Document:

Exhibit 10.7

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase
Agreement (this “Agreement”) is dated as of January 31, 2008
between Etelos Incorporated, a Washington corporation (the “Company”),
and each purchaser identified on the signature pages hereto (each,
including its successors and assigns, a “Purchaser” and collectively the
“Purchasers”).

 

WHEREAS, subject to the terms
and conditions set forth in this Agreement and pursuant to Section 4(2) of
the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506
promulgated thereunder, the Company desires to issue and sell to each
Purchaser, and each Purchaser, severally and not jointly, desires to purchase
from the Company, securities of the Company as more fully described in this
Agreement.

 

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

 

ARTICLE I.

DEFINITIONS

 

1.1                               Definitions.  In addition to the terms defined elsewhere in
this Agreement: (a) capitalized terms that are not otherwise defined
herein have the meanings given to such terms in the Debentures (as defined
herein), and (b) the following terms have the meanings set forth in this Section 1.1:

 

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

 

“Affiliate”
means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 405 under the
Securities Act.  With respect to a
Purchaser, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such Purchaser will be
deemed to be an Affiliate of such Purchaser.

 

“Board of
Directors” means the board of directors of the Company.

 

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

 

“Closing”
means the closing of the purchase and sale of the Securities pursuant to Section 2.1.

 

 

“Closing
Date” means the Trading Day when all of the Transaction Documents have been
executed and delivered by the applicable parties thereto, and all conditions
precedent to (i) the Purchasers’ obligations to pay the Subscription
Amount and (ii) the Company’s obligations to deliver the Securities have
been satisfied or waived.

 

“Commission”
means the Securities and Exchange Commission.

 

“Common
Stock” means the common stock of the Company, no par value, and any other
class of securities into which such securities may hereafter be reclassified or
changed into.

 

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

 

“Company
Counsel” means Duane Morris LLP, with offices located at 101 West Broadway,
Suite 900, San Diego, California, 92101.

 

“Conversion
Price” shall have the meaning ascribed to such term in the Debentures.

 

“Debentures”
means the 6% Secured Convertible Debentures due, subject to the terms therein, January 31,
2010, issued by the Company to the Purchasers hereunder, in the form of Exhibit A
attached hereto.

 

“Disclosure
Schedules” shall have the meaning ascribed to such term in Section 3.1.

 

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

 

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

 

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

 

“Exchange Act Date” shall have the
meaning ascribed to such term in Section 4.3.

 

“Exempt Issuance” means the issuance
of (a) shares of Common Stock or options to employees, officers or
directors of the Company pursuant to any stock or option plan duly adopted for
such purpose by a majority of the non-employee members of the Board of
Directors or a majority of the members of a committee of non-employee directors
established for such purpose, (b) securities upon the exercise or exchange
of or conversion of any Securities issued hereunder and/or other securities
exercisable or 

 

2

 

exchangeable for or convertible into shares
of Common Stock issued and outstanding on the date of this Agreement, provided
that such securities have not been amended since the date of this Agreement to
increase the number of such securities or to decrease the exercise, exchange or
conversion price of such securities, (c) securities issued pursuant to
acquisitions or strategic transactions approved by a majority of the
disinterested directors of the Company, provided that any such issuance shall
only be to a Person which is, itself or through its subsidiaries, an operating
company in a business synergistic with the business of the Company and in which
the Company receives benefits in addition to the investment of funds, but shall
not include a transaction in which the Company is issuing securities primarily
for the purpose of raising capital or to an entity whose primary business is
investing in securities, (d) shares of Common Stock issued in lieu of the
cash payment of principal or accrued interest pursuant to the terms of the
Debentures provided that all such issuances are made proportionally to the
holders of such Debentures, and (e) securities issued pursuant to the sale
of additional debentures and warrants on the same terms and conditions as the
sale of Debentures and Warrants pursuant to this Agreement, for the aggregate
purchase equal to up to $5,000,000.

 

“FWS”
means Feldman Weinstein & Smith LLP with offices located at 420
Lexington Avenue, Suite 2620, New York, New York 10170-0002.

 

“GAAP”
means United States generally accepted accounting principles.

 

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

 

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

 

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

 

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

 

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

 

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

 

“Maximum
Rate” shall have the meaning ascribed to such term in Section 5.17.

 

“Participation
Maximum” shall have the meaning ascribed to such term in Section 4.12.

 

“Person”
means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.

 

3

 

“Pre-Notice”
shall have the meaning ascribed to such term in Section 4.12.

 

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

 

“Purchaser
Party” shall have the meaning ascribed to such term in Section 4.10.

 

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

 

“Registration
Statement” means a registration statement meeting the requirements set
forth in the Registration Rights Agreement and covering the resale of the
Underlying Shares by each Purchaser as provided for in the Registration Rights
Agreement.

 

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

 

“Required
Minimum” means, as of any date, the maximum aggregate number of shares of
Common Stock then issued or potentially issuable in the future pursuant to the
Transaction Documents, including any Underlying Shares issuable upon exercise
or conversion in full of all Warrants and Debentures (including Underlying
Shares issuable as payment of interest), ignoring any conversion or exercise
limits set forth therein, and assuming that the Conversion Price is at all
times on and after the date of determination 75% of the then Conversion Price
on the Trading Day immediately prior to the date of determination.

 

“Reverse
Merger” shall have the meaning ascribed to such term in Section 4.15.

 

“Reverse
Merger Date” shall mean the effective date of the consummation of the
reverse merger of the Company into Tripath.

 

“Reverse
Merger Deadline” shall have the meaning ascribed to such term in Section 4.15.

 

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

 

“Securities”
means the Debentures, the Warrants and the Underlying Shares.

 

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

 

4

 

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

 

“Security
Documents” shall mean the Security Agreement, the Subsidiary Guarantees and
any other documents and filing required thereunder in order to grant the
Purchasers a first priority security interest in the assets of the Company and
the Subsidiaries as provided in the Security Agreement, including all UCC-1
filing receipts.

 

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

 

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

 

“Subsequent
Financing” shall have the meaning ascribed to such term in Section 4.12.

 

“Subsequent
Financing Notice” shall have the meaning ascribed to such term in Section 4.12.

 

“Subsidiary”
means any subsidiary of the Company as set forth on Schedule 3.1(a) and
shall, where applicable, include any direct or indirect subsidiary of the
Company formed or acquired after the date hereof.

 

“Subsidiary
Guarantee” means the Subsidiary Guarantee, dated the date hereof, by each
Subsidiary in favor of the Purchasers, in the form of Exhibit F attached
hereto.

 

“Trading
Day” means a day on which the principal Trading Market is open for trading.

 

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

 

“Transaction
Documents” means this Agreement, the Debentures, the Warrants, the
Registration Rights Agreement, the Security Agreement, the Subsidiary
Guarantee, all exhibits and schedules thereto and hereto and any other
documents or agreements executed in connection with the transactions
contemplated hereunder.

 

“Transfer
Agent” means the current transfer agent of the Company, and any successor
transfer agent of the Company.

 

“Tripath”
means Tripath Technology Inc., a Delaware corporation.

 

5

 

“Underlying
Shares” means the shares of Common Stock issued and issuable upon
conversion or redemption of the Debentures and upon exercise of the Warrants
and issued and issuable in lieu of the cash payment of interest on the
Debentures in accordance with the terms of the Debentures.

 

“Variable
Rate Transaction” shall have the meaning ascribed to such term in Section 4.13(b).

 

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

 

“Warrants”
means, collectively, the Common Stock purchase warrants delivered to the
Purchasers at the Closing in accordance with Section 2.2(a) hereof,
which Warrants shall be exercisable immediately and have a term of exercise
equal to 3 years, in the form of Exhibit C attached hereto.

 

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

 

ARTICLE II.

PURCHASE
AND SALE

 

2.1                               Closing.  On the Closing Date, upon the terms and
subject to the conditions set forth herein, substantially concurrent with the
execution and delivery of this Agreement by the parties hereto, the Company
agrees to sell, and the Purchasers, severally and not jointly, agree to
purchase, up to an aggregate of $2,000,000 in principal amount of the
Debentures.  Each Purchaser shall deliver
to the Company, via wire transfer or a certified check, immediately available
funds equal to its Subscription Amount and the Company shall deliver to each
Purchaser its respective Debenture and a Warrant, as determined pursuant to Section 2.2(a),
and the Company and each Purchaser shall deliver the other items set forth in Section 2.2
deliverable at the Closing.  Upon satisfaction
of the conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at
the offices of FWS or such other location as the parties shall mutually agree.

 

6

 

2.2                               Deliveries.

 

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

 

(i)                                   this Agreement duly
executed by the Company;

 

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

 

(iii)                             a Debenture with a
principal amount equal to such Purchaser’s Subscription Amount, registered in
the name of such Purchaser;

 

(iv)                            a Warrant registered in the
name of such Purchaser to purchase up to a number of shares of Common Stock
equal to 15% of such Purchaser’s Subscription Amount divided by the initial
Conversion Price, with an exercise price equal to $0.60, subject to adjustment
therein;

 

(v)                               the Security Agreement,
duly executed by the Company and each Subsidiary, along with all of the
Security Documents, including the Subsidiary Guarantee, duly executed by the
parties thereto;

 

(vi)                            an officer’s certificate
from the Chief Executive Officer, dated as of the Closing Date, certifying and
setting forth (i) the names, signatures and positions of the Persons
authorized to execute this Agreement and any other Transaction Documents to
which the Company is a party, (ii) a copy of the resolutions of the
Company authorizing the execution, delivery and performance of this Agreement,
and (iii) certifying that the representations and warranties of the
Company are true and correct as of the Closing Date and that the Company has
satisfied all of the conditions to the Closing; and

 

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

 

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

 

(i)                                   this Agreement duly
executed by such Purchaser;

 

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

 

(iii)                             the Security Agreement
duly executed by such Purchaser; and

 

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

 

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2.3                               Closing
Conditions.

 

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

 

(i)                                   the accuracy in all
material respects when made and on the Closing Date of the representations and
warranties of the Purchasers contained herein;

 

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

 

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

 

(b)                               The respective obligations
of the Purchasers hereunder in connection with the Closing are subject to the
following conditions being met:

 

(i)                                   the accuracy in all
material respects when made and on the Closing Date of the representations and
warranties of the Company contained herein (except for representations and
warranties qualified by materiality or Material Adverse Effect which shall be
accurate in all respects);

 

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

 

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

 

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

 

(v)                               from the date hereof to
the Closing Date, trading in securities generally as reported by Bloomberg
L.P., if any, shall not have been suspended or limited, or minimum prices shall
not have been established on securities whose trades are reported by such
service, or on any Trading Market, nor shall a banking moratorium have been
declared either by the United States or New York State authorities nor shall
there have occurred any material outbreak or escalation of hostilities or other
national or international calamity of such magnitude in its effect on, or any
material adverse change in, any financial market which, in each case, in the
reasonable judgment of each Purchaser, makes it impracticable or inadvisable to
purchase the Securities at the Closing.

 

8

 

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

 

3.1                               Representations and Warranties of the Company.  Except
as set forth under the corresponding section of the disclosure schedules
delivered to the Purchasers concurrently herewith (the “Disclosure Schedules”)
which Disclosure Schedules shall be deemed a part hereof, the Company hereby
makes the representations and warranties set forth below to each Purchaser. Except
as set forth in the Disclosure Schedules, which Disclosure Schedules shall be
deemed a part hereof and shall qualify any representation or otherwise made
herein to the extent of the disclosure contained in the corresponding section
of the Disclosure Schedules, the Company hereby makes the representations and
warranties set forth below to each Purchaser:

 

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

 

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

 

(c)                                Authorization;
Enforcement.  The Company has the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and otherwise to
carry out its obligations hereunder and thereunder.  The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company and no further action is required
by the Company, the Board of Directors or the Company’s stockholders in
connection therewith other than in connection with the Required Approvals.  Each Transaction Document has been (or upon
delivery will have been) duly executed by the Company and, when delivered in
accordance with the terms hereof and thereof, will constitute the valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except (i) as limited by general equitable principles and
applicable bankruptcy, insolvency, reorganization,

 

9

 

moratorium and other laws of general application affecting enforcement
of creditors’ rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions
may be limited by applicable law.

 

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

 

(e)                                Filings,
Consents and Approvals.  The Company
is not required to obtain any consent, waiver, authorization or order of, give
any notice to, or make any filing or registration with, any court or other
federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) filings required pursuant to Section 4.6,
(ii) the filing with the Commission of the Registration Statement, (iii) the
notice and/or application(s) to each applicable Trading Market for the
issuance and sale of the Securities and the listing of the Underlying Shares
for trading thereon in the time and manner required thereby and (iv) the
filing of Form D with the Commission and such filings as are required to
be made under applicable state securities laws (collectively, the “Required
Approvals”).

 

(f)                                  Issuance
of the Securities.  The Securities
are duly authorized and, when issued and paid for in accordance with the
applicable Transaction Documents, will be duly and validly issued, fully paid
and nonassessable, free and clear of all Liens imposed by the Company other
than restrictions on transfer provided for in the Transaction Documents.  The Underlying Shares, when issued in
accordance with the terms of the Transaction Documents, will be validly issued,
fully paid and nonassessable, free and clear of all Liens imposed by the
Company other than restrictions on transfer provided for in the Transaction
Documents.  The Company has reserved from
its duly authorized capital stock a number of shares of Common Stock for
issuance of the Underlying Shares at least equal to the Required Minimum on the
date hereof.

 

10

 

(g)                               Capitalization.  The capitalization of the Company is as set
forth on Schedule 3.1(g), which Schedule 3.1(g) shall also
include the number of shares of Common Stock owned beneficially, and of record,
by Affiliates of the Company as of the date hereof. The Company has not issued
any capital stock since its most recently filed
periodic report under the Exchange Act, other than pursuant to the
exercise of employee stock options under the Company’s stock option plans, the
issuance of shares of Common Stock to employees pursuant to the Company’s
employee stock purchase plans and pursuant to the conversion or exercise of
Common Stock Equivalents outstanding as of the date of the most recently filed
periodic report under the Exchange Act. 
No Person has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents. 
Except as a result of the purchase and sale of the Securities, there are
no outstanding options, warrants, scrip rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exercisable or exchangeable for, or giving any
Person any right to subscribe for or acquire, any shares of Common Stock, or
contracts, commitments, understandings or arrangements by which the Company or
any Subsidiary is or may become bound to issue additional shares of Common
Stock or Common Stock Equivalents. The issuance and sale of the Securities will
not obligate the Company to issue shares of Common Stock or other securities to
any Person (other than the Purchasers) and will not result in a right of any
holder of Company securities to adjust the exercise, conversion, exchange or
reset price under any of such securities. All of the outstanding shares of
capital stock of the Company are validly issued, fully paid and nonassessable,
have been issued in compliance with all federal and state securities laws, and
none of such outstanding shares was issued in violation of any preemptive
rights or similar rights to subscribe for or purchase securities.  No further approval or authorization of any
stockholder, the Board of Directors or others is required for the issuance and
sale of the Securities.  There are no
stockholders agreements, voting agreements or other similar agreements with
respect to the Company’s capital stock to which the Company is a party or, to
the knowledge of the Company, between or among any of the Company’s
stockholders.

 

(h)                               Financial Statements.  The unaudited financial statements of the
Company and its Subsidiaries for its last two fiscal years and unaudited
financial statements for its most recent fiscal quarter are attached hereto as Schedule
3.1(h).  Such financial statements
have been prepared in accordance with the books and records of the Company and
fairly present in all material respects the financial position of the Company
and its consolidated Subsidiaries as of and for the dates thereof and the
results of operations and cash flows for the periods then ended.

 

(i)                                   Material
Changes.  Since the date of the
latest unaudited financial statements attached hereto, (i) there has been
no event, occurrence or development that has had or that could reasonably be
expected to result in a Material Adverse Effect, (ii) the Company has not
incurred any liabilities (contingent or otherwise) other than (A)

 

11

 

trade payables
and accrued expenses incurred in the ordinary course of business consistent
with past practice and (B) liabilities not required to be reflected in the
Company’s financial statements, (iii) the Company has not altered its
method of accounting, (iv) the Company has not declared or made any
dividend or distribution of cash or other property to its stockholders or
purchased, redeemed or made any agreements to purchase or redeem any shares of
its capital stock and (v) the Company has not issued any equity securities
to any officer, director or Affiliate, except pursuant to existing Company
stock option plans.  Except for the
issuance of the Securities contemplated by this Agreement or as set forth on Schedule
3.1(i), no event, liability or development has occurred or exists with
respect to the Company or its Subsidiaries or their respective business,
properties, operations or financial condition, that would be required to be
disclosed by the Company under applicable securities laws at the time this
representation is made or deemed made that has not been publicly disclosed at
least one Trading Day prior to the date that this representation is made.

 

(j)                                   Litigation.  There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, any Subsidiary or any of
their respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an “Action”) which (i) adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Securities or (ii) could, if there were an unfavorable
decision, have or reasonably be expected to result in a Material Adverse
Effect.  Neither the Company nor any
Subsidiary, nor any director or officer thereof, is or has been the subject of
any Action involving a claim of violation of or liability under federal or
state securities laws or a claim of breach of fiduciary duty.  There has not been, and to the knowledge of
the Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or officer
of the Company.  The Commission has not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the
Exchange Act or the Securities Act.

 

(k)                                Labor
Relations.  No material labor dispute
exists or, to the knowledge of the Company, is imminent with respect to any of
the employees of the Company which could reasonably be expected to result in a
Material Adverse Effect.  None of the
Company’s or its Subsidiaries’ employees is a member of a union that relates to
such employee’s relationship with the Company or such Subsidiary, and neither
the Company nor any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that their
relationships with their employees are good. 
No executive officer, to the knowledge of the Company, is, or is now
expected to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement or
non-competition agreement, or any other contract or agreement or any
restrictive covenant in favor of any third party, and the continued employment
of each such executive officer does not subject the Company or any of its
Subsidiaries to any liability with respect to any of the foregoing
matters.  The Company and its
Subsidiaries are in compliance with all U.S. federal, state, local and

 

12

 

foreign laws
and regulations relating to employment and employment practices, terms and
conditions of employment and wages and hours, except where the failure to be in
compliance could not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.

 

(l)                                   Compliance.  Neither the Company nor any Subsidiary (i) is
in default under or in violation of (and no event has occurred that has not
been waived that, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or any
Subsidiary received notice of a claim that it is in default under or that it is
in violation of, any indenture, loan or credit agreement or any other agreement
or instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is
in violation of any order of any court, arbitrator or governmental body, or (iii) is
or has been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal,
state and local laws applicable to its business and all such laws that affect
the environment, except in each case as could not have or reasonably be
expected to result in a Material Adverse Effect.

 

(m)                             Regulatory Permits.  The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses, except where the failure to possess such permits could
not reasonably be expected to result in a Material Adverse Effect (“Material
Permits”), and neither the Company nor any Subsidiary has received any
notice of proceedings relating to the revocation or modification of any
Material Permit.

 

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

 

(o)                               Patents
and Trademarks.  The Company and the
Subsidiaries have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names, trade secrets,
inventions, copyrights, licenses and other intellectual property rights and
similar rights used in connection with their respective businesses and which
the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual
Property Rights”).  Neither the
Company nor any Subsidiary has received a notice (written or otherwise) that
any of the Intellectual Property Rights used by the Company or any Subsidiary
violates or infringes upon the rights of any Person. To the

 

13

 

knowledge of
the Company, all such Intellectual Property Rights are enforceable and there is
no existing infringement by another Person of any of the Intellectual Property
Rights.  The Company and its Subsidiaries
have taken reasonable security measures to protect the secrecy, confidentiality
and value of all of their intellectual properties, except where failure to do
so could not, individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect.

 

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

 

(q)                               Transactions with
Affiliates and Employees.  None of
the officers or directors of the Company and, to the knowledge of the Company,
none of the employees of the Company is presently a party to any transaction
with the Company or any Subsidiary (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner, in each case in excess
of $60,000 other than for (i) payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf of
the Company and (iii) other employee benefits, including stock option
agreements under any stock option plan of the Company.

 

(r)                                  Internal
Accounting Controls.  The Company and the Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that (i) transactions
are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in
accordance with management’s general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.

 

(s)                                Certain
Fees.  No brokerage or finder’s fees
or commissions are or will be payable by the Company to any broker, financial
advisor or consultant, finder, placement agent, investment banker, bank or
other Person with respect to the transactions contemplated by the Transaction
Documents.  The Purchasers shall have no
obligation with respect to any fees or with respect to any claims made by or on
behalf of other Persons for fees of a type contemplated in this Section that
may be due in connection with the transactions contemplated by the Transaction
Documents.

 

14

 

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

 

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

 

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

 

(w)                             [RESERVED].

 

(x)                                 Application
of Takeover Protections.  The Company
and the Board of Directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company’s certificate of incorporation (or
similar charter documents) or the laws of its state of incorporation that is or
could become applicable to the Purchasers as a result of the Purchasers and the
Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation as a result of the Company’s
issuance of the Securities and the Purchasers’ ownership of the Securities.

 

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

 

15

 

make the
statements therein, in light of the circumstances under which they were made
and when made, not misleading.  The
Company acknowledges and agrees that no Purchaser makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 3.2 hereof.

 

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

 

(aa)                          Solvency.  Based on the consolidated financial condition
of the Company as of the Closing Date after giving effect to the receipt by the
Company of the proceeds from the sale of the Securities hereunder, (i) the
fair saleable value of the Company’s assets exceeds the amount that will be
required to be paid on or in respect of the Company’s existing debts and other
liabilities (including known contingent liabilities) as they mature, (ii) the
Company’s assets do not constitute unreasonably small capital to carry on its
business as now conducted and as proposed to be conducted including its capital
needs taking into account the particular capital requirements of the business
conducted by the Company, and projected capital requirements and capital
availability thereof, and (iii) the current cash flow of the Company,
together with the proceeds the Company would receive, were it to liquidate all
of its assets, after taking into account all anticipated uses of the cash,
would be sufficient to pay all amounts on or in respect of its liabilities when
such amounts are required to be paid. 
The Company does not intend to incur debts beyond its ability to pay
such debts as they mature (taking into account the timing and amounts of cash
to be payable on or in respect of its debt). 
The Company has no knowledge of any facts or circumstances which lead it
to believe that it will file for reorganization or liquidation under the
bankruptcy or reorganization laws of any jurisdiction within one year from the
Closing Date.  Schedule 3.1(aa)
sets forth as of the date hereof all outstanding secured and unsecured
Indebtedness of the Company or any Subsidiary, or for which the Company or any
Subsidiary has commitments.  For the
purposes of this Agreement, “Indebtedness” means (a) any
liabilities for borrowed money or amounts owed in excess of $50,000 (other than
trade accounts payable incurred in the ordinary course of business), (b) all
guaranties, endorsements and other contingent obligations in respect of
indebtedness of others, whether or not the same are or should be reflected in
the Company’s balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value
of any lease payments in excess of $50,000 due under leases required to be
capitalized in accordance with GAAP. 
Neither the Company nor any Subsidiary is in default with respect to any
Indebtedness.

 

16

 

(bb)                        Tax
Status.   Except for matters that would not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect, the Company and each Subsidiary has filed all
necessary federal, state and foreign income and franchise tax returns and has
paid or accrued all taxes shown as due thereon, and the Company has no
knowledge of a tax deficiency which has been asserted or threatened against the
Company or any Subsidiary.

 

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

 

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

 

(ee)                          Accountants.  The Company’s accounting firm is set forth on
Schedule 3.1(ee) of the Disclosure Schedule.  To the knowledge and belief of the Company,
such accounting firm (i) is a registered public accounting firm as
required by the Exchange Act and (ii) shall express its opinion with
respect to the financial statements to be included in the Registration
Statement.

 

(ff)                              Seniority.  As of the Closing Date, no Indebtedness or
other claim against the Company is senior to the Debentures in right of
payment, whether with respect to interest or upon liquidation or dissolution,
or otherwise, other than indebtedness secured by purchase money security
interests (which is senior only as to underlying assets covered thereby) and
capital lease obligations (which is senior only as to the property covered
thereby).

 

(gg)                        No
Disagreements with Accountants and Lawyers. 
There are no disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise, between the Company and the accountants
and lawyers formerly or presently employed by the Company and the Company is
current with respect to any fees owed to its accountants and lawyers which
could affect the Company’s ability to perform any of its obligations under any
of the Transaction Documents.

 

17

 

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

 

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

 

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

 

18

 

(kk)                          U.S. Real Property Holding
Corporation.  The Company is not, nor
has it ever been, a U.S. real property holding corporation within the meaning
of Section 897 of the Internal Revenue Code of 1986, as amended, and the
Company shall so certify upon any Purchaser’s request.

 

(ll)                                Bank Holding Company
Act.  Neither the Company nor any of
its Subsidiaries is subject to the Bank Holding Company Act of 1956, as amended
(the “BHCA”) and to regulation by the Board of Governors of the Federal
Reserve System (the “Federal Reserve”). 
Neither the Company nor any of its Subsidiaries or Affiliates owns or
controls, directly or indirectly, five percent (5%) or more of the outstanding
shares of any class of voting securities or twenty-five (25%) or more of the
total equity of a bank or any  equity
that is subject to the BHCA and to regulation by the Federal Reserve.  Neither the Company nor any of its
Subsidiaries or affiliates exercises a controlling influence over the
management or policies of a bank or any entity that is subject to the BHCA and
to regulation by the Federal Reserve.

 

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

 

(a)                                Organization;
Authority.  Such Purchaser is an
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization with full right, corporate or partnership
power and authority to enter into and to consummate the transactions contemplated
by the Transaction Documents and otherwise to carry out its obligations
hereunder and thereunder. The execution and delivery of the Transaction
Documents and performance by such Purchaser of the transactions contemplated by
the Transaction Documents have been duly authorized by all necessary corporate
or similar action on the part of such Purchaser.  Each Transaction Document to which it is a
party has been duly executed by such Purchaser, and when delivered by such
Purchaser in accordance with the terms hereof, will constitute the valid and
legally binding obligation of such Purchaser, enforceable against it in
accordance with its terms, except (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors’
rights generally, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies and (iii) insofar
as indemnification and contribution provisions may be limited by applicable
law.

 

(b)                               Own Account.  Such Purchaser understands that the
Securities are “restricted securities” and have not been registered under the
Securities Act or any applicable state securities law and is acquiring the
Securities as principal for its own account and not with a view to or for
distributing or reselling such Securities or any part thereof in violation of
the Securities Act or any applicable
state securities law, has no present intention of distributing any of
such Securities in violation of the Securities Act or any applicable state securities law and has no direct or
indirect arrangement or understandings with any other persons to distribute or
regarding the distribution of such Securities (this representation and warranty
not limiting such Purchaser’s right to sell the Securities pursuant to the
Registration Statement or otherwise in compliance with applicable federal and
state securities laws) in violation of the Securities Act or any applicable state securities law.  Such Purchaser is acquiring the Securities
hereunder in the ordinary course of its business.

 

19

 

(c)                                Purchaser
Status.  At the time such Purchaser
was offered the Securities, it was, and at the date hereof it is, and on each
date on which it exercises any Warrants or converts any Debentures it will be
either: (i) an “accredited investor” as defined in Rule 501(a)(1),
(a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a
“qualified institutional buyer” as defined in Rule 144A(a) under the
Securities Act.  Such Purchaser is not
required to be registered as a broker-dealer under Section 15 of the
Exchange Act.

 

(d)                               Experience
of Such Purchaser.  Such Purchaser,
either alone or together with its representatives, has such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such investment.  Such Purchaser is able to bear the economic
risk of an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.

 

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

 

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1                               Transfer
Restrictions.

 

(a)                                The
Securities may only be disposed of in compliance with state and federal
securities laws.  In connection with any
transfer of Securities other than pursuant to an effective registration
statement or Rule 144, to the Company or to an Affiliate of a Purchaser or
in connection with a pledge as contemplated in Section 4.1(b), the Company
may require the transferor thereof to provide to the Company an opinion of
counsel selected by the transferor and reasonably acceptable to the Company,
the form and substance of which opinion shall be reasonably satisfactory to the
Company, to the effect that such transfer does not require registration of such
transferred Securities under the Securities Act.  As a condition of transfer, any such
transferee shall agree in writing to be bound by the terms of this Agreement
and shall have the rights of a Purchaser under this Agreement and the Registration
Rights Agreement. Upon a cashless exercise of the Warrant, the holding period
for purposes of Rule 144 shall tack back to the original date of issuance
of such Warrant.

 

20

 

(b)                               The Purchasers agree to
the imprinting, so long as is required by this Section 4.1, of a legend on
any of the Securities in the following form: [NEITHER] THIS SECURITY [NOR THE
SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE] [CONVERTIBLE]] HAS [NOT]
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR RULE 144 UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH
EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY.  THIS SECURITY [AND THE
SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF THIS SECURITY] MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.

 

The Company acknowledges and
agrees that a Purchaser may from time to time pledge pursuant to a bona fide
margin agreement with a registered broker-dealer or grant a security interest
in some or all of the Securities to a financial institution that is an “accredited
investor” as defined in Rule 501(a) under the Securities Act and who
agrees to be bound by the provisions of this Agreement and the Registration Rights
Agreement and, if required under the terms of such arrangement, such Purchaser
may transfer pledged or secured Securities to the pledgees or secured
parties.  Such a pledge or transfer would
not be subject to approval of the Company and no legal opinion of legal counsel
of the pledgee, secured party or pledgor shall be required in connection
therewith.  Further, no notice shall be
required of such pledge.  At the
appropriate Purchaser’s expense, the Company will execute and deliver such
reasonable documentation as a pledgee or secured party of Securities may
reasonably request in connection with a pledge or transfer of the Securities,
including, if the Securities are subject to registration pursuant to the
Registration Rights Agreement, the preparation and filing of any required
prospectus supplement under Rule 424(b)(3) under the Securities Act
or other applicable provision of the Securities Act to appropriately amend the
list of Selling Stockholders thereunder.

 

(c)                                Certificates
evidencing the Underlying Shares shall not contain any legend (including the
legend set forth in Section 4.1(b) hereof): (i) while a
registration statement (including the Registration Statement) covering the
resale of such security is effective under the Securities Act, or (ii) following
any sale of such Underlying Shares pursuant to Rule 144, or (iii) if
such Underlying Shares are eligible for sale under Rule 144 without the
requirements for the Company to be in compliance with Rule 144(c)(1) and
otherwise without restrictions or limitations pursuant to Rule 144, or (iv) if
such legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the Commission). The Company shall cause its counsel to issue a legal opinion
to the Transfer Agent promptly 

 

21

 

after the
Effective Date if required by the Transfer Agent to effect the removal of the
legend hereunder.  If all or any portion
of a Debenture or Warrant is converted or exercised (as applicable) at a time
when there is an effective registration statement to cover the resale of the
Underlying Shares, or if such Underlying Shares may be sold under Rule 144
without the requirements for the Company to be in compliance with Rule 144(c)(1) and
otherwise without restrictions or limitations pursuant to Rule 144 or if
such legend is not otherwise required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements issued by
the staff of the Commission) then such Underlying Shares shall be issued free
of all legends.  The Company agrees that
following the Effective Date or at such time as such legend is no longer
required under this Section 4.1(c), it will, no later than three Trading
Days following the delivery by a Purchaser to the Company or the Transfer Agent
of a certificate representing Underlying Shares, as applicable, issued with a
restrictive legend (such third Trading Day, the “Legend Removal Date”),
deliver or cause to be delivered to such Purchaser a certificate representing
such shares that is free from all restrictive and other legends.  The Company may not make any notation on its
records or give instructions to the Transfer Agent that enlarge the restrictions
on transfer set forth in this Section. 
Certificates for Underlying Shares subject to legend removal hereunder
shall be transmitted by the Transfer Agent to the Purchaser by crediting the
account of the Purchaser’s prime broker with the Depository Trust Company
System as directed by such Purchaser.

 

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

 

(e)                                Each Purchaser,
severally and not jointly with the other Purchasers, agrees that such Purchaser
will sell any Securities only pursuant to either the registration requirements
of the Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom, and that if Securities are sold
pursuant to a Registration Statement, they will be sold in compliance with the
plan of distribution set forth therein, and acknowledges that the removal of
the restrictive legend from certificates representing Securities as set forth
in this Section 4.1 is predicated upon the Company’s reliance upon this
understanding. If a Registration Statement ceases to be effective for a 30
consecutive day period, at any time before the time the Securities are eligible
for sale under Rule 144 without the requirements for the Company to be in
compliance with Rule 144(c)(1) and otherwise without restrictions or
limitations pursuant 

 

22

 

to Rule 144, each Purchaser shall, at the Company’s request
immediately after such 30 day period, return the certificates representing the
Securities to the Transfer Agent for the purpose of exchanging such
certificates for a certificate representing such Securities with a legend
required by this Agreement.

 

4.2                               Acknowledgment
of Dilution.  The Company
acknowledges that the issuance of the Securities may result in dilution of the
outstanding shares of Common Stock, which dilution may be substantial under
certain market conditions.  The Company
further acknowledges that its obligations under the Transaction Documents,
including, without limitation, its obligation to issue the Underlying Shares
pursuant to the Transaction Documents, are unconditional and absolute and not
subject to any right of set off, counterclaim, delay or reduction, regardless
of the effect of any such dilution or any claim the Company may have against
any Purchaser and regardless of the dilutive effect that such issuance may have
on the ownership of the other stockholders of the Company.

 

4.3                               Furnishing
of Information.  The Company shall
cause its Common Stock to be registered under Section 12(g) of the
Exchange Act within the earlier of (a) June 30, 2008 and (b) 30
days from the Reverse Merger Date (unless otherwise extended to a later date by
written consent of each Purchaser) (the date that the Common Stock is
registered under Section 12(g) of the Exchange Act, the “Exchange
Act Date”).  Until the time that no
Purchaser owns Securities, the Company covenants to timely file (or obtain
extensions in respect thereof and file within the applicable grace period) all
reports required to be filed by the Company after the date it becomes subject
to the reporting obligations of the Exchange Act.    As long as any Purchaser owns Securities,
if the Company is not required to file reports pursuant to the Exchange Act, it
will prepare and furnish to the Purchasers and make publicly available in
accordance with Rule 144(c) such information as is required for the Purchasers
to sell the Securities under Rule 144. 
The Company further covenants that it will take such further action as
any holder of Securities may reasonably request, to the extent required from
time to time to enable such Person to sell such Securities without registration
under the Securities Act within the requirements of the exemption provided by Rule 144.

 

4.4                               Integration.  The Company shall not sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with
the offer or sale of the Securities to the Purchasers in a manner that would
require the registration under the Securities Act of the sale of the Securities
to the Purchasers or that would be integrated with the offer or sale of the
Securities for purposes of the rules and regulations of any Trading
Market.

 

4.5                               Conversion
and Exercise Procedures.  The form of
Notice of Exercise included in the Warrants and the form of Notice of Conversion
included in the Debentures  set
forth the totality of the procedures required of the Purchasers in order to
exercise the Warrants or convert the Debentures.  No additional legal opinion or other
information or instructions shall be required of the Purchasers to exercise
their Warrants or convert their Debentures. 
The Company shall honor exercises of the Warrants and conversions of the
Debentures and shall deliver Underlying Shares in accordance with the terms,
conditions and time periods set forth in the Transaction Documents.

 

23

 

4.6                                 Securities Laws
Disclosure; Publicity. The Company shall, by 5:30 p.m. (New York City
time) on the fourth Trading Day following the Exchange Act Date, file with the
Commission a Current Report on Form 8-K (unless all such disclosure was
made in a prior filing with the Commission) disclosing the material terms of
the transactions contemplated hereby and such terms as are required to be
disclosed in connection with the Reverse Merger and attaching the Transaction
Documents as exhibits thereto (including all attachments, the “8-K Filing”).
The 8-K Filing (or other filing with the Commission, if applicable) shall
disclose all material, nonpublic information provided by the Company, any of
its Subsidiaries or any of its respective officers, directors, employees or
agents to the Purchasers and, from and after the 8-K Filing, no Purchaser shall
be in possession of any material, nonpublic information received from the
Company, any of its Subsidiaries or any of its respective officers, directors,
employees or agents. The Company and each Purchaser shall consult with each
other in issuing any other press releases with respect to the transactions
contemplated hereby, and neither the Company nor any Purchaser shall issue any
such press release or otherwise make any such public statement without the
prior consent of the Company, with respect to any press release of any
Purchaser, or without the prior consent of each Purchaser, with respect to any
press release of the Company, which consent shall not unreasonably be withheld
or delayed, except if such disclosure is required by law, in which case the
disclosing party shall promptly provide the other party with prior notice of
such public statement or communication. Notwithstanding the foregoing, the
Company shall not publicly disclose the name of any Purchaser, or include the
name of any Purchaser in any filing with the Commission or any regulatory
agency or Trading Market, without the prior written consent of such Purchaser,
except (i) as required by federal securities law in connection with (A) any
registration statement contemplated by the Registration Rights Agreement and (B) the
filing of final Transaction Documents (including signature pages thereto)
with the Commission and (ii) to the extent such disclosure is required by
law or Trading Market regulations,  in  which  case  the Company shall provide the
Purchasers with prior notice of such disclosure permitted under this clause (ii).

 

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

 

4.8                                 Non-Public
Information. From the date the Company becomes subject to the reporting
obligations under the Exchange Act, except with respect to the material terms
and conditions of the transactions contemplated by the Transaction Documents,
the Company covenants and agrees that neither it nor any other Person acting on
its behalf, will provide any Purchaser or its agents or counsel with any
information that the Company believes constitutes material non-public
information, unless prior thereto such Purchaser shall have executed a written
agreement regarding the confidentiality and use of such information. The
Company understands and confirms that each Purchaser shall be relying on the
foregoing covenant in effecting transactions in securities of the Company.

 

24

 

4.9                                 Use
of Proceeds. Except as set forth on Schedule 4.9 attached hereto,
the Company shall use the net proceeds from the sale of the Securities
hereunder for working capital purposes and shall not use such proceeds for (a) the
satisfaction of any portion of the Company’s debt (other than payment of trade
payables in the ordinary course of the Company’s business and prior practices),
(b) the redemption of any Common Stock or Common Stock Equivalents, or (c) the
settlement of any outstanding litigation.

 

4.10                           Indemnification of
Purchasers. Subject to the provisions of this Section 4.10, the
Company will indemnify and hold each Purchaser and its directors, officers,
shareholders, members, partners, employees and agents (and any other Persons
with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act), and the directors,
officers, shareholders, agents, members, partners or employees (and any other
Persons with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title) of such controlling
person (each, a “Purchaser Party”) harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and
reasonable attorneys’ fees and costs of investigation that any such Purchaser
Party may suffer or incur as a result of or relating to (a) any breach of
any of the representations, warranties, covenants or agreements made by the Company
in this Agreement or in the other Transaction Documents or (b) any action
instituted against a Purchaser in any capacity, or any of them or their
respective Affiliates, by any stockholder of the Company who is not an
Affiliate of such Purchaser, with respect to any of the transactions
contemplated by the Transaction Documents (unless such action is based upon a
breach of such Purchaser’s representations, warranties or covenants under the
Transaction Documents or any agreements or understandings such Purchaser may
have with any such stockholder or any violations by the Purchaser of state or
federal securities laws or any conduct by such Purchaser which constitutes
fraud, gross negligence, willful misconduct or malfeasance). If any action
shall be brought against any Purchaser Party in respect of which indemnity may
be sought pursuant to this Agreement, such Purchaser Party shall promptly
notify the Company in writing, and the Company shall have the right to assume
the defense thereof with counsel of its own choosing reasonably acceptable to
the Purchaser Party. Any Purchaser Party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such Purchaser
Party except to the extent that (i) the employment thereof has been
specifically authorized by the Company in writing, (ii) the Company has
failed after a reasonable period of time to assume such defense and to employ
counsel or (iii) in such action there is, in the reasonable opinion of
such separate counsel, a material conflict on any material issue between the
position of the Company and the position of such Purchaser Party, in which case
the Company shall be responsible for the reasonable fees and expenses of no
more than one such separate counsel. The Company will not be liable to any
Purchaser Party under this Agreement (i) for any settlement by a Purchaser
Party effected without the Company’s prior written consent, which shall not be
unreasonably withheld or delayed; or (ii) to the extent, but only to the
extent that a loss, claim, damage or liability is attributable to any Purchaser
Party’s breach of any of the representations, warranties, covenants or
agreements made by such Purchaser Party in this Agreement or in the other
Transaction Documents. Except as otherwise set forth herein, the mechanics and
procedures with respect to the obligations under this Section 4.10 shall
be the same as those set forth in Section 5 of the Registration Rights
Agreement.

 

25

 

4.11                           Reservation
and Listing of Securities.

 

(a)                                  The Company shall
maintain a reserve from its duly authorized shares of Common Stock for issuance
pursuant to the Transaction Documents in such amount as may be required to
fulfill its obligations in full under the Transaction Documents.

 

(b)                                 If, on any date, the
number of authorized but unissued (and otherwise unreserved) shares of Common
Stock is less than the Required Minimum on such date, minus the number of
shares of Common Stock previously issued pursuant to the Transaction Documents,
then the Board of Directors shall use reasonable best efforts to amend the
Company’s certificate or articles of incorporation to increase the number of authorized
but unissued shares of Common Stock to at least the Required Minimum at such
time (minus the number of shares of Common Stock previously issued pursuant to
the Transaction Documents), as soon as possible and in any event not later than
the 75th day after such date; provided that the Company will not be required at
any time to authorize a number of shares of Common Stock greater than the
maximum remaining number of shares of Common Stock that could possibly be
issued after such time pursuant to the Transaction Documents.

 

(c)                                  The Company shall on
or prior to the earlier of (a) June 30, 2008 and (b) 30 days
from the Reverse Merger Date: (i) in the time and manner required by the
principal Trading Market, prepare and file with such Trading Market an additional
shares listing application covering a number of shares of Common Stock at least
equal to the Required Minimum on the date of such application, (ii) take
all steps necessary to cause such shares of Common Stock to be approved for
listing on such Trading Market as soon as possible thereafter, (iii) provide
to the Purchasers evidence of such listing, and (iv) maintain the listing
of such Common Stock on any date at least equal to the Required Minimum on such
date on such Trading Market or another Trading Market.

 

4.12                           Participation
in Future Financing.

 

(a)                                  From the date hereof
until the 12 month anniversary of the Effective Date, upon any issuance by the
Company or any of its Subsidiaries of Common Stock or Common Stock Equivalents
(a “Subsequent Financing”), each Purchaser shall have the right to
participate in up to an amount of the Subsequent Financing equal to 100% of the
Subsequent Financing (the “Participation Maximum”) on the same terms,
conditions and price provided for in the Subsequent Financing.

 

(b)                                 At least 5 Trading
Days prior to the closing of the Subsequent Financing, the Company shall
deliver to each Purchaser a written notice of its intention to effect a
Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask such
Purchaser if it wants to review the details of such financing (such additional
notice, a “Subsequent Financing Notice”). Upon the request of a
Purchaser, and only upon a request by such 

 

26

 

Purchaser, for a Subsequent Financing Notice, the Company shall
promptly, but no later than 1 Trading Day after such request, deliver a
Subsequent Financing Notice to such Purchaser. The Subsequent Financing Notice
shall describe in reasonable detail the proposed terms of such Subsequent
Financing, the amount of proceeds intended to be raised thereunder and the
Person or Persons through or with whom such Subsequent Financing is proposed to
be effected and shall include a term sheet or similar document relating thereto
as an attachment.

 

(c)                                  Any Purchaser
desiring to participate in such Subsequent Financing must provide written
notice to the Company by not later than 5:30 p.m. (New York City time) on
the 5th Trading Day after all of the Purchasers have received the
Pre-Notice that the Purchaser is willing to participate in the Subsequent
Financing, the amount of the Purchaser’s participation, and that the Purchaser
has such funds ready, willing, and available for investment on the terms set
forth in the Subsequent Financing Notice. If the Company receives no notice
from a Purchaser as of such 5th Trading Day, such Purchaser shall be
deemed to have notified the Company that it does not elect to participate.

 

(d)                                 If by 5:30 p.m.
(New York City time) on the 5th Trading Day after all of the Purchasers
have received the Pre-Notice, notifications by the Purchasers of their
willingness to participate in the Subsequent Financing (or to cause their
designees to participate) is, in the aggregate, less than the total amount of
the Subsequent Financing, then the Company may effect the remaining portion of
such Subsequent Financing on the terms and with the Persons set forth in the
Subsequent Financing Notice.

 

(e)                                  If by 5:30 p.m.
(New York City time) on the 5th Trading Day after all of the
Purchasers have received the Pre-Notice, the Company receives responses to a
Subsequent Financing Notice from Purchasers seeking to purchase more than the
aggregate amount of the Participation Maximum, each such Purchaser shall have
the right to purchase its Pro Rata Portion (as defined below) of the
Participation Maximum.  “Pro Rata Portion” means the ratio of (x) the
Subscription Amount of Securities purchased on the Closing Date by a Purchaser
participating under this Section 4.12 and (y) the sum of the
aggregate Subscription Amounts of Securities purchased on the Closing Date by
all Purchasers participating under this Section 4.12.

 

(f)                                    The Company must
provide the Purchasers with a second Subsequent Financing Notice, and the
Purchasers will again have the right of participation set forth above in this Section 4.12,
if the Subsequent Financing subject to the initial Subsequent Financing Notice
is not consummated for any reason on the terms set forth in such Subsequent
Financing Notice within 60 Trading Days after the date of the initial
Subsequent Financing Notice.

 

(g)                                 Notwithstanding the
foregoing, this Section 4.12 shall not apply in respect of (i) an
Exempt Issuance, or (ii) an underwritten public offering of Common Stock.

 

27

 

4.13                           Subsequent
Equity Sales.

 

(a)                                  From the date hereof
until 90 days after the Effective Date, neither the Company nor any Subsidiary
shall issue shares of Common Stock or Common Stock Equivalents; provided,
however, the 90 day period set forth in this Section 4.13 shall be
extended for the number of Trading Days during such period in which (i) trading
in the Common Stock is suspended by any Trading Market, or (ii) following
the Effective Date, the Registration Statement is not effective or the
prospectus included in the Registration Statement may not be used by the
Purchasers for the resale of the Underlying Shares.

 

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

 

(c)                                  So long as any
Purchaser beneficially owns any Debentures, the Company will not issue any
Debentures other than up to an additional $5 million of Debentures on the terms
described in this Agreement as contemplated hereby and the Company shall not
issue any other securities that would cause a breach or default under the
Debentures.

 

(d)                                 Notwithstanding the
foregoing, this Section 4.13 shall not apply in respect of an Exempt
Issuance.

 

4.14                           Equal
Treatment of Purchasers. No consideration shall be offered or paid to any
Person to amend or consent to a waiver or modification of any provision of any
of the Transaction Documents unless the same consideration is also offered to
all of the parties to the Transaction Documents. Further, the Company shall not
make any payment of principal or interest on the Debentures in amounts which
are disproportionate to the respective principal amounts outstanding on the
Debentures at any applicable time. For clarification purposes, this provision
constitutes a separate right granted to each Purchaser by the Company and
negotiated separately by each Purchaser, and is intended for the Company to
treat the Purchasers as a class and shall not in any way be construed as the
Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.

 

4.15                           Reverse Merger
Transaction. The Company shall use best efforts to consummate a reverse
merger transaction with Tripath substantially on the terms provided for in the
Disclosure Schedule, as supplemented and filed with the Bankruptcy Court in
connection with Tripath’s bankruptcy proceeding (such merger, the “Reverse
Merger”), no later than April 30, 

 

28

 

2008 (unless otherwise extended to a later date by the prior written
consent of each Purchaser) (the “Reverse Merger Deadline”). If the
Company fails to consummate the merger by the Reverse Merger Deadline, or if
the bankruptcy court finally determines not to approve the plan of
reorganization which includes the Reverse Merger, then the Company shall
ratably issue to the Purchasers an aggregate of 5,454,545 shares of Common
Stock, subject to adjustment for any stock dividend, stock split, stock
combination or other similar event affecting the Common Stock. Notwithstanding
the foregoing, the Company shall not be required to issue the 5,454,545 shares
if the Company’s failure to consummate the Reverse Merger is the result of the
withdrawal of the Purchasers (as plan proponents) of the plan of reorganization
in the bankruptcy proceeding. Such shares shall be issued within 3 Trading Days
of the earliest to occur of the Reverse Merger Deadline and the date that the
bankruptcy court rejects such plan.

 

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

 

4.17                           Capital
Changes. Until the one year anniversary of the Effective Date, the Company
shall not undertake a reverse or forward stock split or reclassification of the
Common Stock without the prior written consent of the Purchasers holding a
majority in principal amount outstanding of the Debentures.

 

4.18                           Public
Information. At any time during the period commencing from the six (6) month
anniversary of the Closing Date and ending at such time that all of the
Securities can be sold either pursuant to a registration statement, or if a
registration statement is not available for the resale of all of the
Securities, may be sold without the requirement for the Company to be in compliance
with Rule 144(c)(1) and otherwise without restriction or limitation
pursuant to Rule 144, if the Company shall fail for any reason to satisfy
the current public information requirement under Rule 144(c) (a “Public
Information Failure”) then, in addition to such Purchaser’s other available
remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated
damages and not as a penalty, by reason of any such delay in or reduction of
its ability to sell the Securities, an amount in cash equal to one percent
(1.0%) of the aggregate Subscription Amount of such Purchaser’s Securities on
the day of a Public Information Failure and on every thirtieth (30th)
day (pro rated for periods totaling less than thirty days) thereafter until the
earlier of (a) the date such Public Information Failure is cured and (b) such
time that such public information is no longer required  for the Purchasers to transfer the Underlying
Shares pursuant to Rule 144. The payments to which a Purchaser shall be
entitled pursuant to this Section 4.18 are referred to herein as “Public Information Failure Payments.”  Public
Information Failure  Payments
shall be paid on the earlier of (i) the last day of the calendar month
during which such Public Information
Failure  Payments are incurred
and (ii) the third (3rd) Business Day after the event or
failure giving rise to the Public
Information Failure  Payments
is cured. In the event the Company fails to make Public Information Failure  Payments
in a timely manner, such Public
Information Failure  Payments
shall bear interest at the rate of 1.5% per 

 

29

 

month (prorated for partial
months) until paid in full. Nothing herein shall limit such Purchaser’s right
to pursue actual damages for the Public Information Failure, and such Purchaser
shall have the right to pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief.

 

ARTICLE V.

MISCELLANEOUS

 

5.1                                 Termination. 
This Agreement may be terminated by any Purchaser, as to such Purchaser’s
obligations hereunder only and without any effect whatsoever on the obligations
between the Company and the other Purchasers, by written notice to the other
parties, if the Closing has not been consummated on or before January 31,
2008; provided, however, that such termination will not affect
the right of any party to sue for any breach by the other party (or parties).

 

5.2                                 Fees
and Expenses. At the Closing, the Company has agreed to reimburse Enable
Capital Management, LLC (“Enable”) the non-accountable sum of $10,000
for its legal fees and expenses, none of which has been paid prior to the
Closing. The Company shall deliver to each Purchaser, prior to the Closing, a
completed and executed copy of the Closing Statement attached hereto as Annex
A. Except as expressly set forth in the Transaction Documents to the
contrary, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all transfer agent fees,
stamp taxes and other taxes and duties levied in connection with the delivery
of any Securities to the Purchasers.

 

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

 

5.4                                 Notices. Any
and all notices or other communications or deliveries required or permitted to
be provided hereunder shall be in writing and shall be deemed given and
effective on the earliest of (a) the date of transmission, if such notice
or communication is delivered via facsimile at the facsimile number set forth
on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day
that is not a Trading Day or later than 5:30 p.m. (New York City time) on
any Trading Day, (c) the second Trading Day following the date of mailing,
if sent by U.S. nationally recognized overnight courier service, or (d) upon
actual receipt by the party to whom such notice is required to be given. The
address for such notices and communications shall be as set forth on the
signature pages attached hereto.

 

30

 

5.5                                 Amendments;
Waivers. No provision of this Agreement may be waived, modified,
supplemented or amended except in a written instrument signed, in the case of
an amendment, by the Company and the Purchasers of at least 67% in interest of
the Securities still held by Purchasers or, in the case of a waiver, by the
party against whom enforcement of any such waived provision is sought. No
waiver of any default with respect to any provision, condition or requirement
of this Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any subsequent default or a waiver of any other provision, condition
or requirement hereof, nor shall any delay or omission of any party to exercise
any right hereunder in any manner impair the exercise of any such right.

 

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

 

5.7                                 Successors
and Assigns. This Agreement shall be binding upon and inure to the benefit
of the parties and their successors and permitted assigns (including, without
limitation, by merger, “share exchange” or other similar corporate
reorganization or similar transaction). The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of each Purchaser (other than by merger). Any Purchaser may assign any
or all of its rights under this Agreement to any Person to whom such Purchaser
assigns or transfers any Securities, provided that such transferee agrees in
writing to be bound, with respect to the transferred Securities, by the
provisions of the Transaction Documents that apply to the “Purchasers.”

 

5.8                                 No
Third-Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person, except as otherwise set forth in Section 4.10.

 

5.9                                 Governing
Law. All questions concerning the construction, validity, enforcement and
interpretation of the Transaction Documents shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York,
without regard to the principles of conflicts of law thereof. Each party agrees
that all legal proceedings concerning the interpretations, enforcement and
defense of the transactions contemplated by this Agreement and any other
Transaction Documents (whether brought against a party hereto or its respective
affiliates, directors, officers, shareholders, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the City of
New York. Each party hereby irrevocably submits to the exclusive jurisdiction
of the state and federal courts sitting in the City of New York, borough of
Manhattan for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is
improper or is an inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit
in any way any right to serve process in any other 

 

31

 

manner permitted by law. If
either party shall commence an action or proceeding to enforce any provisions
of the Transaction Documents, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its reasonable attorneys’
fees and other costs and expenses incurred with the investigation, preparation
and prosecution of such action or proceeding.

 

5.10                           Survival.
The representations and warranties shall survive the Closing and the delivery
of the Securities for the applicable statute of limitations.

 

5.11                           Execution.
This Agreement may be executed in two or more counterparts, all of which when
taken together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission or by e-mail delivery of a “.pdf” format data file, such signature
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) with the same force and effect as if such
facsimile or “.pdf” signature page were an original thereof.

 

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

 

5.13                           Rescission
and Withdrawal Right. Notwithstanding anything to the contrary contained in
(and without limiting any similar provisions of) any of the other Transaction
Documents, whenever any Purchaser exercises a right, election, demand or option
under a Transaction Document and the Company does not timely perform its
related obligations within the periods therein provided, then such Purchaser
may rescind or withdraw, in its sole discretion from time to time, prior to
such Purchaser’s actual receipt of the Company’s performance of its related
obligations, upon written notice to the Company, any relevant notice, demand or
election in whole or in part without prejudice to its future actions and
rights; provided, however, that in the case of a rescission of a
conversion of a Debenture or exercise of a Warrant, the Purchaser shall be
required to return any shares of Common Stock delivered in connection with any
such rescinded conversion or exercise notice.

 

5.14                           Replacement
of Securities. If any certificate or instrument evidencing any Securities
is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be
issued in exchange and substitution for and upon cancellation thereof (in the
case of mutilation), or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction. The applicant for a new certificate
or instrument under such circumstances shall also pay any reasonable
third-party costs (including customary indemnity) associated with the issuance
of such replacement Securities.

 

32

 

5.15                           Remedies.
In addition to being entitled to exercise all rights provided herein or granted
by law, including recovery of damages, each of the Purchasers and the Company
will be entitled to specific performance under the Transaction Documents. The
parties agree that monetary damages may not be adequate compensation for any
loss incurred by reason of any breach of obligations contained in the
Transaction Documents and hereby agrees to waive and not to assert in any action
for specific performance of any such obligation the defense that a remedy at
law would be adequate.

 

5.16                           Payment
Set Aside. To the extent that the Company makes a payment or payments to
any Purchaser pursuant to any Transaction Document or a Purchaser enforces or
exercises its rights thereunder, and such payment or payments or the proceeds
of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law,
common law or equitable cause of action), then to the extent of any such
restoration the obligation or part thereof originally intended to be satisfied
shall be revived and continued in full force and effect as if such payment had
not been made or such enforcement or setoff had not occurred.

 

5.17                           Usury.
To the extent it may lawfully do so, the Company hereby agrees not to insist
upon or plead or in any manner whatsoever claim, and will resist any and all
efforts to be compelled to take the benefit or advantage of, usury laws
wherever enacted, now or at any time hereafter in force, in connection with any
claim, action or proceeding that may be brought by any Purchaser in order to
enforce any right or remedy under any Transaction Document. Notwithstanding any
provision to the contrary contained in any Transaction Document, it is
expressly agreed and provided that the total liability of the Company under the
Transaction Documents for payments in the nature of interest shall not exceed
the maximum lawful rate authorized under applicable law (the “Maximum Rate”),
and, without limiting the foregoing, in no event shall any rate of interest or
default interest, or both of them, when aggregated with any other sums in the
nature of interest that the Company may be obligated to pay under the
Transaction Documents exceed such Maximum Rate. It is agreed that if the
maximum contract rate of interest allowed by law and applicable to the
Transaction Documents is increased or decreased by statute or any official
governmental action subsequent to the date hereof, the new maximum contract
rate of interest allowed by law will be the Maximum Rate applicable to the
Transaction Documents from the effective date forward, unless such application
is precluded by applicable law. If under any circumstances whatsoever, interest
in excess of the Maximum Rate is paid by the Company to any Purchaser with
respect to indebtedness evidenced by the Transaction Documents, such excess
shall be applied by such Purchaser to the unpaid principal balance of any such
indebtedness or be refunded to the Company, the manner of handling such excess
to be at such Purchaser’s election.

 

33

 

5.18                           Independent
Nature of Purchasers’ Obligations and Rights. The obligations of each
Purchaser under any Transaction Document are several and not joint with the
obligations of any other Purchaser, and no Purchaser shall be responsible in
any way for the performance or non-performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
other Transaction Document, and no action taken by any Purchaser pursuant
thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Purchaser shall be entitled to independently
protect and enforce its rights, including without limitation the rights arising
out of this Agreement or out of the other Transaction Documents, and it shall
not be necessary for any other Purchaser to be joined as an additional party in
any proceeding for such purpose. Each Purchaser has been represented by its own
separate legal counsel in their review and negotiation of the Transaction
Documents. For reasons of administrative convenience only, Purchasers and their
respective counsel have chosen to communicate with the Company through FWS. FWS
does not represent all of the Purchasers but only Enable. The Company has
elected to provide all Purchasers with the same terms and Transaction Documents
for the convenience of the Company and not because it was required or requested
to do so by the Purchasers.

 

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

 

5.20                           Saturdays,
Sundays, Holidays, etc.      If
the last or appointed day for the taking of any action or the expiration of any
right required or granted herein shall not be a Business Day, then such action
may be taken or such right may be exercised on the next succeeding Business
Day.

 

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

 

5.22                           Waiver of Jury Trial. In any action,
suit or proceeding in any jurisdiction brought by any party against any other
party, the parties each knowingly and intentionally, to the greatest extent
permitted by applicable law, hereby absolutely, unconditionally, irrevocably
and expressly waives forever trial by jury.

 

(Signature Pages Follow)

 

34

 

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

 

	
  ETELOS INCORPORATED

  	
   

  	
  Address for Notice:

  
	
   

  	
   

  	
  1900 O’Farrell St.,
  Suite 320

  
	
   

  	
   

  	
  San Mateo, CA 94403

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Jeffrey L. Garon

  	
   

  	
  Fax:

  
	
   

  	
  Name:  Jeffrey
  L. Garon

  	
   

  	
  (408)
  516-8425

  
	
   

  	
  Title:  President
  and Chief Executive Officer

  	
   

  	
   

  

 

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

 

James
A. Mercer, III, Esq.

Duane Morris LLP

101 West Broadway, Suite 900

San Diego, CA 92101-8285

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

 

35

 

[PURCHASER SIGNATURE PAGES TO ETELOS
SECURITIES PURCHASE AGREEMENT]

 

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

 

 

	
  Name of Purchaser:

  	
  Enable Growth Partners LP

  	
   

  
	
   

  	
   

  
	
  Signature of Authorized Signatory of
  Purchaser:

  	
    /s/ Brendan O’Neil

  	
   

  
	
   

  	
   

  
	
  Name of Authorized Signatory:

  	
  Brendan O’Neil

  	
   

  
	
   

  	
   

  
	
  Title of Authorized Signatory:

  	
  President and Chief Investment Officer

  	
   

  
	
   

  	
   

  
	
  Email Address of Purchaser:

  	
  boneil@enablecapitalcom

  	
   

  
	
   

  	
   

  
	
  Facsimile Number of Purchaser: 

  	
  (415) 677-1580

  	
   

  
								

 

 

Address for Notice of Purchaser:

 

One Ferry Building

Suite 255

San Francisco, CA 94111

 

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

 

	
  Subscription Amount:

  	
  $1,000,000

  	
   

  
	
   

  	
   

  
	
  Warrant Shares:

  	
  333,333

  	
   

  
				

 

 

EIN Number:  [PROVIDE
THIS UNDER SEPARATE COVER]

 

[SIGNATURE PAGES CONTINUE]

 

36

 

[PURCHASER SIGNATURE PAGES TO ETELOS
SECURITIES PURCHASE AGREEMENT]

 

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

 

 

	
  Name of Purchaser:

  	
  Hudson Bay Fund LP

  	
   

  
	
   

  	
   

  
	
  Signature of Authorized Signatory of
  Purchaser:

  	
    /s/ Yoav Roth

  	
   

  
	
   

  	
   

  
	
  Name of Authorized Signatory:

  	
  Yoav Roth

  	
   

  
	
   

  	
   

  
	
  Title of Authorized Signatory:

  	
  Principal and Portfolio Manager

  	
   

  
	
   

  	
   

  
	
  Email Address of Purchaser: 

  	
  investments@hudsonbaycapital.com

  	
   

  
	
   

  	
   

  
	
  Facsimile Number of Purchaser: 

  	
  (212) 571-1279

  	
   

  
								

 

 

Address for Notice of Purchaser:

 

120 Broadway, 40th Floor

New York, NY 10271

 

 

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

 

Same as above

 

	
  Subscription Amount:

  	
  $470,000

  	
   

  
	
   

  	
   

  
	
  Warrant Shares:

  	
  62,666

  	
   

  
				

 

 

EIN Number:  [PROVIDE
THIS UNDER SEPARATE COVER]

 

[SIGNATURE PAGES CONTINUE]

 

37

 

[PURCHASER SIGNATURE PAGES TO ETELOS
SECURITIES PURCHASE AGREEMENT]

 

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

 

 

	
  Name of Purchaser:

  	
  Hudson Bay Overseas Fund LTD

  	
   

  
	
   

  	
   

  
	
  Signature of Authorized Signatory of
  Purchaser:

  	
    /s/ Yoav Roth

  	
   

  
	
   

  	
   

  
	
  Name of Authorized Signatory:

  	
  Yoav Roth

  	
   

  
	
   

  	
   

  
	
  Title of Authorized Signatory:

  	
  Principal and Portfolio Manager

  	
   

  
	
   

  	
   

  
	
  Email Address of Purchaser: 

  	
  investments@hudsonbaycapital.com

  	
   

  
	
   

  	
   

  
	
  Facsimile Number of Purchaser: 

  	
  (212) 571-1279

  	
   

  
								

 

 

Address for Notice of Purchaser:

 

120 Broadway, 40th Floor

New York, NY 10271

 

 

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

 

Same as above

 

	
  Subscription Amount:

  	
  $530,000

  	
   

  
	
   

  	
   

  
	
  Warrant Shares:

  	
  70,667

  	
   

  
				

 

 

EIN Number:  [PROVIDE
THIS UNDER SEPARATE COVER]

 

[SIGNATURE PAGES CONTINUE]

 

38Exhibit 10.8

 

REGISTRATION RIGHTS AGREEMENT

 

This Registration Rights Agreement (this “Agreement”)
is made and entered into as of January 31, 2008, between Etelos
Incorporated, a Washington corporation (the “Company”) and each of the
several purchasers signatory hereto (each such purchaser, a “Purchaser”
and, collectively, the “Purchasers”).

 

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

 

The Company and each Purchaser hereby agrees as
follows:

 

1.               Definitions

 

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

 

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

 

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

 

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

 

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

 

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

 

“Filing Date” means,
with respect to the Initial Registration Statement required hereunder, the 30th
calendar day following the earlier of (i) the date the Company consummates
a “reverse merger” or similar transaction with a company that files periodic
reports with the Commission or whose securities are publicly held or (ii) the
date the Common Stock is listed or quoted for trading on a Trading Market and,
with respect to 

 

1

 

any additional Registration Statements which may be
required pursuant to Section 3(c), the earliest practical date on which
the Company is permitted by SEC Guidance to file such additional Registration
Statement related to the Registrable Securities.

 

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

 

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

 

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

 

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

 

“Initial Shares”
means a number of Registrable Securities equal to the lesser of (i) the
total number of Registrable Securities and (ii) one-third of the number of
issued and outstanding shares of Common Stock that are held by non-affiliates
of the Company on the day immediately prior to the filing date of the Initial
Registration Statement.

 

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

 

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

 

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

 

“Registrable Securities”
means (i) all of the shares of Common Stock issuable upon conversion in
full of the Debentures (assuming on the date of determination the Debentures
are converted in full without regard to any conversion limitations therein), (ii) all
shares of Common Stock issuable as interest or principal on the Debentures
assuming all permissible interest and principal payments are made in shares of
Common Stock and the Debentures are held until maturity, (iii) all Warrant
Shares (assuming on the date of determination the Warrants are exercised in
full without regard to any exercise limitations therein), (iv) any
additional shares of Common Stock issuable in connection with any anti-dilution
provisions in the Debentures or the Warrants (in each case, without giving effect
to any limitations on conversion set forth in the Debentures or limitations on
exercise set forth in the Warrants), (v) if and when issued, the shares of
Common Stock issuable pursuant to Section 4.15 of the Purchase Agreement
and (vi) any securities issued or issuable upon any stock split, dividend
or other distribution,  recapitalization
or similar event with respect to the foregoing.

 

2

 

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

 

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

 

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

 

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

 

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

 

2.               Shelf
Registration

 

(a)                                  On or prior to
each Filing Date, the Company shall prepare and file with the Commission a
Registration Statement covering the resale of all or such maximum portion of
the Registrable Securities as permitted by SEC Guidance (provided that, the
Company shall use diligent efforts to advocate with the Commission for the
registration of all of the Registrable Securities in accordance with the SEC
Guidance, including without limitation, the Manual of Publicly Available
Telephone Interpretations D.29) that are not then registered on an effective Registration
Statement for an offering to be made on a continuous basis pursuant to Rule 415.  The Registration Statement shall be on Form S-3
(except if the Company is not then eligible to register for resale the
Registrable Securities on Form S-3, in which case such registration shall
be on another appropriate form in accordance herewith) and shall contain
(unless otherwise directed by at least an 85% majority in interest of the
Holders) substantially the “Plan of Distribution” attached hereto as Annex
A.  Subject to the terms of this
Agreement, the Company shall use its best efforts to cause a Registration
Statement to be declared effective under the Securities Act as promptly as
possible after the filing thereof, but in any event prior to the applicable Effectiveness
Date, and shall use its best efforts to keep such Registration Statement
continuously effective under the Securities Act until all Registrable
Securities covered by such Registration Statement have been sold, or may be
sold without volume 

 

3

 

restrictions pursuant to Rule 144
without the requirements for the Company to be in compliance with Rule 144(c)(1) and
otherwise without restrictions or limitations pursuant to Rule 144, as
determined by the counsel to the Company pursuant to a written opinion letter
to such effect, addressed and acceptable to the Transfer Agent and the affected
Holders (the “Effectiveness Period”). 
The Company shall telephonically request effectiveness of a Registration
Statement as of 5:00 p.m. New York City time on a Trading Day.   The Company shall immediately notify the
Holders via facsimile or by e-mail of the effectiveness of a Registration
Statement on the same Trading Day that the Company telephonically confirms
effectiveness with the Commission, which shall be the date requested for
effectiveness of such Registration Statement. 
The Company shall, by 9:30 a.m. New York City time on the Trading
Day after the effective date of such Registration Statement, file a final Prospectus
with the Commission as required by Rule 424.  Failure to so notify the Holder within 1
Trading Day of such notification of effectiveness or failure to file a final
Prospectus as foresaid shall be deemed an Event under Section 2(b).  Notwithstanding any other provision of this
Agreement and subject to the payment of liquidated damages pursuant to Section 2(b),
if any SEC Guidance sets forth a limitation on the number of Registrable
Securities permitted to be registered on a particular Registration Statement
(and notwithstanding that the Company used diligent efforts to advocate with
the Commission for the registration of all or a greater portion of Registrable
Securities), at such time, the Company shall request, in writing, that each
Holder advise the Company of the order in which its Registrable Securities
shall be reduced, and, if a Holder does not respond to such request within
three (3) Business Days, the number of Registrable Securities to be
registered on such Registration Statement will first be reduced by Registrable
Securities represented by Warrant Shares (applied, in the case that some
Warrant Shares may be registered, to the Holders on a pro rata basis based on
the total number of unregistered Warrant Shares held by such Holders), and second
by Registrable Securities represented by Conversion Shares (applied, in the
case that some Conversion Shares may be registered, to the Holders on a pro
rata basis based on the total number of unregistered Conversion Shares held by
such Holders); provided, however, that, prior to any reduction in the number of
Registrable Securities included in a Registration Statement as set forth in
this sentence, the number of shares of Common Stock being registered on behalf
of investors in either or both of the Other Debenture Offering or Preferred
Stock Offering (as such terms are defined in Section 6(b) which shall
have been included on such Registration Statement, or any other registration
statement if aggregated with the Registration Statement, shall be reduced by up
to 100%.

 

(b)                                 If: (i) the
Initial Registration Statement is not filed on or prior to its Filing Date (if
the Company files the Initial Registration Statement without affording the
Holders the opportunity to review and comment on the same as required by Section 3(a) herein,
the Company shall be deemed to have not satisfied this clause (i)), or (ii) the
Company fails to file with the Commission a request for acceleration of a
Registration Statement in accordance with Rule 461 promulgated by the
Commission pursuant to the Securities Act, within five Trading Days of the date
that the Company is notified (orally or in writing, whichever is earlier) by
the Commission that such Registration Statement will not be “reviewed” or will
not be subject to further review, or (iii) prior to the 

 

4

 

effective date of a
Registration Statement, the Company fails to file a pre-effective amendment and
otherwise respond in writing to comments made by the Commission in respect of
such Registration Statement within 20 calendar days after the receipt of
comments by or notice from the Commission that such amendment is required in
order for such Registration Statement to be declared effective, or (iv) as
to, in the aggregate among all Holders on a pro-rata basis based on their
purchase of the Securities pursuant to the Purchase Agreement, a Registration
Statement registering for resale all of the Initial Shares is not declared
effective by the Commission by the Effectiveness Date of the Initial
Registration Statement, or (v) all of the Registrable Securities are not
registered for resale pursuant to one or more effective Registration Statements
on or before the earlier of (A) July 31, 2008 and (B) 90
calendar days following the Reverse Merger Date, or (vi) after the
effective date of a Registration Statement, such Registration Statement ceases
for any reason to remain continuously effective as to all Registrable
Securities included in such Registration Statement, or the Holders are otherwise
not permitted to utilize the Prospectus therein to resell such Registrable
Securities (a)  because the Company is negotiating a merger,
consolidation, acquisition or sale of all or substantially all of its assets or
a similar transaction which, in the good faith judgment of the Company’s board
of directors, requires the Registration Statement to be amended to include
information in connection with such pending transaction (including the parties
thereto) and such information is not yet available or publicly disclosable, for
more than an aggregate of 30 calendar days (which need not be consecutive days)
during any 12-month period or (b) for any other reason, more than an
aggregate of 60 calendar days (which need not be consecutive days) during any
12-month period (any such failure or breach being referred to as an “Event”, and for purposes of
clause (i), (iv) and (v) the date on which such Event occurs, and for
purpose of clause (ii) the date on which such five Trading Day period is
exceeded, and for purpose of clause (iii) the date which such 20 calendar
day period is exceeded, and for purpose of clause (vi) the date on which
such 30 or 60 calendar day period, as applicable, is exceeded being referred to
as “Event Date”), then,
in addition to any other rights the Holders may have hereunder or under
applicable law, on each such Event Date and on each monthly anniversary of each
such Event Date (if the applicable Event shall not have been cured by such
date) until the applicable Event is cured or until the Holders may sell all
Registrable Securities without volume or manner-of-sale restrictions pursuant
to Rule 144 without the requirements for the Company to be in compliance
with Rule 144(c)(1) and otherwise without restrictions or limitations
pursuant to Rule 144, the Company shall pay to each Holder an amount in
cash, as partial liquidated damages and not as a penalty, equal to 1% of the
aggregate purchase price paid by such Holder pursuant to the Purchase Agreement
for any unregistered Registrable Securities then held by such Holder.  The parties agree that the maximum aggregate
liquidated damages payable to a Holder under this Agreement shall be 10% of the
aggregate Subscription Amount paid by such Holder pursuant to the Purchase
Agreement.  If the Company fails to pay
any partial liquidated damages pursuant to this Section in full within
seven days after the date payable, the Company will pay interest thereon at a
rate of 18% per annum (or such lesser maximum amount that is permitted to be
paid by applicable law) to the Holder, accruing daily from the date such
partial liquidated damages are due until such amounts, plus all such interest
thereon, are paid in full. The partial liquidated damages pursuant to the terms
hereof shall apply on a daily pro rata basis for any portion of a month prior
to the cure of an Event.

 

5

 

3.               Registration
Procedures.

 

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

 

(a)                                  Not less than
three (3) Trading Days prior to the filing of each Registration Statement
and not less than one (1) Trading Day prior to the filing of any related
Prospectus or any amendment or supplement thereto (including any document that
would be incorporated or deemed to be incorporated therein by reference), the
Company shall (i) furnish to each Holder copies of all such documents
proposed to be filed, which documents (other than those incorporated or deemed
to be incorporated by reference) will be subject to the review of such Holders,
and (ii) cause its officers and directors, counsel and independent
certified public accountants to respond to such inquiries as shall be
necessary, in the reasonable opinion of respective counsel to each Holder, to
conduct a reasonable investigation within the meaning of the Securities Act.
The Company shall not file a Registration Statement or any such Prospectus or
any amendments or supplements thereto to which the Holders of a majority of the
Registrable Securities shall reasonably object in good faith, provided that,
the Company is notified of such objection in writing no later than two (2) Trading
Days after the Holders have been so furnished copies of a Registration
Statement or one (1) Trading Day after the Holders have been so furnished
copies of any related Prospectus or amendments or supplements thereto. Each
Holder agrees to furnish to the Company a completed questionnaire in the form
attached to this Agreement as Annex B (a “Selling Shareholder
Questionnaire”) not less than two (2) Trading Days prior to the Filing
Date or by the end of the fourth (4th) Trading Day following the
date on which such Holder receives draft materials in accordance with this
Section.

 

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

 

6

 

Exchange Act with respect to the disposition of all
Registrable Securities covered by a Registration Statement during the
applicable period in accordance (subject to the terms of this Agreement) with
the intended methods of disposition by the Holders thereof set forth in such
Registration Statement as so amended or in such Prospectus as so supplemented.

 

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

 

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

 

7

 

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

 

(f)                                    Furnish to each
Holder, without charge, at least one conformed copy of each such Registration
Statement and each amendment thereto, including financial statements and
schedules, all documents incorporated or deemed to be incorporated therein by
reference to the extent requested by such Person, and all exhibits to the
extent requested by such Person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents with the
Commission; provided, that any such item which is available on the EDGAR system
need not be furnished in physical form.

 

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

 

(h)                                 The Company
shall cooperate with any broker-dealer through which a Holder proposes to
resell its Registrable Securities in effecting a filing with the FINRA
Corporate Financing Department pursuant to NASD Rule 2710, as requested by
any such Holder, and the Company shall pay the filing fee required by such
filing within two (2) Business Days of request therefor.

 

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

 

8

 

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

 

(k)                                  Upon the
occurrence of any event contemplated by Section 3(d), as promptly as
reasonably possible under the circumstances taking into account the Company’s
good faith assessment of any adverse consequences to the Company and its
stockholders of the premature disclosure of such event, prepare a supplement or
amendment, including a post-effective amendment, to a Registration Statement or
a supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, and file any other required document
so that, as thereafter delivered, neither a Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. If the Company notifies the Holders in accordance with clauses (iii) through
(vi) of Section 3(d) above to suspend the use of any Prospectus
until the requisite changes to such Prospectus have been made, then the Holders
shall suspend use of such Prospectus. The Company will use its best efforts to
ensure that the use of the Prospectus may be resumed as promptly as is
practicable. The Company shall be entitled to exercise its right under this Section 3(k) to
suspend the availability of a Registration Statement and Prospectus, subject to
the payment of partial liquidated damages otherwise required pursuant to Section 2(b),
for a period not to exceed 60 calendar days (which need not be consecutive
days) in any 12 month period.

 

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

 

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

 

4.                                  Registration
Expenses. All fees and expenses incident to the performance
of or compliance with this Agreement by the Company shall be borne by the
Company whether or not any Registrable Securities are sold pursuant to a
Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and
filing fees (including, without limitation, fees and expenses of the Company’s
counsel and auditors) (A) with respect to filings made with the
Commission, (B) with respect to filings required to be made with any
Trading Market on which the Common Stock is then listed for trading, (C) in
compliance with applicable state securities or Blue Sky laws reasonably agreed
to 

 

9

 

by
the Company in writing (including, without limitation, fees and disbursements of
counsel for the Company in connection with Blue Sky qualifications or
exemptions of the Registrable Securities) and (D) if not previously paid
by the Company in connection with an Issuer Filing, with respect to any filing
that may be required to be made by any broker through which a Holder intends to
make sales of Registrable Securities with the FINRA pursuant to NASD Rule 2710,
so long as the broker is receiving no more than a customary brokerage
commission in connection with such sale, (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities), (iii) messenger, telephone and delivery expenses,
(iv) fees and disbursements of counsel for the Company, (v) Securities
Act liability insurance, if the Company so desires such insurance, and (vi) fees
and expenses of all other Persons retained by the Company in connection with
the consummation of the transactions contemplated by this Agreement. In
addition, the Company shall be responsible for all of its internal expenses
incurred in connection with the consummation of the transactions contemplated
by this Agreement (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), the expense
of any annual audit and the fees and expenses incurred in connection with the
listing of the Registrable Securities on any securities exchange as required
hereunder. In no event shall the Company be responsible for any broker or
similar commissions of any Holder or, except to the extent provided for in the
Transaction Documents, any legal fees or other costs of the Holders.

 

5.               Indemnification.

 

(a)                                  Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, members, partners, agents, brokers
(including brokers who offer and sell Registrable Securities as principal as a
result of a pledge or any failure to perform under a margin call of Common
Stock), investment advisors and employees (and any other Persons with a
functionally equivalent role of a Person holding such titles, notwithstanding a
lack of such title or any other title) of each of them, each Person who
controls any such Holder (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) and the officers,
directors, members, shareholders, partners, agents and employees (and any other
Persons with a functionally equivalent role of a Person holding such titles,
notwithstanding a lack of such title or any other title) of each such
controlling Person, to the fullest extent permitted by applicable law, from and
against any and all losses, claims, damages, liabilities, costs (including,
without limitation, reasonable attorneys’ fees) and expenses (collectively, “Losses”),
as incurred, arising out of or relating to (1) any untrue or alleged
untrue statement of a material fact contained in a Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or relating to any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading or (2) any violation or alleged violation by the Company of
the Securities Act, the Exchange Act or any state securities law, or any rule or
regulation thereunder, in connection with the performance of its obligations
under this Agreement, except to the extent, but only to the extent, that (i) such
untrue statements or omissions are based solely 

 

10

 

upon information regarding such Holder furnished in
writing to the Company by such Holder expressly for use therein, or to the
extent that such information relates to such Holder or such Holder’s proposed
method of distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in a Registration
Statement, such Prospectus or in any amendment or supplement thereto (it being
understood that the Holder has approved Annex A hereto for this purpose) or (ii) in
the case of an occurrence of an event of the type specified in Section 3(d)(iii)-(vi),
the use by such Holder of an outdated or defective Prospectus after the Company
has notified such Holder in writing that the Prospectus is outdated or
defective and prior to the receipt by such Holder of the Advice contemplated in
Section 6(d). The Company shall notify the Holders promptly of the
institution, threat or assertion of any Proceeding arising from or in
connection with the transactions contemplated by this Agreement of which the Company
is aware.

 

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

 

(c)                                  Conduct of Indemnification Proceedings. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an “Indemnified
Party”), such Indemnified Party shall promptly notify the Person from whom
indemnity is sought (the “Indemnifying Party”) in writing, and the
Indemnifying Party shall have the right to assume the defense thereof,
including the employment of counsel reasonably 

 

11

 

satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense thereof;
provided, that, the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant
to this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have prejudiced
the Indemnifying Party.

 

An Indemnified Party shall
have the right to employ separate counsel in any such Proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party or Parties unless:  (1) the Indemnifying Party has agreed in
writing to pay such fees and expenses; (2) the Indemnifying Party shall
have failed promptly to assume the defense of such Proceeding and to employ
counsel reasonably satisfactory to such Indemnified Party in any such
Proceeding; or (3) the named parties to any such Proceeding (including any
impleaded parties) include both such Indemnified Party and the Indemnifying
Party, and counsel to the Indemnified Party shall reasonably believe that a
material conflict of interest is likely to exist if the same counsel were to
represent such Indemnified Party and the Indemnifying Party (in which case, if
such Indemnified Party notifies the Indemnifying Party in writing that it
elects to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense thereof and the
reasonable fees and expenses of no more than one separate counsel shall be at
the expense of the Indemnifying Party). The Indemnifying Party shall not be
liable for any settlement of any such Proceeding effected without its written
consent, which consent shall not be unreasonably withheld or delayed. No
Indemnifying Party shall, without the prior written consent of the Indemnified
Party, effect any settlement of any pending Proceeding in respect of which any
Indemnified Party is a party, unless such settlement includes an unconditional
release of such Indemnified Party from all liability on claims that are the
subject matter of such Proceeding.

 

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

 

(d)                                 Contribution. If the indemnification under Section 5(a) or
5(b) is unavailable to an Indemnified Party or insufficient to hold an
Indemnified Party harmless for any Losses, then each Indemnifying Party shall
contribute to the amount paid or payable by such Indemnified Party, in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions, statements or
omissions that resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party and Indemnified
Party shall be determined by reference to, among other things, whether any
action in 

 

12

 

question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material
fact, has been taken or made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties’ relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a
result of any Losses shall be deemed to include, subject to the limitations set
forth in this Agreement, any reasonable attorneys’ or other fees or expenses
incurred by such party in connection with any Proceeding to the extent such
party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party
in accordance with its terms.

 

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

 

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

 

6.               Miscellaneous.

 

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

 

(b)                                 No
Piggyback on Registrations; Prohibition on Filing Other Registration Statements. Except for
registration rights granted to (i) purchasers of debentures and warrants
sold on the same terms and conditions as the sale of Debentures and Warrants
pursuant to an exception to the Purchase Agreement, for an aggregate purchase
price not to exceed $5,000,000 (the “Other Debenture Offering”) and (ii) purchasers
in the offering to be made by the Company of up to 15,000 shares of its Series D
Convertible Preferred Stock and warrants (the “Preferred Stock Offering”),
neither the Company nor any of its security holders (other than the Holders in
such capacity pursuant hereto) may include securities of the Company in any
Registration Statements other than the Registrable Securities. The Company
shall not file any other 

 

13

 

registration
statements until the 12 month anniversary of the date all Registrable
Securities are registered pursuant to a Registration Statement that is declared
effective by the Commission other than a registration statement registering the
Common Stock underlying the securities issued by the Company in either or both
of the Other Debenture Offering or Preferred Stock Offering.

 

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

 

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

 

(e)                                  Piggy-Back
Registrations. If, at any time during the Effectiveness Period,
there is not an effective Registration Statement covering all of the
Registrable Securities and the Company shall determine to prepare and file with
the Commission a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated
under the Securities Act) or their then equivalents relating to equity
securities to be issued solely in connection with any acquisition of any entity
or business or equity securities issuable in connection with the Company’s
stock option or other employee benefit plans, then the Company shall deliver to
each Holder a written notice of such determination and, if within fifteen days
after the date of the delivery of such notice, any such Holder shall so request
in writing, the Company shall include in such registration statement all or any
part of such Registrable Securities such Holder requests to be registered; provided,
however, that the Company shall not be required to register any
Registrable Securities pursuant to this Section 6(e) that are
eligible for resale pursuant to Rule 144 without the requirements for the
Company to be in compliance with Rule 144(c)(1) and otherwise without
restrictions or limitations pursuant to Rule 144 promulgated by the
Commission pursuant to the Securities Act or that are the subject of a then
effective Registration Statement.

 

(f)                                    Amendments
and Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the same shall be in writing and signed by the Company and the Holders
of 67% or more of the then outstanding Registrable Securities (including, for
this purpose any Registrable Securities issuable upon exercise or conversion of
any Security). If a Registration Statement does not register all of the
Registrable Securities pursuant to a waiver or amendment done in compliance
with the previous sentence, then the number of Registrable Securities to be
registered for each Holder shall be 

 

14

 

reduced
pro rata among all Holders and each Holder shall have the right to designate
which of its Registrable Securities shall be omitted from such Registration
Statement. Notwithstanding the foregoing, a waiver or consent to depart from
the provisions hereof with respect to a matter that relates exclusively to the
rights of a Holder or some Holders and that does not directly or indirectly
affect the rights of other Holders may be given by such Holder or Holders of
all of the Registrable Securities to which such waiver or consent relates; provided,
however, that the provisions of this sentence may not be amended,
modified, or supplemented except in accordance with the provisions of the
first  sentence of this Section 6(f).

 

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

 

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

 

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

 

(j)                                     Execution
and Counterparts. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission or by e-mail delivery of a “.pdf” format
data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile or “.pdf” signature page were an
original thereof.

 

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

 

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

 

15

 

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

 

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

 

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

 

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

 

16

 

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

 

 

	
   

  	
  ETELOS INCORPORATED

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
          /s/
  Jeffrey L. Garon

  
	
   

  	
   

  	
  Name:  Jeffrey L. Garon

  
	
   

  	
   

  	
  Title:  President and Chief Executive
  Officer

  

 

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

 

17

 

[SIGNATURE PAGE OF HOLDERS TO ETELOS RRA]

 

	
  Name of Holder:

  	
  Enable Growth Partners LP

  	
   

  
	
   

  	
   

  
	
  Signature of Authorized
  Signatory of Holder:

  	
  /s/ Brendan O’Neil

  	
   

  
	
   

  	
   

  
	
  Name of Authorized Signatory:

  	
  Brendan O’Neil

  	
   

  
	
   

  	
   

  
	
  Title of Authorized Signatory:

  	
  President and Chief Investment Officer

  	
   

  
						

 

[SIGNATURE PAGES CONTINUE]

 

18

 

[SIGNATURE PAGE OF HOLDERS TO ETELOS RRA]

 

	
  Name of Holder:

  	
  Hudson Bay Fund LP

  	
   

  
	
   

  	
   

  
	
  Signature of Authorized
  Signatory of Holder:

  	
  /s/ Yoav Roth

  	
   

  
	
   

  	
   

  
	
  Name of Authorized Signatory:

  	
  Yoav Roth

  	
   

  
	
   

  	
   

  
	
  Title of Authorized Signatory:

  	
  Principal and Portfolio Manager

  	
   

  
						

 

[SIGNATURE PAGES CONTINUE]

 

19

 

[SIGNATURE PAGE OF HOLDERS TO ETELOS RRA]

 

	
  Name of Holder:

  	
  Hudson Bay Overseas Fund LTD

  	
   

  
	
   

  	
   

  
	
  Signature of Authorized
  Signatory of Holder:

  	
  /s/ Yoav Roth

  	
   

  
	
   

  	
   

  
	
  Name of Authorized Signatory:

  	
  Yoav Roth

  	
   

  
	
   

  	
   

  
	
  Title of Authorized Signatory:

  	
  Principal and Portfolio Manager

  	
   

  
						

 

[SIGNATURE PAGES CONTINUE]

 

20

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