Exhibit 10.1

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is dated as of December
24, 2003, among Arena Pharmaceuticals, Inc., a Delaware corporation (the
“Company”), and each of the purchasers identified on the signature pages hereto
(each a “Purchaser” and collectively the “Purchasers”).

 

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

 

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

 

ARTICLE I
DEFINITIONS

 

1.1                                 DEFINITIONS.

 

In addition to the terms defined elsewhere in this Agreement, the following
terms have the meanings indicated:

 

“Actual Minimum” means, as of any date, the maximum aggregate number of shares
of Common Stock then issued or potentially issuable in the future pursuant to
the Transaction Documents, including any Underlying Shares issuable upon
exercise or conversion in full of all Warrants, Additional Units and Shares,
ignoring any limits on the number of shares of Common Stock that may be owned by
a Purchaser at any one time and (i) assuming that (a) any previously unconverted
Shares are held until the fifth anniversary of the Closing Date and all
dividends thereon are paid in shares of Common Stock, (b) the Closing Price at
all times on and after the date of determination equals 100% of the actual
Closing Price on the Trading Day immediately prior to the date of Closing, and
(ii) giving effect to the Conversion Price (as defined in the Certificate of
Designations) as in effect on such date, without regard to potential changes in
the Closing Price that may occur thereafter; provided, however, that prior to
the issuance of the Series B-2 Preferred Stock, the Conversion Price for such
Series B-2 Preferred Stock will be assumed to equal $7 per share (as adjusted
for stock splits, stock dividends, stock combinations or other similar events).

 

“Additional Unit” means, collectively, (i) one share of Series B-2 Preferred
Stock and (ii) a Warrant to acquire up to 391.304 shares of Common Stock, with
respect to each Additional Unit issuable upon exercise of the Unit Warrants.

 

“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

 

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the same investment manager as such Purchaser will be deemed to be an Affiliate
of such Purchaser.  With respect to the Company, “Affiliate” shall not include
any BVF Entity and their Affiliates, including Mark N. Lampert, and Associates
(as defined in Rule 12b-2 of the General Rules and Regulations promulgated under
the Exchange Act).

 

“Bankruptcy Event” means any of the following events: (a) the Company or a
Subsidiary of the Company commences a case or other proceeding under any
bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
relating to the Company or any Subsidiary thereof; (b) there is commenced
against the Company or any Subsidiary any such case or proceeding that is not
dismissed within 60 days after commencement; (c) the Company or any Subsidiary
is adjudicated insolvent or bankrupt or any order of relief or other order
approving any such case or proceeding is entered; (d) the Company or any
Subsidiary suffers any appointment of any custodian or the like for it or any
substantial part of its property that is not discharged or stayed within 60
days; (e) the Company or any Subsidiary makes a general assignment for the
benefit of creditors; (f) the Company or any Subsidiary fails to pay, or states
that it is unable to pay or is unable to pay, its debts generally as they become
due; (g) the Company or any Subsidiary calls a meeting of its creditors with a
view to arranging a composition, adjustment or restructuring of its debts; or
(h) the Company or any Subsidiary, by any act or failure to act, expressly
indicates its consent to, approval of or acquiescence in any of the foregoing or
takes any corporate or other action for the purpose of effecting any of the
foregoing.

 

“Business Day” means any day other than Saturday, Sunday or other day on which
commercial banks in the City of New York or San Diego, California are authorized
or required by law to remain closed.

 

“BVF Entity” means, individually or collectively, Biotechnology Value Fund,
L.P., a Delaware limited partnership, Biotechnology Value Fund II, L.P., a
Delaware limited partnership, BVF Investments, L.L.C., a Delaware limited
liability company, BVF Partners L.P., a Delaware limited partnership, and BVF
Inc., a Delaware corporation.

 

“Capital Lease” means, with respect to the Company and its Subsidiaries, any
lease of any property that is, in accordance with GAAP, classified and accounted
for as a capital lease on a consolidated balance sheet of the Company and its
Subsidiaries.

 

“Certificate of Designations” means the certificate of designations of the
Series B Preferred Stock, in the form of Exhibit A.

 

“Change of Control” means the occurrence of any of the following in one or a
series of related transactions: (i) an acquisition after the date hereof by an
individual or legal entity or “group” (as described in Rule 13d-5(b)(1) under
the Exchange Act) of more than one-half of the voting rights or voting equity
interests in the Company; (ii) a replacement of more than one-half of the
members of the Company’s board of directors that is not approved by those
individuals who are members of the board of directors on the date hereof (or
other directors previously approved by such individuals); (iii) a merger or
consolidation of the Company or any Subsidiary or a sale of all or substantially
all of the assets of the Company in one or a series of related transactions,
unless following such transaction or series of transactions, the holders of the

 

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Company’s securities prior to the first such transaction continue to hold at
least half of the voting rights or voting equity interests in of the surviving
entity or acquirer of such assets; (iv) a recapitalization, reorganization or
other transaction involving the Company or any Subsidiary that constitutes or
results in a transfer of more than one-half of the voting rights or voting
equity interests in the Company; (v) consummation of a “Rule 13e-3 transaction”
as defined in Rule 13e-3 under the Exchange Act with respect to the Company; or
(vi) the execution by the Company of an agreement providing for or reasonably
likely to result in any of the foregoing events..

 

“Closing” has the meaning specified in Section 2.2.

 

“Closing Date” has the meaning specified in Section 2.2.

 

“Closing Price” 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 an Eligible Market or any other national securities exchange, the closing bid
price per share of the Common Stock for such date (or the nearest preceding
date) on the primary Eligible Market or exchange on which the Common Stock is
then listed or quoted; (b) if prices for the Common Stock are then quoted on the
OTC Bulletin Board, the closing bid price per share of the Common Stock for such
date (or the nearest preceding date) so quoted; (c) if prices for the Common
Stock are then reported in the “Pink Sheets” published by the Pink Sheets LLC
(or a similar organization or agency succeeding to its functions of reporting
prices), the most recent closing bid price per share of the Common Stock so
reported; or (d) in all other cases, the fair market value of a share of Common
Stock as determined by an independent appraiser selected in good faith jointly
by Purchasers holding a majority of the Securities and the Company, the cost of
which shall be paid by the Company.

 

“Commission” means the Securities and Exchange Commission.

 

“Common Stock” means the common stock of the Company, par value $0.0001 per
share, and any securities into which such common stock may hereafter be
reclassified.

 

“Common Stock Equivalents” shall mean, collectively, Options and Convertible
Securities.

 

“Company Counsel” means Milbank, Tweed, Hadley & McCloy LLP, special counsel to
the Company.

 

“Contingent Obligation” means, with respect to any Person, without duplication,
any obligation, contingent or otherwise, of such Person pursuant to which such
Person has directly or indirectly guaranteed any Debt or other payment
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
first Person (i) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Debt or other obligation (whether arising by agreement to
keep well, to purchase assets, goods, securities or services or to take-or-pay),
or (ii) entered into for the purpose of assuring in any other manner the obligee
of such Debt or other obligation of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part); provided,
however, that the term Contingent Obligation shall not include endorsements for
collection or deposit in the ordinary course of business obligations.

 

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“Convertible Securities” means any evidence of indebtedness, shares, options,
warrants or other securities directly or indirectly convertible into or
exercisable or exchangeable for shares of Common Stock.

 

“Debt” means, with respect to the Company and its Subsidiaries at any date and
without duplication, any of the following:  (i) all Debt for Money Borrowed;
(ii) all obligations to pay the deferred purchase price of property or services
of any such Person, except trade payables and obligations to employees, officers
or directors, in each case arising in the ordinary course of business; (iii) all
obligations of any such Person secured by a Lien on any asset of the Company and
its Subsidiaries, other than Permitted Liens; (iv) all Contingent Obligations of
any such Person; (v) obligations in the form of earn-out obligations to be paid
in cash; (vi) all obligations of any such Person under Capital Leases; (vi) all
obligations incurred by any such Person pursuant to Hedging Agreements;
(vii) any synthetic lease or other lease obligations of such Person; (viii) any
obligations of such Person in respect of off-balance-sheet agreements or
transactions that are in the nature of, or in substitution of, financings; (ix)
any other item that would be required to be classified as a liability in an
audited financial statement under GAAP (other than deferred revenue and other
than judgments subject to appeal and bonded), and (x) any indebtedness or other
obligations of any other Person of the type specified in any of the foregoing
classes, the payment or collection of which such Person has guaranteed or in
respect of which such Person is liable, contingently or otherwise, including
liable by way of agreement to purchase products or securities, to provide funds
for payment, to maintain working capital or other balance sheet conditions or
otherwise to assure a creditor against loss.

 

“Debt for Money Borrowed” means, with respect to the Company and its
Subsidiaries at any date and without duplication, any of the following:  (i) all
liabilities, obligations and indebtedness for borrowed money, including
obligations evidenced by bonds, debentures, notes or other similar instruments
of any Person; (ii) all Contingent Obligations of any such Person with respect
to Debt for Money Borrowed; and (iii) all obligations, contingent or otherwise,
of any such Person relative to the unexpired face amount of letters of credit,
whether or not drawn, and banker’s acceptances issued for the account of any
such Person.

 

“Effective Date” means the date that an Underlying Shares Registration Statement
is declared effective by the Commission.

 

“Eligible Market” means the New York Stock Exchange, the American Stock
Exchange, the NASDAQ National Market or the NASDAQ SmallCap Market.

 

“Event Equity Value” means the arithmetic average of the Closing Prices for the
five Trading Days preceding either (a) the date of delivery of the notice
requiring payment of the Event Equity Value, or (b) the date on which such
required payment (together with any other payments, expenses and liquidated
damages then due and payable under the Transaction Documents) is paid in full,
whichever is greater.

 

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

 

“Excluded Stock” means any shares of Common Stock or Common Stock Equivalents
issued or issuable (A) upon exercise, conversion or exchange of any Common Stock
Equivalents

 

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described in Schedule 3.1(g) (provided that such exercise, conversion or
exchange occurs in accordance with the terms thereof, without amendment or
modification, and that the applicable exercise, conversion or exchange price or
ratio is described in such schedule); (B) to officers, directors, employees or
consultants of the Company pursuant to any contract, plan or arrangement
approved by the Company’s board of directors; (C) in connection with any
strategic partnership or joint venture with a Person not engaged primarily in
the business of investing in companies and the primary purpose of which is not
to raise capital for the Company or any Subsidiary; (D) pursuant to a bona fide
firm commitment underwritten public offering with a nationally recognized
underwriter  (excluding any equity line) with gross proceeds to the Company of
greater than $35,000,000; or (E) in connection with a transaction involving a
merger or acquisition of an entity, business or assets, not principally for the
purpose of obtaining cash.

 

“GAAP” means United States generally accepted accounting principles, as
recognized by the American Institute of Certified Public Accountants or the
Financial Accounting Standards Board, consistently applied and maintained on a
consistent basis for the Company and its Subsidiaries throughout the period
indicated and consistent with the prior financial practice of the Company;
provided, however, that any accounting principle or practice required to be
changed by the American Institute of Certified Public Accountants or the
Financial Accounting Standards Board (or other appropriate board or committee of
either) in order to continue as a generally accepted accounting principle or
practice may be so changed.

 

“Going Concern Opinion” means the issuance of an audit letter containing a
“going concern” qualification by the Company’s independent public accountant in
connection with the Company’s annual report on Form 10-K pursuant to Section 13
or 15(d) under the Exchange Act or any other filing with the Commission.

 

“Hedging Agreement” means any interest rate, foreign currency, commodity or
equity swap, collar, cap, floor or forward rate agreement, or other agreement or
arrangement designed to protect against fluctuations in interest rates or
currency, commodity or equity values (including any option with respect to any
of the foregoing and any combination of the foregoing agreements or
arrangements), and any confirmation executed in connection with any such
agreement or arrangement, all as amended or modified.

 

“Initial Unit” means, collectively, (i) one share of Series B-1 Preferred Stock
and (ii) a Warrant to acquire up to 424.629 shares of Common Stock.

 

 “Lien” means any lien, mortgage, pledge, charge, claim, security interest,
encumbrance, right of first refusal or other restriction upon or in any property
or assets (including accounts and contract rights).

 

 “Losses” means any and all losses, claims, damages, liabilities, settlement
costs and expenses, including, without limitation, costs of preparation of legal
action and reasonable attorneys’ fees (but in no event for more than one law
firm) .

 

“Options” means any rights, warrants or options to subscribe, directly or
indirectly for or purchase Common Stock or Convertible Securities (taking into
account all Securities that can be issued under the Transaction Documents and
assuming that prior to the issuance of the Series B-2

 

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Preferred Stock the conversion price is equal to $7 per share (as adjusted for
stock splits, stock dividends, stock combinations or other similar events)).

 

“Person” means any 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.

 

“Permitted Debt” means (i) any Permitted Subordinated Debt, (ii) Capital Leases
and leases relating to real and personal property incurred in the ordinary
course of business and on an arm’s-length basis and letters of credit relating
to such leases and associated deferred rent and balance sheet liabilities, (iii)
sale and leaseback transactions relating to real property and associated balance
sheet liabilities, and (iv) Debt (other than any Debt for Money Borrowed and
Debt referred to in clauses (i) through (iii) above) in an amount (x) from the
date hereof through and including the two year anniversary of this Agreement,
not exceeding $10 million in the aggregate at any one time outstanding, and (y)
following the two year anniversary of this Agreement, not exceeding $25 million
in the aggregate at any one time outstanding.

 

“Permitted Liens” means (i) any Lien for taxes not yet due or delinquent or
being contested in good faith by appropriate proceedings, (ii) any materialmans,
mechanics or similar statutory Lien arising in the ordinary course of business
by operation of law with respect to Debt that is not yet due or delinquent and
(iii) any minor imperfection of title or similar Lien which individually or in
the aggregate with other such Liens does not materially impair the value of the
property subject to such Lien or the use of such property in the conduct of the
business.

 

“Permitted Subordinated Debt” means Debt that (x) is made expressly subordinate
to the Series B Preferred Stock in right of payment, whether with respect to
dividends or upon liquidation or dissolution, or otherwise, on terms
satisfactory to the holders of a majority of the shares of Series B Preferred
Stock then outstanding and (y) does not provide at any time for the payment,
prepayment, repayment, repurchase or defeasance, directly or indirectly, of any
principal or premium, if any, thereon until at least 91 days after the Mandatory
Redemption Date (as defined in the Certificate of Designations).

 

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

 

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

 

“Required Effectiveness Date” means the date on which an Underlying Shares
Registration Statement is required to become effective pursuant to the
Registration Rights Agreement.

 

“Required Minimum” means, as of any date, the maximum aggregate number of shares
of Common Stock then issued or potentially issuable in the future pursuant to
the Transaction Documents, including any Underlying Shares issuable upon
exercise or conversion in full of all Warrants, Additional Units and Shares,
ignoring any limits on the number of shares of Common

 

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Stock that may be owned by a Purchaser at any one time and (i) assuming that (a)
any previously unconverted Shares are held until the fifth anniversary of the
Closing Date or, if earlier, until maturity, and all dividends thereon are paid
in shares of Common Stock, and (b) the Closing Price at all times on and after
the date of determination equals 50% of the actual Closing Price on the Trading
Day immediately prior to the date of Closing, and (ii) giving effect to the
Conversion Price (as defined in the Certificate of Designations) as in effect on
such date, without regard to potential changes in the Closing Price that may
occur thereafter; provided, however, that prior to the issuance of the Series
B-2 Preferred Stock, the Conversion Price for such Series B-2 Preferred Stock
will be assumed to equal $7 per share (as adjusted for stock splits, stock
dividends, stock combinations or other similar events).

 

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

 

“Securities” means the Shares, the Warrants, the Unit Warrants and the
Underlying Shares issued or issuable to the Purchasers pursuant to the
Transaction Documents.

 

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

 

“Series B Preferred Stock” means, collectively, the Series B-1 Preferred Stock
and the Series B-2 Preferred Stock.

 

“Series B-1 Preferred Stock” means the Series B-1 Convertible Preferred Stock,
par value $0.0001, of the Company, which are convertible into shares of Common
Stock.

 

“Series B-2 Preferred Stock” means the Series B-2 Convertible Preferred Stock,
par value $0.0001, of the Company, which are convertible into shares of Common
Stock

 

“Shares” means (i) an aggregate of 3,500 shares of Series B-1 Preferred Stock
which are being purchased by the Purchasers pursuant to this Agreement, and (ii)
an aggregate of 1,150 shares of Series B-2 Preferred Stock, which may be
purchased by the Purchasers upon exercise of the Unit Warrants.

 

“Subsidiary” means any significant subsidiary of the Company as defined in Rule
1-02(w) of Regulation S-X promulgated by the Commission.

 

“Trading Day” means (a) any day on which the Common Stock is listed or quoted,
and traded, on its primary Trading Market, or (b) if the Common Stock is not
then listed or quoted, and traded, on any Eligible Market, then any Business
Day.

 

“Trading Market” means the NASDAQ National Market or any other national
securities exchange, market or trading or quotation facility on which the Common
Stock is then listed or quoted.

 

“Transaction Documents” means this Agreement, the Registration Rights Agreement,
the Unit Warrants, the Warrants, the Certificate of Designations, the Transfer
Agent Instructions

 

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and any other documents or agreements executed or delivered in connection with
the transactions contemplated hereunder and thereunder.

 

“Transfer Agent Instructions” means the Irrevocable Transfer Agent Instructions,
in the form of Exhibit D, executed by the Company and delivered to and
acknowledged in writing by the Company’s transfer agent.

 

“Trigger Date” means the 120th day following the Closing Date.

 

“Triggering Event” means any of the following events: (a) immediately prior to
any Bankruptcy Event; (b) the Company fails for any reason to deliver a
certificate evidencing any Securities to a Purchaser within ten consecutive
Trading Days after delivery of such certificate is required pursuant to any
Transaction Document or the exercise or conversion rights of the Holders
pursuant to the Transaction Documents are otherwise suspended for any reason
except as in accordance with Section 18 of the Certificate of Designations or
Section 11 of the Warrant; (c) any Event (as defined in the Registration Rights
Agreement) occurs and remains uncured for 60 days; (d) the Company fails to make
any cash payment required under the Transaction Documents and such failure is
not cured within five Trading Days after notice of such default is first given
to the Company by a Purchaser; (e) the issuance of a Going Concern Opinion which
is not cured within 90 days; (f) the Company breaches Section 4.15 or 4.16;
provided, that with respect to Debt that the Company does not have any knowledge
of or could not have any knowledge of (after due inquiry), within 30 days
following the Company obtaining knowledge of such Debt; or (g) the Company
defaults in the timely performance of any other obligation under the Transaction
Documents and such default continues uncured for a period of 20 days after the
date on which notice of such default is first given to the Company by a
Purchaser (it being understood that no prior notice need be given in the case of
a default that cannot reasonably be cured within 20 days).

 

“Underlying Shares” means the shares of Common Stock issuable upon conversion of
the Shares and upon exercise of the Warrants (including the Warrants issuable
upon exercise of the Unit Warrants and Exchange Warrants (as defined in the Unit
Warrant)) and in satisfaction of any other obligation of the Company to issue
shares of Common Stock pursuant to the Transaction Documents.

 

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

 

“Units” means, collectively, the Initial Units and the Additional Units.

 

“Unit Warrants” means the unit warrants, in the form of Exhibit F, to purchase
Additional Units.

 

 “Volume Weighted Average Price” means, with respect to any particular Trading
Day or for any particular period, the volume weighted average trading price per
share of Common Stock on such Trading Day or for such period on an Eligible
Market as reported by Bloomberg, L.P., or any successor performing similar
functions.

 

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“Warrants” means the Common Stock purchase warrants, in the form of Exhibit C,
including any Exchange Warrants (as defined in the Warrants).

 

ARTICLE II
PURCHASE AND SALE

 

2.1                                 SALE AND ISSUANCE OF INITIAL UNITS AND UNIT
WARRANTS AT CLOSING.  SUBJECT TO THE TERMS AND CONDITIONS OF THIS AGREEMENT,
EACH PURCHASER AGREES, SEVERALLY AND NOT JOINTLY, TO PURCHASE AT THE CLOSING AND
THE COMPANY AGREES TO SELL AND ISSUE TO EACH PURCHASER AT THE CLOSING, FOR THE
AGGREGATE PURCHASE PRICE SET FORTH OPPOSITE SUCH PURCHASER’S NAME ON SCHEDULE A
HERETO UNDER THE HEADING “PURCHASE PRICE”:

 

(A)                                  THAT NUMBER OF INITIAL UNITS SET FORTH
OPPOSITE SUCH PURCHASER’S NAME ON SCHEDULE A HERETO UNDER THE HEADING “INITIAL
UNITS;” AND

 

(B)                                 A UNIT WARRANT EXERCISABLE FOR THAT NUMBER
OF ADDITIONAL UNITS SET FORTH OPPOSITE SUCH PURCHASER’S NAME ON SCHEDULE A
HERETO UNDER THE HEADING “ADDITIONAL UNITS.”

 

2.2                                 CLOSING.  THE CLOSING OF THE PURCHASE AND
SALE OF THE INITIAL UNITS AND THE UNIT WARRANTS PURSUANT TO THE TERMS OF SECTION
2.1 (THE “CLOSING”) SHALL TAKE PLACE AT THE OFFICES OF PROSKAUER ROSE LLP IN NEW
YORK, NEW YORK, AT 10:00 A.M. (NEW YORK CITY TIME) ON THE DATE EACH OF THE
CONDITIONS SET FORTH IN SECTIONS 2.3 HAVE BEEN SATISFIED, BUT IN NO EVENT LATER
THAN DECEMBER 31, 2003, OR AT SUCH OTHER TIME AND PLACE AS THE COMPANY AND THE
PURCHASERS MUTUALLY AGREE UPON IN WRITING (WHICH TIME AND PLACE ARE DESIGNATED
AS THE “CLOSING DATE”).

 

2.3                                 CLOSING DELIVERIES.

 

(A)                                  AT THE CLOSING, THE COMPANY SHALL DELIVER
OR CAUSE TO BE DELIVERED TO EACH PURCHASER THE FOLLOWING:

 

(I)                                     ONE OR MORE STOCK CERTIFICATES
EVIDENCING THAT NUMBER OF SHARES OF SERIES B-1 PREFERRED STOCK CORRESPONDING TO
THE INITIAL UNITS PURCHASED BY SUCH PURCHASER AS INDICATED ON SCHEDULE A HERETO
UNDER THE HEADING “INITIAL UNITS –INITIAL SHARES”, REGISTERED IN THE NAME OF
SUCH PURCHASER;

 

(II)                                  A WARRANT, REGISTERED IN THE NAME OF SUCH
PURCHASER, PURSUANT TO WHICH SUCH PURCHASER SHALL HAVE THE RIGHT TO ACQUIRE THAT
NUMBER OF SHARES OF COMMON STOCK CORRESPONDING TO NUMBER OF THE INITIAL UNITS
PURCHASED BY SUCH PURCHASER AS INDICATED ON SCHEDULE A HERETO UNDER THE HEADING
“INITIAL UNITS-INITIAL WARRANT SHARES;”

 

(III)                               A UNIT WARRANT, REGISTERED IN THE NAME OF
SUCH PURCHASER, AS SET FORTH IN SECTION 2.1(B) ABOVE, ENTITLING SUCH PURCHASER
TO SUBSCRIBE FOR (I) THAT NUMBER OF SHARES AS INDICATED ON SCHEDULE A HERETO
UNDER THE HEADING “ADDITIONAL UNITS –ADDITIONAL SHARES”, AND (II) A WARRANT
EXERCISABLE FOR THAT NUMBER OF SHARES OF COMMON STOCK AS INDICATED ON SCHEDULE A
HERETO UNDER THE HEADING “ADDITIONAL UNITS-ADDITIONAL WARRANT SHARES;”

 

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(IV)                              EVIDENCE THAT THE CERTIFICATE OF DESIGNATIONS
HAS BEEN FILED AND BECOME EFFECTIVE ON OR PRIOR TO THE CLOSING DATE WITH THE
SECRETARY OF STATE OF THE STATE OF DELAWARE, IN FORM AND SUBSTANCE MUTUALLY
AGREED TO BY THE PARTIES;

 

(V)                                 THE LEGAL OPINION OF COMPANY COUNSEL, IN THE
FORM OF EXHIBIT E-1, EXECUTED BY SUCH COUNSEL AND DELIVERED TO THE PURCHASERS;
AND THE LEGAL OPINION OF THE GENERAL COUNSEL OF THE COMPANY, IN THE FORM OF
EXHIBIT E-2, EXECUTED BY SUCH COUNSEL AND DELIVERED TO THE PURCHASERS;

 

(VI)                              THE REGISTRATION RIGHTS AGREEMENT DULY
EXECUTED BY THE COMPANY;

 

(VII)                           DULY EXECUTED TRANSFER AGENT INSTRUCTIONS
ACKNOWLEDGED BY THE COMPANY’S TRANSFER AGENT; AND

 

(VIII)                        ANY OTHER DOCUMENTS REASONABLY REQUESTED BY THE
PURCHASERS OR PROSKAUER ROSE LLP IN CONNECTION WITH THE CLOSING.

 

(B)                                 AT THE CLOSING, EACH PURCHASER SHALL DELIVER
OR CAUSE TO BE DELIVERED TO THE COMPANY THE FOLLOWING:

 

(I)                                     THE PURCHASE PRICE SET FORTH OPPOSITE
SUCH PURCHASER’S NAME ON SCHEDULE A HERETO UNDER THE HEADING “PURCHASE PRICE,”
IN UNITED STATES DOLLARS AND IN IMMEDIATELY AVAILABLE FUNDS, BY WIRE TRANSFER TO
AN ACCOUNT DESIGNATED IN WRITING BY THE COMPANY FOR SUCH PURPOSE; AND

 

(II)                                  THE REGISTRATION RIGHTS AGREEMENT DULY
EXECUTED BY SUCH PURCHASER.

 

ARTICLE III
REPRESENTATIONS AND WARRANTIES

 

3.1                                 REPRESENTATIONS AND WARRANTIES OF THE
COMPANY.  THE COMPANY HEREBY MAKES THE FOLLOWING REPRESENTATIONS AND WARRANTIES
TO EACH OF THE PURCHASERS:

 

(A)                                  SUBSIDIARIES.  THE COMPANY DOES NOT
DIRECTLY OR INDIRECTLY CONTROL OR OWN ANY INTEREST IN ANY OTHER CORPORATION,
PARTNERSHIP, JOINT VENTURE OR OTHER BUSINESS ASSOCIATION OR ENTITY (OTHER THAN
INVESTMENTS IN FUNDS), OTHER THAN THOSE LISTED IN SCHEDULE 3.1(A).  EXCEPT AS
DISCLOSED IN SCHEDULE 3.1(A), THE COMPANY OWNS, DIRECTLY OR INDIRECTLY, ALL OF
THE CAPITAL STOCK OF EACH SUBSIDIARY FREE AND CLEAR OF ANY LIEN, AND ALL THE
ISSUED AND OUTSTANDING SHARES OF CAPITAL STOCK OF EACH SUBSIDIARY ARE VALIDLY
ISSUED AND ARE FULLY PAID, NON-ASSESSABLE AND FREE OF PREEMPTIVE AND SIMILAR
RIGHTS.

 

(B)                                 ORGANIZATION AND QUALIFICATION.  EACH OF THE
COMPANY AND THE SUBSIDIARIES IS AN ENTITY DULY INCORPORATED OR OTHERWISE
ORGANIZED, VALIDLY EXISTING AND IN GOOD STANDING UNDER THE LAWS OF THE
JURISDICTION OF ITS INCORPORATION OR ORGANIZATION (AS APPLICABLE), WITH THE
REQUISITE POWER AND AUTHORITY TO OWN AND USE ITS PROPERTIES AND ASSETS AND TO
CARRY ON ITS BUSINESS AS CURRENTLY CONDUCTED.  NEITHER THE COMPANY NOR ANY
SUBSIDIARY IS IN VIOLATION OF ANY

 

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OF THE PROVISIONS OF ITS RESPECTIVE CERTIFICATE OR ARTICLES OF INCORPORATION,
BYLAWS OR OTHER ORGANIZATIONAL OR CHARTER DOCUMENTS.  EACH OF THE COMPANY AND
THE SUBSIDIARIES IS DULY QUALIFIED TO DO BUSINESS AND IS IN GOOD STANDING AS A
FOREIGN CORPORATION OR OTHER ENTITY IN EACH JURISDICTION IN WHICH THE NATURE OF
THE BUSINESS CONDUCTED OR PROPERTY OWNED BY IT MAKES SUCH QUALIFICATION
NECESSARY, EXCEPT WHERE THE FAILURE TO BE SO QUALIFIED OR IN GOOD STANDING, AS
THE CASE MAY BE, COULD NOT, INDIVIDUALLY OR IN THE AGGREGATE, (I) ADVERSELY
AFFECT THE LEGALITY, VALIDITY OR ENFORCEABILITY OF ANY TRANSACTION DOCUMENT,
(II) HAVE OR RESULT IN A MATERIAL ADVERSE EFFECT ON THE RESULTS OF OPERATIONS,
ASSETS, BUSINESS OR FINANCIAL CONDITION OF THE COMPANY AND THE SUBSIDIARIES,
TAKEN AS A WHOLE, OR (III) ADVERSELY IMPAIR THE COMPANY’S ABILITY TO PERFORM
FULLY ON A TIMELY BASIS ITS OBLIGATIONS UNDER ANY OF THE TRANSACTION DOCUMENTS
(ANY OF (I), (II) OR (III), A “MATERIAL ADVERSE EFFECT”).

 

(C)                                  AUTHORIZATION; ENFORCEMENT.  THE COMPANY
HAS THE REQUISITE CORPORATE POWER AND AUTHORITY TO ENTER INTO AND TO CONSUMMATE
THE TRANSACTIONS CONTEMPLATED BY EACH OF THE TRANSACTION DOCUMENTS AND OTHERWISE
TO CARRY OUT ITS OBLIGATIONS HEREUNDER AND THEREUNDER.  THE EXECUTION AND
DELIVERY OF EACH OF THE TRANSACTION DOCUMENTS BY THE COMPANY AND THE
CONSUMMATION BY IT OF THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THEREUNDER
HAVE BEEN DULY AUTHORIZED BY ALL NECESSARY ACTION ON THE PART OF THE COMPANY AND
NO FURTHER CONSENT OR ACTION IS REQUIRED BY THE COMPANY, ITS BOARD OF DIRECTORS
OR ITS STOCKHOLDERS.  EACH OF THE TRANSACTION DOCUMENTS HAS BEEN (OR UPON
DELIVERY WILL BE) DULY EXECUTED BY THE COMPANY AND, WHEN DELIVERED IN ACCORDANCE
WITH THE TERMS HEREOF, WILL CONSTITUTE THE VALID AND BINDING OBLIGATION OF THE
COMPANY ENFORCEABLE AGAINST THE COMPANY IN ACCORDANCE WITH ITS TERMS.

 

(D)                                 NO CONFLICTS.  THE EXECUTION, DELIVERY AND
PERFORMANCE OF THE TRANSACTION DOCUMENTS BY THE COMPANY AND THE CONSUMMATION BY
THE COMPANY OF THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY DO NOT AND WILL
NOT (I) CONFLICT WITH OR VIOLATE ANY PROVISION OF THE COMPANY’S OR ANY
SUBSIDIARY’S CERTIFICATE OR ARTICLES OF INCORPORATION, BYLAWS OR OTHER
ORGANIZATIONAL OR CHARTER DOCUMENTS, OR (II) SUBJECT TO OBTAINING THE REQUIRED
APPROVALS (AS DEFINED BELOW), CONFLICT WITH, OR CONSTITUTE A DEFAULT (OR AN
EVENT THAT WITH NOTICE OR LAPSE OF TIME OR BOTH WOULD BECOME A DEFAULT) UNDER,
OR GIVE TO OTHERS ANY RIGHTS OF TERMINATION, AMENDMENT, ACCELERATION OR
CANCELLATION (WITH OR WITHOUT NOTICE, LAPSE OF TIME OR BOTH) OF, ANY AGREEMENT,
CREDIT FACILITY, DEBT OR OTHER INSTRUMENT (EVIDENCING A COMPANY OR SUBSIDIARY
DEBT OR OTHERWISE) OR OTHER UNDERSTANDING TO WHICH THE COMPANY OR ANY SUBSIDIARY
IS A PARTY OR BY WHICH ANY PROPERTY OR ASSET OF THE COMPANY OR ANY SUBSIDIARY IS
BOUND OR AFFECTED, OR (III) RESULT IN A VIOLATION OF ANY LAW, RULE, REGULATION,
ORDER, JUDGMENT, INJUNCTION, DECREE OR OTHER RESTRICTION OF ANY COURT OR
GOVERNMENTAL AUTHORITY TO WHICH THE COMPANY OR A SUBSIDIARY IS SUBJECT
(INCLUDING FEDERAL AND STATE SECURITIES LAWS AND REGULATIONS) AND THE RULES AND
REGULATIONS OF ANY SELF-REGULATORY ORGANIZATION TO WHICH THE COMPANY OR ITS
SECURITIES ARE SUBJECT, OR BY WHICH ANY PROPERTY OR ASSET OF THE COMPANY OR A
SUBSIDIARY IS BOUND OR AFFECTED; EXCEPT IN THE CASE OF EACH OF CLAUSES (II) AND
(III), SUCH AS COULD NOT, INDIVIDUALLY OR IN THE AGGREGATE, HAVE OR RESULT IN A
MATERIAL ADVERSE EFFECT.

 

(E)                                  FILINGS.  CONSENTS AND APPROVALS.  NEITHER
THE COMPANY NOR ANY SUBSIDIARY IS REQUIRED TO OBTAIN ANY CONSENT, WAIVER,
AUTHORIZATION OR ORDER OF, GIVE ANY NOTICE TO, OR MAKE ANY FILING OR
REGISTRATION WITH, ANY COURT OR OTHER FEDERAL, STATE, LOCAL OR OTHER
GOVERNMENTAL AUTHORITY OR OTHER PERSON IN CONNECTION WITH THE EXECUTION,
DELIVERY AND PERFORMANCE BY THE COMPANY OF THE TRANSACTION DOCUMENTS, OTHER THAN
(I) THE FILINGS REQUIRED

 

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UNDER SECTION 4.8 AND THE REQUIRED FILING OF THE CERTIFICATE OF DESIGNATIONS
PURSUANT TO SECTION 2.3, (II) THE FILING WITH THE COMMISSION OF THE UNDERLYING
SHARES REGISTRATION STATEMENT, (III) THE APPLICATION(S) TO EACH TRADING MARKET
FOR THE LISTING OF THE SECURITIES FOR TRADING THEREON IN THE TIME AND MANNER
REQUIRED THEREBY, (IV) APPLICABLE BLUE SKY FILINGS, AND (V) IN ALL OTHER CASES
WHERE THE FAILURE TO OBTAIN SUCH CONSENT, WAIVER, AUTHORIZATION OR ORDER, OR TO
GIVE SUCH NOTICE OR MAKE SUCH FILING OR REGISTRATION COULD NOT HAVE OR RESULT
IN, INDIVIDUALLY OR IN THE AGGREGATE, A MATERIAL ADVERSE EFFECT (COLLECTIVELY,
THE “REQUIRED APPROVALS”).

 

(F)                                    ISSUANCE OF THE SECURITIES.  THE
SECURITIES ARE DULY AUTHORIZED AND, WHEN ISSUED AND PAID FOR IN ACCORDANCE WITH
THE TRANSACTION DOCUMENTS, WILL BE DULY AND VALIDLY ISSUED, FULLY PAID AND
NONASSESSABLE, FREE AND CLEAR OF ALL LIENS AND SHALL NOT BE SUBJECT TO
PREEMPTIVE RIGHTS OR SIMILAR RIGHTS OF STOCKHOLDERS.  THE COMPANY HAS RESERVED
FROM ITS DULY AUTHORIZED CAPITAL STOCK A NUMBER OF SHARES OF COMMON STOCK FOR
ISSUANCE UPON THE CONVERSION OR EXERCISE OF THE UNDERLYING SHARES AT LEAST EQUAL
TO THE REQUIRED MINIMUM ON THE DATE HEREOF.

 

(G)                                 CAPITALIZATION.  THE NUMBER OF SHARES AND
TYPE OF ALL AUTHORIZED, ISSUED AND OUTSTANDING CAPITAL STOCK, OPTIONS AND OTHER
SECURITIES OF THE COMPANY (WHETHER OR NOT PRESENTLY CONVERTIBLE INTO, OR
EXERCISABLE OR EXCHANGEABLE FOR, SHARES OF CAPITAL STOCK OF THE COMPANY) IS SET
FORTH IN SCHEDULE 3.1(G).  ALL OUTSTANDING SHARES OF CAPITAL STOCK ARE DULY
AUTHORIZED, VALIDLY ISSUED, FULLY PAID AND NONASSESSABLE AND HAVE BEEN ISSUED IN
COMPLIANCE WITH ALL APPLICABLE SECURITIES LAWS.  EXCEPT AS DISCLOSED IN SCHEDULE
3.1(G), THERE ARE NO OUTSTANDING OPTIONS, WARRANTS, SCRIPT RIGHTS TO SUBSCRIBE
TO, CALLS OR COMMITMENTS OF ANY CHARACTER WHATSOEVER RELATING TO, OR SECURITIES,
RIGHTS OR OBLIGATIONS CONVERTIBLE INTO, OR EXERCISABLE OR EXCHANGEABLE FOR, OR
GIVING ANY PERSON ANY RIGHT TO SUBSCRIBE FOR OR ACQUIRE, ANY SHARES OF COMMON
STOCK, OR CONTRACTS, COMMITMENTS, UNDERSTANDINGS OR ARRANGEMENTS BY WHICH THE
COMPANY OR ANY SUBSIDIARY IS OR MAY BECOME BOUND TO ISSUE ADDITIONAL SHARES OF
COMMON STOCK, OR SECURITIES OR RIGHTS CONVERTIBLE INTO, OR EXERCISABLE OR
EXCHANGEABLE FOR, SHARES OF COMMON STOCK.  EXCEPT AS DISCLOSED IN SCHEDULE
3.1(G), THERE ARE NO ANTI-DILUTION OR PRICE ADJUSTMENT PROVISIONS CONTAINED IN
ANY SECURITY ISSUED BY THE COMPANY (OR IN ANY AGREEMENT PROVIDING RIGHTS TO
SECURITY HOLDERS) AND THE ISSUE AND SALE OF THE SECURITIES WILL NOT OBLIGATE THE
COMPANY TO ISSUE SHARES OF COMMON STOCK OR OTHER SECURITIES TO ANY PERSON (OTHER
THAN THE PURCHASERS) AND WILL NOT RESULT IN A RIGHT OF ANY HOLDER OF COMPANY
SECURITIES TO ADJUST THE EXERCISE, CONVERSION, EXCHANGE OR RESET PRICE UNDER
SUCH SECURITIES.  TO THE KNOWLEDGE OF THE COMPANY, EXCEPT AS SPECIFICALLY
DISCLOSED IN SCHEDULE 3.1(G), NO PERSON OR GROUP OF RELATED PERSONS BENEFICIALLY
OWNS (AS DETERMINED PURSUANT TO RULE 13D-3 UNDER THE EXCHANGE ACT), OR HAS THE
RIGHT TO ACQUIRE, BY AGREEMENT WITH OR BY OBLIGATION BINDING UPON THE COMPANY,
BENEFICIAL OWNERSHIP OF IN EXCESS OF 5% OF THE OUTSTANDING COMMON STOCK,
IGNORING FOR SUCH PURPOSES ANY LIMITATION ON THE NUMBER OF SHARES OF COMMON
STOCK THAT MAY BE OWNED AT ANY SINGLE TIME.

 

(H)                                 SEC REPORTS; FINANCIAL STATEMENTS.  THE
COMPANY HAS FILED ALL REPORTS REQUIRED TO BE FILED BY IT UNDER THE SECURITIES
ACT AND THE EXCHANGE ACT, INCLUDING PURSUANT TO SECTION 13(A) OR 15(D) THEREOF,
FOR THE TWO YEARS PRECEDING THE DATE HEREOF (OR SUCH SHORTER PERIOD AS THE
COMPANY WAS REQUIRED BY LAW TO FILE SUCH MATERIAL) (THE FOREGOING MATERIALS
BEING COLLECTIVELY REFERRED TO HEREIN AS THE “SEC REPORTS” AND, TOGETHER WITH
THIS AGREEMENT AND THE SCHEDULES TO THIS AGREEMENT, THE “DISCLOSURE MATERIALS”)
ON A TIMELY BASIS OR HAS RECEIVED A VALID EXTENSION OF SUCH TIME OF FILING AND
HAS FILED ANY SUCH SEC REPORTS PRIOR TO THE EXPIRATION OF ANY SUCH EXTENSION. 
THE COMPANY HAS DELIVERED TO THE PURCHASERS, PRIOR TO THE EXECUTION AND

 

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DELIVERY OF THIS AGREEMENT, A COPY OF ANY SEC REPORT FILED BY THE COMPANY WITHIN
THE 10 DAYS PRECEDING THE DATE HEREOF.  AS OF THEIR RESPECTIVE DATES, THE SEC
REPORTS COMPLIED IN ALL MATERIAL RESPECTS WITH THE REQUIREMENTS OF THE
SECURITIES ACT AND THE EXCHANGE ACT AND THE RULES AND REGULATIONS OF THE
COMMISSION PROMULGATED THEREUNDER, AND NONE OF THE SEC REPORTS, WHEN FILED,
CONTAINED ANY UNTRUE STATEMENT OF A MATERIAL FACT OR OMITTED TO STATE A MATERIAL
FACT REQUIRED TO BE STATED THEREIN OR NECESSARY IN ORDER TO MAKE THE STATEMENTS
THEREIN, IN THE LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT
MISLEADING.  THE FINANCIAL STATEMENTS OF THE COMPANY INCLUDED IN THE SEC REPORTS
COMPLY IN ALL MATERIAL RESPECTS WITH APPLICABLE ACCOUNTING REQUIREMENTS AND THE
RULES AND REGULATIONS OF THE COMMISSION WITH RESPECT THERETO AS IN EFFECT AT THE
TIME OF FILING.  SUCH FINANCIAL STATEMENTS HAVE BEEN PREPARED IN ACCORDANCE WITH
GAAP, EXCEPT AS MAY BE OTHERWISE SPECIFIED IN SUCH FINANCIAL STATEMENTS OR THE
NOTES THERETO, AND FAIRLY PRESENT IN ALL MATERIAL RESPECTS THE FINANCIAL
POSITION OF THE COMPANY AND ITS CONSOLIDATED SUBSIDIARIES AS OF AND FOR THE
DATES THEREOF AND THE RESULTS OF OPERATIONS AND CASH FLOWS FOR THE PERIODS THEN
ENDED, SUBJECT, IN THE CASE OF UNAUDITED STATEMENTS, TO NORMAL, IMMATERIAL,
YEAR-END AUDIT ADJUSTMENTS.  ALL MATERIAL AGREEMENTS TO WHICH THE COMPANY OR ANY
SUBSIDIARY IS A PARTY OR TO WHICH THE PROPERTY OR ASSETS OF THE COMPANY OR ANY
SUBSIDIARY ARE SUBJECT THAT ARE REQUIRED TO BE FILED WITH THE COMMISSION ARE
INCLUDED AS PART OF OR SPECIFICALLY IDENTIFIED IN THE SEC REPORTS.  EACH PRESS
RELEASE DISSEMINATED DURING THE 12 MONTHS PRECEDING THE DATE OF THIS AGREEMENT
DID NOT AT THE TIME OF RELEASE CONTAIN ANY UNTRUE STATEMENT OF A MATERIAL FACT
OR OMIT TO STATE A MATERIAL FACT REQUIRED TO BE STATED THEREIN OR NECESSARY IN
ORDER TO MAKE THE STATEMENTS THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH
THEY ARE MADE, NOT MISLEADING.

 

(I)                                     MATERIAL CHANGES.  EXCEPT AS SET FORTH
IN SCHEDULE 3.1(I), SINCE THE DATE OF THE LATEST AUDITED FINANCIAL STATEMENTS
INCLUDED WITHIN THE SEC REPORTS, EXCEPT AS SPECIFICALLY DISCLOSED IN THE SEC
REPORTS, (I) THERE HAS BEEN NO EVENT, OCCURRENCE OR DEVELOPMENT THAT,
INDIVIDUALLY OR IN THE AGGREGATE, HAS HAD OR THAT REASONABLY COULD BE EXPECTED
TO RESULT IN A MATERIAL ADVERSE EFFECT, (II) THE COMPANY HAS NOT INCURRED ANY
LIABILITIES (CONTINGENT OR OTHERWISE) OTHER THAN (A) TRADE PAYABLES AND ACCRUED
EXPENSES INCURRED IN THE ORDINARY COURSE OF BUSINESS CONSISTENT WITH PAST
PRACTICE, AND (B) LIABILITIES NOT REQUIRED TO BE REFLECTED IN THE COMPANY’S
FINANCIAL STATEMENTS PURSUANT TO GAAP OR REQUIRED TO BE DISCLOSED IN FILINGS
MADE WITH THE COMMISSION, (III) THE COMPANY HAS NOT ALTERED ITS METHOD OF
ACCOUNTING OR THE IDENTITY OF ITS AUDITORS, (IV) THE COMPANY HAS NOT DECLARED OR
MADE ANY DIVIDEND OR DISTRIBUTION OF CASH OR OTHER PROPERTY TO ITS STOCKHOLDERS
OR PURCHASED, REDEEMED OR MADE ANY AGREEMENTS TO PURCHASE OR REDEEM ANY SHARES
OF ITS CAPITAL STOCK, AND (V) THE COMPANY HAS NOT ISSUED ANY EQUITY SECURITIES
TO ANY OFFICER, DIRECTOR OR AFFILIATE, EXCEPT PURSUANT TO EXISTING COMPANY
EQUITY COMPENSATION OPTION PLANS.

 

(J)                                     LITIGATION.  THERE IS NO ACTION, SUIT,
INQUIRY, NOTICE OF VIOLATION, PROCEEDING OR INVESTIGATION PENDING OR, TO THE
KNOWLEDGE OF THE COMPANY, THREATENED AGAINST OR AFFECTING THE COMPANY, ANY
SUBSIDIARY OR ANY OF THEIR RESPECTIVE PROPERTIES BEFORE OR BY ANY COURT,
ARBITRATOR, GOVERNMENTAL OR ADMINISTRATIVE AGENCY OR REGULATORY AUTHORITY
(FEDERAL, STATE, COUNTY, LOCAL OR FOREIGN) (COLLECTIVELY, AN “ACTION”) WHICH (I)
ADVERSELY AFFECTS OR CHALLENGES THE LEGALITY, VALIDITY OR ENFORCEABILITY OF ANY
OF THE TRANSACTION DOCUMENTS OR THE SECURITIES OR (II) COULD, IF THERE WERE AN
UNFAVORABLE DECISION, INDIVIDUALLY OR IN THE AGGREGATE, HAVE OR RESULT IN A
MATERIAL ADVERSE EFFECT.  TO THE KNOWLEDGE OF THE COMPANY, SCHEDULE 3.1(J) OF
THE DISCLOSURE SCHEDULE CONTAINS A COMPLETE LIST AND SUMMARY DESCRIPTION OF ANY
PENDING OR THREATENED PROCEEDING

 

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AGAINST OR AFFECTING THE COMPANY OR ANY OF ITS SUBSIDIARIES, WITHOUT REGARD TO
WHETHER IT WOULD HAVE A MATERIAL ADVERSE EFFECT.  NEITHER THE COMPANY NOR ANY
SUBSIDIARY, NOR TO THE KNOWLEDGE OF THE COMPANY ANY DIRECTOR OR OFFICER THEREOF,
IS OR DURING THE LAST THREE YEARS HAS BEEN THE SUBJECT OF ANY ACTION INVOLVING A
CLAIM OF VIOLATION OF OR LIABILITY UNDER FEDERAL OR STATE SECURITIES LAWS OR A
CLAIM OF BREACH OF FIDUCIARY DUTY. THERE HAS NOT BEEN, AND TO THE KNOWLEDGE OF
THE COMPANY, THERE IS NOT PENDING OR CONTEMPLATED, ANY INVESTIGATION BY THE
COMMISSION INVOLVING THE COMPANY OR ANY CURRENT OR FORMER DIRECTOR OR OFFICER OF
THE COMPANY.  THE COMMISSION HAS NOT ISSUED ANY STOP ORDER OR OTHER ORDER
SUSPENDING THE EFFECTIVENESS OF ANY REGISTRATION STATEMENT FILED BY THE COMPANY
OR ANY SUBSIDIARY UNDER THE EXCHANGE ACT OR THE SECURITIES ACT.  NO MATERIAL
STRIKE, WORK STOPPAGE, SLOW DOWN OR OTHER MATERIAL LABOR PROBLEM EXISTS OR, TO
THE KNOWLEDGE OF THE COMPANY, IS THREATENED OR IMMINENT WITH RESPECT TO ANY OF
THE EMPLOYEES OF THE COMPANY OR THE SUBSIDIARIES.

 

(K)                                  COMPLIANCE.  NEITHER THE COMPANY NOR ANY
SUBSIDIARY (I) IS IN DEFAULT UNDER OR IN VIOLATION OF (AND NO EVENT HAS OCCURRED
THAT HAS NOT BEEN WAIVED THAT, WITH NOTICE OR LAPSE OF TIME OR BOTH, WOULD
RESULT IN A DEFAULT BY THE COMPANY OR ANY SUBSIDIARY UNDER), NOR HAS THE COMPANY
OR ANY SUBSIDIARY RECEIVED NOTICE OF A CLAIM THAT IT IS IN DEFAULT UNDER OR THAT
IT IS IN VIOLATION OF, ANY INDENTURE, LOAN OR CREDIT AGREEMENT OR ANY OTHER
AGREEMENT OR INSTRUMENT TO WHICH IT IS A PARTY OR BY WHICH IT OR ANY OF ITS
ASSETS OR PROPERTIES IS BOUND OR AFFECTED (WHETHER OR NOT SUCH DEFAULT OR
VIOLATION HAS BEEN WAIVED), (II) IS IN VIOLATION OF ANY ORDER OF ANY COURT,
ARBITRATOR OR GOVERNMENTAL BODY, OR (III) IS OR HAS BEEN IN VIOLATION OF ANY
STATUTE, RULE OR REGULATION OF ANY GOVERNMENTAL AUTHORITY, INCLUDING WITHOUT
LIMITATION ALL FOREIGN, FEDERAL, STATE AND LOCAL LAWS RELATING TO TAXES,
ENVIRONMENTAL PROTECTION, OCCUPATIONAL HEALTH AND SAFETY, PRODUCT QUALITY AND
SAFETY AND EMPLOYMENT AND LABOR MATTERS, EXCEPT IN EACH CASE AS COULD NOT,
INDIVIDUALLY OR IN THE AGGREGATE, HAVE OR RESULT IN A MATERIAL ADVERSE EFFECT.

 

(L)                                     REGULATORY PERMITS.  THE COMPANY AND THE
SUBSIDIARIES POSSESS ALL CERTIFICATES, AUTHORIZATIONS AND PERMITS ISSUED BY THE
APPROPRIATE FEDERAL, STATE, LOCAL OR FOREIGN REGULATORY AUTHORITIES NECESSARY TO
CONDUCT THEIR RESPECTIVE BUSINESSES AS DESCRIBED IN THE SEC REPORTS, EXCEPT
WHERE THE FAILURE TO POSSESS SUCH PERMITS COULD NOT, INDIVIDUALLY OR IN THE
AGGREGATE, HAVE OR RESULT IN A MATERIAL ADVERSE EFFECT (“MATERIAL PERMITS”), AND
NEITHER THE COMPANY NOR ANY SUBSIDIARY HAS RECEIVED ANY NOTICE OF PROCEEDINGS
RELATING TO THE REVOCATION OR MODIFICATION OF ANY MATERIAL PERMIT.

 

(M)                               TITLE TO ASSETS.  TO THE COMPANY’S KNOWLEDGE,
THE COMPANY AND THE SUBSIDIARIES HAVE GOOD AND VALID TITLE IN FEE SIMPLE TO ALL
REAL PROPERTY OWNED BY THEM THAT IS MATERIAL TO THE BUSINESS OF THE COMPANY AND
THE SUBSIDIARIES AND GOOD AND VALID TITLE IN ALL PERSONAL PROPERTY OWNED BY THEM
THAT IS MATERIAL TO THE BUSINESS OF THE COMPANY AND THE SUBSIDIARIES, IN EACH
CASE FREE AND CLEAR OF ALL LIENS, EXCEPT FOR LIENS AS DO NOT MATERIALLY AFFECT
THE VALUE OF SUCH PROPERTY AND DO NOT MATERIALLY INTERFERE WITH THE USE MADE AND
PROPOSED TO BE MADE OF SUCH PROPERTY BY THE COMPANY AND THE SUBSIDIARIES. ANY
REAL PROPERTY AND FACILITIES HELD UNDER LEASE BY THE COMPANY AND THE
SUBSIDIARIES ARE HELD BY THEM UNDER VALID, SUBSISTING AND ENFORCEABLE LEASES OF
WHICH THE COMPANY AND THE SUBSIDIARIES ARE IN COMPLIANCE IN ALL MATERIAL
RESPECTS.

 

(N)                                 PATENTS AND TRADEMARKS.  THE COMPANY AND THE
SUBSIDIARIES HAVE, OR HAVE RIGHTS TO USE, ALL PATENTS, PATENT APPLICATIONS,
TRADEMARKS, TRADEMARK APPLICATIONS, SERVICE MARKS,

 

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TRADE NAMES, COPYRIGHTS, LICENSES AND OTHER SIMILAR RIGHTS THAT ARE NECESSARY OR
MATERIAL FOR USE IN CONNECTION WITH THEIR RESPECTIVE BUSINESSES AS DESCRIBED IN
THE SEC REPORTS AND WHICH THE FAILURE TO SO COULD REASONABLY BE EXPECTED TO HAVE
A MATERIAL ADVERSE EFFECT (COLLECTIVELY, THE “INTELLECTUAL PROPERTY RIGHTS”).
NEITHER THE COMPANY NOR ANY SUBSIDIARY HAS RECEIVED A WRITTEN NOTICE THAT THE
INTELLECTUAL PROPERTY RIGHTS USED BY THE COMPANY OR ANY SUBSIDIARY VIOLATES OR
INFRINGES UPON THE RIGHTS OF ANY PERSON. TO THE KNOWLEDGE OF THE COMPANY, ALL
SUCH INTELLECTUAL PROPERTY RIGHTS ARE ENFORCEABLE, EXCEPT FOR FAILURES WHICH,
INDIVIDUALLY OR IN THE AGGREGATE, WOULD NOT HAVE A MATERIAL ADVERSE EFFECT.

 

(O)                                 INSURANCE.  THE COMPANY AND THE SUBSIDIARIES
ARE INSURED BY INSURERS OF RECOGNIZED FINANCIAL RESPONSIBILITY AGAINST SUCH
LOSSES AND RISKS AND IN SUCH AMOUNTS AS ARE PRUDENT AND CUSTOMARY IN THE
BUSINESSES IN WHICH THE COMPANY AND THE SUBSIDIARIES ARE ENGAGED.  NEITHER THE
COMPANY NOR ANY SUBSIDIARY HAS ANY REASON TO BELIEVE THAT IT WILL NOT BE ABLE TO
RENEW ITS EXISTING INSURANCE COVERAGE AS AND WHEN SUCH COVERAGE EXPIRES OR TO
OBTAIN SIMILAR COVERAGE FROM SIMILAR INSURERS AS MAY BE NECESSARY TO CONTINUE
ITS BUSINESS WITHOUT A SIGNIFICANT INCREASE IN COST.

 

(P)                                 TRANSACTIONS WITH AFFILIATES AND EMPLOYEES. 
EXCEPT AS SET FORTH IN SEC REPORTS FILED AT LEAST TEN DAYS PRIOR TO THE DATE
HEREOF, NONE OF THE OFFICERS OR DIRECTORS OF THE COMPANY AND, TO THE KNOWLEDGE
OF THE COMPANY, NONE OF THE EMPLOYEES OF THE COMPANY IS PRESENTLY A PARTY TO ANY
TRANSACTION WITH THE COMPANY OR ANY SUBSIDIARY (OTHER THAN FOR SERVICES AS
EMPLOYEES, OFFICERS AND DIRECTORS), INCLUDING ANY CONTRACT, AGREEMENT OR OTHER
ARRANGEMENT PROVIDING FOR THE FURNISHING OF SERVICES TO OR BY, PROVIDING FOR
RENTAL OF REAL OR PERSONAL PROPERTY TO OR FROM, OR OTHERWISE REQUIRING PAYMENTS
TO OR FROM ANY OFFICER, DIRECTOR OR SUCH EMPLOYEE OR, TO THE KNOWLEDGE OF THE
COMPANY, ANY ENTITY IN WHICH ANY OFFICER, DIRECTOR, OR ANY SUCH EMPLOYEE HAS A
SUBSTANTIAL INTEREST OR IS AN OFFICER, DIRECTOR, TRUSTEE OR PARTNER.

 

(Q)                                 INTERNAL ACCOUNTING CONTROLS.  THE COMPANY
AND THE SUBSIDIARIES MAINTAIN A SYSTEM OF INTERNAL ACCOUNTING CONTROLS
SUFFICIENT TO PROVIDE REASONABLE ASSURANCE THAT (I) TRANSACTIONS ARE EXECUTED IN
ACCORDANCE WITH MANAGEMENT’S GENERAL OR SPECIFIC AUTHORIZATIONS, (II)
TRANSACTIONS ARE RECORDED AS NECESSARY TO PERMIT PREPARATION OF FINANCIAL
STATEMENTS IN CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND TO
MAINTAIN ASSET ACCOUNTABILITY, (III) ACCESS TO ASSETS IS PERMITTED ONLY IN
ACCORDANCE WITH MANAGEMENT’S GENERAL OR SPECIFIC AUTHORIZATION, AND (IV) THE
RECORDED ACCOUNTABILITY FOR ASSETS IS COMPARED WITH THE EXISTING ASSETS AT
REASONABLE INTERVALS AND APPROPRIATE ACTION IS TAKEN WITH RESPECT TO ANY
DIFFERENCES.

 

(R)                                    SOLVENCY.  BASED ON THE FINANCIAL
CONDITION OF THE COMPANY AS OF THE CLOSING DATE, (I) THE COMPANY’S FAIR SALEABLE
VALUE OF ITS ASSETS EXCEEDS THE AMOUNT THAT WILL BE REQUIRED TO BE PAID ON OR IN
RESPECT OF THE COMPANY’S EXISTING DEBTS AND OTHER LIABILITIES (INCLUDING KNOWN
CONTINGENT LIABILITIES) AS THEY MATURE; (II) THE COMPANY’S ASSETS DO NOT
CONSTITUTE UNREASONABLY SMALL CAPITAL TO CARRY ON ITS BUSINESS FOR THE CURRENT
FISCAL YEAR AS NOW CONDUCTED AND AS PROPOSED TO BE CONDUCTED INCLUDING ITS
CAPITAL NEEDS TAKING INTO ACCOUNT THE PARTICULAR CAPITAL REQUIREMENTS OF THE
BUSINESS CONDUCTED BY THE COMPANY, AND PROJECTED CAPITAL REQUIREMENTS AND
CAPITAL AVAILABILITY THEREOF; AND (III) THE CURRENT CASH FLOW OF THE COMPANY,
TOGETHER WITH THE PROCEEDS THE COMPANY WOULD RECEIVE, WERE IT TO LIQUIDATE ALL
OF ITS ASSETS, AFTER TAKING INTO ACCOUNT ALL ANTICIPATED USES OF THE CASH, WOULD
BE SUFFICIENT TO PAY ALL AMOUNTS ON OR IN RESPECT OF ITS DEBT WHEN SUCH AMOUNTS
ARE REQUIRED TO BE PAID.  THE COMPANY DOES NOT INTEND

 

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TO INCUR DEBTS BEYOND ITS ABILITY TO PAY SUCH DEBTS AS THEY MATURE (TAKING INTO
ACCOUNT THE TIMING AND AMOUNTS OF CASH TO BE PAYABLE ON OR IN RESPECT OF ITS
DEBT).

 

(S)                                  CERTAIN FEES.  EXCEPT FOR THE FEES
DESCRIBED IN SCHEDULE 3.1(S), ALL OF WHICH ARE PAYABLE TO REGISTERED
BROKER-DEALERS, 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 THIS AGREEMENT, AND THE COMPANY HAS NOT TAKEN ANY
ACTION THAT WOULD CAUSE ANY PURCHASER TO BE LIABLE FOR ANY SUCH FEES OR
COMMISSIONS.

 

(T)                                    PRIVATE PLACEMENT.  NEITHER THE COMPANY
NOR ANY PERSON ACTING ON THE COMPANY’S BEHALF HAS SOLD OR OFFERED TO SELL OR
SOLICITED ANY OFFER TO BUY THE SECURITIES BY MEANS OF ANY FORM OF GENERAL
SOLICITATION OR ADVERTISING.  NEITHER THE COMPANY NOR ANY OF ITS AFFILIATES NOR
ANY PERSON ACTING ON THE COMPANY’S BEHALF HAS, DIRECTLY OR INDIRECTLY, AT ANY
TIME WITHIN THE PAST SIX MONTHS, MADE ANY OFFER OR SALE OF ANY SECURITY OR
SOLICITATION OF ANY OFFER TO BUY ANY SECURITY UNDER CIRCUMSTANCES THAT WOULD (I)
ELIMINATE THE AVAILABILITY OF THE EXEMPTION FROM REGISTRATION UNDER REGULATION D
UNDER THE SECURITIES ACT IN CONNECTION WITH THE OFFER AND SALE OF THE SECURITIES
AS CONTEMPLATED HEREBY OR (II) CAUSE THE OFFERING OF THE SECURITIES PURSUANT TO
THE TRANSACTION DOCUMENTS TO BE INTEGRATED WITH PRIOR OFFERINGS BY THE COMPANY
FOR PURPOSES OF ANY APPLICABLE LAW, REGULATION OR SHAREHOLDER APPROVAL
PROVISIONS, INCLUDING WITHOUT LIMITATION UNDER THE RULES AND REGULATIONS OF ANY
TRADING MARKET.  THE COMPANY IS NOT, AND IS NOT AN AFFILIATE OF, AN “INVESTMENT
COMPANY” WITHIN THE MEANING OF THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED. 
THE COMPANY IS NOT A UNITED STATES REAL PROPERTY HOLDING CORPORATION WITHIN THE
MEANING OF THE FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT OF 1980.

 

(U)                                 FORM S-3 ELIGIBILITY. THE COMPANY IS
ELIGIBLE TO REGISTER ITS COMMON STOCK FOR RESALE BY THE PURCHASERS UNDER FORM
S-3 PROMULGATED UNDER THE SECURITIES ACT.

 

(V)                                 LISTING AND MAINTENANCE REQUIREMENTS.  THE
COMPANY HAS NOT, IN THE TWO YEARS PRECEDING THE DATE HEREOF, RECEIVED NOTICE
(WRITTEN OR ORAL) FROM ANY TRADING MARKET ON WHICH THE COMMON STOCK IS OR HAS
BEEN LISTED OR QUOTED TO THE EFFECT THAT THE COMPANY IS NOT IN COMPLIANCE WITH
THE LISTING OR MAINTENANCE REQUIREMENTS OF SUCH TRADING MARKET. THE COMPANY IS,
AND HAS NO REASON TO BELIEVE THAT IT WILL NOT IN THE FORESEEABLE FUTURE CONTINUE
TO BE, IN COMPLIANCE WITH ALL SUCH LISTING AND MAINTENANCE REQUIREMENTS.

 

(W)                               REGISTRATION RIGHTS.  EXCEPT AS SET FORTH IN
SCHEDULE 3.1(W), THE COMPANY HAS NOT GRANTED OR AGREED TO GRANT TO ANY PERSON
ANY RIGHTS (INCLUDING “PIGGY-BACK” REGISTRATION RIGHTS) TO HAVE ANY SECURITIES
OF THE COMPANY REGISTERED WITH THE COMMISSION OR ANY OTHER GOVERNMENTAL
AUTHORITY THAT HAVE NOT BEEN SATISFIED.

 

(X)                                   APPLICATION OF TAKEOVER PROTECTIONS.  THE
COMPANY AND ITS BOARD OF DIRECTORS HAVE TAKEN ALL NECESSARY ACTION, IF ANY, IN
ORDER TO RENDER INAPPLICABLE ANY CONTROL SHARE ACQUISITION, BUSINESS
COMBINATION, POISON PILL (INCLUDING ANY DISTRIBUTION UNDER A RIGHTS AGREEMENT)
OR OTHER SIMILAR ANTI-TAKEOVER PROVISION UNDER THE COMPANY’S CERTIFICATE OF
INCORPORATION (OR SIMILAR CHARTER DOCUMENTS) OR THE LAWS OF ITS STATE OF
INCORPORATION THAT IS OR COULD BECOME APPLICABLE TO THE PURCHASERS AS A RESULT
OF THE PURCHASERS AND THE COMPANY FULFILLING THEIR OBLIGATIONS OR EXERCISING
THEIR RIGHTS UNDER THE TRANSACTION DOCUMENTS, INCLUDING

 

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WITHOUT LIMITATION THE COMPANY’S ISSUANCE OF THE SECURITIES AND THE PURCHASERS’
OWNERSHIP OF THE SECURITIES.

 

(Y)                                 INDEBTEDNESS.  EXCEPT AS SET FORTH IN
SCHEDULE 3.1(Y), THERE IS NO OTHER DEBT THAT WOULD BE REQUIRED TO BE DISCLOSED
IN ACCORDANCE WITH GAAP AS OF SEPTEMBER 30, 2003 ON THE COMPANY’S BALANCE SHEET
INCLUDED IN THE COMPANY’S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
SEPTEMBER 30, 2003 FILED WITH THE COMMISSION ON NOVEMBER 12, 2003.  AS OF THE
DATE HEREOF, THE COMPANY DOES NOT HAVE ANY DEBT OTHER THAN PERMITTED DEBT.

 

(Z)                                   DISCLOSURE.  THE COMPANY CONFIRMS THAT
NEITHER IT NOR ANY OTHER PERSON ACTING ON ITS BEHALF HAS PROVIDED ANY OF THE
PURCHASERS OR THEIR AGENTS OR COUNSEL WITH ANY INFORMATION THAT CONSTITUTES OR
MIGHT CONSTITUTE MATERIAL, NONPUBLIC INFORMATION.  THE COMPANY UNDERSTANDS AND
CONFIRMS THAT EACH OF THE PURCHASERS WILL RELY ON THE FOREGOING REPRESENTATIONS
IN EFFECTING TRANSACTIONS IN SECURITIES OF THE COMPANY.  ALL DISCLOSURE PROVIDED
TO THE PURCHASERS REGARDING THE COMPANY, ITS BUSINESS AND THE TRANSACTIONS
CONTEMPLATED HEREBY, INCLUDING THE SCHEDULES TO THIS AGREEMENT, FURNISHED BY OR
ON BEHALF OF THE COMPANY ARE TRUE AND CORRECT AND DO NOT CONTAIN ANY UNTRUE
STATEMENT OF A MATERIAL FACT OR OMIT TO STATE ANY MATERIAL FACT NECESSARY IN
ORDER TO MAKE THE STATEMENTS MADE THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER
WHICH THEY WERE MADE, NOT MISLEADING.  NO EVENT OR CIRCUMSTANCE HAS OCCURRED OR
INFORMATION EXISTS WITH RESPECT TO THE COMPANY OR ANY OF ITS SUBSIDIARIES OR ITS
OR THEIR BUSINESS, PROPERTIES, OPERATIONS OR FINANCIAL CONDITIONS, WHICH, UNDER
APPLICABLE LAW, RULE OR REGULATION, REQUIRES PUBLIC DISCLOSURE OR ANNOUNCEMENT
BY THE COMPANY BUT WHICH HAS NOT BEEN SO PUBLICLY ANNOUNCED OR DISCLOSED
(ASSUMING FOR THIS PURPOSE THAT THE COMPANY’S REPORTS FILED UNDER THE 1934 ACT
ARE BEING INCORPORATED INTO AN EFFECTIVE REGISTRATION STATEMENT FILED BY THE
COMPANY UNDER THE 1933 ACT).  THE COMPANY ACKNOWLEDGES AND AGREES THAT NO
PURCHASER MAKES OR HAS MADE ANY REPRESENTATIONS OR WARRANTIES WITH RESPECT TO
THE TRANSACTIONS CONTEMPLATED HEREBY OTHER THAN THOSE SPECIFICALLY SET FORTH IN
SECTION 3.2.

 

(AA)                            ACKNOWLEDGMENT REGARDING PURCHASERS’ PURCHASE OF
SECURITIES.  THE COMPANY ACKNOWLEDGES AND AGREES THAT EACH OF THE PURCHASERS IS
ACTING SOLELY IN THE CAPACITY OF AN ARM’S LENGTH PURCHASER WITH RESPECT TO THIS
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY.  THE COMPANY FURTHER
ACKNOWLEDGES THAT NO PURCHASER IS ACTING AS A FINANCIAL ADVISOR OR FIDUCIARY OF
THE COMPANY (OR IN ANY SIMILAR CAPACITY) WITH RESPECT TO THIS AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED HEREBY AND ANY ADVICE GIVEN BY ANY PURCHASER OR ANY OF
THEIR RESPECTIVE REPRESENTATIVES OR AGENTS IN CONNECTION WITH THIS AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED HEREBY IS MERELY INCIDENTAL TO THE PURCHASERS’
PURCHASE OF THE SECURITIES.  THE COMPANY FURTHER REPRESENTS TO EACH PURCHASER
THAT THE COMPANY’S DECISION TO ENTER INTO THIS AGREEMENT HAS BEEN BASED SOLELY
ON THE INDEPENDENT EVALUATION OF THE COMPANY AND ITS REPRESENTATIVES.

 

3.2                                 REPRESENTATIONS AND WARRANTIES OF THE
PURCHASERS.  EACH PURCHASER HEREBY, AS TO ITSELF ONLY AND FOR NO OTHER
PURCHASER, REPRESENTS AND WARRANTS TO THE COMPANY AS FOLLOWS:

 

(A)                                  ORGANIZATION; AUTHORITY.  SUCH PURCHASER IS
AN ENTITY DULY ORGANIZED, VALIDLY EXISTING AND IN GOOD STANDING UNDER THE LAWS
OF THE JURISDICTION OF ITS ORGANIZATION WITH THE REQUISITE CORPORATE OR
PARTNERSHIP POWER AND AUTHORITY TO ENTER INTO AND TO CONSUMMATE THE TRANSACTIONS
CONTEMPLATED BY THE TRANSACTION DOCUMENTS AND OTHERWISE TO CARRY OUT ITS

 

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OBLIGATIONS THEREUNDER. THE PURCHASE BY SUCH PURCHASER OF THE SECURITIES
HEREUNDER HAS BEEN DULY AUTHORIZED BY ALL NECESSARY ACTION ON THE PART OF SUCH
PURCHASER.  EACH OF THIS AGREEMENT AND THE REGISTRATION RIGHTS AGREEMENT HAS
BEEN DULY EXECUTED BY SUCH PURCHASER, AND WHEN DELIVERED BY SUCH PURCHASER IN
ACCORDANCE WITH THE TERMS HEREOF, WILL CONSTITUTE THE VALID AND BINDING
OBLIGATION OF SUCH PURCHASER, ENFORCEABLE AGAINST IT IN ACCORDANCE WITH ITS
TERMS.

 

(B)                                 INVESTMENT INTENT.  SUCH PURCHASER IS
ACQUIRING THE SECURITIES AS PRINCIPAL FOR ITS OWN ACCOUNT FOR INVESTMENT
PURPOSES ONLY AND NOT WITH A VIEW TO OR FOR DISTRIBUTING OR RESELLING SUCH
SECURITIES OR ANY PART THEREOF, WITHOUT PREJUDICE, HOWEVER, TO SUCH PURCHASER’S
RIGHT, SUBJECT TO THE PROVISIONS OF THIS AGREEMENT AND THE REGISTRATION RIGHTS
AGREEMENT, AT ALL TIMES TO SELL OR OTHERWISE DISPOSE OF ALL OR ANY PART OF SUCH
SECURITIES PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR UNDER AN EXEMPTION FROM SUCH REGISTRATION AND IN COMPLIANCE WITH
APPLICABLE FEDERAL AND STATE SECURITIES LAWS.  NOTHING CONTAINED HEREIN SHALL BE
DEEMED A REPRESENTATION OR WARRANTY BY SUCH PURCHASER TO HOLD SECURITIES FOR ANY
PERIOD OF TIME.

 

(C)                                  PURCHASER STATUS.  AT THE TIME SUCH
PURCHASER WAS OFFERED THE SECURITIES, IT WAS, AND AT THE DATE HEREOF IT IS AN
“ACCREDITED INVESTOR” AS DEFINED IN RULE 501(A) UNDER THE SECURITIES ACT.

 

(D)                                 EXPERIENCE OF SUCH PURCHASER.  SUCH
PURCHASER, EITHER ALONE OR TOGETHER WITH ITS REPRESENTATIVES, HAS SUCH
KNOWLEDGE, SOPHISTICATION AND EXPERIENCE IN BUSINESS AND FINANCIAL MATTERS SO AS
TO BE CAPABLE OF EVALUATING THE MERITS AND RISKS OF THE PROSPECTIVE INVESTMENT
IN THE SECURITIES, AND HAS SO EVALUATED THE MERITS AND RISKS OF SUCH
INVESTMENT.  SUCH PURCHASER IS ABLE TO BEAR THE ECONOMIC RISK OF AN INVESTMENT
IN THE SECURITIES AND, AT THE PRESENT TIME, IS ABLE TO AFFORD A COMPLETE LOSS OF
SUCH INVESTMENT.

 

(E)                                  ACCESS TO INFORMATION.  SUCH PURCHASER
ACKNOWLEDGES THAT IT HAS REVIEWED THE DISCLOSURE MATERIALS AND HAS BEEN AFFORDED
(I) THE OPPORTUNITY TO ASK SUCH QUESTIONS AS IT HAS DEEMED NECESSARY OF, AND TO
RECEIVE ANSWERS FROM, REPRESENTATIVES OF THE COMPANY CONCERNING THE TERMS AND
CONDITIONS OF THE OFFERING OF THE SECURITIES AND THE MERITS AND RISKS OF
INVESTING IN THE SECURITIES; (II) ACCESS TO INFORMATION ABOUT THE COMPANY AND
THE SUBSIDIARIES AND THEIR RESPECTIVE FINANCIAL CONDITION SUFFICIENT TO ENABLE
IT TO EVALUATE ITS INVESTMENT; AND (III) THE OPPORTUNITY TO OBTAIN SUCH
ADDITIONAL INFORMATION THAT THE COMPANY POSSESSES OR CAN ACQUIRE WITHOUT
UNREASONABLE EFFORT OR EXPENSE THAT IS NECESSARY TO MAKE AN INFORMED INVESTMENT
DECISION WITH RESPECT TO THE INVESTMENT.  NEITHER SUCH INQUIRIES NOR ANY OTHER
INVESTIGATION CONDUCTED BY OR ON BEHALF OF SUCH PURCHASER OR ITS REPRESENTATIVES
OR COUNSEL, NOR ANY OTHER PROVISIONS OF THIS SECTION 3.2, SHALL MODIFY, AMEND OR
AFFECT SUCH PURCHASER’S RIGHT TO RELY ON THE TRUTH, ACCURACY AND COMPLETENESS OF
THE DISCLOSURE MATERIALS AND THE COMPANY’S REPRESENTATIONS AND WARRANTIES
CONTAINED IN THE TRANSACTION DOCUMENTS.

 

(F)                                                                                   
RELIANCE.  SUCH PURCHASER UNDERSTANDS AND ACKNOWLEDGES THAT (I) THE SECURITIES
ARE BEING OFFERED AND SOLD TO IT WITHOUT REGISTRATION UNDER THE SECURITIES ACT
IN A PRIVATE PLACEMENT THAT IS EXEMPT FROM THE REGISTRATION PROVISIONS OF THE
SECURITIES ACT AND (II) THE AVAILABILITY OF SUCH EXEMPTION DEPENDS IN PART ON,
AND THE COMPANY WILL RELY UPON THE ACCURACY AND TRUTHFULNESS OF, THE FOREGOING
REPRESENTATIONS AND SUCH PURCHASER HEREBY CONSENTS TO SUCH RELIANCE.  SUCH
PURCHASER ACKNOWLEDGES AND AGREES THAT THE COMPANY DOES NOT MAKE OR HAS NOT

 

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MADE ANY REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE TRANSACTIONS
CONTEMPLATED HEREBY OTHER THAN THOSE SPECIFICALLY SET FORTH IN SECTION 3.1 OR
ANY OTHER TRANSACTION DOCUMENT.

 

ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES

 

4.1                                 TRANSFER RESTRICTIONS.

 

(A)                                  SECURITIES MAY ONLY BE DISPOSED OF PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS.  IN CONNECTION WITH
ANY TRANSFER OF SECURITIES OTHER THAN PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR TO THE COMPANY OR PURSUANT TO RULE 144(K), EXCEPT AS OTHERWISE SET
FORTH HEREIN, THE COMPANY MAY REQUIRE THE TRANSFEROR TO PROVIDE TO THE COMPANY
AN OPINION OF COUNSEL SELECTED BY THE TRANSFEROR, THE FORM AND SUBSTANCE OF
WHICH OPINION SHALL BE REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT
THAT SUCH TRANSFER DOES NOT REQUIRE REGISTRATION UNDER THE SECURITIES ACT. 
NOTWITHSTANDING THE FOREGOING, THE COMPANY HEREBY CONSENTS TO AND AGREES TO
REGISTER ON THE BOOKS OF THE COMPANY AND WITH ITS TRANSFER AGENT, WITHOUT ANY
SUCH LEGAL OPINION, ANY TRANSFER OF SECURITIES BY A PURCHASER TO AN AFFILIATE OF
SUCH PURCHASER, PROVIDED THAT (X) SUCH TRANSFEREE CERTIFIES TO THE COMPANY THAT
IT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(A) UNDER THE SECURITIES
ACT, (Y) SUCH TRANSFEREE EXECUTES AN INSTRUMENT REASONABLY SATISFACTORY TO THE
COMPANY AGREEING TO BE BOUND TO THE PROVISIONS OF THE TRANSACTION DOCUMENTS AND
ANY SUBSEQUENT RELATED AGREEMENT AS THOUGH IT WERE AN ORIGINAL PURCHASER AND (Z)
THE PURCHASERS AND THEIR TRANSFEREES MAKE NO MORE THAN FIVE SUCH TRANSFERS IN
THE AGGREGATE.

 

(B)                                 THE PURCHASERS AGREE TO THE IMPRINTING, SO
LONG AS IS REQUIRED BY THIS SECTION 4.1(B), OF THE FOLLOWING LEGEND ON ANY
CERTIFICATE EVIDENCING SECURITIES:

 

NEITHER THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
[EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS.  NOTWITHSTANDING THE FOREGOING, THESE
SECURITIES [AND THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION]] OF THESE
SECURITIES] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES, PROVIDED THAT
ANY EXERCISE OF ANY RIGHTS BY ANY SECURED PARTY SHALL COMPLY WITH THESE LEGEND
REQUIREMENTS.

 

Certificates evidencing Securities shall not be required to contain such legend
or any other legend (i) while a Registration Statement covering the resale of
such Securities is effective

 

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under the Securities Act, or (ii) following any sale of such Securities pursuant
to Rule 144, or (iii) if such Securities are eligible for sale under Rule
144(k), or (iv) if such legend is not required under applicable requirements of
the Securities Act (including judicial interpretations and pronouncements issued
by the Staff of the Commission).  The Company shall cause its counsel to issue
the legal opinion included in the Transfer Agent Instructions to the Transfer
Agent on the Effective Date.  Following the Effective Date or at such earlier
time as a legend is no longer required for certain Securities, the Company will,
no later than three Trading Days following the delivery by a Purchaser to the
Company’s transfer agent (with a notice to the Company thereof) of a legended
certificate representing such Securities, deliver or cause to be delivered to
such Purchaser a certificate representing such Securities that is free from all
restrictive and other legends.  The Company may not make any notation on its
records or give instructions to any transfer agent of the Company that enlarge
the restrictions on transfer set forth in this Section.

 

(C)                                  THE COMPANY ACKNOWLEDGES AND AGREES THAT A
PURCHASER MAY FROM TIME TO TIME PLEDGE OR GRANT A SECURITY INTEREST IN SOME OR
ALL OF THE SECURITIES IN CONNECTION WITH A BONA FIDE MARGIN AGREEMENT OR OTHER
LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES AND, IF REQUIRED UNDER
THE TERMS OF SUCH AGREEMENT, LOAN OR ARRANGEMENT, SUCH PURCHASER MAY TRANSFER
PLEDGED OR SECURED SECURITIES TO THE PLEDGEES OR SECURED PARTIES.  SUCH A PLEDGE
OR TRANSFER WOULD NOT BE SUBJECT TO APPROVAL OF THE COMPANY AND NO LEGAL OPINION
OF THE PLEDGEE, SECURED PARTY OR PLEDGOR SHALL BE REQUIRED IN CONNECTION
THEREWITH.  FURTHER, NO NOTICE SHALL BE REQUIRED OF SUCH PLEDGE.  AT THE
APPROPRIATE PURCHASER’S EXPENSE, THE COMPANY WILL EXECUTE AND DELIVER SUCH
REASONABLE DOCUMENTATION AS A PLEDGEE OR SECURED PARTY OF SECURITIES MAY
REASONABLY REQUEST IN CONNECTION WITH A PLEDGE OR TRANSFER OF THE SECURITIES,
INCLUDING THE PREPARATION AND FILING OF ANY REQUIRED PROSPECTUS SUPPLEMENT UNDER
RULE 424(B)(3) OF THE SECURITIES ACT OR OTHER APPLICABLE PROVISION OF THE
SECURITIES ACT TO APPROPRIATELY AMEND THE LIST OF SELLING STOCKHOLDERS
THEREUNDER.

 

(D)                                 IN ADDITION TO ANY OTHER RIGHTS AVAILABLE TO
A PURCHASER, IF THE COMPANY FAILS TO DELIVER TO SUCH PURCHASER A CERTIFICATE
REPRESENTING COMMON STOCK BY THE THIRD TRADING DAY AFTER THE DATE ON WHICH
DELIVERY OF SUCH CERTIFICATE IS REQUIRED BY ANY TRANSACTION DOCUMENT, AND IF
AFTER SUCH THIRD TRADING DAY SUCH PURCHASER PURCHASES (IN AN OPEN MARKET
TRANSACTION OR OTHERWISE) SHARES OF COMMON STOCK TO DELIVER IN SATISFACTION OF A
SALE BY SUCH PURCHASER OF THE SHARES THAT THE PURCHASER ANTICIPATED RECEIVING
FROM THE COMPANY (A “BUY-IN”), THEN, IN THE PURCHASER’S SOLE DISCRETION, THE
COMPANY SHALL, WITHIN THREE TRADING DAYS AFTER SUCH PURCHASER’S REQUEST EITHER
(I) PAY CASH TO SUCH PURCHASER IN AN AMOUNT EQUAL TO SUCH PURCHASER’S TOTAL
PURCHASE PRICE (INCLUDING BROKERAGE COMMISSIONS, IF ANY) FOR THE SHARES OF
COMMON STOCK SO PURCHASED (THE “BUY-IN PRICE”), AT WHICH POINT THE COMPANY’S
OBLIGATION TO DELIVER SUCH CERTIFICATE (AND TO ISSUE SUCH COMMON STOCK) SHALL
TERMINATE, OR (II) PROMPTLY HONOR ITS OBLIGATION TO DELIVER TO SUCH PURCHASER A
CERTIFICATE OR CERTIFICATES REPRESENTING SUCH COMMON STOCK AND PAY CASH TO SUCH
PURCHASER IN AN AMOUNT EQUAL TO THE EXCESS (IF ANY) OF THE BUY-IN PRICE OVER THE
PRODUCT OF (A) SUCH NUMBER OF SHARES OF COMMON STOCK, TIMES (B) THE CLOSING
PRICE ON THE DATE OF THE EVENT GIVING RISE TO THE COMPANY’S OBLIGATION TO
DELIVER SUCH CERTIFICATE.

 

4.2                                 ACKNOWLEDGMENT OF DILUTION.  THE COMPANY
ACKNOWLEDGES THAT THE ISSUANCE OF THE SECURITIES WILL RESULT IN DILUTION OF THE
OUTSTANDING SHARES OF COMMON STOCK, WHICH DILUTION MAY BE SUBSTANTIAL UNDER
CERTAIN MARKET CONDITIONS.  THE COMPANY FURTHER ACKNOWLEDGES THAT ITS

 

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OBLIGATIONS UNDER THE TRANSACTION DOCUMENTS, INCLUDING, WITHOUT LIMITATION, ITS
OBLIGATION TO ISSUE THE SECURITIES PURSUANT TO THE TRANSACTION DOCUMENTS, ARE
UNCONDITIONAL AND ABSOLUTE AND NOT SUBJECT TO ANY RIGHT OF SET OFF,
COUNTERCLAIM, DELAY OR REDUCTION, REGARDLESS OF THE EFFECT OF ANY SUCH DILUTION
OR ANY CLAIM THAT THE COMPANY MAY HAVE AGAINST ANY PURCHASER.

 

4.3                                 FURNISHING OF INFORMATION.  AS LONG AS ANY
PURCHASER OWNS SECURITIES, THE COMPANY COVENANTS TO TIMELY FILE (OR OBTAIN
EXTENSIONS IN RESPECT THEREOF AND FILE WITHIN THE APPLICABLE GRACE PERIOD) ALL
REPORTS REQUIRED TO BE FILED BY THE COMPANY AFTER THE DATE HEREOF PURSUANT TO
THE EXCHANGE ACT.  UPON THE REQUEST OF ANY SUCH PERSON, THE COMPANY SHALL
DELIVER TO SUCH PERSON A WRITTEN CERTIFICATION OF A DULY AUTHORIZED OFFICER AS
TO WHETHER IT HAS COMPLIED WITH THE PRECEDING SENTENCE. AS LONG AS ANY PURCHASER
OWNS SECURITIES, IF THE COMPANY IS NOT REQUIRED TO FILE REPORTS PURSUANT TO SUCH
LAWS, IT WILL PREPARE AND FURNISH TO THE PURCHASERS AND MAKE PUBLICLY AVAILABLE
IN ACCORDANCE WITH PARAGRAPH (C) OF RULE 144 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, ALL TO THE EXTENT REQUIRED FROM TIME TO TIME TO ENABLE SUCH
PERSON TO SELL SUCH SECURITIES WITHOUT REGISTRATION UNDER THE SECURITIES ACT
WITHIN THE LIMITATION OF THE EXEMPTIONS PROVIDED BY RULE 144.

 

4.4                                 INTEGRATION.  THE COMPANY SHALL NOT, AND
SHALL USE ITS COMMERCIALLY REASONABLE EFFORTS TO ENSURE THAT NO AFFILIATE OF THE
COMPANY SHALL, SELL, OFFER FOR SALE OR SOLICIT OFFERS TO BUY OR OTHERWISE
NEGOTIATE IN RESPECT OF ANY SECURITY (AS DEFINED IN SECTION 2 OF THE SECURITIES
ACT) THAT WOULD BE INTEGRATED WITH THE OFFER OR SALE OF THE SECURITIES IN A
MANNER THAT WOULD REQUIRE THE REGISTRATION UNDER THE SECURITIES ACT OF THE SALE
OF THE SECURITIES TO THE PURCHASERS, OR THAT WOULD BE INTEGRATED WITH THE OFFER
OR SALE OF THE SECURITIES FOR PURPOSES OF THE RULES AND REGULATIONS OF ANY
TRADING MARKET.

 

4.5                                 RESERVATION AND LISTING OF SECURITIES. 

 

(A)                                  THE COMPANY SHALL MAINTAIN A RESERVE FROM
ITS DULY AUTHORIZED SHARES OF COMMON STOCK FOR ISSUANCE PURSUANT TO THE
TRANSACTION DOCUMENTS IN SUCH AMOUNT AS MAY BE REQUIRED TO FULFILL ITS
OBLIGATIONS IN FULL UNDER THIS SECTION 4.5.

 

(B)                                 IF, ON ANY DATE, THE NUMBER OF AUTHORIZED
BUT UNISSUED (AND OTHERWISE UNRESERVED) SHARES OF COMMON STOCK (THE “REMAINING
AUTHORIZED SHARES”) IS LESS THAN 125% OF (I) THE ACTUAL MINIMUM ON SUCH DATE,
MINUS (II) THE NUMBER OF SHARES OF COMMON STOCK PREVIOUSLY ISSUED PURSUANT TO
THE TRANSACTION DOCUMENTS, THEN THE BOARD OF DIRECTORS OF THE COMPANY SHALL USE
ITS COMMERCIALLY REASONABLE EFFORTS TO AMEND THE COMPANY’S CERTIFICATE OR
ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED BUT UNISSUED
SHARES OF COMMON STOCK TO AT LEAST THE REQUIRED MINIMUM AT SUCH TIME (MINUS THE
NUMBER OF SHARES OF COMMON STOCK PREVIOUSLY ISSUED PURSUANT TO THE TRANSACTION
DOCUMENTS), AS SOON AS POSSIBLE AND IN ANY EVENT NOT LATER THAN THE 75TH DAY
AFTER SUCH DATE; PROVIDED THAT THE COMPANY WILL NOT BE REQUIRED AT ANY TIME TO
AUTHORIZE A NUMBER OF SHARES OF COMMON STOCK GREATER THAN THE MAXIMUM REMAINING
NUMBER OF SHARES OF COMMON STOCK THAT COULD POSSIBLY BE ISSUED AFTER SUCH TIME
PURSUANT TO THE TRANSACTION DOCUMENTS.

 

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(C)                                  IF, AT THE TIME ANY PURCHASER REQUESTS AN
EXERCISE OR CONVERSION OF ANY SECURITIES, THE ACTUAL MINIMUM MINUS THE NUMBER OF
SHARES OF COMMON STOCK PREVIOUSLY ISSUED PURSUANT TO THE TRANSACTION DOCUMENTS
EXCEEDS THE REMAINING AUTHORIZED SHARES, THEN THE COMPANY SHALL ISSUE TO THE
PURCHASER REQUESTING SUCH EXERCISE OR CONVERSION A NUMBER OF UNDERLYING SHARES
NOT EXCEEDING SUCH PURCHASER’S PRO-RATA PORTION OF THE REMAINING AUTHORIZED
SHARES (BASED ON SUCH PURCHASER’S SHARE OF THE AGGREGATE PURCHASE PRICE PAID
HEREUNDER AND CONSIDERING ANY UNDERLYING SHARES PREVIOUSLY ISSUED TO SUCH
PURCHASER), AND THE REMAINDER OF THE UNDERLYING SHARES ISSUABLE IN CONNECTION
WITH SUCH EXERCISE OR CONVERSION (IF ANY) SHALL CONSTITUTE “EXCESS SHARES”
PURSUANT TO SECTION 4.5(G) BELOW.

 

(D)                                 THE COMPANY SHALL (I) IN THE TIME AND MANNER
REQUIRED BY EACH TRADING MARKET, PREPARE AND FILE WITH SUCH TRADING MARKET AN
ADDITIONAL SHARES LISTING APPLICATION COVERING A NUMBER OF SHARES OF COMMON
STOCK AT LEAST EQUAL TO THE GREATER OF (A) THE REQUIRED MINIMUM ON THE CLOSING
DATE AND (B) THE REQUIRED MINIMUM ON THE DATE OF SUCH APPLICATION, (II) TAKE ALL
STEPS NECESSARY TO CAUSE SUCH SHARES OF COMMON STOCK TO BE APPROVED FOR LISTING
ON EACH TRADING MARKET AS SOON AS POSSIBLE THEREAFTER, (III) PROVIDE TO THE
PURCHASERS EVIDENCE OF SUCH LISTING, AND (IV) MAINTAIN THE LISTING OF SUCH
COMMON STOCK ON EACH SUCH TRADING MARKET OR ANOTHER ELIGIBLE MARKET.

 

(E)                                  IF, ON ANY DATE, THE NUMBER OF SHARES OF
COMMON STOCK PREVIOUSLY LISTED ON A TRADING MARKET IS LESS THAN 125% OF THE
ACTUAL MINIMUM ON SUCH DATE, THEN THE COMPANY SHALL TAKE THE NECESSARY ACTIONS
TO LIST ON SUCH TRADING MARKET, AS SOON AS REASONABLY POSSIBLE, A NUMBER OF
SHARES OF COMMON STOCK AT LEAST EQUAL TO THE REQUIRED MINIMUM ON SUCH DATE;
PROVIDED THAT THE COMPANY WILL NOT BE REQUIRED AT ANY TIME TO LIST A NUMBER OF
SHARES OF COMMON STOCK GREATER THAN THE MAXIMUM NUMBER OF SHARES OF COMMON STOCK
THAT COULD POSSIBLY BE ISSUED PURSUANT TO THE TRANSACTION DOCUMENTS.

 

(F)                                    IF THE TRADING MARKET IS THE NASDAQ
NATIONAL MARKET OR THE NASDAQ SMALLCAP MARKET, THEN THE MAXIMUM NUMBER OF SHARES
OF COMMON STOCK THAT THE COMPANY MAY ISSUE PURSUANT TO THE TRANSACTION DOCUMENTS
AT AN EFFECTIVE PURCHASE PRICE LESS THAN THE CLOSING PRICE ON THE TRADING DAY
IMMEDIATELY PRECEDING THE CLOSING DATE EQUALS 5,121,877 SHARES (THE “ISSUABLE
MAXIMUM”), UNLESS THE COMPANY OBTAINS SHAREHOLDER APPROVAL IN ACCORDANCE WITH
THE RULES AND REGULATIONS OF SUCH TRADING MARKET.  IF, AT THE TIME ANY PURCHASER
REQUESTS AN EXERCISE OR CONVERSION OF ANY SECURITIES, THE ACTUAL MINIMUM
(EXCLUDING ANY SHARES ISSUED OR ISSUABLE AT AN EFFECTIVE PURCHASE PRICE IN
EXCESS OF THE CLOSING PRICE ON THE TRADING DAY IMMEDIATELY PRECEDING THE CLOSING
DATE) EXCEEDS THE ISSUABLE MAXIMUM (AND IF THE COMPANY HAS NOT PREVIOUSLY
OBTAINED THE REQUIRED SHAREHOLDER APPROVAL), THEN THE COMPANY SHALL ISSUE TO THE
PURCHASER REQUESTING SUCH EXERCISE OR CONVERSION A NUMBER OF UNDERLYING SHARES
OF COMMON STOCK NOT EXCEEDING SUCH PURCHASER’S PRO-RATA PORTION OF THE ISSUABLE
MAXIMUM (BASED ON SUCH PURCHASER’S SHARE OF THE AGGREGATE PURCHASE PRICE PAID
HEREUNDER AND CONSIDERING ANY UNDERLYING SHARES PREVIOUSLY ISSUED TO SUCH
PURCHASER), AND THE REMAINDER OF THE UNDERLYING SHARES ISSUABLE IN CONNECTION
WITH SUCH EXERCISE OR CONVERSION (IF ANY) SHALL CONSTITUTE “EXCESS SHARES”
PURSUANT TO SECTION 4.5(G) BELOW.

 

(G)                                 ANY PURCHASER WHOSE RECEIPT OF EXCESS SHARES
UPON EXERCISE OR CONVERSION OF SECURITIES IS RESTRICTED BASED ON THE NUMBER OF
REMAINING AUTHORIZED SHARES OR THE ISSUABLE MAXIMUM SHALL HAVE THE OPTION, BY
NOTICE TO THE COMPANY, TO REQUIRE THE COMPANY

 

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TO EITHER: (I) USE ITS BEST EFFORTS TO OBTAIN THE REQUIRED SHAREHOLDER APPROVAL
NECESSARY TO PERMIT THE ISSUANCE OF SUCH EXCESS SHARES AS SOON AS IS POSSIBLE,
BUT IN ANY EVENT NOT LATER THAN THE 75TH DAY AFTER SUCH NOTICE, OR (II) WITHIN
FIVE TRADING DAYS AFTER SUCH NOTICE, PAY CASH TO SUCH PURCHASER, AS LIQUIDATED
DAMAGES AND NOT AS A PENALTY, IN AN AMOUNT EQUAL TO THE NUMBER OF EXCESS SHARES
MULTIPLIED BY THE AVERAGE CLOSING PRICE OVER THE FIVE TRADING DAYS IMMEDIATELY
PRIOR TO THE DATE OF SUCH NOTICE OR, IF GREATER, THE FIVE TRADING DAYS
IMMEDIATELY PRIOR TO THE DATE OF PAYMENT (THE “CASH AMOUNT”), AND THE COMPANY
SHALL HAVE NO FURTHER OBLIGATION TO ISSUE ANY OF SUCH EXCESS SHARES.  NO SHARES
OF COMMON STOCK THAT WERE ISSUED PURSUANT TO THE TRANSACTION DOCUMENTS MAY BE
ENTITLED TO VOTE TO APPROVE THE ISSUANCE OF SUCH EXCESS SHARES.  IF THE
EXERCISING OR CONVERTING PURCHASER ELECTS THE FIRST OPTION UNDER THE FIRST
SENTENCE OF THIS SECTION 4.5(G) AND THE COMPANY FAILS TO OBTAIN THE REQUIRED
SHAREHOLDER APPROVAL ON OR PRIOR TO THE 75TH DAY AFTER SUCH NOTICE, THEN WITHIN
FIVE TRADING DAYS AFTER SUCH 75TH DAY, THE COMPANY SHALL PAY THE CASH AMOUNT TO
SUCH PURCHASER, AS LIQUIDATED DAMAGES AND NOT AS PENALTY.

 

4.6                                 CONVERSION AND EXERCISE PROCEDURES.  THE
FORM OF EXERCISE NOTICE INCLUDED IN THE WARRANTS AND THE UNIT WARRANTS,
RESPECTIVELY, AND THE FORM OF CONVERSION NOTICE INCLUDED IN THE CERTIFICATE OF
DESIGNATIONS SET FORTH THE TOTALITY OF THE PROCEDURES REQUIRED IN ORDER TO
EXERCISE THE WARRANTS AND THE UNIT WARRANTS, OR CONVERT THE SHARES OF SERIES B
PREFERRED STOCK UNDER THE TRANSACTION DOCUMENTS.  NO ADDITIONAL LEGAL OPINION OR
OTHER INFORMATION OR INSTRUCTIONS SHALL BE NECESSARY TO ENABLE THE PURCHASERS TO
EXERCISE THEIR WARRANTS AND UNIT WARRANTS, OR CONVERT ANY SHARES OF SERIES B
PREFERRED STOCK.  THE COMPANY SHALL HONOR EXERCISES OF THE WARRANTS AND UNIT
WARRANTS, AND CONVERSIONS OF THE SHARES OF SERIES B PREFERRED STOCK AND SHALL
DELIVER UNDERLYING SHARES IN ACCORDANCE WITH THE TERMS, CONDITIONS AND TIME
PERIODS SET FORTH IN THE TRANSACTION DOCUMENTS.

 

4.7                                 SUBSEQUENT PLACEMENTS.

 

(A)                FROM THE DATE HEREOF UNTIL 30 TRADING DAYS FOLLOWING THE
EFFECTIVE DATE (THE “BLOCKOUT PERIOD”), THE COMPANY WILL NOT, DIRECTLY OR
INDIRECTLY, OFFER, SELL, GRANT ANY OPTION TO PURCHASE, OR OTHERWISE DISPOSE OF
(OR ANNOUNCE ANY OFFER, SALE, GRANT OR ANY OPTION TO PURCHASE OR OTHER
DISPOSITION OF) ANY OF ITS OR THE SUBSIDIARIES’ EQUITY OR EQUITY EQUIVALENT
SECURITIES, INCLUDING, WITHOUT LIMITATION, ANY DEBT, PREFERRED STOCK OR OTHER
INSTRUMENT OR SECURITY THAT IS, AT ANY TIME DURING ITS LIFE AND UNDER ANY
CIRCUMSTANCES, CONVERTIBLE INTO OR EXCHANGEABLE OR EXERCISABLE FOR COMMON STOCK
OR COMMON STOCK EQUIVALENTS (ANY SUCH OFFER, SALE, GRANT, DISPOSITION OR
ANNOUNCEMENT BEING REFERRED TO AS A “SUBSEQUENT PLACEMENT”).

 

(B)               THE BLOCKOUT PERIOD SET FORTH IN THE PRECEDING PARAGRAPH (A)
SHALL BE EXTENDED FOR THE NUMBER OF TRADING DAYS DURING SUCH PERIOD IN WHICH (I)
TRADING IN THE COMMON STOCK IS SUSPENDED BY ANY TRADING MARKET, (II) THE
REGISTRATION STATEMENT IS NOT EFFECTIVE, OR (III) THE PROSPECTUS INCLUDED IN THE
REGISTRATION STATEMENT MAY NOT BE USED BY THE PURCHASERS FOR THE RESALE OF
REGISTRABLE SECURITIES THEREUNDER, PROVIDED THAT THIS SECTION 4.7(B) SHALL NOT
APPLY ONCE THE BLOCKOUT PERIOD HAS EXPIRED.

 

(C)                FROM THE END OF THE BLOCKOUT PERIOD AND FOR SO LONG AS A
PURCHASER HOLDS 20% OF THE SHARES ORIGINALLY PURCHASED BY SUCH PURCHASER, THE
COMPANY WILL NOT,

 

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DIRECTLY OR INDIRECTLY, EFFECT ANY SUBSEQUENT PLACEMENT UNLESS THE COMPANY SHALL
HAVE FIRST COMPLIED WITH THIS SECTION 4.7(C).

 

(I)                                     THE COMPANY SHALL DELIVER TO EACH
PURCHASER A WRITTEN NOTICE (THE “OFFER”) OF ANY PROPOSED OR INTENDED ISSUANCE OR
SALE OR EXCHANGE OF THE SECURITIES BEING OFFERED (THE “OFFERED SECURITIES”) IN A
SUBSEQUENT PLACEMENT, WHICH OFFER SHALL (W) IDENTIFY AND DESCRIBE THE OFFERED
SECURITIES, (X) DESCRIBE THE PRICE AND OTHER TERMS UPON WHICH THEY ARE TO BE
ISSUED, SOLD OR EXCHANGED, AND THE NUMBER OR AMOUNT OF THE OFFERED SECURITIES TO
BE ISSUED, SOLD OR EXCHANGED, (Y) IF KNOWN, IDENTIFY THE PERSONS OR ENTITIES TO
WHICH OR WITH WHICH THE OFFERED SECURITIES ARE TO BE OFFERED, ISSUED, SOLD OR
EXCHANGED AND (Z) OFFER TO ISSUE AND SELL TO OR EXCHANGE WITH EACH PURCHASER (A)
A PRO RATA PORTION OF FIFTY PERCENT (50%) OF THE OFFERED SECURITIES, BASED ON
SUCH PURCHASER’S PRO RATA PORTION OF THE AGGREGATE PURCHASE PRICE PAID BY THE
PURCHASERS FOR ALL OF THE SHARES PURCHASED HEREUNDER (THE “BASIC AMOUNT”), AND
(B) WITH RESPECT TO EACH PURCHASER THAT ELECTS TO PURCHASE ITS BASIC AMOUNT, ANY
ADDITIONAL PORTION OF THE OFFERED SECURITIES ATTRIBUTABLE TO THE BASIC AMOUNTS
OF OTHER PURCHASERS AS SUCH PURCHASER SHALL INDICATE IT WILL PURCHASE OR ACQUIRE
SHOULD THE OTHER PURCHASERS SUBSCRIBE FOR LESS THAN THEIR BASIC AMOUNTS (THE
“UNDERSUBSCRIPTION AMOUNT”).

 

(II)                                  TO ACCEPT AN OFFER, IN WHOLE OR IN PART, A
PURCHASER MUST DELIVER A WRITTEN NOTICE TO THE COMPANY PRIOR TO THE END OF THE
FIFTH (5) TRADING DAY FROM THE DELIVERY OF THE OFFER, SETTING FORTH THE PORTION
OF THE PURCHASER’S BASIC AMOUNT THAT SUCH PURCHASER ELECTS TO PURCHASE AND, IF
SUCH PURCHASER SHALL ELECT TO PURCHASE ALL OF ITS BASIC AMOUNT, THE
UNDERSUBSCRIPTION AMOUNT, IF ANY, THAT SUCH PURCHASER ELECTS TO PURCHASE (IN
EITHER CASE, THE “NOTICE OF ACCEPTANCE”).  IF THE BASIC AMOUNTS SUBSCRIBED FOR
BY ALL PURCHASERS ARE LESS THAN THE TOTAL OF ALL OF THE BASIC AMOUNTS, THEN EACH
PURCHASER WHO HAS SET FORTH AN UNDERSUBSCRIPTION AMOUNT IN ITS NOTICE OF
ACCEPTANCE SHALL BE ENTITLED TO PURCHASE, IN ADDITION TO THE BASIC AMOUNTS
SUBSCRIBED FOR, THE UNDERSUBSCRIPTION AMOUNT IT HAS SUBSCRIBED FOR; PROVIDED,
HOWEVER, THAT IF THE UNDERSUBSCRIPTION AMOUNTS SUBSCRIBED FOR EXCEED THE
DIFFERENCE BETWEEN THE TOTAL OF ALL THE BASIC AMOUNTS AND THE BASIC AMOUNTS
SUBSCRIBED FOR (THE “AVAILABLE UNDERSUBSCRIPTION AMOUNT”), EACH PURCHASER WHO
HAS SUBSCRIBED FOR ANY UNDERSUBSCRIPTION AMOUNT SHALL BE ENTITLED TO PURCHASE
THAT PORTION OF THE AVAILABLE UNDERSUBSCRIPTION AMOUNT AS THE BASIC AMOUNT OF
SUCH PURCHASER BEARS TO THE TOTAL BASIC AMOUNTS OF ALL PURCHASERS THAT HAVE
SUBSCRIBED FOR UNDERSUBSCRIPTION AMOUNTS, SUBJECT TO ROUNDING BY THE BOARD OF
DIRECTORS TO THE EXTENT ITS DEEMS REASONABLY NECESSARY.

 

(III)                               THE COMPANY SHALL HAVE SEVEN (7) TRADING
DAYS FROM THE EXPIRATION OF THE PERIOD SET FORTH IN SECTION 4.7(C)(II) ABOVE TO
ISSUE, SELL OR EXCHANGE ALL OR ANY PART OF SUCH OFFERED SECURITIES AS TO WHICH A
NOTICE OF ACCEPTANCE HAS NOT BEEN GIVEN BY THE PURCHASERS (THE “REFUSED
SECURITIES”), BUT ONLY TO THE OFFEREES DESCRIBED IN THE OFFER AND ONLY UPON
TERMS AND CONDITIONS (INCLUDING, WITHOUT LIMITATION, UNIT PRICES AND INTEREST
RATES) THAT ARE NOT MORE FAVORABLE TO THE ACQUIRING PERSON OR PERSONS THAN THOSE
SET FORTH IN THE OFFER.

 

(IV)                              IN THE EVENT THE COMPANY SHALL PROPOSE TO SELL
LESS THAN ALL THE REFUSED SECURITIES (ANY SUCH SALE TO BE IN THE MANNER AND ON
THE TERMS SPECIFIED IN

 

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SECTION 4.7(C)(III) ABOVE), THEN EACH PURCHASER MAY, AT ITS SOLE OPTION AND IN
ITS SOLE DISCRETION, REDUCE THE NUMBER OR AMOUNT OF THE OFFERED SECURITIES
SPECIFIED IN ITS NOTICE OF ACCEPTANCE TO AN AMOUNT THAT SHALL BE NOT LESS THAN
THE NUMBER OR AMOUNT OF THE OFFERED SECURITIES THAT THE PURCHASER ELECTED TO
PURCHASE PURSUANT TO SECTION 4.7(C)(II) ABOVE MULTIPLIED BY A FRACTION, (I) THE
NUMERATOR OF WHICH SHALL BE THE NUMBER OR AMOUNT OF OFFERED SECURITIES THE
COMPANY ACTUALLY PROPOSES TO ISSUE, SELL OR EXCHANGE (INCLUDING OFFERED
SECURITIES TO BE ISSUED OR SOLD TO PURCHASERS PURSUANT TO SECTION 4.7(C)(II)
ABOVE PRIOR TO SUCH REDUCTION) AND (II) THE DENOMINATOR OF WHICH SHALL BE THE
ORIGINAL AMOUNT OF THE OFFERED SECURITIES.  IN THE EVENT THAT ANY PURCHASER SO
ELECTS TO REDUCE THE NUMBER OR AMOUNT OF OFFERED SECURITIES SPECIFIED IN ITS
NOTICE OF ACCEPTANCE, THE COMPANY MAY NOT ISSUE, SELL OR EXCHANGE MORE THAN THE
REDUCED NUMBER OR AMOUNT OF THE OFFERED SECURITIES UNLESS AND UNTIL SUCH
SECURITIES HAVE AGAIN BEEN OFFERED TO THE PURCHASERS IN ACCORDANCE WITH SECTION
4.7(C)(I) ABOVE.

 

(V)                                 UPON THE CLOSING OF THE ISSUANCE, SALE OR
EXCHANGE OF ALL OR LESS THAN ALL OF THE REFUSED SECURITIES, EACH PURCHASER SHALL
ACQUIRE FROM THE COMPANY, AND THE COMPANY SHALL ISSUE TO EACH PURCHASER, THE
NUMBER OR AMOUNT OF OFFERED SECURITIES SPECIFIED IN THE APPLICABLE NOTICES OF
ACCEPTANCE, AS REDUCED PURSUANT TO SECTION 4.7(C)(IV) ABOVE IF ANY PURCHASER HAS
SO ELECTED, UPON THE TERMS AND CONDITIONS SPECIFIED IN THE OFFER.  THE PURCHASE
BY A PURCHASER OF ANY OFFERED SECURITIES IS SUBJECT IN ALL CASES TO THE
PREPARATION, EXECUTION AND DELIVERY BY THE COMPANY AND SUCH PURCHASER OF A
PURCHASE AGREEMENT RELATING TO SUCH OFFERED SECURITIES REASONABLY SATISFACTORY
IN FORM AND SUBSTANCE TO SUCH PURCHASER AND THE COMPANY AND THEIR RESPECTIVE
COUNSEL.

 

(VI)                              ANY OFFERED SECURITIES NOT ACQUIRED BY THE
PURCHASERS OR OTHER PERSONS IN ACCORDANCE WITH SECTION 4.7(C)(III) ABOVE MAY NOT
BE ISSUED, SOLD OR EXCHANGED UNTIL THEY ARE AGAIN OFFERED TO THE PURCHASERS
UNDER THE PROCEDURES SPECIFIED IN THIS AGREEMENT.

 

(D)               THE RESTRICTIONS CONTAINED IN PARAGRAPHS (A) AND (C) OF THIS
SECTION SHALL NOT APPLY TO EXCLUDED STOCK.

 

4.8                                 SECURITIES LAWS DISCLOSURE; PUBLICITY.  THE
COMPANY SHALL, ON OR BEFORE 8:30 A.M., NEW YORK CITY TIME ON DECEMBER 26, 2003,
ISSUE A PRESS RELEASE ACCEPTABLE TO THE PURCHASERS DISCLOSING ALL MATERIAL TERMS
OF THE TRANSACTIONS CONTEMPLATED HEREBY.  ON THE CLOSING DATE, THE COMPANY SHALL
FILE A CURRENT REPORT ON FORM 8-K DESCRIBING THE TERMS OF THE TRANSACTIONS
CONTEMPLATED BY THE TRANSACTION DOCUMENTS IN THE FORM REQUIRED BY THE EXCHANGE
ACT, AND ATTACHING THE MATERIAL TRANSACTION DOCUMENTS AS EXHIBITS TO SUCH FORM
8-K (INCLUDING ALL ATTACHMENTS, THE “8-K FILING”) (OR, IF IT IS NOT REASONABLY
PRACTICABLE TO MAKE SUCH FILING ON THE CLOSING DATE WITH THE EXERCISE OF
COMMERCIALLY REASONABLE EFFORTS, THEN ON THE NEXT SUCCEEDING DAY ON WHICH IT CAN
BE FILED).  FROM AND AFTER THE FILING OF THE 8-K FILING WITH THE COMMISSION, NO
PURCHASER SHALL BE IN POSSESSION OF ANY MATERIAL, NONPUBLIC INFORMATION RECEIVED
FROM THE COMPANY, ANY OF ITS SUBSIDIARIES OR ANY OF ITS RESPECTIVE OFFICERS,
DIRECTORS, EMPLOYEES OR AGENTS, THAT IS NOT DISCLOSED IN THE 8-K FILING.  THE
COMPANY SHALL NOT, AND SHALL CAUSE EACH OF ITS SUBSIDIARIES AND ITS AND EACH OF
THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS, NOT TO, PROVIDE ANY
PURCHASER WITH ANY MATERIAL, NONPUBLIC INFORMATION REGARDING THE COMPANY OR ANY
OF ITS SUBSIDIARIES FROM AND AFTER THE FILING OF THE 8-K FILING WITH THE SEC

 

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WITHOUT THE EXPRESS WRITTEN CONSENT OF SUCH PURCHASER.  IN THE EVENT OF A BREACH
OF THE FOREGOING COVENANT BY THE COMPANY, ANY OF ITS SUBSIDIARIES, OR ANY OF ITS
OR THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS, IN ADDITION TO
ANY OTHER REMEDY PROVIDED HEREIN OR IN THE TRANSACTION DOCUMENTS, A PURCHASER OR
THE COMPANY SHALL HAVE THE RIGHT TO MAKE A PUBLIC DISCLOSURE, IN THE FORM OF A
PRESS RELEASE, PUBLIC ADVERTISEMENT OR OTHERWISE, OF SUCH MATERIAL NONPUBLIC
INFORMATION WITHOUT THE PRIOR APPROVAL BY THE COMPANY, ITS SUBSIDIARIES, OR ANY
OF ITS OR THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES OR AGENTS; PROVIDED
THAT ANY PURCHASER SHALL GIVE THE COMPANY A REASONABLE OPPORTUNITY TO REVIEW AND
COMMENT ON THE TERMS OF ANY SUCH PRESS RELEASE, PUBLIC ADVERTISEMENT OR OTHER
PUBLIC DISCLOSURE AND SHALL IN NO EVENT MAKE ANY SUCH PUBLIC DISCLOSURE IF THE
COMPANY CERTIFIES TO SUCH PURCHASER IN WRITING THAT SUCH INFORMATION DOES NOT
CONSTITUTE MATERIAL, NONPUBLIC INFORMATION.  NO PURCHASER SHALL HAVE ANY
LIABILITY TO THE COMPANY, ITS SUBSIDIARIES, OR ANY OF ITS OR THEIR RESPECTIVE
OFFICERS, DIRECTORS, EMPLOYEES, STOCKHOLDERS OR AGENTS FOR ANY SUCH DISCLOSURE,
EXCEPT TO THE EXTENT THAT THEIR ACTIONS CONSTITUTE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT.  SUBJECT TO THE FOREGOING, NEITHER THE COMPANY NOR ANY PURCHASER
SHALL ISSUE ANY PRESS RELEASES OR ANY OTHER PUBLIC STATEMENTS WITH RESPECT TO
THE TRANSACTIONS CONTEMPLATED HEREBY; PROVIDED, HOWEVER, THAT THE COMPANY SHALL
BE ENTITLED, WITHOUT THE PRIOR APPROVAL OF ANY PURCHASER, TO MAKE ANY PRESS
RELEASE OR OTHER PUBLIC DISCLOSURE WITH RESPECT TO SUCH TRANSACTIONS (I) IN
SUBSTANTIAL CONFORMITY WITH THE 8-K FILING AND CONTEMPORANEOUSLY THEREWITH AND
(II) AS IS REQUIRED BY APPLICABLE LAW AND REGULATIONS (PROVIDED THAT IN THE CASE
OF CLAUSE (I) THE PURCHASERS SHALL BE CONSULTED BY THE COMPANY IN CONNECTION
WITH ANY SUCH PRESS RELEASE OR OTHER PUBLIC DISCLOSURE PRIOR TO ITS RELEASE). 
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 TO THE EXTENT SUCH DISCLOSURE (BUT NOT ANY
DISCLOSURE AS TO THE CONTROLLING PERSONS THEREOF) IS REQUIRED BY LAW OR TRADING
MARKET REGULATIONS, IN WHICH CASE THE COMPANY SHALL PROVIDE THE PURCHASERS WITH
PRIOR NOTICE OF SUCH DISCLOSURE. NOTWITHSTANDING ANYTHING TO THE CONTRARY
HEREIN, (A) THE DELIVERY BY THE COMPANY OF THE NOTICE PURSUANT TO SECTION 4.7(C)
SHALL NOT BE DEEMED A BREACH BY THE COMPANY OF ANY PROVISION IN THIS SECTION
4.8, (II) ANY BREACH BY THE COMPANY OF THE PROVISIONS IN THIS SECTION 4.8 SHALL
NOT CONSTITUTE A TRIGGERING EVENT IF SUCH BREACH DIRECTLY RESULTED FROM THE
PURCHASER’S BAD FAITH SOLICITATION OF MATERIAL, NONPUBLIC INFORMATION AND (III)
THE COMPANY SHALL NOT BE IN BREACH OF THIS SECTION TO THE EXTENT THAT THE
PURCHASER RECEIVES MATERIAL, NONPUBLIC INFORMATION THROUGH SOLICITATION OF SUCH
INFORMATION FROM PERSONS THAT ARE NOT EXECUTIVE OFFICERS OR DIRECTORS OF THE
COMPANY.

 

4.9                                 USE OF PROCEEDS.  THE COMPANY SHALL USE THE
NET PROCEEDS FROM THE SALE OF THE SECURITIES HEREUNDER FOR WORKING CAPITAL
PURPOSES AND NOT FOR THE SATISFACTION OF ANY PORTION OF THE COMPANY’S DEBT
(OTHER THAN PAYMENT OF TRADE PAYABLES, EQUIPMENT OPERATING LEASES AND ACCRUED
EXPENSES IN THE ORDINARY COURSE OF THE COMPANY’S BUSINESS AND PRIOR PRACTICES),
TO REPURCHASE ANY COMPANY EQUITY OR EQUITY-EQUIVALENT SECURITIES OR TO SETTLE
ANY OUTSTANDING LITIGATION.  THIS SECTION 4.9 SHALL NOT APPLY TO ANY AVAILABLE
CASH ON HAND ON THE DATE HEREOF (BEFORE GIVING EFFECT TO THE NET PROCEEDS FROM
THE SALE OF THE SHARES) OR ANY FUTURE FINANCINGS.

 

4.10                           REIMBURSEMENT.  IF ANY PURCHASER OR ANY OF ITS
AFFILIATES OR ANY OFFICER, DIRECTOR, PARTNER, CONTROLLING PERSON, EMPLOYEE OR
AGENT OF A PURCHASER OR ANY OF ITS AFFILIATES (A “RELATED PERSON”) BECOMES
INVOLVED IN ANY CAPACITY IN ANY PROCEEDING BROUGHT BY OR AGAINST ANY PERSON IN
CONNECTION WITH OR AS A RESULT OF THE TRANSACTIONS CONTEMPLATED BY THE
TRANSACTION DOCUMENTS,

 

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THE COMPANY WILL INDEMNIFY AND HOLD HARMLESS SUCH PURCHASER OR RELATED PERSON
FOR ITS REASONABLE LEGAL AND OTHER EXPENSES, NOT TO EXCEED THE COST OF MORE THAN
ONE LAW FIRM, BUT INCLUDING THE COSTS OF ANY INVESTIGATION, PREPARATION AND
TRAVEL, AND FOR ANY LOSSES INCURRED IN CONNECTION THEREWITH, AS SUCH EXPENSES OR
LOSSES ARE INCURRED, EXCEPT IF SUCH LOSSES RESULT FROM THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF SUCH PURCHASER.  IN ADDITION, THE COMPANY SHALL INDEMNIFY
AND HOLD HARMLESS EACH PURCHASER AND RELATED PERSON FROM AND AGAINST ANY AND ALL
LOSSES, AS INCURRED, ARISING OUT OF OR RELATING TO ANY BREACH BY THE COMPANY OF
ANY OF THE REPRESENTATIONS, WARRANTIES OR COVENANTS MADE BY THE COMPANY IN THIS
AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT, OR ANY ALLEGATION BY A THIRD PARTY
THAT, IF TRUE, WOULD CONSTITUTE SUCH A BREACH.  THE CONDUCT OF ANY PROCEEDINGS
FOR WHICH INDEMNIFICATION IS AVAILABLE UNDER THIS PARAGRAPH SHALL BE GOVERNED BY
SECTION 5(C) OF THE REGISTRATION RIGHTS AGREEMENTS.  THE INDEMNIFICATION
OBLIGATIONS OF THE COMPANY UNDER THIS PARAGRAPH SHALL BE IN ADDITION TO ANY
LIABILITY THAT THE COMPANY MAY OTHERWISE HAVE AND SHALL BE BINDING UPON AND
INURE TO THE BENEFIT OF ANY SUCCESSORS, ASSIGNS, HEIRS AND PERSONAL
REPRESENTATIVES OF THE PURCHASERS AND ANY SUCH RELATED PERSONS.  THE COMPANY
ALSO AGREES THAT NEITHER THE PURCHASERS NOR ANY RELATED PERSONS SHALL HAVE ANY
LIABILITY TO THE COMPANY OR ANY PERSON ASSERTING CLAIMS ON BEHALF OF OR IN RIGHT
OF THE COMPANY IN CONNECTION WITH OR AS A RESULT OF THE TRANSACTIONS
CONTEMPLATED BY THE TRANSACTION DOCUMENTS, EXCEPT TO THE EXTENT THAT ANY LOSSES,
CLAIMS, DAMAGES, LIABILITIES OR EXPENSES INCURRED BY THE COMPANY RESULT FROM THE
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE APPLICABLE PURCHASER OR RELATED
PERSON IN CONNECTION WITH SUCH TRANSACTIONS.  IF THE COMPANY BREACHES ITS
OBLIGATIONS UNDER ANY TRANSACTION DOCUMENT, THEN, IN ADDITION TO ANY OTHER
LIABILITIES THE COMPANY MAY HAVE UNDER ANY TRANSACTION DOCUMENT OR APPLICABLE
LAW, THE COMPANY SHALL PAY OR REIMBURSE THE PURCHASERS ON DEMAND FOR ALL COSTS
OF COLLECTION AND ENFORCEMENT (INCLUDING REASONABLE ATTORNEYS FEES AND EXPENSES,
NOT TO EXCEED THE COST OF MORE THAN ONE LAW FIRM).  WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, THE COMPANY SPECIFICALLY AGREES TO REIMBURSE THE
PURCHASERS ON DEMAND FOR ALL COSTS OF ENFORCING THE INDEMNIFICATION OBLIGATIONS
IN THIS PARAGRAPH.

 

4.11                           DEFAULT RATE.  IF THE COMPANY FAILS TO MAKE ANY
CASH PAYMENT REQUIRED BY ANY TRANSACTION DOCUMENT IN FULL WHEN DUE, THEN THE
COMPANY SHALL PAY INTEREST THEREON AT A RATE OF 12% PER ANNUM (OR SUCH LESSER
MAXIMUM RATE THAT IS PERMITTED TO BE PAID UNDER APPLICABLE LAW) FROM THE DATE
SUCH PAYMENT WAS DUE UNTIL SUCH AMOUNT, PLUS ALL SUCH INTEREST THEREON, IS PAID
IN FULL.

 

4.12                           RIGHTS OF SHAREHOLDERS.  EACH TIME THE COMPANY
DELIVERS A NOTICE OR OTHER COMMUNICATION TO HOLDERS OF THE COMMON STOCK IT WILL
CONTEMPORANEOUSLY DELIVER A COPY OF SUCH NOTICE OR COMMUNICATION TO THE
PURCHASERS ONLY FOR SO LONG AS THEY OWN ANY SECURITIES.  THE COMPANY
ACKNOWLEDGES AND AGREES THAT, FOR SO LONG AS A PURCHASER HOLDS ANY SECURITIES
(WHETHER OR NOT SUCH PURCHASER HOLDS SHARES OF COMMON STOCK), (A) THE OFFICERS
AND DIRECTORS OF THE COMPANY WILL OWE THE SAME DUTIES (FIDUCIARY AND OTHERWISE)
TO SUCH PURCHASER AS ARE OWED TO A HOLDER OF COMMON STOCK AND (B) SUCH PURCHASER
WILL BE ENTITLED TO ALL RIGHTS AND REMEDIES WITH RESPECT TO SUCH DUTIES AS ARE
AVAILABLE TO A HOLDER OF COMMON STOCK UNDER THE CORPORATE LAW OF THE COMPANY’S
JURISDICTION OF INCORPORATION.

 

4.13                           SHAREHOLDERS RIGHTS PLAN.  NO CLAIM WILL BE MADE
OR ENFORCED BY THE COMPANY OR ANY OTHER PERSON THAT ANY PURCHASER IS AN
“ACQUIRING PERSON” UNDER ANY SHAREHOLDERS RIGHTS PLAN OR SIMILAR PLAN OR
ARRANGEMENT IN EFFECT OR HEREAFTER ADOPTED BY THE COMPANY, OR THAT ANY

 

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PURCHASER COULD BE DEEMED TO TRIGGER THE PROVISIONS OF ANY SUCH PLAN OR
ARRANGEMENT, SOLELY BY VIRTUE OF RECEIVING UNDERLYING SHARES UNDER THE
TRANSACTION DOCUMENTS OR UNDER ANY OTHER AGREEMENT BETWEEN THE COMPANY AND THE
PURCHASERS.

 

4.14                           CERTAIN TRADING LIMITATIONS.  FOR SO LONG AS A
PURCHASER HOLD THE SHARES ORIGINALLY PURCHASED BY IT UNDER THIS AGREEMENT, SUCH
PURCHASER AGREES THAT IT WILL NOT ENTER INTO ANY SHORT SALES.  FOR PURPOSES OF
THIS SECTION 4.14, A “SHORT SALE” BY A PURCHASER MEANS A SALE OF COMMON STOCK
THAT IS MARKED AS A SHORT SALE AND THAT IS EXECUTED AT A TIME WHEN SUCH
PURCHASER HAS NO EQUIVALENT OFFSETTING LONG POSITION IN THE COMMON STOCK.  FOR
PURPOSES OF DETERMINING WHETHER A PURCHASER HAS AN EQUIVALENT OFFSETTING LONG
POSITION IN THE COMMON STOCK, ALL COMMON STOCK AND ALL COMMON STOCK THAT WOULD
BE ISSUABLE UPON CONVERSION OR EXERCISE IN FULL OF ALL SECURITIES AND OPTIONS
THEN HELD BY SUCH PURCHASER (WHETHER OR NOT SUCH SECURITIES AND OPTIONS WERE
THEN FULLY CONVERTIBLE OR EXERCISABLE, AND GIVING EFFECT TO ANY CONVERSION OR
EXERCISE PRICE ADJUSTMENTS SCHEDULED TO TAKE EFFECT IN THE FUTURE) SHALL BE
DEEMED TO BE HELD LONG BY SUCH PURCHASER.

 

4.15                           INDEBTEDNESS.  SO LONG AS ANY SHARES OF SERIES B
PREFERRED STOCK ARE OUTSTANDING:

 

(A)    THE COMPANY SHALL NOT, AND THE COMPANY SHALL NOT PERMIT ANY OF ITS
SUBSIDIARIES TO, DIRECTLY OR INDIRECTLY, INCUR OR GUARANTEE, ASSUME OR SUFFER TO
EXIST ANY DEBT, OTHER THAN PERMITTED DEBT.

 

(B)   THE COMPANY SHALL NOT, AND THE COMPANY SHALL NOT PERMIT ANY OF ITS
SUBSIDIARIES TO, DIRECTLY OR INDIRECTLY, ALLOW OR SUFFER TO EXIST ANY LIEN,
OTHER THAN PERMITTED LIENS OR LIENS INCURRED IN CONNECTION WITH PERMITTED DEBT
(OTHER THAN PERMITTED SUBORDINATED DEBT).

 

(C)    THE COMPANY SHALL NOT, AND THE COMPANY SHALL NOT PERMIT ANY OF ITS
SUBSIDIARIES TO, DIRECTLY OR INDIRECTLY, REDEEM, DEFEASE, REPURCHASE, REPAY OR
MAKE ANY PAYMENTS IN RESPECT OF, BY THE PAYMENT OF CASH OR CASH EQUIVALENTS (IN
WHOLE OR IN PART, WHETHER BY WAY OF OPEN MARKET PURCHASES, TENDER OFFERS,
PRIVATE TRANSACTIONS OR OTHERWISE), ALL OR ANY PORTION OF ANY PERMITTED
SUBORDINATED DEBT, WHETHER BY WAY OF PAYMENT IN RESPECT OF PRINCIPAL OF (OR
PREMIUM, IF ANY) OR INTEREST ON, SUCH DEBT IF AT THE TIME SUCH PAYMENT IS DUE OR
IS OTHERWISE MADE OR, AFTER GIVING EFFECT TO SUCH PAYMENT, AN EVENT
CONSTITUTING, OR THAT WITH THE PASSAGE OF TIME AND WITHOUT BEING CURED WOULD
CONSTITUTE, A TRIGGERING EVENT HAS OCCURRED AND IS CONTINUING.

 

4.16                           SUBORDINATION.

 

So long as any shares of Series B Preferred Stock are outstanding:

 

(A)    NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT OR
ANY OTHER TRANSACTION DOCUMENT, THE COMPANY AGREES THAT ALL DEBT, OTHER THAN
PERMITTED DEBT REFERRED TO IN CLAUSES (II) THROUGH (IV) OF THE DEFINITION
THEREOF, OF THE COMPANY IS SUBORDINATE IN RIGHT OF PAYMENT TO THE PRIOR PAYMENT
IN FULL OF ALL PAYMENTS ENTITLED TO A HOLDER OF THE SHARES, WHETHER WITH RESPECT
TO DIVIDENDS OR UPON LIQUIDATION, REDEMPTION, DISSOLUTION OR OTHERWISE.  EACH
PURCHASER HAS ACQUIRED THE SECURITIES HEREUNDER IN RELIANCE UPON THE COVENANTS
AND PROVISIONS CONTAINED IN THIS SECTION 4.16.

 

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(B)   THE COMPANY AGREES THAT IT SHALL NOT ISSUE ANY PERMITTED SUBORDINATED DEBT
UNLESS THE HOLDERS OF SUCH PERMITTED SUBORDINATED DEBT AGREE THAT (I) UPON ANY
PAYMENT OR DISTRIBUTION OF ASSETS OF THE COMPANY UPON ANY DISSOLUTION, WINDING
UP, LIQUIDATION, ARRANGEMENT, REORGANIZATION, ADJUSTMENT, PROTECTION, RELIEF OR
COMPOSITION OF THE COMPANY OR ITS DEBTS, WHETHER VOLUNTARY OR INVOLUNTARY, IN
ANY BANKRUPTCY, INSOLVENCY, ARRANGEMENT, REORGANIZATION, RECEIVERSHIP, RELIEF OR
OTHER SIMILAR CASE OR PROCEEDING UNDER ANY FEDERAL OR STATE BANKRUPTCY OR
SIMILAR LAW OR UPON AN ASSIGNMENT FOR THE BENEFIT OF CREDITORS OR ANY OTHER
MARSHALLING OF THE ASSETS AND LIABILITIES OF THE COMPANY, IN EACH CASE WHETHER
TOTAL OR PARTIAL (EACH, A “DISTRIBUTION EVENT”), THE HOLDERS OF THE SERIES B
PREFERRED STOCK WILL FIRST BE PAID, IN FULL, ALL AMOUNTS DUE OR TO BECOME DUE ON
OR IN RESPECT OF THE SERIES B PREFERRED STOCK AND ANY OTHER AMOUNTS OWING UNDER
THE TRANSACTION DOCUMENTS BEFORE SUCH HOLDER OF PERMITTED SUBORDINATED DEBT IS
ENTITLED TO RECEIVE ANY PAYMENT ON THE DEBT OWED TO THEM BY THE COMPANY, (II)
IF, NOTWITHSTANDING THE FOREGOING, SUCH HOLDER OF PERMITTED SUBORDINATED DEBT
RECEIVES ANY PAYMENT OR DISTRIBUTION OF ASSETS OF THE COMPANY OF ANY KIND OR
CHARACTER IN CONNECTION WITH ANY SUCH DISTRIBUTION EVENT BEFORE EACH PURCHASER
IS PAID IN FULL, THEN EACH SUCH PAYMENT OR DISTRIBUTION WILL BE HELD IN TRUST
AND PAID OVER OR DELIVERED FORTHWITH BY SUCH HOLDER OF PERMITTED SUBORDINATED
DEBT TO MAINFIELD ENTERPRISE, INC., AS AGENT FOR THE RATABLE BENEFIT OF THE
HOLDERS OF THE SERIES B PREFERRED STOCK, FOR APPLICATION TO THE PAYMENT OF ANY
AMOUNTS REMAINING UNPAID TO THE PURCHASERS, AND (III) SUCH HOLDER OF PERMITTED
SUBORDINATED DEBT SHALL NOT DECLARE OR JOIN IN ANY DECLARATION OF ANY OF THE
DEBT TO BE DUE AND PAYABLE OR OTHERWISE TAKE OR CAUSE TO BE TAKEN ANY ACTION
AGAINST THE COMPANY OR ANY OF THEIR RESPECTIVE ASSETS (INCLUDING COMMENCING ANY
LEGAL OR EQUITABLE ACTION OR FILING OR JOINING IN THE FILING OF ANY INSOLVENCY
PETITION) UNTIL THE PURCHASERS WILL FIRST BE PAID, IN FULL, ALL AMOUNTS DUE OR
TO BECOME DUE ON OR IN RESPECT OF THE SECURITIES.  UPON ANY PAYMENT OR
DISTRIBUTION REFERRED TO IN THIS SECTION 4.16(B), THE COMPANY SHALL BE ENTITLED
TO RELY UPON ANY ORDER OR DECREE OF A COURT OF COMPETENT JURISDICTION IN WHICH
SUCH DISTRIBUTION EVENT PROCEEDINGS ARE PENDING; PROVIDED, HOWEVER, THAT SUCH
ORDER OR DECREE EXPRESSLY GIVES EFFECT TO THE PROVISIONS OF THIS SECTION 4.16.

 

4.17                           NO IMPAIRMENT.  AT ALL TIMES AFTER THE DATE
HEREOF, THE COMPANY WILL NOT TAKE OR PERMIT ANY ACTION, OR CAUSE OR PERMIT ANY
SUBSIDIARY TO TAKE OR PERMIT ANY ACTION THAT HAS A MATERIAL ADVERSE EFFECT ON
THE RIGHTS OF THE PURCHASERS UNDER THIS AGREEMENT OR THE HOLDERS OF SERIES B
PREFERRED STOCK UNDER THE CERTIFICATE OF DESIGNATIONS.

 

4.18                           FUNDAMENTAL CHANGES.  IN ADDITION TO ANY OTHER
RIGHTS PROVIDED BY LAW OR SET FORTH HEREIN, FROM AND AFTER THE DATE OF THIS
AGREEMENT AND FOR SO LONG AS ANY SHARES OF SERIES B PREFERRED STOCK REMAIN
OUTSTANDING, THE COMPANY SHALL NOT WITHOUT FIRST OBTAINING THE APPROVAL (BY VOTE
OR WRITTEN CONSENT, AS PROVIDED BY LAW) OF THE HOLDERS OF A MAJORITY OF THE
SHARES OF SERIES B PREFERRED STOCK THEN OUTSTANDING:

 

(A)    PURCHASE, REDEEM (OTHER THAN PURSUANT TO EQUITY INCENTIVE AGREEMENTS WITH
EMPLOYEES GIVING THE COMPANY THE RIGHT TO REPURCHASE SHARES UPON THE TERMINATION
OF SERVICES) OR SET ASIDE ANY SUMS FOR THE PURCHASE OR REDEMPTION OF, OR DECLARE
OR PAY ANY DIVIDEND (INCLUDING A DIVIDEND PAYABLE IN STOCK OF THE COMPANY) OR
MAKE ANY OTHER DISTRIBUTION WITH RESPECT TO, ANY SHARES OF CAPITAL STOCK OR ANY
OTHER SECURITIES THAT ARE CONVERTIBLE INTO OR EXERCISABLE FOR SUCH STOCK (OTHER
THAN THE SERIES B PREFERRED STOCK), OR ANY PERMITTED SUBORDINATED DEBT, OR SET
ASIDE ANY MONIES FOR SUCH A REDEMPTION, PURCHASE OR OTHER ACQUISITION;

 

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(B)   CHANGE THE NATURE OF THE COMPANY’S BUSINESS TO ANY BUSINESS WHICH IS
FUNDAMENTALLY DISTINCT AND SEPARATE FROM THE BUSINESS CURRENTLY CONDUCTED BY THE
COMPANY;

 

(C)    USE MORE THAN $25 MILLION IN THE AGGREGATE OF ITS AVAILABLE CASH ON THE
DATE HEREOF (TAKING INTO ACCOUNT THE PROCEEDS RECEIVED FROM THIS TRANSACTION)
FOR ACQUISITIONS; OR

 

(D)   CAUSE OR PERMIT ANY SUBSIDIARY DIRECTLY OR INDIRECTLY TO TAKE ANY ACTIONS
DESCRIBED IN CLAUSES (A) THROUGH (C) ABOVE, OTHER THAN ISSUING SECURITIES TO THE
COMPANY OR ANY WHOLLY-OWNED SUBSIDIARY.

 

4.19                           VOTING AGREEMENT.  EACH PURCHASER HEREBY AGREES
THAT FOR SO LONG AS IT HOLDS SERIES B PREFERRED STOCK, IT SHALL VOTE ITS SHARES
OF SERIES B PREFERRED STOCK AND COMMON STOCK ON ALL MATTERS IN WHICH SUCH
PURCHASER OR ITS AFFILIATES IS ENTITLED TO VOTE AND ON WHICH HOLDERS OF COMMON
STOCK HAVE THE RIGHT TO VOTE, IN THE MANNER RECOMMENDED BY THE BOARD OF
DIRECTORS OF THE COMPANY TO ALL OF ITS SHAREHOLDERS UNLESS THE BOARD OF
DIRECTORS OF THE COMPANY ELECTS TO PERMIT THE PURCHASERS TO VOTE SUCH SHARES IN
THEIR OWN DISCRETION.  THIS SECTION 4.19 SHALL NOT APPLY TO ANY OF THE MATTERS
SET FORTH IN THE LAST SENTENCE OF SECTION 11 OR SECTION 21(D) OF THE CERTIFICATE
OF DESIGNATIONS.

 

4.20                           LOCK-UP.  IF THE COMPANY HAS SELECTED AN
UNDERWRITER IN CONNECTION WITH A PUBLIC OFFERING OF ITS COMMON STOCK, THEN EACH
PURCHASER THAT BENEFICIALLY OWNS GREATER THAN 5% OF THE OUTSTANDING COMMON STOCK
AT SUCH TIME SHALL AGREE TO EXECUTE A LOCK-UP LETTER IN CUSTOMARY FORM
REASONABLY ACCEPTABLE TO SUCH UNDERWRITER, PROVIDED THAT EACH OF THE FOLLOWING
CONDITIONS ARE SATISFIED (I) SUCH UNDERWRITER REQUIRES EACH OTHER SHAREHOLDER OF
THE COMPANY WHO OWNS GREATER THAN 5% OF THE OUTSTANDING COMMON STOCK TO EXECUTE
AN IDENTICAL LOCK-UP LETTER AND (II) SUCH LOCK-UP LETTER SHALL NOT CONTAIN
RESTRICTIONS FOR A PERIOD GREATER THAN 6 MONTHS FOLLOWING SUCH PUBLIC OFFERING. 
FOR SUCH PURPOSES, BENEFICIAL OWNERSHIP SHALL BE DETERMINED IN ACCORDANCE WITH
SECTION 13(D) OF THE EXCHANGE ACT AND THE RULES AND REGULATIONS PROMULGATED
THEREUNDER.

 

ARTICLE V
CONDITIONS

 

5.1                                 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
THE PURCHASERS.  THE OBLIGATION OF EACH PURCHASER TO ACQUIRE THE INITIAL UNITS
AND THE UNIT WARRANTS AT THE CLOSING IS SUBJECT TO THE SATISFACTION OR WAIVER BY
SUCH PURCHASER, AT OR BEFORE THE CLOSING, OF EACH OF THE FOLLOWING CONDITIONS:

 

(A)                                  REPRESENTATIONS AND WARRANTIES.  THE
REPRESENTATIONS AND WARRANTIES OF THE COMPANY CONTAINED HEREIN SHALL BE TRUE AND
CORRECT AS OF THE DATE WHEN MADE AND AS OF THE CLOSING AS THOUGH MADE ON AND AS
OF SUCH DATE;

 

(B)                                 PERFORMANCE.  THE COMPANY AND EACH OTHER
PURCHASER SHALL HAVE PERFORMED, SATISFIED AND COMPLIED IN ALL MATERIAL RESPECTS
WITH ALL COVENANTS, AGREEMENTS AND CONDITIONS REQUIRED BY THE TRANSACTION
DOCUMENTS TO BE PERFORMED, SATISFIED OR COMPLIED WITH BY IT AT OR PRIOR TO THE
CLOSING;

 

(C)                                  NO INJUNCTION.  NO STATUTE, RULE,
REGULATION, EXECUTIVE ORDER, DECREE, RULING OR INJUNCTION SHALL HAVE BEEN
ENACTED, ENTERED, PROMULGATED OR ENDORSED BY ANY COURT OR

 

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GOVERNMENTAL AUTHORITY OF COMPETENT JURISDICTION THAT PROHIBITS THE CONSUMMATION
OF ANY OF THE TRANSACTIONS CONTEMPLATED BY THE TRANSACTION DOCUMENTS;

 

(D)                                 NO SUSPENSIONS OF TRADING IN COMMON STOCK;
LISTING.  THE COMMON STOCK (I) SHALL BE DESIGNATED FOR QUOTATION OR LISTED ON
THE TRADING MARKET AND (II) SHALL NOT HAVE BEEN SUSPENDED BY THE COMMISSION OR
THE TRADING MARKET FROM TRADING ON THE TRADING MARKET NOR SHALL SUSPENSION BY
THE COMMISSION OR THE TRADING MARKET HAVE BEEN THREATENED EITHER (A) IN WRITING
BY THE COMMISSION OR THE TRADING MARKET OR (B) BY FALLING BELOW THE MINIMUM
LISTING MAINTENANCE REQUIREMENTS OF THE TRADING MARKET; AND

 

(E)                                  ADVERSE CHANGES.  SINCE THE DATE OF
EXECUTION OF THIS AGREEMENT, NO EVENT OR SERIES OF EVENTS SHALL HAVE OCCURRED
THAT REASONABLY COULD BE EXPECTED TO HAVE OR RESULT IN A MATERIAL ADVERSE
EFFECT.

 

5.2                                 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
THE COMPANY.  THE OBLIGATION OF THE COMPANY TO SELL THE INITIAL UNITS AND THE
UNIT WARRANTS AT THE CLOSING IS SUBJECT TO THE SATISFACTION OR WAIVER BY THE
COMPANY, AT OR BEFORE THE CLOSING, OF EACH OF THE FOLLOWING CONDITIONS:

 

(A)                                  REPRESENTATIONS AND WARRANTIES.  THE
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS CONTAINED HEREIN SHALL BE TRUE
AND CORRECT IN ALL MATERIAL RESPECTS AS OF THE DATE WHEN MADE AND AS OF THE
CLOSING DATE AS THOUGH MADE ON AND AS OF SUCH DATE;

 

(B)                                 PERFORMANCE.  THE PURCHASERS SHALL HAVE
PERFORMED, SATISFIED AND COMPLIED IN ALL MATERIAL RESPECTS WITH ALL COVENANTS,
AGREEMENTS AND CONDITIONS REQUIRED BY THE TRANSACTION DOCUMENTS TO BE PERFORMED,
SATISFIED OR COMPLIED WITH BY THE PURCHASERS AT OR PRIOR TO THE CLOSING; AND

 

(C)                                  NO INJUNCTION.  NO STATUTE, RULE,
REGULATION, EXECUTIVE ORDER, DECREE, RULING OR INJUNCTION SHALL HAVE BEEN
ENACTED, ENTERED, PROMULGATED OR ENDORSED BY ANY COURT OR GOVERNMENTAL AUTHORITY
OF COMPETENT JURISDICTION THAT PROHIBITS THE CONSUMMATION OF ANY OF THE
TRANSACTIONS CONTEMPLATED BY THE TRANSACTION DOCUMENTS.

 

ARTICLE VI
MISCELLANEOUS

 

6.1                                 TERMINATION.  THIS AGREEMENT MAY BE
TERMINATED BY EITHER THE PURCHASER OR THE COMPANY, BY WRITTEN NOTICE TO THE
OTHER PARTY, IF THE CLOSING HAS NOT BEEN CONSUMMATED BY THE FIFTH TRADING DAY
FOLLOWING THE DATE OF THIS AGREEMENT; PROVIDED THAT NO SUCH TERMINATION WILL
AFFECT THE RIGHT OF ANY PARTY TO SUE FOR ANY BREACH BY THE OTHER PARTY (OR
PARTIES).

 

6.2                                 FEES AND EXPENSES.  AT THE CLOSING, THE
COMPANY SHALL PAY TO MAINFIELD ENTERPRISES, INC., AN AGGREGATE OF $75,000 FOR
THEIR LEGAL FEES AND EXPENSES INCURRED IN CONNECTION WITH THE PREPARATION AND
NEGOTIATION OF THE TRANSACTION DOCUMENTS, OF WHICH AMOUNT $25,000 HAS BEEN
PREVIOUSLY PAID BY THE COMPANY TO PROSKAUER ROSE LLP.  IN LIEU OF THE FOREGOING
PAYMENTS, MAINFIELD ENTERPRISES, INC. MAY RETAIN THE AMOUNT OF SUCH PAYMENTS
INSTEAD OF DELIVERING SUCH AMOUNTS TO THE COMPANY AT THE CLOSING.  EXCEPT AS
EXPRESSLY SET FORTH IN THE TRANSACTION DOCUMENTS TO THE CONTRARY, EACH PARTY
SHALL PAY THE FEES AND EXPENSES OF ITS

 

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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
issuance of any Securities.

 

6.3                                 ENTIRE AGREEMENT.  THE TRANSACTION
DOCUMENTS, TOGETHER WITH THE EXHIBITS AND SCHEDULES THERETO, CONTAIN THE ENTIRE
UNDERSTANDING OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND
SUPERSEDE ALL PRIOR AGREEMENTS AND UNDERSTANDINGS, ORAL OR WRITTEN, WITH RESPECT
TO SUCH MATTERS, WHICH THE PARTIES ACKNOWLEDGE HAVE BEEN MERGED INTO SUCH
DOCUMENTS, EXHIBITS AND SCHEDULES.  AT OR AFTER THE CLOSING, AND WITHOUT FURTHER
CONSIDERATION, THE COMPANY WILL EXECUTE AND DELIVER TO THE PURCHASERS SUCH
FURTHER DOCUMENTS AS MAY BE REASONABLY REQUESTED IN ORDER TO GIVE PRACTICAL
EFFECT TO THE INTENTION OF THE PARTIES UNDER THE TRANSACTION DOCUMENTS. 
NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, SECURITIES MAY BE ASSIGNED TO
ANY PERSON IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.

 

6.4                                 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
(I) THE DATE OF TRANSMISSION, IF SUCH NOTICE OR COMMUNICATION IS DELIVERED VIA
FACSIMILE AT THE FACSIMILE NUMBER SPECIFIED IN THIS SECTION PRIOR TO 5:30 P.M.
(NEW YORK CITY TIME) ON A TRADING DAY, (II) THE NEXT TRADING DAY AFTER THE DATE
OF TRANSMISSION, IF SUCH NOTICE OR COMMUNICATION IS DELIVERED VIA FACSIMILE AT
THE FACSIMILE NUMBER SPECIFIED IN THIS AGREEMENT LATER THAN 5:30 P.M. (NEW YORK
CITY TIME) ON ANY DATE AND EARLIER THAN 11:59 P.M. (NEW YORK CITY TIME) ON SUCH
DATE, (III) THE TRADING DAY FOLLOWING THE DATE OF MAILING, IF SENT BY NATIONALLY
RECOGNIZED OVERNIGHT COURIER SERVICE, OR (IV) UPON ACTUAL RECEIPT BY THE PARTY
TO WHOM SUCH NOTICE IS REQUIRED TO BE GIVEN.  THE ADDRESSES FOR SUCH NOTICES AND
COMMUNICATIONS ARE THOSE SET FORTH ON THE SIGNATURE PAGES HEREOF, OR SUCH OTHER
ADDRESS AS MAY BE DESIGNATED IN WRITING HEREAFTER, IN THE SAME MANNER, BY SUCH
PERSON.

 

6.5                                 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 EACH OF THE PURCHASERS OR, IN THE CASE
OF A WAIVER, BY THE PARTY AGAINST WHOM ENFORCEMENT OF ANY SUCH WAIVER IS
SOUGHT.  NO WAIVER OF ANY DEFAULT WITH RESPECT TO ANY PROVISION, CONDITION OR
REQUIREMENT OF THIS AGREEMENT SHALL BE DEEMED TO BE A CONTINUING WAIVER IN THE
FUTURE OR A WAIVER OF ANY SUBSEQUENT DEFAULT OR A WAIVER OF ANY OTHER PROVISION,
CONDITION OR REQUIREMENT HEREOF, NOR SHALL ANY DELAY OR OMISSION OF EITHER PARTY
TO EXERCISE ANY RIGHT HEREUNDER IN ANY MANNER IMPAIR THE EXERCISE OF ANY SUCH
RIGHT.

 

6.6                                 CONSTRUCTION.  THE HEADINGS HEREIN ARE FOR
CONVENIENCE ONLY, DO NOT CONSTITUTE A PART OF THIS AGREEMENT AND SHALL NOT BE
DEEMED TO LIMIT OR AFFECT ANY OF THE PROVISIONS HEREOF.  THE LANGUAGE USED IN
THIS AGREEMENT WILL BE DEEMED TO BE THE LANGUAGE CHOSEN BY THE PARTIES TO
EXPRESS THEIR MUTUAL INTENT, AND NO RULES OF STRICT CONSTRUCTION WILL BE APPLIED
AGAINST ANY PARTY.

 

6.7                                 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 THE
PURCHASERS. ANY PURCHASER MAY ASSIGN ITS RIGHTS UNDER THIS AGREEMENT AND THE
REGISTRATION

 

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RIGHTS AGREEMENT TO ANY PERSON TO WHOM SUCH PURCHASER ASSIGNS OR TRANSFERS ANY
SECURITIES IN ACCORDANCE WITH SECTION 4.1.

 

6.8                                 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 THAT EACH RELATED
PERSON IS AN INTENDED THIRD PARTY BENEFICIARY OF SECTION 4.10 AND MAY ENFORCE
THE PROVISIONS OF SUCH SECTION DIRECTLY AGAINST THE COMPANY.

 

6.9                                 GOVERNING LAW; VENUE; WAIVER OF JURY TRAIL. 
ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND
INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.  EACH PARTY HEREBY
IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL
COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN, FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY
TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO
THE ENFORCEMENT OF ANY OF THE TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY
WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM
THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT
SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER.  EACH PARTY HEREBY IRREVOCABLY
WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY
SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR
CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY
AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT
SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE
THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT
TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.  THE COMPANY HEREBY WAIVES ALL
RIGHTS TO A TRIAL BY JURY.

 

6.10                           SURVIVAL.  THE REPRESENTATIONS, WARRANTIES,
AGREEMENTS AND COVENANTS CONTAINED HEREIN SHALL SURVIVE THE CLOSING AND THE
DELIVERY, CONVERSION AND/OR EXERCISE OF THE SECURITIES, AS APPLICABLE.

 

6.11                           EXECUTION.  THIS AGREEMENT MAY BE EXECUTED IN TWO
OR MORE COUNTERPARTS, ALL OF WHICH WHEN TAKEN TOGETHER SHALL BE CONSIDERED ONE
AND THE SAME AGREEMENT AND SHALL BECOME EFFECTIVE WHEN COUNTERPARTS HAVE BEEN
SIGNED BY EACH PARTY AND DELIVERED TO THE OTHER PARTY, IT BEING UNDERSTOOD THAT
BOTH PARTIES NEED NOT SIGN THE SAME COUNTERPART.  IN THE EVENT THAT ANY
SIGNATURE IS DELIVERED BY FACSIMILE TRANSMISSION, SUCH SIGNATURE SHALL CREATE A
VALID AND BINDING OBLIGATION OF THE PARTY EXECUTING (OR ON WHOSE BEHALF SUCH
SIGNATURE IS EXECUTED) THE SAME WITH THE SAME FORCE AND EFFECT AS IF SUCH
FACSIMILE SIGNATURE PAGE WERE AN ORIGINAL THEREOF.

 

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6.12                           SEVERABILITY.  IF ANY PROVISION OF THIS AGREEMENT
IS HELD TO BE INVALID OR UNENFORCEABLE IN ANY RESPECT, THE VALIDITY AND
ENFORCEABILITY OF THE REMAINING TERMS AND PROVISIONS OF THIS AGREEMENT SHALL NOT
IN ANY WAY BE AFFECTED OR IMPAIRED THEREBY AND THE PARTIES WILL ATTEMPT TO AGREE
UPON A VALID AND ENFORCEABLE PROVISION THAT IS A REASONABLE SUBSTITUTE THEREFOR,
AND UPON SO AGREEING, SHALL INCORPORATE SUCH SUBSTITUTE PROVISION IN THIS
AGREEMENT.

 

6.13                           RESCISSION AND WITHDRAWAL RIGHT.  NOTWITHSTANDING
ANYTHING TO THE CONTRARY CONTAINED IN (AND WITHOUT LIMITING ANY SIMILAR
PROVISIONS OF) THE TRANSACTION DOCUMENTS, WHENEVER ANY PURCHASER EXERCISES A
RIGHT, ELECTION, DEMAND OR OPTION UNDER A TRANSACTION DOCUMENT AND THE COMPANY
DOES NOT TIMELY PERFORM ITS RELATED OBLIGATIONS WITHIN THE PERIODS THEREIN
PROVIDED, THEN SUCH PURCHASER MAY RESCIND OR WITHDRAW, IN ITS SOLE DISCRETION
FROM TIME TO TIME UPON WRITTEN NOTICE TO THE COMPANY, ANY RELEVANT NOTICE,
DEMAND OR ELECTION IN WHOLE OR IN PART WITHOUT PREJUDICE TO ITS FUTURE ACTIONS
AND RIGHTS.

 

6.14                           REPLACEMENT OF SECURITIES.  IF ANY CERTIFICATE OR
INSTRUMENT EVIDENCING ANY SECURITIES IS MUTILATED, LOST, STOLEN OR DESTROYED,
THE COMPANY SHALL ISSUE OR CAUSE TO BE ISSUED IN EXCHANGE AND SUBSTITUTION FOR
AND UPON CANCELLATION THEREOF, 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 AND CUSTOMARY AND
REASONABLE INDEMNITY, IF REQUESTED.  THE APPLICANTS FOR A NEW CERTIFICATE OR
INSTRUMENT UNDER SUCH CIRCUMSTANCES SHALL ALSO PAY ANY REASONABLE THIRD-PARTY
COSTS ASSOCIATED WITH THE ISSUANCE OF SUCH REPLACEMENT SECURITIES.

 

6.15                           REMEDIES.  IN ADDITION TO BEING ENTITLED TO
EXERCISE ALL RIGHTS PROVIDED HEREIN OR GRANTED BY LAW, INCLUDING RECOVERY OF
DAMAGES, EACH OF THE PURCHASERS AND THE COMPANY WILL BE ENTITLED TO SPECIFIC
PERFORMANCE UNDER THE TRANSACTION DOCUMENTS.  THE PARTIES AGREE THAT MONETARY
DAMAGES MAY NOT BE ADEQUATE COMPENSATION FOR ANY LOSS INCURRED BY REASON OF ANY
BREACH OF OBLIGATIONS DESCRIBED IN THE FOREGOING SENTENCE AND HEREBY AGREES TO
WAIVE IN ANY ACTION FOR SPECIFIC PERFORMANCE OF ANY SUCH OBLIGATION THE DEFENSE
THAT A REMEDY AT LAW WOULD BE ADEQUATE.

 

6.16                           PAYMENT SET ASIDE.  TO THE EXTENT THAT THE
COMPANY MAKES A PAYMENT OR PAYMENTS TO ANY PURCHASER PURSUANT TO ANY TRANSACTION
DOCUMENT OR A PURCHASER ENFORCES OR EXERCISES ITS RIGHTS THEREUNDER, AND SUCH
PAYMENT OR PAYMENTS OR THE PROCEEDS OF SUCH ENFORCEMENT OR EXERCISE OR ANY PART
THEREOF ARE SUBSEQUENTLY INVALIDATED, DECLARED TO BE FRAUDULENT OR PREFERENTIAL,
SET ASIDE, RECOVERED FROM, DISGORGED BY OR ARE REQUIRED TO BE REFUNDED, REPAID
OR OTHERWISE RESTORED TO THE COMPANY, A TRUSTEE, RECEIVER OR ANY OTHER PERSON
UNDER ANY LAW (INCLUDING, WITHOUT LIMITATION, ANY BANKRUPTCY LAW, STATE OR
FEDERAL LAW, COMMON LAW OR EQUITABLE CAUSE OF ACTION), THEN TO THE EXTENT OF ANY
SUCH RESTORATION THE OBLIGATION OR PART THEREOF ORIGINALLY INTENDED TO BE
SATISFIED SHALL BE REVIVED AND CONTINUED IN FULL FORCE AND EFFECT AS IF SUCH
PAYMENT HAD NOT BEEN MADE OR SUCH ENFORCEMENT OR SETOFF HAD NOT OCCURRED.

 

6.17                           USURY.  TO THE EXTENT IT MAY LAWFULLY DO SO, THE
COMPANY HEREBY AGREES NOT TO INSIST UPON OR PLEAD OR IN ANY MANNER WHATSOEVER
CLAIM, AND WILL RESIST ANY AND ALL EFFORTS TO BE COMPELLED TO TAKE THE BENEFIT
OR ADVANTAGE OF, USURY LAWS WHEREVER ENACTED, NOW OR AT ANY TIME HEREAFTER IN
FORCE, IN CONNECTION WITH ANY CLAIM, ACTION OR PROCEEDING THAT MAY BE BROUGHT BY
ANY PURCHASER IN ORDER TO ENFORCE ANY RIGHT OR REMEDY UNDER ANY TRANSACTION
DOCUMENT. 

 

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NOTWITHSTANDING ANY PROVISION TO THE CONTRARY CONTAINED IN ANY TRANSACTION
DOCUMENT, IT IS EXPRESSLY AGREED AND PROVIDED THAT THE TOTAL LIABILITY OF THE
COMPANY UNDER THE TRANSACTION DOCUMENTS FOR PAYMENTS IN THE NATURE OF INTEREST
SHALL NOT EXCEED THE MAXIMUM LAWFUL RATE AUTHORIZED UNDER APPLICABLE LAW (THE
“MAXIMUM RATE”), AND, WITHOUT LIMITING THE FOREGOING, IN NO EVENT SHALL ANY RATE
OF INTEREST OR DEFAULT INTEREST, OR BOTH OF THEM, WHEN AGGREGATED WITH ANY OTHER
SUMS IN THE NATURE OF INTEREST THAT THE COMPANY MAY BE OBLIGATED TO PAY UNDER
THE TRANSACTION DOCUMENTS EXCEED SUCH MAXIMUM RATE.  IT IS AGREED THAT IF THE
MAXIMUM CONTRACT RATE OF INTEREST ALLOWED BY LAW AND APPLICABLE TO THE
TRANSACTION DOCUMENTS IS INCREASED OR DECREASED BY STATUTE OR ANY OFFICIAL
GOVERNMENTAL ACTION SUBSEQUENT TO THE DATE HEREOF, THE NEW MAXIMUM CONTRACT RATE
OF INTEREST ALLOWED BY LAW WILL BE THE MAXIMUM RATE OF INTEREST APPLICABLE TO
THE TRANSACTION DOCUMENTS FROM THE EFFECTIVE DATE FORWARD, UNLESS SUCH
APPLICATION IS PRECLUDED BY APPLICABLE LAW.  IF UNDER ANY CIRCUMSTANCES
WHATSOEVER, INTEREST IN EXCESS OF THE MAXIMUM RATE IS PAID BY THE COMPANY TO ANY
PURCHASER WITH RESPECT TO INDEBTEDNESS EVIDENCED BY THE TRANSACTION DOCUMENTS,
SUCH EXCESS SHALL BE APPLIED BY SUCH PURCHASER TO THE UNPAID PRINCIPAL BALANCE
OF ANY SUCH INDEBTEDNESS OR BE REFUNDED TO THE COMPANY, THE MANNER OF HANDLING
SUCH EXCESS TO BE AT SUCH PURCHASER’S ELECTION.

 

6.18                           INDEPENDENT NATURE OF PURCHASERS.  THE
OBLIGATIONS OF EACH PURCHASER UNDER ANY TRANSACTION DOCUMENT ARE SEVERAL AND NOT
JOINT WITH THE OBLIGATIONS OF ANY OTHER PURCHASER, AND NO PURCHASER SHALL BE
RESPONSIBLE IN ANY WAY FOR THE PERFORMANCE OF THE OBLIGATIONS OF ANY OTHER
PURCHASER UNDER ANY TRANSACTION DOCUMENT.  THE DECISION OF EACH PURCHASER TO
PURCHASE SECURITIES PURSUANT TO THIS AGREEMENT HAS BEEN MADE BY SUCH PURCHASER
INDEPENDENTLY OF ANY OTHER PURCHASER AND INDEPENDENTLY OF ANY INFORMATION,
MATERIALS, STATEMENTS OR OPINIONS AS TO THE BUSINESS, AFFAIRS, OPERATIONS,
ASSETS, PROPERTIES, LIABILITIES, RESULTS OF OPERATIONS, CONDITION (FINANCIAL OR
OTHERWISE) OR PROSPECTS OF THE COMPANY OR OF THE SUBSIDIARY WHICH MAY HAVE BEEN
MADE OR GIVEN BY ANY OTHER PURCHASER OR BY ANY AGENT OR EMPLOYEE OF ANY OTHER
PURCHASER, AND NO PURCHASER OR ANY OF ITS AGENTS OR EMPLOYEES SHALL HAVE ANY
LIABILITY TO ANY OTHER PURCHASER (OR ANY OTHER PERSON) RELATING TO OR ARISING
FROM ANY SUCH INFORMATION, MATERIALS, STATEMENTS OR OPINIONS.  NOTHING CONTAINED
HEREIN OR IN ANY TRANSACTION DOCUMENT, AND NO ACTION TAKEN BY ANY PURCHASER
PURSUANT THERETO, SHALL BE DEEMED TO CONSTITUTE THE PURCHASERS AS A PARTNERSHIP,
AN ASSOCIATION, A JOINT VENTURE OR ANY OTHER KIND OF ENTITY, OR CREATE A
PRESUMPTION THAT THE PURCHASERS ARE IN ANY WAY ACTING IN CONCERT OR AS A GROUP
WITH RESPECT TO SUCH OBLIGATIONS OR THE TRANSACTIONS CONTEMPLATED BY THE
TRANSACTION DOCUMENT.  EACH PURCHASER ACKNOWLEDGES THAT NO OTHER PURCHASER HAS
ACTED AS AGENT FOR SUCH PURCHASER IN CONNECTION WITH MAKING ITS INVESTMENT
HEREUNDER AND THAT NO OTHER PURCHASER WILL BE ACTING AS AGENT OF SUCH PURCHASER
IN CONNECTION WITH MONITORING ITS INVESTMENT HEREUNDER.  EACH PURCHASER SHALL BE
ENTITLED TO INDEPENDENTLY PROTECT AND ENFORCE ITS RIGHTS, INCLUDING, WITHOUT
LIMITATION, THE RIGHTS ARISING OUT OF THIS AGREEMENT OR OUT OF THE OTHER
TRANSACTION DOCUMENTS, AND IT SHALL NOT BE NECESSARY FOR ANY OTHER PURCHASER TO
BE JOINED AS AN ADDITIONAL PARTY IN ANY PROCEEDING FOR SUCH PURPOSE.

 

6.19                           ADJUSTMENTS IN SHARE NUMBERS AND PRICES.  IN THE
EVENT OF ANY STOCK SPLIT, SUBDIVISION, DIVIDEND OR DISTRIBUTION PAYABLE IN
SHARES OF COMMON STOCK (OR OTHER SECURITIES OR RIGHTS CONVERTIBLE INTO, OR
ENTITLING THE HOLDER THEREOF TO RECEIVE DIRECTLY OR INDIRECTLY SHARES OF COMMON
STOCK), COMBINATION OR OTHER SIMILAR RECAPITALIZATION OR EVENT OCCURRING AFTER
THE DATE HEREOF, EACH REFERENCE IN ANY TRANSACTION DOCUMENT TO A NUMBER OF
SHARES OR A PRICE PER SHARE SHALL BE AMENDED TO APPROPRIATELY ACCOUNT FOR SUCH
EVENT.

 

35

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[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES FOLLOW]

 

36

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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.

 

 

ARENA PHARMACEUTICALS, INC.

 

 

 

By:

/s/ Jack Lief

 

 

Name:

Jack Lief

 

 

Title:

President and Chief Executive Officer

 

 

 

 

Address for Notice:

 

 

 

6166 Nancy Ridge Drive

 

San Diego, CA  92121

 

Facsimile No.: 858-677-0065

 

Attn:  General Counsel

 

With a copy to:

 

Milbank, Tweed, Hadley & McCloy LLP

One Chase Manhattan Plaza

New York, NY 10005

Facsimile No.: 212-822-5680

Telephone No.: 212-530-5680

Attn:  Robert S. Reder, Esq.

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASERS FOLLOWS

 

37

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MAINFIELD ENTERPRISES, INC.

 

 

 

 

 

By:

/s/ Aui Vigder

 

 

Name:

Aui Vigder

 

 

Title:

Authorized Signatory

 

 

 

 

 

 

Address for Notice:

 

 

 

Mainfield Enterprises, Inc.

 

c/o Sage Capital Growth, Inc.

 

660 Madison Avenue

 

New York, NY 10022

 

Telephone No.: (212) 651-9000

 

Facsimile No.: (212) 651-9010

 

Attn: Eldad Gal

 

 

 

 

 

With a copy to

 

Proskauer Rose LLP

 

1585 Broadway

 

New York, New York 10036-8299

 

Facsimile No.: (212) 969-2900

 

Telephone No.: (212) 969-3000

 

Attn:  Adam J. Kansler, Esq.

 

38

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SMITHFIELD FIDUCIARY LLC

 

 

 

 

 

By:

/s/ Adam J. Chill

 

 

Name: Adam J. Chill

 

Title: Authorized Signatory

 

 

 

 

 

Address for Notice:

 

 

 

c/o Highbridge Capital Management, LLC

 

9 West 57th Street, 27th floor

 

New York, NY 10019

 

Facsimile No.:  (212) 287-4720

 

Telephone No.: (212) 751-0755

 

Attn:  Ari J. Storch / Adam J. Chill

 

39

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TABLE OF CONTENTS

 

ARTICLE I DEFINITIONS

1.1

Definitions.

ARTICLE II PURCHASE AND SALE

2.1

Sale and Issuance of Series B Preferred Stock at Closing.

2.2

Closing.

2.3

Closing Deliveries.

ARTICLE III REPRESENTATIONS AND WARRANTIES

3.1

Representations and Warranties of the Company.

3.2

Representations and Warranties of the Purchasers.

ARTICLE IV OTHER AGREEMENTS OF THE PARTIES

4.1

Transfer Restrictions.

4.2

Acknowledgment of Dilution.

4.3

Furnishing of Information.

4.4

Integration.

4.5

Reservation and Listing of Securities.

4.6

Conversion and Exercise Procedures.

4.7

Subsequent Placements.

4.8

Securities Laws Disclosure; Publicity.

4.9

Use of Proceeds.

4.10

Reimbursement.

4.11

Default Rate.

4.12

Rights of Shareholders.

4.13

Shareholders Rights Plan.

4.14

Certain Trading Limitations.

4.15

Indebtedness.

4.16

Subordination.

4.17

No Impairment.

4.18

Fundamental Changes.

4.19

Voting Agreement.

ARTICLE V CONDITIONS

5.1

Conditions Precedent to the Obligations of the Purchasers.

5.2

Conditions Precedent to the Obligations of the Company.

ARTICLE VI MISCELLANEOUS

6.1

Termination.

6.2

Fees and Expenses.

6.3

Entire Agreement.

6.4

Notices.

6.5

Amendments; Waivers.

6.6

Construction.

6.7

Successors and Assigns.

6.8

No Third-Party Beneficiaries.

 

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

 

6.9

Governing Law; Venue; Waiver Of Jury Trail.

6.10

Survival.

6.11

Execution.

6.12

Severability.

6.13

Rescission and Withdrawal Right.

6.14

Replacement of Securities.

6.15

Remedies.

6.16

Payment Set Aside.

6.17

Usury.

6.18

Independent Nature of Purchasers.

6.19

Adjustments in Share Numbers and Prices.

 

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

 

Exhibits:

 

A

 

Form of Certificate of Designations (See Exhibit 3.1 to this Form 8-K)

B

 

Registration Rights Agreement (See Exhibit 10.2 to this Form 8-K)

C

 

Form of Warrant (See Exhibit 10.3 to this Form 8-K)

D

 

Transfer Agent Instructions

E-1

 

Opinion of Company Counsel

E-2

 

Opinion of General Counsel

F

 

Form of Unit Warrant (See Exhibit 10.4 to this Form 8-K)

 

Schedules:

 

A

 

Purchasers

3.1(a)

 

Subsidiaries

3.1(g)

 

Capitalization

3.1(j)

 

Absence of Litigation

3.1(w)

 

Registration Rights

3.1(y)

 

Indebtedness

 

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

 

Exhibit D

 

IRREVOCABLE TRANSFER AGENT INSTRUCTIONS

 

Computershare Trust Company
350 Indiana Street, Suite 800

Golden, Colorado  80401

 

Ladies and Gentlemen:

Reference is made to the Securities Purchase Agreements (the “Purchase
Agreement”), dated as of December 24, 2003, among Arena Pharmaceuticals, Inc., a
Delaware corporation (the “Company”) and the purchasers named therein (the
“Holders”) pursuant to which the Company is issuing the Company’s Series B-1
Convertible Preferred Stock (“Series B-1 Preferred Stock”), $.0001 par value per
share, Series B-2 Convertible Preferred Stock (“Series B-2 Preferred Stock”),
$.0001 par value per share (“Series B-2 Preferred Stock” and, together with the
Series B-1 Preferred Stock, the “Shares”), and common stock purchase warrants
(“Warrants”) and unit warrants exercisable for additional units (“Unit
Warrants”).  The shares of Common Stock issuable upon conversion of the Shares
and upon exercise of the Warrants (including the Warrants issuable upon exercise
of the Unit Warrants) and in satisfaction of any other obligation of the Company
to issue shares of Common Stock pursuant to the Transaction Documents are herein
referred to as the “Securities”.

The Company has agreed with the Holders that it will instruct you to: (A) issue
the Securities free of all restrictive and other legends if, at the time of such
issue, (i) a registration statement covering the resale of such Securities has
been declared and is effective by the Commission under the Securities Act, (ii)
such Securities are eligible for sale under Rule 144(k) or (iii) of such legend
is not required under applicable requirements of the Securities Act (including
judicial interpretations and pronouncements issued by the Staff of the
Commission); or (B) reissue the Securities (if such shares were originally
issued with a restrictive legend) free of all restrictive and other legends (i)
upon the effectiveness of a  registration statement covering the resale of the
Securities or (ii) following any sale of such Securities pursuant to Rule 144 or
(iii) such Securities are eligible for sale under Rule 144(k) or (iv) if such
legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the Staff of
the Commission).

In furtherance of this instruction, upon the effectiveness of the Registration
Statement (as defined in the Purchase Agreement) we have instructed our counsel
to deliver to you their opinion letter in the form attached hereto as Exhibit I
to the effect that the Registration Statement has been declared effective by the
Commission and that Securities are freely transferable by the Holders pursuant
to such Registration Statement and accordingly may be issued (or reissued, as
applicable) and delivered to the Holders free of all restrictive and other
legends.

You need not require further letters from us or our counsel to effect any future
issuance or reissuance of shares of Securities to the Holders as contemplated by
the Purchase

 

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

 

Agreement and this letter.  This letter shall serve as our standing irrevocable
instructions with regard to this matter

Please be advised that the Holders have relied upon this instruction letter as
an inducement to enter into the Purchase Agreement.  Please execute this letter
in the space indicated to acknowledge your agreement to act in accordance with
these instructions.

 

Very truly yours,

 

 

 

 

 

Arena Pharmaceuticals, Inc.

 

 

 

 

 

 

 

By:

/s/ Jack Lief

 

Name:

Jack Lief

 

Title:

President and Chief Executive Officer

 

ACKNOWLEDGED AND AGREED:

 

 

 

 

 

Computershare

 

 

 

 

 

 

 

By:

/s/ Ian Yewer

 

Name:

Ian Yewer

 

Title:

President and Chief Operating Officer

 

 

 

 

By:

/s/ Zachary De Lisa

 

Name:

Zachary De Lisa

 

Title:

Operations Manager

 

 

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

 

Exhibit I

 

 

[Counsel’s Letterhead]

 

 

 

 

[Transfer Agent]

 

 

 

Re:          [                 ]

To Whom It May Concern:

We are writing on behalf of our client, Arena Pharmaceuticals, Inc., a Delaware
corporation (the “Company”), in connection with the Company’s recent filing of a
Registration Statement on Form S-3 (File No. ______) (the “Registration
Statement”) with the Securities and Exchange Commission (the “SEC”) relating to
____ shares of the Company’s common stock, [0.0001] par value per share (the
“Registrable Securities”), issued or to be issued to the selling stockholders
(the “Selling Stockholders”) listed in the selling stockholders table at pages
__ of the final prospectus, a copy of which is attached hereto as Exhibit A.

In connection with the foregoing, we advise you that the SEC has entered an
order declaring the Registration Statement effective under the Securities Act of
1933, as amended (the “1933 Act”), on ___ __, 2003.  We have no knowledge that
any stop order suspending its effectiveness has been issued or that any
proceedings for that purpose are pending before, or threatened by, the SEC.

This letter shall serve as our opinion to you that the Common Stock are freely
transferable by the Holders pursuant to the Registration Statement.  You need
not require further letters from us to effect any future legend-free issuance or
reissuance of shares of Common Stock to the Holders as contemplated by the
Company’s Irrevocable Transfer Agent Instructions dated ____, 2003.  This letter
shall serve as our opinion with regard to this matter.

If you have any questions relating to the foregoing, please feel free to call me
at _________________.

 

Very truly yours,

 

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

 

Exhibit E-1

 

FORM OF COMPANY COUNSEL LEGAL OPINION

 

December 24, 2003

 

Mainfield Enterprises, Inc.

c/o Sage Capital Growth, Inc.

660 Madison Avenue

New York, NY  10022

 

Attention:  Eldad Gal

 

 

Ladies and Gentlemen:

 

We have acted as special counsel to Arena Pharmaceuticals, Inc., a Delaware
corporation (the “Company”), in connection with the execution and delivery by
the Company of the Securities Purchase Agreement dated as of  December 24, 2003
(the “Agreement”; capitalized terms not otherwise defined herein are defined as
set forth in the Agreement), by and among the Company and the purchasers
identified on the signature pages thereto (the “Purchasers”).

 

In rendering the opinions expressed below, we have examined the Transaction
Documents (as defined below) and such other documents as we have deemed
necessary as a basis for the opinions expressed below.  In our examination, we
have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity with the authentic
original documents of all documents submitted to us as copies.  When relevant
facts were not independently established, we have relied upon certificates of
government officials and of the Company and its officers and upon
representations and warranties made in or pursuant to the Transaction Documents.

 

In rendering the opinions expressed below, we have assumed (other than as to the
Company) that all of the documents referred to in this opinion have been duly
authorized by, have been duly executed and delivered by, and constitute legal,
valid, binding and enforceable obligations of, all of the parties to such
documents, that all signatories to such documents have been duly authorized and
that all such parties are duly organized and validly existing and have the power
and authority (corporate or other) to execute, deliver and perform such
documents.

 

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

 

Based upon and subject to the foregoing and subject also to the comments and
qualifications set forth below, and having considered such questions of law as
we deemed necessary as a basis for the opinions expressed below, we are of the
opinion that:

 

1.             The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under the Agreement, the
Registration Rights Agreement, the Warrant, the Unit Warrant and each other
document or instrument executed by it or on its behalf on the date hereof in
connection therewith or pursuant thereto (collectively, the “Transaction
Documents”), to issue, sell and deliver the Securities pursuant to the
Transaction Documents and the Certificate of Designations, and to carry out and
perform its obligations under, and to consummate the transactions contemplated
by, the Transaction Documents and the Certificate of Designations.

2.             All corporate action on the part of the Company, its directors
and its stockholders necessary for the authorization, execution and delivery by
the Company of the Transaction Documents, the authorization, issuance, sale and
delivery of the Securities pursuant to the Transaction Documents and the
Certificate of Designations and the consummation by the Company of the
transactions contemplated by the Transaction Documents and the Certificate of
Designations has been duly taken.  The Transaction Documents have been duly and
validly executed and delivered by the Company and constitute the legal, valid
and binding obligations of the Company, enforceable against the Company in
accordance with their terms, except as may be limited by bankruptcy,
conservatorship, receivership, insolvency, reorganization, moratorium,
fraudulent conveyance or transfer or other similar laws relating to or affecting
the rights of creditors generally and except as the enforceability of such
documents is subject to the application of general principles of equity
(regardless of whether considered in a proceeding in equity or at law),
including, without limitation, (a) the possible unavailability of specific
performance, injunctive relief or any other equitable remedy and (b) concepts of
materiality, reasonableness, good faith and fair dealing.

3.             The Shares which are being issued on the date hereof to the
Purchasers pursuant to the Agreement have been duly authorized and validly
issued and are fully paid and nonassessable and free of preemptive or similar
rights under the General Corporation Law of the State of Delaware (the “DGCL”)
and the Fifth Amended and Restated Certificate of Incorporation of the Company
(the “Certificate of Incorporation”), and have been issued in compliance with
applicable securities laws, rules and regulations.  The Underlying Shares have
been duly authorized and, when issued in accordance with the terms of the
respective Securities and Transaction Documents, will be (x) validly issued,
fully paid and nonassessable, (y) free of preemptive or similar rights under the
DGCL and the Certificate of Incorporation and (z) issued in compliance with
applicable securities laws, rules and regulations.  The rights, privileges and
preferences of (i) the Shares are as stated in the Certificate of Designations
and the Certificate of Incorporation and (ii) the Common Stock are as stated in
the Certificate of Incorporation.

4.             Assuming the truth and correctness of the representations and
warranties of the Purchasers contained in the Agreement, the Shares may be
issued to the Purchasers in the manner contemplated by the Agreement without
registration under the Securities Act.

 

2

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

 

5.             The execution, delivery and performance by the Company of, and
the compliance by the Company with the terms of, the Transaction Documents, the
issuance, sale and delivery of the Securities pursuant to the Transaction
Documents and the Certificate of Designations, and the issuance and delivery of
the Underlying Shares in accordance with the terms of the Securities to which
they relate, do not conflict with or result in a violation of (i) any provision
of law, rule or regulation having applicability to the Company or its
Subsidiaries and customarily applicable, in our experience, to transactions of
this type or (ii) the Certificate of Incorporation or bylaws or other similar
organizational documents of the Company.

6.             No consent, license, permit, waiver, approval or authorization
of, or designation, declaration, registration or filing with, any court,
governmental or regulatory authority or self-regulatory organization customarily
applicable, in our experience, to transactions of this type is required in
connection with the valid execution, delivery and performance by the Company of
the Transaction Documents, or the offer, sale, issuance or delivery of the
Securities or the consummation of the transactions contemplated thereby, except
for (i) the filing of the Certificate of Designations in accordance with the
DGCL (which has been accomplished on or prior to the date hereof), (ii) the 8-K
Filing as required by Section 4.8 of the Agreement, (iii) the filings required
in connection with amendments to the Company’s Rights Agreement dated as of
October 30, 2002 with Computershare Trust Company, Inc., as Rights Agent, (iv)
the filings and other actions required under the Registration Rights Agreement
and (v) any required notification of the NASDAQ National Market.

We express no opinion as to Section 6.9 of the Agreement or comparable
provisions in the other Transaction Documents and the Securities insofar as such
provisions relate to (i) the subject matter jurisdiction of any federal court of
the United States of America sitting in New York, New York to adjudicate any
controversy related to the Agreement or (ii) the waiver of inconvenient forum
with respect to proceedings in any federal court of the United States of America
sitting in New York, New York.

In rendering the opinions expressed herein, we have assumed that (i) the Company
will at all times have sufficient authorized and unissued shares of Common Stock
required to be issued pursuant to the terms of the Securities and (ii) that no
shares of Common Stock will be issued upon conversion or exercise, or as a
dividend or upon redemption, of any Securities at an effective price lower than
either the Closing Price on the Trading Day immediately preceding the date
hereof or the book value per share of Common Stock on such day.

We express no opinion as to the enforceability of provisions in any of the
Transaction Documents to the effect that terms may not be waived or modified
except in writing under limited circumstances.  Moreover, we express no opinion
as to the enforceability of Section 4.10 of the Agreement and Section 5 of the
Registration Rights Agreement (and any similar provisions in any of the other
Transaction Documents) insofar as they may be limited by (i) laws rendering
unenforceable indemnification contrary to federal or state securities laws and
the public policy underlying such laws and (ii) laws limiting the enforceability
of provisions exculpating or exempting a party, or requiring indemnification of
a party for, liability for its own action or inaction, to the extent the action
or inaction involves gross negligence, recklessness, willful misconduct or
unlawful conduct.

 

3

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The foregoing opinions are limited to matters involving the laws of the State of
New York, the DGCL and the federal laws of the United States of America, and we
do not express any opinion as to the laws of any other jurisdiction.

At the request of our client, this opinion is being provided to you pursuant to
Section 2.3(v) of the Agreement in or capacity as special counsel to the
Company, and may not be relied upon by any other Person or for any purpose other
than in connection with the transactions contemplated by the Agreement without
our prior written consent.

 

Very truly yours,

 

 

RSR/MLW

 

4

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Exhibit E-2

FORM OF GENERAL COUNSEL LEGAL OPINION

 

Mainfield Enterprises, Inc.

 

Ladies and Gentlemen:

 

I am the General Counsel of Arena Pharmaceuticals, Inc., a Delaware corporation
(the “Company”), and am delivering this opinion in connection with the execution
and delivery by the Company of the Securities Purchase Agreement dated as of
December 24, 2003 (the “Agreement”), by and among the Company and the purchasers
identified on the signature pages thereto (the “Purchasers”).  This opinion is
given to you pursuant to Section 2.3(a)(v) of the Agreement.  (Capitalized terms
not otherwise defined herein are defined as set forth in the Agreement.)

In rendering the opinions express below, I have examined the Agreement and
Schedules thereto and such other documents as I have deemed necessary as a basis
for the opinions expressed below.  In my examination, I have assumed the
authenticity of all documents submitted to me as originals and the conformity
with the authentic document of any copy submitted to me.  When relevant facts
were not independently established, I have relied upon certificates of
government officials and the Company and its officers other than me, and upon
representations and warranties made in the Agreement and Schedules.

 Based upon and subject to the foregoing and subject also to the comments and
qualifications set forth below, I give you my opinion as follows:

1.             The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware.  The Company has
all requisite corporate power and authority, and all material governmental
licenses, authorizations, consents and approvals, required to own and operate
its properties and assets and to carry on its business as now conducted and as
proposed to be conducted (all as described in the Company’s Annual Report on
Form 10-K for its fiscal ended December 31, 2003).  The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure to qualify could have a Material Adverse Effect.

2.             Based solely on a certificate from the Company’s Vice President,
Finance, after giving effect to the transactions contemplated by the Agreement,
and immediately after the Closing, the authorized capital stock of the Company
will consist of: an aggregate of 67,500,000 shares of Common Stock, of which
25,609,394 shares will be issued and outstanding, 11,244,044 shares will be
reserved for issuance upon conversion

 

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

 

of securities issued in the transaction contemplated by the Agreement, 1,976,963
shares will be reserved for issuance upon conversion of issued and outstanding
options, warrants and other derivative securities (excluding shares reserved for
issuance upon conversion of securities issued in the transaction and under the
Company’s Rights Agreement dated as of October 30, 2002, as amended), 2,339,436
shares will be reserved for issuance to employees, officers, consultants and
directors under the Company’s 1998, 2000 and 2002 Equity Compensation Plans
(excluding shares reserved for issued and outstanding options under such plans)
and 820,345 shares will be reserved for issuance under the Company’s 2001
Employee Stock Purchase Plan, and 7,500,000 shares of Preferred Stock, of which
350,000 is designated Series A Junior Participating Preferred Stock, 3,500 is
designated Series B-1 Convertible Preferred Stock and 1,150 is designated Series
B-2 Convertible Preferred Stock.  The foregoing does not give effect to any
cancellations of options or restricted stock in connection with the December 12,
2003 reduction in force at the Company, nor any cancellation of restricted stock
in connection with the November 11, 2003 deferred compensation plan established
by the Company for executive officers.  All presently issued and outstanding
shares of Common Stock have been duly authorized and validly issued and are
fully paid and nonassessable (except for 747,500 shares of restricted stock) and
free of any preemptive or similar rights in the Certificate of Incorporation. 
To my knowledge, except for rights described in Schedule 3.1(g) of the
Agreement, there are no other options, warrants, conversion privileges or other
rights presently outstanding to purchase or otherwise acquire from the Company
any capital stock or other securities of the Company, or any other agreements to
issue any such securities or rights.

3.             The Company meets the eligibility requirements for the use of
Form S-3 for the registration of the Securities.

4.             To my knowledge, the Company has filed all reports (the “SEC
Documents”) required to be filed by it under Sections 13(a) and 15(d) of the
Exchange Act of 1934, as amended (the “Exchange Act”).  To my knowledge, as of
their respective filing dates, the SEC Documents complied in all material
respects as to form with the requirements of the Exchange Act and the rules and
regulations of the SEC promulgated thereunder.

5.             The execution, delivery and performance by the Company of, and
the compliance by the Company with the terms of, the Transaction Documents, the
issuance, sale and delivery of the Securities pursuant to the Agreement, and the
issuance and delivery of Conversion Stock do not (a) conflict with, result in a
breach of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or result in or permit the
termination or modification of, any agreement, instrument, order, writ, judgment
or decree known to me to which the Company is a party or is subject or (b) to my
knowledge, result in the creation or imposition of any lien, claim or
encumbrance on any of the Company’s assets or properties except to the extent
provided by the terms of Transaction Documents.

6.             To my knowledge, there is no claim, action, suit, proceeding,
arbitration, investigation or inquiry, pending or threatened, before any court
or governmental or administrative body or agency, or any private arbitration
tribunal, against the Company or any of its officers, directors or employees (in
connection with the discharge of their duties as officers, directors and
employees), or affecting any of its properties or assets.

 

2

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

 

7.             The Company is not an Investment Company within the meaning of
the Investment Company Act of 1940, as amended.

I express no opinion as to any matters governed by any laws other than the law
of the State of California and the Federal laws of the United States of America.

Whenever a statement set forth herein is qualified to “my knowledge” or limited
to matters “known to me”, it is intended to indicate that no information that
would give me current actual knowledge of the inaccuracy of such statement has
come to my attention.

The opinions expressed herein speak only as of the date hereof, and I do not
have, nor do I assume, any obligation to advise you of any changes in any facts
or applicable laws after the date hereof which may affect my opinions.

The opinions expressed herein are rendered solely for your benefit and may not
be relied upon for any purpose other than the transactions contemplated by the
Agreement or by any other person, nor may copies be furnished to any other
person without my prior written consent.

Very truly yours,

 

 

3

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Schedule A

 

Purchaser

 

Initial Units

 

Additional Units

 

Initial Units–Initial Shares

 

Initial Units –Initial Warrant
Shares

 

Additional
Units –Initial
Shares

 

Additional
Units –Additional
Warrant
Shares

 

Purchase
Price

 

Mainfield Enterprises, Inc.

 

2,000

 

657

 

2,000

 

849,257

 

657

 

257,087

 

$20,000,000

 

Smithfield Fiduciary LLC

 

1,500

 

493

 

1,500

 

636,943

 

493

 

192,912

 

$15,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

3,500

 

1,150

 

3,500

 

1,486,200

 

1,150

 

450,000

 

$35,000,000

 

 

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

 

 

Schedule 3.1(a)

 

Interest Owned

 

1)             BRL Screening, Inc., which is a wholly owned subsidiary of Arena
Pharmaceuticals, Inc.

 

2)             ChemNavigator, Inc.  Arena Pharmaceuticals, Inc. owns 2,625,000
shares of Series A Preferred Stock.

 

3)             TaiGen Biotechnology Co., Ltd.  Arena Pharmaceuticals owns
11,550,000 Shares of Series A Preferred Stock.

 

4)             Aressa Pharmaceuticals, Inc.  Arena Pharmaceuticals owns
2,500,000 Shares of Series A Preferred Stock.

 

Significant Subsidiaries

 

None.

 

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

 

Schedule 3.1(g)

 

Capitalization as of December 22, 2003

 

Common Shares Authorized

 

67,500,000

 

Preferred Shares Authorized

 

7,500,000

 

Series A Junior Participating Preferred Stock

 

350,000

 

 

Name of Beneficial Holder

 

Shares Owned

 

Percentage of Total

 

 

 

 

 

 

 

BVF Inc.

 

4,658,412

 

18.2

%

Perry Capital, LLC

 

2,806,154

 

11.0

%

Dimensional Fund Advisors Inc

 

1,650,007

 

6.4

%

 

 

 

 

 

 

Other Common Shares Outstanding

 

16,494,821

 

64.4

%

 

 

 

 

 

 

Total Common Shares Outstanding

 

25,609,394

 

100.0

%

 

All presently issued and outstanding shares of Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable (except for
747,500 shares of restricted stock).

 

 

Shares Reserved for Issuance

 

 

 

 

 

 

 

 

Name of Plan(s)

 

# of Shares Reserved

 

Description

 

1998, 2000 and 2002 Company Equity Compensation Plans

 

1,976,963

 

Reserved for issuance upon conversion of issued and outstanding options

 

1998, 2000 and 2002 Company Equity Compensation Plans

 

2,339,436

 

Reserved for issuance to employees, officers, consultants, and directors

 

2001 Company 2001 Employee Stock
Purchase Plan

 

820,345

 

Reserved for issuance to employees

 

 

 

 

 

 

 

Total Shares Reserved for Issuance

 

5,136,744

 

 

 

 

The foregoing does not give effect to any cancellations of options or restricted
stock in connection with the December 12, 2003 reduction in force by the
Company, nor any cancellation of restricted stock in connection with the
November 11, 2003 deferred compensation plan established.

 

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Schedule 3.1(i)

 

Material Changes

 

The Company has announced that it anticipates closing a $13 Million sale and
lease-back of certain facilities that it currently owns.

 

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Schedule 3.1(j)

 

LITIGATION

NONE.

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Schedule 3.1(s)

 

Certain Fees

 

In connection with the transactions contemplated by this securities purchase
agreement, Arena Pharmaceuticals, Inc. will pay Reedland Capital Partners, an
Institutional Division of Financial West Group, Six Hundred Thousand Dollars
($600,000.00) and forty-five thousand (45,000) shares of Arena Common Stock.

 

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Schedule 3.1(w)

 

Registration Rights

 

In connection with the transactions contemplated by this securities purchase
agreement, Arena Pharmaceuticals, Inc. has agreed to include the forty-five
thousand (45,000) shares it will issue to Reedland Capital Partners, an
Institutional Division of Financial West Group, (the “Reedland Shares”) in each
Registration Statement (and prospectus) filed by the Company on behalf of the
investors under this securities purchase agreement; provided, that in any event,
that Arena shall register for resale the Reedland Shares pursuant to an
effective registration statement not later than one (1) year following the
closing of the purchase of the securities under this securities purchase
agreement.

 

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Schedule 3.1(y)

 

Indebtedness

 

None.

 

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