Document:

Exhibit 10.4

 Exhibit 10.4 
 Execution Copy 
 LUNA
INNOVATIONS INCORPORATED 
 AMENDED & RESTATED INVESTOR RIGHTS AGREEMENT 
 January 13, 2010 

 TABLE OF CONTENTS 
  

							
	 	 	 	  	 	  	Page
	 Section 1 Definitions
	  	2
				
		 	 1.1
	  	Certain Definitions.	  	2
		
	 Section 2 Registration Rights
	  	4
				
		 	 2.1
	  	Requested Registration.	  	4
		 	 2.2
	  	Company Registration.	  	7
		 	 2.3
	  	Registration on Form S-3.	  	8
		 	 2.4
	  	Expenses of Registration.	  	9
		 	 2.5
	  	Registration Procedures.	  	9
		 	 2.6
	  	Indemnification.	  	10
		 	 2.7
	  	Information by Holder.	  	12
		 	 2.8
	  	Restrictions on Transfer.	  	12
		 	 2.9
	  	Rule 144 Reporting.	  	14
		 	 2.10
	  	Intentionally Omitted.	  	14
		 	 2.11
	  	Delay of Registration.	  	14
		 	 2.12
	  	Transfer or Assignment of Registration Rights.	  	14
		 	 2.13
	  	Limitations on Subsequent Registration Rights.	  	15
		 	 2.14
	  	Termination of Registration Rights.	  	15
		
	 Section 3 Miscellaneous
	  	15
				
		 	 3.1
	  	Right of First Review.	  	15
		 	 3.2
	  	Amendment.	  	15
		 	 3.3
	  	Notices.	  	16
		 	 3.4
	  	Governing Law.	  	16
		 	 3.5
	  	Successors and Assigns.	  	16
		 	 3.6
	  	Entire Agreement.	  	16
		 	 3.7
	  	Delays or Omissions.	  	17
		 	 3.8
	  	Severability.	  	17
		 	 3.9
	  	Titles and Subtitles.	  	17
		 	 3.10
	  	Counterparts.	  	17
		 	 3.11
	  	Telecopy Execution and Delivery.	  	17
		 	 3.12
	  	Jurisdiction; Venue; Waiver of Jury Trial.	  	17
		 	 3.13
	  	Further Assurances.	  	17
		 	 3.14
	  	Conflict.	  	18
		 	 3.15
	  	Attorneys’ Fees.	  	18
		 	 3.16
	  	Termination Upon a Change of Control.	  	18

  

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 LUNA INNOVATIONS INCORPORATED 
 AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT 
 This
Amended and Restated Investor Rights Agreement (this “Agreement”) is made as of January 13, 2010, by and among Luna Innovations Incorporated, a Delaware corporation (the “Company”), the entity (the
“Investor”) listed on Exhibit A hereto, and certain stockholders of the Company listed on Exhibit B hereto (the “Stockholders”). Unless otherwise defined herein, capitalized terms used in this
Agreement have the meanings ascribed to them in Section 1. 
 RECITALS 
 WHEREAS: the Investor is a party to the Class C Common Stock and Note Purchase Agreement made and entered into as of
December 30, 2005, by and between the Company, the Investor, and certain Stockholders (the “Prior Agreement”) pursuant to which, among other things, the Investor purchased senior convertible promissory notes (the
“Notes”). 
 WHEREAS: the Company has authorized the reservation and issuance of a new series of
preferred stock of the Company to be designated as Series A Preferred Stock, par value $0.001 per share (“Series A Preferred”) that is convertible into shares of the Company’s common stock, par value $0.001 per share
(“Common Stock”). 
 WHEREAS: the Investor wishes to exchange (the “Exchange”),
upon the terms and conditions set forth in the Securities Purchase and Exchange Agreement between the Company and Investor, dated as of January 12, 2010 (the “Exchange Agreement”), all of the outstanding Notes issued pursuant
to the Prior Agreement for 1,321,514 shares of Series A Preferred such that all outstanding principal would be treated as retired and all accrued and unpaid interest under the Notes would be treated as paid in full. In addition, as part of the
Exchange, the Company will also issue warrants (the “New Warrants”) to purchase an aggregate of an additional 356,000 shares of Common Stock. Further, the exercise price of the warrants currently held by the Investor (the
“Existing Warrants,” together with the New Warrants, the “Warrants”) to purchase 10,000 shares of the Company’s Common Stock shall be amended to reduced the exercise price of such Existing Warrants to $2.50 per
share (the shares of Common Stock issuable upon exercise of or otherwise pursuant to the Warrants issued to the Investor, collectively, the “Warrant Shares”). 
 WHEREAS: The Investor, the Company and certain of the Stockholders are parties to that certain Investor Rights Agreement made
and entered into as of December 30, 2005 (the “Original Agreement”). 
 WHEREAS: the
Company, the Investor and the Holders holding a majority of the Registrable Securities as defined under the Original Agreement (collectively, the “Requisite Stockholders”) desire to amend and restate the Original Agreement as
provided herein. 
 WHEREAS: the obligations in the Exchange Agreement are conditioned upon the execution and delivery of
this Agreement by the Company and the Requisite Stockholders; and 

 WHEREAS: in consideration of the Exchange, the Company, the Investor and the
Stockholders have agreed to the provisions set forth below. 
 NOW, THEREFORE: in consideration of the mutual promises
and covenants set forth herein, and other consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 
 Section 1 
 Definitions 
 1.1 Certain Definitions. As used in this Agreement, the following terms shall have the meanings set forth below: 
 (a) “Best Efforts” means the efforts that a prudent person desirous of achieving a result would use in similar
circumstances to ensure that such result is achieved as expeditiously as practical unless such efforts would result in a Material Adverse Effect on the Company, provided all costs and expenses that will be necessary for the Company to incur in order
to satisfy its obligations under this Agreement pursuant to a request to register shares of Common Stock pursuant to the Investor’s rights under this Agreement shall not be deemed, in and of itself, to be a Material Adverse Effect on the
Company. 
 (b) “Carilion” shall mean Carilion Clinic or its assigns. 
 (c) “Change of Control” shall mean any transaction or series of related transactions to which the Company is a party in
which one hundred percent (100%) of the Company’s outstanding equity is sold and voting power is transferred. 
 (d)
“Commission” shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. 
 (e) “Common Stock” shall have the meaning set forth in the Recitals hereto. 
 (f) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, or any similar successor federal statute and the rules and regulations thereunder, all as the same shall be
in effect from time to time. 
 (g) “Exchange Agreement” shall have the meaning set forth in the Recitals
hereto. 
 (h) “Holder” shall mean any Investor or Major Stockholder who holds Registrable Securities and any
holder of Registrable Securities to whom the registration rights conferred by this Agreement have been duly and validly transferred in accordance with Section 2.12 of this Agreement. 
 (i) “Indemnified Party” shall have the meaning set forth in Section 2.6(c) hereto. 
  

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 (j) “Indemnifying Party” shall have the meaning set forth in
Section 2.6(c) hereto. 
 (k) “Initiating Holders” shall mean any Holder or Holders who in the
aggregate hold not less than a majority of (i) the outstanding Registrable Securities or (ii) the outstanding Registrable Securities issued or issuable, directly or indirectly, pursuant to the conversion of the Series A Preferred and
exercise of the Warrants. 
 (l) “Major Stockholder” shall mean Kent A. Murphy, Ph.D. or any permitted
transferee. 
 (m) “Material Adverse Effect” means a material adverse change or any material development
involving a prospective adverse change, in or adversely affecting the management, financial position, stockholders’ equity or results of operations of the Company, provided, an order approving the Plan shall not be deemed to be a Material
Adverse Effect. 
 (n) “Other Selling Stockholders” shall mean persons other than Holders who, by virtue of
agreements with the Company, are entitled to include their Other Shares in certain registrations hereunder. 
 (o)
“Other Shares” shall mean shares of Common Stock, other than Registrable Securities (as defined below), with respect to which registration rights have been granted. 
 (p) “Plan” shall mean the First Amended Joint Plan of Reorganization of Luna Innovations Incorporated and Luna
Technologies, Inc, dated December 18, 2009, as it may be further amended, and together with the Exhibits thereto. 
 (q) “Registrable Securities” shall mean (i) shares of Common Stock beneficially owned by the Holders and (ii) shares of Common Stock issued or issuable, directly or indirectly, pursuant to the conversion of the
Series A Preferred and exercise of the Warrants; provided, however, that Registrable Securities shall not include any shares of Common Stock described in clause (i) or (ii) above which have previously been registered or which
have been sold to the public either pursuant to a registration statement or Rule 144, or which have been sold in a private transaction in which the transferor’s rights under this Agreement are not validly assigned in accordance with this
Agreement. 
 (r) The terms “register,” “registered” and “registration” shall
refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act and applicable rules and regulations thereunder, and the declaration or ordering of the effectiveness of such registration
statement. 
 (s) “Registration Expenses” shall mean all expenses incurred in effecting any registration
pursuant to this Agreement, including, without limitation, all registration, qualification, and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, blue-sky fees and expenses, and expenses of any regular
or special audits incident to or required by any such registration, but shall not include Selling Expenses, fees and disbursements of counsel for the Holders and the compensation of regular employees of the Company, which shall be paid in any event
by the Company. 
  

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 (t) “Restricted Securities” shall mean any Registrable Securities required
to bear the first legend set forth in Section 2.8(c) hereof. 
 (u) “Rule 144” shall mean Rule 144
as promulgated by the Commission under the Securities Act, as such rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission. 
 (v) “Rule 145” shall mean Rule 145 as promulgated by the Commission under the Securities Act, as such rule may be amended
from time to time, or any similar successor rule that may be promulgated by the Commission. 
 (w) “Securities
Act” shall mean the Securities Act of 1933, as amended, or any similar successor federal statute and the rules and regulations thereunder, all as the same shall be in effect from time to time. 
 (x) “Selling Expenses” shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to
the sale of Registrable Securities and fees and disbursements of counsel for any Holder. 
 (y) “Series A
Preferred” shall have the meaning set forth in the Recitals hereto. 
 (z) “Withdrawn Registration”
shall mean a forfeited demand registration under Section 2.1 in accordance with the terms and conditions of Section 2.4. 
 Section 2 
 Registration Rights 
 2.1 Requested Registration. 
 (a) Request for Registration. Subject to the conditions set forth in this Section 2.1, if the Company shall receive from Initiating Holders a written request signed by such Initiating
Holders that the Company effect any registration with respect to Registrable Securities held by such Initiating Holders, provided such request states the number of shares of Registrable Securities to be disposed of and the intended methods of
disposition of such shares by such Initiating Holders, the Company will: 
 (i) promptly give written notice of the proposed
registration to all other Holders; and 
 (ii) file and use its Best Efforts to effect such registration within ninety
(90) days of such written request from the Initiating Holders (including, without limitation, filing post-effective amendments, appropriate qualifications under applicable blue-sky or other state securities laws, and appropriate compliance with
the Securities Act) and to permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in

  

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such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request received by the Company within
twenty (20) days after such written notice from the Company is mailed or delivered. 
 (b) Limitations on Requested
Registration. The Company shall not be obligated to effect, or to take any action to effect, any such registration pursuant to this Section 2.1: 
 (i) If the Initiating Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration statement, propose to sell Registrable Securities and such other
securities (if any) the aggregate proceeds of which (after deduction for underwriter’s discounts and expenses related to the issuance) are less than $500,000; 
 (ii) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification, or compliance, unless the
Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; 
 (iii) After
the Company has initiated two (2) such registrations pursuant to this Section 2.1; or 
 (iv) If the
Initiating Holders propose to dispose of shares of Registrable Securities which may be immediately registered on Form S-3 pursuant to a request made under Section 2.3 hereof. 
 (c) Deferral. If (i) in the good faith judgment of the board of directors of the Company (the “Board”), the
filing of a registration statement covering the Registrable Securities would be detrimental to the Company and the Board concludes, as a result, that it is in the best interests of the Company to defer the filing of such registration statement at
such time, and (ii) the Company shall furnish to such Holders a certificate signed by the Chief Executive Officer of the Company stating that in the good faith judgment of the Board, it would be detrimental to the Company for such registration
statement to be filed in the near future and that it is, therefore, in the best interests of the Company to defer the filing of such registration statement, then (in addition to the limitations set forth in Section 2.1(b) above) the
Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request of the Initiating Holders, and, provided further, that the Company shall not defer its obligation in this manner more
than once in any twelve-month period. 
 (d) Other Shares. The registration statement filed pursuant to the request of
the Initiating Holders may, subject to the provisions of Section 2.1(e), include Other Shares, and may include securities of the Company being sold for the account of the Company. 
 (e) Underwriting. If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 2.1 and the Company shall include such information in the written notice given pursuant to Section 2.1(a)(i). In such
event, the right of any Holder to include all or any portion of its Registrable Securities in such

  

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registration pursuant to this Section 2.1 shall be conditioned upon such Holder’s participation in an underwriting and the inclusion of such Holder’s Registrable Securities
to the extent provided herein. If the Company shall request inclusion in any registration pursuant to Section 2.1 of securities being sold for its own account, or if other persons shall request inclusion in any registration pursuant to
Section 2.1, the Initiating Holders shall, on behalf of all Holders, offer to include such securities in the underwriting and such offer shall be conditioned upon the participation of the Company or such other persons in such
underwriting and the inclusion of the Company’s and such person’s other securities of the Company and their acceptance of the further applicable provisions of this Section 2. The Company shall (together with all Holders and
other persons proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders, which underwriters are reasonably acceptable to the Company. 
 Notwithstanding any other
provision of this Section 2.1, if the underwriter determines in good faith that marketing factors require a limitation of the number of shares to be underwritten, the number of shares that may be included in the underwriting shall be
allocated in the following order of priority: first, to the Investor; second, to any other Initiating Holders; third, to the Company for securities being sold for its own account; fourth, to the Major Stockholder, and fifth, to any other Holders
that have requested inclusion of their shares in the underwriting on a pro rata basis based on the total number of Registrable Securities held by such Holders; provided, however, that no such reduction shall reduce the amount of
securities of the Initiating Holders included in the registration below twenty-five percent (25%) of the total amount of securities included in such registration; provided, further, that, notwithstanding the any of the foregoing to the
contrary, in no event shall the amount of Registrable Securities of the Investor to be included in such underwriting be reduced until all Registrable Securities held by the Major Stockholder, by the other Holders and by any Other Selling
Stockholders have been first excluded from the underwriting in their entirety. In no event will shares of any Other Selling Stockholder be included in such registration without the written consent of the Initiating Holder(s) if such inclusion would
reduce the number of shares that may be included by the Initiating Holders. 
 If a person who has requested inclusion in such
registration as provided above does not agree to the terms of any such underwriting, such person shall be excluded therefrom by written notice from the Company, the underwriter or the Initiating Holders. The securities so excluded shall also be
withdrawn from registration. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall also be withdrawn from such registration. If shares are so withdrawn from the registration and if the number of shares to
be included in such registration was previously reduced as a result of marketing factors pursuant to this Section 2.1(e), then the Company shall then offer to all Holders and Other Selling Stockholders who have retained rights to include
securities in the registration the right to include additional Registrable Securities or Other Shares in the registration in an aggregate amount equal to the number of shares so withdrawn, with such shares to be allocated among such Holders and
Other Selling Stockholders requesting additional inclusion, as set forth above. 
  

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 2.2 Company Registration. 
 (a) Company Registration. If the Company shall determine to register any of its securities either for its own account or the account
of a security holder or holders, other than a registration pursuant to Section 2.1 or 2.3, a registration relating solely to employee benefit plans, a registration relating to the offer and sale of debt securities, a
registration relating to a corporate reorganization or other Rule 145 transaction, or a registration on any registration form that does not permit secondary sales, the Company will: 
 (i) promptly give written notice of the proposed registration to all Holders; and 
 (ii) use its commercially reasonable efforts to include in such registration (and any related qualification under blue-sky laws or other
compliance), except as set forth in Section 2.2(b) below, and in any underwriting involved therein, all of such Registrable Securities as are specified in a written request or requests made by any Holder or Holders received by the
Company within ten (10) days after such written notice from the Company is mailed or delivered. Such written request may specify all or a part of a Holder’s Registrable Securities. 
 (b) Underwriting. If the registration of which the Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 2.2(a)(i). In such event, the right of any Holder to registration pursuant to this Section 2.2 shall be
conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Company, the Other Selling Stockholders and the other holders of securities of the Company with registration rights to participate therein distributing their securities through such underwriting) enter into
an underwriting agreement in customary form with the representative of the underwriter or underwriters selected by the Company. 
 Notwithstanding any other provision of this Section 2.2, if the underwriters advise the Company in writing that marketing factors require a limitation on the number of shares to be underwritten, the underwriters may (subject to
the limitations set forth below) exclude all Registrable Securities from, or limit the number of Registrable Securities to be included in, the registration and underwriting. The Company shall so advise all holders of securities requesting
registration, and the number of shares of securities that are entitled to be included in the registration and underwriting shall be allocated in the following order of priority: first, to the Company for securities being sold for its own account;
second, to the Investor; third, to the Major Stockholder; and fourth, to any other Holders that have requested inclusion of their shares in the underwriting on a pro rata basis based on the total number of Registrable Securities held by such
Holders; provided, however, that no such reduction shall reduce the amount of securities of the Holders included in the registration below twenty-five percent (25%) of the total amount of securities included in such registration;
provided, further, that, notwithstanding the any of the foregoing to the contrary, in no event shall the amount of Registrable Securities of the Investor to be included in such underwriting be reduced until all Registrable Securities held by the
Major Stockholder, by the other Holders and by any Other Selling Stockholders have been first excluded from the underwriting in their entirety. 
  

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 If a person who has requested inclusion in such registration as provided above does not
agree to the terms of any such underwriting, such person shall also be excluded therefrom by written notice from the Company or the underwriter. The Registrable Securities or other securities so excluded shall also be withdrawn from such
registration. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration. 
 (c) Right to Terminate Registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.2 prior to the effectiveness of such
registration whether or not any Holder has elected to include securities in such registration. 
 2.3 Registration on Form
S-3. 
 (a) Request for Form S-3 Registration. At any time after the Company has qualified for the use of Form S-3,
in addition to the rights contained in the foregoing provisions of this Section 2 and subject to the conditions set forth in this Section 2.3, if the Company shall receive from a Holder or Holders of Registrable
Securities a written request that the Company effect any registration on Form S-3 or any similar short form registration statement with respect to all or part of the Registrable Securities (such request shall state the number of shares of
Registrable Securities to be disposed of and the intended methods of disposition of such shares by such Holder or Holders), the Company will take all such action with respect to such Registrable Securities as required by
Section 2.1(a)(i) and (ii); provided, further that the Company shall keep such registrations effective until the earlier to occur of such time as (i) all Registrable Securities registered thereunder have been
sold, (ii) the Holders whose shares are registered thereon agree to terminate the registration, or (iii) the registration rights of all such Holders terminate. 
 (b) Limitations on Form S-3 Registration. The Company shall not be obligated to effect, or take any action to effect, any such registration pursuant to this Section 2.3: 
 (i) In the circumstances described in either Sections 2.1(b)(i) or 2.1(b)(iv); 
 (ii) If the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose
to sell Registrable Securities and such other securities (if any) on Form S-3 at an aggregate price to the public of less than $500,000; or 
 (iii) In a given twelve-month period if, during such period, the Company has already effected one (1) or more registrations pursuant to this Section 2.3. 
 (c) Deferral. The provisions of Section 2.1(c) shall apply to any registration pursuant to this Section 2.3.

 (d) Underwriting. If the Holders of Registrable Securities requesting registration under this Section 2.3
intend to distribute the Registrable Securities covered by their request by means of an underwriting, the provisions of Sections 2.1(e) shall apply to such

  

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registration. Notwithstanding anything contained herein to the contrary, registrations effected pursuant to this Section 2.3 shall not be counted as requests for registration or
registrations effected pursuant to Section 2.1. 
 2.4 Expenses of Registration. All Registration Expenses
incurred in connection with registrations pursuant to Sections 2.1, 2.2 and 2.3 hereof shall be borne by the Company. All Selling Expenses relating to securities registered on behalf of the Holders shall be borne by the holders
of securities included in such registration pro rata among each other on the basis of the number of Registrable Securities so registered. 
 2.5 Registration Procedures. In the case of each registration effected by the Company pursuant to Section 2, the Company will keep each Holder advised in writing as to the initiation of
each registration and as to the completion thereof. At its expense, the Company will use its commercially reasonable efforts to: 
 (a) Keep such registration effective for a period of ending on the earlier of the date which is sixty (60) days from the effective date of the registration statement or such time as the Holder or Holders have completed the distribution
described in the registration statement relating thereto; 
 (b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by
such registration statement for the period set forth in subsection (a) above; 
 (c) Furnish such number of prospectuses,
including any preliminary prospectuses, and other documents incident thereto, including any amendment of or supplement to the prospectus, as a Holder from time to time may reasonably request; 
 (d) Use its reasonable Best Efforts to register and qualify the securities covered by such registration statement under such other
securities or blue-sky laws of such jurisdiction as shall be reasonably requested by the Holders; provided, that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions; 
 (e) Notify each seller of Registrable Securities
covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in light of the circumstances then existing, and
following such notification promptly prepare and furnish to such seller a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such shares, such
prospectus shall not include 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 not misleading or incomplete in light of the circumstances then existing;

  

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 (f) Provide a transfer agent and registrar for all Registrable Securities registered
pursuant to such registration statement and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration; 
 (g) Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed; and 
 (h) In connection with any underwritten offering pursuant to a registration statement filed pursuant to Section 2.1 hereof,
enter into an underwriting agreement in form reasonably necessary to effect the offer and sale of Common Stock, provided such underwriting agreement contains reasonable and customary provisions, and provided, further, that each Holder
participating in such underwriting shall also enter into and perform its obligations under such an agreement. 
 2.6
Indemnification. 
 (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, each of
its officers, directors and partners, legal counsel, and accountants and each person controlling such Holder within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification, or compliance has been
effected pursuant to this Section 2, and each underwriter, if any, and each person who controls within the meaning of Section 15 of the Securities Act any underwriter, against all expenses, claims, losses, damages, and liabilities
(or actions, proceedings, or settlements in respect thereof) arising out of or based on: (i) any untrue statement (or alleged untrue statement) of a material fact contained or incorporated by reference in any prospectus, offering circular, or
other document (including any related registration statement, notification, or the like) incident to any such registration, qualification, or compliance, (ii) any omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or (iii) any violation (or alleged violation) by the Company of the Securities Act, any state securities laws or any rule or regulation thereunder applicable to the
Company and relating to action or inaction required of the Company in connection with any offering covered by such registration, qualification, or compliance, and the Company will reimburse each such Holder, each of its officers, directors,
partners, legal counsel, and accountants and each person controlling such Holder, each such underwriter, and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating and
defending or settling any such claim, loss, damage, liability, or action; provided, that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability, or action is caused by any untrue statement
or omission based upon written information furnished to the Company by (a) such Holder, or (b) any of such Holder’s officers, directors, partners, legal counsel or accountants, and any person controlling such Holder, such underwriter
or any person who controls any such underwriter and stated to be specifically for use therein; and provided, further that, the indemnity agreement contained in this Section 2.6(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed). 
  

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 (b) To the extent permitted by law, each Holder will, severally and not jointly, if
Registrable Securities held by such Holder are included in the securities as to which such registration, qualification, or compliance is being effected, indemnify and hold harmless the Company, each of its directors, officers, partners, legal
counsel, and accountants and each underwriter, if any, of the Company’s securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act,
each other such Holder, and each of their officers, directors, and partners, and each person controlling such Holder, against all claims, losses, damages and liabilities (or actions in respect thereof) caused by: (i) any untrue statement (or
alleged untrue statement) of a material fact contained or incorporated by reference in any such registration statement, prospectus, offering circular, or other document, or (ii) any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and such Holders, directors, officers, partners, legal counsel, and accountants, persons, underwriters, or control persons
for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability, or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular, or other document in reliance upon and in conformity with written information furnished to the Company by such Holder and
stated to be specifically for use therein; provided, however, that the obligations of such Holder hereunder shall not apply to amounts paid in settlement of any such claims, losses, damages, or liabilities (or actions in respect
thereof) if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld or delayed); and provided, that in no event shall any indemnity under this Section 2.6 exceed the net
proceeds from the offering received by such Holder. 
 (c) Each party entitled to indemnification under this
Section 2.6 (the “Indemnified Party”) shall give notice to the party required to provide indemnification (the “Indemnifying Party”) promptly after such Indemnified Party has actual knowledge of any claim
as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of such claim or any litigation resulting therefrom; provided, that counsel for the Indemnifying Party, who shall conduct the defense of such
claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld), and the Indemnified Party may participate in such defense at such party’s expense; and provided,
further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 2.6, to the extent such failure is not prejudicial. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably required in connection with defense of such claim and litigation resulting therefrom. 
  

 11 

 (d) If the indemnification provided for in this Section 2.6 is held by a court
of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage, or expense referred to herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall
contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the
Indemnified Party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and
of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or
by the Indemnified Party and the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. 
 (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public
offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. 
 (f) The
obligations of the Company and Holders under this Section 2.6 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 2, and otherwise. 
 2.7 Information by Holder. Each Holder of Registrable Securities shall furnish to the Company such information regarding such Holder
and the distribution proposed by such Holder as the Company may reasonably request in writing and as shall be reasonably required in connection with any registration, qualification or compliance referred to in this Section 2. 

2.8 Restrictions on Transfer. 
 (a) The holder of each certificate representing Registrable Securities by acceptance thereof agrees to comply in all respects with the provisions of this Section 2.8. Each Holder agrees not to
make any sale, assignment, transfer, pledge or other disposition of all or any portion of the Restricted Securities, or any beneficial interest therein, unless and until (x) the transferee thereof has agreed in writing for the benefit of the
Company to take and hold such Restricted Securities subject to, and to be bound by, the terms and conditions set forth in this Agreement, including, without limitation, this Section 2.8, except for transfers permitted under
Section 2.8(b), and (y): 
 (i) There is then in effect a registration statement under the Securities Act
covering such proposed disposition and such disposition is made in accordance with such registration statement; or 
 (ii) Such
Holder shall have given prior written notice to the Company of such Holder’s intention to make such disposition and shall have furnished the Company with a detailed description of the manner and circumstances of the proposed disposition, and,
if

  

 12 

 
requested by the Company, such Holder shall have furnished the Company, at its expense, with (i) an opinion of counsel, reasonably satisfactory to the Company, to the effect that such
disposition will not require registration of such Restricted Securities under the Securities Act (it being understood that an opinion of Woods Rogers PLC shall be deemed satisfactory with respect to Carilion or any permitted transferee of
Registrable Securities held by Carilion) or (ii) a “no action” letter from the Commission to the effect that the transfer of such securities without registration will not result in a recommendation by the staff of the Commission that
action be taken with respect thereto, whereupon the holder of such Restricted Securities shall be entitled to transfer such Restricted Securities in accordance with the terms of the notice delivered by the Holder to the Company. It is agreed that
the Company will not require opinions of counsel for transactions made pursuant to Rule 144, except in unusual circumstances. 
 (b) Permitted transfers include (i) a transfer not involving a change in beneficial ownership, or (ii) in transactions involving the distribution without consideration of Restricted Securities by any Holder to (x) a parent,
subsidiary or other affiliate of Holder that is a corporation, or (y) any of its partners, members or other equity owners, or retired partners, retired members or other equity owners, or to the estate of any of its partners, members or other
equity owners or retired partners, retired members or other equity owners, or (iii) transfers in compliance with Rule 144, as long as the Company is furnished with satisfactory evidence of compliance with such rule including, if requested, an
opinion of counsel, reasonably satisfactory to the Company; provided, in each case, that the Holder thereof shall give written notice to the Company of such Holder’s intention to effect such disposition and shall have furnished the
Company with a detailed description of the manner and circumstances of the proposed disposition. 
 (c) Each certificate
representing Registrable Securities shall (unless otherwise permitted by the provisions of this Agreement) be stamped or otherwise imprinted with a legend substantially similar to the following (in addition to any legend required under applicable
state securities laws): 
 THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT,
THE ACT AND APPLICABLE STATE SECURITIES LAWS PURSUANT TO REGISTRATION OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION
OTHERWISE COMPLIES WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN

  

 13 

 
WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES. 
 The Holders consent to the Company making a notation on its records and giving instructions to any transfer agent of the Restricted
Securities in order to implement the restrictions on transfer established in this Section 2.8. 
 (d) The first
legend referring to federal and state securities laws identified in Section 2.8(c) hereof stamped on a certificate evidencing the Restricted Securities and the stock transfer instructions and record notations with respect to such
Restricted Securities shall be removed and the Company shall issue a certificate without such legend to the holder of such Restricted Securities if (i) such securities are registered under the Securities Act, or (ii) such holder provides
the Company with an opinion of counsel reasonably acceptable to the Company to the effect that a public sale or transfer of such securities may be made without registration under the Securities Act, or (iii) such holder provides the Company
with reasonable assurances, which may, at the option of the Company, include an opinion of counsel satisfactory to the Company, that such securities can be sold freely without restriction pursuant to Rule 144 under the Securities Act. 
 2.9 Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations of the Commission that may
permit the sale of the Restricted Securities to the public without registration, the Company agrees to use its commercially reasonable efforts to: 
 (a) Make and keep public information regarding the Company available as those terms are understood and defined in Rule 144 under the Securities Act, at all times; 
 (b) File with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the
Exchange Act; and 
 (c) So long as a Holder owns any Restricted Securities, furnish to the Holder forthwith upon written
request a written statement by the Company as to its compliance with the reporting requirements of Rule 144, and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports
and documents so filed as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell any such securities without registration. 
 2.10 Intentionally Omitted.  
 2.11 Delay of Registration. No Holder shall have any right to take any action to restrain, enjoin, or otherwise delay any registration as the result of any controversy that might arise with respect
to the interpretation or implementation of this Section 2. 
 2.12 Transfer or Assignment of Registration Rights.
The rights to cause the Company to register securities granted to a Holder by the Company under this Section 2 may be transferred or assigned by a Holder only to a transferee or assignee (a) of not less than 750,000 of the
Registrable Securities (as presently constituted and subject to subsequent adjustments for stock

  

 14 

 
splits, stock dividends, reverse stock splits, and the like), (b) that is a partner or retired partner of any Holder that is a partnership, (c) that is a member or former member of any
Holder that is a limited liability company, (d) that is an affiliate of any Holder or (e) that is a family member or trust for the benefit of any individual Holder, provided, that (i) such transfer or assignment of Registrable
Securities is effected in accordance with the terms of Section 2.8 hereof and applicable securities laws, (ii) the transferee or assignee of such rights assumes in writing the obligations of such Holder under this Agreement, and
(iii) with respect to a proposed transfer pursuant to this Section 2.12, the Company is given written notice within 30 days after said transfer or assignment, stating the name and address of the transferee or assignee and
identifying the securities with respect to which such registration rights are intended to be transferred or assigned and such transferee is not, in the Company’s reasonable opinion, a competitor of the Company or a party who is demonstrably
hostile toward the Company. 
 2.13 Limitations on Subsequent Registration Rights. From and after the date of this
Agreement, the Company shall not, without the prior written consent of Holders of at least a majority of the Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company giving such holder
or prospective holder any registration rights the terms of which are pari passu with or senior to the registration rights granted to the Holders hereunder. 
 2.14 Termination of Registration Rights. The right of any Holder to request registration or inclusion in any registration pursuant to Section 2.1, 2.2 or 2.3 shall
terminate on such date as all of the Registrable Securities held or entitled to be held upon conversion by such Holder may immediately transferred or sold without restriction under Rule 144 of the Securities Act. 
 Section 3 
 Miscellaneous 
 3.1 Right of First Review. So long as Carilion continues to hold at least 750,000
shares of Common Stock (or Common Stock issuable upon the conversion of the Series A Preferred), and to the extent such technology is not restricted by other contractual arrangements in effect as of August 2, 2005, the Company shall disclose to
Carilion Consolidated Laboratory (“CCL”) for review on a confidential basis, that technology developed now or in the future by the employees of the Company or its affiliates which impacts, or has an application to, the clinical
laboratory industry, at least sixty (60) days prior to disclosing such technology to any third-party for purpose of commercialization. 
 3.2 Amendment. This Agreement amends, restates and supersedes the Original Agreement such that the Original Agreement is terminated and is of no further force or effect. Except as expressly
provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument referencing this Agreement and signed by (i) the Company, (ii) the Holders holding a majority
of the Series A Preferred issued and outstanding (excluding any of such shares that have been sold to the public or pursuant to Rule 144), and (iii) the Holders holding a majority of the Registrable Securities. Any such amendment, waiver,
discharge or termination effected in accordance with this

  

 15 

 
paragraph shall be binding upon each Holder and each future holder of all such securities of Holder. Each Holder acknowledges that by operation of this paragraph, the holders of a majority of the
Common Stock issued or issuable upon conversion of the Series A Preferred issued pursuant to the Exchange Agreement (excluding any of such shares that have been sold to the public or pursuant to Rule 144) will have the right and power to diminish or
eliminate all rights of such Holder under this Agreement. 
 3.3 Notices. All notices and other communications required
or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, or otherwise delivered by hand or by messenger addressed: 
 (a) if to an Investor, at the Investor’s address as shown on Exhibit A hereto or in the Company’s records, as may be updated in accordance with the provisions hereof. 
 (b) if to any Holder, at such address as shown in the Company’s records, or, until any such holder so furnishes an address to the
Company, then to and at the address of the last holder of such shares for which the Company has contact information in its records; or 
 (c) if to the Company, one copy should be sent to 1 Riverside Circle, Roanoke, VA 24106, Attn: Chief Executive Officer, or at such other address as the Company shall have furnished to the Investor, with a copy to Trevor Chaplick, Esq.
Proskauer Rose LLP, 1001 Pennsylvania Avenue, NW, Suite 400 South, Washington, DC 20004. 
 Each such notice or other
communication shall for all purposes of this Agreement be treated as effective or having been given when delivered if delivered personally, or, if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a
regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid. 
 3.4
Governing Law. This Agreement shall be governed in all respects by the internal laws of the Commonwealth of Virginia as applied to agreements entered into among Virginia residents to be performed entirely within Virginia, without regard to
principles of conflicts of law. 
 3.5 Successors and Assigns. This Agreement, and any and all rights, duties and
obligations hereunder, shall not be assigned, transferred, delegated or sublicensed by any Investor without the prior written consent of the Company. Any attempt by an Investor without such permission to assign, transfer, delegate or sublicense any
rights, duties or obligations that arise under this Agreement shall be void. Subject to the foregoing and except as otherwise provided herein, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors,
assigns, heirs, executors and administrators of the parties hereto. 
 3.6 Entire Agreement. This Agreement and the
exhibits hereto and the agreements and documents referenced herein constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof. No party hereto shall be liable or bound to any other party in any
manner with regard to the subjects hereof or thereof by any warranties, representations or covenants except as specifically set forth herein. 
  

 16 

 3.7 Delays or Omissions. Except as expressly provided herein, no delay or omission to
exercise any right, power or remedy accruing to any party to this Agreement upon any breach or default of any other party under this Agreement shall impair any such right, power or remedy of such non-defaulting party, nor shall it be construed to be
a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement,
must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party to this Agreement, shall be cumulative and not alternative.

 3.8 Severability. If any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, portions of such provision, or such provision in its entirety, to the extent necessary, shall be severed from this Agreement, and such court will replace such illegal, void or unenforceable provision of this Agreement
with a valid and enforceable provision that will achieve, to the extent possible, the same economic, business and other purposes of the illegal, void or unenforceable provision. The balance of this Agreement shall be enforceable in accordance with
its terms. 
 3.9 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and
are not to be considered in construing or interpreting this Agreement. All references in this Agreement to sections, paragraphs and exhibits shall, unless otherwise provided, refer to sections and paragraphs hereof and exhibits attached hereto.

 3.10 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be enforceable
against the parties that execute such counterparts, and all of which together shall constitute one instrument. 
 3.11
Telecopy Execution and Delivery. A facsimile, telecopy or other reproduction of this Agreement may be executed by one or more parties hereto and delivered by such party by facsimile or any similar electronic transmission device pursuant to
which the signature of or on behalf of such party can be seen. Such execution and delivery shall be considered valid, binding and effective for all purposes. At the request of any party hereto, all parties hereto agree to execute and deliver an
original of this Agreement as well as any facsimile, telecopy or other reproduction hereof. 
 3.12 Jurisdiction; Venue;
Waiver of Jury Trial. With respect to any disputes arising out of or related to this Agreement, the parties consent to the exclusive jurisdiction of, and venue in, the state courts in the City of Roanoke in the Commonwealth of Virginia (or in
the event of exclusive federal jurisdiction, the courts of the Western District of Virginia, Roanoke Division). Each party hereto hereby waives all rights to a trial by jury. 
 3.13 Further Assurances. Each party hereto agrees to execute and deliver, by the proper exercise of its corporate, limited liability
company, partnership or other powers, all such other and additional instruments and documents and do all such other acts and things as may be necessary to more fully effectuate this Agreement. 
  

 17 

 3.14 Conflict. In the event of any conflict between the terms of this Agreement and
the Company’s Amended and Restated Certificate of Incorporation or its Bylaws, the terms of the Company’s Amended and Restated Certificate of Incorporation or its Bylaws, as the case may be, will control. 
 3.15 Attorneys’ Fees. In the event that any suit or action is instituted to enforce any provisions in this Agreement, the each
party hereto shall be responsible for its own fees, costs and expenses incurred with respect to enforcing its rights under this Agreement, including without limitation, all fees, costs and expenses of appeals. 
 3.16 Termination Upon a Change of Control. Notwithstanding anything in this Agreement to the contrary, this Agreement shall terminate
upon the effective date of a Change of Control. 
 [Remainder of Page Intentionally Left Blank] 
  

 18 

 IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Investor
Rights Agreement effective as of the day and year first above written. 
  

			
	“COMPANY”
	
	 LUNA INNOVATIONS INCORPORATED
 a Delaware corporation

		
	By:	 	 /s/ Kent A. Murphy

	Name:	 	 Kent A. Murphy

	Title:	 	 CEO

 SIGNATURE PAGE TO AMENDED & RESTATED INVESTOR RIGHTS AGREEMENT

			
	“INVESTOR”
	
	CARILION CLINIC
		
	By:	 	 /s/ G. Robert Vaughn, Jr.

	Name:	 	 G. Robert Vaughn, Jr.

	Title:	 	 Asst. Treasurer

 SIGNATURE PAGE TO AMENDED & RESTATED INVESTOR RIGHTS AGREEMENT

	
	“STOCKHOLDERS”
	
	 /s/ Kent A. Murphy

	Kent A. Murphy

 SIGNATURE PAGE TO AMENDED & RESTATED INVESTOR RIGHTS AGREEMENT

 EXHIBIT A 
 SCHEDULE OF INVESTORS 
 Carilion Clinic 
 213 S. Jefferson Street 
 Suite 720 
 P.O. Box 40032 
 Roanoke, VA 24022-0032 

Attn: Briggs W. Andrews, General Counsel 

 EXHIBIT B 
 SCHEDULE OF STOCKHOLDERS 
 Kent A. Murphy 
 Ashish Vengsarkar 
 Mike GuntherSecurities Purchase Agreement

 Exhibit 10.1 
 SECURITIES PURCHASE AGREEMENT 
 This Securities Purchase
Agreement (this “Agreement”) is dated as of January 14, 2010, between EnteroMedics Inc., a Delaware corporation (the “Company”), and each purchaser identified on the signature pages hereto (each, including its successors and
assigns, a “Purchaser” and collectively the “Purchasers”). 
 WHEREAS, subject to the terms and conditions
set forth in this Agreement and pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”), the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and
not jointly, desires to purchase from the Company, securities of the Company as more fully described in this Agreement. 
 NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows: 
 ARTICLE I. 
 DEFINITIONS 
 1.1 Definitions. In addition to the terms defined elsewhere in this Agreement, for all purposes of this
Agreement, the following terms have the meanings set forth in this Section 1.1: 
 “Acquiring Person” shall have the meaning
ascribed to such term in Section 4.5. 
 “Action” shall have the meaning ascribed to such term in Section 3.1(j).

 “Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is
under common control with a Person as such terms are used in and construed under Rule 405 under the Securities Act. 
 “Board of
Directors” means the board of directors of the Company. 
 “Business Day” means any day except any Saturday, any Sunday, any day
which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close. 
 “Closing” means the closing of the purchase and sale of the Securities pursuant to Section 2.1. 
 “Closing Date” means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto,
and all conditions precedent to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii) the Company’s obligations to deliver the Securities, in each case, have been satisfied or waived. 
 “Commission” means the United States Securities and Exchange Commission. 

 “Common Stock” means the common shares of the Company, par value $.01 per share, and any other
class of securities into which such securities may hereafter be reclassified or changed. 
 “Common Stock Equivalents” means any
securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time
convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock. 
 “Disclosure
Schedules” means the Disclosure Schedules of the Company delivered concurrently herewith. 
 “Evaluation Date” shall have the
meaning ascribed to such term in Section 3.1(r). 
 “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder. 
 “FDA” shall have the meaning ascribed to such term in Section 3.1(gg).

 “FDCA” shall have the meaning ascribed to such term in Section 3.1(gg). 
 “GAAP” shall have the meaning ascribed to such term in Section 3.1(h). 
 “Indebtedness” shall have the meaning ascribed to such term in Section 3.1(z). 
 “Intellectual Property Rights” shall have the meaning ascribed to such term in Section 3.1(o). 
 “Liens”
means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction. 
 “Material Adverse
Effect” shall have the meaning assigned to such term in Section 3.1(b). 
 “Material Permits” shall have the meaning
ascribed to such term in Section 3.1(m). 
 “NASDAQ Approval” means the approval by the NASDAQ of the Company’s additional
listing applications with regard to the issuance of the Securities. 
 “October Purchase Agreement” means that certain purchase
agreement entered into between the Company and the purchaser of the Company’s Common Stock, dated October 2, 2009, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed October 5, 2009 (File No. 1-33818).

 “Per Share Purchase Price” equals $0.65, subject to adjustment for reverse and forward stock splits, stock dividends, stock
combinations and other similar transactions of the Common Stock that occur after the date of this Agreement. 
  

 2 

 “Person” means an individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind. 
 “Placement Agents” mean Canaccord Adams Inc. 
 “Proceeding” means an action,
claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened. 
 “Prospectus” means the final prospectus filed for the Registration Statement. 
 “Prospectus Supplement” means the supplement to the Prospectus complying with Rule 424(b) of the Securities Act that is filed with the Commission and delivered by the Company to each Purchaser prior to the Closing. 
 “Purchaser Party” shall have the meaning ascribed to such term in Section 4.8. 
 “Registration Statement” means the effective registration statement with Commission file No. 333-161702. 
 “Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e). 
 “Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule. 
 “Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may
be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule. 
 “SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h). 
 “Securities” means the Shares. 
 “Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder. 
 “Shares” means the shares of Common Stock issued or issuable to each Purchaser pursuant to this
Agreement. 
 “Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but
shall not be deemed to include the location and/or reservation of borrowable shares of Common Stock). 
  

 3 

 “Subscription Amount” means, as to each Purchaser, the aggregate amount to be paid for Shares
purchased hereunder as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediately available funds. 
 “Subsidiary” means any subsidiary of the Company as set forth on Schedule 3.1(a), and shall, where applicable, also include any direct or indirect
subsidiary of the Company formed or acquired after the date hereof. 
 “Trading Day” means a day on which the principal Trading Market
is open for trading. 
 “Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted
for trading on the date in question: the NYSE, the AMEX, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, or the New York Stock Exchange (or any successors to any of the foregoing). 
 “Transaction Documents” means this Agreement and any other documents or agreements executed in connection with the transactions contemplated
hereunder. 
 “Transfer Agent” means Wells Fargo Bank, National Association, the current transfer agent of the Company, with a mailing
address of Wells Fargo Shareowner Services, 161 North Concord Exchange, South St. Paul, MN 55075 and a facsimile number of (651) 450-4078, and any successor transfer agent of the Company. 
 “U.S. Counsel” means Dorsey & Whitney LLP. 
 ARTICLE II. 
 PURCHASE AND SALE 
 2.1 Closing. On the Closing Date, upon the terms and subject to the conditions set forth herein, substantially concurrent with the execution and
delivery of this Agreement by the parties hereto, the Company agrees to sell, and the Purchasers, severally and not jointly, agree to purchase, up to an aggregate of $4,834,894 of Shares. The Shares shall be sold pursuant to the Registration
Statement. Each Purchaser shall deliver to the Company, via wire transfer or a certified check of immediately available funds equal to such Purchaser’s Subscription Amount as set forth on the signature page hereto executed by such Purchaser and
the Company shall deliver to each Purchaser its respective Shares as determined pursuant to Section 2.2(a), and the Company and each Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Closing. Upon
satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of Foley Hoag LLP, 1000 Winter Street, Waltham, MA 02451 or such other location as the parties shall mutually agree. This
transaction will close in accordance with Rule 15c6-1 of the Exchange Act. 
  

 4 

 2.2 Deliveries. 
 (a) On or prior to the Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following: 
 (i) this Agreement duly executed by the Company; 
 (ii) a legal opinion of U.S. Counsel delivered and addressed to the Purchasers and the Placement Agents, substantially in the
form of Exhibit A attached hereto; 
 (iii) a copy of the irrevocable instructions to the Company’s transfer
agent instructing the transfer agent to deliver via the Depository Trust Company Deposit Withdrawal Agent Commission System (“DWAC”) Shares equal to such Purchaser’s Subscription Amount divided by the Per Share Purchase Price,
registered in the name of such Purchaser; 
 (iv) the Prospectus and Prospectus Supplement (which may be
delivered in accordance with Rule 172 under the Securities Act). 
 (b) On or prior to the Closing Date, each Purchaser shall
deliver or cause to be delivered to the Company the following: 
 (i) this Agreement duly executed by such
Purchaser; and 
 (ii) such Purchaser’s Subscription Amount by wire transfer to the account as specified in
writing by the Company. 
 2.3 Closing Conditions. 
 (a) The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met: 
 (i) the accuracy in all material respects on the Closing Date of the representations and warranties of the Purchasers
contained herein (unless as of a specific date therein); 
 (ii) all obligations, covenants and agreements of
each Purchaser required to be performed at or prior to the Closing Date shall have been performed; and 
 (iii)
the delivery by each Purchaser of the items set forth in Section 2.2(b) of this Agreement. 
 (b) The respective
obligations of the Purchasers hereunder in connection with the Closing are subject to the following conditions being met: 
 (i) the accuracy in all material respects when made and on the Closing Date of the representations and warranties of the Company contained herein (unless as of a specific date therein); 
  

 5 

 (ii) all obligations, covenants and agreements of the Company required to be
performed at or prior to the Closing Date shall have been performed; 
 (iii) the delivery by the Company of the
items set forth in Section 2.2(a) of this Agreement; 
 (iv) there shall have been no Material Adverse
Effect with respect to the Company since the date hereof; 
 (v) the NASDAQ Approval; and 
 (vi) from the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the Commission or
the Company’s principal Trading Market (except for any suspension of trading of limited duration agreed to by the Company, which suspension shall be terminated prior to the Closing), and, at any time prior to the Closing Date, trading in
securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking
moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on,
or any material adverse change in, any financial market which, in each case, in the reasonable judgment of each Purchaser, makes it impracticable or inadvisable to purchase the Securities at the Closing. 
 ARTICLE III. 
 REPRESENTATIONS AND WARRANTIES 
 3.1 Representations and Warranties of the Company. Except as set forth in the SEC Reports or
the Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation or otherwise made herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules, the
Company hereby makes the following representations and warranties to each Purchaser: 
 (a) Subsidiaries. All of the
direct and indirect subsidiaries of the Company are set forth on Schedule 3.1(a). Except as set forth on Schedule 3.1(a), the Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear
of any Liens, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities. 
  

 6 

 (b) Organization and Qualification. The Company and each of the Subsidiaries is an
entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own and use its properties and assets and to
carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation nor default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter
documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it
makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity or
enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business or financial condition of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on
the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification. 
 (c) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations
hereunder and thereunder. The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of
the Company and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection therewith other than in connection with the Required Approvals. Each Transaction Document to which it is a party
has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally,
(ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law. 
 (d) No Conflicts. The execution, delivery and performance by the Company of the Transaction Documents, the issuance and sale of the
Securities and the consummation by it of the transactions contemplated hereby and thereby to which it is a party do not and will not (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or
articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any
Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt
or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding

  

 7 

 
to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals,
conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state
securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a
Material Adverse Effect. 
 (e) Filings, Consents and Approvals. The Company is not required to obtain any consent,
waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by
the Company of the Transaction Documents, other than: (i) the filings required pursuant to Section 4.4 of this Agreement, (ii) the filing with the Commission of the Prospectus Supplement, (iii) application(s) to each applicable
Trading Market for the listing of the Securities for trading thereon in the time and manner required thereby and (iv) such filings as are required to be made under applicable state securities laws (collectively, the “Required
Approvals”). 
 (f) Issuance of the Securities; Registration. The Securities are duly authorized and, when issued
and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company. The Company has prepared and filed the Registration Statement in
conformity with the requirements of the Securities Act, which became effective on September 10, 2009 (the “Effective Date”), including the Prospectus, and such amendments and supplements thereto as may have been required to the date
of this Agreement. The Registration Statement is effective under the Securities Act and no stop order preventing or suspending the effectiveness of the Registration Statement or suspending or preventing the use of the Prospectus has been issued by
the Commission and no proceedings for that purpose have been instituted or, to the knowledge of the Company, are threatened by the Commission. The Company, if required by the rules and regulations of the Commission, proposes to file the Prospectus
Supplement, with the Commission pursuant to Rule 424(b). At the time the Registration Statement and any amendments thereto became effective, at the date of this Agreement and at the Closing Date, the Registration Statement and any amendments thereto
conformed and will conform in all material respects to the requirements of the Securities Act and did not and will not contain 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 not misleading; and the Prospectus and any amendments or supplements thereto, at time the Prospectus or any amendment or supplement thereto was issued and at the Closing Date, conformed and will conform in all material
respects to the requirements of the Securities Act and did not and will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which
they were made, not misleading. 
 (g) Capitalization. The capitalization of the Company as of September 30, 2009 is
as set forth in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009. Except for the Common Stock sold pursuant to the October Purchase Agreement

  

 8 

 
or as otherwise set forth on Schedule 3.1(g), the Company has not issued any capital stock since its most recently filed periodic report under the Exchange Act, other than pursuant to the
exercise of employee stock options under the Company’s stock option plans, the issuance of shares of Common Stock to employees pursuant to the Company’s employee stock purchase plans and pursuant to the conversion and/or exercise of Common
Stock Equivalents outstanding as of the date of the most recently filed periodic report under the Exchange Act. No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the
transactions contemplated by the Transaction Documents, except as may have been waived by such Person prior to the date hereof. Except as a result of the purchase and sale of the Securities and except as set forth on Schedule 3.1(g), there are no
outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. The
issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and, except as set forth on Schedule 3.1(g), will not result in a right of any holder of
Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. All of the outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable, have been issued in
compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No further approval or authorization of any
stockholder, the Board of Directors or others (except as set forth on Schedule 3.1(g)) is required for the issuance and sale of the Securities. Except for agreements filed as exhibits to the SEC Reports, there are no stockholders agreements, voting
agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders. 
 (h) SEC Reports; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents required
to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law or regulation
to file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, together with the Prospectus and the Prospectus Supplement, being collectively referred to herein as the “SEC
Reports”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates, the SEC Reports complied in all material
respects with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Company has never been an issuer subject to Rule 144(i) under the Securities Act. The financial statements of the
Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been
prepared in

  

 9 

 
accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in such
financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated
Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments. 
 (i) Material Changes; Undisclosed Events, Liabilities or Developments. Since the date of the latest audited financial statements
included within the SEC Reports, except as specifically disclosed in a subsequent SEC Report filed prior to the date hereof, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a
Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and
(B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (iv) the Company
has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any
equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans. Except for the issuance of the Securities contemplated by this Agreement or as set forth on Schedule 3.1(i), no event, liability, fact,
circumstance, occurrence or development has occurred or exists or is reasonably expected to occur or exist with respect to the Company or its Subsidiaries or their respective business, properties, operations, assets or financial condition that would
be required to be disclosed by the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least 1 Trading Day prior to the date that this representation is made.

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

  

 10 

 
be expected to result in a Material Adverse Effect. None of the Company’s or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with
the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relationships with their employees are good. No executive
officer, to the knowledge of the Company, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other
contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing
matters. The Company and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where
the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 
 (l) Compliance. Neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the
Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is
a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any judgment, decree or order of any court, arbitrator or governmental body or (iii) is or has
been in violation of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws applicable to its business and all such laws that affect the environment, except
in each case as could not have or reasonably be expected to result in a Material Adverse Effect. 
 (m) Regulatory
Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the
SEC Reports, except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings
relating to the revocation or modification of any Material Permit. 
 (n) Title to Assets. The Company and the
Subsidiaries have good and marketable title in fee simple to all real property owned by them and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free
and clear of all Liens, except for Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and Liens for the payment
of federal, state or other taxes, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable
leases with which the Company and the Subsidiaries are in compliance. 
  

 11 

 (o) Patents and Trademarks. The Company and the Subsidiaries have, or have rights to
use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights necessary or material for use in
connection with their respective businesses as described in the SEC Reports and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”). Neither the Company nor any Subsidiary
has received a notice (written or otherwise) that any of the Intellectual Property Rights used by the Company or any Subsidiary violates or infringes upon the rights of any Person. To the knowledge of the Company, all such Intellectual Property
Rights are enforceable and there is no existing material infringement by another Person of any of the Intellectual Property Rights. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and
value of all of their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 
 (p) Insurance. Except as set forth on Schedule 3.1(p), the Company and the Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but not limited to, directors and officers insurance coverage
at least equal to the aggregate Subscription Amount. Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage
from similar insurers as may be necessary to continue its business without a significant increase in cost. 
 (q)
Transactions With Affiliates and Employees. Except as set forth in the SEC Reports, none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company is presently a party to any
transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner, in each case in excess of $120,000 other than for (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) other
employee benefits, including stock option agreements under any stock option plan of the Company. 
 (r) Sarbanes-Oxley;
Internal Accounting Controls. The Company is in material compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as of the Closing Date. The Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for
assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company has established disclosure controls and procedures (as defined in Exchange

  

 12 

 
Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports it files
or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. The Company’s certifying officers have evaluated the effectiveness of the
Company’s disclosure controls and procedures as of the end of the period covered by the Company’s most recently filed periodic report under the Exchange Act (such date, the “Evaluation Date”). The Company presented in its most
recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there
have been no changes in the Company’s internal control over financial reporting (as such term is defined in the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over
financial reporting. 
 (s) Certain Fees. Except as set forth in the Prospectus Supplement, no brokerage or finder’s
fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents.
The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by
the Transaction Documents. 
 (t) Investment Company. The Company is not, and is not an Affiliate of, and immediately
after receipt of payment for the Securities, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a manner so that it
will not become an “investment company” subject to registration under the Investment Company Act of 1940, as amended. 
 (u) Registration Rights. Except as set forth on Schedule 3.1(u), no Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company. 
 (v) Listing and Maintenance Requirements. The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act,
and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is
contemplating terminating such registration. Except as disclosed in the SEC Reports, the Company has not, in the 12 months preceding the date hereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted
to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. Except as disclosed in the SEC Reports, the Company is, and has no reason to believe that it will not in the foreseeable future
continue to be, in compliance with all such listing and maintenance requirements. 
 (w) Application of Takeover
Protections. The Company and the Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition,

  

 13 

 
business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s certificate of incorporation (or similar
charter documents) or the laws of its state of incorporation that is or could become applicable to the Purchasers as a result of the Purchasers and the Company fulfilling their obligations or exercising their rights under the Transaction Documents,
including without limitation as a result of the Company’s issuance of the Securities and the Purchasers’ ownership of the Securities. 
 (x) Disclosure. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company confirms that neither it nor any other Person
acting on its behalf has provided any of the Purchasers or their agents or counsel with any information that it believes constitutes or might constitute material, non-public information which is not otherwise disclosed in the Prospectus Supplement.
The Company understands and confirms that the Purchasers will rely on the foregoing representation in effecting transactions in securities of the Company. All of the disclosure furnished by or on behalf of the Company to the Purchasers regarding the
Company, its business and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The press releases disseminated by the Company during the twelve months preceding the date of this Agreement taken as a whole do not
contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made and when made, not
misleading. The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof.

 (y) No Integrated Offering. Assuming the accuracy of the Purchasers’ representations and warranties set forth in
Section 3.2 and the NASDAQ Approval, neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security,
under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of any applicable shareholder approval provisions of any Trading Market on which any of the securities of the
Company are listed or designated. 
 (aa) Tax Status. Except for matters that would not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and each Subsidiary has filed all necessary federal, state and foreign income and franchise tax returns and has paid or accrued all taxes shown as due
thereon, and the Company has no knowledge of a tax deficiency which has been asserted or threatened against the Company or any Subsidiary. 
 (bb) Foreign Corrupt Practices. Neither the Company, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company, has (i) directly or indirectly, used any
funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or
domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company

  

 14 

 
(or made by any person acting on its behalf of which the Company is aware) which is in violation of law, or (iv) violated in any material respect any provision of the Foreign Corrupt
Practices Act of 1977, as amended. 
 (cc) Accountants. The Company’s accounting firm is set forth on Schedule
3.1(cc) of the Disclosure Schedules. To the knowledge and belief of the Company, such accounting firm (i) is a registered public accounting firm as required by the Exchange Act and (ii) shall express its opinion with respect to the
financial statements to be included in the Company’s Annual Report for the year ended December 31, 2009. 
 (dd)
Acknowledgment Regarding Purchasers’ Purchase of Securities. The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and
the transactions contemplated thereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions
contemplated thereby and any advice given by any Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchasers’
purchase of the Securities. The Company further represents to each Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions
contemplated hereby by the Company and its representatives. 
 (ee) Acknowledgement Regarding Purchaser’s Trading
Activity. Anything in this Agreement or elsewhere herein to the contrary notwithstanding (except for Sections 3.2(e) and 4.12 hereof), it is understood and acknowledged by the Company that: (i) none of the Purchasers has been asked by the
Company to agree, nor has any Purchaser agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any
specified term; (ii) past or future open market or other transactions by any Purchaser, specifically including, without limitation, Short Sales or “derivative” transactions, before or after the closing of this or future private
placement transactions, may negatively impact the market price of the Company’s publicly-traded securities; (iii) any Purchaser, and counter-parties in “derivative” transactions to which any such Purchaser is a party, directly or
indirectly, presently may have a “short” position in the Common Stock, and (iv) each Purchaser shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative”
transaction. The Company further understands and acknowledges that (y) one or more Purchasers may engage in hedging activities at various times during the period that the Securities are outstanding, and (z) such hedging activities (if any)
could reduce the value of the existing stockholders’ equity interests in the Company at and after the time that the hedging activities are being conducted. The Company acknowledges that such aforementioned hedging activities do not constitute a
breach of any of the Transaction Documents. 
 (ff) Regulation M Compliance. The Company has not, and to its knowledge no
one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or, paid any compensation for

  

 15 

 
soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company, other
than, in the case of clauses (ii) and (iii), compensation paid to the Company’s Placement Agents in connection with the placement of the Securities. 
 (gg) FDA. As to each product subject to the jurisdiction of the U.S. Food and Drug Administration (“FDA”) under the Federal Food, Drug and Cosmetic Act, as amended, and the regulations
thereunder (“FDCA”) that is manufactured, packaged, labeled, tested, distributed, sold, and/or marketed by the Company or any of its Subsidiaries (each such product, a “Pharmaceutical Product”), such Pharmaceutical Product is
being manufactured, packaged, labeled, tested, distributed, sold and/or marketed by the Company in compliance with all applicable requirements under FDCA and similar laws, rules and regulations relating to registration, investigational use,
premarket clearance, licensure, or application approval, good manufacturing practices, good laboratory practices, good clinical practices, product listing, quotas, labeling, advertising, record keeping and filing of reports, except where the failure
to be in compliance would not have a Material Adverse Effect. There is no pending, completed or, to the Company’s knowledge, threatened, action (including any lawsuit, arbitration, or legal or administrative or regulatory proceeding, charge,
complaint, or investigation) against the Company or any of its Subsidiaries, and none of the Company or any of its Subsidiaries has received any notice, warning letter or other communication from the FDA or any other governmental entity, which
(i) contests the premarket clearance, licensure, registration, or approval of, the uses of, the distribution of, the manufacturing or packaging of, the testing of, the sale of, or the labeling and promotion of any Pharmaceutical Product,
(ii) withdraws its approval of, requests the recall, suspension, or seizure of, or withdraws or orders the withdrawal of advertising or sales promotional materials relating to, any Pharmaceutical Product, (iii) imposes a clinical hold on
any clinical investigation by the Company or any of its Subsidiaries, (iv) enjoins production at any facility of the Company or any of its Subsidiaries, (v) enters or proposes to enter into a consent decree of permanent injunction with the
Company or any of its Subsidiaries, or (vi) otherwise alleges any violation of any laws, rules or regulations by the Company or any of its Subsidiaries, and which, either individually or in the aggregate, would have a Material Adverse Effect.
The properties, business and operations of the Company have been and are being conducted in all material respects in accordance with all applicable laws, rules and regulations of the FDA. The Company has not been informed by the FDA that the FDA
will prohibit the marketing, sale, license or use in the United States of any product proposed to be developed, produced or marketed by the Company nor has the FDA expressed any concern as to approving or clearing for marketing any product being
developed or proposed to be developed by the Company. 
 3.2 Representations and Warranties of the Purchasers. Each Purchaser, for itself
and for no other Purchaser, hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows (unless as of a specific date therein): 
 (a) Organization; Authority. Such Purchaser is either an individual or an entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization with full right, corporate or partnership power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations
hereunder

  

 16 

 
and thereunder. The execution and delivery of this Agreement and performance by such Purchaser of the transactions contemplated by this Agreement have been duly authorized by all necessary
corporate, partnership, limited liability company or similar action, as applicable, on the part of such Purchaser. Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in
accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other
equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law. 
 (b) Own Account. Such Purchaser is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any
applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other
persons to distribute or regarding the distribution of such Securities in violation of the Securities Act or any applicable state securities law (this representation and warranty not limiting such Purchaser’s right to sell the Securities
pursuant to the Registration Statement or otherwise in compliance with applicable federal and state securities laws). Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business. 
 (c) Purchaser Status. At the time such Purchaser was offered the Securities, it was, and as of the date hereof it is, and on each
date on which it exercises any Warrants, it will be either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional buyer”
as defined in Rule 144A(a) under the Securities Act. Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act. 
 (d) Experience of Such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the
present time, is able to afford a complete loss of such investment. 
 (e) Certain Transactions and Confidentiality.
Other than consummating the transactions contemplated hereunder, such Purchaser has not, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, directly or indirectly executed any purchases or sales, including
Short Sales, of the securities of the Company during the period commencing as of the time that such Purchaser first received a term sheet (written or oral) as of the Company or any other Person representing the Company setting forth the material
terms of the transactions contemplated hereunder and ending immediately prior to the execution hereof. Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser’s assets and the portfolio

  

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managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the representation set forth above shall only
apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement. Other than to other Persons party to this Agreement, such Purchaser has maintained
the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction). Notwithstanding the foregoing, for avoidance of doubt, nothing contained herein shall constitute a
representation or warranty, or preclude any actions, with respect to the identification of the availability of, or securing of, available shares to borrow in order to effect Short Sales or similar transactions in the future. 
 The Company acknowledges and agrees that the representations contained in Section 3.2 shall not modify, amend or affect such Purchaser’s right to
rely on the Company’s representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction Document or any other document or instrument executed and/or delivered in connection with
this Agreement or the consummation of the transaction contemplated hereby. 
 (f) Beneficial Ownership. Such Purchaser, together with its
affiliates, will not beneficially hold or have the right to acquire greater than 19.99% of the number of shares of the Company’s outstanding Common Stock immediately after the closing of the transactions contemplated by this Agreement.

 ARTICLE IV. 
 OTHER AGREEMENTS OF THE PARTIES 
 4.1 [INTENTIONALLY LEFT BLANK]. 
 4.2 Furnishing of Information. Until the earlier of (i) the time that no Purchaser owns Securities or (ii) the five year anniversary of the
Closing Date, 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 even if the
Company is not then subject to the reporting requirements of the Exchange Act. As long as any Purchaser owns Securities, if the Company is not required to file reports pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and
make publicly available in accordance with Rule 144(c) such information as is required for the Purchasers to sell the Securities, including without limitation, under Rule 144. The Company further covenants that it will take such further action as
any holder of Securities may reasonably request, to the extent required from time to time to enable such Person to sell such Securities without registration under the Securities Act, including without limitation, within the requirements of the
exemption provided by Rule 144. 
 4.3 Integration. The Company shall not sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market such that it would require
shareholder approval prior to the closing of such other transaction unless shareholder approval is obtained before the closing of such subsequent transaction. 
  

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 4.4 Securities Laws Disclosure; Publicity. The Company shall, by 9:30 a.m. (New York City time) on
the Trading Day immediately following the date hereof, issue a press release disclosing the material terms of the transactions contemplated hereby, and a Current Report on Form 8-K including the Transaction Documents as exhibits thereto. From and
after the issuance of such press release, the Company shall have publicly disclosed all material, non-public information delivered to any of the Purchasers by the Company or any of its subsidiaries, or any of their respective officers, directors,
employees or agents in connection with the transactions contemplated by the Transaction Documents. The Company and each Purchaser shall consult with each other in issuing any other press releases with respect to the transactions contemplated hereby,
and neither the Company nor any Purchaser shall issue any such press release nor otherwise make any such public statement without the prior consent of the Company, with respect to any press release of any Purchaser, or without the prior consent of
each Purchaser, with respect to any press release of the Company, which consent shall not unreasonably be withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party
with prior notice of such public statement or communication. 
 4.5 Shareholder Rights Plan. No claim will be made or enforced by the
Company or, with the consent of the Company, any other Person, that any Purchaser is an “Acquiring Person” under any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or
similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction
Documents or under any other agreement between the Company and the Purchasers. 
 4.6 Non-Public Information. Except with respect to the
material terms and conditions of the transactions contemplated by the Transaction Documents, the Company covenants and agrees that neither it, nor any other Person acting on its behalf will provide any Purchaser or its agents or counsel with any
information that the Company believes constitutes material non-public information, unless prior thereto such Purchaser shall have executed a written agreement with the Company regarding the confidentiality and use of such information. The Company
understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company. 
 4.7 Use of Proceeds. Except as set forth on Schedule 4.7 attached hereto, the Company shall use the net proceeds from the sale of the Securities hereunder for working capital purposes and shall not use such proceeds for: (a) the
satisfaction of any portion of the Company’s debt (other than payment of trade payables in the ordinary course of the Company’s business and prior practices), (b) the redemption of any Common Stock or Common Stock Equivalents or
(c) the settlement of any outstanding litigation. 
 4.8 Indemnification of Purchasers. Subject to the provisions of this
Section 4.8, the Company will indemnify and hold each Purchaser and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a

  

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Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and
Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title
or any other title) of such controlling persons (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in
settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or
agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against a Purchaser in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not
an Affiliate of such Purchaser, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Purchaser’s representations, warranties or covenants under the Transaction
Documents or any agreements or understandings such Purchaser may have with any such stockholder or any violations by such Purchaser of state or federal securities laws or any conduct by such Purchaser which constitutes fraud, gross negligence,
willful misconduct or malfeasance). If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company
shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed
after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of counsel, a material conflict on any material issue between the position of the Company and the
position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (y) for
any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent that a loss, claim, damage or liability is
attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents. 
 4.9 Reservation of Common Stock. As of the date hereof, the Company has reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, a sufficient number of shares of Common Stock for the purpose of enabling the Company to issue Shares pursuant to this Agreement. 
 4.10 Listing of Common Stock. The Company hereby agrees to use best efforts to maintain the listing or quotation of the Common Stock on either the Nasdaq Global Market or the Nasdaq Capital Market,
and the Company shall promptly apply to list or quote all of the Shares and on such Trading Market and promptly secure the listing of all of the Shares on such Trading Market. The Company further agrees, if the Company applies to have the Common
Stock traded on any

  

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other Trading Market, it will then include in such application all of the Shares, and will take such other action as is necessary to cause all of the Shares to be listed or quoted on such other
Trading Market as promptly as possible. The Company will then take all action reasonably necessary to continue the listing and trading of its Common Stock on a Trading Market and will comply in all respects with the Company’s reporting, filing
and other obligations under the bylaws or rules of the Trading Market. 
 4.11 Equal Treatment of Purchasers. No consideration (including
any modification of any Transaction Document) shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration is also offered to all of the
parties to the Transaction Documents. For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended for the Company to treat the
Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise. 
 4.12 Certain Transactions and Confidentiality. Each Purchaser, severally and not jointly with the other Purchasers, covenants that neither it nor any
Affiliate acting on its behalf or pursuant to any understanding with it will execute any purchases or sales, including Short Sales of any of the Company’s securities during the period commencing with the execution of this Agreement and ending
at such time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.4. Each Purchaser, severally and not jointly with the other Purchasers, covenants
that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company pursuant to the initial press release as described in Section 4.4, such Purchaser will maintain the confidentiality of the existence
and terms of this transaction and the information included in the Disclosure Schedules. Notwithstanding the foregoing and notwithstanding anything contained in this Agreement to the contrary, the Company expressly acknowledges and agrees that
(i) no Purchaser makes any representation, warranty or covenant hereby that it will not engage in effecting transactions in any securities of the Company after the time that the transactions contemplated by this Agreement are first publicly
announced pursuant to the initial press release as described in Section 4.4, (ii) no Purchaser shall be restricted or prohibited from effecting any transactions in any securities of the Company in accordance with applicable securities laws
from and after the time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.4 and (iii) no Purchaser shall have any duty of confidentiality to
the Company or its Subsidiaries after the issuance of the initial press release as described in Section 4.4. Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio
managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the covenant
set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement. 
 4.13 Buy-In in Respect of the Shares. In addition to any other rights available to a Purchaser, if the Company fails to cause the Transfer
Agent to transmit to such Purchaser its Shares

  

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within 3 Trading Days of the date required under this Agreement, and if after such date the Purchaser is required by its broker to purchase (in an open market transaction or otherwise) or the
Purchaser’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Purchaser of the Shares which the Purchaser was entitled to receive hereunder (a “Buy-In”), then the Company shall
(A) pay in cash to the Purchaser the amount, if any, by which (x) the Purchaser’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by
multiplying (1) the number of Shares that the Company was required to deliver to the Purchaser times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) deliver to the Purchaser the
number of shares of Common Stock that would have been issued had the Company timely complied with its obligations hereunder. Nothing herein shall limit a Purchaser’s right to pursue any other remedies available to it hereunder, at law or in
equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock as required pursuant to the terms hereof.

 4.14 Liquidated Damages for Failure to Comply. If the Company shall fail to materially observe or perform any other covenant or
agreement contained in the Transaction Documents (each, an “Event” and the date on which such Event occurs, the “Event Date”), then, in addition to any other rights the Purchasers may have hereunder or under applicable law, on
each such Event Date and on each monthly anniversary of each such Event Date (if the applicable Event shall not have been cured by such date) until the applicable Event is cured, the Company shall pay to each Purchaser, in cash, as liquidated
damages and not as a penalty, an amount equal to 1.5% of the Subscription Amount of the Shares then held by such Purchaser, subject to a maximum aggregate amount of 10% of the original Subscription Amount of such Purchaser; provided, that if any
other provision of any Transaction Document separately provides for liquidated damages for any particular breach of a covenant therein, then if the Company actually pays such liquidated damages required under such other Transaction Document, then no
further liquidated damages shall be payable pursuant to this provision. Nothing herein shall limit a Purchaser’s right to pursue any remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief. The exercise of any such rights shall not prohibit a Purchaser from seeking to enforce damages pursuant to any other Section hereof or under applicable law. If the Company fails to pay any partial liquidated
damages pursuant to this Section in full within seven days after the date payable, the Company will pay interest thereon at a rate of 18% per annum (or such lesser maximum amount that is permitted to be paid by applicable law) to the Purchaser,
accruing daily from the date such partial liquidated damages are due until such amounts, plus all such interest thereon, are paid in full. The partial liquidated damages pursuant to the terms hereof shall apply on a daily pro rata basis for any
portion of a month prior to the cure of an Event. 
 ARTICLE V. 
 MISCELLANEOUS 
 5.1 Termination. This Agreement may be terminated by
any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the Closing has not been consummated
on or before January 20, 2010; provided, however, that no such termination will affect the right of any party to sue for any breach by the other party (or parties). 
  

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 5.2 Fees and Expenses. Except as expressly set forth in the Transaction Documents to the contrary,
each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this
Agreement. The Company shall pay all Transfer Agent fees, stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers. 
 5.3 Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, the Prospectus and the Prospectus Supplement, contain the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules. 
 5.4 Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall
be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a
Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second (2nd) Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by
the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto. 
 5.5 Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and the
Purchasers holding at least 66% in interest of the Shares then outstanding or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought. No waiver of any default with respect to any provision, condition
or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such right. 
 5.6 Headings. The headings herein are for
convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. 
 5.7
Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior
written consent of each Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided that such transferee agrees in
writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchasers.” 
  

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 5.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto
and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.8 and except that the Placement Agents may rely on
the representations and warranties made by each of the parties hereto. 
 5.9 Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective
affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement
of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding
is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If either party shall commence an action or proceeding to enforce any provisions of the Transaction Documents, then, in
addition to the obligations of the Company under Section 4.8, the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding. 
 5.10 Survival. The representations and warranties contained
herein shall survive the Closing and the delivery of the Securities. 
 5.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need
not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof. 
  

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 5.12 Severability. If any term, provision, covenant or restriction of this Agreement is held by a
court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or
invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction.
It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or
unenforceable. 
 5.13 Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any
similar provisions of) any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods
therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and
rights. 
 5.14 Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of
evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated
with the issuance of such replacement Securities. 
 5.15 Remedies. In addition to being entitled to exercise all rights provided herein
or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss
incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

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

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 5.17 Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser
under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations of any other Purchaser under any
Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other
kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to
independently protect and enforce its rights including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party
in any proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in their review and negotiation of the Transaction Documents. For reasons of administrative convenience only, each Purchaser and its respective
counsel have chosen to communicate with the Company through Foley Hoag LLP does not represent any of the Purchasers and only represents the Placement Agents. The Company has elected to provide all Purchasers with the same terms and Transaction
Documents for the convenience of the Company and not because it was required or requested to do so by any of the Purchasers. 
 5.18
Liquidated Damages. The Company’s obligations to pay any partial liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated
damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled. 
 5.19 Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted
herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day. 
 5.20
Construction. The parties agree that each of them and/or their respective counsel has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to
be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments hereto. In addition, each and every reference to share prices and shares of Common Stock in any Transaction Document
shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement. 
 5.21 WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH
KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY. 
 (Signature Pages Follow) 
  

 26 

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

					
	ENTEROMEDICS INC.
		
	By:	 	  

		 	Name:	 	
		 	Title:	 	

  

			
	 Address for Notice:
	  	 EnteroMedics Inc.
 2800 Patton
Road
 St. Paul, MN 55113

 Fax: (510) 649 7571 
 With a copy to (which shall not constitute notice): 
 Dorsey & Whitney LLP 
 Suite 1500 
 50 South Sixth Street 
 Minneapolis, Minnesota 55402-1498 
 Attn: Kenneth L.
Cutler, Esq. 
 Telephone: 612-340-2600 
 Fax: 612-340-2868 
 [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK 
 SIGNATURE PAGE FOR PURCHASER FOLLOWS] 

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

			
	Name of Purchaser:	 	  

			
		
	Signature of Authorized Signatory of Purchaser:	 	  

			
		
	Name of Authorized Signatory:	 	  

			
		
	Title of Authorized Signatory:	 	  

			
		
	Email Address of Authorized Signatory:	 	  

			
		
	Facsimile Number of Authorized Signatory:	 	  

			
		
	Address for Notice of Purchaser:	 	

 Subscription Amount:
$                                        

 Shares:
                                        

 EIN Number: [PROVIDE THIS UNDER SEPARATE COVER] 
 The manner of settlement of the Shares purchased by the Purchaser shall be determined by such Purchaser as follows (check one): 
  

	[    ] A.	Delivery by crediting the account of the Purchaser’s prime broker (as specified by such Purchaser on Exhibit A annexed hereto) with the Depository Trust
Company (“DTC”) through its Deposit/Withdrawal At Custodian (“DWAC”) system, whereby Purchaser’s prime broker shall initiate a DWAC transaction on the Closing Date using its DTC participant identification
number, and released by Wells Fargo Bank, National Association, the Company’s transfer agent (the “Transfer Agent”), at the Company’s direction. NO LATER THAN ONE (1) BUSINESS DAY AFTER THE EXECUTION OF THIS AGREEMENT BY
THE PURCHASER AND THE COMPANY, THE PURCHASER SHALL: 

  

	 	(I)	DIRECT THE BROKER-DEALER AT WHICH THE ACCOUNT OR ACCOUNTS TO BE CREDITED WITH THE SHARES ARE MAINTAINED TO SET UP A DWAC INSTRUCTING THE TRANSFER AGENT TO CREDIT
SUCH ACCOUNT OR ACCOUNTS WITH THE SHARES, AND 

	 	(II)	REMIT BY WIRE TRANSFER THE AMOUNT OF FUNDS EQUAL TO THE AGGREGATE PURCHASE PRICE FOR THE SHARES BEING PURCHASED BY THE PURCHASER TO THE FOLLOWING ACCOUNT:

 – OR – 
  

	[    ] B.	Delivery versus payment (“DVP”) through DTC (i.e., on the Closing Date, the Company shall deliver Shares registered in the Purchaser’s name
and address as set forth below and released by the Transfer Agent to the Purchaser through DTC at the Closing directly to the account(s) at Canaccord Adams Inc. (“Canaccord”) identified by the Purchaser; upon receipt of such Shares,
Canaccord shall promptly electronically deliver such Shares to the Purchaser, and simultaneously therewith payment shall be made by Canaccord by wire transfer to the Company). NO LATER THAN ONE (1) BUSINESS DAY AFTER THE EXECUTION OF THIS
AGREEMENT BY THE PURCHASER AND THE COMPANY, THE PURCHASER SHALL: 

  

	 	(I)	NOTIFY CANACCORD OF THE ACCOUNT OR ACCOUNTS AT CANACCORD TO BE CREDITED WITH THE SHARES BEING PURCHASED BY SUCH PURCHASER, AND 

  

	 	(II)	CONFIRM THAT THE ACCOUNT OR ACCOUNTS AT CANACCORD TO BE CREDITED WITH THE SHARES BEING PURCHASED BY THE PURCHASER HAVE A MINIMUM BALANCE EQUAL TO THE AGGREGATE
PURCHASE PRICE FOR THE SHARES BEING PURCHASED BY THE PURCHASER. 

 IT IS THE PURCHASER’S RESPONSIBILITY TO
(A) MAKE THE NECESSARY WIRE TRANSFER OR CONFIRM THE PROPER ACCOUNT BALANCE IN A TIMELY MANNER AND (B) ARRANGE FOR SETTLEMENT BY WAY OF DWAC OR DVP IN A TIMELY MANNER. IF THE PURCHASER DOES NOT DELIVER THE AGGREGATE PURCHASE PRICE FOR THE
SHARES OR DOES NOT MAKE PROPER ARRANGEMENTS FOR SETTLEMENT IN A TIMELY MANNER, THE SHARES MAY NOT BE DELIVERED AT CLOSING TO THE PURCHASER OR THE PURCHASER MAY BE EXCLUDED FROM THE CLOSING ALTOGETHER. 
  

 -2-

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