Document:

Consulting Agreement

    Exhibit
      10.39

     

    SURGE
      GLOBAL ENERGY, INC.

    CONSULTING
      AGREEMENT

    

    THIS
      CONSULTING AGREEMENT ("Agreement")
      is
      entered this October 6, 2006, to be effective as
      of
      September 26, 2006, by and between SURGE
      GLOBAL ENERGY, INC, a
      Delaware corporation (the "Company")
      and
      Richard Collato,
      an
      individual ("Consultant").
      The
      Company desires to retain Consultant as an independent contractor to perform
      consulting services for the Company, and Consultant is willing to perform such
      services, on the terms described below. In consideration of the mutual promises
      contained herein (including Section I I hereof), the parties agree as
      follows:

    

    1.  Services
      and Compensation. Consultant
      agrees to perform for the Company the services described in Exhibit
      A (the
      "Services"),
      and
      the
      Company agrees to pay Consultant the compensation described in Exhibit
      A for Consultant's
      performance of the Services. In connection with Consultant's receipt of the
      options described on Exhibit
      A, Consultant
      hereby makes the representations set forth on Exhibit
      B to this
      Agreement.

    

    2. 
      Confidentiality.

    

    A. Definition.
      "Confidential
      Information" means
      any
      non-public information that relates to the actual or anticipated business or
      research and development of the Company, technical data, trade secrets or
      know-how, including, but not limited to, research, strategic plans or other
      information regarding Company's products or services and markets therefor,
      vendors list and vendors, customer lists and customers, developments, processes,
      technology, designs, engineering, marketing, finances or other business
      information. Confidential Information does not include information that (i)
      has
      become, publicly known and made generally available through no wrongful act
      of
      Consultant or (ii) has been rightfully received by Consultant from a third
      party
      who is authorized to make such disclosure.

    

    B. Nonuse
      and Nondisclosure. Consultant
      will not, during or subsequent to the term of this Agreement, (i) use the
      Confidential Information for any purpose whatsoever other than the performance
      of the Services on behalf of the Company or (ii) disclose the Confidential
      Information to any third party. Consultant agrees that all Confidential
      Information will remain the sole property of the Company. Consultant also agrees
      to take all reasonable precautions to prevent any unauthorized disclosure of
      such Confidential Information.

    

    C. Former
      Client Confidential Information. Consultant
      agrees that Consultant will not, during the term of this Agreement, improperly
      use or disclose any proprietary information or trade secrets of any former
      or
      current
      employer of Consultant or other person or entity with which Consultant has
      an
      agreement or duty to keep in confidence information acquired by Consultant,
      if
      any. Consultant also agrees that Consultant will not bring onto the Company's
      premises any unpublished document or proprietary information belonging to any
      such employer, person or entity unless consented to in writing by such employer,
      person or entity.

    

    D. Third
      Party Confidential Information. Consultant
      recognizes that the Company has received and in the future will receive from
      third parties their confidential or proprietary information subject to a duty
      on
      the Company's part to maintain the confidentiality of such information and
      to
      use it only for certain limited purposes. Consultant agrees that, during the
      term of this Agreement and thereafter, Consultant owes the Company and such
      third parties a duty to hold all such confidential or proprietary information
      in
      the strictest confidence and not to disclose it to any person, firm or
      corporation or to use it except as necessary in carrying out the Services for
      the Company consistent with the Company's agreement with such third
      party.

    
      
        
        

      

      
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    E.
       Return
      of Materials. Upon
      the
      termination of this Agreement, or upon Company's earlier request, Consultant
      will deliver to the Company all of the Company's property, including but not
      limited to all electronically stored information and passwords to access such
      property, or Confidential Information that Consultant may have in Consultant's
      possession or control.

    

    3. Conflicting
      Obligations. Consultant
      certifies that Consultant has no outstanding agreement or obligation that is
      in
      conflict with any of the provisions of this Agreement or that would preclude
      Consultant from complying with the provisions of this Agreement. Consultant
      will
      not enter into any such conflicting agreement during the term of this
      Agreement.

    

    4. Reports.
      Consultant
      also agrees that Consultant will, from time to time during the term
      of
      this
      Agreement or any extension thereof, keep the Company advised as to Consultant's
      progress in performing the Services under this Agreement.

    

    5. Term
      and Termination,

    

    A. Term.
      The
      term
      of this Agreement will begin on the date of this Agreement and will continue
      until the earlier of (i) final completion of the Services or (ii) termination
      as
      provided in Section 5.B.

    

    B. Termination.
      The
      Consultant may terminate this Agreement if, following 10 calendar days' prior
      written notice, the Company has not provided to Consultant the compensation
      earned, due and payable as set forth on Exhibit
      A hereto.
      The Company may terminate this Agreement upon giving the Consultant 30 calendar
      days' prior written notice of such termination pursuant to Section 10.E of
      this
      Agreement, Additionally, the Company may terminate this Agreement immediately
      and without prior notice if Consultant refuses to or is unable to perform the
      Services or is in breach of any material provision of this
      Agreement.

    

    C. Survival.
      Upon
      such
      termination, all rights and duties of the Company and Consultant toward each
      other shall cease except:

    

    (1) The
      Company
      will pay, within 30 calendar days after the effective date of termination,
      all
      amounts owing to Consultant for Services completed and accepted by the Company
      prior to the termination date and related expenses, if any, submitted in
      accordance with the Company's policies and in accordance with
      the
      provisions of Section 1 of this Agreement; and

    

    (2) Section
      2
      (Confidentiality), Section 3 (Conflicting Obligations), Section 6 (Independent
      Contractor; Benefits), Section 7 (Indemnification) Section 8 (Nonsolicitation)
      and Section 9 (Arbitration and Equitable Relief) will survive termination of
      this Agreement.

    

    6. Independent
      Contractor; Benefits.

     

    
      
        
        

      

      
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    A.
      Independent Contractor. It
      is the
      express intention of the Company and Consultant that Consultant perform the
      Services as an independent contractor to the Company. Nothing in this Agreement
      shall in any way be construed to constitute Consultant as an agent, employee
      or
      representative of the Company. Without limiting the generality of the foregoing,
      Consultant is not authorized to bind the Company to any liability or obligation
      or to represent that Consultant has any such authority. Consultant agrees to
      furnish (or reimburse the Company for) all tools and materials necessary
to accomplish this Agreement and shall incur all expenses associated
      with
      performance, except as expressly provided in Exhibit
      A. Consultant
      acknowledges and agrees that Consultant is obligated to report as income all
      compensation received by Consultant pursuant to this Agreement. Consultant
      agrees to and acknowledges the obligation to pay all self-employment and other
      taxes on such income. Consultant hereby agrees to indemnify Company fully for
      any such taxes for which Company is held liable by reason of any
      re-characterization of Consultant as an employee of Company by any taxing
      authority, including but not limited to, employer's share of FICA. It is
      Consultant's responsibility to provide Consultant's own worker's compensation,
      comprehensive liability and auto insurance coverage to the extent required
      by
      law. This responsibility shall extend not only to Consultant, but to any and
      all
      assistants, independent contractors, employees or agents Consultant may hire
      or
      utilize to assist him in the performance of this Agreement.

    

    B.
      Benefits. The
      Company and Consultant agree that Consultant will receive no Company-sponsored
      benefits from the Company. If Consultant is reclassified by a state or federal
      agency or court as Company's employee, Consultant will become a reclassified
      employee and will receive no benefits from the Company, except those mandated
      by
      state or federal law, even if by the terms of the Company's benefit plans or
      programs of the Company in effect at the time of such reclassification,
      Consultant would otherwise be eligible for such benefits.

    

    7. Indemnification.

    

    A. Consultant
      Indemnification. Consultant
      agrees to indemnify and hold harmless the Company and its directors, officers
      and employees from and against all taxes, losses, damages, liabilities, costs
      and expenses, including attorneys' fees and other legal expenses, arising
      directly or indirectly from or in connection with a determination by a court
      or
      agency that the Consultant is not an independent contractor or any breach of
      the
      provisions of this Agreement by Consultant.

    

    B. Company
      Indemnification. Company
      agrees to indemnify Consultant against all Claims (as defined below) and all
      costs, expenses and reasonable attorneys' fees incurred in the defense of any
      such Claims or any actions or proceeding brought on any such Claims
      (collectively, "Expenses"),
      unless
      such Claims and/or Expenses shall have been the result of gross negligence,
      fraud or intentional misconduct
      by Consultant, in which case such indemnification shall not cover such Claims
      or
      Expenses to
      the
      extent resulting from such gross negligence, fraud or intentional misconduct.
      For purposes of this Section 7B, "Claims"
      shall
      mean all liabilities, damages, costs, expenses, reasonable attorneys' fees
      and
      claims, arising from (i) any activity, work or thing done, permitted or suffered
      by Company or by any agent, employee, officer, or independent contractor of
      or,
      retained by Company in connection with this Agreement, or (ii) any breach or
      default in the performance of any obligation to be performed by Company under
      this Agreement. If any action or proceeding is brought against Consultant by
      reason of any Claims of which Consultant is entitled to indemnification under
      this Section 7B, then upon written notice from Consultant ("Notice"),
      Company
      shall defend such action or proceeding at Company's sole cost by counsel
      reasonably satisfactory to Consultant; provided, however, such Notice shall
      include a written undertaking by Consultant to repay all amounts paid by the
      Company to defend such action or proceeding, including attorneys' fees and
      costs, if it shall ultimately be determined that Consultant Person is not
      entitled to be indemnified under this Section
      7B.

    

    8.
      Nonsolicitation. From
      the
      date of this Agreement until 12 months after the termination of this Agreement
      (the "Restricted
      Period"), Consultant
      will not, without the Company's prior written consent, directly or indirectly,
      solicit or encourage any employee or contractor of the Company or its affiliates
      to terminate employment with, or cease providing services to, the Company or
      its
      affiliates. During the Restricted Period, Consultant will not, whether for
      Consultant's own account or for the account of any other person, firm,
      corporation or other business organization, intentionally interfere with any
      person who is or during the period of Consultant's engagement by the Company
      was
      a partner, supplier, customer or client of the Company or its
      affiliates.

    
      
        
        

      

      
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    9. Arbitration
      and Equitable Relief

    

    A. Arbitration.
      Consultant
      agrees that any and all controversies, claims or disputes with anyone (including
      the Company and any employee, officer, director, shareholder or benefit plan
      of
      the Company, in its capacity as such or otherwise) arising out of, relating
      to
      or resulting from Consultant's performance of the Services under this Agreement
      or the termination of this Agreement, including any breach of this Agreement,
      shall be subject to binding arbitration under the Arbitration Rules set forth
      in
      California Code of Civil Procedure Section 1280 through 1294.2, including
      Section 1283.05 (the "Rules")
      and
      pursuant to California law. CONSULTANT AGREES TO ARBITRATE, AND THEREBY AGREES
      TO WAIVE ANY RIGHT TO A TRIAL BY JURY WITH RESPECT TO, ALL DISPUTES ARISING
      FROM
      OR RELATED TO THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO: ANY STATUTORY CLAIMS
      UNDER STATE OR FEDERAL LAW, CLAIMS UNDER TITLE VII OF THE CIVIL RIGHTS ACT
      OF
      1964, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE AGE DISCRIMINATION IN
      EMPLOYMENT ACT OF 1967,
      THE
      NEVADA LABOR CODE, CLAIMS OF HARASSMENT, DISCRIMINATION OR WRONGFUL TERMINATION
      AND ANY STATUTORY CLAIMS. Consultant understands that this Agreement to
      arbitrate also applies to any disputes that the Company may have with
      Consultant.

    

    B. Procedure.
      Consultant
      agrees that any
      arbitration
      will be administered by the American Arbitration Association ("AAA"), and that
      a
      neutral arbitrator will be selected in a manner consistent with its National
      Rules for the Resolution of Employment Disputes. Consultant agrees that the
      arbitrator will have the power to decide any motions brought by any party to
      the
      arbitration, including discovery motions, motions for summary judgment andlor
      adjudication and motions to dismiss and demurrers, prior to any arbitration
      hearing. Consultant agrees that the arbitrator will issue a written decision
      on
      the merits. Consultant also agrees that the arbitrator will have the power
      to
      award any remedies, including attorneys' fees and costs, available under
      applicable law. Consultant understands that the Company will pay for any
      administrative or hearing fees charged by the arbitrator or AAA, except that
      Consultant shall pay the first $200.00 of any filing fees associated with any
      arbitration Consultant initiates. Consultant agrees that the arbitrator will
      administer and conduct any arbitration in a manner consistent with the Rules
      and
      that, to the extent that the AAA's National Rules for the Resolution of
      Employment Disputes conflict with the Rules, the Rules will take
      precedence.

    

    C. Remedy.
      Except
      as
      provided by the Rules, arbitration will be the sole, exclusive and final remedy
      for any dispute between the Company and Consultant. Accordingly, except as
      provided for by the Rules, neither the Company nor Consultant will be permitted
      to pursue court action regarding claims that are subject to arbitration.
      Notwithstanding the foregoing, the arbitrator will not have the authority to
      disregard or refuse to enforce any lawful Company policy, and the arbitrator
      shall not order or require the Company to adopt a policy not otherwise required
      by law which the Company has not adopted.

    

    D. Availability
      of Injunctive Relief In
      addition to the right under the Rules to petition the court for provisional
      relief, Consultant agrees that any party may also petition the court for
      injunctive relief where either party alleges or claims a violation of Sections
      2
      (Confidentiality), or 3 (Conflicting Obligations) of this Agreement or any
      other
      agreement regarding trade secrets, confidential information or nonsolicitation.
      In the event either the Company or Consultant seeks injunctive relief, the
      prevailing party will be entitled to recover reasonable costs and attorneys'
      fees.

    

    E. Administrative
      Relief Consultant
      understands that this Agreement does not prohibit Consultant from pursuing
      an
      administrative claim with a local, state or federal administrative body such
      as
      the Department of Fair Employment and Housing, the Equal Employment Opportunity
      Commission or the workers' compensation board. This Agreement does, however,
      preclude Consultant from pursuing court action regarding any such
      claim.

    
      
        
        

      

      
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    F. Voluntary
      Nature of Agreement. Consultant
      acknowledges and agrees that Consultant is executing this Agreement voluntarily
      and without any duress or undue influence by the Company or anyone else,
      Consultant further acknowledges and agrees that Consultant has carefully read
      this Agreement and has asked any questions needed to understand the terms,
      consequences and binding effect of this Agreement and fully understand it,
      including that Consultant is waiving its right to a jury trial. Finally,
      Consultant agrees that Consultant has been provided an opportunity to seek
      the
      advice of an attorney of its choice before signing this Agreement.

    

    10. Miscellaneous.

    

    A. Governing
      Law. This
      Agreement shall be governed by the laws of California without regard to
      California's conflicts of law rules.

    

    B.
      Assignability.
      Consultant
      may not sell, assign or delegate any rights or obligations under this Agreement,
      including without limitation, any of the options or shares provided to
      Consultant pursuant to this Agreement; provided, however, Consultant may sell
      shares of the Company acquired pursuant to this Agreement in compliance with
      applicable state and federal securities law.

    

    C. Entire
      Agreement. This Agreement
      constitutes the entire agreement between the parties with respect to the subject
      matter of this Agreement and supersedes all prior written and oral agreements
      between the parties regarding the subject matter of this Agreement. The parties
      hereto agree that any rule of construction to the effect that ambiguities are
      to
      be resolved against the drafting party shall not be applied in the construction
      or interpretation of this Agreement.

    

    D. Headings.
      Headings
      are used in this Agreement for reference only and shall not be considered when
      interpreting this Agreement.

    

    E. Notices.
      Any notice
      or
      other communication required or permitted by this Agreement to be given to
      a
      party shall be in writing and shall be deemed given if delivered personally
      or
      by commercial messenger or courier service, or mailed by U.S. registered or
      certified mail (return receipt requested), or sent via facsimile (with receipt
      of confirmation of complete transmission) to the party at the party's address
      or
      facsimile number written below or at such other address or facsimile number
      as
      the party may have previously specified by like notice. If by mail, delivery
      shall be deemed effective 3 business days after mailing in accordance with
      this
      Section 9(E).

    

    
      
        	(1) 	If to the Company, to:

                Surge
                  Global Energy, Inc.

                12220
                  El Camino Real, Suite 410
                  San Diego, CA 92130

                Attention:
                  David Perez, President 

                Telephone:
                  (858) 704-5018

                Facsimile:
                  (858) 704-5011 

              

    

     

    
      
        
        

      

      
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    (2)
      If to
      Consultant, to the address for notice on the signature page to this Agreement
      or, if no such address is provided, to the last address of Consultant provided
      by Consultant to the Company.

    

    F. Attorneys'
      Fees. In any
      court
      action at law or equity that is brought by one of the parties to this Agreement
      to enforce or interpret the provisions of this Agreement, the prevailing party
      will be entitled to reasonable attorneys' fees, in addition to any other relief
      to which that party may be entitled.

    

    G. Severability.
      If
      any
      provision of this Agreement is found to be illegal or unenforceable, the other
      provisions shall remain effective and enforceable to the greatest extent
      permitted by law.

    

    11.
      Legal
      Counsel. EACH
      OF
      THE PARTIES HERETO ACKNOWLEDGES AND UNDERSTANDS THAT SUCH PARTY HAS THE RIGHT
      TO
      CONSULT WITH AN ATTORNEY OF HISIHERIITS CHOICE CONCERNING THE TERMS, EXECUTION
      AND EFFECT OF THIS AGREEMENT. EACH OF THE PARTIES REPRESENTS THAT SUCH PARTY
      HAS
      HAD AN OPPORTUNITY TO REVIEW THE AGREEMENT, THAT SUCH PARTY HAS READ AND
      UNDERSTAND THE AGREEMENT, THAT SUCH PARTY IS FULLY AWARE OF THE CONTENTS OF
      THIS
      AGREEMENT AND OF ITS LEGAL EFFECT, AND WARRANTS AND REPRESENTS THAT THIS
      AGREEMENT IS EXECUTED VOLUNTARILY AND WITHOUT DURESS OR UNDUE INFLUENCE ON
      THE
      PART OF OR ON BEHALF OF ANY PERSON OR ENTITY. EACH OF THE PARTIES FURTHER
      ACKNOWLEDGES AND REPRESENTS THAT GREENBERG TRAURIG, LLP (AND STEVEN T. ANAPOELL,
      ESQ., SPECIFICALLY) ("COUNSEL")
      HAS
      BEEN
      INSTRUCTED AND RETAINED BY THE COMPANY TO PREPARE AND NEGOTIATE THIS AGREEMENT
      AND COUNSEL DOES NOT REPRESENT, AND HAS NEVER REPRESENTED, CONSULTANT IN
      CONNECTION WITH THIS AGREEMENT OR IN ANY OTHER CAPACITY WHATSOEVER ON OR PRIOR
      TO THE EFFECTIVE DATE. COUNSEL SHALL BE ENTITLED TO RELY UPON AND TO ENFORCE,
      AT
      THE PARTIES' EXPENSE, THE PROVISIONS OF THIS SECTION 11, AS AN EXPRESS AND
      INTENDED THIRD PARTY BENEFICIARY OF THIS SECTION 11.

    

    IN
      WITNESS
      WHEREOF, the
      parties hereto have executed this Consulting Agreement on this day
      of
      October 6th, 2006, to be effective as of September 26, 2006.

    

    

    
      	
              CONSULTANT
 	SURGE
              GLOBAL ENERGY, INC.
	/s/  Richard Collato    	By: 	/s/David
              Perez
	
            	 	David
              Perez, President
	
              Address
                for Notice: 

            	 	 
	
               

               

            	 	 

    

     

    
      
        
        

      

      
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    EXHIBIT
      A

    SERVICES
      AND COMPENSATION

    

    1. Contact.
      Consultant's
      principal Company contact:

    

    Name:
      David Perez
      Title:
      President

    

    2. Services.
      Consultant
      shall perform the following services during the term of this
      Agreement:

    

    A. Consultant
      shall make himself reasonably available to the Company's President up to a
      maximum of twelve (12) hours per month for consultation and other activities
      related to formulating and implementing business strategies and relationships.
      Consultant shall not be required to devote his entire time, attention and
      energies to the business of the Company and shall not be required to maintain
      any set hours at the Company's offices. Consultant's obligations under this
      Section 2A shall terminate on the earlier of (i) September 26, 2007,
      and
      (ii)
      on Consultant's giving the Company 30 calendar days' prior
      written
      notice of such termination pursuant to Section 10.E of this
      Agreement.

    

    B. Consultant
      shall use his commercially reasonable efforts to locate and introduce qualified
      appointees ("Appointees")
      to
      the
      Company's Board of Directors until such time as three (3) such Appointees have
      either accepted positions on the Board or such positions have been filled
      (Consultant may be a proposed Appointee); and

    

    C. If
      any
      one or more of the Appointees does not serve on the Board for at least 12
      months, Consultant shall use his commercially reasonable efforts to Iocate
      and
      introduce a replacement Appointee for each such board position to the extent
      such board position remains open,

    

    3. Compensation.

    

    A. The
      Company will pay Consultant a non-refundable retainer of $6,000 per month
for
      the
      service to be provided by Consultant under Section 2A above, The first payment
      shall be due on the later of October 5, 2006, or the signing of this
      Agreement.

    

    B. Additionally,
      the Company shall pay the Consultant $25,000 per Appointee (defined below)
      upon
      the Initial Vesting Date (defined below), and $2,083.33 per Appointee (payable
      by the fifth (5`h)
      day of
      each applicable month) for each of the 12 months following the Initial Vesting
      Date (defined below) that such Appointee serves on the Company's Board of
      Directors,

    

    C. The
      Company hereby grants Consultant a nonqualified stock option to purchase 300,000
      shares of the Company's Common Stock at a price per share equal to $0.001,
      subject to the following vesting schedule: 50,000 of the shares subject to
      the
      option shall vest upon the Company's appointment of, and the acceptance of
      such
      appointment by each Appointee (up to a maximum of three Appointees (i.e., total
      of 150,00 shares)) (the date of such acceptance, the "Initial Vesting Date"),
      and the remaining shares shall vest at a rate of 4,166 shares per month for
      each
      Appointee that remains on the Company's Board of Directors following the Initial
      Vesting Date. By way of illustration only, if one Appointee remains on the
      Company's Board of Directors for three months following the Initial Vesting
      Date, the second Appointee remains on the Company's Board of Directors for
      1
      month following the Initial Vesting date and the third person is not appointed,
      then the total number of share vested shall be 16,664 shares (4,166 + [3 x
      4,166] = 16,664 shares) plus the 50,000 vested shares for each of the two
      Appointees as of the Initial Vesting Date, for a total of 116,664
      shares.

     

    
      Accepted
        and agreed this October 6, 2006, to be effective as of September 26,
        2006.

    

    
       

    

    
      	
              CONSULTANT
 	SURGE
              GLOBAL ENERGY, INC.
	/s/  Richard
              Collato    	By: 	/s/David
              Perez
	
            	 	David
              Perez, President

    

     

    
      
        
        

      

      
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    EXHIBIT
      B

    CONSULTANT'S
      REPRESENTATIONS AND WARRANTIES

    

    Consultant
      hereby represents, warrants and covenants to the Company as follows, which
      representations, warranties and covenants shall be deemed made on the date
      of
      execution of this Agreement and upon each exercise of an option issued in
      accordance with Section
      3C
      of
Exhibit
      A :

    

    1. Purchase
      for Own Account.
      Consultant represents that it is acquiring the options and equity
      securities issuable upon exercise of the options in accordance with Section
      3C
      of ExhibitA
      to
      this
      Agreement (collectively, the "Securities")
      solely
      for investment for Consultant's own account not
      as
      a
      nominee or agent, and not with a view to the resale or distribution of any
      part
      thereof, and that Consultant has no present intention of selling, granting
      any
      participation in, or otherwise distributing the same. The acquisition by
      Consultant of any of the Securities shall constitute confirmation of the
      representation by Consultant that Consultant does not have any contract,
      undertaking, agreement or arrangement with any person to sell, transfer or
      grant
      participations to such person or to any third person, with respect to any of
      the
      Securities.

    

    2. Disclosure
      of Information.
      Consultant has received all the information he considers necessary or
      appropriate for deciding whether to acquire the Securities. Consultant further
      represents that he has had an opportunity to ask questions and receive answers
      from the Company regarding the terms and conditions of the offering of the
      Securities and the business, properties, prospects and financial condition
      of
      the Company.

    

    3. Investment
      Experience.
      Either
      (i) Consultant has a preexisting personal or business relationship with the
      Company or its officers,
      directors
      or controlling persons, or (ii) Consultant, by reason of his own business and
      financial experience, has the capacity to protect his own interests in
      connection with the investment contemplated hereby. Consultant represents that
      he is an investor in securities of companies comparable to the Company and
      acknowledges that he is able to fend for himself, can bear the economic risk
      of
      his investment, and has such knowledge and experience in financial or business
      matters that he is capable of evaluating the merits and risks of the investment
      in the Securities. Consultant acknowledges that any investment in the Securities
      involves a high degree of risk, and represents that he is able, without
      materially impairing his financial condition, to hold the Securities for an
      indefinite period of time and to suffer a complete loss of his
      investment,

    

    4. Accredited
      Investor.
      Consultant represents that (i) he is a natural person whose individual net
      worth
      (or joint net worth with his spouse) exceeds $1,000,000, (ii) he is a natural
      person who had an individual income in excess of $200,000 in each of the two
      most recent years and who reasonably expects to have an individual income in
      excess of $200,000 in the current year or who had joint income in excess of
      $300,000 in each of the two most recent years and who reasonably expects to
      have
      joint income in excess of $300,000 in the current year, and (iii) for the
      purpose of Section 25102(f) of the California Corporations Code, he is excluded
      from the count of "purchasers" pursuant to Rule 260.102.13
      thereunder.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    5.
Restrictions
      on Transfer.
      Consultant understands that the Securities are characterized as "restricted
      securities" under the federal securities laws inasmuch as they are being
      acquired from the Company in a transaction not involving a public offering
      and
      that under such laws and applicable regulations such securities may be resold
      without registration under the Securities Act of 1933, as amended (the
      "Act"), only in certain limited circumstances. In this connection, Consultant
      represents that he is familiar with Securities Exchange Commission Rule 144,
      as
      presently in effect, and understands the resale limitations imposed thereby
      and
      by the Act. CONSULTANT UNDERSTANDS AND ACKNOWLEDGES HEREIN THAT AN INVESTMENT
      IN
      THE COMPANY'S SECURITIES INVOLVES AN EXTREMELY HIGH DEGREE OF RISK AND MAY
      RESULT IN A COMPLETE LOSS OF HIS INVESTMENT. Consultant understands that the
      Securities have not been and will not be registered under the Act and have
      not
      been and will not be registered or qualified in any state in which they are
      offered, and thus Consultant will not be able to resell or otherwise transfer
      his Securities unless they are registered under the Act and registered or
      qualified under applicable state securities laws, or an exemption from such
      registration or qualification is available. Consultant has no immediate need
      for
      liquidity in connection with this investment and does not anticipate that he
      will need to sell his
      Securities in the foreseeable future.

    

    6.
      Certain
      Definitions.
      For
      purposes of Section IA above: (i) "net worth" means the excess of total assets
      at fair market value, including any owned personal residence and personal
      property, over total liabilities, including any mortgage debt; (ii) "individual
      income" means adjusted gross income as reported for Federal income tax purposes,
      less any income attributable to a spouse or to property owned by a spouse,
      increased by the following amounts (but not including any amounts attributable
      to a spouse or to property owned by a spouse): (A) the amount of any interest
      income received which is tax-exempt under Section 103 of the Internal Revenue
      Code of 1986, as amended (the "Code"), (B) the amount of losses claimed as
      a
      limited partner in a Iimited partnership (as reported on Schedule E of Form
      1040), (C) any deduction claimed for depletion under Section 611 et seq. of
      the
      Code, and (iv) any amount by which income from long-term capital gains has
      been
      reduced in arriving at adjusted gross income pursuant to the provisions of
      Section 1202 of the Code prior to its repeal by the Tax Reform Act of 1986;
      and
      (iii) 'joint income" means adjusted gross income as reported for Federal income
      tax purposes, including
      any
      income attributable to a spouse or to property owned by a spouse, increased
      by
      the following amounts (including any amounts attributable to a spouse or to
      property owned by a spouse): (A) the amount of any interest income received
      which is tax-exempt under Section 103 of the Code, (B) the amount of losses
      claimed as a limited partner in a limited partnership (as reported on Schedule
      E
      of Form 1040), (C) any deduction claimed for depletion under Section 611 et
      seq.
      of the Code, and (iv) any amount by which income from long-term capital gains
      has been reduced in arriving at adjusted gross income pursuant to the provisions
      of Section 1202 of the Code prior to its repeal by the Tax Reform Act of
      1986.

     

    9Exhibit 10.1

      [First Keystone Financial, Inc. Letterhead]

                  December 11, 2006

Steven N. Stein
Financial Stocks Capital Partners IV L.P.
441 Vine Street
Suite 507
Cincinnati, Ohio  45202

     Re:  First Keystone Financial, Inc. (the "Company")

Dear Mr. Stein:

     In connection with Financial Stocks Capital Partners IV
L.P.'s ("FSCP") agreement to purchase 240,000 shares of common
stock of the Company pursuant to that certain subscription
agreement between FSCP and the Company of even date herewith as
part of the private placement (the "Offering") by the Company of
400,000 shares of the common stock thereof (the "Common Stock"),
the Company agrees to appoint, subject to receipt of the non-
objection of the Office of Thrift Supervision ("OTS"), a
representative of FSCP to the Boards of Directors of the Company
and First Keystone Bank (the "Bank"), the Company's wholly owned
subsidiary.  It is our understanding that the representative of
FSCP will be Ned Vidinli.  We will appoint him to the class of
directors whose terms end with the annual meeting of stockholders
to be held in 2010.  We also commit to use our best efforts to
obtain the OTS' non-objection to the appointment of Mr. Vidinli
and to appoint him to the Boards promptly after receipt of such
non-objection.  If the OTS objects to the appointment of Mr.
Vidinli, we agree to work with you to obtain OTS non-objection to
an alternative representative of FSCP.

     We appreciate your investment in and commitment to the
Company's future.

                                   Very truly yours,

                                   /s/Thomas M. Kelly
                                   Thomas M. Kelly

Agreed and Accepted on Behalf of
  Financial Stocks Capital Partners IV L.P.
  By: Finstocks Capital Management IV, LLC, its sole General Partner
By:  /s/Steven N. Stein
     __________________
Name: Steven N. Stein
Title:   Chairman and CEO

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