Document:

exv10w1

 

Exhibit 10.1

Execution Copy

ADVANCIS PHARMACEUTICAL CORPORATION

PURCHASE AGREEMENT

      THIS PURCHASE AGREEMENT (this “Agreement”) is made as of the 26th day of April, 2005, by
and between ADVANCIS PHARMACEUTICAL CORPORATION, a corporation organized under the laws of the
State of Delaware (the “Company”), with its principal offices at 20425 Seneca Meadows Parkway
Germantown, MD 20876, and the purchaser whose name and address is set forth on the signature page
hereof (the “Purchaser”).

RECITALS

      A. The Company desires to issue and sell shares of the common stock, par value $.01 per share,
of the Company (the “Common Stock”) in a private placement (the “Offering”).

      B. The Purchaser desires, upon the terms and conditions set forth in this Agreement, to
purchase shares of the Company’s Common Stock in the Offering.

      C. The Company and the Purchaser are executing and delivering this Agreement in reliance upon
the exemption from securities regulation afforded by Section 4(2) of the Securities Act (as defined
in Section 3.1) and Rule 506 under Regulation D.

      IN CONSIDERATION of the premises and mutual covenants contained in this Agreement and other
good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the
Company and the Purchaser agree as follows:

      SECTION 1. Authorization of Sale of the Shares and Warrants. Subject to the terms and
conditions of this Agreement, the Company has authorized the sale of: (i) 6,846,735 shares (the
“Shares”) of Common Stock at a purchase price of $3.98 per Share and (ii) warrants to purchase
2,396,357 Shares in the form attached hereto as Exhibit A (the
“Warrants”). The Shares and the
Warrants, including the shares of Common Stock underlying the
Warrants (the “Warrant Shares”) are
referred to as the “Securities” in this Agreement. The Company reserves the right to increase or
decrease the aggregate number of Shares of Common Stock and Warrants sold in this private placement
prior to the Closing Date (as defined in Section 3.1).

      SECTION 2. Agreement to Sell and Purchase the Securities. At the Closing (as defined
in Section 3.1), the Company will sell to the Purchaser and the Purchaser will buy from the
Company, upon the terms and conditions hereinafter set forth, the number of Securities set forth on
the signature page hereto. The Company proposes to enter into this same form of purchase agreement
with certain other investors (the “Other Purchasers”) and expects to complete sales of the
Securities to them. The Purchaser and the Other Purchasers are hereinafter sometimes collectively
referred to as the “Purchasers,” and this Agreement and the agreements executed by the Other
Purchasers are hereinafter sometimes collectively referred to as the “Agreements.” Notwithstanding
any contrary provisions of the Agreements, the obligations of each Purchaser are several and not
joint with the obligations of any other Purchaser, and no

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Purchaser shall be responsible in any way for the performance of the obligations of any other
Purchaser. Nothing contained herein, and no action taken by any Purchaser, 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 Agreements. Each
Purchaser shall be entitled to independently protect and enforce its rights, including without
limitation the rights arising out of its Agreement and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such purpose. The term
"Placement Agent” shall mean Lehman Brothers Inc.

      SECTION 3. Delivery of the Securities at the Closing.

      3.1 Actions to be Taken Prior to, and at, the Closing. The completion of the purchase
and sale of the Securities (the “Closing”) shall occur at the offices of DLA Piper Rudnick Gray
Cary US LLP 6225 Smith Avenue, Baltimore, Maryland 21209 as soon as practicable and as agreed by
the parties hereto within three (3) business days following the execution of the Agreements, or on
such later date or at such different location as the parties shall agree in writing, but not prior
to the date that the conditions for Closing set forth in Section 3.2 below have been satisfied or
waived by the appropriate party (the “Closing Date”). The Closing shall occur at a time to be
agreed upon by the Company and the Placement Agent and of which the Purchasers will be notified by
facsimile transmission or otherwise.

      Upon execution of this Agreement, the Company shall authorize its transfer agent (the
"Transfer Agent”) to arrange delivery to the Purchaser of one or more stock certificates and the
Company shall arrange to deliver one or more Warrants registered in the name of the Purchaser, or
in such nominee name(s) as designated by the Purchaser in writing, representing the number of
Shares and Warrants set forth on the signature page hereto and bearing appropriate legends
referring to the fact that the Securities were sold in reliance upon the exemption from
registration under the Securities Act of 1933, as amended (the “Securities Act”) provided by
Section 4(2) thereof and Rule 506 thereunder. At the Closing, the Transfer Agent shall deliver to
the Placement Agent a certificate of the Transfer Agent, in form and substance reasonably
acceptable to the Placement Agent, certifying that it is duly authorized to issue the Shares. The
name(s) in which the stock certificates and Warrants are to be registered are set forth in the
Stock Certificate Questionnaire included in the Questionnaire attached hereto as Appendix I (the
"Questionnaire”).

      3.2 Conditions Precedent to Closing. The Company’s obligation to complete the
purchase and sale of the Securities and deliver stock certificate(s) and Warrants to the Purchaser
at the Closing shall be subject to the following conditions, any one or more of which may be waived
in writing by the Company: (a) receipt by the Company of same-day funds in the full amount of the
purchase price for the Securities being purchased hereunder; (b) completion of the purchases and
sales under the Agreements with Purchasers of Securities having an aggregate purchase price of at
least eight million US dollars ($8,000,000); (c) the accuracy of the representations and warranties
(as if such representations and warranties were made on the Closing Date) made by the Purchasers
and the fulfillment of those undertakings and covenants of the Purchasers required to be fulfilled
prior to the Closing; (d) the Purchaser shall have executed and delivered to the Company the
Registration Statement Questionnaire attached hereto as part

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of the Questionnaire, pursuant to which the Purchaser shall provide information necessary to
confirm such Purchaser’s status as an “accredited investor” as defined in Rule 501 promulgated
under the Securities Act; (e) no proceeding challenging this Agreement or any of the Agreements
with any of the Other Purchasers or the transactions contemplated hereby or thereby or seeking to
prohibit, alter, prevent or materially delay the Closing shall have been instituted or shall be
pending before any court, arbitrator or governmental body, agency or official; and (f) the sale of
Securities shall not be prohibited by any law or governmental order or regulation.

      The Purchaser’s obligation to accept delivery of the stock certificate(s) and Warrants and to
pay for the Securities evidenced thereby shall be subject to the conditions: (x) that the
representations and warranties made by the Company herein are accurate as of the Closing Date; (y)
that the Company has fulfilled all undertakings and covenants set forth herein required to be
fulfilled prior to the Closing; and (z) that the Common Stock shall be quoted on the Nasdaq
National Market System and the Shares and Warrant Shares duly approved for quotation thereon. The
Purchaser’s obligations hereunder are expressly conditioned on the purchase of Securities having an
aggregate purchase price among all Purchasers of at least eight million US dollars ($8,000,000).

      SECTION 4. Representations, Warranties and Covenants of the Company. The Company
hereby represents and warrants to, and covenants with, the Purchaser as follows:

      4.1 Organization and Qualification. The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware and the Company is
qualified to do business as a foreign corporation in each jurisdiction in which qualification is
required, except where failure to so qualify would not reasonably be expected to have a Material
Adverse Effect (as defined in Section 4.22). The Company is not in violation of any of the
provisions of its certificate of incorporation, bylaws or other organizational or charter
documents. The Company has not incorporated and does not own or have any direct or indirect
subsidiaries.

      4.2 Authorized Capital Stock. As of March 31, 2005, (i) the authorized capital stock
of the Company consisted of 225,000,000 shares of Common Stock and 25,000,000 shares of preferred
stock, par value $.01 per share (the “Preferred Stock”) of which 22,847,889 shares of Common Stock
and no shares of Preferred Stock were issued and outstanding; (ii) there were outstanding options
granted pursuant to the Company’s stock option plans to purchase a total of 4,823,248 shares of
Common Stock; (iii) there were available for issuance under the Company’s stock option and purchase
plans a total of 6,348,182 shares of Common Stock; and (iv) there were no outstanding warrants to
purchase shares of Common Stock. The issued and outstanding shares of the Company’s Common Stock
have been duly authorized and validly issued, are fully paid and nonassessable, have been issued in
compliance with all federal and state securities laws and were not issued in violation of or
subject to any preemptive rights or other rights to subscribe for or purchase securities, and
conform in all material respects to the description thereof contained in the Securities Filings (as
hereinafter defined). Except for stock options and other awards granted under the option, award
and purchase plans of the Company described in the Securities Filings or except as otherwise
disclosed in or contemplated by the Securities Filings, the Company does not have outstanding any
options to purchase, or any preemptive rights or other rights to subscribe for or to purchase,

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any securities or obligations convertible into, or any contracts or commitments to issue or
sell, shares of its capital stock or any such options, rights, convertible securities or
obligations. The description of the Company’s stock, stock bonus and other stock plans or
arrangements and the options or other rights granted and exercised thereunder, set forth or
incorporated by reference in the Securities Filings (as defined in Section 4.15) accurately and
fairly presents in all material respects all information pertaining to such plans, arrangements,
options and rights. There are no anti-dilution or price adjustment provisions contained in any
security issued by the Company (or in any agreement providing rights to security holders) and the
issue and sale of the Shares (and Warrants) 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. Except as set forth in the Securities Filings, to the knowledge of the
Company, no person or group of related persons beneficially owns (as determined pursuant to Rule
13d-3 under the Exchange Act), or has the right to acquire, by agreement with or by obligation
binding upon the Company, beneficial ownership of in excess of 5% of the outstanding Common Stock,
ignoring for such purposes any limitation on the number of shares of Common Stock that may be owned
at any single time.

      4.3 Issuance, Sale and Delivery of the Securities. The Shares have been duly
authorized and, when issued, delivered and paid for in the manner set forth in this Agreement, will
be duly authorized, validly issued, fully paid and nonassessable and shall be free and clear of all
encumbrances and restrictions except for restrictions on transfer set forth in this Agreement or
imposed by applicable securities laws. The Warrants have been duly and validly authorized. Upon
the due exercise of the Warrants, the Warrant Shares will be validly issued, fully paid and
non-assessable, free and clear of all encumbrances and restrictions, except for restrictions on
transfer set forth in this Agreement or imposed by applicable securities laws. The Company has
reserved a sufficient number of shares of Common Stock for issuance upon the exercise of the
Warrants, free and clear of all encumbrances and restrictions, except for restrictions on transfer
set forth in this Agreement or imposed by applicable securities laws. In the event that at any
time the then authorized shares of Common Stock are insufficient for the Company to satisfy its
obligations in full under this Agreement, the Company shall promptly take such actions as may be
required to increase the number of authorized shares. No preemptive rights or other rights to
subscribe for or purchase exist with respect to the issuance and sale of the Shares by the Company
pursuant to this Agreement. No stockholder of the Company has any right (which has not been waived
or has not expired by reason of lapse of time following notification of the Company’s intent to
file the registration statement to be filed by it pursuant to Section 7.1 (the “Registration
Statement”)) to require the Company to register the sale of any shares owned by such stockholder
under the Securities Act in the Registration Statement. No further approval or authority of the
stockholders or the Board of Directors of the Company will be required for the issuance and sale of
the Securities to be sold by the Company as contemplated herein.

      4.4 Due Execution, Delivery and Performance of this Agreement. The Company has all
requisite corporate power and authority to enter into this Agreement and perform the transactions
contemplated hereby. This Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary action on the part of the Company and no further consent
or action is required by the Company, its board of directors or its stockholders. This Agreement
has been (or upon delivery will be) duly executed

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and delivered by the Company. The execution, delivery and performance of this Agreement by
the Company and the consummation of the transactions herein contemplated will not violate any
provision of the organizational documents of the Company and will not result in the creation of any
lien, charge, security interest or encumbrance upon any assets of the Company pursuant to the terms
or provisions of, or will not conflict with, result in the breach or violation of, or constitute,
either by itself or upon notice or the passage of time or both, a default under any agreement or
give to others any rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of any agreement, mortgage, deed of trust, lease, franchise,
license, indenture, permit or other instrument to which the Company is a party or by which the
Company or any of its properties may be bound or affected or, to the Company’s knowledge, any
statute or any authorization, judgment, decree, order, rule or regulation of any court or any
regulatory body, administrative agency or other governmental body applicable to the Company or any
of its properties where such conflict, breach, violation or default is reasonably likely to result
in a Material Adverse Effect. No consent, approval, authorization or other order of any court,
regulatory body, administrative agency or other governmental body is required for the execution and
delivery of this Agreement or the consummation of the transactions contemplated by this Agreement,
except for compliance with the Blue Sky laws and federal securities laws applicable to the offering
of the Securities. Upon the execution and delivery of this Agreement by the Company, and assuming
the valid execution hereof by the Purchaser, this Agreement will constitute a valid and binding
obligation of the Company, 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 (regardless of whether such enforceability is considered in
a proceeding in equity or at law) and except as the indemnification agreements of the Company in
Section 7.3 hereof may be legally unenforceable.

      4.5 Accountants. The firm of PricewaterhouseCoopers LLP, which has expressed its
opinion with respect to the financial statements included in the Company’s Annual Report on Form
10-K for the fiscal year ended December 31, 2004 (the “10-K”), has represented that it is an
independent accountant as required by the Securities Act and the rules and regulations promulgated
thereunder (the “Rules and Regulations”).

      4.6 Contracts. The contracts that are material to the Company are in full force and
effect on the date hereof; and neither the Company nor, to the Company’s knowledge, any other party
thereto, is in breach of or default under any of such contracts which breach or default would have
a Material Adverse Effect. All material agreements to which the Company is a party or to which the
property or assets of the Company are subject which are required to be filed pursuant to Item 601
of Regulation S-K are included as part of or specifically identified in the Securities Filings.

      4.7 No Actions. Except as otherwise disclosed in the Securities Filings, (1) there
are no legal or governmental actions, suits, proceedings pending and (2) to the Company’s
knowledge, there are no legal or governmental actions, suits, or proceedings threatened, to which
the Company is or may be a party or subject or of which property of the Company is or may be the
subject, or related to applicable environmental or discrimination matters, or instituted by the
Securities and Exchange Commission (the “Commission”), the National Association of

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Securities Dealers, Inc., any state securities commission or other governmental or regulatory
entity, which actions, suits or proceedings, individually or in the aggregate, would prevent or
might reasonably be expected to prevent or materially and adversely affect the transactions
contemplated by this Agreement or result in a Material Adverse Effect; and, to the Company’s
knowledge, no labor disturbance by the employees of the Company exists or is imminent which is
reasonably expected to have a Material Adverse Effect. Except as disclosed in the Securities
Filings, the Company is not a party to or subject to the provisions of any injunction, decree,
order or material judgment of any court, regulatory body, administrative agency or other
governmental body.

      4.8 Properties. The Company has good and marketable title to all the properties and
assets reflected as owned by it in the financial statements incorporated by reference in the
Securities Filings (the “Proprietary Assets”), subject to no lien, mortgage, pledge, charge or
encumbrance of any kind except (i) those, if any, reflected in such financial statements, or (ii)
those which are not material in amount and do not materially adversely affect the use made of such
property by the Company. The Company holds its leased properties under valid, subsisting and
binding leases, subject to such exceptions as are not materially significant in relation to its
business. To the knowledge of the Company, the Proprietary Assets of the Company constitute all
the Proprietary Assets necessary to enable the Company to conduct their businesses in the manner in
which such businesses have been and are being conducted. Except as set forth in the Securities
Filings, (x) the Company has not licensed any of its Proprietary Assets to any individual, sole
proprietorship, partnership, corporation, limited liability company, business trust, unincorporated
association, joint stock corporation, trust, joint venture or other entity, any university or
similar institution, or any government or any agency or instrumentality or political subdivision
thereof (each a “Person”) on an exclusive, semi-exclusive or royalty-free basis, and (y) the
Company has not entered into any covenant not to compete or contract limiting such entity’s ability
to exploit fully any of such entity’s material Proprietary Assets or to transact business in any
material market or geographical area or with any Person. “Proprietary Assets” shall include, but
shall not be limited to, the Intellectual Property of the Company, as defined in Section 4.10
below.

      4.9 No Material Change. Since December 31, 2004 and except as specifically described
in the Securities Filings: (i) there has been no event, occurrence or development that has had or
that could result in a Material Adverse Effect, (ii) the Company has not incurred any material
liabilities or obligations, indirect, or contingent, or entered into any material oral or written
agreement or other transaction not in the ordinary course of business or which could reasonably be
expected to have a Material Adverse Effect; (iii) the Company has not sustained any material loss
or damage to its physical properties or assets from fire, flood, windstorm, accident or other
calamity not covered by insurance; (iv) the Company has not paid or declared any dividends or other
distributions with respect to its capital stock, the Company has not defaulted in the payment of
principal or interest on any outstanding debt obligations, and the Company has not redeemed or made
any agreements to purchase or redeem any shares of its capital stock; (v) there has not been any
change in the capital stock of the Company other than the sale of the Securities hereunder and
shares or options issued pursuant to employee equity incentive plans or purchase plans approved by
the Company’s Board of Directors and repurchases of shares or options pursuant to repurchase plans
already approved by the Company’s Board of Directors, or any increase in indebtedness material to
the Company and (vi) the Company has not altered its method of accounting or the identity of its auditors, except
as disclosed in its Securities Filings.

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      4.10 Intellectual Property. Except as disclosed in the Securities Filings: (i) the
Company owns or has obtained valid and enforceable licenses or options for the inventions, patent
applications, patents, trademarks (both registered and unregistered), trade names, trademark
applications, copyrights, copyright applications, formulas, preparations, maskworks, maskwork
applications, trade secrets, fictitious business names, service marks, service mark applications,
know how, customer lists, franchise systems, computer software, computer program, designs,
blueprints, engineering drawings, proprietary products, source code, technology, proprietary rights
or other intellectual property rights or intangible assets and all licenses and other rights
required to use or exploit any of the foregoing, currently used in the conduct of the Company’s
business (collectively, the “Intellectual Property”); and (ii) (a) there are no third parties who
have any ownership rights to any Intellectual Property that is owned by, or has been licensed to,
the Company for the products described in the Securities Filings that would preclude the Company
from conducting its business as currently conducted and have a Material Adverse Effect, except for
the ownership rights of the owners of the Intellectual Property licensed or optioned by the
Company; (b) to the Company’s knowledge, there are currently no sales of any products that would
constitute an infringement by third parties of any Intellectual Property owned, licensed or
optioned by the Company, which infringement would have a Material Adverse Effect; (c) there is no
pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by others
challenging the rights of the Company in or to any Intellectual Property owned, licensed or
optioned by the Company, other than claims which would not reasonably be expected to have a
Material Adverse Effect; (d) there is no pending or, to the Company’s knowledge, threatened action,
suit, proceeding or claim by others challenging the validity or scope of any Intellectual Property
owned, licensed or optioned by the Company, other than any such actions, suits, proceedings and
claims that would not reasonably be expected to have a Material Adverse Effect; and (e) there is no
pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by others that
the Company infringes or otherwise violates any patent, trademark, copyright, trade secret or other
proprietary right of others, other than non-material actions, suits, proceedings and claims.

      4.11 Compliance. Except as specifically described in the Securities Filings the
Company has not been advised, nor has reason to believe, that it is not conducting business in
compliance with all applicable laws, rules and regulations of the jurisdictions in which it is
conducting its business, including, without limitation, all applicable local, state and federal
environmental laws and regulations; in each case, except where failure to be in compliance would
not have a Material Adverse Effect.

      4.12 Taxes. The Company has filed all necessary federal, state and foreign income and
franchise tax returns and have paid or accrued all taxes shown as due thereon, and has no knowledge
of a tax deficiency which has been or might be asserted or threatened against it which is
reasonably likely to have a Material Adverse Effect.

      4.13 Investment Company. The Company is not an “investment company” or an “affiliated
person” of, or “promoter” or “principal underwriter” for an investment company, within the meaning
of the Investment Company Act of 1940, as amended.

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      4.14 Offering Materials. Except for the Securities Filings, the Company has not
distributed and will not distribute prior to the Closing Date to the Purchaser any offering
material or material non-public information in connection with the offering and sale of the
Securities. Neither the Company nor any person acting on its behalf has in the past or will
hereafter take any action to sell, offer for sale or solicit offers to buy any securities of the
Company by means of any form of general solicitation or advertising, or which would otherwise
subject the offer, issuance or sale of the Securities contemplated by this Agreement to the
registration requirements of Section 5 of the Securities Act.

      4.15 Securities Filings. (a) The information contained in the following documents,
did not, as of the date of the applicable document, include any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances in which they were made, not misleading, as
of their respective filing dates or, if amended, as so amended (the following documents,
collectively, the “Securities Filings”):

1. The Company’s Annual Report on Form 10-K for the year ended December 31,
2004 filed with the Commission on March 10, 2005;

2. The Company’s Current Reports on Form 8-K, filed with the Commission on February
2, 2005 and April 26, 2005;

3. The Company’s Proxy Statement on Schedule 14A for the 2005 Annual Meeting of
Stockholders filed with the Commission on April 22, 2005; and

4. Any future filings the Company makes with the Commission under Sections 13(a),
13(c), 14, or 15(d) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), until the Closing.

      In addition, as of the date of this Agreement, the Securities Filings, which, to the Company’s
knowledge, the Placement Agent has furnished to the Purchaser, when read together with the
information, qualifications and exceptions contained in this Agreement, does not include any untrue
statement of a material fact or omit to state any material fact necessary to make the statements
therein, in the light of the circumstances in which they were made, not misleading.

      (b) In furtherance and not in limitation of the provisions of Section 4.15(a), the financial
statements of the Company and the related notes contained in or incorporated by reference into the
Securities Filings present fairly in all material respects, in accordance with generally accepted
accounting principles, the financial position of the Company as of the dates indicated, and the
results of their operations, cash flows, and the changes in stockholders’ equity for the periods
therein specified, subject, in the case of unaudited financial statements for interim periods, to
normal year-end audit adjustments and the absence of full footnote disclosure as required by
generally accepted accounting principles. Such financial statements (including the related notes)
have been prepared in all material respects in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods therein specified, subject, in the
case of unaudited financial statements for interim periods, to normal year-end adjustments, and
except as otherwise described therein and except that unaudited financial statements may not
contain all footnotes required by generally accepted accounting principles.

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      4.16 Form D; Notice Filings. No later than fifteen (15) days after the Closing, the
Company shall file a Form D with respect to the Securities as required under Regulation D and shall
provide a copy thereof to the Purchaser promptly after filing. The Company shall also make on a
timely basis such state securities law notice filings as may be required to be made in connection
with the offer and sale of the Securities to the Purchaser.

      4.17 Legal Opinion. Prior to the Closing, DLA Piper Rudnick Gray Cary US LLP, counsel
to the Company, will deliver its legal opinion to the Placement Agent substantially in the form
attached as Exhibit B to this Agreement. Such opinion shall also state that each of the Purchasers
may rely thereon as though it were addressed directly to such Purchaser.

      4.18 Certificate. At the Closing, the Company will deliver to the Purchaser a
certificate executed by the chief executive officer, or the chief financial or accounting officer
of the Company, dated the Closing Date, in form and substance reasonably satisfactory to the
Purchaser, to the effect that the representations and warranties of the Company set forth in this
Section 4 are true and correct as of the Closing Date, and the Company has complied in all material
respects with all the agreements and satisfied all the conditions herein on its part to be
performed or satisfied on or prior to such Closing Date.

      4.19 Reporting Company; Form S-3. The Company is subject to the reporting
requirements of the Exchange Act and has filed all reports required thereby since the date of its
initial public offering. As of their respective dates, all reports filed by the Company complied
as to form 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. The Company satisfies
the registrant requirements for the use of a registration statement on Form S-3 to register the
Shares and Warrant Shares for resale by the Purchaser under the Securities Act. To the Company’s
knowledge, there exist no facts or circumstances (including without limitation any required
approvals or waivers or any circumstances that may delay or prevent the obtaining of accountant’s
consents) that reasonably could be expected to prohibit or delay the preparation and filing of the
registration statement on Form S-3 for the resale of the Shares and Warrant Shares by the Purchaser
contemplated by Section 7 of this Agreement.

      4.20 Quotation on Nasdaq. The Company has not received notice (written or oral) from
the Nasdaq National Market System (“Nasdaq”), any stock exchange, market or trading facility on
which the Common Stock is or has been listed (or on which it has been quoted) to the effect that
the Company is not in compliance with the listing or maintenance requirements of such exchange,
market or trading facility. The Company is in compliance with all such listing and maintenance
requirements. The Company shall use all commercially reasonable efforts to maintain the
designation and quotation, or listing, of the Common Stock on the Nasdaq National Market System or
on another national securities exchange for a minimum of two (2) years following the initial
effective date of the Registration Statement (as hereinafter defined). In the event of any
Suspension (as hereinafter defined) the Company’s obligations under the immediately preceding
sentence shall be extended by the aggregate number of days of all Suspensions.

      4.21 Use of Purchaser Name. Except as may be required by applicable law, the Company
shall not use, directly or indirectly, the Purchaser’s name or the name of any of its

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affiliates in any advertisement, announcement, press release or other similar communication
unless it has received the prior written consent of the Purchaser for the specific use contemplated
or as otherwise required by applicable law or regulation.

      4.22 Material Adverse Effect. As used in this Agreement, the term “Material Adverse
Effect” means (i) a material adverse effect, individually or in the aggregate, upon the assets,
business, financial condition, results of operation, prospects, properties or results of operations
of the Company, (ii) an adverse affect on the legality, validity or enforceability of this
Agreement or the transaction contemplated hereby or (iii) and adverse impairment of the Company’s
ability to perform fully on a timely basis its obligations under this Agreement.

      4.23 No Defaults. Except as specifically disclosed in the Securities Filings, the
Company is not in violation or default (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), nor has the
Company received any notice of a claim that it is in default under or that it is in violation of
any provision of its certificate of incorporation or bylaws, or in breach of or default with
respect to any provision of any agreement, judgment, decree, order, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument to which it is a party or by which it or
any of its properties are bound, except in each case where such breach or default is not reasonably
likely to result in a Material Adverse Effect.

      4.24 Use of Proceeds. The Company will use the proceeds from the sale of the
Securities for general corporate purposes.

      4.25 Price of Common Stock. The Company has not taken any action intended to
stabilize or manipulate the price of the Company’s shares of the Common Stock to facilitate the
sale or resale of the Securities. The Company has not repurchased any of its shares of Common
Stock.

      4.26 Disclosure. Neither the Company nor any Person acting on behalf of the Company,
has provided the Purchasers or their agents or counsel with any information that the Company
believes constitutes material, non-public information, other than the information contained in the
8-K Filing (as defined below). All disclosure materials provided to the Purchaser regarding the
Company, its business and the transactions contemplated hereby, 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 the light of the
circumstances under which they were made, not misleading. No event or circumstance has occurred or
information exists with respect to the Company or its business, properties, prospects, operations
or financial conditions, which, under applicable law, rule or regulation, requires public
disclosure or announcement by the Company but which has not been so publicly announced or
disclosed. The Company acknowledges and agrees that (i) the Purchaser does not make and has not
made (i) any representations or warranties with respect to the transactions contemplated hereby
other than those specifically set forth in Section 5 or (ii) any statement, commitment or
promise to the Company or, to its knowledge, any of its representatives which is or was an
inducement to the Company to enter into this Agreement or otherwise. On or before 9:00 a.m., New
York City Time, on the Closing Date, the Company shall (i) issue a press release in form reasonably
acceptable to counsel for the

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Purchaser describing the transactions contemplated by this Agreement and (ii) file a Current
Report on Form 8-K describing the material terms of the transactions contemplated by this
Agreement, and attaching as an exhibit to such Form 8-K a form of this Agreement (including such
exhibit, the “8-K Filing”). Except for information that may be provided to the Purchaser pursuant
to Section 5(i) of this Agreement, the Company shall not, and shall use commercially reasonable
efforts to cause each of its officers, directors, employees and agents not to, provide Purchaser
with any material nonpublic information regarding the Company without the express written consent
of such Purchaser. The Company understands and confirms that the Purchaser will rely on the
representations and covenants set forth in this Section 4.26 in effecting transactions in
securities of the Company.

      4.27 Off Balance Sheet Arrangements. There is no transaction, arrangement, or other
relationship between the Company and an unconsolidated or other off balance sheet entity that is
required to be disclosed by the Company in its Exchange Act filings and is not so disclosed.

      4.28
Application of Takeover Protection. The Company and its board of directors have taken all necessary action in order to render inapplicable, and have rendered
inapplicable, any control share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar anti- takeover provision under the
Company’s Certificate of Incorporation, the By-laws, the laws of the state of its incorporation or
any rights plan or similar arrangement which is or could become applicable as a result of the
transactions contemplated by this Agreement, including, without limitation, the Company’s issuance
of the Securities and the Purchasers’ ownership of the Shares, the Warrants or the Warrant Shares.

      4.29 Products and Services. There exists no set of facts (i) which could furnish a
basis for the withdrawal, suspension or cancellation of any registration, license, permit or other
governmental approval or consent of any governmental or regulatory agency issued to the Company
with respect to any component of any product being developed by, or that is material to and used
by, the Company or (ii) which could have a Material Adverse Effect on the continued development of
any product candidate of the Company or which could otherwise cause the Company to withdraw,
suspend or cancel development of any such product, it being understood that the Company is not
presently offering any product or service for sale and has never in the past offered any product or
service for sale, and that the Company’s product candidates will require, before they can be
offered for commercial sale, certain governmental or regulatory licenses, permits or approvals
which have not been issued.

      4.30 Insurance Coverage. The Company maintains in full force and effect insurance
coverage that is customary for comparably situated companies for the business being conducted and
properties owned or leased by the Company by insurers of recognized financial responsibility and
the Company reasonably believes such insurance coverage to be adequate against all liabilities,
claims and risks against which it is customary for comparably situated companies to insure. The
Company has no 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.

11

 

      4.31 No Integrated Offering. Neither the Company nor 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 construed under Rule 144 of the Securities Act
(“Affiliates”), nor any Person acting on its or their behalf has, directly or indirectly, made any
offers or sales of any Company security or solicited any offers to buy any security, under
circumstances that would adversely affect reliance by the Company on Section 4(2) for the exemption
from registration for the transactions contemplated hereby, would require registration of the
Securities under the Securities Act or cause the offering of the Shares pursuant to this Agreement
to be integrated with prior offerings by the Company for purposes of any applicable law, regulation
or stockholder approval provisions, including, without limitation, under the rules and regulations
of Nasdaq or any other national securities exchange, market or trading or quotation facility on
which the Company’s Common Stock is then listed or quoted (a “Trading Market”). The Company shall
not, and shall use its best efforts to ensure that its Affiliates do 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.

      4.32 Private Placement. Assuming the accuracy of the representations and
warranties of the investors set forth in Section 5 hereof, the offer and sale of the Securities to
the Purchasers as contemplated hereby is exempt from the registration requirements of the
Securities Act.

      4.33 Questionable Payments. Neither the Company nor, to the Company’s knowledge, any
of its current or former stockholders, directors, officers, employees, agents or other Persons
acting on behalf of the Company, has on behalf of the Company or in connection with its
businesses: (a) used any corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity; (b) made any direct or indirect unlawful
payments to any governmental officials or employees from corporate funds; (c) established or
maintained any unlawful or unrecorded fund of corporate monies or other assets; (d) made any false
or fictitious entries on the books and records of the Company; or (e) made any unlawful bribe,
rebate, payoff, influence payment, kickback or other unlawful payment of any nature.

      4.34 Transactions with Affiliates. Except as disclosed in the SEC Filings, none of
the officers or directors of the Company and, to the Company’s knowledge, none of the employees
of the Company is presently a party to any transaction with the Company (other than as
holders of stock options and/or warrants, and 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
Company’s knowledge, any entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner.

12

 

      4.35 Internal Controls. The Company is in compliance with the provisions of the
Sarbanes-Oxley Act of 2002 and applicable rules and regulations promulgated by the Commission
thereunder currently applicable to the Company. The Company 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 1934 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 is made known to the certifying officers by others
within those entities, particularly during the period in which the Company’s most recently
filed period report under the 1934 Act, as the case may be, is being prepared. 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 periodic report under the 1934
Act (such date, the “Evaluation Date”). The Company presented in its most recently filed
periodic report under the 1934 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 Regulation S-K)
or, to the Company’s knowledge, in other factors that could significantly affect the
Company’s
internal controls. The Company maintains and will continue to maintain a standard system of
accounting established and administered in accordance with GAAP and the applicable requirements
of the 1934 Act.

      4.37 Licenses; Compliances with FDA and other Regulatory Requirements. The Company
hold all authorizations, consents, approvals, franchises, licenses and permits required under
applicable law or regulation for the operation of the business of the Company as presently operated
(the “Governmental Authorizations”) other than any Governmental Authorization as to which the
failure to obtain such authorization would not have, individually or when aggregated with all other
such failures, a Material Adverse Effect. All the Governmental Authorizations have been duly issued
or obtained and are in full force and effect, and the Company are in compliance with the terms of
all the Governmental Authorizations. The Company has not engaged in any activity that could cause
revocation or suspension of any such Governmental Authorizations and the Company has not received
any notice or proceedings relating to the revocation or modification of any of the Government
Authorizations. The Company has no knowledge of any facts which could reasonably be expected to
cause it to believe that the Governmental Authorizations will not be renewed by the appropriate
governmental authorities in the ordinary course. The execution, delivery or performance of this
Agreement will not adversely affect the status of any of the Governmental Authorizations. Without
limiting the generality of the foregoing representations and warranties, the Company represents and
warrants that it is in compliance in with all applicable provisions of the United States Federal
Food, Drug, and Cosmetic Act (the “FDC Act”) and any similar state, local or

13

 

foreign law, except for any failure to be in compliance which would not have, individually or when
aggregated with all other such failures, a Material Adverse Effect.

      4.38 Registration Rights. The Company has not granted or agreed to grant to any
person, other than the other Purchasers (except such as have been waived), any rights (including
“piggy-back” registration rights) to have any securities of the Company registered with the
Commission or any other governmental authority that have not been satisfied.

      SECTION 5. Representations, Warranties and Covenants of the Purchaser.

      (a) The Purchaser represents and warrants to, and covenants with, the Company that: (i) the
Purchaser is knowledgeable, sophisticated and experienced in making, and is qualified to make,
decisions with respect to investments in securities representing an investment decision like that
involved in the purchase of the Securities, including investments in securities issued by the
Company and comparable entities, and has requested, received, reviewed and considered all
information it deems relevant in making an informed decision to purchase the Securities, including
the Securities Filings; (ii) the Purchaser is acquiring the number of Securities set forth on the
signature page hereto for its own account for investment purposes only and with no present
intention or view toward the public sale or distribution thereof, and no arrangement or
understanding exists with any other persons regarding the public sale or distribution of such
Securities (this representation and warranty shall not limit in, any way, the Purchaser’s right to
sell such Securities pursuant to the Registration Statement or in compliance with an exemption from
registration under the Securities Act or, other than with respect to any claims arising out of a
breach of this representation and warranty, the Purchaser’s right to indemnification under Section
7.3) and nothing contained in this representation and warranty shall be deemed a representation or
warranty by the Purchaser to hold the Securities for any period of time; (iii) the Purchaser will
not, directly or indirectly, except (as to each of clauses (A), (B) and (C) below) in compliance
with the Securities Act, the Rules and Regulations and such other securities or Blue Sky laws as
may be applicable, (A) 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 Securities, (B) engage in any
short sale which results in a disposition of any of the Securities by Purchaser, or (C) hedge the
economic risk of the Purchaser’s investment in the Securities; (iv) the Purchaser has completed or
caused to be completed the Questionnaire and the answers thereto are true and correct in all
material respects as of the date hereof and will be true and correct in all material respects as of
the Closing, and the Purchaser will notify the Company as promptly as possible of any material
change in any such information provided in the Questionnaire prior to effectiveness of the
Registration Statement; (v) the Purchaser has, in connection with its decision to purchase the
number of Securities set forth on the signature page hereto, relied solely upon the Securities
Filings and the documents included therein or incorporated by reference and the representations and
warranties of the Company contained herein; (vi) the Purchaser is an “accredited investor” within
the meaning of Rule 501(a) of Regulation D promulgated under the Securities Act; and (vii) the
Purchaser agrees to notify the Company as promptly as possible of any change in any of the
foregoing information until such time as the Purchaser has sold all of its Shares and Warrant
Shares or the Company is no longer required to keep the Registration Statement effective.

14

 

      (b) The Purchaser understands that the Securities are being offered and sold to it in reliance
upon specific exemptions from the registration requirements of Securities Act, the Rules and
Regulations 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 Securities.

      (c) The Purchaser hereby acknowledges that, prior to the time of the 8-K Filing, it is
prohibited from reproducing or distributing this Purchase Agreement, in whole or in part, or
divulging or discussing its contents except to its advisors and representatives for the purpose of
evaluating its investment in the Securities and except for such disclosures as may be required by
law or legal process. The Purchaser shall maintain in confidence the receipt and content of any
notice of a Suspension (as defined in Section 5(i) below). The foregoing agreements shall not
apply to any information that is or becomes publicly available through no fault of the Purchaser,
or that the Purchaser is legally required to disclose; provided, however, that if the Purchaser is
requested or ordered to disclose any such information pursuant to any court or other government
order or any other applicable legal procedure, it shall provide the Company with prompt notice of
any such request or order in time sufficient to enable the Company to seek an appropriate
protective order.

      (d) The Purchaser understands that its investment in the Securities involves a significant
degree of risk and that the market price of the Common Stock has been and continues to be volatile
and that no representation is being made as to the future value of the Common Stock. The Purchaser
has the ability to bear the economic risks of an investment in the Securities. The Purchaser has
been afforded the opportunity to ask questions of the Company regarding such matters and
acknowledges that neither such inquiries nor any other due diligence investigation conducted by the
Purchaser or any of its advisors or representatives modifies, amends or affects the Purchaser’s
right to rely on the Company’s representations and warranties contained in Section 4 above.

      (e) The Purchaser understands that no United States federal or state agency or any other
government or governmental agency has passed upon or made any recommendation or endorsement of the
Securities.

      (f) The Purchaser understands that, until such time as the Registration Statement has been
declared effective with respect to the Shares and Warrant Shares or the Securities may be sold by
non-affiliates of the Company pursuant to Rule 144 under the Securities Act without any restriction
as to the number of securities as of a particular date that can then be immediately sold, the
Shares may bear a restrictive legend in substantially the following form (and a stop-transfer order
may be placed against transfer of the certificates for the Shares, Warrant Shares and Warrants):

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR
UNDER THE SECURITIES LAWS OF ANY OTHER JURISDICTION. THE

15

 

SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT
AND APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN FORM,
SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION
IS NOT REQUIRED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER THE SECURITIES ACT.
NOTWITHSTANDING THE FOREGOING, THESE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT
SECURED BY SUCH SECURITIES.”

      The Company shall cause its counsel to issue a legal opinion to the Company’s transfer agent
on the Effective Date (as defined below). Following a sale under the Registration
Statement on or after the Effective Date or at such earlier time as a legend is no longer required
for certain Securities, the Company will no later than three (3) business days following the
delivery by the Purchaser to the Company’s transfer agent of a legended certificate representing
such Securities, deliver or cause to be delivered to the 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. For so long as the Purchaser owns Securities,
the Company will not effect or publicly announce its intention to effect any exchange,
recapitalization or other transaction that effectively requires or rewards physical delivery of
certificates evidencing the Common Stock.

      (g) The Company acknowledges and agrees that the Purchaser may from time to time pledge or
grant a security interest in some or all of the Securities in connection with a bona fide margin
agreement or other loan or financing arrangement secured by the Securities and, if required under
the terms of such agreement, loan or arrangement, the 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 the pledgee, secured party or pledgor shall be
required in connection therewith. Further, no notice shall be required of such pledge. At the
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) of the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of Selling Stockholders thereunder.

      (h) The Purchaser’s principal executive offices are in the jurisdiction set forth immediately
below the Purchaser’s name on the signature pages hereto.

      (i) The Purchaser hereby covenants with the Company not to make any sale of the Shares or
Warrant Shares under the Registration Statement without effectively causing the prospectus delivery
requirement under the Securities Act to be satisfied, and the Purchaser

16

 

acknowledges and agrees that such Shares and Warrant Shares are not transferable on the books
of the Company unless the certificate submitted to the Transfer Agent evidencing the Shares or
Warrant Shares is accompanied by a separate Purchaser’s Certificate of Subsequent Sale (i) in the
form of Appendix II hereto, (ii) executed by an officer of, or other authorized person designated
by, the Purchaser, and (iii) to the effect that (A) the Shares or Warrant Shares have been sold in
accordance with the Registration Statement, the Securities Act and any applicable state securities
or Blue Sky laws and (B) if applicable, the requirement of delivering a current prospectus has been
satisfied. The Purchaser acknowledges that there may occasionally be times when the Company must
suspend the use of the prospectus forming a part of the Registration Statement (a “Suspension”)
until such time as an amendment to the Registration Statement has been filed by the Company and
declared effective by the Commission, or such time as such prospectus has been supplemented, or
until such time as the Company has filed an appropriate report with the Commission pursuant to the
Exchange Act. The Purchaser hereby covenants that it will not sell any Shares pursuant to said
prospectus during the period commencing at the time at which it receives written notice of the
Suspension of the use of said prospectus and ending at the time the Company gives the Purchaser
written notice that the Purchaser may thereafter effect sales pursuant to said prospectus. The
Purchaser hereby covenants with the Company not to make any sale of the Shares or Warrant Shares
under the Registration Statement without effectively causing the prospectus delivery requirement
under the Securities Act to be satisfied, and the Purchaser acknowledges and agrees that such
Shares and Warrant Shares are not transferable on the books of the Company unless the certificate
submitted to the Transfer Agent evidencing the Shares or Warrant Shares is accompanied by a
separate Purchaser’s Certificate of Subsequent Sale (i) in the form of Appendix II hereto, (ii)
executed by an officer of, or other authorized person designated by, the Purchaser, and (iii) to
the effect that (A) the Shares or Warrant Shares have been sold in accordance with the Registration
Statement, the Securities Act and any applicable state securities or Blue Sky laws and (B) if
applicable, the requirement of delivering a current prospectus has been satisfied. The Purchaser
acknowledges that there may occasionally be times when the Company must suspend the use of the
prospectus forming a part of the Registration Statement (a “Suspension”) until such time as an
amendment to the Registration Statement has been filed by the Company and declared effective by the
Commission, or such time as such prospectus has been supplemented, or until such time as the
Company has filed an appropriate report with the Commission pursuant to the Exchange Act. The
Purchaser hereby covenants that it will not sell any Shares pursuant to said prospectus during the
period commencing at the time at which it receives written notice of the Suspension of the use of
said prospectus and ending at the time the Company gives the Purchaser written notice that the
Purchaser may thereafter effect sales pursuant to said prospectus. The Purchaser shall not be
prohibited from selling Shares or Warrant Shares under the Registration Statement as a result of
(x) a Suspension of not more than forty five (45) days in any period of 12 consecutive months or
(y) if there have been two or more Suspensions in any period of 12 consecutive months unless, in
the good faith judgment of the Company’s Board of Directors following the receipt of written advice
of counsel to the effect that the sale of Shares or Warrant Shares under the Registration Statement
in reliance on this paragraph would be likely to cause a violation of the Securities Act or the
Exchange Act; provided that the Company shall remain liable for any liquidated damages pursuant to
Section 7.7 hereof to the extent applicable.

      (j) The Purchaser further represents and warrants to, and covenants with, the Company that (i)
the Purchaser has full right, power, authority and capacity to enter into this

17

 

Agreement and to consummate the transactions contemplated hereby and has taken all necessary
action to authorize the execution, delivery and performance of this Agreement; (ii) upon the
execution and delivery of this Agreement, this Agreement shall constitute a legal, 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 (regardless of whether such
enforceability is considered in a proceeding in equity or at law) and except as the indemnification
agreements of the Purchaser in Section 7.3 hereof may be legally unenforceable; (iii) the
execution, delivery and performance of this Agreement by the Purchaser and the consummation by the
Purchaser of the transactions contemplated hereby will not (A) conflict with or result in a
violation of any provision of the Purchaser’s certificate of incorporation or other organizational
documents, or (B) violate or conflict with, or result in a breach of any provision of, or
constitute a default under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or other instrument to which the Purchaser is a party, or
(C) result in a violation of any law, rule, regulation, order, judgment or decree applicable to the
Purchaser, except any such violation that would not have a material adverse effect on the ability
of the Purchaser to consummate the transactions contemplated by the Agreement; (iv) the Purchaser
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 in
accordance with the terms hereof, except for such consents, authorizations, orders, filings or
registrations that have already been obtained; (v) the Purchaser has no present intent to “change
or influence control” over the Company, as such term is understood in Rule 13d-1 of the Exchange
Act; (vi) the Purchaser is not a party to any litigation against the Company; and (vii) the
Purchaser understands that nothing in this Agreement or any other materials presented to the
Purchaser in connection with the purchase and sale of the Shares constitutes legal, tax or
investment advice. The Purchaser has consulted its own legal, tax and investment advisors, as it,
in its sole discretion, has deemed necessary or appropriate in connection with the purchase of the
Securities.

      SECTION 6. Survival of Representations and Warranties. Notwithstanding any
investigation made by any party to this Agreement or by the Placement Agent, all representations
and warranties made by the Company and the Purchaser herein shall survive the execution of this
Agreement, the delivery to the Purchaser of the Securities being purchased and the payment
therefore for a period of one year from the Closing Date.

      SECTION 7. Registration of the Shares and Warrant Shares; Compliance with the Securities
Act.

      7.1 Registration Procedures and Expenses. The Company shall:

      (a) Subject to receipt of necessary information in writing from the Purchasers, as soon as
reasonably practicable, but in no event later than fifteen (15) business days following the Closing
Date (the “Filing Date”), prepare and file with the Commission a Registration Statement on Form S-3
relating to the sale of the Shares and the Warrant Shares by the Purchaser and the Other Purchasers
from time to time on the Nasdaq National Market System or the

18

 

facilities of any national securities exchange on which the Common Stock is then traded or in
privately negotiated transactions (the “Registration Statement”). If Form S-3 is not available at
that time, the Company will file a registration statement on such form as is then available to
effect a registration of the Shares and Warrant Shares (together the “Registration Shares”),
subject to the consent of a majority of the Purchasers, which consent shall not be unreasonably
withheld;

      (b) use its reasonable best efforts, subject to receipt of necessary information from the
Purchasers, to cause the Commission to declare the Registration Statement effective within sixty
(60) calendar days after the Closing Date (the “Required Effective Date”). However, so long as the
Company filed the Registration Statement by the Filing Date, if the Registration Statement receives
Commission review, then the Required Effective Date will be the ninetieth (90th) calendar day after
the Closing Date. The Company’s reasonable best efforts will include, but not be limited to,
promptly responding to all comments received from the staff of the Commission, in any event within
ten days. If the Company receives notification from the Commission that the Registration Statement
will receive no action or review from the Commission, then the Company will, subject to its rights
under this Agreement, use its reasonable best efforts to cause the Registration Statement to become
effective within five (5) business days after such Commission notification;

      (c) comply in all material respects with the provisions of the Securities Act and the Exchange
Act with respect to the disposition of all Registrable Securities covered by the Registration
Statement during the applicable period in accordance with the intended methods of disposition by
the Purchasers thereof set forth in the Registration Statement as so amended or in such Prospectus
as so supplemented;

      (d) notify the Purchasers of Registrable Securities to be sold and each Purchaser Counsel as
promptly as reasonably possible, and (if requested by any such Person) confirm such notice in
writing no later than one business day thereafter, of any of the following events: (i) the
Commission notifies the Company whether there will be a “review” of any Registration Statement;
(ii) the Commission comments in writing on any Registration Statement; (iii) any Registration
Statement or any post-effective amendment is declared effective; (iv) the Commission or any other
Federal or state governmental authority requests any amendment or supplement to any Registration
Statement or Prospectus or requests additional information related thereto;

      (e) not less than four business prior to the filing of a Registration Statement or any related
Prospectus or any amendment, or not less than two business days or any supplement thereto
(including any document that would be incorporated or deemed to be incorporated therein by
reference), the Company shall (i) furnish to each Purchaser and a single counsel designated by each
of the Purchasers (the “Purchaser Counsel”, and the Purchasers have initially designated Proskauer
Rose LLP as Purchaser Counsel) copies of all such documents proposed to be filed, which documents
(other than those incorporated or deemed to be incorporated by reference) will be subject to the
review of such each Purchaser and Purchaser Counsel, and (ii) cause its officers and directors,
counsel and independent certified public accountants to respond to all reasonable inquiries of
Purchaser Counsel. The Company shall not file a Registration Statement or any such Prospectus or
any amendments or supplements thereto
to which Purchasers holding a majority of the Registrable Securities shall reasonably object
in writing.

19

 

      (f) use its reasonable best efforts to promptly prepare and file with the Commission such
amendments and supplements to the Registration Statement and the prospectus used in connection
therewith as may be necessary to keep the Registration Statement continuously effective until the
earlier of (i) the date on which the Purchasers may sell all of the Registration Shares then held
by the Purchasers, without registration, pursuant to Rule 144(k) of the Securities Act or (ii) such
time as all Registration Shares acquired by all Purchasers in the Offering have been sold pursuant
to a Registration Statement or Rule 144 of the Securities Act. Thereafter, the Company shall be
entitled to withdraw the Registration Statement and the Purchasers shall have no further right to
offer or sell any of the Registration Shares pursuant to the Registration Statement;

      (g) use its reasonable best efforts to avoid the issuance of or, if issued, obtain the
withdrawal of (i) any order suspending the effectiveness of any Registration Statement, or (ii) any
suspension of the qualification (or exemption from qualification) of any of the Registrable
Securities for sale in any jurisdiction, as soon as possible;

      (h) promptly furnish to the Purchaser with respect to the Registration Shares registered under
the Registration Statement (and to each underwriter, if any, of such Shares) such number of copies
of prospectuses and such other documents as the Purchaser may reasonably request, without charge,
in order to facilitate the public sale or other disposition of all or any of the Registration
Shares by the Purchaser;

      (i) file documents required of the Company for normal Blue Sky clearance in states specified
in writing by the Purchaser and reasonably acceptable to the Company; provided, however, that the
Company shall not be required to (i) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 7.1; (ii) file a general consent to service
of process in any such jurisdiction ; (iii) subject itself in any such jurisdiction to tax upon its
income; (iv) provide any undertakings that cause material expense or unreasonable burden to the
Company; or (v) make any change to its organizational documents, which in each case the Board of
Directors of the Company determines to be contrary to the best interests of the Company and its
stockholders;

      (j) cooperate with the Purchasers to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be delivered to a transferee pursuant to a
Registration Statement, which certificates shall be free, to the extent permitted by this
Agreement, of all restrictive legends, and to enable such Registrable Securities to be in such
denominations and registered in such names as any such Purchasers may request;

      (k) upon the occurrence of any event described in Section 7.1(d), as promptly as
reasonably possible, prepare a supplement or amendment, including a post-effective amendment, to
the Registration Statement or a supplement to the related Prospectus or any document incorporated
or deemed to be incorporated therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus will contain an 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 light of the
circumstances under which they were made, not misleading;

20

 

      (l) (i) In the time and manner required by each Trading Market, prepare and file with such
Trading Market an additional shares listing application covering all of the Registrable Securities;
(ii) take all steps necessary to cause such Registrable Securities to be approved for listing on
each Trading Market as soon as possible thereafter; (iii) provide to the Purchasers evidence of
such listing; and (iv) maintain the listing of such Registrable Securities on each such Trading
Market;

      (m) bear all expenses in connection with the procedures in paragraphs (a) through (l) of this
Section 7.1 and the registration of the Registration Shares pursuant to the Registration Statement,
other than fees and expenses, if any, of counsel or other advisers to the Purchaser or the Other
Purchasers or underwriting discounts, brokerage fees and commissions incurred by the Purchaser or
the Other Purchasers, if any; and

      (n) promptly (and in any event within one business day) notify the Purchaser of the
effectiveness of the Registration Statement (the “Effective Date"), and any post-effective
amendments thereto, as well as of the receipt by the Company of any stop orders of the Commission
with respect to the Registration Statement and the lifting of any such order; and

      (o) comply with all applicable rules and regulations of the Commission and the Trading Market.

      Notwithstanding the foregoing, it shall be a condition precedent to the obligations of the
Company to take any action pursuant to paragraphs (a) through (o) of this Section 7.1, that the
Purchaser shall furnish to the Company such information regarding itself, the Registration Shares
to be sold by the Purchaser, and the intended method of disposition of such Registration Shares as
shall be required to effect the registration of the Registration Shares, all of which information
shall be furnished to the Company in writing specifically for use in the Registration Statement.

      The Company understands that the Purchaser disclaims being an underwriter, but the Purchaser
being deemed an underwriter shall not relieve the Company of any obligations it has hereunder,
provided, however, that if the Company receives notification from the Commission that the Purchaser
is deemed an underwriter, then the period in which the Company is obligated to submit an
acceleration request to the Commission shall be extended to the earlier of (i) the ninetieth (90th)
day after such Commission notification, or (ii) one hundred twenty (120) days after the initial
filing of the Registration Statement with the Commission. Notwithstanding the foregoing, the
parties understand and agree that the Company shall not be obligated to retain an underwriter with
respect to the offer and sale of Shares pursuant to the Registration Statement.

      7.2 Transfer of Shares After Registration. While the Registration Statement is
effective and available for resale, the Purchaser agrees that it will not effect any disposition of
the Registration Shares or its right to purchase the Securities that would constitute a sale within
the meaning of the Securities Act, except as contemplated in the Registration Statement referred

21

 

to in Section 7.1 hereof in the section titled “Plan of Distribution” or pursuant to an
applicable exemption from registration, the availability of which is confirmed in writing by
counsel to the Purchaser (the form, substance and scope of which opinion shall be reasonably
acceptable to the Company) and delivered to the Company, and that it will promptly notify the
Company of any changes in the information set forth in the Registration Statement regarding the
Purchaser or its plan of distribution.

      7.3 Indemnification.

	 	(i)  	For purposes of this Agreement, the term “Purchaser/Affiliate”
shall mean any affiliate of the Purchaser (as defined in Rule 405 under the
Securities Act) and any person who controls the Purchaser or any affiliate of
the Purchaser within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act; and
	 
	 	(ii)  	For purposes of this Section 7.3, the term “Registration
Statement” shall include any final prospectus, exhibit, supplement or amendment
included in or relating to, and any document incorporated by reference in, the
Registration Statement referred to in Section 7.1 hereof.

      (a) The Company, notwithstanding any termination of this Agreement, agrees to indemnify and
hold harmless to the fullest extent permitted by applicable law, the Purchaser and each
Purchaser/Affiliate against any losses, claims, damages, liabilities, settlement costs and
expenses, including reasonable attorney’s fees (“Losses”), as incurred, joint or several, to which
the Purchaser or Purchaser/Affiliate may become subject, under the Securities Act, the Exchange
Act, or any other federal or state statutory law or regulation, or at common law or otherwise
(including in settlement of any litigation, if such settlement is effected with the written consent
of the Company, which consent shall not unreasonably be withheld), insofar as such Losses (or
actions in respect thereof as contemplated below) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the Registration Statement,
including any prospectus, financial statements and schedules, and all other documents filed as a
part thereof, as amended at the time of effectiveness of the Registration Statement, including any
information deemed to be a part thereof as of the time of effectiveness pursuant to paragraph (b)
of Rule 430A, or pursuant to Rule 434, of the Rules and Regulations, or the prospectus, in the form
first filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations, or filed as
part of the Registration Statement at the time of effectiveness if no Rule 424(b) filing is
required (the “Prospectus”), or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state in any of them a material fact required to be stated
therein or necessary to make the statements in the Registration Statement or any amendment or
supplement thereto not misleading or in the Prospectus or any amendment or supplement thereto not
misleading in the light of the circumstances under which they were made, or arise out of or are
based in whole or in part on any breach of the representations and warranties of the Company
contained in this Agreement, or any breach by the Company of its obligations hereunder, and will
reimburse the Purchaser or Purchaser/Affiliate for any legal and other expenses as such expenses
are reasonably incurred by the Purchaser or Purchaser/Affiliate in connection with investigating,
defending, settling, compromising or paying any such Loss; provided, however, that the Company will
not be liable in any such case to the extent, but only to the extent, that any such Loss arises out
of or is based upon (i) an untrue statement or alleged

22

 

untrue statement or omission or alleged omission made in the Registration Statement, the
Prospectus or any amendment or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the Purchaser expressly for use therein, or
(ii) the failure of the Purchaser to comply with the covenants and agreements contained in Section
5(i) or Section 7.2 hereof respecting the sale of the Securities, or (iii) the inaccuracy of any
representations made by the Purchaser herein or (iv) any statement or omission in any Prospectus
that is corrected in any subsequent Prospectus that was delivered to the Purchaser prior to the
pertinent sale or sales by the Purchaser.

      (b) The Purchaser will severally and not jointly with the Other Purchasers, indemnify and hold
harmless the Company, each of its directors, each of its officers who signed the Registration
Statement and each person, if any, who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, against any Losses to which the Company, each of
its directors, each of its officers who signed the Registration Statement or controlling person may
become subject, under the Securities Act, the Exchange Act, or any other federal or state statutory
law or regulation, or at common law or otherwise (including in settlement of any litigation, if
such settlement is effected with the written consent of the Purchaser) insofar as such Losses (or
actions in respect thereof as contemplated below) arise out of or are based upon (i) any failure to
comply with the covenants and agreements contained in Sections 5(i) or 7.2 hereof respecting the
sale of the Securities or (ii) any material breach of any representation made by the Purchaser
herein or (iii) any untrue or alleged untrue statement of any material fact contained in the
Registration Statement, the Prospectus, or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements in the Registration Statement or any amendment
or supplement thereto not misleading or in the Prospectus or any amendment or supplement thereto
not misleading in the light of the circumstances under which they were made, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, the Prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with written information furnished to the
Company by the Purchaser expressly for use therein, and the Purchaser will reimburse the Company,
each of its directors, each of its officers who signed the Registration Statement or controlling
person for any legal and other expense reasonably incurred by the Company, each of its directors,
each of its officers who signed the Registration Statement or controlling person in connection with
investigating, defending, settling, compromising or paying any such Loss arising under this clause
(iii); provided, however, that the obligations of the Purchaser under this Section 7.3 shall not
exceed the net proceeds to such Purchaser from the sale of Registration Shares pursuant to such
Registration Statement.

      (c) Promptly after receipt by an indemnified party under this Section 7.3 of notice of the
threat or commencement of any action, such indemnified party will, if a claim in respect thereof is
to be made against an indemnifying party under this Section 7.3, promptly notify the indemnifying
party in writing thereof; but the omission so to notify the indemnifying party will not relieve it
from any liability which it may have to any indemnified party for contribution or otherwise under
the indemnity agreement contained in this Section 7.3 (except to the extent that such omission
materially and adversely affects the indemnifying person’s ability to defend such action). Subject
to provisions hereinafter stated, in case any such action is

23

 

brought against any indemnified party and such indemnified party seeks or intends to seek
indemnity from an indemnifying party, the indemnifying party will be entitled to participate in,
and, to the extent that it may wish, jointly with all other indemnifying parties similarly
notified, to assume the defense thereof with counsel reasonably satisfactory to such indemnified
party; provided, however, if the defendants in any such action include both the indemnified party
and the indemnifying party, and the indemnifying party and the indemnified party, based upon the
advice of such indemnified party’s counsel, shall have reasonably concluded that there may be a
conflict of interest between the positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to select separate
counsel to assume such legal defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to
such indemnified party of its election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such indemnified party
under this Section 7.3 for any legal or other expenses subsequently incurred by such indemnified
party in connection with the defense thereof unless (i) the indemnified party shall have employed
such counsel in connection with the assumption of legal defenses in accordance with the proviso to
the preceding sentence (it being understood, however, that the indemnifying party shall not be
liable for the expenses of more than one separate counsel, approved by such indemnifying party in
the case of paragraph (a), representing the indemnified parties who are parties to such action
(including indemnified parties under Agreements with Other Purchasers, plus local counsel, if
appropriate) or (ii) the indemnifying party shall not have employed counsel reasonably satisfactory
to the indemnified party to represent the indemnified party within a reasonable time after notice
of commencement of action, in each of which cases the reasonable fees and expenses of counsel shall
be at the expense of the indemnifying party. In no event shall any indemnifying person be liable
in respect of any amounts paid in settlement of any action unless the indemnifying person shall
have approved the terms of such settlement; provided that such consent shall not be unreasonably
withheld. No indemnifying person shall, without the prior written consent of the indemnified
person, effect any settlement of any pending or threatened proceeding in respect of which any
indemnified person is or could have been a party and indemnification could have been sought
hereunder by such indemnified person, unless such settlement includes an unconditional release of
such indemnified person from all liability on claims that are the subject matter of such
proceeding.

      (d) If the indemnification provided for in this Section 7.3 is required by its terms but is
for any reason held to be unavailable to or otherwise insufficient to hold harmless an indemnified
party under paragraphs (a), (b) or (c) of this Section 7.3 in respect to any Losses, then each
applicable indemnifying party shall contribute to the amount paid or payable by such indemnified
party as a result of any Losses (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Purchaser from the placement of the Common Stock
contemplated by this Agreement or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but the relative fault of the Company and the Purchaser in
connection with the statements or omissions or inaccuracies in the representations and warranties
in this Agreement that resulted in such Losses, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand and the

24

 

Purchaser on the other shall be deemed to be in the same proportion as the amount paid by the
Purchaser to the Company pursuant to this Agreement for the Registration Shares purchased by the
Purchaser that were sold pursuant to the Registration Statement bears to the difference (the
"Difference”) between the amount the Purchaser paid for the Registration Shares that were sold
pursuant to the Registration Statement and the amount received by the Purchaser from such sale.
The relative fault of the Company on the one hand and the Purchaser on the other shall be
determined by reference to, among other things, whether the untrue or alleged statement of a
material fact or the omission or alleged omission to state a material fact or the inaccurate or the
alleged inaccurate representation and/or warranty relates to information supplied by the Company or
by the Purchaser and the parties’ relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission. The amount paid or payable by a party as
a result of the Losses referred to above shall be deemed to include, subject to the limitations set
forth in paragraph (c) of this Section 7.3, any legal or other fees or expenses reasonably incurred
by such party in connection with investigating or defending any action or claim. The provisions
set forth in paragraph (c) of this Section 7.3 with respect to the notice of the threat or
commencement of any threat or action shall apply if a claim for contribution is to be made under
this paragraph (d); provided, however, that no additional notice shall be required with respect to
any threat or action for which notice has been given under paragraph (c) for purposes of
indemnification. The Company and the Purchaser agree that it would not be just and equitable if
contribution pursuant to this Section 7.3 were determined solely by pro rata allocation (even if
the Purchaser were treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to in this paragraph.
Notwithstanding the provisions of this Section 7.3, the Purchaser shall not be required to
contribute any amount in excess of the amount by which the Difference exceeds the amount of any
damages which such Purchaser has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The Purchaser’s obligation to
contribute pursuant to this Section 7.3 is several and not joint.

      (e) The Purchaser hereby acknowledges that it is a sophisticated business person who was
represented by counsel during the negotiations regarding the provisions hereof including, without
limitation, the provisions of this Section 7.3, and is fully informed regarding said provisions.
Each of the Company and the Purchaser is advised that federal or state public policy as interpreted
by the courts in certain jurisdictions may be contrary to certain of the provisions of this Section
7.3, and each of the Company and the Purchaser hereby expressly waives and relinquishes any right
or ability to assert such public policy as a defense to a claim under this Section 7.3 and further
agrees not to attempt to assert any such defense.

      7.4 Termination of Conditions and Obligations. The conditions precedent imposed by
Section 5 or this Section 7 upon the transferability of the Securities shall cease and terminate as
to any particular Securities upon the earliest to occur of (i) the sale of the Registration Shares
pursuant to the Registration Statement, (ii) the sale of the Registration Shares pursuant to Rule
144 under the Securities Act or (iii) the passage of two (2) years from the effective date of the
Registration Statement covering such Registration Shares or at such time as a legal opinion of
counsel to the Purchaser (the form, substance and scope of which shall be

25

 

reasonably acceptable to the Company) shall have been delivered to the Company to the effect
that such conditions are not necessary in order to comply with the Securities Act.

      7.5 Information Available. As long as any Purchaser owns the Registration Shares and
the Company is subject to the filing requirements of the Exchange Act, 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.
As long as any Purchaser owns Securities, if the Company is not required to file reports pursuant
to such laws, it will prepare and furnish to the Purchasers and make publicly available in
accordance with paragraph (c) of Rule 144 such information as is required for the Purchasers to
sell the Securities under Rule 144. The Company further covenants that it will take such further
action as any holder of Securities may reasonably request to satisfy the provisions of Rule 144
applicable to the issuer of securities relating to transactions for the sale of securities pursuant
to Rule 144. So long as the Registration Statement is effective covering the resale of
Registration Shares owned by the Purchaser, the Company will furnish to the Purchaser, without
charge, upon such Purchaser’s request:

      (a) as soon as practicable after available (but in the case of the Company’s Annual Report to
Stockholders, concurrently with delivery to its shareholders generally) one copy of (i) its Annual
Report to Stockholders (which Annual Report shall contain financial statements audited in
accordance with U.S. generally accepted accounting principles by a national firm of certified
public accountants), (ii) if not included in substance in the Annual Report to Stockholders, its
Annual Report on Form 10-K, (iii) its Quarterly Reports on Form 10-Q, (iv) its Current Reports on
Form 8-K, (v) its definitive proxy statements for all annual and special meetings of stockholders
and (vi) a full copy of the particular Registration Statement covering the Shares (the foregoing,
in each case, excluding exhibits);

      (b) all exhibits excluded by the parenthetical to subparagraph (a)(vi) of this Section 7.5;
and

      (c) upon the reasonable request of the Purchaser, a reasonable number of copies of the
prospectuses and supplements thereto to supply to any other party requiring such prospectuses and
supplements; and the Company, upon the reasonable request of the Purchaser, will meet with the
Purchaser or a representative thereof at the Company’s headquarters to discuss information relevant
for disclosure in the Registration Statement covering the Registration Shares; provided, that the
Company shall disclose any confidential information to the Purchaser only if the Purchaser has
requested such information in writing and shall have entered into a confidentiality agreement with
the Company in form and substance reasonably satisfactory to the Company with respect thereto.

      7.6 Assignment of Registration Rights. The rights of the Purchaser hereunder,
including the right to have the Company register the Registration Shares pursuant to this
Agreement, will be automatically assigned by the Purchaser to permitted transferees or assignees of
at least 25% of the Registration Shares, but only if (a) the Purchaser agrees in writing with the
transferee or assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment, (b) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of the name and

26

 

address of such transferee or assignee and the Registration Shares with respect to which such
registration rights are being transferred or assigned, (c) after such transfer or assignment, the
further disposition of such Registration Shares by the transferee or assignee is restricted under
the Securities Act and applicable state securities laws, (d) at or before the time the Company
received the written notice contemplated by clause (b) of this sentence, the transferee or assignee
agrees in writing with the Company to be bound by all of the provisions contained herein, (e) the
transferee is an “accredited investor” as that term is defined in Rule 501 of Regulation D, and (f)
the transfer of Registration Shares is made in accordance with the provisions of Section 5 and
Section 7.2 hereof.

      7.7 Delay in Filing or Effectiveness of Registration Statement. If the Registration
Statement is not filed by the Company with the Commission on or prior to the Filing Date, then for
each day following the Filing Date, until but excluding the date the Registration Statement is
filed, or if the Registration Statement is not declared effective by the Commission by the Required
Effective Date, then for each day following the Required Effective Date, until but excluding the
date the Commission declares the Registration Statement effective, the Company shall, for each such
day, pay the Purchaser with respect to any such failure, as liquidated damages and not as a
penalty, an amount equal to 0.0333% of the purchase price paid by such Purchaser for its Securities
pursuant to this Agreement; and for any such day, such payment shall be made no later than the
first business day of the calendar month next succeeding the month in which such day occurs. If
the Purchaser shall be prohibited from selling Registration Shares under the Registration Statement
as a result of a Suspension of more than forty-five (45) days in any period of 12 consecutive
months or there shall have occurred two or more Suspension in any period of 12 consecutive months
then for each day on which a Suspension is in effect that exceeds the maximum allowed period for a
single Suspension or if there shall have been more than a single Suspension in any period of 12
consecutive months, but not including any day on which a Suspension is lifted, the Company shall
pay the Purchaser, as liquidated damages and not as a penalty, an amount equal to 0.0333% of the
purchase price paid by such Purchaser for its Securities pursuant to this Agreement for each such
day, and such payment shall be made no later than the first business day of the calendar month next
succeeding the month in which such day occurs. For purposes of this Section 7.7, a Suspension
shall be deemed lifted on the date that notice that the Suspension has been lifted is delivered to
the Purchaser pursuant to Section 9 of this Agreement. Any payments made pursuant to this Section
7.7 shall not constitute the Purchaser’s exclusive remedy for such events. Notwithstanding the
foregoing provisions, in no event shall the Company be obligated to pay such liquidated damages to
more than one Purchaser in respect of the same Shares for the same period of time. The liquidated
damage payments imposed hereunder shall be made to the Purchaser in cash. The Company agrees that,
notwithstanding the exception provided for a single Suspension of not more than 45 days in any
period of twelve consecutive months (an “Excepted Suspension”), it will pay the prescribed
liquidated damages during the period of the Excepted Suspension unless the suspension has been
approved in good faith by the Board of Directors of the Company on the basis of a pending material
undisclosed development (including, without limitation, material merger and acquisition activity).

      7.8 No Piggyback on Registrations. Neither the Company nor any of its security
holders (other than the Purchasers in such capacity pursuant hereto) may include securities of the
Company in the Registration Statement other than the Registrable Securities,

27

 

and the Company shall not after the date hereof enter into any agreement providing any such
right to any of its security holders.

SECTION 8. Fees

      8.1 Broker’s Fees. The Purchaser acknowledges that the Company intends to pay the
Placement Agent a fee in respect of the sale of the Securities to the Purchaser. The Purchaser and
the Company hereby agree that the Purchaser shall not be responsible for such fee. Each of the
parties hereto hereby represents that, on the basis of any actions and agreements by it, there are
no other brokers or finders entitled to compensation in connection with the sale of the Securities
to the Purchaser.

      8.2 Fees and Expenses. At the Closing, the Company shall pay to Proskauer Rose LLP,
in its capacity as Purchaser Counsel, against receipt of a written invoice detailing time charges
and expenses, not more than $25,000 for legal fees and expenses on behalf of the Purchasers in
connection with due diligence and the preparation and negotiation of the several Agreements of the
Purchasers. Except as expressly set forth herein to the contrary, each party shall pay the fees
and expenses of its advisers, counsel, accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all transfer agent fees, stamp taxes and
other taxes and duties levied in connection with the issuance of the Securities (but not, for
avoidance of doubt, taxes on gains or losses on transactions in the Securities by the Purchasers).

      SECTION 9. Notices. All notices, requests, consents and other communications
hereunder shall be in writing, shall be sent by confirmed facsimile or nationally recognized
overnight express courier postage prepaid, and shall be deemed given (i) when so faxed or (ii) the
day after so mailed by such overnight express courier (except that notices of Suspensions or stop
orders must be made both by facsimile and by overnight express courier) as follows:

if to the Company, to:

Steven A Shallcross

Senior Vice President and Chief Financial Officer

Advancis Pharmaceutical Corporation

20425 Seneca Meadows Parkway

Germantown, MD 20876

Fax: (301) 944-6700

with a copy to:

Howard S. Schwartz, Esq.

DLA Piper Rudnick Gray Cary US LLP

6225 Smith Avenue

Baltimore, Maryland 21209

Fax: (410) 580-3251

28

 

or to such other person at such other place as the Company shall designate to the Purchaser in
writing; and

(b) if to the Purchaser, at its address as set forth at the end of this Agreement, or at
such other address or addresses as may have been furnished to the Company in writing.

      SECTION 10. Amendment. No provision of this Agreement may be waived, modified or
amended except pursuant to an instrument in writing signed by the Company and the Purchaser.

      SECTION 11. Headings. The headings of the various sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed to be part of this
Agreement.

      SECTION 12. Severability. In case any provision contained in this Agreement should be
invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or impaired thereby.

      SECTION 13. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving effect to the
principles of conflicts of law. Any legal suit, action or proceeding arising out of or based upon
this Agreement or the transactions contemplated hereby (“Related Proceedings”) may be instituted in
the federal courts of the United States of America located in New York, New York (collectively, the
“Specified Courts”), and each party irrevocably submits to the non-exclusive jurisdiction of such
Specified Courts of such courts in any such suit, action or proceeding. Service of any process,
summons, notice or document by mail to such party’s address set forth above shall be effective
service of process for any suit, action or other proceeding brought in any such court. The parties
irrevocably and unconditionally waive any objection to the laying of venue of any suit, action or
other proceeding in the Specified Courts and irrevocably and unconditionally waive and agree not to
plead or claim in any such court that any such suit, action or other proceeding brought in any such
court has been brought in an inconvenient forum. With respect to any Related Proceeding, each
party irrevocably waives, to the fullest extent permitted by applicable law, all immunity (whether
on the basis of sovereignty or otherwise) from jurisdiction, service of process, attachment (both
before and after judgment) and execution to which it might otherwise be entitled in the Specified
Courts or any other court of competent jurisdiction.

      SECTION 14. Counterparts. This Agreement may be executed in two (2) or more
counterparts, each of which shall constitute an original, but all of which, when taken together,
shall constitute but one instrument, and shall become effective when one or more counterparts have
been signed by each party hereto and delivered to the other parties. Facsimile signatures shall be
deemed original signatures.

      SECTION 15. Entire Agreement. This Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, neither the Company nor the

29

 

Purchaser makes any representation, warranty, covenant or undertaking with respect to such
matters. This Agreement supersedes all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof.

      SECTION 16. Third Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other person.

      SECTION 17. Successors and Assigns. This Agreement is binding upon and inures to the
benefit of the parties and their successors and assigns. The Company may not assign this Agreement
or any rights or obligations hereunder in connection with a merger, consolidation, sale of all or
substantially all of the Company’s assets or sale of 50% or more of the outstanding equity
securities of the Company without the prior written consent of the Purchaser, and the Purchaser may
not assign this Agreement or any rights or obligations hereunder except as provided in Sections
5(f) and 7.6 hereof. Notwithstanding the foregoing, at any time prior to the effectiveness of the
Registration Statement, the Purchaser may assign its rights and obligations under Section 7
hereunder to any of its Purchaser/Affiliates without the consent of the Company so long as (i) such
Purchaser/Affiliate is an “accredited investor” (within the meaning of Regulation D under the
Securities Act), (ii) such Purchaser/Affiliate agrees in writing to be bound by this Agreement,
(iii) such Purchaser/Affiliate completes and delivers to the Company the Questionnaire attached as
Appendix I and (iv) any transfer of Securities to such Purchaser/Affiliate complies with Section 5
and Section 7.2 hereof; provided, however, that if such assignment is made to ten (10) or
more separate persons or entities, then the Purchaser originally party to this Agreement, and not
any subsequent assignee, shall have the right to enforce the terms of, and receive notices under,
Section 7.3 hereof.

      SECTION 18. 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.

      SECTION 19. 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.

      SECTION 20. Publicity. The Company shall have the right to approve before issuance
any press release or any other public statements with respect to the transactions contemplated by
this Agreement.

      SECTION 21. Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) this Agreement, whenever the
Purchaser exercises a right, election, demand or option under this Agreement and the Company does
not timely perform its related obligations within the periods therein provided, then the Purchaser
may rescind or withdraw, in its sole discretion from time to time upon written notice to the
Company, any relevant notice, demand or election in whole or in part without prejudice to its
future actions and rights.

30

 

      SECTION 22. 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.

      SECTION 23. Remedies. In addition to being entitled to exercise all rights provided
herein or granted by law, including recovery of damages, the Purchaser and the Company will be
entitled to specific performance under this Agreement. 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 agrees to waive in any action for specific performance of any
such obligation the defense that a remedy at law would be adequate.

[Remainder of page intentionally blank]

31

 

      IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by
their duly authorized representatives as of the day and year first above written.

	 	 	 	 	 
	 	ADVANCIS PHARMACEUTICAL CORPORATION

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

Aggregate Purchase Price:                                         

Number of Shares to be purchased by Purchaser:                                         

Number of Warrants to be purchased by

Purchaser:                                         

	 	 	 	 	 
	Print or Type:
	 	 	 	 
	 
	 	 	 	 
	 
	 	Name of Purchaser:
	 
	 	 	 	 
	 
	 	

	 
	 	 	 	 
	 
	 	Name of Individual representing

	 
	 	Purchaser:
	 
	 	 	 	 
	 
	 	

	 
	 	 	 	 
	 
	 	Title of Individual representing
	 
	 	Purchaser:
	 
	 	 	 	 
	 
	 	

	 
	 	 	 	 
	Signature by:
	 	 	 	 
	 
	 	Signature of Individual representing
	 
	 	Purchaser (if an Institution):
	 
	 	 	 	 
	 
	 	

	 
	 	 	 	 
	

	 	Address:	 	 
	

	 	 	 	

	

	 	Telephone:	 	 
	

	 	 	 	

	

	 	Facsimile:	 	 
	

	 	 	 	

32

 

SUMMARY INSTRUCTION SHEET FOR PURCHASER

(to be read in conjunction with the entire

Purchase Agreement that follows)

	A.  	Complete the following items on the Purchase Agreement:

	 	1.  	Signature page:

	 	(i)  	Name of Purchaser
	 
	 	(ii)  	Name of Individual representing Purchaser
	 
	 	(iii)  	Title of Individual representing Purchaser
	 
	 	(iv)  	Signature of Individual representing Purchaser
	 
	 	(v)  	Number of Shares and Warrants purchased and aggregate purchase price

	 	2.  	Appendix I — the Questionnaire:
	 
	 	   	Provide the information requested by the Questionnaire.
	 
	 	3.  	Return the properly completed and signed Purchase Agreement including the
properly completed Appendix I to (initially by facsimile with hard copy by overnight
delivery):

Lehman Brothers Inc.

745 Seventh Avenue

5th Floor

New York, NY 10019

Attention: Keith Canton

Facsimile: 212-520-9328

	B.  	Instructions regarding the transfer of funds for the purchase of Securities will be sent by
facsimile to the Purchaser by the Placement Agent at a later date.
	 
	C.  	Upon the resale of the Registration Shares by the Purchaser after the Registration Statement
covering the Registration Shares is effective, as described in the Purchase Agreement, the
Purchaser:

	 	(i)  	must deliver a current prospectus of the Company to the buyer
(prospectuses must be obtained from the Company at the Purchaser’s request);
and
	 
	 	(ii)  	must send a letter in the form of Appendix II to the Company so
that the Registration Shares may be properly transferred.

1

 

APPENDIX I

ADVANCIS PHARMACEUTICAL CORPORATION

QUESTIONNAIRE

STOCK AND WARRANT CERTIFICATE QUESTIONNAIRE

      Pursuant to Section 3.2 of the Agreement, please provide us with the following
information:

	 	 	 	 	 	 	 
	 	1.	 	 	The exact name that your Shares
and Warrants are to be
registered in (this is the name
that will appear on your stock
certificate(s) and Warrant(s)).
You may use a nominee name if
appropriate:

	 	

	 	 	 	 	 
	 	 
	 	2.	 	 	The relationship between the
Purchaser of the Securities and
the Registered Holder listed in
response to item 1 above:

	 	

	 	 	 	 	 
	 	 
	 	3.	 	 	The mailing address of the
Registered Holder listed in
response to item 1 above:

	 	

	 	 	 	 	

	 	

	 	 	 	 	

	 	

	 	 	 	 	

	 	

	 	4.	 	 	The Social Security Number or
Tax Identification Number of
the Registered Holder listed in
response to item 1 above:

	 	

1

 

REGISTRATION STATEMENT QUESTIONNAIRE

      In connection with the preparation of the Registration Statement, ADVANCIS PHARMACEUTICAL
CORPORATION, a Delaware corporation (the “Company”), will use the responses to this questionnaire
to qualify prospective Purchaser for purposes of United States federal and state securities laws.
This is not an offer to sell or the solicitation of an offer to buy securities. Such an offer can
be made only by appropriate offering documentation. Any such offer may be conditioned upon your
qualification as an accredited purchaser under federal and state securities laws.

      Please complete, sign, date and return one copy of this Questionnaire in accordance with the
instructions on the Summary Instruction Sheet for the Purchaser on the page immediately preceding
this Appendix I.

      All investors (including partnerships, trusts, corporations, etc.) must complete Parts I, II
and III of this Questionnaire.

      If the answer to any question below is “none” or “not applicable”, please so indicate.

      Your answers will be kept confidential at all times. However, by signing this Questionnaire,
you agree that the Company may present this Questionnaire to such parties as it deems appropriate
to establish the availability of exemptions from registration under state and federal securities
laws.

1

 

PART I  —  GENERAL

1. Please state your or your organization’s name exactly as it should appear in the Registration
Statement:

2. Please provide the number of shares that you or your organization will beneficially own
immediately after Closing, including those Shares and Warrant Shares purchased by you or your
organization pursuant to this Purchase Agreement and those shares purchased by you or your
organization through other transactions:

3. Have you or your organization had any position, office or other material relationship within the
past three years with the Company or its affiliates?

o Yes o No

If yes, please indicate the nature of any such relationships below:

4. Are you (i) an NASD Member (see definition below), (ii) a Controlling (see definition)
shareholder of an NASD Member, (iii) a Person Associated with a Member of the NASD (see
definition), or (iv) an Underwriter or a Related Person (see definition) with respect to the
proposed offering; or (b) do you own any shares or other securities of any NASD Member not
purchased in the open market; or (c) have you made any outstanding subordinated loans to any NASD
Member?

o Yes o No

If “yes,” please describe below

      NASD Member. The term “NASD member” means either any broker or dealer admitted to
membership in the National Association of Securities Dealers, Inc. (“NASD”). (NASD Manual, By-laws
Article I, Definitions)

2

 

      Control. The term “control” (including the terms “controlling,” “controlled by” and
"under common control with”) means the possession, direct or indirect, of the power, either
individually or with others, to direct or cause the direction of the management and policies of a
person, whether through the ownership of voting securities, by contract, or otherwise. (Rule 405
under the Securities Act of 1933, as amended)

      Person Associated with a member of the NASD. The term “person associated with a
member of the NASD” means every sole proprietor, partner, officer, director, branch manager or
executive representative of any NASD Member, or any natural person occupying a similar status or
performing similar functions, or any natural person engaged in the investment banking or securities
business who is directly or indirectly controlling or controlled by a NASD Member, whether or not
such person is registered or exempt from registration with the NASD pursuant to its bylaws. (NASD
Manual, By-laws Article I, Definitions)

      Underwriter or a Related Person. The term “underwriter or a related person” means,
with respect to a proposed offering, underwriters, underwriters’ counsel, financial consultants and
advisors, finders, members of the selling or distribution group, and any and all other persons
associated with or related to any of such persons. (NASD Interpretation)

3

 

PART II 

	1.  	Identification

	 	 	 
	Name: (exact name as it will appear on stock certificate and Warrants):
	 	 
	

	 	

	 
	 	 
	

	 
	 	 
	Address of principal place of business:
	 	 
	

	 	

	 
	 	 
	

	State (or Country) of formation or incorporation:
	 	 
	

	 	

	 	 	 
	Contact Person:
	 	 
	

	 	

	Telephone Number:
	 	 
	

	 	

	Facsimile Number:
	 	 
	

	 	

	Email Address:
	 	 
	

	 	

	 	 	 
	Type of Entity (corporation, partnership, trust, etc.):
	 	 
	

	 	

	Taxpayer or Employer Identification Number:
	 	 
	

	 	

	 
	 	 
	Was the entity formed for the purpose of this investment?

o Yes                                           o No

If the answer is yes, all shareholders, partners or other equity owners must complete an
Individual Questionnaire. Please contact ADVANCIS PHARMACEUTICAL CORPORATION as soon as
possible to obtain such questionnaire. If the above answer is no, please continue
completing this form.

2. Proposed Investment

Please indicate the amount of your proposed investment: $                                         .

3. Description of Investor

Please check the appropriate box to indicate which of the following accurately describe the
nature of the business conducted by the investing entity:

		
	o 	A corporation or partnership with total assets in excess of $5,000,000, not
organized for the purpose of this particular investment;

4

 

		
	o 	A private business development company as defined in Section 202(a)(22) of
the Investment Advisors Act of 1940 (a U.S. venture capital fund which invests
primarily through private placements in non-publicly traded securities and makes
available (either directly or through co-investors) to the portfolio companies
significant guidance concerning management, operations or business objectives);

		
	o 	A Small Business Investment Company licensed by the U.S. Small Business
Administration under Section 301 (c) or (d) of the Small Business Investment Act of
1958;

		
	o 	An investment company registered under the Investment Company Act of 1940 or
a business development company as defined in Section 2(a)(48) of that Act;

		
	o 	A bank as defined in Section 3(a)(2) or a savings and loan association or
other institution defined in Section 3(a)(5)(A) of the Securities Act of 1933, acting
in either an individual or fiduciary capacity;

		
	o 	An insurance company as defined in Section 2(13) of the Securities Act of 1933;

		
	o 	An employee benefit plan within the meaning of Title I of the Employee
Retirement Income Security Act of 1974 (i) whose investment decision is made by a
fiduciary which is either a bank, savings and loan association, insurance company, or
registered investment advisor, or (ii) whose total assets exceeding $5,000,000, or
(iii), if a self-directed plan, a plan whose investment decisions are made solely by
persons who are accredited investors;

		
	o 	A charitable, religious, educational or other organization described in
Section 501(c)(3) of the Internal Revenue Code, not formed for the purpose of this
Investment, with total assets in excess of $5,000,000;

		
	o 	A trust with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the securities offered, whose purchase is directed by a
sophisticated person as described in Rule 506(b)(2)(ii) of the Securities Act of 1933
and who completed item 4 below of this Questionnaire;

		
	o 	An entity not located in the U.S., none of whose equity owners are U.S.
citizens or U.S. residents;

		
	o 	A broker or dealer registered under Section 15 of the Securities Exchange
Act of 1934;

		
	o 	A plan having assets exceeding $5,000,000 established and maintained by a
government agency for its employees; or

		
	o 	Other (Describe:)

5

 

4. Investment Experience

Please provide information detailing the business, financial and investment experience of
the entity and investment manager of such entity.

PART III — SIGNATURE

The above information is true and correct and the undersigned recognizes that the Company
and its counsel are relying on the truth and accuracy of such information in relying on an
exemption from the registration requirements of the Securities Act of 1933, as amended, and
in determining applicable state securities laws and relying on exemptions contained therein.
The undersigned agrees to notify the Company promptly of any changes in the foregoing
information which may occur prior to the investment.

Executed at        
         
        
       
         , on  
       
       
         
          
         
     
     
        , 2005.

	 	 	 	 	 
	 	(Signature)

           
           
          
         
       
     
       

Name:

Title:

Name of Entity:

 	 
	 	 	 
	 	 	 
	 	 	 
	 

6

 

APPENDIX II

Attention:

PURCHASER’S CERTIFICATE OF SUBSEQUENT SALE

      The undersigned, [an officer of, or other person duly authorized by] [fill in official name of
individual or institution] hereby certifies that [he/she, said institution] is the Purchaser of
the shares evidenced by the attached certificate, and as such, sold [fill in number of shares] of
such shares on [date] in accordance with and in the manner described in Registration Statement
number [fill in the number of the Registration Statement or otherwise identify Registration
Statement]; applicable federal and state securities laws and the requirement of delivering a
current prospectus by the Company have been complied with in connection with such sale.

	 	 	 
	Print or Type:
	 	 
	 
	 	 
	Name of Purchaser

(Individual or

Institution):
	 	

	Name of Individual

representing

Purchaser (if an

Institution)
	 	

	Title of Individual

representing

Purchaser (if an

Institution):
	 	

	Signature by:
	 	 
	 
	 	 
	Individual Purchaser

or Individual repre-

senting Purchaser:
	 	

1

 

Exhibit A

Form of Warrant Agreement

THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS AND NEITHER
SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE
TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND
ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE
HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY,
THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER
CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE
SECURITIES LAWS.

ADVANCIS PHARMACEUTICAL CORPORATION

WARRANT

			
	Warrant No. [     ]
	 	Dated: April [     ], 2005

      ADVANCIS PHARMACEUTICAL CORPORATION, a Delaware corporation (the “Company”), hereby certifies
that, for value received,                      or its registered assigns (the “Holder”), is entitled to
purchase from the Company up to a total of           shares (as adjusted from time to time as
provided in Section 9) of Common Stock (as defined below) (each such share, a “Warrant Share” and
all such shares, the “Warrant Shares”) at an exercise price equal to $4.78 per share (as adjusted
from time to time as provided in Section 9, the “Exercise Price”), at any time and from time to
time from the six month anniversary of the Original Issue Date (as defined herein) and after the
date hereof through and including April      , 2010 (the “Expiration Date”), and subject to the
following terms and conditions. This Warrant is one of a series of similar warrants (the
“Warrants”) issued pursuant to those certain Purchase Agreements, dated the Original Issue Date, by
and among the Company and the Holder and the Company and certain other investors (each a “Purchase
Agreement” and collectively, the “Purchase Agreements”), providing for the issuance of Common Stock
and Warrants by the Company to the Holder and such other investors.

      1. Definitions. The capitalized terms used herein and not otherwise defined shall
have the meanings set forth below:

           “Common Stock” means the common stock of the Company, $.01 par value per share.

 

 

           “Company” includes the Company and any corporation which shall succeed to or assume
the obligations of the Company hereunder. The term “corporation” shall include an association,
joint stock company, business trust, limited liability company or other similar organization.

           “Convertible Securities” means (i) options to purchase or rights to subscribe for
Common Stock, (ii) securities by their terms convertible into or exchangeable for Common Stock or
(iii) options to purchase or rights to subscribe for such convertible or exchangeable securities.

           “Eligible Market” means any of the New York Stock Exchange, the American Stock
Exchange or Nasdaq.

           “Market Price” means, as of a particular date (the “Valuation Date”) the following:
(a) if the Common Stock is then listed on a national stock exchange, the Market Price shall be the
Volume Weighted Average Sales Price of one share of Common Stock on such exchange on the last
trading day prior to the Valuation Date, provided that if such stock has not traded in the prior
ten (10) trading sessions, the Market Price shall be the Volume Weighted Average Sales Price of one
share of Common Stock in the most recent ten (10) trading sessions during which the Common Stock
has traded; (b) if the Common Stock is then included in Nasdaq, the Market Price shall be the
Volume Weighted Average Sales Price of one share of Common Stock on Nasdaq on the last trading day
prior to the Valuation Date, provided that if such stock has not traded in the prior ten (10)
trading sessions, the Market Price shall be the Volume Weighted Average Sales Price of one share of
Common Stock in the most recent ten (10) trading sessions during which the Common Stock has traded;
(c) if the Common Stock is then included in the Over-the-Counter Bulletin Board, the Market Price
shall be the Volume Weighted Average Sales Price of one share of Common Stock on the
Over-the-Counter Bulletin Board on the last trading day prior to the Valuation Date, provided that
if such stock has not traded in the prior ten (10) trading sessions, the Market Price shall be the
Volume Weighted Average Sales Price of one share of Common Stock in the most recent ten (10)
trading sessions during which the Common Stock has traded, (d) if the Common Stock is then included
in the “pink sheets,” the Market Price shall be the Volume Weighted Average Sales Price of one
share of Common Stock on the “pink sheets” on the last trading day prior to the Valuation Date,
provided that if such stock has not traded in the prior ten (10) trading sessions, the Market Price
shall be the Volume Weighted Average Sales Price of one share of Common Stock in the most recent
ten (10) trading sessions during which the Common Stock has traded.

           “Nasdaq” means the Nasdaq SmallCap Market or Nasdaq National Market.

           “Original Issue Date” means April      , 2005.

           “Other Securities” refers to any stock (other than Common Stock) and other securities
of the Company or any other person (corporate or otherwise) which the Holder of this Warrant at any
time shall be entitled to receive, or shall have received, upon the exercise of this Warrant, in
lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been
issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 9
hereof or otherwise.

2

 

           “Person” means any court or other federal, state, local or other governmental
authority or other 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.

           “Registration Statement” shall have the meaning set forth in the Purchase Agreement
entered into by the original Holder and the Company.

           “Trading Day” means (i) a day on which the Common Stock is traded on a Trading Market
(other than the OTC Bulletin Board), or (ii) if the Common Stock is not listed on a Trading Market
(other than the OTC Bulletin Board), a day on which the Common Stock is traded in the over the
counter market, as reported by the OTC Bulletin Board, or (iii) if the Common Stock is not quoted
on any Trading Market, 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 whichever of the New York Stock Exchange, the American Stock
Exchange, the NASDAQ National Market, the NASDAQ SmallCap Market or OTC Bulletin Board on which the
Common Stock is listed or quoted for trading on the date in question.

           “Transfer Agent” shall mean American Stock Transfer & Trust Company or such other
Person as the Company may appoint from time to time.

           “Volume Weighted Average Sales Price” the volume weight average sales price of a
share of the Common Stock of the Company for the applicable period, determined by reference to the
volume weighted sales price for a share of the Company’s Common Stock as reported by Bloomberg
Information Systems, Inc. on the applicable Bloomberg page (currently Bloomberg page AQR).

           “Warrant Shares” shall initially mean shares of Common Stock and in addition may
include Other Securities and Distributed Property (as defined in Section 9(b)) issued or issuable
from time to time upon exercise of this Warrant.

      2. Registration of Warrant. The Company shall register this Warrant, upon records to
be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record
Holder hereof from time to time. The Company may deem and treat the registered Holder of this
Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to
the Holder, and for all other purposes, absent actual notice to the contrary.

      3. Registration of Transfers. The Company shall register the transfer of any portion
of this Warrant in the Warrant Register, upon surrender of this Warrant, with the Form of
Assignment attached hereto duly completed and signed, to the Company at its address specified
herein. Upon any such registration and transfer, a new warrant to purchase Common Stock in
substantially the form of this Warrant (any such new warrant, a “New Warrant”), evidencing the
portion of this Warrant so transferred shall be issued to the transferee and a New Warrant

3

 

evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued
to the transferring Holder. The acceptance of the New Warrant by the transferee thereof shall be
deemed the acceptance by such transferee of all of the rights and obligations of a holder of a
Warrant.

      4. Exercise and Duration of Warrant.

           (a) This Warrant shall be exercisable by the registered Holder at any time and from time to
time on and after the six month anniversary of the Original Issue Date to and including the
Expiration Date; provided, however, that the Expiration Date shall be extended for each day (i) the
Registration Statement is not effective, or (ii) the Company fails to have a sufficient number of
authorized but unissued and otherwise unreserved shares of Common Stock available to issue Warrant
Shares upon exercise of the Warrant. At 6:30 P.M., New York City time on the Expiration Date, the
portion of this Warrant not exercised prior thereto shall be and become void and of no value;
provided that, if the Market Price on the Trading Day immediately prior to (but not including) the
Expiration Date exceeds the Exercise Price on the Expiration Date, then this Warrant shall be
deemed to have been exercised in full (to the extent not previously exercised) on a “cashless
exercise” basis at 6:30 P.M. New York City time on the Expiration Date if a “cashless exercise” may
occur at such time pursuant to Section 4(c) below.

           (b) A Holder may exercise this Warrant by delivering to the Company (i) an exercise notice, in
the form attached hereto (the “Exercise Notice”), appropriately completed and duly signed, and (ii)
payment of the Exercise Price for the number of Warrant Shares as to which this Warrant is being
exercised (which may take the form of a “cashless exercise” if so indicated in the Exercise Notice
and if a “cashless exercise” may occur at such time pursuant to Section 4(c) below), and the date
such items are delivered to the Company (as determined in accordance with the notice provisions
hereof) is an “Exercise Date.” The Holder shall not be required to deliver the original Warrant in
order to effect an exercise hereunder. Execution and delivery of the Exercise Notice shall have
the same effect as cancellation of the original Warrant and issuance of a New Warrant evidencing
the right to purchase the remaining number of Warrant Shares.

           (c) The Holder shall pay the Exercise Price in cash or by certified bank check payable to the
order of the Company; proved, however, that the holder may satisfy its obligation to pay the
Exercise Price through a “cashless exercise” if the Market Price exceeds the Exercise Price, by
surrendering to the Company shares of Common Stock or other securities issued by the Company,
in which event the Company shall issue to the Holder the number of Warrant Shares determined
as follows:

X = Y {(A-B)/A}

where:

X = the number of Warrant Shares to be issued to the Holder.

Y = the number of Warrant Shares with respect to which this

Warrant is being exercised.

4

 

A = the Market Price on the Exercise Date.

B = the Exercise Price

      For purposes of Rule 144 promulgated under the Act, it is intended, understood and
acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to
have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to
have commenced, on the Original Issue Date.

           (d) The Company shall reserve a sufficient number of authorized but unissued and otherwise
unreserved shares of Common Stock available to issue Warrant Shares upon exercise of the Warrant.

           (e) The Company will, at the time of any exercise of this Warrant, upon the request of the
Holder hereof, acknowledge in writing its continuing obligation to afford to the Holder any rights
(including, without limitation, any right to registration of the Warrant Shares) to which the
Holder shall continue to be entitled after such exercise in accordance with the provisions of this
Warrant, provided that if the Holder of this Warrant shall fail to make any such request,
such failure shall not affect the continuing obligation of the Company to afford the Holder any
such rights.

           (f) If an exercise of this Warrant is to be made in connection with a registered public
offering or sale of the Company, such exercise may, at the election of the Holder, be conditioned
on the consummation of the public offering or sale of the Company, in which case such exercise
shall not be deemed effective until the consummation of such transaction.

      5. Delivery of Warrant Shares.

           (a) Upon exercise of this Warrant, the Company shall promptly (but in no event later than
three Trading Days after the Exercise Date) issue or cause to be issued and deliver or cause to be
delivered to or, upon the written order of the Holder and in such name or names as the Holder may
designate, a certificate for the Warrant Shares issuable upon such exercise bearing the restrictive
legend set forth in Section 5(f) of the Purchase Agreement entered into by the Holder and the
Company if required pursuant to such Purchase Agreement. The Holder, or any Person so designated
by the Holder to receive the Warrant Shares, shall be deemed to have become holder of record of
such Warrant Shares as of the Exercise Date. This Warrant is exercisable, either in its entirety
or, from time to time, for a portion of the number of Warrant Shares. Upon surrender of this
Warrant following one or more partial exercises, the Company shall issue or cause to be issued, at
its expense, a New Warrant evidencing the right to purchase the remaining number of Warrant Shares.

           (b) If by the third Trading Day after an Exercise Date the Company fails to deliver the
required number of Warrant Shares in the manner required pursuant to Section 5(a), then the Holder
will have the right to rescind such exercise.

           (c) If by the third Trading Day after an Exercise Date the Company fails to

5

 

deliver the required number of Warrant Shares in the manner required pursuant to Section 5(a),
and if after such third Trading Day and prior to the receipt of such Warrant Shares, the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving
upon such exercise (a “Buy-In”), then the Company shall (1) pay in cash to the Holder the amount by
which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number
of Warrant Shares that the Company was required to deliver to the Holder in connection with the
exercise at issue by (B) the Market Price of the Common Stock at the time of the obligation giving
rise to such purchase obligation and (2) at the option of the Holder, either reinstate the portion
of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored or
deliver to the Holder the number of shares of Common Stock that would have been issued had the
Company timely complied with its exercise and delivery obligations hereunder. The Holder shall
provide the Company written notice indicating the amounts payable to the Holder in respect of the
Buy-In.

           (d) The Company’s obligations to issue and deliver Warrant Shares in accordance with the terms
of this Section 5 are absolute and unconditional, irrespective of any action or inaction by the
Holder to enforce the same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce the same, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder
or any other Person of any obligation to the Company or any violation or alleged violation of law
by the Holder or any other Person, and irrespective of any other circumstance which might otherwise
limit such obligation of the Company to the Holder in connection with the issuance of Warrant
Shares. Nothing herein shall limit the Holder’s right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of specific performance or
other injunctive relief with respect to the Company’s failure to timely deliver certificates
representing shares of Common Stock upon exercise of this Warrant as required pursuant to the terms
hereof.

      6. Charges, Taxes and Expenses. Issuance and delivery of certificates for shares of
Common Stock upon exercise of this Warrant shall be made without charge to the Holder for any issue
or transfer tax, withholding tax, transfer agent fee or other incidental tax or expense in respect
of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company;
provided, however, that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the registration of any certificates for Warrant Shares or
Warrant in a name other than that of the Holder or an affiliate thereof. The Holder shall be
responsible for all other tax liability that may arise as a result of holding or transferring this
Warrant or receiving Warrant Shares upon exercise hereof.

      7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or destroyed,
the Company shall issue or cause to be issued in exchange and substitution for and upon
cancellation hereof, or in lieu of and in substitution for this Warrant, a New Warrant, but only
upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction
and customary and reasonable indemnity, if requested.

6

 

      8. Reservation of Warrant Shares. The Company covenants that it will at all times
reserve and keep available out of the aggregate of its authorized but unissued and otherwise
unreserved Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon
exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable
and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other
contingent purchase rights of persons other than the Holder (after giving effect to the adjustments
and restrictions of Section 9). The Company covenants that all Warrant Shares so issuable and
deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance
with the terms hereof, be duly and validly authorized, issued, fully paid and nonassessable. The
Company will take all such action as may be necessary to assure that such shares of Common Stock
may be issued as provided herein without violation of any applicable law or regulation, or of any
requirements of any securities exchange or automated quotation system upon which the Common Stock
may be listed.

      9. Certain Adjustments. The Exercise Price and number of Warrant Shares issuable upon
exercise of this Warrant are subject to adjustment from time to time as set forth in this Section
9.

           (a) Stock Dividends and Splits. If the Company, at any time while this Warrant is
outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any
class of capital stock that is payable in shares of Common Stock, (ii) subdivides outstanding
shares of Common Stock into a larger number of shares, or (iii) combines outstanding shares of
Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of Common Stock
outstanding immediately before such event and of which the denominator shall be the number of
shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to
clause (i) of this paragraph shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution, and any adjustment
pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the
effective date of such subdivision or combination.

           (b) Pro Rata Distributions. If the Company, at any time while this Warrant is outstanding,
distributes to holders of Common Stock (i) evidences of its indebtedness, (ii) any security (other
than a distribution of Common Stock covered by the preceding paragraph), (iii) rights or warrants
to subscribe for or purchase any security, or (iv) any other asset (in each case, “Distributed
Property”), then in each such case the Exercise Price in effect immediately prior to the record
date fixed for determination of stockholders entitled to receive such distribution (and the
Exercise Price thereafter applicable) shall be adjusted (effective on and after such record date)
to equal the product of such Exercise Price times a fraction of which the denominator shall be the
Market Price on such record date and of which the numerator shall be the Market Price on such
record date less the then fair market value per share of the Distributed Property distributed in
respect of one outstanding share of Common Stock, which, if the Distributed Property is other than
cash or marketable securities, shall be as determined in good faith by the Board of Directors of
the Company.

7

 

           (c) Fundamental Transactions. If, at any time while this Warrant is outstanding, (i) the
Company effects any merger or consolidation of the Company with or into another Person, (ii) the
Company effects any sale of all or substantially all of its assets in one or a series of related
transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person)
is completed pursuant to which holders of Common Stock are permitted to tender or exchange their
shares for other securities, cash or property, or (iv) the Company effects any reclassification of
the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively
converted into or exchanged for other securities, cash or property (other than as a result of a
subdivision or combination of shares of Common Stock covered by Section 9(a) above) (in any such
case, a “Fundamental Transaction”), then the Holder shall have the right thereafter to receive,
upon exercise of this Warrant, the same amount and kind of securities, cash or property as it would
have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been,
immediately prior to such Fundamental Transaction, the holder of the number of Warrant Shares then
issuable upon exercise in full of this Warrant (the “Alternate Consideration”). The aggregate
Exercise Price for this Warrant will not be affected by any such Fundamental Transaction, but the
Company shall apportion such aggregate Exercise Price among the Alternate Consideration in a
reasonable manner reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the securities, cash or
property to be received in a Fundamental Transaction, then the Holder shall be given the same
choice as to the Alternate Consideration it receives upon any exercise of this Warrant following
such Fundamental Transaction. At the Holder’s request, any successor to the Company or surviving
entity in such Fundamental Transaction shall issue to the Holder a New Warrant consistent with the
foregoing provisions and evidencing the Holder’s right to purchase the Alternate Consideration for
the aggregate Exercise Price upon exercise thereof. The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms requiring any such successor or surviving
entity to comply with the provisions of this paragraph (c) and insuring that this Warrant (or any
such replacement security) will be similarly adjusted upon any subsequent transaction analogous to
a Fundamental Transaction. If any Fundamental Transaction constitutes or results in (a) a “going
private” transaction as defined in Rule 13e-3 under the Exchange Act, or (b) an acquisition
primarily for cash, or (c) an acquisition, merger or sale with or into a Person not traded on an
Eligible Market, then the Company (or any such successor or surviving entity) will redeem this
Warrant from the Holder for a purchase price, payable in cash on the closing date of such “going
private” transaction, equal to the Black Scholes value of the remaining unexercised portion of this
Warrant on the closing date of such “going private” transaction.

           (d) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise Price
pursuant to paragraphs (a) or (b) of this Section, the number of Warrant Shares that may be
purchased upon exercise of this Warrant shall be increased or decreased proportionately, so that
after such adjustment the aggregate Exercise Price payable hereunder for the increased or decreased
number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately
prior to such adjustment.

           (e) Calculations. All calculations under this Section 9 shall be made to the nearest cent or
the nearest 1/100th of a share, as applicable. The number of shares of Common Stock outstanding at
any given time shall not include shares owned or held by or for the account of the Company, and the
disposition of any such shares shall be considered an issue or sale of Common Stock.

8

 

           (f) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to this Section 9,
the Company will promptly compute such adjustment in accordance with the terms of this Warrant and
prepare a certificate setting forth such adjustment, including a statement of the adjusted Exercise
Price and adjusted number or type of Warrant Shares or other securities issuable upon exercise of
this Warrant (as applicable), describing the transactions giving rise to such adjustments and
showing in detail the facts upon which such adjustment is based. Upon written request, the Company
will promptly deliver a copy of each such certificate to the Holder and to the Company’s Transfer
Agent.

           (g) Notice of Corporate Events. If the Company (i) declares a dividend or any other
distribution of cash, securities or other property in respect of its Common Stock, including
without limitation any granting of rights or warrants to subscribe for or purchase any capital
stock of the Company or any Subsidiary, (ii) authorizes or approves, enters into any agreement
contemplating or solicits stockholder approval for any Fundamental Transaction or (iii) authorizes
the voluntary dissolution, liquidation or winding up of the affairs of the Company, then the
Company shall deliver to the Holder a notice describing the material terms and conditions of such
transaction, at least 20 calendar days prior to the applicable record or effective date on which a
Person would need to hold Common Stock in order to participate in or vote with respect to such
transaction, and the Company will take all steps reasonably necessary in order to insure that the
Holder is given the practical opportunity to exercise this Warrant prior to such time so as to
participate in or vote with respect to such transaction; provided, however, that the failure to
deliver such notice or any defect therein shall not affect the validity of the corporate action
required to be described in such notice.

      10. Fractional Shares. The Company shall not be required to issue or cause to be
issued fractional Warrant Shares on the exercise of this Warrant. If any fraction of a Warrant
Share would, except for the provisions of this Section, be issuable upon exercise of this Warrant,
the Company shall make a cash payment to the Holder equal to the fraction multiplied by the Market
Price on the Exercise Day of one full Warrant Share.

      11. Further Assurances. The Company will take such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid and non-assessable
shares of stock upon the exercise of this Warrant.

      12. Remedies. The Company stipulates that the remedies at law of the Holder of this
Warrant in the event of any default or threatened default by the Company in the performance of or
compliance with any of the terms of this Warrant are not and will not be adequate, and that such
terms may be specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms hereof or otherwise.

      13. Notices. Any and all notices or other communications or deliveries hereunder
(including without limitation any Exercise Notice) shall be in writing and shall be deemed given
and effective on the earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile number specified in the Purchase Agreement entered into

9

 

by the original Holder and the Company (the “Purchase Agreement”) prior to 6:30 p.m. (New York
City time) on a Trading Day, (ii) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number specified in the
Purchase Agreement on a day that is not a Trading Day or later than 6:30 p.m. (New York City time)
on any Trading Day, (iii) the Trading Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice
or other communication is required to be given. The address for such notices or communications
shall be as set forth in such the Purchase Agreement.

      14. Warrant Agent. The Transfer Agent shall serve as warrant agent under this
Warrant. Upon 30 days’ notice to the Holder, the Company may appoint a new warrant agent. Any
corporation into which the Transfer Agent or any new warrant agent may be merged or any corporation
resulting from any consolidation to which the Transfer Agent or any new warrant agent shall be a
party or any corporation to which the Transfer Agent or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business shall be a successor
warrant agent under this Warrant without any further act. Any such successor warrant agent shall
promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage
prepaid) to the Holder at the Holder’s last address as shown on the Warrant Register.

      15. Miscellaneous. (a) This Warrant may not be assigned by the Holder unless,
pursuant to an applicable exemption from registration under the Act, the availability of which is
confirmed in writing by counsel to the Holder (the form, substance and scope of which opinion shall
be reasonably acceptable to the Company) and delivered to the Company. This Warrant may not be
assigned by the Company, except to a successor in the event of a Fundamental Transaction. This
Warrant shall be binding on and inure to the benefit of the parties hereto and their respective
successors and assigns. Subject to the preceding sentence, nothing in this Warrant shall be
construed to give to any Person other than the Company and the Holder any legal or equitable right,
remedy or cause of action under this Warrant. This Warrant may be amended only in writing signed
by the Company and the Holder and their successors and assigns.

           (b) The Company will not, by amendment of its governing documents or through any
reorganization, transfer of assets, consolidation, merger, 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 of this Warrant, but will at all times in good faith assist in the carrying out of all such
terms and in the taking of all such action as may be necessary or appropriate in order to protect
the rights of the Holder against impairment. Without limiting the generality of the foregoing, the
Company (i) will not increase the par value of any Warrant Shares above the amount payable therefor
on such exercise, (ii) will take all such action as may be reasonably necessary or appropriate in
order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares on
the exercise of this Warrant, and (iii) will not close its shareholder books or records in any
manner which materially interferes with the timely exercise of this Warrant.

           (c) THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK.

10

 

EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL
COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN
(INCLUDING WITH RESPECT TO THE ENFORCEMENT OF THE PURCHASE AGREEMENT ENTERED INTO BY THE COMPANY
AND THE HOLDER), AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR
PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT
SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE
OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A
COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO
SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS WARRANT 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. THE COMPANY HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY.

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

           (e) In case any one or more of the provisions of this Warrant shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining terms and provisions
of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt
in good faith to agree upon a valid and enforceable provision which shall be a commercially
reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision
in this Warrant.

           (f) Prior to exercise of this Warrant, the Holder hereof shall not, by reason of being a
Holder, be entitled to any rights of a stockholder with respect to the Warrant Shares

{REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,

SIGNATURE PAGE FOLLOWS}

11

 

      IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its authorized
officer as of the date first indicated above.

	 	 	 	 	 	 	 
	 	 	ADVANCIS PHARMACEUTICAL CORPORATION
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	

	 	 	 	 	 	 
	

	 	 	 	Name:

Title:	 	 

12

 

FORM OF EXERCISE NOTICE

(To be executed by the Holder to exercise the right to purchase shares of Common Stock under the
foregoing Warrant)

To: ADVANCIS PHARMACEUTICAL CORPORATION

The undersigned is the Holder of Warrant No.            (the “Warrant”) issued by Advancis
Pharmaceutical Corporation, a Delaware corporation (the “Company”). Capitalized terms used herein
and not otherwise defined have the respective meanings set forth in the Warrant.

	1.  	The Warrant is currently exercisable to purchase a total of            Warrant Shares.
	 
	2.  	The undersigned Holder hereby exercises its right to purchase            Warrant Shares pursuant to the
Warrant.
	 
	3.  	The Holder intends that payment of the Exercise Price shall be made as (check one):
	 
	   	          Cash Exercise           
	 
	   	          Cashless Exercise           
	 
	4.  	If the Holder has elected a Cash Exercise, the Holder shall pay the sum of $           to the
Company in accordance with the terms of the Warrant.
	 
	5.  	If the Holder has elected a Cashless Exercise, a certificate shall be
issued to the Holder for the number of shares equal to the whole number portion of the product
of the calculation set forth below, which is           . The Company shall pay a cash
adjustment in respect of the fractional portion of the product of the calculation set forth
below in an amount equal to the product of the fractional portion of such product and the
Market Price on the Exercise Day, which product is           .

	   	          X = Y[(A-B)/A]
	 
	   	          X = the number of Warrant Shares to be issued to the Holder.
	 
	   	          Number of Warrant Shares being exercised:            (“Y”).
	 
	   	          Market Price on the Exercise Day:            (“A”).
	 
	   	          Exercise Price:            (“B”)

	6.  	Pursuant to this exercise, the Company shall deliver to the Holder Warrant Shares in
accordance with the terms of the Warrant.

13

 

	7.  	Following this exercise, the Warrant shall be exercisable to purchase a total of           
Warrant Shares.

	 	 	 	 	 	 	 
	Dated:                    	 	Name of Holder:
	 
	 
	 	(Print)	 	 	 	 
	 

	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	

	 	Name:	 	 	 	 
	

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	

	 	Title:	 	 	 	 
	

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)	 	 

14

 

FORM OF ASSIGNMENT

(to be completed and signed only upon transfer of Warrant)

      FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
                               the right represented by the within Warrant to purchase
               shares of Common Stock of Advancis Pharmaceutical Corporation to which the within
warrant relates and appoints                           attorney to transfer said right on the
books of Advancis Pharmaceutical Corporation with full power of substitution in the premises.

	 	 	 	 	 	 	 
	Dated:

	 	_______________
	 	 	 	_________________________________
	

	 	 	 	 	 	(Signature must conform in all respects to name of

Holder as specified on face of the Warrant)
	 
	

	 	 	 	 	 	Address of Transferee:
	 
	

	 	 	 	 	 	_______________
	 
	

	 	 	 	 	 	_______________
	 
	

	 	 	 	 	 	_______________

In the presence of:

                              

15

 

Exhibit B

Form of Legal Opinion

The opinion will be subject to standard qualifications and exceptions.

      We have acted as counsel to Advancis Pharmaceutical Corporation, a Delaware corporation (the
“Company”), in connection with the execution and delivery by the Company of the Purchase Agreement
dated as of April 26, 2005 (the “Agreement”), by and among the Company and the purchaser identified
on the signature page thereto (the “Purchaser”). This opinion is given to you pursuant to Section
___of the Agreement. (Capitalized terms not otherwise defined herein are defined as set forth in
the Agreement.)

      We have participated in the preparation and negotiation of the Agreement and the Exhibits and
Schedules thereto, and the other documents referred to therein. We also have examined such
certificates of public officials, corporate documents and records and other certificates, opinions,
agreements and instruments and have made such other investigations as we have deemed necessary in
connection with the opinions hereinafter set forth.

      Based on the foregoing and upon such investigation as we have deemed necessary, we give you
our opinion as follows:

          1. The Company is a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware. The Company has all requisite power and authority, and all
material governmental licenses, authorizations, consents and approvals, required to own and operate
its properties and assets and to carry on its business as now conducted and as proposed to be
conducted (all as described in the Company’s Annual Report on Form 10-K for its fiscal ended
December 31, 2004). The Company is duly qualified to transact business and is in good standing in
each jurisdiction in which the failure to qualify could have a material adverse effect on the
Company.

          2. The Company has all requisite power and authority to execute, deliver and perform the
Agreement, Warrant and each other document or instrument executed by it, or any of its officers, in
connection herewith or therewith or pursuant hereto or thereto (collectively, the “Transaction
Documents”), to issue, sell and deliver the Securities pursuant to the Transaction Documents, and
to carry out and perform its obligations under, and to consummate the transactions contemplated by,
the Transaction Documents.

          3. All corporate action on the part of the Company, its directors and its stockholders
necessary for the authorization, execution and delivery by the Company of the Transaction
Documents, the authorization, issuance, sale and delivery of the Securities pursuant to the
Agreement, and the consummation by the Company of the transactions contemplated by the Transaction
Documents has been duly taken. The Transaction Documents have been duly and validly executed and
delivered by the Company and constitute the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with their terms, except (a) that such enforceability
may be limited by bankruptcy, insolvency or other similar

1

 

laws affecting the enforcement of creditors’ rights in general and (b) that the remedies of
specific performance and injunctive and other forms of injunctive relief may be subject to
equitable defenses.

                    4.          After giving effect to the transactions contemplated by the Agreement, and immediately
after the Closing, the authorized capital stock of the Company will consist of an aggregate of
225,000,000 shares of Common Stock. All presently issued and outstanding shares of Common Stock
have been duly authorized and validly issued and are fully paid and nonassessable and free of any
preemptive or similar rights, and have been issued in compliance with applicable securities laws
and regulations. The Securities which are being issued on the date hereof pursuant to the
Agreement have been duly authorized and validly issued and are fully paid and nonassessable and
free of preemptive or similar rights, and have been issued in compliance with applicable securities
laws, rules and regulations. To our knowledge, except for rights described in the Securities
Filings, there are no other options, warrants, conversion privileges or other rights presently
outstanding to purchase or otherwise acquire from the Company any capital stock or other securities
of the Company, or any other agreements to issue any such securities or rights. The rights,
privileges and preferences of the Common Stock are as stated in the Company’s Certificate of
Incorporation.

                    5.          The Company meets the eligibility requirements for the use of Form S-3 for the registration
of the Securities.

                    6.          To our knowledge, the Company has filed all reports (the “SEC Documents”) required to be
filed by it under Sections 13(a) and 15(d) of the Exchange Act of 1934, as amended (the “Exchange
Act”). As of their respective filing dates, the SEC Documents complied in all material respects as
to form with the requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder.

                    7.          Based in part upon the representations of the Purchaser contained in the Agreement, the
Shares may be issued to the Purchaser without registration under the Securities Act of 1933, as
amended.

                    8.          The execution, delivery and performance by the Company of, and the compliance by the
Company with the terms of, the Transaction Documents, the issuance, sale and delivery of the
Securities pursuant to the Agreement, and the issuance and delivery of Conversion Stock do not (a)
conflict with or result in a violation of any provision of law, rule or regulation having
applicability to the Company or its Subsidiaries or of the certificate of incorporation or by-laws
or other similar organizational documents of the Company or its Subsidiaries, (b) conflict with,
result in a breach of or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or result in or permit the termination or modification of, any
agreement, instrument, order, writ, judgment or decree known to us to which the Company of its
Subsidiaries is a party or is subject or (c) result in the creation or imposition of any lien,
claim or encumbrance on any of the Company’s or its Subsidiaries’ assets or properties.

                    9.          No consent, license, permit, waiver, approval or authorization of, or designation,
declaration, registration or filing with, any court, governmental or regulatory
authority, or self-regulatory organization, is required in connection with the valid execution,

2

 

delivery and performance by the Company of the Documents, or the offer, sale, issuance
or delivery of the Securities or the consummation of the transactions contemplated thereby.

          10. The Company is not an Investment Company within the meaning of the Investment Company Act
of 1940, as amended.

      We express no opinion as to any matters governed by any laws other than the law of the State
of Delaware, the law of the State of New York and the Federal laws of the United States of America.

3exv4w1

 

OMNIBUS INSTRUMENT

      WHEREAS, the parties named herein desire to enter into certain Program Documents contained
herein, each such document dated as of this 22nd day of April, 2005, relating to the
issuance by Principal Life Income Fundings Trust 2005-38 (the “Trust”) of Notes to investors under
Principal Life’s secured notes program;

      WHEREAS, the Trust is a trust and will be organized under and its activities will be governed
by the provisions of the Trust Agreement (set forth in Section A of this Omnibus Instrument), dated
as of the date of the Pricing Supplement (attached to this Omnibus Instrument as Exhibit D)
(the “Pricing Supplement”), by and between the parties thereto indicated in Section F herein;

      WHEREAS, certain expense and indemnification arrangements between Principal Life and the
Trustee, on behalf of itself and on behalf of the Trust, are governed pursuant to the provisions of
the Expense and Indemnity Agreement dated as of March 5, 2004, by and between Principal Life and
the Trustee;

      WHEREAS, certain licensing arrangements between the Trust and Principal Financial Services,
Inc. will be governed pursuant to the provisions of the License Agreement (set forth in Section B
of this Omnibus Instrument), dated as of the date of the Pricing Supplement, by and between the
parties thereto indicated in Section F herein;

      WHEREAS, certain custodial arrangements of the Funding Agreement and the Guarantee will be
governed pursuant to the provisions of the Custodial Agreement (the “Custodial Agreement”) dated as
of March 5, 2004 by and among Bankers Trust Company, N.A., acting as custodian (the “Custodian”),
the Indenture Trustee and the Trustee, on behalf of the Trust;

      WHEREAS, the Notes will be issued pursuant to the Indenture (set forth in Section C of this
Omnibus Instrument), dated as of the Original Issue Date, by and between the parties thereto
indicated in Section F herein;

      WHEREAS, the sale of the Notes will be governed by the Terms Agreement (set forth in Section D
of this Omnibus Instrument), dated the date of the Pricing Supplement, by and among the parties
thereto indicated in Section F herein; and

      WHEREAS, certain agreements relating to the Notes, the Funding Agreement and the Guarantee are
set forth in the Coordination Agreement (set forth in Section E of this Omnibus Instrument), dated
as of the date of the Pricing Supplement, by and among the parties thereto indicated in Section F
herein.

      All capitalized terms used herein and not otherwise defined will have the meanings set forth
in the Indenture.

[Remainder of Page Left Intentionally Blank.]

 

 

SECTION A

TRUST AGREEMENT

     This TRUST AGREEMENT (this “Trust Agreement”), dated as of the date of the
Pricing Supplement, is entered into by and between GSS Holdings II, Inc., a
Delaware corporation, as trust beneficial owner (the “Trust Beneficial Owner”),
and U.S. Bank Trust National Association, a national banking association, as
Trustee (the “Trustee”).

W I T N E S S E T H:

     WHEREAS, the Trust Beneficial Owner and the Trustee desire to authorize
the issuance of a Trust Beneficial Interest and a series of Notes in connection
with the entry into this Trust Agreement;

     WHEREAS, all things necessary to make this Trust Agreement a valid and
legally binding agreement of the Trustee and the Trust Beneficial Owner,
enforceable in accordance with its terms, have been done;

     WHEREAS, the parties intend to provide for, among other things, (i) the
issuance and sale of the Notes (pursuant to the Indenture, the Distribution
Agreement and the related Terms Agreement) and the Trust Beneficial Interest,
(ii) the use of the proceeds of the sale of the Notes and Trust Beneficial
Interest to acquire the Funding Agreement, the payment obligations of which
will be fully and unconditionally guaranteed by the Guarantee, and (iii) all
other actions deemed necessary or desirable in connection with the transactions
contemplated by this Trust Agreement; and

     WHEREAS, the parties hereto desire to incorporate by reference those
certain Standard Trust Terms, dated as of March 5, 2004, and attached to the
Omnibus Instrument as Exhibit A (the “Standard Trust Terms”) and all
capitalized terms not otherwise defined herein (including the recitals hereof)
shall have the meanings set forth in the Standard Trust Terms (the Standard
Trust Terms and this Trust Agreement, collectively, the “Trust Agreement”).

     NOW, THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the sufficiency of
which are hereby acknowledged, each party hereby agrees as follows:

ARTICLE 1

     Section 1.01 Incorporation by Reference. All terms, provisions and
agreements set forth in the Standard Trust Terms (except to the extent
expressly modified herein) are hereby incorporated herein by reference with the
same force and effect as though fully set forth herein. To the extent that the
terms set forth in Article 2 of this Trust Agreement are inconsistent with the
terms of the Standard Trust Terms, the terms set forth in Article 2 herein
shall apply.

A-1

 

ARTICLE 2

     Section 2.01 Name. The Trust created and governed by the Trust Agreement
shall be the trust specified in the Omnibus Instrument. The name of the Trust
shall be the name specified in the first paragraph of the Omnibus Instrument,
as such name may be modified from time to time by the Trustee following written
notice to the Trust Beneficial Owner.

     Section 2.02 Jurisdiction. The Trust is hereby organized in, and formed
under and pursuant to, the laws of the State of New York.

     Section 2.03 Initial Capital Contribution and Ownership. The Trust
Beneficial Owner has paid or has caused to be paid to, or to an account at the
direction of, the Trustee, on the date hereof, the sum of $15 (or, in the case
of Notes issued with original issue discount, such amount multiplied by the
issue price of the Notes). The Trustee hereby acknowledges receipt in trust
from the Trust Beneficial Owner, as of the date hereof, of the foregoing
contribution, which shall be used along with the proceeds from the sale of the
series of Notes to purchase the Funding Agreement. Upon the creation of the
Trust and the registration of the Trust Beneficial Interest in the Securities
Register (as defined in the Trust Agreement) by the Registrar in the name of
the Trust Beneficial Owner, the Trust Beneficial Owner shall be the sole
beneficial owner of the Trust.

     Section 2.04 Acknowledgment. The Trustee, on behalf of the Trust,
expressly acknowledges its duties and obligations set forth in the Standard
Trust Terms incorporated herein.

     Section 2.05 Additional Terms.

     None

     Section 2.06 Omnibus Instrument; Execution and Incorporation of Terms.

     The parties to the Trust Agreement will enter into the Trust Agreement by
executing the Omnibus Instrument.

     By executing the Omnibus Instrument, the Trustee and the Trust Beneficial
Owner hereby agree that the Trust Agreement will constitute a legal, valid and
binding agreement between the Trustee and the Trust Beneficial Owner.

     All terms relating to the Trust or the series of Notes not otherwise
included in the Trust Agreement will be as specified in the Omnibus Instrument
or Pricing Supplement, as indicated herein.

A-2

 

     Section 2.07 Governing Law. The Trust Agreement will be governed by, and
construed in accordance with, the laws of the State of New York.

     Section 2.08 Counterparts. The Trust Agreement, through the Omnibus
Instrument, may be executed in any number of counterparts, each of which
counterparts shall be deemed to be an original, and all of which counterparts
shall constitute but one and the same instrument.

[Remainder of Page Intentionally Left Blank.]

A-3

 

SECTION B

LICENSE AGREEMENT

     This LICENSE AGREEMENT (this “License Agreement”), dated as of the date of
the Pricing Supplement, is entered into by and between Principal Financial
Services, Inc., an Iowa corporation with its principal place of business at 711
High Street, Des Moines, Iowa 50392 (the “Licensor”), and the Principal Life
Income Fundings Trust specified in the Omnibus Instrument (the “Licensee”).

W I T N E S S E T H:

     WHEREAS, the Licensor is the owner of certain trademarks and service marks
and registrations and pending applications therefor, and may acquire additional
trademarks and service marks in the future, all as described more fully below;

     WHEREAS, the Licensee desires to use certain of the Licensor’s trademarks
and service marks in connection with the Licensee’s activities, as described
more fully below;

     WHEREAS, the Licensor and the Licensee wish to formalize the agreement
between them regarding the Licensee’s use of the Licensor’s marks; and

     WHEREAS, the parties hereto desire to incorporate by reference those
certain Standard License Agreement Terms, dated March 5, 2004, and attached to
the Omnibus Instrument as Exhibit B (the “Standard License Agreement Terms”)
and all capitalized terms not otherwise defined herein (including the recitals
hereof) shall have the meanings set forth in the Standard License Agreement
Terms (the Standard License Agreement Terms and this License Agreement,
collectively, the “License Agreement”).

     NOW, THEREFORE, in consideration of the mutual promises set forth herein
and for other good and valuable consideration, the sufficiency and receipt of
which are hereby acknowledged, each party hereby agrees as follows:

ARTICLE 1

     Section 1.01 Incorporation by Reference. All terms, provisions and
agreements set forth in the Standard License Agreement Terms (except to the
extent expressly modified herein) are hereby incorporated herein by reference
with the same force and effect as though fully set forth herein. To the extent
that the terms set forth in Article 2 of this License Agreement are
inconsistent with the terms of the Standard License Agreement Terms, the terms
set forth in Article 2 herein shall apply.

ARTICLE 2

     Section 2.01 Additional Terms.

     None

B-1

 

     Section 2.02 Omnibus Instrument; Execution and Incorporation of Terms.

     The parties to the License Agreement will enter into the License Agreement
by executing the Omnibus Instrument.

     By executing the Omnibus Instrument, the Licensor and the Licensee hereby
agree that the License Agreement will constitute a legal, valid and binding
agreement between the Licensor and the Licensee.

     All terms relating to the Trust or the Notes not otherwise included in the
License Agreement will be as specified in the Omnibus Instrument or Pricing
Supplement, as indicated herein.

     Section 2.03 Counterparts. The License Agreement, through the Omnibus
Instrument, may be executed in any number of counterparts, each of which
counterparts shall be deemed to be an original, and all of which counterparts
shall constitute but one and the same instrument.

[Remainder of Page Intentionally Left Blank.]

B-2

 

SECTION C

INDENTURE

     This INDENTURE (this “Indenture”) is entered into as of the Original Issue
Date by and between the Principal Life Income Fundings Trust specified in the
Omnibus Instrument (the “Trust”) and Citibank, N.A., as indenture trustee (the
“Indenture Trustee”).

     Citibank, N.A., in its capacity as indenture trustee, hereby accepts its
role as Registrar, Paying Agent, Transfer Agent and Calculation Agent
hereunder.

     References herein to “Indenture Trustee,” “Registrar,” “Transfer Agent,”
“Paying Agent” or “Calculation Agent” shall include the permitted successors
and assigns of any such entity from time to time.

W I T N E S S E T H:

     WHEREAS, the Trust has duly authorized the execution and delivery of this
Indenture to provide for the issuance of Notes;

     WHEREAS, all things necessary to make this Indenture a valid and legally
binding agreement of the Trust and the other parties to this Indenture,
enforceable in accordance with its terms, have been done, and the Trust
proposes to do all things necessary to make the Notes, when executed by the
Trust and authenticated and delivered pursuant hereto, valid and legally
binding obligations of the Trust as hereinafter provided; and

     WHEREAS, the parties hereto desire to incorporate by reference those
certain Standard Indenture Terms, dated as of March 5, 2004, and attached to
the Omnibus Instrument as Exhibit C (the “Standard Indenture Terms”) and all
capitalized terms not otherwise defined herein (including the recitals hereof)
shall have the meanings set forth in the Standard Indenture Terms (the Standard
Indenture Terms and this Indenture, collectively, the “Indenture”).

     NOW, THEREFORE, for and in consideration of the premises and the purchase
of the Notes by the Holders thereof, it is mutually covenanted and agreed by
each of the parties hereto as follows:

ARTICLE 1

     Section 1.01 Incorporation by Reference. All terms, provisions and
agreements set forth in the Standard Indenture Terms (except to the extent
expressly modified herein) are hereby incorporated herein by reference (with
the same force and effect as though fully set forth herein). To the extent
that the terms set forth in Article 2 of this Indenture are inconsistent with
the terms of the Standard Indenture Terms, the terms set forth in Article 2
herein shall apply.

C-1

 

ARTICLE 2

     Section 2.01 Agreement to be Bound. Each of the Trust, the Indenture
Trustee, the Registrar, the Transfer Agent, the Paying Agent and the
Calculation Agent hereby agrees to be bound by all of the terms, provisions and
agreements set forth in the Indenture, with respect to all matters contemplated
in the Indenture, including, without limitation, those relating to the issuance
of the below-referenced Notes.

     Section 2.02 Designation of the Trust, the Notes, the Funding Agreement
and the Guarantee. The Trust created by the Trust Agreement and referred to in
the Indenture is the Principal Life Income Fundings Trust specified in the
Omnibus Instrument. The Notes issued by the Trust and governed by the
Indenture shall be the Notes specified in the Pricing Supplement. The Funding
Agreement designated hereby is the Funding Agreement designated in the Pricing
Supplement dated as of the Original Issue Date between the Trust and Principal
Life. The Guarantee designated hereby is the Guarantee dated as of the Original
Issue Date of PFG.

     Section 2.03 Additional Terms.

     None

     Section 2.04 Omnibus Instrument; Execution and Incorporation of Terms.

     The parties to the Indenture will enter into the Indenture by executing
the Omnibus Instrument.

     By executing the Omnibus Instrument, the Indenture Trustee, the Registrar,
the Transfer Agent, the Paying Agent, the Calculation Agent and the Trust
hereby agree that the Indenture will constitute a legal, valid and binding
agreement between the Indenture Trustee, the Registrar, the Transfer Agent, the
Paying Agent, the Calculation Agent and the Trust.

     All terms relating to the Trust or the Notes not otherwise included in the
Indenture will be as specified in the Omnibus Instrument or Pricing Supplement,
as indicated herein.

     Section 2.05 Counterparts. The Indenture, through the Omnibus Instrument,
may be executed in any number of counterparts, each of which counterparts shall
be deemed to be an original, and all of which counterparts shall constitute one
and the same instrument.

[Remainder of Page Intentionally Left Blank.]

C-2

 

SECTION D

TERMS AGREEMENT

     This TERMS AGREEMENT (this “Terms Agreement”) is entered into as of the
Original Issue Date by and among Principal Life Insurance Company (“Principal
Life”), Principal Financial Group, Inc. (“PFG”), the Principal Life Income
Fundings Trust specified in the Omnibus Instrument (the “Trust”) and the
Purchasing Agent specified in the Pricing Supplement (the “Purchasing Agent”).

W I T N E S S E T H:

     WHEREAS, Principal Life, PFG and the agents named therein, including the
Purchasing Agent have entered into that certain Distribution Agreement dated
March 5, 2004 (the “Distribution Agreement”).

     NOW, THEREFORE, in consideration of the mutual promises set forth herein
and other good and valuable consideration, the sufficiency and receipt of which
are hereby acknowledged, each of the parties hereby agrees as follows:

ARTICLE 1

     Section 1.01 Incorporation by Reference. The provisions of the
Distribution Agreement and the related definitions (unless otherwise specified
herein) are incorporated by reference herein and shall be deemed to have the
same force and effect as if set forth in full herein.

ARTICLE 2

     Section 2.01 Addition of Trust as Party to Distribution Agreement.

     Pursuant to Section 1 of the Distribution Agreement, each of the
undersigned parties hereby acknowledges and agrees that the Trust, upon
execution hereof by the Trust and the other parties to the Distribution
Agreement (other than any other trusts organized in connection with the
Registration Statement that are party thereto as of the date hereof), shall
become a Trust for purposes of the Distribution Agreement in accordance with
the terms thereof, in respect of the Notes, with all the authority, rights,
powers, duties and obligations of a Trust under the Distribution Agreement.
The Trust confirms that any agreement, covenant, acknowledgment, representation
or warranty under the Distribution Agreement applicable to the Trust is made by
the Trust at the date hereof, unless another time or times are specified in the
Distribution Agreement, in which case such agreement, covenant, acknowledgment,
representation or warranty shall be deemed to be confirmed by the Trust at such
specified time or times.

     Section 2.02 Purchase of Notes as Principal.

     (a) Subject in all respects to the terms and conditions of the
Distribution Agreement, the Trust hereby agrees to sell to the Purchasing Agent
and the Purchasing Agent hereby agrees to purchase the Notes having the terms
specified in the Pricing Supplement relating to such Notes.

D-1

 

     (b) In connection with any purchase of Notes from the Trust by the
Purchasing Agent as principal, the parties agrees that the items specified on
Schedule I of the Omnibus Instrument will be delivered as of the Settlement
Date.

     Section 2.03 Termination. Upon the termination of this Terms Agreement
pursuant to Section 13(b) of the Distribution Agreement the undersigned parties
hereby agree to that the expenses reasonably incurred prior to or in connection
with such termination will be borne by Principal Life and PFG.

     Section 2.04 Governing Law. This Terms Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard
to the principles of conflicts of laws thereof.

     Section 2.05 Notices. For purposes of Section 14 of the Distribution
Agreement, the Trust’s communications details are as set forth in Section E of
the Omnibus Instrument.

     Section 2.06 Omnibus Instrument; Execution and Incorporation of Terms.

     The parties to this Terms Agreement will enter into this Terms Agreement
by executing the Omnibus Instrument.

     By executing the Omnibus Instrument, each party hereto agrees that this
Terms Agreement will constitute a legal, valid and binding agreement by and
among such parties.

     All terms relating to the Trust or the Notes not otherwise included in
this Terms Agreement will be as specified in the Omnibus Instrument or Pricing
Supplement, as indicated herein.

     Section 2.07 Counterparts. This Terms Agreement, through the Omnibus
Instrument, may be executed in any number of counterparts, each of which
counterparts shall be deemed to be an original, and all of which counterparts
shall constitute but one and the same instrument.

[Remainder of Page Intentionally Left Blank.]

D-2

 

SECTION E

COORDINATION AGREEMENT

     This COORDINATION AGREEMENT (this “Coordination Agreement”), dated as of
the date of the Pricing Supplement, is entered into by and among Principal Life
Insurance Company (“Principal Life”), Principal Financial Group, Inc. (“PFG”),
the Principal Life Income Fundings Trust specified in the Omnibus Instrument
(the “Trust”), Principal Financial Services, Inc. (“PFSI”), Bankers Trust
Company, N.A. and Citibank, N.A., as indenture trustee (the “Indenture
Trustee”).

W I T N E S S E T H

     WHEREAS, the Trust will enter into the Funding Agreement with Principal
Life dated as of the Original Issue Date specified in the Pricing Supplement;

     WHEREAS, PFG will issue a Guarantee to the Trust as of the Original Issue
Date specified in the Pricing Supplement, which will fully and unconditionally
guarantee the payment obligations of Principal Life under the Funding
Agreement;

     WHEREAS, the Purchasing Agent (as defined in the Distribution Agreement)
have agreed to sell the Notes in accordance with the Registration Statement;

     WHEREAS, the Trust intends to issue the Notes in accordance with the
Indenture, to collaterally assign to, and grant a security interest in, the
Funding Agreement and the Guarantee to and in favor of the Indenture Trustee in
accordance with the Indenture to secure payment of the Notes;

     WHEREAS, the Custodian will hold the Funding Agreement and the Guarantee
on behalf of the Indenture Trustee pursuant to the terms of the Custodial
Agreement; and

     WHEREAS, certain licensing arrangements between the Trust and PFSI will be
governed pursuant to the provisions of the License Agreement.

     NOW, THEREFORE, to give effect to the agreements and arrangements
established under the Terms Agreement included in the Omnibus Instrument, as
applicable, the Trust Agreement, the Indenture and the Notes, and in
consideration of the agreements and obligations set forth herein and for other
good and valuable consideration, the sufficiency of which are hereby
acknowledged, each party hereby agrees as follows:

ARTICLE 1

     Section 1.01 Delivery of the Funding Agreement and the Guarantee. The
Trust hereby authorizes the Custodian, on behalf of the Indenture Trustee, to
receive the Funding Agreement from Principal Life and the Guarantee from PFG
pursuant to the assignment of the Funding Agreement and Guarantee (the
“Assignment”), to be entered into on the Original Issue Date, included in the
closing instrument dated as of the Original Issue Date (the “Closing
Instrument”).

E-1

 

     Section 1.02 Issuance and Purchase of the Notes.

     (a) Delivery of the Funding Agreement and the Guarantee to the Custodian,
on behalf of the Indenture Trustee, pursuant to the Assignment or execution of
the cross receipt contained in the Closing Instrument shall be confirmation of
payment by the Trust for the Funding Agreement.

     (b) The Trust hereby directs the Indenture Trustee, upon receipt by the
Custodian, on behalf of the Indenture Trustee, of the Funding Agreement
pursuant to the Assignment and upon receipt by the Custodian, on behalf of the
Indenture Trustee, of the Guarantee, (i) to authenticate the certificates
representing the Notes (the “Notes Certificates”) in accordance with the
Indenture and (ii) to (A) deliver each relevant Notes Certificate to the
clearing system or systems identified in each such Notes Certificate, or to the
nominee of such clearing system, or the custodian thereof, for credit to such
accounts as the Purchasing Agent may direct, or (B) deliver each relevant Notes
Certificate to the purchasers thereof as identified by the Purchasing Agent.

ARTICLE 2

     Section 2.01 Directions Regarding Periodic Payments. As registered owner
of the Funding Agreement and the Guarantee as collateral securing payments on
the Notes, the Indenture Trustee will receive payments on the Funding Agreement
and the Guarantee on behalf of the Trust. The Trust hereby directs the
Indenture Trustee to use such funds to make payments on behalf of the Trust
pursuant to the Trust Agreement and the Indenture.

     Section 2.02 Maturity of the Funding Agreement. Upon the maturity of the
Funding Agreement and the return of funds thereunder, the Trust hereby directs
the Indenture Trustee to set aside from such funds an amount sufficient for the
repayment of the outstanding principal on the Notes and Trust Beneficial
Interest when due.

ARTICLE 3

     Section 3.01 Certificates. Principal Life hereby agrees to deliver an
Officer’s Certificate, a copy of which is attached hereto as Exhibit E, on a
quarterly basis to any rating agency currently rating the Program. The Trust
hereby agrees to deliver an Officer’s Certificate, a copy of which is attached
hereto as Exhibit F, on a quarterly basis to any rating agency currently rating
the Program.

     Section 3.02 Filings. Principal Life hereby covenants to file, or cause
to be filed, in a timely manner on behalf of the Trust all reports,
certifications or similar filings required under the Securities Exchange Act of
1934, as amended.

ARTICLE 4

     Section 4.01 No Additional Liability. Nothing in this Coordination
Agreement shall impose any liability or obligation on the part of any party to
this Coordination Agreement to make any payment or disbursement in addition to
any liability or obligation such party has under the Program Documents, except
to the extent that a party has actually received funds which it is obligated to
disburse pursuant to this Coordination Agreement.

E-2

 

     Section 4.02 No Conflict. This Coordination Agreement is intended to be
in furtherance of the agreements reflected in the documents related to the
Program Documents, and not in conflict. To the extent that a provision of this
Coordination Agreement conflicts with the provisions of one or more Program
Documents, the provisions of such Program Documents shall govern.

     Section 4.03 Governing Law. This Coordination Agreement shall be governed
by and construed in accordance with the laws of the State of New York without
regard to the principles of conflicts of laws thereof.

     Section 4.04 Severability. If any provision in this Coordination
Agreement shall be invalid, illegal or unenforceable, such provision shall be
deemed severable from the remaining provisions of this Coordination Agreement
and shall in no way affect the validity or enforceability of such other
provisions of this Coordination Agreement.

     Section 4.05 Severability. If any provision in this Coordination
Agreement shall be invalid, illegal or unenforceable, such provision shall be
deemed severable from the remaining provisions of this Coordination Agreement
and shall in no way affect the validity or enforceability of such other
provisions of this Coordination Agreement.

     Section 4.06 Notices. All demands, notices and communications under this
Coordination Agreement shall be in writing and shall be deemed to have been
duly given upon receipt at the addresses set forth below:

	 	 	 
	To the Trust:
	 	 
	 
	

	 	Principal Life Income Fundings
Trust (followed by the number set forth in the Omnibus Instrument)
	

	 	c/o U.S. Bank Trust National Association
	

	 	100 Wall Street, 16th Floor
	

	 	New York, New York 10005
	

	 	Attention: Corporate Trust Administration
	

	 	Telephone: (212) 361-2458
	

	 	Facsimile: (212) 809-5459 and (212) 509-3384
	 
	To the Indenture Trustee:
	 	 
	 
	

	 	Citibank, N.A.
	

	 	Citibank Agency & Trust
	

	 	388 Greenwich Street, 14th Floor
	

	 	New York, New York 10013
	

	 	Attention: Nancy Forte
	

	 	Telephone: (212) 816-5685
	

	 	Facsimile: (212) 816-5527

E-3

 

	 	 	 
	To Principal Life:

	 
	

	 	Principal Life Insurance Company
	

	 	711 High Street
	

	 	Des Moines, Iowa 50392
	

	 	Attention: General Counsel
	

	 	Telephone: (515) 247-5111
	

	 	Facsimile: (515) 248-3011
	 
	 	 	With a copy to:

	 
	

	 	Principal Life Insurance Company
	

	 	711 High Street
	

	 	Des Moines, Iowa 50392
	

	 	Attention: Jim Fifield
	

	 	Telephone: (515) 248-9196
	

	 	Facsimile: (515) 235-9353
	 
	To PFG:

	 
	

	 	Principal Financial Group, Inc.
	

	 	711 High Street
	

	 	Des Moines, Iowa 50392
	

	 	Attention: General Counsel
	

	 	Telephone: (515) 247-5111
	

	 	Facsimile: (515) 248-3011
	 
	 	 	With a copy to:
	 	 
	 
	

	 	Principal Life Insurance Company
	

	 	711 High Street
	

	 	Des Moines, Iowa 50392
	

	 	Attention: Jim Fifield
	

	 	Telephone: (515) 248-9196
	

	 	Facsimile: (515) 235-9353
	 
	To Principal Financial
Services, Inc.:
	 	 
	 
	

	 	Principal Financial Services, Inc.
	

	 	711 High Street
	

	 	Des Moines, Iowa 50392
	

	 	Attention: General Counsel
	

	 	Telephone: (515) 247-5111
	

	 	Facsimile: (515) 248-3011

E-4

 

	 	 	 
	 	 	With a copy to:
	 	 
	 
	

	 	Principal Life Insurance Company
	

	 	711 High Street
	

	 	Des Moines, Iowa 50392
	

	 	Attention: Jim Fifield
	

	 	Telephone: (515) 248-9196
	

	 	Facsimile: (515) 235-9353
	 
	To Bankers Trust Company, N.A:
	 	 
	 
	

	 	Bankers Trust Company, N.A.
	

	 	665 Locust Street
	

	 	Des Moines, Iowa 50309-3702
	

	 	Attention: Angela C. Brick
	

	 	Telephone: (515) 245-2820
	

	 	Facsimile: (515) 247-2101

or at such other address as shall be designated by any such party in a written
notice to the other parties.

ARTICLE 5

     Section 5.01 Omnibus Instrument; Execution and Incorporation of Terms.

     The parties to this Coordination Agreement will enter into this
Coordination Agreement by executing the Omnibus Instrument.

     By executing the Omnibus Instrument, each party hereto agrees that this
Coordination Agreement will constitute a legal, valid and binding agreement by
and among the Trust, Principal Life, PFG, PFSI, the Custodian and the Indenture
Trustee.

     All terms relating to the Trust or the Notes not otherwise included in
this Coordination Agreement will be as specified in the Omnibus Instrument or
Pricing Supplement, as indicated herein.

     Section 5.02 Acknowledgment. Principal Life hereby acknowledges Section
2.10 of the Indenture and Section 6.1 of the Custodial Agreement. The Trust
hereby acknowledges and agrees to the terms of the Custodial Agreement.

     Section 5.03 Counterparts. This Coordination Agreement, through the
Omnibus Instrument, may be executed in any number of counterparts, each of
which counterparts shall be deemed to be an original, and all of which
counterparts shall constitute but one and the same instrument.

     Section 5.04 Capitalized Terms. All capitalized terms used herein and not
otherwise defined in this Coordination Agreement will have the meanings set
forth in the Indenture.

[Remainder of Page Intentionally Left Blank.]

E-5

 

SECTION F

MISCELLANEOUS AND EXECUTION PAGES

      This Omnibus Instrument may be executed by each of the parties hereto in any number of
counterparts, and by each of the parties hereto on separate counterparts, each of which
counterparts, when so executed and delivered, shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.

      Each signatory, by its execution hereof, does hereby become a party to each of the agreements
or indenture identified for such party as of the date specified in such agreements or indenture.

      IN WITNESS WHEREOF, the undersigned have executed this Omnibus Instrument with respect to the
Notes as of the date first written above.

	 	 	 	 	 
	 	PRINCIPAL LIFE INSURANCE COMPANY (in executing below
agrees and becomes a party to (i) the Terms Agreement
set forth in Section D herein and (ii) the Coordination
Agreement set forth in Section E herein)

 	 
	 	By:  	/s/ Christopher P. Freese
 	 
	 	 	Name:  	Christopher P. Freese 	 
	 	 	Title:  	Officer 	 
	 
	 	PRINCIPAL FINANCIAL GROUP, INC. (in executing below
agrees and becomes a party to (i) the Terms Agreement
set forth in Section D herein and (ii) the Coordination
Agreement set forth in Section E herein)

 	 
	 	By:  	/s/ Elizabeth D. Swanson
 	 
	 	 	Name:  	Elizabeth D. Swanson 	 
	 	 	Title:  	Counsel 	 
	 
	 	PRINCIPAL FINANCIAL SERVICES, INC. (in executing below
agrees and becomes a party to (i) the License Agreement
set forth in Section B herein and (ii) the Coordination
Agreement set forth in Section E herein)

 	 
	 	By:  	/s/ Elizabeth D. Swanson
 	 
	 	 	Name:  	Elizabeth D. Swanson 	 
	 	 	Title:  	Counsel 	 
	 

[Execution Page 1 of 3]

 

 

	 	 	 	 	 
	 	THE PRINCIPAL LIFE INCOME FUNDINGS TRUST DESIGNATED IN
THIS OMNIBUS INSTRUMENT (in executing below agrees and
becomes a party to (i) the License Agreement set forth
in Section B herein, (ii) the Indenture set forth in
Section C herein, (iii) the Terms Agreement set forth
in Section D herein and (iv) the Coordination Agreement
set forth in Section E herein)

By: U.S. Bank Trust National Association, not in its
individual capacity but solely in its capacity as
trustee of the Trust

 	 
	 	By:  	/s/ Thomas E. Tabor
 	 
	 	 	Name:  	Thomas E. Tabor 	 
	 	 	Title:  	Vice President 	 
	 
	 	U.S. BANK TRUST NATIONAL ASSOCIATION (in executing
below agrees and becomes a party to the Trust Agreement
set forth in Section A herein), as Trustee

 	 
	 	By:  	/s/ Thomas E. Tabor
 	 
	 	 	Name:  	Thomas E. Tabor 	 
	 	 	Title:  	Vice President 	 
	 
	 	GSS HOLDINGS II, INC. (in executing below agrees and
becomes a party to the Trust Agreement set forth in
Section A herein), as Trust Beneficial Owner

 	 
	 	By:  	/s/ Andrew L. Stidd
 	 
	 	 	Name:  	Andrew L. Stidd 	 
	 	 	Title:  	President 	 
	 
	 	CITIBANK, N.A. (in executing below agrees and becomes a
party to (i) the Indenture set forth in Section C
herein, as Indenture Trustee, Registrar, Transfer
Agent, Paying Agent and Calculation Agent and (ii) the
Coordination Agreement set forth in Section E herein),
as Indenture Trustee, Registrar, Transfer Agent, Paying
Agent and Calculation Agent

 	 
	 	By:  	/s/ Nancy Forte
 	 
	 	 	Name:  	Nancy Forte 	 
	 	 	Title:  	Assistant Vice President 	 
	 

[Execution Page 2 of 3]

 

 

	 	 	 	 	 
	 	BANKERS TRUST COMPANY, N.A. (in executing below agrees
and becomes a party to the Coordination Agreement set
forth in Section E herein)

 	 
	 	By:  	/s/ Patty Ashbaugh
 	 
	 	 	Name:  	Patty Ashbaugh 	 
	 	 	Title:  	Vice President 	 
	 
	 	MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED (in
executing below agrees and becomes a party to the Terms
Agreement set forth in Section D herein)

 	 
	 	By:  	/s/ Diane Kenna
 	 
	 	 	Name:  	Diane Kenna 	 
	 	 	Title:  	Authorized Signatory 	 
	 

[Execution Page 3 of 3]

 

 

INDEX OF EXHIBITS AND SCHEDULES TO THE OMNIBUS INSTRUMENT

	 	 	 
	Exhibit A

	 	Standard Trust Terms – Incorporated herein by reference to Exhibit
4.6 to Principal Life Insurance Company’s and Principal Financial
Group, Inc.’s Registration Statement on Form S-3 (Registration
Nos. 333-110499 and 333-110499-01.
	 
	 	 
	Exhibit B

	 	Standard License Agreement Terms – Incorporated herein by
reference to Exhibit 99.1 to Principal Life Insurance Company’s
Current Report on Form 8-K, filed on March 29, 2004.
	 
	 	 
	Exhibit C

	 	Standard Indenture Terms – Incorporated herein by reference to
Exhibit 4.1 to Principal Life Insurance Company’s and Principal
Financial Group, Inc.’s Registration Statement on Form S-3
(Registration Nos. 333-110499 and 333-110499-01.
	 
	 	 
	Exhibit D

	 	Pricing Supplement – Incorporated herein by reference to the
Pricing Supplement with respect to Principal Life Income Fundings
Trust 2005-38, filed on April 25, 2005, with the Securities and
Exchange Commission pursuant to 

Rule 424(b)(5) under the
Securities Act of 1933, as amended.
	 
	 	 
	Exhibit E

	 	Principal Life Insurance Company Officer’s Certificate
	 
	 	 
	Exhibit F

	 	Principal Life Income Fundings Trusts Trustee Officer’s Certificate
	 
	 	 
	Schedule I

	 	Terms Agreement Specifications

 

 

EXHIBIT E

Principal Life Insurance Company

Officer’s Certificate

     The undersigned, an officer of Principal Life Insurance Company, an Iowa
stock life insurance company (“Principal Life”), does hereby certify to
Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies,
Inc., in such capacity and on behalf of Principal Life, to the knowledge of the
undersigned and after reasonable inquiry, that:

	 	 	 
	1.

	 	each of the representations and warranties of Principal Life
contained in each Expense and Indemnity Agreement entered into in
connection with the Registration Statement (defined below), and each
Funding Agreement issued in connection with the Program (the
“Specified Agreements”) (other than any representation or warranty
expressly made as of a date prior to the date hereof) are true and
correct on and as of the date hereof, with the same effect as though
such representation or warranty had been made on and as of the date
hereof;
	 
	2.

	 	no default under any of the Specified Agreements and no event
or any condition which, with notice or lapse of time or both, would
become a default, has occurred and is continuing as of the date
hereof;
	 
	3.

	 	Principal Life has performed and complied with, respectively,
in all material respects, all of the agreements, covenants,
obligations and conditions applicable to Principal Life required by
the Specified Agreements to be performed or complied with by
Principal Life on or before the date hereof;
	 
	4.

	 	the Registration Statement filed on Form S-3 (File Nos.
333-110499 and 333-110499-01) (the “Registration Statement”) by
Principal Life and Principal Financial Group, Inc. has been declared
effective by the Securities and Exchange Commission (the
“Commission”) under the Securities Act of 1933, as amended (the
“Act”) and no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been commenced by or are pending before or contemplated
by the Commission;
	 
	5.

	 	all filings, if any, required by Rule 424 and Rule 430A under
the Act have been made in a timely manner;
	 
	6.

	 	since
     , the Trusts organized in connection with the
program contemplated by the Registration Statement have issued the
following series of Notes:
	 
	

	 	[List each series of Notes.] [(collectively, the “Designated Notes”)]; and
	 
	7.

	 	the Funding Agreements issued in connection with the Designated
Notes have been executed and delivered by Principal Life in accordance
with the terms and conditions of the Program Documents.

E-1

 

          Capitalized terms used herein and not otherwise defined herein shall have the meanings set
forth in the Standard Indenture Terms attached as Exhibit 4.1 to the
Registration Statement.

     IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
the • day of •, 200•.

	 	 	 
	

	[Name], [in his/her] capacity as an
authorized officer of Principal Life
	 
	 	By:
	 
	 	 	

	

	 	Name:
	

	 	Title:

	 	 	 	 	 

E-2

 

EXHIBIT F

Principal Life Income Fundings Trusts

Trustee Officer’s Certificate

     U.S. Bank Trust National Association, not in its individual capacity but
solely in its capacity as trustee acting on behalf of each common law trust
organized under the laws of the State of New York (in such capacity, the
“Trustee,” and each such common law trust being referred to herein as, a
“Trust”) in connection with the program contemplated by Registration Statement
Nos. 333-110499 and 333-110499-01 filed on Form S-3 (the “Registration
Statement”) by Principal Life Insurance Company and Principal Financial Group,
Inc. with the Securities and Exchange Commission, does hereby certify to
Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies,
Inc., in such capacity and on behalf of each Trust, to the knowledge of the
Trustee, that:

	 	 	 
	1.

	 	each of the representations and warranties of each Trust
contained in the Notes issued in connection with the Program, each
Indenture entered into in connection with the Registration Statement
and the Expense and Indemnity Agreement concerning the Trusts (the
“Specified Agreements”) (other than any representation or warranty
expressly made as of a date prior to the date hereof) are true and
correct on and as of the date hereof, with the same effect as though
such representation or warranty had been made on and as of the date
hereof;
	 
	2.

	 	no default under any of the Specified Agreements and no event
or any condition which, with notice or lapse of time or both, would
become a default, has occurred and is continuing as of the date
hereof;
	 
	3.

	 	each Trust has performed and complied with, respectively, in
all material respects, all of the agreements, covenants, obligations
and conditions applicable to such Trust required by the Specified
Agreements to be performed or complied with by such Trust on or
before the date hereof;
	 
	4.

	 	the Notes issued in connection with the Program, have been
issued, in all material respects, in accordance with the terms and
conditions of the Program Documents; and
	 
	5.

	 	each Funding Agreement has been executed and delivered by the
related Trust in accordance with the terms and conditions of the
Program Documents.

     Capitalized terms used herein and not otherwise defined herein shall have
the meanings set forth in the Standard Indenture Terms attached as Exhibit 4.1
to the Registration Statement. In no event shall U.S. Bank Trust National
Association in its personal corporate capacity have any liability for any of
the certifications or statements contained in this Trustee Officer’s
Certificate, such liability being solely that of each Trust.

F-1

 

     IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
the • day of •, 200•.

	 	 	 
	

	 	U.S. Bank Trust National Association, not
in its capacity but solely in its capacity
as Trustee acting on behalf of each Trust
	 
	 	By:
	 
	 	 	

	

	 	Name:
	

	 	Title:

F-2

 

SCHEDULE I

Terms Agreement Specifications

     In connection with Section 3(a)(iv) of the Distribution Agreement, the
Program under which the Notes are issued is rated Aa2 by Moody’s Investors
Service, Inc. (“Moody’s”) and AA by Standard & Poor’s Rating Services, a
division of The McGraw-Hill Companies, Inc. (“S&P”). Principal Life and PFG
expect that the Notes will be rated Aa2 by Moody’s. The Company’s financial
strength rating is Aa2 by Moody’s and AA by S&P.

     In accordance with Section 2.02(b) of the Terms Agreement and in
connection with the purchase of Notes from the Trust by the Purchasing Agent as
principal, the following items will be delivered on the Settlement Date:

	 	•	 	Opinion of Sidley Austin Brown & Wood LLP regarding the
enforceability of the Guarantee and the Notes.

     All capitalized terms used herein and not otherwise defined herein will
have the meanings set forth in the Distribution Agreement.

I-1

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