Exhibit 10.23

 

EXCHANGE AGREEMENT

 

EXCHANGE AGREEMENT (this “Agreement”), dated as of November 23, 2005, by and
among Aphton Corporation, a Delaware corporation (the “Company”), and the
investors listed on Schedule A attached hereto (individually, an “Investor” and
collectively, the “Investors”).

 

WHEREAS:

 

A. The Company and each Investor 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 “1933 Act”), and
Rule 506 of Regulation D (“Regulation D”) as promulgated by the United States
Securities and Exchange Commission (the “SEC”) under the 1933 Act.

 

B. Each Investor is the holder of one or more Senior Convertible Notes (each a
“Note” and, collectively, the “Notes”), issued by the Company pursuant to that
certain Securities Purchase Agreement (the “Securities Purchase Agreement”),
dated as of March 31, 2003, among the Company and the Investors.

 

C. The Investors desire to surrender the Notes to the Company for cancellation
in exchange for (i) the payment by the Company to the Investors of an aggregate
of $3,000,000, (ii) the issuance by the Company to the Investors of an aggregate
of (A) 10,000 shares (the “Preferred Shares”) of the Company’s newly designated
Series A-1 Convertible Preferred Stock (“Series A-1 Preferred Stock”) having an
aggregate stated value of $10,000,000 and (B) 5,000,000 shares (the “Initial
Common Shares”) of the Company’s common stock (“Common Stock”) and (iii) the
issuance by the Company to (a) each of Heartland Value Fund (“Heartland”) and
Horizon Waves & Co. (“Horizon”) of 375,000 shares of Common Stock to be
deposited with U.S. Bank National Association (“U.S. Bank”) and held in escrow
subject to the terms of an Escrow Agreement, substantially in the form attached
hereto as Exhibit “A” (the “US Bank Escrow Agreement”) and (b) SF Capital
Partners Ltd. (“SF Capital”) of 750,000 shares of Common Stock to be deposited
with Bryan Cave LLP (“Bryan Cave” and with U.S. Bank collectively, the “Escrow
Agents”)) and held in escrow subject to the terms of an Escrow Agreement,
substantially in the form attached hereto as Exhibit “B” (the “SF Escrow
Agreement” and together with the U.S. Bank Escrow Agreement the “Escrow
Agreements”), for an aggregate of 1,500,000 shares of Common Stock to be held in
escrow (the “Escrow Common Shares”). The shares of Common Stock issuable upon
conversion of the Preferred Shares are referred to herein as the “Conversion
Shares.” The Preferred Shares, the Initial Common Shares and the Escrow Common
Shares are collectively referred to herein as the “Closing Shares” and, together
with the Conversion Shares, the “Securities”. The Initial Common Shares, the
Escrow Common Shares and the Conversion Shares are collectively referred to as
the “Common Shares”.

 

D. The rights and preferences of the Series A-1 Preferred Stock shall be as set
forth in a Certificate of Designation, substantially in the form attached hereto
as Exhibit “C” (the “Designation”).

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E. 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 “D” (the “Registration
Rights Agreement”), pursuant to which the Company has agreed to provide certain
registration rights with respect to the Common Shares.

 

NOW, THEREFORE, the Company and each Investor hereby agree as follows:

 

1. EXCHANGE OF NOTES; CLOSING

 

(a) Exchange.

 

(i) At the Closing, each Investor shall surrender and deliver each Note held by
such Investor to the Company for cancellation by the Company. Effective as of
the Closing, the Notes shall be forever cancelled and of no further force or
effect.

 

(ii) At the Closing, the Company shall:

 

(A) deliver to each Investor, by wire transfer of immediately available funds to
the account designated by such Investor, cash in the amount set forth with
respect to such Investor on Schedule A hereto;

 

(B) issue and deliver to each Investor the number of Preferred Shares and
Initial Common Shares set forth with respect to such Investor on Schedule A
hereto; and

 

(C) issue to each Investor the number of Escrow Common Shares set forth with
respect to such Investor on Schedule A hereto, and deposit such Escrow Common
Shares with US Bank and Bryan Cave, as the case may be, to be held in escrow
subject to the terms of the US Bank Escrow Agreement and the SF Escrow
Agreement, respectively.

 

(b) Closing. Closing shall occur at the offices of the Company on the date
hereof (the “Closing Date”), contemporaneously with the execution and delivery
of this Agreement.

 

2. INVESTORS’ REPRESENTATIONS AND WARRANTIES.

 

Each Investor represents and warrants to the Company with respect to only itself
that:

 

(a) No Public Sale or Distribution. Such Investor is acquiring the Closing
Shares for its own account, and not with a view towards, or for resale in
connection with, the public sale or distribution thereof, except pursuant to
sales registered or exempted under the 1933 Act; provided, however, that by
making the representations herein, such Investor does not agree to hold any of
the Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act. From May 23, 2005,
through the date hereof, such Investor has not sold (for purposes of Section 16
of the 1934 Act (as defined in the Registration Rights Agreement) and the rules
and regulations promulgated thereunder) any shares of Common Stock.

 

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(b) Accredited Investor Status. Such Investor is an “accredited investor” as
that term is defined in Rule 501(a) of Regulation D.

 

(c) Reliance on Exemptions. Such Investor understands that the Securities are
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
Investor’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Investor set forth herein in order to
determine the availability of such exemptions and the eligibility of such
Investor to acquire the Securities.

 

(d) Information. Such Investor and its advisors, if any, have been furnished
with all materials relating to the business, finances, prospects and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Investor. Such Investor and its advisors, if
any, have been afforded the opportunity to ask questions of the Company. Neither
such inquiries nor any other due diligence investigations conducted by such
Investor or its advisors, if any, or its representatives shall modify, amend or
affect such Investor’s right to rely on the Company’s representations and
warranties contained herein. Such Investor understands that its investment in
the Securities involves a high degree of risk and is able to afford a complete
loss of such investment. Such Investor has sought such accounting, legal and tax
advice as it has considered necessary to make an informed investment decision
with respect to its acquisition of the Securities.

 

(e) No Governmental Review. Such Investor 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.

 

(f) Transfer or Resale. Such Investor understands that, except as provided in
the Registration Rights Agreement: (i) the Securities have not been and are not
being registered under the 1933 Act or any state securities laws, and may not be
offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Investor shall have delivered to the Company an
opinion of counsel, in a form reasonably acceptable to the Company, to the
effect that such Securities to be sold, assigned or transferred may be sold,
assigned or transferred pursuant to an exemption from such registration, or
(C) such Investor provides the Company with reasonable assurance that such
Securities can be sold, assigned or transferred pursuant to Rule 144 or Rule
144A promulgated under the 1933 Act (or a successor rule thereto) (collectively,
“Rule 144”); (ii) any sale of the Securities made in reliance on Rule 144 may be
made only in accordance with the terms of Rule 144 and further, if Rule 144 is
not applicable, any resale of the Securities under circumstances in which the
seller (or the Person (as defined in Section 3(r)) through whom the sale is
made) may be deemed to be an underwriter (as that term is defined in the 1933
Act) may require compliance with some other exemption under the 1933 Act or the
rules and regulations of the SEC thereunder; and (iii) except as set forth in
the Registration Rights Agreement, neither the Company nor any other Person is
under any obligation to register the Securities under the 1933 Act or any state

 

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securities laws or to comply with the terms and conditions of any exemption
thereunder. The Securities may be pledged in connection with a bona fide margin
account or other loan secured by the Securities, and such pledge of Securities
shall not be deemed to be a transfer, sale or assignment of the Securities
hereunder, and no Investor effecting a pledge of Securities shall be required to
provide the Company with any notice thereof or otherwise make any delivery to
the Company pursuant to this Agreement or any other Transaction Document (as
defined in Section 3(b) hereof), including, without limitation, this
Section 2(f); provided, that in order to make any sale, transfer or assignment
of Securities, such Investor and its pledgee makes such disposition in
accordance with or pursuant to a registration statement or an exemption under
the 1933 Act.

 

(g) Legends. Such Investor understands that the stock certificates representing
the Securities shall bear a restrictive legend in substantially the following
form (and a stop-transfer order may be placed against transfer of such stock
certificates):

 

[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN][THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR
(B) AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS
OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH
A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES.

 

(h) Validity; Enforcement. This Agreement, the Registration Rights Agreement and
the US Bank Escrow Agreement (in the case of Heartland and Horizon) and the SF
Capital Escrow Agreement (in the case of SF Capital) have been duly and validly
authorized, executed and delivered on behalf of such Investor and shall
constitute the legal, valid and binding obligations of such Investor enforceable
against such Investor in accordance with their respective terms, except as such
enforceability may be limited by general principles of equity or to applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation and other
similar laws relating to, or affecting generally, the enforcement of applicable
creditors’ rights and remedies.

 

(i) Residency. Such Investor is a resident of, has its principal place of
business in, or is incorporated in, as applicable, that country or state
specified below its address set forth on Schedule A attached hereto.

 

(k) Independent Investment Decision. Such Investor has independently evaluated
the merits of its decision to purchase Securities pursuant to this Agreement,
and such Investor confirms that it has not relied on the advice of any other
Investor’s business and/or legal counsel in making such a decision.

 

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3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

The Company represents and warrants to each of the Investors that as of the date
hereof:

 

(a) Organization and Qualification. Each of the Company and its Subsidiaries (as
defined below) are corporations duly organized and validly existing in good
standing under the laws of the jurisdiction in which they are incorporated, and
have the requisite corporate power and authorization to own their properties and
to carry on their business as now being conducted. Each of the Company and its
Subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which its ownership of property or the
nature of the business conducted by it makes such qualification necessary,
except to the extent that the failure to be so qualified or be in good standing
would not have a Material Adverse Effect. As used in this Agreement, “Material
Adverse Effect” means any material adverse effect on the business, properties,
assets, operations, results of operations, condition (financial or otherwise) or
prospects of the Company and its Subsidiaries or on the transactions
contemplated hereby or by the agreements and instruments to be entered into in
connection herewith, or on the authority or ability of the Company to perform
its obligations under the Transaction Documents. For purposes of this Agreement,
“Subsidiaries” means Igeneon GmbH, an Austrian company (“Igeneon”) and Aphton
(BVI) Corporation, a British Virgin Islands corporation (“Aphton BVI”), which
together are the only entities in which the Company, directly or indirectly,
owns capital stock or holds an equity or similar interest. The Company has no
Subsidiaries other than Igeneon and Aphton BVI. Aphton BVI is a shell entity,
which is inactive and does not conduct any business or hold any assets. The
Company owns, directly or indirectly, all of the capital stock of each
Subsidiary free and clear of any and all liens, charges, encumbrances, security
interests, rights of first refusal or other restrictions of any kind (“Liens”),
and all the issued and outstanding shares of capital stock of each Subsidiary
are validly issued and are fully paid, non-assessable and free of preemptive and
similar rights. Neither the Company nor any Subsidiary is in violation of any of
the provisions of its respective certificate or articles or incorporation,
bylaws or other organizational or charter documents.

 

(b) Authorization; Enforcement; Validity. The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Designation, the Registration Rights Agreement, the Escrow
Agreements, the Irrevocable Transfer Agent Instructions (as defined in
Section 5(b) hereof) and each of the other agreements entered into by the
parties hereto in connection with the transactions contemplated by this
Agreement (collectively, the “Transaction Documents”) and, subject to the
listing of the Common Shares in compliance with the rules and regulations of the
Principal Market (as defined in Section 3(n) hereof) to issue the Securities in
accordance with the terms hereof and thereof. The execution and delivery of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby, including, without limitation, the
issuance of the Closing Shares and the reservation for issuance and the issuance
of the Conversion Shares issuable upon conversion of the Series A-1 Preferred
Stock,

 

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as the case may be, have been duly authorized by the board of directors of the
Company (the “Board”), and, except as set forth in Section 3(e), no further
consent or authorization is required by the Company, the Board or its
stockholders. This Agreement and the other Transaction Documents of even date
herewith have been duly executed and delivered by the Company, and constitute
the legal, valid and binding obligations of the Company enforceable against the
Company in accordance with their respective terms, except (i) as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of applicable creditors’
rights and remedies, or (ii) as any rights to indemnity or contribution
hereunder may be limited by federal and state securities laws and public policy
consideration.

 

(c) Issuance of Securities. The Closing Shares to be issued hereunder are duly
authorized and, upon issuance in accordance with the terms hereof, shall be free
from all taxes, Liens and charges with respect to the issuance thereof. As of
the Closing, 20,000,000 shares of Common Stock shall have been duly authorized
and reserved for issuance upon conversion of the Preferred Shares to be issued
hereunder. The Closing Shares, when issued at the Closing, and the Conversion
Shares, when issued upon conversion of the Preferred Shares, will be validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof, with the holders being entitled to all rights
accorded to a holder of the Series A-1 Preferred Stock or Common Stock, as the
case may be. Assuming the accuracy of each of the representations and warranties
set forth in Section 2 hereof, the issuance by the Company of the Closing Shares
is exempt from registration under the 1933 Act.

 

(d) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the issuance of
the Closing Shares and the reservation for issuance of the Conversion Shares,)
will not (i) result in a violation of any certificate of incorporation, any
certificate of designations, preferences and rights of any outstanding series of
preferred stock or bylaws of the Company or any Subsidiary or (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party, or
(iii) result in a violation of any law, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations and the
rules and regulations of the Principal Market) applicable to the Company or any
of its Subsidiaries or by which any property or asset of the Company or any
Subsidiary is bound or affected, except in the case of clauses (ii) and (iii),
for such breaches or defaults as would not be reasonably expected to have a
Material Adverse Effect.

 

(e) Consents. Except for review of the transactions contemplated by this
Agreement by The Nasdaq Stock Market, filing of a Form D with the SEC, filings
that may be required under the securities or “Blue Sky” laws of the various
jurisdictions in which the Securities are being offered and the registration of
the Common Shares under the 1933 Act, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court, governmental agency or any regulatory or self-regulatory agency or any
other Person in order for it to execute, deliver or perform any of its
obligations under or contemplated by the Transaction Documents, in each case, in
accordance with the terms hereof

 

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or thereof. All consents, authorizations, orders, filings and registrations
which the Company is required to obtain at or prior to the Closing pursuant to
the preceding sentence have been obtained or effected. The Company and its
Subsidiaries are unaware of any facts or circumstances which might prevent the
Company from obtaining or effecting any of the foregoing.

 

(f) Acknowledgment Regarding Investors’ Purchase of Securities. The Company
acknowledges and agrees that each Investor is acting solely in the capacity of
arm’s length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby. The Company further acknowledges
that no Investor 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 hereby and thereby, and any advice given by an
Investor or any of its representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby is
merely incidental to such Investor’s purchase of the Securities. The Company
further represents to each Investor that the Company’s decision to enter into
the Transaction Documents has been based solely on the independent evaluation by
the Company and its representatives.

 

(g) No General Solicitation; Placement Agent’s Fees. Neither the Company, nor
any of its affiliates, nor any Person acting on its or their behalf, has engaged
in any form of general solicitation or general advertising (within the meaning
of Regulation D) in connection with the offer or sale of the Securities. The
Company shall be responsible for the payment of any placement agent’s fees,
financial advisory fees, or brokers’ commissions (other than for persons engaged
by any Investor or its investment advisor) relating to or arising out of the
transactions contemplated hereby. The Company shall pay, and hold each Investor
harmless against, any liability, loss or expense (including, without limitation,
attorney’s fees and out-of-pocket expenses) arising in connection with any claim
for any such fees or commissions.

 

(h) No Integrated Offering. None of the Company, its Subsidiaries, any of their
affiliates, and any Person acting on their behalf has, directly or indirectly,
made any offers or sales of any security or solicited any offers to buy any
security, under circumstances that would require registration of any of the
Securities under the 1933 Act or cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system on
which any of the securities of the Company are listed or designated.

 

(i) Dilutive Effect. The Company understands and acknowledges that the number of
Conversion Shares issuable upon conversion of the Preferred Shares will increase
in certain circumstances. The Company further acknowledges that its obligation
to issue Conversion Shares upon conversion of the Preferred Shares in accordance
with this Agreement is absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interests of other
stockholders of the Company.

 

(j) Application of Takeover Protections. The Company and its Board 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
Certificate of Incorporation (as

 

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defined in Section 3(q)) or the laws of the state of its incorporation which is
or could become applicable to any Investor as a result of the transactions
contemplated by this Agreement, or any prior transaction between the Company and
any Investor, including, without limitation, the Company’s issuance of the
Securities and any Investor’s ownership of the Securities.

 

(k) SEC Documents; Financial Statements. Except as set forth on Schedule 3(k),
since December 31, 2003, the Company has filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC pursuant
to the reporting requirements of the Securities Exchange Act of 1934, as amended
(“1934 Act”) (all of the foregoing filed prior to the date hereof, and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
“SEC Documents”). As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). After giving effect to the 8-K Filing (as defined below), no other
information provided by or on behalf of the Company to the Investors which is
not included in the SEC Documents, including, without limitation, information
referred to in Section 2(d) of this Agreement, contains any untrue statement of
a material fact or omits to state any material fact necessary in order to make
the statements therein, in the light of the circumstance under which they are or
were made, not misleading.

 

(l) Absence of Certain Changes. Except as disclosed in the SEC Documents or on
Schedule 3(l), since December 31, 2004, there has been no material adverse
change and no material adverse development in the business, properties,
operations, condition (financial or otherwise), results of operations or
prospects of the Company or its Subsidiaries. Since December 31, 2004, the
Company has not (i) declared or paid any dividends, (ii) sold any assets,
individually or in the aggregate, in excess of $50,000 outside of the ordinary
course of business or (iii) had capital expenditures, individually or in the
aggregate, in excess of $100,000. The Company has not taken any steps to seek
protection pursuant to any bankruptcy law nor does the Company have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings or any actual knowledge of any fact which would
reasonably lead a creditor to do so. After giving effect to the transactions
contemplated hereby to occur at the Closing, the Company will not be Insolvent
(hereinafter defined). For purposes of this Section 3(l), “Insolvent” means
(i) the present fair saleable value of the Company’s assets is less than the
amount required to pay the Company’s total indebtedness, contingent or

 

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otherwise, (ii) the Company is unable to pay its debts and liabilities,
subordinated, contingent or otherwise, as such debts and liabilities become
absolute and matured, (iii) the Company intends to incur or believes that it
will incur debts that would be beyond its ability to pay as such debts mature or
(iv) the Company has unreasonably small capital with which to conduct the
business in which it is engaged as such business is now conducted and is
proposed to be conducted.

 

(m) No Undisclosed Events, Liabilities, Developments or Circumstances. Except as
set forth on Schedule 3(m), no event, liability, development or circumstance has
occurred or exists, or is contemplated to occur, with respect to the Company or
its Subsidiaries or their respective business, properties, prospects, operations
or financial conditions, that would be required to be disclosed by the Company
under applicable securities laws on a registration statement on Form S-1 filed
with the SEC relating to an issuance and sale by the Company of its Common Stock
and which has not been disclosed in the SEC Documents.

 

(n) Conduct of Business; Regulatory Permits. Neither the Company nor its
Subsidiaries is in violation of any term of or in default under any certificate
of incorporation, any certificate of designations, preferences and rights of any
outstanding series of preferred stock or bylaws. Except as disclosed in the SEC
Documents or on Schedule 3(n), neither the Company nor any of its Subsidiaries
is in violation of any judgment, decree or order or any statute, ordinance, rule
or regulation applicable to the Company or its Subsidiaries, and neither the
Company nor any of its Subsidiaries will conduct its business in violation of
any of the foregoing, except for possible violations which would not,
individually or in the aggregate, have a Material Adverse Effect. Without
limiting the generality of the foregoing, except as set forth in the SEC
Documents or on Schedule 3(n), the Company is not in violation of any of the
rules, regulations or requirements of the Nasdaq Capital Market (the “Principal
Market”) and has no knowledge of any facts or circumstances which would
reasonably lead to delisting or suspension of the Common Stock by the Principal
Market in the foreseeable future. Except as disclosed in the SEC Documents or on
Schedule 3(n), since December 31, 2004, (i) the Common Stock has been designated
for quotation or listed on the Principal Market, (ii) trading in the Common
Stock has not been suspended by the SEC or the Principal Market and (iii) the
Company has received no communication, written or oral, from the SEC or the
Principal Market regarding the suspension or delisting of the Common Stock from
the Principal Market. The Company and its Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective businesses, except
where the failure to possess such certificates, authorizations or permits would
not have, individually or in the aggregate, a Material Adverse Effect, and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit.

 

(o) Foreign Corrupt Practices. Neither the Company, nor any of its Subsidiaries,
nor any director, officer, agent, employee or other Person acting on behalf of
the Company or any of its Subsidiaries has, in the course of its actions for, or
on behalf of, the Company (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity, (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds,
(iii) violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended or (iv) made any unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.

 

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(p) Transactions With Affiliates. Except as set forth in the SEC Documents, none
of the officers, directors or employees of the Company is presently a party to
any transaction with the Company or any of its Subsidiaries (other than for
ordinary course services as employees, officers or directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any such officer, director or
employee or, to the knowledge of the Company, any corporation, partnership,
trust or other entity in which any such officer, director, or employee has a
substantial interest or is an officer, director, trustee or partner.

 

(q) Equity Capitalization. As of the date hereof and giving effect to the
closing of the transactions contemplated hereby, including the filing of the
Designation, the authorized capital stock of the Company consists of
(x) 100,000,000 shares of Common Stock, of which as of the date hereof,
67,056,428 shares are issued and outstanding, 4,613,320 shares are reserved for
issuance pursuant to the Company’s stock option plans, including shares reserved
for issuance upon exercise of outstanding stock options, and 3,345,400 shares
are reserved for issuance upon exercise of outstanding warrants and nonplan
options to purchase shares of Common Stock, and (y) 4,000,000 shares of
preferred stock, of which, after giving effect to the Closing, only the
Preferred Shares issuable pursuant to this Agreement are issued and outstanding.
All of such outstanding shares have been, or upon issuance will be, validly
issued are fully paid and nonassessable. Except as disclosed in the SEC
documents or on Schedule 3(q): (i) no shares of the Company’s capital stock are
subject to preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company; (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
any of its Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
Subsidiaries 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 or any of its Subsidiaries; (iii) there are no outstanding
debt securities, notes, credit agreements, credit facilities or other
agreements, documents or instruments evidencing Indebtedness (as defined in
Section 3(r)) of the Company or any of its Subsidiaries or by which the Company
or any of its Subsidiaries is or may become bound; (iv) 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 or any of its Subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act (except the
Registration Rights Agreement); (vi) there are no outstanding securities or
instruments of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries; (vii) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities; (viii) the Company does not have any stock appreciation rights
or “phantom stock” plans or agreements

 

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or any similar plan or agreement; and (ix) the Company and its Subsidiaries have
no liabilities or obligations required to be disclosed in the SEC Documents but
not so disclosed in the SEC Documents, other than those incurred in the ordinary
course of the Company’s or its Subsidiaries’ respective businesses and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect. The Company has furnished to the Investors true, correct and complete
copies of the Company’s Amended and Restated Certificate of Incorporation, as
amended, and as in effect on the date hereof (the “Certificate of
Incorporation”), and the Company’s Amended and Restated Bylaws, as amended, and
as in effect on the date hereof (the “Bylaws”).

 

(r) Indebtedness and Other Contracts. Except as disclosed in the SEC Documents
or on Schedule 3(r), neither the Company nor any of its Subsidiaries (i) has any
outstanding Indebtedness (as defined below), (ii) is a party to any contract,
agreement or instrument, the violation of which, or default under, by the other
party(ies) to such contract, agreement or instrument would result in a Material
Adverse Effect, (iii) is in violation of any term of or in default under any
contract, agreement or instrument relating to any Indebtedness, except where
such violations and defaults would not result, individually or in the aggregate,
in a Material Adverse Effect, or (iv) is a party to any contract, agreement or
instrument relating to any Indebtedness, the performance of which, in the
judgment of the Company’s officers, has or is expected to have a Material
Adverse Effect. For purposes of this Agreement: (x) “Indebtedness” of any Person
means, without duplication (A) all indebtedness for borrowed money, (B) all
obligations issued, undertaken or assumed as the deferred purchase price of
property or services (other than trade payables entered into in the ordinary
course of business), (C) all reimbursement or payment obligations with respect
to letters of credit, surety bonds and other similar instruments, (D) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (E) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under any
leasing or similar arrangement which, in connection with generally accepted
accounting principles, consistently applied for the periods covered thereby, is
classified as a capital lease, (G) all indebtedness referred to in clauses
(A) through (F) above secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any mortgage,
lien, pledge, change, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any Person,
even though the Person which owns such assets or property has not assumed or
become liable for the payment of such indebtedness, and (H) all Contingent
Obligations in respect of indebtedness or obligations of others of the kinds
referred to in clauses (A) through (G) above; (y) “Contingent Obligation” means,
as to any Person, any direct or indirect liability, contingent or otherwise, of
that Person with respect to any indebtedness, lease, dividend or other
obligation of another Person if the primary purpose or intent of the Person
incurring such liability, or the primary effect thereof, is to provide assurance
to the obligee of such liability that such liability will be paid or discharged,
or that any agreements relating thereto will be complied with, or that the
holders of such liability will be protected (in whole or in part) against loss
with respect thereto; and (z) “Person” means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.

 

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(s) Absence of Litigation. Except as set forth in the SEC Documents or on
Schedule 3(s), there is no action, suit, proceeding, inquiry or investigation
before or by the Principal Market, any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the
Company, threatened against or affecting the Company, the transactions
contemplated by the Transaction Documents, Common Stock or any of the
Subsidiaries or any of the Company’s or the Subsidiaries’ officers or directors
in their capacities as such. To the knowledge of the Company, there has not been
within the past two (2) years, and there is not pending, any investigation by
the Commission involving the Company or any current or former director or
officer of the Company (in his or her capacity as such). The Commission has not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company under the the 1933 Act within the
past two (2) years.

 

(t) Insurance. The Company and each of its Subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in such
amounts as management of the Company believes to be prudent and customary in the
businesses in which the Company and its Subsidiaries are engaged. Neither the
Company nor any such Subsidiary has been refused any insurance coverage sought
or applied for and neither the Company nor any such Subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not have a
Material Adverse Effect.

 

(u) Employee Relations. Except as set forth on Schedule 3(u), neither the
Company nor any of its Subsidiaries is a party to any collective bargaining
agreement or employs any member of a union. 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. No executive officer of the Company, to the
knowledge of the Company, is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued employment
of each such executive officer does not subject the Company or any of its
Subsidiaries to any liability with respect to any of the foregoing matters. The
Company and its Subsidiaries are in compliance with all federal, state, local
and foreign laws and regulations respecting employment and employment practices,
terms and conditions of employment and wages and hours, except where failure to
be in compliance would not, either individually or in the aggregate, reasonably
be expected to result in a Material Adverse Effect.

 

(v) Title. The Company and its Subsidiaries have good and marketable title to
all personal property owned by them which is material to the business of the
Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in the SEC Documents or
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. Neither the Company nor any of its Subsidiaries owns
any real property. Any real property and facilities held under lease by the

 

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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.

 

(w) Intellectual Property Rights. To the knowledge of the Company and the
Subsidiaries, the Company and its Subsidiaries own or possess adequate rights or
licenses to use all trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, governmental authorizations, trade secrets and other
intellectual property rights (“Intellectual Property Rights”) necessary to
conduct their respective businesses as now conducted. Except as set forth on
Schedule 3(w), none of the Company’s Intellectual Property Rights that are
material to the business of the Company have expired or terminated, or are
expected to expire or terminate within three years from the date of this
Agreement. The Company does not have any knowledge of any infringement by the
Company or its Subsidiaries of Intellectual Property Rights of others. There is
no claim, action or proceeding being made or brought, or to the knowledge of the
Company, being threatened, against the Company or its Subsidiaries regarding its
Intellectual Property Rights which could have a Material Adverse Effect. The
Company is unaware of any facts or circumstances which might give rise to any of
the foregoing infringements or claims, actions or proceedings. The Company and
its Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties.

 

(x) Environmental Laws. The Company and its Subsidiaries (i) are in compliance
with any and all Environmental Laws (as hereinafter defined), (ii) have received
all permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are in
compliance with all terms and conditions of any such permit, license or approval
where, in each of the foregoing clauses (i), (ii) and (iii), the failure to so
comply could be reasonably expected to have, individually or in the aggregate, a
Material Adverse Effect. The term “Environmental Laws” means all federal, state,
local or foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes
(collectively, “Hazardous Materials”) into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.

 

(y) Subsidiary Rights. The Company has the unrestricted right to vote, and
(subject to limitations imposed by applicable law) to receive dividends and
distributions on, all capital securities of its material Subsidiaries as owned
by the Company or such Subsidiary.

 

(z) Tax Status. Except as set forth on Schedule 3(z), the Company and each of
its Subsidiaries (i) has made or filed all federal and state income and all
other tax returns, reports and declarations required by any jurisdiction to
which it is subject, (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
and (iii) has set aside on its books reasonably adequate provision for the
payment of

 

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all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply, except where such failure would not have a Material
Adverse Effect. There are no unpaid taxes in any material amount claimed to be
due by the taxing authority of any jurisdiction, and the officers of the Company
know of no basis for any such claim.

 

(aa) Internal Accounting Controls. The Company and each of its Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management’s general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset 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 appropriate action
is taken with respect to any difference. In addition, the Company has
established and maintains disclosure controls and procedures as defined in Rule
13a-14 under the 1934 Act and in compliance with Rule 13a-15 under the 1934 Act.

 

(bb) Disclosure. The Company confirms that neither it nor any other Person
acting on its behalf has provided any of the Investors or their respective
agents or counsel with any information that constitutes or might constitute
material, nonpublic information that has not been disclosed in the SEC
Documents. The Company understands and confirms that each of the Investors will
rely on the foregoing representations in effecting transactions in securities of
the Company. All disclosure provided to the Investors regarding the Company, its
business and the transactions contemplated hereby, including the Schedules to
this Agreement, furnished by or on behalf of the Company are true and correct
and do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading. No event or
circumstance has occurred nor does information exist with respect to the Company
or any of its Subsidiaries or its or their business, properties, prospects,
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 of 1934, as amended, are
being incorporated into an effective registration statement filed by the Company
under the 1933 Act). The Company acknowledges and agrees that no Investor makes
or has made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section 2.

 

(cc) Sarbanes-Oxley Act. The Company is in compliance with any and all
applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as
of the date hereof, and any and all applicable rules and regulations promulgated
by the SEC thereunder that are effective as of the date hereof, except where
such noncompliance would not have a Material Adverse Effect.

 

(dd) FDA Compliance. The Company and its Subsidiaries, and the manufacture,
marketing and sales of the Company’s products, complies with any and all
applicable requirements of the Federal Food, Drug and Cosmetic Act, 21 U.S.C.
ss.301, et seq., any rules and regulations of the Food and Drug Administration
promulgated thereunder, and any similar laws outside of the United States to
which the company is subject, except where such noncompliance would not have a
Material Adverse Effect.

 

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(ee) Conditions and Sufficiency of Assets. The buildings, plants, structures and
equipment of the Company are structurally sound, are in good operating condition
and repair and are adequate for the uses to which they are being put, and none
of such buildings, plants, structures or equipment is in need of maintenance or
repairs except for ordinary, routine maintenance and repairs that are not
material in nature or cost. The buildings, plants, structures and equipment of
the Company are sufficient for the continued conduct of the Company’s business.

 

(ff) Contracts; No Defaults. Except as set forth in Schedule 3(ff), each
contract of the Company that involves expenditures or receipts in excess of
$100,000 (each an “Applicable Contract”) is in full force and effect and is
valid and enforceable in accordance with its terms. The Company is and has been
in full compliance with all applicable terms and requirements of each Applicable
Contract and no event has occurred or circumstance exists that (with or without
notice or lapse of time) may contravene, conflict with or result in a violation
or breach of, or give the Company or any other entity the right to declare a
default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate or modify any Applicable Contract. The
Company has not given or received from any other entity any notice or other
communication (whether oral or written) regarding any actual, alleged, possible
or potential violation or breach of, or default under, any Applicable Contract.

 

4. COVENANTS.

 

(a) Form D and Blue Sky. The Company agrees to file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof to each
Investor promptly after such filing. 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

 

(b) Reporting Status. Until the date on which the Investors shall have sold all
the Common Shares (the “Reporting Period”), the Company shall file all reports
required to be filed with the SEC pursuant to the 1934 Act.

 

(c) Financial Information. The Company agrees to send the following to each
Investor during the Reporting Period (i) unless the following are filed with the
SEC through EDGAR and are available to the public through the EDGAR system,
within one (1) Business Day (as defined below) after the filing thereof with the
SEC, a copy of its Annual Reports on Form 10-K, its Quarterly Reports on Form
10-Q, any Current Reports on Form 8-K and any registration statements (other
than on Form S-8) or amendments filed pursuant to the 1933 Act and (ii) copies
of any notices and other information made available or given to the stockholders
of the Company generally, contemporaneously with the making available or giving
thereof to the stockholders. For purposes of this Agreement, “Business Day”
shall mean any day other than Saturday, Sunday or any other day on which
commercial banks in the City of New York are authorized or required by law to
remain closed.

 

(d) Listing. The Company shall promptly secure the listing of all of the
Registrable Securities (as defined in the Registration Rights Agreement) upon
each national securities exchange and automated quotation system, if any, upon
which shares of the Common Stock are then listed (subject to official notice of
issuance) and shall maintain, so long as any other shares of the Common Stock
shall be so listed, such listing of all Registrable Securities.

 

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The Company shall use its best efforts to maintain the Common Stock’s
authorization for quotation on the Principal Market; provided however, that the
Investors acknowledge that the Company has been notified of certain failures to
satisfy the continued listing requirements of the Principal Market as disclosed
in the SEC Documents and any failure to maintain the listing of the Common Stock
shall not be deemed a breach of this Agreement or any other Transaction
Document. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section 4(d).

 

(e) Fees. The Company shall be responsible for the payment of any placement
agent’s fees or broker’s commissions relating to or arising out of the
transactions contemplated hereby (other than fees or commissions due and owing
to a placement agent or broker of any Investor). Except as otherwise set forth
in this Agreement, the Registration Rights Agreement or the Escrow Agreements,
each party to this Agreement shall bear its own expenses in connection with the
sale of the Securities to the Investors.

 

(f) Pledge of Securities. The Company acknowledges and agrees that the
Securities may be pledged by an Investor in connection with a bona fide margin
agreement or other loan or financing arrangement that is secured by the
Securities. The pledge of Securities shall not be deemed to be a transfer, sale
or assignment of the Securities hereunder, and no Investor effecting a pledge of
Securities shall be required to provide the Company with any notice thereof or
otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document, including, without limitation, Section 2(f) of this
Agreement; provided that an Investor and its pledgee shall be required to comply
with the provisions of Section 2(f) hereof in order to effect a sale, transfer
or assignment of Securities to such pledgee. The Company hereby agrees to
execute and deliver such documentation as a pledgee of the Securities may
reasonably request in connection with a pledge of the Securities to such pledgee
by an Investor.

 

(g) Disclosure of Transactions and Other Material Information. By 5:30 p.m. (New
York City time), but after 4:00 p.m. (New York City time) on the first Business
Day after the date hereof, the Company shall file a Current Report on Form 8-K
reporting the closing of the transactions contemplated by the Transaction
Documents in the form required by the 1934 Act, and attaching the material
Transaction Documents (including, without limitation, this Agreement, the
Designation and the Registration Rights Agreement) as exhibits to such filing
(including all attachments, the “8-K Filing”). From and after the filing of the
8-K Filing with the SEC, no Investor shall be in possession of any material,
nonpublic information received from the Company, any of its Subsidiaries or any
of its respective officers, directors, employees or agents, that is not
disclosed in the 8-K Filing. The Company shall not, and shall cause each of its
Subsidiaries and its and each of their respective officers, directors, employees
and agents, not to, provide any Investor with any material nonpublic information
regarding the Company or any of its Subsidiaries from and after the filing of
the 8-K Filing with the SEC without the express written consent of such Investor
and the execution of a confidentiality agreement between such Investor and the
Company. In the event of a breach of the foregoing covenant by the Company, any
of its Subsidiaries, or any of its or their respective officers, directors,
employees and agents, in addition to any other remedy provided herein or in the
Transaction Documents, an Investor shall have the right to demand that the
Company make a public disclosure in accordance with Regulation FD, and if the
Company fails to do so within two Business Days, the Investor may make a public
disclosure, in the form of a press release,

 

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public advertisement or otherwise, of such material nonpublic information
without the prior approval by the Company, its Subsidiaries, or any of its or
their respective officers, directors, employees or agents. No Investor shall
have any liability to the Company, its Subsidiaries, or any of its or their
respective officers, directors, employees, shareholders or agents for any such
disclosure unless such Investor acts with gross negligence or willful
misconduct. Subject to the foregoing, neither the Company nor any Investor shall
issue any press releases or any other public statements with respect to the
transactions contemplated hereby without the prior written consent of the other
parties hereto; provided, however, that the Company shall be entitled, without
the prior approval of any Investor, to make any press release or other public
disclosure with respect to such transactions (i) in substantial conformity with
the 8-K Filing and contemporaneously therewith and (ii) as is required by
applicable law and regulations, including the applicable rules and regulations
of the Principal Market (provided that in the case of clause (i) each Investor
shall be consulted by the Company in connection with any such press release or
other public disclosure prior to its release).

 

(h) Conduct of Business. The business of the Company and its Subsidiaries shall
not be conducted in violation of any law, ordinance or regulation of any
governmental entity, except where such violations would not result, either
individually or in the aggregate, in a Material Adverse Effect.

 

(i) [RESERVED].

 

(j) Reservation of Shares. 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, a sufficient number of shares of Common Stock issuable upon
conversion of, the Preferred Shares being issued at the Closing.

 

(k) Removal of Legend; Buy in Cure. The legend set forth in Section 2(g) hereof
shall be removed and the Company shall issue a certificate without such legend
to the holder of the Securities upon which it is stamped, within three
(3) Business Days after the Company’s receipt of a notice and a seller’s
representation letter (the “Delivery Period”), in a form reasonably satisfactory
to the Company, from the holder thereof requesting removal of the legend, which
notice and letter shall be simultaneously delivered to the Company’s transfer
agent and corporate counsel in accordance with Section 8(f) hereof (each, a
“Legend Removal Notice”). In the event the Company does not remove the legend
prior to expiration of the Delivery Period, then, unless the Company has
notified the holder in writing prior to the delivery by the holder of a Legend
Removal Notice that the Company has determined in good faith that it is unable
to honor the holder’s request, if (i) the Company fails for any reason to
deliver unlegended shares prior to expiration of the Delivery Period and
(ii) thereafter, the holder purchases (in an open market transaction or
otherwise) shares of Common Stock to make delivery in satisfaction of a sale by
the holder of the unlegended shares of Common Stock (the “Sold Shares”) which
the holder anticipated receiving prior to expiration of the Delivery Period (a
“Buy-In”), the Company shall pay the holder (which shall be the holder’s
exclusive remedy) the amount by which (x) the holder’s total purchase price
(including brokerage commissions, if any) for the unlegended shares of Common
Stock so purchased exceeds (y) the net proceeds received by the holder from the
sale of the Sold Shares. For example, if the holder purchases unlegended shares
of Common Stock having a total purchase price of $11,000 to cover a Buy-In with
respect to shares of Common Stock it sold for $10,000, the Company will be
required to pay the holder $1,000. The holder shall provide the Company written
notification indicating

 

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any amounts payable to the holder pursuant to this Section 4(k), together with
evidence supporting such calculation. The Company shall make any payments
required pursuant to this Section 4(k) in accordance with the wire instructions
contained in the holder’s written notice.

 

(l) Participation Rights.

 

(i) For a period of 12 months immediately following the Closing, if the Company
shall issue or sell (a “Financing”) (a) any shares of Common Stock, (b) any
other equity security of the Company, including without limitation shares of
preferred stock, (c) any debt security of the Company (other than debt with no
equity feature), including without limitation any debt security which by its
terms is convertible into or exchangeable for any equity security of the
Company, (d) any security of the Company that is a combination of debt and
equity, or (e) any option, warrant or other right to subscribe for, purchase or
otherwise acquire any such equity security or any such debt security of the
Company, the Company shall offer to sell 25% of such securities (the “Offered
Securities”) to the Investors, pro rata, as set forth in this Section 4(l) (the
“Investors’ Securities”). The Company shall offer, no less than ten
(10) Business Days prior to the date of the first sale of such Offered
Securities, to sell to each Investor (1) that portion of the Investors’
Securities as the number of Initial Common Shares that were acquired by such
Investor pursuant to the Transaction Documents bears to the total number of
Initial Common Shares that were acquired by all the Investors pursuant to the
Transaction Documents (the “Basic Amount”), and (2) such additional portion of
the Investors’ Securities as such Investor shall indicate it will purchase
should the other Investors subscribe for less than their Basic Amounts (the
“Undersubscription Amount”), at a price and on such other terms as shall have
been specified by the Company in a writing delivered to such Investor (the
“Offer”), which Offer by its terms shall remain open and irrevocable for a
period of ten (10) Business Days from receipt of the Offer. Notwithstanding the
foregoing, the Company shall be obligated to offer and sell Offered Securities
to the Investors solely in its next Financing during the twelve month period
immediately following Closing. Notwithstanding anything contained in this
Section 4(k) to the contrary, the ten (10) Business-Day offer period may be
waived by any one Investor, for solely itself, or all of the Investors.

 

(ii) Notice of each Investor’s intention to accept, in whole or in part, any
Offer made pursuant to Section 4(l)(i) shall be evidenced by a writing signed by
such Investor and delivered to the Company prior to the expiration of the ten
(10) Business-Day period of such offer, setting forth such of the Investor’s
Basic Amount as such Investor elects to purchase and, if such Investor shall
elect to purchase more than its Basic Amount, the Undersubcription Amount as
such Investor shall elect to purchase (the “Notice of Acceptance”). If the Basic
Amounts subscribed for by all Investors are less than the total Investors’
Securities then each Investor who has set forth Undersubscription Amounts in its
Notice of Acceptance shall be entitled to purchase all Undersubcription Amounts
it has subscribed for; provided, however, that should the Undersubscription
Amounts subscribed for exceed the difference between the Investors’ Securities
and the Basic Amounts subscribed for (the “Available Undersubcription Amount”),
each Investor who has subscribed for any Undersubcripton Amount shall be
entitled to purchase only that portion of the Available Undersubcription Amount
as the Undersubcription Amount subscribed for by such Investor bears to the
total Undersubcription Amounts subscribed for by all Investors, subject to
rounding by the Company to the extent it deems reasonably necessary.

 

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(iii) Exceptions. The rights of the Investors under this Section 4(l) shall
terminate after the consummation of any transaction by the Company to which such
rights apply and the expiration of all applicable notice periods relating
thereto. The rights of the Investors under this Section 4(l) shall not apply to
(A) Common Stock issued as a stock dividend to holders of Common Stock or upon
any subdivision or combination of shares of Common Stock, (B) the Conversion
Shares, (C) Common Stock issued upon the exercise or conversion of warrants or
options outstanding as of the date hereof, (D) Common Stock issued in connection
with any Approved Stock Option Plan (as defined in the Designation), (E) Common
Stock issued in connection with a strategic partnership or joint venture in
which there is a significant commercial relationship with the Company and in
which the primary purpose of which is not to raise capital in an amount not to
exceed, in the aggregate, gross proceeds to the Company of $20,000,000 or an
aggregate of 10,000,000 shares of Common Stock, (F) the payment of interest on,
or repayment of principal of, indebtedness to Austria Wirtschaftsservice GmbH or
(G) pursuant to a bona fide firm commitment underwritten public offering with a
nationally recognized underwriter which generates gross proceeds in excess of
$30,000,000 (other than an “at-the-market offering” as defined in Rule 415(a)(4)
under the 1933 Act and “equity lines”).

 

(m) Financial and Operating Plan. On or prior to December 31, 2005, the Board
shall approve a financial and operating restructuring plan.

 

(n) Name Change. As soon as practicable after the Closing Date, the management
of the Company shall submit a proposal to the Board regarding the change of the
name of the Company.

 

(o) Fundamental Change in Business. For so long as shares of Preferred Shares
with an aggregate Stated Value of at least $5,000,000 remain outstanding, the
consent of the holders of a majority of the then outstanding Preferred Shares
will be required for any material change in the nature of the Company’s business
beyond the life-sciences sector.

 

5. REGISTER; TRANSFER AGENT INSTRUCTIONS.

 

(a) Register. The Company shall maintain at its principal executive offices (or
such other office or agency of the Company as it may designate by notice to each
holder of the Preferred Shares), a register for the Preferred Shares, in which
the Company shall record the name and address of the Person in whose name the
Preferred Shares have been issued (including the name and address of each
transferee) and the number of Conversion Shares issuable upon conversion of the
Preferred Shares held by such Person. The Company shall keep the register open
and available at all times during business hours for inspection of any Investor
or its legal representatives.

 

(b) Transfer Agent Instructions. The Company shall issue irrevocable
instructions, in the form of Exhibit E attached hereto (the “Irrevocable
Transfer Agent Instructions”), to its transfer agent, and any subsequent
transfer agent, to issue certificates or credit shares to the applicable balance
accounts at DTC, registered in the name of each Investor or its respective
nominee(s), for the Conversion Shares, in such amounts as specified from time to
time by each Investor to the Company upon conversion of the Preferred Shares,
subject to compliance with the terms of the Designation. The Company warrants
that no instruction other than the Irrevocable Transfer Agent Instructions
referred to in this Section 5(b), and stop transfer instructions to give effect
to Section 2(f) hereof, will be given by the Company to its

 

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transfer agent, and that the Securities 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. If an Investor effects a sale,
assignment or transfer of the Securities in accordance with Section 2(f), the
Company shall permit the transfer and shall promptly instruct its transfer agent
to issue one or more certificates or credit shares to the applicable balance
accounts at DTC in such name and in such denominations as specified by such
Investor to effect such sale, transfer or assignment. The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable harm to
an Investor. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5(b) will be inadequate and agrees,
in the event of a breach or threatened breach by the Company of the provisions
of this Section 5(b), that an Investor 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.

 

6. CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

 

(a) Closing Date. The obligation of the Company hereunder to issue and sell the
Closing Shares to each Investor at the Closing is subject to the satisfaction,
at or before the Closing Date, of each of the following conditions, provided
that these conditions are for the Company’s sole benefit and may be waived by
the Company at any time in its sole discretion by providing each Investor with
prior written notice thereof:

 

(i) Such Investor shall have executed each of the Transaction Documents to which
it is a party and delivered the same to the Company.

 

(ii) Such Investor shall have surrendered and delivered for cancellation to the
Company, the Notes.

 

7. CONDITIONS TO EACH INVESTOR’S OBLIGATION TO PURCHASE.

 

(a) Closing Date. The obligation of each Investor to surrender for cancellation
the Notes at Closing is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions, provided that these conditions are
for each Investor’s sole benefit and may be waived by such Investor at any time
in its sole discretion by providing the Company with prior written notice
thereof:

 

(i) The Company shall have executed and delivered to such Investor each of the
Transaction Documents.

 

(ii) The Company shall have delivered to such Investor a copy of the Irrevocable
Transfer Agent Instructions, which instructions shall have been delivered to and
acknowledged in writing by the Company’s transfer agent.

 

(iii) The Company shall have delivered to such Investor a certificate evidencing
the incorporation and good standing of the Company issued by the Secretary of
State of the State of Delaware as of a date within ten (10) days of the Closing
Date.

 

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(iv) The Company shall have delivered to such Investor a certificate evidencing
the Company’s qualification as a foreign corporation and good standing issued by
the Pennsylvania Department of State, Corporation Bureau as of a date within ten
(10) days of the Closing Date.

 

(v) The Company shall have delivered to such Investor a certificate, executed by
the Secretary of the Company and dated as of the Closing Date, as to (i) the
resolutions adopted by the Company’s Board in a form reasonably acceptable to
such Investor (the “Resolutions”), (ii) the Certificate of Incorporation and
(iii) the Bylaws, each as in effect at the Closing.

 

(vi) The Company shall have delivered to such Investor the certificates
evidencing the Preferred Shares and the Initial Common Shares and shall have
delivered certificates representing the Escrow Common Shares to the Escrow
Agents.

 

(vii) The Company shall have delivered to such Investor immediately available
funds in an amount set forth with respect to such Investor on Schedule A hereto.

 

(viii) The Designation shall have been accepted for filing with the Secretary of
State of the State of Delaware and a file-stamped copy of the Designation shall
have been delivered to the Investors.

 

(ix) 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.

 

(x) Trading in the Common Stock shall not have been suspended by the Securities
and Exchange Commission or the Principal Market.

 

(xi) Company counsel shall have executed and delivered its legal opinion, in
agreed form, addressed to the Investors.

 

(xii) A Certificate executed by a duly authorized officer of the Company
certifying that (i) all representations and warranties made by the Company and
information furnished by the Company in any schedules to this Agreement, are
true and correct in all material respects as of each of the date of this
Agreement and the Closing Date, (ii) all covenants, agreements and obligations
required by this Agreement to be performed or complied with by the Company,
prior to or at the Closing, have been performed or complied with and (iii) the
items referenced in Sections 7(a)(ix)-(x) shall have been satisfied and are true
and correct as of the Closing.

 

(xiii) Any other documents reasonably requested by such Investor shall be
delivered.

 

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8. MISCELLANEOUS.

 

(a) Governing Law; Jurisdiction; Jury Trial. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of the state and federal
courts sitting in The City of New York, Borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such 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 HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

(b) Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party; provided that a facsimile signature shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a facsimile
signature.

 

(c) Headings. The headings of this Agreement are for convenience of reference
and shall not form part of, or affect the interpretation of, this Agreement.

 

(d) Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.

 

(e) Entire Agreement; Amendments. This Agreement and the other Transaction
Documents supersede all other prior oral or written agreements between the
Investors, the Company, their affiliates and Persons acting on their behalf with
respect to the matters discussed herein and therein, including without
limitation, the letter agreement, dated as of November 9, 2005, and this
Agreement and the other Transaction Documents contain the entire understanding
of the parties with respect to the matters covered herein and therein and,
except as specifically set forth herein or therein, neither the Company nor any
Investor makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be amended other
than by an instrument in writing signed by the Company and the Investors holding
at least two-thirds of the outstanding Common Shares (assuming for this purpose
the full conversion of all of the Preferred Shares). No provision hereof may be
waived other than by an instrument in writing signed by the party against whom

 

22

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enforcement is sought. No such amendment shall be effective to the extent that
it applies to less than all of the holders of the Securities then outstanding.
No consideration shall be offered or paid to any Person to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration also is offered to all of the parties to the
Transaction Documents, or holders of the Securities, as the case may be. The
Company has not, directly or indirectly, made any agreements with any Investors
relating to the terms or conditions of the transactions contemplated by the
Transaction Documents except as set forth in the Transaction Documents.

 

(f) Notices. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile if received by 4:59 p.m.
local time of the recipient, or the following Business Day if received after
4:59 p.m. local time of the recipient (provided in each case that confirmation
of transmission is mechanically or electronically generated and kept on file by
the sending party); or (iii) one Business Day after deposit with an overnight
courier service, in each case properly addressed to the party to receive the
same. The addresses and facsimile numbers for such communications shall be:

 

If to the Company:

 

Aphton Corporation

8 Penn Center, Suite 2300

1628 JFK Boulevard

Philadelphia, PA 19103

Telephone: (215) 218-4340

Facsimile: (215) 218-4355

Attention: Chief Executive Officer

 

with a copy to:

 

Akerman Senterfitt

One Southest Third Avenue

28th Floor

Miami FL 33131-1714

Telephone: (305) 982-5592

Facsimile: (305) 374-5095

Attention: Kara MacCullough

 

If to the Transfer Agent:

 

U.S. Stock Transfer Corporation

1745 Gardena Avenue

Glendale CA 91204-2991

Telephone: (818) 502-1404

Facsimile: (818) 502-0674

Attention: William Garza

 

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If to an Investor, to its address and facsimile number set forth on Schedule A
attached hereto, with copies to such Investor’s representatives as set forth
thereon, or to such other address and/or facsimile number and/or to the
attention of such other Person as may be specified by a party by written notice
given to each other party five (5) days prior to the effectiveness of such
change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender’s facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by an overnight courier service shall be rebuttable
evidence of personal service, receipt by facsimile or receipt from an overnight
courier service in accordance with clause (i), (ii) or (iii) above,
respectively.

 

(g) Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and assigns,
including any purchasers of the Preferred Shares. The Company may assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the Investors in connection with any sale of the Company, whether by
way of merger, consolidation, sale of assets or similar transaction. An Investor
may assign some or all of its rights hereunder without the consent of the
Company, in which event such assignee shall be deemed to be an Investor
hereunder with respect to such assigned rights.

 

(h) No Third Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective permitted successors and assigns, and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person.

 

(i) Survival. The representations, warranties, agreements and covenants set
forth in this Agreement shall survive the Closing. Each Investor shall be
responsible only for its own representations, warranties, agreements and
covenants hereunder.

 

(j) Further Assurances. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.

 

(k) Indemnification by the Company. In consideration of each Investor’s
execution and delivery of the Transaction Documents and acquiring Closing Shares
thereunder and in addition to all of the Company’s other obligations under the
Transaction Documents, the Company shall defend, protect, indemnify and hold
harmless each Investor and each other holder of the Securities and all of their
stockholders, partners, members, officers, directors, employees and direct or
indirect investors and any of the foregoing Persons’ agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
“Investor Indemnitees”) from and against any and all actions, causes of action,
suits, claims, losses, costs, penalties, fees, liabilities and damages, and
expenses in connection therewith (irrespective of whether any such Investor
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys’ fees and disbursements (the
“Investor Indemnified Liabilities”), incurred by any Investor Indemnitee as a
result of, or arising out of, or relating to (a) any misrepresentation or breach
of any representation or warranty made by the Company in the Transaction
Documents or any other certificate, instrument or document contemplated

 

24

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hereby or thereby, (b) any breach of any covenant, agreement or obligation of
the Company contained in the Transaction Documents or any other certificate,
instrument or document contemplated hereby or thereby or (c) any cause of
action, suit or claim brought or made against such Investor Indemnitee by a
third party (including for these purposes a derivative action brought on behalf
of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, (iii) any
disclosure made by such Investor pursuant to Section 4(h), or (iv) the status of
such Investor or holder of the Securities as an investor in the Company. To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Investor Indemnified Liabilities which is
permissible under applicable law. Except as otherwise set forth herein, the
mechanics and procedures with respect to the rights and obligations under this
Section 9(k) shall be the same as those set forth in Section 6 of the
Registration Rights Agreement.

 

(l) No Strict Construction. 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.

 

(m) Remedies. Each Investor and each holder of the Securities shall have all
rights and remedies set forth in the Transaction Documents and all rights and
remedies which such Investors or holders have been granted at any time under any
other agreement or contract and all of the rights which such holders have under
any law. Any Person having any rights under any provision of this Agreement
shall be entitled to enforce such rights specifically (without posting a bond or
other security), to recover damages by reason of any breach of any provision of
this Agreement and to exercise all other rights granted by law. Furthermore, the
Company recognizes that in the event that it fails to perform, observe, or
discharge any or all of its obligations under this Agreement, any remedy at law
may prove to be inadequate relief to the Investors. The Company therefore agrees
that the Investors shall be entitled to seek temporary and permanent injunctive
relief in any such case without the necessity of proving actual damages and
without posting a bond or other security.

 

(n) Payment Set Aside. To the extent that the Company makes a payment or
payments to the Investors hereunder or pursuant to any of the other Transaction
Documents or the Investors enforce or exercise their rights hereunder or
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.

 

(o) Independent Nature of Investors’ Obligations and Rights. The obligations of
each Investor under any Transaction Document are several and not joint with the
obligations of any other Investor, and no Investor shall be responsible in any
way for the

 

25

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performance of the obligations of any other Investor under any Transaction
Document. Nothing contained herein or in any other Transaction Document, and no
action taken by any Investor pursuant hereto or thereto, shall be deemed to
constitute the Investors as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Investors are in any
way acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. Each Investor confirms
that it has independently participated in the negotiation of the transaction
contemplated hereby with the advice of its own counsel and advisors. Each
Investor shall be entitled to independently protect and enforce its rights,
including, without limitation, the rights arising out of this Agreement or out
of any other Transaction Documents, and it shall not be necessary for any other
Investor to be joined as an additional party in any proceeding for such purpose.

 

(p) Heartland Value Fund. The Company understands and agrees that Heartland is
entering into this Agreement solely on behalf of Heartland Value Fund and that
any claims that the Company may have against Heartland Group, Inc. under this
Agreement or otherwise in connection with the transactions contemplated hereby
shall only be made against the assets of the Heartland Value Fund.

 

[Signature Pages Follow]

 

26

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IN WITNESS WHEREOF, the Company has caused this Exchange Agreement to be duly
executed as of the date first written above.

 

COMPANY:

 

APHTON CORPORATION

By:

 

 

/s/ Patrick T. Mooney

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

    Patrick T. Mooney, M.D.     Chief Executive Officer

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

IN WITNESS WHEREOF, each Investor has caused this Exchange Agreement to be duly
executed as of the date first written above.

 

SF CAPITAL PARTNERS LTD. By:  

/s/ Brian H. Davidson

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

Name:   Brian H. Davidson Title:   Authorized Signatory

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

IN WITNESS WHEREOF, each Investor has caused this Exchange Agreement to be duly
executed as of the date first written above.

 

HEARTLAND GROUP, INC

solely on behalf of the Heartland Value Fund

By:  

/s/ Paul T. Beste

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

Name:   Paul T. Beste Title:   Vice President

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

IN WITNESS WHEREOF, each Investor has caused this Exchange Agreement to be duly
executed as of the date first written above.

 

SMITH BARNEY FUNDAMENTAL VALUE FUND INC.

(Nominee Name: Horizon Waves & Co.)

By:  

/s/ John G. Goode

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

Name:   John G. Goode Title:   Vice President