EXHIBIT 10.1
 
INVESTMENT AGREEMENT
 
INVESTMENT AGREEMENT (this “AGREEMENT”), dated as of July 5, 2011 by and between
SPO Medical, Inc. a Delaware corporation (the “Company”), and Dutchess
Opportunity Fund, II, LP, a Delaware Limited Partnership (the “Investor”).
 
WHEREAS, the parties desire that, upon the terms and subject to the conditions
contained herein, the Investor shall invest up to Five million dollars
($5,000,000) to purchase the Company's Common Stock, $.01 par value per share
(the “Common Stock”);
 
WHEREAS, such investments will be made in reliance upon the provisions of
Section 4(2) under the Securities Act of 1933, as amended (the “1933 Act”), Rule
506 of Regulation D, and the rules and regulations promulgated thereunder,
and/or upon such other exemption from the registration requirements of the 1933
Act as may be available with respect to any or all of the investments in Common
Stock to be made hereunder; and
 
WHEREAS, contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto (the “Registration Rights Agreement”)
pursuant to which the Company has agreed to provide certain registration rights
under the 1933 Act, and the rules and regulations promulgated thereunder, and
applicable state securities laws.
 
NOW THEREFORE, in consideration of the foregoing recitals, which shall be
considered an integral part of this Agreement, the covenants and agreements set
forth hereafter, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Investor hereby
agree as follows:
 
SECTION 1. DEFINITIONS.
 
As used in this Agreement, the following terms shall have the following meanings
specified or indicated below, and such meanings shall be equally applicable to
the singular and plural forms of such defined terms.
 
“1933 Act” shall have the meaning set forth in the recitals of this Agreement.
 
“1934 Act” shall mean the Securities Exchange Act of 1934, as it may be amended.
 
“AAA” shall have the meaning specified in Section 12.
 
“Affiliate” shall have the meaning specified in Section 5(H).
 
“Agreement” shall mean this Investment Agreement.
 
“Articles of Incorporation” shall have the meaning specified in Section 4(C).
 
“By-laws” shall have the meaning specified in Section 4(C).
 
“Closing” shall have the meaning specified in Section 2(F).
 
“Closing Date” shall have the meaning specified in Section 2(F).
 
SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011
 
 
 

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“Common Stock” shall have the meaning set forth in the recitals of this
Agreement.
 
“Company” shall have the meaning set forth in the preamble of this Agreement.
 
“Control” or “Controls” shall have the meaning specified in Section 5(H).
 
“DTC” shall have the meaning specified in Section 2(F).
 
“DWAC” shall have the meaning specified in Section 2(F).
 
“Effective Date” shall mean the date the SEC declares effective under the 1933
Act the Registration Statement covering the Securities.
 
“Equity Line Transaction Documents” shall mean this Agreement and the
Registration Rights Agreement.
 
“FAST” shall have the meaning specified in Section 2(F).
 
“Indemnities” shall have the meaning specified in Section 11.
 
“Indemnified Liabilities” shall have the meaning specified in Section 11.
 
“Indemnitor” shall have the meaning specified in Section 11.
 
“Investor” shall have the meaning indicated in the preamble of this Agreement.
 
“Material Adverse Effect” shall have the meaning specified in Section 4(A).
 
“Maximum Common Stock Issuance” shall have the meaning specified in Section
2(G).
 
“Minimum Acceptable Price” with respect to any Put Notice Date shall be the
price defined by the Company in the applicable Put Notice.
 
“Open Market Adjustment Amount” shall have the meaning specified in Section
2(H).
 
“Open Market Share Purchase” shall have the meaning specified in Section 2(H).
 
“Open Period” shall mean the period beginning on and including the Trading Day
immediately following the Effective Date and ending on the earlier to occur of
(i) the date which is thirty-six (36) months from the Effective Date; or (ii)
termination of the Agreement in accordance with Section 9, below.
 
“Pricing Period” shall mean the five (5) consecutive Trading Days beginning on
the Put Notice Date and ending on and including the date that is four (4)
Trading Days after such Put Notice Date.
 
“Principal Market” shall mean the Nasdaq Capital Market, the NYSE Amex, the New
York Stock Exchange, the Nasdaq Global Market, the Nasdaq Global Select Market
or the OTC Bulletin Board, whichever is the principal market on which the Common
Stock is then listed.
 
SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011
 
 
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“Prospectus” shall mean the prospectus, preliminary prospectus and supplemental
prospectus used in connection with the Registration Statement.
 
“Purchase Amount” shall mean the total amount being paid by the Investor on a
particular Closing Date to purchase the Securities.
 
“Purchase Price” shall mean ninety-four percent (94%) of the lowest daily VWAP
(as defined herein) of the Common Stock during the Pricing Period.
 
“Put” shall have the meaning set forth in Section 2(B) hereof.
 
“Put Amount” shall have the meaning set forth in Section 2(B) hereof.
 
“Put Notice” shall mean a written notice in the form attached hereto as Exhibit
C, sent to the Investor by the Company stating the Put Amount in U.S. dollars
the Company intends to sell to the Investor pursuant to the terms of the
Agreement and stating the current number of Shares issued and outstanding on
such date.
 
“Put Notice Date” shall mean the Trading Day, as set forth below, immediately
following the day on which the Investor receives a Put Notice, however a Put
Notice shall be deemed delivered on (a) the Trading Day it is received by
facsimile or email by the Investor if such notice is received prior to 9:00 am
Eastern Time, or (b) the immediately succeeding Trading Day if it is received by
facsimile or otherwise after 9:00 am Eastern Time on a Trading Day. No Put
Notice may be deemed delivered on a day that is not a Trading Day.
 
“Put Restriction” shall mean the days during the Pricing Period. During this
time, the Company shall not be entitled to deliver another Put Notice.
 
“Put Shares Due” shall have the meaning specified in Section 2(H).
 
“Registration Rights Agreement” shall have the meaning set forth in the recitals
of this Agreement.
 
“Registration Statement” means the registration statement of the Company filed
under the 1933 Act covering the resale by the Investor of the Common Stock
issuable hereunder.
 
“Related Party” shall have the meaning specified in Section 5(H).
 
“Resolutions” shall have the meaning specified in Section 8(E).
 
“SEC” shall mean the U.S. Securities & Exchange Commission.
 
“SEC Documents” shall have the meaning specified in Section 4(G).
 
“Securities” shall mean the shares of Common Stock issued pursuant to the terms
of the Agreement.
 
“Shares” shall mean the shares of the Company’s Common Stock.
 
“Subsequent Purchasers” shall have the meaning specified in Section 2(I).
 
“Subsidiaries” shall have the meaning specified in Section 4(A).
 
SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011
 
 
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“Suspension Price” shall mean a fixed-price floor provided by the Company. The
“Suspension Price” can be waived at the discretion of the Company.“Trading Day”
shall mean any day on which the Principal Market for the Common Stock is open
for trading, from the hours of 9:30 am until 4:00 pm Boston Time.
 
 “VWAP” shall mean the volume weighted average price.
 
SECTION 2.           PURCHASE AND SALE OF COMMON STOCK.
 
(A)   PURCHASE AND SALE OF COMMON STOCK. Subject to the terms and conditions set
forth herein, the Company may issue and sell to the Investor, and the Investor
shall purchase from the Company, up to that number of Shares having an aggregate
Purchase Price of five million dollars ($5,000,000).
 
(B)   DELIVERY OF PUT NOTICES. Subject to the terms and conditions of the Equity
Line Transaction Documents, and from time to time during the Open Period, the
Company may, in its sole discretion, deliver a Put Notice to the Investor which
states the dollar amount (designated in U.S. Dollars) (the “Put Amount”) of
Shares which the Company intends to sell to the Investor on a Closing Date (the
“Put”). The Put Notice shall be in the form attached hereto as Exhibit C and
incorporated herein by reference. The Put Amount shall not exceed up to either
1) two hundred percent (200%) of the average daily volume (U.S. market only) of
the Common Stock for the three (3) Trading Days prior to the applicable Put
Notice Date, multiplied by the average of the three (3) daily closing prices
immediately preceding the Put Date or 2) one hundred thousand dollars
($100,000). Beginning on any Put Notice Date, the Company shall not be entitled
to submit another Put Notice until the applicable Pricing Period has been
completed. The Common Stock identified in the Put Notice shall be purchased for
a price equal to the Purchase Price.
 
(C)   COMPANY’S RIGHT TO SUSPEND.  On each Put Notice submitted to the Investor
by the Company, the Company shall have the option to specify a Suspension Price
for that Put.  In the event the Common Stock falls below the Suspension Price,
the Put shall be temporarily suspended.  The Put shall resume at such time as
the Common Stock is above the Suspension Price, provided the dates for the
Pricing Period for that particular Put are still valid.   In the event the
Pricing Period has been complete, any shares above the Suspension Price due to
the Investor shall be sold to the Investor by the Company at the Suspension
Price under the terms of this Agreement. The Suspension Price for a Put may not
be changed by the Company once submitted to the Investor. In all cases, the
Investor shall not sell shares at less than the Suspension Price.
 
(D)   CONDITIONS TO INVESTOR'S OBLIGATION TO PURCHASE SHARES. Notwithstanding
anything to the contrary in this Agreement, the Company shall not be entitled to
deliver a Put Notice and the Investor shall not be obligated to purchase any
Shares at a Closing unless each of the following conditions are satisfied:
 
(1)   a Registration Statement shall have been declared effective and shall
remain effective and available for the resale of all the Registrable Securities
(as defined in the Registration Rights Agreement) at all times until the Closing
with respect to the subject Put Notice;
 
SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011
 
 
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(2)   at all times during the period beginning on the related Put Notice Date
and ending on and including the related Closing Date, the Common Stock shall
have been listed on the Principal Market and shall not have been suspended from
trading thereon for a period of two (2) consecutive Trading Days during the Open
Period and the Company shall not have been notified of any pending or threatened
proceeding or other action to suspend the trading of the Common Stock;
 
(3)   the Company has complied with its obligations and is otherwise not in
breach of or in default under this Agreement, the Registration Rights Agreement
or any other agreement executed in connection herewith which has not been cured
prior to delivery of the Put Notice;
 
(4)   no injunction shall have been issued and remain in force, or action
commenced by a governmental authority which has not been stayed or abandoned,
prohibiting the purchase or the issuance of the Securities; and
 
(5)   the issuance of the Securities pursuant to this Agreement will not violate
any shareholder approval requirements of the Principal Market.
 
If any of the events described in clauses (1) through (5) above occurs during a
Pricing Period, then the Investor shall have no obligation to purchase the
Common Stock subject to the applicable Put Notice.
 
(E)   INTENTIONALLY OMITTED.
 
(F)   MECHANICS OF PURCHASE OF SHARES BY INVESTOR. The closing of the purchase
by the Investor of Shares (a “Closing”) shall occur on the date which is no
later than ten (10) Trading Days following the applicable Put Notice Date (each
a “Closing Date”). On each Closing Date, (I) the Company shall deliver to the
Investor pursuant to this Agreement, certificates representing the Shares to be
issued to the Investor on such date and registered in the name of the Investor;
and (II) the Investor shall deliver to the Company the Purchase Price to be paid
for such Shares, based on the Put Amount set forth in Section 2(B). In lieu of
delivering physical certificates representing the Securities and provided that
the Company's transfer agent then is participating in The Depository Trust
Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon
request of the Investor, the Company shall use all commercially reasonable
efforts to cause its transfer agent to electronically transmit the Securities by
crediting the account of the Investor's prime broker (as specified by the
Investor within a reasonable period in advance of the Investor's notice) with
DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system.
 
The Company understands that a delay in the issuance of Securities beyond the
Closing Date could result in economic damage to the Investor. After the
Effective Date, as compensation to the Investor for such loss, the Company
agrees to make payments to the Investor for late issuance of Securities
(delivery of Securities after the applicable Closing Date) in accordance with
the following schedule (where “No. of Days Late” is defined as the number of
trading days beyond the Closing Date, with the Amounts being cumulative.):
 
LATE PAYMENT FOR EACH NO. OF DAYS LATE
1
$100
2
$200
3
$300
4
$400
5
$500
6
$600
7
$700
8
$800
9
$900
10
$1000
Over 10
$1,000 + $200 for each Business Day late beyond 10 days

 
SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011
 
 
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The Company shall make any payments incurred under this Section in immediately
available funds upon demand by the Investor. Nothing herein shall limit the
Investor's right to pursue actual damages for the Company's failure to issue and
deliver the Securities to the Investor, except that such late payments shall
offset any such actual damages incurred by the Investor, and any Open Market
Adjustment Amount, as set forth below.
 
(G)   OVERALL LIMIT ON COMMON STOCK ISSUABLE. Notwithstanding anything contained
herein to the contrary, if during the Open Period the Company becomes listed on
an exchange that limits the number of shares of Common Stock that may be issued
without shareholder approval, then the number of Shares issuable by the Company
and purchasable by the Investor, shall not exceed that number of the shares of
Common Stock that may be issuable without shareholder approval (the “Maximum
Common Stock Issuance”). If such issuance of shares of Common Stock could cause
a delisting on the Principal Market, then the Maximum Common Stock Issuance
shall first be approved by the Company's shareholders in accordance with
applicable law and the By-laws and Articles of Incorporation of the Company, as
amended. The parties understand and agree that the Company's failure to seek or
obtain such shareholder approval shall in no way adversely affect the validity
and due authorization of the issuance and sale of Securities or the Investor's
obligation in accordance with the terms and conditions hereof to purchase a
number of Shares in the aggregate up to the Maximum Common Stock Issuance
limitation, and that such approval pertains only to the applicability of the
Maximum Common Stock Issuance limitation provided in this Section 2(H).
 
(H)   OPEN MARKET ADJUSTMENT. If, by the third (3rd) business day after a
Closing Date, the Company fails to deliver any portion of the Securities subject
to a Put Notice to the Investor (the “Put Shares Due”) and the Investor
purchases, in an open market transaction or otherwise, shares of Common Stock
necessary to make delivery by the Investor of shares in respect of sales to
subsequent purchasers, pursuant to transactions entered into before the Closing
Date (“Subsequent Purchasers”), which such shares of Common Stock would have
been delivered to the Investor by the Company but for the Company’s failure to
so deliver (the “Open Market Share Purchase”), then the Company shall pay to the
Investor, in addition to any other amounts due to Investor pursuant to the Put,
and not in lieu thereof, the Open Market Adjustment Amount (as defined below).
The “Open Market Adjustment Amount” is the amount equal to the excess, if any,
of (x) the Investor's total purchase price (including brokerage commissions, if
any) for the Open Market Share Purchase minus (y) the net proceeds (after
brokerage commissions, if any) received by the Investor from the sale of the Put
Shares Due to such Subsequent Purchasers. The Company shall pay the Open Market
Adjustment Amount to the Investor in immediately available funds within five (5)
business days of written demand by the Investor.  By way of illustration and not
in limitation of the foregoing, if the Investor purchases shares of Common Stock
having a total purchase price (including brokerage commissions) of $11,000 to
cover an Open Market Share Purchase with respect to shares of Common Stock it
sold to Subsequent Purchasers for net proceeds of $10,000, the Open Market
Adjustment Amount which the Company will be required to pay to the Investor will
be $1,000.
 
SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011
 
 
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(I)            LIMITATION ON AMOUNT OF OWNERSHIP. Notwithstanding anything to
the contrary in this Agreement, in no event shall the Investor be entitled to
purchase that number of Shares, which when added to the sum of the number of
shares of Common Stock beneficially owned (as such term is defined under Section
13(d) and Rule 13d-3 of the 1934 Act), by the Investor, would exceed 4.99% of
the number of shares of Common Stock outstanding on the Closing Date, as
determined in accordance with Rule 13d-1(j) of the 1934 Act.
 
SECTION 3.           INVESTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS.  The
Investor represents and warrants to the Company, and covenants, that:
 
(A)          SOPHISTICATED INVESTOR. The Investor has, by reason of its business
and financial experience, such knowledge, sophistication and experience in
financial and business matters and in making investment decisions of this type
that it is capable of (1) evaluating the merits and risks of an investment in
the Securities and making an informed investment decision; (2) protecting its
own interest; and (3) bearing the economic risk of such investment for an
indefinite period of time.
 
(B)           AUTHORIZATION; ENFORCEMENT. The Investor has the requisite power
and authority to enter into and perform this Agreement and the Registration
Rights Agreement. The execution and delivery of the Equity Line Transaction
Documents by the Investor and the consummation by it of the transactions
contemplated hereby and thereby have been duly and validly authorized by the
Investor's general partners and no further consent or authorization is required
by its partners. This Agreement has been duly and validly authorized, executed
and delivered on behalf of the Investor and is a valid and binding agreement of
the Investor enforceable against the Investor in accordance with its terms,
subject as to enforceability to general principles of equity and to applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation and other
similar laws relating to, or affecting generally, the enforcement of applicable
creditors' rights and remedies.
 
(C)           SECTION 9 OF THE 1934 ACT. During the term of this Agreement, the
Investor will comply with the provisions of Section 9 of the 1934 Act, and the
rules promulgated thereunder, with respect to transactions involving the Common
Stock. The Investor agrees not to sell the Company's stock short, either
directly or indirectly through its affiliates, principals or advisors, the
Company's common stock during the term of this Agreement.
 
(D)   ACCREDITED INVESTOR. Investor is an “Accredited Investor” as that term is
defined in Rule 501(a) of Regulation D of the 1933 Act.
 
(E)   NO CONFLICTS. The execution, delivery and performance of the Transaction
Documents by the Investor and the consummation by the Investor of the
transactions contemplated hereby and thereby will not (1) result in a violation
of the partnership agreement or other organizational documents of the Investor,
(2) conflict with, or constitute a material default (or an event which with
notice or lapse of time or both would become a material default) under, or give
to others any rights of termination, amendment, acceleration or cancellation of,
any material agreement, contract, indenture mortgage, indebtedness or instrument
to which the Investor is a party, or to the Investor’s knowledge result in a
violation of any law, rule, regulation, order, judgment or decree (including
United States federal and state securities laws and regulations) applicable to
the Investor or by which any property or asset of the Investor is bound or
affected.
 
SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011
 
 
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(F)           NO VIOLATIONS. Except as disclosed in Schedule 3(f), the Investor
is not in violation of any term of, or in default under, the partnership
agreement of other organizational documents of the Investor or any material
contract, agreement, mortgage, indebtedness, indenture, instrument, judgment,
decree or order or any statute, rule or regulation applicable to the Investor,
except for conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations that would not, individually or in the aggregate,
constitute or reasonably be expected to constitute a material adverse effect on
the Investor.  The business of the Investor is not being conducted, and shall
not be conducted, in violation of any law, statute, ordinance, rule, order or
regulation of any governmental authority or agency, regulatory or
self-regulatory agency, or court, except for violations the sanctions for which
either, individually or in the aggregate, would not have or reasonably be
expected to have a material adverse effect on the Investor.  Except as
specifically contemplated by this Agreement and as required under the 1933 Act
or any securities laws of any states, to the Investor’s knowledge, the Investor
is not required to obtain any consent, authorization, permit or order of, or
make any filing or registration (except the filing of a registration statement
as outlined in the Registration Rights Agreement) with, any court, governmental
authority or agency, regulatory or self-regulatory agency or other third party
in order for it to execute, deliver or perform any of its obligations under, or
contemplated by, the Equity Line Transaction Documents in accordance with the
terms hereof or thereof except for those consents, authorizations, permits,
orders or filings as have been obtained or effected on or prior to the date
hereof and are in full force and effect as of the date hereof.  Except as
disclosed in Schedule 3(f), the Investor is unaware of any facts or
circumstances which might give rise to any violation or default set forth in
this Section 3(F).
 
(G)           OPPORTUNITY TO DISCUSS. The Investor has received all materials
relating to the Company's business, finance and operations which it has
requested. The Investor has had an opportunity to discuss the business,
management and financial affairs of the Company with the Company's management.
 
(H)           INVESTMENT PURPOSES. The Investor is purchasing the Securities for
its own account for investment purposes and not with a view towards distribution
and agrees to resell or otherwise dispose of the Securities solely in accordance
with the registration provisions of the 1933 Act (or pursuant to an exemption
from such registration provisions).
 
(I)            NO REGISTRATION AS A DEALER. The Investor is not and will not be
required to be registered as a “dealer” under the 1934 Act, either as a result
of its execution and performance of its obligations under this Agreement or
otherwise.
 
(J)            GOOD STANDING.  The Investor is a Limited Partnership, duly
organized, validly existing and in good standing in the state of Delaware.
 
(K)           TAX LIABILITIES. The Investor understands that it is liable for
its own tax liabilities.
 
(L)            REGULATION M. The Investor will comply with Regulation M under
the 1934 Act, if applicable.
 
SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011
 
 
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SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.  Except as set forth
in the Schedules attached hereto, or as disclosed in the Company's SEC
Documents, the Company represents and warrants to the Investor that:
 
(A)   ORGANIZATION AND QUALIFICATION. The Company is a corporation duly
organized and validly existing in good standing under the laws of the State of
Delaware, USA and has the requisite corporate power and authorization to own its
properties and to carry on its business as now being conducted. Both the Company
and the companies it owns or controls (“Subsidiaries”) are duly qualified to do
business and are in good standing in every jurisdiction in which its ownership
of property or the nature of the business conducted by it makes such
qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not have a Material Adverse Effect. As
used in this Agreement, “Material Adverse Effect” means any material adverse
effect on (1) the properties, assets, operations, results of operations, or
financial condition of the Company and its Subsidiaries, if any, taken as a
whole, (2) the transactions contemplated hereby or by the agreements and
instruments to be entered into in connection herewith, or (3) the authority or
ability of the Company to perform its obligations under the Equity Line
Transaction Documents other than as a result of (a) changes adversely affecting
the United States economy (so long as the Company is not disproportionately
affected thereby), (b) changes adversely affecting the industry in which the
Company operates (so long as the Company is not disproportionately affected
thereby), (c) the announcement or consummation of the transactions contemplated
by this Agreement, and (d) changes in the market price of the Common Stock.
 
(B)   AUTHORIZATION; ENFORCEMENT; COMPLIANCE WITH OTHER INSTRUMENTS.
 
(1)   The Company has the requisite corporate power and authority to enter into
and perform the Equity Line Transaction Documents, and to perform its
obligations contemplated hereby and thereby.
 
(2)   The execution and delivery of the Equity Line Transaction Documents by the
Company and the consummation by it of the transactions contemplated hereby and
thereby, including without limitation the reservation for issuance and the
issuance of the Securities pursuant to this Agreement, have been duly and
validly authorized by the Company's Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors, or its
shareholders.
 
(3)   The Equity Line Transaction Documents have been duly and validly executed
and delivered by the Company.
 
(4)   The Equity Line Transaction Documents constitute the valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as such enforceability may be limited by general principles
of equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally, the enforcement
of creditors' rights and remedies.
 
SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011
 
 
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(C)   CAPITALIZATION. As of the date hereof, the authorized capital stock of the
Company consists of 100,000,000 shares of Common Stock with $.01 par value per
share, of as of July 5, 2011, 33,540,673 shares were issued and
outstanding.  Except as disclosed in the Company’s publicly available filings
with the SEC: (1) 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; (2) there are no outstanding debt
securities; (3) there are no outstanding shares of capital stock, options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries; (4) there are no agreements or arrangements
under which the Company or any of its Subsidiaries is obligated to register the
sale of any of their securities under the 1933 Act (except the Registration
Rights Agreement); (5) there are no outstanding securities of the Company or any
of its Subsidiaries which contain any redemption or similar provisions, and
there are no contracts, commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is or may become bound to redeem a security
of the Company or any of its Subsidiaries; (6) there are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities as described in this Agreement; (7)
the Company does not have any stock appreciation rights or “phantom stock” plans
or agreements or any similar plan or agreement; and (8) there is no dispute as
to the classification of any shares of the Company's capital stock.
 
The Company has furnished to the Investor, or the Investor has had access
through the SEC’s EDGAR website to, true and correct copies of the Company's
Articles of Incorporation, as amended and in effect on the date hereof (the
“Articles of Incorporation”), and the Company's By-laws, as in effect on the
date hereof (the “By-laws”), and the terms of all securities convertible into or
exercisable for Common Stock and the material rights of the holders thereof in
respect thereto.
 
(D)   ISSUANCE OF SHARES. The Company has reserved 10,000,000 Shares for
issuance pursuant to this Agreement, which have been duly authorized and
reserved for issuance (subject to adjustment pursuant to the Company's covenant
set forth in Section 5(F) below) pursuant to this Agreement. Upon issuance in
accordance with this Agreement, the Securities will be validly issued, fully
paid for and non-assessable and free from all taxes, liens and charges with
respect to the issue thereof. In the event the Company cannot register a
sufficient number of Shares for issuance pursuant to this Agreement, the Company
will use its best efforts to authorize and reserve for issuance the number of
Shares required for the Company to perform its obligations hereunder as soon as
reasonably practicable.
 
SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011
 
 
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(E)           NO CONFLICTS. The execution, delivery and performance of the
Equity Line Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby will not (I) result
in a violation of the Articles of Incorporation, any Certificate of
Designations, Preferences and Rights of any outstanding series of preferred
stock of the Company or the By-laws; or (II) conflict with, or constitute a
material default (or an event which with notice or lapse of time or both would
become a material default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, contract,
indenture mortgage, indebtedness or instrument to which the Company or any of
its Subsidiaries is a party, or to the Company's knowledge result in a violation
of any law, rule, regulation, order, judgment or decree (including United States
federal and state securities laws and regulations and the rules and regulations
of the Principal Market or principal securities exchange or trading market on
which the Common Stock is traded or listed) applicable to the Company or any of
its Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected. Except as disclosed in Schedule 4(e), neither
the Company nor its Subsidiaries is in violation of any term of, or in default
under, the Articles of Incorporation, any Certificate of Designations,
Preferences and Rights of any outstanding series of preferred stock of the
Company or the By-laws or their organizational charter or by-laws, respectively,
or any contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation applicable to the
Company or its Subsidiaries, except for possible conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations that would
not individually or in the aggregate have or constitute a Material Adverse
Effect. The business of the Company and its Subsidiaries is not being conducted,
and shall not be conducted, in violation of any law, statute, ordinance, rule,
order or regulation of any governmental authority or agency, regulatory or
self-regulatory agency, or court, except for possible violations the sanctions
for which either individually or in the aggregate would not have a Material
Adverse Effect. Except as specifically contemplated by this Agreement and as
required under the 1933 Act or any securities laws of any states, to the
Company's knowledge, the Company is not required to obtain any consent,
authorization, permit or order of, or make any filing or registration (except
the filing of a registration statement as outlined in the Registration Rights
Agreement between the Parties) with, any court, governmental authority or
agency, regulatory or self-regulatory agency or other third party in order for
it to execute, deliver or perform any of its obligations under, or contemplated
by, the Equity Line Transaction Documents in accordance with the terms hereof or
thereof. All consents, authorizations, permits, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof and are
in full force and effect as of the date hereof. Except as disclosed in Schedule
4(e), the Company and its Subsidiaries are unaware of any facts or circumstances
which might give rise to any violation or default of any of the foregoing.
 
(F) SEC DOCUMENTS; FINANCIAL STATEMENTS. As of the date hereof, the Company has
filed all reports, schedules, forms, statements and other documents required to
be filed by it with the SEC pursuant to the reporting requirements of the 1934
Act (all of the foregoing filed prior to the date hereof and all exhibits
included therein and financial statements and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the "SEC
Documents"). The Company has delivered to the Investor or its representatives,
or they have had access through the SEC’s EDGAR website to, true and complete
copies of the SEC Documents. As of their respective filing dates, the SEC
Documents complied in all material respects with the requirements of the 1934
Act and the rules and regulations of the SEC promulgated thereunder applicable
to the SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles, and
audited by a firm that is a member a member of the Public Companies Accounting
Oversight Board ("PCAOB") consistently applied, during the periods involved
(except (I) as may be otherwise indicated in such financial statements or the
notes thereto, or (II) in the case of unaudited interim statements, to the
extent they may exclude footnotes or may be condensed or summary statements) and
fairly present in all material respects the financial position of the Company as
of the dates thereof and the results of its operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). No other written information provided by or on
behalf of the Company to the Investor which is not included in the SEC Documents
contains any untrue statement of a material fact or omits to state any material
fact necessary to make the statements therein, in the light of the circumstance
under which they are or were made, not misleading. Neither the Company nor any
of its Subsidiaries or any of their officers, directors, employees or agents
have provided the Investor with any material, nonpublic information which was
not publicly disclosed prior to the date hereof and any material, nonpublic
information provided to the Investor by the Company or its Subsidiaries or any
of their officers, directors, employees or agents prior to any Closing Date
shall be publicly disclosed by the Company prior to such Closing Date.
 
SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011
 
 
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(G) ABSENCE OF CERTAIN CHANGES. Except as otherwise set forth in the SEC
Documents, the Company does not intend to change the business operations of the
Company in any material way. The Company has not taken any steps, and does not
currently expect to take any steps, to seek protection pursuant to any
bankruptcy law nor does the Company or its Subsidiaries have any knowledge or
reason to believe that its creditors intend to initiate involuntary bankruptcy
proceedings.
 
(H) ABSENCE OF LITIGATION AND/OR REGULATORY PROCEEDINGS. Except as set forth in
the SEC Documents, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the
executive officers of Company or any of its Subsidiaries, threatened against or
affecting the Company, the Common Stock or any of the Company's Subsidiaries or
any of the Company's or the Company's Subsidiaries' officers or directors in
their capacities as such, in which an adverse decision could have a Material
Adverse Effect.
 
(I) ACKNOWLEDGMENT REGARDING INVESTOR'S PURCHASE OF SHARES. The Company
acknowledges and agrees that the Investor is acting solely in the capacity of an
arm's length purchaser with respect to the Equity Line Transaction Documents and
the transactions contemplated hereby and thereby. The Company further
acknowledges that the Investor is not acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to the Equity Line
Transaction Documents and the transactions contemplated hereby and thereby and
any advice given by the Investor or any of its respective representatives or
agents in connection with the Equity Line Transaction Documents and the
transactions contemplated hereby and thereby is merely incidental to the
Investor's purchase of the Securities, and is not being relied on by the
Company. The Company further represents to the Investor that the Company's
decision to enter into the Equity Line Transaction Documents has been based
solely on the independent evaluation by the Company and its representatives.
 
(J) INTENTIONALLY OMMITTED
 
(K) INTENTIONALLY OMMITTED
 
SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011
 
 
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(L) INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries own or
possess adequate rights or licenses to use all trademarks, trade names, service
marks, service mark registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental authorizations, trade
secrets and rights necessary to conduct their respective businesses as now
conducted. Except as set forth in the SEC Documents, none of the Company's
trademarks, trade names, service marks, service mark registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
government authorizations, trade secrets or other intellectual property rights
necessary to conduct its business as now or as proposed to be conducted have
expired or terminated, or are expected to expire or terminate within two (2)
years from the date of this Agreement. The Company and its Subsidiaries do not
have any knowledge of any infringement by the Company or its Subsidiaries of
trademark, trade name rights, patents, patent rights, copyrights, inventions,
licenses, service names, service marks, service mark registrations, trade secret
or other similar rights of others, or of any such development of similar or
identical trade secrets or technical information by others and, except as set
forth in the SEC Documents, there is no claim, action or proceeding being made
or brought against, or to the Company's knowledge, being threatened against, the
Company or its Subsidiaries regarding trademark, trade name, patents, patent
rights, invention, copyright, license, service names, service marks, service
mark registrations, trade secret or other infringement; and the Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company and its Subsidiaries have taken commercially
reasonable security measures to protect the secrecy, confidentiality and value
of all of their intellectual properties.
 
(M) INTENTIONALLY OMMITTED
 
(N) TITLE. The Company and its Subsidiaries have good and marketable title to
all personal property owned by them which is material to the business of the
Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in the SEC Documents or
such as do not materially affect the value of such property and do not interfere
with the use made and proposed to be made of such property by the Company or any
of its Subsidiaries.
 
(O) INSURANCE. Each of the Company's Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as management of the Company reasonably believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged.
 
(P) REGULATORY PERMITS. The Company and its Subsidiaries have in full force and
effect all certificates, approvals, authorizations and permits from the
appropriate federal, state, local or foreign regulatory authorities and
comparable foreign regulatory agencies, necessary to own, lease or operate their
respective properties and assets and conduct their respective businesses, and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
approval, authorization or permit, except for such certificates, approvals,
authorizations or permits which if not obtained, or such revocations or
modifications which, would not have a Material Adverse Effect.
 
(Q) INTENTIONALLY OMMITTED
 
(R) INTENTIONALLY OMMITTED
 
(S) TAX STATUS. The Company and each of its Subsidiaries has made or filed all
United States federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply.
 
SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011
 
 
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(T) CERTAIN TRANSACTIONS. Except as set forth in the SEC Documents filed at
least ten (10) days prior to the date hereof and except for arm's length
transactions pursuant to which the Company makes payments in the ordinary course
of business upon terms no less favorable than the Company could obtain from
disinterested third parties and other than the grant of stock options disclosed
in the SEC Documents or stock options granted in the future as contemplated by
current compensation agreements or plans disclosed in the SEC Documents, none of
the officers, directors, or employees of the Company is presently a party to any
transaction with the Company or any of its Subsidiaries (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge
of the Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
 
(U) DILUTIVE EFFECT. The Company understands and acknowledges that the number of
shares of Common Stock issuable upon purchases pursuant to this Agreement will
increase in certain circumstances including, but not necessarily limited to, the
circumstance wherein the trading price of the Common Stock declines during the
period between the Effective Date and the end of the Open Period. The Company's
executive officers and directors have studied and fully understand the nature of
the transactions contemplated by this Agreement and recognize that they have a
potential dilutive effect on the shareholders of the Company. The Board of
Directors of the Company has concluded in its good faith business judgment, and
with full understanding of the implications, that such issuance is in the best
interests of the Company. The Company specifically acknowledges that, subject to
such limitations as are expressly set forth in the Equity Line Transaction
Documents, its obligation to issue shares of Common Stock upon purchases
pursuant to this Agreement is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
shareholders of the Company.
 
(V) INTENTIONALLY OMMITTED
 
(W) NO GENERAL SOLICITATION. Neither the Company, nor any of its affiliates, nor
any person acting on its behalf, has engaged in any form of general solicitation
or general advertising (within the meaning of Regulation D) in connection with
the offer or sale of the Common Stock to be offered as set forth in this
Agreement.
 
(X) NO BROKERS, FINDERS OR FINANCIAL ADVISORY FEES OR COMMISSIONS.  No brokers,
finders or financial advisory fees or commissions will be payable by the
Company, its agents or Subsidiaries, with respect to the transactions
contemplated by this Agreement, except as otherwise disclosed in this Agreement.
 
SECTION 5.           COVENANTS OF THE COMPANY
 
(A)           EFFORTS. The Company shall use all commercially reasonable efforts
to timely satisfy each of the conditions set forth in Section 8 of this
Agreement.
 
SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011
 
 
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(B)   BLUE SKY. The Company shall, at its sole cost and expense, on or before
each of the Closing Dates, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for, or obtain exemption for
the Securities for, sale to the Investor at each of the Closings pursuant to
this Agreement under applicable securities or “Blue Sky” laws of such states of
the United States, as reasonably specified by the Investor, and shall provide
evidence of any such action so taken to the Investor on or prior to the Closing
Date.
 
(C)   REPORTING STATUS. Until one of the following occurs, the Company shall
file all reports required to be filed with the SEC pursuant to the 1934 Act, and
the Company shall not terminate its status, or take an action or fail to take
any action, which would terminate its status as a reporting company under the
1934 Act: (1) this Agreement terminates pursuant to Section 9, or (2) the date
on which the Investor has sold all the Securities; provided that the Investor
shall promptly notify the Company after the Investor has sold all the
Securities.
 
(D)   USE OF PROCEEDS. The Company will use the proceeds from the sale of the
Securities (excluding amounts paid by the Company for fees as set forth in the
Equity Line Transaction Documents) for general corporate and working capital
purposes and acquisitions or assets, businesses or operations or for other
purposes that the Board of Directors, in its good faith, deems to be in the best
interest of the Company.
 
(E)            FINANCIAL INFORMATION. During the Open Period, the Company agrees
to make available to the Investor via the SEC’s EDGAR website or other
electronic means the following documents and information on the forms set forth:
(1) within five (5) Trading Days after the filing thereof with the SEC, a copy
of its Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q, any
Current Reports on Form 8-K and any Registration Statements or amendments filed
pursuant to the 1933 Act; (2) copies of any notices and other information made
available or given to the shareholders of the Company generally,
contemporaneously with the making available or giving thereof to the
shareholders; and (3) within two (2) calendar days of filing or delivery
thereof, copies of all documents filed with, and all correspondence sent to, the
Principal Market, any securities exchange or market, or the Financial Industry
Regulatory Authority, unless such information is material nonpublic information.
 
(F)            RESERVATION OF SHARES. The Company shall reserve 10,000,000
Shares for the issuance of the Securities to the Investor as required hereunder.
In the event that the Company determines that it does not have a sufficient
number of authorized shares of Common Stock to reserve and keep available for
issuance as described in this Section 5(F), the Company shall use all
commercially reasonable efforts to increase the number of authorized shares of
Common Stock by seeking shareholder approval for the authorization of such
additional shares.
 
(G)   LISTING. The Company shall maintain the listing of all of the Registrable
Securities (as defined in the Registration Rights Agreement) on the Principal
Market and each other national securities exchange and automated quotation
system, if any, upon which shares of Common Stock are then listed (subject to
official notice of issuance) and shall maintain, such listing of all Registrable
Securities from time to time issuable under the terms of the Equity Line
Transaction Documents. Neither the Company nor any of its Subsidiaries shall
take any action which would be reasonably expected to result in the delisting or
suspension of the Common Stock on the Principal Market (excluding suspensions of
not more than one (1) trading day resulting from business announcements by the
Company). The Company shall promptly provide to the Investor copies of any
notices it receives from the Principal Market regarding the continued
eligibility of the Common Stock for listing on such automated quotation system
or securities exchange. The Company shall pay all fees and expenses in
connection with satisfying its obligations under this Section 5(G).
 
SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011
 
 
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(H)           TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall
cause each of its Subsidiaries not to, enter into, amend, modify or supplement,
or permit any Subsidiary to enter into, amend, modify or supplement, any
agreement, transaction, commitment or arrangement with any of its or any
Subsidiary's officers, directors, persons who were officers or directors at any
time during the previous two (2) years, shareholders who beneficially own 5% or
more of the Common Stock, or Affiliates or with any individual related by blood,
marriage or adoption to any such individual or with any entity in which any such
entity or individual owns a 5% or more beneficial interest (each a “Related
Party”), except for (1) customary employment arrangements and benefit programs
on reasonable terms, (2) any agreement, transaction, commitment or arrangement
on an arms-length basis on terms no less favorable than terms which would have
been obtainable from a disinterested third party other than such Related
Party,(3) any agreement, transaction, commitment or arrangement which is
approved by a majority of the disinterested directors of the Company, or (4)
extensions or amendments of any existing employment agreement. For purposes
hereof, any director who is also an officer of the Company or any Subsidiary of
the Company shall not be a disinterested director with respect to any such
agreement, transaction, commitment or arrangement. “Affiliate” for purposes
hereof means, with respect to any person or entity, another person or entity
that, directly or indirectly, (1) has a 5% or more equity interest in that
person or entity, (2) has 5% or more common ownership with that person or
entity, (3) controls that person or entity, or (4) is under common control with
that person or entity. “Control” or “Controls” for purposes hereof means that a
person or entity has the power, directly or indirectly, to conduct or govern the
policies of another person or entity.
 
(I)             FILING OF FORM 8-K. On or before the date which is four (4)
Trading Days after the date of execution of this Agreement, the Company shall
file a Current Report on Form 8-K with the SEC describing the terms of the
transaction contemplated by the Equity Line Transaction Documents in the form
required by the 1934 Act, if such filing is required.
 
(J)             CORPORATE EXISTENCE. The Company shall use all commercially
reasonable efforts to preserve and continue the corporate existence of the
Company.
 
(K)           NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION OF
RIGHT TO MAKE A PUT. The Company shall promptly notify the Investor upon the
occurrence of any of the following events in respect of a Registration Statement
or related prospectus in respect of an offering of the Securities: (1) receipt
of any request for additional information by the SEC or any other federal or
state governmental authority during the period of effectiveness of the
Registration Statement for amendments or supplements to the Registration
Statement or related prospectus; (2) the issuance by the SEC or any other
federal or state governmental authority of any stop order suspending the
effectiveness of any Registration Statement or the initiation of any proceedings
for that purpose; (3) receipt of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Securities
for sale in any jurisdiction or the initiation or notice of any proceeding for
such purpose; (4) the happening of any event that makes any statement made in
such Registration Statement or related prospectus or any document incorporated
or deemed to be incorporated therein by reference untrue in any material respect
or that requires the making of any changes in the Registration Statement,
related prospectus or documents so that, in the case of a Registration
Statement, it will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading, and that in the case of the related
prospectus, it will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; and (5) the Company's reasonable determination that a
post-effective amendment to the Registration Statement would be appropriate, and
the Company shall promptly make available to Investor any such supplement or
amendment to the related prospectus. The Company shall not deliver to the
Investor any Put Notice during the continuation of any of the foregoing events
in this Section 5(K).
 
SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011
 
 
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(L)           ITENTIONALLY OMMITTED
 
(M)         TRANSFER AGENT. Upon effectiveness of the Registration Statement,
and for so long as the Registration Statement is effective,  the Company shall
deliver instructions to its transfer agent to issue Shares to the Investor that
are covered for resale by the Registration Statement free of restrictive
legends.
 
(N)          ACKNOWLEDGEMENT OF TERMS. The Company hereby represents and
warrants to the Investor that: (1) it is voluntarily entering into this
Agreement of its own freewill, (2) it is not entering this Agreement under
economic duress, (3) the terms of this Agreement are reasonable and fair to the
Company, and (4) the Company has had independent legal counsel of its own
choosing review this Agreement, advise the Company with respect to this
Agreement, and represent the Company in connection with this Agreement.
 
SECTION 6. INTENTIONALLY OMITTED.
 
SECTION 7. CONDITIONS OF THE COMPANY'S OBLIGATION TO SELL.  The obligation
hereunder of the Company to issue and sell the Securities to the Investor is
further subject to the satisfaction, at or before each Closing Date, of each of
the following conditions set forth below. These conditions are for the Company's
sole benefit and may be waived by the Company at any time in its sole
discretion.
 
(A)           The Investor shall have executed this Agreement and the
Registration Rights Agreement and delivered the same to the Company.
 
(B)           The Investor shall have delivered to the Company the Purchase
Price for the Securities being purchased by the Investor between the end of the
Pricing Period and the Closing Date via a Put Settlement Sheet (hereto attached
as Exhibit D).  Immediately after receipt of confirmation of delivery of such
Securities to the Investor, the Investor, by wire transfer of immediately
available funds pursuant to the wire instructions provided by the Company, will
disburse the funds constituting the Purchase Amount.
 
(C)           The representations and warranties of the Investor shall be true
and correct in all material respects as of the date when made and as of the
applicable Closing Date as though made at that time and the Investor shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by the Equity Line Transaction Documents to
be performed, satisfied or complied with by the Investor on or before such
Closing Date.
 
(D)           No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.
 
SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011
 
 
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SECTION 8. FURTHER CONDITIONS OF THE INVESTOR'S OBLIGATION TO PURCHASE.  The
obligation of the Investor hereunder to purchase Shares is subject to the
satisfaction, on or before each Closing Date, of each of the following
conditions set forth below.
 
(A)   The Company shall have executed the Equity Line Transaction Documents and
delivered the same to the Investor.
 
(B)           The Common Stock shall be authorized for quotation on the
Principal Market and trading in the Common Stock shall not have been suspended
by the Principal Market or the SEC, at any time beginning on the date hereof and
through and including the respective Closing Date (excluding suspensions of not
more than one (1) Trading Day resulting from business announcements by the
Company, provided that such suspensions occur prior to the Company's delivery of
the Put Notice related to such Closing).
 
(C)   The representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of the
applicable Closing Date as though made at that time and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by the Equity Line Transaction Documents to
be performed, satisfied or complied with by the Company on or before such
Closing Date. The Investor may request an update as of such Closing Date
regarding the representation contained in Section 4(C) above.
 
(D)           The Company shall have executed and delivered to the Investor the
certificates representing, or have executed electronic book-entry transfer of,
the Securities (in such denominations as the Investor shall request) being
purchased by the Investor at such Closing.
 
(E)   The Board of Directors of the Company shall have adopted resolutions
consistent with Section 4(B)(2) above (the “Resolutions”) and such Resolutions
shall not have been amended or rescinded prior to such Closing Date.
 
(F)            INTENTIONALLY OMITTED.
 
(G)   No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.
 
(H)   The Registration Statement shall be effective on each Closing Date and no
stop order suspending the effectiveness of the Registration statement shall be
in effect or to the Company's knowledge shall be pending or threatened.
Furthermore, on each Closing Date (1) neither the Company nor the Investor shall
have received notice that the SEC has issued or intends to issue a stop order
with respect to such Registration Statement or that the SEC otherwise has
suspended or withdrawn the effectiveness of such Registration Statement, either
temporarily or permanently, or intends or has threatened to do so (unless the
SEC's concerns have been addressed and Investor is reasonably satisfied that the
SEC no longer is considering or intends to take such action), and (2) no other
suspension of the use or withdrawal of the effectiveness of such Registration
Statement or related prospectus shall exist.
 
(I)            At the time of each Closing, the Registration Statement
(including information or documents incorporated by reference therein) and any
amendments or supplements thereto shall not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading or which would
require public disclosure or an update supplement to the prospectus.
 
SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011
 
 
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(J)             INTENTIOANLLY OMMITTED
 
(K)           The conditions to such Closing set forth in Section 2(E) shall
have been satisfied on or before such Closing Date.
 
(L)            The Company shall have certified to the Investor the number of
Shares of Common Stock outstanding when a Put Notice is given to the
Investor.  The Company's delivery of a Put Notice to the Investor constitutes
the Company's certification of the reservation for issuance of the necessary
number of shares of Common Stock subject to a Put Notice.
 
SECTION 9.   TERMINATION. This Agreement shall terminate upon any of the
following events:
 
(A)           when the Investor has purchased an aggregate of five million
dollars $5,000,000 in the Common Stock of the Company pursuant to this
Agreement; or,
 
(B)           on the date which is thirty-six (36) months after the Effective
Date; or,
 
(C)           upon written notice of the Company to the Investor.  Any and all
shares, or penalties, if any, due under this Agreement shall be immediately
payable and due upon termination of this Agreement.
 
SECTION 10. SUSPENSION.  The Company’s right to cause the Investor to purchase
Shares pursuant to a Put Notice, and the Investor’s obligation to purchase
Shares under this Agreement shall be suspended upon any of the following events,
and shall remain suspended until such event is rectified:
 
(A)           The trading of the Common Stock is suspended by the SEC, the
Principal Market or FINRA for a period of two (2) consecutive Trading Days
during the Open Period; or,
 
(B)            The Common Stock ceases to be registered under the 1934 Act or
listed or traded on the Principal Market.  Immediately upon the occurrence of
one of the above-described events, the Company shall send written notice of such
event to the Investor.
 
SECTION 11. INDEMNIFICATION.  In consideration of the parties’ mutual
obligations set forth in the Transaction Documents, each of the parties (in such
capacity, an “Indemnitor”) shall defend, protect, indemnify and hold harmless
the other and all of the other party's shareholders, officers, directors,
employees, counsel, and direct or indirect investors and any of the foregoing
person's agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the “Indemnitees”) from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and reasonable expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys' fees and disbursements
(the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or
arising out of, or relating to (A) any material misrepresentation or breach of
any representation or warranty made by the Indemnitor in the Equity Line
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby; (B) any material breach of any covenant,
agreement or obligation of the Indemnitor contained in the Equity Line
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby; or (C) any cause of action, suit or claim
brought or made against such Indemnitee by a third party and arising out of or
resulting from the execution, delivery, performance or enforcement of the Equity
Line Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, except insofar as (Y) any such
misrepresentation, breach or any untrue statement, alleged untrue statement,
omission or alleged omission is made in reliance upon and in conformity with
information furnished to Indemnitor which is specifically intended for use in
the preparation of any such Registration Statement, preliminary prospectus,
prospectus or amendments to the prospectus, (Z) any such Indemnified Liabilities
resulted or arose from the breach by the Indemnitee party hereto of any
representation, warranty, covenant or agreement of such Indemnitee contained in
the Equity Line Transaction Documents or the negligence, recklessness, willful
misconduct or bad faith of such Indemnitee. To the extent that the foregoing
undertaking by the Indemnitor may be unenforceable for any reason, the
Indemnitor shall make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities which is permissible under applicable
law. The indemnity provisions contained herein shall be in addition to any cause
of action or similar rights Indemnitor may have, and any liabilities the
Indemnitor or the Indemnitees may be subject to.
 
SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011
 
 
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As a condition to Indemnitor’s indemnity obligations under this section 11,
Indemnitees will provide Indemnitor with prompt written notice of the claim,
permit Indemnitor to control the defense, settlement, adjustment or compromise
of the claim and provide Indemnitor with reasonable assistance in connection
with such defense.  Indemnitees may employ counsel at its own expense to assist
it with respect to any such claim.

SECTION 12. GOVERNING LAW; DISPUTES SUBMITTED TO ARBITRATION. All disputes
arising under this agreement shall be governed by and interpreted in accordance
with the laws of the State of New York, without regard to principles of conflict
of laws.  The parties to this agreement will submit all disputes arising under
this agreement to arbitration in New York before a single arbitrator of the
American Arbitration Association (“AAA”).  The arbitrator shall be selected by
application of the rules of the AAA, or by mutual agreement of the parties,
except that such arbitrator shall be an attorney admitted to practice law in
State of New York.  No party to this Agreement will challenge the jurisdiction
or venue provisions as provided in this section. No party to this agreement will
challenge the jurisdiction or venue provisions as provided in this
section.  Nothing contained herein shall prevent the party from obtaining an
injunction.
 
SECTION 13. LEGAL EXPENSES; AND MISCELLANEOUS EXPENSES. Except as otherwise set
forth in the Equity Line Transaction Documents, each party shall pay the fees
and expenses of its advisers, counsel, the accountants and other experts, if
any, and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. Any
attorneys' fees and expenses incurred by either the Company or the Investor in
connection with the preparation, negotiation, execution and delivery of any
amendments to this Agreement or relating to the enforcement of the rights of any
party, after the occurrence of any breach of the terms of this Agreement by
another party or any default by another party in respect of the transactions
contemplated hereunder, shall be paid on demand by the party which breached the
Agreement and/or defaulted, as the case may be. The Company shall pay all stamp
and other taxes and duties levied in connection with the issuance of any
Securities.
 
SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011
 
 
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SECTION 14. COUNTERPARTS. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original
signature.
 
SECTION 15. HEADINGS; SINGULAR/PLURAL. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement. Whenever required by the context of this
Agreement, the singular shall include the plural and masculine shall include the
feminine.
 
SECTION 16. SEVERABILITY. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
 
SECTION 17. ENTIRE AGREEMENT; AMENDMENTS. This Agreement is the FINAL AGREEMENT
between the Company and the Investor with respect to the terms and conditions
set forth herein, and, the terms of this Agreement may not be contradicted by
evidence of prior, contemporaneous, or subsequent oral agreements of the
Parties. No provision of this Agreement may be amended other than by an
instrument in writing signed by the Company and the Investor, and no provision
hereof may be waived other than by an instrument in writing signed by the party
against whom enforcement is sought. The execution and delivery of the Equity
Line Transaction Documents shall not alter the force and effect of any other
agreements between the Parties, and the obligations under those agreements.
 
SECTION 18. NOTICES. Any notices or other communications required or permitted
to be given under the terms of this Agreement must be in writing and will be
deemed to have been delivered (A) upon receipt, when delivered personally; (B)
upon receipt, when sent by facsimile or email with the signed document attached
in PDF format (provided confirmation of transmission is mechanically or
electronically generated and kept on file by the sending party); or (C) one (1)
day after deposit with a nationally recognized overnight delivery service, in
each case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
 
If to the Company:
 
SPO Medical Inc.
3, Gavish Street
POB 2454
 Kfar Saba, Israel
Telephone: 972-9-966-2520
 
With a copy to (which shall not constitute notice):

Gerald Brounstein, Adv.
Aboudi & Brounstein
3 HaGavish Street
Kfar Saba, Israel
Telephone: +972-9-764-4833
Attention: Gerald Brounstein
 
SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011
 
 
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If to the Investor:
 
Dutchess Opportunity Fund, II, LP
50 Commonwealth Avenue, Suite 2
Boston, MA 02116
Telephone: 617-301-4700
 
Each party shall provide five (5) days prior written notice to the other party
of any change in address or facsimile number.
 
SECTION 19. NO ASSIGNMENT. This Agreement and any rights, agreements or
obligations hereunder may not be assigned, by operation of law, merger or
otherwise, without the prior written consent of the other party hereto, and any
purported assignment by a party without prior written consent of the other party
will be null and void and not binding on such other party.  Subject to the
preceding sentence, all of the terms, agreements, covenants, representations,
warranties and conditions of this Agreement are binding upon, and inure to the
benefit of and are enforceable by, the parties and their respective successors
and assigns.
 
SECTION 20. NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and is not for the benefit of, nor may any
provision hereof be enforced by, any other person, except that the Company
acknowledges that the rights of the Investor may be enforced by its general
partner.
 
SECTION 21. SURVIVAL. The indemnification provisions set forth in Section 11,
shall survive each of the Closings and the termination of this Agreement.
 
SECTION 22. PUBLICITY. The Company and the Investor shall consult with each
other in issuing any press releases or otherwise making public statements with
respect to the transactions contemplated hereby and no party shall issue any
such press release or otherwise make any such public statement without the prior
consent of the other party, which consent shall not be unreasonably withheld or
delayed, except that no prior consent shall be required if such disclosure is
required by law, in which such case the disclosing party shall provide the other
party with prior notice of such public statement. The Investor acknowledges that
this Agreement and all or part of the Equity Line Transaction Documents may be
deemed to be “material contracts” as that term is defined by Item 601(b)(10) of
Regulation S-K, and that the Company may therefore be required to file such
documents as exhibits to reports or registration statements filed under the 1933
Act or the 1934 Act.  The Investor further agrees that the status of such
documents and materials as material contracts shall be determined solely by the
Company, in consultation with its counsel.
 
SECTION 23. FURTHER ASSURANCES. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
 
SECTION 24. INTENTIONALLY OMITTED.
 
SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011
 
 
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SECTION 25. NO STRICT CONSTRUCTION. 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, as the
parties mutually agree that each has had a full and fair opportunity to review
this Agreement and seek the advice of counsel on it.
 
SECTION 26. REMEDIES. The Investor shall have all rights and remedies set forth
in this Agreement and the Registration Rights Agreement and all rights and
remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which the Investor has by law. Any
person having any rights under any provision of this Agreement shall be entitled
to enforce such rights specifically (without posting a bond or other security),
to recover damages by reason of any default or breach of any provision of this
Agreement, including the recovery of reasonable attorneys fees and costs, and to
exercise all other rights granted by law.
 
SECTION 27. PAYMENT SET ASIDE. To the extent that the Company makes a payment or
payments to the Investor hereunder or under the Registration Rights Agreement or
the Investor enforces or exercises its rights hereunder or thereunder, and such
payment or payments or the proceeds of such enforcement or exercise or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside, recovered from, disgorged by or are required to be refunded, repaid
or otherwise restored to the Company, a trustee, receiver or any other person
under any law (including, without limitation, any bankruptcy law, state or
federal law, common law or equitable cause of action), then to the extent of any
such restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.
 
SECTION 28. PRICING OF COMMON STOCK. For purposes of this Agreement, the VWAP of
the Common Stock shall be as reported on a direct feed service.
 
SECTION 29. NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
 
(A)           The Company shall not disclose non-public information concerning
the Company to the Investor, its advisors, or its representatives.
 
(B)            Nothing herein shall require the Company to disclose non-public
information to the Investor or its advisors or representatives, provided,
however, that notwithstanding anything herein to the contrary, the Company will,
as hereinabove provided, immediately notify the advisors and representatives of
the Investor and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting non-public information
(whether or not requested of the Company specifically or generally during the
course of due diligence by such persons or entities), which, if not disclosed in
the prospectus included in the Registration Statement would cause such
prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein, in light
of the circumstances in which they were made, not misleading. Nothing contained
in this Section 29 shall be construed to mean that such persons or entities
other than the Investor (without the written consent of the Investor prior to
disclosure of such information) may not obtain non-public information in the
course of conducting due diligence in accordance with the terms of this
Agreement and nothing herein shall prevent any such persons or entities from
notifying the Company of their opinion that based on such due diligence by such
persons or entities, that the Registration Statement contains an untrue
statement of material fact or omits a material fact required to be stated in the
Registration Statement or necessary to make the statements contained therein, in
light of the circumstances in which they were made, not misleading.
 
SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011
 
 
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SECTION 30. ACKNOWLEDGEMENTS OF THE PARTIES.  Notwithstanding anything in this
Agreement to the contrary, the parties hereto hereby acknowledge and agree to
the following: (A) the Investor makes no representations or covenants that it
will not engage in trading in the securities of the Company, other than the
Investor will not sell any of the Company's common stock at any time during a
Pricing Period and the Investor will not short the Company’s securities as
provided under Section 3 (c); (B) the Company shall, by 8:30 a.m. Boston Time on
the fourth Trading Day following the date hereof, file a current report on Form
8-K disclosing the material terms of the transactions contemplated hereby and in
the other Equity Line Transaction Documents; (C) the Company has not and shall
not provide material non-public information to the Investor unless prior thereto
the Investor shall have executed a written agreement regarding the
confidentiality and use of such information; and (D) the Company understands and
confirms that the Investor will be relying on the acknowledgements set forth in
clauses (A) through (C) above if the Investor effects any transactions in the
securities of the Company.
 
[Signature Page Follows]
 
SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011
 
 
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SIGNATURE PAGE OF INVESTMENT AGREEMENT
 
Your signature on this Signature Page evidences your agreement to be bound by
the terms and conditions of the Investment Agreement and the Registration Rights
Agreement as of the date first written above.
 
The undersigned signatory hereby certifies that he has read and understands the
Investment Agreement, and the representations made by the undersigned in this
Investment Agreement are true and accurate, and agrees to be bound by its terms.
 

 
DUTCHESS OPPORTUNITY FUND, II, LP
       
By:
/s/ Douglas H. Leighton
   
Douglas H. Leighton
   
Managing Member of:
   
Dutchess Capital Management, II, LLC
   
General Partner to:
   
Dutchess Opportunity Fund, II, LP
       
SPO Medical, Inc.
       
By:
/s/ Sidney Braun
   
Sidney Braun, Chairman, Director
       
By:
/s/ Michael Braunold
   
Michael Braunold, President, Chief Executive
 
Officer & Director

Signature Page to Investment Agreement
 
 
 

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LIST OF EXHIBITS
 
EXHIBIT A
Registration Rights Agreement
EXHIBIT B
Opinion of Company's Counsel
EXHIBIT C
Put Notice
EXHIBIT D
Put Settlement Sheet

 
 
 

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EXHIBIT A
 
REGISTRATION RIGHTS AGREEMENT
 
(Attached)
 
 
A-1

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EXHIBIT B
 
OPINION OF COMPANY’S COUNSEL
 
(Attached)
 
 
B-1

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EXHIBIT C
 
FORM OF PUT NOTICE
 
Date:                               
 
RE: Put Notice Number                                                     
 
Dear Mr. Leighton:
 
This is to inform you that as of today, SPO Medical, Inc. a Delaware corporation
(the "Company"), hereby elects to exercise its right pursuant to the Investment
Agreement entered into with Dutchess Opportunity Fund II, LP (“Dutchess”) to
require Dutchess to purchase shares of its common stock.  The Company hereby
certifies that:
 
The amount of this put is
$                                                                          .
 
The Pricing Period runs
from                                                                          until                               .
 
The Minimum Acceptable Price is
$                                                                                    .
 
The current number of shares issued and outstanding as of the Company
are:                                        
 
The number of shares currently available for resale pursuant to the Registration
Statement on Form S-1 for the Equity Line are:                              .
 

 
Regards,
     
SPO Medical, Inc.
     
By:
   
Name:
   
Title:
 

 
C-1

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EXHIBIT D
 
FORM OF PUT SETTLEMENT SHEET
 
Date:                               
 
RE: SPO Medical, Inc.
 
Dear                               :
 
Pursuant to the Put given by SPO Medical, Inc. to Dutchess Opportunity Fund, II,
LP on             200_, we are now submitting the amount of common shares for
you to issue to Dutchess.
 
Please deliver __________ shares without restrictive legend via book entry to
Dutchess Opportunity Fund, II, LP immediately and send via DWAC to the following
account:
 
XXXXXX
 
Once these shares are received by us, we will have the funds wired to the
Company.

 
Regards,

 
Douglas H. Leighton
 
 
 

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DATE
 
PRICE
Date of Day 1
 
VWAP of Day 1
Date of Day 2
 
VWAP of Day 2
Date of Day 3
 
VWAP of Day 3
Date of Day 4
 
VWAP of Day 4
Date of Day 5
 
VWAP of Day 5

 
LOWEST VWAP IN PRICING PERIOD
         
PUT AMOUNT
         
PURCHASE PRICE (NINETY-FOUR PERCENT (94%))
         
AMOUNT OF SHARES DUE
   

 
The undersigned has completed this Put as of this ___th day of _________, 200_.
 

 
SPO Medical, Inc.
       
By:
   
Name:
   
Title:
 

 
 
 

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