Document:

WWW.EXFILE.COM, INC. -- 888-775-4789 -- MEDIS TECHNOLOGIES LTD. -- EXHIBIT 10.25 TO FORM S-1/A

EXHIBIT 10.25

 

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

 

 

MEDIS TECHNOLOGIES LTD.

 

Warrant To Purchase Common Stock

	
Warrant No.: 2009-01
	
Issuance Date:  July 1, 2009

	  	  
	
Number of Warrant Shares:  7,780,603
	
Initial Exercise Price:  $0.42

 

Medis Technologies Ltd., a Delaware corporation (“Company”), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Ovation Alpha Capital, Ltd., a Cayman Islands exempted company, the holder hereof
or its permitted designees or assigns (“Holder”), is entitled, subject to the terms set forth below, to purchase from the Company, at the Exercise Price (as defined below) then in effect, upon surrender of this Warrant to Purchase Common Stock (including any Warrants to Purchase Common Stock issued in exchange, transfer or replacement hereof, the “Warrant”),
at any time or times on or after the earlier of (a) the date on which a registration statement registering for resale the Warrant Shares (as defined below) becomes effective and (b) the date that is six (6) months after the Issuance Date set forth above (such date specified in clauses (a) or (b) above, as applicable, the “Exercisable Date”), but not after 11:59 p.m., New York time, on the fifth anniversary of the Issuance Date,
that number of duly authorized, validly issued, fully paid and non-assessable shares of Common Stock set forth above (the “Warrant Shares”).  Notwithstanding the foregoing, this Warrant shall not be exercisable under any circumstances if the Put Closing with respect to which this Warrant was issued does not occur for any reason other than (i) the Company’s refusal to consummate such Put Closing, or (ii) the failure by
the Company to satisfy all of the conditions precedent to the Closing of such Put set forth in Sections 2.3(e) and (f) of the Purchase Agreement, in which case Holder shall, to the extent this Warrant 

 

 

 

 

remains unexercised, promptly return this Warrant to the Company.  Except as otherwise defined herein, capitalized terms in this Warrant shall have the meanings set forth in ARTICLE 14.

 

ARTICLE 1

EXERCISE OF WARRANT.

 

1.1   Mechanics of Exercise.  Subject to the terms and conditions hereof , this Warrant may be exercised by the Holder
on any day on or after the Exercisable Date, in whole or in part, by (i) delivery of a written notice to the Company, in the form attached hereto as Appendix A (the “Exercise Notice”), of the Holder’s election to exercise this Warrant and (ii) payment to the Company of an amount equal to the applicable Exercise Price multiplied by the number of Warrant
Shares as to which this Warrant is being exercised (the “Aggregate Exercise Price”) in cash or by wire transfer of immediately available funds, by the issuance and delivery of a recourse promissory note substantially in the form attached hereto as Appendix B (each, a “Recourse Note”), or, if applicable,
by cashless exercise pursuant to Section 1.3.  The Holder shall not be required to deliver the original Warrant in order to effect an exercise hereunder.  Execution and delivery of the Exercise Notice with respect to less than all of the Warrant Shares shall have the same effect as cancellation of the original Warrant and issuance of a new Warrant evidencing the
right to purchase the remaining number of Warrant Shares.  On or before the 1st Business Day following the date on which the Company has received each of the Exercise Notice and the Aggregate Exercise Price (the “Exercise Delivery Documents”), the Company shall transmit by facsimile an acknowledgment of confirmation of receipt of the Exercise Delivery Documents to the Holder and the Company’s transfer agent (the “Transfer
Agent”).  The Company shall, on or before the 3rd Business Day following the date on which the Company has received all of the Exercise Delivery Documents (the “Share Delivery Date”), and (i) provided that the Transfer Agent is participating in The Depository Trust Company (“DTC”) Fast Automated Securities Transfer Program, upon the request
of the Holder, use its commercially reasonable efforts to cause the Transfer Agent to credit such aggregate number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the Holder’s or its designee’s balance account with DTC through its Deposit Withdrawal Agent Commission system, or (ii) if (A) the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, or (B) a registration statement registering for resale the Warrant Shares is not
then effective, use its commercially reasonable efforts to cause the Transfer Agent to issue and dispatch by overnight courier to the address as specified in the Exercise Notice, a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder is entitled pursuant to such exercise, which certificates shall not bear any restrictive legends unless required pursuant to the Purchase Agreement or applicable law.  Upon
delivery of the Exercise Delivery Documents, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date such Warrant Shares are credited to the Holder’s DTC account or the date of delivery of the certificates evidencing such Warrant Shares, as the case may be.  If this Warrant is submitted in connection with any exercise pursuant to this Section 1.1 and
the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of Warrant Shares being acquired upon an exercise, then the Company shall as soon as practicable after any exercise and at its own expense, issue a new Warrant (in accordance with Section 7.4) representing the right to purchase the number of Warrant Shares purchasable immediately
prior 

 

 

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to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised.  No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock to be issued shall be rounded up to the nearest whole number.

 

1.2   Exercise Price.  For purposes of this Warrant, “Exercise Price”
means an amount per Warrant Share equal to the Closing Bid Price of a Share of Common Stock on the Trading Day immediately preceding the Put Notice Date, subject to adjustment as provided herein.

 

1.3   Cashless Exercise.  Notwithstanding anything contained herein to the contrary, if at any time after the Exercisable Date there is not
a current, valid and effective registration statement covering the Warrant Shares that are the subject of the Exercise Notice (the “Unavailable Warrant Shares”), the Holder may, in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect instead to receive upon such exercise
the “Net Number” of shares of Common Stock determined according to the following formula (a “Cashless Exercise”):

 

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

 B

For purposes of the foregoing formula:

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

B = the average of the Closing Sale Prices of the shares of Common Stock (as reported by Bloomberg) for the five (5) consecutive Trading Days ending on the date immediately preceding the date of the Exercise Notice.

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

 

1.4   Company’s Failure to Timely Deliver Securities.  If
the Company shall fail for any reason or for no reason to direct the Transfer Agent to issue to the Holder within 5 Business Days of receipt of the Exercise Delivery Documents, a certificate for the number of shares of Common Stock to which the Holder is entitled and register such shares of Common Stock on the Company’s share register or to credit the Holder’s balance account with DTC for such number of shares of Common Stock to which the Holder is entitled upon the Holder’s exercise of
this Warrant, then, in addition to all other remedies available to the Holder, the Company shall pay in cash to the Holder on each day after such third Business Day that the issuance of such shares of Common Stock is not timely effected an amount equal to 1.5% of the product of (A) the sum of the number of shares of Common Stock not issued to the Holder on a timely basis and to which the Holder is entitled and (B) the Closing Sale Price of the shares of Common Stock on the Trading Day immediately preceding
the last possible date which the Company could have issued such shares of Common Stock to the Holder without violating Section 1.1.  In addition to the foregoing, if within three (3) Trading Days after the Company’s receipt of the facsimile copy of a Exercise Notice the Company shall fail to direct the Transfer Agent to issue and deliver a 

 

 

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certificate to the Holder and register such shares of Common Stock on the Company’s share register or credit the Holder’s balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon the Holder’s exercise hereunder, and if on or after such Trading Day the Holder purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of shares of Common Stock issuable upon such exercise that the Holder anticipated receiving from the Company (a “Buy-In”), then the Company shall, within 3 Business Days after the Holder’s request and in the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total purchase
price (including brokerage commissions, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at which point the Company’s obligation to deliver such certificate (and to issue such shares of Common Stock) or credit such Holder’s balance account with DTC shall terminate, or (ii) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such shares of Common Stock
or credit such Holder’s balance account with DTC and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock sold by Holder in satisfaction of its sale obligations, times (B) the Closing Bid Price on the date of exercise.

 

1.5   Exercise Limitation.  Notwithstanding any other provision, at
no time may the Holder exercise this Warrant such that the number of Warrant Shares to be received pursuant to such exercise aggregated with all other shares of Common Stock then owned by the Holder beneficially or deemed beneficially owned by the Holder would result in the Holder owning more than 4.99% of all of such Common Stock as would be outstanding on such Exercise Date, as determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.  As
of any date prior to the Exercisable Date, the aggregate number of shares of Common Stock into which this Warrant is exercisable within 61 days, together with all other shares of Common Stock then beneficially owned (as such term is defined in Rule 13(d) under the Exchange Act) by Holder and its affiliates, shall not exceed 9.99% of the total outstanding shares of Common Stock as of such date

 

1.6   Disputes.  In the case of a dispute as to the determination
of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall promptly issue to the Holder the number of Warrant Shares that are not disputed and resolve such dispute in accordance with Article 12.

 

1.7   Insufficient Authorized Shares.  If at any time while any
of the Warrants remain outstanding the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon exercise of the Warrants at least a number of shares of Common Stock equal to 110% of the number of shares of Common Stock as shall from time to time be necessary to effect the exercise of all of the Warrants then outstanding (the “Required Reserve Amount”)
(an “Authorized Share Failure”), then the Company shall immediately take all action necessary to increase the Company’s authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for the Warrants then outstanding.  Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure,
but in no event later than 90 days after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its stockholders for the approval of an increase in the 

 

 

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number of authorized shares of Common Stock.  In connection with such meeting, the Company shall provide each stockholder with a proxy statement and shall use its commercially reasonable efforts to solicit its stockholders’ approval of such increase in authorized shares of Common Stock and to cause its board of directors to recommend
to the stockholders that they approve such proposal.

 

ARTICLE 2

ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.

 

The Exercise Price and the number of Warrant Shares shall be adjusted from time to time as follows:

 

2.1   Adjustment upon Issuance of shares of Common Stock.  If and
whenever on or after the Issuance Date the Company issues or sells, or in accordance with this ARTICLE 2 is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding for all purposes of this ARTICLE 2 and notwithstanding anything else to the contrary herein
shares of Common Stock issued or deemed to have been issued by the Company in connection with any Excluded Securities) for a consideration per share less than a price equal to the Exercise Price in effect immediately prior to such issue or sale or deemed issuance or sale (the “Applicable Price” and the foregoing a “Dilutive Issuance,” provided, however, that
if, in connection with such Dilutive Issuance, the Holder hereof is granted, and exercises, the Purchase Rights granted to it pursuant to Section 4.1 hereof, such issuance shall not be deemed to be a Dilutive Issuance and no adjustment for such issuance shall be made pursuant to this ARTICLE 2), then immediately
after such Dilutive Issuance the Exercise Price then in effect shall be reduced to an amount equal to the product of (A) the Exercise Price in effect immediately prior to such Dilutive Issuance and (B) the quotient determined by dividing (1) the sum of (I) the product derived by multiplying the Exercise Price in effect immediately prior to such Dilutive Issuance and the number of shares of Common Stock Deemed Outstanding immediately prior to such Dilutive Issuance plus (II) the consideration,
if any, received by the Company upon such Dilutive Issuance, by (2) the product derived by multiplying (I) the Exercise Price in effect immediately prior to such Dilutive Issuance by (II) the number of shares of Common Stock Deemed Outstanding immediately after such Dilutive Issuance.  Upon each such adjustment of the Exercise Price hereunder, the number of Warrant Shares shall be adjusted to the number of shares of Common Stock determined by multiplying the Exercise Price in effect immediately
prior to such adjustment by the number of Warrant Shares acquirable upon exercise of this Warrant immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment.  For purposes of determining the adjusted Exercise Price under this Section 2.1, the following shall be applicable:

 

2.1.1   Issuance of Options.  If the Company in any manner grants any Options (other than Excluded Securities) and the lowest price per share
for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share.  For purposes of this Section 2.1,
the “lowest price per share for which one 

 

 

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share of Common Stock is issuable upon exercise of any such Options or upon conversion, exercise or exchange of any such Convertible Securities issuable upon exercise of such Options” shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon
the granting or sale of the Option, upon exercise of the Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option.  No further adjustment of the Exercise Price or number of Warrant Shares shall be made upon the actual issuance of such shares of Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Convertible Securities.

 

2.1.2   Issuance of Convertible Securities.  If the Company in any manner (other that Excluded Securities) issues or sells any Convertible
Securities and the lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share.  For the purposes of this Section 2.1.2,
the “lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange” shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to one share of Common Stock upon the issuance or sale of the Convertible Security and upon conversion, exercise or exchange of such Convertible Security.  No further adjustment of the Exercise Price or number of Warrant Shares shall be made upon the
actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of this Warrant has been or is to be made pursuant to other provisions of this ARTICLE 2, no further adjustment of the Exercise Price or number of Warrant Shares shall be made by reason of such issue or sale.

 

2.1.3   Change in Option Price or Rate of Conversion.  If (other than with respect to Excluded Securities) the purchase price provided for
in any Options, the additional consideration, if any, payable upon the issue, conversion, exercise or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exercisable or exchangeable for shares of Common Stock increases or decreases at any time, the Exercise Price and the number of Warrant Shares in effect at the time of such increase or decrease shall be adjusted to the Exercise Price and the number of Warrant Shares which would have been in effect at
such time had such Options or Convertible Securities provided for such increased or decreased purchase price, additional consideration or increased or decreased conversion rate, as the case may be, at the time initially granted, issued or sold.  For purposes of this Section 2.1.3, if the terms of any Option or Convertible Security that was outstanding as of the date
of issuance of this Warrant are increased or decreased in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the shares of Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such increase or decrease.  No adjustment pursuant to this Section 2.1.3 shall
be made if such adjustment would result in an increase of the Exercise Price then in effect or a decrease in the number of Warrant Shares.

 

 

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2.1.4   Calculation of Consideration Received.  In case any Option is issued in connection with the issue or sale of other securities of the
Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options will be deemed to have been issued for a consideration of $0.01.  If any shares of Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Company therefor.  If any shares of Common Stock, Options
or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Company will be the Closing Sale Price of such security on the date of receipt.  If any shares of Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection
with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such shares of Common Stock, Options or Convertible Securities, as the case may be.  The fair value of any consideration other than cash or securities will be determined jointly by the Company and the Required Holders.  If such parties are unable to reach agreement
within ten (10) days after the occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such consideration will be determined within five (5) Business Days after the tenth day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Required Holders.  The determination of such appraiser shall be final and binding upon all parties absent manifest
error and the fees and expenses of such appraiser shall be borne by the Company.

 

2.1.5   Record Date.  If the Company takes a record of the holders of shares of Common Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in shares of Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase shares of Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may
be.

 

2.2   Adjustment upon Subdivision or Combination of Common Stock.  If
the Company at any time on or after the Issuance Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of Warrant Shares will be proportionately increased.  If the Company at any time on or after the Issuance Date combines (by combination, reverse stock split or otherwise)
one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of Warrant Shares will be proportionately decreased.  Any adjustment under this Section 2.2 shall become effective at the close of business on the date the
subdivision or combination becomes effective.

 

 

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2.3   Other Events.  If any event occurs of the type contemplated
by the provisions of this ARTICLE 2 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company’s Board of Directors will make an appropriate adjustment in the Exercise Price and the number of Warrant Shares so as to protect the rights of the Holder; provided that no such adjustment pursuant to
this Section 2.3 will increase the Exercise Price or decrease the number of Warrant Shares as otherwise determined pursuant to this ARTICLE 2.

 

2.4   Limitation on Number of Shares.  In no event shall the Company be required to issue to the Holder, in the aggregate
with all other Holders of SPA Warrants issued pursuant to the Purchase Agreement, shares of Common Stock equal to or in excess of 19.99% of the outstanding Common Stock as of the date of the Purchase Agreement.

 

ARTICLE 3

RIGHTS UPON DISTRIBUTION OF ASSETS

 

If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification,
corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case:

 

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

 

3.2   the number of Warrant Shares shall be increased to a number of shares equal to the number of shares of Common Stock obtainable immediately prior to the close of business on the record date fixed for the determination
of holders of shares of Common Stock entitled to receive the Distribution multiplied by the reciprocal of the fraction set forth in the immediately preceding paragraph (a); provided that in the event that the Distribution is of shares of Common Stock (or common stock) (“Other Shares of Common Stock”) of a company whose common shares are traded on a national securities exchange or a national automated quotation system, then the Holder
may elect to receive a warrant to purchase Other Shares of Common Stock in lieu of an increase in the number of Warrant Shares, the terms of which shall be identical to those of this Warrant, except that such warrant shall be exercisable into the number of shares of Other Shares of Common Stock that would have been payable to the Holder pursuant to the Distribution had the Holder exercised this Warrant immediately prior to such record date and with an aggregate exercise price equal to the product of the amount
by which the exercise price of this Warrant was decreased with respect to the Distribution pursuant to the terms of the 

 

 

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immediately preceding Section 3.1 and the number of Warrant Shares calculated in accordance with the first part of this Section 3.2.

 

ARTICLE 4

PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS

 

4.1   Purchase Rights.  In addition to any adjustments pursuant
to ARTICLE 2 above, if at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights.

 

4.2   Fundamental Transactions.  The Company shall not
enter into or be party to a Fundamental Transaction unless the Successor Entity assumes in writing all of the obligations of the Company under this Warrant in accordance with the provisions of this Section 4.2 pursuant to written agreements in form and substance satisfactory to the Required Holders and approved by the Required Holders prior to such Fundamental Transaction, including
agreements to deliver to each holder of Warrants in exchange for such Warrants a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant, including, without limitation, an adjusted exercise price equal to the value for the shares of Common Stock reflected by the terms of such Fundamental Transaction, and exercisable for a corresponding number of shares of capital stock equivalent to the shares of Common Stock acquirable and receivable upon
exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and satisfactory to the Required Holders.  Upon the occurrence of any Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and
power of the Company and shall assume all of the obligations of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein.  Upon consummation of the Fundamental Transaction, the Successor Entity shall deliver to the Holder confirmation that there shall be issued upon exercise of this Warrant at any time after the consummation of the Fundamental Transaction, in lieu of the shares of the Common Stock (or other securities, cash, assets or other
property) purchasable upon the exercise of this Warrant prior to such Fundamental Transaction, such shares of stock, securities, cash, assets or any other property whatsoever (including warrants or other purchase or subscription rights) which the Holder would have been entitled to receive upon the happening of such Fundamental Transaction had this Warrant been converted immediately prior to such Fundamental Transaction, as adjusted in accordance with the provisions of this Warrant.  In addition to and
not in substitution for any other rights hereunder, prior to the consummation of any Fundamental Transaction pursuant to which holders of shares of Common Stock are entitled to receive securities or other assets with 

 

 

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respect to or in exchange for shares of Common Stock (a “Corporate Event”), the Company shall make appropriate provision to insure that the Holder will thereafter have the right to receive upon an exercise of this Warrant at any time after the consummation of the Fundamental
Transaction, in lieu of the shares of the Common Stock (or other securities, cash, assets or other property) purchasable upon the exercise of this Warrant prior to such Fundamental Transaction, such shares of stock, securities, cash, assets or any other property whatsoever (including warrants or other purchase or subscription rights) which the Holder would have been entitled to receive upon the happening of such Fundamental Transaction had this Warrant been exercised immediately prior to such Fundamental Transaction.  Provision
made pursuant to the preceding sentence shall be in a form and substance reasonably satisfactory to the Required Holders.  The provisions of this Section 4.2  shall apply similarly and equally to successive Fundamental Transactions and Corporate Events and shall be applied without regard to any limitations on the exercise of this Warrant.

 

4.3   Notwithstanding the foregoing, in the event of a Fundamental Transaction other than one in which the Successor Entity is a Public Successor Entity that assumes this Warrant such that this Warrant shall be exercisable
for the publicly traded common stock of such Public Successor Entity, at the request of the Holder delivered before the 90th day after such Fundamental Transaction, the Company (or the Successor Entity) shall purchase this Warrant from the Holder by paying to the Holder, within five (5) Business Days after such request (or, if later, on the effective date of the Fundamental Transaction), cash in an amount equal to the value of the remaining unexercised portion of this Warrant on the date of such consummation,
which value shall be determined by use of the Black Scholes Option Pricing Model using a volatility equal to the 100 day average historical price volatility prior to the date of the public announcement of such Fundamental Transaction.

 

ARTICLE 5

NONCIRCUMVENTION

 

The Company hereby covenants and agrees that the Company will not, by amendment of its Restated Certificate of Incorporation, as amended, Bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights of the Holder.  Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant, and (iii) shall, so long as any of the SPA Warrants are outstanding, take all action necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the exercise of the SPA Warrants, 110% of the number of shares of Common Stock as shall from time to time be necessary to effect the exercise of the
SPA Warrants then outstanding (without regard to any limitations on exercise).

 

 

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ARTICLE 6

WARRANT HOLDER NOT DEEMED A STOCKHOLDER

 

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

 

ARTICLE 7

REISSUANCE OF WARRANTS

 

7.1   Transfer of Warrant.  If this Warrant is to be transferred,
the Holder shall surrender this Warrant to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant (in accordance with Section 7.4), registered as the Holder may request, representing the right to purchase the number of Warrant Shares being transferred by the Holder and, if less then the total number of Warrant Shares then
underlying this Warrant is being transferred, a new Warrant (in accordance with Section 7.4) to the Holder representing the right to purchase the number of Warrant Shares not being transferred. This Warrant may only be transferred or assigned to an Affiliate of the Holder or with the prior written permission of the Company.

 

7.2   Lost, Stolen or Mutilated Warrant.  Upon receipt by the Company
of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Warrant, the Company shall execute and deliver to the Holder a new Warrant (in accordance with Section 7.4)
representing the right to purchase the Warrant Shares then underlying this Warrant.

 

7.3   Exchangeable for Multiple Warrants.  This Warrant is exchangeable,
upon the surrender hereof by the Holder at the principal office of the Company, for a new Warrant or Warrants (in accordance with Section 7.4) representing in the aggregate the right to purchase the number of Warrant Shares then underlying this Warrant, and each such new Warrant will represent the right to purchase such portion of such Warrant Shares as is designated 

 

 

- 11 -

 

by the Holder at the time of such surrender; provided, however, that no Warrants for fractional shares of Common Stock shall be given.

 

7.4   Issuance of New Warrants.  Whenever the Company is required
to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to purchase the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being issued pursuant to Section 7.1 or Section 7.3,
the Warrant Shares designated by the Holder which, when added to the number of shares of Common Stock underlying the other new Warrants issued in connection with such issuance, does not exceed the number of Warrant Shares then underlying this Warrant), (iii) shall have an issuance date, as indicated on the face of such new Warrant which is the same as the Issuance Date, and (iv) shall have the same rights and conditions as this Warrant.

 

ARTICLE 8

NOTICES

 

Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall be given in accordance with Section 6.2 of the Purchase Agreement.  The Company shall provide the Holder with prompt written notice of all actions
taken pursuant to this Warrant, including in reasonable detail a description of such action and the reason therefore.  Without limiting the generality of the foregoing, the Company will give written notice to the Holder (i) immediately upon any adjustment of the Exercise Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least fifteen days prior to the date on which the Company closes its books or takes a record (A) with respect to
any dividend or distribution upon the shares of Common Stock, (B) with respect to any grants, issuances or sales of any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property to holders of shares of Common Stock (other than Excluded Securities) or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction
with such notice being provided to the Holder.

 

ARTICLE 9

AMENDMENT AND WAIVER

 

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

 

 

- 12 -

 

ARTICLE 10

GOVERNING LAW

 

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

 

ARTICLE 11

CONSTRUCTION; HEADINGS

 

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

 

ARTICLE 12

DISPUTE RESOLUTION

 

In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall submit the disputed determinations or arithmetic calculations via facsimile within 2 Business Days of receipt of the Exercise Notice giving rise to such dispute, as the case may be, to the Holder.  If
the Holder and the Company are unable to agree upon such determination or calculation of the Exercise Price or the Warrant Shares within three Business Days of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within five Business Days submit via facsimile the disputed determination of the Exercise Price or arithmetic calculation to an independent, reputable investment bank or accounting firm (which may be the Company’s independent registered public
accounting firm) selected in good faith by Holder and Company, which approval may not be unreasonably withheld or delayed.  The Company shall cause the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than 10 Business Days from the time it receives the disputed determinations or calculations.  Such investment bank’s or accountant’s determination or calculation, as the
case may be, shall be binding upon all parties absent demonstrable error. The fees of such investment bank or accounting firm shall be split equally between the Holders of SPA Warrants, on the one hand, and the Company, on the other hand.

 

ARTICLE 13

REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF

 

The remedies provided in this Warrant shall be cumulative and in addition to all other remedies available under this Warrant, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the right of the Holder right to pursue actual damages for any failure by the Company
to comply with the terms of this 

 

 

- 13 -

 

Warrant.  The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate.  The Company therefore agrees that, in the event of any such breach or threatened breach, the holder of this Warrant shall be
entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.

 

ARTICLE 14

DEFINITIONS

 

For purposes of this Warrant, the following terms shall have the following meanings:

 

14.1   “Approved Stock Plan” means any employee benefit plan now existing or hereafter adopted which has been approved by the Board of Directors
of the Company, pursuant to which the Company’s securities may be issued to any employee, officer, director or consultant for services provided to the Company.

 

14.2   “Bloomberg” means Bloomberg Financial Markets.

 

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

 

14.4   “Closing” shall have the meaning ascribed to it in the Purchase Agreement.

 

14.5   “Closing Bid Price” and “Closing Sale Price” means,
for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price, as the case may be, then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is
not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing
bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.).  If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the case
may be, of such security on such date shall be the fair market value as mutually determined by the Company and the Holder.  If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to ARTICLE 12.  All such determinations to be appropriately adjusted for any stock dividend, 

 

 

- 14 -

 

stock split, stock combination or other similar transaction during the applicable calculation period.

 

14.6   “Common Stock” means (i) the Company’s shares of Common Stock, par value $0.01 per share, and (ii) any share capital
into which such Common Stock shall have been changed or any share capital resulting from a reclassification of such Common Stock.

 

14.7   “Common Stock Deemed Outstanding” means, at any given time, the number of shares of Common Stock actually outstanding at such time,
plus the number of shares of Common Stock deemed to be outstanding pursuant to Sections 2.1.1 and 2.1.2 hereof regardless of whether the Options or Convertible Securities are actually exercisable at such time, but excluding any shares of Common Stock owned or held by or for the account of the Company or issuable upon exercise of the SPA Warrants.

 

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

 

14.9   “Eligible Market” means the Principal Market, The New York Stock Exchange, Inc., The NASDAQ Global Select Market, The NASDAQ
Capital Market, the NYSE Amex Stock Exchange or the OTC Bulletin Board.

 

14.10   “Excluded Securities” means any Common Stock issued or issuable: (i) in connection with any Approved Stock Plan; (ii) upon
the exercise of this Warrant and the SPA Warrants; (iii) issuance of the Company’s securities to any employee, officer, director or consultant in exchange for services provided to the Company; (iv) issuance of the Company’s securities to any one or more critical professionals, provided, that, at no time during which this Warrant is outstanding, shall the aggregate value (in each case as determined on the respective date of issuance) of all securities issued by the Company pursuant to this
clause (iv) of Section 14.10 exceed four million dollars ($4,000,000.00); (v) in connection with any merger or acquisition of any assets or securities of another business, corporation or entity by the Company, the primary purpose of which is not to raise equity capital; or (vi) upon conversion, exercise or exchange of any Options or Convertible Securities which are outstanding on the day immediately preceding the Issuance Date, provided
that, in the case of any such conversion or exercise, the terms of such Options or Convertible Securities are not amended, modified or changed on or after the Issuance Date.

 

14.11   “Fundamental Transaction” means that the (A) Company shall, directly or indirectly, in one or more related transactions, (i) consolidate
or merge with or into (whether or not the Company is the surviving corporation) another Person or Persons, or (ii) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company to another Person (except where the Company, following any such sale, assignment, transfer, conveyance or disposition, continues to survive as a publicly traded corporation whose stock is quoted or listed for trading on an Eligible Market) or (iii) allow another Person
to make a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party 

 

 

- 15 -

 

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

 

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

 

14.13   “Parent Entity” of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock
or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of the date of consummation of the Fundamental Transaction.

 

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

 

14.15   “Purchase Agreement” means the Preferred Stock Purchase Agreement dated June 8, 2009, by and among the Company and the investor
referred to therein.

 

14.16   “Put” shall have the meaning ascribed to it in the Purchase Agreement.

 

14.17   “Put Closing” shall have the meaning ascribed to it in the Purchase Agreement.

 

14.18   “Put Notice Date” shall have the meaning ascribed to it in the Purchase Agreement.

 

14.19   “Principal Market” means the OTC Bulletin Board, the NASDAQ Capital Market, the NASDAQ Global Market, the NYSE Amex, or the New
York Stock Exchange, whichever is at the time the principal trading exchange or market for the Common Stock.

 

14.20   “Public Successor Entity” means a Successor Entity that is a publicly traded corporation whose stock is quoted or listed for trading
on an Eligible Market.

 

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

 

14.22   “SPA Warrant(s)” means a warrant to purchase Common Stock of the Company issued pursuant to the Purchase Agreement.

 

 

- 16 -

 

14.23   “Successor Entity” means the Person (or, if so elected by the Required Holders, the Parent Entity) formed by, resulting from or
surviving any Fundamental Transaction or the Person (or, if so elected by the Required Holders, the Parent Entity) with which such Fundamental Transaction shall have been entered into.

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- 17 -

 

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

 

	 	
MEDIS TECHNOLOGIES LTD.

By:  /s/ Jose Mejia

Jose Mejia

President & Chief Executive Officer

By:  /s/ Stephen Crea

Stephen Crea

Chief Financial Officer

 

 

 

 

 

 

 

 

- 18 -WWW.EXFILE.COM, INC. -- 888-775-4789 -- MEDIS TECHNOLOGIES LTD. -- EXHIBIT 10.26 TO FORM S-1/A

    EXHIBIT
10.26

     

    PREFERRED STOCK PURCHASE
AGREEMENT

     

    This
Preferred Stock Purchase Agreement (“Agreement”) is
entered into and effective as of June 8, 2009 (“Effective Date”), by
and among Medis Technologies Ltd., a Delaware corporation (“Company”), and
Volation Capital Partners, LLC, a New York limited liability company, doing
business as Volation Technology Capital Partners, LLC (including its permitted
designees, successors and assigns, “Investor”).

     

    RECITALS

     

    A. The
parties desire that, upon the terms and subject to the conditions contained
herein, the Company shall issue to Investor, and Investor shall purchase from
the Company, from time to time as provided herein, up to $5,000,000.00 of shares
of Series B Preferred Stock; and

     

    B. The offer
and sale of the Securities provided for herein are being made without
registration under the Act, in reliance upon the provisions of Section 4(2) of
the Act, Regulation D promulgated under the Act, and such other exemptions from
the registration requirements of the Act as may be available with respect to any
or all of the purchases of Securities to be made hereunder.

     

    AGREEMENT

     

    NOW,
THEREFORE, IN CONSIDERATION of the premises, the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, Company and Investor agree as
follows:

     

    ARTICLE 1

    DEFINITIONS

     

    1.1  Definitions

     

    In
addition to the terms defined elsewhere in this Agreement: (a) capitalized terms
that are not otherwise defined herein have the meanings given to such terms in
the Certificate of Designations, and (b) the following terms have the meanings
indicated in this Section 1.1:

     

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

     

    “Affiliate” means any
Person that, directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with a Person, as such
terms are used in and construed under Rule 144 under the Act.  With
respect to Investor, without limitation, any Person owning, owned by, or under
common ownership with Investor, and any investment fund or managed account that
is managed on a discretionary basis by the same investment manager as Investor
will be deemed to be an Affiliate.

     

    “Agreement” means this
Preferred Stock Purchase Agreement.

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    “Automatic
Termination” has the meaning set forth in Section 3.1.

     

    “Change in Control”
has the meaning set forth within the definition of Fundamental Transaction,
below.

     

    “Certificate of
Designations” means the certificate to be filed with the Secretary of
State of the State of Delaware, in the form attached hereto as Exhibit
B.

     

    “Closing” means any
one of (i) the Commitment Closing and (ii) each Put Closing.

     

    “Commitment Closing”
has the meaning set forth in Section 2.2(a).

     

    “Commitment Fee” means
a nonrefundable fee of $250,000.00, payable by Company to Investor in
immediately available funds at the first Put Closing.

     

    “Common Stock” means
the common stock, par value $0.01 per share, of the Company, and any replacement
or substitute thereof, or any share capital into which such Common Stock shall
have been changed or any share capital resulting from a reclassification of such
Common Stock.

     

    “Company Termination”
has the meaning set forth in Section 3.2.

     

    “Delisting Event”
means any time during the term of this Agreement, that the Common Stock is not
listed for and actively trading on a Trading Market, or is suspended or delisted
with respect to the trading of the Common Stock on a Trading
Market.

     

    “Disclosure Schedules”
means the Disclosure Schedules of the Company delivered concurrently herewith
and attached hereto.

     

    “DWAC Shares” means
the Warrant Shares issued or issuable to Investor or any Affiliate, successor or
assign of Investor, pursuant to the Transaction Documents, for which a
registration statement registering for resale such Warrant Shares has become
effective or which are eligible for resale under Rule 144, all of which shall be
issued in electronic form, without restriction on resale, and delivered by the
transferor thereof to any specified Deposit/Withdrawal At Custodian (DWAC)
account with Depository Trust Company (“DTC”), in accordance
with irrevocable instructions issued to and countersigned by the Transfer Agent,
in the form attached hereto as Exhibit
C.

     

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

     

    “Fundamental
Transaction” means and shall be deemed to have occurred at such time upon
any of the following events:

     

    (i) a
consolidation, merger or other business combination or event or transaction
following which the holders of Common Stock immediately preceding such
consolidation, merger, combination or event either (i) no longer hold a majority
of the shares of Common Stock or (ii) no longer have the ability to elect a
majority the board of directors of the Company (a “Change in
Control”);

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    (ii) the sale
or transfer (other than to a majority or wholly owned subsidiary of the Company)
of all or substantially all of the Company’s assets, other than in the ordinary
course of business; or

     

    (iii) a
purchase, tender or exchange offer made to the holders of the outstanding shares
of Common Stock (other than pursuant to an “option repricing” or similar event
for compensatory purposes).

     

    “GAAP” means United
States generally accepted accounting principles applied on a consistent basis
during the periods involved.

     

    “Indebtedness” means
(a) any liabilities for borrowed money or amounts owed in excess of $50,000
(other than trade accounts payable incurred in the ordinary course of business),
(b) all guaranties, endorsements and other contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be reflected in
the Company’s balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value of
any lease payments in excess of $50,000 due under leases required to be
capitalized in accordance with GAAP.

     

    “Liens” means a lien,
charge, security interest, encumbrance, right of first refusal, preemptive right
or other restriction.

     

    “Lock-Up Agreements”
means an agreement in the form attached as Exhibit D, executed
by each of the Company’s executive officers, directors and beneficial owners of
10% or more of the Common Stock, precluding each such Person from participating
in any sale of the Common Stock from the Put Notice Date through the Put Closing
Date.

     

    “Material Agreement”
means any material agreement listed, or required to be listed, on any of
Company’s reports filed or required to be filed with the SEC, including without
limitation Forms 10-K, 10-Q or 8-K.

     

     “Maximum Placement”
means $5,000,000.00.

     

    “Maximum Put Amount”
means, subject to any other applicable limitations set forth in this Agreement,
the Maximum Placement less the amount of any previously noticed and funded
Puts.

     

    “Officer’s Closing
Certificate” means a certificate in customary form reasonably acceptable
to the Investor, executed by an authorized officer of the Company.

     

    “Opinion” means an
opinion from Company’s independent legal counsel, in the form attached as Exhibit E, or such
other form as agreed upon by the parties, to be delivered in connection with the
Commitment Closing and in connection with any Put Closing.

     

    “Person” means an
individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    “Preferred Shares”
means shares of Series B Preferred Stock of the Company provided for in the
Certificate of Designations, to be issued to Investor pursuant to this
Agreement.

     

    “Prospectus” has the
meaning set forth in Section 4.1(gg)(iii).

     

    “Put” has the meaning
set forth in Section
2.3.

     

    “Put Amount” means the
amount of any individual put purchase, as specified by the Company, and shall
not exceed the Maximum Put Amount.

     

    “Put Closing” has the
meaning set forth in Section 2.3(f).

     

    “Put Closing Date” has
the meaning set forth in Section 2.3(f).

     

    “Put Notice” has the
meaning set forth in Section 2.3(b).

     

    “Put Notice Date” has
the meaning set forth in Section 2.3(b).

     

    “Put Purchase Price”
has the meaning set forth in Section 2.3(b) and shall be
specified in writing by the Company.

     

    “Put Share Price”
means $10,000.00 per Preferred Share.  Company may not Put fractional
Preferred Shares.

     

    “Put Shares” means
Preferred Shares that are purchased by Investor pursuant to a Put.

     

    “Registration
Statement” means a valid, current and effective registration statement
registering for sale the Warrant Shares, and except where the context otherwise
requires, means the registration statement, as amended, including (i) all
documents filed as a part thereof or incorporated by reference therein, and (ii)
any information contained or incorporated by reference in a prospectus filed
with the SEC in connection with such registration statement, to the extent such
information is deemed under the Act to be part of the registration
statement.

     

    “Regulation D” means
Regulation D promulgated under the Act.

     

    “Required Put
Documents” has the meaning set forth in Section 2.3(e).

     

    “Rule 144” means Rule
144 promulgated by the SEC pursuant to the Act, as such Rule may be amended from
time to time, or any similar rule or regulation hereafter adopted by the SEC
having substantially the same effect.

     

    “SEC” means the United
States Securities and Exchange Commission.

     

    “Securities” includes
the Warrants and Preferred Shares issuable pursuant to this Agreement and the
Warrant Shares issuable pursuant to the Warrants.

     

    “Series A Preferred
Stock” means the Company’s 7.25% Series A Cumulative Convertible
Perpetual Preferred Stock, par value $0.01 per share.

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    “Series B Preferred
Stock” means the Company’s Series B Preferred Stock, par value $0.01 per
share.

     

    “Shareholder Approval”
means, to the extent then applicable, the approval of the shareholders of the
Company required to be obtained by the Company prior to the issuance of Common
Stock representing 20% or more of either (i) the Common Stock or (ii) the voting
power of the Common Stock, in each case, outstanding prior to such issuance,
pursuant to Rule 5635(d) of the NASDAQ Listing Rules.

     

    “Subsidiary” means any
Person the Company owns or controls, or in which the Company, directly or
indirectly, owns a majority of the capital stock or similar interest that would
be disclosable pursuant to Regulation S-K, Item 601(b)(21).

     

    “Termination Date”
means the earlier of (i) the date that is one year after the Effective Date, or
(ii) the Put Closing Date on which the sum of the aggregate Put Purchase Price
for all Put Shares equals the Maximum Placement.

     

    “Termination Notice”
has the meaning as set forth in Section 3.2.

     

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

     

    “Trading Market” means
the OTC Bulletin Board, the NASDAQ Capital Market, the NASDAQ Global Market, the
NYSE Amex, or the New York Stock Exchange, whichever is at the time the
principal trading exchange or market for the Common Stock.

     

    “Transaction
Documents” include this Agreement and the Exhibits hereto and
thereto.

     

    “Transfer Agent” means
American Stock Transfer & Trust Company, LLC , or any successor transfer
agent for the Common Stock.

     

    “Warrant Shares” means
the shares of Common Stock issuable upon exercise of the Warrants.

     

    “Warrants” means the
warrants issuable under this Agreement, in the form attached hereto as Exhibit A, to
purchase shares of Common Stock.

     

    ARTICLE 2

    PURCHASE AND
SALE

     

    2.1  Agreement to
Purchase

     

    Subject
to the terms and conditions herein and the satisfaction of the conditions to
closing set forth in this Article
2:

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    (a) Investor
hereby agrees to purchase such amounts of Preferred Shares as the Company may,
in its sole and absolute discretion, from time to time elect to issue and sell
to Investor according to one or more Puts pursuant to Section 2.3 below;
and

     

    (b) The
Company agrees to issue Warrants to Investor pursuant to Section 2.3(c)
below.

     

    2.2  Investment
Commitment

     

    (a) Investment
Commitment. The closing of this Agreement (the “Commitment Closing”)
shall be deemed to occur when this Agreement has been duly executed by both
Investor and the Company, and the other Conditions to the Commitment Closing set
forth in Section
2.2(b)
have been met.  

     

    (b) Conditions to Investment
Commitment. As a condition precedent to the Commitment Closing, all of
the following (the “Conditions to Commitment
Closing”) shall have been satisfied prior to or concurrently with the
Company’s execution and delivery of this Agreement:

     

    (i) the
following documents shall have been delivered to
Investor:  (A) this Agreement, executed by the Company, (B) a
Secretary’s Certificate as to (x) the resolutions of the Company’s board of
directors authorizing this Agreement and the Transaction Documents to which the
Company is a party, and the transactions contemplated hereby and thereby, (y) a
copy of the Company’s current Certificate of Incorporation, and (z) a copy of
the Company’s current Bylaws; (C) the Certificate of Designations executed by
the Company and accepted by the Secretary of State of Delaware; (D) the Opinion,
and (E) a copy of the press release announcing the transactions contemplated by
this Agreement and Current Report on Form 8-K describing the transaction
contemplated by this Agreement;

     

    (ii) the
representations and warranties of the Company in this Agreement shall be true
and correct in all material respects and the Company shall have delivered an
Officer’s Closing Certificate to such effect to Investor, signed by an officer
of the Company; and

     

    (iii) Investor
shall have entered into Stock Loan Agreements with lending stockholders of the
Company who are parties thereto (each, a “Lending Stockholder,”
and, collectively, the “Lending
Stockholders”) in the form attached hereto as Exhibit G (each, a
“Stock Loan
Agreement”), and received no less than 7,500,000 Borrowed Shares (as
defined in the Stock Loan Agreement) pursuant thereto.

     

    (c) Investor’s Obligation to
Purchase. Subject to the prior satisfaction of all applicable conditions
set forth in this Agreement, following the Investor’s receipt of a validly
delivered Put Notice, the Investor shall be required to purchase from the
Company a number of Put Shares equal to the permitted Put Amount, in the manner
described below.

     

    
      
         

      

      
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    2.3  Puts to
Investor

     

    (a) Procedure to Exercise a
Put. Subject to the Maximum Put Amount, Maximum Placement and the other
conditions and limitations set forth in this Agreement, at any time beginning on
the Effective Date, the Company may, in its sole and absolute discretion, elect
to exercise one or more Puts (each a “Put”) according to
the following procedure, provided that each subsequent Put Notice Date (defined
below) after the first Put Notice Date shall be no sooner than 5 Trading Days
following the preceding Put Notice Date.

     

    (b) Delivery of Put
Notice. The Company shall deliver an irrevocable written notice (the
“Put Notice”)
the form of which is attached hereto as Exhibit F (the date
of such Put Notice being the “Put Notice Date”), to
Investor stating that the Company shall exercise a Put and stating the number of
Preferred Shares which the Company will sell to Investor at the Put Share Price,
and the aggregate purchase price for such Put (the “Put Purchase
Price”).  A Put Notice may be delivered by the Company to
Investor before 9:30 a.m. Eastern time on any Trading Day via facsimile or
electronic mail, with confirming copy by overnight carrier.  A Put
Notice delivered after such time or on a non-Trading Day shall be deemed
delivered on the following Trading Day.

     

    (c) Issuance of
Warrants.  On each Put Notice Date, the Company shall issue a
Warrant, to acquire that portion of Warrant Shares equal in value to 135.0% of
the Put Purchase Price, at an exercise price equal to the closing price for the
Common Stock on the Trading Day immediately preceding the Put Notice Date; provided, however, that, in the
event the related Put Closing does not occur for any reason other than (i) the
Company’s refusal to consummate the Put Closing, or (ii) the failure by the
Company to satisfy all of the conditions precedent to the Closing of such Put
set forth in Sections
2.3(e) and (f), then such
Warrant delivered by the Company on such Put Notice Date shall, to the extent
such Warrant is then unexercised, be ineffective and not subject to exercise
under any circumstances and Investor shall promptly return such Warrant to the
Company. Each Warrant shall have a term of 5 years.

     

    (d) Conditions Precedent to the
Right of the Company to Deliver a Put Notice.  The right of the
Company to deliver a Put Notice is subject to the satisfaction, on the date of
delivery of such Put Notice, of each of the following conditions:

     

    (i) the
Common Stock shall be listed for and actively trading on a Trading Market, and
to the Company’s knowledge the shares of Common Stock on the Trading Market
shall not have been suspended or delisted;

     

    (ii) the
representations and warranties of the Company set forth in this Agreement shall
be true and correct in all material respects as if made on such date, and no
material default shall have occurred under this Agreement, or any other
agreement with Investor, or any Affiliate of Investor, or any other agreement
for borrowed funds of the Company and the Company shall deliver an Officer’s
Closing Certificate, signed by an officer of the Company, to such effect to
Investor;

     

    (iii) any
necessary Shareholder Approval shall have been obtained;

     

    
      
         

      

      
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    (iv) there is
not then in effect any law, rule or regulation prohibiting or restricting the
transactions contemplated hereby, or requiring any consent or approval which
shall not have been obtained, nor shall there be any pending or threatened
proceeding or investigation which may have the effect of prohibiting or
adversely affecting any of the transactions contemplated by this Agreement; no
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or adopted by any court or governmental
authority of competent jurisdiction that prohibits the transactions contemplated
by this Agreement, and no actions, suits or proceedings shall be in progress,
pending or threatened by any person (other than Investor or any Affiliate of
Investor), that seek to enjoin or prohibit the transactions contemplated by this
Agreement. For purposes of this paragraph (iv), no proceeding shall be deemed
pending or threatened unless one of the parties has received written
notification thereof prior to the applicable Put Closing Date;

     

    (v) the
Warrant issued on the Put Notice Date shall be exercisable for the full number
of Warrant Shares set forth therein, without limitation under the second
sentence of Section 1.5
thereof;

     

    (vi) all
Warrant Shares that were the subject of an Exercise Notice (as defined in the
Warrant) that was previously delivered to the Company shall have been delivered
in accordance with such Exercise Notice;

     

    (vii) all
previously issued Warrant Shares are DWAC Shares, are DTC eligible and can be
immediately converted into electronic form without restriction on
resale;

     

    (viii) Company
is in material compliance with all reporting requirements in order to maintain
listing on a Trading Market;

     

    (ix) Pursuant
to the terms of the Stock Loan Agreements, Investor shall have Borrowed Shares
equal to at least 150% of the Put Purchase Price;

     

    (x) the
Company shall have a current, valid and effective Registration Statement
permitting the lawful resale of all previously issued Warrant Shares, or all
such shares are eligible for resale without restriction under Rule
144;

     

    (xi) Company
shall have a sufficient number of duly authorized shares of Common Stock for
issuance in such amount as may be required to fulfill its obligations pursuant
to the Transaction Documents and any outstanding agreements with Investor and
any Affiliate of Investor;

     

    (xii) Company
has provided notice of its delivery of the Put Notice to all signatories of a
Lock-Up Agreement as required under the Lock-Up Agreement;

     

    (xiii) the
number of Warrant Shares issuable upon exercise of the Warrants, when aggregated
with other securities owned by Investor and its Affiliates, would not result in
beneficial ownership by Investor and its Affiliates of more than 9.99% of the
outstanding shares of Common Stock, unless such condition is waived by Investor
in writing.  For the purposes of the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Exchange Act, and Rule 13d-3 thereunder; and

     

    
      
         

      

      
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    (xiv) In the
case of any Put Notice delivered to the Investor more than 170 days after the
Effective Date, the Company shall first have a current, valid and effective
Registration Statement permitting the lawful resale of all Warrant Shares
underlying Warrants previously issued hererunder.

     

    (e) Documents Required to be
Delivered as Conditions to Closing of any Put. The Closing of any Put and
Investor’s obligations hereunder shall additionally be conditioned upon the
delivery to Investor of each of the following (the “Required Put
Documents”) on or before the applicable Put Closing Date:

     

    (i) a number
of Preferred Shares equal to the Put Purchase Price divided by the Put Share
Price shall have been delivered to Investor or an account specified by Investor
for the Put Shares;

     

    (ii) the
following executed documents:  Opinion, Officer’s Certificate and
Lock-Up Agreements;

     

    (iii) a “Use of
Proceeds” certificate, signed by an officer of the Company, and setting forth
how the aggregate Put Purchase Price will be applied by the Company;
and

     

    (iv) all
documents, instruments and other writings required to be delivered by the
Company to Investor on or before the Put Closing Date pursuant to any provision
of this Agreement, or in order to implement and effect the transactions
contemplated herein.

     

    (f) Mechanics of Put
Closing. Each of the Company and Investor shall deliver all documents,
instruments and writings required to be delivered by either of them pursuant to
Section 2.3(e) of this
Agreement at or prior to each Put Closing. Subject to such delivery and the
continued satisfaction of the conditions set forth in Section 2.3(d) effective as of such Put
Closing Date, the closing of the purchase by Investor of Preferred Shares
shall occur by 5:00 p.m. Eastern time, on the date which is 10 Trading Days
following the Put Notice Date at the offices of Investor (each a “Put Closing
Date”).  On or before each Put Closing Date, Investor shall
deliver to the Company the Put Purchase Price to be paid for such Put
Shares.  The closing (each a “Put Closing”) for
each Put shall occur on the date that both (i) the Company has delivered to
Investor all Required Put Documents, and (ii) Investor has delivered to the
Company such Put Purchase Price, if applicable.  The Commitment Fee
shall be paid to Investor simultaneously with the first Put
Closing.

     

    (g) Limitation on Investor’s
Obligation to Purchase and Company’s Obligation to
Sell.  Notwithstanding anything herein to the contrary, in the
event the closing price of the Common Stock during the 9 Trading Days following
the Put Notice falls below 75% of the closing bid price on the Trading Day prior
to the Put Notice Date : (i) Investor may, at its option, and without penalty,
decline to purchase the applicable Put Shares on the Put Closing Date; or (ii)
Company may, at its option, and without penalty, terminate the Put Notice and
decline to sell the applicable Put Shares on the Put Closing Date.

     

    
      
         

      

      
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    2.4  Maximum
Placement

     

    Investor
shall not be obligated to purchase any additional Put Shares once the aggregate
Put Purchase Price paid by Investor equals the Maximum Placement.

     

    ARTICLE 3

    TERMINATION

     

    3.1  Automatic
Termination

     

    This
Agreement and the Company’s right to initiate subsequent Puts to Investor under
this Agreement shall terminate permanently (each, an “Automatic
Termination”) upon the occurrence of any of the following:

     

    (a) if, at
any time, either the Company or any director or executive officer of the Company
has engaged in a transaction or conduct related to the Company that has resulted
in (i) a SEC enforcement action, or (ii) a civil judgment or criminal conviction
for fraud or misrepresentation, or for any other offense that, if prosecuted
criminally, would constitute a felony under applicable law;

     

    (b) on any
date after a Delisting Event that lasts for an aggregate of 20 consecutive
Trading Days during any calendar year;

     

    (c) if at any
time the Company has filed for and/or is subject to any bankruptcy, insolvency,
reorganization or liquidation proceedings or other proceedings for relief under
any bankruptcy law or any law for the relief of debtors instituted by or against
the Company or any subsidiary of the Company;

     

    (d) the
Company is in default of any loan agreement, equity investment agreement or
instrument (other than in respect of payment of dividends on the Series A
Preferred Stock);

     

    (e) the
Company is in default of any material provision of any agreement with the
Investor, or any Affiliate of Investor;

     

    (f) upon the
occurrence of a Fundamental Transaction;

     

    (g) so long
as any Preferred Shares are outstanding, the Company effects or publicly
announces its intention to create a security senior to the Series B Preferred
Stock in any way;

     

    (h) the
Company has breached any material covenant in this Agreement; and

     

    (i) on the
Termination Date.

     

    
      
         

      

      
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    3.2  Company
Termination

     

    The
Company may terminate (a “Company Termination”)
this Agreement and its right to initiate future Puts by providing 30 days
advanced written notice (“Termination Notice”)
to Investor, by facsimile or electronic mail and overnight courier, at any
time.

     

    3.3  Effect of
Termination

     

    The
termination of this Agreement will not effect the terms of any Preferred Shares,
Warrants or Warrant Shares previously issued or delivered, or on any rights of
any holder thereof, except as set forth in the governing instruments
thereof.  Notwithstanding any other provision, all fees paid to
Investor or its counsel are non-refundable.

     

    ARTICLE 4

    REPRESENTATIONS AND
WARRANTIES

     

    4.1  Representations and
Warranties of the Company

     

    Except as
set forth (i) in the SEC Reports or (ii) under the corresponding section of the
Disclosure Schedules which Disclosure Schedules shall be deemed a part hereof,
the Company hereby represents, warrants and covenants to Investor, as of each
Put Closing Date, as follows:

     

    (a) Subsidiaries.  All
of the direct and indirect subsidiaries of the Company are set forth on Schedule 4.1(a).  Except
as set forth in Schedule 4.1(a) of the Disclosure Schedule, (i) the Company
owns, directly or indirectly, all of the capital stock or other equity interests
of each Subsidiary, and (ii) all of such directly or indirectly owned capital
stock or other equity interests are owned free and clear of any
Liens.  All the issued and outstanding shares of capital stock of each
Subsidiary are duly authorized, validly issued, fully paid, non-assessable and
free of preemptive and similar rights to subscribe for or purchase
securities.

     

    (b) Organization and
Qualification.  Each of the Company and the Subsidiaries is an
entity duly incorporated or otherwise organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
(as applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently
conducted.  Neither the Company nor any Subsidiary is in violation or
default of any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents except where
such violation could not, individually or in the aggregate, constitute a
Material Adverse Effect (as defined below).  Each of the Company and
the Subsidiaries is duly qualified to conduct business and is in good standing
as a foreign corporation or other entity in each jurisdiction in which the
nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not have or reasonably be expected to result
in (i) a material adverse effect on the legality, validity or enforceability of
any Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business, prospects or financial condition of the Company
and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on
the Company’s ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse
Effect”) and no proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail such
power and authority or qualification.

     

    
      
         

      

      
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    (c) Authorization;
Enforcement.  The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by each
of the Transaction Documents and otherwise to carry out its obligations
hereunder or thereunder.  The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby or thereby have been duly authorized by all
necessary action on the part of the Company and no further consent or action is
required by the Company other than the filing of the Certificate of Designations
and except in respect of any necessary Shareholder Approval.  Each of
the Transaction Documents to which the Company is a party has been (or upon
delivery will be) duly executed by the Company and, when delivered by the
Company in accordance with the terms hereof, will constitute the valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except (i) as limited by general equitable principles and
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors’ rights generally, (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable
law.

     

    (d) No
Conflicts.  The execution, delivery and performance of the
Transaction Documents by the Company, the issuance and sale of the Securities
and the consummation by the Company of the other transactions contemplated
thereby do not and will not (i) conflict with or violate any provision of the
Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws
or other organizational or charter documents, or (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, result in the creation of any Lien upon any of
the properties or assets of the Company or any Subsidiary, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by which any
property or asset of the Company or any Subsidiary is bound or affected, or
(iii) conflict with or result in a violation of any law, rule, regulation,
order, judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company or a Subsidiary is subject
(including federal and state securities laws and regulations), or by which any
property or asset of the Company or a Subsidiary is bound or affected, or (iv)
conflict with or violate the terms of any agreement by which the Company or any
Subsidiary is bound or to which any property or asset of the Company or any
Subsidiary is bound or affected; except in the case of each of clauses (ii) and
(iii), such as could not have or reasonably be expected to result in a Material
Adverse Effect.

     

    (e) Filings, Consents and
Approvals.  Neither the Company nor any Subsidiary is required
to obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal, state, local
or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction Documents,
other than the filing of the Certificate of Designations, appropriate filings
under the Act and the Exchange Act and except in respect of any necessary
Shareholder Approval.

     

    
      
         

      

      
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    (f) Issuance of the
Securities.  The Securities are duly authorized and, when
issued and paid for in accordance with the applicable Transaction Documents,
will be duly and validly issued, fully paid and nonassessable, free and clear of
all Liens other than restrictions of transfer provided for in the Transaction
Documents.  The Company has reserved from its duly authorized capital
stock a number of shares of Common Stock and Preferred Stock for issuance of the
Securities at least equal to the number of Securities which could be issued
pursuant to the terms of this Agreement.

     

    (g) Capitalization.  The
capitalization of the Company is as described in the Company’s most recent
periodic report filed with the SEC.  The Company has not issued any
capital stock since such filing other than pursuant to the terms of the
Transaction Documents.  No Person has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the transactions contemplated by the Transaction Documents.  Except as
a result of the purchase and sale of the Securities and as set forth on Schedule
4.1(g) of the Disclosure Schedules, there are no outstanding options, warrants,
script rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock or securities convertible into or
exercisable for shares of Common Stock.  The issuance and sale of the
Securities will not obligate the Company to issue shares of Common Stock or
other securities to any Person (other than Investor) and will not result in a
right of any holder of Company securities to adjust the exercise, conversion,
exchange, or reset price under such securities. All of the outstanding shares of
capital stock of the Company are validly issued, fully paid and nonassessable,
have been issued in compliance with all federal and state securities laws, and
none of such outstanding shares was issued in violation of any preemptive rights
or similar rights to subscribe for or purchase securities.  Except in
respect of any necessary Shareholder Approval, no further approval or
authorization of any stockholder, the Board of Directors of the Company or
others is required for the issuance and sale of the shares of the
Securities.  Except in respect of the Stock Loan Agreements and as
disclosed in the SEC Reports, there are no stockholders agreements, voting
agreements or other similar agreements with respect to the Company’s capital
stock to which the Company is a party or, to the knowledge of the Company,
between or among any of the Company’s stockholders.

     

    (h) SEC Reports; Financial
Statements.  Except as set forth on Schedule 4.1(h) of the
Disclosure Schedules, the Company has filed all reports required to be filed by
it under the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof,
for the two years preceding the Effective Date (or such shorter period as the
Company was required by law to file such material) (the foregoing materials,
including the exhibits thereto, being collectively referred to herein as the
“SEC Reports”)
on a timely basis or has received a valid extension of such time of filing and
has filed any such SEC Reports prior to the expiration of any such
extension.  Except as set forth on Schedule 4.1(h) of the Disclosure
Schedules, as of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the SEC promulgated thereunder, as applicable, and none of the
SEC Reports, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.  The financial 

     

    
      
         

      

      
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    statements
of the Company included in the SEC Reports comply in all material respects with
applicable accounting requirements and the rules and regulations of the SEC with
respect thereto as in effect at the time of filing.  Such financial
statements have been prepared in accordance with GAAP, except as may be
otherwise specified in such financial statements or the notes thereto and except
that unaudited financial statements may not contain all footnotes required by
GAAP, and fairly present in all material respects the financial position of the
Company and its consolidated subsidiaries as of and for the dates thereof and
the results of operations and cash flows for the periods then ended, subject, in
the case of unaudited statements, to normal, year-end audit
adjustments.

     

    (i) Material
Changes.  Since the date of the latest audited financial
statements included within the SEC Reports, except as set forth on Schedule
4.1(i) of the Disclosure Schedule or as specifically disclosed in the SEC
Reports, (i) there has been no event, occurrence or development that has had or
that could reasonably be expected to result in a Material Adverse Effect, (ii)
the Company has not incurred any liabilities (contingent or otherwise) other
than (A) trade payables and accrued expenses incurred in the ordinary course of
business consistent with past practice and (B) liabilities not required to be
reflected in the Company’s financial statements pursuant to GAAP or required to
be disclosed in filings made with the SEC, (iii) the Company has not altered its
method of accounting, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock and (v) the Company has not issued any equity securities to any officer,
director or Affiliate, except pursuant to existing Company equity incentive
plans.  The Company does not have pending before the SEC any request
for confidential treatment of information.

     

    (j) Litigation.  Except
as set forth on Schedule 4.1(j) of the Disclosure Schedule or in the SEC
Reports, there is no action, suit, inquiry, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company, threatened against or
affecting the Company, any Subsidiary or any of their respective properties
before or by any court, arbitrator, governmental or administrative agency or
regulatory authority (federal, state, county, local or foreign) (collectively,
an “Action”),
which (i) adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the Securities, or (ii)
could, if there were an unfavorable decision, have or reasonably be expected to
result in a Material Adverse Effect.  Neither the Company nor any
Subsidiary, nor any director or officer thereof, is or has been the subject of
any Action involving a claim of violation of or liability under federal or state
securities laws or a claim of breach of fiduciary duty.  There has not
been, and to the knowledge of the Company, there is not pending or contemplated,
any investigation by the SEC involving the Company or any current or former
director or officer of the Company.  The SEC has not issued any stop
order or other order suspending the effectiveness of any registration statement
filed by the Company or any Subsidiary under the Exchange Act or the
Act.

     

    (k) Labor
Relations.  Except as set forth on Schedule 4.1(k) of the
Disclosure Schedules, no material labor dispute exists or, to the knowledge of
the Company, is imminent with respect to any of the employees of the Company,
which could reasonably be expected to result in a Material Adverse
Effect.

     

    
      
         

      

      
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    (l) Compliance.  Except
as set forth on Schedule 4.1(l) of the Disclosure Schedules, neither the Company
nor any Subsidiary (i) is in default under or in violation of (and no event has
occurred that has not been waived that, with notice or lapse of time or both,
would result in a default by the Company or any Subsidiary under), nor has the
Company or any Subsidiary received notice of a claim that it is in default under
or that it is in violation of, any indenture, loan or credit agreement or any
other similar agreement or instrument to which it is a party or by which it or
any of its properties is bound (whether or not such default or violation has
been waived), (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is or has been in violation of any statute, rule or
regulation of any governmental authority, including without limitation all
foreign, federal, state and local laws applicable to its business except in each
case as could not reasonably be expected to have a Material Adverse
Effect.

     

    (m) Regulatory
Permits.  The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect (“Material Permits”),
and neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material
Permit.

     

    (n) Title to
Assets.  Except as set forth on Schedule 4.1(n) of the
Disclosure Schedules, the Company and the Subsidiaries have good and marketable
title in all personal property owned by them that is material to the business of
the Company and the Subsidiaries, in each case free and clear of all Liens,
except for Liens as do not materially affect the value of such property and do
not materially interfere with the use made and proposed to be made of such
property by the Company and the Subsidiaries and Liens for the payment of
federal, state or other taxes, the payment of which is neither delinquent nor
subject to penalties.  Neither the Company not its Subsidiaries owns
any real property.  Any real property and facilities held under lease
by the Company and the Subsidiaries are held by them under valid, subsisting and
enforceable leases of which the Company and the Subsidiaries are in material
compliance.

     

    (o) Patents and
Trademarks.  Except as set forth on Schedule 4.1(o) of the
Disclosure Schedules, the Company and the Subsidiaries have, or have rights to
use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses and other similar rights that
are necessary or material for use in connection with their respective businesses
as described in the SEC Reports and which the failure to so have could have a
Material Adverse Effect (collectively, the “Intellectual Property
Rights”).  Neither the Company nor any Subsidiary has received
a written notice that the Intellectual Property Rights used by the Company or
any Subsidiary violate or infringe upon the rights of any Person. To the
knowledge of the Company, all such Intellectual Property Rights are enforceable
and there is no existing infringement by another Person of any of the
Intellectual Property Rights of the Company or the Subsidiaries.

     

    (p) Insurance.  The
Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which the Company and the Subsidiaries are
engaged, including but not limited to directors and officers insurance coverage
at least equal to

     

    
      
         

      

      
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    the
Maximum Placement.  To the best of Company’s knowledge, such insurance
contracts and policies are accurate and complete.  Neither the Company
nor any Subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business without a significant increase in cost.

     

    (q) Transactions With Affiliates
and Employees.  Except as set forth in the SEC Reports, none of
the executive officers or directors of the Company and, to the knowledge of the
Company, none of the employees of the Company is presently a party to any
transaction with the Company or any Subsidiary (other than for services as
employees, officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the
Company, any entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner, in each
case in excess of $120,000 other than (i) for payment of salary or consulting
fees for services rendered, (ii) reimbursement for expenses incurred on behalf
of the Company and (iii) for other employee benefits, including stock option
and/or restricted stock agreements under any equity incentive plan of the
Company.

     

    (r) Sarbanes-Oxley; Internal
Accounting Controls.  The Company is in material compliance
with all provisions of the Sarbanes-Oxley Act of 2002, which are applicable to
it as of the date of the Commitment Closing.  The Company and the
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management’s general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management’s general or specific
authorization, and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.  The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Company and designed such disclosure controls and procedures
to ensure that material information relating to the Company, including its
Subsidiaries, is made known to the certifying officers by others within those
entities, particularly during the period in which the Company’s most recently
filed periodic report under the Exchange Act, as the case may be, is being
prepared.  The Company’s certifying officers have evaluated the
effectiveness of the Company’s controls and procedures as of the date prior to
the filing date of the most recently filed periodic report under the Exchange
Act (such date, the “Evaluation
Date”).  The Company presented in its most recently filed
periodic report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures based
on their evaluations as of the Evaluation Date.  Since the Evaluation
Date, there have been no significant changes in the Company’s internal controls
or, to the Company’s knowledge, in other factors that could materially affect
the Company’s internal controls.

     

    (s) Certain
Fees.  Except for the payment of the Commitment Fee or as set
forth on Schedule 4.1(s) of the Disclosure Schedules, no brokerage or finder’s
fees or commissions are or will be payable by the Company to any broker,
financial advisor or consultant, finder, placement agent, investment banker,
bank or other Person with respect to the

     

    
      
         

      

      
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    transactions
contemplated by this Agreement.  Investor shall have no obligation
with respect to any fees or with respect to any claims made by or on behalf of
other Persons for fees of a type contemplated in this Section 4.1(s) that may be
due in connection with the transactions contemplated by this
Agreement.

     

    (t) Private Placement.
Assuming the accuracy of Investor representations and warranties set forth in
Section 4.2, no registration
under the Act is required for the offer and sale of the Securities by the
Company to Investor as contemplated hereby. The issuance and sale of the
Securities hereunder does not contravene the rules and regulations of any
Trading Market.

     

    (u) Investment Company.
The Company is not, and is not an Affiliate of, and immediately after receipt of
payment for the Securities, will not be or be an Affiliate of, an “investment
company” within the meaning of the Investment Company Act of 1940, as
amended.  The Company shall conduct its business in a manner so that
it will not become subject to the Investment Company Act.

     

    (v) Registration
Rights.  No Person has any right to cause the Company to effect
the registration under the Act of any securities of the Company, other than as
set forth in the Transaction Documents.

     

    (w) Listing and Maintenance
Requirements.  The Common Stock is registered pursuant to
Section 12(b) of the Exchange Act, and the Company has taken no action designed
to, or which to its knowledge is likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act nor has the Company
received any notification that the SEC is contemplating terminating such
registration.  Except as disclosed in the SEC Reports, the Company has
not, in the 12 months preceding the Effective Date, received notice from any
Trading Market on which the Common Stock is or has been listed or quoted to the
effect that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market.

     

    (x) Application of Takeover
Protections.  The Company and its Board of Directors have taken
all necessary action, if any, in order to render inapplicable any control share
acquisition, business combination, poison pill (including any distribution under
a rights agreement) or other similar anti takeover provision under the Company’s
Certificate of Incorporation (or similar charter documents) or the laws of its
state of incorporation that is or could become applicable to Investor as a
result of Investor and the Company fulfilling their obligations or exercising
their rights under the Transaction Documents, including without limitation the
Company’s issuance of the Securities and Investor’s ownership of the
Securities.

     

    (y) Disclosure.  Except
with respect to the information that will be, and to the extent it is, publicly
disclosed pursuant to Section 2.2(b)(i)(E),
the Company confirms that, neither the Company nor any other Person acting on
its behalf has provided Investor or its agents or counsel with any information
that constitutes or might constitute material, non-public
information.  The Company understands and confirms that Investor will
rely on the foregoing representations and covenants in effecting transactions in
securities of the Company.  All disclosure provided to Investor
regarding the Company, its business and the transactions contemplated hereby,
including the Schedules to this Agreement, furnished by or on behalf of the

     

    
      
         

      

      
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    Company
with respect to the representations and warranties made herein are true and
correct in all material respects and do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.

     

    (z) No Integrated
Offering. Neither the Company, nor any of its Affiliates, nor any Person
acting on its or their behalf has, directly or indirectly, made any offers or
sales of any security or solicited any offers to buy any security, under
circumstances that would cause this offering of the Securities to be integrated
with prior offerings by the Company for purposes of the Act or which could
violate any applicable stockholder approval provisions, including, without
limitation, under the rules and regulations of the Trading Market.

     

    (aa) Tax
Status.  Except as set forth on Schedule 4.1(aa) of the
Disclosure Schedules, the Company and each of its Subsidiaries has made or filed
all federal, state and foreign income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provisions reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply.  There are no unpaid taxes in any material
amount claimed to be due by the taxing authority of any jurisdiction, and the
officers of the Company know of no basis for any such claim.  The
Company has not executed a waiver with respect to the statute of limitations
relating to the assessment or collection of any foreign, federal, statue or
local tax.  None of the Company’s tax returns is presently being
audited by any taxing authority.

     

    (bb) No General Solicitation or
Advertising in Regard to this Transaction.  Neither the Company
nor, to the knowledge of the Company, any of its directors or officers (i) has
conducted or will conduct any general solicitation (as that term is used in Rule
502(c) of Regulation D) or general advertising with respect to the sale of the
Securities, or (ii) made any offers or sales of any security or solicited any
offers to buy any security under any circumstances that would require
registration of the Securities under the Act or made any “directed selling
efforts” as defined in Rule 902 of Regulation S.

     

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

     

    (dd) Acknowledgment Regarding
Investor’s Purchase of Securities.  The Company acknowledges
and agrees that Investor is acting solely in the capacity of arm’s
length

     

    
      
         

      

      
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    purchaser
with respect to this Agreement and the transactions contemplated
hereby.  The Company further acknowledges that Investor is not acting
as a financial advisor or fiduciary of the Company (or in any similar capacity)
with respect to this Agreement and the transactions contemplated hereby and any
statement made by Investor or any of their respective representatives or agents
in connection with this Agreement and the transactions contemplated hereby is
not advice or a recommendation and is merely incidental to Investor’s purchase
of the Securities.  The Company further represents to Investor that
the Company’s decision to enter into this Agreement has been based solely on the
independent evaluation of the Company and its representatives.

     

    (ee) Accountants.  The
Company’s accountants are set forth on Schedule 4.1(ee) of the Disclosure
Schedules.  To the Company’s knowledge, such accountants are a
registered public accounting firm as required by the Act.

     

    (ff) No Disagreements with
Accountants and Lawyers.  There are no disagreements of any
kind presently existing, or reasonably anticipated by the Company to arise,
between the accountants and lawyers formerly or presently employed by the
Company, in either case that would reasonably be expected to result in a
Material Adverse Effect.

     

    (gg) Registration Statements and
Prospectuses.

     

    (i) Company
will use its commercially reasonable efforts to promptly file (but in no event
later than 30 days after each Put Closing Date), cause to become effective as
soon as practicable thereafter, and remain effective until all Warrant Shares
have been resold or are eligible for resale without limitation under Rule 144, a
Registration Statement for the sale of the Warrant Shares underlying such
Warrants issued to Investor on such Put Closing Date.  Each
Registration Statement shall comply when it becomes effective, and, as amended
or supplemented, at the time of any Put Notice Date, Put Closing Date, or
issuance of any Warrant Shares, and at all times during which a prospectus is
required by the Act to be delivered in connection with any sale of Warrant
Shares, will comply, in all material respects, with the requirements of the
Act.

     

    (ii)  Each
Registration Statement, as of its respective effective time, will not, as
applicable, 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.

     

    (iii) Each
prospectus (within the meaning of the Act) related to the sale or offering of
any Warrant Shares (“Prospectus”) will
comply, as of its date and the date it will be filed with the
SEC,  and, at the time of any Put Notice Date, Put Closing Date, or
issuance of any Warrant Shares, and at all times during which a prospectus is
required by the Act to be delivered in connection with any sale of Warrant
Shares, in all material respects, with the requirements of the Act.

     

    (iv) At no
time during the period that begins on the date a Prospectus is filed with the
SEC and ends at the time a prospectus is no longer required by the Act to be
delivered in connection with any sale of Warrant Shares did or will any

     

    
      
         

      

      
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    such
Prospectus, as then amended or supplemented, include an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and at no time during such period will such Prospectus, as
then amended or supplemented, include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading.

     

    (v) Each
Registration Statement will meet, and the offering and sale of the Warrant
Shares as contemplated hereby complies with, and will comply with, the
requirements of Rule 415(a)(1)(i) under the Act.

     

    (vi) The
Company has not, directly or indirectly, used or referred to any “free writing
prospectus” (as defined in Rule 405 under the Act) except in compliance with
Rules 164 and 433 under the Act.

     

    (vii) The
Company is not an “ineligible issuer” (as defined in Rule 405 under the Act) as
of the eligibility determination date for purposes of Rules 164 and 433 under
the Act with respect to the offering of the Warrant Shares contemplated by any
Registration Statement, without taking into account any determination by the SEC
pursuant to Rule 405 under the Act that it is not necessary under the
circumstances that the Company be considered an “ineligible
issuer”.

     

    (hh) Stock Loan
Agreements.  None of the Lending Stockholders are, or within 90
days of the Effective Date have been Affiliates of the Company.  No
Lending Stockholder or any Affiliate of any Lending Stockholder has been, or
will be, compensated by the Company, or to the Company’s knowledge any Person,
in any manner, directly or indirectly, for entering into a Stock Loan Agreement
except as expressly set forth therein.  The execution, delivery and
performance of the Stock Loan Agreements, the consummation the transactions
contemplated by the Stock Loan Agreements, the borrowing and receipt of the
Borrowed Shares, and any subsequent sale of any Borrowed Shares as permitted by
the Stock Loan Agreements do not and will not conflict with or result in a
violation of any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to which the Company,
or to the Company’s knowledge any Lending Stockholder or other Person, is
subject, including without limitation Section 5 of the Act and other federal and
state securities laws and regulations.

     

    4.2  Representations and
Warranties of Investor. Investor hereby represents and warrants as of the
Effective Date as follows:

     

    (a) Organization;
Authority.  Investor is an entity validly existing and in good
standing under the laws of the jurisdiction of its organization with full right,
company power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder.  The execution, delivery and performance by
Investor of the transactions contemplated by this Agreement have been duly
authorized by all necessary company or similar action on the part of
Investor.  Each Transaction Document to which it is a party has been
(or will be) duly executed by Investor, and when 

     

    
      
         

      

      
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    delivered
by Investor in accordance with the terms hereof, will constitute the valid and
legally binding obligation of Investor, enforceable against it in accordance
with its terms, except (i) as limited by general equitable principles and
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors’ rights generally, (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable
law.

     

    (b) Investor
Status.  At the time Investor was offered the Securities, it
was, and at the Effective Date it is: (i) an “accredited investor” as defined in
Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Act or (ii) a
“qualified institutional buyer” as defined in Rule 144A(a) under the
Act.

     

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

     

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

     

    (e) No Other
Representations.  The Company acknowledges and agrees that
Investor does not make or has not made any representations or warranties with
respect to the transactions contemplated hereby other than those specifically
set forth in this Section 4.2.

     

    ARTICLE 5

    OTHER AGREEMENTS OF THE
PARTIES

     

    5.1  Transfer
Restrictions

     

    (a) The
Securities may only be disposed of in compliance with state and federal
securities laws.  In connection with any transfer of Securities other
than pursuant to an effective Registration Statement or Rule 144, to the Company
or to an Affiliate of Investor or in connection with a pledge as contemplated in
Section 5.1(b), the Company
may require the transferor thereof to provide to the Company an opinion of Luce
Forward Hamilton & Scripps LLP, or other counsel selected by the transferor
and reasonably acceptable to the Company, to the effect that such transfer does
not require registration of such transferred Securities under the
Act.

     

    (b) Investor
agrees to the imprinting, so long as is required by this Section 5.1, of the following
legend or substantially similar legend on any certificate evidencing
Securities:

     

    NEITHER
THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE
HAVE BEEN REGISTERED WITH 

     

     

    
      
         

      

      
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    THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE “SECURITIES ACT”),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.

     

    The
Company agrees to cause such legend to be removed from the applicable Securities
immediately upon effectiveness of a Registration Statement relating to the sale
thereof, or in the case of Warrant Shares, when such shares are eligible for
sale under Rule 144.  Company further acknowledges and agrees that
Investor may from time to time pledge pursuant to a bona fide margin agreement
with a registered broker-dealer or grant a security interest in some or all of
the Securities to a financial institution that is an “accredited investor” as
defined in Rule 501(a) under the Act and who agrees to be bound by the
provisions of this Agreement and, if required under the terms of such
arrangement, Investor may transfer pledged or secured Securities to the pledgees
or secured parties.  Such a pledge or transfer would not be subject to
approval of the Company and no legal opinion of legal counsel of the pledgee,
secured party or pledgor shall be required in connection
therewith.  Further, no notice shall be required of such
pledge.  At the appropriate Investor’s expense, the Company will
execute and deliver such reasonable documentation as a pledgee or secured party
of Securities may reasonably request in connection with a pledge or transfer of
the Securities.

     

    5.2  Furnishing of
Information

     

    As long
as Investor owns Securities, the Company covenants to timely file (or obtain
extensions in respect thereof and file within the applicable grace period) all
reports required to be filed by the Company after the Effective Date pursuant to
the Exchange Act.  Upon the request of Investor, the Company shall
deliver to Investor a written certification of a duly authorized officer as to
whether it has complied with the preceding sentence. As long as Investor owns
Securities, if the Company is not required to file reports pursuant to such
laws, it will prepare and furnish to Investor and make publicly available in
accordance with Rule 144(c) such information as is required for Investor to sell
the Securities under Rule 144.  The Company further covenants that it
will take such further action as any holder of Securities may reasonably
request, all to the extent required from time to time to enable such Person to
sell such Securities without registration under the Act within the limitation of
the exemptions provided by Rule 144.

     

    
      
         

      

      
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    5.3  Integration

     

    The
Company shall not sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Act) that
would be integrated with the offer or sale of the Securities in a manner that
would require the registration under the Act of the sale of the Securities to
Investor or that would be integrated with the offer or sale of the Securities
for purposes of the rules and regulations of any Trading Market such that it
would require stockholder approval prior to the closing of such other
transaction unless stockholder approval is obtained before the closing of such
subsequent transaction.

     

    5.4  Securities Laws Disclosure;
Publicity

     

    The
Company shall, by 8:30 a.m. Eastern time on the Trading Day following the
Effective Date, issue a press release or if required file a Current Report on
Form 8-K, in each case reasonably acceptable to Investor, disclosing the
material terms of the transactions contemplated hereby.  The Company
and Investor shall consult with each other in issuing any press releases with
respect to the transactions contemplated hereby, and neither the Company nor
Investor shall issue any such press release or otherwise make any such public
statement without the prior consent of the Company, with respect to any press
release of Investor, or without the prior consent of Investor, with respect to
any press release of the Company, which consent shall not be unreasonably
withheld, except if such disclosure is required by law or Trading Market, in
which case the disclosing party shall promptly provide the other party with
prior notice of such public statement or
communication.  Notwithstanding the foregoing, the Company shall not
publicly disclose the name of Investor, or include the name of Investor in any
filing with the SEC or any regulatory agency or Trading Market, without the
prior written consent of Investor, except (i) as required by federal securities
law in connection with any registration statement under which the Warrant Shares
are registered, and (ii) to the extent such disclosure is required by law or
Trading Market regulations, in which case the Company shall provide Investor
with prior notice of such disclosure permitted under subclause (i) or
(ii).

     

    5.5  Shareholders Rights
Plan

     

    No claim
will be made or enforced by the Company or, to the knowledge of the Company, any
other Person that Investor is an “Acquiring Person” under any shareholders
rights plan or similar plan or arrangement in effect or hereafter adopted by the
Company, or that Investor could be deemed to trigger the provisions of any such
plan or arrangement, by virtue of receiving Securities under the Transaction
Documents or under any other agreement between the Company and Investor. The
Company shall conduct its business in a manner so that it will not become
subject to the Investment Company Act of 1940, as amended.

     

    5.6  Non-Public
Information

     

    The
Company represents and warrants that neither it nor any other Person acting on
its behalf has, and covenants and agrees that neither it nor any other Person
acting on its behalf will, provide Investor or its agents or counsel with any
information that the Company believes or reasonably should believe constitutes
material non-public information, unless prior thereto Investor shall have
executed a written agreement regarding the confidentiality and use of
such

     

    
      
         

      

      
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    information.  After
the Effective Date, neither Investor nor any Affiliate Investor shall have any
duty of trust or confidence that is owed directly, indirectly, or derivatively,
to the Company or the shareholders of the Company, or to any other Person who is
the source of material nonpublic information regarding the
Company.  The Company understands and confirms that Investor shall be
relying on the foregoing representations in effecting transactions in securities
of the Company.

     

    5.7  Indemnification of
Investor

     

    Subject
to the provisions of this Section 5.7, the Company will
indemnify and hold Investor and any Warrant holder, their Affiliates and
attorneys, and each of their directors, officers, shareholders, partners,
employees, agents, and any person who controls Investor within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act (collectively, the
“Investor
Parties” and each an “Investor Party”),
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation (collectively, “Losses”) that any
Investor Party may suffer or incur as a result of or relating to (a) any breach
of any of the representations, warranties, covenants or agreements made by the
Company in this Agreement or in the other Transaction Documents, (b) any action
instituted against any Investor Party, or any of them or their respective
Affiliates, by any stockholder of the Company who is not an Affiliate of an
Investor Party, with respect to any of the transactions contemplated by the
Transaction Documents (unless such action is based upon a breach of Investor’s
representation, warranties or covenants under the Transaction Documents or any
agreements or understandings Investor may have with any such stockholder or any
violations by Investor of state or federal securities laws or any conduct by
Investor which constitutes fraud, gross negligence, willful misconduct or
malfeasance), (c)  any untrue statement of a material fact contained
in a Registration Statement (or in a Registration Statement as amended by any
post-effective amendment thereof by the Company) or arising out of or based upon
any omission to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, and/or (d) any untrue statement
of a material fact included in any Prospectus (or any amendments or supplements
to any Prospectus ), in any “issuer information” (as defined in Rule 433 under
the Act) of the Company, or in any Prospectus, or arising out of or based upon
any omission or alleged omission to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that the
Company shall not be obligated to indemnify any Investor Party for any Losses
suffered in respect of clauses (c) and/or (d) of this Section 5.7 to the
extent such Losses occur in reliance upon and in conformity with written
information furnished by such Investor Party expressly for use in connection
with such Registration Statement.

     

    If any
action shall be brought against an Investor Party in respect of which indemnity
may be sought pursuant to this Agreement, such Investor Party shall promptly
notify the Company in writing, and the Company shall have the right to assume
the defense thereof with counsel of its own choosing.  The Investor
Parties shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the Investor Parties except to the extent that (i)
the employment thereof has been specifically authorized by the Company in
writing, (ii) the Company has failed after a reasonable period of time to assume
such defense and to employ 

     

    
      
         

      

      
        24

        
          

        

      

      
         

      

    

    counsel
or (iii) in such action there is, in the reasonable opinion of such separate
counsel, a material conflict on any material issue between the position of the
Company and the position of the Investor Parties.  The Company will
not be liable to the Investor Parties under this Agreement (i) for any
settlement by an Investor Party effected without the Company’s prior written
consent, which shall not be unreasonably withheld or delayed; or (ii) to the
extent, but only to the extent that a loss, claim, damage or liability is
attributable to Investor’s breach of any of the representations, warranties,
covenants or agreements made by Investor in this Agreement or in the other
Transaction Documents.

     

    5.8  Indemnification of
Company

     

    Subject
to the provisions of this Section 5.8, the
Investor will indemnify and hold the Company, its Affiliates and attorneys, and
each of their respective directors, officers, shareholders, partners, employees,
agents, and any person who controls the Company within the meaning of Section 15
of the Act or Section 20 of the Exchange Act (collectively, the “Company Parties” and each a
“Company
Party”), harmless from any and all Losses that any Company Party may
suffer or incur as a result of or relating to (a)  any breach of any
of the representations, warranties, covenants or agreements made by the Investor
in this Agreement or in the other Transaction Documents, or
(b)  solely to the extent relating to written information furnished by
Investor expressly for use in connection with a Registration Statement, either
(i)  any untrue statement of a material fact contained in such
information or (ii)  any omission or alleged omission from such
information that renders such information incomplete or otherwise non-compliant
with the Act.

     

    If any
action shall be brought against a Company Party in respect of which indemnity
may be sought pursuant to this Agreement, such Company Party shall promptly
notify the Investor in writing, and the Investor shall have the right to assume
the defense thereof with counsel of its own choosing.  The Company
Parties shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the Company Parties except to the extent that (i) the
employment thereof has been specifically authorized by the Investor in writing,
(ii) the Investor has failed after a reasonable period of time to assume such
defense and to employ counsel or (iii) in such action there is, in the
reasonable opinion of such separate counsel, a material conflict on any material
issue between the position of the Investor and the position of the Company
Parties.  The Investor will not be liable to the Company Parties under
this Agreement (i) for any settlement by a Company Party effected without the
Investor’s prior written consent, which shall not be unreasonably withheld or
delayed; or (ii) to the extent, but only to the extent that a loss, claim,
damage or liability is attributable to Company’s breach of any of the
representations, warranties, covenants or agreements made by Investor in this
Agreement or in the other Transaction Documents

     

    5.9  Reservation of
Securities

     

    The
Company shall maintain a reserve from its duly authorized shares of Common Stock
for issuance pursuant to the Transaction Documents in such amount as may be
required to fulfill its obligations in full under the Transaction
Documents.

     

    
      
         

      

      
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    5.10  Limited
Standstill

     

    The
Company will deliver to Investor on or before each Put Closing Date, and will
honor and enforce the provisions of, the Lock-Up Agreements.

     

    5.11  Issuance of Additional
Securities

     

    The
Company shall not issue additional Common Stock or securities convertible into
Common Stock to any Person other than:  (i)  to Investor,
(ii)  any Affiliate of Investor, (iii)  in connection with
any Approved Stock Plan (as defined in the Warrant), (iv)  upon the
exercise of the Warrants, (v)  issuance of the Company’s securities to
any employee, officer, director or consultant in exchange for services provided
to the Company, (vi)  issuance of the Company’s securities to any one
or more critical professionals; provided, that, at no time during which any
Warrants are outstanding, shall the aggregate value (in each case as determined
on the respective date of issuance) of all securities issued by the Company
pursuant to this clause (vi) exceed $4,000,000.00; (vii)  in
connection with any merger or acquisition of any assets or securities of another
business, corporation or entity by the Company, the primary purpose of which is
not to raise equity capital; or (viii)  upon conversion, exercise or
exchange of any Options (as defined in the Warrant) or Convertible Securities
(as defined in the Warrant) which are outstanding on the day immediately
preceding the Effective Date, provided that, in the case of any such conversion
or exercise, the terms of such Options or Convertible Securities are not
amended, modified or changed on or after the Effective Date.

     

    5.12  Prospectus Availability and
Changes

     

    The
Company will make available to Investor upon request, and thereafter from time
to time will furnish Investor, as many copies of any Prospectus (or of the
Prospectus as amended or supplemented if the Company shall have made any
amendments or supplements thereto after the effective date of the applicable
Registration Statement) as Investor may request for the purposes contemplated by
the Act; and in case Investor is required to deliver a prospectus after the
nine-month period referred to in Section 10(a)(3) of the Act in connection with
the sale of the Warrant Shares, or after the time a post-effective amendment to
the applicable Registration Statement is required pursuant to Item 512(a) of
Regulation S-K under the Act, the Company will prepare, at its expense, promptly
upon request such amendment or amendments to the Registration Statement and the
Prospectus as may be necessary to permit compliance with the requirements of
Section 10(a)(3) of the Act or Item 512(a) of Regulation S-K under the Act, as
the case may be.

     

    The
Company will advise Investor promptly of the happening of any event within the
time during which a Prospectus is required to be delivered under the Act which
could require the making of any change in the Prospectus then being used so that
the Prospectus would not include an untrue statement of material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading, and to
advise Investor promptly if, during such period, it shall become necessary to
amend or supplement any Prospectus to cause such Prospectus to comply with the
requirements of the Act, and in each case, during such time, to prepare and
furnish, at the Company’s expense, to Investor promptly such amendments or
supplements to such Prospectus as may be necessary to reflect any such change or
to effect such compliance.

     

    
      
         

      

      
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    5.13  Shareholder
Approval

     

    No
transactions contemplated under this Agreement or the Transaction Documents
shall be consummated for an amount that would require shareholder approval under
any applicable shareholder approval provisions, rules or regulations of any
Trading Market applicable to the Company unless and until such shareholder
approval is obtained.

     

    5.14  Registration

     

    In the
event that a Registration Statement is not declared effective by the one year
anniversary of the Effective Date, Company shall, at Investor’s election in its
sole discretion, exercise the Company’s Repurchase Right provided for in Section
7 of the Certificate of Designations to effectuate the repurchase of any
outstanding Preferred Shares.

     

    ARTICLE 6

    MISCELLANEOUS

     

    6.1  Fees and
Expenses

     

    Except
for the $20,000.00 non-refundable document preparation fee previously paid by
the Company to counsel for Investor, the receipt of which is hereby
acknowledged, and as may be otherwise set forth in this Agreement, each party
shall pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this
Agreement.  The Company shall pay all stamp and other taxes and duties
levied in connection with the sale of the Securities, if any.

     

    6.2  Notices

     

    Any and
all notices or other communications or deliveries required or permitted to be
provided hereunder shall be in writing and shall be deemed given and effective
on the earliest of (a) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile number specified on the signature
page hereto prior to 5:30 p.m. Eastern time on a Trading Day and an electronic
confirmation of delivery is received by the sender, (b) the next Trading Day
after the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number specified on the signature page hereto on a
day that is not a Trading Day or later than 5:30 p.m. Eastern time on any
Trading Day, (c) three Trading Days following the date of mailing, if sent by
U.S. nationally recognized overnight courier service, or (d) upon actual receipt
by the party to whom such notice is required to be given.  The
addresses for such notices and communications are those set forth on the
signature pages hereof, or such other address as may be designated in writing
hereafter, in the same manner, by such Person.

     

    6.3  Construction

     

    The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof.  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.

     

    
      
         

      

      
        27

        
          

        

      

      
         

      

    

    6.4  Successors and
Assigns

     

    This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns.  Neither party shall assign
this Agreement or the terms hereof without the prior written approval of the
other party.

     

    6.5  No Third Party
Beneficiaries

     

    This
Agreement is intended for the benefit of the parties hereto and their respective
successors and permitted assigns and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person, except as otherwise set forth
in Sections
5.7 and
5.8.

     

    6.6  Governing
Law

     

    All
questions concerning the construction, validity, enforcement and interpretation
of the Transaction Documents shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York, without regard to
the principles of conflicts of law thereof.  Each party agrees that
all legal proceedings concerning the interpretations, enforcement and defense of
the transactions contemplated by this Agreement and any other Transaction
Documents (whether brought against a party hereto or its respective affiliates,
directors, officers, shareholders, employees or agents) shall be commenced
exclusively in the state and federal courts sitting in the City of New
York.  Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or inconvenient venue for such proceeding.  Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof.  Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by
law.  The parties hereby waive all rights to a trial by
jury.  If either party shall commence an action or proceeding to
enforce any provisions of the Transaction Documents, then the prevailing party
in such action or proceeding shall be reimbursed by the other party for its
reasonable attorneys’ fees and other costs and expenses reasonably incurred in
connection with the preparation and prosecution of such action or
proceeding.

     

    6.7  Survival

     

    The
representations and warranties contained herein shall survive the Closing and
the delivery, exercise and/or conversion of the Securities, as
applicable.

     

    
      
         

      

      
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    6.8  Execution

     

    This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party, it being understood that both parties need not sign the same
counterpart.  In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.

     

    6.9  Severability

     

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

     

    6.10  Replacement
Securities

     

    If any
certificate or instrument evidencing any Securities is mutilated, lost, stolen
or destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation thereof, or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
customary and reasonable indemnity, if requested.  The applicants for
a new certificate or instrument under such circumstances shall also pay any
reasonable third-party costs associated with the issuance of such replacement
Securities.

     

    6.11  Remedies

     

    In
addition to being entitled to exercise all rights provided herein or granted by
law, including recovery of damages, each of Investor and the Company will be
entitled to specific performance under the Transaction Documents.  The
parties agree that monetary damages may not be adequate compensation for any
loss incurred by reason of any breach of obligations described in the foregoing
sentence and hereby agrees to waive in any action for specific performance of
any such obligation the defense that a remedy at law would be
adequate.

     

    6.12  Payment Set
Aside

     

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

     

    
      
         

      

      
        29

        
          

        

      

      
         

      

    

    6.13  Liquidated
Damages

     

    The
Company’s obligations to pay any partial liquidated damages or other amounts
owing under the Transaction Documents is a continuing obligation of the Company
and shall not terminate until all unpaid partial liquidated damages and other
amounts have been paid notwithstanding the fact that the instrument or security
pursuant to which such partial liquidated damages or other amounts are due and
payable shall have been canceled.

     

    6.14  Time of the
Essence

     

    Time is
of the essence with respect to all provisions of this Agreement that specify a
time for performance.

     

    6.15  Amendments;
Waivers

     

    No
provision of this Agreement may be waived or amended except in a written
instrument signed, in the case of an amendment, by the Company and Investor or,
in the case of a waiver, by the party against whom enforcement of any such
waiver is sought.  No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right.

     

     

     

     

     

     

     

     

    
      
         

      

      
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    6.16  Entire
Agreement

     

    This
Agreement, together with the exhibits, appendices and schedules hereto, contains
the entire agreement and understanding of the parties, and supersedes all prior
and contemporaneous agreements, understandings, communications and discussions,
both oral and written.  No party, representative, attorney or agent
has relied upon any collateral contract, agreement, assurance, promise,
understanding or representation not expressly set forth herein
above.  The parties hereby waive all rights and remedies, at law and
in equity, arising out of, relating to, or which may arise as the result of, any
Person’s reliance on any such assurance.  The parties acknowledge that
all prior agreements have been merged into this Agreement.

     

    IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized signatories as of the date first
indicated above.

     

    MEDIS
TECHNOLOGIES LTD.

    

    

    By:           /s/ Jose
Mejia                            
                                                                           

    Jose
Mejia

    President
& Chief Executive Officer

    

    

    By:           /s/ Stephen
Crea                       
                                                                           

    Stephen
Crea

    Chief
Financial Officer

    

    VOLATION
TECHNOLOGY CAPITAL PARTNERS, LLC

    

    

    By:           /s/ Terry
Peizer                                 
                                                      

    Terry
Peizer

    Managing
Director

    

     

     

    
      
         

      

      
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    Addresses
for Notice

     

    

    To
Company:

    

    Medis
Technologies Ltd.:

    805 Third
Avenue, 15th Floor

    New York,
NY 10022

    Attention:  Jose
Mejia

    Fax
No.:  (212) 935-9216

    Email:  omerm@medistechnologies.com

    

    with a
copy to:

    

    Sonnenschein
Nath & Rosenthal LLP

    1221
Avenue of the Americas

    New York,
NY 10020

    Attention:  Ira
I. Roxland, Esq.

    Fax
No.:  (212) 768-6800

    Email:  iroxland@sonnenschein.com

    

    To
Investor:

     

    Volation
Technology Capital Partners, LLC

    11150
Santa Monica Boulevard, Suite 1500

    Los
Angeles, CA 90025

    Attention:  Terry
Peizer

    Fax
No.:  (310) 444-5300

    Email:  terry@volationcapital.com

     

    with a
copy to:

    

    Luce
Forward Hamilton & Scripps LLP

    601 South
Figueroa Street, Suite 3900

    Los
Angeles, CA 90017

    Attention:  John
C. Kirkland, Esq.

    Fax
No.:  (213) 452-8035

    Email:  jkirkland@luce.com

     

    

     

     

    
      
         

      

      
        32

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