exv10w1



 






Exhibit 10.1




COMMON STOCK PURCHASE AGREEMENT




by and between




KINGSBRIDGE CAPITAL LIMITED




and




SANTARUS, INC.




dated as of February 3, 2006















 








TABLE OF CONTENTS




	 	 	 	 	 
	 	 	Page
	ARTICLE I DEFINITIONS
	 	 	2	 
	Section 1.01. “Blackout Amount”
	 	 	2	 
	Section 1.02. “Blackout Shares”
	 	 	2	 
	Section 1.03. “Bylaws”
	 	 	2	 
	Section 1.04. “Certificate”
	 	 	2	 
	Section 1.05. “Closing Date”
	 	 	2	 
	Section 1.06. “Commission”
	 	 	2	 
	Section 1.07. “Commission Documents”
	 	 	2	 
	Section 1.08. “Commitment Period”
	 	 	2	 
	Section 1.09. “Common Stock”
	 	 	2	 
	Section 1.10. “Condition Satisfaction Date”
	 	 	2	 
	Section 1.11. “Conversion Price”
	 	 	2	 
	Section 1.12. “Convertible Security”
	 	 	2	 
	Section 1.13. “Damages”
	 	 	2	 
	Section 1.14. “Disclosure Schedule”
	 	 	2	 
	Section 1.15. “Draw Down”
	 	 	3	 
	Section 1.16. “Draw Down Amount”
	 	 	3	 
	Section 1.17. “Draw Down Discount Price”
	 	 	3	 
	Section 1.18. “Draw Down Notice”
	 	 	3	 
	Section 1.19. “Draw Down Pricing Period”
	 	 	3	 
	Section 1.20. “DTC”
	 	 	3	 
	Section 1.21. “Effective Date”
	 	 	3	 
	Section 1.22. “Exchange Act”
	 	 	3	 
	Section 1.23. “Knowledge”
	 	 	3	 
	Section 1.24. “LIBOR”
	 	 	3	 
	Section 1.25. “Make Whole Amount”
	 	 	3	 
	Section 1.26. “Market Capitalization”
	 	 	3	 
	Section 1.27. “Material Adverse Effect”
	 	 	3	 
	Section 1.28. “Maximum Commitment Amount”
	 	 	4	 
	Section 1.29. “Maximum Draw Down Amount”
	 	 	4	 
	Section 1.30. “NASD”
	 	 	4	 






i









 






	 	 	 	 	 
	 	 	Page
	Section 1.31. “Permitted Transaction”
	 	 	4	 
	Section 1.32. “Person”
	 	 	4	 
	Section 1.33. “Principal Market”
	 	 	4	 
	Section 1.34. “Prohibited Transaction”
	 	 	4	 
	Section 1.35. “Prospectus”
	 	 	4	 
	Section 1.36. “Registrable Securities”
	 	 	4	 
	Section 1.37. “Registration Rights Agreement”
	 	 	5	 
	Section 1.38. “Registration Statement”
	 	 	5	 
	Section 1.39. “Regulation D”
	 	 	5	 
	Section 1.40. “Section4(2)”
	 	 	5	 
	Section 1.41. “Securities Act”
	 	 	5	 
	Section 1.43. “Shares”
	 	 	5	 
	Section 1.44. “Trading Day”
	 	 	5	 
	Section 1.45. “VWAP”
	 	 	5	 
	Section 1.46. “Warrant”
	 	 	5	 
	Section 1.47. “Warrant Shares”
	 	 	5	 
	ARTICLE II PURCHASE AND SALE OF COMMON STOCK
	 	 	5	 
	Section 2.01. Purchase and Sale of Stock
	 	 	5	 
	Section 2.02. Closing
	 	 	6	 
	Section 2.03. Registration Statement and Prospectus
	 	 	6	 
	Section 2.04. Warrant
	 	 	6	 
	Section 2.05. Blackout Shares
	 	 	6	 
	ARTICLE  III DRAW DOWN TERMS
	 	 	6	 
	Section 3.01. Draw Down Notice
	 	 	6	 
	Section 3.02. Number of Shares
	 	 	6	 
	Section 3.03. Limitation on Draw Downs
	 	 	7	 
	Section 3.04. Trading Cushion
	 	 	7	 
	Section 3.05. Settlement
	 	 	7	 
	Section 3.06. Delivery of Shares; Payment of Draw Down Amount
	 	 	7	 
	Section 3.07. Failure to Deliver Shares
	 	 	8	 
	ARTICLE
IV  REPRESENTATIONS AND WARRANTIES OF THE COMPANY
	 	 	8	 






ii









 






	 	 	 	 	 
	 	 	Page
	Section 4.01. Organization, Good Standing and Power
	 	 	8	 
	Section 4.02. Authorization; Enforcement
	 	 	8	 
	Section 4.03. Capitalization
	 	 	9	 
	Section 4.04. Issuance of Shares
	 	 	9	 
	Section 4.05. No Conflicts
	 	 	10	 
	Section 4.06. Commission Documents, Financial Statements
	 	 	10	 
	Section 4.07. No Material Adverse Change
	 	 	11	 
	Section 4.08. No Undisclosed Liabilities
	 	 	11	 
	Section 4.09. No Undisclosed Events or Circumstances
	 	 	11	 
	Section 4.10. Actions Pending
	 	 	12	 
	Section 4.11. Compliance with Law
	 	 	12	 
	Section 4.12. Disclosure
	 	 	12	 
	Section 4.13. Material Non-Public Information
	 	 	12	 
	Section 4.14. Exemption from Registration; Valid Issuances
	 	 	12	 
	Section 4.15. No General Solicitation or Advertising in Regard to this Transaction
	 	 	13	 
	Section 4.16. No Integrated Offering
	 	 	13	 
	Section 4.17. Acknowledgment Regarding Investor’s Purchase of Shares
	 	 	13	 
	ARTICLE V  REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR
	 	 	13	 
	Section 5.01. Organization and Standing of the Investor
	 	 	13	 
	Section 5.02. Authorization and Power
	 	 	13	 
	Section 5.03. No Conflicts
	 	 	14	 
	Section 5.04. Financial Capability
	 	 	14	 
	Section 5.05. Information
	 	 	14	 
	Section 5.06. Selling Restrictions
	 	 	15	 
	Section 5.07. Statutory Underwriter Status
	 	 	15	 
	Section 5.08. Not an Affiliate
	 	 	15	 
	Section 5.09. Manner of Sale
	 	 	15	 
	Section 5.10. Prospectus Delivery
	 	 	15	 
	ARTICLE
VI  COVENANTS OF THE COMPANY
	 	 	15	 
	Section 6.01. Securities
	 	 	15	 






iii









 






	 	 	 	 	 
	 	 	Page
	Section 6.02. Reservation of Common Stock
	 	 	16	 
	Section 6.03. Registration and Listing
	 	 	16	 
	Section 6.04. Registration Statement
	 	 	16	 
	Section 6.05. Compliance with Laws
	 	 	16	 
	Section 6.06. Permitted Transactions
	 	 	16	 
	Section 6.07. Prohibited Transactions
	 	 	17	 
	Section 6.08. Corporate Existence
	 	 	17	 
	Section 6.09. Non-Disclosure of Non-Public Information
	 	 	18	 
	Section 6.10. Notice of Certain Events Affecting Registration; Suspension of Right
to Request a Draw Down
	 	 	18	 
	Section 6.11. Amendments to the Registration Statement
	 	 	18	 
	Section 6.12. Prospectus Delivery
	 	 	18	 
	ARTICLE VII  CONDITIONS TO THE OBLIGATION OF THE INVESTOR TO ACCEPT A DRAW DOWN
	 	 	19	 
	Section 7.01. Accuracy of the Company’s Representations and Warranties
	 	 	19	 
	Section 7.02. Performance by the Company
	 	 	19	 
	Section 7.03. Compliance with Law
	 	 	19	 
	Section 7.04. Effective Registration Statement
	 	 	19	 
	Section 7.05. No Knowledge
	 	 	19	 
	Section 7.06. No Suspension
	 	 	20	 
	Section 7.07. No Injunction
	 	 	20	 
	Section 7.08. No Proceedings or Litigation
	 	 	20	 
	Section 7.09. Sufficient Shares Registered for Resale
	 	 	20	 
	Section 7.10. Warrant
	 	 	20	 
	Section 7.11. Opinion of Counsel
	 	 	20	 
	Section 7.12. Accuracy of Investor’s Representation and Warranties
	 	 	20	 
	Section 7.13. Payment of Fees
	 	 	20	 
	ARTICLE VIII  TERMINATION
	 	 	20	 
	Section 8.01. Term
	 	 	20	 
	Section 8.02. Other Termination
	 	 	20	 
	Section 8.03. Effect of Termination
	 	 	21	 






iv









 






	 	 	 	 	 
	 	 	Page
	Section 9.01. Indemnification
	 	 	22	 
	Section 9.02. Notification of Claims for Indemnification
	 	 	23	 
	ARTICLE X  MISCELLANEOUS
	 	 	24	 
	Section 10.01. Fees and Expenses
	 	 	24	 
	Section 10.02. Reporting Entity for the Common Stock
	 	 	25	 
	Section 10.03. Brokerage
	 	 	25	 
	Section 10.04. Notices
	 	 	25	 
	Section 10.05. Assignment
	 	 	26	 
	Section 10.06. Amendment; No Waiver
	 	 	26	 
	Section 10.07. Entire Agreement
	 	 	27	 
	Section 10.08. Severability
	 	 	27	 
	Section 10.09. Title and Subtitles
	 	 	27	 
	Section 10.10. Counterparts
	 	 	27	 
	Section 10.11. Choice of Law
	 	 	27	 
	Section 10.12. Specific Enforcement, Consent to Jurisdiction
	 	 	27	 
	Section 10.13. Survival
	 	 	28	 
	Section 10.15. Further Assurances
	 	 	28	 
	Section 10.16. Absence of Presumption
	 	 	28	 






v









 






COMMON STOCK PURCHASE AGREEMENT




by and between




KINGSBRIDGE CAPITAL LIMITED




and




SANTARUS, INC.




dated as of February 3, 2006




     This COMMON STOCK PURCHASE AGREEMENT (this “Agreement”) is entered into as of the
3rd day of February, 2006, by and between KINGSBRIDGE CAPITAL LIMITED, an entity
organized and existing under the laws of the British Virgin Islands (the “Investor”) and
SANTARUS, INC., a corporation organized and existing under the laws of the State of Delaware (the
“Company”).



     WHEREAS, the parties desire that, upon the terms and subject to the conditions and limitations
set forth herein, the Company may issue and sell to the Investor, from time to time as provided
herein, and the Investor shall purchase from the Company, up to $75 million worth of shares of
Common Stock (as defined below); and



     WHEREAS, such investments will be made in reliance upon the provisions of Section 4(2)
(“Section 4(2)”) and Regulation D (“Regulation D”) of the United States Securities
Act of 1933, as amended and the rules and regulations promulgated thereunder (the “Securities
Act”), and/or upon such other exemption from the registration requirements of the Securities
Act as may be available with respect to any or all of the investments in Common Stock to be made
hereunder; and



     WHEREAS, the parties hereto are concurrently entering into a Registration Rights Agreement in
the form of Exhibit A hereto (the “Registration Rights Agreement”) pursuant to which the
Company shall register the Common Stock issued and sold to the Investor under this Agreement and
under the Warrant (as defined below), upon the terms and subject to the conditions set forth
therein; and



     WHEREAS, in consideration for the Investor’s execution and delivery of, and its performance of
its obligations under, this Agreement, the Company is concurrently issuing to the Investor a
Warrant in the form of Exhibit B hereto (the “Warrant”) pursuant to which the Investor may
purchase from the Company up to 365,000 shares of Common Stock, upon the terms and subject to the
conditions set forth therein;



     NOW, THEREFORE, the parties hereto agree as follows:



 









 





ARTICLE I




DEFINITIONS




     Section 1.01. “Blackout Amount” shall have the meaning assigned to such term in the
Registration Rights Agreement.



     Section 1.02. “Blackout Shares” shall have the meaning assigned to such term in the
Registration Rights Agreement.



     Section 1.03. “Bylaws” shall have the meaning assigned to such term in Section 4.03
hereof.



     Section 1.04. “Certificate” shall have the meaning assigned to such term in Section
4.03 hereof.



     Section 1.05. “Closing Date” means the date on which this Agreement is executed and
delivered by the Company and the Investor.



     Section 1.06. “Commission” means the United States Securities Exchange Commission.



     Section 1.07. “Commission Documents” shall have the meaning assigned to such term in
Section 4.06 hereof.



     Section 1.08. “Commitment Period” means the period commencing on the Effective Date
and expiring on the earliest to occur of (i) the date on which the Investor shall have purchased
Shares pursuant to this Agreement for aggregate Draw Down Amounts equal to the Maximum Commitment
Amount, (ii) the date this Agreement is terminated pursuant to Article VIII hereof, and (iii) the
date occurring thirty-six (36) months from the Effective Date.



     Section 1.09. “Common Stock” means the common stock of the Company, par value $.0001
per share.



     Section 1.10. “Condition Satisfaction Date” shall have the meaning assigned to such
term in Article VII hereof.



     Section 1.11. “Conversion Price” shall have the meaning assigned to such term in
Section 6.07 hereof.



     Section 1.12. “Convertible Security” shall have the meaning assigned to such term in
Section 6.07 hereof.



     Section 1.13. “Damages” means any loss, claim, damage, liability, costs and expenses
(including, without limitation, reasonable attorneys’ fees and expenses and costs and reasonable
expenses of expert witnesses and investigation).



     Section 1.14. “Disclosure Schedule” shall have the meaning set forth in Section 4.03
hereof.



2









 





     Section 1.15. “Draw Down” shall have the meaning assigned to such term in Section 3.01
hereof.



     Section 1.16. “Draw Down Amount” means the actual amount of a Draw Down paid to the
Company.



     Section 1.17. “Draw Down Discount Price” means (i) 90% of the VWAP on any Trading Day
during a Draw Down Pricing Period when the VWAP equals or exceeds $2.50 but is less than or equal
to $8.50, (ii) 92% of the VWAP on any Trading Day during the Draw Down Pricing Period when VWAP
exceeds $8.50 but is less than or equal to $11.50, or (ii) 94% of the VWAP on any Trading Day
during the Draw Down Pricing Period when VWAP exceeds $11.50.



     Section 1.18. “Draw Down Notice” shall have the meaning assigned to such term in
Section 3.01 hereof.



     Section 1.19. “Draw Down Pricing Period” shall mean, with respect to each Draw Down, a
period of eight (8) consecutive Trading Days beginning on the first Trading Day specified in a Draw
Down Notice.



     Section 1.20. “DTC” shall mean the Depository Trust Company, or any successor thereto.



     Section 1.21. “Effective Date” means the first Trading Day immediately following the
date on which the Registration Statement is declared effective by the Commission.



     Section 1.22. “Exchange Act” means the U.S. Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.



     Section 1.23. “Knowledge” means the actual knowledge of the Chief Executive Officer,
Chief Financial Officer, Vice President, Human Resources, Vice President, Regulatory Affairs and
Quality Assurance or Vice President, Legal Affairs of the Company.



     Section 1.24. “LIBOR” means the offered rate for twelve-month U.S. dollar deposits
that appears on Moneyline Telerate Page 3750 (or such other page as may replace such Moneyline
Telerate Page 3750 for the purpose of displaying comparable rates), as of 11:00 a.m. (London time)
two (2) business days prior to the beginning of the relevant period.



     Section 1.25. “Make Whole Amount” shall have the meaning specified in Section 3.8.



     Section 1.26. “Market Capitalization” means, as of any Trading Day, the product of (i)
the closing sale price of the Company’s Common Stock as reported by Bloomberg L.P. using the AQR
function and (ii) the number of outstanding shares of Common Stock of the Company as reported by
Bloomberg L.P. using the DES function.



     Section 1.27. “Material Adverse Effect” means any continuing effect on the business,
operations, properties or financial condition of the Company and its consolidated subsidiaries that
is material and adverse to the Company and such subsidiaries, taken as a whole, and/or any
condition, circumstance, or situation that would prohibit or otherwise interfere with
the ability of the Company to perform any of its obligations under this Agreement, the
Registration Rights



3









 





Agreement or the Warrant in any material respect; provided, that none
of the following shall constitute a “Material Adverse Effect”: (i) the effects of conditions or
events that are generally applicable to the capital, financial, banking or currency markets or the
pharmaceutical or biotechnology industry, (ii) any changes or effects resulting from the
announcement or consummation of the transactions contemplated by this Agreement, including, without
limitation, any changes or effects associated with any particular Draw Down, and (iii) changes in
the trading price of the Common Stock.



     Section 1.28. “Maximum Commitment Amount” means the lesser of (i) $75 million in
aggregate Draw Down Amounts or (ii) 8,853,165 shares of Common Stock (as adjusted for stock splits,
stock combinations, stock dividends and recapitalizations that occur on or after the date of this
Agreement).



     Section 1.29. “Maximum Draw Down Amount” means the lesser of (i) 2.5% of the Company’s
Market Capitalization at the time a Draw Down Notice is delivered, or (ii) $10 million.



     Section 1.30. “NASD” means the National Association of Securities Dealers, Inc.



     Section 1.31. “Permitted Transaction” shall have the meaning assigned to such term in
Section 6.06 hereof.



     Section 1.32. “Person” means any individual, corporation, partnership, limited
liability company, association, trust or other entity or organization, including any government or
political subdivision or an agency or instrumentality thereof.



     Section 1.33. “Principal Market” means the Nasdaq National Market, the Nasdaq SmallCap
Market, the American Stock Exchange or the New York Stock Exchange, whichever is at the time the
principal trading exchange or market for the Common Stock.



     Section 1.34. “Prohibited Transaction” shall have the meaning assigned to such term in
Section 6.07 hereof.



     Section 1.35. “Prospectus” as used in this Agreement means the prospectus in the form
included in the Registration Statement, as supplemented from time to time pursuant to Rule 424(b)
of the Securities Act.



     Section 1.36. “Registrable Securities” means (i) the Shares, (ii) the Warrant Shares,
and (iii) any securities issued or issuable with respect to any of the foregoing by way of
exchange, stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise. As to any particular
Registrable Securities, once issued such securities shall cease to be Registrable Securities when
(w) the Registration Statement has been declared effective by the SEC and such Registrable
Securities have been disposed of pursuant to the Registration Statement, (x) such Registrable
Securities have been sold under circumstances under which all of the applicable conditions of Rule
144 (or any similar provision then in force) under the Securities Act (“Rule 144”) are met,
(y) such time as such Registrable Securities have been otherwise transferred to holders who may
trade such shares without restriction under the Securities Act, and the Company has delivered
a new certificate or other evidence of ownership for such securities not bearing a restrictive
legend or



4









 





(z) in the opinion of counsel to the Company such Registrable Securities may be sold
without registration and without any time, volume or manner limitations pursuant to Rule 144(k) (or
any similar provision then in effect) under the Securities Act.



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



     Section 1.38. “Registration Statement” shall have the meaning assigned to such term in
the Registration Rights Agreement.



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



     Section 1.40. “Section 4(2)” shall have the meaning set forth in the recitals of this
Agreement.



     Section 1.41. “Securities Act” shall have the meaning set forth in the recitals of
this Agreement.



     Section 1.42. “Settlement Date” shall have the meaning assigned to such term in
Section 3.05 hereof.



     Section 1.43. “Shares” means the shares of Common Stock of the Company that are and/or
may be purchased hereunder.



     Section 1.44. “Trading Day” means any day other than a Saturday or a Sunday on which
the Principal Market is open for trading in equity securities.



     Section 1.45. “VWAP” means the volume weighted average price (the aggregate sales
price of all trades of Common Stock during each Trading Day divided by the total number of shares
of Common Stock traded during such Trading Day) of the Common Stock during any Trading Day as
reported by Bloomberg, L.P. using the AQR function.



     Section 1.46. “Warrant” shall have the meaning set forth in the recitals of this
Agreement.



     Section 1.47. “Warrant Shares” means the shares of Common Stock issuable to the
Investor upon exercise of the Warrant.



ARTICLE II




PURCHASE AND SALE OF COMMON STOCK




     Section 2.01. Purchase and Sale of Stock. Upon the terms and subject to the
conditions set forth in this Agreement, the Company shall to the extent it elects to make Draw
Downs in accordance with Article III hereof, issue and sell to the Investor and the Investor shall
purchase from the Company Common Stock for aggregate Draw Down Amounts of up to the
Maximum Commitment Amount, consisting of purchases based on Draw Downs in accordance with
Article III hereof.



5









 






     Section 2.02. Closing. In consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement, the Company agrees
to issue and sell to the Investor, and the Investor agrees to purchase from the Company, that
number of the Shares to be issued in connection with each Draw Down. The execution and delivery of
this Agreement (the “Closing”) shall take place at the offices of Clifford Chance US LLP,
31 West 52nd Street, New York, NY 10019 at 2:00 p.m. local time on February 3, 2006, or
at such other time and place or on such date as the Investor and the Company may agree upon (the
“Closing Date”). Each party shall deliver all documents, instruments and writings required
to be delivered by such party pursuant to this Agreement at or prior to the Closing.



     Section 2.03. Registration Statement and Prospectus. Promptly after the Closing, the
Company shall prepare and file with the Commission the Registration Statement (including the
Prospectus) in accordance with the provisions of the Securities Act and the Registration Rights
Agreement.



     Section 2.04. Warrant. On the Closing Date, the Company shall issue and deliver the
Warrant to the Investor.



     Section 2.05. Blackout Shares. The Company shall deliver any Blackout Amount or issue
and deliver any Blackout Shares to the Investor in accordance with Section 1(e) of the Registration
Rights Agreement.



ARTICLE III




DRAW DOWN TERMS




     Subject to the satisfaction of the conditions hereinafter set forth in this Agreement, the
parties agree as follows:



     Section 3.01. Draw Down Notice. The Company, may, in its sole discretion, issue a
Draw Down Notice (defined below) specifying the dollar amount of Shares it elects to sell to the
Investor (each such election a “Draw Down”) up to a Draw Down Amount equal to the Maximum
Draw Down Amount during the Commitment Period, which Draw Down the Investor will be obligated to
accept. The Company shall inform the Investor in writing via e-mail to the addresses set forth in
Section 10.04 and via facsimile transmission to the number set forth in Section 10.04, with a copy
to the Investor’s counsel, as to such Draw Down Amount before commencement of trading on the first
Trading Day of the related Draw Down Pricing Period (the “Draw Down Notice”). In addition
to the Draw Down Amount, each Draw Down Notice shall designate the first Trading Day of the Draw
Down Pricing Period. In no event shall any Draw Down Amount exceed the Maximum Draw Down Amount.
Each Draw Down Notice shall be accompanied by a certificate, signed by the Chief Executive Officer
or Chief Financial Officer dated, as of the date of such Draw Down Notice, in the form of
Exhibit C hereof.



     Section 3.02. Number of Shares. Subject to Section 3.06(b), the number of Shares to
be issued in connection with each Draw Down shall be equal to the sum of the number of Shares
issuable on each Trading Day of the Draw Down Pricing Period. The number of shares
issuable on a Trading Day during a Draw Down Pricing Period shall be equal to the quotient of
one eighth



6









 





(1/8th) of the Draw Down Amount divided by the Draw Down Discount Price for
such Trading Day.



     Section 3.03. Limitation on Draw Downs. Only one Draw Down shall be permitted for
each Draw Down Pricing Period.



     Section 3.04. Trading Cushion. Unless the parties agree in writing otherwise, there
shall be a minimum of three (3) Trading Days between the expiration of any Draw Down Pricing Period
and the beginning of the next succeeding Draw Down Pricing Period.



     Section 3.05. Settlement. The number of Shares purchased by the Investor in any Draw
Down shall be determined and settled on two separate dates. Shares purchased by the Investor
during the first four Trading Days of any Draw Down Pricing Period shall be determined and settled
no later than the sixth Trading Day of such Draw Down Pricing Period. Shares purchased by the
Investor during the second four Trading Days of any Draw Down Pricing Period shall be determined
and settled no later than the second Trading Day after the last Trading Day of such Draw Down
Pricing Period. Each date on which settlement of the purchase and sale of Shares occurs hereunder
being referred to as a “Settlement Date.” The Investor shall provide the Company with
delivery instructions for the Shares to be issued at each Settlement Date at least two Trading Days
in advance of such Settlement Date. The number of Shares actually issued shall be rounded to the
nearest whole number of Shares.



     Section 3.06. Delivery of Shares; Payment of Draw Down Amount.



     (a) On each Settlement Date, the Company shall deliver the Shares purchased by the Investor to
the Investor or its designees exclusively via book-entry through the DTC to an account designated
by the Investor, and upon receipt of the Shares, the Investor shall cause payment therefor to be
made to the Company’s designated account by wire transfer of immediately available funds, if the
Shares are received by the Investor no later than 12:00 p.m. (Eastern Time), or next day available
funds, if the Shares are received thereafter. Upon the written request of the Company,
the Investor will cause its banker to confirm to the Company that the Investor has provided
irrevocable instructions to cause payment for the Shares to be made as set forth above, immediately
following confirmation by such banker that the Shares have been delivered through the DTC in
unrestricted form.



     (b) For each Trading Day during a Draw Down Pricing Period that the VWAP is less than the
greater of (i) 85% of the Closing Price of the Company’s Common Stock on the Trading Day
immediately preceding the commencement of such Draw Down Pricing Period, or (ii) $2.50, such
Trading Day shall not be used in calculating the number of Shares to be issued in connection with
such Draw Down, and the Draw Down Amount in respect of such Draw Down Pricing Period shall be
reduced by one eighth (1/8th) of the initial Draw Down Amount specified in the Draw Down
Notice. If trading in the Company’s Common Stock is suspended for any reason for more than three
(3) consecutive or non-consecutive hours during any Trading Day during a Draw Down Pricing Period,
such Trading Day shall not be used in calculating the number of Shares to be issued in connection
with such Draw Down, and the Draw Down Amount in respect of such Draw Down Pricing Period shall be
reduced by one eighth (1/8th) of the initial Draw Down Amount specified in the Draw Down Notice.



7









 





     Section 3.07. Failure to Deliver Shares. If on any Settlement Date, the Company fails
to take all actions within the reasonable control of the Company to cause the delivery of the
Shares purchased by the Investor, and such failure is not cured within two (2) Trading Days
following such Settlement Date, the Company shall pay to the Investor on demand in cash by wire
transfer of immediately available funds to an account designated by the Investor the “Make
Whole Amount;” provided, however, that in the event that the Company is
prevented from delivering Shares in respect of any such Settlement Date in a timely manner by any
fact or circumstance that is reasonably within the control of, or directly attributable to, the
Investor, then such two (2) Trading Day period shall be automatically extended until such time as
such fact or circumstance is cured. As used herein, the Make Whole Amount shall be an amount equal
to the sum of (i) the Draw Down Amount actually paid by the Investor in respect of such Shares plus
(ii) an amount equal to the actual loss suffered by the Investor in respect of sales to subsequent
purchasers, pursuant to transactions entered into before the Settlement Date, of the Shares that
were required to be delivered by the Company, which shall be based upon documentation reasonably
satisfactory to the Company demonstrating the difference (if greater than zero) between (A) the
price per share paid by the Investor to purchase such number of shares of Common Stock necessary
for the Investor to meet its share delivery obligations to such subsequent purchasers minus (B) the
average Draw Down Discount Price during the applicable Draw Down Pricing Period. In the event that
the Make Whole Amount is not paid within two (2) Trading Days following a demand therefor from the
Investor, the Make Whole Amount shall accrue interest compounded daily at a rate of LIBOR plus 300
basis points, per annum up to and including the date on which the Make Whole Amount is actually
paid. Notwithstanding anything to the contrary set forth in this Agreement, in the event that the
Company pays the Make Whole Amount (plus interest, if applicable) in respect of any Settlement Date
in accordance with this Section 3.07, such payment shall be the Investor’s sole remedy in respect
of the Company’s failure to deliver Shares in respect of such Settlement Date, and the Company
shall not be obligated to deliver such Shares.



ARTICLE IV




REPRESENTATIONS AND WARRANTIES OF THE COMPANY




     The Company hereby makes the following representations and warranties to the Investor:



     Section 4.01. Organization, Good Standing and Power. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the State of Delaware and
has all requisite power and authority to own, lease and operate its properties and to carry on its
business as now being conducted. Except as set forth in the Commission Documents (as defined
below), the Company does not own more than fifty percent (50%) of the outstanding capital stock of
or control any other business entity, other than any wholly-owned subsidiary that is not
“significant” within the meaning of Regulation S-X promulgated by the Commission. The Company is
duly qualified as a foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted or property owned by it makes such
qualification necessary, other than those in which the failure so to qualify or be in good standing
would not have a Material Adverse Effect.



     Section 4.02. Authorization; Enforcement. (i) The Company has the requisite corporate
power and authority to enter into and perform its obligations under this Agreement, the



8









 







Registration Rights Agreement and the Warrant and to issue the Shares, the Warrant, the
Warrant Shares and any Blackout Shares (except to the extent that the number of Blackout Shares
required to be issued exceeds the number of authorized shares of Common Stock under the
Certificate); (ii) the execution and delivery of this Agreement and the Registration Rights
Agreement, and the execution, issuance and delivery of the Warrant, by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action and no further consent or authorization of the Company or its Board
of Directors or stockholders is required (other than as contemplated by Section 6.05); and (iii)
each of this Agreement and the Registration Rights Agreement has been duly executed and delivered,
and the Warrant has been duly executed, issued and delivered, by the Company and constitutes a
valid and binding obligation of the Company enforceable against the Company in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy, securities,
insolvency, or similar laws relating to, or affecting generally the enforcement of, creditors’
rights and remedies, or indemnification or by other equitable principles of general application.



     Section 4.03. Capitalization. The authorized capital stock of the Company and the
shares thereof issued and outstanding as of September 30, 2005 are set forth on a schedule (the
“Disclosure Schedule”) delivered to the Investor and attached hereto as Annex A. All of
the outstanding shares of the Common Stock have been duly and validly authorized and issued, and
are fully paid and non-assessable. Except as set forth in this Agreement, the Commission Documents
or as disclosed on the Disclosure Schedule, as of September 30, 2005, no shares of Common Stock
were entitled to preemptive rights or registration rights and there are no outstanding options,
warrants, scrip, rights to subscribe to, call or commitments of any character whatsoever relating
to, or securities or rights convertible into or exchangeable for or giving any right to subscribe
for, any shares of capital stock of the Company. Except as set forth in this Agreement, the
Commission Documents, or as disclosed to the Investor in the Disclosure Schedule, as of September
30, 2005, there were no contracts, commitments, understandings, or arrangements by which the
Company is or may become bound to issue additional shares of the capital stock of the Company or
options, securities or rights convertible into or exchangeable for or giving any right to subscribe
for any shares of capital stock of the Company. Except as described in the Commission Documents or
as disclosed to the Investor in the Disclosure Schedule, as of the date hereof the Company is not a
party to any agreement granting registration rights to any Person with respect to any of its equity
or debt securities. Except as set forth in the Commission Documents or as disclosed to the
Investor in writing, as of the date hereof the Company is not a party to, and it has no Knowledge
of, any agreement restricting the voting or transfer of any shares of the capital stock of the
Company. The offer and sale of all capital stock, convertible securities, rights, warrants, or
options of the Company issued during the twenty-four month period immediately prior to the Closing
complied in all material respects with all applicable federal and state securities laws, and no
stockholder has a right of rescission or damages with respect thereto that could reasonably be
expected to have a Material Adverse Effect. The Company has furnished or made available to the
Investor true and correct copies of the Company’s Amended and Restated Certificate of Incorporation
in effect on the date hereof (the “Certificate”), and the Company’s Amended and Restated
Bylaws in effect on the date hereof (the “Bylaws”).



     Section 4.04. Issuance of Shares. Subject to Section 6.05(b), the Shares, the Warrant
and the Warrant Shares have been, and any Blackout Shares will be, duly authorized by all necessary
corporate action (except to the extent that the number of Blackout Shares required to be



9









 







issued exceeds the number of authorized shares of Common Stock under the Certificate) and,
when issued and paid for in accordance with the terms of this Agreement, the Registration Rights
Agreement and the Warrant, the Shares and the Warrant Shares shall be validly issued and
outstanding, fully paid and non-assessable, and the Investor shall be entitled to all rights
accorded to a holder of shares of Common Stock.



     Section 4.05. No Conflicts. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement, the Warrant and any other document or instrument
contemplated hereby or thereby, by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby do not: (i) violate any provision of the Certificate
or Bylaws, (ii) conflict with, or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, mortgage, deed of trust, indenture, note,
bond, license, lease agreement, instrument or obligation to which the Company is a party where such
default or conflict would constitute a Material Adverse Effect, (iii) create or impose a lien,
charge or encumbrance on any property of the Company under any agreement or any commitment to which
the Company is a party or by which the Company is bound or by which any of its respective
properties or assets are bound which would constitute a Material Adverse Effect, (iv) result in a
violation of any federal, state, local or foreign statute, rule, regulation, order, writ, judgment
or decree (including federal and state securities laws and regulations) applicable to the Company
or any of its subsidiaries or by which any property or asset of the Company or any of its
subsidiaries are bound or affected where such violation would constitute a Material Adverse Effect,
or (v) require any consent of any third-party that has not been obtained pursuant to any material
contract to which the Company is subject or to which any of its assets, operations or management
may be subject where the failure to obtain such consent would constitute a Material Adverse Effect.
The Company is not required under federal, state or local law, rule or regulation to obtain any
consent, authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its obligations under
this Agreement, the Registration Rights Agreement or the Warrant, or issue and sell the Shares, the
Warrant Shares or the Blackout Shares (except to the extent that the number of Blackout Shares
required to be issued exceeds the number of authorized shares of Common Stock under the
Certificate) in accordance with the terms hereof and thereof (other than any filings that may be
required to be made by the Company with the Commission, the NASD/Nasdaq or state securities
commissions subsequent to the Closing, and, any registration statement (including any amendment or
supplement thereto) or any other filing or consent which may be filed pursuant to this Agreement,
the Registration Rights Agreement or the Warrant); provided that, for purposes of the
representation made in this sentence, the Company is assuming and relying upon the accuracy of the
relevant representations and agreements of the Investor herein.



     Section 4.06. Commission Documents, Financial Statements. The Common Stock is
registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and since March 31, 2004 the
Company has timely filed all reports, schedules, forms, statements and other documents required to
be filed by it with the Commission pursuant to the reporting requirements of the Exchange Act,
including material filed pursuant to Section 13(a) or 15(d) of the Exchange Act (all of the
foregoing, including filings and exhibits incorporated by reference therein, being referred to
herein as the “Commission Documents”). Except as previously disclosed to the Investor in
writing, since March 31, 2004 the Company has maintained all requirements for the
continued



10









 





listing or quotation of its Common Stock, and such Common Stock is currently listed
or quoted on the Nasdaq National Market. The Company has made available to the Investor true and
complete copies of the Commission Documents filed with the Commission since March 31, 2004 and
prior to the Closing Date. The Company has not provided to the Investor any information which,
according to applicable law, rule or regulation, should have been disclosed publicly by the Company
but which has not been so disclosed, other than with respect to the transactions contemplated by
this Agreement. As of its date, the Company’s Form 10-K for the year ended December 31, 2004
complied in all material respects with the requirements of the Exchange Act and the rules and
regulations of the Commission promulgated thereunder applicable to such document, and, as of its
date, after giving effect to the information disclosed and incorporated by reference therein, to
the Company’s Knowledge such Form 10-K did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made, not misleading. As
of their respective dates, to the Company’s Knowledge the financial statements of the Company
included in the Commission Documents filed with the Commission since March 31, 2004 complied as to
form and substance in all material respects with applicable accounting requirements and the
published rules and regulations of the Commission or other applicable rules and regulations with
respect thereto. Such financial statements have been prepared in accordance with generally
accepted accounting principles (“GAAP”) applied on a consistent basis during the periods
involved (except (i) as may be otherwise indicated in such financial statements or the notes
thereto or (ii) in the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements), and fairly present in all material respects
the financial position of the Company and its subsidiaries as of the dates thereof and the results
of operations and cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).



     Section 4.07. No Material Adverse Change. Except as disclosed in the Commission
Documents, since September 30, 2005 no event or series of events has or have occurred that would,
individually or in the aggregate, have a Material Adverse Effect on the Company.



     Section 4.08. No Undisclosed Liabilities. Neither the Company nor any of its
subsidiaries has any liabilities, obligations, claims or losses (whether liquidated or
unliquidated, secured or unsecured, absolute, accrued, contingent or otherwise) that would be
required to be disclosed on a balance sheet of the Company or any subsidiary (including the notes
thereto) in conformity with GAAP and are not disclosed in the Commission Documents, other than
those incurred in the ordinary course of the Company’s or its subsidiaries respective businesses
since September 30, 2005 and which, individually or in the aggregate, do not or would not be
reasonably expected to have a Material Adverse Effect on the Company.



     Section 4.09. No Undisclosed Events or Circumstances. No event or circumstance has
occurred or exists with respect to the Company or its subsidiaries or their respective businesses,
properties, operations or financial condition, which, under applicable law, rule or regulation,
requires public disclosure or announcement by the Company but which has not been so publicly
announced or disclosed and which, individually or in the aggregate, would be reasonably expected
have a Material Adverse Effect on the Company.



11









 





     Section 4.10. Actions Pending. There is no action, suit, claim, investigation or
proceeding pending or, to the Knowledge of the Company, threatened against the Company or any
subsidiary which questions the validity of this Agreement or the transactions contemplated hereby
or any action taken or to be taken pursuant hereto or thereto. Except as set forth in the
Commission Documents or in the Disclosure Schedule, there is no action, suit, claim, investigation
or proceeding pending or, to the Knowledge of the Company, threatened, against or involving the
Company, any subsidiary or any of their respective properties or assets that could be reasonably
expected to have a Material Adverse Effect on the Company. Except as set forth in the Commission
Documents or as previously disclosed to the Investor in writing, no judgment, order, writ,
injunction or decree or award has been issued by or, to the Knowledge of the Company, requested of
any court, arbitrator or governmental agency which could be reasonably expected to result in a
Material Adverse Effect.



     Section 4.11. Compliance with Law. The businesses of the Company and its subsidiaries
have been and are presently being conducted in accordance with all applicable federal, state and
local governmental laws, rules, regulations and ordinances, except as set forth in the Commission
Documents or such that would not reasonably be expected to cause a Material Adverse Effect. Except
as set forth in the Commission Documents, the Company and each of its subsidiaries have all
franchises, permits, licenses, consents and other governmental or regulatory authorizations and
approvals necessary for the conduct of its business as now being conducted by it, except for such
franchises, permits, licenses, consents and other governmental or regulatory authorizations and
approvals, the failure to possess which, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.



     Section 4.12. Disclosure. To the Company’s Knowledge, neither this Agreement nor any
other documents, certificates or instruments furnished to the Investor by or on behalf of the
Company or any subsidiary in connection with the transactions contemplated by this Agreement, the
Registration Rights Agreement or the Warrant contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements made herein or therein, in
the light of the circumstances under which they were made herein or therein, not misleading.



     Section 4.13. Material Non-Public Information. Except for this Agreement and the
transactions contemplated hereby, neither the Company nor its agents have disclosed to the
Investor, any material non-public information that, according to applicable law, rule or
regulation, should have been disclosed publicly by the Company prior to the date hereof but which
has not been so disclosed.



     Section 4.14. Exemption from Registration; Valid Issuances. Subject to, and in
reliance on the representations, warranties and covenants made herein by the Investor, the issuance
and sale of the Shares, the Warrant, the Warrant Shares and any Blackout Shares in accordance with
the terms and on the bases of the representations and warranties set forth in this Agreement, may
and shall be properly issued pursuant to Section 4(2), Regulation D and/or any other applicable
federal and state securities laws. Neither the sales of the Shares, the Warrant, the Warrant
Shares or any Blackout Shares pursuant to, nor the Company’s performance of its obligations under,
this Agreement, the Registration Rights Agreement, or the Warrant shall (i) result in the creation
or imposition of any liens, charges, claims or other encumbrances upon the Shares, the Warrant
Shares, any Blackout Shares or any of the assets of the Company, or
(ii) except as previously disclosed to the Investor in writing, entitle the holders of any
outstanding



12









 





shares of capital stock of the Company to preemptive or other rights to subscribe to or
acquire the shares of Common Stock or other securities of the Company. To the extent consistent
with the Delaware General Corporation Law, the Shares, the Warrant Shares and any Blackout Shares
shall not subject the Investor to personal liability to the Company, its officers, directors,
employees or stockholders solely by reason of the ownership thereof.



     Section 4.15. No General Solicitation or Advertising in Regard to this Transaction.
Neither the Company nor any of its affiliates or any person acting on its or their behalf (i) has
conducted any general solicitation (as that term is used in Rule 502(c) of Regulation D) or general
advertising with respect to any of the Shares, the Warrant, the Warrant Shares or any Blackout
Shares or (ii) has made any offers or sales of any security or solicited any offers to buy any
security under any circumstances that would require registration of the Shares under the Securities
Act.



     Section 4.16. No Integrated Offering. Neither the Company, nor any of its affiliates,
nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales
of any security or solicited any offers to buy any security, other than pursuant to this Agreement
and employee benefit plans, under circumstances that would require registration under the
Securities Act of shares of the Common Stock issuable hereunder with any other offers or sales of
securities of the Company.



     Section 4.17. Acknowledgment Regarding Investor’s Purchase of Shares. The Company
acknowledges and agrees that the Investor is acting solely in the capacity of an arm’s length
Investor with respect to this Agreement and the transactions contemplated hereunder. The Company
further acknowledges that the Investor is not acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to this Agreement and the transactions
contemplated hereunder and any advice given by the Investor or any of its representatives or agents
in connection with this Agreement and the transactions contemplated hereunder is merely incidental
to the Investor’s purchase of the Shares.



ARTICLE V




REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR




     The Investor hereby makes the following representations, warranties and covenants to the
Company:



     Section 5.01. Organization and Standing of the Investor. The Investor is a company
duly organized, validly existing and in good standing under the laws of the British Virgin Islands.



     Section 5.02. Authorization and Power. The Investor has the requisite power and
authority to enter into and perform its obligations under this Agreement, the Warrant and the
Registration Rights Agreement and to purchase the Shares, the Warrant and the Warrant Shares in
accordance with the terms hereof and thereof. The execution, delivery and performance of this
Agreement, the Warrant and the Registration Rights Agreement by Investor and the consummation by it
of the transactions contemplated hereby or thereby have been duly authorized
by all necessary corporate action, and no further consent or authorization of the Investor,
its Board of Directors or stockholders is required. Each of this Agreement, the Warrant and the



13









 





Registration Rights Agreement has been duly executed and delivered by the Investor and constitutes
a valid and binding obligation of the Investor enforceable against the Investor in accordance with
its terms, except as such enforceability may be limited by applicable bankruptcy, securities,
insolvency, reorganization, moratorium, liquidation, conservatorship, receivership, or similar laws
relating to, or affecting generally the enforcement of creditor’s rights and remedies or
indemnification or by other equitable principles of general application.



     Section 5.03. No Conflicts. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement, the Warrant and any other document or instrument
contemplated hereby, by the Investor and the consummation of the transactions contemplated thereby
do not (i) violate any provision of the Investor’s charter documents or bylaws, (ii) conflict with,
or constitute a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, mortgage, deed of trust, indenture, note, bond, license,
lease agreement, instrument or obligation to which the Investor is a party, (iii) create or impose
a lien, charge or encumbrance on any property of the Investor under any agreement or any commitment
to which the Investor is a party or by which the Investor is bound or by which any of its
respective properties or assets are bound, (iv) result in a violation of any federal, state, local
or foreign statute, rule, regulation, order, writ, judgment or decree (including federal and state
securities laws and regulations) applicable to the Investor or by which any property or asset of
the Investor are bound or affected, or (v) require the consent of any third-party that has not been
obtained pursuant to any material contract to which Investor is subject or to which any of its
assets, operations or management may be subject. The Investor is not required under federal, state
or local law, rule or regulation to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in order for it to execute, deliver
or perform any of its obligations under this Agreement or to purchase the Shares or the Warrant in
accordance with the terms hereof, provided that, for purposes of the representation made in
this sentence, the Investor is assuming and relying upon the accuracy of the relevant
representations and agreements of the Company herein.



     Section 5.04. Financial Capability. The Investor has the financial capability to
perform all of its obligations under this Agreement, including the capability to purchase the
Shares, the Warrant and the Warrant Shares in accordance with the terms hereof. The Investor has
such knowledge and experience in business and financial matters that it is capable of evaluating
the merits and risks of an investment in Common Stock and the Warrant. The Investor is an
“accredited investor” as defined in Regulation D. The Investor is a “sophisticated investor” as
described in Rule 506(b)(2)(ii) of Regulation D. The Investor acknowledges that an investment in
the Common Stock and the Warrant is speculative and involves a high degree of risk.



     Section 5.05. Information. The Investor 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 Shares, the Warrant and the Warrant Shares which have been
requested by the Investor. The Investor has reviewed or received copies of the Commission
Documents. The Investor and its advisors, if any, have been afforded the opportunity to ask
questions of the Company. The Investor has sought such accounting, legal and tax advice
as it has considered necessary to make an informed investment decision with respect to its
acquisition of the Shares, the Warrant and the Warrant Shares. The Investor understands that it
(and not the



14









 





Company) shall be responsible for its own tax liabilities that may arise as a result
of this investment or the transactions contemplated by this Agreement.



     Section 5.06. Selling Restrictions. The Investor covenants that during the Commitment
Period, neither the Investor nor any of its affiliates nor any entity managed or controlled by the
Investor will ever enter into or execute or cause any Person to enter into or execute any “short
sale” (as such term is defined in Rule 200 of Regulation SHO promulgated by the Commission under
the Exchange Act or any successor regulation) of any shares of Common Stock.



     Section 5.07. Statutory Underwriter Status. The Investor acknowledges that, pursuant
to the Commission’s current interpretations of the Securities Act, the Investor will be disclosed
as an “underwriter” within the meaning of the Securities Act in the Registration Statement (and
amendments thereto) and in any Prospectus contained therein to the extent required by applicable
law. The Company acknowledges that the Investor does not necessarily agree with such
characterization.



     Section 5.08. Not an Affiliate. The Investor is not an officer, director or
“affiliate” (as defined in Rule 405 of the Securities Act) of the Company.



     Section 5.09. Manner of Sale. At no time was Investor presented with or solicited by
or through any leaflet, public promotional meeting, television advertisement or any other form of
general solicitation or advertising.



     Section 5.10. Prospectus Delivery. The Investor agrees that unless the Shares and
Warrant Shares are eligible for resale pursuant to all the conditions of Rule 144, it will resell
the Shares and Warrant Shares only pursuant to the Registration Statement, in a manner described
under the caption “Plan of Distribution” in the Registration Statement, and in a manner in
compliance with all applicable securities laws, including, without limitation, the prospectus
delivery requirements of the Securities Act. The Investor further acknowledges and agrees that the
Company shall be under no obligation to supplement the Prospectus to reflect the issuance of any
Shares pursuant to a Draw Down at any time prior to the day following the Settlement Date with
respect to such Shares.



ARTICLE VI




COVENANTS OF THE COMPANY




     The Company covenants with the Investor as follows, which covenants are for the benefit of the
Investor:



     Section 6.01. Securities. The Company shall notify the Commission and the Principal
Market, if and as applicable, in accordance with their rules and regulations, of the transactions
contemplated by this Agreement, and shall use commercially reasonable efforts to take all other
necessary action and proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Shares, the Warrant Shares and the Blackout
Shares, if any, to the Investor; provided that in no event shall the Company be under
any obligation to supplement the Prospectus to reflect the issuance of any Shares pursuant to
a Draw Down at any time prior to the day following the Settlement Date with respect to such Shares.



15









 





     Section 6.02. Reservation of Common Stock. As of the date hereof, the Company has
available and the Company shall reserve and keep available at all times, free of preemptive rights
and other similar contractual rights of stockholders, shares of Common Stock for the purpose of
enabling the Company to satisfy any obligation to issue the Shares in connection with all Draw
Downs contemplated hereunder and the Warrant Shares. The number of shares so reserved from time to
time, as theretofore increased or reduced as hereinafter provided, may be reduced by the number of
shares actually delivered hereunder.



     Section 6.03. Registration and Listing. During the Commitment Period, the Company
shall use commercially reasonable efforts: (i) to take all action necessary to cause its Common
Stock to continue to be registered under Section 12(b) or 12(g) of the Exchange Act, (ii) to comply
in all respects with its reporting and filing obligations under the Exchange Act, (iii) to prevent
the termination or suspension of such registration, or the termination or suspension of its
reporting and filing obligations under the Exchange Act or Securities Act (except as expressly
permitted herein). The Company shall use commercially reasonable efforts to maintain the listing
and trading of its Common Stock and the listing of the Shares purchased by Investor hereunder on
the Principal Market (including, without limitation, maintaining sufficient net tangible assets)
and will comply in all material respects with the Company’s reporting, filing and other obligations
under the bylaws or rules of the NASD and the Principal Market. The Company will not be required
to carry out any action pursuant to this Agreement, the Registration Rights Agreement or the
Warrant that would adversely impact the listing of the Company’s securities on the Principal Market
as now in effect, and as may be changed by the Company in the future in the Company’s discretion.



     Section 6.04. Registration Statement. Without the prior written consent of the
Investor, the Registration Statement shall be used solely in connection with the transactions
between the Company and the Investor contemplated hereby.



     Section 6.05. Compliance with Laws.



     (a) The Company shall comply, and cause each subsidiary to comply, with all applicable laws,
rules, regulations and orders, noncompliance with which could reasonably be expected to have a
Material Adverse Effect.



     (b) Without the consent of its stockholders in accordance with NASD rules, the Company will
not be obligated to issue, and the Investor will not be obligated to purchase, any Shares or
Blackout Shares which would result in the issuance under this Agreement, the Warrant and the
Registration Rights Agreement of Shares and Blackout Shares (collectively) representing more than
the applicable percentage under the rules of the NASD, including, without limitation, NASD Rule
4350(i), that would require stockholder approval of the issuance thereof. Nothing herein shall
compel the Company to seek such consent of its stockholders.



     Section 6.06. Permitted Transactions. Nothing in this Agreement shall be construed to
restrict the right of the Company to offer, sell and/or issue securities of any kind
whatsoever, provided such transaction is not a Prohibited Transaction (as defined below) (any
such transaction that is not a Prohibited Transaction is referred to in this Agreement as a
“Permitted Transaction”). Without limiting the generality of the preceding sentence, the Company
may, without the prior written consent of the Investor, (i) establish stock option, restricted
stock, stock purchase or other



16









 





equity incentive award plans or agreements (for directors,
employees, consultants and/or advisors), and issue securities thereunder, and amend such plans or
agreements, including increasing the number of shares available thereunder, (ii) issue equity
securities to finance, or otherwise in connection with, the acquisition, license or sale of one or
more other companies, equipment, technologies or lines of business, (iii) issue shares of Common
Stock and/or Preferred Stock in connection with the Company’s option, restricted stock or other
equity incentive award plans, stock purchase plans, rights plans, warrants or options, (iv) issue
shares of Common Stock and/or Preferred Stock in connection with the acquisition of products,
licenses, equipment or other assets and strategic partnerships or joint ventures (the primary
purpose of which is not to raise equity capital); (v) issue shares of Common Stock, Preferred Stock
and/or other securities to consultants and/or advisors as consideration for services rendered or to
be rendered, (vi) issue and sell equity or debt securities in a public offering, (vii) issue and
sell any equity or debt securities in a private placement (other than in connection with any
Prohibited Transaction), (viii) issue equity securities to equipment lessors, equipment vendors,
banks or similar lending institutions in connection with leases or loans, or in connection with
strategic commercial or licensing transactions, (ix) issue securities in connection with any stock
split, stock dividend, recapitalization, reclassification or similar event by the Company, and (x)
issue shares of Common Stock to the Investor under any other agreement entered into between the
Investor and the Company.



     Section 6.07. Prohibited Transactions. During the term of this Agreement, the Company
shall not enter into any Prohibited Transaction without the prior written consent of the Investor,
which consent may be withheld at the sole discretion of the Investor. For the purposes of this
Agreement, the term “Prohibited Transaction” shall refer to any equity line or other
financing that is substantially similar to the financing provided for under this Agreement, under
which the Company agrees to issue any “future priced securities,” which shall be deemed to mean the
issuance of shares of Common Stock or securities of any type whatsoever that are, or may become,
convertible or exchangeable into shares of Common Stock where the purchase, conversion or exchange
price for such Common Stock is determined using any floating discount or other post-issuance
adjustable discount to the market price of Common Stock, provided that any future issuance by the
Company of a convertible security (“Convertible Security”) that contains provisions that adjust the
conversion price of such Convertible Security (“Conversion Price”) solely in the event of stock
splits, dividends, distributions or similar events shall not be a Prohibited Transaction for
purposes of this Section 6.07 so long as such Convertible Security does not contain a provision
that adjusts the Conversion Price as a result of any issuances of new securities after the issue
date of the Convertible Security at a price below the then effective Conversion Price of the
Convertible Security, or as a result of any decline in the market price of the Common Stock after
the issue date of the Convertible Security, other than a decline resulting directly from stock
splits, dividends, distributions or similar events including, without limitation, the type of
conversion price adjustments customarily found in a firm commitment Rule 144A offering to qualified
institutional buyers.



     Section 6.08. Corporate Existence. The Company shall take all steps necessary to
preserve and continue the corporate existence of the Company; provided, however,
that
nothing in this Agreement shall be deemed to prohibit the Company from engaging in any merger,
consolidation, sale of all or substantially all of its assets or similar transaction with another
Person pursuant to which such other Person is the surviving entity in the transaction.



17









 





     Section 6.09. Non-Disclosure of Non-Public Information. Except as otherwise expressly
provided in this Agreement, the Registration Rights Agreement or the Warrant or consented to in
writing by the Investor, none of the Company, its officers, directors, employees nor agents shall
disclose material non-public information to the Investor, its advisors or representatives.



     Section 6.10. Notice of Certain Events Affecting Registration; Suspension of Right to
Request a Draw Down. The Company shall promptly notify the Investor upon the occurrence of any
of the following events in respect of the Registration Statement or the Prospectus related to the
offer, issuance and sale of the Shares and the Warrant Shares hereunder: (i) receipt of any
request for additional information by the Commission or any other federal or state governmental
authority during the period of effectiveness of the Registration Statement for amendments or
supplements to the Registration Statement or the Prospectus; (ii) the issuance by the Commission or
any other federal or state governmental authority of any stop order suspending the effectiveness of
the Registration Statement or the initiation of any proceedings for that purpose; and (iii) receipt
of any notification with respect to the suspension of the qualification or exemption from
qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation
or threatening of any proceeding for such purpose. The Company shall not be required to disclose
to the Investor the substance or specific reasons of any of the events set forth in clauses (i)
through (iii) of the previous sentence, only that the event has occurred. The Company shall not
request a Draw Down during the continuation of any of the foregoing events.



     Section 6.11. Amendments to the Registration Statement. After the Registration
Statement is declared effective by the Commission, the Company shall (i) not file any amendment to
the Registration Statement or make any amendment or supplement to the Prospectus of which the
Investor shall not previously have been advised; provided, however, that the
Company may, to the extent it deems advisable, and without the prior consent of the Investor,
supplement the Prospectus within two days following the Settlement Date for each Draw Down solely
to reflect the issuance of Shares with respect to such Draw Down and (ii) so long as, in the
reasonable opinion of counsel for the Investor, a Prospectus is required to be delivered in
connection with sales of the Shares by the Investor, if the Company files any information,
documents or reports that are incorporated by reference in the Registration Statement pursuant to
the Exchange Act, the Company shall, if requested by the Investor, deliver a copy of such
information, documents or reports to the Investor promptly following such filing.



     Section 6.12. Prospectus Delivery. From time to time for such period as in the
reasonable opinion of counsel for the Investor a prospectus is required by the Securities Act to be
delivered in connection with sales by the Investor, the Company will expeditiously deliver to the
Investor, without charge, as many copies of the Prospectus (and of any amendment or supplement
thereto) as the Investor may reasonably request. The Company consents to the use of the Prospectus
(and of any amendment or supplement thereto) in accordance with the provisions of the Securities
Act and state securities laws in connection with the offering and sale of the Shares and the
Warrant Shares and for such period of time thereafter as the Prospectus is required by the
Securities Act to be delivered in connection with sales of the Shares and the Warrant Shares.
Notwithstanding the foregoing, in no event shall the Company be under any obligation to
supplement the Prospectus or to reflect the issuance of any Shares pursuant to a Draw Down or
deliver any Prospectus as so supplemented at any time prior to the day following the Settlement
Date with respect to such Shares.



18









 






ARTICLE VII




CONDITIONS TO THE OBLIGATION OF THE INVESTOR TO ACCEPT A DRAW DOWN




     The obligation of the Investor hereunder to accept a Draw Down Notice and to acquire and pay
for the Shares in accordance therewith is subject to the satisfaction or waiver, at each Condition
Satisfaction Date, of each of the conditions set forth below. Other than those conditions set
forth in Section 7.12 which are for the Company’s sole benefit and may be waived by the
Company at any time in its sole discretion, the conditions are for the Investor’s sole benefit and
may be waived by the Investor at any time in its sole discretion. As used in this Agreement, the
term “Condition Satisfaction Date” shall mean, with respect to each Draw Down, the date on
which the applicable Draw Down Notice is delivered to the Investor and each Settlement Date in
respect of the applicable Draw Down Pricing Period.



     Section 7.01. Accuracy of the Company’s Representations and Warranties. Each of the
representations and warranties of the Company shall be true and correct in all material respects as
of the date when made as though made at that time except for representations and warranties that
are expressly made as of a particular date.



     Section 7.02. Performance by the Company. The Company shall have, in all material
respects, performed, satisfied and complied with all covenants, agreements and conditions required
by this Agreement, the Registration Rights Agreement and the Warrant to be performed, satisfied or
complied with by the Company.



     Section 7.03. Compliance with Law. The Company shall have complied in all material
respects with all applicable federal, state and local governmental laws, rules, regulations and
ordinances in connection with the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby except for any failures to so comply which,
individually or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect.



     Section 7.04. Effective Registration Statement. Upon the terms and subject to the
conditions set forth in the Registration Rights Agreement, the Registration Statement shall have
previously become effective and shall remain effective and (i) neither the Company nor the Investor
shall have received notice that the Commission has issued or intends to issue a stop order with
respect to the Registration Statement or that the Commission otherwise has suspended or withdrawn
the effectiveness of the Registration Statement, either temporarily or permanently, or intends or
has threatened to do so (unless the Commission’s concerns have been addressed and the Investor is
reasonably satisfied that the Commission no longer is considering or intends to take such action),
and (ii) no other suspension of the use or withdrawal of the effectiveness of the Registration
Statement or the Prospectus shall exist.



     Section 7.05. No Knowledge. The Company shall have no Knowledge of any event that
could reasonably be expected to have the effect of causing the Registration Statement with respect
to the resale of the Registrable Securities by the Investor to be suspended or otherwise
ineffective (which event is more likely than not to occur within eight Trading Days following the
Trading Day on which a Draw Down Notice is delivered).



19









 





     Section 7.06. No Suspension. Trading in the Company’s Common Stock shall not have
been suspended by the Commission, the Principal Market or the NASD and trading in securities
generally as reported on the Principal Market shall not have been suspended or limited.



     Section 7.07. No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement.



     Section 7.08. No Proceedings or Litigation. No action, suit or proceeding before any
arbitrator or any governmental authority shall have been commenced, and no investigation by any
governmental authority shall have been threatened, against the Company or any subsidiary, or any of
the officers, directors or affiliates of the Company or any subsidiary seeking to enjoin, prevent
or change the transactions contemplated by this Agreement.



     Section 7.09. Sufficient Shares Registered for Resale. The Company shall have
sufficient Shares, calculated using the closing trade price of the Common Stock as of the Trading
Day immediately preceding such Draw Down Notice, registered under the Registration Statement to
issue and sell such Shares in accordance with such Draw Down Notice.



     Section 7.10. Warrant. The Warrant shall have been duly executed, delivered and
issued to the Investor, and the Company shall not be in default in any material respect under any
of the provisions thereof, provided that any refusal by or failure of the Company to issue and
deliver Warrant Shares in respect of any exercise (in whole or in part) thereof shall be deemed to
be material for the purposes of this Section 7.10.



     Section 7.11. Opinion of Counsel. The Investor shall have received an opinion of
counsel to the Company, dated as of the Effective Date, in the form reasonably agreed to by the
Investor and its counsel prior to the date hereof.



     Section 7.12. Accuracy of Investor’s Representation and Warranties. The
representations and warranties of the Investor shall be true and correct in all material respects
as of the date when made as though made at that time except for representations and warranties that
are made as of a particular date.



     Section 7.13. Payment of Fees. The Company shall be current on all undisputed expense
invoices that the Company is required to pay pursuant to Section 10.01.



ARTICLE VIII




TERMINATION




     Section 8.01. Term. Unless otherwise terminated in accordance with Section 8.02
below, this Agreement shall terminate upon the expiration of the Commitment Period.



     Section 8.02. Other Termination.



     (a) The Investor may terminate this Agreement upon (x) one (1) business day’s notice if the
Company enters into any Prohibited Transaction as set forth in Section 6.07 without the



20









 





Investor’s
prior written consent, or (y) one (1) business day’s notice within ten (10) Trading Days after the
Investor obtains actual knowledge that an event resulting in a Material Adverse Effect has
occurred.



     (b) The Investor may terminate this Agreement upon one (1) business day’s notice to the
Company at any time in the event that the Registration Statement is not declared and maintained
effective in accordance with the Registration Rights Agreement; provided, however,
that in the event the Registration Statement is declared effective prior to the delivery of such
notice, the Investor shall thereafter have no right to terminate this Agreement pursuant to this
Section 8.02(b).



     (c) The Company may terminate this Agreement upon one (1) business day’s notice;
provided, however, that the Company shall not terminate this Agreement pursuant to
this Section 8.02(c) during any Draw Down Pricing Period; provided further;
that, in the event of any termination of this Agreement by the Company hereunder, so long as the
Investor owns Shares purchased hereunder and/or Warrant Shares, unless all of such shares of Common
Stock may be resold by the Investor without registration and without any time, volume or manner
limitations pursuant to Rule 144(k) (or any similar provision then in effect) under the Securities
Act, the Company shall use commercially reasonable efforts to not suspend or withdraw the
Registration Statement or otherwise cause the Registration Statement to become ineffective, or
voluntarily delist the Common Stock from, the Principal Market without listing the Common Stock on
another Principal Market.



     (d) Each of the parties hereto may terminate this Agreement upon one (1) business day’s notice
if the other party has breached a material representation, warranty or covenant to this Agreement
and such breach is not remedied within ten (10) Trading Days after notice of such breach is
delivered to the breaching party.



     Section 8.03. Effect of Termination. In the event of termination by the Company or
the Investor, written notice thereof shall forthwith be given to the other party and the
transactions contemplated by this Agreement shall be terminated without further action by either
party. If this Agreement is terminated as provided in Section 8.01 or 8.02 herein, this Agreement
shall become void and of no further force and effect, except as provided in Section 10.13. Nothing
in this Section 8.03 shall be deemed to release the Company or the Investor from any liability for
any breach under this Agreement occurring prior to such termination, or to impair the
rights of the Company and the Investor to compel specific performance by the other party of
its obligations under this Agreement arising prior to such termination.



ARTICLE IX




INDEMNIFICATION




     Section 9.01. Indemnification.



     (a) Except as otherwise provided in this Article IX, unless disputed as set forth in Section
9.02, the Company agrees to indemnify, defend and hold harmless the Investor and its affiliates and
their respective officers, directors, agents, employees, subsidiaries, partners, members and
controlling persons (each, an “Investor Indemnified Party”), to the fullest extent



21









 





permitted by law from and against any and all Damages directly resulting from or directly arising
out of any breach of any representation or warranty, covenant or agreement by the Company in this
Agreement, the Registration Rights Agreement or the Warrant; provided, however,
that the Company shall not be liable under this Article IX to an Investor Indemnified Party to the
extent that such Damages resulted or arose from the breach by an Investor Indemnified Party of any
representation, warranty, covenant or agreement of an Investor Indemnified Party contained in this
Agreement, the Registration Rights Agreement or the Warrant or the gross negligence, recklessness,
willful misconduct or bad faith of an Investor Indemnified Party. The parties intend that any
Damages subject to indemnification pursuant to this Article IX will be net of insurance proceeds
(which the Investor Indemnified Party agrees to use commercially reasonable efforts to recover).
Accordingly, the amount which the Company is required to pay to any Investor Indemnified Party
hereunder (a “Company Indemnity Payment”) will be reduced by any insurance proceeds
actually recovered by or on behalf of any Investor Indemnified Party in reduction of the related
Damages. In addition, if an Investor Indemnified Party receives a Company Indemnity Payment
required by this Article IX in respect of any Damages and subsequently receives any such insurance
proceeds, then the Investor Indemnified Party will pay to the Company an amount equal to the
Company Indemnity Payment received less the amount of the Company Indemnity Payment that would have
been due if the insurance proceeds had been received, realized or recovered before the Company
Indemnity Payment was made.



     (b) Except as otherwise provided in this Article IX, unless disputed as set forth in Section
9.02, the Investor agrees to indemnify, defend and hold harmless the Company and its affiliates and
their respective officers, directors, agents, employees, subsidiaries, partners, members and
controlling persons (each, a “Company Indemnified Party”), to the fullest extent permitted
by law from and against any and all Damages directly resulting from or directly arising out of any
breach of any representation or warranty, covenant or agreement by the Investor in this Agreement,
the Registration Right Agreement or the Warrant; provided, however, that the
Investor shall not be liable under this Article IX to a Company Indemnified Party to the extent
that such Damages resulted or arose from the breach by a Company Indemnified Party of any
representation, warranty, covenant or agreement of a Company Indemnified Party contained in this
Agreement, the Registration Right Agreement or the Warrant or gross negligence, recklessness,
willful misconduct or bad faith of a Company Indemnified Party. The parties intend that any
Damages subject to indemnification pursuant to this Article IX will be net of insurance proceeds
(which the Company agrees to use commercially reasonable efforts to recover). Accordingly, the
amount which the Investor is required to pay to any Company Indemnified Party
hereunder (an “Investor Indemnity Payment”) will be reduced by any insurance proceeds
theretofore actually recovered by or on behalf of any Company Indemnified Party in reduction of the
related Damages. In addition, if a Company Indemnified Party receives an Investor Indemnity
Payment required by this Article IX in respect of any Damages and subsequently receives any such
insurance proceeds, then the Company Indemnified Party will pay to the Investor an amount equal to
the Investor Indemnity Payment received less the amount of the Investor Indemnity Payment that
would have been due if the insurance proceeds had been received, realized or recovered before the
Investor Indemnity Payment was made.



     Section 9.02. Notification of Claims for Indemnification. Each party entitled to
indemnification under this Article IX (an “Indemnified Party”) shall, promptly after the
receipt of notice of the commencement of any claim against such Indemnified Party in respect of
which indemnity may be sought from the party obligated to indemnify such Indemnified Party under



22









 





this Article IX (the “Indemnifying Party”), notify the Indemnifying Party in writing of the
commencement thereof. Any such notice shall describe the claim in reasonable detail. The failure
of any Indemnified Party to so notify the Indemnifying Party of any such action shall not relieve
the Indemnifying Party from any liability which it may have to such Indemnified Party (a) other
than pursuant to this Article IX or (b) under this Article IX unless, and only to the extent that,
such failure results in the Indemnifying Party’s forfeiture of substantive rights or defenses or
the Indemnifying Party is prejudiced by such delay. The procedures listed below shall govern the
procedures for the handling of indemnification claims.



     (a) Any claim for indemnification for Damages that do not result from a Third Party Claim as
defined in the following paragraph, shall be asserted by written notice given by the Indemnified
Party to the Indemnifying Party. Such Indemnifying Party shall have a period of thirty (30) days
after the receipt of such notice within which to respond thereto. If such Indemnifying Party does
not respond within such thirty (30) day period, such Indemnifying Party shall be deemed to have
refused to accept responsibility to make payment as set forth in Section 9.01. If such
Indemnifying Party does not respond within such thirty (30) day period or rejects such claim in
whole or in part, the Indemnified Party shall be free to pursue such remedies as specified in this
Agreement.



     (b) If an Indemnified Party shall receive notice or otherwise learn of the assertion by a
person or entity not a party to this Agreement of any threatened legal action or claim
(collectively a “Third Party Claim”), with respect to which an Indemnifying Party may be
obligated to provide indemnification, the Indemnified Party shall give such Indemnifying Party
written notice thereof within twenty (20) days after becoming aware of such Third Party Claim.



     (c) An Indemnifying Party may elect to defend (and, unless the Indemnifying Party has
specified any reservations or exceptions, to seek to settle or compromise) at such Indemnifying
Party’s own expense and by such Indemnifying Party’s own counsel, any Third Party Claim. Within
thirty (30) days after the receipt of notice from an Indemnified Party (or sooner if the nature of
such Third Party Claim so requires), the Indemnifying Party shall notify the Indemnified Party
whether the Indemnifying Party will assume responsibility for defending such Third Party Claim,
which election shall specify any reservations or exceptions. If such Indemnifying Party does not
respond within such thirty (30) day period or rejects such claim in whole or in part, the
Indemnified Party shall be free to pursue such remedies as specified in this Agreement. In case
any such Third Party Claim shall be brought against any Indemnified Party,
and it shall notify the Indemnifying Party of the commencement thereof, the Indemnifying Party
shall be entitled to assume the defense thereof at its own expense, with counsel satisfactory to
such Indemnified Party in its reasonable judgment; provided, however, that any Indemnified Party
may, at its own expense, retain separate counsel to participate in such defense at its own expense.
Notwithstanding the foregoing, in any Third Party Claim in which both the Indemnifying Party, on
the one hand, and an Indemnified Party, on the other hand, are, or are reasonably likely to become,
a party, such Indemnified Party shall have the right to employ separate counsel and to control its
own defense of such claim if, in the reasonable opinion of counsel to such Indemnified Party,
either (x) one or more significant defenses are available to the Indemnified Party that are not
available to the Indemnifying Party or (y) a conflict or potential conflict exists between the
Indemnifying Party, on the one hand, and such Indemnified Party, on the other hand, that would make
such separate representation advisable; provided, however, that in such
circumstances the Indemnifying Party (i) shall not be liable for the fees and expenses of



23









 





more than
one counsel to all Indemnified Parties and (ii) shall reimburse the Indemnified Parties for such
reasonable fees and expenses of such counsel incurred in any such Third Party Claim, as such
expenses are incurred, provided that the Indemnified Parties agree to repay such amounts if it is
ultimately determined that the Indemnifying Party was not obligated to provide indemnification
under this Article IX. The Indemnifying Party agrees that it will not, without the prior written
consent of the Indemnified Party, settle, compromise or consent to the entry of any judgment in any
pending or threatened claim relating to the matters contemplated hereby (if any Indemnified Party
is a party thereto or has been actually threatened to be made a party thereto) unless such
settlement, compromise or consent includes an unconditional release of such Indemnified Party from
all liability arising or that may arise out of such claim. The Indemnifying Party shall not be
liable for any settlement of any claim effected against an Indemnified Party without the
Indemnifying Party’s written consent, which consent shall not be unreasonably withheld, conditioned
or delayed. The rights accorded to an Indemnified Party hereunder shall be in addition to any
rights that any Indemnified Party may have at common law, by separate agreement or otherwise;
provided, however, that notwithstanding the foregoing or anything to the contrary
contained in this Agreement, nothing in this Article IX shall restrict or limit any rights that any
Indemnified Party may have to seek equitable relief.



ARTICLE X




MISCELLANEOUS




     Section 10.01. Fees and Expenses.



     (a) Each of the Company and the Investor agrees to pay its own expenses incident to the
performance of its obligations hereunder, except that the Company shall be solely responsible for
(i) all reasonable attorneys fees and expenses incurred by the Investor in connection with the
preparation, negotiation, execution and delivery of this Agreement, the Registration Rights
Agreement and the Warrant, and review of the Registration Statement, and in connection with any
amendments, modifications or waivers of this Agreement, including, without limitation, all
reasonable attorneys fees and expenses, (ii) all reasonable fees and expenses incurred in
connection with the Investor’s enforcement of this Agreement, including, without limitation, all
reasonable attorneys fees and expenses, (iii) due diligence expenses incurred by the Investor
during the term of this Agreement equal to $12,500 per calendar quarter, provided that such $12,500
shall not be payable in respect of any calendar quarter following the calendar quarter during which
the Company shall have issued and sold Common Stock hereunder during the term of this Agreement in
aggregate Draw Down Amounts equal to or exceeding $25 million and (iv) all stamp or other similar
taxes and duties, if any, levied in connection with issuance of the Shares pursuant hereto;
provided, however, that in each of the above instances the Investor shall provide
customary supporting invoices or similar documentation in reasonable detail describing such
expenses (however, Investor shall be obligated to provide detailed time sheets only in the event
that such expenses exceed $50,000), and provided further that the maximum aggregate
amount payable by the Company pursuant to clause (i) above shall be $75,000 and the Investor shall
bear all fees and expenses in excess of $75,000 incurred in connection with the events described
under clause (i) above.



24









 





     (b) If any action at law or in equity is necessary to enforce or interpret the terms of this
Agreement, the Registration Rights Agreement or the Warrant, the prevailing party shall be entitled
to reasonable fees, costs and necessary disbursements in addition to any other relief to which such
party may be entitled.



     Section 10.02. Reporting Entity for the Common Stock. The reporting entity relied
upon for the determination of the trading price or trading volume of the Common Stock on any given
Trading Day for the purposes of this Agreement shall be Bloomberg, L.P. or any successor thereto.
The written mutual consent of the Investor and the Company shall be required to employ any other
reporting entity.



     Section 10.03. Brokerage. Each of the parties hereto represents that it has had no
dealings in connection with this transaction with any finder or broker who will demand payment of
any fee or commission from the other party. The Company on the one hand, and the Investor, on the
other hand, agree to indemnify the other against and hold the other harmless from any and all
liabilities to any Persons claiming brokerage commissions or finder’s fees on account of services
purported to have been rendered on behalf of the indemnifying party in connection with this
Agreement or the transactions contemplated hereby.



     Section 10.04. Notices. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or
certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier
service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile,
addressed as set forth below or to such other address as such party shall have specified most
recently by written notice given in accordance herewith. Any notice or other communication
required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or
delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine,
at the address or number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such notice is to be
received) or (b) on the second business day following the date of mailing by express courier
service, fully prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:


If to the Company:



Santarus, Inc.

10590 West Ocean Air Drive, Suite 200

San Diego, CA 92130

Facsimile: (858) 314-5702

Attention: Debra P. Crawford, Senior VP and Chief Financial Officer



with copies (which shall not constitute notice) to:



Santarus, Inc.

10590 West Ocean Air Drive, Suite 200

San Diego, CA 92130






25









 







Facsimile: (858) 314-5702

Attention: Carey J. Fox, Esq., Vice President, Legal Affairs



Latham & Watkins LLP

12636 High Bluff Drive, Suite 400

San Diego, CA 92130

Facsimile (858) 523-5450

Attention: Scott N. Wolfe, Esq.




if to the Investor:



Kingsbridge Capital Limited/ c/o Kingsbridge Corporate Services Limited

Main Street

Kilcullen, County Kildare

Republic of Ireland

Facsimile: 011-353-45-482-003

E-mail: adamgurney@eircom.net and kingsbridge@eircom.net

Attention: Adam Gurney, Managing Director




with a copy (which shall not constitute notice) to:



Clifford Chance US LLP

31 West 52nd Street

New York, NY 10019

Facsimile: (212) 878-8375

Attention: Keith M. Andruschak, Esq.



Either party hereto may from time to time change its address or facsimile number for notices under
this Section by giving at least ten (10) days’ prior written notice of such changed address or
facsimile number to the other party hereto.




     Section 10.05. Assignment. Neither this Agreement nor any rights of the Investor or
the Company hereunder may be assigned by either party to any other Person.



     Section 10.06. Amendment; No Waiver. No party shall be liable or bound to any other
party in any manner by any warranties, representations or covenants except as specifically set
forth in this Agreement, the Warrant and the Registration Rights Agreement. Except as
expressly provided in this Agreement, neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument signed by both parties
hereto. The failure of the either party to insist on strict compliance with this Agreement, or to
exercise any right or remedy under this Agreement, shall not constitute a waiver of any rights
provided under this Agreement, nor estop the parties from thereafter demanding full and complete
compliance nor prevent the parties from exercising such a right or remedy in the future.



     Section 10.07. Entire Agreement. This Agreement, the Registration Rights Agreement
and the Warrant set forth the entire agreement and understanding of the parties relating to the
subject matter hereof and supersedes all prior and contemporaneous agreements, negotiations and
understandings between the parties, both oral and written, relating to the subject matter hereof.



26









 





     Section 10.08. Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void,
this Agreement shall continue in full force and effect without said provision; provided
that, such severability shall be ineffective if it materially changes the economic benefit of this
Agreement to any party.



     Section 10.09. Title and Subtitles. The titles and subtitles used in this Agreement
are used for the convenience of reference and are not to be considered in construing or
interpreting this Agreement.



     Section 10.10. Counterparts. This Agreement may be executed in multiple counterparts,
each of which may be executed by less than all of the parties and shall be deemed to be an original
instrument which shall be enforceable against the parties actually executing such counterparts and
all of which together shall constitute one and the same instrument.



     Section 10.11. Choice of Law. This Agreement shall be construed under the laws of the
State of New York.



     Section 10.12. Specific Enforcement, Consent to Jurisdiction.



     (a) The Company and the Investor acknowledge and agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof or thereof, this being in
addition to any other remedy to which any of them may be entitled by law or equity.



     (b) Each of the Company and the Investor (i) hereby irrevocably submits to the jurisdiction of
the United States District Court and other courts of the United States sitting in the State of New
York for the purposes of any suit, action or proceeding arising out of or relating to this
Agreement and (ii) hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper. Each of the Company and the Investor consents to process being served in
any such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing in this Section
shall affect or limit any right to serve process in any other manner permitted by law.



     Section 10.13. Survival. The representations and warranties of the Company and the
Investor contained in Articles IV and V of this Agreement and the covenants and agreements
contained in Articles V, VI and X of this Agreement shall survive the execution and delivery hereof
and the Closing until the termination of this Agreement, and the agreements and covenants set forth
in Article VIII and Article IX of this Agreement shall survive the execution and delivery hereof
and the Closing hereunder.



     Section 10.14. Publicity Except as otherwise required by applicable law or
regulation, or Nasdaq rule or judicial process, prior to the Closing, neither the Company nor the
Investor



27









 




shall issue any press release or otherwise make any public statement or announcement with
respect to this Agreement or the transactions contemplated hereby or the existence of this
Agreement. In the event the Company is required by law, regulation, Nasdaq rule or judicial
process, based upon reasonable advice of the Company’s counsel, to issue a press release or
otherwise make a public statement or announcement with respect to this Agreement prior to the
Closing, the Company shall consult with the Investor on the form and substance of such press
release, statement or announcement. Promptly after the Closing, each party may issue a press
release or otherwise make a public statement or announcement with respect to this Agreement or the
transactions contemplated hereby or the existence of this Agreement; provided that, prior
to issuing any such press release, making any such public statement or announcement, the party
wishing to make such release, statement or announcement consults and cooperates in good faith with
the other party in order to formulate such press release, public statement or announcement in form
and substance reasonably acceptable to both parties.




     Section 10.15. Further Assurances. From and after the date of this Agreement, upon
the request of the Investor or the Company, each of the Company and the Investor shall execute and
deliver such instruments, documents and other writings as may be reasonably necessary or desirable
to confirm and carry out and to effectuate fully the intent and purposes of this Agreement.



     Section 10.16. Absence of Presumption. This Agreement shall be construed without
regard to any presumption or rule requiring construction or interpretation against the party
drafting or causing any instrument to be drafted.



[Remainder of this page intentionally left blank]




28









 








     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their
respective authorized officer as of the date first written.



	 	 	 	 	 	 	 
	 	 	KINGSBRIDGE CAPITAL LIMITED	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Maria O’Donoghue	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Maria O’Donoghue	 	 
	 

	 	 	 	Director	 	 
	 
	 	 	 	 	 	 
	 	 	SANTARUS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Gerald T. Proehl	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Gerald T. Proehl	 	 
	 

	 	 	 	President and Chief Executive Officer	 	 






29









 






Exhibit A




Form of Registration Rights Agreement




 









 








Exhibit B




Form of Warrant




 









 









Exhibit C




Officer’s Certificate




     I, [NAME OF OFFICER], do hereby certify to Kingsbridge Capital Limited (the “Investor”), with
respect to the common stock of Santarus, Inc. (the “Company”) issuable in connection with the Draw
Down Notice, dated
                     (the “Notice”) attached hereto and delivered pursuant to Article
III of the Common Stock Purchase Agreement, dated February 3, 2006 (the “Agreement”), by and
between the Company and the Investor, as follows (capitalized terms used but undefined herein have
the meanings given to such terms in the Agreement):



     1. I am the duly elected [OFFICER] of the Company.



     2. The representations and warranties of the Company set forth in Article IV of the Agreement
are true and correct in all material respects as though made on and as of the date hereof (except
for such representations and warranties that are made as of a particular date).



     3. The Company has performed in all material respects all covenants and agreements to be
performed by the Company on or prior to the date hereof related to the Notice and has satisfied
each of the conditions to the obligation of the Investor set forth in Article VII of the Agreement.



     4. The Shares issuable in respect of the Notice will be delivered without restrictive legend
via book entry through the Depositary Trust Company to an account designated by the Investor.



     The undersigned has executed this Certificate this                      day of                                         , 200[_].



	 	 	 	 	 
	 	—————————————————— 

Name:

Title:

 	 
	 	 	 
	 	 	 
	 	 	 



 









 






	 	 	 	 	 



Annex A




Disclosure Schedule




Capitalization as of September 30, 2005:




	 	 	 	 	 
	 

	 	Authorized Capital Stock:
	 	100,000,000 shares of Common Stock
	 

	 	 	 	10,000,000 shares of Preferred Stock
	 
	 	 	 	 
	 

	 	Shares Issued and Outstanding:
	 	44,098,391 shares of Common Stock
	 

	 	 	 	0 shares of Preferred Stock






	 	 	 	 	 
	 

	 	Options:
	 	2,313,161 shares subject to outstanding options under 1998 Stock Option Plan
	 

	 	 	 	3,659,495 shares subject to outstanding options under Amended and Restated
2004 Equity Incentive Award Plan
	 

	 	 	 	2,127,838 shares reserved for future issuance under Amended and Restated
2004 Equity Incentive Award Plan
	 
	 	 	 	 
	 

	 	Warrants:
	 	Warrants to purchase 59,405 shares outstanding
	 
	 	 	 	 
	 

	 	ESPP:
	 	350,776 shares available for future issuance under Amended and Restated
Employee Stock Purchase Plan






Other matters related to Capitalization:





Rights under Amended and Restated Investors’ Rights Agreement, dated April 30, 2003, as
amended to date, between the Company and the parties named therein, including among other
things, registration rights




Rights under Stock Restriction and Registration Rights Agreement, dated January 26, 2001,
between the Company and The Curators of the University of Missouri, including among other
things, registration rights




Rights Agreement, dated as of November 12, 2004, between the Company and American Stock
Transfer & Trust Company




Commission Documents