Document:

Exhibit 10.1

Execution Copy

COMMON STOCK PURCHASE AGREEMENT

by and between

KINGSBRIDGE CAPITAL LIMITED

and

FAVRILLE, INC.

dated as of December 19, 2006

 

  
  

 

TABLE OF CONTENTS

 

	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
  ARTICLE I

  	
  DEFINITIONS

  	
   

  	
  2

  
	
  Section
  1.01.

  	
   

  	
  “Agreement”

  	
   

  	
  2

  
	
  Section
  1.02.

  	
   

  	
  “Blackout Amount”

  	
   

  	
  2

  
	
  Section
  1.03.

  	
   

  	
  “Blackout Shares”

  	
   

  	
  2

  
	
  Section
  1.04.

  	
   

  	
  “Business Day”

  	
   

  	
  2

  
	
  Section
  1.05.

  	
   

  	
  “Bylaws”

  	
   

  	
  2

  
	
  Section
  1.06.

  	
   

  	
  “Certificate”

  	
   

  	
  2

  
	
  Section
  1.07.

  	
   

  	
  “Closing”

  	
   

  	
  2

  
	
  Section
  1.08.

  	
   

  	
  “Closing Date”

  	
   

  	
  2

  
	
  Section
  1.09.

  	
   

  	
  “Closing Price”

  	
   

  	
  2

  
	
  Section
  1.10.

  	
   

  	
  “Commission”

  	
   

  	
  2

  
	
  Section
  1.11.

  	
   

  	
  “Commission Documents”

  	
   

  	
  2

  
	
  Section
  1.12.

  	
   

  	
  “Commitment Period”

  	
   

  	
  2

  
	
  Section
  1.13.

  	
   

  	
  “Common Stock”

  	
   

  	
  2

  
	
  Section
  1.14.

  	
   

  	
  “Company”

  	
   

  	
  2

  
	
  Section
  1.15.

  	
   

  	
  “Company Indemnified
  Party”

  	
   

  	
  2

  
	
  Section
  1.16.

  	
   

  	
  “Company Indemnity
  Payment”

  	
   

  	
  3

  
	
  Section
  1.17.

  	
   

  	
  “Condition Satisfaction
  Date”

  	
   

  	
  3

  
	
  Section
  1.18.

  	
   

  	
  “Consolidated
  Subsidiary”

  	
   

  	
  3

  
	
  Section
  1.19.

  	
   

  	
  “Convertible Security”

  	
   

  	
  3

  
	
  Section
  1.20.

  	
   

  	
  “Conversion Price”

  	
   

  	
  3

  
	
  Section
  1.21.

  	
   

  	
  “Damages”

  	
   

  	
  3

  
	
  Section
  1.22.

  	
   

  	
  “Draw Down”

  	
   

  	
  3

  
	
  Section
  1.23.

  	
   

  	
  “Draw Down Amount”

  	
   

  	
  3

  
	
  Section
  1.24.

  	
   

  	
  “Draw Down Discount
  Price”

  	
   

  	
  3

  
	
  Section
  1.25.

  	
   

  	
  “Draw Down Notice”

  	
   

  	
  3

  
	
  Section
  1.26.

  	
   

  	
  “Draw Down Pricing
  Period”

  	
   

  	
  3

  
	
  Section
  1.27.

  	
   

  	
  “DTC”

  	
   

  	
  3

  
	
  Section
  1.28.

  	
   

  	
  “Effective Date”

  	
   

  	
  3

  
	
  Section
  1.29.

  	
   

  	
  “Exchange Act”

  	
   

  	
  3

  
	
  Section
  1.30.

  	
   

  	
  “Excluded Merger or
  Sale”

  	
   

  	
  3

  
	
  Section
  1.31.

  	
   

  	
  “GAAP”

  	
   

  	
  4

  
	
  Section
  1.32.

  	
   

  	
  “Indemnified Party”

  	
   

  	
  4

  
	
  Section
  1.33.

  	
   

  	
  “Indemnifying Party”

  	
   

  	
  4

  
	
  Section
  1.34.

  	
   

  	
  “Investor”

  	
   

  	
  4

  

 

 

 

	
  Section 1.35.

  	
   

  	
  “Investor Indemnified
  Party”

  	
   

  	
  4

  
	
  Section
  1.36.

  	
   

  	
  “Investor Indemnity
  Payment”

  	
   

  	
  4

  
	
  Section
  1.37.

  	
   

  	
  “Knowledge”

  	
   

  	
  4

  
	
  Section
  1.38.

  	
   

  	
  “LIBOR”

  	
   

  	
  4

  
	
  Section
  1.39.

  	
   

  	
  “Make Whole Amount”

  	
   

  	
  4

  
	
  Section
  1.40.

  	
   

  	
  “Market Capitalization”

  	
   

  	
  4

  
	
  Section
  1.41.

  	
   

  	
  “Material Adverse
  Effect”

  	
   

  	
  4

  
	
  Section
  1.42.

  	
   

  	
  “Maximum Commitment
  Amount”

  	
   

  	
  5

  
	
  Section
  1.43.

  	
   

  	
  “Maximum Draw Down
  Amount”

  	
   

  	
  5

  
	
  Section
  1.44.

  	
   

  	
  “NASD”

  	
   

  	
  5

  
	
  Section
  1.45.

  	
   

  	
  “Permitted Transaction”

  	
   

  	
  5

  
	
  Section
  1.46.

  	
   

  	
  “Person”

  	
   

  	
  5

  
	
  Section
  1.47.

  	
   

  	
  “Principal Market”

  	
   

  	
  5

  
	
  Section
  1.48.

  	
   

  	
  “Prohibited
  Transaction”

  	
   

  	
  5

  
	
  Section
  1.49.

  	
   

  	
  “Prospectus”

  	
   

  	
  5

  
	
  Section
  1.50.

  	
   

  	
  “Registrable
  Securities”

  	
   

  	
  5

  
	
  Section
  1.51.

  	
   

  	
  “Registration Rights
  Agreement”

  	
   

  	
  6

  
	
  Section
  1.52.

  	
   

  	
  “Registration
  Statement”

  	
   

  	
  6

  
	
  Section
  1.53.

  	
   

  	
  “Regulation D”

  	
   

  	
  6

  
	
  Section
  1.54.

  	
   

  	
  “Section 4(2)”

  	
   

  	
  6

  
	
  Section
  1.55.

  	
   

  	
  “Securities Act”

  	
   

  	
  6

  
	
  Section
  1.56.

  	
   

  	
  “Settlement Date”

  	
   

  	
  6

  
	
  Section
  1.57.

  	
   

  	
  “Shares”

  	
   

  	
  6

  
	
  Section
  1.58.

  	
   

  	
  “Threshold Price”

  	
   

  	
  6

  
	
  Section
  1.59.

  	
   

  	
  “Trading Day”

  	
   

  	
  6

  
	
  Section
  1.60.

  	
   

  	
  “VWAP”

  	
   

  	
  6

  
	
  Section
  1.61.

  	
   

  	
  “Warrant”

  	
   

  	
  6

  
	
  Section
  1.62.

  	
   

  	
  “Warrant Shares”

  	
   

  	
  6

  
	
  ARTICLE II

  	
  PURCHASE AND SALE OF COMMON STOCK

  	
   

  	
  6

  
	
  Section
  2.01.

  	
   

  	
  Purchase and Sale of
  Stock

  	
   

  	
  6

  
	
  Section
  2.02.

  	
   

  	
  Closing

  	
   

  	
  7

  
	
  Section
  2.03.

  	
   

  	
  Registration Statement
  and Prospectus

  	
   

  	
  7

  
	
  Section
  2.04.

  	
   

  	
  Warrant

  	
   

  	
  7

  
	
  Section
  2.05.

  	
   

  	
  Blackout Shares

  	
   

  	
  7

  

 

 ii
 

 

 

	
  ARTICLE III

  	
  DRAW DOWN TERMS

  	
   

  	
  7

  
	
  Section
  3.01.

  	
   

  	
  Draw Down Notice

  	
   

  	
  7

  
	
  Section
  3.02.

  	
   

  	
  Number of Shares

  	
   

  	
  7

  
	
  Section
  3.03.

  	
   

  	
  Limitation on Draw
  Downs

  	
   

  	
  8

  
	
  Section
  3.04.

  	
   

  	
  Trading Cushion

  	
   

  	
  8

  
	
  Section
  3.05.

  	
   

  	
  Settlement

  	
   

  	
  8

  
	
  Section
  3.06.

  	
   

  	
  Delivery of Shares;
  Payment of Draw Down Amount

  	
   

  	
  8

  
	
  Section
  3.07.

  	
   

  	
  Failure to Deliver
  Shares

  	
   

  	
  9

  
	
  ARTICLE IV

  	
  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

  	
   

  	
  9

  
	
  Section
  4.01.

  	
   

  	
  Organization, Good
  Standing and Power

  	
   

  	
  9

  
	
  Section
  4.02.

  	
   

  	
  Authorization;
  Enforcement

  	
   

  	
  9

  
	
  Section
  4.03.

  	
   

  	
  Capitalization

  	
   

  	
  10

  
	
  Section
  4.04.

  	
   

  	
  Issuance of Shares

  	
   

  	
  10

  
	
  Section
  4.05.

  	
   

  	
  No Conflicts

  	
   

  	
  10

  
	
  Section
  4.06.

  	
   

  	
  Commission Documents,
  Financial Statements

  	
   

  	
  11

  
	
  Section
  4.07.

  	
   

  	
  No Material Adverse
  Change

  	
   

  	
  12

  
	
  Section
  4.08.

  	
   

  	
  No Undisclosed
  Liabilities

  	
   

  	
  12

  
	
  Section
  4.09.

  	
   

  	
  No Undisclosed Events
  or Circumstances

  	
   

  	
  12

  
	
  Section
  4.10.

  	
   

  	
  Actions Pending

  	
   

  	
  12

  
	
  Section
  4.11.

  	
   

  	
  Compliance with Law

  	
   

  	
  12

  
	
  Section
  4.12.

  	
   

  	
  Certain Fees

  	
   

  	
  13

  
	
  Section
  4.13.

  	
   

  	
  Disclosure

  	
   

  	
  13

  
	
  Section
  4.14.

  	
   

  	
  Material Non-Public
  Information

  	
   

  	
  13

  
	
  Section
  4.15.

  	
   

  	
  Exemption from
  Registration; Valid Issuances

  	
   

  	
  13

  
	
  Section
  4.16.

  	
   

  	
  No General Solicitation
  or Advertising in Regard to this Transaction

  	
   

  	
  13

  
	
  Section
  4.17.

  	
   

  	
  No Integrated Offering

  	
   

  	
  14

  
	
  Section
  4.18.

  	
   

  	
  Acknowledgment
  Regarding Investor’s Purchase of Shares

  	
   

  	
  14

  
	
  ARTICLE V

  	
  REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
  INVESTOR

  	
   

  	
  14

  
	
  Section
  5.01.

  	
   

  	
  Organization and
  Standing of the Investor

  	
   

  	
  14

  
	
  Section
  5.02.

  	
   

  	
  Authorization and Power

  	
   

  	
  14

  
	
  Section
  5.03.

  	
   

  	
  No Conflicts

  	
   

  	
  14

  
	
  Section
  5.04.

  	
   

  	
  Financial Capability

  	
   

  	
  15

  
	
  Section
  5.05.

  	
   

  	
  Information

  	
   

  	
  15

  

 

 iii
 

 

 

	
  Section 5.06.

  	
   

  	
  Selling Restrictions

  	
   

  	
  15

  
	
  Section
  5.07.

  	
   

  	
  Statutory Underwriter
  Status

  	
   

  	
  15

  
	
  Section
  5.08.

  	
   

  	
  Not an Affiliate

  	
   

  	
  16

  
	
  Section
  5.09.

  	
   

  	
  Manner of Sale

  	
   

  	
  16

  
	
  Section
  5.10.

  	
   

  	
  Prospectus Delivery

  	
   

  	
  16

  
	
  ARTICLE VI

  	
  COVENANTS OF THE COMPANY

  	
   

  	
  16

  
	
  Section
  6.01.

  	
   

  	
  Securities

  	
   

  	
  16

  
	
  Section
  6.02.

  	
   

  	
  Reservation of Common
  Stock

  	
   

  	
  16

  
	
  Section
  6.03.

  	
   

  	
  Registration and
  Listing

  	
   

  	
  17

  
	
  Section
  6.04.

  	
   

  	
  Registration Statement

  	
   

  	
  17

  
	
  Section
  6.05.

  	
   

  	
  Compliance with Laws

  	
   

  	
  17

  
	
  Section
  6.06.

  	
   

  	
  Reporting Requirements

  	
   

  	
  17

  
	
  Section
  6.07.

  	
   

  	
  Other Financing

  	
   

  	
  18

  
	
  Section
  6.08.

  	
   

  	
  Prohibited Transactions

  	
   

  	
  18

  
	
  Section
  6.09.

  	
   

  	
  Corporate Existence

  	
   

  	
  19

  
	
  Section
  6.10.

  	
   

  	
  Non-Disclosure of
  Non-Public Information

  	
   

  	
  19

  
	
  Section
  6.11.

  	
   

  	
  Notice of Certain
  Events Affecting Registration; Suspension of Right to Request a Draw Down

  	
   

  	
  19

  
	
  Section
  6.12.

  	
   

  	
  Amendments to the
  Registration Statement

  	
   

  	
  20

  
	
  Section
  6.13.

  	
   

  	
  Prospectus Delivery

  	
   

  	
  20

  
	
  ARTICLE VII

  	
  CONDITIONS TO THE OBLIGATION OF THE INVESTOR TO
  ACCEPT A DRAW DOWN

  	
   

  	
  20

  
	
  Section
  7.01.

  	
   

  	
  Accuracy of the
  Company’s Representations and Warranties

  	
   

  	
  20

  
	
  Section
  7.02.

  	
   

  	
  Performance by the Company

  	
   

  	
  20

  
	
  Section
  7.03.

  	
   

  	
  Compliance with Law

  	
   

  	
  21

  
	
  Section
  7.04.

  	
   

  	
  Effective Registration
  Statement

  	
   

  	
  21

  
	
  Section
  7.05.

  	
   

  	
  No Knowledge

  	
   

  	
  21

  
	
  Section
  7.06.

  	
   

  	
  No Suspension

  	
   

  	
  21

  
	
  Section
  7.07.

  	
   

  	
  No Injunction

  	
   

  	
  21

  
	
  Section
  7.08.

  	
   

  	
  No Proceedings or
  Litigation

  	
   

  	
  21

  
	
  Section
  7.09.

  	
   

  	
  Sufficient Shares
  Registered for Resale

  	
   

  	
  21

  
	
  Section
  7.10.

  	
   

  	
  Warrant

  	
   

  	
  21

  
	
  Section
  7.11.

  	
   

  	
  Opinion of Counsel

  	
   

  	
  22

  
	
  Section
  7.12.

  	
   

  	
  Accuracy of Investor’s
  Representation and Warranties

  	
   

  	
  22

  

 

 iv
 

 

 

	
  Section 7.13.

  	
   

  	
  Payment of Fees

  	
   

  	
  22

  
	
  ARTICLE VIII

  	
  TERMINATION

  	
   

  	
  22

  
	
  Section
  8.01.

  	
   

  	
  Term

  	
   

  	
  22

  
	
  Section
  8.02.

  	
   

  	
  Other Termination

  	
   

  	
  22

  
	
  Section
  8.03.

  	
   

  	
  Effect of Termination

  	
   

  	
  23

  
	
  ARTICLE IX

  	
  INDEMNIFICATION

  	
   

  	
  23

  
	
  Section
  9.01.

  	
   

  	
  Indemnification

  	
   

  	
  23

  
	
  Section 9.02.

  	
   

  	
  Notification of Claims for Indemnification

  	
   

  	
  24

  
	
  ARTICLE X

  	
  MISCELLANEOUS

  	
   

  	
  26

  
	
  Section
  10.01.

  	
   

  	
  Fees and Expenses

  	
   

  	
  26

  
	
  Section
  10.02.

  	
   

  	
  Reporting Entity for
  the Common Stock

  	
   

  	
  26

  
	
  Section
  10.03.

  	
   

  	
  Brokerage

  	
   

  	
  26

  
	
  Section
  10.04.

  	
   

  	
  Notices

  	
   

  	
  26

  
	
  Section
  10.05.

  	
   

  	
  Assignment

  	
   

  	
  28

  
	
  Section
  10.06.

  	
   

  	
  Amendment; No Waiver

  	
   

  	
  28

  
	
  Section
  10.07.

  	
   

  	
  Entire Agreement

  	
   

  	
  28

  
	
  Section
  10.08.

  	
   

  	
  Severability

  	
   

  	
  28

  
	
  Section
  10.09.

  	
   

  	
  Title and Subtitles

  	
   

  	
  29

  
	
  Section
  10.10.

  	
   

  	
  Counterparts

  	
   

  	
  29

  
	
  Section
  10.11.

  	
   

  	
  Choice of Law

  	
   

  	
  29

  
	
  Section
  10.12.

  	
   

  	
  Specific Enforcement,
  Consent to Jurisdiction

  	
   

  	
  29

  
	
  Section
  10.13.

  	
   

  	
  Survival

  	
   

  	
  29

  
	
  Section
  10.14.

  	
   

  	
  Publicity

  	
   

  	
  30

  
	
  Section
  10.15.

  	
   

  	
  Further Assurances

  	
   

  	
  30

  
	
  Section
  10.16.

  	
   

  	
  Absence of Presumption

  	
   

  	
  30

  

 

 v

COMMON
STOCK PURCHASE AGREEMENT

by
and between

KINGSBRIDGE
CAPITAL LIMITED

and

FAVRILLE,
INC.

dated as December 19, 2006

This COMMON STOCK PURCHASE AGREEMENT (the “Agreement”) is
entered into as of the 19th day of December, 2006 by and between Kingsbridge Capital
Limited, an entity organized and existing under the laws of the British Virgin
Islands, whose registered address is Palm Grove House, 2nd Floor, Road Town,
Tortola, British Virgin Islands (the “Investor”) and Favrille, Inc., a
corporation organized and existing under the laws of the State of Delaware (the
“Company”).

WHEREAS, the parties desire
that, upon the terms and subject to the conditions and limitations set forth
herein, the Company may issue and sell to the Investor, from time to time as
provided herein, and the Investor shall purchase from the Company, up to $40
million worth of shares of Common Stock (as hereinafter defined); and

WHEREAS, such investments
will be made in reliance upon the provisions of Section 4(2) (“Section 4(2)”)
and Regulation D (“Regulation D”) of the United States Securities Act of
1933, as amended and the rules and regulations promulgated thereunder (the “Securities
Act”), and/or upon such other exemption from the registration requirements
of the Securities Act as may be available with respect to any or all of the
investments in Common Stock to be made hereunder; and

WHEREAS, the parties hereto
are concurrently entering into a Registration Rights Agreement in the form of Exhibit
A hereto (the “Registration Rights Agreement”) pursuant to which the
Company shall register the Common Stock issued and sold to the Investor under
this Agreement and under the Warrant (as hereinafter defined), upon the terms
and subject to the conditions and limitations set forth therein; and

WHEREAS, in consideration
for the Investor’s execution and delivery of, and its performance of its
obligations under, this Agreement, the Company is concurrently issuing to the
Investor a warrant in the form of Exhibit B hereto (the “Warrant”)
pursuant to which the Investor may purchase from the Company up to 250,000
shares of Common Stock, upon the terms and subject to the conditions and
limitations set forth therein;

NOW, THEREFORE, the parties
hereto agree as follows:

 

ARTICLE I

DEFINITIONS

Section
1.01.  “Agreement” shall have the
meaning assigned to such term in the recitals of this Agreement.

Section
1.02.  “Blackout Amount” shall have
the meaning assigned to such term in the Registration Rights Agreement.

Section
1.03.  “Blackout Shares” shall have
the meaning assigned to such term in the Registration Rights Agreement.

Section
1.04.  “Business Day” shall mean
any day other than a Saturday, a Sunday or a day on which banks in New York
City, New York are authorized or obligated by executive order to close.

Section
1.05.  “Bylaws” shall have the
meaning assigned to such term in Section 4.03 hereof.

Section
1.06.  “Certificate” shall have the
meaning assigned to such term in Section 4.03 hereof.

Section
1.07.  “Closing” shall have the
meaning assigned to such term in Section 2.02 hereof.

Section
1.08.  “Closing Date” means the
date on which this Agreement is executed and delivered by the Company and the
Investor.

Section
1.09.  “Closing Price” means the
closing price per share of Common Stock at 4:00 PM New York time as reported by
Bloomberg L.P. on such day.

Section
1.10.  “Commission” means the
United States Securities and Exchange Commission.

Section
1.11.  “Commission Documents” shall
have the meaning assigned to such term in Section 4.06 hereof.

Section
1.12.  “Commitment Period” means
the period commencing on the Effective Date and expiring on the earliest to
occur of (i) the date on which the Investor shall have purchased Shares
pursuant to this Agreement for an aggregate purchase price equal to the Maximum
Commitment Amount, (ii) the date this Agreement is terminated pursuant to
Article VIII hereof, and (iii) the date occurring thirty-six (36)
months from the Effective Date.

Section
1.13.  “Common Stock” means the
common stock of the Company, par value $0.001 per share.

Section
1.14.  “Company” shall have the
meaning assigned to such term in the recitals of this Agreement.

 2
  
 

 

Section
1.15.  “Company Indemnified Party”
shall have the meaning assigned to such term in Section 9.01(b) hereof.

Section
1.16.  “Company Indemnity Payment”
shall have the meaning assigned to such term in Section 9.01(a) hereof.

Section
1.17.  “Condition Satisfaction Date”
shall have the meaning assigned to such term in Article VII hereof.

Section 1.18.  “Consolidated Subsidiary” means any
subsidiary that the Company consolidates in the preparation of its audited
consolidated financial statements.

Section 1.19.  “Convertible Security” shall have the
meaning assigned to such term in Section 6.08 hereof.

Section 1.20.  “Conversion Price” shall have the
meaning assigned to such term in Section 6.08 hereof.

Section 1.21.  “Damages” means any loss, claim,
damage, liability, costs and expenses (including, without limitation,
reasonable attorneys’ fees and expenses and costs and reasonable expenses of
expert witnesses and investigation).

Section 1.22.  “Draw Down” shall have the meaning
assigned to such term in Section 3.01 hereof.

Section 1.23.  “Draw Down Amount” means the actual
amount of a Draw Down paid to the Company.

Section 1.24.  “Draw Down Discount Price” means (i)
90% of the VWAP on any Trading Day during a Draw Down Pricing Period when the
VWAP equals or exceeds $1.75 but is less than or equal to $5.00, (ii) 92% of
the VWAP on any Trading Day during a Draw Down Pricing Period when the VWAP
equals or exceeds $5.01 but is less than or equal to $8.25, or (iii) 94% of the
VWAP on any Trading Day during a Draw Down Pricing Period when the VWAP exceeds
$8.25.

Section 1.25.  “Draw Down Notice” shall have the
meaning assigned to such term in Section 3.01 hereof.

Section 1.26.  “Draw Down Pricing Period” shall mean,
with respect to each Draw Down, a period of eight (8) consecutive Trading Days
beginning on the first Trading Day specified in a Draw Down Notice.

Section 1.27.  “DTC” shall mean the Depository Trust
Company, or any successor thereto.

Section 1.28.  “Effective Date” means the first
Trading Day immediately following the date on which the Registration Statement
is declared effective by the Commission.

Section 1.29.  “Exchange Act” means the U.S.
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

 3
  
 

 

Section 1.30.  “Excluded Merger or Sale” shall have
the meaning assigned to such term in the Warrant.

Section 1.31.  “GAAP” shall have the meaning assigned
to such term in Section 4.06 hereof.

Section 1.32.  “Indemnified Party” shall have the
meaning assigned to such term in Section 9.02 hereof.

Section 1.33.  “Indemnifying Party” shall have the
meaning assigned to such term in Section 9.02 hereof.

Section 1.34.  “Investor” shall have the meaning
assigned to such term in the recitals of this Agreement.

Section 1.35.  “Investor Indemnified Party” shall have
the meaning assigned to such term in Section 9.01(a) hereof.

Section 1.36.  “Investor Indemnity Payment” shall have
the meaning assigned to such term in Section 9.01(b) hereof.

Section 1.37.  “Knowledge” with respect to the Company
means the actual knowledge of the Company’s President and Chief Executive
Officer: Vice President, Finance and Administration and Chief Financial
Officer; Chief Scientific Officer; Chief Commercial Officer; Senior Vice
President, Operations; Vice President, Clinical Research; and Vice President,
Regulatory Affairs and Quality.

Section 1.38.  “LIBOR” means the offered rate for twelve-month U.S. dollar deposits that appears
on Moneyline Telerate Page 3750 (or such other page as may replace such
Moneyline Telerate Page 3750 for the purpose of displaying comparable rates),
as of 11:00 a.m. (London time) two (2) Business Days prior to the beginning of
the relevant period.

Section 1.39.  “Make Whole Amount” shall have the
meaning specified in Section 3.07.

Section 1.40.  “Market Capitalization” means, as of
any Trading Day, the product of (i) the closing sale price of the Common
Stock as reported by Bloomberg L.P. using the AQR function and (ii) the
number of outstanding shares of Common Stock of the Company as reported by
Bloomberg L.P. using the DES function.

Section 1.41.  “Material Adverse Effect” means any
effect that is not negated, corrected, cured or otherwise remedied within a
reasonable period of time on the business, operations, properties or financial
condition of the Company and its Consolidated Subsidiaries that is material and
adverse to the Company and such subsidiaries, taken as a whole, and/or any
condition, circumstance, or situation that would prohibit or otherwise
interfere with the ability of the Company to perform any of its obligations
under this Agreement, the Registration Rights Agreement or the Warrant in any
material respect; provided, however, that none of the following
shall constitute a “Material Adverse Effect”: 
(i) the effects of conditions or events that are generally applicable to
the capital, financial, banking or currency markets or the biotechnology or
pharmaceutical industries; (ii) the effects of conditions or events that are
reasonably expected to occur in the Company’s ordinary course of business (such
as, by way of example only, failed clinical trials, serious adverse events
involving the Company’s product candidates, delays in 

 4
  
 

 

product
development, unfavorable regulatory determinations, difficulties involving
collaborators or intellectual property disputes), except for purposes of
Section 4.09 herein; (iii) any changes or effects resulting from the
announcement or consummation of the transactions contemplated by this
Agreement, including, without limitation, any changes or effects associated
with any particular Draw Down, and (iv) changes in the market price of the
Common Stock.

Section 1.42.  “Maximum Commitment Amount” means the
lesser of (i) $40 million in aggregate Draw Down Amounts or (ii) 5,808,820
shares of Common Stock (as adjusted for stock splits, stock combinations, stock
dividends, recapitalizations and the like that occur on or after the date of
this Agreement minus the number of Blackout Shares, if any, delivered to the
Investor under the Registration Rights Agreement); provided, however,
that the Maximum Commitment Amount shall not exceed that number of shares of
Common Stock which the Company may issue pursuant to the Agreement and the
transactions contemplated herein, without breaching the Company’s obligations
under the rules and regulations of the Principal Market.

Section 1.43.  “Maximum Draw Down Amount” means the
lesser of:

(a)    $10 million, or

(b)   1.75% of the Company’s Market Capitalization
at the time of the delivery of the applicable Draw Down Notice.

Section 1.44.  “NASD” means the National Association
of Securities Dealers, Inc.

Section 1.45.  “Permitted Transaction” shall have the
meaning assigned to such term in Section 6.07 hereof.

Section 1.46.  “Person” means any individual,
corporation, partnership, limited liability company, association, trust or
other entity or organization, including any government or political subdivision
or an agency or instrumentality thereof.

Section 1.47.  “Principal Market” means the NASDAQ
Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market, the
American Stock Exchange or the New York Stock Exchange, whichever is at the
time the principal trading exchange or market for the Common Stock.

Section 1.48.  “Prohibited Transaction” shall have the
meaning assigned to such term in Section 6.08 hereof.

Section 1.49.  “Prospectus” as used in this Agreement
means the prospectus in the form included in the Registration Statement, as
supplemented from time to time pursuant to Rule 424(b) of the Securities
Act.

Section 1.50.  “Registrable Securities” means
(i) the Shares, (ii) the Warrant Shares, and (iii) any
securities issued or issuable with respect to any of the foregoing by way of
exchange, stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization or
otherwise.  As to any particular
Registrable Securities, once issued such securities shall cease to be
Registrable Securities when (w) the Registration Statement has been declared
effective by the Commission and such Registrable Securities have been disposed
of pursuant to the Registration Statement, (x) such Registrable Securities
have been sold under circumstances under which all of the applicable conditions
of 

 5
  
 

 

Rule 144 (or any
similar provision then in force) under the Securities Act (“Rule 144”)
are met, (y) such time as such Registrable Securities have been otherwise
transferred to holders who may trade such shares without restriction under the
Securities Act, and the Company has delivered a new certificate or other
evidence of ownership for such securities not bearing a restrictive legend or
(z) in the opinion of inside or outside counsel to the Company such
Registrable Securities may be sold without registration and without any time,
volume or manner limitations pursuant to Rule 144(k) (or any similar provision
then in effect) under the Securities Act.

Section 1.51.  “Registration Rights Agreement” shall
have the meaning assigned to such term in the recitals of this Agreement.

Section 1.52.  “Registration Statement” shall have the
meaning assigned to such term in the Registration Rights Agreement.

Section 1.53.  “Regulation D” shall have the meaning assigned
to such term in the recitals of this Agreement.

Section 1.54.  “Section 4(2)” shall have the meaning
assigned to such term in the recitals of this Agreement.

Section 1.55.  “Securities Act” shall have the meaning
assigned to such term in the recitals of this Agreement.

Section 1.56.  “Settlement Date” shall have the
meaning assigned to such term in Section 3.05 hereof.

Section 1.57.  “Shares” means the shares of Common
Stock that are and/or may be purchased hereunder.

Section 1.58.  “Threshold Price” means the price per
share of Common Stock specified in each Draw Down Notice in respect of the
related Draw Down Pricing Period.

Section 1.59.  “Trading Day” means any day other than
a Saturday or a Sunday on which the Principal Market is open for trading in equity
securities.

Section 1.60.  “VWAP” means the volume weighted
average price (the aggregate sales price of all trades of Common Stock during
each Trading Day divided by the total number of shares of Common Stock traded
during such Trading Day) of the Common Stock during any Trading Day as reported
by Bloomberg, L.P. using the AQR function.

Section 1.61.  “Warrant” shall have the meaning
assigned to such term in the recitals of this Agreement.

Section 1.62.  “Warrant Shares” means the shares of
Common Stock issuable to the Investor upon exercise of the Warrant.

 

 6
  

 

ARTICLE
II

PURCHASE AND SALE OF COMMON STOCK

Section 2.01.  Purchase and Sale of Stock.  Upon the terms and subject to the conditions
set forth in this Agreement, the Company shall, to the extent it elects to make
Draw Downs in accordance with Article III hereof, issue and sell to the
Investor and the Investor shall purchase from the Company Common Stock for an
aggregate in Draw Down Amounts of up to the Maximum Commitment Amount,
consisting of purchases based on the Company making Draw Downs in accordance with
Article III hereof.

Section 2.02.  Closing.  In consideration of and in express reliance
upon the representations, warranties, covenants, and upon the terms and subject
to the conditions of this Agreement, the Company agrees to issue and sell to
the Investor, and the Investor agrees to purchase from the Company, that number
of Shares to be issued in connection with each Draw Down.  The execution and delivery of this Agreement
(the “Closing”) shall take place on December 19, 2006 (the “Closing
Date”).  Each party shall deliver at
or prior to the Closing all documents, instruments and writings required to be
delivered at the Closing by such party pursuant to this Agreement.

Section 2.03.  Registration Statement and Prospectus.  The Company shall prepare and file with the
Commission the Registration Statement (including the Prospectus) in accordance
with the provisions of the Securities Act and the Registration Rights
Agreement.

Section 2.04.  Warrant.  On the Closing Date, the Company shall issue
and deliver the Warrant to the Investor.

Section 2.05.  Blackout Shares.  The Company shall deliver any Blackout Amount
or issue and deliver any Blackout Shares to the Investor in accordance with
Section 1.1(e) of the Registration Rights Agreement.

ARTICLE
III

DRAW DOWN TERMS

Subject to the satisfaction of the conditions
hereinafter set forth in this Agreement, the parties agree as follows:

Section 3.01.  Draw Down Notice.  During the Commitment Period, the Company
may, in its sole discretion, issue a Draw Down Notice (as hereinafter defined),
which shall specify the dollar amount of Shares the Company elects to sell to
the Investor (each such election a “Draw Down”) up to a Draw Down Amount
equal to the Maximum Draw Down Amount, which Draw Down the Investor shall be
obligated to accept.  The Company shall
inform the Investor in writing by sending a duly completed Draw Down Notice (as
hereinafter defined) in the form of Exhibit C hereto by e-mail to the
addresses set forth in Section 10.04 and by facsimile transmission to the
number set forth in Section 10.04, with a copy to the Investor’s counsel, as to
such Draw Down Amount before commencement of trading on the first Trading Day
of the related Draw Down Pricing Period (the “Draw Down Notice”).  In addition to the Draw Down Amount, each
Draw Down Notice shall designate the first Trading Day of the Draw Down Pricing
Period and the Threshold Price with respect to such Draw Down Pricing
Period.  In no event shall any Draw Down
Amount exceed the Maximum Draw Down Amount. 
Each Draw 

 7
  
 

 

Down Notice shall
be accompanied by a certificate, signed by the Chief Executive Officer or Chief
Financial Officer and dated as of the date of such Draw Down Notice, in the
form of Exhibit D hereof.

Section 3.02.  Number of Shares.  Subject to Section 3.06(b), the number
of Shares to be issued in connection with each Draw Down shall be equal to the
sum of the number of shares issuable on each Trading Day of the Draw Down
Pricing Period.  Subject to Section
3.06(b), the number of Shares issuable on a Trading Day during a Draw Down
Pricing Period shall be equal to the quotient of one eighth (1/8th) of the Draw Down Amount divided by the Draw Down
Discount Price for such Trading Day.

Section 3.03.  Limitation on Draw Downs.  Only one Draw Down shall be permitted for
each Draw Down Pricing Period.

Section 3.04.  Trading Cushion.  Unless the parties agree in writing
otherwise, there shall be a minimum of three (3) Trading Days between the
expiration of any Draw Down Pricing Period and the beginning of the next
succeeding Draw Down Pricing Period.

Section 3.05.  Settlement. Subject to Section 3.06(b),
the number of Shares purchased by the Investor in any Draw Down shall be
determined and settled on two separate dates. 
Shares purchased by the Investor during the first four Trading Days of
any Draw Down Pricing Period shall be determined and settled no later than the
sixth Trading Day of such Draw Down Pricing Period.  Shares purchased by the Investor during the
second four Trading Days of any Draw Down Pricing Period shall be determined
and settled no later than the second Trading Day after the last Trading Day of
such Draw Down Pricing Period.  Each date
on which settlement of the purchase and sale of Shares occurs hereunder is
referred to herein as a “Settlement Date.”  The Investor shall provide the Company with
delivery instructions for the Shares to be issued at each Settlement Date at
least two Trading Days in advance of such Settlement Date.  The number of Shares actually issued shall be
rounded to the nearest whole number of Shares.

Section 3.06.  Delivery of Shares; Payment of Draw Down
Amount.

(a)   On each Settlement Date, the Company shall
deliver the Shares purchased by the Investor to the Investor or its designees
exclusively via book-entry through the DTC to an account designated by the
Investor, and upon receipt of the Shares, the Investor shall cause payment
therefor to be made to the Company’s designated account by wire transfer of
immediately available funds, if the Shares are received by the Investor no
later than 12:00 p.m. (Eastern Time), or next day available funds, if the
Shares are received thereafter.  Upon the
written request of the Company, the Investor shall cause its banker to confirm
to the Company that the Investor has provided irrevocable instructions to cause
payment for the Shares to be made as set forth above, upon confirmation by such
banker that the Shares have been delivered through the DTC in unrestricted
form.

(b)   For each Trading Day during a Draw Down
Pricing Period that the VWAP is less than the greater of (i) 90% of the Closing
Price of the Common Stock on the Trading Day immediately preceding the
commencement of such Draw Down Pricing Period, (ii) the Threshold Price with
respect to such Draw Down Pricing Period, if such Threshold Price is greater
than 90% of the Closing Price of the Common Stock on the Trading Day
immediately preceding the commencement of such Draw Down Pricing Period, or
(iii) $1.75, such Trading Day shall not be used in calculating the number
of Shares to be issued in connection with such Draw Down, and the Draw Down
Amount in respect of such Draw Down Pricing Period shall be reduced by one 

 8
  
 

 

 

eighth (1/8th) of the initial Draw Down Amount specified in the
Draw Down Notice.  If trading in the
Company’s Common Stock is suspended for any reason for more than three (3)
consecutive or non-consecutive hours during any Trading Day during a Draw Down
Pricing Period, such Trading Day shall not be used in calculating the number of
Shares to be issued in connection with such Draw Down, and the Draw Down Amount
in respect of such Draw Down Pricing Period shall be reduced by one eighth
(1/8th) of the initial Draw Down Amount specified in the Draw Down Notice.

Section 3.07.  Failure to Deliver Shares.  If the Company
fails, on any Settlement Date, to take all actions within its reasonable
control to cause the delivery of the Shares purchased by the Investor, and such
failure is not cured within two (2) Trading Days following such Settlement
Date, the Company shall pay to the Investor on demand in cash by wire transfer
of immediately available funds to an account designated by the Investor the
Make Whole Amount (as hereinafter defined); provided, however,
that in the event that the Company is prevented from delivering Shares in
respect of any such Settlement Date in a timely manner by any fact or
circumstance that is reasonably within the control of, or directly attributable
to, the Investor, then such  two (2)
Trading Day period shall be automatically extended until such time as such fact
or circumstance is cured.  As used
herein, the “Make Whole Amount” shall be an amount equal to the sum of
(i) the Draw Down Amount actually paid by the Investor in respect of such
Shares plus (ii) an amount equal to the actual loss suffered by the Investor in
respect of sales to subsequent purchasers, pursuant to transactions entered
into before the Settlement Date, of the Shares that were required to be
delivered by the Company, which shall be based upon documentation reasonably
satisfactory to the Company demonstrating the difference (if greater than zero)
between (A) the price per share paid by the Investor to purchase such number of
shares of Common Stock necessary for the Investor to meet its share delivery
obligations to such subsequent purchasers minus (B) the average Draw Down
Discount Price during the applicable Draw Down Pricing Period.  In the event that the Make Whole Amount is
not paid within two (2) Trading Days following a demand therefor from the
Investor, the Make Whole Amount shall accrue interest compounded daily at a
rate of LIBOR plus 300 basis points per annum, up to and including the date on
which the Make Whole Amount is actually paid. 
Notwithstanding anything to the contrary set forth in this Agreement, in
the event that the Company pays the Make Whole Amount (plus interest, if
applicable) in respect of any Settlement Date in accordance with this Section
3.07, such payment shall be the Investor’s sole remedy in respect of the
Company’s failure to deliver Shares in respect of such Settlement Date, and the
Company shall not be obligated to deliver such Shares.

ARTICLE
IV

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company hereby makes the following representations
and warranties to the Investor:

Section 4.01.  Organization, Good Standing and Power.  The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted.  Except as set forth in the Commission
Documents (as defined below), as of the date hereof the Company does not own
more than fifty percent (50%) of the outstanding capital stock of or control
any other business entity, other than any wholly-owned subsidiary that is not “significant”
within the meaning of Regulation S-X promulgated by the Commission.  The Company is duly qualified as a foreign
corporation to do business and is in 

 9
  
 

 

good standing in
every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify or be in good standing would not have a Material Adverse
Effect.

Section 4.02.  Authorization; Enforcement.  (i) The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Registration Rights Agreement and the Warrant and to issue
the Shares, the Warrant, the Warrant Shares and any Blackout Shares (except to
the extent that the number of Blackout Shares required to be issued exceeds the
number of authorized shares of Common Stock under the Certificate);
(ii) the execution and delivery of this Agreement and the Registration
Rights Agreement, and the execution, issuance and delivery of the Warrant, by
the Company and the consummation by it of the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate action and no
further consent or authorization of the Company or its Board of Directors or
stockholders is required (other than as contemplated by Section 6.05); and
(iii) each of this Agreement and the Registration Rights Agreement has
been duly executed and delivered, and the Warrant has been duly executed,
issued and delivered, by the Company and constitutes a valid and binding
obligation of the Company enforceable against the Company in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, securities, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors’ rights and remedies, or
indemnification or by other equitable principles of general application.

Section 4.03.  Capitalization.  The authorized capital stock of the Company and
the shares thereof issued and outstanding as of September 30, 2006 are set
forth in the Commission Documents.  All
of the outstanding shares of the Common Stock as of September 30, 2006 have
been duly and validly authorized and issued, and are fully paid and
non-assessable.  Except as set forth in
this Agreement or in the Commission Documents, as of September 30, 2006 no
shares of Common Stock were entitled to preemptive rights or registration
rights, and there were no outstanding options, warrants, scrip, rights issued
by the Company to subscribe to, call or commitments of any character whatsoever
issued by the Company relating to, or securities or rights convertible into or
exchangeable for or giving any right to subscribe for, any shares of capital stock
of the Company.  Except as set forth in
this Agreement or in the Commission Documents, as of September 30, 2006 there
were no contracts, commitments, understandings, or arrangements by which the
Company is or may become bound to issue additional shares of the capital stock
of the Company or options, securities or rights convertible into or
exchangeable for or giving any right to subscribe for any shares of capital
stock of the Company.  Except as
described in the Commission Documents, as of the date hereof the Company is not
a party to any agreement granting registration rights to any Person with
respect to any of its equity or debt securities.  Except as set forth in the Commission
Documents or as previously disclosed to the Investor in writing, as of the date
hereof the Company is not a party to, and it has no Knowledge of, any agreement
restricting the voting or transfer of any shares of the capital stock of the
Company.  The offer and sale of all
capital stock, convertible securities, rights, warrants, or options of the
Company issued during the twelve month period immediately prior to the Closing
complied in all material respects with all applicable federal and state
securities laws, and no stockholder has a right of rescission or damages with
respect thereto that could reasonably be expected to have a Material Adverse
Effect.  The Company has furnished or
made available to the Investor true and correct copies of the Amended and
Restated Certificate of Incorporation of the Company, as amended, as in effect
on the date hereof (the “Certificate”), and the Amended and Restated
Bylaws of the Company, as amended, as in effect on the date hereof (the “Bylaws”).

Section 4.04.  Issuance of Shares.  Subject to Section 6.05, the Shares, the
Warrant and the Warrant Shares have been, and any Blackout Shares will be, duly
authorized by all necessary 

 10
  
 

 

corporate action
(except to the extent that the number of Blackout Shares required to be issued
exceeds the number of authorized shares of Common Stock under the Certificate)
and, when issued and paid for in accordance with the terms of this Agreement,
the Registration Rights Agreement and the Warrant, the Shares and the Warrant
Shares shall be validly issued and outstanding, fully paid and non-assessable,
and the Investor shall be entitled to all rights accorded to a holder of shares
of Common Stock.

Section 4.05.  No Conflicts.  The execution, delivery and performance of
this Agreement, the Registration Rights Agreement, the Warrant and any other
document or instrument contemplated hereby or thereby, by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
do not:  (i) violate any provision
of the Certificate or Bylaws, (ii) conflict with, or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, mortgage, deed of trust, indenture,
note, bond, license, lease agreement, instrument or obligation to which the
Company is a party where such default or conflict would constitute a Material
Adverse Effect, (iii) create or impose a lien, charge or encumbrance on
any property of the Company under any agreement or any commitment to which the
Company is a party or by which the Company is bound or by which any of its
respective properties or assets are bound which would constitute a Material
Adverse Effect, (iv) result in a violation of any federal, state, local or
foreign statute, rule, regulation, order, writ, judgment or decree (including
federal and state securities laws and regulations) applicable to the Company or
any of its Consolidated Subsidiaries or by which any property or asset of the
Company or any of its Consolidated Subsidiaries are bound or affected where
such violation would constitute a Material Adverse Effect, or (v) require any
consent of any third party that has not been obtained pursuant to any material
contract to which the Company is subject or to which any of its assets,
operations or management may be subject where the failure to obtain any such
consent would constitute a Material Adverse Effect.  The Company is not required under federal,
state or local law, rule or regulation to obtain any consent, authorization or
order of, or make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its obligations
under this Agreement, the Registration Rights Agreement or the Warrant, or
issue and sell the Shares, the Warrant Shares or the Blackout Shares (except to
the extent that the number of Blackout Shares required to be issued exceeds the
number of authorized shares of Common Stock under the Certificate) in
accordance with the terms hereof and thereof (other than any filings that may
be required to be made by the Company with the Commission, the NASD/Nasdaq or
state securities commissions subsequent to the Closing, and, any registration
statement (including any amendment or supplement thereto) which may be filed
pursuant hereto); provided that, for purposes of the representation made
in this sentence, the Company is assuming and relying upon the accuracy of the
relevant representations and agreements of the Investor herein.

Section 4.06.  Commission Documents, Financial Statements.  The Common Stock is registered pursuant to
Section 12(b) or 12(g) of the Exchange Act, and since February 2, 2005, the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the Commission pursuant to the
reporting requirements of the Exchange Act, including material filed pursuant
to Section 13(a) or 15(d) of the Exchange Act (all of the foregoing, including
any such reports, schedules, forms, statements and other documents filed after
the date hereof, including filings incorporated by reference in any such
filings, being referred to herein as the “Commission Documents”).  Except as previously disclosed to the
Investor in writing, since February 2, 2005, the Company has maintained all
requirements for the continued listing or quotation of its Common Stock, and
such Common Stock is currently listed or quoted on the Nasdaq Global
Market.  To the extent not available on 

 11
  
 

 

the Commission’s
EDGAR filing system, the Company has made available to the Investor true and
complete copies of the Commission Documents filed with the Commission since
January 1, 2006, and prior to the Closing Date. 
The Company has not provided to the Investor any information which,
according to applicable law, rule or regulation, should have been disclosed
publicly by the Company but which has not been so disclosed, other than with
respect to the transactions contemplated by this Agreement.  As of its date, the Company’s Form 10-K for
the year ended December 31, 2005 complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the
Commission promulgated thereunder applicable to such document, and, as of its
date, after giving effect to the information disclosed and incorporated by
reference therein, such Form 10-K did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. 
As of their respective dates, the financial statements of the Company
included in the Commission Documents filed with the Commission since February
2, 2005, complied as to form and substance in all material respects with
applicable accounting requirements and the published rules and regulations of
the Commission or other applicable rules and regulations with respect
thereto.  Such financial statements have
been prepared in accordance with generally accepted accounting principles (“GAAP”)
applied on a consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto or (ii)
in the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements), and fairly present in all
material respects the financial position of the Company and its Consolidated
Subsidiaries 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).

Section 4.07.  No Material Adverse Change.  Except as disclosed in the Commission
Documents, since September 30, 2006 no event or series of events has or have
occurred that would, individually or in the aggregate, have a Material Adverse
Effect on the Company.

Section 4.08.  No Undisclosed Liabilities.  Neither the Company nor any of its
Consolidated Subsidiaries has any liabilities, obligations, claims or losses
(whether liquidated or unliquidated, secured or unsecured, absolute, accrued,
contingent or otherwise) that would be required to be disclosed on a balance
sheet of the Company or any Consolidated Subsidiary (including the notes
thereto) in conformity with GAAP and are not disclosed in the Commission
Documents, other than those incurred in the ordinary course of the Company’s or
its Consolidated Subsidiaries respective businesses since September 30, 2006,
or which, individually or in the aggregate, do not or would not have a Material
Adverse Effect on the Company.

Section 4.09.  No Undisclosed Events or Circumstances.  To the Company’s Knowledge, no event or
circumstance has occurred or exists with respect to the Company or its
Consolidated Subsidiaries or their respective businesses, properties,
operations or financial condition, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but which
has not been so publicly announced or disclosed and which, individually or in
the aggregate, would have a Material Adverse Effect on the Company.

Section 4.10.  Actions Pending.  There is no action, suit, claim,
investigation or proceeding pending or, to the Knowledge of the Company,
threatened against the Company or any Consolidated Subsidiary which questions
the validity of this Agreement or the transactions contemplated hereby or any
action taken or to be taken pursuant hereto or thereto. Except as set forth in
the Commission Documents, there is no action, suit, claim, investigation or
proceeding pending or, to the Knowledge of the Company, threatened against or
involving the Company, 

 12
  
 

 

any Consolidated
Subsidiary or any of their respective properties or assets that could be
reasonably expected to have a Material Adverse Effect on the Company.  Except as set forth in the Commission
Documents or as previously disclosed to the Investor in writing, no judgment,
order, writ, injunction or decree or award has been issued by or, to the
Knowledge of the Company, requested of any court, arbitrator or governmental
agency which could be reasonably expected to result in a Material Adverse
Effect.

Section 4.11.  Compliance with Law.  The businesses of the Company and its
Consolidated Subsidiaries have been and are presently being conducted in
accordance with all applicable federal, state and local governmental laws,
rules, regulations and ordinances, except as set forth in the Commission
Documents or such that would not reasonably be expected to cause a Material
Adverse Effect.  Except as set forth in
the Commission Documents, the Company and each of its Consolidated Subsidiaries
have all franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals necessary for the conduct of its
business as now being conducted by it, except for such franchises, permits,
licenses, consents and other governmental or regulatory authorizations and
approvals, the failure to possess which, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect.

Section 4.12.  Certain Fees.  Except as expressly set forth in this
Agreement, no brokers, finders or financial advisory fees or commissions will
be payable by the Company or any of its Consolidated Subsidiaries in respect of
the transactions contemplated by this Agreement.

Section 4.13.  Disclosure.  To the Company’s Knowledge, neither this
Agreement nor any other documents, certificates or instruments furnished to the
Investor by or on behalf of the Company or any Consolidated Subsidiary in
connection with the transactions contemplated by this Agreement, the
Registration Rights Agreement or the Warrant contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the statements
made herein or therein, in the light of the circumstances under which they were
made herein or therein, not misleading.

Section 4.14.  Material Non-Public Information.  Except for this Agreement and the
transactions contemplated hereby, neither the Company, nor its employees nor
its agents have disclosed to the Investor, any material non-public information
that, according to applicable law, rule or regulation, should have been
disclosed publicly by the Company prior to the date hereof but which has not
been so disclosed.

Section 4.15.  Exemption from Registration; Valid
Issuances.  Subject to, in reliance
upon and on the basis of the terms of this Agreement and the representations,
warranties and covenants made herein by the Investor, the Shares, the Warrant,
the Warrant Shares and any Blackout Shares may and shall be properly issued
pursuant to Section 4(2), Regulation D and/or any other applicable federal and
state securities laws; provided, however,
that at the request of and with the express agreement of the Investor, the
Shares and, under certain circumstances, the Warrant Shares, shall be delivered
to the Investor via book entry through DTC and shall not bear legends noting
restrictions as to resale of such shares under federal and state securities
laws, nor shall such shares be subject to stop transfer instructions.  Neither the sales of the Shares, the Warrant,
the Warrant Shares or any Blackout Shares pursuant to, nor the Company’s
performance of its obligations under, this Agreement, the Registration Rights
Agreement or the Warrant shall (i) result in the creation or imposition of any
liens, charges, claims or other encumbrances upon the Shares, the Warrant
Shares, any Blackout Shares or any of the assets of the Company, or (ii) except
as previously disclosed to the Investor in writing, entitle the holders of any
outstanding 

 13
  
 

 

shares of capital
stock of the Company to preemptive or other rights to subscribe to or acquire
the shares of Common Stock or other securities of the Company.  The Shares, the Warrant Shares and any
Blackout Shares shall not subject the Investor to personal liability to the
Company, its officers, directors, employees or stockholders simply by reason of
the Investor’s ownership thereof.

Section 4.16.  No General Solicitation or Advertising in
Regard to this Transaction.  Neither
the Company nor any of its affiliates or any person acting on its or their
behalf (i) has conducted any general solicitation (as that term is used in
Rule 502(c) of Regulation D) or general advertising with respect to any of the
Shares, the Warrant, the Warrant Shares or any Blackout Shares or (ii) has
made any offers or sales of any security or solicited any offers to buy any
security under any circumstances that would require registration of the Shares
under the Securities Act.

Section 4.17.  No Integrated Offering.  Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, has made any offers or sales of any security or solicited any
offers to buy any security, other than pursuant to this Agreement and employee
benefit plans, under circumstances that would require registration under the
Securities Act of the shares of Common Stock issuable hereunder and the shares
of Common Stock issuable in connection with such other offers or sales of
securities of the Company.

Section 4.18.  Acknowledgment Regarding Investor’s
Purchase of Shares.  The Company
acknowledges and agrees that the Investor is acting solely in the capacity of
an arm’s length investor with respect to this Agreement and the transactions
contemplated hereunder.  The Company
further acknowledges that the Investor is not acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to this
Agreement and the transactions contemplated hereunder, and that any advice
given by the Investor or any of its representatives or agents in connection
with this Agreement and the transactions contemplated hereunder is merely
incidental to the Investor’s purchase of the Shares.

ARTICLE
V

REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
INVESTOR

The Investor hereby makes the following
representations, warranties and covenants to the Company:

Section 5.01.  Organization and Standing of the Investor.  The Investor is a company duly organized,
validly existing and in good standing under the laws of the British Virgin
Islands.

Section 5.02.  Authorization and Power.  The Investor has the requisite power and
authority to enter into and perform its obligations under this Agreement, the
Registration Rights Agreement and the Warrant and to purchase the Shares, the
Blackout Shares, the Warrant and the Warrant Shares in accordance with the
terms hereof and thereof.  The execution,
delivery and performance of this Agreement and the Registration Rights
Agreement by the Investor and the consummation by it of the transactions
contemplated hereby or thereby have been duly authorized by all necessary
corporate action, and no further consent or authorization of the Investor, its
Board of Directors or stockholders is required. 
Each of this Agreement and the Registration Rights Agreement has been
duly executed and delivered by the Investor and constitutes a valid and binding
obligation of the Investor enforceable against the Investor in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, 

 14
  
 

 

reorganization,
moratorium, liquidation, conservatorship, receivership, or similar laws
relating to, or affecting generally the enforcement of creditor’s rights and
remedies or by other equitable principles of general application.

Section 5.03.  No Conflicts.  The execution, delivery and performance of
this Agreement, the Warrant, the Registration Rights Agreement and any other
document or instrument contemplated hereby by the Investor and the consummation
of the transactions contemplated hereby do not (i) violate any provision of the
Investor’s charter documents or bylaws, (ii) conflict with, or constitute a
default (or an event which, with notice or lapse of time or both, would become
a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which the Investor is a party, (iii) create or impose a lien, charge or
encumbrance on any property of the Investor under any agreement or any
commitment to which the Investor is a party or by which the Investor is bound
or by which any of its respective properties or assets are bound,
(iv) result in a violation of any federal, state, local or foreign
statute, rule, regulation, order, writ, judgment or decree (including federal
and state securities laws and regulations) applicable to the Investor or by
which any property or asset of the Investor are bound or affected, or
(v) require the consent of any third-party that has not been obtained
pursuant to any material contract to which Investor is subject or to which any
of its assets, operations or management may be subject.  The Investor is not required under federal,
state, foreign or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court
or governmental agency in order for it to execute, deliver or perform any of
its obligations under this Agreement or to purchase the Shares or the Warrant
in accordance with the terms hereof, provided that, for purposes of the
representation made in this sentence, the Investor is assuming and relying upon
the accuracy of the relevant representations and agreements of the Company
herein.

Section 5.04.  Financial Capability.  The Investor has the financial capability to
perform all of its obligations under this Agreement, including the capability
to purchase the Shares, the Warrant and the Warrant Shares in accordance with
the terms hereof.  The Investor has such
knowledge and experience in business and financial matters that it is capable
of evaluating the merits and risks of an investment in Common Stock and the
Warrant.  The Investor is an “accredited
investor” as defined in Regulation D. 
The Investor is a “sophisticated investor” as described in Rule
506(b)(2)(ii) of Regulation D.  The
Investor acknowledges that an investment in the Common Stock and the Warrant is
speculative and involves a high degree of risk.

Section 5.05.  Information.  The Investor and its advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Shares, the Blackout Shares, the Warrant and the Warrant Shares which have been
requested by the Investor.  The Investor
has reviewed or received copies of the Commission Documents. The Investor and
its advisors, if any, have been afforded the opportunity to ask questions of
the Company.  The Investor has sought
such accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Shares, the
Warrant and the Warrant Shares.  The
Investor understands that it (and not the Company) shall be responsible for its
own tax liabilities that may arise as a result of this investment or the
transactions contemplated by this Agreement.

Section 5.06.  Selling Restrictions.  The Investor covenants that during the
Commitment Period, neither the Investor nor any of its affiliates nor any
entity managed or controlled by the Investor will ever enter into or 

 15
  
 

 

execute or cause
any Person to enter into or execute any “short sale” (as such term is defined
in Rule 200 of Regulation SHO promulgated by the Commission under the Exchange
Act or any successor regulation) of any shares of Common Stock.

Section 5.07.  Statutory Underwriter Status.  The Investor acknowledges that, pursuant to
the Commission’s current interpretations of the Securities Act, the Investor
shall be disclosed as an “underwriter” within the meaning of the Securities Act
in the Registration Statement (and amendments thereto) and in any Prospectus
contained therein to the extent required by applicable law.  The Company acknowledges that the Investor
does not necessarily agree with such characterization.

Section 5.08.  Not an Affiliate.  The Investor is not an officer, director or “affiliate”
(as defined in Rule 405 of the Securities Act) of the Company.

Section 5.09.  Manner of Sale.  At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising by or on
behalf of the Company.

Section 5.10.  Prospectus Delivery.  The Investor agrees that unless the Shares,
the Warrant Shares and the Blackout Shares are eligible for resale pursuant to
all the conditions of Rule 144, it shall resell the Shares, the Warrant Shares
and the Blackout Shares only pursuant to the Registration Statement, in a
manner described under the caption “Plan of Distribution” in the Registration
Statement, and in a manner in compliance with all applicable securities laws,
including, without limitation, the insider trading restrictions of the Exchange
Act and the prospectus delivery requirements of the Securities Act, if any, as
applicable to it in connection with sales of Registrable Securities pursuant to
the Registration Statement, and the Investor shall have delivered a current
prospectus in connection with such sale or shall have confirmed that a current
prospectus is deemed to be delivered in connection with such sale, or relied on
an exemption from such prospectus delivery requirements. The Investor,
acknowledges that the delivery of the Shares, the Warrant Shares or the
Blackout Shares through DTC is predicated upon the Company’s reliance that the
Investor shall sell any Shares, Warrant Shares or Blackout Shares pursuant to
either (i) the registration requirements of the Securities Act, or
(ii) an exemption therefrom. The Investor further acknowledges and agrees
that the Company shall be under no obligation to supplement the Prospectus to
reflect the issuance of any Shares pursuant to a Draw Down at any time prior to
the day following the Settlement Date with respect to such Shares.

ARTICLE
VI

COVENANTS
OF THE COMPANY

The Company covenants with the Investor as follows,
which covenants are for the benefit of the Investor and its permitted assignees
(as defined herein):

Section 6.01.  Securities.  The Company shall notify the Commission and
the Principal Market, if and as applicable, in accordance with their rules and
regulations, of the transactions contemplated by this Agreement, and shall use
commercially reasonable efforts to take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Shares, the Warrant Shares
and the Blackout Shares, if any, to the Investor; provided, that in no
event shall the Company be under any 

 16
  
 

 

obligation to
supplement the Prospectus to reflect the issuance of any Shares pursuant to a
Draw Down at any time prior to the day following the Settlement Date with
respect to such Shares.

Section 6.02.  Reservation of Common Stock.  As of the date hereof, the Company has
available and the Company shall reserve and keep available at all times, free
of preemptive rights and other similar contractual rights of stockholders,
shares of Common Stock for the purpose of enabling the Company to satisfy any
obligation to issue Shares in connection with all Draw Downs contemplated
hereunder and the Warrant Shares.  The
number of shares so reserved from time to time, as theretofore increased or
reduced as hereinafter provided, may be reduced by the number of shares
actually delivered hereunder.

Section 6.03.  Registration and Listing.  During the Commitment Period, the Company
shall use commercially reasonable efforts: 
(i) to take all action necessary to cause its Common Stock to
continue to be registered under Section 12(b) or 12(g) of the Exchange
Act, (ii) to comply in all respects with its reporting and filing
obligations under the Exchange Act, (iii) to prevent the termination or
suspension of such registration, or the termination or suspension of its
reporting and filing obligations under the Exchange Act or Securities Act
(except as expressly permitted herein). 
The Company shall use commercially reasonable efforts to maintain the
listing and trading of its Common Stock and the listing of the Shares purchased
by Investor hereunder on the Principal Market (including, without limitation,
maintaining sufficient net tangible assets) and shall comply in all material
respects with the Company’s reporting, filing and other obligations under the
bylaws or rules of the NASD and the Principal Market. The Company shall not be
required to carry out any action pursuant to this Agreement, the Registration
Rights Agreement or the Warrant that would adversely impact the listing of the
Company’s securities on the Principal Market as now in effect or as
subsequently modified by applicable rules and regulations.

Section 6.04.  Registration Statement.  Without the prior written consent of the
Investor, the Registration Statement shall be used solely in connection with
the transactions between the Company and the Investor contemplated hereby.

Section 6.05.  Compliance with Laws.

(a)   The Company shall comply, and cause each
Consolidated Subsidiary to comply, with all applicable laws, rules, regulations
and orders, noncompliance with which could reasonably be expected to have a
Material Adverse Effect.

(b)   Without the consent of its stockholders in
accordance with NASD rules, the Company shall not be obligated to issue, and
the Investor shall not be obligated to purchase, any Shares or Blackout Shares
which would result in the issuance under this Agreement, the Warrant and the
Registration Rights Agreement of Shares, Warrant Shares and Blackout Shares
(collectively) representing more than the applicable percentage under the rules
of the NASD, including, without limitation, NASD Rule 4350(i), that would
require stockholder approval of the issuance thereof.  Nothing herein shall compel the Company to
seek such consent of its stockholders.

Section 6.06.  Reporting Requirements.  Upon reasonable written request of the
Investor during the Commitment Period, the Company shall furnish copies of the
following to the Investor within three Business Days of such request (but not
sooner than filed with or submitted to the Commission):

(a)   Quarterly Reports on Form 10-Q;

 

 17
  

 

(b)   Annual Reports on Form 10-K;

(c)   Current Reports on Form 8-K; and

(d)   any other documents publicly submitted to the
Commission.

Section 6.07.  Other Financing.  Nothing in this Agreement shall be construed
to restrict the right of the Company to offer, sell and/or issue securities of
any kind whatsoever, provided that such transaction is not a Prohibited
Transaction (as defined below) (any such transaction that is not a Prohibited
Transaction is referred to in this Agreement as a “Permitted Transaction”).  Without limiting the generality of the
preceding sentence, the Company may, without the prior written consent of the
Investor, (i) establish stock option, restricted stock, stock purchase or other
equity incentive or award plans or agreements (for directors, employees,
consultants and/or advisors), and issue securities thereunder, and amend such
plans or agreements, including increasing the number of shares available
thereunder, (ii) issue equity securities to finance, or otherwise in connection
with, the acquisition, license or sale of one or more other companies,
equipment, technologies or lines of business, (iii) issue shares of Common
Stock and/or Preferred Stock in connection with the Company’s option,
restricted stock or other equity incentive or award plans, stock purchase
plans, rights plans, warrants or options, (iv) issue shares of Common Stock
and/or Preferred Stock in connection with the acquisition of products,
licenses, equipment or other assets and strategic partnerships or joint
ventures; (v) issue shares of Common and/or Preferred Stock to consultants
and/or advisors as consideration for services rendered or to be rendered, (vi)
issue and sell equity or debt securities in a public offering, (vii) issue and
sell any equity or debt securities in a private placement (other than in
connection with any Prohibited Transaction), (viii) issue equity securities to
equipment lessors, equipment vendors, banks or similar lending institutions in
connection with leases or loans, or in connection with strategic commercial or
licensing transactions, (ix) issue securities in connection with any stock
split, stock dividend, recapitalization, reclassification or similar event by
the Company, and (x) issue shares of Common Stock to the Investor under any
other agreement entered into between the Investor and the Company.

Notwithstanding the foregoing, other than in the
ordinary course of the Company’s business, the Company shall not engage in any
Permitted Transaction involving the issuance, sale, disposition or other
transaction in the capital markets (whether public or private) involving the
Common Stock or any other capital or debt securities of the Company during any
Draw Down Pricing Period. 
Notwithstanding the foregoing, during any Draw Down Pricing Period, the
Company shall have the right to issue stock options and/or shares of Common
Stock and/or Preferred Stock in connection with the Company’s option,
restricted stock or other equity incentive or award plans, stock purchase
plans, rights plans or upon the exercise of warrants or options in the ordinary
course of the Company’s business.

Section 6.08.  Prohibited Transactions.  During the term of this Agreement, the
Company shall not enter into any Prohibited Transaction without the prior
written consent of the Investor, which consent may be withheld in the sole and
absolute discretion of the Investor. For the purposes of this Agreement, the
term “Prohibited Transaction” shall refer to: (i) the issuance by the
Company of any rights, warrants or options to subscribe for or purchase Common
Stock, or any other securities directly or indirectly convertible into or
exchangeable or exercisable for Common Stock, at an effective conversion,
exchange or exercise price that varies or may vary with or is otherwise issuable
in relation to the market price of Common Stock, including by way of one or
more resets to any fixed price; (ii) any “at-the-market offering” (as defined
in Rule 415(a)(4) under the Securities Act or any successor rule thereto) of
the Company’s securities by 

 18
  
 

 

or on behalf of
the Company; and (iii) any equity line or other form of financing that is
substantially similar to the financing provided for under this Agreement,
provided that any future issuance by the Company of a convertible security (“Convertible
Security”) that contains provisions that adjust the conversion price of
such Convertible Security (“Conversion Price”) in the event of stock
splits, dividends, distributions or similar events or pursuant to anti-dilution
provisions shall not be a Prohibited Transaction for purposes of this Section
6.08 so long as such Convertible Security does not contain a provision that
adjusts the Conversion Price as a result of any decline in the market price of
the Common Stock after the issue date of the Convertible Security, other than a
decline resulting directly from stock splits, dividends, distributions or
similar events including, without limitation, the type of conversion price
adjustments customarily found in a firm commitment Rule 144A offering to
qualified institutional buyers.  For the
avoidance of confusion, the term “Prohibited Transaction” shall not
include (i) a customary, firm-commitment underwritten public offering of the
Company’s securities or (ii) a registered direct public offering or an unregistered
private placement of the Company’s securities where the price per share of such
securities is fixed concurrently with the execution of definitive documentation
relating to the offering or placement, as applicable.

Section 6.09.  Corporate Existence. The Company shall
take all steps necessary to preserve and continue the corporate existence of
the Company; provided, however, that nothing in this Agreement
shall be deemed to prohibit the Company from engaging in any Excluded Merger or
Sale with another Person provided that in the event of an Excluded Merger or
Sale, if the surviving, successor or purchasing Person does not agree to assume
the obligations under the Warrant, then the Company shall deliver a notice to
the Investor at least ten (10) days before the consummation of such Excluded
Merger or Sale (provided that, to the extent that such transaction has not been
publicly disclosed, then the Investor agrees to maintain the confidentiality of
such information and to use such information only in connection with a decision
to exercise the Warrant), the Investor may exercise the Warrant at any time
before the consummation of such Excluded Merger or Sale (and such exercise may
be made contingent upon the consummation of such Excluded Merger or Sale), and any
portion of the Warrant that has not been exercised before consummation of such
Excluded Merger or Sale shall terminate and expire, and shall no longer be
outstanding.

Section 6.10.  Non-Disclosure of Non-Public Information.  Except as otherwise expressly provided in
this Agreement, the Registration Rights Agreement or the Warrant, none of the
Company, its officers, directors, employees nor agents shall disclose material
non-public information to the Investor, its advisors or representatives.

Section 6.11.  Notice of Certain Events Affecting
Registration; Suspension of Right to Request a Draw Down.  The Company shall promptly notify the
Investor upon the occurrence of any of the following events in respect of the
Registration Statement or the Prospectus related to the offer, issuance and
sale of the Shares and the Warrant Shares hereunder:  (i) receipt of any request for
additional information by the Commission or any other federal or state
governmental authority during the period of effectiveness of the Registration
Statement for amendments or supplements to the Registration Statement or the
Prospectus; (ii) the issuance by the Commission or any other federal or
state governmental authority of any stop order suspending the effectiveness of
the Registration Statement or the initiation of any proceedings for that
purpose; and (iii) receipt of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose. 
The Company shall not be required to disclose to the Investor the
substance or specific reasons of any of the events set forth in clauses (i)
through (iii) of the previous sentence, only that the event has occurred. The 

 19
  
 

 

Company shall not
request a Draw Down during the continuation of any of the foregoing events and,
in relation to any stop order described in clause (ii) above, shall take
commercially reasonable actions to prevent the entry of such stop order or to
have such stop order lifted, as the case may be.

Section 6.12.  Amendments to the Registration Statement.  Once the Registration Statement is declared
effective by the Commission:  (i) the
Company shall not file any amendment to the Registration Statement or make any
amendment or supplement to the Prospectus of which the Investor shall not
previously have been advised or to which the Investor shall reasonably object
in writing after being so advised (provided, however, that the
Company shall, to the extent it deems advisable, and without the prior consent
of or notice to Investor, supplement the Prospectus within one Trading Day
following the Settlement Date for each Draw Down solely to reflect the issuance
of Shares with respect to such Draw Down) and (ii) so long as, in the
reasonable opinion of counsel for the Investor, a Prospectus is required to be
delivered in connection with sales of the Shares by the Investor, if the
Company files any information, documents or reports that are incorporated by
reference in the Registration Statement pursuant to the Exchange Act, the
Company shall, if requested in writing by the Investor, deliver a copy of such
information, documents or reports to the Investor promptly following such
filing.

Section 6.13.  Prospectus Delivery.  From time to time for such period as in the
reasonable opinion of counsel for the Investor the Prospectus is required by
the Securities Act to be delivered in connection with sales by the Investor,
the Company shall expeditiously deliver to the Investor, without charge, as
many copies of the Prospectus (and of any amendment or supplement thereto) as
the Investor may reasonably request.  The
Company consents to the use of the Prospectus (and of any amendment or
supplement thereto) in accordance with the provisions of the Securities Act and
state securities laws in connection with the offering and sale of the Shares
and the Warrant Shares and for such period of time thereafter as the Prospectus
is required by the Securities Act to be delivered in connection with sales of
the Shares and the Warrant Shares. 
Notwithstanding the foregoing, in no event shall the Company be under
any obligation to supplement the Prospectus or to reflect the issuance of any
Shares pursuant to a Draw Down or deliver any Prospectus as so supplemented at
any time prior to the Trading Day following the Settlement Date with respect to
such Shares.

ARTICLE VII

CONDITIONS TO THE
OBLIGATION OF THE INVESTOR TO ACCEPT A DRAW DOWN

The obligation of the
Investor hereunder to accept a Draw Down Notice and to acquire and pay for the
Shares in accordance therewith is subject to the satisfaction or waiver, at
each Condition Satisfaction Date, of each of the conditions set forth
below.  Other than those conditions set
forth in Section 7.12 which are for the Company’s sole benefit and may be
waived by the Company at any time in its sole discretion, the conditions are
for the Investor’s sole benefit and may be waived by the Investor at any time
in its sole discretion.  As used in this
Agreement, the term “Condition Satisfaction Date” shall mean, with
respect to each Draw Down, the date on which the applicable Draw Down Notice is
delivered to the Investor and each Settlement Date in respect of the applicable
Draw Down Pricing Period.

Section
7.01.  Accuracy of the Company’s
Representations and Warranties.  Each
of the representations and warranties of the Company shall be true and correct
in all material 

 20
  
 

 

respects as of the date when made as though made at that time except
for representations and warranties that are expressly made as of a particular
date.

Section
7.02.  Performance by the Company.  The Company shall have, in all material
respects, performed, satisfied and complied with all covenants, agreements and
conditions required by this Agreement, the Registration Rights Agreement and
the Warrant to be performed, satisfied or complied with by the Company.

Section 7.03.  Compliance with Law.  The Company shall have complied in all
respects with all applicable federal, state and local governmental laws, rules,
regulations and ordinances in connection with the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby except for any failures to so comply which could not reasonably
be expected to have a Material Adverse Effect.

Section 7.04.  Effective Registration Statement.  Upon the terms and subject to the conditions
set forth in the Registration Rights Agreement, the Registration Statement
shall have previously become effective and shall remain effective and
(i) neither the Company nor the Investor shall have received notice that
the Commission has issued or intends to issue a stop order with respect to the
Registration Statement or that the Commission otherwise has suspended or
withdrawn the effectiveness of the Registration Statement, either temporarily
or permanently, or intends or has threatened to do so (unless the Commission’s
concerns have been addressed and the Investor is reasonably satisfied that the
Commission no longer is considering or intends to take such action), and
(ii) no other suspension of the use or withdrawal of the effectiveness of
the Registration Statement or the Prospectus shall exist.

Section 7.05.  No Knowledge.  The Company shall have no Knowledge of any
event that could reasonably be expected to have the effect of causing the
Registration Statement with respect to the resale of the Registrable Securities
by the Investor to be suspended or otherwise ineffective (which event is more
likely than not to occur within eight Trading Days following the Trading Day on
which a Draw Down Notice is delivered).

Section 7.06.  No Suspension.  Trading in the Company’s Common Stock shall
not have been suspended by the Commission, the Principal Market or the NASD and
trading in securities generally as reported on the Principal Market shall not
have been suspended or limited as of the Condition Satisfaction Date.

Section 7.07.  No Injunction.  No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.

Section 7.08.  No Proceedings or Litigation.  No action, suit or proceeding before any
arbitrator or any governmental authority shall have been commenced, and, to the
Knowledge of the Company, no investigation by any governmental authority shall
have been threatened, against the Company or any subsidiary, or any of the
officers, directors or affiliates of the Company or any subsidiary seeking to
enjoin, prevent or change the transactions contemplated by this Agreement.

Section 7.09.  Sufficient Shares Registered for Resale.  The Company shall have sufficient Shares,
calculated using the Closing Price of the Common Stock as of the Trading Day 

 21
  
 

 

immediately
preceding such Draw Down Notice, registered under the Registration Statement to
issue and sell such Shares in accordance with such Draw Down Notice.

Section 7.10.  Warrant.  The Warrant shall have been duly executed,
delivered and issued to the Investor, and the Company shall not be in default
in any material respect under any of the provisions thereof, provided that any
refusal by or failure of the Company to issue and deliver Warrant Shares in
respect of any exercise (in whole or in part) thereof shall be deemed to be
material for the purposes of this Section 7.10.

Section 7.11.  Opinion of Counsel.  The Investor shall have received an opinion
of counsel to the Company, dated as of the Effective Date, in the form
reasonably agreed to by the Investor and its counsel prior to the date hereof.

Section 7.12.  Accuracy of Investor’s Representation and
Warranties.  The representations and
warranties of the Investor shall be true and correct in all material respects
as of the date when made as though made at that time except for representations
and warranties that are made as of a particular date.

Section 7.13.  Payment of Fees.  The Company shall be current on all
undisputed expense invoices that the Company is required to pay pursuant to
Section 10.01.

ARTICLE
VIII

TERMINATION

Section 8.01.  Term. 
Unless otherwise terminated in accordance with Section 8.02 below,
this Agreement shall terminate upon the earlier to occur of (i) the expiration
of the Commitment Period or (ii) the issuance of Shares pursuant to this
Agreement in an amount equal to the Maximum Commitment Amount.

Section 8.02.  Other Termination.

(a)   The Investor may terminate this Agreement
upon (x) one (1) Business Day’s notice to the Company if the Company enters
into any Prohibited Transaction as set forth in Section 6.08 without the
Investor’s prior written consent or (y) one (1) Business Day’s notice to the
Company within ten (10) Business Days after the Investor obtains actual
knowledge that an event resulting in a Material Adverse Effect has occurred.

(b)   The Investor may terminate this Agreement
upon one (1) Business Day’s notice to the Company at any time in the event that
the Registration Statement is not first declared effective in accordance with
the Registration Rights Agreement; provided, however, that in the
event the Registration Statement is declared effective prior to the delivery of
such notice, the Investor shall thereafter have no right to terminate this
Agreement pursuant to this Section 8.02(b).

(c)   The Investor may terminate this Agreement
upon one (1) Business Day’s notice to the Company at any time in the event that
following the first twelve (12) month period of the term of this Agreement, the
Company fails to make cumulative Draw Downs of at least $1.25 million during
any consecutive twelve (12) month period during the term of this
Agreement.  For the avoidance of doubt,
this provision shall not entitle the Investor to terminate this Agreement prior
to the end of the twenty-fourth (24th) month of the term of this Agreement.

 22
  
 

 

(d)   The Company may terminate this Agreement upon
one (1) Business Day’s notice to the Investor; provided, however,
that the Company shall not terminate this Agreement pursuant to this Section
8.02(d) during any Draw Down Pricing Period; provided
further, that, in the event of any termination of this Agreement by the
Company hereunder, so long as the Investor owns Shares purchased hereunder
and/or Warrant Shares, unless all of such shares of Common Stock may be resold
by the Investor without registration and without any time, volume or manner
limitations pursuant to Rule 144(k) (or any similar provision then in effect)
under the Securities Act, the Company shall not suspend, except as provided in
the Registration Rights Agreement and subject to the conditions and limitations
set forth therein, or withdraw the Registration Statement or otherwise cause
the Registration Statement to become ineffective, or voluntarily delist the
Common Stock from, the Principal Market without listing the Common Stock on
another Principal Market.

(e)   Each of the parties hereto may terminate this
Agreement upon one (1) Business Day’s notice to the other party if the other
party has breached a material representation, warranty or covenant to this
Agreement and such breach is not remedied within ten (10) Business Days after
notice of such breach is delivered to the breaching party.

(f)    The obligation of the Investor to purchase
shares of Common Stock shall terminate permanently in the event that the
Commission issues any stop order concerning, or suspends the effectiveness of,
the Registration Statement for an aggregate of sixty (60) calendar days during
the Commitment Period.

Section 8.03.  Effect of Termination.  In the event of termination by the Company or
the Investor, written notice thereof shall forthwith be given to the other
party and the transactions contemplated by this Agreement shall be terminated
without further action by either party. 
If this Agreement is terminated as provided in Section 8.01 or 8.02
herein, this Agreement shall become void and of no further force and effect,
except as provided in Section 10.13. 
Nothing in this Section 8.03 shall be deemed to release the Company
or the Investor from any liability for any breach under this Agreement
occurring prior to such termination, or to impair the rights of the Company and
the Investor to compel specific performance by the other party of its
obligations under this Agreement arising prior to such termination.

ARTICLE
IX

INDEMNIFICATION

Section 9.01.  Indemnification.

(a)   Except as otherwise
provided in this Article IX, unless disputed as set forth in
Section 9.02, the Company agrees to indemnify, defend and hold harmless
the Investor and its affiliates and their respective officers, directors,
agents, employees, subsidiaries, partners, members and controlling persons
(each, an “Investor Indemnified Party”), to the fullest extent permitted
by law from and against any and all Damages directly resulting from or directly
arising out of any breach of any representation or warranty, covenant or
agreement by the Company in this Agreement, the Registration Rights Agreement
or the Warrant; provided, however, that the Company shall not be
liable under this Article IX to an Investor Indemnified Party to the
extent that such Damages resulted or arose from the breach by an Investor
Indemnified Party of any representation, warranty, covenant or agreement of an
Investor Indemnified Party contained in this Agreement, the Registration Rights
Agreement or the Warrant or the gross negligence, recklessness, willful
misconduct or bad faith of an Investor Indemnified Party.  The parties intend 

 23
  
 

 

that any Damages subject to indemnification pursuant to this
Article IX shall be net of insurance proceeds (which the Investor
Indemnified Party agrees to use commercially reasonable efforts to
recover).  Accordingly, the amount which
the Company is required to pay to any Investor Indemnified Party hereunder (a “Company
Indemnity Payment”) shall be reduced by any insurance proceeds actually
recovered by or on behalf of any Investor Indemnified Party in reduction of the
related Damages. In addition, if an Investor Indemnified Party receives a
Company Indemnity Payment required by this Article IX in respect of any
Damages and subsequently receives any such insurance proceeds, then the
Investor Indemnified Party shall pay to the Company an amount equal to the
Company Indemnity Payment received less the amount of the Company Indemnity
Payment that would have been due if the insurance proceeds had been received,
realized or recovered before the Company Indemnity Payment was made.

(b)   Except as
otherwise provided in this Article IX, unless disputed as set forth in
Section 9.02, the Investor agrees to indemnify, defend and hold harmless
the Company and its affiliates and their respective officers, directors,
agents, employees, subsidiaries, partners, members and controlling persons
(each, a “Company Indemnified Party”), to the fullest extent permitted
by law from and against any and all Damages directly resulting from or directly
arising out of any breach of any representation or warranty, covenant or
agreement by the Investor in this Agreement, the Registration Rights Agreement
or the Warrant; provided, however, that the Investor shall not be
liable under this Article IX to a Company Indemnified Party to the extent
that such Damages resulted or arose from the breach by a Company Indemnified
Party of any representation, warranty, covenant or agreement of a Company
Indemnified Party contained in this Agreement, the Registration Rights
Agreement or the Warrant or gross negligence, recklessness, willful misconduct
or bad faith of a Company Indemnified Party. 
The parties intend that any Damages subject to indemnification pursuant
to this Article IX shall be net of insurance proceeds (which the Company
agrees to use commercially reasonable efforts to recover).  Accordingly, the amount which the Investor is
required to pay to any Company Indemnified Party hereunder (an “Investor
Indemnity Payment”) shall be reduced by any insurance proceeds theretofore
actually recovered by or on behalf of any Company Indemnified Party in
reduction of the related Damages.  In
addition, if a Company Indemnified Party receives an Investor Indemnity Payment
required by this Article IX in respect of any Damages and subsequently
receives any such insurance proceeds, then the Company Indemnified Party shall
pay to the Investor an amount equal to the Investor Indemnity Payment received
less the amount of the Investor Indemnity Payment that would have been due if
the insurance proceeds had been received, realized or recovered before the
Investor Indemnity Payment was made.

Section 9.02.  Notification
of Claims for Indemnification.  Each
party entitled to indemnification under this Article IX (an “Indemnified
Party”) shall, promptly after the receipt of notice of the commencement of
any claim against such Indemnified Party in respect of which indemnity may be sought
from the party obligated to indemnify such Indemnified Party under this
Article IX (the “Indemnifying Party”), notify the Indemnifying
Party in writing of the commencement thereof. 
Any such notice shall describe the claim in reasonable detail.  The failure of any Indemnified Party to so
notify the Indemnifying Party of any such action shall not relieve the
Indemnifying Party from any liability which it may have to such Indemnified
Party (a) other than pursuant to this Article IX or (b) under this Article IX
unless, and only to the extent that, such failure results in the Indemnifying
Party’s forfeiture of substantive rights or defenses or the Indemnifying Party
is prejudiced by such delay.  The
procedures listed below shall govern the procedures for the handling of
indemnification claims.

(a)   Any claim for
indemnification for Damages that do not result from a Third Party Claim as
defined in the following paragraph, shall be asserted by written notice given
by the 

 24
  
 

 

Indemnified Party to the Indemnifying Party.  Such Indemnifying Party shall have a period
of thirty (30) days after the receipt of such notice within which to respond
thereto.  If such Indemnifying Party does
not respond within such thirty (30) day period, such Indemnifying Party shall
be deemed to have refused to accept responsibility to make payment as set forth
in Section 9.01.  If such
Indemnifying Party does not respond within such thirty (30) day period or
rejects such claim in whole or in part, the Indemnified Party shall be free to
pursue such remedies as specified in this Agreement.

(b)   If an Indemnified Party
shall receive notice or otherwise learn of the assertion by a person or entity
not a party to this Agreement of any threatened legal action or claim
(collectively a “Third Party Claim”), with respect to which an
Indemnifying Party may be obligated to provide indemnification, the Indemnified
Party shall give such Indemnifying Party written notice thereof within twenty
(20) days after becoming aware of such Third Party Claim.

(c)   An Indemnifying
Party may elect to defend (and, unless the Indemnifying Party has specified any
reservations or exceptions, to seek to settle or compromise) at such
Indemnifying Party’s own expense and by such Indemnifying Party’s own counsel,
any Third Party Claim.  Within thirty
(30) days after the receipt of notice from an Indemnified Party (or sooner if
the nature of such Third Party Claim so requires), the Indemnifying Party shall
notify the Indemnified Party whether the Indemnifying Party shall assume responsibility
for defending such Third Party Claim, which election shall specify any
reservations or exceptions.  If such
Indemnifying Party does not respond within such thirty (30) day period or
rejects such claim in whole or in part, the Indemnified Party shall be free to
pursue such remedies as specified in this Agreement.  In case any such Third Party Claim shall be
brought against any Indemnified Party, and it shall notify the Indemnifying
Party of the commencement thereof, the Indemnifying Party shall be entitled to
assume the defense thereof at its own expense, with counsel satisfactory to
such Indemnified Party in its reasonable judgment; provided, however, that any
Indemnified Party may, at its own expense, retain separate counsel to
participate in such defense at its own expense. 
Notwithstanding the foregoing, in any Third Party Claim in which both
the Indemnifying Party, on the one hand, and an Indemnified Party, on the other
hand, are, or are reasonably likely to become, a party, such Indemnified Party
shall have the right to employ separate counsel and to control its own defense
of such claim if, in the reasonable opinion of counsel to such Indemnified
Party, either (x) one or more significant defenses are available to the
Indemnified Party that are not available to the Indemnifying Party or
(y) a conflict or potential conflict exists between the Indemnifying
Party, on the one hand, and such Indemnified Party, on the other hand, that
would make such separate representation advisable; provided, however,
that in such circumstances the Indemnifying Party (i) shall not be liable
for the fees and expenses of more than one counsel to all Indemnified Parties
and (ii) shall reimburse the Indemnified Parties for such reasonable fees
and expenses of such counsel incurred in any such Third Party Claim, as such
expenses are incurred, provided that the Indemnified Parties agree to repay
such amounts if it is ultimately determined that the Indemnifying Party was not
obligated to provide indemnification under this Article IX.  The Indemnifying Party agrees that it shall
not, without the prior written consent of the Indemnified Party, settle,
compromise or consent to the entry of any judgment in any pending or threatened
claim relating to the matters contemplated hereby (if any Indemnified Party is
a party thereto or has been actually threatened to be made a party thereto)
unless such settlement, compromise or consent includes an unconditional release
of such Indemnified Party from all liability arising or that may arise out of
such claim.  The Indemnifying Party shall
not be liable for any settlement of any claim effected against an Indemnified
Party without the Indemnifying Party’s written consent, which consent shall not
be unreasonably withheld, conditioned or delayed.  The rights accorded to an Indemnified Party
hereunder shall be in addition to any rights that any Indemnified Party may
have at common law, by separate 

 25
  
 

 

agreement or otherwise; provided, however, that
notwithstanding the foregoing or anything to the contrary contained in this
Agreement, nothing in this Article IX shall restrict or limit any rights
that any Indemnified Party may have to seek equitable relief.

ARTICLE
X

MISCELLANEOUS

Section 10.01.        Fees and Expenses.

(a)   Each of the Company and the Investor agrees
to pay its own expenses incident to the performance of its obligations
hereunder, except that the Company shall be solely responsible for (i) all
reasonable attorneys fees and expenses incurred by the Investor in connection
with (A) the preparation, negotiation, execution and delivery of this
Agreement, the Registration Rights Agreement and the Warrant, and (B) the review and assistance in
preparation of the Registration Statement, correspondence with the Commission
and amendments and supplements to the Registration Statement and Prospectus,
(ii) all reasonable fees and expenses incurred by the Investor in connection
with any amendments, modifications or waivers of this Agreement, including,
without limitation, all reasonable attorneys fees and expenses, (iii) all reasonable fees and expenses incurred
in connection with the Investor’s enforcement of this Agreement, including,
without limitation, all reasonable attorneys fees and expenses, (iv) due diligence expenses incurred by the
Investor during the term of this Agreement equal to $12,500 per calendar
quarter, and (v) all stamp or other similar taxes and duties, if any,
levied in connection with issuance of the Shares pursuant hereto; provided,
however, that in each of the above instances the Investor shall provide
customary supporting invoices or similar documentation in reasonable detail
describing such expenses (however, the Investor shall not be obligated to
provide detailed time sheets); provided  further that the maximum
aggregate amount payable by the Company pursuant to clause (i)  and (ii) above shall be $75,000 and the
Investor shall bear all fees and expenses in excess of $75,000 incurred in
connection with the events described under clauses (i) and (ii) above.

(b)   If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the Registration
Rights Agreement or the Warrant, the prevailing party shall be entitled to reasonable
fees, costs and necessary disbursements in addition to any other relief to
which such party may be entitled.

Section 10.02.        Reporting Entity for the Common Stock.  The reporting entity relied upon for the
determination of the trading price or trading volume of the Common Stock on any
given Trading Day for the purposes of this Agreement shall be Bloomberg, L.P.
or any successor thereto.  The written
mutual consent of the Investor and the Company shall be required to employ any
other reporting entity.

Section 10.03.        Brokerage. Each of the parties
hereto represents that it has had no dealings in connection with this
transaction with any finder or broker who shall demand payment of any fee or
commission from the other party.  The
Company, on the one hand, and the Investor, on the other hand, agree to
indemnify the other against and hold the other harmless from any and all
liabilities to any Persons claiming brokerage commissions or finder’s fees on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.

 26
  
 

 

Section 10.04.        Notices.  All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally
served, (ii) deposited in the mail, registered or certified, return
receipt requested, postage prepaid, (iii) delivered by reputable air
courier service with charges prepaid, or (iv) transmitted by hand
delivery, telegram, or facsimile, addressed as set forth below or to such other
address as such party shall have specified most recently by written notice
given in accordance herewith, in each case with a copy to the e-mail address
set forth beside the facsimile number for the addressee below.  Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand
delivery or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a Business Day during normal business hours where such notice is
to be received), or the first Business Day following such delivery (if
delivered other than on a Business Day during normal business hours where such
notice is to be received) or (b) on the second Business Day following the
date of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first
occur.  The addresses for such
communications shall be:

If to the Company:

	
  

  	
  Favrille, Inc.

  
	
   

  	
  10421 Pacific Center Court,
  Suite 150

  
	
   

  	
  San Diego, CA
  92121

  
	
   

  	
  Facsimile: (858)
  597-7040

  
	
   

  	
  Attention:  

  	
  Tamara Seymour

  
	
   

  	
  E-mail: 

  	
  tseymour@favrille.com

  

 

With a copy (which shall not constitute notice) to:

	
  

  	
  Cooley Godward Kronish LLP

  
	
   

  	
  4401 Eastgate Mall

  
	
   

  	
  San Diego, CA 92121-1909

  
	
   

  	
  Facsimile: (858) 550-6420

  
	
   

  	
  Attention:

  	
  Frederick T. Muto, Esq.

  
	
   

  	
   

  	
  Jane K. Adams, Esq.

  
	
   

  	
  E-mail:

  	
  mutoft@cooley.com

  
	
   

  	
   

  	
  adamsjk@cooley.com

  

 

If to the
Investor:

	
  

  	
  Kingsbridge Capital Limited

  
	
   

  	
  Attention: Mr.
  Tony Hillman

  
	
   

  	
  PO Box 1075

  
	
   

  	
  Elizabeth House

  
	
   

  	
  9 Castle Street

  
	
   

  	
  St Helier

  
	
   

  	
  Jersey

  
	
   

  	
  JE42QP

  
	
   

  	
  Channel Islands

  
	
   

  	
  Tel:
  011-44-1534-636-041

  

 

 27
  
 

 

 

	
  

  	
  Fax:  011-44-1534-636-042

  
	
   

  	
  Email:  admin@kingsbridgecap.com

  

 

With a copy (which
shall not constitute notice) to:

	
  

  	
  Kingsbridge Corporate Services

  
	
   

  	
  Kingsbridge
  House

  
	
   

  	
  New Abbey

  
	
   

  	
  Kilcullen

  
	
   

  	
  Co.Kildare

  
	
   

  	
  Ireland

  
	
   

  	
  Tel:
  011-353-45-481-811

  
	
   

  	
  Fax:
  011-353-45-482-003

  
	
   

  	
  Email: 

  	
  adamgurney@kingsbridge.ie;

  
	
   

  	
   

  	
  emmagalway@kingsbridge.ie,
  and

  
	
   

  	
   

  	
  pwhelan@kingsbridge.ie

  

 

And another a copy
(which shall not constitute notice) to:

	
  

  	
   

  	
  Clifford Chance US LLP

  
	
   

  	
   

  	
  31 West 52nd
  Street

  
	
   

  	
   

  	
  New York, NY
  10019

  
	
   

  	
  Telephone:

  	
  (212) 878-8000

  
	
   

  	
  Facsimile:

  	
  (212) 878-8375

  
	
   

  	
  Attention:

  	
  Earl Zimmerman, Esq.

  
	
   

  	
   

  	
  Philippe Y. Blanchard, Esq.

  
	
   

  	
   

  	
  Mina J. Ando, Esq.

  
	
   

  	
  E-mail:

  	
  earl.zimmerman@cliffordchance.com,

  
	
   

  	
   

  	
  philippe.blanchard@cliffordchance.com,

  
	
   

  	
   

  	
  mina.ando@cliffordchance.com

  

 

Either party hereto may
from time to time change its address or facsimile number for notices under this
Section by giving at least ten (10) days’ prior written notice of
such changed address or facsimile number to the other party hereto.

Section 10.05.        Assignment.  Neither this Agreement nor any rights of the
Investor or the Company hereunder may be assigned by either party to any other
Person.

Section 10.06.        Amendment; No Waiver.  No party shall be liable or bound to any
other party in any manner by any warranties, representations or covenants
except as specifically set forth in this Agreement, the Warrant and the Registration Rights
Agreement.  Except as expressly provided
in this Agreement, neither this Agreement nor any term hereof may be amended,
modified, supplemented, waived, discharged or terminated other than by a
written instrument signed by both parties hereto.  No course of dealing between the parties
hereto shall be deemed effective to amend, modify, supplement waive, discharge
or terminate any part of this Agreement or any rights or obligations of any
person under or by reason of this Agreement.  The failure of either party to insist on
strict compliance with this Agreement, or to exercise any right or remedy under
this Agreement, shall not constitute a waiver of any rights provided under this
Agreement, 

 28
  
 

 

nor estop the
parties from thereafter demanding full and complete compliance nor prevent the
parties from exercising such a right or remedy in the future.

Section 10.07.        Entire Agreement.  This Agreement, the Registration Rights
Agreement and the Warrant set forth the entire agreement and understanding of
the parties relating to the subject matter hereof and supersede all prior and
contemporaneous discussions, negotiations, agreements, negotiations and
understandings between the parties, both oral and written, relating to the
subject matter hereof.

Section 10.08.        Severability.  In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that, if the severance of such
provision materially changes the economic benefits of this Agreement to either
party as such benefits are anticipated as of the date hereof, then such party
may terminate this Agreement on five (5) Business Days prior written notice to
the other party.  In such event, the
Registration Rights Agreement shall terminate simultaneously with the
termination of this Agreement; provided that in the event that this
Agreement is terminated by the Company in accordance with this Section 10.08
and the Warrant Shares either have not been registered for resale by the
Investor in accordance with the Registration Rights Agreement or are otherwise
not freely tradable (if and when issued) in accordance with applicable law,
then the Registration Rights Agreement in respect of the registration of the
Warrant Shares shall remain in full force and effect.

Section 10.09.        Title and Subtitles.  The titles and subtitles used in this
Agreement are used for the convenience of reference and are not to be
considered in construing or interpreting this Agreement.

Section 10.10.        Counterparts.  This Agreement may be executed in multiple
counterparts, each of which may be executed by less than all of the parties and
shall be deemed to be an original instrument which shall be enforceable against
the parties actually executing such counterparts and all of which together
shall constitute one and the same instrument.

Section 10.11.        Choice of Law.  This Agreement shall be construed under the
laws of the State of New York.

Section 10.12.        Specific Enforcement, Consent to
Jurisdiction.

(a)   The Company and the Investor acknowledge and
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. 
It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent or cure breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.

(b)   Subject to Section 9.03, each of the Company
and the Investor (i) hereby irrevocably submits to the jurisdiction of the
United States District Court and other courts of the United States sitting in
the State of New York for the purposes of any suit, action or proceeding
arising out of or relating to this Agreement and (ii) hereby waives, and
agrees not to assert in any such suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the 

 29
  
 

 

suit, action or
proceeding is improper.  Each of the
Company and the Investor consents to process being served in any such suit,
action or proceeding by mailing a copy thereof to such party at the address in
effect for notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice
thereof.  Nothing in this
Section shall affect or limit any right to serve process in any other
manner permitted by law.

Section 10.13.        Survival.  The representations and warranties of the
Company and the Investor contained in Articles IV and V of this Agreement and
the covenants contained in Articles V, VI and X of this Agreement shall
survive the execution and delivery hereof and the Closing until the termination
of this Agreement, and the agreements and covenants set forth in
Article VIII and Article IX of this Agreement shall survive the
execution and delivery hereof and the Closing hereunder.

Section 10.14.        Publicity.  Except as otherwise required by applicable
law or regulation, or Nasdaq rule or judicial process, prior to the Closing,
neither the Company nor the Investor shall issue any press release or otherwise
make any public statement or announcement with respect to this Agreement or the
transactions contemplated hereby or the existence of this Agreement.  In the event the Company is required by law,
regulation, Nasdaq rule or judicial process, based upon reasonable advice of
the Company’s inside or outside counsel, to issue a press release or otherwise
make a public statement or announcement with respect to this Agreement prior to
the Closing, the Company shall consult with the Investor on the form and
substance of such press release, statement or announcement.  Promptly after the Closing, each party may
issue a press release or otherwise make a public statement or announcement with
respect to this Agreement or the transactions contemplated hereby or the
existence of this Agreement; provided that, prior to issuing any such
press release, making any such public statement or announcement, the party
wishing to make such release, statement or announcement consults and cooperates
in good faith with the other party in order to formulate such press release,
public statement or announcement in form and substance reasonably acceptable to
both parties.

Section 10.15.        Further Assurances.  From and after the date of this Agreement,
upon the request of the Investor or the Company, each of the Company and the
Investor shall execute and deliver such instruments, documents and other
writings and take such action as may be reasonably necessary or desirable to
confirm and carry out and to effectuate fully the intent and purposes of this
Agreement and the transactions contemplated hereby.

Section 10.16.        Absence of Presumption.  This Agreement shall be construed without
regard to any presumption or rule requiring construction or interpretation
against the party drafting or causing any instrument to be drafted.

[Remainder of this page
intentionally left blank]

 

 30
  

 

 

IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed by their respective authorized officers as
of the date first written.

	
  

  	
   

  	
  KINGSBRIDGE CAPITAL
  LIMITED

  
	
   

  	
   

  	
  By:

  	
   

  	
  /s/ Maria O’Donoghue

  
	
   

  	
   

  	
   

  	
   

  	
  Maria O’Donoghue

  
	
   

  	
   

  	
   

  	
   

  	
  Director

  

 

	
  

  	
   

  	
  FAVRILLE, INC.

  
	
   

  	
   

  	
  By:

  	
   

  	
  /s/ John P. Longenecker, Ph.D.

  
	
   

  	
   

  	
   

  	
   

  	
  John P. Longenecker, Ph.D.

  
	
   

  	
   

  	
   

  	
   

  	
  President and Chief
  Executive Officer

  

  
  
 

 

Exhibit
A

Form of Registration Rights
Agreement

  
  
 

 

Exhibit
B

Warrant

  
  
 

 

Exhibit
C

Form of Draw Down Notice

Kingsbridge Capital
Limited

Attention: Mr. Tony Hillman

PO Box 1075

Elizabeth House

9 Castle Street

St Helier

Jersey

JE42QP

Channel Islands

Fax:  011-44-1534-636-042

Email:  admin@kingsbridgecap.com

Kingsbridge Corporate Services

Kingsbridge House

New Abbey

Kilcullen

Co.Kildare

Ireland

Fax: 011-353-45-482-003

Email:  adamgurney@kingsbridge.ie; and pwhelan@kingsbridge.ie

Clifford Chance US LLP

31 West 52nd Street

New York, NY  10019

Facsimile:  (212) 878-8375

Attention:  Earl Zimmerman, Esq.

                  Mina
J. Ando, Esq.

E-mail: earl.zimmerman@cliffordchance.com and mina.ando@cliffordchance.com

 

Reference is hereby made to that certain Common Stock Purchase
Agreement dated as of December 19, 2006 (the “Agreement”) by and between
Favrille, Inc., a corporation organized and existing under the laws of the
State of Delaware (the “Company”), and Kingsbridge Capital Limited, an entity
organized and existing under the laws of the British Virgin Islands (the “Investor”).
Capitalized terms used and not otherwise defined herein shall have the meanings
given such terms in the Agreement.

 

In accordance with and pursuant to Section 3.01 of the Agreement, the
Company hereby issues this Draw Down Notice to the Investor pursuant to the terms
set forth below.

 

Draw Down Amount:  $__________;

First Trading Day of Draw Down Pricing Period: _______, 200[_]; and

Threshold Price:  $______ per share of
Common Stock.

 

  
  
 

 

Dated: __________, 200[_]

 

	
  

  	
   

  	
  FAVRILLE, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  	
   

  	
  Title:

  

  
  
 

 

Exhibit
D

Officer Certificate

I, [NAME OF OFFICER], do hereby certify to Kingsbridge
Capital Limited (the “Investor”), with respect to the common stock of Favrille,
Inc. (the “Company”) issuable in connection with the Draw Down Notice, dated
_____________ (the “Notice”) attached hereto and delivered pursuant to
Article III of the Common Stock Purchase Agreement, dated as of December
19, 2006 (the “Agreement”), by and between the Company and the Investor, as
follows (capitalized terms used but undefined herein have the meanings given to
such terms in the Agreement):

1.             I
am the duly elected [OFFICER] of the Company.

2.             The
representations and warranties of the Company set forth in Article IV of
the Agreement are true and correct in all material respects as though made on
and as of the date hereof (except for such representations and warranties that
are made as of a particular date).

3.             The
Company has performed in all material respects all covenants and agreements to
be performed by the Company on or prior to the date hereof related to the
Notice and has satisfied each of the conditions to the obligation of the
Investor set forth in Article VII of the Agreement.

4.             The
Shares issuable in respect of the Notice will be delivered without restrictive
legend via book entry through the Depositary Trust Company to an account
designated by the Investor.

The undersigned has executed this Certificate this
____ day of ________, 200[_].

	
  

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:Exhibit
10.1

INDEMNIFICATION AGREEMENT

This indemnification agreement (this “Agreement”) is
made on                           ,
200  , by and between CoBiz Inc., a Colorado corporation (the “Company”),
and                           
(“Indemnitee”).

RECITALS

A.                                   The
Company desires to attract and retain the services of highly qualified
individuals, such as Indemnitee, to serve the Company and its subsidiaries.

B.                                     The
Company and Indemnitee both recognize the increased risk of litigation and
other claims routinely being asserted against directors and officers of public
companies in today’s environment, and the attendant costs of defending even
wholly frivolous claims.

D.                                    In
recognition of Indemnitee’s need for substantial protection against personal
liability in order to enhance Indemnitee’s service to the Company in an
effective manner, the Company wishes to provide in this Agreement for the
indemnification of and the advancing of expenses to Indemnitee to the fullest
extent permitted by law and as set forth in this Agreement, and, to the extent
insurance is maintained, for the continued coverage of Indemnitee under the
Company’s directors’ and officers’ liability insurance policies.

AGREEMENT

Accordingly, the Company and Indemnitee agree as follows:

1.                                       Certain
Definitions.  As used in this
Agreement:

a.                                       A
“Change in Control” shall be deemed to have occurred if, on or after the date
of this Agreement, (i) any “person” (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee
or other fiduciary holding securities under an employee benefit plan of the
Company, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under
such Act), directly or indirectly, of securities of the Company representing
20% or more of the total voting power represented by the Company’s then
outstanding Voting Securities, or (ii) during any period of two consecutive
years, individuals who at the beginning of that two-year period constitute the
Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company’s shareholders was
approved by a vote of at least a majority of the directors then still in office
who either were directors at the beginning of the two-year period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority of the Board of Directors, or (iii) the shareholders
of the Company approve a merger or consolidation of the Company with any other entity,
other than a merger or consolidation which would result in the Voting
Securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into Voting
Securities of the surviving entity) at least 50% of the total voting power
represented by the Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the shareholders of the
Company approve a plan of complete

 

liquidation of the Company or an agreement
for the sale or disposition by the Company in one transaction or a series of
transactions of all or substantially all the Company’s assets.

b.                                      “Charter
Documents” means the articles of incorporation of the Company and the bylaws of
the Company.

c.                                       “Disinterested
Director” means a director of the Company who is not a party to the Proceeding
in respect of which indemnification or advancement of Expenses is sought by
Indemnitee.

d.                                      “Expenses”
means all costs and expenses, including attorneys’ fees, paid or incurred in
connection with investigating, defending, being a witness in or participating
in (including on appeal), or preparing for an investigation or preparing to
defend, be a witness in or participate in any Proceeding relating to any
Indemnifiable Event and any federal, state, local or foreign taxes imposed as a
result of the actual or deemed receipt of any payments under the Agreement.

e.                                       “Indemnifiable
Event” means any event or occurrence related to the fact that Indemnitee is or
was a director, officer, employee, agent or fiduciary of the Company, or any
subsidiary of the Company, or is or was serving at the request of the Company
as a director, officer, partner, manager, member, employee, trustee, agent or
fiduciary of another corporation, partnership, limited liability company, joint
venture, employee benefit plan, trust or other enterprise, or by reason of
anything done or not done by Indemnitee in any such capacity.

f.                                         “Independent
Counsel” means an attorney or firm of attorneys, selected in accordance with
the provisions of Section 5(c), who shall not have otherwise performed services
for the Company or Indemnitee within the last three years (other than with
respect to matters concerning the rights of indemnity under this Agreement, or
of other indemnitees under similar indemnification agreements or under the
Charter Documents).

g.                                      “Liabilities”
means the obligation incurred with respect to a Proceeding to pay any judgment,
settlement, penalty, fine or reasonable Expense, including any excise taxes
assessed with respect to any employee benefit plan, and including all interest,
assessments and other charges paid or payable in connection with or in respect
of any such amounts.

h.                                      “Proceeding”
means any threatened, pending or completed action, suit or proceeding,
including any alternative dispute resolution mechanism, whether civil,
criminal, administrative or investigative, and whether formal or informal.

i.                                          “Voting
Securities” means any securities of the Company which are entitled to vote
generally in the election of directors.

 2
 

 

2.                                       Indemnification.

a.                                       The
Company shall indemnify Indemnitee to the fullest extent permitted by law
against any and all Liabilities and Expenses arising out of or in connection
with any Proceeding to which Indemnitee was, is or becomes a party, or is
threatened to be made a party, by reason of, or arising in whole or part out of,
an Indemnifiable Event.

b.                                      To
the extent that Indemnitee has been successful, on the merits or otherwise,
including, without limitation, the dismissal of an action without prejudice, in
defense of any Proceeding, Indemnitee shall be indemnified against all Expenses
incurred by Indemnitee in connection therewith. 
If Indemnitee is successful, on the merits or otherwise, as to one or
more but less than all claims, issues or matters in any Proceeding, the Company
shall indemnify Indemnitee against all Expenses incurred by Indemnitee in
connection with each successfully resolved claim, issue or matter.

c.                                       To
the extent that Indemnitee is, by reason of an Indemnifiable Event, a witness
in any Proceeding to which Indemnitee is not a party, Indemnitee shall be
indemnified against all Expenses actually and reasonably incurred by or on
behalf of Indemnitee in connection therewith.

d.                                      The
Company shall indemnify and hold Indemnitee harmless from any Expenses incurred
by or on behalf of Indemnitee to recover under any liability insurance policy
maintained by any person for the benefit of Indemnitee in connection with the
performance of Indemnitee’s duties for or on behalf of the Company.

3.                                       Advancement
of Expenses.  The Company shall
advance any Expenses incurred by Indemnitee or on Indemnitee’s behalf in
connection with a Proceeding within 20 days after receipt by the Company of a
written request for advancement of Expenses, which request may be delivered to
the Company at such time and from time to time as Indemnitee deems appropriate,
whether prior to or after the final disposition of any such Proceeding.  The initial request for advancement of
Expenses in connection with any Proceeding shall include, or be accompanied or
preceded by, (i) a written affirmation of Indemnitee of Indemnitee’s good faith
belief that Indemnitee has met any applicable standard of conduct required
under the Act and (ii) an undertaking by Indemnitee to reimburse the Company
for all amounts advanced by the Company pursuant to this Section 3 if it is
ultimately determined that Indemnitee is not entitled to be indemnified by the
Company for such Expenses.  Any such
advances shall be made on an unsecured basis and shall be interest free.  Notwithstanding the foregoing, if Indmnitee
seeks a judicial adjudication or an arbitration pursuant to Section 8,
Indemnitee shall not be required to reimburse the Company pursuant to the
undertaking described above until a final determination (as to which all rights
of appeal have been exhausted or lapsed) has been made.

4.                                       Exceptions.  Notwithstanding any other provision of this
Agreement, the Company shall not be obligated pursuant to the terms of this
Agreement:

a.                                       To
indemnify or advance Expenses to Indemnitee with respect to Proceedings arising
out of acts, omissions or transactions for which Indemnitee is prohibited from
receiving indemnification under applicable law.

 3
 

 

b.                                      To
indemnify or advance Expenses to Indemnitee with respect to Proceedings
initiated or brought voluntarily by Indemnitee and not by way of defense,
counterclaim or crossclaim, except (i) with respect to actions or proceedings
brought to establish or enforce a right to indemnification under this Agreement
or any other agreement or insurance policy or under the Charter Documents now
or hereafter in effect relating to Proceedings for Indemnifiable Events, or (ii)
in specific cases if the Board of Directors of the Company has approved the
initiation or bringing of such Proceeding by a majority vote of the
Disinterested Directors.

c.                                       To
indemnify Indemnitee for any Expenses incurred by Indemnitee with respect to
any action instituted (i) by Indemnitee to enforce or interpret this Agreement,
if a court having jurisdiction over such action determines that each of the
material assertions made by Indemnitee as a basis for such action was not made
in good faith or was frivolous, or (ii) by or in the name of the Company to
enforce or interpret this Agreement, if a court having jurisdiction over such
action determines that each of the material defenses asserted by Indemnitee in
such action was made in bad faith or was frivolous.

d.                                      To
indemnify Indemnitee for Expenses, judgments, fines, penalties and the payment
of profits arising from the purchase and sale by Indemnitee of securities in
violation of Section 16(b) of the Securities Exchange Act of 1934, as amended,
or any similar successor statute.

e.                                       To
indemnify Indemnitee for Liabilities or Expenses arising from an administrative
or civil enforcement action commenced by a federal banking agency to the extent
prohibited by the laws or regulations of such agency.

5.                                       Procedures
for Notification and Determinations.

a.                                       Indemnitee
shall notify the Company in writing as soon as reasonably practicable (i) after
being served with any summons, citation, subpoena, complaint, indictment,
information or other document relating to any Proceeding or (ii) if the Company
has not been previously notified, after receipt of written notice of any other
matter with respect to which Indemnitee intends to seek indemnification or
advancement of Expenses under Section 2 and Section 3. The failure by
Indemnitee to so notify the Company will not relieve the Company from any
liability which it may have to Indemnitee (i) under this Agreement except and
only to the extent the Company can establish that such omission to notify
resulted in actual material prejudice to the Company or (ii) otherwise than
under this Agreement.  Indemnitee may
thereafter deliver to the Company a written request for indemnification
pursuant to this Agreement at such time and from time to time as Indemnitee
deems appropriate, which request shall also be deemed a request for advancement
of Expenses under Section 3.

b.                                      Except
as otherwise provided pursuant to Section 2(b) and Section 2(c), upon the final
disposition of the matter that is the subject of the request for
indemnification delivered pursuant to Section 5(a), a determination shall be
made with respect to Indemnitee’s entitlement thereto in the specific case.  If a Change in Control shall not have
occurred, such determination shall be made (i) by a majority vote of
Disinterested Directors or of a committee of Disinterested Directors designated
by a majority vote of the Disinterested Directors (in either

 4
 

 

case, even though less than a quorum of the
Board of Directors) or (ii) if there are no Disinterested Directors or the
Disinterested Directors so direct, by Independent Counsel. If a Change in
Control shall have occurred, such determination shall be made by Independent
Counsel.  Any determination made by
Independent Counsel pursuant to this Section 5(b) shall be in the form of a
written opinion to the Board of Directors, a copy of which shall be delivered
to Indemnitee.  Indemnitee shall
reasonably cooperate with the person or persons making such determination
including providing to such person or persons upon reasonable advance request
any documentation or information which is not privileged or otherwise protected
from disclosure and which is reasonably available to Indemnitee and reasonably
necessary to such determination.  Any
costs or expenses (including fees and expenses of counsel) incurred by
Indemnitee in so cooperating with the person or persons making such
determination shall be borne by the Company (irrespective of the determination
as to Indemnitee’s entitlement to indemnification), and the Company hereby
indemnifies and agrees to hold Indemnitee harmless from such costs and expenses.

c.                                       If
the determination is to be made by Independent Counsel, such Independent
Counsel shall be selected as provided in this Section 5(c). If a Change in
Control shall not have occurred, the Independent Counsel shall be selected by
the Board of Directors, and the Company shall give written notice to Indemnitee
advising Indemnitee of the identity of the Independent Counsel so selected. If
a Change in Control shall have occurred, the Independent Counsel shall be
selected by Indemnitee (unless Indemnitee shall request that such selection be
made by the Board of Directors, in which event the preceding sentence shall
apply), and Indemnitee shall give written notice to the Company advising it of
the identity of the Independent Counsel so selected. In either case, the party
receiving the notice may, within 10 days after receipt thereof, deliver to the
other a written objection to such selection; provided that such objection may
be asserted only on the ground that the Independent Counsel so selected does
not meet the requirements of “Independent Counsel” as defined in Section 1, and
the objection shall set forth with particularity the factual basis of such
assertion.  Absent a proper and timely
objection, the person so selected shall act as Independent Counsel. If a proper
and timely objection is made, the counsel selected may not serve as Independent
Counsel unless and until such objection is withdrawn or a court of competent
jurisdiction (or, at Indemnitee’s option pursuant to Section 9, an arbitration)
has determined that such objection is without merit. If, within 20 days after
receipt by the Company of a request for indemnification pursuant to Section 5(a),
no Independent Counsel shall have been selected and not objected to, either the
Company or Indemnitee may petition a court of competent jurisdiction (or, at
Indemnitee’s option pursuant to Section 9, an arbitration) for resolution of
any objection which shall have been made to the selection of Independent
Counsel and/or for the appointment of another person as Independent Counsel,
and the person with respect to whom all objections are so resolved or the
person so appointed shall act as Independent Counsel. The Company agrees to pay
the reasonable fees and expenses of any Independent Counsel appointed pursuant
to this Section and to indemnify such person against any and all expenses,
claims, liabilities and damages arising out of or relating to this Agreement or
its engagement pursuant hereto except for those arising from the Independent
Counsel’s gross negligence or willful misconduct.

d.                                      If
a determination as to Indemnitee’s entitlement to indemnification shall not
have been made pursuant to this Agreement within 60 days after the final
disposition of the matter that is the subject of the request for
indemnification, the requisite determination of

 5
 

 

entitlement to indemnification shall be
deemed to have been made in favor of Indemnitee, and Indemnitee shall be
entitled to such indemnification, absent a misstatement of a material fact in
the information provided by Indemnitee pursuant to Section 5(a) and Section
5(b) or an omission of a material fact necessary in order to make the
information provided not misleading; provided that such 60-day period may be
extended for a reasonable time, not to exceed an additional 30 days, if the
person or persons making the determination in good faith requires such
additional time to obtain or evaluate any documentation or information relating
thereto.

e.                                       If
it is determined that Indemnitee is entitled to indemnification, payment to
Indemnitee shall be made within 10 days after such determination.

6.                                       Presumptions
and Burdon of Proof.

a.                                       In
making any determination as to Indemnitee’s entitlement to indemnification
hereunder, Indemnitee shall be entitled to a presumption that Indemnitee is
entitled to indemnification under this Agreement if Indemnitee has submitted a
request for indemnification in accordance with Section 5(a), and the Company
shall have the burdens of coming forward with evidence and of persuasion to
overcome that presumption.

b.                                      The
termination of any Proceeding or of any claim, issue or matter therein by
judgment, order, settlement or conviction, or upon a plea of nolo contendere or
its equivalent, shall not of itself create a presumption (i) that Indemnitee
did not act in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the Company, (ii) that with respect to any
criminal Proceeding, Indemnitee had reasonable cause to believe that Indemnitee’s
conduct was unlawful or (iii) that Indemnitee did not otherwise satisfy the
applicable standard of conduct to be indemnified pursuant to this Agreement.

c.                                       For
purposes of any determination of good faith, Indemnitee shall be deemed to have
acted in good faith if Indemnitee’s action is based on the records or books of
account of the Company or the other entity for which Indemnitee’s service gave
rise to an Indemnifiable Event, including financial statements, or on
information supplied to Indemnitee by the officers of the Company or such other
entity in the course of their duties, or on the advice of legal counsel for the
Company or such other entity or on information or records given or reports made
to the Company or such other entity by an independent certified public
accountant, appraiser or other expert selected by the Company or such other entity.
 The provisions of this Section 6(c)
shall not be deemed to be exclusive or to limit in any way other circumstances
in which Indemnitee may be deemed or found to have met the applicable standard
of conduct to be indemnified pursuant to this Agreement.

d.                                      The
knowledge or actions or failure to act of any other director, officer, employee
or agent of the Company or other entity, as applicable, shall not be imputed to
Indemnitee for purposes of determining Indemnitee’s right to indemnification
under this Agreement.

7.                                       Nonexclusivity;
Subsequent Change in Law.  The rights
of Indemnitee hereunder shall be in addition to any other rights Indemnitee may
have from time to time under the Charter Documents or the laws of the State of
Colorado or otherwise, and nothing contained in this

 6
 

 

Agreement shall derogate
or limit Indemnitee’s rights to indemnification as provided under the Charter
Documents or under applicable law. To the extent that a change in the laws of
the State of Colorado (whether by statute or judicial decision) permits greater
indemnification by agreement than would be afforded currently under the Charter
Documents and this Agreement, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits so afforded by
such change. In the event of any change in any applicable law, statute or rule
that narrows the right of a corporation organized under the laws of the State of
Colorado to indemnify a member of its board of directors or an officer,
employee, agent or fiduciary, such change, to the extent not otherwise required
by such law, statute or rule to be applied to this Agreement, shall have no
effect on this Agreement or the parties’ rights and obligations hereunder. If,
and to the extent that, the Company determines to change its domicile or
jurisdiction of incorporation, the Company shall take such actions, in
connection therewith, to preserve, in all respects, the indemnity protections
and benefits provided to Indemnitee hereunder to the fullest extent permitted
under the laws of such new domicile or jurisdiction of incorporation.

8.                                       Contribution.  If the indemnification provided for in this
Agreement for any reason is held by a court of competent jurisdiction to be
unavailable to Indemnitee in respect of any Expenses or Liabilities referred to
herein, then the Company, in lieu of indemnifying Indemnitee, shall contribute
to the amount paid or payable by Indemnitee in respect of such Expenses or
Liabilities (a) in such proportion as is appropriate to reflect the relative
benefits received by the Company and Indemnitee from the action or inaction
which resulted in such Expenses or Liabilities, or (b) if the allocation provided
by clause (a) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (a)
above but also the relative fault of the Company and Indemnitee in connection
with the action or inaction which resulted in such Expenses or Liabilities, as
well as any other relevant equitable considerations.  The Company and Indemnitee agree that it
would not be just and equitable if contribution pursuant to this Section 8 were
determined by pro rata allocation or by any other method of allocation that
does not take account of the equitable considerations referred to in this
Section 8.

9.                                       Remedies
of Indemnitee

a.                                       Indemnitee
shall be entitled to an adjudication (by a court of competent jurisdiction or,
at Indemnitee’s option, through an arbitration conducted by a single arbitrator
pursuant to the Commercial Arbitration Rules of the American Arbitration
Association) of any determination pursuant to Section 5(b) that Indemnitee is
not entitled to indemnification under this Agreement. Any such adjudication
shall be conducted in all respects as a de novo trial or arbitration on the
merits, and any prior adverse determination shall not be referred to or
introduced into evidence, create a presumption that Indemnitee is not entitled
to indemnification or advancement of expenses, be a defense or otherwise
adversely affect Indemnitee. In any such judicial proceeding or arbitration,
the provisions of Section 6 (including the presumption in favor of Indemnitee and
the burdens on the Company) shall apply.

b.                                      Indemnitee
shall also be entitled to an adjudication (by a court of competent jurisdiction
or, at Indemnitee’s option, through an arbitration as described above) of any
other disputes under this Agreement.

 7
 

 

c.                                       If
a determination shall have been made pursuant to Section 5(b) that Indemnitee
is entitled to indemnification, the Company shall be bound by such
determination in any judicial proceeding or arbitration commenced pursuant to
this Section 8, absent a misstatement of a material fact in the information
provided by Indemnitee pursuant to Section 5(a) or Section 5(b) or an omission
of a material fact necessary in order to make the information provided not
misleading.

d.                                      In
connection with any judicial proceeding or arbitration commenced pursuant to
this Section 8, the Company shall not oppose Indemnitee’s right to seek such
adjudication, shall be precluded from asserting that the procedures and
presumptions of this Agreement are not valid, binding or enforceable and shall
stipulate in any such court or before any such arbitrator that the Company is
bound by all of the provisions of this Agreement.

10.                                 Defense
of Claims. The Company shall be entitled to participate in any Proceeding
at its own expense.  The Company shall
not settle any Proceeding in whole or in part which would impose any Expense,
Liability or limitation on Indemnitee without Indemnitee’s prior written
consent, such consent not to be unreasonably withheld.  Indemnitee shall not settle any Proceeding in
whole or in part which would impose any Expense, Liability or limitation on the
Company without the Company’s prior written consent, such consent not to be
unreasonably withheld.

11.                                 Attorney’s
Fees.  In addition to any other
rights or remedies that Indemnitee may have under this Agreement, the Company
shall reimburse Indemnitee for all costs and expenses (including fees and
expenses of counsel) actually and reasonably incurred by Indemnitee or on his
behalf in seeking (whether through a judicial proceeding or arbitration or
otherwise) to enforce this Agreement.

12.                                 No
Duplication of Payments. The Company shall not be liable under this
Agreement to make any payment in connection with any Proceeding made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Charter Document or otherwise) of the amounts
otherwise indemnifiable hereunder.

13.                                 Liability
Insurance. To the extent the Company maintains an insurance policy or
policies providing directors’ and officers’ liability insurance, Indemnitee
shall be covered by such policy or policies, in accordance with its or their
terms, to the maximum extent of the coverage available for any Company director
or officer.

14.                                 Notices.
 All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (a) upon delivery if delivered by hand to the party to whom such
communication was directed or sent via facsimile, with confirmation of receipt,
or (b) on the third business day after the date on which such communication was
mailed if mailed by certified or registered mail with postage prepaid.

If to Indemnitee,
at the address indicated on the signature page hereof.

If to the Company,
to:

 8
 

 

CoBiz Inc.

821 17th Street

Denver, Colorado 80202

Facsimile: (303)           -         

Attention:                              

or to such other address as may have been furnished to
Indemnitee by the Company.

15.                                 Amendments;
Waiver. No supplement, modification or amendment of this Agreement shall be
binding unless executed in writing by both of the parties hereto. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar) nor shall such
waiver constitute a continuing waiver.

16.                                 Subrogation.
In the event of payment under this Agreement, the Company shall be subrogated
to the extent of such payment to all of the rights of recovery of Indemnitee,
who shall execute all papers required and shall do everything that may be
necessary to secure such rights, including the execution of such documents
necessary to enable the Company effectively to bring suit to enforce such
rights, except that the Company shall not enforce any of such rights in any
manner or at any time as would prevent or delay payment to Indemnitee of all
amounts owing to him or prevent Indemnitee from making an assignment of such
rights for the benefit of creditors of the Company in connection with a
bankruptcy filing.

17.                                 Binding
Effect. This Agreement shall be binding upon and inure to the benefit of
and be enforceable by the parties hereto and their respective successors
(including any direct or indirect successor by purchase, merger, consolidation
or otherwise to all or substantially all of the business or assets of the
Company), assigns, spouses, heirs, executors and personal and legal
representatives, and any such successor shall expressly assume, in written
agreement in form and substance reasonably satisfactory to Indemnitee, all of
the Company’s obligations hereunder to the same extent, and in substantially
the same manner, as the Company prior to such succession. This Agreement shall
continue in effect regardless of whether Indemnitee continues to serve as a director
or officer of the Company or of any other enterprise at the Company’s request.

18.                                 Severability.
If any provision of this Agreement (including any provision within a single Section,
paragraph or sentence) is held by a court of competent jurisdiction to be
invalid, void or otherwise unenforceable in any respect: (a) the validity and
enforceability of any such provision in every other respect and of the
remaining provisions hereof shall not be in any way impaired and shall remain
enforceable; (b) such provision or provisions shall be deemed to have been reformed
to the minimum extent necessary to conform to applicable law; and (c) to the
fullest extent possible, the provisions of this Agreement (including each
portion of any Section, paragraph or sentence of this Agreement containing any
provision held to be invalid, illegal or unenforceable that is not itself
invalid, illegal or unenforceable) shall be construed to as to give effect to
the intent manifested thereby.

19.                                 Effective
Date. This Agreement shall be effective as of the date hereof and shall
apply to any claim for indemnification by Indemnitee on or after such date.

 9
 

 

20.                                 Governing
Law. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Colorado applicable to contracts made
and to be performed in such state without giving effect to the principles of
conflicts of laws thereof. Except with respect to any arbitration commenced by
Indemnitee pursuant to Section 8, the Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Colorado,
City and County of Denver for all purposes in connection with any action or
proceeding which arises out of or relates to this Agreement.

21.                                 Integration
and Entire Agreement. This Agreement sets forth the entire understanding
between the parties hereto and supersedes and merges all previous written and
oral negotiations, commitments, understandings and agreements relating to the
subject matter hereof between the parties hereto, except that this Agreement in
addition to, and not in limitation of, the right of Indemnitee under any provisions
on the subject matter hereof contained in the Charter Documents.

22.                                 No
Construction as Employment Agreement. Nothing contained in this Agreement
shall be construed as giving Indemnitee any right to be retained in the employ
of the Company or any of its subsidiaries or affiliated entities.

Signature
page follows.

 10
 

 

The Company and Indemnitee are signing this Agreement as of the date
set forth above.

COBIZ INC.

	
  By:

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  
	
   

  
	
   

  
	
  INDEMNITEE:

  	
   

  
	
   

  
	
   

  
	
  [Printed Name]

  	
   

  
					

 

 11

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