EXHIBIT 10.1

SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement”) is dated as of
February 12, 2009, between Pro-Pharmaceuticals, Inc., a Nevada corporation (the
“Company”), and 10X Fund, L.P., a Delaware limited partnership (the
“Purchaser”).

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”), and Rule 506 promulgated thereunder, the Company desires to
issue and sell to each Purchaser, and each Purchaser, severally and not jointly,
desires 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 agree
as follows:

ARTICLE I.

DEFINITIONS

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

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

“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 405 under the
Securities Act. With respect to a Purchaser, any investment fund or managed
account that is managed on a discretionary basis by the same investment manager
as the Purchaser will be deemed to be an Affiliate of the Purchaser.

“Articles of Amendment” means the Articles of Amendment setting forth the
designations, rights and preferences of Series B-1 Preferred and Series B-2
Preferred in the form attached hereto as Exhibit B.

“Board of Directors” means the board of directors of the Company.

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

“Initial Closing” means the initial closing of the purchase and sale of the
Securities pursuant to Section 2.1.

“Closing Date” means the Trading Day when all of the Transaction Documents have
been executed and delivered by the applicable parties thereto, and all
conditions precedent to (i) the Purchaser’s obligations to pay the Subscription
Amount and (ii) the Company’s obligations to deliver the Securities have been
satisfied or waived.

 

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“Commission” means the Securities and Exchange Commission.

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

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

“Company Counsel” means Greenberg Traurig, LLP, with offices located at One
International Place, Boston, Massachusetts 02110.

“Conversion Shares” means the shares of Common Stock issuable upon conversion of
the Series B-1 Preferred and/or Series B-2 Preferred.

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

“Dividend Shares” means the shares of Common Stock issuable in satisfaction of
dividends payable on the Series B-1 Preferred and/or Series B-2 Preferred.

“Effective Date” means the date that the initial Registration Statement filed by
the Company pursuant to the Registration Rights Agreement is first declared
effective by the Commission.

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

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

“Exempt Issuance” means the issuance of (a) shares of Common Stock or options to
employees, officers, directors or other permitted grantees of the Company
pursuant to any stock or option plan duly adopted for such purpose, by a
majority of the non-employee members of the Board of Directors or a majority of
the members of a committee of non-employee directors established for such
purpose, (b) securities upon the exercise or exchange of or conversion of any
Securities issued hereunder and/or other securities exercisable or exchangeable
for or convertible into shares of Common Stock issued and outstanding on the
date of this Agreement, provided that such securities have not been amended
since the date of this Agreement to increase the number of such securities or to
decrease the exercise, exchange or conversion price of such securities, and
(c) securities issued pursuant to acquisitions or strategic transactions
approved by a majority of the disinterested directors of the Company, provided
that any such issuance shall only be to a

 

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Person which is, itself or through its subsidiaries, an operating company in a
business compatible with the business objectives of the Company and in which the
Company receives benefits in addition to the investment of funds, but shall not
include a transaction in which the Company is issuing securities primarily for
the purpose of raising capital or to an entity whose primary business is
investing in securities.

“Final Purchase Date” means the Business Day immediately subsequent to the date
that is one hundred twenty (120) days from the Closing Date; provided, however,
the Final Purchase Date shall be automatically extended for an additional sixty
(60) days if the aggregate amount of capital contributions credited by the
Purchaser by the date that is ninety (90) days from the Initial Closing Date is
greater than or equal to $2,500,000.

“ILG” means Investment Law Group of Gillett Mottern & Walker LP with offices
located at 1230 Peachtree Street, NE, Suite 2445, Atlanta, Georgia 30309.

“Initial Subscription Amount” means One Million Eight Hundred Thousand Dollars
($1,800,000.00) in United States dollars, in immediately available funds.

“Initial Closing” means the closing of the purchase and sale of the Initial
Closing Securities pursuant to Section 2.1(a).

“Initial Closing Date” means the Trading Day on which the Initial Closing takes
place.

“Initial Closing Securities” means the Series B-1 Preferred and Warrants
purchased by the Purchaser for the Initial Subscription Amount pursuant to
Section 2.1(a) herein.

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

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

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

“Legend Removal Date” shall have the meaning ascribed to such term in
Section 4.1(c).

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

“Material Adverse Effect” shall have the meaning assigned to such term in
Section 3.1(b).

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

“Maximum Subscription Amount” shall mean $6,000,000.

“Origination Fee” means an origination fee payable by the Company to the
Purchaser in the amount of three percent (3%) of the total Initial Subscription
Amount and any Subsequent Subscription Amount that shall be deducted and paid
from the Initial Subscription Amount or any Subsequent Subscription Amounts,
respectively.

 

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“Participation Maximum” shall have the meaning ascribed to such term in
Section 4.12.

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

“Pre-Notice” shall have the meaning ascribed to such term in Section 4.12.

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

“Purchaser Party” shall have the meaning ascribed to such term in Section 4.8.

“Purchaser Expenses” shall mean all expenses incurred by the Purchaser in
connection with the negotiation and execution of the transaction documents,
including travel and communications expenses, and fees of lawyers, accountants
and other professionals.

“Registration Rights Agreement” means the Registration Rights Agreement, dated
the date hereof, among the Company and the Purchaser, in the form of Exhibit A
attached hereto.

“Registration Statement” means a registration statement meeting the requirements
set forth in the Registration Rights Agreement and covering the resale by the
Purchaser of the Conversion Shares, the Dividend Shares and the Warrant Shares.

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

“Rights Offering” means a registered offering of up to $20,000,000 of Common
Stock by the Company to its Common Stockholders.

“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.

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

“Securities” means, collectively, the Series B-1 Preferred, the Series B-2
Preferred, the Warrants, the Warrant Shares, the Conversion Shares and the
Dividend Shares.

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

 

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“Series B Directors” means those directors elected by the holders of the Series
B-1 Preferred and Series B-2 Preferred to serve on the Board of Directors from
time to time.

“Series B-1 Preferred” means shares of the Company’s Series B-1 Convertible
Preferred Stock, $0.01 par value.

“Series B-2 Preferred” means shares of the Company’s Series B-2 Convertible
Preferred Stock, $0.01 par value.

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

“Subsequent Closing” means the closing of the purchase and sale of the
Subsequent Closing Securities pursuant to Section 2.1(b).

“Subsequent Closing Date” means the Trading Day on which each Subsequent Closing
takes place.

“Subsequent Closing Notice” means a notice from an escrow agent (which may
include counsel for the Purchaser) stating that funds of the Purchaser are being
held in escrow for the purchase of Subsequent Closing Securities, which funds
will be released to the Company in a Subsequent Closing when the Company has
satisfied the conditions described in Section 2.3(b) herein.

“Subsequent Closing Securities” means the Series B-2 Preferred and Warrants
purchased by the Purchaser for a Subsequent Subscription Amount pursuant to
Section 2.1(b) herein.

“Subsequent Subscription Amount” means the amount of money specified in any
Subsequent Closing Notice, provided that the sum of the Initial Subscription
Amount and all Subsequent Subscription Amounts may not exceed the Maximum
Subscription Amount.

“Subsequent Financing” shall have the meaning ascribed to such term in
Section 4.12.

“Subsequent Financing Notice” shall have the meaning ascribed to such term in
Section 4.12.

“Subsidiary” means any subsidiary of the Company as set forth on Schedule
3.1(a), and shall, where applicable, include any subsidiary of the Company
formed or acquired after the date hereof.

“Trading Day” means a day on which the New York Stock Exchange is open for
trading.

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

 

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“Transaction Documents” means this Agreement, the Warrants, the Registration
Rights Agreement, the Articles of Amendment and any other documents or
agreements executed in connection with the transactions contemplated hereunder.

“Transfer Agent” means Continental Stock Transfer and Trust Company, the current
transfer agent of the Company, with a mailing address of 17 Battery Place, 8th
floor, New York, New York 10004-1123 and a facsimile number of (212) 616-7616,
and any successor transfer agent of the Company.

“VWAP” means, for any date, the price determined by the first of the following
clauses that applies: (a) if the Common Stock is then listed or quoted on a
Trading Market (other than the OTC Bulletin Board), the daily volume weighted
average price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or quoted for
trading as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m.
(New York City time) to 4:00 p.m. (New York City time); (b) if the Common Stock
is then listed on the OTC Bulletin Board, the average of the high and low price
of the Common Stock for such date (or the nearest preceding date) on the OTC
Bulletin Board; or (c) if the Common Stock is not then quoted for trading on the
OTC Bulletin Board and if prices for the Common Stock are then reported in the
“Pink Sheets” published by Pink Sheets, LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid price per
share of the Common Stock so reported.

“Warrants” means, collectively, the Class A-1 Warrants, the Class A-2 Warrants
and the Class B Warrants, each delivered to the Purchaser at the Closing in
accordance with Section 2.2(a) hereof, in the forms of Exhibit C attached
hereto.

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

ARTICLE II.

PURCHASE AND SALE

2.1 Initial Closing and Subsequent Closing.

(a) On the Initial Closing Date, upon the terms and subject to the conditions
set forth herein, substantially concurrent with the execution and delivery of
this Agreement by the parties hereto, the Company agrees to sell, and the
Purchaser agrees to purchase, (i) 900,000 shares of Series B-1 Preferred,
(ii) one Class A-1 Warrant exercisable to purchase two Warrant Shares for each
share of Series B-1 Preferred purchased, (iii) one Class A-2 Warrants
exercisable to purchase two Warrant Shares for each share of Series B-1
Preferred purchased, and (iv) one Class B Warrant exercisable to purchase eight
Warrant Shares for each share of Series B-1 Preferred purchased. At the Initial
Closing, Purchaser shall deliver the Initial Subscription Amount (less the
Origination Fee and the Purchaser Expenses) to the

 

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Company, and the Company shall deliver to the Purchaser the Series B-1
Preferred, the Class A-1 Warrant, the Class A-2 Warrant and the Class B Warrant
due in respect of the Initial Subscription Amount, and the Company and Purchaser
shall deliver the other items set forth in Section 2.2 deliverable at the
Initial Closing. Upon satisfaction of the covenants and conditions set forth in
Sections 2.2 and 2.3, the Closing shall occur at the offices of ILG or such
other location as the parties shall mutually agree.

(b) At one or more Subsequent Closing Dates until the Final Purchase Date, upon
the terms and subject to the conditions set forth herein, the Company agrees to
sell, and the Purchaser agrees to purchase, (i) one share of Series B-2
Preferred for every two dollars invested by the Purchaser in the Subsequent
Closing, (ii) one Class A-1 Warrant exercisable to purchase two Warrant Shares
for each share of Series B-2 Preferred purchased in the Subsequent Closing,
(iii) one Class A-2 Warrant exercisable to purchase two Warrant Shares for each
share of Series B-2 Preferred purchased in the Subsequent Closing, and (iv) one
Class B Warrant exercisable to purchase eight Warrant Shares for each share of
Series B-2 Preferred purchased in the Subsequent Closing. At each Subsequent
Closing, Purchaser shall deliver the Subsequent Subscription Amount (less the
Origination Fee and the Purchaser Expenses) to the Company, and the Company
shall deliver to the Purchaser the Series B-2 Preferred, the Class A-1 Warrant,
the Class A-2 Warrant and the Class B Warrant due in respect of the Subsequent
Subscription Amount, and the Company and Purchaser shall deliver the other items
set forth in Section 2.2 deliverable at the Subsequent Closing. Each Subsequent
Closing will be held at the offices of ILG at a time mutually agreed by the
parties within two (2) Trading Days after the satisfaction by the Company of all
conditions of the Company required by Section 2.3(b) herein.

2.2 Deliveries.

(a) On or prior to the Initial Closing Date, the Company shall deliver or cause
to be delivered to the Purchaser the following:

(i) this Agreement duly executed by the Company;

(ii) the Articles of Amendment which have been executed in a form acceptable for
filing with the Secretary of State of the State of Nevada;

(iii) a legal opinion of Company Counsel, substantially in the form of Exhibit D
attached hereto;

(iv) a certificate evidencing the number of shares of Series B-1 Preferred
described in Section 2.1(a) herein, registered in the name of Purchaser;

(v) the Warrants exercisable to purchase the number of Warrant Shares described
in Section 2.1(a) herein, registered in the name of the Purchaser; and

(vi) the Registration Rights Agreement duly executed by the Company;

(vii) agreements with Medi-Pharmaceuticals, Inc. and David Platt acceptable to
the Purchaser, in the Purchaser’s sole discretion.

 

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(b) On or prior to the Initial Closing Date, the Purchaser shall deliver or
cause to be delivered to the Company the following:

(i) this Agreement duly executed by the Purchaser;

(ii) the Initial Subscription Amount (less the Origination Fee and the Purchaser
Expenses) by wire transfer to the Company; and

(iii) the Registration Rights Agreement duly executed by the Purchaser.

(c) On or prior to each Subsequent Closing Date, the Company shall deliver or
cause to be delivered to each Purchaser the following:

(i) certificate from an officer of the Company that all conditions and
obligations under this Agreement have been satisfied and the each of its
representations and warranties remain true and accurate in all material respects
as of the Subsequent Closing Date and shall be deemed to be given as of such
date;

(ii) a certificate evidencing the number of shares of Series B-2 Preferred to be
purchased at the Subsequent Closing, registered in the name of Purchaser; and

(iii) Warrants exercisable to purchase the number of Warrant Shares described in
Section 2.1(b) herein, registered in the name of the Purchaser.

(d) On or prior to each Subsequent Closing Date, the Purchaser shall deliver or
cause to be delivered to the Company the applicable Subsequent Subscription
Amount (less the Origination Fee and the Purchaser Expenses).

2.3 Closing Conditions.

(a) The obligations of the Company hereunder in connection with the Initial
Closing and any Subsequent Closing are subject to the following conditions being
met:

(i) the accuracy in all material respects on the Initial Closing Date and each
Subsequent Closing Date of the representations and warranties of the Purchaser
contained herein;

(ii) all obligations, covenants and agreements of the Purchaser required to be
performed at or prior to the Initial Closing Date and/or a Subsequent Closing
Date shall have been performed as of such date; and

(iii) the delivery by the Purchaser of the items set forth in Sections 2.2(b)
and 2.2(d) of this Agreement in connection with the Initial Closing and any
Subsequent Closing, respectively.

(b) The obligations of the Purchaser hereunder in connection with the Initial
Closing and any Subsequent Closing are subject to the following conditions being
met:

(i) the accuracy in all material respects on the Initial Closing Date and any
Subsequent Closing Date of the representations and warranties of the Company
contained herein;

 

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(ii) all obligations, covenants and agreements of the Company and its officers
and directors required to be performed at or prior to the Initial Closing Date
and/or a Subsequent Closing Date, including without limitation, each action set
forth in Sections 4.20 hereof, shall have been performed;

(iii) the delivery by the Company of the items set forth in Sections 2.2(a) and
2.2(c) of this Agreement in connection with the Initial Closing and a Subsequent
Closing, respectively;

(iv) there shall have been no Material Adverse Effect with respect to the
Company since the date hereof.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

3.1 Representations and Warranties of the Company. Except as set forth in the
Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof
and shall qualify any representation or otherwise made herein to the extent of
the disclosure contained in the corresponding section of the Disclosure
Schedules, the Company hereby makes the following representations and warranties
to the Purchaser:

(a) Subsidiaries. All of the direct and indirect subsidiaries of the Company are
set forth on Schedule 3.1(a). The Company owns, directly or indirectly, all of
the capital stock or other equity interests of each Subsidiary free and clear of
any Liens, and all of the issued and outstanding shares of capital stock of each
Subsidiary are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights to subscribe for or purchase securities. If the
Company has no subsidiaries, then all other references to the Subsidiaries or
any of them in the Transaction Documents shall be disregarded.

(b) Organization and Qualification. The Company and each of the Subsidiaries is
an entity duly incorporated or otherwise organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
(as applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted.
Neither the Company nor any Subsidiary is in violation or default of any of the
provisions of its respective certificate or articles of incorporation, bylaws or
other organizational or charter documents. Each of the Company and the
Subsidiaries is duly qualified to conduct business and is in good standing as a
foreign corporation or other entity in each jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, could not have or reasonably be expected to result in (i) a
material adverse effect on the legality, validity or enforceability of any
Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business or condition (financial or otherwise) of the
Company and the Subsidiaries, taken as

 

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a whole, or (iii) a material adverse effect on the Company’s ability to perform
in any material respect on a timely basis its obligations under any Transaction
Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no
Proceeding has been instituted in any such jurisdiction revoking, limiting or
curtailing or seeking to revoke, limit or curtail such power and authority or
qualification.

(c) Authorization; Enforcement. The Company has all 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 hereby and thereby have been duly authorized by all necessary
action on the part of the Company and no further action is required by the
Company, the Board of Directors or the Company’s stockholders in connection
therewith other than in connection with the Required Approvals. Each Transaction
Document has been (or upon delivery will have been) duly executed by the Company
and, when delivered in accordance with the terms hereof and thereof, will
constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except (i) as limited by general
equitable principles and applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors’ rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law.

(d) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company, the issuance and sale of the Securities and the
consummation by the Company of the other 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) conflict with, or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, result in the creation of any Lien upon any of
the properties or assets of the Company or any Subsidiary, 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) subject to the Required Approvals, conflict with or result in a violation
of any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company or a
Subsidiary is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or a Subsidiary
is bound or affected; except in the case of each of clauses (ii) and (iii), such
as could not have or reasonably be expected to result in a Material Adverse
Effect.

(e) Filings, Consents and Approvals. The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or other
governmental authority or

 

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other Person in connection with the execution, delivery and performance by the
Company of the Transaction Documents, other than (i) filings required pursuant
to Section 4.4 of this Agreement, (ii) the filing with the Commission of the
Registration Statement and (iii) application(s), if required, to each applicable
Trading Market for the listing of the Securities for trading thereon in the time
and manner required thereby, and (iv) the filing of Form D with the Commission
and such filings as are required to be made under applicable state securities
laws (collectively, the “Required Approvals”).

(f) Issuance of the Securities. The Securities are duly authorized and, when
issued and paid for in accordance with the applicable Transaction Documents,
will be duly and validly issued, fully paid and nonassessable, free and clear of
all Liens imposed by the Company other than restrictions on transfer provided
for in the Transaction Documents. The Conversion Shares, Warrant Shares and
Dividend Shares, when issued in accordance with the terms of the Transaction
Documents, will be validly issued, fully paid and nonassessable, free and clear
of all Liens imposed by the Company other than restrictions on transfer provided
for in the Transaction Documents. The Company has reserved from its duly
authorized capital stock the maximum number of shares of Common Stock issuable
pursuant to the Preferred Stock and the Warrants.

(g) Capitalization. The capitalization of the Company is as set forth on
Schedule 3.1(g), which Schedule 3.1(g) shall also include the number of shares
of Common Stock owned beneficially, and of record, by Affiliates of the Company
as of the date hereof. The Company has not issued any capital stock since its
most recently filed periodic report under the Exchange Act, other than pursuant
to the exercise of employee stock options under the Company’s stock option
plans, the issuance of shares of Common Stock to employees pursuant to the
Company’s employee stock purchase plans and pursuant to the conversion or
exercise of Common Stock Equivalents outstanding as of the date of the most
recently filed periodic report under the Exchange Act. No Person has any right
of first refusal, preemptive right, right of participation, or any similar right
to participate in the transactions contemplated by the Transaction Documents.
Except as a result of the purchase and sale of the Securities and as set forth
on Schedule 3.1(g), there are no outstanding options, warrants, scrip 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 Common Stock Equivalents. The
issuance 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
Purchaser) and will not result in a right of any holder of Company securities to
adjust the exercise, conversion, exchange or reset price under any of such
securities. All of the outstanding shares of capital stock of the Company are
validly issued, fully paid and nonassessable, have been issued in compliance
with all federal and state securities laws, and none of such outstanding shares
was issued in violation of any preemptive rights or similar rights to subscribe
for or purchase securities. No further approval or authorization of any
stockholder, the Board of Directors or others is required for the issuance and
sale of the Securities. There are no stockholders agreements, voting agreements
or other similar agreements with respect to the Company’s capital stock to which
the Company is a party or, to the knowledge of the Company, between or among any
of the Company’s stockholders.

 

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(h) SEC Reports; Financial Statements. The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by the
Company 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 or regulation to file
such material) (the foregoing materials, including the exhibits thereto and
documents incorporated by reference therein, being collectively referred to
herein as the “SEC Reports”) 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. As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities Act
and the Exchange Act, as applicable, 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. Except as set forth on Schedule 3.1(h) attached hereto, 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. Except as set forth on Schedule 3.1(h) attached hereto, such financial
statements have been prepared in accordance with United States generally
accepted accounting principles applied on a consistent basis during the periods
involved (“GAAP”), except as may be otherwise specified in such financial
statements or the notes thereto and except that unaudited financial statements
may not contain all footnotes required by GAAP, and 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.

(i) Material Changes; Undisclosed Events, Liabilities or Developments. Since the
date of the latest audited financial statements included within the SEC Reports,
except as specifically disclosed in a subsequent SEC Report filed prior to the
date hereof, (i) there has been no event, occurrence or development that has had
or that could reasonably be expected to result in a Material Adverse Effect,
(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 disclosed in filings made with the Commission, (iii) the Company has not
altered its method of accounting, (iv) the Company has not declared or made any
dividend or distribution of cash or other property to its stockholders or
purchased, redeemed or made any agreements to purchase or redeem any shares of
its capital stock and (v) the Company has not issued any equity securities to
any officer, director or Affiliate, except pursuant to existing Company stock
option plans. The Company does not have pending before the Commission any
request for confidential treatment of information. Except for the issuance of
the Securities contemplated by this Agreement or as set forth on Schedule
3.1(i), no event, liability or development has occurred or exists with respect
to the Company or its Subsidiaries or their respective business, properties,
operations or financial condition, that would be required to

 

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be disclosed by the Company under applicable securities laws at the time this
representation is made or deemed made that has not been publicly disclosed at
least 1 Trading Day prior to the date that this representation is made.

(j) Litigation. Except as disclosed in the SEC Reports, 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, have or reasonably be expected to result in a Material
Adverse Effect. Neither the Company nor any Subsidiary, nor any director or
officer thereof, is or 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.

(k) Labor Relations. No material labor dispute exists or, to the knowledge of
the Company, is imminent with respect to any of the employees of the Company
which could reasonably be expected to result in a Material Adverse Effect. None
of the Company’s or its Subsidiaries’ employees is a member of a union that
relates to such employee’s relationship with the Company or such Subsidiary, and
neither the Company nor any of its Subsidiaries is a party to a collective
bargaining agreement, and the Company and its Subsidiaries believe that their
relationships with their employees are good. No executive officer, to the
knowledge of the Company, is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement or non-competition agreement, or any other
contract or agreement or any restrictive covenant in favor of any third party,
and the continued employment of each such executive officer does not subject the
Company or any of its Subsidiaries to any liability with respect to any of the
foregoing matters. The Company and its Subsidiaries are in compliance with all
U.S. federal, state, local and foreign laws and regulations relating to
employment and employment practices, terms and conditions of employment and
wages and hours, except where the failure to be in compliance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.

(l) 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 properties is bound (whether or
not such default or violation has been waived), (ii) is in violation of any
order of any court, arbitrator or governmental body, or (iii) is or has been in
violation of any statute, rule or

 

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regulation of any governmental authority, including without limitation all
foreign, federal, state and local laws applicable to its business and all such
laws that affect the environment, except in each case as could not have or
reasonably be expected to result in a Material Adverse Effect.

(m) 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 reasonably be expected to 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.

(n) Title to Assets. The Company and the Subsidiaries have good and marketable
title in fee simple to all real property owned by them and good and marketable
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 and Liens for the payment of
federal, state or other taxes, the payment of which is neither delinquent nor
subject to penalties. Any real property and facilities held under lease by the
Company and the Subsidiaries are held by them under valid, subsisting and
enforceable leases with which the Company and the Subsidiaries are in
compliance.

(o) Patents and Trademarks. Except as set forth in the SEC Reports, the Company
and the Subsidiaries have, or have rights to use, all patents, patent
applications, trademarks, trademark applications, service marks, trade names,
trade secrets, inventions, copyrights, licenses and other intellectual property
rights and similar rights necessary or material for use in connection with their
respective businesses as described in the SEC Reports and which the failure to
so have could have a Material Adverse Effect (collectively, the “Intellectual
Property Rights”). Neither the Company nor any Subsidiary has received a notice
(written or otherwise) that any of 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 and there is no existing infringement by another Person of any of
the Intellectual Property Rights. The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their intellectual properties, except where failure to do so could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.

(p) 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, including, but not limited to, directors and
officers insurance coverage in the amount set forth on Schedule 3.1(p) attached
hereto. 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.

 

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(q) Transactions With Affiliates and Employees. Except as set forth in the SEC
Reports, 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, in each
case in excess of $60,000 other than for (i) payment of salary or consulting
fees for services rendered, (ii) reimbursement for expenses incurred on behalf
of the Company and (iii) other employee benefits, including stock option
agreements under any stock option plan of the Company.

(r) Sarbanes-Oxley; Internal Accounting Controls. The Company is in material
compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are
applicable to it as of the Closing Date. 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
GAAP 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. The Company has established disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
designed such disclosure controls and procedures to ensure that information
required to be disclosed by the Company in the reports it files or submits under
the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the Commission’s rules and forms. The Company’s
certifying officers have evaluated the effectiveness of the Company’s disclosure
controls and procedures as of the end of the period covered by the Company’s
most recently filed periodic report under the Exchange Act (such date, the
“Evaluation Date”). The Company presented in its most recently filed periodic
report under the Exchange Act the conclusions of the certifying officers about
the effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date. Since the Evaluation Date, there have
been no changes in the Company’s internal control over financial reporting (as
such term is defined in the Exchange Act) that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.

(s) Certain Fees. Any brokerage or finder’s fees or commissions payable by the
Company to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by the Transaction Documents are as set forth on Schedule 3.1(s)
attached hereto. The Purchaser shall have no obligation with respect to any fees
or with respect to any claims made by or on behalf of other Persons for fees of
a type contemplated in this Section that may be due in connection with the
transactions contemplated by the Transaction Documents.

 

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(t) Private Placement. Assuming the accuracy of the Purchaser’s representations
and warranties set forth in Section 3.2, no registration under the Securities
Act is required for the offer and sale of the Securities by the Company to the
Purchaser as contemplated hereby. The issuance and sale of the Securities
hereunder does not contravene the rules and regulations of the Trading Market.

(u) Investment Company. The Company is not, and is not an Affiliate of, and
immediately after receipt of payment for the Securities, will not be or be an
Affiliate of, an “investment company” within the meaning of the Investment
Company Act of 1940, as amended. The Company shall conduct its business in a
manner so that it will not become subject to the Investment Company Act of 1940,
as amended.

(v) Registration Rights. Except as set forth on Schedule 3.1(v) attached hereto,
other than the Purchaser, no Person has any right to cause the Company to effect
the registration under the Securities Act of any securities of the Company that
has not already been satisfied.

(w) Listing and Maintenance Requirements. The Company’s Common Stock is
registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is likely to
have the effect of, terminating the registration of the Common Stock under the
Exchange Act nor has the Company received any notification that the Commission
is contemplating terminating such registration.

(x) Application of Takeover Protections. The Company and the 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 Purchaser as a result of the Purchaser and the Company fulfilling their
obligations or exercising their rights under the Transaction Documents,
including without limitation as a result of the Company’s issuance of the
Securities and the Purchaser’s ownership of the Securities.

(y) Disclosure. All disclosure furnished by or on behalf of the Company to the
Purchaser regarding the Company, its business and the transactions contemplated
hereby, including the Disclosure Schedules to this Agreement, is true and
correct in all material respects and does 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. The press releases disseminated by the Company during the
twelve months preceding the date of this Agreement taken as a whole do not
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 were made and when

 

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made, not misleading. The Company acknowledges and agrees that the Purchaser
does not make nor has made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in
Section 3.2 hereof.

(z) No Integrated Offering. Assuming the accuracy of the Purchaser’s
representations and warranties set forth in Section 3.2, neither the Company,
nor any of its Affiliates, nor any Person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would cause this
offering of the Securities to be integrated with prior offerings by the Company
for purposes of (i) the Securities Act which would require the registration of
any such securities under the Securities Act, or (ii) any applicable shareholder
approval provisions of any Trading Market on which any of the securities of the
Company are listed or designated.

(aa) Indebtedness. Schedule 3.1(aa) sets forth as of the date thereof all
outstanding secured and unsecured Indebtedness of the Company or any Subsidiary,
or for which the Company or any Subsidiary has commitments. For the purposes of
this Agreement, “Indebtedness” means (a) any liabilities for borrowed money or
amounts owed in excess of $100,000 (other than trade accounts payable incurred
in the ordinary course of business), (b) all guaranties, endorsements and other
contingent obligations in respect of indebtedness of others, whether or not the
same are or should be reflected in the Company’s balance sheet (or the notes
thereto), except guaranties by endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of business; and
(c) the present value of any lease payments in excess of $50,000 due under
leases required to be capitalized in accordance with GAAP. Neither the Company
nor any Subsidiary is in default with respect to any Indebtedness.

(bb) Tax Status. Except for matters that would not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company and each Subsidiary has filed all necessary federal, state
and foreign income and franchise tax returns and has paid or accrued all taxes
shown as due thereon, and the Company has no knowledge of a tax deficiency which
has been asserted or threatened against the Company or any Subsidiary.

(cc) No General Solicitation. Neither the Company nor any person acting on
behalf of the Company has offered or sold any of the Securities by any form of
general solicitation or general advertising. The Company has agreed to sell the
Securities only after being approached by Purchaser and subsequently offered for
sale only to the Purchaser within the meaning of Rule 501 under the Securities
Act.

(dd) Foreign Corrupt Practices. Neither the Company, nor to the knowledge of the
Company, any agent or other person acting on behalf of the Company, has
(i) directly or indirectly, used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is in violation of law, or (iv) violated in
any material respect any provision of the Foreign Corrupt Practices Act of 1977,
as amended.

 

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(ee) Accountants. The Company’s accounting firm is set forth on Schedule 3.1(ee)
of the Disclosure Schedule. To the knowledge and belief of the Company, such
accounting firm (i) is a registered public accounting firm as required by the
Exchange Act and (ii) shall express its opinion with respect to the financial
statements to be included in the Company’s Annual Report on Form 10-K for the
year ending December 31, 2008.

(ff) No Disagreements with Accountants and Lawyers. There are no material
disagreements of any kind presently existing, or reasonably anticipated by the
Company to arise, between the Company and the accountants and lawyers formerly
or presently employed by the Company which could affect the Company’s ability to
perform any of its obligations under any of the Transaction Documents.

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

(hh) Acknowledgement Regarding Purchaser’s Trading Activity. Anything in this
Agreement or elsewhere herein to the contrary notwithstanding (except for
Sections 3.2(f) and 4.14 hereof), it is understood and acknowledged by the
Company (i) that the Purchaser has not been asked by the Company to agree, nor
has the Purchaser agreed, to desist from purchasing or selling, long and/or
short, securities of the Company, or “derivative” securities based on securities
issued by the Company or to hold the Securities for any specified term;
(ii) that past or future open market or other transactions by the Purchaser,
specifically including, without limitation, Short Sales or “derivative”
transactions, before or after the closing of this or future private placement
transactions, may negatively impact the market price of the Company’s
publicly-traded securities; (iii) that the Purchaser, and counter-parties in
“derivative” transactions to which the Purchaser is a party, directly or
indirectly, presently may have a “short” position in the Common Stock, and
(iv) that the Purchaser shall not be deemed to have any affiliation with or
control over any arm’s length counter-party in any “derivative” transaction. The
Company further understands and acknowledges that (a) the Purchaser may engage
in hedging activities at various times during the period that the Securities are
outstanding, including, without limitation, during the periods that the value of
the Warrant Shares deliverable with respect to Securities are being determined
and (b) such hedging activities (if any) could reduce the value of the existing
stockholders’ equity interests in the Company at and after the time that the
hedging activities are being conducted. The Company acknowledges that such
aforementioned hedging activities do not constitute a breach of any of the
Transaction Documents.

 

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(ii) Regulation M Compliance. The Company has not, and to its knowledge no one
acting on its behalf has, (i) taken, directly or indirectly, any action designed
to cause or to result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or, paid any compensation for
soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay
to any Person any compensation for soliciting another to purchase any other
securities of the Company, other than, in the case of clauses (ii) and (iii),
compensation paid to the Company’s placement agent in connection with the
placement of the Securities.

(jj) FDA. As to each product subject to the jurisdiction of the U.S. Food and
Drug Administration (“FDA”) under the Federal Food, Drug and Cosmetic Act, as
amended, and the regulations thereunder (“FDCA”) that is manufactured, packaged,
labeled, tested, distributed, sold, and/or marketed by the Company or any of its
Subsidiaries (each such product, a “Pharmaceutical Product”), such
Pharmaceutical Product is being manufactured, packaged, labeled, tested,
distributed, sold and/or marketed by the Company in compliance with all
applicable requirements under FDCA and similar laws, rules and regulations
relating to registration, investigational use, premarket clearance, licensure,
or application approval, good manufacturing practices, good laboratory
practices, good clinical practices, product listing, quotas, labeling,
advertising, record keeping and filing of reports, except where the failure to
be in compliance would not have a Material Adverse Effect. There is no pending,
completed or, to the Company’s knowledge, threatened, action (including any
lawsuit, arbitration, or legal or administrative or regulatory proceeding,
charge, complaint, or investigation) against the Company or any of its
Subsidiaries, and none of the Company or any of its Subsidiaries has received
any notice, warning letter or other written communication from the FDA or any
other governmental entity, which (i) contests the premarket clearance,
licensure, registration, or approval of, the uses of, the distribution of, the
manufacturing or packaging of, the testing of, the sale of, or the labeling and
promotion of any Pharmaceutical Product, (ii) withdraws its approval of,
requests the recall, suspension, or seizure of, or withdraws or orders the
withdrawal of advertising or sales promotional materials relating to, any
Pharmaceutical Product, (iii) imposes a clinical hold on any clinical
investigation by the Company or any of its Subsidiaries, (iv) enjoins production
at any facility of the Company or any of its Subsidiaries, (v) enters or
proposes to enter into a consent decree of permanent injunction with the Company
or any of its Subsidiaries, or (vi) otherwise alleges any violation of any laws,
rules or regulations by the Company or any of its Subsidiaries, and which,
either individually or in the aggregate, would have a Material Adverse Effect.
The properties, business and operations of the Company have been and are being
conducted in all material respects in accordance with all applicable laws, rules
and regulations of the FDA. The Company has not been informed by the FDA that
the FDA will prohibit the marketing, sale, license or use in the United States
of any product proposed to be developed, produced or marketed by the Company nor
has the FDA expressed any concern as to approving or clearing for marketing any
product being developed or proposed to be developed by the Company.

 

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3.2 Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants as of the date hereof and as of the Closing Date to the
Company as follows:

(a) Organization; Authority. The Purchaser is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization with full right, corporate or partnership power and authority to
enter into and to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations hereunder and thereunder.
The execution and delivery of the Transaction Documents and performance by the
Purchaser of the transactions contemplated by the Transaction Documents have
been duly authorized by all necessary corporate or similar action on the part of
the Purchaser. Each Transaction Document to which it is a party has been duly
executed by the Purchaser, and when delivered by the Purchaser in accordance
with the terms hereof, will constitute the valid and legally binding obligation
of the Purchaser, enforceable against it in accordance with its terms, except
(i) as limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies and (iii) insofar as indemnification and contribution
provisions may be limited by applicable law.

(b) Own Account. The Purchaser understands that the Securities are “restricted
securities” and have not been registered under the Securities Act or any
applicable state securities law and is acquiring the Securities as principal for
its own account and not with a view to or for distributing or reselling such
Securities or any part thereof in violation of the Securities Act or any
applicable state securities law, has no present intention of distributing any of
such Securities in violation of the Securities Act or any applicable state
securities law and has no direct or indirect arrangement or understandings with
any other persons to distribute or regarding the distribution of such Securities
(this representation and warranty not limiting the Purchaser’s right to sell the
Securities pursuant to the Registration Statement or otherwise in compliance
with applicable federal and state securities laws) in violation of the
Securities Act or any applicable state securities law. The Purchaser is
acquiring the Securities hereunder in the ordinary course of its business.

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

(d) Experience of The Purchaser. The 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. The 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.

 

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(e) General Solicitation. The Purchaser is not purchasing the Securities as a
result of any advertisement, article, notice or other communication regarding
the Securities published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.

(f) Short Sales Prior To The Date Hereof. Other than consummating the
transactions contemplated hereunder, the Purchaser has not, nor has any Person
acting on behalf of or pursuant to any understanding with the Purchaser,
directly or indirectly executed any purchases or sales, including Short Sales,
of the securities of the Company during the period commencing from the time that
the Purchaser first received a term sheet (written or oral) from the Company or
any other Person representing the Company setting forth the material terms of
the transactions contemplated hereunder until the date hereof (“Discussion
Time”).

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

4.1 Transfer Restrictions.

(a) The Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Securities other than
pursuant to an effective registration statement or Rule 144, to the Company or
to an Affiliate of a Purchaser or in connection with a pledge as contemplated in
Section 4.1(b), the Company may require the transferor thereof to provide to the
Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such transferred Securities under the Securities
Act. As a condition of transfer, any such transferee shall agree in writing to
be bound by the terms of this Agreement and shall have the rights of the
Purchaser under this Agreement and the Registration Rights Agreement.

(b) The Purchaser agrees to the imprinting, so long as is required by this
Section 4.1, of a legend on any of the Securities in the following form:

THIS SECURITY HAS NOT 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 AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A

 

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BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A
FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a)
UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

The Company acknowledges and agrees that the Purchaser may from time to time
pledge pursuant to a bona fide margin agreement with a registered broker-dealer
or grant a security interest in some or all of the Securities to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this Agreement
and the Registration Rights Agreement and, if required under the terms of such
arrangement, the 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 legal counsel of the pledgee,
secured party or pledgor shall be required in connection therewith. Further, no
notice shall be required of such pledge. At the 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, if the Securities are subject to
registration pursuant to the Registration Rights Agreement, the preparation and
filing of any required prospectus supplement under Rule 424(b)(3) under the
Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of Selling Stockholders thereunder.

(c) Certificates evidencing the Securities shall not contain any legend
(including the legend set forth in Section 4.1(b)), (i) while a registration
statement (including the Registration Statement) covering the resale of such
Security is effective under the Securities Act, or (ii) following any sale of
such Security pursuant to Rule 144, or (iii) if such Securities are eligible for
sale under Rule 144(b)(1), 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 a legal opinion to the Transfer Agent
promptly after the Effective Date if required by the Transfer Agent to effect
the removal of the legend hereunder. If all or any portion of a Preferred Shares
or Warrants are converted or exercised at a time when there is an effective
registration statement to cover the resale of the Conversion Shares or Warrant
Shares, as applicable, such Conversion Shares or Warrant Shares shall be issued
free of all legends. The Company agrees that following the Effective Date or at
such time as such legend is no longer required under this Section 4.1(c), it
will, no later than three Trading Days following the delivery by a Purchaser to
the Company or the Transfer Agent of a certificate representing Conversion
Shares, Dividend Shares or Warrant Shares, as the case may be, issued with a
restrictive legend (such third Trading Day, the “Legend Removal Date”), deliver
or cause to be delivered to the Purchaser a certificate representing such shares
that is free from all restrictive and other legends. The Company may not make
any notation on its records or give instructions to the Transfer Agent that
enlarge the restrictions on transfer set forth in this Section. Certificates for
Securities subject to legend removal hereunder shall be transmitted by the
Transfer Agent to the Purchaser by crediting the account of the Purchaser’s
prime broker with the Depository Trust Company System as directed by the
Purchaser.

 

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(d) In addition to the Purchaser’s other available remedies, the Company shall
pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty,
for each $1,000 of Conversion Shares, Dividend Shares or Warrant Shares (based
on the VWAP of the Common Stock on the date such Securities are submitted to the
Transfer Agent) delivered for removal of the restrictive legend and subject to
Section 4.1(c), $10 per Trading Day (increasing to $20 per Trading Day five
(5) Trading Days after such damages have begun to accrue) for each Trading Day
after the tenth Trading Day following the Legend Removal Date until such
certificate is delivered without a legend. Nothing herein shall limit the
Purchaser’s right to pursue actual damages for the Company’s failure to deliver
certificates representing any Securities as required by the Transaction
Documents, and the Purchaser shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief.

(e) The Purchaser agrees that the Purchaser will sell any Securities pursuant to
either the registration requirements of the Securities Act, including any
applicable prospectus delivery requirements, or an exemption therefrom, and that
if Securities are sold pursuant to a Registration Statement, they will be sold
in compliance with the plan of distribution set forth therein, and acknowledges
that the removal of the restrictive legend from certificates representing
Securities as set forth in this Section 4.1 is predicated upon the Company’s
reliance upon this understanding.

4.2 Furnishing of Information. Until the earliest of the time that (i) the
Purchaser owns no Securities, or (ii) all of the Securities can be resold
pursuant to Rule 144(b)(1) under the Securities Act, 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 even if the Company is not then
subject to the reporting requirements of the Exchange Act. As long as the
Purchaser owns Securities, if the Company is not required to file reports
pursuant to the Exchange Act, it will prepare and furnish to the Purchaser and
make publicly available in accordance with Rule 144(c)(2) such information as is
required for the Purchaser to sell the Securities under Rule 144. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, to the extent required from time to time to
enable such Person to sell such Securities without registration under the
Securities Act within the requirements of the exemption provided by Rule 144.

4.3 Integration. The Company shall not 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 Purchaser or that would be integrated
with the offer or sale of the Securities to the Purchaser for purposes of the
rules and regulations of any Trading Market such that it would require
shareholder approval prior to the closing of such other transaction unless
shareholder approval is obtained before the closing of such subsequent
transaction.

4.4 Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m. (New
York City time) no later than the Trading Day four days after the date hereof,
issue a Current Report on Form 8-K, disclosing the material terms of the
transactions contemplated hereby, and filing

 

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the Transaction Documents as exhibits thereto. The Company and each Purchaser
shall consult with each other in issuing any other press releases with respect
to the transactions contemplated hereby, and neither the Company nor any
Purchaser shall issue any such press release or otherwise make any such public
statement without the prior consent of the Company, with respect to any press
release of any Purchaser, or without the prior consent of each Purchaser, with
respect to any press release of the Company, which consent shall not
unreasonably be withheld or delayed, except if such disclosure is required by
law, in which case the disclosing party shall promptly provide the other party
with prior notice of such public statement or communication. 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 the
Purchaser, except (i) as required by federal securities law in connection with
(A) any registration statement contemplated by the Registration Rights Agreement
and (B) the filing of final Transaction Documents (including signature pages
thereto) with the Commission and (ii) to the extent such disclosure is required
by law or Trading Market regulations, in which case the Company shall provide
the Purchaser with prior notice of such disclosure permitted under this clause
(ii).

4.5 Shareholder Rights Plan. No claim will be made or enforced by the Company
or, with the consent of the Company, any other Person, that the Purchaser is an
“Acquiring Person” under any control share acquisition, business combination,
poison pill (including any distribution under a rights agreement) or similar
anti-takeover plan or arrangement in effect or hereafter adopted by the Company,
or that the Purchaser could be deemed to trigger the provisions of any such plan
or arrangement, by virtue of receiving Securities under the Transaction
Documents or under any other agreement between the Company and the Purchaser.

4.6 [Intentionally omitted]

4.7 Use of Proceeds. Except as set forth on Schedule 4.7 attached hereto, the
Company shall use the net proceeds from the sale of the Securities hereunder for
working capital purposes and shall not, without the consent of a majority of the
Series B Directors, use such proceeds for (a) the satisfaction of any portion of
the Company’s debt (other than payment of trade payables in the ordinary course
of the Company’s business and prior practices and other than the Company’s
indebtedness to George Maricostas), (b) the redemption of any Common Stock or
Common Stock Equivalents, or (c) the settlement of any outstanding litigation.

4.8 Indemnification of Purchaser. Subject to the provisions of this Section 4.8,
the Company will indemnify and hold the Purchaser and its directors, officers,
shareholders, members, partners, employees and agents (and any other Persons
with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls the Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling persons (each, a
“Purchaser Party”) harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and
costs of investigation (collectively, “Losses”) that any the Purchaser Party may
suffer or incur as a result of or relating to (a) any

 

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breach of any of the representations, warranties, covenants or agreements made
by the Company in this Agreement or in the other Transaction Documents or
(b) any action instituted against a Purchaser in any capacity, or any of them or
their respective Affiliates, by any stockholder of the Company who is not an
Affiliate of the Purchaser, with respect to any of the transactions contemplated
by the Transaction Documents (unless such action is based upon a breach of the
Purchaser’s representations, warranties or covenants under the Transaction
Documents or any agreements or understandings the Purchaser may have with any
such stockholder or any violations by the Purchaser of state or federal
securities laws or any conduct by the Purchaser which constitutes fraud, gross
negligence, willful misconduct or malfeasance). If any action shall be brought
against any Purchaser Party in respect of which indemnity may be sought pursuant
to this Agreement, the Purchaser Party shall promptly notify the Company in
writing, and the Company shall have the right to assume the defense thereof with
counsel of its own choosing reasonably acceptable to the Purchaser Party. Any
Purchaser Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of the Purchaser Party except to the extent that
(i) the employment thereof has been specifically authorized by the Company in
writing, (ii) the Company has failed after a reasonable period of time to assume
such defense and to employ counsel or (iii) in such action there is, in the
reasonable opinion of such separate counsel, a material conflict on any material
issue between the position of the Company and the position of the Purchaser
Party, in which case the Company shall be responsible for the reasonable fees
and expenses of no more than one such separate counsel. The Company will not be
liable to any Purchaser Party under this Agreement (i) for any settlement by a
Purchaser Party effected without the Company’s prior written consent, which
shall not be unreasonably withheld or delayed; or (ii) to the extent, but only
to the extent that a loss, claim, damage or liability is attributable to any
Purchaser Party’s breach of any of the representations, warranties, covenants or
agreements made by the Purchaser Party in this Agreement or in the other
Transaction Documents. In no event shall the indemnification obligations of the
Company hereunder exceed the total amount of the Initial Subscription Amount
plus the Subsequent Subscription Amount less the Origination Fee. All Losses due
hereunder shall be net of any amounts actually recovered by the Purchaser
Parties under insurance policies with respect to such Losses. The Company shall
not be liable hereunder for any consequential, punitive, indirect, exemplary
damages or any damages measured by lost profits or a multiple of earnings.

4.9 Reservation of Common Stock and Preferred Stock.

(a) As of the date hereof, the Company has reserved and the Company shall
continue to reserve and keep available at all times, free of preemptive rights,
a sufficient number of shares of Common Stock for the purpose of enabling the
Company to issue the Conversion Shares, Dividend Shares and Warrant Shares
required by the Transaction Documents.

(b) As of the date hereof, the Company has reserved and the Company shall
continue to reserve and keep available at all times, free of preemptive rights,
a sufficient number of shares of Series B-1 Preferred and Series B-2 Preferred
for the purpose of enabling the Company to issue such shares pursuant to this
Agreement.

4.10 Listing of Common Stock. The Company hereby agrees to use commercially
reasonable efforts to maintain the listing of the Common Stock on a Trading
Market. The

 

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Company further agrees, if the Company applies to have the Common Stock traded
on any other Trading Market, it will include in such application all of the
Preferred Shares and Warrant Shares, and will take such other action as is
necessary to cause all of the Preferred Shares and Warrant Shares to be listed
on such other Trading Market as promptly as possible. The Company will take all
action reasonably necessary to continue the listing and trading of its Common
Stock on a Trading Market and will comply in all respects with the Company’s
reporting, filing and other obligations under the bylaws or rules of the Trading
Market. The Purchaser agrees to furnish such information as may be reasonably
required by the Trading Market in connection with the application for listing
the Conversion Shares, Dividend Shares and Warrant Shares.

4.11 [Intentionally Deleted].

4.12 Participation in Future Financing.

(a) From the date hereof until the date that is the later of (i) the 12 month
anniversary of the Effective Date and (ii) the date that the Purchaser no longer
holds any Securities, upon any issuance by the Company or any of its
Subsidiaries of Common Stock or Common Stock Equivalents for cash consideration
(a “Subsequent Financing”), the Purchaser, subject to Section 4.12(g), shall
have the right to participate in the Subsequent Financing up to an amount equal
to the lesser of (x) 100% of the Subsequent Financing or (y) the aggregate
amount of the Initial Subscription Amount and the sum of all Subsequent
Subscription Amounts (the “Participation Maximum”) on the same terms, conditions
and price provided for in the Subsequent Financing.

(b) At least ten (10) calendar days prior to the closing of the Subsequent
Financing, the Company shall deliver a written notice of its intention to effect
a Subsequent Financing to the Purchaser (“Pre-Notice”), which Pre-Notice shall
ask the Purchaser if it wants to review the details of such financing (such
additional notice, a “Subsequent Financing Notice”). Upon the request of the
Purchaser, and only upon a request by the Purchaser, for a Subsequent Financing
Notice, the Company shall promptly, but no later than 1 Trading Day after such
request, deliver a Subsequent Financing Notice to the Purchaser. The Subsequent
Financing Notice shall describe in reasonable detail the proposed terms of such
Subsequent Financing, the amount of proceeds intended to be raised thereunder,
the Person or Persons through or with whom such Subsequent Financing is proposed
to be effected, and attached to which shall be a term sheet or similar document
relating thereto.

(c) If the Purchaser desires to participate in such Subsequent Financing, it
must provide written notice to the Company by not later than 5:30 p.m. (New York
City time) on the 5th calendar day after the Purchasers received the Pre-Notice
that the Purchaser is willing to participate in the Subsequent Financing, the
amount of the Purchaser’s participation, and that the Purchaser has such funds
ready, willing, and available for investment on the terms set forth in the
Subsequent Financing Notice. If the Company receives no notice from the
Purchaser as of such 5th calendar day, then the Purchaser shall be deemed to
have notified the Company that it does not elect to participate.

(d) If by 5:30 p.m. (New York City time) on the 5th calendar day after the
Purchasers has received the Pre-Notice, notification by the Purchasers of its
willingness to participate

 

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in the Subsequent Financing (or to cause its designees to participate) is less
than the total amount of the Subsequent Financing, then the Company may effect
the remaining portion of such Subsequent Financing on the terms and with the
Persons set forth in the Subsequent Financing Notice.

(e) [Intentionally Deleted].

(f) The Company must provide the Purchaser with a second Subsequent Financing
Notice, and the Purchaser will again have the right of participation set forth
above in this Section 4.12, if the Subsequent Financing subject to the initial
Subsequent Financing Notice is not consummated for any reason on the terms set
forth in such Subsequent Financing Notice within 60 Trading Days after the date
of the initial Subsequent Financing Notice. (g) Notwithstanding the foregoing,
this Section 4.12 shall not apply in respect of (i) an Exempt Issuance or
(ii) an underwritten public offering of Common Stock.

4.13 Subsequent Equity Sales. Unless approved in writing by a majority of the
Series B Directors, or if there are no Series B Directors by the Purchaser if
the Purchaser still holds Securities, from the date hereof until such time as
the Purchaser does not hold any of the Securities, the Company shall be
prohibited from effecting or entering into an agreement to effect any Subsequent
Financing involving a Variable Rate Transaction. “Variable Rate Transaction”
means a transaction in which the Company issues or sells (i) any debt or equity
securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (A) at a
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the shares of Common Stock
at any time after the initial issuance of such debt or equity securities, or
(B) with a conversion, exercise or exchange price that is subject to being reset
at some future date after the initial issuance of such debt or equity security
or upon the occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common Stock or
(ii) enters into any agreement, including, but not limited to, an equity line of
credit, whereby the Company may sell securities at a future determined price.
Any Purchaser shall be entitled to obtain injunctive relief against the Company
to preclude any such issuance, which remedy shall be in addition to any right to
collect damages.

4.14 Short Sales and Confidentiality After The Date Hereof. The Purchaser
covenants that neither it nor any Affiliate acting on its behalf or pursuant to
any understanding with it will execute any Short Sales during the period
commencing at the Discussion Time and ending at the time that the transactions
contemplated by this Agreement are first publicly announced as described in
Section 4.4. The Purchaser covenants that between the date of execution of this
Agreement and the date the transactions contemplated by this Agreement are
publicly disclosed by the Company as described in Section 4.4, the Purchaser
will maintain the confidentiality of the existence and terms of this transaction
and the information included in the Disclosure Schedules. Notwithstanding the
foregoing, the Purchaser makes no representation, warranty or covenant hereby
that it will not engage in Short Sales in the securities of the Company after
the time that the transactions contemplated by this Agreement are first publicly
announced as described in Section 4.4. Notwithstanding the foregoing, in the
case where Purchaser is a multi-managed investment vehicle whereby separate
portfolio managers manage separate portions of the Purchaser’s assets and the
portfolio managers have no direct knowledge of the investment

 

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decisions made by the portfolio managers managing other portions of the
Purchaser’s assets, the covenant set forth above shall only apply with respect
to the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this Agreement.

4.15 [Intentionally Deleted]

4.16 Form D; Blue Sky Filings. The Company agrees to timely file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof, promptly upon request of the Purchaser. The Company shall take such
action as the Company shall reasonably determine is necessary in order to obtain
an exemption for, or to qualify the Securities for, sale to the Purchaser at the
Closing under applicable securities or “Blue Sky” laws of the states of the
United States, and shall provide evidence of such actions promptly upon request
of any Purchaser.

4.17 Capital Changes. Until the one year anniversary of the Effective Date, the
Company shall not undertake a reverse or forward stock split or reclassification
of the Common Stock without the prior written consent of the Purchaser.

4.18 [Intentionally Deleted].

4.19 [Intentionally Deleted].

4.20 Board of Directors.

(a) On the Initial Closing Date, four (4) members of the Company’s Board of
Directors shall resign, and the remaining members of the Board of Directors
shall appoint Dr. Gil Amelio, Jim Czirr, Dr. Rod Martin and Dr. Peter Traber to
fill the vacant board seats; provided that if one of the nominees is unable or
unwilling to serve, then Bobby Greenberg shall be appointed instead.

(b) On the Initial Closing Date, the Nominating and Corporate Governance
Committee of the Company’s Board of Directors shall be constituted with the
following members of the Company’s Board of Directors: Dr. Gil Amelio, Dr. Rod
Martin and Dr. Mildred Christian, which members shall serve until the Company’s
annual meeting of shareholders for 2010; provided, however, that if at the time
of the Closing any of those named are unable to serve, that person shall be
replaced by Jim Czirr.

(c) On the Initial Closing Date, the Compensation Committee of the Company’s
Board of Directors shall be constituted with the following members of the
Company’s Board of Directors: Dr. Mildred Christian, Dr. Rod Martin and Bobby
Greenberg, which members shall serve until the Company’s annual meeting of
shareholders for 2010; provided, however, that if at the time of the Closing any
of those named are unable to serve, that person shall be replaced by Dr. Gil
Amelio.

(d) On the Initial Closing Date, the Board of Directors shall designate Jim
Czirr as its Chairman, who shall serve in that capacity until the Company’s
annual meeting of shareholders for 2010.

 

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(e) The Company shall take all reasonably necessary or desirable actions within
its control to ensure that the Board of Directors shall designate Dr. Theodore
Zucconi as the Company’s Chief Executive Officer and President.

(f) After the Class B Directors have been duly elected and qualified as
directors, each member of the Board of Directors will receive either shares of
Common Stock or Common Stock Equivalents that will each be subject to a vesting
schedule. With respect to Common Stock or Common Stock Equivalents, a reverse
vesting schedule shall apply so that any unvested shares of Common Stock or
Common Stock Equivalents issued to a director shall be cancelled and forfeited
upon resignation. The vesting schedule for the Common Stock or Common Stock
Equivalents issued to directors shall be as follows: One-half shall vest after
one full year of service, and one-eighth (1/8th) shall vest after the completion
of each additional full quarter of service after the first year, so that all
shares will have vested at the end of two full years of service. Notwithstanding
the operation of the foregoing vesting schedule: (i) any director removed for
any reason other than malfeasance shall receive a pro rated portion of such
Common Stock or Common Stock Equivalents (without regard to the foregoing
vesting schedule) based on time served and (ii) upon the death of serving
director, all such Common Stock or Common Stock Equivalents shall be deemed
immediately vested in full and made available to such deceased director’s
surviving spouse, other heirs or estate. It is intended that such Common Stock
or Common Stock Equivalents shall generally be paid in Common Stock, however,
the Company will make efforts to accommodate requests to receive such
compensation in Common Stock Equivalents.

(g) All members of the Company’s Board of Directors immediately prior to the
election and qualification of the Class B Directors that do not continue to
serve on the Board of Directors after such date shall receive one-half (1/2) of
the number of shares of Common Stock or Common Stock Equivalents granted to the
new and continuing members of the Company’s Board of Directors. All such Common
Stock or Common Stock Equivalents shall be immediately vested.

 

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ARTICLE V.

MISCELLANEOUS

5.1 Termination. This Agreement may be terminated by Purchaser, as to the
Purchaser’s obligations hereunder only and without any effect whatsoever on the
obligations between the Company and the other Purchaser, by written notice to
the other parties, if the Initial Closing has not been consummated on or before
February 13, 2009; provided, however, that no such termination will affect the
right of any party to sue for any breach by the other party (or parties).

5.2 Fees and Expenses. At the Closing, the Company has agreed to reimburse the
Purchaser for its reasonable out-of-pocket costs and expenses incurred in
connection with the transactions contemplated in the Transaction Documents,
including, without limitation, its legal fees and expenses and travel expenses.
The Company shall pay all of its fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred incident
to the negotiation, preparation, execution, delivery and performance of this
Agreement. The Company shall pay all Transfer Agent fees, stamp taxes and other
taxes and duties levied in connection with the delivery of any Securities to the
Purchaser.

5.3 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.

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

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

 

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

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

5.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns
(including any beneficial owner of the Purchaser that is distributed any part of
the Securities issued hereunder) and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person, except as otherwise set forth
in Section 4.8.

5.9 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
Delaware, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of Wilmington. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of Wilmington
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 or is an inconvenient venue for such
proceeding. 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 other
manner permitted by law. If either party shall commence an action or proceeding
to enforce any provisions of the Transaction Documents, then the prevailing
party in such action or proceeding shall be reimbursed by the other party for
its reasonable attorneys’ fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.

5.10 Survival. The representations and warranties contained herein shall survive
the Closing and the delivery of the Series B-1 Preferred, Series B-2 Preferred
and Warrants until the Final Purchase Date.

 

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

5.12 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.

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

5.14 Remedies. In addition to being entitled to exercise all rights provided
herein or granted by law, including recovery of damages, each of the Purchaser
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
contained in the Transaction Documents and hereby agrees to waive and not to
assert in any action for specific performance of any such obligation the defense
that a remedy at law would be adequate. The parties expressly agree to waive any
requirement that the other party post a bond as a prerequisite to obtaining
injunctive relief.

5.15 Payment Set Aside. To the extent that the Company makes a payment or
payments to the Purchaser pursuant to any Transaction Document or the 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.

 

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5.16 [Intentionally Deleted].

5.17 Liquidated Damages. The Company’s obligations to pay any partial liquidated
damages or other amounts owing under the Transaction Documents is a continuing
obligation of the Company and shall not terminate until all unpaid partial
liquidated damages and other amounts have been paid notwithstanding the fact
that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.

5.18 Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall not be a Business Day, then such action may be taken or such right may be
exercised on the next succeeding Business Day.

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

5.20 Waiver of Jury Trial. In any action, suit or proceeding in any jurisdiction
brought by any party against any other party, the parties each knowingly and
intentionally, to the greatest extent permitted by applicable law, hereby
absolutely, unconditionally, irrevocably and expressly waives forever trial by
jury.

(Signature Pages Follow)

 

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

 

PRO-PHARMACEUTICALS, INC.       Address for Notice: By:   

/s/ Anthony Squeglia

      Fax: 617.928.3450 Name:    Anthony Squeglia       7 Wells Avenue Title:   
Chief Financial Officer       Newton, MA 02459

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

Greenberg Traurig, LLP

One International Place

Boston, MA 02110

Attn: Jonathan Guest, Esq.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

 

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[PURCHASER SIGNATURE PAGES TO PRW SECURITIES PURCHASE AGREEMENT]

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

 

10X FUND, L.P., a Delaware limited partnership       Address for Notice:      
                  c/o 10X Capital Management, LLC By:    10X Capital Management,
LLC, a Florida       1099 Forest Lake Terrace    limited liability company, its
General       Niceville, Florida 32578    Partner          By:   

/s/ Rod D. Martin

         Name:    Rod D. Martin          Title:    Managing Member      

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

Robert J. Mottern, Esq.

Investment Law Group of

Gillett Mottern & Walker LLP

1230 Peachtree Street, NE

Suite 2445

Atlanta, Georgia 30309

 

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