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Exhibit 4.2  


 
 

SECURITIES PURCHASE AGREEMENT    
    


        This Securities Purchase Agreement (this "Agreement") is dated as of July 2, 2003, among Advanced
Magnetics, Inc., a Delaware corporation (the "Company"), and the purchasers identified on the signature pages hereto (each a
"Purchaser" and collectively the "Purchasers"); and 


        WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act (as defined below), and Rule 506 promulgated
thereunder, the Company desires to issue and sell to the Purchasers, and the Purchasers, severally and not jointly, desire to purchase from the Company in the aggregate, up to $10,000,000 worth of
Common Stock and Warrants to purchase Common Stock. 


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


ARTICLE
I.

DEFINITIONS 


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



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


        "Affiliate" means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under
common control with a Person as such terms are used in and construed under Rule 144. With respect to a Purchaser, any investment fund or managed account that is managed on a discretionary basis
by the same investment manager as such Purchaser will be deemed to be an Affiliate of such Purchaser. 


        "Business Day" means any day except Saturday, Sunday and any day which shall be a federal legal holiday or a day on which banking
institutions in the State of New York are authorized or required by law or other governmental action to close. 


        "Closing" means the closing of the purchase and sale of the Common Stock and the Warrants pursuant to Section 2.1(a). 


        "Closing Date" means the date of the Closing. 


        "Closing Price" means on any particular date (a) the last reported closing bid price per share of Common Stock on such date on the
Trading Market (as reported by Bloomberg L.P. at 4:15 PM (New York time) as the last reported closing bid price for regular session trading on such day), or (b) if there is no such price on
such date, then the closing bid price on the Trading Market on the date nearest preceding such date (as reported by Bloomberg L.P. at 4:15 PM (New York time) as the closing bid price for regular
session trading on such day), or (c) if the Common Stock is not then listed or quoted on the Trading Market and if prices for the Common Stock are then reported in the "pink sheets" published
by the National Quotation Bureau Incorporated (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so
reported, or (d) if the shares of Common Stock are not then publicly traded the fair market value of a share of Common Stock as determined by an appraiser selected in good faith by the
Purchasers of a majority in interest of the Shares then outstanding. 


        "Commission" means the Securities and Exchange Commission. 



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        "Common Stock" means the common stock of the Company, $0.01 par value per share, and any securities into which such common stock may
hereafter be reclassified. 


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


        "Company Counsel" means Testa, Hurwitz & Thibeault, LLP. 


        "Disclosure Schedules" means the Disclosure Schedules attached as Annex I hereto. 


        "Effective Date" means the date that the Registration Statement is first declared effective by the Commission. 



        "Exchange Act" means the Securities Exchange Act of 1934, as amended. 


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


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


        "Material Adverse Effect" shall have the meaning ascribed to such term in Section 3.1(b). 



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


        "Per Share Purchase Price" equals $9.55, subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations
and other similar transactions of the Common Stock that occur after the date of this Agreement and before the Closing. 


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


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


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



        "Registration Rights Agreement" means the Registration Rights Agreement, dated as of the date of this Agreement, among the Company and
each Purchaser, in the form of Exhibit A hereto. 


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


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


        "Securities" means the Shares, the Warrants and the Warrant Shares. 


        "Securities Act" means the Securities Act of 1933, as amended. 


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



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        "Subscription Amount" means, as to each Purchaser and the Closing, the amounts set forth below such Purchaser's signature block on the
signature page hereto, in United States dollars and in immediately available funds. 


        "Trading Day" means (i) a day on which the Common Stock is traded on a Trading Market, or (ii) if the Common Stock is not
listed on a Trading Market, a day on which the Common Stock is traded on the over-the-counter market, as reported by the OTC Bulletin Board, or (iii) if the Common Stock
is not quoted on the OTC Bulletin Board, a day on which the Common Stock is quoted in the over-the-counter market as reported by the National Quotation Bureau Incorporated (or
any similar organization or agency succeeding to its functions of
reporting prices); provided, that in the event that the Common Stock is not listed or quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business Day. 


        "Trading Market" means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in
question: the OTC Bulletin Board, the American Stock Exchange, the New York Stock Exchange, the Nasdaq National Market or the Nasdaq SmallCap Market. 


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


        "VWAP" means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is
then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is
then listed or quoted as reported by Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b) if the Common Stock is not then
listed or quoted on the Trading Market and if prices for the Common Stock are then quoted on the OTC Bulletin Board, the volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then listed or quoted on the OTC Bulletin Board and if prices for the Common Stock are then reported in the "Pink
Sheets" published by the National Quotation Bureau Incorporated (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common
Stock so reported; or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers and reasonably
acceptable to the Company. 


        "Warrants" means the Common Stock Purchase Warrants, in the form of Exhibit C,
issuable to the Purchasers at Closing, which warrants shall be exercisable immediately and have an exercise price equal to $15.50 and a term of exercise of 3 years. 



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



ARTICLE
II.

PURCHASE AND SALE 


        2.1    Closing.    At the Closing, the Purchasers shall purchase, severally and not jointly, and the Company shall
issue and sell, in the aggregate, up to $10,000,000 worth of Common Stock and Warrants to purchase additional shares of Common Stock on the Closing Date as set forth below. Each Purchaser shall
purchase from the Company, and the Company shall issue and sell to each Purchaser, a whole number of Shares equal to such Purchaser's Subscription Amount divided by the Per Share Purchase Price.
Notwithstanding anything contained herein to the contrary, in no event shall any Purchaser purchase Shares and have the right to acquire Warrant Shares representing more than twenty percent (20%) of
the issued and outstanding Common Stock on the Closing Date. Upon satisfaction of 


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the
conditions set forth in Section 2.2, the Closing shall occur at the offices of Feldman Weinstein LLP, or such other location as the parties shall mutually agree. 


        2.2    Closing Conditions.    



        (a)   At
the Closing the Company shall deliver or cause to be delivered to each Purchaser (except as otherwise provided below): 



	(i)
	this
Agreement duly executed by the Company;



	(ii)
	instructions
from the Company to the Company's transfer agent authorizing and directing the transfer agent to issue stock certificates for the number of Shares equal to
each Purchaser's Subscription Amount divided by the Per Share Purchase Price (rounded to the nearest whole number), and such certificates shall be delivered to each Purchaser within five
(5) business days of the Closing Date and registered in the name of such Purchaser;



	(iii)
	a
Warrant, registered in the name of such Purchaser, pursuant to which such Purchaser shall have the right to acquire up to the number of shares of Common Stock equal
to 25% of the Shares to be issued to such Purchaser at such Closing;



	(iv)
	the
Registration Rights Agreement duly executed by the Company; and



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




        (b)   At
the Closing each Purchaser shall deliver or cause to be delivered to the Company the following: 



	(i)
	this
Agreement duly executed by such Purchaser;



	(ii)
	such
Purchaser's Subscription Amount as to such Closing by wire transfer to the account of the Company as provided to the Purchasers in writing prior to the Closing
Date; and



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




        (c)   All
representations and warranties of the other party contained herein shall remain true and correct as of the Closing Date. 


        (d)   As
of the Closing Date, there shall have been no Material Adverse Effect with respect to the Company since the date hereof. 


        (e)   From
the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the Commission (except for any suspension of trading of limited
duration agreed to by the Company, which suspension shall be terminated prior to the Closing), and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg
Financial Markets shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor
shall a banking moratorium have been declared either by the United States or New York State authorities. 



ARTICLE
III.

REPRESENTATIONS AND WARRANTIES 


        3.1    Representations and Warranties of the Company.    Except as set forth under the corresponding section of the
Disclosure Schedules delivered concurrently herewith, the Company hereby makes the 


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following
representations and warranties as of the date hereof and as of the Closing Date to each Purchaser: 



        (a)   Subsidiaries.    The Company has no direct or indirect subsidiaries. If the Company has no subsidiaries, any
references to Subsidiary or Subsidiaries in the Transaction Documents shall be disregarded. 



        (b)   Organization and Qualification.    Each of the Company and the Subsidiaries is an entity duly incorporated or
otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite corporate power and authority to
own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation of any of the provisions of its respective certificate
or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign
corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified
or in good standing, as the case may be, would not have or reasonably be expected to result in (i) a material adverse effect on the legality, validity or enforceability of any Transaction
Document, (ii) a material adverse effect on the results of operations, assets, business or financial condition of the Company and the Subsidiaries, taken as a whole, or (iii) a material
adverse effect on the Company's ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a
"Material Adverse Effect"). 



        (c)   Authorization; Enforcement.    The Company has the requisite corporate power and authority to enter into and to
consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations thereunder. The execution and delivery of each of the Transaction Documents by
the Company and the consummation by it of the transactions contemplated thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the
Company in connection therewith. Each Transaction Document has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies, and (iii) with respect to the indemnification provisions set forth in the Registration Rights Agreement, as limited by public policy. 


        (d)   No Conflicts.    The execution, delivery and performance of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated thereby do not and will not (i) conflict with or violate any provision of the Company's or any Subsidiary's certificate or articles
of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any
Subsidiary is bound or affected, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to
which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a 



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Subsidiary
is bound or affected; except in the case of each of clauses (ii) and (iii), such as would not have or reasonably be expected to result in a Material Adverse Effect. 


        (e)   Filings, Consents and Approvals.    The Company is not required to obtain any consent, waiver, authorization or
order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other than (a) the filing with the Commission of the Registration Statement, the application(s) to each Trading Market for
the listing of the Shares and Warrant Shares for trading thereon in the time and manner required thereby, and applicable Blue Sky filings, (b) such as have already been obtained or such
exemptive filings as are required to be made under applicable securities laws, and (c) such other filings as may be required following the Closing Date under the Securities Act, the Exchange
Act and corporate law. 


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


        (g)   Capitalization.    The capitalization of the Company is as described in the Company's most recent periodic
report filed with the Commission. The Company has not issued any capital stock since such filing other than pursuant to the exercise of employee stock options under the Company's stock option plans
(including employee stock purchase plans) and pursuant to the conversion or exercise of Common Stock Equivalents outstanding on the date of the last day of the period covered by such filings. No
Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as a result
of the purchase and sale of the Securities and except for employee stock options under the Company's stock option plans, there are no outstanding options, warrants, script rights to subscribe to,
calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire, any
shares of Common
Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock, or securities or rights
convertible or exchangeable into shares of Common Stock. The issue and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other
than the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under such securities. 


        (h)   SEC Reports; Financial Statements.    The Company has filed all reports required to be filed by it under the
Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) of the Exchange Act, for the two years preceding the date hereof (or such shorter period as the Company was
required by law to file such material) (the foregoing materials, including the exhibits thereto, being collectively referred to herein as the "SEC
Reports" and, together with the Disclosure Schedules to this Agreement, the "Disclosure Materials") on a timely basis or has
received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, as applicable, and none of the SEC Reports,
when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable 



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accounting
requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during the periods involved ("GAAP"), except as may be otherwise specified in such financial statements or the notes thereto and
except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated
subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments. 


        (i)    Material Changes.    Since the date of the latest audited financial statements included within the SEC Reports,
except as disclosed in the SEC Reports, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect,
(ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with
past practice and (B) liabilities not required to be reflected in the Company's financial statements pursuant to GAAP or required to be disclosed in filings made with the Commission,
(iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or
purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate,
except pursuant to existing Company stock option plans (including employee stock purchase plans). The Company does not have pending before the Commission any request for confidential treatment of
information. 


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



        (k)   Labor Relations.    No material labor dispute exists or, to the knowledge of the Company, is imminent with
respect to any of the employees of the Company which could reasonably be expected to result in a Material Adverse Effect. 


        (l)    Compliance.    Except as disclosed in the SEC Reports, neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor
has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to
which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is or has been in violation of any statute, rule or 



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regulation
of any governmental authority, including without limitation all foreign, federal, state and local laws applicable to its business, except in the case of clauses (i), (ii) and
(iii) as would not have or reasonably be expected to result in a Material Adverse Effect. 


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


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


        (o)   Patents and Trademarks.    To the knowledge of the Company and each Subsidiary, the Company and the
Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, licenses and other similar rights that are
necessary or material for use in connection with their respective businesses as described in the SEC Reports and which the failure to so have could have or reasonably be expected to result in a
Material Adverse Effect (collectively, the "Intellectual Property Rights"). Neither the Company nor any Subsidiary has received a written notice that
the Intellectual Property Rights used by the Company or any Subsidiary violates or infringes the rights of any Person. To the knowledge of the Company, all such Intellectual Property Rights are
enforceable. 


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



        (q)   Transactions With Affiliates and Employees.    Except as set forth in the SEC Reports, none of the officers or
directors of the Company and, to the knowledge of the Company, none of the employees of the Company is presently a party to any transaction with the Company or any Subsidiary (other than for services
as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or
from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner, in each case in excess of $60,000 other than (a) for payment of salary or consulting fees for services rendered,
(b) reimbursement for expenses incurred on behalf of the Company and (c) for other employee benefits, including stock option agreements under any stock option plan of the Company. 



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        (r)   Internal Accounting Controls.    The Company and each of its subsidiaries maintains a system of internal
accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions
are recorded as
necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's
general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to
any differences. The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and designed such
disclosure controls and procedures to ensure that material information relating to the Company, including its subsidiaries, is made known to the certifying officers by others within those entities,
particularly during the period in which the Company's Form 10-K or 10-Q, as the case may be, is being prepared. The Company's certifying officers evaluated the
effectiveness of the Company's controls and procedures as of a date within 90 days prior to the filing date of the Form 10-Q for the quarter ended March 31, 2003 (such
date, the "Evaluation Date"). The Company presented in its Form 10-Q for the quarter ended March 31, 2003 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 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. 



        (s)   Certain Fees.    No brokerage or finder's fees or commissions are or will be payable by the Company to any
broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by this Agreement other than Coastline Capital
Partners, an institutional finance division of Western International Securities ("Coastline"). To the knowledge of the Company, the Purchasers shall have no obligation with respect to any fees or with
respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by this Agreement. 



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


        (u)   Investment Company.    The Company is not, and is not an Affiliate of, an "investment company" within the
meaning of the Investment Company Act of 1940, as amended. 


        (v)   Registration Rights.    Except pursuant to the Transaction Documents, no Person has any right to cause the
Company to effect the registration under the Securities Act of any securities of the Company. 


        (w)  Listing and Maintenance Requirements.    The Company has not, in the 12 months preceding the date
hereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance
requirements. 


        (x)   Application of Takeover Protections.    The Company and its Board of Directors have taken all necessary action,
if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar 



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anti-takeover
provision under the Company's Certificate of Incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the
Purchasers as a result of the Purchasers and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation the Company's issuance of
the Securities and the Purchasers' ownership of the Securities. 


        (y)   Disclosure.    The Company confirms that neither the Company nor any other Person acting on its behalf has
provided any of the Purchasers or their agents or counsel with any information that constitutes or might constitute material, non-public information. The Company understands and confirms
that the Purchasers will rely on the foregoing representations and covenants in effecting transactions in securities of the Company. All disclosure provided to the Purchasers regarding the Company,
its business and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, furnished by or on behalf of the Company are true and correct and do not contain any untrue
statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. 


        (z)   No Integrated Offering.    Neither the Company, nor any of its affiliates, nor any Person acting on its or
their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to
be integrated with prior offerings 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 automated quotation system on which any of the securities of the Company are listed or designated. 


        (aa) Solvency.    Based on the financial condition of the Company as of the Closing Date, (i) the Company's
fair saleable value of its assets exceeds the amount that will be required to be paid on or in respect of the Company's existing debts and other liabilities (including known contingent liabilities) as
they mature; (ii) the Company's assets do not constitute unreasonably small capital to carry on its business for the current fiscal year as now conducted and as proposed to be conducted
including its capital needs taking into account the particular capital requirements of the business conducted by the Company, and projected capital requirements and capital availability thereof, and
including the anticipated proceeds of the sale of the Securities; and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all
of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its debt when such amounts are required to be paid. The Company
does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). 



        (bb) Form S-3 Eligibility.    The Company is eligible to register its Common Stock for resale by
the Purchasers using Form S-3 promulgated under the Securities Act. 


        (cc) Acknowledgment Regarding Purchasers' Purchase of Securities.    The Company acknowledges and agrees that each
of the Purchasers is acting solely in the capacity of an arm's length purchaser with respect to the Transaction Documents and the transactions contemplated hereby. 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 this Agreement and the transactions contemplated hereby and any advice given
by any Purchaser or any of their respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to the Purchasers' purchase of the
Securities. The Company further represents to each Purchaser that the Company's decision to enter into this Agreement has been 



10





 




based
solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives. 




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



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


        (b)   Investment Intent.    Such Purchaser understands that the Securities are "restricted securities" and have not
been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account for investment purposes only and not with a view to or
for distributing or reselling such Securities or any part thereof, has no present intention of distributing any of such Securities and has no arrangement or understanding with any other persons
regarding the distribution of such Securities (this representation and warranty not limiting such Purchaser's right to sell the Securities pursuant to the Registration Statement or otherwise in
compliance with applicable federal and state securities laws). Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business. Such Purchaser does not have any agreement
or understanding, directly or indirectly, with any Person to distribute any of the Securities (this representation and warranty not limiting such Purchaser's right to sell the Securities pursuant to
the Registration Statement or otherwise
in compliance with applicable federal and state securities laws). Such Purchaser is not relying upon any information outside of the SEC Reports and the Transaction Documents. 


        (c)   Purchaser Status.    At the time such Purchaser was offered the Securities, it was, and at the date hereof it
is, an "accredited investor" as defined in Rule 501(a) under the Securities Act. Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act. 



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


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




        The
Company acknowledges and agrees that each Purchaser does not make or has not made any representations or warranties with respect to the transactions contemplated hereby other than
those specifically set forth in this Section 3.2. Each Purchaser acknowledges and agrees, solely as to itself, 


11





 

that
it has not relied on any representations or warranties of Coastline with respect to information about the Company. 


ARTICLE
IV.

OTHER AGREEMENTS OF THE PARTIES 


        4.1    Transfer Restrictions.    



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



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



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





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



        (c)   Certificates
evidencing the Shares and Warrant Shares shall not contain any legend (including the legend set forth in Section 4.1(b)), (i) while a
registration statement (including the Registration Statement) covering the resale of such security is effective under the Securities Act, or 



12





 

(ii) following
any sale of such Shares or Warrant Shares pursuant to Rule 144, or (iii) if such Shares or Warrant Shares are eligible for sale under Rule 144(k), or
(iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the Staff of the Commission). The
Company shall cause its counsel to issue a legal opinion to the Company's transfer agent promptly after the Effective Date if required by the Company's transfer agent to effect the removal of the
legend hereunder as and when any Purchaser so requests. If all or any portion of a Warrant is exercised at a time when there is an effective registration statement to cover the resale of the Warrant
Shares, such Warrant Shares shall be issued free of all legends. The Company agrees that following the Effective Date or at such time as such legend is no longer required under this
Section 4.1(c), it will, no later than five Trading Days following the delivery by a Purchaser to the Company or the Company's transfer agent of a certificate representing Shares or Warrant
Shares, as the case may be, issued with a restrictive legend, deliver or cause to be delivered to such Purchaser a certificate representing such Securities that is free from all restrictive and other
legends. The Company may not make any notation on its records or give instructions to any transfer agent of the Company that enlarge the restrictions on transfer set forth in this Section. 


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


        (e)   Each
Purchaser severally and not jointly agrees that the removal of the restrictive legend from certificates representing Securities as set forth in this
Section 4.1 is predicated upon the Company's reliance that the Purchaser will sell any Securities pursuant to either the registration requirements of the Securities Act, including any
applicable prospectus delivery requirements, or an exemption therefrom. 




        4.2    Furnishing of Information.    As long as any Purchaser owns Securities, the Company covenants to timely file
(or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act. Upon the
request of any such holder of Securities, the Company shall deliver to such holder a written certification of a duly authorized officer as to whether it has complied with the preceding sentence. As
long as any Purchaser owns Securities, if the Company is not required to file reports pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and make publicly available in
accordance
with Rule 144(c) such information as is required for the Purchasers to sell the Securities under Rule 144. The Company further covenants that it will take such further action as any
holder of Securities may reasonably request, all to the extent required from time to time to enable such Person to sell such Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144. 


        4.3    Integration.    The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in
respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under
the Securities Act of the sale of the Securities to the Purchasers or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market. 


13





 



        4.4    Securities Laws Disclosure; Publicity.    The Company shall, by 8:30 a.m. Eastern time on the Business
Day following the Closing Date, issue a press release or file a Current Report on Form 8-K, in each case reasonably acceptable to each Purchaser disclosing the transactions
contemplated hereby and make such other filings and notices in the manner and time required by the Commission. The Company and each Purchaser shall consult with each other in issuing any press
releases with respect to the transactions contemplated hereby, and neither the Company nor any Purchaser shall issue any such press release or otherwise make any such public statement without the
prior consent of the Company, with respect to any press release of any Purchaser, or without the prior consent of each Purchaser, with respect to any press release of the Company, which consent shall
not unreasonably be withheld, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or
communication. Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any
regulatory agency or Trading Market, without the prior written consent of such Purchaser, except (i) as required by federal securities law in connection with the registration statement
contemplated by the Registration Rights Agreement and (ii) to the extent such disclosure is required by law or Trading Market regulations, in which case the Company shall provide the Purchasers
with prior notice of such disclosure permitted under subclause (i) or (ii). 


        4.5    Shareholders Rights Plan.    No claim will be made or enforced by the Company or any other Person that any
Purchaser is an "Acquiring Person" under any shareholders rights plan or similar plan or arrangement in effect or hereafter adopted by the Company, or that any Purchaser could be deemed to trigger the
provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and the Purchasers. 


        4.6    Non-Public Information.    The Company covenants and agrees that neither it nor any other Person
acting on its behalf will provide any Purchaser or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto
such Purchaser shall have executed a written agreement regarding the
confidentiality and use of such information. The Company understands and confirms that each Purchaser shall be relying on the foregoing representations in effecting transactions in securities of the
Company in accordance with the terms of this Agreement. 


        4.7    Use of Proceeds.    Except as set forth on Schedule 4.7 attached hereto, the Company shall use the net
proceeds from the sale of the Securities hereunder for working capital purposes and not for the satisfaction of any portion of the Company's debt (other than payment of trade payables in the ordinary
course of the Company's business and prior practices), to redeem any Company equity or equity-equivalent securities or to settle any outstanding litigation. 



        4.8    Reimbursement.    If any Purchaser becomes involved in any capacity in any Proceeding by or against any Person
who is a stockholder of the Company (except as a result of sales, pledges, margin sales and similar transactions by such Purchaser to or with any current stockholder), solely as a result of such
Purchaser's acquisition of the Securities under this Agreement, the Company will reimburse such Purchaser for its reasonable legal and other expenses (including the cost of any investigation
preparation and travel in connection therewith) incurred in connection therewith, as such expenses are incurred. The reimbursement obligations of the Company under this paragraph shall be in addition
to any liability which the Company may otherwise have, shall extend upon the same terms and conditions to any Affiliates of the Purchasers who are actually named in such action, proceeding or
investigation, and partners, directors, agents, employees and controlling persons (if any), as the case may be, of the Purchasers and any such Affiliate, and shall be binding upon and inure to the
benefit of any successors, assigns, heirs and personal representatives of the Company, the Purchasers and any such Affiliate and any such Person. The Company also agrees that neither the Purchasers
nor any such Affiliates, partners, directors, agents, employees or controlling persons shall have any liability to the Company or 


14





 



any
Person asserting claims on behalf of or in right of the Company solely as a result of acquiring the Securities under this Agreement. 


        4.9    Indemnification of Purchasers.    (a) The Company will indemnify and hold the Purchasers and their
directors, officers, shareholders, partners, employees and agents (each, a "Purchaser Party") harmless from any and all losses, liabilities,
obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys' fees and costs of investigation that any
such Purchaser Party may suffer or incur as a result of or relating to: (a) any misrepresentation, breach or inaccuracy, or any allegation by a third party that, if true, would constitute a
breach or inaccuracy, of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents; or (b) any cause of action,
suit or claim brought or made against such Purchaser Party and arising solely out of or solely resulting from the execution, delivery, performance or enforcement of this Agreement or any of the other
Transaction Documents, other than directly resulting from the gross negligence or willful misconduct of the Purchasers. The Company will reimburse such Purchaser for its reasonable legal and other
expenses (including the cost of any investigation, preparation and travel in connection therewith) incurred in connection therewith, as such expenses are incurred. 



        (b)   If
any Proceeding shall be brought or asserted against any Purchaser Party or other Person entitled to indemnity hereunder (an "Indemnified Party"), such Indemnified
Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof, including the employment of counsel reasonably satisfactory to the Company and
the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Company of its
obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to
appeal or further review) that such failure shall have prejudiced the Company. 


        (c)   An
Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Company has agreed in writing to pay such fees and expenses; (2) the Company shall have failed
promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding
(including any impleaded parties) include both such Indemnified Party and the Company, and such Indemnified Party shall have been advised by counsel that a conflict of interest is likely to exist if
the same counsel were to represent such Indemnified Party and the Company (in which case, if such Indemnified Party notifies the Company in writing that it elects to employ separate counsel at the
expense of the Company, the Company shall not have the right to assume the defense thereof and the reasonable fees and expenses of one separate counsel shall be at the expense of the Company). The
Company shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld. The Company shall not, without the prior
written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release
of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding. 


        (d)   All
reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to
defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten Trading Days of written notice thereof to the Company; provided,
that the Indemnified Party shall promptly reimburse the Company for that portion of such fees and 



15





 




expenses
applicable to such actions for which such Indemnified Party is not entitled to indemnification hereunder, determined based upon the relative faults of the parties. 




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


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


        4.12    Subsequent Equity Sales.    From the date hereof until 90 days after the Effective Date, neither the
Company nor any Subsidiary shall issue additional shares of Common Stock or Common Stock Equivalents. Notwithstanding anything to the contrary herein, this Section 4.12 shall not apply to the
following (a) the granting of options to employees, officers and directors of the Company pursuant to any stock option plan duly adopted by a majority of the non-employee members of
the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose, or (b) the exercise of any security issued
by the Company in connection with the offer and sale of the Company's securities pursuant to this Agreement, or (c) the exercise of or conversion of any convertible securities, options or
warrants issued and outstanding on the date hereof or issued pursuant to clause (a) above, provided such securities have not been amended since the date hereof, or (d) acquisitions. 


ARTICLE
V.

MISCELLANEOUS 


        5.1    Fees and Expenses.    The Company agrees to pay $15,000 to Purchasers for their legal and due diligence fees
and expenses incurred in connection with the investigation and negotiation of the transaction and the preparation and negotiation of the Transaction Documents. Accordingly, in lieu of the foregoing
payments, the Company, on the Closing Date, hereby directs that the Subscription Amount paid by Bonanza Master Fund Ltd. hereunder will be reduced by $15,000, or such lesser amount as is then
outstanding for such fees and expenses. The Company and the Purchasers acknowledge that $10,000 of such fees and expenses has already been paid by the Company. Except as otherwise set forth in this
Agreement, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company shall pay all stamp and other taxes and duties levied in connection with the sale of the Securities. 


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


        5.3    Notices.    Any and all notices or other communications or deliveries required or permitted to be provided
hereunder shall be in writing and shall be deemed given and effective on the earliest of 


16





 

(a) the
date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified on the signature pages attached hereto prior to 6:30 p.m. (New
York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number on the signature
pages attached hereto on a day that is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day, (c) the Trading Day following the date of mailing, if sent by
U.S. nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall
be as set forth on the signature pages attached hereto. 



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



        5.5    Construction.    The headings herein are for convenience only, do not constitute a part of this Agreement and
shall not be deemed to limit or affect any of the provisions hereof. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party. 


        5.6    Successors and Assigns.    This Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser. Any Purchaser may assign
any or all of its rights under this Agreement to any Person in connection with a transfer of any Security to such Person, provided such transferee agrees in writing to be bound, with respect to the
transferred Securities, by the provisions hereof that apply to the "Purchasers". 


        5.7    No Third-Party Beneficiaries.    This Agreement is intended for the benefit of the parties hereto and their
respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Sections 4.9 and 4.10. 



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


17





 



waives,
to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated
hereby. If either party shall commence an action or proceeding to enforce any provisions of a Transaction Document, then the prevailing party in such action or proceeding shall be reimbursed by the
other party for its attorneys fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding. 


        5.9    Survival.    The representations, warranties, agreements and covenants contained herein shall survive the
Closing and delivery of the Shares. 


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


        5.11    Severability.    If any provision of this Agreement is held to be invalid or unenforceable in any respect, the
validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and
enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement. 



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



        5.13    Remedies.    In addition to being entitled to exercise all rights provided herein or granted by law, including
recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agree to waive in any action for specific performance of any such obligation
the defense that a remedy at law would be adequate. 


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


        5.15    Independent Nature of Purchasers' Obligations and Rights.    The obligations of each Purchaser under any
Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any Transaction 


18





 



Document,
and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Document. Each Purchaser shall be
entitled to independently protect and enforce its rights, including without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in their review and
negotiation of the Transaction Documents. For reasons of administrative convenience only, Purchasers and their respective counsel have chosen to communicate with the Company through Feldman Weinstein
LLP. Feldman Weinstein LLP does not represent all of the Purchasers in this transaction, but only Bonanza. The Company has elected to provide all Purchasers with the same terms and Transaction
Documents for the convenience of the Company and not because it was required or requested to do so by the Purchasers. 


(Signature Page Follows)


19







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



	ADVANCED MAGNETICS, INC.	 	Address for Notice:
	

By:	

 Name:

Title:	
 	

61 Mooney Street

Cambridge, Massachusetts 02138

Attn:

Tel: (617) 497-2070

Fax:





With
copy to (which shall not constitute notice): 


Attn:

Tel:

Fax: 


[SIGNATURE
PAGE CONTINUES] 


20





 
[PURCHASER'S
SIGNATURE PAGE] 



	BONANZA MASTER FUND LTD.	 	Address for Notice:
	

By:	

 Name:

Title:	
 	

8235 Douglas, Suite 423

Dallas, TX 75205

P: 214.615.7090

F: 214.987.4342

Attn: Brian Ladin





Subscription
Amount: $1,500,000 


With
a copy to:

Feldman Weinstein LLP

Suite 2620

420 Lexington Avenue

New York, New York 10170

Tel: 212-931-8704

Fax: 212-401-4741

Attn: Robert F. Charron 


[SIGNATURE
PAGE CONTINUES] 


21





 
[PURCHASER'S
SIGNATURE PAGE] 



	GROVE STREET CAPITAL ADVISERS, INC.	 	Address for Notice:
	

By:	

 Name:

Title:	
 	

1888 Century Park East

Suite 1500

Los Angeles, CA 90067

F: 310.553.7604





Subscription
Amount: $500,000 


[SIGNATURE
PAGE CONTINUES] 


22





 
[PURCHASER'S
SIGNATURE PAGE] 



	MAINFIELD ENTERPRISES INC.	 	Address for Notice:
	

By:	

 Name:

Title:	
 	

Mainfield Enterprises Inc.

c/o Sage Capital Growth, Inc.

660 Madison Avenue

18th Floor

New York, New York 10021

P: (212) 651-9000

F: (212) 651-9010

Attn: Eldad Gal





Subscription
Amount: $2,000,000 


With
a copy to:

Proskauer Rose LLP

1585 Broadway

New York, New York 10036-8299

Facsimile No.: (212) 969-2900

Telephone No.: (212) 969-3000

Attn: Adam J. Kansler, Esq. 


[SIGNATURE
PAGE CONTINUES] 


23





 
[PURCHASER'S
SIGNATURE PAGE] 



	SMITHFIELD FIDUCIARY LLC	 	Address for Notice:
	

By:	

 Name:

Title:	
 	

Smithfield Fiduciary LLC

c/o Highbridge Capital

Management, LLC

9 West 57th Street, 27th Floor

New York, New York 10019

Attn: Ari J. Storch/Adam J. Chill

P: (212) 287-4720

F: (212) 751-0755





Subscription
Amount: $1,000,000 


[SIGNATURE
PAGE CONTINUES] 


24





 
[PURCHASER'S
SIGNATURE PAGE] 



	VERTICAL VENTURES INVESTMENTS, LLC	 	Address for Notice:
	

By:	

 Name:

Title:	
 	

Vertical Ventures

Investments, LLC

641 Lexington Avenue

26th Floor

New York, New York 10022

Attn: Joshua Silverman/

Ari J. Storch/Adam J. Chill

P: (212) 974-3070

F: (212) 207-3452





Subscription
Amount: $2,000,000 


[SIGNATURE
PAGE CONTINUES] 


25





 
[PURCHASER'S
SIGNATURE PAGE] 



	BAYSTAR CAPITAL II, LP	 	Address for Notice:
	

By:	

 Name:

Title:	
 	

c/o BayStar Capital

Management, LLC

80 E. Sir Francis Drake Blvd.

Suite 2B

Larkspur, California 94939

Attn: Steve Lamar

P: (415) 834-4600

F: (415) 834-4601





Subscription
Amount: $1,000,000 


[SIGNATURE
PAGE CONTINUES] 


26





 
[PURCHASER'S
SIGNATURE PAGE] 



	SDS MERCHANT FUND, LP	 	Address for Notice:
	

By:	

 Name:

Title:	
 	

c/o SDS Capital Partners, LLC

53 Forest Avenue

2nd Floor

Old Greenwich, CT 06870

Attn: Steve Derby

P: (203) 967-5875

F: (203) 967-5851





Subscription
Amount: $1,000,000 


[SIGNATURE
PAGE CONTINUES] 


27





 
[PURCHASER'S
SIGNATURE PAGE] 



	GRYPHON MASTER FUND, L.P.	 	Address for Notice:
	

By:	

 Name:

Title:	
 	

500 Crescent Court

Suite 270

Dallas, TX 75201

New York, New York 10019

Attn: Ari J. Storch/Adam J. Chill

F: (214) 871-6909





Subscription
Amount: $1,000,000 


28









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