Document:

Unassociated Document

    
      

      

    

    
Exhibit
      10.1

     

    Execution
      Copy

    

    
      

    

    

     

     

     

     

     

     

     

     

    
      
        

      

    

     

     

    Registration
      Rights Agreement

    

    

    Dated
      as of August
      30, 2007

    

    

    between

    

    

    Pennsylvania
      Electric Company,

    as
      Issuer

    

    

    and

    

    

    Citigroup
      Global
      Markets Inc.,

    Lehman
      Brothers Inc.
      and

    Scotia
      Capital (USA)
      Inc.,

    as
      Representatives
      of the Initial Purchasers

     

     
      
        

      

    

    
      

    

    

    

    
      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    

    

    REGISTRATION
      RIGHTS AGREEMENT

     

    This
      Registration
      Rights Agreement (the “Agreement”) is made and entered into this 30th
      day of August,
      2007, by and between Pennsylvania Electric Company, a Pennsylvania corporation
      (the “Issuer”) and Citigroup Global Markets Inc. (“Citi”), Lehman
      Brothers Inc. (“Lehman”) and Scotia Capital (USA) Inc.
      (“Scotia”),  as Representatives (as defined below) of the
      Initial Purchasers (as defined below).

     

    This
      Agreement is
      made pursuant to the Purchase Agreement, dated August 27, 2007 (the “Purchase
      Agreement”), between the Issuer and Citi, Lehman and Scotia, as
      Representatives of the Initial Purchasers, which provides for the sale by the
      Issuer to the Initial Purchasers $300,000,000 aggregate principal amount of
      the
      Company’s 6.05% Senior Notes due 2017 (the “Notes”).  In order
      to induce the Initial Purchasers to enter into the Purchase Agreement, the
      Issuer has agreed to provide to the Initial Purchasers and their direct and
      indirect transferees the registration rights set forth in this
      Agreement.  The execution and delivery of this Agreement is a
      condition to the closing under the Purchase Agreement.

     

    In
      consideration of
      the foregoing, the parties hereto agree as follows:

     

    1.  Definitions.  As
      used in this Agreement, the following capitalized defined terms shall have
      the
      following meanings:

     

    “Closing
      Date” shall mean the Closing Time as defined in the Purchase
      Agreement.

     

    “Depositary”
      shall mean The Depository Trust Company, or any other depositary appointed
      by
      the Issuer, provided, however, that such depositary must have an address
      in the Borough of Manhattan, in The City of New York and,
providedfurther, that if the Notes are not held in book-entry
      form, references herein to the Depositary shall be deemed to refer to the
      Holders.

     

    “Exchange
      Act” shall mean the Securities Exchange Act of 1934, as amended from time to
      time.

     

    “Exchange
      Notes” shall mean, collectively, the Issuer’s 6.05% Exchange Senior Notes
      due 2017 containing terms identical to the Notes in all material respects
      (except in each case for references to certain interest rate provisions,
      restrictions on transfers and restrictive legends), to be offered to Holders
      of
      Notes in exchange for Registrable Notes pursuant to the Exchange
      Offer.

     

    “Exchange
      Offer” shall mean the exchange offer by the Issuer of Exchange Notes for
      Registrable Notes pursuant to Section 2.1 hereof.

     

    “Exchange
      Offer
      Registration” shall mean a registration under the Securities Act effected
      pursuant to Section 2.1 hereof.

     

    

    
      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    

    

     

    “Exchange
      Offer
      Registration Statement” shall mean an exchange offer registration statement
      on Form S-4 (or, if applicable, on another appropriate form), and all amendments
      and supplements to such registration statement, including the Prospectus
      contained therein, all exhibits thereto and all documents incorporated by
      reference therein.

     

    “Exchange
      Period” shall have the meaning set forth in Section 2.1 hereof.

     

    “Holder”
      shall mean any beneficial owner from time to time of Registrable Notes
      (including any of the Initial Purchasers, for so long as it owns any Registrable
      Notes).

     

    “Indenture”
      shall mean the Senior Note Indenture relating to the Notes, dated as of April
      1,
      1999 between the Issuer and The Bank of New York, as successor trustee, as
      the
      same may be amended, supplemented, waived or otherwise modified from time to
      time in accordance with the terms thereof.

     

    “Initial
      Purchasers” shall mean the initial purchasers named in Schedule 1 to the
      Purchase Agreement.

     

    “Issuer”
      shall have the meaning set forth in the preamble and shall also include the
      Issuer’s successors.

     

    “Majority
      Holders” shall mean the Holders of a majority of the aggregate principal
      amount of Outstanding (as defined in the Indenture) Registrable Notes; provided
      that whenever the consent or approval of Holders of a specified percentage
      of
      Registrable Notes is required hereunder, Registrable Notes held by the Issuer
      or
      any Affiliate (as defined in the Indenture) of the Issuer shall be disregarded
      in determining whether such consent or approval was given by the Holders of
      such
      required percentage amount.

     

    “Notes”
shall
      have the meaning set forth in the preamble to this Agreement.

     

    “Participating
      Broker-Dealer” shall mean Citi, Lehman and Scotia and any other
      broker-dealer which makes a market in the Notes and exchanges Registrable Notes
      in the Exchange Offer for Exchange Notes.

     

    “Person”
      shall mean an individual, partnership (general or limited), corporation, limited
      liability company, trust or unincorporated organization, or a government or
      agency or political subdivision thereof.

     

    “Prospectus”
      shall mean the prospectus included in a Registration Statement, including any
      preliminary prospectus, and any such prospectus as amended or supplemented
      by
      any prospectus supplement, including any such prospectus supplement with respect
      to the terms of the offering of any portion of the Registrable Notes covered
      by
      a Shelf Registration Statement, and by all other amendments and supplements
      to a
      prospectus, including pre-effective and post-effective amendments, and in each
      case including all documents incorporated by reference therein.

     

    

    
      
        
          
          

        

        
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    “Purchase
      Agreement” shall have the meaning set forth in the preamble.

     

    “Registrable
      Notes” shall mean the Notes of any Holder; provided, however,
      that such Notes shall cease to be Registrable Notes when (i) a Registration
      Statement with respect to such Notes shall have been declared or otherwise
      become effective under the Securities Act and such Notes shall have been
      disposed of pursuant to such Registration Statement, (ii) such Notes are
      eligible for resale to the public pursuant to Rule 144 (or any similar provision
      then in force, but not Rule 144A) under the Securities Act, (iii) such
      Notes shall have ceased to be outstanding or (iv) the Exchange Offer is
      consummated (except in the case of Notes purchased from the Issuer and continued
      to be held by any Initial Purchaser).

     

    “Registration
      Expenses” shall mean any and all expenses incident to performance of or
      compliance by the Issuer with this Agreement, regardless of whether a
      Registration Statement becomes effective, including without
      limitation:  (i) all SEC, stock exchange or National Association
      of Securities Dealers, Inc. (the “NASD”) registration and filing fees,
      including, if applicable, the reasonable fees and expenses of any “qualified
      independent underwriter” (and its counsel) that is required to be retained by
      any Holder of Registrable Notes in accordance with the rules and regulations
      of
      the NASD, (ii) all reasonable fees and expenses incurred in connection with
      compliance with state securities or blue sky laws and compliance with the rules
      of the NASD (including reasonable fees and disbursements of counsel for any
      underwriters or Holders in connection with blue sky qualification of any of
      the
      Exchange Notes or Registrable Notes and any filings with the NASD),
      (iii) all expenses of any Persons in preparing or assisting in preparing,
      word processing, printing and distributing any Registration Statement, any
      Prospectus, any amendments or supplements thereto, any underwriting agreements,
      securities sales agreements and other documents relating to the performance
      of
      and compliance with this Agreement, (iv) all fees and expenses incurred in
      connection with the listing, if any, of any of the Registrable Notes on any
      securities exchange or exchanges, (v) all rating agency fees, (vi) the
      fees and disbursements of counsel for the Issuer and of the independent public
      accountants of the Issuer, including the expenses of any special audits or
“cold
      comfort” letters required by or incident to such performance and compliance,
      (vii) the fees and expenses of the Trustee, and any escrow agent or
      custodian, (viii) the reasonable fees and expenses of the Initial
      Purchasers in connection with the Exchange Offer, including the reasonable
      fees
      and expenses of counsel to the Initial Purchasers in connection therewith,
      and
      (ix) any reasonable fees and disbursements of the underwriters customarily
      required to be paid by issuers or sellers of securities and the reasonable
      fees
      and expenses of any special experts retained by the Issuer in connection with
      any Registration Statement, but excluding underwriting discounts and commissions
      and transfer taxes, if any, relating to the sale or disposition of Registrable
      Notes by a Holder, it being understood that in no event shall the Issuer be
      liable for the fees and expenses of more than one counsel (in addition to any
      local counsel) in connection with registration pursuant to either Section 2.1
      or
      2.2 hereof.

     

    “Registration
      Statement” shall mean any registration statement of the Issuer which covers
      any of the Exchange Notes or Registrable Notes pursuant to the provisions of
      this Agreement, and all amendments and supplements to any such Registration
      Statement, including pre-effective and post-effective amendments, in each case
      including the Prospectus contained therein, all exhibits thereto and all
      documents incorporated by reference therein.

     

    

    
      
        
          
          

        

        
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    “Representatives”
      shall mean Citi, Lehman and Scotia in their capacity as representatives of
      the
      Initial Purchasers.

     

    “SEC”
shall
      mean the United States Securities and Exchange Commission or any successor
      agency or government body performing the functions currently performed by the
      United States Securities and Exchange Commission.

     

    “Securities
      Act” shall mean the Securities Act of 1933, as amended from time to
      time.

     

    “Shelf
      Registration” shall mean a registration effected pursuant to
      Section 2.2 hereof.

     

    “Shelf
      Registration Statement” shall mean a “shelf” registration statement of the
      Issuer pursuant to the provisions of Section 2.2 hereof which covers all of
      the
      Registrable Notes on an appropriate form under Rule 415 under the Securities
      Act, or any similar rule that may be adopted by the SEC, and all amendments
      and
      supplements to such registration statement, including post-effective amendments,
      in each case including the Prospectus contained therein, all exhibits thereto
      and all documents incorporated by reference therein.

     

    “Trustee”
      shall mean the trustee with respect to the Notes under the
      Indenture.

     

    2.  Registration
      Under the Securities Act.

     

                                   2.1  Exchange
      Offer.  The Issuer shall (A) prepare and, as soon as
      practicable following the Closing Date, file with the SEC an Exchange Offer
      Registration Statement with respect to a proposed Exchange Offer and the
      issuance and delivery to the Holders, in exchange for the Registrable Notes,
      a
      like principal amount of Exchange Notes, (B) use its reasonable best
      efforts to cause the Exchange Offer Registration Statement to be declared
      effective under the Securities Act not later than 180 calendar days following
      the Closing Date, (C) use its reasonable best efforts to keep the Exchange
      Offer Registration Statement effective until the closing of the Exchange Offer
      and (D) use its reasonable best efforts to cause the Exchange Offer to be
      consummated within 210 calendar days following the Closing Date.  The
      Exchange Notes will be issued under the Indenture.  Upon the
      effectiveness of the Exchange Offer Registration Statement, the Issuer shall
      promptly commence the Exchange Offer, it being the objective of such Exchange
      Offer to enable each Holder eligible and electing to exchange Registrable Notes
      for Exchange Notes (assuming that such Holder (a) is not an Affiliate of
      the Issuer within the meaning of Rule 405 under the Securities Act, (b) is
      not a broker-dealer tendering Registrable Notes acquired directly from the
      Issuer for its own account, (c) acquired the Exchange Notes in the ordinary
      course of such Holder’s business and (d) has no arrangements or
      understandings with any person to participate in the Exchange Offer for the
      purpose of distributing the Exchange Notes) to transfer such Exchange Notes
      from
      and after their receipt without any limitations or restrictions under the
      Securities Act and without material restrictions under the securities laws
      of a
      majority of the several states of the United States.

     

    

    
      
        
          
          

        

        
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    In
      connection with
      the Exchange Offer, the Issuer shall:

     

                   (a)  send
      to the
      Depositary a copy of the Prospectus forming part of the Exchange Offer
      Registration Statement together with an appropriate letter of transmittal and
      related documents;

     

                  
      (b)  use
      its reasonable
      best efforts to keep the Exchange Offer open for acceptance for a period of
      not
      less than 20 business days after the date notice thereof is mailed to the
      Depositary (or longer if required by applicable law) (such period referred
      to
      herein as the “Exchange Period”);

     

                  
      (c)  utilize
      the services
      of the Depositary for the Exchange Offer;

     

                  
       d)  permit
      Holders to
      withdraw tendered Registrable Notes at any time prior to 5:00 p.m. (Eastern
      Time) on the last business day of the Exchange Period, by sending to the
      institution specified in the notice for its receipt by such time, a telegram,
      telex, facsimile transmission or letter setting forth the name of such Holder,
      the principal amount of Registrable Notes delivered for exchange, and a
      statement that such Holder is withdrawing his election to have such Notes
      exchanged;

     

                   (e)  notify
      the
      Depositary that any Registrable Notes not tendered will remain outstanding
      and
      continue to accrue interest, but will not retain any rights under this Agreement
      (except in the case of the Initial Purchasers and Participating Broker-Dealers
      as provided herein); and

     

                   
      (f)  otherwise
      comply in
      all respects with all applicable laws relating to the Exchange
      Offer.

     

    As
      soon as
      practicable after the close of the Exchange Offer, the Issuer
      shall:

     

            
        (i)  accept
      for exchange
      all Registrable Notes duly tendered and not validly withdrawn pursuant to the
      Exchange Offer in accordance with the terms of the Prospectus and the letter
      of
      transmittal which shall be an exhibit to the Exchange Offer Registration
      Statement;

     

             
       (ii)  deliver
      to the
      Trustee for cancellation all Registrable Notes so accepted for exchange;
      and

     

             
      (iii)  cause
      the Trustee
      promptly to authenticate and deliver the respective Exchange Notes to each
      Holder of Registrable Notes so accepted for exchange in a principal amount
      equal
      to the principal amount of the Registrable Notes of such Holder so accepted
      for
      exchange.

     

    

    
      
        
          
          

        

        
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    The
      Issuer shall use
      its reasonable best efforts to keep the Exchange Offer Registration Statement
      effective and to amend and supplement the Prospectus contained therein, in
      order
      to permit such Prospectus to be lawfully delivered by all Participating
      Broker-Dealers subject to the prospectus delivery requirements of the Securities
      Act for such period of time as such Participating Broker-Dealers must comply
      with such requirements in order to resell the Exchange Notes; provided, however,
      that (i) such period shall end on the earlier of 90 calendar days after the
      consummation of the Exchange Offer and the date on which all Participating
      Broker-Dealers have sold all Exchange Notes held by them (unless such period
      is
      extended pursuant to Section 3(k) hereof) and (ii) the Issuer shall
      make such Prospectus, and any amendment or supplement thereto, available to
      any
      such Participating Broker-Dealer for use in connection with any resale of any
      Exchange Notes for a period ending on the earlier of 90 calendar days after
      the
      consummation of the Exchange Offer and the date on which all Participating
      Broker-Dealers have sold all Exchange Notes held by them (unless such period
      is
      extended pursuant to Section 3(k) hereof).

     

    Interest
      on the
      Exchange Notes will accrue from the most recent interest payment date to which
      interest has been paid on the Registrable Notes surrendered in exchange therefor
      or, if no interest has been paid on such Registrable Notes, from the Closing
      Date.  The Exchange Offer shall not be subject to any conditions,
      other than (i) that the Exchange Offer, or the making of any exchange by a
      Holder, does not violate applicable law or any applicable interpretation of
      the
      staff of the SEC, (ii) the due tendering of Registrable Notes in accordance
      with the Exchange Offer, (iii) that each Holder of Registrable Notes
      exchanged in the Exchange Offer shall have represented (x) that all
      Exchange Notes to be received by it shall be acquired in the ordinary course
      of
      its business (y) that it is not an Affiliate of the Issuer and
      (z) that at the time of the consummation of the Exchange Offer it shall
      have no arrangement or understanding with any person to participate in the
      distribution (within the meaning of the Securities Act) of the Exchange Notes
      and shall have made such other representations as may be reasonably necessary
      under applicable SEC rules, regulations or interpretations to render the use
      of
      Form S-4 or other appropriate form under the Securities Act available and
      (iv) that no action or proceeding shall have been instituted or threatened
      in any court or by or before any governmental agency with respect to the
      Exchange Offer which, in the judgment of the Issuer, would reasonably be
      expected to impair the ability of the Issuer to proceed with the Exchange
      Offer.  The Issuer shall inform the Initial Purchasers of the names
      and addresses of the Holders to whom the Exchange Offer is made, and the Initial
      Purchasers shall have the right to contact such Holders and otherwise facilitate
      the tender of Registrable Notes in the Exchange Offer.  Each Holder of
      Registrable Notes who wishes to exchange such Registrable Notes for Exchange
      Notes in the Exchange Offer will be required to make certain customary
      representations in connection therewith, including representations that
      (i) all Exchange Notes to be received by it were acquired in the ordinary
      course of its business, (ii) it is not an affiliate of the Issuer and (iii)
      at
      the time of the consummation of the Exchange Offer it shall have no arrangement
      or understanding with any person to participate in the distribution (within
      the
      meaning of the Securities Act) of the Exchange Notes and shall have made such
      other representations as may be reasonably necessary under applicable SEC rules,
      regulations or interpretations to render the use of Form S-4 or other
      appropriate form under the Securities Act available.  Each Holder
      hereby acknowledges and agrees that any Participating Broker-Dealer and any
      such
      Holder using the Exchange Offer to participate in a distribution of the Exchange
      Notes:  (1) could not under SEC policy as in effect on the date
      of this Agreement rely on the position of the SEC enunciated in Morgan Stanley
      and Co., Inc. (available June 5, 1991) and Exxon Capital Holdings
      Corporation (available May 13, 1988), as interpreted in the SEC’s letter to
      Shearman & Sterling dated July 2, 1993, and similar no-action letters
      (including any no-action letter obtained based on the representation in clause
      (i) above), and (2) must comply with the registration
      and prospectus delivery requirements of the Securities Act in connection with
      the secondary resale transaction and that such a secondary resale transaction
      should be covered by an effective registration statement containing the selling
      security holder information required by Items 507 and 508, as applicable, of
      Regulation S-K, the SEC standard instructions for filing forms under the
      Securities Act, if the resales are of Exchange Notes obtained by such Holder
      in
      exchange for Notes acquired by such Holder directly from the Issuer or an
      affiliate of the Issuer.

     

    

    
      
        
          
          

        

        
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      2.2  Shelf
      Registration.  (i) If, because of any changes in law, SEC
      rules or regulations or applicable interpretations thereof by the staff of
      the
      SEC, the Issuer is not permitted to effect the Exchange Offer as contemplated
      by
      Section 2.1 hereof, (ii) if for any other reason (A) the Exchange
      Offer Registration Statement is not declared effective within 180 calendar
      days
      following the Closing Date or (B) the Exchange Offer is not consummated
      within 210 calendar days after the Closing Date (provided that the Issuer is
      not
      then actively pursuing such effectiveness or consummation, as the case may
      be),
      (iii) upon the written request of the Initial Purchasers with respect to
      any Registrable Notes which it acquired directly from the Issuer, (iv) upon
      the written request of any Holder that either (A) is not permitted pursuant
      to applicable law, SEC rules and regulations or applicable interpretations
      thereof by the staff of the SEC to participate in the Exchange Offer or
      (B) participates in the Exchange Offer and does not receive fully tradable
      Exchange Notes pursuant to the Exchange Offer, or (v) if the Issuer so
      elects, then in case of each of clauses (i) through (v) the Issuer shall, at
      its
      cost:

     

                  
      (a)  as
      promptly as
      practicable, file with the SEC, and thereafter shall use its reasonable best
      efforts to cause to be declared or otherwise become effective as promptly as
      practicable but no later than 180 calendar days after the Closing Date, a Shelf
      Registration Statement relating to the offer and sale of the Registrable Notes
      by the Holders from time to time in accordance with the methods of distribution
      elected by the Majority Holders participating in the Shelf Registration and
      set
      forth in such Shelf Registration Statement;

     

                  
      (b)  use
      its reasonable
      best efforts to keep the Shelf Registration Statement continuously effective
      in
      order to permit the Prospectus forming a part thereof to be usable by Holders
      for a period ending on the earliest of (i) two years from the Closing Date,
      (ii) the date on which the Registrable Notes become eligible for resale
      without volume limitations pursuant to Rule 144 under the Securities Act, or
      (iii) for such shorter period that will terminate when all Registrable
      Notes covered by the Shelf Registration Statement have been sold pursuant to
      the
      Shelf Registration Statement or cease to be outstanding or otherwise to be
      Registrable Notes; and

     

                   
      (c)  notwithstanding
      any
      other provisions hereof, use its reasonable best efforts to ensure that
      (i) any Shelf Registration Statement and any amendment thereto and any
      Prospectus forming part thereof and any supplement thereto complies in all
      material respects with the Securities Act and the rules and regulations
      thereunder, (ii) any Shelf Registration Statement and any amendment thereto
      does not, when it becomes effective, contain an untrue statement of a material
      fact or omit to state a material fact required to be stated therein or necessary
      to make the statements therein not misleading and (iii) any Prospectus
      forming part of any Shelf Registration Statement, and any supplement to such
      Prospectus (as amended or supplemented from time to time), does not include
      an
      untrue statement of a material fact or omit to state a material fact necessary
      in order to make the statements, in light of the circumstances under which
      they
      were made, not misleading.

     

    

    
      
        
          
          

        

        
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    The
      Issuer further
      agrees, if necessary, to supplement or amend the Shelf Registration Statement,
      as required by Section 3(b) hereof, and to furnish to the Depositary copies
      of
      any such supplement or amendment as promptly as reasonably practicable after
      its
      being used or filed with the SEC.

     

    No
      Holder of
      Registrable Notes shall be entitled to include any of its Registrable Notes
      in
      any Shelf Registration Statement pursuant to this Agreement unless and until
      such Holder agrees in writing to be bound by all of the provisions of this
      Agreement applicable to such Holder and furnishes to the Issuer in writing,
      within 15 calendar days after receipt of a request therefor, such information
      as
      the Issuer may, after conferring with counsel with regard to information
      relating to Holders that would be required by the SEC to be included in such
      Shelf Registration Statement or Prospectus included therein, reasonably request
      for inclusion in any Shelf Registration Statement or Prospectus included
      therein.  Each Holder as to which any Shelf Registration is being
      effected agrees promptly to furnish to the Issuer all information with respect
      to such Holder necessary to make the information previously furnished to the
      Issuer by such Holder not materially misleading.

     

                                  
      2.3  Expenses.  The
      Issuer shall pay all Registration Expenses in connection with the registration
      pursuant to Section 2.1 or 2.2 hereof.  Each Holder shall pay all
      underwriting discounts and commissions and transfer taxes, if any, relating
      to
      the sale or disposition of such Holder’s Registrable Notes pursuant to the Shelf
      Registration Statement.

     

                                 
       2.4  Effectiveness.  (a)      
      The Issuer will be deemed not to have used its reasonable best efforts to cause
      the Exchange Offer Registration Statement or the Shelf Registration Statement,
      as the case may be, to become, or to remain, effective during the requisite
      period if the Issuer voluntarily takes any action that would, or omits to take
      any action which omission would, result in any such Registration Statement
      not
      being declared or otherwise becoming effective or in the Holders of Registrable
      Notes covered thereby not being able to exchange or offer and sell such
      Registrable Notes during that period as and to the extent contemplated hereby,
      unless such action is required by applicable law.

     

                  
      (b)  An
      Exchange Offer
      Registration Statement pursuant to Section 2.1 hereof or a Shelf Registration
      Statement pursuant to Section 2.2 hereof will not be deemed to have become
      effective unless it has been declared effective by the SEC or otherwise become
      effective under the Securities Act; provided, however, that if, after it has
      been declared or otherwise become effective, the offering of Registrable Notes
      pursuant to a Shelf Registration Statement is interfered with by any stop order,
      injunction or other order or requirement of the SEC or any other governmental
      agency or court, such Registration Statement will be deemed not to have become
      effective during the period of such interference until the offering of
      Registrable Notes pursuant to such Registration Statement may legally
      resume.

     

    

    
      
        
          
          

        

        
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                                   2.5  Interest.  The
      Notes will provide that if the Exchange Offer is not consummated and the Shelf
      Registration Statement is not declared or does not otherwise become effective
      on
      or prior to the date that is 210 calendar days after the Closing Date, the
      interest rate on the Notes will be increased by 0.25% per annum commencing
      on
      the date that is 210 calendar days after the Closing Date, until the Exchange
      Offer is consummated or the Shelf Registration Statement is declared effective
      by the SEC or has otherwise become effective; provided, that in the case of
      a
      Shelf Registration Statement, if the Issuer is unable to cause such Shelf
      Registration Statement to become effective because Holders of Registrable Notes
      have not provided information with respect to themselves as required by law
      to
      be included therein pursuant to the Issuer’s request as provided herein, such
      0.25% increase in the interest rate shall be payable only to Holders that have
      furnished such information required by law to be included therein to the Issuer
      pursuant to its request hereunder from but excluding the date such information
      is provided to the Issuer to but excluding the date the Shelf Registration
      Statement is declared effective by the SEC or otherwise became
      effective.

     

                                  
      2.6  Specific
      Enforcement.  Without limiting the remedies available to the
      Initial Purchasers and the Holders, the Issuer acknowledges that any failure
      by
      the Issuer to comply with its obligations under Sections 2.1 and 2.2 hereof
      may
      result in material irreparable injury to the Initial Purchasers or the Holders
      for which there is no adequate remedy at law, that it will not be possible
      to
      measure damages for such injuries precisely and that, in the event of any such
      failure, the Initial Purchasers or any Holder may obtain such relief as may
      be
      required to specifically enforce the Issuer’s obligations under Sections 2.1 and
      2.2 hereof.

     

                                   
      3.  Registration
      Procedures.  In connection with the obligations of the Issuer with
      respect to Registration Statements pursuant to Sections 2.1 and 2.2 hereof,
      the
      Issuer shall:

     

                   (a)  prepare
      and file
      with the SEC a Registration Statement, within the relevant time period specified
      in Section 2 hereof, on the appropriate form under the Securities Act, which
      form (i) shall be selected by the Issuer, (ii) shall in the case of a
      Shelf Registration, be available for the sale of the Registrable Notes by the
      selling Holders thereof, (iii) shall comply as to form in all material
      respects with the requirements of the applicable form and include or incorporate
      by reference all financial statements required by the SEC to be filed therewith
      or incorporated by reference therein, and (iv) shall comply in all respects
      with the requirements of Regulation S-K under the Securities Act, and use its
      reasonable best efforts to cause such Registration Statement to become effective
      and remain effective in accordance with Section 2 hereof;

     

                  
      (b)  prepare
      and file
      with the SEC such amendments and post-effective amendments to each Registration
      Statement as may be necessary under applicable law to keep such Registration
      Statement effective for the applicable period; and cause each Prospectus to
      be
      supplemented by any required prospectus supplement, and as so supplemented
      to be
      filed pursuant to Rule 424 under the Securities Act and comply with the
      provisions of the Securities Act applicable to them with respect to the
      disposition of all securities covered by each Registration Statement during
      the
      applicable period in accordance with the intended method or methods of
      distribution by the selling Holders thereof;

     

    

    
      
        
          
          

        

        
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      (c)  in
      the case of a
      Shelf Registration, (i) notify the Depositary, at least five (5) business
      days prior to filing, that a Shelf Registration Statement with respect to the
      Registrable Notes is being filed and advise the Depositary that the distribution
      of Registrable Notes will be made in accordance with the method selected by
      the
      Majority Holders participating in the Shelf Registration; (ii) furnish to
      the Depositary and to each underwriter of an underwritten offering of
      Registrable Notes, if any, without charge, as many copies of each Prospectus,
      including each preliminary Prospectus, and any amendment or supplement thereto
      and such other documents as the Depositary or underwriter may reasonably
      request, including financial statements and schedules and, if the Depositary
      so
      requests, all exhibits in order to facilitate the public sale or other
      disposition of the Registrable Notes; and (iii) hereby consent to the use
      of the Prospectus or any amendment or supplement thereto by each of the selling
      Holders of Registrable Notes in connection with the offering and sale of the
      Registrable Notes covered by the Prospectus or any amendment or supplement
      thereto;

     

                  
      (d)  use
      its reasonable
      best efforts to register or qualify the Registrable Notes under all applicable
      state securities or “blue sky” laws of such jurisdictions as any Holder of
      Registrable Notes covered by a Registration Statement and each underwriter
      of an
      underwritten offering of Registrable Notes shall reasonably request in writing
      by the time the applicable Registration Statement is declared effective by
      the
      SEC or has otherwise become effective under the Securities Act, and do any
      and
      all other acts and things which may be reasonably necessary or advisable to
      enable each such Holder and underwriter to consummate the disposition in each
      such jurisdiction of such Registrable Notes owned by such Holder; provided,
      however, that the Issuer shall not be required to (i) qualify as a foreign
      corporation or as a dealer in securities in any jurisdiction where it would
      not
      otherwise be required to qualify but for this Section 3(d), or (ii) take
      any action which would subject it to general service of process or taxation
      in
      any such jurisdiction where it is not then so subject;

     

                   (e)  notify
      promptly each
      Holder of Registrable Notes under a Shelf Registration or any Participating
      Broker-Dealer who has notified the Issuer that it is utilizing the Exchange
      Offer Registration Statement as provided in paragraph (f) below, and, if
      requested by such Holder or Participating Broker-Dealer, confirm such advice
      in
      writing promptly (i) when a Registration Statement has become effective and
      when any post-effective amendments and supplements thereto become effective,
      (ii) of any request by the SEC or any state securities authority for
      post-effective amendments and supplements to a Registration Statement and
      Prospectus or for additional information after the Registration Statement has
      become effective, (iii) of the issuance by the SEC or any state securities
      authority of any stop order suspending the effectiveness of a Registration
      Statement or the initiation of any proceedings for that purpose, (iv) in
      the case of a Shelf Registration, if, between the effective date of a
      Registration Statement and the closing of any sale of Registrable Notes covered
      thereby, the representations and warranties of the Issuer contained in any
      underwriting agreement, securities sales agreement or other similar agreement,
      if any, relating to the offering cease to be true and correct in all material
      respects, (v) of the happening of any event or the discovery of any facts
      during the period a Shelf Registration Statement is effective or an Exchange
      Offer Registration Statement is being utilized pursuant to Section 2.1(f) hereof
      which makes any statement made in such Registration Statement or related
      Prospectus untrue in any material respect or which requires the making of any
      changes in such Registration Statement or Prospectus in order to make the
      statements therein not misleading, and (vi) of the receipt by the Issuer of
      any notification with respect to the suspension of the qualification of the
      Registrable Notes or the Exchange Notes, as the case may be, for sale in any
      jurisdiction or the initiation or threatening of any proceeding for such
      purpose;

     

    

    
      
        
          
          

        

        
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      (f)  in
      the case of the
      Exchange Offer Registration Statement (i) include in the Prospectus
      contained in the Exchange Offer Registration Statement a section entitled “Plan
      of Distribution” which section shall be reasonably acceptable to the Initial
      Purchasers or another representative of the Participating Broker-Dealers and
      shall contain a summary statement of the positions taken or policies made by
      the
      staff of the SEC with respect to the potential “underwriter” status of any
      broker-dealer that holds Registrable Notes acquired for its own account as
      a
      result of market-making activities or other trading activities and that will
      be
      the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of
      Exchange Notes to be received by such broker-dealer in the Exchange Offer,
      whether such positions or policies have been publicly disseminated by the staff
      of the SEC or such positions or policies, in the reasonable judgment of the
      Initial Purchasers and their counsel, represent the prevailing views of the
      staff of the SEC, including a statement that any such broker-dealer who receives
      Exchange Notes for Registrable Notes pursuant to the Exchange Offer may be
      deemed a statutory underwriter and must deliver a prospectus meeting the
      requirements of the Securities Act in connection with any resale of such
      Exchange Notes, (ii) furnish to each Participating Broker-Dealer who has
      delivered to the Issuer the notice referred to in Section 3(e) hereof, without
      charge, as many copies of each Prospectus included in the Exchange Offer
      Registration Statement, including any preliminary prospectus, and any amendment
      or supplement thereto, as such Participating Broker-Dealer may reasonably
      request, (iii) hereby consent to the use of the Prospectus forming part of
      the Exchange Offer Registration Statement or any amendment or supplement
      thereto, by any person subject to the prospectus delivery requirement of the
      SEC, including all Participating Broker-Dealers, in connection with the sale
      or
      transfer of the Exchange Notes covered by the Prospectus or any amendment or
      supplement thereto, and (iv) include in the transmittal letter or similar
      documentation to be executed by an exchange offeree in order to participate
      in
      the Exchange Offer (x) the following provision:

     

    “if
      you are a
      participating broker-dealer that will receive Exchange Notes for your own
      account in exchange for Original Notes as a result of market-making activities
      or other trading activities, you acknowledge that you will deliver a Prospectus
      meeting the requirements of the Securities Act in connection with any resale
      of
      such Exchange Notes;” and

     

    (y) a
      statement
      to the effect that by a broker-dealer making the acknowledgment described in
      clause (x) and delivering a Prospectus in connection with the exchange of
      Registrable Notes, the broker-dealer will not be deemed to admit that it is
      an
      underwriter within the meaning of the Securities Act;

     

    

    
      
        
          
          

        

        
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      (g)  (i) in
      the case
      of an Exchange Offer, furnish counsel for the Initial Purchasers and
      (ii) in the case of a Shelf Registration, furnish counsel for the Holders
      of Registrable Notes, copies of any comment letters received from the SEC or
      any
      other request by the SEC or any state securities authority for amendments or
      supplements to a Registration Statement and Prospectus or for additional
      information;

     

                              
      (h)      make
      every
      reasonable effort to obtain the withdrawal of any order suspending the
      effectiveness of a Registration Statement at the earliest possible
      moment;

     

                  
      (i)       in
      the case of a
      Shelf Registration, furnish to the Depositary, and each underwriter, if any,
      without charge, at least one conformed copy of each Registration Statement
      and
      any post-effective amendment thereto, including financial statements and
      schedules (without documents incorporated therein by reference and all exhibits
      thereto, unless requested);

     

                  
      (j)       in
      the case of a
      Shelf Registration, cooperate with the selling Holders of Registrable Notes
      to
      facilitate the timely preparation and delivery of certificates representing
      Registrable Notes to be sold and not bearing any restrictive legends; and enable
      such Registrable Notes to be in such denominations (consistent with the
      provisions of the Indenture) and registered in such names as the selling Holders
      or the underwriters, if any, may reasonably request at least three (3) business
      days prior to the closing of any sale of Registrable Notes;

     

                  
      (k)  in
      the case of a
      Shelf Registration, upon the occurrence of any event or the discovery of any
      facts, each as contemplated by Sections 3(e)(ii), 3(e)(iv), 3(e)(v) and 3(e)(vi)
      hereof, or in the case of an Exchange Offer Registration Statement, upon the
      occurrence of any event or the discovery of any facts, each as contemplated
      by
      Sections 3(e)(ii), 3(e)(v) and 3(e)(vi) hereof, use its reasonable best efforts
      to prepare a supplement or post-effective amendment to the Registration
      Statement or the Prospectus or any document incorporated therein by reference
      or
      file any other required document so that, as thereafter delivered to the
      purchasers of the Registrable Notes or Participating Broker-Dealers, such
      Prospectus will not contain at the time of such delivery any untrue statement
      of
      a material fact or omit to state a material fact necessary to make the
      statements therein, in light of the circumstances under which they were made,
      not misleading; and notify each Holder to suspend use of the Prospectus as
      promptly as practicable after the occurrence of such an event, and each Holder
      hereby agrees to suspend use of the Prospectus until such time as such Holder
      has received from the Issuer an amended or supplemented Prospectus correcting
      such misstatement or omission;

     

                  
      (l)  in
      the case of a
      Shelf Registration, a reasonable time prior to the filing of any Registration
      Statement, any Prospectus, any amendment to a Registration Statement or
      amendment or supplement to a Prospectus or any document which is to be
      incorporated by reference into a Registration Statement or a Prospectus after
      initial filing of a Registration Statement, provide copies of such document
      to
      the Initial Purchasers on behalf of such Holders; and make representatives
      of
      the Issuer as shall be reasonably requested by the Holders of Registrable Notes,
      or the Initial Purchasers on behalf of such Holders, available for discussion
      of
      such document;

     

    

    
      
        
          
          

        

        
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      (m)    obtain
      a CUSIP
      number for all Exchange Notes or Registrable Notes, as the case may be, not
      later than the effective date of a Registration Statement, and provide the
      Trustee with printed certificates for the Exchange Notes or the Registrable
      Notes, as the case may be, in a form eligible for deposit with the
      Depositary;

     

    (n)  
       (i) cause
      the
      Indenture to be qualified under the Trust Indenture Act of 1939, as amended
      (the
“TIA”), in connection with the registration of the Exchange Notes or
      Registrable Notes, as the case may be, (ii) cooperate with the Trustee and
      the Holders to effect such changes to the Indenture as may be required for
      the
      Indenture to be so qualified in accordance with the terms of the TIA, and
      (iii) execute, and use its reasonable best efforts to cause the Trustee to
      execute, all documents as may be required to effect such changes, and all other
      forms and documents required to be filed with the SEC to enable the Indenture
      to
      be so qualified in a timely manner;

     

                   (o)     in
      the case of a
      Shelf Registration, enter into agreements (including underwriting agreements)
      and take all other customary and appropriate actions in order to expedite or
      facilitate the disposition of such Registrable Notes and in such connection
      whether or not an underwriting agreement is entered into and whether or not
      the
      registration is an underwritten registration:

     

             
      (i)  make
      such
      representations and warranties to the Holders of such Registrable Notes and
      the
      underwriters, if any, in form, substance and scope as are customarily made
      by
      issuers to underwriters in similar underwritten offerings as may be reasonably
      requested by them;

     

            
      (ii)  obtain
      opinions of
      counsel to the Issuer and updates thereof (which counsel and opinions (in form,
      scope and substance) shall be reasonably satisfactory to the managing
      underwriters, if any, and the holders of a majority in principal amount of
      the
      Registrable Notes being sold) addressed to each selling Holder and the
      underwriters, if any, covering the matters customarily covered in opinions
      requested in sales of securities or underwritten offerings and such other
      matters as may be reasonably requested by such Holders and
      underwriters;

     

            
      (iii)  if
      requested by any
      selling Holder of Registrable Notes or underwriter, obtain “cold comfort”
letters and updates thereof from the independent registered public accounting
      firm of the Company who have certified the financial statements and any other
      entity included or incorporated by reference in the Registration Statement
      addressed to the such underwriters, if any, and use reasonable efforts to have
      such letter addressed to the selling Holders of Registrable Notes (to the extent
      consistent with SAS 72), such letters to be in customary form and covering
      matters of the type customarily covered in “cold comfort” letters to
      underwriters in connection with similar underwritten offerings;

     

             
      (iv)  enter
      into a
      securities sales agreement with the Holders and an agent of the Holders
      providing for, among other things, the appointment of such agent for the selling
      Holders for the purpose of soliciting purchases of Registrable Notes, which
      agreement shall be in form, substance and scope customary for similar
      offerings;

     

    

    
      
        
          
          

        

        
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      (v)  if
      an underwriting
      agreement is entered into, cause the same to set forth indemnification
      provisions and procedures substantially equivalent to the indemnification
      provisions and procedures set forth in Sections 4 and 5 hereof with respect
      to
      the underwriters and all other parties to be indemnified pursuant to said
      Sections or, at the request of any underwriters, in the form customarily
      provided to such underwriters in similar types of transactions; and

     

            
      (vi)  deliver
      such
      documents and certificates as may be reasonably requested and as are customarily
      delivered in similar offerings to the Holders of a majority in principal amount
      of the Registrable Notes being sold and the managing underwriters, if
      any.

     

    The
      above shall be
      done at (i) the effectiveness of such Registration Statement (and each
      post-effective amendment thereof) and (ii) each closing under any
      underwriting or similar agreement as and to the extent required
      thereunder;

     

                  
      (p)  in
      the case of a
      Shelf Registration, make available for inspection by representatives of the
      Holders of the Registrable Notes and any underwriters participating in any
      disposition pursuant to a Shelf Registration Statement and any counsel or
      accountant retained by such Holders or underwriters, all financial and other
      records, pertinent corporate documents and properties of the Issuer reasonably
      requested by any such persons and use its reasonable best efforts to cause
      the
      respective officers, directors, employees, and any other agents of the Issuer
      to
      supply all information reasonably requested by any such representative,
      underwriter, special counsel or accountant in connection with a Registration
      Statement, and make such representatives of the Issuer available for discussion
      of such documents as shall be reasonably requested by the Initial
      Purchasers;

     

                  
      (q)  (i)        in
      the case of an Exchange Offer Registration Statement, within a reasonable time
      prior to the filing of any Exchange Offer Registration Statement, any Prospectus
      forming a part thereof, any amendment to an Exchange Offer Registration
      Statement or amendment or supplement to such Prospectus, provide copies of
      such
      document to the Representatives and make such changes in any such document
      prior
      to the filing thereof as the Initial Purchasers may reasonably request and,
      except as otherwise required by applicable law, not file any such document
      in a
      form to which the Representatives on behalf of the Holders of Registrable Notes
      shall reasonably object; and

     

                            
        (ii)  in
      the case of a
      Shelf Registration, within a reasonable time prior to filing any Shelf
      Registration Statement, any Prospectus forming a part thereof, any amendment
      to
      such Shelf Registration Statement or amendment or supplement to such Prospectus,
      provide copies of such document to the Depositary, to the Initial Purchasers,
      to
      counsel on behalf of the Holders and to the underwriter or underwriters of
      an
      underwritten offering of Registrable Notes, if any, make such changes in any
      such document prior to the filing thereof as the Initial Purchasers, the counsel
      to the Holders or the underwriter or underwriters reasonably request and not
      file any such document in a form to which the Majority Holders or the
      Representatives on behalf of the Holders of Registrable Notes or any underwriter
      may reasonably object and make the representatives of the Issuer available
      for
      discussion of such document as shall be reasonably requested by the Holders
      of
      Registrable Notes, the Representatives on behalf of such Holders, or any
      underwriter.

     

    

    
      
        
          
          

        

        
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      (r)  in
      the case of a
      Shelf Registration, use its reasonable best efforts to cause all Registrable
      Notes to be listed on any securities exchange on which similar debt securities
      issued by the Issuer are then listed if requested by the Majority Holders,
      or if
      requested by the underwriter or underwriters of an underwritten offering of
      Registrable Notes, if any;

     

                 
      (s)  in
      the case of a
      Shelf Registration, use its reasonable best efforts to cause the Registrable
      Notes to be rated by the appropriate rating agencies, if so requested by the
      Majority Holders, or if requested by the underwriter or underwriters of an
      underwritten offering of Registrable Notes, if any;

     

                  
      (t)  otherwise
      comply
      with all applicable rules and regulations of the SEC and make available to
      security holders, as soon as reasonably practicable, an earnings statement
      covering at least 12 months which shall satisfy the provisions of Section 11(a)
      of the Securities Act and Rule 158 thereunder;

     

                 
      (u)  cooperate
      and assist
      in any filings required to be made with the NASD and, in the case of a Shelf
      Registration, in the performance of any due diligence investigation by any
      underwriter and its counsel (including any “qualified independent underwriter”
that is required to be retained in accordance with the rules and regulations
      of
      the NASD); and

     

    (v)  in
      the case of any
      Exchange Offer Registration Statement, upon consummation of an Exchange
      Offer,

     

                             
      (A)  obtain a customary opinion of counsel to the Issuer addressed to
      the Trustee for the benefit of all Holders of Registrable Notes participating
      in
      the Exchange Offer, and which includes an opinion that (i) the Issuer has
      duly authorized, executed and delivered the Exchange Notes and the Indenture
      and
      (ii) each of the Exchange Notes and the Indenture constitute a legal, valid
      and binding obligation of the Issuer, enforceable against the Issuer in
      accordance with its respective terms (with customary exceptions);
      and

     

                           
        (B)  deliver to the Initial Purchasers or to another
      representative of the Participating Broker-Dealers, if requested by the Initial
      Purchasers or such other representative of the Participating Broker-Dealers,
      on
      behalf of the Participating Broker-Dealers (i) an opinion of counsel or
      opinions of counsel substantially in the form attached hereto as Exhibit A
      and
      (ii) an officers’ certificate substantially in the form customarily
      delivered in a public offering of debt securities.

     

    

    
      
        
          
          

        

        
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    In
      the case of a
      Shelf Registration Statement, the Issuer may (as a condition to such Holder’s
      participation in the Shelf Registration) require each Holder of Registrable
      Notes to furnish to the Issuer such information regarding the Holder and the
      proposed distribution by such Holder of such Registrable Notes as the Issuer
      may
      from time to time reasonably request in writing for use in connection with
      any
      Shelf Registration Statement or Prospectus included therein, including, without
      limitation, information specified in Item 507 of Regulation S-K under the
      Securities Act.  Each Holder as to which any Shelf Registration is
      being effected agrees to furnish promptly to the Issuer all information required
      to be disclosed with respect to such Holder in order to make any information
      with respect to such Holder previously furnished to the Issuer by such Holder
      not materially misleading.

     

    In
      the case of a
      Shelf Registration Statement or an Exchange Offer Registration Statement, each
      Holder agrees that, upon receipt of any notice directly or indirectly from
      the
      Issuer of the happening of any event or the discovery of any facts, each of
      the
      kind described in Section 3(e)(v) hereof, such Holder will forthwith discontinue
      disposition of Registrable Notes pursuant to a Registration Statement until
      such
      Holder’s receipt of the copies of the supplemented or amended Prospectus
      contemplated by Section 3(k) hereof, and, if so directed by the Issuer, such
      Holder will deliver to the Issuer (at its expense) all copies in such Holder’s
      possession, other than permanent file copies then in such Holder’s possession,
      of the Prospectus covering such Registrable Notes current at the time of receipt
      of such notice.

     

    If
      any of the
      Registrable Notes covered by any Shelf Registration Statement are to be sold
      in
      an underwritten offering, the underwriter or underwriters and manager or
      managers that will manage such offering will be selected by the Majority Holders
      of such Registrable Notes included in such offering and shall be acceptable
      to
      the Issuer.  No Holder of Registrable Notes may participate in any
      underwritten registration hereunder unless such Holder (a) agrees to sell
      such Holder’s Registrable Notes on the basis provided in any underwriting
      arrangements approved by the persons entitled hereunder to approve such
      arrangements and (b) completes and executes all questionnaires, powers of
      attorney, indemnities, underwriting agreements and other documents required
      under the terms of such underwriting agreement.

     

                                   
      4.         Indemnification.

     

                               
         4.1  Indemnification
      by the Issuer.  The Issuer agrees to indemnify and hold harmless
      each Initial Purchaser, its directors and officers, each Holder, each
      Participating Broker-Dealer, each Person who participates as an underwriter
      (any
      such Person being an “Underwriter”) and each Person, if any, who controls
      any Holder or Underwriter within the meaning of Section 15 of the Securities
      Act
      or Section 20 of the Exchange Act from and against any and all losses, claims,
      damages and liabilities  that arise out of or are based upon any
      untrue statement or alleged untrue statement of a material fact contained in
      any
      Registration Statement pursuant to which Exchange Notes or Registrable Notes
      were registered under the Securities Act or any related Prospectus or any
      related Issuer Free Writing Prospectus (as that term is defined in Rule
      433(h)(1) under the Securities Act), or any omission or alleged omission to
      state therein a material fact required to be stated therein or necessary to
      make
      the statements therein not misleading, and agrees to reimburse each Initial
      Purchaser and each controlling person, as incurred, for any legal or other
      expenses reasonably incurred by them in connection with investigating or
      defending any such loss, claim, damage or liability, except insofar as such
      losses, claims, damages or liabilities arise out of or are based upon any such
      untrue statement or alleged untrue statement or omission or alleged omission
      or
      are based upon information furnished in writing to the Issuer by any Initial
      Purchaser, Holder, Participating Broker-Dealer or Underwriter with respect
      to
      such Initial Purchaser, Holder, Participating Broker-Dealer or Underwriter,
      as
      the case may be, specifically for inclusion therein.

     

    

    
      
        
          
          

        

        
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      4.2  Indemnification
      by the Holders, Initial Purchasers, Participating Broker-Dealers and
      Underwriters.  Each Holder, each Initial Purchaser, each
      Participating Broker-Dealer and each Underwriter severally, but not jointly,
      agrees to indemnify and hold harmless the Issuer, each other Initial Purchaser,
      each other Participating Broker-Dealer, each other Underwriter and each other
      selling Holder, and each of their respective directors and officers, and each
      Person, if any, who controls the Issuer, any Initial Purchaser, any
      Participating Broker-Dealer, any Underwriter, or any other selling Holder within
      the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
      Act to the same extent as the foregoing indemnity contained in Section 4.1
      hereof, but only with reference to written information relating to such Holder,
      Initial Purchaser, Participating Broker-Dealer or Underwriter furnished in
      writing to the Issuer by such Holder, Initial Purchaser, Participating
      Broker-Dealer or Underwriter specifically for inclusion in the Shelf
      Registration Statement or such Prospectus; provided, however, that no such
      Holder, Initial Purchaser, Participating Broker-Dealer or Underwriter shall
      be
      liable for any claims hereunder in excess of the amount of net proceeds received
      by such Holder, Initial Purchaser, Participating Broker-Dealer or Underwriter
      from the sale of Registrable Notes pursuant to such Shelf Registration
      Statement.  This indemnity agreement will be in addition to any
      liability which such Holder, Initial Purchaser, Participating Broker-Dealer
      or
      Underwriter may otherwise have.

     

                                  
      4.3  Actions
      Against
      Parties; Notification.  Promptly after receipt by an
      indemnified party under Section 4.1 or 4.2 hereof of notice of the commencement
      of any action, such indemnified party will, if a claim in respect thereof is
      to
      be made against the indemnifying party under Section 4.1 or 4.2 hereof, notify
      the indemnifying party in writing of the commencement thereof; but the omission
      so to notify the indemnifying party (i) will not relieve it from any
      liability under Section 4.1 or 4.2 hereof unless and to the extent such failure
      results in the loss by the indemnifying party of substantial rights and defenses
      and (ii) will not, in any event relieve the indemnifying party from any
      obligations to any indemnified party other than the indemnification obligation
      provided in Section 4.1 or 4.2 hereof.  In any such proceeding, any
      indemnified party shall have the right to retain its own counsel, but fees
      and
      expenses of such counsel shall be at the expense of such indemnified party
      unless (i) the indemnifying party and the indemnified party shall have mutually
      agreed to the retention of such counsel or (ii) the named parties to any such
      action (including any impleaded parties) include both the indemnified party
      and
      the indemnifying party and the indemnified party shall have reasonably concluded
      upon advice of counsel that there may be legal defenses available to it and/or
      other indemnified parties which are different from or additional to those
      available to the indemnifying party.  It is understood that the
      indemnifying party shall not, in connection with any proceeding or related
      proceedings in the same jurisdiction, be liable for the fees and expenses of
      more than one separate counsel for all such indemnified parties.  Such
      counsel shall be designated in writing by the Representatives in the case of
      parties indemnified pursuant to the second preceding paragraph, and by the
      Company in the case of parties indemnified pursuant to the first preceding
      paragraph.

     

                                  
      4.4  Settlement
      Without Consent.  The indemnifying party shall not be liable for
      any settlement of any proceeding effected without its written consent, but
      if
      settled with such consent or if there has been a final judgment for the
      plaintiff, the indemnifying party agrees to indemnify the indemnified party
      from
      and against any loss or liability by reason of such settlement or
      judgment.  An indemnifying party will not, without the prior written
      consent of the indemnified parties, settle or compromise or consent to the
      entry
      of any judgment with respect to any pending or threatened claim, action, suit
      or
      proceeding in respect of which indemnification or contribution may be sought
      hereunder (whether the indemnified parties are actual or potential parties
      to
      such claim or action) unless such settlement, compromise or consent
      (i) includes an unconditional release of each indemnified party from all
      liability arising out of such claim, action, suit or proceeding and
      (ii) does not include any statement as to, or any admission of, fault,
      culpability or failure to act by or on behalf of any indemnified
      party.

     

    

    
      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

    

    

    

                                    5.  Contribution.  In
      the event that the indemnity provided for in Section 4.1 or 4.2 hereof is held
      by a court to be unavailable, in whole or in part, to hold harmless an
      indemnified party for any reason, then each applicable indemnifying party shall
      have several and not joint obligation to contribute to the aggregate losses,
      claims, damages and liabilities (including legal or other expenses reasonably
      incurred in connection with investigating or defending same) (collectively
      “Losses”) to which such indemnified party may be subject in such
      proportion as is appropriate to reflect the relative benefits received by such
      indemnifying party, on the one hand, and such indemnified party, on the other
      hand, from the offering of the Notes, the Exchange Notes or the Registrable
      Notes and the Registration Statement which resulted in such
      Losses.  If the allocation provided by the immediately preceding
      sentence is held by a court to be unavailable for any reason, the indemnifying
      party and the indemnified party shall contribute in such proportion as is
      appropriate to reflect not only such relative benefits but also the relative
      fault of such indemnifying party on the one hand and of such indemnified party
      on the other hand in connection with the statements or omissions that resulted
      in such Losses, as well as any other relevant equitable
      considerations.  Benefits received by the Issuer shall be deemed to be
      equal to the sum of (x) the total net proceeds from the offering (before
      deducting expenses) and (y) the total amount of Interest (as defined in
      Section 2.5 hereof) which the Issuer was not required to pay as a result of
      registering the securities covered by the Registration Statement which resulted
      in the Losses.  Benefits received by the Initial Purchasers shall be
      deemed to be equal to the total discounts and commissions, and benefits received
      by any other Holders shall be deemed to be equal to the value of receiving
      Notes, Exchange Notes or Registrable Notes, as applicable, registered under
      the
      Securities Act.  Benefits received by any Participating Broker-Dealer
      shall be deemed to be equal to the total commissions relating to the
      market-making and exchange of Registrable Notes for Exchange
      Notes.  Benefits received by any Underwriter shall be deemed to be
      equal to the total underwriting discounts and commissions, as set forth on
      the
      cover page of the Prospectus forming a part of the Registration Statement which
      resulted in such Losses.  Relative fault shall be determined by
      reference to, among other things, whether any untrue or alleged untrue statement
      of a material fact or the omission or alleged omission to state a material
      fact
      relates to information provided by the indemnifying party on the one hand or
      by
      the indemnified party on the other hand, the intent of the parties and their
      relative knowledge, access to information and opportunity to correct or prevent
      such untrue statement or omission.  Notwithstanding the provisions of
      this Section 5, no Initial Purchaser shall be required to contribute any amount
      in excess of the amount by which the total price at which the Notes underwritten
      by it and distributed by it to the public were offered to the public exceeds
      the
      amounts of any damages which such Initial Purchaser has otherwise been required
      to pay by reason of such untrue or alleged untrue statement or omission or
      alleged omission; nor shall any Participating Broker-Dealer be required to
      contribute any amount in excess of the amount by which the total price at which
      the Notes exchanged for Exchange Notes by it were offered to the public exceeds
      the amounts of any damages which such Participating Broker-Dealer has otherwise
      been required to pay by reason of such untrue or alleged untrue statement or
      omission or alleged omission; nor, shall any Underwriter in the case of a Shelf
      Registration Statement be required to contribute any amount in excess of the
      amount by which the total price at which the Notes underwritten by it exceeds
      the amounts of any damages which such Underwriter has otherwise been required
      to
      pay by reason of such untrue or alleged untrue statement or omission or alleged
      omission. The parties agree that it would not be just and equitable if
      contribution were determined by pro rata allocation (even if the Holders were
      treated as one entity for such purpose) or any other method of allocation that
      does not take account of the equitable considerations referred to
      above.  Notwithstanding the provisions of this Section 5, no person
      guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
      of
      the Securities Act) shall be entitled to contribution from any person who was
      not guilty of such fraudulent misrepresentation.

     

    

    
      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

    

    

    For
      purposes of this
      Section 5, each person, if any, who controls a Holder, an Initial Purchaser,
      a
      Participating Broker-Dealer or an Underwriter, in each case, within the meaning
      of Section 15 of the Securities Act or Section 20 of the Exchange Act, shall
      have the same rights to contribution as such Holder, Initial Purchaser,
      Participating Broker-Dealer or Underwriter, as the case may be, and each officer
      of the Issuer who shall have signed the Registration Statement, each director
      of
      the Issuer and each person, if any, who controls the Issuer within the meaning
      of Section 15 of the Securities Act or Section 20 of the Exchange Act shall
      have
      the same rights to contribution as the Issuer.

     

                                    
      6.  Miscellaneous.

     

                                   6.1  Rule
      144 and Rule
      144A.  For so long as the Issuer is subject to the reporting
      requirements of Section 13 or 15 of the Exchange Act, the Issuer covenants
      that
      it will file the reports required to be filed by it under the Securities Act
      and
      Section 13(a) or 15(d) of the Exchange Act and the rules and regulations adopted
      by the SEC thereunder.  If the Issuer ceases to be so required to file
      such reports, the Issuer covenants that it will upon the request of any Holder
      of Registrable Notes (a) make publicly available such information as is
      necessary to permit sales pursuant to Rule 144 under the Securities Act,
      (b) deliver such information to a prospective purchaser as is necessary to
      permit sales pursuant to Rule 144A under the Securities Act, and (c) take
      such further action that is reasonable in the circumstances, in each case,
      to
      the extent required from time to time to enable such Holder to sell its
      Registrable Notes without registration under the Securities Act within the
      limitation of the exemptions provided by (i) Rule 144 under the Securities
      Act, as such Rule may be amended from time to time, (ii) Rule 144A under
      the Securities Act, as such Rule may be amended from time to time, or
      (iii) any similar rules or regulations hereafter adopted by the
      SEC.  Upon the request of any Holder of Registrable Notes, the Issuer
      will deliver to such Holder a written statement as to whether it has complied
      with such requirements.  The Issuer agrees to comply with the
      information obligations to the extent that they are required by applicable
      law
      or regulation.

     

                                  
      6.2  No
      Inconsistent
      Agreements.  The Issuer has not entered into and the Issuer will
      not after the date of this Agreement enter into any agreement which is
      inconsistent with the rights granted to the Holders of Registrable Notes in
      this
      Agreement or otherwise conflicts with the provisions hereof.  The
      rights granted to the Holders hereunder do not in any way conflict with the
      rights granted to the Holders of the Issuer’s other issued and outstanding Notes
      under any such agreements.

     

                                  
      6.3  Amendments
      and
      Waivers.  The provisions of this Agreement, including the
      provisions of this sentence, may not be amended, modified or supplemented,
      and
      waivers of consents to departures from the provisions hereof may not be given
      unless the Issuer has obtained the written consent of (i) Majority Holders
      and (ii) Participating Broker-Dealers holding a majority in aggregate
      principal amount of the Exchange Notes held by all Participating Broker-Dealers,
      in each case to the extent affected by such amendment, modification, supplement,
      waiver or departure.

     

                                  
      6.4  Notices.  All
      notices and other communications provided for or permitted hereunder shall
      be
      made in writing by hand delivery, registered first-class mail, telex,
      telecopier, or any courier guaranteeing overnight delivery (a) if to the
      Depositary, at 55 Water Street, New York, New York 10041 or if The Depository
      Trust Company is no longer the Depositary, at the most current address given
      by
      the Depositary to the Issuer by means of a notice given in accordance with
      the
      provisions of this Section 6.4; (b) if to a Holder, at the most current address
      given by such Holder to the Issuer by means of a notice given in accordance
      with
      the provisions of this Section 6.4, which address initially is the address
      set
      forth in the Purchase Agreement with respect to the Initial Purchasers; and
      (c) if to the Issuer initially at the Issuer’s address set forth in the
      Purchase Agreement, and thereafter at such other address of which notice is
      given in accordance with the provisions of this Section 6.4.

     

    

    
      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      

    

    

    All
      such notices and
      communications shall be deemed to have been duly given:  at the time
      delivered by hand, if personally delivered; two (2) business days after being
      deposited in the mail, postage prepaid, if mailed; when answered back, if
      transmitted by facsimile; when receipt is acknowledged, if telecopied; and
      on
      the next business day if timely delivered to an air courier guaranteeing
      overnight delivery.

     

    Copies
      of all such
      notices, demands, or other communications shall be concurrently delivered by
      the
      person giving the same to the Trustee under the Indenture, at the address
      specified in such Indenture.

     

                                  
      6.5  Successor
      and
      Assigns.  This Agreement shall inure to the benefit of and be
      binding upon the successors, assigns and transferees of each of the parties,
      including without limitation and without the need for an express assignment,
      subsequent Holders and Participating Broker-Dealers; provided that nothing
      herein shall be deemed to permit any assignment, transfer or other disposition
      of Registrable Notes in violation of the terms of the Purchase
      Agreement.  If any transferee of any Holder shall acquire Registrable
      Notes, in any manner, whether by operation of law or otherwise, such Registrable
      Notes shall be held subject to all of the terms of this Agreement, and by taking
      any holding such Registrable Notes such person shall be conclusively deemed
      to
      have agreed to be bound by and to perform all of the terms and provisions of
      this Agreement, including the restrictions on resale set forth in this Agreement
      and, if applicable, the Purchase Agreement, and such person shall be entitled
      to
      receive the benefits hereof.

     

                                  
      6.6  Third
      Party
      Beneficiaries.  The Initial Purchasers (even if the Initial
      Purchasers are not Holders of Registrable Notes) shall be third party
      beneficiaries to the agreements made hereunder between the Issuer, on the one
      hand, and the Holders, on the other hand, and shall have the right to enforce
      such agreements directly to the extent it deems such enforcement necessary
      or
      advisable to protect its rights or the rights of Holders
      hereunder.  Each Holder of Registrable Notes shall be a third party
      beneficiary to the agreements made hereunder between the Issuer, on the one
      hand, and the Initial Purchasers, on the other hand, and shall have the right
      to
      enforce such agreements directly to the extent it deems such enforcement
      necessary or advisable to protect its rights hereunder.

     

                                  
      6.7  Counterparts.  This
      Agreement may be executed in any number of counterparts and by the parties
      hereto in separate counterparts, each of which when so executed shall be deemed
      to be an original and all of which taken together shall constitute one and
      the
      same agreement.

     

                                   
      6.8  Headings.  The
      headings in this Agreement are for convenience of reference only and shall
      not
      limit or otherwise affect the meaning hereof.

     

                                  
      6.9  GOVERNING
      LAW.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
      ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
      PRINCIPLES OF CONFLICT OF LAWS THEREOF.

     

                                  
      6.10   Severability.  In
      the event that any one or more of the provisions contained herein, or the
      application thereof in any circumstance, is held invalid, illegal or
      unenforceable, the validity, legality and enforceability of any such provision
      in every other respect and of the remaining provisions contained herein shall
      not be affected or impaired thereby.

     

    

    
      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

      

    

    

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

     

    

     

    PENNSYLVANIA
      ELECTRIC COMPANY,

    as
      Issuer

     

    
      	
              By:

            	
              _________________________________________________

            
	 	
              Name:

              Title:

            

    

    

     

    
 

    
      
        
        

      

      
        S-1

        
          

        

      

      
        
        

      

    

     

    

    Confirmed
      and
      accepted as

    of
      the date first above written:

     

    CITIGROUP
      GLOBAL
      MARKETS INC.

    

    

    By:___________________________________

          Name:

          Title:

    

    

    LEHMAN
      BROTHERS
      INC.

    

    

    By:___________________________________

          Name:

          Title:

    

    

    SCOTIA
      CAPITAL (USA)
      INC.

    

    

    By:___________________________________

          Name:

          Title:

    

    

    Acting
      as
      Representatives of the Initial Purchasers.

    

     

     

    
      
        
        

      

      
        S-2

        
          

        

      

      
        
        

      

    

     

    
 

    
      Exhibit
        A

       

      Form
        of Opinion
        of Counsel

       

      We
        are of the
        opinion that the Exchange Offer Registration Statement and the Prospectus
        (other
        than the financial statements, notes or schedules thereto and other financial
        data and supplemental schedules included or incorporated by reference therein
        or
        omitted therefrom and the Form(s) T-1, as to which we need express no opinion),
        comply as to form in all material respects with the requirements of the
        Securities Act and the applicable rules and regulations promulgated under
        the
        Securities Act.

       

      In
        addition, we have
        participated in conferences with officers and other representatives of the
        Issuer, representatives of the independent public accountants of the Issuer
        and
        representatives of the Initial Purchasers, at which the contents of the
        Registration Statement and the Prospectus and related matters were discussed
        and, although we are not passing upon, and do not assume any responsibility
        for,
        the accuracy, completeness or fairness of the statements contained in the
        Registration Statement and the Prospectus and have not made any independent
        check or verification thereof, during the course of such participation, no
        facts
        came to our attention that caused us to believe that the Registration Statement
        or any amendment thereto, at the time the Registration Statement or any such
        amendment became effective, contained an untrue statement of a material fact
        or
        omitted to state a material fact required to be stated therein or necessary
        to
        make the statements therein not misleading, or that the Prospectus or any
        amendment or supplement thereto, at the time the Prospectus was issued, at
        the
        time any such amended or supplemented Prospectus was issued or at the Closing
        Date, included or includes an untrue statement of a material fact or omitted
        or
        omits to state a material fact necessary in order to make the statements
        therein, in light of the circumstances under which they were made, not
        misleading; it being understood that we express no belief with respect to
        the
        financial statements and schedules and other financial data included in the
        Registration Statement and the Prospectus.

       

      
        
          
          

        

        
          Exh.
            AExhibit
10.4

 

SECOND
AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

(Michael P. Whitman)

 

                This
Second Amended and Restated Employment Agreement dated March 23, 2007 (this “Agreement”),
is made by and between Power Medical Interventions, Inc., a Delaware corporation
(the “Company”), and Michael P. Whitman (“Executive”).

 

BACKGROUND

 

                WHEREAS,
the Company and Executive entered into an Amended and Restated Employment
Agreement dated as of October 15, 2003, which was amended on March 31, 2005,
December 31, 2006, January 15, 2007, January 31, 2007, February 8, 2007,
February 16, 2007, and February 28, 2007 (as amended, the “Original
Agreement”); and

 

                WHEREAS,
the Company and Executive desire to amend and restate the Original Agreement to
include the terms and conditions set forth herein;

 

                NOW,
THEREFORE, in consideration of the premises, the respective covenants and
commitments of the parties hereto set forth in this Agreement and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:

 

1.             Employment.  The Company offers and Executive accepts
employment and agrees to perform services for the Company, for the period and
upon the other terms and subject to the conditions set forth in this Agreement.

2.             Employment Term.  The term of Executive’s employment pursuant
to this Agreement shall be retroactive to January 1, 2007 (the “Effective
Date”), and shall continue until December 31, 2008, unless earlier
terminated pursuant to the provisions of Section 8 below.  If in the fourth quarter of 2008 the Company
fails to make an offer to Executive to extend this Agreement beyond December
31, 2008 at a rate of base salary equal to or greater than his rate of base
salary as of December 31, 2008, then the Company shall pay Executive a
severance payment equal to 150% of Executive’s base salary as of December 31,
2008 to be paid in eighteen (18) equal monthly installments commencing January
1, 2009, provided, however, that if Executive is then determined by the Company
to be a “specified employee”, as defined in Section 409A of the Internal
Revenue Code, then payments that would otherwise be paid prior to July 1, 2009
will be suspended and paid in a lump sum on July 1, 2009.

3.             Title and Duties.

3.1.          Service With
Company.  Executive shall serve as the President and
Chief Executive Officer of the Company and shall report to the Board of
Directors of the Company (the “Board”). 
During the term of this Agreement, Executive agrees to perform all
duties consistent with his position as President and Chief Executive Officer of
the Company.  Executive shall have such
management and control of the business, affairs and property of Employer as are
consistent with his position, with all such powers with respect to such
management and control 

 

as may be reasonably incident to such
responsibilities.  Executive may also
serve as an officer or director of one or more subsidiaries of the Company; provided,
however, that Executive shall not be entitled to any additional compensation
for serving in such additional capacities.

3.2.          Performance
of Duties.  Executive agrees to serve the Company
faithfully and to the best of his ability and to devote his full time,
attention and best efforts to the business and affairs of the Company after the
Effective Date and during the term of this Agreement.

3.3.          Compliance
with Company Policies.  Executive agrees that in the rendering of all
services to the Company and in all aspects of employment hereunder, he shall
comply in all material respects with all written policies from time to time
established by the Company, including without limitation Section 104 of Company’s
Employment Policies and Procedures Manual, to the extent they are not in
conflict with this Agreement.

3.4.          Obligations to
Third Parties.  Executive hereby represents, warrants and
agrees: (i) that Executive has the full right to enter into this Agreement and
perform the services required of him hereunder, without any restriction
whatsoever; (ii) that in the course of performing services hereunder, Executive
will not violate the terms or conditions of any agreement between him and any
third party or infringe or wrongfully appropriate any patents, copyrights,
trade secrets or other intellectual property rights of any Person (as defined
in Section 9) anywhere in the world; (iii) that Executive has not and will not
disclose or use during his employment  by the
Company any confidential information that he acquired as a result of any
previous employment or or under a previous obligation of confidentiality; and
(iv) that Executive has disclosed to the Company in writing any and
all continuing obligations to previous employers or others that require
him not to disclose any information to the Company.

4.             Compensation and
Benefits.

4.1.          Salary.

(a)           2007 Salary. 
During calendar year 2007, Company shall pay Executive a base salary (“Salary”)
payable in equal installments in accordance with Company’s standard schedule
for salary payments to its executive employees, at an annual rate equal to
$365,000.  On the first regular payroll
date after the execution of this Agreement (the “True-Up Date”), the
Company shall pay Executive $12,115.40 in order to give Executive the economic
benefit of his increase of Salary for the period of time between the Effective
Date and the True-Up Date.

(b)           2008 Salary. 
During calendar year 2008, Executive’s Salary shall be paid an annual
rate equal to the greater of (i) $385,000 or (ii) such amount as the Board
shall determine after good faith negotiations with Executive in December 2007.

(c)           Customary Deductions.  All amounts payable to Executive pursuant to
this Section 4.1 shall be subject to customary and proper payroll deductions.

 

 

2

4.2.          Cash
Bonuses.

(a)           2006 Cash Bonus.  On the True-Up Date, the Company shall pay
Executive a cash bonus of $40,000.

(b)           2007 Cash Bonuses.

(i)            Qualified Public
Offering.  In the event that the
Company consummates a Qualified Public Offering (as defined in Section 10) in
2007, then the Company shall pay Executive a cash bonus of $73,000 within seven
days after the closing.

(ii)           Successful M60
Launch.  In the event that the
Company achieves a Successful M60 Launch (as defined in Section 9) in 2007,
then the Company shall pay Executive a cash bonus of $54,750 within seven days
after such achievement.

(iii)          2007 Revenues.

(A)          In the event that the
Company recognizes revenues in 2007 that represent between 85 - 100% of the
target of $[confidential treatment requested pursuant to Rule 406], determined
in accordance with GAAP (as defined in Section 9), then the Company shall pay
Executive a cash bonus in January 2008 equal to $127,750 multiplied by that
same percentage.

(B)           In the event that
the Company recognizes revenues in 2007 of $[confidential treatment requested
pursuant to Rule 406], determined in accordance with GAAP, then the Company
shall pay Executive a cash bonus in January 2008 equal to $182,500.  If Executive qualifies for a bonus under this
Section 4.2(b)(iii)(B) then the Company shall have no obligation to pay
Executive a bonus pursuant to Section 4.2(b)(iii)(A).

(iv)          2007 Income
(Loss).  In the event that the
Company recognizes net income in 2007 that represents between 100 - 115% of the
target of “[confidential treatment requested pursuant to Rule 406], determined
in accordance with GAAP, then the Company shall pay Executive a cash bonus in
January 2008 equal to $54,750 divided by that same percentage.

 

(v)           2007 Gross Margin.  In the event that the Company achieves a Gross
Margin (as defined in Section 9) in 2007 that represent between 85 - 100% of
the target of $[confidential treatment requested pursuant to Rule 406], then
the Company shall pay Executive a cash bonus in January 2008 equal to $54,750
multiplied by that same percentage.

(vi)          Change of Control.  Notwithstanding any other provision of this
Section 4.2(b), the Company shall pay Executive all of the bonuses contemplated
by this Section 4.2(b) (calculated as if the Company had achieved 100% of its
targets) after the Company enters into a binding legal agreement in 2007 with
respect to a Change of Control (as defined in Section 9) and the closing of
such transaction occurs.  Such bonuses
shall be paid to the Executive within seven days after the closing of the Change
of Control transaction.  For the
avoidance of doubt, the Company shall not pay Executive more than once with
respect to any bonus contemplated by this Section 4.2(b).

 

 

3

(c)           2008 Cash Bonus. 
Executive will be eligible for a cash bonus in 2008 based on the
following: (i) Company’s performance during 2008 measured against one or more
Company goals set by the Board at the end of 2007 after negotiations with the
Executive, and (ii) Executive’s performance during 2008 measured against one or
more job-specific goals determined by the Board at the end of 2007 after
negotiations with the Executive.  The
potential amount of the 2008 Cash Bonus target will be determined by the Board
at the end of 2007; provided, however, that (i) the target shall not be
less than 115% of Executive’s Salary in 2008, and (ii) the Company shall pay
Executive 100% of the 2008 Cash Bonus (calculated as if Executive has achieved
the 2008 goals set by the Board) after the Company enters into a binding legal
agreement in 2008 with respect to a Change of Control and the closing of such
transaction occurs.  Such bonuses shall
be paid to Executive within seven days after the closing of the Change of
Control transaction.

(d)           Customary Deductions.  All amounts payable to Executive pursuant to
this Section 4.2 shall be subject to customary and proper payroll deductions.

4.3.          Stock Options.

(a)           2007 Stock Option. 
The Company shall grant to Executive a nonqualified stock option (the “2007
Option”) to purchase 6,081,085 shares of Common Stock (the “2007 Option
Shares”).  The 2007 Option shall have
an exercise price per share equal to the fair market value on the date of grant
(as determined by the Board after considering advice from The Baker-Meekins Company,
Inc.) and shall be substantially in the form of Exhibit 4.3.  The 2007 Option shall be subject to the
following vesting requirements:

(i)            Qualified Public
Offering.  In the event that the
Company consummates a Qualified Public Offering in 2007, then 25% of the 2007
Option Shares shall become vested;

(ii)           Successful M60
Launch.  In the event that the
Company achieves a Successful M60 Launch in 2007, then 25% of the 2007 Option
Shares shall become vested;

(iii)          2007 Revenues.  In the event that the Company recognizes
revenues in 2007 that represent between 85 - 100% of the target of $[confidential
treatment requested pursuant to Rule 406], determined in accordance with GAAP,
then a number of 2007 Option Shares shall become vested and that number shall be
equal to (A) 40% of the total number of 2007 Option Shares, multiplied by (B)
the percentage of target revenues referenced above;

(iv)          2007 Gross Margin.  In the event that the Company achieves a
Gross Margin in 2007 that represent between 85 - 100% of the target of $[confidential
treatment requested pursuant to Rule 406], then a number of 2007 Option Shares
shall become vested and that number shall be equal to (A) 10% of the total
number of 2007 Option Shares, multiplied by (B) the percentage of target Gross
Margin referenced above; and

(v)           Change of Control.  Notwithstanding any other provision of this
Section 4.3, all  of the 2007 Option Shares
(calculated as if the Company had achieved 100% of its targets) shall become
vested immediately after the Company enters into a binding legal 

 

 

4

agreement
with respect to a Change of Control in 2007 and the closing of such transaction
occurs.

(b)           2008 Stock Option. 
Subject to applicable law, in January 2008, the Company shall grant to
Executive a nonqualified stock option (the “2008 Option”) to purchase a
number of shares (the “2008 Option Shares”) equal to (i) 7% of the
shares of capital stock of the Company that are outstanding on a fully diluted
basis (including all outstanding shares of capital stock, conversion of all
outstanding convertible securities, and the exercise of outstanding options and
warrants, and excluding any shares issued, directly or indirectly, in
connection with or after a Qualified IPO) as of January 1, 2008, less (ii) the number of shares of capital
stock of the Company that are owned or controlled by Executive or his family or
his affiliates (as defined under the Act), calculated on a fully-diluted basis
(including all outstanding shares of capital stock, conversion of all
outstanding convertible securities, and the exercise of outstanding options,
other than the 2008 option, and warrants) as of January 1, 2008.  The 2008 Option shall have an exercise price
per share equal to the fair market value on the date of grant (as determined by
the Board after considering advice from The Baker-Meekins Company, Inc.) and
shall be subject to vesting requirements to be determined by the Board after
negotiations with Executive; provided, however, that the 2008 Option
shall provide that all  of the 2008 Option Shares shall become vested immediately
after the Company enters into a binding legal agreement with respect to a
Change of Control in 2008 and the closing of such transaction occurs.

4.4.          Other Benefits.  Executive shall
have the right to participate in all benefit plans which may be in effect for
the Company’s executive employees from time to time, including, without
limitation, group health and dental insurance, group life insurance, disability
insurance, and any retirement, 401(K), profit-sharing or pension plans, in
accordance with the terms and conditions thereof.  If the Company does not have and maintain a
reasonable and customary long-term disability insurance program, the Company
shall pay or reimburse Executive for the annual premiums (not to exceed $2,000
per Year) on a disability income insurance policy owned by and covering
Executive.

4.5.          Expenses.  During the term of
this Agreement, the Company shall pay or reimburse Executive for all reasonable
and necessary out-of-pocket expenses incurred by Executive in the performance
of his duties under this Agreement, subject to the presentment by Executive of
appropriate expense reports and receipts in accordance with the Company’s
normal policies for expense verification.

4.6.          Vacation.  Executive shall be
entitled to four weeks vacation each calendar year.  Any vacation taken by Executive shall be
taken at such time as is reasonably convenient in relationship to the needs of
the business of the Company.  Vacation
time shall not accrue beyond the year in question; provided, however,
that any vacation time not taken during any year due to constraints imposed by
the Company’s business requirements shall accrue beyond the year in question.

4.7.          Automobile
Expenses.  The Company shall pay to Executive during the
term of employment a monthly car allowance in an amount equal to $1,500.

 

 

5

4.8.          Life Insurance.  The Company shall provide Executive with
additional term life insurance coverage of $2,000,000 provided Executive can
pass a standard physical.  Such coverage
shall be provided by the same insurer as provides the coverage under the
Company’s group life insurance plan, or another carrier acceptable to the Company.

4.9.          Tax Payments.  In December of each
year, the Company shall pay to Executive the sum of $10,000 as an agreed upon
reimbursement for federal, state and local income taxes payable by Executive as
a result of his receiving during such Year (i) the benefits provided for in
Sections 4.4 (disability income policy only), 4.7 and 4.8 above and (ii) the
payment under this Section 4.9.  Upon
termination of this Agreement during any Year, the Company shall pay to Executive,
within 30 days of such termination, any unpaid amount required to be paid under
this Section 4.9 (on a prorated basis if such benefits cease upon such
termination).

5.             Restrictive
Covenants.

5.1.          Confidentiality.

(a)           Confidential Information.  Subject to Section 5.1(b):

(i)            Duty to Maintain
Confidentiality.  Executive shall
maintain in strict confidence and duly safeguard to the best of his ability any
and all Confidential Information (as defined in Section 9).

(ii)           Covenant Not to
Disclose, Use or Exploit.  Executive
shall not, directly or indirectly, disclose, divulge or otherwise communicate
to anyone or use or otherwise exploit for the benefit of anyone, other than the
Company, any Confidential Information.

(iii)          Confidential
Materials.  All Confidential
Information and Confidential Materials (as defined in Section 9) are and shall
remain the exclusive property of the Company and no Confidential Materials may
be copied or otherwise reproduced, removed from the premises of the Company or
entrusted to any Person (other than the Company or Personnel entitled to such
Confidential Materials) without prior written permission from the Company.

(b)           Permitted Activities.  If Executive receives a request or demand for
Confidential Information (whether pursuant to a discovery request, subpoena or
otherwise), Executive shall immediately give the Company written notice thereof
and shall at the Company’s expense (provided the Company approves any and all
such expenses) exert his best efforts to resist disclosure, including, without
limitation, by fully cooperating and assisting the Company in whatever efforts
it may make to resist or limit disclosure or to obtain a protective order or
other appropriate remedy to limit or prohibit further disclosure or use of such
Confidential Information.  If Executive complies
with the preceding sentence but nonetheless becomes legally compelled to
disclose Confidential Information, Executive shall disclose only that portion
of the Confidential Information that he is legally compelled to disclose.

 

 

6

5.2.          Covenant not
to Compete.  During the Restriction Period (as defined in
Section 9), Executive shall not, directly or indirectly, whether as a sole
practitioner, owner, partner, shareholder, investor, employee, employer, venturer,
independent contractor, consultant or other participant, (i) own, manage,
invest in or acquire any economic stake or interest in any Person involved in a
Competitive Activity (as defined in Section 9), (ii) derive economic benefit
from or with respect to any Competitive Activity, or (iii) otherwise engage or
participate in any manner whatsoever in any Competitive Activity; provided,
however, this Section 5.2 shall not restrict Executive from owning less than 2%
of the publicly traded debt or equity securities issued by a corporation or
other entity or from having any other passive investment that creates no
conflict of loyalty or interest with any duty owed to the Company.  Executive shall be deemed to have derived
economic benefit in violation of this Section 5.2 if, among other things, any
of his compensation or income is in any way related to any Competitive Activity
conducted by any Person.  Further, during
the Restriction Period, Executive shall not, directly or indirectly, advance,
cooperate in or help or aid any Competitor (as defined in Section 9) in the
conduct of any Competitive Activity.

5.3.          Covenant not
to Interfere.  During the Restriction Period, Executive
shall not, directly or indirectly, recruit, solicit or otherwise induce or
influence any Personnel (as defined in Section 9) of the Company to
discontinue, reduce the extent of, discourage the development of or otherwise
harm such Personnel’s relationship or commitment to the Company.  Conduct prohibited under this Section 5.3
shall include, without limitation, employing, seeking to employ or causing,
aiding, inducing or influencing a Competitor to employ or seek to employ any
Personnel of the Company.

5.4.          Full
Restriction Period.  If Executive violates any restrictive
covenant contained herein and Company institutes action for equitable relief,
Company, as a result of the time involved in obtaining such relief, shall not
be deprived of the benefit of the full Restriction Period.  Accordingly, the Restriction Period shall be
deemed to have the duration specified in Section 9, computed from and
commencing on the date on which relief is granted by a final order from which
there is no appeal, but reduced, if applicable, by the length of time between
the date the Restriction Period commenced and the date of the first violation
of any restrictive covenant by Executive.

5.5.          Equitable
Accounting.  The Company shall have the right to demand
and receive equitable accounting with respect to any consideration received by
Executive in connection with activities in breach of the restrictive covenants
herein, and Company shall be entitled to payment from Executive of such
consideration on demand.

5.6.          Prior
Breaches.  Neither the expiration of the Restriction
Period nor the termination of the status of any customer or Personnel as such
(whether or not due to a breach hereof by Executive) shall preclude, limit or
otherwise affect the rights and remedies of Company against Executive based
upon any breach hereof during the Restriction Period or before such status of
customer or Personnel terminated.

5.7.          Noncircumvention
of Covenants.  Executive acknowledges and agrees that, for
purposes of this Agreement, an action shall be considered to have been taken by
Executive “indirectly” if taken by or through (a) any member of his family
(whether a close or 

 

 

7

distant relation by blood, marriage or
adoption), (b) any Person owned or controlled, solely or with others, directly
or “indirectly” by Executive or a member of his family, (c) any Person of which
he is an owner, partner, employer, employee, trustee, independent contractor or
agent, (d) any employees, partners, owners or independent contractors of any
such Person or (e) any other one or more representatives or intermediaries, it
being the intention of the parties that Executive shall not directly or
indirectly circumvent any restrictive covenant contained herein or the intent
thereof.

5.8.          Notice of
Restrictions.  During the Restriction Period, Employee shall
notify each prospective employer, partner or co-venturer of the restrictions
contained in this Agreement.  Company is
hereby authorized to contact any of such Persons for the purpose of providing
notice of such restrictions.

5.9.          Fairness of
Restrictions.  Executive acknowledges and agrees that (a)
compliance with the restrictive covenants set forth herein would not prevent
him from earning a living that involves his training and skills without
relocating, but only engaging in unfair competition with, misappropriating a
corporate opportunity of, or otherwise unfairly harming Company and (b) the
restrictive covenants set forth herein are intended to provide a minimum level
of protection necessary to protect the legitimate interests of Company.  In addition, the parties acknowledge that
nothing herein is intended to or shall limit, replace or otherwise affect any
other rights or remedies at law or in equity for protection against unfair
competition with, misappropriation of corporate opportunities of, disclosure of
confidential and proprietary information of, or defamation of Company, or for
protection of any other rights or interest of Company.

5.10.        Reduction of Restrictions by Court Action.    Each
of the provisions hereof including, without limitation, the periods of time,
geographic areas and types and scopes of duties of, and restrictions on the
activities of, the parties hereto specified herein are, and are intended to be,
divisible, and if any portion thereof (including any sentence, clause or word)
shall be held contrary to law or invalid or unenforceable in any respect in any
jurisdiction, or as to one or more periods of time, areas or business
activities or any part thereof, the remaining provisions shall not be affected
but shall remain in full force and effect, and any such invalid or
unenforceable provision shall be deemed, without further action on the part of
any party hereto or other Person, modified and amended to the minimum extent
necessary to render the same valid and enforceable in such jurisdiction.

6.             Ownership and
Assignment of Inventions.

6.1.          Future
Inventions.

(a)           Executive agrees promptly to disclose to the Company any
and all ideas, concepts, discoveries, inventions, developments, trade secrets,
methods, data, information, improvements, chemical or biological materials and
know-how that are conceived, devised, invented, developed or reduced to
practice or tangible medium by Executive, under his direction or jointly with
others during any period that Executive is employed by the Company, whether or
not during normal working hours or on the premises of the Company, which
relate, directly or 

 

 

8

indirectly, to the Field of Interest
(as defined in Section 9) and arise out of his employment by the Company
(hereinafter “Inventions”).

(b)           Executive hereby assigns to the Company all of his right,
title and interest to the Inventions and any and all related patent rights,
copyrights and applications and registrations therefor.  During and after his employment by the
Company, Executive shall cooperate with the Company, at the Company’s expense,
in obtaining proprietary protection for the Inventions and Executive shall
execute all documents which the Company shall reasonably request in order to
perfect the Company’s rights in the Inventions. 
Executive hereby appoints the Company his attorney to execute and
deliver any such documents on his behalf in the event Executive should fail or
refuse to do so within a reasonable period following the Company’s request.  It is understood that reasonable
out-of-pocket expenses of Executive’s assistance incurred at the request of the
Company under this Section will be reimbursed by the Company.

6.2.          Past
Inventions.  Executive represents and warrants that he has
already disclosed and assigned to the Company any Inventions conceived or
reduced to practice by him during the period between August 2, 1999, and the
Effective Date.

7.             Indemnification.

7.1.          Generally.

(a)           The Company shall indemnify and hold harmless Executive to
the fullest extent lawful from and against, and Executive shall have no
liability to the Company or its owners, parents, creditors (past, present or
future) or security holders for, any and all Losses, Expenses and Claims (each
as defined in Section 9) related to or arising out of an Indemnifiable Event
(as defined in Section 9) except that no indemnification shall be made in
respect of any Claims, Losses or Expenses arising out of an otherwise
Indemnifiable Event as to which Executive’s actions or conduct shall have
finally been adjudicated to constitute gross negligence, willful misconduct or
other conduct constituting grounds for termination for Cause.

(b)           The Company shall not settle any pending or threatened
Claim related to or arising out of an Indemnifiable Event (whether or not
Executive is a party to such Claim) unless such settlement includes a provision
unconditionally releasing Executive from and holding Executive harmless from
and against any and all Losses and Expenses in respect of all Claims by any
Person related to or arising out of such Indemnifiable Event.

(c)           The Company shall promptly advance to Executive all
Expenses as they are incurred by Executive in connection with investigating,
preparing or defending, or providing evidence in, any pending or threatened
Claim related to or arising out of an Indemnifiable Event in respect of which
indemnification may be sought hereunder (whether or not Executive is a party to
such claim) or in enforcing this Agreement. 
If Executive makes a claim hereunder for payment (or advancement) of
Expenses, such Expenses shall be paid (or advanced) promptly even if the
Company reserves the right to obtain a refund thereof to the extent that such
Expenses were incurred in connection with a Loss, Expense or Claim as to which
there is a final judicial determination that Executive is not entitled to
indemnification pursuant to this Agreement.

 

 

9

7.2.          Indemnification
for Additional Expenses.  The Company shall indemnify Executive against
and reimburse for and advance to Executive any and all Expenses that are
incurred by Executive in connection with any Claim asserted against or action
brought by Executive for (a) indemnification of Expenses by the Company under
this Agreement or any other agreement or provision of the Company’s Certificate
of Incorporation or By-laws now or hereafter in effect relating to Claims for
Indemnifiable Events or (b) recovery under any directors’ and officers’
liability insurance policies.

7.3.          Partial
Indemnity.  If Executive is entitled to indemnification
for a portion (but not all) of the Expenses and Losses relating to a Claim, the
Company shall indemnify Executive for such portion.

7.4.          No
Presumption.  The termination of any Claim by judgment,
order, settlement, conviction or upon a plea of nolo contendere, or its
equivalent, shall not, of itself, create a presumption that Executive is not
entitled to indemnification hereunder.

7.5.          Non-Exclusivity.  The rights of
Executive hereunder shall be in addition to any and all other rights Executive
may have under the Company’s By-laws or Certificate of Incorporation, any vote
by the Company’s shareholders or disinterested directors, or applicable
law.  Subject to the provisions of
Section 7.1(a) hereof, to the extent that a change in applicable law permits or
provides greater indemnification than is afforded under the Company’s By-laws
or Certificate of Incorporation and this Agreement, Executive shall enjoy by
this Agreement the greater benefits so afforded by that change.

7.6.          Liability
Insurance.  If and to the extent that the Company from
time to time maintains an insurance policy or policies providing directors’ and
officers’ liability insurance (a “D&O Policy”), Executive shall be
covered by such policy or policies, in accordance with its or their terms, to
the maximum extent of the coverage available under such policy or policies for
any officer or director of the Company. 
If the Company fails or is unable to obtain or maintain a D&O Policy
providing at least $1 Million of aggregate coverage, Executive shall have the
right to terminate his employment and the provisions of Section 8.2(b) shall
apply to such termination; provided, however, that if the Company fails
to maintain such coverage notwithstanding that it is available at reasonable
rates, then Executive shall have the right to terminate his employment and the
provisions of Section 8.2(d) shall apply to such termination.

8.             Termination.

8.1.          Basis
for Termination.  Notwithstanding any other provision of this
Agreement, the employment relationship created under this Agreement between
Company and Executive shall terminate prior to the employment term referenced
in Section 2 of the Agreement only upon the occurrence of any one of the
following events (provided, however, that the giving of notice provided for
below shall not create a presumption that the event has in fact occurred):

(a)           The death of Executive;

(b)           Upon determination that Executive has become Permanently
Disabled (as defined in Section 9);

 

 

10

(c)           Immediately upon delivery to Executive by the Company of
written notice of termination for Cause (as defined in Section 9);

(d)           Thirty (30) days after delivery to the Company by
Executive of written notice of Executive’s voluntary and unilateral termination
of this Agreement;

(e)           Immediately upon delivery to Executive by the Company of
written notice of termination without Cause;

(f)            Immediately upon delivery to Company by Executive of
written notice of termination for breach of this Agreement by Company, which
notice shall specify such alleged breach and may be given (i) 20 days after
Company has failed to make any payment to Executive hereunder when due,
provided the payment has not been made within such 20 day period, (ii) after
Company has failed to perform or has otherwise breached any non-monetary
provision of this Agreement, which failure or breach is not capable of being
cured within 30 days or, (iii) after Company has failed to perform or otherwise
breached any non-monetary provision of this Agreement, which failure or breach
is capable of being cured within 30 days and which failure or breach has not
been cured within 30 days after notice of such failure or breach is given by
Executive to Company.  Company’s breach
of this Agreement shall include (but shall not be limited to) the
following:  (I) Company’s assignment to
Executive of any duties inconsistent with his status as President and Chief
Executive Officer of Company or attempted adverse alteration in the nature or
status of Executive’s responsibilities from those in effect upon the Effective
Date (the parties acknowledge that in a “merger of equals” Executive might be
asked to serve as one of two chief executive officers of the surviving entity,
which would not constitute a breach of this Agreement); (II) Company’s
attempted reduction in Executive’s Salary; (III) the relocation of Company’s
principal executive offices to a location more than 50 miles from the location
of such offices upon the Effective Date; (IV) Company’s requiring Executive to
be based anywhere other than the Company’s principal executive offices; (V) the
failure by Company to continue to provide Executive with benefits substantially
identical to those provided to Executive under this Agreement; or (VI) in the
event of a Change of Control, the failure by Executive to obtain a satisfactory
agreement from any successor to assume and agree to perform this Agreement; or

(g)           Immediately upon delivery to the Company by Executive of
written notice of termination within 90 days after the occurrence of a Change
of Control.

Notwithstanding any termination
of employment, Executive, in consideration of his employment hereunder to the
date of such termination and the payment by Company of the compensation payable
hereunder, agrees to be bound by the provisions of Section 5, 6.1(b) and 8.3
hereof for the periods (except that if termination is pursuant to Sections 8.1(e)
or (f), the periods under Sections 5.2 and 5.3 shall no longer be in effect),
geographic area and scope specified therein, and Employer, in consideration of
its receipt of Executive’s services hereunder to the date of such termination,
agrees to remain bound by the provisions of Section 8.2.

8.2.          Effect of
Termination.

(a)           If Executive’s employment is terminated pursuant to
Section 8.1(a) or (b) (i.e., death or Permanent Disability), then the
Company shall pay Executive (i) his Salary 

 

 

11

pro-rated through the effective date of
such termination (which shall be the date of death or the date Executive
becomes Permanently Disabled), which pro-rated Salary shall be paid to
Executive within 15 days after such effective date, and (ii) any pro-ratable
Bonus payable for the year during which such termination occurred pro-rated
through the effective date of such termination, which pro rated Bonus shall be
paid on the dates set forth in Section 4.

(b)           If Executive’s employment is terminated pursuant to
Section 8.1 (c) or (d) (i.e., for Cause or resignation), then the
Company shall pay Executive his Salary pro-rated through the effective date of
such termination, which pro-rated Salary shall be paid to Executive within 15
days after such effective date. 
Notwithstanding the foregoing, in the event that Executive is determined
by the Company to be a “specified employee”, as defined in Section 2, then no
amount otherwise payable will be paid until such time as the payment will not
cause a violation of Section 409A of the Internal Revenue Code.

(c)           If Executive’s employment is terminated pursuant to
Section 8.1(e) or (f) (i.e., Without Cause or Employer’s Breach), then (i)
Company shall continue to pay to Executive his Salary in effect as of the date
immediately prior to the effective date of such termination, and shall continue
to provide all payments and benefits contemplated by Section 4, for the
remainder of the term referenced in Section 2, (ii) all unvested shares under
the 2007 Stock Option or 2008 Stock Option, as the case may be, shall
immediately become fully vested and exercisable if they previously have not
become so vested and exercisable, (iii) Executive shall be entitled to receive
all guaranteed Bonuses payable for the remaining years of the term referenced
in Section 2 and the severance payments referenced in Section 2 above, and (iv)
Executive shall have all other rights and remedies available to him at law or
in equity arising out of Company’s breach.

(d)           If Executive’s employment is terminated pursuant to Section
8.1(g), then (i) Company shall pay to Executive all payments required under
this Section 8.2(a), (ii) Company shall also pay to Executive, within 30 days
after such termination, a severance payment equal to 150% of Executive’s then
Salary and (iii) all unvested shares under the 2007 Stock Option or 2008 Stock
Option, as the case may be, shall immediately become fully vested and
exercisable if they previously have not become so vested and exercisable.

8.3.          Surrender of
Records and Property.  Upon termination of his employment with
Company, Executive shall promptly deliver to Company all records, manuals,
books, blank forms, documents, letters, memoranda, notes, notebooks, reports,
data, tables, calculations and copies thereof, which are the property of
Company or which relate in any way to the business, products, practices or
techniques of Company, and all other property, trade secrets and Confidential
Information of Company, which in any of these cases are in his possession or
under his control.

8.4.          With respect to the occurrence of any
of the events resulting in Executive’s termination as enumerated in Section
8.1, Company shall reimburse Executive or his estate for all unreimbursed
expenses he incurred prior to the effective date of his termination within 15
days after the submittal to the Company of appropriate documentation as
required.

 

 

12

8.5.          No Mitigation.  Executive shall not
be required to mitigate damages or the amount of any payment provided for under
this Agreement by seeking other employment or otherwise, nor shall the amount
of any payment provided for under this Agreement be reduced by any compensation
earned by Executive as a result of employment by another employer, or
otherwise.

9.             Definitions.  For the purposes of this Agreement, the
following terms shall have the following meanings:

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

 

                                “Cause”
means Executive’s willful misconduct or gross negligence in the performance of
his duties under this Agreement, his willful violation of the provisions of
this Agreement which results in material injury to the Company, or his
commission of any willful act which is materially inimical to the Company’s
business or interests.  No act or failure
to act on Executive’s part shall be considered “willful” unless done, or
omitted to be done, by him not in good faith and without reasonable belief that
his action or omission was in the best interests of the Company.  Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
notice of termination together with a copy of a resolution, duly adopted by the
Board of Directors at a meeting called and held for that purpose (after
reasonable notice to Executive of the meeting and the particulars of the
grounds for termination and an opportunity for him, together with his counsel,
to be heard before the Board of Directors), finding that, in the good faith
opinion of the Board of Directors, Executive was guilty of conduct constituting
Cause for termination and specifying the particulars thereof in detail.  Executive’s attendance or non-attendance at
any such meeting of the Board of Directors shall in no way prejudice Executive’s
rights hereunder or to submit such decision to judicial review.

                                “Claims”
means any threatened, asserted, pending or completed action (including
shareholder actions), suit or proceeding, whether civil, criminal,
administrative or investigative, or any inquiry or investigation (including
discovery), whether conducted by the Company or any other Person, that might
lead or is threatened to lead to the institution of any such action, suit or
proceeding.

                                “Change of Control” means the
closing of a sale of all or substantially all of assets or issued and
outstanding capital stock of the Company in one or more related transactions,
or a merger or consolidation involving the Company in which stockholders of the
Company immediately before such merger or consolidation do not own immediately
after such merger or consolidation capital stock or other equity interests of
the surviving corporation or entity representing more than fifty percent in
voting power of capital stock or other equity interest of such surviving
corporation or entity outstanding immediately after such merger or
consolidation.  The foregoing to the
contrary notwithstanding, a Change of Control shall not be deemed to have
occurred with respect to Sections 4.2 and 4.3 of this Agreement if, based on
the value of the cash, securities or property to be received, the aggregate
valuation of the Company immediately prior to the transaction in question is
less than $175,000,000.

 

 

13

                                “Common Stock” means the
Company’s Common Stock, $0.001 par value per share.

 

                                “Competitive Activity” means
any activity conducted in the Restricted Area which competes with any
substantial aspect or part of Company’s business, whether as a proprietor,
partner, shareholder, owner, member, employer, employee, independent contractor,
venturer or otherwise.

 

                                “Competitor” means (i) Ethicon
Endo-Surgery (currently a unit of Johnson & Johnson), (ii) United States
Surgical Corporation (currently a unit of Tyco International’s Tyco Healthcare
division, which is soon to be spun out as an independent company), and (iii)
any other Person (other than Company) that engages in any Competitive Activity
during the Restriction Period.

 

                                “Confidential Information”
means all confidential, secret or proprietary information of or relating to the
Company, its business or practice, which is not generally known or available to
the public (whether or not in written or tangible form) including, without
limitation, designs, technology, customer lists, supplier lists, processes,
know-how, trade secrets, pricing policies and other confidential business
information.

 

                                “Confidential Materials” means
any and all documents, records, reports, lists, notes, plans, materials,
programs, software, disks, diskettes, recordings, manuals, correspondence,
memoranda, magnetic media or any other tangible media (including, without
limitation, copies or reproductions of any of the foregoing) in which any
Confidential Information may be contained.

 

                                “Expenses” means all costs,
expenses (including reasonable attorneys’, advisors’ and expert witnesses’ fees
and expenses) and obligations paid or incurred in connection with
investigating, defending, being a witness in or participating in (including on
appeal), or preparing to defend, be a witness in or participate in any Claim.

 

                                “Field of Interest” means
powered medical devices for cutting and stapling tissues in the thoracic or
abdominal cavitities.

 

                                “GAAP” means U.S. generally
accepted accounting principles, applied consistently with past Company
practices.

 

                                “Gross Margin” means, with
respect to a given reporting period, the difference between the Company’s
revenues and its cost of goods sold, each as determined in accordance with
GAAP.

 

                                “Indemnifiable Event” means
any omission, event or occurrence related to or in any way connected with or
arising out of the fact that Executive is or was a director, officer, employee,
agent or fiduciary of the Company, or is or was serving at the request of the
Company as a director, officer, employee, trustee, agent or fiduciary of
another corporation, partnership, 

 

 

14

joint venture, employee
benefit plan, trust or other enterprise, or by reason of anything done or not
done by Executive in any such capacity.

 

                                “M60” means a computer-actuated,
articulating, handheld surgical stapler that is currently being developed by
the Company, which is either untethered or tethered only to a standard power
source.

 

                                “Permanently Disabled” means
Executive is unable to continue his normal duties of employment, by reason of a
medically determined physical or mental impairment, for a continuous period of
nineteen (19) consecutive weeks or for any twenty-six (26) weeks within a
fifty-two (52) week period (or such longer period, not to exceed thirty-eight
(38) weeks, if Executive’s, disability insurance policy requires a benefit
waiting period longer than such 26-week period).

 

                                “Losses” means any judgments,
liabilities, debts, excise taxes, fines, penalties and amounts paid or required
to be paid in settlement.

 

                                “Person” means an individual,
partnership, joint venture, corporation, limited liability company,
association, trust, estate, unincorporated organization, a government or any
branch, subdivision, department or agency thereof, or any entity.

 

                                “Personnel”
means any and all employees, contractors, agents, vendors, consultants or other
Persons rendering services or providing goods to the Company for compensation
in any form, whether employed by or independent of the Company.

                                “Qualified Public Offering”
means an underwritten initial public offering
of the Company’s Common Stock pursuant to a registration statement under the
Act for which (i) the net proceeds to the Company (after underwriter
commissions and discounts and other fees directly related to the offering) are
not less than $45,000,000, and (ii) the pre-offering valuation of the Company,
based on the initial price per share of the Common Stock sold in the offering,
is not less than $175,000,000.

 

                                “Restricted Area” means  world-wide.

 

                                “Restriction
Period” means the period of time, commencing on the date hereof and
expiring 12 months after the termination of
Executive’s employment with the Company pursuant to this Agreement, voluntarily
or involuntarily, for any reason whatsoever, subject to extension pursuant to
Section 5.4.

                                “Successful
M60 Launch” shall be deemed to have occurred on first date that all of the
following conditions shall have been satisfied: (A) the Company shall have
obtained 510(k) clearance to sell the M60 in the U.S.; (B) the Company shall be
offering the M60 for sale to customers on a national basis in the U.S.; (C) the
Company shall have recognized revenues from sales of the M60 during two
consecutive fiscal quarters, with such revenues being higher in the second such
quarter than the first such quarter, determined in accordance with GAAP; and
(D) the Company shall have recognized a Gross Margin from sales of the M60
during a fiscal 

 

 

15

quarter that represents [confidential treatment
requested pursuant to Rule 406]% of the
revenues recognized from sales of the M60 during such quarter, as determined in
accordance with GAAP.

 

10.           Miscellaneous
Provisions.

10.1.        Governing Law and Jurisdiction. 
This Agreement shall be deemed to be a contract made under the laws of
the Commonwealth of Pennsylvania and for all purposes shall be construed in
accordance with the laws of said state applicable to contracts made and to be
performed within said state.  The parties
consent to the exclusive jurisdiction of the Court of Common Pleas, Bucks
County, Pennsylvania in all actions arising out of this Agreement.

10.2.        Entire Agreement.  This Agreement
(together with the exhibits attached hereto, which hereby is incorporated by
reference) contains the entire agreement of the parties hereto relating to the
employment of Executive by Company and the other matters discussed herein and
supersedes all prior agreements and understandings with respect to such subject
matter, and the parties hereto have made no agreements, representations or
warranties relating to the subject matter of this Agreement which are not set
forth herein.

10.3.        Withholding Taxes.  Company may
withhold from any compensation or other benefits payable under this Agreement
all federal, state, city or other taxes as shall be required pursuant to any
law or governmental regulation or ruling.

10.4.        Supplements and Amendments.  This Agreement may
be supplemented or amended only upon the written consent of each of the parties
hereto.

10.5.        Assignment.  Except as expressly
provided below, this Agreement shall not be assignable, in whole or in part, by
either party without the prior written consent of the other party.  The Company may, without the prior written
consent of Executive, assign its rights and obligations under this Agreement to
any other corporation, firm or other business entity with or into which the
Company may merge or consolidate, or to which the Company may sell or transfer
all or substantially all of its assets, or of which 50% or more of the equity
investment and of the voting control is owned, directly or indirectly, by, or
is under common ownership with, the Company; provided, however,
that such assignment may be made without Executive’s prior written consent only
if (a) such assignment has a valid business purpose and is not for the purpose
of avoiding the Company’s obligations hereunder or Executive’s realization of
the benefits of this Agreement and (b) the assignee expressly assumes in
writing all obligations and liabilities to Executive hereunder.  The Company will cause any purchaser of all
or substantially all of the assets of the Company, by agreement in form and
substance reasonably satisfactory to Executive, to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such purchase had taken
place.  This Agreement shall be binding
upon and inure to the benefit of the Company and its successors and permitted
assigns.  This Agreement and all rights
of Executive hereunder shall inure to the benefit of and be enforceable by
Executive’s heirs, personal or legal representatives and beneficiaries.  If this Agreement is terminated pursuant to
Section 8.1(a), all amounts payable pursuant to Section 8.2(a) shall be paid to
Executive’s designated beneficiaries or, if no such beneficiaries have been
designated, to Executive’s estate.

 

 

16

10.6.        No Waiver.  No term or
condition of this Agreement shall be deemed to have been waived, nor shall
there be any estoppel to enforce any provisions of this Agreement, except by a
statement in writing signed by the party against whom enforcement of the waiver
or estoppel is sought.  Any written
waiver shall not be deemed a continuing waiver unless specifically stated,
shall operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.

10.7.        Severability.  The provision of
this Agreement are severable, and if any one or more provisions may be
judically unenforceable and/or invalid by a Court of competent jurisdictions,
in whole or in part, the remaining provisions shall nevertheless be binding,
enforceable and in full force and effect.

10.8.        Titles and Headings.  The titles and
headings of  the various Sections of this
Agreement are intended solely for convenience of reference and not intended for
any purpose whatsoever to explain, modify or place any construction upon any of
the provisions hereof.

10.9.        Remedies.  Executive agrees
that it would be difficult to compensate the Company fully for damages for any
violation of the provisions of paragraphs 5 and 8.3 of the Agreement.  Accordingly, Executive specifically agrees
that the Company shall be entitled to temporary and permanent injunctive relief
to enforce such provisions of this Agreement. 
(For purposes of clarification, Executive’s consent to injunctive relief
is subject to Company first proving a material breach of this Agreement).  This provision with respect to injunctive
relief shall not diminish, however, the right of the Company to claim and
recover damages in addition to injunctive relief.

10.10.      Notices.  For the purpose of
this Agreement, notices and all other communications provided for in this
Agreement shall be in writing and shall be deemed to have been duly given when
hand delivered (which shall include personal delivery and delivery by courier,
messenger or overnight delivery service) or mailed by certified mail, return
receipt requested, postage prepaid, addressed as follows:

If to Executive:      At
his home address in accordance with the Company’s

records.

 

If to Company:      2021 Cabot Boulevard West

Langhorne, PA  19047

 

or to such other address of
which either party gives notice to the other party in accordance herewith,
except that notices of change of address shall be effective only upon receipt.

 

10.11.      Counterparts.  This Agreement may
be executed in any number of counterparts and each of such counterparts shall
for all purposes be deemed to be an original, and all such counterparts shall
together constitute but one and the same instrument.

                                                                                                *
* * * *

 

 

17

IN WITNESS WHEREOF, the parties hereto have executed this
Second Amended and Restated Employment Agreement on the day and year first
written above.

 

	
   

  	
  POWER
  MEDICAL INTERVENTIONS, INC.

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ LON
  OTREMBA

  
	
   

  	
  Name:

  	
  Lon
  Otremba

  
	
   

  	
  Title:

  	
  Director

  
	
   

  	
   

  
	
   

  	
  EXECUTIVE:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/
  MICHAEL P. WHITMAN

  
	
   

  	
  Michael
  P. Whitman

  
				

 

 

18

Exhibit
4.3

NON-STATUTORY STOCK OPTION

Granted by

POWER MEDICAL INTERVENTIONS, INC. (the “Company”)

Under the 2004 Stock Incentive Plan

 

This Option is and shall be
subject in every respect to the provisions of the Company’s 2004 Stock
Incentive Plan, as amended from time to time, which is incorporated herein by
reference and made a part hereof.  The
optionee (the “Optionee”) hereby accepts this Option subject to all the
terms and provisions of the Plan and agrees that (a) in the event of any
conflict between the terms hereof and those of the Plan, the latter shall
prevail, and (b) all decisions under and interpretations of the Plan by the
Board or the Committee shall be final, binding and conclusive upon the Optionee
and his or her heirs and legal representatives.

1.             Name
of Optionee:  Michael P. Whitman

2.             Date
of Grant:  March __, 2007

3.                                       Maximum number of shares for which this

Option is exercisable (“2007 Option Shares”):    6,081,085

4.             Exercise
(purchase) price per share:  $____ [TBD]

5.             Payment method:

a personal, certified or
bank check or postal money order payable to the order of the Company for an
amount equal to the exercise price of the shares being purchased plus any
applicable withholding taxes; or with the consent of the Board, any of the other
methods set forth in the Plan.

6.                                       Expiration Date of Option:   March ___, 2017

7.                                       Vesting Schedule:  This Option
shall become exercisable as set forth below. 
Capitalized terms that are used but not defined in this instrument shall
have the meanings set forth in the Second Amended and Restated Employment
Agreement dated March 23, 2007, between the Company and the Optionee (the “Employment
Agreement”).

(a)                                  Qualified
Public Offering.  In the
event that the Company consummates a Qualified Public Offering in 2007, then
25% of the 2007 Option Shares shall become vested;

 

 

(b)                                 Successful M60
Launch.  In the event that the Company
achieves a Successful M60 Launch in 2007, then 25% of the 2007 Option Shares
shall become vested;

(c)                                  2007 Revenues.  In the event that the Company recognizes
revenues in 2007 that represent between 85 - 100% of the target of
$[confidential treatment requested pursuant to Rule 406], determined in
accordance with GAAP, then a number of 2007 Option Shares shall become vested
and that number shall be equal to (A) 40% of the total number of 2007 Option
Shares, multiplied by (B) the percentage of target revenues referenced above;

(d)                                 2007 Gross
Margin.  In the event that the Company
achieves a Gross Margin in 2007 that represent between 85 - 100% of the target
of $[confidential treatment requested pursuant to Rule 406] then a number of
2007 Option Shares shall become vested and that number shall be equal to (A)
10% of the total number of 2007 Option Shares, multiplied by (B) the percentage
of target Gross Margin referenced above; and

(e)                                  Change of
Control.  All of the 2007 Option Shares
(calculated as if the Company had achieved 100% of its targets) shall become
vested immediately after the Company enters into a binding legal agreement with
respect to a Change of Control in 2007 and the closing of such transaction
occurs.

All
vesting shall cease upon the date of termination of employment, as determined
in accordance with the Employment Agreement.

8.                                       Termination
of Employment.  This Option shall terminate
on the earliest to occur of:

(a)           the date of expiration hereof;

(b)                                 immediately upon termination of the Optionee’s employment with the
Company by the Company for Cause (as defined in the Employment Agreement);

(c)                                  3 months after the date of voluntary termination of
employment or services by the Optionee (other than for death or Permanent
Disability as defined in the Employment Agreement); or

(d)                                 3 months after the date of termination of the Optionee’s
employment with the Company by the Company without Cause (other than for death
or Permanent Disability as defined in the Employment Agreement).

9.                                       Company’s Right of First Refusal.   Prior to the effective
date of a registration statement covering shares of the Company’s Common Stock,
any shares of stock issued pursuant to exercise of this Option shall be subject
to the Company’s right of first refusal as set forth in Section 14 of the Plan.

10.                                 Lock-Up Agreement.  The
Optionee agrees for a period of up to 180 days from the effective date of any
registration of securities of the Company under the Securities Act of 1933, as
amended (the “Securities Act”), upon request of the Company or
underwriters

 

2

 

                                                managing any
underwritten offering of the Company’s securities, not to sell, make any short
sale of, loan, grant any option for the purchase of, or otherwise dispose of
any shares issued pursuant to the exercise of this Option, without the prior
written consent of the Company and such underwriters.

11.                                 Tax Withholding.  The
Company’s obligation to deliver shares shall be subject to the Optionee’s
satisfaction of any federal, state and local income and employment tax
withholding requirements.

12.                                 Notice.
 Any notice to be given to the
Company hereunder shall be deemed sufficient if addressed to the Company and
delivered to the office of the Company, Power
Medical Interventions, Inc., 2021 Cabot Boulevard West, Langhorne, PA
19047, Attention: Chief Financial Officer or Vice President - Finance, or such
other address as the Company may hereafter designate.

Any
notice to be given to the Optionee hereunder shall be deemed sufficient if
addressed to and delivered in person to the Optionee at his or her address
furnished to the Company or when deposited in the mail, postage prepaid,
addressed to the Optionee at such address.

* * * * *

 

3

 

IN WITNESS WHEREOF, the
parties have executed this Option, or caused this Option to be executed, as of
the Date of Grant.

	
   

  	
   

  	
   

  	
   

  	
   

  	
  POWER MEDICAL
  INTERVENTIONS, INC.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Title:

  

 

 

The
undersigned Optionee hereby acknowledges receipt of a copy of the Plan and this
Option and agrees to the terms of this Option and the Plan.

 

	
   

  	
   

  
	
  Optionee

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Social
  Security Number

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Address:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  

 

 

4

 

POWER
MEDICAL INTERVENTIONS, INC.

Form of
Exercise of Non-Statutory Stock Option

(To be completed and signed only on exercise of Option)

I hereby exercise the Non-Statutory
Stock Option (the “Option”) granted by Power Medical Interventions, Inc. (the “Company”)
to me on March ___, 2007, subject to all the terms and provisions thereof as
contained in the Option and in the Power Medical Interventions, Inc. 2004 Stock
Incentive Plan (the “Plan”) referred to therein, and notify you of my desire to
purchase shares pursuant to the Option.

Enclosed is my check in the
amount of $___________ in full payment for _________ shares of the Company’s
Common Stock, $0.001 par value per share (the “Shares”), and any applicable
withholding taxes.

I understand that the Shares
have not been registered under the Securities Act of l933, as amended (the “Act”),
or registered or qualified under the securities or “Blue Sky” laws of any jurisdiction,
and are being sold pursuant to exemptions contained in the Act and exemptions
contained in other applicable securities or “Blue Sky” laws.

I am acquiring the Shares
for my own account for investment, and not for, with a view to, or in
connection with the resale, distribution or disposition thereof.  I have no present intention to sell,
hypothecate, distribute or otherwise transfer any of the Shares or any interest
therein.  The nature and amount of my
investment in the Shares are consistent with my investment objectives,
abilities, and resources.  I understand
that the Shares are an illiquid investment, which will not become freely
transferable by reason of any “change of circumstances” whatsoever.  I have adequate means of providing for my
current needs and possible contingencies and have no need for liquidity in my
investment.

I understand that the Shares
will constitute “restricted securities” within the meaning of Rule l44
promulgated under the Act and that, as such, the Shares must be held indefinitely
unless they are subsequently registered under the Act or unless an exemption
from the registration requirements thereof is available.  I have been advised that Rule 144, which
permits the resale, subject to various terms and conditions, of small amounts
of such “restricted securities” after they have been held for one year, does
not now apply to the Company, because the Company is not now required to file,
and does not file, reports under the Securities Exchange Act of l934, and
because information concerning the Company substantially equivalent to that
which would be available if the Company were required to file such reports is
not now publicly available.  I understand
that the Company may become a reporting entity at some future date, but that no
assurance can be given that it will do so and the Company has no obligation to
me to do so.

In connection with my
purchase of the Shares, I accept the condition that the Company will maintain “stop
transfer” orders with respect to the Shares. 
I understand that any certificate or other instrument is issued to
represent the Shares will bear a conspicuous legend in substantially the
following form:

 

 

“Any disposition of any
interest in the securities represented by this certificate is subject to
restrictions, and the securities represented by this certificate are subject to
certain options, contained in a certain agreement between the record Optionee
hereof and the Company, a copy of which will be mailed to any Optionee of this
certificate without charge upon receipt by the Company of a written request
therefor.”

“The shares of stock
represented by this certificate have not been registered under the Securities
Act of 1933 or under the securities laws of any state and may not be pledged,
hypothecated, sold or otherwise transferred except upon such registration or
upon receipt by the Company of an opinion of counsel satisfactory to the
Company, in form and substance satisfactory to the Company, that such
registration is not required.”

I understand that I may be required
to enter into a “lock-up” agreement with respect to the Shares pursuant to
Section 5.3 of the plan.

I understand that the Shares
will be subject to the right of first refusal described in Section 14 of the
Plan.  I acknowledge that the Company has
granted me and my attorney or accountant access to all information about the
Company which we have requested and has offered each of us access to all
further information which we deemed relevant to an investment decision with
respect to the Shares.  I, as well as my
attorney or accountant, have had the opportunity to ask questions of, and
receive answers from, representatives of the Company concerning such
information and the Company’s financial condition and prospects.  I believe that the nature and amount of the
Shares I am purchasing is consistent with my investment objectives, abilities
and resources.

	
   

  	
   

  
	
   

  	
  Signature
  of Option Optionee

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Printed
  Name of Optionee

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Dated:

  	
   

  
				

 

6

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