Document:

f10k2009ex10xv_paneltech.htm

Exhibit 10.15

 

 

 

Mr. Scott Olmstead 

Paneltech Products, Inc. 

2999 John Stevens Way 

Hoquiam, WA 98550

 

March 26, 2010

 

Re:          NOTICE OF DEFAULT & FORBEARANCE AGREEMENT

Loan No.:      100012004

 

By this letter, ShoreBank Pacific ("Bank") hereby notifies Paneltech Products, Inc. ("Borrower"), that it was in default under the Business Loan Agreement dated January 26, 2001, as amended ("Loan Agreement") because it had violated certain conditions in the Loan Agreement.

 

	
●   

	
Maintain a Net Worth defined as Total Equity in excess of $750,000 at all times measured at the end of each month.

 

	

●   

	
Maintain a ratio of Debt to Worth, defined as all liabilities divided by Total Equity not to exceed 6.0 to 1.0 as measured at the end of each month.

 

	

●   

	
Debt Service Coverage (DSC): Defined as Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) divided by Current Maturities of Long Term Debt (CMLTD) proportional to the corresponding EBITDA period plus period interest expenses in excess of 1.0 to 1.0 as of February 28, 2010.

 

Accordingly, as of 2/28/2010 these conditions were breached. As a result, Borrower was also in default under the Promissory Note ("Note") of the same date..

 

After due consideration, the Bank has elected to forbear exercising its default rights and remedies until March 31, 2010. The Bank will agree to do so subject to the following terms and conditions:

 

	
    (1.)   

	
The Borrower acknowledges that it is in default under the Loan Agreement and the Note for the reasons stated herein, and has no defense to any action to enforce the Loan Agreement or Note, nor any claim by which to assert as a setoff against the Indebtedness.

 

	
    (2.)   

	
As consideration for the Bank's forbearance, the Borrower agrees to execute the enclosed Change in Terms Agreement and pay the associated fees, to be delivered to the Bank, together with the original version of this letter countersigned by Borrower's authorized representative in the space provided below, no later than April 2, 2010. If Borrower fails to timely deliver the countersigned letter and Change in Terms document to the Bank, then this Forbearance Agreement shall have no force and effect, and the Bank may proceed forthwith to enforce the Loan Agreement and Related Documents.

  

1

  

 

	
    (3.)   

	
The Borrower acknowledges that time is of the essence in the performance of the Loan Agreement, and that it shall cure its default no later than March 31, 2010. The Borrower agrees that the Bank may exercise its default rights and remedies immediately and without further notice if the Borrower fails to cure the default within the time provided herein.

 

	
    (4.)   

	
The Borrower acknowledges that this Forbearance Agreement, the Loan Agreement, and the Related Documents are the only agreements between the parties, and that there are no other agreements, promises, representations, or understandings between the parties, either written or oral, other than what is expressed in this Forbearance Agreement, the Loan Agreement, and the Related Documents.

 

	
    (5.)   

	
The Borrower agrees that the Loan Agreement and Related Documents remain in full force and effect and that this Forbearance Agreement shall not be deemed to operate as a waiver of any of the Bank's rights and remedies thereunder.

 

Please execute and return this original, together with the March 26, 2010 executed Change in Terms Agreement and associated fee. Borrower's signature in the space provided below shall operate as the unconditional acceptance of the above terms and conditions.

Sincerely,

 

	 	 	 	IT IS SO ACCEPTED:	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	Dustin Mead	 	 	 	 
	
Vice President 

	 	By:	 	 
	
ShoreBank Pacific

	 	Title:	 	 
	 	 	 	 	 

 

  

2f10k2009ex10xvii_paneltech.htm

    Exhibit 10.17

     

    

     

    
      
        
        

      

      
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        6f10k2009ex10xviii_paneltech.htm

    EXHIBIT
10.18

     

     

    

     

    
      
         

      

      
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        5f10k2009ex10xix_paneltech.htm

    Exhibit 10.19

    

     

    
      
        
        

      

      
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          4f10k2009ex10xx_paneltech.htm

    EXHIBIT
10.20

     

    

    
      
         

      

      
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        2f10k2009ex10xxiii_paneltech.htm

     

    Exhibit 10.23

     

    

     

    
      
        
        

      

      
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        2fs1ex4vi_iaso.htm

    Exhibit 4.6

     

    NOTE
PURCHASE AGREEMENT

     

    This
NOTE PURCHASE AGREEMENT
(this "Agreement") is made
as of the last date set forth on the signature page hereof between PACIFIC BEACH BIOSCIENCES, INC.,
a Delaware corporation having its principal place of business at 8910
University Center Lane, Suite 620, San Diego, CA 92121 (the "Company"), and the
undersigned (the "Subscriber").

    

     

    W
I T N E S S E T H:

     

    WHEREAS, the Company has
retained Paramount BioCapital, Inc. (the "Placement Agent") to
act as its exclusive placement agent, on a "best efforts, all or none" basis, in
a private offering (the "Offering") of
convertible promissory notes in substantially the form attached hereto as Exhibit A (the "Notes") included in
the Minimum Offering (as defined below) and on a "best efforts" basis in the
Offering of such Notes which will provide the Company with aggregate proceeds in
excess of the Minimum Offering, and in connection therewith has authorized
Paramount to engage one or more other firms to assist in finding qualified
subscribers for the Notes (such other firms, if any, together with Paramount,
the "Placement
Agent");

     

    WHEREAS, the terms of the
Offering are summarized in that certain Confidential Offering Memorandum dated
September 28, 2007 (together with all amendments, supplements, exhibits and
appendices thereto, the "Memorandum");

     

    WHEREAS, the Company desires
to offer and sell a minimum of $2,500,000 aggregate principal amount of Notes
(which, for this purpose, shall not include any Notes issued in consideration of
any Converted Amount (as defined below) and is referred to as the "Minimum Offering")
and a maximum of $10,000,000 aggregate principal amount of Notes (the "Maximum Offering"),
with an option in favor of the Placement Agent and the Company to offer up to an
additional $2,000,000 aggregate principal amount of Notes (the "Over-allotment," and
together with the Maximum Offering, the "Maximum Amount")
(such amount of Notes actually issued, the "Principal Loan
Amount"). Upon a Qualified Financing (as defined in the Notes), a Sale of
the Company (as defined in the Notes) or a Reverse Merger (as defined in the
Notes), the Notes shall be subject to certain terms and conditions, in each case
as defined and described in detail in the Notes; and

     

    WHEREAS, the Company desires
to enter into this Agreement to issue and sell the Notes and the Subscriber
desires to purchase the principal amount of Notes set forth on the signature
page hereto on the terms and conditions set forth herein.

     

    NOW, THEREFORE, in
consideration of the promises and the mutual representations and covenants
hereinafter set forth, the parties hereto do hereby agree as
follows:

     

    
      
        
        

      

      
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    I.        SUBSCRIPTION
FOR NOTES AND REPRESENTATIONS BY SUBSCRIBER

    

    1.1  Subject
to the terms and conditions hereinafter set forth, the Subscriber hereby
irrevocably subscribes for and agrees to purchase from the Company that
portion
of the aggregate principal amount of the Principal Loan Amount authorized to be
issued by the Company set forth on the signature page hereto (the "Subscriber Loan
Amount") in the form of either (i) immediately available U.S. dollars in
the amount of such Subscription Loan Amount or (ii) to the extent permitted by
the Existing Notes, the conversion of the Converted Amount (as defined in the
Memorandum) under the Existing Notes (as defined in the Note) equal, in
aggregate principal amount plus accrued and unpaid interest to but not including
such Closing Date, to such Subscription Loan Amount, each delivered by wire
transfer to:

     

    
      	
              Bank:  

              ABA
      Number:  

              Further
      Credit to Account Name:  

              Account#:  

              Final
      Beneficiary Recipient/Subacct: 

              SEI/Subacct Number:   

              Reference: 

              Attention: 

            	
              U.S.
      Bank Trust N. A.

              091000022

              U.S.
      Bank and Trust Corp Trust Acct

              180121167365

              Paramount
      BioCapital/Pacific Beach

              117567000

              [Investor
      Name]

               Stefan
      Ronchetti

              651-495-2148
      (phone)

              651-495-8087
      (fax)

            

    

     

    Upon
acceptance by the Placement Agent and the Company of subscriptions for an amount
of Notes equal to at least the Minimum Offering, the Placement Agent and the
Company shall have the right at any time thereafter, prior to the Offering
Termination Date (as defined in Section 3.2), to effect an initial closing with
respect to the Offering (the "Initial Closing").
Thereafter, the Placement Agent and the Company shall continue to accept
additional subscriptions for, and continue to have closings (together with the
Initial Closing, each a "Closing" and the date
thereof the "Closing
Date") with respect to subscriptions for Notes from new or existing
investors from time to time and at any time up to the Offering Termination
Date.

     

    The
Subscriber understands that the Company's and the Placement Agent's respective
officers, directors, employees and/or affiliates may purchase Notes in this
Offering, which purchases may be used to satisfy the Minimum Offering. In
addition, certain employees of the Placement Agent and its affiliates are
current stockholders of the Company.

     

    1.2  The
Subscriber recognizes that the purchase of the Notes involves a high degree of
risk including, but not limited to, the following: (a) the Company remains a
development stage business with limited operating history and requires
substantial funds in addition to the proceeds of the Offering; (b) an investment
in the Company is highly speculative, and only investors who can afford the loss
of their entire investment should consider investing in the Company and the
Notes; (c) the Subscriber may not be able to liquidate its investment; (d)
transferability of the Notes and the securities issuable upon conversion of the
Notes (the Notes and such other securities sometimes hereinafter collectively
referred to as the "Securities") is
extremely limited; (e) in the event of a disposition of the Securities, the
Subscriber could sustain the loss of its entire investment; and (f) the Company
has not paid any dividends on its capital stock since its inception and does not
anticipate paying any dividends in the foreseeable future. Without limiting the
generality of the representations set forth in Section 1.5 below, the
Subscriber
represents that the Subscriber has carefully reviewed the section of the
Memorandum captioned "Risk Factors."

     

    1.3 The
Subscriber represents that the Subscriber is an "accredited investor" as such
term is defined in Rule 501 of Regulation D ("Regulation D")
promulgated under the Securities Act of 1933, as amended (the "Securities Act"), as
indicated by the Subscriber's responses to the questions contained in Article
VII hereof, and that the Subscriber is able to bear the economic risk of an
investment in the Securities. If the Subscriber is a natural person, the
Subscriber has reached the age of majority in the state or other jurisdiction in
which the Subscriber resides, has adequate means of providing for the
Subscriber's current financial needs and contingencies, is able to bear the
substantial economic risks of an investment in the Securities for an indefinite
period of time, has no need for liquidity in such investment and, at the present
time, could afford a complete loss of such investment.

     

    
      
        
        

      

      
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    1.4 The
Subscriber hereby acknowledges and represents that (a) the Subscriber has
sufficient knowledge and experience in business and financial matters, prior
investment experience, including investment in securities that are non-listed,
unregistered and/or not traded on a national securities exchange, or the
Subscriber has employed the services of a "purchaser representative" (as defined
in Rule 501 of Regulation D), attorney and/or accountant to read all of the
documents furnished or made available by the Company both to the Subscriber and
to all other prospective investors in the Securities in order to evaluate the
merits and risks of such an investment on the Subscriber's behalf; (b) the
Subscriber recognizes the highly speculative nature of this investment; and (c)
the Subscriber is able to bear the economic risk that the Subscriber hereby
assumes.

     

    1.5 The
Subscriber hereby acknowledges receipt and careful review of this Agreement, the
Note and the Memorandum (which includes the Risk Factors), including all
exhibits thereto (collectively referred to as the "Offering Materials")
and hereby represents that the Subscriber has been furnished by the Company
during the course of the Offering with all information regarding the Company,
the terms and conditions of the Offering and any additional information that the
Subscriber, its purchaser representative, attorney and/or accountant has
requested or desired to know, and has been afforded the opportunity to ask
questions of and receive answers from duly authorized officers or other
representatives of the Company concerning the Company and the terms and
conditions of the Offering.

     

    1.6 
(a)      In
making the decision to invest in the Securities, the Subscriber has relied
solely upon the information provided by the Company in the Offering Materials.
To the extent necessary, the Subscriber has retained, at its own expense, and
relied upon appropriate professional advice regarding the investment, tax and
legal merits and consequences of this Agreement and the purchase of the
Securities hereunder. The Subscriber disclaims reliance on any statements made
or information provided by any person or entity in the course of Subscriber's
consideration of an investment in the Securities other than the Offering
Materials. The Subscriber acknowledges and agrees that (i) the Company has
prepared the Offering Materials and that no other person, including without
limitation, the Placement Agent, has supplied any information for inclusion in
the Offering Materials other than information furnished in writing to the
Company by the Placement Agent specifically for inclusion in those parts of
the

     

    
      
        
        

      

      
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    Offering
Materials relating specifically to the Placement Agent, (ii) the Placement Agent
has no responsibility for the accuracy or completeness of the Offering Materials
and (iii) the Subscriber has not relied upon the independent investigation or
verification, if any, that may have been undertaken by the Placement
Agent.

     

        (b)     The
Subscriber represents that (i) the Subscriber was contacted regarding the sale
of the Securities by the Company or the Placement Agent (or an authorized agent
or representative of the Company or the Placement Agent) with whom the
Subscriber had a prior substantial pre-existing relationship and (ii) no
Securities were offered or sold to it by means of any form of general
solicitation or general advertising, and in connection therewith, the Subscriber
did not (A) receive or review any advertisement, article, notice or other
communication published in a newspaper or magazine or similar media or broadcast
over television or radio, whether closed circuit, or generally available; or (B)
attend any seminar meeting or industry investor conference whose attendees were
invited by any general solicitation or general advertising.

     

    1.7 The
Subscriber hereby represents that the Subscriber, either by reason of the
Subscriber's business or financial experience or the business or financial
experience of the Subscriber's professional advisors (who are unaffiliated with
and not compensated by the Company or any affiliate or selling agent of the
Company, including the Placement Agent, directly or indirectly), has the
capacity to protect the Subscriber's own interests in connection with the
transaction contemplated hereby.

     

    1.8 The
Subscriber hereby acknowledges that the Offering has not been reviewed by the
United States Securities and Exchange Commission (the "SEC") nor any state
regulatory authority since the Offering is intended to be exempt from the
registration requirements of Section 5 of the Securities Act pursuant to
Regulation D promulgated thereunder. The Subscriber understands that the
Securities have not been registered under the Securities Act or under any state
securities or "blue sky" laws and agrees not to sell, pledge, assign or
otherwise transfer or dispose of the Securities unless they are registered under
the Securities Act and under any applicable state securities or "blue sky" laws
or unless an exemption from such registration is available.

     

    1.9 The
Subscriber understands that the Securities have not been registered under the
Securities Act or any state securities laws by reason of a claimed exemption
under the provisions of the Securities Act and such state securities laws that
depends, in part, upon the Subscriber's investment intention. The Subscriber
hereby represents that the Subscriber is purchasing the Securities for the
Subscriber's own account for investment and not with a view toward the resale or
distribution to others. The Subscriber, if an entity, further represents that it
was not formed for the purpose of purchasing the Securities.

     

    1.10 The
Subscriber understands that there is no public market for the Securities and
that no market may develop for any of such Securities. The Subscriber
under­stands that even if a public market develops for such Securities, Rule
144 ("Rule
144") promul­gated under the Securities Act requires for
non-affiliates, among other conditions, a one-year holding period prior to the
resale (in limited amounts) of securities acquired in a non-public offering
without having to satisfy the registration requirements under the Securities
Act. The Subscriber understands and hereby acknowledges that the Company is
under no obligation to register any of the Securities under the Securities Act
or any state securities or "blue sky" laws other than as set forth in Article
V.

     

    
      
        
        

      

      
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    1.11 The
Subscriber consents to the placement of a legend on any certificate or
other
document evidencing the Securities that such Securities have not been registered
under the Securities
Act or any state securities or "blue sky" laws and setting forth or referring to
the restrictions
on transferability and sale thereof contained in this Agreement. The Subscriber
is aware
that the Company will make a notation in its appropriate records with respect to
the restrictions
on the transferability of such Securities. The legend to be placed on each
certificate shall
be in form substantially similar to the following:

     

    "THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY STATE
SECURITIES OR "BLUE SKY LAWS", AND MAY NOT BE OFFERED, SOLD, TRANSFERRED,
ASSIGNED, PLEDGED OR HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER
SUCH ACT, OR UNLESS THE COMPANY
HAS RECEIVED AN OPINION OF COUNSEL, REASONABLY SATISFACTORY
TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED."

     

    1.12 The
Subscriber hereby represents that the address of the Subscriber furnished by
Subscriber on the signature page hereof is the Subscriber's principal residence
if Subscriber is an individual or its principal business address if it is a
corporation or other entity.

     

    1.13 The
Subscriber represents that the Subscriber has full power and authority
(corporate, statutory and otherwise) to execute and deliver this Agreement and
to purchase the Securities. This Agreement constitutes the legal, valid and
binding obligation of the Subscriber, enforceable against the Subscriber in
accordance with its terms.

     

    1.14 If the
Subscriber is a corporation, partnership, limited liability company, trust,
employee benefit plan, individual retirement account, Keogh Plan, or other
tax-exempt entity, (a) it is authorized and qualified to invest in the Company
and the person signing this Agreement on behalf of such entity has been duly
authorized by such entity to do so and (b) it is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization.

     

    1.15 The
Subscriber acknowledges that if he or she is a Registered Representa­tive of
a Financial Industry Regulatory Authority ("FINRA") member firm,
he or she must give such firm the notice required by NASD Rule 3050, receipt of
which must be acknowledged by such firm in Section 7.4 below.

     

    
      
        
        

      

      
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    1.16
Subject
to the provision below, the Subscriber hereby agrees that in the case of an
initial offering of the Company's securities to the public pursuant to an
effective registration
statement under the Securities Act (the "IPO"), the Subscriber
will not, without the prior written consent of the Company, offer, pledge, sell,
contract to sell, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, the Registrable Securities (as defined in Section 5.1)
purchased or acquired by the Subscriber for a period of up to 180 days from the
effective date of the registration statement relating to the IPO and that the
Subscriber will enter into an agreement with the Company or managing underwriter
of the IPO to that effect.

     

    1.17    (a)     The
Subscriber agrees not to issue any public statement with respect
to the Subscriber's investment or proposed investment in the Company or the
terms of any
agreement or covenant between them and the Company without the Company's prior
written consent,
except such disclosures as may be required under applicable law or under any
applicable
order, rule or regulation.

     

        (b)     The
Company agrees not to disclose the names, addresses or any other information
about the Subscribers, except as required by law, including without limitation,
the use of the name (but not the address) of the Subscriber in any registration
statement filed pursuant to Article V in which the Subscriber's shares are
included and the disclosure of such information in any subsequent offering
memorandum if the Subscriber beneficially owns five percent (5%) or more of the
Company's voting capital stock.

     

    1.18 The
Subscriber represents and warrants that it has not engaged, consented to or
authorized any broker, finder or intermediary to act on its behalf, directly or
indirectly, as a broker, finder or intermediary in connection with the
transactions contemplated by this Agreement. The Subscriber hereby agrees to
indemnify and hold harmless the Company from and against all fees, commissions
or other payments owing to any such person or firm acting on behalf of such
Subscriber hereunder.

     

    1.19 The
Subscriber agrees to hold the Company and its directors, officers, employees,
affiliates, controlling persons and agents (including the Placement Agent and
its officers, directors, employees, counsel, controlling persons and agents) and
their respective heirs, representatives, successors and assigns harmless and to
indemnify them against all liabilities, costs and expenses incurred by them as a
result of (a) any sale or distribution of the Securities by the Subscriber in
violation of the Securities Act or any applicable state or foreign securities or
"blue sky" laws; or (b) any false representation or warranty or any breach or
failure by the Subscriber to comply with any covenant made by the Subscriber in
this Agreement (including the Confidential Investor Questionnaire contained in
Article VII herein) or any other document furnished by the Subscriber to any of
the foregoing in connection with this transaction; provided, however, that in no
event shall any indemnity under this Subsection 1.19 exceed the aggregate
principal amount of the Notes subscribed for by the Subscriber pursuant to this
Agreement, except in the case of willful fraud by the Subscriber.

     

    1.20 The
Subscriber understands, acknowledges and agrees with the Company that this
subscription may be rejected, in whole or in part, by the Company, in the sole
and absolute discretion of the Company, at any time before the Closing Date
notwithstanding prior receipt by the Subscriber of notice of acceptance of the
Subscriber's subscription.

     

    
      
        
        

      

      
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    1.21 The
Subscriber acknowledges that the information contained in the Offering Materials
or otherwise made available to the Subscriber is confidential and non-public and
agrees that all such information shall be kept in confidence by the Subscriber
and neither used by the Subscriber for the Subscriber's personal benefit (other
than in connection with this subscription) nor disclosed to any third party for
any reason, notwithstanding that a Subscriber's subscription may not be accepted
by the Company; provided, however, that (a) the Subscriber may disclose such
information to its attorneys and advisors who may have a need for such
information in connection with providing advice to the Subscriber with respect
to its investment in the Company, so long as such affiliates and advisors have
an obligation of confidentiality, and (b) this obligation shall not apply to any
such information that (i) is part of the public knowledge or literature and
readily accessible at the date hereof, (ii) becomes part of the public knowledge
or literature and readily accessible by publication (except as a result of a
breach of this provision), or (iii) is received from third parties without an
obligation of confidentiality (except third parties who disclose such
information in violation of any confidentiality agreements or obligations,
including, without limitation, any subscription or other similar agreement
entered into with the Company).

     

    1.22 The
Subscriber represents that no authorization, approval, consent or license of any
person is required to be obtained for the purchase of the Securities by the
Subscriber, other than as have been obtained and are in full force and
effect.

     

    1.23 The
Subscriber represents that the representations, warranties and agreements of the
Subscriber contained herein and in any other writing delivered in connection
with the transactions contemplated hereby shall be true and correct in all
respects on the date hereof and as of the Closing Date on which the Subscriber
purchases Notes as if made on and as of such date and shall survive the
execution and delivery of this Agreement and the purchase of the Notes. The
Subscriber agrees that the Company and the Placement Agent shall be entitled to
rely on the representations, warranties and agreements of the Subscriber
contained herein.

     

    1.24 The
Subscriber understands, acknowledges and agrees with the Company that, except as
otherwise set forth herein, the subscription hereunder is irrevocable by the
Subscriber, that, except as required by law, the Subscriber is not entitled to
cancel, terminate or revoke this Agreement or any agreements of the Subscriber
hereunder and that this Agreement and such other agreements shall survive the
death or disability of the Subscriber and shall be binding upon and inure to the
benefit of the parties and their heirs, executors, administrators, successors,
legal representatives and permitted assigns. If the Subscriber is more than one
person, the obligations of the Subscriber hereunder shall be joint and several
and the agreements, representations, warranties and acknowledgments herein
contained shall be deemed to be made by and be binding upon each such person and
his/her heirs, executors, administrators, successors, legal representatives and
permitted assigns.

     

    1.25 The
Subscriber understands, acknowledges and agrees with the Company that the
Offering is intended to be exempt from registration under the Securities Act by
virtue of the provisions of Regulation D thereunder, which is in part dependent
upon the truth, completeness and accuracy of the representations and covenants
made by the Subscriber in this Agreement.

     

    
      
        
        

      

      
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    1.26    (a) Any
Subscriber subject to jurisdiction in the European Economic Area ("EEA") either (i) is a
qualified investor for the purposes of Directive 2003/71/EC of the European
Parliament and the Council (a "Qualified Investor");
that is, a person falling within Article 2.1(e)(i), (ii) or (iii) of such
directive or a person authorized by any such jurisdiction to be considered as a
qualified investor for the purposes of such directive, or (ii) it has notified
the Placement Agent in writing that it is not a Qualified Investor;

     

        (b) Any EEA
Subscriber entering into this Agreement and acquiring Securities is either (i)
acting on its own account and not for the account of or otherwise on behalf any
other person or persons or (ii) if a Qualified Investor in the United Kingdom,
it is acting as an agent in the circumstances contemplated in section 86(2) of
the United Kingdom Financial Services and Markets Act 2000;

     

        (c) Any
Subscriber, if in the United Kingdom, is (a) a person falling within Article
19(5) of the United Kingdom Financial Services and Markets Act 2000 (Financial
Promotion) Order 2005 ("FPO") or (b) a person falling within Article 49(2)(a) to
(d) of the FPO;

     

        (d) Each
Subscriber acknowledges that neither the Placement Agent nor any person acting
on its behalf is making any recommendations to it or advising it regarding the
suitability or merits of purchasing Securities or any transaction it may enter
into in connection with the offering of the Securities, and acknowledges that
its participation in the offering of Securities is on the basis that it is not
and will not be a client or customer of the Placement Agent and that neither the
Placement Agent nor any person acting on its behalf has any duties or
responsibilities to it for providing the protections afforded to their clients
or customers or for providing advice in relation to the offering of the
Securities.

     

    II.        REPRESENTATIONS
BY AND COVENANTS OF THE COMPANY

     

    The
Company hereby represents and warrants to the Subscriber that:

     

    2.1
Organization, Good Standing
and Qualification. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
full corporate power and authority to conduct its business as currently
conducted. The Company is duly qualified as a foreign corporation to do business
and is in good standing in every jurisdiction in which the property owned or
leased by it or the nature of the business conducted by it makes such
qualification necessary, except to the extent that the failure to be so
qualified or in good standing would not reasonably be expected to have,
individually or in the aggregate, a material adverse effect on the business,
operations, conditions (financial or otherwise), properties, assets or results
of operations of the Company (a "Material Adverse
Effect"). The Company does not have any subsidiaries.

     

    
      
        
        

      

      
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    2.2 Capitalization and Voting
Rights. The authorized, issued and outstanding shares of the capital
stock of the Company is as set forth in the Memorandum and all issued and
outstanding shares of the Company are validly issued, fully paid and
nonassessable. Except as set forth in the Memorandum, there are no outstanding
options, warrants, agreements, convertible securities, preemptive rights or
other rights to subscribe for or to purchase any shares of
capital stock of the Company. Except as set forth in the Offering Materials and
as otherwise required by law, there are no restrictions upon the voting or
transfer of any of the shares of capital stock of the Company pursuant to the
Company's Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), By-Laws or other governing documents or any agreement or
other instruments to which the Company is a party or by which the Company is
bound.

     

    2.3 Authorization;
Enforceability. The Company has all corporate right, power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. All corporate action on the part of the Company, its directors and
stockholders necessary for the (i) authorization, execution, delivery and
performance of this Agreement by the Company; and (ii) authorization, sale,
issuance and delivery of the Notes contemplated hereby and the performance of
the Company's obligations hereunder has been taken. This Agreement has been duly
executed and delivered by the Company and constitutes a legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies, and to limitations
of public policy. The Notes, when issued and fully paid for in accordance with
the terms of this Agreement, will be validly issued. Upon the issuance and
delivery of the equity securities issuable upon conversion of the Notes in
accordance with the terms thereof, such equity securities will be validly
issued, fully paid and nonassessable. The issuance and sale of the Securities
contemplated hereby will not give rise to any preemptive rights or rights of
first refusal on behalf of any person which have not been waived in connection
with this Offering.

     

    2.4 No Conflict; Governmental
Consents.

     

        (a) Except as
would not reasonably be expected to have a Material Adverse Effect or have been
waived, the execution and delivery by the Company of this Agreement and the
consummation of the transactions contemplated hereby will not result in the
violation of any law, statute, rule, regulation, order, writ, injunction,
judgment or decree of any court or governmental authority to or by which the
Company is bound, or of any provision of the Certificate of Incorporation or
By-Laws of the Company, and will not conflict with, or result in a breach or
violation of, any of the terms or provisions of, or constitute (with due notice
or lapse of time or both) a default under, any lease, loan agreement, mortgage,
security agreement, trust indenture or other agreement or instrument to which
the Company is a party or by which it is bound or to which any of its properties
or assets is subject, nor result in the creation or imposition of any lien upon
any of the properties or assets of the Company.

     

        (b) No
consent, approval, authorization or other order of any governmental authority or
other third party is required to be obtained by the Company in connection with
the authorization, execution and delivery of this Agreement or with the
authorization, issue and sale of the Securities, except as have been obtained or
such filings as may be required to be made with the SEC and with any state or
foreign blue sky or securities regulatory authority relating to an exemption
from registration thereunder.

     

    
      
        
        

      

      
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    2.5 Licenses. Except as
would not reasonably be expected to have a Material Adverse Effect, the Company
has sufficient licenses, permits and other governmental authorizations currently
required for the conduct of its business or ownership of properties and is in
all material respects complying therewith.

     

    2.6 Litigation. The
Company knows of no pending or threatened legal or governmental proceedings
against the Company which (i) adversely questions the validity of this Agreement
or any agreements related to the transactions contemplated hereby or the right
of the Company to enter into any of such agreements, or to consummate the
transactions contemplated hereby or thereby or (ii) could, if there were an
unfavorable decision, have a Material Adverse Effect. There is no action, suit,
proceeding or investigation by the Company currently pending in any court or
before any arbitrator or that the Company intends to initiate.

     

    2.7 Investment Company.
The Company is not an "investment company" within the meaning of such term under
the Investment Company Act of 1940, as amended, and the rules and regulations of
the SEC thereunder.

     

    2.8 Placement Agent. The
Company has engaged, consented to and authorized the Placement Agent to act as
agent of the Company in connection with the transactions contemplated by this
Agreement, in accordance with the Placement Agency Agreement (as defined in the
Memorandum). The Company will pay the Placement Agent a commission in the form
of both cash and warrants to purchase Common Stock as described in the
Memorandum (the "Placement Warrants")
and will reimburse the Placement Agent's reasonable out-of-pocket expenses
incurred in connection with the Offering up to $75,000, and the Company agrees
to indemnify and hold harmless the Subscribers from and against all fees,
commissions or other payments owing by the Company to the Placement Agent or any
other person or firm acting on behalf of the Company hereunder.

     

    2.9 Financial Statements.
The financial statements of the Company included in Appendix C to the Memorandum
(the "Financial
Statements") fairly present in all material respects the financial
condition and results of operations of the Company at the dates and for the
periods indicated and have been prepared in conformity with generally accepted
accounting principles in the United States ("GAAP") consistently
applied throughout the periods covered thereby, except as may be otherwise
specified in such Financial Statements or the notes thereto, and except that
unaudited financial statements do not contain all footnotes and do not contain
the cash flow statement required by GAAP, and fairly present in all material
respects the financial condition of the Company as of 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 year-end audit adjustments. Since the
date of the most recent balance sheet included as part of the Financial
Statements, there has not been to the Company's knowledge: (i) any change in the
assets, liabilities, financial condition or operations of the Company from that
reflected in the Financial Statements, other than changes in the ordinary course
of business, none of which individually or in the aggregate would reasonably be
expected to have a Material Adverse Effect; or (ii) any other event or condition
of any character that, either individually or cumulatively, would reasonably be
expected to have a Material Adverse Effect, except for the expenses incurred in
connection with the transactions contemplated by this Agreement.

     

    
      
        
        

      

      
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    2.10 Title to Properties and
Assets; Liens, Etc. The Company has good and marketable title to its
properties and assets, including the properties and assets reflected in the most
recent balance sheet included in the Financial Statements, and good title to its
leasehold estates, in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge, other than (a) those resulting from taxes which have not
yet become delinquent; (b) liens and encumbrances which do not materially
detract from the value of the property subject thereto or materially impair the
operations of the Company; (c) those that have otherwise arisen in the ordinary
course of business; and (d) those that would not reasonably be expected to have
a Material Adverse Effect. The Company is in compliance with all material terms
of each lease to which it is a party or is otherwise bound.

     

    2.11 Patents and
Trademarks. Except as would not reasonably be expected to have a Material
Adverse Effect or as disclosed in the Memorandum, to the Company's knowledge,
(i) the Company owns or possesses adequate licenses or other rights to use all
patents, patent applications, trademarks, trademark applications, service marks,
service mark applications, trade names, copyrights, manufacturing processes,
formulae, trade secrets, licenses, customer lists and know how (collectively,
"Intellectual
Property") , (ii) the Company has not received any communications
alleging that the Company has violated or, by conducting its business as
conducted, would violate any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets or other proprietary rights or processes of
any other person or entity, nor is the Company aware of any basis therefor and
(iii) no claim is pending or, to the Company's knowledge after due inquiry,
threatened to the effect that any Intellectual Property owned or licensed by the
Company, or which the Company otherwise has the right to use, is invalid or
unenforceable by the Company.

     

    2.12 Obligations to Related
Parties. Except as disclosed in the Memorandum or as would not reasonably
be expected to have a Material Adverse Effect, there are no obligations of the
Company to officers, directors, stockholders, or employees of the Company other
than (a) for payment of salary or other compensation for services rendered, (b)
reimbursement for reasonable expenses incurred on behalf of the Company, (c)
standard indemnification provisions in the certificate of incorporation and
by-laws, and (d) for other standard employee benefits made generally available
to all employees (including stock option agreements outstanding under any stock
option plan approved by the Board of Directors of the Company). Except as may be
disclosed in the Financial Statements, the Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or
corporation.

     

    2.13 Employee Relations; Employee
Benefit Plans. The Company is not a party to any collective bargaining
agreement or a union contract. The Company believes that its relations with its
employees are good. No executive officer (as defined in Rule 501(f) of the
Securities Act) of the Company has notified the Company that such officer
intends to leave the Company or otherwise terminate such officer's employment
with the Company. The Company is in compliance with all federal, state, local
and foreign laws and regulations respecting employment and employment practices,
terms and conditions of employment and wages and hours, except where failure to
be in compliance would not, either individually or in the aggregate, reasonably
be expected to result in a Material Adverse Effect. Except as disclosed in
the
Memorandum, the Company does not maintain any compensation or benefit plan,
agreement, arrangement or commitment (including, but not limited to, "employee
benefit plans", as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) for any
present or former employees, officers or directors of the Company or with
respect to which the Company has liability or makes or has an obligation to make
contributions, other than any such plans, agreements, arrangements or
commitments made generally available to the Company's employees.

     

    
      
        
        

      

      
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    2.14 Environmental Laws.
To its knowledge, the Company (i) is in compliance with any and all
Environmental Laws (as hereinafter defined), (ii) has received all permits,
licenses or other approvals required of it under applicable Environmental Laws
to conduct its business and (iii) is in compliance with all terms and conditions
of any such permit, license or approval where, in each of the foregoing clauses
(i), (ii) and (iii), the failure to so comply would reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect. The term
"Environmental
Laws" means all federal, state, local or foreign laws relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata), including, without limitation, laws relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants, contaminants, or toxic
or hazardous substances or wastes (collectively, "Hazardous Materials")
into the environment, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials, as well as all authorizations, codes, decrees, demands or
demand letters, injunctions, judgments, licenses, notices or notice letters,
orders, permits, plans or regulations issued, entered, promulgated or approved
thereunder.

     

    2.15 Tax Status. To the
best of the Company's knowledge, the Company (i) has made or filed all federal
and state income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject, (ii) has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and (iii) has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the Company knows of no basis for any such
claim.

     

    2.16 Absence of Certain
Changes. Since the date of the Memorandum, there has been no change in
the business, operations, conditions (financial or otherwise), prospects, assets
or results of operations of the Company or any of its Subsidiaries that could
reasonably be expected to have a Material Adverse Effect.

     

    2.17 Ranking of Notes; Issuance
of New Debt. On the Closing Date, the Notes will rank pari passu with all
of the Company's existing indebtedness. Following the Closing Date, as long as
any Note remains outstanding, the Company will not, without the prior written
consent of the holders of Notes evidencing at least sixty-six and two-thirds
percent (66 2/3%) of the Principal Loan Amount then outstanding, incur
indebtedness for borrowed money ("New Debt") in favor of any person or entity
(each a "New Lender") which indebtedness is secured or otherwise senior in
priority to any Note issued to any subscriber pursuant to this Agreement or
any
substantially similar agreement. No consent of the holders of Notes will be
required for issuances by the Company of unsecured indebtedness that ranks pari
passu with, or junior to, the Notes.

     

    
      
        
        

      

      
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    2.18 Disclosure. The
information set forth in the Offering Materials as of the date hereof contains
no untrue statement of a material fact nor omits to state a material fact
necessary in order to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.

     

    III.     TERMS OF
SUBSCRIPTION

     

    3.1 The
minimum purchase that may be made by any prospective investor shall be $50,000
aggregate principal amount of Notes. Subscriptions for investment below the
minimum investment may be accepted at the discretion of the Placement Agent and
the Company. The Company and the Placement Agent reserve the right to reject any
subscription made hereby, in whole or in part, in their sole discretion. The
Company's agreement with each Subscriber is a separate agreement and the sale of
the Securities to each Subscriber is a separate sale.

     

    3.2 Pending
the sale of the Notes, all funds paid hereunder shall be deposited by the
Company in escrow with US Bank Trust NA, having a branch at 100 Wall Street,
Suite 1600, New York, New York 10005. This Offering will terminate on the
earlier of (i) the Company's acceptance of subscriptions for the Maximum Amount,
or (ii) November 30, 2007, unless terminated at an earlier time or extended by
the mutual agreement of the Placement Agent and the Company without notice to
prospective investors for up to an additional sixty (60) days (the "Offering Termination
Date"). The Company reserves the right to withdraw or cancel this
Offering and to accept or reject any subscription in whole or in part, in its
sole discretion. The Subscriber hereby authorizes and directs the Company and
the Placement Agent to direct the Escrow Agent to return any funds for
unaccepted subscriptions to the same account from which the funds were drawn,
without interest.

     

    3.3 At any
time after the Company has received subscriptions and related funds for the
Minimum Offering (not including any subscriptions for any Converted Amount), but
prior to the Offering Termination Date, the Company may conduct a Closing and
may conduct subsequent Closings on an interim basis until the Maximum Amount has
been obtained or until the Offering Termination Date. Each Closing shall occur
at the offices of the Placement Agent at 787 Seventh Avenue, 48th
Floor, New York, NY 10019.

     

    3.4 The Note
purchased by the Subscriber pursuant to this Agreement will be prepared for
delivery to the Subscriber promptly following the Closing at which such purchase
takes place. The Subscriber hereby authorizes and directs the Company to deliver
the Note purchased by the Subscriber pursuant to this Agreement to the
residential or business address indicated on the signature page
hereto.

     

    
      
        
        

      

      
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    IV.     CONDITIONS TO OBLIGATIONS OF
THE PARTIES

    

    4.1 
In addition to the Company's right to reject, in whole or in part, any
subscription
at any time before the Closing Date, the Company's obligation to issue the Notes
at each
Closing to the applicable Subscriber is subject to the fulfillment on or prior
to such Closing of the
following conditions, which conditions may be waived at the option of the
Company to the extent
permitted by law:

     

    (a) The
representations and warranties made by each Subscriber in Article I hereof shall
be true and correct in all material respects.

     

    (b) All
covenants, agreements and conditions contained in this Agreement to be performed
by such Subscriber on or prior to the date of such Closing shall have been
performed or complied with in all material respects.

     

    (c) There
shall not then be in effect any legal or other order enjoining or restraining
the transactions contemplated by this Agreement.

     

    (d) There
shall not be in effect any law, rule or regulation prohibiting or restricting
such sale or requiring any consent or approval of any person, which shall not
have been obtained, to issue the Notes (except as otherwise provided in this
Agreement).

    

    4.2  The
Subscriber's obligation to purchase the Notes at the Closing at which
such
purchase is to be consummated is subject to the fulfillment on or prior to such
Closing of the
following conditions, which conditions may be waived at the option of each
Subscriber to the extent
permitted by law:

     

    (a) The
representations and warranties made by the Company in Article II hereof shall be
true and correct in all material respects.

     

    (b) The
Minimum Amount (which shall not include any Converted Amount) shall have been
subscribed for.

     

    (c) All
covenants, agreements and conditions contained in this Agreement to be performed
by the Company on or prior to the date of such Closing shall have been performed
or complied with in all material respects.

     

    (d) There
shall not then be in effect any legal or other order enjoining or restraining
the transactions contemplated by this Agreement.

     

    (e) There
shall not be in effect any law, rule or regulation prohibiting or restricting
such sale or requiring any consent or approval of any person, which shall not
have been obtained, to issue the Notes (except as otherwise provided in this
Agreement).

     

    (f) The
Placement Agent shall have received an opinion of counsel to the Company
addressed to the Subscribers (which the Placement Agent may be permitted to rely
on as if
it were addressed to it) containing certain opinions to be substantially as set
forth in Exhibit
B, which opinion will be subject to standard qualifications and
assumptions.

     

    
      
        
        

      

      
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    (g)     The
Placement Agent shall have received an Officer's Certificate addressed to the
Subscribers, signed by the authorized officer of the Company and dated as of the
Closing. The certificate shall state, among other things, that the
representations and warranties contained herein and in the Offering Materials
are true and accurate in all material respects at such Closing Date with the
same effect as though expressly made at such Closing Date and the Placement
Agent shall be entitled to rely on such representations of the Company in the
Offering Materials as if they were made directly to the Placement
Agent.

     

    V.      REGISTRATION
RIGHTS

     

    5.1  Definitions.   As
used in this Agreement, the following terms shall have the
following meanings.

     

    (a) The term
"Holder" shall
mean any holder of Registrable Securities.

     

    (b) The terms
"register",
"registered"
and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
order of effectiveness of such registration statement or document.

     

    (c) The term
"Registrable
Securities" shall mean (i) the shares of equity securities issuable upon
conversion of the Notes sold in the Offering (or any successor security); and
(ii) any shares of equity securities issuable (or issuable upon the conversion
or exercise of any warrant, right or other security that is issued) pursuant to
a dividend or other distribution with respect to or in replacement of any
Securities; provided, however, that securities shall only be treated as
Registrable Securities if and only for so long as they (A) have not been
disposed of pursuant to a registration statement declared effective by the SEC;
(B) have not been sold in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act so that all transfer
restrictions and restrictive legends with respect thereto are removed upon the
consummation of such sale; (C) are held by a Holder or a permitted transferee of
a Holder pursuant to Section 5.11; or (D) may not be disposed of under Rule
144(k) under the Securities Act without restriction.

     

    (d) The term
"Trading Event"
means the first date on which the Company's Common Stock trades on a national
securities exchange or an Over-the-Counter Bulletin Board.

     

    
      
        
        

      

      
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    5.2  
Piggyback
Registration.

    

    (a)     The
Company agrees that if, at any time, and from time to time, after the earlier to
occur of (i) an initial public offering of the Company's equity securities
pursuant to a registration statement declared effective by the Securities and
Exchange Commission ("IPO") and
(ii) a Trading Event, the Board of Directors of the Company (the "Board") shall authorize the filing of
a registration statement under the Securities Act (other than the filing of a
registration statement pursuant to the IPO or a registration statement on Form
S-8, Form S-4 or any other form that does not include substantially the same
information as would be required in a form for the general registration of
securities) in connection with the proposed offer of any of its securities by it
or any of its stockholders, the Company shall: (A) promptly notify each Holder
that such registration statement will be filed and that the Registrable
Securities then held by such Holder will be included in such registration
statement at such Holder's request; (B) subject to Section 5.7, cause such
registration statement to cover all of such Registrable Securities issued to
such Holder for which such Holder requests inclusion; (C) use reasonable best
efforts to cause such registration statement to become effective as soon as
practicable; and (D) take all other reasonable action necessary under any
Federal or state law or regulation of any governmental authority to permit all
such Registrable Securities that have been issued to such Holder to be sold or
otherwise disposed of, and will maintain such compliance with each such Federal
and state law and regulation of any governmental authority for the period
necessary for such Holder to promptly effect the proposed sale or other
disposition.

     

    (b)     Notwithstanding
any other provision of this Section 5.2, the Company may at any time, abandon or
delay any registration commenced by the Company. In the event of such an
abandonment by the Company, the Company shall not be required to continue
registration of shares requested by the Holder for inclusion and the Holder
shall retain the right to request inclusion of shares as set forth
above.

     

    5.3   Demand
Registration.

     

    (a)     Registration on
Request.

    

    (i)           The
Company agrees that, at any time, and from time to time, but
at least 180 days after the earlier to occur of (i) an IPO and (ii) a Trading
Event, Holders
of a majority of the Registrable Securities may make a written request that the
Company effect
the registration under the Securities Act of outstanding Registrable Securities;
provided
that such
requested registration would cover at least 51% of the Registrable Securities
owned by all the
Holders at such time; and provided, further,
that the Holders shall be entitled to no more than one
such demand registration.

    

    (ii)           The
Company further agrees that if, at any time, and from time to
time, after the Company has qualified for the use of Form S-3 or any successor
form, one or
more of the Holders desire to effect the registration under the Securities Act
on Form S-3 or any
successor form ("Short-Form
Registration") of outstanding Registrable Securities, such Holder(s)
may make a written request that the Company effect a Short-Form Registration;
provided that the
aggregate price to the public of the shares as to which such registration is
requested
(based on the then current market price and before deducting underwriting
discounts and
commissions) would equal or exceed $5,000,000. It is understood and agreed that
the Holders
may make good faith requests for Short-Form Registrations on an unlimited number
of occasions;
provided
further, that the Company shall not be required to effect more than one
Short Form
Registration in any 12-month period.

     

    
      
        
        

      

      
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    (iii)    Each
request made by one or more of the Holders pursuant to subsection (i) or (ii)
above (the "Initiating
Holders") will specify the number of shares of Registrable Securities
proposed to be sold and will also specify the intended method of disposition
thereof. Following receipt of any such request, the Company shall promptly
notify all Holders other than the Initiating Holders of receipt of such request
and the Company shall use best efforts to file, within 60 days of such request,
a registration statement under the Securities Act with respect to the
Registrable Securities that the Company has been so requested to register in the
request by the Initiating Holders (and in all notices received by the Company
from such other Holders within 30 days after the giving of such notice by the
Company), to the extent necessary to permit the disposition (in accordance with
the intended methods thereof as aforesaid) of the Registrable Securities to be
registered. If such method of disposition shall be an underwritten public
offering, the Holders of a majority of the shares of Registrable Securities to
be sold in such offering may designate the managing underwriter of such
offering, subject to the approval of the Company, which approval shall not be
unreasonably withheld or delayed. The Holders will be permitted to withdraw
Registrable Securities from a registration at any time prior to the effective
date of such registration; provided the
remaining number of shares of Registrable Securities subject to a requested
registration is not less than the minimum amount required pursuant to this
Section 5.3.

    

    (b)     Limitations on Demand
Registration. Notwithstanding Section 5.3(a), the Company shall not be
obligated to file a registration statement relating to a registration request
pursuant to this Section 5.3 at any time during the 180-day period immediately
following the effective date of any registration statement filed by the Company
(other than on Form S-8 or S-4 or any other form that does not include
substantially the same information as would be required in a form for the
general registration of securities); and if the Board determines, in its good
faith judgment, that the Company (i) should not file any registration statement
otherwise required to be filed pursuant to Section 5.3 or (ii) should withdraw
any such previously filed registration statement because the Board determines,
in its good faith judgment, that the Company is in the possession of material
nonpublic information required to be disclosed in such registration statement or
an amendment or supplement thereto, the disclosure of which in such registration
statement would be materially disadvantageous to the Company (a "Disadvantageous
Condition"), the Company shall be entitled to postpone for the shortest
reasonable period of time (but not exceeding 90 days from the date of the
determination), the filing of such registration statement or, if such
registration statement has already been filed, may suspend or withdraw such
registration statement and shall promptly give the Holders written notice of
such determination and an approximation of the anticipated delay. Upon the
receipt of any such notice, such Holders shall forthwith discontinue use of the
prospectus contained in such registration statement and, if so directed by the
Company, shall deliver to the Company all copies of the prospectus then covering
such Registrable Securities current at the time of receipt of such notice (or,
if no registration statement has yet been filed, all drafts of the prospectus
covering such Registrable Securities). If any Disadvantageous Condition shall
cease to exist, the Company shall promptly notify the Holders to such effect. If
any registration statement shall have been withdrawn, the Company shall, at such
time as it is possible or, if earlier, at the end of the 90-day period following
such withdrawal, file a new registration statement covering the Registrable
Securities that were covered by such withdrawn registration statement. The
Company's right to delay a request for registration or to withdraw a
registration
statement pursuant to this Section 5.3 may not be exercised more than once in
any one-year period.

     

    
      
        
        

      

      
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    5.4 
Registration
Procedures. Whenever required under this Article V to include Registrable
Securities in a Company registration statement, the Company shall, as
expeditiously as reasonably possible:

     

    (a) Use
reasonable best efforts to (i) cause such registration statement to become
effective, and (ii) cause such registration statement to remain effective in
accordance with Section 5.12 hereof. The Company will also use its reasonable
best efforts to, during the period that such registration statement is required
to be maintained hereunder, file such post-effective amendments and supplements
thereto as may be required by the Securities Act and the rules and regulations
thereunder or otherwise to ensure that the registration statement does not
contain any untrue statement of material fact or omit to state a fact required
to be stated therein or necessary to make the statements contained therein, in
light of the circumstances under which they are made, not misleading; provided,
however, that if applicable rules under the Securities Act governing the
obligation to file a post-effective amendment permits, in lieu of filing a
post-effective amendment that (i) includes any prospectus required by Section
10(a)(3) of the Securities Act or (ii) reflects facts or events representing a
material or fundamental change in the information set forth in the registration
statement, the Company may incorporate by reference information required to be
included in (i) or (ii) above in the preceding sentence to the extent such
information is contained in periodic reports filed pursuant to Section 13 or
15(d) of the Exchange Act in the registration statement. In the event that the
Company becomes qualified for the use of Form S-3 or any successor form at a
time when any registration statement on any other Form which includes
Registrable Securities is required to be maintained hereunder, the Company
shall, upon the request of any Selling Holder, subject to Section 5.5, (i) as
expeditiously as reasonably possible, use reasonable best efforts to cause a
Short-Form Registration covering such Registrable Securities to become effective
and (ii) comply with each of the other requirements of this Section 5.4 which
may be applicable thereto. Upon the effectiveness of such Short-Form
Registration, the Company shall be relieved of its obligations hereunder to keep
in effect the registration statement which initially covered the Registrable
Securities included in such Short-Form Registration.

     

    (b) Prepare
and file with the SEC 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.

     

    (c) Furnish
to the selling Holders such numbers of copies of a prospectus, including a
preliminary prospectus as amended or supplemented from time to time, in
conformity with the requirements of the Securities Act, and such other documents
as they may reasonably request in order to facilitate the disposition of
Registrable Securities owned by them.

     

    (d) Use
reasonable best efforts to register and qualify the securities covered by such
registration statement under the state securities laws of such jurisdictions as
shall be reasonably requested by the selling Holders; provided, however, 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,
unless the Company is already subject to service in such jurisdiction and except
as may be required by the Securities Act.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    (e) In the
event of any underwritten public offering, enter into and perform its
obligations under an underwriting agreement, in usual and customary form, with
the managing underwriter of such offering. Each selling Holder participating in
such underwriting shall also enter into and perform its obligations under such
an agreement.

     

    (f) Notify
each Holder 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, (i) when the registration statement or any post-effective
amendment and supplement thereto has become effective; (ii) of the issuance by
the SEC of any stop order or the initiation of proceedings for that purpose (in
which event the Company shall make every effort to obtain the withdrawal of any
order suspending effectiveness of the registration statement at the earliest
possible time or prevent the entry thereof); (iii) of the receipt by the Company
of any notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation of any
proceeding for such purpose; and (iv) 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 in the light of the circumstances then existing (and each
Holder agrees to suspend any trading under the Registration Statement until such
condition is abated).

     

    (g) Cause all
such Registrable Securities registered hereunder to be listed on each securities
exchange or quotation service on which similar securities issued by the Company
are then listed or quoted or, if no such similar securities are listed or quoted
on a securities exchange or quotation service, apply for qualification and use
reasonable best efforts to qualify such Registrable Securities for inclusion on
a national securities exchange or the Over-the-Counter Bulletin
Board.

     

    (h) Provide
a transfer agent and registrar for all Registrable Securities registered
hereunder and a CUSIP number for all such Registrable Securities, in each case
not later
than the effective date of such registration.

     

    (i) Cooperate
with the selling Holders and the managing underwriters, if any,
to facilitate the timely preparation and delivery of certificates representing
the Registrable Securities
to be sold, which certificates will not bear any restrictive legends; and enable
such Registrable
Securities to be in such denominations and registered in such names as the
managing underwriters,
if any, shall request at least two business days prior to any sale of the
Registrable Securities
to the underwriters.

     

    5.5   Furnish Information.
It shall be a condition precedent to the obligation of the Company to take any
action pursuant to this Article V with respect to the Registrable Securities of
any Holder that such Holder shall furnish to the Company such information
regarding the Holder, the Registrable Securities held by the Holder, and the
intended method of disposition
of such securities as shall be reasonably required by the Company to effect the
registration of such Holder's Registrable Securities.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    5.6 Registration
Expenses. The Company shall bear and pay all expenses incurred in
connection with any registration, filing or qualification of Registrable
Securities with respect to registrations pursuant to Sections 5.2 or 5.3 for
each Holder, including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto ("Registration
Expenses"), but excluding underwriting discounts and com­missions
relating to Registrable Securities and excluding any professional fees or costs
of accounting, financial or legal advisors to any of the Holders.

     

    5.7 Underwriting
Requirements. In connection with any offering involving an underwriting
of shares of the Company's capital stock, the Company shall not be required
under Section 5.2 to include any of the Holders' Registrable Securities in such
underwriting unless they accept the terms of the underwriting as agreed upon
between the Company and the underwriters selected by it (or by other persons
entitled to select the underwriters), and then only in such quantity as the
underwriters determine in their sole discretion will not jeopardize the success
of the offering by the Company. If the total amount of securities, including
Registrable Securities, requested by stockholders to be included in such
offering exceeds the amount of securities sold other than by the Company that
the underwriters determine in their sole discretion is compatible with the
success of the offering, then the Company shall be required to include in the
offering only that number of such securities, including Registrable Securities,
which the underwriters determine in their sole discretion will not jeopardize
the success of the offering (the securities so included to be apportioned pro
rata among the selling Holders according to the total amount of securities
entitled to be included therein owned by each selling Holder or in such other
proportions as shall mutually be agreed to by such selling Holders). For
purposes of the preceding parenthetical concerning apportionment, for any
selling Holder who is a holder of Registrable Securities and is a partnership or
corporation, the partners, retired partners and stockholders of such Holder, or
the estates and family members of any such partners and retired partners and any
trusts for the benefit of any of the foregoing persons shall be deemed to be a
single "selling Holder", and any pro-rata reduction with respect to such
"selling Holder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling Holder", as defined in this sentence.

     

    5.8 Delay of
Registration. No Holder shall have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the result
of any controversy that might arise with respect to the interpretation or
implementation of this Article V.

     

    5.9 Indemnification. In
the event that any Registrable Securities are included in a registration
statement under this Article V:

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    (a)     To
the extent permitted by law, the Company will indemnify and hold harmless each
Holder, any underwriter (as defined in the Securities Act) for such Holder and
each person, if any, who controls such Holder or underwriter within the meaning
of the Securities Act or the Exchange Act, against any losses, claims, damages,
or liabilities (joint or several) to which they may become subject under the
Securities Act, or the Exchange Act, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the 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, the Exchange Act, or any rule or regulation
promulgated under the Securities Act, or the Exchange Act, and the Company will
pay to each such Holder, underwriter or controlling person, as incurred, any
legal or other expenses reasonably incurred by them in connection with
investi­gating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
Section 5.9(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), nor
shall the Company be liable in any such case for any such loss, claim, damage,
liability, or action to the extent that it arises out of or is based upon a
Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
any such Holder, underwriter or controlling person or a violation of any
provision of this Agreement by a Holder.

     

    (b) To the
extent permitted by law, each Selling Holder will indemnify and hold harmless
the Company, each of its directors, each of its officers, each person, if any,
who controls the Company within the meaning of the Securities Act, any
underwriter, any other Holder selling securities in such registration statement
and any controlling person of any such underwriter or other Holder, against any
losses, claims, damages, or liabilities (joint or several) to which any of the
foregoing persons may become subject, under the Securities Act, or the Exchange
Act, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder expressly
for use in connection with such registration or a violation of any provision of
this Agreement by a Holder; and each such Holder will pay, as incurred, any
legal or other expenses reasonably incurred by any person intended to be
indemnified pursuant to this Section 5.9(b), in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this Section 5.9(b) 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 Holder, which consent
shall not be unreasonably withheld; provided, further,
that, in no event shall any indemnity under this Section 5.9(b) exceed the
greater of the cash value of the (i) gross proceeds from the offering received
by such Holder or (ii) such Holder's investment pursuant to this Agreement as
set forth on the signature page attached hereto.

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

    (c) Promptly
after receipt by an indemnified party under this Section 5.9 of notice of the
commencement of any action (including any governmental action), such indemnified
party shall, if a claim in respect thereof is to be made against any
indemnifying party under this Section 5.9, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly notified,
to assume the defense thereof with counsel selected by the indemnifying party
and approved by the indemnified party (whose approval shall not be unreasonably
withheld); provided, however, that an indemnified party (together with all other
indemnified parties which may be represented without conflict by one counsel)
shall have the right to retain one separate counsel, with the fees and expenses
to be paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate
due to actual or potential differing interests between such indemnified party
and any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action, if prejudicial to its ability to defend
such action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 5.9, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indem­nified party otherwise than under this Section
5.9.

     

    (d) If the
indemnification provided for in this Section 5.9 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 therein, 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 alleged 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 5.9 shall survive the
completion of any offering of Registrable Securities in a registration
state­ment under this Article V, and otherwise.

    

    5.10 Reports Under Securities
Exchange Act of 1934. With a view to making available to the Holders the
benefits of Rule 144 and any other rule or regulation of the SEC that may at any
time permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees
to:

     

    (a)     make
and keep public information available, as those terms are understood and defined
in Rule 144, at all times after 90 days after the effective date of the IPO or
Trading Event by the Company;

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    (b) file with
the SEC in a timely manner all reports and other documents required of the
Company under the Securities Act and the Exchange Act; and

     

    (c) furnish
to any Holder, so long as the Holder owns any Registrable Securities, forthwith
upon request (i) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and (ii)
such other information as may be reasonably requested in availing any Holder of
any rule or regulation of the SEC which permits the selling of any such
securities without registration or pursuant to such form.

     

    5.11 Permitted
Transferees. The rights to cause the Company to register Registrable
Securities granted to the Holders by the Company under this Article V may be
assigned in full by a Holder in connection with a transfer by such Holder of its
Registrable Securities if: (a) such transferee agrees in writing to comply with
the terms and provisions of this Agreement; (b) such transfer is otherwise in
compliance with this Agreement; (c) such transfer is otherwise effected in
accordance with applicable securities laws; and (d) such Holder transfers at
least 51% of its shares of Registrable Securities to the transferee. Except as
specifically permitted by this Section 5.11, the rights of a Holder with respect
to Registrable Securities as set out herein shall not be transferable to any
other Person, and any attempted transfer of such registration rights shall by
void.

     

    5.12 Termination of Registration
Rights. The right of any Holder to request or demand inclusion in any
registration pursuant to Section 5.2 and Section 5.3 shall terminate if all
Registrable Securities held by such Holder may immediately be sold under Rule
144(k) without restriction.

    

    VI.     MISCELLANEOUS

    

    6.1   Any
notice or other communication given hereunder shall be deemed sufficient if in
writing and sent by registered or certified mail, return receipt requested, or
delivered by hand against written receipt therefor, addressed as
follows:

     

     

    
    

     

    
      	 	
              if
      to the Company, to it at:

               

              Pacific
      Beach Biosciences, Inc.

              8910
      University Center Lane, Suite 620

              San
      Diego, CA 92121

              Facsimile:
      (212) 554-4355

              Attn:
      President

               

              With
      a copy to:

               

              Covington
      & Burling LLP 

              The
      New York Times Building 

              620
      Eighth Avenue 

              New
      York, NY 10018 

              Facsimile:
      (212) 841-1010

            	 

       

      
        
          
          

        

        
          23

          
            

          

        

        
          
          

        

      

       

      	 	
              Attn:
      Ellen B. Corenswet, Esq.

               

              
                Paramount
      BioCapital, Inc.

                787
      Seventh Avenue, 48th
      Floor

                New
      York, NY 10019 

                Facsimile:
      (212) 554-4355 

                Attn:
      Basil Christakos

                 

                if
      to the Subscriber, to the Subscriber's address indicated on the signature
      page of this Agreement. 

              

            	 

    

     

    Notices
shall be deemed to have been given or delivered on the date of mailing, except
notices of change of address, which shall be deemed to have been given or
delivered when received.

     

    6.2 Except
as otherwise expressly provided herein, any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance, either retroactively or prospectively and
either for a specified period of time or indefinitely) with the written consent
of the Company and (a) subscribers holding Notes evidencing at least sixty six
and two-thirds percent (66 2/3%) of the then
outstanding Principal Loan Amount of the Notes issued pursuant to this Agreement
and substantially
similar agreements, so long as the Notes are outstanding; and (b) holders of
sixty-six and
two-thirds percent (66 2/3%) of the Registrable Securities, if the Notes
are no longer outstanding. Any amendment or waiver effected in accordance with
this Section 6.2 shall be binding upon the Subscriber and the Company (even if
the Subscriber does not consent to such amendment or waiver), and upon the
effectuation of each such amendment or waiver, the Company shall promptly give
written notice thereof to the Subscriber if the Subscriber has not previously
consented thereto in writing.

     

    6.3 Subject
to the provisions of Section 5.11, this Agreement shall be binding upon and
inure to the benefit of the parties hereto and to their respective heirs, legal
representatives, successors and assigns. This Agreement sets forth the entire
agreement and understanding between the parties as to the subject matter hereof
and merges and supersedes all prior discussions, agreements and understandings
of any and every nature among them.

     

    6.4 Upon the
execution and delivery of this Agreement by the Subscriber, this Agreement shall
become a binding obligation of the Subscriber with respect to the purchase of
Notes as herein provided, subject, however, to the right hereby reserved by the
Company to enter into the same agreements with other subscribers and to add
and/or delete other persons as subscribers.

     

    6.5 NOTWITHSTANDING
THE PLACE WHERE THIS AGREEMENT MAY BE EXECUTED BY ANY OF THE PARTIES HERETO, THE
PARTIES EXPRESSLY AGREE THAT ALL THE TERMS AND PROVISIONS HEREOF SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE SUBSTANTIVE AND PROCEDURAL LAWS
OF THE STATE OF NEW YORK WITHOUT REGARD TO SUCH STATE'S PRINCIPLES OF CONFLICTS
OF LAW. IN THE EVENT THAT A JUDICIAL PROCEEDING IS NECESSARY, THE SOLE FORUM FOR
RESOLVING DISPUTES ARISING
OUT OF OR RELATING TO THIS AGREEMENT IS THE STATE AND FEDERAL COURTS SITTING IN
THE BOROUGH OF MANHATTAN, COUNTY OF NEW YORK. THE PARTIES HEREBY IRREVOCABLY
CONSENT TO THE JURISDICTION OF SUCH COURTS AND AGREE TO SAID VENUE.

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

     

    6.6 The
holding of any provision of this Agreement to be invalid or unenforceable by a
court of competent jurisdiction shall not affect any other provision of this
Agreement, which shall remain in full force and effect. If any provision of this
Agreement shall be declared by a court of competent jurisdiction to be invalid,
illegal or incapable of being enforced in whole or in part, such provision shall
be interpreted so as to remain enforceable to the maximum extent permissible
consistent with applicable law and the remaining conditions and provisions or
portions thereof shall nevertheless remain in full force and effect and
enforceable to the extent they are valid, legal and enforceable, and no
provisions shall be deemed dependent upon any other covenant or provision unless
so expressed herein.

     

    6.7 It is
agreed that a waiver by either party of a breach of any provision of this
Agreement shall not operate, or be construed, as a waiver of any subsequent
breach by that same party.

     

    6.8 The
parties agree to execute and deliver all such further documents, agreements and
instruments and take such other and further action as may be necessary or
appropriate to carry out the purposes and intent of this Agreement.

     

    6.9 This
Agreement may be executed in two or more counterparts each of which shall be
deemed an original, but all of which shall together constitute one and the same
instrument.

     

    6.10 Nothing
in this Agreement shall create or be deemed to create any rights in any person
or entity not a party to this Agreement, except (a) for the holders of
Registrable Securities; (b) for the Placement Agent pursuant to Sections 1.6(a),
1.23 and 3.1 hereof, (c) for the indemnified parties (including without
limitation the Placement Agent and its sub agents, if any) pursuant to Section
5.9 hereof; and (d) that the Placement Agent may rely upon the representations
and acknowledgements of the Subscriber in Articles I and VII hereof and the
representations and warranties of the Company in Article II hereof.

     

    Remainder
of Page Intentionally Left Blank.

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

     

    VII.    CONFIDENTIAL INVESTOR
QUESTIONNAIRE

    
       

    

    7.1   The
Subscriber represents and warrants that he, she or it comes within one category
marked below, and that for any category marked, he, she or it has truthfully set
forth, where applicable, the factual basis or reason the Subscriber comes within
that category. ALL INFORMATION IN RESPONSE TO THIS SECTION WILL BE KEPT STRICTLY
CONFIDENTIAL except as otherwise required by law. The undersigned agrees to
furnish any additional information which the Company deems necessary in order to
verify the answers set forth below.

     

    
      
        	 
      	 
      
	
                Category
      A -     

              	
                The
      undersigned is an individual (not a partnership, corporation, etc.) whose
      individual net worth, or joint net worth with his or her spouse, presently
      exceeds $1,000,000.

              
	 
      	 
      
	 
      	
                Explanation:
      In calculating net worth you may include equity in personal property and
      real estate, including your principal residence, cash, short-term
      investments, stock and securities. Equity in personal property and real
      estate should be based on the fair market value of such property less debt
      secured by such property.

              
	 
      	 
      
	 
      	 
      
	
                Category
      B -

              	
                The
      undersigned is an individual (not a partnership, corporation, etc.) who
      had an income in excess of $200,000 in each of the two most recent years,
      or joint income with his or her spouse in excess of $300,000 in each of
      those years (in each case including foreign income, tax exempt income and
      full amount of capital gains and losses but excluding any income of other
      family members and any unrealized capital appreciation) and has a
      reasonable expectation of reaching the same income level in the current
      year.

              
	 
      	 
      
	 
      	 
      
	
                Category
      C -

              	
                The
      undersigned is a director or executive officer of the Company which is
      issuing and selling the Securities.

              
	 
      	 
      
	 
      	 
      
	
                Category
      D -

              	
                The
      undersigned is a bank; a savings and loan association; insurance company;
      registered investment company; registered business development company;
      licensed small business investment company ("SBIC"); or employee benefit
      plan within the meaning of Title 1 of ERISA and (a) the investment
      decision is made by a plan fiduciary which is either a bank, savings and
      loan association, insurance company or registered investment advisor, or
      (b) the plan has total assets in excess of $5,000,000 or (c) is a self
      directed plan with investment decisions made solely by persons that are
      accredited investors. (describe
      entity)

                 

                
                  
      

                
    

      

    

     

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

     

    
      
        	 
      	 
      
	
                Category
      E -

              	
                The
      undersigned is a private business development company as defined in
      section 202(a)(22) of the Investment Advisors Act of 1940. (describe
      entity)

                 

                
                  
      

                
    
	 
      	 
      
	
                Category
      F -

              	
                The
      undersigned is either a corporation, partnership, Massachusetts business
      trust, or non-profit organization within the meaning of Section 501(c)(3)
      of the Internal Revenue Code, in each case not formed for the specific
      purpose of acquiring the Notes and with total assets in excess of
      $5,000,000.(describe
      entity)

                 

                
                  
      

                
    
	 
      	 
      
	
                Category
      G -  

              	
                The
      undersigned is a trust with total assets in excess of $5,000,000, not
      formed
      for the specific purpose of acquiring the Securities, where the purchase
      is directed by a "sophisticated investor" as defined in Regulation
      506(b)(2)(ii) under the Act.

              
	 
      	
                 

                
                  
      

                
                  
      

              
	 	 
	
                Category
      H -      

              	
                The
      undersigned is an entity (other than a trust) in which all of the equity
      owners
      are "accredited investors" within one or more of the above categories. If
      relying upon this Category alone, each equity owner must complete a
      separate copy of this Agreement. (describe
      entity)

                 

                
                  
      

              
	 
      	 
      
	
                Category
      I  -

              	
                The
      undersigned is not within any of the categories above and is therefore not
      an accredited investor.

                 

              

      

    

     

    The
undersigned agrees that the undersigned will notify the Company at any time on
or prior to the Closing Date in the event that the representations and
warranties in this Agreement shall cease to be true, accurate and
complete.

     

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

     

    7.2   SUITABILITY. (please
answer each question)

     

    (a) For
an individual Subscriber, please describe your current employment, including the
company by which you are employed and its principal business:

     

      
        

      

    

     

      
        

      

    

     

      
        

      

    

     

    (b) For an
individual Subscriber, please describe any college or graduate degrees held by
you:

     

      
        

      

    

     

      
        

      

    

     

      
        

      

    

     

    (c) For all
Subscribers, please list types of prior investments:

     

      
        

      

    

     

    
      

    

     

      
        

      

    

     

    (d)           For
all Subscribers, please state whether you have you participated in other private placements
before:

     

    YES
____________________

     

    NO 
____________________

     

    (e) If
your answer to question 8.2(d) above was "YES", please indicate frequency of
such prior participation in private placements
of:

    
    

     

    
      	 	 	
              Public

              Companies

            	 	
               Private
      

              Companies

            	 	
               Public
      or Private 

              Biopharmaceutical
      Companies

            
	 	 	 	 	 	 	 
	
              Frequently

            	 	 	 	 	 	 
	Occasionally	 	 	 	 	 	 
	Never	 	 	 	 	 	 

    

     

    
      (f) For
individual Subscribers, do you expect your current level of income to
significantly decrease in the foreseeable future:

    

     

    YES____________________

    

    NO____________________

                  

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

     

    (g) For
trust, corporate, partnership and other institutional Subscribers, do you expect
your total assets to significantly decrease in the foreseeable
future:

    

    YES______________________

     

    NO_______________________

     

    (h) For
all Subscribers, do you have any other investments or contingent liabilities
which you reasonably anticipate could cause you to need sudden cash requirements
in excess of cash readily available to you:

    

    YES _____________________

     

    NO______________________

     

    (i) For
all Subscribers, are you familiar with the risk aspects and the non-liquidity of
investments such as the securities for which you seek to subscribe?

    

    YES _____________________  

     

    NO______________________

     

    (j) For
all Subscribers, do you understand that there is no guarantee of financial
return on this investment and that you run the risk of losing your entire
investment?

     

    YES____________________

     

    NO_____________________

    

    7.3       MANNER IN WHICH TITLE IS TO
BE HELD. (circle
one)

     

    
      
        	
                (a) 

              	
                Individual
      Ownership

              
	
                (b) 

              	
                Community
      Property

              
	
                (c)  

              	
                Joint
      Tenant with Right of Survivorship (both parties must
  sign)

              
	
                (d) 

              	
                Partnership*

              
	
                (e) 

              	
                Tenants
      in Common

              
	
                (f) 

              	
                Company*

              
	
                (g) 

              	
                Trust*

              
	
                (h)  

              	
                Other

              

      

    

     

    *If
Securities are being subscribed for by an entity, the attached Certificate of
Signatory must also be completed.

     

    7.4           FINRA
AFFILIATION.

               Are you
affiliated or associated with an FINRA member firm (please check
one):

     

    Yes____________________

     

    No____________________

     

    If Yes,
please describe:

     

      
        

      

    

     

      
        

      

       

      
        
          
          

        

        
          29

          
            

          

        

        
          
          

        

      

    

     

    *If
Subscriber is a Registered Representative with an FINRA member firm, have the
following acknowledgment signed by the appropriate party:

    

    The
undersigned FINRA member firm acknowledges receipt of the notice required by
NASD Rule
3050.

     

    __________________________________

    Name of
FINRA Member Firm

    

     

    By: _______________________________    Date:________________________________

    Authorized
Officer

     

    7.5     The
undersigned is informed of the significance to the Company of the foregoing
representations and answers contained in the Confidential Investor Questionnaire
contained in this Article VIII and such answers have been provided under the
assumption that the Company will rely on them.

    

    
      
        	
                Signature:    

              	
                 

              
	 
      	
                 

              
	 
      	
                (If
      purchased jointly)

              
	 
      	 
      
	
                Print
      Name:  

              	
                 

              
	 
      	 
      
	 
      	
                (If
      purchased jointly)

              
	 
      	 
      
	 
      	 
      
	
                Date:    

              	
                 

              

      

      
        
           

        

        
          30

          
            

          

        

        
           

        

      

    AGGREGATE
PRINCIPAL AMOUNT INVESTMENT) OF
NOTES = $ _________  (TOTAL INVESTMENT)

     

     

    
      
        	 
      	 
      	 
      
	
                Signature

                 

              	 
      	
                Signature
      (if purchasing jointly)

              
	 
      	 
      	 
      
	
                Name
      Typed or Printed

                 

              	 
      	
                Name
      Typed or Printed

              
	 
      	 
      	 
      
	
                Entity
      Name 

                 

              	 
      	
                Entity
      Name Address

              
	 	 	 
	
                Address

                 

              	 	Address
	 
      	 
      	 
      
	
                City,
      State and Zip Code

                 

              	 
      	
                City,
      State and Zip Code

              
	 
      	 
      	 
      
	
                Telephone-Business

                 

              	 
      	
                Telephone-Business

              
	 
      	 
      	 
      
	
                Telephone-Residence

                 

              	 
      	
                Telephone-Residence

              
	 
      	 
      	 
      
	
                Facsimile-Business

                 

              	 
      	
                Facsimile-Business

              
	 
      	 
      	 
      
	
                Facsimile-Residence

                 

              	 
      	
                Facsimile-Residence

              
	 
      	 
      	 
      
	
                Tax
      ID # or Social Security #

              	 
      	
                Tax
      ID # or Social Security #

              

      

    

     

     

    Name in
which securities should be issued: 
___________________________________________

    

     

    Dated:  ______________
, 200_

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

        This  Note Purchase Agreement is agreed to and accepted as  of
_______________,
200____.

     

     

    
      
        	 	PACIFIC BEACH BIOSCIENCES, INC.	 
	 	 	 	 
	
                 

              	
                By:
      

              	 	 
	 	 	
                Name:
      Matthew A. Wikler, M.D.

              	 
	 	 	Title:  President
      and Chief Executive Officer	 
	 	 	 	 

      

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    ANNEX
A

     

     

    CERTIFICATE
OF SIGNATORY

     

    (To be
completed if Securities are being subscribed for by an entity)

    

     

    I, _______________________ ,
am
the________________________________ of____________________________________(the
"Entity").

    

     

    I certify
that I am empowered and duly authorized by the Entity to execute and carry out
the terms of the Note Purchase Agreement and to purchase and hold the
Securities, and certify further that the Note Purchase Agreement has been duly
and validly executed on behalf of the Entity and constitutes a legal and binding
obligation of the Entity.

    

     

    IN
WITNESS WHEREOF, I have set my hand this___________________day of
______________________.

     

    

     

    
      	 
	 (Signature)

    

     

    
 

                                                         

      
        
           

        

        
          31

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