Document:

Unassociated Document

     

    Exhibit
      10.29

     

    SECOND AMENDMENT AND MODIFICATION

    TO LOAN AND SECURITY AGREEMENT AND OTHER LOAN DOCUMENTS

     

    THIS SECOND AMENDMENT AND MODIFICATION TO LOAN AND SECURITY AGREEMENT AND OTHER LOAN DOCUMENTS
      (the
“Amendment”)
      is made
      effective as of October _____, 2007 by and among LASALLE BANK NATIONAL ASSOCIATION
      (the
“Lender”)
      and
ZANETT, INC.,
      a
      Delaware corporation (“Zanett”),
      ZANETT COMMERCIAL SOLUTIONS, INC.,
      a
      Delaware corporation (“ZCS”)
      and
PARAGON DYNAMICS, INC.,
      a
      Delaware corporation (“Paragon”).
      (Zanett, ZCS and Paragon are each individually, a “Borrower”
      and
      collectively, the “Borrowers”).

     

    BACKGROUND

     

    A. Borrowers
      and Lender have previously entered into a certain Loan and Security Agreement
      dated December 21, 2006, as amended by that certain First Amendment and
      Modification to Loan and Security Agreement and Other Loan Documents dated
      May
      31, 2007 (as amended, the “Loan Agreement”),
      pursuant to which, inter alia,
      Lender
      agreed to extend to Borrowers certain credit facilities subject to the terms
      and
      conditions set forth therein.

     

    B. Bruno
      Guazzoni and Emral Holdings Limited have each previously entered into
      Subordination Agreements with Lender both dated December 21, 2007 (as such
      agreements may have been and may be amended, individually, a “Subordination Agreement”
and
      collectively, the “Subordination Agreements”),
      pursuant to which, inter alia,
      Bruno
      Guazzoni and Emral Holdings Limited each subordinated their Junior Debt to
      the
      Senior Debt (as both such terms are defined in the applicable Subordination
      Agreement).

     

    C. Borrowers
      and Lender are entering into this Amendment to amend certain terms and
      conditions of the Loan Agreement and the Subordination Agreements.

     

    D. Capitalized
      terms used herein and not otherwise defined herein shall have the meanings
      set
      forth for such terms in the Loan Agreement or the Subordination Agreements,
      as
      applicable.

     

    NOW,
      THEREFORE, in consideration of the foregoing premises and intending to be
      legally bound hereby, the parties hereto agree as follows:

     

    1. Amendments to Loan Agreement.

     

    1.1 Definitions.

     

    (a) The
      following definitions set forth in Section 1(a)
      of the
      Loan Agreement shall be amended to read, in each of their entirety, as
      follows:

     

    “Contract Term”
shall
      mean the earlier to occur of (a) December ___, 2007 or (b) the date of the
      closing of the ___________ Business Line Sale occurs.

     

    “Maximum Revolving Loan Limit”
shall
      mean $6,000,000 as of the date of this Agreement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (b) The
      following definition is hereby added to Section 1(a)
      of the
      Loan Agreement in its proper alphabetical order and when used in this Amendment,
      such term shall have the following meaning:

     

    “__________
      Business Line Sale”
shall
      mean any sale of any material portion of the __________ line of business
      currently operated by __________.

     

    1.2 Interest Rate.
      Section 4(a)
      of the
      Loan Agreement shall be and is hereby amended to read, in its entirety, as
      follows:

     

    (a) Interest Rate.
      Subject
      to the terms and conditions set forth below, all Revolving Loans shall bear
      interest at the per annum rate of interest set forth in subsections (i) and (ii)
      below:

     

    (i) The
      Prime
      Rate in effect from time to time plus
      ___________ percent (____%) per annum, payable on the first Business Day of
      each
      month in arrears. Said rate of interest shall increase or decrease by an amount
      equal to each increase or decrease in the Prime Rate effective on the effective
      date of each such change in the Prime Rate.

     

    (ii) Upon
      the
      occurrence of an Event of Default and during the continuance thereof, the Loans
      shall bear interest at the rate of two percent (2.0%) per annum in excess of
      the
      interest rate otherwise payable thereon (the “Default Rate”),
      which
      interest shall be payable on demand. All interest shall be calculated on the
      basis of a 360-day year and based on actual principal amounts
      outstanding.

     

    1.3 No LIBOR Rate Loans.
      Borrowers are no longer entitled to receive any LIBOR Rate Loans and Lender
      shall have no obligation to make or continue any LIBOR Rate Loans.

     

    1.4 Subordinated Debt.
      Borrowers hereby represent and warrant to Lender that the following sets forth
      the outstanding amount and the regularly scheduled principal and interest
      payments due with respect to all existing Public Subordinated Debt:

     

    
      	
              Amount

            	
              Mature
                Date

            	
              Interest
                Payment Dates

            	
              Principal
                Payment Dates

            
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 

    

     

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    Borrower
      shall not make any prepayment of any amount due with respect to any Public
      Subordinated Debt or make any non-mandatory redemptions or repurchases of any
      Public Subordinated Debt.

     

    Borrowers
      hereby represent and warrant to Lender that the following sets forth the
      outstanding amount and the regularly scheduled principal and interest payments
      due with respect to all existing Private Subordinated Debt:

     

    
      	
              Payee

            	
              Amount

            	
              Maturity
                Date

            	
              Interest
                Payments Dates

            	
              Principal
                Payment Dates

            
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 

    

    

     

    Notwithstanding
      anything herein or elsewhere to the contrary, Borrowers shall not make any
      payments whatsoever with respect to any principal, interest or other sums due
      with respect to any Private Subordinated Debt or make any redemptions or
      repurchases of any Private Subordinated Debt.

     

    Sections 4.6, 4.7 and 4.8
      of the
      First Amendment and Modification to Loan and Security Agreement and other Loan
      Documents dated May 31,2007 are hereby deleted, since Borrower has agreed not
      to
      make any payments on any Private Subordinated Debt. 

     

    2. Waiver Regarding Fixed Charge Coverage Ratio.
      Borrowers have requested and Lender has agreed to waive as an Event of Default
      the failure of Borrowers to comply with the Fixed Charge Coverage Ratio covenant
      set forth in Section 14(a)
      of the
      Loan Agreement for the 12 month period ending on September 30, 2007. Such waiver
      shall be limited to Borrowers’ compliance with Section 14(a)
      of the
      Loan Agreement solely for such period and for no other period and such waiver
      shall not be construed to constitute a waiver of Borrowers’ compliance with any
      other terms of the Loan Agreement or an agreement to enter into any future
      waivers with Borrowers.

     

    3. Waiver Regarding Senior Debt Ratio.
      Borrowers have requested and Lender has agreed to waive as an Event of Default
      the failure of Borrowers to comply with the Senior Debt Ratio covenant set
      forth
      in Section 14(b)
      of the
      Loan Agreement for the following periods: (i) for the 9 month period ending
      on
      June 30, 2007 and (ii) for the 12 month period ending on September 30, 2007.
      Such waiver shall be limited to Borrowers’ compliance with Section 14(b)
      of the
      Loan Agreement solely for such periods and for no other period and such waiver
      shall not be construed to constitute a waiver of Borrowers’ compliance with any
      other terms of the Loan Agreement or an agreement to enter into any future
      waivers with Borrowers.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    4. Waiver of EBITDA Covenant.
      Borrowers have requested and Lender has agreed to waive as an Event of Default
      the failure of Borrowers to comply with the “EBITDA”
      covenant set forth in Section 14(c)
      of the
      Loan Agreement: (a) for the following individual calendar months: (i) May,
      2007,
      (ii) June, 2007, (iii) July, 2007, (iv) August, 2007 and (v) September, 2007;
      and (b) for the aggregate calendar months of ____________, 2007. Such waiver
      shall be limited to Borrowers’ compliance with Section 14(c)
      of the
      Loan Agreement solely for such calendar months and for no other period and
      such
      waiver shall not be construed to constitute a waiver of Borrowers’ compliance
      with any other terms of the Loan Agreement or an agreement to enter into any
      future waivers with Borrowers.

     

    5. Cure Period.
      The
      thirty (30) day cure period set forth in Section 15(b)
      of the
      Loan Agreement is hereby deleted in its entirety.

     

    6. No Payments on Junior Debt.
      Paragraph (C)
      of each
      of the Subordination Agreements are hereby amended to read, in each of their
      entirety, as follows:

     

    “(C) agrees
      to
      instruct Borrower not to pay, and agrees not to accept payment of, or assert,
      demand, sue for or seek to enforce against Borrower or any other person or
      entity, by setoff or otherwise, all or any portion of the Junior Debt unless
      and
      until Lender has, in writing, notified Creditor that the Senior Debt has been
      paid in full, all obligations arising in connection therewith have been
      discharged and Lender has no further obligation to make any advances to
      Borrower.”

     

    7. Amendment Fee.
      As
      consideration for Lender to enter into this Amendment, Borrowers have agreed
      to
      pay to Lender an amendment fee equal to $____________ (the “Amendment Fee”).
      The
      Amendment Fee is due and payable in full upon execution of this Amendment.
      Borrowers agree that the Amendment Fee has been fully earned by Lender and
      is
      non-refundable.

     

    8. Termination Fee.
      Borrowers acknowledge and agree that, as a result of the financial covenant
      defaults which are being waived pursuant to this Amendment, Lender could have
      terminated the Loan Agreement and been entitled to receive a Termination Fee
      equal to $160,000. As an inducement for Lender to grant the waivers set forth
      in
      this Agreement, Borrowers agree that such fee in the amount of $160,000 shall
      be
      deemed fully earned upon execution of this Amendment by Lender and that such
      fee
      is non-refundable and is payable upon the earlier to occur of: (a) the
      expiration of the Contract Term, or (b) the occurrence of a Default or Event
      of
      Default, provided that,
      in the
      event that Borrowers repay all Loans and Liabilities owed to Lender on or before
      November ___, 2007 and the obligation of Lender to make Advances to Borrowers
      under the Loan Agreement is terminated, then such fee shall be reduced from
      $160,000 to $__________. 

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    9. __________ Business Line Sale.
      Borrowers hereby represent, warrant and covenant to and with Lender as
      follows:

     

    (a) Borrowers
      have engaged Houlihan Lokey to find potential buyers of the __________ business
      line operated by ____________________________.

     

    (b) Borrowers
      authorize Lender to communicate directly with Houlihan Lokey regarding any
      and
      all aspects of the offering for sale and sale of such __________ business line.
      Borrowers shall direct and authorize Houlihan Lokey by a separate letter to
      discuss such sale with Lender and to share information with Lender regarding
      such sale. 

     

    (c) Borrowers
      shall provide Lender with weekly written up-dates regarding the progress of
      such
      sale.

     

    (d) Borrowers
      acknowledge and agree that all assets constituting part of or used or useful
      in
      connection with the __________ business line are subject to a perfected, first
      priority lien in favor of Lender and that all proceeds from the __________
      Business Line Sale shall be applied first to repay the Loans and other
      Liabilities owed to Lender.

     

    10. Confirmation of Collateral.
      Nothing
      contained herein shall be deemed to be a compromise, satisfaction, accord and
      satisfaction, novation or release of any of the Loan Documents, or any rights
      or
      obligations thereunder, or a waiver by Lender of any of its rights under the
      Loan Documents or at law or in equity. All liens, security interests, rights
      and
      remedies granted to Lender in Loan Documents are hereby ratified, confirmed
      and
      continued. Borrowers acknowledge and agree that the term “Loan Documents” as
      used in the Loan Agreement and any other documents executed in connection
      therewith shall include, without limitation, this Amendment and any and all
      other documents executed in connection herewith.

     

    11. Challenge to Enforcement.
      Borrowers acknowledge and agree that they do not have any defense, set-off,
      counterclaim or challenge against the payment of any sums owing under the Loan
      Documents, or the enforcement of any of the terms or conditions
      thereof.

     

    12. Representation and Warranties.
      Borrowers hereby, jointly and severally, represent and warrant, which
      representations and warranties shall survive until all Liabilities are paid
      and
      satisfied in full, as follows:

     

    12.1 All
      representations and warranties of Borrowers set forth in the Loan Documents
      are
      true and complete in all material respects as of the date hereof.

     

    12.2 Upon
      the
      effectiveness of this Amendment, no condition or event exists or has occurred
      which would constitute a Default or an Event of Default under the Loan Agreement
      or any of the other Loan Documents.

     

    12.3 Borrowers
      have not received any notice of default or event of default from any other
      lender, trustee or lessor with respect to any other loan, financing or lease
      agreement.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    12.4 The
      execution and delivery of this Amendment by Borrowers and all documents and
      agreements to be executed and delivered pursuant to the terms
      hereof:

     

    (a) has
      been
      duly authorized by all requisite corporate action by each Borrower;

     

    (b) will
      not
      conflict with or result in the breach of or constitute a default (upon the
      passage of time, delivery of notice or both) under any Borrower’s Articles of
      Incorporation, By-Laws or any applicable statute, law, rule, regulation or
      ordinance or any indenture, mortgage, loan or other document or agreement to
      which any Borrower is a party or by which any of them is bound or affected;
      and

     

    (c) will
      not
      result in the creation or imposition of any lien, charge or encumbrance of
      any
      nature whatsoever upon any of the property or assets of Borrower, except liens
      in favor of Lender or as otherwise permitted under the Loan
      Documents.

     

    13. Conditions.
      The
      obligation of Lender to enter into this Amendment is subject to the following
      conditions (any of which may be waived by Lender):

     

    13.1 Loan Documents.
      Borrowers and all other required persons and entities will have executed and
      delivered to Lender this Amendment and such other documents as Lender may
      require.

     

    13.2 Other Documents.
      Such
      other documents as may be required to be submitted to Lender by the terms hereof
      or any of the Loan Documents shall have been delivered by or on behalf of
      Borrowers.

     

    14. Additional Documents; Further Assurances.
      Borrowers covenant and agree to execute and deliver to Lender, or to cause
      to be
      executed and delivered to Lender contemporaneously herewith, at the sole cost
      and expense of Borrowers, any and all other documents, agreements, statements,
      resolutions, certificates, consents and information as Lender may require in
      connection with the matters or actions described herein. Borrowers further
      covenant and agree to execute and deliver to Lender or to cause to be executed
      and delivered at the sole cost and expense of Borrowers, from time to time,
      any
      and all other documents, agreements, statements, certificates and information
      as
      Lender shall reasonably request to evidence or effect the terms hereof, the
      Loan
      Agreement, as amended, or any of the other Loan Documents, or to enforce or
      to
      protect Lender’s interest in the Collateral. All such documents, agreements,
      statements, certificates and information shall be in form and content acceptable
      to Lender in its sole discretion.

     

    15. Certain Fees, Costs, Expenses and Expenditures.
      Borrowers will pay all of the Lender’s expenses in connection with the review,
      preparation, negotiation, documentation and closing of this Amendment and the
      consummation of the transactions contemplated hereunder, including without
      limitation, costs and fees and expenses of counsel retained by Lender and all
      fees related to filings, recording of documents and searches, whether or not
      the
      transactions contemplated hereunder are consummated. Nothing contained herein
      shall limit in any manner whatsoever Lender’s right to reimbursement under any
      of the Loan Documents.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    16. Communications and Notices.
      All
      notices, requests and other communications made or given in connection with
      this
      Amendment shall be made in accordance with the provisions of the Loan
      Agreement.

     

    17. Time of Essence.
      Time is
      of the essence of this Amendment.

     

    18. No Waiver.
      Except
      as otherwise provided herein, nothing contained and no actions taken by Lender
      in connection herewith shall constitute nor shall they be deemed to be a waiver,
      release or amendment of or to any rights, remedies, or privileges afforded
      to
      Lender under the Loan Documents or under the Uniform Commercial Code as adopted
      in the Commonwealth of Pennsylvania. Nothing herein shall constitute a waiver
      by
      Lender of Borrowers’ compliance with the terms of the Loan Documents, nor shall
      anything contained herein constitute an agreement by Lender to enter into any
      further amendments with Borrowers.

     

    19. Inconsistencies.
      To the
      extent of any inconsistencies between the terms and conditions of this Amendment
      and the terms and conditions of the Loan Documents, the terms and conditions
      of
      this Amendment shall prevail. All terms and conditions of the Loan Documents
      not
      inconsistent herewith shall remain in full force and effect and are hereby
      ratified and confirmed by Borrowers.

     

    20. Binding Effect.
      This
      Amendment and all rights and powers granted hereby will bind and inure to the
      benefit of the parties hereto and their respective permitted successors and
      assigns.

     

    21. Severability.
      The
      provisions of this Amendment and all other Loan Documents are deemed to be
      severable, and the invalidity or unenforceability of any provision shall not
      affect or impair the remaining provisions which shall continue in full force
      and
      effect.

     

    22. No Third Party Beneficiaries.
      The
      rights and benefits of this Amendment and the Loan Documents shall not inure
      to
      the benefit of any third party.

     

    23. Modifications.
      No
      modifications of this Amendment or any of the Loan Documents shall be binding
      or
      enforceable unless in writing and signed by or on behalf of the party against
      whom enforcement is sought.

     

    24. Holidays.
      If the
      day provided herein for the payment of any amount or the taking of any action
      falls on a Saturday, Sunday or public holiday at the place for payment or
      action, then the due date for such payment or action will be the next succeeding
      Business Day.

     

    25. Law Governing.
      This
      Amendment has been made, executed and delivered in the Commonwealth of
      Pennsylvania and will be construed in accordance with and governed by the laws
      of such Commonwealth, without regard to any rules or principles regarding
      conflicts of law or any rule or canon of construction which interprets
      agreements against the draftsman.

     

    26. Headings.
      The
      headings of the Articles, Sections, paragraphs and clauses of this Amendment
      are
      inserted for convenience only and shall not be deemed to constitute a part
      of
      this Amendment.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    27. Counterparts; Facsimile Signatures.
      This
      Amendment may be executed in any number of counterparts, all of which taken
      together constitute one and the same instrument, and any of the parties hereto
      may execute this Amendment by signing any such counterpart. Any signature
      delivered via facsimile shall be deemed an original signature
      hereto.

     

    28. Waiver
      of Right to Trial by Jury. BORROWERS AND LENDER WAIVE ANY RIGHT TO TRIAL BY
      JURY ON ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (a) ARISING UNDER THIS
      AMENDMENT, (b) ARISING UNDER ANY OF THE OTHER LOAN DOCUMENTS OR (c) IN ANY
      WAY
      CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF BORROWERS OR LENDER
      WITH RESPECT TO THIS AMENDMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE
      TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER SOUNDING IN
      CONTRACT OR TORT OR OTHERWISE. BORROWERS AND LENDER AGREE AND CONSENT THAT
      ANY
      SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
      WITHOUT A JURY, AND THAT ANY PARTY TO THIS AMENDMENT MAY FILE AN ORIGINAL
      COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF
      THE
      CONSENT OF BORROWERS AND LENDER TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
      EACH BORROWER ACKNOWLEDGES THAT IT HAS HAD THE OPPORTUNITY TO CONSULT WITH
      COUNSEL REGARDING THIS SECTION, THAT IT FULLY UNDERSTANDS ITS TERMS, CONTENT
      AND
      EFFECT, AND THAT IT VOLUNTARILY AND KNOWINGLY AGREES TO THE TERMS OF THIS
      SECTION.

     

    [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    

     

      IN WITNESS WHEREOF,
        the
        parties hereto have duly executed this Amendment, intending to be legally
        bound
        hereby, effective as of the date first written above.

    

     

    
      	 	
              BORROWERS:

               

              ZANETT, INC.

               

              By:__________________________________

              Name:________________________________

              Title:_________________________________

               

               

              ZANETT COMMERCIAL SOLUTIONS, INC.

               

              By:__________________________________

              Name:________________________________

              Title:_________________________________

               

               

              PARAGON DYNAMICS, INC.

               

              By:__________________________________

              Name:________________________________

              Title:_________________________________

            
	 	
               

              LENDER:

               

              LASALLE BANK NATIONAL ASSOCIATION

               

              By:__________________________________

              Name:________________________________

              Title:_________________________________

            

    

    

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    CONSENT AND AGREEMENT

    

    The
      undersigned, as holders of the Private Subordinated Debt, hereby consent and
      agree to the terms of this Amendment, and further consent to, agree to and
      join
      in the provisions of Section 1.4
      and
Section 6
      of this
      Amendment as such provisions relate to the Private Subordinated Debt and to
      the
      extent that such provisions amend or modify each of the Subordination Agreements
      dated December 21, 2006 executed by the undersigned in favor of Lender, all
      of
      the terms of which are hereby ratified and confirmed as amended by this
      Amendment.

     

    IN WITNESS WHEREOF,
      the
      undersigned have duly executed this Consent and Agreement, intending to be
      legally bound hereby, effective as of October _____, 2007.

     

    

    ____________________________________

    BRUNO GUAZZONI,
      an
      individual

    

    

    

    EMRAL HOLDINGS LIMITED

    

    By:_________________________________

    Name:______________________________

     

    Title:_______________________________

     

    

    
      
         

      

      
        10Exhibit
      4.3

    

    THIS
      WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF1933 (THE "ACT")
      NOR
      UNDER ANY STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED OR
      OTHERWISE TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT UNDER THE ACT AND
      ANY
      APPLICABLE STATE SECURITIES LAW HAS BECOME EFFECTIVE WITH RESPECT THERETO,
      OR
      (2)RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL TO THE COMPANY TO THE EFFECT
      THAT REGISTRATION UNDER THE ACT OR APPLICABLE STATE SECURITIES LAW IS NOT
      REQUIRED IN CONNECTION WITH THE PROPOSED TRANSFER.

    

    Void
      after 5:00 p.m. Central Standard Time, on December 31, 2012

    Warrant
      to Purchase 714,285 Shares of Common Stock.

    WARRANT
      TO PURCHASE COMMON STOCK

    OF

    SPECTRASCIENCE, INC.

    

    This
      is
      to Certify That, FOR VALUE RECEIVED, Advanced Equities, Inc. ("Holder") is
      entitled to purchase, subject to the provisions of this Warrant, from
      SpectraScience, Inc., a Minnesota corporation ("Company"), 714,285 fully paid,
      validly issued and nonassessable shares of Common Stock, $0.01 par value per
      share, of the Company ("Common Stock") at an initial price of $0.80 per share
      at
      any time or from time to time during the period from the date hereof to 5:00
      p.m. Central Standard Time, on December 31, 2012. The number of shares of Common
      Stock to be received upon the exercise of this Warrant and the price to be
      paid
      for each share of Common Stock may be adjusted from time to time as hereinafter
      set forth. The exercise price and the number of shares issuable upon exercise
      of
      the Warrants will be proportionately adjusted for stock splits, stock dividends,
      recapitalizations and similar transactions. The shares of Common Stock
      deliverable upon such exercise, and as adjusted from time to time, are
      hereinafter sometimes referred to as "Warrant Shares" and the exercise price
      of
      a share of Common Stock in effect at any time and as adjusted from time to
      time
      is hereinafter sometimes referred to as the "Exercise Price".

    

    
      	
            	(a)	
              EXERCISE
                OF WARRANT.

            

    

    

    (1)
       This
      Warrant may be exercised in whole or in part at any time or from time to time
      on
      or after the date hereof and until 5:00 p.m. Central Standard Time on December
      13, 2012; provided, however, that if either such day is a day on which banking
      institutions in the State of Illinois are authorized by law to close, then
      on
      the next succeeding day which shall not be such a day. This Warrant may be
      exercised by presentation and surrender hereof to the Company at its principal
      office with the Purchase Form annexed hereto duly executed and accompanied
      by
      payment of the Exercise Price for the number of Warrant Shares specified in
      such
      form. As soon as practicable after each such exercise of the warrants, but
      not
      later than seven (7) days from the date of such exercise, the Company shall
      issue and deliver to the Holder a certificate or certificate for the Warrant
      Shares issuable upon such exercise, registered in the name of the Holder or
      its
      designee. If this Warrant should be exercised in part only, the Company shall,
      upon surrender of this Warrant for cancellation, execute and deliver a new
      Warrant evidencing the rights of the Holder thereof to purchase the balance
      of
      the Warrant Shares purchasable thereunder. Upon receipt by the Company of this
      Warrant at its office in proper form for exercise, the Holder shall be deemed
      to
      be the holder of record of the shares of Common Stock issuable upon such
      exercise, notwithstanding that the stock transfer books of the Company shall
      then be closed or that certificates representing such shares of Common Stock
      shall not then be physically delivered to the Holder.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (2)
       In
      lieu
      of delivering the Exercise Price in cash or check the Holder may elect to
      receive shares equal to the value of the Warrant or portion thereof being
      exercised ("Net Issue Exercise"). If the Holder wishes to elect the Net Issue
      Exercise, the Holder shall notify the Company of its election in writing at
      the
      time it delivers to the Company the Purchase Form. In the event the Holder
      shall
      elect Net Issue Exercise, the Holder shall receive the number of shares of
      Common Stock equal to the product of (a) the number of shares of Common Stock
      purchasable under the Warrant, or portion thereof being exercised, and (b)
      the
      current market value, as defined in paragraph (c), of one share of Common Stock
      minus the Exercise Price, divided by (c) the current market value, as defined
      below, of one share of Common Stock.

    

    
      	
            	(b)	
              RESERVATION
                OF SHARES. The Company shall at all times reserve for issuance and/or
                delivery upon exercise of this Warrant such number of shares of its
                Common
                Stock as shall be required for issuance and delivery upon exercise
                of the
                Warrants.

            

    

    

    
      	
            	(c)	
              FRACTIONAL
                SHARES. No fractional shares or scrip representing fractional shares
                shall
                be issued upon the exercise of this Warrant. With respect to any
                fraction
                of a share called for upon any exercise hereof, the Company shall
                pay to
                the Holder an amount in cash equal to such fraction multiplied by
                the
                current market value of a share, determined as
                follows:

            

    

    

    (1)
       If
      the
      Common Stock (or the common stock of the Company that would be securities
      exchange or admitted to unlisted trading privileges on such exchange or listed
      for trading on the NASDAQ system, the current market value shall be the last
      reported sale price of the Common Stock (or common stock) on such exchange
      or
      system on the last business day prior to the date of exercise of this Warrant
      or
      if no such sale is made on such day, the average closing bid and asked prices
      for such day on such exchange or system; or

    

    (2) 
      If the
      Common Stock is not so listed or admitted to unlisted trading privileges, the
      current market value shall be the mean of the last reported bid and asked prices
      reported by the National Quotation Bureau, Inc. on the last business day prior
      to the date of the exercise of this Warrant; or

    

    (3) 
      If the
      Common Stock is not so listed or admitted to unlisted trading privileges and
      bid
      and asked prices are not so reported, the current market value shall be an
      amount, not less than the book value thereof as at the end of the most recent
      fiscal year of the Company ending prior to the date of the exercise of the
      Warrant, determined in such reasonable manner as may be prescribed by the Board
      of Directors of the Company.

    

    
      	 	
              (d)
                

            	
              EXCHANGE,
                TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is exchangeable,
                without expense, at the option of the Holder, upon presentation and
                surrender hereof to the Company for other warrants of different
                denominations entitling the holder thereof to purchase in the aggregate
                the same number of shares of Common Stock purchasable hereunder.
                Upon
                surrender of this Warrant to the Company at its principal office
                with the
                Assignment Form annexed hereto duly executed and funds sufficient
                to pay
                any transfer tax, the Company shall, without charge, execute and
                deliver a
                new Warrant in the name of the assignee named in such instrument
                of
                assignment and this Warrant shall promptly be cancelled. This Warrant
                may
                be divided or combined with other warrants which carry the same rights
                upon presentation hereof at the principal office of the Company together
                with a written notice specifying the names and denominations in which
                new
                Warrants are to be issued and signed by the Holder hereof. The term
                "Warrant" as used herein includes any Warrants into which this Warrant
                may
                be divided or exchanged. Upon receipt by the Company of evidence
                satisfactory to it of the loss, theft, destruction or mutilation
                of this
                Warrant, and (in the case of loss, theft or destruction) of reasonably
                satisfactory indemnification, and upon surrender and cancellation
                of this
                Warrant, if mutilated, the Company will execute and deliver a new
                Warrant
                of like tenor and date. Any such new Warrant executed and delivered
                shall
                constitute an additional contractual obligation on the part of the
                Company, whether or not this Warrant so lost, stolen, destroyed,
                or
                mutilated shall be at any time enforceable by
                anyone.

            

    

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (e)
                

            	
              RIGHTS
                OF THE HOLDER. The Holder shall not, by virtue hereof, be entitled
                to any
                rights of a shareholder in the Company, either at law or equity,
                and the
                rights of the Holder are limited to those expressed in the Warrant
                and are
                not enforceable against the Company except to the extent set forth
                herein.

            

    

    

    
      	 	
              (f)
                

            	
              ANTI-DILUTION
                PROVISIONS. The Exercise Price in effect at any time and the number
                and
                kind of securities purchasable upon the exercise of the Warrants
                shall be
                subject to adjustment from time to time upon the happening of certain
                events as follows:

            

    

    

    
      	
            	(1)	
              In
                case the Company shall (i) declare a dividend or make a distribution
                on
                its outstanding shares of Common Stock in shares of Common Stock,
                (ii)
                subdivide or reclassify its outstanding shares of Common Stock into
                a
                greater number of shares, or (iii) combine or reclassify its outstanding
                shares of Common Stock into a smaller number of shares, the Exercise
                Price
                in effect at the time of the record date for such dividend or distribution
                or of the effective date of such subdivision, combination or
                reclassification shall be adjusted so that the Exercise Price shall
                be
                proportionately increased (as in the case of (iii), above) or decreased
                (as in the case of (i) or (ii), above). Such adjustment shall be
                made
                successively whenever any event listed above shall
                occur.

            

    

    

    
      	
            	(2)	
              Whenever
                the Exercise Price payable upon exercise of each Warrant is adjusted
                pursuant to Subsections (1) above, the number of Shares purchasable
                upon
                exercise of this Warrant shall simultaneously be adjusted by multiplying
                the number of Shares initially issuable upon exercise of this Warrant
                by
                the Exercise Price in effect on the date hereof and dividing the
                product
                so obtained by the Exercise Price, as
                adjusted.

            

    

    

    
      	
            	(3)	
              No
                adjustment in the Exercise Price shall be required unless such adjustment
                would require an increase or decrease of at least two cents ($0.02)
                in
                such price; provided, however, that any adjustments which by reason
                of
                this Subsection (5) are not required to be made shall be carried
                forward
                and taken into account in and subsequent adjustment required to be
                made
                hereunder. All calculations under this Section (f) shall be made
                to the
                nearest cent or to the nearest one-hundredth of a share, as the case
                may
                be. Anything in this Section (f) to the contrary notwithstanding,
                the
                Company shall be entitled, but shall not be required, to make such
                changes
                in the Exercise Price, in addition to those required by this Section
                (f),
                as it shall determine, in its sole discretion, to be advisable in
                order
                that any dividend or distribution in shares of Common Stock, or any
                subdivision, reclassification or combination of Common Stock, hereafter
                made by the Company shall not result in any Federal income tax liability
                to the holders of Common Stock or securities convertible into Common
                or
                Common Stock (including Warrants).

            

    

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    
      	
            	(4)	
              Whenever
                the Exercise Price is adjusted, as herein provided, the Company shall
                promptly but no later than 20 days after any request for such an
                adjustment by the Holder, cause a notice setting forth the adjusted
                Exercise Price and adjusted number of Shares issuable upon exercise
                of
                each Warrant, and, if requested, information describing the transactions
                giving rise to such adjustments, to be mailed to the Holder at his
                last
                address appearing in the Warrant Register, and shall cause a certified
                copy thereof to be mailed to its transfer agent, if any. The Company
                may
                retain a firm of independent certified public accountants selected
                by the
                Board of Directors (who may be the regular accountants employed by
                the
                Company) to make any computation required by this Section (t), and
                a
                certificate signed by such firm shall be conclusive evidence of the
                correctness of such adjustment.

            

    

     

    
      	
            	(5)	
              In
                the event that at any time, as a result of an adjustment made pursuant
                to
                Subsection (1) above, the Holder of this Warrant thereafter shall
                become
                entitled to receive any shares of the Company, other than Common
                Stock,
                thereafter the number of such other shares so receivable upon exercise
                of
                this Warrant shall be subject to adjustment from time to time in
                a manner
                and on terms as nearly equivalent as practicable to the provisions
                with
                respect to the Common Stock contained in Subsections (1) to (4),
                inclusive
                above.

            

    

     

    
      	
            	(6)	
              Irrespective
                of any adjustments in the Exercise Price or the number or kind of
                shares
                purchasable upon exercise of this Warrant, Warrants theretofore or
                thereafter issued may continue to express the same price and number
                and
                kind of shares as are stated in the similar Warrants initially issuable
                pursuant to this Agreement.

            

    

    

    
      	 	
              (g)
                

            	
              OFFICER'S
                CERTIFICATE. Whenever the Exercise Price shall be adjusted as required
                by
                the provisions of the foregoing Section, the Company shall forthwith
                file
                in the custody of its Secretary or an Assistant Secretary at its
                principal
                office an officer's certificate showing the adjusted Exercise Price
                determined as herein provided, setting forth in reasonable detail
                the
                facts requiring such adjustment, including a statement of the number
                of
                additional shares of Common Stock, if any, and such other facts as
                shall
                be necessary to show the reason for and the manner of computing such
                adjustment. Each such officer's certificate shall be made available
                at all
                reasonable times for inspection by the Holder or any holder of a
                Warrant
                executed and delivered pursuant to Section (a) and the Company shall,
                forthwith after each such adjustment, mail a copy by certified mail
                of
                such certificate to the Holder or any such
                holder.

            

    

    

    
      	 	
              (h)
                

            	
              NOTICES
                TO WARRANT HOLDERS. So long as this Warrant shall be outstanding,
                (i) if
                the Company shall pay any dividend or make any distribution upon
                the
                Common Stock or (ii) if the Company shall offer to the holders of
                Common
                Stock for subscription or purchase by them any share of any class
                or any
                other rights or (iii) if any capital reorganization of the Company,
                reclassification of the capital stock of the Company, consolidation
                or
                merger of the Company with or into another corporation, sale, lease
                or
                transfer of all or substantially all of the property and assets of
                the
                Company to another corporation, or voluntary or involuntary dissolution,
                liquidation or winding up of the Company shall be effected, then
                in any
                such case, the Company shall cause to be mailed by certified mail
                to the
                Holder, at least fifteen days prior to the date specified in (x)
                or (y)
                below, as the case may be, a notice containing a brief description
                of the
                proposed action and stating the date on which (x) a record is to
                be taken
                for the purpose of such dividend, distribution or rights, or (y)
                such
                reclassification, reorganization, consolidation, merger, conveyance,
                lease, dissolution, liquidation or winding up is to take place and
                the
                date, if any is to be fixed, as of which the holders of Common Stock
                or
                other securities shall receive cash or other property deliverable
                upon
                such reclassification, reorganization, consolidation, merger, conveyance,
                dissolution, liquidation or winding
                up.

            

    

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (i)

            	
              RECLASSIFICATION,
                REORGANIZATION OR MERGER. In case of any reclassification, capital
                reorganization or other change of outstanding shares of Common Stock
                of
                the Company, or in case of any consolidation or merger of the Company
                with
                or into another corporation (other than a merger with a subsidiary
                in
                which merger the Company is the continuing corporation and which
                does not
                result in any reclassification, capital reorganization or other change
                of
                outstanding shares of Common Stock of the class issuable upon exercise
                of
                this Warrant) or in case of any sale, lease or conveyance to another
                corporation of the property of the Company as an entirety, the Company
                shall, as a condition precedent to such transaction, cause effective
                provisions to be made so that the Holder shall have the right thereafter
                by exercising this Warrant at any time prior to the expiration of
                the
                Warrant, to purchase the kind and amount of shares of stock and other
                securities and property receivable upon such reclassification, capital
                reorganization and other change, consolidation, merger, sale or conveyance
                by a holder of the number of shares of Common Stock which might have
                been
                purchased upon exercise of this Warrant immediately prior to such
                reclassification, change, consolidation, merger, sale or conveyance.
                Any
                such provision shall include provision for adjustments which shall
                be as
                nearly equivalent as may be practicable to the adjustments provided
                for in
                this Warrant. The foregoing provisions of this Section (i) shall
                similarly
                apply to successive reclassifications, capital reorganizations and
                changes
                of shares of Common Stock and to successive consolidations, mergers,
                sales
                or conveyances. In the event that in connection with any such capital
                reorganization or reclassification, consolidation, merger, sale or
                conveyance, additional shares of Common Stock shall be issued in
                exchange,
                conversion, substitution or payment, in whole or in part, for a security
                of the Company other than Common Stock, any such issue shall be treated
                as
                an issue of Common Stock covered by the provisions of Subsection
                (1) of
                Section (f) hereof.

            

    

     

    
      	 	
              (j)

            	
              REGISTRATION
                UNDER THE SECURITIES ACT OF 1933. Until the expiry date of this Warrant,
                the provisions of the Registration Rights Agreement dated as of even
                date
                herewith between the Holder of the Warrants and the Company shall
                apply to
                registration of the Warrant Shares. The Company's agreements with
                respect
                to Warrants or Warrant Shares in such Registration Rights Agreement
                shall
                continue in effect regardless of the exercise and surrender of this
                Warrant.

            

    

     

    
      	 	
              (k)

            	
              RESTRICTIVE
                LEGEND. Each Warrant Share, when issued, shall include a legend in
                substantially the following form:

            

    

     

                                           
      THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
      "ACT") NOR UNDER ANY STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED
      OR OTHERWISE TRANSFERRED UNTIL A (1) REGISTRATION STATEMENT UNDER THE ACT AND
      ANY APPLICABLE STATE SECURITIES LAW HAS BECOME EFFECTIVE WITH RESPECT THERETO,
      OR (2) RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL TO THE COMPANY TO THE
      EFFECT THAT REGISTRATION UNDER THE ACT OR APPLICABLE STATE SECURITIES LAW IS
      NOT
      REQUIRED IN CONNECTION WITH THE PROPOSED TRANSFER.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    

    The
      Company will not, by amendment of its charter or through reorganization,
      consolidation, merger, dissolution, sale of assets or any other voluntary
      action, avoid or seek to avoid the observance or performance of any of the
      terms
      of this Warrant, but will at all times in good faith assist in the carrying
      out
      of all such terms and in the taking of all such action as may be necessary
      or
      appropriate in order to protect the rights of the Holder of this Warrant against
      impairment.

     

    
      	 Dated:
              December 31, 2007	 	 
	 	 	 
	 	SPECTRASCIENCE,
              INC.
	 
 	 
 	 
 
	
              Attest:

            	By:  	
            
	 James
              Hitchin	
              
James
              Hitchin
	 Title:
              Chairman and CEO	Title:
              Secretary

    

     

    PURCHASE
      FORM

    

    Dated
      _____________ 20___

    

    The
      undersigned hereby irrevocably elects to exercise the within Warrant to the
      extent of Purchasing ________ shares of Common Stock and hereby makes payment
      of
      ______________ in payment of the actual exercise price thereof.

    

    
      
        

      

    

     

    INSTRUCTIONS
      FOR REGISTRATION OF STOCK

    

    Name
      

    
      

    

    (Please
      typewrite or print in block letters)

    

    Address
      

    
      

    

     

    Signature
      

    
      

    

    

    
      
 

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    ASSIGNMENT
      FORM

    

    

    FOR
      VALUE
      RECEIVED, _____________________________________ hereby sells, assigns and
      transfers unto

    

    Name
      

    
      

    

    (Please
      typewrite or print in block letters)

    

    Address
      

    
      

    

    the
      right
      to purchase Common Stock represented by this Warrant to the extent of _________
      shares as to which such right is exercisable and does hereby irrevocably
      constitute and appoint ______________ Attorney, to transfer the same on the
      books of the Company with full power of substitution in the
      premises.

    

    Date
      _________, 20___

    

    Signature
      _______________________

     

    
      
        
        

      

      
        7

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