Document:

Common Stock Purchase Agreement dated August 22, 2005 between Callisto Pharmaceuticals, Inc. and the investors listed on Exhibit A thereto.

 

 

COMMON
STOCK PURCHASE AGREEMENT

 

This
Common Stock Purchase Agreement (this “Agreement”) is made as of August 22, 2005
between Callisto Pharmaceuticals, Inc., a Delaware corporation (the “Company”),
and the investors listed on Exhibit
A
hereto, each of which is herein referred to as an “Investor” and collectively,
the “Investors”.

 

RECITALS:

 

WHEREAS,
the Investors desire to purchase from the Company, and the Company desires to
sell to the Investors, up to 1,869,203 shares of the Company’s common stock, par
value $0.0001 per share (the “Common Stock”), upon the terms and subject to the
conditions set forth herein;

 

NOW,
THEREFORE, in consideration of the premises and mutual covenants contained
herein, the parties hereto agree as follows:

 

1.         PURCHASE
AND SALE OF SHARES.

 

1.1     
Purchase
and Sale of Shares. 
Upon the terms and subject to the conditions of this Agreement, at the Closing
(as defined below), the Company agrees to sell to the Investors, and each
Investor agrees to purchase from the Company the number of shares of the
Company’s Common Stock set forth opposite such Investor’s name on Exhibit
A hereto
(the “Shares”) at the per share purchase price of $0.97 (“Purchase Price”).

 

1.2     
Closing. 
The closing of the purchase and sale of the Shares (the “Closing”) shall take
place at the offices of the Company at 5:00 p.m., Eastern time on August 22,
2005, or such other location, time or date as the parties shall mutually agree,
but only after the satisfaction or waiver of each of the conditions set forth in
Sections 6 and 7 (the “Closing Date”).

 

1.3     
Deliveries. 
At the Closing, the Company shall deliver to each Investor at the address set
forth on such Investor’s signature page hereto, a certificate or certificates,
registered in the name of the applicable Investor, representing the Shares
purchased by such Investor, and each Investor shall deliver to the Company the
aggregate Purchase Price, by wire transfer of immediately available funds to the
following account:

 

2.        
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.

 

For
purposes of this Section, all references to “Company” in Sections 2.1, 2.4 (with
the exception of subsection (a) thereof), 2.7, 2.9 through 2.12, and 2.14
through 2.20 shall be deemed to be a reference to the Company and all of its
direct and indirect subsidiaries. The Company hereby represents and warrants to
each Investor that, except as set forth on a Schedule of Exceptions (the
“Company Schedule of Exceptions”) attached hereto as Schedule
A,
which exceptions shall be deemed to be representations and warranties as if made
hereunder:

 

1

 

2.1
     Corporate
Organization. 
The Company is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation, and has the requisite
corporate power and authority to own or lease its properties and to carry on its
business as now being conducted. The Company is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the property owned or leased by it or the nature of the business conducted
by it makes such qualification necessary, except to the extent that the failure
to be so qualified or in good standing would not have, individually or in the
aggregate, a Material Adverse Effect. For purposes of this Agreement, “Material
Adverse Effect” shall mean, as to any entity, any material adverse effect on the
business, operations, conditions (financial or otherwise), assets, results of
operations or prospects of that entity individually or of the Company and its
subsidiaries as a whole. 

 

2.2  
   Capitalization;
Organizational Documents.

 

(a)     
The
authorized capital stock of the Company will consist immediately prior to the
Closing of 75,000,000 shares of Common Stock, of which as of the date hereof,
31,238,893 shares are issued and outstanding, and 20,000,000 shares of preferred
stock of the Company, of which, as of the date hereof, no shares are issued or
outstanding. All of the issued and outstanding shares have been duly and validly
issued and are fully paid and nonassessable and have been issued in accordance
with all applicable federal and state securities laws. No shares of Common Stock
are subject to preemptive rights or any other similar rights or any liens
suffered or permitted by the Company. There are no preemptive rights or rights
of first refusal or similar rights which are binding on the Company permitting
any person to subscribe for or purchase from the Company shares of its capital
stock pursuant to any provision of applicable law, the Certificate of
Incorporation (as defined below) or the Company’s By-laws. There are no
securities or instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of the Shares. The Company has made available
to each Investor true and correct copies of the Company’s Certificate of
Incorporation, as amended and as in effect on the date hereof (the “Certificate
of Incorporation”), and the Company’s By-laws, as in effect on the date hereof
(the “By-laws”). 

 

(b)     
Upon
issuance of the Shares and payment of the Purchase Price therefor in accordance
with the terms of this Agreement, the Shares will be duly authorized, validly
issued, fully paid and nonassessable, and free and clear of any restrictions on
transfer and any taxes, claims, liens, pledges, options, security interests,
purchase rights, preemptive rights, trusts, encumbrances or other rights or
interests of any other person (other than any restrictions under the Securities
Act of 1933, as amended (the “Securities Act”). 

 

2.3  
   Authorization;
Enforcement. 
(a) The Company has the requisite corporate power and authority to enter into
and perform its obligations under this Agreement and to issue, sell and perform
its obligations with respect to the Shares in accordance with the terms hereof,
(b) the execution and delivery of this Agreement by the Company and the
consummation by it of the transactions contemplated hereby have been duly
authorized by the Company’s Board of Directors and its stockholders and no
further consent or authorization is required by the Company, its Board of
Directors or its stockholders, except as disclosed on the Company Schedule of
Exceptions and (c) this Agreement has been duly executed and delivered by the
Company. This Agreement, when executed and delivered by the

 

2

 

Company,
constitutes a valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors’ rights and
remedies.

 

2.4  
   No
Conflicts. 
The execution, delivery and performance of this Agreement by the Company, and
the consummation by the Company of the transactions contemplated hereby, will
not (a) result in a violation of the Certificate of Incorporation or By-laws of
the Company, or (b) violate or conflict with, or result in a breach of, any
provision of, or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of any lien on or against any of the properties of the Company, any
note, bond, mortgage, agreement, license, indenture or instrument to which the
Company is a party, or result in a violation of any statute, law, rule,
regulation, writ, injunction, order, judgment or decree applicable to the
Company or by which any property or asset of the Company is bound or affected,
except where such violation, conflict, breach or other consequence would not
have a Material Adverse Effect. Except as specifically contemplated by this
Agreement, the Company is not required to obtain any consent, authorization or
order of, or make any filing or registration with, any court or governmental or
regulatory or self-regulatory agency in order for it to execute, deliver or
perform any of its obligations under or contemplated by this Agreement in
accordance with the terms hereof. All consents, authorizations, orders, filings
and registrations that the Company is required to obtain pursuant to the
preceding sentence have been obtained or effected on or prior to the date
hereof. 

 

2.5   
  SEC
Documents; Financial Statements. 
The Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the Securities and Exchange Commission
(the “SEC”) pursuant to the reporting requirements of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”) (all of the foregoing, and all
other documents and registration statements heretofore filed by the Company with
the SEC being hereinafter referred to as the “SEC Documents”). The Common Stock
is currently listed on the American Stock Exchange. The Company has delivered or
made available to each Investor true and complete copies of the SEC Documents.
As of their respective dates, the SEC Documents complied in all material
respects with the requirements of the Securities Act, and the Exchange Act and
the rules and regulations of the SEC promulgated thereunder applicable to the
SEC Documents, and none of the SEC Documents, at the time they were filed with
the SEC (except those SEC Documents that were subsequently amended), contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Except as disclosed in the Company Schedule of Exceptions, as of
their respective dates, the financial statements of the Company and its
subsidiaries included (or incorporated by reference) in the SEC Documents
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except (a) as may be
otherwise indicated in such financial statements or the

 

3

 

notes
thereto, or (b) in the case of unaudited interim statements, to the extent they
may exclude footnotes or may be condensed or summary statements) and fairly
present the financial position of the Company and its subsidiaries as of the
dates thereof and the results of its operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments). As of the date hereof, the Company has, on a timely basis,
made all filings required to be made by the Company with the SEC and the Company
is eligible to file a registration statement on Form S-3 with respect to
outstanding shares of its Common Stock to be offered for sale for the account of
any person other than the Company. 

 

2.6   
  Securities
Law Exemption. 
Assuming the truth and accuracy of each Investor’s representations set forth in
this Agreement, the offer, sale and issuance of the Shares as contemplated by
this Agreement are exempt from the registration requirements of the Securities
Act and applicable state securities laws, and neither the Company nor any
authorized agent acting on its behalf has taken or will take any action
hereafter that would cause the loss of such exemption.

 

2.7   
  Litigation. 
All actions, suits, arbitrations or other proceedings or, to the Company’s
knowledge, investigations pending or threatened against the Company that would
have a Material Adverse Effect on the Company, are disclosed in the SEC
Documents. There is no action, suit, proceeding or, to the Company’s knowledge,
investigation that questions this Agreement or the right of the Company to
execute, deliver and perform under same. 

 

2.8 
    Use
of Proceeds. 
The net proceeds from the sale of the Shares shall be used solely for general
corporate and working capital purposes.

 

2.9   
  Intellectual
Property. 
The Company owns, or has the contractual right to use, sell or license all
intellectual property necessary or required for the conduct of its business
as presently conducted and as proposed to be conducted, including, without
limitation, all trade secrets, processes, source code, licenses, trademarks,
service marks, trade names, logos, brands, copyrights, patents, franchises,
domain names and permits. The Company has not received any communications
alleging that the Company has violated or, by conducting its business presently
conducted or as proposed to be conducted, violates or will violate any
intellectual property rights of any other person or entity.

 

2.10    Title
to Property and Assets. 
The Company has good and marketable title to or, in the case of leases and
licenses, has valid and subsisting leasehold interests or licenses in, all of
its properties and assets (whether real or personal, tangible or intangible)
free and clear of any liens or other encumbrances, except for liens or other
encumbrances that do not, individually or in the aggregate, have a Material
Adverse Effect. With respect to property leased by the Company, the Company has
a valid leasehold interest in such property pursuant to leases which are in full
force and effect, and the Company is in compliance in all material respects with
the provisions of such leases. 

 

2.11    Compliance
with Laws. 
The Company is and has been in compliance with all laws, rules, regulations,
orders, judgments or decrees that are applicable to the Company, the conduct of
its business as presently conducted and as proposed to be conducted, and
the

 

4

 

ownership
of its property and assets (including, without limitation, all Environmental
Laws (as defined below) and laws related to occupational safety, health, wage
and hour, and employment discrimination). All required reports and filings with
governmental authorities have been properly made as and when required, except
where the failure to report or file would not, individually or in the aggregate,
have a Material Adverse Effect. “Environmental Laws” means all federal, state,
local and foreign laws, ordinances, treaties, rules, regulations, guidelines and
permit conditions relating to contamination or pollution of the environment
(including ambient air, surface water, ground water, land surface or subsurface
strata) or the protection of human health and worker safety, including, without
limitation, laws and regulations relating to transportation, storage, use,
manufacture, disposal or release of, or exposure of employees or others to,
Hazardous Materials (as defined below) or emissions, discharges, releases or
threatened releases of Hazardous Materials. “Hazardous Materials” means any
substance that has been designated by any governmental entity or by applicable
Environmental Laws to be radioactive, toxic, hazardous or otherwise a danger to
health or the environment, including, without limitation, PCBs, asbestos,
petroleum, urea formaldehyde and all substances listed as hazardous substances
pursuant to the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, or defined as a hazardous waste pursuant to
the Resource Conservation and Recovery Act of 1976, as amended, and the
regulations promulgated pursuant to Environmental Laws, but excluding office and
janitorial supplies maintained in accordance with Environmental
Laws.

 

2.12     Licenses
and Permits. 
The Company has obtained and maintains all material federal, state, local and
foreign licenses, permits, consents, approvals, registrations, memberships,
authorizations and qualifications required to be maintained in connection with
the operations of the Company as presently conducted and as proposed to be
conducted, the lack of which could have a Material Adverse Effect. The Company
is not in default in any material respect under any of such licenses, permits,
consents, approvals, registrations, memberships, authorizations and
qualifications.

 

2.13     Related
Entities. 
Except for the Subsidiaries set forth on the Company Schedule of Exceptions, the
Company does not presently own or control, directly or indirectly, any interest
in any other subsidiary, corporation, association or other business entity. The
Company is not a party to any joint venture, partnership or similar
arrangement.

 

2.14     Changes. 
Except as disclosed on the Company Schedule of Exceptions, since December 31,
2004, the Company has operated its business diligently and in the ordinary
course of business and, to the knowledge of the Company, there has not been, or
the Company has not (as the case may be):

 

(a)     
any
Material Adverse Effect;

 

(b)     
any
damage, destruction or loss, whether or not covered by insurance, which would
have a Material Adverse Effect;

 

(c)     
any
waiver or compromise by the Company of a valuable right or of a material debt
owed it;

 

5

 

(d)     
sold,
encumbered, assigned or transferred any material assets or properties of the
Company, other than in the ordinary course of business;

 

(e)     
incurred
any liability, whether accrued, absolute, contingent or otherwise, and whether
due or to become due, other than (i) in the ordinary course of business or (ii)
liabilities that are not, individually or in the aggregate, material to the
business, operations, condition (financial or otherwise), assets or results of
operations of the Company;

 

(f)     
created,
incurred, assumed or guaranteed any indebtedness or subjected any of its assets
to any lien or encumbrance, except for indebtedness, liens or encumbrances that
are not, individually or in the aggregate, material to the business, operations,
condition (financial or otherwise), assets or results of operations of the
Company;

 

(g)     
directly
or indirectly redeemed, purchased or otherwise acquired any shares of capital
stock of the Company;

 

(h)     
declared,
set aside or paid any dividends or made any other distributions in cash or
property on the Company’s capital stock;

 

(i)     
except
in the ordinary course of business of the Company, materially increased the
compensation payable or to become payable by the Company to any of its officers,
employees or directors or materially increased any bonus, insurance, pension or
other employee benefit plan, payment or arrangement made by the Company for or
with any such officers, employees or directors;

 

(j)     
made
any direct or indirect loan to any stockholder, employee, officer or director of
the Company, other than advances made in the ordinary course of
business;

 

(k)     
changed
any agreement to which the Company is a party which would have a Material
Adverse Effect; or

 

(l)     
entered
into any agreement or commitment to do any of the things described in this
Section 2.14.

 

2.15    
Employee
Benefit Plans. 
All “employee benefit plans,” as such term is defined in the Employee Retirement
Income Security Act of 1974, as amended (“ERISA”), to which the Company has any
liability or obligation, contingent or otherwise, comply in all material
respects and have been maintained and administered in material compliance with
ERISA, the Internal Revenue Code of 1986, as amended (the “Code”), and all other
statutes, orders and governmental rules and regulations applicable to such
employee benefit plans. To the Company’s knowledge, the Company has not incurred
any liability pursuant to ERISA or the penalty or excise tax provisions of the
Code relating to employee benefit plans (as defined in ERISA), and no event,
transaction or condition has occurred or exists that could reasonably
be

 

6

 

expected
to result in the incurrence of any such liability by the Company, or in the
imposition of any lien on any of the rights, properties or assets of the Company
pursuant to ERISA or to such penalty or excise tax provisions of the Code. The
Company does not maintain or contribute to, and has not maintained or
contributed to, any “multiemployer plan,” as such term is defined in
ERISA.

 

2.16    
Taxes. 
The Company has timely filed all tax returns and reports (federal, state and
local) required to be filed and these returns and reports are true and correct
in all material respects. The Company has paid all taxes and other assessments
shown to be due on such returns or reports. Neither the Internal Revenue Service
nor any state or local taxing authority has, during the past three (3) years,
examined or informed the Company it is in the process of examining any such tax
returns and reports. The provision for taxes of the Company as shown on the
financial statements included in the most recent SEC Filing, is adequate for
taxes due or accrued as of the date thereof and since that date the Company has
provided adequate accruals in accordance with generally accepted accounting
principals in its financial statements for any taxes incurred that have not been
paid, whether or not shown as being due on any tax returns. The Company has not
elected, pursuant to the Code, to be treated as a collapsible corporation
pursuant to Section 341(f) of the Code, nor has it made any other elections
pursuant to the Code (other than elections that relate solely to methods of
accounting, depreciation or amortization) that would have a Material Adverse
Effect. 

 

2.17    
Insurance. 
The Company has in full force and effect fire, casualty and liability insurance
policies sufficient in amount (subject to reasonable deductibles) to allow the
Company to replace any of its properties that might be damaged or destroyed to
the extent and in the manner customary for companies in similar business
similarly situated.

 

2.18    
Employees. 
The Company does not have any collective bargaining agreements with any of its
employees. There is no labor union organizing activity pending or, to the
Company’s knowledge, threatened with respect to the Company.

 

2.19    
Material
Contracts. 
All contracts, agreements, instruments, leases, licenses, arrangements,
understandings or other documents filed with or required to be filed as exhibits
to the SEC Documents to which the Company therein is a party or by which it may
be bound have been so filed (the “Material Contracts”). The Material Contracts
that have been filed as exhibits are complete and correct copies of the
contracts, agreements, instruments, leases, licenses, arrangement, understanding
or other documents of which they purport to be copies. The Material Contracts
are valid and in full force and effect as to the Company, and, to the Company’s
knowledge, to the other parties thereto. Except as otherwise disclosed herein,
the Company is not in violation of, or default under (and there does not exist
any event or condition which, after notice or lapse of time or both, would
constitute such a default under), the Material Contracts, except to the extent
that such violations or defaults, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect. The Company has not
received any notice of cancellation or any written communication threatening
cancellation of any Material Contract by any other party thereto. The Company is
not a party to and is not bound by any contract, agreement or instrument, or
subject to any restriction under the Certificate of

 

7

 

Incorporation,
its bylaws or other governing documents that would have a Material Adverse
Effect.

 

2.20    
Suppliers. 
No supplier that was material to the Company during the previous twenty-four
(24) months, has terminated, materially reduced or threatened to terminate or
material reduce its provision of products or services to the
Company. 

 

2.21    
Brokers
and Finders. 
The Company has not employed any broker, finder, consultant or intermediary in
connection with the transactions contemplated by this Agreement that would be
entitled to a broker’s, finder’s or similar fee or commission in connection
herewith and therewith.

 

2.22    
Disclosure. 
This Agreement, Schedules and Exhibits hereto and all other documents delivered
to the Investors in connection herewith or therewith at the Closing, do not
contain any untrue statement of a material fact, or omit to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. There are no facts that,
individually or in the aggregate, would have a Material Adverse Effect that have
not been disclosed to each Investor in this Agreement (including the Schedules
and Exhibits hereto), the SEC Documents or any other documents delivered to each
Investor in connection herewith or therewith at the Closing.

 

3.        
REPRESENTATIONS
AND WARRANTIES OF INVESTOR.

 

Each
of the Investors, severally and not jointly, hereby represents and warrants to
the Company as to itself and not as to any other Investor, that:

 

3.1    
Organization. 
The Investor is a corporation, limited liability company or limited partnership,
as the case may be, duly organized, validly existing and in good standing in the
jurisdiction of its formation. The Investor has all requisite power and
authority to execute, deliver and perform all of its obligations of this
Agreement.

 

3.2    
Authorization;
Enforcement. 
(a) The Investor has the requisite power and authority to enter into and perform
its obligations under this Agreement, (b) the execution and delivery of this
Agreement by the Investor and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Investor, and (c) this Agreement has been duly executed and
delivered by the Investor. To the knowledge of the Investor, no other
proceedings on the part of the Investor are necessary to approve and authorize
the execution and delivery of this Agreement. This Agreement, when executed and
delivered, constitutes a valid and binding obligation of the Investor,
enforceable against the Investor in accordance with its terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors’ rights and
remedies.

 

3.3    
No
Conflicts. 
The execution, delivery and performance of this Agreement by the Investor, and
the consummation by the Investor of the transactions contemplated hereby will
not (a) result in a violation of the organizational documents of the Investor,
or (b) result in a

 

8

 

violation
of any statute, law, rule, regulation, writ, injunction, order, judgment or
decree applicable to the Investor, except where such violation, conflict, breach
or other consequence would not have a Material Adverse Effect. The Investor is
not required to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental or regulatory or
self-regulatory agency in order for it to execute, deliver or perform any of its
obligations under or contemplated by this Agreement in accordance with the terms
hereof.

 

3.4    
Investment
Representations.

 

(a)    
The
Investor is an “accredited investor”, as defined in Regulation D promulgated
under the Securities Act, and has such knowledge, sophistication and experience
in financial and business matters that the Investor is capable of evaluating the
merits and risks of the investment in the Shares.

 

(b)    
The
Investor (i) has adequate means of providing for its current financial needs and
possible contingencies, and has no need for liquidity of investment in the
Company, (ii) can afford to hold unregistered Shares for an indefinite period of
time and sustain a complete loss of the entire amount of the subscription, and
(iii) has not made an overall commitment to investments which are not readily
marketable that is so disproportionate as to cause such overall commitment to
become excessive.

 

(c)    
The
Investor agrees and understands that the Shares are being offered and sold to
the Investor in reliance upon specific exemptions from the registration
requirements of the Securities Act and the rules and regulations promulgated
thereunder and that, in order to determine the availability of such exemptions
and the eligibility of the Investor to acquire the Shares, the Company is
relying upon the truth and accuracy of the Investor’s representations and
warranties, and compliance with the Investor’s covenants and agreements, set
forth in this Agreement. The Investor further agrees with the Company that (i)
no Shares were offered or sold to the Investor by means of any form of general
solicitation or general advertising, and in connection therewith, the Investor
did not (1) receive or review any advertisement, article, notice or other
communication published in a newspaper or magazine or similar media or broadcast
over television or radio, whether closed circuit or generally available; or (2)
attend any seminar meeting or industry investor conference whose attendees were
invited by any general solicitation or general advertising. The Investor hereby
acknowledges that the offering of the Shares has not been reviewed by the SEC or
any state regulatory authority since the offering of the Shares is intended to
be exempt from the registration requirements of Section 5 of the Securities Act
pursuant to Regulation D promulgated thereunder. The Investor understands that
the Shares have not been registered under the Securities Act and agrees not to
sell or otherwise transfer the Shares unless they are registered under the
Securities Act or unless an exemption from such registration is
available.

 

(d)    
The
Shares are being purchased by the Investor for its own account, for investment
purposes only, not for the account of any other person, or corporation and not
with a view to distribution, assignment or resale to others in whole or in part.
The Investor has no present intention of selling, granting any participation in,
or otherwise distributing the Shares. The Investor does not have any contract,
undertaking, agreement or

 

9

 

arrangement
with any person to sell, transfer, pledge, hypothecate, grant any option to
purchase or otherwise dispose of any of the Shares. Nothing herein shall prevent
the distribution of any Shares to any subsidiary, member, partner, stockholder,
affiliate or former member, partner, stockholder or affiliate of the Investor in
compliance with the Securities Act and applicable state “blue sky”
laws.

 

(e)    
The
Investor has had access to the Company’s SEC Documents and other public
filings.

 

(f)    
With
respect to corporate tax and other economic considerations involved in an
investment in the Shares, the Investor is not relying on the Company. The
Investor has carefully considered and has, to the extent the Investor believes
such discussion necessary, discussed with its professional legal, tax,
accounting and financial advisors the suitability of an investment in the Shares
for its particular tax and financial situation and has determined that the
Shares are a suitable investment for the Investor.

 

(g)    
The
Company has made available to the Investor all documents and information that
the Investor has requested relating to an investment in the Shares.

 

(h)    
Subject
to the Company’s disclosures in this Agreement and the SEC Documents, the
Investor recognizes that the Company has generated no revenues to date, is not
expected to have any products commercially available for a number of years, if
at all, and that investment in the Company involves substantial risks, including
loss of the entire amount of such investment and has taken full cognizance of
and understands all of the risk factors relating to the purchase of the
Shares.

 

(i)    
The
Investor has not been formed for the specific purpose of acquiring the
Shares.

 

4.        
COVENANTS.

 

4.1    
Confidentiality. 
Each Investor hereby acknowledges that unauthorized disclosure of information
regarding the offering of the Shares pursuant to this Agreement may cause the
Company to violate Regulation FD and each Investor agrees to keep such
information confidential. The Company shall not publicly disclose the name of
any Investor, or include the name of any Investor in any filing with the
Commission or any regulatory agency or trading market, without the prior written
consent of such Investor, except (i) as required by the federal securities laws
and in connection with the registration statement contemplated by this Agreement
and (ii) to the extent such disclosure is required by law or trading market
regulations.

 

4.2    
Restrictions
on Transfer.

 

(a)    
Each
Investor hereby agrees, severally and not jointly, that, except in accordance
with a registration statement filed pursuant to Section 5.2 of this Agreement,
it will not dispose of any of such Investor’s Shares (other than pursuant to
Rule 144 promulgated under the Securities Act (“Rule 144”) or pursuant to a
registration statement filed with the SEC pursuant to the Securities Act) unless
and until such Investor shall have (A) notified the

 

10

 

Company
of the proposed disposition and shall have furnished the Company with a
statement of the circumstances surrounding the proposed disposition and (B) if
requested by the Company, furnished the Company with an opinion of counsel,
reasonably satisfactory in form and substance to the Company and the Company’s
counsel, to the effect that such disposition will not require registration under
the Securities Act. The restrictions on transfer imposed by this Section 4.2
shall cease and terminate as to the Shares held by an Investor when: (x) such
Shares shall have been effectively registered under the Securities Act and sold
by the holder thereof in accordance with such registration, or (y) on delivery
of an opinion of the kind described in the preceding sentence with respect to
such Shares. Each certificate evidencing the Shares shall bear an appropriate
restrictive legend as set forth in Section 4.2(b), except that such legend shall
not be required after a transfer is made in compliance with Rule 144 or pursuant
to a registration statement or if the opinion of counsel referred to above is
issued and provides that such legend is not required in order to establish
compliance with any provisions of the Securities Act. The Company agrees that
pursuant to the prior sentence, it will, no later than five Business Days
(“Business Day” shall mean any day banks are open for business in New York, New
York) following (a) receipt by the Company’s transfer agent of a certificate
representing Shares issued with a restrictive legend, accompanied by a
certification of the Investor in form suitable for processing by the Company
that a prospectus has been delivered (in the case of sale pursuant to
prospectus, a “Prospectus Letter”) or customary supporting documentation,
including legal opinion if required pursuant to Clause (B) above, “Supporting
Documentation”) and (b) receipt by the Company of notice of such delivery to the
transfer agent and Prospectus Letter or Supporting Documentation, as the case
may be (such notice to be sent by facsimile to the attention of the Company’s
president and CEO at the fax number set forth in Section 8.6 hereof) deliver or
cause to be delivered (evidence of deposit for next day delivery with a
nationally recognized overnight delivery service shall be deemed delivery) to
such Investor 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 any transfer agent of the Company that enlarge
the restrictions on transfer set forth in this Section. In the event the
Prospectus Letter or Supporting Documentation is not in form suitable for
processing by to the Company, the five Business Days shall toll until the
Company receives a Prospectus Letter or Supporting Documentation that is in form
suitable for processing. 

 

(b)    
Notwithstanding
the provisions of Section 4.2(a), no registration statement or opinion of
counsel shall be necessary for a transfer by an Investor of the Securities to a
subsidiary, member, partner, stockholder or affiliate of that Investor, if the
transferee agrees in writing to be subject to the terms hereof to the same
extent as if such transferee were an Investor hereunder.

 

(c)    
It
is understood that, subject to Sections 4.2(a) and 4.2(b), the certificates
evidencing the Shares will bear the following legends:

 

(i)    
THESE
SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
“SECURITIES ACT”) OR UNDER APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AVAILABLE 

 

11

 

EXEMPTIONS
FROM SUCH REGISTRATION, PROVIDED THAT THE SELLER DELIVERS TO THE COMPANY AN
OPINION OF COUNSEL (WHICH OPINION IS REASONABLY SATISFACTORY TO THE COMPANY)
CONFIRMING THE AVAILABILITY OF SUCH EXEMPTION.

 

(ii)    
Any
legend required by the laws of any other applicable jurisdiction. 

 

4.3    
Securities
Compliance. 
The Company shall take all action necessary to comply with any federal or state
securities laws applicable to the transactions contemplated
hereunder.

 

5.        
REGISTRATION
RIGHTS.

 

5.1    
Registrable
Shares. 
As used herein the term “Registrable Security” means (a) each of the Shares, and
(b) any Common Stock of the Company issued as (or issuable on the conversion or
exercise of any warrant, right or other security that is issued as) a dividend
or other distribution with respect to, or in exchange for, or in replacement of,
the shares referenced in clause (a) above; provided,
however, that
with respect to any particular Registrable Security held by an Investor, such
security shall cease to be a Registrable Security when, as of the date of
determination, (a) it has been effectively registered under the Securities
Act and disposed of pursuant thereto, or (b) registration under the
Securities Act is no longer required for the immediate public distribution of
any particular Registrable Shares held by that Investor and its affiliates. In
the event of any merger, reorganization, consolidation, recapitalization or
other change in corporate structure affecting the Common Stock, such adjustment
shall be made in the definition of “Registrable Security” as is appropriate in
order to prevent any dilution or enlargement of the rights granted pursuant to
this Section 5.

 

5.2    
Mandatory
Registration.

 

(a)    
On
or before 45 days following the Closing Date, the Company shall prepare and file
with the Commission the Registration Statement covering the resale of all of the
Registrable Shares for an offering to be made on a continuous basis pursuant to
Rule 415 (the “Required Filing Date”). The Registration Statement required
hereunder shall be on Form S-3 (except if the Company is not then eligible to
register for resale the Registrable Shares on Form S-3, in which case the
Registration Statement shall be on another appropriate form in accordance
herewith). The Company shall use its commercially reasonable efforts to cause
the Registration Statement to be declared effective under the Securities Act as
promptly as possible after the filing thereof, but in any event not later than
the 120th
day after the Closing Date (the “Effectiveness Date”), and shall use its
commercially reasonable efforts to keep the Registration Statement continuously
effective under the Securities Act until the earlier of the date when all
Registrable Shares covered by the Registration Statement (a) have been sold
pursuant to the Registration Statement or an exemption from the registration
requirements of the Securities Act or (b) may be sold without volume
restrictions pursuant to Rule 144(k) as determined by the counsel to the Company
pursuant to a written opinion letter to such effect, addressed and acceptable to
the Company’s transfer agent and the affected Investors or (c) the
second

 

12

 

anniversary
of the date on which the Registration Statement is declared effective (the
“Effectiveness
Period”)
or such longer time as the Company may determine.

 

(b)    
Notwithstanding
the foregoing, if the Company shall furnish to the Investors a certificate
signed by the Chief Executive Officer of the Company stating that in the good
faith judgment of the Board of Directors of the Company it would not be in the
best interest of the Company for such registration statement to be filed, the
Company shall have the right to defer taking such action with respect to such
filing for a period of not more than thirty (30) days after the date of such
certificate; provided,
however,
that the Company shall not defer its obligation in this manner more than once in
any twelve (12) month period. 

 

(c)    
In
the event, the Investor fails to provide the Company with any information that
is required to be provided in the Registration Statement with respect to such
Investor pursuant to Section 5.3(k) within ten (10) days of receiving a request
for such information from the Company, the Company shall send an additional
request to the Investor (the “Additional Request”) and in the event the Investor
fails to respond to the Company within five (5) days of receipt of the
Additional Request, the Company shall be entitled to exclude such Investor’s
Registrable Shares from the Registration Statement.

 

5.3    
Covenants
of the Company With Respect to Registration.

 

The
Company covenants and agrees as follows:

 

(a)    
Not
less than five business days prior to the filing of the Registration Statement
or any related Prospectus or any amendment or supplement thereto, furnish to the
Investors copies of all such documents proposed to be filed (including documents
incorporated or deemed incorporated by reference to the extent requested by such
person), which documents will be subject to the review of such Investors within
such five business days. The Company shall not file the Registration Statement
or any such Prospectus or any amendments or supplements thereto to which the
holders of a majority of the Registrable Shares shall reasonably object in good
faith based on the advice of counsel and the Company shall make reasonable
efforts to address the objections raised. In the event the holders of a majority
of the Registrable Shares object to any such filing pursuant to the previous
sentence, then the Required Filing Date or Effectiveness Date, as the case may
be, shall be extended by the number of days that elapse between the date the
Company is notified of the objection until the day following the date the
Company has been notified that such objection no longer exists.

 

(b)    
Following
the effective date of the Registration Statement under Section 5.2, the Company
shall, upon the request of the Investors, forthwith supply such reasonable
number of copies of the Registration Statement, preliminary prospectus and
prospectus meeting the requirements of the Securities Act, and other documents
necessary or incidental to the public offering of the Registrable Shares, as
shall be reasonably requested by the Investors to permit the Investors to make a
public distribution of the Registrable Shares registered in connection with the
Registration Statement. 

 

(c)    
The
Company shall prepare and file with the SEC such amendments and supplements to
such Registration Statement and the prospectus used in connection with
such

 

13

 

Registration
Statement as may be necessary to comply with the Securities Act with respect to
the disposition of all Shares covered by such Registration Statement during the
period of time such Registration Statement remains effective;

 

(d)    
The
Company shall use its commercially reasonable efforts to register and qualify
the Shares covered by such Registration Statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Investors; provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or
jurisdictions;

 

(e)    
During
the period of time such Registration Statement remains effective, the Company
shall notify each Investor of Registrable Shares covered by such registration
statement at any time when a prospectus relating thereto is required to be
delivered under the Securities Act or the happening of any event as a result of
which the prospectus included in such Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing;

 

(f)    
The
Company shall use its commercially reasonable efforts to cause all such
Registrable Shares registered hereunder to be listed on each securities exchange
on which securities of the same class issued by the Company are then
listed;

 

(g)    
The
Company shall provide a transfer agent and registrar for all Registrable Shares
registered hereunder and a CUSIP number for all such Registrable Shares, in each
case not later than the effective date of such registration; and

 

(k)    
The
obligations of the Company hereunder with respect to the Registrable Shares are
subject to the Investors’ furnishing to the Company such information concerning
the Investors, the Registrable Shares and the terms of the Investors’ offering
of such Registrable Shares as are required to be included in the Registration
Statement by Commission regulations or pursuant to a specific Commission comment
on the Registration Statement.

 

5.4    
Expenses. 
All expenses incurred in effecting a registration pursuant to this Agreement
(including, without limitation, all registration, qualification and filing fees,
printing expenses, fees and disbursements of counsel for the Company, blue sky
fees and expenses) shall be borne by the Company. All transfer taxes,
underwriting discounts and selling commissions applicable to the sale of the
Registrable Shares shall be borne by the Investors thereof.

 

5.5    
Indemnification. 
In the event any Registrable Shares are included in a Registration Statement
under this Section 5:

 

(a)    
To
the extent permitted by law, the Company will indemnify and hold harmless each
Investor, the partners, officers, directors, stockholders, members and managers
of such Investor, each person, if any, who controls such Investor within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Securities Act, the Exchange Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions
in

 

14

 

respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (each, a “Violation”): (i) any untrue statement or
alleged untrue statement of a material fact contained in such Registration
Statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any violation
or alleged violation by the Company of the Securities Act, the Exchange Act, any
state securities law or any rule or regulation promulgated under the Securities
Act, the Exchange Act or any state securities law; and the Company will pay to
each such Investor, underwriter or controlling person, as incurred, any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided,
however,
that the indemnity agreement contained in this Section 5.5(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability, or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld or delayed), nor shall the Company be liable
to any Investor, underwriter or controlling person for any such loss, claim,
damage, liability, or action to the extent that it arises out of or is based
upon a Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
any such Investor, underwriter or controlling person.

 

(b)    
To
the extent permitted by law, each selling Investor will indemnify and hold
harmless the Company, each of its directors, each of its officers who has signed
the Registration Statement, each person, if any, who controls the Company within
the meaning of the Securities Act, against any losses, claims, damages, or
liabilities (joint or several) to which any of the foregoing persons may become
subject, under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Investor expressly
for use in connection with such registration; and each such Investor will pay,
as incurred, any legal or other expenses reasonably incurred by any person
indemnified pursuant to this Section 5.5(b), in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided,
however, that
the indemnity agreement contained in this Section 5.5(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Investor (which
consent shall not be unreasonably withheld or delayed); provided
further that
in no event shall any indemnity under this Section 5.5(b) exceed the net
proceeds from the offering received by such Investor.

 

(c)    
Promptly
after receipt by an indemnified party under this Section 5.5 of notice of the
commencement of any action (including any governmental action), such indemnified
party will, if a claim in respect thereof is to be made against any indemnifying
party under this Section 5.5, deliver to the indemnifying party a written notice
of the commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties; provided,
however, that
an indemnified party (together with all other indemnified parties which may be
represented

 

15

 

without
conflict by one counsel) shall have the right to retain one separate counsel,
with the reasonable fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time after receipt of notice of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 5.5, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section
5.5.

 

(d)    
If
the indemnification provided for in this Section 5.5 is held by a court of
competent jurisdiction to be unavailable to an indemnified party with respect to
any loss, liability, claim, damage or expense referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified party hereunder,
shall contribute to the amount paid or payable by such indemnified party as a
result of such loss, liability, claim, damage, or expense in such proportion as
is appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on the other in connection with the
statements or omissions that resulted in such loss, liability, claim, damage or
expense as well as any other relevant equitable considerations; provided
that in no event shall any contribution by an Investor under this Section 5.5(d)
exceed the net proceeds from the offering received by such Investor. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties’ relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.

 

(e)    
Notwithstanding
the foregoing, to the extent that the provisions on indemnification and
contribution contained in the underwriting agreement entered into in connection
with the underwritten public offering are in conflict with the foregoing
provisions, the provisions in the underwriting agreement shall
control.

 

(f)    
The
obligations of the Company and Investors under this Section 5.5 shall survive
the completion of any offering of Registrable Shares in a registration statement
and the termination of this Agreement.

 

5.6    
Suspension
of Sales.

 

(a)    
With
respect to the Registration Statement filed pursuant to Section 5.2, subject to
the payment of any liquidated damages which may accrue pursuant to Section
5.2(b)(iv), the Company may suspend sales of Registrable Shares under such
Registration Statement for a period of not more than ninety (90) days in any
twelve (12) month period with respect to such Registration Statement if, at any
time the Company is engaged in confidential negotiations or other confidential
business activities, the disclosure of which would be required if such sales
were not suspended and the Board of Directors of the Company determines in good
faith that such suspension would be in the Company’s best interest at
such

 

16

 

time;
provided,
that the Company shall not be permitted to suspend such sales for more than
ninety (90) days in any twelve (12) month period. In order to suspend sales
pursuant to this Section 5.6(a), the Company shall promptly (but in any event
within five (5) business days), upon determining to seek such suspension,
deliver to each holder of Registrable Shares a certificate signed by an
executive officer of the Company stating that the Company is suspending such
filing pursuant to this Section 5.6(a). Each holder of Registrable Shares hereby
agrees to keep confidential any information disclosed to it in any such
certificate (including the fact that a certificate was delivered).

 

(b)    
If
the Company suspends such Registration Statement pursuant to Section 5.6(a)
above, the Company shall, as promptly as practicable following the termination
of the circumstances which entitled the Company to do so but in no event more
than fifteen (15) days thereafter, take such actions as may be necessary to file
or reinstate the effectiveness of such Registration Statement and/or give
written notice to the selling Investors authorizing them to resume sales
pursuant to such Registration Statement. If, as a result thereof, the prospectus
included in such Registration Statement has been amended to comply with the
requirements of the Securities Act, the Company shall enclose such revised
prospectus with the notice to the selling Investors given pursuant to this
Section 5.6(b), and the selling Investors shall make no offers or sales of
Shares pursuant to such Registration Statement other than by means of such
revised prospectus.

 

5.7    
Transfer
or Assignment of Registration Rights. 
The rights to cause the Company to register Registrable Shares granted to an
Investor by the Company under this Section 5 may be transferred or assigned by
an Investor to a transferee or assignee of such Registrable Shares that (i) is a
subsidiary, parent, current or former partner, current or former limited
partner, current or former member, current or former manager or stockholder of
an Investor, (ii) is an entity controlling, controlled by or under common
control, or under common investment management, with an Investor, including
without limitation a corporation, partnership or limited liability company that
is a direct or indirect parent or subsidiary of the Investor, or (iii) is a
transferee or assignee of not less than 50,000 shares of Registrable Shares (as
presently constituted and subject to subsequent adjustments for stock splits,
stock dividends, reverse stock splits and the like), provided
that
the Company is given written notice at the time of or within a reasonable time
after said transfer or assignment, stating the name and address of said
transferee or assignee and identifying the Shares with respect to which such
registration rights are being transferred or assigned, and provided
further that
the transferee or assignee of such rights assumes the obligations of such
Investor under this Section 5. 

 

5.8    
Reports
Under Exchange Act. 
With a view to making available to the Investors the benefits of Rule 144
promulgated under the Securities Act and any other rule or regulation of the SEC
that may at any time permit an Investor to sell Shares of the Company to the
public without registration, the Company agrees to:

 

(a)    
Make
and keep public information available, as those terms are used in SEC Rule 144,
at all times;

 

17

 

(b)    
File
with the SEC in a timely manner all reports and other documents required of the
Company under the Securities Act and the Exchange Act;

 

(c)    
Furnish
to any Investor, so long as the Investor owns any Registrable Shares, forthwith
on request, (i) a written statement by the Company that it has complied with the
reporting requirements of SEC Rule 144, the Securities Act and the Exchange Act,
(ii) a copy of the most recent annual or quarterly report of the Company and
such other reports and documents so filed by the Company, and (iii) such other
information as may be reasonably requested in availing any Investor of any rule
or regulation of the SEC that permits the selling of any such securities without
registration; and 

 

(d)    
Undertake
any additional actions reasonably necessary to maintain the availability of the
use of Rule 144.

 

5.9    
Delay
of Registration. 
No Investor shall have any right to obtain or seek an injunction restraining or
otherwise delaying any registration as the result of any controversy that might
arise with respect to the interpretation or implementation of this Section
5.

 

6.        
CONDITIONS
TO INVESTOR OBLIGATIONS AT CLOSING.

 

The
obligations of the Investors to purchase the Shares at the Closing are subject
to the fulfillment on or prior to the Closing of each of the following
conditions:

 

6.1    
Representations
and Warranties. 
The representations and warranties of the Company contained in Section 2 shall
be true in all material respects on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
the Closing Date, except that any representations and warranties stated as being
true and correct as of a date other than the date hereof shall be true and
correct as of such other date.

 

6.2    
Performance. 
The Company shall have performed and complied with all agreements, obligations
and conditions contained in this Agreement that are required to be performed or
complied with by it on or before the Closing.

 

6.3    
Qualifications. 
All authorizations, approvals, or permits, if any, of any governmental authority
or regulatory body of the United States or of any state of the United States
that are required in connection with the lawful issuance and sale of the Shares
to the Investors pursuant to this Agreement shall have been duly obtained and
shall be effective on and as of the Closing.

 

6.4    
Proceedings
and Documents. 
All corporate and other proceedings undertaken in connection with the
transactions contemplated at the Closing and all documents incident thereto
shall be reasonably satisfactory in form and substance to each Investor, and
they shall have received all such counterpart original and certified or other
copies of such documents as they may reasonably request. 

 

6.5    
Absence
of Litigation. 
No proceeding challenging this Agreement or the transactions contemplated hereby
or thereby, or seeking to prohibit, alter, prevent or delay the

 

18

 

Closing,
shall have been instituted against the Company before any court, arbitrator or
governmental body, agency or official and shall be pending.

 

6.6    
Compliance
Certificate. 
The Company shall deliver to the Investors at the Closing, relating to the
Investors’ purchase of Shares, a certificate signed by the Chief Executive
Officer of the Company stating that the Company has complied with or satisfied
each of the conditions to the Investors’ obligation to consummate the Closing
set forth in Sections 6.1 through 6.5, unless waived in writing by the
Investors.

 

6.7    
Legal
Prohibition. 
The purchase of the Shares by the Investors shall not be prohibited by any law
or governmental order or regulation.

 

7.        
CONDITIONS
TO THE COMPANY’S OBLIGATIONS AT CLOSING.

 

The
obligations of the Company under Section 1 of this Agreement are subject to the
fulfillment on or before the Closing of each of the following
conditions:

 

7.1    
Representations
and Warranties. 
The representations and warranties of each Investor contained in Section 3 shall
be true in all respects on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of the
Closing Date, except that any representations and warranties stated as being
true and correct as of a date other than the date hereof shall be true and
correct as of such other date.

 

7.2    
Performance. 
Each Investor shall have performed and complied with all agreements, obligations
and conditions contained in this Agreement that are required to be performed or
complied with by it on or before the Closing.

 

7.3    
Qualifications. 
All authorizations, approvals, or permits, if any, of any governmental authority
or regulatory body of the United States or of any state of the United States
that are required in connection with the lawful issuance and sale of the Shares
to the Investors pursuant to this Agreement shall have been duly obtained and
shall be effective on and as of the Closing.

 

7.4    
Proceedings
and Documents. 
All corporate and other proceedings undertaken in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to the Company and its
counsel, and they shall have received all such counterpart original and
certified or other copies of such documents as they may reasonably
request.

 

8.        
MISCELLANEOUS.

 

8.1    
Survival
of Warranties. 
The warranties, representations, agreements, covenants and undertakings of the
Company or the Investors contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the Closing and shall
in no way be affected by any investigation of the subject matter thereof made by
or on behalf of the Investors or the Company.

 

19

 

8.2    
Incorporation
by Reference. 
All Exhibits and Schedules appended to this Agreement are herein incorporated by
reference and made a part hereof.

 

8.3    
Successor
and Assignees. 
All terms, covenants, agreements, representations, warranties and undertakings
in this Agreement made by and on behalf of any of the parties hereto shall bind
and inure to the benefit of the respective successors and assigns of the parties
hereto (including transferees of any Shares) whether so expressed or not,
subject to Section 5.7.

 

8.4    
Amendments
and Waivers. 
Neither this Agreement nor any provision hereof shall be waived, modified,
changed, discharged, terminated, revoked or canceled except by an instrument in
writing signed by the party against whom any change, discharge or termination is
sought. Failure of either party to exercise any right or remedy under this
Agreement or any other agreement between the Company and the Investors, or
otherwise, or delay by the Company or the Investors in exercising such right or
remedy, will not operate as a waiver thereof, nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by
law.

 

8.5    
Governing
Law. 
This Agreement shall be deemed a contract made under the laws of the State of
New York, without giving effect to the conflicts of law principles
thereof.

 

8.6    
Notices. 
All notices, requests, consents, demands, notice or other communication required
or permitted under this Agreement shall be in writing and shall be deemed duly
given and received when delivered personally or transmitted by facsimile, or one
business day after being deposited for next-day delivery with a nationally
recognized overnight delivery service, or three days after being deposited as
first class mail with the United States Postal Services, all charges or postage
prepaid, and properly addressed:

 

to
the Company at:

 

Callisto
Pharmaceuticals, Inc.

420
Lexington Avenue, Suite 1609

New
York, New York 10170

Tel:
(212) 297-0010

Fax:
(212) 297-0020

Attention:
Chief Executive Officer

 

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

 

Sichenzia
Ross Friedman Ference LLP

1065
Avenue of the Americas

New
York, New York 10018

Fax:
(212) 930-9725

Attention:
Jeffrey J. Fessler

 

20

 

or
to the Investors at the address set forth opposite each Investor’s name on
Exhibit A hereto 

 

or
such other address as may be furnished in writing by a party
hereto.

 

8.7    
Counterparts. 
This Agreement may be executed in counterparts, all of which together shall
constitute one and the same instrument.

 

8.8    
Effect
of Headings. 
The section and paragraph headings herein are included for convenience only and
shall not affect the construction hereof.

 

8.9    
Entire
Agreement. 
This Agreement and the Exhibits and Schedules hereto and thereto constitute the
entire agreement among the Company and the Investors with respect to the subject
matter hereof. There are no representations, warranties, covenants or
undertakings with respect to the subject matter hereof other than those
expressly set forth herein. This Agreement supersedes all prior agreements
between the parties with respect to the Shares purchased hereunder and the
subject matter hereof.

 

8.10  
Publicity. 
Neither party shall originate any publicity, news release or other public
announcement, written or oral, whether relating to the performance under this
Agreement or the existence of any arrangement between the parties, without the
prior written consent of the other party (which consent shall not be
unreasonably withheld or delayed), except where such publicity, news release or
other public announcement is required by law or by Section 4.1; provided
that, in such event, each such party shall (a) promptly consult the other party
in connection with any such publicity, news release or other public announcement
prior to its release; (b) promptly provide the other party a copy thereof; and
(c) use commercially reasonable efforts to ensure that such portions of such
information as may reasonably be designated by the other party are accorded
confidential treatment by the applicable governmental entity.

 

8.11  
Severability. 
If any provision of this Agreement is held by a court of competent jurisdiction
to be unenforceable under applicable law, such provision shall be replaced with
a provision that accomplishes, to the extent possible, the original business
purpose of such provision in a valid and enforceable manner, and the balance of
the Agreement shall be interpreted as if such provision were so modified and
shall be enforceable in accordance with its terms.

 

8.12  
Interpretation. 
This Agreement shall be construed according to its fair language. The 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 this Agreement.

 

8.13   No
Strict Construction. 
The language used in this Agreement will be deemed to be the language chosen by
the parties to express their mutual intent, and no rules of strict construction
will be applied against any party.

 

8.14   Independent
Nature of Investors’ Obligations and Rights. 
The
obligations of each Investor under this Agreement are several and not joint with
the obligations of any other

 

21

 

Investor,
and no Investor shall be responsible in any way for the performance of the
obligations of any other Investor under this Agreement. The decision of each
Investor to purchase Shares pursuant to this Agreement has been made by such
Investor independently of any other Investor and independently of any
information, materials, statements or opinions as to the business, affairs,
operations, assets, properties, liabilities, results of operations, condition
(financial or otherwise) or prospects of the Company which may have been made or
given by any other Investor or by any agent or employee of any other Investor,
and no Investor or any of its agents or employees shall have any liability to
any other Investor (or any other person) relating to or arising from any such
information, materials, statements or opinions. Nothing contained herein, and no
action taken by any Investor pursuant thereto, shall be deemed to constitute the
Investors as a partnership, an association, a joint venture or any other kind of
entity, or create a presumption that the Investors are in any way acting in
concert or as a group with respect to such obligations or the transactions
contemplated by this Agreement. Each Investor acknowledges that no other
Investor has acted as agent for such Investor in connection with making its
investment hereunder and that no other Investor will be acting as agent of such
Investor in connection with monitoring its investment hereunder. Each Investor
shall be entitled to independently protect and enforce its rights, including
without limitation the rights arising out of this Agreement, and it shall not be
necessary for any other Investor to be joined as an additional party in any
proceeding for such purpose. The Company has elected to provide all Investors
with the same terms and form of this Agreement for the convenience of the
Company and not because it was required or requested to do so by the
Investors.

22

 

IN
WITNESS WHEREOF, this Agreement has been executed as of the date first above
written, by the duly authorized representatives of the parties
hereto.

 

	 	 	 
	 	
      CALLISTO
      PHARMACEUTICALS, INC.

	 
 	 
 	 
 
		By:  	
	 	 	
      

    
	 	Name:  	 
	 	 	
      

    
	 	Title:	 
	 	 	
      

    

 

 

	 	 	 
	 	
      INVESTOR

	 
 	 
 	 
 
		By:  	
	 	
      

    
	 	

 

23

Schedule
A

COMPANY
SCHEDULE OF EXCEPTIONS

 

 

Exhibit
A

	
       

      Investor
      Name and

      Notice
      Address
	
      Cash
      Investment Amount
	
       

      Number
      of SharesOPCO First Supplemental Indenture, 07/11/03, Series H

    
      

    

    EXHIBIT
      4(b)

    

    TO

    

    DEUTSCHE
      BANK TRUST COMPANY AMERICAS

    AS
      TRUSTEE

    

    

    

    FIRST
      SUPPLEMENTAL INDENTURE

    DATED
      JULY 11, 2003

    

    

    $225,000,000

    

    4.85%
      SENIOR NOTES, SERIES H, DUE 2014

    

    

    THIS
      FIRST SUPPLEMENTAL INDENTURE is made the 11th
      day of
      July, 2003, between OHIO POWER COMPANY, a corporation duly organized and
      existing under the laws of the state of Ohio (herein called the “Company”),
      having its principal office at 1 Riverside Plaza, Columbus, Ohio 43215 and
      Deutsche Bank Trust Company Americas (formerly Bankers Trust Company), a
      national banking association, duly organized and existing under the laws of
      the
      United States, having its principal corporate trust office at 60 Wall Street,
      New York, New York 10005, as Trustee (herein called the “Trustee”).

    

    W
      I T
      N E S S E T H:

    

    WHEREAS,
      the Company has heretofore entered into an Indenture, dated as of September
      1,
      1997 (the “Original Indenture”), with the Trustee; and

    

    WHEREAS,
      the Original Indenture is incorporated herein by this reference and the Original
      Indenture, as supplemented by this First Supplemental Indenture, is herein
      called the “Indenture”; and

    

    WHEREAS,
      under the Original Indenture, a new series of unsecured notes (the “Senior
      Notes”) may at any time be established by the Board of Directors of the Company
      in accordance with the provisions of the Original Indenture and the terms of
      such series may be described by a supplemental indenture executed by the Company
      and the Trustee; and

    

    WHEREAS,
      the Company proposes to create under the Indenture a series of Senior Notes
      to
      be designated the “4.85% Senior Notes, Series H, due 2014” (the “Series H
      Notes”), the form and substance of the Series H Notes and the terms, provisions
      and conditions thereof to be set forth as provided in the Original Indenture
      and
      this First Supplemental Indenture; and

    

    WHEREAS,
      concurrently with the issuance of the Series H Notes, the Company proposes
      to
      create under the Indenture a series of Senior Notes to be designated the “6.375%
      Senior Notes, Series I, due 2033” (the “Series I Notes”), the form and substance
      of the Series I Notes and the terms, provisions and conditions thereof to be
      set
      forth as provided in the Original Indenture and the Second Supplemental
      Indenture; and

    

    WHEREAS,
      additional Senior Notes of other series hereafter established, except as may
      be
      limited in the Original Indenture as at the time supplemented and modified,
      may
      be issued from time to time pursuant to the Original Indenture as at the time
      supplemented and modified; and

    

    WHEREAS,
      all conditions necessary to authorize the execution and delivery of this First
      Supplemental Indenture and to make it a valid and binding obligation of the
      Company have been done or performed;

    

    NOW,
      THEREFORE, in consideration of the agreements and obligations set forth herein
      and for other good and valuable consideration, the sufficiency of which is
      hereby acknowledged, the parties hereto hereby agree as follows:

    

    ARTICLE
      I

    Additional
      Definitions

    

    SECTION
      1.01.    Definitions

    

    The
      following defined terms used herein shall, unless the context otherwise
      requires, have the meanings specified below. Capitalized terms used herein
      for
      which no definition is provided herein shall have the meanings set forth in
      the
      Original Indenture.

    

    “Company”
      means Ohio Power Company, an Ohio corporation and also includes the Ohio Power
      Company’s successors and permitted assigns. 

    

    “Closing
      Date” shall mean July 11, 2003, the initial date of delivery of the Senior Notes
      from the Company to the Underwriters.

    

    “Legal
      Separation” shall mean the transfer of the Company’s Transmission and
      Distribution Business to Ohio Wires.

    

    “Ohio
      Wires” shall mean Ohio Wires LLC, a to-be-formed Ohio company and the affiliate
      company to which the Company may transfer its Transmission and Distribution
      Business.

    

    “Ohio
      Wires Exchange Offer” shall mean the offer by Ohio Wires, upon Legal Separation,
      to the holders to exchange all of the Senior Notes held by each such holder
      for
      a like amount of Ohio Wires Notes.

    

    “Ohio
      Wires Notes” shall mean notes of Ohio Wires which are identical in all material
      respects to the Senior Notes and are registered under the Securities
      Act.

    

    “Ohio
      Wires Registration” shall mean a registration under the Securities Act effected
      pursuant to the section entitled ‘Legal Separation’ hereof.

    

    “Ohio
      Wires Registration Statement” shall mean an exchange offer registration
      statement on Form S-4 (or, if applicable, on another appropriate form) of Ohio
      Wires as provided in the section entitled ‘Legal Separation’ hereof and all
      amendments and supplements to such registration, in each case including the
      Prospectus contained therein, all exhibits thereto and all documents
      incorporated by reference therein.

    

    “Transmission
      and Distribution Business” means the transmission and distribution assets of the
      Company.

    

    ARTICLE
      II

    Series
      H Notes

    

    SECTION
      2.01.  Establishment

    

    The
      Series H Notes shall be designated as the Company’s “4.85% Senior Notes, Series
      H, due 2014”.

    

    SECTION
      2.02.  Aggregate Principal Amount

    

    The
      Trustee shall authenticate and deliver Series H Notes for original issue on
      the
      Original Issue Date in the aggregate principal amount of $225,000,000 upon
      a
      Company Order for authentication and delivery thereof and satisfaction of
      Section 2.01 of the Original Indenture. The aggregate principal amount of the
      Series H Notes shall be initially limited to $225,000,000 and shall be subject
      to Periodic Offerings pursuant to Article Two of the Original Indenture. All
      Series H Notes need not be issued at the same time and such series may be
      reopened at any time, without the consent of any Holder, for issuances of
      additional Series H Notes. Any such additional Series H Notes will have the
      same
      interest rate, maturity and other terms as those initially issued. The Series
      H
      Notes shall be issued in definitive fully registered form.

    

    SECTION
      2.03.  Maturity and Interest

    

    (i) The
      Series H Notes shall mature on, and the date on which the principal of the
      Series H Notes shall be payable (unless earlier redeemed) shall be January
      15,
      2014;

     

              
      (ii)  The
      interest rate at which the Series H Notes shall bear interest shall be 4.85%
      per
      annum; provided, however, that a special interest premium shall accrue on the
      Series H Notes under certain circumstances as provided in clause (iii) below;
      interest shall accrue from the date of authentication of the Series H Notes;
      the
      Interest Payment Dates on which such interest will be payable shall be January
      15 and July 15, and the Regular Record Date for the determination of holders
      to
      whom interest is payable on any such Interest Payment Date shall be the January
      1 or July 1 preceding the relevant Interest Payment Date; provided that the
      first Interest Payment Date shall be January 15, 2004 and interest payable
      on
      the Stated Maturity or any redemption date shall be paid to the Person to whom
      principal shall be paid; each payment of interest shall include interest accrued
      through the day before the Interest Payment Date;

     

             
      (iii)  Special
      interest premium shall accrue on the Series H Notes over and above the interest
      rate set forth herein in accordance with Section 2.08. 

    

    SECTION
      2.04.  Optional Redemption

    

    The
      Series H Notes shall be redeemable at the option of the Company, in whole or
      in
      part at any time, upon not less than thirty but not more than sixty days’ prior
      notice given by mail to the registered owners of the Series H Notes at a
      redemption price equal to the greater of (i) 100% of the principal amount of
      the
      Series H Notes being redeemed and (ii) the sum of the present values of the
      remaining scheduled payments of principal and interest on the Series H Notes
      being redeemed (excluding the portion of any such interest accrued to the date
      of redemption) discounted (for purposes of determining present value) to the
      redemption date on a semi-annual basis (assuming a 360-day year consisting
      of
      twelve 30-day months) at the Treasury Rate (as defined below) plus 20 basis
      points, plus, in each case, accrued interest thereon to the date of
      redemption.

    

    “Treasury
      Rate” means, with respect to any redemption date, the rate per annum equal to
      the semi-annual equivalent yield to maturity of the Comparable Treasury Issue,
      assuming a price for the Comparable Treasury Issue (expressed as a percentage
      of
      its principal amount) equal to the Comparable Treasury Price for such redemption
      date.

    

    “Comparable
      Treasury Issue” means the United States Treasury security selected by an
      Independent Investment Banker as having a maturity comparable to the remaining
      term of the Series H Notes that would be utilized, at the time of selection
      and
      in accordance with customary financial practice, in pricing new issues of
      corporate debt securities of comparable maturity to the remaining term of the
      Series H Notes.

    

    “Comparable
      Treasury Price” means, with respect to any redemption date, (i) the average of
      the bid and asked prices for the Comparable Treasury Issue (expressed in each
      case as a percentage of its principal amount) on the third Business Day
      preceding such redemption date, as set forth in the daily statistical release
      (or any successor release) published by the Federal Reserve Bank of New York
      and
      designated “Composite 3:30 p.m. Quotations for U. S. Government Securities” or
      (ii) if such release (or any successor release) is not published or does not
      contain such prices on such third Business Day, the Reference Treasury Dealer
      Quotation for such redemption date.

    

    “Independent
      Investment Banker” means one of the Reference Treasury Dealers appointed by the
      Company and reasonably acceptable to the Trustee.

    

    “Reference
      Treasury Dealer” means a primary U.S. government securities dealer selected by
      the Company and reasonably acceptable to the Trustee.

    

    “Reference
      Treasury Dealer Quotation” means, with respect to the Reference Treasury Dealer
      and any redemption date, the average, as determined by the Trustee, of the
      bid
      and asked prices for the Comparable Treasury Issue (expressed in each case
      as a
      percentage of its principal amount) quoted in writing to the Trustee by such
      Reference Treasury Dealer at or before 5:00 p.m., New York City time, on the
      third Business Day preceding such redemption date.

    

    SECTION
      2.05.  Limitation on Secured Debt

    

    So
      long
      as any of the Series H Notes are outstanding, the Company will not create or
      suffer to be created or to exist any additional mortgage, pledge, security
      interest, or other lien (collectively “Liens”) on any utility properties or
      tangible assets now owned or hereafter acquired to secure any indebtedness
      for
      borrowed money (“Secured Debt”), without providing that such Series H Notes will
      be similarly secured. Further, this restriction on Secured Debt does not apply
      to the Company’s existing first mortgage bonds that have previously been issued
      under its mortgage indenture or any indenture supplemental thereto; provided
      that this restriction will apply to future issuances thereunder (other than
      issuances of refunding first mortgage bonds). In addition, this restriction
      does
      not prevent the creation or existence of:

    

    (i) Liens
      on
      property existing at the time of acquisition or construction of such property
      (or created within one year after completion of such acquisition or
      construction), whether by purchase, merger, construction or otherwise, or to
      secure the payment of all or any part of the purchase price or construction
      cost
      thereof, including the extension of any Liens to repairs, renewals,
      replacements, substitutions, betterments, additions, extensions and improvements
      then or thereafter made on the property subject thereto;

    

    (ii) Financing
      of the Company’s accounts receivable for electric service;

     

    (iii)  Any
      extensions, renewals or replacements (or successive extensions, renewals or
      replacements), in whole or in part, of Liens permitted by the foregoing clauses;
      and

     

    (iv) The
      pledge of any bonds or other securities at any time issued under any of the
      Secured Debt permitted by the above clauses.

    

    In
      addition to the permitted issuances above, Secured Debt not otherwise so
      permitted may be issued in an amount that does not exceed 15% of Net Tangible
      Assets as defined below.

    

    “Net
      Tangible Assets” means the total of all assets (including revaluations thereof
      as a result of commercial appraisals, price level restatement or otherwise)
      appearing on the Company’s balance sheet, net of applicable reserves and
      deductions, but excluding goodwill, trade names, trademarks, patents,
      unamortized debt discount and all other like intangible assets (which term
      shall
      not be construed to include such revaluations), less the aggregate of the
      Company’s current liabilities appearing on such balance sheet.

    

    This
      restriction also will not apply to or prevent the creation or existence of
      leases (operating or capital) made, or existing on property acquired, in the
      ordinary course of business.

    

    SECTION
      2.06.  Global Securities and Certificated
      Securities

    

    The
      Series H Notes shall be issued in the form of a Global Note in definitive,
      fully
      registered form. The Depositary for the Global Note shall be the Depository
      Trust Company. The procedures with respect to transfer and exchange of Global
      Notes shall be as set forth in the form of Note attached hereto.

    

    SECTION
      2.07.  Form of Securities

    

    The
      Global Note shall be substantially in the form attached as Exhibit A
      thereto.

    

    SECTION
      2.08.  Exchange
      of Senior Notes upon Legal Separation

    

    If
      Legal
      Separation occurs, Ohio Wires will be obligated to file the Ohio Wires
      Registration Statement and to effect the Ohio Wires Exchange Offer, offering
      each holder of the Series H Notes the election to (i) retain its Series H Notes
      or (ii) exchange its Series H Notes for Ohio Wires Notes.

    

    If
      a
      holder of a Series H Note fails to elect to retain such note, unless otherwise
      required by law, such Holder will be deemed to have exercised his option to
      exchange such note for an Ohio Wires Note.

    

    In
      the
      case of an Ohio Wires Exchange Offer as set forth above, Ohio Wires will be
      subject, notwithstanding any other provision hereof, with respect to timing,
      to
      the requirement that it consummate the Ohio Wires Exchange Offer within 150
      days
      from the date of Legal Separation. If Ohio Wires fails to consummate the Ohio
      Wires Exchange Offer within such 150 days, special interest premium will accrue
      on the Senior Notes at the rate of 0.50% per annum until the Ohio Wires Exchange
      Offer is consummated. 

    

    The
      transfer of all or substantially all of the Company’s Transmission and
      Distribution Business shall not constitute a Default or an Event of Default
      with
      respect to the Series H Notes nor, for purposes of the Series H Notes, shall
      it
      be deemed a sale or transfer of all or substantially all of the Company’s assets
      for purposes of the Indenture. Additionally, such transfer shall not alter
      the
      terms of the Series H Notes, and the Series H Notes shall continue to be
      governed by the Indenture.

    

    SECTION
      2.09.  Consolidation,
      Merger or Sale

    

    Subject
      to Sections 2.08 and 3.04, the Company, or the successor to the Series H Notes,
      as the case may be, may merge or consolidate with any corporation or sell
      substantially all of its assets as an entirety as long as the successor or
      purchaser expressly assumes the payment of principal, and premium, if any,
      and
      interest on the Series H Notes or the Ohio Wires Notes, as the case may
      be.

    

    ARTICLE
      III

    Miscellaneous
      Provisions

    

    SECTION
      3.01.  Recitals by Company

    

    The
      recitals in this First Supplemental Indenture are made by the Company only
      and
      not by the Trustee, and all of the provisions contained in the Original
      Indenture in respect of the rights, privileges, immunities, powers and duties
      of
      the Trustee shall be applicable in respect of Series H Notes and of this First
      Supplemental Indenture as fully and with like effect as if set forth herein
      in
      full.

    

    SECTION
      3.02.  Ratification and Incorporation of Original
      Indenture

    

    As
      supplemented hereby, the Original Indenture is in all respects ratified and
      confirmed, and the Original Indenture and this First Supplemental Indenture
      shall be read, taken and construed as one and the same instrument.

    

    SECTION
      3.03.  Executed in Counterparts

    

    This
      First Supplemental Indenture may be simultaneously executed in several
      counterparts, each of which shall be deemed to be an original, and such
      counterparts shall together constitute but one and the same
      instrument.

    

    SECTION
      3.04.  Applicability of Section 4.05 and Article Ten of
      Original Indenture

    

    (a)  As
      long
      as the Series H Notes are outstanding, Section 4.05 and Article Ten of the
      Original Indenture shall be applicable thereto; provided, however, that the
      transfer of all or substantially all of the Company’s Transmission and
      Distribution Business (whether or not the Transmission and Distribution Business
      constitutes “substantially all” of the Company’s total assets) to Ohio Wires
      shall not be subject to Section 4.05 and Article Ten of the Original Indenture.
      Furthermore, any transfer of any portion of the Company’s assets will not be
      subject to Section 4.05 or Article Ten of the Original Indenture if the Company
      retains all or substantially all of its Transmission and Distribution
      Business.

    

    (b)  To
      the
      extent the Transmission and Distribution Business is transferred to Ohio Wires,
      holders of Series H Notes shall be given the option to either (i) retain their
      Series H Notes or (ii) exchange their Series H Notes for Ohio Wires Notes
      pursuant to the Ohio Wires Exchange Offer. If any holder fails to elect to
      retain its Series H Notes, unless otherwise required by law, such holder will
      be
      deemed to have exercised its option to exchange its Series H Notes for Ohio
      Wires Notes. 

    

    IN
      WITNESS WHEREOF, each party hereto has caused this instrument to be signed
      in
      its name and behalf by its duly authorized signatories, all as of the day and
      year first above written.

    OHIO
      POWER COMPANY

    

    By 
      /s/ A. A. Pena

    Vice
      President

    Attest:

    

    By 
      /s/ Thomas G. Berkemeyer

    Assistant
      Secretary

    DEUTSCHE
      BANK TRUST COMPANY AMERICAS,

    as
      Trustee

    

    By 
      /s/ Wanda Camacho

    Vice
      President

    Attest:

    

    By 
      /s/ Annie Jaghatspanyan

    Authorized
      Signer

    

    

    

    
      
        
          

          

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
        

      

    

    Unless
      this certificate is presented by an authorized representative of The Depository
      Trust Company (55 Water Street, New York, New York) to the issuer or its agent
      for registration of transfer, exchange or payment, and any certificate to be
      issued is registered in the name of Cede & Co. or in such other name as is
      requested by an authorized representative of The Depository Trust Company and
      any payment is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
      FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the
      registered owner hereof, Cede & Co., has an interest herein. Except as
      otherwise provided in Section 2.11 of the Indenture, this Security may be
      transferred, in whole but not in part, only to another nominee of the Depository
      or to a successor Depository or to a nominee of such successor
      Depository.

    

    No.
      R1

     

    OHIO
      POWER COMPANY

    4.85%
      Senior Notes, Series H, due 2014

    

    CUSIP:
      677415
      CG
      4                                         Original
      Issue Date: July 11, 2003

    

    Stated
      Maturity: January 15, 2014                                  
Interest
      Rate: 4.85%

    

    Principal
      Amount: $225,000,000

    

    Redeemable: 
Yes __  No
      __

    In
      Whole:       Yes __  No
      __

    In
      Part:           Yes
      __  No
      __

    

    OHIO
      POWER COMPANY, a corporation duly organized and existing under the laws of
      the
      State of Ohio (herein referred to as the “Company”, which term includes any
      successor corporation under the Indenture hereinafter referred to), for value
      received, hereby promises to pay to CEDE & CO. or registered assigns, the
      Principal Amount specified above on the Stated Maturity specified above, and
      to
      pay interest on said Principal Amount from the Original Issue Date specified
      above or from the most recent interest payment date (each such date, an
“Interest Payment Date”) to which interest has been paid or duly provided for,
      semi-annually in arrears on January 15 and July 15 in each year, commencing
      on
      January 15, 2004, at the Interest Rate per annum specified above, until the
      Principal Amount shall have been paid or duly provided for. Interest shall
      be
      computed on the basis of a 360-day year of twelve 30-day months.

    

    The
      interest so payable, and punctually paid or duly provided for, on any Interest
      Payment Date, as provided in the Indenture, as hereinafter defined, shall be
      paid to the Person in whose name this Note (or one or more Predecessor
      Securities) shall have been registered at the close of business on the Regular
      Record Date with respect to such Interest Payment Date, which shall be the
      January 1 or July 1 (whether or not a Business Day), as the case may be,
      immediately preceding such Interest Payment Date, provided that interest payable
      on the Stated Maturity or any redemption date shall be paid to the Person to
      whom principal is paid. Any such interest not so punctually paid or duly
      provided for shall forthwith cease to be payable to the Holder on such Regular
      Record Date and shall be paid as provided in said Indenture.

    

    If
      any
      Interest Payment Date, any redemption date or Stated Maturity is not a Business
      Day, then payment of the amounts due on this Note on such date will be made
      on
      the next succeeding Business Day, and no interest shall accrue on such amounts
      for the period from and after such Interest Payment Date, redemption date or
      Stated Maturity, as the case may be, with the same force and effect as if made
      on such date. The principal of (and premium, if any) and the interest on this
      Note shall be payable at the office or agency of the Company maintained for
      that
      purpose in the Borough of Manhattan, the City of New York, New York, in any
      coin
      or currency of the United States of America which at the time of payment is
      legal tender for payment of public and private debts; provided, however, that
      payment of interest (other than interest payable on the Stated Maturity or
      any
      redemption date) may be made at the option of the Company by check mailed to
      the
      registered holder at such address as shall appear in the Security
      Register.

    

    This
      Note
      is one of a duly authorized series of Notes of the Company (herein sometimes
      referred to as the “Notes”), specified in the Indenture, all issued or to be
      issued in one or more series under and pursuant to an Indenture dated as of
      September 1, 1997 duly executed and delivered between the Company and Deutsche
      Bank Trust Company Americas (formerly Bankers Trust Company), a corporation
      organized and existing under the laws of the State of New York, as Trustee
      (herein referred to as the “Trustee”) (such Indenture, as originally executed
      and delivered and as thereafter supplemented and amended being hereinafter
      referred to as the “Indenture”), to which Indenture and all indentures
      supplemental thereto or Company Orders reference is hereby made for a
      description of the rights, limitations of rights, obligations, duties and
      immunities thereunder of the Trustee, the Company and the holders of the Notes.
      By the terms of the Indenture, the Notes are issuable in series which may vary
      as to amount, date of maturity, rate of interest and in other respects as in
      the
      Indenture provided. This Note is one of the series of Notes designated on the
      face hereof.

    

    This
      Note
      may be redeemed by the Company at its option, in whole or in part at any time,
      upon not less than thirty but not more than sixty days’ prior notice given by
      mail to the registered owners of the Notes at a redemption price equal to the
      greater of (i) 100% of the principal amount of the Notes being redeemed and
      (ii)
      the sum of the present values of the remaining scheduled payments of principal
      and interest on the Note being redeemed (excluding the portion of any such
      interest accrued to the date of redemption) discounted (for purposes of
      determining present value) to the redemption date on a semi-annual basis
      (assuming a 360-day year consisting of twelve 30-day months) at the Treasury
      Rate (as defined below) plus 20 basis points, plus, in each case, accrued
      interest thereon to the date of redemption.

    

    “Treasury
      Rate” means, with respect to any redemption date, the rate per annum equal to
      the semi-annual equivalent yield to maturity of the Comparable Treasury Issue,
      assuming a price for the Comparable Treasury Issue (expressed as a percentage
      of
      its principal amount) equal to the Comparable Treasury Price for such redemption
      date.

    

    “Comparable
      Treasury Issue” means the United States Treasury security selected by an
      Independent Investment Banker as having a maturity comparable to the remaining
      term of the Notes that would be utilized, at the time of selection and in
      accordance with customary financial practice, in pricing new issues of corporate
      debt securities of comparable maturity to the remaining term of the
      Notes.

    

    “Comparable
      Treasury Price” means, with respect to any redemption date, (1) the average of
      the bid and asked prices for the Comparable Treasury Issue (expressed in each
      case as a percentage of its principal amount) on the third Business Day
      preceding such redemption date, as set forth in the daily statistical release
      (or any successor release) published by the Federal Reserve Bank of New York
      and
      designated “Composite 3:30 p.m. Quotations for U.S. Government Securities” or
      (2) if such release (or any successor release) is not published or does not
      contain such prices on such third Business Day, the Reference Treasury Dealer
      Quotation for such redemption date.

    

    “Independent
      Investment Banker” means one of the Reference Treasury Dealers appointed by the
      Company and reasonably acceptable to the Trustee.

    

    “Reference
      Treasury Dealer” means a primary U. S. government securities dealer in New York
      City selected by the Company and reasonably acceptable to the
      Trustee.

    

    “Reference
      Treasury Dealer Quotation” means, with respect to the Reference Treasury Dealer
      and any redemption date, the average, as determined by the Trustee, of the
      bid
      and asked prices for the Comparable Treasury Issue (expressed in each case
      as a
      percentage of its principal amount) quoted in writing to the Trustee by such
      Reference Treasury Dealer at or before 5:00 p.m., New York City time, on the
      third Business Day preceding such redemption date.

    

    The
      Company shall not be required to (i) issue, exchange or register the transfer
      of
      any Notes during a period beginning at the opening of business 15 days before
      the day of the mailing of a notice of redemption of less than all the
      outstanding Notes of the same series and ending at the close of business on
      the
      day of such mailing, nor (ii) register the transfer of or exchange of any Notes
      of any series or portions thereof called for redemption. This Global Note is
      exchangeable for Notes in definitive registered form only under certain limited
      circumstances set forth in the Indenture.

    

    In
      the
      event of redemption of this Note in part only, a new Note or Notes of this
      series, of like tenor, for the unredeemed portion hereof will be issued in
      the
      name of the Holder hereof upon the surrender of this Note.

    

    In
      case
      an Event of Default, as defined in the Indenture, shall have occurred and be
      continuing, the principal of all of the Notes may be declared, and upon such
      declaration shall become, due and payable, in the manner, with the effect and
      subject to the conditions provided in the Indenture.

    

    The
      Indenture contains provisions for defeasance at any time of the entire
      indebtedness of this Note upon compliance by the Company with certain conditions
      set forth therein.

    

    The
      Indenture contains provisions permitting the Company and the Trustee, with
      the
      consent of the Holders of not less than a majority in aggregate principal amount
      of the Notes of each series affected at the time outstanding, as defined in
      the
      Indenture, to execute supplemental indentures for the purpose of adding any
      provisions to or changing in any manner or eliminating any of the provisions
      of
      the Indenture or of any supplemental indenture or of modifying in any manner
      the
      rights of the Holders of the Notes; provided, however, that no such supplemental
      indenture shall (i) extend the fixed maturity of any Notes of any series, or
      reduce the principal amount thereof, or reduce the rate or extend the time
      of
      payment of interest thereon, or reduce any premium payable upon the redemption
      thereof, or reduce the amount of the principal of a Discount Security that
      would
      be due and payable upon a declaration of acceleration of the maturity thereof
      pursuant to the Indenture, without the consent of the holder of each Note then
      outstanding and affected; (ii) reduce the aforesaid percentage of Notes, the
      holders of which are required to consent to any such supplemental indenture,
      or
      reduce the percentage of Notes, the holders of which are required to waive
      any
      default and its consequences, without the consent of the holder of each Note
      then outstanding and affected thereby; or (iii) modify any provision of Section
      6.01(c) of the Indenture (except to increase the percentage of principal amount
      of securities required to rescind and annul any declaration of amounts due
      and
      payable under the Notes), without the consent of the holder of each Note then
      outstanding and affected thereby. The Indenture also contains provisions
      permitting the Holders of a majority in aggregate principal amount of the Notes
      of all series at the time outstanding affected thereby, on behalf of the Holders
      of the Notes of such series, to waive any past default in the performance of
      any
      of the covenants contained in the Indenture, or established pursuant to the
      Indenture with respect to such series, and its consequences, except a default
      in
      the payment of the principal of or premium, if any, or interest on any of the
      Notes of such series. Any such consent or waiver by the registered Holder of
      this Note (unless revoked as provided in the Indenture) shall be conclusive
      and
      binding upon such Holder and upon all future Holders and owners of this Note
      and
      of any Note issued in exchange herefor or in place hereof (whether by
      registration of transfer or otherwise), irrespective of whether or not any
      notation of such consent or waiver is made upon this Note.

    

    No
      reference herein to the Indenture and no provision of this Note or of the
      Indenture shall alter or impair the obligation of the Company, which is absolute
      and unconditional, to pay the principal of and premium, if any, and interest
      on
      this Note at the time and place and at the rate and in the money herein
      prescribed.

    

    As
      provided in the Indenture and subject to certain limitations therein set forth,
      this Note is transferable by the registered holder hereof on the Note Register
      of the Company, upon surrender of this Note for registration of transfer at
      the
      office or agency of the Company as may be designated by the Company accompanied
      by a written instrument or instruments of transfer in form satisfactory to
      the
      Company or the Trustee duly executed by the registered Holder hereof or his
      or
      her attorney duly authorized in writing, and thereupon one or more new Notes
      of
      authorized denominations and for the same aggregate principal amount and series
      will be issued to the designated transferee or transferees. No service charge
      will be made for any such trans-fer, but the Company may require payment of
      a
      sum sufficient to cover any tax or other governmental charge payable in relation
      thereto.

    

    Prior
      to
      due presentment for registration of transfer of this Note, the Company, the
      Trustee, any paying agent and any Note Registrar may deem and treat the
      registered Holder hereof as the absolute owner hereof (whether or not this
      Note
      shall be overdue and notwithstanding any notice of ownership or writing hereon
      made by anyone other than the Note Registrar) for the purpose of receiving
      payment of or on account of the principal hereof and premium, if any, and
      interest due hereon and for all other purposes, and neither the Company nor
      the
      Trustee nor any paying agent nor any Note Registrar shall be affected by any
      notice to the contrary.

    

    No
      recourse shall be had for the payment of the principal of or the interest on
      this Note, or for any claim based hereon, or otherwise in respect hereof, or
      based on or in respect of the Indenture, against any incorporator, stockholder,
      officer or director, past, present or future, as such, of the Company or of
      any
      predecessor or successor corporation, whether by virtue of any constitution,
      statute or rule of law, or by the enforcement of any assessment or penalty
      or
      otherwise, all such liability being, by the acceptance hereof and as part of
      the
      consideration for the issuance hereof, expressly waived and
      released.

    

    The
      Notes
      of this series are issuable only in registered form without coupons in
      denominations of $1,000 and any integral multiple thereof. As provided in the
      Indenture and subject to certain limitations, Notes of this series are
      exchangeable for a like aggregate principal amount of Notes of this series
      of a
      different authorized denomination, as requested by the Holder surrendering
      the
      same.

    

    All
      terms
      used in this Note which are defined in the Indenture shall have the meanings
      assigned to them in the Indenture.

    

    This
      Note
      shall not be entitled to any benefit under the Indenture hereinafter referred
      to, be valid or become obligatory for any purpose until the Certificate of
      Authentication hereon shall have been signed by or on behalf of the
      Trustee.

    

    [The
      remainder of this page intentionally left blank.]

    

    

    IN
      WITNESS WHEREOF, the Company has caused this Instrument to be
      executed.

    

    OHIO
      POWER COMPANY

    

    

    By:___________________________

    Vice
      President

    Attest:

    

    

    By:___________________________

    Assistant
      Secretary

    

    

    

    CERTIFICATE
      OF AUTHENTICATION

    

    This
      is
      one of the Notes of the series of Notes designated in accordance with, and
      referred to in, the within-mentioned Indenture.

    

    Dated
      July 11, 2003

    

    DEUTSCHE
      BANK TRUST 

    COMPANY
      AMERICAS

    

    

    By:___________________________

    Authorized
      Signatory

    

    

    

    FOR
      VALUE
      RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s)
      unto

    

    

    

    (PLEASE
      INSERT SOCIAL SECURITY OR OTHER

    IDENTIFYING
      NUMBER OF ASSIGNEE)

    

    _______________________________________

    

    ________________________________________________________________

    

    ________________________________________________________________

    (PLEASE
      PRINT OR TYPE NAME AND ADDRESS, INCLUDING ZIP CODE, OF

    ________________________________________________________________

    ASSIGNEE)
      the within Note and all rights thereunder, hereby

    ________________________________________________________________

    irrevocably
      constituting and appointing such person attorney to 

    ________________________________________________________________

    transfer
      such Note on the books of the Issuer, with full

    ________________________________________________________________

    power
      of
      substitution in the premises.

    

    

    

    Dated:________________________  _________________________

    

    

    

    NOTICE: The
      signature to this assignment must correspond with the name as written upon
      the
      face of the within Note in every particular, without alteration or enlargement
      or any change whatever and NOTICE: Signature(s) must be guaranteed by a
      financial institution that is a member of the Securities Transfer Agents
      Medallion Program (“STAMP”), the Stock Exchange Medallion Program (“SEMP”) or
      the New York Stock Exchange, Inc. Medallion Signature Program
      (“MSP”).

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