Exhibit 10.1

EXECUTION COPY

SECURITIES PURCHASE AGREEMENT

This SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of July 5, 2011,
is by and among Aradigm Corporation, a California corporation with offices
located at 3929 Point Eden Way, Hayward, CA 94545 (the “Company”), and the
investors listed on the Schedule of Buyers attached hereto (individually, a
“Buyer” and collectively, the “Buyers”).

RECITALS

A. The Company and each Buyer 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 Buyer wishes to purchase, and the Company wishes to sell, upon the terms
and conditions stated in this Agreement, the aggregate number of shares of
common stock, no par value, of the Company (the “Common Stock”) as set forth
opposite such Buyer’s name in column (3) on the Schedule of Buyers (which
aggregate amount for all Buyers shall be 25,000,000 shares of Common Stock and
shall collectively be referred to herein as the “Common Shares”). For avoidance
of doubt, each Buyer is acting separately in the exercise of its rights
hereunder and all of its commitments and liabilities are undertaken on a several
and not joint and several basis.

C. At the Closing, the parties hereto shall execute and deliver a Registration
Rights Agreement, in the form attached hereto as Exhibit A (the “Registration
Rights Agreement”), pursuant to which the Company has agreed to provide certain
registration rights with respect to the Registrable Securities (as defined in
the Registration Rights Agreement), under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.

AGREEMENT

NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and each Buyer hereby
agree as follows:

 

1. PURCHASE AND SALE OF COMMON SHARES.

(a) Common Shares. Subject to the satisfaction (or waiver) of the conditions set
forth in Sections 6 and 7 below, the Company shall issue and sell to each Buyer,
and each Buyer severally, but not jointly, shall purchase from the Company on
the Closing Date (as defined below), such aggregate number of Common Shares as
is set forth opposite such Buyer’s name in column (3) on the Schedule of Buyers.

(b) Closing. The closing (the “Closing”) of the purchase of the Common Shares by
the Buyers shall occur at the offices of Morrison & Foerster LLP, 425 Market
Street, San Francisco, CA 94105. The date and time of the Closing (the “Closing
Date”) shall be 10:00 a.m.,

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New York time, on the first (1st) Business Day on which the conditions to the
Closing set forth in Sections 6 and 7 below are satisfied or waived (or such
later date as is mutually agreed to by the Company and each Buyer). As used
herein “Business Day” means any day other than a Saturday, Sunday or other day
on which commercial banks in New York, New York are required by law to remain
closed.

(c) Purchase Price. The price per Common Share shall be $0.19. The aggregate
purchase price for the Common Shares to be purchased by each Buyer (the
“Purchase Price”) shall be the amount set forth opposite such Buyer’s name in
column (4) on the Schedule of Buyers.

(d) Form of Payment. On or prior to the Closing Date, (i) the Company shall
deliver to each Buyer certificates representing such aggregate number of Common
Shares to the address and in the manner as is set forth opposite such Buyer’s
name in column (3) of the Schedule of Buyers, duly executed on behalf of the
Company and registered in the name of such Buyer or its and (ii) upon
confirmation that the certificates representing such aggregate number of Common
Shares has been received by each fund’s respective custodian, each Buyer shall
pay its respective Purchase Price to the Company for the Common Shares to be
issued and sold to such Buyer at the Closing, by wire transfer of immediately
available funds in accordance with the Company’s written wire instructions.

 

2. BUYER’S REPRESENTATIONS AND WARRANTIES.

Each Buyer, severally and not jointly, represents and warrants to the Company
with respect to only itself that, as of the date hereof and as of the Closing
Date:

(a) Organization; Authority. Such Buyer is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization with the requisite power and authority to enter into and to
consummate the transactions contemplated by the Transaction Documents to which
it is a party and otherwise to carry out its obligations hereunder and
thereunder.

(b) No Public Sale or Distribution. Such Buyer is acquiring its Common Shares
for its own account and not with a view towards, or for resale in connection
with, the public sale or distribution thereof in violation of applicable
securities laws, except pursuant to sales registered or exempted under the 1933
Act; provided, however, by making the representations herein, such Buyer does
not agree, or make any representation or warranty, to hold any of the Common
Shares for any minimum or other specific term and reserves the right to dispose
of the Common Shares at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act. Such Buyer is
acquiring the Common Shares hereunder in the ordinary course of its business.
Such Buyer does not presently have any agreement or understanding, directly or
indirectly, with any Person to distribute any of the Common Shares in violation
of applicable securities laws.

 

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(c) Accredited Investor Status. At the time such Buyer was offered the Common
Shares, such Buyer was, and as of the date hereof such Buyer is, an “accredited
investor” as that term is defined in Rule 501(a) of Regulation D. Such Buyer is
not a registered broker-dealer under Section 15 of the Securities Exchange Act
of 1934, as amended (the “1934 Act”). Such Buyer, either alone or together with
its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of such investment. Such Buyer is able to bear the economic risk of an
investment in the Common Shares.

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

(e) Information. Such Buyer and its advisors, if any, have been furnished with
all materials relating to the business, finances and operations of the Company
and materials relating to the offer and sale of the Common Shares which have
been requested by such Buyer. Such Buyer 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 Buyer or its
advisors, if any, or its representatives shall modify, amend or affect such
Buyer’s right to rely on the Company’s representations and warranties contained
herein or any representations and warranties contained in any other Transaction
Document or any other document or instrument executed and/or delivered in
connection with this Agreement or the consummation of the transaction
contemplated hereby. Such Buyer understands that its investment in the Common
Shares involves a high degree of risk. Such Buyer 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 Common Shares.

(f) No Governmental Review. Such Buyer 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 Common Shares or the fairness or
suitability of the investment in the Common Shares nor have such authorities
passed upon or endorsed the merits of the offering of the Common Shares.

(g) Transfer or Resale. Such Buyer understands that except as provided in the
Registration Rights Agreement and Section 4(g) hereof: (i) the Common Shares
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 Buyer shall have
delivered to the Company (if requested by the Company) an opinion of counsel to
such Buyer, in a form reasonably acceptable to the Company, to the effect that
such Common Shares to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, or (C) such Buyer
provides the Company with reasonable assurance that such Common Shares 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 Common Shares 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 Common Shares under circumstances in which the
seller (or the

 

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Person (as defined below) 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 promulgated thereunder; and (iii) neither the Company nor any other Person
is under any obligation to register the Common Shares under the 1933 Act or any
state securities laws or to comply with the terms and conditions of any
exemption thereunder.

(h) Validity; Enforcement. This Agreement and the Registration Rights Agreement
have been duly and validly authorized, executed and delivered on behalf of such
Buyer and constitute the legal, valid and binding obligations of such Buyer
enforceable against such Buyer 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) No Conflicts. The execution, delivery and performance by such Buyer of this
Agreement and the Registration Rights Agreement and the consummation by such
Buyer of the transactions contemplated hereby and thereby will not (i) result in
a violation of the organizational documents of such Buyer or (ii) conflict with,
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which such Buyer is a party, or (iii) result in a violation of any
law, rule, regulation, order, judgment or decree (including federal and state
securities laws) applicable to such Buyer, except in the case of clauses
(ii) and (iii) above, for such conflicts, defaults, rights or violations which
would not, individually or in the aggregate, reasonably be expected to have a
material adverse effect on the ability of such Buyer to perform its obligations
hereunder.

(j) Residency. Such Buyer is a resident of the jurisdiction specified below its
address on the Schedule of Buyers.

(k) Certain Trading Activities. Such Buyer has not directly or indirectly, nor
has any person acting on behalf of or pursuant to any understanding with such
Buyer, engaged in any transactions in the securities of the Company (including,
without limitation, Short Sales involving the Company’s securities) since the
time that such Buyer was first contacted by the Company regarding the investment
in the Company contemplated herein. “Short Sales” include, without limitation,
all “short sales” as defined in Rule 200 promulgated under Regulation SHO under
the 1934 Act and all types of direct and indirect stock pledges, forward sales
contracts, options, puts, calls, swaps and similar arrangements (including on a
total return basis), and sales and other transactions through non-U.S. broker
dealers or foreign regulated brokers (but shall not be deemed to include the
location and/or reservation of borrowable shares of Common Stock).

(l) General Solicitation. Such Buyer is not purchasing the Common Shares as a
result of any advertisement, article, notice or other communication regarding
the Common Shares published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar.

 

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3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

The Company represents and warrants to each of the Buyers that, as of the date
hereof and as of the Closing Date and except as set forth in the Schedules
prepared by the Company and attached hereto:

(a) Organization and Qualification; Subsidiaries. Each of the Company and the
Subsidiaries (as defined below) is an entity duly organized and validly existing
and in good standing under the laws of the jurisdiction in which they are
formed, and has the requisite power and authorization to own their properties
and to carry on their business as now being conducted and as presently proposed
to be conducted. Each of the Company and the Subsidiaries is duly qualified as a
foreign entity 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 (i) the business, properties, assets, liabilities, operations
(including results thereof), condition (financial or otherwise) or prospects of
the Company and the Subsidiaries, taken as a whole, (ii) the transactions
contemplated hereby or in any of the other Transaction Documents or (iii) the
authority or ability of the Company to perform any of its respective obligations
under any of the Transaction Documents (as defined below). The Company has the
Subsidiaries set forth on Schedule 3(a) (each a “Subsidiary” and collectively
the “Subsidiaries”). “Subsidiary” means any Person in which the Company,
directly or indirectly, (I) owns at least fifty percent (50% of the outstanding
capital stock or holds at least fifty percent (50%) of the equity or similar
interest of such Person or (II) controls or operates all or any part of the
business, operations or administration of such Person.

(b) Authorization; Enforcement; Validity.

The Company has the requisite power and authority to enter into and perform its
obligations under this Agreement and the other Transaction Documents and to
issue the Common Shares in accordance with the terms hereof and thereof. Each
Subsidiary has the requisite power and authority to enter into and perform its
obligations under the Transaction Documents to which it is a party. The
execution and delivery of this Agreement and the other 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 Common Shares) have been duly authorized by the Company’s board of directors
and (other than the filing with the SEC of one or more Registration Statements
in accordance with the requirements of the Registration Rights Agreement, a Form
D with the SEC and any other filings as may be required by any state securities
agencies) no further filing, consent or authorization is required by the Company
or its board of directors or its shareholders or other governing body. This
Agreement has been, and the other Transaction Documents will be prior to the
Closing, duly executed and delivered by the Company or its agent, and each
constitutes the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with its respective terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of applicable creditors’
rights and remedies and except as rights to indemnification and to contribution
may be limited by federal or state

 

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securities law. “Transaction Documents” means, collectively, this Agreement, the
Registration Rights Agreement, and each of the other agreements and instruments
entered into or delivered by any of the parties hereto in connection with the
transactions contemplated hereby and thereby, as may be amended from time to
time.

(c) Issuance of Common Shares. The Common Shares, when issued, will be validly
issued, fully paid and nonassessable and free from all preemptive or similar
rights, taxes, liens, charges and other encumbrances with respect to the issue
thereof, with the holders being entitled to all rights accorded to a holder of
Common Stock. Subject to the accuracy of the representations and warranties of
the Buyers in this Agreement, the offer and issuance by the Company of the
Common 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 Common Shares) will not (i) result in a violation of the Articles of
Incorporation (as defined below) or the Bylaws (as defined below), (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any Subsidiary is a party, or (iii) result in
a violation of any law, rule, regulation, order, judgment or decree (including
foreign, federal and state securities laws and regulations and the rules and
regulations of the OTC Bulletin Board (the “Principal Market”) and including all
applicable federal laws, rules and regulations) applicable to the Company or any
Subsidiary or by which any property or asset of the Company or any Subsidiary is
bound or affected except, in the case of clause (ii) or (iii) above, to the
extent such violations that could not reasonably be expected to have a Material
Adverse Effect.

(e) Consents. Neither the Company nor any Subsidiary is required to obtain any
consent from, authorization or order of, or make any filing or registration with
(other than the filing with the SEC of one or more Registration Statements in
accordance with the requirements of the Registration Rights Agreement, a Form D
with the SEC and any other filings as may be required by any state securities
agencies), 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 respective obligations under or contemplated by the Transaction Documents,
in each case, in accordance with the terms hereof or thereof. All consents,
authorizations, orders, filings and registrations which the Company or any
Subsidiary is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the Closing Date, and neither the Company
nor any Subsidiary is aware of any facts or circumstances which might prevent
the Company or any Subsidiary from obtaining or effecting any of the
registration, application or filings contemplated by the Transaction Documents.
The Company is not in violation of the requirements of the Principal Market and
has no knowledge of any facts or circumstances which could reasonably lead to
delisting or suspension of the Common Stock in the foreseeable future.

(f) Acknowledgment Regarding Buyer’s Purchase of Common Shares. The Company
acknowledges and agrees that, to its actual knowledge, each Buyer is acting
solely in the capacity of an arm’s length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby and thereby and
that no Buyer is an officer or director of the

 

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Company or any Subsidiary. The Company further acknowledges that no Buyer is
acting as a financial advisor or fiduciary of the Company or any Subsidiary (or
in any similar capacity) with respect to the Transaction Documents and the
transactions contemplated hereby and thereby, and any advice given by a Buyer 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 Buyer’s purchase of the Common Shares. The Company further
represents to each Buyer that the Company’s decision to enter into the
Transaction Documents to which it is a party 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 Subsidiary or 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 Common
Shares. 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 Buyer or its investment advisor) relating to or arising
out of the transactions contemplated hereby. Other than Ladenburg Thalmann & Co.
Inc. (the “Placement Agent”), neither the Company nor any Subsidiary has engaged
any placement agent or other agent in connection with the sale of the Common
Shares.

(h) No Integrated Offering. None of the Company, any Subsidiary or any of their
affiliates, nor 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 the issuance of
any of the Common Shares under the 1933 Act, whether through integration with
prior offerings or otherwise, or cause this offering of the Common Shares to
require approval of shareholders of the Company under any applicable shareholder
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. None of the Company, any
Subsidiary, their affiliates nor any Person acting on their behalf will take any
action or steps that would require registration of the issuance of any of the
Common Shares under the 1933 Act or cause the offering of any of the Common
Shares hereunder to be integrated with other offerings.

(i) Application of Takeover Protections; Rights Agreement. The Company and its
board of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, interested shareholder, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Articles of Incorporation,
Bylaws or other organizational documents or the laws of the jurisdiction of its
incorporation or otherwise which is or could become applicable to any Buyer
solely as a result of the transactions contemplated by this Agreement,
including, without limitation, the Company’s issuance of the Common Shares and
any Buyer’s ownership of the Common Shares. The Company and its board of
directors have taken all necessary action, if any, in order to render
inapplicable any shareholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of the Common Shares or a change in
control of the Company or any Subsidiary, in each case, solely as a result of
the transactions contemplated by this Agreement.

 

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(j) SEC Documents; Financial Statements. During the two (2) years prior to the
date hereof, the Company has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC pursuant
to the reporting requirements of the 1934 Act (all of the foregoing filed prior
to the date hereof and all exhibits included therein and financial statements,
notes 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 as in effect as
of the time of filing. 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 which will not be
material, either individually or in the aggregate). No other information
provided by or on behalf of the Company to the Buyers which is not included in
the SEC Documents (including, without limitation, information referred to in
Section 2(e) 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 not misleading, in the light of the circumstance under which they are or
were made.

(k) Absence of Certain Changes. Except as set forth in the SEC Documents, there
has been no material adverse change and no material adverse development in the
business, assets, liabilities, properties, operations (including results
thereof), condition (financial or otherwise) or prospects of the Company and the
Subsidiaries, taken as a whole. Since the date of the Company’s most recent
audited financial statements contained in a Form 10-K, neither the Company nor
any Subsidiary has (i) declared or paid any dividends, (ii) sold any assets,
individually or in the aggregate, outside of the ordinary course of business or
(iii) made any material capital expenditures, individually or in the aggregate.
Neither the Company nor any Subsidiary has taken any steps to seek protection
pursuant to any law or statute relating to bankruptcy, insolvency,
reorganization, receivership, liquidation or winding up, nor does the Company or
any Subsidiary have any knowledge or reason to believe that any of their
respective creditors intend to initiate involuntary bankruptcy proceedings or
any actual knowledge of any fact which would reasonably lead a creditor to do
so. The Company is not as of the date hereof, and after giving effect to the
transactions contemplated hereby to occur at the Closing, will not be Insolvent
(as defined below). For purposes of this Section 3(k), “Insolvent” means
(I) with respect to the Company and the Subsidiaries, on a consolidated basis,
(i) the present fair saleable value of the Company’s and the Subsidiaries’
assets is less than the amount required to pay the Company’s and the
Subsidiaries’ total Indebtedness (as defined below), (ii) the Company and the
Subsidiaries are unable to pay their debts and liabilities, subordinated,
contingent or otherwise,

 

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as such debts and liabilities become absolute and matured or (iii) the Company
and the Subsidiaries intend to incur or believe that they will incur debts that
would be beyond their ability to pay as such debts mature; and (II) with respect
to the Company and each Subsidiary, individually, (i) the present fair saleable
value of the Company’s assets is less than the amount required to pay the
Company’s total Indebtedness, (ii) the Company is unable to pay its debts and
liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured or (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. Neither the Company nor any Subsidiary has engaged in any
business or in any transaction, and is not about to engage in any business or in
any transaction, for which the Company’s or any Subsidiary’s remaining assets
constitute unreasonably small capital.

(l) No Undisclosed Events, Liabilities, Developments or Circumstances. Except as
set forth in the SEC Documents, no event, liability, development or circumstance
has occurred or exists, or is reasonably expected to exist or occur with respect
to the Company, the Subsidiaries or their respective business, properties,
liabilities, prospects, operations (including results thereof) or condition
(financial or otherwise), that (i) would be required to be disclosed by the
Company under applicable securities laws on a registration statement on Form S-3
filed with the SEC relating to an issuance and sale by the Company of its Common
Stock and which has not been publicly announced, (ii) would reasonably be
expected to have a Material Adverse Effect or (iii) would reasonably be expected
to have a material adverse effect on any Buyer’s investment hereunder.

(m) Conduct of Business; Regulatory Permits. Neither the Company nor any
Subsidiary is in violation of any term of or in default under its Articles of
Incorporation, Bylaws, any certificate of designation, preferences or rights of
any other outstanding series of preferred stock of the Company or the
Subsidiaries or their organizational charter, certificate of formation or
certificate of incorporation or bylaws, respectively. Neither the Company nor
any Subsidiary is in violation of any judgment, decree or order or any statute,
ordinance, rule or regulation applicable to the Company or any Subsidiary, and
neither the Company nor any Subsidiary will conduct its business in violation of
any of the foregoing, except in all cases for possible violations which could
not, individually or in the aggregate, have a Material Adverse Effect. Without
limiting the generality of the foregoing, the Company is not in violation of any
of the rules, regulations or requirements of the Principal Market and has no
knowledge of any facts or circumstances that could reasonably lead to delisting
or suspension of the Common Stock by the Principal Market in the foreseeable
future. Since January 1, 2008, other than as set forth in the SEC Documents,
(i) the Common Stock has been listed or designated for quotation 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 the
Subsidiaries possess all certificates, authorizations and permits issued by the
appropriate 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 Subsidiary has received
any notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit.

 

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(n) Foreign Corrupt Practices. Neither the Company nor any Subsidiary nor, to
the Company’s knowledge, any director, officer, agent, employee or other Person
acting on behalf of the Company or any Subsidiary has, in the course of its
actions for, or on behalf of, the Company or any Subsidiary (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.

(o) Sarbanes-Oxley Act. Other than as disclosed in the SEC Documents, the
Company and each Subsidiary is in compliance with all applicable requirements of
the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and all
applicable rules and regulations promulgated by the SEC thereunder that are
effective as of the date hereof.

(p) Transactions With Affiliates. Other than as disclosed in the SEC Documents,
none of the officers, directors or employees of the Company or any Subsidiary is
presently a party to any transaction with the Company or any Subsidiary (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 or any
Subsidiary, any corporation, partnership, trust or other Person in which any
such officer, director, or employee has a substantial interest or is an
employee, officer, director, trustee or partner.

(q) Equity Capitalization. As of the date hereof, the authorized capital stock
of the Company consists of (i) 213,527,214 shares of Common Stock, of which
173,114,301 are issued and outstanding and 14,003,222 shares are reserved for
issuance pursuant to securities exercisable or exchangeable for, or convertible
into, shares of Common Stock and (ii) 5,000,000 shares of Preferred Stock, no
par value, of which none are outstanding. No shares of Common Stock are held in
treasury. All of such outstanding shares are duly authorized and have been, or
upon issuance will be, validly issued and are fully paid and nonassessable. None
of the Company’s or any Subsidiary’s capital stock is subject to preemptive
rights or any other similar rights or any liens or encumbrances suffered or
permitted by the Company or any Subsidiary. Except as disclosed in the SEC
Documents, 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
capital stock of the Company or any Subsidiary, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is or may
become bound to issue additional capital stock of the Company or any Subsidiary
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 capital stock of the Company or any
Subsidiary. Except as disclosed in the SEC Documents, there are no outstanding
debt securities, notes, credit agreements, credit facilities or other
agreements, documents or instruments evidencing Indebtedness of the Company or
any Subsidiary or by which the Company or any Subsidiary is or may become bound.
There are no financing statements securing obligations in any amounts filed in
connection with the Company or any Subsidiary. There are no agreements or

 

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arrangements under which the Company or any Subsidiary is obligated to register
the sale of any of their securities under the 1933 Act (except pursuant to the
Registration Rights Agreement and the Company’s registration rights agreement
dated June 21, 2010). Except as disclosed in the SEC Documents, there are no
outstanding securities or instruments of the Company or the Subsidiaries which
contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to redeem a security of the Company or any
Subsidiary. There are no securities or instruments containing anti-dilution or
similar provisions that will be triggered by the issuance of the Common Shares.
Neither the Company nor any Subsidiary has any stock appreciation rights or
“phantom stock” plans or agreements or any similar plan or agreement. Neither
the Company nor any Subsidiary has any liabilities or obligations required to be
disclosed in the SEC Documents which are not so disclosed in the SEC Documents,
other than those incurred in the ordinary course of the Company’s or the
Subsidiaries’ respective businesses and which, individually or in the aggregate,
do not or could not have a Material Adverse Effect. Copies of the Company’s
Articles of Incorporation, as amended and as in effect on the date hereof (the
“Articles of Incorporation”), and the Company’s bylaws, as amended and as in
effect on the date hereof (the “Bylaws”), have been filed as exhibits with the
SEC and are available on the SEC’s website at www.sec.gov.

(r) Indebtedness and Other Contracts. Except as disclosed in the SEC Documents,
neither the Company nor any Subsidiary (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 which, by the other party(ies) to such
contract, agreement or instrument could reasonably be expected to 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 (including, without limitation, “capital leases” in
accordance with generally accepted accounting principles) (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, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights)

 

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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, any other
entity and a government or any department or agency thereof.

(s) Absence of Litigation. Except as disclosed in the SEC Documents, 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 or the Subsidiaries, the Common Stock or any of the
Company’s or the Subsidiaries’ officers or directors which is outside of the
ordinary course of business or individually or in the aggregate material to the
Company or the Subsidiaries. There has not been, and to the knowledge of the
Company, there is not pending or contemplated, any investigation by the SEC
involving the Company, the Subsidiaries or any current or former director or
officer of the Company or any Subsidiary. The SEC has not issued any stop order
or other order suspending the effectiveness of any registration statement filed
by the Company under the 1933 Act or the 1934 Act.

(t) Insurance. The Company and the 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 the Subsidiaries are engaged. Neither the
Company nor any Subsidiary has been refused any insurance coverage sought or
applied for, and neither the Company nor any Subsidiary has any reason to
believe that it will be unable 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. Neither the Company nor any Subsidiary is a party to any
collective bargaining agreement or employs any member of a union. The Company
believes that its and its Subsidiaries’ relations with their respective
employees are good. No executive officer (as defined in Rule 501(f) promulgated
under the 1933 Act) or other key employee of the Company or any Subsidiary has
notified the Company or any Subsidiary that such officer intends to leave the
Company or any Subsidiary or otherwise terminate such officer’s employment with
the Company or any Subsidiary. To the Company’s knowledge, no executive officer
or other key employee of the Company or any Subsidiary 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 or other
key employee (as the case may be), to the Company’s knowledge, does not subject
the Company or the

 

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Subsidiaries to any liability with respect to any of the foregoing matters. The
Company and the Subsidiaries are in compliance with all federal, state, local
and foreign laws and regulations respecting labor, employment and employment
practices and benefits, 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 the Subsidiaries have good and marketable title in
fee simple to all real property, and have good and marketable title to all
personal property (exclusive of intellectual property), owned by them which is
material to the business of the Company and the Subsidiaries, in each case, free
and clear of all liens, encumbrances and defects except such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company and the
Subsidiaries. Any real property and facilities held under lease by the Company
or the 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
or the Subsidiaries.

(w) Intellectual Property Rights. The Company and the 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, original works, inventions, licenses, approvals, governmental
authorizations, trade secrets and other intellectual property rights and all
applications and registrations therefor (“Intellectual Property Rights”)
necessary to conduct their respective businesses as now conducted and as
presently proposed to be conducted. None of the Company’s or any Subsidiary’s
Intellectual Property Rights necessary to conduct their respective businesses as
now conducted and as presently proposed to be conducted have expired, terminated
or been abandoned, or are expected to expire, terminate or be abandoned, within
three years from the date of this Agreement. The Company has no knowledge of any
infringement by the Company or any Subsidiary of Intellectual Property Rights of
others. There is no claim, action or proceeding being made or brought, or to the
knowledge of the Company or any Subsidiary, being threatened, against the
Company or any Subsidiary regarding their Intellectual Property Rights except as
disclosed in the SEC Documents. The Company is not aware of any facts or
circumstances which might give rise to any of the foregoing infringements or
claims, actions or proceedings. The Company and the Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their Intellectual Property Rights.

(x) Environmental Laws. The Company and the Subsidiaries (i) are in compliance
with all Environmental Laws (as defined below), (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”)

 

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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 the Subsidiaries as owned by the
Company.

(z) Tax Status. The Company and the Subsidiaries (i) has timely made or filed
all foreign, federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject, (ii) has
timely 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 provision reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply except in each case where the failure to file, pay or set aside 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 and the Subsidiaries know of no basis for any such claim. The
Company is not operated in such a manner as to qualify as a passive foreign
investment company, as defined in Section 1297 of the U.S. Internal Revenue Code
of 1986, as amended.

(aa) Internal Accounting and Disclosure Controls. The Company and the
Subsidiaries maintain internal control over financial reporting (as such term is
defined in Rule 13a-15(f) under the 1934 Act) that is effective to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles, including 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. The Company maintains disclosure controls and procedures (as such
term is defined in Rule 13a-15(e) under the 1934 Act) that are effective in
ensuring that information required to be disclosed by the Company in the reports
that it files or submits under the 1934 Act is recorded, processed, summarized
and reported, within the time periods specified in the rules and forms of the
SEC, including, without limitation, controls and procedures designed to ensure
that information required to be disclosed by the Company in the reports that it
files or submits under the 1934 Act is accumulated and communicated to the
Company’s management, including its principal executive officer or officers and
its principal financial officer or officers, as appropriate, to allow timely
decisions regarding required disclosure. Since January 1, 2008, neither the
Company nor any Subsidiary has received any notice or correspondence from any
accountant relating to any potential material weakness in any part of the
internal controls over financial reporting of the Company or any Subsidiary.

 

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(bb) Off Balance Sheet Arrangements. There is no transaction, arrangement, or
other relationship between the Company or any Subsidiary and an unconsolidated
or other off balance sheet entity that is required to be disclosed by the
Company in its 1934 Act filings and is not so disclosed or that otherwise could
be reasonably likely to have a Material Adverse Effect.

(cc) Investment Company Status. The Company is not, and upon consummation of the
sale of the Common Shares will not be, an “investment company,” an affiliate of
an “investment company,” a company controlled by an “investment company” or an
“affiliated person” of, or “promoter” or “principal underwriter” for, an
“investment company” as such terms are defined in the Investment Company Act of
1940, as amended.

(dd) Acknowledgement Regarding Buyers’ Trading Activity. It is understood and
acknowledged by the Company that: (i) other than as contemplated by
Section 2(k), following the public disclosure of the transactions contemplated
by the Transaction Documents, in accordance with the terms thereof, none of the
Buyers have been asked by the Company or any Subsidiary to agree, nor has any
Buyer agreed with the Company or any Subsidiary, to desist from effecting any
transactions in or with respect to (including, without limitation, purchasing or
selling, long and/or short) any securities of the Company, or “derivative”
securities based on securities issued by the Company or to hold the Common
Shares for any specified term; (ii) any Buyer, and counterparties in
“derivative” transactions to which any such Buyer is a party, directly or
indirectly, presently may have a “short” position in the Common Stock which was
established prior to such Buyer’s knowledge of the transactions contemplated by
the Transaction Documents; and (iii) each Buyer shall not be deemed to have any
affiliation with or control over any arm’s length counterparty in any
“derivative” transaction. The Company further understands and acknowledges that
following the public disclosure of the transactions contemplated by the
Transaction Documents pursuant to the Press Release (as defined below) (a) or
more Buyers may engage in hedging and/or trading activities at various times
during the period that the Common Shares are outstanding and (b) hedging and/or
trading activities, if any, can reduce the value of the existing shareholders’
equity interest in the Company both at and after the time the hedging and/or
trading activities are being conducted. The Company acknowledges that such
aforementioned hedging and/or trading activities do not constitute a breach of
this Agreement or any other Transaction Document or any of the documents
executed in connection herewith or therewith.

(ee) Manipulation of Price. Neither the Company nor any Subsidiary has, and, to
the knowledge of the Company, no Person acting on their behalf has, directly or
indirectly, (i) taken any action designed to cause or to result in the
stabilization or manipulation of the price of any security of the Company or any
Subsidiary to facilitate the sale or resale of any of the Common Shares,
(ii) sold, bid for, purchased, or paid any compensation for soliciting purchases
of, any of the Common Shares (other than the Placement Agent), or (iii) paid or
agreed to pay to any Person any compensation for soliciting another to purchase
any other securities of the Company or any Subsidiary.

(ff) U.S. Real Property Holding Corporation. Neither the Company nor any
Subsidiary is, or has ever been, and so long as any of the Common Shares are
held by any of the Buyers, shall become, a U.S. real property holding
corporation within the meaning of Section 897 of the Internal Revenue Code of
1986, as amended, and the Company and each Subsidiary shall so certify upon any
Buyer’s request.

 

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(gg) Registration Eligibility. The Company is eligible to register the
Registrable Securities for resale by the Buyers using Form S-1 promulgated under
the 1933 Act.

(hh) Transfer Taxes. On the Closing Date, all stock transfer or other taxes
(other than income or similar taxes) which are required to be paid in connection
with the issuance, sale and transfer of the Common Shares to be sold to each
Buyer hereunder will be, or will have been, fully paid or provided for by the
Company, and all laws imposing such taxes will be or will have been complied
with.

(ii) Bank Holding Company Act. Neither the Company nor any Subsidiary is subject
to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to
regulation by the Board of Governors of the Federal Reserve System (the “Federal
Reserve”). Neither the Company nor any Subsidiary or affiliates owns or
controls, directly or indirectly, five percent (5%) or more of the outstanding
shares of any class of voting securities or twenty-five percent (25%) or more of
the total equity of a bank or any equity that is subject to the BHCA and to
regulation by the Federal Reserve. Neither the Company nor any Subsidiary or
affiliates exercises a controlling influence over the management or policies of
a bank or any entity that is subject to the BHCA and to regulation by the
Federal Reserve.

(jj) Public Utility Holding Act. None of the Company nor any Subsidiary is a
“holding company,” or an “affiliate” of a “holding company,” as such terms are
defined in the Public Utility Holding Act of 2005.

(kk) Federal Power Act. None of the Company nor any Subsidiary is subject to
regulation as a “public utility” under the Federal Power Act, as amended.

(ll) No Additional Agreements. The Company does not have any agreement or
understanding with any Buyer with respect to the transactions contemplated by
the Transaction Documents other than as specified in the Transaction Documents.

(mm) Disclosure. The Company confirms that neither it nor any other Person
acting on its behalf has provided any of the Buyers or their agents or counsel
with any information that constitutes or could reasonably be expected to
constitute material, non-public information concerning the Company or any
Subsidiary, other than the existence of the transactions contemplated by this
Agreement and the other Transaction Documents. The Company understands and
confirms that each of the Buyers will rely on the foregoing representations in
effecting transactions in securities of the Company. All disclosure provided to
the Buyers regarding the Company and the Subsidiaries, their businesses and the
transactions contemplated hereby, including the schedules to this Agreement,
furnished by or on behalf of the Company or the Subsidiaries is true and correct
and does not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. No event
or circumstance has occurred or information exists with respect to the Company
or the Subsidiaries or its or their business, properties, liabilities,
prospects, operations (including results thereof) or conditions (financial or
otherwise), which, under applicable law, rule or regulation, requires

 

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public disclosure at or before the date hereof or announcement by the Company
but which has not been so publicly disclosed. The Company acknowledges and
agrees that no Buyer makes or has made any representations or warranties with
respect to the transactions contemplated hereby other than those specifically
set forth in Section 2.

(nn) Shell Company Status. The Company is not, and has never been, an issuer
identified in, or subject to, Rule 144(i) of the 1933 Act.

(oo) No Other Registration Rights. There are no agreements or arrangements under
which the Company or any Subsidiary is obligated to register the sale of any of
their securities under the 1933 Act (except pursuant to the Registration Rights
Agreement and the Company’s registration rights agreement dated June 21, 2010).

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

 

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4. COVENANTS.

(a) Efforts. Each Buyer shall use its reasonable best efforts to timely satisfy
each of the conditions to be satisfied by it as provided in Section 6 of this
Agreement. The Company shall use its reasonable best efforts to timely satisfy
each of the conditions to be satisfied by it as provided in Section 7 of this
Agreement.

(b) Form D and Blue Sky. The Company agrees to file with the SEC a Form D with
respect to the Common Shares as required under Regulation D and to provide a
copy thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for, or to, qualify the
Common Shares for sale to the Buyers at the Closing pursuant to this Agreement
under applicable securities or “Blue Sky” laws of the states of the United
States (or to obtain an exemption from such qualification), and shall provide
evidence of any such action so taken to the Buyers on or prior to the Closing
Date. The Company shall make any filings and reports relating to the offer and
sale of the Common Shares required under applicable securities or “Blue Sky”
laws of the states of the United States following the Closing Date.

(c) Use of Proceeds. The Company shall use the proceeds from the sale of the
Common Shares for the payment of the fees and expenses described in Section 4(f)
below and general corporate purposes. The Company shall issue not less than
25,000,000 Common Shares in this offering.

(d) Financial Information. The Company agrees to send the following to each
Investor (as defined in the Registration Rights Agreement) during the Reporting
Period, unless the following are filed with or furnished to the SEC through
EDGAR and are available to the public through the EDGAR system, within one
(1) Business Day after the filing thereof with the SEC, a copy of its Annual
Reports on Form 10-K and Quarterly Reports on Form 10-Q, any interim reports or
any consolidated balance sheets, income statements, stockholders’ equity
statements and/or cash flow statements for any period other than annual that are
made publicly available, 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.

(e) Listing. The Company shall use its reasonable best efforts to promptly
secure the listing or designation for quotation (as the case may be) of all of
the Common Shares upon each national securities exchange and automated quotation
system, if any, upon which the Common Stock is then listed or designated for
quotation (as the case may be) (subject to official notice of issuance) and
shall maintain such listing or designation for quotation (as the case may be) of
all Common Shares from time to time issuable under the terms of the Transaction
Documents on such national securities exchange or automated quotation system.
The Company shall use its reasonable best efforts to maintain the Common Stock’s
listing or authorization for quotation (as the case may be) on the Principal
Market, the NYSE Amex, The New York Stock Exchange, the Nasdaq Global Market,
the Nasdaq Global Select Market or the Nasdaq Capital Market (each, an “Eligible
Market”). The Company shall not take any action which could be reasonably
expected to result in the delisting or suspension of the Common Stock on an
Eligible Market. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section 4(e).

 

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(f) Fees. The Company shall be responsible for the payment of any placement
agent’s fees, financial advisory fees, transfer agent fees, DTC (as defined
below) fees or broker’s commissions (other than for Persons engaged by any
Buyer) relating to or arising out of the transactions contemplated hereby
(including, without limitation, any fees payable to the Placement Agent, who is
the Company’s sole placement agent in connection with the transactions
contemplated by this Agreement). The Company shall pay, and hold each Buyer
harmless against, any liability, loss or expense (including, without limitation,
reasonable attorneys’ fees and out-of-pocket expenses) arising in connection
with any claim relating to any such payment. Except as otherwise set forth in
the Transaction Documents, each party to this Agreement shall bear its own
expenses in connection with the sale of the Common Shares to the Buyers.

(g) Pledge of Common Shares. Notwithstanding anything to the contrary contained
in Section 2(g), the Company acknowledges and agrees that the Common Shares may
be pledged by a Buyer in connection with a bona fide margin agreement or other
bona fide loan or financing arrangement that is secured by the Common Shares.
The pledge of Common Shares shall not be deemed to be a transfer, sale or
assignment of the Common Shares hereunder except as may otherwise be required
under applicable securities laws, and no Buyer effecting a pledge of Common
Shares 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. The Company hereby agrees to execute and deliver
such documentation as a pledgee of the Common Shares may reasonably request in
connection with a pledge of the Common Shares to such pledgee by a Buyer.

(h) Disclosure of Transactions and Other Material Information. The Company
shall, on or before 9:00 a.m., New York time, on the first (1st) Business Day
after the date of this Agreement, issue a press release (the “Press Release”)
reasonably acceptable to the Buyers disclosing all the material terms of the
transactions contemplated by the Transaction Documents. On or before 5:30 p.m.,
New York time, on the first (1st) Business Day following the date of this
Agreement, the Company shall file a Current Report on Form 8-K describing all
the material terms of the transactions contemplated by the Transaction Documents
in the form required by the 1934 Act and attaching all the material Transaction
Documents (including, without limitation, this Agreement (and all schedules to
this Agreement) and the form of the Registration Rights Agreement) (including
all attachments, the “8-K Filing”). From and after the issuance of the 8-K
Filing, the Company shall have disclosed all material, non-public information
(if any) delivered to any of the Buyers by the Company or any of its
Subsidiaries, or any of their respective officers, directors, employees or
agents in connection with the transactions contemplated by the Transaction
Documents. The Company shall not, and the Company shall cause each of its
officers, directors, employees and agents not to, provide any Buyer with any
material, non-public information regarding the Company or the Subsidiaries from
and after the issuance of the Press Release without the express prior written
consent of such Buyer. Subject to the foregoing, neither the Company, any
Subsidiary nor any Buyer shall issue any press releases or any other public
statements with respect to the transactions contemplated hereby; provided,
however, (i) the Company shall be entitled, without the prior approval of any
Buyer, to make any press release or other public disclosure with respect to such
transactions (A) in substantial conformity with the 8-K Filing and
contemporaneously therewith and (B) as is required by applicable law and
regulations (provided that in the case of clause (A) each Buyer shall receive an
advanced draft of any such press release or other public disclosure prior to its
release) and (ii)

 

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each Buyer may make such filings as may be required under Section 13 and
Section 16 of the 1934 Act. Without the prior written consent of the applicable
Buyer and notwithstanding anything to the contrary in this Agreement, the
Company shall not (and shall cause the Subsidiaries and affiliates to not)
disclose the name of such Buyer or any affiliate of the Buyer in any filing,
announcement, release or otherwise, except as otherwise required by any law,
rule or regulation applicable to the Company after consultation with the Buyer.

(i) Additional Registration Statements. Until the Applicable Date (as defined
below) and at any time thereafter while any Registration Statement is not
effective or the prospectus contained therein is not available for use, the
Company shall not file a registration statement under the 1933 Act (other than
any registration statement on Form S-8) unless such registration statement
relates to the Registrable Securities (other than any registration statement on
Form S-8); provided, however that this Section 4(i) shall not in any way
prohibit the Company from filing amendments to registration statements filed
prior to the date of this Agreement so long as any such amendment does not
increase the number of securities covered thereby or effect the issuance of any
securities thereunder (other than pursuant to any registration statement on Form
S-8). “Applicable Date” means the earlier of (i) the first date on which the
resale by the Buyers of all Registrable Securities is covered by one or more
effective Registration Statements (as defined in the Registration Rights
Agreement) (and each prospectus contained therein is available for use on such
date) and (ii) the date on which the Buyers of all Registrable Securities can
freely sell such Registrable Securities under Rule 144.

(j) Conduct of Business. The business of the Company and the 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.

(k) Passive Foreign Investment Company. The Company shall conduct its business
in such a manner as will ensure that the Company will not be deemed to
constitute a passive foreign investment company within the meaning of
Section 1297 of the U.S. Internal Revenue Code of 1986, as amended.

 

5. TRANSFER AGENT INSTRUCTIONS; LEGEND.

(a) Transfer Agent Instructions. The Company represents and warrants that no
instruction other than any stop transfer instructions to give effect to
Section 2(g) hereof, will be given by the Company to its transfer agent with
respect to the Common Shares, and that the Common Shares shall otherwise be
freely transferable on the books and records of the Company, as applicable, to
the extent provided in this Agreement and the other Transaction Documents. If a
Buyer effects a sale, assignment or transfer of the Common Shares in accordance
with Section 2(g), 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 The Depository Trust Company (“DTC”) in
such name and in such denominations as specified by such Buyer to effect such
sale, transfer or assignment. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to a Buyer. Accordingly,
the Company acknowledges that the remedy at law for a breach of its obligations
under this Section 5(a) will be inadequate and agrees, in the event of a breach
or threatened breach by the Company of the

 

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provisions of this Section 5(a), that a Buyer shall be entitled, in addition to
all other available remedies, to seek 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. The
Company shall cause its counsel to issue a legal opinion to the Company’s
transfer agent promptly following each Effective Date (as defined in the
Registration Rights Agreement) regarding the registration of the Common Shares.
Any fees (with respect to the transfer agent, counsel to the Company or
otherwise) associated with the issuance of such opinion or the removal of any
legends on any of the Common Shares shall be borne by the Company.

(b) Legends. Each Buyer understands that the Common Shares have been issued
pursuant to an exemption from registration or qualification under the 1933 Act
and applicable state securities laws, and except as set forth below, the Common
Shares shall bear any legend as required by the “blue sky” laws of any state and
a restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):

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 (B) AN OPINION OF COUNSEL TO THE HOLDER
(IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY,
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE
TO BE 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.

(c) Removal of Legends. Certificates evidencing Common Shares shall not be
required to contain the legend set forth in Section 5(b) above or any other
legend (i) while a registration statement (including a Registration Statement)
covering the resale of such Common Shares is effective under the 1933 Act,
(ii) following any sale of such Common Shares pursuant to Rule 144 (assuming the
transferor is not an affiliate of the Company), (iii) if such Common Shares are
eligible to be sold, assigned or transferred under Rule 144 (provided that a
Buyer provides the Company with reasonable assurances that such Common Shares
are eligible for sale, assignment or transfer under Rule 144 which shall not
include an opinion of counsel), (iv) in connection with a sale, assignment or
other transfer (other than under Rule 144), provided that such Buyer provides
the Company with an opinion of counsel to such Buyer, in a generally acceptable
form, to the effect that such sale, assignment or transfer of the Common Shares
may be made without registration under the applicable requirements of the 1933
Act or (v) if such legend is not required under applicable requirements of the
1933 Act (including, without limitation, controlling judicial interpretations
and pronouncements issued by the SEC). If a legend is not required pursuant to
the foregoing, the Company shall no later than three (3)

 

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Trading Days following the delivery by a Buyer to the Company or the transfer
agent (with notice to the Company) of a legended certificate representing such
Common Shares (endorsed or with stock powers attached, signatures guaranteed,
and otherwise in form necessary to affect the reissuance and/or transfer, if
applicable), together with any other deliveries from such Buyer as may be
required above in this Section 5(c), as directed by such Buyer, either:
(A) provided that the Company’s transfer agent is participating in the DTC Fast
Automated Securities Transfer Program, credit the aggregate number of shares of
Common Stock to which such Buyer shall be entitled to such Buyer’s or its
designee’s balance account with DTC through its Deposit/Withdrawal at Custodian
system or (B) if the Company’s transfer agent is not participating in the DTC
Fast Automated Securities Transfer Program, issue and deliver (via reputable
overnight courier) to such Buyer, a certificate representing such Common Shares
that is free from all restrictive and other legends, registered in the name of
such Buyer or its designee (the date by which such credit is so required to be
made to the balance account of such Buyer’s or such Buyer’s nominee with DTC or
such certificate is required to be delivered to such Buyer pursuant to the
foregoing is referred to herein as the “Required Delivery Date”).

(d) Buy-In. If the Company fails to so properly deliver such unlegended
certificates or so properly credit the balance account of such Buyer’s or such
Buyer’s nominee with DTC by the Required Delivery Date, and if on or after the
Required Delivery Date such Buyer purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by such
Buyer of shares of Common Stock that such Buyer anticipated receiving from the
Company without any restrictive legend, then, in addition to all other remedies
available to such Buyer, the Company shall, within three (3) Trading Days after
such Buyer’s request and in such Buyer’s sole discretion, either (i) pay cash to
such Buyer in an amount equal to such Buyer’s total purchase price (including
brokerage commissions, if any) for the shares of Common Stock so purchased (the
“Buy-In Price”), at which point the Company’s obligation to deliver such
certificate or credit such Buyer’s balance account shall terminate and such
shares shall be cancelled, or (ii) promptly honor its obligation to deliver to
such Buyer a certificate or certificates or credit such Buyer’s DTC account
representing such number of shares of Common Stock that would have been issued
if the Company timely complied with its obligations hereunder and pay cash to
such Buyer in an amount equal to the excess (if any) of the Buy-In Price over
the product of (A) such number of shares of Common Shares that the Company was
required to deliver to such Buyer by the Required Delivery Date times (B) the
Closing Sale Price of the Common Stock on the Trading Day immediately preceding
the Required Delivery Date. As used herein, (x) “Closing Sale Price” means, for
any security as of any date, the last closing trade price for such security on
the Principal Market, as reported by Bloomberg, or, if the Principal Market
begins to operate on an extended hours basis and does not designate the closing
trade price then the last trade price of such security prior to 4:00:00 p.m.,
New York time, as reported by Bloomberg, or, if the Principal Market is not the
principal securities exchange or trading market for such security, the last
trade price of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last trade price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no last trade price is reported for such security
by Bloomberg, the average of the ask prices of any market makers for such
security as reported in the “pink sheets” by Pink Sheets LLC (formerly the
National Quotation Bureau, Inc.). If the Closing Sale Price cannot be calculated
for a security on a particular date on any of the foregoing bases, the Closing
Sale Price of such security on such

 

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date shall be the fair market value as mutually determined by the Company and
the Buyer. If the Company and the Buyer are unable to agree upon the fair market
value of such security, then such dispute shall be resolved in accordance with
the procedures in Section 5(e). All such determinations shall be appropriately
adjusted for any stock dividend, stock split, stock combination or other similar
transaction during such period; (y) “Bloomberg” means Bloomberg Financial
Markets.

(e) Dispute Resolution. In the case of a dispute as to the determination of the
Closing Sale Price or fair market value (as the case may be), the Company or the
Buyer (as the case may be) shall submit the disputed determinations via
facsimile (i) within two (2) Business Days after receipt of the applicable
notice giving rise to such dispute to the Company or the Buyer (as the case may
be) or (ii) if no notice gave rise to such dispute, at any time after the Buyer
learned of the circumstances giving rise to such dispute. If the Buyer and the
Company are unable to agree upon such determination of the Closing Sale Price or
fair market value (as the case may be) within three (3) Business Days of such
disputed determination being submitted to the Company or the Buyer (as the case
may be), then the Company shall, within two (2) Business Days submit via
facsimile the disputed determination of the Closing Sale Price or fair market
value (as the case may be) to an independent, reputable investment bank selected
by the Company and approved by the Buyer. The Company shall cause at its expense
the investment bank to perform the determinations and notify the Company and the
Buyer of the results no later than ten (10) Business Days from the time it
receives such disputed determinations. Such investment bank’s determination
shall be binding upon all parties absent demonstrable error.

 

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

(a) The obligation of the Company hereunder to issue and sell the Common Shares
to each Buyer 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 Buyer with prior written
notice thereof:

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

(ii) Such Buyer and each other Buyer shall have delivered to the Company the
Purchase Price for the Common Shares being purchased by such Buyer at the
Closing by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.

(iii) The representations and warranties of such Buyer shall be true and correct
in all material respects as of the date when made and as of the Closing Date as
though originally made at that time (except for representations and warranties
that speak as of a specific date, which shall be true and correct as of such
date), and such Buyer shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by such Buyer at or prior
to the Closing Date.

 

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

(a) The obligation of each Buyer hereunder to purchase its Common Shares 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 each Buyer’s
sole benefit and may be waived by such Buyer at any time in its sole discretion
by providing the Company with prior written notice thereof:

(i) The Company shall have duly executed and delivered to such Buyer each of the
Transaction Documents to which it is a party and the Company shall have duly
executed and delivered to such Buyer the Common Shares in such aggregate number
of Common Shares as is set forth across from such Buyer’s name in column (3) of
the Schedule of Buyers being purchased by such Buyer at the Closing pursuant to
this Agreement.

(ii) Such Buyer shall have received the opinion of Morrison & Foerster LLP, the
Company’s counsel, dated as of the Closing Date, in the form reasonably
acceptable to such Buyer.

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

(iv) The Company shall have delivered to such Buyer a certified copy of the
Articles of Incorporation as certified by the California Secretary of State
within ten (10) days of the Closing Date.

(v) The Company shall have delivered to such Buyer a certificate, in the form
reasonably acceptable to such Buyer, duly executed by the Secretary of the
Company and dated as of the Closing Date, as to (i) the resolutions consistent
with Section 3(a) as adopted by the Company’s board of directors, in a form
reasonably acceptable to such Buyer, (ii) the Articles of Incorporation of the
Company and (iii) the Bylaws of the Company, each as in effect at the Closing.

(vi) Each and every representation and warranty of the Company shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though originally made at that time (except for representations and
warranties that speak as of a specific date, which shall be true and correct as
of such date) and the Company shall have performed, satisfied and complied in
all material respects with the covenants, agreements and conditions required to
be performed, satisfied or complied with by the Company at or prior to the
Closing Date. Such Buyer shall have received a certificate, duly executed by
either the Chief Executive Officer or the Chief Financial Officer of the
Company, dated as of the Closing Date, to the foregoing effect and as to such
other matters as may be reasonably requested by such Buyer in the form
reasonably acceptable to such Buyer.

(vii) The Company shall have delivered to such Buyer a letter from the Company’s
transfer agent certifying the number of shares of Common Stock outstanding on
the Closing Date immediately prior to the Closing.

 

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(viii) The Common Stock (I) shall be designated for quotation or listed on the
Principal Market and (II) shall not have been suspended, as of the Closing Date,
by the SEC or the Principal Market from trading on the Principal Market nor
shall suspension by the SEC or the Principal Market have been threatened, as of
the Closing Date, either (A) in writing by the SEC or the Principal Market or
(B) by falling below the minimum maintenance requirements of the Principal
Market.

(ix) The Company shall have obtained all governmental, regulatory or third party
consents and approvals, if any, necessary for the sale of the Common Shares,
including without limitation, those required by the Principal Market.

(x) 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.

(xi) Since the date of execution of this Agreement, no event or series of events
shall have occurred that reasonably would have or result in a Material Adverse
Effect.

(xii) Such Buyer shall have received a letter on the letterhead of the Company,
duly executed by either the Chief Executive Officer or the Chief Financial
Officer of the Company, setting forth the wire instructions of the Company.

(xiii) The Company shall have delivered to such Buyer such other documents
relating to the transactions contemplated by this Agreement as such Buyer or its
counsel may reasonably request.

 

8. TERMINATION.

In the event that the Closing shall not have occurred with respect to a Buyer
within five (5) business days of the date hereof, then such Buyer shall have the
right to terminate its obligations under this Agreement with respect to itself
at any time on or after the close of business on such date without liability of
such Buyer to any other party; provided, however, (i) the right to terminate
this Agreement under this Section 8 shall not be available to such Buyer if the
failure of the transactions contemplated by this Agreement to have been
consummated by such date is the result of such Buyer’s breach of this Agreement
and (ii) the abandonment of the sale and purchase of the Common Shares shall be
applicable only to such Buyer providing such written notice, provided further
that no such termination shall affect any obligation of the Company under this
Agreement to reimburse such Buyer for the expenses described in Section 4(f)
above. Nothing contained in this Section 8 shall be deemed to release any party
from any liability for any breach by such party of the terms and provisions of
this Agreement or the other Transaction Documents or to impair the right of any
party to compel specific performance by any other party of its obligations under
this Agreement or the other Transaction Documents.

 

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9. 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 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 TO, 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. In the event that any signature is delivered by
facsimile transmission or by an e-mail which contains a portable document format
(.pdf) file of an executed signature page, such signature page shall create a
valid and binding obligation of the party executing (or on whose behalf such
signature is executed) with the same force and effect as if such signature page
were an original thereof.

(c) Headings; Gender. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement. Unless the context clearly indicates otherwise, each pronoun herein
shall be deemed to include the masculine, feminine, neuter, singular and plural
forms thereof. The terms “including,” “includes,” “include” and words of like
import shall be construed broadly as if followed by the words “without
limitation.” The terms “herein,” “hereunder,” “hereof” and words of like import
refer to this entire Agreement instead of just the provision in which they are
found.

(d) Severability. If any provision of this Agreement is prohibited by law or
otherwise determined to be invalid or unenforceable by a court of competent
jurisdiction, the provision that would otherwise be prohibited, invalid or
unenforceable shall be deemed amended to apply to the broadest extent that it
would be valid and enforceable, and the invalidity or unenforceability of such
provision shall not affect the validity of the remaining provisions of this
Agreement so long as this Agreement as so modified continues to express, without
material change, the original intentions of the parties as to the subject matter
hereof and the prohibited nature, invalidity or unenforceability of the
provision(s) in question does not substantially impair the respective
expectations or reciprocal obligations of the parties or the practical
realization of the benefits that would otherwise be conferred upon the parties.
The parties will endeavor in good faith negotiations to replace the prohibited,
invalid or unenforceable provision(s) with a valid provision(s), the effect of
which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).

 

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(e) Entire Agreement; Amendments. This Agreement, the other Transaction
Documents and the schedules and exhibits attached hereto and thereto and the
instruments referenced herein and therein supersede all other prior oral or
written agreements between the Buyers, the Company, their affiliates and Persons
acting on their behalf solely with respect to the matters contained herein and
therein, and this Agreement, the other Transaction Documents, the schedules and
exhibits attached hereto and thereto and the instruments referenced herein and
therein contain the entire understanding of the parties solely with respect to
the matters covered herein and therein; provided, however, nothing contained in
this Agreement or any other Transaction Document shall (or shall be deemed to)
(i) have any effect on any agreements any Buyer has entered into with the
Company prior to the date hereof with respect to any prior investment made by
such Buyer in the Company or (ii) waive, alter, modify or amend in any respect
any obligations of the Company, or any rights of or benefits to any Buyer or any
other Person, in any agreement entered into prior to the date hereof between or
among the Company and any Buyer and all such agreements shall continue in full
force and effect. Except as specifically set forth herein or therein, neither
the Company nor any Buyer makes any representation, warranty, covenant or
undertaking with respect to such matters. For clarification purposes, the
Recitals are part of this Agreement. No provision of this Agreement may be
amended or waived other than by an instrument in writing signed by the Company
and the holders of at least 76% of the Registrable Securities (excluding any
Registrable Securities held by the Company or the Subsidiaries) issued
hereunder, and any amendment or to, or waiver of any provision of, this
Agreement made in conformity with the provisions of this Section 9(e) shall be
binding on all Buyers and holders of Common Shares, as applicable, provided that
any party may give a waiver in writing as to itself. Notwithstanding anything to
the contrary contained in this Agreement, in the event that the Company shall
deliver written or e-mail notice to a holder of Registrable Securities who is a
natural person requesting such holder’s consent, approval or agreement with
respect to any such requested amendment or waiver, such holder shall be deemed
to have consented, approved and agreed with respect to such amendment or waiver
if such holder does not provide written or e-mail notice to the Company
indicating such Holder’s non-consent within five (5) Business Days of delivery
by the Company of such written or e-mail notice. No such amendment or waiver
(unless given pursuant to the foregoing proviso in the case of a waiver) shall
be effective to the extent that it applies to less than all of the Common Shares
then held by the Buyers. The Company has not, directly or indirectly, made any
agreements with any Buyers relating to the terms or conditions of the
transactions contemplated by the Transaction Documents except as set forth in
the Transaction Documents. Without limiting the foregoing, the Company confirms
that, except as set forth in this Agreement, no Buyer has made any commitment or
promise or has any other obligation to provide any financing to the Company, any
Subsidiary or otherwise.

 

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(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 (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one (1) Business Day after deposit with an overnight
courier service with next day delivery specified, 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:

Aradigm Corporation

3929 Point Eden Way

Hayward, CA 94545

Telephone: (510) 265-9000

Facsimile: 510-265-0277

Attention: Chief Executive Officer

With a copy (for informational purposes only) to:

Morrison & Foerster LLP

425 Market Street

San Francisco, CA 94105

Telephone: (415) 268-7197

Facsimile: (415) 268-7522

Attention: John W. Campbell, Esq.

If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers, with copies to such Buyer’s representatives as set forth on the Schedule
of Buyers,

or to such other address and/or facsimile number and/or to the attention of such
other Person as the recipient party has specified 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 any of the Common Shares. The Company shall not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of holders of a majority of the Registrable Securities
(excluding any Registrable Securities held by the Company or the Subsidiaries)
issued hereunder, including, without limitation, by way of a merger or
consolidation. A Buyer shall not assign this Agreement or any rights or
obligations hereunder except to (a) an Affiliate of the Buyer who is an
accredited investor within the meaning of Regulation D of the 1933 Act or
(b) such other person upon the prior written consent of the Company. For
purposes hereof, an “Affiliate” means an entity controlling, controlled by, or
under common control with the Buyer, and control means the power to control more
than half of the voting power.

 

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(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, other than the Indemnitees referred to in Section 9(k).

(i) Survival. The representations, warranties, agreements and covenants shall
survive the Closing. Each Buyer 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 any 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. In consideration of each Buyer’s execution and delivery of
the Transaction Documents and acquiring the Common 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
Buyer and each holder of any Common Shares 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 “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 Indemnitee is a party to the action
for which indemnification hereunder is sought), and including reasonable
attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by
any 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 any of the Transaction Documents, (b) any breach of any covenant,
agreement or obligation of the Company contained in any of the Transaction
Documents or (c) any cause of action, suit or claim brought or made against such
Indemnitee by a third party (including for these purposes a derivative action
brought on behalf of the Company or the Subsidiaries) and arising out of or
resulting from (i) the execution, delivery, performance or enforcement of any of
the Transaction Documents, (ii) any transaction financed or to be financed in
whole or in part, directly or indirectly, with the proceeds of the issuance of
the Common Shares, (iii) any disclosure properly made pursuant to Section 4(h)
or (iv) the status of such Buyer or holder of the Common Shares as an investor
in the Company pursuant to the transactions contemplated by the Transaction
Documents. To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. 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) 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.

 

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(m) Remedies. Each Buyer and each holder of any Common Shares shall have all
rights and remedies set forth in the Transaction Documents and all rights and
remedies which such 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 the Transaction Documents, any
remedy at law may prove to be inadequate relief to the Buyers. The Company
therefore agrees that the Buyers shall be entitled to seek specific performance
and/or temporary, preliminary and permanent injunctive or other equitable relief
from any court of competent jurisdiction in any such case without the necessity
of proving actual damages and without posting a bond or other security.

(n) Withdrawal Right. Notwithstanding anything to the contrary contained in (and
without limiting any similar provisions of) the Transaction Documents, whenever
any Buyer exercises a right, election, demand or option under a Transaction
Document and the Company does not timely perform its related obligations within
the periods therein provided, then such Buyer may rescind or withdraw, in its
sole discretion from time to time upon written notice to the Company, any
relevant notice, demand or election in whole or in part without prejudice to its
future actions and rights

(o) Payment Set Aside; Currency. To the extent that the Company makes a payment
or payments to any Buyer hereunder or pursuant to any of the other Transaction
Documents or any of the Buyers 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, foreign, 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. Unless otherwise expressly indicated, all dollar
amounts referred to in this Agreement and the other Transaction Documents are in
United States Dollars (“U.S. Dollars”), and all amounts owing under this
Agreement and all other Transaction Documents shall be paid in U.S. Dollars. All
amounts denominated in other currencies (if any) shall be converted in the
U.S. Dollar equivalent amount in accordance with the Exchange Rate on the date
of calculation. “Exchange Rate” means, in relation to any amount of currency to
be converted into U.S. Dollars pursuant to this Agreement, the U.S. Dollar
exchange rate as published in the Wall Street Journal on the relevant date of
calculation.

(q) Independent Nature of Buyers’ Obligations and Rights. The obligations of
each Buyer under the Transaction Documents are several and not joint with the
obligations of any other Buyer, and no Buyer shall be responsible in any way for
the performance of the obligations of any other Buyer under any Transaction
Document. Nothing contained herein or in any other Transaction Document, and no
action taken by any Buyer pursuant hereto or thereto, shall be deemed to
constitute the Buyers as, and the Company acknowledges that the Buyers do not so

 

30

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constitute, a partnership, an association, a joint venture or any other kind of
group or entity, or create a presumption that the Buyers are in any way acting
in concert or as a group or entity with respect to such obligations or the
transactions contemplated by the Transaction Documents or any matters, and the
Company acknowledges that the Buyers are not acting in concert or as a group,
and the Company shall not assert any such claim, with respect to such
obligations or the transactions contemplated by the Transaction Documents. The
decision of each Buyer to purchase Common Shares pursuant to the Transaction
Documents has been made by such Buyer independently of any other Buyer. Each
Buyer acknowledges that no other Buyer has acted as agent for such Buyer in
connection with such Buyer making its investment hereunder and that no other
Buyer will be acting as agent of such Buyer in connection with monitoring such
Buyer’s investment in the Common Shares or enforcing its rights under the
Transaction Documents. The Company and each Buyer confirms that each Buyer has
independently participated with the Company and the Subsidiaries in the
negotiation of the transaction contemplated hereby with the advice of its own
counsel and advisors. Each Buyer 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 Buyer to be joined as an additional party in any
proceeding for such purpose. The use of a single agreement to effectuate the
purchase and sale of the Common Shares contemplated hereby was solely in the
control of the Company, not the action or decision of any Buyer, and was done
solely for the convenience of the Company and the Subsidiaries and not because
it was required or requested to do so by any Buyer. It is expressly understood
and agreed that each provision contained in this Agreement and in each other
Transaction Document is between the Company, each Subsidiary and a Buyer,
solely, and not between the Company, each Subsidiary and the Buyers collectively
and not between and among the Buyers.

(r) Judgment Currency.

(i) If for the purpose of obtaining or enforcing judgment against the Company in
any court in any jurisdiction it becomes necessary to convert into any other
currency (such other currency being hereinafter in this Section 9(r) referred to
as the “Judgment Currency”) an amount due in U.S. Dollars under this Agreement
or any other Transaction Document, the conversion shall be made at the Exchange
Rate prevailing on the Trading Day immediately preceding: (1) the date of actual
payment of the amount due, in the case of any proceeding in the courts of New
York or in the courts of any other jurisdiction that will give effect to such
conversion being made on such date or (2) the date on which the foreign court
determines, in the case of any proceeding in the courts of any other
jurisdiction (the date as of which such conversion is made pursuant to this
Section 9(r)(i) being hereinafter referred to as the “Judgment Conversion
Date”).

(ii) If in the case of any proceeding in the court of any jurisdiction referred
to in Section 9(r)(i) above, there is a change in the Exchange Rate prevailing
between the Judgment Conversion Date and the date of actual payment of the
amount due, the applicable party shall pay such adjusted amount as may be
necessary to ensure that the amount paid in the Judgment Currency, when
converted at the Exchange Rate prevailing on the date of payment, will produce
the amount of U.S. Dollars which could have been purchased with the amount of
Judgment Currency stipulated in the judgment or judicial order at the Exchange
Rate prevailing on the Judgment Conversion Date.

 

31

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(iii) Any amount due from the Company under this provision shall be due as a
separate debt and shall not be affected by judgment being obtained for any other
amounts due under or in respect of this Agreement or any other Transaction
Document.

[signature pages follow]

 

32

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IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Agreement to be duly executed as of the date first
written above.

 

COMPANY:

ARADIGM CORPORATION

By:  

 

  Name:   Nancy Pecota   Title:   Vice President, Finance and Chief Financial
Officer

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IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Agreement to be duly executed as of the date first
written above.

 

BUYER:   [NAME OF BUYER]   By:  

 

    Name:     Title:   TAX ID NO:   

 

 

 

ADDRESS AND CONTACT INFORMATION (including for purposes of notice

under the Transaction Documents):

c/o:                                                                       
                                             Street:                            
                                         
                                        
City/State/Zip:                           
                                                                     
Attention:                                                                      
                                  Tel:                             
                                         
                                             Fax:                             
                                         
                                             E-mail:                            
                                         
                                         NUMBER OF COMMON SHARES: 
                                         
                                        NAME TO APPEAR ON STOCK CERTIFICATE: 

AGGREGATE PURCHASE PRICE FOR BUYER’S COMMON SHARES:

$                                                                          
        

LEGAL REPRESENTATIVE’S ADDRESS AND CONTACT INFORMATION

(if applicable):

 

c/o:                                                                  
                                                     

 

Street:                                                                  
                                                 

 

City/State/Zip:                                                                
                                    

 

Attention:                                                                 
                                           

 

Tel:                                                                  
                                                     

 

Fax:                                                                  
                                                     

 

E-mail:                                                                  
                                                 

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Schedule of Buyers

 

(1)

  

(2)

   (3)      (4)  

Buyer

  

Address and Contact Information

   Number of
Common
Shares      Aggregate
Purchase
Price for
Buyer’s
Common
Shares   FIRST EAGLE VALUE IN BIOTECHNOLOGY MASTER FUND, LTD    [Omitted}     
5,312,500       $ 1,009,375.00    DEF ASSOCIATES LP         400,000       $
76,000.00    DEF ASSOCIATES N.V.         1,193,750       $ 226,812.50    21
APRIL FUND, LP         1,000,000       $ 190,000.00    21 APRIL FUND, LTD.      
  2,718,750       $ 516,562.50    Boxer Capital, LLC         8,125,000       $
1,543,750.00    FIDELITY SELECT PORTFOLIOS: BIOTECHNOLOGY PORTFOLIO        
5,920,360       $ 1,124,868.40    FIDELITY ADVISOR SERIES VII: FIDELITY ADVISOR
BIOTECHNOLOGY FUND         329,640       $ 62,631.60    TOTAL         25,000,000
      $ 4,750,000