Exhibit 10.1

EXECUTION COPY

SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement”) is dated as of October 21,
2008, among DARA BioSciences, Inc., a Delaware corporation (the “Company”), and
each purchaser identified on the signature pages hereto (each, including its
successors and assigns, a “Purchaser” and collectively the “Purchasers”).

WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the “Securities Act”), the Company desires to issue and sell
to each Purchaser, and each Purchaser, severally and not jointly, desires to
purchase from the Company, that aggregate number of Units (as hereinafter
defined) set forth on such Purchaser’s signature page to this Agreement (which
aggregate amount for all Purchasers together shall be not more than 8,500,000
Units). Each “Unit” shall consist of (i) one share of Common Stock, (ii) one
Class A Warrant, and (iii) one Class B Warrant (in each case, as defined below);

WHEREAS, subject to the terms and conditions set forth in this Agreement, up to
an aggregate number of 5,500,000 Units (the “Initial Units”) will be issued and
sold to the Purchasers on the First Closing Date and, if applicable, the Second
Closing Date (as defined below) at a price of $1.00 per Unit, for an aggregate
purchase price of up to $5,500,000 (the “Initial Purchase Price”); and

WHEREAS, subject to the terms and conditions set forth in this Agreement, an
amount up to the difference between the total number of Units and the aggregate
number of Initial Units sold on the First Closing Date and the Second Closing
Date (the “Remaining Units”) may be issued and sold to the Purchasers on the
Third Closing Date (as defined below) for an aggregate purchase price equal to
$1.00 times the number of Remaining Units issued and sold to the Purchasers on
the Third Closing Date (the “Remaining Purchase Price”).

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser,
severally and not jointly, agree as follows:

ARTICLE I.

DEFINITIONS

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

“Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person as such terms are used in and construed under Rule 144 under the
Securities Act. With respect to a Purchaser, any investment fund or managed
account that is managed on a discretionary basis by the same investment manager
as such Purchaser will be deemed to be an Affiliate of such Purchaser.

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“Aggregate Purchase Price” means, as to each Purchaser, the aggregate amount to
be paid for Units purchased hereunder as specified below such Purchaser’s name
on the signature page of this Agreement and next to the heading “Aggregate
Purchase Price”, in United States Dollars and in immediately available funds.

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

“Class A Warrants” means collectively the Common Stock purchase warrants, in the
form of Exhibit A attached hereto and delivered to the Purchasers at a Closing
in accordance with Section 2 hereof, which Warrants shall be exercisable
beginning on the date that is 6 months after the date hereof and have a term of
exercise equal to 5 years.

“Class A Warrant First Closing Price” has the meaning ascribed to such term in
Section 2.2(a)(ii).

“Class A Warrant Second Closing Price” has the meaning ascribed to such term in
Section 2.2(c)(ii).

“Class B Warrants” means collectively the Common Stock purchase warrants, in the
form of Exhibit B attached hereto and delivered to the Purchasers at a Closing
in accordance with Section 2 hereof, which Warrants shall be exercisable
beginning on the date that is 12 months and one day after the date hereof and
have a term of exercise equal to 5 years.

“Closing” means either the First Closing, the Second Closing or the Third
Closing.

“Closing Date” means either the First Closing Date, the Second Closing Date or
the Third Closing Date.

“Commission” means the Securities and Exchange Commission.

“Common Stock” means the common stock of the Company, par value $.01 per share.

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

“Company’s Counsel” means K&L Gates, LLP, having an office at 4350 Lassiter at
North Hills Avenue, Suite 300, Raleigh, North Carolina 27609.

“Discussion Time” has the meaning ascribed to such term in Section 3.2(d).

“DWAC” has the meaning ascribed to such term in Section 2.2(a)(i).

“Escrow Account” has the meaning ascribed to such term in Section 2.1(d).

 

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“Escrow Agent” means Corporate Stock Transfer, Inc.

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

“First Closing” has the meaning ascribed to such term in Section 2.1(a).

“First Closing Date” has the meaning ascribed to such term in Section 2.1(a).

“Initial Purchase Price” has the meaning ascribed to such term in the recitals
to this Agreement.

“Initial Units” has the meaning ascribed to such term in the recitals to this
Agreement.

“Intellectual Property” has the meaning ascribed to such term in Section 3.1(k).

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

“Material Adverse Effect” has the meaning ascribed to such term in
Section 3.1(a).

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

“Placement Agent” has the meaning ascribed to such term in Section 2.1(d).

“Prospectus” means the final prospectus filed for the Registration Statement.

“Prospectus Supplement” means a supplement to the Prospectus complying with Rule
424(b) of the Securities Act that is filed with the Commission prior to the
opening of the Trading Market on the Trading Day immediately following each
Closing Date and delivered by the Company to each Purchaser at such time.

“Purchaser Party” has the meaning ascribed to such term in Section 4.6.

“Registration Statement” means the Company’s registration statement on Form S-3
on file with Commission, file No. 333-150150, which registers the sale of the
Shares, the Warrants and the Warrant Shares to the Purchasers.

“Remaining Purchase Price” has the meaning ascribed to such term in the recitals
to this Agreement.

“Remaining Units” has the meaning ascribed to such term in the recitals to this
Agreement.

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

 

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“SEC Reports” has the meaning ascribed to such term in Section 3.1.

“Second Closing” has the meaning ascribed to such term in Section 2.1(b).

“Second Closing Date” has the meaning ascribed to such term in Section 2.1(b).

“Securities” means the Shares, the Warrants and the Warrant Shares.

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

“Shares” means shares of the Company’s Common Stock.

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

“Stockholder Approval Condition” has the meaning ascribed to such term in
Section 2.4(c).

“Stockholder Approval Termination Date” has the meaning ascribed to such term in
Section 4.12.

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

“Third Closing” has the meaning ascribed to such term in Section 2.1(c).

“Third Closing Date” has the meaning ascribed to such term in Section 2.1(c).

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

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

“Transaction Agreements” means this Agreement, the Warrants and any other
agreements executed in connection with the transactions contemplated hereunder.

“Unit” has the meaning ascribed to such term in the recitals to this Agreement.

“VWAP” means, for any date, the price determined by the first of the following
clauses that applies: (a) if the Common Stock is then listed or quoted on a
Trading Market, the daily volume weighted average price of the Common Stock for
such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted for trading as reported by Bloomberg L.P.
(based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New
York City time); (b) if the Common Stock is not then quoted for trading on a
Trading Market and if prices for the Common Stock are then reported in the “Pink
Sheets”

 

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published by Pink Sheets, LLC (or a similar organization or agency succeeding to
its functions of reporting prices), the most recent bid price per share of the
Common Stock so reported; or (c) in all other cases, the fair market value of a
share of Common Stock as determined by an independent appraiser selected in good
faith by the Purchaser and reasonably acceptable to the Company.

“Warrants” means collectively the Class A Warrants and the Class B Warrants.

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

ARTICLE II.

PURCHASE AND SALE

2.1 Purchase and Sale of Units. Subject to the terms and conditions of this
Agreement, each Purchaser, severally and not jointly, agrees to purchase, and
the Company agrees to sell and issue to each of the Purchasers, such number of
Units set forth on such Purchaser’s signature page to this Agreement. Subject to
the terms and conditions of this Agreement, such purchases and sales shall take
place at the First Closing, the Second Closing (if applicable) and/or the Third
Closing (if applicable) in the order of the dates on which Purchasers deliver to
the Company their executed signature pages to this Agreement and deposit funds
in the Escrow Account pursuant to Section 2.1(d); provided, however, if one or
more signature pages are received by the Company and related Escrow Account
fundings occur on the same date, and if the Units represented thereby would
result in the total number of Units to be purchased under this Agreement
exceeding 5,500,000, then the Company shall allocate such Units between Initial
Units (to be purchased and sold at the First Closing and/or Second Closing
subject to the terms and conditions of this Agreement) and Remaining Units (to
be purchased and sold at the Third Closing subject to the terms and conditions
of this Agreement) in its sole discretion. By their signatures to this
Agreement, the Purchasers expressly acknowledge and agree that there is no
minimum number of Units required to be sold at any Closing under this Agreement.
No investment should be made in the Company pursuant to this Agreement based on
any assumption or expectation by any Purchaser that any minimum number of Units
will be sold hereunder.

(a) First Closing. The first closing of the purchase and sale of the Initial
Units (the “First Closing”) shall be held at the offices of the Company’s
Counsel, on October 15, 2008 at 11:00 a.m., New York time, or at such other time
(on or prior to November 15, 2008) and place designated by the Company and the
Placement Agent (the “First Closing Date”).

(b) Second Closing. In the event that all of the Initial Units are not sold in
the First Closing, a second closing of the purchase and sale of Initial Units
(the “Second Closing”) may be held at the offices of the Company’s Counsel,
which Second Closing would be held on October 31, 2008 at 11:00 a.m. New York
time, or at such other time (on or prior to November 30, 2008) and place
designated by the Company and the Placement Agent (the “Second Closing Date”);
provided, that in no event shall the number of Initial Units sold pursuant to
the First Closing and the Second Closing exceed 5,500,000 Units in the
aggregate.

 

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(c) Third Closing. If applicable, a closing of the purchase and sale of the
Remaining Units (the “Third Closing”) may be held at the offices of the
Company’s Counsel, which Third Closing would be held no later than three Trading
Days following the satisfaction of the Stockholder Approval Condition (as
hereinafter defined) (the “Third Closing Date”).

(d) Payments. Immediately upon a Purchaser’s execution of this Agreement, such
Purchaser shall deposit the full Aggregate Purchase Price, as set forth on such
Purchaser’s signature page to this Agreement, into an account established by the
Company with the Escrow Agent and designated in writing to such Purchaser by the
Company (the “Escrow Account”). Such deposit shall be made in United States
dollars and in immediately available funds by wire transfer. Upon written
instruction by the Company and Gilford Securities Incorporated (the “Placement
Agent”) to the Escrow Agent, the Escrow Agent shall release funds from the
Escrow Account to the Company at the First Closing and, if applicable, at the
Second Closing and, if applicable, at the Third Closing. Such funds shall be
paid by the Escrow Agent to the Company in United States dollars and in
immediately available funds by wire transfer to an account established by the
Company and designated in writing to the Escrow Agent by the Company. If any
funds remain in the Escrow Account at 6:00 p.m. New York time on the Stockholder
Approval Termination Date, the Escrow Agent shall, on the next Trading Day,
return those funds, without interest, to those Purchasers whose payment(s)
hereunder have not been used to purchase Units.

2.2 First Closing Deliveries and Second Closing Deliveries.

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

(i) a copy of the irrevocable instructions to the Company’s transfer agent
instructing the transfer agent to deliver via the Depository Trust Company
Deposit Withdrawal Agent Commission System (“DWAC”) Shares equal to such number
of Shares included in the Initial Units purchased by such Purchaser at the First
Closing, registered in the name of such Purchaser and bearing no restrictive
legend under the Securities Act or otherwise;

(ii) a Class A Warrant registered in the name of such Purchaser to purchase up
to a number of shares of Common Stock equal to 100% of such Purchaser’s Initial
Units actually purchased hereunder at the First Closing, with an exercise price
per share equal to the greater of (a) the consolidated closing bid price on the
Nasdaq Capital Market (trading symbol “DARA”) on the Trading Day immediately
preceding the First Closing Date plus $.01, or (b) $1.30, in either case subject
to adjustment therein (the “Class A Warrant First Closing Price”) (such Warrant
certificate may be delivered within three Trading Days of the First Closing
Date);

(iii) a Class B Warrant registered in the name of such Purchaser to purchase up
to a number of shares of Common Stock equal to 50% of such Purchaser’s Initial
Units actually purchased hereunder at the First Closing (rounded up to the
nearest whole Share), with an exercise price per share equal to $2.25, subject
to adjustment therein (such Warrant certificate may be delivered within three
Trading Days of the First Closing Date);

 

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(iv) the Prospectus and Prospectus Supplement (which may be delivered in
accordance with Rule 172 under the Securities Act), which Prospectus Supplement
shall be filed with the Commission prior to the opening of the Trading Market on
the Trading Day immediately following the First Closing Date and delivered by
the Company to each Purchaser at such time; and

(v) a legal opinion from the Company’s Counsel addressed to the Purchasers in
the form attached hereto as Exhibit C.

(b) At the First Closing, the Initial Purchase Price for the Units purchased at
the First Closing shall be delivered to the Company from the Escrow Account in
accordance with Section 2.1(d).

(c) At the Second Closing (if applicable), the Company shall deliver or cause to
be delivered to each Purchaser the following:

(i) a copy of the irrevocable instructions to the Company’s transfer agent
instructing the transfer agent to deliver via DWAC Shares equal to such number
of Shares included in the Initial Units purchased by such Purchaser at the
Second Closing, registered in the name of such Purchaser and bearing no
restrictive legend under the Securities Act or otherwise;

(ii) a Class A Warrant registered in the name of such Purchaser to purchase up
to a number of shares of Common Stock equal to 100% of such Purchaser’s Initial
Units actually purchased hereunder at the Second Closing, with an exercise price
per share equal to the greater of (a) the Class A Warrant First Closing Price,
or (b) the consolidated closing bid price on the Nasdaq Capital Market (trading
symbol “DARA”) on the Trading Day immediately preceding the Second Closing Date
plus $.01, in either case subject to adjustment therein (the “Class A Warrant
Second Closing Price”) (such Warrant certificate may be delivered within three
Trading Days of the Second Closing Date);

(iii) a Class B Warrant registered in the name of such Purchaser to purchase up
to a number of shares of Common Stock equal to 50% of such Purchaser’s Initial
Units actually purchased hereunder at the First Closing (rounded up to the
nearest whole Share), with an exercise price per share equal to $2.25, subject
to adjustment therein (such Warrant certificate may be delivered within three
Trading Days of the First Closing Date);

(iv) the Prospectus and Prospectus Supplement (which may be delivered in
accordance with Rule 172 under the Securities Act), which Prospectus Supplement
shall have been filed with the Commission prior to the opening of the Trading
Market on the Trading Day immediately following the First Closing Date and
delivered by the Company to each Purchaser at such time on or prior to the
Second Closing Date; and

(v) a legal opinion from the Company’s Counsel addressed to the Purchasers in
the form attached hereto as Exhibit C.

 

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(d) At the Second Closing (if applicable), the Initial Purchase Price for the
Units purchased at the Second Closing shall be delivered to the Company from the
Escrow Account in accordance with Section 2.1(d).

2.3 Third Closing Deliveries.

(a) At the Third Closing (if applicable), the Company shall deliver or cause to
be delivered to each Purchaser the following:

(i) a copy of the irrevocable instructions to the Company’s transfer agent
instructing the transfer agent to deliver via DWAC Shares equal to such number
of Shares included in the Remaining Units purchased by such Purchaser at the
Third Closing, registered in the name of such Purchaser and bearing no
restrictive legend under the Securities Act or otherwise;

(ii) a Class A Warrant registered in the name of such Purchaser to purchase up
to a number of shares of Common Stock equal to 100% of such Purchaser’s
Remaining Units actually purchased hereunder at the Third Closing, with an
exercise price per share equal to the greater of (a) the Class A Warrant Second
Closing Price, or (b) the consolidated closing bid price on the Nasdaq Capital
Market (trading symbol “DARA”) on the Trading Day immediately preceding the
Third Closing Date plus $.01, in either case subject to adjustment therein (such
Warrant certificate may be delivered within three Trading Days of the Third
Closing Date);

(iii) a Class B Warrant registered in the name of such Purchaser to purchase up
to a number of shares of Common Stock equal to 50% of such Purchaser’s Remaining
Units actually purchased hereunder at the Third Closing (rounded up the nearest
whole share), with an exercise price per share equal to $2.25, subject to
adjustment therein (such Warrant certificate may be delivered within three
Trading Days of the Third Closing Date);

(iv) the Prospectus and Prospectus Supplement (which may be delivered in
accordance with Rule 172 under the Securities Act), which Prospectus Supplement
shall have been filed with the Commission prior to the opening of the Trading
Market on the Trading Day immediately following the First Closing Date and
delivered by the Company to each Purchaser at such time on or prior to the Third
Closing Date; and

(v) a legal opinion from the Company’s Counsel addressed to the Purchasers in
the form attached hereto as Exhibit C.

(b) At the Third Closing (if applicable), the Remaining Purchase Price for the
Units purchased at the Third Closing shall be delivered to the Company from the
Escrow Account in accordance with Section 2.1(d).

2.4 Closing Conditions.

(a) Conditions Precedent to the Obligations of the Purchasers at the Closings.
The obligation of each Purchaser to acquire the Initial Units at the First
Closing and/or the Second

 

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Closing (if applicable) and the Remaining Units at the Third Closing (if
applicable) is subject to the satisfaction or waiver by such Purchaser, at or
before the First Closing, Second Closing or the Third Closing, as applicable, of
each of the following conditions:

(i) Representations and Warranties. The representations and warranties of the
Company contained herein shall be true and correct in all material respects as
of the date when made and as of the First Closing Date, the Second Closing Date
or the Third Closing, as applicable, as though made on and as of such date;
provided, however, that those representations and warranties qualified by
materiality shall be true and correct in all respects as of the date when made
and as of the First Closing Date, the Second Closing or the Third Closing Date,
as applicable, as though made on and as of such date.

(ii) Performance. The Company shall have performed, satisfied and complied in
all material respects with all covenants, agreements and conditions required by
the Transaction Agreements to be performed, satisfied or complied with by it at
or prior to the First Closing, the Second Closing or the Third Closing, as
applicable.

(iii) No Suspensions of Trading in Common Stock; Listing. Trading in the Common
Stock shall not have been suspended by the Commission at any time since the date
of execution of this Agreement, and the Common Stock shall have been at all
times since such date listed for trading on a Trading Market (other than the OTC
Bulletin Board).

(iv) Absence of Litigation. No action, suit or proceeding by or before any court
or any governmental body or authority, against the Company or pertaining to the
transactions contemplated by this Agreement or their consummation, shall have
been instituted, or to the Company’s knowledge, threatened, on or before the
First Closing Date, the Second Closing Date or the Third Closing Date, as
applicable, which action, suit or proceeding would reasonably be expected to
have a Material Adverse Effect.

(b) Conditions Precedent to the Obligations of the Company at the Closings. The
obligation of the Company to sell the Initial Units to a Purchaser at the First
Closing and/or the Second Closing (if applicable) and the Remaining Units at the
Third Closing (if applicable) is subject to the satisfaction or waiver by the
Company, at or before the First Closing, the Second Closing or the Third
Closing, as applicable, of each of the following conditions:

(i) Representations and Warranties. The representations and warranties of such
Purchaser contained herein shall be true and correct in all material respects as
of the date when made and as of the First Closing Date, the Second Closing Date
or the Third Closing Date, as applicable, as though made on and as of such date;
provided, however, that those representations and warranties qualified by
materiality shall be true and correct in all respects as of the date when made
and as of the First Closing Date, the Second Closing Date or the Third Closing
Date, as applicable, as though made on and as of such date.

(ii) Performance. Such Purchaser shall have performed, satisfied and complied in
all material respects with all covenants, agreements and conditions required by
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Transaction Agreements to be performed, satisfied or complied with by such
Purchaser at or prior to the First Closing, the Second Closing or the Third
Closing, as applicable.

(iii) Company Acceptance. The Company shall have accepted such Purchaser’s
commitment to purchase Units as set forth on such Purchaser’s signature page, as
evidenced by the countersignature of a Company officer on such signature page
where indicated.

(c) Additional Conditions to the Third Closing. The obligations of each
Purchaser to accept delivery of, and the Company’s obligation to sell and issue,
the Remaining Units are subject to the Company’s receipt and effectiveness of
stockholder approval for the issuance of the Remaining Units as, and to the
extent, required pursuant to the rules and regulations of the Nasdaq Stock
Market, the Commission or otherwise (the “Stockholder Approval Condition”). If
and to the extent applicable, upon the satisfaction of the foregoing condition,
the Company will issue to the Purchasers the Remaining Units and shall instruct
the Escrow Agent to remit, and the Escrow Agent shall remit, payment of the
aggregate Remaining Purchase Price to the Company pursuant to Section 2.1(d).

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

3.1 Representations, Warranties and Covenants of the Company. Except as
otherwise described in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2007, the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2008, the Registration Statement, the Prospectus and any
of the Company’s Current Reports on Form 8-K filed since the filing date of the
Company’s Annual Report on Form 10-K for the year ended December 31, 2007 (all
collectively, the “SEC Reports”), the Company hereby represents and warrants to,
and covenants with, each Purchaser as of the date hereof and as of each Closing
Date, as follows:

(a) Organization. The Company is duly incorporated and validly existing in good
standing under the laws of the State of Delaware. The Company has full power and
authority to own, operate and occupy its properties and to conduct its business
as currently conducted and is registered or qualified to do business and in good
standing in each jurisdiction in which it owns property or transacts business
and where the failure to be so qualified would have a material adverse effect
upon: (i) the Company and its Subsidiaries as a whole, (ii) the business,
financial condition, properties, operations or assets of the Company and its
Subsidiaries as a whole, or (iii) the Company’s ability to perform its
obligations under the Transaction Agreements in all material respects (each, a
“Material Adverse Effect”). No proceeding has been instituted, or to the
Company’s knowledge, threatened, in any such jurisdiction revoking, limiting or
curtailing, or seeking to revoke, limit or curtail, such power and authority or
qualification. Except as set forth in the SEC Reports, the Company does not
currently own, directly or indirectly, a majority of the stock or other equity
interests in any entity (each, a “Subsidiary”). Except for matters which are not
reasonably likely to have a Material Adverse Effect, each Subsidiary of the
Company has been duly incorporated, formed, or organized, and is validly
existing, in good standing under the laws of the jurisdiction of its
incorporation, formation, or organization, with full power and authority to own
its properties and conduct its business as

 

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currently conducted. Except for matters which are not reasonably likely to have
a Material Adverse Effect, all of the issued and outstanding capital stock of
each Subsidiary of the Company has been duly authorized and validly issued and
is fully paid and non-assessable and, except as disclosed in the SEC Reports, is
owned of record by the Company, or a Subsidiary of the Company.

(b) Due Authorization. The Company has all requisite power and authority to
execute, deliver and perform its obligations under the Transaction Agreements.
The execution and delivery of the Transaction Agreements, and the consummation
by the Company of the transactions contemplated thereby, have been duly
authorized by all necessary corporate action. The Transaction Agreements that
require execution by the Company have been validly executed and delivered by the
Company and constitute legal, valid and binding agreements of the Company
enforceable against the Company in accordance with their terms, except to the
extent (i) rights to indemnity and contribution may be limited by state or
federal securities laws or the public policy underlying such laws; (ii) such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors’ and contracting
parties’ rights generally and (iii) such enforceability may be subject to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).

(c) No Conflict or Default. The execution and delivery of the Transaction
Agreements, the issuance and sale of the Securities to be sold by the Company
under the Transaction Agreements, the fulfillment of the terms of the
Transaction Agreements and the consummation of the transactions contemplated
thereby will not: (A) result in a conflict with or constitute a violation of, or
default (with the passage of time or otherwise) under, (i) any bond, debenture,
note, loan agreement or other evidence of indebtedness, or any indenture, lease,
mortgage, deed of trust or any other agreement or instrument to which the
Company is a party or by which it is bound or to which any of the property or
assets of the Company is subject, (ii) any stockholders agreement, voting
agreement or similar agreement concerning the voting rights of stockholders,
(iii) the Certificate of Incorporation, bylaws or other organizational documents
of the Company, as amended, or (iv) with respect to the issuance and sale of the
Securities, assuming the accuracy of the representations and warranties and the
performance and satisfaction of the covenants and agreements, of the Purchasers
pursuant to the Transaction Agreements, any law, rule, ordinance, statute,
regulation, or existing order of any court or governmental agency, or other
authority binding upon the Company or the Company’s respective properties; or
(B) result in the creation or imposition of any Lien upon any of the material
assets of the Company or an acceleration of indebtedness pursuant to any
obligation, agreement or condition contained in any material bond, debenture,
note, loan agreement or other evidence of indebtedness, or any material
indenture, lease, mortgage, deed of trust or any other agreement or instrument
to which the Company is a party or by which it is bound or to which any of the
property or assets of the Company is subject. No consent, approval,
authorization or other order of, or registration, qualification or filing with,
any regulatory body, administrative agency, or other governmental body is
required for the execution and delivery of the Transaction Agreements by the
Company and the valid issuance or sale of the Securities by the Company pursuant
to the Transaction Agreements, other than such as have been made or obtained,
and except for any filings required to be made under federal or state securities
laws.

 

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(d) Capitalization. The authorized capital stock of the Company consists of
75,000,000 shares of Common Stock, par value $0.01 per share, and 1,000,000
shares of Preferred Stock, par value $0.01 per share (the “Preferred Stock”). As
of June 30, 2008, there were issued and outstanding 27,590,366 shares of Common
Stock and no shares of Preferred Stock. As of June 30, 2008, no shares of the
Company’s Common Stock were reserved for issuance, except (a) up to 8,282,131
shares of Common Stock reserved for issuance pursuant to the Company’s employee
and director incentive stock plans, (b) up to 2,376,461 shares of Common Stock
reserved for issuance pursuant to outstanding stock options, and (c) up to
698,064 shares of Common Stock reserved for issuance pursuant to outstanding
warrants. All outstanding stock options have been appropriately issued, dated
and authorized under the Company’s employee and director incentive stock plans.
Since June 30, 2008, the Company has not issued any shares of Common Stock or
any securities convertible into or exercisable for any shares of its Common
Stock, other than pursuant to its employee and director incentive stock plans
and upon the exercise of outstanding stock options, and other than 220,000
shares of Common Stock issued to Lyons Capital, LLC. There are not any
outstanding preemptive rights or rights of first refusal that would provide for
the issuance or sale of any Common Stock of the Company to any Person as a
result of the transactions contemplated by this Agreement. The capital stock and
other securities of the Company conform in all material respects to all
statements relating thereto contained in the Registration Statement and
Prospectus.

(e) Issuance of the Securities. The Securities are duly authorized and, when
issued and paid for in accordance with the applicable Transaction Agreements,
will be duly and validly issued, fully paid and nonassessable, free and clear of
all Liens imposed by the Company. The Warrant Shares, when issued in accordance
with the terms of the Warrants, will be validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company other than
restrictions on transfer provided for in the Transaction Agreements. The Company
has reserved from its duly authorized capital stock the maximum number of shares
of Common Stock issuable pursuant to this Agreement and the Warrants. None of
the Company, its Subsidiaries, any of their Affiliates, or any person acting on
any of their behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances that
would cause the transactions contemplated by this Agreement to be integrated
with prior offerings by the Company for purposes of the Securities Act or any
applicable shareholder approval provisions. None of the Company, its
Subsidiaries, their Affiliates or any person acting on any of their behalf will
take any action or steps referred to in the preceding sentence that would cause
the transactions contemplated by this Agreement to be integrated with other
offerings.

(f) Legal Proceedings. There is no legal, administrative, regulatory or
governmental proceeding pending, or to the knowledge of the Company, threatened,
to which the Company or any Subsidiary is a party or of which the business or
property of the Company is subject, that is reasonably likely to have a Material
Adverse Effect. Neither the Company nor any of its Subsidiaries are subject to
any injunction, judgment, decree or order of any court, regulatory body,
administrative agency or other government body that is reasonably likely to have
a Material Adverse Effect.

 

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(g) SEC Reports. The SEC Reports, including copies of all the exhibits included
or referenced therein, as of their respective dates (or, if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such amendment or superseding filing): (i) have been prepared and filed in
compliance in all material respects with the applicable requirements of the
Exchange Act and the rules and regulations thereunder; and (ii) did not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The Registration Statement and the Prospectus (x) have been, and the
Prospectus Supplement will be, prepared and filed in compliance in all material
respects with the applicable requirements of the Exchange Act and the rules and
regulations thereunder; and (y) did not when filed, and will not, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.

(h) No Violations. The Company is not in violation of its Certificate of
Incorporation or bylaws, as amended. To the knowledge of the Company, it is not
in violation of any law, rule, ordinance, statute, regulation or order of any
court or governmental agency, arbitration panel or authority applicable to the
Company, which violation, individually or in the aggregate, is reasonably likely
to have a Material Adverse Effect. The Company is not in default (and there
exists no condition which, with the passage of time or otherwise, would
constitute a default) in the performance of any bond, debenture, note or any
other evidence of indebtedness or any indenture, mortgage, deed of trust or any
other material agreement or instrument to which the Company is a party or by
which the Company is bound, which such default is reasonably likely to have a
Material Adverse Effect.

(i) Governmental Permits, Etc. The Company and each of its Subsidiaries have all
necessary franchises, licenses, certificates and other authorizations from any
foreign, federal, state or local government or governmental agency, department
or body that are currently necessary for the operation of the business of the
Company and its Subsidiaries as currently conducted, except where the failure to
currently possess such franchises, licenses, certificates and other
authorizations is not reasonably likely to have a Material Adverse Effect.

(j) Good and Marketable Title to Property. The Company and its Subsidiaries have
good and marketable title to, or a valid, subsisting and enforceable interest
in, all real properties and all other properties and assets owned or leased by
them that are material to the operation of the Company’s business.

(k) Intellectual Property. Except for matters which are not reasonably likely to
have a Material Adverse Effect, (i) the Company or a Subsidiary has ownership
of, or a license or other legal right to use, all patents, copyrights, trade
secrets, trademarks, trade names, customer lists, designs, manufacturing or
other processes, computer software, systems, data compilation, research results
or other proprietary rights used in the business of the Company (collectively,
“Intellectual Property”) and (ii) the Company or a Subsidiary owns and has the
right to use the same, free and clear of any claim or conflict with the rights
of others (subject to the provisions of any applicable license agreement). To
the Company’s knowledge, its use of its

 

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Intellectual Property does not infringe the intellectual property rights of any
third party which could reasonably be expected to have a Material Adverse
Effect, individually or in the aggregate.

(l) Financial Statements. The financial statements of the Company and the
related notes contained in the SEC Reports present fairly and accurately in all
material respects the financial position of the Company on a consolidated basis
as of the dates therein indicated, and the consolidated results of its
operations, cash flows and the changes in stockholders’ equity for the periods
therein specified, subject, in the case of unaudited financial statements for
interim periods, to normal year-end audit adjustments. Such financial statements
(including the related notes) have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis at the times and
throughout the periods therein specified, except that unaudited financial
statements may not contain all footnotes required by generally accepted
accounting principles. The Company has no off-balance sheet arrangements. The
Company’s internal accounting controls and procedures are sufficient to cause
the Company and each Subsidiary to prepare financial statements that comply in
all material respects with generally accepted accounting principles and the
rules and regulations of the Commission on a consistent basis during the periods
involved. Since December 31, 2007, nothing has been brought to the attention of
the Company’s management that would result in any reportable condition relating
to the Company’s internal accounting procedures, weaknesses or controls. The
Company’s and each of its Subsidiary’s internal accounting controls and
procedures are sufficient to cause each of them to comply in all material
respects with the Foreign Corrupt Practices Act of 1977, the Sarbanes-Oxley Act
of 2002, and the rules and regulations of the Commission, each as in effect as
of the date hereof.

(m) Tax Returns. Except for matters which are not reasonably likely to have a
Material Adverse Effect, the Company and its Subsidiaries have made or filed all
federal, state and foreign income and all other tax returns, reports and
declarations required by any jurisdiction to which they are subject and have
paid or accrued all taxes and other governmental assessments and charges that
are material in amount, shown or determined to be due on such returns, reports
and declarations.

(n) No Material Adverse Change. There has not been since December 31, 2007 any
event, circumstance or change that has had or is reasonably likely to have a
Material Adverse Effect.

(o) Disclosure of Information. Except for the terms of the Transaction
Agreements and the fact that the Company is considering consummating the
transactions contemplated therein, the Company confirms that neither the Company
nor, to its knowledge, any other Person acting on its behalf, has provided any
of the Purchasers or their agents or counsel with any information that
constitutes material, non-public information.

(p) Contracts. Except for matters which are not reasonably likely to have a
Material Adverse Effect and those contracts that are substantially or fully
performed or expired by their terms, the contracts listed as exhibits to or
described in the SEC Reports that are material to the Company and all amendments
thereto, are in full force and effect on the date hereof, and neither the
Company nor, to the Company’s knowledge, any other party to such contracts is in

 

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breach of or default under any of such contracts, which breach or default is
reasonably likely to result in a Material Adverse Effect. The Company maintains
insurance in scope and amount which is reasonable and customary in the
businesses in which the Company and the Subsidiaries are engaged.

(q) Investment Company. The Company is not an “investment company” or an
“affiliated person” of an investment company, within the meaning of the
Investment Company Act of 1940, as amended, and will not be deemed an
“investment company” as a result of the transactions contemplated by this
Agreement.

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

(s) Employees. The Company and each of its Subsidiaries is in compliance in all
material respects with all laws and regulations respecting the employment of its
employees and employment practices, terms and conditions of employment and wages
and hours relating thereto. There are no pending investigations involving the
Company or any of its Subsidiaries by any governmental agency responsible for
the enforcement of such laws and regulations. There is no unfair labor practice
charge or complaint against the Company or any of its Subsidiaries pending
before any governmental agency or body or any strike, picketing, boycott,
dispute, slowdown or stoppage pending, or to the knowledge of the Company,
threatened, against or involving the Company or any of its Subsidiaries or any
predecessor entity. No question concerning representation exists respecting the
employees of the Company or any of its Subsidiaries and no collective bargaining
agreement or modification thereof is currently being negotiated by the Company
or any of its Subsidiaries. No grievance or arbitration proceeding is pending
under any expired or existing collective bargaining agreements of the Company or
any of its Subsidiaries, if any.

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

(a) Organization; Authority. Such Purchaser is either (i) an individual or
(ii) an entity duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization with full right, corporate or
partnership power and authority to enter into and to consummate the transactions
contemplated by the Transaction Agreements and otherwise to carry out its
obligations hereunder and thereunder. If the Purchaser is an entity, the
execution, delivery and performance by such Purchaser of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate or similar action on the part of such Purchaser. Each Transaction
Agreement to which it is a party has been duly executed by such Purchaser, and
when delivered by such Purchaser in accordance with the terms hereof, will
constitute the valid and legally binding obligation of such Purchaser,
enforceable against it in

 

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

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

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

(d) Short Sales and Confidentiality Prior To The Date Hereof. Other than the
transaction contemplated hereunder, such Purchaser has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Purchaser, executed any disposition, including Short
Sales, in the securities of the Company during the period commencing from the
time that such Purchaser first received a term sheet (written or oral) from the
Company or any other Person setting forth the material terms of the transactions
contemplated hereunder until the date hereof (“Discussion Time”).
Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser’s assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Purchaser’s assets, the representation set forth
above shall only apply with respect to the portion of assets managed by the
portfolio manager that made the investment decision to purchase the Units
covered by this Agreement. Other than to other Persons party to this Agreement,
such Purchaser has maintained the confidentiality of all disclosures made to it
in connection with this transaction (including the existence and terms of this
transaction).

(e) No Conflict or Default. The execution and delivery of the Transaction
Agreements, the fulfillment of the terms of the Transaction Agreements and the
consummation of the transactions contemplated thereby will not: (A) result in a
conflict with or constitute a material violation of, or material default (with
the passage of time or otherwise) under, (i) any material bond, debenture, note,
loan agreement or other evidence of indebtedness, or any material indenture,
lease, mortgage, deed of trust or any other agreement or instrument to which the
Purchaser is a party or by which it is bound or to which any of the property or
assets of the Purchaser is subject, (ii) the Certificate of Incorporation,
bylaws or other organizational documents of the Purchaser, as amended (if
applicable), or (iii) any law, administrative regulation, or existing order of
any court or governmental agency, or other authority binding

 

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upon the Purchaser or the Purchaser’s respective properties; or (B) result in
the creation or imposition of any lien, encumbrance, claim, or security interest
upon any of the material assets of the Purchaser or an acceleration of
indebtedness pursuant to any obligation, agreement or condition contained in any
material bond, debenture, note, loan agreement or other evidence of
indebtedness, or any material indenture, lease, mortgage, deed of trust or any
other agreement or instrument to which the Purchaser is a party or by which it
is bound or to which any of the property or assets of the Purchaser is subject.
Assuming the accuracy of the representations and warranties, and the performance
and satisfaction of the covenants and agreements, of the Company pursuant to the
Transaction Agreements, no consent, approval, authorization or other order of,
or registration, qualification or filing with, any regulatory body,
administrative agency, or other governmental body is required for the execution
and delivery of the Transaction Agreement by the Purchaser, other than such as
have been made or obtained, and except for any filings required to be made under
federal or state securities laws.

(f) No Investment, Tax or Legal Advice. The Purchaser understands that nothing
in the SEC Reports, any Transaction Agreement, or any other materials presented
to the Purchaser in connection with the purchase and sale of the Units
constitutes legal, tax or investment advice. The Purchaser has consulted such
legal, tax and investment advisors as it, in its sole discretion, has deemed
necessary or appropriate in connection with its purchase of the Units.

(g) Additional Acknowledgement. The Purchaser has thoroughly reviewed the SEC
Reports prior to making this investment. The Purchaser has been granted a
reasonable time prior to the date hereof during which it has had the opportunity
to obtain such additional information as the Purchaser deems necessary to permit
the Purchaser to make an informed decision with respect to the purchase of the
Units. After examination of the SEC Reports and other information available, the
Purchaser is fully aware of the business, financial condition, risks associated
with investment and the operating history relating to the Company, and therefore
in subscribing for the purchase of the Units, the Purchaser is not relying upon
any information other than information contained in the SEC Reports. The
Purchaser acknowledges that it has independently evaluated the merits of the
transactions contemplated by the Transaction Agreements, that it has
independently determined to enter into the transactions contemplated thereby,
that it is not relying on any advice from or evaluation by any other Purchaser,
and that it is not acting in concert with any other Purchaser in making its
purchase of the Units hereunder. The Purchaser acknowledges that the Purchaser
has not, either individually or collectively with any other Purchasers, taken
any actions that would deem the Purchasers to be members of a “group” for
purposes of Section 13(d) of the Exchange Act with respect to the Company.

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

4.1 Transfer Restrictions. If all or any portion of a Warrant is exercised at a
time when there is an effective registration statement to cover the issuance of
the Warrant Shares, such Warrant Shares shall be issued free of all legends.

4.2 Furnishing of Information. As long as any Purchaser owns any Securities, the
Company covenants to timely file (or obtain extensions in respect thereof and
file within the

 

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applicable grace period) all reports required to be filed by the Company after
the date hereof pursuant to the Exchange Act and the rules and regulations of
the Trading Market. As long as any Purchaser owns any Securities, if the Company
is not required to file reports pursuant to the Exchange Act, it will prepare
and furnish to the Purchasers and make publicly available in accordance with
Rule 144(c) such information as is required for the Purchasers to sell the
Securities under Rule 144. The Company further covenants that it will take such
further action as any holder of Securities may reasonably request, to the extent
required from time to time to enable such Person to sell such Securities without
registration under the Securities Act within the requirements of the exemption
provided by Rule 144.

4.3 Securities Laws Disclosure; Publicity. The Company shall, by 9:30 a.m. (New
York City time) on the Trading Day immediately following the First Closing Date,
issue a Current Report on Form 8-K, disclosing the material terms of the
transactions contemplated hereby, and shall attach the Transaction Agreements
thereto. The Company and each Purchaser shall consult with each other in issuing
any other press releases with respect to the transactions contemplated hereby,
and neither the Company nor any Purchaser shall issue any such press release or
otherwise make any such public statement without the prior consent of the
Company, with respect to any press release of any Purchaser, or without the
prior consent of each Purchaser, with respect to any press release of the
Company, which consent shall not unreasonably be withheld or delayed, except if
such disclosure is required by law, in which case the disclosing party shall
promptly provide the other party with prior notice of such public statement or
communication. The Company shall not need the prior consent of any Purchaser to
issue the press release with respect to the transactions contemplated hereby as
required by this Section 4.3. Notwithstanding the foregoing, the Company shall
not publicly disclose the name of any Purchaser, or include the name of any
Purchaser in any filing with the Commission or any regulatory agency or Trading
Market, without the prior written consent of such Purchaser, except (i) as
required by federal securities law in connection with the filing of final
Transaction Agreements (including signature pages thereto) with the Commission
and (ii) to the extent such disclosure is required by law or Trading Market
regulations, in which case the Company shall provide the Purchasers with prior
notice of such disclosure permitted under this subclause (ii).

4.4 Non-Public Information. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Agreements, the
Company covenants and agrees that neither it nor any other Person acting on its
behalf will provide any Purchaser or its agents or counsel with any information
that constitutes material non-public information, unless prior thereto such
Purchaser shall have executed a written agreement regarding the confidentiality
and use of such information. The Company understands and confirms that each
Purchaser shall be relying on the foregoing representations in effecting
transactions in securities of the Company.

4.5 Use of Proceeds. The Company shall use the net proceeds from the sale of the
Units hereunder for working capital purposes.

4.6 Indemnification of Purchasers. Subject to the provisions of this
Section 4.6, the Company will indemnify, defend and hold each Purchaser and its
directors, officers, shareholders, members, partners, employees and agents (and
any other Persons with a

 

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

4.7 Reservation of Common Stock. As of the date hereof, the Company has reserved
and the Company shall continue to reserve and keep available at all times, free
of preemptive rights, a sufficient number of shares of Common Stock for the
purpose of enabling the Company to issue Shares pursuant to this Agreement and
Warrant Shares pursuant to any exercise of the Warrants.

4.8 Listing of Common Stock. The Company hereby agrees to use commercially
reasonable efforts to maintain the listing of the Common Stock on the Nasdaq
Capital Market, and to list all of the Shares and Warrant Shares on the Nasdaq
Capital Market at the time of the issuance thereof. The Company further agrees,
if the Company applies to have the Common

 

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Stock traded on any other Trading Market, it will include in such application
all of the Shares and Warrant Shares, and will take such other action as is
necessary to cause all of the Shares and Warrant Shares to be listed on such
other Trading Market as promptly as possible. The Company will take all action
reasonably necessary to continue the listing and trading of its Common Stock on
a Trading Market and will comply in all respects with the Company’s reporting,
filing and other obligations under the bylaws or rules of the Trading Market.

4.9 Short Sales and Confidentiality After The Date Hereof. Each Purchaser
severally and not jointly with the other Purchasers covenants that neither it
nor any Affiliate acting on its behalf or pursuant to any understanding with it
will execute any Short Sales during the period commencing at the Discussion Time
and ending at the time that the transactions contemplated by this Agreement are
first publicly announced as described in Section 4.3. Each Purchaser, severally
and not jointly with the other Purchasers, covenants that until such time as the
transactions contemplated by this Agreement are publicly disclosed by the
Company as described in Section 4.3, such Purchaser will maintain the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction).
Notwithstanding the foregoing, no Purchaser makes any representation, warranty
or covenant hereby that it will not engage in Short Sales in the securities of
the Company after the time that the transactions contemplated by this Agreement
are first publicly announced as described in Section 4.3. Notwithstanding the
foregoing, in the case of a Purchaser that is a multi-managed investment vehicle
whereby separate portfolio managers manage separate portions of such Purchaser’s
assets and the portfolio managers have no direct knowledge of the investment
decisions made by the portfolio managers managing other portions of such
Purchaser’s assets, the covenant set forth above shall only apply with respect
to the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this Agreement.

4.10 Delivery of Securities After Closing. The Company shall deliver, or cause
to be delivered, the respective Securities purchased by each Purchaser at a
Closing to such Purchaser within three Trading Days of the applicable Closing
Date.

4.11 Effectiveness of Registration Statement. The Company shall maintain the
effectiveness of the Registration Statement for a period of at least 24 months
after the latest Closing Date hereunder. If at the time of exercise of either
the Class A Warrants or the Class B Warrants there is no effective Registration
Statement registering the issuance of the Warrant Shares, the Warrants may be
exercised on a cashless basis as set forth in the Warrants.

4.12 Stockholder Approval Event. If the Company agrees to sell and the
Purchasers agree to purchase any Remaining Units hereunder, and if, and to the
extent, the Company determines, in its reasonable discretion, that stockholder
approval is required for the issuance of such Remaining Units pursuant to the
rules and regulations of the Nasdaq Stock Market, the Commission or otherwise,
the Company shall prepare and file with the Commission either (i) a proxy
statement pursuant to Section 14(a) of the Exchange Act or (ii) an information
statement pursuant to Section 14(c) of the Exchange Act. In the event of such
filing, the Company shall use its commercially reasonable efforts to satisfy the
Stockholder Approval Condition within seventy-five (75) days of the First
Closing Date (such date being the “Stockholder Approval

 

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Termination Date”). The Stockholder Approval Termination Date may be extended by
the Company upon written notice to the Purchasers for up to an additional thirty
(30) days.

ARTICLE V.

MISCELLANEOUS

5.1 Termination. This Agreement may be terminated by any Purchaser, as to such
Purchaser’s obligations hereunder with respect to any future Closings only and
without any effect whatsoever on the obligations between the Company and the
other Purchasers or on Units purchased hereunder by such Purchaser at a prior
Closing, by written notice to the other parties, if (i) the First Closing has
not been consummated on or before November 15, 2008, (ii) the Second Closing (if
applicable) has not been consummated on or before November 30, 2008, or
(iii) the Third Closing (if applicable) has not been consummated on or before
January 31, 2009; provided, however, that no such termination will affect the
right of any party to sue for any breach by the other party (or parties). Upon
such termination, the terminating Purchaser shall be entitled to receive a full
refund of such Purchaser’s Aggregate Purchase Price that has not already been
applied to the purchase of Units hereunder at a Closing hereunder.

5.2 Fees and Expenses. Except as expressly set forth in the Transaction
Agreements to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Company shall pay all transfer
agent fees, stamp taxes and other taxes and duties levied in connection with the
delivery of any Securities to the Purchasers.

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

5.4 Notices. Any and all notices or other communications or deliveries required
or permitted to be provided hereunder shall be in writing and shall be deemed
given and effective on the earliest of (a) the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number set
forth on the signature pages attached hereto prior to 5:30 p.m. (New York City
time) on a Trading Day, (b) the next Trading Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
number set forth on the signature pages attached hereto on a day that is not a
Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day,
(c) the 2nd Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.

5.5 Amendments; Waivers. No provision of this Agreement may be waived or amended
except in a written instrument signed, in the case of an amendment, by the
Company and

 

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Purchaser(s) holding 51% or more of the then outstanding Securities sold
pursuant to this Agreement, or, in the case of a waiver, by the party against
whom enforcement of any such waived provision is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of any party to exercise any
right hereunder in any manner impair the exercise of any such right.

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

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

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

5.9 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Agreements shall be governed
by and construed and enforced in accordance with the internal laws of the State
of New York, without regard to the principles of conflicts of law thereof. The
parties hereby waive all rights to a trial by jury.

5.10 Survival. The representations and warranties contained herein shall survive
until the 18 month anniversary of the date hereof.

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

5.12 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to
achieve

 

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the same or substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.

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

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

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

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

(Signature Pages Follow)

 

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

 

DARA BIOSCIENCES, INC.     

8601 Six Forks Road, Suite 160

Raleigh, NC 27615

Attn: John Didsbury

By:  

 

     Fax: 919-861-0239 Name:   John Didsbury      e-mail:
JDidsbury@darabiosciences.com Title:   President     

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

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[PURCHASER SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]

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

 

Name of Purchaser:  

 

Signature of Authorized Signatory of Purchaser:   

 

Name of Authorized Signatory:   

 

Title of Authorized Signatory (if Purchaser is an entity):   

 

Date of Signature and Deposit of Funds in Escrow Account:   

 

Email Address of Purchaser:   

 

Fax Number of Purchaser:   

 

Address for Notice of Purchaser:   

 

 

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

 

 

EIN Number:   

 

Name of DTC Participant (broker-dealer at which the account or accounts to be credited with the securities are maintained):
 

 

DTC Participant Number:  

 

Name of Account at DTC Participant Being Credited with the Securities:

 

Account Number at DTC Participant Being Credited with the Securities:

 

Total Number of Units:  

 

Aggregate Purchase Price: $  

 

Approval of this Purchaser’s Signature Page by Company:  

 

  John Didsbury

  President