Document:

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                                                                   Exhibit 10.15

NEITHER THIS WARRANT NOR ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS
WARRANT (THE "SECURITIES") HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND
NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS.

                    -----------------------------------------

                                U.S. VISION, INC.
                          COMMON STOCK PURCHASE WARRANT

                    -----------------------------------------

          Name of holder:            ______________ ("Warrantholder").

          Number of shares:          ______________ ("Warrant Shares").

          Purchase price per share:  $_____________ ("Exercise Price").

          Expiration Date:           ______________ ("Expiration Date").

         This certifies that, for good and valuable consideration, U.S. Vision,
Inc., a Delaware corporation ("USV"), grants to the Warrantholder, the right to
subscribe for and purchase from USV validly issued, fully paid and nonassessable
Warrant Shares of USV's Common Stock, par value $.01 per share (the "Common
Stock"), at the Exercise Price, at any time prior to the Expiration Date, all
subject to the terms, conditions and adjustments herein set forth. This Warrant
is issued in connection with and pursuant to the terms of the 2000 Director
Compensation Plan (the "Plan").

         1.     EXERCISE OF WARRANT.

                1.1 Exercise of Warrant. This Warrant may be exercised, in whole
or in part, at any time or from time to time prior to the Expiration Date, by
surrendering to USV at its principal office this Warrant, with an exercise form
in the form attached hereto as Exhibit A duly executed by the Warrantholder and
accompanied by payment of the Exercise Price for the number of shares of Common
Stock specified in such Exercise Form.

                1.2 Cashless Exercise. In lieu of the payment of the Exercise
Price, the Warrantholder shall have the right (but not the obligation) to
require USV to convert this Warrant, in whole or in part, into shares of Common
Stock (the "Conversion Right") as provided for in this

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Section 1.2. Upon exercise of the Conversion Right, USV shall deliver to the
Warrantholder (without payment by the Warrantholder of any of the Exercise
Price) that number of shares of Common Stock equal to the product of the number
of shares of Common Stock issuable upon exercise of the Warrant (or the portion
thereof as to which the exercise relates) multiplied by a fraction: (a) the
numerator of which shall be the difference between the Current Market Price (as
defined in Section 7.1(c) below) of one share of Common Stock on the date of
exercise and the Exercise Price; and (b) the denominator of which shall be the
Current Market Price of one share of Common Stock on the date of exercise. The
Conversion Right may be exercised at any time or from time to time by
surrendering to USV at its principal office this Warrant, with an Exercise Form
duly executed by the Warrantholder and indicating that the Warrantholder wishes
to exercise the Conversion Right and specifying the total number of shares of
Common Stock that the Warrantholder will be issued pursuant to such Conversion
Right.

                1.3 Delivery of Warrant Shares; Effectiveness of Exercise.

                    (a) Delivery of Warrant Shares. A stock certificate or
certificates for the Warrant Shares specified in the Exercise Form along with a
check for the amount of cash to be paid in lieu of fractional shares, if any,
shall be delivered to the Warrantholder within three Business Days (as defined
below) after the Exercise Date (as defined in Section 1.3(b) below). If this
Warrant shall have been exercised only in part, USV shall, at the time of
delivery of the stock certificate or certificates and cash in lieu of fractional
shares, if any, deliver to the Warrantholder a new Warrant evidencing the rights
to purchase the remaining Warrant Shares, which new Warrant shall in all other
respects be identical with this Warrant. As used herein, "Business Day" means
any day other than a Saturday, Sunday or a day on which national banks are
authorized by law or executive order to close in the State of New Jersey or New
York.

                    (b) Effectiveness of Exercise. The exercise of this Warrant
shall be deemed to have been effective immediately prior to the close of
business on the Business Day on which this Warrant is exercised in accordance
with Section 1.1 (the "Exercise Date"). The Person (as defined below) in whose
name any certificate for shares of Common Stock shall be issuable upon such
exercise shall be deemed to be the record holder of such shares of Common Stock
for all purposes on the Exercise Date. As used herein, "Person" means any
individual, corporation, partnership, joint venture, association, trust, limited
liability company or other entity.

                    (c) Limitations on Exercise. Notwithstanding anything to the
contrary herein, this Warrant may be exercised only upon the delivery to USV of
any certificates, legal opinions, or other documents reasonably requested by USV
to satisfy USV that the proposed exercise of this Warrant may be effected
without registration under the Securities Act. The Warrantholder shall not be
entitled to exercise this Warrant, or any part thereof, unless and until such
certificates, legal opinions or other documents are reasonably acceptable to
USV.

                1.4 Payment of Taxes. The issuance of certificates for Warrant
Shares shall be made without charge to the Warrantholder for any stock transfer
or other issuance tax in respect

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thereof; provided, however, that the Warrantholder shall be required to pay any
and all taxes that may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the then
Warrantholder as reflected upon the books of USV.

         2.     RESTRICTIONS ON TRANSFER.

                2.1 The Warrantholder may not sell, assign, transfer, gift,
exchange or otherwise dispose of, or grant a lien, encumbrance, pledge or other
security interest in (each a "Transfer") this Warrant, except that the
Warrantholder may Transfer this Warrant to an affiliate of the Warrantholder.
This Section 2.1 shall survive the exercise of the Warrants.

         3.     RESTRICTIVE LEGENDS.

                3.1 Warrants. Except as otherwise permitted by this Section 3,
each Warrant (and each Warrant issued in substitution for any Warrant pursuant
to Section 5) shall be stamped or otherwise imprinted with a legend in
substantially the following form:

         NEITHER THIS WARRANT NOR ANY SECURITIES ACQUIRED UPON THE EXERCISE OF
         THIS WARRANT (THE "SECURITIES") HAVE BEEN REGISTERED UNDER THE
         SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
         SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY
         BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT
         PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
         ACT AND APPLICABLE STATE SECURITIES LAWS OR AN AVAILABLE EXEMPTION FROM
         REGISTRATION UNDER SUCH ACT AND SUCH LAWS. THIS WARRANT IS ALSO SUBJECT
         TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH HEREIN.

                3.2 Warrant Shares. Except as otherwise permitted by this
Section 3, each stock certificate for Warrant Shares issued upon the exercise of
any Warrant and each stock certificate issued upon the direct or indirect
transfer of any such Warrant Shares shall be stamped or otherwise imprinted with
a legend in substantially the following form:

         THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
         SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
         SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY
         BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT
         PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
         ACT AND APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM
         REGISTRATION UNDER SUCH ACT AND SUCH LAWS.

         THE SALE, ASSIGNMENT, PLEDGE, ENCUMBRANCE OR OTHER DISPOSITION (EACH A
         "TRANSFER") OF ANY OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
         ARE RESTRICTED BY THE TERMS OF THE WARRANT DATED JUNE 22, 2000, AMONG
         THE

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         COMPANY AND THE WARRANTHOLDER NAMED THEREIN, A COPY OF WHICH MAY BE
         INSPECTED AT THE COMPANY'S PRINCIPAL OFFICE. THE COMPANY WILL NOT
         REGISTER THE TRANSFER OF SUCH SECURITIES ON THE BOOKS OF THE COMPANY
         UNLESS AND UNTIL THE TRANSFER HAS BEEN MADE IN COMPLIANCE WITH THE
         TERMS OF THE WARRANT AGREEMENT.

                3.3 Removal of Legends. Notwithstanding the foregoing, the
Warrantholder may require USV to issue a Warrant or a stock certificate for
Warrant Shares, in each case without the legend required by Section 3.1 or 3.2,
as applicable, if either (a) such Warrant or such Warrant Shares, as the case
may be, have been registered for resale under the Securities Act or (b) the
Warrantholder has delivered to USV an opinion of legal counsel (from a firm
reasonably satisfactory to USV) which opinion shall be addressed to USV and be
reasonably satisfactory in form and substance to USV's counsel, to the effect
that such registration is not required with respect to such Warrant or such
Warrant Shares, as the case may be.

         4.     RESERVATION OF SHARES, ETC.

                USV covenants and agrees as follows:

                    (a) All Warrant Shares that are issued upon the exercise of
this Warrant will, upon issuance, be validly issued, fully paid and
nonassessable, not subject to any preemptive rights, and free from all taxes,
liens, security interests, charges, and other encumbrances with respect to the
issuance thereof, other than taxes in respect of any transfer occurring
contemporaneously with such issue and the restrictions on transfer contained in
this Warrant.

                    (b) During the period within which this Warrant may be
exercised, USV will at all times have authorized and reserved, and keep
available free from preemptive rights a sufficient number of shares of Common
Stock to provide for the exercise of the rights represented by this Warrant.

                    (c) USV will, from time to time, take all such action as may
be required to assure that the par value per share of the Warrant Shares is at
all times equal to or less than the Exercise Price, as may be adjusted.

         5.     LOSS OR DESTRUCTION OF WARRANT. Subject to the terms and
conditions hereof, upon receipt by USV of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant and, in the case
of loss, theft or destruction, of such bond or indemnification as USV may
reasonably require, and, in the case of mutilation, upon surrender and
cancellation of this Warrant, USV will execute and deliver a new Warrant of like
tenor.

         6.     OWNERSHIP OF WARRANT. USV may deem and treat the Person in whose
name this Warrant is registered as the holder and owner hereof (notwithstanding
any notations of ownership

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or writing hereon made by anyone other than USV) for all purposes and shall not
be affected by any notice to the contrary, until presentation of this Warrant
for registration of transfer.

         7.     CERTAIN ADJUSTMENTS.

                7.1 The number of Warrant Shares purchasable upon the exercise
of this Warrant and the Exercise Price shall be subject to adjustment as
follows:

                    (a) Stock Dividends, Subdivision, Combination or
Reclassification of Common Stock. If at any time after the date of the issuance
of this Warrant USV shall (i) declare a stock dividend on the Common Stock
payable in shares of its capital stock (including Common Stock), (ii) increase
the number of shares of Common Stock outstanding by a subdivision or split-up of
shares of Common Stock, (iii) decrease the number of shares of Common Stock
outstanding by a combination of shares of Common Stock or (iv) issue any shares
of its capital stock in a reclassification of the Common Stock, then, on the
record date for such dividend or the effective date of such subdivision or
split-up, combination or reclassification, as the case may be, the number and
kind of shares to be delivered upon exercise of this Warrant will be adjusted so
that the Warrantholder will be entitled to receive the number and kind of shares
of capital stock that such Warrantholder would have owned or been entitled to
receive upon or by reason of such event had this Warrant been exercised
immediately prior thereto, and the Exercise Price will be adjusted as provided
below in paragraph (g).

                    (b) Reorganization, Etc. If at any time after the date of
issuance of this Warrant any consolidation of USV with or merger of USV with or
into any other Person (other than a merger or consolidation in which USV is the
surviving or continuing corporation and which does not result in any
reclassification of, or change in the Common Stock) or any sale, lease or other
transfer of all or substantially all of the assets of USV to any other Person
(each a "Reorganization Event"), shall be effected in such a way that the
holders of Common Stock shall be entitled to receive stock, other securities or
assets (whether such stock, other securities or assets are issued or distributed
by USV or another Person) with respect to or in exchange for Common Stock, then,
with respect to any unexercised Warrant, the Board of Directors of USV or any
surviving or acquiring corporation or entity (the "Relevant Entity") shall take
such action as is equitable and appropriate to substitute a new warrant for such
Warrant or to assume such Warrant in order to make such new or assumed warrant
as nearly as may be practicable, equivalent to the old Warrant (the
"Reorganization Action"). Notwithstanding the foregoing, in lieu of taking the
Reorganization Action, the Relevant Entity may pay to the Warrantholder the
Value of the Warrant (as defined below) in cancellation of the Warrant. The
"Value of the Warrant" shall be the value of the consideration received less the
Exercise Price as determined in good faith by USV's Board of Directors. The
Value of the Warrant shall be payable either, at the election of the Relevant
Entity, in cash or in the form of consideration paid to holders of shares of
Common Stock pursuant to the Reorganization Event.

                    (c) Extraordinary Distributions. If at any time after the
date of issuance of this Warrant USV shall distribute to all holders of its
Common Stock (including any such

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distribution made in connection with a consolidation or merger in which USV is
the continuing or surviving corporation and the Common Stock is not changed or
exchanged) cash, evidences of indebtedness, securities or other assets
(excluding (i) ordinary course quarterly cash dividends and (ii) dividends
payable in shares of capital stock for which adjustment is made under Section
7.1(a)) or rights, options or warrants to subscribe for or purchase securities
of USV, then the number of shares of Common Stock to be delivered to such
Warrantholder upon exercise of this Warrant shall be increased so that the
Warrantholder thereafter shall be entitled to receive the number of shares of
Common Stock determined by multiplying the number of shares such Warrantholder
would have been entitled to receive immediately before such record date by a
fraction, the numerator of which shall be the Current Market Price (as defined
below) per share of the Common Stock and the denominator of which shall be the
Current Market Price per share of Common Stock on such record date minus the
then fair market value (as reasonably determined by the Board of Directors of
USV in good faith) of the portion of the cash, evidences of indebtedness,
securities or other assets so distributed or of such rights or warrants
applicable to one share of Common Stock (provided that such denominator shall in
no event be less than $.01; and the Exercise Price shall be adjusted as provided
below in paragraph (g).

As used herein, "Current Market Price" means, with respect to each share of
Common Stock as of any date, the average of the daily Closing Prices (as defined
below) per share of Common Stock for the ten consecutive trading days prior to
such date; provided that if on any such date the shares of Common Stock are not
listed or admitted for trading on any national securities exchange or quoted by
Nasdaq or a similar service, the Current Market Price for a share of Common
Stock shall be the fair market value of such share as determined in good faith
by the Board of Directors of USV or, if requested by the Warrantholder, an
independent financial expert from a nationally recognized investment banking
firm (an "Independent Financial Expert") selected jointly by the Board of
Directors and such Warrantholder. If USV and the Warrantholder are unable to
agree upon an Independent Financial Expert within fifteen days after the request
by the Warrantholder, each of USV and the Warrantholder shall select an
Independent Financial Expert within five days following the expiration of such
fifteen day period and these two Independent Financial Experts shall select a
third Independent Financial Expert and the determination of the fair market
value of a share of Common Stock by such third Independent Financial Expert
shall be final and binding on USV and the Warrantholder. If either USV or the
Warrantholder shall fail to select an Independent Financial Expert within such
five day period, then the fair market value of a share of Common Stock shall be
determined by the Independent Financial Expert selected by the other party. The
fees and expenses of any of the Independent Financial Experts retained in
accordance with the foregoing shall be borne by USV. "Closing Price" of the
Common Stock as of any day, means (a) the average of the closing bid and asked
prices, in either case as reported on the principal national securities exchange
on which the Common Stock is listed or admitted to trading or (b) if the Common
Stock is not listed or admitted to trading on any national securities exchange,
the average of the highest reported bid and lowest reported asked quotation for
the Common Stock, in either case reported on the National Association of
Securities Dealers, Inc. Automated Quotation System ("Nasdaq"), or a similar
service if Nasdaq is no longer reporting such information.

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                    (d) Pro Rata Repurchases. If at any time after the date of
issuance of this Warrant, USV or any subsidiary thereof shall make any purchase
of shares of Common Stock whether for cash, shares of capital stock of USV,
other securities of USV, evidences of indebtedness of USV or any other Person or
any other property (including, without limitation, shares of capital stock,
other securities or evidences of indebtedness of a subsidiary of USV), or any
combination thereof, which purchase is subject to Section 13(e) of the
Securities Exchange Act of 1934, as amended, or is made pursuant to an offer
made available to all holders of Common Stock (a "Pro Rate Repurchase"), then
the number of shares of Common Stock to be delivered to such Warrantholder upon
exercise of this Warrant shall be increased so that the Warrantholder thereafter
shall be entitled to receive the number of shares of Common Stock determined by
multiplying the number of shares of Common Stock such Warrantholder would have
been entitled to receive immediately before such Pro Rata Repurchase by a
fraction (which in no event shall be less than one) the numerator of which shall
be the product of (i) the number of shares of Common Stock outstanding
immediately before such Pro Rata Repurchase minus the number of shares of Common
Stock repurchased in such Pro Rata Repurchase and (ii) the Current Market Price
of the Common Stock as of the day immediately preceding the first public
announcement by USV of the intent to effect such Pro Rata Repurchase and the
denominator of which shall be (i) the product of (x) the number of shares of
Common Stock outstanding immediately before such Pro Rata Repurchase and (y) the
Current Market Price of the Common Stock as of the day immediately preceding the
first public announcement by USV of the intent to effect such Pro Rata
Repurchase minus (ii) the aggregate purchase price of the Pro Rata Repurchase
(provided that such denominator shall never be less than $.01).

                    (e) Fractional Shares. No fractional shares of Common Stock
or scrip shall be issued to any Warrantholder in connection with the exercise of
this Warrant. Instead of any fractional shares of Common Stock that would
otherwise be issuable to such Warrantholder, USV will pay to such Warrantholder
a cash adjustment in respect of such fractional interest in an amount equal to
that fractional interest of the then Current Market Price per share of Common
Stock.

                    (f) Carryover. Notwithstanding any other provision of this
Section 7.1, no adjustment shall be made to the number of shares of Common Stock
to be delivered to the Warrantholder (or to the Exercise Price) if such
adjustment represents less than 1% of the number of shares to be so delivered,
but any lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment that together with any
adjustments so carried forward shall amount to 1% or more of the number of
shares to be so delivered.

                    (g) Exercise Price Adjustment. Whenever the number of
Warrant Shares purchasable upon the exercise of the Warrant is adjusted as
provided pursuant to this Section 7.1, the Exercise Price per share payable upon
the exercise of this Warrant shall be adjusted by multiplying such Exercise
Price immediately prior to such adjustment by a fraction, of which the numerator
shall be the number of Warrant Shares purchasable upon the exercise of the
Warrant immediately prior to such adjustment, and of which the denominator shall
be the number of Warrant

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Shares purchasable immediately thereafter; provided, however, that the Exercise
Price for each Warrant Share shall in no event be less than the par value of
such Warrant Share.

                    (h) Multiple Adjustments. If any action or transaction would
require adjustment of the number of shares of Common Stock to be delivered to
the Warrantholder upon exercise of this Warrant pursuant to more than one
paragraph of this Section 7.1, only one adjustment shall be made and each such
adjustment shall be the amount of adjustment that has the highest absolute
value.

                7.2 Notice of Adjustment. Whenever the number of Warrant Shares
or the Exercise Price of such Warrant Shares is adjusted, as herein provided,
USV shall promptly mail by overnight courier or by first class mail, postage
prepaid, to the Warrantholder, notice of such adjustment or adjustments setting
forth the number of Warrant Shares and the Exercise Price of such Warrant Shares
after such adjustment, setting forth a brief statement of the facts requiring
such adjustment and setting forth the computation by which such adjustment was
made.

                7.3 Notices of Corporate Action. So long as this Warrant has not
been exercised in full, in the event of:

                    (a) any action that would trigger an adjustment to the
number of shares of Common Stock to be delivered to the Warrantholder upon
exercise of this Warrant, (b) any consolidation or merger involving USV and any
other party or any transfer of all or substantially all the assets of USV to any
other party, or (c) any voluntary or involuntary dissolution, liquidation or
winding-up of USV, USV will deliver, by overnight courier or by first class
mail, postage prepaid, to the Warrantholder a notice specifying (i) the date or
expected date on which any such record is to be taken for the purpose of a
dividend, distribution or right and the amount and character of any such
dividend, distribution or right and (ii) the date or expected date on which a
reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place and the time,
if any such time is to be fixed, as of which the holders of record of Common
Stock (or other securities) shall be entitled to exchange their shares of Common
Stock (or other securities) for the securities or other property deliverable
upon such reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, liquidation or winding-up. Such notice shall be
delivered at least twenty days prior to the date therein specified in the case
of any date referred to in the foregoing subdivisions (i) and (ii).

                7.4 Effect of Failure to Notify. Failure to file any certificate
or notice or to mail any notice, or any defect in any certificate or notice,
pursuant to Section 7.3 shall not affect the legality or validity of the
adjustment to the Exercise Price, the number of shares purchasable upon exercise
of this Warrant, or any transaction giving rise thereto.

         8.     AMENDMENTS. Any provision of this Warrant may be amended and the
observance thereof waived only with the written consent of USV and the
Warrantholder.

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         9.     EXPIRATION OF THE WARRANT. The obligations of USV pursuant to
this Warrant shall terminate on the Expiration Date.

         10.    MISCELLANEOUS.

                10.1 Entire Agreement. This Warrant constitutes the entire
agreement between USV and the Warrantholder with respect to the Warrants.

                10.2 Binding Effect; Benefits. This Warrant shall inure to the
benefit of and shall be binding upon USV and the Warrantholder and their
respective successors and assigns. Nothing in this Warrant, expressed or
implied, is intended to or shall confer on any Person other than USV and the
Warrantholder, or their respective successors or assigns, any rights, remedies,
obligations or liabilities under or by reason of this Warrant.

                10.3 Section and Other Headings. The section and other headings
contained in this Warrant are for reference purposes only and shall not be
deemed to be a part of this Warrant or to affect the meaning or interpretation
of this Warrant.

                10.4 Notices. All notices and other communications required or
permitted hereunder shall be in writing and shall be delivered personally,
telecopied or sent by certified, registered or express mail, postage prepaid.
Any such notice shall be deemed given when so delivered personally, telecopied
or sent by certified, registered or express mail, as follows: (a) if to USV,
addressed to: U.S. Vision, Inc., 1 Harmon Drive, Glendora, New Jersey 08029,
Attention: Chief Financial Officer, Telecopy: (856) 232-1848; or (b) if to the
Warrantholder, addressed to the Warrantholder at the address specified on the
signature page hereof. Any party may by notice given in accordance with this
Section 10.4 designate another address or person for receipt of notices
hereunder.

                10.5 Severability. Any term or provision of this Warrant which
is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the terms and provisions of this Warrant or
affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.

                10.6 Governing Law. This Warrant shall be deemed to be a
contract made under the laws of the State of Delaware and for all purposes shall
be governed by and construed in accordance with the laws of such State
applicable to such agreements made and to be performed entirely within such
State.

                10.7 Certain Remedies. The Warrantholder shall be entitled to an
injunction or injunctions to prevent breaches of the provisions of this Warrant
and to enforce specifically the terms and provisions of this Warrant in any
court of the United States or any court of any state having

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jurisdiction, this being in addition to any other remedy to which the
Warrantholder may be entitled at law or in equity.

                  10.8 No Rights or Liabilities as Stockholder. Nothing
contained in this Warrant shall be deemed to confer upon the Warrantholder any
rights as a stockholder of USV or as imposing any liabilities on the
Warrantholder to purchase any securities whether such liabilities are asserted
by USV or by creditors or stockholders of USV or otherwise.

                  10.9 Further Assurances. Each of USV and the Warrantholder
shall do and perform all such further acts and things and execute and deliver
all such certificates, instruments and documents as USV or the Warrantholder
may, at any time and from time to time, reasonably request in connection with
the performance of any of the provisions of this Agreement.

         IN WITNESS WHEREOF, USV has caused this Warrant to be signed by its
duly authorized officer.

                         U.S. VISION, INC.

                         By:___________________________________________________
                            William A. Schwartz, Jr., Chairman of the Board,
                            President and Chief Executive Officer

Dated: ________________________

Address of Warrantholder:

_______________________________

_______________________________

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                                    EXHIBIT A
                                  EXERCISE FORM

                 (To be executed upon exercise of this Warrant)

         The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase __________ of the Warrant Shares and
herewith tenders payment for such Warrant Shares to the order of U.S. Vision,
Inc., in the amount of $__________ in accordance with the terms of this Warrant.
The undersigned requests that a certificate for such Warrant Shares be
registered in the name of the undersigned and that such certificates be
delivered to the undersigned's address below.

Dated: __________________________

                                         Signature ____________________________

                                         ______________________________________
                                         (Print Name)

                                         ______________________________________
                                         (Street Address)

                                         ______________________________________
                                         (City) (State) (Zip Code)PREFERRED STOCK PURCHASE AGREEMENT

EXHIBIT 4.5

PREFERRED STOCK PURCHASE AGREEMENT

Between

Integrated Surgical Systems, Inc.

and the

Investors Signatory Hereto

 

PREFERRED STOCK PURCHASE AGREEMENT dated as of August 17, 2000 (the
"Agreement"), between Integrated Surgical Systems, Inc., a corporation organized and existing under
the laws of the State of Delaware (the "Company"), and the persons signatory hereto (each an
"Investor").

WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investors, and the Investors
shall purchase, for a total purchase price of $1,200,000, 1,200 shares of the Company's Series H
Convertible Preferred Stock and warrants to purchase an aggregate of 500,000 shares of the Company's
common stock.

WHEREAS, the issuance and sale of the Series H Convertible Preferred
Stock and the warrants to the Investor will be made in reliance upon the provisions of Section 4(2)
of the Securities Act of 1933, as amended, and Regulation D promulgated thereunder by the Securities
and Exchange Commission.

NOW, THEREFORE, the parties hereto agree as follows:

ARTICLE I

Certain Definitions

Section 1.1."Bid Price" shall mean the closing bid price (as
reported by Bloomberg L.P.) of the Common Stock on the Principal Market.

Section 1.2."Capital Shares" shall mean the Common Stock and any
shares of any other class of common stock whether now or hereafter authorized, having the right to
participate in the distribution of earnings and assets of the Company.

Section 1.3."Capital Shares Equivalents" shall mean any securities,
rights or obligations that are convertible into or exchangeable for or give any right to subscribe
for any Capital Shares of the Company or any warrants, options or other rights to subscribe for or
purchase Capital Shares or any such convertible or exchangeable securities.

Section 1.4."Closing" shall mean the closing of the purchase and sale
of the Preferred Stock pursuant to Section 2.1.

Section 1.5."Closing Date" shall mean the date on which all conditions
to closing have been satisfied and the Closing shall have occurred.

Section 1.6."Common Stock" shall mean the Company's common stock, par
value $.01 per share.

Section 1.7."Conversion Shares" shall mean the shares of Common Stock
issuable upon conversion of the Preferred Stock.

Section 1.8."Damages" shall mean any loss, claim, damage, liability,
costs and expenses (including, without limitation, reasonable attorney's fees and disbursements and
costs and expenses of expert witnesses and investigation).

Section 1.9."Effective Date" shall mean the date on which the SEC
first declares effective a Registration Statement registering the resale of the Registrable
Securities as set forth in Section 6.1.

Section 1.10 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated by the SEC thereunder.

Section 1.11"Legend" See Section 9.1.

Section 1.12."Market Price" on any given date shall mean the single
lowest price (as reported by Bloomberg L.P.) of the Common Stock on any Trading Day during the five
Trading Days prior to the date for which Market Price is to be determined.

Section 1.13."Material Adverse Effect" shall mean any effect on the
business, Bid Price, operations, properties, prospects, or financial condition of the Company that
is material and adverse to the Company and its subsidiaries and affiliates, taken as a whole, and/or
any condition, circumstance, or situation that would prohibit or otherwise interfere with the
ability of the Company to enter into and perform any of its obligations under this Agreement,
the Registration Rights Agreement or the Warrants in any material respect.

Section 1.14."NASD" shall mean the National Association of Securities
Dealers, Inc.

Section 1.15."Outstanding" when used with reference to shares of
Common Stock or Capital Shares (collectively the "Shares"), shall mean, at any date as of which the
number of such Shares is to be determined, all issued and outstanding Shares, and shall include all
such Shares issuable in respect of outstanding scrip or any certificates representing fractional
interests in such Shares; provided, however, that "Outstanding" shall not mean any
such Shares then directly or indirectly owned or held by or for the account of the Company.

Section 1.16."Person" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.

Section 1.17."Preferred Stock" shall mean the Company's Series H
Convertible Preferred Stock, par value $.01 per share, issued pursuant to the Certificate of
Designations attached hereto as Exhibit A.

Section 1.18."Principal Market" shall mean the Nasdaq National Market,
The Nasdaq SmallCap Market, the American Stock Exchange or the New York Stock Exchange, whichever is
at the time the principal trading exchange or market for the Common Stock.

Section 1.19."Purchase Price" shall mean one thousand dollars ($1,000)
per share.

Section 1.20."Registrable Securities" shall mean the Conversion Shares
and the Warrant Shares until (i) the Registration Statement has been declared effective by the SEC,
and all Conversion Shares and Warrant Shares have been disposed of pursuant to the Registration
Statement, (ii) all Conversion Shares and Warrant Shares have been sold under circumstances under
which all of the applicable conditions of Rule 144 (or any similar provision then in force) under
the Securities Act ("Rule 144") are met, (iii) all Conversion Shares and Warrant Shares have been
otherwise transferred to holders who may trade such shares without restriction under the Securities
Act, and the Company has delivered a new certificate or other evidence of ownership for such
securities not bearing a restrictive legend or (iv) such time as, in the opinion of counsel to the
Company, all Conversion Shares and Warrant Shares may be sold without any time, volume or manner
limitations pursuant to Rule 144(k) (or any similar provision then in effect) under the Securities
Act.

Section 1.21."Registration Rights Agreement" shall mean the agreement
regarding the filing of the Registration Statement for the resale of the Registrable Securities,
entered into between the Company and each Investor on the Closing Date annexed hereto as Exhibit
C.

Section 1.22."Registration Statement" shall mean a registration
statement on Form S-3 (if use of such form is then available to the Company pursuant to the rules of
the SEC and, if not, on such other form promulgated by the SEC for which the Company then qualifies
and which counsel for the Company shall deem appropriate, and which form shall be available for the
resale of the Registrable Securities to be registered thereunder in accordance with the provisions
of this Agreement, the Registration Rights Agreement, and the Warrants and in accordance with the
intended method of distribution of such securities), for the registration of the resale by the
Investors of the Registrable Securities under the Securities Act.

Section 1.23"Regulation D" shall mean Regulation D promulgated by the
SEC under Section 4(2) of the Securities Act.

Section 1.24"SEC" shall mean the Securities and Exchange
Commission.

Section 1.25"Section 4(2)" shall mean Section 4(2) of the Securities
Act.

Section 1.26"Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations promulgated by the SEC thereunder.

Section 1.27"SEC Documents" shall mean the Company's Form 10-KSB for
the fiscal year ended December 31, 1999, as amended, and any other reports subsequently filed with
the SEC by the Company under the Exchange Act, as the same may be amended, prior to the date of this
Agreement.

Section 1.28."Trading Day" shall mean any day during which the New
York Stock Exchange shall be open for business.

Section 1.29,"Warrants" shall have the meaning set forth in Section
2.2 and substantially in the form of Exhibit B.

Section 1.30."Warrant Shares" shall mean all shares of Common Stock or
other securities issued or issuable pursuant to exercise of the Warrant.

ARTICLE II

Purchase and Sale of Common Stock

Section 2.1.Investment .

(a)The Company agrees to sell and each Investor, separately and not
jointly, agrees to purchase the number of shares of Preferred Stock set forth on the signature page
hereto at the Purchase Price on the Closing Date.

(b)On the Closing Date, the Company shall issue and sell to each
Investor, against payment of the total Purchase Price of the shares of Preferred Stock purchased by
that Investor by wire transfer of immediately available funds to the escrow agent identified in
those certain Escrow Instructions annexed hereto as Exhibit F, the shares of Preferred Stock set
forth on the signature page hereto and the Warrants, in accordance with the provisions of the Escrow
Instructions upon receipt of the Release Notice (annexed to the Escrow Instructions) signed by the
Company and the Investor.

(c)The Closing of the sale and purchase of the Preferred Stock and
Warrants shall be subject to the completion of the following conditions:

 

 

(i) acceptance and execution by the Company and the Investor of this Agreement
and all Exhibits hereto;

(ii) delivery into escrow by Investor of good cleared funds of the Purchase
Price, as more fully set forth in the Escrow Instructions annexed hereto as Exhibit F;

(iii) all representations and warranties of the Investor and of the Company
contained herein shall remain true and correct as of the Closing Date; 

(iv) the Company shall have obtained all permits and qualifications required by
any state for the offer and sale of the Preferred Stock and Warrants, or shall have the availability
of exemptions therefrom; 

(v)the sale and issuance of the Preferred Stock and Warrants, and the proposed
issuance of the Common Stock underlying the Preferred Stock and the Warrants shall be legally
permitted by all laws and regulations to which the Investor and the Company are subject and there
shall be no ruling, judgment or writ of any court prohibiting the transactions contemplated by this
Agreement;

(vi) delivery of the certificates evidencing the shares of Preferred Stock and
Warrants to the escrow agent in accordance with the Escrow Instructions;

(vii) receipt by the Investor of an opinion of Snow Becker Krauss P.C., counsel
to the Company, in the form of Exhibit D hereto;

(viii) delivery to the Investor of the Irrevocable Instructions to Transfer Agent
in the form attached hereto as Exhibit E;

(ix) there not having occurred (i) any general suspension of trading in, or
limitation on prices listed for, the Common Stock on The Nasdaq Small Cap Market, (ii) the
declaration of a banking moratorium or any suspension of payments in respect of banks in the United
States, (iii) the commencement of a war, armed hostilities or other international or national
calamity directly or indirectly involving the United States or any of its territories, protectorates
or possessions, or (iv) in the case of the foregoing existing at the date of this Agreement, a
material acceleration or worsening thereof; and;

(x) there not having occurred any event or development, and there being in
existence no condition, having or which reasonably and forseeably could have a Material Adverse
Effect.

Section 2.2.The Warrants . On the Closing Date, the Company will issue
to the Investor Warrants, exercisable beginning six months from the Closing Date and then
exercisable any time over the three-year period there following, to purchase the Investor's pro rata
share of an aggregate of 500,000 Warrant Shares at the Exercise Price (as defined in the Warrants)
in the form of Exhibit B hereto. The initial Exercise Price of 250,000 of the Warrants will be 115%
of the Market Price, as determined as of the Closing Date, and the initial Exercise Price of the
remaining 250,000 warrants will be 125% of the Market Price, as determined as of the Closing Date.
The Warrant Shares shall be registered for resale pursuant to the Registration Rights Agreement.

Section 2.3.Liquidated Damages . The parties hereto acknowledge and
agree that the sums payable pursuant to the Registration Rights Agreement shall constitute
liquidated damages and not penalties. The parties further acknowledge that (a) the amount of loss or
damages likely to be incurred is incapable or is difficult to precisely estimate, (b) the amounts
specified in such Sections bear a reasonable proportion and are not plainly or grossly
disproportionate to the probable loss likely to be incurred by the Investor in connection with the
failure by the Company to timely cause the registration of the Registrable Securities and (c) the
parties are sophisticated business parties and have been represented by sophisticated and able legal
and financial counsel and negotiated this Agreement at arm's length.

ARTICLE III

Representations and Warranties of Investor

The Investor represents and warrants to the Company that:

Section 3.1.Intent . The Investor is entering into this Agreement for
its own account and the Investor has no present arrangement (whether or not legally binding) at any
time to sell the Common Stock to or through any person or entity; provided, however, that by making
the representations herein, the Investor does not agree to hold the Common Stock for any minimum or
other specific term and reserves the right to dispose of the Common Stock at any time in accordance
with federal and state securities laws applicable to such disposition.

Section 3.2.Sophisticated Investor . The Investor is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited investor (as defined
in Rule 501 of Regulation D), and Investor has such experience in business and financial matters
that it is capable of evaluating the merits and risks of an investment in Common Stock. The Investor
acknowledges that an investment in the Common Stock is speculative and involves a high degree of
risk.

Section 3.3.Authority . This Agreement and each Exhibit hereto which
is required to be executed by Investor has been duly authorized and validly executed and delivered
by the Investor and is a valid and binding agreement of the Investor enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency, or similar laws relating
to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable
principles of general application.

Section 3.4.Not an Affiliate . The Investor is not an officer,
director or "affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.

Section 3.5.Absence of Conflicts . The execution and delivery of this
Agreement and any other document or instrument executed in connection herewith, and the consummation
of the transactions contemplated thereby, and compliance with the requirements thereof, will not
violate any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on
Investor, or, to the Investor's knowledge, (a) violate any provision of any indenture, instrument or
agreement to which Investor is a party or is subject, or by which Investor or any of its assets is
bound; (b) conflict with or constitute a material default thereunder; (c) result in the creation or
imposition of any lien pursuant to the terms of any such indenture, instrument or agreement, or
constitute a breach of any fiduciary duty owed by Investor to any third party; or (d) require the
approval of any third-party (which has not been obtained) pursuant to any material contract,
agreement, instrument, relationship or legal obligation to which Investor is subject or to which any
of its assets, operations or management may be subject.

Section 3.6.Disclosure; Access to Information . Investor has received
all documents, records, books and other publicly available information pertaining to Investor's
investment in the Company that have been requested by Investor. The Company is subject to the
periodic reporting requirements of the Exchange Act, and Investor has reviewed or received copies of
any such reports that have been requested by it. 

Section 3.7.Manner of Sale . At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television advertisement or any
other form of general solicitation or advertising. 

ARTICLE IV

Representations and Warranties of the Company

The Company represents and warrants to the Investor that, except as set forth
on the Schedule of Exceptions attached hereto:

Section 4.1.Organization of the Company . The Company is a corporation
duly incorporated and existing in good standing under the laws of the State of Delaware and has all
requisite corporate authority to own its properties and to carry on its business as now being
conducted as described in the Company's SEC Documents. The Company does not have any subsidiaries
and does not own more that fifty percent (50%) of or control any other business entity, except as
set forth in the SEC Documents. The Company is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which the nature of the business conducted
or property owned by it makes such qualification necessary, other than those in which the failure so
to qualify could not reasonably be expected to have a Material Adverse Effect.

Section 4.2.Authority . (i) The Company has the requisite corporate
power and authority to enter into and perform its obligations under this Agreement, the Registration
Rights Agreement and the Warrants and to issue the Preferred Stock, the Conversion Shares, the
Warrants and the Warrant Shares, (ii) the execution, issuance and delivery of this Agreement, the
Registration Rights Agreement and the Warrant by the Company and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary corporate action and no
further consent or authorization of the Company or its Board of Directors or stockholders is
required, and (iii) this Agreement, the Registration Rights Agreement and the Warrants have been
duly executed and delivered by the Company and constitute valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by other equitable
principles of general application. The Company has duly and validly authorized and reserved for
issuance shares of Common Stock sufficient in number for the conversion of 1,200 shares of Preferred
Stock and for the exercise of the Warrants. The Company understands and acknowledges the potentially
dilutive effect to the Common Stock of the issuance of the Conversion Shares and the Warrant Shares.
The Company further acknowledges that its obligation to issue Conversion Shares upon conversion of
the Preferred Stock and Warrant Shares upon exercise of the Warrants in accordance with this
Agreement and the Certificate of Designations is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other stockholders of the
Company and notwithstanding the commencement of any case under 11 U.S.C.   101 et seq. (the
"Bankruptcy Code"). In the event the Company is a debtor under the Bankruptcy Code, the Company
hereby waives to the fullest extent permitted any rights to relief it may have under 11 U.S.C.   362
in respect of the conversion of the Preferred Stock and the exercise of the Warrants. The Company
agrees, without cost or expense to the Investor, to take or consent to any and all action necessary
to effectuate relief under 11 U.S.C.   362.

Section 4.3.Capitalization . The authorized capital stock of the
Company consists of 50,000,000 shares of Common Stock, par value $0.01, of which 17,230,962 shares
were issued and outstanding as of July 31, 2000, and 986,530 shares of Preferred Stock, par value
$0.01, of which 628 shares of Series F Convertible Preferred Stock were issued and outstanding as of
July 31, 2000, 1,590 shares of Series G Convertible Stock were issued and outstanding as of
July 31, 2000 and 1,200 shares of Preferred Stock have been properly designated as Series H
Convertible Preferred Stock. Except as set forth in the SEC Documents and the Schedule of
Exceptions, there are no outstanding Capital Shares Equivalents. All of the outstanding shares of
Common Stock of the Company have been duly and validly authorized and issued and are fully paid and
non-assessable. 

Section 4.4.Common Stock . The Company has registered its Common Stock
pursuant to Section 12(b) or (g) of the Exchange Act and is in full compliance with all reporting
requirements of the Exchange Act, and the Company has maintained all requirements for the continued
listing or quotation of its Common Stock, and such Common Stock is currently quoted on The Nasdaq
SmallCap Market and the Company has not received any notice regarding the termination or
discontinuance of the eligibility of the Common Stock for inclusion on The Nasdaq SmallCap
Market.

Section 4.5.SEC Documents . The Company has delivered or made
available to the Investor true and complete copies of the SEC Documents. The Company has not
provided to the Investor any information that, according to applicable law, rule or regulation,
should have been disclosed publicly prior to the date hereof by the Company, but which has not been
so disclosed. As of their respective dates, the SEC Documents complied in all material respects with
the requirements of the Exchange Act, and rules and regulations of the SEC promulgated thereunder
and the SEC Documents did not contain any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The financial statements of
the Company included in the SEC Documents complied in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or other applicable rules
and regulations with respect thereto. Such financial statements have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis during the periods
involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto
or (ii) as set forth in Section 4.5 to the Schedule of Exceptions) and fairly present in all
material respects the financial position of the Company as of the dates thereof and the results of
operations and cash flows for the periods then ended. Neither the Company nor any of its
subsidiaries has any indebtedness, obligations or liabilities of any kind (whether accrued,
absolute, contingent or otherwise, and whether due or to become due) that would have been required
to be reflected in, reserved against or otherwise described in the financial statements or in the
notes thereto in accordance with GAAP, which was not fully reflected in, reserved against or
otherwise described in the financial statements or the notes thereto or was not incurred in the
ordinary course of business consistent with the Company's past practices since the late date of the
financial statements.

Section 4.6.Exemption from Registration; Valid Issuances . The sale of
the Preferred Stock, the Conversion Shares, the Warrants and the Warrant Shares will be properly
issued pursuant to Rule 4(2), Regulation D and/or any applicable state securities law. When issued,
the Preferred Stock, the Conversion Shares and the Warrant Shares will be duly and validly issued,
fully paid, and non-assessable. Neither the sales of the Preferred Stock, the Conversion Shares, the
Warrants or the Warrant Shares pursuant to, nor the Company's performance of its obligations under,
this Agreement, the Registration Rights Agreement or the Warrants will (i) result in the creation or
imposition by the Company of any liens, charges, claims or other encumbrances upon the Preferred
Stock, the Conversion Shares, the Warrant Shares or any of the assets of the Company, or (ii)
entitle the holders of Outstanding Capital Shares to preemptive or other rights to subscribe to or
acquire the Capital Shares or other securities of the Company. The Preferred Stock, the Conversion
Shares, and the Warrant Shares shall not subject the Investor to personal liability by reason of the
possession thereof.

Section 4.7.No General Solicitation or Advertising in Regard to this
Transaction . Neither the Company nor any of its affiliates nor any distributor or any person
acting on its or their behalf (i) has conducted or will conduct any general solicitation (as that
term is used in Rule 502(c) of Regulation D) or general advertising with respect to any of the
Preferred Stock, the Conversion Shares, the Warrants or the Warrant Shares, or (ii) made any offers
or sales of any security or solicited any offers to buy any security under any circumstances that
would require registration of the Preferred Stock, the Conversion Shares, the Warrants or the
Warrant Shares under the Securities Act. 

Section 4.8.Corporate Documents . The Company has furnished or made
available to the Investor true and correct copies of the Company's Restated Certificate of
Incorporation, as amended and in effect on the date hereof, and the Company's By-Laws, as amended
and in effect on the date hereof.

Section 4.9.No Conflicts . The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the transactions contemplated
hereby, including without limitation the issuance of the Preferred Stock, the Conversion Shares, the
Warrants and the Warrant Shares, do not and will not (i) result in a violation of the Company's
Restated Certificate of Incorporation or By-Laws, each as amended and in effect as of the date
hereof, or (ii) conflict with, or constitute a material default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture, instrument or any
"lock-up" or similar provision of any underwriting or similar agreement to which the Company is a
party, or (iii) result in a violation of any federal, state or local law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations) applicable to the
Company or by which any property or asset of the Company is bound or affected (except for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as could
not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect) nor
is the Company otherwise in violation of, conflict with or in default under any of the foregoing.
The business of the Company is not being conducted in violation of any law, ordinance or regulation
of any governmental entity, except for possible violations that either singly or in the aggregate
could not reasonably be expected to have a Material Adverse Effect. The Company is not required
under federal, state or local law, rule or regulation to obtain any consent, authorization or order
of, or make any filing or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement or issue and sell the
Preferred Stock or the Warrants in accordance with the terms hereof (other than any SEC, NASD, The
Nasdaq Stock Market Inc., or state securities filings that may be required to be made by the Company
subsequent to any Closing, any registration statement that may be filed pursuant hereto, and any
shareholder approval required by the rules applicable to companies whose common stock trades on The
Nasdaq SmallCap Market); provided that, for purposes of the representation made in this sentence,
the Company is assuming and relying upon the accuracy of the relevant representations and agreements
of the Investor herein.

Section 4.10.No Material Adverse Change . Since January 1, 2000, no
Material Adverse Effect has occurred or exists with respect to the Company, except as disclosed in
the SEC Documents. No "Event of Default" (as defined in any agreement or instrument to which the
Company or any of its subsidiaries is a party) and no event which, with notice, lapse of time or
both, would constitute an Event of Default (as so defined), has occurred and is continuing which
could have a Material Adverse Effect.

Section 4.11.No Undisclosed Liabilities . The Company has no
liabilities or obligations which are material, individually or in the aggregate, and are not
disclosed in the SEC Documents or otherwise publicly announced, other than those incurred in the
ordinary course of the Company's business since January 1, 2000, and which, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect. 

Section 4.12.No Undisclosed Events or Circumstances . Since January 1,
2000 no event or circumstance has occurred or exists with respect to the Company or its businesses,
properties, prospects, operations or financial condition, that, under applicable law, rule or
regulation, requires public disclosure or announcement prior to the date hereof by the Company but
which has not been so publicly announced or disclosed in the SEC Documents. 

Section 4.13.No Integrated Offering . Except as set forth in the SEC
Documents, the Company has not issued, offered or sold any shares of convertible preferred stock,
warrants to purchase shares of Common Stock or any shares of Common Stock (including for this
purpose any securities convertible into a exchangeable or exercisable for the Preferred Stock or
Common Stock or any such other securities) within the six-month period next preceding the date
hereof, and the Company shall not permit any of its directors, officers or Affiliates directly or
indirectly to take, any action (including, without limitation, any offering or sale to any person or
entity of the Preferred Stock, Warrants or shares of Common Stock), so as to make unavailable the
exemption from Securities Act registration being relied upon by the Company for the offer and sale
to the Investors of the Preferred Stock (and the Conversion Shares) or the Warrants (and the Warrant
Shares) as contemplated by this Agreement. No form of general solicitation or advertising has been
used or authorized by the Company or any of its officers, directors or Affiliates in connection with
the offer or sale of the Preferred Stock (and the Conversion Shares) as contemplated by this
Agreement or any other agreement to which the Company is a party.

Section 4.14.Litigation and Other Proceedings . There are no lawsuits
or proceedings pending or to the best knowledge of the Company threatened, against the Company, nor
has the Company received any written or oral notice of any such action, suit, proceeding or
investigation, which could reasonably be expected to have a Material Adverse Effect. Except as set
forth in the SEC Documents, no judgment, order, writ, injunction or decree or award has been issued
by or, so far as is known by the Company, requested of any court, arbitrator or governmental agency
which might result in a Material Adverse Effect.

Section 4.15.No Misleading or Untrue Communication . The Company, any
person representing the Company, and, to the best knowledge of the Company, any other person selling
or offering to sell the Preferred Stock or the Warrants in connection with the transaction
contemplated by this Agreement, have not made, at any time, any oral communication in connection
with the offer or sale of the same which contained any untrue statement of a material fact or
omitted to state any material fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading.

Section 4.16.Material Non-Public Information . The Company has not
disclosed to the Investor any material non-public information that (i) if disclosed, would, or could
reasonably be expected to have, an effect on the price of the Common Stock or (ii) according to
applicable law, rule or regulation, should have been disclosed publicly by the Company prior to the
date hereof but which has not been so disclosed.

Section 4.17.Insurance . The Company maintains property and casualty,
general liability, workers' compensation, environmental hazard, personal injury and other similar
types of insurance with financially sound and reputable insurers that is adequate, consistent with
industry standards and the Company's historical claims experience. The Company has not received
notice from, and has no knowledge of any threat by, any insurer (that has issued any insurance
policy to the Company) that such insurer intends to deny coverage under or cancel, discontinue or
not renew any insurance policy presently in force.

Section 4.18.Environmental Matters .

1.The operations of the Company and each of its subsidiaries are in
material compliance with all applicable Environmental Laws and all permits issued pursuant to
Environmental Laws or otherwise;

2.to its knowledge, the Company and each of its subsidiaries has obtained
or applied for all material permits required under all applicable Environmental Laws necessary to
operate its business;

3.neither the Company nor either of its subsidiaries is the subject of
any outstanding written order of or agreement with any governmental authority or person respecting
(i) Environmental Laws, (ii) Remedial Action or (iii) any Release or threatened Release of Hazardous
Materials;

4.neither the Company nor either of its subsidiaries has received, since
December 31, 1997, any written communication alleging that it may be in violation of any
Environmental Law or any permit issued pursuant to any Environmental Law, or may have any liability
under any Environmental Law;

5.neither the Company nor either of its subsidiaries has any current
contingent liability in connection with any Release of any Hazardous Materials into the indoor or
outdoor environment (whether on-site or off-site);

6.to the Company's knowledge, there are no investigations of the
business, operations, or currently or previously owned, operated or leased property of the Company
or either of its subsidiaries pending or threatened which could lead to the imposition of any
liability pursuant to any Environmental Law;

7.there is not located at any of the properties of the Company any (A)
underground storage tanks, (B) asbestos-containing material or (C) equipment containing
polychlorinated biphenyls; and

8.the Company has provided to Investor all environmentally related
audits, studies, reports, analyses, and results of investigations that have been performed with
respect to the currently or previously owned, leased or operated properties of the Company.

For purposes of this Section 4.18:

"Environmental Law" means any foreign, federal, state or local
statute, regulation, ordinance, or rule of common law as now or hereafter in effect in any way
relating to the protection of human health and safety or the environment including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C.
  9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. App.
  1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C.
  6901 et seq.), the Clean Water Act (33 U.S.C.   1251 et
seq.), the Clean Air Act (42 U.S.C.   7401 et seq.), the Toxic Substances
Control Act (15 U.S.C.   2601 et seq.), the Federal Insecticide, Fungicide, and
Rodenticide Act (7 U.S.C.   136 et seq.), and the Occupational Safety and Health
Act (29 U.S.C.   651 et seq.), and the regulations promulgated pursuant
thereto.

"Hazardous Material" means any substance, material or waste which is
regulated by the United States, Canada or any of its provinces, or any state or local governmental
authority including, without limitation, petroleum and its by-products, asbestos, and any material
or substance which is defined as a "hazardous waste," "hazardous substance," "hazardous material,"
"restricted hazardous waste," "industrial waste," "solid waste," "contaminant," "pollutant," "toxic
waste" or toxic substance" under any provision of any Environmental Law;

"Release" means any release, spill, filtration, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, or leaching into the indoor or outdoor
environment, or into or out of any property;

"Remedial Action" means all actions to (x) clean up, remove, treat or
in any other way address any Hazardous Material; (y) prevent the Release of any Hazardous Material
so it does not endanger or threaten to endanger public health or welfare or the indoor or outdoor
environment; or (z) perform pre-remedial studies and investigations or post-remedial monitoring and
care.

Section 4.19.Labor Matters . Neither the Company nor any of its
subsidiaries is a party to any labor or collective bargaining agreement and there are no labor or
collective bargaining agreements which pertain to employees of the Company. No employees of the
Company are represented by any labor organization and none of such employees has made a pending
demand for recognition, and there are no representation proceedings or petitions seeking a
representation proceeding presently pending or, to the Company's knowledge, threatened to be brought
or filed, with the National Labor Relations Board or other labor relations tribunal. There is no
organizing activity involving the Company pending or to the Company's knowledge, threatened by any
labor organization or group of employees of the Company. There are no (i) strikes, work stoppages,
slowdowns, lockouts or arbitrations or (ii) material grievances or other labor disputes pending or,
to the knowledge of the Company, threatened against or involving the Company. There are no unfair
labor practice charges, grievances or complaints pending or, to the knowledge of the Company,
threatened by or on behalf of any employee or group of employees of the Company.

Section 4.20.ERISA Matters . The Company and its ERISA Affiliates are
in compliance in all material respects with all provisions of ERISA applicable to it. No Reportable
Event has occurred, been waived or exists as to which the Company or any ERISA Affiliate was
required to file a report with the Pension Benefits Guaranty Corporation, and the present value of
all liabilities under all Plans (based on those assumptions used to fund such Plans) did not, as of
the most recent annual valuation date applicable thereto, exceed the value of the assets of all such
Plans in the aggregate. None of the Company or ERISA Affiliates has incurred any Withdrawal
Liability that could result in a Material Adverse Effect. None of the Company or ERISA Affiliates
has received any notification that any Multiemployer Plan is in reorganization or has been
terminated within the meaning of Title IV of ERISA, and no Multiemployer Plan is reasonably expected
to be in reorganization or termination where such reorganization or termination has resulted or
could reasonably be expected to result in increases to the contributions required to be made to such
Plan or otherwise.

For purposes of this Section 4.20:

"ERISA" means the Employee Retirement Income Security Act of 1974, or
any successor statute, together with the regulations thereunder, as the same may be amended from
time to time.

"ERISA Affiliate" means any trade or business (whether or not
incorporated) that was, is or hereafter may become, a member of a group of which the Company is a
member and which is treated as a single employer under   414 of the Internal Revenue Code of
1986, as amended (the "Internal Revenue Code").

"Multiemployer Plan" means a multiemployer plan as defined in Section
4001(a)(3) of ERISA to which the Company or any ERISA Affiliate (other than one considered an ERISA
Affiliate only pursuant to subsection (m) or (o) of   414 of the Internal Revenue Code) is
making or accruing an obligation to make contributions, or has within any of the preceding five plan
years made or accrued an obligation to make contributions.

"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.

"Plan" means any pension plan (other than a Multiemployer Plan)
subject to the provision of Title IV of ERISA or   412 of the Internal Revenue Code that is
maintained for employees of the Company or any ERISA Affiliate.

"Reportable Event" means any reportable event as defined in Section
4043(b) of ERISA or the regulations issued thereunder with respect to a Plan (other than a Plan
maintained by an ERISA Affiliate that is considered an ERISA Affiliate only pursuant to subsection
(m) or (o) of   414 of the Internal Revenue Code.

"Withdrawal Liability" means liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined
in Part I of Subtitle E of Title IV of ERISA.

Section 4.21.Tax Matters .

1.The Company has filed all Tax Returns which it is required to file
under applicable Laws, or has requested extensions for filing such Tax Returns; all such Tax Returns
are true and accurate and have been prepared in compliance with all applicable Laws; the Company has
paid all Taxes due and owing by it (whether or not such Taxes are required to be shown on a Tax
Return) and have withheld and paid over to the appropriate taxing authorities all Taxes which it is
required to withhold from amounts paid or owing to any employee, stockholder, creditor or other
third parties; and since December 31, 1999, the charges, accruals and reserves for Taxes with
respect to the Company (including any provisions for deferred income taxes) reflected on the books
of the Company are adequate to cover any Tax liabilities of the Company if its current tax year were
treated as ending on the date hereof.

2.No claim has been made by a taxing authority in a jurisdiction where
the Company does not file tax returns that such corporation is or may be subject to taxation by that
jurisdiction. There are no foreign, federal, state or local tax audits or administrative or judicial
proceedings pending or being conducted with respect to the Company; no information related to Tax
matters has been requested by any foreign, federal, state or local taxing authority; and, except as
disclosed above, no written notice indicating an intent to open an audit or other review has been
received by the Company from any foreign, federal, state or local taxing authority. There are no
material unresolved questions or claims concerning the Company's Tax liability. The Company (A) has
not executed or entered into a closing agreement pursuant to   7121 of the Internal Revenue
Code or any predecessor provision thereof or any similar provision of state, local or foreign law;
or (B) has not agreed to or is required to make any adjustments pursuant to   481 (a) of the
Internal Revenue Code or any similar provision of state, local or foreign law by reason of a change
in accounting method initiated by the Company or any of its subsidiaries or has any knowledge that
the IRS has proposed any such adjustment or change in accounting method, or has any application
pending with any taxing authority requesting permission for any changes in accounting methods that
relate to the business or operations of the Company. The Company has not been a United States real
property holding corporation within the meaning of   897(c)(2) of the Internal Revenue Code
during the applicable period specified in   897(c)(1)(A)(ii) of the Internal Revenue Code.

3.The Company has not made an election under   341(f) of the
Internal Revenue Code. The Company is not liable for the Taxes of another person that is not a
subsidiary of the Company under (A) Treas. Reg.   1.1502-6 (or comparable provisions of state, local
or foreign law), (B) as a transferee or successor, (C) by contract or indemnity or (D) otherwise.
The Company is not a party to any tax sharing agreement. The Company has not made any payments, is
obligated to make payments or is a party to an agreement that could obligate it to make any payments
that would not be deductible under   280G of the Internal Revenue Code.

For purposes of this Section 4.21:

"IRS" means the United States Internal Revenue Service.

"Tax" or "Taxes" means federal, state, county, local, foreign,
or other income, gross receipts, ad valorem, franchise, profits, sales or use, transfer,
registration, excise, utility, environmental, communications, real or personal property, capital
stock, license, payroll, wage or other withholding, employment, social security, severance, stamp,
occupation, alternative or add-on minimum, estimated and other taxes of any kind whatsoever
(including, without limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.

"Tax Return" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and including any amendment thereof.

Section 4.22.Property . Neither the Company nor either of its
subsidiaries owns any real property. Each of the Company and its subsidiaries has good and
marketable title to all personal property owned by it, free and clear of all liens, encumbrances and
defects except such 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 any real
property and buildings held under lease by the Company are held by it under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company.

Section 4.23.Intellectual Property . Each of the Company and its
subsidiaries owns or possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures) and other similar rights and
proprietary knowledge (collectively, "Intangibles") necessary for the conduct of its business as now
being conducted. To the best of the Company's knowledge, neither the Company nor any of its
subsidiaries is infringing upon or in conflict with any right of any other person with respect to
any Intangibles. No claims have been asserted by any person to the ownership or use of any
Intangibles and the Company has no knowledge of any basis for such claim.

Section 4.24.Internal Controls and Procedures . The Company maintains
accurate books and records and internal accounting controls which provide reasonable assurance that
(i) all transactions to which the Company is a party or by which its properties are bound are
executed with management's authorization; (ii) the reported accountability of the Company's assets
is compared with existing assets at regular intervals; (iii) access to the Company's assets is
permitted only in accordance with management's authorization; and (iv) all transactions to which the
Company is a party or by which its properties are bound are recorded as necessary to permit
preparation of the financial statements of the Company in accordance with U.S. generally accepted
accounting principles.

Section 4.25.Payments and Contributions . Neither the Company nor any
of its directors, officers or, to its knowledge, other employees has (i) used any Company funds for
any unlawful contribution, endorsement, gift, entertainment or other unlawful expense relating to
political activity; (ii) made any direct or indirect unlawful payment of Company funds to any
foreign or domestic government official or employee; (iii) violated or is in violation of any
provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any bribe, rebate,
payoff, influence payment, kickback or other similar payment to any person with respect to Company
matters.

Section 4.26Related Party Transactions . Except as disclosed in the
SEC Documents, neither the Company nor any of its officers, directors or "Affiliates" (as such term
is defined in Rule 12b-2 under the Exchange Act) has borrowed any moneys from or has outstanding any
indebtedness or other similar obligations to the Company. Except as disclosed in the SEC Documents,
neither the Company nor any of its officers, directors or Affiliates (i) owns any direct or indirect
interest constituting more than a one percent equity (or similar profit participation) interest in,
or controls or is a director, officer, partner, member or employee of, or consultant to or lender to
or borrower from, or has the right to participate in the profits of, any person or entity which is
(x) a competitor, supplier, customer, landlord, tenant, creditor or debtor of the Company or any of
its subsidiaries, (y) engaged in a business related to the business of the Company or any of its
subsidiaries, or (z) a participant in any transaction to which the Company is a party (other than in
the ordinary course of the Company's business) or (ii) is a party to any contract, agreement,
commitment or other arrangement with the Company. 

Section 4.27.No Misrepresentation . No representation or warranty of
the Company contained in this Agreement, any schedule, annex or exhibit hereto or any agreement,
instrument or certificate furnished by the Company to the Investors pursuant to this Agreement,
contains any untrue statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein, not misleading.

ARTICLE V

Covenants of the Investor

Section 5.1.Compliance with Law . The Investor's trading
activities with respect to shares of the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and rules and regulations of the
Principal Market on which the Company's Common Stock is listed. 

Section 5.2.Short Sales . As long as the Investor beneficially owns
any securities of the Company that are convertible into or exercisable for shares of Common Stock,
the Investor and its affiliates shall not engage in short sales of the Company's Common Stock;
provided, however, that the Investor may enter into any short sale or other hedging or similar
arrangement it deems appropriate with respect to Conversion Shares commencing on the day it delivers
a Conversion Notice with respect to such Conversion Shares, so long as such arrangements do not
involve more than the number of such Conversion Shares (determined as of the date of such Conversion
Notice).

 

 

ARTICLE VI

Covenants of the Company

Section 6.1.Registration Rights . The Company shall cause the
Registration Rights Agreement to remain in full force and effect and the Company shall comply in all
material respects with the terms thereof.

Section 6.2.Reservation of Common Stock . As of the date hereof, the
Company has reserved and the Company shall continue to reserve and keep available at all times, free
of preemptive rights, shares of Common Stock for the purpose of enabling the Company to satisfy any
obligation to issue the Conversion Shares and the Warrant Shares; such amount of shares of Common
Stock to be reserved shall be calculated based upon the Market Price therefor under the terms of
this Agreement and the Warrant, respectively, assuming for purposes of this Section 6.2 a Market
Price of $0.50 and shall be increased by the Board of Directors if the Market Price declines below
$0.50. The number of shares so reserved from time to time, as theretofore increased or reduced as
hereinafter provided, may be reduced by the number of shares actually delivered hereunder and the
number of shares so reserved shall be increased or decreased to reflect potential increases or
decreases in the Common Stock that the Company may thereafter be so obligated to issue by reason of
adjustments to the Warrant. 

Section 6.3.Listing of Common Stock . The Company hereby agrees to
maintain the listing of the Common Stock on a Principal Market, and as soon as practicable (but in
any event prior to the date upon which the Preferred Stock may be converted into Common Stock) to
list the Conversion Shares and the Warrant Shares. The Company further agrees, if the Company
applies to have the Common Stock traded on any other Principal Market, it will include in such
application the Conversion Shares and the Warrant Shares, and will take such other action as is
necessary or desirable in the opinion of the investor to cause the Common Stock to be listed on such
other Principal Market as promptly as possible. The Company will take all action to continue the
listing and trading of its Common Stock on the Principal Market (including, without limitation,
maintaining sufficient net tangible assets) and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the Principal Market and shall
provide Investor with copies of any correspondence to or from such Principal Market which questions
or threatens delisting of the Common Stock, within one business day of the Company's receipt
thereof.

Section 6.4.Exchange Act Registration . The Company will cause its
Common Stock to continue to be registered under Section 12(b) or (g) of the Exchange Act, will use
its best efforts to comply in all respects with its reporting and filing obligations under the
Exchange Act, and will not take any action or file any document (whether or not permitted by the
Exchange Act or the rules thereunder) to terminate or suspend such registration or to terminate or
suspend its reporting and filing obligations under said Act.

Section 6.5.Legends . Upon conversion, the certificates evidencing the
Common Stock to be sold by the Investor pursuant to Section 9.1 shall be free of legends, except as
set forth in Article IX.

Section 6.6.Corporate Existence . The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.

Section 6.7.Notice of Certain Events Affecting Registration . The
Company will immediately notify the Investor upon the occurrence of any of the following events in
respect of a registration statement or related prospectus in respect of an offering of Registrable
Securities; (i) receipt of any request for additional information by the SEC or any other federal or
state governmental authority during the period of effectiveness of the Registration Statement to be
supplied by amendments or supplements to the registration statement or related prospectus; (ii) the
issuance by the SEC or any other federal or state governmental authority of any stop order
suspending the effectiveness of the Registration Statement or the initiation of any proceedings for
that purpose; (iii) receipt 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; (iv) the happening of any event
that makes any statement made in the Registration Statement or related prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration Statement, related prospectus or
documents so that, in the case of the Registration Statement, 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 not misleading, and that in the case of the related
prospectus, 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 the
light of the circumstances under which they were made, not misleading; and (v) the Company's
reasonable determination that a post-effective amendment to the Registration Statement would be
appropriate; and the Company will promptly make available to the Investor any such supplement or
amendment to the related prospectus.

(a)Consolidation; Merger. The Company shall not, at any time after
the date hereof, effect any merger or consolidation of the Company with or into, or a transfer of
all or substantially all of the assets of the Company to, another entity (a "Consolidation Event")
unless the resulting successor or acquiring entity (if not the Company) assumes by written
instrument or by operation of law the obligation to deliver to the Investor such shares of stock
and/or securities as the Investor is entitled to receive pursuant to this Agreement.

Section 6.8.Issuance of Preferred Shares and Warrant Shares . The sale
of the Preferred Stock and the issuance of the Warrant Shares pursuant to exercise of the Warrants
and the Conversion Shares upon conversion of the Preferred Stock shall be made in accordance with
the provisions and requirements of Section 4(2) of Regulation D and any applicable state securities
law. The Company shall make all necessary SEC and "blue sky" filings required to be made by the
Company in connection with the sale of the Securities to the Investor as required by all applicable
Laws, and shall provide a copy thereof to the Investor promptly after such filing.

Section 6.9Limitation on Future Financing. The Company agrees that it
will not, without the consent of 85% of the shares of Preferred Stock then outstanding, issue any
shares of Common Stock (or securities convertible into, exchangeable or exercisable for, shares of
Common Stock) at a discount to Market Price until six months after the effective date of the
Registration Statement, except for shares of Common Stock issued upon conversion or exercise of
securities outstanding on the date hereof or shares of Common Stock and warrants issued or issuable
in connection with an equity line of credit; provided, however, anything to the contrary appearing
herein notwithstanding, neither this Section nor any other provision hereof shall be construed to
restrict or prohibit the Company's right to restructure, amend or modify any facility existing on
the date hereof that does not materially impair the rights of the holders of the Preferred
Stock.

ARTICLE VII

Survival; Indemnification; Release 

Section 7.1.Survival . The representations, warranties and
covenants made by each of the Company and Investor in this Agreement, the annexes, schedules and
exhibits hereto and in each instrument, agreement and certificate entered into and delivered by them
pursuant to this Agreement, shall survive the Closing and the consummation of the transactions
contemplated hereby. In the event of a breach or violation of any of such representations,
warranties or covenants, the party to whom such representations, warranties or covenants have been
made shall have all rights and remedies for such breach or violation available to it under the
provisions of this Agreement or otherwise, whether at law or in equity, irrespective of any
investigation made by or on behalf of such party on or prior to the Closing Date.

Section 7.2.Indemnity . The Company hereby agrees to indemnify and
hold harmless the Investor, its Affiliates and their respective officers, directors, partners and
members (collectively, the "Investor Indemnitees"), from and against any and all losses, claims,
damages, judgments, penalties, liabilities and deficiencies (collectively, "Losses"), and agrees to
reimburse the Investor Indemnitees for all out-of-pocket expenses (including the fees and expenses
of legal counsel and the cost of any investigation and preparation), in each case promptly as
incurred by the Investor Indemnitees and to the extent arising out of or in connection
with:
1.any misrepresentation, omission of fact or breach of any of the
Company's representations or warranties contained in this Agreement, the annexes, schedules or
exhibits hereto or any instrument, agreement or certificate entered into or delivered by the Company
pursuant to this Agreement;

2.any failure by the Company to perform in any material respect any of
its covenants, agreements, undertakings or obligations set forth in this Agreement, the annexes,
schedules or exhibits hereto or any instrument, agreement or certificate entered into or delivered
by the Company pursuant to this Agreement; or

3.any litigation directly against the Investor by non-affiliates of the
Company relating to this Agreement and the transactions contemplated hereby.

Investor hereby agrees to indemnify and hold harmless the Company, its
Affiliates and their respective officers, directors, partners and members (collectively, the
"Company Indemnitees"), from and against any and all Losses, and agrees to reimburse the Company
Indemnitees for all out-of-pocket expenses (including the fees and expenses of legal counsel and the
cost of any investigation and preparation), in each case promptly as incurred by the Company
Indemnitees and to the extent arising out of or in connection with:

1.any misrepresentation, omission of fact, or breach of any of
Investor's representations or warranties contained in this Agreement, the annexes, schedules or
exhibits hereto or any instrument, agreement or certificate entered into or delivered by Investor
pursuant to this Agreement; or

2.any failure by Investor to perform in any material respect any of
its covenants, agreements, undertakings or obligations set forth in this Agreement or any
instrument, certificate or agreement entered into or delivered by Investor pursuant to this
Agreement.

Section 7.3.Notice . Promptly after receipt by either party hereto
seeking indemnification pursuant to Section 7.2 (an "Indemnified Party") of written notice of any
investigation, claim, proceeding or other action in respect of which indemnification is being sought
(each, a "Claim"), the Indemnified Party promptly shall notify the party against whom
indemnification pursuant to Section 7.2 is being sought (the "Indemnifying Party") of the
commencement thereof; but the omission to so notify the Indemnifying Party shall not relieve it from
any liability that it otherwise may have to the Indemnified Party, except to the extent that the
Indemnifying Party is materially prejudiced and forfeits substantive rights and defenses by reason
of such failure. In connection with any Claim as to which both the Indemnifying Party and the
Indemnified Party are parties, the Indemnifying Party shall be entitled to assume the defense
thereof. Notwithstanding the assumption of the defense of any Claim by the Indemnifying Party, the
Indemnified Party shall have the right to employ separate legal counsel and to participate in the
defense of such Claim, and the Indemnifying Party shall bear the reasonable fees, out-of-pocket
costs and expenses of such separate legal counsel to the Indemnified Party if (and only if): (x) the
Indemnifying Party shall have agreed to pay such fees, out-of-pocket costs and expenses, (y) the
Indemnified Party and the Indemnifying Party reasonably shall have concluded that representation of
the Indemnified Party and the Indemnifying Party by the same legal counsel would not be appropriate
due to actual or, as reasonably determined by legal counsel to the Indemnified Party, potentially
differing interests between such parties in the conduct of the defense of such Claim, or if there
may be legal defenses available to the Indemnified Party that are in addition to or disparate from
those available to the Indemnifying Party, or (z) the Indemnifying Party shall have failed to employ
legal counsel reasonably satisfactory to the Indemnified Party within a reasonable period of time
after notice of the commencement of such Claim. If the Indemnified Party employs separate legal
counsel in circumstances other than as described in clauses (x), (y) or (z) above, the fees, costs
and expenses of such legal counsel shall be borne exclusively by the Indemnified Party. Except as
provided above, the Indemnifying Party shall not, in connection with any Claim in the same
jurisdiction, be liable for the fees and expenses of more than one firm of legal counsel for the
Indemnified Party (together with appropriate local counsel). The Indemnifying Party shall not,
without the prior written consent of the Indemnified Party (which consent shall not unreasonably be
withheld), settle or compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities with respect to such
Claim or judgment.

Section 7.4.Direct Claims . In the event one party hereunder should
have a claim for indemnification that does not involve a claim or demand being asserted by a third
party, the Indemnified Party promptly shall deliver notice of such claim to the Indemnifying Party.
If the Indemnified Party disputes the claim, such dispute shall be resolved by mutual agreement of
the Indemnified Party and the Indemnifying Party.

 

ARTICLE VIII

Diligence Review; Non-Disclosure of Non-Public Information

 

Section 8.1.Due Diligence Review 

 

Section 8.1.Due Diligence Review . The Company shall make available for
inspection and review by the Investor, advisors to and representatives of the Investor (who may or
may not be affiliated with the Investor and who are reasonably acceptable to the Company), any
underwriter participating in any disposition of the Registrable Securities on behalf of the Investor
pursuant to the Registration Statement, any such registration statement or amendment or supplement
thereto or any blue sky, NASD or other filing, all SEC Documents and other filings with the SEC, and
all other publicly available corporate documents and properties of the Company as may be reasonably
necessary for the purpose of such review, and cause the Company's officers, directors and employees
to supply all such publicly available information reasonably requested by the Investor or any such
representative, advisor or underwriter in connection with such Registration Statement (including,
without limitation, in response to all questions and other inquiries reasonably made or submitted by
any of them), prior to and from time to time after the filing and effectiveness of the Registration
Statement for the sole purpose of enabling the Investor and such representatives, advisors and
underwriters and their respective accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of the Registration Statement. 

 

Section 8.2.Non-Disclosure of Non-Public Information

(a)The Company shall not disclose non-public information to the
Investor, advisors to or representatives of the Investor unless prior to disclosure of such
information the Company identifies such information as being non-public information and provides the
Investor, such advisors and representatives with the opportunity to accept or refuse to accept such
non-public information for review. Other than disclosure of any comment letters received from the
SEC staff with respect to the Registration Statement, the Company may, as a condition to disclosing
any non-public information hereunder, require the Investor's advisors and representatives to enter
into a confidentiality agreement in form reasonably satisfactory to the Company and the
Investor.

(b)Nothing herein shall require the Company to disclose non-public information to the
Investor or its advisors or representatives, and the Company represents that it does not disseminate
non-public information to any investors who purchase stock in the Company in a public offering, to
money managers or to securities analysts, provided, however, that notwithstanding anything herein to
the contrary, the Company will, as hereinabove provided, immediately notify the advisors and
representatives of the Investor and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or circumstance) of which it
becomes aware, constituting non-public information (whether or not requested of the Company
specifically or generally during the course of due diligence by such persons or entities), which, if
not disclosed in the prospectus included in the Registration Statement would cause such prospectus
to include a material misstatement or to omit a material fact required to be stated therein in order
to make the statements, therein in light of the circumstances in which they were made, not
misleading. Nothing contained in this Section 8.2 shall be construed to mean that such persons or
entities other than the Investor (without the written consent of the Investor prior to disclosure of
such information) may not obtain non-public information in the course of conducting due diligence in
accordance with the terms of this Agreement and nothing herein shall prevent any such persons or
entities from notifying the Company of their opinion that based on such due diligence by such
persons or entities, that the Registration Statement contains an untrue statement of a material fact
or omits a material fact required to be stated in the Registration Statement or necessary to make
the statements contained therein, in light of the circumstances in which they were made, not
misleading.

ARTICLE IX

Legends

Section 9.1.Legends . Unless otherwise provided below, each
certificate representing Registrable Securities will bear the following legend or equivalent (the
"Legend"):

THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE
BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND SUCH OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY
BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED
OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A
TRANSACTION THAT IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.

Upon the execution and delivery hereof, the Company is issuing to the transfer agent for its
Common Stock (and to any substitute or replacement transfer agent for its Common Stock upon the
Company's appointment of any such substitute or replacement transfer agent) instructions in
substantially the form of Exhibit E hereto. Such instructions shall be irrevocable by the Company
from and after the date hereof or from and after the issuance thereof to any such substitute or
replacement transfer agent, as the case may be, except as otherwise expressly provided in the
Registration Rights Agreement. It is the intent and purpose of such instructions, as provided
therein, to require the transfer agent for the Common Stock from time to time upon transfer of
Registrable Securities by the Investor to issue certificates evidencing such Registrable Securities
free of the Legend during the following periods and under the following circumstances and without
consultation by the transfer agent with the Company or its counsel and without the need for any
further advice or instruction or documentation to the transfer agent by or from the Company or its
counsel or the Investor: 

(a)at any time after the Effective Date, upon surrender of one or more certificates
evidencing Common Stock that bear the Legend, to the extent accompanied by a notice requesting the
issuance of new certificates free of the Legend to replace those surrendered; provided that (i) the
Registration Statement shall then be effective; (ii) the Investor confirms to the transfer agent
that it has sold, pledged or otherwise transferred or agreed to sell, pledge or otherwise transfer
such Common Stock in a bona fide transaction to a third party that is not an affiliate of the
Company; and (iii) the Investor confirms to the transfer agent that the Investor has complied with
the prospectus delivery requirement.

(b)at any time upon any surrender of one or more certificates evidencing Registrable
Securities that bear the Legend, to the extent accompanied by a notice requesting the issuance of
new certificates free of the Legend to replace those surrendered and containing representations that
(i) the Investor is permitted to dispose of such Registrable Securities without limitation as to
amount or manner of sale pursuant to Rule 144(k) under the Securities Act or (ii) the Investor has
sold, pledged or otherwise transferred or agreed to sell, pledge or otherwise transfer such
Registrable Securities in a manner other than pursuant to an effective registration statement, to a
transferee who will upon such transfer be entitled to freely tradeable securities.

Any of the notices referred to above in this Section 9.1 may be sent by facsimile to the
Company's transfer agent.

Section 9.2.No Other Legend or Stock Transfer Restrictions . No legend other than the
one specified in Section 9.1 has been or shall be placed on the share certificates representing the
Common Stock and no instructions or "stop transfer orders," so called, "stock transfer
restrictions," or other restrictions have been or shall be given to the Company's transfer agent
with respect thereto other than as expressly set forth in this Article IX.

Section 9.3.Investor's Compliance . Nothing in this Article shall affect in any way
the Investor's obligations under any agreement to comply with all applicable securities laws upon
resale of the Common Stock. 

ARTICLE X

Choice of Law

Section 10.1.Governing Law . This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to the conflicts of law principles
of such state. Each party hereto hereby submits to the exclusive jurisdiction of the United States
District Court for the Southern District of New York and of any New York State Court sitting in New
York City for purposes of all legal proceedings arising out of or relating to this Agreement or the
transactions contemplated hereby. Each party hereto irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying of the venue of any
such proceeding brought in such a court has been brought in an inconvenient forum. Each party hereto
hereby irrevocably waives any and all right to trial by jury in any legal proceeding arising out of
or relating to this Agreement or the transactions contemplated hereby.

ARTICLE XI

Assignment; Entire Agreement

Section 11.1.Assignment . Neither this Agreement nor any rights of
the Investor or the Company hereunder may be assigned by either party to any other person.
Notwithstanding the foregoing, (a) the provisions of this Agreement shall inure to the benefit of,
and be enforceable by, any transferee of any of the Preferred Stock purchased or acquired by the
Investor hereunder with respect to the Preferred Stock held by such person, and (b) upon the prior
written consent of the Company, which consent shall not unreasonably be withheld or delayed, the
Investor's interest in this Agreement may be assigned at any time, in whole or in part, to any other
person or entity (including any affiliate of the Investor) who agrees to make the representations
and warranties contained in Article III and who agrees to be bound by the covenants of Article V.

 

ARTICLE XII

Notices

Section 12.1.Notices . All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in writing and, unless
otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered
or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier
service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile,
addressed as set forth below or to such other address as such party shall have specified most
recently by written notice. Any notice or other communication required or permitted to be given
hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or number designated
below (if delivered on a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered other than on a business
day during normal business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by reputable courier service, fully prepaid, addressed to
such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:

If to the Company:Integrated Surgical Systems, Inc.

1850 Research Park Drive

Davis, CA 95616-4884

Attention: Ramesh C. Trivedi

Telephone: (530) 792-2600

Facsimile: (530) 792-2690

with a copy to:

(shall not constitute notice)Snow Becker Krauss P.C.

605 Third Avenue

New York, NY 10158

Attention: Jack Becker

Telephone: (212) 687-3860

Facsimile: (212) 949-7052

If to the Investor:As set forth on the signature page hereto.

 

Either party hereto may from time to time change its address or facsimile number
for notices under this Section 12.1 by giving at least ten (10) days' prior written notice of
such changed address or facsimile number to the other party hereto.

ARTICLE XIII

Termination

Section 13.1.Termination by Mutual Written Consent . This
Agreement may be terminated and the transactions contemplated hereby may be abandoned, for any
reason and at any time prior to the Closing Date, by the mutual written consent of the Company and
the Investor.

Section 13.2.Termination by the Company or the Investors . This
Agreement may be terminated and the transactions contemplated hereby may be abandoned by action of
the Company or the Investors if (i) the Closing shall not have occurred at or prior to 5:00 p.m.,
New York City time, on August 31, 2000; provided, however, that the right to terminate
this Agreement pursuant to this Section 13.2 shall not be available to any party whose failure to
fulfill any of its obligations under this Agreement has been the cause of or resulted in the failure
of the Closing to occur at or before such time and date or (ii) any court or public or governmental
authority shall have issued an order, ruling, judgment or writ, or there shall be in effect any law,
restraining, enjoining or otherwise prohibiting the consummation of any of the transactions
contemplated by this Agreement.

Section 13.3.Termination by the Investors . This Agreement may be
terminated and the transactions contemplated hereby may be abandoned by the Investors at any time
prior to the Closing Date, if (i) the Company shall have failed to comply in any material respect
with any of its covenants or agreements contained in this Agreement, (ii) there shall have been a
breach by the Company with respect to any representation or warranty made by it in this Agreement or
(iii) there shall be in existence any condition, having or reasonably and forseeably likely to have
a Material Adverse Effect.

Section 13.4.Termination by the Company . This Agreement may be
terminated and the transactions contemplated hereby may be abandoned by the Company at any time
prior to the Closing Date, if (i) the Investors shall have failed to comply in any material respect
with any of their respective covenants or agreements contained in this Agreement or (ii) there shall
have been a breach by the Investors with respect to any representation or warranty made by them in
this Agreement.

Section 13.5.Fees and Expenses of Termination . If this Agreement is
terminated for any reason, the Company shall reimburse the Investors for all of their out-of-pocket
costs and expenses incurred in connection with the transactions contemplated by this Agreement
(including, but not limited to, the fees and disbursements of one law firm that has acted as legal
counsel to the Investors as set forth in Section 14.7). 

ARTICLE XIV

Miscellaneous

Section 14.1.Counterparts/ Facsimile/ Amendments . This Agreement
may be executed in multiple counterparts, each of which may be executed by less than all of the
parties and shall be deemed to be an original instrument which shall be enforceable against the
parties actually executing such counterparts and all of which together shall constitute one and the
same instrument. Except as otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and enforceable as the
original. This Agreement may be amended only by a writing executed by all parties.

Section 14.2.Entire Agreement . This Agreement, the Exhibits hereto,
which include, but are not limited to the Warrants, and the Registration Rights Agreement, set forth
the entire agreement and understanding of the parties relating to the subject matter hereof and
supersedes all prior and contemporaneous agreements, negotiations and understandings between the
parties, both oral and written relating to the subject matter hereof. The terms and conditions of
all Exhibits to this Agreement are incorporated herein by this reference and shall constitute part
of this Agreement as is fully set forth herein.

Section 14.3.Survival; Severability . The representations, warranties,
covenants and agreements of the parties hereto shall survive each Closing hereunder. In the event
that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to
be illegal, unenforceable or void, this Agreement shall continue in full force and effect without
said provision; provided that such severability shall be ineffective if it materially changes the
economic benefit of this Agreement to any party.

Section 14.4.Title and Subtitles . The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in construing or
interpreting this Agreement. 

Section 14.5.Reporting Entity for the Common Stock . The reporting
entity relied upon for the determination of the trading price or trading volume of the Common Stock
on any given Trading Day for the purposes of this Agreement shall be Bloomberg, L.P. or any
successor thereto. The written mutual consent of the Investor and the Company shall be required to
employ any other reporting entity.

Section 14.6.Replacement of Certificates . Upon (i) receipt of
evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of a
certificate representing the Preferred Stock or any Conversion Shares or Warrants or any Warrant
Shares and (ii) in the case of any such loss, theft or destruction of such certificate, upon
delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the
Company (which shall not exceed that required by the Company's transfer agent in the ordinary
course) or (iii) in the case of any such mutilation, on surrender and cancellation of such
certificate, the Company at its expense will execute and deliver, in lieu thereof, a new certificate
of like tenor.

Section 14.7.Fees and Expenses . Each of the Company and the Investor
agrees to pay its own expenses incident to the performance of its obligations hereunder, except that
the Company shall pay the fees, expenses and disbursements of Investor's counsel in an amount not to
exceed $3,000.

Section 14.8.Brokerage or Financial Advisory Fees . Each of the
parties hereto represents that it has had no dealings in connection with this transaction with any
broker or financial advisor who will demand payment of any fee or commission from the other party,
except for Astor Capital Inc., which has furnished financial advisory services to the Company and
whose fee shall be paid by the Company. The Company on the one hand, and the Investor, on the other
hand, agree to indemnify the other against and hold the other harmless from any and all liabilities
to any person claiming brokerage commissions or finder's fees on account of services purported to
have been rendered on behalf of the indemnifying party in connection with this Agreement or the
transactions contemplated hereby.

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by the
undersigned, thereunto duly authorized, as of the date first set forth above.

INTEGRATED SURGICAL SYSTEMS, INC.

 

By: ________________________ 

Louis Kirchner

Chief Financial Officer

Jurisdiction of Incorporation

of Investor:___________________INVESTOR

Address:______________________Name: 

______________________By: 

______________________Title: _________________________

______________________Authorized Signatory

Telephone:____________________

Telecopier:____________________

Amount of investment: $1,200,000 

Number of shares of Preferred Stock: 1,200

 EXHIBIT A

CERTIFICATE OF DESIGNATIONS,

PREFERENCES AND RIGHTS OF

SERIES H CONVERTIBLE PREFERRED STOCK OF

INTEGRATED SURGICAL SYSTEMS, INC.

PURSUANT TO SECTION 151 OF THE DELAWARE

GENERAL CORPORATION LAW

Integrated Surgical Systems, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (hereinafter the
"Corporation"), in accordance with the provisions of Section 151(g) thereof, DOES HEREBY CERTIFY
that by written consent in lieu of a meeting of the Board of Directors of the Corporation dated as
of August ___ , 2000:

FIRST: The following resolution was duly adopted by the Board of Directors of the
Corporation:

"RESOLVED: That pursuant to the authority vested in the Board of Directors
of the Corporation by Article 4 of the Corporation's restated certificate of incorporation, as
amended (the "Certificate of Incorporation"), a series of Preferred Stock of the Corporation be, and
it hereby is, created out of the authorized but unissued shares of the capital stock of the
Corporation, such series to be designated Series H Convertible Preferred Stock (the "Series H
Convertible Preferred Stock"), to consist of 1,200 shares, par value $0.01 per share, of which the
preferences and relative and other rights, and the qualifications, limitations or restrictions
thereof, shall be as set forth in the Certificate of Designations annexed hereto:

1.Number of Shares of Series G Convertible Preferred Stock. Of
the 986,530 shares of authorized but unissued Preferred Stock, $0.01 par value ("Preferred Stock")
of the Corporation, one thousand two hundred (1,200) shares shall be designated and known as Series
H Convertible Preferred Stock, par value $0.01 per share ("Series H Convertible Preferred
Stock").

2.Voting. 

(a)Unless required by law, no holder of any shares of Series H Convertible
Preferred Stock shall be entitled to vote at any meeting of stockholders of the Corporation (or any
written actions of stockholders in lieu of meetings) with respect to any matters presented to the
stockholders of the Corporation for their action or consideration. Notwithstanding the foregoing,
the Corporation shall provide each holder of record of Series H Convertible Preferred Stock with
timely notice of every meeting of stockholders of the Corporation and shall provide each holder with
copies of all proxy materials distributed in connection therewith.

(b)So long as shares of Series H Convertible Preferred Stock are outstanding,
the Corporation shall not, without first obtaining the approval (by vote or written consent, as
provided by the Delaware General Corporation Law) of the holders of at least 85% of the then
outstanding shares of Series H Convertible Preferred Stock:

(i)alter or change the rights, preferences or privileges of the Series H
Convertible Preferred Stock;

(ii)create any new class or series of capital stock ranking on a parity
with ("Pari Passu Securities") or a preference over the Series H Convertible Preferred Stock as to
distribution of assets upon liquidation, dissolution or winding up of the Corporation ("Senior
Securities") or alter or change the rights, preferences or privileges of any Senior Securities so as
to affect adversely the Series H Convertible Preferred Stock;

(iii)increase the authorized number of shares of Series H Convertible
Preferred Stock; or

(iv)do any act or thing not authorized or contemplated by this
Certificate of Designations which would result in taxation of the holders of shares of the Series H
Convertible Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as amended (or
any comparable provision of the Internal Revenue Code as hereafter from time to time amended).

In the event holders of at least 85% of the then outstanding shares of Series H
Convertible Preferred Stock agree to allow the Corporation to alter or change the rights,
preferences or privileges of the shares of Series H Convertible Preferred Stock, pursuant to
subsection (b) above, so as to affect the Series H Convertible Preferred Stock, then the Corporation
will deliver notice of such approved change to the holders of the Series H Convertible Preferred
Stock that did not agree to such alteration or change (the "Dissenting Holders") and Dissenting
Holders shall have the right for a period of thirty (30) days to convert any and all shares of then
held Series H Convertible Preferred Stock pursuant to the terms of this Certificate of Designations
as in effect prior to such alteration or change, or else to continue to hold their shares of Series
H Convertible Preferred Stock.

3.Dividends

No holder of any shares of Series H Convertible Preferred Stock shall be
entitled to receive any dividends.

4.Liquidation

(a)If the Corporation shall commence a voluntary case under the
Federal ankruptcy laws or any other applicable Federal or state bankruptcy, insolvency or similar
law, or consent to the entry of an order for relief in an involuntary case under any law or to the
appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or of any substantial part of its property, or make an assignment for
the benefit of its creditors, or admit in writing its inability to pay its debts generally as they
become due, or if a decree or order for relief in respect of the Corporation shall be entered by a
court having jurisdiction in the premises in an involuntary case under the Federal bankruptcy laws
or any other applicable Federal or state bankruptcy, insolvency or similar law resulting in the
appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or of any substantial part of its property, or ordering the winding up
or liquidation of its affairs, and any such decree or order shall be unstayed and in effect for a
period of thirty (30) consecutive days and, on account of any such event, the Corporation shall
liquidate, dissolve or wind up, or if the Corporation shall otherwise liquidate, dissolve or wind up
(each such event being considered a "Liquidating Event"), no distribution shall be made to the
holders of any shares of capital stock of the Corporation upon liquidation, dissolution or winding
up unless prior thereto, the holders of shares of Series H Convertible Preferred Stock shall have
received the Liquidation Preference (as defined in Paragraph 4(c)) with respect to each share. If
upon the occurrence of a Liquidation Event, the assets and funds available for distribution among
the holders of the Series H Convertible Preferred Stock and holders of Pari Passu Securities shall
be insufficient to permit the payment to such holders of the preferential amounts payable thereon,
then the entire assets and funds of the Corporation legally available for distribution to the Series
H Convertible Preferred Stock and the Pari Passu Securities shall be distributed ratably among such
shares in proportion to the ratio that that Liquidation Preference payable on each such share bears
to the aggregate Liquidation Preference payable on all such shares.

(b) At the option of each holder of the Series H Convertible Preferred
Stock, the sale, conveyance of disposition of all or substantially all of the assets of the
Corporation, the effectuation by the Corporation of a transaction or series or related transactions
in which more than 50% of the voting power of the Corporation is disposed of, or the consolidation,
merger or other business combination of the Corporation with or into any other Person or Persons
when the Corporation is not the survivor shall be deemed to be a liquidation, dissolution or winding
up of the Corporation pursuant to which the Corporation shall be required to distribute, upon
consummation of and as a condition to such transaction an amount equal to the Liquidation Preference
with respect to each outstanding share of Series H Convertible Preferred Stock held by such Holder
in accordance with and subject to the terms of this Article 4.

(c) The Liquidation Preference shall be the Stated Value of $1,000 per
share of Series H Convertible Preferred Stock.

(d) The Series H Convertible Preferred Stock shall rank on a parity with the
Corporation's Series F Convertible Preferred Stock and Series H Convertible Preferred Stock as to
the distribution of the assets of the Corporation upon liquidation, dissolution or winding up of the
Corporation.

5. Optional Conversion. The holders of shares of Series H
Convertible Preferred Stock shall have the following conversion rights:

(a)Right to Convert; Conversion Price. Subject to the terms,
conditions, and restrictions of this Paragraph 5, commencing on the earlier of the Effective Date
(as hereinafter defined) or 90 days after the Original Issuance Date (as hereinafter defined), the
holder of any shares of Series H Convertible Preferred Stock shall have the right to convert each
such share of Series H Convertible Preferred Stock (except that upon any liquidation of the
Corporation, the right of conversion shall terminate at the close of business on the business day
fixed for payment of the amount distributable on the Series H Convertible Preferred Stock) into a
number of shares of Common Stock equal to the Stated Value of such share or shares of Series H
Convertible Preferred Stock divided by (i) the lowest price at which a trade of the Common Stock is
executed, as reported by Bloomberg L.P., on the principal market for the Corporation's Common Stock
(the "Principal Market") during the period of five Trading Days ending with the last Trading Day
prior to the date of conversion (the "Market Price"), after (ii) discounting the Market Price by 20%
to determine the conversion price (the "Conversion Price"). To illustrate, if the Market Price as of
the Conversion Date is $1.00 and 100 shares of Series H Convertible Preferred Stock are being
converted, the Stated Value for which would be $100,000, then the Conversion Price shall be $0.80
per share of Common Stock, whereupon the Stated Value of $100,000 of Series H Convertible Preferred
Stock would entitle the holder thereof to convert the 100 shares of Series H Convertible Preferred
Stock into 125,000 shares of Common Stock ($100,000 divided by 0.80 equals 125,000). However, in no
event shall the Conversion Price be greater than 130% of the lowest price at which a trade of the
Common Stock is executed, as reported by Bloomberg L.P. on the Principal Market during the period of
five Trading Days ending with the last Trading Day prior to the Original Issuance Date (the "Maximum
Conversion Price").The right of each holder to convert shares of Series H Convertible Preferred
Stock into shares of Common Stock is subject to the limitations set forth in Paragraph 5(b) below,
and for the purpose of complying with the limitation set forth in Paragraph 5(b)(ii), shall be
prorated among the original purchasers of the shares of Series H Convertible Preferred Stock (the
"Initial Holders') and their subsequent transferees, if any, based upon the number of shares of
Series H Convertible Preferred Stock purchased by the Initial Purchasers. In addition, instead of
issuing shares of Common Stock upon conversion, upon prior written notice to the holder, the
Corporation may elect to pay the holder an amount in cash equal to (i) the closing sale price on the
Principal Market on the day prior to the date of conversion (the "Conversion Date") multiplied by
(ii) the number of shares of Common Stock which would otherwise be issuable to the holder upon such
conversion, or any combination of cash and shares of Common Stock. If notice of the Corporation's
election to pay the holder in cash is not received by the holder prior to the receipt by the
Corporation of a notice of conversion, the Corporation shall pay the holder in shares of Common
Stock. As used herein, "Effective Date" means the date a registration statement for the resale of
the shares of Common Stock that may be acquired upon conversion of the Series H Convertible
Preferred Stock is declared effective by the Securities and Exchange Commission; and "Original
Issuance Date" means the date upon which shares of Series H Convertible Preferred Stock are
initially issued.

 

(b)Numerical Limitations. (i) No shares of Series H Convertible
Preferred Stock may be converted into Common Stock, to the extent that, after giving effect to the
conversion and issuance of the Common Stock to be issued pursuant to the applicable Conversion
Notice (as defined in Paragraph 5(c) below), the total number of shares of Common Stock deemed
beneficially owned by the holder requesting conversion (other than by virtue of the ownership of
unconverted shares of Series H Convertible Preferred Stock or the ownership of other securities that
have limitations on a holder's rights to exchange, convert or exercise similar to those limitations
set forth herein), together with all shares of Common Stock deemed beneficially owned by such
holder's Affiliates (as defined in Rule 405 of the Securities Act of 1933, as amended) that would be
aggregated for purposes of determining whether a group under Section 13(d) of the Securities
Exchange Act of 1934, as amended, and the rules promulgated thereunder, would exceed 5% of the total
issued and outstanding shares of Common Stock. If any court of competent jurisdiction shall
determine that the foregoing limitation is ineffective to prevent a holder from being deemed the
beneficial owner of more than 5% of the then outstanding shares of Common Stock, then the
Corporation shall redeem so many of such holder's shares of Series H Convertible Preferred Stock
pursuant to Paragraph 7(a) hereof as are necessary to cause such holder to be deemed the beneficial
owner of not more than 5% of the then outstanding shares of Common Stock.

(ii)Unless the Corporation shall have obtained the approval of its voting
stockholders to such issuance, if required in accordance with the rules of the Principal Market, the
Corporation shall not issue shares of Common Stock upon conversion of any shares of Series H
Convertible Preferred Stock if such issuance of Common Stock, when added to the number of shares of
Common Stock previously issued by the Corporation upon conversion of shares of the Series H
Convertible Preferred Stock, together with shares of Common Stock issued and issuable upon exercise
of warrants issued in connection with the sale of shares of Series H Convertible Preferred Stock,
would result in the issuance of more than 19.9% of the number of shares of Common Stock which were
issued and outstanding on the Original Issuance Date. To the extent the number of shares of Common
Stock issuable upon conversion would but for the limitation set forth in this Paragraph 5(b)(ii)
exceed such limit, the Corporation shall redeem promptly (but not later than the fifth Trading Day
after receipt of the applicable Conversion Notice) the shares of Series H Convertible Preferred
Stock that may not be converted into shares of Common Stock as a result of such limitation for an
amount in cash equal to the greater of (i) $1,500 per share of Series H Convertible Preferred Stock
and (ii) an amount equal to the product of the closing sale price of a share of Common Stock on the
Trading Date immediately preceding the date of the Conversion Notice and the number of shares of
Common Stock into which such shares of Series H Convertible Preferred Stock could have been
converted but for such limitation on the date of the Conversion Notice, and the holders of the
Series H Convertible Preferred Stock shall be creditors of the Corporation with respect to that
amount.

 

(c)Notice of Conversion. The right of conversion shall be
exercised by the holder thereof by delivery of a written notice in the form annexed hereto as Annex
I (the "Conversion Notice") to the Corporation, by facsimile or by registered mail or overnight
delivery service, that the holder elects to convert a specified number of shares of Series H
Convertible Preferred Stock representing a specified Stated Value thereof into Common Stock and, if
such conversion will result in the conversion of all of such holder's shares of Series H Convertible
Preferred Stock, by surrender of a certificate or certificates for the shares so to be converted to
the Corporation at its principal office (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the holders of the Series H Convertible Preferred
Stock) at any time during its usual business hours on the date set forth in the Conversion Notice,
together with a statement of the name or names (with address) in which the certificate or
certificates for shares of Common Stock shall be issued. 

(d)Issuance of Certificates; Time Conversion Effected. (i)
Promptly, but in no event more than three business days, after the receipt of the Conversion Notice
referred to in Subparagraph 5(c) (and surrender of the certificate or certificates for the share or
shares of Series H Convertible Preferred Stock to be converted within three business days after the
receipt of the Conversion Notice, if requested), the Corporation shall issue and deliver, or cause
to be issued and delivered, to the holder, registered in such name or names as such holder may
direct, a certificate or certificates for the number of whole shares of Common Stock into which such
shares of Series H Convertible Preferred Stock are converted. To the extent permitted by law, such
conversion shall be deemed to have been effected on the date on which such Conversion Notice shall
have been received by the Corporation and at the time specified stated in such Conversion Notice,
which must be during the calendar day of such notice, and at such time the rights of the holder of
such share or shares of Series H Convertible Preferred Stock shall cease, and the person or persons
in whose name or names any certificate or certificates for shares of Common Stock shall be issuable
upon such conversion shall be deemed to have become the holder or holders of record of the shares
represented thereby. Issuance of shares of Common Stock issuable upon conversion which are requested
to be registered in a name other than that of the registered holder shall be subject to compliance
with all applicable federal and state securities laws.

(ii) The Corporation understands that a delay in the issuance of the shares of
Common Stock beyond three business days could result in economic loss to the holder. As compensation
to the holder for such loss, the Corporation agrees to pay late payments to the holder for late
issuance of shares of Common Stock upon conversion in accordance with the following schedule (where
"No. Business Days Late" is defined as the number of business days beyond three (3) business
days from the date of receipt of the Conversion Notice):

 

 

	
 

 

No. Business Days Late
	
 
	
Late Payment For Each

$5,000 of Liquidation Preference

Amount Being Converted

	
1
	
 
	
$100

	
2
	
 
	
$200

	
3
	
 
	
$300

	
4
	
 
	
$400

	
5
	
 
	
$500

	
6
	
 
	
$600

	
7
	
 
	
$700

	
8
	
 
	
$800

	
9
	
 
	
$900

	
10
	
 
	
$1,000

	
>10
	
 
	
$1,000 + $200 for each Business Day

Late beyond 10 days

The Corporation shall pay any payments incurred under this Paragraph in
immediately available funds upon demand. Nothing herein shall limit holder's right to pursue
injunctive relief and/or actual damages for the Corporation's failure to issue and deliver Common
Stock to the holder. Furthermore, in addition to any other remedies which may be available to the
holder, in the event that the Corporation fails for any reason to effect delivery of such shares of
Common Stock within five business days the date of receipt of the Conversion Notice, the holder will
be entitled to revoke the relevant Conversion Notice by delivering a notice to such effect to the
Corporation whereupon the Corporation and the holder shall each be restored to their respective
positions immediately prior to delivery of such Conversion Notice.

(iii)If, at any time (a) the Corporation challenges, disputes or
denies the right of the holder to effect the conversion of the Series H Convertible Preferred Stock
into Common Shares or otherwise dishonors or rejects any Conversion Notice delivered in accordance
with this Paragraph 5 or (b) any third party who is not and has never been an Affiliate of the
holder commences any lawsuit or proceeding or otherwise asserts any claim before any court or public
or governmental authority which seeks to challenge, deny, enjoin, limit, modify, delay or dispute
the right of the holder hereof to effect the conversion of the Series H Convertible Preferred Stock
into Common Stock, then the holder shall have the right, by written notice to the Corporation, to
require the Corporation to promptly (but not later than the fifth Trading Day after receipt of such
notice) redeem the Series H Convertible Preferred Stock for cash at a redemption price equal to one
hundred thirty-five percent (135%) of the Stated Value thereof (the "Mandatory Purchase Amount").
Under any of the circumstances set forth above, the Corporation shall be responsible for the payment
of all costs and expenses of the holder, including reasonable legal fees and expenses, as and when
incurred in disputing any such action or pursuing its rights hereunder (in addition to any other
rights of the holder).

 

(iv)The holder shall be entitled to exercise its conversion privilege
notwithstanding the commencement of any case under 11 U.S.C.   101 et seq. (the
"Bankruptcy Code"). In the event the Corporation is a debtor under the Bankruptcy Code, the
Corporation hereby waives to the fullest extent permitted any rights to relief it may have under 11
U.S.C.   362 in respect of the holder's conversion privilege. The Corporation hereby waives to the
fullest extent permitted any rights to relief it may have under 11 U.S.C.   362 in respect of the
conversion of the Series H Convertible Preferred Stock. The Corporation agrees, without cost or
expense to the holder, to take or consent to any and all action necessary to effectuate relief under
11 U.S.C.   362.

(e)Fractional Shares. No fractional shares shall be issued upon
conversion of Series H Convertible Preferred Stock into Common Stock. All fractional shares shall be
rounded up to the nearest whole share. 

(f)Reorganization or Reclassification. If any capital
reorganization or reclassification of the capital stock of the Corporation shall be effected in such
a way that holders of Common Stock shall be entitled to receive stock, securities or assets with
respect to or in exchange for Common Stock, or, in the case of any consolidation, merger or
mandatory share exchange of the Corporation into any other company, then, as a condition of such
reorganization, reclassification or exchange, lawful and adequate provisions shall be made whereby
each holder of a share or shares of Series H Convertible Preferred Stock shall thereupon have the
right to receive, upon the basis and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock immediately theretofore receivable upon the conversion of such share or
shares of Series H Convertible Preferred Stock, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of such Common Stock immediately theretofore receivable upon
such conversion had such reorganization, reclassification or exchange not taken place, and in any
such case appropriate provisions shall be made with respect to the rights and interests of such
holder to the end that the provisions hereof (including without limitation provisions for
adjustments of the conversion rights) shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock, securities or assets thereafter deliverable upon the exercise of
such conversion rights.

(g)Adjustments for Splits, Combinations, etc. The Conversion
Price and the number of shares of Common Stock into which the Series H Convertible Preferred Stock
shall be convertible shall be adjusted for stock splits, combinations, or other similar events.
Additionally, an adjustment will be made in the case of an exchange of Common Stock, consolidation
or merger of the Corporation with or into another corporation or sale of all or substantially all of
the assets of the Corporation in order to enable the holder of Series H Convertible Preferred Stock
to acquire the kind and the number of shares of stock or other securities or property receivable in
such event by a holder of the number of shares of Common Stock that might otherwise have been issued
upon the conversion of the Series H Convertible Preferred Stock. No adjustment to the Conversion
Price will be made for dividends (other than stock dividends), if any, paid on the Common Stock or
for securities issued pursuant to exercise for fair value of options, warrants, or restricted
stock.

(h)Adjustments to Conversion Ratio. For so long as any shares
of Series H Convertible Preferred Stock are outstanding, but no later than one year from the
effective date of a registration statement registering for resale by the holders the shares of
Common Stock issuable upon conversion of the Series H Convertible Preferred Stock, if the
Corporation (i) issues and sells pursuant to an exemption from registration under the Securities Act
(A) Common Stock at a purchase price on the date of issuance thereof that is lower than the
Conversion Price at such date (other than shares of Common Stock issued in connection with an equity
line of credit or upon exercise of warrants issued in connection with an equity line of credit,
shares of Common Stock issued upon conversion of the Corporation's convertible preferred stock
outstanding on the Original Issuance Date, or shares of Common Stock issued in connection with the
exercise of any warrants or options outstanding on the Original Issuance Date or pursuant to the
Corporation's 1998 Employee Stock Purchase Plan), (B) warrants or options with an exercise price on
the date of issuance of the warrants or options that is lower than the Conversion Price on such date
(other than options and stock awards granted pursuant to the Corporation's 1995 and 1998 Stock
Option Plans or warrants issued in connection with an equity line of credit), or (C) convertible,
exchangeable or exercisable securities with a right to convert, exchange or exercise at a price or
rate lower than the Conversion Price on the date of issuance or conversion, as applicable, of such
convertible, exchangeable or exercisable securities (other than the options and stock awards granted
pursuant to the Corporation's 1995 and 1998 Stock Option Plans); and (ii) grants the right to the
purchaser(s) thereof to demand that the Corporation register under the Securities Act such Common
Stock issued or the Common Stock for which such warrants or options may be exercised or such
convertible, exchangeable or exercisable securities may be converted, exercised or exchanged, then
the Conversion Price shall be reduced to a rate equal to the lowest of any lower rates since the
most recently received Conversion Notice, and such Adjusted Conversion Price shall apply to any
future Conversion Notices received by the Corporation, unless the unadjusted Conversion Price would
be lower than the Adjusted Conversion Price. The Adjusted Conversion Price as it may exist from time
to time shall not apply retroactively to any shares of Series H Convertible Preferred Stock
converted prior to the implementation of such Adjusted Conversion Price. Notwithstanding the
foregoing, the Corporation may issue up to an aggregate total of Three Hundred Thousand (300,000)
shares of Common Stock (subject to adjustment only for stock splits, stock dividends and reverse
stock splits) at any price determined by the Board of Directors, after the Original Issuance Date,
without causing an Adjusted Conversion Price.

6. Mandatory Conversion.

(a)Mandatory Conversion Date. If on or after the third
anniversary of the Original Issuance Date (such date as selected by the Corporation being the
"Mandatory Conversion Date"), there remain issued and outstanding any shares of Series H Convertible
Preferred Stock, then the Corporation shall be entitled to require all (but not less than all)
holders of shares of Series H Convertible Preferred Stock then outstanding to convert their shares
of Series H Convertible Preferred Stock into shares of Common Stock or, at the option of the
Corporation, to buy out all such holders in cash, at the price set forth in Paragraph 5(a). The
Corporation shall provide written notice (the "Mandatory Conversion Notice") to the holders of
shares of Series H Convertible Preferred Stock of such mandatory conversion or such mandatory buy-
out. The Mandatory Conversion Notice shall include (i) the Stated Value of the shares of Series H
Convertible Preferred Stock to be converted or bought out, (ii) the Conversion Price at the
Mandatory Conversion Date, and (iii) the number of shares of the Corporation's Common Stock to be
issued (or the amount of cash to be paid in the event of a buy-out) upon such mandatory conversion
or such mandatory buy-out at the then applicable Conversion Price. Notwithstanding the foregoing, in
no event shall the Corporation convert that portion of the Series H Convertible Preferred Stock to
the extent that the issuance of Common Stock upon the conversion of such Series H Convertible
Preferred Stock, when combined with shares of Common Stock received upon other conversions of Series
H Convertible Preferred Stock and exercise of the warrants issued in connection with the purchase of
Series H Convertible Preferred Stock by such holder and any other holders of Series H Convertible
Preferred Stock, would exceed 19.99% of the number of shares of Common Stock outstanding on the
Original Issuance Date, or as to any individual holder, make such holder the beneficial owner of
more than 5% of the Corporation's then outstanding Common Stock.

(b)Surrender of Certificates. On or before the Mandatory
Conversion Date, each holder of shares of Series H Convertible Preferred Stock shall surrender his
or its certificate or certificates for all such shares to the Corporation at the place designated in
such Mandatory Conversion Notice (or an affidavit of lost certificate in form and content reasonably
satisfactory to the Corporation), and shall thereafter receive certificates for the number of shares
of Common Stock to which such holder is entitled or, in the event of a buy-out by the Corporation,
the amount of cash to which such holder is entitled within three business days. On the Mandatory
Conversion Date, all rights with respect to the Series H Convertible Preferred Stock so converted
will terminate. All certificates evidencing shares of Series H Convertible Preferred Stock that are
required to be surrendered for conversion in accordance with the provisions hereof, from and after
the Mandatory Conversion Date, shall be deemed to have been retired and canceled, notwithstanding
the failure of the holder or holders thereof to surrender such certificates on or prior to such
date. The Corporation may thereafter take such appropriate action as may be necessary to reduce the
authorized Series H Convertible Preferred Stock accordingly. 

7. Redemption of Series H Convertible Preferred Stock. 

(a)Right to Redeem Series H Convertible Preferred Stock. At any
time, and from time to time, on and after the expiration of the earlier of (i) six months from the
Original Issuance Date, or (ii) the closing of a registered firmcommitment underwritten secondary
offering of equity securities by the Corporation for cash, the Corporation may, in its sole
discretion, but shall not be obligated to, redeem, in whole or in part, the then issued and
outstanding shares of Series H Convertible Preferred Stock, at a price (the "Redemption Price")
equal to the greater of (x) $1,500 per share of such Series H Convertible Preferred Stock and (y) an
amount equal to the product of the closing sale price of a share of Common Stock on the Principal
Market on the Trading Day prior to the date of the Redemption Notice (as hereinafter defined) and
the number of shares of Common Stock into which such shares of Series H Convertible Preferred Stock
could be converted on the date of the Redemption Notice.

(b)Notice of Redemption. The Corporation shall provide each
holder of record of the Series H Convertible Preferred Stock being redeemed with written notice of
redemption (the "Redemption Notice") not less than 30 days prior to any date stipulated by the
Corporation for the redemption of the Series H Convertible Preferred Stock (the "Redemption Date").
The Redemption Notice shall contain (i) the Redemption Date, (ii) the number of shares of Series H
Convertible Preferred Stock to be redeemed from the holder to whom the Redemption Notice is
delivered, (iii) instructions for surrender to the Corporation of the certificate or certificates
representing the shares of Series H Convertible Preferred Stock to be redeemed, and (iv) a procedure
for the holder to specify the number of shares of Series H Convertible Preferred Stock to be
converted into Common Stock pursuant to Paragraph 5.

(c)Right to Convert Series H Convertible Preferred Stock upon Receipt
of Redemption Notice. Upon receipt of the Redemption Notice, the recipient thereof shall
have the option, at its sole election, to specify what portion of the Series H Convertible Preferred
Stock called for redemption in the Redemption Notice shall be redeemed as provided in this Paragraph
7 or converted into Common Stock in the manner provided in Paragraph 5. If the holder of the Series
H Convertible Preferred Stock called for redemption elects to convert any of such shares, then such
conversion shall take place on the Conversion Date specified by the holder, but in no event after
the Redemption Date, in accordance with the terms of Paragraph 5.

(d)Surrender of Certificates; Payment of Redemption Price. On
or before the Redemption Date, each holder of the shares of Series H Convertible Preferred Stock to
be redeemed shall surrender the required certificate or certificates representing such shares to the
Corporation, in the manner and at the place designated in the Redemption Notice, and upon payment to
the holder of the Redemption Price, each such surrendered certificate shall be canceled and retired.
If payment of such redemption price is not made in full by the Redemption Date, the holder shall
again have the right to convert the Series H Convertible Preferred Stock as provided in Paragraph 5
hereof and the Corporation's right of redemption under this Paragraph 7 shall cease to exist from
and after the Redemption Date. If a certificate is surrendered and all the shares evidenced thereby
are not being redeemed, the Corporation shall issue new certificates to be registered in the names
of the person(s) whose name(s) appear(s) as the owners on the respective surrendered certificates
and deliver such certificate to such person(s).

8. Notices. In case at any time:

(a)the Corporation shall declare any dividend upon its Common Stock payable
in cash or stock or make any other pro rata distribution to the holders of its Common Stock; or 

(b)the Corporation shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or other rights; or 

(c)there shall be any capital reorganization or reclassification of the
capital stock of the Corporation, or a consolidation or merger of the Corporation with or into, or a
sale of all or substantially all its assets to, another entity or entities; or 

(d)there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Corporation;

then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, or by telex or facsimile or by recognized overnight delivery service to
non-U.S. residents, addressed to each holder of any shares of Series H Convertible Preferred Stock
at the address of such holder as shown on the books of the Corporation, (i) at least 10 days' prior
written notice of the date on which the books of the Corporation shall close or a record shall be
taken for such dividend, distribution or subscription rights or for determining rights to vote in
respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up and (ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least 10 days' prior written
notice of the date when the same shall take place. Such notice in accordance with the foregoing
clause (i) shall also specify, in the case of any such dividend, distribution or subscription
rights, the date on which the holders of Common Stock shall be entitled thereto and (ii) shall also
specify the date on which the holders of Common Stock shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be.

9. Stock to be Reserved.
The Corporation, upon the effective date
of this Certificate of Designations, has a sufficient number of shares of Common Stock available to
reserve for issuance upon the conversion of all outstanding shares of Series H Convertible Preferred
Stock. The Corporation will at all times reserve and keep available out of its authorized Common
Stock, solely for the purpose of issuance upon the conversion of Series H Convertible Preferred
Stock as herein provided, such number of shares of Common Stock as shall then be issuable upon the
conversion of all outstanding shares of Series H Convertible Preferred . The Corporation covenants
that all shares of Common Stock which shall be so issued shall be duly and validly issued, fully
paid and non-assessable. The Corporation will take all such action as may be so taken without
violation of any applicable law or regulation, or of any requirement of any national securities
exchange upon which the Common Stock may be listed to have a sufficient number of authorized but
unissued shares of Common Stock to issue upon conversion of the Series H Convertible Preferred
Stock. The Corporation will not take any action which results in any adjustment of the conversion
rights if the total number of shares of Common Stock issued and issuable after such action upon
conversion of the Series H Convertible Preferred Stock would exceed the total number of shares of
Common Stock then authorized by the Corporation's Restated Certificate of Incorporation, as
amended.

10.  No Reissuance of Series H Convertible Preferred Stock.
Shares of Series H Convertible Preferred Stock which are converted into shares of Common Stock
as provided  herein shall not be reissued.

11. Issue Tax.
The issuance of certificates for shares of Common
Stock upon conversion of Series H Convertible Preferred Stock shall be made without charge to the
holder for any United States issuance tax in respect thereof, provided that the Corporation shall
not be required to pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the holder of the Series H
Convertible Preferred Stock which is being converted.

12. Closing of Books.
The Corporation will at no time close its
transfer books against the transfer of any Series H Convertible Preferred Stock or of any shares of
Common Stock issued or issuable upon the conversion of any shares of Series H Convertible Preferred
Stock in any manner which interferes with the timely conversion of such Series H Convertible
Preferred Stock, except as may otherwise be required to comply with applicable securities
laws.

13. Definitions.
As used in this Certificate of Designations,
the term "Common Stock" shall mean and include the Corporation's authorized Common Stock, $0.01 par
value, as constituted on the date of filing of this Certificate of Designations authorizing the
issuance of the Series H Convertible Preferred Stock, and shall also include any capital stock of
any class of the Corporation thereafter authorized which shall neither be limited to a fixed sum or
percentage of par value in respect of the rights of the holders thereof to participate in dividends
nor entitled to a preference in the distribution of assets upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation; provided that the shares of Common Stock
receivable upon conversion of shares of Series H Convertible Preferred Stock shall include only
shares designated as Common Stock of the Corporation on the date of filing of this instrument, or in
case of any reorganization, reclassification, or stock split of the outstanding shares thereof, the
stock, securities or assets provided for in Subparagraph 5(f) and (g). Any capitalized terms used in
this Certificate of Designations but not defined herein shall have the meanings set forth in that
certain Preferred Stock Purchase Agreement among the Corporation and the other persons signatory
thereto relating to the issuance and sale of the Series H Convertible Preferred Stock to the holders
of the Series H Convertible Preferred Stock on the Original Issuance Date, a copy of which will be
provided to any stockholder of the Corporation upon request to the Secretary of the Corporation,
without charge.

14.  Loss, Theft, Destruction of Preferred Stock. Upon receipt
of evidence satisfactory to the Corporation of the loss, theft, destruction or mutilation of
certificates representing shares of Series H Convertible Preferred Stock and, in the case of
any  such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (which shall not include the posting of any bond), or, in the case of any such
mutilation, upon surrender and cancellation of the Series H Convertible Preferred Stock
certificate,  the Corporation shall make, issue and deliver, in lieu of such lost, stolen,
destroyed or mutilated  certificates for Series H Convertible Preferred Stock, new certificates
for Series H Convertible  Preferred Stock of like tenor.

15.  Who Deemed Absolute Owner. The Corporation may deem the
person in whose name the Series H Convertible Preferred Stock shall be registered upon the registry
books of the Corporation to be, and may treat it as, the absolute owner of the Series H Convertible
Preferred Stock for the purpose of conversion of the Series H Convertible Preferred Stock and for
all other purposes, and the Corporation shall not be affected by any notice to the contrary. All
such payments and such conversion shall be valid and effectual to satisfy and discharge the
liability upon the Series H Convertible Preferred Stock to the extent of the sum or sums so paid or
the conversion so made.

16.  Register. The Corporation shall keep at its principal
office a register in which the Corporation shall provide for the registration of the Series H
Convertible  Preferred Stock. Upon any transfer of the Series H Convertible Preferred Stock in
accordance with  the provisions hereof, the Corporation shall register such transfer on the
Series H Convertible  Preferred Stock register.

17. 
Withholding. To the extent required by applicable law, the
Corporation may withhold amounts for or on account of any taxes imposed or levied by or on behalf of
any taxing authority in the United States having jurisdiction over the Corporation from any payments
made pursuant to the Series H Convertible Preferred Stock.

18. 
Headings. The headings of the Sections of this Certificate of
Designations are inserted for convenience only and do not constitute a part of this Certificate of
Designations.

IN WITNESS WHEREOF, Louis Kirchner, Chief Financial Officer of the Corporation,
under penalties of perjury, does hereby declare and certify that this is the act and deed of the
Corporation and the facts stated herein are true and accordingly has signed this Certificate of
Designations as of this ____ day of August, 2000.

INTEGRATED SURGICAL SYSTEMS, INC.

 

By:          

 Louis Kirchner

Chief Financial Officer 

ANNEX I

[FORM OF CONVERSION NOTICE]

TO: 

 

 

The undersigned owner of this Series H Convertible Preferred Stock (the
"Series H Preferred Stock") issued by Integrated Surgical Systems, Inc. (the "Corporation") hereby
irrevocably exercises its option to convert _______ shares of the Series H Preferred Stock into
shares of the common stock, $.01 par value, of the Corporation ("Common Stock"), in accordance with
the terms of the Certificate of Designations. The undersigned hereby instructs the Corporation to
convert the number of shares of the Series H Preferred Stock specified above into shares of Common
Stock in accordance with the provisions of Article 5 of the Certificate of Designations. The
undersigned directs that the Common Stock issuable and certificates therefor deliverable upon
conversion, the Series H Preferred Stock recertificated, if any, not being surrendered for
conversion hereby, together with any check in payment for fractional Common Stock, be issued in the
name of and delivered to the undersigned unless a different name has been indicated below. All
capitalized terms used and not defined herein have the respective meanings assigned to them in the
Certificate of Designations.
Dated: 

                   Stated Value of Series H Preferred Stock $__________

                   (number of shares times $1,000)

Signature
Market Price: $______________

                   Fill in for registration of Series H Preferred Stock:Conversion Price:
$____________

                   Number of Shares of Common Stock to be acquired _____________

Please print name and address (including zip code number):

EXHIBIT B

NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") OR THE
SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER REGULATION D
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THIS WARRANT SHALL
NOT CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE WARRANT OR THE SHARES
ISSUABLE UPON EXERCISE HEREOF IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. 

NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD,
PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT FROM
REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND UNDER PROVISIONS OF APPLICABLE STATE
SECURITIES LAWS; AND IN THE CASE OF AN EXEMPTION, ONLY IF THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION OF THE WARRANT OR SUCH SHARES, WHICH
OPINION AND WHICH COUNSEL SHALL BE SATISFACTORY TO THE COMPANY IN ITS SOLE DISCRETION.

STOCK PURCHASE WARRANT

To Purchase _______ Shares of Common Stock of

INTEGRATED SURGICAL SYSTEMS, INC.

THIS CERTIFIES that, for value received, ________________________ (the "Holder"), is entitled,
upon the terms and subject to the conditions hereinafter set forth, at any time on or after February
, 2001 and on or prior to February , 2004 (the "Termination Date") but not thereafter, to subscribe
for and purchase from INTEGRATED SURGICAL SYSTEMS, INC., a corporation incorporated in Delaware (the
"Company"),_________ (________) shares (the "Warrant Shares") of Common Stock, par value US $0.01
per share of the Company (the "Common Stock"). The purchase price of one share of Common Stock (the
"Exercise Price") under this Warrant shall be $ ___ per share*. The Exercise Price and
the number of shares for which the Warrant is exercisable shall be subject to adjustment as provided
herein. This Warrant is being issued in connection with the Agreement and is subject to its terms
and conditions. In the event of any conflict between the terms of this Warrant and the Agreement,
the Agreement shall control.

1.Title of Warrant. Prior to the expiration hereof and subject to
compliance with applicable laws, this Warrant and all rights hereunder are transferable, in whole or
in part, at the office or agency of the Company by the holder hereof in person or by duly authorized
attorney, upon surrender of this Warrant together with the Assignment Form annexed hereto properly
endorsed.2.Authorization of Shares. The Company covenants that all shares of Common
Stock which may be issued upon the exercise of rights represented by this Warrant will, upon
exercise of the rights represented by this Warrant, be duly authorized, validly issued, fully paid
and nonassessable and free from all taxes, liens and charges in respect of the issue thereof (other
than taxes in respect of any transfer occurring contemporaneously with such issue).

3.Exercise of Warrant. (a) Except as provided in Section 4 herein,
exercise of the purchase rights represented by this Warrant may be made at any time or times, before
the close of business on the Termination Date, or such earlier date on which this Warrant may
terminate as provided in this Warrant, by the surrender of this Warrant and the Notice of Exercise
Form annexed hereto duly executed, at the office of the Company (or such other office or agency of
the Company as it may designate by notice in writing to the registered holder hereof at the address
of such holder appearing on the books of the Company) and upon payment of the Exercise Price of the
shares thereby purchased by cash, check or bank draft payable to the Company or by wire transfer or
cashier's check drawn on a United States bank; whereupon the holder of this Warrant shall be
entitled to receive a certificate for the number of shares of Common Stock so purchased.
Certificates for shares purchased hereunder shall be delivered to the holder hereof within three (3)
business days after the date on which this Warrant shall have been exercised as aforesaid. Payment
of the Exercise Price of the shares may be by certified check or cashier's check or by wire transfer
to an account designated by the Company in an amount equal to the Exercise Price multiplied by the
number of Warrant Shares. This Warrant shall be deemed to have been exercised and such certificate
or certificates shall be deemed to have been issued, and Holder or any other person so designated to
be named therein shall be deemed to have become a holder of record of such shares for all purposes,
as of the date the Warrant has been exercised by payment to the Company of the Warrant purchase
price and all taxes required to be paid by Holder, if any, pursuant to Section 5 prior to the
issuance of such shares have been paid. If this Warrant shall have been exercised in part, the
Company shall, at the time of delivery of the certificate or certificates representing Warrant
Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased
shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be
identical with this Warrant.

(b)The Holder shall be entitled to exercise the Warrant notwithstanding
the commencement of any case under 11 U.S.C.   101 et seq. (the "Bankruptcy Code"). In
the event the Company is a debtor under the Bankruptcy Code, the Company hereby waives to the
fullest extent permitted any rights to relief it may have under 11 U.S.C.   362 in respect of the
Holder's exercise right. The Company hereby waives to the fullest extent permitted any rights to
relief it may have under 11 U.S.C.   362 in respect of the exercise of the Warrant. The Company
agrees, without cost or expense to the Holder, to take or consent to any and all action necessary to
effectuate relief under 11 U.S.C.   362.

4.No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction
of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company
shall pay a cash adjustment in respect of such final fraction in an amount equal to the same
fraction of the Market Price per share of Common Stock as of the Closing Date.5. Charges, Taxes
and Expenses. Issuance of certificates for shares of Common Stock upon the exercise of this
Warrant shall be made without charge to the holder hereof for any issue or transfer tax or other
incidental expense in respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name of the holder of
this Warrant or in such name or names as may be directed by the holder of this Warrant; provided,
however, that in the event certificates for shares of Common Stock are to be issued in a name other
than the name of the holder of this Warrant, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the holder hereof; and provided
further, that upon any transfer involved in the issuance or delivery of any certificates for shares
of Common Stock, the Company may require, as a condition thereto, the payment of a sum sufficient to
reimburse it for any transfer tax incidental thereto.

6.Closing of Books. The Company will not close its shareholder books or
records in any manner which prevents the timely exercise of this Warrant.

7.Transfer, Division and Combination. (a) Subject to compliance with
any applicable securities laws, transfer of this Warrant and all rights hereunder, in whole or in
part, shall be registered on the books of the Company to be maintained for such purpose, upon
surrender of this Warrant at the principal office of the Company, together with a written assignment
of this Warrant substantially in the form attached hereto duly executed by Holder or its agent or
attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer.
Upon such surrender and, if required, such payment, the Company shall execute and deliver a new
Warrant or Warrants in the name of the assignee or assignees and in the denomination specified in
such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion
of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if
properly assigned, may be exercised by a new Holder for the purchase of shares of Common Stock
without having a new Warrant issued.

(b) This Warrant may be divided or combined with other Warrants upon
presentation hereof at the aforesaid office of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued, signed by Holder or
its agent 

or attorney. Subject to compliance with Section 7(a), as to any transfer which
may be involved in such division or combination, the Company shall execute and deliver a new Warrant
or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with
such notice.

(c) The Company shall prepare, issue and deliver at its own expense
(other than transfer taxes) the new Warrant or Warrants under this Section 7.

(d) The Company agrees to maintain, at its aforesaid office, books for
the registration and the registration of transfer of the Warrants.

8.No Rights as Shareholder until Exercise. This Warrant does not
entitle the holder hereof to any voting rights or other rights as a shareholder of the Company prior
to the exercise thereof. Upon the surrender of this Warrant and the payment of the aggregate
Exercise Price, the Warrant Shares so purchased shall be and be deemed to be issued to such holder
as the record owner of such shares as of the close of business on the later of the date of such
surrender or payment. 9.Loss, Theft, Destruction or Mutilation of Warrant. The Company
represents and warrants that upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant certificate or any stock certificate
relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it, and upon surrender and cancellation of such Warrant or stock
certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of
like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

10.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 be a
Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on
the next succeeding day not a Saturday, Sunday or legal holiday.

11. (a) Adjustments of Exercise Price and Number of Warrant Shares. The
number and kind of securities purchasable upon the exercise of this Warrant and the Exercise Price
shall be subject to adjustment from time to time upon the happening of any of the following. In case
the Company shall (i) declare or pay a dividend in shares of Common Stock or make a distribution in
shares of Common Stock to holders of its outstanding Common Stock, (ii) subdivide its outstanding
shares of Common Stock, (iii) combine its outstanding shares of Common Stock into a smaller number
of shares of Common Stock or (iv) issue any shares of its capital stock in a reclassification of the
Common Stock, then the number of Warrant Shares purchasable upon exercise of this Warrant
immediately prior thereto shall be adjusted so that the holder of this Warrant shall be entitled to
receive the kind and number of Warrant Shares or other securities of the Company which he would have
owned or have been entitled to receive had such Warrant been exercised in advance thereof. Upon each
such adjustment of the kind and number of Warrant Shares or other securities of the Company which
are purchasable hereunder, the holder of this Warrant shall thereafter be entitled to purchase the
number of Warrant Shares or other securities resulting from such adjustment at an Exercise Price per
such Warrant Share or other security obtained by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Shares purchasable pursuant hereto
immediately prior to such adjustment and dividing by the number of Warrant Shares or other
securities of the Company resulting from such adjustment. An adjustment made pursuant to this
paragraph shall become effective immediately after the effective date of such event retroactive to
the record date, if any, for such event.

(a)(b)Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case the Company shall reorganize its capital, reclassify its capital
stock, consolidate or merge with or into another corporation (where the Company is not the surviving
corporation or where there is a change in or distribution with respect to the Common Stock of the
Company), or sell, transfer or otherwise dispose of all or substantially all its property, assets or
business to another corporation and, pursuant to the terms of such reorganization, reclassification,
merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring
corporation, or any cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or in lieu of common
stock of the successor or acquiring corporation ("Other Property"), are to be received by or
distributed to the holders of Common Stock of the Company, then Holder shall have the right
thereafter to receive, upon exercise of the Warrant, the number of shares of common stock of the
successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other
Property receivable upon or as a result of such reorganization, reclassification, merger,
consolidation or disposition of assets by a holder of the number of shares of Common Stock for which
this Warrant is exercisable immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor or acquiring
corporation (if other than the Company) shall expressly assume the due and punctual observance and
performance of each and every covenant and condition of this Warrant to be performed and observed by
the Company and all the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined by resolution of the Board of Directors of the Company) in
order to provide for adjustments of shares of Common Stock for which this Warrant is exercisable
which shall be as nearly equivalent as practicable to the adjustments provided for in this Section
11. For purposes of this Section 11, "common stock of the successor or acquiring corporation" shall
include stock of such corporation of any class which is not preferred as to dividends or assets over
any other class of stock of such corporation and which is not subject to redemption and shall also
include any evidences of indebtedness, shares of stock or other securities which are convertible
into or exchangeable for any such stock, either immediately or upon the arrival of a specified date
or the happening of a specified event and any warrants or other rights to subscribe for or purchase
any such stock. The foregoing provisions of this Section 11 shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or disposition of assets.

(c)Certain Limitations. Notwithstanding anything herein to the contrary, the Company
agrees not to enter into any transaction which, by reason of any adjustment hereunder, would cause
the Exercise Price to be less than the par value per share of Common Stock. 

12.Voluntary Adjustment by the Company. The Company may at any time
during the term of this Warrant, reduce the then current Exercise Price to any amount and for any
period of time deemed appropriate by the Board of Directors of the Company.

13.Notice of Adjustment. Whenever the number of Warrant Shares or
number or kind of securities or other property purchasable upon the exercise of this Warrant or the
Exercise Price is adjusted, as herein provided, the Company shall promptly mail by registered or
certified mail, return receipt requested, to the holder of this Warrant notice of such adjustment or
adjustments setting forth the number of Warrant Shares (and other securities or property)
purchasable upon the exercise of this Warrant and the Exercise Price of such Warrant Shares (and
other securities or property) after such adjustment, setting forth a brief statement of the facts
requiring such adjustment and setting forth the computation by which such adjustment was made. Such
notice, in absence of manifest error, shall be conclusive evidence of the correctness of such
adjustment.

14.Notice of Corporate Action. If at any time

(a) the Company shall take a record of the holders of its Common Stock
for the purpose of entitling them to receive a dividend or other distribution, or any right to
subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any
other securities or property, or to receive any other right, or

(b) there shall be any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any consolidation or
merger of the Company with, or any sale, transfer or other disposition of all or substantially all
the property, assets or business of the Company to, another corporation or,

(c) there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Company; then, in any one or more of such cases, the Company shall give to Holder
(i) at least 30 days' prior written notice of the date on which a record date shall be selected for
such dividend, distribution or right or for determining rights to vote in respect of any such
reorganization, reclassification, merger, consolidation, sale, transfer, disposition, liquidation or
winding up, and (ii) in the case of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, at least 30
days' prior written notice of the date when the same shall take place. Such notice in accordance
with the foregoing clause also shall specify (i) the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, the date on which the holders of Common
Stock shall be entitled to any such dividend, distribution or right, and the amount and character
thereof, and (ii) the date on which any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding up is to take place
and the time, if any such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other property deliverable upon
such disposition, dissolution, liquidation or winding up. Each such written notice shall be
sufficiently given if addressed to Holder at the last address of Holder appearing on the books of
the Company and delivered in accordance with Section 17(d).

15.Authorized Shares. The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient
number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase
rights under this Warrant. The Company further covenants that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant Shares upon the
exercise of the purchase rights under this Warrant. The Company will take all such reasonable action
as may be necessary to assure that such Warrant Shares may be issued as provided herein without
violation of any applicable law or regulation, or of any requirements of Nasdaq or any domestic
securities exchange upon which the Common Stock may be listed. 

The Company shall not by any action, including, without limitation, amending
its certificate of incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all such actions as may
be necessary or appropriate to protect the rights of Holder against impairment. Without limiting the
generality of the foregoing, the Company will (a) not increase the par value of any shares of Common
Stock receivable upon the exercise of this Warrant above the amount payable therefor upon such
exercise immediately prior to such increase in par value, (b) take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant, and (c) use its best efforts
to obtain all such authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this
Warrant.

Upon the request of Holder, the Company will at any time during the period
this Warrant is outstanding acknowledge in writing, in form reasonably satisfactory to Holder, the
continuing validity of this Warrant and the obligations of the Company hereunder.

Before taking any action which would cause an adjustment reducing the current
Exercise Price below the then par value, if any, of the shares of Common Stock issuable upon
exercise of the Warrants, the Company shall take any corporate action which may be necessary in
order that the Company may validly and legally issue fully paid and non-assessable shares of such
Common Stock at such adjusted Exercise Price.

Before taking any action which would result in an adjustment in the number of
shares of Common Stock for which this Warrant is exercisable or in the Exercise Price, the Company
shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary
from any public regulatory body or bodies having jurisdiction thereof.

 

16.Required Registration. Pursuant to the terms and conditions set
forth in the Registration Rights Agreement entered into between the Company and the Holders as of
the date of issuance of this Warrant, the Company shall prepare and file with the Commission not
later than the 45th day after the Closing Date, a Registration Statement relating to the offer and
sale of the Common Stock issuable upon exercise of the Warrants and shall use its best efforts to
cause the Commission to declare such Registration Statement effective under the Securities Act as
promptly as practicable but no later than 90 days after the closing date.

17.Miscellaneous.

(a)Issue Date; Jurisdiction. The provisions of this Warrant shall be construed and
shall be given effect in all respects as if it had been issued and delivered by the Company on the
date hereof. This Warrant shall be binding upon any successors or assigns of the Company. This
Warrant shall constitute a contract under the laws of New York without regard to its conflict of
law, principles or rules, and be subject to arbitration pursuant to the terms set forth in the
Agreement. 

(b)Restrictions. The holder hereof acknowledges that the Warrant Shares acquired upon
the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state
and federal securities laws. 

(c)Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise
any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise
prejudice Holder's rights, powers or remedies, notwithstanding all rights hereunder terminate on the
Termination Date. If the Company fails to make, when due, any payments provided for hereunder, or
fails to comply with any other provision of this Warrant, the Company shall pay to Holder such
amounts as shall be sufficient to cover any costs and expenses including, but not limited to,
reasonable attorneys' fees, including those of appellate proceedings, incurred by Holder in
collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or
remedies hereunder. 

(d)Notices. Any notice, request or other document required or permitted to be given or
delivered to the holder hereof by the Company shall be delivered in accordance with the notice
provisions of the Agreement. 

(e)Limitation of Liability. No provision hereof, in the absence of affirmative action
by Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges
of Holder hereof, shall give rise to any liability of Holder for the purchase price of any Common
Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by
creditors of the Company. 

(f)Remedies. Holder, in addition to being entitled to exercise all rights granted by
law, including recovery of damages, will be entitled to specific performance of its rights under
this Warrant. The Company agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to
waive the defense in any action for specific performance that a remedy at law would be adequate.

(g)Successors and Assigns. Subject to applicable securities laws, this Warrant and the
rights evidenced hereby shall inure to the benefit of and be binding upon the successors of the
Company and the successors and assigns of Holder. The provisions of this Warrant are intended to be
for the benefit of all Holders from time to time of this Warrant and shall be enforceable by any
such Holder or holder of Warrant Stock. 

(h)Cooperation. The Company shall cooperate with Holder in supplying such information
as may be reasonably necessary for Holder to complete and file any information reporting forms
presently or hereafter required by the Commission as a condition to the availability of an exemption
from the Securities Act for the sale of any Warrant or Restricted Common Stock. 

(i)Indemnification. The Company agrees to indemnify and hold harmless Holder from and
against any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, attorneys' fees, expenses and disbursements of any kind which may be imposed upon, incurred
by or asserted against Holder in any manner relating to or arising out of any failure by the Company
to perform or observe in any material respect any of its covenants, agreements, undertakings or
obligations set forth in this Warrant; provided, however, that the Company will not be
liable hereunder to the extent that any liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, attorneys' fees, expenses or disbursements are found in a
final non-appealable judgment by a court to have resulted from Holder's negligence, bad faith or
willful misconduct in its capacity as a stockholder or warrantholder of the Company. 

(j)Amendment. This Warrant and all other Warrants may be modified or amended or the
provisions hereof waived with the written consent of the Company and the Holder. 

(k)Severability. Wherever possible, each provision of this Warrant shall be
interpreted in such manner as to be effective and valid under applicable law, but if any provision
of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of
such provisions or the remaining provisions of this Warrant. 

 

 

(l)Headings. The headings used in this Warrant are for the convenience of
reference only and shall not, for any purpose, be deemed a part of this Warrant.

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officer thereunto duly authorized.

Dated: August , 2000

INTEGRATED SURGICAL SYSTEMS, INC.

 

 

By:

Louis Kirchner

Chief Financial Officer

NOTICE OF EXERCISE

 

 

To:INTEGRATED SURGICAL SYSTEMS, INC.

 

 

	The undersigned hereby elects to purchase ________ shares of Common Stock, par value $0.01 per
share (the "Common Stock"), of INTEGRATED SURGICAL SYSTEMS, INC. pursuant to the terms of the
attached Warrant, and tenders herewith payment of the exercise price in full, together with all
applicable transfer taxes, if any.
	Please issue a certificate or certificates representing said shares of Common Stock in
the name of the undersigned or in such other name as is specified below:

_______________________________

(Name)

_______________________________

(Address)

_______________________________

 

 

 

Dated:

 

______________________________

Signature

ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information. 

Do not use this form to exercise the warrant.)

 

 

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned
to

_______________________________________________ whose address is

_______________________________________________________________.

 

 

_______________________________________________________________

Dated: ________________________, 

 

Holder's Signature:_____________________________

Holder's Address:_____________________________

_____________________________

 

 

Signature Guaranteed: ___________________________________________

 

 

NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and
must be guaranteed by a bank or trust company. Officers of corporations and those acting in an
fiduciary or other representative capacity should file proper evidence of authority to assign the
foregoing Warrant.

 

 

EXHIBIT C

REGISTRATION RIGHTS AGREEMENT

THIS REGISTRATION RIGHTS AGREEMENT, dated as of the day of August __, 2000,
between INTEGRATED SURGICAL SYSTEMS, INC., a corporation incorporated under the laws of the State of
Delaware, and having its principal place of business at 1850 Research Park Drive, Davis, California
95616-4884 (the "Company") and the person signatory hereto (the "Holder").

WHEREAS, simultaneously with the execution and delivery of this Agreement,
the Holder is purchasing from the Company, pursuant to a Preferred Stock Purchase Agreement dated
the date hereof (the "Purchase Agreement"), _____shares of Series H Convertible Preferred Stock,
$0.01 par value and a Warrant to purchase ______ shares of the Company's Common Stock (terms not
defined herein shall have the meanings ascribed to them in the Purchase Agreement); and

WHEREAS, the Company desires to grant to the Holder the registration rights
set forth herein with respect to the shares of Common Stock issuable upon conversion of the Series H
Convertible Preferred Stock and shares of Common Stock underlying the Warrant (hereinafter referred
to as the "Stock" or "Securities" of the Company).

NOW, THEREFORE, the parties hereto mutually agree as follows:

Section 1. Registrable Securities. As used herein the term
"Registrable Security" means the Securities; provided, however, that with respect to any particular
Registrable Security, such security shall cease to be a Registrable Security when, as of the date of
determination, (i) it has been effectively registered under the Securities Act of 1933, as amended
(the "1933 Act") and disposed of pursuant thereto, (ii) registration under the 1933 Act is no longer
required for the immediate public distribution of such security without limitation as to volume as a
result of the provisions of Rule 144 promulgated under the 1933 Act, or (iii) it has ceased to be
outstanding. The term "Registrable Securities" means any and/or all of the securities falling within
the foregoing definition of a "Registrable Security." In the event of any merger, reorganization,
consolidation, recapitalization or other change in corporate structure affecting the Common Stock,
such adjustment shall be deemed to be made in the definition of "Registrable Security" as is
appropriate in order to prevent any dilution or enlargement of the rights granted pursuant to this
Agreement.

Section 2. Restrictions on Transfer. The Holder acknowledges and
understands that prior to the registration of the Securities as provided herein, the Securities are
"restricted securities" as defined in Rule 144 promulgated under the Act. The Holder understands
that no disposition or transfer of the Securities may be made by Holder in the absence of (i) an
opinion of counsel to the Holder that such transfer may be made without registration under the 1933
Act or (ii) such registration.

With a view to making available to the Holder the benefits of Rule 144 under
the Securities Act or any other similar rule or regulation of the Commission that may at any time
permit the Holder to sell securities of the Company to the public without registration ("Rule 144"),
the Company agrees to:

(a)comply with the provisions of paragraph (c)(1) of Rule 144;
and

(b)file with the Commission in a timely manner all reports and other
documents required to be filed by the Company pursuant to Section 13 or 15(d) under the Exchange
Act; and, if at any time it is not required to file such reports but in the past had been required
to or did file such reports, it will, upon the request of any Holder, make available other
information as required by, and so long as necessary to permit sales of, its Registrable Securities
pursuant to Rule 144.

Section 3. Registration Rights.

(a)The Company agrees that it will prepare and file with the
Securities and Exchange Commission ("Commission"), within 45 days after the date hereof, a
registration statement on Form S-3 (or other appropriate form of registration statement) under the
1933 Act (the "Registration Statement"), at the sole expense of the Company (except as provided in
Section 3(c) hereof), in respect of all holders of Registrable Securities, so as to permit a public
offering and resale of the Registrable Securities under the Act.

The Company shall use its best efforts to cause the Registration
Statement to become effective, not later than 90 days after the date hereof, or if the Commission
notifies the Company that it will not review the Registration Statement, not later than ten business
days thereafter. The number of shares designated in the Registration Statement to be registered
shall include all the Warrant Shares and the number of shares of Common Stock which would be issued
assuming a Market Price of $0.50 per share of Common Stock, and shall include appropriate language
regarding reliance upon Rule 416 to the extent permitted by the Commission. The Company will notify
Holder of the effectiveness of the Registration Statement within one business day of such event. The
number of Registrable Securities that the Holder may sell under the Registration Statement may not
exceed that number of shares of Common Stock which the Selling Securityholder section of the
Registration Statement states are to be offered by the Holder.

(b)The Company will maintain the Registration Statement or post-
effective amendment filed under this Section 3 hereof current under the 1933 Act until the earlier
of (i) the date that all of the Registrable Securities have been sold pursuant to the Registration
Statement, (ii) the date the holders thereof receive an opinion of counsel to the Company, which
counsel shall be reasonably acceptable to the Holder, that all Registrable Securities may be sold
under the provisions of Rule 144 without limitation as to volume, (iii) all Registrable Securities
have been otherwise transferred to Holders who may trade such shares without restriction under the
Securities Act, and the Company has delivered a new certificate or other evidence of ownership for
such securities not bearing a restrictive legend, or (iv) all Registrable Securities may be sold
without any time, volume or manner limitations pursuant to Rule 144(k) or any similar provision then
in effect under the Securities Act in the opinion of counsel to the Company, which counsel shall be
reasonably acceptable to the Holder.

(c)All fees, disbursements and out-of-pocket expenses and costs
incurred by the Company in connection with the preparation and filing of the Registration Statement
under subparagraph 3(a) and in complying with applicable securities and Blue Sky laws (including,
without limitation, all attorneys' fees) shall be borne by the Company. The Holder shall bear the
cost of underwriting discounts and commissions, if any, applicable to the Registrable Securities
being registered and the fees and expenses of its counsel. The Holder and its counsel shall have a
reasonable period, not to exceed three (3) business days, to review the proposed Registration
Statement or any amendment thereto, prior to filing with the Commission, and the Company shall
provide each Holder with copies of any comment letters received from the Commission with respect
thereto. The Company shall make reasonably available for inspection by Holder, any underwriter
participating in any disposition pursuant to the Registration Statement, and any attorney,
accountant or other agent retained by such Holder or any such underwriter all relevant financial and
other records, pertinent corporate documents and properties of the Company and its subsidiaries, and
cause the Company's officers, directors and employees to supply all information reasonably requested
by such Holder or any such underwriter, attorney, accountant or agent in connection with the
Registration Statement, in each case, as is customary for similar due diligence examinations;
provided, however, that all records, information and documents that are designated in
writing by the Company, in good faith, as confidential, proprietary or containing any material non-
public information shall be kept confidential by such Holder and any such underwriter, attorney,
accountant or agent (pursuant to an appropriate confidentiality agreement in the case of any such
Holder or agent), unless such disclosure is made pursuant to judicial process in a court proceeding
(after first giving the Company an opportunity promptly to seek a protective order or otherwise
limit the scope of the information sought to be disclosed) or is required by law, or such records,
information or documents become available to the public generally or through a third party not in
violation of an accompanying obligation of confidentiality; and provided further that,
if the foregoing inspection and information gathering would otherwise disrupt the Company's conduct
of its business, such inspection and information gathering shall, to the maximum extent possible, be
coordinated on behalf of the Holder and the other parties entitled thereto by one firm of counsel
designed by and on behalf of the majority in interest of Holder and other parties. The Company shall
qualify any of the securities for sale in such states as such Holder reasonably designates and shall
furnish indemnification in the manner provided in Section 6 hereof. However, the Company shall not
be required to qualify in any state which will require an escrow or other restriction relating to
the Company and/or the sellers. The Company at its expense will supply the Holder with copies of the
Registration Statement and the prospectus or offering circular included therein and other related
documents in such quantities as may be reasonably requested by the Holder.

(d)The Company shall not be required by this Section 3 to include a
Holder's Registrable Securities in any Registration Statement which is to be filed if, in the
opinion of counsel for both the Holder and the Company (or, should they not agree, in the opinion of
another counsel experienced in securities law matters acceptable to counsel for the Holder and the
Company) the proposed offering or other transfer as to which such registration is requested is
exempt from applicable federal and state securities laws and would result in all purchasers or
transferees obtaining securities which are not "restricted securities", as defined in Rule 144 under
the 1933 Act.

(e)In the event that (i) the Registration Statement to be filed by
the Company pursuant to Section 3(a) above is not filed with the Commission within 45 days after the
date hereof, or the Registration Statement is not declared effective by the Commission not later
than 90 days after the date hereof, or if the Commission notifies the Company that it will not
review the Registration Statement and the Registration Statement is not declared effective not later
than ten (10) business days thereafter, (ii) the Registration Statement is not maintained as
effective by the Company for the period set forth in Section 3(b) above or (iii) an amendment to the
Registration Statement was not filed by the Company with the Commission and declared effective by
the Commission on a timely basis to include any additional number of Registrable Securities as
described in Section 3(i), if necessary, then the Company will pay Holder (pro rated on a daily
basis), as liquidated damages for such failure and not as a penalty, two (2%) percent of the
purchase price of the then outstanding shares of Preferred Stock for the first thirty (30) days, and
in the event of late filing, three percent (3%) percent of the purchase price of the outstanding
shares of Preferred Stock for every thirty (30) day period thereafter until the Registration
Statement has been filed and in the event of late effectiveness, two percent (2%) of the purchase
price of the outstanding shares of Preferred Stock for every thirty (30) day period thereafter until
the Registration Statement has been declared effective. Such payment of the liquidated damages shall
be made to the Holder in cash, immediately upon demand, provided, however, that the payment of such
liquidated damages shall not relieve the Company from its obligations to register the Registrable
Securities pursuant to this Section. 

Notwithstanding the above, if the Registration Statement covering the
Additional Registrable Securities (as defined in Section 3(i) hereof) required to be filed by the
Company pursuant to Section 3(i) hereof is not filed with the Commission within 45 days after the
Market Price declines to $0.50 or less for five consecutive Trading Days, the Company shall be in
default of this Registration Rights Agreement and the liquidated damages provisions of the foregoing
paragraph shall apply.

If the Company does not remit the damages to the Holder as set forth
above, the Company will pay the Holder reasonable costs of collection, including attorneys fees, in
addition to the liquidated damages. The registration of the Securities pursuant to this provision
shall not affect or limit Holder's other rights or remedies as set forth in this Agreement. 

(f)No provision contained herein shall preclude the Company from
selling securities pursuant to any Registration Statement in which it is required to include
Registrable Securities pursuant to this Section 3.

(g)If at any time or from time to time after the effective date of
the Registration Statement, the Company notifies the Holder in writing of the existence of a
Potential Material Event (as defined in Section 3(h) below), the Holder shall not offer or sell any
Registrable Securities or engage in any other transaction involving or relating to Registrable
Securities, from the time of the giving of notice with respect to a Potential Material Event until
such Holder receives written notice from the Company that such Potential Material Event either has
been disclosed to the public or no longer constitutes a Potential Material Event; provided, however,
that the Company may not so suspend the right to such holders of Securities for more than twenty
(20) days in the aggregate during any twelve month period, during the periods the Registration
Statement is required to be in effect. If a Potential Material Event shall occur prior to the date
the Registration Statement is filed, then the Company's obligation to file the Registration
Statement shall be delayed without penalty for not more than twenty (20) days. The Company must give
Holder notice in writing at least two (2) business days prior to the first day of the blackout
period. 

(h)"Potential Material Event" means any of the following: (a) the
possession by the Company of material information not ripe for disclosure in a registration
statement, which shall be evidenced by determinations in good faith by the Chief Executive Officer
or the Board of Directors of the Company that disclosure of such information in the Registration
Statement would be detrimental to the business and affairs of the Company; or (b) any material
engagement or activity by the Company which would, in the good faith determination of the Chief
Executive Officer or the Board of Directors of the Company, be adversely affected by disclosure in a
registration statement at such time, which determination shall be accompanied by a good faith
determination by the Chief Executive Officer or the Board of Directors of the Company that the
Registration Statement would be materially misleading absent the inclusion of such information.

(i)In the event the Market Price declines to $0.50 or less for five
consecutive Trading Days (the "Decline Date"), the Company shall, to the extent required by the
Securities Act (because the additional shares were not covered by the Registration Statement filed
pursuant to Section 3(a)), file an additional Registration Statement with the Commission for such
additional number of Registrable Securities issuable upon conversion of the Preferred Stock (the
"Additional Registrable Securities"), in addition to those previously registered, as would be
necessary to satisfy conversions of the then outstanding shares of Preferred Stock based upon the
then prevailing market price of the Common Stock. The Company shall prepare and file with the
Commission not later than the 30th day after the Decline Date, a registration statement
relating to the offer and sale of such Additional Registrable Securities (the "Additional
Registration Statement") and shall use its best efforts to cause the Commission to declare such
Additional Registration Statement effective under the Securities Act as promptly as practicable but
not later than 60 days thereafter. If the Additional Registration Statement is not (i) filed with
the Commission by the 30th day after the Decline Date or (ii) declared effective by the
Commission within 90 days after the Decline Date (either of which, without duplication, an
"Additional Registration Date"), then the Company shall make payments to the Holder as set forth in
Section 3(e) hereof, for late filing or effectiveness, as the case may be, relating to the
Additional Securities.

Section 4. Cooperation with Company. Holder will cooperate with the
Company in all respects in connection with this Agreement, including timely supplying all
information reasonably requested by the Company and executing and returning all documents reasonably
requested in connection with the registration and sale of the Registrable Securities and entering
into and performing its obligations under any underwriting agreement, if the offering is an
underwritten offering, in usual and customary form, with the managing underwriter or underwriters of
such underwritten offering.

Section 5. Registration Procedures. If and whenever the Company is
required by any of the provisions of this Agreement to effect the registration of any of the
Registrable Securities under the Act, the Company shall (except as otherwise provided in this
Agreement), as expeditiously as possible:

(a) (i)prepare and file with the Commission such amendments and
supplements to the Registration Statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and to comply with the provisions of the Act
with respect to the sale or other disposition of all securities covered by such registration
statement whenever the Holder of such securities shall desire to sell or otherwise dispose of the
same (including prospectus supplements with respect to the sales of securities from time to time in
connection with a registration statement pursuant to Rule 415 promulgated under the Act) and (ii)
take all lawful action such that each of (A) the Registration Statement and any amendment thereto
does not, when it becomes effective, 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, not
misleading and (B) the Prospectus forming part of the Registration Statement, and any amendment or
supplement thereto, does not at any time during the Registration Period include 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.

(b) (i)prior to the filing with the Commission of any Registration
Statement (including any amendments thereto) and the distribution or delivery of any prospectus
(including any supplements thereto), provide draft copies thereof to the Holders and reflect in such
documents all such comments as the Holders (and their counsel) reasonably may propose respecting the
Selling Shareholders and Plan of Distribution sections (or equivalents) and (ii) furnish to each
Holder such numbers of copies of a prospectus including a preliminary prospectus or any amendment or
supplement to any prospectus, in conformity with the requirements of the Act, and such other
documents, as such Holder may reasonably request in order to facilitate the public sale or other
disposition of the securities owned by such Holder;

(c)register and qualify the securities covered by the Registration
Statement under such other securities or blue sky laws of such jurisdictions as the Holder shall
reasonably request (subject to the limitations set forth in Section 3(d) above), and do any and all
other acts and things which may be necessary or advisable to enable each Holder to consummate the
public sale or other disposition in such jurisdiction of the securities owned by such Holder, except
that the Company shall not for any such purpose be required to qualify to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified or to file therein any general
consent to service of process;

(d)list such securities on The Nasdaq SmallCap Market or other
national securities exchange on which any securities of the Company are then listed, if the listing
of such securities is then permitted under the rules of such exchange or Nasdaq;

(e)enter into and perform its obligations under an underwriting
agreement, if the offering is an underwritten offering, in usual and customary form, with the
managing underwriter or underwriters of such underwritten offering, including, but not limited to,
the following:

(i) making such representations and warranties to the Holder
participating in such underwritten offering and to the managers, in form, substance and scope as are
customarily made by the Company to underwriters in secondary underwritten offerings;

(ii) obtaining opinions of counsel to the Company (which counsel and
opinions (in form, scope and substance) shall be reasonably satisfactory to the managers) addressed
to the underwriters, covering such matters as are customarily covered in opinions requested in
secondary underwritten offerings (it being agreed that the matters to be covered by such opinions
shall include, without limitation, as of the date of the opinion and as of the Effective Time of the
Registration Statement or most recent post-effective amendment thereto, as the case may be, the
absence from the Registration Statement and the Prospectus, including any documents incorporated by
reference therein, of an untrue statement of a material fact or the omission of a material fact
required to be stated therein or necessary to make the statements therein (in the case of the
Prospectus, in light of the circumstances under which they were made) not misleading, subject to
customary limitations);

(iii) obtaining "cold comfort" letters and updates thereof from the
independent public accountants of the Company (and, if necessary, from the independent public
accountants of any subsidiary of the Company or of any business acquired by the Company, in each
case for which financial statements and financial data are, or are required to be, included in the
Registration Statement), addressed to each underwriter participating in such underwritten offering
(if such underwriter has provided such letter, representations or documentation, if any, required
for such cold comfort letter to be so addressed), in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with secondary underwritten offerings;
and

(iv) delivering such documents and certificates as may be reasonably
required by the managers, if any;

(f)notify each Holder of Registrable Securities covered by the
Registration Statement, at any time when a prospectus relating thereto covered by the Registration
Statement is required to be delivered under the Act, of the happening of any event of which it has
knowledge as a result of which the prospectus included in the Registration Statement, as then in
effect, includes an untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading in the light of the
circumstances then existing, and the Company shall prepare and file a curative amendment under
Section 5(a) as quickly as commercially possible;

(g)as promptly as practicable after becoming aware of such event,
notify each Holder who holds Registrable Securities being sold (or, in the event of an underwritten
offering, the managing underwriters) of the issuance by the Commission of any stop order or other
suspension of the effectiveness of the Registration Statement at the earliest possible time and take
all lawful action to effect the withdrawal, recession or removal of such stop order or other
suspension;

(h)cooperate with the Holders who hold Registrable Securities being
offered to facilitate the timely preparation and delivery of certificates for the Registrable
Securities to be offered pursuant to the Registration Statement and enable such certificates for the
Registrable Securities to be in such denominations or amounts, as the case may be, as the Holders
reasonably may request and registered in such names as the Holder may request; and, within three
business days after a Registration Statement which includes Registrable Securities is declared
effective by the Commission, deliver and cause legal counsel selected by the Company to deliver to
the transfer agent for the Registrable Securities (with copies to the Holders whose Registrable
Securities are included in such Registration Statement) an appropriate instruction and, to the
extent necessary, an opinion of such counsel;

(i)take all such other lawful actions reasonably necessary to
expedite and facilitate the disposition by the Holders of their Registrable Securities in accordance
with the intended methods therefor provided in the prospectus which are customary under the
circumstances;

(j)make generally available to its security holders as soon as
practicable, but in any event not later than 18 months after (i) the effective date (as defined in
Rule 158(c) under the Securities Act) of the Registration Statement, and (ii) the effective date of
each post-effective amendment to the Registration Statement, as the case may be, an earnings
statement of the Company and its subsidiaries complying with Section 11(a) of the Securities Act and
the rules and regulations of the commission thereunder (including, at the option of the Company,
Rule 158);

(k)in the event of an underwritten offering, promptly include or
incorporate in a Prospectus supplement or post-effective amendment to the Registration Statement
such information as the managers reasonably agree should be included therein and to which the
Company does not reasonably object and make all required filings of such Prospectus supplement or
post-effective amendment as soon as practicable after it is notified of the matters to be included
or incorporated in such Prospectus supplement or post-effective amendment; and

(l)maintain a transfer agent and registrar for its Common Stock.

Section 6. Indemnification.

(a)The Company agrees to indemnify and hold harmless the Holder and
each person, if any, who controls the Holder within the meaning of the 1933 Act ("Distributing
Holder") against any losses, claims, damages or liabilities, joint or several (which shall, for all
purposes of this Agreement, include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees), to which the Distributing Holder may become
subject, under the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, or any related preliminary
prospectus, final prospectus, offering circular, notification or amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not misleading; provided,
however, that the Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement, preliminary
prospectus, final prospectus, offering circular, notification or amendment or supplement thereto in
reliance upon, and in conformity with, written information furnished to the Company by the
Distributing Holder, specifically for use in the preparation thereof. This Section 6(a) shall not
inure to the benefit of any Distributing Holder with respect to any person asserting such loss,
claim, damage or liability who purchased the Registrable Securities which are the subject thereof if
the Distributing Holder failed to send or give (in violation of the 1933 Act or the rules and
regulations promulgated thereunder) a copy of the prospectus contained in such Registration
Statement to such person at or prior to the written confirmation to such person of the sale of such
Registrable Securities, where the Distributing Holder was obligated to do so under the 1933 Act or
the rules and regulations promulgated thereunder.

(b)Each Distributing Holder agrees that it will indemnify and hold
harmless the Company, and each officer, director of the Company or person, if any, who controls the
Company within the meaning of the 1933 Act, against any losses, claims, damages or liabilities
(which shall, for all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees) to which the Company or any
such officer, director or controlling person may become subject under the 1933 Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect thereof; arise out of
or are based upon any untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, or any related preliminary prospectus, final prospectus, offering
circular, notification or amendment or supplement thereto, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, but in each case only to the extent that
such untrue statement or alleged untrue statement or omission or alleged omission was made in the
Registration Statement, preliminary prospectus, final prospectus, offering circular, notification or
amendment or supplement thereto in reliance upon, and in conformity with, written information
furnished to the Company by such Distributing Holder, specifically for use in the preparation
thereof.

(c)Promptly after receipt by an indemnified party under this Section
6 of notice of the commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party under this Section 6, notify the indemnifying
party of the commencement thereof; but the omission so to notify the indemnifying party will not
relieve the indemnifying party from any liability which it may have to any indemnified party except
to the extent of actual prejudice demonstrated by the indemnifying party. In case any such action is
brought against any indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, assume the defense thereof,
subject to the provisions herein stated and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party under this Section 6 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation, unless the indemnifying party shall not pursue the action to its
final conclusion. The indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of such counsel shall
not be at the expense of the indemnifying party if the indemnifying party has assumed the defense of
the action with counsel reasonably satisfactory to the indemnified party; provided that if the
indemnified party is the Distributing Holder, the fees and expenses of such counsel shall be at the
expense of the indemnifying party if (i) the employment of such counsel has been specifically
authorized in writing by the indemnifying party, or (ii) the named parties to any such action
(including any impleaded parties) include both the Distributing Holder and the indemnifying party
and the Distributing Holder shall have been advised by such counsel that there may be one or more
legal defenses available to the indemnifying party different from or in conflict with any legal
defenses which may be available to the Distributing Holder (in which case the indemnifying party
shall not have the right to assume the defense of such action on behalf of the Distributing Holder,
it being understood, however, that the indemnifying party shall, in connection with any one such
action or separate but substantially similar or related actions in the same jurisdiction arising out
of the same general allegations or circumstances, be liable only for the reasonable fees and
expenses of one separate firm of attorneys for the Distributing Holder, which firm shall be
designated in writing by the Distributing Holder). No settlement of any action against an
indemnified party shall be made without the prior written consent of the indemnified party, which
consent shall not be unreasonably withheld.

Section 7. Contribution. In order to provide for just and equitable
contribution under the 1933 Act in any case in which (i) the indemnified party makes a claim for
indemnification pursuant to Section 6 hereof but is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 6 hereof provide for indemnification
in such case, or (ii) contribution under the 1933 Act may be required on the part of any indemnified
party, then the Company and the applicable Distributing Holder shall contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (which shall, for all purposes
of this Agreement, include, but not be limited to, all reasonable costs of defense and investigation
and all reasonable attorneys' fees), in either such case (after contribution from others) on the
basis of relative fault as well as any other relevant equitable considerations. The relative fault
shall be determined by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or the applicable Distributing Holder on the
other hand, and the parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the Distributing Holder agree that it
would not be just and equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation or by any other method of allocation which does not take account of the equitable
considerations referred to in this Section 7. The amount paid or payable by an indemnified party as
a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to
above in this Section 7 shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such action or claim. No
person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act)
shall be entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.

Notwithstanding any other provision of this Section 7, in no event shall
any (i) Holder be required to undertake liability to any person under this Section 7 for any amounts
in excess of the dollar amount of the proceeds to be received by such Holder from the sale of such
Holder's Registrable Securities (after deducting any fees, discounts and commissions applicable
thereto) pursuant to any Registration Statement under which such Registrable Securities are to be
registered under the Securities Act and (ii) underwriter be required to undertake liability to any
person hereunder for any amounts in excess of the aggregate discount, commission or other
compensation payable to such underwriter with respect to the Registrable Securities underwritten by
it and distributed pursuant to the Registration Statement.

Section 8.Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in writing and, unless
otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered
or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier
service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile,
addressed as set forth below or to such other address as such party shall have specified most
recently by written notice. Any notice or other communication required or permitted to be given
hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or number designated
below (if delivered on a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered other than on a business
day during normal business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by reputable courier service, fully prepaid, addressed to
such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:

If to the Company:Integrated Surgical Systems, Inc.

1850 Research Park Drive

Davis, CA 95616-4884

Attention: Ramesh C. Trivedi

Telephone: (530) 792-2600

Facsimile: (530) 792-2690

with a copy to:Snow Becker Krauss P.C.

(shall not constitute notice) 605 Third Avenue

New York, NY 10158

Attention: Jack Becker

Telephone: (212) 687-3860

Facsimile: (212) 949-7052

If to the Holder: As set forth in the signature page of the Purchase
Agreement.

Either party hereto may from time to time change its address or facsimile
number for notices under this Section 8 by giving at least ten (10) days' prior written notice of
such changed address or facsimile number to the other party hereto.

Section 9. Assignment. This Agreement is binding upon and inures to
the benefit of the parties hereto and their respective heirs, successors and permitted assigns. The
rights granted the Holder under this Agreement may be assigned to any purchaser of substantially all
of the Registrable Securities (or the rights thereto) from Holder. In the event of a transfer of the
rights granted under this Agreement, the Holder agrees that the Company may require that the
transferee comply with reasonable conditions as determined in the discretion of the Company. 

Section 10. Additional Covenants of the Company. The Company agrees
that at such time as it meets all the requirements for the use of Securities Act Registration
Statement on Form S-3 it shall file all reports and information required to be filed by it with the
Commission in a timely manner and take all such other action so as to maintain such eligibility for
the use of such form.

Section 11. Counterparts/Facsimile. This Agreement may be executed in
two or more counterparts, each of which shall be constitute an original, but all of which, when
together shall constitute but one and the same instrument, and shall become effective when one or
more counterparts have been signed by each party hereto and delivered to the other party. In lieu of
the original, a facsimile transmission or copy of the original shall be as effective and enforceable
as the original.

Section 12. Termination of Registration Rights. The rights granted
pursuant to this Agreement shall terminate as to each Holder (and permitted transferees or assignees
) upon the occurrence of any of the following:

(a)all Holder's securities subject to this Agreement have been
registered and sold; or

(b)such Holder's securities subject to this Agreement may be sold
without such registration and without limitation as to volume pursuant to Rule 144(k) promulgated by
the SEC pursuant to the Securities Act.

Section 13. Remedies. The remedies provided in this Agreement are
cumulative and not exclusive of any remedies provided by law. 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 best 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.

Section 14. Conflicting Agreements. The Company shall not enter into
any agreement with respect to its securities that is inconsistent with the rights granted to the
holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions
hereof. Without limiting the generality of the foregoing, without the written consent of the Holders
of a majority in interest of the Registrable Securities, the Company shall not grant to any person
the right to request it to register any of its securities under the Securities Act unless the rights
so granted are subject in all respect to the prior rights of the holders of Registrable Securities
set forth herein, and are not otherwise in conflict or inconsistent with the provisions of this
Agreement. The restrictions on the Company's rights to grant registration rights under this
paragraph shall terminate on the date of the Registration Statement to be filed pursuant to Section
3(a) is declared effective by the Commission.

Section 15. Headings. The headings in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

Section 16. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard to the conflicts of
law principles of such state. Each party hereto hereby submits to the exclusive jurisdiction of the
United States District Court for the Southern District of New York and of any New York State Court
sitting in New York City for purposes of all legal proceedings arising out of or relating to this
Agreement. Each party hereto irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any such proceeding
brought in such a court has been brought in an inconvenient forum. Each party hereto hereby
irrevocably waives any and all right to trial by jury in any legal proceeding arising out of or
relating to this Agreement.

Section 17. Amendment and Waivers. This Agreement may be amended and
the Company may take any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company shall have obtained the written consent to such amendment,
action or omission to act, of the holder or holders of the sum of the 85% or more of the shares of
(i) Registrable Securities issued at such time, plus (ii) Registrable Securities issuable upon
exercise or conversion of the Securities then constituting derivative securities (if such Securities
were not fully exercised or converted in full as of the date such consent is sought). Each holder of
any Registrable Securities at the time or thereafter outstanding shall be bound by any consent
authorized by this Section 17, whether or not such Registrable Securities shall have been marked to
indicate such consent.

Section 18. Severability. If any provision of this Agreement shall for
any reason be held invalid or unenforceable, such invalidity or unenforceablity shall not affect any
other provision hereof and this Agreement shall be construed as if such invalid or unenforceable
provision had never been contained herein. Terms not otherwise defined herein shall be defined in
accordance with the Agreement.

Section 19. Capitalized Terms. All capitalized terms not otherwise
defined herein shall have the meaning assigned to them in the Purchase Agreement.

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, on the day and year first above written.

INTEGRATED SURGICAL SYSTEMS, INC.

 

By:_______________________________________

Louis Kirchner

Chief Financial Officer 

 

HOLDER:

 

________________________________________

 

By:________________________________________

Authorized Signatory

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