keep the Registration Statement
continuously effective as to the applicable Registrable Securities for the
Effectiveness Period and prepare and file with the Commission such additional
Registration Statements in order to register for resale under the Securities Act
all of the Registrable Securities.

 

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

 

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

 

(e)          Furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) 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 (ii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the Commission which permits
the selling of any such securities without registration or pursuant to such
form.

 

20

 

 

4.3         Registration Procedures; Purchaser. In connection with the Company’s
registration obligations set forth in Section 4.1 above:

 

(a)          The Purchaser shall cooperate with the Company, as requested by the
Company, in connection with the preparation and filing of any Registration
Statement hereunder. The Purchaser shall provide the Company with a completed
Selling Stockholder Questionnaire (in the form attached hereto as Exhibit B-3)
and such other information that the Company may reasonably require the Purchaser
to promptly furnish in writing to the Company as may be required in connection
with such registration including, without limitation, all such information as
may be requested by the Commission or FINRA or any state securities commission
and all such information regarding the Purchaser, the Registrable Securities
held by the Purchaser and the intended method of disposition of the Registrable
Securities. The Purchaser agrees to provide such information requested in
connection with such registration within five (5) business days after receiving
such written request. The Company shall not be responsible for any delays in
filing or obtaining or maintaining the effectiveness of the Registration
Statement caused by any Purchaser’s failure to timely provide a completed
Selling Stockholder Questionnaire or such other information requested by the
Company.

 

(b)          If, in the good faith judgment of the Company, it would be
detrimental to the Company or its stockholders for the Registration Statement to
be filed or for resales of Registrable Securities to be made pursuant to the
Registration Statement due to (i) the existence of a material development or
potential material development involving the Company that the Company would be
obligated to disclose in the Registration Statement, which disclosure would be
premature or otherwise inadvisable at such time or would have a material adverse
effect on the Company or its stockholders or (ii) a proposed filing of or use of
an existing registration statement in connection with a Company-initiated
registration of any class of its equity securities, which, in the good faith
judgment of the Company, would adversely effect or require premature disclosure
of the filing or use of such Company-initiated registration (notice thereof, a
“Blackout Notice”), upon receipt of a Blackout Notice from the Company, the
Purchaser shall immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement (the period during which such disposition
is discontinued, the “Blackout Period”) covering such Registrable Securities
until (i) the Company advises the Purchaser that the Blackout Period has
terminated and (ii) the Purchaser receives copies of a supplemented or amended
prospectus, if necessary; provided, however, that (x) no Blackout Period shall
exceed thirty (30) consecutive days, (y) during any three hundred sixty five
(365) day period such Blackout Periods shall not exceed an aggregate of sixty
(60) days, and (z) the first day of any Blackout Period must be at least five
(5) Trading Days after the last day of any prior Blackout Period. If so directed
by the Company, the Purchaser will deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in the Purchaser’s possession (other than a limited number of file
copies) of the prospectus covering such Registrable Securities that is current
at the time of receipt of such notice.

 

(c)          If the Purchaser determines to engage an underwriter (other than
the Purchaser) in connection with the offering of any Registrable Securities (an
“Underwritten Offering”), the Purchaser will enter into and perform its
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering, and will take such
other actions as are reasonably required in order to expedite or facilitate the
disposition of the Registrable Securities. The Purchaser shall consult with the
Company prior to any Underwritten Offering and shall defer such Underwritten
Offering for a reasonable period upon the request of the Company.

 

21

 

 

(d)          The Purchaser shall not take any action with respect to any
distribution deemed to be made pursuant to the Registration Statement, which
would constitute a violation of Regulation M under the Exchange Act or any other
applicable rule, regulation or law.

 

4.4         Registration Expenses. All fees and expenses of the Company incident
to the performance of or compliance with Section 4.1 and Section 4.2 hereof by
the Company shall be borne by the Company. In addition, the Company shall
reimburse the Holders, on a one-time basis, for the reasonable fees and expenses
of counsel to the Holders of up to $5,000 in the aggregate with respect to the
review of any registration statement filed pursuant to Section 4.1 hereof, as
directed by the then Holders of a majority of the Registrable Securities.

 

4.5         Indemnification. In the event that any Registrable Securities are
included in a Registration Statement under this ARTICLE IV:

 

(a)          To the extent permitted by law, the Company will indemnify and hold
harmless each Holder, any underwriter (as defined in the Securities Act) for
such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Exchange Act, against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Securities Act, or the Exchange Act, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a “Violation”): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, or any rule or
regulation promulgated under the Securities Act, or the Exchange Act, and the
Company will pay to each such Holder, underwriter or controlling person, as
incurred, any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
Section 4.5(a) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability, or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any such loss, claim, damage,
liability, or action to the extent that it arises out of or is based upon a
Violation that occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
any such Holder, underwriter or controlling person.

 

(b)          To the extent permitted by law, each Holder will indemnify and hold
harmless the Company, each of its directors, each of its officers, each person,
if any, who controls the Company within the meaning of the Securities Act, any
underwriter, any other Holder selling securities in such registration statement
and any controlling person of any such underwriter or other Holder, against any
losses, claims, damages, or liabilities (joint or several) to which any of the
foregoing persons may become subject, under the Securities Act, or the Exchange
Act, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereto) arise out of or are 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 or omitted by such Holder
for use in connection with such registration; and each such Holder will pay, as
incurred, any legal or other expenses incurred by any person intended to be
indemnified pursuant to this Section 4.5(b), in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this Section 4.5(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld; provided, further, that, in no event shall
any indemnity under this Section 4.5(b) exceed the greater of the cash value of
the (i) gross proceeds from the offering received by such Holder or (ii) such
Holder’s investment pursuant to this Agreement as set forth on the signature
page attached hereto.

 

22

 

 

(c)          Promptly after receipt by an indemnified party under this
Section 4.5 of notice of the commencement of any action (including any
governmental action), such indemnified party shall, if a claim in respect
thereof is to be made against any indemnifying party under this Section 4.5,
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 notified, to assume the defense thereof with counsel selected by
the indemnifying party and approved by the indemnified party (whose approval
shall not be unreasonably withheld); provided, however, that an indemnified
party (together with all other indemnified parties which may be represented
without conflict by one counsel) shall have the right to retain one separate
counsel, with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
Section 4.5, but the omission so to deliver written notice to the indemnifying
party will not relieve it of any liability that it may have to any indemnified
party otherwise than under this Section 4.5.

 

(d)          If the indemnification provided for in this Section 4.5 is held by
a court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the alleged omission to state a material
fact relates to information supplied by the indemnifying party or by the
indemnified party and the parties’ relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement or omission.

 

23

 

 

(e)          The obligations of the Company and Holders under this Section 4.5
shall survive the completion of any offering of Registrable Securities in a
Registration Statement under this ARTICLE IV, and otherwise.

 

4.6         Cutback. In connection with filing the Registration Statement
pursuant to Section 4.1 hereof, the obligations of the Company set forth in this
ARTICLE IV are subject to any limitations on the Company’s ability to register
the full complement of such shares in accordance with Rule 415 under the
Securities Act or other regulatory limitations. To the extent the number of such
shares that can be registered is limited, the Company shall file a subsequent
registration agreement that will provide, among other things, that the Company
will use its commercially reasonable efforts to register additional tranches of
Registrable Securities as soon as permissible thereafter under applicable laws,
rules and regulations so that all of such Registrable Securities are registered
as soon as reasonably practicable.

 

4.7         Sales by Purchasers. The Purchaser shall sell any and all
Registrable Securities (as defined below) purchased hereby in compliance with
applicable prospectus delivery requirements, if any, or otherwise in compliance
with the requirements for an exemption from registration under the Securities
Act and the rules and regulations promulgated thereunder. The Purchaser will not
make any sale, transfer or other disposition of the Securities in violation of
federal or state securities or “blue sky” laws and regulations.

 

4.8         Piggy-Back Registrations. If at any time during the Effectiveness
Period there is not an effective Registration Statement covering all of the
Registrable Securities and the Company shall determine to prepare and file with
the Commission a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with the stock option or other employee
benefit plans, then the Company shall send to each Holder a written notice of
such determination and, if within 15 days after the date of such notice, any
such Holder shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
Holder requests to be registered, subject to customary underwriter cutbacks
applicable to all holders of registration rights and any limitations imposed by
applicable law.

 

4.9         Waivers. With the written consent of the Company and the Holders
holding at least a majority of the Registrable Securities that are then
outstanding, any provision of this ARTICLE IV may be waived (either generally or
in a particular instance, either retroactively or prospectively and either for a
specified period of time or indefinitely) or amended, which waiver shall be
applicable to all Holders, and shall be deemed to have been consented to by all
Holders. Upon the effectuation of each such waiver or amendment, the Company
shall promptly give written notice thereof to the Holders, if any, who have not
previously received notice thereof or consented thereto in writing.

 

24

 

 

ARTICLE V.

OTHER AGREEMENTS OF THE PARTIES

 

5.1         Transfers; Certificates.

 

(a)          Compliance with Laws. Notwithstanding any other provision of this
Agreement, each Purchaser covenants that the securities may be disposed of only
pursuant to an effective registration statement under, and in compliance with
the requirements of, the Securities Act, or pursuant to an available exemption
from, or in a transaction not subject to, the registration requirements of the
Securities Act, and in compliance with any applicable state and federal
securities laws. In connection with any transfer of the Securities other than
(i) pursuant to an effective registration statement, (ii) to the Company, (iii)
to an Affiliate of a Purchaser, (iv) pursuant to Rule 144 (provided that the
Purchaser provides the Company with reasonable assurances (in the form of seller
and broker representation letters or an opinion of counsel, as appropriate) that
the securities may be sold pursuant to such rule) or Rule 144A, or (v) in
connection with a bona fide pledge as contemplated in Section 5.1(b), except as
otherwise provided herein, the Company may require the transferor thereof to
provide to the Company an opinion of counsel selected by the transferor and
reasonably acceptable to the Company, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred Securities under the
Securities Act. As a condition of transfer, any such transferee shall agree in
writing to be bound by the terms of this Agreement and shall have the rights of
a Purchaser under this Agreement, including ARTICLE IV hereof.

 

(b)          Legends. Certificates evidencing the Securities shall bear any
legend as required by the “blue sky” laws of any applicable state and a
restrictive legend in substantially the following form, until such time as they
are not required under Section 5.1(c):

 

[NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES HAVE BEEN REGISTERED] [THESE SECURITIES HAVE NOT BEEN REGISTERED]
WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS AS EVIDENCED
BY A LEGAL OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY.

 

25

 

 

The Company acknowledges and agrees that a Purchaser may from time to time
pledge, and/or grant a security interest in, some or all of the legended
Securities in connection with applicable securities laws, pursuant to a bona
fide margin agreement in compliance with a bona fide margin loan. Such a pledge
would not be subject to approval or consent of the Company and no legal opinion
of legal counsel to the pledgee, secured party or pledgor shall be required in
connection with the pledge, but such legal opinion shall be required in
connection with a subsequent transfer or foreclosure following default by the
Purchaser's transferee of the pledge. No notice shall be required of such
pledge, but Purchaser’s transferee shall promptly notify the Company of any such
subsequent transfer or foreclosure. Each Purchaser acknowledges that the Company
shall not be responsible for any pledges relating to, or the grant of any
security interest in, any of the Securities or for any agreement, understanding
or arrangement between any Purchaser and its pledgee or secured party. At the
appropriate Purchaser’s expense, the Company will execute and deliver such
reasonable documentation as a pledgee or secured party of Shares may reasonably
request in connection with a pledge or transfer of the Shares, including the
preparation and filing of any required prospectus supplement under Rule
424(b)(3) of the Securities Act or other applicable provision of the Securities
Act to appropriately amend the list of Selling Stockholders thereunder. Each
Purchaser acknowledges and agrees that, except as otherwise provided in Section
5.1(c), any Shares subject to a pledge or security interest as contemplated by
this Section 5.1(b) shall continue to bear the legend set forth in this Section
5.1(b) and be subject to the restrictions on transfer set forth in Section
5.1(a).

 

(c)          Removal of Legends. The legend set forth in Section 5.1(b) above
shall be removed and the Company shall issue a certificate without such legend
to the holder of the Securities upon which it is stamped or issue to such holder
by electronic delivery at the applicable balance account at The Depository Trust
Company (“DTC”), if (i) such Securities are registered for resale under the
Securities Act, (ii) such Securities are sold or transferred pursuant to Rule
144 (assuming the transferor is not an Affiliate of the Company) or Rule 144A,
or (iii) such Securities are eligible for sale under Rule 144 without
application of the requirements of paragraph (c)(i) thereof. The Company shall
cause its counsel to issue the legal opinion referred to in the Irrevocable
Transfer Agent Instructions to the Company’s transfer agent on the Effective
Date. Any fees (with respect to the Transfer Agent, counsel to the Company or
otherwise) associated with the issuance of such opinion or the removal of such
legend shall be borne by the Company. If any portion of the Warrant is exercised
at a time when there is an effective registration statement to cover the resale
of the Warrant Shares, or if such Warrant Shares may be sold under Rule 144
without application of the requirements of paragraph (c)(i) thereof, then such
Warrant Shares shall be issued free of all legends. Following the Effective
Date, or at such earlier time as a legend is no longer required for certain
Securities, the Company will no later than three (3) Trading Days following the
delivery by a Purchaser to the Company or the Transfer Agent (with notice to the
Company) of (x) a legended certificate representing such Shares or Warrant
Shares (endorsed or with stock powers attached, signatures guaranteed, and
otherwise in form necessary to affect the reissuance and/or transfer) or (y) an
Exercise Notice in the manner stated in the Warrants to effect the exercise of
such Warrant in accordance with its terms and an opinion of counsel to the
extent required by Section 5.1(a), deliver or cause to be delivered to such
Purchaser a certificate representing such Securities that is free from all
restrictive and other legends. The Company may not make any notation on its
records or give instructions to the Transfer Agent that enlarge the restrictions
on transfer set forth in this Section.

 

(d)          Irrevocable Transfer Agent Instructions. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates or credit shares to the applicable balance accounts
at DTC, registered in the name of each Purchaser or its respective nominee(s),
for the Shares and the Warrant Shares in such amounts as specified from time to
time by each Purchaser to the Company in the form of Exhibit C attached hereto
(the “Irrevocable Transfer Agent Instructions”).

 

26

 

 

(e)          Acknowledgement. Each Purchaser hereunder acknowledges its primary
responsibilities under the Securities Act and accordingly will not sell any of
the Securities or any interest therein without complying with the requirements
of the Securities Act. While a Registration Statement remains effective, each
Purchaser hereunder may sell the shares in accordance with the plan of
distribution contained in such Registration Statement and if it does so it will
comply therewith and with the related prospectus delivery requirements unless an
exemption therefrom is available. Each Purchaser, severally and not jointly with
the other Purchasers, agrees that if it is notified by the Company at any time
after the date any legend is removed pursuant to Section 5.1(c) hereof that no
Registration Statement is effective or that the prospectus included in any such
Registration Statement no longer complies with the requirements of Section 10 of
the Securities Act, the Purchaser will refrain from selling such Shares and
Warrant Shares until such time as the Purchaser is notified by the Company that
a Registration Statement is effective or such prospectus is compliant with
Section 10 of the Exchange Act, unless such Purchaser is able to, and does, sell
such Shares or Warrant Shares pursuant to an available exemption from the
registration requirements of Section 5 of the Securities Act. Each Purchaser,
severally and not jointly with the other Purchasers, agrees to indemnify the
Company and Company Counsel for any damages or losses resulting to the Company
from the Purchaser’s breach of its covenants set forth in the preceding
sentence.

 

5.2         Reservation of Common Stock. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance from and after the Closing Date, no less than 100% of the number of
shares of Common Stock issuable upon exercise of the Warrants issued at the
Closing (without taking into account any limitations on exercise of the Warrants
set forth in the Warrants).

 

5.3         Furnishing of Information. In order to enable the Purchasers to sell
the Securities under Rule 144 of the Securities Act, for a period of one year
from the Closing, the Company shall use its commercially reasonable efforts to
timely file (or obtain extensions in respect thereof and file within the
applicable grace period) all reports required to be filed by the Company after
the date hereof pursuant to the Exchange Act. During such one year period, if
the Company is not required to file reports pursuant to such laws, it will
prepare and furnish to the Purchasers and make publicly available in accordance
with Rule 144(c) such information as is required for the Purchasers to sell the
Shares and Warrant Shares under Rule 144. The Company further covenants that it
will take such further action as any holder of Securities may reasonably
request, all to the extent required from time to time to enable such Person to
sell the Shares and Warrant Shares without registration under the Securities Act
within the limitation of the exemptions provided by Rule 144.

 

5.4         Reporting Status. During the one year period from and after the
Closing, the Company shall not terminate its status as an issuer required to
file reports under the Exchange Act even if the Exchange Act would otherwise
permit such termination.

 

5.5         Form D and Blue Sky. The Company agrees to file a Form D with
respect to the sale of the Shares and Warrants as required under Regulation D
and, upon request from any Purchaser, to provide a copy thereof to such
Purchaser promptly after such filing. The Company, on or before the Closing
Date, shall take such action as the Company shall reasonably determine is
necessary in order to obtain an exemption for or to qualify the Securities for
sale to the Purchasers at the Closing pursuant to this Agreement under
applicable securities or “Blue Sky” laws of the states of the United States (or
to obtain an exemption from such qualification), and shall provide evidence of
any such action so taken to a Purchaser who so requests on or prior to the
Closing Date. The Company shall make all filings and reports relating to the
offer and sale of the Securities required under applicable securities or “Blue
Sky” laws of the states of the United States following the Closing Date.

 

27

 

 

5.6           No Integration. The Company shall not, and shall use its best
efforts to ensure that no Affiliate of the Company shall, sell, offer for sale
or solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that will be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers, or
that will be integrated with the offer or sale of the Securities for purposes of
the rules and regulations of any Trading Market such that it would require
stockholder approval prior to the closing of such other transaction unless
stockholder approval is obtained before the closing of such subsequent
transaction.

 

5.7           Securities Laws Disclosure; Publicity. By 9:30 a.m. (New York City
time) on the Trading Day immediately following the execution of this Agreement,
the Company shall issue a press release (the “Press Release”) disclosing all
material terms of the transactions contemplated hereby. On or prior to the
fourth (4th) Business Day following the date of this Agreement, the Company will
file a Current Report on Form 8-K with the Commission describing the terms of
the Transaction Documents (and including as exhibits to such Current Report on
Form 8-K the material Transaction Documents (including, without limitation, this
Agreement and the form of Warrant)). Each Purchaser, severally and not jointly
with the other Purchasers, covenants that until such time as the transactions
contemplated by this Agreement are publicly disclosed by the Company as
described in this Section 5.7, such Purchaser will maintain the confidentiality
of all disclosures made to it in connection with this transaction (including the
existence and terms of this transaction).

 

5.8           Listing of Securities. Promptly following the date hereof, the
Company shall take all necessary action to cause the Shares and the Warrant
Shares to be listed upon the Principal Trading Market, if any, upon which shares
of Common Stock are then listed (subject to official notice of issuance) and
shall maintain, so long as any other shares of Common Stock shall be so listed,
such listing. Further, if the Company applies to have its Common Stock or other
securities listed on any other Trading Market, it shall include in such
application the Shares and the Warrant Shares and will take such other action as
is necessary to cause the Shares, and the Warrant Shares to be listed on such
other Trading Market as promptly as practicable.

 

5.9           Use of Proceeds. The Company intends to use the net proceeds
resulting from the sale of the Securities for general corporate purposes, which
may include working capital, sales and marketing expenditures, capital
expenditures, research and development expenditures, pre-clinical and clinical
trial expenditures, acquisitions of new technologies or businesses that are
complementary to our current technologies or business focus, and investments. As
of the date of this Agreement, the Company cannot specify with certainty all of
the particular uses of the net proceeds from the sale of the Securities. As a
result, Purchasers acknowledge that the Company’s management will retain broad
discretion in the allocation and use of such proceeds.

 

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5.10          Sales and Confidentiality After the Date Hereof. Such Purchaser
shall not, and shall cause its Trading Affiliates not to, engage, directly or
indirectly, in any transactions in the securities of the Company (including,
without limitation, any Short Sales) during the period from the date hereof
until such time as (i) the transactions contemplated by this Agreement are first
publicly announced as described in Section 5.7 or (ii) this Agreement is
terminated in full pursuant to Section 7.16. Notwithstanding the foregoing, in
the case of a Purchaser that is a multi-managed investment vehicle whereby
separate portfolio managers manage separate portions of such Purchaser's assets
and the portfolio managers have no direct knowledge of the investment decisions
made by the portfolio managers managing other portions of such Purchaser's
assets, the representation set forth above shall apply only with respect to the
portion of assets managed by the portfolio manager that have knowledge about the
financing transaction contemplated by this Agreement. Each Purchaser understands
and acknowledges, severally and not jointly with any other Purchaser, that the
Commission currently takes the position that covering a short position
established prior to effectiveness of a resale registration statement with
shares included in such registration statement would be a violation of Section 5
of the Securities Act, as set forth in Item 65, Section 5 under Section A, of
the Manual of Publicly Available Telephone Interpretations, dated July 1997,
compiled by the Office of Chief Counsel, Division of Corporation Finance.

 

5.11         Equal Treatment of Purchasers. 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 the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. For
clarification purposes, this provision constitutes a separate right granted to
each Purchaser by the Company and negotiated separately by each Purchaser, and
is intended for the Company to treat the Purchasers as a class and shall not in
any way be construed as the Purchasers acting in concert or as a group with
respect to the purchase, disposition or voting of Shares or otherwise.

 

5.12         Indemnification. Subject to the provisions of this Section 5.12,
the Company will indemnify and hold each Purchaser and its directors, officers,
stockholders, members, partners, employees and agents (and any other Persons
with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, stockholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling persons (each, a
“Purchaser Party”) harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a
Purchaser, or any of them or their respective Affiliates, by any stockholder of
the Company who is not an Affiliate of such Purchaser, with respect to any of
the transactions contemplated by the Transaction Documents (unless such action
is based upon a breach of such Purchaser’s representations, warranties or
covenants under the Transaction Documents or any agreements or understandings
such Purchaser may have with any such stockholder or any violations by the
Purchaser of state or federal securities laws or any conduct by such Purchaser
which constitutes fraud, gross negligence, willful misconduct or malfeasance).
If any action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing reasonably
acceptable to the Purchaser Party. Any Purchaser Party shall have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Purchaser Party except to the extent that (i) the employment thereof has
been specifically authorized by the Company in writing, (ii) the Company has
failed after a reasonable period of time to assume such defense and to employ
counsel or (iii) in such action there is, in the reasonable opinion of such
separate counsel, a material conflict on any material issue between the position
of the Company and the position of such Purchaser Party, in which case the
Company shall be responsible for the reasonable fees and expenses of no more
than one such separate counsel. The Company will not be liable to any Purchaser
Party under this Agreement (i) for any settlement by a Purchaser Party effected
without the Company’s prior written consent, which shall not be unreasonably
withheld or delayed; or (ii) to the extent, but only to the extent that a loss,
claim, damage or liability is attributable to (A) any Purchaser Party’s breach
of any of the representations, warranties, covenants or agreements made by such
Purchaser Party in this Agreement or in the other Transaction Documents, (B) any
violations by the Purchaser of state or federal securities laws or (C) any
conduct by such Purchaser which constitutes fraud, gross negligence, willful
misconduct or malfeasance.

 

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ARTICLE VI.

CONDITIONS PRECEDENT TO CLOSING

 

6.1         Conditions Precedent to the Obligations of the Purchasers to
Purchase Securities. The obligation of each Purchaser to acquire Shares and
Warrants at the Closing is subject to the fulfillment to such Purchaser’s
satisfaction, on or prior to the Closing Date, of each of the following
conditions, any of which may be waived by such Purchaser (as to itself only):

 

(a)          Representations and Warranties. The representations and warranties
of the Company contained herein shall be true and correct in all material
respects (except that representations and warranties that are qualified by
materiality or Material Adverse Effect shall be true and correct in all
respects) as of the date when made and as of the Closing Date, as though made on
and as of such date, except for representations and warranties that speak as of
a specific date which shall be true and correct in all material respects as of
such date;

 

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

 

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

 

(d)          Consents. The Company shall have obtained in a timely fashion any
and all consents, permits, approvals, registrations and waivers necessary or
appropriate for consummation of the purchase and sale of the Securities, all of
which shall be and remain so long as necessary in full force and effect;

 

30

 

 

(e)          Adverse Changes. Since the date of execution of this Agreement, no
event or series of events shall have occurred that has resulted or reasonably
could result in a Material Adverse Effect, nor shall a banking moratorium been
declared by either the United States or New York State authorities nor shall
there have occurred any material outbreak or escalation of hostilities or other
national or international calamity of such magnitude in its effect on, or any
material adverse change in, any financial market which, in each case, in the
reasonable judgment of each Purchaser, makes it impractical or inadvisable to
purchase the Shares and Warrants at the Closing;

 

(f)          No Suspensions of Trading in Common Stock; Listing. The Common
Stock (i) shall be designated for quotation or listed on the Principal Trading
Market and (ii) shall not have been suspended, as of the Closing Date, by the
Commission or the Principal Trading Market from trading on the Principal Trading
Market nor shall suspension by the Commission or the Principal Trading Market
have been threatened, as of the Closing Date, either (A) in writing by the
Commission or the Principal Trading Market or (B) by falling below the minimum
listing maintenance requirements of the Principal Trading Market;

 

(g)          Company Deliverables. The Company shall have delivered the Company
Deliverables in accordance with Section 2.2(a);

 

(h)          Compliance Certificate. The Company shall have delivered to each
Purchaser a certificate, dated as of the Closing Date and signed by its Chief
Executive Officer or its Chief Financial Officer, dated as of the Closing Date,
certifying to the fulfillment of the conditions specified in Sections 6.1(a),
(b), (c), (d) and (f); and

 

(i)          Termination.   This Agreement shall not have been terminated as to
such Purchaser in accordance with Section 7.16 herein.

 

6.2           Conditions Precedent to the Obligations of the Company to Sell
Securities. The Company's obligation to sell and issue the Shares and Warrants
at the Closing is subject to the fulfillment to the satisfaction of the Company
on or prior to the Closing Date of the following conditions, any of which may be
waived by the Company:

 

(a)          Representations and Warranties. The representations and warranties
made by the Purchasers in Section 3.2 hereof shall be true and correct in all
material respects (except that representations and warranties that are qualified
by materiality or Material Adverse Effect shall be true and correct in all
respects) as of the date when made, and as of the Closing Date as though made on
and as of such date, except for representations and warranties that speak as of
a specific date which shall be true and correct in all material respects as of
such date;

 

(b)          Performance. The Purchasers shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by the Purchasers at or prior to the Closing Date;

 

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

 

31

 

 

(d)          Consents. The Company shall have obtained in a timely fashion any
and all consents, permits, approvals, registrations and waivers necessary or
appropriate for consummation of the purchase and sale of the Securities, all of
which shall be and remain so long as necessary in full force and effect;

 

(e)          Purchasers Deliverables. Each Purchaser shall have delivered its
Purchaser Deliverables in accordance with Section 2.2(b); and

 

(f)          Termination.         This Agreement shall not have been terminated
as to such Purchaser in accordance with Section 7.16 herein.

 

ARTICLE VII.
MISCELLANEOUS

 

7.1           Fees and Expenses. The Company and the Purchasers shall each pay
the fees and expenses of their respective advisers, counsel, accountants and
other experts, if any, and all other expenses incurred by such party in
connection with the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all Transfer Agent fees,
stamp taxes and other taxes and duties levied in connection with the sale and
issuance of the Securities to the Purchasers.

 

7.2           Entire Agreement. The Transaction Documents, together with the
Exhibits and Schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements,
understandings, discussions and representations, oral or written, with respect
to such matters, which the parties acknowledge have been merged into such
documents, exhibits and schedules. At or after the Closing, and without further
consideration, the Company and the Purchasers will execute and deliver to the
other such further documents as may be reasonably requested in order to give
practical effect to the intention of the parties under the Transaction
Documents.

 

7.3           Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile (provided the sender
receives a machine-generated confirmation of successful transmission) at the
facsimile number specified in this Section prior to 5:00 p.m. (New York City
time) on a Business Day, (b) the next Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section on a day that is not a Business Day
or later than 5:00 p.m. (New York City time) on any Business Day, (c) the
Business Day following the date of mailing, if sent by U.S. nationally
recognized overnight courier service with next day delivery specified, or (d)
upon actual receipt by the party to whom such notice is required to be given.
The address for such notices and communications shall be as follows:

 

  If to the Company: Nephros, Inc.     41 Grand Avenue     River Edge,
NJ  07661       Telephone No.:  (201) 343-5202

 

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    Facsimile No.:  (201) 343-5207     Attention:  President         With a copy
to: Fredrikson & Byron, P.A.     200 South Sixth Street, Suite 4000    
Minneapolis, MN 55402     Telephone No.: (612) 492-7000     Facsimile
No.:  (612) 492-7077     Attention: Christopher J. Melsha, Esq.         If to a
Purchaser: To the address set forth under such Purchaser’s name on the signature
page hereof;

 

or such other address as may be designated in writing hereafter, in the same
manner, by such Person.

 

7.4           Amendments; Waivers; No Additional Consideration. No provision of
this Agreement may be waived or amended except in a written instrument signed,
in the case of an amendment, by the Company and each of the Purchasers or, in
the case of a waiver, by the party against whom enforcement of any such waiver
is sought. No waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any subsequent default or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of either party
to exercise any right hereunder in any manner impair the exercise of any such
right. No consideration shall be offered or paid to any Purchaser to amend or
consent to a waiver or modification of any provision of any Transaction Document
unless the same consideration is also offered to all Purchasers who then hold
Securities.

 

7.5           Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. 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. This Agreement
shall be construed as if drafted jointly by the parties, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement or any of the Transaction
Documents.

 

7.6           Successors and Assigns. The provisions of this Agreement shall
inure to the benefit of and be binding upon the parties and their successors and
permitted assigns. This Agreement, or any rights or obligations hereunder, may
not be assigned by the Company without the prior written consent of the
Purchasers. Any Purchaser may assign its rights hereunder in whole or in part to
any Person to whom such Purchaser assigns or transfers any Securities in
compliance with this Agreement and applicable law, provided such transferee
shall agree in writing to be bound, with respect to the transferred Securities,
by the terms and conditions of this Agreement that apply to the “Purchasers.”

 

33

 

 

7.7            No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.

 

7.8           Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all Actions concerning the interpretations, enforcement and
defense of the transactions contemplated by this Agreement and any other
Transaction Documents (whether brought against a party hereto or its respective
Affiliates, employees or agents) shall be commenced exclusively in the New York
Courts. Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any Action, any claim that it is not personally subject to the jurisdiction
of any such New York Court, or that such Action has been commenced in an
improper or inconvenient forum. Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such
Action by mailing a copy thereof via registered or certified mail or overnight
delivery (with evidence of delivery) to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY
IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY. If either party shall commence a Action to
endorse any provisions of a Transaction Document, then the prevailing party in
such Action shall be reimbursed by the other party for its reasonable attorney’s
fees and other reasonable costs and expenses incurred with the investigation
preparation and prosecution of such Action.

 

7.9            Survival. Subject to applicable statute of limitations, the
representations, warranties, agreements and covenants contained herein shall
survive the Closing and the delivery of the Securities until the one year
anniversary of the Closing.

 

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

 

7.11         Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

 

34

 

 

7.12         Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.

 

7.13         Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company and the Transfer Agent of such loss, theft or destruction and the
execution by the holder thereof of a customary lost certificate affidavit of
that fact and an agreement to indemnify and hold harmless the Company and the
Transfer Agent for any losses in connection therewith or, if required by the
Transfer Agent, a bond in such form and amount as is reasonably required by the
Transfer Agent. The applicants for a new certificate or instrument under such
circumstances shall also pay any reasonable third-party costs associated with
the issuance of such replacement Securities. If a replacement certificate or
instrument evidencing any Securities is requested due to a mutilation thereof,
the Company may require delivery of such mutilated certificate or instrument as
a condition precedent to any issuance of a replacement.

 

7.14         Adjustments in Share Numbers and Prices. In the event of any stock
split, subdivision, dividend or distribution payable in shares of Common Stock
(or other securities or rights convertible into, or entitling the holder thereof
to receive directly or indirectly shares of Common Stock), combination or other
similar recapitalization or event occurring after the date hereof, each
reference in any Transaction Document to a number of shares or a price per share
shall be deemed to be amended to appropriately account for such event.

 

7.15         Independent Nature of Purchasers’ Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. The decision of each Purchaser to
purchase Securities pursuant to the Transaction Documents has been made by such
Purchaser independently of any other Purchaser and independently of any
information, materials, statements or opinions as to the business, affairs,
operations, assets, properties, liabilities, results of operations, condition
(financial or otherwise) or prospects of the Company which may have been made or
given by any other Purchaser or by any agent or employee of any other Purchaser,
and no Purchaser and any of its agents or employees shall have any liability to
any other Purchaser (or any other Person) relating to or arising from any such
information, materials, statement or opinions. Nothing contained herein or in
any Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Purchaser acknowledges that no other Purchaser has acted as agent for such
Purchaser in connection with making its investment hereunder and that no
Purchaser will be acting as agent of such Purchaser in connection with
monitoring its investment in the Securities or enforcing its rights under the
Transaction Documents. Each Purchaser shall be entitled to independently protect
and enforce its rights, including without limitation the rights arising out of
this Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose. The Company acknowledges that each of the
Purchasers has been provided with the same Transaction Documents for the purpose
of closing a transaction with multiple Purchasers and not because it was
required or requested to do so by any Purchaser. The Company’s obligations to
each Purchaser under this Agreement are identical to its obligations to each
other Purchaser other than such differences resulting solely from the number of
Securities purchased by such Purchaser, but regardless of whether such
obligations are memorialized herein or in another agreement between the Company
and a Purchaser.

 

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7.16         Termination. This Agreement may be terminated and the sale and
purchase of the Shares and the Warrants abandoned at any time prior to the
Closing by either the Company or any Purchaser (with respect to itself only)
upon written notice to the other, if the Closing has not been consummated on or
prior to 5:00 p.m. (New York City time) on the Outside Date; provided, however,
that the right to terminate this Agreement under this Section 7.16 shall not be
available to any Person whose failure to comply with its obligations under this
Agreement has been the cause of or resulted in the failure of the Closing to
occur on or before such time. Nothing in this Section 7.16 shall be deemed to
release any party from any liability for any breach by such party of the terms
and provisions of this Agreement or the other Transaction Documents or to impair
the right of any party to compel specific performance by any other party of its
obligations under this Agreement or the other Transaction Documents. In the
event of a termination pursuant to this Section, the Company shall promptly
notify all non-terminating Purchasers. Upon a termination in accordance with
this Section, the Company and the terminating Purchaser(s) shall not have any
further obligation or liability (including arising from such termination) to the
other, and no Purchaser will have any liability to any other Purchaser under the
Transaction Documents as a result therefrom.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGES FOLLOW]

 

36

 

 

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

 

  NEPHROS, INC.       By: /s/ Daron Evans     Daron Evans     President & Chief
Executive Officer

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGES for purchasers FOLLOW]

 

 

 

  NAME OF PURCHASER:  

 

  By:     Name:   Title:

 

  Purchase Price (Subscription Amount): $                                     
Number of Shares to be acquired:                                              
Underlying Shares subject to Warrant:                                      (50%
of the number of Shares to be acquired, rounded down to the nearest whole share)
      Tax ID No.(or Social Security No., if a natural person):            
Address for Notice:                

 

  Telephone No.:  

 

  Facsimile No.:  

 

  Attention:  

 

[Purchaser signature page to Securities Purchase Agreement]

 

 

 

 

EXHIBITS:

 

A:Form of Warrant [separately filed with the Commission]

 

B-1:Accredited Investor Questionnaire

 

B-2:Stock Certificate Questionnaire

 

B-3:Selling Stockholder Questionnaire

 

C:Irrevocable Transfer Agent Instructions

 

D:Wire Instructions

 

SCHEDULES:

 

Schedule 3.1(t) – Transactions with Affiliates and Employees

 

 

 

 

EXHIBIT B-1

 

ACCREDITED INVESTOR QUESTIONNAIRE

 

(ALL INFORMATION WILL BE TREATED CONFIDENTIALLY)

 

To:Nephros, Inc.

 

This Investor Questionnaire (“Questionnaire”) must be completed by each
potential investor in connection with the offer and sale of the shares of the
common stock, par value $0.001 per share, and shares of common stock that may be
issued upon exercise of certain warrants (collectively, the “Securities”), of
Nephros, Inc., a Delaware corporation (the “Corporation”). The Securities are
being offered and sold by the Corporation without registration under the
Securities Act of 1933, as amended (the “Act”), and the securities laws of
certain states, in reliance on the exemptions contained in Section 4(2) of the
Act and on Regulation D promulgated thereunder and in reliance on similar
exemptions under applicable state laws. The Corporation must determine that a
potential investor meets certain suitability requirements before offering or
selling Securities to such investor. The purpose of this Questionnaire is to
assure the Corporation that each investor will meet the applicable suitability
requirements. The information supplied by you will be used in determining
whether you meet such criteria, and reliance upon the private offering
exemptions from registration is based in part on the information herein
supplied.

 

This Questionnaire does not constitute an offer to sell or a solicitation of an
offer to buy any security. Your answers will be kept strictly confidential.
However, by signing this Questionnaire, you will be authorizing the Corporation
to provide a completed copy of this Questionnaire to such parties as the
Corporation deems appropriate in order to ensure that the offer and sale of the
Securities will not result in a violation of the Act or the securities laws of
any state and that you otherwise satisfy the suitability standards applicable to
purchasers of the Securities. All potential investors must answer all applicable
questions and complete, date and sign this Questionnaire. Please print or type
your responses and attach additional sheets of paper if necessary to complete
your answers to any item.

 

PART A.           BACKGROUND INFORMATION

 

Name of Beneficial Owner of the Securities:  

 

Business Address:       (Number and Street)  

 

      (City) (State) (Zip Code)

 

Telephone Number: (___)    

 

If a corporation, partnership, limited liability company, trust or other entity:

 

Type of entity:  

 

State of formation:_______________ Approximate Date of formation:
_______________

 

Set forth in the space provided below the (i) state(s), if any, in the United
States in which you maintained your principal office during the past two years
and the dates during which you maintained your office in each state, and
(ii) state(s), if any, in which you pay income taxes:

 

B-1(i)

 

 

 

 

Were you formed for the purpose of investing in the securities being offered?

 

Yes ____        No ____

 

If an individual (or, if two individuals holding as joint tenants with right of
survivorship (JTWROS), both should execute this Agreement):

 

Residence Address:     (Number and Street)

 

      (City) (State) (Zip Code)

 

Telephone Number: (___)    

 

Age: __________ Citizenship: ____________ Where registered to vote:
_______________

 

Set forth in the space provided below the state(s), if any, in the United States
in which you maintained your residence during the past two years and the dates
during which you resided in each state:

 

Are you a director or executive officer of the Corporation?

 

Yes ____               No ____

 

PART B.           ACCREDITED INVESTOR QUESTIONNAIRE

 

In order for the Company to offer and sell the Securities in conformance with
state and federal securities laws, the following information must be obtained
regarding your investor status. Please initial each category applicable to you
as a Purchaser of Securities of the Company.

 

_____ (1) A bank as defined in Section 3(a)(2) of the Securities Act, or any
savings and loan association or other institution as defined in Section
3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary
capacity;     _____ (2) A broker or dealer registered pursuant to Section 15 of
the Securities Exchange Act of 1934;     _____ (3) An insurance company as
defined in Section 2(13) of the Securities Act;     _____ (4) An investment
company registered under the Investment Company Act of 1940 or a business
development company as defined in Section 2(a)(48) of that Act;     _____ (5) A
Small Business Investment Company licensed by the U.S. Small Business
Administration under Section 301(c) or (d) of the Small Business Investment Act
of 1958;

 

B-1(ii)

 

 

_____ (6) A plan established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees, if such plan has total assets in
excess of $5,000,000;     _____ (7) An employee benefit plan within the meaning
of the Employee Retirement Income Security Act of 1974, if the investment
decision is made by a plan fiduciary, as defined in Section 3(21) of such act,
which is either a bank, savings and loan association, insurance company, or
registered investment adviser, or if the employee benefit plan has total assets
in excess of $5,000,000 or, if a self-directed plan, with investment decisions
made solely by persons that are accredited investors;     _____ (8) A private
business development company as defined in Section 202(a)(22) of the Investment
Advisers Act of 1940;     _____ (9) An organization described in Section
501(c)(3) of the Internal Revenue Code, a corporation, Massachusetts or similar
business trust, or partnership, not formed for the specific purpose of acquiring
the Securities, with total assets in excess of $5,000,000;     _____ (10) A
trust, with total assets in excess of $5,000,000, not formed for the specific
purpose of acquiring the Securities, whose purchase is directed by a
sophisticated person who has such knowledge and experience in financial and
business matters that such person is capable of evaluating the merits and risks
of investing in the Company;     _____ (11) A natural person whose individual
net worth, or joint net worth with that person’s spouse, at the time of his
purchase exceeds $1,000,000.  (Net worth means the excess of total assets over
total liabilities, both calculated at fair market value, subject to the
following qualifications.  In calculating an individual’s “total assets,” the
value of a primary residence is excluded.  Likewise, in calculating an
individual’s “total liabilities,” the amount of any mortgage debt secured by a
primary residence up to such residence’s fair market value may be excluded,
unless such mortgage debt is incurred within 60 days prior to the purchase of
the interest under this Agreement and is not incurred in connection with the
purchase of such residence.  To the extent that such mortgage debt exceeds the
value of such residence, it must be included in the calculation of total
liabilities.)     _____ (12) A natural person who had an individual income in
excess of $200,000 in each of the two most recent years, or joint income with
that person’s spouse in excess of $300,000, in each of those years, and has a
reasonable expectation of reaching the same income level in the current year;  
  _____ (13) An executive officer or director of the Company; and/or     _____
(14) An entity in which all of the equity owners qualify under any of the above
subparagraphs. If the undersigned belongs to this investor category only, list
the equity owners of the undersigned, and the investor category which each such
equity owner satisfies:               (Continue on a separate piece of paper, if
necessary.)

 

B-1(iii)

 

 

PART C.           FINRA AFFILIATION

 

Are you affiliated or associated with an FINRA member firm (please check one):

 

Yes ___________              No __________

 

If Yes, please describe:

 

 

*If Purchaser is a Registered Representative with an FINRA member firm, have the
following acknowledgement signed by the appropriate party:

 

The undersigned FINRA member firm acknowledges receipt of the notice required by
FINRA Conduct rule 3040 (a) and (b).

 

    Name of FINRA Member Firm  

 

By:     Authorized Officer  

 

Date:    

 

B-1(iv)

 

 

A.           FOR EXECUTION BY AN INDIVIDUAL:

 

                       By     Date  

 

    Print Name:  

 

B.           FOR EXECUTION BY AN ENTITY:

 

    Entity Name:  

 

                       By     Date  

 

    Print Name:       Title:  

 

C.           ADDITIONAL SIGNATURES (if required):

 

    Entity Name:       (if applicable)

 

                       By     Date  

 

    Print Name:       Title:  

 

    Entity Name:  

 

                       By     Date  

 

    Print Name:       Title:  

 

[Signature Page to Accredited Investor Questionnaire]

 

B-1(v)

 

 

Exhibit B-2

 

Stock Certificate Questionnaire

 

Pursuant to Section 2.2(b) of the Agreement, please provide us with the
following information:

 

1.

The exact name that the Securities are to be registered in (this is the name
that will appear on the stock certificate(s)).  You may use a nominee name if
appropriate:         2. If Securities are being registered in a name other than
that of the Purchaser (as reflected on the signature page to the Securities
Purchase Agreement), the relationship between the Purchaser of the Securities
and the Registered Holder listed in response to Item 1 above:         3. The
mailing address, telephone and facsimile number of the Registered Holder listed
in response to Item 1 above:                                                  
4. The Tax Identification Number (or, if an individual, the Social Security
Number) of the Registered Holder listed in response to Item 1 above:

 

 

 

 

Exhibit B-3

 

NEPHROS, INC.

 

Selling Stockholder Questionnaire

 

The undersigned beneficial owner of common stock (the “Registrable Securities”)
of Nephros, Inc., a Delaware corporation (the “Company”), understands that the
Company has filed or intends to file with the Securities and Exchange Commission
(the “Commission”) a registration statement (the “Registration Statement”) for
the registration and resale under Rule 415 of the Securities Act of 1933, as
amended (the “Securities Act”), of the Registrable Securities, in accordance
with the terms of the Securities Purchase Agreement (the “Purchase Agreement”)
to which this document is annexed. A copy of the Purchase Agreement is available
from the Company upon request at the address set forth below. All capitalized
terms not otherwise defined herein shall have the meanings ascribed thereto in
the Purchase Agreement.

 

Certain legal consequences arise from being named as a selling stockholder in
the Registration Statement and the related prospectus. Accordingly, holders and
beneficial owners of Registrable Securities are advised to consult their own
securities law counsel regarding the consequences of being named or not being
named as a selling stockholder in the Registration Statement and the related
prospectus. The undersigned hereby furnishes to the Company the following
information for use by the Company in connection with the preparation of the
Registration Statement.

 

(1)         Name and Contact Information:

 

  Full legal name of record holder:         Address of record holder:          
        Identity of beneficial owner (if
different than record holder):         Name of contact person:         Telephone
number of contact person:         Fax number of contact person:         E-mail
address of contact person:

 

B-3(i)

 

 

(2)         Beneficial Ownership of Other Securities of the Company Owned by the
Selling Stockholder:

 

  Except as set forth below in this Item (3), the undersigned is not the
beneficial or registered owner of any securities of the Company other than the
Registrable Securities acquired in connection with the Purchase Agreement.      
Type and amount of other securities beneficially owned by the Selling
Stockholder:                

 

(3)         Relationships with the Company:

 

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

 

(4)         Plan of Distribution:

 

  Except as set forth below, the undersigned intends to distribute pursuant to
the Registration Statement the Registrable Securities in accordance with the
“Plan of Distribution” substantially in the form attached hereto as Appendix A:
      State any exceptions here:                

 

(5)         Selling Stockholder Affiliations:

 

  (a)     Is the Selling Stockholder a registered broker-dealer?              
(b)      Is the Selling Stockholder an affiliate of a registered
broker-dealer(s)? (For purposes of this response, an “affiliate” of, or person
“affiliated” with, a specified person, is a person that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, the person specified.)        

 

B-3(ii)

 

 

  (c)      If the answer to Item (5)(b) is yes, identify the registered
broker-dealer(s) and describe the nature of the affiliation(s):              
(d)      If the answer to Item (5)(b) is yes, did the Selling Stockholder
acquire the Registrable Securities in the ordinary course of business (if not,
please explain)?               (e)      If the answer to Item (5)(b) is yes, did
the Selling Stockholder, at the time of purchase of the Registrable Securities,
have any agreements, plans or understandings, directly or indirectly, with any
person to distribute the Registrable Securities (if yes, please explain)?      
 

 

(6)         Voting or Investment Control over the Registrable Securities:

 

  If the Selling Stockholder is not a natural person, please identify the
natural person or persons who have voting or investment control over the
Registrable Securities:        

 

Remainder of page left intentionally blank

 

B-3(iii)

 

 

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

 

The undersigned has reviewed the answers to the above questions and affirms that
the same are true, complete and accurate. THE UNDERSIGNED AGREES TO NOTIFY THE
COMPANY IMMEDIATELY OF ANY CHANGES IN THE FOREGOING INFORMATION.

 

Dated: _____________, 2015     Signature of Record Holder
(Please sign your name in exactly the same manner as the certificate(s) for the
shares being registered)

 

B-3(iv)

 

 

Appendix A

 

Plan of Distribution

 

We are registering the shares offered by this prospectus on behalf of the
selling stockholders. The selling stockholders, which as used herein includes
donees, pledgees, transferees or other successors-in-interest selling shares of
common stock or interests in shares of common stock received after the date of
this prospectus from a selling stockholder as a gift, pledge, partnership
distribution or other transfer, may, from time to time, sell, transfer or
otherwise dispose of any or all of their shares of common stock or interests in
shares of common stock on any stock exchange, market or trading facility on
which the shares are traded or in private transactions. These dispositions may
be at fixed prices, at prevailing market prices at the time of sale, at prices
related to the prevailing market price, at varying prices determined at the time
of sale, or at negotiated prices. To the extent any of the selling stockholders
gift, pledge or otherwise transfer the shares offered hereby, such transferees
may offer and sell the shares from time to time under this prospectus, provided
that this prospectus has been amended under Rule 424(b)(3) or other applicable
provision of the Securities Act to include the name of such transferee in the
list of selling stockholders under this prospectus.

 

The selling stockholders may use any one or more of the following methods when
disposing of shares or interests therein:

 

·ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;

·block trades in which the broker-dealer will attempt to sell the shares as
agent, but may position and resell a portion of the block as principal to
facilitate the transaction;

·purchases by a broker-dealer as principal and resale by the broker-dealer for
its account;

·an exchange distribution in accordance with the rules of the applicable
exchange;

·privately negotiated transactions;

·short sales;

·through the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise;

·broker-dealers may agree with the selling stockholders to sell a specified
number of such shares at a stipulated price per share;

·a combination of any such methods of sale; and

·any other method permitted pursuant to applicable law.

 

The selling stockholders may, from time to time, pledge or grant a security
interest in some or all of the shares of common stock owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell the shares of common stock, from time to time, under
this prospectus, or under an amendment to this prospectus under Rule 424(b)(3)
or other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus.

 

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

 

B-3(v)

 

 

The aggregate proceeds to the selling stockholders from the sale of the common
stock offered by them will be the purchase price of the common stock less
discounts or commissions, if any. Each of the selling stockholders reserves the
right to accept and, together with their agents from time to time, to reject, in
whole or in part, any proposed purchase of common stock to be made directly or
through agents. We will not receive any of the proceeds from this offering. Upon
any exercise of the warrants by payment of cash, however, we will receive the
exercise price of the warrants.

 

The selling stockholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act of 1933,
provided that they meet the criteria and conform to the requirements of that
rule.

 

The selling stockholders might be, and any broker-dealers that act in connection
with the sale of securities will be, deemed to be “underwriters” within the
meaning of Section 2(11) of the Securities Act, and any commissions received by
such broker-dealers and any profit on the resale of the securities sold by them
while acting as principals will be deemed to be underwriting discounts or
commissions under the Securities Act.

 

To the extent required, the shares of our common stock to be sold, the names of
the selling stockholders, the respective purchase prices and public offering
prices, the names of any agents, dealer or underwriter, any applicable
commissions or discounts with respect to a particular offer will be set forth in
an accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this prospectus.

 

In order to comply with the securities laws of some states, if applicable, the
common stock may be sold in these jurisdictions only through registered or
licensed brokers or dealers. In addition, in some states the common stock may
not be sold unless it has been registered or qualified for sale or an exemption
from registration or qualification requirements is available and is complied
with.

 

We have advised the selling stockholders that the anti-manipulation rules of
Regulation M under the Exchange Act may apply to sales of shares in the market
and to the activities of the selling stockholders and their affiliates. In
addition, we will make copies of this prospectus (as it may be supplemented or
amended from time to time) available to the selling stockholders for the purpose
of satisfying the prospectus delivery requirements of the Securities Act. The
selling stockholders may indemnify any broker-dealer that participates in
transactions involving the sale of the shares against certain liabilities,
including liabilities arising under the Securities Act.

 

We have agreed to indemnify the selling stockholders against liabilities,
including liabilities under the Securities Act and state securities laws,
relating to the registration of the shares offered by this prospectus.

 

We have agreed with the selling stockholders to keep the registration statement
that includes this prospectus effective until the earlier of (1) such time as
all of the shares covered by this prospectus have been disposed of pursuant to
and in accordance with the registration statement that contains this prospectus
or (2) the date on which the shares may be sold without registration or
restriction pursuant to Rule 144 of the Securities Act.

 

B-3(vi)

 

 

EXHIBIT C

 

Form of Irrevocable Transfer Agent Instructions

 

As of _____________, 2015

 

[________________]

[________________]

[________________]

Attn: _________________

 

Ladies and Gentlemen:

 

Reference is made to that certain Securities Purchase Agreement, dated as of
____________, 2015 (the “Agreement”), by and among Nephros, Inc. a Delaware
corporation (the “Company”), and the purchasers named on the signature pages
thereto (collectively, the “Holders”), pursuant to which the Company is issuing
to the Holders shares (the “Shares”) of Common Stock of the Company, par value
$0.001 per share (the “Common Stock”), and warrants (the “Warrants”), which are
exercisable for shares of Common Stock.

 

This letter shall serve as our irrevocable authorization and direction to you
(provided that you are the transfer agent of the Company at such time and the
conditions set forth in this letter are satisfied):

 

(i)        to issue shares of Common Stock upon transfer or resale of the
Shares; and

 

(ii)        to issue shares of Common Stock upon the exercise of the Warrants
(the “Warrant Shares”) to or upon the order of a Holder from time to time upon
delivery to you of a properly completed and duly executed Exercise Notice, in
the form attached hereto as Annex I, which has been acknowledged by the Company
as indicated by the signature of a duly authorized officer of the Company
thereon together with indication of receipt of the exercise price therefor.

 

You acknowledge and agree that so long as you have previously received
(a) written confirmation from the Company’s legal counsel that either (1) a
registration statement covering resales of the Shares and the Warrant Shares has
been declared effective by the Securities and Exchange Commission (the
“Commission”) under the Securities Act of 1933, as amended (the “Securities
Act”), or (2) the Shares and the Warrant Shares are eligible for sale in
conformity with Rule 144 under the Securities Act (“Rule 144”) and (b) if
applicable, a copy of such registration statement, then, unless otherwise
required by law, as soon as reasonably practicable following your receipt of
Shares or Warrant Shares, as applicable, you shall issue the certificates
representing the Shares and the Warrant Shares so sold to the Holders or their
transferees, as the case may be, registered in the names of such Holders or
transferees, as the case may be, and such certificates shall not bear any legend
restricting transfer of the Shares and the Warrant Shares thereby and should not
be subject to any stop-transfer restriction; provided, however, that if such
Shares and Warrant Shares are not registered for resale under the Securities Act
or able to be sold under Rule 144, then the certificates for such Shares and/or
Warrant Shares shall bear the following legend:

 

C-1

 

 

THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY.

 

A form of written confirmation (to be used in connection with any sale) from the
Company’s outside legal counsel that a registration statement covering resales
of the Shares and the Warrant Shares has been declared effective by the
Commission under the Securities Act is attached hereto as Annex II.

 

Please be advised that the Holders are relying upon this letter as an inducement
to enter into the Agreement and, accordingly, each Holder is a third party
beneficiary to these instructions.

 

Please execute this letter in the space indicated to acknowledge your agreement
to act in accordance with these instructions.

 

  Very truly yours,       NEPHROS, INC.       By:  

  Name:  

  Title:  

 

Acknowledged and Agreed:

 

[_______________________________]

 

By:    

Name:    

Title:    

 

Date: _________________, 2015

 

C-2

 

 

Annex I

 

Form of Exercise Notice

 

(To be executed by the Holder to exercise the right to purchase shares
of Common Stock under the foregoing Warrants)

 

To:        Nephros, Inc.

 

(1)         The undersigned is the Holder of Warrant No. __________ (the
“Warrant”) issued by Nephros, Inc. a Delaware corporation (the “Company”).
Capitalized terms used herein and not otherwise defined herein have the
respective meanings set forth in the Warrant.

 

(2)         The undersigned hereby exercises its right to purchase __________
Warrant Shares pursuant to the Warrant.

 

(3)          The Holder shall pay the sum of $_______ in immediately available
funds to the Company in accordance with the terms of the Warrant.

 

(4)         Pursuant to this Exercise Notice, the Company shall deliver to the
Holder _____________ Warrant Shares in accordance with the terms of the Warrant.

 

(5)         [INCLUDE ONLY IF WARRANT CONTAINS BLOCKER PROVISION AT THE REQUEST
OF THE PURCHASER.] [By its delivery of this Exercise Notice, the undersigned
represents and warrants to the Company that in giving effect to the exercise
evidenced hereby, the Holder will not beneficially own in excess of the number
of shares of Common Stock (as determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934) permitted to be owned under Section 12 of this
Warrant to which this notice relates.]

 

Dated:_______________, _____

 

Name of Holder:

 

By:    

Name:    

Title:    

(Signature must conform in all respects to name of

Holder as specified on the face of the Warrant)

 

 

C-3

 

 

Acknowledgement

 

    The Company hereby acknowledges this Exercise Notice and receipt of the
appropriate exercise price and hereby directs [_______________________________]
to issue the above indicated number of shares of Common Stock in accordance with
the Transfer Agent Instructions dated ______________ 2015, from the Company and
acknowledged and agreed to by American Stock Transfer & Trust Company.

 

  Nephros, INC.           By:       Name:       Title:    

 

C-4

 

 

Annex II

 

Form of Notice of Effectiveness of Registration Statement

 

[________________]

[________________]

[________________]

Attn: _________________

 

Re: Nephros, Inc.

 

Ladies and Gentlemen:

 

We are counsel to Nephros, Inc. a Delaware corporation (the “Company”), and have
represented the Company in connection with that certain Securities Purchase
Agreement, dated as of ____________, 2015 (the “Purchase Agreement”), entered
into by and among the Company and the buyers named therein (collectively, the
“Purchasers”) pursuant to which the Company issued to the Purchasers shares of
the Company’s Common Stock, $0.001 par value per share (the “Common Stock”), and
warrants exercisable for shares of Common Stock (the “Warrants”). Pursuant to
the Purchase Agreement of even date, the Company agreed to register the resale
of the Common Stock, including the shares of Common Stock issuable upon exercise
of the Warrants (collectively, the “Registrable Securities”), under the
Securities Act of 1933, as amended (the “Securities Act”). In connection with
the Company’s obligations under the Purchase Agreement, on                     ,
2015, the Company filed a Registration Statement on Form S-1 (File
No. 333-                    ) (the “Registration Statement”) with the Securities
and Exchange Commission (the “Commission”) relating to the Registrable
Securities which names each of the Purchasers as a selling stockholder
thereunder.

 

In connection with the foregoing, we advise you that a member of the
Commission’s staff has advised us by telephone that the Commission has entered
an order declaring the Registration Statement effective under the Securities Act
at ____ [a.m.][p.m.] on __________, 2015, and we have no knowledge that any stop
order suspending its effectiveness has been issued or that any proceedings for
that purpose are pending before, or threatened by, the Commission and the
Registrable Securities are available for resale under the Securities Act
pursuant to the Registration Statement.

 

This letter shall serve as our standing notice to you that the Common Stock may
be freely transferred by the Purchasers pursuant to the Registration Statement.
You need not require further letters from us to effect any future legend-free
issuance or reissuance of shares of Common Stock to the Purchasers or the
transferees of the Purchasers, as the case may be, as contemplated by the
Company’s Irrevocable Transfer Agent Instructions dated _______ __, 2015. This
letter shall serve as our standing instructions with regard to this matter.

 

C-5

 

 

    Very truly yours,           [__________]             By:  

 

CC:           Purchasers

C-6

 

 

EXHIBIT D

 

WIRE INSTRUCTIONS

 

Bank: [__________]     Address: [__________]     Bank ABA#: [__________]    
Account Name: [__________]     Account #: [__________]