SUBSCRIPTION AGREEMENT

THIS SUBSCRIPTION AGREEMENT (this “Agreement”), dated as of May ____, 2007, by
and among Pluristem Life Systems, Inc., a Nevada corporation (the “Company”),
and the subscribers identified on the signature page hereto (each a “Subscriber”
and collectively “Subscribers”).

WHEREAS, the Company and the Subscribers are executing and delivering this
Agreement in reliance upon an exemption from securities registration afforded by
the provisions of Section 4(2), Section 4(6) and/or Regulation D (“Regulation
D”) as promulgated by the United States Securities and Exchange Commission (the
“Commission”) under the Securities Act of 1933, as amended (the “1933 Act”).

WHEREAS, the parties desire that, upon the terms and subject to the conditions
contained herein, the Company shall issue and sell to the Subscribers, as
provided herein, and the Subscribers, in the aggregate, shall purchase for a
minimum of $7,000,000 and up to a maximum of $13,500,000 (the "Purchase Price")
shares of the Company's common stock, $.00001 par value (the "Common Stock") at
a per share price of $0.0125, and share purchase warrants (the “Warrants”) in
the form attached hereto as Exhibit A, to purchase shares of Common Stock (the
“Warrant Shares”). The shares of Common Stock (the “Shares”), the Warrants and
the Warrant Shares are collectively referred to herein as the "Securities"; and

WHEREAS, the aggregate proceeds of the sale of the Shares and the Warrants
contemplated hereby, and the other documents, instruments and payments
contemplated hereby shall be delivered directly to the Company to the account
described on Exhibit B hereto (the "Company Account").

NOW, THEREFORE, in consideration of the mutual covenants and other agreements
contained in this Agreement the Company and the Subscribers hereby agree as
follows:

1.            Closing. Subject to the satisfaction or waiver of the terms and
conditions of this Agreement, on the “Closing Date” (as defined in Section 2
below), each Subscriber shall purchase and the Company shall sell to each
Subscriber the Shares and Warrants designated on the signature page hereto for
the portion of the Purchase Price set forth on the signature page hereto. The
consummation of the transactions contemplated herein shall take place at the
offices of Grushko & Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York, New
York 10176, upon the satisfaction of all conditions to Closing set forth in this
Agreement (“Closing Date”).

 

2.            Closing Condition. The Closing shall occur upon receipt by the
Company of signed subscription agreements from the Subscribers, the Purchase
Price deposited by the Subscribers with the Company pursuant to the wire
instructions set forth on Exhibit B hereto, or, if pre-arranged by the
Subscriber with the Company, by short term promissory note, and the Company
accepting such Subscriptions. Upon such acceptance the Company will deliver to
the Subscriber original certificates representing the Common Stock and Warrants
purchased by the Subscribers pursuant to this Agreement and copies of all other
signed agreements and documents reasonably requested by the Subscriber . If the
payment was made by promissory note, the Company shall retain the certificates
until the promissory note is fully paid.

 

3.            Warrants. On the Closing Date, the Company will issue and deliver
Warrants to the Subscribers. One Warrant will be issued for each Share issued on
the Closing Date. The per Warrant Share exercise price to acquire a Warrant
Share upon exercise of a Warrant shall be $0.025. The Warrants shall be
exercisable commencing upon the Closing Date and until five (5) years after the
Closing Date.

 

 

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4.            Subscriber's Representations and Warranties. Each Subscriber
hereby represents and warrants to and agrees with the Company only as to such
Subscriber that:

(a)           Information on Company. The Subscriber has been furnished with or
has had access at the EDGAR Website of the Commission to the Company's Form
10-KSB for the year ended June 30, 2006 as filed with the Commission, together
with all subsequently filed Forms 10-QSB, 8-K, and filings made with the
Commission available at the EDGAR website (hereinafter referred to collectively
as the "Reports"). In addition, the Subscriber has received in writing from the
Company such other information concerning its operations, financial condition
and other matters as the Subscriber has requested in writing (such other
information is collectively, the "Other Written Information"), and considered
all factors the Subscriber deems material in deciding on the advisability of
investing in the Securities.

(b)           Information on Subscriber. The Subscriber is, and will be at the
time of exercise of any of the Warrants, an "accredited investor", as such term
is defined in Regulation D promulgated by the Commission under the 1933 Act, is
experienced in investments and business matters, has made investments of a
speculative nature and has purchased securities of United States publicly-owned
companies in private placements in the past and, with its representatives, has
such knowledge and experience in financial, tax and other business matters as to
enable the Subscriber to utilize the information made available by the Company
to evaluate the merits and risks of and to make an informed investment decision
with respect to the proposed purchase, which represents a speculative
investment. The Subscriber has the authority and is duly and legally qualified
to purchase and own the Securities. The Subscriber is able to bear the risk of
such investment for an indefinite period and to afford a complete loss thereof.
The information set forth on the signature page hereto regarding the Subscriber
is accurate.

(c)           Purchase of Shares and Warrants. On the Closing Date, the
Subscriber will purchase the Shares and Warrants as principal for its own
account for investment only and not with a view toward, or for resale in
connection with, the public sale or any distribution thereof.

(d)          Compliance with 1933 Act. The Subscriber understands and agrees
that the Securities have not been registered under the 1933 Act or any
applicable state securities laws, by reason of their issuance in a transaction
that does not require registration under the 1933 Act (based in part on the
accuracy of the representations and warranties of Subscriber contained herein),
and that such Securities must be held indefinitely unless a subsequent
disposition is registered under the 1933 Act and any applicable state securities
laws or is exempt from such registration. Each Subscriber acknowledges that the
holding period of the Shares and Warrants for purposes of Rule 144 under the
1933 Act shall commence on the Closing Date notwithstanding the date of delivery
of Purchase Price by the Subscriber to the Company except as set forth on
Schedule 12.

(e)           Shares and Warrant Shares Legend. The Shares and Warrant Shares
shall bear the following or similar legend:

"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAW OR AN
OPINION OF COUNSEL REASONABLY

 

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SATISFACTORY TO PLURISTEM LIFE SYSTEMS, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."

 

 

(f)

Warrants Legend. The Warrants shall bear the following

or similar legend:

"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO PLURISTEM
LIFE SYSTEMS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."

 

(g)          Communication of Offer. The offer to sell the Securities was
directly communicated to the Subscriber by the Company. At no time was the
Subscriber presented with or solicited by any leaflet, newspaper or magazine
article, radio or television advertisement, or any other form of general
advertising or solicited or invited to attend a promotional meeting otherwise
than in connection and concurrently with such communicated offer.

(h)          Authority; Enforceability. This Agreement and other agreements
delivered together with this Agreement or in connection herewith have been duly
authorized, executed and delivered by the Subscriber and are valid and binding
agreements enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors’ rights generally and
to general principles of equity; and Subscriber (if an entity) has full
corporate power and authority necessary to enter into this Agreement and such
other agreements and to perform its obligations hereunder and under all other
agreements entered into by the Subscriber relating hereto.

 

(i)           Restricted Securities. Subscriber understands that the Securities
have not been registered under the 1933 Act and such Subscriber will not sell,
offer to sell, assign, pledge, hypothecate or otherwise transfer any of the
Securities unless (i) pursuant to an effective registration statement under the
1933 Act, (ii) such Subscriber provides the Company with an opinion of counsel,
in a form reasonably acceptable to the Company, to the effect that a sale,
assignment or transfer of the Securities may be made without registration under
the 1933 Act, or (iii) Subscriber provides the Company with reasonable
assurances (in the form of seller and broker representation letters) that the
Warrant Shares may be sold pursuant to (A) Rule 144 promulgated under the 1933
Act, or (B) Rule 144(k) promulgated under the 1933 Act, in each case following
the applicable holding period set forth therein. Notwithstanding anything to the
contrary contained in this Agreement, such Subscriber may transfer (without
restriction and without the need for an opinion of counsel) the Securities to
its Affiliates (as defined below) and such Affiliate agrees to be bound by the
terms and conditions of this Agreement. For the purposes of this Agreement, an
“Affiliate” of any person or entity means any other person or entity directly or
indirectly controlling, controlled by or under direct or indirect common control
with such person

 

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or entity. For purposes of this definition, “control” means the power to direct
the management and policies of such person or firm, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise.

 

(j)           No Governmental Review. Each Subscriber understands that no United
States federal or state agency or any other governmental or state agency has
passed on or made recommendations or endorsement of the Securities or the
suitability of the investment in the Securities nor have such authorities passed
upon or endorsed the merits of the offering of the Securities.

 

(k)          Correctness of Representations. Each Subscriber represents as to
such Subscriber that the foregoing representations and warranties are true and
correct as of the date hereof and, unless a Subscriber otherwise notifies the
Company prior to the Closing Date, shall be true and correct as of the Closing
Date.

 

(l)            Survival. The foregoing representations and warranties shall
survive the Closing Date for a period of four years.

5.            Company Representations and Warranties. Except as set forth in the
Reports, the Company represents and warrants to and agrees with each Subscriber
that:

(a)           Due Incorporation. The Company and each of its subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the respective jurisdictions of their incorporation and have the requisite
corporate power to own their properties and to carry on their business as now
being conducted. The Company and each of its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in each jurisdiction
where the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure to
so qualify would not have a Material Adverse Effect. For purpose of this
Agreement, a “Material Adverse Effect” shall mean a material adverse effect on
the financial condition, results of operations, properties or business of the
Company taken as a whole. For purposes of this Agreement, “Subsidiary” means,
with respect to any entity at any date, any corporation, limited or general
partnership, limited liability company, trust, estate, association, joint
venture or other business entity of which more than 50% of (i) the outstanding
capital stock having (in the absence of contingencies) ordinary voting power to
elect a majority of the board of directors or other managing body of such
entity, (ii) in the case of a partnership or limited liability company, the
interest in the capital or profits of such partnership or limited liability
company or (iii) in the case of a trust, estate, association, joint venture or
other entity, the beneficial interest in such trust, estate, association or
other entity business is, at the time of determination, owned or controlled
directly or indirectly through one or more intermediaries, by such entity. As of
the Closing Date, the Company’s only Subsidiary is Pluristem Ltd., a State of
Israel corporation.

(b)          Outstanding Stock. All issued and outstanding shares of capital
stock of the Company and each of its subsidiaries have been duly authorized and
validly issued and are fully paid and nonassessable

(c)           Authority; Enforceability. This Agreement, the Shares, the
Warrants, and any other agreements delivered together with this Agreement or in
connection herewith (collectively “Transaction Documents”) have been duly
authorized, executed and delivered by the Company and are valid and binding
agreements enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights generally and
to general principles of equity. The Company has full

 

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corporate power and authority necessary to enter into and deliver the
Transaction Documents and to perform its obligations thereunder.

(d)          Additional Issuances. There are no outstanding agreements or
preemptive or similar rights affecting the Company's common stock or equity and
no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, or agreements or understandings with
respect to the sale or issuance of any shares of common stock or equity of the
Company or other equity interest in any of the subsidiaries of the Company
except as described on Schedule 5(d).

(e)           Consents. No consent, approval, authorization or order of any
court, governmental agency or body or arbitrator having jurisdiction over the
Company, or any of its Affiliates, the OTC Bulletin Board (the “Bulletin Board”)
nor the Company's shareholders is required for the execution by the Company of
the Transaction Documents and compliance and performance by the Company of its
obligations under the Transaction Documents, including, without limitation, the
issuance and sale of the Securities. The Transaction Documents and the Company’s
performance of its obligations thereunder have been approved by the Company’s
directors.

(f)           No Violation or Conflict. Assuming the representations and
warranties of the Subscribers in Section 4 are true and correct, neither the
issuance and sale of the Securities nor the performance of the Company’s
obligations under this Agreement and all other agreements entered into by the
Company relating thereto by the Company will:

(i)            violate, conflict with, result in a breach of, or constitute a
default (or an event which with the giving of notice or the lapse of time or
both would be reasonably likely to constitute a default) under (A) the
certificate of incorporation, or bylaws of the Company, (B) to the Company's
knowledge, any decree, judgment, order, law, treaty, rule, regulation or
determination applicable to the Company of any court, governmental agency or
body, or arbitrator having jurisdiction over the Company or any of its
subsidiaries or over the properties or assets of the Company or any of its
Affiliates, (C) the terms of any bond, debenture, note or any other evidence of
indebtedness, or any agreement, stock option or other similar plan, indenture,
lease, mortgage, deed of trust or other instrument to which the Company or any
of its Affiliates or subsidiaries is a party, by which the Company or any of its
Affiliates or subsidiaries is bound, or to which any of the properties of the
Company or any of its Affiliates or subsidiaries is subject, or (D) the terms of
any "lock-up" or similar provision of any underwriting or similar agreement to
which the Company, or any of its Affiliates or subsidiaries is a party except
the violation, conflict, breach, or default of which would not have a Material
Adverse Effect on the Company; or

(ii)          result in the creation or imposition of any lien, charge or
encumbrance upon the Securities or any of the assets of the Company, its
subsidiaries or any of its Affiliates; or

(iii)         result in the activation of any anti-dilution rights or a reset or
repricing of any debt or security instrument of any other creditor or equity
holder of the Company, nor result in the acceleration of the due date of any
obligation of the Company; or

(iv)        result in the activation of any piggy-back registration rights of
any person or entity holding securities of the Company or having the right to
receive securities of the Company.

 

(g)

The Securities. The Securities upon issuance:

 

 

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(i)           are, or will be, free and clear of any security interests, liens,
claims or other encumbrances, subject to restrictions upon transfer under the
1933 Act and any applicable state securities laws;

 

(ii)          have been, or will be, duly and validly authorized and on the date
of exercise of the Warrants and issuance of the Shares and Warrant Shares will
be duly and validly issued, fully paid and nonassessable and, if registered
pursuant to the 1933 Act, and resold pursuant to an effective registration
statement will be free trading and unrestricted except for prospectus delivery
requirements by the seller;

(iii)         will not have been issued or sold in violation of any preemptive
or other similar rights of the holders of any securities of the Company;

(iv)         will not subject the holders thereof to personal liability by
reason of being such holders; and

(v)         assuming the representations warranties of the Subscribers as set
forth in Section 4 hereof are true and correct, will not result in a violation
of Section 5 under the 1933 Act.

(h)          Litigation. There is no pending or, to the best knowledge of the
Company, threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the Company,
or any of its Affiliates that would affect the execution by the Company or the
performance by the Company of its obligations under the Transaction Documents.
Except as disclosed in the Reports, there is no pending or, to the best
knowledge of the Company, basis for or threatened action, suit, proceeding or
investigation before any court, governmental agency or body, or arbitrator
having jurisdiction over the Company, or any of its Affiliates which litigation
if adversely determined would have a Material Adverse Effect on the Company.

(i)           Reporting Company. The Company is a publicly-held company subject
to reporting obligations pursuant to Section 13 of the Securities Exchange Act
of 1934, as amended (the "1934 Act") and has a class of common equity registered
pursuant to Section 12(g) of the 1934 Act. Pursuant to the provisions of the
1934 Act, the Company has timely filed all reports and other materials required
to be filed thereunder with the Commission during the preceding twelve months.

(j)           No Market Manipulation. The Company has not taken, and will not
take, directly or indirectly, any action designed to, or that might reasonably
be expected to, cause or result in stabilization or manipulation of the price of
the Common Stock of the Company to facilitate the sale or resale of the
Securities or affect the price at which the Securities may be issued or resold.

(k)           Information Concerning Company. The Reports contain all material
information relating to the Company and its operations and financial condition
as of their respective dates which information is required to be disclosed
therein. Since the date of the financial statements included in the Reports, and
except as modified in the Other Written Information or in the Schedules hereto,
there has been no material adverse change in the Company's business, financial
condition or affairs not disclosed in the Reports. The Reports do not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances when made.

(l)            Stop Transfer. The Securities, when issued, will be restricted
securities. The Company will not issue any stop transfer order or other order
impeding the sale, resale or delivery of any of the Securities, except as may be
required by any applicable federal or state securities laws or unless

 

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the Securities are not paid in full and unless contemporaneous notice of such
instruction is given to the Subscriber.

(m)         Defaults. The Company is not in violation of its certificate of
incorporation or bylaws. Except as disclosed on Schedule 5(m), the Company is
(i) not in default under or in violation of any other material agreement or
instrument to which it is a party or by which it or any of its properties are
bound or affected, which default or violation would have a Material Adverse
Effect on the Company, (ii) not in default with respect to any order of any
court, arbitrator or governmental body or subject to or party to any order of
any court or governmental authority arising out of any action, suit or
proceeding under any statute or other law respecting antitrust, monopoly,
restraint of trade, unfair competition or similar matters, or (iii) to its
knowledge, not in violation of any statute, rule or regulation of any
governmental authority which violation would have a Material Adverse Effect on
the Company.

(n)          Not an Integrated Offering. Neither the Company, nor any of its
Affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offer of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
the Bulletin Board. Nor will the Company or any of its Affiliates or
subsidiaries take any action or steps that would cause the offer or issuance of
the Securities to be integrated with other offerings. Other than issuance of
warrants to parties connected to the offer of the Securities, the Company will
not conduct any offering other than the transactions contemplated hereby that
will be integrated with the offer or issuance of the Securities.

(o)          No General Solicitation. Neither the Company, nor any of its
Affiliates, nor to its knowledge, any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the 1933 Act) in connection with the offer or sale
of the Securities.

(p)          Listing. The Company's common stock is quoted on the Bulletin
Board. The Company has not received any oral or written notice that its common
stock is not eligible nor will become ineligible for quotation on the Bulletin
Board nor that its common stock does not meet all requirements for the
continuation of such quotation. The Company satisfies all the requirements for
the continued quotation of its common stock on the Bulletin Board.

(q)          No Undisclosed Liabilities. The Company has no liabilities or
obligations which are material, individually or in the aggregate, which are not
disclosed in the Reports and Other Written Information, other than those
incurred in the ordinary course of the Company’s businesses since June 30, 2006
and which, individually or in the aggregate, would reasonably be expected to
have a Material Adverse Effect except as set forth in Schedule 5(m).

(r)           No Undisclosed Events or Circumstances. Since June 30, 2006, no
event or circumstance has occurred or exists with respect to the Company or its
businesses, properties, operations or financial condition, that, under
applicable law, rule or regulation, requires public disclosure or announcement
prior to the date hereof by the Company but which has not been so publicly
announced or disclosed in the Reports.

(s)           Capitalization. The authorized and outstanding capital stock of
the Company as of the date of this Agreement and the Closing Date are set forth
on Schedule 5(d). Except as set forth on Schedule 5(d) and in the Company’s
Reports, there are no options, warrants, or rights to subscribe to, securities,
rights or obligations convertible into or exchangeable for or giving any right
to

 

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subscribe for any shares of capital stock of the Company. All of the outstanding
shares of Common Stock of the Company have been duly and validly authorized and
issued and are fully paid and nonassessable.

(t)           Dilution. The Company's executive officers and directors
understand the nature of the Securities being sold hereby and recognize that the
issuance of the Securities will have a potential dilutive effect on the equity
holdings of other holders of the Company’s equity or rights to receive equity of
the Company. The board of directors of the Company has concluded, in its good
faith business judgment, that the issuance of the Securities is in the best
interests of the Company. The Company specifically acknowledges that its
obligation to issue the Warrant Shares upon exercise of the Warrants is binding
upon the Company and enforceable regardless of the dilution such issuance may
have on the ownership interests of other shareholders of the Company or parties
entitled to receive equity of the Company.

(u)          No Disagreements with Accountants and Lawyers. There are no
material disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the Company and the accountants and lawyers
formerly or presently employed by the Company.

 

(v)          DTC Status. The Company’s transfer agent is a participant in and
the Common Stock is eligible for transfer pursuant to the Depository Trust
Company Automated Securities Transfer Program. The name, address, telephone
number, fax number, contact person and email address of the Company transfer
agent is set forth on Schedule 5(v) hereto.

 

(w)          Investment Company. Neither the Company nor any Affiliate is an
“investment company” within the meaning of the Investment Company Act of 1940,
as amended.

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

 

(y)           Solvency. Based on the financial condition of the Company as of
the Closing Date after giving effect to the receipt by the Company of the
proceeds from the sale of the Securities hereunder, (i) the Company’s fair
saleable value of its assets exceeds the amount that will be required to be paid
on or in respect of the Company’s existing debts and other liabilities
(including known contingent liabilities) as they mature; (ii) the Company’s
assets do not constitute unreasonably small capital to carry on its business for
the current fiscal year as now conducted and as proposed to be conducted
including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected capital
requirements and capital availability thereof; and (iii) the current cash flow
of the Company, together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated uses of
the cash, would be sufficient to pay all amounts on or in respect of its debt
when such amounts are required to be paid. The Company does not intend to incur
debts beyond its ability to pay such debts as they mature (taking into account
the timing and amounts of cash to be payable on or in respect of its debt).

 

(z)           Subsidiary Representations. The Company makes each of the
representations contained in Sections 5(a), (b), (d), (f), (h), (k), (m), (q),
(r), (s), (u), (w), (x) and (y) of this Agreement, as same relate to each
Subsidiary of the Company.

 

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(AA)      Correctness of Representations. The Company represents that the
foregoing representations and warranties are true and correct as of the date
hereof in all material respects, and, unless the Company otherwise notifies the
Subscribers prior to the Closing Date, shall be true and correct in all material
respects as of the Closing Date.

(BB)       Survival. The foregoing representations and warranties shall survive
the Closing Date for a period of four years.

6.            Regulation D Offering. The offer and issuance of the Securities to
the Subscribers is being made pursuant to the exemption from the registration
provisions of the 1933 Act afforded by Section 4(2) of the 1933 Act and/or Rule
506 of Regulation D promulgated thereunder. On the Closing Date, the Company
will provide an opinion reasonably acceptable to Subscriber from the Company's
legal counsel opining on the availability of an exemption from registration
under the 1933 Act as it relates to the offer and issuance of the Securities and
other matters reasonably requested by Subscribers. A form of the legal opinion
is annexed hereto as Exhibit C. The Company will provide, at the Company's
expense, such other legal opinions in the future as are reasonably necessary for
the issuance and resale of the Shares and Warrant Shares.

 

7.

Covenants of the Company.

 

7.1.

Covenants. The Company covenants and agrees with the Subscribers as follows:

(a)           Stop Orders. The Company will advise the Subscribers, promptly
after it receives notice of issuance by the Commission, any state securities
commission or any other regulatory authority of any stop order or of any order
preventing or suspending any offering of any securities of the Company, or of
the suspension of the qualification of the Common Stock of the Company for
offering or sale in any jurisdiction, or the initiation of any proceeding for
any such purpose.

(b)          Listing/Quotation. . For so long as a Subscriber owns Warrants, the
Company will maintain the quotation or listing of its Common Stock on the
American Stock Exchange, Nasdaq SmallCap Market, Nasdaq National Market System,
Bulletin Board, or New York Stock Exchange (whichever of the foregoing is at the
time the principal trading exchange or market for the Common Stock (the
“Principal Market”)), and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
Principal Market, as applicable. For so long as a Subscriber owns Warrants, the
Company will provide the Subscribers copies of all notices it receives notifying
the Company of the actual delisting of the Common Stock from any Principal
Market. As of the date of this Agreement and the Closing Date, the Bulletin
Board is and will be the Principal Market.

(c)           Market Regulations. The Company shall notify the Commission, the
Principal Market and applicable state authorities, in accordance with their
requirements, of the transactions contemplated by this Agreement, and shall take
all other necessary action and proceedings as may be required and permitted by
applicable law, rule and regulation, for the legal and valid issuance of the
Securities to the Subscribers and promptly provide copies thereof to Subscriber.

(d)          Reporting Requirements. From the date of this Agreement and until
the sooner of (i) five (5) years after the Closing Date, or (ii) until all the
Shares and Warrant Shares have been resold or transferred by all the Subscribers
or (iii) the date the Subscribers are eligible to sell their Shares issued on
Closing pursuant to Rule 144, without regard to volume limitations (the
“Outstanding Period”), the Company will (v) cause the Common Stock to continue
to be registered under Section 12(b) or 12(g) of the 1934 Act, (x) comply in all
material respects with its reporting and filing obligations under the 1934 Act,
(y) comply , in all material respects, with all reporting requirements that are
applicable to an issuer

 

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with a class of shares registered pursuant to Section 12(b) or 12(g) of the 1934
Act, as applicable, and (z) comply with all requirements related to any
registration statement filed pursuant to this Agreement. The Company will use
its best efforts not to take any action or file any document (whether or not
permitted by the 1933 Act or the 1934 Act or the rules thereunder) to terminate
or suspend such registration or to terminate or suspend its reporting and filing
obligations under said acts until the end of the Outstanding Period. During the
Outstanding Period, the Company will use its best efforts to continue the
listing or quotation of the Common Stock on the Principal Market or other market
with the reasonable consent of Subscribers holding a majority of each of the
Shares, Warrants and Warrant Shares, and will comply in all material respects
with the Company's reporting, filing and other obligations under the bylaws or
rules of the Principal Market. The Company agrees to timely file a Form D with
respect to the Securities if required under Regulation D and to provide a copy
thereof to each Subscriber promptly after such filing.

(e)           Use of Proceeds. The proceeds of the Offering will be employed by
the Company for working capital, investment activity, research and development.

 

(f)            Reservation. After increase of its authorized capital, which will
occur after the Closing Date, the Company undertakes to reserve, pro rata, on
behalf of each Subscriber, from its authorized but unissued common stock, a
number of common shares equal to the amount of Warrant Shares issuable upon
exercise of the Warrants. Failure to have sufficient shares reserved pursuant to
this Section 7.1(f) for three (3) consecutive business days or ten (10) days in
the aggregate shall be a material default of the Company’s obligations under
this Agreement. The Subscriber acknowledges that currently the Company does not
have sufficient authorized capital to reserve or issue all the Securities if the
Offering is subscribed in full. The Company agrees to increase its authorized
capital as soon as reasonably expedient after Closing.

(g)           Taxes. During the Outstanding Period, the Company will promptly
pay and discharge, or cause to be paid and discharged, when due and payable, all
lawful taxes, assessments and governmental charges or levies imposed upon the
income, profits, property or business of the Company; provided, however, that
any such tax, assessment, charge or levy need not be paid if the validity
thereof shall currently be contested in good faith by appropriate proceedings
and if the Company shall have set aside on its books adequate reserves with
respect thereto; and , provided, further, that the Company will pay all such
taxes, assessments, charges or levies forthwith upon the commencement of
proceedings to foreclose any lien which may have attached as security therefor.

(h)           Insurance. During the Outstanding Period, the Company will keep
its assets which are of an insurable character insured by financially sound and
reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in the Company’s line of business, in
amounts sufficient to prevent the Company from becoming a co-insurer at a
reasonable percentage of the insurable value of the property insured; and the
Company will maintain, with financially sound and reputable insurers, insurance
against other hazards and risks and liability to persons and property to the
extent and in the manner customary for companies in similar businesses similarly
situated and to the extent available on commercially reasonable terms.

(i)           Books and Records. During the Outstanding Period, the Company will
keep true records and books of account in which full, true and correct entries
will be made of all dealings or transactions in relation to its business and
affairs in accordance with generally accepted accounting principles applied on a
consistent basis.

 

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(j)           Governmental Authorities. During the Outstanding Period, the
Company shall duly observe and conform in all material respects to all valid
requirements of governmental authorities relating to the conduct of its business
or to its properties or assets.

(k)           Intellectual Property. During the Outstanding Period, the Company
shall maintain in full force and effect its corporate existence, rights and
franchises and all licenses and other rights to use intellectual property owned
or possessed by it and reasonably deemed by management to be necessary to the
conduct of its business.

(l)            Properties. During the Outstanding Period, the Company will keep
its properties in good repair, working order and condition, reasonable wear and
tear excepted, and from time to time make all necessary and proper repairs,
renewals, replacements, additions and improvements thereto; and the Company will
at all times comply with each provision of all leases to which it is a party or
under which it occupies property if the breach of such provision could
reasonably be expected to have a Material Adverse Effect.

(m)         Confidentiality/Public Announcement. During the Outstanding Period,
the Company agrees that except in connection with a Form 8-K or a registration
statement or in correspondence with the SEC, the Company will not disclose
publicly or privately the identity of the Subscribers unless expressly agreed to
in writing by a Subscriber or only to the extent required by law and then only
upon five days prior notice to Subscriber. In any event and subject to the
foregoing, the Company undertakes to file a Form 8-K or make a public
announcement describing the Offering not later than the fourth business day
after the Closing Date. In the Form 8-K or public announcement, the Company will
specifically disclose the amount of common stock outstanding immediately after
the Closing.

(n)         Non-Public Information. The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide any Subscriber
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such
Subscriber shall have agreed in writing to receive such information. The Company
understands and confirms that each Subscriber shall be relying on the foregoing
representations in effecting transactions in securities of the Company.

 

7.2.         Injunction - Posting of Bond. In the event a Subscriber shall elect
to exercise the Warrant in whole or in part, the Company may not refuse exercise
based on any claim that such Subscriber or any one associated or affiliated with
such Subscriber has been engaged in any violation of law, or for any other
reason, unless, an injunction from a court, on notice, restraining and or
enjoining exercise of all or part of said Warrant shall have been sought and
obtained by the Company and the Company has posted a surety bond for the benefit
of such Subscriber in the amount of 130% of the aggregate purchase price of the
Warrant Shares which are subject to the injunction, which bond shall remain in
effect until the completion of arbitration/litigation of the dispute and the
proceeds of which shall be payable to such Subscriber to the extent Subscriber
obtains judgment.

 

7.3.       Buy-In. In addition to any other rights available to the Subscriber,
if the Company fails to deliver to the Subscriber such shares issuable upon
exercise of a Warrant on or before the Delivery Date (as defined in the Warrant)
and if seven (7) business days after the Delivery Date the Subscriber purchases
(in an open market transaction or otherwise) shares of Common Stock to deliver
in satisfaction of a sale by such Subscriber of the Common Stock which the
Subscriber was entitled to receive upon such exercise (a "Buy-In"), then the
Company shall pay in cash to the Subscriber (in addition to any remedies
available to or elected by the Subscriber) the amount by which (A) the
Subscriber's total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased exceeds (B) the

 

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aggregate exercise price for which such exercise was not timely honored,
together with interest thereon at a rate of 15% per annum, accruing until such
amount and any accrued interest thereon is paid in full (which amount shall be
paid as liquidated damages and not as a penalty). For example, if the Subscriber
purchases shares of Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to an attempted exercise of $10,000 of Warrant
exercise price, the Company shall be required to pay the Subscriber $1,000, plus
interest, less any excess obtained from sale of the Warrants. The Subscriber
shall provide the Company written notice and evidence indicating the amounts
payable to the Subscriber in respect of the Buy-In.

 

 

7.4.

DELETED

 

7.5.         Negative Covenants. During the Outstanding Period , without the
consent of the Subscriber, the Company will not and will not permit any of its
Subsidiaries to directly or indirectly:

 

(i)            create, incur, assume or suffer to exist any pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, security title, mortgage, security deed or deed of trust, easement or
encumbrance, or preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including any lease or title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of, or agreement to give, any
financing statement perfecting a security interest under the Uniform Commercial
Code or comparable law of any jurisdiction) (each, a “Lien”) upon any of its
property, whether now owned or hereafter acquired except for: (i) the Excepted
Issuances (as defined in Section 7.4 hereof), and (ii) (a) Liens imposed by law
for taxes that are not yet due or are being contested in good faith and for
which adequate reserves have been established in accordance with generally
accepted accounting principles; (b) carriers’, warehousemen’s, mechanics’,
material men’s, repairmen’s and other like Liens imposed by law, arising in the
ordinary course of business and securing obligations that are not overdue by
more than 30 days or that are being contested in good faith and by appropriate
proceedings; (c) pledges and deposits made in the ordinary course of business in
compliance with workers’ compensation, unemployment insurance and other social
security laws or regulations; (d) deposits to secure the performance of bids,
trade contracts, leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature, in each case in the
ordinary course of business; (e) Liens created with respect to the financing of
the purchase of new property in the ordinary course of the Company’s business up
to the amount of the purchase price of such property; or (f) easements, zoning
restrictions, rights-of-way and similar encumbrances on real property imposed by
law or arising in the ordinary course of business that do not secure any
monetary obligations and do not materially detract from the value of the
affected property (each of (a) through (f), a “Permitted Lien”);

 

(ii)         amend its certificate of incorporation, bylaws or its charter
documents so as to adversely affect any rights of the Subscriber;

 

(iii)         repay, repurchase or offer to repay, repurchase or otherwise
acquire or make any dividend or distribution in respect of any of its Common
Stock, preferred stock, or other equity securities other than to the extent
permitted or required under the Transaction Documents;

 

(iv)        engage in any transactions with any officer, director, employee or
any Affiliate of the Company, including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the
Company, any entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner, in each
case in excess of $25,000 other than (i) for payment of salary or consulting
fees for services rendered, (ii) reimbursement for expenses incurred on behalf
of the Company, (iii) director or advisory board

 

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fees, and (iv) for other employee benefits, including stock option agreements
under any stock option plan of the Company; or

 

(v)         prepay or redeem any financing related debt outstanding as of the
Closing Date.

 

7.6         Offering Restrictions. Until four years after the Closing Date
(“Restriction Period”) and except for the Excepted Issuances (defined below),
the Company will not enter into an agreement to nor issue any equity, options,
warrants, rights, convertible debt or other securities convertible into or
exchangeable for Common Stock or other equity of the Company at an effective
price of less than $0.0125 per share of Common Stock, nor modify any of the
foregoing which may be outstanding during the Restriction Period if the effect
of such modification would be to reduce to effective price of such Common Stock
to less than $0.0125 per share without the prior written consent of each
Subscriber holding a Securities at the time of such issuance, which consent may
be withheld for any reason. The foregoing restriction shall not apply after a
period of 180 days occurring entirely later than two years after the Closing
Date during which the Common Stock has an average closing price as reported by
Bloomberg LP for the Principal Market of not less than $0.05. “Excepted
Issuances” shall mean (i) full or partial consideration in connection with a
strategic merger, acquisition, consolidation or purchase of substantially all or
a portion of the securities or assets of corporation or other entity which
holders of such securities or debt are not at any time granted registration
rights, (ii) the Company’s issuance of securities in connection with strategic
license agreements and other partnering arrangements so long as such issuances
are not for the purpose of raising capital and which holders of such securities
or debt are not at any time granted registration rights, (iii) the Company’s
issuance of Common Stock or the issuances or grants of options to purchase
Common Stock pursuant to stock option plans and employee stock purchase plans
described in the Reports, and (iv) as a result of the exercise of Warrants or
the conversion or exchange of instruments which are granted or issued pursuant
to this Agreement or that have been issued prior to the Closing Date all on the
original terms thereof, the issuance of which has been disclosed in a Report
filed not less than five (5) days prior to the Closing Date

 

8.           Finder. The Company on the one hand, and each Subscriber (for
itself only) on the other hand, agree to indemnify the other against and hold
the other harmless from any and all liabilities to any persons claiming
brokerage commissions or finder’s fees on account of services purported to have
been rendered on behalf of the indemnifying party in connection with this
Agreement or the transactions contemplated hereby and arising out of such
party’s actions. The Company represents that there are may be one or more
parties entitled to receive fees, commissions, or similar payments in connection
with the Offering , with such fees, commissions or payments being the
responsibility of the Company.

9.            Legal Fees. On the Closing Date, the Company shall pay to Grushko
& Mittman, P.C., a fee of $25,000 (“Legal Fees”) as reimbursement for services
rendered to the Subscribers in connection with this Agreement and the purchase
and sale of the Shares and Warrants (the “Offering”). The obligation for the
payment of the fees will be applicable only if Grushko & Mittman, P.C has
actually represented the Subscribers.

 

10.

Covenants of the Company and Subscriber Regarding Indemnification.

(a)           The Company agrees to indemnify, hold harmless, reimburse and
defend the Subscribers, the Subscribers' officers, directors, agents,
Affiliates, control persons, and principal shareholders, against any claim,
cost, expense, liability, obligation, loss or damage (including reasonable legal
fees) of any nature, incurred by or imposed upon the Subscriber or any such
person which results, arises out of or is based upon (i) any material
misrepresentation by Company or breach of any warranty by

 

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Company in this Agreement or in any Exhibits or Schedules attached hereto, or
other agreement delivered pursuant hereto; or (ii) after any applicable notice
and/or cure periods, any breach or default in performance by the Company of any
covenant or undertaking to be performed by the Company hereunder, or any other
agreement entered into by the Company and Subscriber relating hereto.

(b)          Each Subscriber agrees to indemnify, hold harmless, reimburse and
defend the Company and each of the Company’s officers, directors, agents,
Affiliates, control persons against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company or any such person which results, arises
out of or is based upon (i) any material misrepresentation by such Subscriber in
this Agreement or in any Exhibits or Schedules attached hereto, or other
agreement delivered pursuant hereto; or (ii) after any applicable notice and/or
cure periods, any breach or default in performance by such Subscriber of any
covenant or undertaking to be performed by such Subscriber hereunder, or any
other agreement entered into by the Company and Subscribers, relating hereto.

(c)           In no event shall the liability of any Subscriber or permitted
successor hereunder or under any other agreement delivered in connection
herewith be greater in amount than the dollar amount of the net proceeds
actually received by such Subscriber upon the sale of Registrable Securities (as
defined herein).

(d)        The procedures set forth in Section 11.6 shall apply to the
indemnification set forth in Sections 10(a) and 10(b) above.

11.1.       Piggyback Registration Rights. The Company hereby grants the
following registration rights to holders of the Securities. If the Company at
any time during the Outstanding Period proposes to register any of its
securities under the 1933 Act for sale to the public, whether for its own
account or for the account of other security holders or both, except with
respect to registration statements on Forms S-4, S-8 or another form not
available for registering the Shares and Warrant Shares (collectively, the
“Registrable Securities”) for sale to the public, provided the Registrable
Securities are not otherwise registered for resale by the Subscribers or Holder
pursuant to an effective registration statement, each such time it will give at
least fifteen (15) days' prior written notice to the record holder of the
Registrable Securities of its intention so to do. Upon the written request of
the holder, received by the Company within ten (10) days after the giving of any
such notice by the Company, to register any of the Registrable Securities not
previously registered, the Company will cause such Registrable Securities as to
which registration shall have been so requested to be included with the
securities to be covered by the registration statement proposed to be filed by
the Company, all to the extent required to permit the sale or other disposition
of the Registrable Securities so registered by the holder of such Registrable
Securities (the “Seller” or “Sellers”). Unless instructed in writing to the
contrary, the Subscribers hereby automatically exercise the registration rights
granted in this Section 11.1. The Seller is hereby given the same rights and
benefits as any other party identified in such registration. In the event that
any registration pursuant to this Section 11.1 shall be, in whole or in part, an
underwritten public offering of common stock of the Company, the number of
shares of Registrable Securities to be included in such an underwriting may be
reduced by the managing underwriter if and to the extent that the Company and
the underwriter shall reasonably be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold by the Company
therein; provided, however, that the Company shall notify the Seller in writing
of any such reduction. Notwithstanding the foregoing provisions, or Section 11.4
hereof, the Company may withdraw or delay or suffer a delay of any registration
statement referred to in this Section 11.1 without thereby incurring any
liability to the Seller due to such withdrawal or delay. The registration rights
granted herein do not apply to the post-effective amendment being registered
regarding the April 3, 2006 financing. In addition, in the event the Company
raises funds by way of private placement and is contractually required to
register the securities issued in the private placement, in the event the number
of

 

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securities to be registered is restricted under SEC rules or securities law
requirements, the securities in the private placement will have priority over
the Warrants and only those number of Warrants which may be registered without
breaching Rule 415 or other applicable SEC rules will be registered with the
private placement registration statement.

11.2.       Registration Procedures. If and whenever the Company is required by
the provisions of Section 11.1 to effect the registration of any Registrable
Securities under the 1933 Act, the Company will, as expeditiously as possible:

(a)           subject to the timelines provided in this Agreement, prepare and
file with the Commission a registration statement required by Section 11, with
respect to the Registrable Securities and use its best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as herein provided), and promptly
provide to the holders of the Registrable Securities copies of all filings and
Commission letters of comment and notify Subscribers and Grushko & Mittman, P.C.
(by telecopier and by email to Counslers@aol.com) within three (3) business days
of (i) notice that the Commission has no comments or no further comments on the
Registration Statement, and (ii) the declaration of effectiveness of the
registration statement;

(b)           furnish to the Sellers, at the Company’s expense, such number of
copies of the registration statement and the prospectus included therein
(including each preliminary prospectus) as such persons reasonably may request
in order to facilitate the public sale or their disposition of the securities
covered by such registration statement;

 

(d)          if applicable, list the Registrable Securities covered by such
registration statement with any securities exchange on which the Common Stock of
the Company is then listed;

(e)           immediately notify the Sellers when a prospectus relating thereto
is required to be delivered under the 1933 Act, of the happening of any event of
which the Company has knowledge as a result of which the prospectus contained in
such registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing; and

(f)           provided same would not be in violation of the provision of
Regulation FD under the 1934 Act, make available for inspection by the Sellers,
and any attorney, accountant or other agent retained by the Seller or
underwriter, all publicly available, non-confidential financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all publicly
available, non-confidential information reasonably requested by the seller,
attorney, accountant or agent in connection with such registration statement.

11.3.       Provision of Documents. In connection with each registration
described in this Section 11, each Seller will furnish to the Company in writing
such information and representation letters with respect to itself and the
proposed distribution by it as reasonably shall be necessary in order to assure
compliance with federal and applicable state securities laws.

 

11.4.

RESERVED

11.5.       Expenses. All expenses incurred by the Company in complying with
Section 11, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state securities or “blue sky”
laws, fees of the

 

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National Association of Securities Dealers, Inc., transfer taxes, fees of
transfer agents and registrars, costs of insurance and fee of one counsel for
all Sellers are called “Registration Expenses.” All underwriting discounts and
selling commissions applicable to the sale of Registrable Securities, including
any fees and disbursements of any additional counsel to the Seller, are called
"Selling Expenses." The Company will pay all Registration Expenses in connection
with the registration statement under Section 11. Selling Expenses in connection
with each registration statement under Section 11 shall be borne by the Seller
and may be apportioned among the Sellers in proportion to the number of shares
sold by the Seller relative to the number of shares sold under such registration
statement or as all Sellers thereunder may agree.

 

11.6.

Indemnification and Contribution.

(a)           In the event of a registration of any Registrable Securities under
the 1933 Act pursuant to Section 11, the Company will, to the extent permitted
by law, indemnify and hold harmless the Seller, each officer of the Seller, each
director of the Seller, each underwriter of such Registrable Securities
thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities were registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon 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
in light of the circumstances when made, and will subject to the provisions of
Section 11.6(c) reimburse the Seller, each such underwriter and each such
controlling person for 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 Company shall not be liable to
the Seller to the extent that any such damages arise out of or are based upon an
untrue statement or omission made in any preliminary prospectus if (i) the
Seller failed to send or deliver a copy of the final prospectus delivered by the
Company to the Seller with or prior to the delivery of written confirmation of
the sale by the Seller to the person asserting the claim from which such damages
arise, (ii) the final prospectus would have corrected such untrue statement or
alleged untrue statement or such omission or alleged omission, or (iii) to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by any such Seller, or
any such controlling person in writing specifically for use in such registration
statement or prospectus.

(b)           In the event of a registration of any of the Registrable
Securities under the 1933 Act pursuant to Section 11, each Seller severally but
not jointly will, to the extent permitted by law, indemnify and hold harmless
the Company, and each person, if any, who controls the Company within the
meaning of the 1933 Act, each officer of the Company who signs the registration
statement, each director of the Company, each underwriter and each person who
controls any underwriter within the meaning of the 1933 Act, against all losses,
claims, damages or liabilities, joint or several, to which the Company or such
officer, director, underwriter or controlling person may become subject under
the 1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement under which such Registrable Securities were
registered under the 1933 Act pursuant to Section 11, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon 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, and will reimburse the Company and each such
officer, director, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim,

 

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damage, liability or action, provided, however, that the Seller will be liable
hereunder in any such case if and only to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with information pertaining to such Seller, as such, furnished
in writing to the Company by such Seller specifically for use in such
registration statement or prospectus, and provided, further, however, that the
liability of the Seller hereunder shall be limited to the net proceeds actually
received by the Seller from the sale of Registrable Securities covered by such
registration statement.

(c)           Promptly after receipt by an indemnified party hereunder of notice
of the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
such indemnified party other than under this Section 11.6(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 11.6(c), except and only if and to the extent the indemnifying
party is prejudiced by such omission. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent it shall wish, to assume and undertake the defense thereof
with counsel satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 11.6(c) for any legal expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected, provided, however, that, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified parties, as a group, shall have the right to select one
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the reasonable expenses and fees of such
separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.

(d)           In order to provide for just and equitable contribution in the
event of joint liability under the 1933 Act in any case in which either (i) a
Seller, or any controlling person of a Seller, makes a claim for indemnification
pursuant to this Section 11.6 but it is judicially determined (by the entry of a
judgment or decree by a court of competent jurisdiction ) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 11.6 provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of the Seller or
controlling person of the Seller in circumstances for which indemnification is
not provided under this Section 11.6; then, and in each such case, the Company
and the Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (y) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities sold or to be sold by
it pursuant to such registration statement; and (z) no person or entity guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) will be entitled to contribution from any person or entity who was not
guilty of such fraudulent misrepresentation.

 

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11.7.

Delivery of Unlegended Shares.

(a)           Within three (3) business days (such third business day being the
“Unlegended Shares Delivery Date”) after the business day on which the Company
has received (i) a notice that Shares or Warrant Shares have been sold pursuant
to a registration statement or Rule 144 under the 1933 Act, (ii) a
representation that the prospectus delivery requirements, or the requirements of
Rule 144, as applicable and if required, have been satisfied, and (iii) the
original share certificates representing the shares of Common Stock that have
been sold, and (iv) in the case of sales under Rule 144, customary
representation letters of the Subscriber and/or Subscriber’s broker regarding
compliance with the requirements of Rule 144, the Company at its expense, (y)
shall deliver, and shall cause legal counsel selected by the Company to deliver
to its transfer agent (with copies to Subscriber) an appropriate instruction and
opinion of such counsel, directing the delivery of shares of Common Stock
without any legends including the legend set forth in Section 4 above,
reissuable pursuant to any effective and current Registration Statement
described in Section 11 of this Agreement or pursuant to Rule 144 under the 1933
Act (the “Unlegended Shares”); and (z) cause the transmission of the
certificates representing the Unlegended Shares together with a legended
certificate representing the balance of the submitted Shares or Warrant Shares
certificate, if any, to the Subscriber at the address specified in the notice of
sale, via express courier, by electronic transfer or otherwise on or before the
Unlegended Shares Delivery Date.

(b)           In lieu of delivering physical certificates representing the
Unlegended Shares, if the Company’s transfer agent is participating in the
Depository Trust Company (“DTC”) Fast Automated Securities Transfer program,
upon request of a Subscriber, so long as the certificates therefor do not bear a
legend and the Subscriber is not obligated to return such certificate for the
placement of a legend thereon and the Subscriber has provided all required
broker information to the Company and its transfer agent, the Company must cause
its transfer agent to electronically transmit the Unlegended Shares by crediting
the account of Subscriber’s prime Broker with DTC through its Deposit Withdrawal
Agent Commission system. Such delivery must be made on or before the Unlegended
Shares Delivery Date.

 

(c)           The Company understands that a delay in the delivery of the
Unlegended Shares pursuant to Section 11 hereof after the Unlegended Shares
Delivery Date could result in economic loss to Subscriber. As compensation to
Subscriber for such loss, the Company agrees to pay late payment fees (as
liquidated damages and not as a penalty) to the Subscriber for more than 2
business days’ late delivery of Unlegended Shares in the amount of $100 per
business day after the Delivery Date for each $100,000 of Purchase Price of the
Unlegended Shares subject to the delivery default. If during any 360 day period,
the Company fails to deliver Unlegended Shares as required by this Section 11.7
for an aggregate of thirty (30) days, then each Subscriber or assignee holding
Securities subject to such default may, at its option, require the Company to
redeem all or any portion of the Shares or Warrant Shares subject to such
default at a price per share equal to 120% of the Purchase Price of such Shares
or Warrant Shares (“Unlegended Redemption Amount”).

 

(d)           In addition to any other rights available to a Subscriber, if the
Company fails to deliver to a Subscriber the Unlegended Shares as required
pursuant to this Agreement, within seven (7) business days after the Unlegended
Shares Delivery Date and the Subscriber or a broker on the Subscriber’s behalf,
purchases (in an open market transaction or otherwise) shares of common stock to
deliver in satisfaction of a sale by such Subscriber of the shares of Common
Stock which the Subscriber was entitled to receive from the Company (a
"Buy-In"), then the Company shall pay in cash to the Subscriber (in addition to
any remedies available to or elected by the Subscriber) the amount by which (A)
the Subscriber's total purchase price (including brokerage commissions, if any)
for the shares of common stock so purchased exceeds (B) the aggregate purchase
price of the shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares together with interest thereon at a rate of 15% per annum,
accruing until such amount and any accrued interest thereon is paid in full
(which amount shall be

 

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paid as liquidated damages and not as a penalty). For example, if a Subscriber
purchases shares of Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to $10,000 of Purchase Price of shares of Common
Stock delivered to the Company for reissuance as Unlegended Shares, the Company
shall be required to pay the Subscriber $1,000, plus interest, less any excess
from sale of the Unlegended Shares. The Subscriber shall provide the Company
written notice and evidence indicating the amounts payable to the Subscriber in
respect of the Buy-In.

 

(e)           In the event a Subscriber shall request delivery of Unlegended
Shares as described in Section 11.7 and the Company is required to deliver such
Unlegended Shares pursuant to Section 11.7, the Company may not refuse to
deliver Unlegended Shares based on any claim that such Subscriber or any one
associated or affiliated with such Subscriber has been engaged in any violation
of law, or for any other reason, unless, an injunction or temporary restraining
order from a court, on notice, restraining and or enjoining delivery of such
Unlegended Shares or exercise of all or part of said Warrant shall have been
sought and obtained by the Company or at the Company’s request or with the
Company’s assistance, and the Company has posted a surety bond for the benefit
of such Subscriber in the amount of 120% of the amount of the Purchase Price of
the Shares and Warrant Shares which are subject to the injunction or temporary
restraining order, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Subscriber to the extent Subscriber obtains judgment in Subscriber’s
favor.

 

12.          Trickle Out. Except as set forth on Schedule 12 hereto, each
Subscriber agrees for itself and each of its Affiliates, that it and its
Affiliates will not sell or transfer any Shares and Warrant Shares
(collectively, “Restricted Instruments”) until the first anniversary of the
Closing Date. During the forty-eight (48) month period immediately following the
Closing Date (“Trickle Out Period”), each Subscriber agrees that it and its
Affiliates will not transfer such number of Restricted Instruments in the first,
second and third twelve month period in excess of the number which could result
in gross proceeds to such Subscriber and its Affiliates in excess of 125%, 150%
and 200% respectively of the amount of Purchase Price paid by the Subscriber for
the Shares (“Restricted Value”). There are no sales restrictions imposed on
Subscriber pursuant to this Section 12 after the fourth anniversary of the
Closing Date. Notwithstanding the foregoing restrictions on transfer, the
Subscriber may, at any time and from time to time, transfer the Restricted
Instruments (i) as bona fide gifts or transfers by will or intestacy, (ii) to
any trust for the direct or indirect benefit of the undersigned or the immediate
family of the Holder, provided that any such transfer shall not involve a
disposition for value, (iii) to a partnership which is the general partner of a
partnership of which the Holder is a general partner and (iv) to an Affiliate of
the Subscriber, provided, that, in the case of any such gift or transfer, each
donee or transferee agrees in writing to be bound by the terms and conditions
contained in this Section 12 in the same manner as such terms and conditions
apply to the Subscriber. For purposes hereof, "immediate family" means any
relationship by blood, marriage or adoption, not more remote than first cousin.
The Company may request certification from the Subscriber and its Affiliates
that Subscriber and its Affiliates have complied with the provisions of this
Section 12. Each Subscriber and its Affiliates, transferees and assigns will be
deemed a single entity when determining the Restricted Value applicable to such
Subscriber, and its Affiliates, transferees and assigns. The Company may not
release any Subscriber from the restrictions in this Section 12 unless it
releases all Subscribers from these restrictions on a pari passu basis based on
the initial amount of Shares purchased hereunder by all Subscribers. The Company
may not modify or waive the restrictions set forth on Schedule 12 without the
consent of 75% of the Subscribers who hold Shares, Warrants or Warrant Shares at
the effective time of such modification or waiver.

 

13.

Miscellaneous.

(a)           Notices. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein,

 

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shall be (i) personally served, (ii) deposited in the mail, registered or
certified, return receipt requested, postage prepaid, (iii) delivered by
reputable air courier service with charges prepaid, or (iv) transmitted by hand
delivery, telegram, or facsimile, addressed as set forth below or to such other
address as such party shall have specified most recently by written notice. Any
notice or other communication required or permitted to be given hereunder shall
be deemed effective (a) upon hand delivery or delivery by facsimile, with
accurate confirmation generated by the transmitting facsimile machine, at the
address or number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be: (i)
if to the Company, to: Pluristem Life Systems, Inc., MATAM Advanced Technology
Park, Building No. 20, Haifa, Israel 31905, telecopier: 011-972-4-850-1085, with
an additional copy by telecopier only to: Clark Wilson LLP, 800-885 West Georgia
Street, Vancouver, B.C. Canada, Attn: Bernard Pinsky, Esq., telecopier: (604)
687-6314, and (ii) if to the Subscribers, to: the one or more addresses and
telecopier numbers indicated on the signature pages hereto, with an additional
copy by telecopier only to: Grushko & Mittman, P.C., 551 Fifth Avenue, Suite
1601, New York, New York 10176, telecopier: (212) 697-3575.

(b)          Entire Agreement; Assignment. This Agreement and other documents
delivered in connection herewith represent the entire agreement between the
parties hereto with respect to the subject matter hereof and may be amended only
by a writing executed by both parties. Neither the Company nor the Subscribers
have relied on any representations not contained or referred to in this
Agreement and the documents delivered herewith. No right or obligation of the
Company shall be assigned without prior notice to and the written consent of the
Subscribers.

(c)            Counterparts/Execution. This Agreement may be executed in any
number of counterparts and by the different signatories hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument. This
Agreement may be executed by facsimile signature and delivered by facsimile
transmission.

(d)          Law Governing this Agreement. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York without
regard to principles of conflicts of laws. Any action brought by either party
against the other concerning the transactions contemplated by this Agreement
shall be brought only in the state courts of New York or in the federal courts
located in the state of New York. The parties and the individuals executing this
Agreement and other agreements referred to herein or delivered in connection
herewith on behalf of the Company agree to submit to the jurisdiction of such
courts and waive trial by jury. The prevailing party shall be entitled to
recover from the other party its reasonable attorney's fees and costs. In the
event that any provision of this Agreement or any other agreement delivered in
connection herewith is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision of any agreement.

(e)           Specific Enforcement, Consent to Jurisdiction. The Company and
Subscriber acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof, this being in addition
to any other remedy to which any of them may be entitled by law

 

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or equity. Subject to Section 13(d) hereof, each of the Company, Subscriber and
any signator hereto in his personal capacity hereby waives, and agrees not to
assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction in New York of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. Nothing in this Section shall affect
or limit any right to serve process in any other manner permitted by law.

(f)           Independent Nature of Subscribers.   The Company acknowledges that
the obligations of each Subscriber under the Transaction Documents are several
and not joint with the obligations of any other Subscriber, and no Subscriber
shall be responsible in any way for the performance of the obligations of any
other Subscriber under the Transaction Documents.  The Company acknowledges that
the decision of each Subscriber to purchase Securities has been made by such
Subscriber independently of any other Subscriber 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 Subscriber or by any agent or employee of any other
Subscriber, and no Subscriber or any of its agents or employees shall have any
liability to any Subscriber (or any other person) relating to or arising from
any such information, materials, statements or opinions.  The Company
acknowledges that nothing contained in any Transaction Document, and no action
taken by any Subscriber pursuant hereto or thereto (including, but not limited
to, the (i) inclusion of a Subscriber in the Registration Statement and (ii)
review by, and consent to, such Registration Statement by a Subscriber) shall be
deemed to constitute the Subscribers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the
Subscribers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents.  The
Company acknowledges that each Subscriber shall be entitled to independently
protect and enforce its rights, including without limitation, the rights arising
out of the Transaction Documents, and it shall not be necessary for any other
Subscriber to be joined as an additional party in any proceeding for such
purpose.  The Company acknowledges that it has elected to provide all
Subscribers with the same terms and Transaction Documents for the convenience of
the Company and not because Company was required or requested to do so by the
Subscribers.  The Company acknowledges that such procedure with respect to the
Transaction Documents in no way creates a presumption that the Subscribers are
in any way acting in concert or as a group with respect to the Transaction
Documents or the transactions contemplated thereby.

(g)          Consent. As used in the Agreement, “consent of the Subscribers” or
similar language means the consent of holders of not less than 80% of the total
of the Shares owned by Subscribers on the date consent is requested.

(h)          Equal Treatment. No consideration shall be offered or paid to any
person to amend or consent to a waiver or modification of any provision of the
Transaction Documents unless the same consideration is also offered and paid to
all the Subscribers and their permitted successors and assigns.

(i)           Maximum Payments. Nothing contained herein or in any document
referred to herein or delivered in connection herewith shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest or dividends required to be paid or other charges hereunder exceed the
maximum permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Company to the Subscriber and thus refunded
to the Company.

 

(j)          Calendar Days. All references to “days” in the Transaction
Documents shall mean calendar days unless otherwise stated. The terms “business
days” and “trading days” shall

 

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mean days that the New York Stock Exchange is open for trading for three or more
hours. Time periods shall be determined as if the relevant action, calculation
or time period were occurring in New York City.

 

 

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SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (A)

 

Please acknowledge your acceptance of the foregoing Subscription Agreement by
signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.

 

PLURISTEM LIFE SYSTEMS, INC.

a Nevada corporation

 

 

By:_________________________________

Name: Zami Aberman

Title: CEO

 

Dated: March ____, 2007

 

 

SUBSCRIBER

PURCHASE PRICE

 

Name of Subscriber: ____________________________________

 

_____________________________________________________

 

Address: _____________________________________________

 

____________________________________________________

 

Fax No.: ____________________________________________

 

Taxpayer ID# (if applicable): ____________________________

 

 

 

____________________________________________________

(Signature)

By:

 

 

 

 

 

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LIST OF EXHIBITS AND SCHEDULES

 

 

Exhibit A

Form of Warrant

 

Exhibit B

Company Account

 

Exhibit C

Form of Legal Opinion

 

Schedule 5(d)

Additional Issuances/Capitalization

 

Schedule 5(m)

Undisclosed Liabilities

 

Schedule 5(v)

Transfer Agent

 

Schedule 12

Trickle Out Exceptions

 

 

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EXHIBIT B

Wire Instructions to Company Account

 

Bank Leumi Ltd.

Branch 864

Swift Code: LUMIILIT864

Eban: IL0108642214007

For the Account of: Pluristem Life Systems, Inc.

Account Number: 22140077

 

 

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SCHEDULE 12

TRICKLE OUT EXCEPTIONS

 

The holding period of 30,500,000 common stock purchase warrants (“Honig
Warrants”) issued to Barry Honig (“Honig”) as of January 26 ___, 2007, for
purposes of Rule 144 under the 1933 Act shall be deemed to have commenced as of
January 26 ___, 2007 and in connection with the investment in shares of Common
Stock purchased pursuant to this Subscription Agreement, payment for which was
made to the Company on January 26, 2007. The Honig Warrants constitute a
component of Honig’s Restricted Instruments. Honig agrees by his signature to
the Subscription Agreement, for himself and all other holders of Honig’s
Restricted Instruments that during the Trickle Out Period, Honig and Honig’s
Affiliates will not sell on any Trading Day an amount of shares of Common Stock
in excess of ten percent (10%) of the trading volume as reported by Bloomberg LP
for the Principal Market for such Trading Day. The Restricted Value applicable
to Honig in connection with the Restricted Instruments shall be $1,250,000.

 

 

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Schedule 5(d)

Additional Issuances/Capitalization

 

 

 

 

 

Item

Amount

Remarks

 

Share capital

288,044,317

As of May 14, 2007

 

Warrants

29,245,546

Issued April 2006 and before

 

ESOP 2003

4,100,000

Including SAB and consultants

 

ESOP 2005

380,000,000

Including SAB and consultants

 

 

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Schedule 5 (m)

 

The Company is in breach of its requirement under a $3,000,000 Convertible
Debenture private placement Registration Rights Agreement dated April 3, 2006,
to keep a registration statement registering the shares and warrants issuable on
conversion of the Convertible Debentures effective for a “period continuing
until the earlier of (i) the date when the Investors may sell all the
Regisratble Securities under Rule 144 without volume or other restrictions or
limits or (ii) the date when the Investors no longer own any of the Registrable
Securities...”. The Company is currently undertaking the preparation and filing
of a registration statement intended to remedy this breach.

 

 

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Schedule 5 (v)

 

Grace Deer-Loiseau

American Stock Transfer & Trust Company

6201 15th Avenue, 2nd Floor

Brooklyn, NY  11219

Tel: (718) 921-8247

Fax (718) 921-8323

e-mail: gdeer-lois@amstock.com

Team members: Wilbert Myles & Angelia Francis-Brown

Team e-mail: admin4@amstock.com

 

 

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