Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
     This Securities Purchase Agreement (this “Agreement”) is dated as of
December 17, 2008, by and among Ardea Biosciences, Inc., a Delaware corporation
(the “Company”), and each purchaser identified on the signature pages hereto
(each, including its successors and assigns, a “Purchaser” and collectively, the
“Purchasers”).
RECITALS
          A. The Company and each Purchaser is executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) of the Securities Act of 1933, as amended (the “Securities
Act”), and Rule 506 of Regulation D (“Regulation D”) as promulgated by the
United States Securities and Exchange Commission (the “Commission”) under the
Securities Act.
          B. Each Purchaser, severally and not jointly, wishes to purchase, and
the Company wishes to sell, upon the terms and conditions stated in this
Agreement, (i) that aggregate number of shares of common stock, par value $0.001
per share (the “Common Stock”), of the Company, set forth below such Purchaser’s
name on the signature page of this Agreement (which aggregate amount for all
Purchasers together shall be 2,737,336 shares of Common Stock and shall be
collectively referred to herein as the “Shares”) and warrants substantially in
the form attached hereto as Exhibit A to purchase that aggregate number of
shares of Common Stock set forth below such Purchaser’s name on the signature
page of this Agreement (which aggregate number of warrants for all Purchasers
together shall be warrants to purchase 684,332 shares of Common Stock and shall
be collectively referred to herein as the “Warrants"). The Shares and the
Warrants are collectively referred to herein as the “Securities.”
          C. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement, substantially in the form attached hereto as Exhibit B (the
“Registration Rights Agreement), pursuant to which, among other things, the
Company will agree to provide certain registration rights with respect to the
Shares and the shares of Common Stock issuable upon exercise of the Warrants
(the “Warrant Shares") under the Securities Act and the rules and regulations
promulgated thereunder and applicable state securities laws.
     NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchasers hereby
agree as follows:
ARTICLE I.
DEFINITIONS
     1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms shall have
the meanings indicated in this Section 1.1:
          “Action” means any action, suit, inquiry, notice of violation,
proceeding (including any partial proceeding such as a deposition) or
investigation pending or, to the Company’s Knowledge, threatened in writing
against the Company, any Subsidiary or any of their respective properties or any
officer, director or employee of the Company or any Subsidiary acting in his or
her capacity as an officer, director or employee before or by any federal,
state, county, local or foreign court, arbitrator, governmental or
administrative agency, regulatory authority, stock market, stock exchange or
trading facility.

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          “Affiliate” means, with respect to any Person, any other Person that,
directly or indirectly through one or more intermediaries, Controls, is
controlled by or is under common control with such Person, as such terms are
used in and construed under Rule 144. With respect to a Purchaser, any
investment fund or managed account that is managed on a discretionary basis by
the same investment manager as such Purchaser will be deemed to be an Affiliate
of such Purchaser.
          “Agreement” shall have the meaning ascribed to such term in the
Preamble.
          “Business Day” means a day, other than a Saturday or Sunday, on which
banks in New York City are open for the general transaction of business.
          “Buy-In” has the meaning set forth in Section 4.1(f).
          “Buy-In Price” has the meaning set forth in Section 4.1(f).
          “Closing” means the closing of the purchase and sale of the Securities
pursuant to this Agreement.
          “Closing Bid Price” means, for any security as of any date, the last
closing price for such security on the Principal Trading Market, as reported by
Bloomberg, or, if the Principal Trading Market begins to operate on an extended
hours basis and does not designate the closing bid price then the last bid price
of such security prior to 4:00 p.m., New York City Time, as reported by
Bloomberg, or, if the Principal Trading Market is not the principal securities
exchange or trading market for such security, the last closing price of such
security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last closing price of such security in the over-the-counter
market on the electronic bulletin board for such security as reported by
Bloomberg, or, if no closing bid price is reported for such security by
Bloomberg, the average of the bid prices of any market makers for such security
as reported in the “pink sheets” by Pink Sheets LLC (formerly the National
Quotation Bureau, Inc.). If the Closing Bid Price cannot be calculated for a
security on a particular date on any of the foregoing bases, the Closing Bid
Price of such security on such date shall be the fair market value as mutually
determined by the Company and the holder. If the Company and the holder are
unable to agree upon the fair market value of such security, then the Company
shall, within two (2) Business Days submit via facsimile (a) the disputed
determination to an independent, reputable investment bank selected by the
Company and approved by the holder or (b) the disputed arithmetic calculation to
the Company’s independent, outside accountant. The Company shall cause at its
expense the investment bank or the accountant, as the case may be, to perform
the determinations or calculations and notify the Company and the holder of the
results no later than ten (10) Business Days from the time it receives the
disputed determinations or calculations. Such investment bank’s or accountant’s
determination or calculation, as the case may be, shall be binding upon all
parties absent demonstrable error. All such determinations shall be
appropriately adjusted for any stock dividend, stock split, stock combination or
other similar transaction during the applicable calculation period.
          “Closing Date” means the Trading Day when all of the Transaction
Documents have been executed and delivered by the applicable parties thereto,
and all of the conditions set forth in Sections 2.1, 2.2, 5.1 and 5.2 hereof are
satisfied, or such other date as the parties may agree.
          “Commission” has the meaning set forth in the Recitals.
          “Common Stock” has the meaning set forth in the Recitals, and also
includes any securities into which the Common Stock may hereafter be
reclassified or changed.

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          “Common Stock Equivalents” means any securities of the Company or any
Subsidiary which would entitle the holder thereof to acquire at any time Common
Stock, including, without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock or other securities that entitle the holder to receive, directly or
indirectly, Common Stock.
          “Company Counsel” means Cooley Godward Kronish LLP.
          “Company Deliverables” has the meaning set forth in Section 2.2(a).
          “Company’s Knowledge” means with respect to any statement made to the
knowledge of the Company, that the statement is based upon the actual knowledge
of the executive officers of the Company having responsibility for the matter or
matters that are the subject of the statement.
          “Control” (including the terms “controlling”, “controlled by” or
“under common control with”) means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
          “Disclosure Materials” has the meaning set forth in Section 3.1(h).
          “Effective Date” means the date on which the initial Registration
Statement required by Section 2(a) of the Registration Rights Agreement
applicable to such Purchaser is first declared effective by the Commission.
          “Environmental Laws” has the meaning set forth in Section 3.1(l).
          “Exchange Act” means the Securities Exchange Act of 1934, as amended,
or any successor statute, and the rules and regulations promulgated thereunder.
          “GAAP” means U.S. generally accepted accounting principles, as applied
by the Company.
          “Indemnified Person” has the meaning set forth in Section 4.8(b).
          “Intellectual Property” has the meaning set forth in Section 3.1(r).
          “Irrevocable Transfer Agent Instructions” means, with respect to the
Company, the Irrevocable Transfer Agent Instructions, in the form of Exhibit E,
executed by the Company and delivered to and acknowledged in writing by the
Transfer Agent.
          “Lien” means any lien, charge, claim, encumbrance, security interest,
right of first refusal, preemptive right or other restrictions of any kind.
          “Material Adverse Effect” means a material adverse effect on the
results of operations, assets, business or financial condition of the Company,
except that any of the following, either alone or in combination, shall not be
deemed a Material Adverse Effect: (i) effects caused by changes or circumstances
affecting general market conditions in the U.S. economy or which are generally
applicable to the industry in which the Company operates, (ii) effects resulting
from or relating to the announcement or disclosure of the sale of the Securities
or other transactions contemplated by this Agreement, or (iii) effects caused by
any event, occurrence or condition resulting from or relating to the taking of
any action in accordance with this Agreement.

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          “Material Contract” means any contract of the Company that was filed
as an exhibit to the SEC Reports pursuant to Item 601(b)(4) or Item 601(b)(10)
of Regulation S-K.
          “Material Permits” has the meaning set forth in Section 3.1(p).
          “New York Courts” means the state and federal courts sitting in the
City of New York, Borough of Manhattan.
          “Outside Date” means the 30th day following the date of this
Agreement.
          “Person” means an individual, corporation, partnership, limited
liability company, trust, business trust, association, joint stock company,
joint venture, sole proprietorship, unincorporated organization, governmental
authority or any other form of entity not specifically listed herein.
          “Principal Trading Market” means the Trading Market on which the
Common Stock is primarily listed on and quoted for trading, which, as of the
date of this Agreement and the Closing Date, shall be the NASDAQ Global Market.
          “Proceeding” means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
          “Purchaser Deliverables” has the meaning set forth in Section 2.2(b).
          “Purchaser Party” has the meaning set forth in Section 4.8(a).
          “Registration Rights Agreement” has the meaning set forth in the
Recitals.
          “Registration Statement” means a registration statement meeting the
requirements set forth in the Registration Rights Agreement applicable to such
Purchaser and covering the resale by such Purchaser of the Registrable
Securities (as defined in the Registration Rights Agreement).
          “Required Approvals” has the meaning set forth in Section 3.1(e).
          “Rule 144” means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
          “SEC Reports” has the meaning set forth in Section 3.1(h).
          “Secretary’s Certificate” has the meaning set forth in
Section 2.2(a)(vi).
          “Securities Act” means the Securities Act of 1933, as amended.
          “Share Purchase Price” means $11.14 per share.
          “Short Sales” include, without limitation, all “short sales” as
defined in Rule 200 promulgated under Regulation SHO under the Exchange Act,
whether or not against the box, and all types of direct and indirect stock
pledges, forward sale contracts, options, puts, calls, short sales, swaps, “put
equivalent positions” (as defined in Rule 16a-1(h) under the Exchange Act) and
similar arrangements (including on a total return basis), and sales and other
transactions through non-U.S. broker dealers or foreign regulated brokers.

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          “Subscription Amount” means with respect to each Purchaser, the
aggregate amount to be paid for the Shares and the Warrants purchased hereunder
as indicated on such Purchaser’s signature page to this Agreement next to the
heading “Aggregate Purchase Price (Subscription Amount)”.
          “Subsidiary” means any entity in which the Company, directly or
indirectly, owns capital stock or holds an equity or similar interest.
          “Trading Affiliate” has the meaning set forth in Section 3.2(h).
          “Trading Day” means (i) a day on which the Common Stock is listed or
quoted and traded on its Principal Trading Market (other than the OTC Bulletin
Board), or (ii) if the Common Stock is not listed on a Trading Market (other
than the OTC Bulletin Board), a day on which the Common Stock is traded in the
over-the-counter market, as reported by the OTC Bulletin Board, or (iii) if the
Common Stock is not quoted on any Trading Market, a day on which the Common
Stock is quoted in the over-the-counter market as reported in the “pink sheets”
by Pink Sheets LLC (or any similar organization or agency succeeding to its
functions of reporting prices); provided, that in the event that the Common
Stock is not listed or quoted as set forth in (i), (ii) and (iii) hereof, then
Trading Day shall mean a Business Day.
          “Trading Market” means whichever of the New York Stock Exchange, the
American Stock Exchange, the NASDAQ Global Select Market, the NASDAQ Global
Market, the NASDAQ Capital Market or the OTC Bulletin Board on which the Common
Stock is listed or quoted for trading on the date in question.
          “Transaction Documents” means this Agreement, the schedules and
exhibits attached hereto, the Warrants, the Registration Rights Agreement, the
Irrevocable Transfer Agent Instructions and any other documents or agreements
executed in connection with the transactions contemplated hereunder.
          “Transfer Agent” means Computershare Trust Company N.A., or any
successor transfer agent for the Company.
ARTICLE II.
PURCHASE AND SALE
     2.1 Closing.
          (a) Amount. Subject to the terms and conditions set forth in this
Agreement, at the Closing, the Company shall issue and sell to each Purchaser,
and each Purchaser shall, severally and not jointly, purchase from the Company,
such number of (A) Shares equal to the quotient resulting from dividing (i) the
Subscription Amount for such Purchaser by (ii) the sum of (y) the Share Purchase
Price and (z) 0.03125, rounded down to the nearest whole Share and (B) Warrants
to purchase such number of Warrant Shares equal to the quotient resulting from
muliplying (i) the number of Shares to be acquired by such Purchaser pursuant
hereto, by (ii) 0.25, rounded down to the nearest whole Warrant Share.
          (b) Closing. The Closing of the purchase and sale of the Securities
shall take place at the offices of Cooley Godward Kronish LLP, 4401 Eastgate
Mall, San Diego, California on the Closing Date or at such other locations or
remotely by facsimile transmission or other electronic means as the parties may
mutually agree.
          (c) Form of Payment. On the Closing Date (i) each Purchaser that has
agreed to wire funds directly to the Company shall wire such Purchaser’s
Subscription Amount to the Company in accordance with the written directions
from the Company, and (ii) the Company shall (A) deliver or cause to

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be delivered to each Purchaser a duly executed Warrant to purchase the number of
Warrant Shares set forth below such Purchaser’s name on the signature page of
this Agreement and (B) irrevocably instruct the Transfer Agent to deliver to
each Purchaser one or more stock certificates, free and clear of all restrictive
and other legends (except as expressly provided in Section 4.1(b) hereof),
evidencing the number of Shares such Purchaser is purchasing as is set forth on
such Purchaser’s signature page to this Agreement next to the heading “Number of
Shares to be Acquired”, within three (3) Business Days after the Closing, duly
executed on behalf of the Company and registered in the name of such Purchaser.
     2.2 Closing Deliveries.
          (a) On or prior to the Closing, the Company shall issue, deliver or
cause to be delivered to each Purchaser the following (the “Company
Deliverables”):
               (i) this Agreement, duly executed by the Company;
               (ii) facsimile copies of one or more stock certificates, free and
clear of all restrictive and other legends (except as provided in Section 4.1(b)
hereof), evidencing the Shares subscribed for by Purchaser hereunder, registered
in the name of such Purchaser as set forth on the Stock Certificate
Questionnaire included as Exhibit C-2 hereto (the “Stock Certificates”), with
the original Stock Certificates sent within three (3) Business Days of Closing;
               (iii) a Warrant to purchase the number of Warrant Shares set
forth below such Purchaser’s name on the signature page of this Agreement, duly
executed by the Company;
               (iv) a legal opinion of Company Counsel, dated as of the Closing
Date and in the form attached hereto as Exhibit D, executed by such counsel and
addressed to the Purchasers;
               (v) the Registration Rights Agreement, duly executed by the
Company;
               (vi) duly executed Irrevocable Transfer Agent Instructions
acknowledged in writing by the Transfer Agent;
               (vii) a certificate of the Secretary of the Company (the
“Secretary’s Certificate”), dated as of the Closing Date, certifying (a) the
resolutions adopted by the Board of Directors of the Company or a duly
authorized committee thereof approving the transactions contemplated by this
Agreement and the other Transaction Documents and the issuance of the
Securities, (b) the current versions of the certificate of incorporation and
by-laws of the Company, each as amended, and (c) as to the signatures and
authority of persons signing the Transaction Documents and related documents on
behalf of the Company, in the form attached hereto as Exhibit F;
               (viii) the Compliance Certificate referred to in Section 5.1(g);
               (ix) a certificate evidencing the formation and good standing of
the Company in its jurisdiction of formation issued by the Secretary of State
(or comparable office) of such jurisdiction, as of a date within five
(5) Business Days of the Closing Date;
               (x) a certificate evidencing the Company’s qualification as a
foreign corporation and good standing issued by the Secretary of State of the
State of California, as of a date within ten (10) Business Days of the Closing
Date; and

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               (xi) a certified copy of the certificate of incorporation, as
certified by the Secretary of State of the State (or comparable office) of the
Company’s jurisdiction of formation, as of a date within ten (10) Business Days
of the Closing Date.
          (b) On or prior to the Closing, each Purchaser shall deliver or cause
to be delivered to the Company the following (the “Purchaser Deliverables”):
               (i) this Agreement, duly executed by such Purchaser;
               (ii) its Subscription Amount, in United States dollars and in
immediately available funds, in the amount set forth as the “Purchase Price”
indicated below such Purchaser’s name on the applicable signature page hereto
under the heading “Aggregate Purchase Price (Subscription Amount)” by wire
transfer to the escrow account set forth on Exhibit H attached hereto or to the
account of the Company pursuant to Section 2.1(c);
               (iii) the Registration Rights Agreement, duly executed by such
Purchaser;
               (iv) a fully completed and duly executed Selling Stockholder
Questionnaire in the form attached as Annex B to the Registration Rights
Agreement; and
               (v) a fully completed and duly executed Accredited Investor
Questionnaire, reasonably satisfactory to the Company, and Stock Certificate
Questionnaire in the forms attached hereto as Exhibits B-1 and B-2,
respectively.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
     3.1 Representations and Warranties of the Company. The Company hereby
represents and warrants as of the date hereof and the Closing Date (except for
the representations and warranties that speak as of a specific date, which shall
be made as of such date), to each of the Purchasers that, except as set forth in
the Schedules delivered herewith or disclosed in the SEC Reports:
          (a) Subsidiaries. The Company has no direct or indirect Subsidiaries
other than those listed in Schedule 3.1(a) hereto. Except as disclosed in
Schedule 3.1(a) hereto, the Company owns, directly or indirectly, all of the
capital stock or comparable equity interests of each Subsidiary free and clear
of any and all Liens which could reasonably be expected to have a Material
Adverse Effect, and all the issued and outstanding shares of capital stock or
comparable equity interest of each Subsidiary are validly issued and are fully
paid, non-assessable and free of preemptive and similar rights to subscribe for
or purchase securities.
          (b) Organization and Qualification. The Company and each of its
Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite corporate
power and authority to own or lease and use its properties and assets and to
carry on its business as currently conducted. Neither the Company nor any
Subsidiary is in violation of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or
charter documents. The Company and each of its Subsidiaries is duly qualified to
conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, would not
have a Material Adverse Effect.

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          (c) Authorization; Enforcement; Validity. The Company has the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents to which it is a
party and otherwise to carry out its obligations hereunder and thereunder. The
Company’s execution and delivery of each of the Transaction Documents to which
it is a party and the consummation by it of the transactions contemplated hereby
and thereby (including, but not limited to, the sale and delivery of the
Securities and the reservation for issuance and the subsequent issuance of the
Warrant Shares) have been duly authorized by all necessary corporate action on
the part of the Company, and no further corporate action is required by the
Company, its Board of Directors or its stockholders in connection therewith
other than in connection with the Required Approvals. Each of the Transaction
Documents to which it is a party has been (or upon delivery will have been) duly
executed by the Company and is, or when delivered in accordance with the terms
hereof, will constitute the legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except (i) as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors’ rights and remedies or by
other equitable principles of general , (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law. Except for Material Contracts and as set forth on
Schedule 3.1(c) hereto, there are no stockholder agreements, voting agreements,
or other similar arrangements with respect to the Company’s capital stock to
which the Company is a party or, to the Company’s Knowledge, between or among
any of the Company’s stockholders.
          (d) No Conflicts. The execution, delivery and performance by the
Company of the Transaction Documents to which it is a party and the consummation
by the Company of the transactions contemplated hereby or thereby (including,
without limitation, the issuance of the Securities and the Warrant Shares) do
not and will not (i) conflict with or violate any provisions of the Company’s or
any Subsidiary’s certificate or articles of incorporation, bylaws or otherwise
result in a violation of the organizational documents of the Company,
(ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would result in a default) under, result in the creation
of any Lien upon any of the properties or assets of the Company or give to
others any rights of termination, amendment, acceleration or cancellation (with
or without notice, lapse of time or both) of, any Material Contract, or
(iii) subject to the Required Approvals, conflict with or result in a violation
of any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company is
subject (including federal and state securities laws and regulations and the
rules and regulations, assuming the correctness of the representations and
warranties made by the Purchasers herein, of any self-regulatory organization to
which the Company or its securities are subject, including all applicable
Trading Markets), or by which any property or asset of the Company is bound or
affected, except in the case of clauses (ii) and (iii) such as would not,
individually or in the aggregate, have a Material Adverse Effect.
          (e) Filings, Consents and Approvals. Neither the Company nor any of
its Subsidiaries is required to obtain any consent, waiver, authorization or
order of, give any notice to, or make any filing or registration with, any court
or other federal, state, local or other governmental authority or other Person
in connection with the execution, delivery and performance by the Company of the
Transaction Documents (including the issuance of the Securities and the Warrant
Shares), other than (i) the filing with the Commission of one or more
Registration Statements in accordance with the requirements of the Registration
Rights Agreement, (ii) filings required by applicable state securities laws,
(iii) the filing of a Notice of Sale of Securities on Form D with the Commission
under Regulation D of the Securities Act, (iv) the filing of any requisite
notices and/or application(s) to the Principal Trading Market for the issuance
and sale of the Common Stock and the listing of the Common Stock for trading or
quotation, as the case may be, thereon in the time and manner required thereby,
(v) the filings required in accordance with Section 4.7 of this Agreement and
(vi) those that have been made or obtained prior to the date of this Agreement
(collectively, the “Required Approvals”).

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          (f) Issuance of the Shares and the Warrant Shares. The Shares and the
Warrant Shares have been duly authorized and, when issued and paid for in
accordance with the terms of the Transaction Documents, will be duly and validly
issued, fully paid and nonassessable and free and clear of all Liens, other than
restrictions on transfer provided for in the Transaction Documents or imposed by
applicable securities laws, and shall not be subject to preemptive or similar
rights. Assuming the accuracy of the representations and warranties of the
Purchasers in this Agreement, the Shares, Warrants and the Warrant Shares will
be issued in compliance with all applicable federal and state securities laws.
The Warrants have been duly authorized and, when issued and paid for in
accordance with the terms of the Transaction Documents, will be duly and validly
issued, free and clear of all Liens, other than restrictions on transfer
provided for in the Transaction Documents or imposed by applicable securities
laws, and shall not be subject to preemptive or similar rights of stockholders.
As of the Closing Date, the Company shall have reserved from its duly authorized
capital stock the number of shares of Common Stock issuable upon exercise of the
Warrants (without taking into account any limitations on the exercise of the
Warrants set forth in the Warrants). The Company shall, so long as any of the
Warrants are outstanding, take all action necessary to reserve and keep
available out of its authorized and unissued capital stock, solely for the
purpose of effecting the exercise of the Warrants, 100% of the number of shares
of Common Stock issuable upon exercise of the Warrants.
          (g) Capitalization. The number of shares and type of all authorized,
issued and outstanding capital stock, options and other securities of the
Company (whether or not presently convertible into or exercisable or
exchangeable for shares of capital stock of the Company) has been set forth in
the SEC Reports and has changed since the date of such SEC Reports only due to
stock grants or other equity awards or stock option and warrant exercises that
do not, individually or in the aggregate, have a material effect on the issued
and outstanding capital stock, options and other securities. All of the
outstanding shares of capital stock of the Company are duly authorized, validly
issued, fully paid and non-assessable, have been issued in compliance in all
material respects with all applicable federal and state securities laws, and
none of such outstanding shares was issued in violation of any preemptive rights
or similar rights to subscribe for or purchase any capital stock of the Company.
Except as specified in the SEC Reports: (i) no shares of the Company’s
outstanding capital stock are subject to preemptive rights or any other similar
rights; (ii) 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, or exercisable or exchangeable for, any
shares of capital stock of the Company, or 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, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any shares of capital stock of the Company, other than those
issued or granted pursuant to Material Contracts or equity or incentive plans or
arrangements described in the SEC Reports; (iii) there are no material
outstanding debt securities, notes, credit agreements, credit facilities or
other agreements, documents or instruments evidencing indebtedness of the
Company or by which the Company is bound; (iv) to the Company’s Knowledge, there
are no financing statements securing obligations in any material amounts, either
singly or in the aggregate, filed in connection with the Company; (v) there are
no agreements or arrangements under which the Company is obligated to register
the sale of any of their securities under the Securities Act (except the
Registration Rights Agreement); (vi) there are no outstanding securities or
instruments of the Company or which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company is or may become bound to redeem a security of
the Company; (vii) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Shares; (viii) the Company does not have any stock appreciation rights or
“phantom stock” plans or agreements or any similar plan or agreement; and
(ix) the Company has no liabilities or obligations required to be disclosed in
the SEC Reports but not so disclosed in the SEC Reports, other than those
incurred in the ordinary course of the Company’s businesses and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect.

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          (h) SEC Reports. The Company has filed all reports, schedules, forms,
statements and other documents required to be filed by it under the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, for the twelve months
preceding the date hereof (or such shorter period as the Company was required by
law or regulation to file such material) (the foregoing materials, including the
exhibits thereto and documents incorporated by reference therein, being
collectively referred to herein as the “SEC Reports” and together with this
Agreement and the Schedules to this Agreement (if any), the “Disclosure
Materials”), on a timely basis or has received a valid extension of such time of
filing and has filed any such SEC Reports prior to the expiration of any such
extension. As of their respective filing dates, or to the extent corrected by a
subsequent restatement, the SEC Reports complied in all material respects with
the requirements of the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the SEC
Reports, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
          (i) Financial Statements. The financial statements of the Company
included in the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the Commission with
respect thereto as in effect at the time of filing (or to the extent corrected
by a subsequent restatement). Such financial statements have been prepared in
accordance with GAAP applied on a consistent basis during the periods involved,
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries taken as a
whole as of and for the dates thereof and the results of operations and cash
flows for the periods then ended, subject, in the case of unaudited statements,
to normal, year-end audit adjustments.
          (j) Tax Matters. The Company (i) has prepared and filed all foreign,
federal and state income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject, (ii) 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, with respect to which adequate reserves have been
set aside on the books of the Company and (iii) 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,
except, in the case of clauses (i) and (ii) above, where the failure to so pay
or file any such tax, assessment, charge or return would not have a Material
Adverse Effect.
          (k) Material Changes. Since the date of the latest financial
statements included within the SEC Reports, except as specifically disclosed in
the SEC Reports or as set forth in Schedule 3.1(k) hereto, (i) there have been
no events, occurrences or developments that have had or would reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect, (ii) the Company has not incurred any material liabilities (contingent
or otherwise) other than (A) trade payables, accrued expenses and other
liabilities incurred in the ordinary course of business consistent with past
practice and (B) liabilities not required to be reflected in the Company’s
financial statements pursuant to GAAP or required to be disclosed in filings
made with the Commission, (iii) the Company has not altered materially its
method of accounting or the manner in which it keeps its accounting books and
records, (iv) the Company has not declared or made any dividend or distribution
of cash or other property to its stockholders or purchased, redeemed or made any
agreements to purchase or redeem any shares of its capital stock (other than in
connection with repurchases of unvested stock issued to employees of the
Company), (v) the Company has not issued any equity securities to any officer,
director or Affiliate, except Common Stock issued in the ordinary course as
dividends on outstanding preferred stock or issued pursuant to existing Company
stock option or stock purchase plans or executive and director corporate
arrangements disclosed in the SEC Reports and (vi) there has not been any
material change or amendment to, or any waiver of any material right

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by the Company under, any Material Contract under which the Company or any of
its Subsidiaries is bound or subject. Except for the transactions contemplated
by this Agreement or as set forth in Schedule 3.1(k) hereto, no event, liability
or development has occurred or exists with respect to the Company or its
Subsidiaries or their respective business, properties, operations or financial
condition that would be required to be disclosed by the Company under applicable
securities laws at the time this representation is made that has not been
publicly disclosed at least one Trading Day prior to the date that this
representation is made.
          (l) Environmental Matters. To the Company’s Knowledge, neither the
Company nor any of its Subsidiaries (i) is in violation of any statute, rule,
regulation, decision or order of any governmental agency or body or any court,
domestic or foreign, relating to the use, disposal or release of hazardous or
toxic substances or relating to the protection or restoration of the environment
or human exposure to hazardous or toxic substances (collectively, “Environmental
Laws”), (ii) owns or operates any real property contaminated with any substance
that is in violation of any Environmental Laws, (iii) is liable for any off-site
disposal or contamination pursuant to any Environmental Laws, or (iv) is subject
to any claim relating to any Environmental Laws; which violation, contamination,
liability or claim has had or would have, individually or in the aggregate, a
Material Adverse Effect; and, to the Company’s Knowledge, there is no pending or
threatened investigation that might lead to such a claim.
          (m) Litigation. To the Company’s Knowledge, there is no Action which
(i) adversely affects or challenges the legality, validity or enforceability of
any of the Transaction Documents or the Securities or (ii) except as
specifically disclosed in the SEC Reports, could, if there were an unfavorable
decision, individually or in the aggregate, have a Material Adverse Effect.
Neither the Company nor any Subsidiary, nor to the Company’s Knowledge any
director or officer thereof, is or has been the subject of any Action involving
a claim of violation of or liability under federal or state securities laws or a
claim of breach of fiduciary duty. There has not been, and to the Company’s
Knowledge there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or officer of
the Company. The Commission has not issued any stop order or other order
suspending the effectiveness of any registration statement filed by the Company
or any of its Subsidiaries under the Exchange Act or the Securities Act.
          (n) Employment Matters. No material labor dispute exists or, to the
Company’s Knowledge, is imminent with respect to any of the employees of the
Company which would have a Material Adverse Effect. None of the Company’s
employees is a member of a union that relates to such employee’s relationship
with the Company, and neither the Company nor any of its Subsidiaries is a party
to a collective bargaining agreement, and the Company and each Subsidiary
believes that its relationship with its employees is good. No executive officer
of the Company (as defined in Rule 501(f) of the 1933 Act) has notified the
Company that such officer intends to leave the Company or otherwise terminate
such officer’s employment with the Company. To the Company’s Knowledge, it is in
compliance with all U.S. federal, state, local and foreign laws and regulations
relating to employment and employment practices, terms and conditions of
employment and wages and hours, except where the failure to be in compliance
would not, individually or in the aggregate, have a Material Adverse Effect.
          (o) Compliance. Neither the Company nor any of its Subsidiaries (i) is
in default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by
the Company or any of its Subsidiaries under), nor has the Company or any of its
Subsidiaries received written notice of a claim that it is in default under or
that it is in violation of, any Material Contract (whether or not such default
or violation has been waived), (ii) is in violation of any order of which the
Company has been made aware in writing of any court, arbitrator or governmental
body having jurisdiction over the Company or its properties or assets, or
(iii) is in violation of, or in receipt of written notice that it is in
violation of, any statute, rule or regulation of any governmental authority
applicable to the Company, except in each case as would not, individually or in
the aggregate, have a Material Adverse Effect.

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          (p) Regulatory Permits. The Company and each of its Subsidiaries
possess or have applied for all certificates, authorizations and permits issued
by the appropriate federal, state, local or foreign regulatory authorities
necessary to conduct its respective businesses as currently conducted and as
described in the SEC Reports, except where the failure to possess such permits,
individually or in the aggregate, has not and would not have, individually or in
the aggregate, a Material Adverse Effect (“Material Permits”), and (i) neither
the Company nor any of its Subsidiaries has received any notice in writing of
proceedings relating to the revocation or material adverse modification of any
such Material Permits and (ii) the Company is unaware of any facts or
circumstances that would give rise to the revocation or material adverse
modification of any Material Permits.
          (q) Title to Assets. The Company and its Subsidiaries do not own any
real property. The Company and its Subsidiaries have good and marketable title
to all tangible personal property owned by them which is material to the
business of the Company and its Subsidiaries, taken as whole, in each case free
and clear of all Liens except such as do not materially affect the value of such
property and do not interfere with the use made and proposed to be made of such
property by the Company and any of its Subsidiaries. Any real property and
facilities held under lease by the Company and any of its Subsidiaries are held
by them 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 and its Subsidiaries.
          (r) Patents and Trademarks. To the Company’s Knowledge, the Company
and its Subsidiaries own, possess, license or have other rights to use all
foreign and domestic patents, patent applications, trade and service marks,
trade and service mark registrations, trade names, copyrights, inventions, trade
secrets, technology, Internet domain names, know-how and other intellectual
property (collectively, the “Intellectual Property”) necessary for the conduct
of their respective businesses as now conducted or as proposed to be conducted.
Except as set forth in the SEC Reports and except where such violations or
infringements would not have, either individually or in the aggregate, a
Material Adverse Effect, (i) to the Company’s Knowledge, there are no rights of
third parties to any such Intellectual Property; (ii) to the Company’s
Knowledge, there is no infringement by third parties of any such Intellectual
Property; (iii) to the Company’s Knowledge, there is no pending or threatened
action, suit, proceeding or claim by others challenging the Company’s and its
Subsidiaries’ rights in or to any such Intellectual Property; (iv) to the
Company’s Knowledge, there is no pending or threatened action, suit, proceeding
or claim by others challenging the validity or scope of any such Intellectual
Property; and (v) to the Company’s Knowledge, there is no pending or threatened
action, suit, proceeding or claim by others that the Company and/or any
Subsidiary infringes or otherwise violates any patent, trademark, copyright,
trade secret or other proprietary rights of others.
          (s) Insurance. The Company and each of the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as the Company believes to be prudent and customary in the
businesses and locations in which the Company and the Subsidiaries are engaged.
Neither the Company nor any of its Subsidiaries has received any notice of
cancellation of any such insurance, nor, to the Company’s Knowledge, will it or
any Subsidiary be unable to renew their respective 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.
          (t) Transactions With Affiliates and Employees. Except as set forth in
the SEC Reports and other than the grant of stock options or other equity awards
that are not individually or in the aggregate material in amount, none of the
officers or directors of the Company and, to the Company’s Knowledge, none of
the employees of the Company, is presently a party to any transaction with the
Company or any Subsidiary or to a presently contemplated transaction (other than
for services as employees, officers and

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directors) that would be required to be disclosed pursuant to Item 404 of
Regulation S-K promulgated under the Securities Act.
          (u) 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 GAAP and to maintain
asset and liability accountability, (iii) access to assets or incurrence of
liabilities is permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded accountability for assets and
liabilities is compared with the existing assets and liabilities at reasonable
intervals and in the Company’s good faith judgment appropriate action is taken
with respect to any differences. Since the most recently filed periodic report
under the Exchange Act, there have been no changes in the Company’s internal
control over financial reporting (as such term is defined in the Exchange Act)
that have materially affected, or is reasonably likely to materially affect, the
Company’s internal control over financial reporting.
          (v) Sarbanes-Oxley; Disclosure Controls. To the Company’s Knowledge,
the Company is in compliance in all material respects with all of the provisions
of the Sarbanes-Oxley Act of 2002 which are applicable to it, except where such
noncompliance would not have, individually or in the aggregate, a Material
Adverse Effect. The Company maintains disclosure controls and procedures (as
such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act).
          (w) Certain Fees. No person or entity will have, as a result of the
transactions contemplated by this Agreement, any valid right, interest or claim
against or upon the Company or a Purchaser for any commission, fee or other
compensation pursuant to any agreement, arrangement or understanding entered
into by or on behalf of the Company with respect to the offer and sale of the
Securities or the Warrant Shares. The Company shall indemnify, pay, and hold
each Purchaser harmless against, any liability, loss or expense (including,
without limitation, attorneys’ fees and out-of-pocket expenses) arising in
connection with any such right, interest or claim.
          (x) Private Placement. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2 of this Agreement and
the accuracy of the information disclosed in the Accredited Investor
Questionnaires, no registration under the Securities Act is required for the
offer and sale of the Securities or the Warrant Shares by the Company to the
Purchasers under the Transaction Documents.
          (y) Registration Rights. Other than as set forth in the SEC Reports
and other than each of the Purchasers or as set forth in Schedule 3.1(y) hereto,
no Person has any right to cause the Company to effect the registration under
the Securities Act of any securities of the Company other than those securities
which are currently registered on an effective registration statement on file
with the Commission.
          (z) No Integrated Offering. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, none of the Company,
its Subsidiaries nor, to the Company’s Knowledge, any of its Affiliates or any
Person acting on its behalf has, directly or indirectly, at any time within the
past six months, made any offers or sales of any Company security or solicited
any offers to buy any security under circumstances that would (i) eliminate the
availability of the exemption from registration under Regulation D under the
Securities Act in connection with the offer and sale by the Company of the
Securities as contemplated hereby or (ii) cause the offering of the Securities
pursuant to the Transaction Documents to be integrated with prior offerings by
the Company for purposes of any applicable law, regulation or stockholder
approval provisions, including, without limitation, under the rules and
regulations of any Trading Market on which any of the securities of the Company
are listed or designated. Neither the Company nor, to the Company’s Knowledge,
any person acting on behalf of the Company has offered or sold any of the
Securities by any form of general solicitation or general advertising.

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          (aa) Listing and Maintenance Requirements. The Company’s Common Stock
is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the
Company has taken no action designed to terminate the registration of the Common
Stock under the Exchange Act nor has the Company received any notification that
the Commission is contemplating terminating such registration. The Company has
not, in the twelve (12) months preceding the date hereof, received written
notice from any Trading Market on which the Common Stock is listed or quoted to
the effect that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company is in compliance in all
material respects with the listing and maintenance requirements for continued
trading of the Common Stock on the Principal Trading Market.
          (bb) Investment Company. Neither the Company nor any of its
Subsidiaries is required to be registered as, and is not an Affiliate of, and
immediately following the Closing will not be required to register as, an
“investment company” within the meaning of the Investment Company Act of 1940,
as amended.
          (cc) Questionable Payments. To the Company’s Knowledge, neither the
Company nor any of its Subsidiaries, nor any directors, officers, employees,
agents or other Persons acting at the direction of the Company has, in the
course of its actions for, or on behalf of, the Company: (i) directly or
indirectly, used any material corporate funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to foreign or domestic
political activity; (ii) made any material direct or indirect unlawful payments
to any foreign or domestic governmental officials or employees or to any foreign
or domestic political parties or campaigns from corporate funds; (iii) violated
in any material respect any provision of the Foreign Corrupt Practices Act of
1977, as amended, or (iv) made any other material unlawful bribe, rebate,
payoff, influence payment, kickback or other material unlawful payment to any
foreign or domestic government official or employee.
          (dd) Application of Takeover Protections; Rights Agreements. The
Company and its board of directors have taken all necessary action, if any, in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Company’s charter documents
or the laws of its state of incorporation that is applicable to any of the
Purchasers as a result of the Purchasers and the Company fulfilling their
obligations or exercising their rights under the Transaction Documents,
including, without limitation, the Company’s issuance of the Securities and the
Purchasers’ ownership of the Securities. The Company has not adopted a
stockholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change in control of the Company.
          (ee) Disclosure. To the Company’s Knowledge, no event or circumstance
has occurred or information exists with respect to the Company or any of its
Subsidiaries or its or their business, properties, operations or financial
conditions, which, under applicable law, rule or regulation, requires public
disclosure or announcement by the Company but which has not been so publicly
announced or disclosed (assuming for this purpose that the Company’s reports
filed under the Exchange Act are being incorporated into an effective
registration statement filed by the Company under the Securities Act), except
for the announcement of this Agreement and related transactions and as may be
disclosed on the Form 8-K filed pursuant to Section 4.6.
          (ff) Off Balance Sheet Arrangements. There is no transaction,
arrangement, or other relationship between the Company (or any Subsidiary) and
an unconsolidated or other off balance sheet entity that is required to be
disclosed by the Company in its Exchange Act filings and is not so disclosed and
would have a Material Adverse Effect.

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          (gg) Acknowledgment Regarding Purchasers’ Purchase of Securities. The
Company acknowledges and agrees that each of the Purchasers is acting solely in
the capacity of an arm’s length purchaser with respect to the Transaction
Documents and the transactions contemplated hereby and thereby. The Company
further acknowledges that no Purchaser is acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated thereby and any advice
given by any Purchaser or any of their respective representatives or agents in
connection with the Transaction Documents and the transactions contemplated
thereby is merely incidental to the Purchasers’ purchase of the Securities.
          (hh) Regulation M Compliance. In the last thirty (30) calendar days,
the Company has not, and to the Company’s Knowledge no one acting on its behalf
has, (i) taken, directly or indirectly, any action designed to cause or to
result in the stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of any of the Securities, (ii) sold,
bid for, purchased, or paid any compensation for soliciting purchases of, any of
the securities of the Company or (iii) paid or agreed to pay to any Person any
compensation for soliciting another to purchase any other securities of the
Company.
          (ii) OFAC. Neither the Company nor any Subsidiary nor, to the
Company’s Knowledge, any director, officer, agent, employee, Affiliate or Person
acting on behalf of the Company or any Subsidiary is currently subject to any
U.S. sanctions administered by the Office of Foreign Assets Control of the U.S.
Treasury Department (“OFAC”); and the Company will not knowingly directly or
indirectly use the proceeds of the sale of the Securities, or lend, contribute
or otherwise make available such proceeds to any Subsidiary, joint venture
partner or other Person or entity, towards any sales or operations in Cuba,
Iran, Syria, Sudan, Myanmar or any other country sanctioned by OFAC or for the
purpose of financing the activities of any Person currently subject to any U.S.
sanctions administered by OFAC.
          (jj) Money Laundering Laws. To the Company’s Knowledge, the operations
of each of the Company and any Subsidiary are and have been conducted at all
times in compliance with the money laundering statutes of applicable
jurisdictions, the rules and regulations thereunder and any related or similar
rules, regulations or guidelines, issued, administered or enforced by any
applicable governmental agency (collectively, the “Money Laundering Laws”) and
to the Company’s Knowledge, no action, suit or proceeding by or before any court
or governmental agency, authority or body or any arbitrator involving the
Company and/or any Subsidiary with respect to the Money Laundering Laws is
pending or threatened.
          (kk) FDA. To the Company’s Knowledge, there is no pending, completed
or threatened, action (including any lawsuit, arbitration, or legal or
administrative or regulatory proceeding, charge, complaint, or investigation)
against the Company or any of its Subsidiaries, and none of the Company or any
of its Subsidiaries has received any notice, warning letter or other
communication from the U.S. Food and Drug Administration (“FDA”) or any other
governmental entity, which (i) contests the premarket clearance, licensure,
registration, or approval of, the uses of, the distribution of, the
manufacturing or packaging of, the testing of, the sale of, or the labeling and
promotion of any product subject to the jurisdiction of the FDA under the
Federal Food, Drug and Cosmetic Act, as amended, and the regulations thereunder
that is manufactured, packaged, labeled, tested, distributed, sold, and/or
marketed by the Company or any of its Subsidiaries (each such product, a
“Pharmaceutical Product”), (ii) imposes a clinical hold on any clinical
investigation by the Company or any of its Subsidiaries, (iii) enjoins
production at any facility of the Company or any of its Subsidiaries,
(iv) enters or proposes to enter into a consent decree of permanent injunction
with the Company or any of its Subsidiaries, or (v) otherwise alleges any
violation of any laws, rules or regulations by the Company or any of its
Subsidiaries, and which, either individually or in the aggregate, would have a
Material Adverse Effect. The Company has not been informed in writing by the FDA
that the FDA will prohibit the marketing, sale, license or use in the United
States of any product proposed to be developed, produced or marketed by the
Company.

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          (ll) No Additional Agreements. The Company does not have any agreement
or understanding with any Purchaser with respect to the transactions
contemplated by the Transaction Documents other than as specified in the
Transaction Documents.
     3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:
          (a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the applicable Transaction Documents and otherwise to carry out
its obligations hereunder and thereunder. The execution, delivery and
performance by such Purchaser of the transactions contemplated by this Agreement
have been duly authorized by all necessary corporate or, if such Purchaser is
not a corporation, such partnership, limited liability company or other
applicable like action, on the part of such Purchaser. Each of this Agreement
and the Registration Rights Agreement applicable to such Purchaser has been duly
executed by such Purchaser, and when delivered by such Purchaser in accordance
with the terms hereof, will constitute the valid and legally binding obligation
of such Purchaser, enforceable against it in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors’ rights and remedies or by
other equitable principles of general application.
          (b) No Conflicts. The execution, delivery and performance by such
Purchaser of this Agreement and the Registration Rights Agreement applicable to
such Purchaser and the consummation by such Purchaser of the transactions
contemplated hereby and thereby will not (i) result in a violation of the
organizational documents of such Purchaser, (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
such Purchaser is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws) applicable to such Purchaser, except in the case of clauses (ii) and
(iii) above, for such conflicts, defaults, rights or violations which would not,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on the ability of such Purchaser to perform its obligations
hereunder.
          (c) Investment Intent. Such Purchaser understands that the Securities
are “restricted securities” and have not been registered under the Securities
Act or any applicable state securities law and is acquiring the Securities as
principal for its own account and not with a view to, or for distributing or
reselling such Securities or any part thereof in violation of the Securities Act
or any applicable state securities laws, provided, however, that by making the
representations herein, such Purchaser does not agree to hold any of the
Securities for any minimum period of time and reserves the right, subject to the
provisions of this Agreement and the Registration Rights Agreement applicable to
such Purchaser, at all times to sell or otherwise dispose of all or any part of
such Securities and the Warrant Shares pursuant to an effective registration
statement under the Securities Act or under an exemption from such registration
and in compliance with applicable federal and state securities laws. Such
Purchaser is acquiring the Securities hereunder in the ordinary course of its
business. Such Purchaser does not presently have any agreement, plan or
understanding, directly or indirectly, with any Person to distribute or effect
any distribution of any of the Securities (or any securities which are
derivatives thereof, including the Warrant Shares) to or through any person or
entity; such Purchaser is not a registered broker-dealer under Section 15 of the
Exchange Act or an entity engaged in a business that would require it to be so
registered as a broker-dealer.

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          (d) Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, an “accredited investor” as
defined in Rule 501(a) under the Securities Act.
          (e) General Solicitation. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper, magazine or
similar media or broadcast over television or radio or presented at any seminar
or any other general advertisement.
          (f) Experience of Such Purchaser. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment. Such Purchaser is able to
bear the economic risk of an investment in the Securities and, at the present
time, is able to afford a complete loss of such investment.
          (g) Access to Information. Such Purchaser acknowledges that it has had
the opportunity to review the Disclosure Materials and has been afforded (i) the
opportunity to ask such questions as it has deemed necessary of, and to receive
answers from, representatives of the Company concerning the terms and conditions
of the offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Subsidiaries
and their respective financial condition, results of operations, business,
properties, management and prospects sufficient to enable it to evaluate its
investment; and (iii) the opportunity to obtain such additional information that
the Company possesses or can acquire without unreasonable effort or expense that
is necessary to make an informed investment decision with respect to the
investment. Neither such inquiries nor any other investigation conducted by or
on behalf of such Purchaser or its representatives or counsel shall modify,
amend or affect such Purchaser’s right to rely on the truth, accuracy and
completeness of the Disclosure Materials and the Company’s representations and
warranties contained in the Transaction Documents. Such Purchaser has sought
such accounting, legal and tax advice as it has considered necessary to make an
informed decision with respect to its acquisition of the Securities.
          (h) Certain Trading Activities. Other than with respect to the
transactions contemplated herein, since the time that such Purchaser was first
contacted by the Company or any other Person regarding the transactions
contemplated hereby, neither the Purchaser nor any Affiliate of such Purchaser
which (x) had knowledge of the transactions contemplated hereby, (y) has or
shares discretion relating to such Purchaser’s investments or trading or
information concerning such Purchaser’s investments, including in respect of the
Securities, and (z) is subject to such Purchaser’s review or input concerning
such Affiliate’s investments or trading (collectively, “Trading Affiliates”) has
directly or indirectly, nor has any Person acting on behalf of or pursuant to
any understanding with such Purchaser or Trading Affiliate, effected or agreed
to effect any purchases or sales of the securities of the Company (including,
without limitation, any Short Sales involving the Company’s securities).
Notwithstanding the foregoing, in the case of a Purchaser and/or Trading
Affiliate that is, individually or collectively, a multi-managed investment bank
or vehicle whereby separate portfolio managers manage separate portions of such
Purchaser’s or Trading Affiliate’s assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Purchaser’s or Trading Affiliate’s assets, the
representation set forth above shall apply only with respect to the portion of
assets managed by the portfolio manager that have knowledge about the financing
transaction contemplated by this Agreement. Other than to other Persons party to
this Agreement, such Purchaser has maintained the confidentiality of all
disclosures made to it in connection with this transaction (including the
existence and terms of this transaction). Notwithstanding the foregoing, except
as provided in Section 4.11, no Purchaser makes any representation, warranty or
covenant hereby that it will not engage in Short Sales in the securities of the
Company after the time that the Initial Registration Statement becomes
effective.

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          (i) Brokers and Finders. No Person will have, as a result of the
transactions contemplated by this Agreement, any valid right, interest or claim
against or upon the Company or any Purchaser for any commission, fee or other
compensation pursuant to any agreement, arrangement or understanding entered
into by or on behalf of the Purchaser.
          (j) Independent Investment Decision. Such Purchaser has independently
evaluated the merits of its decision to purchase Securities (including the
Warrant Shares) pursuant to the Transaction Documents, and such Purchaser
confirms that it has not relied on the advice of any other Purchaser’s business
and/or legal counsel in making such decision. Such Purchaser understands that
nothing in this Agreement or any other materials presented by or on behalf of
the Company to the Purchaser in connection with the purchase of the Securities
constitutes legal, tax or investment advice. Such Purchaser has consulted such
legal, tax and investment advisors as it, in its sole discretion, has deemed
necessary or appropriate in connection with its purchase of the Securities.
          (k) Reliance on Exemptions. Such Purchaser understands that the
Securities being offered and sold to it in reliance on specific exemptions from
the registration requirements of United States federal and state securities laws
and that the Company is relying in part upon the truth and accuracy of, and such
Purchaser’s compliance with, the representations, warranties, agreements,
acknowledgements and understandings of such Purchaser set forth herein in order
to determine the availability of such exemptions and the eligibility of such
Purchaser to acquire the Securities.
          (l) No Governmental Review. Such Purchaser understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
          (m) Regulation M. Such Purchaser is aware that the anti-manipulation
rules of Regulation M under the Exchange Act may apply to sales of Common Stock
and other activities with respect to the Common Stock by the Purchasers.
          (n) Residency. Such Purchaser’s residence (if an individual) or office
in which its investment decision with respect to the Securities was made (if an
entity) is located at the address immediately below such Purchaser’s name on its
signature page hereto.
The Company and each of the Purchasers acknowledge and agree that no party to
this Agreement has made or makes any representations or warranties with respect
to the transactions contemplated hereby other than those specifically set forth
in this Article III and the Transaction Documents.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
     4.1 Transfer Restrictions.
          (a) Compliance with Laws. Notwithstanding any other provision of this
Article IV, each Purchaser covenants that the Securities and, if applicable, the
Warrant Shares may be disposed of only pursuant to an effective registration
statement under, and in compliance with the requirements of, the Securities Act,
or pursuant to an available exemption from, or in a transaction not subject to,
the registration requirements of the Securities Act, and in compliance with any
applicable state and federal securities laws. In connection with any transfer of
the Securities or the Warrant Shares other than (i) pursuant to an effective
registration statement, (ii) to the Company, (iii) pursuant to Rule 144
(provided that the Purchaser provides the Company with reasonable assurances (in
the form of seller and broker representation letters) that the

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securities may be sold pursuant to such rule) or Rule 144A, or (iv) in
connection with a bona fide pledge, the Company may require the transferor
thereof to provide to the Company and the Transfer Agent an opinion of counsel
selected by the transferor and reasonably acceptable to the Company and the
Transfer Agent, the form and substance of which opinion shall be reasonably
satisfactory to the Company and the Transfer Agent, to the effect that such
transfer does not require registration of such transferred Securities or Warrant
Shares under the Securities Act. As a condition of transfer, any such transferee
shall agree in writing to be bound by the terms of this Agreement and the
Warrant, if applicable, and shall have the rights of a Purchaser under this
Agreement and the Registration Rights Agreement applicable to the transferring
Purchaser.
          (b) Legends. Certificates evidencing the Securities and Warrant Shares
shall bear any legend as required by the “blue sky” laws of any state and a
restrictive legend in substantially the following form, until such time as they
are not required under Section 4.1(c):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED EXCEPT AS
PROVIDED BY SECTION 4 OF THAT CERTAIN SECURITIES PURCHASE AGREEMENT, DATED AS OF
DECEMBER 17, 2008, BY AND AMONG ARDEA BIOSCIENCES, INC. AND EACH PURCHASER
IDENTIFIED ON THE SIGNATURE PAGES THERETO.
          (c) Removal of Legends. The legend set forth in Section 4.1(b) above
shall be removed and the Company shall issue a certificate without such legend
or any other legend to the holder of the applicable Securities or Warrant Shares
upon which it is stamped or issue to such holder by electronic delivery at the
applicable balance account at the Depository Trust Company (“DTC”), if (i) such
Securities or Warrant Shares are registered for resale under the Securities Act
(provided that the Purchaser agrees to only sell such Securities and Warrant
Shares when, and as permitted, by the effective registration statement
permitting such resale), (ii) such Securities or Warrant Shares are sold or
transferred pursuant to Rule 144 (if the transferor is not an Affiliate of the
Company), or (iii) such Securities or Warrant Shares are eligible for sale under
Rule 144 following the expiration of the one-year holding requirement under
subparagraphs (b)(1)(i) and (d) thereof (if the transferor is not an Affiliate
of the Company). Any fees (with respect to the Transfer Agent, Company Counsel
or otherwise) associated with the removal of such legend shall be borne by the
Company. Following the Effective Date applicable to such Securities or Warrant
Shares, or at such earlier time as a legend is no longer required for certain
Securities or Warrant Shares, the Company will no later than three (3) Trading
Days following the delivery by a Purchaser to the Company or the Transfer Agent
(with notice to the Company) of (i) a legended certificate representing such
Securities or Warrant Shares (endorsed or with stock powers attached, signatures
guaranteed, and otherwise in form necessary to affect the reissuance and/or
transfer) or (ii) an Exercise Notice in the manner stated in the Warrants to
effect the exercise of such Warrant in accordance with its terms and an opinion
of counsel to the extent required by Section 4.1(a) (such third Trading Day, the
“Legend Removal Date”), deliver or cause to be delivered to such Purchaser or
the transferee of such Purchaser, as applicable, a certificate representing such
Securities or Warrant Shares that is free from all restrictive and other
legends. The Company may not make any notation on its records or give
instructions to the Transfer Agent that enlarge the restrictions on transfer set
forth in this Section. Certificates for Securities or Warrant Shares subject to
legend removal hereunder may be transmitted by the Transfer Agent to the
Purchasers by crediting the account of the Purchaser’s prime broker with DTC.
          (d) Irrevocable Transfer Agent Instructions. The Company shall issue
irrevocable instructions to its Transfer Agent, and any subsequent transfer
agent in the form of Exhibit E attached hereto (the “Irrevocable Transfer Agent
Instructions”). The Company represents and warrants that no instruction

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other than the Irrevocable Transfer Agent Instructions referred to in this
Section 4.1(d) or instructions that are not contradictory therewith will be
given by the Company to its transfer agent in connection with this Agreement,
and that the Securities and Warrant Shares shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and the other Transaction Documents and applicable
law. The Company acknowledges that a breach by it of its obligations under this
Section 4.1(d) will cause irreparable harm to a Purchaser. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section 4.1(d) will be inadequate and agrees, in the event of a
breach or threatened breach by the Company of the provisions of this
Section 4.1(d), that a Purchaser shall be entitled, in addition to all other
available remedies, to an order and/or injunction restraining any breach and
requiring immediate issuance and transfer, without the necessity of showing
economic loss and without any bond or other security being required.
          (e) Acknowledgement. Each Purchaser hereunder acknowledges its primary
responsibilities under the Securities Act and accordingly will not sell or
otherwise transfer the Securities or Warrant Shares or any interest therein
without complying with the requirements of the Securities Act. Except as
otherwise provided below, while the above-referenced registration statement
remains effective, each Purchaser hereunder may sell the Securities or Warrant
Shares in accordance with the plan of distribution contained in the registration
statement and if it does so it will comply therewith and with the related
prospectus delivery requirements unless an exemption therefrom is available.
Each Purchaser, severally and not jointly with the other Purchasers, agrees that
if it is notified by the Company in writing at any time that the registration
statement registering the resale of the Shares or Warrant Shares is not
effective or that the prospectus included in such registration statement no
longer complies with the requirements of Section 10 of the Securities Act, the
Purchaser will refrain from selling such Shares or Warrant Shares until such
time as the Purchaser is notified by the Company that such registration
statement is effective or such prospectus is compliant with Section 10 of the
Exchange Act, unless such Purchaser is able to, and does, sell such Shares or
Warrant Shares pursuant to an available exemption from the registration
requirements of Section 5 of the Securities Act. Both the Company and its
Transfer Agent, and their respective directors, officers, employees and agents,
may rely on this subsection (e) and each Purchaser hereunder will indemnify and
hold harmless each of such persons from any breaches or violations of this
paragraph.
          (f) Buy-In. If the Company shall fail for any reason or for no reason
to issue to a Purchaser unlegended certificates within three (3) Business Days
of receipt of all documents necessary for the removal of the legend set forth
above (the “Deadline Date”), then, in addition to all other remedies available
to such Purchaser, if on or after the Business Day immediately following such
three (3) Business Day period, such Purchaser purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of a
sale by the holder of shares of Common Stock that such Purchaser anticipated
receiving from the Company without any restrictive legend (a “Buy-In”), then the
Company shall, within three (3) Business Days after such Purchaser’s request and
in such Purchaser’s sole discretion, either (i) pay cash to the Purchaser in an
amount equal to such Purchaser’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the “Buy-In
Price”), at which point the Company’s obligation to deliver such certificate
(and to issue such shares of Common Stock) shall terminate, or (ii) promptly
honor its obligation to deliver to such Purchaser a certificate or certificates
representing such shares of Common Stock and pay cash to the Purchaser in an
amount equal to the excess (if any) of the Buy-In Price over the product of
(a) such number of shares of Common Stock, times (b) the Closing Bid Price on
the Deadline Date.
     4.2 Reservation of Common Stock. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance from and after the Closing Date, the number of shares of Common Stock
issuable upon exercise of the Warrants issued at the Closing.

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     4.3 Acknowledgment of Dilution. The Company acknowledges that the issuance
of the Shares and the Warrant Shares may result in dilution of the outstanding
shares of Common Stock. The Company further acknowledges that its obligations
under the Transaction Documents, including without limitation its obligation to
issue the Shares and Warrant Shares pursuant to the Transaction Documents, are
unconditional and absolute and not subject to any right of set off,
counterclaim, delay or reduction, regardless of the effect of any such dilution
or any claim the Company may have against any Purchaser and regardless of the
dilutive effect that such issuance may have on the ownership of the other
stockholders of the Company.
     4.4 Furnishing of Information. In order to enable the Purchasers to sell
the Securities and the Warrant Shares under Rule 144 of the Securities Act, for
a period of one year from the Closing, the Company shall use its commercially
reasonable efforts to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to the Exchange Act. During such one-year
period, if the Company is not required to file reports pursuant to such laws, it
will prepare and furnish to the Purchasers and make publicly available in
accordance with Rule 144(c) such information as is required for the Purchasers
to sell the Securities and Warrant Shares under Rule 144.
     4.5 Form D and Blue Sky. The Company agrees to timely file a Form D with
respect to the Securities as required under Regulation D. The Company, on or
before the Closing Date, shall take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for or to qualify the
Securities for sale to the Purchasers at the Closing pursuant to this Agreement
under applicable securities or “Blue Sky” laws of the states of the United
States (or to obtain an exemption from such qualification). The Company shall
make all filings and reports relating to the offer and sale of the Securities
required under applicable securities or “Blue Sky” laws of the states of the
United States following the Closing Date.
     4.6 No Integration. The Company shall not, and shall use its commercially
reasonable efforts to ensure that no Affiliate of the Company shall, sell, offer
for sale or solicit offers to buy or otherwise negotiate in respect of any
security (as defined in Section 2 of the Securities Act) that will be integrated
with the offer or sale of the Securities in a manner that would require the
registration under the Securities Act of the sale of the Securities to the
Purchasers, or that will be integrated with the offer or sale of the Securities
for purposes of the rules and regulations of any Trading Market such that it
would require stockholder approval prior to the closing of such other
transaction unless stockholder approval is obtained before the closing of such
subsequent transaction.
     4.7 Securities Laws Disclosure; Publicity. By 9:00 a.m., New York City
time, on the Trading Day immediately following the execution of this Agreement,
the Company shall issue a press release (the “Press Release”) disclosing all
material terms of the transactions contemplated hereby. On or before 9:00 a.m.,
New York City time, on the Trading Day immediately following the execution of
this Agreement, the Company will file a Current Report on Form 8-K with the
Commission describing the terms of the Transaction Documents (and including as
exhibits to such Current Report on Form 8-K the material Transaction Documents
(including, without limitation, this Agreement, the Warrant and the Registration
Rights Agreement)). Notwithstanding the foregoing, the Company shall not
publicly disclose the name of any Purchaser or an Affiliate of any Purchaser, or
include the name of any Purchaser or an Affiliate of any Purchaser in any press
release or filing with the Commission (other than the Registration Statements)
or any regulatory agency or Trading Market, without the prior written consent of
such Purchaser, except (i) as required by federal securities law in connection
with (A) any registration statement contemplated by the Registration Rights
Agreement and (B) the filing of final Transaction Documents (including signature
pages thereto) with the Commission and (ii) to the extent such disclosure is
required by law, request of the Staff of the Commission or Trading Market
regulations, in which case the Company shall provide the Purchasers with prior
written notice of such disclosure permitted under this subclause (ii). From and
after the issuance

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of the Press Release, no Purchaser shall be in possession of any material,
non-public information received from the Company, any Subsidiary or any of their
respective officers, directors, employees or agents, that is not disclosed in
the Press Release unless a Purchaser shall have executed a written agreement
regarding the confidentiality and use of such information. Each Purchaser,
severally and not jointly with the other Purchasers, covenants that until such
time as the transactions contemplated by this Agreement are publicly disclosed
by the Company as described in this Section 4.6, such Purchaser will maintain
the confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction).
     4.8 Non-Public Information. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, and
except with the express written consent of such Purchaser and unless prior
thereto such Purchaser shall have executed a written agreement regarding the
confidentiality and use of such information the Company shall not, and shall
cause each Subsidiary and each of their respective officers, directors,
employees and agents, not to, and each Purchaser shall not directly solicit the
Company, any of its Subsidiaries or any of their respective officers, directors,
employees or agents to provide any Purchaser with any material, non-public
information regarding the Company or any of its Subsidiaries from and after the
filing of the Press Release.
     4.9 Indemnification.
          (a) Indemnification of Purchasers. In addition to the indemnity
provided in the Registration Rights Agreement applicable to such Purchaser, the
Company will indemnify and hold each Purchaser and its directors, officers,
stockholders, members, partners, employees and agents (and any other Persons
with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, stockholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling person (each, a
“Purchaser Party”) harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of (a) any breach of any of the representations, warranties, covenants or
agreements made by the Company in this Agreement or in the other Transaction
Documents; provided that such a claim for indemnification relating to any breach
of any of the representations or warranties made by the Company in this
Agreement is made within one year from Closing or (b) any action instituted
against a Purchaser, or any of them or their respective Affiliates, by any
stockholder of the Company who is not an Affiliate of such Purchaser, with
respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon any agreements or understandings such
Purchaser may have with any such stockholder or any violations by the Purchaser
of state or federal securities laws or any conduct by such Purchaser which
constitutes fraud, gross negligence, willful misconduct or malfeasance). The
Company will not be liable to any Purchaser Party under this Agreement to the
extent, but only to the extent that a loss, claim, damage or liability is
attributable to any Purchaser Party’s breach of any of the representations,
warranties, covenants or agreements made by such Purchaser Party in this
Agreement or in the other Transaction Documents.
          (b) Conduct of Indemnification Proceedings. Promptly after receipt by
any Person (the "Indemnified Person”) of notice of any demand, claim or
circumstances which would or might give rise to a claim or the commencement of
any action, proceeding or investigation in respect of which indemnity may be
sought pursuant to Section 4.8(a), such Indemnified Person shall promptly notify
the Company in writing and the Company shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Indemnified
Person, and shall assume the payment of all fees and expenses; provided,
however, that the failure of any Indemnified Person so to notify the Company
shall not relieve the Company

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of its obligations hereunder except to the extent that the Company is actually
and materially prejudiced by such failure to notify. In any such proceeding, any
Indemnified Person shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Person
unless: (i) the Company and the Indemnified Person shall have mutually agreed to
the retention of such counsel; (ii) the Company shall have failed promptly to
assume the defense of such proceeding and to employ counsel reasonably
satisfactory to such Indemnified Person in such proceeding; or (iii) in the
reasonable judgment of counsel to such Indemnified Person, representation of
both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. The Company shall not be liable for
any settlement of any proceeding effected without its written consent, which
consent shall not be unreasonably withheld, delayed or conditioned. Without the
prior written consent of the Indemnified Person, which consent shall not be
unreasonably withheld, delayed or conditioned, the Company shall not effect any
settlement of any pending or threatened proceeding in respect of which any
Indemnified Person is or could have been a party and indemnity could have been
sought hereunder by such Indemnified Party, unless such settlement includes an
unconditional release of such Indemnified Person from all liability arising out
of such proceeding.
     4.10 Listing of Shares and Warrant Shares. In the time and manner required
by the Principal Trading Market, the Company shall prepare and file with such
Trading Market an additional shares listing application covering all of the
Shares and Warrant Shares and shall use its commercially reasonable efforts to
take all steps necessary to cause the Shares and Warrant Shares to be approved
for listing on the Principal Trading Market as soon as possible thereafter.
     4.11 Use of Proceeds. The Company intends to use the net proceeds from the
sale of the Securities hereunder for working capital and general corporate
purposes.
     4.12 Dispositions After The Date Hereof. Each Purchaser shall not, and
shall cause its Trading Affiliates not to, prior to the effectiveness of the
Initial Registration Statement: (a) sell, offer to sell, solicit offers to buy,
dispose of, loan, pledge or grant any right with respect to (collectively, a
“Disposition") the Securities or the Warrant Shares unless pursuant to an
exemption from the registration requirements under the Securities Act; or
(b) engage in any hedging or other transaction which is designed or could
reasonably be expected to lead to or result in a Disposition of the Securities
or the Warrant Shares by such Purchaser or an Affiliate. In addition, prior to
the effectiveness of the Initial Registration Statement, Purchaser agrees that
it will not enter into any short sale of Shares executed at a time when the
Purchaser has no equivalent offsetting long position in the Common Stock. For
purposes of determining whether the Purchaser has an equivalent offsetting long
position in the Common Stock, shares that the Purchaser is entitled to receive
within sixty (60) calendar days (whether pursuant to contract or upon conversion
or exercise of convertible securities) will be included as if held long by the
Purchaser. Such Purchaser covenants that neither it nor any Person acting on its
behalf or pursuant to any understanding with it will engage in any transactions
in the Company’s securities (including, without limitation, any Short Sales
involving the Company’s securities) during the period from the date hereof until
the earlier of such time as (i) the transactions contemplated by this Agreement
are first publicly announced as described in Section 4.6 or (ii) this Agreement
is terminated in full pursuant to Section 6.17. Notwithstanding the foregoing,
in the case of a Purchaser that is a multi-managed investment vehicle whereby
separate portfolio managers manage separate portions of such Purchaser’s assets
and the portfolio managers have no direct knowledge of the investment decisions
made by the portfolio managers managing other portions of such Purchaser’s
assets, the representation set forth above shall apply only with respect to the
portion of assets managed by the portfolio manager that have knowledge about the
financing transaction contemplated by this Agreement. Each Purchaser understands
and acknowledges, severally and not jointly with any other Purchaser, that the
Commission currently takes the position that covering a short position
established prior to effectiveness of a resale registration statement with
shares included in such registration statement would be a violation of Section 5
of the Securities Act, as set

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forth in Item 65, Section 5 under Section A, of the Manual of Publicly Available
Telephone Interpretations, dated July 1997, compiled by the Office of Chief
Counsel, Division of Corporation Finance.
ARTICLE V.
CONDITIONS PRECEDENT TO CLOSING
     5.1 Conditions Precedent to the Obligations of the Purchasers to Purchase
Securities. The obligation of each Purchaser to acquire Securities at the
Closing is subject to the fulfillment to such Purchaser’s satisfaction, on or
prior to the Closing Date, of each of the following conditions, any of which may
be waived by such Purchaser (as to itself only):
          (a) Representations and Warranties. The representations and warranties
of the Company contained herein shall be true and correct in all material
respects (except for those representations and warranties which are qualified as
to materiality, in which case such representations and warranties shall be true
and correct in all respects) as of the date when made and as of the Closing
Date, as though made on and as of such date, except for such representations and
warranties that speak as of a specific date.
          (b) Performance. The Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by it at or prior to the Closing.
          (c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits the consummation of any of the transactions contemplated by the
Transaction Documents.
          (d) Consents. The Company shall have obtained in a timely fashion any
and all consents, permits, approvals, registrations and waivers necessary for
consummation of the purchase and sale of the Securities at the Closing
(including all Required Approvals), all of which shall be and remain so long as
necessary in full force and effect.
          (e) No Suspensions of Trading in Common Stock; Listing. The Common
Stock (i) shall be designated for quotation or listed on the Principal Trading
Market and (ii) shall not have been suspended, as of the Closing Date, by the
Commission or the Principal Trading Market from trading on the Principal Trading
Market nor shall suspension by the Commission or the Principal Trading Market
have been threatened, as of the Closing Date, either (A) in writing by the
Commission or the Principal Trading Market or (B) by falling below the minimum
listing maintenance requirements of the Principal Trading Market.
          (f) Company Deliverables. The Company shall have delivered the Company
Deliverables in accordance with Section 2.2(a).
          (g) Compliance Certificate. The Company shall have delivered to each
Purchaser a certificate, dated as of the Closing Date and signed by its Chief
Executive Officer or its Chief Financial Officer, dated as of the Closing Date,
certifying to the fulfillment of the conditions specified in Sections 5.1(a) and
(b) in the form attached hereto as Exhibit G.
          (h) Termination. This Agreement shall not have been terminated as to
such Purchaser in accordance with Section 6.17 herein.

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     5.2 Conditions Precedent to the Obligations of the Company to sell
Securities. The Company’s obligation to sell and issue the Securities at the
Closing is subject to the fulfillment to the satisfaction of the Company on or
prior to the Closing Date of the following conditions, any of which may be
waived by the Company:
          (a) Representations and Warranties. The representations and warranties
made by the Purchaser in Section 3.2 hereof shall be true and correct in all
material respects as of the date when made, and as of the Closing Date as though
made on and as of such date, except for representations and warranties that
speak as of a specific date.
          (b) Performance. Such Purchaser shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by such Purchaser at or prior to the Closing Date.
          (c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits the consummation of any of the transactions contemplated by the
Transaction Documents.
          (d) Consents. The Company shall have obtained in a timely fashion any
and all consents, permits, approvals, registrations and waivers necessary for
consummation of the purchase and sale of the Securities, all of which shall be
and remain so long as necessary in full force and effect.
          (e) Purchasers Deliverables. Such Purchaser shall have delivered its
Purchaser Deliverables in accordance with Section 2.2(b).
          (f) Termination. This Agreement shall not have been terminated as to
such Purchaser in accordance with Section 6.17 herein.
ARTICLE VI.
MISCELLANEOUS
     6.1 Fees and Expenses. The Company and the Purchasers shall each pay the
fees and expenses of their respective advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party in connection
with the negotiation, preparation, execution, delivery and performance of this
Agreement. The Company shall pay all Transfer Agent fees, stamp taxes and other
taxes and duties levied in connection with the sale and issuance of the
Securities to the Purchasers.
     6.2 Entire Agreement. The Transaction Documents, together with the Exhibits
and Schedules thereto, contain the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements,
understandings, discussions and representations, oral or written, with respect
to such matters, which the parties acknowledge have been merged into such
documents, exhibits and schedules. At or after the Closing, and without further
consideration, the Company and the Purchasers will execute and deliver to the
other such further documents as may be reasonably requested in order to give
practical effect to the intention of the parties under the Transaction
Documents.
     6.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile (provided the sender
receives a machine-generated confirmation of successful transmission) at the
facsimile number specified in this

25

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Section prior to 5:00 p.m., New York City time, on a Trading Day, (b) the next
Trading Day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile number specified in this Section on a
day that is not a Trading Day or later than 5:00 p.m., New York City time, on
any Trading Day, (c) the Trading Day following the date of mailing, if sent by
U.S. nationally recognized overnight courier service with next day delivery
specified, or (d) upon actual receipt by the party to whom such notice is
required to be given. The address for such notices and communications shall be
as follows:

         
 
  If to the Company:   Ardea Biosciences, Inc.
 
      4939 Directors Place
 
      San Diego, CA 92121
 
      Telephone No.: (858) 652-6500
 
      Facsimile No.: (858) 625-0745
 
      Attention: Barry D. Quart, Pharm.D
 
      E-mail: bquart@ardeabio.com
 
       
 
  With a copy to:   Cooley Godward Kronish LLP
 
      4401 Eastgate Mall
 
      San Diego, CA 92121-1909
 
      Telephone No.: (858) 550-6067
 
      Facsimile No.: (858) 550-6420
 
      Attention: Ethan Christensen
 
      E-mail: echristensen@cooley.com
 
       
 
  If to a Purchaser:   To the address set forth under such Purchaser’s name on
the signature page hereof;

or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
     6.4 Amendments; Waivers; No Additional Consideration. No provision of this
Agreement may be waived or amended except in a written instrument signed, in the
case of an amendment, by the Company and each of the Purchasers holding or
having the right to acquire a majority of the Shares and the Warrant Shares on a
fully diluted basis at the time of such amendment or, in the case of a waiver,
by the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right. No
consideration shall be offered or paid to any Purchaser to amend or consent to a
waiver or modification of any provision of any Transaction Document unless the
same consideration is also offered to all Purchasers who then hold Shares or
Warrant Shares.
     6.5 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party. This Agreement
shall be construed as if drafted jointly by the parties, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement or any of the Transaction
Documents.
     6.6 Successors and Assigns. The provisions of this Agreement shall inure to
the benefit of and be binding upon the parties and their successors and
permitted assigns. This Agreement, or any rights or obligations hereunder, may
not be assigned by the Company without the prior written consent of the
Purchasers. Any Purchaser may assign its rights hereunder in whole or in part to
any Person to whom such

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Purchaser assigns or transfers any Securities or Warrant Shares in compliance
with the Transaction Documents and applicable law, provided such transferee
shall agree in writing to be bound, with respect to the transferred Securities
or Warrant Shares, by the terms and conditions of this Agreement that apply to
the “Purchasers”.
     6.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
     6.8 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party
agrees that all Proceedings concerning the interpretations, enforcement and
defense of the transactions contemplated by this Agreement and any other
Transaction Documents (whether brought against a party hereto or its respective
Affiliates, employees or agents) shall be commenced exclusively in the New York
Courts. Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any Proceeding, any claim that it is not personally subject to the
jurisdiction of any such New York Court, or that such Proceeding has been
commenced in an improper or inconvenient forum. Each party hereto hereby
irrevocably waives personal service of process and consents to process being
served in any such Proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HERETO HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
     6.9 Survival. Subject to applicable statute of limitations, the
representations, warranties, agreements and covenants contained herein shall
survive the Closing and the delivery of the Securities, except that the
representations and warranties contained herein shall terminate upon the one
year anniversary of the Closing Date.
     6.10 Execution. This Agreement may be executed in two or more counterparts,
all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission, or by e-mail delivery of a “.pdf” format data file, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) with the same force and effect as if
such facsimile signature page were an original thereof.
     6.11 Severability. If any provision of this Agreement is held to be invalid
or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
     6.12 Replacement of Securities. If any certificate or instrument evidencing
any Securities or Warrant Shares is mutilated, lost, stolen or destroyed, the
Company shall issue or cause to be issued in

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exchange and substitution for and upon cancellation thereof, or in lieu of and
substitution therefor, a new certificate or instrument, but only upon receipt of
evidence reasonably satisfactory to the Company and the Transfer Agent of such
loss, theft or destruction and the execution by the holder thereof of a
customary lost certificate affidavit of that fact and an agreement to indemnify
and hold harmless the Company and the Transfer Agent for any losses in
connection therewith or, if required by the Transfer Agent, a bond in such form
and amount as is required by the Transfer Agent. The applicants for a new
certificate or instrument under such circumstances shall also pay any reasonable
third-party costs associated with the issuance of such replacement Shares or
Warrant Shares. If a replacement certificate or instrument evidencing any
Securities or Warrant Shares is requested due to a mutilation thereof, the
Company may require delivery of such mutilated certificate or instrument as a
condition precedent to any issuance of a replacement.
     6.13 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agree to waive in any
action for specific performance of any such obligation (other than in connection
with any action for a temporary restraining order) the defense that a remedy at
law would be adequate.
     6.14 Payment Set Aside. To the extent that the Company makes a payment or
payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
     6.15 Adjustments in Share Numbers and Prices. In the event of any stock
split, subdivision, dividend or distribution payable in shares of Common Stock
(or other securities or rights convertible into, or entitling the holder thereof
to receive directly or indirectly shares of Common Stock), combination or other
similar recapitalization or event occurring after the date hereof and prior to
the Closing, each reference in any Transaction Document to a number of shares or
a price per share shall be deemed to be amended to appropriately account for
such event.
     6.16 Independent Nature of Purchasers’ Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. The decision of each Purchaser to
purchase Securities pursuant to the Transaction Documents has been made by such
Purchaser independently of any other Purchaser and independently of any
information, materials, statements or opinions as to the business, affairs,
operations, assets, properties, liabilities, results of operations, condition
(financial or otherwise) or prospects of the Company or any Subsidiary which may
have been made or given by any other Purchaser or by any agent or employee of
any other Purchaser, and no Purchaser and any of its agents or employees shall
have any liability to any other Purchaser (or any other Person) relating to or
arising from any such information, materials, statement or opinions. Nothing
contained herein or in any Transaction Document, and no action taken by any
Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Purchaser acknowledges that no other Purchaser has
acted as agent for such

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Purchaser in connection with making its investment hereunder and that no
Purchaser will be acting as agent of such Purchaser in connection with
monitoring its investment in the Securities or enforcing its rights under the
Transaction Documents. Each Purchaser shall be entitled to independently protect
and enforce its rights, including without limitation the rights arising out of
this Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose. The Company acknowledges that each of the
Purchasers has been provided with the same Transaction Documents for the purpose
of closing a transaction with multiple Purchasers and not because it was
required or requested to do so by any Purchaser. The Company’s obligations to
each Purchaser under this Agreement are identical to its obligations to each
other Purchaser other than such differences resulting solely from the number of
Securities purchased by such Purchaser, but regardless of whether such
obligations are memorialized herein or in another agreement between the Company
and a Purchaser.
     6.17 Termination. This Agreement may be terminated and the sale and
purchase of the Securities abandoned at any time prior to the Closing by either
the Company or any Purchaser (with respect to itself only) upon written notice
to the other, if the Closing has not been consummated on or prior to 5:00 p.m.,
New York City time, on the Outside Date; provided, however, that the right to
terminate this Agreement under this Section 6.17 shall not be available to any
Person whose failure to comply with its obligations under this Agreement has
been the cause of or resulted in the failure of the Closing to occur on or
before such time. Nothing in this Section 6.17 shall be deemed to release any
party from any liability for any breach by such party of the terms and
provisions of this Agreement or the other Transaction Documents or to impair the
right of any party to compel specific performance by any other party of its
obligations under this Agreement or the other Transaction Documents. In the
event of a termination pursuant to this Section, the Company shall promptly
notify all non-terminating Purchasers. Upon a termination in accordance with
this Section, the Company and the terminating Purchaser(s) shall not have any
further obligation or liability (including arising from such termination) to the
other, and no Purchaser will have any liability to any other Purchaser under the
Transaction Documents as a result therefrom.
     6.18 Waiver of Conflicts. Each party to this Agreement acknowledges that
Company Counsel, outside general counsel to the Company, has in the past
performed and is or may now or in the future represent one or more Purchasers or
their affiliates in matters unrelated to the transactions contemplated by the
Transaction Documents, including representation of such Purchasers or their
affiliates in matters of a similar nature to the transactions contemplated by
the Transaction Documents. The applicable rules of professional conduct require
that Company Counsel inform the parties hereunder of this representation and
obtain their consent. Company Counsel has served as outside general counsel to
the Company and has negotiated the terms of the transactions contemplated by the
Transaction Documents solely on behalf of the Company. The Company and each
Purchaser hereby (a) acknowledge that they have had an opportunity to ask for
and have obtained information relevant to such representation, including
disclosure of the reasonably foreseeable adverse consequences of such
representation; (b) acknowledge that with respect to the transactions
contemplated by the Transaction Documents, Company Counsel has represented
solely the Company, and not any Purchaser or any stockholder, director or
employee of the Company or any Purchaser; and (c) gives its informed consent to
Company Counsel’s representation of the Company in the transactions contemplated
by the Transaction Documents.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
[COMPANY SIGNATURE PAGE FOLLOWS]

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

            ARDEA BIOSCIENCES, INC.
      By:           Name:           Title:        

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGES FOR PURCHASERS FOLLOW]

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  NAME OF PURCHASER:
                                                            

             
 
  By:        
 
  Name:  
 
   
 
  Title:        

     
 
  Aggregate Purchase Price (Subscription Amount): $                    
 
   
 
  Number of Shares to be Acquired:                                         
 
   
 
  Warrants to be Acquired:                                         
 
   
 
  Tax ID No.:                                         
 
   
 
  Address for Notice:
 
   
 
                                                              
 
                                                              
 
                                                              
 
   
 
  Telephone No.:                                         
 
   
 
  Facsimile No.:                                         
 
   
 
  E-mail Address:                                         
 
   
 
  Attention:                                         

Delivery Instructions:
(if different than above)
c/o                                                          
Street:                                                     
City/State/Zip:                                        
Attention:                                                
Telephone No.:                                                             
[PURCHASER SIGNATURE PAGE – SECURITIES PURCHASE AGREEMENT]

 

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EXHIBITS:

     
A:
  Form of Warrant
 
   
B:
  Form of Registration Rights Agreement
 
   
C-1:
  Accredited Investor Questionnaire
 
   
C-2:
  Stock Certificate Questionnaire
 
   
D:
  Form of Opinion of Company Counsel
 
   
E:
  Irrevocable Transfer Agent Instructions
 
   
F:
  Form of Secretary’s Certificate
 
   
G:
  Form of Officer’s Certificate
 
   
H:
  Wire Instructions

 

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EXHIBIT A

Form of Warrant

 

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EXHIBIT B

Form of Registration Rights Agreement

 

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Instruction Sheet
(to be read in conjunction with the entire Securities Purchase Agreement and
Registration Rights Agreement applicable to Purchaser)
A. Complete the following items in the Securities Purchase Agreement and
Registration Rights Agreement applicable to Purchaser:

  1.   Provide the information regarding the Purchaser requested on the
signature page. The Securities Purchase Agreement and the Registration Rights
Agreement applicable to Purchaser must be executed by an individual authorized
to bind the Purchaser.     2.   Exhibit C-1 – Accredited Investor Questionnaire:
        Provide the information requested by the Accredited Investor
Questionnaire     3.   Exhibit C-2 Stock Certificate Questionnaire:        
Provide the information requested by the Stock Certificate Questionnaire     4.
  Annex B to the Registration Rights Agreement applicable to Purchaser — Selling
Securityholder Notice and Questionnaire         Provide the information
requested by the Selling Securityholder Notice and Questionnaire     5.   Return
the signed Securities Purchase Agreement and Registration Rights Agreement
applicable to Purchaser to:

Ethan E. Christensen
Cooley Godward Kronish LLP
4401 Eastgate Mall
San Diego, California 92121
Tel: (858) 550-6076
Fax: (858) 550-6420
Email: echristensen@cooley.com

B.   Instructions regarding the transfer of funds for the purchase of Shares are
set forth on Exhibit H to the Securities Purchase Agreement.

 

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EXHIBIT C-1
ACCREDITED INVESTOR QUESTIONNAIRE
(ALL INFORMATION WILL BE TREATED CONFIDENTIALLY)
To:      Ardea Biosciences, Inc.
This Investor Questionnaire (“Questionnaire”) must be completed by each
potential investor in connection with the offer and sale of the shares of the
common stock, par value $0.001 per share (the “Securities”), of Ardea
Biosciences, Inc., a Delaware corporation (the “Corporation”). The Securities
are being offered and sold by the Corporation without registration under the
Securities Act of 1933, as amended (the “Act”), and the securities laws of
certain states, in reliance on the exemptions contained in Section 4(2) of the
Act and on Regulation D promulgated thereunder and in reliance on similar
exemptions under applicable state laws. The Corporation must determine that a
potential investor meets certain suitability requirements before offering or
selling Securities to such investor. The purpose of this Questionnaire is to
assure the Corporation that each investor will meet the applicable suitability
requirements. The information supplied by you will be used in determining
whether you meet such criteria, and reliance upon the private offering
exemptions from registration is based in part on the information herein
supplied.
This Questionnaire does not constitute an offer to sell or a solicitation of an
offer to buy any security. Your answers will be kept strictly confidential.
However, by signing this Questionnaire, you will be authorizing the Corporation
to provide a completed copy of this Questionnaire to such parties as the
Corporation deems appropriate in order to ensure that the offer and sale of the
Securities will not result in a violation of the Act or the securities laws of
any state and that you otherwise satisfy the suitability standards applicable to
purchasers of the Securities. All potential investors must answer all applicable
questions and complete, date and sign this Questionnaire. Please print or type
your responses and attach additional sheets of paper if necessary to complete
your answers to any item.
PART A. BACKGROUND INFORMATION
Name of Beneficial Owner of the Securities:
                                                                           
                                                                             
Business Address:
                                                                             
               
                                                                               
                     
                                                            (Number and Street)
 
(City)                                        (State)
                                                             (Zip Code)
Telephone Number: (                       )
                                                                    
                                                                             
If a corporation, partnership, limited liability company, trust or other entity:
Type of entity:                               
                                                                                
                                                                
State of formation:                                          Approximate Date of
formation:                                                              
          
Set forth in the space provided below the (i) state(s), if any, in the United
States in which you maintained your principal office during the past two years
and the dates during which you maintained your office in each state, and
(ii) state(s), if any, in which you pay income taxes:

 

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Were you formed for the purpose of investing in the securities being offered?
               Yes                                 No                     
If an individual:

         
Residence Address:
             
 
  (Number and Street)    

            (City)   (State)   (Zip Code)

     
Telephone Number: (___)
   
 
   

         
Age:                     
  Citizenship:                        Where registered to vote:
                    

Set forth in the space provided below the state(s), if any, in the United States
in which you maintained your residence during the past two years and the dates
during which you resided in each state:
Are you a director or executive officer of the Corporation?
               Yes                                 No                     

     
Social Security or Taxpayer Identification No.
   
 
   

PART B. ACCREDITED INVESTOR QUESTIONNAIRE
     In order for the Company to offer and sell the Securities in conformance
with state and federal securities laws, the following information must be
obtained regarding your investor status. Please initial each category applicable
to you as a Purchaser of Securities of the Company.

                 
 
  ___     (1 )   A bank as defined in Section 3(a)(2) of the Securities Act, or
any savings and loan association or other institution as defined in Section
3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary
capacity;
 
               
 
  ___     (2 )   A broker or dealer registered pursuant to Section 15 of the
Securities Exchange Act of 1934;
 
               
 
  ___     (3 )   An insurance company as defined in Section 2(13) of the
Securities Act;
 
               
 
  ___     (4 )   An investment company registered under the Investment Company
Act of 1940 or a business development company as defined in Section 2(a)(48) of
that Act;
 
               
 
  ___     (5 )   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;

 

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  ___     (6 )   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, if such plan has total assets in
excess of $5,000,000;
 
               
 
  ___     (7 )   An employee benefit plan within the meaning of the Employee
Retirement Income Security Act of 1974, if the investment decision is made by a
plan fiduciary, as defined in Section 3(21) of such act, which is either a bank,
savings and loan association, insurance company, or registered investment
adviser, or if the employee benefit plan has total assets in excess of
$5,000,000 or, if a self-directed plan, with investment decisions made solely by
persons that are accredited investors;
 
               
 
  ___     (8 )   A private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;
 
               
 
  ___     (9 )   An organization described in Section 501(c)(3) of the Internal
Revenue Code, a corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring the Securities,
with total assets in excess of $5,000,000;
 
               
 
  ___     (10 )   A trust, with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring the Securities, whose purchase is directed
by a sophisticated person who has such knowledge and experience in financial and
business matters that such person is capable of evaluating the merits and risks
of investing in the Company;
 
               
 
  ___     (11 )   A natural person whose individual net worth, or joint net
worth with that person’s spouse, at the time of his purchase exceeds $1,000,000;
 
               
 
  ___     (12 )   A natural person who had an individual income in excess of
$200,000 in each of the two most recent years, or joint income with that
person’s spouse in excess of $300,000, in each of those years, and has a
reasonable expectation of reaching the same income level in the current year;
 
               
 
  ___     (13 )   An executive officer or director of the Company;
 
               
 
  ___     (14 )   An entity in which all of the equity owners qualify under any
of the above subparagraphs. If the undersigned belongs to this investor category
only, list the equity owners of the undersigned, and the investor category which
each such equity owner satisfies.

                              A.   FOR EXECUTION BY AN INDIVIDUAL:        
 
                           
 
              By                                  
 
  Date                        
 
              Print   Name:        
 
                     
 
   
 
                            B.   FOR EXECUTION BY AN ENTITY:                    
  Entity Name:

   
 
                     
 
   
 
              By                                  
 
  Date                        
 
              Print   Name:        
 
              Title:      
 
   
 
                     
 
   

 

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                                  C.   ADDITIONAL SIGNATURES (if required by
partnership, corporation or trust document):
 
                                              Entity Name:

       
 
                     
 
       
 
              By                                          
 
  Date                            
 
              Print   Name:            
 
              Title:      
 
       
 
                     
 
       
 
                                              Entity Name:

       
 
                     
 
       
 
              By                                          
 
  Date                            
 
              Print   Name:            
 
              Title:      
 
       
 
                     
 
       

 

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EXHIBIT C-2
Stock Certificate Questionnaire
          Pursuant to Section 2.2(b) of the Agreement, please provide us with
the following information:

         
1.
  The exact name that the Shares are to be registered in (this is the name that
will appear on the stock certificate(s)). You may use a nominee name if
appropriate:    
 
       
 
       
2.
  The relationship between the Purchaser of the Shares and the Registered Holder
listed in response to Item 1 above:    
 
       
 
       
3.
  The mailing address, telephone and telecopy number of the Registered Holder
listed in response to Item 1 above:    
 
       
 
       
 
       
 
       
 
       
 
       
 
       
 
       
 
       
4.
  The Tax Identification Number (or, if an individual, the Social Security
Number) of the Registered Holder listed in response to Item 1 above:    
 
       

 

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EXHIBIT D
Form of Opinion of Company Counsel
1. The Company has been duly incorporated and is a validly existing corporation
in good standing under the laws of the State of Delaware.
2. The Company has the requisite corporate power to own its property and assets
and to conduct its business as it is currently being conducted.
3. The Company is duly qualified to do business as a foreign corporation and is
in good standing under the laws of the State of California.
4. The Company has the requisite corporate power to execute, deliver and perform
its obligations under the Financing Agreements, including, without limitation,
to issue, sell and deliver the Shares and Warrants under the Purchase Agreement.
5. Each of the Financing Agreements has been duly and validly authorized,
executed and delivered by the Company and each such agreement constitutes a
valid and binding agreement of the Company enforceable against the Company in
accordance with its terms.
6. The Company’s authorized capital stock consists of 70,000,000 shares of
Common Stock, par value $0.001 per share, and 5,000,000 shares of Preferred
Stock, par value $0.001 per share. The Shares have been duly authorized, and
upon issuance and delivery against payment therefor in accordance with the terms
of the Purchase Agreement, the Shares will be validly issued, outstanding, fully
paid and nonassessable, and free of any preemptive right or similar rights
contained in the Company’s Certificate of Incorporation or Bylaws or any
Material Agreement. The Warrants Shares have been duly authorized, and upon
issuance and delivery upon exercise of the Warrants in accordance with the terms
of the Warrants, the Warrant Shares will be validly issued, outstanding, fully
paid and nonassessable, and free of any preemptive right or similar rights
contained in the Company’s Certificate of Incorporation or Bylaws or any
Material Agreement.
7. The execution and delivery of the Financing Agreements by the Company and the
issuance of the Shares and Warrants pursuant thereto do not violate any
provision of the Company’s Certificate of Incorporation or Bylaws, do not
constitute a default under or a material breach of any Material Agreement, and
do not violate (a) any governmental statute, rule or regulation which in our
experience is typically applicable to transactions of the nature contemplated by
the Financing Agreements or (b) any order, writ, judgment, injunction, decree,
determination or award which has been entered against the Company and of which
we are aware, in each case to the extent the violation of which would materially
and adversely affect the Company and its subsidiaries, taken as a whole.

 

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8. To our knowledge, there is no action, proceeding or investigation pending or
overtly threatened against the Company before any court or administrative agency
that questions the validity or enforceability of the Financing Agreements, or
seeks to enjoin the performance of the Financing Agreements or that could
reasonably be expected to result, either individually or in the aggregate, in a
Material Adverse Effect on the Company and its subsidiaries, taken as a whole.
9. All consents, approvals, authorizations, or orders of, and filings,
registrations, and qualifications with any U.S. Federal or California regulatory
authority or governmental body or the under the DGCL required for the issuance
of the Shares and Warrants, have been made or obtained, except (a) for the
filing of a Form D pursuant to Securities and Exchange Commission Regulation D,
and (b) for the filing of the notice to be filed under California Corporations
Code Section 25102.1(d).
10. The offer and sale of the Shares and Warrants are exempt from the
registration requirements of the Securities Act of 1933, as amended, subject to
the timely filing of a Form D pursuant to Securities and Exchange Commission
Regulation D.
11. To our knowledge, there are no written contracts, agreements or
understandings between the Company and any person granting such person the right
(other than rights which have been waived in writing or otherwise satisfied) to
require the Company to include any securities of the Company in any registration
statement contemplated by Section 2 of the Registration Rights Agreement.

 

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EXHIBIT E
Form of Irrevocable Transfer Agent Instructions
As of                     , ____
Computershare Trust Company N.A.
[Address]
[Address]
Attn:                                         
Ladies and Gentlemen:
     Reference is made to that certain Securities Purchase Agreement, dated as
of                      ___, 2008 (the “Agreement”), by and among Ardea
Biosciences, Inc., a Delaware corporation (the “Company”), and the purchasers
named on the signature pages thereto (collectively, and including permitted
transferees, the “Holders”), pursuant to which the Company is issuing to the
Holders shares (the “Shares”) of Common Stock of the Company, par value $0.001
per share (the “Common Stock”).
     This letter shall serve as our irrevocable authorization and direction to
you (provided that you are the transfer agent of the Company at such time and
the conditions set forth in this letter are satisfied), subject to any stop
transfer instructions that we may issue to you from time to time, if any, to
issue certificates representing shares of Common Stock upon transfer or resale
of the Shares.
     You acknowledge and agree that so long as you have received (a) written
confirmation from the Company that either (1) a registration statement covering
resales of the Shares has been declared effective by the Securities and Exchange
Commission (the “Commission”) under the Securities Act of 1933, as amended (the
“Securities Act”), or (2) the Shares have been sold in conformity with Rule 144
under the Securities Act (“Rule 144”) or are eligible for sale under Rule 144
following the expiration of the one-year holding requirement under subparagraphs
(b)(1)(i) and (d) thereof (if the transferor is not an affiliate) and (b) if
applicable, a copy of such registration statement, then, unless otherwise
required by law, within three (3) business days of your receipt of a notice of
transfer, you shall issue the certificates representing the Shares registered in
the names of such Holders or transferees, as the case may be, and such
certificates shall not bear any legend restricting transfer of the Shares
thereby and should not be subject to any stop-transfer restriction; provided,
however, that if such Shares are not registered for resale under the Securities
Act or able to be sold under Rule 144, then the certificates for such Shares
shall bear the following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED EXCEPT AS PROVIDED BY SECTION 4 OF THAT CERTAIN SECURITIES
PURCHASE AGREEMENT, DATED AS OF                      __, 2008, BY AND AMONG
ARDEA
BIOSCIENCES, INC. AND EACH PURCHASER IDENTIFIED ON THE SIGNATURE PAGES
THERETO.
     A form of written confirmation from the Company’s outside legal counsel
that a registration statement covering resales of the Shares has been declared
effective by the Commission under the Securities Act is attached hereto as Annex
I.
     Please be advised that the Holders are relying upon this letter as an
inducement to enter into the Agreement and, accordingly, each Holder is a
third-party beneficiary to these instructions.

 

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     Please execute this letter in the space indicated to acknowledge your
agreement to act in accordance with these instructions.

                  Very truly yours,    
 
                ARDEA BIOSCIENCES, INC.    
 
           
 
  By:        
 
           
 
  Name:        
 
           
 
  Title:        
 
     
 
   

Acknowledged and Agreed:
COMPUTERSHARE TRUST COMPANY N.A.

         
By:
       
 
       
Name:
       
 
       
Title:
       
 
 
 
   
 
       
Date:
                                               ,              

 

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Annex I
FORM OF NOTICE OF EFFECTIVENESS OF REGISTRATION STATEMENT
Computershare Trust Company N.A.
[Address]
[Address]
Attn:                                                             

         
 
  Re:   Ardea Biosciences, Inc.

Ladies and Gentlemen:
     Reference is made to that certain Securities Purchase Agreement, dated as
of                      ___, 2008, entered into by and among Ardea Biosciences,
Inc. (the “Company”) and the buyers named therein (collectively, the
“Purchasers”) pursuant to which the Company issued to the Purchasers shares of
the Company’s common stock, $0.001 par value per share (the “Common Stock”).
Pursuant to that certain Registration Rights Agreement of even date, the Company
agreed to register the resale of the Common Stock (the “Registrable
Securities”), under the Securities Act of 1933, as amended (the “Securities
Act”). In connection with the Company’s obligations under the Registration
Rights Agreement, on                                         ,
                    , the Company filed a Registration Statement on Form [S-3]
(File No. 333-                                        ) (the “Registration
Statement”) with the Securities and Exchange Commission (the “Commission”)
relating to the Registrable Securities which names each of the Purchasers as a
selling stockholder thereunder.
     In connection with the foregoing, we advise you that a member of the
Commission’s staff has advised us by telephone that the Commission has entered
an order declaring the Registration Statement effective under the Securities Act
at ___[a.m.][p.m.] on                     , ___.

                  Very truly yours,    
 
                Ardea Biosciences, Inc.    
 
           
 
  By:        
 
     
 
   

CC:   Purchasers

 

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EXHIBIT F
Form of Secretary’s Certificate
The undersigned hereby certifies that he is the duly elected, qualified and
acting Secretary of Ardea Biosciences, Inc., a Delaware corporation (the
“Company”), and that as such he is authorized to execute and deliver this
certificate in the name and on behalf of the Company and in connection with the
Securities Purchase Agreement, dated as of ___, 2008, by and among the Company
and the investors party thereto (the “Securities Purchase Agreement”), and
further certifies in his official capacity, in the name and on behalf of the
Company, the items set forth below. Capitalized terms used but not otherwise
defined herein shall have the meaning set forth in the Securities Purchase
Agreement.

1.   Attached hereto as Exhibit A is a true, correct and complete copy of the
resolutions duly adopted by the Board of Directors of the Company or the Pricing
Committee of the Board of Directors of the Company, as applicable, at meetings
held on ___, 2008. Such resolutions have not in any way been amended, modified,
revoked or rescinded, have been in full force and effect since their adoption to
and including the date hereof and are now in full force and effect.   2.  
Attached hereto as Exhibit B is a true, correct and complete copy of the
Certificate of Incorporation of the Company, together with any and all
amendments thereto currently in effect, and no action has been taken to further
amend, modify or repeal such Certificate of Incorporation, the same being in
full force and effect in the attached form as of the date hereof.   3.  
Attached hereto as Exhibit C is a true, correct and complete copy of the Bylaws
of the Company and any and all amendments thereto currently in effect, and no
action has been taken to further amend, modify or repeal such Bylaws, the same
being in full force and effect in the attached form as of the date hereof.   4.
  Each person listed below has been duly elected or appointed to the position(s)
indicated opposite his name and is duly authorized to sign the Securities
Purchase Agreement and each of the Transaction Documents on behalf of the
Company, and the signature appearing opposite such person’s name below is such
person’s genuine signature.

              Name   Position   Signature    
 
           
Barry D. Quart, Pharm.D
  President and Chief Executive Officer        
 
           
 
           
Christopher W. Krueger, J.D. 
  Secretary   
 
   

IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of this ___ day
of                     , 2008.

         
 
 
 
Secretary     

 

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I, Barry D. Quart, Pharm.D, President and Chief Executive Officer, hereby
certify that Christopher W. Krueger, J.D. is the duly elected, qualified and
acting Secretary of the Company and that the signature set forth above is his
true signature.

         
 
 
 
Barry D. Quart, Pharm.D    
 
  President and Chief Executive Officer    

 

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EXHIBIT A
Resolutions

 

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EXHIBIT B
Certificate of Incorporation

 

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EXHIBIT C
Bylaws

 

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EXHIBIT G
Form of Officer’s Certificate
The undersigned, the President and Chief Executive Officer of Ardea Biosciences,
Inc., a Delaware corporation (the “Company”), pursuant to Section 5.1(g) of the
Securities Purchase Agreement, dated as of                      ___, 2008, by
and among the Company and the investors signatory thereto (the "Securities
Purchase Agreement”), hereby represents, warrants and certifies as follows
(capitalized terms used but not otherwise defined herein shall have the meaning
set forth in the Securities Purchase Agreement):

  1.   The representations and warranties of the Company contained in the
Securities Purchase Agreement are true and correct in all material respects as
of the date when made and as of the Closing Date, as though made on and as of
such date, except for such representations and warranties that speak as of a
specific date.     2.   The Company has performed, satisfied and complied in all
material respects with all covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by it at or
prior to the Closing.

IN WITNESS WHEREOF, the undersigned has executed this certificate this ___day of
                    , 2008.

         
 
 
 
Barry D. Quart, Pharm.D    
 
  President and Chief Executive Officer    

 

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EXHIBIT H
Wire Instructions