Document:

Unassociated Document

  Exhibit 10.2

UNITED STATES OF AMERICA

Before the

OFFICE OF THRIFT SUPERVISION

	  	  	  
	  	
)

	  
	
In the Matter of

	
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	Order No.: CN 11-20
	  	
)

	  
	
 

	
)

	  
	
FIRST PLACE BANK

	
)

	
Effective Date:  July 13, 2011

	  	
)

	  
	  	
)

	  
	
Warren, Ohio

	
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OTS Docket No. 14752

	
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ORDER TO CEASE AND DESIST

WHEREAS, First Place Bank, Warren, Ohio, OTS Docket No. 14752 (Association), by and through its Board of Directors (Board), has executed a Stipulation and Consent to Issuance of an Order to Cease and Desist (Stipulation); and

WHEREAS, the Association, by executing the Stipulation, has consented and agreed to the issuance of this Order to Cease and Desist (Order) by the Office of Thrift Supervision (OTS) pursuant to 12 U.S.C. § 1818(b); and

WHEREAS, pursuant to delegated authority, the OTS Regional Director for the Central Region (Regional Director) is authorized to issue Orders to Cease and Desist where a savings association has consented to the issuance of an order.

  

 

  

NOW, THEREFORE, IT IS ORDERED that:

Cease and Desist.

1.             The Association, its institution-affiliated parties,4 and its successors and assigns, shall cease and desist from any action (alone or with others) for or toward causing, bringing about, participating in, counseling, or the aiding and abetting the unsafe or unsound banking practices and/or violations of law or regulation that resulted in the Association operating with: (a) an excessive level of adversely classified loans; (b) inadequate earnings to augment capital; and (c) an inadequate level of capital protection for the volume, type and quality of assets held by the Association as described in the OTS Report of Examination of the Association dated August 2, 2010 (2010 ROE) and the OTS Report of Limited Examination of the Association dated May 26, 2011 (2011 Limited ROE).

Capital.

2.             By December 31, 2011, the Association shall have and maintain: a Tier 1 (Core) Capital Ratio equal to or greater than eight and one-half percent (8.5%) after the funding of an adequate Allowance for Loan and Lease Losses (ALLL), and a Total Risk-Based Capital Ratio equal to or greater than twelve percent (12%).5

Capital and Business Plan.

3.             By August 31, 2011, the Association shall submit to the Regional Director a written plan (Capital and Business Plan) for the period beginning with September 1, 2011 through December 31, 2013 addressing the requirements of this Order and including capital enhancement strategies necessary for the Association to have and maintain capital at the levels prescribed in Paragraph 2.  At a minimum, the Capital and Business Plan shall:

 

 

Exhibit A-4 The term “institution-affiliated party” is defined at 12 U.S.C. § 1813(u).

Exhibit A-5 The requirement in Paragraph 2 to have and maintain a specific capital level means that the Association may not be deemed to be “well-capitalized” for purposes of 12 U.S.C. §1831o and 12 C.F.R. Part 565, pursuant to 12 C.F.R. §565.4(b)(1)(iv).

  

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(a)           identify the specific sources and methods by which additional capital will be raised to achieve and maintain the Association’s capital at the levels prescribed in Paragraph 2;

(b)           detail the Association’s capital preservation and enhancement strategies with specific narrative goals;

(c)           contain operating strategies to achieve realistic core earnings;

(d)           include quarterly financial projections (balance sheet and income statement), including Tier 1 (Core) and Total Risk-Based Capital Ratios, for the period covered by the Capital and Business Plan; and

(e)           identify all relevant assumptions made in formulating the Capital and Business Plan and include a requirement that documentation supporting such assumptions be retained by the Association.

4.             Upon receipt of written notice of non-objection from the Regional Director to the Capital and Business Plan, the Association shall implement and adhere to the Capital and Business Plan.  A copy of the Capital and Business Plan shall be provided to the Regional Director within seven (7) days after Board approval.

5.             Any material modifications6 to the Capital and Business Plan must receive the prior written non-objection of the Regional Director.  The Association shall submit proposed material modifications to the Regional Director at least forty-five (45) days prior to implementation.

Exhibit A-6 A modification shall be considered material under this Paragraph if the Association: (a) plans to engage in any activity that is inconsistent with the Capital and Business Plan; or (b) exceeds the level of any activity contemplated in the Capital and Business Plan by more than ten percent (10%).

  

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6.             By June 30, 2012, and each June 30th thereafter, the Capital and Business Plan shall be updated and submitted to the Regional Director pursuant to Paragraph 3 above and shall incorporate the Association’s budget plan and profit projections for the next two (2) fiscal years taking into account any revisions to the Association’s loan, investment and operating policies.

Capital and Business Plan Variance Reports.

7.             Within forty-five (45) days after the end of each quarter, after implementation of the Capital and Business Plan, the Board shall review written quarterly variance reports on the Association’s compliance with its Capital and Business Plan (Variance Reports).  The Board’s review of Variance Reports and the Association’s compliance with the Capital and Business Plan shall include a review of the internal and external risks affecting the Association’s ability to successfully implement the Capital and Business Plan.  The minutes of the Board meeting shall fully document the Board’s review and discussion.  The Variance Reports shall:

(a)           identify variances in the Association’s actual performance during the preceding quarter as compared to the projections set forth in the Capital and Business Plan;

(b)          contain an analysis and explanation of identified variances; and

(c)   discuss the specific measures taken or to be taken by the Association to address identified variances.

8.             A copy of each Variance Report shall be provided to the Regional Director within seven (7) days after the Board meeting at which it was reviewed and discussed.

Contingency Plan.

9.             Within fifteen (15) days after: (a) the Association fails to meet the capital requirements prescribed in Paragraph 2; (b) the Association fails to comply with the Capital and Business Plan prescribed in Paragraph 3; or (c) any written request from the Regional Director, the Association shall submit a written Contingency Plan that is acceptable to the Regional Director.

  

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10.           The Contingency Plan shall detail the actions to be taken, with specific time frames, to achieve one of the following results by the later of the date of receipt of all required regulatory approvals or sixty (60) days after the implementation of the Contingency Plan: (a) merger with, or acquisition by, another federally insured depository institution or holding company thereof; or (b) voluntary dissolution by filing an appropriate application with the OTS in conformity with applicable laws, regulations and regulatory guidance.

11.           Upon receipt of written notification from the Regional Director, the Association shall implement and adhere to the Contingency Plan immediately.  The Association shall provide the Regional Director with written status reports detailing the Association’s progress in implementing the Contingency Plan by no later than the first (1st) and fifteenth (15th) of each month following implementation of the Contingency Plan.

Qualified Management.

12.           Effective immediately, the Association shall have, and thereafter retain, qualified management.  At a minimum, such management shall include a chief executive officer with proven ability in managing a bank of comparable size and experience in upgrading a low quality loan portfolio.

13.           Effective immediately, each member of management shall have the qualifications and experience commensurate with his or her duties and responsibilities at the Association.  The qualifications of management shall be assessed on the ability to:

	 	
(a)

	
comply with the requirements of this Order;

	 	
(b)

	
operate the Association in a safe and sound manner;

	
  

	
(c)

	
comply with applicable laws, regulations, and regulatory guidance; and

  

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(d)           restore all aspects of the Association to a safe and sound condition, including, but not limited to, asset quality, capital adequacy, earnings, management effectiveness, and liquidity.

Management Study.

14.           Within thirty (30) days, the Association shall retain an independent third-party acceptable to the Regional Director to conduct a management review (Management Study).  The Management Study shall be completed within sixty (60) days after the Association has received written notice of non-objection of the third-party by the Regional Director, and include, at a minimum:

(a)           an assessment of the current Senior Executive Officers,7 the Association’s organizational structure, and staffing levels of the Association;

(b)           identification of present and future staffing requirements for each business line of the Association commensurate with the Association’s risk profile and Capital and Business Plan;

(c)           an evaluation of the performance of the Association’s current Senior Executive Officers, including an assessment of whether compensation is commensurate with job duties and responsibilities in compliance with 12 C.F.R. § 563.161(b); and

(d)           establishment of quantitative and qualitative standards by which the effectiveness of Senior Executive Officers will be measured.

15.           Within thirty (30) days after receipt of the Management Study, the Board shall submit to the Regional Director a copy of the Management Study and a written plan to address any identified weaknesses or deficiencies noted in the Management Study (Management Plan).  The submission to the Regional Director shall include a copy of the Board meeting minutes reflecting the Board’s review of and actions taken with respect to the Management Study.

 

Exhibit A-7  The term “Senior Executive Officer” is defined at 12 C.F.R. § 563.555.

  

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Directorate and Management Changes.

16.           Effective immediately, prior to the addition of any individual to the board of directors or the employment of any Senior Executive Officer, the Association shall comply with the prior notification requirements for changes in directors and Senior Executive Officers set forth in 12 C.F.R. Part 563, Subpart H.

Problem Assets.

17.           Within ninety (90) days, the Association shall submit a detailed, written plan with specific strategies, targets and timeframes to reduce8 the Association’s level of problem assets9 (Problem Asset Reduction Plan) to the Regional Director.  The Problem Asset Reduction Plan, at a minimum, shall include:

(a)           quarterly targets for the level of problem assets as a percentage of Tier 1 (Core) Capital plus ALLL;

(b)           a description of the methods for reducing the Association’s level of problem assets to the established targets; and

(c)           all relevant assumptions and projections and documentation supporting such assumptions and projections.

18.           Within thirty (30) days, the Association shall develop individual written specific workout plans for each adversely classified loan or loan relationship greater than two million dollars ($2,000,000) and for each REO where the original loan amount collateralized by the REO exceeded two million dollars ($2,000,000) (Asset Workout Plans).

 

Exhibit A-8 For purposes of this Paragraph, “reduce” means to sell real estate owned (REO) and to collect, sell, charge off, or improve the quality of a loan sufficient to warrant its removal from adverse criticism or classification.

Exhibit A-9 The term “problem assets” shall include all REO and adversely classified assets.

  

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19.           Within forty-five (45) days after the end of each quarter, beginning with the quarter ending September 30, 2011, the Association shall submit a quarterly written asset status report (Quarterly Asset Report) to the Board.  The Board’s review of the Quarterly Asset Report shall be documented in the Board meeting minutes.  The Quarterly Asset Report shall include, at a minimum:

(a)           the current status of all Asset Workout Plans;

(b)           the ratio of adversely classified assets to Tier 1 (Core) Capital plus ALLL;

(c)           a comparison of problem assets at the current quarter end with the preceding quarter;

(d)           a breakdown of criticized10 assets by type and risk factor, for example, residential, acquisition and development, construction, land loans, location and origination source;

(e)           an assessment of the Association’s compliance with the Problem Asset Reduction Plan;

(f)           a discussion of the actions taken during the preceding quarter to reduce the Association’s level of problem assets; and

(g)           any recommended revisions or updates to the Problem Asset Reduction Plan.

20.           Within forty-five (45) days after the end of each quarter, a copy of the Quarterly Asset Report shall be provided to the Regional Director.

Loan Modification Policy.

21.            Within sixty (60) days, the Association shall develop a loan modification policy (Loan Modification Policy) that addresses all corrective actions contained in the 2010 ROE concerning loan modifications.  The Loan Modification Policy shall conform to all applicable laws, regulations and regulatory guidance and shall:

 

Exhibit A-10 The term criticized assets includes all adversely classified assets and assets designated as special mention.

  

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(a)           establish eligibility criteria that loans must meet to qualify for a modification;

(b)           identify acceptable modifications, including guidelines and restrictions on such modifications;

(c)           identify the appropriate job positions or committee authorized to approve loan modifications and the procedures for monitoring all approved modified loans;

(d)           require the reporting of all modified loans in accordance with generally accepted accounting principles (GAAP), applicable laws, regulations and regulatory guidance, and the Thrift Financial Report (TFR) instructions;

(e)           require that modified loans be accurately and timely classified in accordance with the Association’s asset classification policies; and

(f)           require that a monthly report be submitted to the Board, beginning with the period ending June 30, 2011, detailing the total number and dollar amount of loan modifications, the number and dollar amount of loans modified since the preceding monthly report, and the types of modifications made.

Credit Administration.

22.           Within ninety (90) days, the Association shall revise its credit administration policies, procedures, practices, and controls (Credit Administration Policy) to ensure that it is acceptable to the Regional Director and addresses all corrective actions in the 2010 ROE relating to credit administration.  The Credit Administration Policy shall comply with all applicable laws, regulations and regulatory guidance and:

(a)           include restrictions on loan renewals granted without modifications;

  

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(b)           include restrictions on additional advances to borrowers who have an existing loan with the Association that is adversely classified;

(c)           include polices, procedures, and systems to obtain and analyze, on at least an annual basis, updated borrower financial information on nonhomogeneous loans;

(d)           include guidelines requiring that collateral properties be re-appraised prior to loans being modified, extended, or refinanced;

(e)           include guidelines requiring that current financials statements from the borrower be provided to the Association prior to loans being modified, extended or refinanced and that such financial statements be reviewed to determine whether the borrower has the ability to repay at the modified loan terms;

(f)           include an effective system for the retention, review, renewal, and updating by the Association of all required records, filings, and other credit related documents; and

(g)           include funding controls over costs on construction projects to prevent disbursements of loan funds in excess of completed construction costs.

Allowance for Loan and Lease Losses.

23.           Within sixty (60) days, the Association shall revise its policies, procedures, and methodology relating to the timely establishment and maintenance of an adequate ALLL level (ALLL Policy) to ensure that it is acceptable to the Regional Director and addresses all corrective actions set forth in the 2010 ROE and the 2011 Limited ROE relating to ALLL.  The ALLL Policy shall comply with applicable laws, regulations, and regulatory guidance and shall:

(a)           incorporate the results of all internal loan reviews and classifications;

(b)           address the historical loan loss rates of the Association in compliance with regulatory guidance, which shall be updated quarterly with heavier weighting assigned to rates of the most recent quarters;

  

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(c)           require an expanded segmentation of the Association’s loan portfolio for internal loan review analysis;

(d)            require the stress testing of loss rates and delinquency rates to: (i) determine the sensitivity of the ALLL methodology to changes from primary inputs; (ii) provide information regarding the risk of miscalculation if the credit environment changes; and (iii) evaluate the appropriateness of the ALLL in a range of credit environments;

(e)           address the level and impact of the Association’s current concentrations of credit, including geographic concentrations; and

(f)           take into consideration current and prospective market and economic conditions.

24.           The Association shall submit a copy of the Board meeting minutes, and copies of all documents made available to the Board members, reflecting the Board’s discussion and adoption of the ALLL Policy to the Regional Director within fifteen (15) days after the Board meeting.

25.           Within ninety (90) days, the Association shall retain a qualified and independent third party, acceptable to the Regional Director, to: (a) assess the adequacy and effectiveness of the Association’s ALLL methodology and its compliance with this Agreement and applicable regulatory guidance; and (b) evaluate the sufficiency of the ALLL level as of the end of the June 30, 2011 quarter (ALLL Analysis Report).

26.           Within sixty (60) days after the end of the June 30, 2011 quarter, the Association shall submit a copy of the June 30, 2011 ALLL Analysis Report to the Regional Director and any revisions to the Association’s ALLL Policy or methodology based upon the recommendations of the independent third party.  Within sixty (60) days after the quarters ending September 30, 2011, December 31, 2011, and March 31, 2012, the Association shall submit to the Regional Director a copy of each ALLL Analysis Report prepared by the independent third party.

  

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27.           Within forty-five (45) days after the end of each quarter, beginning with the quarter ending June 30, 2011, the Association shall analyze the adequacy of the ALLL consistent with its ALLL Policy (Quarterly ALLL Report).  The Board’s review of the Quarterly ALLL Report, including, but not limited to, all qualitative factors considered in determining the adequacy of the Association’s ALLL, shall be fully documented in the Board meeting minutes. Any deficiency in the ALLL shall be remedied by the Association in the quarter in which it is discovered and before the Association files its TFR with the OTS.  A copy of the Quarterly ALLL Report and the Board meeting minutes detailing the Board’s review shall be provided to the Regional Director within fifteen (15) days after the Board meeting.

 

Internal Asset Review and Classification.

 

28.           Within sixty (60) days, the Association shall revise its written internal asset review and classification program (IAR Program) to address all corrective actions set forth in the 2010 ROE relating to internal asset review and classification and that complies with all applicable laws, regulations and regulatory guidance.  At a minimum, the IAR Program shall:

 

(a)           ensure the accurate and timely identification, classification, and reporting of the Association’s assets, including the designation of loans as special mention or placement of loans on a watch list where a borrower’s credit standing has deteriorated;

 

(b)           detail the Association’s loan grading system and specify parameters for the identification of problem loans for each type of loan offered by the Association;

  

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(c)           establish specific review and classification standards for any loans where interest, loan fees, late fees, loan costs, or collection costs of problem loans have been capitalized into the loan balance;

 

(d)           require internal asset reviews and updates for commercial loans and commercial real estate loans (both owner and non-owner occupied) to be conducted not less than every three (3) months;

 

(e)           require monthly reports be submitted to the Board detailing the Association’s adversely classified, special mention and delinquency ratios; and

 

(f)           provide for the appointment of a qualified, experienced, and independent third party to conduct, at a minimum, quarterly reviews of the Association’s commercial loans and commercial real estate loans (both owner and non-owner occupied) and assessments of the Association’s internal asset review process thereof.

 

Liquidity Management.

 

29.           Within forty-five (45) days, the Association shall revise its liquidity and funds management policy (Liquidity Management Policy) to address all corrective actions set forth in the 2010 ROE relating to liquidity and funds management.  The Liquidity Management Policy shall comply with all applicable laws, regulations and regulatory guidance.

 

30.           The Liquidity Management Policy shall include a Contingency Funding Plan, which shall, at a minimum, include:

 

(a)           alternative funding sources for meeting extraordinary demands or to provide liquidity in the event the sources identified are insufficient.  Such alternative funding sources must consider, at a minimum, the selling of assets, obtaining secured lines of credit, recovering charged-off assets, injecting additional equity capital, and the priority of their implementation;

  

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(b)           appropriate lines of credit at correspondent banks, including the Federal Reserve Bank, that would allow the Association to borrow funds to meet depositor demands if the Association’s other provisions for liquidity prove to be inadequate; and

 

(c)           retention of investment securities and other identified categories of investments that can be liquidated or pledged in a reasonably short period of time and at minimal expense to the Association in amounts sufficient (as a percentage of the Association’s total assets) to ensure the maintenance of the Association’s liquidity position at a level consistent with short-and-long-term liquidity objectives.

 

Interest Rate Risk Management.

 

31.           Within ninety (90) days, the Association shall revise its policies and procedures governing the Association’s interest rate risk (IRR) management (IRR Policy) to ensure that it is acceptable to the Regional Director and addresses all corrective actions in the 2010 ROE related to IRR.  The Association’s IRR Policy shall comply with all applicable laws, regulations and regulatory guidance.

 

Financial Reporting.

 

32.           Effective immediately, the Association shall ensure that its financial reports and statements are timely and accurately prepared and filed in compliance with applicable laws, regulations, and regulatory guidance including, but not limited to, 12 C.F.R. Part 562 and the TFR instructions.

  

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Violations of Law.

 

33.           Within ninety (90) days, the Association shall ensure that all violations of law and/or regulation discussed in the 2010 ROE are corrected and that adequate policies, procedures and systems are established or revised and thereafter implemented to prevent future violations.

 

Board Oversight of Compliance with Agreement.

 

34.           Within thirty (30) days, the Board shall designate a committee to monitor and coordinate the Association’s compliance with the provisions of this Agreement and the completion of all corrective actions required in the 2010 ROE and the 2011 Limited ROE (Oversight Committee).  The Oversight Committee shall be comprised of five (5) or more directors, all of whom shall be independent11 directors.

 

35.           Within fifteen (15) days after the end of each quarter, beginning with the quarter ending June 30, 2011, the Oversight Committee shall submit a written compliance progress report to the Board (Compliance Tracking Report).  The Compliance Tracking Report shall, at a minimum:

 

(a)           separately list each corrective action required by this Agreement and the 2010 ROE;

 

(b)           identify the required or anticipated completion date for each corrective action; and

 

Exhibit A-11 For purposes of this Agreement, an individual who is “independent” with respect to the Association shall be any individual who:

Exhibit A-            (a)           is not employed in any capacity by the Association, its subsidiaries, or its affiliates, other than as a director;

Exhibit A-            (b)           does not own or control more than ten percent (10%) of the outstanding shares of the Association or any of its affiliates;

Exhibit A-            (c)           is not related by blood or marriage to any officer or director of the Association or any of its affiliates, or to any shareholder owning more than ten percent (10%) of the outstanding shares of the Association or any of its affiliates, and who does not otherwise share a common financial interest with any such officer, director or shareholder;

Exhibit A-            (d)           is not indebted, directly or indirectly, to the Association or any of its affiliates, including the indebtedness of any entity in which the individual has a substantial financial interest; and

Exhibit A-            (e)           has not served as a consultant, advisor, underwriter, or legal counsel to the Association or any of its affiliates.

Exhibit A-

Exhibit A-

Exhibit A-

 

  

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 (c)           discuss the current status of each corrective action, including the action(s) taken or to be taken to comply with each corrective action.

 

36.           Within thirty (30) days after the end of each quarter, beginning with the quarter ending June 30, 2011, the Board shall review the Compliance Tracking Report and all reports required to prepared by this Agreement.  Following its review, the Board shall adopt a resolution: (a) certifying that each director has reviewed the Compliance Tracking Report and all required reports; and (b) documenting any corrective actions adopted by the Board.  A copy of the Compliance Tracking Report and the Board resolution shall be provided to the Regional Director within fifteen (15) days after the Board meeting.

 

37.            Nothing contained herein shall diminish the responsibility of the entire Board to ensure the Association’s compliance with the provisions of this Agreement.  The Board shall review and adopt all policies and procedures required by this Agreement prior to submission to the OTS.

 

Dividends and Other Capital Distributions.

 

38.           Effective immediately, the Association shall not declare or pay dividends or make any other capital distributions, as that term is defined in 12 C.F.R. § 563.141, without receiving the prior written approval of the Regional Director in accordance with applicable regulations and regulatory guidance.  The Association’s written request for approval shall be submitted to the Regional Director at least thirty (30) days prior to the anticipated date of the proposed declaration, dividend payment or distribution of capital.

 

Growth.

 

39.           Effective immediately, the Association shall not increase its total assets during any quarter in excess of an amount equal to net interest credited on deposit liabilities during the prior quarter without the prior written non-objection of the Regional Director.

  

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Golden Parachute Payments.

 

40.           Effective immediately, the Association shall not make any golden parachute payment12 unless, with respect to such payment, the Association has complied with the requirements of 12 C.F.R. Part 359.

 

Employment Contracts and Compensation Arrangements.

 

41.           Effective immediately, the Association shall not enter into any new contractual arrangement or renew, extend, or revise any contractual arrangement relating to compensation or benefits for any Senior Executive Officer or director of the Association, unless it first provides the Regional Director with not less than thirty (30) days prior written notice of the proposed transaction.  The notice to the Regional Director shall include a copy of the proposed employment contract or compensation arrangement or a detailed, written description of the compensation arrangement to be offered to such Senior Executive Officer or director, including all benefits and perquisites.  The Board shall ensure that any contract, agreement, or arrangement submitted to the Regional Director fully complies with the requirements of 12 C.F.R. Part 359, 12 C.F.R. §§ 563.39 and 563.161(b), and 12 C.F.R. Part 570 – Appendix A.

 

Third Party Contracts.

 

42.           Effective immediately, the Association shall not enter into any arrangement or contract with a third party service provider that is significant to the overall operation or financial condition of the Association13 or outside the Association’s normal course of business unless, with respect to each such contract, the Association has: (a) provided the Regional Director with a minimum of thirty (30) days prior written notice of such arrangement or contract and a written determination that the arrangement or contract complies with the standards and guidelines set forth in Thrift Bulletin 82a (TB 82a); and (b) received written notice of non-objection from the Regional Director.

 

Exhibit A-12 The term “golden parachute payment” is defined at 12 C.F.R. § 359.1(f).

Exhibit A-13 A contract will be considered significant to the overall operation or financial condition of the Association where the annual contract amount equals or exceeds two percent (2%) of the Association’s total capital, where there is a foreign service provider, or where it involves information technology that is critical to the Association’s daily operations without regard to the contract amount.

Exhibit A-

 

  

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Transactions with Affiliates.

 

43.           Effective immediately, the Association shall not engage in any new transaction with an affiliate unless, with respect to each such transaction, the Association has complied with the notice requirements set forth in 12 C.F.R. § 563.41(c)(4), which shall include the information set forth in 12 C.F.R. § 563.41(c)(3).  The Board shall ensure that any transaction with an affiliate for which notice is submitted pursuant to this Paragraph, complies with the requirements of 12 C.F.R. § 563.41 and Regulation W, 12 C.F.R. Part 223.

 

Brokered Deposits.

 

 44.           Effective immediately, the Association shall comply with the requirements of 12 C.F.R. § 337.6(b).  The Association shall provide to the Regional Director a copy of any waiver request submitted to the Federal Deposit Insurance Corporation.

 

 Effective Date, Incorporation of Stipulation.

 

45.           This Order is effective on the Effective Date as shown on the first page.  The Stipulation is made a part hereof and is incorporated herein by this reference.

 

Duration.

 

46.           This Order shall remain in effect until terminated, modified, or suspended, by written notice of such action by the OTS, acting by and through its authorized representatives.

 

Time Calculations.

 

47.           Calculation of time limitations for compliance with the terms of this Order run from the Effective Date and shall be based on calendar days, unless otherwise noted.

 

  

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48.           The Regional Director or an OTS authorized representative may extend any of the deadlines set forth in the provisions of this Order upon written request by the Association that includes reasons in support for any such extension.  Any OTS extension shall be made in writing.

 

Submissions and Notices.

 

49.           All submissions, including any reports, to the OTS that are required by or contemplated by this Order shall be submitted within the specified timeframes.

 

50.           Except as otherwise provided herein, all submissions, requests, communications, consents, or other documents relating to this Order shall be in writing and sent by first class U.S. mail (or by reputable overnight carrier, electronic facsimile transmission, or hand delivery by messenger) addressed as follows:

 

(a)           To the OTS:

 

Regional Director

Office of Thrift Supervision

One South Wacker Drive, Suite 2000

Chicago, Illinois  60606

Facsimile: (312) 917-5001

 

	
  

	
(b)

	
To the Association:

 

Chairman of the Board

First Place Bank

185 East Market Street

Warren, Ohio   44481

Facsimile: (330) 393-5578

 

Transfer Date.

 

51.    Following the Transfer Date, see Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. Law No. 111-203, § 311, 124 Stat. 1520 – 21 (2010), all submissions, requests, communications, consents or other documents relating to this Order shall be directed to the Comptroller of the Currency, or to the individual, division, or office designated by the Comptroller of the Currency.

  

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No Violations Authorized.

 

52.           Nothing in this Order or the Stipulation shall be construed as allowing the Association, its Board, officers, or employees to violate any law, rule, or regulation.

 

IT IS SO ORDERED.

 

OFFICE OF THRIFT SUPERVISION

	  	
By:

	
/s/ Daniel T. McKee

	  	  	
Daniel T. McKee

	  	  	
Regional Director, Central Region

  

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UNITED STATES OF AMERICA

Before the

OFFICE OF THRIFT SUPERVISION

	 	 	 
	
       

	
)

	  
	
In the Matter of

	
)

	Order No.: CN 11-20
	  	
)

	  
	  	
)

	 
	
FIRST PLACE BANK

	) 	Effective Date:  July 13, 2011 
	  	
)

	  
	  	
)

	  
	
Warren, Ohio

	
)

	  
	
OTS Docket No. 14752

	
)

	  
	
       

	
)

	  

STIPULATION AND CONSENT TO ISSUANCE OF ORDER TO CEASE AND DESIST

 

WHEREAS, the Office of Thrift Supervision (OTS), acting by and through its Regional Director for the Central Region (Regional Director), and based upon information derived from the exercise of its regulatory and supervisory responsibilities, has informed First Place Bank, Warren, Ohio, OTS Docket No. 14752 (Association) that the OTS is of the opinion that grounds exist to initiate an administrative proceeding against the Association pursuant to 12 U.S.C. § 1818(b);

 

WHEREAS, the Regional Director, pursuant to delegated authority, is authorized to issue Orders to Cease and Desist where a savings association has consented to the issuance of an order; and

 

WHEREAS, the Association desires to cooperate with the OTS to avoid the time and expense of such administrative cease and desist proceeding by entering into this Stipulation and Consent to the Issuance of Order to Cease and Desist (Stipulation) and, without admitting or denying that such grounds exist, but only admitting the statements and conclusions in Paragraphs 1 and 2 below concerning Jurisdiction, hereby stipulates and agrees to the following terms:

  

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Jurisdiction.

 

1.             The Association is a “savings association” within the meaning of 12 U.S.C. § 1813(b) and 12 U.S.C. § 1462(4).  Accordingly, the Association is an “insured depository institution” as that term is defined in 12 U.S.C. § 1813(c).

 

2.             Pursuant to 12 U.S.C. § 1813(q), the Director of the OTS is the “appropriate Federal banking agency” with jurisdiction to maintain an administrative enforcement proceeding against a savings association.  Therefore, the Association is subject to the authority of the OTS to initiate and maintain an administrative cease and desist proceeding against it pursuant to 12 U.S.C.

 

§ 1818(b).

 

OTS Findings of Fact.

 

3.             Based upon a comprehensive examination of the Association dated August 2, 2010 and a limited examination of the Association dated May 26, 2011, the OTS finds that the Association has engaged in unsafe or unsound banking practices and/or violations of law or regulation that resulted in the Association operating with: (a) an excessive level of adversely classified assets; (b) inadequate earnings to augment capital; and (c) an inadequate level of capital protection for the volume, type and quality of assets held by the Association.

 

Consent.

 

4.             The Association consents to the issuance by the OTS of the accompanying Order to Cease and Desist (Order).  The Association further agrees to comply with the terms of the Order upon the Effective Date of the Order and stipulates that the Order complies with all requirements of law.

  

22

  

 

Finality.

 

5.           The Order is issued by the OTS under 12 U.S.C. § 1818(b).  Upon the Effective Date, the Order shall be a final order, effective, and fully enforceable by the OTS under the provisions of 12 U.S.C. § 1818(i).

 

Waivers.

 

	
6.

	
The Association waives the following:

 

(a)            the right to be served with a written notice of the OTS’s charges against it as provided by 12 U.S.C. § 1818(b) and 12 C.F.R. Part 509;

 

(b)           the right to an administrative hearing of the OTS’s charges as provided by 12 U.S.C. § 1818(b) and 12 C.F.R. Part 509;

 

(c)           the right to seek judicial review of the Order, including, without limitation, any such  right provided by 12 U.S.C. § 1818(h), or otherwise to challenge the validity of the Order; and

 

(d)           any and all claims against the OTS, including its employees and agents, and any other governmental entity for the award of fees, costs, or expenses related to this OTS enforcement matter and/or the Order, whether arising under common law, federal statutes or otherwise.

 

OTS Authority Not Affected. 

 

7.             Nothing in this Stipulation or accompanying Order shall inhibit, estop, bar, or otherwise prevent the OTS from taking any other action affecting the Association if at any time the OTS deems it appropriate to do so to fulfill the responsibilities placed upon the OTS by law.

  

23

  

 

Other Governmental Actions Not Affected.

 

8.             The Association acknowledges and agrees that its consent to the issuance of the Order is solely for the purpose of resolving the matters addressed herein, consistent with Paragraph 7 above, and does not otherwise release, discharge, compromise, settle, dismiss, resolve, or in any way affect any actions, charges against, or liability of the Association that arise pursuant to this action or otherwise, and that may be or have been brought by any governmental entity other than the OTS.

 

Miscellaneous.

 

9.             The laws of the United States of America shall govern the construction and validity of this Stipulation and of the Order.

 

10.           If any provision of this Stipulation and/or the Order is ruled to be invalid, illegal, or unenforceable by the decision of any Court of competent jurisdiction, the validity, legality, and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby, unless the Regional Director in his or her sole discretion determines otherwise.

 

11.           All references to the OTS in this Stipulation and the Order shall also mean any of the OTS’s predecessors, successors, and assigns.

 

12.           The section and paragraph headings in this Stipulation and the Order are for convenience only and shall not affect the interpretation of this Stipulation or the Order.

 

13.           The terms of this Stipulation and of the Order represent the final agreement of the parties with respect to the subject matters thereof, and constitute the sole agreement of the parties with respect to such subject matters.

 

14.           The Stipulation and Order shall remain in effect until terminated, modified, or suspended in writing by the OTS, acting through its Regional Director or other authorized representative.

 

  

24

  

Signature of Directors/Board Resolution.

 

15.           Each Director signing this Stipulation attests that he or she voted in favor of a Board Resolution authorizing the consent of the Association to the issuance of the Order and the execution of the Stipulation.  This Stipulation may be executed in counterparts by the directors after approval of execution of the Stipulation at a duly called board meeting.

 

WHEREFORE, the Association, by its directors, executes this Stipulation.

 

	  	  	Accepted by
	
FIRST PLACE BANK

	  	OFFICE OF THRIFT SUPERVISION
	
Warren, Ohio

	  	  	  
	  	  	  	  
	
\s\ Samuel A. Roth

	  	
By:

	
\s\ Daniel T. McKee

	
Samuel A. Roth, Chairman

	  	  	
Daniel T. McKee

	  	  	  	
Regional Director, Central Region

	
\s\ A. Gary Bitonte 

	  	  	  
	
A. Gary Bitonte, M.D., Director

	  	
Date:

	
See Effective Date on page 1

	
\s\ Donald Cagigas

	  
	
Donald Cagigas, Director

	  
	  	  
	
\s\ Marie Izzo Cartwright

	  
	
Marie Izzo Cartwright, Director

	  
	  	  
	
\s\ Frank J. Dixon

	  
	
Frank J. Dixon, Director

	  
	  	  
	
\s\ Robert P. Grace

	  
	
Robert P. Grace, Director

	  
	  	  
	
\s\ Thomas M. Humphries

	  
	
Thomas M. Humphries, Director

	  
	  	  
	
\s\ Earl T. Kissell 

	  
	
Earl T. Kissell, Director

	  
	  	  
	
\s\ Steven R. Lewis

	  
	
Steven R. Lewis, Director

	  
	  	  
	
\s\ E. Jeffrey Rossi 

	  
	
E. Jeffrey Rossi, Director

	  
	  	  
	
\s\ William A. Russell 

	  
	
William A. Russell, Director

	  
	  	  
	
\s\ Robert L. Wagmiller

	  
	
Robert L. Wagmiller, Director

	  

  

25EXHIBIT 10.1

 

INVESTMENT AGREEMENT

 

INVESTMENT AGREEMENT (this “AGREEMENT”), dated as of July 5, 2011 by and between SPO Medical, Inc. a Delaware corporation (the “Company”), and Dutchess Opportunity Fund, II, LP, a Delaware Limited Partnership (the “Investor”).

 

WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Investor shall invest up to Five million dollars ($5,000,000) to purchase the Company's Common Stock, $.01 par value per share (the “Common Stock”);

 

WHEREAS, such investments will be made in reliance upon the provisions of Section 4(2) under the Securities Act of 1933, as amended (the “1933 Act”), Rule 506 of Regulation D, and the rules and regulations promulgated thereunder, and/or upon such other exemption from the registration requirements of the 1933 Act as may be available with respect to any or all of the investments in Common Stock to be made hereunder; and

 

WHEREAS, contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement substantially in the form attached hereto (the “Registration Rights Agreement”) pursuant to which the Company has agreed to provide certain registration rights under the 1933 Act, and the rules and regulations promulgated thereunder, and applicable state securities laws.

 

NOW THEREFORE, in consideration of the foregoing recitals, which shall be considered an integral part of this Agreement, the covenants and agreements set forth hereafter, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Investor hereby agree as follows:

 

SECTION 1. DEFINITIONS.

 

As used in this Agreement, the following terms shall have the following meanings specified or indicated below, and such meanings shall be equally applicable to the singular and plural forms of such defined terms.

 

“1933 Act” shall have the meaning set forth in the recitals of this Agreement.

 

“1934 Act” shall mean the Securities Exchange Act of 1934, as it may be amended.

 

“AAA” shall have the meaning specified in Section 12.

 

“Affiliate” shall have the meaning specified in Section 5(H).

 

“Agreement” shall mean this Investment Agreement.

 

“Articles of Incorporation” shall have the meaning specified in Section 4(C).

 

“By-laws” shall have the meaning specified in Section 4(C).

 

“Closing” shall have the meaning specified in Section 2(F).

 

“Closing Date” shall have the meaning specified in Section 2(F).

 

SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011

 

  

  

  

 

“Common Stock” shall have the meaning set forth in the recitals of this Agreement.

 

“Company” shall have the meaning set forth in the preamble of this Agreement.

 

“Control” or “Controls” shall have the meaning specified in Section 5(H).

 

“DTC” shall have the meaning specified in Section 2(F).

 

“DWAC” shall have the meaning specified in Section 2(F).

 

“Effective Date” shall mean the date the SEC declares effective under the 1933 Act the Registration Statement covering the Securities.

 

“Equity Line Transaction Documents” shall mean this Agreement and the Registration Rights Agreement.

 

“FAST” shall have the meaning specified in Section 2(F).

 

“Indemnities” shall have the meaning specified in Section 11.

 

“Indemnified Liabilities” shall have the meaning specified in Section 11.

 

“Indemnitor” shall have the meaning specified in Section 11.

 

“Investor” shall have the meaning indicated in the preamble of this Agreement.

 

“Material Adverse Effect” shall have the meaning specified in Section 4(A).

 

“Maximum Common Stock Issuance” shall have the meaning specified in Section 2(G).

 

“Minimum Acceptable Price” with respect to any Put Notice Date shall be the price defined by the Company in the applicable Put Notice.

 

“Open Market Adjustment Amount” shall have the meaning specified in Section 2(H).

 

“Open Market Share Purchase” shall have the meaning specified in Section 2(H).

 

“Open Period” shall mean the period beginning on and including the Trading Day immediately following the Effective Date and ending on the earlier to occur of (i) the date which is thirty-six (36) months from the Effective Date; or (ii) termination of the Agreement in accordance with Section 9, below.

 

“Pricing Period” shall mean the five (5) consecutive Trading Days beginning on the Put Notice Date and ending on and including the date that is four (4) Trading Days after such Put Notice Date.

 

“Principal Market” shall mean the Nasdaq Capital Market, the NYSE Amex, the New York Stock Exchange, the Nasdaq Global Market, the Nasdaq Global Select Market or the OTC Bulletin Board, whichever is the principal market on which the Common Stock is then listed.

 

SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011

 

  

2

  

 

“Prospectus” shall mean the prospectus, preliminary prospectus and supplemental prospectus used in connection with the Registration Statement.

 

“Purchase Amount” shall mean the total amount being paid by the Investor on a particular Closing Date to purchase the Securities.

 

“Purchase Price” shall mean ninety-four percent (94%) of the lowest daily VWAP (as defined herein) of the Common Stock during the Pricing Period.

 

“Put” shall have the meaning set forth in Section 2(B) hereof.

 

“Put Amount” shall have the meaning set forth in Section 2(B) hereof.

 

“Put Notice” shall mean a written notice in the form attached hereto as Exhibit C, sent to the Investor by the Company stating the Put Amount in U.S. dollars the Company intends to sell to the Investor pursuant to the terms of the Agreement and stating the current number of Shares issued and outstanding on such date.

 

“Put Notice Date” shall mean the Trading Day, as set forth below, immediately following the day on which the Investor receives a Put Notice, however a Put Notice shall be deemed delivered on (a) the Trading Day it is received by facsimile or email by the Investor if such notice is received prior to 9:00 am Eastern Time, or (b) the immediately succeeding Trading Day if it is received by facsimile or otherwise after 9:00 am Eastern Time on a Trading Day. No Put Notice may be deemed delivered on a day that is not a Trading Day.

 

“Put Restriction” shall mean the days during the Pricing Period. During this time, the Company shall not be entitled to deliver another Put Notice.

 

“Put Shares Due” shall have the meaning specified in Section 2(H).

 

“Registration Rights Agreement” shall have the meaning set forth in the recitals of this Agreement.

 

“Registration Statement” means the registration statement of the Company filed under the 1933 Act covering the resale by the Investor of the Common Stock issuable hereunder.

 

“Related Party” shall have the meaning specified in Section 5(H).

 

“Resolutions” shall have the meaning specified in Section 8(E).

 

“SEC” shall mean the U.S. Securities & Exchange Commission.

 

“SEC Documents” shall have the meaning specified in Section 4(G).

 

“Securities” shall mean the shares of Common Stock issued pursuant to the terms of the Agreement.

 

“Shares” shall mean the shares of the Company’s Common Stock.

 

“Subsequent Purchasers” shall have the meaning specified in Section 2(I).

 

“Subsidiaries” shall have the meaning specified in Section 4(A).

 

SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011

 

  

3

  

 

“Suspension Price” shall mean a fixed-price floor provided by the Company. The “Suspension Price” can be waived at the discretion of the Company.“Trading Day” shall mean any day on which the Principal Market for the Common Stock is open for trading, from the hours of 9:30 am until 4:00 pm Boston Time.

 

 “VWAP” shall mean the volume weighted average price.

 

SECTION 2.           PURCHASE AND SALE OF COMMON STOCK.

 

(A)   PURCHASE AND SALE OF COMMON STOCK. Subject to the terms and conditions set forth herein, the Company may issue and sell to the Investor, and the Investor shall purchase from the Company, up to that number of Shares having an aggregate Purchase Price of five million dollars ($5,000,000).

 

(B)   DELIVERY OF PUT NOTICES. Subject to the terms and conditions of the Equity Line Transaction Documents, and from time to time during the Open Period, the Company may, in its sole discretion, deliver a Put Notice to the Investor which states the dollar amount (designated in U.S. Dollars) (the “Put Amount”) of Shares which the Company intends to sell to the Investor on a Closing Date (the “Put”). The Put Notice shall be in the form attached hereto as Exhibit C and incorporated herein by reference. The Put Amount shall not exceed up to either 1) two hundred percent (200%) of the average daily volume (U.S. market only) of the Common Stock for the three (3) Trading Days prior to the applicable Put Notice Date, multiplied by the average of the three (3) daily closing prices immediately preceding the Put Date or 2) one hundred thousand dollars ($100,000). Beginning on any Put Notice Date, the Company shall not be entitled to submit another Put Notice until the applicable Pricing Period has been completed. The Common Stock identified in the Put Notice shall be purchased for a price equal to the Purchase Price.

 

(C)   COMPANY’S RIGHT TO SUSPEND.  On each Put Notice submitted to the Investor by the Company, the Company shall have the option to specify a Suspension Price for that Put.  In the event the Common Stock falls below the Suspension Price, the Put shall be temporarily suspended.  The Put shall resume at such time as the Common Stock is above the Suspension Price, provided the dates for the Pricing Period for that particular Put are still valid.   In the event the Pricing Period has been complete, any shares above the Suspension Price due to the Investor shall be sold to the Investor by the Company at the Suspension Price under the terms of this Agreement. The Suspension Price for a Put may not be changed by the Company once submitted to the Investor. In all cases, the Investor shall not sell shares at less than the Suspension Price.

 

(D)   CONDITIONS TO INVESTOR'S OBLIGATION TO PURCHASE SHARES. Notwithstanding anything to the contrary in this Agreement, the Company shall not be entitled to deliver a Put Notice and the Investor shall not be obligated to purchase any Shares at a Closing unless each of the following conditions are satisfied:

 

(1)   a Registration Statement shall have been declared effective and shall remain effective and available for the resale of all the Registrable Securities (as defined in the Registration Rights Agreement) at all times until the Closing with respect to the subject Put Notice;

 

SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011

 

  

4

  

 

(2)   at all times during the period beginning on the related Put Notice Date and ending on and including the related Closing Date, the Common Stock shall have been listed on the Principal Market and shall not have been suspended from trading thereon for a period of two (2) consecutive Trading Days during the Open Period and the Company shall not have been notified of any pending or threatened proceeding or other action to suspend the trading of the Common Stock;

 

(3)   the Company has complied with its obligations and is otherwise not in breach of or in default under this Agreement, the Registration Rights Agreement or any other agreement executed in connection herewith which has not been cured prior to delivery of the Put Notice;

 

(4)   no injunction shall have been issued and remain in force, or action commenced by a governmental authority which has not been stayed or abandoned, prohibiting the purchase or the issuance of the Securities; and

 

(5)   the issuance of the Securities pursuant to this Agreement will not violate any shareholder approval requirements of the Principal Market.

 

If any of the events described in clauses (1) through (5) above occurs during a Pricing Period, then the Investor shall have no obligation to purchase the Common Stock subject to the applicable Put Notice.

 

(E)   INTENTIONALLY OMITTED.

 

(F)   MECHANICS OF PURCHASE OF SHARES BY INVESTOR. The closing of the purchase by the Investor of Shares (a “Closing”) shall occur on the date which is no later than ten (10) Trading Days following the applicable Put Notice Date (each a “Closing Date”). On each Closing Date, (I) the Company shall deliver to the Investor pursuant to this Agreement, certificates representing the Shares to be issued to the Investor on such date and registered in the name of the Investor; and (II) the Investor shall deliver to the Company the Purchase Price to be paid for such Shares, based on the Put Amount set forth in Section 2(B). In lieu of delivering physical certificates representing the Securities and provided that the Company's transfer agent then is participating in The Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon request of the Investor, the Company shall use all commercially reasonable efforts to cause its transfer agent to electronically transmit the Securities by crediting the account of the Investor's prime broker (as specified by the Investor within a reasonable period in advance of the Investor's notice) with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system.

 

The Company understands that a delay in the issuance of Securities beyond the Closing Date could result in economic damage to the Investor. After the Effective Date, as compensation to the Investor for such loss, the Company agrees to make payments to the Investor for late issuance of Securities (delivery of Securities after the applicable Closing Date) in accordance with the following schedule (where “No. of Days Late” is defined as the number of trading days beyond the Closing Date, with the Amounts being cumulative.):

 

	
LATE PAYMENT FOR EACH NO. OF DAYS LATE

	
1

	
$100

	
2

	
$200

	
3

	
$300

	
4

	
$400

	
5

	
$500

	
6

	
$600

	
7

	
$700

	
8

	
$800

	
9

	
$900

	
10

	
$1000

	
Over 10

	
$1,000 + $200 for each Business Day late beyond 10 days

 

SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011

 

  

5

  

 

The Company shall make any payments incurred under this Section in immediately available funds upon demand by the Investor. Nothing herein shall limit the Investor's right to pursue actual damages for the Company's failure to issue and deliver the Securities to the Investor, except that such late payments shall offset any such actual damages incurred by the Investor, and any Open Market Adjustment Amount, as set forth below.

 

(G)   OVERALL LIMIT ON COMMON STOCK ISSUABLE. Notwithstanding anything contained herein to the contrary, if during the Open Period the Company becomes listed on an exchange that limits the number of shares of Common Stock that may be issued without shareholder approval, then the number of Shares issuable by the Company and purchasable by the Investor, shall not exceed that number of the shares of Common Stock that may be issuable without shareholder approval (the “Maximum Common Stock Issuance”). If such issuance of shares of Common Stock could cause a delisting on the Principal Market, then the Maximum Common Stock Issuance shall first be approved by the Company's shareholders in accordance with applicable law and the By-laws and Articles of Incorporation of the Company, as amended. The parties understand and agree that the Company's failure to seek or obtain such shareholder approval shall in no way adversely affect the validity and due authorization of the issuance and sale of Securities or the Investor's obligation in accordance with the terms and conditions hereof to purchase a number of Shares in the aggregate up to the Maximum Common Stock Issuance limitation, and that such approval pertains only to the applicability of the Maximum Common Stock Issuance limitation provided in this Section 2(H).

 

(H)   OPEN MARKET ADJUSTMENT. If, by the third (3rd) business day after a Closing Date, the Company fails to deliver any portion of the Securities subject to a Put Notice to the Investor (the “Put Shares Due”) and the Investor purchases, in an open market transaction or otherwise, shares of Common Stock necessary to make delivery by the Investor of shares in respect of sales to subsequent purchasers, pursuant to transactions entered into before the Closing Date (“Subsequent Purchasers”), which such shares of Common Stock would have been delivered to the Investor by the Company but for the Company’s failure to so deliver (the “Open Market Share Purchase”), then the Company shall pay to the Investor, in addition to any other amounts due to Investor pursuant to the Put, and not in lieu thereof, the Open Market Adjustment Amount (as defined below). The “Open Market Adjustment Amount” is the amount equal to the excess, if any, of (x) the Investor's total purchase price (including brokerage commissions, if any) for the Open Market Share Purchase minus (y) the net proceeds (after brokerage commissions, if any) received by the Investor from the sale of the Put Shares Due to such Subsequent Purchasers. The Company shall pay the Open Market Adjustment Amount to the Investor in immediately available funds within five (5) business days of written demand by the Investor.  By way of illustration and not in limitation of the foregoing, if the Investor purchases shares of Common Stock having a total purchase price (including brokerage commissions) of $11,000 to cover an Open Market Share Purchase with respect to shares of Common Stock it sold to Subsequent Purchasers for net proceeds of $10,000, the Open Market Adjustment Amount which the Company will be required to pay to the Investor will be $1,000.

 

SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011

 

  

6

  

 

(I)            LIMITATION ON AMOUNT OF OWNERSHIP. Notwithstanding anything to the contrary in this Agreement, in no event shall the Investor be entitled to purchase that number of Shares, which when added to the sum of the number of shares of Common Stock beneficially owned (as such term is defined under Section 13(d) and Rule 13d-3 of the 1934 Act), by the Investor, would exceed 4.99% of the number of shares of Common Stock outstanding on the Closing Date, as determined in accordance with Rule 13d-1(j) of the 1934 Act.

 

SECTION 3.           INVESTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS.  The Investor represents and warrants to the Company, and covenants, that:

 

(A)          SOPHISTICATED INVESTOR. The Investor has, by reason of its business and financial experience, such knowledge, sophistication and experience in financial and business matters and in making investment decisions of this type that it is capable of (1) evaluating the merits and risks of an investment in the Securities and making an informed investment decision; (2) protecting its own interest; and (3) bearing the economic risk of such investment for an indefinite period of time.

 

(B)           AUTHORIZATION; ENFORCEMENT. The Investor has the requisite power and authority to enter into and perform this Agreement and the Registration Rights Agreement. The execution and delivery of the Equity Line Transaction Documents by the Investor and the consummation by it of the transactions contemplated hereby and thereby have been duly and validly authorized by the Investor's general partners and no further consent or authorization is required by its partners. This Agreement has been duly and validly authorized, executed and delivered on behalf of the Investor and is a valid and binding agreement of the Investor enforceable against the Investor in accordance with its terms, subject as to enforceability to general principles of equity and to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors' rights and remedies.

 

(C)           SECTION 9 OF THE 1934 ACT. During the term of this Agreement, the Investor will comply with the provisions of Section 9 of the 1934 Act, and the rules promulgated thereunder, with respect to transactions involving the Common Stock. The Investor agrees not to sell the Company's stock short, either directly or indirectly through its affiliates, principals or advisors, the Company's common stock during the term of this Agreement.

 

(D)   ACCREDITED INVESTOR. Investor is an “Accredited Investor” as that term is defined in Rule 501(a) of Regulation D of the 1933 Act.

 

(E)   NO CONFLICTS. The execution, delivery and performance of the Transaction Documents by the Investor and the consummation by the Investor of the transactions contemplated hereby and thereby will not (1) result in a violation of the partnership agreement or other organizational documents of the Investor, (2) conflict with, or constitute a material default (or an event which with notice or lapse of time or both would become a material default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, contract, indenture mortgage, indebtedness or instrument to which the Investor is a party, or to the Investor’s knowledge result in a violation of any law, rule, regulation, order, judgment or decree (including United States federal and state securities laws and regulations) applicable to the Investor or by which any property or asset of the Investor is bound or affected.

 

SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011

 

  

7

  

 

(F)           NO VIOLATIONS. Except as disclosed in Schedule 3(f), the Investor is not in violation of any term of, or in default under, the partnership agreement of other organizational documents of the Investor or any material contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to the Investor, except for conflicts, defaults, terminations, amendments, accelerations, cancellations and violations that would not, individually or in the aggregate, constitute or reasonably be expected to constitute a material adverse effect on the Investor.  The business of the Investor is not being conducted, and shall not be conducted, in violation of any law, statute, ordinance, rule, order or regulation of any governmental authority or agency, regulatory or self-regulatory agency, or court, except for violations the sanctions for which either, individually or in the aggregate, would not have or reasonably be expected to have a material adverse effect on the Investor.  Except as specifically contemplated by this Agreement and as required under the 1933 Act or any securities laws of any states, to the Investor’s knowledge, the Investor is not required to obtain any consent, authorization, permit or order of, or make any filing or registration (except the filing of a registration statement as outlined in the Registration Rights Agreement) with, any court, governmental authority or agency, regulatory or self-regulatory agency or other third party in order for it to execute, deliver or perform any of its obligations under, or contemplated by, the Equity Line Transaction Documents in accordance with the terms hereof or thereof except for those consents, authorizations, permits, orders or filings as have been obtained or effected on or prior to the date hereof and are in full force and effect as of the date hereof.  Except as disclosed in Schedule 3(f), the Investor is unaware of any facts or circumstances which might give rise to any violation or default set forth in this Section 3(F).

 

(G)           OPPORTUNITY TO DISCUSS. The Investor has received all materials relating to the Company's business, finance and operations which it has requested. The Investor has had an opportunity to discuss the business, management and financial affairs of the Company with the Company's management.

 

(H)           INVESTMENT PURPOSES. The Investor is purchasing the Securities for its own account for investment purposes and not with a view towards distribution and agrees to resell or otherwise dispose of the Securities solely in accordance with the registration provisions of the 1933 Act (or pursuant to an exemption from such registration provisions).

 

(I)            NO REGISTRATION AS A DEALER. The Investor is not and will not be required to be registered as a “dealer” under the 1934 Act, either as a result of its execution and performance of its obligations under this Agreement or otherwise.

 

(J)            GOOD STANDING.  The Investor is a Limited Partnership, duly organized, validly existing and in good standing in the state of Delaware.

 

(K)           TAX LIABILITIES. The Investor understands that it is liable for its own tax liabilities.

 

(L)            REGULATION M. The Investor will comply with Regulation M under the 1934 Act, if applicable.

 

SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011

 

  

8

  

 

SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.  Except as set forth in the Schedules attached hereto, or as disclosed in the Company's SEC Documents, the Company represents and warrants to the Investor that:

 

(A)   ORGANIZATION AND QUALIFICATION. The Company is a corporation duly organized and validly existing in good standing under the laws of the State of Delaware, USA and has the requisite corporate power and authorization to own its properties and to carry on its business as now being conducted. Both the Company and the companies it owns or controls (“Subsidiaries”) are duly qualified to do business and are in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect. As used in this Agreement, “Material Adverse Effect” means any material adverse effect on (1) the properties, assets, operations, results of operations, or financial condition of the Company and its Subsidiaries, if any, taken as a whole, (2) the transactions contemplated hereby or by the agreements and instruments to be entered into in connection herewith, or (3) the authority or ability of the Company to perform its obligations under the Equity Line Transaction Documents other than as a result of (a) changes adversely affecting the United States economy (so long as the Company is not disproportionately affected thereby), (b) changes adversely affecting the industry in which the Company operates (so long as the Company is not disproportionately affected thereby), (c) the announcement or consummation of the transactions contemplated by this Agreement, and (d) changes in the market price of the Common Stock.

 

(B)   AUTHORIZATION; ENFORCEMENT; COMPLIANCE WITH OTHER INSTRUMENTS.

 

(1)   The Company has the requisite corporate power and authority to enter into and perform the Equity Line Transaction Documents, and to perform its obligations contemplated hereby and thereby.

 

(2)   The execution and delivery of the Equity Line Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby, including without limitation the reservation for issuance and the issuance of the Securities pursuant to this Agreement, have been duly and validly authorized by the Company's Board of Directors and no further consent or authorization is required by the Company, its Board of Directors, or its shareholders.

 

(3)   The Equity Line Transaction Documents have been duly and validly executed and delivered by the Company.

 

(4)   The Equity Line Transaction Documents constitute the valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors' rights and remedies.

 

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(C)   CAPITALIZATION. As of the date hereof, the authorized capital stock of the Company consists of 100,000,000 shares of Common Stock with $.01 par value per share, of as of July 5, 2011, 33,540,673 shares were issued and outstanding.  Except as disclosed in the Company’s publicly available filings with the SEC: (1) no shares of the Company's capital stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company; (2) there are no outstanding debt securities; (3) there are no outstanding shares of capital stock, options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its Subsidiaries; (4) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of their securities under the 1933 Act (except the Registration Rights Agreement); (5) there are no outstanding securities of the Company or any of its Subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or any of its Subsidiaries; (6) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities as described in this Agreement; (7) the Company does not have any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement; and (8) there is no dispute as to the classification of any shares of the Company's capital stock.

 

The Company has furnished to the Investor, or the Investor has had access through the SEC’s EDGAR website to, true and correct copies of the Company's Articles of Incorporation, as amended and in effect on the date hereof (the “Articles of Incorporation”), and the Company's By-laws, as in effect on the date hereof (the “By-laws”), and the terms of all securities convertible into or exercisable for Common Stock and the material rights of the holders thereof in respect thereto.

 

(D)   ISSUANCE OF SHARES. The Company has reserved 10,000,000 Shares for issuance pursuant to this Agreement, which have been duly authorized and reserved for issuance (subject to adjustment pursuant to the Company's covenant set forth in Section 5(F) below) pursuant to this Agreement. Upon issuance in accordance with this Agreement, the Securities will be validly issued, fully paid for and non-assessable and free from all taxes, liens and charges with respect to the issue thereof. In the event the Company cannot register a sufficient number of Shares for issuance pursuant to this Agreement, the Company will use its best efforts to authorize and reserve for issuance the number of Shares required for the Company to perform its obligations hereunder as soon as reasonably practicable.

 

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(E)           NO CONFLICTS. The execution, delivery and performance of the Equity Line Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby will not (I) result in a violation of the Articles of Incorporation, any Certificate of Designations, Preferences and Rights of any outstanding series of preferred stock of the Company or the By-laws; or (II) conflict with, or constitute a material default (or an event which with notice or lapse of time or both would become a material default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, contract, indenture mortgage, indebtedness or instrument to which the Company or any of its Subsidiaries is a party, or to the Company's knowledge result in a violation of any law, rule, regulation, order, judgment or decree (including United States federal and state securities laws and regulations and the rules and regulations of the Principal Market or principal securities exchange or trading market on which the Common Stock is traded or listed) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected. Except as disclosed in Schedule 4(e), neither the Company nor its Subsidiaries is in violation of any term of, or in default under, the Articles of Incorporation, any Certificate of Designations, Preferences and Rights of any outstanding series of preferred stock of the Company or the By-laws or their organizational charter or by-laws, respectively, or any contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to the Company or its Subsidiaries, except for possible conflicts, defaults, terminations, amendments, accelerations, cancellations and violations that would not individually or in the aggregate have or constitute a Material Adverse Effect. The business of the Company and its Subsidiaries is not being conducted, and shall not be conducted, in violation of any law, statute, ordinance, rule, order or regulation of any governmental authority or agency, regulatory or self-regulatory agency, or court, except for possible violations the sanctions for which either individually or in the aggregate would not have a Material Adverse Effect. Except as specifically contemplated by this Agreement and as required under the 1933 Act or any securities laws of any states, to the Company's knowledge, the Company is not required to obtain any consent, authorization, permit or order of, or make any filing or registration (except the filing of a registration statement as outlined in the Registration Rights Agreement between the Parties) with, any court, governmental authority or agency, regulatory or self-regulatory agency or other third party in order for it to execute, deliver or perform any of its obligations under, or contemplated by, the Equity Line Transaction Documents in accordance with the terms hereof or thereof. All consents, authorizations, permits, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof and are in full force and effect as of the date hereof. Except as disclosed in Schedule 4(e), the Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any violation or default of any of the foregoing.

 

(F) SEC DOCUMENTS; FINANCIAL STATEMENTS. As of the date hereof, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the 1934 Act (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the "SEC Documents"). The Company has delivered to the Investor or its representatives, or they have had access through the SEC’s EDGAR website to, true and complete copies of the SEC Documents. As of their respective filing dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles, and audited by a firm that is a member a member of the Public Companies Accounting Oversight Board ("PCAOB") consistently applied, during the periods involved (except (I) as may be otherwise indicated in such financial statements or the notes thereto, or (II) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). No other written information provided by or on behalf of the Company to the Investor which is not included in the SEC Documents contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstance under which they are or were made, not misleading. Neither the Company nor any of its Subsidiaries or any of their officers, directors, employees or agents have provided the Investor with any material, nonpublic information which was not publicly disclosed prior to the date hereof and any material, nonpublic information provided to the Investor by the Company or its Subsidiaries or any of their officers, directors, employees or agents prior to any Closing Date shall be publicly disclosed by the Company prior to such Closing Date.

 

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(G) ABSENCE OF CERTAIN CHANGES. Except as otherwise set forth in the SEC Documents, the Company does not intend to change the business operations of the Company in any material way. The Company has not taken any steps, and does not currently expect to take any steps, to seek protection pursuant to any bankruptcy law nor does the Company or its Subsidiaries have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings.

 

(H) ABSENCE OF LITIGATION AND/OR REGULATORY PROCEEDINGS. Except as set forth in the SEC Documents, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of Company or any of its Subsidiaries, threatened against or affecting the Company, the Common Stock or any of the Company's Subsidiaries or any of the Company's or the Company's Subsidiaries' officers or directors in their capacities as such, in which an adverse decision could have a Material Adverse Effect.

 

(I) ACKNOWLEDGMENT REGARDING INVESTOR'S PURCHASE OF SHARES. The Company acknowledges and agrees that the Investor is acting solely in the capacity of an arm's length purchaser with respect to the Equity Line Transaction Documents and the transactions contemplated hereby and thereby. The Company further acknowledges that the Investor is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Equity Line Transaction Documents and the transactions contemplated hereby and thereby and any advice given by the Investor or any of its respective representatives or agents in connection with the Equity Line Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to the Investor's purchase of the Securities, and is not being relied on by the Company. The Company further represents to the Investor that the Company's decision to enter into the Equity Line Transaction Documents has been based solely on the independent evaluation by the Company and its representatives.

 

(J) INTENTIONALLY OMMITTED

 

(K) INTENTIONALLY OMMITTED

 

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(L) INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and rights necessary to conduct their respective businesses as now conducted. Except as set forth in the SEC Documents, none of the Company's trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, government authorizations, trade secrets or other intellectual property rights necessary to conduct its business as now or as proposed to be conducted have expired or terminated, or are expected to expire or terminate within two (2) years from the date of this Agreement. The Company and its Subsidiaries do not have any knowledge of any infringement by the Company or its Subsidiaries of trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret or other similar rights of others, or of any such development of similar or identical trade secrets or technical information by others and, except as set forth in the SEC Documents, there is no claim, action or proceeding being made or brought against, or to the Company's knowledge, being threatened against, the Company or its Subsidiaries regarding trademark, trade name, patents, patent rights, invention, copyright, license, service names, service marks, service mark registrations, trade secret or other infringement; and the Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing. The Company and its Subsidiaries have taken commercially reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties.

 

(M) INTENTIONALLY OMMITTED

 

(N) TITLE. The Company and its Subsidiaries have good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as are described in the SEC Documents or such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company or any of its Subsidiaries.

 

(O) INSURANCE. Each of the Company's Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company reasonably believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged.

 

(P) REGULATORY PERMITS. The Company and its Subsidiaries have in full force and effect all certificates, approvals, authorizations and permits from the appropriate federal, state, local or foreign regulatory authorities and comparable foreign regulatory agencies, necessary to own, lease or operate their respective properties and assets and conduct their respective businesses, and neither the Company nor any such Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, approval, authorization or permit, except for such certificates, approvals, authorizations or permits which if not obtained, or such revocations or modifications which, would not have a Material Adverse Effect.

 

(Q) INTENTIONALLY OMMITTED

 

(R) INTENTIONALLY OMMITTED

 

(S) TAX STATUS. The Company and each of its Subsidiaries has made or filed all United States federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply.

 

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(T) CERTAIN TRANSACTIONS. Except as set forth in the SEC Documents filed at least ten (10) days prior to the date hereof and except for arm's length transactions pursuant to which the Company makes payments in the ordinary course of business upon terms no less favorable than the Company could obtain from disinterested third parties and other than the grant of stock options disclosed in the SEC Documents or stock options granted in the future as contemplated by current compensation agreements or plans disclosed in the SEC Documents, none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company or any of its Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.

 

(U) DILUTIVE EFFECT. The Company understands and acknowledges that the number of shares of Common Stock issuable upon purchases pursuant to this Agreement will increase in certain circumstances including, but not necessarily limited to, the circumstance wherein the trading price of the Common Stock declines during the period between the Effective Date and the end of the Open Period. The Company's executive officers and directors have studied and fully understand the nature of the transactions contemplated by this Agreement and recognize that they have a potential dilutive effect on the shareholders of the Company. The Board of Directors of the Company has concluded in its good faith business judgment, and with full understanding of the implications, that such issuance is in the best interests of the Company. The Company specifically acknowledges that, subject to such limitations as are expressly set forth in the Equity Line Transaction Documents, its obligation to issue shares of Common Stock upon purchases pursuant to this Agreement is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other shareholders of the Company.

 

(V) INTENTIONALLY OMMITTED

 

(W) NO GENERAL SOLICITATION. Neither the Company, nor any of its affiliates, nor any person acting on its behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offer or sale of the Common Stock to be offered as set forth in this Agreement.

 

(X) NO BROKERS, FINDERS OR FINANCIAL ADVISORY FEES OR COMMISSIONS.  No brokers, finders or financial advisory fees or commissions will be payable by the Company, its agents or Subsidiaries, with respect to the transactions contemplated by this Agreement, except as otherwise disclosed in this Agreement.

 

SECTION 5.           COVENANTS OF THE COMPANY

 

(A)           EFFORTS. The Company shall use all commercially reasonable efforts to timely satisfy each of the conditions set forth in Section 8 of this Agreement.

 

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(B)   BLUE SKY. The Company shall, at its sole cost and expense, on or before each of the Closing Dates, take such action as the Company shall reasonably determine is necessary to qualify the Securities for, or obtain exemption for the Securities for, sale to the Investor at each of the Closings pursuant to this Agreement under applicable securities or “Blue Sky” laws of such states of the United States, as reasonably specified by the Investor, and shall provide evidence of any such action so taken to the Investor on or prior to the Closing Date.

 

(C)   REPORTING STATUS. Until one of the following occurs, the Company shall file all reports required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its status, or take an action or fail to take any action, which would terminate its status as a reporting company under the 1934 Act: (1) this Agreement terminates pursuant to Section 9, or (2) the date on which the Investor has sold all the Securities; provided that the Investor shall promptly notify the Company after the Investor has sold all the Securities.

 

(D)   USE OF PROCEEDS. The Company will use the proceeds from the sale of the Securities (excluding amounts paid by the Company for fees as set forth in the Equity Line Transaction Documents) for general corporate and working capital purposes and acquisitions or assets, businesses or operations or for other purposes that the Board of Directors, in its good faith, deems to be in the best interest of the Company.

 

(E)            FINANCIAL INFORMATION. During the Open Period, the Company agrees to make available to the Investor via the SEC’s EDGAR website or other electronic means the following documents and information on the forms set forth: (1) within five (5) Trading Days after the filing thereof with the SEC, a copy of its Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and any Registration Statements or amendments filed pursuant to the 1933 Act; (2) copies of any notices and other information made available or given to the shareholders of the Company generally, contemporaneously with the making available or giving thereof to the shareholders; and (3) within two (2) calendar days of filing or delivery thereof, copies of all documents filed with, and all correspondence sent to, the Principal Market, any securities exchange or market, or the Financial Industry Regulatory Authority, unless such information is material nonpublic information.

 

(F)            RESERVATION OF SHARES. The Company shall reserve 10,000,000 Shares for the issuance of the Securities to the Investor as required hereunder. In the event that the Company determines that it does not have a sufficient number of authorized shares of Common Stock to reserve and keep available for issuance as described in this Section 5(F), the Company shall use all commercially reasonable efforts to increase the number of authorized shares of Common Stock by seeking shareholder approval for the authorization of such additional shares.

 

(G)   LISTING. The Company shall maintain the listing of all of the Registrable Securities (as defined in the Registration Rights Agreement) on the Principal Market and each other national securities exchange and automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance) and shall maintain, such listing of all Registrable Securities from time to time issuable under the terms of the Equity Line Transaction Documents. Neither the Company nor any of its Subsidiaries shall take any action which would be reasonably expected to result in the delisting or suspension of the Common Stock on the Principal Market (excluding suspensions of not more than one (1) trading day resulting from business announcements by the Company). The Company shall promptly provide to the Investor copies of any notices it receives from the Principal Market regarding the continued eligibility of the Common Stock for listing on such automated quotation system or securities exchange. The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 5(G).

 

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(H)           TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall cause each of its Subsidiaries not to, enter into, amend, modify or supplement, or permit any Subsidiary to enter into, amend, modify or supplement, any agreement, transaction, commitment or arrangement with any of its or any Subsidiary's officers, directors, persons who were officers or directors at any time during the previous two (2) years, shareholders who beneficially own 5% or more of the Common Stock, or Affiliates or with any individual related by blood, marriage or adoption to any such individual or with any entity in which any such entity or individual owns a 5% or more beneficial interest (each a “Related Party”), except for (1) customary employment arrangements and benefit programs on reasonable terms, (2) any agreement, transaction, commitment or arrangement on an arms-length basis on terms no less favorable than terms which would have been obtainable from a disinterested third party other than such Related Party,(3) any agreement, transaction, commitment or arrangement which is approved by a majority of the disinterested directors of the Company, or (4) extensions or amendments of any existing employment agreement. For purposes hereof, any director who is also an officer of the Company or any Subsidiary of the Company shall not be a disinterested director with respect to any such agreement, transaction, commitment or arrangement. “Affiliate” for purposes hereof means, with respect to any person or entity, another person or entity that, directly or indirectly, (1) has a 5% or more equity interest in that person or entity, (2) has 5% or more common ownership with that person or entity, (3) controls that person or entity, or (4) is under common control with that person or entity. “Control” or “Controls” for purposes hereof means that a person or entity has the power, directly or indirectly, to conduct or govern the policies of another person or entity.

 

(I)             FILING OF FORM 8-K. On or before the date which is four (4) Trading Days after the date of execution of this Agreement, the Company shall file a Current Report on Form 8-K with the SEC describing the terms of the transaction contemplated by the Equity Line Transaction Documents in the form required by the 1934 Act, if such filing is required.

 

(J)             CORPORATE EXISTENCE. The Company shall use all commercially reasonable efforts to preserve and continue the corporate existence of the Company.

 

(K)           NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION OF RIGHT TO MAKE A PUT. The Company shall promptly notify the Investor upon the occurrence of any of the following events in respect of a Registration Statement or related prospectus in respect of an offering of the Securities: (1) receipt of any request for additional information by the SEC or any other federal or state governmental authority during the period of effectiveness of the Registration Statement for amendments or supplements to the Registration Statement or related prospectus; (2) the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of any Registration Statement or the initiation of any proceedings for that purpose; (3) receipt of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Securities for sale in any jurisdiction or the initiation or notice of any proceeding for such purpose; (4) the happening of any event that makes any statement made in such Registration Statement or related prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in the Registration Statement, related prospectus or documents so that, in the case of a Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the related prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (5) the Company's reasonable determination that a post-effective amendment to the Registration Statement would be appropriate, and the Company shall promptly make available to Investor any such supplement or amendment to the related prospectus. The Company shall not deliver to the Investor any Put Notice during the continuation of any of the foregoing events in this Section 5(K).

 

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(L)           ITENTIONALLY OMMITTED

 

(M)         TRANSFER AGENT. Upon effectiveness of the Registration Statement, and for so long as the Registration Statement is effective,  the Company shall deliver instructions to its transfer agent to issue Shares to the Investor that are covered for resale by the Registration Statement free of restrictive legends.

 

(N)          ACKNOWLEDGEMENT OF TERMS. The Company hereby represents and warrants to the Investor that: (1) it is voluntarily entering into this Agreement of its own freewill, (2) it is not entering this Agreement under economic duress, (3) the terms of this Agreement are reasonable and fair to the Company, and (4) the Company has had independent legal counsel of its own choosing review this Agreement, advise the Company with respect to this Agreement, and represent the Company in connection with this Agreement.

 

SECTION 6. INTENTIONALLY OMITTED.

 

SECTION 7. CONDITIONS OF THE COMPANY'S OBLIGATION TO SELL.  The obligation hereunder of the Company to issue and sell the Securities to the Investor is further subject to the satisfaction, at or before each Closing Date, of each of the following conditions set forth below. These conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion.

 

(A)           The Investor shall have executed this Agreement and the Registration Rights Agreement and delivered the same to the Company.

 

(B)           The Investor shall have delivered to the Company the Purchase Price for the Securities being purchased by the Investor between the end of the Pricing Period and the Closing Date via a Put Settlement Sheet (hereto attached as Exhibit D).  Immediately after receipt of confirmation of delivery of such Securities to the Investor, the Investor, by wire transfer of immediately available funds pursuant to the wire instructions provided by the Company, will disburse the funds constituting the Purchase Amount.

 

(C)           The representations and warranties of the Investor shall be true and correct in all material respects as of the date when made and as of the applicable Closing Date as though made at that time and the Investor shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by the Equity Line Transaction Documents to be performed, satisfied or complied with by the Investor on or before such Closing Date.

 

(D)           No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement.

 

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SECTION 8. FURTHER CONDITIONS OF THE INVESTOR'S OBLIGATION TO PURCHASE.  The obligation of the Investor hereunder to purchase Shares is subject to the satisfaction, on or before each Closing Date, of each of the following conditions set forth below.

 

(A)   The Company shall have executed the Equity Line Transaction Documents and delivered the same to the Investor.

 

(B)           The Common Stock shall be authorized for quotation on the Principal Market and trading in the Common Stock shall not have been suspended by the Principal Market or the SEC, at any time beginning on the date hereof and through and including the respective Closing Date (excluding suspensions of not more than one (1) Trading Day resulting from business announcements by the Company, provided that such suspensions occur prior to the Company's delivery of the Put Notice related to such Closing).

 

(C)   The representations and warranties of the Company shall be true and correct in all material respects as of the date when made and as of the applicable Closing Date as though made at that time and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by the Equity Line Transaction Documents to be performed, satisfied or complied with by the Company on or before such Closing Date. The Investor may request an update as of such Closing Date regarding the representation contained in Section 4(C) above.

 

(D)           The Company shall have executed and delivered to the Investor the certificates representing, or have executed electronic book-entry transfer of, the Securities (in such denominations as the Investor shall request) being purchased by the Investor at such Closing.

 

(E)   The Board of Directors of the Company shall have adopted resolutions consistent with Section 4(B)(2) above (the “Resolutions”) and such Resolutions shall not have been amended or rescinded prior to such Closing Date.

 

(F)            INTENTIONALLY OMITTED.

 

(G)   No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement.

 

(H)   The Registration Statement shall be effective on each Closing Date and no stop order suspending the effectiveness of the Registration statement shall be in effect or to the Company's knowledge shall be pending or threatened. Furthermore, on each Closing Date (1) neither the Company nor the Investor shall have received notice that the SEC has issued or intends to issue a stop order with respect to such Registration Statement or that the SEC otherwise has suspended or withdrawn the effectiveness of such Registration Statement, either temporarily or permanently, or intends or has threatened to do so (unless the SEC's concerns have been addressed and Investor is reasonably satisfied that the SEC no longer is considering or intends to take such action), and (2) no other suspension of the use or withdrawal of the effectiveness of such Registration Statement or related prospectus shall exist.

 

(I)            At the time of each Closing, the Registration Statement (including information or documents incorporated by reference therein) and any amendments or supplements thereto shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading or which would require public disclosure or an update supplement to the prospectus.

 

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(J)             INTENTIOANLLY OMMITTED

 

(K)           The conditions to such Closing set forth in Section 2(E) shall have been satisfied on or before such Closing Date.

 

(L)            The Company shall have certified to the Investor the number of Shares of Common Stock outstanding when a Put Notice is given to the Investor.  The Company's delivery of a Put Notice to the Investor constitutes the Company's certification of the reservation for issuance of the necessary number of shares of Common Stock subject to a Put Notice.

 

SECTION 9.   TERMINATION. This Agreement shall terminate upon any of the following events:

 

(A)           when the Investor has purchased an aggregate of five million dollars $5,000,000 in the Common Stock of the Company pursuant to this Agreement; or,

 

(B)           on the date which is thirty-six (36) months after the Effective Date; or,

 

(C)           upon written notice of the Company to the Investor.  Any and all shares, or penalties, if any, due under this Agreement shall be immediately payable and due upon termination of this Agreement.

 

SECTION 10. SUSPENSION.  The Company’s right to cause the Investor to purchase Shares pursuant to a Put Notice, and the Investor’s obligation to purchase Shares under this Agreement shall be suspended upon any of the following events, and shall remain suspended until such event is rectified:

 

(A)           The trading of the Common Stock is suspended by the SEC, the Principal Market or FINRA for a period of two (2) consecutive Trading Days during the Open Period; or,

 

(B)            The Common Stock ceases to be registered under the 1934 Act or listed or traded on the Principal Market.  Immediately upon the occurrence of one of the above-described events, the Company shall send written notice of such event to the Investor.

 

SECTION 11. INDEMNIFICATION.  In consideration of the parties’ mutual obligations set forth in the Transaction Documents, each of the parties (in such capacity, an “Indemnitor”) shall defend, protect, indemnify and hold harmless the other and all of the other party's shareholders, officers, directors, employees, counsel, and direct or indirect investors and any of the foregoing person's agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and reasonable expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys' fees and disbursements (the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or relating to (A) any material misrepresentation or breach of any representation or warranty made by the Indemnitor in the Equity Line Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby; (B) any material breach of any covenant, agreement or obligation of the Indemnitor contained in the Equity Line Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby; or (C) any cause of action, suit or claim brought or made against such Indemnitee by a third party and arising out of or resulting from the execution, delivery, performance or enforcement of the Equity Line Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, except insofar as (Y) any such misrepresentation, breach or any untrue statement, alleged untrue statement, omission or alleged omission is made in reliance upon and in conformity with information furnished to Indemnitor which is specifically intended for use in the preparation of any such Registration Statement, preliminary prospectus, prospectus or amendments to the prospectus, (Z) any such Indemnified Liabilities resulted or arose from the breach by the Indemnitee party hereto of any representation, warranty, covenant or agreement of such Indemnitee contained in the Equity Line Transaction Documents or the negligence, recklessness, willful misconduct or bad faith of such Indemnitee. To the extent that the foregoing undertaking by the Indemnitor may be unenforceable for any reason, the Indemnitor shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. The indemnity provisions contained herein shall be in addition to any cause of action or similar rights Indemnitor may have, and any liabilities the Indemnitor or the Indemnitees may be subject to.

 

SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011

 

  

19

  

 

As a condition to Indemnitor’s indemnity obligations under this section 11, Indemnitees will provide Indemnitor with prompt written notice of the claim, permit Indemnitor to control the defense, settlement, adjustment or compromise of the claim and provide Indemnitor with reasonable assistance in connection with such defense.  Indemnitees may employ counsel at its own expense to assist it with respect to any such claim.

SECTION 12. GOVERNING LAW; DISPUTES SUBMITTED TO ARBITRATION. All disputes arising under this agreement shall be governed by and interpreted in accordance with the laws of the State of New York, without regard to principles of conflict of laws.  The parties to this agreement will submit all disputes arising under this agreement to arbitration in New York before a single arbitrator of the American Arbitration Association (“AAA”).  The arbitrator shall be selected by application of the rules of the AAA, or by mutual agreement of the parties, except that such arbitrator shall be an attorney admitted to practice law in State of New York.  No party to this Agreement will challenge the jurisdiction or venue provisions as provided in this section. No party to this agreement will challenge the jurisdiction or venue provisions as provided in this section.  Nothing contained herein shall prevent the party from obtaining an injunction.

 

SECTION 13. LEGAL EXPENSES; AND MISCELLANEOUS EXPENSES. Except as otherwise set forth in the Equity Line Transaction Documents, each party shall pay the fees and expenses of its advisers, counsel, the accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. Any attorneys' fees and expenses incurred by either the Company or the Investor in connection with the preparation, negotiation, execution and delivery of any amendments to this Agreement or relating to the enforcement of the rights of any party, after the occurrence of any breach of the terms of this Agreement by another party or any default by another party in respect of the transactions contemplated hereunder, shall be paid on demand by the party which breached the Agreement and/or defaulted, as the case may be. The Company shall pay all stamp and other taxes and duties levied in connection with the issuance of any Securities.

 

SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011

 

  

20

  

 

SECTION 14. COUNTERPARTS. This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original signature.

 

SECTION 15. HEADINGS; SINGULAR/PLURAL. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. Whenever required by the context of this Agreement, the singular shall include the plural and masculine shall include the feminine.

 

SECTION 16. SEVERABILITY. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction.

 

SECTION 17. ENTIRE AGREEMENT; AMENDMENTS. This Agreement is the FINAL AGREEMENT between the Company and the Investor with respect to the terms and conditions set forth herein, and, the terms of this Agreement may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the Parties. No provision of this Agreement may be amended other than by an instrument in writing signed by the Company and the Investor, and no provision hereof may be waived other than by an instrument in writing signed by the party against whom enforcement is sought. The execution and delivery of the Equity Line Transaction Documents shall not alter the force and effect of any other agreements between the Parties, and the obligations under those agreements.

 

SECTION 18. NOTICES. Any notices or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered (A) upon receipt, when delivered personally; (B) upon receipt, when sent by facsimile or email with the signed document attached in PDF format (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (C) one (1) day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be:

 

If to the Company:

 

SPO Medical Inc.

3, Gavish Street

POB 2454

 Kfar Saba, Israel

Telephone: 972-9-966-2520

 

With a copy to (which shall not constitute notice):

Gerald Brounstein, Adv.

Aboudi & Brounstein

3 HaGavish Street

Kfar Saba, Israel

Telephone: +972-9-764-4833

Attention: Gerald Brounstein

 

SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011

 

  

21

  

 

If to the Investor:

 

Dutchess Opportunity Fund, II, LP

50 Commonwealth Avenue, Suite 2

Boston, MA 02116

Telephone: 617-301-4700

 

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

 

SECTION 19. NO ASSIGNMENT. This Agreement and any rights, agreements or obligations hereunder may not be assigned, by operation of law, merger or otherwise, without the prior written consent of the other party hereto, and any purported assignment by a party without prior written consent of the other party will be null and void and not binding on such other party.  Subject to the preceding sentence, all of the terms, agreements, covenants, representations, warranties and conditions of this Agreement are binding upon, and inure to the benefit of and are enforceable by, the parties and their respective successors and assigns.

 

SECTION 20. NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit of the parties hereto and is not for the benefit of, nor may any provision hereof be enforced by, any other person, except that the Company acknowledges that the rights of the Investor may be enforced by its general partner.

 

SECTION 21. SURVIVAL. The indemnification provisions set forth in Section 11, shall survive each of the Closings and the termination of this Agreement.

 

SECTION 22. PUBLICITY. The Company and the Investor shall consult with each other in issuing any press releases or otherwise making public statements with respect to the transactions contemplated hereby and no party shall issue any such press release or otherwise make any such public statement without the prior consent of the other party, which consent shall not be unreasonably withheld or delayed, except that no prior consent shall be required if such disclosure is required by law, in which such case the disclosing party shall provide the other party with prior notice of such public statement. The Investor acknowledges that this Agreement and all or part of the Equity Line Transaction Documents may be deemed to be “material contracts” as that term is defined by Item 601(b)(10) of Regulation S-K, and that the Company may therefore be required to file such documents as exhibits to reports or registration statements filed under the 1933 Act or the 1934 Act.  The Investor further agrees that the status of such documents and materials as material contracts shall be determined solely by the Company, in consultation with its counsel.

 

SECTION 23. FURTHER ASSURANCES. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

 

SECTION 24. INTENTIONALLY OMITTED.

 

SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011

 

  

22

  

 

SECTION 25. NO STRICT CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party, as the parties mutually agree that each has had a full and fair opportunity to review this Agreement and seek the advice of counsel on it.

 

SECTION 26. REMEDIES. The Investor shall have all rights and remedies set forth in this Agreement and the Registration Rights Agreement and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which the Investor has by law. Any person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any default or breach of any provision of this Agreement, including the recovery of reasonable attorneys fees and costs, and to exercise all other rights granted by law.

 

SECTION 27. PAYMENT SET ASIDE. To the extent that the Company makes a payment or payments to the Investor hereunder or under the Registration Rights Agreement or the Investor enforces or exercises its rights hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

 

SECTION 28. PRICING OF COMMON STOCK. For purposes of this Agreement, the VWAP of the Common Stock shall be as reported on a direct feed service.

 

SECTION 29. NON-DISCLOSURE OF NON-PUBLIC INFORMATION.

 

(A)           The Company shall not disclose non-public information concerning the Company to the Investor, its advisors, or its representatives.

 

(B)            Nothing herein shall require the Company to disclose non-public information to the Investor or its advisors or representatives, provided, however, that notwithstanding anything herein to the contrary, the Company will, as hereinabove provided, immediately notify the advisors and representatives of the Investor and, if any, underwriters, of any event or the existence of any circumstance (without any obligation to disclose the specific event or circumstance) of which it becomes aware, constituting non-public information (whether or not requested of the Company specifically or generally during the course of due diligence by such persons or entities), which, if not disclosed in the prospectus included in the Registration Statement would cause such prospectus to include a material misstatement or to omit a material fact required to be stated therein in order to make the statements, therein, in light of the circumstances in which they were made, not misleading. Nothing contained in this Section 29 shall be construed to mean that such persons or entities other than the Investor (without the written consent of the Investor prior to disclosure of such information) may not obtain non-public information in the course of conducting due diligence in accordance with the terms of this Agreement and nothing herein shall prevent any such persons or entities from notifying the Company of their opinion that based on such due diligence by such persons or entities, that the Registration Statement contains an untrue statement of material fact or omits a material fact required to be stated in the Registration Statement or necessary to make the statements contained therein, in light of the circumstances in which they were made, not misleading.

 

SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011

 

  

23

  

 

SECTION 30. ACKNOWLEDGEMENTS OF THE PARTIES.  Notwithstanding anything in this Agreement to the contrary, the parties hereto hereby acknowledge and agree to the following: (A) the Investor makes no representations or covenants that it will not engage in trading in the securities of the Company, other than the Investor will not sell any of the Company's common stock at any time during a Pricing Period and the Investor will not short the Company’s securities as provided under Section 3 (c); (B) the Company shall, by 8:30 a.m. Boston Time on the fourth Trading Day following the date hereof, file a current report on Form 8-K disclosing the material terms of the transactions contemplated hereby and in the other Equity Line Transaction Documents; (C) the Company has not and shall not provide material non-public information to the Investor unless prior thereto the Investor shall have executed a written agreement regarding the confidentiality and use of such information; and (D) the Company understands and confirms that the Investor will be relying on the acknowledgements set forth in clauses (A) through (C) above if the Investor effects any transactions in the securities of the Company.

 

[Signature Page Follows]

 

SPO MEDICAL.INVESTMENT AGREEMENT.JULY.2011

 

  

24

  

 

SIGNATURE PAGE OF INVESTMENT AGREEMENT

 

Your signature on this Signature Page evidences your agreement to be bound by the terms and conditions of the Investment Agreement and the Registration Rights Agreement as of the date first written above.

 

The undersigned signatory hereby certifies that he has read and understands the Investment Agreement, and the representations made by the undersigned in this Investment Agreement are true and accurate, and agrees to be bound by its terms.

 

	  	
DUTCHESS OPPORTUNITY FUND, II, LP

	  	  	  
	  	
By:

	
/s/ Douglas H. Leighton

	  	  	
Douglas H. Leighton

	  	  	
Managing Member of:

	  	  	
Dutchess Capital Management, II, LLC

	  	  	
General Partner to:

	  	  	
Dutchess Opportunity Fund, II, LP

	  	  	  
	  	
SPO Medical, Inc.

	  	  	  
	  	
By:

	
/s/ Sidney Braun

	  	  	
Sidney Braun, Chairman, Director

	  	  	  
	  	
By:

	
/s/ Michael Braunold

	  	  	
Michael Braunold, President, Chief Executive

	  	
Officer & Director

Signature Page to Investment Agreement

 

  

 

  

 

LIST OF EXHIBITS

 

	
EXHIBIT A

	
Registration Rights Agreement

	
EXHIBIT B

	
Opinion of Company's Counsel

	
EXHIBIT C

	
Put Notice

	
EXHIBIT D

	
Put Settlement Sheet

 

  

  

  

 

EXHIBIT A

 

REGISTRATION RIGHTS AGREEMENT

 

(Attached)

  

  

A-1

  

 

EXHIBIT B

 

OPINION OF COMPANY’S COUNSEL

 

(Attached)

 

  

B-1

  

 

EXHIBIT C

 

FORM OF PUT NOTICE

 

Date:                               

 

RE: Put Notice Number                                                     

 

Dear Mr. Leighton:

 

This is to inform you that as of today, SPO Medical, Inc. a Delaware corporation (the "Company"), hereby elects to exercise its right pursuant to the Investment Agreement entered into with Dutchess Opportunity Fund II, LP (“Dutchess”) to require Dutchess to purchase shares of its common stock.  The Company hereby certifies that:

 

The amount of this put is $                                                                          .

 

The Pricing Period runs from                                                                          until                               .

 

The Minimum Acceptable Price is $                                                                                    .

 

The current number of shares issued and outstanding as of the Company are:                                         

 

The number of shares currently available for resale pursuant to the Registration Statement on Form S-1 for the Equity Line are:                              .

 

	  	
Regards,

	 	 
	  	
SPO Medical, Inc.

	 	 
	  	
By:

	  
	  	
Name:

	  
	  	
Title:

	  

  

C-1

  

 

EXHIBIT D

 

FORM OF PUT SETTLEMENT SHEET

 

Date:                               

 

RE: SPO Medical, Inc.

 

Dear                               :

 

Pursuant to the Put given by SPO Medical, Inc. to Dutchess Opportunity Fund, II, LP on             200_, we are now submitting the amount of common shares for you to issue to Dutchess.

 

Please deliver __________ shares without restrictive legend via book entry to Dutchess Opportunity Fund, II, LP immediately and send via DWAC to the following account:

 

XXXXXX

 

Once these shares are received by us, we will have the funds wired to the Company.

 

Regards,

 

Douglas H. Leighton

 

  

  

  

 

	

DATE

	 	

PRICE

	
Date of Day 1

	 	
VWAP of Day 1

	
Date of Day 2

	 	
VWAP of Day 2

	
Date of Day 3

	 	
VWAP of Day 3

	
Date of Day 4

	 	
VWAP of Day 4

	
Date of Day 5

	 	
VWAP of Day 5

 

	
LOWEST VWAP IN PRICING PERIOD

	  	 
	  	  	 
	
PUT AMOUNT

	  	 
	  	  	 
	
PURCHASE PRICE (NINETY-FOUR PERCENT (94%))

	  	 
	  	  	 
	
AMOUNT OF SHARES DUE

	  	 

 

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

 

	  	
SPO Medical, Inc.

	  	  	  
	  	
By:

	  
	  	
Name:

	  
	  	
Title:

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