EXHIBIT 10.3


 


SECURITIES
PURCHASE AGREEMENT


 


This SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated
and effective as of March 8, 2006, is made by and among Bioject Medical
Technologies Inc., an Oregon corporation (the “Company”), and the Purchasers listed on
Exhibit A hereto, together
with their permitted transferees (each, a “Purchaser” and collectively, the “Purchasers”).


 


RECITALS:


 


A.                                    The Company and the Purchasers are executing
and delivering this Agreement in reliance upon the exemption from securities
registration afforded by Section 4(2) of the Securities Act and/or
Regulation D under the Securities Act.


 


B.                                    The Purchasers desire to purchase and the
Company desires to sell, subject to shareholder approval and other the terms
and conditions stated in this Agreement, $4,500,000 (plus accrued interest on
the Bridge Loan) of Series E Convertible Preferred Stock of the Company.


 


C.                                    Concurrent with execution of this Agreement,
the Purchasers have extended a Bridge Loan to the Company in order to enable
the Company to continue operations pending closing of the transactions
contemplated by this Agreement and in connection therewith, will issue the
Bridge Notes and the Warrants.


 


D.                                    As set forth herein, the Company has agreed
to provide certain registration rights with respect to (i) the Preferred
Conversion Shares and (ii) the Warrant Shares under the Securities Act and
the rules and regulations promulgated thereunder, and applicable state
securities laws.


 


E.                                      The capitalized terms used herein and not otherwise
defined have the meanings given them in Article 8.


 


AGREEMENT


 


In consideration of the
premises and the mutual covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the Company and the Purchasers (severally and not jointly) hereby agree as
follows:


 


ARTICLE 1


 


PURCHASE
AND SALE OF PREFERRED SHARES


 


1.1                               Purchase and Sale of
Preferred Shares. At the
Closing, the Company will issue and sell to each Purchaser, and each Purchaser
will, severally and not jointly, purchase from the Company the number of shares
of Series E Convertible Preferred Stock (the “Preferred Shares”) set forth opposite
such Purchaser’s name on Exhibit A hereto.
The purchase price for each Preferred Share shall be $1.37 (the “Purchase Price”). In
addition, at the Closing, the Company will deliver Preferred Shares to each
Purchaser upon conversion and pursuant to the terms of the Bridge Note held by
such Purchaser.


 


1.2                               Payment. At the Closing, each Purchaser will pay,
severally and not jointly, the aggregate Purchase Price set forth opposite its
name on Exhibit A hereto by
wire transfer of immediately available funds in accordance with wire
instructions provided by the Company to the Purchasers prior to the Closing and
by the cancellation of indebtedness under the Bridge Loan. The Company will
deliver to each Purchaser at Closing a certificate evidencing the number of
Preferred Shares set forth on Exhibit A in
the name of such Purchaser, or in the name of a nominee designated by such
Purchaser, against delivery of the aggregate Purchase Price on the Closing
Date.


 

















 


1.3                               Adjustment. The number of Preferred Shares to be
purchased by the Purchasers at the Closing pursuant to Sections 1.1 and 1.2,
and the Purchase Price shall be proportionately adjusted for any subdivision or
combination of Common Stock (by stock split, reverse stock split, dividend,
reorganization, recapitalization or otherwise).


 


1.4                               Closing Date. The closing of the transaction contemplated
by this Agreement (the “Closing”)
will take place on the first Business Day after the satisfaction or waiver
(subject to applicable law and requirements of Nasdaq) of the conditions set
forth in Article 5 (excluding conditions that, by their nature, cannot be
satisfied until the Closing Date), unless this Agreement has been terminated
pursuant to its terms or unless another time or date for the Closing is agreed
to in writing by the Company and the Purchasers who have agreed to purchase at
least 50% in interest of the aggregate Preferred Shares to be purchased at
Closing (the actual time and date of the Closing being referred to herein as
the “Closing Date”).
The Closing will be held at the offices of Stoel Rives LLP, 900 SW Fifth Avenue, Suite 2600, Portland,
Oregon 97204, or at such other time and place
as shall be agreed upon by the Company and the Purchasers who have agreed to
purchase at least 50% in interest of the aggregate Preferred Shares to be
purchased at Closing.


 


ARTICLE 2


 


REPRESENTATIONS
AND WARRANTIES OF THE COMPANY


 


Except as specifically
contemplated by this Agreement or as set forth in the Disclosure Schedules,
which Disclosure Schedules shall be deemed a part hereof, the Company
hereby represents and warrants as follows:


 


2.1                               Organization and Qualification.
Each of the Company and its
Subsidiary is duly incorporated and validly existing under the laws of the
State of Oregon, with full corporate power and authority to conduct its
business as currently conducted as disclosed in the SEC Documents. The Company
owns all of the capital stock of each Subsidiary free and clear of any and all
liens, security interest and any other encumbrances or restrictions, and all
the outstanding shares of capital stock of each Subsidiary are validly issued
and are fully paid, non-assessable and free of preemptive and similar rights. Each
of the Company and its Subsidiary is duly qualified to do business and is in
good standing in each jurisdiction in which the nature of the business
conducted by it 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,
would not have a Material Adverse Effect and, to the Company’s knowledge, no
proceeding has been instituted in any such jurisdiction revoking, limiting or
curtailing, or seeking to revoke, limit or curtail, such corporate power and
authority or qualification. The Company has no Subsidiary other than Bioject
Inc., an Oregon corporation, which is wholly owned by the Company.


 


2.2                               Authorization; Enforcement. The Company has all requisite corporate power
and corporate authority to enter into and to perform its obligations under
this Agreement, the Bridge Loan Agreement, the Bridge Notes and the Warrants
(and each of the other agreements entered into by the parties hereto in
connection with the Offering) (collectively, the “Related Agreements”), to consummate the
transactions contemplated hereby and thereby and to issue the Preferred Shares,
the Preferred Conversion Shares, the Bridge Notes, the Warrants and the Warrant
Shares (collectively, the “Transaction
Securities”) in accordance with the terms hereof and thereof. The
execution, delivery and performance of this Agreement and the Related
Agreements by the Company and the consummation by it of the transactions
contemplated hereby and thereby in accordance with the respective terms hereof
and thereof (including the issuance of the Transaction Securities) have been
duly authorized by all necessary corporate proceedings on the part of the
Company, except for the shareholder approval referred to in Section 5.1(b) of
this Agreement, which is subject to Sections 4.5 and 4.6 hereof. The execution,
delivery and performance of the Bridge Loan Agreement, the Bridge Notes and the
Warrants by the Company and the consummation by it of the transactions
contemplated thereby (including the issuance of the Warrants and the Warrant
Shares) shall not require any approval of the Company’s shareholders. This
Agreement and the Related Agreements have been duly executed by the Company
and, when delivered in accordance with the terms hereof and thereof, will
constitute legal, valid and binding obligations of the Company enforceable
against


 


2

















 


the Company in accordance with their respective
terms, except as enforceability may be limited by Section 9-408 of
Revised Article 9 of the Uniform Commercial Code, applicable
bankruptcy, insolvency, reorganization, or moratorium or similar laws affecting
creditors’ and contracting parties’ rights generally and except as
enforceability may be subject to general principles of equity and except
as rights to indemnity and contribution may be limited by applicable laws
or public policy underlying such laws.


 


2.3                               Capitalization. The fully-diluted capitalization of the
Company is as set forth in Section 2.3
of the Disclosure Schedules. All of the issued and outstanding shares of
capital stock of the Company and its Subsidiary are validly issued, fully paid,
and nonassessable. Except for the Offering and as set forth in Section 2.3
of the Disclosure Schedules, there are no outstanding options, warrants, rights
to subscribe to, or securities, rights or obligations convertible into or
exchangeable or exercisable for, or giving any Person any right to subscribe
for or acquire, any shares of Common Stock of the Company or its Subsidiary or
any options, warrants, rights or other instruments convertible into or
exchangeable for, Common Stock of the Company or any Subsidiary. True and
correct copies of the Company’s Restated Articles of Incorporation, as amended
(the “Articles of
Incorporation”), as in effect on the date hereof, and the
Company’s Second Amended and Restated Bylaws (the “Bylaws”) as in effect on the date
hereof, have been delivered to counsel for the Purchasers. There are no
shareholder agreements, voting agreements or other similar agreements with
respect to the Common Stock to which the Company or its Subsidiary is a party.


 


2.4                               Issuance of Preferred Shares.
The Preferred Shares, the
Bridge Notes and the Warrants are all duly authorized by the Board of Directors
of the Company, and the Bridge Notes and the Warrants are, and upon receipt of
the Required Shareholder Approval the Preferred Shares will be, all duly
authorized by all required corporate action, and all of the shares of Common
Stock issuable upon exercise of the Warrants (the “Warrant Shares”) when issued in
accordance with the terms of this Agreement and the Bridge Loan Agreement (and
in case of the Warrant Shares, the Warrants), will be validly issued, fully
paid and non-assessable and will
not be subject to preemptive rights or other similar rights of shareholders of
the Company. Assuming the accuracy of all representations and warranties of the
Purchasers set out in Article 3, the offer and issuance by the Company of
the Transaction Securities is exempt from registration under the Securities Act
and all applicable Blue Sky laws.


 


2.5                               No Conflicts; Government
Consents and Permits.


 


(a)                                  The execution, delivery and performance of
this Agreement and the Related Agreements by the Company and the consummation
by the Company of the transactions contemplated hereby and thereby (including
the issuance of the Transaction Securities) will not (i) conflict with or
result in a violation of any provision of its Articles of Incorporation or
Bylaws; (ii) except as described or referred to in Section 2.5(a) of
the Disclosure Schedules, violate or conflict with, or result in a breach of
any provision of, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of notice, consent, termination, amendment, acceleration or cancellation
of, any agreement, indenture, or instrument to which the Company or its Subsidiary
is a party, or (iii) subject to receipt of Required Approvals and the
Required Shareholder Approval, result in a violation of any law, rule,
regulation, order, judgment or decree (including United States federal and
state securities laws and regulations and regulations of any self-regulatory
organizations to which the Company or its Preferred Shares are subject)
applicable to the Company or its Subsidiary, except in the case of clauses (ii) and
(iii) only, for such conflicts, breaches, defaults, and violations as
would not have a Material Adverse Effect.


 


The execution, delivery and
performance of this Agreement and the Related Agreements by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
(including the issuance of the Transaction Securities) will not be deemed a
change of control under any agreement, instrument or indenture to which the
Company or its Subsidiary is a party.


 


(b)                                  The Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with,
any court or governmental agency or any regulatory or self regulatory agency in
order for it to execute, deliver or perform any of its obligations under
this Agreement or any of


 


3

















 


the Related Documents in accordance with the terms
hereof and thereof, or to issue and sell the Transaction Securities in
accordance with the terms hereof and thereof, other than such as have been made
or obtained, and except for (i) the registration of the Preferred Shares
and the Warrant Shares under the Securities Act pursuant to Section 6
hereof, (ii) any filings required to be made under U.S federal or state or
foreign securities laws, (iii) any required filings, notifications or
approvals required by Nasdaq, (iv) any filings required under the Bridge
Loan Agreement necessary to perfect the security interest granting thereunder;
and (v) the filing with the Oregon Secretary of State of Articles of
Amendment to effectuate the amendment of the Company’s Articles of
Incorporation (collectively, the “Required Approvals”).


 


(c)                                  Each of the Company and its Subsidiary has
all franchises, permits, licenses, and any similar authority necessary for the
conduct of its business as now being conducted by it as described in the SEC
Documents, except for such franchise, permit, license or similar authority, the
lack of which would not reasonably be expected to have a Material Adverse
Effect (“Material
Permits”). Neither the Company nor its Subsidiary has received
any actual notice of any proceeding relating to revocation or modification of
any Material Permit.


 


2.6                               SEC Documents, Financial
Statements. The Company has
filed all reports required to be filed by it under the Securities Act and the
Exchange Act for the two years preceding the date hereof (all of the foregoing
filed at least ten (10) days prior to the date hereof and all exhibits
included therein and financial statements and schedules thereto and documents
(other than exhibits) incorporated by reference therein, being hereinafter
referred to as the “SEC
Documents”)) on a timely basis or has received a valid extension
of such time of filing and has filed any such SEC Document prior to the
expiration of any such extension. The Company has delivered to the Purchasers
or their respective representatives true, correct and complete copies of the
SEC Documents not available on the EDGAR system.  As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the Exchange
Act or the Securities Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. As of their respective dates, the Financial Statements and the
related notes complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
with respect thereto. The Financial Statements and the related notes have been
prepared in accordance with accounting principles generally accepted in the
United States, consistently applied, during the periods involved (except (i) as
may be otherwise indicated in the Financial Statements or the notes
thereto, or (ii) in the case of unaudited interim statements, to the
extent they may not include footnotes, may be condensed or summary
statements or may conform to the SEC’s rules and instructions
for Reports on Form 10-Q) and fairly present in all material respects the
consolidated financial position of the Company as of the dates thereof and the
consolidated results of its operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Purchasers which is not included in the SEC Documents contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstance under
which they are or were made, not misleading.


 


2.7                               Disclosure Controls and
Procedures. The Company has
established and maintains disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) that are effective in all
material respects to ensure that material information relating to the Company,
including any consolidated Subsidiaries, is made known to its chief executive
officer and chief financial officer by others within those entities. The
Company’s certifying officers have evaluated the effectiveness of the Company’s
controls and procedures as of the end of the period covered by the most
recently filed quarterly or annual periodic report under the Exchange Act (such
date, the “Evaluation
Date”). The Company presented in its most recently filed
quarterly or annual 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 significant changes in the Company’s
internal controls (as such term is defined in Item 307(b) of


 


4

















 


Regulation S-K under the Exchange Act) or, to the
Company’s knowledge, in other factors that could significantly affect the
Company’s internal controls.


 


2.8                               Accounting Controls. The Company maintains a system of accounting
controls sufficient to provide reasonable assurances that (i) transactions
are executed in accordance with management’s general or specific authorization,
(ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles as applied in the United States and to maintain accountability for
assets, (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 existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.


 


2.9                               Absence of Litigation. There is no action, suit, proceeding or
investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the Company’s knowledge,
threatened against the Company or its Subsidiary that if determined adversely
to the Company or its Subsidiary would have a Material Adverse Effect. Neither
the Company or its Subsidiary, nor any director or officer thereof is, or
within the last nine years 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 relating to the Company. There has not been,
and to the knowledge of the Company, there is not pending or contemplated, any
investigation by the SEC involving the Company or its Subsidiary or any
director or officer thereof. The Company has not received any stop order or
other order suspending the effectiveness of any registration statement filed by
the Company under the Exchange Act or the Securities Act and, to the Company’s
knowledge, the SEC has not issued any such order.


 


2.10                        Intellectual Property
Rights. The Company and its
Subsidiary solely own, or have sufficient rights to use and otherwise exercise
and exploit and license, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights, licenses and
other similar rights necessary or material for use in connection with (or
otherwise used or anticipated to be used in) their respective businesses
as currently being conducted as described in the SEC Documents, as previously
conducted and as proposed to be conducted (collectively, the “Intellectual Property Rights”).
Neither the Company nor any Subsidiary has received any notice (including any
offer of a license) that any past, current or proposed activity of (or any
Intellectual Property Rights used, exploited or exercised by) the Company or
any Subsidiary may violate or infringe upon the rights of any Person and
neither has any reason to anticipate that any such notice may be
forthcoming (or that there is or may be any basis therefor). Except as set
forth in the SEC Documents, to the knowledge of the Company, all the
Intellectual Property Rights are enforceable and there is no existing or
expected infringement (or challenge) by another Person of (or to) any of the
Intellectual Property Rights. All current employees and consultants of the
Company or its Subsidiary have enforceable agreements assigning to the Company
or its Subsidiary all intellectual property and related rights that may arise
(have arisen) or be (or have been) used in connection with any activities of
such person or entity for or on behalf of the Company or its Subsidiary. There
is not (and is not expected to be) any breach or basis for termination or
diminution of rights under or with respect to any agreement or understanding
with respect to the current Intellectual Property Rights. To the Company’s
knowledge, all persons who have had access to Company trade secrets or
confidential information have signed a customary non-disclosure and non-use
agreement not containing a “residuals” clause or similar provision.


 


2.11                        Placement Agent. The Company has taken no action that would
give rise to any claim by any person for brokerage commissions, placement agent’s
fees or similar payments relating to this Agreement or the transactions
contemplated hereby.


 


2.12                        Investment Company. The Company is not and, after giving effect
to the offering and sale of the Preferred Shares, will not be an “investment
company” as such term is defined in the Investment Company Act of 1940, as
amended (the “Investment
Company Act”). The Company shall conduct its business in a
manner so that it will not become subject to the Investment Company Act.


 


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2.13                        No Material Adverse Change. Except for cash expenditures in the
ordinary course of business and except for liabilities, limitations,
restrictions and obligations arising from or in connection with this Agreement
and the Related Agreements, there has not, since the filing date of the Company’s
Form 10-Q for the quarter ended September 30, 2005, been any change
in the assets, business, properties, prospects, financial condition or results
of operations of the Company or its Subsidiaries that would have a Material
Adverse Effect. Since the filing date the Company’s Form 10-Q for the
quarter dated September 30, 2005, (i) there has not been any dividend
or distribution of any kind declared, set aside for payment, paid or made by
the Company on any class of capital stock, (ii) the Company has not
sustained any material loss or interference with the Company’s business from
fire, explosion, flood or other calamity, whether or not covered by insurance,
or from any labor disturbance or dispute or any action, order or decree of any
court or arbitrator or governmental or regulatory authority, (iii) the
Company has not waived any material rights with respect to any indebtedness,
payments or other rights in excess of $100,000 owed to it and (iv) the
Company has not incurred any material liabilities except in the ordinary course
of business that involve obligations (contingent or otherwise) and except for
liabilities arising from or in connection with this Agreement and the Related
Agreements. The Company has not taken any steps to seek protection pursuant to
any bankruptcy law nor does the Company have any knowledge or reason to believe
that its creditors intend to initiate involuntary bankruptcy proceedings.


 


2.14                        Nasdaq Capital Market. The only securities exchange or automated
quotation system or market on which the Common Stock is listed the Nasdaq
Capital Market, and, there have been no past proceedings, other than
proceedings that have been satisfactorily resolved, and there are no
proceedings pending, or to the best of Company’s knowledge threatened, to
revoke or suspend such listing. The Company is in material compliance with the
requirements of Nasdaq Capital Market for continued listing of the Common Stock
thereon.


 


2.15                        Acknowledgment Regarding
Purchasers’ Purchase of Transaction 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 this Agreement and the Related Agreements and the transactions
contemplated hereby and 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 Company) with respect to this
Agreement and the Related Agreements and the transactions contemplated hereby
and thereby and any advice given by any Purchaser or any of their respective
representatives or agents to the Company in connection with this Agreement and
the Related Agreements and the transactions contemplated hereby and thereby is
merely incidental to such Purchaser’s purchase of the Transaction Securities.
The Company further represents to each Purchaser that the Company’s decision to
enter into this Agreement and the Related Agreements has been based on the
independent evaluation of the transactions contemplated hereby and thereby by
the Company and its representatives.


 


2.16                        Accountants. KPMG LLP, which the Company expects will
express its opinion with respect to the audited financial statements and
schedules to be included as a part of the Registration Statement prior to
the filing of the Registration Statement, are an independent public accounting
firm as required by the Securities Act.


 


2.17                        Insurance. The Company and its Subsidiary are insured
by insurers of recognized financial responsibility against such losses and
risks and in such amounts as the Company believes are prudent and customary for
a company (i) in the business and stage of development and locations in
which the Company and its Subsidiary are engaged and (ii) with the
resources of the Company and its Subsidiary. The Company has not received any
written notice that the Company or its Subsidiary will not be able to renew its
existing insurance coverage as and when such coverage expires. All of such
policies are in full force and effect and are valid and enforceable in
accordance with their terms, and the Company has complied with all material
terms and conditions of such policies, including premium payments. The Company
believes it will be able to obtain similar coverage at reasonable cost from
similar insurers as may be necessary to continue its business.


 


2.18                        Foreign Corrupt Practices. Neither the Company, nor to the Company’s
knowledge, any director, officer, agent, employee or other person acting on
behalf of the Company has, in the course of


 


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its actions for, or on behalf of, the Company (i) used
any corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; (ii) made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; (iii) violated or is in violation of in any
material respect any provision of the U.S. Foreign Corrupt Practices Act of
1977, as amended; or (iv) made or received any unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to or from any
foreign or domestic government official or employee.


 


2.19                        No Integration; General
Solicitation. Except for a
contemplated convertible debt transaction with Partners for Growth, L.P.,
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 circumstances that
would cause the Offering to be integrated with any prior offering by the
Company for purposes of the Securities Act or any applicable shareholder
approval provisions including, without limitation, under the rules and
regulations of any exchange or quotation system on which any of the securities
of the Company are listed or designated. Neither the Company nor any of its
affiliates, nor any person acting on its or their behalf, has offered or sold,
or authorized the offer or sale of, any of the Transaction Securities by any form of
general solicitation or general advertising within the meaning of Rule 502(c) under
the Securities Act. The Company has not publicly distributed and will not
publicly distribute prior to the Closing Date any offering material in
connection with the Offering. The Company has offered the Transaction
Securities for sale only to the Purchasers. The Company shall not directly or
indirectly take, and shall not permit any of its directors, or officers
indirectly to take, any action (including any offering or sale to any Person of
the Transaction Securities) that will make unavailable the exemption from
registration under the Securities Act being relied upon by the Company for the
offer and sale to the Purchasers of the Transaction Securities as contemplated
by this Agreement and the Related Agreements.


 


2.20                        No Registration Rights. No person has the right to (i) prohibit,
delay or suspend the Company from filing the Registration Statement and fully
performing its obligations with respect thereto as contemplated hereunder or (ii) require
the Company to register any securities for sale under the Securities Act by
reason of the filing of the Registration Statement and no other registration
rights exist with respect to the issuance or registration of securities by the
Company under the Securities Act which have not been satisfied (other than
junior piggy-back rights with respect to an underwritten offering). The
granting and performance of the registration rights under this Agreement will
not violate or conflict with, or result in a breach of any provision of, or
constitute a default under, any agreement, indenture, or instrument to which
the Company and its Subsidiary is a party.


 


2.21                        Taxes. The Company and its Subsidiaries has filed
(or has obtained an extension of time within which to file) all necessary
federal, state and foreign income and franchise tax returns and has paid all
taxes shown as due on such tax returns, except where the failure to so file or
the failure to so pay would not have a Material Adverse Effect. Each of the
Company and its Subsidiaries has complied in all material respects with all
applicable legal requirements relating to the payment and withholding of taxes
and, within the time and in the manner prescribed by law, has withheld from
wages, fees and other payments and paid over to the proper governmental or
regulatory authorities all amounts required.


 


2.22                        Real and Personal Property. Except as set forth in Section 2.22
of the Disclosure Schedules, the Company and its Subsidiary have good and
marketable title to, or have valid rights to lease or otherwise use, all items
of real and personal property that are material to the business of the Company
and its Subsidiary, free and clear of all liens, encumbrances, claims and
defects and imperfections of title except those that (i) do not materially
interfere with the use of such property by the Company and the Subsidiary or (ii) would
not have a Material Adverse Effect.


 


2.23                        Poison Pill. The Company has taken (or will prior to the
Closing, if the Closing is the event that would trigger such matters) all
necessary action 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
Articles of Incorporation or the laws of its state of incorporation that is or
could be applicable to the Purchasers as a result of the Purchasers and the
Company fulfilling their obligations or exercising their rights under this
Agreement and the Related Agreements.


 


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2.24                        No Manipulation of Stock. The Company has not taken, nor will it
take, directly or indirectly any action designed to stabilize or manipulate of
the price of the Common Stock or other any other security of the Company, to
facilitate the sale or resale of any of the Preferred Shares or the shares of
Common Stock into which the Preferred Shares are convertible (the “Preferred
Conversion Shares”) or the Warrant Shares.


 


2.25                        Related Party Transactions. Except with respect to the transactions
that are contemplated hereby or in the Related Agreements to the extent an
affiliate of any director or officer of the Company purchases Transaction
Securities in the Offering and except with respect to transactions involving
amounts less than $60,000, all transactions, including, without limitation, any
contract, agreement or other arrangement providing for the furnishing of
services, providing for rental of real estate or personal property or otherwise
involving payments or obligations, that have occurred between or among the
Company, on the one hand, and any of its officers or directors, or any
affiliate or affiliates of any such executive officer or director, on the other
hand, prior to the date hereof have been disclosed in the SEC Documents in
accordance with the requirements of Item 404 of Regulation S-K under the
Securities Act.


 


2.26                        Form S-3 Eligibility. The Company is eligible to register the
resale of its Common Stock by the Purchasers under Form S-3 promulgated
under the Securities Act, and the Company hereby covenants and agrees to use
commercially reasonable efforts to maintain its eligibility to use Form S-3
until the Registration Statement covering the resale of the Preferred Shares,
the Warrant Shares and the Warrant Shares have been filed with, and declared
effective by, the SEC.


 


2.27                        Vote Required. The vote of the holders of any class or
series of the Company’s capital stock necessary to approve the issuance of
the Preferred Shares and any other transactions contemplated by this Agreement,
including the change of control under Nasdaq rules that will result from
such transactions, or the Related
Agreements that are required to be approved by the shareholders under
applicable laws, rules and regulations and the rules of Nasdaq
is the affirmative vote of a majority of the total votes cast at the
Shareholders’ Meeting by the holders of the outstanding Common Stock and Series D
Preferred Stock, voting together as a single class (with no separate class vote
or series vote of the Preferred Stock, other than the consent of a
majority of the holders of the Series D Convertible Preferred Stock of the
Company under the protective provisions relating to such series under the
Articles of Incorporation, which consent has been obtained) (all required votes
collectively, the “Required
Shareholder Approval”).


 


2.28                        Contracts.


 


(a)                                  Except for contracts filed as exhibits to the
SEC Documents (“Material
Contracts”) and except for this Agreement and the Related
Agreements, the Company does not have any agreements, contracts and commitments
that are material to the business, financial condition, assets, prospects or
operations of the Company which are entered outside the ordinary course of
business (“Other
Material Contracts”).


 


(b)                                 Except as set forth on Section 2.28(b) of
the Disclosure Schedule, the Company does not have any employment agreements,
or any other similar agreements that contain any severance or termination pay
liabilities or obligations of the Company in connection with the transactions
contemplated by this Agreement and the Related Agreements.


 


(c)                                  The Company is not in default under or in
violation of, nor to the Company’s knowledge, is there any valid basis for any
claim of default under or violation of, any Material Contract or any Other
Material Contract.


 


(d)                                 Except as set forth in Section 2.28(d) of
the Disclosure Schedules and other than pursuant to the Bridge Loan and the
Bridge Notes, the Company does not have any debt obligations for borrowed
money, including any guarantee of or agreement to acquire any such debt
obligation of others, or any power of attorney outstanding or any obligation or
liability (whether absolute, accrued, contingent or


 


8

















 


otherwise) as guarantor, surety, co-signer,
endorser, co-maker, indemnitor or otherwise with respect to the obligation of
any corporation, partnership, joint venture, association, organization or other
entity.


 


(e)                                  All agreements, contracts and commitments
required to be filed by the Company under the Exchange Act or the Securities
Act have been filed in a timely manner with the SEC.


 


(f)                                    The Company is not restricted by agreement
from carrying on its business anywhere in the world.


 


(g)                                 To the Company’s knowledge, no event or
circumstance exists which reasonably could result in the termination or
suspension of any Material Contract which is a development or licensing
agreement or a commercial supply agreement to which the Company or Bioject Inc.
is a party.


 


2.29                        Board Approval and
Recommendation to Shareholders.
Prior to the date of this Agreement, the Company’s Board of Directors, at a
meeting duly called and held, has (a) determined that the Offering is fair
to, advisable and in the best interests of the Company and the shareholders of
the Company, (b) approved the Offering and this Agreement and the Related
Agreements and (c) resolved to recommend that the shareholders of the
Company approve the issuance of the Preferred Shares and any other transactions
contemplated by this Agreement and the Related Agreements that are required to
be approved by the shareholders under applicable laws, rules and
regulations and the rules of Nasdaq. The action taken by the Company’s
Board of Directors constitutes approval of the Offering under the provisions of the Oregon Business Corporation Act,
and such approval has not been amended, rescinded or modified.


 


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


 


2.31                        Books and Records. The books of account, minute books, stock
record books and other records of the Company and its Subsidiary are complete
and correct in all material respects and have been maintained in accordance
with sound business practices and the requirements of Section 13(b)(2) of
the Exchange Act, including an adequate system of internal controls. The minute
books of the Company and its Subsidiary contain accurate and complete records
of all meetings held of, and corporate action taken by, the shareholders, the
Company’s and Subsidiary’s Board of Directors and committees of the Company’s
and the Subsidiary’s Board of Directors, and no meeting of any of such
shareholders, the Company’s and the Subsidiary’s Board of Directors or such
committees has been held for which minutes have not been prepared and are not
contained in such minute books.


 


2.32                        Employee Benefit Plans;
Employee Matters. Except as
set forth in Section 2.32 of the Disclosure Schedule, the
consummation of the transactions contemplated by this Agreement and the Related
Agreements will not (i) entitle any current or former employee or other
service provider of the Company or its Subsidiary to severance benefits or any
other payment, compensation or benefit (including forgiveness of indebtedness),
except as expressly provided by this Agreement, or (ii) accelerate the
time of payment or vesting, or increase the amount of compensation or benefit
due any such employee or service provider, alone or in conjunction with any
other possible event (including termination of employment). The Company and its
Subsidiary is in compliance in all material respects with all currently
applicable laws and regulations respecting employment, discrimination in
employment, terms and conditions of employment, wages, hours and occupational
safety and health and employment practices, and is not engaged in any unfair
labor practice. To the Company’s knowledge, no employees of the Company or its
Subsidiary are in violation of any term of any material employment contract,
patent disclosure agreement, noncompetition agreement, or any restrictive
covenant to a former employer relating to the right of any such employee to be
employed by the Company (or its Subsidiary) because of the nature of the
business conducted or presently proposed to be conducted by the Company or its
Subsidiary or to the use of trade secrets or proprietary information of others.
No key employee of the Company or its Subsidiary has given written notice to
the Company or its Subsidiary, and the Company is not otherwise aware, that any
such key employee intends to terminate his or her employment with the Company
or its Subsidiary.


 


9

















 


2.33                        Environmental Laws. The Company is not in violation of any
applicable statute, law or regulation relating to the environment or
occupational health and safety, violation of which would have a Material
Adverse Effect. None of the premises or any properties owned, occupied or
leased by the Company or its Subsidiary have been used by the Company or its
Subsidiary, or to the Company’s knowledge, by any other Person to manufacture,
treat, store, or dispose of any substance that have been designated to be a “hazardous
substance” under applicable environmental laws in violation of any applicable
environmental laws, violation of which would have a Material Adverse Effect.


 


2.34                        Regulatory Compliance. As to each of the
products of the Company and its
Subsidiary, including, without limitation, products currently under research
and/or development by the Company or its Subsidiary, subject to the
jurisdiction of the FDA under the Federal Food, Drug and Cosmetic Act and the
regulations thereunder (“FDCA”)
(each such product, a “Life
Science Product”), such Life Science Product is being
researched, developed, manufactured, tested, distributed, studied and/or
marketed in compliance in all material respects with all applicable
requirements under the FDCA and similar laws and regulations applicable to such
Life Science Product, including those relating to investigational use,
premarket approval, good manufacturing practices, labeling, advertising, record
keeping, filing of reports and security. Neither the Company nor its Subsidiary
has received any notice or other communication from the FDA or any other
federal, state or foreign governmental entity (i) contesting the premarket
approval of, the uses of or the labeling and promotion of any Life Science
Product or (ii) otherwise alleging any violation by the Company of any
law, regulation or other legal provision applicable to a Life Science Product. Neither
the Company nor its Subsidiary, nor to the Company’s knowledge, any officer,
employee or agent of the Company or its Subsidiary has, with respect to a Life
Science Product, (i) made an untrue statement of a material fact or
fraudulent statement to the FDA or other federal, state or foreign governmental
entity performing similar functions or (ii) failed to disclose a material
fact required to be disclosed to the FDA or such other federal, state or
foreign governmental entity.


 


ARTICLE 3


 


PURCHASER’S
REPRESENTATIONS AND WARRANTIES


 


Each Purchaser represents
and warrants to the Company, severally and not jointly, with respect to itself
and its purchase hereunder, that:


 


3.1                               Investment Purpose. The Purchaser is purchasing the Transaction
Securities for its own account for investment and not with a present view
toward the public sale or distribution thereof and has no intention of selling
or distributing any of such Transaction Securities or any arrangement or
understanding with any other persons regarding the sale or distribution of such
Transaction Securities except as contemplated by this Agreement or the Related
Agreements and in compliance with the Securities Act. The Purchaser will not,
directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of
(or solicit any offers to buy, purchase or otherwise acquire or take a pledge
of) any of the Transaction Securities except in accordance with the provisions
of this Agreement or the Related Agreements and in compliance with applicable
securities laws. In making the representation herein, however, the Purchaser
does not agree to hold any of the Transaction Securities for any minimum or
other specified term and reserves the right to dispose of the Transaction
Securities at any time in compliance with the Securities Act.


 


3.2                               Purchaser Status. At the time Purchaser was offered the
Transaction Securities, it was, and at the date hereof it is, and on each date
on which it exercises any Warrants, it will be an “accredited investor” as
defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) and (a)(8) under
the Securities Act.


 


3.3                               Reliance on Exemptions. The Purchaser understands that the
Transaction Securities are being offered and sold to it in reliance upon
specific exemptions from or non-application of the registration requirements of
United States federal and state securities laws and that the Company is relying
upon the truth and accuracy of, and the Purchaser’s compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Purchaser set forth herein in order to determine the availability of such
exemptions and the eligibility of the Purchaser to acquire the Transaction
Securities.


 


10

















 


3.4                               Information. The Purchaser acknowledges that is has been
afforded (i) the opportunity to ask such questions as it has deemed
necessary of, and to receive answers from, representatives of the Company
concerning the terms and conditions of the offering of the Transaction
Securities and the merits and risks of investing in the Transaction Securities;
(ii) access to information about the Company and its financial condition,
results of operations, businesses, properties, management and prospects
sufficient to enable it to evaluate its investment, including, without
limitation, the Company’s SEC Documents, and the Purchaser has had the
opportunity to review the SEC Documents; and (iii) the opportunity to
obtain such additional information that the Company possesses or can acquire
without unreasonable effort or expense that is necessary to make an informed
investment decision with respect to the investment. Neither such inquiries nor
any other due diligence investigation conducted by such Purchaser or any of its
advisors or representatives shall modify, amend or affect such Purchaser’s
right to rely on the Company’s and Subsidiary’s representations, warranties and
covenants contained herein or in the Related Agreements.


 


3.5                               Acknowledgement of Risk.


 


(a)                                  The Purchaser acknowledges and understands
that its investment in the Transaction Securities involves a significant degree
of risk, including, without limitation, (i) the Company has a history of
operating losses and requires substantial funds in addition to the proceeds
from the sale of the Transaction Securities; (ii) an investment in the
Company is speculative, and only Purchasers who can afford the loss of their
entire investment should consider investing in the Company and the Transaction
Securities; (iii) the Purchaser may not be able to liquidate its
investment; (iv) transferability of the Transaction Securities is limited;
(v) in the event of a disposition of the Transaction Securities, the
Purchaser could sustain the loss of its entire investment; and (vi) the
Company has not paid any dividends on its Common Stock since inception and does
not anticipate the payment of dividends in the foreseeable future. Such risks
are more fully set forth in the SEC Documents.


 


(b)                                  The Purchaser is able to bear the economic
risk of holding the Transaction Securities for an indefinite period, and has
knowledge and experience in financial and business matters such that it is
capable of evaluating the risks of the investment in the Transaction
Securities.


 


(c)                                  The Purchaser has, in connection with the
Purchaser’s decision to purchase the Transaction Securities and with respect to
all matters relating to this Agreement and the Related Agreements and the
transactions contemplated hereby and thereby, relied solely upon the advice of
such Purchaser’s own counsel and has not relied upon or consulted any counsel
to the Placement Agent or counsel to the Company.


 


(d)                                  The Purchaser is not purchasing the
Transaction Securities as a result of any form of general solicitation or
general advertising within the meaning of Rule 502(c) under the
Securities Act.


 


3.6                               Governmental Review. The Purchaser understands that no United
States federal or state or foreign agency or any other government or
governmental agency has passed upon or made any recommendation or endorsement
of the Transaction Securities or an investment therein.


 


3.7                               Transfer or Resale. The Purchaser understands that:


 


(a)                                  the Transaction Securities have not been and
are not being registered under the Securities Act (other than as contemplated
in Article 6 of this Agreement) or any applicable state securities laws
and, consequently, the Purchaser may have to bear the risk of owning the
Transaction Securities for an indefinite period of time because the
Transaction Securities may not be transferred unless (i) the resale
of the Transaction Securities is registered pursuant to an effective
registration statement under the Securities Act or exempt from the registration
requirements of the Securities Act under Rule 144 thereunder; or (ii) the
Purchaser has delivered to the Company an opinion of counsel to the Purchaser
(in form, substance and scope customary for opinions of counsel in comparable
transactions) to the effect that the Transaction Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from such


 


11

















 


registration, provided that no opinion shall be required by the Company
in the case of transfers under Rule 144; and


 


(b)                                  except as set forth in Article 6 of this
Agreement, neither the Company nor any other person is under any obligation to
register the resale of any Transaction Securities under the Securities Act or
any state or foreign securities laws or to comply with the terms and conditions
of any exemption thereunder.


 


3.8                               Legends.


 


(a)                                  The Purchaser understands the certificates
representing the Transaction Securities will bear a restrictive legend in
substantially the following form (and a stop-transfer order may be
placed against transfer of the certificates for such securities):


 


THE SECURITIES REPRESENTED
BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OF THE UNITED STATES IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE “SECURITIES ACT”) OR REGULATION S THEREUNDER, AND ACCORDINGLY, MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, TRANSFERRED OR ASSIGNED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES 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.


 


(b)                                 The Purchaser may request that the
Company remove, and the Company agrees to authorize the removal of any legend
from the Transaction Securities (i) following any sale of the Transaction
Securities pursuant to an effective Registration Statement, or (ii) if
such Transaction Securities are eligible for sale under Rule 144(k) or
otherwise under Rule 144 under the Securities Act or under any no-action
letter issued by the SEC. Following the time a legend is no longer required for
any Transaction Securities hereunder, the Company will, no later than two
Business Days following the delivery by a Purchaser to the Company or the
Company’s transfer agent of a legended certificate representing such
Transaction Securities, accompanied by such additional information as the
Company or the Company’s transfer agent may reasonably request, deliver or
cause to be delivered to such Purchaser a certificate representing such Transaction
Securities that is free from all restrictive and other legends.


 


(c)                                  Notwithstanding anything herein to the
contrary, the Company acknowledges and agrees that the Company will not require
an opinion of counsel in connection with the transfer by a Purchaser of any
Transaction Securities to an Affiliate of such Purchaser.


 


3.9                               Authorization; Enforcement. The Purchaser is duly organized, validly
existing and in good standing under the laws of its jurisdiction of formation
and has the requisite power and authority to enter into this Agreement and the
Related Agreements and to consummate the transactions contemplated hereby and
thereby. The Purchaser has taken all necessary action to authorize the
execution, delivery and performance of this Agreement and the Related
Agreements. Upon the execution and delivery of this Agreement and the Related
Agreements, this Agreement and the Related Agreements shall constitute a valid
and binding obligation of the Purchaser enforceable in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors’ and
contracting parties’ rights generally and except as enforceability may be
subject to general principles of equity and except as rights to indemnity and
contribution may be limited by applicable securities laws or public policy
underlying such laws.


 


3.10                        Residency. The Purchaser is a resident of the
jurisdiction set forth next to such Purchaser’s name on the signature pages hereto.


 


12

















 


3.11                        No Short Sales. Between the time the Purchaser learned about
the Offering and the public announcement of the Offering, the Purchaser has not
engaged in any short sales or similar transactions with respect to the Common
Stock, nor has the Purchaser, directly or indirectly, caused any Person to
engage in any short sales or similar transactions with respect to the Common
Stock and Purchaser covenants that it will not do any of the foregoing for so
long as it owns Preferred Shares.


 


3.12                        Brokers. Except as set forth on Schedule 3.12,
the Purchaser has not engaged any brokers, finders or agents and has not
incurred, and will not incur, directly or indirectly, any liability for
brokerage for finder’s fees or agent’s commissions or any similar charges in
connection with this Agreement and the Related Agreements.


 


ARTICLE 4


 


COVENANTS


 


4.1                               Reporting Status and Public
Information. The Company’s
Common Stock is registered under Section 12 of the Exchange Act. During
the Registration Period, the Company agrees to use commercially reasonable
efforts to (a) timely file all documents with the SEC, (b) make and
keep public information available, as those terms are understood and defined in
Rule 144 under the Securities Act, at all times, (c) file with the
SEC in a timely manner all reports and other documents required of the Company
under the Exchange Act and (d) so long as a Holder owns any Registrable
Securities, furnish to such Holder, upon any reasonable request, a written
statement by the Company as to its compliance with Rule 144 under the
Securities Act, and of the Exchange Act, a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents of the
Company as such Holder may reasonably request in availing itself of any rule or
regulation of the SEC allowing a Holder to sell any such Preferred Shares
without registration. The Company will not terminate its status as an issuer
required to file reports under the Exchange Act even if the Exchange Act or the
rules and regulations thereunder would permit such termination.


 


4.2                               Expenses. Except as provided in the Bridge Loan
Agreement, the Company and each Purchaser is liable for, and will pay, its own
expenses incurred in connection with the negotiation, preparation, execution
and delivery of this Agreement, including, without limitation, attorneys’ and
consultants’ fees and expenses.


 


4.3                               Financial Information. The financial statements of the Company to be
included in any documents filed with the SEC will be prepared in accordance
with accounting principles generally accepted in the United States,
consistently applied (except (i) as may be otherwise indicated in
such financial statements or the notes thereto, or (ii) in the case of
unaudited interim statements, to the extent they may not include
footnotes, may be condensed or summary statements or may conform to
the SEC’s rules and instructions for Reports on Form 10-Q), and will
fairly present in all material respects the consolidated financial position of
the Company and consolidated results of its operations and cash flows as of,
and for the periods covered by, such financial statements (subject, in the case
of unaudited statements, to normal year-end audit adjustments).


 


4.4                               Securities Laws Disclosure;
Publicity. Except as may be
required by law or the rules of the SEC or Nasdaq, neither the Company nor
any Subsidiary shall use the name of, or make reference to, any Purchaser or
any of its Affiliates in any press release or in any public manner (including
any reports or filings made by the Company under the Exchange Act) without such
Purchaser’s prior written consent, which consent shall not be unreasonably
withheld. On or before 9:30 a.m., New York local time, on March 9,
2006, the Company shall issue a press release disclosing the transactions
contemplated hereby and by the Related Agreements. Such initial press release
shall be approved by Life Sciences Opportunities Fund II (Institutional), L.P.
(“LOF”). On or before March 14, 2006, the Company shall file a Current
Report on Form 8-K with the describing the terms of the transactions
contemplated by this Agreement and the Related Agreements and including as
exhibits to such Current Report on Form 8-K this Agreement and the Bridge
Loan Agreement, the Warrant and the form of the Bridge Notes, in the form required
by the


 


13

















 


Exchange Act. Thereafter, so long as this Agreement
is in effect, neither the Company nor the Purchasers shall issue any press
release or otherwise making any public statements with respect to this
Agreement or the Related Agreements or the transactions contemplated hereby or
thereby without the prior consent of the other party, which consent shall not be
unreasonably withheld; provided, however, that the Company, on the one hand,
and the Purchasers, on the other hand, may, without the prior consent of the
other party, issue a press release or make such public statement as may, upon
the advice of counsel, be required by law or the rules of the SEC or
Nasdaq if it has used all reasonable efforts to consult with the other party.


 


4.5                               Shareholders’ Meeting. The Company shall, in accordance with the
laws of the State of Oregon, its Articles of Incorporation and its Bylaws use
its reasonable best efforts to convene a meeting of holders of its Shareholders
(the “Shareholders’
Meeting”) within thirty (30) Business Days (or such other time
period that is mutually agreed to by the Company and the holders of at least 50%-in-interest
of the aggregate principal amount of the Bridge Notes issued to the Purchasers)
after the date the Proxy Statement is first mailed to shareholders of the
Company for the purpose of seeking the Required Shareholder Approval of the
sale and issuance of the Preferred Shares and the other transactions
contemplated by this Agreement and the Related Agreements (including the change
of control under Nasdaq rules) (collectively, the “Transaction Approval”).
Subject to its fiduciary obligations under applicable law, the Board of
Directors of the Company shall recommend to the Company’s shareholders that the
shareholders vote in favor of the Transaction Approval and shall not (i) withdraw,
modify or qualify (or propose to withdraw, modify or qualify) in any manner
adverse to the Purchasers such recommendation in favor of the Transaction
Approval or (ii) take any action or make any statement in connection with
the Shareholders’ Meeting inconsistent with such recommendation in favor of the
Transaction Approval. Each Purchaser agrees to vote any shares of the Company’s
capital stock owned by it, and to cause any holder of record of shares of the
Company’s capital stock owned by such Purchaser, to vote in favor of the
Transaction Approval at the Shareholders’ Meeting or any adjournment thereof.


 


4.6                               Proxy Statement. The Company shall, as promptly as practicable
following the date hereof, but in no event later than March 24, 2006,
prepare and file with the SEC proxy materials (including a proxy statement and
a proxy card) meeting the requirements of Section 14 of the Exchange Act
and the related rules and regulations thereunder promulgated by the SEC
(the “Proxy Statement”)
to solicit Transaction Approval. The Company shall use its reasonable best
efforts to cause the Proxy Statement to be cleared by the SEC as promptly as
reasonably practicable after such filing, and thereafter cause the Proxy
Statement, in definitive form, to be promptly mailed to the shareholders of the
Company. Each Purchaser shall promptly furnish in writing to the Company such
information relating to such Purchaser and its investment in the Company as the
Company may reasonably request for inclusion in the Proxy Statement. The
Company shall keep the Purchasers apprised of the status of matters relating to
the Proxy Statement and the Shareholders’ Meeting, including promptly
furnishing the Purchasers and their counsel with copies of notices or other
communications related to the Proxy Statement, the Shareholders’ Meeting or the
transactions contemplated hereby received by the Company from the SEC or
Nasdaq.


 


4.7                               Sales by Purchasers. Each Purchaser agrees that it will comply
with the prospectus delivery requirements of the Securities Act as applicable
to it in connection with the sales of Registrable Securities pursuant to the
Registration Statement or otherwise comply with the requirements for an
exemption from registration under the Securities Act and the rules and
regulations promulgated thereunder. No Purchaser will make any sale, transfer, pledge
or other disposition of the Preferred Shares in violation of U.S. federal or
state or foreign securities laws or the terms of this Agreement.


 


4.8                               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 the
Warrant Shares and the shares of Common Stock that may be issuable in the
event of conversion of the Bridge Notes into Series E Preferred Stock, and
as of the Closing Date, the Company has reserved, and the Company shall
continue to reserve and keep available at all times, free and clear of
preemptive rights, a sufficient number of shares of Common Stock for the
purpose of enabling the Company to issue the Preferred Conversion Shares
pursuant to this Agreement and the Related Agreements.


 


14

















 


4.9                               Delivery of Warrant Shares. The Company covenants to each Purchaser that,
upon exercise of the Warrant(s) held by such Purchaser, it shall use its
commercially reasonable efforts to cause the Warrant Shares to be issued and
promptly delivered to such Purchaser in accordance with the Articles of Incorporation;
provided, however, that such issuance and delivery shall occur no later than
ten (10) Business Days after the Company’s receipt of the Purchaser’s
surrender of the Warrant(s) that such Purchaser desires to exercise,
accompanied by the notice of exercise and the exercise price in accordance with
the terms of the Warrants.


 


4.10                        Operation of Business. During the period from the date of this
Agreement until the earlier of the Closing or the effective date of termination
of this Agreement pursuant to Sections 9.1 and 9.2, except as contemplated by
this Agreement and the Related Agreements and as disclosed in the Disclosure
Schedules, the Company shall carry on its business in the ordinary course in
substantially the same manner as heretofore conducted and, to the extent
consistent with such business, use its commercially reasonable efforts
consistent with past practice and policies to preserve intact its present
business organizations, keep available the services of its present officers,
consultants and employees and preserve its relationships with customers,
suppliers and others having business dealings with it. The Company shall
promptly notify the Purchasers of any event or occurrence or emergency which is
not in the ordinary course of business of the Company.


 


4.11                        Efforts to Satisfy
Conditions. Each party shall
use its commercially reasonable efforts to satisfy each of the conditions to be
satisfied by it as provided in Article 5 of this Agreement.


 


ARTICLE 5


 


CONDITIONS
TO CLOSING


 


5.1                               Conditions to Obligations of
the Company. The Company’s
obligation to complete the purchase and sale of the Preferred Shares and
deliver such stock certificate(s) to each Purchaser is subject to the
fulfillment or waiver as of the Closing Date of the following conditions:


 


(a)                                Receipt of Purchase Price. The Company shall have received payment of
the Purchase Price, as set forth opposite such Purchaser’s name on Exhibit A hereto, for the Preferred
Shares being purchased hereunder. The Purchase Price shall be paid in
immediately available funds, in US dollars, and by the cancellation of
indebtedness under the Bridge Loan.


 


(b)                                Shareholder Approval. The Company shall have received the
Transaction Approval.


 


(c)                                  Representations and Warranties. The representations and warranties made by
each Purchaser in Article 3 shall be true and correct in all material
respects when made and as of the Closing Date.


 


(d)                                Covenants. All covenants, agreements and conditions contained in this Agreement
and the Related Agreements to be performed by the Purchasers on or prior to the
Closing Date shall have been performed or complied with in all material
respects.


 


(e)                                  Blue Sky. The Company shall have obtained all necessary blue sky law permits
and qualifications, or secured exemptions therefrom, required by any state or
foreign or other jurisdiction for the offer and sale of the Preferred Shares.


 


(f)                                    Nasdaq Application. A notice of listing of additional shares
with respect to the Preferred Conversion Shares and the Warrant Shares shall
have been submitted to Nasdaq.


 


(g)                                 Absence of Litigation. No proceeding challenging this Agreement or
the Related Agreements or the transactions contemplated hereby or thereby, or
seeking to prohibit, alter,


 


15

















 


prevent or materially delay the Closing, shall have
been instituted or be pending before any court, arbitrator, governmental body,
agency or official.


 


(h)                                 No Governmental Prohibition or Third Party
Approval. The sale of the
Preferred Shares by the Company shall not be prohibited by any law or
governmental order or regulation and any government regulatory or third party
consents or approvals, if any, necessary for the sale of the Preferred Shares
and the Warrant Shares shall have been received.


 


5.2                             Conditions to Purchasers’
Obligations at the Closing. Each
Purchaser’s obligation to complete the purchase and sale of the Preferred
Shares is subject to the fulfillment or waiver as of the Closing Date of the
following conditions:


 


(a)                                  Representations and Warranties. The representations and warranties made by
the Company in Article 2 shall be true and correct in all material
respects when made and as of the Closing Date.


 


(b)                               Covenants. All covenants, agreements and conditions contained in this Agreement
and the Related Agreements to be performed by the Company on or prior to the
Closing Date shall have been performed or complied with in all material
respects.


 


(c)                                  Compliance with Laws. The purchase of the Preferred Shares by
each Purchaser hereunder shall be legally permitted by all laws and regulations
to which each Purchaser or the Company is subject (including all applicable
federal, state and foreign securities laws).


 


(d)                                 Legal Opinion. The Company shall have delivered to such
Purchaser an opinion, dated as of the Closing Date, from Stoel Rives LLP,
counsel to the Company, in substantially the form attached hereto as Exhibit B.


 


(e)                                  Nasdaq Application. A notice of listing of additional shares
with respect to the Preferred Conversion Shares and the Warrant Shares shall
have been submitted to Nasdaq.


 


(f)                                    Absence of Litigation. No proceeding challenging this Agreement or
the Related Agreements or the transactions contemplated hereby or thereby, or
seeking to prohibit, alter, prevent or materially delay the Closing, shall have
been instituted or be pending before any court, arbitrator, governmental body,
agency or official.


 


(g)                                 No Governmental Prohibition or Third Party
Consents. The sale of the
Preferred Shares and the Warrant Shares by the Company shall not be prohibited
by any law or governmental order or regulation and any governmental, regulatory
or third party consents or approvals, if any, necessary for the sale of the
Preferred Shares and the Warrants Shares shall have been received.


 


(h)                                 Shareholder Approval. The Company shall have obtained the
Transaction Approval.


 


(i)                                     No Event of Default. No event of default by the Company shall
have occurred under the Bridge Loan Agreement, the Bridge Notes or the
Warrants.


 


(j)                                     Officers’ Certificates. The Company shall have delivered to the
Purchasers a certificate, dated as of the Closing Date and executed by the
Chief Executive Officer of the Company, and a certificate, dated as of the
Closing Date and executed by the Secretary of the Company, in the forms attached
hereto as Exhibits C and D, respectively.


 


(k)                                  No Material Adverse Effect. There shall not have occurred a Material
Adverse Effect.


 


16

















 


(l)                                     Other. The Company shall have delivered to such Purchaser such other
documents relating to the transactions contemplated by this Agreement and the
Related Agreements as such Purchaser or its counsel may reasonably
request.


 


ARTICLE 6


 


REGISTRATION
RIGHTS


 


6.1                               Mandatory Registration. The Company shall prepare, and, as soon as
practicable, but in no event later than thirty (30) days after the Closing
Date (the “Filing
Deadline”), file with the SEC a Registration Statement or
Registration Statements (as necessary) on Form S-3 covering the resale of
all of the Registrable Securities. In the event that Form S-3 is
unavailable for such a registration, the Company shall use such other form as
is available for such a registration, subject to the provisions of Section 6.6.
The Company shall use its best efforts to cause such Registration Statement to
be declared effective by the SEC as soon as possible, but in no event later
than the earlier of (i) the fifth Business Day after the SEC advises the
Company that either (A) it will not review such Registration Statement or (B) it
has no further comments with respect to such Registration Statement, and (ii) one
hundred fifty (150) days after the Closing Date (the earlier of such
dates, the “Effectiveness
Deadline”).


 


6.2                               Demand Registrations. If for any reason prior to the expiration of the
Registration Period (as
hereinafter defined), a Registration Statement required to be filed pursuant to
Section 6.1 ceases to be effective pursuant to the terms of and within the
timeframes set forth in Section 6.1 or fails to cover all of the Registrable
Securities required to be covered by such Registration Statement, any Holder may demand
registration by providing written demand registration notice to the Company (a “Demand Registration”).
The Company shall amend the applicable Registration Statement, or file a new
Registration Statement (on the short form available therefore, if
applicable), or both, so as to cover all of the Registrable Securities required
to be covered by a Registration Statement hereunder, as soon as practicable,
but in any event not later than twenty (20) Business Days after the date
that the Demand Registration notice is delivered to the Company. The Company
shall use its best efforts to cause such amendment and/or new Registration
Statement to become effective as soon as practicable following the filing
thereof. The compliance by the Company with the provisions of this Section 6.2
shall not relieve the Company of any liability for a breach of this Agreement,
including, without limitation, any breach by the Company of Section 6.1 hereof,
and the Holders shall retain any remedies available at law or in equity with
respect thereto.


 


6.3                               Piggy-Back Registrations. If at any time prior to the expiration of the
Registration Period (as hereinafter defined), the number of shares of Common Stock
available for sale under a Registration Statement is insufficient to cover all
of the Registrable Securities and the Company proposes to file with the SEC a
Registration Statement relating to an offering for its own account or the
account of others under the Securities Act of any of its securities (other than
on Form S-4 or Form S-8 (or their equivalents at such time) relating
to securities to be issued solely in connection with any acquisition of any
entity or business or to equity securities issuable in connection with stock
option or other employee benefit plans approved by the Board of Directors of
the Company), the Company shall promptly send to each Holder written notice of
the Company’s
intention to file a Registration Statement and of such Holder’s rights under
this Section 6.3 and, if within twenty (20) days after receipt of
such notice, such Holder shall so request in writing, the Company shall include
in such Registration Statement all or any part of the Registrable
Securities such Holder requests to be registered, subject to the priorities set
forth in this Section 6.3 below. No right to registration of Registrable
Securities under this Section 6.3 shall be construed to limit any
registration required under Section 6.1 or 6.2. The obligations of the
Company under this Section 6.3 may be waived by Holders holding at
least 50% of the Registrable Securities, provided such Holders are not named as
selling securityholders in any Registration Statement. If an offering in
connection with which a Holder is entitled to registration under this Section 6.3
is an underwritten offering, then each Holder whose Registrable Securities are
included in such Registration Statement shall, unless otherwise agreed by the
Company, offer and sell such Registrable Securities in an underwritten offering
using the same underwriter or underwriters and, subject to the provisions of
this Article 6, on the same terms and conditions as other shares of Common
Stock included in such


 


17

















 


underwritten offering. If a registration pursuant to
this Section 6.3 is to be an underwritten public offering and the managing
underwriter(s) advise the Company in writing that, in their reasonable good
faith opinion, marketing or other factors dictate that a limitation on the
number of shares of Common Stock which may be included in the Registration
Statement is necessary to facilitate and not adversely affect the proposed
offering, then the Company shall include in such registration: (1) first,
all Common Stock the Company proposes to sell for its own account, if any, and (2) second,
up to the full number of Registrable Securities proposed to be registered for
the account of the Holder entitled to registration under this Section 6.3,
pro rata among such Holder on the basis of the number of Registrable Securities
that each of them requested to be included in such registration.


 


6.4                               Allocation of Registrable
Securities. The initial
number of Registrable Securities included in any Registration Statement and
each increase in the number of Registrable Securities included therein shall be
allocated pro rata among the Holders based on the number of Registrable
Securities held by each Holder at the time the Registration Statement covering
such initial number of Registrable Securities or increase thereof is declared
effective by the SEC. In the event that a Holder sells or otherwise transfers
any of such Holder’s Registrable Securities, each transferee shall be allocated
a pro rata portion of the then remaining number of Registrable Securities
included in such Registration Statement for such transferor. Any shares of
Common Stock included in a Registration Statement and which remain allocated to
any Person which ceases to hold any Registrable Securities covered by such
Registration Statement shall be allocated to the remaining Holders, pro rata
based on the number of Registrable Securities then held by such Holders which
are covered by such Registration Statement.


 


6.5                               Legal Counsel. Subject to Section 6.10 of this
Agreement, the Holders holding at least at least 50% of the Registrable
Securities shall have the right to select one legal counsel to review and
comment upon any registration pursuant to this Article 6 (“Legal Counsel”),
which shall be Heller Ehrman LLP or such other counsel as is
thereafter designated by the holders of at least 50% of Registrable Securities
and of which the Company and its counsel have been given prior notice. The
Legal Counsel shall not represent any Holder that sends such counsel written
notice that such Holder does not wish such counsel to represent it in
connection with the matters discussed in this Section 6.5. The Holders,
other than any Holder that delivers the notice discussed in the preceding
sentence, hereby waive any conflict of interest or potential conflict of
interest that may arise as a result of the representation of such Holders
by the Legal Counsel in connection with the subject matter of this Article 6.
These provisions will not prohibit any other counsel to a Holder from reviewing
and commenting on any registration filed pursuant to this Article 6 at no
cost to the Company. The Company shall reasonably cooperate with Legal Counsel
in performing the Company’s
obligations under this Article 6.


 


6.6                               Ineligibility for Form S-3.
In the event that Form S-3
is not available for any registration of Registrable Securities hereunder, the
Company shall (i) register the sale of the Registrable Securities on
another appropriate form reasonably acceptable to the holders of at least 50%
of the Registrable Securities and (ii) undertake to register the
Registrable Securities on Form S-3 as soon as such form is available,
provided that the Company shall maintain the effectiveness of the Registration
Statement then in effect until such time as a Registration Statement on Form S-3
covering the Registrable Securities has been declared effective by the SEC.


 


6.7                               Failure to File, Obtain and
Maintain Effectiveness of Registration Statement. If a Registration Delay occurs the Company
shall pay to each holder of Registrable Securities (the “Registration Delay Payments”),
as partial relief for the damages to any Holder by reason of any such
Registration Delay, and calculated for each share of Common Stock for which a
Registration Statement is required to be filed pursuant to the terms of Section 6.1
then outstanding that is a Registrable Security and not covered for resale at
such time pursuant to the terms of a Registration Statement, an accruing amount
per each such share equal to the Delay Payment Rate for each month (or portion
thereof) during the Damages Accrual Period; provided that such Registration
Delay Payments shall be paid only to the Holders that have complied with their
obligations under Section 6.9 of this Article 6 with respect thereto.
The Registration Delay Payments shall accrue from the first day of the
applicable Registration Delay through the date it is cured (the “Damages Accrual Period”),
and shall be payable in cash to the record holders of the Registrable
Securities entitled thereto on the earlier of the (i) last Business Day of
each calendar month


 


18

















 


during which such Registration Delay Payments are
incurred and (ii) the third Business Day after the event of failure giving
rise to the Registration Delay Payments is cured. Nothing shall preclude any
Holder from pursuing or obtaining any available remedies at law, specific
performance or other equitable relief with respect to this Article 6 in
accordance with applicable law.


 


6.8                               Related Obligations. At such time as the Company is obligated to
file a Registration Statement with the SEC pursuant to Section 6.1, the
Company will use its best efforts to effect the registration of the Registrable
Securities in accordance with the intended method of distribution thereof and,
pursuant thereto, the Company shall have the following obligations:


 


(a)                                  The Company shall promptly prepare and file
with the SEC a Registration Statement with respect to the Registrable
Securities (but in no event later than the Filing Deadline) and use its best
efforts to cause such Registration Statement relating to the Registrable
Securities to become effective as soon as practicable after such filing (but in
no event later than the applicable Effectiveness Deadline). The Company shall
keep each Registration Statement effective pursuant to Rule 415 at all
times until the earliest of (i) the three-year anniversary of the Closing
Date; (ii) the date as of which all of the Holders may sell all of
the Registrable Securities covered by such Registration Statement without
restriction pursuant to Rule 144(k) promulgated under the Securities Act
(or successor thereto) or (iii) the date on which the Holders shall have
sold all the Registrable Securities covered by such Registration Statement
either pursuant to the Registration Statement or in one or more transactions in
which the Holder obtained unlegended certificates representing the Registrable
Securities so purchased in accordance with applicable securities laws (the “Registration Period”),
which Registration Statement (including any amendments or supplements thereto
and prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein (in the case of any prospectus only,
in light of the circumstances under which they were made) not misleading.


 


(b)                                 The Company shall prepare and file with the
SEC such amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the Securities Act, as may be necessary to keep such
Registration Statement effective at all times during the Registration Period,
and, during such period, comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities of the Company covered
by such Registration Statement until such time as all of such Registrable
Securities shall have been disposed of in accordance with the intended methods
of distribution by the seller or sellers thereof as set forth in such
Registration Statement. In the case of amendments and supplements to a
Registration Statement which are required to be filed pursuant to this Article 6
(including pursuant to this Section 6.8(b)) by reason of the Company
filing a report on Form 10-K, Form 10-Q or Form 8-K or any
analogous report under the Exchange Act), the Company shall have incorporated
such report by reference into the Registration Statement, if applicable, or
shall file such amendments or supplements with the SEC on the same day on which
the Exchange Act report is filed which created the requirement for the Company
to amend or supplement the Registration Statement.


 


(c)                                  The Company shall (i) permit Legal
Counsel and any legal counsel for a particular Holder to review and comment
upon those sections of (a) the Registration Statement which are applicable
to the Holders at least five (5) Business Days prior to its filing with
the SEC and (b) all other Registration Statements and all amendments and
supplements to all Registration Statements which are applicable to the Holders
(except for Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q
and Current Reports on Form 8-K and any similar or successor reports)
within a reasonable number of days prior to their filing with the SEC and (b) not
file any Registration Statement (including any amendment or supplement thereto)
or document in a form to which Legal Counsel or such legal counsel
reasonably objects. The Company shall furnish to Legal Counsel, without charge,
(i) any correspondence from the SEC or the staff of the SEC to the Company
or its representatives relating to any Registration Statement, provided the
Legal Counsel shall keep such correspondence confidential and shall not provide
copies thereof to any Holder without the Holder’s prior consent, (ii) promptly
after the same is prepared and filed with the SEC, one copy of any Registration
Statement and any amendment(s) thereto, including financial


 


19

















 


statements and schedules, all documents incorporated
therein by reference, if requested by a Holder, and all exhibits and (iii) upon
the effectiveness of any Registration Statement, one copy of the prospectus
included in such Registration Statement and all amendments and supplements
thereto. The Company shall reasonably cooperate with Legal Counsel and such
other legal counsel in performing the Company’s obligations pursuant to this Section 6.8.


 


(d)                                 The Company shall furnish to each Holder
whose Registrable Securities are included in any Registration Statement,
without charge, (i) promptly after the same is prepared and filed with the
SEC, at least one copy of such Registration Statement and any amendment(s)
thereto, including financial statements and schedules, all documents
incorporated therein by reference, if requested by a Holder, and all exhibits
and each preliminary prospectus, (ii) upon the effectiveness of any
Registration Statement, ten (10) copies of the prospectus included in such
Registration Statement and all amendments and supplements thereto (or such
other number of copies as such Holder may reasonably request) and (iii) such
other documents, including copies of any preliminary or final prospectus, as
such Holder may reasonably request from time to time in order to
facilitate the disposition of the Registrable Securities owned by such Holder.


 


(e)                                  The Company shall use its best efforts to (i) register
and qualify the Registrable Securities covered by a Registration Statement
under all other securities or “blue sky” laws of such jurisdictions in the
United States, (ii) prepare and file in those jurisdictions, such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such
other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv) take
all other actions reasonably necessary or advisable to qualify the Registrable
Securities for sale in such jurisdictions; provided, however, that the Company
shall not be required in connection therewith or as a condition thereto to
(w) make any change in the Company’s Articles of Incorporation or Bylaws that
the Company’s
Board of Directors determines in good faith to be contrary to the best
interests of the Company and its shareholders, (x) qualify to do business
in any jurisdiction where it would not otherwise be required to qualify but for
this Section 6.8(e), (y) subject itself to general taxation in any
such jurisdiction, or (z) file a general consent to service of process in
any such jurisdiction. The Company shall promptly notify Legal Counsel and each
Holder who holds Registrable Securities of the receipt by the Company of any
notification with respect to the suspension of the registration or
qualification of any of the Registrable Securities for sale under the
securities or “blue
sky” laws
of any jurisdiction in the United States or its receipt of actual notice of the
initiation or threat of any proceeding for such purpose.


 


(f)                                    As promptly as practicable after becoming
aware of such event or development, the Company shall notify Legal Counsel and
each Holder in writing of the happening of any event as a result of which the
prospectus included in a Registration Statement, as then in effect, includes an
untrue statement of a material fact or omission to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and
promptly prepare a supplement or amendment to such Registration Statement to
correct such untrue statement or omission, and deliver ten (10) copies of
such supplement or amendment to Legal Counsel and each Holder (or such other
number of copies as Legal Counsel or such Holder may reasonably request). The
Company shall also promptly notify Legal Counsel and each Holder in writing (i) when
a prospectus or any prospectus supplement or post-effective amendment has been
filed, and when a Registration Statement or any post-effective amendment has
become effective (notification of such effectiveness shall be delivered to
Legal Counsel and each Holder by facsimile on the same day of such
effectiveness and by overnight mail), (ii) of any request by the SEC for
amendments or supplements to a Registration Statement or related prospectus or
related information, and (iii) of the Company’s reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.


 


(g)                                 The Company shall use its best efforts to
prevent the issuance of any stop order or other suspension of effectiveness of
a Registration Statement, or the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest possible moment and to notify Legal


 


20

















 


Counsel and each Holder who holds Registrable
Securities being sold of the issuance of such order and the resolution thereof
or its receipt of actual notice of the initiation or threat of any proceeding
for such purpose.


 


(h)                                 At the reasonable request of any Holder and
at such Holder’s expense, the Company shall use its best efforts to furnish to
such Holder, on the date of the effectiveness of the Registration Statement and
thereafter from time to time on such dates as an Holder may reasonably
request (i) a letter, dated such date, from the Company’s independent
certified public accountants in form and substance as is customarily given
by independent certified public accountants to underwriters in an underwritten
public offering, and (ii) an opinion, dated as of such date, of counsel
representing the Company for purposes of such Registration Statement, in form,
scope and substance as is customarily given in an underwritten public offering,
addressed to the Holders.


 


(i)                                     The Company shall, upon reasonable notice and
during normal business hours, make available for inspection by (i) any
Holder, (ii) Legal Counsel and any other legal counsel representing an
Holder and (iii) one firm of accountants or other agents retained by the
Holders (collectively, the “Inspectors”)
all pertinent financial and other records, and pertinent corporate documents
and properties of the Company (collectively, the “Records”), which are requested for any
purpose reasonably related to the Holders’ rights and/or the Company’s obligations under
this Article 6, and cause the Company’s officers, directors and employees to
supply all information which any Inspector may reasonably request;
provided, however, that each Inspector which is not a party hereto shall agree
in writing prior to obtaining access to any Records, and each Holder hereby
agrees, to hold in strict confidence and shall not make any disclosure (except
to an Holder similarly bound by the terms hereof) or use of any Record or other
information which the Company determines in good faith to be confidential, and
of which determination the Inspectors are so notified, unless (a) the
disclosure of such Records is necessary to avoid or correct a misstatement or
omission in any Registration Statement or is otherwise required under the
Securities Act, (b) the release of such Records is ordered pursuant to a
final, non-appealable subpoena or order from a court or government body of
competent jurisdiction, or (c) the information in such Records has been
made generally available to the public other than by disclosure in violation of
this or any other agreement of which the Inspector has knowledge. Neither the
Company nor any Inspector of a particular Holder shall provide any confidential
information to any other Holder unless such Holder is first informed of the
confidential nature of such information. Each Holder receiving the Records
agrees that it shall, if permitted by applicable law, upon learning that
disclosure of such Records is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt notice to the
Company prior to making any such disclosure and allow the Company, at its
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, the Records deemed confidential. Each Holder
undertaking an inspection pursuant to this Section 6.8(i) shall, and
shall instruct its other Inspectors to, use commercially reasonable efforts to
perform any such inspection in a manner designed to not materially disrupt
the business activities of the Company. Nothing herein (or in any other confidentiality
agreement between the Company and any Holder) shall be deemed to limit the
Holders’ ability to sell Registrable Securities in a manner which is otherwise
consistent with applicable laws and regulations.


 


(j)                                     The Company shall hold in confidence and not
make any disclosure of information concerning a Holder provided to the Company
unless (i) disclosure of such information is necessary to comply with
federal or state securities laws or the rules of Nasdaq, (ii) the
disclosure of such information is necessary to avoid or correct a misstatement
or omission in any Registration Statement, (iii) the release of such
information is ordered pursuant to a subpoena or other final, non-appealable
order from a court or governmental body of competent jurisdiction, (iv) such
information has been made generally available to the public other than by
disclosure in violation of this Article 6 or any other agreement, or (v) such
Holder expressly consents in writing to the form and content of any such
disclosure. The Company agrees that it shall, if permitted by applicable law,
upon learning that disclosure of such information concerning a Holder is sought
in or by a court or governmental body of competent jurisdiction or through
other means, give prompt written notice to such Holder prior to making any such
disclosure and allow such Holder, at the Holder’s expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.


 


21

















 


(k)                                  The Company shall use its best efforts either
to (i) cause all the Registrable Securities covered by a Registration
Statement to be listed on each securities exchange on which shares of the same class or
series issued by the Company are then listed, if any, if the listing of
such Registrable Securities is then permitted under the rules of such
exchange, or (ii) secure designation and quotation of the Preferred
Shares, Warrant Shares and the Bridge Warrant Shares on Nasdaq. The Company
shall pay all fees and expenses in connection with satisfying its obligation
under this Section 6.8(k).


 


(l)                                     The Company shall cooperate with the Holders
who hold Registrable Securities being offered and, to the extent applicable, to
facilitate the timely preparation and delivery of certificates (not bearing any
restrictive legend) representing the Registrable Securities to be offered
pursuant to a Registration Statement and enable such certificates to be in such
denominations or amounts, as the case may be, as the Holders may reasonably
request and registered in such names as the Holders may request.


 


(m)                               If requested by a Holder, the Company shall (i) as
soon as practicable incorporate in a prospectus supplement or post-effective
amendment, as necessary, such information as an Holder requests to be included
therein relating to the Holder and the sale and distribution of Registrable
Securities, including, without limitation, information with respect to the
number of Registrable Securities being offered or sold, the purchase price
being paid therefor and any other terms of the offering of the Registrable
Securities to be sold in such offering; (ii) as soon as practicable, make
all required filings of such prospectus supplement or post-effective amendment
after being notified of the matters to be incorporated in such prospectus
supplement or post-effective amendment; and (iii) as soon as practicable,
supplement or make amendments to any Registration Statement if reasonably
requested by a Holder holding Registrable Securities.


 


(n)                                 The Company shall use its best efforts to
cause the Registrable Securities covered by the applicable Registration
Statement to be registered with or approved by such other governmental agencies
or authorities as may be necessary to consummate the disposition of such
Registrable Securities within the United States.


 


(o)                                 The Company shall otherwise use its best
efforts to comply with all applicable rules and regulations of the SEC in
connection with any registration hereunder.


 


(p)                                 Notwithstanding anything to the contrary in
this Section 6.8, at any time after the applicable Registration Statement
has been declared effective by the SEC, the Company may delay the
disclosure of material non-public information concerning the Company the
disclosure of which at the time is not, in the good faith opinion of the Board
of Directors of the Company and its counsel, in the best interest of the
Company and, in the opinion of counsel to the Company, otherwise required (a “Grace Period”);
provided, that the Company shall promptly (i) notify the Holders in
writing of the existence of material non-public information giving rise to a
Grace Period (provided that in each notice the Company will not disclose the
content of such material non-public information to the Holders) and the date on
which the Grace Period will begin, and (ii) notify the Holders in writing
of the date on which the Grace Period ends; and, provided further, that no
Grace Periods shall exceed thirty (30) consecutive days and during any
consecutive three hundred sixty-five (365) day period, such Grace Periods
shall not exceed an aggregate of sixty (60) days and the first day of any
Grace Period must be at least two (2) trading days after the last day of
any prior Grace Period (an “Allowable
Grace Period”). For purposes of determining the length of a
Grace Period above, the Grace Period shall begin on and include the date the
Holders receive the notice referred to in clause (i) and shall end on and
include the later of the date the Holders receive the notice referred to in
clause (ii) and the date referred to in such notice. The provisions of Section 6.8(g) hereof
shall not be applicable during the period of any Allowable Grace Period. Upon
expiration of the Grace Period, the Company shall again be bound by the first
sentence of Section 6.8(f) with respect to the information giving
rise thereto unless such material non-public information is no longer
applicable. In the event that the Company shall exercise its right to effect a
Grace Period hereunder, the Registration Period during which the Registration
Statement is to remain effective shall be extended by a period of time equal to
the duration of any Grace Periods.


 


22

















 


(q)                                 At the end of the Registration Period, the
Holders shall discontinue sales of shares pursuant to the Registration
Statement upon receipt of notice from the Company of its intention to remove
from registration the shares covered by such Registration Statement which
remain unsold, and such Holders shall notify the Company of the number of
shares registered which remain unsold immediately upon receipt of such notice
by the Company.


 


6.9                               Obligations of the Holders.


 


(a)                                  At least seven (7) days prior to the
first anticipated filing date of a Registration Statement, the Company shall
notify each Holder in writing of the information the Company requires from each
such Holders if such Holder elects to have any of such Holder’s Registrable
Securities included in such Registration Statement. It shall be a condition
precedent to the obligations of the Company to complete the registration
pursuant to this Article 6 with respect to the Registrable Securities of a
particular Holder that such Holder shall furnish to the Company such
information regarding itself, the Registrable Securities held by it and the
intended method of disposition of the Registrable Securities held by it as
shall be reasonably required to effect the registration of such Registrable
Securities and shall execute such documents in connection with such
registration as the Company may reasonably request, in each case within
seven (7) Business Days of being notified by the Company of its necessity.


 


(b)                                 Each Holder by such Holder’s acceptance of
the Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of any
Registration Statement hereunder, unless such Holder has notified the Company
in writing of such Holder’s election to exclude all of such Holder’s Registrable
Securities from such Registration Statement.


 


(c)                                  Each Holder agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in Section 6.8(g) or
the first sentence of Section 6.8(f), such Holder will immediately
discontinue disposition of Registrable Securities pursuant to any Registration
Statement(s) covering such Registrable Securities until such Holder’s receipt
of the copies of the supplemented or amended prospectus contemplated by Section 6.8(g) or
the first sentence of Section 6.8(f) or receipt of notice that no
supplement or amendment is required. Notwithstanding anything to the contrary,
the Company shall cause its transfer agent to deliver unlegended shares of
Common Stock to a transferee of an Holder in accordance with the terms of this
Agreement in connection with any sale of Registrable Securities with respect to
which an Holder has entered into a contract for sale prior to the Holder’s receipt of a
notice from the Company of the happening of any event of the kind described in Section 6.8(g) or
the first sentence of Section 6.8(f) and for which the Holder has not
yet settled.


 


(d)                                 As promptly as practicable after becoming
aware of such event, each Holder shall notify the Company in writing of the
happening of any event as a result of which the information provided in writing
by such Holder to the Company expressly for use in the prospectus included in a
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that no separate written notification shall be required for any event disclosed
by such Holder in a timely filing with the SEC relating to the Company’s Preferred Shares.


 


6.10                        Expenses of Registration. All expenses incurred in connection with
registrations, filings or qualifications pursuant to Sections 6.1 through 6.8
of this Article 6, including, without limitation, all registration,
listing and qualifications fees, printers and accounting fees, transfer agent
fees and fees and disbursements of counsel for the Company, but excluding
underwriting discounts and commissions, shall be paid by the Company. The
Company shall also reimburse the Holders for the reasonable and documented fees
and disbursements of Legal Counsel in connection with registration, filing or
qualification pursuant to Sections 6.1 through 6.8 of this Article 6. The
Company shall pay all of the Holders’ reasonable costs (including fees and
disbursements of Legal Counsel) incurred in connection with the successful
enforcement of the Holders’
rights under this Article 6. Notwithstanding the foregoing, each seller of
Registrable Securities shall pay all fees and disbursements of all counsel
(other than the Legal


 


23

















 


Counsel) retained by such seller and all selling
expenses, including, without limitation, all underwriting discounts, selling
commissions, transfer taxes and other similar expenses, to the extent required
by applicable law.


 


6.11                        Indemnification. In the event any Registrable Securities are
included in a Registration Statement under this Article 6:


 


(a)                                  To the extent permitted by law, the Company
shall indemnify each Holder, the directors, officers, members, partners,
employees, agents, Legal Counsel or other representatives of and each Person
controlling such Holder within the meaning of Section 15 of the Securities
Act, with respect to which any registration that has been effected pursuant to
this Agreement, against all claims, losses, damages, liabilities, fines,
penalties, charges, costs, reasonable attorneys’ fees, amounts paid in
settlement or expenses, joint or several, (collectively, “Claims”) (or action in respect thereof),
including any Claims incurred in settlement of any litigation, commenced or
threatened (subject to Section 6.11(c) below), arising out of or
based on (i) any untrue statement (or alleged untrue statement) of a
material fact contained in the Registration Statement, prospectus (final or
preliminary), any amendment or supplement thereof, or other document incident
to any such registration, qualification or compliance or based on any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in light of
the circumstances in which they were made, (ii) any violation by the
Company of any rule or regulation promulgated by the Securities Act, the
Exchange Act, or any other law, including, without limitation, any state
securities law, or any rule or regulation thereunder relating to the offer
or sale of the Registrable Securities pursuant to a Registration Statement
applicable to the Company and relating to any action or inaction required of
the Company in connection with any such registration, qualification or
compliance, or (iii) any violation by the Company of the terms of this Article 6,
and will reimburse each Holder, the directors, officers, members, partners,
employees, agents, Legal Counsel or other representatives of and each Person
controlling such Holder, for reasonable legal and other out-of-pocket expenses
reasonably incurred in connection with investigating or defending any such
Claim as incurred; provided that the Company will not be liable in any such
case to the extent that any untrue statement or omission or allegation thereof
is made in reliance upon and in conformity with written information furnished
to the Company by or on behalf of such Holder for use in preparation of such
Registration Statement, prospectus, amendment or supplement; provided further that the Company will not
be liable in any such case where the Claim results from the material failure of
such Holder to comply with the covenants and agreements contained in this Article 6
respecting sales of Registrable Securities, and except that the foregoing
indemnity agreement is subject to the condition that, insofar as it relates to
any such untrue statement or alleged untrue statement or omission or alleged
omission made in the preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the SEC at the time the Registration Statement
becomes effective or in the amended prospectus filed with the SEC pursuant to Rule 424(b) or
in the prospectus subject to completion under Rule 434 of the Securities
Act, which together meet the requirements of Section 10(a) of the
Securities Act (the “Final
Prospectus”), such indemnity shall not inure to the benefit of
any such Holder, the directors, officers, members, partners, employees, agents,
Legal Counsel or other representatives of or any such controlling Person, if a
copy of the Final Prospectus that was timely furnished by the Company to the
Holder pursuant to Section 6.8(d) for delivery was not furnished to
the Person asserting the Claim at or prior to the time such furnishing is
required by the Securities Act, such Person was promptly advised in writing by
the Company not to use the incorrect prospectus and the Final Prospectus would
have cured the defect giving rise to such Claim.


 


(b)                                 Each Purchaser will severally, and not
jointly, indemnify the Company, the directors, officers, employees, agents,
legal counsel and other representatives and each Person who controls the
Company within the meaning of Section 15 of the Securities Act, against
all Claims (or actions in respect thereof), including any Claims incurred in
settlement of any litigation, commenced or threatened (subject to Section 6.11(c) below),
arising out of or based on any untrue statement (or alleged untrue statement)
of a material fact contained in the Registration Statement, prospectus (final
or preliminary), any amendment or supplement thereof or other documents,
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
light of the circumstances in which they were made, and will reimburse the
Company, the directors, officers, employees, agents, legal


 


24

















 


counsel and other representatives and each Person
controlling the Company for reasonable legal and any other expenses reasonably
incurred in connection with investigating or defending any such Claim as
incurred, in each case to the extent, that such untrue statement or omission or
allegation thereof is made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the Holder for use in
preparation of the Registration Statement, prospectus, amendment or supplement;
provided that the indemnity shall not apply to the extent that such Claim
results from the fact that a current copy of the prospectus was not made
available to the Person or entity asserting the Claim at or prior to the time
such furnishing is required by the Securities Act and the Final Prospectus would
have cured the defect giving rise to such Claim. Notwithstanding the foregoing,
a Holder’s aggregate liability pursuant to this subsection (b) and
subsection (d) shall not exceed the net proceeds received by the
Holder from the sale of the Registrable Securities pursuant to the Registration
Statement giving rise to such liability.


 


(c)                                  Each party entitled to indemnification under
this Section 6.11 (the “Indemnified Party”) shall give notice to the party
required to provide indemnification (the “Indemnifying Party”) promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party (at its expense) to assume the
defense of any such claim or any litigation resulting therefrom, provided that
counsel for the Indemnifying Party, who shall conduct the defense of such claim
or litigation, shall be approved by the Indemnified Party (whose approval shall
not unreasonably be withheld), and the Indemnified Party may participate
in such defense at such Indemnified Party’s expense, and provided further that
the failure of any Indemnified Party to give notice as provided herein shall
not relieve the Indemnifying Party of its obligations under this Agreement,
unless such failure is materially prejudicial to the Indemnifying Party in
defending such claim or litigation. Notwithstanding the foregoing, an
Indemnified Party shall have the right to retain its own counsel, with the fees
and expenses to be paid by the Indemnifying Party, if representation of such
Indemnified Party by the counsel retained by the Indemnifying Party would be
inappropriate due to actual or potential differing interests between such
Indemnified Party and any other party represented by such counsel in such
proceeding. An Indemnifying Party shall not be liable for any settlement of an
action or claim effected without its written consent (which consent will not be
unreasonably withheld). No Indemnifying Party, in its defense of any such claim
or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation.


 


(d)                                 If the indemnification provided for in this Section 6.11
is held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any Claim referred to therein, then the
Indemnifying Party, in lieu of indemnifying such Indemnified Party thereunder,
shall contribute to the amount paid or payable by such Indemnified Party as a
result of such Claim in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party on the one hand and of the Indemnified
Party on the other in connection with the statements or omissions which
resulted in such Claim as well as any other relevant equitable considerations. The
relative fault of the Indemnifying Party and of the Indemnified Party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the Indemnifying Party or by the Indemnified
Party and the parties’ relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission provided, that in no event shall any
contribution by a Holder hereunder when combined with amounts paid pursuant to
subsection (b) exceed the net proceeds received by such Holder upon
the sale of the Registrable Securities giving rise to such contribution
obligation.


 


6.12                        Assignment and Transfer. The rights to cause the Company to register
Registrable Securities granted to the Holders by the Company in this Article 6
may be assigned by a Holder in connection with a transfer by such Holder
of all or a portion of its Registrable Securities, provided, however, that such transfer must be made at least
ten days prior to the Filing Deadline and that (a) such transfer may otherwise
be effected in accordance with applicable securities laws, including
establishing the tranferee’s qualification as an “accredited investor” within
the meaning of the Securities Act; (b) such Holder gives prior written
notice to the Company at least ten days prior to the Filing Deadline; and (c) such
transferee agrees in writing with the Company to comply with and be bound by
all of the provisions of this


 


25






 













 


Agreement; and (d) such
transfer is otherwise in accordance with the applicable requirements of this
Agreement and the Warrants. Except as specifically permitted by this Section 6.12,
the rights of a Holder with respect to Registrable Securities as set out herein
shall not be transferable to any other Person, and any attempted transfer shall
cause all rights of such Holder therein to be forfeited. Notwithstanding the
foregoing provisions of this Section 6.12, no such restriction shall apply
to a transfer by a Holder that is: (i) a partnership transferring to its
partners or former partners in accordance with partnership interests; (ii) a
corporation transferring to a wholly-owned subsidiary or a parent corporation
that owns all of the capital stock of the Holder;  (iii) a limited
liability company transferring to its members or former members in accordance
with their interest in the limited liability company; (iv) an affiliated
investment fund transferring to another affiliated investment fund; or (v) an
individual transferring to the Holder’s family member or trust for the benefit
of an individual Holder; provided that in each case the transfer is effected in
accordance with applicable securities laws, including establishing the
transferee’s qualification as an “accredited investor” within the meaning of
the Securities Act, and the transferee agrees in writing to be subject to the
terms of this Agreement to the same extent as if the transferee were an
original Holder hereunder.


 


6.13                        Amendment and Waiver of Registration
Rights. The rights of any
Holder under the provisions of this Article 6 may be waived (either
generally or in a particular instance, either retroactively or prospectively
and either for a specified period of time or indefinitely) or amended by an
instrument in writing signed by the Holders of at least 50% of the Registrable
Securities; provided however, that any waiver or amendment that adversely
affects any Holder in a different manner than other Holders shall require the
consent of such Holder. For purposes of this provision, differences in
investments or ownership among Holders shall not be considered as a basis for
determining whether a waiver or amendment results in adversely affecting a
Holder in a different manner. Any amendment or waiver effected in accordance
with this Section 6.13 shall be binding upon each such Holder and the
Company. By acceptance of the benefits under this Article 6, the Holders
of the Registrable Securities hereby agree to be bound by the provisions
hereof.


 


ARTICLE 7


 


OTHER
COVENANTS


 


7.1                               Observation Rights. For so long as the Purchasers collectively
continue to own at least 10% of the Preferred Shares originally purchased by
them at the Closing or the shares of Common Stock into which the Preferred
Shares are convertible (the “Threshold Securities”), and provided that a Purchaser
Designee does not at such time serve on the Company’s Board of Directors, the
Company shall allow one representative designated by the Purchasers (the “Purchaser Observer Representative”)
to attend all regularly scheduled meetings of the Company’s Board of Directors
in a nonvoting capacity, and in connection therewith, the Company shall give
such Purchaser Observer Representative copies of all notices, minutes, consents
and other materials, financial or otherwise, which the Company provides to its
Board of Directors; provided, however, that: (a) the Purchaser
Representative shall agree, by written instrument in writing in form and
substance satisfactory to the Company, to hold in confidence and trust and to
act in a fiduciary manner with respect to all information so provided; and (b) the
Company reserves the right to exclude such Purchaser Observer Representative
from access to any material or meeting or portion thereof if the Company
believes that such exclusion is reasonably necessary: (i) to preserve the
attorney-client privilege; (ii) to protect highly confidential
information; or (iii) to prevent the disclosure of trade secrets to a
competitor. Prior to such designation, the Purchaser Observer Representative
must be approved by the Board of Directors, such approval not be unreasonably
withheld or delayed.


 


7.2                             Board of Directors Matters. For so long as the Purchasers collectively
continues to own the Threshold Securities:


 


(a)                                  the Company shall: use its reasonable best
efforts to cause one person designated by the Purchasers to be nominated and
elected to the Company’s Board of Directors at each meeting or pursuant to each
consent of the Company’s shareholders for the election directors (the “Purchaser Designee”),
which designee shall initially be Jerald S. Cobbs; and (ii) if the
Purchaser


 


26

















 


Designee elected to the Company’s Board of Directors
ceases to be a member of the Company’s Board of Directors during such person’s
term as a director due to such person’s resignation, death or removal, the
Company shall use its reasonable best efforts, subject to applicable laws and
regulations, to cause such vacancy to be filled by a replacement designated by
holders of at least 50% of the Preferred Shares or the Common Stock into which
the Preferred Shares are convertible and such designee shall be the Purchaser
Designee for purposes of this Agreement; and


 


(b)                                 as long as the Purchaser Designee remains on
the Company’s Board of Directors pursuant to this Section 7.2, the Company
shall use its commercially reasonable efforts to appoint the Purchaser Designee
to the compensation committee of the Company’s Board of Directors and as chair
of the nominating committee of the Company’s Board of Directors; provided,
however, that the Company shall not be required to make any appointment
to a committee of the Company’s Board of Directors if such appointment could
reasonably be expected to conflict with federal securities laws or any other rules or
regulations then in effect of Nasdaq or any exchange on which the Company’s
shares are listed for trading.


 


7.3                               The Company shall use its commercially
reasonable efforts to maintain the Company’s Articles of Incorporation and
Bylaws to permit the Company to indemnify its directors and officers to the
fullest extent permitted by law (including to seek to amend such Articles of
Incorporation and Bylaws to the extent the law permits greater indemnification
than then permitted by such Articles of Incorporation and Bylaws).


 


ARTICLE 8



DEFINITIONS


 


8.1                               “Affiliate”
or “affiliate” means,
with respect to any Person (as defined below), any other Person controlling,
controlled by or under direct or indirect common control with such Person (for
the purposes of this definition “control,” when used with respect to any specified
Person, shall mean the power to direct the management and policies of such
person, directly or indirectly, whether through ownership of voting securities,
by contract or otherwise; and the terms “controlling” and “controlled” shall
have meanings correlative to the foregoing).


 


8.2                               “Allowable
Grace Period” has the
meaning set out in Section 6.8(p).


 


8.4                               “Articles
of Incorporation” has
the meaning set forth in Section 2.3.


 


8.5                               “Bridge
Loan Agreement” means
the Note and Warrant Purchase Agreement between the Company and the Purchasers
dated as of March 8, 2006.


 


8.6                               “Bridge
Loan” means the loan
made by the Purchasers to the Company pursuant to the Bridge Loan Agreement and
the Bridge Notes.


 


8.7                               “Bridge
Note” means the
convertible promissory notes of the Company issued to the Purchasers pursuant
to the Bridge Loan Agreement.


 


8.10                        “Business
Day” means a day Monday
through Friday on which banks are generally open for business in New York City.


 


8.11                        “Bylaws” has the meaning set forth in Section 2.3.


 


8.13                        “Claims” has the meaning set forth in Section 6.11(a).


 


8.14                        “Closing” has the meaning set forth in Section 1.4.


 


8.15                        “Closing
Date” has the meaning
set forth in Section 1.4.


 


27

















 


8.16                        “Common
Stock” means the common
stock, without par value, of the Company.


 


8.17                        “Company” means Bioject Medical Technologies Inc.


 


8.21                        “Damages
Accrual Period” has the
meaning set forth in Section 6.7.


 


8.22                        “Delay
Payment Rate” means
during the Damages Accrual Period, an amount per month (or portion thereof) per
share of Preferred Stock equal to 1% of the per share Purchase Price of such
Preferred Share.


 


8.23                        “Demand
Registration” has the
meaning set forth in Section 6.2.


 


8.24                        “Disclosure
Schedule” means the
Disclosure Schedules of the Company delivered concurrently herewith and
incorporated herein by reference.


 


8.25                        “Effectiveness
Deadline” has the
meaning set forth in Section 6.1.


 


8.26                        “Exchange
Act” means the
Securities Exchange Act of 1934, as amended.


 


8.27                        “Existing Subsidiary” means Bioject Inc., an Oregon corporation and a wholly-owned Subsidiary
of the Company.


 


8.27                        “FDA” means the US Food and Drug Administration.


 


8.28                        “FDCA” has the meaning set forth in Section 2.34.


 


8.29                        “Filing
Deadline” has the
meaning set forth in Section 6.1.


 


8.30                        “Final
Prospectus” has the
meaning set forth in Section 6.11(a).


 


8.31                        “Financial
Statements” means the
financial statements of the Company included in the SEC Documents.


 


8.32                        “Grace
Period” has the meaning
set forth in Section 6.8 (p).


 


8.33                        “Holders” means any Purchaser and any Person to whom a
Purchaser, in accordance with Section 6.12 hereof, transfers its rights
under Article 6 of this Agreement.


 


8.34                        “Indemnified
Party” has the meaning
set forth in Section 6.11(c).


 


8.35                        “Indemnifying
Party” has the meaning
set forth in Section 6.11(c).


 


8.36                        “Inspectors”
has the meaning set
forth in Section 6.8(i).


 


8.37                        “Intellectual
Property Rights” has the
meaning set forth in Section 2.10.


 


8.38                        “Investment
Company Act” has the
meaning set forth in Section 2.12.


 


8.39                        “Investor
Designee” has the
meaning set forth in Section 7.2(a).


 


8.40                        “Investor
Representative” has the
meaning set forth in Section 5.2(i).


 


8.41                        “Legal
Counsel” has the meaning
set forth in Section 6.5.


 


8.42                        “Life
Science Product” has the
meaning set forth in Section 2.34.


 


28

















 


8.43                        “Material
Adverse Effect” means an
event, change or occurrence that individually, or together with any other
event, change or occurrence, has had or reasonably could be expected to have a
material adverse effect on (a) the business, operations, assets, or
financial condition of the Company and its Subsidiary, taken together as a
whole, or (b) the ability of the Company to perform its obligations
pursuant to the transactions contemplated by this Agreement and the Related
Agreements provided, however, that termination or suspension of development or
licensing agreements or commercial supply agreements to which the Company or
the Existing Subsidiary is a party shall not be deemed a Material Adverse
Effect.


 


8.44                        “Material
Contracts” has the
meaning set forth in Section 2.28(a).


 


8.45                        “Material
Permits” has the meaning
set forth in Section 2.5(c).


 


8.46                        “Nasdaq” means The Nasdaq Capital Market.


 


8.47                        “Offering” means the offer, sale, issuance and purchase
of the Preferred Shares contemplated by this Agreement and the offer, sale,
issuance and purchase of the Bridge Notes and the Warrant Shares contemplated
by the Bridge Loan Agreement, together as a single integrated transaction.


 


8.48                        “Person” means any person, individual, corporation,
limited liability company, partnership, trust or other nongovernmental entity or
any governmental agency, court, authority or other body (whether foreign,
federal, state, local or otherwise).


 


8.53                        “Preferred Conversion Shares” has the meaning set forth in Section 2.24.


 


8.54                        “Preferred
Shares” has the meaning
set forth in Section 1.1 and includes the number of Preferred Shares of Series E
Preferred Stock issuable upon automatic conversion of the Bridge Notes at
Closing.


 


8.55                        “Proxy
Statement” has the
meaning set forth in Section 4.6.


 


8.56                        “Purchasers” mean the Purchasers whose names are set
forth on the signature pages of this Agreement, and their permitted
transferees.


 


8.57                        “Purchase
Price” has the meaning
set forth in Section 1.1.


 


8.58                        “Records” has the meaning set forth in Section 6.8(i).


 


8.59                        The terms “register,”  “registered” and “registration” refer
to the registration effected by preparing and filing a registration statement
in compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.


 


8.60                        “Registrable
Securities” means (i) the
Preferred Conversion Shares, including the Preferred Conversion Shares issued
upon conversion of the Bridge Notes at Closing and (ii) the Warrant
Shares; provided, however, that
shares shall only be treated as Registrable Securities if and only for so long
as they (A) have not been disposed of pursuant to a Registration Statement
declared effective by the SEC, (B) have not been sold in a transaction
exempt from the registration and prospectus delivery requirements of the
Securities Act so that all transfer restrictions and restrictive legends with
respect thereto are removed upon the consummation of such sale or (C) are
held by a Holder or a permitted transferee pursuant to Section 6.12.


 


8.60                        “Registration
Delay” means the
occurrence of any of (i) a Registration Statement covering all of the
Registrable Securities is not filed with the SEC on or before the Filing
Deadline or is not declared effective on or before the Effectiveness Deadline, (ii) a
Registration Statement in connection with a Demand Registration covering all of
the Registrable Securities required to be covered thereby is not filed with the
SEC on or before the deadline described in the last sentence of Section 6.2,
(iii) on any day during the Registration Period (other than during an
Allowable Grace Period), all of the Registrable Securities


 


29

















 


required to be included in such Registration
Statement cannot be sold pursuant to such Registration Statement as a matter of
law or because the Company has failed to perform the applicable time
period required for such performance (including, without limitation, because of
a failure to keep such Registration Statement effective, to disclose such
information as is necessary for sales to be made pursuant to such Registration
Statement, or to register a sufficient number of Preferred Conversion Shares
and Warrant Shares), or (iv) a Grace Period exceeds the length of an
Allowable Grace Period.


 


8.61                        “Registration
Delay Payments” has the
meaning set forth in Section 6.7.


 


8.62                        “Registration
Period” has the meaning
set forth in Section 6.8(a).


 


8.63                        “Registration
Period” has the meaning
set forth in Section 6.4(a).


 


8.64                        “Registration
Statement” means a
registration statement or registration statements of the Company filed under
the Securities Act covering the Registrable Securities.


 


8.65                        “Related
Agreements” has the
meaning set forth in Section 2.2.


 


8.66                        “Required
Approvals” has the
meaning set forth in Section 2.5(b).


 


8.67                        “Required
Shareholder Approval” has
the meaning set forth in Section 2.27.


 


8.68                        “Required
Effectiveness Date” has
the meaning set forth in Section 6.1.


 


8.69                        “Rule 144” means Rule 144 promulgated under the
Securities Act, or any successor rule.


 


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


 


8.71                        “SEC
Documents” has the
meaning set forth in Section 2.6.


 


8.73                        “Securities
Act” means the
Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute.


 


8.76                        “Series E
Convertible Preferred Stock” means the shares of the Company’s Series E Convertible Preferred
Stock, without par value, with the rights and preferences set forth in the
Articles of Amendment attached hereto as Exhibit E.


 


8.78                        “Shareholders’
Meeting” has the meaning
set forth in Section 4.5.


 


8.79                        “Subsidiary”
of any person shall mean
any corporation, partnership, limited liability company, joint venture or other
legal entity of which such Person (either above or through or together with any
other subsidiary) owns, directly or indirectly, more than 50% of the stock or
other equity interests the holders of which are generally entitled to vote for
the election of the board of directors or other governing body of such
corporation or other legal entity.


 


8.81                        “Threshold
Securities” has the
meaning set forth in Section 7.4.


 


8.82                        “Transaction
Approval” has the
meaning set forth in Section 4.5.


 


8.83                        “Transaction
Securities” has the
meaning set forth in Section 2.2.


 


8.84                        “Warrants”
means the warrants to
purchase Common Stock issued to the Purchasers pursuant to the Bridge Loan
Agreement.


 


8.85                        “Warrant
Shares” has the meaning
set forth in Section 2.4.


 


30

















 


ARTICLE 9



MISCELLANEOUS


 


9.1                               Termination. This Agreement may be terminated at
any time with respect to the applicable parties prior to the Closing:


 


(a)                                  By mutual written agreement of the Company
and the holders of at least 50% in aggregate principal amount of the Bridge
Notes held by the Purchasers;


 


(b)                                 By either the Company or by the holders of at
least 50%-in-interest of the aggregate principal amount of Bridge Notes held by
the Purchasers, by written notice to the other parties (provided the
terminating party (or parties) is not then in material breach of any
representation, warranty, covenant or other agreement contained in this
Agreement or the Related Agreements) if the Closing shall not have been
consummated on or before June 30, 2006;


 


(c)                                  By either the Company or the holders of at
least 50% in interest of the aggregate principal amount of Bridge Notes held by
the Purchasers by giving written notice to the other party or parties if any
governmental entity shall have issued an injunction or other ruling prohibiting
the consummation of any of the transactions contemplated by this Agreement and
the Related Agreements and such injunction or other ruling shall not be subject
to appeal or shall have become final and unappealable;


 


(d)                                 By the holders of at least 50%-in-interest of
the aggregate principal amount of the Bridge Notes held by the Purchasers in
the event that the Transaction Approval is not obtained at the Shareholders’
Meeting;


 


(e)                                  By the holders of at least 50%-in-interest of
the aggregate principal amount of the Bridge Notes held by the Purchasers, if
there shall have occurred an event or events constituting a Material Adverse
Effect;


 


(f)                                    By the holders of at least 50%-in-interest of
the aggregate principal amount of the Bridge Notes held by the Purchasers, if
the Company shall have materially breached the terms of this Agreement, the
Bridge Loan Agreement or the Bridge Notes and such breach is not cured within
five (5) Business Days after receiving notice thereof; or


 


(g)                                 By the Company if the holders of at least
50%-in-interest of the aggregate principal amount of the Bridge Notes held by
the Purchasers shall have materially breached the terms of this Agreement, the
Bridge Loan Agreement or the Bridge Notes and such breach is not cured within
five (5) Business Days after receiving notice thereof.


 


9.2                               Effect of Termination. In the event of any termination of this
Agreement pursuant to Section 9.1, all rights and obligations of the
parties hereunder shall terminate without any liability on the part of any
party or its Affiliates in respect thereof; provided, however, that such
termination shall not relieve the Company or any Purchaser of any liability
under the Bridge Notes or for any willful breach of this Agreement.   


 


9.3                               Governing Law; Jurisdiction.
This Agreement will be
governed by and interpreted in accordance with the laws of the State of New
York, without giving effect to principles of conflicts of laws.


 


9.4                               Counterparts; Signatures by
Facsimile. This Agreement may be
executed in two or more counterparts, all of which are considered one and the
same agreement and will become effective when counterparts have been signed by
each party and delivered to the other parties. This Agreement, once executed by
a party, may be delivered to the other parties hereto by facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.


 


31

















 


9.5                               Headings. The headings of this Agreement are for
convenience of reference only, are not part of this Agreement and do not
affect its interpretation.


 


9.6                               Severability. If any provision of this Agreement is invalid
or unenforceable under any applicable statute or rule of law, then such
provision will be deemed modified in order to conform with such statute or
rule of law. Any provision hereof that may prove invalid or
unenforceable under any law will not affect the validity or enforceability of
any other provision hereof.


 


9.7                               Entire Agreement;
Amendments; Waiver. This
Agreement and the Related Agreements (including all schedules and exhibits
hereto and thereto) constitute the entire agreement among the parties hereto
with respect to the subject matter hereof and thereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein or therein. This Agreement and the Related Agreements
supersede all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof and thereof. Except as otherwise provided
herein, no provision of this Agreement may be amended or waived other than
by an instrument in writing signed by the Company and the holders of at least
50%-in-interest of the aggregate amount of Transaction Securities then held by
the Purchasers under this Agreement and the Related Agreements (or, if prior to
the Closing, by the Purchasers holding at least 50% in interest of the
aggregate principal amount of the Bridge Notes), or in the case of a waiver, by
the party against whom enforcement of such waiver is sought. Notwithstanding
the foregoing, any amendment or waiver that adversely affects any Purchaser in
a different manner than other Purchasers shall require the consent of such
Purchaser. For purposes of this provision, differences in investments or
ownership among Purchasers shall not be considered as a basis for determining
whether an amendment or waiver results in adversely affecting a Purchaser in a
different manner. Any amendment effected in accordance with this Section 9.7
shall be binding upon each holder of any Preferred Shares purchased under this
Agreement at the time outstanding (including shares into which such shares are
convertible and for which such shares are exercisable), each future holder of
all such shares, and the Company.


 


9.8                               Notices. All notices required or permitted hereunder
shall be in writing and shall be deemed effectively given: (a) upon
personal delivery to the party to be notified, (b) when sent by confirmed
email, telex or facsimile if sent during normal business hours of the
recipient, if not, then on the next business day, (c) five days after
having been sent by registered or certified mail, return receipt requested,
postage prepaid, or (d) one business day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt. The addresses for such communications are:


 


If to the Company:                                                                     Bioject Medical Technologies Inc.

20245 S.W. 95th Avenue

Tualatin, OR 97062

Facsimile: (503) 692-6783

Attention: Christine Farrell


 


With a copy to:                                                                                     Stoel Rives LLP
900 SW Fifth Avenue, Suite 2600

Portland, OR 97206

Facsimile: (503) 220-2480

Attention: Steven H. Hull


 


If to a Purchaser:  To
the address set forth immediately below such Purchaser’s name on the signature pages hereto.
Each party will provide ten days’ advance written notice to the other parties
of any change in its address,


 


32

















 


With a copy to:                                                                                     Heller Ehrman LLP
Time Square Tower

7 Times Square

New York, NY  10036

Facsimile: (212) 703-8923

Attention: Salvatore J. Vitiello, Esq. 


 


9.9                               Successors and Assigns. This Agreement is binding upon and inures
to the benefit of the parties and their successors and permitted assigns. The
Company will not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers, and no Purchaser may assign
this Agreement or any rights or obligations hereunder without the prior written
consent of the Company, except as permitted in accordance with Section 6.12
hereof.


 


9.10                        Third Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto, their respective permitted successors and assigns and the
Placement Agent, and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.


 


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


 


9.12                        No Strict
Construction. The language used in this Agreement is deemed to be
the language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.


 


9.13                        Equitable Relief. The Company recognizes that, if it fails to
perform or discharge any of its obligations under this Agreement, any
remedy at law may prove to be inadequate relief to the Purchasers. The
Company therefore agrees that the Purchasers are entitled to seek temporary and
permanent injunctive relief in any such case. Each Purchaser also recognizes
that, if it fails to perform or discharge any of its obligations under
this Agreement, any remedy at law may prove to be inadequate relief to the
Company. Each Purchaser therefore agrees that the Company is entitled to seek
temporary and permanent injunctive relief in any such case


 


9.14                        Survival of Representations
and Warranties. Notwithstanding
any investigation made by any party to this Agreement, all representations and
warranties made by the Company and the Purchasers herein shall survive the
execution of this Agreement and the delivery to the Purchasers of the Preferred
Shares and the Warrants. All covenants contained herein shall survive the
execution of this Agreement and the Closing of the transactions contemplated
hereby (except to the extent expressly provided in this Agreement).


 


9.15                        Independent Nature of
Purchasers’ Obligations and Rights. The obligations of each Purchaser under this Agreement are several and
not joint with the obligations of any other Purchaser, and no Purchaser shall
be responsible in any way for the performance of the obligations of any other
Purchaser under this Agreement and the Related Agreements. Nothing contained
herein or therein and no action taken by any Purchaser pursuant hereto or
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,
or are deemed affiliates (as such term is defined under the Exchange Act) with
respect to such obligations or the transactions contemplated by this Agreement
and the Related Agreements. Each Purchaser shall be entitled to independently
protect and enforce its rights, including, without limitation, the rights
arising out of this Agreement and the Related Agreements, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose.


 


33

















 


9.16                        Aggregation of Stock. All shares of Registrable Securities held
or acquired by affiliated Person or Persons under common management or control
shall be aggregated together for the purpose of determining the availability of
any rights under this Agreement.


 


[Signature Page Follows]


 


34

















 


IN WITNESS WHEREOF, the undersigned Purchasers and the Company
have caused this Agreement to be duly executed as of the date first above
written.


 


 


	
   

  	
  BIOJECT MEDICAL TECHNOLOGIES INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ JOHN GANDOLFO

  	
   

  
	
   

  	
  Name:

  	
  John Gandolfo

  
	
   

  	
  Title:

  	
  Chief Financial
  Officer and Vice President,

  Finance

  



 

















 


	
   

  	
  PURCHASER:

  
	
   

  	
   

  
	
   

  	
  LIFE
  SCIENCES OPPORTUNITIES FUND

  II, L.P.,

  
	
   

  	
  a
  Delaware limited partnership

  
	
   

  	
   

  
	
   

  	
  By:

  	
  LOF Partners,
  LLC,

  
	
   

  	
   

  	
  its general
  manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
    /s/ JAMES
  C. GALE

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
  James C. Gale

  	
   

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Managing Partner

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PURCHASER:

  
	
   

  	
   

  
	
   

  	
  LIFE
  SCIENCES OPPORTUNITIES FUND

  II (Institutional), L.P.,

  
	
   

  	
  a
  Delaware limited partnership

  
	
   

  	
   

  
	
   

  	
  By:

  	
  LOF Partners,
  LLC,

  
	
   

  	
   

  	
  its general
  manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
    /s/
  JAMES C. GALE

  	
   

  
	
   

  	
   

  	
   

  	
  Name: James C. Gale

  
	
   

  	
   

  	
   

  	
  Title: Managing Partner

  
								



 

















 


	
   

  	
  PURCHASER:

  
	
   

  	
   

  
	
   

  	
  SANDERS
  OPPORTUNITY FUND, L.P.,

  
	
   

  	
  a
  Delaware limited partnership

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    SOF Management, LLC,

  
	
   

  	
   

  	
    its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
    /s/ BRAD
  D. SANDERS

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Brad D. Sanders

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Director of Fund

  
	
   

  	
   

  	
  Administration

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PURCHASER:

  
	
   

  	
   

  
	
   

  	
  SANDERS
  OPPORTUNITY FUND

  
	
   

  	
  (Institutional),
  L.P.,

  
	
   

  	
  a
  Delaware limited partnership

  
	
   

  	
   

  
	
   

  	
  By:

  	
    SOF Management, LLC,

  
	
   

  	
   

  	
    its general manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
    /s/ BRAD
  D. SANDERS

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Brad D. Sanders

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Director of Fund

  
	
   

  	
   

  	
   

  	
  Administration

  
						



 

















 


EXHIBIT A


 


SCHEDULE OF
PURCHASERS


 


	
  Name of Purchaser

  and State of Residency

  	
   

  	
  Preferred

  Shares

  	
   

  	
  Aggregate

  Purchase

  Price

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 

















 


EXHIBIT B


 


FORM OF
LEGAL OPINION


 

















 


EXHIBIT C

CERTIFICATE OF EXECUTIVE OFFICER


 


The
undersigned,                                        ,
does hereby certify that he has been duly elected and qualified as, and
at this date is, the Chief Executive Officer of Bioject Medical
Technologies Inc. (the “Company”) and that:


 


The representations and
warranties of the Company contained in Article 2 of the Securities
Purchase Agreement dated                         ,
2006 by and among the Company and the Purchasers listed on Exhibit A
thereto (the “Agreement”) were true in all material respects when made and
are true in all material respects on and as of the date hereof.


 


The Company has performed
and complied in all material respects with all agreements, obligations and
conditions contained in the Agreement that are required to be performed or
complied with by it on or before the date hereof.


 


There has been no material
adverse change in the business, affairs, operations, properties, assets or
condition of the Company from that described in the Agreement (and the Disclosure
Schedules attached thereto).


 


IN WITNESS WHEREOF, the
undersigned has executed this certificate
this           day
of                         ,
2006.


 


 


	
   

  	
   

  	
   

  
	
   

  	
  Chief Executive Officer

  



 

















 


EXHIBIT D

CERTIFICATE OF SECRETARY


 


The
undersigned,                          ,
hereby certifies as follows:


 


She is the duly elected, qualified and acting Secretary of
Bioject Medical Technologies Inc., an Oregon corporation (the “Company”).


 


Attached hereto as Exhibit A is a true and
correct copy of the Company’s Amended and Restated Articles of Incorporation
and all amendments, as in effect on the date hereof.


 


Attached hereto as Exhibit B is a true and
correct copy of the Company’s Bylaws as in effect on the date hereof.


 


Attached hereto as Exhibit C is a true and
correct copy of the resolutions of the Company’s Board of Directors adopted by
the Board of Directors of the Company on March      ,
2006, approving, among other things, the performance of the Securities Purchase
Agreement dated as of March  8, 2006 (the “Purchase Agreement”), including
the sale, issuance and delivery of the shares of Series E Preferred Stock
(the “Preferred Shares”) issuable pursuant to the Purchase Agreement, in all
cases subject to required shareholder approvals, to the Purchasers listed on Exhibit A
to the Purchase Agreement, and such resolutions have not been modified or
rescinded since their adoption and remain in full force and effect.


 


Attached hereto as Exhibit D is a true and
correct copy of the proxy statement filed by the Company with the Commission
and delivered to shareholders of the Company in accordance with the
requirements of the Securities and Exchange Commission (the “Commission”) with
respect to the Special Shareholders’ Meeting held
on                                                 ,
2006, to approve the issuance of the shares and other transactions contemplated
by the Purchase Agreement and the related agreements, each of which proposals
was approved by the requisite vote of the shareholders; and such approval has not
been modified or rescinded and remains in full force and effect.


 


IN WITNESS WHEREOF, the
undersigned has executed this Certificate
this           day
of                      ,
2006.


 


	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Secretary

  



 

















 


EXHIBIT E




ARTICLES OF AMENDMENT


 


TO


 


2002 RESTATED ARTICLES OF INCORPORATION
OF


 


BIOJECT MEDICAL TECHNOLOGIES INC.


 


1.                                       The name of the corporation is Bioject
Medical Technologies Inc.


 


2.                                       The 2002 Restated Articles of
Incorporation of the corporation are amended to add a new Section 5 to Article IV
at the end of Article IV to read in its entirety as follows:


 


“Section 5.                                      Additional Preferred Stock. This Section 5 sets forth the
designation, preferences, limitations and relative rights of a series of
Preferred Stock of the corporation as determined by the board of directors of
the corporation pursuant to its authority under Oregon Revised Statutes 60.134
and Section 2 of Article IV of these Articles of Incorporation.


 


5.1                                 Designation and Amount. 


 


(a)                                  Designation. The shares of such series shall be designated as “Series E
Convertible Preferred Stock,” no par value (hereinafter referred to as “Series E
Preferred”), and the number of shares constituting all of the Series E
Preferred shall be 4,000,000 shares. Any shares of Series E Preferred
Stock that are redeemed by the Corporation and retired and any shares of Series E
Preferred Stock that are converted in accordance with Section 5.4 shall be
restored to the status of authorized, unissued, and undesignated shares of the
Corporation’s class of Preferred Stock and shall not be subject to
issuance, and may not thereafter be outstanding, as shares of Series E
Preferred Stock. 


 


(b)                                 Stated Value. Each share of Series E Preferred Stock
shall have a stated value equal to $1.37 (as adjusted for any stock dividends,
combinations, splits, recapitalizations, and the like) (the “Series E
Stated Value”).


 


5.2.                              Dividends. Subject to the rights of any series of
Preferred Stock hereafter authorized, issued or outstanding, and subject to Section 5.3(a) below,
the holders of shares of Series E Preferred stock shall receive cumulative
dividends, pro rata among such holders, prior to
and in preference to any dividend on the Series D Preferred Stock or
Common Stock during any fiscal year, at the per annum rate of 8% of the Series E
Stated Value, compounded annually, during the two years following the initial
issuance of shares of Series E Preferred Stock, and following such two
year period such dividends shall terminate; provided, however, that any such
dividend shall accrue and be payable, subject to Section 5.3(a) hereof,
only in additional shares of Series E Preferred Stock (the “PIK
Dividends”), each share of which shall be valued at the Series E
Stated Value, and such additional shares shall be entitled to all rights and privileges
of the Series E Preferred Stock; provided, further, that such dividends
shall only be paid in connection with (though prior to) a Liquidation under Section 5.3
(or a transaction that shall constitute a Liquidation as provided in Section 5.3(c))
or conversion of the Series E Preferred Stock pursuant to Section 5.4.
Dividends accrued and payable under this Section 5.2 and the value of each
such share received shall be subject to equitable adjustment whenever there
shall occur a stock split, stock dividend, combination, recapitalization,
reclassification or other similar event involving a change in the Series E
Preferred Stock. The holder of each share of Series E Preferred Stock
shall be entitled to receive, pro rata among
such holders and on a pari passu
basis with the holders of Common Stock, as if the Series E Preferred Stock
had been converted into Common Stock pursuant to the provisions of Section 5.4
hereof immediately prior to the record date with respect to such dividend,
when, as, and if declared by the Board of Directors of the Corporation out of
funds legally available for declaration and payment of dividends, cash
dividends at the same rate and in the same amount per share as any and all
dividends declared and paid upon the then outstanding shares of the Common
Stock of the Corporation.


 

















 


The Corporation shall at all
times take all actions as are reasonably necessary to ensure that a sufficient
number of shares of Series E Preferred Stock are authorized and reserved
for issuance to satisfy all stock dividends to be accrued or paid pursuant to
the first paragraph of this Section 5.2.


 


5.3.                              Liquidation Preference. 


 


(a)                                  Preferences. In the event of any voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation (a “Liquidation”), subject
to the rights of any series of Preferred Stock hereafter authorized,
issued, or outstanding, the holders of Series E Preferred Stock then
outstanding shall be entitled to receive, out of the assets of the Corporation
available for distribution to its shareholders (if any), before any payment
shall be made in respect of the Common Stock, the Series D Preferred Stock
or any other series of Preferred Stock or other equity securities of the
Corporation with rights junior to the Series E Preferred Stock with
respect to liquidation preference, and pro rata based on the respective
liquidation preferences with holders of Preferred Stock with a liquidation
preference pari passu with the Series E
Preferred Stock, an amount per share of Series E Preferred Stock equal to
the Series E Stated Value, plus all accrued but unpaid dividends thereon
to the date fixed for distribution, including specifically and without
limitation, the PIK Dividends to the extent not previously issued (the “Series E
Liquidation Preference”). The Corporation may, with the prior written
consent of the holders of a majority of the Series E Preferred Stock then
outstanding, prior to a Liquidation, declare for payment and pay in cash all
dividends with respect to the Series E Preferred Stock that are accrued
and unpaid as of immediately prior to the Liquidation, provided that there are
assets of the Corporation legally available therefor (the “Cash Alternative”).
For the avoidance of doubt and notwithstanding anything in this Section 5.2
or Section 5.3 to the contrary, holders of Series E Preferred Stock
have the right to convert pursuant to the terms of Section 5.4 below all
or any portion of such Series E Preferred Stock (including any shares of Series E
Preferred Stock paid as dividends) into shares of Common Stock prior to any
Liquidation.


 


If upon, liquidation,
dissolution, or winding up of the Corporation, the assets of the Corporation
available for distribution to its shareholders shall be insufficient to pay the
holders of Series E Preferred Stock the full amount to which they shall be
entitled pursuant to this Section 5.3(a), then all the assets so available
for distribution to the Corporation’s shareholders shall be distributed ratably
first to the holders of the Series E Preferred Stock in proportion to the
aggregate amounts that would be payable to such holders if the assets of the
Corporation were sufficient to pay the amount to which they were entitled
pursuant to this Section 5.3(a). 


 


(b)                                 Remaining Assets. Upon completion of the distributions
required by Section 5.3(a) and by Section 4.3(a) with
respect to the Series D Preferred Stock, and subject to any other
distributions that may be required with respect to any other series of
Preferred Stock hereafter authorized, issued, or outstanding, the remaining
assets and funds of the Corporation available for distribution to its
shareholders, if any, shall be distributed among the holders of the holders of
Common Stock.


 


(c)                                  Deemed Liquidation. For purposes of this Section 5.3, a
Liquidation shall be deemed to be occasioned by, or to include, (a) the
acquisition of the Corporation by another person or entity or group of
affiliated persons or entities by means of any transaction or series of
related transactions (including, without limitation, any reorganization,
merger, or consolidation but excluding any merger effected exclusively for the
purpose of changing the domicile of the Corporation) that results in the
transfer of more than 50% of the outstanding voting power of the Corporation
(an “Acquisition”); or (b) a sale, lease, or other transfer of all
or substantially all of the assets of the Corporation (an “Asset Transfer”);
provided, however, that if the outstanding shares of Series E Preferred
Stock (excluding accrued but unpaid dividends) in the aggregate represent more
than 50% of the voting power of the Corporation, a transfer or sale of more
than 50% of the outstanding voting power of the Corporation involving solely a
transfer or sale of Series E Preferred Stock shall not be considered to be
an Acquisition for the purposes of this Section and shall not result in a
deemed Liquidation. The occurrence of an Acquisition or Asset Transfer shall
entitle the holders of Series E Preferred Stock to receive at the closing
in cash, securities, or other property (valued as provided in Section 5.3(d) below)
the respective amounts as specified in Section 5.3(a) in liquidation
and redemption of their Series E Preferred Stock, unless the holders of a
majority of the outstanding shares of Series E Preferred Stock, voting
separately as a class, affirmatively vote that such transaction shall not be
deemed to be a Liquidation.


 

















 


(d)                                 Valuation of Non-Cash Assets. Whenever the distribution provided for in
this Section 5.3 shall be payable in securities or property other than
cash, its value will be determined as follows: 


 


(1)                                   Securities not subject to investment letter
or other similar restrictions on free marketability covered by (2) below:


 


(A)                                 If traded on a securities exchange or through
the Nasdaq Stock Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange or system over the 30-day
period ending three days prior to the closing;


 


(B)                                   If actively traded over-the-counter, the
value shall be deemed to be the average of the closing bid prices over the
30-day period ending three days prior to the closing; and


 


(C)                                 If there is no active public market, the
value shall be the fair market value thereof, as determined in good faith by
the Board of Directors. 


 


(2)                                   The method of valuation of securities subject
to investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a shareholder’s status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (1)(A), (B) or (C) to reflect the
approximate fair market value thereof, as mutually determined by this
Corporation and the holders of not less than a majority of the voting power of
all then outstanding shares of Series E Preferred Stock (excluding accrued
but unpaid dividends). 


 


(e)                                  Liquidation Notice. The Corporation shall give written notice
to each holder of record of Series E Preferred Stock at their respective
addresses as the same shall appear on the stock records of the Corporation of
any proposed transaction described in Section 5.3(c) that would
constitute a Liquidation not later than 20 days prior to the shareholders’
meeting called to approve such transaction or 20 days prior to the closing
of such transaction, whichever is earlier, and shall notify such holders in
writing of the final approval of such transaction. The first of such notices
shall describe the material terms and conditions of the proposed transaction
and the provisions of this Section 5.3, and the Corporation shall
thereafter give such holders prompt notice of any material changes. The
transaction shall in no event take place sooner than 20 days after the
Corporation has given the first written notice provided for herein or sooner
than 10 days after the Corporation has given notice of any material
changes provided for herein; provided, however, that such periods may be
shortened upon the written consent of the holders of not less than a majority
of the then outstanding Series E Preferred Stock (excluding accrued but
unpaid dividends). Prior to the closing of a transaction described in Section 5.3(c) that
would constitute a Liquidation, the Corporation shall issue all PIK Dividends
unless the Cash Alternative is approved pursuant to Section 5.3(a) and
shall either (a) make all cash distributions that the Corporation is
required to make to the holders of Series E Preferred Stock, pursuant to
this Section 5.3(a), (b) set aside sufficient funds from which the
cash distributions to the holders of Series E Preferred Stock, can be
made, or (c) establish an escrow or other similar arrangement with a third
party pursuant to which the proceeds payable to the Corporation from an
Acquisition or Asset Transfer will be used to make the liquidating payments to
the holders of Series E Preferred Stock immediately after the consummation
of such transaction. 


 


5.4.                              Conversion.


 


(a)                                  Right to Convert. Each share of Series E Preferred Stock
shall be convertible, at the option of the holder thereof, at any time and from
time to time after the issuance of such share, into such number of shares of
Common Stock equal to the product obtained by multiplying the Conversion Rate
(as hereinafter defined) then in effect by the number of shares of Series E
Preferred Stock being converted. In connection with any conversion of shares of
Series E Preferred Stock pursuant to this Section 5.4(a), the holder
of the shares being converted may elect to convert all PIK Dividends
accrued (but not issued). The “Conversion Rate” in effect at any time
for conversion of the Series E Preferred Stock shall be the quotient
obtained by dividing (a) the Series E Stated Value by (b) the
Conversion Price. The “Conversion Price” shall initially be $1.37. The
Conversion Price shall be adjusted from time to time in accordance with Section 5.4(f).


 


(b)                                 Exercise of Conversion Right. Each holder of Series E Preferred
Stock desiring to convert any or all of such shares into shares of Common Stock
pursuant to Section 5.4(a) shall surrender the certificate or
certificates representing the shares of Series E Preferred Stock being
converted, duly assigned or endorsed for conversion (or accompanied by duly
executed stock powers relating thereto), at the principal executive


 

















 


office of the Corporation, the offices of the transfer agent for the Series E
Preferred Stock, or such office or offices in the continental United States of
an agent for conversion as may from time to time be designated by notice
to the holders of the Series E Preferred Stock by the Corporation or the
transfer agent for the Series E Preferred Stock, accompanied by written
notice of conversion. Such notice of conversion shall specify (a) the
number of shares of Series E Preferred Stock to be converted, and (b) the
address to which such holder wishes delivery to be made of such new
certificates to be issued upon such conversion. Upon surrender of a certificate
representing a share or shares of Series E Preferred Stock for conversion
pursuant to Section 5.4(a), the Corporation shall, within five (5) business
days of such surrender, issue, and send (with receipt to be acknowledged) to or
upon the written order of such holder, at the address designated by such
holder, a certificate or certificates for the number of validly issued, fully
paid, and non-assessable shares of Common Stock to which such holder shall be
entitled upon conversion and cash with respect to any fractional interest in a
share of Common Stock as provided in Section 5.4(d). In the event that
there shall have been surrendered a certificate or certificates representing
shares of Series E Preferred Stock, only part of which are to be
converted, the Corporation shall issue and deliver to or upon the written order
of such holder a new certificate or certificates representing the number of
shares of Series E Preferred Stock which shall not have been converted. Upon
the occurrence of any automatic conversion of the outstanding Series E
Preferred Stock, the holders of such stock shall surrender the certificates representing
such shares at the principal executive office of Corporation, the offices of
the transfer agent for the Series E Preferred Stock, or such other place
as may be designated by the Corporation. Thereupon, there shall be issued
and delivered to each such holder, promptly at such office and in the name as
shown on such surrendered certificate or certificates, a certificate or
certificates for the number of shares of Common Stock into which such Series E
Preferred Stock was convertible on the date on which such automatic conversion
occurred and cash in respect of any fraction of a share as provided in Section 5.4(d).


 


(c)                                  Effective Date of Conversion. The issuance by the Corporation of shares
of Common Stock pursuant to Section 5.4(a) shall be effective as of
the earlier of (a) the delivery to such holder of the certificates
representing the shares of Common Stock issued upon conversion thereof, or (b) immediately
prior to the close of business on the day of surrender of the certificate or
certificates for the shares of Series E Preferred Stock to be converted,
duly assigned or endorsed for conversion (or accompanied by duly executed stock
powers relating thereto) as provided in these Articles of Amendment. On
and after the effective day of the conversion, the person or persons entitled
to receive the Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock. All
accrued and unpaid dividends on shares of Series E Preferred Stock
surrendered for conversion shall be paid in full as of the effective date of
conversion (other than the PIK Dividends, the treatment of which is provided
for in Section 5.4(a)). If the conversion is in connection with an
underwritten offering of securities registered pursuant to the Securities Act
the conversion may, at the option of any holder tendering Series E
Preferred Stock for conversion, be conditioned upon the closing with the
underwriters of the sale of securities pursuant to such offering, in which
event the person(s) entitled to receive Common Stock upon conversion of such Series E
Preferred Stock shall not be deemed to have converted such Series E
Preferred Stock until immediately prior to the closing of such sale of
securities.


 


(d)                                 No Fractional Shares. The Corporation shall not be obligated to
issue and deliver any fractional share of Common Stock upon any conversion of
shares of Series E Preferred Stock, but in lieu thereof shall pay to the
holder converting such Series E Preferred Stock an amount of cash based on
the fair value of a share of Common Stock as of the time when those entitled to
receive those fractions are determined.


 


(e)                                  Common Stock Available. The Corporation shall at all times reserve
and keep available out of its authorized and unissued Common Stock, solely for
issuance upon the conversion of shares of Series E Preferred Stock as
herein provided, free from any preemptive rights, such number of shares of
Common Stock as shall be issuable upon the conversion of all the shares of Series E
Preferred Stock then outstanding and if at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of Series E Preferred Stock, in
addition to such other remedies as shall be available to the holders of Series E
Preferred Stock, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes, including, without limitation, engaging in reasonable best efforts to
obtain the requisite shareholder approval of any necessary amendment to the
Corporation’s Articles of Incorporation.


 

















 


(f)                                    Anti-dilution Adjustments.


 


(1)                                  Reorganizations, Mergers, Consolidations,
Acquisitions, and Asset Transfers. If, prior to the conversion of all of the Series E Preferred
Stock (including the PIK Dividends), there shall be (i) any merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock of the Corporation
shall be changed into the same or a different number of shares of the same or
another class or classes of stock or securities of the Corporation or
another entity, (ii) any dividend or other distribution of cash, other
assets, or of notes or other indebtedness of the Corporation (in each case
other than the PIK Dividends, regular cash dividends and other than as provided
in Section 5.4(f)(2) below in which the holders of Series E
Preferred Stock are otherwise entitled to share, as provided herein), any other
securities of the Corporation (except Common Stock), or Rights (as hereinafter
defined) to the holders of its Common Stock, or (iii) any Acquisition or
Asset Transfer that does not constitute a Liquidation pursuant to Section 5.3(c) hereof,
then the holders of Series E Preferred Stock shall thereafter have the
right to receive upon conversion of Series E Preferred Stock, upon the
basis and upon the terms and conditions specified herein and in lieu of shares
of Common Stock, immediately theretofore issuable upon conversion, such cash,
stock, securities, Rights, and/or other assets that the holder would have been
entitled to receive in such transaction had the Series E Preferred Stock
been converted immediately prior to such transaction, and in any such case
appropriate provisions shall be made with respect to the rights and interests
of the holders of the Series E Preferred Stock to the end that the
provisions hereof (including, without limitation, provisions for the adjustment
of the Conversion Rate and the number of shares issuable upon conversion of the
Series E Preferred Stock) shall thereafter be applicable, as nearly as may be
practicable in relation to any securities thereafter deliverable upon the
conversion thereof. In case of any distribution of any security (including
rights or warrants to subscribe for any such securities) of the Corporation
(except Common Stock and Rights included in Section 5.4(f)(3) below)
to the holders of its Common Stock where the nature of that security is such
that the adjustment provisions in this Section 5.4(f)(1) would not
properly grant to the holder of Series E Preferred Stock rights intended
to be granted hereby, then in each such case the Conversion Price in effect
thereafter shall be determined by multiplying the Conversion Price in effect
immediately prior thereto by a fraction the numerator of which shall be the
total number of outstanding shares of Common Stock multiplied by the Current
Market Price (as hereinafter defined) on the record date mentioned below, less
the fair market value (as determined in good faith by the Board of Directors)
of the securities distributed by the Corporation and the denominator of which
shall be the total number of outstanding shares of Common Stock multiplied by
the Current Market Price; such adjustment shall become effective as of the
record date for the determination of shareholders entitled to receive such
distribution. The subdivision or combination of shares of Common Stock issuable
upon conversion of shares of Series E Preferred Stock at any time
outstanding into a greater or lesser number of shares of Common Stock shall not
be deemed to be a reclassification of the Common Stock of the Corporation for
the purposes of this Section 5.4(f)(1). 


 


The Corporation shall not
effect any transaction described in this Section 5.4(f)(1) unless (i) it
first gives at least 20 days prior notice of such merger, consolidation,
exchange of shares, recapitalization, reorganization, distribution,
Acquisition, Asset Transfer, or other similar event (during which time the
holders of the Series E Preferred Stock shall be entitled to convert their
Series E Preferred Stock into shares of Common Stock to the extent
permitted hereby), and (ii) the resulting successor or acquiring entity
(if not the Corporation) assumes by written instrument the obligation of the
Corporation under the Articles of Incorporation, including the obligation
of this Section 5.4(f)(1).


 


(2)                                  Adjustment for Stock Splits, Dividends, and
Combinations. If at any time
or from time to time after the date of the first issuance of Series E
Preferred Stock, the Corporation shall subdivide or split-up the outstanding
shares of Common Stock, or shall declare a dividend or other distribution on
its outstanding Common Stock payable in shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock that are not
distributed to the holders of Series E Preferred Stock (“Common Stock
Equivalents”), without payment of any consideration by such holder for the
additional shares of Common Stock or Common Stock Equivalents (including the
additional shares of Common Stock issuable upon conversion or exercise
thereof), the Conversion Price in effect immediately prior to such subdivision
or the declaration of such dividend shall be proportionately decreased so that
the number of shares of Common Stock issuable on conversion of each share of Series E
Preferred Stock shall be increased in proportion to the increase of the


 

















 


aggregate of shares of
Common Stock outstanding and those issuable with respect to such Common Stock
Equivalents with the number of shares issuable with respect to Common Stock
Equivalents determined from time to time, and in case the Corporation shall at
any time combine the outstanding shares of Common Stock, the Conversion Price
in effect immediately prior to such combination shall be proportionately
increased, effective at the close of business on the date of such subdivision,
dividend, or combination, as the case may be. 


 


(3)                                  Issuance of Rights. In case the Corporation shall issue to all
holders of its Common Stock rights, options, or warrants to subscribe for or
purchase, or other securities exchangeable for or convertible into, shares of
Common Stock that are not distributed to holders of Series E Preferred
Stock (any such rights, options, warrants, or other securities, collectively, “Rights”)
(excluding rights to purchase Common Stock pursuant to a Corporation plan for
reinvestment of dividends or interest) at a subscription offering, exercise, or
conversion price per share (as defined below, the “offering price per share”)
which, before deduction of customary discounts and commissions, is lower than
the Current Market Price per share of Common Stock on the record date of such
issuance or grant, whether or not, in the case of Rights, such Rights are
immediately exercisable or convertible, then the Conversion Price shall be
adjusted by multiplying the Conversion Price in effect immediately prior to any
adjustment in connection with such issuance or grant by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding on
the record date of issuance or grant of such Rights plus the number of shares
that the aggregate offering price (as defined below) of the total number of
shares of Common Stock so offered would purchase at the Current Market Price
per share of Common Stock on the record date, and the denominator of which is
the number of shares of Common Stock outstanding plus the aggregate number of
shares of Common Stock issuable upon exercise or conversion of the Rights. Such
adjustments shall be made immediately after the record date for the issuance or
granting of such Rights. For purposes of this clause, the “offering price per
share” of Common Stock shall, in the case of Rights, be determined by dividing
(x) the total amount received or receivable by the Corporation in respect
of the offering, upon exercise or conversion thereof (the “aggregate offering
price”), by (y) the total number of shares of Common Stock covered by such
Rights.


 


(4)                                  Computations. For the purpose of any computation under
this Section 5.4(f), the “Current Market Price” per share of Common Stock
at any date shall mean the average of the closing price of the Common Stock on
all securities exchanges (including the NASDAQ Stock Market) on which it may at
the time be listed, or, if there have been no sales on any such exchange on any
day, or, if on any day such security is not so listed, the average of the
representative bid and asked prices quoted on the NASDAQ Stock Market as of
4:00 p.m., New York time, or if on any day such security is not quoted in
the NASDAQ Stock Market, the average of the highest bid and lowest ask prices
on such day in the domestic over-the-counter market as reported by the OTC
Bulletin Board, Pink Sheets LLC, or any similar successor organization, in each
case for (i) the 10 consecutive trading days commencing 20 trading days
prior to the earlier to occur of (A) the date as of which the Current
Market Price is to be computed or (B) the last full trading day before the
commencement of “ex-dividend” trading in the Common Stock relating to the event
giving rise to the adjustment required by Section 5.4(f), or (ii) if
the Common Stock is not listed on a securities exchange, any other arm’s length
adjustment formula that the Board of Directors may use in good faith. In
the event the Common Stock is not then publicly traded or if for any other
reason the Current Market Price per share cannot be determined pursuant to the
foregoing provisions of this Section 5.4(f)(4), the Current Market Price per
share shall be the fair market value of the Common Stock as reasonably and in
good faith determined by the Board of Directors.


 


(5)                                  Securities. For the purpose of this Section 5.4, the term “shares of Common
Stock” shall mean (i) the class of stock designated as Common Stock,
without par value, of the Corporation on the date of filing these
Articles of Amendment or (ii) any other class of stock resulting
from successive changes or reclassifications of such shares consisting solely
of changes in par value, or from par value to no par value, or from no par
value to par value.


 


(6)                                  Re-Adjustment. If, at any time after any adjustment to the
number of Shares of Common Stock issuable upon conversion of the Series E
Preferred Stock and the Conversion Price shall have been made pursuant to this Section 5.4(f) any
rights, options, warrants, or other securities convertible into or exchangeable
for shares of Common Stock shall have expired, or any thereof shall not have
been exercised, the Conversion Price and the number of shares of Conversion
Stock issuable upon conversion of the


 

















 


Series E Preferred
Stock shall, upon such expiration, be readjusted and shall thereafter be such
as it would have been had it been originally adjusted (or had the original
adjustment not been required, as the case me be) as if (i) the only shares
of Common Stock offered were the shares of Common Stock, if any, actually
issued or sold upon the exercise of such rights, options or warrants and (ii) such
shares of Common Stock, if any, were issued or sold for the consideration
actually received by the Corporation for the issuance, sale or grant of all
such rights, options or warrants whether or not exercised; provided, further
that no such readjustment shall have the effect of increasing the Conversion
Price or decreasing the number of shares of Conversion Stock issuable upon
conversion of the Series E Preferred Stock by an amount (calculated by
adjusting such increase or decrease as appropriate to account for all other
adjustments pursuant to this Section 5.4(f) following the date of the
original adjustment referred to above) in excess of the amount of the
adjustment initially made in respect of the issuance, sale or grant of such
rights, options or warrants.


 


(7)                                  Miscellaneous.


 


(A)                              All calculations under this Section 5.4(f) shall
be made to the nearest cent or to the nearest one hundredth (1/100) of a share,
as the case may be.


 


(B)                                No adjustment in the Conversion Price need be
made if such adjustment would result in a change in such Conversion Price of
less than $0.01. Any adjustment of less than $0.01, which is not made, shall be
carried forward and shall be made at the time of and together with any
subsequent adjustment which, on a cumulative basis, amounts to an adjustment of
$0.01 or more in such Conversion Price.


 


(C)                                In the event of any taking by the Corporation
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend) or other distribution, any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any
other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Series E Preferred Stock, at least
20 days prior to the date specified therein, a notice specifying the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.


 


(g)                                 Good Faith. The Corporation will not, by amendment of its Articles of
Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, share exchange, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of Section 5.4(f) and in the taking of all such
actions as may be necessary or appropriate in order to protect the
conversion rights of the holders of the Series E Preferred Stock against
impairment.


 


(h)                                 Certificate as to Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to Section 5.4(f), the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to the
holders of Series E Preferred Stock a certificate signed by the Chief
Financial Officer (or an officer holding a similar position) of the Corporation
setting forth (a) such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based and (b) the
number of shares of Common Stock and the amount, if any, of other property
which at the time would be received upon the conversion of his shares. The
Corporation shall, upon the written request at any time of any holder of Series E
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (a) such adjustment and readjustment, (b) the
Conversion Price at the time in effect, and (c) the number of shares of
Common Stock and the amount, if any, of other property that at the time would
be received upon the conversion of such holder’s Series E Preferred Stock.


 


5.5.                              Voting Rights.


 


(a)                                  General Voting Rights. Except as otherwise required by applicable
law or the Articles of Incorporation, each holder of Series E
Preferred Stock shall have the right to one vote for each share of Common Stock
into which Series E Preferred Stock could then be converted (excluding any
PIK Dividends), and with respect to such vote, such holder shall have full
voting rights and powers equal to the voting rights and powers of the holders
of Common Stock, and shall be entitled, notwithstanding any provision hereof,
to notice of any shareholders’ meeting in accordance with the bylaws of the
Corporation,


 

















 


and shall be entitled to
vote, together with the holders of Common Stock, with respect to any question
upon which holders of Common Stock have the right to vote and shall vote as a series where
required by law or as provided below. Fractional voting shall not be permitted
and any fractional voting rights available on an as-converted basis (after
aggregating all shares into which shares of Series E Preferred Stock held
by each holder could be converted) shall be rounded to the nearest whole number
(with one-half being rounded upward). In addition to any rights granted to a
holder of shares of Series E Preferred Stock pursuant to this Section 5,
shares of Series E Preferred Stock shall be entitled to vote as a class or
series, separate and apart from any other series of Preferred Stock
or any holders of shares of Common Stock, on any matter as to which class voting
(or series voting, as applicable) is required under applicable law. Notwithstanding
anything in this Section 5 to the contrary, solely for purposes of
determining the number of shares of Common Stock into which each share of Series E
Preferred Stock could then be converted for purposes of determining voting
rights under this Section 5.5(a), the Conversion Price shall initially be
the greater of (i) $1.37 or (ii) the closing bid price of the Common
Stock on the Nasdaq SmallCap Market on the trading day immediately prior to the
date that the share of Series E Preferred Stock is issued, as such value may be
adjusted pursuant to Section 5.4(f).


 


(b)                                 Protective Provisions. So long as any of the originally issued shares
of Series E Preferred Stock (subject to adjustment for any stock splits,
stock dividends, combinations, recapitalizations, and the like and excluding
PIK Dividends) are outstanding as a single class, and except as otherwise
mandated by applicable law or the terms of the Articles of Incorporation,
this Corporation shall not without first obtaining the approval (by vote or
written consent, as provided by law) of the
holders of not less than a majority of the then outstanding Series E
Preferred Stock, voting as a class:


 


(1)                                take any action (by
reclassification, merger, consolidation, reorganization, or otherwise) that
adversely affects the rights, preferences, and privileges of the holders of the
Series E Preferred Stock;


 


(2)                                  amend, alter, or repeal
any provision of, or add any provision to the Articles of Incorporation
and/or the Articles of Amendment (whether by reclassification, merger,
consolidation, reorganization, or otherwise) or bylaws of the Corporation;


 


(3)                                  declare or pay
dividends on shares of Common Stock or Preferred Stock that is junior to the Series E
Preferred Stock;


 


(4)                                  create any new series or
class of Preferred Stock or other security having a preference or priority
as to dividends or upon liquidation senior to or pari passu
with that of the Series E Preferred Stock (by reclassification, merger,
consolidation, reorganization, or otherwise);


 


(5)                                  reclassify any class or
series of Preferred Stock into shares with a preference or priority as to
dividends or assets superior to or on a parity with that of the Series E
Preferred Stock (by reclassification, merger, consolidation, reorganization, or
otherwise);


 


(6)                                  apply any of its assets
to the redemption or acquisition of shares of Common Stock or Preferred Stock,
except pursuant to any agreement granting the Corporation a right of first
refusal or similar rights, and except in connection with purchases at fair
market value from employees, advisors, officers, directors, consultants, and
service providers of the Corporation upon termination of employment or service;


 


(7)                                  increase or decrease
the number of authorized shares of any series of Preferred Stock or Common
Stock of the Corporation;


 


(8)                                  agree to an Acquisition or Asset Transfer;


 


(9)                                  materially change the nature of the
Corporation’s business; or


 


(10)                            liquidate, dissolve, or windup the affairs of
the Corporation.


 


5.6.                              Miscellaneous.


 


(a)                                  Transfer and Documentary Taxes. The Corporation shall pay any and all stock
transfer and documentary stamp taxes that may be payable in respect of any
issuance or delivery of shares of Series E Preferred Stock or shares of
Common Stock or other securities issued on account of Series E Preferred
Stock pursuant hereto or certificates representing such shares or securities. The
Corporation shall not, however, be required to pay any such tax which may be
payable in respect of any transfer involved in the


 

















 


issuance or delivery of
shares of Series E Preferred Stock or Common Stock or other securities in
a name other than that in which the shares of Series E Preferred Stock
with respect to which such shares or other securities are issued or delivered
were registered, or in respect of any payment to any person with respect to any
such shares or securities other than a payment to the registered holder thereof,
and shall not be required to make any such issuance, delivery or payment
described in this sentence unless and until the person otherwise entitled to
such issuance, delivery or payment has paid to the Corporation the amount of
any such tax or has established, to the satisfaction of the Corporation, that
such tax has been paid or is not payable.


 


(b)                                 Delivery of Certificates. In the event that the holder of shares of Series E
Preferred Stock shall not by written notice designate the address to which the
certificate or certificates representing shares of Common Stock to be issued
upon conversion of such shares should be sent, the Corporation shall be
entitled to send the certificate or certificates representing such shares to
the address of such holder shown on the records of the Corporation or any
transfer agent for the Series E Preferred Stock.


 


(c)                                  Transfer Agents. The Corporation may appoint, and from
time to time discharge and change, a transfer agent of the Series E
Preferred Stock. Upon any such appointment or discharge of a transfer agent,
the Corporation shall send notice thereof by first-class mail, postage
prepaid, to each holder of record of Series E Preferred Stock.


 


(d)                                 Conversion Agents. The Corporation may appoint, and from
time to time may replace, a conversion agent for the Series E
Preferred Stock. Upon any such replacement of the conversion agent, the
Corporation shall send notice thereof by first-class mail, postage
prepaid, to each holder of record of Series E Preferred Stock.


 


(e)                                  Transfer of Stock. The Series E Preferred Stock shall be
transferable by the holders, provided that such transfer is made in compliance
with applicable federal and state securities laws and any applicable agreements
between the Corporation and the holders of Series E Preferred Stock.”


 


The amendment to the
Articles was approved by the Board of Directors of the Corporation on March       ,
2006.