Exhibit 10.01

 

SECURITIES PURCHASE AGREEMENT

 

This SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of August 15,
2005 is made by and among Sonus Pharmaceuticals, Inc., a Delaware corporation,
with headquarters located at 22026 20th Avenue S.E., Bothell, Washington 98021
(the “Company”), and the investors named on the signature pages hereto, together
with their permitted transferees (each, an “Investor” and collectively, the
“Investors”).

 

RECITALS:

 

A.                                   The Company and the Investors are executing
and delivering this Agreement in reliance upon the exemption from securities
registration afforded by Section 4(2) of the Securities Act and Rule 506 under
Regulation D.

 

B.                                     The Investors desire, upon the terms and
conditions stated in this Agreement, to purchase shares of the Company’s Common
Stock (the “Common Shares”) and warrants, in the form of Exhibit A hereto, to
purchase such number of shares of the Company’s Common Stock equal to 50% of the
Common Shares purchased by the Investors, rounded up to the nearest whole share
(the “Warrants,” and collectively with the Common Shares, the “Securities”), for
an aggregate purchase price of at least Ten Million Dollars ($10,000,000) and
not to exceed Twenty-Five Million Dollars ($25,000,000).  The purchase price per
share of the Common Shares is $3.77, which is equal to the per share closing bid
as reported on Nasdaq for the trading day immediately preceding the date of this
Agreement, or, if this Agreement is entered into after 4:00 p.m. Eastern
Standard Time, the day of this Agreement.  The purchase price for each Warrant
is $.125 multiplied by the number of Shares of Common Stock purchasable under
each Warrant (the “Warrant Shares”).

 

C.                                     Contemporaneously with the execution and
delivery of this Agreement, the parties hereto are executing and delivering a
Registration Rights Agreement under which the Company has agreed to provide
certain registration rights under the Securities Act, the rules and regulations
promulgated thereunder and applicable state securities laws.

 

D.                                    The capitalized terms used herein and not
otherwise defined have the meanings given them in Article IX hereof.

 

In consideration of the premises and the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company and the Investors hereby agree as follows:

 

ARTICLE I
PURCHASE AND SALE OF SECURITIES

 

1.1                                 PURCHASE AND SALE OF SECURITIES.  ON THE
CLOSING DATE, SUBJECT TO THE TERMS OF THIS AGREEMENT AND THE SATISFACTION OR
WAIVER OF THE CONDITIONS SET FORTH IN ARTICLES VI AND VII HEREOF, THE COMPANY
WILL ISSUE AND SELL TO EACH INVESTOR, AND EACH INVESTOR WILL (ON A SEVERAL AND
NOT A JOINT BASIS) PURCHASE FROM THE COMPANY, THE NUMBER OF SECURITIES SET FORTH
BENEATH SUCH INVESTOR’S NAME ON THE SIGNATURE PAGES HEREOF.

 

1.2                                 PAYMENT.  AT OR PRIOR TO THE CLOSING, EACH
INVESTOR WILL PAY THE PURCHASE PRICE FOR THE NUMBER OF SECURITIES SET FORTH
BENEATH ITS NAME ON THE SIGNATURE PAGES HEREOF, BY WIRE TRANSFER OF

 

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IMMEDIATELY AVAILABLE FUNDS IN ACCORDANCE WITH THE WIRE INSTRUCTIONS SET FORTH
ON EXHIBIT B HERETO.  SUCH FUNDS SHALL BE HELD, WITHOUT INTEREST, BY THE
COMPANY’S LEGAL COUNSEL IN TRUST FOR THE BENEFIT OF EACH SUCH INVESTOR UNTIL THE
CLOSING DATE AND SUCH TIME AS THE COMPANY OR THE COMPANY’S LEGAL COUNSEL
RECEIVES WRITTEN CONFIRMATION FROM EACH INVESTOR (WHICH MAY BE TRANSMITTED BY
FACSIMILE OR EMAIL) THAT ALL CLOSING CONDITIONS HAVE BEEN SATISFIED, AT WHICH
TIME SUCH FUNDS SHALL BE IMMEDIATELY FORWARDED BY WIRE TRANSFER TO THE COMPANY. 
THE COMPANY SHALL DELIVER TO EACH INVESTOR CERTIFICATES REPRESENTING THE
SECURITIES SO PURCHASED BY SUCH INVESTOR WITHIN TWO (2) BUSINESS DAYS FOLLOWING
THE CLOSING DATE AGAINST DELIVERY OF THE PURCHASE PRICE AS DESCRIBED ABOVE.

 

1.3                                 CLOSING DATE.  SUBJECT TO THE SATISFACTION
OR WAIVER OF THE CONDITIONS SET FORTH IN ARTICLES VI AND VII HEREOF, THE CLOSING
WILL TAKE PLACE AT 8 A.M. PACIFIC STANDARD TIME ON AUGUST 15, 2005 OR AT SUCH
OTHER DATE OR TIME AGREED UPON BY THE PARTIES TO THIS AGREEMENT (THE “CLOSING
DATE”).  THE CLOSING WILL BE HELD AT THE OFFICES OF STRADLING YOCCA CARLSON &
RAUTH OR AT SUCH OTHER PLACE AS THE PARTIES AGREE.  IN NO EVENT (I) WILL THE
CLOSING OCCUR UNLESS AND UNTIL THE COMPANY HAS RECEIVED DEPOSITS FOR THE
PURCHASE OF SECURITIES IN ACCORDANCE WITH SECTION 1.2 OF AT LEAST TEN MILLION
DOLLARS ($10,000,000) OR (II) WILL THE COMPANY SELL SECURITIES PURSUANT TO THIS
AGREEMENT FOR AN AGGREGATE PURCHASE PRICE IN EXCESS OF TWENTY-FIVE MILLION
DOLLARS ($25,000,000).

 

ARTICLE II
INVESTOR’S REPRESENTATIONS AND WARRANTIES

 

Each Investor represents and warrants to the Company, severally and solely with
respect to itself and its purchase hereunder and not with respect to any other
Investor, that:

 

2.1                                 INVESTMENT PURPOSE.  THE INVESTOR IS
PURCHASING THE SECURITIES FOR ITS OWN ACCOUNT AND NOT WITH A PRESENT VIEW TOWARD
THE PUBLIC SALE OR DISTRIBUTION THEREOF, EXCEPT PURSUANT TO SALES REGISTERED OR
EXEMPTED FROM REGISTRATION UNDER THE SECURITIES ACT; PROVIDED, HOWEVER, THAT BY
MAKING THE REPRESENTATION HEREIN, THE INVESTOR DOES NOT AGREE TO HOLD ANY OF THE
SECURITIES FOR ANY MINIMUM OR OTHER SPECIFIC TERM AND RESERVES THE RIGHT TO
DISPOSE OF THE SECURITIES AT ANY TIME IN ACCORDANCE WITH OR PURSUANT TO A
REGISTRATION STATEMENT OR AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT.

 

2.2                                 QUALIFIED INSTITUTIONAL BUYER.  THE INVESTOR
IS A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINED IN RULE 144A(A)(1) PROMULGATED
UNDER THE SECURITIES ACT, OR A “LARGE INSTITUTIONAL ACCREDITED INVESTOR” AS SUCH
TERM IS USED IN THE SEC STAFF’S NO-ACTION LETTER DATED FEBRUARY 28, 1992 TO
SQUADRON, ELLENOFF, PLEASANT & LEHRER; PROVIDED, THAT NO MORE THAN TWO (2) LARGE
INSTITUTIONAL ACCREDITED INVESTORS MAY BE INVESTORS UNDER THIS AGREEMENT.  THE
INVESTOR HAS DELIVERED AN INVESTOR QUESTIONNAIRE IN THE FORM OF EXHIBIT C TO THE
COMPANY AND TO PUNK, ZIEGEL & COMPANY.

 

2.3                                 RELIANCE ON EXEMPTIONS.  THE INVESTOR
UNDERSTANDS THAT THE SECURITIES ARE BEING OFFERED AND SOLD TO IT IN RELIANCE
UPON SPECIFIC EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF UNITED STATES
FEDERAL AND STATE SECURITIES LAWS AND THAT THE COMPANY IS RELYING UPON THE TRUTH
AND ACCURACY OF, AND THE INVESTOR’S COMPLIANCE WITH, THE REPRESENTATIONS,
WARRANTIES, AGREEMENTS, ACKNOWLEDGMENTS AND UNDERSTANDINGS OF THE INVESTOR SET
FORTH HEREIN IN ORDER TO DETERMINE THE AVAILABILITY OF SUCH EXEMPTIONS AND THE
ELIGIBILITY OF THE INVESTOR TO ACQUIRE THE SECURITIES.

 

2.4                                 INFORMATION.  THE INVESTOR HAS RECEIVED AND
READ THE SEC DOCUMENTS.  THE INVESTOR AND ITS ADVISORS, IF ANY, HAVE BEEN
FURNISHED WITH ALL MATERIALS RELATING TO THE BUSINESS, FINANCES AND

 

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OPERATIONS OF THE COMPANY, AND MATERIALS RELATING TO THE OFFER AND SALE OF THE
SECURITIES, THAT HAVE BEEN REQUESTED BY THE INVESTOR OR ITS ADVISORS, IF ANY. 
THE INVESTOR AND ITS ADVISORS, IF ANY, HAVE BEEN AFFORDED THE OPPORTUNITY TO ASK
QUESTIONS OF THE COMPANY.  NEITHER SUCH INQUIRIES NOR ANY OTHER DUE DILIGENCE
INVESTIGATION CONDUCTED BY INVESTOR OR ANY OF ITS ADVISORS OR REPRESENTATIVES
MODIFY, AMEND OR AFFECT THE INVESTOR’S RIGHT TO RELY ON THE COMPANY’S
REPRESENTATIONS AND WARRANTIES CONTAINED IN ARTICLE III BELOW.  THE INVESTOR
ACKNOWLEDGES AND UNDERSTANDS THAT ITS INVESTMENT IN THE SECURITIES INVOLVES A
SIGNIFICANT DEGREE OF RISK, INCLUDING THE RISKS REFLECTED IN THE SEC DOCUMENTS.

 

2.5                                 GOVERNMENTAL REVIEW.  THE INVESTOR
UNDERSTANDS THAT NO UNITED STATES FEDERAL OR STATE AGENCY OR ANY OTHER
GOVERNMENT OR GOVERNMENTAL AGENCY HAS PASSED UPON OR MADE ANY RECOMMENDATION OR
ENDORSEMENT OF THE SECURITIES OR AN INVESTMENT THEREIN.

 

2.6                                 TRANSFER OR RESALE.  THE INVESTOR
UNDERSTANDS THAT:

 

(A)                                  EXCEPT AS PROVIDED IN THE REGISTRATION
RIGHTS AGREEMENT, THE SECURITIES HAVE NOT BEEN AND ARE NOT BEING REGISTERED
UNDER THE SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS AND,
CONSEQUENTLY, THE INVESTORS WILL NOT BE AFFORDED THE PROTECTION OF SECTION 11 OF
THE SECURITIES ACT, AND THE INVESTOR MAY HAVE TO BEAR THE RISK OF OWNING THE
SECURITIES FOR AN INDEFINITE PERIOD OF TIME BECAUSE THE SECURITIES MAY NOT BE
TRANSFERRED UNLESS (I) THE RESALE OF THE SECURITIES IS REGISTERED PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT; (II) THE INVESTOR HAS
DELIVERED TO THE COMPANY AN OPINION OF COUNSEL (IN FORM, SUBSTANCE AND SCOPE
CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS) TO THE EFFECT THAT
THE SECURITIES TO BE SOLD OR TRANSFERRED MAY BE SOLD OR TRANSFERRED PURSUANT TO
AN EXEMPTION FROM SUCH REGISTRATION; (III) THE SECURITIES ARE SOLD OR
TRANSFERRED PURSUANT TO RULE 144; OR (IV) THE SECURITIES ARE SOLD OR TRANSFERRED
TO AN AFFILIATE (AS DEFINED IN RULE 144) OF THE INVESTOR;

 

(B)                                 ANY SALE OF THE SECURITIES MADE IN RELIANCE
ON RULE 144 MAY BE MADE ONLY IN ACCORDANCE WITH THE TERMS OF RULE 144 AND, IF
RULE 144 IS NOT APPLICABLE, ANY RESALE OF THE SECURITIES UNDER CIRCUMSTANCES IN
WHICH THE SELLER (OR THE PERSON THROUGH WHOM THE SALE IS MADE) MAY BE DEEMED TO
BE AN UNDERWRITER (AS THAT TERM IS DEFINED IN THE SECURITIES ACT) MAY REQUIRE
COMPLIANCE WITH SOME OTHER EXEMPTION UNDER THE SECURITIES ACT OR THE RULES AND
REGULATIONS OF THE SEC THEREUNDER; AND

 

(C)                                  EXCEPT AS SET FORTH IN THE REGISTRATION
RIGHTS AGREEMENT, NEITHER THE COMPANY NOR ANY OTHER PERSON IS UNDER ANY
OBLIGATION TO REGISTER THE SECURITIES UNDER THE SECURITIES ACT OR ANY STATE
SECURITIES LAWS OR TO COMPLY WITH THE TERMS AND CONDITIONS OF ANY EXEMPTION
THEREUNDER.

 

2.7                                 LEGENDS.  THE INVESTOR UNDERSTANDS THAT
UNTIL (A) THE SECURITIES MAY BE SOLD BY THE INVESTOR UNDER RULE 144(K) OR
(B) SUCH TIME AS THE RESALE OF THE SECURITIES HAS BEEN REGISTERED UNDER THE
SECURITIES ACT AS CONTEMPLATED BY THE REGISTRATION RIGHTS AGREEMENT, THE
CERTIFICATES REPRESENTING THE SECURITIES WILL BEAR A RESTRICTIVE LEGEND IN
SUBSTANTIALLY THE FOLLOWING FORM (AND A STOP-TRANSFER ORDER MAY BE PLACED
AGAINST TRANSFER OF THE CERTIFICATES FOR SUCH SECURITIES):

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES.  THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO
AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.

 

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The legend set forth above will be removed and the Company will issue a
certificate without the legend to the holder of any certificate upon which it is
stamped, in accordance with the terms of Article V hereof.

 

2.8                                 AUTHORIZATION; ENFORCEMENT.  THIS AGREEMENT
AND THE REGISTRATION RIGHTS AGREEMENT HAVE BEEN DULY AND VALIDLY AUTHORIZED,
EXECUTED AND DELIVERED ON BEHALF OF THE INVESTOR AND ARE VALID AND BINDING
AGREEMENTS OF THE INVESTOR ENFORCEABLE IN ACCORDANCE WITH THEIR TERMS, SUBJECT
TO THE EFFECT OF ANY APPLICABLE BANKRUPTCY, INSOLVENCY, REORGANIZATION,
MORATORIUM OR SIMILAR LAWS AFFECTING THE RIGHTS OF CREDITORS GENERALLY AND THE
APPLICATION OF GENERAL PRINCIPLES OF EQUITY.

 

2.9                                 RESIDENCY.  THE INVESTOR IS A RESIDENT OF
(OR, IF AN ENTITY, HAS ITS PRINCIPAL PLACE OF BUSINESS IN) THE JURISDICTION SET
FORTH IMMEDIATELY BELOW SUCH INVESTOR’S NAME ON THE SIGNATURE PAGES HERETO.

 

2.10                           ACKNOWLEDGEMENTS REGARDING PLACEMENT AGENT.  THE
INVESTOR ACKNOWLEDGES THAT PUNK, ZIEGEL & COMPANY IS ACTING AS PLACEMENT AGENT
(THE “PLACEMENT AGENT”) FOR THE SECURITIES BEING OFFERED HEREBY AND WILL BE
COMPENSATED BY THE COMPANY FOR ACTING IN SUCH CAPACITY.  THE INVESTOR FURTHER
ACKNOWLEDGES THAT THE PLACEMENT AGENT HAS ACTED SOLELY AS PLACEMENT AGENT IN
CONNECTION WITH THE OFFERING OF THE SECURITIES BY THE COMPANY, THAT THE
INFORMATION AND DATA PROVIDED TO THE INVESTOR IN CONNECTION WITH THE
TRANSACTIONS CONTEMPLATED HEREBY HAVE NOT BEEN SUBJECTED TO INDEPENDENT
VERIFICATION BY THE PLACEMENT AGENT, AND THAT THE PLACEMENT AGENT MAKES NO
REPRESENTATION OR WARRANTY WITH RESPECT TO THE ACCURACY OR COMPLETENESS OF SUCH
INFORMATION, DATA OR OTHER RELATED DISCLOSURE MATERIAL.  THE INVESTOR FURTHER
ACKNOWLEDGES THAT IN MAKING ITS DECISION TO ENTER INTO THIS AGREEMENT AND
PURCHASE THE SECURITIES IT HAS RELIED ON ITS OWN EXAMINATION OF THE COMPANY AND
THE TERMS OF, AND CONSEQUENCES, OF HOLDING THE SECURITIES.  THE INVESTOR FURTHER
ACKNOWLEDGES THAT THE PROVISIONS OF THIS SECTION 2.10 ARE FOR THE BENEFIT OF,
AND MAY BE ENFORCED BY, THE PLACEMENT AGENT.

 

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

The Company represents and warrants to the Investors that:

 

3.1                                 ORGANIZATION AND QUALIFICATION.  THE COMPANY
IS DULY INCORPORATED, VALIDLY EXISTING AND IN GOOD STANDING UNDER THE LAWS OF
THE JURISDICTION IN WHICH IT IS INCORPORATED, WITH FULL POWER AND AUTHORITY
(CORPORATE AND OTHER) TO OWN, LEASE, USE AND OPERATE ITS PROPERTIES AND TO CARRY
ON ITS BUSINESS AS AND WHERE NOW OWNED, LEASED, USED, OPERATED AND CONDUCTED. 
THE COMPANY IS DULY QUALIFIED 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 WHERE THE FAILURE TO BE SO QUALIFIED OR IN GOOD
STANDING WOULD NOT HAVE A MATERIAL ADVERSE EFFECT.

 

3.2                                 AUTHORIZATION; ENFORCEMENT.  (A) THE COMPANY
HAS ALL REQUISITE CORPORATE POWER AND AUTHORITY TO ENTER INTO AND TO PERFORM ITS
OBLIGATIONS UNDER THIS AGREEMENT, THE REGISTRATION RIGHTS

 

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AGREEMENT AND THE WARRANTS, TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED HEREBY
AND THEREBY AND TO ISSUE THE SECURITIES IN ACCORDANCE WITH THE TERMS HEREOF AND
THEREOF; (B) THE EXECUTION, DELIVERY AND PERFORMANCE OF THIS AGREEMENT, THE
REGISTRATION RIGHTS AGREEMENT AND THE WARRANTS BY THE COMPANY AND THE
CONSUMMATION BY IT OF THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY
(INCLUDING WITHOUT LIMITATION THE ISSUANCE OF THE SECURITIES) HAVE BEEN DULY
AUTHORIZED BY THE COMPANY’S BOARD OF DIRECTORS AND NO FURTHER CONSENT OR
AUTHORIZATION OF THE COMPANY, ITS BOARD OR DIRECTORS, OR ITS SHAREHOLDERS IS
REQUIRED; (C) THIS AGREEMENT, THE REGISTRATION RIGHTS AGREEMENT AND THE WARRANTS
HAVE BEEN DULY EXECUTED BY THE COMPANY; AND (D) EACH OF THIS AGREEMENT, THE
REGISTRATION RIGHTS AGREEMENT AND THE WARRANTS CONSTITUTES A LEGAL, VALID AND
BINDING OBLIGATION OF THE COMPANY ENFORCEABLE AGAINST THE COMPANY IN ACCORDANCE
WITH ITS TERMS, SUBJECT TO THE EFFECT OF ANY APPLICABLE BANKRUPTCY, INSOLVENCY,
REORGANIZATION, OR MORATORIUM OR SIMILAR LAWS AFFECTING THE RIGHTS OF CREDITORS
GENERALLY AND THE APPLICATION OF GENERAL PRINCIPLES OF EQUITY.

 

3.3                                 CAPITALIZATION.  AS OF THE DATE HEREOF, THE
AUTHORIZED CAPITAL STOCK OF THE COMPANY CONSISTS OF (A) 75,000,000 SHARES OF
COMMON STOCK, PAR VALUE $.001 PER SHARE, OF WHICH 21,418,668 SHARES ARE ISSUED
AND OUTSTANDING, 2,917,317 SHARES ARE RESERVED FOR ISSUANCE UPON EXERCISE OF
STOCK OPTIONS OUTSTANDING UNDER THE COMPANY’S EMPLOYEE AND DIRECTOR STOCK OPTION
PLANS, 1,341,677 SHARES ARE RESERVED FOR GRANTS OF RIGHTS TO PURCHASE UNDER THE
COMPANY’S EMPLOYEE AND DIRECTOR STOCK OPTION PLANS, 45,255 SHARES ARE RESERVED
FOR ISSUANCE PURSUANT TO THE COMPANY’S EMPLOYEE STOCK PURCHASE PLAN AND 401(K)
PLAN AND 1,828,116 SHARES ARE RESERVED FOR ISSUANCE UNDER WARRANTS ISSUED BY THE
COMPANY ON JUNE 15, 2001, JANUARY 18, 2002 AND JULY 28, 2003; AND (B) 5,000,000
SHARES OF PREFERRED STOCK, PAR VALUE $.001 PER SHARE, 500,000 OF WHICH SHARES
ARE DESIGNATED SERIES A JUNIOR PARTICIPATING PREFERRED STOCK, PAR VALUE $.001
PER SHARE, NONE OF WHICH IS ISSUED AND OUTSTANDING.  ALL OF SUCH OUTSTANDING
SHARES OF CAPITAL STOCK ARE, OR UPON ISSUANCE WILL BE, DULY AUTHORIZED, VALIDLY
ISSUED, FULLY PAID AND NONASSESSABLE.  NO SHARES OF CAPITAL STOCK OF THE
COMPANY, INCLUDING THE SECURITIES ISSUABLE PURSUANT TO THIS AGREEMENT, ARE
SUBJECT TO PREEMPTIVE RIGHTS OR ANY OTHER SIMILAR RIGHTS OF THE STOCKHOLDERS OF
THE COMPANY OR ANY LIENS OR ENCUMBRANCES IMPOSED THROUGH THE ACTIONS OR FAILURE
TO ACT OF THE COMPANY.  EXCEPT AS DISCLOSED IN THIS SECTION 3.3 AND EXCEPT FOR
THE TRANSACTIONS CONTEMPLATED HEREBY, (I) THERE ARE NO OUTSTANDING OPTIONS,
WARRANTS, SCRIP, RIGHTS TO SUBSCRIBE FOR, PUTS, CALLS, RIGHTS OF FIRST REFUSAL
OR PREEMPTIVE OR OTHER SIMILAR RIGHTS, AGREEMENTS, UNDERSTANDINGS, CLAIMS OR
OTHER COMMITMENTS OR RIGHTS OF ANY CHARACTER WHATSOEVER RELATING TO, OR
SECURITIES OR RIGHTS DIRECTLY OR INDIRECTLY CONVERTIBLE INTO, EXERCISABLE FOR,
OR EXCHANGEABLE FOR ANY SHARES OF CAPITAL STOCK OF THE COMPANY, OR ARRANGEMENTS
BY WHICH THE COMPANY IS OR MAY BECOME BOUND TO ISSUE ADDITIONAL SHARES OF
CAPITAL STOCK OF THE COMPANY; (II) THERE ARE NO AGREEMENTS OR ARRANGEMENTS
(OTHER THAN THE REGISTRATION RIGHTS AGREEMENT, THE SEPARATE REGISTRATION RIGHTS
AGREEMENTS ENTERED INTO ON JUNE 15, 2001, JANUARY 18, 2002, JULY 28, 2003 AND
MAY 7, 2004 AND THE PURCHASE WARRANTS DATED JUNE 15, 2001) UNDER WHICH THE
COMPANY IS OBLIGATED TO REGISTER THE SALE OF ANY OF ITS SECURITIES UNDER THE
SECURITIES ACT AND (III) THERE ARE NO ANTI-DILUTION OR PRICE ADJUSTMENT
PROVISIONS CONTAINED IN ANY SECURITY ISSUED BY THE COMPANY (OR IN ANY AGREEMENT
PROVIDING RIGHTS TO SECURITY HOLDERS) THAT WILL BE TRIGGERED BY THE ISSUANCE OF
THE SECURITIES (OTHER THAN THE EXERCISE PRICE ADJUSTMENTS PURSUANT TO THE
WARRANTS TO PURCHASE AN AGGREGATE OF 385,800 SHARES OF COMMON STOCK, ISSUED BY
THE COMPANY ON JANUARY 18, 2002).  THE COMPANY HAS FURNISHED TO THE INVESTORS
TRUE AND CORRECT COPIES OF THE COMPANY’S CERTIFICATE OF INCORPORATION, AS
AMENDED, AS IN EFFECT ON THE DATE HEREOF, THE COMPANY’S BYLAWS AS IN EFFECT ON
THE DATE HEREOF AND THE TERMS OF ALL SECURITIES CONVERTIBLE INTO OR EXERCISABLE
FOR COMMON STOCK OF THE COMPANY AND THE MATERIAL RIGHTS OF THE HOLDERS THEREOF
IN RESPECT THERETO.

 

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3.4                                 ISSUANCE OF SECURITIES.  THE SECURITIES ARE
DULY AUTHORIZED AND, UPON ISSUANCE IN ACCORDANCE WITH THE TERMS OF THIS
AGREEMENT, WILL BE VALIDLY ISSUED, FULLY PAID AND NON-ASSESSABLE, FREE FROM ALL
TAXES, LIENS, CLAIMS, ENCUMBRANCES AND CHARGES WITH RESPECT TO THE ISSUE
THEREOF, WILL NOT BE SUBJECT TO PREEMPTIVE RIGHTS OR OTHER SIMILAR RIGHTS OF
STOCKHOLDERS OF THE COMPANY, AND WILL NOT IMPOSE PERSONAL LIABILITY ON THE
HOLDERS THEREOF.  THE COMPANY HAS RESERVED A SUFFICIENT NUMBER OF SHARES OF
COMMON STOCK FOR ISSUANCE UPON EXERCISE OF THE WARRANTS, AND UPON PAYMENT OF THE
EXERCISE PRICE AND EXERCISE OF THE WARRANTS IN ACCORDANCE WITH ITS TERMS, THE
WARRANT SHARES WILL BE VALIDLY ISSUED, FULLY PAID AND NON-ASSESSABLE, FREE FROM
ALL TAXES, LIENS, CLAIMS, ENCUMBRANCES AND CHARGES WITH RESPECT TO THE ISSUE
THEREOF, WILL NOT BE SUBJECT TO PREEMPTIVE RIGHTS OR OTHER SIMILAR RIGHTS OF
STOCKHOLDERS OF THE COMPANY AND WILL NOT IMPOSE PERSONAL LIABILITY ON THE
HOLDERS THEREOF.

 

3.5                                 NO CONFLICTS; NO VIOLATION.

 

(A)                                  THE EXECUTION, DELIVERY AND PERFORMANCE OF
THIS AGREEMENT, THE REGISTRATION RIGHTS AGREEMENT AND THE WARRANTS BY THE
COMPANY AND THE CONSUMMATION BY THE COMPANY OF THE TRANSACTIONS CONTEMPLATED
HEREBY AND THEREBY (INCLUDING, WITHOUT LIMITATION, THE ISSUANCE OF THE
SECURITIES) WILL NOT (I) CONFLICT WITH OR RESULT IN A VIOLATION OF ANY PROVISION
OF ITS CERTIFICATE OF INCORPORATION OR BYLAWS OR (II) VIOLATE OR CONFLICT WITH,
OR RESULT IN A BREACH OF ANY PROVISION OF, OR CONSTITUTE A DEFAULT (OR AN EVENT
WHICH WITH NOTICE OR LAPSE OF TIME OR BOTH COULD BECOME A DEFAULT) UNDER, OR
GIVE TO OTHERS ANY RIGHTS OF TERMINATION, AMENDMENT (INCLUDING WITHOUT
LIMITATION, THE TRIGGERING OF ANY ANTI-DILUTION PROVISION), ACCELERATION OR
CANCELLATION OF, ANY AGREEMENT, INDENTURE, PATENT, PATENT LICENSE, OR INSTRUMENT
TO WHICH THE COMPANY IS A PARTY, OR (III) RESULT IN A VIOLATION OF ANY LAW,
RULE, REGULATION, ORDER, JUDGMENT OR DECREE (INCLUDING U.S. FEDERAL AND STATE
SECURITIES LAWS AND REGULATIONS AND REGULATIONS OF ANY SELF-REGULATORY
ORGANIZATIONS TO WHICH THE COMPANY OR ITS SECURITIES ARE SUBJECT) APPLICABLE TO
THE COMPANY OR BY WHICH ANY PROPERTY OR ASSET OF THE COMPANY IS BOUND OR
AFFECTED (EXCEPT FOR SUCH CONFLICTS, BREACHES, DEFAULTS, TERMINATIONS,
AMENDMENTS, ACCELERATIONS, CANCELLATIONS AND VIOLATIONS AS WOULD NOT,
INDIVIDUALLY OR IN THE AGGREGATE, HAVE A MATERIAL ADVERSE EFFECT).

 

(B)                                 THE COMPANY IS NOT IN VIOLATION OF ITS
CERTIFICATE OF INCORPORATION, BYLAWS OR OTHER ORGANIZATIONAL DOCUMENTS AND THE
COMPANY IS NOT IN DEFAULT (AND NO EVENT HAS OCCURRED WHICH WITH NOTICE OR LAPSE
OF TIME OR BOTH COULD PUT THE COMPANY IN DEFAULT) UNDER ANY AGREEMENT, INDENTURE
OR INSTRUMENT TO WHICH THE COMPANY IS A PARTY OR BY WHICH ANY PROPERTY OR ASSETS
OF THE COMPANY IS BOUND OR AFFECTED, EXCEPT FOR POSSIBLE DEFAULTS AS WOULD NOT,
INDIVIDUALLY OR IN THE AGGREGATE, HAVE A MATERIAL ADVERSE EFFECT.

 

(C)                                  THE COMPANY IS NOT CONDUCTING ITS BUSINESS
IN VIOLATION OF ANY LAW, ORDINANCE OR REGULATION OF ANY GOVERNMENTAL ENTITY, THE
FAILURE TO COMPLY WITH WHICH WOULD, INDIVIDUALLY OR IN THE AGGREGATE, HAVE A
MATERIAL ADVERSE EFFECT.

 

(D)                                 EXCEPT AS SPECIFICALLY CONTEMPLATED BY THIS
AGREEMENT AND AS REQUIRED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR ANY LISTING AGREEMENT WITH ANY SECURITIES EXCHANGE OR
AUTOMATED QUOTATION SYSTEM, 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 OR ANY REGULATORY OR SELF REGULATORY AGENCY IN ORDER FOR IT
TO EXECUTE, DELIVER OR PERFORM ANY OF ITS OBLIGATIONS UNDER THIS AGREEMENT, THE
REGISTRATION RIGHTS AGREEMENT OR THE WARRANTS, IN EACH CASE IN ACCORDANCE WITH
THE TERMS HEREOF OR THEREOF, OR TO ISSUE AND SELL THE SECURITIES IN ACCORDANCE
WITH THE TERMS HEREOF.  ALL CONSENTS, AUTHORIZATIONS, ORDERS, FILINGS AND
REGISTRATIONS WHICH THE COMPANY IS REQUIRED TO OBTAIN PURSUANT TO THE PRECEDING
SENTENCE HAVE BEEN OBTAINED OR EFFECTED ON OR PRIOR TO THE DATE HEREOF.  THE
COMPANY IS NOT IN VIOLATION OF THE LISTING REQUIREMENTS OF NASDAQ.

 

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3.6                                 SEC DOCUMENTS, FINANCIAL STATEMENTS.  SINCE
JUNE 30, 2002, THE COMPANY HAS TIMELY FILED ALL REPORTS, SCHEDULES, FORMS,
STATEMENTS AND OTHER DOCUMENTS REQUIRED TO BE FILED BY IT WITH THE SEC PURSUANT
TO THE REPORTING REQUIREMENTS OF THE EXCHANGE ACT (ALL OF THE FOREGOING FILED
PRIOR TO THE DATE HEREOF AND ALL EXHIBITS INCLUDED THEREIN AND FINANCIAL
STATEMENTS AND SCHEDULES THERETO AND DOCUMENTS (OTHER THAN EXHIBITS)
INCORPORATED BY REFERENCE THEREIN, BEING HEREINAFTER REFERRED TO HEREIN AS THE
“SEC DOCUMENTS”).  THE COMPANY HAS DELIVERED TO EACH INVESTOR, OR EACH INVESTOR
HAS HAD ACCESS TO, TRUE AND COMPLETE COPIES OF THE SEC DOCUMENTS, EXCEPT FOR
SUCH EXHIBITS AND INCORPORATED DOCUMENTS.  AS OF THEIR RESPECTIVE DATES, THE SEC
DOCUMENTS COMPLIED IN ALL MATERIAL RESPECTS WITH THE REQUIREMENTS OF THE
EXCHANGE ACT OR THE SECURITIES ACT, AS THE CASE MAY BE, AND THE RULES AND
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 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 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 U.S. 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 NOT INCLUDE 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).  EXCEPT
AS SET FORTH IN THE FINANCIAL STATEMENTS INCLUDED IN THE SEC DOCUMENTS, THE
COMPANY HAS NO LIABILITIES, CONTINGENT OR OTHERWISE, OTHER THAN LIABILITIES
INCURRED IN THE ORDINARY COURSE OF BUSINESS SUBSEQUENT TO JUNE 30, 2005, AND
LIABILITIES OF THE TYPE NOT REQUIRED UNDER GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES TO BE REFLECTED IN SUCH FINANCIAL STATEMENTS.  SUCH LIABILITIES
INCURRED SUBSEQUENT TO JUNE 30, 2005, ARE NOT, IN THE AGGREGATE, MATERIAL TO THE
FINANCIAL CONDITION OR OPERATING RESULTS OF THE COMPANY.

 

3.7                                 ABSENCE OF CERTAIN CHANGES.  EXCEPT AS
DISCLOSED IN THE SEC DOCUMENTS, SINCE JUNE 30, 2005, THERE HAS BEEN NO MATERIAL
ADVERSE CHANGE IN THE ASSETS, LIABILITIES, BUSINESS, PROPERTIES, OPERATIONS,
FINANCIAL CONDITION, PROSPECTS OR RESULTS OF OPERATIONS OF THE COMPANY, AND THE
COMPANY HAS NOT (I) VARIED ITS BUSINESS PLAN OR PRACTICES, IN ANY MATERIAL
RESPECT, FROM PAST PRACTICES, (II) ENTERED INTO ANY MATERIAL FINANCING, JOINT
VENTURE, LICENSE OR SIMILAR ARRANGEMENTS OR (III) SUFFERED OR PERMITTED TO BE
INCURRED ANY LIABILITY OR OBLIGATION AGAINST ANY OF ITS PROPERTIES OR ASSETS
THAT WOULD LIMIT OR RESTRICT ITS ABILITY TO PERFORM ITS OBLIGATIONS HEREUNDER.

 

3.8                                 ABSENCE OF LITIGATION.  EXCEPT AS DISCLOSED
IN THE SEC DOCUMENTS, THERE IS NO ACTION, SUIT, CLAIM, PROCEEDING, INQUIRY OR
INVESTIGATION BEFORE OR BY ANY COURT, PUBLIC BOARD, GOVERNMENT AGENCY,
SELF-REGULATORY ORGANIZATION OR BODY, (I) TO THE KNOWLEDGE OF THE COMPANY,
THREATENED AGAINST OR AFFECTING THE COMPANY OR ANY OF ITS OFFICERS OR DIRECTORS
ACTING AS SUCH THAT COULD, INDIVIDUALLY OR IN THE AGGREGATE, HAVE A MATERIAL
ADVERSE EFFECT, OR (II) PENDING AGAINST OR AFFECTING THE COMPANY OR ANY OF ITS
OFFICERS OR DIRECTORS ACTING AS SUCH.

 

3.9                                 INTELLECTUAL PROPERTY RIGHTS.  THE COMPANY
OWNS OR POSSESSES THE LICENSES OR RIGHTS TO USE ALL PATENTS, PATENT
APPLICATIONS, PATENT RIGHTS, INVENTIONS, KNOW-HOW, TRADE SECRETS, TRADEMARKS,
TRADEMARK APPLICATIONS, SERVICE MARKS, SERVICE NAMES, TRADE NAMES AND COPYRIGHTS
NECESSARY TO ENABLE IT TO CONDUCT ITS BUSINESS AS NOW OPERATED OR AS CURRENTLY
PROPOSED TO BE OPERATED (THE “INTELLECTUAL PROPERTY”).  EXCEPT AS SET FORTH IN
THE SEC DOCUMENTS, THERE ARE NO MATERIAL OUTSTANDING

 

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OPTIONS, LICENSES OR AGREEMENTS RELATING TO THE INTELLECTUAL PROPERTY, NOR IS
THE COMPANY BOUND BY OR A PARTY TO ANY MATERIAL OPTIONS, LICENSES OR AGREEMENTS
RELATING TO THE PATENTS, PATENT APPLICATIONS, PATENT RIGHTS, INVENTIONS,
KNOW-HOW, TRADE SECRETS, TRADEMARKS, TRADEMARK APPLICATIONS, SERVICE MARKS,
SERVICE NAMES, TRADE NAMES OR COPYRIGHTS OF ANY OTHER PERSON OR ENTITY.  EXCEPT
AS DISCLOSED IN THE SEC DOCUMENTS, THERE IS NO CLAIM OR ACTION OR PROCEEDING
PENDING OR, TO THE COMPANY’S KNOWLEDGE, THREATENED THAT CHALLENGES THE RIGHT OF
THE COMPANY WITH RESPECT TO ANY INTELLECTUAL PROPERTY.  EXCEPT AS SET FORTH IN
THE SEC DOCUMENTS, TO THE KNOWLEDGE OF THE COMPANY, THE COMPANY’S INTELLECTUAL
PROPERTY DOES NOT INFRINGE ANY INTELLECTUAL PROPERTY RIGHTS OF ANY OTHER PERSON
WHICH, IF THE SUBJECT OF AN UNFAVORABLE DECISION, RULING OR FINDING WOULD HAVE A
MATERIAL ADVERSE EFFECT.

 

3.10                           TAX STATUS.  THE COMPANY HAS TIMELY MADE OR FILED
ALL FEDERAL, STATE AND FOREIGN INCOME AND ALL OTHER TAX RETURNS, REPORTS AND
DECLARATIONS REQUIRED BY ANY JURISDICTION TO WHICH IT IS SUBJECT (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) AND HAS
TIMELY PAID ALL TAXES AND OTHER GOVERNMENTAL ASSESSMENTS AND CHARGES, 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 PROVISIONS
REASONABLY ADEQUATE FOR THE PAYMENT OF ALL TAXES FOR PERIODS SUBSEQUENT TO THE
PERIODS TO WHICH SUCH RETURNS, REPORTS OR DECLARATIONS APPLY.  TO THE KNOWLEDGE
OF THE COMPANY, THERE ARE NO UNPAID TAXES 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.  THE COMPANY HAS NOT EXECUTED A WAIVER WITH RESPECT TO THE
STATUTE OF LIMITATIONS RELATING TO THE ASSESSMENT OR COLLECTION OF ANY FOREIGN,
FEDERAL, STATE OR LOCAL TAX.  NONE OF THE COMPANY’S TAX RETURNS IS PRESENTLY
BEING AUDITED BY ANY TAXING AUTHORITY.

 

3.11                           ENVIRONMENTAL LAWS.  THE COMPANY (I) IS IN
COMPLIANCE WITH ALL APPLICABLE 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 OF THEM UNDER APPLICABLE ENVIRONMENTAL LAWS TO CONDUCT
ITS BUSINESS AND (III) IS IN COMPLIANCE WITH ALL TERMS AND CONDITIONS OF ANY
SUCH PERMIT, LICENSE OR APPROVAL WHERE, IN EACH OF THE THREE FOREGOING CLAUSES,
THE FAILURE TO SO COMPLY WOULD HAVE, INDIVIDUALLY OR IN THE AGGREGATE, A
MATERIAL ADVERSE EFFECT.

 

3.12                           NO INTEGRATED OFFERING.  EXCEPT FOR THE FILING OF
A SHELF REGISTRATION STATEMENT ON FORM S-3 WITH THE SEC ON APRIL 1, 2005, WHICH
REGISTRATION STATEMENT HAS NOT BEEN WITHDRAWN OR DECLARED EFFECTIVE, 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 IN ANY SECURITY OR
SOLICITED ANY OFFERS TO BUY ANY SECURITY UNDER CIRCUMSTANCES THAT WOULD REQUIRE
REGISTRATION UNDER THE SECURITIES ACT OF THE ISSUANCE OF THE SECURITIES TO THE
INVESTORS.  BASED UPON THE POLICY POSITION OF THE SEC, AS DESCRIBED IN THE SEC
STAFF’S NO-ACTION LETTERS DATED JUNE 26, 1990 TO BLACK BOX INCORPORATED AND
FEBRUARY 28, 1992 TO SQUADRON, ELLENOFF, PLEASANT & LEHRER, AND THE INVESTORS
REPRESENTATIONS IN ARTICLE II, THE ISSUANCE OF THE SECURITIES TO THE INVESTORS
WILL NOT BE INTEGRATED WITH ANY OTHER ISSUANCE OF THE COMPANY’S SECURITIES
(PAST, CURRENT OR FUTURE) FOR PURPOSES OF THE SECURITIES ACT.  THE ISSUANCE OF
THE SECURITIES TO THE INVESTORS WILL NOT BE INTEGRATED WITH ANY OTHER ISSUANCE
OF THE COMPANY’S SECURITIES (PAST, CURRENT OR FUTURE) FOR PURPOSES OF ANY
APPLICABLE RULES OF NASDAQ.

 

3.13                           NO BROKERS.  THE COMPANY HAS TAKEN NO ACTION
WHICH WOULD GIVE RISE TO ANY CLAIM BY ANY PERSON FOR BROKERAGE COMMISSIONS,
FINDER’S FEES OR SIMILAR PAYMENTS RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY, EXCEPT FOR DEALINGS WITH PUNK, ZIEGEL & COMPANY, WHOSE
COMMISSIONS AND FEES WILL BE PAID FOR BY THE COMPANY.

 

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3.14                           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.

 

3.15                           EMPLOYMENT MATTERS.  THE COMPANY IS IN COMPLIANCE
WITH ALL FEDERAL, STATE, LOCAL AND FOREIGN LAWS AND REGULATIONS RESPECTING
EMPLOYMENT AND EMPLOYMENT PRACTICES, TERMS AND CONDITIONS OF EMPLOYMENT AND
WAGES AND HOURS, EXCEPT WHERE FAILURE TO BE IN COMPLIANCE WOULD NOT HAVE A
MATERIAL ADVERSE EFFECT. THE COMPANY IS NOT BOUND BY OR SUBJECT TO (AND NONE OF
ITS ASSETS OR PROPERTIES IS BOUND BY OR SUBJECT TO) ANY WRITTEN OR ORAL, EXPRESS
OR IMPLIED, CONTRACT, COMMITMENT OR ARRANGEMENT WITH ANY LABOR UNION, AND NO
LABOR UNION HAS REQUESTED OR, TO THE COMPANY’S KNOWLEDGE, HAS SOUGHT TO
REPRESENT ANY OF THE EMPLOYEES, REPRESENTATIVES OR AGENTS OF THE COMPANY.  THERE
IS NO STRIKE OR OTHER LABOR DISPUTE INVOLVING THE COMPANY PENDING, OR TO THE
COMPANY’S KNOWLEDGE, THREATENED NOR IS THE COMPANY AWARE OF ANY LABOR
ORGANIZATION ACTIVITY INVOLVING ITS EMPLOYEES.  THE COMPANY IS NOT AWARE THAT
ANY OFFICER OR KEY EMPLOYEE, OR THAT ANY GROUP OF OFFICERS OR KEY EMPLOYEES,
INTENDS TO TERMINATE THEIR EMPLOYMENT WITH THE COMPANY, NOR DOES THE COMPANY
HAVE A PRESENT INTENTION TO TERMINATE THE EMPLOYMENT OF ANY OF THE FOREGOING.

 

3.16                           EMPLOYEE BENEFIT PLANS.  EXCEPT AS SET FORTH IN
THE SEC DOCUMENTS, THE COMPANY DOES NOT HAVE ANY EMPLOYEE BENEFIT PLANS, AS SUCH
TERM IS DEFINED IN THE EMPLOYEE RETIREMENT SECURITY ACT OF 1974.

 

3.17                           INVESTMENT COMPANY STATUS.  THE COMPANY IS NOT
AND UPON CONSUMMATION OF THE SALE OF THE SECURITIES WILL NOT BE AN “INVESTMENT
COMPANY,” A COMPANY CONTROLLED BY AN “INVESTMENT COMPANY” OR AN “AFFILIATED
PERSON” OF, OR “PROMOTER” OR “PRINCIPAL UNDERWRITER” FOR, AN “INVESTMENT
COMPANY” AS SUCH TERMS ARE DEFINED IN THE INVESTMENT COMPANY ACT OF 1940, AS
AMENDED.

 

3.18                           NO SUBSIDIARIES.  EXCEPT FOR SONUS PHARMA,
LIMITED, A WHOLLY OWNED SUBSIDIARY OF THE COMPANY ORGANIZED UNDER THE LAWS OF
THE UNITED KINGDOM, THE COMPANY DOES NOT PRESENTLY OWN OR CONTROL, DIRECTLY OR
INDIRECTLY, ANY INTEREST IN ANY OTHER CORPORATION, ASSOCIATION, JOINT VENTURE,
PARTNERSHIP OR OTHER BUSINESS ENTITY AND THE COMPANY IS NOT A DIRECT OR INDIRECT
PARTICIPANT IN ANY JOINT VENTURE OR PARTNERSHIP.

 

3.19                           NO CONFLICT OF INTEREST.  THE COMPANY IS NOT
INDEBTED, DIRECTLY OR INDIRECTLY, TO ANY OF ITS OFFICERS OR DIRECTORS OR TO
THEIR RESPECTIVE SPOUSES OR CHILDREN, IN ANY AMOUNT WHATSOEVER OTHER THAN IN
CONNECTION WITH EXPENSES OR ADVANCES OF EXPENSES INCURRED IN THE ORDINARY COURSE
OF BUSINESS OR RELOCATION EXPENSES OF EMPLOYEES.  NONE OF THE COMPANY’S
OFFICERS, DIRECTORS OR EMPLOYEES, OR ANY MEMBERS OF THEIR IMMEDIATE FAMILIES,
ARE DIRECTLY, OR INDIRECTLY, INDEBTED TO THE COMPANY OR, TO THE BEST OF THE
COMPANY’S KNOWLEDGE, HAVE ANY DIRECT OR INDIRECT OWNERSHIP INTEREST IN ANY
ENTITY WITH WHICH THE COMPANY IS AFFILIATED OR WITH WHICH THE COMPANY HAS A
BUSINESS RELATIONSHIP, OR ANY ENTITY WHICH COMPETES WITH THE COMPANY, EXCEPT
THAT OFFICERS, DIRECTORS, EMPLOYEES AND/OR STOCKHOLDERS OF THE COMPANY MAY OWN
STOCK IN (BUT NOT EXCEEDING FIVE PERCENT (5%) OF THE OUTSTANDING CAPITAL STOCK
OF) ANY PUBLICLY TRADED COMPANY THAT MAY COMPETE WITH THE COMPANY.  TO THE BEST
OF THE COMPANY’S KNOWLEDGE, NONE OF THE COMPANY’S OFFICERS, DIRECTORS OR
EMPLOYEES OR ANY MEMBERS OF THEIR IMMEDIATE FAMILIES ARE, DIRECTLY OR
INDIRECTLY, INTERESTED IN ANY MATERIAL CONTRACT WITH THE COMPANY.  THE COMPANY
IS NOT A GUARANTOR OR INDEMNITOR OF ANY INDEBTEDNESS OF ANY OTHER PERSON OR
ENTITY.

 

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3.20                           NASDAQ NOTIFICATION.  THE COMPANY HAS NOTIFIED
NASDAQ OF THE ISSUANCE AND LISTING OF THE COMMON SHARES AND WARRANT SHARES ON
NASDAQ AND THE COMMON SHARES AND WARRANT SHARES HAVE BEEN APPROVED FOR QUOTATION
ON NASDAQ, UPON OFFICIAL NOTICE OF ISSUANCE.

 

3.21                           REPORTING STATUS; ELIGIBILITY TO USE FORM S-3. 
THE COMPANY’S COMMON STOCK IS REGISTERED UNDER SECTION 12G OF THE EXCHANGE ACT. 
THE COMPANY CURRENTLY MEETS THE “REGISTRANT ELIGIBILITY” REQUIREMENTS SET FORTH
IN THE GENERAL INSTRUCTIONS TO FORM S-3 TO ENABLE THE REGISTRATION OF THE
REGISTRABLE SECURITIES, AS DEFINED IN THE REGISTRATION RIGHTS AGREEMENT.

 

3.22                           NO MANIPULATION OF STOCK.  THE COMPANY HAS NOT
TAKEN AND WILL NOT, IN VIOLATION OF APPLICABLE LAW, TAKE, ANY ACTION DESIGNED TO
OR THAT MIGHT REASONABLY BE EXPECTED TO CAUSE OR RESULT IN STABILIZATION OR
MANIPULATION OF THE PRICE OF THE COMMON STOCK TO FACILITATE THE SALE OR RESALE
OF THE COMMON SHARES.

 

3.23                           REPRESENTATIONS COMPLETE.  THE REPRESENTATIONS
AND WARRANTIES MADE BY THE COMPANY IN THIS AGREEMENT, THE STATEMENTS MADE IN ANY
CERTIFICATES FURNISHED BY THE COMPANY PURSUANT TO THIS AGREEMENT, AND THE
STATEMENTS MADE BY THE COMPANY IN ANY DOCUMENTS MAILED, DELIVERED OR FURNISHED
TO THE INVESTORS IN CONNECTION WITH THIS AGREEMENT, TAKEN AS A WHOLE, DO NOT
CONTAIN AND WILL NOT CONTAIN, AS OF THEIR RESPECTIVE DATES AND AS OF THE CLOSING
DATE, ANY UNTRUE STATEMENT OF A MATERIAL FACT, NOR DO THEY OMIT OR WILL THEY
OMIT, AS OF THEIR RESPECTIVE DATES OR AS OF THE CLOSING DATE, TO STATE ANY
MATERIAL FACT NECESSARY IN ORDER TO MAKE THE STATEMENTS CONTAINED HEREIN OR
THEREIN, IN THE LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT
MISLEADING.

 

ARTICLE IV
COVENANTS

 

4.1                                 BEST EFFORTS.  EACH PARTY WILL USE ITS BEST
EFFORTS TO SATISFY IN A TIMELY FASHION EACH OF THE CONDITIONS TO BE SATISFIED BY
IT UNDER ARTICLES VI AND VII OF THIS AGREEMENT.  THE COMPANY SHALL USE ITS BEST
EFFORTS TO COMPLY WITH EACH OF ITS COVENANTS IN THIS AGREEMENT, THE REGISTRATION
RIGHTS AGREEMENT AND THE WARRANTS, UNLESS THE USE OF BEST EFFORTS CONFLICTS WITH
THE STANDARD OF CONDUCT SET FORTH IN ANY SUCH COVENANT, IN WHICH CASE SUCH OTHER
STANDARD OF CONDUCT SHALL CONTROL.

 

4.2                                 FORM D; BLUE SKY LAWS.  THE COMPANY WILL
TIMELY FILE A NOTICE OF SALE OF SECURITIES ON FORM D WITH RESPECT TO THE
SECURITIES, AS REQUIRED UNDER REGULATION D.  THE COMPANY WILL, ON OR BEFORE THE
CLOSING DATE, TAKE SUCH ACTION AS IT REASONABLY DETERMINES TO BE NECESSARY TO
QUALIFY THE SECURITIES FOR SALE TO THE INVESTORS UNDER THIS AGREEMENT UNDER
APPLICABLE SECURITIES (OR “BLUE SKY”) LAWS OF THE STATES OF THE UNITED STATES
(OR TO OBTAIN AN EXEMPTION FROM SUCH QUALIFICATION).

 

4.3                                 CONTINUED ELIGIBILITY TO USE FORM S-3. 
THROUGHOUT THE REGISTRATION PERIOD (AS DEFINED IN THE REGISTRATION RIGHTS
AGREEMENT), THE COMPANY WILL TIMELY FILE ALL REPORTS, SCHEDULES, FORMS,
STATEMENTS AND OTHER DOCUMENTS REQUIRED TO BE FILED BY IT WITH THE SEC UNDER THE
REPORTING REQUIREMENTS OF THE EXCHANGE ACT, AND THE COMPANY WILL NOT TERMINATE
ITS STATUS AS AN ISSUER REQUIRED TO FILE REPORTS UNDER THE EXCHANGE ACT EVEN IF
THE EXCHANGE ACT OR THE RULES AND REGULATIONS THEREUNDER WOULD PERMIT SUCH
TERMINATION.  THE COMPANY WILL TAKE ALL REASONABLY NECESSARY ACTION TO CONTINUE
TO MEET THE “REGISTRANT ELIGIBILITY” REQUIREMENTS SET FORTH IN THE GENERAL
INSTRUCTIONS TO FORM S-3 TO ENABLE THE REGISTRATION OF THE REGISTRABLE
SECURITIES AS DEFINED IN THE REGISTRATION RIGHTS AGREEMENT.

 

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4.4                                 EXPENSES.  THE COMPANY AND EACH INVESTOR IS
LIABLE FOR, AND WILL PAY, ITS OWN EXPENSES INCURRED IN CONNECTION WITH THE
NEGOTIATION, PREPARATION, EXECUTION AND DELIVERY OF THIS AGREEMENT AND THE OTHER
AGREEMENTS TO BE EXECUTED IN CONNECTION HEREWITH, INCLUDING, WITHOUT LIMITATION,
ATTORNEYS’ AND CONSULTANTS’ FEES AND EXPENSES.

 

4.5                                 FINANCIAL INFORMATION.  AS LONG AS AN
INVESTOR OWNS ANY OF THE SECURITIES OR WARRANT SHARES, THE FINANCIAL STATEMENTS
OF THE COMPANY WILL BE PREPARED IN ACCORDANCE WITH UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES, CONSISTENTLY APPLIED, AND WILL FAIRLY PRESENT IN
ALL MATERIAL RESPECTS THE CONSOLIDATED FINANCIAL POSITION OF THE COMPANY AND
RESULTS OF ITS OPERATIONS AND CASH FLOWS AS OF, AND FOR THE PERIODS COVERED BY,
SUCH FINANCIAL STATEMENTS (SUBJECT, IN THE CASE OF UNAUDITED STATEMENTS, TO
NORMAL YEAR-END AUDIT ADJUSTMENTS).

 

4.6                                 COMPLIANCE WITH LAW.  AS LONG AS AN INVESTOR
OWNS ANY OF THE SECURITIES OR WARRANT SHARES, THE COMPANY WILL CONDUCT ITS
BUSINESS IN COMPLIANCE WITH ALL APPLICABLE LAWS, RULES AND REGULATIONS OF THE
JURISDICTIONS IN WHICH IT IS CONDUCTING BUSINESS, INCLUDING, WITHOUT LIMITATION,
ALL APPLICABLE LOCAL, STATE AND FEDERAL ENVIRONMENTAL LAWS AND REGULATIONS, THE
FAILURE TO COMPLY, INDIVIDUALLY OR IN THE AGGREGATE, WITH WHICH WOULD HAVE A
MATERIAL ADVERSE EFFECT.

 

4.7                                 NO INTEGRATION.  THE COMPANY WILL NOT MAKE
ANY OFFERS OR SALES OF ANY SECURITY OR SOLICIT OFFERS TO BUY OR OTHERWISE
NEGOTIATE IN RESPECT OF ANY OFFER OR SALE OF ANY SECURITY (OTHER THAN THE
SECURITIES) UNDER CIRCUMSTANCES THAT WOULD CAUSE THE OFFERING OF THE SECURITIES
TO BE INTEGRATED WITH ANY OTHER OFFERING OF SECURITIES BY THE COMPANY (I) FOR
THE PURPOSE OF ANY STOCKHOLDER APPROVAL PROVISION APPLICABLE TO THE COMPANY OR
ITS SECURITIES OR (II) FOR PURPOSES OF ANY REGISTRATION REQUIREMENT UNDER THE
SECURITIES ACT.

 

4.8                                 SALES BY INVESTORS.  EACH INVESTOR WILL SELL
ANY SECURITIES SOLD BY IT IN COMPLIANCE WITH APPLICABLE PROSPECTUS DELIVERY
REQUIREMENTS, IF ANY, OR OTHERWISE IN COMPLIANCE WITH THE REQUIREMENTS FOR AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND THE RULES AND
REGULATIONS PROMULGATED THEREUNDER.  NO INVESTOR WILL MAKE ANY SALE, TRANSFER OR
OTHER DISPOSITION OF THE SECURITIES IN VIOLATION OF FEDERAL OR STATE SECURITIES
LAWS.

 

4.9                                 CONTINGENT WARRANTS.

 

(A)                                  IN THE EVENT THE COMPANY SHALL NOT HAVE
ENTERED INTO A DEFINITIVE COLLABORATION AGREEMENT BETWEEN THE COMPANY AND A
THIRD PARTY WITH RESPECT TO THE DEVELOPMENT OR MARKETING OF TOCOSOL PACLITAXEL,
WHICH INCLUDES PRESENT OR FUTURE CONSIDERATION PAYABLE BY SUCH THIRD PARTY TO
THE COMPANY, WHETHER IN THE FORM OF UP FRONT PAYMENTS, FUTURE MILESTONE
PAYMENTS, REIMBURSEMENTS OF CLINICAL TRIAL OR OTHER DEVELOPMENT EXPENSES,
ROYALTIES OR INVESTMENTS, AND WHICH COVERS A TERRITORY THAT INCLUDES THE UNITED
STATES (A “PARTNERSHIP”) ON OR PRIOR TO DECEMBER 31, 2005 (THE “TRIGGER DATE”),
THE COMPANY SHALL ISSUE TO EACH OF THE INVESTORS AN ADDITIONAL WARRANT IN THE
FORM OF EXHIBIT A TO PURCHASE SUCH NUMBER OF SHARES OF THE COMPANY’S COMMON
STOCK EQUAL TO 15% OF THE COMMON SHARES PURCHASED BY EACH INVESTOR ON THE
CLOSING DATE UNDER THIS AGREEMENT, ROUNDED UP TO THE NEAREST WHOLE SHARE (THE
“CONTINGENT WARRANTS”).

 

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(B)                                 THE PURCHASE PRICE FOR EACH CONTINGENT
WARRANT IS $.125 MULTIPLIED BY THE NUMBER OF SHARES OF COMMON STOCK PURCHASABLE
UNDER EACH CONTINGENT WARRANT (THE “CONTINGENT WARRANT SHARES”).  AS A CONDITION
TO THE ISSUANCE OF A CONTINGENT WARRANT TO EACH INVESTOR, SUCH INVESTOR SHALL
DELIVER TO THE COMPANY THE PURCHASE PRICE FOR SUCH CONTINGENT WARRANT.  BY
PAYING THE PURCHASE PRICE FOR A CONTINGENT WARRANT AND ACCEPTING SUCH CONTINGENT
WARRANT, EACH INVESTOR CONFIRMS THE REPRESENTATIONS AND WARRANTIES OF SUCH
INVESTOR SET FORTH IN ARTICLE II OF THIS AGREEMENT WITH RESPECT TO THE PURCHASE
OF SUCH CONTINGENT WARRANT.

 

(C)                                  IF THE COMPANY HAS NOT ENTERED INTO A
PARTNERSHIP ON OR PRIOR TO THE TRIGGER DATE, WITHIN FIVE (5) BUSINESS DAYS AFTER
THE TRIGGER DATE, THE COMPANY SHALL PROVIDE NOTICE TO EACH INVESTOR TO THAT
EFFECT PURSUANT TO THE NOTICE PROVISIONS SET FORTH IN SECTION 10.7.  THE NOTICE
SHALL INCLUDE THE NUMBER OF CONTINGENT WARRANT SHARES THAT SUCH INVESTOR IS
ENTITLED TO PURCHASE UNDER THE CONTINGENT WARRANT TO BE ISSUED TO SUCH INVESTOR,
THE AGGREGATE PURCHASE PRICE FOR SUCH CONTINGENT WARRANT AND PAYMENT
INSTRUCTIONS.  EACH INVESTOR SHALL FORWARD THE PURCHASE PRICE SET FORTH IN THE
NOTICE WITHIN TEN (10) BUSINESS DAYS FOLLOWING RECEIPT OF SUCH NOTICE.  THE
COMPANY SHALL DELIVER TO EACH INVESTOR A WARRANT CERTIFICATE IN THE FORM OF
EXHIBIT A REPRESENTING THE CONTINGENT WARRANT SO PURCHASED BY EACH INVESTOR
WITHIN TWO (2) BUSINESS DAYS FOLLOWING RECEIPT OF THE PURCHASE PRICE FOR SUCH
CONTINGENT WARRANT.  FAILURE BY ANY INVESTOR TO DELIVER THE PURCHASE PRICE FOR
SUCH INVESTOR’S CONTINGENT WARRANT SHALL FORFEIT SUCH INVESTOR’S RIGHT TO
RECEIVE A CONTINGENT WARRANT AND THE COMPANY SHALL HAVE NO FURTHER OBLIGATIONS
UNDER THIS SECTION 4.9 WITH RESPECT TO SUCH INVESTOR.

 

(D)                                 FOR PURPOSES OF THE COMPANY’S AND THE
INVESTORS’ RIGHTS AND OBLIGATIONS UNDER THIS SECTION 4.9, THE TERMS WARRANTS AND
SECURITIES AS USED IN THIS AGREEMENT SHALL INCLUDE THE CONTINGENT WARRANTS AND
THE TERM WARRANT SHARES AS USED IN THIS AGREEMENT SHALL INCLUDE THE CONTINGENT
WARRANT SHARES.

 

ARTICLE V
TRANSFER AGENT INSTRUCTIONS; REMOVAL OF LEGENDS

 

5.1                                 ISSUANCE OF CERTIFICATES.  THE COMPANY WILL,
OR WILL INSTRUCT ITS TRANSFER AGENT TO, ISSUE CERTIFICATES, REGISTERED IN THE
NAME OF EACH INVESTOR OR ITS NOMINEE, FOR THE SECURITIES AND, PROMPTLY UPON
EXERCISE OF ANY WARRANTS, THE APPLICABLE WARRANT SHARES.  ALL SUCH CERTIFICATES
WILL BEAR THE RESTRICTIVE LEGEND DESCRIBED IN SECTION 2.7, EXCEPT AS OTHERWISE
SPECIFIED IN THIS ARTICLE V.  THE COMPANY WILL NOT GIVE TO ITS TRANSFER AGENT
ANY INSTRUCTION OTHER THAN AS DESCRIBED IN THIS ARTICLE V AND STOP TRANSFER
INSTRUCTIONS TO GIVE EFFECT TO SECTION 2.7 HEREOF (PRIOR TO REGISTRATION OF THE
SECURITIES UNDER THE SECURITIES ACT).  NOTHING IN THIS SECTION WILL AFFECT IN
ANY WAY THE INVESTOR’S OBLIGATIONS TO COMPLY WITH ALL APPLICABLE PROSPECTUS
DELIVERY REQUIREMENTS, IF ANY, UPON RESALE OF THE COMMON SHARES AND/OR WARRANT
SHARES.

 

5.2                                 UNRESTRICTED SECURITIES.  IF, UNLESS
OTHERWISE REQUIRED BY APPLICABLE STATE SECURITIES LAWS, (A) THE SECURITIES OR
WARRANT SHARES REPRESENTED BY A CERTIFICATE HAVE BEEN REGISTERED UNDER AN
EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE SECURITIES ACT, (B) A HOLDER OF
SECURITIES OR WARRANT SHARES PROVIDES THE COMPANY AND ITS TRANSFER AGENT WITH AN
OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF
COUNSEL IN COMPARABLE TRANSACTIONS, TO THE EFFECT THAT A PUBLIC SALE OR TRANSFER
OF SUCH SECURITIES OR WARRANT SHARES MAY BE MADE WITHOUT REGISTRATION UNDER THE
SECURITIES ACT AND SUCH SALE EITHER HAS OCCURRED OR MAY OCCUR WITHOUT
RESTRICTION ON THE MANNER OF SUCH SALE OR TRANSFER, (C) SUCH HOLDER PROVIDES THE
COMPANY AND ITS TRANSFER AGENT WITH REASONABLE ASSURANCES THAT SUCH SECURITIES
OR WARRANT

 

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SHARES CAN BE SOLD UNDER RULE 144, OR (D) THE SECURITIES OR WARRANT SHARES
REPRESENTED BY A CERTIFICATE CAN BE SOLD WITHOUT RESTRICTION AS TO THE NUMBER OF
SECURITIES SOLD UNDER RULE 144(K), THE COMPANY WILL PERMIT THE TRANSFER OF THE
SECURITIES OR WARRANT SHARES, AND THE COMPANY’S TRANSFER AGENT WILL ISSUE ONE OR
MORE CERTIFICATES, FREE FROM ANY RESTRICTIVE LEGEND, IN SUCH NAME AND IN SUCH
DENOMINATIONS AS SPECIFIED BY SUCH HOLDER.  NOTWITHSTANDING ANYTHING HEREIN TO
THE CONTRARY, THE SECURITIES OR WARRANT SHARES MAY BE PLEDGED AS COLLATERAL IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LENDING ARRANGEMENT;
PROVIDED, THAT SUCH PLEDGE WILL NOT ALTER THE PROVISIONS OF THIS ARTICLE V WITH
RESPECT TO THE REMOVAL OF RESTRICTIVE LEGENDS.

 

5.3                                 ENFORCEMENT OF PROVISION.  THE COMPANY
ACKNOWLEDGES THAT A BREACH BY IT OF ITS OBLIGATIONS HEREUNDER WILL CAUSE
IRREPARABLE HARM TO THE INVESTOR BY VITIATING THE INTENT AND PURPOSE OF THE
TRANSACTION CONTEMPLATED HEREBY.  ACCORDINGLY, THE COMPANY ACKNOWLEDGES THAT THE
REMEDY AT LAW FOR A BREACH OF ITS OBLIGATIONS UNDER THIS ARTICLE V WILL BE
INADEQUATE AND AGREES, IN THE EVENT OF A BREACH OR THREATENED BREACH BY THE
COMPANY OF THE PROVISIONS OF THIS SECTION, THAT THE INVESTOR WILL BE ENTITLED,
IN ADDITION TO ALL OTHER AVAILABLE REMEDIES, TO AN INJUNCTION RESTRAINING ANY
BREACH AND REQUIRING IMMEDIATE TRANSFER OF THE SECURITIES AND/OR WARRANT SHARES,
AS APPLICABLE, WITHOUT THE NECESSITY OF SHOWING ECONOMIC LOSS AND WITHOUT ANY
BOND OR OTHER SECURITY BEING REQUIRED.

 

ARTICLE VI
CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL

 

The obligation of the Company to issue and sell the Securities to each Investor
at the Closing is subject to the satisfaction by such Investor, on or before the
Closing Date, of each of the following conditions.  These conditions are for the
Company’s sole benefit and may be waived by the Company at any time in its sole
discretion:

 

6.1                                 THE INVESTOR WILL HAVE EXECUTED THIS
AGREEMENT, THE INVESTOR QUESTIONNAIRE AND THE REGISTRATION RIGHTS AGREEMENT AND
WILL HAVE DELIVERED THOSE AGREEMENTS TO THE COMPANY.

 

6.2                                 THE INVESTOR WILL HAVE DELIVERED THE
PURCHASE PRICE FOR THE SECURITIES TO THE COMPANY IN ACCORDANCE WITH THIS
AGREEMENT.

 

6.3                                 THE REPRESENTATIONS AND WARRANTIES OF THE
INVESTOR MUST BE TRUE AND CORRECT IN ALL MATERIAL RESPECTS AS OF THE CLOSING
DATE AS THOUGH MADE AT THAT TIME (EXCEPT FOR REPRESENTATIONS AND WARRANTIES THAT
SPEAK AS OF A SPECIFIC DATE, WHICH REPRESENTATIONS AND WARRANTIES MUST BE
CORRECT AS OF SUCH DATE), AND THE INVESTOR WILL HAVE PERFORMED AND COMPLIED IN
ALL MATERIAL RESPECTS WITH THE COVENANTS AND CONDITIONS REQUIRED BY THIS
AGREEMENT TO BE PERFORMED OR COMPLIED WITH BY THE INVESTOR AT OR PRIOR TO THE
CLOSING.

 

6.4                                 NO STATUTE, RULE, REGULATION, EXECUTIVE
ORDER, DECREE, RULING OR INJUNCTION WILL HAVE BEEN ENACTED, ENTERED, PROMULGATED
OR ENDORSED BY OR IN ANY COURT OR GOVERNMENTAL AUTHORITY OF COMPETENT
JURISDICTION OR ANY SELF-REGULATORY ORGANIZATION HAVING AUTHORITY OVER THE
MATTERS CONTEMPLATED HEREBY WHICH PROHIBITS THE CONSUMMATION OF ANY OF THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR THE REGISTRATION RIGHTS AGREEMENT
OR THE WARRANTS.

 

ARTICLE VII
CONDITIONS TO THE INVESTOR’S OBLIGATION TO PURCHASE

 

The obligation of each Investor hereunder to purchase the Securities from the
Company at the Closing is subject to the satisfaction, on or before the Closing
Date, of each of the following conditions.  These conditions are for each
Investor’s respective benefit and may be waived by any Investor at any time in
its sole discretion:

 

13

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7.1                                 THE COMPANY WILL HAVE EXECUTED THIS
AGREEMENT, THE REGISTRATION RIGHTS AGREEMENT AND THE WARRANTS AND WILL HAVE
DELIVERED THOSE AGREEMENTS TO THE INVESTOR.

 

7.2                                 THE INVESTORS SHALL HAVE RECEIVED AN OPINION
OF COUNSEL FROM STRADLING YOCCA CARLSON & RAUTH, COUNSEL TO THE COMPANY,
REASONABLY ACCEPTABLE TO INVESTORS AND THEIR COUNSEL.

 

7.3                                 EACH OF THE REPRESENTATIONS AND WARRANTIES
OF THE COMPANY QUALIFIED BY MATERIALITY MUST BE TRUE AND CORRECT IN ALL RESPECTS
AS OF THE CLOSING AS THOUGH MADE AT THAT TIME (EXCEPT FOR REPRESENTATIONS AND
WARRANTIES THAT SPEAK AS OF A SPECIFIC DATE, WHICH REPRESENTATIONS AND
WARRANTIES MUST BE TRUE AND CORRECT AS OF SUCH DATE) AND EACH OF THE
REPRESENTATIONS AND WARRANTIES OF THE COMPANY NOT QUALIFIED BY MATERIALITY MUST
BE TRUE AND CORRECT IN ALL MATERIAL RESPECTS AS OF THE CLOSING AS THOUGH MADE AT
THAT TIME (EXCEPT FOR REPRESENTATIONS AND WARRANTIES THAT SPEAK AS OF A SPECIFIC
DATE, WHICH REPRESENTATIONS AND WARRANTIES MUST BE TRUE AND CORRECT AS OF SUCH
DATE) AND THE COMPANY MUST HAVE PERFORMED AND COMPLIED IN ALL MATERIAL RESPECTS
WITH THE COVENANTS AND CONDITIONS REQUIRED BY THIS AGREEMENT TO BE PERFORMED OR
COMPLIED WITH BY THE COMPANY AT OR PRIOR TO THE CLOSING.  THE INVESTOR MUST HAVE
RECEIVED A CERTIFICATE OR CERTIFICATES DATED AS OF THE CLOSING DATE AND EXECUTED
BY THE CHIEF EXECUTIVE OFFICER OR THE CHIEF FINANCIAL OFFICER OF THE COMPANY
CERTIFYING AS TO THE MATTERS IN CONTAINED IN THIS SECTION 7.3 AND AS TO SUCH
OTHER MATTERS AS MAY BE REASONABLY REQUESTED BY SUCH INVESTOR, INCLUDING, BUT
NOT LIMITED TO, THE COMPANY’S CERTIFICATE OF INCORPORATION, BYLAWS, BOARD OF
DIRECTORS’ RESOLUTIONS RELATING TO THE TRANSACTIONS CONTEMPLATED HEREBY AND THE
INCUMBENCY AND SIGNATURES OF EACH OF THE OFFICERS OF THE COMPANY WHO MAY EXECUTE
ON BEHALF OF THE COMPANY ANY DOCUMENT DELIVERED AT THE CLOSING.

 

7.4                                 NO LITIGATION, STATUTE, RULE, REGULATION,
EXECUTIVE ORDER, DECREE, RULING OR INJUNCTION WILL HAVE BEEN ENACTED, ENTERED,
PROMULGATED OR ENDORSED BY OR IN ANY COURT OR GOVERNMENTAL AUTHORITY OF
COMPETENT JURISDICTION OR ANY SELF-REGULATORY ORGANIZATION HAVING AUTHORITY OVER
THE MATTERS CONTEMPLATED HEREBY WHICH PROHIBITS THE CONSUMMATION OF ANY OF THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR THE REGISTRATION RIGHTS AGREEMENT
OR THE WARRANTS AND WHICH COULD, INDIVIDUALLY OR IN THE AGGREGATE, HAVE A
MATERIAL ADVERSE EFFECT.

 

7.5                                 TRADING AND LISTING OF THE COMMON STOCK ON
NASDAQ MUST NOT HAVE BEEN SUSPENDED BY THE SEC OR NASDAQ.

 

7.6                                 IRREVOCABLE TRANSFER AGENT INSTRUCTIONS, IN
FORM AND SUBSTANCE SATISFACTORY TO THE INVESTORS, WILL HAVE BEEN DELIVERED TO
THE COMPANY’S TRANSFER AGENT.

 

ARTICLE VIII
INDEMNIFICATION

 

In consideration of each Investor’s execution and delivery of this Agreement and
its acquisition of the Securities hereunder, and in addition to all of the
Company’s other obligations under this Agreement and the Registration Rights
Agreement and the Warrants, the Company will defend, protect, indemnify and hold
harmless each Investor and each other holder of the Securities and all of their
stockholders, officers, directors, employees and direct or indirect investors
and any of the foregoing person’s agents or other representatives (including,
without limitation, those retained in

 

14

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connection with the transactions contemplated by this Agreement) (collectively,
the “Indemnitees”) from and against any and all actions, causes of action,
suits, claims, losses, costs, penalties, fees, liabilities and damages, and
expenses in connection therewith (regardless of whether any such 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 an Indemnitee as a result of, or arising out of, or
relating to (a) any breach of any representation or warranty made by the Company
herein or in any other certificate, instrument or document contemplated hereby
or thereby, (b) any breach of any covenant, agreement or obligation of the
Company contained herein or in any other certificate, instrument or document
contemplated hereby or thereby or (c) any cause of action, suit or claim brought
or made against such Indemnitee and arising out of or resulting from the
execution, delivery, performance, breach or enforcement of this Agreement or the
Registration Rights Agreement or Warrants by the Company.  To the extent that
the foregoing undertaking by the Company is unenforceable for any reason, the
Company will make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities that is permissible under applicable law.

 

The Indemnitees shall have the right to employ separate counsel in any such
proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnitees unless: (i) the
Company has agreed in writing to pay such fees and expenses; (ii) the Company
shall have failed to promptly assume the defense of such proceeding and to
employ counsel reasonably satisfactory to such Indemnitees in any such
proceeding; or (iii) the named parties to any such proceeding (including any
impleaded parties) include both such Indemnitees and the Company, and such
Indemnitees shall have been advised by counsel that a conflict of interest is
likely to exist if the same counsel were to represent such Indemnitees and the
Company (in which case, if such Indemnitees notify the Company in writing that
they elect to employ separate counsel at the expense of the Company, the Company
shall not have the right to assume the defense thereof and such counsel shall be
at the reasonable expense of the Company; provided, however, that in no event
shall the Company be responsible for the fees and expenses of more than one
separate counsel).  The Company shall not be liable for any settlement of any
such proceeding effected without its written consent, which consent shall not be
unreasonably withheld.  The Company shall not, without the prior written consent
of a majority of the Indemnitees, effect any settlement of any pending
proceeding in respect of which Indemnitees are a party, unless such settlement
includes an unconditional release of such Indemnitees from all liabilities that
are the subject matter of such proceeding.  Subject to the foregoing, all fees
and expenses (including reasonable fees and expenses to the extent incurred in
connection with investigating or preparing to defend any such proceeding in a
manner inconsistent with this Article VIII) of the Indemnitees shall be paid to
the Indemnitees as incurred, within ten (10) business days of written notice
thereof to the Company, which notice shall be delivered no more frequently than
on a monthly basis; provided, that the Indemnitees shall reimburse the Company
for any and all such fees and expenses to the extent it is finally judicially
determined that such Indemnitees are not entitled to indemnification hereunder.

 

ARTICLE IX
DEFINITIONS

 

9.1                                 “CLOSING” MEANS THE CLOSING OF THE PURCHASE
AND SALE OF THE SECURITIES UNDER THIS AGREEMENT.

 

9.2                                 “CLOSING DATE” HAS THE MEANING SET FORTH IN
SECTION 1.3.

 

15

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9.3                                 “COMMON SHARES” HAS THE MEANING SET FORTH IN
THE RECITALS.

 

9.4                                 “COMMON STOCK” MEANS THE COMMON STOCK, PAR
VALUE $.001 PER SHARE, OF THE COMPANY.

 

9.5                                 “COMPANY” MEANS SONUS PHARMACEUTICALS, INC.

 

9.6                                 “EXCHANGE ACT” MEANS THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED.

 

9.7                                 “INDEMNIFIED LIABILITIES” HAS THE MEANING
SET FORTH IN ARTICLE VIII.

 

9.8                                 “INDEMNITEES” HAS THE MEANING SET FORTH IN
ARTICLE VIII.

 

9.9                                 “INVESTORS” MEANS THE INVESTORS WHOSE NAMES
ARE SET FORTH ON THE SIGNATURE PAGES OF THIS AGREEMENT, AND THEIR PERMITTED
TRANSFEREES.

 

9.10                           “MATERIAL ADVERSE EFFECT” MEANS A MATERIAL
ADVERSE EFFECT ON (A) THE BUSINESS, OPERATIONS, PROSPECTS, ASSETS OR FINANCIAL
CONDITION OF THE COMPANY OR (B) THE ABILITY OF THE COMPANY TO PERFORM ITS
OBLIGATIONS PURSUANT TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR UNDER
THE AGREEMENTS OR INSTRUMENTS TO BE ENTERED INTO OR FILED IN CONNECTION
HEREWITH, INCLUDING THE REGISTRATION RIGHTS AGREEMENT AND THE WARRANTS.

 

9.11                           “NASDAQ” MEANS THE NASDAQ NATIONAL MARKET SYSTEM.

 

9.12                           “REGISTRATION RIGHTS AGREEMENT” MEANS THE
REGISTRATION RIGHTS AGREEMENT, DATED AS OF THE DATE OF THIS AGREEMENT AND AMONG
THE PARTIES TO THIS AGREEMENT, IN THE FORM ATTACHED HERETO AS EXHIBIT D.

 

9.13                           “REGULATION D” MEANS REGULATION D AS PROMULGATED
UNDER BY THE SEC UNDER THE SECURITIES ACT.

 

9.14                           “RULE 144” AND “RULE 144(K)” MEAN RULE 144 AND
RULE 144(K), RESPECTIVELY, PROMULGATED UNDER THE SECURITIES ACT, OR ANY
SUCCESSOR RULE.

 

9.15                           “SEC” MEANS THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION.

 

9.16                           “SEC DOCUMENTS” HAS THE MEANING SET FORTH IN
SECTION 3.6.

 

9.17                           “SECURITIES” HAS THE MEANING SET FORTH IN THE
RECITALS.

 

9.18                           “SECURITIES ACT” MEANS THE SECURITIES ACT OF
1933, AS AMENDED, AND THE RULES AND REGULATIONS THEREUNDER, OR ANY SIMILAR
SUCCESSOR STATUTE.

 

9.19                           “WARRANTS” AND “WARRANT SHARES” HAVE THE MEANINGS
SET FORTH IN THE RECITALS.

 

16

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ARTICLE X
GOVERNING LAW; MISCELLANEOUS

 

10.1                           GOVERNING LAW; JURISDICTION; JURY TRIAL WAIVER. 
THIS AGREEMENT WILL 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. 
THE PARTIES HERETO HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE UNITED
STATES FEDERAL AND STATE COURTS LOCATED IN THE STATE OF NEW YORK WITH RESPECT TO
ANY DISPUTE ARISING UNDER THIS AGREEMENT, THE AGREEMENTS ENTERED INTO IN
CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH
PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT THAT IT MAY HAVE TO, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY.

 

10.2                           COUNTERPARTS; SIGNATURES BY FACSIMILE.  THIS
AGREEMENT MAY BE EXECUTED IN TWO OR MORE COUNTERPARTS, ALL OF WHICH ARE
CONSIDERED ONE AND THE SAME AGREEMENT AND WILL BECOME EFFECTIVE WHEN
COUNTERPARTS HAVE BEEN SIGNED BY EACH PARTY AND DELIVERED TO THE OTHER PARTIES. 
THIS AGREEMENT, ONCE EXECUTED BY A PARTY, MAY BE DELIVERED TO THE OTHER PARTIES
HERETO BY FACSIMILE TRANSMISSION OF A COPY OF THIS AGREEMENT BEARING THE
SIGNATURE OF THE PARTY SO DELIVERING THIS AGREEMENT.

 

10.3                           INDEPENDENT NATURE OF INVESTORS’ OBLIGATIONS AND
RIGHTS.  THE OBLIGATIONS OF EACH INVESTOR UNDER THIS AGREEMENT, THE REGISTRATION
RIGHTS AGREEMENT AND THE WARRANTS ARE SEVERAL AND NOT JOINT WITH THE OBLIGATIONS
OF ANY OTHER INVESTOR, AND NO INVESTOR SHALL BE RESPONSIBLE IN ANY WAY FOR THE
PERFORMANCE OF THE OBLIGATIONS OF ANY OTHER INVESTOR UNDER SUCH AGREEMENTS. 
NOTHING CONTAINED HEREIN OR IN THE REGISTRATION RIGHTS AGREEMENT OR THE
WARRANTS, AND NO ACTION TAKEN BY ANY INVESTOR PURSUANT HERETO OR THERETO, SHALL
BE DEEMED TO CONSTITUTE THE INVESTORS AS A PARTNERSHIP, AN ASSOCIATION, A JOINT
VENTURE OR ANY OTHER KIND OF ENTITY, OR CREATE A PRESUMPTION THAT THE INVESTORS
ARE IN ANY WAY ACTING IN CONCERT OR AS A GROUP WITH RESPECT TO SUCH OBLIGATIONS
OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.  EACH INVESTOR CONFIRMS THAT
IT HAS INDEPENDENTLY PARTICIPATED IN THE NEGOTIATION OF THE TRANSACTION
CONTEMPLATED HEREBY WITH THE ADVICE OF ITS OWN COUNSEL AND ADVISORS.  EACH
INVESTOR SHALL BE ENTITLED TO INDEPENDENTLY PROTECT AND ENFORCE ITS RIGHTS,
INCLUDING, WITHOUT LIMITATION, THE RIGHTS ARISING OUT OF THIS AGREEMENT, THE
REGISTRATION RIGHTS AGREEMENT OR THE WARRANTS, AND IT SHALL NOT BE NECESSARY FOR
ANY OTHER INVESTOR TO BE JOINED AS AN ADDITIONAL PARTY IN ANY PROCEEDING FOR
SUCH PURPOSE.

 

10.4                           HEADINGS.  THE HEADINGS OF THIS AGREEMENT ARE FOR
CONVENIENCE OF REFERENCE ONLY, ARE NOT PART OF THIS AGREEMENT AND DO NOT AFFECT
ITS INTERPRETATION.

 

10.5                           SEVERABILITY.  IF ANY PROVISION OF THIS AGREEMENT
IS INVALID OR UNENFORCEABLE UNDER ANY APPLICABLE STATUTE OR RULE OF LAW, THEN
SUCH PROVISION WILL BE DEEMED MODIFIED IN ORDER TO CONFORM WITH SUCH STATUTE OR
RULE OF LAW.  ANY PROVISION HEREOF THAT MAY PROVE INVALID OR UNENFORCEABLE UNDER
ANY LAW WILL NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF ANY OTHER PROVISION
HEREOF.

 

10.6                           ENTIRE AGREEMENT; AMENDMENTS.  THIS AGREEMENT AND
THE REGISTRATION RIGHTS AGREEMENT (INCLUDING ALL SCHEDULES AND EXHIBITS THERETO)
AND THE WARRANTS CONSTITUTE THE ENTIRE AGREEMENT AMONG THE PARTIES HERETO WITH
RESPECT TO THE SUBJECT MATTER HEREOF AND THEREOF.  THERE ARE NO RESTRICTIONS,
PROMISES, WARRANTIES OR UNDERTAKINGS, OTHER THAN THOSE SET FORTH OR REFERRED TO
HEREIN OR THEREIN.  THIS AGREEMENT SUPERSEDES ALL PRIOR AGREEMENTS AND
UNDERSTANDINGS AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER
HEREOF.  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.

 

17

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10.7                           NOTICES.  ANY NOTICES REQUIRED OR PERMITTED TO BE
GIVEN UNDER THE TERMS OF THIS AGREEMENT MUST BE SENT BY CERTIFIED OR REGISTERED
MAIL (RETURN RECEIPT REQUESTED) OR DELIVERED PERSONALLY OR BY COURIER (INCLUDING
A RECOGNIZED OVERNIGHT DELIVERY SERVICE) OR BY FACSIMILE AND WILL BE EFFECTIVE
THREE BUSINESS DAYS AFTER BEING PLACED IN THE MAIL, IF MAILED BY REGULAR U.S.
MAIL, OR UPON RECEIPT, IF DELIVERED PERSONALLY, BY COURIER (INCLUDING A
RECOGNIZED OVERNIGHT DELIVERY SERVICE) OR BY FACSIMILE, IN EACH CASE ADDRESSED
TO A PARTY.  THE ADDRESSES FOR SUCH COMMUNICATIONS ARE:

 

If to the
Company:                                                                                                                                            
Chief Financial Officer

Sonus Pharmaceuticals, Inc.

22026 20th Avenue S.E.

Bothell, Washington 98021

Fax:  (425) 489-0626

 

With copies
to:                                                                                                                                                             
K.C. Schaaf, Esq.

Stradling Yocca Carlson & Rauth

660 Newport Center Drive, Suite 1600

Newport Beach, California 92660

Fax:  (949) 725-4100

 

Edwin H. Gordon

Punk Ziegel & Company, L.P.

520 Madison Avenue

New York, New York 10020

Fax:  (212) 308-2203

 

If to an Investor:  To the address set forth immediately below such Investor’s
name on the signature pages hereto.

 

Each party will provide written notice to the other parties of any change in its
address in accordance with the notice provisions hereof.

 

10.8                           SUCCESSORS AND ASSIGNS.  THIS AGREEMENT IS
BINDING UPON AND INURES TO THE BENEFIT OF THE PARTIES AND THEIR SUCCESSORS AND
ASSIGNS.  THE COMPANY WILL NOT ASSIGN THIS AGREEMENT OR ANY RIGHTS OR
OBLIGATIONS HEREUNDER WITHOUT THE PRIOR WRITTEN CONSENT OF THE INVESTORS, AND NO
INVESTOR MAY ASSIGN THIS AGREEMENT OR ANY RIGHTS OR OBLIGATIONS HEREUNDER
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY.  NOTWITHSTANDING THE
FOREGOING, AN INVESTOR MAY ASSIGN ALL OR PART OF ITS RIGHTS AND OBLIGATIONS
HEREUNDER TO ANY OF ITS “AFFILIATES,” AS THAT TERM IS DEFINED UNDER THE
SECURITIES ACT, WITHOUT THE CONSENT OF THE COMPANY SO LONG AS THE AFFILIATE IS
AN ACCREDITED INVESTOR (WITHIN THE MEANING OF REGULATION D UNDER THE SECURITIES
ACT) AND AGREES IN WRITING TO BE BOUND BY THIS AGREEMENT.  THIS PROVISION DOES
NOT LIMIT THE INVESTOR’S RIGHT TO TRANSFER THE SECURITIES PURSUANT TO THE TERMS
OF THIS AGREEMENT OR TO ASSIGN THE INVESTOR’S RIGHTS HEREUNDER TO ANY SUCH
TRANSFEREE PURSUANT TO THE TERMS OF THIS AGREEMENT.

 

10.9                           THIRD PARTY BENEFICIARIES.  THIS AGREEMENT IS
INTENDED FOR THE BENEFIT OF THE PARTIES HERETO AND THEIR RESPECTIVE PERMITTED
SUCCESSORS AND ASSIGNS, AND, EXCEPT AS CONTEMPLATED IN SECTION 2.10, IS NOT FOR
THE BENEFIT OF, NOR MAY ANY PROVISION HEREOF BE ENFORCED BY, ANY OTHER PERSON.

 

 

18

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10.10                     SURVIVAL.  THE REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE AGREEMENTS AND COVENANTS SET FORTH HEREIN WILL SURVIVE THE
CLOSING HEREUNDER FOR A PERIOD OF TWELVE (12) MONTHS.  THE COMPANY MAKES NO
REPRESENTATIONS OR WARRANTIES IN ANY ORAL OR WRITTEN INFORMATION PROVIDED TO
INVESTORS, OTHER THAN THE REPRESENTATIONS AND WARRANTIES INCLUDED HEREIN.

 

10.11                     FURTHER ASSURANCES.  EACH PARTY WILL DO AND PERFORM,
OR CAUSE TO BE DONE AND PERFORMED, ALL SUCH FURTHER ACTS AND THINGS, AND WILL
EXECUTE AND DELIVER ALL OTHER AGREEMENTS, CERTIFICATES, INSTRUMENTS AND
DOCUMENTS, AS ANOTHER PARTY MAY REASONABLY REQUEST IN ORDER TO CARRY OUT THE
INTENT AND ACCOMPLISH THE PURPOSES OF THIS AGREEMENT AND THE CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED HEREBY.

 

10.12                     NO STRICT CONSTRUCTION.  THE LANGUAGE USED IN THIS
AGREEMENT IS DEEMED TO BE THE LANGUAGE CHOSEN BY THE PARTIES TO EXPRESS THEIR
MUTUAL INTENT, AND NO RULES OF STRICT CONSTRUCTION WILL BE APPLIED AGAINST ANY
PARTY.

 

10.13                     EQUITABLE RELIEF.  THE COMPANY RECOGNIZES THAT, IF IT
FAILS TO PERFORM OR DISCHARGE ANY OF ITS OBLIGATIONS UNDER THIS AGREEMENT, ANY
REMEDY AT LAW MAY PROVE TO BE INADEQUATE RELIEF TO THE INVESTORS.  THE COMPANY
THEREFORE AGREES THAT THE INVESTORS ARE ENTITLED TO SEEK TEMPORARY AND PERMANENT
INJUNCTIVE RELIEF IN ANY SUCH CASE.

 

19

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IN WITNESS WHEREOF, the undersigned Investors and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first above
written.

 

 

COMPANY:

 

 

 

SONUS PHARMACEUTICALS, INC.

 

 

 

 

 

By:

       /s/ Michael A. Martino

 

 

 

Name:

Michael A. Martino

 

 

 

Title:

President and CEO

 

 

 

For purposes of Section 2.10 hereof:

 

 

 

PUNK ZIEGEL & COMPANY

 

 

 

By:

/s/ Edwin H. Gordon

 

 

Edwin H. Gordon

 

Managing Director

 

 

20

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OMNIBUS SIGNATURE PAGE TO

SONUS PHARMACEUTICALS, INC.

SECURITIES PURCHASE AGREEMENT

 

The undersigned hereby executes and delivers the Securities Purchase Agreement
to which this Signature Page is attached, which, together with all counterparts
of the Agreement and Signature Pages of the other parties named in said
Agreement, shall constitute one and the same document in accordance with the
terms of the Agreement.

 

 

 

Sign Name:

 

 

 

 

Print Name:

 

 

 

 

Address:

 

 

 

 

 

 

 

 

 

 

Telephone:

 

 

Facsimile:

 

 

 

 

Number of Securities Purchased:

 

 

 

Common Shares:

 

 

Warrants (Number of Warrant Shares):

 

 

21

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SCHEDULE OF INVESTORS

 

22

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Exhibit A

Form of Warrant

 

A-1

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

 

Exhibit B

Wire Transfer Instructions

 

Please remit payment to:

 

Wells Fargo Bank

5 Corporate Plaza

Newport Beach, CA  92660

 

Routing #:

Account #:

 

A/C Name:                                      Stradling Yocca Carlson & Rauth

Trust Account

 

B-1

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

 

Exhibit C

Investor Questionnaire

 

I certify that I am a Qualified Institutional Buyer because I fall within one of
the following categories.

 

____  One of the following entities, acting for its own account or the accounts
of other qualified institutional buyers, that in the aggregate owns and invests
on a discretionary basis at least $100 million in securities of issuers that are
not affiliated with the entity:

 

____  An insurance company as defined in section 2(a)(13) of the Securities Act;

 

____  An investment company registered under the Investment Company Act or any
business development company as defined in section 2(a)(48) of that Securities
Act;

 

____  A Small Business Investment Company licensed by the U.S. Small Business
Administration under section 301(c) or (d) of the Small Business Investment Act
of 1958;

 

____  A plan established and maintained by a state, its political subdivisions,
or any agency or instrumentality of a state or its political subdivisions, for
the benefit of its employees;

 

____  An employee benefit plan within the meaning of title I of the Employee
Retirement Income Security Act of 1974;

 

____  A trust fund whose trustee is a bank or trust company and whose
participants are exclusively plans of the types identified in paragraph
(a)(1)(i)(D) or (E) of this section, except trust funds that include as
participants individual retirement accounts or H.R. 10 plans;

 

____  A business development company as defined in section 202(a)(22) of the
Investment Advisers Act of 1940;

 

____  An organization described in section 501(c) (3) of the Internal Revenue
Code, corporation (other than a bank as defined in section 3(a)(2) of the Act or
a savings and loan association or other institution referenced in
section 3(a)(5)(A) of the Act or a foreign bank or savings and loan association
or equivalent institution), partnership, or Massachusetts or similar business
trust; or

 

____  An investment adviser registered under the Investment Advisers Act.

 

____  A dealer registered pursuant to section 15 of the Exchange Act, acting for
its own account or the accounts of other qualified institutional buyers, that in
the aggregate owns and invests on a discretionary basis at least $10 million of
securities of issuers that are not affiliated with the dealer; provided, that
securities constituting the whole or a part of an unsold allotment to or
subscription by a dealer as a participant in a public offering shall not be
deemed to be owned by such dealer;

 

____  A dealer registered pursuant to section 15 of the Exchange Act acting in a
riskless principal transaction on behalf of a qualified institutional buyer;

 

C-1

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

 

____  An investment company registered under the Investment Company Act, acting
for its own account or for the accounts of other qualified institutional buyers,
that is part of a family of investment companies which own in the aggregate at
least $100 million in securities of issuers, other than issuers that are
affiliated with the investment company or are part of such family of investment
companies.

 

____  An entity, all of the equity owners of which are qualified institutional
buyers, acting for its own account or the accounts of other qualified
institutional buyers; or

 

____  A bank as defined in section 3(a)(2) of the Act, any savings and loan
association or other institution as referenced in section 3(a)(5)(A) of the Act,
or any foreign bank or savings and loan association or equivalent institution,
acting for its own account or the accounts of other qualified institutional
buyers, that in the aggregate owns and invests on a discretionary basis at least
$100 million in securities of issuers that are not affiliated with it and that
has an audited net worth of at least $25 million as demonstrated in its latest
annual financial statements, as of a date not more than 16 months preceding the
date of sale under the Rule in the case of a U.S. bank or savings and loan
association, and not more than 18 months preceding such date of sale for a
foreign bank or savings and loan association or equivalent institution.

 

Family of investment companies.  “Family of investment companies” means any two
or more investment companies registered under the Investment Company Act, except
for a unit investment trust whose assets consist solely of shares of one or more
registered investment companies, that have the same investment adviser (or, in
the case of unit investment trusts, the same depositor); provided that, for
purposes of this definition:

 

a.                                       Each series of a series company (as
defined in Rule 18f-2 under the Investment Company Act) shall be deemed to be a
separate investment company; and

 

b.                                      Investment companies shall be deemed to
have the same adviser (or depositor) if their advisers (or depositors) are
majority-owned subsidiaries of the same parent, or if one investment company’s
adviser (or depositor) is a majority-owned subsidiary of the other investment
company’s adviser (or depositor).

 

Riskless Principal Transaction.  “Riskless principal transaction” means a
transaction in which a dealer buys a security from any person and makes a
simultaneous offsetting sale of such security to a qualified institutional
buyer, including another dealer acting as riskless principal for a qualified
institutional buyer.

 

Aggregate Amount of Securities.

 

a.                                       In determining the aggregate amount of
securities owned and invested on a discretionary basis by an entity, the
following instruments and interests shall be excluded: bank deposit notes and
certificates of deposit; loan participations; repurchase agreements; securities
owned but subject to a repurchase agreement; and currency, interest rate and
commodity swaps; and

 

b.                                      In determining the aggregate amount of
securities owned by an entity and invested on a discretionary basis, securities
owned by subsidiaries of the entity that are consolidated with the entity in its
financial statements prepared in accordance with generally accepted accounting
principles may be included if the investments of such subsidiaries are managed
under the direction of

 

C-2

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the entity, except that, unless the entity is a reporting company under
section 13 or 15(d) of the Exchange Act, securities owned by such subsidiaries
may not be included if the entity itself is a majority-owned subsidiary that
would be included in the consolidated financial statements of another
enterprise.

 

Aggregate Value of Securities.  The aggregate value of securities owned and
invested on a discretionary basis by an entity shall be the cost of such
securities, except where the entity reports its securities holdings in its
financial statements on the basis of their market value, and no current
information with respect to the cost of those securities has been published. In
the latter event, the securities may be valued at market for purposes of
determining whether an entity falls within one of the categories of qualified
institutional buyer.

 

____  I certify that I am a large institutional accredited investor as that term
is used in the SEC staff’s No-Action Letter dated February 28, 1992 to Squadron,
Ellenoff, Pleasant & Lehrer.

 

Dated: August        , 2005

 

 

 

C-3

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Exhibit D

 

Registration Rights Agreement

 

D-1

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