Exhibit 10.1

STANDBY EQUITY DISTRIBUTION AGREEMENT

THIS AGREEMENT dated as of the 1st day of July 2009 (this “Agreement”) between
YA GLOBAL MASTER SPV LTD., a Cayman Islands exempt limited partnership (the
“Investor”), and ACHILLION PHARMACEUTICALS, INC., a corporation organized and
existing under the laws of the State of Delaware (the “Company”).

WHEREAS, the parties desire that, upon the terms and subject to the conditions
contained herein, the Company shall issue and sell to the Investor, from time to
time as provided herein, and the Investor shall purchase from the Company up to
$15,000,000 of the Company’s common stock, par value $0.001 per share (the
“Common Stock”); and

WHEREAS, such investments will be made in reliance upon the provisions of
Regulation D (“Regulation D”) of the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder (the “Securities Act”), and or upon
such other exemption from the registration requirements of the Securities Act as
may be available with respect to any or all of the transactions to be made
hereunder.

NOW, THEREFORE, the parties hereto agree as follows:

Article I. Certain Definitions

Section 1.01 “Advance” shall mean the portion of the Commitment Amount requested
by the Company in the Advance Notice.

Section 1.02 “Advance Date” shall mean the 1st Trading Day after expiration of
the applicable Pricing Period for each Advance.

Section 1.03 “Advance Notice” shall mean a written notice in the form of Exhibit
A attached hereto to the Investor executed by an officer of the Company and
setting forth the Advance amount that the Company requests from the Investor.

Section 1.04 “Advance Notice Date” shall mean each date the Company delivers (in
accordance with of this Agreement) to the Investor an Advance Notice requiring
the Investor to advance funds to the Company, subject to the terms of this
Agreement.

Section 1.05 “Affiliate” shall have the meaning set forth in Section 3.08.

Section 1.06 “Bid Price” shall mean, on any date, the closing bid price (as
reported by Bloomberg L.P.) of the Common Stock on the Principal Market or if
the Common Stock is not traded on a Principal Market, the highest reported bid
price for the Common Stock, as furnished by the National Association of
Securities Dealers, Inc.

Section 1.07 “By-laws” shall have the meaning set forth in Section 4.03.

Section 1.08 “Certificate of Incorporation” shall have the meaning set forth in
Section 4.03.

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Section 1.09 “Commitment Amount” shall mean the aggregate amount of up to
$15,000,000 which the Investor has agreed to provide to the Company in order to
purchase the Shares pursuant to the terms and conditions of this Agreement
provided that, the Company shall not effect any sales under this Agreement and
the Investor shall not have the obligation to purchase shares of Common Stock
under this Agreement to the extent that after giving effect to such purchase and
sale the aggregate number of shares of Common Stock issued under this Agreement
(including any Commitment Shares) would exceed 5,292,427 shares of Common Stock
(which is less than 20% of the 26,462,143 outstanding shares of Common Stock as
of the date of this Agreement) except that such limitation shall not apply in
the event that the Company (i) obtains the approval of its stockholders as
required by the applicable rules of the Principal Market for the Common Stock
for issuances of Common Stock in excess of such amount or (ii) obtains a written
opinion from outside counsel to the Company that such approval is not required,
which opinion shall be reasonably satisfactory to the Investor.

Section 1.10 “Commitment Fee” shall have the meaning set forth in Section
12.04(a).

Section 1.11 “Commitment Period” shall mean the period commencing on the
Effective Date, and expiring upon the termination of this Agreement in
accordance with Section 10.02.

Section 1.12 “Common Stock” shall have the meaning set forth in the recitals of
this Agreement.

Section 1.13 “Company Indemnitees” shall have the meaning set forth in Section
5.02.

Section 1.14 “Condition Satisfaction Date” shall have the meaning set forth in
Section 7.01.

Section 1.15 “Consolidation Event” shall have the meaning set forth in Section
6.07.

Section 1.16 “Damages” shall mean any loss, claim, damage, liability, costs and
expenses (including, without limitation, reasonable attorney’s fees and
disbursements and costs and expenses of expert witnesses and investigation).

Section 1.17 “Effective Date” shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Shares.

Section 1.18 “Environmental Laws” shall have the meaning set forth in Section
4.10.

Section 1.19 “Exchange Act” shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.

Section 1.20 “Indemnified Liabilities” shall have the meaning set forth in
Section 5.01.

Section 1.21 “Inspectors” shall have the meaning set forth in Section 6.16.

Section 1.22 “Investor Indemnitees” shall have the meaning set forth in Section
5.01.

Section 1.23 “Market Price” shall mean the lowest daily VWAP of the Common Stock
during the relevant Pricing Period.

 

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Section 1.24 “Material Adverse Effect” shall mean any condition, circumstance,
or situation that may result in, or reasonably be expected to result in (i) a
material adverse effect on the legality, validity or enforceability of this
Agreement or the transactions contemplated herein, (ii) a material adverse
effect on the results of operations, assets, business or condition (financial or
otherwise) of the Company, taken as 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 this Agreement.

Section 1.25 “Maximum Advance Amount” shall be the greater of (i) $300,000 or
(ii) the average of the Daily Value Traded for each of the 5 Trading Days prior
to the Advance Notice Date where Daily Value Traded is the product obtained by
multiplying the daily trading volume for such day by the Bid Price for such day.

Section 1.26 “Ownership Limitation” shall have the meaning set forth in Section
2.01(a).

Section 1.27 “Person” shall mean an individual, a corporation, a partnership, an
association, a trust or other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.

Section 1.28 “Plan of Distribution” shall have the meaning set forth in Section
6.01(a).

Section 1.29 “Pricing Period” shall mean the 5 consecutive Trading Days after
the Advance Notice Date, subject to any reduction pursuant to Section 2.01(c).

Section 1.30 “Principal Market” shall mean the Nasdaq Global Select Market, the
Nasdaq Global Market, the Nasdaq Capital Market, the NYSE Euronext or the New
York Stock Exchange, whichever is at the time the principal trading exchange or
market for the Common Stock.

Section 1.31 “Purchase Price” shall be set at 95% of the Market Price during the
Pricing Period.

Section 1.32 “Records” shall have the meaning set forth in Section 6.16.

Section 1.33 “Registrable Securities” shall mean (i) the Shares, and (ii) any
securities issued or issuable with respect to any of the foregoing by way of
exchange, stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization or
otherwise. As to any particular Registrable Securities, once issued such
securities shall cease to be Registrable Securities when (a) the Registration
Statement has been declared effective by the SEC and such Registrable Securities
have been disposed of pursuant to the Registration Statement, (b) such
Registrable Securities have been sold under circumstances under which all of the
applicable conditions of Rule 144 (or any similar provision then in force) under
the Securities Act (“Rule 144”) are met, or (c) in the opinion of counsel to the
Company such Registrable Securities may permanently be sold without registration
or without any time, volume or manner limitations pursuant to Rule 144.

Section 1.34 “Registration Period” shall have the meaning set forth in Section
6.01(b).

 

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Section 1.35 “Registration Statement” shall mean a registration statement on
Form S-1 or Form S-3 or on such other form promulgated by the SEC for which the
Company then qualifies and which counsel for the Company shall deem appropriate,
and which form shall be available for the registration of the resale by the
Investor of the Registrable Securities under the Securities Act.

Section 1.36 “Regulation D” shall have the meaning set forth in the recitals of
this Agreement.

Section 1.37 “SEC” shall have the meaning set forth in the recitals of this
Agreement.

Section 1.38 “SEC Documents” shall have the meaning set forth in Section 4.05.

Section 1.39 “Securities Act” shall have the meaning set forth in the recitals
of this Agreement.

Section 1.40 “Settlement Document” shall have the meaning set forth in Section
2.02(a).

Section 1.41 “Shares” shall mean the shares of Common Stock to be issued from
time to time hereunder pursuant to Advances and the Commitment Shares.

Section 1.42 “Trading Day” shall mean any day during which the Principal Market
shall be open for business.

Section 1.43 “VWAP” means, for any date, the daily volume weighted average price
of the Common Stock for such date on the Principal Market as reported by
Bloomberg L.P. (based on a Trading Day from 9:00 a.m. (New York City time) to
4:00 p.m. (New York City time)).

Article II. Advances

Section 2.01 Advances; Mechanics. Subject to the terms and conditions of this
Agreement (including, without limitation, the provisions of Article VII hereof),
the Company, at its sole and exclusive option, may issue and sell to the
Investor, and the Investor shall purchase from the Company, shares of Common
Stock on the following terms:

 

  (a) Advance Notice. At any time during the Commitment Period, the Company may
require the Investor to purchase shares of Common Stock by delivering an Advance
Notice to the Investor, subject to the conditions set forth in ; provided,
however, that (i) the amount for each Advance as designated by the Company in
the applicable Advance Notice shall not be more than the Maximum Advance Amount,
(ii) the aggregate amount of the Advances pursuant to this Agreement shall not
exceed the Commitment Amount, and (iii) in no event shall the number of shares
of Common Stock issuable to the Investor pursuant to an Advance cause the
aggregate number of shares of Common Stock beneficially owned (as calculated
pursuant to Section 13(d) of the Exchange Act) by the Investor and its
affiliates to exceed 9.99% of the then outstanding Common Stock (the “Ownership
Limitation”). Notwithstanding any other provision in this Agreement, the Company
acknowledges and agrees that upon receipt of an Advance Notice, the Investor may
sell shares that it is unconditionally obligated to purchase under such Advance
Notice prior to taking possession of such shares.

 

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  (b) Date of Delivery of Advance Notice. Advance Notices shall be delivered in
accordance with the instructions set forth on the bottom of Exhibit A. An
Advance Notice shall be deemed delivered on (i) the Trading Day it is received
by facsimile or otherwise by the Investor if such notice is received prior to
5:00 pm Eastern Time, or (ii) the immediately succeeding Trading Day if it is
received by facsimile or otherwise after 5:00 pm Eastern Time on a Trading Day
or at any time on a day which is not a Trading Day. No Advance Notice may be
deemed delivered on a day that is not a Trading Day.

 

  (c) Ownership Limitation. In connection with each Advance Notice delivered by
the Company, any portion of an Advance that would cause the Investor to exceed
the Ownership Limitation shall automatically be withdrawn.

 

  (d) Registration Limitation. In connection with each Advance Notice, any
portion of an Advance that would cause the aggregate number of Shares to exceed
the aggregate number of shares of Common Stock available for resale under the
Registration Statement shall automatically be deemed to be withdrawn by the
Company with no further action required by the Company. At the Company’s request
from time to time, the Investor shall report to the Company the total amount of
Shares offered and sold pursuant to this Agreement and the portion of the total
Commitment Amount remaining.

Section 2.02 Closings. Each Closing shall take place as soon as practicable
after each Advance Date in accordance with the procedures set forth below. In
connection with each Closing the Company and the Investor shall fulfill each of
its obligations as set forth below:

 

  (a) Within 1 Trading Day after each Advance Date, the Investor shall deliver
to the Company a written document (each a “Settlement Document”) setting forth
the amount of the Advance (taking into account any adjustments pursuant to or),
the Purchase Price, the number of shares of Common Stock to be issued and
subscribed for (which in no event will be greater than the Ownership
Limitation), and a report by Bloomberg, LP indicating the VWAP for each of the
Trading Days during the Pricing Period, in each case taking into account the
terms and conditions of this Agreement. The Settlement Document shall be in the
form attached hereto as Exhibit B.

 

  (b) Upon receipt of the Settlement Document with respect to each Advance, the
Company shall confirm that it has obtained all material permits and
qualifications required for the issuance and transfer of the shares of Common
Stock applicable to such Advance, or shall have the availability of exemptions
therefrom and that the sale and issuance of such shares of Common Stock shall be
legally permitted by all laws and regulations to which the Company is subject.

 

  (c)

Promptly after receipt of the Settlement Document with respect to each Advance
(and, in any event, not later than three Trading Days after each Advance Date),
the Company will, or will cause its transfer agent to, electronically transfer
such number of shares of Common Stock registered in the name of the Investor as
shall equal (x) the amount of the Advance specified in such Advance Notice (as
may be reduced according to the terms of this Agreement), divided by (y) the
Purchase Price by crediting the Investor’s account or its designee’s account at
the Depository Trust Company through its Deposit Withdrawal

 

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Agent Commission System or by such other means of delivery as may be mutually
agreed upon by the parties hereto (which in all cases shall be freely tradable,
registered shares in good deliverable form) against payment of the Purchase
Price in same day funds to an account designated by the Company. No fractional
shares shall be issued, and any fractional amounts shall be rounded to the next
higher whole number of shares. Any certificates evidencing shares of Common
Stock delivered pursuant hereto shall be free of restrictive legends.

 

  (d) On or prior to the Advance Date, each of the Company and the Investor
shall deliver to the other all documents, instruments and writings required to
be delivered by either of them pursuant to this Agreement in order to implement
and effect the transactions contemplated herein.

Section 2.03 Hardship. In the event the Investor sells shares of the Company’s
Common Stock after receipt of an Advance Notice and the Company fails to perform
its obligations as mandated in Section 2.02, the Company agrees that in addition
to and in no way limiting the rights and obligations set forth in Article V
hereto and in addition to any other remedy to which the Investor is entitled at
law or in equity, including, without limitation, specific performance, the
Investor shall be entitled to an injunction or injunctions to prevent such
breaches of this Agreement and to specifically enforce, without the posting of a
bond or other security, the terms and provisions of this Agreement.

Article III. Representations and Warranties of Investor

Investor hereby represents and warrants to, and agrees with, the Company that
the following are true and correct as of the date hereof:

Section 3.01 Organization and Authorization. The Investor is duly organized,
validly existing and in good standing under the laws of the Cayman Islands and
has all requisite power and authority to purchase and hold the Shares. The
decision to invest and the execution and delivery of this Agreement by such
Investor, the performance by such Investor of its obligations hereunder and the
consummation by such Investor of the transactions contemplated hereby have been
duly authorized and requires no other proceedings on the part of the Investor.
The undersigned has the right, power and authority to execute and deliver this
Agreement and all other instruments on behalf of the Investor. This Agreement
has been duly executed and delivered by the Investor and, assuming the execution
and delivery hereof and acceptance thereof by the Company, will constitute the
legal, valid and binding obligations of the Investor, enforceable against the
Investor in accordance with its terms.

Section 3.02 Evaluation of Risks. The Investor has such knowledge and experience
in financial, tax and business matters as to be capable of evaluating the merits
and risks of, and bearing the economic risks entailed by, an investment in the
Company and of protecting its interests in connection with this transaction. It
recognizes that its investment in the Company involves a high degree of risk.

Section 3.03 No Legal Advice From the Company. The Investor acknowledges that it
had the opportunity to review this Agreement and the transactions contemplated
by this Agreement with

 

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its own legal counsel and investment and tax advisors. The Investor is relying
solely on such counsel and advisors and not on any statements or representations
of the Company or any of the Company’s representatives or agents for legal, tax
or investment advice with respect to this investment, the transactions
contemplated by this Agreement or the securities laws of any jurisdiction.

Section 3.04 Investment Purpose. The securities are being purchased by the
Investor for its own account, and for investment purposes. The Investor agrees
not to assign or in any way transfer the Investor’s rights to the securities or
any interest therein and acknowledges that the Company will not recognize any
purported assignment or transfer except in accordance with applicable Federal
and state securities laws. No other person has or will have a direct or indirect
beneficial interest in the securities. The Investor agrees not to sell,
hypothecate or otherwise transfer the Investor’s securities unless the
securities are registered under Federal and applicable state securities laws or
unless, in the opinion of counsel satisfactory to the Company, an exemption from
such laws is available.

Section 3.05 Accredited Investor. The Investor is an “Accredited Investor” as
that term is defined in Rule 501(a)(3) of Regulation D of the Securities Act.

Section 3.06 Information. The Investor and its advisors (and its counsel), if
any, have been furnished with all materials relating to the business, finances
and operations of the Company and information it deemed material to making an
informed investment decision. The Investor and its advisors, if any, have been
afforded the opportunity to ask questions of the Company and its management.
Neither such inquiries nor any other due diligence investigations conducted by
such Investor or its advisors, if any, or its representatives shall modify,
amend or affect the Investor’s right to rely on the Company’s representations
and warranties contained in this Agreement. The Investor understands that its
investment involves a high degree of risk. The Investor is in a position
regarding the Company, which, based upon employment, family relationship or
economic bargaining power, enabled and enables such Investor to obtain
information from the Company in order to evaluate the merits and risks of this
investment. The Investor has sought such accounting, legal and tax advice, as it
has considered necessary to make an informed investment decision with respect to
this transaction.

Section 3.07 No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the shares of Common Stock offered hereby.

Section 3.08 Not an Affiliate. The Investor is not an officer, director or a
person that directly, or indirectly through one or more intermediaries, controls
or is controlled by, or is under common control with the Company or any
“Affiliate” of the Company (as that term is defined in Rule 405 of the
Securities Act).

Section 3.09 Trading Activities. The Investor’s trading activities with respect
to the Company’s Common Stock shall be in compliance with all applicable federal
and state securities laws, rules and regulations and the rules and regulations
of the Principal Market on which the Common Stock is listed or traded. Neither
the Investor nor its affiliates has an open short

 

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position in the Common Stock, the Investor agrees that it shall not, and that it
will cause its affiliates not to, engage in any short sales of the Common Stock
provided that the Company acknowledges and agrees that upon receipt of an
Advance Notice the Investor has the right to sell the shares to be issued to the
Investor pursuant to the Advance Notice prior to receiving such shares.

Article IV. Representations and Warranties of the Company

Except as stated below, on the disclosure schedules attached hereto or in the
SEC Documents, the Company hereby represents and warrants to, the Investor that
the following are true and correct as of the date hereof:

Section 4.01 Organization and Qualification. The Company is duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power to own its properties and to carry on its
business as now being conducted. The Company is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a Material Adverse Effect on the Company.

Section 4.02 Authorization, Enforcement, Compliance with Other Instruments.
(i) The Company has the requisite corporate power and authority to enter into
and perform this Agreement and any related agreements, in accordance with the
terms hereof and thereof, (ii) the execution and delivery of this Agreement and
any related agreements by the Company and the consummation by it of the
transactions contemplated hereby and thereby, have been duly authorized by the
Company’s Board of Directors and no further consent or authorization is required
by the Company, its Board of Directors or its stockholders, (iii) this Agreement
and any related agreements have been duly executed and delivered by the Company,
(iv) this Agreement and assuming the execution and delivery thereof and
acceptance by the Investor, any related agreements, constitute the valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally, the
enforcement of creditors’ rights and remedies.

Section 4.03 Capitalization. The authorized capital stock of the Company
consists of 100,000,000 shares of Common Stock $0.001 par value per share and
5,000,000 shares of Preferred Stock, $0.01 par value per share (“Preferred
Stock”), of which 26,462,143 shares of Common Stock and no shares of Preferred
Stock are issued and outstanding. All of such outstanding shares have been
validly issued and are fully paid and nonassessable. Except as disclosed in the
SEC Documents, no shares of Common Stock are subject to preemptive rights or any
other similar rights or any liens or encumbrances suffered or permitted by the
Company. Except as disclosed in the SEC Documents, as of the date hereof,
(i) there are no outstanding options, warrants, scrip, rights to subscribe to,
calls or commitments of any character whatsoever relating to, or securities or
rights convertible into, any shares of capital stock of the Company or any of
its contracts, commitments, understandings or arrangements by which the Company
is or may become bound to issue additional shares of capital stock of the
Company or options,

 

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warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company, (ii) there are no outstanding debt securities
(iii) there are no outstanding registration statements other than on Form S-8
and (iv) there are no agreements or arrangements under which the Company is
obligated to register the sale of any of securities under the Securities Act
(except pursuant to this Agreement). There are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by this
Agreement or any related agreement or the consummation of the transactions
described herein or therein. The Company has furnished or made available to the
Investor true and correct copies of the Company’s Certificate of Incorporation,
as amended and as in effect on the date hereof (the “Certificate of
Incorporation”), and the Company’s By-laws, as in effect on the date hereof (the
“By-laws”), and the terms of all securities convertible into or exercisable for
Common Stock and the material rights of the holders thereof in respect thereto.

Section 4.04 No Conflict. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby will not (i) result in a violation of the Certificate of
Incorporation, any certificate of designations of any outstanding series of
preferred stock of the Company or By-laws or (ii) conflict with or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company is a party, or result in a violation of any law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations and the rules and regulations of the Principal Market on which the
Common Stock is quoted) applicable to the Company or by which any material
property or asset of the Company is bound or affected and which would cause a
Material Adverse Effect. To the knowledge of the Company, the business of the
Company is not being conducted in violation of any material law, ordinance or
regulation of any governmental entity. Except as specifically contemplated by
this Agreement and as required under the Securities Act and any applicable state
securities laws, the Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under or contemplated by this Agreement in accordance with the terms
hereof or thereof except as such consent, authorization or order has been
obtained prior to the date hereof. The Company is not aware of any fact or
circumstance which might give rise to any of the foregoing.

Section 4.05 SEC Documents; Financial Statements. The Common Stock is registered
pursuant to Section 12(b) of the Exchange Act and the Company has filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC under the Exchange Act 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) (all of the foregoing filed within the two years
preceding the date hereof or amended after the date hereof and all exhibits
included therein and financial statements and schedules thereto and documents
incorporated by reference therein, being hereinafter referred to as the “SEC
Documents”) on timely basis or has received a valid extension of such time of
filing and has filed any such SEC Document prior to the expiration of any such
extension. The Company has delivered to the Investors or their representatives,
or made available through the SEC’s website at http://www.sec.gov, true and
complete copies of the SEC Documents. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the
Exchange Act and the rules and

 

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regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
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. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Investor which is not included in the SEC Documents contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstance under
which they are or were made and not misleading.

Section 4.06 No Default. Except as disclosed in the SEC Documents, the Company
is not in default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any indenture, mortgage, deed of
trust or other material instrument or agreement to which it is a party or by
which it is or its property is bound and neither the execution, nor the delivery
by the Company, nor the performance by the Company of its obligations under this
Agreement or any of the exhibits or attachments hereto will conflict with or
result in the breach or violation of any of the terms or provisions of, or
constitute a default or result in the creation or imposition of any lien or
charge on any assets or properties of the Company under its Certificate of
Incorporation, By-Laws, any material indenture, mortgage, deed of trust or other
material agreement applicable to the Company or instrument to which the Company
is a party or by which it is bound, or any statute, or any decree, judgment,
order, rules or regulation of any court or governmental agency or body having
jurisdiction over the Company or its properties, in each case which default,
lien or charge is likely to cause a Material Adverse Effect.

Section 4.07 Absence of Events of Default. Except for matters described in the
SEC Documents and/or this Agreement, no Event of Default, as defined in the
respective agreement to which the Company is a party, and no event which, with
the giving of notice or the passage of time or both, would become an Event of
Default (as so defined), has occurred and is continuing, which would have a
Material Adverse Effect.

Section 4.08 Intellectual Property Rights. The Company owns or possesses
adequate rights or licenses to use all material trademarks, trade names, service
marks, service mark registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental authorizations, trade
secrets and rights necessary to conduct their respective businesses as now
conducted. The Company does not have any knowledge of any infringement by the
Company of trademark, trade name rights, patents, patent rights, copyrights,
inventions, licenses, service names, service marks, service mark registrations,
trade secret or other similar rights of others,

 

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and, to the knowledge of the Company, there is no claim, action or proceeding
being made or brought against, or to the Company’s knowledge, being threatened
against the Company regarding trademark, trade name, patents, patent rights,
invention, copyright, license, service names, service marks, service mark
registrations, trade secret or other infringement; and the Company is not aware
of any facts or circumstances which might give rise to any of the foregoing.

Section 4.09 Employee Relations. The Company is not involved in any labor
dispute nor, to the knowledge of the Company, is any such dispute threatened.
None of the Company’s or employees is a member of a union and the Company
believes that its relations with employees are good.

Section 4.10 Environmental Laws. The Company is (i) in compliance with any and
all applicable material foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
(“Environmental Laws”), (ii) has received all permits, licenses or other
approvals required under applicable Environmental Laws to conduct their business
and (iii) is in compliance with all terms and conditions of any such permit,
license or approval.

Section 4.11 Title. Except as set forth in the SEC Documents, the Company has
good and marketable title to its properties and material assets owned by it,
free and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest other than such as are not material to the business of the
Company. Any real property and facilities held under lease by the Company is
held under valid, subsisting and enforceable leases with such exceptions as are
not material and do not interfere with the use made and proposed to be made of
such property and buildings by the Company.

Section 4.12 Insurance. The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the businesses
in which the Company is engaged. The Company has not been refused any insurance
coverage sought or applied for and the Company does not have 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 at a cost that would not have a
Material Adverse Effect.

Section 4.13 Regulatory Permits. The Company possesses all material
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, and the Company has not received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit.

Section 4.14 Internal Accounting Controls. The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management’s general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is

 

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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.

Section 4.15 No Material Adverse Breaches, etc. Except as set forth in the SEC
Documents, the Company is not subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company’s officers has or is expected in the future to have a
Material Adverse Effect.

Section 4.16 Absence of Litigation. Except as set forth in the SEC Documents,
there is no action, suit, proceeding, inquiry or investigation before or by any
court, public board, government agency, self-regulatory organization or body
pending against or affecting the Company or the Common Stock, wherein an
unfavorable decision, ruling or finding would have a Material Adverse Effect.

Section 4.17 Subsidiaries. Except as disclosed in the SEC Documents, the Company
does not presently own or control, directly or indirectly, any interest in any
other corporation, partnership, association or other business entity.

Section 4.18 Tax Status. Except as disclosed in the SEC Documents, the Company
has made or filed all federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject and
(unless and only to the extent that the Company has set aside on its books
provisions reasonably adequate for the payment of all unpaid and unreported
taxes) has paid all taxes and other governmental assessments and charges that
are material in amount, shown or determined to be due on such returns, reports
and declarations, except those being contested in good faith and has set aside
on its books provision reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim.

Section 4.19 Certain Transactions. Except as set forth in the SEC Documents none
of the officers, directors, or employees of the Company is presently a party to
any transaction with the Company (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
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner.

Section 4.20 Fees and Rights of First Refusal. The Company is not obligated to
offer the securities offered hereunder on a right of first refusal basis or
otherwise to any third parties including, but not limited to, current or former
shareholders of the Company, underwriters, brokers, agents or other third
parties.

Section 4.21 Use of Proceeds. The Company shall use the net proceeds from this
offering for working capital and other general corporate purposes.

 

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Section 4.22 Dilution. The Company is aware and acknowledges that issuance of
shares of the Common Stock could cause dilution to existing shareholders and
could significantly increase the outstanding number of shares of Common Stock.

Section 4.23 Acknowledgment Regarding Investor’s Purchase of Shares. The Company
acknowledges and agrees that the Investor is acting solely in the capacity of an
arm’s length investor with respect to this Agreement and the transactions
contemplated hereunder. The Company further acknowledges that the Investor is
not acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereunder and any advice given by the Investor or any of its representatives or
agents in connection with this Agreement and the transactions contemplated
hereunder is merely incidental to the Investor’s purchase of the Shares
hereunder. The Company is aware and acknowledges that it may not be able to
request Advances under this Agreement if the Registration Statement is not
declared effective or if any issuances of Common Stock pursuant to any Advances
would violate any rules of the Principal Market. The Company further is aware
and acknowledges that any fees paid or shares issued pursuant to Section 12.04
hereunder or shall be earned on the date hereof and not refundable or returnable
under any circumstances.

Article V. Indemnification

The Investor and the Company represent to the other the following with respect
to itself:

Section 5.01 In consideration of the Investor’s execution and delivery of this
Agreement, and in addition to all of the Company’s other obligations under this
Agreement, the Company shall defend, protect, indemnify and hold harmless the
Investor, and all of its officers, directors, partners, employees and agents
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the “Investor
Indemnitees”) from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and reasonable
expenses in connection therewith (irrespective of whether any such Investor
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys’ fees and disbursements (the
“Indemnified Liabilities”), incurred by the Investor Indemnitees or any of them
as a result of, or arising out of, or relating to (a) any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement for the registration of the Shares as originally filed or in any
amendment thereof, or in any related prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company by or on behalf of the Investor specifically for inclusion therein;
(b) any misrepresentation or breach of any representation or warranty made by
the Company in this Agreement or any other certificate, instrument or document
contemplated hereby or thereby; (c) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement or any other certificate,
instrument or document contemplated hereby or thereby; and (d) any cause of
action, suit or claim brought or made against such Investor Indemnitee not
arising out of any action or inaction

 

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of an Investor Indemnitee, and arising out of or resulting from the execution,
delivery, performance or enforcement of this Agreement or any other instrument,
document or agreement executed pursuant hereto by any of the Investor
Indemnitees. To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.

Section 5.02 In consideration of the Company’s execution and delivery of this
Agreement, and in addition to all of the Investor’s other obligations under this
Agreement, the Investor shall defend, protect, indemnify and hold harmless the
Company and all of its officers, directors, shareholders, employees and agents
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the “Company
Indemnitees”) from and against any and all Indemnified Liabilities incurred by
the Company Indemnitees or any of them as a result of, or arising out of, or
relating to (a) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement for the registration of the Shares
as originally filed or in any amendment thereof, or in any related prospectus,
or in any amendment thereof or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading;
provided, however, that the Investor will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon any such untrue statement or alleged untrue statement or omission or
alleged omission made therein in reliance upon and in conformity with written
information furnished to the Investor by or on behalf of the Company
specifically for inclusion therein; (b) any misrepresentation or breach of any
representation or warranty made by the Investor in this Agreement or any
instrument or document contemplated hereby or thereby executed by the Investor;
(c) any breach of any covenant, agreement or obligation of the Investor(s)
contained in this Agreement or any other certificate, instrument or document
contemplated hereby or thereby executed by the Investor; or (d) any cause of
action, suit or claim brought or made against such Company Indemnitee not
arising out of any action or inaction of a Company Indemnitee and arising out of
or resulting from the execution, delivery, performance or enforcement of this
Agreement or any other instrument, document or agreement executed pursuant
hereto by any of the Company Indemnitees. To the extent that the foregoing
undertaking by the Investor may be unenforceable for any reason, the Investor
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities, which is permissible under applicable law.

Section 5.03 Promptly after receipt by an Investor Indemnitee or Company
Indemnitee under this Article V of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving an
Indemnified Liability, such Investor Indemnitee or Company Indemnitee shall, if
an Indemnified Liability in respect thereof is to be made against any
indemnifying party under this Article V deliver to the indemnifying party a
written notice of the commencement thereof; but the failure to so notify the
indemnifying party will not relieve it of liability under this Article V unless
and to the extent the indemnifying party did not otherwise learn of such action
and such failure result in the forfeiture by the indemnifying party of
substantial rights and defenses and will not, in any event, relieve the
indemnifying party from any obligations provided in this Article V. The
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof

 

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with counsel mutually satisfactory to the indemnifying party and the Investor
Indemnitee or Company Indemnitee, as the case may be; provided, however, that an
Investor Indemnitee or Company Indemnitee shall have the right to retain its own
counsel with the reasonable fees and expenses of not more than one counsel for
such Investor Indemnitee or Company Indemnitee to be paid by the indemnifying
party, if, in the reasonable opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Investor Indemnitee or Company
Indemnitee and the indemnifying party would be inappropriate due to actual or
potential differing interests between such Investor Indemnitee or Company
Indemnitee and any other party represented by such counsel in such proceeding.
The Investor Indemnitee or Company Indemnitee shall cooperate fully with the
indemnifying party in connection with any negotiation or defense of any such
action or claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the Investor Indemnitee or Company
Indemnitee which relates to such action or claim. The indemnifying party shall
keep the Investor Indemnitee or Company Indemnitee fully apprised at all times
as to the status of the defense or any settlement negotiations with respect
thereto. No indemnifying party shall be liable for any settlement of any action,
claim or proceeding effected without its prior written consent, provided,
however, that the indemnifying party shall not unreasonably withhold, delay or
condition its consent. No indemnifying party shall, without the prior written
consent of the Investor Indemnitee or Company Indemnitee, consent to entry of
any judgment or enter into any settlement or other compromise which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Investor Indemnitee or Company Indemnitee of a release from all
liability in respect to such claim or litigation. Following indemnification as
provided for hereunder, the indemnifying party shall be subrogated to all rights
of the Investor Indemnitee or Company Indemnitee with respect to all third
parties, firms or corporations relating to the matter for which indemnification
has been made.

Section 5.04 The indemnification required by this Article V shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received.

Section 5.05 The indemnity agreements contained herein shall be in addition to
(i) any cause of action or similar right of the Investor Indemnitee or Company
Indemnitee against the indemnifying party or others, and (ii) any liabilities
the indemnifying party may be subject to pursuant to the law.

Section 5.06 The obligations of the parties to indemnify or make contribution
under this Article V shall survive termination.

Article VI.

Covenants of the Company

Section 6.01 Registration Statement.

 

  (a)

Filing of a Registration Statement. The Company shall prepare and file with the
SEC a Registration Statement, or multiple Registration Statements for the resale
by the Investor of the Registrable Securities. The Company in its sole
discretion may chose when to file such Registration Statements; provided,
however, that the Company shall not have the

 

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ability to request any Advances until the effectiveness of a Registration
Statement. Each Registration Statement shall contain the “Plan of Distribution”
section in substantially the form attached hereto as Exhibit D.

 

  (b) Maintaining a Registration Statement. The Company shall cause any
Registration Statement that has been declared effective to remain effective at
all times until all Registrable Securities contained in such Registration
Statement cease to be Registrable Securities (the “Registration Period”). Each
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading.

 

  (c) Filing Procedures. Prior to the filing of any Registration Statement with
the SEC, the Company shall, (i) furnish a draft of such Registration Statement
to the Investor for its review and comment and (ii) not less than three business
days prior to the filing of a Registration Statement and not less than one
business day prior to the filing of any related amendments and supplements to
all Registration Statements (except for any amendments or supplements caused by
the filing of any annual reports on Form 10-K, quarterly reports on Form 10-Q
and periodic reports on Form 8-K), furnish to the Investor copies of all such
documents proposed to be filed, which documents (other than those incorporated
or deemed to be incorporated by reference) will be subject to the reasonable and
prompt review of the Investor. The Investor shall furnish comments on a
Registration Statement to the Company within 24 hours of the receipt thereof.

 

  (d) Delivery of Final Documents. The Company shall furnish to the Investor
without charge, (i) at least one copy of such Registration Statement as declared
effective by the SEC and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference, all
exhibits and each preliminary prospectus, (ii) at the request of the Investor,
10 copies of the final prospectus included in such Registration Statement and
all amendments and supplements thereto (or such other number of copies as the
Investor may reasonably request) and (iii) such other documents as the Investor
may reasonably request from time to time in order to facilitate the disposition
of the Registrable Securities owned by the Investor.

 

  (e)

Amendments and Other Filings. The Company shall (i) prepare and file with the
SEC such amendments (including post-effective amendments) and supplements to a
Registration Statement and the related prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the Securities Act, as may be necessary to keep such
Registration Statement effective at all times during the Registration Period,
and prepare and file with the SEC such additional Registration Statements in
order to register for resale under the Securities Act all of the Registrable
Securities; (ii) cause the related prospectus to be amended or supplemented by
any required prospectus supplement (subject to the terms of this Agreement), and
as so supplemented or amended to be filed pursuant to Rule 424; (iii) provide
the Investor copies of all correspondence from and to the SEC relating to a
Registration Statement (provided that the Company may excise any information

 

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contained therein which would constitute material non-public information, and
(iv) comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement. In the case of amendments and supplements to a Registration Statement
which are required to be filed pursuant to this Agreement (including pursuant to
this Section 6.01(e)) by reason of the Company’s filing a report on Form 10-K,
Form 10-Q or Form 8-K or any analogous report under the Exchange Act, the
Company shall incorporate such report by reference into the Registration
Statement, if applicable, or shall file such amendments or supplements with the
SEC either on the day on which the Exchange Act report is filed which created
the requirement for the Company to amend or supplement the Registration
Statement, if feasible, or otherwise promptly thereafter.

 

  (f) Blue-Sky. The Company shall use its best efforts to (i) register and
qualify the Registrable Securities covered by a Registration Statement under
such other securities or “blue sky” laws of such jurisdictions in the United
States as the Investor reasonably requests, (ii) prepare and file in those
jurisdictions, such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and
(iv) take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (w) make any change to its certificate of incorporation or by-laws,
(x) qualify to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 6.01(f), (y) subject itself to general
taxation in any such jurisdiction, or (z) file a general consent to service of
process in any such jurisdiction. The Company shall promptly notify the Investor
of the receipt by the Company of any notification with respect to the suspension
of the registration or qualification of any of the Registrable Securities for
sale under the securities or “blue sky” laws of any jurisdiction in the United
States or its receipt of actual notice of the initiation or threat of any
proceeding for such purpose.

Section 6.02 Listing of Common Stock. The Company shall use its commercially
reasonable efforts to maintain the Common Stock’s authorization for quotation on
the Principal Market.

Section 6.03 Opinion of Counsel. The Company shall cause the Investor to have
received an opinion from counsel to the Company in the form attached hereto as
Exhibit C prior to the first Advance Notice.

Section 6.04 Exchange Act Registration. The Company will cause its Common Stock
to continue to be registered under Section 12(b) of the Exchange Act, will file
in a timely manner all reports and other documents required of it as a reporting
company under the Exchange Act and will not take any action or file any document
(whether or not permitted by Exchange Act or the rules thereunder) to terminate
or suspend such registration or to terminate or suspend its reporting and filing
obligations under said Exchange Act.

 

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Section 6.05 Transfer Agent Instructions. Upon effectiveness of the Registration
Statement the Company shall deliver instructions to its transfer agent to issue
shares of Common Stock to the Investor free of restrictive legends on or before
each Advance Date.

Section 6.06 Corporate Existence. The Company will take all steps necessary to
preserve and continue the corporate existence of the Company.

Section 6.07 Notice of Certain Events Affecting Registration; Suspension of
Right to Make an Advance. The Company will immediately notify the Investor, and
confirm in writing, upon its becoming aware of the occurrence of any of the
following events in respect of a Registration Statement or related prospectus
relating to an offering of Registrable Securities: (i) receipt of any request
for additional information by the SEC or any other Federal or state governmental
authority during the period of effectiveness of the Registration Statement for
amendments or supplements to the Registration Statement or related prospectus;
(ii) the issuance by the SEC or any other Federal or state governmental
authority of any stop order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that purpose; (iii) receipt
of any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in the
Registration Statement or related prospectus of any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or of the necessity to amend the Registration Statement or
supplement a related prospectus to comply with the Securities Act or any other
law; and (v) the Company’s reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate; and the Company
will promptly make available to the Investor any such supplement or amendment to
the related prospectus. The Company shall not deliver to the Investor any
Advance Notice, and the Investor shall not sell any Shares pursuant to a
Registration Statement, during the continuation of any of the foregoing events.

Section 6.08 Consolidation; Merger. If an Advance Notice has been delivered to
the Investor and the transaction contemplated in such Advance Notice has not yet
been closed in accordance with hereof, then the Company shall not effect any
merger or consolidation of the Company with or into, or a transfer of all or
substantially all the assets of the Company to another entity (a “Consolidation
Event”).

Section 6.09 Issuance of the Company’s Common Stock. The sale of the shares of
Common Stock hereunder shall be made in accordance with the provisions and
requirements of Regulation D and any applicable state securities law.

Section 6.10 Market Activities. The Company will not, directly or indirectly,
take any action designed to cause or result in, or that constitutes or might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company under Regulation M of the Securities
Exchange Act.

 

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Section 6.11 Opinion of Counsel Concerning Resales. Provided that the Investor’s
resale of Common Stock received pursuant to this Agreement may be freely sold by
the Investor either pursuant to an effective Registration Statement, in
accordance with Rule 144, or otherwise, the Company shall use reasonable efforts
to obtain for the Investor, at the Company’s expense, any and all opinions of
counsel which may be reasonably required by the Company’s transfer agent to
issue such shares free of restrictive legends, or to remove legends from such
shares.

Section 6.12 Expenses. The Company, whether or not the transactions contemplated
hereunder are consummated or this Agreement is terminated, will pay all expenses
incident to the performance of its obligations hereunder, including but not
limited to (i) the preparation, printing and filing of the Registration
Statement and each amendment and supplement thereto, of each prospectus and of
each amendment and supplement thereto; (ii) the preparation, issuance and
delivery of any Shares issued pursuant to this Agreement, (iii) all fees and
disbursements of the Company’s counsel, accountants and other advisors, (iv) the
qualification of the Shares under securities laws in accordance with the
provisions of this Agreement, including filing fees in connection therewith,
(v) the printing and delivery of copies of any prospectus and any amendments or
supplements thereto, (vi) the fees and expenses incurred in connection with the
listing or qualification of the Shares for trading on the Principal Market, or
(vii) filing fees of the SEC and the Principal Market.

Section 6.13 Sales. Without the written consent of the Investor, the Company
will not, directly or indirectly, offer to sell, sell, contract to sell, grant
any option to sell or otherwise dispose of any shares of Common Stock (other
than the Shares offered pursuant to the provisions of this Agreement) or
securities convertible into or exchangeable for Common Stock, warrants or any
rights to purchase or acquire, Common Stock during the period beginning on the
5th Trading Day immediately prior to an Advance Notice Date and ending on the
5th Trading Day immediately following the corresponding Advance Date.

Section 6.14 Current Report. Promptly after the date hereof (and prior to the
Company delivering an Advance Notice to the Investor hereunder), the Company
shall file with the SEC a report on Form 8-K or such other appropriate form as
determined by counsel to the Company, relating to the transactions contemplated
by this Agreement and shall provide the Investor with a reasonable opportunity
to review such report prior to its filing.

Section 6.15 Compliance With Laws. The Company will not, directly or indirectly,
take any action designed to cause or result in, or that constitutes or might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company or which caused or resulted in, or which
would in the future reasonably be expected to cause or result in, stabilization
or manipulation of the price of any security of the Company.

Section 6.16 Due Diligence. If, after the execution of this Agreement, the
Investor believes, after consultation with its legal counsel, that it could
reasonably be deemed to be an underwriter of Registrable Securities, at the
request of the Investor, the Company shall make available for inspection by
(i) the Investor and (ii) one firm of accountants or other agents retained by
the

 

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Investor (collectively, the “Inspectors”) all pertinent financial and other
records, and pertinent corporate documents and properties of the Company
(collectively, the “Records”), as shall be reasonably deemed necessary by each
Inspector, and cause the Company’s officers, directors and employees to supply
all information which any Inspector may reasonably request; provided, however,
that each Inspector shall agree, and the Investor hereby agrees, to hold in
strict confidence and shall not make any disclosure (except to an Investor) or
use any Record or other information which the Company determines in good faith
to be confidential, and of which determination the Inspectors are so notified,
unless (a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement or is otherwise required
under the Securities Act, (b) the release of such Records is ordered pursuant to
a final, non-appealable subpoena or order from a court or government body of
competent jurisdiction, or (c) the information in such Records has been made
generally available to the public other than by disclosure in violation of this
or any other agreement of which the Inspector and the Investor has knowledge.
The Investor agrees that it shall, upon learning that disclosure of such Records
is sought in or by a court or governmental body of competent jurisdiction or
through other means, give prompt notice to the Company and allow the Company, at
its expense, to undertake appropriate action to prevent disclosure of, or to
obtain a protective order for, the Records deemed confidential.

Article VII.

Conditions for Advance and Conditions to Closing

Section 7.01 Conditions Precedent to the Right of the Company to Deliver an
Advance Notice. The right of the Company to deliver an Advance Notice and the
obligations of the Investor hereunder with respect to an Advance is subject to
the satisfaction by the Company, on each Advance Notice Date and Advance Date (a
“Condition Satisfaction Date”), of each of the following conditions:

 

  (a) Accuracy of the Company’s Representations and Warranties. The
representations and warranties of the Company shall be true and correct in all
material respects.

 

  (b) Registration of the Common Stock with the SEC. There is an effective
Registration Statement pursuant to which the Investor is permitted to utilize
the prospectus thereunder to resell all of the shares of Common Stock issuable
pursuant to such Advance Notice. The Company shall have filed with the SEC in a
timely manner all reports, notices and other documents required of a “reporting
company” under the Exchange Act and applicable SEC regulations.

 

  (c) Authority. The Company shall have obtained all permits and qualifications
required by any applicable state for the offer and sale of the shares of Common
Stock, or shall have the availability of exemptions therefrom. The sale and
issuance of the shares of Common Stock shall be legally permitted by all laws
and regulations to which the Company is subject.

 

  (d)

No Material Notices. None of the following events shall have occurred and be
continuing: (i) receipt by the Company of any request for additional information
from the SEC or any other federal or state governmental, administrative or self
regulatory

 

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authority during the period of effectiveness of the Registration Statement, the
response to which would require any amendments or supplements to the
Registration Statement or related prospectus; (ii) the issuance by the SEC or
any other federal or state governmental authority of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose; (iii) receipt by the Company of any notification
with respect to the suspension of the qualification or exemption from
qualification of any of the Registrable Securities for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose; (iv) the
occurrence of any event that makes any statement made in the Registration
Statement or related prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under and as of the date which they
were made, not misleading; and (v) the Company’s reasonable determination that a
post-effective amendment to the Registration Statement would be required. There
shall not exist any fundamental changes to the information set forth in the
Registration Statement which would require the Company to file a post-effective
amendment to the Registration Statement.

 

  (e) Performance by the Company. The Company shall have performed, satisfied
and complied in all material respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to each Condition Satisfaction Date.

 

  (f) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction that prohibits
or directly and adversely affects any of the transactions contemplated by this
Agreement, and no proceeding shall have been commenced that may have a Material
Adverse Effect.

 

  (g) No Suspension of Trading in or Delisting of Common Stock. The Common Stock
is trading on a Principal Market and all of the shares issuable pursuant to such
Advance Notice will be listed or quoted for trading on such Principal Market and
the Company believes, in good faith, that trading of the Common Stock on a
Principal Market will continue uninterrupted for the foreseeable future. The
issuance of shares of Common Stock with respect to the applicable Advance Notice
will not violate the shareholder approval requirements of the Principal Market.
The Company shall not have received any notice threatening the continued listing
of the Common Stock on the Principal Market.

 

  (h) Maximum Advance Amount. The amount of an Advance requested by the Company
shall not exceed the Maximum Advance Amount.

 

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  (i) Authorized. There shall be a sufficient number of authorized but unissued
and otherwise unreserved shares of Common Stock for the issuance of all of the
shares issuable pursuant to such Advance Notice.

 

  (j) Executed Advance Notice. The Investor shall have received the Advance
Notice executed by an officer of the Company and the representations contained
in such Advance Notice shall be true and correct as of each Condition
Satisfaction Date.

 

  (k) Consecutive Advance Notices. Except with respect to the first Advance
Notice, the Company shall have delivered all Shares relating to all prior
Advances.

Article VIII.

Non-Disclosure of Non-Public Information

The Company covenants and agrees that it shall refrain from disclosing, and
shall cause its officers, directors, employees and agents to refrain from
disclosing, any material non-public information to the Investor without also
disseminating such information to the public, unless prior to disclosure of such
information the Company identifies such information as being material non-public
information and provides the Investor with the opportunity to accept or refuse
to accept such material non-public information for review.

Article IX.

Choice of Law/Jurisdiction

This Agreement shall be governed by and interpreted in accordance with the laws
of the State of New York without regard to the principles of conflict of laws.

Article X. Assignment; Termination

Section 10.01 Assignment. Neither this Agreement nor any rights of the parties
hereto may be assigned to any other Person.

Section 10.02 Termination.

 

  (a) Unless earlier terminated as provided hereunder, this Agreement shall
terminate automatically on the earliest of (i) the first day of the month next
following the 24-month anniversary of the Effective Date, or (ii) the date on
which the Investor shall have made payment of Advances pursuant to this
Agreement in the aggregate amount of the Commitment Amount.

 

  (b)

The Company may terminate this Agreement effective upon fifteen Trading Days’
prior written notice to the Investor; provided that (i) there are no Advances
outstanding, and (ii) the Company has paid all amounts owed to the Investor
pursuant to this Agreement. This Agreement may be terminated at any time by the
mutual written consent of the parties, effective as of the date of such mutual
written consent unless otherwise provided in such written consent. In the event
of any termination of this Agreement by the Company hereunder, so long as the
Investor owns any shares of Common Stock issued hereunder, unless all of such
shares of Common Stock may be resold by the Investor

 

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without registration and without any time, volume or manner limitations pursuant
to Rule 144, the Company shall not suspend or withdraw the Registration
Statement or otherwise cause the Registration Statement to become ineffective,
or voluntarily delist the Common Stock from the Principal Markets.

 

  (c) The obligation of the Investor to make an Advance to the Company pursuant
to this Agreement shall terminate permanently (including with respect to an
Advance Date that has not yet occurred) in the event that (i) there shall occur
any stop order or suspension of the effectiveness of the Registration Statement
for an aggregate of 50 Trading Days, other than due to the acts of the Investor,
during the Commitment Period, or (ii) the Company shall at any time fail
materially to comply with the requirements of Article VI and such failure is not
cured within 30 days after receipt of written notice from the Investor,
provided, however, that this termination provision shall not apply to any period
commencing upon the filing of a post-effective amendment to such Registration
Statement and ending upon the date on which such post effective amendment is
declared effective by the SEC.

 

  (d) Nothing in this Section 10.02 shall be deemed to release the Company or
the Investor from any liability for any breach under this Agreement, or to
impair the rights of the Company and the Investor to compel specific performance
by the other party of its obligations under this Agreement. The indemnification
provisions contained in Article V shall survive termination hereunder.

Article XI. Notices

Any notices, consents, waivers, or other communications required or permitted to
be given under the terms of this Agreement must be in writing and will be deemed
to have been delivered (i) upon receipt, when delivered personally; (ii) upon
receipt, when sent by facsimile, provided a copy is mailed by U.S. certified
mail, return receipt requested; (iii) 3 days after being sent by U.S. certified
mail, return receipt requested, or (iv) 1 day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications, except for Advance Notices which shall be delivered in
accordance with hereof, shall be:

 

If to the Company, to:   Achillion Pharmaceuticals, Inc.   300 George Street  
New Haven, CT 06511   Attention:   Chief Financial Officer   Telephone:   (203)
624-7000   Facsimile:   (203) 624-7003

 

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With a copy to:   Wilmer Cutler Pickering Hale and Dorr LLP   1100 Winter Street
  Waltham, MA 02451   Attention:   Susan L. Mazur   Telephone:   (781)-966-2005
  Facsimile:   (781)-966-2100 If to the Investor(s):   YA Global Master SPV Ltd.
  101 Hudson Street –Suite 3700   Jersey City, NJ 07302   Attention:   Mark
Angelo     Portfolio Manager   Telephone:   (201) 985-8300   Facsimile:   (201)
985-8266 With a Copy to:   David Gonzalez, Esq.   101 Hudson Street – Suite 3700
  Jersey City, NJ 07302   Telephone:   (201) 985-8300   Facsimile:   (201)
985-8266

Each party shall provide 5 days’ prior written notice to the other party of any
change in address or facsimile number.

Article XII. Miscellaneous

Section 12.01 Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which 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. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause 4 additional original executed signature pages to be physically
delivered to the other party within 5 days of the execution and delivery hereof,
though failure to deliver such copies shall not affect the validity of this
Agreement.

Section 12.02 Entire Agreement; Amendments. This Agreement supersedes all other
prior oral or written agreements between the Investor, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement, and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor the Investor makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.

Section 12.03 Reporting Entity for the Common Stock. The reporting entity relied
upon for the determination of the trading price or trading volume of the Common
Stock on any given Trading Day for the purposes of this Agreement shall be
Bloomberg, L.P. or any successor thereto. The written mutual consent of the
Investor and the Company shall be required to employ any other reporting entity.

 

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Section 12.04 Fees.

 

  (a) Commitment Fee. On the date hereof, the Company shall pay to the Investor
a commitment fee (the “Commitment Fee”) of $300,000. The Commitment Fee may be
paid in cash, in shares of Common Stock or some combination thereof. If any
portion of the Commitment Fee is to be paid in shares of Common Stock (such
shares, the “Commitment Shares”), the Company will issue to the Investor shares
of Common Stock within three days of the date hereof in an amount equal to the
portion of the Commitment Fee to be paid in shares of Common Stock divided by
the VWAP for the Trading Day immediately prior to the date hereof.

 

  (b) Commitment Shares. Commitment Shares shall be deemed fully earned as of
the date they are issued regardless of the amount of Advances, if any, that the
Company is able to, or chooses to, request hereunder. The Commitment Shares
shall be included on any registration statement filed by the Company after the
date hereof, unless such shares may be resold without any limitation pursuant to
Rule 144.

Section 12.05 Brokerage. Each of the parties hereto represents that it has had
no dealings in connection with this transaction with any finder or broker who
will demand payment of any fee or commission from the other party. The Company
on the one hand, and the Investor, on the other hand, agree to indemnify the
other against and hold the other harmless from any and all liabilities to any
person claiming brokerage commissions or finder’s fees on account of services
purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby.

Section 12.06 Confidentiality. If for any reason the transactions contemplated
by this Agreement are not consummated, each of the parties hereto shall keep
confidential any information obtained from any other party (except information
publicly available or in such party’s domain prior to the date hereof, and
except as required by court order) and shall promptly return to the other
parties all schedules, documents, instruments, work papers or other written
information without retaining copies thereof, previously furnished by it as a
result of this Agreement or in connection herein.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Standby Equity Purchase
Agreement to be executed by the undersigned, thereunto duly authorized, as of
the date first set forth above.

 

COMPANY: ACHILLION PHARMACEUTICALS, INC. By:  

/s/ Mary Kay Fenton

Name:   Mary Kay Fenton Title:   Chief Financial Officer INVESTOR: YA GLOBAL
MASTER SPV LTD. By:   Yorkville Advisors, LLC Its:   Investment Manager By:  

/s/ David Gonzalez

Name:   David Gonzalez Title:   Managing Member

 

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