Document:

EXHIBIT 10.1

                      PLAN AND AGREEMENT OF REORGANIZATION

         THIS PLAN AND AGREEMENT OF REORGANIZATION (hereinafter referred to as
the "Agreement") is entered into as of this 15th day of December 2003, by and
between INTERNATIONAL CARD ESTABLISHMENT, INC. (hereinafter referred to as
"ICE"), GLOBALTECH LEASING, INC. (hereinafter referred to as "GTL") and the
undersigned shareholders of GTL (hereinafter referred to collectively as
"Shareholder").

                                   WITNESSETH

         WHEREAS, GTL is a California corporation with authorized capital stock
of 1,000,000 shares of no par value Common Stock, of which 396,040 shares of
Common Stock were issued and outstanding as of December 15, 2003 (hereinafter
"GTL Shares") As of the Closing Date (as defined in Article VIII hereof), there
will be 396,040 GTL Shares issued and outstanding;

         WHEREAS, ICE is a Delaware corporation with authorized capital stock of
100,000,000 shares of $0.0005 par value Common Stock, of which 12,970,394 shares
were issued and outstanding as of December 15, 2003;

         WHEREAS, ICE desires to purchase from Shareholder all of the issued and
outstanding shares of GTL owned by Shareholder in exchange, solely for ICE
shares of common stock ("Stock");

         WHEREAS, it is the intention of Shareholder to exchange the GTL Shares
held by it for Stock of ICE, on the terms and conditions set forth herein; and

         WHEREAS, it is the intention of ICE, GTL and Shareholder that the
transactions contemplated hereby constitute a tax-free "reorganization" as
defined in the Internal Revenue Code of 1986, as amended, and that all the terms
and provisions of this Agreement be interpreted, construed and enforced to
effectuate this intent.

         NOW THEREFORE in consideration of the foregoing and the mutual
covenants, promises, representations and warranties contained herein, the
parties hereto agree as follows:

                                    Article I

                                    EXCHANGE

         1.1 EXCHANGE OF STOCK OF GTL. At the Closing Date in accordance with
the provisions of this Agreement and applicable law, Shareholder shall transfer
and ICE shall acquire all of the GTL Shares owned by Shareholder.

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                                   Article II

                                  CONSIDERATION

         2.1 EXCHANGE. Shareholder and ICE agree that all of the GTL Shares
owned by Shareholder shall be exchanged with ICE for a total of five million
(5,000,000) shares of ICE Common Stock. Such Stock shall be issued in
certificates in such denominations, amounts and names as may be requested by
Shareholder, as more fully set forth in Addendum A hereto.

         2.2 INVESTMENT INTENT. Shareholder represents and warrants that it is
acquiring said Stock for investment purposes only and not with a view towards
resale or redistribution in violation of state and federal securities laws. Upon
request, Shareholder agrees to deliver to ICE at the closing, or after, a letter
setting forth an agreement that said Stock is being acquired for investment
purposes only and will not be sold except in compliance with the Securities Act
of 1933, as amended, and the Rules and Regulations promulgated thereunder.

         2.3 DELIVERY. At said closing, Shareholder shall deliver certificates
for the GTL Shares, duly endorsed in negotiable form, with signatures
guaranteed, free and clear from all claims and encumbrances.

                                   Article III

                      REPRESENTATIONS AND WARRANTIES OF ICE

         ICE represents and warrants to Shareholder as follows:

         3.1 ORGANIZATION. ICE is a corporation duly incorporated, validly
existing and, at the closing, in good standing under the laws of the State of
Delaware and has the corporate power and authority to own or lease its
properties and to carry on business as now being conducted.

         3.2 CAPITALIZATION. As of the closing date, the authorized capital
stock of ICE shall consist of 100,000,000 shares of $0.0005 par value common
stock, of which 12,970,394 shall be issued and outstanding. All said shares are
validly issued, fully paid and non-assessable.

         3.3 FINANCIAL STATEMENTS. ICE has furnished to Shareholder audited
financial statements as of December 31, 2002 and unaudited financial statements
for the periods ending September 30, 2003. Said financial statements contain the
balance sheets of ICE. All of said financial statements, (i) are in accordance
with ICE's books and records, (ii) present fairly and financial position of ICE
as of such dates, and its results of operations and changes in financial
position for the respective periods indicated, (iii) have been prepared in
conformity with generally accepted accounting principles applied on a consistent
basis, and (iv) consistent with prior business practice, contain adequate
reserves for all known or contingent liabilities, losses and refunds with
respect to services or products already rendered or sold.

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         3.4 CHANGES IN FINANCIAL CONDITION. Except as it relates to the
transactions contemplated by this Agreement, from the date of the Financial
Statements to the Closing Date, there has been no material change in the
properties, assets, liabilities, financial condition, business, operations,
affairs or prospects of ICE from that set forth or reflected in the Financial
Statements, other than changes in the ordinary course of business, none of which
have been, either in any case or in the aggregate, materially adverse.

         3.5 AUTHORIZATION. ICE has the power to enter into this Agreement, and
this Agreement, when duly executed and delivered, will constitute the valid and
binding obligation of ICE. Other than approval by the Board of Directors and/or
shareholders of ICE, no proceedings are necessary to authorize this Agreement or
the transactions contemplated hereby. This Agreement constitutes the legal,
valid and binding obligation of ICE enforceable in accordance with its terms.

         3.6 EFFECT OF AGREEMENT. The execution and delivery by ICE of this
Agreement and the consummation of the transactions herein contemplated, (i) will
not conflict with, or result in a breach of the terms of, or constitute any
default under or violation of, any law or regulation of any governmental
authority, or the Articles of Incorporation or By-Laws of ICE, or any material
agreement or instrument to which ICE is a party or by which it is bound or is
subject; (ii) nor will it give to others any interest or rights, including
rights of termination, acceleration or cancellation, in or with respect to any
of the properties, assets, agreements, leases, or business of ICE.

         3.7 MINUTE BOOK. The records of meetings and other corporate actions of
ICE (including any committees of the Board) which are contained in the Minute
books of ICE contain complete and accurate records of the matters reflected in
such minutes.

         3.8 LITIGATION; CLAIMS. ICE is not a party to, and there are not any
claims, actions, suits, investigations or proceedings pending or threatened
against ICE or its business, at law or in equity, or before or by any
governmental department, commission, board, bureau, agency, or instrumentality,
domestic or foreign, which if determined adversely would have a material effect
on the business or financial condition of ICE or the ability of ICE to carry on
its business. The consummation of the transactions herein contemplated will not
conflict with or result in the breach or violation of any judgment, order, writ,
injunction or decree of any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign.

         3.9 TAXES AND REPORTS. At the Closing Date, ICE (i) will have filed all
tax returns required to be filed by any jurisdiction, domestic or foreign, to
which it is or has been subject, (ii) has either paid in full all taxes due and
taxes claimed to be due by each jurisdiction, and any interest and penalties
with respect thereto, and (iii) has adequately reflected as liabilities on its
books, all taxes that have accrued for any period to and including the Closing
Date.

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         3.10 COMPLIANCE WITH LAWS AND REGULATIONS. To the best of ICE's
knowledge ICE has complied with, and is not in violation of any federal, state,
local or foreign statute, law, rule or regulation with respect to the conduct of
ICE's businesses.

         3.11 FINDERS. ICE is not obligated, absolutely or contingently, to any
person for financial advice, a finder's fee, brokerage commission, or other
similar payment in connection with the transactions contemplated by this
Agreement.

         3.12 NATURE OF REPRESENTATIONS. ICE has taken reasonable care to ensure
that all disclosures and facts are true and accurate, and that there are no
other material facts, the omission of which would make misleading any statement
herein. Further, to the best of ICE's knowledge, no representation, warranty or
agreement made by ICE in this agreement or any of the Schedules or any other
Exhibits hereto and no statement made in the Schedules or any such Exhibit,
list, certificate or schedule or other instrument or disclosure furnished by
them in connection with the transactions herein contemplated contains, or will
contain, any untrue statement of a material fact necessary to make any
statement, representation, warranty or agreement not misleading.

                                   Article IV

              REPRESENTATIONS AND WARRANTIES OF GTL AND SHAREHOLDER

         GTL and Shareholder, and each of them, represent and warrant to ICE as
follows:

         4.1 ORGANIZATION. GTL is a corporation duly incorporated, validly
existing and, at the closing, in good standing under the laws of the State of
California has the corporate power and authority to own or lease its properties
and to carry on business as now being conducted.

         4.2 CAPITALIZATION. The authorized capital stock of GTL consists of one
class of shares of stock, the total number of shares authorized is 1,000,000
shares of no par value Common Stock, of which 396,040 shares of Common Stock are
presently issued and outstanding. All said shares are validly issued, fully paid
and non-assessable. There are no outstanding options, warrants, rights,
commitments or agreements of any kind relating to the issuance of any shares of
Common Stock or other equity or convertible security of GTL to any person. None
of the shares of Common Stock of GTL is reserved for any purpose. GTL is not
subject to any obligation (contingent or otherwise), nor does it have any option
to repurchase or otherwise acquire or retire any shares of its Common Stock.

         4.3 AUTHORITY. GTL and Shareholder have the full power and authority to
enter into this Agreement and to carry out its obligations hereunder. Other than
approval by the Board of Directors and/or Shareholder, no proceedings on the
part of Shareholder are necessary to authorize this Agreement or the
transactions contemplated hereby. This Agreement constitutes the legal, valid
and binding obligation of GTL and Shareholder enforceable in accordance with its
terms.

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         4.4 FINANCIAL STATEMENTS. GTL has furnished to ICE audited financial
statements as of December 31, 2002 and December 31, 2001 (the "Financial
Statements). All of said Financial Statements, (i) are in accordance with GTL's
books and records, (ii) present fairly and financial position of GTL as of such
dates, and its results of operations and changes in financial position for the
respective periods indicated, (iii) have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis, and (iv)
consistent with prior business practice, contain adequate reserves for all known
or contingent liabilities, losses and refunds with respect to services or
products already rendered or sold.

         4.5 CHANGES IN FINANCIAL CONDITION. From the date of the Financial
Statements to the Closing Date, there has been no material change in the
properties, assets, liabilities, financial condition, business, operations,
affairs or prospects of GTL from that set forth or reflected in the Financial
Statements, other than changes in the ordinary course of business, none of which
have been, either in any case or in the aggregate, materially adverse.

         4.6 TITLE TO ASSETS. GTL has and on the Closing date will have good
record and marketable title to all its assets. Such assets are subject to no
mortgage, pledge, lien, conditional sales agreement, lease, encumbrance or
charge whatsoever.

         4.7 ALL PATENT/LICENSE RIGHTS. To the best of its knowledge, GTL owns
or possesses the requisite licenses or other rights to use all licenses,
patents, trademarks, service marks, service names and trade names presently
used. There is no claim or action by any person, or proceeding pending, or
threatened which challenges the exclusive rights of GTL with respect to said
rights used, or contemplated to be used, in GTL's business. Nothing herein
contained have or shall be deemed to constitute a representation or warranty
that such licenses, patents, trademarks, or trade names may not be utilized or
challenged in the future, and that they will be upheld if challenged.

         4.8 CONTRACTS/OTHER RIGHTS. Prior to the closing, GTL will furnish ICE
with a true and complete list and description of all material contracts and
licenses entered into by GTL (the "Contracts"), including any contracts,
licenses by and between GTL and Shareholder, between them and with others. Each
of the agreements, contracts, commitments, leases, plans and other instruments,
documents and undertakings to be supplied is valid and enforceable in accordance
with its terms. GTL is not in default of the performance, observance or
fulfillment of any material obligations, covenant or condition contained
therein; and no event has occurred which with or without the giving of notice or
lapse of time, or both, would constitute a default thereunder; furthermore,
except as may be disclosed in writing at the time of delivery, no such
agreement, contract, commitment, lease, plan or other instrument, document or
undertaking, in the reasonable opinion of GTL, contains any contractual
requirement with which there is a likelihood GTL will be unable to comply.

         4.9 EFFECT OF AGREEMENT. The execution and delivery by GTL and
Shareholder of this Agreement and the consummation of the transactions herein
contemplated, (i) will not conflict with, or result in a breach of the terms of,
or constitute a default under or violation of, any law or regulation of any
governmental authority, or the Articles of Incorporation or By-Laws of ICE, or
any material agreement or instrument to which GTL or Shareholder is a party or

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give rise to any interests or rights, including rights of termination,
acceleration or cancellation, in or with respect to any of the properties,
assets, agreements, leases, or business of GTL.

         4.10 PERSONAL PROPERTY. All of the property, assets and equipment owned
by or used by GTL is in good repair, well maintained, and in good and
satisfactory operating condition consistent with their age, free from any known
defects, except such minor defects as to not substantially interfere with the
continued use thereof in the conduct of normal operations and such property,
assets, and equipment which is owned by GTL is valued on the Financial
Statements at original purchase price less reasonable depreciation consistently
applied in accordance with generally accepted accounting principles.

         4.11 MINUTE BOOK. The records of meetings and other corporate actions
of Shareholder and the Board of Directors (including any committees of the
Board) of Shareholder and GTL which are contained in the Minute books of
Shareholder and GTL contain complete and accurate records of the matters
reflected in such minutes.

         4.12 LITIGATION; CLAIMS. Neither Shareholder nor GTL is a party to, and
there are not any claims, actions, suits, investigations or proceedings pending
or threatened against GTL or its business, at law or in equity, or before or by
any governmental department, commission, board, bureau, agency, or
instrumentality, domestic or foreign, which if determined adversely would have a
material effect on the business or financial condition of GTL or the ability of
GTL to carry on its business. The consummation of the transactions herein
contemplated will not conflict with or result in the breach or violation of any
judgment, order, writ, injunction or decree of any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign.

         4.13 TAXES AND REPORTS. At the Closing Date, GTL (i) will have filed
all tax returns required to be filed by any jurisdiction, domestic or foreign,
to which it is or has been subject, (ii) has either paid in full all taxes due
and taxes claimed to be due by each jurisdiction, and any interest and penalties
with respect thereto, and (iii) has adequately reflected as liabilities on its
books, all taxes that have accrued for any period to and including the Closing
Date. No state of facts exists or has existed which would constitute grounds for
the assessment of any taxes with respect to the periods which have not been
audited by the Internal Revenue Service or any other taxing authority. There are
no outstanding tax elections, or agreements or waivers extending the statutory
period of limitation, applicable to any federal or state return for taxes of ICE
for any period.

         4.14 PERSONNEL. Included in the corporate records described, in part,
in 4.11, is a true and correct list of all directors, officers and employees of
GTL. GTL is not aware that any officer or employee has any intention to
terminate his or her employment with GTL and GTL is not a party to or bound by
any employment agreement, or collective bargaining or other labor agreement.

         4.15 COMPLIANCE WITH LAWS AND REGULATIONS. To the best of their
knowledge, GTL and Shareholder have complied with, and are not in violation of
any federal, state, local or foreign statute, law, rule or regulation with

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respect to the conduct of GTL's businesses, which violation might have a
material adverse effect on the business, financial condition or earnings of GTL.

         4.16 FINDERS. GTL and Shareholder, and each of them, are not obligated,
absolutely or contingently, to any person for financial advice, a finder's fee,
brokerage commission, or other similar payment in connection with the
transactions contemplated by this Agreement.

         4.17 LEASES. Prior to the closing, GTL will furnish ICE with a true and
complete list and description of all leases of real property and equipment by
and between GTL and the lessees. Each of said leases are valid and enforceable
in accordance with its terms.

         4.18 NATURE OF REPRESENTATION. GTL and Shareholder have taken
reasonable care to ensure that all disclosures and facts are true and accurate
and that there are no other material facts, the omission of which would make
misleading any statement herein. Further, no representation, warranty or
agreement made by GTL and Shareholder in this Agreement or any of the Schedules
or any other Exhibits hereto and no statement made in the Schedules or any such
Exhibit, list, certificate or schedule or other instrument or disclosure
furnished by them in connection with the transactions herein contemplated
contains, or will contain, any untrue statement of a material fact necessary to
make any statement, representation, warranty or agreement not misleading.

                                    Article V

                              ACCESS TO INFORMATION

         5.1 ACCESS TO INFORMATION. GTL and Shareholder shall afford
representatives of ICE reasonable access to officers, personnel, and
professional representatives of GTL and to the financial, contractual and
corporate records of GTL as shall be reasonably necessary for ICE's
investigations and appraisal of GTL.

         5.2 EFFECT OF INVESTIGATIONS. Any such investigation by ICE of GTL
shall not affect any of the representations and warranties hereunder and shall
not be conducted in such manner as to interfere unreasonably with the operation
of the business of GTL.

                                   Article VI

                        CONDITIONS TO OBLIGATIONS OF ICE

         The obligations of ICE under this Agreement are, at the option of ICE,
subject to the satisfaction, at and prior to the Closing Date, of the following
conditions:

         6.1 FULFILLMENT OF COVENANTS. All the terms, covenants and conditions
of this Agreement to be complied with and performed by GTL at or before the
Closing Date shall have been duly complied with and performed.

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         6.2 ACCURACY OF REPRESENTATIONS AND WARRANTIES; OTHER, DOCUMENTS. All
of the representations and warranties made by all parties to this Agreement
shall be true as of the Closing Date.

         6.3 NO LITIGATION. There shall be no action, proceeding, investigation
or pending or actual litigation the purpose of which is to enjoin or may be to
enjoin the transactions contemplated by this Agreement or which would have the
effect, if successful, of imposing a material liability upon GTL, or any of the
officers or directors thereof, because of this consummation of the transactions
contemplated by this Agreement.

                                   Article VII

                    CONDITIONS TO OBLIGATIONS OF SHAREHOLDER

         The obligations of Shareholder under this Agreement are, at the option
of Shareholder, subject to the satisfaction, at and prior to the Closing Date,
of the following conditions:

         7.1 FULFILLMENT OF COVENANTS. All the terms, covenants and conditions
of this Agreement to be complied with and performed by ICE at or before the
Closing Date shall have been duly complied with and performed.

         7.2 ACCURACY OF REPRESENTATIONS AND WARRANTIES; OTHER DOCUMENTS. All of
the representations and warranties made by all parties to this Agreement shall
be true as of the Closing Date.

         7.3 NO LITIGATION. There shall be no action, proceeding, investigation
or pending or actual litigation the purpose of which is to enjoin or may be to
enjoin the transactions contemplated by this Agreement or which would have the
effect, if successful, of imposing a material liability upon Shareholder, GTL,
or any of the officers or directors thereof, because of the consummation of the
transactions contemplated by this Agreement.

         7.4 GTL SHAREHOLDERS' APPROVAL. GTL shall have obtained the written
consent of the majority of the holders of all outstanding shares of Common Stock
of GTL entitled to vote thereat, wherein said shareholders shall have voted in
favor of approving and ratifying the transactions contemplated by this
Agreement.

                                  Article VIII

                                     CLOSING

         8.1 CLOSING DATE. The consummation of the exchange shall take place on
January 29, 2003, 1:45 p.m., at the offices of ICE at 300 Esplanade Drive, Suite
1950, Oxnard, California 93036, or such other time or place as shall be mutually
agreed upon by the parties to this Agreement.

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         8.2 ACTIONS TO BE TAKEN BY PARTIES ON THE CLOSING DATE. On the Closing
Date, each party shall deliver to the other all documents or agreements provided
or herein to be delivered on the Closing Date.

                                   Article IX

                         INDEMNIFICATION AND ARBITRATION

         9.1 INDEMNIFICATION. Each of the parties agree to indemnify and hold
harmless the other against any and all damages, claims, losses, expenses,
obligations and liabilities (including reasonable attorney's fees) resulting
from or related to any breach of, or failure by each of the parties to perform
any of their representations, warranties, covenants, conditions or agreements in
this Agreement or in any schedule, certificate,, exhibit or other document
furnished, or to be furnished under this Agreement.

         9.2 CLAIMS OF INDEMNIFICATION. Any claim for indemnification pursuant
to this Agreement shall be made in writing and delivered to the other party in
accordance with 12.3 below, and shall specify in reasonable detail the nature
and amount of the claim to the other.

                                    Article X

                               PAYMENT OF EXPENSES

         10.1 EXPENSES . Each party shall bear its own expenses relating to this
transaction.

                                   Article XI

                   SURVIVAL OF REPRESENTATIONS AND WARRANTIES

         11.1 SURVIVAL. All statements contained in the Schedules, any Exhibit
or other instrument delivered by or on behalf of the parties hereto or in
connection with the transactions contemplated by this Agreement shall be deemed
to be representations made by or on behalf of the parties to this Agreement, all
representations, warranties and agreements made by the parties to this Agreement
or pursuant hereto shall survive.

                                   Article XII

                                     GENERAL

         12.1 PARTIAL INVALIDITY. If any term or provision of this Agreement or
the application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable the remainder of this Agreement or the application of
such term or provision to persons or circumstances other than those to which it
is held invalid or unenforceable, shall not be affected thereby, and each such
term and provision of this Agreement shall be valid and be enforced to the
fullest extent permitted by law.

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         12.2 WAIVER. No waiver of any breach of any covenant or provision
herein contained shall be deemed a waiver of any preceding or succeeding breach
thereof, or of any other covenant or provision herein contained. No extension of
time for performance of any obligation or act shall be deemed and extension of
the time for performance of any other obligation or act.

         12.3 NOTICES. All notices or other communications required or permitted
hereunder shall be in writing, and shall be sent by registered or certified
mail, postage prepaid, return receipt requested, and shall be deemed received
upon mailing thereof.

                   To:      International Card Establishment, Inc.
                            300 Esplanade Drive
                            Suite 1950
                            Oxnard, CA 93036

                   To:      GlobalTech Leasing, Inc.
                            300 Esplanade Drive
                            Suite 1960
                            Oxnard, CA 93036

         Notice of change of address shall be given by written notice in the
manner detailed in this subparagraph 12.3.

         12.4 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the permitted successors and assigns of the
parties hereto.

         12.5 PROFESSIONAL FEES. In the event of the bringing of any action or
suit by a party hereto against another party hereunder by reason of any breach
of any of the covenants, agreements or provisions on the part of the other party
arising out of this Agreement, then in that event the prevailing party shall be
entitled to have and recover of and from the other party all costs and expenses
of the action or suit, including actual attorney's fees, accounting fees, and
other professional fees resulting therefrom.

         12.6 ENTIRE AGREEMENT. This Agreement is the final expression of, and
contains the entire agreement between, the parties with respect to the subject
matter hereof and supersedes all prior understandings with respect thereto. This
Agreement may not be modified, changed, supplemented or terminated, nor may any
obligations hereunder be waived, except by written instrument signed by the
party to be charged or by his agent duly authorized in writing or as otherwise
expressly permitted herein. The parties do not intend to confer any benefit
hereunder on any person, firm or corporation other than the parties hereto.

         12.7 TIME OF ESSENCE. The parties hereby acknowledge and agree that
time is strictly of the essence with respect to each and every term, condition,
obligation and provision hereof and that failure to timely perform any of the
terms, conditions, obligations or provisions hereof by either party shall
constitute a material breach of and non-curable (but waivable) default under
this Agreement by the party so failing to perform.

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         12.8 CONSTRUCTION. Headings at the beginning of each paragraph and
subparagraph are solely for the convenience of the parties and are not a part of
the Agreement. Whenever required by the context of this Agreement, the singular
shall include the plural and the masculine shall include the feminine. This
Agreement shall not be construed as if it had been prepared by one of the
parties, but rather as if both parties had prepared the same. Unless otherwise
indicated, all references to paragraphs and subparagraphs are to this Agreement.
In the event the date on which any party is required to take any action under
the terms of this Agreement is not a business day, the action shall be taken on
the next succeeding day.

         12.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be an original and all of which taken together
shall constitute one instrument.

         12.10 GOVERNING LAW. The parties hereto expressly agree that this
Agreement shall be governed by, interpreted under, and construed and enforced in
accordance with the laws of the State of California.

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day first above here written.

Dated: December 15, 2003            GLOBALTECH LEASING, INC.

                                    By: /s/ CHARLES SALYER
                                    _________________________
                                    Charles Salyer, President

Dated: December 15, 2003            INTERNATIONAL CARD ESTABLISHMENT, INC.

                                    By: /s/ WILLIAM LOPSHIRE
                                    _________________________________________
                                    William Lopshire, Chief Executive Officer

                                      -11-Exhibit 4.1

 

SECURITIES PURCHASE AGREEMENT

        This
Securities Purchase Agreement (this “Agreement”)
is dated as of December 2, 2003, among Valentis, Inc., a Delaware
corporation (the “Company”), and
the purchasers identified on the signature pages hereto (each, a “Purchaser” and collectively, the “Purchasers”).

        WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant to
Section 4(2) of the Securities Act (as defined below) and Rule 506
promulgated thereunder, the Company desires to issue and sell to the
Purchasers, and the Purchasers, severally and not jointly, desire to purchase
from the Company certain securities of the Company, as more fully described in
this Agreement.

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

ARTICLE I.

DEFINITIONS

        1.1    Definitions.    In
addition to the terms defined elsewhere in this Agreement, for all purposes of
this Agreement, the following terms shall have the meanings indicated in this
Section 1.1:

        “Action” means any action, suit, inquiry,
notice of violation, proceeding (including any partial proceeding such as a
deposition) or investigation pending or threatened in writing against or
affecting the Company, any Subsidiary or any of their respective properties
before or by any court, arbitrator, governmental or administrative agency,
regulatory authority (federal, state, county, local or foreign), stock market,
stock exchange or trading facility.

        “Affiliate” means any Person that, directly
or indirectly through one or more intermediaries, controls or is controlled by
or is under common control with a Person, as such terms are used in and
construed under Rule 144.

        “Business Day” means any day except
Saturday, Sunday and any day which shall be a federal legal holiday or a day on
which banking institutions in the State of New York are authorized or required
by law or other governmental action to close.

        “Capital Lease Obligations” of any Person
shall mean the obligations of such Person to pay rent or other amounts under
any lease of (or other arrangement conveying the right to use) real or personal
property, or a combination thereof, which obligations are required to be
classified and accounted for as capital leases on a balance sheet of such
Person under GAAP and, for the purposes of this Agreement, the amount of such
obligations at any time shall be the capitalized amount thereof at such time
determined in accordance with GAAP.

        “Closing” means the closing of the purchase
and sale of the Securities pursuant to Article II.

        “Closing Date” means the Business Day
immediately following the date on which all the conditions set forth in
Sections 5.1 and 5.2 hereof are satisfied.

        “Commission” means the Securities and
Exchange Commission.

        “Common Stock” means the common stock of
the Company, $.001 par value per share, and any securities into which such
common stock may hereafter be reclassified.

        “Common Stock Equivalents” means any
securities of the Company or any Subsidiary which entitle the holder thereof to
acquire Common Stock at any time, including without limitation, any debt,
preferred stock, rights, options, warrants or other instrument that is at any
time convertible into or

 

1

 

exchangeable
for, or otherwise entitles the holder thereof to receive, Common Stock or other
securities that entitle the holder to receive, directly or indirectly, Common
Stock.

        “Disclosure Materials” has the meaning set
forth in Section 3.1(h).

        “Effective Date” means the date that the
Registration Statement required by Section 2(a) of the Registration Rights
Agreement is first declared effective by the Commission.

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

        “Guarantee” of or by any Person shall mean
any obligation, contingent or otherwise, of such Person guaranteeing or having
the economic effect of guaranteeing any Indebtedness of any other Person (the
“primary obligor”) in any manner, whether directly or indirectly, and including
any obligation of such Person, direct or indirect, (a) to purchase or pay
(or advance or supply funds for the purchase or payment of) such Indebtedness
or to purchase (or to advance or supply funds for the purchase of) any security
for the payment of such Indebtedness, (b) to purchase property, securities
or services for the purpose of assuring the owner of such Indebtedness of the
payment of such Indebtedness or (c) to maintain working capital, equity
capital or other financial statement condition or liquidity of the primary
obligor so as to enable the primary obligor to pay such Indebtedness, provided, that the term Guarantee shall
not include endorsements for collection or deposit, in either case in the
ordinary course of business.

        “Indebtedness” of any Person shall mean,
without duplication, (a) all obligations of such Person for borrowed money
or with respect to deposits or advances of any kind, (b) all obligations
of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all
obligations of such Person upon which interest charges are customarily paid,
(d) all obligations of such Person under conditional sale or other title
retention agreements relating to property or assets purchased by such Person,
(e) all obligations of such Person issued or assumed as the deferred
purchase price of property or services, (f) all Indebtedness of others
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien on property owned or
acquired by such Person, whether or not the obligations secured thereby have
been assumed, (g) all Guarantees by such Person of Indebtedness of others,
(h) all Capital Lease Obligations of such Person, (i) all obligations
of such Person in respect of interest rate protection agreements, foreign
currency exchange agreements or other interest or exchange rate hedging
arrangements and (j) all obligations of such Person as an account party in
respect of letters of credit and bankers’ acceptances. The Indebtedness of any
Person shall include the Indebtedness of any partnership in which such Person
is a general partner.

        “Investment Amount” means, with respect to
each Purchaser, the investment amount indicated below such Purchaser’s name on
the signature page of this Agreement.

        “Lien” means any lien, charge, encumbrance,
security interest, right of first refusal or other restrictions of any kind.

        “Per Unit Purchase Price” equals $2.05
(subject to equitable adjustment for stock splits, recombinations and similar
events).

        “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.

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

        “Purchaser Percentage” means, with respect
to a Purchaser, the percentage equal to the product of (x) a fraction, the
numerator of which shall be the Investment Amount paid by such Purchaser on

 

2

 

the
Closing Date and the denominator of which shall be the aggregate Investment
Amount paid by all Purchasers on the Closing Date times (y) 100.

        “Registration Statement” means a
registration statement meeting the requirements set forth in the Registration
Rights Agreement and covering the resale by the Purchasers of the Registrable
Securities (as defined in the Registration Rights Agreement).

        “Registration Rights Agreement” means the
Registration Rights Agreement, dated as of the date of this Agreement, among
the Company and the Purchasers, in the form of Exhibit B.

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

        “Securities” means the Shares, the Warrants
and the Warrant Shares.

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

        “Shares” means the shares of Common Stock
issued or issuable to the Purchasers at the Closing.

        “Strategic Transaction” means a transaction
or relationship in which the Company issues shares of Common Stock or Common
Stock Equivalents to a Person which is, itself or through its subsidiaries, an
operating company in a business synergistic with the business of the Company
and in which the Company receives material benefits in addition to the
investment of or lending of funds, but shall not include a transaction in which
the Company is issuing securities primarily for the purpose of raising capital
or to a Person whose primary business is investing in securities.

        “Subsidiary” means any subsidiary of the
Company that is required to be listed in Schedule 3.1(a).

        “Trading Day” means (i) a day on which
the Common Stock is traded on a Trading Market, or (ii) if the Common
Stock is not listed on a Trading Market, a day on which the Common Stock is
traded in the over-the-counter market, as reported by the OTC Bulletin Board or
the National Quotation Bureau Incorporated, or (iii) if the Common Stock
is not quoted on the OTC Bulletin Board, a day on which the Common Stock is
quoted in the over-the-counter market as reported by the National Quotation
Bureau Incorporated (or any similar organization or agency succeeding to its
functions of reporting prices); provided, that in the event that the Common
Stock is not listed or quoted as set forth in (i), (ii) and
(iii) hereof, then Trading Day shall mean a Business Day.

        “Trading Market” means whichever of the New
York Stock Exchange, the American Stock Exchange, the NASDAQ National Market or
the NASDAQ SmallCap Market, on which the Common Stock is listed or quoted for
trading on the date in question.

        “Transaction Documents” means this
Agreement, the Warrants, the Registration Rights Agreement, and any other
documents or agreements executed in connection with the transactions
contemplated hereunder.

        “Warrants” means the Common Stock purchase
warrants in the form of Exhibit A,
which are issuable to the Purchasers at the Closing.

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

ARTICLE II.

PURCHASE AND SALE

        2.1    Closing.    Subject
to the terms and conditions set forth in this Agreement, at the Closing the
Company shall issue and sell to each Purchaser, and each Purchaser shall,
severally and not jointly, purchase from the Company, the Shares and the
Warrants representing such Purchaser’s Investment

 

3

 

Amount.
The Closing shall take place at the offices of Bryan Cave LLP, 1290 Avenue of
the Americas, New York, NY 10104 on the Closing Date or at such other location
or time as the parties may agree.

2.2    Closing
Deliveries.    (a) At the Closing, the
Company shall deliver or cause to be delivered to each Purchaser the following:

          (i)  a
certificate evidencing a number of Shares equal to such Purchaser’s Investment
Amount divided by the Per Unit Purchase Price, registered in the name of such
Purchaser;

         (ii)  a
Warrant, registered in the name of such Purchaser, pursuant to which such
Purchaser shall have the right to acquire the number of shares of Common Stock
equal to 40% of the number of Shares issuable to such Purchaser in accordance
with Section 2.2(a)(i);

        (iii)  the
legal opinion of Latham & Watkins LLP, counsel to the Company, in
agreed form, addressed to the Purchasers;

        (iv)  a
certificate from a duly authorized officer certifying on behalf of the Company
that each of the conditions set forth in Section 5.1 has been satisfied;
and

         (v)  the
Registration Rights Agreement duly executed by the Company.

        (b)   At
the Closing, each Purchaser shall deliver or cause to be delivered to the
Company the following:

          (i)  such
Purchaser’s Investment Amount, in United States dollars and in immediately
available funds, by wire transfer to an account designated in writing by the
Company for such purpose; and

         (ii)  the
Registration Rights Agreement duly executed by such Purchaser.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

3.1    Representations
and Warranties of the Company.    The Company
hereby makes the following representations and warranties to each Purchaser:

        (a)    Subsidiaries.    The
Company has no direct or indirect Subsidiaries other than those listed in Schedule 3.1(a). Except as disclosed
in Schedule 3.1(a), the
Company owns, directly or indirectly, all of the capital stock of each Subsidiary
free and clear of any and all Liens, and all the issued and outstanding shares
of capital stock of each Subsidiary are validly issued and are fully paid,
non-assessable and free of preemptive and similar rights.

        (b)    Organization and Qualification.    Each
of the Company and each Subsidiary 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 of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or
charter documents. Each of the Company and each Subsidiary 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,
individually or in the aggregate, have or reasonably be expected to result in
(i) an adverse effect on the legality, validity or enforceability of any
Transaction Document, (ii) a material and adverse effect on the results of
operations, assets, prospects, business or condition (financial or otherwise)
of the Company and the Subsidiaries, taken as a whole, or (iii) an adverse
impairment to the Company’s

 

4

 

ability to perform on a timely basis its obligations
under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”).

        (c)    Authorization; Enforcement.    Subject
to the Company obtaining the vote of its stockholders in favor of the Proposal
(as defined in Section 4.10), 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 thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly authorized by all necessary
corporate action on the part of the Company and no further corporate action is
required by the Company in connection therewith. Each Transaction Document has
been (or upon delivery will have been) duly executed by the Company and, when
delivered 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 as rights to indemnity and contribution may be limited
by state or federal securities laws or the public policy underlying such laws,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors’ and contracting
parties’ rights generally and except as enforceability may be subject to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).

        (d)    No Conflicts.    The
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated 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, 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) 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; except in the case of each of
clauses (ii) and (iii), such as could not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect.

        (e)    Filings, Consents and
Approvals.    The Company is not 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: (i) the filing with the Commission of one or more
Registration Statements in accordance with the requirements Registration Rights
Agreement, (ii) the filings required by state securities laws,
(iii) the filings required in accordance with Sections 4.5 and 4.13,
(iv) the Company obtaining the consent of its stockholders in favor of the
Proposal pursuant to Section 4.11, and (v) those that have been made
or obtained prior to the date of this Agreement.

        (f)    Issuance of the Securities.    On
the Closing Date, the Securities shall have been duly authorized and, when
issued and paid for in accordance with the Transaction Documents, will be duly
and validly issued, fully paid and nonassessable, free and clear of all Liens.
On or before the Closing Date, the Company shall have reserved from its duly
authorized capital stock the maximum number of shares of Common Stock issuable
pursuant to this Agreement and the Warrants in order to issue the Shares and
the Warrant Shares.

 

5

 

        (g)    Capitalization.    The
number of shares and type of all authorized, issued and outstanding capital
stock of the Company as of September 30, 2003 is as described in the
Company’s Quarterly Report on Form 10-Q for the Quarter ended
September 30, 2003. Except as set forth in Schedule 3.1(g), no
securities of the Company are entitled to preemptive or similar rights, and 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 except as disclosed in Schedule 3.1(g),
there are no outstanding options, warrants, scrip 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 or rights convertible or exchangeable into shares of Common
Stock. Except under the Transaction Documents or as set forth in
Schedule 3.1(g), the issue and sale of the Securities will not,
immediately or with the passage of time, obligate the Company to issue shares
of Common Stock or other securities to any Person (other than the Purchasers)
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.

        (h)    SEC Reports; Financial
Statements.    The Company has filed all reports
required to be filed by it under the Securities Act and the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the twelve
months preceding the date hereof (or such shorter period as the Company was
required by law to file such reports) (the foregoing materials including all exhibits
and schedules thereto, being collectively referred to herein as the “SEC
Reports” and, together with the Schedules to this Agreement, the “Disclosure
Materials”) on a timely basis or has timely filed a valid extension of such
time of filing and has filed any such SEC Reports prior to the expiration of
any such extension. As of their respective dates, the SEC Reports complied in
all material respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder, 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
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 Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(“GAAP”), except as may be
otherwise specified in such financial statements or the notes thereto, 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, immaterial, year-end audit
adjustments or as otherwise disclosed in the SEC Reports.

        (i)    [RESERVED]

        (j)    Material Changes.    Since
the date of the latest audited financial statements included within the SEC
Reports, except as specifically disclosed in the SEC Reports, (i) there
has been no event, occurrence or development that has had or is reasonably
likely 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 Commission, (iii) the Company has
not altered its method of accounting or the identity of its auditors,
(iv) the Company has not declared or made any dividend or distribution of
cash or other

 

6

 

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 stock option or
stock purchase plans. Except as specified in the SEC Reports, the Company does
not have pending before the Commission any request for confidential treatment
of information.

        (k)    Litigation.    Except
as disclosed in the SEC Reports, there is no 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, individually or in the aggregate, 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 Commission involving the Company or any
current or former director or officer of the Company. The Commission 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 Securities Act.

        (l)    Labor Relations.    No
material labor dispute exists or, to the knowledge of the Company, is imminent
with respect to any of the employees of the Company.

        (m)    Compliance.    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 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
relating to taxes, environmental protection, occupational health and safety,
product quality and safety and employment, labor matters and gaming matters,
except in each case as could not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect. The Company is
in compliance with the applicable requirements of the Sarbanes-Oxley Act of
2002 and the rules and regulations thereunder promulgated by the Commission,
except where such noncompliance could not have or reasonably be expected to
result in a Material Adverse Effect.

        (n)    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 would 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.

        (o)    Title to Assets.    The
Company and the Subsidiaries have good and marketable title in all personal
property owned by them that is material to their respective businesses, 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.
Any real property and facilities held under lease by the Company and the
Subsidiaries are held by them under valid, subsisting and, to the Company’s
knowledge, enforceable leases of which the Company and the Subsidiaries are in
compliance, except as could

 

7

 

not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect.

        (p)    Patents and Trademarks.    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, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect (collectively,
the “Intellectual Property Rights”). Except as set forth in the SEC Reports,
neither the Company nor any Subsidiary has received a written notice that the
Intellectual Property Rights used by the Company or any Subsidiary violates or
infringes upon the rights of any Person. Except as set forth in the SEC
Reports, 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.

        (q)    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. The Company does not believe that it will be unable 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 material increase in cost.

        (r)    Transactions With Affiliates
and Employees.    Except as set forth in the SEC
Reports or on Schedule 3.1(r), none of the 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.

        (s)    Internal Accounting Controls.    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 generally accepted accounting
principles 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.

        (t)    Solvency.    Based
on the financial condition of the Company as of the Closing Date (and assuming
that the Closing shall have occurred), (i) the Company’s fair saleable
value of its assets exceeds the amount that will be required to be paid on or
in respect of the Company’s existing debts and other liabilities (including
known contingent liabilities) as they mature; (ii) the Company’s assets do
not constitute unreasonably small capital to carry on its business for the
current fiscal year as now conducted and as proposed to be conducted including
its capital needs taking into account the particular capital requirements of
the business conducted by the Company, and projected capital requirements and
capital availability thereof; and (iii) the current cash flow of the
Company, together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated uses of
the cash, would be sufficient to pay all amounts on or in respect of its debt
when such amounts are required to be paid. The Company does not intend to incur
debts beyond its ability to pay such debts as they mature (taking into account
the timing and amounts of cash to be payable on or in respect of its debt).

 

8

 

        (u)    Certain Fees.    Except
for dealings with the Placement Agent (defined below), 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 transactions contemplated by this
Agreement. The Purchasers shall have no obligation with respect to any fees or
with respect to any claims (other than such fees or commissions owed by a
Purchaser pursuant to written agreements executed by such Purchaser which fees
or commissions shall be the sole responsibility of such Purchaser) made by or
on behalf of other Persons for fees of a type contemplated in this Section that
may be due in connection with the transactions contemplated by this Agreement.

        (v)    Certain Registration Matters.    Assuming
the accuracy of the Purchasers’ representations and warranties set forth in
Section 3.2(b)-(e), no registration under the Securities Act is required
for the offer and sale of the Securities by the Company to the Purchasers under
the Transaction Documents. The Company is eligible to register the resale of
its Common Stock for resale by the Purchasers under Form S-3 promulgated
under the Securities Act. Except as described in the SEC Reports the Company
has not granted or agreed to grant to any Person any rights (including “piggy-back”
registration rights) to have any securities of the Company registered with the
Commission or any other governmental authority that have not been satisfied.

        (w)    Listing and Maintenance
Requirements.    Except as specified in the SEC
Reports, the Company has not, in the two years preceding the date hereof,
received notice from any Trading Market on which the Common Stock is or has
been listed or quoted for trading to the effect that the Company is not in
compliance with the listing or maintenance requirements thereof. Except as
specified in the SEC Reports, the Company is, and has no reason to believe that
it will not in the foreseeable future continue to be, in compliance with the
listing and maintenance requirements for continued listing of the Common Stock
on the NASDAQ Stock, Market. Subject to the Company obtaining the vote of its
stockholders in favor of the Proposal the issuance and sale of the Securities
under the Transaction Documents does not contravene the rules and regulations of
the Trading Market on which the Common Stock is currently listed or quoted, and
no further approval of the shareholders of the Company thereunder is required
for the Company to issue and deliver to the Purchasers the maximum number of
Securities contemplated by Transaction Documents, including such as may be
required pursuant to Nasdaq Rule Filing SR-NASD-2003-40 (March 14, 2003)
concerning shareholder approval requirements when officers and directors
participate in discounted private placements.

        (x)    Investment Company.    The
Company is not, and is not an Affiliate of, an “investment company” within the
meaning of the Investment Company Act of 1940, as amended.

        (y)    Application of Takeover
Protections.    The Company has 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 reasonably be expected to become
applicable to the Purchasers as a result of the Purchasers 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 the Purchasers’ ownership of the Securities.

        (z)    No Additional Agreements.    The
Company does not have any agreement or understanding with any Purchaser with
respect to the transactions contemplated by the Transaction Documents other
than as specified in this Agreement.

        (aa)    Disclosure.    The
Company confirms that neither it, nor to its knowledge, any other Person acting
on its behalf has provided any of the Purchasers or their agents or counsel
with any information that the Company believes constitutes material, non-public
information. The Company

 

9

 

understands and confirms that the Purchasers will rely
on the foregoing representations and covenants in effecting transactions in
securities of the Company. All disclosure provided to the Purchasers regarding
the Company, its business and the transactions contemplated hereby, furnished
by or on behalf of the Company (including the Company’s representations and
warranties set forth in this Agreement) 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.

3.2    Representations
and Warranties of the Purchasers.    Each
Purchaser hereby, for itself and for no other Purchaser, represents and
warrants to the Company as follows:

        (a)    Organization; Authority.    Such
Purchaser is an entity duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization with the requisite corporate
or partnership power and authority to enter into and to consummate the
transactions contemplated by the applicable Transaction Documents and otherwise
to carry out its obligations thereunder. The execution, delivery and
performance by such Purchaser of the transactions contemplated by this
Agreement has been duly authorized by all necessary corporate or, if such
Purchaser is not a corporation, such partnership, limited liability company or
other applicable like action, on the part of such Purchaser. Each of this
Agreement and the Registration Rights Agreement has been duly executed by such
Purchaser, and when delivered by such Purchaser in accordance with terms
hereof, will constitute the valid and legally binding obligation of such
Purchaser, enforceable against it in accordance with its terms, except as
rights to indemnity and contribution may be limited by state or federal
securities laws or the public policy underlying such laws, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors’ and contracting
parties’ rights generally and except as enforceability may be subject to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).

        (b)    Investment Intent.    Such
Purchaser is acquiring the Securities as principal for its own account for
investment purposes only and not with a view to or for distributing or
reselling such Securities or any part thereof, without prejudice, however, to
such Purchaser’s right, subject to the provisions of this Agreement and the
Registration Rights Agreement, at all times to sell or otherwise dispose of all
or any part of such Securities pursuant to an effective registration statement
under the Securities Act or under an exemption from such registration and in
compliance with applicable federal and state securities laws. Subject to the
immediately preceding sentence, nothing contained herein shall be deemed a representation
or warranty by such Purchaser to hold the Securities for any period of time.
Such Purchaser is acquiring the Securities hereunder in the ordinary course of
its business. Such Purchaser does not have any agreement or understanding,
directly or indirectly, with any Person to distribute any of the Securities.

        (c)    Purchaser Status.    At
the time such Purchaser was offered the Securities, it was, and at the date
hereof it is, and on each date on which it exercises the Warrants it will be,
an “accredited investor” as defined in Rule 501(a) under the Securities
Act. Such Purchaser is not a registered broker-dealer under Section 15 of
the Exchange Act.

        (d)    Experience of such Purchaser.    Such
Purchaser, either alone or together with its representatives, has such
knowledge, sophistication and experience in business and financial matters so
as to be capable of evaluating the merits and risks of the prospective
investment in the Securities, and has so evaluated the merits and risks of such
investment. Such Purchaser 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.

 

10

 

        (e)    General Solicitation.    No
Securities were offered or sold to such Purchaser by means of any form of
general solicitation or general advertising, and in connection therewith such
Purchaser did not: (A) receive or review any advertisement, article, notice
or other communication published in a newspaper or magazine or similar media or
broadcast over television or radio whether closed circuit, or generally
available; or (B) attend any seminar meeting or industry investor
conference whose attendees were invited by any general solicitation or general
advertising.

        (f)    Access to Information.    Such
Purchaser acknowledges that it has reviewed the Disclosure Materials and has
been afforded (i) the opportunity to ask such questions as it has deemed
necessary of, and to receive answers from, representatives of the Company
concerning the terms and conditions of the offering of the Securities and the
merits and risks of investing in the Securities; (ii) access to
information about the Company and the Subsidiaries and their respective
financial condition, results of operations, business, properties, management
and prospects sufficient to enable it to evaluate its investment; and
(iii) the opportunity to obtain such additional information that the
Company possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the
investment. Neither such inquiries nor any other investigation conducted by or
on behalf of such Purchaser or its representatives or counsel shall modify,
amend or affect such Purchaser’s right to rely on the truth, accuracy and
completeness of the Disclosure Materials and the Company’s representations and
warranties contained in the Transaction Documents.

        (g)    Reliance.    Such
Purchaser understands and acknowledges that: (i) the Securities are being
offered and sold to it without registration under the Securities Act in a
private placement that is exempt from the registration provisions of the Securities
Act and (ii) the availability of such exemption depends in part on, and
the Company will rely upon the accuracy and truthfulness of, the foregoing
representations and such Purchaser hereby consents to such reliance.

        (h)    Residency.    Such
Purchaser is a resident of the jurisdiction set forth immediately below such
Purchaser’s name on the signature pages hereto.

        (i)    Certain Trading Activities.    Such
Purchaser has not directly or indirectly, nor has any Person acting on behalf
of or pursuant to any understanding with such Purchaser, engaged in any
transactions in any securities of the Company (including, without limitations,
any Short Sales (defined below) involving the Company’s securities) during the
30 Trading Days immediately preceding the date hereof. For purposes of this
Section, “Short Sales” include, without limitation, all types of direct and
indirect stock pledges, forward sale contracts, options, puts, calls, short
sales, swaps and similar arrangements (including on a total return basis), and
sales and other transactions through non-US broker dealers or foreign regulated
brokers having the effect of hedging the securities or investment made under
this Agreement.

        (j)    Acknowledgements Regarding
Placement Agent.    The Purchaser acknowledges
that Wells Fargo Securities, LLC (the “Placement
Agent”) is acting as the Company’s placement agent for the sale of
the securities being offered hereby and will be compensated solely by the
Company for action in such capacity.

The Company acknowledges and agrees that each
Purchaser 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 3.2.

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

4.1   (a) Securities may only be
disposed of pursuant to an effective registration statement under the
Securities Act, to the Company or pursuant to an available exemption from or in
a transaction not

 

11

 

subject
to the registration requirements of the Securities Act, and in compliance with
any applicable state securities laws. In connection with any transfer of the
Securities other than pursuant to an effective registration statement, to the
Company, to an Affiliate of a Purchaser or in connection with a pledge as
contemplated in Section 4.1(b), the Company may require the transferor
thereof to provide to the Company an opinion of counsel selected by the
transferor, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not require
registration of such transferred Securities under the Securities Act.

        (b)   Certificates
evidencing the Securities will contain the following legend, so long as is
required by this Section 4.1(b) or Section 4.1(c):

[NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE
UPON EXERCISE OF THESE SECURITIES HAVE BEEN REGISTERED] [THESE SECURITIES HAVE
NOT BEEN REGISTERED]WITH 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] [THESE SECURITIES] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

        The
Company acknowledges and agrees that a Purchaser may from time to time pledge,
and/or grant a security interest in some or all of the Securities, in
accordance with applicable securities laws, pursuant to a bona fide margin
agreement in connection with a bona fide margin account and, if required under
the terms of such agreement or account, such Purchaser may transfer pledged or
secured Securities to the pledgees or secured parties. Such a pledge or transfer
would not be subject to approval or consent of the Company and no legal opinion
of legal counsel to the pledgee, secured party or pledgor shall be required in
connection with the pledge, but such legal opinion may be required in
connection with a subsequent transfer following default by the Purchaser
transferee of the pledge. No notice shall be required of such pledge. At the
appropriate Purchaser’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
including the preparation and filing of any required prospectus supplement
under Rule 424(b)(3) of the Securities Act or other applicable provision of
the Securities Act to appropriately amend the list of Selling Stockholders
thereunder.

        (c)   Certificates
evidencing the Shares and Warrant Shares shall not contain any legend
(including the legend set forth in Section 4.1(b)): (i) while a
registration statement (including the Registration Statement) covering the
resale of such Shares and Warrant Shares is effective under the Securities Act,
or (ii) following any sale of such Shares or Warrant Shares pursuant to
Rule 144, or (iii) while such Shares or Warrant Shares are eligible
for sale under Rule 144(k), or (iv) if such legend is not required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the Staff of the Commission). The
Company shall cause its counsel to issue any legal opinion or instruction
required by the Company’s transfer agent to comply with the requirements set
forth in this Section. Following the Effective Date or at

 

12

 

such earlier time as a legend is no longer required
for the Shares and Warrant Shares under this Section 4.1(c), the Company
will, no later than three Trading Days following the delivery by a Purchaser to
the Company or the Company’s transfer agent of a certificate representing
Shares or Warrant Shares containing a restrictive legend, deliver or cause to
be delivered to such Purchaser a certificate representing such Shares or
Warrant Shares that is free from all restrictive and other legends. The Company
may not make any notation on its records or give instructions to any transfer
agent of the Company that enlarge the restrictions on transfer set forth in
this Section except as it may reasonably determine are necessary or appropriate
to comply or to ensure compliance with those applicable laws that are enacted
or modified after the Closing.

        4.2    Furnishing of Information.    As
long as any Purchaser owns the 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 date hereof
pursuant to the Exchange Act. Upon the request of any such Person, the Company
shall deliver to such Person a written certification of a duly authorized
officer as to whether it has complied with the preceding sentence. As long as
any Purchaser owns Securities, if the Company is not required to file reports
pursuant to such laws, it will prepare and furnish to the Purchasers and make
publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell the Shares and Warrant Shares 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 Shares and
Warrant Shares without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144.

        4.3    Integration.    The
Company shall not, and shall use its best efforts to ensure that no Affiliate
of the Company shall, sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in Section 2 of
the Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Purchasers, or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market.

        4.4    Subsequent Registrations.    Other
than pursuant to the Registration Statement, prior to the Effective Date, the
Company may not file any registration statement (other than on Form S-8)
with the Commission with respect to any securities of the Company.

        4.5    Securities Laws Disclosure;
Publicity.    By 8:30 a.m. (New York City
time) on the Closing Date, the Company shall issue a press release reasonably
acceptable to the Purchasers disclosing the transactions contemplated hereby
and file a Current Report on Form 8-K disclosing the material terms
of the transactions contemplated hereby. In addition, the Company will make
such other filings and notices in the manner and time required by the
Commission and the Trading Market on which the Common Stock is listed.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of any Purchaser, or include the name of any Purchaser in any filing with the
Commission (other than the Registration Statement and any exhibits to filings
made in respect of this transaction in accordance with periodic filing
requirements under the Exchange Act) or any regulatory agency or Trading
Market, without the prior written consent of such Purchaser, except to the
extent such disclosure is required by law or Trading Market regulations, in
which case the Company shall provide the Purchasers with prior notice of such
disclosure.

        4.6    Limitations on Issuance of
Future Priced Securities and Securities.    During
the six months following the Closing Date, the Company shall not issue any
“Future Priced Securities” as such term is described by NASD IM-4350-1, other
than issuances to the Purchasers pursuant to the Transaction Documents. Absent
prior approval of the Purchasers holding no less than 2/3 of the outstanding Shares (or, if prior to the
Closing Date, agreeing to purchase such Shares), during the period between the
date hereof and the third month anniversary of the Closing Date, the Company
shall not offer, sell, issue,

 

13

 

grant any
option to purchase, or otherwise dispose of Common Stock or Common Stock
Equivalents, other than: (i) the issuance of the Securities, (ii) the
issuance of securities upon the exercise or conversion of any Common Stock or
Common Stock Equivalents issued by the Company prior to the date hereof (but
will apply to any amendments, modifications and reissuances thereof),
(iii) the grant of options or warrants, or the issuance of additional
securities, under any duly authorized Company stock option, restricted stock
plan or stock purchase plan whether now existing or approved by the Company and
its stockholders in the future (but not as to any amendments or other modifications
to the number of Common Stock issuable thereunder, the terms set forth therein,
or the exercise price set forth therein, unless such amendments or other
modifications are approved by the Company’s stockholders), or (iv) the
issuance of securities pursuant to one or more Strategic Transactions.

        4.7    Indemnification of
Purchasers.    In addition to the indemnity
provided in the Registration Rights Agreement, the Company will indemnify and
hold the Purchasers and their directors, officers, shareholders, partners,
employees and agents (each, a “Purchaser
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 such Purchaser Party may suffer or incur as a result of or relating to
any misrepresentation, breach or inaccuracy of any representation, warranty,
covenant or agreement made by the Company in any Transaction Document. In
addition to the indemnity contained herein, the Company will reimburse each
Purchaser Party for its reasonable legal and other expenses (including the cost
of any investigation, preparation and travel in connection therewith) incurred
in connection therewith, as such expenses are incurred.

        4.8    Non-Public Information.    The
Company covenants and agrees that neither it nor any other Person acting on its
behalf will provide any Purchaser or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto such Purchaser shall have executed a written agreement regarding
the confidentiality and use of such information. The Company understands and
confirms that each Purchaser shall be relying on the foregoing representations
in effecting transactions in securities of the Company.

        4.9    Use of Proceeds.    The
Company shall use the net proceeds from the sale of the Securities hereunder
for working capital purposes and not for the satisfaction of any portion of the
Company’s debt (other than payment of trade payables and accrued expenses in
the ordinary course of the Company’s business and prior practices), to redeem
any capital stock of the Company or to settle any outstanding Action.

        4.10    Stockholders Meeting.

        (a)   Promptly
following the date of this Agreement, the Company shall take all action
necessary to call a meeting of its stockholders (the “Stockholders Meeting”) for the purpose of
seeking approval of the Company’s stockholders for the issuance to the
Purchasers of the Securities pursuant to the terms of the Transaction Documents
(the “Proposal”). In connection
therewith, the Company will promptly prepare and file with the Commission proxy
materials (including a proxy statement and form of proxy) for use at the
Stockholders Meeting and, after receiving and promptly responding to any
comments of the SEC thereon, shall promptly mail such proxy materials to the
stockholders of the Company. The Company will comply with Section 14(a) of
the 1934 Act and the rules promulgated thereunder in relation to any proxy
statement (as amended or supplemented, the “Proxy
Statement”) and any form of proxy to be sent to the stockholders of
the Company in connection with the Stockholders Meeting, and the Proxy
Statement shall not, on the date of the Proxy Statement (or any amendment
thereof or supplement thereto) is first mailed to shareholders or at the time
of the Stockholders Meeting, contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements made
therein not false or misleading, or omit to state any material fact necessary
to

 

14

 

correct any statement in any earlier communication
with respect to the solicitation of proxies or the Stockholders Meeting which
has become false or misleading.

        (b)   The
Company’s Board of Directors shall recommend to the Company’s stockholders (and
not revoke or amend such recommendation) that the stockholders vote in favor of
and approve the Proposal no later than January 31, 2004 and shall cause
the Company to use its best efforts (including, without limitation, the hiring
of a proxy solicitation firm of nationally recognized standing) to solicit the
approval of the stockholders for the Proposal. The Company is required to, and
will take, in accordance with applicable law and its Certificate of
Incorporation and Bylaws, all action necessary to convene the Stockholders
Meeting along the timeframe indicated herein to consider and vote upon the
approval of the Proposal.

        4.11    Additional Shares.    If,
prior to the first year anniversary of the Closing Date, the Company issues any
shares of Common Stock or the Company or any subsidiary thereof issues any
Common Stock Equivalents entitling any Person to acquire shares of Common
Stock, at a price per share less than less than the average of the closing bid
prices per share of Common Stock during the five (5) Trading Days
immediately preceding such issuance (the “Threshold
Price”) (if the holder of the Common Stock or Common Stock
Equivalent so issued shall at any time, whether by operation of purchase price
adjustments, reset provisions, floating conversion, exercise or exchange prices
or otherwise, or due to warrants, options or rights issued in connection with
such issuance, be entitled to receive shares of Common Stock at a price less
than the Threshold Price, such issuance shall be deemed to have occurred for
less than the Threshold Price), then, in connection with each such issuance of
Common Stock or Common Stock Equivalents for a purchase price that is less than
the Threshold Price, the Company shall immediately issue additional shares of
Common Stock (the “Additional Shares”)
to each Purchaser for no additional consideration. The number of Additional
Shares issuable to each Purchaser will equal: (a) the Per Unit Purchase
Price (subject to equitable adjustment for stock splits, recombinations and
similar events) minus the Threshold Price divided by (b) the Threshold
Price, multiplied by (c) the number of Shares issued to such Purchaser at
the Closing pursuant to Section 2.2(a)(i) of this Agreement. The
Company shall notify the Purchasers in writing, no later than the Trading Day
following the issuance of any Common Stock or Common Stock Equivalent subject
to this section, indicating therein the applicable issuance price. The
Additional Shares shall be entitled to the registration and rights set forth in
the Registration Rights Agreement and any Additional Shares not registered for
resale shall be afforded piggyback registration rights such that such
Additional Shares may be included in any registration statement (other than
other than on Form S-4 or Form S-8) filed by the Company. For
purposes of this Agreement, the Additional Shares shall be included within the
definition of “Shares.” Notwithstanding the foregoing, no issuances of
Additional Shares will be made under this Section 4.11 as a result of:
(i) the issuance of the Securities, (ii) the issuance of securities
upon the exercise or conversion of any Common Stock or Common Stock Equivalents
issued by the Company prior to the date hereof (but will apply to any
amendments, modifications and reissuances thereof), (iii) the grant of
options or warrants, or the issuance of additional securities, under any duly
authorized Company stock option, restricted stock plan or stock purchase plan
whether now existing or approved by the Company and its stockholders in the
future (but not as to any amendments or other modifications to the number of
Common Stock issuable thereunder, the terms set forth therein, or the exercise
price set forth therein, unless such amendments or other modifications are
approved by the Company’s stockholders), or (iv) pursuant to one or more
Strategic Transactions.

 

15

 

        4.12    Indebtedness.    The
Company covenants and agrees that as long as any Purchaser owns Securities, the
Company shall not, and shall not permit its Subsidiaries to, without the prior
written consent of the Purchaser or Purchasers holding no less than 67% of the
then outstanding Securities, incur, create, assume, guarantee or suffer to
exist, or become or remain liable, directly or indirectly, for or on account of
any Indebtedness, except:

        (a)   Existing
Indebtedness as set forth in the Company’s Annual Report on Form 10-K for
the fiscal year ended 2002 (including any extensions or renewals thereof, provided, there is no increase in the
principal amount thereof or other significant change in the terms thereof);

        (b)   Other
unsecured Indebtedness, including, without limitation, Capital Lease
Obligations in an aggregate principal amount outstanding at any time not in
excess of $500,000; and

        (c)   Incursion
or payment of trade payables, licensing fees and bonds to secure work
contracts, in each case, incurred or paid in the ordinary course of business.

        4.13    Listing of Securities.    The
Company shall: (i) in the time and manner required by each Trading Market
on which the Common Stock is listed, prepare and file with such Trading Market
an additional shares listing application covering the Shares and Warrant
Shares, (ii) take all steps necessary to cause such shares to be approved
for listing on each Trading Market on which the Common Stock is listed as soon
as possible thereafter, (iii) provide to each Purchaser evidence of such
listing, and (iv) maintain the listing of such shares on each such Trading
Market or another eligible securities market.

ARTICLE V.

        5.1    Conditions Precedent to the
Obligations of the Purchasers to Purchase Securities on the Closing Date.    The
obligation of each Purchaser to acquire Securities at the Closing is subject to
the satisfaction or waiver by such Purchaser, at or before the Closing, of each
of the following conditions:

        (a)    Representations and
Warranties.    The representations and
warranties of the Company contained herein shall be true and correct in all
material respects as of the date when made and as of the Closing as though made
on and as of such date and without any qualification to the Proposal;

        (b)    Performance.    The
Company shall have performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by it at or prior to the
Closing;

        (c)    No Injunction.    No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction that prohibits the
consummation of any of the transactions contemplated by the Transaction
Documents;

        (d)    Adverse Changes.    Since
the date of execution of this Agreement, no event or series of events shall
have occurred that reasonably would be expected to have or result in a
(i) an adverse effect on the legality, validity or enforceability of any
Transaction Document, or (ii) a material and adverse effect on the results
of operations, assets, business or condition (financial or otherwise) of the
Company and the Subsidiaries, taken as a whole (it being understood that this
subclause shall not be triggered by any decrease in the market price of the
Common Stock);

        (e)    No Suspensions of Trading in
Common Stock; Listing.    Trading in the Common
Stock shall not have been suspended by the Commission or any Trading Market
(except for any suspensions of trading of not more than one Trading Day solely
to permit dissemination of material information regarding the Company) at any
time since the date of execution of this

 

16

 

Agreement, and the Common Stock shall have been at all
times since such date listed for trading on a Trading Market;

        (f)    Stockholder Approval.    The
Company’s stockholders shall have voted in favor of the Proposal; and

        (g)    Timing.    The
Closing shall have occurred no later than February 5, 2004.

        5.2    Conditions Precedent to the
Obligations of the Company to sell Securities on the Closing Date.    The
obligation of the Company to sell Securities at the Closing is subject to the
satisfaction or waiver by the Company, at or before the Closing, of each of the
following conditions:

        (a)    Representations and
Warranties.    The representations and
warranties of each Purchaser contained herein shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made on and as of such date;

        (b)    Performance.    Each
Purchaser shall have performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by such Purchaser at or
prior to the Closing;

        (c)    Stockholder Approval.    The
Company’s stockholders shall have voted in favor of the Proposal; and

        (d)    No Injunction.    No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction that prohibits the
consummation of any of the transactions contemplated by the Transaction
Documents.

ARTICLE VI.

MISCELLANEOUS

        6.1    Fees and Expenses.    At
the Closing, the Company shall pay to Bryan Cave LLP $25,000 in connection with
the preparation of the Transaction Documents, it being understood that Bryan
Cave LLP has not rendered any legal advice to the Company in connection with
the transactions contemplated hereby and that the Company has relied for such
matters on the advice of its own counsel. Except as specified in the
immediately preceding sentence and in the Registration Rights 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 the
Transaction Documents. The Company shall pay all stamp and other taxes and
duties levied in connection with the sale of the Securities.

        6.2    Entire Agreement.    The
Transaction Documents, together with the Exhibits and Schedules thereto,
contain the entire understanding of the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, oral or written,
with respect to such matters, which the parties acknowledge have been merged
into such documents, exhibits and schedules.

        6.3    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
in this Section prior to 6:30 p.m. (New York City time) on a Trading Day,
(b) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a Trading Day or later than 6:30 p.m.
(New York City time) on any Trading Day, (c) the Trading Day following the
date of mailing, if sent by U.S. nationally recognized overnight courier
service, or (d) upon actual receipt by

 

17

 

the party
to whom such notice is required to be given. The address for such notices and
communications shall be as follows: 

	
  

  If to the Company:

  	
  

   

  	
  

  Valentis, Inc.

  863A Mitten Road

  Burlingame, CA 94010

  Attn: Benjamin F. McGraw III, Pharm. D.

  
	
  

  With a copy to:

  	
  

   

  	
  

  Patrick A. Pohlen

  Latham & Watkins LLP

  135 Commonwealth Drive

  Menlo Park, CA 94025

  
	
  

  If to a Purchaser:

  	
  

   

  	
  

  To the address set forth under such Purchaser’s name on the signature pages
  hereof;

  

or such
other address as may be designated in writing hereafter, in the same manner, by
such Person.

        6.4    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 Purchasers
of no less than 85% of the Shares issued or issuable under this Agreement 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. Notwithstanding the foregoing, upon written
consent of Purchasers of no less than 67% of the Shares issued or issuable
under this Agreement, the Company may agree to sell Securities under this
Agreement to one or more additional purchasers (each, an “Additional
Purchaser”). Each Additional Purchaser shall execute and deliver prior to the
Closing a counterpart signature page to this Agreement and specify therein such
additional purchaser’s Investment Amount, which shall not result in the
aggregate Investment Amounts to be purchased by all Purchasers (including
Additional Purchasers) to exceed $10,000,000. Upon execution of the counterpart
signature page by such Additional Investor, each such purchaser shall be deemed
a “Purchaser” for purposes of, and shall become a party to this Agreement,
without the need for an amendment hereto.

        6.5    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. This Agreement shall be
construed as if drafted jointly by the parties, and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any provisions of this Agreement or any of the Transaction Documents.

        6.6    Successors and Assigns.    This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the Purchasers. Any Purchaser may assign any or all of its rights
under this Agreement to any Person to whom such Purchaser assigns or transfers
any Securities, provided such transferee agrees in writing to be bound, with
respect to the transferred Securities, by the provisions hereof that apply to
the “Purchasers.”

        6.7    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 Section 4.6.

 

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

        6.9    Survival.    The
representations, warranties, agreements and covenants contained herein shall
survive the Closing and the delivery of the Shares and Warrants.

        6.10    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.

        6.11    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.

        6.12    Replacement of 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. If a replacement certificate or instrument evidencing any
Securities is requested due to a mutilation thereof, the Company may require
delivery of such mutilated certificate or instrument as a condition precedent
to any issuance of a replacement.

 

19

 

        6.13    Remedies.    In
addition to being entitled to exercise all rights provided herein or granted by
law, including recovery of damages, each of the Purchasers 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.

        6.14    Payment Set Aside.    To
the extent that the Company makes a payment or payments to any Purchaser
pursuant to any Transaction Document or a Purchaser 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.

        6.15    Independent Nature of
Purchasers’ Obligations and Rights.    The
obligations of each Purchaser under any Transaction Document are several and
not joint with the obligations of any other Purchaser, and no Purchaser shall
be responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. The decision of each Purchaser to
purchase Securities pursuant to the Transaction Documents has been made by such
Purchaser independently of any other Purchaser. Nothing contained herein or in
any Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association,
a joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. Each
Purchaser acknowledges that no other Purchaser has acted as agent for such
Purchaser in connection with making its investment hereunder and that no
Purchaser will be acting as agent of such Purchaser in connection with
monitoring its investment in the Securities or enforcing its rights under the
Transaction Documents. Each Purchaser shall be entitled to independently
protect and enforce its rights, including without limitation the rights arising
out of this Agreement or out of the other Transaction Documents, and it shall
not be necessary for any other Purchaser to be joined as an additional party in
any proceeding for such purpose.

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