Document:

Subsrciption Agreement dated August 2, 2004

 Exhibit 4.1 
  

SUBSCRIPTION AGREEMENT 
  
  
 dated as of August 2, 2004 
  
  
 by and between 
  
  
 DWANGO NORTH AMERICA CORP. 
  
  
 and 
  
  
 ALEXANDRA GLOBAL MASTER FUND LTD. 
  
  

  
  
  
 SERIES A CONVERTIBLE 
 PREFERRED STOCK

  
 AND 
  
 COMMON STOCK PURCHASE WARRANTS 

 DWANGO NORTH AMERICA CORP. 
  
 SUBSCRIPTION AGREEMENT 
  
 SERIES A CONVERTIBLE 
 PREFERRED STOCK

  
 and 
  
 COMMON STOCK PURCHASE WARRANTS 
  
 TABLE OF CONTENTS 
  

					
	 	 	 	  	Page

	 1.        DEFINITIONS
	  	1
		
	2.        PURCHASE AND SALE; PURCHASE PRICE.	  	7
			
	(a)	 	Purchase.	  	7
	(b)	 	Form of Payment.	  	8
	(c)	 	Closing.	  	8
		
	3.        REPRESENTATIONS, WARRANTIES, COVENANTS, ETC. OF THE BUYER.	  	8
			
	(a)	 	Purchase for Investment.	  	8
	(b)	 	QIB and Accredited Investor.	  	9
	(c)	 	Reoffers and Resales.	  	9
	(d)	 	Company Reliance.	  	9
	(e)	 	Information Provided.	  	9
	(f)	 	Absence of Approvals.	  	10
	(g)	 	Subscription Agreement.	  	10
	(h)	 	Buyer Status.	  	10
		
	4.        REPRESENTATIONS, WARRANTIES, COVENANTS, ETC. OF THE COMPANY.	  	10
			
	(a)	 	Organization and Authority.	  	10
	(b)	 	Qualifications.	  	10
	(c)	 	Concerning the Shares and the Common Stock.	  	10
	(d)	 	Corporate Authorization.	  	11
	(e)	 	Non-contravention.	  	11
	(f)	 	Approvals, Filings, Etc.	  	12
	(g)	 	Information Provided.	  	12
	(h)	 	Investment Company.	  	12
	(i)	 	Absence of Brokers, Finders, Etc.	  	12
	(j)	 	No Solicitation.	  	12

  

 -i- 

					
	5.        CERTAIN COVENANTS.	  	13
			
	(a)	 	Transfer Restrictions.	  	13
	(b)	 	Restrictive Legends.	  	14
	(c)	 	Reporting Status.	  	15
	(d)	 	Form D.	  	15
	(e)	 	State Securities Laws.	  	15
	(f)	 	Limitation on Certain Actions.	  	15
	(g)	 	Use of Proceeds.	  	15
	(h)	 	Best Efforts.	  	16
	(i)	 	Limitation on Certain Transactions.	  	16
	(j)	 	Right of the Buyers to Participate in Future Transactions.	  	16
		
	6.        CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.	  	17
		
	7.        CONDITIONS TO THE BUYER’S OBLIGATION TO PURCHASE.	  	18
		
	8.        REGISTRATION RIGHTS.	  	18
			
	(a)	 	Mandatory Registration.	  	18
	(b)	 	Obligations of the Company.	  	20
	(c)	 	Obligations of the Buyer and other Investors.	  	23
	(d)	 	Rule 144.	  	24
		
	9.        INDEMNIFICATION AND CONTRIBUTION.	  	25
			
	(a)	 	Indemnification.	  	25
	(b)	 	Contribution.	  	26
	(c)	 	Other Rights.	  	27
		
	10.        MISCELLANEOUS.	  	27
			
	(a)	 	Governing Law.	  	27
	(b)	 	Headings.	  	27
	(c)	 	Severability.	  	27
	(d)	 	Notices.	  	27
	(e)	 	Counterparts.	  	27
	(f)	 	Entire Agreement; Benefit.	  	28
	(g)	 	Waiver.	  	28
	(h)	 	Amendment.	  	28
	(i)	 	Further Assurances.	  	28
	(j)	 	Assignment of Certain Rights and Obligations.	  	29
	(k)	 	Expenses.	  	29
	(l)	 	Termination.	  	30
	(m)	 	Survival.	  	30
	(n)	 	Public Statements, Press Releases, Etc.	  	31
	(o)	 	Construction.	  	31

  

 -ii- 

 ANNEXES 
  

			
	 ANNEX I
	  	Form of Certificate of Designations
	 ANNEX II
	  	Form of Common Stock Purchase Warrant
	 ANNEX III
	  	Form of Opinion of Moomjian & Waite, LLP to Be Delivered on the Closing Date

  

 -iii- 

 SUBSCRIPTION AGREEMENT 
  
 THIS SUBSCRIPTION AGREEMENT, dated as of August 2, 2004 (this “Agreement”), by and between DWANGO NORTH
AMERICA CORP., a Nevada corporation (the “Company”), with headquarters located at 200 West Mercer Street, Suite 501, Seattle, Washington 98119, and ALEXANDRA GLOBAL MASTER FUND LTD., a British Virgin Islands company (the
“Buyer”). 
  
 W I T N E S S E T H: 
  
 WHEREAS, the Buyer wishes to purchase from the Company and the Company wishes to sell to the Buyer, upon the terms and subject to the conditions of
this Agreement, shares of Series A Preferred Stock (such capitalized term and all other capitalized terms used in this Agreement having the meanings provided in Section 1) of the Company which will be convertible into Common Stock and in connection
with which the Company shall issue to the Buyer warrants to purchase shares of Common Stock; 
  
 NOW THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties
agree as follows: 
  
 1. DEFINITIONS 
  
 (a) As used in this Agreement, the terms “Agreement”,
“Buyer” and “Company” shall have the respective meanings assigned to such terms in the introductory paragraph of this Agreement. 
  
 (b) All the agreements or instruments herein defined shall mean such agreements or instruments as the same may from time to time be supplemented or
amended or the terms thereof waived or modified to the extent permitted by, and in accordance with, the terms thereof and of this Agreement. 
  
 (c) The following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms
defined): 
  
 “Affiliate” means, with respect to any
Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with the subject Person. For purposes of this definition, “control” (including, with
correlative meaning, the terms “controlled by” and “under common control with”), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise. 
  
 “Blackout Period” means the period of up to 20 Trading Days (whether or not consecutive) during any period of 365 consecutive days after the
date the Company notifies the Investors that they are required, pursuant to Section 8(c)(4), to suspend offers and sales of 

 Registrable Securities as a result of an event or circumstance described in Section 8(b)(5)(A), during which period, by
reason of Section 8(b)(5)(B), the Company is not required to amend the Registration Statement or supplement the related Prospectus. 
  
 “Business Day” means any day other than a Saturday, Sunday or a day on which commercial banks in The City of New York are authorized or required
by law or executive order to remain closed. 
  
 “Certificate
of Designations” means the Certificate of Designations setting forth the designations, relative rights, preferences and limitations of the Series A Preferred Stock in the form of Annex I to this Agreement. 
  
 “Claims” means any losses, claims, damages, liabilities or
expenses, including, without limitation, reasonable fees and expenses of legal counsel (joint or several), incurred by a Person. 
  
 “Closing Date” means 10:00 a.m., New York City time, on August 2, 2004 or such other mutually agreed to time. 
  
 “Code” means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder and published interpretations thereof. 
  
 “Common Shares” means the Conversion Shares and the Warrant Shares. 
  
 “Common Stock” means the Common Stock, par value $.001 per share, of the Company. 
  
 “Common Stock Equivalent” means any warrant, option, subscription or purchase right with respect to shares of Common Stock, any security
convertible into, exchangeable for, or otherwise entitling the holder thereof to acquire, shares of Common Stock or any warrant, option, subscription or purchase right with respect to any such convertible, exchangeable or other security. 

 
 “Conversion Price” shall have the meaning to be provided or
provided in the Certificate of Designations. 
  
 “Conversion
Shares” means the shares of Common Stock issuable upon conversion of the Preferred Shares. 
  
 “Encumbrances” means all mortgages, deeds of trust, claims, security interests, liens, pledges, leases, subleases, charges, escrows, options,
proxies, rights of occupancy, rights of first refusal, preemptive rights, covenants, conditional limitations, hypothecations, prior assignments, easements, title retention agreements, indentures, security agreements or any other encumbrances of any
kind. 
  

 -2- 

 “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the
regulations thereunder and published interpretations thereof. 
  
 “Excluded Shares” shall have the meaning provided in Section 5(j). 
  
 “Indemnified Party” means the Company, each of its directors, each of its officers who signs the Registration Statement, each Person, if any, who controls the Company within the meaning of the 1933 Act or
the 1934 Act, any underwriter and any other stockholder selling securities pursuant to the Registration Statement or any of its directors or officers or any Person who controls such stockholder or underwriter within the meaning of the 1933 Act or
the 1934 Act. 
  
 “Indemnified Person” means the Buyer
and each other Investor who beneficially owns or holds Registrable Securities and each other Investor who sells such Registrable Securities in the manner permitted under this Agreement, the directors, if any, of such Investor, the officers or
persons performing similar functions, if any, of the Buyer and any such Investor, each Person, if any, who controls the Buyer or any such Investor within the meaning of the 1933 Act or the 1934 Act, any underwriter (as defined in the 1933 Act)
acting on behalf of an Investor who participates in the offering of Registrable Securities of such Investor in accordance with the plan of distribution contained in the Prospectus, the directors, if any, of such underwriter and the officers, if any,
of such underwriter, and each Person, if any, who controls any such underwriter within the meaning of the 1933 Act or the 1934 Act. 
  
 “Inspector” means any attorney, accountant or other agent retained by an Investor for the purposes provided in Section 8(b)(9). 
  
 “Investor” means the Buyer and any transferee or assignee who
agrees to become bound by the provisions of Sections 5(a), 5(b), 8, 9, and 10 of this Agreement. 
  
 “Margin Stock” shall have the meaning provided in Regulation U of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 221).

  
 “Nasdaq” means the Nasdaq National Market.

  
 “Nasdaq SmallCap” means the Nasdaq SmallCap Market.

  
 “NASD” means the National Association of Securities
Dealers, Inc. 
  
 “1934 Act” means the Securities
Exchange Act of 1934, as amended. 
  
 “1933 Act” means
the Securities Act of 1933, as amended. 
  
 “Optional
Redemption Event” shall have the meaning to be provided or provided in the Certificate of Designations. 
  
 “OTCBB” means the Over-The-Counter Bulletin Board. 
  

 -3- 

 “Person” means any natural person, corporation, partnership, limited liability company, trust,
incorporated organization, unincorporated association or similar entity or any government, governmental agency or political subdivision. 
  
 “Placement Agent” means HCFP Brenner Securities and RG Securities LLC. 
  
 “Preferred Shares” means the shares of Series A Preferred Stock to be purchased by the Buyer pursuant to this
Agreement, as set forth on the signature page of this Agreement. 
  
 “Prospectus” means the prospectus forming part of the Registration Statement at the time the Registration Statement is declared effective and any amendment or supplement thereto (including any information or documents incorporated
therein by reference). 
  
 “Purchase Price” means the
aggregate purchase price for the Preferred Shares set forth on the signature page of this Agreement. 
  
 “QIB” means a “qualified institutional buyer” as defined in Rule 144A. 
  
 “Questionnaire” means the Investor Questionnaire completed by the Buyer and previously delivered to the Company.

  
 “Record” means all pertinent financial and other
records, pertinent corporate documents and properties of the Company subject to inspection for the purposes provided in Section 8(b)(9). 
  
 “register,” “registered,” and “registration” refer to a registration effected by preparing and filing a Registration
Statement or Statements in compliance with the 1933 Act and pursuant to Rule 415, and the declaration or ordering of effectiveness of such Registration Statement by the SEC. 
  
 “Registrable Securities” means (1) the Common Shares, (2) if the Common Stock is changed, converted or exchanged
by the Company or its successor, as the case may be, into any other stock or other securities on or after the date hereof, such other stock or other securities which are issued or issuable in respect of or in lieu of the Common Shares and (3) if any
other securities are issued to holders of the Common Stock (or such other shares or other securities into which or for which the Common Stock is so changed, converted or exchanged as described in the immediately preceding clause (2)) upon any
reclassification, share combination, share subdivision, share dividend, merger, consolidation or similar transaction or event, such other securities which are issued or issuable in respect of or in lieu of the Common Shares. 
  
 “Registration Default Period” means the period following December
29, 2004 during which any Registration Event occurs and is continuing. 
  

 -4- 

 “Registration Event” means the occurrence of any of the following events: 
  
 (i) the Company fails to file with the SEC the Registration
Statement on or before the date by which the Company is required to file the Registration Statement pursuant to Section 8(a)(1), 
  
 (ii) the Registration Statement covering Registrable Securities is not declared effective by the SEC within the later of (a) January 28,
2005 or (b) if a Registration Statement is required to be filed with respect to any Registrable Securities pursuant to the last sentence of Section 8(a) (1), then, with respect to such Registrable Securities, 60 days following the 45 day period
referred to therein, 
  
 (iii) after the SEC
Effective Date, sales cannot be made pursuant to the Registration Statement for any reason (including without limitation by reason of a stop order of any untrue statement of a material fact or omission of a material fact in the Registration
Statement, or the Company’s failure to update the Registration Statement) but except as excused pursuant to Section 8(b)(5), 
  
 (iv) after the date on which securities of the Company are listed or included for quotation on a Trading Market, the Common Stock
generally or the Registrable Securities specifically are not listed or included for quotation on a Trading Market, or trading of the Common Stock is suspended or halted for a period exceeding 5 days on the Trading Market which at the time
constitutes the principal market for the Common Stock, or 
  
 (v) the Company fails, refuses or is otherwise unable timely to issue Conversion Shares upon conversion of the Preferred Shares or Warrant Shares upon exercise of the Warrant in accordance with the terms of the
Certificate of Designations and the Warrant, or certificates therefor as required under the Transaction Documents or the Company fails, refuses or is otherwise unable timely to transfer any Shares as and when required by the Transaction Documents.

  
 “Registration Period” means the period from the SEC
Effective Date to the earlier of (A) the date which is three years after the Closing Date, (B) the date after which each Investor may sell all of its Registrable Securities without registration under the 1933 Act pursuant to Rule 144, free of any
limitation on the volume of such securities which may be sold in any period) and (C) the date on which the Investors no longer own any Registrable Securities. 
  

“Registration Statement” means a registration statement on Form S-1, Form SB-2, Form S-3 or such other form as may be available to the
Company to be filed with the SEC under the 1933 Act relating to the Registrable Securities and which names the Investors as selling stockholders. 
  
 “Regulation D” means Regulation D under the 1933 Act. 
  

“Required Information” means, with respect to each Investor, all information regarding such Investor, the Registrable Securities held by such
Investor or which such Investor has the right to acquire and the intended method of disposition of the Registrable Securities held by such Investor or which such Investor has the right to acquire as shall be required by the 1933 Act to effect the
registration of the resale by such Investor of such Registrable Securities. 
  

 -5- 

 “Restricted Ownership Percentage” shall have the meaning provided in Section 5(j).

  
 “Rule 144” means Rule 144 promulgated under the 1933
Act or any other similar rule or regulation of the SEC that may at any time provide a “safe harbor” exemption from registration under the 1933 Act so as to permit a holder to sell securities of the Company to the public without
registration under the 1933 Act. 
  
 “Rule 144A” means
Rule 144A under the 1933 Act or any successor rule thereto. 
  
 “SEC” means the Securities and Exchange Commission. 
  
 “SEC Effective Date” means the date the Registration Statement is declared effective by the SEC. 
  
 “SEC Filing Date” means the date the Registration Statement is first filed with the SEC pursuant to Section 8. 
  
 “SEC Reports” means the Company’s (1) Annual Report on Form
10-KSB for the year ended December 31, 2003, (2) Quarterly Report on Form 10-QSB for the quarter ended March 31, 2004, (3) Current Report on Form 8-K filed on June 3, 2004, (4) Current Report on Form 8-K filed on June 21, 2004, (5) Current Report on
Form 8-K filed July 8, 2004 and (6) all other periodic and other reports filed by the Company with the SEC pursuant to the 1934 Act subsequent to April 15, 2004, and prior to the date hereof, in each case as filed with the SEC and including the
information and documents (other than exhibits) incorporated therein by reference. 
  
 “Securities” means, collectively, the Shares and the Warrant. 
  
 “Series A Preferred Stock” shall mean the Series A Convertible Preferred Stock, $.001 par value, of the Company. 
  
 “Shares” means the Preferred Shares, the Conversion Shares and the
Warrant Shares. 
  
 “Subsidiary” means any corporation
or other entity of which a majority of the capital stock or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly
owned by the Company. 
  
 “Trading Day” means at any
time a day on which any of a national securities exchange, Nasdaq, Nasdaq SmallCap or such other securities market as at such time constitutes the principal securities market for the Common Stock is open for general trading of securities.

  

 -6- 

 “Trading Market” means the OTCBB, the American Stock Exchange, Inc., the Nasdaq, the Nasdaq
SmallCap or the New York Stock Exchange, Inc. 
  
 “Transaction Documents” means, collectively, this Agreement, the Securities, the Certificate of Designations, and the other agreements, instruments and documents contemplated hereby and thereby. 
  
 “Transfer Agent” means Interwest Transfer Company, Inc., as
transfer agent and registrar for the Common Stock, or its successor. 
  
 “Violation” means 
  
 (i) any untrue statement
or alleged untrue statement of a material fact contained in the Registration Statement or any post-effective amendment thereof or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, 
  
 (ii) any untrue
statement or alleged untrue statement of a material fact contained in any Prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading, 
  
 (iii) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any state securities law or any rule or regulation under the 1933
Act, the 1934 Act or any state securities law, or 
  
 (iv) any
breach or alleged breach by any Person other than the Buyer of any representation, warranty, covenant, agreement or other term of any of the Transaction Documents. 
  
 “Warrant” means the Common Stock Purchase Warrant in the form attached hereto as Annex II. 
  
 “Warrant Shares” means the shares of Common Stock issuable upon
exercise of the Warrant. 
  
 2. PURCHASE AND SALE; PURCHASE
PRICE. 
  
 (a) Purchase. Upon the terms and subject to
the conditions of this Agreement, the Buyer hereby agrees to purchase from the Company, and the Company hereby agrees to sell to the Buyer, on the Closing Date, the number of Preferred Shares set forth on the signature page of this Agreement and
having the terms and conditions as set forth in the Certificate of Designations attached hereto as Annex I at the price per share and for the Purchase Price set forth on the signature page of this Agreement. In connection with the purchase of
the Preferred Shares by the Buyer, the Company shall issue to the Buyer at the closing on the Closing Date a Warrant initially entitling the holder to purchase the number of shares of Common Stock set forth on the signature page of this Agreement.

  

 -7- 

 (b) Form of Payment. Payment by the Buyer of the Purchase Price to the Company on the Closing Date
shall be made by wire transfer of immediately available funds to: 
  
 KeyBank 
 434 Queen Anne Avenue North 
 Seattle, Washington 98109 
 ABA No. 125000574 
  
 For credit to account No. 471001011405 
 For credit to the account of Dwango North America 
 Reference: Alexandra 
  
 (c) Closing. The issuance and sale of the Preferred Shares and the
issuance of the Warrant shall occur on the Closing Date at the Law Offices of Brian W Pusch, Penthouse Suite, 29 West 57th Street, New York, New York. At the closing, upon the terms and subject to the conditions of this Agreement, (1) the Company
shall issue and deliver to the Buyer the Preferred Shares and the Warrant against payment by the Buyer to the Company of an amount equal to the Purchase Price, and (2) the Buyer shall pay to the Company an amount equal to the Purchase Price against
delivery by the Company to the Buyer of the Preferred Shares and the Warrant. 
  
 3. REPRESENTATIONS, WARRANTIES, COVENANTS, ETC. OF THE BUYER. 
  
 The Buyer represents and warrants to, and covenants and agrees with, the Company as follows: 
  
 (a) Purchase for Investment. The Buyer is purchasing the Preferred
Shares and acquiring the Warrant and will acquire the Common Shares issued upon conversion of the Preferred Shares, prior to the second anniversary of the issuance of such Preferred Shares, or issued upon each exercise of the Warrant prior to the
second anniversary of the Closing Date or acquired upon exercise of the Warrant by payment for the Warrant Shares in cash at any time, for its own account for investment and not with a view towards the public sale or distribution thereof within the
meaning of the 1933 Act; and the Buyer will acquire any Common Shares issued to the Buyer prior to the SEC Effective Date of a Registration Statement covering the resale of such Common Shares by the Buyer for its own account for investment and not
with a view towards the public sale or distribution thereof within the meaning of the 1933 Act prior to the SEC Effective Date; and the Buyer has no intention of making any distribution, within the meaning of the 1933 Act, of the Common Shares
except in compliance with the registration requirements of the 1933 Act or pursuant to an exemption therefrom; 
  

 -8- 

 (b) QIB and Accredited Investor. The Buyer is both a QIB and an “accredited investor” as
that term is defined in Rule 501 of Regulation D under the 1933 Act by reason of Rule 501(a)(3) thereof; 
  
 (c) Reoffers and Resales. The Buyer will not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers
to buy, purchase or otherwise acquire or take a pledge of) any of the Securities unless registered under the 1933 Act, pursuant to an exemption from registration under the 1933 Act or in a transaction not requiring registration under the 1933 Act;

  
 (d) Company Reliance. The Buyer understands that (1)
the Preferred Shares are being offered and sold and the Warrant is being issued to the Buyer; (2) upon conversion of the Preferred Shares, the Conversion Shares issued upon such conversions will be issued to the Buyer; and (3) upon exercise of the
Warrant, the Warrant Shares issued upon such exercise will be issued to the Buyer, in each such case in reliance on one or more exemptions from the registration requirements of the 1933 Act, including, without limitation, Regulation D, and
exemptions from state securities laws and that the Company is relying upon the truth and accuracy of, and the Buyer’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Buyer set forth herein
and in the Questionnaire, a true and accurate copy of which has been delivered by the Buyer to the Company, in order to determine the availability of such exemptions and the eligibility of the Buyer to acquire or receive an offer to acquire the
Securities; and the information with respect to the Buyer set forth in the Questionnaire is accurate and complete in all material respects; 
  
 (e) Information Provided. The Buyer and its advisors, if any, have requested, received and considered all information relating to the business,
properties, operations, condition (financial or other), results of operations or prospects of the Company and information relating to the offer and sale of the Preferred Shares and the Warrant Shares deemed relevant by them (assuming the accuracy
and completeness of the SEC Reports and of the Company’s responses to the Buyer’s requests); the Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company concerning the terms of the offering of the
Securities and the business, properties, operations, condition (financial or other), results of operations and prospects of the Company and its Subsidiaries and have received satisfactory answers to any such inquiries; without limiting the
generality of the foregoing, the Buyer has had the opportunity to obtain and to review the SEC Reports; in connection with its decision to purchase the Preferred Shares and to acquire the Warrant, the Buyer has relied solely upon the SEC Reports,
the representations, warranties, covenants and agreements of the Company set forth in this Agreement and to be contained in the other Transaction Documents, as well as any investigation of the Company completed by the Buyer or its advisors; the
Buyer understands that its investment in the Securities involves a high degree of risk; and the Buyer understands that the offering of the Preferred Shares is being made to the Buyer as part of an offering without any minimum or maximum amount of
the offering (subject, however, to the right of the Company at any time prior to execution and delivery of this Agreement by the Company, in its sole discretion, to accept or reject an offer by the Buyer to purchase the Preferred Shares and to
acquire the Warrant); 
  

 -9- 

 (f) Absence of Approvals. The 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; 
  
 (g) Subscription Agreement. The Buyer has all requisite power and authority, corporate or otherwise, to execute, deliver and perform its
obligations under this Agreement and the other agreements executed by the Buyer in connection herewith and to consummate the transactions contemplated hereby and thereby; and this Agreement has been duly and validly authorized, duly executed and
delivered by the Buyer and, assuming due execution and delivery by the Company, is a valid and binding agreement of the Buyer enforceable in accordance with its terms, except as the enforceability hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws now or hereafter in effect relating to or affecting creditors’ rights generally and general principles of equity, regardless of whether enforcement is considered in a
proceeding in equity or at law; and 
  
 (h) Buyer Status.
The Buyer is not a “broker” or “dealer” as those terms are defined in the 1934 Act which is required to be registered with the SEC pursuant to Section 15 of the 1934 Act. 
  
 4. REPRESENTATIONS, WARRANTIES, COVENANTS, ETC. OF THE COMPANY.

  
 The Company represents and warrants to, and covenants and
agrees with, the Buyer as follows: 
  
 (a) Organization and
Authority. The Company and each of the Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, and (i) each of the Company and the Subsidiaries has all
requisite corporate power and authority to own, lease and operate its properties and to carry on its business as described in the SEC Reports and as currently conducted, and (ii) the Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement and the other Transaction Documents to be executed and delivered by the Company in connection herewith, and to consummate the transactions contemplated hereby and thereby; and the
Company does not have any equity investment in any other Person other than (x) the Subsidiaries listed in the SEC Reports and (y) Subsidiaries which do not, individually or in the aggregate, have any material revenue, assets or liabilities.

  
 (b) Qualifications. The Company and each of the
Subsidiaries are duly qualified to do business as foreign corporations and are in good standing in all jurisdictions where such qualification is necessary and where failure so to qualify could have a material adverse effect on the business,
properties, operations, condition (financial or other), results of operations or prospects of the Company and the Subsidiaries, taken as a whole. 
  
 (c) Concerning the Shares and the Common Stock. The Shares have been duly authorized and the Preferred Shares, when issued and paid for in
accordance with this 
  

 -10- 

 Agreement, and the Conversion Shares, when issued upon conversion of the Preferred Shares, and the Warrant Shares, when
issued upon exercise of the Warrant, in each such case will be duly and validly issued, fully paid and non-assessable and will not subject the holder thereof to personal liability by reason of being such holder. Other than the rights of Buyer, there
are no preemptive or similar rights of any stockholder of the Company or any other Person to acquire any of the Shares or the Warrant. The Company has duly reserved 833,334 shares of Common Stock for issuance upon conversion of the Preferred Shares
and upon exercise of the Warrant, and such shares shall remain so reserved, and the Company shall from time to time reserve such additional shares of Common Stock as shall be required to be reserved pursuant to the Certificate of Designations and
the Warrant, so long as the Preferred Shares or the Warrant are outstanding. The Common Stock is traded on the OTCBB. The Company knows of no reason that the Common Shares will be ineligible for quotation on the OTCBB. 
  
 (d) Corporate Authorization. This Agreement and the other Transaction
Documents to which the Company is or will be a party have been duly and validly authorized by the Company; this Agreement has been duly executed and delivered by the Company and, assuming due execution and delivery by the Buyer, this Agreement is,
and the Certificate of Designations is, and the Warrant when executed and delivered by the Company, will be, valid and binding obligations of the Company enforceable in accordance with their respective terms, except as the enforceability hereof or
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting creditors’ rights generally and general principles of equity, regardless of whether
enforcement is considered in a proceeding in equity or at law. 
  
 (e) Non-contravention. The execution and delivery of the Transaction Documents by the Company and the consummation by the Company of the issuance of the Securities as contemplated by this Agreement and consummation by the Company of
the other transactions contemplated by the Transaction Documents do not and will not, with or without the giving of notice or the lapse of time, or both, (i) result in any violation of any term or provision of the certificate of incorporation or
bylaws of the Company or any Subsidiary, (ii) conflict with or result in a breach by the Company or any Subsidiary of any of the terms or provisions of, or constitute a default under, or result in the modification of, or result in the creation or
imposition of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company or any Subsidiary pursuant to, any indenture, mortgage, deed of trust or other agreement or instrument to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary or any of their respective properties or assets are bound or affected, in any such case which would be reasonably likely to have a material adverse effect on the business, properties,
operations, condition (financial or other), results of operations or prospects of the Company and the Subsidiaries, taken as a whole, or the validity or enforceability of, or the ability of the Company to perform its obligations under, the
Transaction Documents, (iii) violate or contravene any applicable law, rule or regulation or any applicable decree, judgment or order of any court, United States federal or state regulatory body, administrative agency or other governmental body
having jurisdiction over the Company or any Subsidiary or any of their respective properties or assets, in any such case which would be reasonably likely to have a material adverse effect on the business, properties, operations, condition (financial
or other), results of operations or prospects of the Company and the Subsidiaries, taken as a whole, or the 
  

 -11- 

 validity or enforceability of, or the ability of the Company to perform its obligations under, the Transaction Documents,
or (iv) have any material adverse effect on any permit, certification, registration, approval, consent, license or franchise necessary for the Company or any Subsidiary to own or lease and operate any of its properties and to conduct any of its
business or the ability of the Company or any Subsidiary to make use thereof. 
  
 (f) Approvals, Filings, Etc. No authorization, approval or consent of, or filing with, any United States or foreign court, governmental body, regulatory agency, self-regulatory organization, or stock exchange
or market or the stockholders of the Company is required to be obtained or made by the Company or any Subsidiary for (x) the execution, delivery and performance by the Company of the Transaction Documents, (y) the issuance and sale of the Securities
as contemplated by this Agreement and the terms of the Preferred Shares and the Warrant and (z) the performance by the Company of its obligations under the Transaction Documents, other than (1) registration of the resale of the Shares under the 1933
Act as contemplated by Section 8, (2) as may be required under applicable state securities or “blue sky” laws and (3) filing of one or more Forms D with respect to the Securities as required under Regulation D. 
  
 (g) Information Provided. The SEC Reports, the Transaction Documents
and the instruments delivered by the Company to the Buyer in connection with the closing on the Closing Date do not and will not on the date of execution and delivery of this Agreement, the date of delivery thereof to the Buyer and on the Closing
Date contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading, it being understood that for
purposes of this Section 4(g), any statement contained in such information shall be deemed to be modified or superseded for purposes of this Section 4(g) to the extent that a statement in any document included in such information which was prepared
and furnished to the Buyer on a later date or filed with the SEC on a later date modifies or replaces such statement, whether or not such later prepared or filed statement so states. 
  
 (h) Investment Company. Neither the Company nor any Subsidiary is an “investment company” within the
meaning of such term under the Investment Company Act of 1940, as amended, and the rules and regulations of the SEC thereunder. 
  
 (i) Absence of Brokers, Finders, Etc. No broker, finder or similar Person other than the Placement Agent is entitled to any commission, fee or
other compensation by reason of action taken by or on behalf of the Company in connection with the transactions contemplated by this Agreement, and the Company shall pay, and indemnify and hold harmless the Buyer from, any claim made against the
Buyer by any Person for any such commission, fee or other compensation. 
  
 (j) No Solicitation. No form of general solicitation or general advertising was used by the Company or, to the best of its knowledge, any other Person acting on behalf of the Company, in respect of the Securities or in connection
with the offer and sale of the Securities. Neither the Company nor, to its knowledge, any Person acting on behalf of the Company has, either directly or indirectly, sold or offered for sale to any Person any of the 
  

 -12- 

 Securities (other than the Placement Agent and other than 250 shares of Preferred Stock issued by the Company to the
Buyer pursuant to the Subscription Agreement, dated as of June 14, 2004, by and between the Company and the Buyer and 500 shares of Preferred Stock issued by the Company to the Buyer pursuant to the Subscription Agreement, dated as of July 2, 2004,
by and between the Company and the Buyer) or, within the six months prior to the date hereof, any other similar security of the Company except as contemplated by this Agreement; and neither the Company nor any Person authorized to act on its behalf
will sell or offer for sale any promissory notes, warrants, shares of Common Stock or other securities to, or solicit any offers to buy any such security from, any Person so as thereby to cause the issuance or sale of any of the Securities to be in
violation of any of the provisions of Section 5 of the 1933 Act. 
  
 5. CERTAIN COVENANTS. 
  
 (a) Transfer
Restrictions. The Buyer acknowledges and agrees that (1) the Preferred Shares and the Warrant have not been and are not being registered under the provisions of the 1933 Act or any state securities laws and, except as provided in Section 8, the
Common Shares have not been and are not being registered under the 1933 Act or any state securities laws, and that the Preferred Shares and the Warrant and the Common Shares may not be transferred unless the Buyer shall have delivered to the Company
an opinion of counsel, reasonably satisfactory in form, scope and substance to the Company, to the effect that the Preferred Shares, the Warrant or the Common Shares to be transferred may be transferred without such registration or unless
transferred in accordance with Rule 144A to a QIB; (2) no sale, assignment or other transfer of the Preferred Shares, the Warrant or the Common Shares or any interest therein may be made except in accordance with the terms hereof and thereof; (3)
the Common Shares may not be resold by the Buyer unless the resale has been registered under the 1933 Act or is made pursuant to an applicable exemption from such registration and the Company shall have received the opinion of counsel provided for
in the second to last sentence of this Section 5(a); (4) any sale of Common Shares under a Registration Statement shall be made only in compliance with the terms of this Section 5(a) and Section 8 (including, without limitation, Section 8(c)(5));
(5) any sale of the Securities made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144 and further, if the exemption provided by Rule 144 is not available, any resale of the Securities under circumstances in which the
seller, or the Person through whom the sale is made, may be deemed to be an underwriter, as that term is used 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 (6) the Company is under no obligation to register the Securities (other than registration of the resale of the Shares in accordance with Section 8) under the 1933 Act or, except as provided in Section 5(d) and Section 8, to comply with the
terms and conditions of any exemption thereunder. Prior to the time particular Common Shares are eligible for resale under Rule 144(k), the Buyer may not transfer the Common Shares in a transaction which does not constitute a transfer thereof
pursuant to the applicable Registration Statement in accordance with the plan of distribution set forth therein or in any supplement to the related Prospectus unless the Buyer shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, that such Common Shares may be so transferred without registration under the 1933 Act. Nothing in any of the Transaction Documents shall limit the right of a holder of the Securities to make
a bona fide pledge thereof to an institutional lender and the Company agrees to cooperate with any Investor who seeks to effect any such pledge by providing such information and making such confirmations as reasonably requested. 
  

 -13- 

 (b) Restrictive Legends. (1) The Buyer acknowledges and agrees that the certificates for the
Preferred Shares shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of the Preferred Shares): 
  
 These securities have not been registered under the Securities Act of 1933, as amended (the “Act”). The issuance
to the holder of these securities of the shares of common stock issuable upon conversion of these securities is not covered by a registration statement under the Act. These securities have been acquired, and such shares of common stock must be
acquired, for investment and may not be sold, transferred or assigned unless (1) their resale is registered under the Act, (2) the Company has received an opinion of counsel reasonably satisfactory in form, scope and substance to the Company that
such registration is not required or (3) sold, transferred or assigned to a QIB pursuant to Rule 144A. 
  
 (2) The Buyer further acknowledges and agrees that the Warrant shall bear a restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of the Warrant): 
  
 This
Warrant has not been registered under the Securities Act of 1933, as amended (the “Act”), and may not be sold, transferred or assigned unless (1) the resale hereof is registered under the Act, (2) the Company has received an opinion of
counsel reasonably satisfactory in form, scope and substance to the Company that such registration is not required or (3) sold, transferred or assigned to a QIB pursuant to Rule 144A. 
  
 (3) The Buyer further acknowledges and agrees that until such time as the Common Shares have been registered for resale
under the 1933 Act as contemplated by Section 8 or are eligible for resale under Rule 144(k) under the 1933 Act, the certificates for the Common Shares, may bear a restrictive legend in substantially the following form (and a stop-transfer order may
be placed against transfer of the certificates for the Common Shares): 
  
 The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the “1933 Act”). The securities have been acquired for investment and may not be resold, transferred or assigned
in the absence of an effective registration statement for the securities under the 1933 Act or an opinion of counsel that registration is not required under the 1933 Act. 
  
 (4) Once the Registration Statement required to be filed by the Company pursuant to Section 8 has been declared effective or
particular Common Shares are eligible for resale pursuant to Rule 144(k) under the 1933 Act, thereafter (1) upon request of the Buyer the Company will substitute certificates without restrictive legend for certificates for any such Common Shares
issued prior to the SEC Effective Date or prior to the time of such eligibility, as the case may be, which bear such restrictive legend and remove any stop-transfer restriction relating thereto promptly, but in no event later than three days after
surrender of such certificates 
  

 -14- 

 by the Buyer and (2) the Company shall not place any restrictive legend on certificates for Conversion Shares issued on
conversion of the Preferred Shares or on any Warrant Shares issued upon exercise of the Warrant or impose any stop-transfer restriction thereon. 
  
 (c) Reporting Status. During the Registration Period, the Company shall timely file all reports required to be filed with the SEC pursuant
to Section 13 or 15(d) of 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 permit such termination. 

 
 (d) Form D. The Company agrees to file one or more Forms D with
respect to the Securities as required under Regulation D to claim the exemption provided by Rule 506 of Regulation D and to provide a copy thereof to the Buyer promptly after such filing. 
  
 (e) State Securities Laws. On or before the Closing Date, the Company shall take such action as shall be necessary to
qualify, or to obtain an exemption for, the offer and sale of the Securities to the Buyer as contemplated by the Transaction Documents under such of the securities laws of jurisdictions in the United States as shall be applicable thereto.
Notwithstanding the foregoing obligations of the Company in this Section 5(e), the Company shall not be required (1) to qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 5(e), (2) to
subject itself to general taxation in any such jurisdiction, (3) to file a general consent to service of process in any such jurisdiction, (4) to provide any undertakings that cause more than nominal expense or burden to the Company or (5) to make
any change in its charter or by-laws which the Company determines to be contrary to the best interests of the Company and its stockholders. The Company shall furnish the Buyer with copies of all filings, applications, orders and grants or
confirmations of exemptions relating to such securities laws on or before the Closing Date. 
  
 (f) Limitation on Certain Actions. From the date of execution and delivery of this Agreement by the parties hereto to the date of issuance of the Preferred Shares and the Warrant, the Company shall not take any
action which, if the Preferred Shares were outstanding, would constitute an Optional Redemption Event, or with the giving of notice or the passage of time or both, would constitute an Optional Redemption Event. 
  
 (g) Use of Proceeds. The Company represents and agrees that: (1) it
does not own or have any present intention of acquiring any Margin Stock; (2) the proceeds of sale of the Preferred Shares and the Warrant Shares will be used for general working capital purposes and in the operation of the Company’s business;
(3) none of such proceeds will be used, directly or indirectly for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any Margin Stock or for the purpose of maintaining, reducing or retiring any indebtedness which was
originally incurred to purchase or carry any stock that is currently a Margin Stock or for any other purpose which might constitute the transactions contemplated by this Agreement a “purpose credit” within the meaning of such Regulation U
of the Board of Governors of the Federal Reserve System; and (4) neither the Company nor any agent acting on its behalf has taken or will take any action which might cause this Agreement or the transactions contemplated hereby to violate Regulation
T, Regulation U or any other regulation of the Board of Governors of the Federal Reserve System or to violate the 1934 Act, in each case as in effect now or as the same may hereafter be in effect. 
  

 -15- 

 (h) Best Efforts. Each of the parties shall use its best efforts timely to satisfy each of the
conditions to the other party’s obligations to sell and purchase the Preferred Shares set forth in Section 6 or 7, as the case may be, of this Agreement on or before the Closing Date. 
  
 (i) Limitation on Certain Transactions. Beginning as of the
date of this Agreement and until the effective date of the Registration Statement, without the prior written consent of the Buyer (which consent may be withheld in the Buyer’s sole discretion), the Company shall not issue or sell or agree to
issue or sell any securities in a capital raising transaction, unless such securities will not be, and are not, registered for sale or resale under the 1933 Act until on or after the effective date of the Registration Statement, provided that the
limitation of this Section 5(i) shall not apply to securities issued pursuant to (a) the Company’s duly adopted employee or director bona fide share and option plans, (b) the exercise or conversion of Common Stock Equivalents that are
outstanding on the date of this Agreement, or (c) a private placement in an amount not to exceed $5,000,000.00 for which the Placement Agent has acted as the placement agent therefor. 
  
 (j) Right of the Buyers to Participate in Future Transactions. 
  
 (1) Right to Participate. So long as the Preferred Shares remain
outstanding, the Buyer will have a right to participate in any sales of any of the Company’s securities in a capital raising transaction on the terms and conditions set forth in this Section 5(j). During such period, the Company shall give ten
Business Days advance written notice to the Buyer prior to any non-public offer or sale of any of the Company’s capital stock or any Common Stock Equivalents in a capital raising transaction by providing to the Buyer a comprehensive term sheet
containing all significant business terms of such a proposed transaction. The Buyer shall have the right to participate in such proposed transaction and to purchase 20 percent of such securities which are the subject of such proposed transaction for
the same consideration and on the same terms and conditions as contemplated for such third-party sale (or such lesser portion thereof as specified by the Buyer). If the Buyer elects to exercise its rights hereunder it must deliver written notice to
the Company within five Business Days following receipt of the notice and comprehensive term sheet from the Company, which notice from the Buyer shall be contingent upon receipt of satisfactory definitive documents for such transaction from the
Company. If, subsequent to the Company giving notice to the Buyer hereunder but prior to the Buyer exercising its right to participate (or the expiration of the five-day period without response from the Buyer or the rejection of such offer for such
financing by the Buyer), the terms and conditions of the proposed third-party sale are changed in any material manner from that disclosed in the comprehensive term sheet provided to the Buyer, the Company shall be required to provide a new notice
and comprehensive term sheet reflecting such revised terms to the Buyer hereunder and the Buyer shall have the right, which must be exercised within five Business Days of such new notice and such revised comprehensive term sheet, to exercise its
rights to purchase the securities on such changed terms and conditions as provided hereunder. In the event the Buyer does not exercise its rights hereunder with respect to a proposed transaction within the period or periods provided, or
affirmatively declines to engage in such proposed transaction with the Company, then the Company may proceed with such proposed transaction on the same terms 
  

 -16- 

 and conditions as noticed to the Buyer (assuming the Buyer has consented to the transaction, if required, pursuant to
Section 5(i) of this Agreement) with the Buyer if it has elected to participate in such proposed transaction, provided that if such proposed transaction is not consummated within 60 days following the Company’s notice hereunder, then the
right of first refusal hereunder shall again apply to the Buyer for such proposed transaction. The rights and obligations of this Section 5(j) shall in no way diminish the other rights of the Buyer pursuant to this Section 5. 
  
 (2) Limitation on Right of First Refusal. Notwithstanding anything to the
contrary contained herein, the number of shares of Common Stock that may be acquired directly or through acquisition of Common Stock Equivalents by the Buyer pursuant to any capital raising transaction as described in subsection (a) above shall not
exceed a number that, when added to the total number of shares of Common Stock deemed beneficially owned by the Buyer (other than by virtue of the ownership of securities or rights to acquire securities (including the Preferred Shares and Warrant)
that have limitations on the Buyer’s right to convert, exercise or purchase similar to the limitation set forth herein (the “Excluded Shares”)), together with all shares of Common Stock deemed beneficially owned at such time (other
than by virtue of ownership of Excluded Shares) by Persons whose beneficial ownership of Common Stock would be aggregated with the beneficial ownership of the Buyer for purposes of determining whether a group exists or for purposes of determining
the Buyer’s beneficial ownership in either case for purposes of Section 13(d) of the 1934 Act and Regulation 13D-G thereunder, would result in beneficial ownership by the Buyer or such group of more than 9.9% of the shares of the Company’s
Common Stock (the “Restricted Ownership Percentage”), computed in accordance with Regulation 13D-G. The Buyer shall have the right at any time and from time to time to reduce its Restricted Ownership Percentage immediately upon notice to
the Company in the event and only to the extent that Section 16 of the 1934 Act or the rules promulgated thereunder (or any successor statute or rules) is changed to reduce the beneficial ownership percentage threshold thereunder from 10%.

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

  
 The Buyer understands that the Company’s obligation
to sell the Preferred Shares and issue the Warrant to the Buyer pursuant to this Agreement is conditioned upon satisfaction of the following conditions precedent on or before the Closing Date (any or all of which may be waived by the Company in its
sole discretion): 
  
 (a) On the Closing Date, no legal action,
suit or proceeding shall be pending or threatened which seeks to restrain or prohibit the transactions contemplated by this Agreement; and 
  
 (b) The representations and warranties of the Buyer contained in this Agreement and in the Questionnaire shall have been true and correct on the date of
this Agreement and on the Closing Date as if made on the Closing Date and on or before the Closing Date the Buyer shall have performed all covenants and agreements of the Buyer required to be performed by the Buyer on or before the Closing Date.

  

 -17- 

 7. CONDITIONS TO THE BUYER’S OBLIGATION TO PURCHASE. 
  
 The Company understands that the Buyer’s obligation to purchase the
Preferred Share and acquire the Warrant is conditioned upon satisfaction of the following conditions precedent on or before the Closing Date (any or all of which may be waived by the Buyer in its sole discretion): 
  
 (a) On the Closing Date, no legal action, suit or proceeding shall be
pending or threatened which seeks to restrain or prohibit the transactions contemplated by this Agreement; 
  
 (b) The representations and warranties of the Company contained in this Agreement shall have been true and correct on the date of this Agreement and shall
be true and correct on the Closing Date as if given on and as of the Closing Date (except for representations given as of a specific date, which representations shall be true and correct as of such date and, except for the approvals and filings
referred to in clause (2) of Section 4(f), which shall have been obtained or made, as required, on or before the Closing Date), and on or before the Closing Date the Company shall have performed all covenants and agreements of the Company contained
herein or in any of the other Transaction Documents required to be performed by the Company on or before the Closing Date; 
  
 (c) No event which, if the Preferred Share were outstanding, would constitute an Optional Redemption Event or which, with the giving of notice or the
passage of time, or both, would constitute an Optional Redemption Event shall have occurred and be continuing; 
  
 (d) On the Closing Date, the Buyer shall have received an opinion of Moomjian & Waite, LLP, counsel for the Company, dated the Closing Date, addressed
to the Buyer, in form, scope and substance reasonably satisfactory to the Buyer, substantially in the form attached as Annex III; and 
  
 (e) On the Closing Date, (i) trading in securities on the New York Stock Exchange, Inc., the American Stock Exchange, Inc. or Nasdaq shall not have been
suspended or materially limited and (ii) a general moratorium on commercial banking activities in the State of New York or the State of Washington shall not have been declared by either federal or state authorities. 
  
 8. REGISTRATION RIGHTS. 
  
 (a) Mandatory Registration. (1) The Company shall prepare and, as
expeditiously as possible, but in no event later than December 29, 2004, file with the SEC a Registration Statement which covers the resale by the Buyer of (A) a number of shares of Common Stock equal to at least the number of Conversion Shares
issuable to the Buyer upon conversion of the Preferred Shares, and one quarter-year of accrued and unpaid dividends on the Preferred Shares at the rate specified in the Certificate of Designations, determined at the Conversion Price which is
applicable on the day the Registration Statement is filed with the SEC 
  

 -18- 

 and (B) the number of Warrant Shares issuable upon exercise of the Warrant, and which Registration Statement shall state
that, in accordance with Rule 416 under the 1933 Act, such Registration Statement also covers such indeterminate number of additional shares of Common Stock as may become issuable upon conversion of the Preferred Shares and exercise of the Warrant
to prevent dilution resulting from stock splits, stock dividends or similar transactions. Notwithstanding the foregoing, if for any reason the SEC does not permit all of the Registrable Securities to be included in such Registration Statement to be
sold by selling stockholders at prices that are “at the market”, then the Company shall prepare and file with the SEC a separate Registration Statement with respect to any such Registrable Securities not included with the initial
Registration Statement, as expeditiously as possible, but in no event later than the date which is 45 days after the date on which the SEC shall indicate as being the first date such filing may be made. 
  
 (2) Prior to the SEC Effective Date, and during any time subsequent to the
SEC Effective Date when the Registration Statement for any reason is not available for use by any Investor for the resale of any Registrable Securities, the Company shall not file any other registration statement or any amendment thereto with the
SEC under the 1933 Act or request the acceleration of the effectiveness of any other registration statement previously filed with the SEC, other than (A) any registration statement on Form S-8 and (B) any registration statement or amendment,
inclusive of the Registration Statement on Form SB-2 of the Company currently on file, which the Company is required to file, or as to which the Company is required to request acceleration, pursuant to any obligation in effect on the date of
execution and delivery of this Agreement or a transaction permitted under Section 5(i)(c). 
  
 (3) If a Registration Event occurs, then the Company will make payments to the Buyer as partial liquidated damages for the minimum amount of damages to the Buyer by reason thereof, and not as a penalty, at the rate of
2% per month of the Purchase Price paid by the Buyer pursuant to this Agreement (excluding the Purchase Price with respect to Shares already sold or which may be sold pursuant to Rule 144(k), for each calendar month of the Registration Default
Period (pro rated for any period less than 30 days). Each such payment shall be due and payable within five (5) days after the end of each calendar month of the Registration Default Period until the termination of the Registration Default Period and
within five (5) days after such termination. Such payments shall be in partial compensation to the Buyer, and shall not constitute the Buyer’s exclusive remedy for such events. The Registration Default Period shall terminate upon (u) the filing
of the Registration Statement in the case of clause (i) of the definition of “Registration Event”; (v) the SEC Effective Date in the case of clause (ii) of the definition of “Registration Event”; (w) the ability of the Buyer to
effect sales pursuant to the Registration Statement in the case of clause (iii) of the definition of “Registration Event”; (x) the listing or inclusion and/or trading of the Common Stock on a Trading Market, as the case may be, in the case
of clause (iv) of the definition of “Registration Event”; (y) the delivery of such shares or certificates in the case of clause (v) of the definition of “Registration Event”; and (z) in the case of the events described in clauses
(ii) and (iii) of the definition of “Registration Event”, the earlier termination of the Registration Period and in each such case any Registration Default Period that commenced by reason of the occurrence of such event shall terminate if
at the time no other Registration Event is continuing. The amounts payable as partial liquidated damages pursuant to this paragraph shall be payable in lawful money of the United States. Amounts payable as partial liquidated damages hereunder shall
cease when the Buyer no longer holds the Preferred Shares, the Warrant or Registrable Securities. 
  

 -19- 

 (b) Obligations of the Company. In connection with the registration of the Registrable Securities,
the Company shall: 
  
 (1) use its best efforts to cause the
Registration Statement to become effective as promptly as possible after the Closing Date and to keep the Registration Statement effective at all times during the Registration Period. The Company shall submit to the SEC, within three Business Days
after the Company learns that no review of the Registration Statement will be made by the staff of the SEC or that the staff of the SEC has no further comments on the Registration Statement, as the case may be, a request for acceleration of
effectiveness of the Registration Statement to a time and date not later than 48 hours after the submission of such request. The Company represents and warrants to the Investors that (a) the Registration Statement (including any amendments or
supplements thereto and prospectuses contained therein), at the time it is first filed with the SEC, at the time it is ordered effective by the SEC and at all times during which it is required to be effective hereunder (and each such amendment and
supplement at the time it is filed with the SEC and at all times during which it is available for use in connection with the offer and sale of the Registrable Securities) shall not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements therein not misleading and (b) the Prospectus, at the time the Registration Statement is declared effective by the SEC and at all times that the Prospectus is required
by this Agreement to be available for use by any Investor and, in accordance with Section 8(c)(4), any Investor is entitled to sell Registrable Securities pursuant to the Prospectus, shall not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; 
  
 (2) subject to Section 8(b)(5), prepare and file with the SEC such amendments (including post-effective amendments) and
supplements to the Registration Statement and the Prospectus as may be necessary to keep the Registration Statement effective, and the Prospectus current, at all times during the Registration Period, and, during the Registration Period (other than
during any Blackout Period during which the provision of Section 8(b)(5)(B) as applicable), comply with the provisions of the 1933 Act applicable to the Company in order to permit the disposition by the Investors of all Registrable Securities
covered by the Registration Statement; 
  
 (3) furnish to
Investors whose Registrable Securities are included in the Registration Statement and such Investors’ respective legal counsel, promptly after the same is prepared and publicly distributed, filed with the SEC or received by the Company, (1)
five copies of the Registration Statement and any amendment thereto and the Prospectus and each amendment or supplement thereto, (2) one copy of each letter written by or on behalf of the Company to the SEC or the staff of the SEC and each item of
correspondence from the SEC or the staff of the SEC relating to the Registration Statement (other than any portion of any thereof which contains information for which the Company has sought confidential treatment), each of which the Company hereby
determines to be confidential information and which each investor hereby agrees to keep confidential as a confidential Record in accordance with Section 8(b)(9) 
  

 -20- 

 and (3) such number of copies of the Prospectus and all amendments and supplements thereto and such other documents, as
such Investor may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Investor; 
  
 (4) subject to Section 8(b)(5), use its best efforts (i) to register and qualify the Registrable Securities covered by the Registration Statement under
the securities or blue sky laws of such jurisdictions as any Investor who owns or holds any Registrable Securities reasonably requests, (ii) to prepare and to file in those jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof at all times during the Registration Period and (iii) to take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale by the Investors in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto (I) to qualify to do business in any jurisdiction where it
would not otherwise be required to qualify but for this Section 8(b)(4), (II) to subject itself to general taxation in any such jurisdiction, (III) to file a general consent to service of process in any such jurisdiction, (IV) to provide any
undertakings that cause more than nominal expense or burden to the Company or (V) to make any change in its charter or by-laws which the Board of Directors of the Company determines to be contrary to the best interests of the Company and its
stockholders; 
  
 (5) (A) as promptly as practicable after
becoming aware of such event or circumstance, notify each Investor of the occurrence of any event or circumstance of which the Company has knowledge (x) as a result of which the Prospectus, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading or (y) which requires the Company to amend or
supplement the Registration Statement due to the receipt from an Investor or any other selling stockholder named in the Prospectus of new or additional information about such Investor or selling stockholder or its intended plan of distribution of
its Registrable Securities or other securities covered by such Registration Statement, and use its best efforts promptly to prepare a supplement or amendment to the Registration Statement and Prospectus to correct such untrue statement or omission
or to add any new or additional information, and deliver a number of copies of such supplement or amendment to each Investor as such Investor may reasonably request; 
  
 (B) notwithstanding Section 8(b)(5)(A) above, if at any time the Company notifies the Investors as contemplated by Section
8(b)(5)(A) the Company also notifies the Investors that the event giving rise to such notice relates to a development involving the Company which occurred subsequent to the later of (x) the SEC Effective Date and (y) the latest date prior to such
notice on which the Company has amended or supplemented the Registration Statement, then the Company shall not be required to use best efforts to make such amendment during a Blackout Period; provided, however, that in any period of 365
consecutive days the Company shall not be entitled to avail itself of its rights under this Section 8(b)(5)(B) with respect to more than two Blackout Periods; and provided further, however, that no Blackout Period may commence sooner than 90
days after the end of an earlier Blackout Period; 
  

 -21- 

 (6) as promptly as practicable after becoming aware of such event, notify each Investor who holds
Registrable Securities being offered or sold pursuant to the Registration Statement of the issuance by the SEC of any stop order or other suspension of effectiveness of the Registration Statement at the earliest possible time; 
  
 (7) permit the Investors who hold Registrable Securities being included in
the Registration Statement, (or their designee) and their counsel at such Investors’ sole expense to review and have a reasonable opportunity to comment on the Registration Statement and all amendments and supplements thereto at least two
Business Days (or such shorter period as may reasonably be specified by the Company) prior to their filing with the SEC. 
  
 (8) make generally available to its security holders as soon as practical, but not later than 90 days after the close of the period covered thereby, an
earning statement (in form complying with the provisions of Rule 158 under the 1933 Act) covering a 12-month period beginning not later than the first day of the Company’s fiscal quarter next following the SEC Effective Date of the Registration
Statement; 
  
 (9) make available for inspection by any Investor
and any Inspector retained by such Investor, at such Investor’s sole expense, all Records as shall be reasonably necessary to enable such Investor to exercise its due diligence responsibility and cause the Company’s and the Subsidiaries
officers, directors and employees to supply all information which such Investor or Inspector may reasonably request for purposes of such due diligence; provided, however, that such Investor shall hold in confidence and shall not make any
disclosure of any Record or other information which the Company determines in good faith to be confidential, and of which determination such Investor is so notified, unless (i) the disclosure of such Record is necessary to avoid or correct a
misstatement or omission in the Registration Statement and a reasonable time prior to such disclosure the Investor shall have informed the Company of the need to so correct such misstatement or omission and the Company shall have failed to correct
such misstatement or omission, (ii) the release of such Record is ordered pursuant to a subpoena or other order from a court or governmental body of competent jurisdiction or (iii) the information in such Record has been made generally available to
the public other than by disclosure in violation of this or any other agreement. The Company shall not be required to disclose any confidential information in such Records to any Inspector until and unless such Inspector shall have entered into a
confidentiality agreement with the Company with respect thereto, substantially in the form of this Section 8(b)(9), which agreement shall permit such Inspector to disclose Records to the Investor who has retained such Inspector. Each Investor agrees
that it shall, upon learning that disclosure of such Records is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at the Company’s expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential. The Company shall hold in confidence and shall not make any disclosure of information concerning an Investor provided to the
Company pursuant to this Agreement unless (i) the disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in the
Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other order from a court or governmental body of competent jurisdiction, or (iv) such information has been made generally available to the 

 

 -22- 

 public other than by disclosure in violation of this or any other agreement. The Company agrees that it shall, upon
learning that disclosure of such information concerning an Investor is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to such Investor and allow such Investor, at such
Investor’s expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information; 
  
 (10) use its best efforts to cause all the Registrable Securities covered by the Registration Statement as of the SEC Effective Date to be listed or
quoted on the principal securities market on which securities of the same class or series issued by the Company are then listed or traded; 
  
 (11) provide a transfer agent and registrar, which may be a single entity, for the Registrable Securities at all times; 
  
 (12) cooperate with the Investors who hold Registrable Securities being
offered pursuant to the Registration Statement to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing Registrable Securities to be offered pursuant to the Registration Statement and
enable such certificates to be in such denominations or amounts as the Investors may reasonably request and registered in such names as the Investors may request; and, not later than the SEC Effective Date, the Company shall cause legal counsel
selected by the Company to deliver to the Investors whose Registrable Securities are included in the Registration Statement opinions of counsel in form and substance as is customarily given to underwriters in an underwritten public offering;

  
 (13) during the Registration Period, the Company shall not bid
for or purchase any Common Stock or any right to purchase Common Stock or attempt to induce any Person to purchase any such security or right if such bid, purchase or attempt would in any way limit the right of the Investors to sell Registrable
Securities by reason of the limitations set forth in Regulation M under the 1934 Act; and 
  
 (14) take all other reasonable actions necessary to expedite and facilitate disposition by the Investors of the Registrable Securities pursuant to the Registration Statement relating thereto. 
  
 (c) Obligations of the Buyer and other Investors. In connection with
the registration of the Registrable Securities, the Investors shall have the following obligations: 
  
 (1) It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall furnish to the Company the Required Information and shall execute such documents in connection with such registration as the Company may reasonably request. 
  
 (2) Each Investor by such Investor’s acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of the Registration Statement hereunder, unless such Investor has notified the Company of such Investor’s
election to exclude all of such Investor’s Registrable Securities from the Registration Statement; 
  

 -23- 

 (3) Each Investor agrees that it will not effect any disposition of the Registrable Securities except as
contemplated in the Registration Statement or as otherwise is in compliance with applicable securities laws and that it will promptly notify the Company of any material changes in the information set forth in the Registration Statement regarding
such Investor or its plan of distribution; each Investor agrees (a) to notify the Company in writing in the event that such Investor enters into any material agreement with a broker or a dealer for the sale of the Registrable Securities through a
block trade, special offering, exchange distribution or a purchase by a broker or dealer and (b) in connection with such agreement, to provide to the Company in writing the information necessary to prepare any supplemental prospectus pursuant to
Rule 424(c) under the 1933 Act which is required with respect to such transaction; 
  
 (4) Each Investor acknowledges that there may occasionally be times as specified in Section 8(b)(5) or 8(b)(6) when the Company must suspend the use of the Prospectus until such time as an amendment to the
Registration Statement has been filed by the Company and declared effective by the SEC, the Company has prepared a supplement to the Prospectus or the Company has filed an appropriate report with the SEC pursuant to the 1934 Act. Each Investor
hereby covenants that it will not sell any Registrable Securities pursuant to the Prospectus during the period commencing at the time at which the Company gives such Investor notice of the suspension of the use of the Prospectus in accordance with
Section 8(b)(5) or 8(b)(6) and ending at the time the Company gives such Investor notice that such Investor may thereafter effect sales pursuant to the Prospectus, or until the Company delivers to such Investor or files with the SEC an amended or
supplemented Prospectus; and 
  
 (5) In connection with any sale
of Registrable Securities which is made by an Investor pursuant to the Registration Statement (A) if such sale is made through a broker, such Investor shall instruct such broker to deliver the Prospectus to the purchaser or purchasers (or the broker
or brokers therefor) in connection with such sale, shall supply copies of the Prospectus to such broker or brokers and shall instruct such broker or brokers to deliver such Prospectus to the purchaser in such sale or such purchaser’s broker;
(B) if such sale is made in a transaction directly with a purchaser and not through the facilities of any securities exchange or market, such Investor shall deliver, or cause to be delivered, the Prospectus to such purchaser; and (C) if such sale is
made by any means other than those described in the immediately preceding clauses (A) and (B), such Investor shall otherwise use its reasonable best efforts to comply with the prospectus delivery requirements of the 1933 Act applicable to such sale.

  
 (d) Rule 144. With a view to making available to each
Investor the benefits of Rule 144, the Company agrees: 
  
 (1) so
long as any Investor owns Registrable Securities, promptly upon request of such Investor, to furnish to such Investor such information as may be necessary to permit such Investor to sell Registrable Securities pursuant to Rule 144 without
registration and otherwise reasonably to cooperate with such Investor and 
  

 -24- 

 (2) if at any time the Company is not required to file reports with the SEC pursuant to Section 13 or
15(d) of the 1934 Act, to use its best efforts, upon the request of an Investor, to make publicly available other information so long as is necessary to permit publication by brokers and dealers of quotations for the Common Stock and sales of the
Registrable Securities in accordance with Rule 15c2-11 under the 1934 Act. 
  
 9. INDEMNIFICATION AND CONTRIBUTION. 
  
 (a) Indemnification. (1) To the extent not prohibited by applicable law, the Company will indemnify and hold harmless each Indemnified Person against any Claims to which any of them may become subject under the
1933 Act, the 1934 Act or otherwise, insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any Violation or any of the transactions contemplated by this Agreement.
Subject to the restrictions set forth in Section 9(a)(3) with respect to the number of legal counsel, the Company shall reimburse the Investors and each such controlling Person, promptly as such expenses are incurred and are due and payable, for any
documented reasonable legal fees or other documented and reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement
contained in this Section 9(a)(1) shall not apply to: (I) a Claim arising out of or based upon a Violation which occurs in reliance upon and in conformity with information relating to an Indemnified Person furnished in writing to the Company by such
Indemnified Person or an underwriter for such Indemnified Person expressly for use in connection with the preparation of any Registration Statement or any such amendment thereof or supplement thereto; (II) any Claim arising out of or based on any
statement or omission in any Prospectus, which statement or omission was corrected in any subsequent Prospectus that was delivered to the Indemnified Person prior to the pertinent sale or sales of Registrable Securities by such Indemnified Person;
and (III) amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the
Indemnified Person and shall survive the transfer of the Registrable Securities by the Investors. 
  
 (2) In connection with the Registration Statement, each Investor agrees to indemnify and hold harmless, to the same extent and in the same manner set
forth in Section 9(a)(1), each Indemnified Party against any Claim to which any of them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim arises out of or is based upon any Violation, in each case to the extent
(and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by such Investor expressly for use in connection with such Registration Statement or any amendment thereof or
supplement thereto; and such Investor will reimburse any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in
this Section 9(a)(2) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Investor; provided, further, however, that the Investor shall be liable
under this Section 9(a)(2) for only that amount of all Claims in the aggregate as does not exceed the amount by which the proceeds to such Investor as a result of the sale of Registrable Securities pursuant to such Registration Statement exceeds the
amount paid by such Investor for such Registrable Securities. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of the Registrable

  

 -25- 

 Securities by the Investors. Notwithstanding anything to the contrary contained herein, the indemnification agreement
contained in this Section 9(a)(2) with respect to any preliminary prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in such preliminary prospectus was corrected on a
timely basis in the related Prospectus, as then amended or supplemented. 
  
 (3) Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 9(a) of notice of the commencement of any action (including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 9(a), deliver to the indemnifying party a notice of the commencement thereof and the indemnifying party shall have the right to participate
in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel reasonably satisfactory to the Indemnified Person or the Indemnified Party,
as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of
counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified
Person or Indemnified Party and any other party represented by such counsel in such proceeding, in which case the indemnifying party shall not be responsible for more than one such separate counsel, and one local counsel in each jurisdiction in
which an Action is pending, for all Indemnified Persons or Indemnified Parties, as the case may be. The failure to deliver notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 9(a), except to the extent that the indemnifying party is prejudiced in its ability to defend such action. The indemnification required by this
Section 9(a) shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as such expense, loss, damage or liability is incurred and is due and payable. 
  
 (b) Contribution. To the extent any indemnification by an indemnifying
party as set forth in Section 9(a) above is applicable by its terms but is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section
9(a) to the fullest extent permitted by law. In determining the amount of contribution to which the respective parties are entitled, there shall be considered the relative fault of each party, the parties’ relative knowledge of and access to
information concerning the matter with respect to which the claim was asserted, the opportunity to correct and prevent any statement or omission and any other equitable considerations appropriate under the circumstances; provided,
however, that (a) no contribution shall be made under circumstances where the maker would not have been liable for indemnification under the fault standards set forth in Section 9(a), (b) no Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any other Person who was not guilty of such fraudulent misrepresentation and (c) the aggregate contribution by any seller of Registrable Securities shall be
limited to the amount by which the proceeds received by such seller from the sale of such Registrable Securities exceeds the amount paid by such Investor for such Registrable Securities. 
  

 -26- 

 (c) Other Rights. The indemnification and contribution provided in this Section shall be in
addition to any other rights and remedies available at law or in equity. 
  
 10. MISCELLANEOUS. 
  
 (a) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 
  
 (b) Headings. The headings, captions and footers of this Agreement are for convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement. 
  
 (c) 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 or the validity or enforceability of this
Agreement in any other jurisdiction. 
  
 (d) Notices. Any
notices required or permitted to be given under the terms of this Agreement shall be in writing and shall be sent by mail, personal delivery, telephone line facsimile transmission or courier and shall be effective five days after being placed in the
mail, if mailed, or upon receipt, if delivered personally, by telephone line facsimile transmission or by courier, in each case addressed to a party at such party’s address (or telephone line facsimile transmission number) shown in the
introductory paragraph or on the signature page of this Agreement or such other address (or telephone line facsimile transmission number) as a party shall have provided by notice to the other party in accordance with this provision. In the case of
any notice to the Company, such notice shall be addressed to the Company at its address shown in the introductory paragraph of this Agreement, Attention: Chief Executive Officer (telephone line facsimile number (206) 286-1442), and a copy shall also
be given to: Moomjian & Waite, LLP, 100 Jericho Quadrangle, Suite 225, Jericho, New York 11753, Attention: Gary Moomjian, Esq. (telephone line facsimile transmission number (516) 937-5050), and in the case of any notice to the Buyer, a copy
shall be given to: Law Offices of Brian W Pusch, Penthouse Suite, 29 West 57th Street, New York, New York 10019 (telephone line facsimile transmission number (212) 980-7055). 
  
 (e) Counterparts. This Agreement may be executed in counterparts and by the parties hereto on separate counterparts,
each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument. A telephone line facsimile transmission of this Agreement bearing a signature on behalf of a party hereto shall be legal and
binding on such party. Although this Agreement is dated as of the date first set forth above, the actual date of execution and delivery of this Agreement by each party is the date set forth below such party’s signature on the signature page
hereof. Any reference in this Agreement or in any of the documents executed and delivered by the parties hereto in connection herewith to (1) the date 
  

 -27- 

 of execution and delivery of this Agreement by the Buyer shall be deemed a reference to the date set forth below the
Buyer’s signature on the signature page hereof, (2) the date of execution and delivery of this Agreement by the Company shall be deemed a reference to the date set forth below the Company’s signature on the signature page hereof and (3)
the date of execution and delivery of this Agreement, or the date of execution and delivery of this Agreement by the Buyer and the Company, shall be deemed a reference to the later of the dates set forth below the signatures of the parties on the
signature page hereof. 
  
 (f) Entire Agreement; Benefit.
This Agreement, including the Annexes and Schedules hereto, constitutes the entire agreement between the parties hereto with respect to the subject matter hereof. There are no restrictions, promises, warranties, or undertakings, other than those set
forth or referred to herein. This Agreement, including the Annexes, supersedes all prior agreements and understandings, whether written or oral, between the parties hereto with respect to the subject matter hereof. This Agreement and the terms and
provisions hereof are for the sole benefit of only the Company, the Buyer and their respective successors and permitted assigns. 
  
 (g) Waiver. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or
remedy, or any course of dealing between the parties, shall not operate as a waiver thereof or an amendment hereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a
right or power, preclude any other or further exercise thereof or exercise of any other right or power. 
  
 (h) Amendment. (1) No amendment, modification, waiver, discharge or termination of any provision of this Agreement on or prior to the Closing Date
nor consent to any departure by the Buyer or the Company therefrom on or prior to the Closing Date shall in any event be effective unless the same shall be in writing and signed by the party to be charged with enforcement, and in any such case shall
be effective only in the specific instance and for the purpose for which given. 
  
 (2) No amendment, modification, waiver, discharge or termination of any provision of this Agreement after the Closing Date nor consent to any departure by the Company therefrom after the Closing Date shall in any
event be effective unless the same shall be in writing and signed (x) by the Company if the Company is to be charged with enforcement or (y) by the Buyer, if the Buyer is to be charged with enforcement, and in any such case shall be effective only
in the specific instance and for the purpose for which given. 
  
 (3) No course of dealing between the parties hereto shall operate as an amendment of this Agreement. 
  
 (i) Further Assurances. Each party to this Agreement will perform any and all acts and execute any and all documents as may be necessary and proper
under the circumstances in order to accomplish the intents and purposes of this Agreement and to carry out its provisions. 
  

 -28- 

 (j) Assignment of Certain Rights and Obligations. The rights of an Investor under Sections 5(a),
5(b), 8, 9, and 10 of this Agreement shall be automatically assigned by such Investor to any transferee of all or any portion of such Investor’s Registrable Securities (or all or any portion of the Preferred Shares or the Warrant) only if: (1)
such Investor agrees in writing with such transferee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment, (2) the Company is, within a reasonable time after such transfer,
furnished with notice of (A) the name and address of such transferee and (B) the securities with respect to which such rights and obligations are being transferred, (3) immediately following such transfer or assignment the further disposition of
Registrable Securities by the transferee or assignee is restricted under the 1933 Act and applicable state securities laws, and (4) at or before the time the Company received the notice contemplated by clause (2) of this sentence the transferee
agrees in writing with the Company to be bound by all of the provisions contained in Sections 5(a), 5(b), 8, 9, and 10 hereof. Upon any such transfer, the Company shall be obligated to such transferee to perform all of its covenants under Sections
5(a), 5(b), 8, 9, and 10 of this Agreement as if such transferee were the Buyer. In connection with any such transfer the Company shall, at its sole cost and expense, promptly after such transfer take such actions as shall be reasonably acceptable
to the transferring Investor and such transferee to assure that the Registration Statement and related Prospectus for which the transferring Investor is a selling stockholder are available for use by such transferee for sales of the Registrable
Securities in respect of which such rights and obligations have been so transferred. The Buyer shall have the right to assign its rights under Section 5(j) in full or a proportionate amount of such rights to a purchaser of the Preferred Shares or a
portion thereof. Transfer of the Preferred Shares shall be limited as provided in the Certificate of Designations and transfer of the Warrants shall be limited as provided therein. 
  
 (k) Expenses. The Company shall be responsible for its expenses (including, without limitation, the legal fees and
expenses of its counsel), incurred by it in connection with the negotiation and execution of, and closing under, and performance of, this Agreement. Whether or not the closing occurs, the Company shall be obligated to pay or reimburse the legal fees
and expenses and out-of-pocket due diligence expenses of Alexandra Investment Management, LLC, not in excess of $10,000.00 in connection with the negotiation and execution of, and closing under, this Agreement. All reasonable expenses incurred in
connection with registrations, filings or qualifications pursuant to Sections 5(d), 5(e), 5(g) and 8 of this Agreement shall be paid by the Company, including, without limitation, all registration, listing and qualifications fees, printers and
accounting fees and the fees and disbursements of counsel for the Company and the Investors but excluding (a) fees and expenses of investment bankers retained by any Investor and (b) brokerage commissions incurred by any Investor. The Company shall
pay on demand all expenses incurred by the Buyer after the Closing Date, including reasonable attorneys’ fees and expenses, as a consequence of, or in connection with (1) the negotiation, preparation or execution of any amendment, modification
or waiver of any of the Transaction Documents, (2) any default or breach of any of the Company’s obligations set forth 
  

 -29- 

 in any of the Transaction Documents, and (3) the enforcement or restructuring of any right of, including the collection
of any payments due, the Buyer under any of the Transaction Documents, including any action or proceeding relating to such enforcement or any order, injunction or other process seeking to restrain the Company from paying any amount due the Buyer.
Except as otherwise provided in this Section 10(k), each of the Company and the Buyer shall bear its own expenses in connection with this Agreement and the transactions contemplated hereby. 
  
 (l) Termination. (1) The Buyer shall have the right to terminate this
Agreement by giving notice to the Company at any time at or prior to the Closing Date if: 
  
 (A) the Company shall have failed, refused, or been unable at or prior to the date of such termination of this Agreement to perform any of
its obligations hereunder required to be performed prior to the time of such termination; 
  
 (B) any condition to the Buyer’s obligations hereunder is not fulfilled at or prior to the time such condition is required to be
satisfied; or 
  
 (C) the closing shall not have
occurred on a Closing Date on or before August 6, 2004, other than solely by reason of a breach of this Agreement by the Buyer. 
  
 Any such termination shall be effective upon the giving of notice thereof by the Buyer. Upon such termination, the Buyer shall have no further obligation to the Company
hereunder and the Company shall remain liable for any breach of this Agreement or the other documents contemplated hereby which occurred on or prior to the date of such termination. 
  
 (2) The Company shall have the right to terminate this Agreement by giving notice to the Buyer at any times at or prior to
the Closing Date if the closing shall not have occurred on a Closing Date on or before August 6, 2004, other than solely by reason of a breach of this Agreement by the Company, so long as the Company is not in breach of this Agreement at the time it
gives such notice. Any such termination shall be effective upon the giving of notice thereof by the Company. Upon such termination, neither the Company nor the Buyer shall have any further obligation to one another hereunder, except for the
Company’s liability for the Buyers expenses as provided in Section 10(k). 
  
 (m) Survival. The respective representations, warranties, covenants and agreements of the Company and the Buyer contained in this Agreement and the documents delivered in connection with this Agreement shall
survive the execution and delivery of this Agreement and the other Transaction Documents and the closing hereunder and delivery of and payment for the Preferred Shares and issuance of the Warrant, and shall remain in full force and effect regardless
of any investigation made by or on behalf of the Buyer or any Person controlling or acting on behalf of the Buyer or by the Company or any Person controlling or acting on behalf of the Company for a period ending on the later of (x) the date which
is six years after the Closing Date and (y) the date which is two years after the Company shall have paid in full any amounts due from the Company under the Transaction Documents and performed in full all of its obligations under the Transaction
Documents. 
  

 -30- 

 (n) Public Statements, Press Releases, Etc. The Company and the Buyer shall have the right to
approve before issuance 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 the Buyer, to make any press
release or other public disclosure with respect to such transactions as is required by applicable law or applicable requirements of any stock market on which securities of the Company are listed for trading (although the Buyer shall be consulted by
the Company in connection with any such press release or other public disclosure prior to its release and shall be provided with a copy thereof). 
  
 (o) 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. 
  
 [Remainder of This Page Intentionally Left Blank] 
  

 -31- 

 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their
respective officers or other representatives thereunto duly authorized on the respective dates set forth below their signatures hereto. 
  
 Number of Preferred Shares: 500 
  
 Price Per Share: $ 1000 
  
 Aggregate Purchase
Price: $500,000.00 
  
 Warrant Shares Initially Issuable Upon Exercise of Warrant:
416,667 
  

			
	DWANGO NORTH AMERICA CORP.
		
	 By:
	 	 /s/ Rick J. Hennessey

	Name:	 	Rick J. Hennessey
	Title:	 	Chief Executive Officer
		
	 Date:
	 	 August 2, 2004

	
	ALEXANDRA GLOBAL MASTER FUND LTD.
	
	 By: ALEXANDRA INVESTMENT
       MANAGEMENT, LLC,

	       As Investment Advisor

		
	 By: 
	 	 /s/ Mikhail Filimonov

	 Name:
	 	 Mikhail Filimonov

	 Title:
	 	 Chairman and Chief Executive Officer

		
	 Date:
	 	 August 2, 2004

	
	 Address:

	 	 	 c/o Alexandra Investment

	 	 	 Management, LLC

	 	 	 767 Third Avenue

	 	 	 39th Floor

	 	 	 New York, New York 10017

	
	Facsimile No.: (212) 301-1810

  

 -32-August 2004 Warrant

 Exhibit 4.2 
  

NEITHER THIS WARRANT NOR ISSUANCE OF THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF TO THE HOLDER HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
QUALIFIED OR REGISTERED UNDER STATE SECURITIES OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR SUCH SECURITIES MAY BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE SECURITIES ACT OF
1933, APPLICABLE STATE SECURITIES OR BLUE SKY LAWS AND THE APPLICABLE RULES AND REGULATIONS THEREUNDER. 
  
 THIS WARRANT MAY NOT BE TRANSFERRED EXCEPT AS PROVIDED IN SECTION 24. 
  

	 No. W-5 
	 Right to Purchase 416,667 Shares of Common 
	

 Stock of Dwango North America Corp.             
  
 DWANGO NORTH AMERICA CORP. 
  
 Common Stock Purchase Warrant 
  
 DWANGO NORTH AMERICA CORP., a Nevada corporation, hereby certifies
that, for value received, ALEXANDRA GLOBAL MASTER FUND LTD. or registered assigns (the “Holder”), is entitled, subject to the terms set forth below, to purchase from the Company at any time or from time to time before 5:00 p.m., New
York City time, on the Expiration Date (such capitalized term and all other capitalized terms used herein having the respective meanings provided herein), 416,667 fully paid and nonassessable shares of Common Stock at a purchase price per share
equal to the Purchase Price. The number of such shares of Common Stock and the Purchase Price are subject to adjustment as provided in this Warrant. 
  
 As used herein the following capitalized terms, unless the context otherwise requires, have the following respective meanings: 
  
 “Aggregate Purchase Price” means at any time an
amount equal to the product obtained by multiplying (x) the Purchase Price times (y) the number of shares of Common Stock for which this Warrant may be exercised at such time. 
  
 “Aggregation Parties” shall have the meaning provided in Section 1(c). 
  
 “AMEX” means the American Stock Exchange, Inc.

  
 “Board of Directors” means the
Board of Directors of the Company. 

 “Business Day” means any day other than a Saturday, Sunday or other day on
which commercial banks in The City of New York are authorized or required by law or executive order to remain closed. 
  
 “Certificate of Designations” shall mean the Certificate of Designations of Series A Convertible Preferred Stock. 
  
 “Common Stock” includes the Company’s Common
Stock, par value $.001 per share, (and any purchase rights issued with respect to the Common Stock in the future) as authorized on the date hereof, and any other securities into which or for which the Common Stock (and any such rights issued with
respect to the Common Stock) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise and any stock (other than Common Stock) and other securities of the Company or any other Person
which the Holder at any time shall be entitled to receive, or shall have received, on the exercise of this Warrant, in lieu of or in addition to Common Stock. 
  

“Common Stock Equivalents” means any warrant, option, subscription or purchase right with respect to shares of Common Stock,
any security convertible into, exchangeable for, or otherwise entitling the holder thereof to acquire, shares of Common Stock or any warrant, option, subscription or purchase right with respect to any such convertible, exchangeable or other
security. 
  
 “Company” shall include
Dwango North America Corp., a Nevada corporation, and any corporation that shall succeed to or assume the obligations of Dwango North America Corp. hereunder in accordance with the terms hereof. 
  
 “Current Fair Market Value” means when used with
respect to the Common Stock as of a specified date with respect to each share of Common Stock, the average of the closing prices of the Common Stock sold on all securities exchanges (including the Nasdaq and the Nasdaq SmallCap) on which the Common
Stock may at the time be listed, or, if there have been no sales on any such exchange on such day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on such day the Common Stock is not so
listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 p.m., New York City time, or, if on such day the Common Stock is not quoted in the NASDAQ System, the average of the highest bid and lowest asked
price on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each such case averaged over a period of five Trading Days consisting of the day as of
which the Current Fair Market Value of Common Stock is being determined (or if such day is not a Trading Day, the Trading Day next preceding such day) and the four consecutive Trading Days prior to such day. If on the date for which Current Fair
Market Value is to be determined the Common Stock is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the Current Fair Market Value of Common Stock shall be the highest price per share which the
Company could then obtain from a willing buyer (not an employee or director of the Company at the time of determination) in an arms’-length transaction for shares of Common Stock sold by the Company, from authorized but unissued shares, as
determined in good faith by the Board of Directors. 
  

 -2- 

 “Excluded Shares” shall have the meaning provided in Section 1(c). 

 
 “Expiration Date” means August 2, 2008.

  
 “Issuance Date” means the date of
original issuance of this Warrant. 
  
 “Nasdaq” means the Nasdaq National Market. 
  
 “Nasdaq SmallCap” means the Nasdaq SmallCap Market. 
  
 “1934 Act” means the Securities Exchange Act of 1934, as amended. 
  
 “1933 Act” means the Securities Act of 1933, as amended. 
  
 “NYSE” means the New York Stock Exchange, Inc.

  
 “Other Securities” means any stock
(other than Common Stock) and other securities of the Company or any other Person which the Holder at any time shall be entitled to receive, or shall have received, on the exercise of this Warrant, in lieu of or in addition to Common Stock, or which
at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 4. 
  
 “Person” means an individual, partnership, corporation, limited liability company, trust, unincorporated organization, business
trust, association, joint stock company, joint venture, pool, syndicate, sole proprietorship, governmental agency or any other form of entity not specifically listed herein. 
  
 “Placement Agent Warrants” shall have the meaning provided in the Certificate of Designations.

  
 “Purchase Price” means $1.20,
subject to adjustment as provided in this Warrant. 
  
 “QIB” means a “qualified institutional buyer” as defined in Rule 144A. 
  
 “Registration Period” shall have the meaning provided in the Subscription Agreement. 
  
 “Registration Statement” shall have the meaning
provided in the Subscription Agreement. 
  
 “Restricted Ownership Percentage” shall have the meaning provided in Section 1(c). 
  

 -3- 

 “Restricted Securities” means securities that are not eligible for resale
pursuant to Rule 144(k) under the 1933 Act (or any successor provision). 
  
 “Reorganization Event” means the occurrence of any one or more of the following events: 
  
 (i) any consolidation, merger or similar transaction of the Company or any Subsidiary with or into another entity (other than a merger or
consolidation or similar transaction of a Subsidiary into the Company or a wholly-owned Subsidiary); or the sale or transfer of all or substantially all of the assets of the Company and the Subsidiaries in a single transaction or a series of related
transactions; or 
  
 (ii) the occurrence of any
transaction or event in connection with which all or substantially all the Common Stock shall be exchanged for, converted into, acquired for or constitute the right to receive securities of any other Person (whether by means of a Tender Offer,
liquidation, consolidation, merger, share exchange, combination, reclassification, recapitalization, or otherwise); or 
  
 (iii) the acquisition by a Person or group of Persons acting in concert as a partnership, limited partnership, syndicate or group, as a
result of a tender or exchange offer, open market purchases, privately negotiated purchases or otherwise, of beneficial ownership of securities of the Company representing 50% or more of the combined voting power of the outstanding voting securities
of the Company ordinarily (and apart from rights accruing in special circumstances) having the right to vote in the election of directors. 
  
 “Rule 144A” means Rule 144A as promulgated under the 1933 Act. 
  
 “SEC” means the Securities and Exchange Commission. 
  
 “SEC Effective Date” shall have the meaning
provided in the Subscription Agreement. 
  
 “Series A Preferred Stock” means the Series A Convertible Preferred Stock, $0.001 par value, of the Company issued pursuant to the Subscription Agreement. 
  
 “Subscription Agreement” means the Subscription Agreement, dated as of August 2, 2004, by and
between the Company and the original Holder of this Warrant. 
  
 “Subsidiary” means any corporation or other entity of which a majority of the capital stock or other ownership interests having ordinary voting power to elect a majority of the board of directors or other
Persons performing similar functions are at the time directly or indirectly owned by the Company. 
  
 “Tender Offer” means a tender offer, exchange offer or other offer by the Company to repurchase outstanding shares of its
capital stock. 
  

 -4- 

 “Trading Day” means at any time a day on which any of a national securities
exchange, Nasdaq or such other securities market as at such time constitutes the principal securities market for the Common Stock is open for general trading of securities. 
  
 “Warrant Shares” means the shares of Common Stock issuable upon exercise of this Warrant.

  
 1. Exercise of Warrant. 
  
 (a) Exercise. This Warrant may be exercised by the Holder in whole at
any time or in part from time to time on or before the Expiration Date by (x) surrendering this Warrant to the Company, (y) giving a subscription form in the form of Exhibit 1 to this Warrant (duly executed by the Holder) to the Company, and
(z) making payment, in cash or by certified or official bank check payable to the order of the Company, or by wire transfer of funds to the account of the Company, in any such case, in the amount obtained by multiplying (a) the number of shares of
Common Stock designated by the Holder in the subscription form by (b) the Purchase Price then in effect. On any partial exercise the Company will forthwith issue and deliver to or upon the order of the Holder a new Warrant or Warrants of like tenor,
in the name of the Holder or as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, providing in the aggregate on the face or faces thereof for the purchase of the number of shares of Common Stock for which such
Warrant or Warrants may still be exercised. The subscription form may be surrendered by telephone line facsimile transmission to such telephone number for the Company as shall have been specified in writing to the Holder by the Company; provided,
however, that if the subscription form is given to the Company by telephone line facsimile transmission the Holder shall send an original of such subscription form to the Company within ten Business Days after such subscription form is so given
to the Company; provided further, however, that any failure or delay on the part of the Holder in giving such original of any subscription form shall not affect the validity or the date on which such subscription form is so given by
telephone line facsimile transmission. 
  
 (b) Net Exercise.
The Holder may elect to exercise this Warrant, in whole at any time or in part from time to time, by receiving shares of Common Stock equal to the net issuance value (as determined below) of this Warrant, or any part hereof, upon surrender of
the subscription form annexed hereto (duly executed by the Holder) to the Company (followed by surrender of this Warrant to the Company within three Trading Days after surrender of such subscription form), in which event the Company shall issue to
the Holder a number of shares of Common Stock computed using the following formula: 
  

					
	 X
	  	=	  	Y x (A - B)
	 	  	 	  	    A

  
 where, 
  

					
	 X
	 	=	 	the number of shares of Common Stock to be issued to the Holder
			
	 Y
	 	=	 	the number of shares of Common Stock as to which this Warrant is to be exercised

  

 -5- 

					
	 A
	 	=	 	the Current Fair Market Value of one share of Common Stock calculated as of the last Trading Day immediately preceding the exercise of this Warrant
			
	 B
	 	=	 	the Purchase Price

  
 (c) 9.9%
Limitation. (1) Notwithstanding anything to the contrary contained herein, the number of shares of Common Stock that may be acquired by the Holder upon exercise pursuant to the terms hereof at any time shall not exceed a number that, when added
to the total number of shares of Common Stock deemed beneficially owned by the Holder (other than by virtue of the ownership of securities or rights to acquire securities that have limitations on the Holder’s right to convert, exercise or
purchase similar to the limitation set forth herein (the “Excluded Shares”), together with all shares of Common Stock deemed beneficially owned at such time (other than by virtue of the ownership of the Excluded Shares) by Persons whose
beneficial ownership of Common Stock would be aggregated with the beneficial ownership by the Holder for purposes of determining whether a group exists or for purposes of determining the Holder’s beneficial ownership (the “Aggregation
Parties”), in either such case for purposes of Section 13(d) of the 1934 Act and Regulation 13D-G thereunder (including, without limitation, as the same is made applicable to Section 16 of the 1934 Act and the rules promulgated thereunder),
would result in beneficial ownership by the Holder or such group of more than 9.9% of the shares of Common Stock for purposes of Section 13(d) or Section 16 of the 1934 Act and the rules promulgated thereunder (as the same may be modified by the
Holder as provided herein, the “Restricted Ownership Percentage”). The Holder shall have the right at any time and from time to time to reduce its Restricted Ownership Percentage immediately upon notice to the Company in the event and only
to the extent that Section 16 of the 1934 Act or the rules promulgated thereunder (or any successor statute or rules) is changed to reduce the beneficial ownership percentage threshold thereunder to a percentage less than 9.9%. If at any time the
limits in this Section 1(c) make this Warrant unexercisable in whole or in part, the Company shall not by reason thereof be relieved of its obligation to issue shares of Common Stock at any time or from time to time thereafter upon exercise of this
Warrant as and when shares of Common Stock may be issued in compliance with such restrictions. 
  
 (2) For purposes of this Section 1(c), in determining the number of outstanding shares of Common Stock at any time the Holder may rely on the number of outstanding shares of Common Stock as reflected in (1) the
Company’s then most recent Form 10-Q, Form 10-K or other public filing with the SEC, as the case may be, (2) a public announcement by the Company that is later than any such filing referred to in the preceding clause (1) or (3) any other notice
by the Company or its transfer agent setting forth the number shares of Common Stock outstanding and knowledge the Holder may have about the number of shares of Common Stock issued upon conversion or exercise of Common Stock Equivalents by any
Person, including the Holder, which are not reflected in the preceding clauses (1) through (3). Upon the written request of the Holder, the Company shall within three Business Days confirm 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 Common Stock Equivalents, by the Holder or its affiliates, in each such case subsequent
to, the date as of which such number of outstanding shares of Common Stock was reported. 
  

 -6- 

 2. Delivery of Stock Certificates, etc., on Exercise. As soon as practicable after the exercise of
this Warrant and in any event within five Trading Days thereafter, upon the terms and subject to the conditions of this Warrant, the Company at its expense (including the payment by it of any applicable issue or stamp taxes) will cause to be issued
in the name of and delivered to the Holder, or as the Holder (upon payment by the Holder of any applicable transfer taxes) may direct, a certificate or certificates for the number of fully paid and nonassessable shares of Common Stock (or Other
Securities) to which the Holder shall be entitled on such exercise, in such denominations as may be requested by the Holder, plus, in lieu of any fractional share to which the Holder would otherwise be entitled, cash equal to such fraction
multiplied by the then Current Fair Market Value of one full share, together with any other stock or Other Securities or any property (including cash, where applicable) to which the Holder is entitled upon such exercise pursuant to Section 1 or
otherwise. The Company shall pay any taxes and other governmental charges that may be imposed under the laws of the United States of America or any political subdivision or taxing authority thereof or therein in respect of the issue or delivery of
shares of Common Stock (or Other Securities) or payment of cash upon exercise of this Warrant (other than income taxes imposed on the Holder). The Company shall not be required, however, to pay any tax or other charge imposed in connection with any
transfer involved in the issue of any certificate for shares of Common Stock (or Other Securities) issuable upon exercise of this Warrant or payment of cash to any Person other than the Holder, and in case of such transfer or payment the Company
shall not be required to deliver any certificate for shares of Common Stock (or Other Securities) upon such exercise or pay any cash until such tax or charge has been paid or it has been established to the Company’s reasonable satisfaction that
no such tax or charge is due. Upon exercise of this Warrant as provided herein, the Company’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by
the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the
Company to the Holder, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder
or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with such exercise. If the Company fails to issue and deliver the certificates for the Common
Stock to the Holder pursuant to the first sentence of this paragraph as and when required to do so, in addition to any other liabilities the Company may have hereunder and under applicable law, the Company shall pay or reimburse the Holder on demand
for all out-of-pocket expenses, including, without limitation, fees and expenses of legal counsel, incurred by the Holder as a result of such failure. 
  
 3. Adjustment for Dividends in Other Stock, Property, etc.; Reclassification, etc. In case at any time or from time to time on or after the
Issuance Date, all the holders of Common Stock (or Other Securities) shall have received, or (on or after the record date fixed for the determination of stockholders eligible to receive) shall have become entitled to receive, without payment
therefor, 
  
 (a) other or additional stock,
rights, warrants or other securities or property (other than cash) by way of dividend, or 
  

 -7- 

 (b) any cash (excluding cash dividends payable solely out of earnings or earned surplus
of the Company), or 
  
 (c) other or additional
stock, rights, warrants or other securities or property (including cash) by way of spin-off, split-up, reclassification, recapitalization, combination of shares or similar corporate rearrangement, 
  
 other than (i) additional shares of Common Stock (or Other Securities) issued as a stock
dividend or in a stock-split (adjustments in respect of which are provided for in Section 5) and (ii) rights or warrants to subscribe for Common Stock at less than the Current Fair Market Value (adjustments in respect of which are provided in
Section 6), then and in each such case the Holder, on the exercise hereof as provided in Section 1, shall be entitled to receive the amount of stock, rights, warrants and Other Securities and property (including cash in the cases referred to in
subdivisions (b) and (c) of this Section 3) which the Holder would hold on the date of such exercise if on the date thereof the Holder had been the holder of record of the number of shares of Common Stock called for on the face of this Warrant and
had thereafter, during the period from the date thereof to and including the date of such exercise, retained such shares and all such other or additional stock, rights, warrants and Other Securities and property (including cash in the case referred
to in subdivisions (b) and (c) of this Section 3) receivable by the Holder as aforesaid during such period, giving effect to all adjustments called for during such period by Section 4. 
  
 4. Exercise upon a Reorganization Event. In case of any Reorganization Event the Company shall, as a condition
precedent to the consummation of the transactions constituting, or announced as, such Reorganization Event, cause effective provisions to be made so that the Holder shall have the right thereafter, by exercising this Warrant (in lieu of the shares
of Common Stock of the Company and Other Securities or property purchasable and receivable upon exercise of the rights represented hereby immediately prior to such transaction) to purchase the kind and amount of shares of stock and Other Securities
and property (including cash) receivable upon such Reorganization Event by a holder of the number of shares of Common Stock that might have been received upon exercise of this Warrant immediately prior to such Reorganization Event. Any such
provision shall include provisions for adjustments in respect of such shares of stock and Other Securities and property that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The provisions of this
Section 4 shall apply to successive Reorganization Events. 
  
 5. Adjustment for Certain Extraordinary Events. In the event that on or after the Issuance Date the Company shall (i) issue additional shares of the Common Stock as a dividend or other distribution on outstanding Common Stock, (ii)
subdivide or reclassify its outstanding shares of Common Stock, or (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then, in each such event, the Purchase Price shall, simultaneously with the
happening of such event, be adjusted by multiplying the Purchase Price in effect immediately prior to such event by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such event and the
denominator of which shall be the number of shares of Common Stock outstanding immediately after such event, and the product so obtained shall thereafter be the Purchase Price then in effect. The Purchase Price, as so adjusted, shall be readjusted
in the same manner upon the happening of 
  

 -8- 

 any successive event or events described herein in this Section 5. The Holder shall thereafter, on the exercise hereof as
provided in Section 1, be entitled to receive that number of shares of Common Stock determined by multiplying the number of shares of Common Stock which would be issuable on such exercise immediately prior to such issuance by a fraction of which (i)
the numerator is the Purchase Price in effect immediately prior to such issuance and (ii) the denominator is the Purchase Price in effect on the date of such exercise. 
  
 6. Issuance of Rights or Warrants to Common Stockholders at less than Current Fair Market Value. In case the Company
shall on or after the Issuance Date issue rights or warrants to all holders of its outstanding shares of Common Stock entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the Current Fair Market Value on
the record date fixed for the determination of stockholders entitled to receive such rights or warrants, then 
  
 (a) the Purchase Price shall be adjusted so that the same shall equal the price determined by multiplying the Purchase Price in effect at
the opening of business on the day after such record date by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on such record date plus the number of shares which the aggregate
offering price of the total number of shares so offered would purchase at such Current Fair Market Value, and the denominator shall be the number of shares of Common Stock outstanding on the close of business on such record date plus the total
number of additional shares of Common Stock so offered for subscription or purchase; and 
  
 (b) the number of shares of Common Stock which the Holder may thereafter purchase upon exercise of this Warrant at the opening of business
on the day after such record date shall be increased to a number equal to the quotient obtained by dividing (x) the Aggregate Purchase Price in effect immediately prior to such adjustment in the Purchase Price pursuant to clause (a) of this Section
6 by (y) the Purchase Price in effect immediately after such adjustment in the Purchase Price pursuant to clause (a) of this Section 6. 
  
 Such adjustment shall become effective immediately after the opening of business on the day following the record date fixed for determination of stockholders entitled to
receive such rights or warrants. To the extent that shares of Common Stock are not delivered pursuant to such rights or warrants, upon the expiration or termination of such rights or warrants, the Purchase Price shall be readjusted to the Purchase
Price which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of delivery of only the number of shares of Common Stock actually delivered and the number of shares of Common Stock for
which this Warrant may thereafter be exercised shall be readjusted (subject to proportionate adjustment for any intervening exercises of this Warrant) to the number which would then be in effect had the adjustments made upon the issuance of such
rights or warrants been made on the basis of delivery of only the number of shares of Common Stock actually delivered. In the event that such rights or warrants are not so issued, the Purchase Price shall again be adjusted to be the Purchase Price
which would then be in effect if such record date had not been fixed and the number of shares of Common Stock for which this Warrant may thereafter be exercised shall again be adjusted (subject to proportionate adjustment for any intervening
exercises of this 
  

 -9- 

 Warrant) to be the number which would then be in effect if such record date had not been fixed. In determining whether
any rights or warrants entitle the holder to subscribe for or purchase shares of Common Stock at less than such Current Fair Market Value, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into
account any consideration received for such rights or warrants, the value of such consideration, if other than cash, to be determined by the Board of Directors. 
  

7. Issuance at Less than Current Fair Market Value. (a) In case at any time on or after the Issuance Date the Company shall issue shares of its
Common Stock or Common Stock Equivalents (collectively, the “Newly Issued Shares”), other than an issuance pro rata to all holders of its outstanding Common Stock (adjustments for which are provided in Sections 5 and 6) and other than an
issuance in respect of which Section 9 is applicable, at a price below the Current Fair Market Value of the Common Stock at the time of such issuance, then following such issuance of Newly Issued Shares the Purchase Price shall be reduced as
provided in clause (b) of this Section 7 and the number of shares of Common Stock which may be issued upon exercise of this Warrant shall be increased as provided in clause (c) of this Section 7. 
  
 (b) The reduction in the Purchase Price following any such adjustment shall
be determined by multiplying the Purchase Price immediately prior to such adjustment by a fraction, of which the numerator shall be the sum of (1) the number of shares of Common Stock outstanding immediately prior to the issuance of the Newly Issued
Shares (calculated on a fully-diluted basis assuming the exercise or conversion of all options, warrants, purchase rights or convertible securities which are exercisable or convertible at the time of the issuance of the Newly Issued Shares) plus
(2) the number of shares of Common Stock which the aggregate consideration, if any, received by the Company for the number of Newly Issued Shares would purchase at a price equal to the Current Fair Market Value of the Common Stock at the time of
such issuance, and the denominator shall be the sum of (X) the number of shares of Common Stock outstanding immediately prior to the issuance of the Newly Issued Shares (calculated on a fully-diluted basis assuming the exercise or conversion of all
options, warrants, purchase rights or convertible securities which are exercisable or convertible at the time of the issuance of the Newly Issued Shares) plus (Y) the number of Newly Issued Shares. The adjustment provided for in this Section
7(b) may be expressed as the following mathematical formula: 
  

					
	 NPP =
	 	( O +(C / FMV))	 	 x PP

	 	( O + N )	 	 

  
 where, 
  

					
	 C
	 	=	 	aggregate consideration received by the Company for the Newly Issued Shares
	 N
	 	=	 	number of Newly Issued Shares
	 O
	 	=	 	number of shares of Common Stock outstanding (on a fully diluted basis, as described above) immediately prior to the issuance of the Newly Issued Shares

	

  

 -10- 

					
	 FMV
	  	=	  	Current Fair Market Value of the Common Stock at the time of issuance of the Newly Issued Shares
	 PP
	  	=	  	Purchase Price immediately prior to the issuance of the Newly Issued Shares
	 NPP
	  	=	  	Purchase Price immediately after the issuance of the Newly Issued Shares

  
 (c) If the Purchase
Price is reduced in connection with the issuance of Newly Issued Shares as provided in Section 7(b), then the number of shares of Common Stock for which this Warrant may thereafter be exercised shall be increased at the time of such reduction in the
Purchase Price to a number equal to the quotient obtained by dividing (x) the Aggregate Purchase Price in effect immediately prior to such issuance of Newly Issued Shares by (y) the Purchase Price in effect immediately after such issuance of
Newly Issued Shares after giving effect to such reduction in the Purchase Price pursuant to Section 7(b). 
  
 (d) Notwithstanding the foregoing, no adjustment shall be made under this Section 7 by reason of: 
  
 (1) the issuance by the Company of shares of Common Stock pro rata to all
holders of the Common Stock so long as (i) any adjustment required by Section 5 is made and (ii) the Company shall have given notice thereof to the Holder pursuant to Section 14; 
  
 (2) the issuance by the Company of shares of Series A Preferred Stock or shares of Common Stock upon conversion of the
Series A Preferred Stock or upon exercise of this Warrant in accordance with the terms hereof and thereof or any other issuance of securities solely to the Holder occurring on or before August 31, 2004; 
  
 (3) the issuance by the Company of shares of Newly Issued Shares in payment
of dividends on the Series A Preferred Stock in accordance with the terms thereof; 
  
 (4) the issuance of Common Stock upon conversion, exercise or exchange of, and in payment of interest on, Common Stock Equivalents outstanding on the Issuance Date in accordance with the terms thereof existing on the
Issuance Date; 
  
 (5) the issuance by the Company of Newly Issued
Shares upon grant or exercise of options for employees, directors and consultants under a stock option, equity compensation or similar plan duly adopted by the Board of Directors; or 
  
 (6) the issuance, if required, by the Company of the Placement Agent Warrants or shares of Common Stock upon exercise of the
Placement Agent Warrants in accordance with the terms hereof and thereof. 
  
 8. Adjustment For Certain Issuances. (a) If at any time on or after the Issuance Date the Company issues shares of Common Stock or Common Stock Equivalents that are not registered for sale by the Company in
such offering under the 1933 Act or issues shares of Common Stock or Common Stock Equivalents in an offering of a type commonly known as a 
  

 -11- 

 PIPE or an equity line, in any such case in an amount which, together with all other offerings by the Company that would
be integrated with such offering for purposes of Regulation D under the 1933 Act, results in gross proceeds to the Company of at least $250,000, at a price per share at which the Company sells such shares of Common Stock or the price per share at
which the holders of such Common Stock Equivalents are entitled to acquire shares of Common Stock upon conversion or exercise thereof which is less than the Purchase Price in effect at the time of such issuance, then following such issuance the
Purchase Price shall be reduced to the lowest price per share at which such shares of Common Stock are issued or at which such Common Stock Equivalents may be exercised, if the same is lower than the Purchase Price in effect immediately prior to
such issuance. If the Purchase Price is reduced pursuant to this Section 8, then the number of shares of Common Stock for which this Warrant may thereafter be exercised shall be increased at the time of such reduction of the Purchase Price to a
number equal to the quotient obtained by dividing (x) the Aggregate Purchase Price in effect immediately prior to such issuance by (y) the Purchase Price in effect immediately after such issuance after giving effect to such reduction in the
Purchase Price pursuant to this Section 8. 
  
 (b) If any
adjustment in the Purchase Price is made pursuant to this Section 8 in respect of any issuance of shares of Common Stock or Common Stock Equivalents, no adjustment in the Purchase Price or the number of shares of Common Stock issuable upon exercise
of this Warrant shall be made by reason of such issuance pursuant to Section 8. 
  
 (c) Notwithstanding the foregoing, no adjustment shall be made under this Section 8 by reason of: 
  
 (1) the issuance by the Company of shares of Common Stock pro rata to all holders of the Common Stock so long as (i) any adjustment required by Section 5
is made and (ii) the Company shall have given notice thereof to the Holder pursuant to Section 14; 
  
 (2) the issuance by the Company of shares of Series A Preferred Stock or shares of Common Stock upon conversion of the Series A Preferred Stock or upon
exercise of this Warrant in accordance with the terms hereof and thereof or any other issuance of securities solely to the Holder occurring on or before August 31, 2004; 
  
 (3) the issuance by the Company of shares of Newly Issued Shares in payment of dividends on the Series A Preferred Stock in
accordance with the terms thereof; 
  
 (4) the issuance of Common
Stock upon conversion, exercise or exchange of, and in payment of interest on, Common Stock Equivalents outstanding on the Issuance Date in accordance with the terms thereof existing on the Issuance Date; or 
  
 (5) the issuance by the Company of Newly Issued Shares upon grant or exercise
of options for employees, directors and consultants under a stock option, equity compensation or similar plan duly adopted by the Board of Directors. 
  
 9. Effect of Reclassification, Consolidation, Merger or Sale. (a) If any of the following events occur, namely (i) any reclassification or
change of the outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no 
  

 -12- 

 par value to par value, or as a result of a subdivision or combination), (ii) any consolidation, merger or combination of
the Company with another corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, or (iii) any sale or
conveyance of the properties and assets of the Company as, or substantially as, an entirety to any other Person as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash)
with respect to or in exchange for such Common Stock, then the Company or the successor or purchasing Person, as the case may be, shall execute with the Holder a written agreement providing that (x) this Warrant shall thereafter entitle the Holder
to purchase the kind and amount of shares of stock and Other Securities or property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance by the holder of a number of shares
of Common Stock issuable upon exercise of this Warrant (assuming, for such purposes, a sufficient number of authorized shares of Common Stock available to exercise this Warrant) immediately prior to such reclassification, change, consolidation,
merger, combination, sale or conveyance assuming such holder of Common Stock did not exercise such holder’s rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon such consolidation, merger,
statutory exchange, sale or conveyance (provided that, if the kind or amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance is not the same for each share of Common
Stock in respect of which such rights of election shall not have been exercised (“non-electing share”), then for the purposes of this Section 9 the kind and amount of securities, cash or other property receivable upon such consolidation,
merger, statutory exchange, sale or conveyance for each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares), (y) in the case of any such successor or purchasing Person, upon
such consolidation, merger, combination, sale or conveyance such successor or purchasing Person shall be jointly and severally liable with the Company for the performance of all of the Company’s obligations under this Warrant and the
Subscription Agreement and (z) if registration or qualification is required under the 1933 Act or applicable state law for the public resale by the Holder of such shares of stock and Other Securities so issuable upon exercise of this Warrant, such
registration or qualification shall be completed prior to such reclassification, change, consolidation, merger, combination or sale. Such written agreement shall provide for adjustments which shall be as nearly equivalent as may be practicable to
the adjustments provided for in this Warrant. If, in the case of any such reclassification, change, consolidation, merger, combination, sale or conveyance, the stock or other securities and assets receivable thereupon by a holder of shares of Common
Stock includes shares of stock or other securities and assets of a corporation other than the successor or purchasing corporation, as the case may be, in such reclassification, change, consolidation, merger, combination, sale or conveyance, then
such written agreement shall also be executed by such other corporation and shall contain such additional provisions to protect the interests of the Holder as the Board of Directors shall reasonably consider necessary by reason of the foregoing.

  
 (b) The above provisions of this Section 9 shall similarly
apply to successive reclassifications, changes, consolidations, mergers, combinations, sales and conveyances. 
  
 (c) If this Section 9 applies to any event or occurrence, Section 4 shall not apply to such event or occurrence. 
  

 -13- 

 10. Tax Adjustments. The Company may make such reductions in the Purchase Price, in
addition to those required by Sections 3, 4, 5, 6, 7 and 8, as the Board of Directors considers to be advisable to avoid or diminish any income tax to holders of Common Stock or rights to purchase Common Stock resulting from any dividend or
distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. 
  
 11. Minimum Adjustment. (a) No adjustment in the Purchase Price (and no related adjustment in the number of shares of Common Stock which may
thereafter be purchased upon exercise of this Warrant) shall be required unless such adjustment would require an increase or decrease of at least 1% in the Purchase Price; provided, however, that any adjustments which by reason of this
Section 11 are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All such calculations under this Warrant shall be made by the Company and shall be made to the nearest cent or to the nearest one
hundredth of a share, as the case may be. 
  
 (b) No adjustment
need be made for a change in the par value of the Common Stock or from par value to no par value or from no par value to par value. 
  
 12. Notice of Adjustments. Whenever the Purchase Price is adjusted as herein provided, the Company shall promptly, but in no event later than five
Trading Days thereafter, give a notice to the Holder setting forth the Purchase Price and number of shares of Common Stock which may be purchased upon exercise of this Warrant after such adjustment and setting forth a brief statement of the facts
requiring such adjustment but which such statement shall not include any information which would be material non-public information for purposes of the 1934 Act. Failure to deliver such notice shall not affect the legality or validity of any such
adjustment. 
  
 13. Further Assurances. The Company will
take all action that may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock, free from all taxes, liens and charges with respect to the issue thereof, on the exercise of
all or any portion of this Warrant from time to time outstanding. 
  
 14. Notice to Holder Prior to Certain Actions. In case on or after the Issuance Date: 
  
 (a) the Company shall declare a dividend (or any other distribution) on its Common Stock (other than in cash out of retained earnings); or 
  
 (b) the Company shall authorize the granting to the holders of its Common
Stock of rights or warrants to subscribe for or purchase any share of any class or any other rights or warrants; or 
  
 (c) the Board of Directors shall authorize any reclassification of the Common Stock (other than a subdivision or combination of its outstanding Common
Stock, or a change in par value, or from par value to no par value, or from no par value to par value), or any consolidation or merger or other business combination transaction to which the Company is a party and for which approval of any
stockholders of the Company is required, or the sale or transfer of all or substantially all of the assets of the Company; or 
  

 -14- 

 (d) there shall be pending the voluntary or involuntary dissolution, liquidation or winding-up of the
Company; 
  
 the Company shall give the Holder, as promptly as possible but in any
event at least ten Trading Days prior to the applicable date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution or rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution or rights are to be determined, or (y) the date on which such reclassification, consolidation, merger, other business combination
transaction, sale, transfer, dissolution, liquidation or winding-up is expected to become effective or occur, and the date as of which it is expected that holders of Common Stock of record who shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reclassification, consolidation, merger, other business combination transaction, sale, transfer, dissolution, liquidation or winding-up shall be determined. Such notice shall not include any
information which would be material non-public information for purposes of the 1934 Act. Failure to give such notice, or any defect therein, shall not affect the legality or validity of such dividend, distribution, reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding-up. In the case of any such action of which the Company gives such notice to the Holder or is required to give such notice to the Holder, the Holder shall be entitled to give a subscription
form to exercise this Warrant in whole or in part that is contingent on the completion of such action. 
  
 15. Reservation of Stock, etc., Issuable on Exercise of Warrants. The Company will at all times reserve and keep available out of its authorized
but unissued shares of capital stock, solely for issuance and delivery on the exercise of this Warrant, a sufficient number of shares of Common Stock (or Other Securities) to effect the full exercise of this Warrant and the exercise, conversion or
exchange of any other warrant or security of the Company exercisable for, convertible into, exchangeable for or otherwise entitling the holder to acquire shares of Common Stock (or Other Securities), and if at any time the number of authorized but
unissued shares of Common Stock (or Other Securities) shall not be sufficient to effect such exercise, conversion or exchange, the Company shall take such action as may be necessary to increase its authorized but unissued shares of Common Stock (or
Other Securities) to such number as shall be sufficient for such purposes. 
  
 16. Transfer of Warrant. This Warrant shall inure to the benefit of the successors to and assigns of the Holder. This Warrant and all rights hereunder, in whole or in part, are registrable at the office or
agency of the Company referred to below by the Holder in Person or by his duly authorized attorney, upon surrender of this Warrant properly endorsed accompanied by an assignment form in the form attached to this Warrant, or other customary form,
duly executed by the transferring Holder. 
  
 17. Register of
Warrants. The Company shall maintain, at the principal office of the Company (or such other office as it may designate by notice to the Holder), a register in which the Company shall record the name and address of the Person in whose name this
Warrant has been issued, as well as the name and address of each successor and prior owner of such Warrant. The Company shall be entitled to treat the Person in whose name this Warrant is so registered as the sole and absolute owner of this Warrant
for all purposes. 
  

 -15- 

 18. Exchange of Warrant. This Warrant is exchangeable, upon the surrender hereof by the Holder at
the office or agency of the Company referred to in Section 16, for one or more new Warrants of like tenor representing in the aggregate the right to subscribe for and purchase the number of shares of Common Stock which may be subscribed for and
purchased hereunder, each of such new Warrants to represent the right to subscribe for and purchase such number of shares as shall be designated by the Holder at the time of such surrender. 
  
 19. Replacement of Warrant. On receipt by the Company of evidence
reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Warrant and (a) in the case of loss, theft or destruction, of indemnity from the Holder reasonably satisfactory in form to the Company (and
without the requirement to post any bond or other security), or (b) in the case of mutilation, upon surrender and cancellation of this Warrant, the Company will execute and deliver to the Holder a new Warrant of like tenor without charge to the
Holder. 
  
 20. Warrant Agent. The Company may, by written
notice to the Holder, appoint the transfer agent and registrar for the Common Stock as the Company’s agent for the purpose of issuing Common Stock (or Other Securities) on the exercise of this Warrant pursuant to Section 1, and the Company may,
by written notice to the Holder, appoint an agent having an office in the United States of America for the purpose of exchanging this Warrant pursuant to Section 18, and replacing this Warrant pursuant to Section 19, or any of the foregoing, and
thereafter any such exchange or replacement, as the case may be, shall be made at such office by such agent. 
  
 21. Remedies. The Company stipulates that the remedies at law of the Holder in the event of any default or threatened default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise. 
  
 22. No Rights or Liabilities as a Stockholder. This Warrant shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company. Nothing contained in this Warrant shall be construed as conferring upon
the Holder the right to vote or to consent or to receive notice as a stockholder of the Company on any matters or with respect to any rights whatsoever as a stockholder of the Company. No dividends or interest shall be payable or accrued in respect
of this Warrant or the interest represented hereby or the Common Stock (or Other Securities) purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised in accordance with its terms. 
  
 23. Notices, etc. All notices and other communications from the
Company to the Holder shall be mailed by first class certified mail, postage prepaid, at such address as may have been furnished to the Company in writing by the Holder or at the address shown for the Holder on the register of Warrants referred to
in Section 16. 
  

 -16- 

 24. Transfer Restrictions. This Warrant has not been and is not being registered under the
provisions of the 1933 Act or any state securities laws and this Warrant may not be transferred unless (1) the transferee is an “accredited investor” (as defined in Regulation D under the 1933 Act) or a QIB in a transfer that meets the
requirements of Rule 144A and (2) the Holder shall have delivered to the Company an opinion of counsel, reasonably satisfactory in form, scope and substance to the Company, to the effect that this Warrant may be sold or transferred without
registration under the 1933 Act. Prior to any such transfer, such transferee shall have represented in writing to the Company that such transferee has requested and received from the Company all information relating to the business, properties,
operations, condition (financial or other), results of operations or prospects of the Company deemed relevant by such transferee; that such transferee has been afforded the opportunity to ask questions of the Company concerning the foregoing and has
had the opportunity to obtain and review the Registration Statement (as defined in the Subscription Agreement) and the prospectus included therein, each as amended or supplemented to the date of transfer to such transferee, and the reports and other
information concerning the Company which at the time of such transfer have been filed by the Company with the SEC pursuant to the 1934 Act and which are incorporated by reference in such prospectus as of the date of such transfer. If such transfer
is intended to assign the rights and obligations under Sections 5, 8, 9 and 10 of the Subscription Agreement, such transfer shall otherwise be made in compliance with Section 10(j) of the Subscription Agreement. 
  
 25. Rule 144A Information Requirement. Within the period prior
to the expiration of the holding period applicable to sales hereof under Rule 144(k) under the 1933 Act (or any successor provision), the Company covenants and agrees that it shall, during any period in which it is not subject to Section 13 or 15(d)
under the 1934 Act, make available to the Holder and the holder of any shares of Common Stock issued upon exercise of this Warrant which continue to be Restricted Securities in connection with any sale thereof and any prospective purchaser of this
Warrant from the Holder, the information required pursuant to Rule 144A(d)(4) under the 1933 Act upon the request of the Holder and it will take such further action as the Holder may reasonably request, all to the extent required from time to time
to enable the Holder to sell this Warrant without registration under the 1933 Act within the limitation of the exemption provided by Rule 144A, as Rule 144A may be amended from time to time. Upon the request of the Holder, the Company will deliver
to the Holder a written statement as to whether it has complied with such requirements. 
  
 26. Legend. Unless theretofore registered for resale under the 1933 Act, each certificate for shares issued upon exercise of this Warrant shall bear the following legend: 
  
 The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the “1933 Act”). The securities have been acquired for investment and may not be resold, transferred or assigned in the absence of an effective registration statement for the securities under
the 1933 Act, or an opinion of counsel that registration is not required under the 1933 Act. 
  
 27. Amendment; Waiver. This Warrant and any terms hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver,
discharge or termination is sought. Notwithstanding anything to the contrary contained herein, no amendment or waiver shall 
  

 -17- 

 increase or eliminate the Restricted Ownership Percentage, whether permanently or temporarily, unless, in addition to
complying with the other requirements of this Warrant, such amendment or waiver shall have been approved in accordance with the General Corporation Law of the State of Nevada and the Company’s By-laws by holders of the outstanding shares of
Common Stock entitled to vote at a meeting or by written consent in lieu of such meeting. 
  
 28. Miscellaneous. This Warrant shall be construed and enforced in accordance with and governed by the internal laws of the State of New York. The headings, captions and footers in this Warrant are for purposes
of reference only, and shall not limit or otherwise affect any of the terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. 
  
 29. Attorneys’ Fees. In any litigation, arbitration or court
proceeding between the Company and Holder relating hereto, the prevailing party shall be entitled to attorneys’ fees and expenses and all costs of proceedings incurred in enforcing this Warrant. 
  
 [Remainder of Page Intentionally Left Blank] 
  

 -18- 

 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed on its behalf by one
of its officers thereunto duly authorized. 
  

							
	 Dated: August 2, 2004
	 	 	 	DWANGO NORTH AMERICA CORP.
				
	 	 	 	 	 By:
	 	 /s/ Rick J. Hennessey

	 	 	 	 	 Name:
	 	 Rick J. Hennessey

	 	 	 	 	 Title:
	 	 Chief Executive Officer

  

 -19- 

 ASSIGNMENT 
  

For value                     
hereby sell(s), assign(s) and transfer(s) unto                      (Please insert social security or other Taxpayer
Identification Number of assignee:                     ) the attached original, executed Warrant to purchase
                     share of Common Stock of Dwango North America Corp., a Nevada corporation (the “Company”), and hereby
irrevocably constitutes and appoints                      attorney to transfer the Warrant on the books of the Company, with full power
of substitution in the premises. 
  
 In connection with any
transfer of the Warrant within the period prior to the expiration of the holding period applicable to sales thereof under Rule 144(k) under the 1933 Act (or any successor provision) (other than any transfer pursuant to a registration statement that
has been declared effective under the 1933 Act), the undersigned confirms that such Warrant is being transferred: 
  

	 	[            ]	To the Company or a subsidiary thereof; or 

  

	 	[            ]	To a QIB pursuant to and in compliance with Rule 144A; or 

  

	 	[            ]	To an “accredited investor” (as defined in Regulation D under the 1933 Act) pursuant to and in compliance with the 1933 Act; or 

  

	 	[            ]	Pursuant to and in compliance with Rule 144 under the 1933 Act; 

  
 and unless the box below is checked, the undersigned confirms that, to the knowledge of the undersigned, such Warrant is not being transferred to an “affiliate”
(as defined in Rule 144 under the 1933 Act) of the Company. 
  

	 	[            ]	The transferee is an affiliate of the Company. 

  
 Capitalized terms used in this Assignment and not defined in this Assignment shall have the respective meanings provided in the Warrant. 
  

									
	 Dated:
	 	  

	 	 	 	 NAME:
	 	  

	 	 	 	 	 	 	  

	 	 	 	 	 	 	Signature(s)

 Exhibit 1 
  

FORM OF SUBSCRIPTION 
  
 DWANGO NORTH AMERICA CORP. 
  
 (To be signed only on exercise of Warrant) 
  

			
	 TO:
	 	 Dwango North America Corp.

	 	 	 200 West Mercer Street

	 	 	 Suite 501

	 	 	 Seattle, Washington 98119

		
	 	 	 Attention: Chief Executive Officer

		
	 	 	 Facsimile No.: (206) 286-1442

  
 1.      The undersigned Holder of the attached original, executed Warrant hereby elects to exercise its purchase right under such Warrant with respect to
                     shares (the “Exercise Shares”) of Common Stock, as defined in the Warrant, of Dwango North America Corp., a
Nevada corporation (the “Company”). 
  

	 	2.	The undersigned Holder (check one): 

  

	 	 ̈	(a) elects to pay the Aggregate Purchase Price for such shares of Common Stock (i) in lawful money of the United States or by the enclosed certified or official bank check payable
in United States dollars to the order of the Company in the amount of $                    , or (ii) by wire transfer of United States funds
to the account of the Company in the amount of $                    , which transfer has been made before or simultaneously with the delivery
of this Form of Subscription pursuant to the instructions of the Company; 

  

	 	    	or 

  

	 	 ̈	(b) elects to receive shares of Common Stock having a value equal to the value of the Warrant calculated in accordance with Section 1(b) of the Warrant. 

  
 3.      Please issue a stock certificate or
certificates representing the appropriate number of shares of Common Stock in the name of the undersigned or in such other name(s) as is specified below: 
  

					
	 Name:
	 	  

	 	 
	 Address:
	 	  

	 	 
	 	 	  

	 	 

  

 I-1 

					
	 	  	 Social Security or Tax Identification Number (if any):

			
	 	  	  

	  	 
		
	 Dated:
	  	  

	 	  	 	  	 (Signature must conform to name of Holder as
 specified on the face of the Warrant)

			
	 	  	 	  	  

			
	 	  	 	  	  

	 	  	 	  	(Address)

  

 I-2

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