EXHIBIT
10.3

    


    EXECUTION
COPY

    


    HEALTHWAREHOUSE.COM,
INC.

     

    INVESTOR
RIGHTS AGREEMENT

     

    This
Investor Rights Agreement (the “Agreement”)
is entered into as of the 8th day of
November, 2010, by and among HealthWarehouse.com,
Inc., a Delaware corporation (the “Company”),
each of the persons and entities listed on Exhibit A
hereto (referred to hereinafter as the “Investors”
and each individually as an “Investor).

     

    Recitals

     

    Whereas,
certain of the Investors are purchasing shares of the Company’s Series B
Preferred Stock (the “Series B
Preferred Stock”) and warrants to purchase common stock (“Warrants”)
pursuant to that certain Securities Purchase Agreement of even date herewith, as
amended from time to time (the “Purchase
Agreement,” and the transactions provided for in the Purchase Agreement,
the “Financing”);

     

    Whereas,
certain of the Investors are also purchasing 7% secured convertible promissory
notes (“Convertible
Notes”) and Warrants pursuant to the Purchase Agreement and that certain
Loan and Security Agreement of even date herewith, as amended from time to time
(the “Loan
Agreement”);

     

    Whereas,
the obligations in the Purchase Agreement and Loan Agreement are conditioned
upon the execution and delivery of this Agreement; and

     

    Whereas, in
connection with the consummation of the Financing, the parties desire to enter
into this Agreement in order to grant registration rights, information rights,
and other rights to the Investors as set forth below.

     

    Agreement

     

    Now,
Therefore, in consideration of these premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

     

    
      	
              SECTION
    1.

            	
              GENERAL.

            


    

     

    1.1         Definitions.  As
used in this Agreement the following terms shall have the following respective
meanings:

     

    (a)           “Affiliate”
shall have the meaning set forth in Rule 12b-2 promulgated pursuant to the
Exchange Act and any successor provision.


    
      
        
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    (b)           “Exchange
Act” means
the Securities Exchange Act of 1934, as amended.

     

    (c)           “Form
S-3” means
such form under the Securities Act as in effect on the date hereof or any
successor or similar registration form under the Securities Act subsequently
adopted by the SEC which permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the
SEC.

     

    (d)      
    “Holder” means
any person owning of record Registrable Securities that have not been sold to
the public or any assignee of record of such Registrable Securities in
accordance with Section 2.9 hereof.

     

    (e)          “HWH” means HWH Lending, LLC,
a Delaware limited liability company.

     

    (f)           “Indebtedness” means without duplication,
with respect to each of the Company or Old HW:  (a) all obligations
for borrowed money, (b) all obligations evidenced by bonds, debentures, notes or
similar instruments, (c) all obligations upon which interest charges are
customarily paid, (d) all obligations under conditional sale or other title
retention agreements relating to property acquired by the Company or Old HW, (e)
all obligations in respect of the deferred purchase price of property or
services (excluding current accounts payable incurred in the ordinary course of
business and excluding installments of premiums payable with respect to policies
of insurance contracted for in the ordinary course of business), (f) all
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien on
property owned or acquired by the Company or Old HW, whether or not the
Indebtedness secured thereby has been assumed, (g) all guaranties or
endorsements of others, (h) all obligations under capitalized leases
attributable to the payment of principal, (i) all obligations, contingent or
otherwise, as an account party in respect of letters of credit and letters of
guaranty, and (j) all obligations, contingent or otherwise, in respect of
bankers’ acceptances.

     

    (g)          “National
Securities Exchange” shall mean the New York Stock Exchange, the NYSE
Amex Equities, the Nasdaq Global Market, the Nasdaq Global Select Market or the
Nasdaq Capital Market, or any successor to any of the foregoing.

     

    (h)          “Old HW” means Hwareh.com,
Inc., a Delaware corporation, and a wholly-owned subsidiary of the
company.

     

    (i)           “Preferred
Director” means any director of the Company that the holders of the
Preferred Stock are entitled to elect pursuant to the Company’s Amended and
Restated Certificate of Incorporation, as may be amended from time to
time.

     

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

     

    (k)          “Register,” “registered,”
and “registration” refer
to a registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of
effectiveness of such registration statement or document.

     


    
      
        
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    (l)           “Registrable
Securities” means
(a) Common Stock of the Company issuable or issued upon conversion of the
Shares or the conversion or exercise of any Warrants to purchase Common Stock
and (b) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for or in
replacement of, such above-described securities. Notwithstanding the foregoing,
Registrable Securities shall not include any securities (i) sold by a person to
the public either pursuant to a registration statement or Rule 144 or (ii) sold
in a private transaction in which the transferor’s rights under Section 2
of this Agreement are not assigned.

     

    (m)         “Registrable
Securities then outstanding” shall
be the number of shares of Common Stock that are Registrable Securities and
either (a) are then issued and outstanding or (b) are issuable
pursuant to then outstanding exercisable or convertible securities.

     

    (n)          “Registration
Expenses” means
all expenses incurred by the Company in complying with Sections 2.2, 2.3
and 2.4 hereof, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel for the Company, reasonable
fees and disbursements of a single special counsel for the Holders, blue sky
fees and expenses and the expense of any special audits incident to or required
by any such registration (but excluding the compensation of regular employees of
the Company which shall be paid in any event by the Company).

     

    (o)           “Related
Person” shall have the meaning set forth in Rule 404 of Regulation S-K as
promulgated pursuant to the Exchange Act, and any successor
provision.

     

    (p)           “SEC” or
“Commission” means
the Securities and Exchange Commission.

     

    (q)           “Securities
Act” means
the Securities Act of 1933, as amended.

     

    (r)           “Selling
Expenses” means
all underwriting discounts and selling commissions applicable to the
sale.

     

    (s)           “Shares” means
the Company’s Preferred Stock issued (i) pursuant to the Purchase Agreement,
(ii) issued as a PIK Dividend on the Company’s Preferred Stock, (iii) issued
upon conversion of Convertible Notes, and (iv) shares of Preferred
Stock held from time to time by the Investors listed on Exhibit A
hereto and their permitted assigns.

     

    (t)           “Special
Registration Statement” means (i) a registration statement relating
solely to any employee benefit plan or (ii) with respect to any corporate
reorganization or transaction under Rule 145 of the Securities Act, any
registration statements related solely to the issuance or resale of securities
issued in such a transaction or (iii) a registration related solely to stock
issued upon conversion of debt securities.


    
      
        
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              SECTION
      2.

            	
               
      REGISTRATION; RESTRICTIONS ON
TRANSFER.

            


    

     

    2.1        Restrictions
on Transfer.

     

    (a)          Each
Holder agrees not to make any disposition of all or any portion of the Shares or
Registrable Securities unless and until:

     

    (i)           there
is then in effect a registration statement under the Securities Act covering
such proposed disposition and such disposition is made in accordance with such
registration statement; or

     

    (ii)         (A) The
transferee has agreed in writing to be bound by the terms of this Agreement,
(B) such Holder shall have notified the Company of the proposed disposition
and shall have furnished the Company with a detailed statement of the
circumstances surrounding the proposed disposition, and (C) if reasonably
requested by the Company, such Holder shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such shares under the Securities
Act.  It is agreed that the Company will not require opinions of
counsel for transactions made pursuant to Rule 144, except in unusual
circumstances (provided that the transferor provides the Company with reasonable
assurances (in the form of seller and broker representation letters) that such
securities may be sold pursuant to such rule).  The Company will not
require any transferee pursuant to Rule 144 to be bound by the terms of this
Agreement if the shares so transferred do not remain Registrable Securities
hereunder following such transfer.

     

    (b)          Notwithstanding
the provisions of subsection (a) above, no such restriction shall apply to a
transfer by a Holder that is (A) a partnership transferring to its partners
or former partners in accordance with partnership interests, (B) a
corporation transferring to a wholly-owned subsidiary or a parent corporation
that owns all of the capital stock of the Holder, (C) a limited liability
company transferring to its members or former members in accordance with their
interest in the limited liability company, or (D) an individual
transferring to the Holder’s family members or trust for the benefit of an
individual Holder; provided that in each case
the transferee will agree in writing to be subject to the terms of this
Agreement to the same extent as if he were an original Holder
hereunder.

     

    (c)          Each
certificate representing Shares or Registrable Securities shall be stamped or
otherwise imprinted with legends substantially similar to the following (in
addition to any legend required under applicable state securities
laws):

     

    THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), OR APPLICABLE STATE SECURITIES LAWS.  THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OR (B) AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS AS EVIDENCED
BY A LEGAL OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS
TRANSFER AGENT OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT (PROVIDED
THAT THE TRANSFEROR PROVIDES THE COMPANY WITH REASONABLE ASSURANCES (IN THE FORM
OF SELLER AND BROKER REPRESENTATION LETTERS) THAT THE SECURITIES MAY BE SOLD
PURSUANT TO SUCH RULE).  NO REPRESENTATION IS MADE BY THE ISSUER AS TO
THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT
FOR RESALES OF THESE SECURITIES.


    
      
        
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    THE SALE,
PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN INVESTOR RIGHTS
AGREEMENT BY AND BETWEEN THE STOCKHOLDER AND THE COMPANY.  COPIES OF
SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE
COMPANY.

     

    (d)           The
Company shall be obligated to reissue promptly unlegended certificates at the
request of any Holder if the securities proposed to be disposed of may lawfully
be so disposed of without registration, qualification and legend, provided that the second
legend listed above shall be removed only at such time as the Holder of such
certificate is no longer subject to any restrictions hereunder.

     

    (e)           Any
legend endorsed on an instrument pursuant to applicable state securities laws
and the stop-transfer instructions with respect to such securities shall be
removed upon receipt by the Company of an order of the appropriate blue sky
authority authorizing such removal.

     

    2.2        Demand
Registration.

     

    (a)           Following
the earlier of (i) the third anniversary of the date of this Agreement, or (ii)
six months after the initial listing or quotation of the Company’s Common Stock
on any National Securities Exchange, and subject to the conditions of this
Section 2.2, if (i) the Company shall receive a written request from the
Holders of forty percent (40%) of the Registrable
Securities then outstanding (the “Initiating
Holders”) that the Company file a registration statement under the
Securities Act covering the registration of Registrable Securities then
outstanding, and (ii) if the anticipated gross aggregate offering price, without
regard to any underwriting discounts and commissions of the Registrable
Securities being registered, would exceed $5,000,000 (a “Qualified Public
Offering”), then the Company shall, within thirty (30) days of the
receipt thereof, give written notice of such request to all Holders, and subject
to the limitations of this Section 2.2, effect, as expeditiously as
reasonably possible, the registration under the Securities Act of all
Registrable Securities that all Holders request to be
registered.


    
      
        
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    (b)          If
the Initiating Holders intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to this Section 2.2 or any request
pursuant to Section 2.4 and the Company shall include such information in
the written notice referred to in Section 2.2(a) or Section 2.4(a), as
applicable.  In such event, the right of any Holder to include its
Registrable Securities in such registration shall be conditioned upon such
Holder’s participation in such underwriting and the inclusion of such Holder’s
Registrable Securities in the underwriting to the extent provided
herein.  All Holders proposing to distribute their securities through
such underwriting shall enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for such underwriting by the
Holders of a majority of the Registrable Securities held by all Initiating
Holders (which underwriter or underwriters shall be reasonably acceptable to the
Company).  Notwithstanding any other provision of this
Section 2.2 or Section 2.4, if the underwriter advises the Company
that marketing factors require a limitation of the number of securities to be
underwritten (including Registrable Securities) then the Company shall so advise
all Holders of Registrable Securities that would otherwise be underwritten
pursuant hereto, and the number of shares that may be included in the
underwriting shall be allocated to the Holders of such Registrable Securities on
a pro rata basis based
on the number of Registrable Securities held by all such Holders (including the
Initiating Holders); provided,
however, that the number of shares of Registrable Securities to be
included in such underwriting and registration shall not be reduced unless all
other securities of the Company are first entirely excluded from the
underwriting and registration.  Any Registrable Securities excluded or
withdrawn from such underwriting shall be withdrawn from the
registration.

     

    (c)          The
Company shall not be required to effect a registration pursuant to this
Section 2.2:

     

    (i)           after
the Company has effected two (2) registrations pursuant
to this Section 2.2, and such registrations have been declared or ordered
effective;

     

    (ii)         if
the Company shall furnish to Holders requesting a registration statement
pursuant to this Section 2.2 a certificate signed by the Chairman of the
Board stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its stockholders
for such registration statement to be effected at such time, in which event the
Company shall have the right to defer such filing for a period of not more than
ninety (90) days after receipt of the request of the Initiating Holders; provided that such right to
delay a request shall be exercised by the Company not more than once in any twelve (12) month
period;

     

    (iii)        if
the Initiating Holders propose to dispose of shares of Registrable Securities
that may be immediately registered on Form S-3 pursuant to a request made
pursuant to Section 2.4 below; or

     

    (iv)         in
any particular jurisdiction in which the Company would be required to qualify to
do business or to execute a general consent to service of process in effecting
such registration, qualification or compliance.


    
      
        
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    2.3        Piggyback
Registrations.  The Company shall notify all Holders of
Registrable Securities in writing at least fifteen (15) days prior to the filing
of any registration statement under the Securities Act for purposes of a public
offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding Special Registration Statements) and will afford each
such Holder an opportunity to include in such registration statement all or part
of such Registrable Securities held by such Holder.  Each Holder
desiring to include in any such registration statement all or any part of the
Registrable Securities held by it shall, within fifteen (15) days after the
above-described notice from the Company, so notify the Company in
writing.  Such notice shall state the intended method of disposition
of the Registrable Securities by such Holder.  If a Holder decides not
to include all of its Registrable Securities in any registration statement
thereafter filed by the Company, such Holder shall nevertheless continue to have
the right to include any Registrable Securities in any subsequent registration
statement or registration statements as may be filed by the Company with respect
to offerings of its securities, all upon the terms and conditions set forth
herein.

     

    (a)           Underwriting.  If
the registration statement of which the Company gives notice under this
Section 2.3 is for an underwritten offering, the Company shall so advise
the Holders of Registrable Securities.  In such event, the right of
any such Holder to include Registrable Securities in a registration pursuant to
this Section 2.3 shall be conditioned upon such Holder’s participation in
such underwriting and the inclusion of such Holder’s Registrable Securities in
the underwriting to the extent provided herein.  All Holders proposing
to distribute their Registrable Securities through such underwriting shall enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the
Company.  Notwithstanding any other provision of this Agreement, if
the underwriter determines in good faith that marketing factors require a
limitation of the number of shares to be underwritten, the number of shares that
may be included in the underwriting shall be allocated, first, to the Company;
second, to the Holders on a pro rata basis based on the
total number of Registrable Securities held by the Holders; and third, to any
stockholder of the Company (other than a Holder) on a pro rata basis; provided,
however, that no such reduction shall reduce the amount of securities of the
selling Holders included in the registration below twenty-five percent (25%) of
the total amount of securities included in such registration. In no event will shares
of any other selling stockholder be included in such registration that would
reduce the number of shares which may be included by Holders without the written
consent of Holders of not less than a majority of the Registrable Securities
proposed to be sold in the offering.  If any Holder disapproves of the
terms of any such underwriting, such Holder may elect to withdraw therefrom by
written notice to the Company and the underwriter, delivered at least ten (10)
business days prior to the effective date of the registration
statement.  Any Registrable Securities excluded or withdrawn from such
underwriting shall be excluded and withdrawn from the
registration.  For any Holder which is a partnership, limited
liability company or corporation, the partners, retired partners, members,
retired members, stockholders and affiliates of such Holder, or the estates and
family members of any such partners, retired partners, members and retired
members and any trusts for the benefit of any of the foregoing person shall be
deemed to be a single “Holder,”
and any pro rata
reduction with respect to such “Holder”
shall be based upon the aggregate amount of shares carrying registration rights
owned by all entities and individuals included in such “Holder,”
as defined in this sentence.

     

    (b)           Right to Terminate
Registration.  The Company shall have the right to terminate or
withdraw any registration initiated by it under this Section 2.3 whether or
not any Holder has elected to include securities in such registration, and shall
promptly notify any Holder that has elected to include shares in such
registration of such termination or withdrawal.  The Registration
Expenses of such withdrawn registration shall be borne by the Company in
accordance with Section 2.5 hereof.


    
      
        
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    2.4        Form S-3
Registration.  In case the Company shall receive from any
Holder or Holders of Registrable Securities a written request or requests that
the Company effect a registration on Form S-3 (or any successor
to Form S-3) or any similar short-form registration statement and any
related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company
will:

     

    (a)          promptly
give written notice of the proposed registration, and any related qualification
or compliance, to all other Holders of Registrable Securities; and

     

    (b)          as
soon as practicable, effect such registration and all such qualifications and
compliances as may be so requested and as would permit or facilitate the sale
and distribution of all or such portion of such Holder’s or Holders’ Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any other Holder or Holders joining in such
request as are specified in a written request given within fifteen (15) days
after receipt of such written notice from the Company; provided, however, that the
Company shall not be obligated to effect any such registration, qualification or
compliance pursuant to this Section 2.4:

     

    (i)           if
Form S-3 is not available for such offering by the Holders,

     

    (ii)         if
the Holders, together with the holders of any other securities of the Company
entitled to inclusion in such registration, propose to sell Registrable
Securities and such other securities (if any) at an aggregate price to the
public of less than two million dollars
($2,000,000),

     

    (iii)        if
within thirty (30) days of receipt of a written request from  any
Holder or Holders pursuant to this Section 2.4, the Company gives notice to
such Holder or Holders of the Company’s intention to make a public offering within
ninety (90) days, other than pursuant to a Special Registration
Statement,

     

    (iv)         if
the Company shall furnish to the Holders a certificate signed by the Chairman of
the Board of Directors of the Company stating that in the good faith judgment of
the Board of Directors of the Company, it would be seriously detrimental to the
Company and its stockholders for such Form S-3 registration to be effected
at such time, in which event the Company shall have the right to defer the
filing of the Form S-3 registration statement for a period of not more than
thirty (30) days after receipt of the request of the Holder or Holders under
this Section 2.4; provided, that such right to
delay a request shall be exercised by the Company not more than once in any
twelve (12) month period,

     

    (v)           if
the Company has, within the twelve (12) month period preceding the date of such
request, already
effected one (1) registration on
Form S-3 for the Holders pursuant to this Section 2.4, or

     

    (vi)         in
any particular jurisdiction in which the Company would be required to qualify to
do business or to execute a general consent to service of process in effecting
such registration, qualification or compliance.


    
      
        
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    (c)          Subject
to the foregoing, the Company shall file a Form S-3 registration statement
covering the Registrable Securities and other securities so requested to be
registered as soon as practicable after receipt of the requests of the
Holders.  Registrations effected pursuant to this Section 2.4
shall not be counted as demands for registration or registrations effected
pursuant to Section 2.2.

     

    2.5        Expenses of
Registration.  Except as specifically provided herein, all
Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 2.2, 2.3 or 2.4 herein
shall be borne by the Company.  All Selling Expenses incurred in
connection with any registrations hereunder, shall be borne by the holders of
the securities so registered pro rata on the basis of the
number of shares so registered.  The Company shall not, however, be
required to pay for expenses of any registration proceeding begun pursuant to
Section 2.2 or 2.4, the request of which has been subsequently withdrawn by
the Initiating Holders unless (a) the withdrawal is based upon material
adverse information concerning the Company of which the Initiating Holders were
not aware at the time of such request or (b) the Holders of a majority of
Registrable Securities agree to deem such registration to have been effected as
of the date of such withdrawal for purposes of determining whether the Company
shall be obligated pursuant to Section 2.2(c) or 2.4(b)(v), as applicable, to
undertake any subsequent registration, in which event such right shall be
forfeited by all Holders).  If the Holders are required to pay the
Registration Expenses, such expenses shall be borne by the holders of securities
(including Registrable Securities) requesting such registration in proportion to
the number of shares for which registration was requested.  If the
Company is required to pay the Registration Expenses of a withdrawn offering
pursuant to clause (a) above, then such registration shall not be deemed to
have been effected for purposes of determining whether the Company shall be
obligated pursuant to Section 2.2(c) or 2.4(b)(v), as applicable, to undertake
any subsequent registration.

     

    2.6        Obligations of the
Company.  Whenever required to effect the registration of any
Registrable Securities, the Company shall, as expeditiously as reasonably
possible:

     

    (a)           prepare
and file with the SEC a registration statement with respect to such Registrable
Securities and use all reasonable efforts to cause such registration statement
to become effective, and, upon the request of the Holders of a majority of the
Registrable Securities registered thereunder, keep such registration statement
effective for up to ninety (90) days or, if earlier, until the Holder or Holders
have completed the distribution related thereto; provided, however, that at any
time, upon written notice to the participating Holders and for a period not to
exceed sixty (60) days thereafter (the “Suspension
Period”), the Company may delay the filing or effectiveness of any
registration statement or suspend the use or effectiveness of any registration
statement (and the Initiating Holders hereby agree not to offer or sell any
Registrable Securities pursuant to such registration statement during the
Suspension Period) if the Company reasonably believes that there is or may be in
existence material nonpublic information or events involving the Company, the
failure of which to be disclosed in the prospectus included in the registration
statement could result in a Violation (as defined below).  In the
event that the Company shall exercise its right to delay or suspend the filing
or effectiveness of a registration hereunder, the applicable time period during
which the registration statement is to remain effective shall be extended by a
period of time equal to the duration of the Suspension Period.  The
Company may extend the Suspension Period for an additional consecutive sixty
(60) days with the consent of the holders of a majority of the Registrable
Securities registered under the applicable registration statement, which consent
shall not be unreasonably withheld. No more than one (1) such Suspension Periods
shall occur in any twelve (12) month period. In no event shall any
Suspension Period, when taken together with all prior Suspension Periods, exceed
one hundred twenty (120) days in the aggregate. If so directed by the
Company, all Holders registering shares under such registration statement shall
(i) not offer to sell any Registrable Securities pursuant to the registration
statement during the period in which the delay or suspension is in effect after
receiving notice of such delay or suspension; and (ii) use their best efforts to
deliver to the Company (at the Company’s expense) all copies, other than
permanent file copies then in such Holders’ possession, of the prospectus
relating to such Registrable Securities current at the time of receipt of such
notice.  Notwithstanding the foregoing, the Company shall not be
required to file, cause to become effective or maintain the effectiveness of any
registration statement other than a registration statement on Form S-3 that
contemplates a distribution of securities on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act.


    
      
        
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    (b)          Prepare
and file with the SEC such amendments and supplements to such registration
statement and the prospectus used in connection with such registration statement
as may be necessary to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement for the period set forth in subsection (a) above.

     

    (c)          Furnish
to the Holders such number of copies of a prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as they may reasonably request in order to facilitate the
disposition of Registrable Securities owned by them.

     

    (d)          Use
its reasonable efforts to register and qualify the securities covered by such
registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Holders; provided that the Company
shall not be required in connection therewith or as a condition thereto to
qualify to do business or to file a general consent to service of process in any
such states or jurisdictions.

     

    (e)          In
the event of any underwritten public offering, enter into and perform its
obligations under an underwriting agreement, in usual and customary form, with
the managing underwriters of such offering.  Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.

     

    (f)          Notify
each Holder of Registrable Securities covered by such registration statement at
any time when a prospectus relating thereto is required to be delivered under
the Securities Act of the happening of any event as a result of which the
prospectus included 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 the light of the circumstances then existing. The Company will use
reasonable efforts to amend or supplement such prospectus in order to cause such
prospectus not to include 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 the light of the circumstances then
existing.


    
      
        
          . 

        

         


      

      
        10.

        
          

        

      

      
         


      

    

     

    (g)          Cause
all such Registrable Securities registered pursuant hereunder to be listed on
each securities exchange on which similar securities issued by the Company are
then listed.

     

    (h)          Provide
a transfer agent and registrar for all Registrable Securities pursuant hereunder
and a CUSIP number of all such Registrable Securities.

     

    (i)           Use
its reasonable efforts to furnish, on the date that such Registrable Securities
are delivered to the underwriters for sale, if such securities are being sold
through underwriters, (i) an opinion, dated as of such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and (ii) a letter, dated
as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering addressed
to the underwriters.

     

    2.7    
    Delay of Registration; Furnishing
Information.

     

    (a)          No
Holder shall have any right to obtain or seek an injunction restraining or
otherwise delaying any such registration as the result of any controversy that
might arise with respect to the interpretation or implementation of this
Section 2.

     

    (b)          It
shall be a condition precedent to the obligations of the Company to take any
action pursuant to Section 2.2, 2.3 or 2.4 that the selling Holders shall
furnish to the Company such information regarding themselves, the Registrable
Securities held by them and the intended method of disposition of such
securities as shall be reasonably required to effect the registration of their
Registrable Securities.

     

    (c)          The
Company shall have no obligation with respect to any registration requested
pursuant to Section 2.2 or Section 2.4 if the number of shares or the
anticipated aggregate offering price of the Registrable Securities to be
included in the registration does not equal or exceed the number of shares or
the anticipated aggregate offering price required to originally trigger the
Company’s obligation to initiate such registration as specified in
Section 2.2 or Section 2.4, whichever is applicable.

     

    2.8         Indemnification.  In
the event any Registrable Securities are included in a registration statement
under Sections 2.2, 2.3 or 2.4:


    
      
        
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        11.

        
          

        

      

      
         


      

    


    (a)          To
the extent permitted by law, the Company will indemnify and hold harmless each
Holder, the partners, stockholders, members, officers and directors of each
Holder, legal counsel, any underwriter (as defined in the Securities Act) for
such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Exchange Act, against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Securities Act, the Exchange Act or other federal or
state law, including, but not limited to, any of the foregoing incurred in any
actions, proceedings or settlements in respect thereof), insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any of the following statements, omissions or violations
(collectively a “Violation”)
by the Company: (i) any untrue statement or alleged untrue statement of a
material fact contained or incorporated by reference  in any
prospectus (whether preliminary or final thereto), offering circular, or other
document (including any related registration statement, notification or the
like) incident to any such registration, qualification or compliance
(ii) the omission or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the statements therein not
misleading, or (iii) any violation or alleged violation by the Company of
the Securities Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any state
securities law in connection with the offering covered by such registration
statement, qualification or compliance; and the Company will reimburse each such
Holder, partner, member, stockholder, officer, director, underwriter or
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 indemnity agreement contained in this
Section 2.8(a) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Company, which consent shall not be unreasonably withheld,
nor shall the Company be liable in any such case for any such loss, claim,
damage, liability or action to the extent that it arises out of or is based upon
a Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
such Holder, partner, member, officer, director, underwriter or controlling
person of such Holder.

     

    (b)          To
the extent permitted by law, each Holder will, if Registrable Securities held by
such Holder are included in the securities as to which such registration
qualifications or compliance is being effected, indemnify and hold harmless the
Company, each of its directors, its officers and each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter
and any other Holder selling securities under such registration statement or any
of such other Holder’s partners, directors or officers or any person who
controls such Holder, against any losses, claims, damages or liabilities (joint
or several) to which the Company or any such director, officer, controlling
person, underwriter or other such Holder, or partner, director, officer or
controlling person of such other Holder may become subject under the Securities
Act, the Exchange Act or other federal or state law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereto) arise out of or
are based upon any of the following statements: (i) any untrue statement or
alleged untrue statement of a material fact contained or incorporated by
reference in any prospectus (whether preliminary or final thereto), offering
circular, or other document (including any related registration statement,
notification or the like) incident to any such registration, qualification or
compliance, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the Securities Act  (collectively, a “Holder
Violation”), in each case to the extent (and only to the extent) that
such Holder Violation occurs in reliance upon and in conformity with written
information furnished by such Holder under an instrument duly executed by such
Holder and stated to be specifically for use in connection with such
registration, qualification or compliance; and each such Holder will reimburse
any legal or other expenses reasonably incurred by the Company or any such
director, officer, controlling person, underwriter or other Holder, or partner,
officer, director or controlling person of such other Holder in connection with
investigating or defending any such loss, claim, damage, liability or action if
it is judicially determined that there was such a Holder Violation; provided, however, that the
indemnity agreement contained in this Section 2.8(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld; provided further, that in no
event shall any indemnity under this Section 2.8 exceed the net proceeds
from the offering received by such Holder.


    
      
        
          . 

        

         


      

      
        12.

        
          

        

      

      
         


      

    

     

    (c)          Promptly
after receipt by an indemnified party under this Section 2.8 of notice of
the commencement of any action (including any governmental action), such
indemnified party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 2.8, deliver to the indemnifying
party a written notice of the commencement thereof and the indemnifying party
shall have the right to participate in, and, to the extent the indemnifying
party so desires, jointly with any other indemnifying party similarly noticed,
to assume the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that
an indemnified party shall have the right to retain its own counsel, with the
fees and expenses thereof to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding.  The failure to deliver written notice to
the indemnifying party within a reasonable time of the commencement of any such
action shall relieve such indemnifying party of any liability to the indemnified
party under this Section 2.8 to the extent, and only to the extent,
prejudicial to its ability to defend such action, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this
Section 2.8.

     

    (d)          If
the indemnification provided for in this Section 2.8 is held by a court of
competent jurisdiction to be unavailable to an indemnified party with respect to
any losses, claims, damages or liabilities referred to herein, the indemnifying
party, in lieu of indemnifying such indemnified party thereunder, shall to the
extent permitted by applicable law contribute to the amount paid or payable by
such indemnified party as a result of such loss, claim, damage or liability in
such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the Violations or Holder Violations that resulted in such loss,
claim, damage or liability, as well as any other relevant equitable
considerations.  The relative fault of the indemnifying party and of
the indemnified party shall be determined by a court of law by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information supplied by
the indemnifying party or by the indemnified party and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission; provided, that in no event shall any
contribution by a Holder hereunder exceed the net proceeds from the offering
received by such Holder.

     

    (e)          The
obligations of the Company and Holders under this Section 2.8 shall survive
completion of any offering of Registrable Securities in a registration statement
and, with respect to liability arising from an offering to which this Section
2.8 would apply that is covered by a registration filed before termination of
this Agreement, such termination.  No indemnifying party, in the
defense of any such claim or litigation, shall, except with the consent of each
indemnified party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation.


    
      
        
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        13.

        
          

        

      

      
         


      

    

     

    2.9       
 Assignment of
Registration Rights.  The rights to cause the Company to
register Registrable Securities pursuant to this Section 2 may be assigned
by a Holder to a transferee or assignee of Registrable Securities (for so long
as such shares remain Registrable Securities) that (a) is a subsidiary, parent,
general partner, limited partner, retired partner, affiliate, member or retired
member, or stockholder of a Holder that is a corporation, partnership or limited
liability company, (b) is a Holder’s family member or trust for the benefit of
an individual Holder, (c) acquires at least fifty thousand (50,000) shares of Registrable
Securities (as adjusted for stock splits and combinations); or (d) acquires at
least ten percent (10%) of the shares of Registrable
Securities (as adjusted for stock splits and combinations); provided, however, (i) the
transferor shall, within ten (10) days after such transfer, furnish to the
Company written notice of the name and address of such transferee or assignee
and the securities with respect to which such registration rights are being
assigned and (ii) such transferee shall agree to be subject to all restrictions
set forth in this Agreement.

     

    2.10      
Limitation on Subsequent
Registration Rights. After the date of this Agreement, the Company shall
not enter into any agreement with any holder or prospective holder of any
securities of the Company that would grant such holder rights to demand the
registration of shares of the Company’s capital stock, or to include such shares
in a registration statement without the written consent of the holders of a
majority of Registrable Securities.

     

    2.11     
 Agreement to Furnish
Information.  Each Holder agrees to execute and deliver such
other agreements as may be reasonably requested by the Company or the
underwriter that are consistent with the Holder’s obligations under Section 2.11
or that are necessary to give further effect thereto.  In addition, if
requested by the Company or the representative of the underwriters of Common
Stock (or other securities) of the Company, each Holder shall provide, within
ten (10) days of such request, such information as may be required by the
Company or such representative in connection with the completion of any public
offering of the Company’s securities pursuant to a registration statement filed
under the Securities Act.  The obligations described in
Section 2.11 and this Section 2.12 shall not apply to a Special
Registration Statement.  The Company may impose stop-transfer
instructions with respect to the shares of Common Stock (or other securities)
subject to the foregoing restriction until the end of said day
period.  Each Holder agrees that any transferee of any shares of
Registrable Securities shall be bound by  Sections 2.11 and
2.12.  The underwriters of the Company’s stock are intended third
party beneficiaries of Sections 2.11 and 2.12 and shall have the right, power
and authority to enforce the provisions hereof as though they were a party
hereto.

     

    2.12   
   Rule 144
Reporting.  With a view to making available to the Holders the
benefits of certain rules and regulations of the SEC which may permit the sale
of the Registrable Securities to the public without registration, the Company
agrees to use its best efforts to:

     

    (a)          Make
and keep public information available, as those terms are understood and defined
in SEC Rule 144 or any similar or analogous rule promulgated under the
Securities Act, at all times;

     

    (b)          File
with the SEC, in a timely manner, all reports and other documents required of
the Company under the Exchange Act; and


    
      
        
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        14.

        
          

        

      

      
         


      

    

     

    (c)          So
long as a Holder owns any Registrable Securities, furnish to such Holder
forthwith upon request:  a written statement by the Company as to its
compliance with the reporting requirements of said Rule 144 of the Securities
Act, and of the Exchange Act (at any time after it has become subject to such
reporting requirements); a copy of the most recent annual or quarterly report of
the Company filed with the Commission; and such other reports and documents as a
Holder may reasonably request in connection with availing itself of any rule or
regulation of the SEC allowing it to sell any such securities without
registration.

     

    2.13    
  Termination of
Registration Rights.  The right of any Holder to request
registration or inclusion of Registrable Securities in any registration pursuant
to Section 2.2, Section 2.3, or Section 2.4 hereof shall terminate at such time
as such Holder, as reflected on the Company’s list of stockholders, holds less
than 1% of the Company’s outstanding Common Stock (treating all shares of
Preferred Stock on an as converted basis), the Company’s Common Stock is then
listed or quoted on a National Securities Exchange and all Registrable
Securities of the Company issuable or issued upon conversion of the Shares held
by and issuable to such Holder (and its affiliates) may be sold pursuant to Rule
144 during any ninety (90) day period.  Upon such termination, such
shares shall cease to be “Registrable
Securities” hereunder for all purposes.

     

    
      	
              SECTION
      3.

            	
              COVENANTS
      OF THE COMPANY.

            


    

     

    3.1       
 [Reserved]

     

    3.2       
 Inspection
Rights.  Each Holder shall have the right to visit and inspect
any of the properties of the Company or any of its subsidiaries, and to discuss
the affairs, finances and accounts of the Company or any of its subsidiaries
with its officers, and to review such information as is reasonably requested all
at such reasonable times as may be reasonably requested, but not more often than
once per quarter; provided, however, that the Company shall not be obligated
under this Section 3.2 with respect to a competitor of the Company or with
respect to information which the Board of Directors determines in good faith is
confidential or attorney-client privileged and should not, therefore, be
disclosed.

     

    3.3        
Confidentiality of
Records.  Each Holder agrees to use the same degree of care as
such Holder uses to protect its own confidential information to keep
confidential any information furnished to such Holder that the Company
identifies as being confidential or proprietary (so long as such information is
not in the public domain), except that such Holder may disclose such proprietary
or confidential information (i) to any partner, subsidiary or parent of such
Holder as long as such partner, subsidiary or parent is advised of and agrees or
has agreed to be bound by the confidentiality provisions of this
Section 3.3 or comparable restrictions; (ii) at such time as it enters the
public domain through no fault of such Investor; (iii) that is communicated to
it free of any obligation of confidentiality; (iv) that is developed by Investor
or its agents independently of and without reference to any confidential
information communicated by the Company; or (v) as required by applicable
law.

     

    3.4       
 Reservation of Common
Stock.  The Company will at all times reserve and keep
available, solely for issuance and delivery upon the conversion of the Preferred
Stock or the exercise of any warrants, all Common Stock issuable from time to
time upon such conversion or exercise.


    
      
        
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        15.

        
          

        

      

      
         


      

    

     

    3.5    
    [Reserved]

     

    3.6     
   Director and
Officer Insurance.  The Company will maintain in full force and
effect director and officer liability insurance in the amount of five million
dollars ($5,000,000).

     

    3.7      
  Errors and
Omissions Insurance.  The Company will maintain in full force
and effect errors and omissions liability insurance in the amount of two million
dollars ($2,000,000).

     

    3.8       
 Proprietary Information
and Inventions Agreement. The Company shall require all officers,
employees and consultants to execute and deliver a Proprietary Information and
Inventions Agreement substantially in a form approved by the Board of Directors
including the Preferred Director then serving on the Board of
Directors.

     

    3.9        
Incurrence of
Indebtedness.  Neither the Company nor Old HW shall incur,
create, assume, become liable in any manner with respect to, or permit to exist
any Indebtedness that is in excess of $1,000,000 in the aggregate on a
consolidated basis, except for Indebtedness incurred in the ordinary course of
business consistent with past practices, without the approval of the Board of
Directors, including the Preferred Director then serving on the Board of
Directors.

     

    3.10   
   Directors’
Liability and Indemnification.  The Company’s Certificate of
Incorporation and Bylaws shall provide (a) for elimination of the liability
of director to the maximum extent permitted by law and (b) for
indemnification of directors for acts on behalf of the Company to the maximum
extent permitted by law.

     

    3.11     
 Board of Directors.

     

    (a)           The
Company shall at all times maintain an authorized Board of Directors at five (5)
directors, with one of such directors elected by the holders of the Company’s
Preferred Stock voting separately as a class.  The Company shall
promptly reimburse in full each director of the Company who is not an employee
of the Company for all of his or her reasonable out of pocket expenses incurred
in attending each meeting of the Board of Directors or any out-of-pocket
expenses incurred in attending any non-Board of Directors functions for which
the Company requests attendance.  In addition, the Company will
promptly reimburse in full, each director of the Company who is not an employee
of the company for all of his or her reasonable out-of-pocket expenses incurred
in connection with performing any act on behalf of the Company or any of its
subsidiaries that is requested by the Company or any such
subsidiary.

     

    (b)           Meetings
of the Board of Directors shall take place no less than six times per year provided that the Board of
Directors, with the consent of the Preferred Director then serving on the Board
of Directors, may resolve to meet less frequently.

     

    3.12     
 Reservation of
Shares.  The Company shall reserve and at all times keep
available a sufficient number of shares of Common Stock out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series B Preferred Stock and exercise or
conversion of the Warrants, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of the Series B Preferred Stock and exercise or conversion of the
Warrants.
 

    
      
        
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        16.

        
          

        

      

      
         


      

    

     

    3.13      Qualified Small
Business.  The Company will use reasonable efforts to comply
with the reporting and recordkeeping requirements of Section 1202 of the
Internal Revenue Code of 1986, as amended (the “Code”),
any regulations promulgated thereunder and any similar state laws and
regulations, and agrees not to repurchase any stock of the Company if such
repurchase would cause the Shares not to so qualify as “Qualified Small Business
Stock,” so long as the Company’s Board of Directors determines that it is in the
best interests of and not unduly burdensome to the Company to comply with the
provisions of Section 1202 of the Code.

     

    3.14    
  Termination of
Covenants.  The covenants contained in Sections 3.2, 3.6, 3.7,
3.8, 3.9, 3.11 and 3.13 shall terminate at the later of (i) the first date on
which less than twenty percent (20%) of the Shares of Series B Preferred Stock
issued pursuant to the Purchase Agreement remain outstanding, or (ii) the
expiration of the Appointment Period as defined in Section 5 hereof, if Section
5 becomes applicable.

     

    
      	
              SECTION
      4.

            	
              RIGHTS
      OF FIRST REFUSAL.

            


    

     

    4.1       
 Subsequent
Offerings.  Subject to applicable securities laws, each
Investor shall have a right of first refusal to purchase its pro rata share of all Equity
Securities, as defined below, that the Company may, from time to time, propose
to sell and issue after the date of this Agreement, other than the Equity
Securities excluded by Section 4.6 hereof.  Each Investor’s pro rata share is equal to
the ratio of (a) the number of shares of Common Stock (including all shares
of Common Stock issuable or issued upon conversion of the Shares or upon the
exercise of outstanding warrants or options) of which such Investor is deemed to
be a holder immediately prior to the issuance of such Equity Securities to
(b) the total number of shares of outstanding Common Stock (including all
shares of Common Stock issued or issuable upon conversion of the Shares or upon
the exercise of any outstanding warrants or options) immediately prior to the
issuance of the Equity Securities.  The term “Equity
Securities” shall mean (i) any Common Stock, Preferred Stock or
other security of the Company, (ii) any security convertible into or
exercisable or exchangeable for, with or without consideration, any Common
Stock, Preferred Stock or other security (including any option to purchase such
a convertible security), (iii) any security carrying any warrant or right
to subscribe to or purchase any Common Stock, Preferred Stock or other security
or (iv) any such warrant or right.

     

    4.2       
 Exercise of
Rights.  If the Company proposes to issue any Equity
Securities, it shall give each Investor written notice of its intention,
describing the Equity Securities, the price and the terms and conditions upon
which the Company proposes to issue the same.  Each Investor shall
have fifteen (15) days from the giving of
such notice to agree to purchase its pro rata share of the Equity
Securities for the price and upon the terms and conditions specified in the
notice by giving written notice to the Company and stating therein the quantity
of Equity Securities to be purchased.  Notwithstanding the foregoing,
the Company shall not be required to offer or sell such Equity Securities to any
Investor who would cause the Company to be in violation of applicable federal
securities laws by virtue of such offer or sale.


    
      
        
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        17.

        
          

        

      

      
         


      

    


    4.3
        Issuance of Equity Securities to
Other Persons.  If not all of the Investors elect to purchase
their pro rata share of
the Equity Securities, then the Company shall promptly notify in writing the
Investors who do so elect and shall offer such Investors the right to acquire
such unsubscribed shares on a pro rata
basis.  The Investors shall have five (5) days after receipt of such
notice to notify the Company of its election to purchase all or a portion
thereof of the unsubscribed shares.  The Company shall have ninety
(90) days
thereafter to sell the Equity Securities in respect of which the Investor’s
rights were not exercised, at a price and upon general terms and conditions not
materially more favorable to the purchasers thereof than specified in the
Company’s notice to the Investors pursuant to Section 4.2
hereof.  If the Company has not sold such Equity Securities within one
hundred twenty (120) days of the notice provided pursuant to Section 4.2,
the Company shall not thereafter issue or sell any Equity Securities, without
first offering such securities to the Investors in the manner provided
above.

     

    4.4  
      Termination and Waiver of Rights of
First Refusal.  The rights of first refusal established by this
Section 4 shall terminate at the later of (i) the first date on which less than
twenty percent (20%) of the Shares of Series B Preferred Stock issued pursuant
to the Purchase Agreement remain outstanding, or (ii) the expiration of the
Appointment Period as defined in Section 5 hereof, if Section 5 becomes
applicable. The rights of first refusal established by this Section 4 may be
amended, or any provision waived with and only with the written consent of the
Company and the Investors holding a majority of the Registrable
Securities held by all Investors.

     

    4.5    
    Assignment of Rights of First
Refusal.  The rights of first refusal of each Investor under
this Section 4 may be assigned to the same parties, subject to the same
restrictions as any transfer of registration rights pursuant to
Section 2.9.

     

    4.6      
  Excluded
Securities.  The rights of first refusal established by this
Section 4 shall have no application to any of the following Equity
Securities:

     

    (a)           shares
of Common Stock and/or options, warrants or other Common Stock purchase rights
and the Common Stock issued pursuant to such options, warrants or other rights
issued after the date of this Agreement to employees, officers or directors of,
or consultants or advisors to the Company or any subsidiary, pursuant to stock
purchase or stock option plans or other arrangements (the “Plans”) when (i) such
Plans have been approved by the Board of Directors on or prior to the date
hereof, or (ii) such Plans are approved by the Board of Directors after the date
hereof, including the affirmative approval of the Preferred
Director;

     

    (b)           Any
Equity Securities issued or issuable pursuant to any rights or agreements,
options, warrants or convertible securities outstanding as of the date of this
Agreement; and any Equity Securities issued pursuant to any such rights or
agreements granted after the date of this Agreement, so long as the rights of
first refusal established by this Section 4 were complied with, waived, or
were inapplicable pursuant to any provision of this Section 4.6 with respect to
the initial sale or grant by the Company of such rights or
agreements;

     

    (c)           any
Equity Securities issued for consideration other than cash pursuant to a bona
fide merger, consolidation, acquisition, strategic alliance or similar business
combination, provided
that such transaction is not primarily for equity financing purposes and is
approved by the Board of Directors, which shall include, in the case of any such
issuance to an Affiliate or Related Person of the Company, approval by the
Preferred Director;

     

    (d)           any
Equity Securities issued in connection with any stock split or stock dividend by
the Company;


    
      
        
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        18.

        
          

        

      

      
         


      

    

     

    (e)           any
Equity Securities issued pursuant to any equipment loan or leasing arrangement,
real property leasing arrangement, or debt financing from a bank or similar
financial or lending institution; provided that such transaction is not
primarily for equity financing purposes, and is approved by the Board of
Directors, which shall include, in the case of any such issuance to an Affiliate
or Related Person of the Company, approval by the Preferred
Director;

     

    (f)           any
Equity Securities that are issued by the Company pursuant to a registration
statement relating to a firm commitment underwritten offering filed under the
Securities Act;

     

    (g)           any
Equity Securities issued pursuant to Section 2 of the Purchase
Agreement;

     

    (h)           any
Equity Securities issued in connection with bona fide strategic transactions
involving the Company and other entities, including (i) joint ventures,
manufacturing, marketing or distribution arrangements or (ii) technology
transfer or development arrangements; provided that such
transaction is not primarily for equity financing purposes and is approved by
the Board of Directors, which shall include, in the case of any such issuance to
an Affiliate or Related Person of the Company, approval by the Preferred
Director ; and

     

    (i)           any
Equity Securities issued to suppliers or third party service providers in
connection with the provision of goods or service; provided that such
transaction is not primarily for equity financing purposes and is approved by
the Board of Directors, which shall include, in the case of any such issuance to
an Affiliate or Related Person of the Company, approval by the Preferred
Director.

     

    4.7   
     Limitation on Subsequent Rights of
First Refusal.  After the date of this Agreement, the Company
shall not enter into any agreement with any holder or prospective holder of any
securities of the Company that would grant such holder rights to purchase its
pro rata share of Equity Securities that would reduce the number of shares
allocated to the Holders.

     

    
      
        
        

      

      
        19.

        
          

        

      

      
        
        

      

    

     

    
      	
              SECTION
      5.

            	
              HWH
      NOMINEE

            


    


    5.1       
 Appointment of HWH
Nominee. If, within three (3) years of the date of this Agreement (the
“Appointment
Period”) (a) the Shares are converted into Company Common Stock in
accordance with the Company’s Amended and Restated Certificate of Incorporation
and no one has a right to elect a Series B Director pursuant to the terms of the
Series B Preferred Stock, and (b) the Investors and their affiliates hold, at
the time of conversion, at least ten percent (10%) of the then outstanding
Company Common Stock, then the Investors holding a majority of the Registrable
Securities then outstanding may identify to the Company in writing one candidate
(the “HWH
Designee”) to serve on the Board of Directors of the Company.  The
Company will promptly appoint the HWH Designee to the Board and agrees, if
necessary, to promptly take all necessary corporate action to expand the Board
by up to one member to create a vacancy for such purpose.  The Company
further agrees during the Appointment Period to promptly nominate the HWH
Designee as a member of the Company’s Board in accordance with the Exchange Act
and the rules and regulations promulgated thereunder, and to solicit proxies,
consents and votes in favor of such HWH Designee serving on the
Board.  The HWH Designee will (i) be qualified to serve as a
member of the Board under all applicable corporate governance policies or
guidelines of the Company and the Board effective on the date of this Agreement
(copies of which have been made available or delivered to HWH prior to the
execution of this Agreement) and applicable legal, regulatory and stock market
requirements, (ii) meet the standard for an “independent director” with
respect to service on the Board of Directors pursuant to Section 5605(a)(2)
of the Rules of The Nasdaq Stock Market or any successor thereto, and
(iii) be reasonably acceptable to the Board (including the Nominating
Committee of the Board, if any) in its good faith discretion.  Subject to
the foregoing standards, the Board will not unreasonably oppose the appointment
of the HWH Designee.  Following receipt of the identification of the HWH
Designee, the Board (including the Nominating Committee of the Board, if any)
will review and evaluate the HWH Designee as soon as reasonably
practicable.  Promptly following approval, the Board shall take all
corporate action necessary to appoint the HWH Designee that has been approved to
the Board.  If the Board does not accept any HWH Designee, the Investors
holding a majority of the Registrable Securities then outstanding will have the
right to identify a replacement for such HWH Designee for appointment by the
Board in accordance with the provisions of this Section 5.1, provided that
notwithstanding the criteria set forth above, such person may be affiliated with
at least one of the Investors and provided further that Matthew
Stecker shall be deemed acceptable to the Board in such circumstance.  At
the expiration of the Appointment Period, or earlier, if HWH and its Affiliates
hold less than 10% of the outstanding Common Stock (other than as a result of
repurchases of Common Stock by the Company or any Subsidiary), HWH will have no
further rights to a HWH Designee under this Section 5.1.

     

    5.2   
     Successor HWH Nominee. If at any time during the
Appointment Period a HWH Designee shall cease to be a member of the Board for
any reason, the Investors holding a majority of the Registrable Securities then
outstanding shall be entitled to designate another person (an “HWH Successor
Designee”), to serve as a director in place of such HWH Designee for the
same term as the HWH Designee whom is being replaced.  Any HWH Successor
Designee will be required in all cases to be approved by the Board (including
the Nominating Committee of the Board, if any) in the manner set forth in and
subject to the provisions set forth in Section 5.1 of this Agreement.  If
the Board does not accept any HWH Successor Designee, the Investors holding a
majority of the Registrable Securities then outstanding will have the right to
recommend an additional HWH Successor Designee in accordance with this Section
5.  The Board will appoint such HWH Successor Designee to the Board no
later than three business days after the Board’s approval of such HWH Successor
Designee.  Upon becoming a member of the Board, any HWH Successor Designee
will become a HWH Designee for all purposes under this Agreement.

     

    
      
        
        

      

      
        20.

        
          

        

      

      
        
        

      

    

     

    
      	
              SECTION
      6.

            	
              MISCELLANEOUS

            


    


    6.1      
  Governing Law.
All questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by and construed and enforced
in accordance with the internal laws of the State of Delaware, without regard to
the principles of conflicts of law thereof.  Each party agrees that
all Proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement (whether brought against a party
hereto or its respective Affiliates, employees or agents) shall be commenced
exclusively in the Delaware Courts. Each party hereto hereby irrevocably submits
to the exclusive jurisdiction of the Delaware Courts for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein (including with respect to the enforcement of any of
the Transaction Documents), and hereby irrevocably waives, and agrees not to
assert in any Proceeding, any claim that it is not personally subject to the
jurisdiction of any such Delaware Court, or that such Proceeding has been
commenced in an improper or inconvenient forum.  Each party hereto
hereby irrevocably waives personal service of process and consents to process
being served in any such Proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall be deemed to limit in any way
any right to serve process in any manner permitted by law.  Each party
hereto hereby irrevocably waives, to the fullest extent permitted by applicable
law, any and all right to trial by jury in any legal proceeding arising out of
or relating to this Agreement or the transactions contemplated
hereby.  If either party shall commence a Proceeding to enforce any
provisions of this Agreement, then the prevailing party in such Proceeding shall
be reimbursed by the other party for its reasonable out-of-pocket attorneys’
fees and other reasonable out-of-pocket costs and expenses incurred with the
investigation, preparation and prosecution of such Proceeding.

    


    6.2    
    Successors and
Assigns.  Except as otherwise expressly provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
parties hereto and their respective successors, assigns, heirs, executors, and
administrators and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Securities from time to time; provided, however, that prior
to the receipt by the Company of adequate written notice of the transfer of any
Registrable Securities specifying the full name and address of the transferee,
the Company may deem and treat the person listed as the holder of such shares in
its records as the absolute owner and holder of such shares for all purposes,
including the payment of dividends or any redemption price.

     

    6.3      
  Entire
Agreement.  This Agreement, the Exhibits and Schedules hereto,
the Purchase Agreement and the other documents delivered pursuant thereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other in any manner by any oral or written representations, warranties,
covenants and agreements except as specifically set forth herein and
therein.  Each party expressly represents and warrants that it is not
relying on any oral or written representations, warranties, covenants or
agreements outside of this Agreement.

     

    6.4        
Severability.  If
any provision of this Agreement is held to be invalid or unenforceable in any
respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and the
parties will attempt to agree upon a valid and enforceable provision that is a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.

     

    
      
        
        

      

      
        21.

        
          

        

      

      
        
        

      

       

    

    6.5      
  Amendment and Waiver.


    (a)           Except
as otherwise expressly provided, this Agreement may be amended or modified,
and  the obligations of the Company and the rights of the Holders
under this Agreement may be waived, only upon the written consent of the Company
and the holders of at least a majority of the then-outstanding Shares, provided however, that if
such amendment, modification or waiver by its terms treats any Holder adversely
and in a manner different than such amendment treats any other Investors, the
separate approval of such adversely treated Holder shall also be required. Any
such amendment, modification or waiver effected in accordance with this Section
6.5 shall be binding upon each Holder and each future holder of all securities
of such Holder.

     

    (b)           For
the purposes of determining the number of Holders or Investors entitled to vote
or exercise any rights hereunder, the Company shall be entitled to rely solely
on the list of record holders of its stock as maintained by or on behalf of the
Company.

     

    6.6    
    Delays
or Omissions.  It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement shall impair any
such right, power, or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of any
similar breach, default or noncompliance thereafter occurring.  It is
further agreed that any waiver, permit, consent, or approval of any kind or
character on any party’s part of any breach, default or noncompliance under the
Agreement or any waiver on such party’s part of any provisions or conditions of
this Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing.  All remedies, either under
this Agreement, by law, or otherwise afforded to any party, shall be cumulative
and not alternative.

     

    6.7       
 Notices.  All
notices required or permitted hereunder shall be in writing and shall be deemed
effectively given: (a) upon personal delivery to the party to be notified,
(b) when sent by confirmed facsimile if sent during normal business hours
of the recipient; if not, then on the next business day, (c) five (5) days
after having been sent by registered or certified mail, return receipt
requested, postage prepaid, or (d) one (1) day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt.  All communications shall be sent to
the party to be notified at the address as set forth on the signature pages
hereof or Exhibit
A hereto or at such other address or electronic mail address as such
party may designate by ten (10) days advance written notice to the other parties
hereto.

     

    6.8        
Specific
Performance.  In addition to being entitled to exercise all
rights provided herein or granted by law, including recovery of damages, each of
the parties hereto will be entitled to specific performance under this
Agreement. The parties agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of obligations
described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation the defense that a remedy at law
would be adequate.  The Company therefore agrees that each Investor
shall be entitled to specific performance and temporary and permanent injunctive
relief in any such case without the necessity of proving actual damages and
without posting a bond or any other type of security.

     

    6.9       
 Titles and
Subtitles.  The titles of the sections and subsections of this
Agreement are for convenience of reference only and are not to be considered in
construing this Agreement.


    
      
        
          . 

        

         


      

      
        22.

        
          

        

      

      
         


      

    


    6.10   
   Additional
Investors.  Notwithstanding anything to the contrary contained
herein, if the Company shall issue additional shares of its Preferred Stock
pursuant to the Purchase Agreement, any purchaser of such shares of Preferred
Stock shall become a party to this Agreement by executing and delivering an
additional counterpart signature page to this Agreement and shall be deemed an
“Investor,”
a “Holder”
and a party hereunder.  Notwithstanding anything to the contrary
contained herein, if the Company shall issue Equity Securities in accordance
with Section 4.6 (g) of this Agreement, any purchaser of such Equity
Securities may become a party to this Agreement by executing and delivering an
additional counterpart signature page to this Agreement and shall be deemed an
“Investor,”
a “Holder”
and a party hereunder.

     

    6.11    
  Counterparts.  This
Agreement may be executed in any number of counterparts, each of which shall be
an original, but all of which together shall constitute one
instrument.

     

    6.12     
 Aggregation of
Stock.  All shares of Registrable Securities held or acquired
by affiliated entities or persons or persons or entities under common management
or control shall be aggregated together for the purpose of determining the
availability of any rights under this Agreement.

     

    6.13     
Further Assurances. Each
party shall do and perform, or cause to be done and performed, all such further
acts and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as any other party may reasonably
request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated
hereby.

     

    6.14      Pronouns.  All
pronouns contained herein, and any variations thereof, shall be deemed to refer
to the masculine, feminine or neutral, singular or plural, as to the identity of
the parties hereto may require.

     

    [Signature
Pages Follow]


    
      
        
          . 

        

         


      

      
        23.

        
          

        

      

      
         


      

    


    In Witness
Whereof, the parties hereto have executed this Investor
Rights Agreement as of the date set forth in the first paragraph
hereof.

     

    COMPANY:

    


    
      
        
          
            
              
                
                  	HealthWarehouse.com,
      Inc.	 
      
	 	 
      	 
      
	Signature: 	
                           /s/ Lalit Dhadphale

                        	 
      
	Name:
      Lalit Dhadphale	 
      
	Title:
      Chief Executive Officer	 
      
	 	 
      	 
      
	
                          Address:  
      100 Commerce Blvd.

                          Cincinnati,
      OH 45140

                        	 
      


                

              

            

          

        

      

    


    
      
        
          .

        

         


      

      
        24.

        
          

        

      

      
         


      

    


    In Witness
Whereof, the parties hereto have executed this Investor
Rights Agreement as of the date set forth in the first paragraph
hereof.

     

    INVESTOR:

    


    
      
        
          
            	Signature: 	
                    /s/ Janice Marra

                  	 
      
	Name:
      Janice Marra	 
      


          

        

      

    
 

    
      
         


      

      
         


        
          

        

      

      
         


      

    


    In Witness
Whereof, the parties hereto have executed this Investor
Rights Agreement as of the date set forth in the first paragraph
hereof.

     

    INVESTOR:

    


    
      
        
          
            
              
                	Signature: 	
                        /s/ David S. Oros

                      	 
      
	Name:
      David S. Oros	 
      
	 	 
      	 
      
	Signature:	
                        Marla T. Oros

                      	 
      
	Name:
      Marla T. Oros	 
      


              

            

          

        

      

    
 

    
      
         


      

      
         


        
          

        

      

      
         


      

    


     In
Witness Whereof, the parties hereto have executed this Investor
Rights Agreement as of the date set forth in the first paragraph
hereof.

     

    INVESTOR:

    


    
      
        
          
            	
                    HWH
      Lending, LLC

                  	 
      
	 
      	 
      	 
      
	
                    By:

                  	
                    /s/ Gary Singer

                  	 
      
	
                    Name:  Gary
      Singer

                  	 
      
	
                    Title:  President

                  	 
      


          

        

      

    
 

    
      
         


      

      
         


        
          

        

      

      
         


      

    


    In Witness
Whereof, the parties hereto have executed this Investor
Rights Agreement as of the date set forth in the first paragraph
hereof.

     

    INVESTOR:

    


    
      
        
          
            
              
                
                  	
                          Milfam
      I L.P.

                        	 
      
	 
      	 
      	 
      
	
                          By:  Milfam
      LLC

                        	 
      
	
                          Its:
      General Partner

                        	 
      
	 
      	 
      	 
      
	
                          By:

                        	
                          /s/ Lloyd I. Miller III

                        	 
      
	
                          Name:
      Lloyd I. Miller, III

                        	 
      
	
                          Title:
      Manager