EX-10.1





Exhibit 10.1




Execution Copy




COMMON STOCK PURCHASE AGREEMENT




by and between




KINGSBRIDGE CAPITAL LIMITED




and




ELECTRO-OPTICAL SCIENCES, INC.




dated as of May 7, 2009





 









 








TABLE OF CONTENTS




	 	 	 	 	 
	ARTICLE I DEFINITIONS
	 	 	1	 
	 
	 	 	 	 
	ARTICLE II PURCHASE AND SALE OF COMMON STOCK
	 	 	5	 
	 
	 	 	 	 
	Section 2.1 Purchase and Sale of Stock
	 	 	5	 
	Section 2.2 Closing
	 	 	6	 
	Section 2.3 Registration Statement and Prospectus
	 	 	6	 
	Section 2.4 Warrant
	 	 	6	 
	Section 2.5 Blackout Shares
	 	 	6	 
	 
	 	 	 	 
	ARTICLE III DRAW DOWN TERMS
	 	 	6	 
	 
	 	 	 	 
	Section 3.1 Draw Down Notice
	 	 	6	 
	Section 3.2 Number of Shares
	 	 	7	 
	Section 3.3 Limitation on Draw Downs
	 	 	7	 
	Section 3.4 Trading Cushion
	 	 	7	 
	Section 3.5 Settlement
	 	 	7	 
	Section 3.6 Delivery of Shares; Payment of Draw Down Amount
	 	 	7	 
	Section 3.7 Failure to Deliver Shares
	 	 	8	 
	Section 3.8 Special Issue Right
	 	 	9	 
	 
	 	 	 	 
	ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY
	 	 	9	 
	 
	 	 	 	 
	Section 4.1 Organization, Good Standing and Power
	 	 	9	 
	Section 4.2 Authorization; Enforcement
	 	 	9	 
	Section 4.3 Capitalization
	 	 	10	 
	Section 4.4 Issuance of Shares
	 	 	10	 
	Section 4.5 No Conflicts
	 	 	11	 
	Section 4.6 Commission Documents, Financial Statements
	 	 	12	 
	Section 4.7 No Material Adverse Change
	 	 	13	 
	Section 4.8 No Undisclosed Liabilities
	 	 	13	 
	Section 4.9 No Undisclosed Events or Circumstances
	 	 	13	 
	Section 4.10 Actions Pending
	 	 	13	 
	Section 4.11 Compliance with Law
	 	 	13	 
	Section 4.12 Certain Fees
	 	 	14	 
	Section 4.13 Disclosure
	 	 	14	 
	Section 4.14 Material Non-Public Information
	 	 	14	 
	Section 4.15 Exemption from Registration; Valid Issuances
	 	 	14	 
	Section 4.16 Form S-3 Eligibility
	 	 	15	 
	Section 4.17 No General Solicitation or Advertising in Regard to this Transaction
	 	 	15	 
	Section 4.18 No Integrated Offering
	 	 	15	 
	Section 4.19 Acknowledgment Regarding Investor’s Purchase of Shares
	 	 	15	 






 









 






	 	 	 	 	 
	ARTICLE V REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR
	 	 	15	 
	 
	 	 	 	 
	Section 5.1 Organization and Standing of the Investor
	 	 	15	 
	Section 5.2 Authorization and Power
	 	 	15	 
	Section 5.3 No Conflicts
	 	 	16	 
	Section 5.4 Financial Capability
	 	 	16	 
	Section 5.5 Information
	 	 	17	 
	Section 5.6 Trading Restrictions
	 	 	17	 
	Section 5.7 Statutory Underwriter Status
	 	 	17	 
	Section 5.8 Not an Affiliate
	 	 	17	 
	Section 5.9 Manner of Sale
	 	 	17	 
	Section 5.10 Prospectus Delivery
	 	 	17	 
	 
	 	 	 	 
	ARTICLE VI COVENANTS OF THE COMPANY
	 	 	18	 
	 
	 	 	 	 
	Section 6.1 Securities Compliance
	 	 	18	 
	Section 6.2 Reservation of Common Stock
	 	 	18	 
	Section 6.3 Registration and Listing
	 	 	18	 
	Section 6.4 Registration Statement
	 	 	19	 
	Section 6.5 Compliance with Laws
	 	 	19	 
	Section 6.6 Other Financing
	 	 	19	 
	Section 6.7 Prohibited Transactions
	 	 	20	 
	Section 6.8 Corporate Existence
	 	 	20	 
	Section 6.9 Non-Disclosure of Non-Public Information
	 	 	20	 
	Section 6.10 Notice of Certain Events Affecting Registration; Suspension of Right to Request a Draw Down
	 	 	21	 
	Section 6.11 Amendments to the Registration Statement
	 	 	21	 
	Section 6.12 Prospectus Delivery
	 	 	21	 
	 
	 	 	 	 
	ARTICLE VII CONDITIONS TO THE OBLIGATION OF THE INVESTOR TO ACCEPT A DRAW DOWN
	 	 	22	 
	 
	 	 	 	 
	Section 7.1 Accuracy of the Company’s Representations and Warranties
	 	 	22	 
	Section 7.2 Performance by the Company
	 	 	22	 
	Section 7.3 Compliance with Law
	 	 	22	 
	Section 7.4 Effective Registration Statement
	 	 	22	 
	Section 7.5 No Knowledge
	 	 	23	 
	Section 7.6 No Suspension
	 	 	23	 
	Section 7.7 No Injunction
	 	 	23	 
	Section 7.8 No Proceedings or Litigation
	 	 	23	 
	Section 7.9 Sufficient Shares Registered for Resale
	 	 	23	 
	Section 7.10 Warrant
	 	 	23	 
	Section 7.11 Opinion of Counsel
	 	 	23	 
	Section 7.12 Accuracy of Investor’s Representation and Warranties
	 	 	23	 






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	ARTICLE VIII TERMINATION
	 	 	24	 
	 
	 	 	 	 
	Section 8.1 Term
	 	 	24	 
	Section 8.2 Other Termination.
	 	 	24	 
	Section 8.3 Effect of Termination
	 	 	24	 
	 
	 	 	 	 
	ARTICLE IX INDEMNIFICATION
	 	 	25	 
	 
	 	 	 	 
	Section 9.1 Indemnification.
	 	 	25	 
	Section 9.2 Notification of Claims for Indemnification
	 	 	26	 
	 
	 	 	 	 
	ARTICLE X MISCELLANEOUS
	 	 	27	 
	 
	 	 	 	 
	Section 10.1 Fees and Expenses
	 	 	27	 
	Section 10.2 Reporting Entity for the Common Stock
	 	 	28	 
	Section 10.3 Brokerage
	 	 	28	 
	Section 10.4 Notices
	 	 	29	 
	Section 10.5 Assignment
	 	 	30	 
	Section 10.6 Amendment; No Waiver
	 	 	30	 
	Section 10.7 Entire Agreement
	 	 	30	 
	Section 10.8 Severability
	 	 	30	 
	Section 10.9 Title and Subtitles
	 	 	31	 
	Section 10.10 Counterparts
	 	 	31	 
	Section 10.11 Choice of Law
	 	 	31	 
	Section 10.12 Specific Enforcement, Consent to Jurisdiction
	 	 	31	 
	Section 10.13 Survival
	 	 	31	 
	Section 10.14 Publicity
	 	 	32	 
	Section 10.15 Further Assurances
	 	 	32	 





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     This COMMON STOCK PURCHASE AGREEMENT (this “Agreement”) is entered into as of the 7th
day of May, 2009, by and between Kingsbridge Capital Limited, an entity organized and existing
under the laws of the British Virgin Islands, whose business address is P.O. Box 1075, Elizabeth
House, 9 Castle Street, St. Helier, Jersey, Channel Islands (the “Investor”), and
Electro-Optical Sciences, 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 $45 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 issuable 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 200,000 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




     As used in this Agreement, the following terms shall have the meanings set forth below:



     “Average Trading Volume” means the average trading volume of the twenty (20) Trading
Days during the thirty (30) Trading Days prior to the issuance of the Draw Down Notice that results
from excluding the five (5) highest and five (5) lowest Trading Days during such period.



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



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



 









 





     “Bylaws” shall have the meaning assigned to such term in Section 4.3 hereof.



     “Charter” shall have the meaning assigned to such term in Section 4.3 hereof.



     “Closing Date” shall have the meaning assigned to such term in Section 2.2 hereof.



     “Closing Price” as of any particular day shall mean the closing price per share of the
Common Stock as reported by the Principal Market on such day.



     “Commission” means the United States Securities and Exchange Commission.



     “Commission Documents” shall have the meaning assigned to such term in Section 4.6
hereof.



     “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 an aggregate purchase price 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.



     “Common Stock” means the common stock of the Company, par value $0.001 per share.



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



     “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).



     “Draw Down” shall have the meaning assigned to such term in Section 3.1 hereof.



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



     “Draw Down Discount Price” means, for any Trading Day during a Draw Down Pricing
Period (other than a Draw Down Pricing Period in respect of the Special Issue Right described in
Section 3.8), (i) 90% of the VWAP on any Trading Day during the Draw Down Pricing Period when VWAP
is equal to or exceeds $2.00 but is less than $6.75, (ii) 92% of the VWAP on any Trading Day
during the Draw Down Pricing Period when VWAP is equal to or exceeds $6.75 but is less than or
equal to $10.00, or (iii) 94% of the VWAP on any Trading Day during the Draw Down Pricing Period
when VWAP exceeds $10.00.



     “Draw Down Notice” shall have the meaning assigned to such term in Section 3.1 hereof.



     “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.



- 2 -









 





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



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



     “Exchange Act” means the United States Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.



     “Excluded Merger or Sale” shall have the meaning assigned to such term in the Warrant.



     “FINRA” means the Financial Industry Regulatory Authority.



     “Fixed Purchase Amount” means, in respect of any Draw Down, up to 2.5% of the
Company’s Market Capitalization as of the date of delivery of the applicable Draw Down Notice.



     “Knowledge” means the actual knowledge of the Company’s Chief Executive Officer or
Chief Financial Officer.



     “Liquidity Ratio” means 0.25 (twenty-five percent (25%)).



     “Make Whole Amount” shall have the meaning specified in Section 3.7.



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



     “Material Adverse Effect” means any effect that is not negated, corrected, cured or
otherwise remedied within a reasonable period of time 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 Agreement or the Warrant in any
material respect; provided, however, that none of the following shall individually 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 biotechnology industry;
(ii) the effects of conditions or events that are reasonably expected to occur in the Company’s
ordinary course of business (such as, by way of example only, failed clinical trials, serious
adverse events involving the Company’s product candidates or products, delays in product
development or commercial launch, unfavorable regulatory determinations, difficulties in generating
product sales or involving collaborators or intellectual property disputes); (iii) 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 (iv) changes in the market price of the Common Stock.



- 3 -









 





     “Maximum Commitment Amount” means the lesser of (i) $45 million in aggregate Draw Down
Amounts or (ii) 3,527,000 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) minus the
number of Blackout Shares, if any, delivered to the Investor under the Registration Rights
Agreement; provided, however, that the Maximum Commitment Amount shall not exceed under any
circumstances that number of shares of Common Stock that the Company may issue pursuant to this
Agreement and the transactions contemplated hereby without (a) breaching the Company’s obligations
under the rules and regulations of the Principal Market or (b) obtaining stockholder approval under
the applicable rules and regulations of the Principal Market (notwithstanding that such approval
may have been obtained).



     “Maximum Draw Down Amount” means, in respect of any Draw Down (other than a Draw Down
in respect of the Special Issue Right described in Section 3.8), the lesser of (i) $10 million and
(ii) the greater of (x) the Fixed Purchase Amount and (y) the Purchase Amount Option.



     “Permitted Transaction” shall have the meaning assigned to such term in Section 6.6
hereof.



     “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.



     “Principal Market” means the NASDAQ Capital Market, the NASDAQ Global Select Market,
the NASDAQ Global 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.



     “Prohibited Transaction” shall have the meaning assigned to such term in Section 6.7
hereof.



     “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.



     “Purchase Amount Option” means, in respect of any Draw Down, up to the lesser of (i)
3.5% of the Company’s Market Capitalization as of the date of delivery of the applicable Draw Down
Notice and (ii) the product of (w) Average Trading Volume multiplied by (x) the Closing Price on
the Trading Day preceding the delivery of the applicable Draw Down Notice multiplied by (y) the
number of Trading Days during a Draw Down Pricing Period (8) multiplied by (z) the Liquidity Ratio
(0.25).



     “Registrable Securities” means (i) the Shares, (ii) the Warrant Shares, and (iii) any
Common Stock issued or issuable with respect to any of the Shares or Warrant Shares while such
Shares or Warrant Shares are Registrable Securities 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 (including, for the avoidance of doubt, any Blackout Shares



- 4 -









 







issued pursuant to the Registration Rights Agreement). 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 Commission 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
(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 (or any
similar provision then in effect) under the Securities Act.



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



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



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



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



     “Settlement Date” shall have the meaning assigned to such term in Section 3.5 hereof.



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



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



     “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.



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



     “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 2.1 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



- 5 -









 







Common Stock from the Company for an aggregate (in Draw Down Amounts) of up to the Maximum
Commitment Amount, consisting of purchases based on Draw Downs in accordance with Article III
hereof.



     Section 2.2 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 Stroock & Stroock & Lavan
LLP, 180 Maiden Lane, New York, NY 10038 at 5:00 p.m. local time on May 7, 2009, or at such other
time and place (including, without limitation, by way of facsimile exchange of executed documents
from different locations) or on such date as the Investor and the Company may agree upon (the
“Closing Date”). Each party shall deliver at or prior to the Closing all documents,
instruments and writings required to be delivered at the Closing by such party pursuant to this
Agreement.



     Section 2.3 Registration Statement and Prospectus. 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 2.4 Warrant. On the Closing Date, the Company shall issue and deliver the
Warrant to the Investor.



     Section 2.5 Blackout Shares. The Company shall deliver any Blackout Amount or issue
and deliver any Blackout Shares to the Investor in accordance with Section 1.1(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 3.1 Draw Down Notice. During the Commitment Period, the Company may, in its
sole discretion, issue a Draw Down Notice (as hereinafter defined) which shall specify the dollar
amount the Company intends to raise from the Investor from the sale of Common Stock hereunder (each
such capital raising transaction, a “Draw Down”) up to a Draw Down Amount equal to the
Maximum Draw Down Amount. The Investor shall be obligated to accept each Draw Down initiated by
the Company, subject to the terms and conditions hereinafter provided. The Company shall inform
the Investor in writing by sending a duly completed notice in the form of Exhibit C hereto
(each, a “Draw Down Notice”) by e-mail to the addresses set forth in Section 10.4, 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. 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,



- 6 -









 







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 D hereof.



     Section 3.2 Number of Shares. Subject to Section 3.6(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. Subject to Section 3.6(b), the number of
shares issuable on a Trading Day during a Draw Down Pricing Period shall be equal to the quotient
of one eighth (1/8th) of the Draw Down Amount divided by the Draw Down Discount Price for such
Trading Day.



     Section 3.3 Limitation on Draw Downs. Only one Draw Down shall be permitted for each
Draw Down Pricing Period.



     Section 3.4 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 3.5 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 down to
the nearest whole number of Shares.



     Section 3.6 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 thereof 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, upon 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 on which the VWAP is less than the
greater of: (i) 90% of the Closing Price of the Company’s Common Stock on the Trading Day
immediately preceding the commencement of such Draw Down Pricing Period, (ii) $2.00 or (iii) the
price specified by the Company in the applicable Draw Down Notice, such Trading Day shall not be
used in calculating the number of Shares to be



- 7 -









 






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 trading hours on the
Principal Market on any Trading Day during a Draw Down Pricing Period, such Trading Day shall be
disregarded 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. In addition, in the
event that the Company delivers a Blackout Notice to the Investor at any time on or after the date
that a Draw Down Notice is delivered, each Trading Day during the applicable Draw Down Pricing
Period after the delivery of such Blackout Notice shall be disregarded (subject to waiver by the
Investor) for the purposes of calculating the number of Shares to be issued in respect of the
applicable 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 for
each such Trading Day that is so disregarded. For the avoidance of doubt, any Trading Day that is
disregarded for the purposes of calculating the number of Shares to be issued in connection with a
Draw Down in accordance with the foregoing shall only reduce such number of Shares by one eighth
(1/8th), notwithstanding that such Trading Day may be so disregarded for more than one of the
reasons specified above.




     Section 3.7 Failure to Deliver Shares. If on any Settlement Date, the Company fails
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 not reasonably within the control of, or directly attributable to, the
Company, or is otherwise 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 (taking into account the return of the Draw Down Amount made under clause (i)), 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 annual interest (on the basis of the 365 day year) compounded daily
at a rate equal to the greater of (i) the prime rate of interest then in effect as published by the
Wall Street Journal plus three percent (3%) and (ii) ten percent (10%), up to and including the
date on which the Make Whole Amount is actually paid. For the purposes of this Section 3.7 facts
or circumstances that



- 8 -









 







are reasonably within the control of the Company include such facts and circumstances solely
attributable to acts or omissions of the Company, its officers, directors, employees, agents and
representatives, including, without limitation, any transfer agent(s) and/or accountant(s) engaged
by the Company in connection with the Company’s performance of its obligations hereunder.
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 3.7, 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.



     Section 3.8 Special Issue Right. Subject to the terms and conditions set forth in
this Agreement, including, without limitation, the provisions of this Article III and the
conditions set forth in Article VII, at any time beginning on the Effective Date and ending on
October 1, 2009, the Company may deliver a Draw Down Notice to the Investor indicating that it is
exercising its right pursuant to this Section 3.8 (the “Special Issue Right”) to effect a
Draw Down with a Maximum Draw Down Amount equal to the lesser of (i) $4 million and (ii) 3.5% of
the Company’s Market Capitalization as of the date of delivery of such Draw Down Notice and a Draw
Down Discount Price equal to 90% of the VWAP on each Trading Day during the associated Draw Down
Pricing Period used in calculating the number of Shares to be issued in connection with such Draw
Down under the limitations set forth in Section 3.6(b). The Company may not exercise the Special
Issue Right more than one time.



ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE COMPANY




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



     Section 4.1 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 corporate power and authority to own, lease and operate its properties and assets and
to carry on its business as now being conducted. Except as set forth in the Commission Documents
(as defined below), as of the date hereof, 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 to be so qualified or be in good standing would not have a Material Adverse Effect.



     Section 4.2 Authorization; Enforcement. (i) The Company has the requisite corporate
power and authority to enter into and perform its obligations under this Agreement, the
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 Charter); (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



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consummation by it of the transactions contemplated hereby and thereby have been duly and
validly 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 6.5); 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, insolvency, reorganization, moratorium, liquidation, conservatorship, receivership, 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 (including any
limitation of equitable remedies).



     Section 4.3 Capitalization. The authorized capital stock of the Company and the
shares thereof issued and outstanding are set forth in the Commission Documents as of the date
specified therein. 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, as described in the Commission Documents or as disclosed on a schedule (the
“Disclosure Schedule”) previously delivered to the Investor, as of December 31,2008, no
shares of Common Stock were entitled to preemptive rights or registration rights and there were no
outstanding options, warrants, scrip, rights issued by the Company to subscribe to, call or
commitments of any character whatsoever issued by the Company 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 for stock options issued by the Company to its employees, directors
and consultants. Except as set forth in this Agreement, the Commission Documents, or as previously
disclosed to the Investor in the Disclosure Schedule, as of December 31, 2008, 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 previously 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 previously disclosed to the
Investor in the Disclosure Schedule, 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 twelve 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 would 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, as amended and
in effect on the date hereof (the “Charter”), and the Company’s Amended and Restated
Bylaws, as amended and in effect on the date hereof (the “Bylaws”).



     Section 4.4 Issuance of Shares. Subject to Section 6.5, the Shares, the Warrant and
the Warrant Shares have been, and any Blackout Shares will be, duly authorized by all necessary



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corporate action (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 Charter) and, when issued
and paid for in accordance with the terms of this Agreement, the Registration Rights Agreement and
the Warrant, and subject to, and in reliance on, the representations, warranties and covenants made
herein by the Investor, 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 4.5 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 and shall not in any material respect: (i) result in the
violation of any provision of the Charter 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 rise
to 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 and that has not been waived 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 any
such consent would constitute a Material Adverse Effect. The Company is not required under
applicable 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 Charter) in accordance with the terms hereof and
thereof (other than any required filings that the Company is permitted to make with the Commission,
the FINRA/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.



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     Section 4.6 Commission Documents, Financial Statements.



          (a) The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and
since December 31, 2008 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, and, for the purpose of determining the Company’s
compliance with Section 7.1 hereof, any such reports, schedules, forms, statements and other
documents filed with the Commission and publicly available after the date hereof but on or prior to
the applicable Condition Satisfaction Date, including filings incorporated by reference, being
referred to herein as the “Commission Documents”). Except as previously disclosed to the
Investor in writing, since December 31, 2008 the Company has maintained all requirements for the
continued listing or quotation of its Common Stock, and such Common Stock is currently listed or
quoted on the NASDAQ Capital Market. The Company has made available (including through the
Commission’s IDEA filing system) to the Investor true and complete copies of the Commission
Documents filed with the Commission since December 31, 2008 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 the
date it was filed with the Commission, the Company’s Annual Report on Form 10-K for the year ended
December 31, 2008 complied in all material respects with the requirements of the Exchange Act and
the rules and regulations of the Commission promulgated thereunder then-applicable to such
document, and, as of the date it was filed with the Commission, after giving effect to the
information disclosed and incorporated by reference therein, to the Company’s Knowledge such Annual
Report on 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, together with the related notes and
schedules thereto, of the Company included in the Commission Documents filed with the Commission
since December 31, 2008 complied as to form in all material respects with all then-applicable
accounting requirements and the published rules and regulations of the Commission or other
then-applicable rules and regulations with respect thereto. Such financial statements, together
with the related notes and schedules thereto, 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 condition 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).




          (b) The Company has timely filed with the Commission and made available to the Investor via
IDEA or otherwise all certifications and statements required by (x) Rule 13a-14 or Rule 15d-14
under the Exchange Act or (y) 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002
(“SOXA”)) with respect to all relevant Commission Documents.




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The Company is in compliance in all material respects with the provisions of SOXA applicable
to it as of the date hereof. The Company maintains disclosure controls and procedures required by
Rule 13a-15 or Rule 15d-15 under the Exchange Act. As used in this Section 4.6(b), the term “file”
shall be broadly construed to include any manner in which a document or information is furnished,
supplied or otherwise made available to the Commission.




     Section 4.7 No Material Adverse Change. Except as disclosed in the Commission
Documents, as previously disclosed to the Investor in the Disclosure Schedule or as disclosed in a
publicly available press release of the Company, since December 31, 2008 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 4.8 No Undisclosed Liabilities. To the Company’s Knowledge, 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 December 31, 2008 or which, individually or in the aggregate, do not or would not
have a Material Adverse Effect on the Company.



     Section 4.9 No Undisclosed Events or Circumstances. Except as previously disclosed to
the Investor in writing, to the Company’s Knowledge, 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 have a Material Adverse Effect on the Company.



     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, or to the Knowledge of the
Company involving any officers or directors, in their capacity as officers or directors, of the
Company or any of its subsidiaries, including, without limitation, any securities class action
lawsuit or stockholder derivative lawsuit, that would 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 would be reasonably expected to result in a Material Adverse Effect.



     Section 4.11 Compliance with Law. The business of the Company and its subsidiaries
has been and is presently being conducted in accordance with all applicable federal, state, local



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and foreign 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, each of the Company and its subsidiaries
have all franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals necessary for the conduct of their respective businesses as now being
conducted by them, 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, would not be reasonably expected to have a Material Adverse Effect.



     Section 4.12 Certain Fees. Except as expressly set forth in this Agreement, including
Section 10.3 hereof, no brokers, finders or financial advisory fees or commissions will be payable
by the Company or any of its subsidiaries in respect of the transactions contemplated by this
Agreement.



     Section 4.13 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
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 4.14 Material Non-Public Information. Except for this Agreement and the
transactions contemplated hereby and the Disclosure Schedule, neither the Company nor its employees
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 4.15 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; provided, however, that at the request of and with
the express agreement of the Investor, the Shares, and under certain circumstances the Warrant
Shares will be delivered to the Investor via book entry through DTC and will not bear legends
noting restrictions as to resale of such Shares under federal and state securities laws, nor will
such Shares be subject to stop transfer instructions. 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 or any Blackout Shares, or (ii) except as previously disclosed to the
Investor in writing, entitle the holders of any outstanding 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.



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     Section 4.16 Form S-3 Eligibility. As of the date hereof, the Company qualifies to
register the Shares and the Warrant Shares for resale by the Investor on Form S-3 promulgated by
the Commission, without reliance on General Instruction I.B.6. thereof, and the Company is not
subject to any volume limitations imposed by the Securities Act or the Commission in respect of
such registration, it being acknowledged that the Company may be subject to the shareholder
approval rules of the Principal Market.



     Section 4.17 No General Solicitation or Advertising in Regard to this Transaction.
Except for such registration statements to be filed as contemplated herein or in the Registration
Rights Agreement, 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 4.18 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,
the Registration Statement and the Prospectus, 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 4.19 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 5.1 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 5.2 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, any Blackout 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



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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 and the
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, 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 (including any limitation of equitable
remedies).



     Section 5.3 No Conflicts. The execution, delivery and performance of this Agreement,
the Registration Rights Agreement, the Warrant and any other document or instrument contemplated
hereby and thereby, by the Investor and the consummation of the transactions contemplated hereby
and 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 applicable
federal, state, foreign 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 to purchase or acquire the Shares, the Warrant, the Warrant Shares or
any Blackout Shares 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 5.4 Financial Capability. The Investor has the financial capability to
perform all of its obligations under this Agreement, the Registration Rights Agreement and the
Warrant, including the capability to purchase the Shares, the Warrant, the Warrant Shares and any
Blackout Shares in accordance with the terms hereof and thereof. 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.



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     Section 5.5 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, any Blackout 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, any Blackout Shares, the Warrant and the Warrant Shares. The
Investor understands that it (and not the 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 5.6 Trading 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 (i) enter into or execute or cause or assist any Person to enter into or execute any
“short sale” (as such term is defined in Rule 200 of Regulation SHO, or any successor
regulation, promulgated by the Commission under the Exchange Act) of any securities of the Company
or (ii) engage, through related parties or otherwise, in any derivative transaction directly
related to shares of Common Stock (including, without limitation, the purchase of any option or
contract to sell) except during the term of a Draw Down Pricing Period with respect to Shares that
the Investor purchased pursuant to the Draw Down pertaining to such Draw Down Pricing Period, and
that the Investor and its affiliates shall comply with all other applicable laws. Subject to
clause (i) above, the Investor shall have the right during any Draw Down Pricing Period to sell
shares of Common Stock equal in number to the aggregate number of the Shares purchased pursuant to
the Draw Down pertaining to such Draw Down Pricing Period.



     Section 5.7 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 and to the extent such Prospectus is related to the resale of Registrable
Securities.



     Section 5.8 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 5.9 Manner of Sale. At no time was the Investor presented with or solicited
by or through any leaflet, public promotional meeting, television advertisement or any other form
of general solicitation or advertising by or on behalf of the Company.



     Section 5.10 Prospectus Delivery. The Investor agrees that unless the Shares, the
Warrant Shares or any Blackout Shares are eligible for resale pursuant to all the conditions of
Rule 144, it will resell the Shares, the Warrant Shares and any Blackout 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, any applicable prospectus delivery requirements of the Securities
Act and the insider trading restrictions of the Exchange Act; provided that in no event shall the
Company be under any obligation to the Investor to supplement the Prospectus to reflect the



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issuance of any Shares pursuant to a Draw Down at any time prior to the day following the last
Settlement Date with respect to such Draw Down.



ARTICLE VI

COVENANTS OF THE COMPANY




     The Company covenants with the Investor as follows, which covenants are for the benefit of the
Investor and its permitted assignees (as defined herein):



     Section 6.1 Securities Compliance. The Company shall notify the Commission and the
Principal Market, if and as applicable, in accordance with their respective 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 the Investor hereunder to supplement the Prospectus to reflect the issuance of
any Shares pursuant to a Draw Down at any time prior to the date following the Settlement Date with
respect to such Shares. Each Commission Document to be filed with the Commission after the Closing
Date and incorporated by reference in the Registration Statement and Prospectus, when such document
becomes effective or is filed with the Commission, as the case may be, shall comply in all material
respects with the requirements of the Securities Act or the Exchange Act, as applicable, and other
federal, state and local laws, rules and regulations applicable to it, and shall 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.



     Section 6.2 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 6.3 Registration and Listing. During the Commitment Period, the Company shall
use commercially reasonable efforts to: (i) 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) comply in all
material respects with its reporting and filing obligations under the Exchange Act, (iii) 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 FINRA 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



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Company’s securities on the Principal Market, which Principal Market may be changed by the
Company in the future in the Company’s discretion.



     Section 6.4 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 or in connection with any other offering
of the Company’s securities described under the caption “Plan of Distribution” in the
Registration Statement.



     Section 6.5 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 would reasonably be expected to have a
Material Adverse Effect. Without limiting the generality of the foregoing, neither the Company nor
any of its officers, directors or affiliates will take, directly or indirectly, any action designed
or intended to stabilize or manipulate the price of any security of the Company, or which would in
the future reasonably be expected to cause or result in, stabilization or manipulation of the price
of any security of the Company, in each case in contravention of applicable laws, rules regulations
or orders.




          (b) Without the consent of its stockholders in accordance with FINRA and The NASDAQ Stock
Market LLC 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, Warrant Shares and Blackout
Shares (collectively) representing more than the applicable percentage under the rules of the FINRA
and The NASDAQ Stock Market LLC, including, without limitation, NASDAQ Marketplace 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. In addition, the Company will not be obligated
to issue, and the Investor will not be obligated to purchase, any Shares, Warrant Shares or
Blackout Shares if as a result of the acquisition of such Shares, Warrant Shares and/or Blackout
Shares, the Company would be required to file any notification or report forms under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Nothing herein shall compel the
Company to file such notification and report forms.




     Section 6.6 Other Financing. 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, stock purchase,
stock bonus or other equity incentive or 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
other securities in connection with the Company’s option, equity incentive or award plans, stock



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purchase plans, stock bonus programs, rights plans, warrants or options, (iv) issue shares of
Common Stock and/or other securities in connection with the acquisition, license or sale of
products, licenses, equipment or other assets and strategic collaborations, partnerships, joint
ventures or similar transactions; (v) issue shares of Common and/or other securities to employees,
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 6.7 Prohibited Transactions. Except as set forth on Schedule 6.7 of the
Disclosure Schedule and except as permitted by Section 6.6, 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 the issuance by the
Company of any “future priced securities,” which shall 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, including, without limitation, pursuant to any equity line or other
financing, including, without limitation, any financing that is substantially similar to the
financing provided for under this Agreement, provided that any future issuance by the Company of
(i) a convertible security (“Convertible Security”) that (A) contains provisions that
adjust the conversion price of such Convertible Security in the event of stock splits, dividends,
distributions, reclassifications or similar events or pursuant to anti-dilution provisions or (B)
is issued in connection with the Company obtaining debt financing for research and development
purposes where the issuance of Convertible Securities is conditioned upon the Company meeting
certain defined clinical milestones, (ii) securities in a registered direct public offering or an
unregistered private placement where the price per share of such securities is fixed concurrently
with the execution of definitive documentation relating to the offering or placement, as applicable
and (iii) securities issued in connection with a secured debt financing, shall not be a Prohibited
Transaction.



     Section 6.8 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 Excluded Merger or Sale
with another Person, subject to the terms of the Warrant.



     Section 6.9 Non-Disclosure of Non-Public Information. Subject to Section 6.10 below,
except as otherwise expressly provided in this Agreement, the Registration Rights Agreement or the
Warrant, none of the Company, its officers, directors, employees nor agents shall disclose material
non-public information to the Investor, its advisors or representatives.



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     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 material additional information by the Commission or any other federal or state governmental
authority or for amendments or supplements to the Registration Statement or the Prospectus (to the
extent related to the resale of Registrable Securities) during the period of effectiveness of the
Registration Statement; (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. If at any time the Commission shall issue any stop order suspending
the effectiveness of the Registration Statement, the Company shall use commercially reasonable
efforts to obtain the withdrawal of such order at the earliest possible time. 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 first sentence of this Section 6.10, 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 has been declared effective by the Commission, (a) the Company shall not file any
amendment to the Registration Statement or make any amendment or supplement to the Prospectus (to
the extent related to the resale of Registrable Securities) of which the Investor shall not have
been previously or be simultaneously advised; provided, however, that the Company shall, to the
extent it deems advisable, and without the prior consent of or notice to the Investor, supplement
the Prospectus within two Trading Days following the Settlement Date for each Draw Down solely to
reflect the issuance of Shares with respect to such Draw Down; and provided further that the
Company need not advise the Investor regarding any supplement the purpose of which is to update the
Registration Statement and the Prospectus to include information the Company has previously filed
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act, and (b) 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 in writing by the Investor, deliver a copy of
such information, documents or reports to the Investor promptly following such filing to the extent
such information, documents or reports are not available on the Commission’s IDEA filing system.



     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 related to sales by the Investor) as the Investor may reasonably request. Subject to the
Registration Rights Agreement, the Company consents to the use of the Prospectus (and of any
amendment or supplement thereto) in accordance with the provisions of the



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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 Trading Day following the
Settlement Date with respect to such Shares.



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, provided that the condition set forth
in Section 7.11 need only be satisfied at the first Condition Satisfaction Date. 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, each Trading Day of the
applicable Draw Down Pricing Period and each Settlement Date.



     Section 7.1 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 7.2 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 on or prior to the applicable Condition Satisfaction Date.



     Section 7.3 Compliance with Law. The Company shall have complied in all 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 would not be
reasonably expected to have a Material Adverse Effect.



     Section 7.4 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



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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 7.5 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 reasonably likely to occur within eight Trading Days following the Trading Day on
which a Draw Down Notice is delivered) as of the Settlement Date.



     Section 7.6 No Suspension. Trading in the Company’s Common Stock shall not have been
suspended by the Commission, the Principal Market or the FINRA and trading in securities generally
as reported on the Principal Market shall not have been suspended or limited as of the Condition
Satisfaction Date.



     Section 7.7 No Injunction. No statute, rule, regulation, order, decree, writ, ruling
or injunction shall have been enacted, entered, promulgated, endorsed or, to the Knowledge of the
Company, threatened by any court or governmental authority of competent jurisdiction which
prohibits the consummation of or which would materially modify or delay any of the transactions
contemplated by this Agreement.



     Section 7.8 No Proceedings or Litigation. No action, suit or proceeding before any
arbitrator or any court or governmental authority shall have been commenced or, to the Knowledge of
the Company, threatened, and, to the Knowledge of the Company no inquiry or 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, or seeking material damages in
connection with such transactions.



     Section 7.9 Sufficient Shares Registered for Resale. The Company shall have
sufficient Shares, calculated using the Closing Price of the Common Stock as of the Trading Day
immediately preceding the applicable 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 Company shall not be in default in any material respect
under any of the provisions of the Warrant, it being acknowledged and agreed 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 the form of opinion
mutually agreed upon between the parties on the date of this Agreement, a specimen of which has
been delivered by counsel to the Investor to counsel to the Company.



     Section 7.12 Accuracy of Investor’s Representation and Warranties. Each of 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.



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ARTICLE VIII

TERMINATION




     Section 8.1 Term. Unless otherwise terminated in accordance with Section 8.2 below,
this Agreement shall terminate upon the earlier to occur of (i) the expiration of the Commitment
Period or (ii) the issuance of Shares pursuant to this Agreement in an amount equal to the Maximum
Commitment Amount.



     Section 8.2 Other Termination.



          (a) The Investor may terminate this Agreement upon (x) one (1) Trading Day’s notice if the
Company enters into any Prohibited Transaction as set forth in Section 6.7 without the Investor’s
prior written consent, or (y) one (1) Trading Day’s notice if the Investor provides written notice
of a Material Adverse Effect to the Company, and such Material Adverse Effect continues for a
period of ten (10) Trading Days after the receipt by the Company of such notice.




          (b) The Investor may terminate this Agreement upon one (1) Trading Day’s notice to the Company
at any time in the event that the Registration Statement is not initially declared 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 8.2(b).




          (c) The Company may terminate this Agreement upon one (1) Trading Day’s notice; provided,
however, that the Company shall not terminate this Agreement pursuant to this Section 8.2(c) during
any Draw Down Pricing Period; provided further, that, in the event of any termination of this
Agreement by the Company pursuant to this Section 8.2(c), 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(b) (or any similar provision then in effect) under the Securities Act, the Company shall
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) Trading 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 8.3 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 8.1 or 8.2 herein, this Agreement shall become void
and of no further force and effect, except as provided in Section 10.13. Nothing in this Section
8.3 shall be deemed to release the Company or the Investor from any liability for any



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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 9.1 Indemnification.



          (a) Except as otherwise provided in this Article IX, unless disputed as set forth in Section
9.2, 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
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 (except as otherwise
specifically provided) 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 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 agrees to use commercially reasonable efforts to
recover or to cause any Investor Indemnified Party 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 will pay, or
will cause such other Investor Indemnified Party to 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
9.2, 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 Rights 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
Rights Agreement or the Warrant or the negligence,





- 25 -











 




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 or
to cause any Company Indemnified Party 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, or will cause such other Company Indemnified Party to 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 9.2 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
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 9.1. 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




- 26 -









 




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 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 a 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 10.1 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




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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, (ii) subject in all
cases to Section 10.1(b) hereof, 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) ongoing due diligence expenses of the Investor during the term of this
Agreement equal to $12,500 per calendar quarter (other than in respect of any calendar quarter
during which the Company issues and sells Shares to the Investor hereunder with an aggregate in
Draw Down Amounts equal to or exceeding 2% of the Company’s Market Capitalization measured as of
the first Trading Day of such calendar quarter), 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 at the reasonable request of the Company the Investor
shall provide customary supporting invoices or similar documentation describing such expenses
(however, the Investor shall not be obligated to provide detailed time sheets for fees and expenses
of counsel unless the aggregate amount of such fees and expenses exceeds $75,000); and provided
further, that the maximum aggregate amount payable by the Company pursuant to clauses (i) and (ii)
above shall be $75,000 and the Investor shall bear all fees and expenses described in clauses (i)
and (ii) above in excess of $75,000.




          (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 10.2 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,
provided that the Closing Price shall be reported by the Principal Market. The written mutual
consent of the Investor and the Company shall be required to employ any other reporting entity.



     Section 10.3 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, except that the Company engaged the services of The
Northstar Group, Inc. in connection with the transaction contemplated hereby and all fees and
expenses due in connection therewith shall be borne by the Company. 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.



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     Section 10.4 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, in each case with a copy to the e-mail address set forth beside the
facsimile number for the addressee below. 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 Trading Day during normal business hours where such
notice is to be received), or the first Trading Day following such delivery (if delivered other
than on a Trading Day during normal business hours where such notice is to be received) or (b) on
the second Trading 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:




Electro-Optical Sciences, Inc.

3 West Main Street, Suite 201

Irvington, New York 10533

Facsimile: 914-591-3701

Attention: Joseph V. Gulfo, M.D., Chief Executive Officer

Email: jvgulfo@eosciences.com




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




Golenbock Eiseman Assor Bell & Peskoe, LLP

437 Madison Avenue

New York, New York 10022-7302

Facsimile: 212-754-0330

Attention: Valerie A. Price, Esq.

E-mail: vprice@golenbock.com




if to the Investor:




Kingsbridge Capital Limited

Attention: Mr. Antony Gardner-Hillman

P.O. Box 1075

Elizabeth House

9 Castle Street

St. Helier

Jersey

JE42QP

Channel Islands

Telephone: 011-44-1534-636-041

Facsimile: 011-44-1534-636-042

Email: admin@kingsbridgecap.com; and adamgurney@kingsbridgecap.com




- 29 -









 





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




Kingsbridge Corporate Services Limited

Kingsbridge House

New Abbey

Kilcullen, County Kildare

Republic of Ireland

Telephone: 011-353-45-481-811

Facsimile: 011-353-45-482-003

Email: adamgurney@kingsbridge.ie; emmagalway@kingsbridge.ie; and

pwhelan@kingsbridge.ie




and another copy (which shall not constitute notice) to:




Stroock & Stroock & Lavan LLP

180 Maiden Lane

New York, NY 10038

Facsimile: (212) 806-5400

Attention: Keith M. Andruschak, Esq. — kandruschak@stroock.com




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



     Section 10.5 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 10.6 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 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 10.7 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.



     Section 10.8 Severability. If 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, if the severance of such
provision materially changes the economic benefits of this Agreement to either party as such



- 30 -









 







benefits are anticipated as of the date hereof, then such party may terminate this Agreement
on five (5) Trading Days prior written notice to the other party. In such event, the Registration
Rights Agreement will terminate simultaneously with the termination of this Agreement; provided
that in the event that this Agreement is terminated by the Company in accordance with this Section
10.8 and the Warrant Shares either have not been registered for resale by the Investor in
accordance with the Registration Rights Agreement or are otherwise not freely tradable (if and when
issued) in accordance with applicable law, then the Registration Rights Agreement in respect of the
registration of the Warrant Shares shall remain in full force and effect.



     Section 10.9 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 either party shall be
entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this
Agreement by the other party and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which either party 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 10.12 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 and the covenants contained in Article V and Article VI
shall survive the execution and delivery hereof and the Closing until the termination of this



- 31 -









 







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 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.



[Remainder of this page intentionally left blank]




- 32 -









 





     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:  	 	 
	 	 	Antony Gardner-Hillman 	 
	 	 	Director 	 
	 
	 	ELECTRO-OPTICAL SCIENCES, INC.

 	 
	 	By:  	 	 
	 	 	Joseph V. Gulfo, M.D. 	 
	 	 	Chief Executive Officer 	 
	 



[Signature
Page to Common Stock Purchase Agreement]


 









 





Exhibit A




Form of Registration Rights Agreement




 









 





Exhibit B




Form of Warrant




 









 





Exhibit C




Form of Draw Down Notice




Kingsbridge Capital Limited

Attention: Mr. Tony Hillman

P.O. Box 1075

Elizabeth House

9 Castle Street

St. Helier

Jersey

JE42QP

Channel Islands

Facsimile: 011-44-1534-636-042

Email: admin@kingsbridgecap.com; and adamgurney@kingsbridgecap.com




Kingsbridge Corporate Services Limited

Kingsbridge House

New Abbey

Kilcullen, County Kildare

Republic of Ireland

Facsimile: 011-353-45-482-003

Email: adamgurney@kingsbridge.ie; and pwhelan@kingsbridge.ie




Stroock & Stroock & Lavan LLP

180 Maiden Lane

New York, NY 10038

Facsimile: (212) 806-5400

Attention: Keith M. Andruschak, Esq. – kandruschak@stroock.com



Reference is hereby made to that certain Common Stock Purchase Agreement dated as of May ___, 2009
(the “Agreement”) by and between Electro-Optical Sciences, Inc., a corporation organized and
existing under the laws of the State of Delaware (the “Company”), and Kingsbridge Capital Limited,
an entity organized and existing under the laws of the British Virgin Islands (the “Investor”).
Capitalized terms used and not otherwise defined herein shall have the meanings given such terms in
the Agreement.



In accordance with and pursuant to Section 3.1 of the Agreement, the Company hereby issues this
Draw Down Notice to the Investor pursuant to the terms set forth below.



Draw Down Amount: $                    ; and



First Trading Day of Draw Down Pricing Period:                     , 20[_].



Enclosed with this Draw Down Notice is an executed copy of the Officer’s Certificate described in
Section 3.1 of the Agreement, the base form of which is attached to such Agreement as Exhibit D.




 









 





Exhibit D




Officer’s Certificate




     I, [NAME OF OFFICER], do hereby certify to Kingsbridge Capital Limited (the
“Investor”), with respect to the common stock of Electro-Optical Sciences, 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 May ___, 2009 (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):



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



     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).



     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.



     Assuming the accuracy of the representations and agreements of the Investor contained in
Section 5.10 of the Agreement, the Shares issuable in respect of the Notice will be delivered
without restrictive legend via book entry through the DTC to an account designated by the Investor.



     The undersigned has executed this Certificate this ___day of, 20[_].



Name:                                                            




Title: