Document:

Exhibit 10.17

 

SECURITIES
PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”)
is dated as of August 12, 2008, among Lpath, Inc., a Nevada corporation
(the “Company”), and each purchaser identified on the signature pages hereto
(each, including its successors and assigns, 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 of 1933, as amended (the “Securities Act”), and Rule 506
promulgated thereunder, the Company desires to issue and sell to each
Purchaser, and each Purchaser, severally and not jointly, desires to purchase
from the Company, 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 each Purchaser 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 have
the meanings set forth in this Section 1.1:

 

“Action”
shall have the meaning ascribed to such term in Section 3.1(j).

 

“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 under the
Securities Act.  With respect to a
Purchaser, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such Purchaser will be
deemed to be an Affiliate of such Purchaser.

 

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

 

“Closing Dates” means, collectively,
the dates of the First Closing and the Second Closing.

 

“Closings” means, collectively, the
closings of the purchase and sale of the Securities pursuant to Section 2.1,
and any reference to “Closing” or “Closings” shall be construed to include the
First Closing and the Second Closing unless only one such closing is expressly
referred to.

 

“Commission”
means the Securities and Exchange Commission.

 

1

 

“Common
Stock” means the Class A common stock of the Company, par value $0.001
per share, and any other class of securities into which such securities may
hereafter be reclassified or changed into.

 

“Common
Stock Equivalents” means any securities of the Company or the Subsidiaries
which would entitle the holder thereof to acquire at any time Common Stock,
including, without limitation, any debt, preferred stock, rights, options,
warrants or other instrument that is at any time convertible into or
exercisable or exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock.

 

“Company
Counsel” means Eilenberg Krause & Paul LLP, with offices located
at 11 East 44th Street, 19th Floor, New York, NY 10017.

 

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

 

“Effective
Date” means the date that the initial Registration Statement filed by the
Company pursuant to the Registration Rights Agreement is first declared
effective by the Commission.

 

 “Evaluation Date” shall have the
meaning ascribed to such term in Section 3.1(r).

 

“Exchange Act” means the Securities
Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

 

“Exempt Issuance” means the issuance
of (a) shares of Common Stock or options to employees, officers or directors
of the Company pursuant to any stock or option plan duly adopted for such
purpose, by a majority of the non-employee members of the Board of Directors of
the Company or a majority of the members of a committee of non-employee
directors established, (b) securities upon the exercise or exchange of or
conversion of any Securities issued hereunder and/or other securities
exercisable or exchangeable for or convertible into shares of Common Stock
issued and outstanding on the date of this Agreement, provided that such
securities have not been amended since the date of this Agreement to increase
the number of such securities or to decrease the exercise, exchange or
conversion price of such securities, and (c) securities issued as a result
of cancellation and/or transfer of previously issued securities of the Company
which do not result in a dilutive effect on the Company’s securities, (d) securities
issued in connection with and pursuant to a stockholder “rights” plan, “poison
pill” or other similar anti-takeover plan adopted by the Company, and (e) securities
issued in connection with or pursuant to acquisitions or strategic transactions
approved by a majority of the disinterested directors of the Company, provided
that any such issuance shall only be to a Person which is, itself or through
its subsidiaries or Affliates, an operating company in a business synergistic
with the business of the Company and in which the Company receives benefits in
addition to the investment 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.

 

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“First Closing” shall have the meaning
ascribed to such term in Section 2.1 hereof.

 

“First Closing Date” means the date of
the First Closing.

 

“GAAP”
shall have the meaning ascribed to such term in Section 3.1(h).

 

“Indebtedness”
shall have the meaning ascribed to such term in Section 3.1(aa).

 

 “Intellectual Property Rights” shall
have the meaning ascribed to such term in Section 3.1(o).

 

“Legend
Removal Date” shall have the meaning ascribed to such term in Section 4.1(c).

 

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

 

“Material
Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).

 

“Material
Permits” shall have the meaning ascribed to such term in Section 3.1(m).

 

 “Per Share Purchase Price” equals
$0.95, subject to adjustment for reverse and forward stock splits, stock
dividends, stock combinations and other similar transactions of the Common
Stock that occur after the date of this Agreement.

 

“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
Party” shall have the meaning ascribed to such term in Section 4.9.

 

“Registration
Rights Agreement” means the Registration Rights Agreement, dated the date
hereof, among the Company and the Purchasers, in the form of Exhibit A
attached hereto.

 

“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 Shares and the Warrant Shares.

 

“Required
Approvals” shall have the meaning ascribed to such term in Section 3.1(e).

 

3

 

“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.

 

 “SEC Reports” shall have the meaning
ascribed to such term in Section 3.1(h).

 

“Second Closing” shall have the
meaning ascribed to such term in Section 2.1 hereof.

 

“Second Closing Date” means the date
of the Second Closing.

 

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

 

“Securities
Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

 

“Shares”
means the shares of Common Stock issued or issuable to each Purchaser pursuant
to this Agreement.

 

“Short
Sales” means all “short sales” as defined in Rule 200 of Regulation
SHO under the Exchange Act (but shall not be deemed to include the location
and/or reservation of borrowable shares of Common Stock).

 

“Subscription
Amount” means, as to each Purchaser, the aggregate amount to be paid for
Shares and Warrants purchased hereunder as specified below such Purchaser’s
name on the signature page of this Agreement and next to the heading “Subscription
Amount,” in United States dollars and in immediately available funds.

 

“Subsidiary”
means any subsidiary of the Company as set forth on Schedule 3.1(a).

 

 “Trading Day” means a day on which the
Common Stock is traded on a Trading Market.

 

“Trading
Market” means the following markets or exchanges on which the Common Stock
is listed or quoted for trading on the date in question: the American Stock
Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq
Global Select Market, the New York Stock Exchange or the OTC Bulletin Board.

 

“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.

 

“Transfer
Agent” means Nevada Agency and Trust Company, with a mailing address of 50
West Liberty Street, Suite 880, Reno, Nevada 89501 and a facsimile number
of (775) 322-5623, and any successor transfer agent of the Company.

 

4

 

“VWAP”
means, for any date, the price determined by the first of the following clauses
that applies: (a) if the Common Stock is then listed or quoted on a
Trading Market, the daily volume weighted average price of the Common Stock for
such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted for trading as reported by Bloomberg L.P.
(based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m.
(New York City time); (b)  if the OTC Bulletin Board is not a Trading
Market, the volume weighted average price of the Common Stock for such date (or
the nearest preceding date) on the OTC Bulletin Board; (c) if the Common
Stock is not then quoted for trading on the OTC Bulletin Board and if prices
for the Common Stock are then reported in the “Pink Sheets” published by Pink
Sheets, LLC (or a similar organization or agency succeeding to its functions of
reporting prices), the most recent bid price per share of the Common Stock so
reported; or (d) in all other cases, the fair market value of a share of
Common Stock as determined by an independent appraiser selected in good faith
by the Purchaser and reasonably acceptable to the Company, the fees and
expenses of which shall be paid by the Company.

 

 “Warrants” means collectively the
Common Stock purchase warrants delivered to the Purchasers at the Closing in
accordance with Section 2.2(a) hereof, which Warrants shall be
exercisable immediately and have a term of exercise equal to 5 years, in the
form of Exhibit B attached hereto.

 

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

 

ARTICLE II.

PURCHASE AND SALE

 

2.1           Closing.  Upon the terms and subject to the conditions
set forth herein, substantially concurrent with the execution and delivery of
this Agreement by the parties hereto, the Company agrees to sell, and the
Purchasers, severally and not jointly, 
agree to purchase, an aggregate of up to
$                                    
of Shares and Warrants.  Each Purchaser
shall deliver to the Escrow Agent identified to the Purchasers by the Company
(the “Escrow Agent”), via wire transfer or a certified check, immediately
available funds equal to the Subscription Amount to be paid by such Purchaser
at the applicable Closing, and the Company shall deliver to each such Purchaser
its respective number of Shares and Warrants to be delivered at the applicable
Closing, and the Company and each such Purchaser shall deliver the other items
set forth in Section 2.2 deliverable at the applicable Closing.  Upon satisfaction of the conditions set forth
in Sections 2.2 and 2.3, the Closing shall occur at the offices of Company
Counsel, or such other location as the parties shall mutually agree.   The Closings shall take place in two stages
as set forth below (respectively, the “First Closing” and the “Second Closing”).

 

a)                                      First
Closing.   The First Closing shall be
for an aggregate Subscription Amount of
$                          
and shall occur within 5 Trading Days of the date hereof.

 

b)                                     Second
Closing.  The Second Closing shall be
for the Subscription Amounts from those Purchasers who are parties hereto
pursuant to participation rights in certain financings of the Company, which
Closing shall occur on
                  ,
2008.

 

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2.2           Deliveries.

 

(a)     On or prior to the First Closing Date, the
Company shall deliver or cause to be delivered to each Purchaser the following:

 

(i)                    this
Agreement duly executed by the Company;

 

(ii)                   a
legal opinion of Company Counsel, in the form of Exhibit C attached
hereto;

 

(iii)                  a
copy of the irrevocable instructions to the Transfer Agent instructing the
Transfer Agent to deliver, on an expedited basis, a certificate evidencing a
number of Shares equal to such Purchaser’s Subscription Amount divided by the
Per Share Purchase Price, registered in the name of such Purchaser;

 

(iv)                  a
Warrant registered in the name of such Purchaser to purchase up to a number of
shares of Common Stock equal to 25% of the number of Shares being subscribed
for in the aggregate at the First Closing, with an exercise price equal to
$1.25, subject to adjustment therein; and

 

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

 

(b)     On
or prior to the applicable Closing Date, each Purchaser participating in such
First or Second Closing (as the case may be) (a “Participating Purchaser”)
shall deliver or cause to be delivered to the Company the following:

 

(i)                    this
Agreement duly executed by such Purchaser;

 

(ii)                   such
Purchaser’s Subscription Amount by wire transfer to the account as specified in
writing by the Company; and

 

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

 

(c)   Deliveries at the Second Closing.  At the Second Closing, the Company shall
deliver to each Purchaser participating in such Closing (i) the Securities
being purchased at the Second Closing by such Purcahser, (ii) an officers’
certificate executed by the Chief Executive Officer and the Chief Financial
Officer certifying that all of the Company’s representations and warranties in Section 3.1
remain true and correct as of the Second Closing Date; and (iii) a
bring-down letter from Company Counsel affirming the legal opinion delivered at
the First Closing.

 

2.3           Closing Conditions.

 

(a)           The
obligations of the Company hereunder in connection with each Closing are
subject to the following conditions being met or waived by the Company:

 

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(i)                    the accuracy in all material respects when made and
on the applicable Closing Date of the representations and warranties of the
Participating Purchasers contained herein (except with respect to
representations and warranties which relate to a specific date, in which case
such representations and warranties shall continue to be materially accurate as
of such date);

 

(ii)                   all
obligations, covenants and agreements of the Participating Purchasers required
to be performed at or prior to the applicable Closing Date shall have been
performed; and

 

(iii)                  the delivery by the Participating Purchasers of the
items set forth in Section 2.2(b) of this Agreement.

 

(b)     The respective obligations of the Participating
Purchasers hereunder in connection with each Closing are subject to the
following conditions being met or waived by each Purchaser as to itself:

 

(i)                    the accuracy in all material respects on the
applicable Closing Date of the representations and warranties of the Company
contained herein (except with respect to representations and warranties which
relate to a specific date, in which case such representations and warranties
shall continue to be materially accurate as of such date);

 

(ii)                   all
obligations, covenants and agreements of the Company required to be performed
at or prior to the applicable Closing Date shall have been performed;

 

(iii)                  the delivery by the Company of the items set forth in
Section 2.2(a) of this Agreement;

 

(iv)                  there shall have been no Material Adverse Effect with
respect to the Company since the date hereof; and

 

(v)                   from
the date hereof to the applicable Closing Date, trading in the Common Stock
shall not have been suspended by the Commission or the Company’s principal
Trading Market (except for any suspension of trading of limited duration agreed
to by the Company, which suspension shall be terminated prior to the Closing),
and, at any time prior to the Closing Date, trading in securities generally as
reported by Bloomberg L.P. shall not have been suspended or limited, or minimum
prices shall not have been established on securities whose trades are reported
by such service, or on any Trading Market, nor shall a banking moratorium have
been declared either by the United States or New York State authorities nor
shall there have occurred any material outbreak or escalation of hostilities or
other national or international calamity of such magnitude in its effect on, or
any material adverse change in, any financial market which, in each case, in
the reasonable judgment of each Purchaser, makes it impracticable or
inadvisable to purchase the Shares at the Closing.

 

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ARTICLE III.

REPRESENTATIONS AND WARRANTIES

 

3.1           Representations and Warranties of
the Company.  Except as set forth in
the Disclosure Schedules which Disclosure Schedules shall be deemed a part
hereof and shall qualify any representation or otherwise made herein to the
extent of the disclosure contained in the corresponding section of the
Disclosure Schedules, the Company hereby makes the following representations
and warranties to each Purchaser:

 

(a)     Subsidiaries.  All of the direct and indirect subsidiaries
of the Company are set forth on Schedule 3.1(a).  The Company owns, directly or indirectly, all
of the capital stock or other equity interests of each Subsidiary free and
clear of any Liens, and all of 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 to subscribe for or purchase
securities.  If the Company has no
subsidiaries, then all other references to the Subsidiaries or any of them in
the Transaction Documents shall be disregarded.

 

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

 

(c)     Authorization;
Enforcement.  The Company has the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and otherwise to
carry out its obligations hereunder and thereunder.  The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company and no further action is required
by the Company, its board of directors or its stockholders in connection
therewith other than in connection with the Required

 

8

 

Approvals.  Each Transaction
Document to which the Company is a party has been (or upon delivery will have
been) duly executed by the Company and, when delivered in accordance with the
terms hereof and thereof, will constitute the valid and binding obligation of
the Company enforceable against the Company in accordance with its terms except
(i) as limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally, (ii) as limited by
laws relating to the availability of specific performance, injunctive relief or
other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.

 

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

 

(e)     Filings,
Consents and Approvals.  Except as
set forth on Schedule 3.1(e),  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) filings required pursuant to Section 4.4
of this Agreement, (ii) the filing with the Commission of the Registration
Statement, (iii) application(s) to each applicable Trading Market for
the listing of the Securities for trading thereon in the time and manner
required thereby and (iv) the filing of Form D with the Commission and
such filings as are required to be made under applicable state securities laws
(collectively, the “Required Approvals”).

 

(f)      Issuance
of the Securities.  The Securities to
be issued at the Closings are duly authorized and, when issued and paid for in
accordance with the applicable Transaction Documents, will be duly and validly
issued, fully paid and nonassessable, free and clear of all Liens imposed by
the Company other than restrictions on transfer provided for in the Transaction
Documents.  The Warrant Shares, when
issued in

 

9

 

accordance with the terms of the Transaction Documents, will be validly
issued, fully paid and nonassessable, free and clear of all Liens imposed by
the Company.  The Company has reserved
from its duly authorized capital stock the maximum number of shares of Common
Stock issuable pursuant to this Agreement and the Warrants.

 

(g)     Capitalization.  The capitalization of the Company is as set
forth on Schedule 3.1(g), which Schedule 3.1(g) shall also
include the number of shares of Common Stock owned beneficially, and of record,
by Affiliates of the Company as of the date hereof.  The Company has not issued any capital stock
since its most recently filed periodic report
under the Exchange Act, other than pursuant to the exercise of employee
stock options under the Company’s stock option plans, the issuance of shares of
Common Stock to employees pursuant to the Company’s employee stock purchase
plan and pursuant to the conversion or exercise of Common Stock Equivalents
outstanding as of the date of the most recently filed periodic report under the
Exchange Act.  Except as set forth on Schedule
3.1(g), 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 set forth on Schedule 3.1(g), as a result of the
purchase and sale of the Securities, 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 exercisable 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 Common Stock
Equivalents.  Except as set forth on Schedule
3.1(g), the issuance and sale of the Securities will not obligate the
Company to issue shares of Common Stock or other securities to any Person
(other than 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 any of such securities.  All of the
outstanding shares of capital stock of the Company are validly issued, fully
paid and nonassessable, have been issued in compliance with all federal and
state securities laws, and none of such outstanding shares was issued in
violation of any preemptive rights or similar rights to subscribe for or
purchase securities.  No further approval
or authorization of any stockholder, the Board of Directors of the Company or
others is required for the issuance and sale of the Securities.  There are no stockholders agreements, voting
agreements or other similar agreements with respect to the Company’s capital
stock to which the Company is a party or, to the knowledge of the Company,
between or among any of the Company’s stockholders.

 

(h)     SEC
Reports; Financial Statements.  The
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by the Company under the Securities Act and the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, since
November 30, 2005, and, to Company’s knowledge, for the two years
preceding the date hereof (the foregoing materials, including the exhibits
thereto and documents incorporated by reference therein, being collectively
referred to herein as the “SEC Reports”) on a timely basis or has
received a valid extension of such time of filing and has filed any such SEC
Reports prior to the expiration of any such extension.  As of their respective dates, the SEC Reports
complied in all material respects with the

 

10

 

requirements of the Securities Act and the Exchange Act, as applicable,
and none of the SEC Reports, when filed, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the 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 United States 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 except that unaudited financial statements may not contain all footnotes
required by GAAP, and fairly present in all material respects the financial
position of the Company and its consolidated subsidiaries as of and for the
dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.

 

(i)      Material
Changes; Undisclosed Events, Liabilities or Developments.  Since the date of the latest audited
financial statements included within the SEC Reports, except as specifically
disclosed in a subsequent SEC Report filed prior to the date hereof, (i) there
has been no event, occurrence or development that has had or that could
reasonably be expected to result in a Material Adverse Effect, (ii) the
Company has not incurred any material 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 disclosed in filings made with the Commission, (iii) the Company
has not altered its method of accounting, (iv) the Company has not
declared or made any dividend or distribution of cash or other property to its
stockholders or purchased, redeemed or made any agreements to purchase or
redeem any shares of its capital stock and (v) the Company has not issued
any equity securities to any officer, director or Affiliate, except pursuant to
existing Company stock option plans.  The
Company does not have pending before the Commission any request for
confidential treatment of information. 
Except for the issuance of the Securities contemplated by this Agreement
or as set forth on Schedule 3.1(i), no event, liability or development
has occurred or exists with respect to the Company or its Subsidiaries or their
respective business, properties, operations or financial condition, that would
be required to be disclosed by the Company under applicable securities laws at
the time this representation is made that has not been publicly disclosed at
least 1 Trading Day prior to the date that this representation is made.

 

(j)      Litigation.  There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, any Subsidiary or any of
their respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an “Action”) which (i) adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Securities or (ii) could, if there were an unfavorable
decision, have or reasonably be expected to result in a Material Adverse
Effect.  Neither the Company nor any
Subsidiary, nor any director or officer thereof, is or has been the subject of
any

 

11

 

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.

 

(k)     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 which could reasonably be expected to result in a
Material Adverse Effect.  None of the
Company’s or its Subsidiaries’ employees is a member of a union that relates to
such employee’s relationship with the Company, and neither the Company or any
of its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that their relationships with their
employees are good.  No executive
officer, to the knowledge of the Company, is, or is now expected to be, in
violation of any material term of any employment contract, confidentiality, disclosure
or proprietary information agreement or non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued employment
of each such executive officer does not subject the Company or any of its
Subsidiaries to any liability with respect to any of the foregoing
matters.  The Company and its
Subsidiaries are in compliance with all U.S. federal, state, local and foreign
laws and regulations relating to employment and employment practices, terms and
conditions of employment and wages and hours, except where the failure to be in
compliance could not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.

 

(l)      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 applicable to its business and all such laws that affect
the environment, except in each case as could not have or reasonably be
expected to result in a Material Adverse Effect.

 

(m)    Regulatory
Permits.  The Company and the
Subsidiaries possess all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities necessary
to conduct their respective businesses as described in the SEC Reports, except
where the failure to possess such permits could not 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.

 

12

 

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

 

(o)     Patents
and Trademarks.  To the knowledge of
the Company, the Company and the Subsidiaries have, or have rights to use, all
patents, patent applications, trademarks, trademark applications, service
marks, trade names, trade secrets, inventions, copyrights, licenses and other
intellectual property rights and similar rights necessary or material for use
in connection with their respective businesses as described in the SEC Reports
and which the failure to so have could have a Material Adverse Effect
(collectively, the “Intellectual Property Rights”).  Neither the Company nor any Subsidiary has
received a notice (written or otherwise) that the Intellectual Property Rights
used by the Company or any Subsidiary violates or infringes upon the rights of
any Person.  The Company and its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties, except where
failure to do so could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect; and to the Company’s knowledge, the
Company’s intellectual properties are enforceable and not infringed at present
by another Person.

 

(p)     Insurance.  The Company and the Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and
risks and in such amounts as the Company believes are prudent and customary in
the businesses in which the Company and the Subsidiaries are engaged,
including, but not limited to, directors and officers insurance coverage at
least equal to the aggregate Subscription Amount.  Neither the Company nor any Subsidiary has
any reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business without a
significant increase in cost.

 

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

 

13

 

each case in excess of $120,000 other than for (i) payment of
salary or consulting fees for services rendered, (ii) reimbursement for
expenses incurred on behalf of the Company and (iii) other employee
benefits, including stock option agreements under any stock option plan of the
Company.

 

(r)      Sarbanes-Oxley;
Internal Accounting Controls.  The
Company is in material compliance with all provisions of the Sarbanes-Oxley Act
of 2002 which are applicable to it as of the Closing Date.  The Company
and the Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management’s general or specific authorizations, (ii) transactions
are recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management’s general or specific
authorization, and (iv) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences. The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Company and designed such disclosure controls and procedures
to ensure that information required to be disclosed by the Company in the
reports it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Commission’s rules and
forms.  The Company’s certifying officers
have evaluated the effectiveness of the Company’s disclosure controls and
procedures as of the end of the period covered by the Company’s most recently
filed periodic report under the Exchange Act (such date, the “Evaluation
Date”).  The Company presented in its
most recently filed periodic report under the Exchange Act the conclusions of
the certifying officers about the effectiveness of the disclosure controls and
procedures based on their evaluations as of the Evaluation Date.  Since the Evaluation Date, there have been no
changes in the Company’s internal control over financial reporting (as such
term is defined in the Exchange Act) that has materially affected in an adverse
manner, or is reasonably likely to materially affect in an adverse manner, the
Company’s internal control over financial reporting.

 

(s)     Certain
Fees.  Except as set forth on Schedule
3.1(s), 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 the Transaction Documents.  The Purchasers shall have no obligation with
respect to any fees or with respect to any claims made by or on behalf of other
Persons for fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated by the Transaction Documents.

 

(t)      Private
Placement. Assuming the accuracy of the Purchasers representations and
warranties set forth in Section 3.2, no registration under the Securities
Act is required for the offer and sale of the Securities by the Company to the
Purchasers as contemplated hereby. The issuance and sale of the Securities
hereunder does not contravene the rules and regulations of the Trading
Market.

 

14

 

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

 

(v)     Registration
Rights.  Other than each of the
Purchasers, no Person has any right to cause the Company to effect the
registration under the Securities Act of any securities of the Company.

 

(w)    Listing
and Maintenance Requirements.  The
Company’s Common Stock is registered pursuant to Section 12(b) or 12(g) of
the Exchange Act, and the Company has taken no action designed to, or which to
its knowledge is likely to have the effect of, terminating the registration of
the Common Stock under the Exchange Act nor has the Company received any
notification that the Commission is contemplating terminating such
registration.  The Company has not, in
the 12 months preceding the date hereof, received notice from any Trading
Market on which the Common Stock is or has been listed or quoted to the effect
that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company is, and has no reason to
believe that it will not in the foreseeable future continue to be, in
compliance with all such listing and maintenance requirements.

 

(x)    Application
of Takeover Protections.  The Company
and its board of directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company’s certificate of incorporation (or
similar charter documents) or the laws of its state of incorporation that is or
could become applicable to 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 as a result of the Company’s
issuance of the Securities and the Purchasers’ ownership of the Securities.

 

(y)     Disclosure.  Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, the
Company confirms that neither it nor any other Person acting on its behalf has
provided any of the Purchasers or their agents or counsel with any information
that it believes constitutes or might constitute material, non-public
information.   The Company understands
and confirms that the Purchasers will rely on the foregoing representation in
effecting transactions in securities of the Company.  All disclosure furnished by or on behalf of
the Company to the Purchasers regarding the Company, its business and the
transactions contemplated hereby, including the Disclosure Schedules to this
Agreement, is true and correct and does not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. The press releases disseminated by the Company during the
twelve months preceding the date of this Agreement taken as a whole do not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the
statements, in light of the circumstances under which they were made and when
made, not misleading.  The

 

15

 

Company acknowledges and agrees that no Purchaser makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 3.2 hereof.

 

(z)      No
Integrated Offering. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, neither the
Company, nor any of its Affiliates, nor any Person acting on its or their
behalf has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would, to
the Company’s knowledge, cause this offering of the Securities to be integrated
with prior offerings by the Company for purposes of the Securities Act or any
applicable shareholder approval provisions of any Trading Market on which any
of the securities of the Company are listed or designated.

 

(aa)   Solvency.  Based on the financial condition of the
Company as of the First Closing Date, after giving effect to the receipt by the
Company of the proceeds from the sale of the Securities hereunder, (i) the
fair saleable value of the Company’s 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 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 liabilities 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). 
Assuming the First Closing occurs, the Company has no knowledge of any
facts or circumstances which lead it to believe that it will file for
reorganization or liquidation under the bankruptcy or reorganization laws of
any jurisdiction within one year from the First Closing Date.  Schedule 3.1(aa) sets forth as of the
dates thereof all outstanding secured and unsecured Indebtedness of the Company
or any Subsidiary, or for which the Company or any Subsidiary has
commitments.  For the purposes of this
Agreement, “Indebtedness” means (a) any liabilities for borrowed
money or amounts owed in excess of $50,000 (other than trade accounts payable
incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of Indebtedness of
others, whether or not the same are or should be reflected in the Company’s
balance sheet (or the notes thereto), except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business; and (c) the present value of any lease
payments in excess of $50,000 due under leases required to be capitalized in
accordance with GAAP.  Neither the
Company nor any Subsidiary is in default with respect to any Indebtedness.

 

(bb)   Tax
Status.  Except for matters that
would not, individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect, the Company and each Subsidiary has filed
all necessary federal, state and foreign income

 

16

 

and franchise tax returns and has paid or accrued all taxes shown as
due thereon, and the Company has no knowledge of a tax deficiency which has
been asserted or threatened against the Company or any Subsidiary.

 

(cc)   No
General Solicitation.  Neither the
Company nor any person acting on behalf of the Company has offered or sold any
of the Securities by any form of general solicitation or general
advertising.  The Company has offered the
Securities for sale only to the Purchasers and certain other “accredited
investors” within the meaning of Rule 501 under the Securities Act.

 

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

 

(ee)  Accountants.  The Company’s accounting firm is set forth on
Schedule 3.1(ee) of the Disclosure Schedule.  To the knowledge and belief of the Company,
such accounting firm (i) is a registered public accounting firm as
required by the Exchange Act and (ii) shall express its opinion with
respect to the financial statements to be included in the Company’s Annual
Report on Form 10-K for the year ending December 31, 2008.

 

(ff)   No Disagreements with Accountants and
Lawyers.  There are no disagreements of any kind presently
existing, or reasonably anticipated by the Company to arise, between the
Company and the accountants and lawyers presently employed by the Company or
who have been employed by the Company since December 1, 2005. Schedule
3.1(ee) lists any fees the Company owed to its accountants and lawyers as
of June 30, 2008.

 

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

 

17

 

(hh) Acknowledgement Regarding Purchaser’s
Trading Activity.  Anything in this
Agreement or elsewhere herein to the contrary notwithstanding (except for
Sections 3.2(f) and 4.13 hereof), it is understood and acknowledged by the
Company (i) that none of the Purchasers have been asked to agree, nor has
any Purchaser agreed, to desist from purchasing or selling, long and/or short,
securities of the Company, or “derivative” securities based on securities
issued by the Company or to hold the Securities for any specified term; (ii) that
past or future open market or other transactions by any Purchaser, including
Short Sales, and specifically including, without limitation, Short Sales or “derivative”
transactions, before or after the closing of this or future private placement
transactions, may negatively impact the market price of the Company’s
publicly-traded securities; (iii) that any Purchaser, and counter-parties
in “derivative” transactions to which any such Purchaser is a party, directly
or indirectly, presently may have a “short” position in the Common Stock, and (iv) that
each Purchaser shall not be deemed to have any affiliation with or control over
any arm’s length counter-party in any “derivative” transaction.  The Company further understands and
acknowledges that (a) one or more Purchasers may engage in hedging
activities at various times during the period that the Securities are
outstanding, including, without limitation, during the periods that the value
of the Warrant Shares deliverable with respect to Securities are being determined
and (b) such hedging activities (if any) could reduce the value of the
existing stockholders’ equity interests in the Company at and after the time
that the hedging activities are being conducted.  The Company acknowledges that such aforementioned hedging activities do
not constitute a breach of any of the Transaction Documents.

 

(ii)    Regulation M Compliance.  The
Company has not, and to its knowledge no one acting on its behalf has, (i) taken,
directly or indirectly, any action designed to cause or to result in the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of any of the Securities, (ii) sold, bid
for, purchased, or, paid any compensation for soliciting purchases of, any of
the Securities, or (iii) paid or agreed to pay to any Person any
compensation for soliciting another to purchase any other securities of the
Company, other than, in the case of clauses (ii) and (iii), compensation
paid to the Company’s placement agent in connection with the placement of the
Securities.

 

3.2           Representations and Warranties of
the Purchasers.  Each Purchaser, for
itself and for no other Purchaser, hereby represents and warrants as of the
date hereof and as of the applicable Closing Date 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 full right, corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The execution, delivery and performance
by such Purchaser of the transactions contemplated by this Agreement have been
duly authorized by all necessary corporate or similar action on the part of
such Purchaser.  Each Transaction
Document to which it is a party has been duly executed by such Purchaser, and
when delivered by such Purchaser in accordance with the terms hereof, will
constitute the valid and legally binding obligation of such Purchaser,
enforceable

 

18

 

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

 

(b)     Own
Account.  Such Purchaser understands
that the Securities are “restricted securities” and have not been registered
under the Securities Act or any applicable state securities law and is
acquiring the Securities as principal for its own account and not with a view
to or for distributing or reselling such Securities or any part thereof in
violation of the Securities Act or any applicable state securities law, has no
present intention of distributing any of such Securities in violation of the
Securities Act or any applicable state securities law and has no direct or
indirect arrangement or understandings with any other persons to distribute or
regarding the distribution of such Securities (this representation and warranty
not limiting such Purchaser’s right to sell the Securities pursuant to the
Registration Statement or otherwise in compliance with applicable federal and
state securities laws) in violation of the Securities Act or any applicable
state securities law.  Such Purchaser is
acquiring the Securities hereunder in the ordinary course of its business. Such
Purchaser understands that it may not be able to sell any of the Securities
without prior registration under the Securities Act or the existence of an
exemption from such registration requirement.

 

(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 any Warrants, it will be either: (i) an “accredited
investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under
the Securities Act or (ii) a “qualified institutional buyer” as defined in
Rule 144A(a) under the Securities Act.  Such Purchaser is not required to be
registered as a 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. Such Purchaser acknowledges that it
has not received any legal or tax advice from the Company or any of its
representatives with respect the transactions contemplated hereby.

 

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

 

(f)      Short
Sales and Confidentiality Prior To The Date Hereof.  Other than the transaction contemplated
hereunder, such Purchaser has not, nor has any Person acting on behalf of or
pursuant to any understanding with such Purchaser, directly or indirectly

 

19

 

executed any transaction, including Short Sales, in the securities
of the Company during the period commencing from the time that such Purchaser
first had knowledge of the identity of the Company in connection with the
transaction contemplated hereunder from statements (written or oral) from the
Company or any other Person until the date hereof (“Discussion Time”).  Notwithstanding the foregoing, in the case of
a Purchaser that is a multi-managed investment vehicle whereby separate
portfolio managers manage separate portions of such Purchaser’s assets and the
portfolio managers have no direct knowledge of the investment decisions made by
the portfolio managers managing other portions of such Purchaser’s assets, the
representation set forth above shall only apply with respect to the portion of
assets managed by the portfolio manager that made the investment decision to
purchase the Securities covered by this Agreement.

 

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1           Transfer Restrictions.

 

(a)     The
Securities may only be disposed of in compliance with state and federal
securities laws.  In connection with any
transfer of Securities other than pursuant to an effective registration
statement or Rule 144, to the Company or to an Affiliate of 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 and reasonably acceptable to the Company,
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.  As a condition of transfer, any such
transferee shall agree in writing to be bound by the terms of this Agreement
and shall have the rights of a Purchaser under this Agreement and the
Registration Rights Agreement.

 

(b)     The
Purchasers agree to the imprinting, so long as is required by this Section 4.1,
of a legend on any of the Securities in the following form:

 

THIS SECURITY HAS 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.  THIS SECURITY MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A

 

20

 

REGISTERED BROKER-DEALER OR
OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS
DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY
SUCH SECURITIES.

 

The Company acknowledges and agrees that a
Purchaser may from time to time pledge pursuant to a bona fide margin agreement
with a registered broker-dealer or grant a security interest in some or all of
the Securities to a financial institution that is an “accredited investor” as
defined in Rule 501(a) under the Securities Act and who agrees to be
bound by the provisions of this Agreement and the Registration Rights Agreement
and, if required under the terms of such arrangement, 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 of the Company and no legal opinion of legal counsel of the
pledgee, secured party or pledgor shall be required in connection therewith.  Further, no notice shall be required of such
pledge.  At the appropriate 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, if the Securities are
subject to registration pursuant to the Registration Rights Agreement, the
preparation and filing of any required prospectus supplement under Rule 424(b)(3) under
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 security is effective under the Securities Act, or (ii) following
any sale of such Shares or Warrant Shares pursuant to Rule 144, or (iii) if
such Shares or Warrant Shares are eligible for sale under Rule 144(b)(1),
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 a legal opinion to the
Transfer Agent promptly after the Effective Date if required by the Transfer
Agent to effect the removal of the legend hereunder.  If all or any portion of a Warrant is
exercised at a time when there is an effective registration statement to cover
the resale of the Warrant Shares, such Warrant Shares shall be issued free of
all legends.  The Company agrees that
following the Effective Date or at such time as such legend is no longer
required under this Section 4.1(c), it will, no later than three Trading
Days following the delivery by a Purchaser to the Company or the Transfer Agent
of a certificate representing Shares or Warrant Shares, as the case may be,
issued with a restrictive legend (such third Trading Day, the “Legend
Removal Date”), deliver or cause to be delivered to such Purchaser a
certificate representing such shares that is free from all restrictive and
other legends.  The Company may not make
any notation on its records or give instructions to the Transfer Agent that
enlarge the restrictions on transfer set forth in this Section.  Certificates for Securities subject to legend
removal hereunder shall be transmitted by the Transfer Agent to the Purchasers
by crediting the account of the Purchaser’s prime broker with the Depository
Trust Company System, if the Transfer Agent is a participant in the DWAC
system, and otherwise by physical delivery of 

 

21

 

certificates as directed by the Purchaser. The Company agrees to use
commercially reasonable efforts to have a Transfer Agent which is a DWAC
participant within 1 year of the First Closing.

 

In addition to such Purchaser’s other available remedies, the Company
shall pay to a Purchaser, in cash, as partial liquidated damages and not as a
penalty, for each $1,000 of Shares or Warrant Shares (based on the VWAP of the
Common Stock on the date such Securities are submitted to the Transfer Agent)
delivered for removal of the restrictive legend and subject to Section 4.1(c),
$10 per Trading Day (increasing to $20 per Trading Day five (5) Trading
Days after such damages have begun to accrue) for each Trading Day after the
Legend Removal Date until such certificate is delivered without a legend.
Nothing herein shall limit such Purchaser’s right to pursue actual damages for
the Company’s failure to deliver certificates representing any Securities as
required by the Transaction Documents, and such Purchaser shall have the right
to pursue all remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief.

 

(d)     Each
Purchaser, severally and not jointly with the other Purchasers, agrees that the
removal of the restrictive legend from certificates representing Securities as
set forth in this Section 4.1 is predicated upon the Company’s reliance
that the Purchaser will sell any Securities pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus
delivery requirements, or an exemption therefrom, and that if Securities are
sold pursuant to a Registration Statement, they will be sold in compliance with
the plan of distribution set forth therein.

 

4.2           Furnishing of Information.  As long as any Purchaser owns Securities, the
Company covenants to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act.  As long as any Purchaser owns Securities, if
the Company is not required to file reports pursuant to the Exchange Act, 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 Securities under Rule 144. The Company further
covenants that it will take such further action as any holder of Securities may
reasonably request, to the extent required from time to time to enable such
Person to sell such Securities without registration under the Securities Act
within the requirements of the exemption provided by Rule 144.

 

4.3           Integration.  The Company shall not sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that could reasonably be
expected to 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 such that it would require shareholder approval prior to the closing of
such other transaction unless shareholder approval is obtained before the
closing of such subsequent transaction.

 

22

 

4.4                                 Securities
Laws Disclosure; Publicity.  The
Company shall, by 8:30 a.m. (New York City time) on the third Trading Day
immediately following the date hereof, issue a Current Report on Form 8-K,
disclosing the material terms of the transactions contemplated hereby, and
filing the Transaction Documents as exhibits thereto.  The Company and each Purchaser shall consult
with each other in issuing any other press releases with respect to the
transactions contemplated hereby, and neither the Company nor any Purchaser
shall issue any such press release or otherwise make any such public statement
without the prior consent of the Company, with respect to any press release of
any Purchaser, or without the prior consent of each Purchaser, with respect to
any press release of the Company, which consent shall not unreasonably be
withheld or delayed, except if such disclosure is required by law, in which
case the disclosing party shall promptly provide the other party with prior
notice of such public statement or communication.  Notwithstanding the foregoing, the Company
shall not publicly disclose the name of any Purchaser, or include the name of
any Purchaser in any filing with the Commission or any regulatory agency or
Trading Market, without the prior written consent of such Purchaser, except (i) as
required by federal securities law in connection with (A) any registration
statement contemplated by the Registration Rights Agreement and (B) the
filing of final Transaction Documents (including signature pages thereto) with
the Commission and (ii) 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 permitted under this clause
(ii).

 

4.5                                 Stockholder
Rights Plan.  No claim will be made
or enforced by the Company or, with the consent of the Company, any other
Person, that any Purchaser is an “Acquiring Person” under any control share
acquisition, business combination, poison pill (including any distribution
under a rights agreement) or similar anti-takeover plan or arrangement in
effect or hereafter adopted by the Company, or that any Purchaser could be
deemed to trigger the provisions of any such plan or arrangement, by virtue of
receiving Securities under the Transaction Documents or under any other
agreement between the Company and the Purchasers.

 

4.6                                 Non-Public
Information.  Except with respect to
the material terms and conditions of the transactions contemplated by the
Transaction Documents, 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.

 

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

 

4.8                                 Indemnification
of Purchasers.   Subject to the
provisions of this Section 4.8, the Company will indemnify and hold each
Purchaser and its directors, officers, shareholders, members, partners,
employees and agents (and any other Persons with a functionally equivalent role
of a Person holding such titles notwithstanding a lack of such title or any
other title), each 

 

23

 

Person who controls such
Purchaser (within the meaning of Section 15 of the Securities Act and Section 20
of the Exchange Act), and the directors, officers, shareholders, agents,
members, partners or employees (and any other Persons with a functionally
equivalent role of a Person holding such titles notwithstanding a lack of such
title or any other title) of such controlling persons (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 that any such Purchaser Party may suffer or incur as a result of
or relating to (a) any breach of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or in the other
Transaction Documents or (b) any action instituted against a Purchaser, or
any of them or their respective Affiliates, by any stockholder of the Company
who is not an Affiliate of such Purchaser, with respect to any of the
transactions contemplated by the Transaction Documents (unless such action is
based upon a breach of such Purchaser’s representations, warranties or
covenants under the Transaction Documents or any agreements or understandings
such Purchaser may have with any such stockholder or any violations or alleged
violations by the Purchaser of state or federal securities laws or any conduct
by such Purchaser which constitutes fraud, gross negligence, willful misconduct
or malfeasance).  If any action shall be
brought against any Purchaser Party in respect of which indemnity may be sought
pursuant to this Agreement, such Purchaser Party shall promptly notify the
Company in writing, and the Company shall have the right to assume the defense
thereof with counsel of its own choosing reasonably acceptable to the Purchaser
Party.  Any Purchaser Party shall have
the right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Purchaser Party except to the extent that (i) the
employment thereof has been specifically authorized by the Company in writing, (ii) the
Company has failed after a reasonable period of time to assume such defense and
to employ counsel or (iii) in such action there is, in the reasonable
opinion of such separate counsel, a material conflict on any material issue
between the position of the Company and the position of such Purchaser Party,
in which case the Company shall be responsible for the reasonable fees and
expenses of no more than one such separate counsel.  The Company will not be liable to any
Purchaser Party under this Agreement (i) for any settlement by a Purchaser
Party effected without the Company’s prior written consent, which shall not be
unreasonably withheld or delayed; or (ii) to the extent, but only to the
extent that a loss, claim, damage or liability is attributable to any Purchaser
Party’s breach of any of the representations, warranties, covenants or
agreements made by such Purchaser Party in this Agreement or in the other
Transaction Documents.

 

4.9                                 Reservation
of Common Stock. As of the date hereof, the Company has reserved and the
Company shall continue to reserve and keep available at all times, free of
preemptive rights, a sufficient number of shares of Common Stock for the
purpose of enabling the Company to issue Shares pursuant to this Agreement and
Warrant Shares pursuant to any exercise of the Warrants.

 

4.10                           Listing
of Common Stock.  The Company hereby
agrees to use best efforts to maintain the listing of the Common Stock on a
Trading Market, and as soon as reasonably practicable following the Closing
(but not later than the earlier of the Effective Date and the first anniversary
of the Closing Date) to list all of the Shares and Warrant Shares on such
Trading Market. The Company further agrees, if the Company applies to have the
Common 

 

24

 

Stock traded on any other
Trading Market, it will include in such application all of the Shares and
Warrant Shares, and will take such other action as is necessary to cause all of
the Shares and Warrant Shares to be listed on such other Trading Market as
promptly as possible.  The Company will
take all action reasonably necessary to continue the listing and trading of its
Common Stock on a Trading Market and will comply in all respects with the
Company’s reporting, filing and other obligations under the bylaws or rules of
the Trading Market.

 

4.11                           Equal
Treatment of Purchasers.  No
consideration shall be offered or paid to any Person to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration is also offered to all of the parties to the
Transaction Documents.  For clarification
purposes, this provision constitutes a separate right granted to each Purchaser
by the Company and negotiated separately by each Purchaser, and is intended for
the Company to treat the Purchasers as a class and shall not in any way be
construed as the Purchasers acting in concert or as a group with respect to the
purchase, disposition or voting of Securities or otherwise.

 

4.12                           Subsequent
Equity Sales.

 

(a)          From the date hereof
until 45 days after the Effective Date, neither the Company nor any Subsidiary
shall issue shares of Common Stock or Common Stock Equivalents; provided,
however, the 45 day period set forth in this Section 4.12 shall be
extended for the number of Trading Days during such period in which (i) trading
in the Common Stock is suspended by any Trading Market, or (ii) following
the Effective Date, the Registration Statement is not effective or the
prospectus included in the Registration Statement may not be used by the
Purchasers for the resale of the Shares and Warrant Shares.

 

(b)         From the date hereof
until such time as no Purchaser holds any of the Securities, the Company shall
be prohibited from effecting or entering into an agreement to effect any
Subsequent Financing involving a Variable Rate Transaction.  “Variable Rate Transaction” means a
transaction in which the Company issues or sells (i) any debt or equity
securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (A) at
a conversion, exercise or exchange rate or other price that is based upon
and/or varies with the trading prices of or quotations for the shares of Common
Stock at any time after the initial issuance of such debt or equity securities,
or (B) with a conversion, exercise or exchange price that is subject to
being reset at some future date after the initial issuance of such debt or
equity security or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Company or the market for
the Common Stock or (ii) enters into any agreement, including, but not
limited to, an equity line of credit, whereby the Company may sell securities
at a future determined price.  Any
Purchaser shall be entitled to obtain injunctive relief against the Company to
preclude any such issuance, which remedy shall be in addition to any right to
collect damages.

 

(c)          Notwithstanding the
foregoing, this Section 4.12 shall not apply in respect of an Exempt
Issuance, except that no Variable Rate Transaction shall be an Exempt Issuance.

 

4.13                           Short
Sales and Confidentiality After The Date Hereof.  Each Purchaser severally and not jointly with
the other Purchasers covenants that neither it nor any Affiliate acting on its
behalf or pursuant to any understanding with it will execute any Short Sales
during the period 

 

25

 

commencing at the Discussion
Time and ending at the time that the transactions contemplated by this
Agreement are first publicly announced as described in Section 4.4.  Each Purchaser, severally and not jointly
with the other Purchasers, covenants that until such time as the transactions
contemplated by this Agreement are publicly disclosed by the Company as
described in Section 4.4, such Purchaser will maintain the confidentiality
of all disclosures made to it in connection with this transaction (including
the existence and terms of this transaction). 
Each Purchaser understands and acknowledges, severally and not jointly
with any other Purchaser, that the Commission currently takes the position that
coverage of short sales of shares of the Common Stock “against the box” prior
to the Effective Date of the Registration Statement with the Securities is a
violation of Section 5 of the Securities Act, as set forth in Item 65, Section A,
of the Manual of Publicly Available Telephone Interpretations, dated July 1997,
compiled by the Office of Chief Counsel, Division of Corporation Finance.  Notwithstanding the foregoing, no Purchaser
makes any representation, warranty or covenant hereby that it will not engage
in Short Sales in the securities of the Company after the time that the
transactions contemplated by this Agreement are first publicly announced as
described in Section 4.4. 
Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser’s assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Purchaser’s assets, the covenant set forth
above shall only apply with respect to the portion of assets managed by the
portfolio manager that made the investment decision to purchase the Securities
covered by this Agreement.

 

4.14                           Delivery
of Securities After Closing.  The
Company shall deliver, or cause to be delivered, the respective Securities
purchased by each Purchaser to such Purchaser within three (3) Trading
Days of the applicable Closing Date.

 

4.15                           Form D;
Blue Sky Filings.  The Company agrees
to timely file a Form D with respect to the Securities as required under
Regulation D and to provide a copy thereof, promptly upon request of any
Purchaser. The Company shall take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for, or to qualify the
Securities for, sale to the Purchasers at the applicable Closing under
applicable securities or “Blue Sky” laws of the states of the United States,
and shall provide evidence of such actions promptly upon request of any
Purchaser.

 

ARTICLE V.

MISCELLANEOUS

 

5.1                                 Termination. 
This Agreement may be terminated by any Purchaser, as to such Purchaser’s
obligations hereunder only and without any effect whatsoever on the obligations
between the Company and the other Purchasers, by written notice to the other
parties, if the Closing has not been consummated on or before
                ,
2008; provided, however, that no such termination will affect the
right of any party to sue for any breach by the other party (or parties).

 

5.2                                 Fees
and Expenses.  Except as expressly set
forth in the Transaction Documents to the contrary, each party shall pay the
fees and expenses of its advisers, counsel, accountants and other experts, if
any, and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement.  The Company 

 

26

 

shall pay all Transfer Agent
fees, stamp taxes and other taxes and duties levied in connection with the
delivery of any Securities to the Purchasers.

 

5.3                                 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.

 

5.4                                 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 set forth on the signature pages attached
hereto prior to 5:30 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 set forth on
the signature pages attached hereto on a day that is not a Trading Day or
later than 5:30 p.m. (New York City time) on any Trading Day, (c) the
2nd Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual
receipt by the party to whom such notice is required to be given.  The address for such notices and
communications shall be as set forth on the signature pages attached
hereto.

 

5.5                                 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 each Purchaser or, in the case of
a waiver, by the party against whom enforcement of any such waived provision 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 any party to exercise any right hereunder in
any manner impair the exercise of any such right.

 

5.6                                 Headings.  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.

 

5.7                                 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 each Purchaser (other than by merger).  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 of the
Transaction Documents that apply to the “Purchasers.”

 

5.8                                 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 4.9.

 

5.9                                 Governing
Law.  All questions concerning the
construction, validity, enforcement and interpretation of the Transaction
Documents shall be governed by and construed and 

 

27

 

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

 

5.10                           Survival.  The representations and warranties contained
herein shall survive the Closing and the delivery of the Shares and Warrant
Shares.

 

5.11                           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
or by e-mail delivery of a “.pdf” format data file, 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 or “.pdf”
signature page were an original thereof.

 

5.12                           Severability.  If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their commercially reasonable efforts to find and
employ an alternative means to achieve the same or substantially the same
result as that contemplated by such term, provision, covenant or restriction.
It is hereby stipulated and declared to be the intention of the parties that
they would have executed the remaining terms, provisions, covenants and
restrictions without including any of such that may be hereafter declared
invalid, illegal, void or unenforceable.

 

5.13                           Rescission
and Withdrawal Right. 
Notwithstanding anything to the contrary contained in (and without
limiting any similar provisions of) any of the other Transaction 

 

28

 

Documents, whenever any
Purchaser exercises a right, election, demand or option under a Transaction
Document and the Company does not timely and materially perform its related
obligations within the periods therein provided, then such Purchaser may
rescind or withdraw, in its sole discretion from time to time upon written
notice to the Company, any relevant notice, demand or election in whole or in part
without prejudice to its future actions and rights; provided, however,
in the case of a rescission of an exercise of a Warrant, the Purchaser shall be
required to return any shares of Common Stock delivered in connection with any
such rescinded exercise notice.

 

5.14                           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 (in the case of mutilation), 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.  The applicant for a new
certificate or instrument under such circumstances shall also pay any
reasonable third-party costs (including customary indemnity) associated with
the issuance of such replacement Securities.

 

5.15                           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 contained in the
Transaction Documents and hereby agrees to waive and not to assert in any
action for specific performance of any such obligation the defense that a
remedy at law would be adequate.

 

5.16                           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.

 

5.17                           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 or non-performance of the obligations of any other Purchaser under
any Transaction Document.  Nothing
contained herein or in any other 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 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 

 

29

 

other Purchaser to be joined as
an additional party in any proceeding for such purpose.  Each Purchaser has been represented by its
own separate legal counsel in their review and negotiation of the Transaction
Documents.

 

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

 

5.19                           Construction.
The parties agree that each of them and/or their respective counsel has
reviewed and had an opportunity to revise the Transaction Documents and,
therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.

 

5.20                           Exculpation
Among Purchasers.  Each Purchaser
acknowledges that it is not relying upon any person, firm or corporation
(including without limitation any other Purchaser), other than the Company and
its officers and directors (acting in their capacity as representatives of the
Company), in deciding to invest and in making its investment in the
Company.  Each Purchaser agrees that no other Purchaser nor the respective
controlling persons, officers, directors, partners, agents or employees of any
other Purchaser shall be liable to such Purchaser for any losses incurred by
such Purchaser in connection with its investment in the Company.

 

5.21                           Company Acknowledgement. 
The Company acknowledges and agrees that (i) each of the Purchasers
is participating in the transactions contemplated by this Agreement and the
other Transaction Documents at the Company’s request and the Company has
concluded that such participation is in the Company’s best interest and is
consistent with the Company’s objectives and (ii) each of the Purchasers
is acting solely in the capacity of an arm’s length purchaser.  The Company further acknowledges that no
Purchaser is acting or has acted as an advisor, agent or fiduciary of the
Company (or in any similar capacity) with respect to this Agreement or the
other Transaction Documents and any advice given by any Purchaser or any of its
respective representatives in connection with this Agreement or the other
Transaction Documents is merely incidental to the Purchasers’ purchase of
Shares and Warrants.  The Company further
represents to each Purchaser that the Company’s decision to enter into this
Agreement has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its representatives.

 

(Signature Pages Follow)

 

30

 

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

 

	
  LPATH,
  INC.

  	
  Address for
  Notice:

  
	
   

  	
  6335 Ferris
  Square, Suite A

  
	
   

  	
  San Diego,
  CA 92121

  
	
   

  	
  Attention:
  Scott Pancoast, CEO

  
	
   

  	
  Fax: (858)
  678-0900

  

 

	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

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

  	
   

  
	
   

  	
   

  
	
  Eilenberg
  Krause & Paul LLP

  	
   

  
	
  11 East 44th
  Street, 19th Floor

  	
   

  
	
  New York,
  New York  10017

  	
   

  

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

 

31

 

[PURCHASER SIGNATURE PAGES TO LPATH SECURITIES PURCHASE AGREEMENT]

 

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

 

	
  Name of Purchaser:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature of Authorized Signatory of
  Purchaser:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name of Authorized Signatory:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Title of Authorized Signatory:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Email Address of Purchaser:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Fax Number of Purchaser:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Address for Notice of Purchaser:

  	
   

  	
   

  
										

 

 

Address for Delivery of Securities for Purchaser (if not same as
above):

 

 

I    \    \  do        \    \ do not      want a
beneficial ownership blocker in Section 2(d) of my Warrants.

 

	
  Total Subscription Amount: $

  	
   

  	
   

  

 

EIN Number:  [PROVIDE
THIS UNDER SEPARATE COVER]

 

[SIGNATURE PAGES CONTINUE]

 

32Exhibit 10.18

REGISTRATION
RIGHTS AGREEMENT

 

This
Registration Rights Agreement (this “Agreement”) is made and entered
into as of August 12, 2008, between Lpath, Inc., a Nevada corporation (the
“Company”) and each of the several purchasers signatory hereto (each
such purchaser, a “Purchaser” and, collectively, the “Purchasers”).

 

This
Agreement is made pursuant to the Securities Purchase Agreement, dated as of
the date hereof, between the Company and each Purchaser (the “Purchase
Agreement”).

 

The
Company and each Purchaser hereby agrees as follows:

 

1.                                                               Definitions

 

Capitalized terms used and not otherwise defined
herein that are defined in the Purchase Agreement shall have the meanings given
such terms in the Purchase Agreement. As used in this Agreement,
the following terms shall have the following meanings:

 

“Advice” shall have the meaning set forth in Section 6(d).

 

“Effectiveness Date” means, with respect to
the initial Registration Statement required to be filed hereunder, the 120th
calendar day after the Closing, and with respect to any additional Registration
Statements which may be required pursuant to Section 3(c), the 90th
calendar day following the date on which an additional Registration Statement
is required to be filed hereunder; provided, however, that in the
event the Company is notified by the Commission that one or more of the above
Registration Statements Statement will not be reviewed or is no longer subject
to further review and comments, the Effectiveness Date as to such Registration
Statement shall be the fifth Trading Day following the date on which the
Company is so notified if such date precedes the dates otherwise required
above.

 

“Effectiveness Period” shall have the meaning
set forth in Section 2(a).

 

“Event” shall have the meaning set forth in Section 2(b).

 

“Event Date” shall have the meaning set forth
in Section 2(b).

 

“Filing Date” means, with respect to the
initial Registration Statement required hereunder, the 30th calendar
day following the First Closing and, with respect to any additional
Registration Statements which may be required pursuant to Section 3(c),
the earliest practical date on which the Company is permitted by SEC Guidance
to file such additional Registration Statement related to the Registrable
Securities.

 

“Holder” or “Holders” means the holder
or holders, as the case may be, from time to time of Registrable Securities.

 

“Indemnified Party” shall have the meaning
set forth in Section 5(c).

 

1

 

“Indemnifying Party” shall have the meaning
set forth in Section 5(c).

 

“Initial Registration Statement” means the
initial Registration Statement filed pursuant to this Agreement.

 

“Initial Shares” means a number of shares of
Common Stock equal to one-third of the number of shares of Common Stock issued
and outstanding and held by non-affiliates of the Company immediately prior to
the filing date of the Initial Registration Statement.

 

“Losses” shall have the meaning set forth in Section 5(a).

 

“Plan of Distribution” shall have the meaning
set forth in Section 2(a).

 

“Prospectus” means the prospectus included in
a Registration Statement (including, without limitation, a prospectus that
includes any information previously omitted from a prospectus filed as part of
an effective registration statement in reliance upon Rule 430A promulgated
under the Securities Act), as amended or supplemented by any prospectus
supplement, with respect to the terms of the offering of any portion of the
Registrable Securities covered by a Registration Statement, and all other
amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus, including any free-writing
prospectus, as defined in Rule 433 under the Securities Act.

 

“Registrable Securities” means (i) all
Shares, (ii) all Warrant Shares (assuming on the date of determination the
Warrants are exercised in full without regard to any exercise limitations
therein), (iii) any additional shares of Common Stock issuable in
connection with any anti-dilution provisions in the Warrants (in each case,
without giving effect to any limitations on exercise set forth in the Warrants)
and (iv) any securities issued or issuable upon any stock split, dividend
or other distribution,  recapitalization
or similar event with respect to the foregoing.

 

“Registration Statement” means the
registration statement required to be filed hereunder and any additional
registration statements contemplated by Section 3(c), including (in each
case) the Prospectus, amendments and supplements to such registration statement
or Prospectus, including pre- and post-effective amendments, all exhibits
thereto, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.

 

 “Rule 415”
means Rule 415 promulgated by the Commission pursuant to the Securities
Act, as such Rule may be amended or interpreted from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same purpose and effect as such Rule.

 

“Rule 424” means Rule 424
promulgated by the Commission pursuant to the Securities Act, as such Rule may
be amended or interpreted from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same
purpose and effect as such Rule.

 

2

 

“Selling Shareholder Questionnaire” shall
have the meaning set forth in Section 3(a).

 

“SEC Guidance” means (i) any
publicly-available written or oral guidance, comments, requirements or requests
of the Commission staff and (ii) the Securities Act.

 

2.                                                               Required
Registration

 

(a)                                  On or prior to
each Filing Date, the Company shall prepare and file with the Commission a
Registration Statement covering the resale of all or such portion of the
Registrable Securities as permitted by SEC Guidance (provided that the Company
shall use diligent efforts to advocate with the Commission for the registration
of all of the Registrable Securities in accordance with the SEC Guidance,
including without limitation, the Manual of Publicly Available Telephone
Interpretations D.29) that are not then registered on an effective Registration
Statement for an offering to be made on a continuous basis pursuant to Rule 415.  The Registration Statement shall be on Form S-3
(except if the Company is not then eligible to register for resale the
Registrable Securities on Form S-3, in which case such registration shall
be on another appropriate form in accordance herewith, such as Form S-1)
and shall contain (unless otherwise directed by at least an 85% majority in
interest of the Holders) the “Plan of Distribution” substantially in the
form attached hereto as Annex A. 
Subject to the terms of this Agreement, the Company shall use its best
efforts to cause a Registration Statement to be declared effective under the
Securities Act as promptly as possible after the filing thereof, but in any
event prior to the applicable Effectiveness Date, and shall use its best
efforts to keep such Registration Statement continuously effective under the
Securities Act until the earlier of (i) 120 days after none of the
Purchasers is an affiliate of the Company, (ii) the date on which all
Registrable Securities covered by such Registration Statement have been sold, (iii) the
date on which all Registrable Securities covered by such Registration Statement
may be sold without volume restrictions pursuant to Rule 144(b)(1) and
(iv) 30 days after the expiration of the Warrants (the “Effectiveness
Period”).  The Company shall
telephonically request effectiveness of a Registration Statement as of 5:00 p.m.
New York City time on a Trading Day.  The
Company shall immediately notify the Holders via facsimile or by e-mail
delivery of a “.pdf” format data file of the effectiveness of a Registration
Statement on the same Trading Day that the Company telephonically confirms
effectiveness with the Commission, which shall be the date requested for
effectiveness of a Registration Statement. 
The Company shall, by 9:30 a.m. New York City time on the Trading
Day after the Effective Date, file a final Prospectus with the Commission as
required by Rule 424.  Failure to so
notify the Holder within two (2) Trading Days of such notification of
effectiveness or failure to file a final Prospectus as foresaid shall be deemed
an Event under Section 2(b). 
Notwithstanding any other provision of this Agreement and subject to the
payment of liquidated damages in Section 2(b), if any SEC Guidance sets
forth a limitation of the number of Registrable Securities permitted to be
registered on a particular Registration Statement (and notwithstanding that the
Company used diligent efforts to advocate with the Commission for the
registration of all or a greater number of Registrable Securities), unless
otherwise directed in writing by a Holder as to its Registrable Securities, the
number of Registrable Securities to be registered on such Registration
Statement will first be reduced by Registrable Securities represented by
Warrant Shares (applied, in the case that some 

 

3

 

Warrant Shares may be
registered, to the Holders on a pro rata basis based on the total number of
unregistered Warrant Shares held by such Holders), and second by Registrable
Securities represented by Shares (applied, in the case that some Shares may be
registered, to the Holders on a pro rata basis based on the total number of
unregistered Shares held by such Holders). The Company may include in a
Registration Statement any shares underlying any warrants issued to the
placement agents in the transactions contemplated hereby, provided, that if any
Registrable Securities are required to be cut back, then such placement agent
shares shall be cut back prior to any Registrable Securities held by any
Holder.

 

(b)                                 If: (i) the
Initial Registration Statement is not filed on or prior to its Filing Date (if
the Company files the Initial Registration Statement without affording the
Holders the opportunity to review and comment on the same as required by Section 3(a) herein,
the Company shall be deemed to have not satisfied this clause (i)), or (ii) the
Company fails to have the a Registration Statement declared effective under the
Securities Act prior to the applicable Effectiveness Date, or (iii) after
the Effectiveness Date of a Registration Statement, such Registration Statement
ceases for any reason to remain continuously effective as to all Registrable
Securities included in such Registration Statement, or the Holders are
otherwise not permitted to utilize the Prospectus therein to resell such
Registrable Securities, for more than 30 consecutive calendar days or more than
an aggregate of 60 calendar days during any 12-month period (which need not be
consecutive calendar days) (any such failure or breach being referred to as an “Event”, and for purposes of
clause (i) and (ii), the date on which such Event occurs, or for purposes
of clause (iii) the date on which such 30 or 60 calendar day period, as
applicable, is exceeded being referred to as “Event Date”), then, in addition to any other rights the
Holders may have hereunder or under applicable law, on each such Event Date and
on each monthly anniversary of each such Event Date (if the applicable Event
shall not have been cured by such date) until the applicable Event is cured,
the Company shall pay to each Holder an amount in cash, as partial liquidated
damages and not as a penalty, equal to 1.25% of the aggregate purchase price
paid by such Holder pursuant to the Purchase Agreement for the number of shares
of unregistered Registrable Securities then held by such Holder (except such
number shall not include any Warrant Shares unless the Warrants are then “in
the money” at such time).  The parties
agree that (1) the Company shall not be liable for liquidated damages
under this Agreement with respect to any Warrants or Warrant Shares and (2) the
maximum aggregate liquidated damages payable to a Holder under this Agreement
shall be 8.75% of the aggregate Subscription Amount paid by such Holder
pursuant to the Purchase Agreement.  If
the Company fails to pay any partial liquidated damages pursuant to this Section in
full within seven calendar days after the date payable, the Company will pay
interest thereon at a rate of 18% per annum (or such lesser maximum amount that
is permitted to be paid by applicable law) to the Holder, accruing daily from
the date such partial liquidated damages are due until such amounts, plus all
such interest thereon, are paid in full. The partial liquidated damages
pursuant to the terms hereof shall apply on a daily pro rata basis for any
portion of a month prior to the cure of an Event.  Notwithstanding the foregoing, an “Event”
shall not include a failure of a Registration Statement to be declared
effective as a result of the Commission’s refusal to accept the Plan of
Distribution contained in such Registration Statement.

 

4

 

3.                                       Registration
Procedures.

 

In
connection with the Company’s registration obligations hereunder, the Company
shall:

 

(a)                                  Not less than 5
Trading Days prior to the filing of each Registration Statement and not less
than one Trading Day prior to the filing of any related Prospectus or any
amendment or supplement thereto (including any document that would be
incorporated or deemed to be incorporated therein by reference), the Company
shall (i) furnish to each Holder copies of all such documents proposed to
be filed, which documents (other than those incorporated or deemed to be
incorporated by reference) will be subject to the review of such Holders and (ii) cause
its officers and directors, counsel and independent certified public
accountants to respond to such inquiries as shall be necessary, in the reasonable
opinion of respective counsel to each Holder, to conduct a reasonable
investigation within the meaning of the Securities Act.  The Company shall not file a Registration
Statement or any such Prospectus or any amendments or supplements thereto to
which the Holders of a majority of the Registrable Securities shall reasonably
object in good faith, provided that the Company is notified of such objection
in writing no later than 5 Trading Days after the Holders have been so
furnished copies of a Registration Statement or 1 Trading Day after the Holders
have been so furnished copies of any related Prospectus or amendments or
supplements thereto. Each Holder agrees to furnish to the Company a completed
questionnaire in the form attached to this Agreement as Annex B (a “Selling
Shareholder Questionnaire”) by the earlier of (i) two Trading Days
prior to the Filing Date or (ii) by the end of the fourth Trading Day
following the date on which such Holder receives draft materials in accordance
with this Section 3(a).

 

(b)                                 (i) Prepare
and file with the Commission such amendments, including post-effective
amendments, to a Registration Statement and the Prospectus used in connection
therewith as may be necessary to keep a Registration Statement continuously
effective as to the applicable Registrable Securities for the Effectiveness
Period and prepare and file with the Commission such additional Registration
Statements in order to register for resale under the Securities Act all of the
Registrable Securities; (ii) cause the related Prospectus to be amended or
supplemented by any required Prospectus supplement (subject to the terms of
this Agreement), and, as so supplemented or amended, to be filed pursuant to Rule 424;
(iii) respond as promptly as reasonably possible to any comments received
from the Commission with respect to a Registration Statement or any amendment
thereto and provide as promptly as reasonably possible to the Holders true and
complete copies of all correspondence from and to the Commission relating to a
Registration Statement (provided that the Company may excise any information
contained therein which would constitute material non-public information as to
any Holder which has not executed a confidentiality agreement with the
Company); and (iv) comply in all material respects with the provisions of
the Securities Act and the Exchange Act with respect to the disposition of all
Registrable Securities covered by a Registration Statement during the
applicable period in accordance (subject to the terms of this Agreement) with
the intended methods of disposition by the Holders thereof set forth in such
Registration Statement as so amended or in such Prospectus as so supplemented.

 

5

 

(c)                                  If during the
Effectiveness Period, the number of Registrable Securities at any time exceeds
100% of the number of shares of Common Stock then registered in a Registration
Statement, then the Company shall file as soon as reasonably practicable, but
in any case prior to the applicable Filing Date, an additional Registration
Statement covering the resale by the Holders of not less than the number of
such Registrable Securities, subject to any limitations pursuant to SEC
Guidance.

 

(d)                                 Notify the
Holders of Registrable Securities to be sold (which notice shall, pursuant to
clauses (iii) through (vi) hereof, be accompanied by an instruction
to suspend the use of the Prospectus until the requisite changes have been
made) as promptly as reasonably possible (and, in the case of (i)(A) below,
not less than one Trading Day prior to such filing) and (if requested by any
such Person) confirm such notice in writing no later than one Trading Day
following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to a Registration Statement is proposed to be filed;
and (B) when the Commission notifies the Company whether there will be a “review”
of such Registration Statement and whenever the Commission comments in writing
on such Registration Statement; (ii) of any request by the Commission or
any other federal or state governmental authority for amendments or supplements
to a Registration Statement or Prospectus or for additional information; (iii) of
the issuance by the Commission or any other federal or state governmental
authority of any stop order suspending the effectiveness of a Registration
Statement covering any or all of the Registrable Securities or the initiation
of any Proceedings for that purpose; (iv) of the receipt by the Company of
any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; (v) of the occurrence of any event or passage of time that makes
the financial statements included in a Registration Statement ineligible for
inclusion therein or any statement made in a Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires any revisions to a
Registration Statement, Prospectus or other documents so that, in the case of a
Registration Statement or the Prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; and (vi) of
the occurrence or existence of any pending corporate development with respect
to the Company that the Company believes may be material and that, in the
determination of the Company, makes it not in the best interest of the Company
to allow continued availability of a Registration Statement or Prospectus,
provided that any and all of such information shall be kept confidential by
each Holder until such information otherwise becomes public, unless disclosure
by a Holder is required by law; provided, further, that
notwithstanding each Holder’s agreement to keep such information confidential,
each such Holder makes no acknowledgement that any such information is
material, non-public information.

 

(e)                                  Use its best
efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any
order stopping or suspending the effectiveness of a Registration Statement, or (ii) any
suspension of the qualification (or exemption from qualification) of any of the
Registrable Securities for sale in any jurisdiction, at the earliest
practicable moment.

 

6

 

(f)                                    RESERVED.

 

(g)                                 Subject to the
terms of this Agreement, the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto, except
after the giving of any notice pursuant to Section 3(d).

 

(h)                                 The Company
shall effect a filing with respect to the public offering contemplated by each
Registration Statement (an “Issuer Filing”) with the National
Association of Securities Dealers, Inc. (“NASD”) Corporate
Financing Department pursuant to NASD Rule 2710(b)(10)(A)(i) within
one Trading Day of the date that the Registration Statement is first filed with
the Commission and pay the filing fee required by such Issuer Filing.  The Company shall use commercially reasonable
efforts to pursue the Issuer Filing until the NASD issues a letter confirming
that it does not object to the terms of the offering contemplated by the
Registration Statement as described in the Plan of Distribution attached hereto
as Annex A.

 

(i)                                     Prior to any
resale of Registrable Securities by a Holder, use its commercially reasonable
efforts to register or qualify or cooperate with the selling Holders in
connection with the registration or qualification (or exemption from the
Registration or qualification) of such Registrable Securities for the resale by
the Holder under the securities or Blue Sky laws of such jurisdictions within
the United States as any Holder reasonably requests in writing, to keep each
registration or qualification (or exemption therefrom) effective during the
Effectiveness Period and to do any and all other acts or things reasonably necessary
to enable the disposition in such jurisdictions of the Registrable Securities
covered by each Registration Statement; provided, that the Company shall not be
required to qualify generally to do business in any jurisdiction where it is
not then so qualified, subject the Company to any material tax in any such
jurisdiction where it is not then so subject or file a general consent to
service of process in any such jurisdiction.

 

(j)                                     If requested by
a Holder, cooperate with such Holders to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be delivered to
a transferee pursuant to a Registration Statement, which certificates shall be
free, to the extent permitted by the Purchase Agreement and applicable state
and Federal laws, of all restrictive legends, and to enable such Registrable
Securities to be in such denominations and registered in such names as any such
Holder may request.

 

(k)                                  Upon the
occurrence of any event contemplated by Section 3(d), as promptly as
reasonably possible under the circumstances taking into account the Company’s
good faith assessment of any adverse consequences to the Company and its
stockholders of the premature disclosure of such event, prepare a supplement or
amendment, including a post-effective amendment, to a Registration Statement or
a supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, and file any other required document
so that, as thereafter delivered, neither a Registration Statement nor such
Prospectus will contain an 

 

7

 

untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.  If the Company notifies the Holders in
accordance with clauses (iii) through (vi) of Section 3(d) above
to suspend the use of any Prospectus until the requisite changes to such
Prospectus have been made, then the Holders shall suspend use of such
Prospectus.  The Company will use its
best efforts to ensure that the use of the Prospectus may be resumed as
promptly as is practicable.  The Company
shall be entitled to exercise its right under this Section 3(k) to
suspend the availability of a Registration Statement and Prospectus, subject to
the payment of partial liquidated damages otherwise required pursuant to Section 2(b),
for a period not to exceed 60 calendar days (which need not be consecutive
days) in any 12 month period.

 

(l)                                     Comply in all
material respects with all applicable rules and regulations of the
Commission.

 

(m)                               In addition to
providing the information required in the Selling Shareholder Questionnaire,
the Company may require each selling Holder to furnish to the Company a
certified statement as to the number of shares of Common Stock beneficially
owned by such Holder and, if required by the Commission, the natural persons
thereof that have voting and dispositive control over the shares. During any
periods that the Company is unable to meet its obligations hereunder with
respect to the registration of the Registrable Securities solely because any
Holder fails to furnish such information within three Trading Days of the
Company’s request or fails to deliver its Selling Shareholder Questionnaire on
a timely basis pursuant to Section 3(a) hereof, any liquidated
damages that are accruing at such time shall be tolled and any Event that may
otherwise occur solely because of such delay shall be suspended, until such
information is delivered to the Company.

 

4.                                                               Registration
Expenses. All fees and expenses incident to the performance
of or compliance with this Agreement by the Company shall be borne by the
Company whether or not any Registrable Securities are sold pursuant to a
Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and
filing fees (including, without limitation, fees and expenses of the Company’s
counsel and auditors) (A) with respect to filings made with the
Commission, (B) with respect to filings required to be made with any
Trading Market on which the Common Stock is then listed for trading, (C) in
compliance with applicable state securities or Blue Sky laws reasonably agreed
to by the Company in writing (including, without limitation, fees and
disbursements of counsel for the Company in connection with Blue Sky
qualifications or exemptions of the Registrable Securities) and (D) if not
previously paid by the Company in connection with an Issuer Filing, with
respect to any filing that may be required to be made by any broker through
which a Holder intends to make sales of Registrable Securities with the NASD
pursuant to NASD Rule 2710, so long as the broker is receiving no more
than a customary brokerage commission in connection with such sale, (ii) printing
expenses (including, without limitation, expenses of printing certificates for
Registrable Securities), (iii) messenger, telephone and delivery expenses,
(iv) fees and disbursements of counsel for the Company, (v) Securities
Act liability insurance, if the Company so desires such insurance, and (vi) fees
and expenses of all other Persons retained by the Company in connection with
the consummation of the transactions contemplated by this Agreement.  In addition, the Company shall be responsible
for all of its internal expenses 

 

8

 

incurred
in connection with the consummation of the transactions contemplated by this
Agreement (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit and the fees and expenses incurred in connection with the
listing of the Registrable Securities on any securities exchange as required
hereunder.  In no event shall the Company
be responsible for any broker or similar commissions of any Holder or, except
to the extent provided for in the Transaction Documents, any legal fees or
other costs of the Holders.

 

5.                                                               Indemnification.

 

(a)                                  Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, members, partners, agents and employees
(and any other Persons with a functionally equivalent role of a Person holding
such titles, notwithstanding a lack of such title or any other title) of each
of them, each Person who controls any such Holder (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, members, shareholders, partners, agents and employees (and any other
Persons with a functionally equivalent role of a Person holding such titles,
notwithstanding a lack of such title or any other title) of each such
controlling Person, to the fullest extent permitted by applicable law, from and
against any and all losses, claims, damages, liabilities, costs (including,
without limitation, reasonable attorneys’ fees) and expenses (collectively, “Losses”),
as incurred, arising out of or relating to (1) any untrue or alleged
untrue statement of a material fact contained in a Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or relating to any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading or (2) any violation or alleged violation by the Company of
the Securities Act, the Exchange Act or any state securities law, or any rule or
regulation thereunder, in connection with the performance of its obligations
under this Agreement, except to the extent, but only to the extent, that (i) such
untrue statements or omissions are in reliance upon, and in conformity with,
information regarding such Holder furnished in writing to the Company by such
Holder expressly for use therein, or to the extent that such information
relates to such Holder or such Holder’s proposed method of distribution of
Registrable Securities and was reviewed and expressly approved in writing by such
Holder expressly for use in a Registration Statement, such Prospectus or in any
amendment or supplement thereto (it being understood that the Holder has
approved Annex A hereto for this purpose) or (ii) in the case of an
occurrence of an event of the type specified in Section 3(d)(iii)-(vi),
the use by such Holder of an outdated or defective Prospectus after the Company
has notified such Holder in writing that the Prospectus is outdated or
defective and prior to the receipt by such Holder of the Advice contemplated in
Section 6(d).  The Company shall
notify the Holders promptly of the institution, threat or assertion of any
Proceeding arising from or in connection with the transactions contemplated by
this Agreement of which the Company is aware.

 

(b)                                 Indemnification by Holders. Each Holder shall,
severally and not jointly, indemnify and hold harmless the Company, its
directors, officers, agents and employees, 

 

9

 

each Person who controls the Company (within the meaning of Section 15
of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses, as
incurred, to the extent arising out of or based solely upon: (x) such
Holder’s failure to comply with the prospectus delivery requirements of the
Securities Act or (y) any untrue or alleged untrue statement of a material
fact contained in any Registration Statement, any Prospectus, or in any
amendment or supplement thereto or in any preliminary prospectus, or arising
out of or relating to any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading (i) to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing
by such Holder to the Company specifically for inclusion in such Registration
Statement or such Prospectus or (ii) to the extent that such information
relates to such Holder’s proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in a Registration Statement (it being understood that the
Holder has approved Annex A hereto for this purpose), such Prospectus or in any
amendment or supplement thereto or (ii) in the case of an occurrence of an
event of the type specified in Section 3(d)(iii)-(vi), the use by such
Holder of an outdated or defective Prospectus after the Company has notified
such Holder in writing that the Prospectus is outdated or defective and prior
to the receipt by such Holder of the Advice contemplated in Section 6(d).
In no event shall the liability of any selling Holder hereunder be greater in
amount than the dollar amount of the net proceeds received by such Holder upon
the sale of the Registrable Securities giving rise to such indemnification
obligation.

 

(c)                                  Conduct of Indemnification Proceedings. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an “Indemnified
Party”), such Indemnified Party shall promptly notify the Person from whom
indemnity is sought (the “Indemnifying Party”) in writing, and the
Indemnifying Party shall have the right to assume the defense thereof,
including the employment of counsel reasonably satisfactory to the Indemnified
Party and the payment of all fees and expenses incurred in connection with
defense thereof; provided, that the failure of any Indemnified Party to give
such notice shall not relieve the Indemnifying Party of its obligations or
liabilities pursuant to this Agreement, except (and only) to the extent that it
shall be finally determined by a court of competent jurisdiction (which
determination is not subject to appeal or further review) that such failure
shall have prejudiced the Indemnifying Party.

 

               An Indemnified Party shall have
the right to employ separate counsel in any such Proceeding and to participate
in the defense thereof, but the fees and expenses of such counsel shall be at
the expense of such Indemnified Party or Parties unless:  (1) the Indemnifying Party has agreed in
writing to pay such fees and expenses; (2) the Indemnifying Party shall
have failed promptly to assume the defense of such Proceeding and to employ
counsel reasonably satisfactory to such Indemnified Party in any such
Proceeding; or (3) the named parties to any such Proceeding (including any
impleaded parties) include both such Indemnified Party and the Indemnifying
Party, and counsel to the Indemnified Party shall reasonably believe that a
material conflict of interest is likely to exist if the same counsel were to
represent such Indemnified Party and the Indemnifying Party (in which case, if
such Indemnified Party notifies the Indemnifying 

 

10

 

Party
in writing that it elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the right to assume
the defense thereof and the reasonable fees and expenses of no more than one
separate counsel shall be at the expense of the Indemnifying Party).  The Indemnifying Party shall not be liable
for any settlement of any such Proceeding effected without its written consent,
which consent shall not be unreasonably withheld or delayed.  No Indemnifying Party shall, without the
prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party
from all liability on claims that are the subject matter of such Proceeding.

 

Subject to the terms of this Agreement, all
reasonable fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within ten
Trading Days of written notice thereof to the Indemnifying Party; provided,
that the Indemnified Party shall promptly reimburse the Indemnifying Party for
that portion of such fees and expenses previously disbursed and that are applicable
to such actions for which such Indemnified Party is judicially determined to be
not entitled to indemnification hereunder.

 

(d)                                 Contribution. If the indemnification under Section 5(a) or
5(b) is unavailable to an Indemnified Party or insufficient to hold an
Indemnified Party harmless for any Losses, then each Indemnifying Party shall
contribute to the amount paid or payable by such Indemnified Party, in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions, statements or
omissions that resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party and Indemnified
Party shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission of a material fact, has been
taken or made by, or relates to information supplied by, such Indemnifying
Party or Indemnified Party, and the parties’ relative intent, knowledge, access
to information and opportunity to correct or prevent such action, statement or
omission.  The amount paid or payable by
a party as a result of any Losses shall be deemed to include, subject to the
limitations set forth in this Agreement, any reasonable attorneys’ or other
fees or expenses incurred by such party in connection with any Proceeding to
the extent such party would have been indemnified for such fees or expenses if
the indemnification provided for in this Section was available to such
party in accordance with its terms.

 

The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 5(d) were
determined by pro rata allocation or by any other method of allocation that
does not take into account the equitable considerations referred to in the
immediately preceding paragraph. 
Notwithstanding the provisions of this Section 5(d), no Holder
shall be required to contribute, in the aggregate, any amount in excess of the
amount by which the net proceeds actually received by such Holder from the sale
of the Registrable Securities subject to the Proceeding exceeds the amount of 

 

11

 

any
damages that such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission.

 

The indemnity and contribution agreements contained
in this Section are in addition to any liability that the Indemnifying
Parties may have to the Indemnified Parties.

 

6.                                                               Miscellaneous.

 

(a)                                  Remedies.  In the event of a breach by the Company or by
a Holder of any of their respective obligations under this Agreement, each
Holder or the Company, as the case may be, in addition to being entitled to
exercise all rights granted by law and under this Agreement, including recovery
of damages, shall be entitled to specific performance of its rights under this
Agreement.  The Company and each Holder
agree that monetary damages would not provide adequate compensation for any
losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall not assert or shall
waive the defense that a remedy at law would be adequate.

 

(b)                                 No Piggyback on Registrations. Except as set forth on Schedule
6(b) attached hereto, neither the Company nor any of its security
holders (other than the Holders in such capacity pursuant hereto) may include
securities of the Company in any Registration Statements other than the
Registrable Securities.  The Company
shall not file any other registration statements until the Initial Registration
Statement is declared effective by the Commission, provided that this Section 6(b) shall
not prohibit the Company from filing amendments to registration statements
filed prior to the date of this Agreement.

 

(c)                                  Compliance. Each Holder covenants and agrees that it will
comply with the prospectus delivery requirements of the Securities Act as
applicable to it in connection with sales of Registrable Securities pursuant to
a Registration Statement.

 

(d)                                 Discontinued Disposition.  By its acquisition of Registrable Securities,
each Holder agrees that, upon receipt of a notice from the Company of the
occurrence of any event of the kind described in Section 3(d)(iii) through
(vi), such Holder will forthwith discontinue disposition of such Registrable
Securities under a Registration Statement until it is advised in writing (the “Advice”)
by the Company that the use of the applicable Prospectus (as it may have been
supplemented or amended) may be resumed. 
The Company will use its best efforts to ensure that the use of the
Prospectus may be resumed as promptly as it practicable.  The Company agrees and acknowledges that any
periods during which the Holder is required to discontinue the disposition of
the Registrable Securities hereunder shall be subject to the provisions of Section 2(b).

 

(e)                                  Piggy-Back Registrations. If at any time during the
Effectiveness Period there is not an effective Registration Statement covering
all of the Registrable Securities and the Company shall determine to prepare
and file with the Commission a registration statement relating to an offering
for its own account or the account of others under the Securities Act of any of
its equity securities, other than on Form S-4 or Form S-8 (each as
promulgated under the Securities Act) or their then equivalents relating to
equity securities to be issued solely in 

 

12

 

connection
with any acquisition of any entity or business or equity securities issuable in
connection with the Company’s stock option or other employee benefit plans, then
the Company shall send to each Holder a written notice of such determination
and, if within fifteen days after the date of such notice, any such Holder
shall so request in writing, the Company shall include in such registration
statement all or any part of such Registrable Securities such Holder requests
to be registered; provided, however, that the Company shall not
be required to register any Registrable Securities pursuant to this Section 6(e) that
are eligible for resale pursuant to Rule 144(b)(1) promulgated under
the Securities Act or that are the subject of a then effective Registration
Statement.

 

(f)                                    Amendments and Waivers. The provisions of this
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the same shall be in writing and
signed by the Company and the Holders of a majority of the then outstanding
Registrable Securities (including, for this purpose any Registrable Securities
issuable upon exercise or conversion of any Security).  If a Registration Statement does not register
all of the Registrable Securities pursuant to a waiver or amendment done in
compliance with the previous sentence, then the number of Registrable
Securities to be registered for each Holder shall be reduced pro rata among all
Holders and each Holder shall have the right to designate which of its
Registrable Securities shall be omitted from such Registration Statement.
Notwithstanding the foregoing, a waiver or consent to depart from the
provisions hereof with respect to a matter that relates exclusively to the
rights of some Holders and that does not directly or indirectly affect the
rights of other Holders may be given by Holders of all of the Registrable
Securities to which such waiver or consent relates; provided, however,
that the provisions of this sentence may not be amended, modified, or
supplemented except in accordance with the provisions of the first  sentence of this Section 6(f).

 

(g)                                 Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be delivered as
set forth in the Purchase Agreement.

 

(h)                                 Successors and Assigns. This Agreement shall inure
to the benefit of and be binding upon the successors and permitted assigns of
each of the parties and shall inure to the benefit of each Holder. The Company
may not assign (except by merger, consolidation or similar transaction) its
rights or obligations hereunder without the prior written consent of all of the
Holders of the then-outstanding Registrable Securities. Each Holder may assign
their respective rights hereunder in the manner and to the Persons as permitted
under the Purchase Agreement.

 

(i)                                     No Inconsistent Agreements. Neither the Company nor
any of its Subsidiaries has entered, as of the date hereof, nor shall the
Company or any of its Subsidiaries, on or after the date of this Agreement,
enter into any agreement with respect to its securities, that would have the effect
of impairing the rights granted to the Holders in this Agreement or otherwise
conflicts with the provisions hereof. 
Except as set forth on Schedule 6(i), neither the Company nor any
of its subsidiaries has previously entered into any agreement granting any
registration rights with respect to any of its securities to any Person that
have not been satisfied in full.

 

(j)                                     Execution and Counterparts. 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 

 

13

 

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 or by e-mail delivery of a “.pdf”
format data file, 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 or “.pdf” signature page were
an original thereof.

 

(k)                                  Governing Law.  All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be determined
in accordance with the provisions of the Purchase Agreement.

 

(l)                                     Cumulative Remedies. The remedies provided
herein are cumulative and not exclusive of any other remedies provided by law.

 

(m)                               Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the
parties hereto shall use their commercially reasonable efforts to find and
employ an alternative means to achieve the same or substantially the same
result as that contemplated by such term, provision, covenant or restriction.
It is hereby stipulated and declared to be the intention of the parties that
they would have executed the remaining terms, provisions, covenants and
restrictions without including any of such that may be hereafter declared
invalid, illegal, void or unenforceable.

 

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

 

(o)                                 Independent Nature of Holders’ Obligations and Rights. The
obligations of each Holder hereunder are several and not joint with the
obligations of any other Holder hereunder, and no Holder shall be responsible
in any way for the performance of the obligations of any other Holder
hereunder. Nothing contained herein or in any other agreement or document
delivered at any closing, and no action taken by any Holder pursuant hereto or
thereto, shall be deemed to constitute the Holders as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Holders are in any way acting in concert with respect to
such obligations or the transactions contemplated by this Agreement. Each
Holder shall be entitled to protect and enforce its rights, including without limitation
the rights arising out of this Agreement, and it shall not be necessary for any
other Holder to be joined as an additional party in any proceeding for such
purpose.

 

********************

 

14

 

IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.

 

 

	
   

  	
  LPATH, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
   

  
	
   

  	
   

  	
  Name: 

  
	
   

  	
   

  	
  Title:

  

 

 

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

 

15

 

[SIGNATURE PAGE OF HOLDERS TO LPTN RRA]

 

	
  Name of Holder:

  	
   

  
	
   

  
	
  Signature of Authorized Signatory of Holder:

  	
   

  
	
   

  	
   

  
	
  Name of Authorized Signatory:

  	
   

  
	
   

  	
   

  
	
  Title of Authorized Signatory:

  	
   

  
					

 

 

[SIGNATURE PAGES CONTINUE]

 

16

 

Annex A

 

Plan of Distribution

 

Each Selling Stockholder (the “Selling Stockholders”) of the
common stock and any of their pledgees, assignees and successors-in-interest
may, from time to time, sell any or all of their shares of common stock on the
OTCBB or any other stock exchange, market or trading facility on which the
shares are traded or in private transactions. 
These sales may be at fixed or negotiated prices.  A Selling Stockholder may use any one or more
of the following methods when selling shares:

 

·      ordinary
brokerage transactions and transactions in which the broker-dealer solicits
purchasers;

 

·      block
trades in which the broker-dealer will attempt to sell the shares as agent but
may position and resell a portion of the block as principal to facilitate the
transaction;

 

·      purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;

 

·      an
exchange distribution in accordance with the rules of the applicable
exchange;

 

·      privately
negotiated transactions;

 

·      settlement
of short sales entered into after the effective date of the registration
statement of which this prospectus is a part;

 

·      broker-dealers
may agree with the Selling Stockholders to sell a specified number of such
shares at a stipulated price per share;

 

·      through
the writing or settlement of options or other hedging transactions, whether
through an options exchange or otherwise;

 

·      a
combination of any such methods of sale; or

 

·      any
other method permitted pursuant to applicable law.

 

The Selling Stockholders may also sell shares under Rule 144 under
the Securities Act of 1933, as amended (the “Securities Act”), if
available, rather than under this prospectus.

 

Broker-dealers engaged by the Selling Stockholders may arrange for
other brokers-dealers to participate in sales. 
Broker-dealers may receive commissions or discounts from the Selling
Stockholders (or, if any broker-dealer acts as agent for the purchaser of
shares, from the purchaser) in amounts to be negotiated, but, except as set
forth in a supplement to this Prospectus, in the case of an agency transaction
not in excess of a customary brokerage commission in compliance with NASDR Rule 2440;
and in the case of a principal transaction a markup or markdown in compliance
with NASDR IM-2440.

 

17

 

In connection with the sale of the common stock or interests therein,
the Selling Stockholders may enter into hedging transactions with
broker-dealers or other financial institutions, which may in turn engage in short
sales of the common stock in the course of hedging the positions they
assume.  The Selling Stockholders may
also sell shares of the common stock short and deliver these securities to
close out their short positions, or loan or pledge the common stock to
broker-dealers that in turn may sell these securities.  The Selling Stockholders may also enter into
option or other transactions with broker-dealers or other financial
institutions or the creation of one or more derivative securities which require
the delivery to such broker-dealer or other financial institution of shares
offered by this prospectus, which shares such broker-dealer or other financial
institution may resell pursuant to this prospectus (as supplemented or amended
to reflect such transaction).

 

The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be “underwriters” within the
meaning of the Securities Act in connection with such sales.  In such event, any commissions received by such
broker-dealers or agents and any profit on the resale of the shares purchased
by them may be deemed to be underwriting commissions or discounts under the
Securities Act.  Each Selling Stockholder
has informed the Company that it does not have any written or oral agreement or
understanding, directly or indirectly, with any person to distribute the Common
Stock. In no event shall any broker-dealer receive fees, commissions and
markups which, in the aggregate, would exceed eight percent (8%).

 

The Company is required to pay certain fees and expenses incurred by
the Company incident to the registration of the shares.  The Company has agreed to indemnify the
Selling Stockholders against certain losses, claims, damages and liabilities,
including liabilities under the Securities Act.

 

Because Selling Stockholders may be deemed to be “underwriters” within
the meaning of the Securities Act, they will be subject to the prospectus
delivery requirements of the Securities Act including Rule 172
thereunder.  In addition, any securities
covered by this prospectus which qualify for sale pursuant to Rule 144
under the Securities Act may be sold under Rule 144 rather than under this
prospectus.  There is no underwriter or
coordinating broker acting in connection with the proposed sale of the resale
shares by the Selling Stockholders.

 

We agreed to keep this prospectus effective until the earlier of (i) the
date on which the shares may be resold by the Selling Stockholders without
registration and without regard to any volume limitations by reason of Rule 144(k) under
the Securities Act or any other rule of similar effect or (ii) all of
the shares have been sold pursuant to this prospectus or Rule 144 under
the Securities Act or any other rule of similar effect.  The resale shares will be sold only through
registered or licensed brokers or dealers if required under applicable state
securities laws. In addition, in certain states, the resale shares may not be
sold unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is
available and is complied with.

 

Under applicable rules and regulations under the
Exchange Act, any person engaged in the distribution of the resale shares may
not simultaneously engage in market making activities with respect to the
common stock for the applicable restricted period, as defined in Regulation M,
prior to the commencement of the distribution. 
In addition, the Selling Stockholders will be 

 

18

 

subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including Regulation M, which may limit the timing of purchases and sales of
shares of the common stock by the Selling Stockholders or any other
person.  We will make copies of this
prospectus available to the Selling Stockholders and have informed them of the
need to deliver a copy of this prospectus to each purchaser at or prior to the
time of the sale (including by compliance with Rule 172 under the
Securities Act).

 

19

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