EX-10.1



 





EXHIBIT 10.1



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SECURITIES PURCHASE AGREEMENT




     This Securities Purchase Agreement (this “Agreement”) is dated as of October 29, 2007,
between DUSA Pharmaceuticals, Inc., a New Jersey corporation (the “Company”), and each
purchaser identified on the signature pages hereto and the Schedule of Purchasers attached hereto
(each, including its successors and assigns, a “Purchaser” and collectively the
“Purchasers”).



     WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to
Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506
promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each
Purchaser, severally and not jointly, desires to purchase from the Company, securities of the
Company as more fully described in this Agreement.



     NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, and for
other good and valuable consideration the receipt and adequacy of which are hereby acknowledged,
the Company and each Purchaser agree as follows:



ARTICLE I.

DEFINITIONS




     1.1 Definitions. In addition to the terms defined elsewhere in this Agreement, for all
purposes of this Agreement, the following terms have the meanings set forth in this Section 1.1:




     “Action” shall have the meaning ascribed to such term in Section 3.1(j).




     “Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a Person as
such terms are used in and construed under Rule 405 under the Securities Act. With respect
to a Purchaser, any investment fund or managed account that is managed on a discretionary
basis by the same investment manager as such Purchaser will be deemed to be an Affiliate of
such Purchaser.




     “Board of Directors” means the board of directors of the Company.




     “Business Day” means any day except any Saturday, any Sunday, any day which is
a federal legal holiday in the United States or any day on which banking institutions in the
State of New York are authorized or required by law or other governmental action to close.




     “Closing” means the closing of the purchase and sale of the Securities pursuant
to Section 2.1.




     “Closing Date” means the Trading Day when all of the Transaction Documents have
been executed and delivered by the applicable parties thereto, and all conditions



 









 





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precedent
to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii) the Company’s
obligations to deliver the Securities have been satisfied or waived.




     “Closing Price” means on any particular date (a) the last reported closing bid
price per share of Common Stock on such date on the Trading Market (as reported by Bloomberg
L.P. at 4:15 p.m. (New York City time)), or (b) if there is no such price on such date, then
the closing bid price on the Trading Market on the date nearest preceding such date (as
reported by Bloomberg L.P. at 4:15 p.m. (New York City time)), or (c) if the Common Stock
is not then listed or quoted on a Trading Market and if prices for the Common Stock are then
reported in the “pink sheets” published by Pink Sheets LLC (or a similar organization or
agency succeeding to its functions of reporting prices), the most recent bid price per share
of the Common Stock so reported, or (d) if the shares of Common Stock are not then publicly
traded the fair market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Purchasers of a majority in interest of the Shares
then outstanding and reasonably acceptable to the Company, the fees and expenses of which
shall be paid by the Company.




     “Commission” means the Securities and Exchange Commission.




     “Common Stock” means the common stock of the Company, no par value, and any
other class of securities into which such securities may hereafter be reclassified or
changed into.




     “Common Stock Equivalents” means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock,
including, without limitation, any debt, preferred stock, rights, options, warrants or other
instrument that is at any time convertible into or exercisable or exchangeable for, or
otherwise entitles the holder thereof to receive, Common Stock.




     “Company Counsel” means Reed Smith LLP, with offices located at 136 Main
Street, Suite 250, Princeton, New Jersey 08543.




     “Disclosure Schedules” means the Disclosure Schedules of the Company delivered
concurrently herewith.




     “Effective Date” means the date that the initial Registration Statement filed
by the Company pursuant to the Registration Rights Agreement is first declared effective by
the Commission.




     “Evaluation Date” shall have the meaning ascribed to such term in Section
3.1(r).




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



 









 





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     “Exempt Issuance” means the issuance of (a) shares of Common Stock or options
to employees, officers or directors of the Company pursuant to any stock or option plan duly
adopted for such purpose, by a majority of the non-employee members of the Board of
Directors or a majority of the members of a committee of non-employee directors established
for such purpose, (b) securities upon the exercise or exchange of or conversion of any
Securities issued hereunder and/or other securities exercisable or exchangeable for or
convertible into shares of Common Stock issued and outstanding on the date of this
Agreement, provided that such securities have not been amended since the date of this
Agreement to increase the number of such securities or to decrease the exercise, exchange or
conversion price of such securities, (c) securities issued to the former shareholders of
Sirius Laboratories, Inc. upon the achievement of certain milestone payments pursuant to the
merger agreement dated December 30, 2005 described in the SEC Reports, and (d) securities
issued pursuant to acquisitions or strategic transactions approved by a majority of the
disinterested directors of the Company, provided that any such issuance shall only be to a
Person which is, itself or through its subsidiaries, an operating company in a business
synergistic with the business of the Company and in which the Company receives benefits in
addition to the investment of funds, but shall not include a transaction in which the
Company is issuing securities primarily for the purpose of raising capital or to an entity
whose primary business is investing in securities.




     “FWS” means Feldman Weinstein & Smith LLP with offices located at 420 Lexington
Avenue, Suite 2620, New York, New York 10170-0002.




     “GAAP” shall have the meaning ascribed to such term in Section 3.1(h).




     “Indebtedness” shall have the meaning ascribed to such term in Section 3.1(aa).




     “Intellectual Property Rights” shall have the meaning ascribed to such term in
Section 3.1(o).




     “Legend Removal Date” shall have the meaning ascribed to such term in Section
4.1(c).




     “Liens” means a lien, charge, security interest, encumbrance, right of first
refusal, preemptive right or other restriction.




     “Material Adverse Effect” shall have the meaning assigned to such term in
Section 3.1(b).




     “Material Permits” shall have the meaning ascribed to such term in Section
3.1(m).



 









 





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     “Per Share Purchase Price” equals $2.4012 per Share, subject to adjustment for
reverse and forward stock splits, stock dividends, stock combinations and other similar
transactions of the Common Stock that occur after the date of this Agreement.




     “Person” means an individual or corporation, partnership, trust, sole
proprietorship, incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof) or other
entity of any kind.




     “Proceeding” means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as a
deposition), whether commenced or threatened.




     “Purchaser Party” shall have the meaning ascribed to such term in Section 4.8.




     “Registration Rights Agreement” means the Registration Rights Agreement, dated
the date hereof, among the Company and the Purchasers, in the form of Exhibit A
attached hereto.




     “Registration Statement” means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering the resale by the
Purchasers of the Shares and the Warrant Shares.




     “Required Approvals” shall have the meaning ascribed to such term in Section
3.1(e).




     “Rule 144” means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same effect as such
Rule.




     “SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h).




     “Securities” means the Shares, the Warrants and the Warrant Shares.




     “Securities Act” means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.




     “Shares” means the shares of Common Stock issued or issuable to each Purchaser
pursuant to this Agreement.




     “Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO
under the Exchange Act (but shall not be deemed to include the location and/or reservation
of borrowable shares of Common Stock).



 









 






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     “Subscription Amount” means, as to each Purchaser, the aggregate amount to be
paid for Shares and Warrants purchased hereunder as specified below such Purchaser’s name on
the signature page of this Agreement and next to the heading “Subscription Amount,” in
United States dollars and in immediately available funds.




     “Subsidiary” means any subsidiary of the Company as set forth on Schedule
3.1(a), and shall, where applicable, include any subsidiary of the Company formed or
acquired after the date hereof.




     “Trading Day” means a day on which the New York Stock Exchange is open for
trading.




     “Trading Market” means the following markets or exchanges on which the Common
Stock is listed or quoted for trading on the date in question: the American Stock Exchange,
the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the
New York Stock Exchange or the OTC Bulletin Board.




     “Transaction Documents” means this Agreement, the Warrants, the Registration
Rights Agreement and any other documents or agreements executed in connection with the
transactions contemplated hereunder.




     “Transfer Agent” means American Stock Transfer and Trust Company, the current
transfer agent of the Company, with a mailing address of 40 Wall Street, New York, New York
10005 and a facsimile number of (718) 921-8337, and any successor transfer agent of the
Company.




     “VWAP” means, for any date, the price determined by the first of the following
clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
the daily volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the Trading Market on which the Common Stock is then listed or quoted for
trading as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City
time) to 4:02 p.m. (New York City time); (b) if the OTC Bulletin Board is not a Trading
Market, the volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then quoted for
trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in
the “Pink Sheets” published by Pink Sheets, LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid price per share of the
Common Stock so reported; or (d) in all other cases, the fair market value of a share of
Common Stock as determined by an independent appraiser selected in good faith by the
Purchasers of a majority in interest of the Shares then outstanding and reasonably
acceptable to the Company, the fees and expenses of which shall be paid by the Company.




     “Warrants” means, collectively, the Common Stock purchase warrants delivered to
the Purchasers at the Closing in accordance with Section 2.2(a) hereof, which Warrants



 









 






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shall be exercisable six months after the Closing Date and have a term of exercise
equal to 5 years, in the form of Exhibit C attached hereto.




     “Warrant Shares” means the shares of Common Stock issuable upon exercise of the
Warrants.



ARTICLE II.

PURCHASE AND SALE




     2.1 Closing. On the Closing Date, upon the terms and subject to satisfaction or
written waiver of the conditions set forth herein, the Company agrees to sell, and the Purchasers,
severally and not jointly, agree to purchase, up to an aggregate of $11,000,000 of Shares and
Warrants. Each Purchaser shall deliver to the Company, via wire transfer or a certified check,
immediately available funds equal to its Subscription Amount and the Company shall deliver to each
Purchaser its respective Shares and a Warrant as determined pursuant to Section 2.2(a), and the
Company and each Purchaser shall deliver the other items set forth in Section 2.2 deliverable at
the Closing. Upon satisfaction or written waiver of the covenants and conditions set forth in
Sections 2.2 and 2.3, the Closing shall occur at the offices of FWS or such other location as the
parties shall mutually agree.



     2.2 Deliveries.




     (a) On or prior to the Closing Date, the Company shall deliver or cause to be delivered
to each Purchaser the following:




     (i) this Agreement duly executed by the Company;




     (ii) a legal opinion of Company Counsel, in the form of Exhibit B
attached hereto;




     (iii) a copy of the instructions to the Transfer Agent instructing the Transfer
Agent to deliver, on an expedited basis, a certificate evidencing a number of Shares
equal to such Purchaser’s Subscription Amount divided by the Per Share Purchase
Price, registered in the name of such Purchaser;




     (iv) a Warrant registered in the name of such Purchaser to purchase up to a
number of shares of Common Stock equal to 25% of the number of Shares purchased by
such Purchaser, with an exercise price equal to $2.85, subject to adjustment
therein; and




     (v) the Registration Rights Agreement duly executed by the Company.




     (b) On or prior to the Closing Date, each Purchaser shall deliver or cause to be
delivered to the Company the following:



 









 






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     (i) this Agreement duly executed by such Purchaser;




     (ii) such Purchaser’s Subscription Amount by wire transfer to the account as
specified in writing by the Company; and




     (iii) the Registration Rights Agreement duly executed by such Purchaser.



     2.3 Closing Conditions. 




     (a) The obligations of the Company hereunder in connection with the Closing are subject
to the following conditions being met:




     (i) the accuracy in all material respects when made and on the Closing Date of
the representations and warranties of the Purchasers contained herein;




     (ii) all obligations, covenants and agreements of each Purchaser required to be
performed at or prior to the Closing Date shall have been performed; and




     (iii) the delivery by each Purchaser of the items set forth in Section 2.2(b)
of this Agreement.




     (b) The respective obligations of the Purchasers hereunder in connection with the
Closing are subject to the following conditions being met:




     (i) the accuracy in all material respects on the Closing Date of the
representations and warranties of the Company contained herein;




     (ii) all obligations, covenants and agreements of the Company required to be
performed at or prior to the Closing Date shall have been performed;




     (iii) the delivery by the Company of the items set forth in Section 2.2(a) of
this Agreement;




     (iv) there shall have been no Material Adverse Effect with respect to the
Company since the date hereof; and




     (v) from the date hereof to the Closing Date, trading in the Common Stock shall
not have been suspended by the Commission or the Company’s principal Trading Market
(except for any suspension of trading of limited duration agreed to by the Company,
which suspension shall be terminated prior to the
Closing), and, at any time prior to the Closing Date, trading in securities
generally as reported by Bloomberg L.P. shall not have been suspended or limited, or



 









 






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minimum prices shall not have been established on securities whose trades are
reported by such service, or on any Trading Market, nor shall a banking moratorium
have been declared either by the United States or New York State authorities nor
shall there have occurred any material outbreak or escalation of hostilities or
other national or international calamity of such magnitude in its effect on, or any
material adverse change in, any financial market which, in each case, in the
reasonable judgment of each Purchaser, makes it impracticable or inadvisable to
purchase the Securities at the Closing.



ARTICLE III.

REPRESENTATIONS AND WARRANTIES




     3.1 Representations and Warranties of the Company. Except as set forth in the Disclosure
Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify any
representation or otherwise made herein to the extent of the disclosure contained in the Disclosure
Schedules, the Company hereby makes the following representations and warranties to each Purchaser:




     (a) Subsidiaries. All of the direct and indirect subsidiaries of the Company
are set forth on Schedule 3.1(a). The Company owns, directly or indirectly, all of
the capital stock or other equity interests of each Subsidiary free and clear of any Liens,
and all of the issued and outstanding shares of capital stock of each Subsidiary are validly
issued and are fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities.




     (b) Organization and Qualification. The Company and each of the Subsidiaries
is an entity duly incorporated or otherwise organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization (as applicable).
Neither the Company nor any Subsidiary is in violation or default of any of the provisions
of its respective certificate or articles of incorporation, bylaws or other organizational
or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct
business and is in good standing as a foreign corporation or other entity in each
jurisdiction in which the nature of the business conducted or property owned by it makes
such qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, has not had and would not reasonably be expected to result in
(i) a material adverse effect on the legality, validity or enforceability of any Transaction
Document, (ii) a material adverse effect on the results of operations, assets, business,
prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken
as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any
material respect on a timely basis its obligations under any Transaction Document (any of
(i), (ii) or (iii), a “Material Adverse Effect”) and
no Proceeding has been instituted in any such jurisdiction revoking, limiting or
curtailing or seeking to revoke, limit or curtail such power and authority or qualification.



 









 






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     (c) Authorization; Enforcement. The Company has the requisite corporate power
and authority to own and use its properties and assets and to carry on its business as
currently conducted, and to enter into and to consummate the transactions contemplated by
each of the Transaction Documents and otherwise to carry out its obligations hereunder and
thereunder. The execution and delivery of each of the Transaction Documents by the Company
and the consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary action on the part of the Company and no further action is
required by the Company, the Board of Directors or the Company’s stockholders in connection
therewith other than in connection with the Required Approvals. Each Transaction Document
has been (or upon delivery will have been) duly executed by the Company and, when delivered
in accordance with the terms hereof and thereof, will constitute the valid and binding
obligation of the Company enforceable against the Company in accordance with its terms,
except (i) as limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting enforcement of
creditors’ rights generally, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable law.




     (d) No Conflicts. Except as set forth on Schedule 3.1(d), the
execution, delivery and performance of the Transaction Documents by the Company, the
issuance and sale of the Securities and the consummation by the Company of the other
transactions contemplated hereby and thereby do not and will not (i) conflict with or
violate any provision of the Company’s or any Subsidiary’s certificate or articles of
incorporation, bylaws or other organizational or charter documents, or (ii) conflict with,
or constitute a default (or an event that with notice or lapse of time or both would become
a default) under, result in the creation of any Lien upon any of the properties or assets of
the Company or any Subsidiary, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of, any
agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary
debt or otherwise) or other understanding to which the Company or any Subsidiary is a party
or by which any property or asset of the Company or any Subsidiary is bound or affected, or
(iii) subject to the Required Approvals, conflict with or result in any material violation
of any law, rule, regulation, order, judgment, injunction, decree or other restriction of
any court or governmental authority to which the Company or a Subsidiary is subject
(including federal and state securities laws and regulations), or by which any property or
asset of the Company or a Subsidiary is bound or affected; except in the case of each of
clauses (ii) and (iii), such as could not have or reasonably be expected to result in a
Material Adverse Effect.




     (e) Filings, Consents and Approvals. The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any filing or
registration with, any court or other federal, state, local or other governmental authority
or other Person in connection with the execution, delivery and performance by the



 









 







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Company of
the Transaction Documents, other than (i) filings required pursuant to Section 4.4 of this
Agreement, (ii) the filing with the Commission of the Registration Statement, (iii)
application(s) to each applicable Trading Market for the listing of the Securities for
trading thereon in the time and manner required thereby, and (iv) the filing of Form D with
the Commission and such filings as are required to be made under applicable state securities
laws (collectively, the “Required Approvals”).




     (f) Issuance of the Securities. The Securities are duly authorized and, when
issued and paid for in accordance with the applicable Transaction Documents, will be duly
and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the
Company other than restrictions on transfer provided for in the Transaction Documents. The
Warrant Shares, when issued in accordance with the terms of the Transaction Documents, will
be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the
Company other than restrictions on transfer provided for in the Transaction Documents. The
Company has reserved from its duly authorized capital stock the maximum number of shares of
Common Stock issuable pursuant to this Agreement and the Warrants.




     (g) Capitalization. The capitalization of the Company is as set forth on
Schedule 3.1(g), which Schedule 3.1(g) shall
also include the number of shares of Common Stock owned beneficially, and of record, by Affiliates of the Company as of
the date hereof. The Company has not issued any capital stock since its most recently filed
periodic report under the Exchange Act, other than pursuant to the exercise of employee
stock options under the Company’s stock option plans, the issuance of shares of Common Stock
to employees pursuant to the Company’s employee stock purchase plans and pursuant to the
conversion or exercise of Common Stock Equivalents outstanding as of the date of the most
recently filed periodic report under the Exchange Act. No Person has any right of first
refusal, preemptive right, right of participation, or any similar right to participate in
the transactions contemplated by the Transaction Documents. Except as a result of the
purchase and sale of the Securities or as disclosed in the SEC Reports, there are no
outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, rights or obligations convertible into or
exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments, understandings or arrangements by
which the Company or any Subsidiary is or may become bound to issue additional shares of
Common Stock or Common Stock Equivalents. The issuance and sale of the Securities will not
obligate the Company to issue shares of Common Stock or other securities to any Person
(other than the Purchasers) and will not result in a right of any holder of Company
securities to adjust the exercise, conversion, exchange or reset price under any of such
securities. All of the outstanding shares of capital stock of the Company are validly issued, fully paid and
nonassessable, have been issued in compliance with all federal and state securities laws,
and none of such outstanding shares was issued in violation of any preemptive rights or
similar rights to subscribe for or purchase securities. No further approval or
authorization



 









 





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of any stockholder, the Board of Directors or others is required for the
issuance and sale of the Securities. There are no stockholders agreements, voting
agreements or other similar agreements with respect to the Company’s capital stock to which
the Company is a party or, to the knowledge of the Company, between or among any of the
Company’s stockholders.




     (h) SEC Reports; Financial Statements. The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by the Company under
the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d)
thereof, as to form, in all material respects, for the two years preceding the date hereof
(or such shorter period as the Company was required by law or regulation to file such
material) (the foregoing materials, including the exhibits thereto and documents
incorporated by reference therein, being collectively referred to herein as the “SEC
Reports”) on a timely basis or has received a valid extension of such time of filing and
has filed any such SEC Reports prior to the expiration of any such extension. As of their
respective dates, the SEC Reports complied in all material respects with the requirements of
the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when
filed, contained any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Reports comply in all material respects with
applicable accounting requirements and the rules and regulations of the Commission with
respect thereto as in effect at the time of filing. Such financial statements have been
prepared in accordance with United States generally accepted accounting principles applied
on a consistent basis during the periods involved (“GAAP”), except as may be
otherwise specified in such financial statements or the notes thereto and except that
unaudited financial statements may not contain all footnotes required by GAAP, and fairly
present in all material respects the financial position of the Company and its consolidated
subsidiaries as of and for the dates thereof and the results of operations and cash flows
for the periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.




     (i) Material Changes; Undisclosed Events, Liabilities or Developments. Since
the date of the latest audited financial statements included within the SEC Reports, except
as specifically disclosed in a subsequent SEC Report filed prior to the date hereof, (i)
there has been no event, occurrence or development that has had or that could reasonably be
expected to result in a Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice and (B)
liabilities not required to be reflected in the Company’s financial statements
pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company
has not altered its method of accounting, (iv) the Company has not declared or made any
dividend or distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital stock



 









 




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and
(v) the Company has not issued any equity securities to any officer, director or Affiliate,
except pursuant to existing Company stock option plans. Except as set forth on Schedule
3.1(i), the Company does not have pending before the Commission any request for
confidential treatment of information. Except for the issuance of the Securities
contemplated by this Agreement or as set forth on Schedule 3.1(i), no event,
liability or development has occurred or exists with respect to the Company or its
Subsidiaries or their respective business, properties, operations or financial condition,
that would be required to be disclosed by the Company under applicable securities laws at
the time this representation is made that has not been publicly disclosed at least 1 Trading
Day prior to the date that this representation is made.




     (j) Litigation. Except as disclosed on Schedule 3.1(j), there is no
action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the
knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any
of their respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or foreign)
(collectively, an “Action”) which (i) adversely affects or challenges the legality,
validity or enforceability of any of the Transaction Documents or the Securities or (ii)
could, if there were an unfavorable decision, have or reasonably be expected to result in a
Material Adverse Effect. Neither the Company nor any Subsidiary, nor any director or
officer thereof, is or has been the subject of any Action involving a claim of violation of
or liability under federal or state securities laws or a claim of breach of fiduciary duty.
There has not been, and to the knowledge of the Company, there is not pending or
contemplated, any investigation by the Commission involving the Company or any current or
former director or officer of the Company. The Commission has not issued any stop order or
other order suspending the effectiveness of any registration statement filed by the Company
or any Subsidiary under the Exchange Act or the Securities Act.




     (k) Labor Relations. No material labor dispute exists or, to the knowledge of
the Company, is imminent with respect to any of the employees of the Company which could
reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its
Subsidiaries’ employees is a member of a union that relates to such employee’s relationship
with the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries is
a party to a collective bargaining agreement, and the Company and its Subsidiaries believe
that their relationships with their employees are good. No executive officer, to the
knowledge of the Company, is, or is now expected to be, in violation of any material term of
any employment contract, confidentiality, disclosure or proprietary information agreement or
non-competition agreement, or any other contract or agreement or any restrictive covenant in
favor of any third party, and the continued employment of each such executive officer does
not subject the Company or
any of its Subsidiaries to any liability with respect to any of the foregoing matters.
To their knowledge, the Company and its Subsidiaries are in compliance with all U.S.
federal, state, local and foreign laws and regulations relating to employment and employment
practices, terms and conditions of employment and wages and hours, except



 









 




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where the failure
to be in compliance could not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect.




     (l) Compliance. Neither the Company nor any Subsidiary (i) is in default under
or in violation of (and no event has occurred that has not been waived that, with notice or
lapse of time or both, would result in a default by the Company or any Subsidiary under),
nor has the Company or any Subsidiary received notice of a claim that it is in default under
or that it is in violation of, any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is in violation of
any order of any court, arbitrator or governmental body, or (iii) to their knowledge is or
has been in violation of any statute, rule or regulation of any governmental authority,
including without limitation all foreign, federal, state and local laws applicable to its
business and all such laws that affect the environment, except in each case as could not
have or reasonably be expected to result in a Material Adverse Effect.




     (m) Regulatory Permits. Except as set forth on Schedule 3.1(m), the
Company and the Subsidiaries possess all certificates, authorizations and permits issued by
the appropriate federal, state, local or foreign regulatory authorities necessary to conduct
their respective businesses as described in the SEC Reports, except where the failure to
possess such permits could not reasonably be expected to result in a Material Adverse Effect
(“Material Permits”), and neither the Company nor any Subsidiary has received any
notice of proceedings relating to the revocation or modification of any Material Permit.




     (n) Title to Assets. Neither the Company nor its Subsidiaries own any real
property. The Company and the Subsidiaries have good and marketable title in all personal
property owned by them that is material to the business of the Company and the Subsidiaries,
in each case free and clear of all Liens, except for Liens as do not materially affect the
value of such property and do not materially interfere with the use made and proposed to be
made of such property by the Company and the Subsidiaries and Liens for the payment of
federal, state or other taxes, the payment of which is neither delinquent nor subject to
penalties. Any real property and facilities held under lease by the Company and the
Subsidiaries are held by them under valid, subsisting and enforceable leases with which, to
their knowledge, the Company and the Subsidiaries are in compliance.




     (o) Patents and Trademarks. Except as set forth on Schedule 3.1(o),
the Company and the Subsidiaries have, or have rights to use, all patents, patent
applications, trademarks, trademark applications, service marks, trade names, trade secrets,
inventions, copyrights, licenses and other intellectual property rights and similar rights
necessary or material for use in connection with their respective businesses as described in
the SEC Reports and which the failure to so have could have a Material Adverse Effect



 









 




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(collectively, the “Intellectual Property Rights”). Neither the Company nor any
Subsidiary has received a notice (written or otherwise) that any of the Intellectual
Property Rights used by the Company or any Subsidiary violates or infringes upon the rights
of any Person. To the knowledge of the Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of any of the
Intellectual Property Rights. The Company and its Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of all of their
intellectual properties, except where failure to do so could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.




     (p) Insurance. The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such amounts as are
prudent and customary in the businesses in which the Company and the Subsidiaries are
engaged, including, but not limited to, directors and officers insurance coverage at least
equal to the aggregate Subscription Amount. Neither the Company nor any Subsidiary has any
reason to believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business without a significant increase in cost.




     (q) Transactions With Affiliates and Employees. Except as set forth in the SEC
Reports, none of the officers or directors of the Company and, to the knowledge of the
Company, none of the employees of the Company is presently a party to any transaction with
the Company or any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal property to or
from, or otherwise requiring payments to or from any officer, director or such employee or,
to the knowledge of the Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or partner, in each
case in excess of $120,000 other than for (i) payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and
(iii) other employee benefits, including stock option agreements under any stock option plan
of the Company.




     (r) Sarbanes-Oxley; Internal Accounting Controls. The Company is in material
compliance with all of the provisions of the Sarbanes-Oxley Act of 2002 which are applicable
to it as of the Closing Date except as would reasonably be expected to have a Material
Adverse Effect. The Company and the Subsidiaries maintain a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management’s general or specific
authorization, and (iv) the recorded accountability for assets is compared with the



 









 




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existing
assets at reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure
controls and procedures to ensure that information required to be disclosed by the Company
in the reports it files or submits under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the Commission’s rules and forms. The
Company’s certifying officers have evaluated the effectiveness of the Company’s disclosure
controls and procedures as of the end of the period covered by the Company’s most recently
filed periodic report under the Exchange Act (such date, the “Evaluation Date”).
The Company presented in its most recently filed periodic report under the Exchange Act the
conclusions of the certifying officers about the effectiveness of the disclosure controls
and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation
Date, there have been no changes in the Company’s internal control over financial reporting
(as such term is defined in the Exchange Act) that has materially affected, or is reasonably
likely to materially affect, the Company’s internal control over financial reporting.




     (s) Certain Fees. Except as set forth on Schedule 3.1(s), no brokerage
or finder’s fees or commissions are or will be payable by the Company to any broker,
financial advisor or consultant, finder, placement agent, investment banker, bank or other
Person with respect to the transactions contemplated by the Transaction Documents. The
Purchasers shall have no obligation with respect to any fees or with respect to any claims
made by or on behalf of other Persons for fees of a type contemplated in this Section that
may be due in connection with the transactions contemplated by the Transaction Documents.




     (t) Private Placement. Assuming the accuracy of the Purchasers representations
and warranties set forth in Section 3.2, no registration under the Securities Act is
required for the offer and sale of the Securities by the Company to the Purchasers as
contemplated hereby. The issuance and sale of the Securities hereunder does not contravene
the rules and regulations of the Trading Market.




     (u) Investment Company. The Company is not, and is not an Affiliate of, and
immediately after receipt of payment for the Securities, will not be or be an Affiliate of,
an “investment company” within the meaning of the Investment Company Act of 1940, as
amended. The Company shall conduct its business in a manner so that it will not become
subject to the Investment Company Act of 1940, as amended.




     (v) Registration Rights. Except as set forth in the SEC Reports, other than
each of the Purchasers, no Person has any right to cause the Company to effect the
registration under the Securities Act of any securities of the Company.




     (w) Listing and Maintenance Requirements. The Common Stock is registered
pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no



 









 




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action
designed to, or which to its knowledge is likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act nor has the Company received any
notification that the Commission is contemplating terminating such registration. The
Company has not, in the 12 months preceding the date hereof, received notice from any
Trading Market on which the Common Stock is or has been listed or quoted to the effect that
the Company is not in compliance with the listing or maintenance requirements of such
Trading Market. The Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with all such listing and maintenance
requirements.




     (x) Application of Takeover Protections. The Company and the Board of
Directors have taken all necessary action, if any, in order to render inapplicable any
control share acquisition, business combination, poison pill (including any distribution
under a rights agreement) or other similar anti-takeover provision under the Company’s
certificate of incorporation or the laws of its state of incorporation that is or could
become applicable to the Purchasers as a result of the Purchasers and the Company fulfilling
their obligations or exercising their rights under the Transaction Documents, including
without limitation as a result of the Company’s issuance of the Securities and the
Purchasers’ ownership of the Securities.




     (y) Disclosure. Except with respect to the material terms and conditions of
the transactions contemplated by the Transaction Documents, the Company confirms that
neither it nor any other Person acting on its behalf has provided any of the Purchasers or
their agents or counsel with any information that it believes constitutes or might
constitute material, non-public information. The Company understands and confirms that the
Purchasers will rely on the foregoing representation in effecting transactions in securities
of the Company. All disclosure furnished by or on behalf of the Company to the Purchasers
regarding the Company, its business and the transactions contemplated hereby, including the
Disclosure Schedules to this Agreement, is true and correct and does not contain any untrue
statement of a material fact or omit to state any material fact necessary in order to make
the statements made therein, in light of the circumstances under which they were made, not
misleading. The press releases disseminated by the Company during the twelve months
preceding the date of this Agreement taken as a whole do 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 and when made, not misleading. The Company acknowledges and agrees that no Purchaser
makes or has made any
representations or warranties with respect to the transactions contemplated hereby
other than those specifically set forth in Section 3.2 hereof.




     (z) No Integrated Offering. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, 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, under



 









 




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circumstances that would cause this offering of the Securities to be integrated with prior
offerings by the Company for purposes of (i) the Securities Act which would require the
registration of any such securities under the Securities Act, or (ii) any applicable
shareholder approval provisions of any Trading Market on which any of the securities of the
Company are listed or designated. 




     (aa) Solvency. Based on the consolidated financial condition of the Company as
of the Closing Date, after giving effect to the receipt by the Company of the proceeds from
the sale of the Securities hereunder, (i) the fair saleable value of the Company’s assets
exceeds the amount that will be required to be paid on or in respect of the Company’s
existing debts and other liabilities (including known contingent liabilities) as they
mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry on
its business as now conducted and as proposed to be conducted including its capital needs
taking into account the particular capital requirements of the business conducted by the
Company, and projected capital requirements and capital availability thereof, and (iii) the
current cash flow of the Company, together with the proceeds the Company would receive, were
it to liquidate all of its assets, after taking into account all anticipated uses of the
cash, would be sufficient to pay all amounts on or in respect of its liabilities when such
amounts are required to be paid. The Company does not intend to incur debts beyond its
ability to pay such debts as they mature (taking into account the timing and amounts of cash
to be payable on or in respect of its debt). The Company has no knowledge of any facts or
circumstances which lead it to believe that it will file for reorganization or liquidation
under the bankruptcy or reorganization laws of any jurisdiction within one year from the
Closing Date. The SEC Reports set forth as of the date thereof all outstanding secured and
unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any
Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness”
means (a) any liabilities for borrowed money or amounts owed in excess of $50,000 (other
than trade accounts payable incurred in the ordinary course of business), (b) all
guaranties, endorsements and other contingent obligations in respect of indebtedness of
others, whether or not the same are or should be reflected in the Company’s balance sheet
(or the notes thereto), except guaranties by endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary course of business; and (c)
the present value of any lease payments in excess of $50,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any Subsidiary is in default
with respect to any Indebtedness.




     (bb) Tax Status. Except for matters that would not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse Effect, the
Company and each Subsidiary has filed all necessary federal, state and foreign income and
franchise tax returns and has paid or accrued all taxes shown as due thereon, and the
Company has no knowledge of a tax deficiency which has been asserted or threatened against
the Company or any Subsidiary.



 









 




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     (cc) No General Solicitation. Neither the Company nor any person acting on
behalf of the Company has offered or sold any of the Securities by any form of general
solicitation or general advertising. The Company has offered the Securities for sale only
to the Purchasers and certain other “accredited investors” within the meaning of Rule 501
under the Securities Act.




     (dd) Foreign Corrupt Practices. Neither the Company, nor to the knowledge of
the Company, any agent or other person acting on behalf of the Company, has (i) directly or
indirectly, used any funds for unlawful contributions, gifts, entertainment or other
unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to any foreign or
domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully
any contribution made by the Company (or made by any person acting on its behalf of which
the Company is aware) which is in violation of law, or (iv) violated in any material respect
any provision of the Foreign Corrupt Practices Act of 1977, as amended.




     (ee) Accountants. The Company’s accounting firm is set forth on Schedule
3.1(ee) of the Disclosure Schedule. To the knowledge of the Company, such accounting
firm who the Company expects will express its opinion with respect to the financial
statements to be included in the Company’s Annual Report for the year ending December 31,
2007, is a registered public accounting firm as required by the Exchange Act.




     (ee) No Disagreements with Accountants and Lawyers. To the Company’s knowledge,
there are no disagreements of any kind presently existing, or reasonably anticipated by the
Company to arise, between the Company and the accountants and lawyers formerly or presently
employed by the Company which could affect the Company’s ability to perform any of its
obligations under any of the Transaction Documents, and the Company is current with respect
to any fees owed to its accountants and lawyers.




     (ff) Acknowledgment Regarding Purchasers’ Purchase of Securities. The Company
acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an
arm’s length purchaser with respect to the Transaction Documents and the transactions
contemplated thereby. The Company further acknowledges that no Purchaser is acting as a
financial advisor or fiduciary of the Company (or in any similar capacity) with respect to
the Transaction Documents and the transactions contemplated thereby and any advice given by
any Purchaser or any of their respective representatives
or agents in connection with the Transaction Documents and the transactions
contemplated thereby is merely incidental to the Purchasers’ purchase of the Securities.
The Company further represents to each Purchaser that the Company’s decision to enter into
this Agreement and the other Transaction Documents has been based solely on the independent
evaluation of the transactions contemplated hereby by the Company and its representatives.



 









 





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     (gg) Acknowledgement Regarding Purchaser’s Trading Activity. Anything in this
Agreement or elsewhere herein to the contrary notwithstanding (except for Sections 3.2(f)
and 4.12 hereof), it is understood and acknowledged by the Company (i) that none of the
Purchasers have been asked by the Company to agree, nor has any Purchaser agreed, to desist
from purchasing or selling, long and/or short, securities of the Company, or “derivative”
securities based on securities issued by the Company or to hold the Securities for any
specified term; (ii) that past or future open market or other transactions by any Purchaser,
specifically including, without limitation, Short Sales or “derivative” transactions, before
or after the closing of this or future private placement transactions, may negatively impact
the market price of the Company’s publicly-traded securities; (iii) that any Purchaser, and
counter-parties in “derivative” transactions to which any such Purchaser is a party,
directly or indirectly, presently may have a “short” position in the Common Stock, and (iv)
that each Purchaser shall not be deemed to have any affiliation with or control over any
arm’s length counter-party in any “derivative” transaction. The Company further understands
and acknowledges that (a) one or more Purchasers may engage in hedging activities at various
times during the period that the Securities are outstanding, including, without limitation,
during the periods that the value of the Warrant Shares deliverable with respect to
Securities are being determined, and (b) such hedging activities (if any) could reduce the
value of the existing stockholders’ equity interests in the Company at and after the time
that the hedging activities are being conducted. The Company acknowledges that such
aforementioned hedging activities do not constitute a breach of any of the Transaction
Documents.




     (hh) Regulation M Compliance. The Company has not, and to its knowledge no one
acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or
to result in the stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased,
or, paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid
or agreed to pay to any Person any compensation for soliciting another to purchase any other
securities of the Company, other than, in the case of clauses (ii) and (iii), compensation
paid to the Company’s placement agent in connection with the placement of the Securities.




     (ii) FDA. Except as disclosed in Schedule 3.1(ii) or the SEC Reports,
as to each product subject to the jurisdiction of the U.S. Food and Drug Administration
(“FDA”) under the Federal Food, Drug and Cosmetic Act, as amended, and the
regulations thereunder (“FDCA”) that is manufactured, packaged, labeled, tested,
distributed, sold, and/or marketed by the Company or any of its Subsidiaries (each such
product, a “Pharmaceutical Product”), such Pharmaceutical Product is being
manufactured, packaged, labeled, tested, distributed, sold and/or marketed by the Company in
material compliance with all applicable requirements under FDCA and similar laws, rules and
regulations relating to registration, investigational use, premarket clearance, licensure,
or application approval, good manufacturing practices, good laboratory practices, good
clinical practices, product listing, quotas, labeling, advertising,



 









 




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record keeping and
filing of reports, except where the failure to be in compliance would not have a Material
Adverse Effect. There is no pending, completed or, to the Company’s knowledge, threatened,
action (including any lawsuit, arbitration, or legal or administrative or regulatory
proceeding, charge, complaint, or investigation) against the Company or any of its
Subsidiaries, and none of the Company or any of its Subsidiaries has received any notice,
warning letter or other communication from the FDA or any other governmental entity to which
responses are due, which (i) contests the premarket clearance, licensure, registration, or
approval of, the uses of, the distribution of, the manufacturing or packaging of, the
testing of, the sale of, or the labeling and promotion of any Pharmaceutical Product, (ii)
withdraws its approval of, requests the recall, suspension, or seizure of, or withdraws or
orders the withdrawal of advertising or sales promotional materials relating to, any
Pharmaceutical Product, (iii) imposes a clinical hold on any clinical investigation by the
Company or any of its Subsidiaries, (iv) enjoins production at any facility of the Company
or any of its Subsidiaries, (v) enters or proposes to enter into a consent decree of
permanent injunction with the Company or any of its Subsidiaries, or (vi) except as
disclosed in the SEC Reports otherwise alleges any violation of any laws, rules or
regulations by the Company or any of its Subsidiaries, and which, either individually or in
the aggregate, would have a Material Adverse Effect. The properties, business and
operations of the Company have been and are being conducted in all material respects in
accordance with all applicable laws, rules and regulations of the FDA. The Company has not
been informed by the FDA that the FDA will prohibit the marketing, sale, license or use in
the United States of any product proposed to be developed, produced or marketed by the
Company nor has the FDA expressed any concern as to approving or clearing for marketing any
product being developed or proposed to be developed by the Company.




     (jj) Form S-3 Eligibility. The Company is eligible to register the resale of
the Securities for resale by the Purchaser on Form S-3 promulgated under the Securities Act
as contemplated by the Registration Rights Agreement.



     3.2 Representations and Warranties of the Purchasers. Each Purchaser, for itself and for
no other Purchaser, hereby represents and warrants as of the date hereof and as of the Closing Date
to the Company as follows:




     (a) Organization; Authority. Such Purchaser is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its organization
with full right, corporate or partnership power and authority to enter into and to
consummate the transactions contemplated by the Transaction Documents and otherwise to carry
out its obligations hereunder and thereunder. The execution and delivery of the Transaction
Documents and performance by such Purchaser of the transactions contemplated by the
Transaction Documents have been duly authorized by all necessary corporate or similar action
on the part of such Purchaser. Each Transaction Document to which it is a party has been
duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the
terms hereof, will constitute the valid and legally



 









 




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binding obligation of such Purchaser,
enforceable against it in accordance with its terms, except (i) as limited by general
equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors’ rights generally, (ii)
as limited by laws relating to the availability of specific performance, injunctive relief
or other equitable remedies and (iii) insofar as indemnification and contribution provisions
may be limited by applicable law.




     (b) Own Account. Such Purchaser understands that the Securities are
“restricted securities” and have not been registered under the Securities Act or any
applicable state securities law and is acquiring the Securities as principal for its own
account and not with a view to or for distributing or reselling such Securities or any part
thereof in violation of the Securities Act or any applicable state securities law, has no
present intention of distributing any of such Securities in violation of the Securities Act
or any applicable state securities law and has no direct or indirect arrangement or
understandings with any other persons to distribute or regarding the distribution of such
Securities (this representation and warranty not limiting such Purchaser’s right to sell the
Securities pursuant to the Registration Statement or otherwise in compliance with applicable
federal and state securities laws) in violation of the Securities Act or any applicable
state securities law. Such Purchaser is acquiring the Securities hereunder in the ordinary
course of its business.




     (c) Purchaser Status. At the time such Purchaser was offered the Securities,
it was, and at the date hereof it is, and on each date on which it exercises any Warrants,
it will be either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2),
(a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional buyer”
as defined in Rule 144A(a) under the Securities Act. Such Purchaser is not required to be
registered as a broker-dealer under Section 15 of the Exchange Act.




     (d) Experience of Such Purchaser. Such Purchaser, either alone or together
with its representatives, has such knowledge, sophistication and experience in business and
financial matters so as to be capable of evaluating the merits and risks of the prospective
investment in the Securities, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the Securities and, at
the present time, is able to afford a complete loss of such investment.




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




     (f) Short Sales and Confidentiality Prior To The Date Hereof. Other than
consummating the transactions contemplated hereunder, such Purchaser has not, nor has any
Person acting on behalf of or pursuant to any understanding with such Purchaser,



 









 




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directly or
indirectly executed any purchases or sales, including Short Sales, of the securities of the
Company during the period commencing from the time that such Purchaser first received a term
sheet (written or oral) from the Company or any other Person representing the Company
setting forth the material terms of the transactions contemplated hereunder until the date
hereof (“Discussion Time”). Notwithstanding the foregoing, in the case of a
Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers
manage separate portions of such Purchaser’s assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers managing other
portions of such Purchaser’s assets, the representation set forth above shall only apply
with respect to the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this Agreement. Other than to
other Persons party to this Agreement, such Purchaser has maintained the confidentiality of
all disclosures made to it in connection with this transaction (including the existence and
terms of this transaction).




     (g) Ownership. Such Purchaser, together with its Affiliates and any other
party acting in concert therewith, will not, following its investment in the Shares,
together with any Warrant Shares, beneficially own more than 19.9% of the currently
outstanding shares of Common Stock of the Company.




     (h) Independence. Each Purchaser acknowledges and agrees that it has acted
independently from all other Purchasers (other than those under common ownership and
control) and that each such Purchaser has conducted its own due diligence and reviewed (or
had the opportunity to review) the Transaction Documents with its own independent counsel.
Each Purchaser has independently determined the merits and risks associated with an
investment on the basis set forth in the Transaction Documents and without any agreements,
understandings or arrangements other than those expressly set forth in the Transaction
Documents.




     (i) Residency. Such Purchaser is a resident of that jurisdiction specified
below its address on the Schedule of Purchasers.



ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES





4.1 Transfer Restrictions. (a) The Securities may only be disposed of in
compliance with state and federal securities laws. In connection with any transfer of
Securities other than pursuant to an effective registration statement or Rule 144, to the
Company or to an Affiliate of a Purchaser or in connection with a pledge as contemplated in
Section 4.1(b), the Company may require the transferor thereof to provide to the Company an
opinion of counsel selected by the transferor and reasonably acceptable to the Company, the
form and substance of which opinion shall be reasonably satisfactory to the Company, to the
effect that such transfer does not require registration of such transferred Securities under
the Securities Act. As a condition of transfer, any such transferee shall agree in writing



 









 




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to be bound by the terms of this Agreement and shall have the rights of a Purchaser under
this Agreement and the Registration Rights Agreement.




     (b) The Purchasers agree to the imprinting, so long as is required by this Section 4.1,
of a legend on any of the Securities in the following form:




THESE SECURITIES HAVE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED
BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED
INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED
BY SUCH SECURITIES.




     The Company acknowledges and agrees that a Purchaser may from time to time pledge
pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security
interest in some or all of the Securities to a financial institution that is an “accredited
investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by
the provisions of this Agreement and the Registration Rights Agreement and, if required
under the terms of such arrangement, such Purchaser may transfer pledged or secured
Securities to the pledgees or secured parties. Such a pledge or
transfer would not be subject to approval of the Company and no legal opinion of legal
counsel of the pledgee, secured party or pledgor shall be required in connection therewith.
Further, no notice shall be required of such pledge. At the appropriate Purchaser’s
expense, the Company will execute and deliver such reasonable documentation as a pledgee or
secured party of Securities may reasonably request in connection with a pledge or transfer
of the Securities, including, if the Securities are subject to registration pursuant to the
Registration Rights Agreement, the preparation and filing of any required prospectus
supplement under Rule 424(b)(3) under the Securities Act or other applicable provision of
the Securities Act to appropriately amend the list of Selling Stockholders thereunder.



 









 




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     (c) Certificates evidencing the Shares and Warrant Shares shall not contain any legend
(including the legend set forth in Section 4.1(b)), (i) while a registration statement
(including the Registration Statement) covering the resale of such security is effective
under the Securities Act, or (ii) following any sale of such Shares or Warrant Shares
pursuant to Rule 144, or (iii) if such Shares or Warrant Shares are eligible for sale under
Rule 144(k), or (iv) if such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements issued by the staff of
the Commission). The Company shall cause its counsel to issue a legal opinion to the
Transfer Agent promptly after the Effective Date if required by the Transfer Agent to effect
the removal of the legend hereunder. If all or any portion of a Warrant is exercised at a
time when there is an effective registration statement to cover the resale of the Warrant
Shares, such Warrant Shares shall be issued free of all legends. The Company agrees that
following the Effective Date or at such time as such legend is no longer required under this
Section 4.1(c), it will, no later than three Trading Days following the delivery by a
Purchaser to the Company or the Transfer Agent of a certificate representing Shares or
Warrant Shares, as the case may be, issued with a restrictive legend (such third Trading
Day, the “Legend Removal Date”), deliver or cause to be delivered to such Purchaser
a certificate representing such shares that is free from all restrictive and other legends.
The Company may not make any notation on its records or give instructions to the Transfer
Agent that enlarge the restrictions on transfer set forth in this Section. Certificates for
Securities subject to legend removal hereunder shall be transmitted by the Transfer Agent to
the Purchaser by crediting the account of the Purchaser’s prime broker with the Depository
Trust Company System as directed by such Purchaser.




     (d) In addition to such Purchaser’s other available remedies, the Company shall pay to
a Purchaser, in cash, as partial liquidated damages and not as a penalty, for each $1,000 of
Shares or Warrant Shares (based on the VWAP of the Common Stock on the date such Securities
are submitted to the Transfer Agent) delivered for removal of the restrictive legend and
subject to Section 4.1(c), $10 per Trading Day (increasing to $20 per Trading Day five (5)
Trading Days after such damages have begun to accrue) for each Trading Day after the second
(2nd) Trading Day after the Legend Removal Date until such certificate is
delivered without a legend. Nothing herein shall limit such Purchaser’s right to pursue
actual damages for the Company’s failure to deliver
certificates representing any Securities as required by the Transaction Documents, and
such Purchaser shall have the right to pursue all remedies available to it at law or in
equity including, without limitation, a decree of specific performance and/or injunctive
relief.




     (e) Each Purchaser, severally and not jointly with the other Purchasers, agrees that
the removal of the restrictive legend from certificates representing Securities as set forth
in this Section 4.1 is predicated upon the Company’s reliance that such Purchaser will sell
any Securities pursuant to either the registration requirements of the Securities Act,
including any applicable prospectus delivery requirements, or an exemption therefrom, and
that if Securities are sold pursuant to a Registration Statement, they will



 









 





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be sold in
compliance with the plan of distribution set forth therein, and acknowledges that the
removal of the restrictive legend from certificates representing Securities as set forth in
this Section 4.1 is predicated upon the Company’s reliance upon this understanding.



     4.2 Furnishing of Information. Until the earliest of the time that (i) no Purchaser owns
Securities or (ii) the Warrants have expired, the Company covenants to use good faith commercially
reasonable efforts to timely file (or obtain extensions in respect thereof and file within the
applicable grace period) all reports required to be filed by the Company after the date hereof
pursuant to the Exchange Act. As long as any Purchaser owns Securities, if the Company is not
required to file reports pursuant to the Exchange Act, it will prepare and furnish to the
Purchasers and make publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell the Securities under Rule 144. The Company further covenants
that it will take such further action as any holder of Securities may reasonably request, to the
extent required from time to time to enable such Person to sell such Securities without
registration under the Securities Act within the requirements of the exemption provided by Rule
144.



     4.3 Integration. The Company shall not sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that
would be integrated with the offer or sale of the Securities in a manner that would require the
registration under the Securities Act of the sale of the Securities to the Purchasers or that would
be integrated with the offer or sale of the Securities to the Purchasers for purposes of the rules
and regulations of any Trading Market such that it would require shareholder approval prior to the
closing of such other transaction unless shareholder approval is obtained before the closing of
such subsequent transaction.



     4.4 Securities Laws Disclosure; Publicity. The Company shall (a) issue a press
release disclosing the material terms of the transactions contemplated hereby by 8:30 a.m. (New
York City Time) on the Trading Day immediately following the date hereof, and (b) by the fourth
(4th) Trading Day following the date hereof, in accordance with the Exchange Act, issue
a Current Report on Form 8-K, disclosing the material terms of the transactions contemplated
hereby, and filing the Transaction Documents as exhibits thereto. The Company and each Purchaser
shall consult with each other in issuing any other press releases with respect to the transactions
contemplated hereby, and neither the Company nor any Purchaser shall issue any such press release
or otherwise make any such public statement without the prior consent of the Company, with respect
to any press release of any Purchaser, or without the prior consent of each Purchaser, with respect
to any press release of the Company, which consent shall not unreasonably be withheld or delayed,
except if such disclosure is required by law, in which case the disclosing party shall promptly
provide the other party with prior notice of such public statement or communication.
Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Purchaser,
or include the name of any Purchaser in any filing with the Commission or any regulatory agency or
Trading Market, without the prior written consent of such Purchaser, except (i) as required by
federal securities law in connection with (A) any



 









 





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registration statement contemplated by the
Registration Rights Agreement and (B) the filing of final Transaction Documents (including
signature pages thereto) with the Commission and (ii) to the extent such disclosure is required by
law or Trading Market regulations, in which case the Company shall provide the Purchasers with
prior notice of such disclosure permitted under this clause (ii).



     4.5 Shareholder Rights Plan. No claim will be made or enforced by the Company or,
with the consent of the Company, any other Person, that any Purchaser is an “Acquiring Person”
under any control share acquisition, business combination, poison pill (including any distribution
under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter
adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such
plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any
other agreement between the Company and the Purchasers.



     4.6 Non-Public Information. Except with respect to the material terms and conditions
of the transactions contemplated by the Transaction Documents and the material information
disclosed on the Disclosure Schedules, the Company covenants and agrees that neither it nor any
other Person acting on its behalf, will provide any Purchaser or its agents or counsel with any
information that the Company believes constitutes material non-public information, unless prior
thereto such Purchaser shall have executed a written agreement regarding the confidentiality and
use of such information. The Company understands and confirms that each Purchaser shall be relying
on the foregoing covenant in effecting transactions in securities of the Company.



     4.7 Use of Proceeds. Except as set forth on Schedule 4.7 attached hereto, the
Company shall use the net proceeds from the sale of the Securities hereunder for working capital
purposes and shall not use such proceeds for (a) the satisfaction of any portion of the Company’s
debt (other than payment of trade payables in the ordinary course of the Company’s business and
prior practices), (b) the redemption of any Common Stock or Common Stock Equivalents, or (c) the
settlement of any outstanding litigation.



     4.8 Indemnification of Purchasers. Subject to the provisions of this Section 4.8,
the Company will indemnify and hold each Purchaser and its directors, officers, shareholders,
members, partners, employees and agents (and any other Persons with a functionally equivalent role
of a Person holding such titles notwithstanding a lack of such title or any other title), each
Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and
Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members,
partners or employees (and any other Persons with a functionally equivalent role of a Person
holding such titles notwithstanding a lack of such title or any other title) of such controlling
persons (each, a “Purchaser Party”) harmless from and against, without duplication, any and
all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including
all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a)
any material breach of any of the representations, warranties, covenants or agreements made by the
Company in this Agreement or in the other Transaction Documents or (b) any action instituted



 









 




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against a Purchaser in any capacity, or any of them or their respective Affiliates, by any
stockholder of the Company who is not an Affiliate of such Purchaser, with respect to any of the
transactions contemplated by the Transaction Documents (unless such action is based upon a breach
of such Purchaser’s representations, warranties or covenants under the Transaction Documents or any
agreements or understandings such Purchaser may have with any such stockholder or any violations by
the Purchaser of state or federal securities laws or any conduct by such Purchaser which
constitutes fraud, gross negligence, willful misconduct or malfeasance). If any action shall be
brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this
Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall
have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable
to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any
such action and participate in the defense thereof, but the fees and expenses of such counsel shall
be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has
been specifically authorized by the Company in writing, (ii) the Company has failed after a
reasonable period of time to assume such defense and to employ counsel or (iii) in such action
there is, in the reasonable opinion of such separate counsel, a material conflict on any material
issue between the position of the Company and the position of such Purchaser Party, in which case
the Company shall be responsible for the reasonable fees and expenses of no more than one such
separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (i)
for any settlement by a Purchaser Party effected without the Company’s prior written consent, which
shall not be unreasonably withheld or delayed; or (ii) to the extent, but only to the extent that a
loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the
representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement
or in the other Transaction Documents.



     4.9 Reservation of Common Stock. As of the date hereof, the Company has reserved and
the Company shall continue to reserve and keep available at all times, free of preemptive rights, a
sufficient number of shares of Common Stock for the purpose of enabling the Company
to issue Shares pursuant to this Agreement and Warrant Shares pursuant to any exercise of the
Warrants. 



     4.10
Listing of Common Stock. (a) The Company hereby agrees to use good faith
commercially reasonable efforts to maintain the listing of the Common Stock on a Trading Market,
and as soon as reasonably practicable following the Closing (but not later than the earlier of the
Effective Date and the first anniversary of the Closing Date) to list all of the Shares and Warrant
Shares on such Trading Market. The Company further agrees, if the Company applies to have the
Common Stock traded on any other Trading Market, it will include in such application all of the
Shares and Warrant Shares, and will take such other action as is necessary to cause all of the
Shares and Warrant Shares to be listed on such other Trading Market as promptly as possible. The
Company will take good faith commercially reasonable efforts to continue the listing and trading of
its Common Stock on a Trading Market and will comply in all respects with the Company’s reporting,
filing and other obligations under the bylaws or rules of the Trading Market.



 









 




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     4.11 Equal Treatment of Purchasers. No consideration shall be offered or paid to any
Person to amend or consent to a waiver or modification of any provision of any of the Transaction
Documents unless the same consideration is also offered to all of the parties to the Transaction
Documents. For clarification purposes, this provision constitutes a separate right granted to each
Purchaser by the Company and negotiated separately by each Purchaser, and is intended for the
Company to treat the Purchasers as a class and shall not in any way be construed as the Purchasers
acting in concert or as a group with respect to the purchase, disposition or voting of Securities
or otherwise.



     4.12 Short Sales and Confidentiality After The Date Hereof. Each Purchaser, severally
and not jointly with the other Purchasers, covenants that neither it, nor any Affiliate acting on
its behalf or pursuant to any understanding with it, will execute any Short Sales during the period
commencing at the Discussion Time and ending at the time that the transactions contemplated by this
Agreement are first publicly announced as described in Section 4.4. Each Purchaser, severally and
not jointly with the other Purchasers, covenants that until such time as the transactions
contemplated by this Agreement are publicly disclosed by the Company as described in Section 4.4,
such Purchaser will maintain the confidentiality of all disclosures made to it in connection with
this transaction (including the existence and terms of this transaction and the information
included in the Disclosure Schedules. Each Purchaser, severally and not jointly with any other
Purchaser, understands and acknowledges, and agrees, to act in a manner that will not violate the
positions of the Commission as set forth in Item 65, Section A, of the Manual of Publicly Available
Telephone Interpretations, dated July 1997, compiled by the Office of Chief Counsel, Division of
Corporation Finance. Notwithstanding the foregoing, no Purchaser makes any representation,
warranty or covenant hereby that it will not engage in Short Sales in the securities of the Company
after the time that the transactions contemplated by this Agreement are first publicly announced as
described in Section 4.4. Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio
managers manage separate portions of such Purchaser’s assets and the portfolio managers have
no direct knowledge of the investment decisions made by the portfolio managers managing other
portions of such Purchaser’s assets, the covenant set forth above shall only apply with respect to
the portion of assets managed by the portfolio manager that made the investment decision to
purchase the Securities covered by this Agreement.



     4.13  Delivery of Securities After Closing. The Company shall deliver, or cause to be
delivered, the respective Securities purchased by each Purchaser to such Purchaser within 3 Trading
Days of the Closing Date.



     4.14 Form D; Blue Sky Filings. The Company agrees to timely file a Form D with
respect to the Securities as required under Regulation D and to provide a copy thereof, promptly
upon request of any Purchaser. The Company shall take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale
to the Purchasers at the Closing under applicable securities or “Blue Sky” laws of the states of
the United States, and shall provide evidence of such actions promptly upon request of any
Purchaser.



 









 




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ARTICLE V.

MISCELLANEOUS




     5.1 Termination. This Agreement may be terminated by any Purchaser, as to such
Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between
the Company and the other Purchasers, by written notice to the other parties, if the Closing has
not been consummated on or before October 31, 2007; provided, however, that no such
termination will affect the right of any party to sue for any breach by the other party (or
parties).



     5.2 Fees and Expenses. Except as expressly set forth in the Transaction Documents to
the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and
other experts, if any, and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company shall pay all
Transfer Agent fees, stamp taxes and other taxes and duties levied in connection with the delivery
of any Securities to the Purchasers.



     5.3 Entire Agreement. The Transaction Documents, together with the exhibits and
schedules thereto, contain the entire understanding of the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, oral or written, with respect
to such matters, which the parties acknowledge have been merged into such documents, exhibits and
schedules.



     5.4 Notices. Any and all notices or other communications or deliveries required or
permitted to be provided hereunder shall be in writing and shall be deemed given and effective on
the earliest of (a) the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number set forth on the signature pages attached hereto prior to 5:30
p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto on a day that is not a Trading Day or later than
5:30 p.m. (New York City time) on any Trading Day, (c) the 2nd Trading Day following the
date of mailing, if sent by U.S. nationally recognized overnight courier service, or (d) upon
actual receipt by the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached hereto.



     5.5 Amendments; Waivers. No provision of this Agreement may be waived or amended
except in a written instrument signed, in the case of an amendment, by the Company and the
Purchasers of at least 85% of the Shares still held by the Purchasers or, in the case of a waiver,
by the party against whom enforcement of any such waived provision is sought. No waiver of any
default with respect to any provision, condition or requirement of this Agreement shall be deemed
to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any
other provision, condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such right.



 









 




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     5.6 Headings. The headings herein are for convenience only, do not constitute a part
of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.



     5.7 Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted assigns. The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written consent of each
Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this
Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided such
transferee agrees in writing to be bound, with respect to the transferred Securities, by the
provisions of the Transaction Documents that apply to the “Purchasers.”



     5.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the
parties hereto and their respective successors and permitted assigns and is not for the benefit of,
nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in
Section 4.8.



     5.9 Governing Law. All questions concerning the construction, validity, enforcement
and interpretation of the Transaction Documents shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York, without regard to the principles of
conflicts of law thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by this Agreement and any
other Transaction Documents (whether brought against a party hereto or its respective affiliates,
directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state
and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of
Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect
to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an
inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or proceeding by mailing a
copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to
such party at the address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process in any other manner
permitted by law. If either party shall commence an action or proceeding to enforce any provisions
of the Transaction Documents, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses
incurred with the investigation, preparation and prosecution of such action or proceeding.



     5.10 Survival. The representations and warranties contained herein shall survive the
Closing and the delivery of the Shares and Warrant Shares.



 









 




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     5.11 Execution. This Agreement may be executed in two or more counterparts, all of
which when taken together shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each party and delivered to the other party, it being
understood that both parties need not sign the same counterpart. In the event that any signature
is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such
signature shall create a valid and binding obligation of the party executing (or on whose behalf
such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature
page were an original thereof.



     5.12 Severability. If any term, provision, covenant or restriction of this Agreement
is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in
full force and effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their good faith commercially reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the
parties that they would have executed the remaining terms, provisions, covenants and restrictions
without including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.



     5.13 Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) any of the other Transaction
Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction
Document and the Company does not timely perform its related obligations within the periods therein
provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time
upon written notice to the Company, any relevant notice, demand or election in
whole or in part without prejudice to its future actions and rights; provided,
however, that in the case of a rescission of an exercise of a Warrant, the Purchaser shall
be required to return any shares of Common Stock delivered in connection with any such rescinded
exercise notice.



     5.14 Replacement of Securities. If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued
in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in
lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of
evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant
for a new certificate or instrument under such circumstances shall also pay any reasonable
third-party costs (including customary indemnity) associated with the issuance of such replacement
Securities.



     5.15 Remedies. In addition to being entitled to exercise all rights provided herein
or granted by law, including recovery of damages, each of the Purchasers and the Company will be
entitled to specific performance under the Transaction Documents. The parties agree that monetary
damages may not be adequate compensation for any loss incurred by reason of any breach of
obligations contained in the Transaction Documents and hereby agrees to waive and



 









 




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not to assert in
any action for specific performance of any such obligation the defense that a remedy at law would
be adequate.



     5.16 Payment Set Aside. To the extent that the Company makes a payment or payments to
any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights
thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any
part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the
Company, a trustee, receiver or any other person under any law (including, without limitation, any
bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent
of any such restoration the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.



     5.17 Independent Nature of Purchasers’ Obligations and Rights. The obligations of
each Purchaser under any Transaction Document are several and not joint with the obligations of any
other Purchaser, and no Purchaser shall be responsible in any way for the performance or
non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing
contained herein or in any other Transaction Document, and no action taken by any Purchaser
pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the Purchasers are in any
way acting in concert or as a group with respect to such obligations or the transactions
contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently
protect and enforce its rights, including without limitation, the rights arising out of this
Agreement or out of the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such purpose. Each
Purchaser has been represented by its own separate legal counsel in their review and
negotiation of the Transaction Documents. For reasons of administrative convenience only,
Purchasers and their respective counsel have chosen to communicate with the Company through FWS.
FWS does not represent all of the Purchasers but only Rodman & Renshaw, LLC, the placement agent
for the transactions contemplated hereby. The Company has elected to provide all Purchasers with
the same terms and Transaction Documents for the convenience of the Company and not because it was
required or requested to do so by the Purchasers.



     5.18 Liquidated Damages. The Company’s obligations to pay any partial liquidated
damages or other amounts owing under the Transaction Documents is a continuing obligation of the
Company and shall not terminate until all unpaid partial liquidated damages and other amounts have
been paid notwithstanding the fact that the instrument or security pursuant to which such partial
liquidated damages or other amounts are due and payable shall have been canceled.



     5.19 Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of
any action or the expiration of any right required or granted herein shall not be a Business Day,



 









 




Note: Certain portions of this document have been marked “[C.I.]” to indicate that confidential treatment has been requested for this confidential information. The confidential portions have been omitted and filed separately with the Securities and Exchange Commission






then such action may be taken or such right may be exercised on the next succeeding Business Day.



     5.20 Construction. The parties agree that each of them and/or their respective counsel
has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal
rule of construction to the effect that any ambiguities are to be resolved against the drafting
party shall not be employed in the interpretation of the Transaction Documents or any amendments
hereto.



     5.21 Waiver of Jury Trial. In any action, suit or proceeding in any jurisdiction
brought by any party against any other party, the parties each knowingly and intentionally, to the
greatest extent permitted by applicable law, hereby absolutely, unconditionally, irrevocably and
expressly waives forever trial by jury.



(Signature Pages Follow)





 











 




Note: Certain portions of this document have been marked “[C.I.]” to indicate that confidential
treatment has been requested for this confidential information. The confidential portions have
been omitted and filed separately with the Securities and Exchange Commission




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



	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	DUSA PHARMACEUTICALS, INC.	 	 	 	Address for Notice:	 	 
	 

	 	 	 	 	 	25 Upton Drive
 Wilmington, MA 01887	 	 
	By:

	 	/s/ Richard Christopher
	 	 	 	Fax:	 	 
	 

	 	 

Name: Richard Christopher
	 	 	 	 	 	 
	 

	 	Title: VP Finance & CFO	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	With a copy to (which shall not constitute notice):	 	 






[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]




 









 







Note: Certain portions of this document have been marked “[C.I.]” to indicate that confidential
treatment has been requested for this confidential information. The confidential portions have
been omitted and filed separately with the Securities and Exchange Commission




[PURCHASER SIGNATURE PAGES TO DUSA SECURITIES PURCHASE AGREEMENT]




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



	 	 	 	 	 	 	 
	Name of Purchaser:
	 	 	 	 	 	 
	 	 	 
	 
	 	 	 	 	 	 
	Signature of Authorized Signatory of Purchaser:	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	Name of Authorized Signatory:	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	Title of Authorized Signatory:	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	Email Address of Purchaser:	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	Fax Number of Purchaser:	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	Address for Notice of Purchaser:	 	 	 	 





Address for Delivery of Securities for Purchaser (if not same as address for notice):




	 	 	 	 	 	 	 	 	 
	Subscription Amount: $	 	 	 	 
	 	 	 	 	 	 	   
	 
	 	 	 	 	 	 	 	 
	Shares:
	 	 	 	 	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Warrant Shares:	 	 	 	 	 	 
	 	 	 	 	 	 	 




EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]




[SIGNATURE PAGES CONTINUE]




 









 







Note: Certain portions of this document have been marked “[C.I.]” to indicate that confidential
treatment has been requested for this confidential information. The confidential portions have
been omitted and filed separately with the Securities and Exchange Commission




DISCLOSURE SCHEDULES




     These Disclosure Schedules are being delivered by DUSA Pharmaceuticals, Inc., a New Jersey
corporation (the “Company”), to the Purchasers under that certain Securities Purchase
Agreement dated as of October 29, 2007 (the “Purchase Agreement”), by and among the Company
and the Purchasers. Capitalized terms used in these Schedules and not otherwise defined herein
shall have the respective meanings assigned to them in the Purchase Agreement.



     These Schedules may include items or information which the Company is not required to disclose
under the Purchase Agreement; the inclusion of such items or information shall not affect (directly
or indirectly) the scope of the disclosure obligations relating to the Company under the Purchase
Agreement. Furthermore, the disclosure of a particular item of information in any of these
Schedules shall not be construed as an admission by the Company that such information is material
to the Company or may have a Material Adverse Effect.



     If and to the extent any information required to be furnished in any Schedule is contained in
another Schedule, such information will be deemed to be included in all Schedules in which such
information is required to be included, to the extent the relevance of such disclosure to such
other Schedules is reasonably apparent on its face.



     In accordance with the Purchase Agreement, the Company hereby discloses to the Purchasers as
follows:



 









 




Note: Certain portions of this document have been marked “[C.I.]” to indicate that confidential
treatment has been requested for this confidential information. The confidential portions have
been omitted and filed separately with the Securities and Exchange Commission




Schedule 3.1(a)

Subsidiaries




1. DUSA Pharmaceuticals New York, Inc.

2. Sirius Laboratories, Inc.




 









 




Note: Certain portions of this document have been marked “[C.I.]” to indicate that confidential
treatment has been requested for this confidential information. The confidential portions have
been omitted and filed separately with the Securities and Exchange Commission




Schedule 3.1(d)

No Conflicts



None.




 









 







Note: Certain portions of this document have been marked “[C.I.]” to indicate that confidential
treatment has been requested for this confidential information. The confidential portions have
been omitted and filed separately with the Securities and Exchange Commission




Schedule 3.1(g)

Capitalization



Number of shares of Common Stock currently outstanding: 19,495,067



Number of shares of Common Stock underlying options outstanding under the Company’s 2006 Equity
Compensation Plan: 2,929,125



Number of shares of Common Stock issuable upon exercise of outstanding Class B warrants: 250,000
(all of such warrants were issued to the Company’s Chairman of the Board of Directors and Chief
Strategic Officer, have an exercise price of CDN $6.79 per share and expire on January 29, 2011).



Number of Shares held by all directors and officers of the Company as a group: 2,153,795 (includes
shares of Common Stock issuable upon exercise of outstanding options and outstanding Class B
warrants which, in each case, may be exercised within 60 days hereof)



Number of shares held by beneficial owners of 5% or more of the issued and outstanding shares of
Common Stock):

Great Point Partners, LLC (controlled by Dr. Jeffrey Jay): 1,150,000*

Morgens, Waterfall, Vintiadis & Co., Inc. (controlled by Edwin H. Morgens and John C. Waterfall):
1,000,000*

FMR Corp. Edward C. Johnson, III: 1,952,199*

JPMorgan Chase & Co.: 1,113,175*

Royce & Associates, LLC: 1,431,449*

State of Wisconsin Investment Board: 1,896,884*




 



*Based solely upon reports filed by such beneficial owners with the Commission pursuant to their
reporting requirements under the Exchange Act. The Company makes no representation as to the
accuracy or completeness of the information reported.




 









 







Note: Certain portions of this document have been marked “[C.I.]” to indicate that confidential
treatment has been requested for this confidential information. The confidential portions have
been omitted and filed separately with the Securities and Exchange Commission




Schedule 3.1(i)

Undisclosed Events, Liabilities or Developments




     The Company has a Confidential Treatment Application pending for the Supply and License
Agreement between the Company and photonamic GmbH & Co. KG and medac, GmbH, dated April 7, 2007
(Exhibit 10 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007).



 









 




Note: Certain portions of this document have been marked “[C.I.]” to indicate that confidential
treatment has been requested for this confidential information. The confidential portions have
been omitted and filed separately with the Securities and Exchange Commission




Schedule 3.1(j)

Litigation



(i) As part of its strategy to enforce its intellectual property, the Company has filed suit
against [C.I.] alleging, among other things, that [C.I.] induced infringement of certain of the
Company’s patents. [C.I.] has been selling the active ingredient in the Company’s Levulan product
and allegedly providing its customers, including physicians, with instructions for use in violation
of the Company’s method of use patents. [C.I.] has filed an answer and counter-claim alleging that
the Company’s patents which pertai[n] to Levulan are not valid. The litigation is at an early
stage and the Company is currently engaged in settlement discussions.



[C.I.]




 









 







Note: Certain portions of this document have been marked “[C.I.]” to indicate that confidential
treatment has been requested for this confidential information. The confidential portions have
been omitted and filed separately with the Securities and Exchange Commission




Schedule 3.1(m)

Regulatory Permits



[C.I.]




 









 







Note: Certain portions of this document have been marked “[C.I.]” to indicate that confidential
treatment has been requested for this confidential information. The confidential portions have
been omitted and filed separately with the Securities and Exchange Commission




Schedule 3.1(o)

Intellectual Property



(i) [C.I.]



(ii) Kennedy Patents:  As disclosed in the SEC Reports, the Company is aware of a number of
physicians whom it believes may be infringing one or more of the Company’s Kennedy patents.   The
total extent of infringement by physicians and the corresponding effect on sales is unknown.  The
Company is also aware that some compounding pharmacies are providing ALA for sale to physicians and
may be doing so with instructions for use with the patented Kennedy methods, and as such, are
inducing infringement of such patents. 



(iii) [C.I.]



(iv) [C.I.]




 









 







Note: Certain portions of this document have been marked “[C.I.]” to indicate that confidential
treatment has been requested for this confidential information. The confidential portions have
been omitted and filed separately with the Securities and Exchange Commission




Schedule 3.1(s)

Certain Fees




     Under its engagement letter with Rodman & Renshaw, LLC (the “Placement Agent”), the
Company will be making a cash payment to the Placement Agent equal to 6% of the aggregate purchase
price paid by each Purchaser under the Purchase Agreement, and will also be reminbursing the
Placement Agent for up to $35,000 of its out-of-pocket expenses related to the transactions
contemplated by the Transaction Documents.



 









 




Note: Certain portions of this document have been marked “[C.I.]” to indicate that confidential
treatment has been requested for this confidential information. The confidential portions have
been omitted and filed separately with the Securities and Exchange Commission




Schedule 3.1(ee)

Accountant



Deloitte & Touche LLP




 









 







Note: Certain portions of this document have been marked “[C.I.]” to indicate that confidential
treatment has been requested for this confidential information. The confidential portions have
been omitted and filed separately with the Securities and Exchange Commission




Schedule 3.1(ii)

FDA



(i) [C.I.]



(ii) [C.I.]



(iii) Actavis Correspondence:   The Company is in possession of correspondence from the FDA
to Actavis which specifically identifies Nicomide as a Marketed Unapproved Drug that is not
acceptable for marketing under the Dietary Supplement Health and Education Act of 1994
(“DSHEA”) regulations with its current labeling because it makes a health claim related to
acne. A change in regulatory status to DHSEA compliant labeling may affect the revenue stream
associated with this product.



(iv) FDA Correspondence on Acne:  The Company has received comments on its acne development
program from the FDA statistical reviewer assigned to the Company’s IND.  In this letter, the
reviewer stated con[c]ern about whether the Company will have sufficient data select an appropriate
dosing regimen for Phase 3 trials.   The Company believes that it has the data to make an argument
that sufficient drug dose ranging has been done; however, if the FDA does not accept the Company’s
rationale, additional unplanned clinical trials and/or formulation development work may be required
for the acne development program which may extend the expected development time lines for such
program. 



(v) [C.I.] 




 









 







Note: Certain portions of this document have been marked “[C.I.]” to indicate that confidential
treatment has been requested for this confidential information. The confidential portions have
been omitted and filed separately with the Securities and Exchange Commission




Schedule 4.7

Use of Proceeds



     None.