Document:

EX-4.1

 

Exhibit 4.1

[FORM OF WARRANT]

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES
INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH
COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A
UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

ELECTRO-OPTICAL SCIENCES, INC.

Warrant To Purchase Common Stock

Warrant No.:                     

Number of Shares of Common Stock:                    

Date of Issuance: October [___], 2006 (“Issuance Date”)

     Electro-Optical Sciences, Inc., a corporation organized under the laws of Delaware (the
“Company”), hereby certifies that, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, [BUYERS], the registered holder hereof or its permitted assigns
(the “Holder”), is entitled, subject to the terms set forth below, to purchase from the Company, at
the Exercise Price (as defined below) then in effect, upon surrender of this Warrant to Purchase
Common Stock (including any Warrants to Purchase Common Stock issued in exchange, transfer or
replacement hereof, the “Warrant”), at any time or times on or after the date hereof, but not after
11:59 p.m., New York time, on the Expiration Date (as defined below),                     
(                    )1 fully paid nonassessable shares of Common Stock (as defined below) (the
“Warrant Shares”). Except as otherwise defined herein, capitalized terms in this Warrant shall
have the meanings set forth in Section 16. This Warrant is one of the Warrants to purchase Common
Stock (the “SPA Warrants”) issued pursuant to Section 1 of certain Securities Purchase Agreements,
dated as of October ___, 2006 (the “Subscription Date”), by and among the Company and the investors
(the “Buyers”) referred to therein (collectively, the “Securities Purchase Agreement”).

 

			
	1	 	Insert number of shares equal to 15% of the
number of Common Stock purchased under the Securities Purchase Agreement.

 

 

     1. EXERCISE OF WARRANT.

          (a) Mechanics of Exercise. Subject to the terms and conditions hereof (including,
without limitation, the limitations set forth in Section 1(f)), this Warrant may be exercised by
the Holder on any day on or after the date hereof prior to the Expiration Date, in whole or in
part, by (i) delivery of a written notice, in the form attached hereto as Exhibit A (the
“Exercise Notice”), of the Holder’s election to exercise this Warrant and (ii) (A) payment to the
Company of an amount equal to the applicable Exercise Price multiplied by the number of Warrant
Shares as to which this Warrant is being exercised (the “Aggregate Exercise Price”) in cash or by
wire transfer of immediately available funds or (B) by notifying the Company that this Warrant is
being exercised pursuant to a Cashless Exercise (as defined in Section 1(d)). The Holder shall not
be required to deliver the original Warrant in order to effect an exercise hereunder. Execution
and delivery of the Exercise Notice with respect to less than all of the Warrant Shares shall have
the same effect as cancellation of the original Warrant and issuance of a new Warrant evidencing
the right to purchase the remaining number of Warrant Shares. On or before the second (2nd)
Business Day following the date on which the Company has received each of the Exercise Notice and
the Aggregate Exercise Price (or notice of a Cashless Exercise) (the “Exercise Delivery
Documents”), the Company shall transmit by facsimile an acknowledgment of confirmation of receipt
of the Exercise Delivery Documents to the Holder and the Company’s transfer agent (the “Transfer
Agent”). On or before the third (3rd) Business Day following the date on which the
Company has received all of the Exercise Delivery Documents (the “Share Delivery Date”), the
Company shall (X) provided that the Transfer Agent is participating in The Depository Trust Company
(“DTC”) Fast Automated Securities Transfer Program and the Warrant Shares may be issued without any
restrictive legends in accordance with Section 2(g) of the Securities Purchase Agreement, upon the
request of the Holder, credit such aggregate number of Warrant Shares to which the Holder is
entitled pursuant to such exercise to the Holder’s or its designee’s balance account with DTC
through its Deposit Withdrawal Agent Commission system, or (Y) if the Transfer Agent is not
participating in the DTC Fast Automated Securities Transfer Program, issue and dispatch by
overnight courier to the address as specified in the Exercise Notice, a certificate, registered in
the Company’s share register in the name of the Holder or its designee, for the number of shares of
Common Stock to which the Holder is entitled pursuant to such exercise, which certificate shall
bear any legends required in accordance with Section 2(g) of the Securities Purchase Agreement.
Upon delivery of the Exercise Delivery Documents, the Holder shall be deemed for all corporate
purposes to have become the holder of record of the Warrant Shares with respect to which this
Warrant has been exercised, irrespective of the date such Warrant Shares are credited to the
Holder’s DTC account or the date of delivery of the certificates evidencing such Warrant Shares, as
the case may be. If this Warrant is submitted in connection with any exercise pursuant to this
Section 1(a) and the number of Warrant Shares represented by this Warrant submitted for exercise is
greater than the number of Warrant Shares being acquired upon an exercise, then the Company shall
as soon as practicable issue a new Warrant (in accordance with Section 7(d)) representing the right
to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this
Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised. No
fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather
the number of shares of Common Stock to be issued shall be rounded up to the nearest whole number.
The Company shall pay any and all taxes which may be

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payable with respect to the issuance and delivery of Warrant Shares upon exercise of this
Warrant.

          (b) Exercise Price. For purposes of this Warrant, “Exercise Price” means $6.70,
subject to adjustment as provided herein.

          (c) Company’s Failure to Timely Deliver Securities. If the Company shall fail for any
reason or for no reason to issue to the Holder within three (3) Business Days of receipt of the
Exercise Delivery Documents, a certificate for the number of shares of Common Stock to which the
Holder is entitled and register such shares of Common Stock on the Company’s share register or to
credit the Holder’s balance account with DTC for such number of shares of Common Stock to which the
Holder is entitled upon the Holder’s exercise of this Warrant or if the Company fails to deliver to
the Holder a certificate or certificates representing the applicable Warrant Shares within three
(3) Trading Days after its obligation to do so under clause (ii) below, and if on or after such
Trading Day the Holder purchases (in an open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by the Holder of shares of Common Stock issuable upon
such exercise or receipt that the Holder anticipated receiving from
the Company (a “Buy-In”), then
the Company shall, within three (3) Business Days after the Holder’s request and in the Holder’s
discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total purchase
price (including brokerage commissions, if any) for the shares of Common Stock so purchased (the
“Buy-In Price”), at which point the Company’s obligation to deliver such certificate (and to issue
such Warrant Shares) shall terminate, or (ii) promptly honor its obligation to deliver to the
Holder a certificate or certificates representing such Warrant Shares and pay cash to the Holder in
an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of
shares of Common Stock, times (B) the Closing Bid Price on the date of exercise.

          (d) Cashless Exercise. Notwithstanding anything contained herein to the contrary, if
a Registration Statement (as defined in the Registration Rights Agreement) covering the Warrant
Shares that are the subject of the Exercise Notice (the “Unavailable Warrant Shares”) is not
available for the resale of such Unavailable Warrant Shares, the Holder may, in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment
otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate
Exercise Price, elect instead to receive upon such exercise the “Net Number” of shares of Common
Stock determined according to the following formula (a “Cashless Exercise”):

	 	 	 	 	 	 	 
	 

	 	Net Number =
	 	(A x B) - (A x C)	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	B	 	 
	 
	 	 	 	 	 	 
	 	 	For purposes of the foregoing formula:

	 	 	 	 	 
	 

	 	A=
	 	the total number of shares with respect to which
this Warrant is then being exercised.

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	 	B=
	 	the Closing Sale Price of the shares of Common
Stock (as reported by Bloomberg) on the date immediately preceding
the date of the Exercise Notice.
	 
	 	 	 	 
	 

	 	C=
	 	the Exercise Price then in effect for
the applicable Warrant Shares at the time of such
exercise.

          (e) Limitations on Exercises; Beneficial Ownership. The Company shall not effect the
exercise of this Warrant, and the Holder shall not have the right to exercise this Warrant, to the
extent that after giving effect to such exercise, such Holder (together with such Holder’s
affiliates, and any other Persons whose beneficial ownership of Common Stock would be aggregated
with such Holder’s for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)) would beneficially own in excess of 4.99% of the shares of Common Stock
outstanding immediately after giving effect to such exercise. For purposes of the foregoing
sentence, the aggregate number of shares of Common Stock beneficially owned by such Holder and its
affiliates shall include the number of shares of Common Stock issuable upon exercise of this
Warrant with respect to which the determination of such sentence is being made, but shall exclude
shares of Common Stock which would be issuable upon (i) exercise of the remaining, unexercised
portion of this Warrant beneficially owned by such Holder and its affiliates and (ii) exercise or
conversion of the unexercised or unconverted portion of any other securities of the Company
beneficially owned by such Person and its affiliates (including, without limitation, any
convertible notes or convertible preferred stock or warrants) subject to a limitation on conversion
or exercise analogous to the limitation contained herein. Except as set forth in the preceding
sentence, for purposes of this paragraph, beneficial ownership shall be calculated in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended. For purposes of this
Warrant, in determining the number of outstanding shares of Common Stock, the Holder may rely on
the number of outstanding shares of Common Stock as reflected in (1) the Company’s most recent Form
10-K, Form 10-Q, Current Report on Form 8-K or other public filing with the Securities and Exchange
Commission, as the case may be, (2) a more recent public announcement by the Company or (3) any
other notice by the Company or the Transfer Agent setting forth the number of shares of Common
Stock outstanding. For any reason at any time, upon the written or oral request of the Holder, the
Company shall within two (2) Business Days confirm orally and in writing to the Holder the number
of shares of Common Stock then outstanding. In any case, the number of outstanding shares of
Common Stock shall be determined after giving effect to the conversion or exercise of securities of
the Company, including the SPA Warrants, by the Holder and its affiliates since the date as of
which such number of outstanding shares of Common Stock was reported. By written notice to the
Company, the Holder may from time to time increase or decrease the Maximum Percentage to any other
percentage not in excess of 9.99% specified in such notice; provided that (i) any such increase
will not be effective until the sixty-first (61st) day after such notice is delivered to
the Company, and (ii) any such increase or decrease will apply only to the Holder and not to any
other holder of SPA Warrants.

          (f) Insufficient Authorized Shares. If at any time while any of the Warrants remain
outstanding the Company does not have a sufficient number of authorized and unreserved shares of
Common Stock to satisfy its obligation to reserve for issuance upon exercise of the Warrants at
least a number of shares of Common Stock equal to 100% (the

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“Required Reserve Amount”) of the number of shares of Common Stock as shall from time to time
be necessary to effect the exercise of all of the Warrants then outstanding, then the Company shall
immediately take all action necessary to increase the Company’s authorized shares of Common Stock
to an amount sufficient to allow the Company to reserve the Required Reserve Amount for the
Warrants then outstanding.

     2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. If the Company, at any
time while this Warrant is outstanding, subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to such subdivision will
be proportionately reduced and the number of Warrant Shares will be proportionately increased. If
the Company, at any time while this Warrant is outstanding, combines (by combination, reverse stock
split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price in effect immediately prior to such combination will be
proportionately increased and the number of Warrant Shares will be proportionately decreased. Any
adjustment under this Section 2 shall become effective at the close of business on the date the
subdivision or combination becomes effective.

     3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or make any
dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares
of Common Stock (which dividend or other distribution has not already been given to the Holders of
the Warrants), by way of return of capital or otherwise (including, without limitation, any
distribution of cash, stock or other securities, property or options by way of a dividend, spin
off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction)
(a “Distribution”), at any time after the issuance of this Warrant and prior to the Expiration
Date, then, in each such case:

          (a) any Exercise Price in effect immediately prior to the close of business on the record date
fixed for the determination of holders of shares of Common Stock entitled to receive the
Distribution shall be reduced, effective as of the close of business on such record date, to a
price determined by multiplying such Exercise Price by a fraction of which (i) the numerator shall
be the Closing Bid Price of the shares of Common Stock on the Trading Day immediately preceding
such record date minus the value of the Distribution (as determined in good faith by the Company’s
Board of Directors) applicable to one share of shares of Common Stock, and (ii) the denominator
shall be the Closing Bid Price of the shares of Common Stock on the Trading Day immediately
preceding such record date; and

          (b) the number of Warrant Shares shall be increased to a number of shares equal to the number
of shares of Common Stock obtainable immediately prior to the close of business on the record date
fixed for the determination of holders of shares of Common Stock entitled to receive the
Distribution multiplied by the reciprocal of the fraction set forth in the immediately preceding
paragraph (a); provided that in the event that the Distribution is of shares of Common Stock (or
common stock) (“Other Shares of Common Stock”) of a company whose common shares are traded on a
national securities exchange or a national automated quotation system, then the Holder may elect to
receive a warrant to purchase Other Shares of

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Common Stock in lieu of an increase in the number of Warrant Shares, the terms of which shall
be identical to those of this Warrant, except that such warrant shall be exercisable into the
number of shares of Other Shares of Common Stock that would have been payable to the Holder
pursuant to the Distribution had the Holder exercised this Warrant immediately prior to such record
date and with an aggregate exercise price equal to the product of the amount by which the exercise
price of this Warrant was decreased with respect to the Distribution pursuant to the terms of the
immediately preceding paragraph (a) and the number of Warrant Shares calculated in accordance with
the first part of this paragraph (b).

     4. FUNDAMENTAL TRANSACTIONS. If, at any time while this Warrant is outstanding there
is a Fundamental Transaction, then the Holder shall have the right thereafter to receive, upon
exercise of this Warrant, the same amount and kind of securities, cash or property as it would have
been entitled to receive upon the occurrence of such Fundamental Transaction if it had been,
immediately prior to such Fundamental Transaction, the Holder of the number of Warrant Shares then
issuable upon exercise in full of this Warrant (the “Alternate Consideration”). For purposes of
any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply
to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect
of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the
Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative
value of any different components of the Alternate Consideration. If holders of Common Stock are
given any choice as to the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it
receives upon any exercise of this Warrant following such Fundamental Transaction. Any successor
to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new
warrant substantially in the form of this Warrant and consistent with the foregoing provisions and
evidencing the Holder’s right to purchase the Alternate Consideration for the aggregate Exercise
Price upon exercise thereof. The terms of any agreement pursuant to which a Fundamental
Transaction is effected shall include terms requiring any such successor or surviving entity to
comply with the provisions of this paragraph (b) and insuring that the Warrant (or any such
replacement security) will be similarly adjusted upon any subsequent transaction analogous to a
Fundamental Transaction.

     5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will
not, except and to the extent as waived or consented to by the Holder, by amendment of its
Certificate of Incorporation, Bylaws or through any reorganization, transfer of assets,
consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any
other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of
this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and
take all action as may be required to protect the rights of the Holder. Without limiting the
generality of the foregoing, the Company (i) shall not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect,
(ii) shall take all such actions as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of
this Warrant, and (iii) shall, so long as any of the SPA Warrants are outstanding, take all action
necessary to reserve and keep available out of its authorized and unissued shares of Common Stock,
solely for the purpose of effecting the exercise of the SPA Warrants, 100% of the number of shares
of Common Stock as shall from time to time be

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necessary to effect the exercise of the SPA Warrants then outstanding (without regard to any
limitations on exercise).

     6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided
herein, the Holder, solely in such Person’s capacity as a holder of this Warrant, shall not be
entitled to vote or receive dividends or be deemed the holder of share capital of the Company for
any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder,
solely in such Person’s capacity as the Holder of this Warrant, any of the rights of a shareholder
of the Company or any right to vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or
otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise,
prior to the issuance to the Holder of the Warrant Shares which such Person is then entitled to
receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant
shall be construed as imposing any liabilities on the Holder to purchase any securities (upon
exercise of this Warrant or otherwise) or as a shareholder of the Company, whether such liabilities
are asserted by the Company or by creditors of the Company. Notwithstanding this Section 6, the
Company shall provide the Holder with copies of the same notices and other information given to the
shareholders of the Company generally, contemporaneously with the giving thereof to the
shareholders.

     7. REISSUANCE OF WARRANTS.

          (a) Transfer of Warrant. If this Warrant is to be transferred, the Holder shall
surrender this Warrant to the Company, together with a written assignment of this Warrant duly
executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes
payable upon the making of such transfer, if any, whereupon the Company will forthwith issue and
deliver upon the order of the Holder a new Warrant (in accordance with Section 7(d)), registered as
the Holder may request, representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less than the total number of Warrant Shares then underlying this
Warrant is being transferred, a new Warrant (in accordance with Section 7(d)) to the Holder
representing the right to purchase the number of Warrant Shares not being transferred.

          (b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this
Warrant, and, in the case of loss, theft or destruction, of any indemnification undertaking by the
Holder to the Company reasonably satisfactory to the Company and, in the case of mutilation, upon
surrender and cancellation of this Warrant, the Company shall execute and deliver to the Holder a
new Warrant (in accordance with Section 7(d)) representing the right to purchase the Warrant Shares
then underlying this Warrant.

          (c) Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon the
surrender hereof by the Holder at the principal office of the Company, for a new Warrant or
Warrants (in accordance with Section 7(d)) representing in the aggregate the right to purchase the
number of Warrant Shares then underlying this Warrant, and each such new Warrant will represent the
right to purchase such portion of such Warrant Shares as is designated in writing by the Holder at
the time of such surrender; provided, however, that no

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Warrants for fractional shares of Common Stock shall be given.

          (d) Issuance of New Warrants. Whenever the Company is required to issue a new Warrant
pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor with this
Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to purchase
the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being issued
pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when
added to the number of shares of Common Stock underlying the other new Warrants issued in
connection with such issuance, does not exceed the number of Warrant Shares then underlying this
Warrant), (iii) shall have an issuance date, as indicated on the face of such new Warrant which is
the same as the Issuance Date, and (iv) shall have the same rights and conditions as this Warrant.

     8. COMPANY OPTIONAL EXERCISE. (a) If at any time following the date the Registration
Statement is declared effective and from and after the two (2) year anniversary of the Issuance
Date (the “Optional Exercise Eligibility Date”), the Closing Sale Price of the Common Stock of the
Company is no less than one hundred fifty percent (150%) of the Exercise Price for any ten (10)
consecutive Trading Days (an “Optional Exercise Measuring Period”) and the Company has not failed
to satisfy all of the Equity Conditions during the period commencing on the Optional Exercise
Notice Date (as defined below) and ending on the Optional Exercise Date (as defined below), the
Company shall have the right to require the Holder to exercise all or any portion of this Warrant
as designated in an Optional Exercise Notice (as defined below), as of the Optional Exercise Date
(as defined below) (an “Optional Exercise”). The Company may exercise its right to require
exercise of this Warrant under this Section 8(a) by delivering a written notice thereof by
facsimile and overnight courier to the Holder and the Transfer Agent (the “Optional Exercise
Notice” and the date all of the holders received such notice is referred to as the “Optional
Exercise Notice Date”) no later than ten (10) Trading Days after the applicable Optional Exercise
Measuring Period. The Optional Exercise Notice delivered shall be irrevocable and shall state (A)
the date on which the Optional Exercise shall occur (the “Optional Exercise Date”) which date shall
be the twentieth (20th) Trading Day after the Optional Exercise Notice Date, and (B) the
aggregate number of Warrant Shares of which the Company has elected to be subject to Optional
Exercise from all of the Buyers pursuant to this Section 8.

          (b) Pro Rata Redemption Requirement. If the Company elects to cause an Optional
Exercise pursuant to Section 8(a), then it must simultaneously take the same action with respect to
the other SPA Warrants. If the Company elects to cause an Optional Exercise pursuant to Section
8(a) (or similar provisions under the other SPA Warrants) with respect to less than all of the
Warrant Shares underlying the SPA Warrants then outstanding, then the Company shall require
exercise of the Warrant Shares from each of the holders of the SPA Warrants equal to the product of
(i) the aggregate number of Warrant Shares which the Company has elected to cause to be exercised
pursuant to Section 8(a), multiplied by (ii) a fraction, the numerator of which is the sum of the
aggregate number of Warrant Shares underlying the SPA Warrants issued to such holder pursuant to
the Securities Purchase Agreement and the denominator of which is the sum of the aggregate number
of Warrant Shares underlying the SPA Warrants issued to all holders pursuant to the Securities
Purchase Agreement (such fraction with respect to each holder is referred to as its “Exercise
Allocation Percentage,” and such amount with respect to each holder is referred to as its “Pro Rata
Exercise Amount”). In the event that

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the initial holder of any SPA Warrants shall sell or otherwise transfer any of such holder’s
SPA Warrants, the transferee shall be allocated a pro rata portion of such holder’s Exercise
Allocation Percentage and Pro Rata Exercise Amount.

     9. NOTICES. Whenever notice is required to be given under this Warrant, unless
otherwise provided herein, such notice shall be given in accordance with Section 9(f) of the
Securities Purchase Agreement. The Company shall provide the Holder with prompt written notice of
all actions taken pursuant to this Warrant, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the foregoing, the Company
will give written notice to the Holder (i) promptly upon any adjustment of the Exercise Price,
setting forth in reasonable detail, the calculation of such adjustment and (ii) at least fifteen
days prior to the date on which the Company closes its books or takes a record (A) with respect to
any dividend or distribution upon the shares of Common Stock, (B) with respect to any grants,
issuances or sales of any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property to holders of shares of Common Stock or (C) for determining rights to
vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case
that such information shall be made known to the public prior to or in conjunction with such notice
being provided to the Holder.

     10. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of this
Warrant may be amended and the Company may take any action herein prohibited, or omit to perform
any act herein required to be performed by it, only if the Company has obtained the written consent
of the Required Holders; provided that no such action may increase the exercise price of any SPA
Warrant or decrease the number of shares or class of stock obtainable upon exercise of any SPA
Warrant without the written consent of the Holder. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the SPA Warrants then outstanding.

     11. GOVERNING LAW. This Warrant shall be governed by and construed and enforced in
accordance with, and all questions concerning the construction, validity, interpretation and
performance of this Warrant shall be governed by, the internal laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule (whether of the
State of New York or any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York.

     12. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted by the
Company and all the Buyers and shall not be construed against any person as the drafter hereof.
The headings of this Warrant are for convenience of reference and shall not form part of, or affect
the interpretation of, this Warrant.

     13. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the
Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall submit the
disputed determinations or arithmetic calculations via facsimile within two Business Days of
receipt of the Exercise Notice giving rise to such dispute, as the case may be, to the Holder. If
the Holder and the Company are unable to agree upon such determination or calculation of the
Exercise Price or the Warrant Shares within three Business Days of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall, within two

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Business Days submit via facsimile (a) the disputed determination of the Exercise Price to an
independent, reputable investment bank selected by the Company and approved by the Holder or (b)
the disputed arithmetic calculation of the Warrant Shares to the Company’s independent, outside
accountant. The Company shall cause at its expense the investment bank or the accountant, as the
case may be, to perform the determinations or calculations and notify the Company and the Holder of
the results no later than ten Business Days from the time it receives the disputed determinations
or calculations. Such investment bank’s or accountant’s determination or calculation, as the case
may be, shall be binding upon all parties absent demonstrable error.

     14. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies
provided in this Warrant shall be cumulative and in addition to all other remedies available under
this Warrant and the other Transaction Documents, at law or in equity (including a decree of
specific performance and/or other injunctive relief), and nothing herein shall limit the right of
the Holder to pursue actual damages for any failure by the Company to comply with the terms of this
Warrant. The Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate.
The Company therefore agrees that, in the event of any such breach or threatened breach, the holder
of this Warrant shall be entitled to seek, in addition to all other available remedies, to an
injunction restraining any breach, without the necessity of showing economic loss and without any
bond or other security being required.

     15. TRANSFER. Subject to applicable law, this Warrant may be offered for sale, sold,
transferred or assigned without the consent of the Company, except as may otherwise be required by
Section 2(f) of the Securities Purchase Agreement.

     16. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have
the following meanings:

          (a) “Bloomberg” means Bloomberg Financial Markets.

          (b) “Business Day” means any day other than Saturday, Sunday or other day on which commercial
banks in The City of New York are authorized or required by law to remain closed.

          (c) “Closing Bid Price” and “Closing Sale Price” means, for any security as of any date, the
last closing bid price and last closing trade price, respectively, for such security on the
Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an
extended hours basis and does not designate the closing bid price or the closing trade price, as
the case may be, then the last bid price or last trade price, respectively, of such security prior
to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not the
principal securities exchange or trading market for such security, the last closing bid price or
last trade price, respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not
apply, the last closing bid price or last trade price, respectively, of such security in the
over-the-counter market on the electronic bulletin board for such security as reported by
Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such
security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any

- 10 -

 

market makers for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly
the National Quotation Bureau, Inc.). If the Closing Bid Price or the Closing Sale Price cannot be
calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price
or the Closing Sale Price, as the case may be, of such security on such date shall be the fair
market value as mutually determined by the Company and the Holder. If the Company and the Holder
are unable to agree upon the fair market value of such security, then such dispute shall be
resolved pursuant to Section 13. All such determinations to be appropriately adjusted for any
stock dividend, stock split, stock combination or other similar transaction during the applicable
calculation period.

          (d) “Common Stock” means (i) the Company’s shares of Common Stock, par value $0.001 per share,
and (ii) any share capital into which such Common Stock shall have been changed or any share
capital resulting from a reclassification of such Common Stock.

          (e) “Convertible Securities” means any stock or securities (other than Options) directly or
indirectly convertible into or exercisable or exchangeable for shares of Common Stock.

          (f) “Dollar”, “US Dollar” and “$” each mean the lawful money of the United States.

          (g) “Eligible Market” means the Principal Market, The New York Stock Exchange, Inc., the
American Stock Exchange, The NASDAQ Global Market or The NASDAQ Global Select Market.

          (h) “Equity Conditions” means each of the following conditions: (i) the Warrant Shares are
either registered for resale pursuant to an effective registration statement naming the Holder as a
selling stockholder thereunder (and the prospectus thereunder is available for use by the Holder as
to all Warrant Shares) or freely transferable without volume restrictions pursuant Rule 144(k)
promulgated under the 1933 Act, as determined by counsel to the Company pursuant to a written
opinion letter addressed and in form and substance reasonably acceptable to the Holder, (ii) the
Company shall have been in material compliance with and shall not have materially breached any
provision, covenant, representation or warranty of any Transaction Document and (iii) the Common
Stock shall at all times be listed or quoted on an Eligible Market.

          (i) “Expiration Date” means the date 60 months from the Closing Date or, if such date falls on
a day other than a Business Day or on which trading does not take place on the Principal Market (a
“Holiday”), the next date that is not a Holiday.

          (j) “Fundamental Transaction” means that the Company shall, directly or indirectly, in one or
more related transactions, (i) consolidate or merge with or into (whether or not the Company is the
surviving corporation) another Person, or (ii) sell, assign, transfer, convey or otherwise dispose
of all or substantially all of the properties or assets of the Company to another Person, or (iii)
allow another Person to make a purchase, tender or exchange offer that is accepted by the holders
of more than the 50% of the outstanding shares of Common Stock (not including any shares of Common
Stock held by the Person or Persons making or party

- 11 -

 

to, or associated or affiliated with the Persons making or party to, such purchase, tender or
exchange offer), or (iv) consummate a stock purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person whereby such other Person acquires more than the 50% of the
outstanding shares of Common Stock (not including any shares of Common Stock held by the other
Person or other Persons making or party to, or associated or affiliated with the other Persons
making or party to, such stock purchase agreement or other business combination), (v) reorganize,
recapitalize or reclassify its Common Stock, or (vi) any “person” or “group” (as these terms are
used for purposes of Sections 13(d) and 14(d) of the Exchange Act) is or shall become the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
50% of the aggregate ordinary voting power represented by issued and outstanding Common Stock..

          (k) “Options” means any rights, warrants or options to subscribe for or purchase shares of
Common Stock or Convertible Securities.

          (l) “Person” means an individual, a limited liability company, a partnership, a joint venture,
a corporation, a trust, an unincorporated organization, any other entity and a government or any
department or agency thereof.

          (m) “Principal Market” means The NASDAQ Capital Market.

          (n) “Registration Rights Agreement” means that certain registration rights agreement by and
among the Company and the Buyers.

          (o) “Required Holders” means the holders of the SPA Warrants representing at least a majority
of shares of Common Stock underlying the SPA Warrants then outstanding.

          (p) “Trading Day” means any day on which the Common Stock is traded on the Principal Market,
or, if the Principal Market is not the principal trading market for the Common Stock, then on the
principal securities exchange or securities market on which the Common Stock is then traded;
provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to
trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is
suspended from trading during the final hour of trading on such exchange or market (or if such
exchange or market does not designate in advance the closing time of trading on such exchange or
market, then during the hour ending at 4:00:00 p.m., New York time).

[Signature Page Follows]

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     IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common Stock to be duly
executed as of the Issuance Date set out above.

	 	 	 	 	 	 	 
	 	 	ELECTRO-OPTICAL SCIENCES, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	Title:	 	 	 	 

 

 

EXHIBIT A

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

ELECTRO-OPTICAL SCIENCES, INC.

     The undersigned holder hereby exercises the right to purchase                      of the
shares of Common Stock (“Warrant Shares”) of Electro-Optical Sciences, Inc., a corporation
organized under the laws of Delaware (the “Company”), evidenced by the attached Warrant to
Purchase Common Stock (the “Warrant”). Capitalized terms used herein and not otherwise defined
shall have the respective meanings set forth in the Warrant.

     1. Form of Exercise Price. The Holder intends that payment of the Exercise Price shall be
made as:

                               a “Cash Exercise” with respect to                      Warrant
Shares; and/or

                               a “Cashless Exercise” with respect to                      Warrant
Shares.

     2. Payment of Exercise Price. In the event that the holder has elected a Cash Exercise with
respect to some or all of the Warrant Shares to be issued pursuant hereto, the holder shall pay the
Aggregate Exercise Price in the sum of $                     to the Company in accordance with the
terms of the Warrant.

     3. Delivery of Warrant Shares. The Company shall deliver to the holder                      Warrant
Shares in accordance with the terms of the Warrant.

Date:                      __, ________

	 	 	 	 	 
	 	 	 
	  Name of Registered Holder
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

Name:
	 	 
	 

	 	Title:	 	 

 

 

ACKNOWLEDGMENT

     The Company hereby acknowledges this Exercise Notice and hereby directs American Stock
Transfer & Trust Company to issue the above indicated number of shares of Common Stock in
accordance with the Transfer Agent Instructions dated October [___], 2006 from the Company and
acknowledged and agreed to by American Stock Transfer & Trust Company.

	 	 	 	 	 	 	 
	 	 	ELECTRO-OPTICAL SCIENCES, INC.
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	Title:EX-10.1

 

Exhibit 10.1

FORM OF
SECURITIES PURCHASE AGREEMENT

     SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of October 31, 2006, by and among
Electro-Optical Sciences, Inc., a Delaware corporation, with its principal offices 3 West Main
Street, Suite 201, Irvington, New York 10533 (the “Company”), and the investors listed on the
Schedule of Buyers attached hereto (individually, a “Buyer” and collectively, the “Buyers”).

     WHEREAS:

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

     B. Each Buyer wishes to purchase on a several and not joint basis, and the Company
wishes to sell, upon the terms and conditions stated in this Agreement, (i) that aggregate number
of shares of the Common Stock, par value $0.001 per share, of the Company (the “Common Stock”), set
forth opposite such Buyer’s name in column (3) on the Schedule of Buyers (which aggregate amount
for all Buyers together with the Other Buyers (as defined below) shall be 2,312,384 shares of
Common Stock and shall collectively be referred to herein as the “Common Shares”), and (ii) a
warrant to acquire up to that number of additional shares of Common Stock set forth opposite such
Buyer’s name in column (4) on the Schedule of Buyers (collectively, the “ Warrant Shares”), in
substantially the form attached hereto as Exhibit A (each a “Warrant” and, collectively,
the “ Warrants”).

     C. Contemporaneously with this execution and delivery of this Agreement, the Company
will execute and deliver one or more Securities Purchase Agreements (the “Other Securities Purchase
Agreements”) with other buyers of Common Shares and Warrants (the “Other Buyers”) each of such
Other Securities Purchase Agreement will be substantially similar to this Agreement.

     D. 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 as Exhibit B (the “Registration Rights Agreement”) pursuant to which the
Company has agreed to provide certain registration rights with respect to the Common Shares, and
the Warrant Shares under the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws.

     E. The Common Shares, the Warrants and the Warrant Shares collectively are referred
to herein as the “Securities”.

     NOW, THEREFORE, the Company and each Buyer hereby agree as follows:

 

 

     1. PURCHASE AND SALE OF COMMON SHARES AND WARRANTS

          (a) Purchase of Common Shares and Warrants.

          Subject to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below,
the Company shall issue and sell to each Buyer, and each Buyer severally, but not jointly, shall
purchase from the Company on the Closing Date (as defined below), the number of Common Shares as is
set forth opposite such Buyer’s name in column (3) on the Schedule of Buyers, along with a Warrant
to acquire up to that number of Warrant Shares as is set forth opposite such Buyer’s name in column
(4) on the Schedule of Buyers (the “Closing”).

               (i) Closing. The date and time of the Closing (the “Closing Date”) shall be 10:00
a.m., New York City time, on the date hereof (or such later date as is mutually agreed to by the
Company and the Buyers) after notification of satisfaction (or waiver) of the conditions to the
Closing set forth in Sections 6 and 7 below at the offices of Schulte Roth & Zabel LLP, 919 Third
Avenue, New York, New York 10022 or such other location as is mutually agreed by the Company and
the Buyers of a majority in interest of the Securities.

               (ii) Purchase Price. The aggregate purchase price for the Common Shares and the
Warrants to be purchased by each such Buyer at the Closing (the “Purchase Price”) shall be the
amount set forth opposite each Buyer’s name in column (5) of the Schedule of Buyers.

          (b) Form of Payment. On the Closing Date, (i) immediately after each Buyer is
delivered the Securities contemplated in clause (ii) below, each such Buyer shall pay its Purchase
Price to the Company for the Common Shares and the Warrants to be issued and sold to such Buyer at
the Closing, by wire transfer of immediately available funds in accordance with the Company’s
written wire instructions and (ii) the Company shall deliver to each Buyer certificates
representing the Common Shares (allocated in the amounts as such Buyer shall request) which such
Buyer is then purchasing hereunder along with certificates representing the Warrants (allocated in
the amounts as such Buyer shall request) which such Buyer is purchasing, in each case duly executed
on behalf of the Company and registered in the name of such Buyer or its designee.

     2. BUYER’S REPRESENTATIONS AND WARRANTIES.

          Each Buyer represents and warrants with respect to only itself that:

          (a) No Public Sale or Distribution. Such Buyer is acquiring the Common Shares and the
Warrants, and upon exercise of the Warrants will acquire the Warrant Shares issuable upon exercise
of the Warrants, for its own account and not with a view towards, or for resale in connection with,
the public sale or distribution thereof, except pursuant to sales registered or exempted under the
1933 Act; provided, however, that by making the representations herein, such Buyer does not agree
to hold any of the Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a registration statement or
an exemption under the 1933 Act and pursuant to the applicable terms of the Transaction Documents
(as defined in Section 3(b)). Such Buyer is acquiring the Securities hereunder in the ordinary
course of its business. Such Buyer does not

-2-

 

presently have any agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities. Such Buyer is not a broker-dealer registered with the SEC under
the 1934 Act or an entity engaged in a business that would require it to be so registered as a
broker-dealer.

          (b) Accredited Investor Status. At the time such Buyer was offered the Securities,
it was, and at the date hereof it is, and on each date on which it exercises any Warrants, it will
be an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(5), (a)(6), (a)(7) or
(a)(8) under the 1933 Act.

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

          (d) Information. Such Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and materials relating
to the offer and sale of the Securities that have been requested by such Buyer. Such Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or its advisors, if
any, or its representatives shall modify, amend or affect such Buyer’s right to rely on the
Company’s representations and warranties contained herein. Such Buyer understands that its
investment in the Securities involves a high degree of risk and is able to afford a complete loss
of such investment. Such Buyer has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with respect to its acquisition of the
Securities. Such Buyer has not relied on any information or advice furnished by or on behalf of
the Agent (as defined below) or by counsel to the Company in connection with the transactions
contemplated hereby.

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

          (f) Transfer or Resale. Such Buyer understands that except as provided in the
Registration Rights Agreement: (i) the Securities have not been and are not being registered under
the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder, (B) such Buyer shall have delivered to
the Company an opinion of counsel, in form, scope and substance reasonably acceptable to the
Company, to the effect that such Securities to be sold, assigned or transferred may be sold,
assigned or transferred pursuant to an exemption from such registration, or (C) such Buyer provides
the Company with reasonable assurance that such Securities can be sold, assigned or transferred
pursuant to Rule 144 or Rule 144A promulgated under the 1933 Act, as amended, (or a successor rule
thereto) (collectively, “Rule 144”); (ii) any sale of the Securities made in

-3-

 

reliance on Rule 144 may be made only in accordance with the terms of Rule 144 and further, if
Rule 144 is not applicable, any resale of the Securities under circumstances in which the seller
(or the Person (as defined in Section 3(q)) through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 1933 Act) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither
the Company nor any other Person is under any obligation to register the Securities under the 1933
Act or any state securities laws or to comply with the terms and conditions of any exemption
thereunder. The Securities may be pledged in connection with a bona fide margin account or other
loan or financing arrangement secured by the Securities and such pledge of Securities shall not be
deemed to be a transfer, sale or assignment of the Securities hereunder, and no Buyer effecting a
pledge of Securities shall be required to provide the Company with any notice thereof or otherwise
make any delivery to the Company pursuant to this Agreement or any other Transaction Document (as
defined in Section 3(b)), including, without limitation, this Section 2(f).

          (g) Legends. Such Buyer understands that the certificates or other instruments
representing the Common Shares and the Warrants and, until such time as the resale of the Common
Shares and the Warrant Shares have been registered under the 1933 Act as contemplated by the
Registration Rights Agreement, the stock certificates representing the Warrant Shares, except as
set forth below, shall bear any legend as required by the “blue sky” laws of any state and a
restrictive legend in substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):

[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR
THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN][THE SECURITIES
REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO
THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD
PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING,
THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

The legend set forth above shall be removed and the Company shall issue a certificate without such
legend to the holder of the Securities, if, unless otherwise required by state securities laws, (i)
such Securities are registered for resale under the 1933 Act, (ii) in connection with a sale,
assignment or other transfer, such holder provides the Company with an opinion of a law firm
reasonably acceptable to the Company, in form, scope and substance reasonably acceptable to the
Company, to the effect that such sale, assignment or transfer of the Securities may be made

-4-

 

without registration under the applicable requirements of the 1933 Act, or (iii) such holder
provides the Company with reasonable assurance that the Securities can be sold, assigned or
transferred pursuant to Rule 144 or Rule 144A.

          (h) Validity; Enforcement. Each Buyer is duly organized, validly existing and in good
standing under the laws of its jurisdiction of formation, and has all requisite power and authority
to enter into this Agreement and consummate the transactions contemplated hereby. This Agreement
and the Registration Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of such Buyer and shall constitute the legal, valid and binding obligations of such Buyer
enforceable against such Buyer in accordance with their respective terms, except as such
enforceability may be limited by general principles of equity or to applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and remedies.

          (i) No Conflicts. The execution, delivery and performance by such Buyer of this
Agreement and the Registration Rights Agreement and the consummation by such Buyer of the
transactions contemplated hereby and thereby will not (i) result in a violation of the
organizational documents of such Buyer or (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which such Buyer is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities laws) applicable to
such Buyer, except in the case of clauses (ii) and (iii) above, for such conflicts, defaults,
rights or violations which would not, individually or in the aggregate, reasonably be expected to
have a material adverse effect on the ability of such Buyer to perform its obligations hereunder.

          (j) Residency. Such Buyer is a resident of that jurisdiction specified below its
address on the Schedule of Buyers.

          (k) General Solicitation. Such Buyer is not purchasing the Securities as a result of
any advertisement, article, notice or other communication regarding the Securities published un any
newspaper, magazine or similar media or broadcast over television or radio or presented at any
seminar or any general advertisement.

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

          (m) Brokers and Finders. No Person will have, as a result of the transactions
contemplated by the Transaction Documents, any valid right, interest or claim against or upon the
Company or an Investor for any commission, fee or other compensation pursuant to any agreement,
arrangement or understanding with a placement agent entered into by or on behalf of such Buyer.

-5-

 

          (n) Prohibited Transactions. Since the time when such Buyer was first contacted by the
Company or the Agent regarding the transactions contemplated hereby, neither such Buyer nor any
Affiliate of such Buyer nor any Person acting on behalf of or pursuant to any understanding with
such Buyer (collectively, “Trading Affiliates”) has, directly or indirectly, effected or agreed to
effect any short sale, whether or not against the box, established any “put equivalent position”
(as defined in Rule 16a-1(h) under the 1934 Act) with respect to the Common Stock, granted any
other right (including without limitation, any put or call option) with respect to the Common Stock
or with respect to any security that includes, relates to or derived any significant part of its
value from the Common Stock or otherwise sought to hedge its position in the Securities (each, a
“Prohibited Transaction”), and neither such Buyer nor its Trading Affiliates will enter into a
Prohibited Transaction after the date hereof until the transactions contemplated hereby are
announced pursuant to the 8-K Filing set forth in Section 4(i) hereof.

          (o) Acknowledgement. Such Buyer acknowledges and agrees that the foregoing
representations, warranties, covenants and acknowledgments are made by it with the intention that
they may be relied upon by the Company and its agents and legal counsel in determining its
eligibility or (if applicable) the eligibility of others on whose behalf it is contracting
hereunder to purchase the Securities under the applicable securities legislation. Such Buyer
further agrees that by accepting delivery of the Securities at the Closing Date, it shall be
representing and warranting that the foregoing representations and warranties are true and correct
as at the Closing Date with the same force and effect as if they had been made by such Buyer at the
Closing Date and that they shall survive the purchase by such Buyer of the Securities and still
continue in full force and effect notwithstanding any subsequent disposition by such Buyer of the
Securities. The Company and its counsel shall be entitled to rely on the representations and
warranties of such Buyer contained in this paragraph.

     3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

          The Company represents and warrants to each of the Buyers that, except as set forth in its SEC
Documents:

          (a) Organization and Qualification. The Company is a corporation duly organized and
validly existing in good standing under the laws of the jurisdiction in which it is incorporated,
and has the requisite corporate power and authorization to own its properties and to carry on its
business as now being conducted. The Company is duly qualified as a foreign corporation to do
business and is 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 reasonably be expected to have
a Material Adverse Effect. As used in this Agreement, “Material Adverse Effect” means any material
adverse effect on the business, properties, assets, operations, results of operations, condition
(financial or otherwise) or prospects of the Company, taken as a whole, or on the transactions
contemplated hereby and the other Transaction Documents or by the agreements and instruments to be
entered into in connection herewith or therewith, or on the authority or ability of the Company to
perform its obligations under the Transaction Documents (as defined below). The Company has no
subsidiaries (which for purposes of this Agreement

-6-

 

means any entity (i) in which the Company, directly or indirectly, owns capital stock or holds
an equity or similar interest and (ii) which has operations and material assets).

          (b) Authorization; Enforcement; Validity. The Company has the requisite corporate
power and authority to enter into and perform its obligations under this Agreement, the Other
Securities Purchase Agreements, the Registration Rights Agreement, the Irrevocable Transfer Agent
Instructions (as defined in Section 5), the Warrants and each of the other agreements entered into
by the parties hereto in connection with the transactions contemplated by this Agreement and the
Other Securities Purchase Agreements (collectively, the “Transaction Documents”) and to issue the
Securities in accordance with the terms hereof and thereof. The execution and delivery of the
Transaction Documents by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby, including, without limitation, the issuance of the Common Shares
and the Warrants and the reservation for issuance and the issuance of the Warrant Shares issuable
upon exercise of the Warrant have been duly authorized by the Company’s Board of Directors and no
further filing, consent or authorization is required by the Company, its Board of Directors or its
stockholders. This Agreement and the other Transaction Documents have been duly executed and
delivered by the Company, and constitute the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective 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 applicable creditors’ rights and remedies.

          (c) Issuance of Securities. The Common Shares and the Warrants are duly authorized
and, when issued and paid for in accordance with the terms hereof, shall be validly issued and free
from all preemptive or similar rights, taxes, liens and charges with respect to the issue thereof
and the Common Shares shall be fully paid and nonassessable with the holders being entitled to all
rights accorded to a holder of Common Stock. As of the Closing, a number of shares of Common Stock
shall have been duly authorized and reserved for issuance which equals or exceeds 100% of the
aggregate of the maximum number of shares of Common Stock issuable upon exercise of the Warrants.
Upon exercise in accordance with the Warrants, the Warrant Shares will be validly issued, fully
paid and nonassessable and free from all preemptive or similar rights, taxes, liens and charges
with respect to the issue thereof, with the holders being entitled to all rights accorded to a
holder of Common Stock. Assuming the accuracy of each of the representations and warranties set
forth in Section 2 of this Agreement, the offer and issuance by the Company of the Securities is
exempt from registration under the 1933 Act.

          (d) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the issuance of the Common Shares and Warrants
and reservation for issuance and issuance of the Warrant Shares) will not (i) result in a violation
of the certificate of incorporation, or bylaws of the Company or (ii) conflict with, or constitute
a default (or an event which with notice or lapse of time or both would become a default) in any
respect under, or give to others any rights of termination, amendment, acceleration or cancellation
of, any agreement, indenture or instrument to which the Company is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including foreign, federal and
state securities laws and regulations and the rules and regulations

-7-

 

of The NASDAQ Capital Market (the “Principal Market”) applicable to the Company or by which
any property or asset of the Company is bound or affected, except for any such violation set forth
in clauses (ii) or (iii) above as could not reasonably be expected to result in Material Adverse
Effect.

          (e) Consents. The Company is not required to obtain any consent, authorization or
order of, or make any filing or registration with, any court, governmental agency or any regulatory
or self-regulatory agency or any other Person in order for it to execute, deliver or perform any of
its obligations under or contemplated by the Transaction Documents, in each case in accordance with
the terms hereof or thereof other than such as have been made or obtained, and except for the
registration of the Securities under the 1933 Act pursuant to the Registration Rights Agreement,
the filing of Form D, any filings required to be made under state securities laws, and any required
filings or notifications regarding the issuance or listing of additional securities with the
Principal Market. The Company has no knowledge of any facts or circumstances that might prevent
the Company from obtaining or effecting any of the registration, application or filings pursuant to
the preceding sentence. The Company is not in violation of the listing requirements of the
Principal Market and has no knowledge of any facts that would reasonably lead to delisting or
suspension of the Common Stock in the foreseeable future. As used herein, “knowledge” shall mean
actual knowledge of the executive officers (as defined in Rule 405 under the 1933 Act) of the
Company after due inquiry.

          (f) Acknowledgment Regarding Buyer’s Purchase of Securities. The Company acknowledges
and agrees that each Buyer is acting solely in the capacity of an arm’s length purchaser with
respect to the Transaction Documents and the transactions contemplated hereby and thereby and that
no Buyer is acting as a financial advisor or fiduciary of the Company (or in any similar capacity)
with respect to the Transaction Documents and the transactions contemplated hereby and thereby, and
any advice given by a Buyer or any of its representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to
such Buyer’s purchase of the Securities. The Company further represents to each Buyer that the
Company’s decision to enter into the Transaction Documents has been based solely on the independent
evaluation by the Company and its representatives.

          (g) No General Solicitation; Placement Agent’s Fees. Neither the Company, nor any of
its affiliates, nor any Person acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D) in connection with the
offer or sale of the Securities. The Company shall be responsible for the payment of any placement
agent’s fees, financial advisory fees, or brokers’ commissions (other than for persons engaged by
any Buyer or its investment advisor) relating to or arising out of the transactions contemplated
hereby. The Company acknowledges that it has engaged Jefferies & Company, Inc. as placement agent
(the “Agent”) in connection with the sale of the Securities. Other than the Agent, the Company has
not engaged any placement agent or other agent in connection with the sale of the Securities.

          (h) No Integrated Offering. Assuming the accuracy of the Buyers’ representations and
warranties set forth in Section 2 hereof, none of the Company, any of their affiliates, and any
Person acting on their behalf has, directly or indirectly, made any offers or

-8-

 

sales of any security or solicited any offers to buy any security, under circumstances that
would require registration of the issuance of any of the Securities under the 1933 Act, whether
through integration with prior offerings or otherwise, or cause this offering of the Securities to
require approval of stockholders of the Company for purposes of any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of any exchange or
automated quotation system on which any of the securities of the Company are listed or designated.
None of the Company, their affiliates and any Person acting on their behalf will take any action or
steps referred to in the preceding sentence that would require registration of the issuance of any
of the Securities under the 1933 Act or cause the offering of the Securities to be integrated with
other offerings for purposes of any such applicable stockholder approval provisions.

          (i) Application of Takeover Protections; Rights Agreement. The Company and its board
of directors have taken all necessary action, if any, in order to render inapplicable any control
share acquisition, business combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Certificate of Incorporation (as
defined in Section 3(p)) or the laws of the State of Delaware which is or could become applicable
to any Buyer as a result of the transactions contemplated by this Agreement, including, without
limitation, the Company’s issuance of the Securities and any Buyer’s ownership of the Securities.
The Company and its board of directors have taken all necessary action, if any, in order to render
inapplicable any stockholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change in control of the Company.

          (j) SEC Documents; Financial Statements. Since October 28, 2005 (the “Reporting
Period”), the Company has timely 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 during the Reporting Period or prior to the date of the
Closing and all exhibits included therein and financial statements, notes and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the “SEC Documents”).
The Company has delivered to the Buyers or their respective representatives true, correct and
complete copies of the SEC Documents not available on the EDGAR system, if any. 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 in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. As of their respective filing 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, 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

-9-

 

year-end audit adjustments). No other information provided by or on behalf of the Company to
the Buyers which is not included in the SEC Documents, including, without limitation, information
referred to in Section 2(d) of this Agreement or in any disclosure schedules, contains any untrue
statement of a material fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstance under which they are or were made not
misleading.

          (k) Absence of Certain Changes. Since June 30, 2006, there has been no material
adverse change and no material adverse development in the business, properties, operations,
condition (financial or otherwise), or results of operations or prospects of the Company. Since
June 30, 2006, the Company has not declared or paid any dividends. The Company has not taken any
steps to seek protection pursuant to any bankruptcy law nor does the Company have any knowledge or
reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings or any
actual knowledge of any fact that would reasonably lead a creditor to do so. The Company is not as
of the date hereof, and after giving effect to the transactions contemplated hereby to occur at the
Closing, will not be Insolvent (as defined below). For purposes of this Section 3(k), “Insolvent”
means, with respect to any Person (as defined in Section 3(q)), (i) the present fair saleable value
of such Person’s assets is less than the amount required to pay such Person’s total Indebtedness
(as defined in Section 3(q)), (ii) such Person is unable to pay its debts and liabilities,
subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured,
(iii) such Person intends to incur or believes that it will incur debts that would be beyond its
ability to pay as such debts mature or (iv) such Person has unreasonably small capital with which
to conduct the business in which it is engaged as such business is now conducted and is currently
proposed to be conducted.

          (l) Conduct of Business; Regulatory Permits. The Company is not in violation of any
term of or in default under its Certificate of Incorporation, any certificate of designations of
any outstanding series of preferred stock of the Company or the Bylaws. The Company is not in
violation of any judgment, decree or order or any statute, ordinance, rule or regulation applicable
to the Company, and the Company will not conduct its business in violation of any of the foregoing,
except for possible violations which could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. Without limiting the generality of the foregoing, the
Company is not in violation of any of the rules, regulations or requirements of the Principal
Market and has no knowledge of any facts or circumstances that would reasonably lead to delisting
or suspension of the Common Stock by the Principal Market in the foreseeable future. Since October
28, 2005, (i) the Common Stock has been designated for quotation or included for listing on the
Principal Market, (ii) trading in the Common Stock has not been suspended by the SEC or the
Principal Market and (iii) the Company has received no communication, written or oral, from the SEC
or the Principal Market regarding the suspension or delisting of the Common Stock from the
Principal Market. The Company possess all certificates, authorizations and permits issued by the
appropriate regulatory authorities necessary to its business, except where the failure to possess
such certificates, authorizations or permits could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect, and the Company has not received any
notice of proceedings relating to the revocation or modification of any such certificate,
authorization or permit.

-10-

 

          (m) Foreign Corrupt Practices. Neither the Company nor any director, officer, agent,
employee or other Person acting on behalf of the Company has, in the course of its actions for, or
on behalf of, the Company (i) used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expenses relating to political activity; (ii) made any direct or
indirect unlawful payment to any foreign or domestic government official or employee from corporate
funds; (iii) violated or is in violation in any material respect of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic government
official or employee.

          (n) Sarbanes-Oxley Act. The Company is in material compliance with any and all
applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof,
and any and all applicable rules and regulations promulgated by the SEC thereunder that are
effective as of the date hereof.

          (o) Transactions With Affiliates. Except as set forth in the SEC Documents and as set
forth in Schedule 3(o) hereof, none of the officers, or directors, and to the knowledge of
the Company , none of the employees of the Company is presently a party to any transaction with the
Company (other than for ordinary course services as employees, consultants, officers or directors),
including any contract, agreement or other arrangement providing for the furnishing of services to
or by, providing for rental of real or personal property to or from, or otherwise requiring
payments to or from any such officer, director or employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any such officer, director, or employee
has a substantial interest or is an officer, director, trustee or partner.

          (p) Equity Capitalization. As of the date hereof, the authorized capital stock of the
Company consists of (x) 30,000,000 shares of Common Stock, of which as of the date hereof,
10,964,602 shares are issued and outstanding, 2,529,378 shares are reserved for issuance pursuant
to the Company’s employee incentive plan and other options and warrants outstanding and no shares
are reserved for issuance pursuant to securities (other than the Warrants) exercisable or
exchangeable for, or convertible into, shares of Common Stock, and (y) 10,000,000 shares of
preferred stock, of which as of the date hereof, none are issued and outstanding. All of such
outstanding shares have been, or upon issuance will be, validly issued and are fully paid and
nonassessable. Except as set forth above in this Section 3(p): (i) none of the Company’s capital
stock is subject to preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company; and (ii) there are no outstanding options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities
or rights convertible into, or exercisable or exchangeable for, any capital stock of the Company,
or contracts, commitments, understandings or arrangements by which the Company is or may become
bound to issue additional capital stock of the Company or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any capital stock of the Company; (iii) there
are no outstanding debt securities, notes, credit agreements, credit facilities or other
agreements, documents or instruments evidencing Indebtedness of the Company or by which the Company
is or may become bound; (iv) there are no financing statements securing obligations in any material
amounts, either singly or in the aggregate, filed in connection with the Company; (v) there are no
agreements or arrangements under which the

-11-

 

Company is obligated to register the sale of any of its securities under the 1933 Act (except
pursuant to the Registration Rights Agreement); (vi) there are no outstanding securities or
instruments of the Company which contain any redemption or similar provisions, and there are no
contracts, commitments, understandings or arrangements by which the Company is or may become bound
to redeem a security of the Company; (vii) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of the Securities;
(viii) the Company does not have any stock appreciation rights or “phantom stock” plans or
agreements or any similar plan or agreement; and (ix) the Company has no liabilities or obligations
required to be disclosed in the SEC Documents but not so disclosed in the SEC Documents, other than
those incurred in the ordinary course of the Company’s business and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect. The Company has furnished or made
available to the Buyers true, correct and complete copies of the Company’s Certificate of
Incorporation, as amended and as in effect on the date hereof (the “Certificate of Incorporation”),
and the Company’s Bylaws, as amended and as in effect on the date hereof (the “Bylaws”), and the
terms of all securities convertible into, or exercisable or exchangeable for, shares of Common
Stock and the material rights of the holders thereof in respect thereto.

          (q) Indebtedness and Other Contracts. The Company (i) does not have any outstanding
Indebtedness (as defined below), (ii) is not a party to any contract, agreement or instrument, the
violation of which, or default under which, by the other party(ies) to such contract, agreement or
instrument could reasonably be expected to result in a Material Adverse Effect, (iii) is not in
violation of any term of or in default under any contract, agreement or instrument relating to any
Indebtedness, except where such violations and defaults would not result, individually or in the
aggregate, in a Material Adverse Effect, or (iv) is not a party to any contract, agreement or
instrument relating to any Indebtedness, the performance of which, in the judgment of the Company’s
officers, has or is expected to have a Material Adverse Effect. For purposes of this Agreement:
(x) “Indebtedness” of any Person means, without duplication (A) all indebtedness for borrowed
money, (B) all obligations issued, undertaken or assumed as the deferred purchase price of property
or services, including (without limitation) “capital leases” in accordance with generally accepted
accounting principles (other than trade payables entered into in the ordinary course of business),
(C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and
other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in connection with the acquisition of
property, assets or businesses, (E) all indebtedness created or arising under any conditional sale
or other title retention agreement, or incurred as financing, in either case with respect to any
property or assets acquired with the proceeds of such indebtedness (even though the rights and
remedies of the seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under any leasing or similar
arrangement which, in connection with generally accepted accounting principles, consistently
applied for the periods covered thereby, is classified as a capital lease, (G) all indebtedness
referred to in clauses (A) through (F) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien,
pledge, charge, security interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which owns such assets or
property has not assumed or become liable for the payment of such indebtedness, and (H) all
Contingent Obligations in respect of indebtedness or obligations of

-12-

 

others of the kinds referred to in clauses (A) through (G) above; (y) “Contingent Obligation”
means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person
with respect to any indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is
to provide assurance to the obligee of such liability that such liability will be paid or
discharged, or that any agreements relating thereto will be complied with, or that the holders of
such liability will be protected (in whole or in part) against loss with respect thereto; and (z)
"Person” means an individual, a limited liability company, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or any department or agency
thereof.

          (r) Absence of Litigation. There is no action, suit, proceeding, inquiry or
investigation before or by the Principal Market, any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the Company, threatened
against or affecting the Company, the Common Stock or any of the Company’s officers or directors,
whether of a civil or criminal nature or otherwise that if adversely determined would reasonably be
expected to have a Material Adverse Effect.

          (s) Insurance. The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as management of the Company
believes to be prudent and customary in the businesses in which the Company is engaged. The
Company has not been refused any insurance coverage sought or applied for and the Company does not
have any reason to believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business at a cost that would not have a Material Adverse Effect.

          (t) Employee Relations.

               (i) The Company is not a party to any collective bargaining agreement or employs any member of
a union. No executive officer of the Company has notified the Company that such officer intends to
leave the Company or otherwise terminate such officer’s employment with the Company. No executive
officer of the Company is in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any
other contract or agreement or any restrictive covenant, and the continued employment of each such
executive officer does not subject the Company to any liability with respect to any of the
foregoing matters.

               (ii) The Company, to its knowledge, is in compliance with all federal, state, local and
foreign laws and regulations respecting labor, employment and employment practices and benefits,
terms and conditions of employment and wages and hours, except where failure to be in compliance
would not, either individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect.

          (u) Title. The Company has good and marketable title in fee simple to all real
property and good and marketable title to all personal property owned by them which is material to
the business of the Company, in each case free and clear of all liens, encumbrances and defects
except such as do not materially affect the value of such property and do not interfere

-13-

 

with the use made and proposed to be made of such property by the Company. Any real property
and facilities held under lease by the Company are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company.

          (v) Intellectual Property Rights. The Company owns or possesses adequate rights or
licenses to use all trademarks, service marks and all applications and registrations therefor,
trade names, patents, patent rights, copyrights, original works of authorship, inventions, trade
secrets and other intellectual property rights (“Intellectual Property Rights”) necessary to
conduct its business as conducted on the date of this Agreement, except for such Intellectual
Property Rights, the inability to use would not have a Material Adverse Effect. To the knowledge
of the Company, no product or service of the Company infringes the Intellectual Property Rights of
others which could reasonably be expected to result in a Material Adverse Effect. There is no
claim, action or proceeding being made or brought, or to the knowledge of the Company, being
threatened, against the Company regarding (i) its Intellectual Property Rights, or (ii) that the
products or services of the Company infringe the Intellectual Property Rights of others. The
Company has taken reasonable security measures to protect the secrecy, confidentiality and value of
all of its Intellectual Property Rights.

          (w) Environmental Laws. The Company (i) is in compliance with any and all
Environmental Laws (as hereinafter defined), (ii) has received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct its business and (iii) is
in compliance with all terms and conditions of any such permit, license or approval where, in each
of the foregoing clauses (i), (ii) and (iii), the failure to so comply could be reasonably expected
to have, individually or in the aggregate, a Material Adverse Effect. The term “Environmental
Laws” means all federal, state, local or foreign laws relating to pollution or protection of human
health or the environment (including, without limitation, ambient air, surface water, groundwater,
land surface or subsurface strata), including, without limitation, laws relating to emissions,
discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or
otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees,
demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders,
permits, plans or regulations issued, entered, promulgated or approved thereunder.

          (x) Tax Status. Except for matters that would not, individually or in the aggregate,
have or reasonably be expected to have a Material Adverse Effect, the Company (i) has made or filed
all foreign, federal and state income and all other tax returns, reports and declarations required
by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be due on such returns,
reports and declarations, except those being contested in good faith and (iii) 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. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of
the Company know of no basis for any such claim.

-14-

 

          (y) Internal Accounting and Disclosure Controls. Except as described in the SEC
Documents, the Company maintains a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with management’s general or
specific authorizations, (ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting principles and to maintain
asset and liability accountability, (iii) access to assets or incurrence of liabilities is
permitted only in accordance with management’s general or specific authorization and (iv) the
recorded accountability for assets and liabilities is compared with the existing assets and
liabilities at reasonable intervals and appropriate action is taken with respect to any difference.
Except as disclosed in the SEC Documents, the Company maintains disclosure controls and procedures
(as such term is defined in Rule 13a-14 under the 1934 Act) that are effective in ensuring that are
designed to ensure that information required to be disclosed by the Company in the reports that it
files or submits under the 1934 Act is recorded, processed, summarized and reported, within the
time periods specified in the rules and forms of the SEC including, without limitation, controls
and procedures designed in to ensure that information required to be disclosed by the Company in
the reports that it files or submits under the 1934 Act is accumulated and communicated to the
Company’s management, including its principal executive officer or officers and its principal
financial officer or officers, as appropriate, to allow timely decisions regarding required
disclosure.

          (z) Off Balance Sheet Arrangements. There is no transaction, arrangement, or other
relationship between the Company and an unconsolidated or other off balance sheet entity that is
required to be disclosed by the Company in its 1934 Act filings and is not so disclosed or that
otherwise would be reasonably likely to have a Material Adverse Effect.

          (aa) Investment Company Status. The Company is not, and upon consummation of the sale
of the Securities will not be, an “investment company,” a company controlled by an “investment
company” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment
company” as such terms are defined in the Investment Company Act of 1940, as amended.

          (bb) Form S-3 Eligibility. The Company is eligible to register the Common Shares and
the Warrant Shares for resale by the Buyers using Form S-3 promulgated under the 1933 Act.

          (cc) Manipulation of Price. The Company has not, and to its knowledge no one acting
on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in
the stabilization or manipulation of the price of any security of the Company to facilitate the
sale or resale of any of the Securities, (ii) other than the Agent, sold, bid for, purchased, or
paid any compensation for soliciting purchases of, any of the Securities, or (iii) other than the
Agent, paid or agreed to pay to any person any compensation for soliciting another to purchase any
other securities of the Company.

          (dd) Disclosure. The Company confirms that neither it nor any other Person acting on
its behalf has provided any of the Buyers (other than Dan W. Lufkin) or their agents or counsel
with any information that constitutes or could reasonably be expected to constitute material,
nonpublic information other than the terms of, and the existence of, the transactions

-15-

 

contemplated hereby. The Company understands and confirms that each of the Buyers (other than
Dan W. Lufkin) will rely on the foregoing representations in effecting transactions in securities
of the Company. All disclosure provided to the Buyers regarding the Company, its business and the
transactions contemplated hereby, including the Schedules to this Agreement, furnished by or on
behalf of the Company is true and correct and does not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the statements made therein, in
the light of the circumstances under which they were made, not misleading. No event or
circumstance has occurred or information exists with respect to the Company or its business,
properties, prospects, operations or financial conditions, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but which has not been so
publicly announced or disclosed.

          (ee) U.S. Real Property Holding Corporation. The Company is not, nor has it ever
been, a U.S. real property holding corporation within the meaning of Section 897 of the Internal
Revenue Code of 1986, as amended, and the Company shall so certify upon any Buyer’s request.

     4. COVENANTS.

          (a) Best Efforts. Each party shall use its reasonable best efforts timely to satisfy
each of the covenants and conditions to be satisfied by it as provided in Sections 6 and 7 of this
Agreement.

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

          (c) Reporting Status. Until the date on which the Investors (as defined in the
Registration Rights Agreement) shall have sold all the Common Shares and Warrant Shares and none of
the Warrants is outstanding (the “Reporting Period”), the Company shall timely file all reports
required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its
status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would otherwise permit such termination.

          (d) Use of Proceeds. The Company will use the proceeds from the sale of the
Securities for general corporate purposes, and not for (A) the repayment of any outstanding
Indebtedness of the Company or (B) redemption or repurchase of any of its equity securities.

          (e) Financial Information. The Company agrees to send the following to each Investor
(as defined in the Registration Rights Agreement) during the Reporting Period (i) unless

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the following are filed with the SEC through EDGAR and are available to the public through the
EDGAR system, within one (1) Business Day after the filing thereof with the SEC, a copy of its
Annual Reports and Quarterly Reports on Form 10-K, 10-Q, any interim reports or any consolidated
balance sheets, income statements, stockholders’ equity statements and/or cash flow statements for
any period other than annual, any Current Reports on Form 8-K and any registration statements
(other than on Form S-8) or amendments filed pursuant to the 1933 Act, (ii) on the same day as the
release thereof, facsimile or e-mailed copies of all press releases issued by the Company, and
(iii) copies of any notices and other information made available or given to the stockholders of
the Company generally, contemporaneously with the making available or giving thereof to the
stockholders. As used herein, “Business Day” means any day other than Saturday, Sunday or other
day on which commercial banks in The City of New York are authorized or required by law to remain
closed.

          (f) Listing. The Company shall promptly secure the listing of all of the Registrable
Securities (as defined in the Registration Rights Agreement), once they have been issued, upon each
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, so long as any
other shares of Common Stock shall be so listed, such listing of all Registrable Securities from
time to time issuable under the terms of the Transaction Documents. The Company shall maintain the
Common Stock’s authorization for quotation on the Principal Market. The Company shall not take any
action which would be reasonably expected to result in the delisting or suspension of the Common
Stock on the Principal Market. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section 4(f).

          (g) Fees. The Company shall be responsible for the payment of any placement agent’s
fees, financial advisory fees, or broker’s commissions (other than for Persons engaged by any
Buyer) relating to or arising out of the transactions contemplated hereby, including, without
limitation, any fees or commissions payable to the Agents. Except as otherwise set forth in the
Transaction Documents, each party to this Agreement shall bear its own expenses in connection with
the sale of the Securities to the Buyers.

          (h) Pledge of Securities. The Company acknowledges and agrees that the Securities may
be pledged by an Investor (as defined in the Registration Rights Agreement) in connection with a
bona fide margin agreement or other loan or financing arrangement that is secured by the
Securities. The pledge of Securities shall not be deemed to be a transfer, sale or assignment of
the Securities hereunder, and no Investor effecting a pledge of Securities shall be required to
provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant
to this Agreement or any other Transaction Document, including, without limitation, Section 2(f) of
this Agreement; provided that an Investor and its pledgee shall be required to comply with the
provisions of Section 2(f) of this Agreement in order to effect a sale, transfer or assignment of
Securities to such pledgee. The Company hereby agrees to execute and deliver such documentation as
a pledgee of the Securities may reasonably request in connection with a pledge of the Securities to
such pledgee by an Investor.

          (i) Disclosure of Transactions and Other Material Information. On or before 8:30
a.m., New York City time, on the first Business Day following the date of this Agreement, the
Company shall issue a press release and file a Current Report on Form 8-K describing the

-17-

 

terms of the transactions contemplated by the Transaction Documents in the form required by
the 1934 Act and attaching the material Transaction Documents (including, without limitation, this
Agreement, the form of Warrant and the form of the Registration Rights Agreement) as exhibits to
such filing (including all attachments, the “8-K Filing”). From and after the filing of the 8-K
Filing with the SEC, no Buyer shall be in possession of any material, nonpublic information
received from the Company or any of its officers, directors, employees or agents, that is not
disclosed in the 8-K Filing. The Company shall not, and shall cause its officers, directors,
employees and agents, not to, provide any Buyer with any material, nonpublic information regarding
the Company from and after the filing of the 8-K Filing with the SEC without the express written
consent of such Buyer. If a Buyer has, or believes it has, received any such material, nonpublic
information regarding the Company, it shall provide the Company with written notice thereof. The
Company shall, within five (5) Trading Days (as defined in the Warrants) of receipt of such notice,
make public disclosure of such material, nonpublic information. Neither the Company nor any Buyer
shall issue any press releases or any other public statements with respect to the transactions
contemplated hereby; provided, however, that the Company shall be entitled, without the prior
approval of any Buyer, to make any press release or other public disclosure with respect to such
transactions (i) in substantial conformity with the 8-K Filing and contemporaneously therewith and
(ii) as is required by applicable law and regulations (provided that in the case of clause (i) each
Buyer shall be consulted by the Company in connection with any such press release or other public
disclosure prior to its release). Without the prior written consent of any applicable Buyer,
neither the Company nor any affiliates shall disclose the name of such Buyer in any filing,
announcement, release or otherwise other than in connection with the Registration Statement, as
contemplated pursuant to the Registration Rights Agreement, unless such disclosure is required by
law, regulation or the Principal Market.

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

          (k) Conduct of Business. The business of the Company shall not be conducted in
violation of any law, ordinance or regulation of any governmental entity, except where such
violations would not result, either individually or in the aggregate, in a Material Adverse Effect.

     5. REGISTER; TRANSFER AGENT INSTRUCTIONS.

          (a) Register. The Company shall maintain at its principal executive offices (or such
other office or agency of the Company as it may designate by notice to each holder of Securities),
a register for the Warrants in which the Company shall record the name and address of the Person in
whose name the Warrants have been issued (including the name and address of each transferee) and
the number of Warrant Shares issuable upon exercise of the Warrants held by such Person. The
Company shall keep the register open and available at all times during business hours for
inspection of any Buyer or its legal representatives.

-18-

 

          (b) Transfer Agent Instructions. The Company shall issue irrevocable instructions to
its transfer agent, and any subsequent transfer agent, to issue certificates or credit shares to
the applicable balance accounts at The Depository Trust Company (“DTC”), registered in the name of
each Buyer or its respective nominee(s), for the Warrant Shares in such amounts as specified from
time to time by each Buyer to the Company upon exercise of the Warrants in the form of Exhibit
C attached hereto (the “Irrevocable Transfer Agent Instructions”). The Company represents and
warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in
this Section 5, and stop transfer instructions to give effect to Section 2(f) hereof, will be given
by the Company to its transfer agent with respect to the Securities, and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and to the extent
provided in this Agreement and the other Transaction Documents. If a Buyer effects a sale,
assignment or transfer of the Securities in accordance with Section 2(f), the Company shall permit
the transfer and shall promptly instruct its transfer agent to issue one or more certificates or
credit shares to the applicable balance accounts at DTC in such name and in such denominations as
specified by such Buyer to effect such sale, transfer or assignment. In the event that such sale,
assignment or transfer involves Warrant Shares sold, assigned or transferred pursuant to an
effective registration statement or pursuant to Rule 144, the transfer agent shall issue such
Securities to the Buyer, assignee or transferee, as the case may be, without any restrictive
legend.

          (c) Breach. The Company acknowledges that a breach by it of its obligations hereunder
will cause irreparable harm to a Buyer. Accordingly, the Company acknowledges that the remedy at
law for a breach of its obligations under this Section 5 will be inadequate and agrees, in the
event of a breach or threatened breach by the Company of the provisions of this Section 5, that a
Buyer shall be entitled, in addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.

          (d) Additional Relief. If the Company shall fail for any reason or for no reason to
issue to such holder unlegended certificates within three (3) Business Days of (x) receipt of
documents necessary for the removal of legend set forth above or (y) the date of its obligation to
deliver the shares of Common Stock as contemplated pursuant to clause (ii) below (the “Deadline
Date”), then, in addition to all other remedies available to the holder, if on or after the Trading
Day (as defined in the Warrants) immediately following such three Business Day period, the holder
purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the holder of shares of Common Stock that the holder anticipated
receiving from the Company (a “Buy-In"), then the Company shall, within three Business Days after
the holder’s request and in the holder’s discretion, either (i) pay cash to the holder in an amount
equal to the holder’s total purchase price (including brokerage commissions, if any) for the shares
of Common Stock so purchased (the “Buy-In Price"), at which point the Company’s obligation to
deliver such certificate (and to issue such shares of Common Stock) shall terminate, or (ii)
promptly honor its obligation to deliver to the holder a certificate or certificates representing
such shares of Common Stock and pay cash to the holder in an amount equal to the excess (if any) of
the Buy-In Price over the product of (A) such number of shares of Common Stock, times (B) the
Closing Bid Price on the Deadline Date. “Closing Bid Price” means, for any security as of any
date, the last closing price for such security on The NASDAQ Capital Market (the “Principal
Market”), as reported by Bloomberg, or, if the Principal Market

-19-

 

begins to operate on an extended hours basis and does not designate the closing bid price then
the last bid price of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading market for such
security, the last closing price of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not
apply, the last closing price of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid price is reported
for such security by Bloomberg, the average of the bid prices of any market makers for such
security as reported in the “pink sheets” by Pink Sheets LLC (formerly the National Quotation
Bureau, Inc.). If the Closing Bid Price cannot be calculated for a security on a particular date
on any of the foregoing bases, the Closing Bid Price of such security on such date shall be the
fair market value as mutually determined by the Company and the holder. If the Company and the
holder are unable to agree upon the fair market value of such security, then such dispute shall be
resolved pursuant to Section 13 of the Warrants. All such determinations to be appropriately
adjusted for any stock dividend, stock split, stock combination or other similar transaction during
the applicable calculation period.

     6. CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

          The obligation of the Company hereunder to issue and sell the Common Shares and the related
Warrants to each Buyer at the Closing is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions, provided that these conditions are for the Company’s
sole benefit and may be waived by the Company at any time in its sole discretion by providing each
Buyer with prior written notice thereof:

               (i) Such Buyer shall have executed each of the Transaction Documents to which it is a party
and delivered the same to the Company.

               (ii) Such Buyer shall have delivered to the Company the Purchase Price for the Common Shares
and the related Warrants being purchased by such Buyer and each other Buyer at the Closing by wire
transfer of immediately available funds pursuant to the wire instructions provided by the Company.

               (iii) The representations and warranties of such Buyer shall be true and correct in all
material respects (except for those representations and warranties that are qualified by
materiality or Material Adverse Effect, which shall be true and correct in all respects) as of the
date when made and as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date, which shall be true and correct as of such
specified date), and such Buyer shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by such Buyer at or prior to the Closing Date.

               (iv) Absence of Litigation. No proceeding challenging this Agreement or the
transactions contemplated hereby, or seeking to prohibit, alter, prevent or materially delay the
Closing, shall have been instituted or be pending before any court, arbitrator, governmental body,
agency or official.

-20-

 

               (v) No Governmental Prohibition. The sale of the Securities by the Company shall not
be prohibited by any law or governmental order or regulation.

     7. CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE.

          The obligation of each Buyer hereunder to purchase the Common Shares and the related Warrants
at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the
following conditions, provided that these conditions are for each Buyer’s sole benefit and may be
waived by such Buyer at any time in its sole discretion by providing the Company with prior written
notice thereof:

               (i) The Company shall have duly executed and delivered to such Buyer (i) each of the
Transaction Documents and (ii) the Common Shares (in such amounts as such Buyer shall request) and
the related Warrants (in such amounts as such Buyer shall request) being purchased by such Buyer at
the Closing pursuant to this Agreement.

               (ii) Such Buyer shall have received the opinion of Dreier LLP, counsel for the Company
(“Company Counsel”), dated as of the Closing Date, in substantially the form of Exhibit D
attached hereto.

               (iii) The Company shall have delivered to such Buyer a copy of the Irrevocable Transfer Agent
Instructions, in the form of Exhibit C attached hereto, which instructions shall have been
delivered to and acknowledged in writing by the Company’s transfer agent.

               (iv) The Company shall have delivered to such Buyer a certificate evidencing the incorporation
and good standing of the Company in the Company’s state of incorporation issued by the Secretary of
State as of a date within 10 days of the Closing Date.

               (v) The Common Stock (I) shall be listed on the Principal Market and (II) shall not have been
suspended, as of the Closing Date, by the SEC or the Principal Market from trading on the Principal
Market nor shall suspension by the SEC or the Principal Market have been threatened, as of the
Closing Date, either (A) in writing by the SEC or the Principal Market or (B) by falling below the
minimum listing maintenance requirements of the Principal Market.

               (vi) The Company shall have delivered to such Buyer a certificate, executed by the Secretary
of the Company and dated as of the Closing Date, as to (i) the resolutions consistent with Section
3(b) as adopted by the Company’s Board of Directors in a form reasonably acceptable to such Buyer,
(ii) the Certificate of Incorporation and (iii) the Bylaws, each as in effect at the Closing, in
the form attached hereto as Exhibit E.

               (vii) The representations and warranties of the Company shall be true and correct in all
material respects (except for those representations and warranties that are qualified by
materiality or Material Adverse Effect, which shall be true and correct in all respects) as of the
date when made and as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date, which shall be true and correct as of such
specified date) and the Company shall have performed, satisfied and complied

-21-

 

in all material respects with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by the Company at or prior to the
Closing Date. Such Buyer shall have received a certificate, executed by the Chief Executive
Officer of the Company, dated as of the Closing Date, to the foregoing effect and as to such other
matters as may be reasonably requested by such Buyer in the form attached hereto as Exhibit
F.

               (viii) The Company shall have obtained all governmental, regulatory or third party consents
and approvals, if any, necessary for the sale of the Common Shares and the Warrants.

               (ix) The Company shall have delivered to such Buyer such other documents relating to the
transactions contemplated by this Agreement as such Buyer or its counsel may reasonably request.

     8. TERMINATION. In the event that the Closing shall not have occurred with respect to
a Buyer on or before five (5) Business Days from the date hereof due to the Company’s or such
Buyer’s failure to satisfy the conditions set forth in Sections 6 and 7 above (and the nonbreaching
party’s failure to waive such unsatisfied condition(s)), the nonbreaching party shall have the
option to terminate this Agreement with respect to such breaching party at the close of business on
such date without liability of any party to any other party.

     9. MISCELLANEOUS.

          (a) Governing Law; Jurisdiction; Jury Trial. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of New York, without giving effect to any choice of law or conflict of
law provision or rule (whether of the State of New York or any other jurisdictions) that would
cause the application of the laws of any jurisdictions other than the State of New York. Each
party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts
sitting in The City of New York, Borough of Manhattan for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that such suit, action or
proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding
is improper. Each party hereby irrevocably waives personal service of process and consents to
process being served in any such suit, action or proceeding by mailing a copy thereof to such party
at the address for such notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner permitted by law.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL
FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

          (b) 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

-22-

 

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, not a
facsimile signature.

          (c) Headings. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.

          (d) 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.

          (e) Entire Agreement; Amendments. This Agreement and the other Transaction Documents
supersede all other prior oral or written agreements between the Buyers, the Company, their
affiliates and Persons acting on their behalf with respect to the matters discussed herein, and
this Agreement, the other Transaction Documents and the instruments referenced herein and therein
contain the entire understanding of the parties with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, neither the Company nor any Buyer
makes any representation, warranty, covenant or undertaking with respect to such matters. No
provision of this Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of Common Shares representing at least a majority of the amount of the
Common Shares, or, if prior to the Closing Date, the Buyers listed on the Schedule of Buyers as
being obligated to purchase at least a majority of the amount of the Common Shares. No provision
hereof may be waived other than by an instrument in writing signed by the party against whom
enforcement is sought. No such amendment shall be effective to the extent that it applies to less
than all of the holders of the Common Shares then outstanding. No consideration shall be offered
or paid to any Person to amend or consent to a waiver or modification of any provision of any of
the Transaction Documents unless the same consideration also is offered to all of the parties to
the Transaction Documents, holders of Common Shares or holders of the Warrants, as the case may be.
The Company has not, directly or indirectly, made any agreements with any Buyers relating to the
terms or conditions of the transactions contemplated by the Transaction Documents except as set
forth in the Transaction Documents. Without limiting the foregoing, the Company confirms that,
except as set forth in this Agreement, no Buyer has made any commitment or promise or has any other
obligation to provide any financing to the Company or otherwise.

          (f) Notices. Any notices, consents, waivers 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: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by
facsimile (provided confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit with an overnight
courier 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:

-23-

 

Electro-Optical Sciences, Inc.

3 West Main Street, Suite 201

Irvington, New York 10533

Telephone: (914) 591-3783

Facsimile: (914) 591-3701

Attention: Chief Financial Officer

     with a copy (for informational purposes only) to:

Dreier LLP

499 Park Avenue

New York, NY 10022

Telephone: (212) 328-6100

Facsimile: (212) 328-6101

Attention: Valerie Price

     If to the Transfer Agent:

American Stock Transfer & Trust Company

59 Maiden Lane

New York, NY 10038

Telephone: (718) 921-8206

Facsimile: (718) 921-8336

Attention: Geraldine Lippman

If to a Buyer, to its address and facsimile number set forth on the Schedule of Buyers, with copies
to such Buyer’s representatives as set forth on the Schedule of Buyers, or to such other address
and/or facsimile number and/or to the attention of such other Person as the recipient party has
specified by written notice given to each other party five (5) days prior to the effectiveness of
such change. Written confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) mechanically or electronically generated by the sender’s
facsimile machine containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by an overnight courier service shall be rebuttable
evidence of personal service, receipt by facsimile or receipt from an overnight courier service in
accordance with clause (i), (ii) or (iii) above, respectively.

     With a copy (for informational purposes only; provided that failure to deliver notice to the
following will not result in a breach by any party hereto) to:

Schulte Roth & Zabel LLP

919 Third Avenue

New York, New York 10022

Telephone: (212) 756-2000

Facsimile: (212) 593-5955

Attention: Eleazer N. Klein, Esq.

-24-

 

          (g) Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns, including any purchasers of the
Common Shares or the Warrants. The Company shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the holders of at least a majority of
the aggregate number of Registrable Securities issued and issuable hereunder, including by way of a
Fundamental Transaction. A Buyer may assign some or all of its rights hereunder without the
consent of the Company, in which event such assignee shall be deemed to be a Buyer hereunder with
respect to such assigned rights. A merger or sale of the Company shall not be deemed to be an
assignment for the purposes of this section.

          (h) No Third Party Beneficiaries. This Agreement is intended for the benefit of the
parties hereto and their respective permitted successors and assigns, and is not for the benefit
of, nor may any provision hereof be enforced by, any other Person, except that the Agent may rely
upon the representations and warranties contained in Section 2 hereof.

          (i) Survival. Unless this Agreement is terminated under Section 8, the
representations and warranties of the Company and the Buyers in Sections 2 and 3 shall survive the
Closing until the eighteen-month anniversary of the Closing Date (except for the representations
and warranties of the Company made pursuant to Section 3(c), which shall survive indefinitely), and
the agreements and covenants set forth in Sections 4, 5 and 9 shall survive the Closing until the
expiration of the applicable statute of limitations. Each Buyer shall be responsible
only for its own representations, warranties, agreements and covenants hereunder.

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

          (k) Indemnification. In consideration of each Buyer’s execution and delivery of the
Transaction Documents and acquiring the Securities thereunder and in addition to all of the
Company’s other obligations under the Transaction Documents, the Company shall defend, protect,
indemnify and hold harmless each Buyer and each other holder of the Securities and all of their
stockholders, partners, members, officers, directors, employees and direct or indirect investors
and any of the foregoing Persons’ 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 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
misrepresentation or breach of any representation or warranty made by the Company in the
Transaction Documents or any other certificate, instrument or document contemplated hereby or
thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in the
Transaction Documents or any other certificate, instrument or

-25-

 

document contemplated hereby or thereby or (c) any cause of action, suit or claim brought or
made against such Indemnitee by a third party (including for these purposes a derivative action
brought on behalf of the Company) and arising out of or resulting from (i) the execution, delivery,
performance or enforcement of the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (ii) any transaction financed or to be financed in whole
or in part, directly or indirectly, with the proceeds of the issuance of the Securities, or (iii)
the status of such Buyer or holder of the Securities as an investor in the Company. To the extent
that the foregoing undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. Except as otherwise set forth herein, the
mechanics and procedures with respect to the rights and obligations under this Section 9(k) shall
be the same as those set forth in Section 6 of the Registration Rights Agreement.

          (l) 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.

          (m) Remedies. Each Buyer and each holder of the Securities shall have all rights and
remedies set forth in the Transaction Documents 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 such
holders have under any 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 breach of any provision of this Agreement and to exercise all
other rights granted by law. Furthermore, the Company recognizes that in the event that it fails
to perform, observe, or discharge any or all of its obligations under the Transaction Documents,
any remedy at law may prove to be inadequate relief to the Buyers. The Company therefore agrees
that the Buyers shall be entitled to seek temporary and permanent injunctive relief in any such
case without the necessity of proving actual damages and without posting a bond or other security.

          (n) Payment Set Aside. To the extent that the Company makes a payment or payments to
the Buyers hereunder or pursuant to any of the other Transaction Documents or the Buyers enforce or
exercise their 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, foreign, 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.

          (o) Independent Nature of Buyers’ Obligations and Rights. The obligations of each
Buyer under any Transaction Document are several and not joint with the obligations of any other
Buyer, and no Buyer shall be responsible in any way for the performance of the obligations of any
other Buyer under any Transaction Document. Nothing contained herein or in any other

-26-

 

Transaction Document, and no action taken by any Buyer pursuant hereto or thereto, shall be
deemed to constitute the Buyers as, a partnership, an association, a joint venture or any other
kind of entity, or create a presumption that the Buyers are in any way acting in concert or as a
group with respect to such obligations or the transactions contemplated by the Transaction
Documents. Each Buyer shall be entitled to independently protect and enforce its rights,
including, without limitation, the rights arising out of this Agreement or out of any other
Transaction Documents, and it shall not be necessary for any other Buyer to be joined as an
additional party in any proceeding for such purpose.

          (p) Publicity. The Company agrees that it will not use in advertising or publicity the
names of the Purchaser, Fidelity Management & Research Company, any of its partners or employees,
any of the funds or accounts managed by it or any of its affiliates, or any trade name, trademark,
trade device, service mark, symbol or any abbreviation, contraction or simulation thereof, in any
case without the prior written consent of Fidelity Management & Research Company.

          (q) Limitation of Liability. A copy of the Agreement and Declaration of Trust of each
Purchaser is on file with the Secretary of State of the Commonwealth of Massachusetts, and notice
is hereby given that this Agreement is executed on behalf of the Trustees of each Purchaser as
Trustees and not individually and that the obligations of this Agreement are not binding upon any
of the Trustees, officers or stockholders of the Purchaser individually but are binding only upon
the assets and property of such Purchaser. The Company is expressly put on notice that the rights
and obligations of each series of shares of each Purchaser under its Declaration of Trust are
separate and distinct from those of any and all other entities.

[Signature Page Follows]

-27-

 

     IN WITNESS WHEREOF, each Buyer and the Company have caused its respective signature page to
this Securities Purchase Agreement to be duly executed as of the date first written above.

	 	 	 	 	 
	 	 	COMPANY:
	 
	 	 	 	 
	 	 	ELECTRO-OPTICAL SCIENCES, INC.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	Name:
	 

	 	 	 	Title:

 

 

     IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to
this Securities Purchase Agreement to be duly executed as of the date first written above.

	 	 	 	 	 
	 	 	BUYERS:
	 
	 	 	 	 
	 	 	[BUYER]
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	Name:
	 

	 	 	 	Title:
	 
	 	 	 	 
	 	 	Name, as it should appear on the Securities
	 
	 	 	 	 
	 	 	 
	 	 	 

 

 

     IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to
this Securities Purchase Agreement to be duly executed as of the date first written above.

	 	 	 	 	 
	 	 	[OTHER BUYERS]
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	Name:
	 

	 	 	 	Title:
	 
	 	 	 	 
	 	 	Name, as it should appear on the Securities
	 
	 	 	 	 
	 	 	 

 

 

EXHIBITS

	 	 	 
	Exhibit A

	 	Form of Warrant
	Exhibit B

	 	Form of Registration Rights Agreement
	Exhibit C

	 	Form of Irrevocable Transfer Agent Instructions
	Exhibit D

	 	Form of Company Counsel Opinion
	Exhibit E

	 	Form of Secretary’s Certificate
	Exhibit F

	 	Form of Officer’s Certificate

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