Document:

Unassociated Document

    

      SETTLEMENT
AGREEMENT AND RELEASE

       

      This
Agreement (referred to herein as the “Agreement” or “Settlement Agreement”) is
made effective as December 14, 2009 (the “Effective Date”), by and between
SpongeTech Delivery Systems, Inc. (“SDS” or “SPONGETECH”) and SpongeTech,
Inc. (“STI”),
Spongeables LLC (“Spongeables” or “SLLC”) and Michael Popovsky
(“Popovsky”). SpongeTech
Delivery Systems, Inc., SpongeTech, Inc., Spongeables LLC and Michael Popovsky
are collectively referred to as the “Parties” and singularly referred to as
“Party.” Sponge Tech, Inc., Spongeables LLC and Michael Popovsky are
collectively referred to as the “Defendants.”

       

      RECITALS

       

      
        	
                 
      

              	
                A.

              	
                SDS
      commenced an action captioned: SPONGETECH
      DELIVERY SYSTEMS, INC.,
      Plaintiff, v. SPONGETECH, INC., SPONGEABLES, LLC., and MICHAEL
      POPOVSKY,
      Individually, CIVIL ACTION NO: 09 CV 8398
      (PKC), UNITED STATES DISTRICT COURT FOR THE
      SOUTHERN DISTRICT OF NEW YORK (the
      “Action”);

              

      

       

      
        	
                 
      

              	
                B.

              	
                Defendants
      dispute the claims asserted in the Action, and contend that they have no
      liability whatsoever to SDS;

              

      

       

      
        	
                 
      

              	
                C.

              	
                The
      Parties wish to settle the Action without any admission of wrongdoing or
      liability and without any payment of monies by any Party, and having
      settled their disputes and the Action, the Parties now wish to further
      reduce to writing the terms of their settlement
  agreement.

              

      

       

      AGREEMENT

       

      For good
and valuable consideration, the receipt and sufficiency of which the Parties
acknowledge, the Parties agree as follows:

       

      Section 1.General Releases ; Notice of
Dismissal With Prejudice.

       

      Section 1.1. SDS, on
behalf of itself and its present, past and future predecessors, affiliates,
parents, subsidiaries, shareholders, managers, associates, employees, officers,
directors representatives, agents, successors and assigns, hereby releases and
discharges the Defendants from any claims, demands and causes of action, whether
in law or equity, that arise out of or relate to the claims in the Action or
either were asserted or could have been asserted in the Action or at any time
through and up to the Effective Date of this Settlement Agreement and
Release.

       

      Section 1.2.
Defendants, on behalf of themselves and their present, past and future
predecessors, affiliates, parents, subsidiaries, shareholders, managers,
associates, employees, officers,
directors representatives, agents, successors and assigns, hereby release and
discharge SDS from any claims, demands and causes of action, whether in law or
equity, that either arise out of or relate to the claims in the Action or were
asserted or could have been asserted in the Action at or any time through and up
to the Effective Date of this Settlement Agreement and Release.

      

        
          
            Settlement
Agreement

            Execution
Copy

            (December
14, 2009)

             

          

          
            1

            
              

            

          

          
             

          

        

      Section
1.3. Promptly after the execution of this Agreement by the Parties, and in no
event more than five (5) business days after the execution of this Agreement by
the Parties. SDS, through its counsel, shall file with the United States
District Court for the Southern District of New York (the “Court”) a notice of
dismissal of the Action with prejudice, and with each Party bearing its own
costs and attorneys’ fees pursuant to Rule 41(a) of the Federal Rules of Civil
Procedure. The notice of dismissal with prejudice shall be in the form attached
hereto as Exhibit A, and shall provide that the Court shall retain jurisdiction
over the Parties solely for the purpose of enforcing the terms of this
Settlement Agreement.

       

      Section 2.Breach and Cure. In
the event that SDS or SLLC materially breaches a provision
of Section 4 of this Agreement, the nonbreaching, affected Party shall provide
such breaching Party with written notice thereof. The breaching Party shall have
a period of thirty (30) days from receipt of such notice in which to cure such
breach before the nonbreaching, affected Party shall be permitted to seek any
legal redress against the breaching Party.

       

      Section 3.General
Provisions.

       

      Section 3.1. Entire Agreement.
This Agreement supersedes any and all prior or contemporaneous negotiations,
correspondence, understandings or agreements of the Parties relating to the
subject matter hereof, whether written or oral, and all such other
understandings or agreements shall upon the effective date of this Agreement be
void and without further force or effect. No change, modification, addition or
amendment to this Agreement shall be valid unless in writing and duly executed
by all Parties, indicating intent to modify the Agreement.

       

      Section 3.2. Notice. In the case
of any need to communicate with regard to this Agreement, such communications
shall be in writing and shall be directed to the following designated
individuals:

       

      For
Sponge Tech Delivery Systems, Inc.:

       

      Michael
Metter, CEO

      43 West
33 rd
Street

      Suite
600,

      New York,
New York, 10001

       

      with a
copy to

      James
Fornari, Esq.

      Gersten
Savage, LLP

      600
Lexington Avenue, 9th Fl. New
York, NY 10022

      Fax:
(212) 980-5192

      
        
          Settlement
Agreement

          Execution
Copy

          (December
14, 2009)

           

        

        
          2

          
            

          

        

        
           

        

      

      

       

      For Defendants Spongeables LLC and
Michael Popovsky:

       

      
        	
                Michael
      Popovsky

              	
                Michael
      Popovsky

              
	
                Spongeables,
      LLC

              	
                co/
      Spongeables, LLC

              
	
                8507
      La Cienega Blvd.

              	
                8507
      La Cienega Blvd.

              
	
                Inglewood,
      CA 90301

              	
                Inglewood,
      CA 90301

              
	
                Fax:
      (310) 278-0385

              	
                Fax:
      (310) 278-0385

              

      

       

      with a
copy to

       

      Louis C.
Paul, Esq.

      Louis C.
Paul & Associates, PLLC

      420 East
61st
Street, Suite 8E New York, NY 10065

      Fax:
(212) 223-8259

       

      For
Defendant Sponge Tech, Inc.:

       

      Steven
Pfrenzinger

      Spongetech,
Inc.

      73987
Desert Garden Trail Palm Desert, CA 92260 Fax: (949) 767-5605

       

      Any
notice required or permitted by this Agreement shall be effective only if given
in writing and shall be considered to have been given when (i) delivered by
hand, (ii) sent by facsimile with completed transmission confirmed, provided
that a copy is mailed reasonably promptly by certified or registered mail,
return receipt requested, postage prepaid, or (iii) received by the addressee,
if sent by Express Mail, Federal Express, or other reputable express delivery
service (receipt requested), or by first class certified or registered mail,
return receipt requested, postage prepaid to the party to be notified at such a
Party’s address as set forth above, or as subsequently modified by the Parties.
Notices sent by Federal Express or other reputable express delivery service
(receipt requested) marked for next-day delivery shall be deemed received on the
next business day after sending.

       

      Section 3.3. Governing Law. All
matters affecting the interpretation, form, validity, and performance of this
Agreement shall be decided under the laws of the State of New York without
regard to principles of conflicts of law. Enforcement of this Agreement and any
related future disputes between the Parties will be governed by New York law,
without reference to its conflict of laws rules, and the Parties consent to the
jurisdiction of a court of competent jurisdiction in the Borough of Manhattan in
the City of New York to resolve any disputes between the
Parties.

      
        
          Settlement
Agreement

          Execution
Copy

          (December
14, 2009)

           

        

        
          3

          
            

          

        

        
           

        

      

      

       

      Section 3.4. Captions. The
captions in the Agreement are intended solely as a matter of convenience and for
reference and shall be given no effect in the construction or interpretation of
the Agreement.

       

      Section 3.5. Severability of
Provisions. Should any part or provision of the Agreement be held
unenforceable or in conflict with the law of any jurisdiction, the validity of
the remaining parts or provisions shall be unimpaired.

       

      Section 3.6. No Agency. At no time
shall any Party hold itself out to be the agent, employee, lessee, sublessee,
partner, or joint venture partner of another Party. Nothing in the Agreement
shall be construed to create any relationship between the Parties other than as
expressly set forth in this Agreement. The Parties shall not have any express or
implied right or authority to assume or create any obligations on behalf of or
in the name of each other or to bind each other with regard to any other
contract, agreement, or undertaking with a third party. Nothing in this Section
3.6 is intended to preclude Popovsky (who is the CEO of SLLC) from acting as an
agent or employee of SLLC.

       

      Section 3.7. Construction Against
Waiver. No waiver of any term, provision, or condition of the Agreement,
whether by conduct or otherwise, in any one or more instances shall be deemed to
be construed as a further or continuing waiver of any such term, provision, or
condition of the Agreement; nor shall any failure to enforce any provision
hereof operate as a waiver of such provision or of any other
provision.

       

      Section 3.8. Joint Drafting.
Counsel for the Parties participated in the negotiation and drafting of this
Agreement. The terms of this Agreement should not be construed either for or
against any Party based solely on the authorship of any particular term or
section.

       

      Section 3.9. Execution of
Agreement. This Agreement may be executed in one or more counterparts,
and all counterparts so executed shall constitute one single and entire
Agreement, which shall be binding on the Parties hereto, notwithstanding that
the Parties may not be signatories to the original or the same counterparts. The
Parties may execute this Agreement, and exchange signature pages, by email PDF
or facsimile copies, and the Agreement shall be binding when each Party has
signed the Agreement and each Party has received a copy of the Agreement signed
by each of the other Parties. The Parties agree to provide original signed
copies of the Agreement promptly upon the written request of another Party, but
the delivery of original signed copies shall not be required for the Agreement
to be binding. Each Party that is an entity represents and warrants that it has
the right, power and authority to enter into this Agreement, and that the
persons signing for such entity Party below have the authority to do so. The
name and title of each person signing for each entity Party below shall be
clearly written in legible print below each signature.

      
        
          Settlement
Agreement

          Execution
Copy

          (December
14, 2009)

           

        

        
          4

          
            

          

        

        
           

        

      

      

       

      Section 4.Other
Terms.

       

      

      Section 4.1.
Spongeables agrees not to use the mark SPONGETECH® (the “Mark”) in connection
with the sale of any product or service for sponges infused with soap, body wash
and/or active ingredients including use of the Mark in any such advertisement,
packaging, or offer for sale. SLLC agrees not to use the Mark in connection with
the sale of any product or service for sponges infused with soap, body wash,
and/or active product ingredients that will cause dilution of the Mark or
knowingly cause injury to SDS’ business reputation. In addition SLLC agrees not
to use as marks SPONGETEK, SPONGETEC, SPONGTECH, SPONGTEC, SPONGTEK, SPNGTECH,
SPNGTEK, or SPNGTEC in connection with the above-described goods and
services.

       

      The
forgoing expressly excludes any use of the trade name “SpongeTech, Inc.” by SLLC
to accurately identify the prior owner of rights or products or to identify the
source of products or technology developed by STI that are now owned by SLLC.
The foregoing also excludes any use of the Mark that is expressly authorized and
permitted by SDS by written agreement, and any use of“SpongeTech, Inc.” that may
be necessary for reporting requirements, for accounting purposes, and/or for
legal matters relating to the winding up of the affairs of STI.

       

      SLLC
further agrees not to use any trademark in connection with its products,
services, advertisements, packaging, and offers for sale that is likely to cause
confusion, mistake or deception in the minds of the public with the Mark and
associated products that use the Mark.

       

      It is
agreed as between the Parties that the trademarks SPONGEABLES, SPONGEABLE,
SPONGABLES, SPONGABLE, SPONGABL, SPNGBLE, SPONGELLE, SPONGEL, or SPONGE-GEL are
not confusingly similar to the Mark and that nothing herein prohibits or
restricts SLLC from continuing to use SPONGEABLES, SPONGEABLE, SPONGABLES,
SPONGABLE, SPONGABL, SPNGBLE, SPONGELLE, SPONGEL, or SPONGE-GEL (collectively
the “Spongeable Marks”) in connection with the sale of any product or service
for sponges infused with soap, body wash, and/or active product ingredients
including use of the tradename and trademark SPONGEABLES, SPONGEABLE,
SPONGABLES, SPONGABLE, SPONGABL, SPNGBLE, SPONGELLE, SPONGEL, SPONGE-GEL or
SPONGEGEL in any such advertisement, packaging, or offer for sale.

       

      Section 4.2. SDS
agrees not to use the mark SPONGEABLES or any of the Spongeable Marks in
connection with the sale of any product or service for sponges embedded with
cleaner, soap, shampoo, wax, degreaser and/or active product ingredients
including use of SPONGEABLES or any of the Spongeable Marks in any such
advertisement, packaging, or offer for sale. SDS agrees not to use SPONGEABLES
or any of the Spongeable Marks in connection with the sale of any product or
service for soap infused sponges or for sponges embedded with cleaner, soap,
shampoo, wax, degreaser and/or active product ingredients that will cause
dilution thereof or knowingly cause injury to SLLC’s business
reputation.

      
        
          Settlement
Agreement

          Execution
Copy

          (December
14, 2009)

           

        

        
          5

          
            

          

        

        
           

        

      

      

       

      The
foregoing also excludes any use of SPONGEABLES or any of the Spongeable Marks
that are expressly authorized and permitted by SLLC by written
agreement.

       

      SDS
further agrees not to use any trademark in connection with its products,
services, advertisements, packaging, and offers for sale which is likely to
cause confusion, mistake or deception in the minds of the public with SLLC’s
mark SPONGEABLES or any of the Spongeable Marks and associated products that use
those marks.

       

      It is
agreed as between the Parties that SDS’s SPONGETECH mark is not confusingly
similar to the mark SPONGEABLES or any of the Spongeable Marks and that nothing
herein prohibits or restricts SDS from continuing to use the Mark in connection
with the sale of any product or service for soap infused sponges for personal
use, including use of the Mark in any such advertisement, packaging, or offer
for sale.

       

      Section 4.3. As
between SDS and SLLC, all right, title and interest in and to each of the
Parties’ respective trademarks (SDS’s SPONGETECH mark and SLLC’s SPONGEABLES
mark and Spongeable Marks) shall be and remain their respective sole and
complete property. SDS and SLLC recognize the value of the goodwill associated
with SDS’s SPONGETECH mark and SLLC’S SPONGEABLES mark and Spongeable Marks),
and that these marks have secondary meaning in the mind of the public, and that
these trademarks, and any registrations therefor, are good and valid. Neither
SDS nor SLLC shall contest or assist others in contesting the other’s rights or
interests in or to these trademarks or any other trademark that a Party may seek
to register which is substantially similar to the marks SPONGETECH or
SPONGEABLES (including the Spongeable Marks) in the United States or anywhere
else in the world . SLLC agrees not to seek any trademark registration(s) for a
mark that is substantially similar or confusingly similar with SDS’s SPONGETECH
mark in the United States or anywhere else in the world. SDS likewise agrees not
to seek any trademark registration(s) for a mark that is substantially similar
or confusingly similar with SLLC’s SPONGEABLES mark or any of the Spongeable
Marks in the United States or anywhere else in the world.

       

      Section 4.4. This
Agreement shall be binding upon the Parties and their successors and
assigns.

       

      Section 4.5. Each of
SLLC and SDS shall promptly notify the other of any apparently unauthorized use
or infringement by third parties of the other Party’s trademarks, and will
reasonably cooperate with the Party requesting assistance, at the requesting
Party’s expense, in an action at law or in equity undertaken with respect to
such unauthorized use or infringement. For avoidance of doubt, there is no
affirmative obligation on the part of SDS to actively monitor and/or search for
apparently unauthorized third-party use of the SLLC’s trademarks and SLLC shall
likewise be under no affirmative obligation to actively monitor and/or search
for apparently unauthorized third-party use of the SDS’s
trademarks.

      
        
          Settlement
Agreement

          Execution
Copy

          (December
14, 2009)

           

        

        
          6

          
            

          

        

        
           

        

      

      

       

      Section 4.6. STI
shall use reasonable efforts to complete the winding up of its affairs as
quickly as practicable, and shall provide SDS with an update of its efforts
within forty-five (45) days from the Effective Date. If additional time is
required by STI to wind-up its affairs, STI shall so advise SDS of actions taken
during the preceding 45-day period and shall provide SDS further updates as
mutually agreed with SDS until the winding up has been completed. Defendant STI
and SDS recognize that STI is listed as a “void” company with the Delaware
Secretary of State (SOS). Defendant STI shall take such further steps as may be
reasonably requested to cause STI to be listed as inactive, dissolved or other
similar designation with the Delaware SOS. Defendants SLLC and Popovsky hereby
covenant and agree that in the future neither will seek to form or register a
business entity containing the word SPONGETECH, SPONGETEK, SPONGETEC, SPONGTECH,
SPONGTEC, SPONGTEK, SPNGTECH, SPNGTEK, or SPNGTEC.

       

      Section 4.7. SLLC and
STI agree that websites owned, operated or under the control of SLLC or STI,
shall not contain any of the following meta -tags: SPONGETECH SPONGETEK,
SPONGETEC, SPONGTECH, SPONGTEC, SPONGTEK, SPNGTECH, SPNGTEK, or SPNGTEC. SDS
agrees that websites owned, operated or under the control of SDS shall not
contain any of the following meta-tags: SPONGEABLES, SPONGEABLE, SPONGABLES,
SPONGABLE, SPONGABL, SPNGBLE, SPONGELLE, SPONGEL, or SPONGE-GEL. The Parties
further agree not to engage in typosquatting of the other’s trademarks – i.e.,
by registering, or causing or assisting a third party to register, a website
having as a uniform resource locator (url) containing other party’s trademark or
one of the above -listed variants of the other’s mark (e.g.,
spongeables[pejorative].com or [pejorative] spongetech.com).

       

      Section 4.8. The
Parties agree that any breach of the undertakings set forth in Sections 4.1 or
Section 4.2, that is not cured in the period provided in Section 2, will be
deemed to result in immediate and irreparable damage to the other. In the event
of such an uncured breach, the breaching party acknowledges that there is no
adequate remedy at law. Accordingly, if a Party institutes an action or
proceeding to enforce the provisions of Sections 4.1 or 4.2, such party shall be
entitled to obtain, without the posting of any bond or security, such injunctive
or other equitable relief from a court of competent jurisdiction as may be
necessary or appropriate to curtail any such breach. The foregoing shall be in
addition to and without prejudice to such other rights as such party may
have.

       

      Section 4.9. With
respect to an article entitled “Spongetech is all wet” that appeared in the New
York Post on September 22, 2009, SLLC and Popovsky shall send a letter of
clarification (the “Clarification Letter”) to the New York Post (with a copy to
SDS) in the form attached as Exhibit B hereto. SLLC and Popovsky shall send such
letter of clarification promptly after the execution of this Agreement by the
Parties, and in no event more than five (5) business days after the execution of
this Agreement by the Parties. SDS recognizes and agrees that SLLC and Popovsky
have no control whatsoever over what, if anything, the New York Post may or may
not do with the Clarification Letter. SDS agrees that it shall not use, and
shall not cause anyone to use, parts or portions of the Clarification Letter or
parts or portions of the text of the Clarification Letter for any purpose, and
that SDS shall not quote or further disseminate or distribute, and shall not
cause anyone to quote or further disseminate or distribute, the Clarification
Letter or its contents except in its entirety.

      
        
          Settlement
Agreement

          Execution
Copy

          (December
14, 2009)

           

        

        
          7

          
            

          

        

        
           

        

      

      

       

      Section 4.10. Neither
SDS nor Defendants will issue any press releases relating to this settlement
agreement unless such press releases are approved in advance by all of the
Parties.

       

      Section 4.11. SDS has
represented that it is required to, and plans to, file this Settlement Agreement
with the U.S. Securities Exchange Commission, and that therefore it will become
a publicly available document.

       

      Section 5.This
Agreement is entered into by the Parties for the purpose of compromising
disputed claims and avoiding the expense, inconvenience and uncertainty of
litigation. Nothing contained in this Agreement, and neither the execution of
this Agreement nor any consideration exchanged pursuant to this Agreement, shall
constitute, be deemed, or be treated by any Party for any purpose as an
admission of any fact, act, position, contention or allegation, or as an
admission of any claim, wrongdoing, liability or damages.

       

      IN WITNESS WHEREOF, the
Parties have caused the Agreement to be executed as of the date written above
for these purposes.

       

      
        	
                SpongeTech
      Delivery Systems, Inc.

              	 
      
	 	 	 
	
                By:

              	   
      	 
      
	 	 	 

      

      
        	
                Name
      (Print):

              	 
        	 
      
	 	 	 
	
                Title
      (Print):

              	 
        	 
      
	 	 	 

      

      
        	
                Date:

              	 
         	 
      
	 	 	 

      

       

      
        	
                SpongeTech,
      Inc.

              	 
      
	 	 	 
	
                By:

              	 
      	 
      
	 	 	 

      

      
        	
                Name
      (Print):

              	 
        	 
      
	 	 	 
	
                Title
      (Print):

              	 
        	 
      
	 	 	 

      

      
        	
                Date:

              	 
        	 
      

      

      
        
          Settlement
Agreement

          Execution
Copy

          (December
14, 2009)

           

        

        
          8

          
            

          

        

        
           

        

      

       

      

       

      
        	
                Spongeables
      LLC

              	 
      
	 	 	 
	
                By:

              	   
      	 
      
	 	 	 

      

      
        	
                Name
      (Print):

              	 
        	 
      
	 	 	 
	
                Title
      (Print):

              	 
        	 
      
	 	 	 

      

      
        	
                Date:

              	 
      	 
      
	 	 	 
	
                Michael
      Popovsky  

              
	 	 	 
	By:  	  
      	 
	 	 	 
	Date:	 
       	 

      

      
        
          Settlement
Agreement

          Execution
Copy

          (December
14, 2009)

           

        

        
          9

          
            

          

        

        
           

        

      

       

      EXHIBIT
A

       

      IN
THE UNITED STATES DISTRICT COURT

      FOR
THE SOUTHERN DISTRICT OF NEW YORK

      

      
        	
                SPONGETECH
      DELIVERY SYSTEMS, INC.

              	
                )

              
	
                Plaintiff

              	
                )

              
	 
      	
                )  CIVIL
      ACTION NO:  09 CV 8398 (PKC)

              
	
                v.

              	
                )

              
	 
      	
                )

              
	
                SPONGETECH,
      INC., SPONGEABLES, LLC.,

              	
                )

              
	
                and
      MICHAEL POPOVSKY, Individually

              	
                )

              
	
                Defendants

              	
                )

              

      

       

      

       

      PLAINTIFF’S
NOTICE OF DISMISSAL WITH PREJUDICE

       

      Pursuant
to Rule 41(a) of the Federal Rules of Civil Procedure, Plaintiff Spongetech
Delivery Systems, Inc. hereby gives notice that this action, and the claims
asserted therein, are hereby dismissed with prejudice with each party to bear
its own costs. The Court shall retain jurisdiction over the Parties solely for
the purpose of enforcing the terms of the Settlement Agreement dated December
14, 2009. The Court shall retain jurisdiction over the Parties solely for the
purpose of enforcing the terms of the Settlement Agreement dated December 14,
2009.

       

      
        	 
      	
                Gersten
      Savage, LLP

              	 
      
	 	 	 	 
	 	 	 	 
	 
      	
                By:

              	
                 _____________________

              	 
      
	 	 	 
	 
      	
                James
      D. Fornari, Esq. (JDF-3433)

              	 
      
	 
      	
                A
      Member of the Firm

              	 
      
	 
      	 
      	 
      	 
      
	 
      	
                600
      Lexington Avenue, 9th
      Fl. New York, NY 10022

              	 
      
	 
      	
                Tel:
      (212) 752-9700

              	 
      
	 
      	
                Fax:
      (212) 980-5192

              	 
      
	 	 
	 
      	
                Attorneys
      for Plaintiff Spongetech Delivery Systems,
Inc.

              

      

      
        
          Settlement
Agreement

          Execution
Copy

          (December
14, 2009)

           

        

        
          10

          
            

          

        

        
           

        

      

      EXHIBIT B

      [Spongeables
LLC Letterhead]

       

      Editor-In-Chief

      New York
Post

      1211
Avenue of the Americas New York, NY 10036-8790

       

      Dear
Sir/Madam:

       

      I am the
CEO of Spongeables, LLC, a Los Angeles based company that manufactures and sells
soap/shower gel (and other ingredients) infused in sponges using our
patent-pending technology.

       

      The
purpose of this letter is to clarify certain statements that were made during a
telephone interview with a reporter from the New York Post and later attributed
to me in a September 22, 2009 article in the Post entitled "Spongetech is all
wet".

       

      Spongeables,
LLC has never been and is not affiliated in any way with SpongeTech Delivery
Systems
Inc. This fact was subsequently reported on October 6, 2009 by the New York
Post.

       

      I was
contacted by the New York Post reporter for an interview and spoke to her in my
capacity as CEO of Spongeables LLC. As I recall our conversation, I was asked a
general background question about sales by a company, like Spongeables, that had
been in business for about two years selling infused body wash sponges (e.g.,
infused with shower gel) in the United States. My comments were that such a
company could have sales from $5 to $10 million dollars a year.

       

      The
statements attributed to me were not about SpongeTech Delivery Systems Inc. The
manner in which the statements were printed in the Post article may have created
the incorrect impression that I was speaking about SpongeTech Delivery Systems
Inc. and its sales, which I was not. I regret that the statements may have been
misconstrued or that unfavorable inferences or conclusions about SpongeTech
Delivery Systems Inc. may have been made. I have no personal knowledge regarding
sales by SpongeTech Delivery Systems Inc. or its finances.

       

      Very
truly yours,

       

      Michael
Popovsky

      Chief
Executive Officer 

      Spongeables,
LLC

      
        
          Settlement
Agreement

          Execution
Copy

          (December
14, 2009)

           

        

        
          11COMMON
STOCK PURCHASE AGREEMENT

     

    This
Common Stock Purchase Agreement (this “Agreement”) is dated
as of December 14, 2009, by and between Nephros, Inc., a Delaware corporation
(the “Company”), and
Seaside 88, LP, a Florida limited partnership (such investor, including its
successors and assigns, “Seaside”).

     

    WHEREAS,
subject to the terms and conditions set forth in this Agreement, the Company
desires to issue and sell to Seaside, and Seaside desires to purchase from the
Company, 2,352,941 shares of Common Stock on the Closing Date;

     

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

     

    ARTICLE
I

    DEFINITIONS

     

    1.1           Definitions.  In
addition to the terms defined elsewhere in this Agreement, for all purposes of
this Agreement, the following terms have the meanings indicated in this Section
1.1:

     

     “Affiliate” means any
Person that, directly or indirectly through one or more intermediaries, controls
or is controlled by or is under common control with a Person as such terms are
used in and construed under Rule 144.

     

     “Closing” shall have
the meaning ascribed to such term in Section 2.1.

     

    “Closing Date” means
two business days after the Registration Statement is declared effective by the
Commission, or such later date when all of the Transaction Documents have been
executed and delivered by the applicable parties thereto, and all conditions
precedent to (i) Seaside’s obligations to purchase the Shares and (ii) the
Company’s obligations to issue and deliver the Shares have been satisfied or
waived with respect to the Closing Date.

     

    “Commission” means the
Securities and Exchange Commission.

     

    “Common Stock” means
the common stock of the Company, $0.001 par value, and any securities into which
such common stock may hereafter be reclassified.

     

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

     

    “Company Counsel”
means Wyrick Robbins Yates & Ponton, LLP, or other counsel (including
in-house counsel) reasonably acceptable to Seaside.

     

     “DTC” means the
Depository Trust Company.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    “DWAC” means DTC’s
Deposit Withdrawal Agent Commission system.

     

    “Disclosure Schedules”
means the disclosure schedules of the Company delivered concurrently
herewith.

     

    “Exchange Act” means
the Securities Exchange Act of 1934, as amended.

     

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

     

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

     

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

     

    “Material Adverse
Effect” means any condition, event, change or effect that could
reasonably be expected to have a material adverse effect on (i) the legality,
validity or enforceability of any Transaction Document, (ii) the results of
operations, assets, business, prospects or financial condition of the Company
and its Subsidiaries, taken as a whole, or (iii) the Company’s ability to
perform in any material respect on a timely basis its obligations under any
Transaction Document, but shall not mean or include any condition, event, change
or effect (1) which is or results from events or occurrences relating to the
economy in general (including arising from terrorist attacks, acts of war or
civil unrest) or the Company’s industry in general and not specifically relating
to the Company or having a disproportionate impact on the Company, or (2) which
results from the announcement of this Agreement or the transactions contemplated
hereby or by the other Transaction Documents.

     

    “Per Share Purchase
Price” shall be an amount equal to $0.85.

     

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

     

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

     

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

     

    “Prospectus
Supplement” means the supplement or supplements to the base prospectus
contained in the Registration Statement to be filed in connection with the sale
to Seaside of the Shares.

     

    “Registration
Statement” means the registration statement of the Company covering the
sale to Seaside of the Shares.

     

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

    
      
         

      

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

     

    “Seaside Party” shall
have the meaning ascribed to such term in Section 4.6.

     

    “SEC Reports” shall
have the meaning ascribed to such term in Section 3.1(h).

     

    “Securities Act” means
the Securities Act of 1933, as amended.

     

    “Shares” means the
shares of Common Stock issued or issuable to Seaside pursuant to this
Agreement.

     

    “Short Sales” shall
include, without limitation, all “short sales” as defined in Rule 200 of
Regulation SHO of the Exchange Act.

     

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

     

    “Trading Day” means a
day on which the Common Stock is traded on a Trading Market.

     

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

     

    “Transaction
Documents” means this Agreement and any other documents or agreements
executed in connection with the transactions contemplated
hereunder.

     

    ARTICLE
II

    PURCHASE
AND SALE

     

    2.1           Closing.  On
the Closing Date, Seaside shall purchase from the Company, and the Company shall
issue and sell to Seaside, 2,352,941 Shares at the Per Share Purchase
Price.  Upon satisfaction or waiver of the conditions set forth in
Sections 2.3, 2.4 and 2.5, the purchase and sale of the Shares (the “Closing”) shall occur
at the offices of White White & Van Etten PC, 55 Cambridge Parkway,
Cambridge, MA 02142, or such other location as the parties shall mutually
agree.

     

    2.2           Deliveries by the
Company.  On the Closing Date, the Company shall deliver or
cause to be delivered to Seaside the following:

     

     (a)         2,352,941
Shares, registered in the name of Seaside, via the DTC DWAC system, as specified
on the signature pages hereto;

     

     (b)         an
officer’s certificate of the Company’s Chief Executive Officer or Chief
Financial Officer in the form of Exhibit A attached
hereto; and

    
      
         

      

      
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    (c)         a
legal opinion of Company Counsel, in the form of Exhibit B attached
hereto.

     

    2.3          Deliveries by
Seaside.  On the Closing Date, Seaside shall deliver or cause
to be delivered to the Company an amount equal to the Per Share Purchase Price
multiplied by 2,352,941, or an aggregate of $2,000,000.00, by wire transfer to
the account as specified in writing by the Company and less the amount due
Seaside for reimbursement of its expenses pursuant to Section 5.2
hereof.

     

    2.4          Closing
Conditions.

     

    (a)           The
obligations of the Company hereunder in connection with the Closing are subject
to the satisfaction by Seaside, or waiver by the Company, of the following
conditions:

     

    (i)          
  the accuracy when made and on the Closing Date of the
representations and warranties of Seaside contained herein;

     

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

     

    (iii)           the
delivery by Seaside of the items set forth in Section 2.3 of this
Agreement.

     

    (b)           The
obligations of Seaside hereunder in connection with the Closing are subject to
the satisfaction by the Company, or waiver by Seaside, of the following
conditions:

     

    (i)         
   the accuracy when made and on the Closing Date of the
representations and warranties of the Company contained herein;

     

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

     

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

     

    (iv)           there
shall have been no Material Adverse Effect with respect to the Company since the
date hereof that has not been cured;

     

    (v)     
      the Registration Statement shall have been
declared effective by the Commission and shall be in full force and effect;
and

     

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

    
      
         

      

      
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    ARTICLE
III

    REPRESENTATIONS
AND WARRANTIES

     

    3.1          Representations and
Warranties of the Company.  Except as set forth under the
corresponding section of the Disclosure Schedules, which Disclosure Schedules
shall be deemed a part hereof, the Company hereby makes the representations and
warranties set forth below to Seaside as of the date hereof and as of the
Closing Date:

     

    (a)         Subsidiaries.  All
of the direct and indirect subsidiaries of the Company are listed in the
Company’s most recent Annual Report on Form 10-K as modified by any subsequent
SEC Reports filed with the SEC (each a “Subsidiary”).  The
Company owns, directly or indirectly, all of the capital stock or other equity
interests of each Subsidiary free and clear of any Liens, and all the issued and
outstanding shares of capital stock of each Subsidiary are validly issued and
are fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities.  If the Company has no
subsidiaries, then references in the Transaction Documents to the Subsidiaries
will be disregarded.

     

    (b)         Organization and
Qualification.  The Company and each of the Subsidiaries is an
entity duly incorporated or otherwise organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
(as applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently
conducted.  Neither the Company nor any Subsidiary is in violation or
default of any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter
documents.  Each of the Company and the Subsidiaries is duly qualified
to conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, could not
reasonably be expected to result in a Material Adverse Effect.  To the
knowledge of the Company, no Proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.

     

    (c)         Authorization;
Enforcement.  The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by each
of the Transaction Documents and otherwise to carry out its obligations
thereunder.  The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company and its stockholders, and no further action is required by
the Company or its stockholders in connection therewith other than in connection
with the Required Approvals.  Each Transaction Document has been (or
upon delivery will have been) duly executed by the Company and, when delivered
in accordance with the terms hereof, will constitute the valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms except (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.

    
      
         

      

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

     

    (e)         Filings, Consents and
Approvals.  The Company is not required to obtain any consent,
waiver, authorization or order of, give any notice to, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority, the Trading Market or other Person in connection with
the execution, delivery and performance by the Company of the Transaction
Documents, other than (i) the filing of the Registration Statement and
Prospectus Supplement, and (ii) any notice filings or SEC Reports as are
required to be made following the Closing Date under applicable federal and
state securities laws or under applicable rules and regulations of the Trading
Market (collectively, the “Required
Approvals”).

     

    (f)         Issuance of the
Shares.  The Shares are duly authorized and, when issued and
paid for in accordance with the Transaction Documents, will be duly and validly
issued, fully paid and nonassessable, free and clear of all
Liens.  The Company has reserved from its duly authorized capital
stock the maximum number of shares of Common Stock issuable pursuant to this
Agreement.  The issuance by the Company to Seaside at the Closing of
the Shares is or will be registered under the Securities Act as of the date of
the Closing and all of the Shares when delivered will be freely transferable and
tradable on the Trading Market by Seaside without restriction (other than any
restrictions arising solely from an act or omission of Seaside).  The
Registration Statement will be effective and available at the Closing for the
issuance of the Shares thereunder and the Company has not and will not have
received any notice that the Commission has issued or intends to issue a
stop-order with respect to the Registration Statement or that the Commission
otherwise has suspended or withdrawn the effectiveness of the Registration
Statement, either temporarily or permanently, or intends or has threatened in
writing to do so.  The “Plan of Distribution” section under the
Registration Statement as supplemented by the Prospectus Supplement will permit
the issuance and sale of the Shares hereunder.

    
      
         

      

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

     

    (h)         SEC Reports; Financial
Statements. Except as set forth in Section 3(h) of the Disclosure
Schedules, the Company has filed or furnished all reports, schedules, forms,
statements and other documents required to be filed or furnished by it under the
Securities Act and the Exchange Act (including all required exhibits thereto),
including pursuant to Section 13(a) or 15(d) thereof, for the 12 months
preceding the date hereof (or such shorter period as the Company was required by
law to file such material) (the foregoing materials, as the same may be amended,
and including the exhibits thereto and documents incorporated by reference
therein, being collectively referred to herein as the “SEC Reports”), and
any notices, reports or other filings pursuant to applicable requirements of the
Trading Market, on a timely basis or has received a valid extension of such time
of filing and has filed any such SEC Reports and notices, reports or other
filings pursuant to applicable requirements of the Trading Market prior to the
expiration of any such extension.  As of their respective dates, the
SEC Reports complied in all material respects with the applicable requirements
of the Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.  The financial statements of the Company included in the
SEC Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing.  Such financial statements
(i) have been prepared in accordance with United States generally accepted
accounting principles applied on a consistent basis during the periods involved
(“GAAP”),
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and (ii) fairly present in all material respects the
financial position of the Company and its consolidated Subsidiaries as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
year-end audit adjustments.

    
      
         

      

      
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    (i)         Material
Changes.  Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically disclosed in
the SEC Reports, (i) there has been no event, occurrence or development that has
had or that could reasonably be expected to result in a Material Adverse Effect,
except as has been reasonably cured by the Company, (ii) the Company has not
incurred any liabilities (contingent or otherwise) other than (A) trade payables
and accrued expenses incurred in the ordinary course of business consistent with
past practice and (B) liabilities not required to be reflected in the Company’s
financial statements pursuant to GAAP or required to be disclosed in filings
made with the Commission, (iii) the Company has not altered its method of
accounting except as otherwise required pursuant to GAAP, (iv) the Company has
not declared or made any dividend or distribution of cash or other property to
its stockholders or purchased, redeemed or made any agreements to purchase or
redeem any shares of its capital stock and (v) the Company has not issued any
equity securities to any officer, director or Affiliate, except pursuant to
existing Company stock option and incentive plans.

     

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

    
      
         

      

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

     

    (l)         Listing and Maintenance
Requirements.  The Company’s Common Stock is registered
pursuant to Section 12(g) of the Exchange Act, and the Company has taken no
action designed to, or which to its knowledge is likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act, nor has
the Company received any notification that the Commission is contemplating
terminating such registration.  The Company has not, in the 12 months
preceding the date hereof or the Closing Date, received notice from any Trading
Market on which the Common Stock is or has been listed or quoted (as applicable)
to the effect that the Company is not in compliance with the listing or
quotation (as applicable) or maintenance requirements of such Trading
Market.  The Company is, and immediately after the consummation of the
transactions contemplated hereby will be, in compliance with all such listing or
quotation (as applicable) and maintenance requirements.

     

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

     

    (n)         Effective Registration
Statement.  The Registration Statement has been, or will be no
later than the date of the Closing, declared effective by the Commission and
will remain effective as of the date of the Closing, and the Company knows of no
reason why the Registration Statement will not continue to remain effective for
the foreseeable future following its effective date, provided that the
Company may be required to file one or more Prospectus Supplements or
post-effective amendments to the Registration Statement subsequent to such
date.

     

    (o)         Acknowledgment Regarding
Seaside’s Purchase of Shares.  The Company acknowledges and
agrees that Seaside is acting solely in the capacity of an arm’s length
purchaser with respect to this Agreement and the other Transaction Documents and
the transactions contemplated hereby and thereby.  The Company further
acknowledges that Seaside is not acting as a financial advisor or fiduciary of
the Company (or in any similar capacity) with respect to this Agreement or the
other Transaction Documents and the transactions contemplated hereby and thereby
and any advice given by Seaside or any of its representatives or agents in
connection with this Agreement and the other Transaction Documents and the
transactions contemplated hereby and thereby is merely incidental to Seaside’s
purchase of the Shares.  The Company further represents to Seaside
that the Company’s decision to enter into this Agreement and the other
Transaction Documents has been based solely on the independent evaluation of the
transactions contemplated thereby by the Company and its
representatives.

    
      
         

      

      
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    (p)         Approvals.  The
issuance and quotation on the Trading Market of the Shares requires or will
require no further approvals, including but not limited to, the approval of
stockholders.

     

    (q)         Intellectual
Property.  The Company possesses such right, title and interest
in and to, or possesses legal right to use, all patents, patent rights, trade
secrets, inventions, know-how, trademarks, trade names, copyrights, service
marks and other proprietary rights (“Intellectual
Property”) material to the conduct of the Company’s business except
Intellectual Property the failure of which to possess would not have a Material
Adverse Effect.  Except as disclosed in the SEC Reports, the Company
has not received any notice of infringement, misappropriation or conflict from
any third party as to Intellectual Property owned by or exclusively licensed to
the Company that has not been resolved or disposed of, which infringement,
misappropriation or conflict would if adversely decided have a Material Adverse
Effect.  To the Company’s knowledge, it has not infringed,
misappropriated, or otherwise conflicted with the Intellectual Property of any
third parties, which infringement, misappropriation or conflict would if
adversely decided have a Material Adverse Effect.

     

    (r)         Permits.  The
Company has made all filings, applications and submissions required by, and possesses all
approvals, licenses, certificates, certifications, clearances, consents,
exemptions, marks, notifications, orders, permits and other authorizations
issued by, the appropriate federal, state or foreign regulatory authorities
necessary to own or lease its properties and to conduct its businesses
(collectively, “Permits”), except for
such Permits the failure of which to possess or obtain would not reasonably be
expected to have a Material Adverse Effect.  The Company has not
received any written notice of proceedings relating to the limitation,
revocation, cancellation, suspension, modification or non-renewal of any such
Permit which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would have a Material Adverse Effect, and has no
reason to believe that any such Permit will not be renewed in the ordinary
course.

     

    (s)         Disclosure.  The
Company confirms that neither the Company nor any officer, director or employee
of the Company acting on its behalf (as such term is used in Regulation FD) has
provided Seaside or its agents or counsel with any information that constitutes
or might reasonably be expected to constitute material, non-public information
except insofar as the existence and terms of the proposed transactions hereunder
may constitute such information.  The Company understands and confirms
that Seaside will rely on the foregoing representations and covenants in
effecting transactions in securities of the Company.  None of the
representations and warranties of the Company contained herein, nor any
statement made by the Company in any disclosure, schedule, exhibit, certificate
or other document furnished or to be furnished to Seaside in connection
herewith, contains or will contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    3.2          Representations and
Warranties of Seaside.  Seaside hereby makes the
representations and warranties set forth below to the Company as of the date
hereof and as of the Closing Date:

     

    (a)         Organization;
Authority.  Seaside is a limited partnership duly organized,
validly existing and in good standing under the laws of the state of Florida,
with full right, power and authority to own and use its properties and assets
and to carry on its business as currently conducted and to enter into and to
consummate the transactions contemplated by this Agreement and the other
Transaction Documents and otherwise to carry out its obligations hereunder and
thereunder.  The execution, delivery and performance by Seaside of the
transactions contemplated by this Agreement and each other Transaction Document
have been duly authorized by all necessary action on the part of Seaside and no
such further action is required.  Each Transaction Document to which
Seaside is a party has been (or upon delivery will have been) duly executed by
Seaside, and, when delivered by Seaside in accordance with the terms thereof,
will constitute the valid and legally binding obligation of Seaside, enforceable
against it in accordance with its terms, except (i) as limited by general
equitable principles and applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors’ rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law.

     

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

     

    (c)         Short
Sales.  Seaside has not directly or indirectly executed any
Short Sales or other hedging transactions in the securities of the Company
through the date hereof.

     

    ARTICLE
IV

    OTHER
AGREEMENTS OF THE PARTIES

     

    4.1          No Transfer
Restrictions.  Certificates evidencing the Shares shall not
contain any legend restricting their transferability by Seaside.  The
Company shall cause its counsel to issue a legal opinion to the Company’s
transfer agent if required by the Company’s transfer agent to effect a transfer
of any of the Shares; such opinion shall be provided by the Company’s counsel at
no expense to Seaside.

     

    4.2          Furnishing of
Information.  As long as Seaside owns Shares, the Company
covenants to use its best efforts to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act.  As long as Seaside owns Shares that are “restricted
securities” as that term is defined in Rule 144 that it has owned for less than
one year in accordance with Rule 144(d), if the Company is not required to file
reports pursuant to the Exchange Act, it will prepare and furnish to Seaside and
make publicly available in accordance with Rule 144(c) such information as is
required for Seaside to sell the Shares under Rule 144.

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

     

    4.3           Securities Laws Disclosure;
Publicity.  The Company shall timely file a Current Report on
Form 8-K which attaches as exhibits all agreements relating to this transaction,
in each case reasonably acceptable to Seaside and its counsel, disclosing the
material terms of the transactions contemplated hereby.

     

    4.4           Shareholders Rights
Plan.  No claim will be made or enforced by the Company or,
with the consent of the Company, any other Person that Seaside is an “Acquiring
Person” or similar designation under any shareholders rights plan or similar
plan or arrangement in effect or hereafter adopted by the Company, or that
Seaside could be deemed to trigger the provisions of any such plan or
arrangement, by virtue of receiving Shares under the Transaction Documents or
under any other agreement between the Company and Seaside.  The
Company shall conduct its business in a manner so that it will not become
subject to the Investment Company Act of 1940, as amended.

     

    4.5           Non-Public
Information.  The Company covenants and agrees that neither it
nor any other Person acting on its behalf will provide Seaside or its agents or
counsel with any information that the Company believes constitutes material
non-public information.  The Company understands and confirms that
Seaside shall be relying on the foregoing representations in effecting
transactions in securities of the Company.

     

    4.6           Indemnification of
Seaside.  Subject to the provisions of this Section 4.6, the
Company will indemnify and hold Seaside, Seaside’s Affiliates and their
respective directors, officers, stockholders, partners, members, employees and
agents (each, a “Seaside Party”)
harmless from any and all losses, liabilities, obligations, claims, demands,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation reasonably incurred in connection with defending or investigating
any suit or action in respect thereof to which any Seaside Party is or may
become a party under the Securities Act, the Exchange Act or any other federal
or state statutory law or regulation, at common law or otherwise, insofar as
such losses, liabilities, obligations, claims, demands, contingencies, damages,
costs and expenses arise out of or are based on (a) any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any Prospectus Supplement, or (b) 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 that the
Company will not be liable in any such case to the extent that any such
liability, obligation, claim, demand, contingency, damage, cost or expense
arises out of or is based upon any untrue statement or alleged untrue statement
or omission or alleged omission made therein in reliance upon and in conformity
with written information furnished to the Company by and regarding Seaside
expressly for inclusion therein.  If any action shall be brought
against any Seaside Party in respect of which indemnity may be sought pursuant
to this Agreement, such Seaside Party shall promptly notify the Company in
writing, and the Company shall have the right to assume the defense thereof with
counsel of its own choosing.  Any Seaside Party shall have the right
to employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Seaside Party except to the extent that (i) the employment thereof has been
specifically authorized by the Company in writing, (ii) the Company has failed
after a reasonable period of time to assume such defense and to employ counsel
or (iii) in such action there is, in the reasonable opinion of such separate
counsel, a material conflict on any material issue between the position of the
Company and the position of such Seaside Party.  The Company will not
be liable to any Seaside Party under this Agreement (x) for any settlement by a
Seaside Party effected without the Company’s prior written consent, which
consent shall not be unreasonably withheld or delayed; or (y) to the extent, but
only to the extent, that a loss, liability, obligation, claim, demand, damage,
cost or expense is attributable to any Seaside Party’s breach of any of the
representations, warranties, covenants or agreements made by Seaside in this
Agreement or in the other Transaction Documents.

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

     

    4.7           Listing or Quotation of
Common Stock.  The Company hereby agrees to use its best
efforts to maintain the listing or quotation (as applicable) of the Common Stock
on its current Trading Market.  The Company further agrees that, if
the Company applies to have the Common Stock traded on any other Trading Market,
it will include in such application all of the Shares and will take such other
action as is necessary to cause all of the Shares to be listed on such other
Trading Market as promptly as possible.  The Company will take all
action reasonably necessary to continue the listing or quotation (as applicable)
and trading of its Common Stock on each Trading Market on which the Common Stock
is listed or quoted (as applicable) and will comply in all respects with the
Company’s reporting, filing and other obligations under the bylaws or rules of
such Trading Market(s).

     

    4.8           Stockholder
Approval.  The Company shall not issue shares of Common Stock
or Common Stock Equivalents, if such issuance would require stockholder approval
pursuant to applicable rules of the Trading Market, unless and until such
stockholder approval is obtained.

     

    4.9           Short
Sales.  Seaside covenants that neither it nor any Affiliates
acting on its behalf or pursuant to any understanding with it will execute any
Short Sales in the securities of the Company from the date hereof until the
Closing.

     

    4.10         Prospectus
Supplement.  If required, the Company will use its best efforts
to file the Prospectus Supplement in accordance with the requirements of Rule
424 promulgated under the Securities Act on or before the Closing
Date.

     

    ARTICLE
V

    MISCELLANEOUS

     

    5.1          Termination; Liquidated
Damages.  This Agreement may be terminated:

     

    (a)           by
Seaside, by written notice to the Company, if the Initial Closing has not been
consummated on or before December 31, 2009, or

     

    (b)           by
Seaside, immediately upon written notice to the Company, if at any time prior to
the Closing Date the Company consummates a financing to which Seaside is not a
party, or

     

    (c)           by
the Company, immediately upon written notice to Seaside, in the
event  Seaside breaches its covenant set forth in Section 4.9
above,

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

     

    provided, however, that no such
termination pursuant to this Section 5.1 will affect the right of any party to
sue for any breach by the other party (or parties).

     

    5.2           Fees and
Expenses.  Except as otherwise set forth in this Agreement and
as set forth in this Section 5.2 below, each party shall pay the fees and
expenses of its own advisers, counsel, accountants and other experts, if any,
and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this
Agreement.  The Company shall pay all stamp and other taxes and duties
levied in connection with the delivery of the Shares.  Notwithstanding
the foregoing, at the Closing the Company shall reimburse Seaside for the fees
and expenses of its counsel, White White & Van Etten PC, in an amount equal
to $25,000.  Such legal fees may be withheld by Seaside from the
amount to be paid for the Shares purchased at the Closing.

     

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

     

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

     

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

     

    5.6           Headings.  The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof.  The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

    5.7           Successors and
Assigns.  This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted
assigns.  The Company may not assign this Agreement or any rights or
obligations hereunder without the prior written consent of
Seaside.  Seaside may assign this Agreement or any rights or
obligations hereunder without the prior written consent of the
Company.

     

    5.8           No Third-Party
Beneficiaries.  This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person, except as otherwise set forth in Section 4.6.

     

    5.9           Governing
Law.  All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law
thereof.  The parties hereby waive all rights to a trial by
jury.  If either party shall commence an action or proceeding to
enforce any provisions of the Transaction Documents, then the prevailing party
in such action or proceeding shall be reimbursed by the other party for its
attorneys’ fees and other costs and expenses incurred with the investigation,
preparation and prosecution of such action or proceeding.

     

    5.10           Survival.  The
representations and warranties herein shall survive the Closing and delivery of
the Shares.

     

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

     

    5.12           Severability.  If
any provision of this Agreement is held to be invalid or unenforceable in any
respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and the
parties will attempt to agree upon a valid and enforceable provision that is a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.

     

    5.13           Rescission and Withdrawal
Right.  Notwithstanding anything to the contrary contained in
(and without limiting any similar provisions of) the Transaction Documents,
whenever Seaside exercises a right, election, demand or option under a
Transaction Document and the Company does not timely perform its related
obligations within the periods therein provided, then Seaside may rescind or
withdraw, in its sole discretion from time to time upon written notice to the
Company, any relevant notice, demand or election in whole or in part without
prejudice to its future actions and rights.

     

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

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

     

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

     

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

     

    (Signature
Pages Follow)

     

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

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

     

    
      
        
          	
                  Nephros,
      Inc.

                	
                  Address for Notice:

                
	 
      	 
      
	
                  By:

                	
                     

                	 
      	
                  41
      Grand Avenue

                
	 
      	
                  Name:

                	
                  Ernest
      A. Elgin III

                	
                  River
      Edge, New Jersey 07661

                
	 
      	
                  Title:

                	
                  President
      and Chief Executive Officer

                	
                  Attention:

                
	 
      	
                  Fax:

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

                	
                  Wyrick
      Robbins Yates & Ponton LLP

                
	 
      	
                  4101
      Lake Boone Trail

                
	 
      	
                  Suite
      300

                
	 
      	
                  Raleigh,
      NC 27607

                
	 
      	
                  Attention:  David
      Mannheim

                
	 
      	
                  Fax:
      919-781-4865

                
	 
      	 
      
	
                  Seaside
      88, LP

                	
                  Address for Notice:

                
	 
      	 
      
	
                  By:  Seaside
      88 Advisors, LLC

                	 
      
	 
      	
                  750
      Ocean Royale Way

                
	 
      	
                  Suite
      805

                
	
                  By:

                	
                     

                	 
      	
                  North
      Palm Beach, FL 33408

                
	 
      	
                  Name:

                	
                  William
      J. Ritger

                	
                  Attention:  William
      J. Ritger and

                
	 
      	
                  Title:

                	
                  Manager

                	
                  Denis
      M. O’Donnell, M.D.

                
	 
      	
                  Fax:  866-358-6721

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

                	
                  White
      White & Van Etten PC

                
	 
      	
                  55
      Cambridge Parkway

                
	 
      	
                  Cambridge,
      MA 02142

                
	 
      	
                  Attention:  David
      A. White, Esq.

                
	 
      	
                  Fax:  617-225-0205

                

        

      

    

    

    DWAC
Instructions for Common Stock:

    

    DTC # -
0571 -  

    Account
number - G53-1348923

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Exhibit
A

    

    Officer’s
Certificate

    

    In connection with the Closing on the
date set forth below pursuant to that certain Common Stock Purchase Agreement
dated as of December 14, 2009 (the “Agreement”) by and between Nephros, Inc., a
Delaware corporation (the “Company”) and Seaside 88, LP, a Florida limited
partnership (“Seaside”), the undersigned, the duly elected and qualified
________________ of the Company, does hereby certify to the Company as
follows:

    

    
      	
               
      

            	
              (i)

            	
              all
      representations and warranties of the Company contained in the Agreement
      are true and correct in all material respects (without giving effect to
      any limitation as to “materiality” or “knowledge” set forth therein) on
      and as of the date hereof as if made on and as of the date hereof (provided that
      representations and warranties that speak as of a specific date shall
      continue to be true and correct as of the Closing with respect to such
      date);

            

    

    

    
      	
               
      

            	
              (ii)

            	
              the
      Company has performed or complied with all of its covenants and agreements
      contained in the Agreement and required to be performed or complied with
      by the Company on or before the date hereof;
and

            

    

    

    
      	
               
      

            	
              (iii)

            	
              the
      Registration Statement has been declared effective by the Commission and
      remains effective on and as of the date
hereof.

            

    

    

    Capitalized
terms used but not defined herein shall have the meanings given to them in the
Agreement.

    

    IN
WITNESS WHEREOF, the undersigned has caused this Officer’s Certificate to be
executed this _____ day of _____________, 20__.

     

    
      
        
          	 
      	
                  NEPHROS,
      INC.

                
	 
      	 
      
	 
      	
                  By:

                	
                     

                
	 
      	 
      	
                  Name:

                
	 
      	 
      	
                  Title:

                

        

      

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Exhibit
B

    

    1.           The
Company is a corporation duly organized under the corporate law of the State of
Delaware, with corporate power and authority to enter into the Agreement and
perform its obligations thereunder.  The Company is validly existing
and in good standing under the laws of the state of its incorporation and is
qualified to do business and in good standing under the laws of ____________ and
_________, the only states where the failure to be so qualified and in good
standing could have a Material Adverse Effect.

    

    2.           The
execution and delivery of the Agreement and the issuance and sale of the
Securities thereunder has been duly authorized by all necessary corporate action
of the Company, no further action is required by the Company or its stockholders
in connection therewith and the Agreement has been duly executed and delivered
by the Company and is enforceable against the Company in accordance with its
terms.

    

    3.           We
have been advised by the staff of the Commission that the Registration Statement
became effective under the Act on _______________, 20__.  With your
consent, based solely on a telephonic confirmation by a member of the staff of
the Commission on ____________, 20__, we confirm that no stop order suspending
the effectiveness of the Registration Statement has been issued under the Act
and no proceedings therefor have been initiated by the Commission.

    

    4.           The
Shares have been duly authorized and, when issued and delivered in accordance
with the terms of the Agreement, will be validly issued, fully paid and
non-assessable, and the issuance of such Shares will not be subject to any
preemptive or similar rights set forth in the Company’s Certificate of
Incorporation or Bylaws or any agreement known to us or filed as an exhibit to
any SEC Report.

    

    5.           The
execution and delivery by the Company of, and the performance by the Company of
its obligations under, the Agreement (including the issuance and sale of the
Shares) will not contravene any provision of any statute, law, rule or
regulation applicable to the Company, any agreement filed as an exhibit to any
SEC Report, or, to our knowledge, any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company that is
applicable to the Company or its properties.

    

    6.           No
consent, approval, authorization, order, registration or qualification of or
with any court or arbitrator or governmental body, regulatory authority or
Trading Market is required for the execution, delivery and performance by the
Company of its obligations under the Agreement, other than the filing of the
Prospectus Supplement and any notice filings as are required to be made
following the Closing Date under applicable federal and state securities
laws.

    

    7.           The
Company is not, and will not be after consummation of the Agreement, the sale of
the Shares to Seaside and the application of the proceeds thereof, an
“investment company” as defined in the Investment Company Act of 1940, as
amended.

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