Document:

COMMON STOCK CERTIFICATE

 Exhibit 4.3 
  
 Specimen of Alliance One International, Inc. Common Stock Certificate 
  

 

 

 The Corporation will furnish to any shareholder, without charge and upon request in writing to the office of the
Corporation, a full statement of the designations, relative rights, preferences and limitations of the shares of each class authorized to be issued, and the variations in the relative rights, preferences and limitations between the shares of each
series of any class of shares authorized to be issued in series, so far as the same have been fixed and determined, and the authority of the board of directors to fix and determine the relative rights, preferences and limitations of subsequent
series of shares of any such class. 
  
 The following
abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations : 
  

									
	TEN COM	  	 —     as tenants in common
	  	UNIF GIFT MIN ACT —	  	Custodian
					
	TEN ENT	  	 —     as tenants by the entireties
	  	 	  	(Cust)	  	(Minor)
	  
 JT TEN
	  	  
 —     as joint tenants with right of survivorship and not as tenants in common
	  	 	  	under Uniform Gifts to Minors
	  	  	 	  	Act
                                
	  	  	 	  	(State)
		
	 	  	 Additional abbreviations may also be used though not in the above list.

  
 For value received,
                     hereby sell, assign and transfer unto 
  

	
	PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
	
	 

  
                                       
                                        
                                        
                                        
                                        
                                        
                    
 Please print or
typewrite name and address including postal zip code of assignee 
  
                                       
                                        
                                        
                                        
                                        
                                        
                    
  
                                       
                                        
                                        
                                        
                                        
                                        
                    
  
                                       
                                        
                                        
                                        
                                        
     Shares 
  
 of the capital stock represented by the
within Certificate, and do hereby irrevocably constitute and appoint
                                        
     
  
                                       
                                        
                                        
                                        
                                        
                                        
                    
 Attorney to transfer the said stock
on the books of the within-named Corporation with full power of substitution in the premises. 
  
 Dated,                             
  

	
	
	 
	NOTICE: The signature(s) to this assignment must correspond with the name(s) as written upon the face of the Certificate, in every particular, without alteration or enlargement, or any change
whatever.

  

			
	SIGNATURE(S) GUARANTEED: 	  	 
	 	  	THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOANS ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.

  
 KEEP THIS
CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR DESTROYED, THE CORPORATION MAY REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE.Securities Purchase Agreement

 Exhibit 10.1 
  
 SECURITIES PURCHASE AGREEMENT 
  
 LAURUS MASTER FUND, LTD. 
  
 and 
  
 BIODELIVERY SCIENCES INTERNATIONAL, INC. 
  
 Dated: May 31, 2005 

 TABLE OF CONTENTS 
  

							
	 	  	 	 	 	  	Page

	1.	  	Agreement to Sell and Purchase	  	1
			
	2.	  	Fees and Warrant.	  	1
			
	3.	  	Closing, Delivery, Payment	  	2
	 	  	3.1	 	Closing	  	2
	 	  	3.2	 	Delivery	  	2
			
	4.	  	Representations and Warranties of the Company	  	2
	 	  	4.1	 	Organization, Good Standing and Qualification	  	2
	 	  	4.2	 	Subsidiaries	  	3
	 	  	4.3	 	Capitalization; Voting Rights	  	3
	 	  	4.4	 	Authorization; Binding Obligations	  	4
	 	  	4.5	 	Liabilities	  	5
	 	  	4.6	 	Agreements; Action	  	5
	 	  	4.7	 	Obligations to Related Parties	  	6
	 	  	4.8	 	Changes	  	7
	 	  	4.9	 	Title to Properties and Assets; Liens, Etc.	  	8
	 	  	4.10	 	Intellectual Property	  	9
	 	  	4.11	 	Compliance with Other Instruments	  	9
	 	  	4.12	 	Litigation	  	10
	 	  	4.13	 	Tax Returns and Payments	  	10
	 	  	4.14	 	Employees	  	10
	 	  	4.15	 	Registration Rights and Voting Rights	  	11
	 	  	4.16	 	Compliance with Laws; Permits	  	11
	 	  	4.17	 	Environmental and Safety Laws	  	12
	 	  	4.18	 	Valid Offering	  	12
	 	  	4.19	 	Full Disclosure	  	12
	 	  	4.20	 	Insurance	  	12
	 	  	4.21	 	SEC Reports	  	13
	 	  	4.22	 	Listing	  	13
	 	  	4.23	 	No Integrated Offering	  	13
	 	  	4.24	 	Stop Transfer	  	13
	 	  	4.25	 	Dilution	  	13
	 	  	4.26	 	Patriot Act	  	14
	 	  	4.27	 	ERISA	  	14
			
	5.	  	Representations and Warranties of the Purchaser	  	14
	 	  	5.1	 	No Shorting	  	14
	 	  	5.2	 	Requisite Power and Authority; No Violation	  	15
	 	  	5.3	 	Investment Representations	  	15
	 	  	5.4	 	The Purchaser Bears Economic Risk	  	15
	 	  	5.5	 	Acquisition for Own Account	  	16
	 	  	5.6	 	The Purchaser Can Protect Its Interest	  	16
	 	  	5.7	 	Accredited Investor	  	16
	 	  	5.8	 	Legends	  	16
			
	6.	  	Covenants of the Company	  	17
	 	  	6.1	 	Stop-Orders	  	17

  

 i 

							
	 	  	 	 	 	  	Page(s)

	 	  	6.2	 	Listing	  	17
	 	  	6.3	 	Market Regulations	  	17
	 	  	6.4	 	Reporting Requirements	  	17
	 	  	6.5	 	Use of Funds	  	18
	 	  	6.6	 	Access to Facilities	  	18
	 	  	6.7	 	Taxes	  	18
	 	  	6.8	 	Insurance	  	18
	 	  	6.9	 	Intellectual Property	  	20
	 	  	6.10	 	Properties	  	20
	 	  	6.11	 	Confidentiality	  	20
	 	  	6.12	 	Required Approvals	  	20
	 	  	6.13	 	Reissuance of Securities	  	21
	 	  	6.14	 	Opinion	  	21
	 	  	6.15	 	Margin Stock	  	22
	 	  	6.16	 	Financing Right of First Refusal	  	22
			
	7.	  	Covenants of the Purchaser	  	22
	 	  	7.1	 	Confidentiality	  	22
	 	  	7.2	 	No Trading on Non-Public Information	  	23
	 	  	7.3	 	Limitation on Acquisition of Common Stock of the Company	  	23
	 	  	7.4	 	No Short Sales	  	23
			
	8.	  	Covenants of the Company and the Purchaser Regarding Indemnification.	  	23
	 	  	8.1	 	Company Indemnification	  	23
	 	  	8.2	 	Purchaser’s Indemnification	  	24
			
	9.	  	Conversion of Convertible Note.	  	24
	 	  	9.1	 	Mechanics of Conversion	  	24
			
	10.	  	Registration Rights.	  	25
	 	  	10.1	 	Registration Rights Granted	  	25
	 	  	10.2	 	Offering Restrictions	  	25
			
	11.	  	Miscellaneous.	  	26
	 	  	11.1	 	Governing Law, Jurisdiction and Waiver of Jury Trial	  	26
	 	  	11.2	 	Severability	  	27
	 	  	11.3	 	Survival	  	27
	 	  	11.4	 	Successors	  	27
	 	  	11.5	 	Entire Agreement; Maximum Interest	  	27
	 	  	11.6	 	Severability	  	28
	 	  	11.7	 	Amendment and Waiver	  	28
	 	  	11.8	 	Delays or Omissions	  	28
	 	  	11.9	 	Notices	  	28
	 	  	11.10	 	Attorneys’ Fees	  	29
	 	  	11.11	 	Titles and Subtitles	  	29
	 	  	11.12	 	Facsimile Signatures; Counterparts	  	29
	 	  	11.13	 	Broker’s Fees	  	29
	 	  	11.14	 	Construction	  	30

  

 ii 

 LIST OF EXHIBITS 
  

			
	 Form of Convertible Term Note
	  	Exhibit A
	 Form of Warrant
	  	Exhibit B
	 Form of Escrow Agreement
	  	Exhibit C

  
 LIST OF SCHEDULES

  

			
	 Subsidiaries
	  	4.2
	 Capitalization of Subsidiaries
	  	4.3
	 Liabilities
	  	4.5
	 Agreements
	  	4.6
	 Obligations to Related Parties
	  	4.7
	 Changes
	  	4.8
	 Properties and Assets
	  	4.9
	 Compliance
	  	4.11
	 Litigation
	  	4.12
	 Tax Returns
	  	4.13
	 Employees
	  	4.14
	 Registration Rights
	  	4.15
	 Environmental
	  	4.17
	 SEC Reports
	  	4.21
	 Debt
	  	6.12(e)
	 Exclusion from Right of First Refusal
	  	6.16(a)
	 Brokers
	  	11.13

  

 iii 

 SECURITIES PURCHASE AGREEMENT 
  
 THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of May 31st, 2005, by and
between BIODELIVERY SCIENCES INTERNATIONAL, INC., a Delaware corporation (the “Company”), and LAURUS MASTER FUND, LTD., a Cayman Islands company (the “Purchaser”). 
  
 RECITALS 
  
 WHEREAS, the Company has authorized the sale to the Purchaser of a Secured Convertible Term Note in the aggregate principal amount of Two Million Five
Hundred Thousand Dollars ($2,500,000) in the form of Exhibit A hereto (as amended, modified or supplemented from time to time, the “Note”), which Note is convertible into shares of the Company’s common stock, $0.001 par value per
share (the “Common Stock”) at an initial fixed conversion price of $3.10 per share of Common Stock (“Fixed Conversion Price”); 
  
 WHEREAS, the Company wishes to issue to the Purchaser a warrant in the form of Exhibit B hereto (as amended, modified or supplemented from time to time,
the “Warrant”) to purchase up to 483,871 shares of the Company’s Common Stock (subject to adjustment as set forth therein) in connection with the Purchaser’s purchase of the Note; 
  
 WHEREAS, the Purchaser desires to purchase the Note and the Warrant on the
terms and conditions set forth herein; and 
  
 WHEREAS, the
Company desires to issue and sell the Note and the Warrant to the Purchaser on the terms and conditions set forth herein. 
  
 AGREEMENT 
  
 NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 
  
 1. Agreement to Sell and Purchase. Pursuant to the terms and conditions set forth in this Agreement, on the Closing Date (as defined in Section 3),
the Company shall sell to the Purchaser, and the Purchaser shall purchase from the Company, the Note and the Warrant. The sale of the Note and the Warrant on the Closing Date shall be known as the “Offering.” The Note will mature on the
Maturity Date (as defined in the Note). Collectively, the Note and Warrant and Common Stock issuable upon conversion of the Note and upon exercise of the Warrant are referred to as the “Securities.” 
  
 2. Fees and Warrant. On the Closing Date: 
  
 (a) The Company will issue and deliver to the Purchaser the
Warrant to purchase up to 483,871 shares of Common Stock (subject to adjustment as set forth therein) in connection with the Offering, pursuant to Section 1 hereof. All the 

 
representations, covenants, warranties, undertakings, and indemnification, and other rights made or granted to or for the benefit of the Purchaser by the
Company, to the extent applicable, are hereby also made and granted in respect of the Warrant and shares of the Company’s Common Stock issuable upon exercise of the Warrant (the “Warrant Shares”). 
  
 (b) Subject to the terms of Section 2(d) below, the Company
shall pay to Laurus Capital Management, LLC, the manager of the Purchaser, a closing payment in an amount equal to three and three quarters percent (3.75%) of the aggregate principal amount of the Note. The foregoing fee is referred to herein as the
“Closing Payment.” 
  
 (c) The Company
shall reimburse the Purchaser for its reasonable expenses (including legal fees and expenses) incurred in connection with the preparation and negotiation of this Agreement and the Related Agreements (as hereinafter defined), and expenses incurred in
connection with the Purchaser’s due diligence review of the Company and its Subsidiaries (as defined in Section 4.2) and all related matters. Amounts required to be paid under this Section 2(c) will be paid on the Closing Date and shall be
$20,000 (net of deposits previously paid by the Company) for such expenses referred to in this Section 2(c). 
  
 (d) The Closing Payment and the expenses referred to in the preceding clause (c) (net of deposits previously paid by the Company) shall be
paid at closing out of funds held pursuant to the Escrow Agreement (as defined below) and a disbursement letter (the “Disbursement Letter”). 
  
 3. Closing, Delivery and Payment. 
  
 3.1 Closing. Subject to the terms and conditions herein, the closing of the transactions contemplated hereby (the “Closing”), shall take
place on the date hereof, at such time or place as the Company and the Purchaser may mutually agree (such date is hereinafter referred to as the “Closing Date”). 
  
 3.2 Delivery. Pursuant to the Escrow Agreement, at the Closing on the Closing Date, the Company will deliver to the
Purchaser, among other things, the Note and the Warrant and the Purchaser will deliver to the Company, among other things, the amounts set forth in the Disbursement Letter by certified funds or wire transfer. 
  
 4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchaser as follows (which representations and warranties are subject to and expressly qualified by the information contained in the Company’s filings, and all exhibits thereto, under the Securities Exchange Act
of 1934, as amended (“Exchange Act”) made prior to the date of this Agreement (collectively, together with all exhibits to such filings, the “Exchange Act Filings”), copies of which have been reviewed by the Purchaser with the
information contained therein being hereby acknowledged by the Purchaser): 
  
 4.1 Organization, Good Standing and Qualification. Each of the Company and each of its Subsidiaries is a corporation or limited liability company, as the case may be, duly organized, validly existing and in
good standing under the laws of its jurisdiction of 

 
organization. Each of the Company and each of its Subsidiaries has the corporate or limited liability company, as the case may be, power and authority to own
and operate its properties and assets and, insofar as it is or shall be a party thereto, to (1) execute, deliver and perform its obligations under (i) this Agreement, (ii) the Note and the Warrant to be issued in connection with this Agreement,
(iii) the Master Security Agreement dated as of February 22, 2005 between the Company, certain Subsidiaries of the Company and the Purchaser (as amended, modified or supplemented from time to time, the “Master Security Agreement”), (iv)
the Registration Rights Agreement relating to the Securities dated as of the date hereof between the Company and the Purchaser (as amended, modified or supplemented from time to time, the “Registration Rights Agreement”), (v) the
Subsidiary Guaranty dated as of February 22, 2005 made by certain Subsidiaries of the Company (as amended, modified or supplemented from time to time, the “Subsidiary Guaranty”), (vi) the Stock Pledge Agreement dated as of February 22,
2005 among the Company, certain Subsidiaries of the Company and the Purchaser (as amended, modified or supplemented from time to time, the “Stock Pledge Agreement”), (vii) the Funds Escrow Agreement dated as of the date hereof among the
Company, the Purchaser and the escrow agent referred to therein, substantially in the form of Exhibit C hereto (as amended, modified or supplemented from time to time, the “Escrow Agreement”) and (viii) all other documents, instruments and
agreements entered into in connection with the transactions contemplated hereby and thereby (the preceding clauses (ii) through (viii), collectively, the “Related Agreements”); (2) issue and sell the Note and the shares of Common Stock
issuable upon conversion of the Note (the “Note Shares”); (3) issue and sell the Warrant and the Warrant Shares; and (4) carry out the provisions of this Agreement and the Related Agreements and to carry on its business as presently
conducted. Each of the Company and each of its Subsidiaries is duly qualified and is authorized to do business and is in good standing as a foreign corporation or limited liability company, as the case may be, in all jurisdictions in which the
nature or location of its activities and of its properties (both owned and leased) makes such qualification necessary, except for those jurisdictions in which failure to do so has not, or could not reasonably be expected to have, individually or in
the aggregate, a material adverse effect on the business, assets, liabilities, condition (financial or otherwise), properties, operations or prospects of the Company and its Subsidiaries, taken individually and as a whole (a “Material Adverse
Effect”). 
  
 4.2 Subsidiaries. Each direct and
indirect Subsidiary of the Company, the direct owner of such Subsidiary and its percentage ownership thereof, is set forth on Schedule 4.2. For the purpose of this Agreement, a “Subsidiary” of any person or entity means (i) a corporation
or other entity whose shares of stock or other ownership interests having ordinary voting power (other than stock or other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the directors
of such corporation, or other persons or entities performing similar functions for such person or entity, are owned, directly or indirectly, by such person or entity or (ii) a corporation or other entity in which such person or entity owns, directly
or indirectly, more than 50% of the equity interests at such time. 
  
 4.3 Capitalization; Voting Rights. 
  
 (a) The authorized capital stock of the Company, as of the date hereof, consists of: (i) 45,000,000 shares of Common Stock, of which there are 7,304,687 shares issued and 7,269,197 shares are issued and outstanding, and (ii) 5,000,000
shares of preferred stock, par value $.001, of which: (A) 1,647,059 are designated as Series A 

 
Convertible Preferred Stock, all of which are issued and outstanding and (B) 941,177 are designated as Series B Convertible Preferred Stock, of which 341,176
are issued and outstanding. The authorized and outstanding capital stock of each Subsidiary of the Company is set forth on Schedule 4.3. 
  
 (b) Except as disclosed on Schedule 4.3, other than: (i) the shares reserved for issuance under the Company’s stock option plans;
(ii) publicly-traded warrants to purchase 2,085,000 shares of Common Stock at an exercise price of $6.30 per share as of the date hereof; (iii) shares of Common Stock issuable upon conversion the Company’s currently outstanding shares of Series
A Convertible Preferred Stock and Series B Convertible Preferred Stock and (iv) shares which may be issued pursuant to this Agreement, the Related Agreements and certain agreements entered into on February 22, 2005 by and between the Company and the
Purchaser, there are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal), proxy or stockholder agreements, or arrangements or agreements of any kind for the purchase or acquisition from
the Company of any of its securities. Except as disclosed on Schedule 4.3, neither the offer, issuance or sale of any of the Note or the Warrant, or the issuance of any of the Note Shares or Warrant Shares, nor the consummation of any transaction
contemplated hereby will result in a change in the price or number of any securities of the Company outstanding, under anti-dilution or other similar provisions contained in or affecting any such securities. 
  
 (c) All issued and outstanding shares of the Company’s
Common Stock issued on or after June 24, 2002: (i) have been duly authorized and validly issued and are fully paid and nonassessable; and (ii) were issued in compliance with all applicable state and federal laws concerning the issuance of
securities. 
  
 (d) The rights, preferences,
privileges and restrictions of the shares of the Common Stock are as stated in the Company’s Certificate of Incorporation (the “Charter”). The Note Shares and Warrant Shares have been duly and validly reserved for issuance. When
issued in compliance with the provisions of this Agreement, the Note, the Warrant and the Company’s Charter, the Securities will be validly issued, fully paid and nonassessable, and will be free of any liens or encumbrances; provided, however,
that the Securities may be subject to restrictions on transfer under state and/or federal securities laws as set forth herein or as otherwise required by such laws at the time a transfer is proposed. 
  
 4.4 Authorization; Binding Obligations. All corporate or limited
liability company, as the case may be, action on the part of the Company and each of its Subsidiaries (including their respective officers and directors) necessary for the authorization of this Agreement and the Related Agreements, the performance
of all obligations of the Company and its Subsidiaries hereunder and under the other Related Agreements at the Closing and, the authorization, sale, issuance and delivery of the Note and Warrant has been taken or will be taken prior to the Closing.
This Agreement and the Related Agreements, when executed and delivered and to the extent it is a party thereto, will be valid and binding obligations of each of the Company and each of its Subsidiaries, enforceable against each such entity in
accordance with their terms, except: 
  
 (a) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights; and 

 (b) general principles of equity that restrict the availability of equitable or legal
remedies. 
  
 The sale of the Note and the subsequent conversion of the Note into
Note Shares are not and will not be subject to any preemptive rights or rights of first refusal that have not been properly waived or complied with. The issuance of the Warrant and the subsequent exercise of the Warrant for Warrant Shares are not
and will not be subject to any preemptive rights or rights of first refusal that have not been properly waived or complied with. 
  
 4.5 Liabilities. Except as set forth on Schedule 4.5, neither the Company nor any of its Subsidiaries has any liabilities, except current
liabilities incurred in the ordinary course of business and any liabilities disclosed in any Exchange Act Filings. 
  
 4.6 Agreements; Action. Except, in each case, as set forth on Schedule 4.6 or as disclosed in any Exchange Act Filings: 
  
 (a) there are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which the Company or any of its Subsidiaries is a party or by which it is bound which may involve: (i) obligations (contingent or otherwise) of, or payments to, the Company or
any such Subsidiary in excess of $50,000 (other than obligations of, or payments to, the Company or any such Subsidiary arising from purchase or sale agreements entered into in the ordinary course of business); or (ii) the transfer or license of any
patent, copyright, trade secret or other proprietary right to or from the Company or any such Subsidiary (other than licenses arising from the purchase of “off the shelf” or other standard products); or (iii) provisions restricting the
development, manufacture or distribution of the Company’s or any such Subsidiary’s products or services; or (iv) indemnification by the Company or any such Subsidiary with respect to infringements of proprietary rights. 
  
 (b) Since December 31, 2004 (the “Balance Sheet
Date”), neither the Company nor any of its Subsidiaries has: (i) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock; (ii) incurred any indebtedness for money
borrowed or any other liabilities (other than ordinary course obligations) individually in excess of $50,000 or, in the case of indebtedness and/or liabilities individually less than $50,000, in excess of $100,000 in the aggregate; (iii) made any
loans or advances to any person or entity not in excess, individually or in the aggregate, of $100,000, other than ordinary course advances for travel and other business expenses; or (iv) sold, exchanged or otherwise disposed of any of its assets or
rights, other than the sale of its inventory in the ordinary course of business. 
  
 (c) For the purposes of subsections (a) and (b) above, all indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions 

 
involving the same person or entity (including persons or entities the Company or any applicable Subsidiary of the Company has reason to believe are
affiliated therewith) shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such subsections. 
  
 (d) The Company maintains disclosure controls and procedures (“Disclosure Controls”) designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the rules and forms of the Securities and Exchange
Commission (“SEC”). 
  
 (e) The Company
makes and keep books, records, and accounts, that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets. The Company maintains internal control over financial reporting (“Financial
Reporting Controls”) designed by, or under the supervision of, the Company’s principal executive and principal financial officers, and effected by the Company’s board of directors, management, and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles (“GAAP”), including that: 
  
 (i) transactions are executed in accordance with
management’s general or specific authorization; 
  
 (ii) unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements are prevented or timely detected; 
  
 (iii) transactions are recorded as necessary to permit preparation of financial statements in accordance
with GAAP, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of the Company’s management and board of directors; 
  
 (iv) transactions are recorded as necessary to maintain accountability for assets; and 
  
 (v) the recorded accountability for assets is compared with
the existing assets at reasonable intervals, and appropriate action is taken with respect to any differences. 
  
 (f) There is no weakness in any of the Company’s Disclosure Controls or Financial Reporting Controls that would be required to be
disclosed in any of the Exchange Act Filings, except as so disclosed. 
  
 4.7 Obligations to Related Parties. Except as set forth on Schedule 4.7, there are no obligations of the Company or any of its Subsidiaries to officers, directors, 5% or greater stockholders or employees of the Company or any of its
Subsidiaries other than: 
  
 (a) for payment of
salary for services rendered and for bonus payments; 

 (b) customary fees earned for serving on the board of directors and committees of the
board of directors; 
  
 (c) reimbursement for
reasonable expenses incurred on behalf of the Company and its Subsidiaries; 
  
 (d) for other standard employee benefits made generally available to all employees (including stock option agreements outstanding under any stock option plan approved by the Board of Directors of the Company and each
such Subsidiary of the Company, as applicable); and 
  
 (e) obligations listed in the Company’s and each of its Subsidiary’s financial statements or disclosed in any of the Company’s Exchange Act Filings. 
  
 Except as described above or set forth on Schedule 4.7, none of the officers, directors or, to the best of the Company’s knowledge, key
employees or 5% or greater stockholders of the Company or any of its Subsidiaries or any members of their immediate families, are indebted to the Company or any of its Subsidiaries, individually or in the aggregate, in excess of $50,000 or have any
direct or indirect ownership interest in any firm or corporation with which the Company or any of its Subsidiaries is affiliated or with which the Company or any of its Subsidiaries has a business relationship, or any firm or corporation which
competes with the Company or any of its Subsidiaries, other than passive investments in publicly traded companies (representing less than one percent (1%) of such company) which may compete with the Company or any of its Subsidiaries. Except as
described above, no officer, director or 5% or greater stockholder of the Company or any of its Subsidiaries, or any member of their immediate families, is, directly or indirectly, interested in any material contract with the Company or any of its
Subsidiaries and no agreements, understandings or proposed transactions are contemplated between the Company or any of its Subsidiaries and any such person. Except as set forth on Schedule 4.7, neither the Company nor any of its Subsidiaries is a
guarantor or indemnitor of any indebtedness of any other person, firm or entity. 
  
 4.8 Changes. Since the Balance Sheet Date, except as disclosed in any Exchange Act Filing or in any Schedule to this Agreement or to any of the Related Agreements, there has not been: 
  
 (a) any change in the business, assets, liabilities,
condition (financial or otherwise), properties, operations or prospects of the Company or any of its Subsidiaries, which individually or in the aggregate has had, or could reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect; 
  
 (b) any resignation or
termination of any officer, key employee or group of employees of the Company or any of its Subsidiaries; 
  
 (c) any material change, except in the ordinary course of business, in the contingent obligations of the Company or any of its
Subsidiaries by way of guaranty, endorsement, indemnity, warranty or otherwise; 

 (d) any damage, destruction or loss, whether or not covered by insurance, which has had,
or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect; 
  
 (e) any waiver by the Company or any of its Subsidiaries of a valuable right or of a material debt owed to it; 
  
 (f) any direct or indirect loans made by the Company or any
of its Subsidiaries to any 5% or greater stockholder, employee, officer or director of the Company or any of its Subsidiaries, other than advances made in the ordinary course of business; 
  
 (g) any material change in any compensation arrangement or
agreement with any employee, officer, director or 5% or greater stockholder of the Company or any of its Subsidiaries; 
  
 (h) any declaration or payment of any dividend or other distribution of the assets of the Company or any of its Subsidiaries; 

 
 (i) any labor organization activity related to the
Company or any of its Subsidiaries; 
  
 (j) any
debt, obligation or liability incurred, assumed or guaranteed by the Company or any of its Subsidiaries, except those for immaterial amounts and for current liabilities incurred in the ordinary course of business; 
  
 (k) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets owned by the Company or any of its Subsidiaries; 
  
 (l) any change in any material agreement to which the Company or any of its Subsidiaries is a party or by which either the Company or any
of its Subsidiaries is bound which either individually or in the aggregate has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect; 
  
 (m) any other event or condition of any character that, either individually or in the aggregate, has had, or
could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect; or 
  
 (n) any arrangement or commitment by the Company or any of its Subsidiaries to do any of the acts described in subsection (a) through (m)
above. 
  
 4.9 Title to Properties and Assets; Liens, Etc.
Except as set forth on Schedule 4.9 or in any Exchange Act Filing, each of the Company and each of its Subsidiaries has good and marketable title to its properties and assets, and good title to its leasehold interests, in each case subject to no
mortgage, pledge, lien, lease, encumbrance or charge, other than: 
  
 (a) those resulting from taxes which have not yet become delinquent; 

 (b) minor liens and encumbrances which do not materially detract from the value of the
property subject thereto or materially impair the operations of the Company or any of its Subsidiaries, so long as in each such case, such liens and encumbrances have no effect on the lien priority of the Purchaser in such property; and 

 
 (c) those that have otherwise arisen in the ordinary
course of business, so long as they have no effect on the lien priority of the Purchaser therein. 
  
 All facilities, machinery, equipment, fixtures, vehicles and other properties owned, leased or used by the Company and its Subsidiaries are in good operating condition and repair and are reasonably fit and usable for
the purposes for which they are being used, subject to normal wear and tear. Except as set forth on Schedule 4.9 or in any Exchange Act Filing, each of the Company and its Subsidiaries are in compliance with all material terms of each lease to which
it is a party or is otherwise bound. 
  
 4.10 Intellectual
Property. 
  
 (a) Each of the Company and
each of its Subsidiaries owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and other proprietary rights and processes necessary for its business as now
conducted and, to the Company’s knowledge, as presently proposed to be conducted (the “Intellectual Property”), without any known infringement of the rights of others. Other than as disclosed in the Exchange Act Filings, there are no
outstanding options, licenses or agreements of any kind relating to the foregoing proprietary rights, nor is the Company or any of its Subsidiaries bound by or a party to any options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and other proprietary rights and processes of any other person or entity other than such licenses or agreements arising from the purchase of “off the
shelf” or standard products. 
  
 (b) Neither
the Company nor any of its Subsidiaries has received any communications alleging that the Company or any of its Subsidiaries has violated any of the patents, trademarks, service marks, trade names, copyrights or trade secrets or other proprietary
rights of any other person or entity, nor is the Company or any of its Subsidiaries aware of any basis therefor. 
  
 (c) The Company does not believe it is or will be necessary to utilize any inventions, trade secrets or proprietary information of any of
its employees made prior to their employment by the Company or any of its Subsidiaries, except for inventions, trade secrets or proprietary information that have been rightfully assigned to the Company or any of its Subsidiaries. 
  
 4.11 Compliance with Other Instruments. Neither the Company nor any of
its Subsidiaries is in violation or default of (x) any term of its Charter or Bylaws, or (y) any provision of any indebtedness, mortgage, indenture, contract, agreement or instrument to which it is party or by which it is bound or of any judgment,
decree, order or writ, which violation or default, in the case of this clause (y), has had, or could reasonably be expected to have, either 

 
individually or in the aggregate, a Material Adverse Effect. Except as set forth on Schedule 4.11, the execution, delivery and performance of and compliance
with this Agreement and the Related Agreements to which it is a party, and the issuance and sale of the Note by the Company and the other Securities by the Company each pursuant hereto and thereto, will not, with or without the passage of time or
giving of notice, result in any such material violation, or be in conflict with or constitute a default under any such term or provision, or result in the creation of any mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company or any of its Subsidiaries or the suspension, revocation, impairment, forfeiture or nonrenewal of any permit, license, authorization or approval applicable to the Company, its business or operations or any of its assets or
properties. 
  
 4.12 Litigation. Except as set forth on
Schedule 4.12 hereto, there is no action, suit, proceeding or investigation pending or, to the Company’s knowledge, currently threatened against the Company or any of its Subsidiaries that prevents the Company or any of its Subsidiaries from
entering into this Agreement or the Related Agreements, or from consummating the transactions contemplated hereby or thereby, or which has had, or could reasonably be expected to have, either individually or in the aggregate, a Material Adverse
Effect or any change in the current equity ownership of the Company or any of its Subsidiaries, nor is the Company aware that there is any basis to assert any of the foregoing. Neither the Company nor any of its Subsidiaries is a party to or subject
to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by the Company or any of its Subsidiaries currently pending or which the
Company or any of its Subsidiaries intends to initiate. 
  
 4.13
Tax Returns and Payments. Each of the Company and each of its Subsidiaries has timely filed all tax returns (federal, state and local) required to be filed by it. All taxes shown to be due and payable on such returns, any assessments imposed,
and all other taxes due and payable by the Company or any of its Subsidiaries on or before the Closing, have been paid or will be paid prior to the time they become delinquent. Except as set forth on Schedule 4.13, neither the Company nor any of its
Subsidiaries has been advised: 
  
 (a) that any
of its returns, federal, state or other, have been or are being audited as of the date hereof; or 
  
 (b) of any adjustment, deficiency, assessment or court decision in respect of its federal, state or other taxes. 
  
 The Company has no knowledge of any liability for any tax to be imposed upon its properties
or assets as of the date of this Agreement that is not adequately provided for. 
  
 4.14 Employees. Except as set forth on Schedule 4.14, neither the Company nor any of its Subsidiaries has any collective bargaining agreements with any of its employees. There is no labor union organizing
activity pending or, to the Company’s knowledge, threatened with respect to the Company or any of its Subsidiaries. Except as disclosed in the Exchange Act Filings or on Schedule 4.14, neither the Company nor any of its Subsidiaries is a party
to or bound by any currently effective employment contract, deferred compensation arrangement, bonus plan, incentive plan, profit sharing plan, retirement agreement or other employee 

 
compensation plan or agreement. To the Company’s knowledge, no employee of the Company or any of its Subsidiaries, nor any consultant with whom the
Company or any of its Subsidiaries has contracted, is in violation of any term of any employment contract, proprietary information agreement or any other agreement relating to the right of any such individual to be employed by, or to contract with,
the Company or any of its Subsidiaries because of the nature of the business to be conducted by the Company or any of its Subsidiaries; and to the Company’s knowledge the continued employment by the Company and its Subsidiaries of their present
employees, and the performance of the Company’s and its Subsidiaries’ contracts with its independent contractors, will not result in any such violation. Neither the Company nor any of its Subsidiaries is aware that any of its employees is
obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency that would interfere with their duties to the Company or
any of its Subsidiaries. Neither the Company nor any of its Subsidiaries has received any notice alleging that any such violation has occurred. Except for employees who have a current effective employment agreement with the Company or any of its
Subsidiaries, no employee of the Company or any of its Subsidiaries has been granted the right to continued employment by the Company or any of its Subsidiaries or to any material compensation following termination of employment with the Company or
any of its Subsidiaries. Except as set forth on Schedule 4.14, the Company is not aware that any officer, key employee or group of employees intends to terminate his, her or their employment with the Company or any of its Subsidiaries, nor does the
Company or any of its Subsidiaries have a present intention to terminate the employment of any officer, key employee or group of employees. 
  
 4.15 Registration Rights and Voting Rights. Except as set forth on Schedule 4.15 and except as disclosed in Exchange Act Filings, neither the
Company nor any of its Subsidiaries is presently under any obligation, and neither the Company nor any of its Subsidiaries has granted any rights, to register any of the Company’s or its Subsidiaries’ presently outstanding securities or
any of its securities that may hereafter be issued. Except as set forth on Schedule 4.15 and except as disclosed in Exchange Act Filings, to the Company’s knowledge, no 5% or greater stockholder of the Company or any of its Subsidiaries has
entered into any agreement with respect to the voting of equity securities of the Company or any of its Subsidiaries. 
  
 4.16 Compliance with Laws; Permits. Neither the Company nor any of its Subsidiaries is in violation of any provision of the Sarbanes-Oxley Act of
2002, SEC rule or rule of the Principal Market (as hereafter defined) promulgated thereunder or any applicable statute, rule, regulation, order or restriction of any domestic or foreign government or any instrumentality or agency thereof in respect
of the conduct of its business or the ownership of its properties which has had, or could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect. No governmental orders, permissions, consents, approvals or
authorizations are required to be obtained and no registrations or declarations are required to be filed in connection with the execution and delivery of this Agreement or any other Related Agreement and the issuance of any of the Securities, except
such as have been duly and validly obtained or filed, or with respect to any filings that must be made after the Closing, as will be filed in a timely manner. Each of the Company and its Subsidiaries has all material franchises, permits, licenses
and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which could, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 

 4.17 Environmental and Safety Laws. Neither the Company nor any of its Subsidiaries is in
violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, and to the Company’s knowledge, no material expenditures are or will be required in order to comply with any such existing
statute, law or regulation. Except as set forth on Schedule 4.17, to the knowledge of the Company, no Hazardous Materials (as defined below) are used or have been used, stored, or disposed of by the Company or any of its Subsidiaries or, to the
Company’s knowledge, by any other person or entity on any property owned, leased or used by the Company or any of its Subsidiaries. For the purposes of the preceding sentence, “Hazardous Materials” shall mean: 
  
 (a) materials which are listed or otherwise defined as
“hazardous” or “toxic” under any applicable local, state, federal and/or foreign laws and regulations that govern the existence and/or remedy of contamination on property, the protection of the environment from contamination, the
control of hazardous wastes, or other activities involving hazardous substances, including building materials; or 
  
 (b) any petroleum products or nuclear materials. 
  

4.18 Valid Offering. Assuming the accuracy of the representations and warranties of the Purchaser contained in this Agreement, the offer, sale
and issuance of the Securities will be exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), and will have been registered or qualified (or are exempt from registration and
qualification) under the registration, permit or qualification requirements of all applicable state securities laws. 
  
 4.19 Full Disclosure. Each of the Company and each of its Subsidiaries has provided the Purchaser with all information requested by the Purchaser
in connection with its decision to purchase the Note and Warrant, including all information the Company and its Subsidiaries believe is reasonably necessary to make such investment decision. Neither this Agreement, the Related Agreements, the
exhibits and schedules hereto and thereto nor any other document delivered by the Company or any of its Subsidiaries to Purchaser or its attorneys or agents in connection herewith or therewith or with the transactions contemplated hereby or thereby,
contain any untrue statement of a material fact nor omit to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances in which they are made, not misleading. Any financial projections
and other estimates provided to the Purchaser by the Company or any of its Subsidiaries were based on the Company’s and its Subsidiaries’ experience in the industry and on assumptions of fact and opinion as to future events which the
Company or any of its Subsidiaries, at the date of the issuance of such projections or estimates, believed to be reasonable. 
  
 4.20 Insurance. Each of the Company and each of its Subsidiaries has general commercial, product liability, fire and casualty insurance policies
with coverages which the Company believes are customary for companies similarly situated to the Company and its Subsidiaries in the same or similar business. 

 4.21 SEC Reports. Except as set forth on Schedule 4.21, the Company has filed all proxy
statements, reports and other documents required to be filed by it under the Exchange Act. The Company has furnished the Purchaser copies of: (i) its Annual Reports on Form 10-KSB for each of its fiscal years ended December 31, 2003 and December 31,
2004, as amended; and (ii) its Quarterly Reports on Form 10-QSB for its fiscal quarters ended March 31, 2004, June 30, 2004, September 30, 2004 and March 31, 2005, and the Form 8-K filings which it has made during the fiscal years 2004 and 2005 to
date (collectively, the “SEC Reports”). Except as set forth on Schedule 4.21, each SEC Report was, at the time of its filing, in substantial compliance with the requirements of its respective form and none of the SEC Reports, nor the
financial statements (and the notes thereto) included in the SEC Reports, as of their respective filing dates, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were made, not misleading. 
  
 4.22 Listing. The Company’s Common Stock is listed for trading on a Principal Market (as hereafter defined) and satisfies and at all times
hereafter will satisfy all requirements for the continuation of such listing. The Company has not received any notice that its Common Stock will be delisted from the Principal Market or that its Common Stock does not meet all requirements for
listing. For purposes hereof, the term “Principal Market” means the NASD OTC Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Marketing System, American Stock Exchange or New York Stock Exchange (whichever of the foregoing is at the
time the principal trading exchange or market for the Common Stock). 
  
 4.23 No Integrated Offering. Neither the Company, nor any of its Subsidiaries or affiliates, nor to the Company’s knowledge, any person acting on its or their behalf, has directly or indirectly made any offers or sales of any
security or solicited any offers to buy any security under circumstances that would cause the offering of the Securities pursuant to this Agreement or any of the Related Agreements to be integrated with prior offerings by the Company for purposes of
the Securities Act which would prevent the Company from selling the Securities pursuant to Rule 506 under the Securities Act or any applicable exchange-related stockholder provisions, nor will the Company or any of its affiliates or Subsidiaries
take any action or steps that would cause the offering of the Securities to be integrated with other offerings. This Section 4.23 shall not be deemed to apply to any aggregation of the Securities with the Securities which are the subject of the
February 2005 Purchase Agreement (as defined in the Note) arising under Nasdaq Marketplace Rule 4350(i)(1)(D)(ii), or similar exchange-related provisions. 
  
 4.24 Stop Transfer. The Securities are restricted securities as of the date of this Agreement. Neither the Company nor any of its Subsidiaries will
issue any stop transfer order or other order impeding the sale and delivery of any of the Securities at such time as the Securities are registered for public sale or an exemption from registration is available, except as required by state and
federal securities laws. 
  
 4.25 Dilution. The Company
specifically acknowledges that its obligation to issue the shares of Common Stock upon conversion of the Note and exercise of the Warrant is binding upon the Company and enforceable regardless of the dilution such issuance may have on the ownership
interests of other shareholders of the Company. 

 4.26 Patriot Act. The Company certifies that, to the best of Company’s knowledge, neither the
Company nor any of its Subsidiaries has been designated, nor is or shall be owned or controlled, by a “suspected terrorist” as defined in Executive Order 13224. The Company hereby acknowledges that the Purchaser seeks to comply with all
applicable laws concerning money laundering and related activities. In furtherance of those efforts, the Company hereby represents, warrants and covenants that: (i) none of the cash or property that the Company or any of its Subsidiaries will pay or
will contribute to the Purchaser has been or shall be derived from, or related to, any activity that is deemed criminal under United States law; and (ii) no contribution or payment by the Company or any of its Subsidiaries to the Purchaser, to the
extent that they are within the Company’s and/or its Subsidiaries’ control shall cause the Purchaser to be in violation of the United States Bank Secrecy Act, the United States International Money Laundering Control Act of 1986 or the
United States International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001. The Company shall promptly notify the Purchaser if any of these representations, warranties or covenants ceases to be true and accurate regarding the
Company or any of its Subsidiaries. The Company shall provide the Purchaser any and all additional information regarding the Company or any of its Subsidiaries that the Purchaser deems necessary or convenient to ensure compliance with all applicable
laws concerning money laundering and similar activities. The Company understands and agrees that if at any time it is discovered that any of the foregoing representations, warranties or covenants are incorrect, or if otherwise required by applicable
law or regulation related to money laundering or similar activities, the Purchaser may undertake appropriate actions to ensure compliance with applicable law or regulation, including but not limited to segregation and/or redemption of the
Purchaser’s investment in the Company. The Company further understands that the Purchaser may release confidential information about the Company and its Subsidiaries and, if applicable, any underlying beneficial owners, to proper authorities if
the Purchaser, in its sole discretion, determines that it is in the best interests of the Purchaser in light of relevant rules and regulations under the laws set forth in subsection (ii) above. 
  
 4.27 ERISA. Based upon the Employee Retirement Income Security Act of
1974 (“ERISA”), and the regulations and published interpretations thereunder: (i) neither the Company nor any of its Subsidiaries has engaged in any Prohibited Transactions (as defined in Section 406 of ERISA and Section 4975 of the
Internal Revenue Code of 1986, as amended (the “Code”)); (ii) each of the Company and each of its Subsidiaries has met all applicable minimum funding requirements under Section 302 of ERISA in respect of its plans; (iii) neither the
Company nor any of its Subsidiaries has any knowledge of any event or occurrence which would cause the Pension Benefit Guaranty Corporation to institute proceedings under Title IV of ERISA to terminate any employee benefit plan(s); (iv) neither the
Company nor any of its Subsidiaries has any fiduciary responsibility for investments with respect to any plan existing for the benefit of persons other than the Company’s or such Subsidiary’s employees; and (v) neither the Company nor any
of its Subsidiaries has withdrawn, completely or partially, from any multi-employer pension plan so as to incur liability under the Multiemployer Pension Plan Amendments Act of 1980. 
  
 5. Representations and Warranties of the Purchaser. The Purchaser hereby represents and warrants to the Company as
follows (such representations and warranties do not lessen or obviate the representations and warranties of the Company set forth in this Agreement): 
  
 5.1 No Shorting. Neither the Purchaser nor any of its affiliates and investment partners has, prior to the date hereof, caused any person or entity
to engage in “short sales” of the Company’s Common Stock or publicly-traded warrants of the Company. 

 5.2 Requisite Power and Authority; No Violation. 
  
 (a) The Purchaser has all necessary power and authority
under all applicable provisions of law to execute and deliver this Agreement and the Related Agreements and to carry out their provisions. All corporate action on the Purchaser’s part required for the lawful execution and delivery of this
Agreement and the Related Agreements have been or will be effectively taken prior to the Closing. Upon their execution and delivery, this Agreement and the Related Agreements will be valid and binding obligations of the Purchaser, enforceable in
accordance with their terms, except: (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights; and (ii) as limited by general principles of
equity that restrict the availability of equitable and legal remedies. 
  
 (b) Neither the execution or delivery of this Agreement, the Related Agreements nor the consummation of the transactions contemplated thereby, will conflict with or result in the breach of any material term or
provision of, require any material consent or violate or constitute a material default under, or relieve any third party of, any material obligation to the Purchaser or give any third party the right to terminate or accelerate any material
obligation under, any materialcharter provision, bylaw, contract, or agreement to which the Purchaser is a party or by which any of its assets are in any way bound or obligated. 
  
 5.3 Investment Representations. The Purchaser understands that the Securities are being offered and sold pursuant to
an exemption from registration contained in the Securities Act based in part upon the Purchaser’s representations contained in this Agreement, including, without limitation, that the Purchaser is an “accredited investor” within the
meaning of Regulation D under the Securities Act of 1933, as amended (the “Securities Act”). The Purchaser confirms that it has received or has had full access to all the information it considers necessary or appropriate to make an
informed investment decision with respect to the Company, the Note and the Warrant to be purchased by it under this Agreement and the Note Shares and the Warrant Shares acquired by it upon the conversion of the Note and the exercise of the Warrant,
respectively. The Purchaser further confirms that it has had an opportunity to ask questions and receive answers from the Company regarding the Company’s and its Subsidiaries’ business, management and financial affairs and the terms and
conditions of the Offering, the Note, the Warrant and the Securities and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any
information furnished to the Purchaser or to which the Purchaser had access. 
  
 5.4 The Purchaser Bears Economic Risk. The Purchaser has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company so that it is
capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests. The Purchaser must 

 
bear the economic risk of this investment until the Securities are sold pursuant to: (i) an effective registration statement under the Securities Act; or
(ii) an exemption from registration is available with respect to such sale. The Purchaser acknowledges that the Securities are speculative and involve a high degree of risk and that the Purchaser can bear the economic risk of the purchase of the
Securities, including a total loss of its investment therein. 
  
 5.5 Acquisition for Own Account. The Purchaser is acquiring the Note and Warrant and the Note Shares and the Warrant Shares for the Purchaser’s own account for investment only, and not as a nominee or agent and not with a view
towards or for resale in connection with their distribution. 
  
 5.6 The Purchaser Can Protect Its Interest. The Purchaser represents that by reason of its, or of its management’s, business and financial experience, the Purchaser has the capacity to evaluate the merits and risks of its
investment in the Note, the Warrant and the Securities and to protect its own interests in connection with the transactions contemplated in this Agreement and the Related Agreements. Further, the Purchaser is aware of no publication of any
advertisement in connection with the transactions contemplated in the Agreement or the Related Agreements. 
  
 5.7 Accredited Investor. The Purchaser represents that it is an accredited investor within the meaning of Regulation D under the Securities Act.

  
 5.8 Legends. 
  
 (a) The Note shall bear substantially the following legend:

  
 “THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION
OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH SHARES UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO BIODELIVERY SCIENCES INTERNATIONAL, INC. THAT
SUCH REGISTRATION IS NOT REQUIRED.” 
  
 (b)
The Note Shares and the Warrant Shares, if not issued by DWAC system (as hereinafter defined), shall bear a legend which shall be in substantially the following form until such shares are covered by an effective registration statement filed with the
SEC: 
  
 “THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER 

 
SUCH SECURITIES ACT AND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO BIODELIVERY SCIENCES INTERNATIONAL, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED.” 
  
 (c) The
Warrant shall bear substantially the following legend: 
  
 “THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON
EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR THE UNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS
OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO BIODELIVERY SCIENCES INTERNATIONAL, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.” 
  
 6. Covenants of the Company. The Company covenants and agrees with the Purchaser as follows: 
  
 6.1 Stop-Orders. The Company will advise the Purchaser, promptly
after it receives notice of issuance by the SEC, any state securities commission or any other regulatory authority of any stop order or of any order preventing or suspending any offering of any securities of the Company, or of the suspension of the
qualification of the Common Stock of the Company for offering or sale in any jurisdiction, or the initiation of any proceeding for any such purpose. 
  
 6.2 Listing. The Company shall promptly secure the listing of the shares of Common Stock issuable upon conversion of the Note and upon the exercise
of the Warrant on the Principal Market upon which shares of Common Stock are listed (subject to official notice of issuance) and shall maintain such listing so long as any other shares of Common Stock shall be so listed. The Company will maintain
the listing of its Common Stock on the Principal Market, and will comply in all material respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the National Association of Securities Dealers
(“NASD”) and such exchanges, as applicable. 
  
 6.3
Market Regulations. The Company shall notify the SEC, NASD and applicable state authorities, in accordance with their requirements, of the transactions contemplated by this Agreement, and shall 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 Securities to the Purchaser and promptly provide copies thereof to the Purchaser. 
  
 6.4 Reporting Requirements. The Company shall timely file with the SEC
all reports required to be filed pursuant to the Exchange Act and refrain from terminating its status as an issuer required by the Exchange Act to file reports thereunder even if the Exchange Act or the rules or regulations thereunder would permit
such termination. 

 6.5 Use of Funds. The Company shall use the proceeds of the sale of the Note and the Warrant for
general working capital purposes only. 
  
 6.6 Access to
Facilities. For as long as the Note is outstanding, each of the Company and each of its Subsidiaries will permit any representatives designated by the Purchaser (or any successor of the Purchaser), who are bound by a confidentiality agreement
with the Company and agreed: (i) not to purchase or sell any of the Company’s securities, while in possession of material non-public information and (ii) to comply with Regulation FD under the securities laws, upon reasonable notice and during
normal business hours, at such person’s expense and accompanied by a representative of the Company or any Subsidiary (provided that no such prior notice shall be required to be given and no such representative of the Company or any Subsidiary
shall be required to accompany the Purchaser in the event the Purchaser believes such access is necessary to preserve or protect the Collateral (as defined in the Master Security Agreement) or following the occurrence and during the continuance of
an Event of Default (as defined in the Note)), to: 
  
 (a) visit and inspect any of the properties of the Company or any of its Subsidiaries; 
  
 (b) examine the corporate and financial records of the Company or any of its Subsidiaries (unless such examination is not permitted by
federal, state or local law or by contract) and make copies thereof or extracts therefrom; and 
  
 (c) discuss the affairs, finances and accounts of the Company or any of its Subsidiaries with the directors, officers and independent
accountants of the Company or any of its Subsidiaries. 
  
 6.7
Taxes. Each of the Company and each of its Subsidiaries will promptly pay and discharge, or cause to be paid and discharged, when due and payable, all taxes, assessments and governmental charges or levies imposed upon the income, profits,
property or business of the Company and its Subsidiaries; provided, however, that any such tax, assessment, charge or levy need not be paid currently if the validity thereof shall currently and diligently be contested in good faith by appropriate
proceedings, such tax, assessment, charge or levy shall have no effect on the lien priority of the Purchaser in any property of the Company or any of its Subsidiaries and if the Company and/or such Subsidiary shall have set aside on its books
adequate reserves with respect thereto in accordance with GAAP, and provided, further, that the Company and its Subsidiaries will pay all such taxes, assessments, charges or levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefor. 
  
 6.8
Insurance. Subsequent to the Closing, each of the Company and its Subsidiaries will keep its assets which are of an insurable character insured by financially sound and reputable insurers against loss or damage by fire, explosion and other
risks customarily insured against by companies in similar business similarly situated as the Company and its 

 
Subsidiaries; and the Company and its Subsidiaries will maintain, with financially sound and reputable insurers, insurance against other hazards and risks
and liability to persons and property to the extent and in the manner which the Company reasonably believes is customary for companies in similar business similarly situated as the Company and its Subsidiaries and to the extent available on
commercially reasonable terms. The Company, and each of its Subsidiaries, will jointly and severally bear the full risk of loss from any loss of any nature whatsoever with respect to the assets pledged to the Purchaser as security for their
respective obligations hereunder and under the Related Agreements. At the Company’s and each of its Subsidiaries’ joint and several cost and expense in amounts and with carriers reasonably acceptable to the Purchaser, each of the Company
and each of its Subsidiaries shall (i) keep all its insurable properties and properties in which it has an interest insured against the hazards of fire, flood, sprinkler leakage, those hazards covered by extended coverage insurance and such other
hazards, and for such amounts, as is customary in the case of companies engaged in businesses similar to the Company’s or the respective Subsidiary’s including business interruption insurance; (ii) maintain a bond in such amounts as is
customary in the case of companies engaged in businesses similar to the Company’s or the respective Subsidiary’s insuring against larceny, embezzlement or other criminal misappropriation of insured’s officers and employees who may
either singly or jointly with others at any time have access to the assets or funds of the Company or any of its Subsidiaries either directly or through governmental authority to draw upon such funds or to direct generally the disposition of such
assets; (iii) maintain public and product liability insurance against claims for personal injury, death or property damage suffered by others; (iv) maintain all such worker’s compensation or similar insurance as may be required under the laws
of any state or jurisdiction in which the Company or the respective Subsidiary is engaged in business; and (v) furnish the Purchaser with (x) copies of all policies and evidence of the maintenance of such policies at least thirty (30) days before
any expiration date, (y) excepting the Company’s workers’ compensation policy, endorsements to such policies naming the Purchaser as “co-insured” or “additional insured” and appropriate loss payable endorsements in form
and substance satisfactory to the Purchaser, naming the Purchaser as loss payee, and (z) evidence that as to the Purchaser the insurance coverage shall not be impaired or invalidated by any act or neglect of the Company or any Subsidiary and the
insurer will provide the Purchaser with at least thirty (30) days notice prior to cancellation. The Company and each Subsidiary shall instruct the insurance carriers that in the event of any loss thereunder, the carriers shall make payment for such
loss to the Company and/or the Subsidiary and the Purchaser jointly. In the event that as of the date of receipt of each loss recovery upon any such insurance, the Purchaser has not declared an event of default with respect to this Agreement or any
of the Related Agreements, then the Company and/or such Subsidiary shall be permitted to direct the application of such loss recovery proceeds toward investment in property, plant and equipment that would comprise “Collateral” secured by
the Purchaser’s security interest pursuant to the Master Security Agreement or such other security agreement as shall be required by the Purchaser, with any surplus funds to be applied toward payment of the obligations of the Company to the
Purchaser. In the event that the Purchaser has properly declared an event of default with respect to this Agreement or any of the Related Agreements, then all loss recoveries received by the Purchaser upon any such insurance thereafter may be
applied to the obligations of the Company hereunder and under the Related Agreements, in such order as the Purchaser may determine. Any surplus (following satisfaction of all Company obligations to the Purchaser) shall be paid by the Purchaser to
the Company or applied as may be otherwise required by law. Any deficiency thereon shall be paid by the Company or the Subsidiary, as applicable, to the Purchaser, on demand. 

 6.9 Intellectual Property. Each of the Company and each of its Subsidiaries shall maintain in full
force and effect its existence, rights and franchises and all licenses and other rights to use Intellectual Property owned or possessed by it and reasonably deemed to be necessary to the conduct of its business. 
  
 6.10 Properties. Each of the Company and each of its Subsidiaries will
keep its properties in good repair, working order and condition, reasonable wear and tear excepted, and from time to time make all needful and proper repairs, renewals, replacements, additions and improvements thereto; and each of the Company and
each of its Subsidiaries will at all times comply with each provision of all leases to which it is a party or under which it occupies property if the breach of such provision could, either individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect. 
  
 6.11 Confidentiality.
The Company will not, and will not permit any of its Subsidiaries to, disclose, and will not include in any public announcement, the name of the Purchaser, unless expressly agreed to by the Purchaser or unless and until such disclosure is required
by law or applicable regulation, and then only to the extent of such requirement. Notwithstanding the foregoing, the Company may disclose the Purchaser’s identity and the terms of this Agreement to its current and prospective debt and equity
financing sources. The Company (and its subsidiaries and affiliates) shall continue to be bound by the confidentiality provision of this Agreement and of any signed Confidentiality Agreement regardless of whether or not any disclosures have been
made pursuant to this Section 6.11, or otherwise. 
  
 6.12
Required Approvals. For so long as twenty-five percent (25%) of the principal amount of the Note is outstanding, the Company, without the prior written consent of the Purchaser, shall not, and shall not permit any of its Subsidiaries to:

  
 (a) (i) directly or indirectly declare or pay
any dividends, other than dividends paid to the Company or any wholly owned Subsidiary of the Company, (ii) issue any preferred stock that is manditorily redeemable prior to the one year anniversary of Maturity Date (as defined in the Note) or (iii)
redeem any of its preferred stock or other equity interests; 
  
 (b) liquidate, dissolve or effect a material reorganization (it being understood that in no event shall the Company or any of its Subsidiaries dissolve, liquidate or merge with any other person or entity (unless, in
the case of a merger, the Company or such Subsidiary, as applicable, is the surviving entity); 
  
 (c) become subject to (including, without limitation, by way of amendment to or modification of) any agreement or instrument which by its
terms would (under any circumstances) restrict the Company’s or any of its Subsidiaries right to perform the provisions of this Agreement, any Related Agreement or any of the agreements contemplated hereby or thereby; 

 (d) materially alter or change the scope of the business of the Company and its
Subsidiaries taken as a whole; 
  
 (e) (i)
create, incur, assume or suffer to exist any indebtedness (exclusive of trade debt and debt incurred to finance the purchase of equipment (not in excess of five percent (5%) of the fair market value of the Company’s and its Subsidiaries’
assets)) whether secured or unsecured other than (x) the Company’s indebtedness to the Purchaser, (y) indebtedness set forth on Schedule 6.12(e) attached hereto and made a part hereof and any refinancings or replacements thereof on terms no
less favorable to the Purchaser than the indebtedness being refinanced or replaced, and (z) any debt incurred in connection with the purchase of assets in the ordinary course of business, or any refinancings or replacements thereof on terms no less
favorable to the Purchaser than the indebtedness being refinanced or replaced, so long as any lien relating thereto shall only encumber the fixed assets so purchased and no other assets of the Company or any of its Subsidiaries; (ii) cancel any debt
owing to it in excess of $50,000 in the aggregate during any 12 month period; (iii) assume, guarantee, endorse or otherwise become directly or contingently liable in connection with any obligations of any other person or entity, except the
endorsement of negotiable instruments by the Company for deposit or collection or similar transactions in the ordinary course of business or guarantees of indebtedness otherwise permitted to be outstanding pursuant to this clause (e); and

  
 (f) create or acquire any Subsidiary after
the date hereof unless (i) such Subsidiary is a wholly-owned Subsidiary of the Company and (ii) such Subsidiary becomes a party to the Master Security Agreement, the Stock Pledge Agreement and the Subsidiary Guaranty (either by executing a
counterpart thereof or an assumption or joinder agreement in respect thereof) and, to the extent required by the Purchaser, satisfies each condition of this Agreement and the Related Agreements as if such Subsidiary were a Subsidiary on the Closing
Date. 
  
 6.13 Reissuance of Securities. The Company agrees
to reissue certificates representing the Securities without the legends set forth in Section 5.8 above at such time as: 
  
 (a) the holder thereof is permitted to dispose of such Securities pursuant to Rule 144(k) under the Securities Act; or 
  
 (b) upon resale subject to an effective registration
statement after such Securities are registered under the Securities Act. 
  
 The
Company agrees to cooperate with the Purchaser in connection with all resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions necessary to allow such resales; provided, that: (i) the Company and its counsel receive reasonably
requested representations from the Purchaser and broker, if any, and (ii) that the Purchaser undertakes to (x) comply with the prospectus delivery requirements of the Securities Act, or (y) accept re-legended securities if there is no effective
registration statement in place at such time. 
  
 6.14
Opinion. On the Closing Date, the Company will deliver to the Purchaser an opinion acceptable to the Purchaser from the Company’s external legal counsel. The 

 
Company will provide, at the Company’s expense, such other legal opinions in the future as are deemed reasonably necessary by the Purchaser (and
acceptable to the Purchaser) in connection with the conversion of the Note and exercise of the Warrant. 
  
 6.15 Margin Stock. The Company will not permit any of the proceeds of the Note or the Warrant to be used directly or indirectly to
“purchase” or “carry” “margin stock” or to repay indebtedness incurred to “purchase” or “carry” “margin stock” within the respective meanings of each of the quoted terms under Regulation U
of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect. 
  
 6.16 Financing Right of First Refusal. 
  
 (a) From and after the date hereof and prior to the full repayment or conversion of the Note (together with all accrued and unpaid interest and fees
related thereto), the Company hereby grants to the Purchaser a right of first refusal to provide any Additional Financing (as defined below) to be issued by the Company and/or any of its Subsidiaries, subject to the following terms and conditions.
From and after the date hereof and prior to the full repayment or conversion of the Note (together with all accrued and unpaid interest and fees related thereto), prior to the incurrence of any additional indebtedness and/or the sale or issuance of
any equity interests of the Company or any of its Subsidiaries, other than a financing of the type referred to on Schedule 6.16(a) (an “Additional Financing”), the Company and/or any Subsidiary of the Company, as the case may be, shall
notify the Purchaser of its intention to enter into such Additional Financing. In connection therewith, the Company and/or the applicable Subsidiary thereof shall submit a fully executed term sheet (a “Proposed Term Sheet”) to the
Purchaser setting forth the terms, conditions and pricing of any such Additional Financing (such financing to be negotiated on “arm’s length” terms and the terms thereof to be negotiated in good faith) proposed to be entered into by
the Company and/or such Subsidiary. The Purchaser shall have the right, but not the obligation, to deliver its own proposed term sheet (the “Purchaser Term Sheet”) setting forth the terms and conditions upon which the Purchaser would be
willing to provide such Additional Financing to the Company and/or such Subsidiary. The Purchaser Term Sheet shall contain terms no less favorable to the Company and/or such Subsidiary than those outlined in Proposed Term Sheet. The Purchaser shall
deliver such Purchaser Term Sheet within ten business days of receipt of each such Proposed Term Sheet. If the provisions of the Purchaser Term Sheet are at least as favorable to the Company and/or such Subsidiary, as the case may be, as the
provisions of the Proposed Term Sheet, the Company and/or such Subsidiary shall enter into and consummate the Additional Financing transaction outlined in the Purchaser Term Sheet. 
  
 (b) The Company will not, and will not permit its Subsidiaries to, agree, directly or indirectly, to any restriction with
any person or entity which limits the ability of the Purchaser to consummate an Additional Financing with the Company or any of its Subsidiaries. 
  
 7. Covenants of the Purchaser. The Purchaser covenants and agrees with the Company as follows: 
  
 7.1 Confidentiality. The Purchaser will not disclose, and will not
include in any public announcement, the name of the Company, unless expressly agreed to by the Company 

 
or unless and until such disclosure is required by law or applicable regulation, and then only to the extent of such requirement. The confidentiality
provisions of this Agreement and of any signed Confidentiality Agreement between the Company (or its representatives or agents) and the Purchaser will remain binding on the Purchaser regardless of whether or not any disclosures have been made
pursuant to this Section 7.1, or otherwise. The Purchaser acknowledges and agrees that the Company is relying on the covenant in this Section 7.1 so that the Company may be in compliance with Regulation FD promulgated by the SEC. 
  
 7.2 No Trading on Non-Public Information. The Purchaser will not
effect any sales in the shares of the Company’s Common Stock or other Company securities while in possession of material, non-public information regarding the Company if such sales would violate applicable securities law. 
  
 7.3 Limitation on Acquisition of Common Stock of the Company.
Notwithstanding anything to the contrary contained herein, in any Related Agreement or any document, instrument or agreement entered into in connection with any other transactions between the Purchaser and the Company, the Purchaser may not acquire
stock in the Company (including, without limitation, pursuant to a contract to purchase, by exercising an option or warrant, by converting any other security or instrument, by acquiring or exercising any other right to acquire, shares of stock or
other security convertible into shares of stock in the Company, or otherwise, and such contracts, options, warrants, conversion or other rights shall not be enforceable or exercisable) to the extent such stock acquisition would cause any interest
(including any original issue discount) payable by the Company to Laurus not to qualify as “portfolio interest” within the meaning of Section 881(c)(2) of the Code, by reason of Section 881(c)(3) of the Code, taking into account the
constructive ownership rules under Section 871(h)(3)(C) of the Code (the “Stock Acquisition Limitation”). The Stock Acquisition Limitation shall automatically become null and void without any notice to the Company upon the earlier to occur
of either (a) the Company’s delivery to Laurus of a Notice of Redemption (as defined in the Note) or (b) the existence of an Event of Default (as defined in the Note) at a time when the average closing price of the Company’s common stock
as reported by Bloomberg, L.P. on the Principal Market for the immediately preceding five trading days is greater than or equal to 150% of the Fixed Conversion Price (as defined in the Note). 
  
 7.4 No Short Sales. For so long as the Note shall be outstanding,
neither the Purchaser nor any of its affiliates and investment partners will, nor will such parties cause any person or entity to, engage in “short sales” of the Company’s Common Stock or other publicly-traded securities of the
Company. 
  
 8. Covenants of the Company and the Purchaser
Regarding Indemnification. 
  
 8.1 Company
Indemnification. The Company agrees to indemnify, hold harmless, reimburse and defend the Purchaser, each of the Purchaser’s officers, directors, agents, affiliates, control persons, and principal shareholders, against any and all claims,
costs, expenses, liabilities, obligations, losses or damages (including reasonable legal fees) of any nature, incurred by or imposed upon the Purchaser which result, arise out of or are based upon: (i) any misrepresentation by the Company or any of
its Subsidiaries or breach of any warranty by the Company or any of its Subsidiaries in this Agreement, any other Related Agreement or in any 

 
exhibits or schedules attached hereto or thereto; or (ii) any breach or default in performance by Company or any of its Subsidiaries of any covenant or
undertaking to be performed by Company or any of its Subsidiaries hereunder, under any other Related Agreement or any other agreement entered into by the Company and/or any of its Subsidiaries and the Purchaser relating hereto or thereto.

  
 8.2 Purchaser’s Indemnification. the Purchaser
agrees to indemnify, hold harmless, reimburse and defend the Company and each of the Company’s officers, directors, agents, affiliates, control persons and principal shareholders, at all times against any claims, costs, expenses, liabilities,
obligations, losses or damages (including reasonable legal fees) of any nature, incurred by or imposed upon the Company which result, arise out of or are based upon: (i) any misrepresentation by the Purchaser or breach of any warranty by the
Purchaser in this Agreement or in any exhibits or schedules attached hereto or any Related Agreement; or (ii) any breach or default in performance by the Purchaser of any covenant or undertaking to be performed by the Purchaser hereunder, or any
other agreement entered into by the Company and the Purchaser relating hereto. 
  
 9. Conversion of Convertible Note. 
  
 9.1 Mechanics of Conversion. 
  
 (a) Provided the Purchaser has notified the Company of the Purchaser’s intention to sell the Note Shares and the Note Shares are included in an effective registration statement or are otherwise exempt from
registration when sold: (i) upon the conversion of the Note or part thereof, the Company shall, at its own cost and expense, take all necessary action (including the issuance of an opinion of counsel reasonably acceptable to the Purchaser following
a request by the Purchaser) to assure that the Company’s transfer agent shall issue shares of the Company’s Common Stock in the name of the Purchaser (or its nominee) or such other persons as designated by the Purchaser in accordance with
Section 9.1(b) hereof and in such denominations to be specified representing the number of Note Shares issuable upon such conversion; and (ii) the Company warrants that no instructions other than these instructions have been or will be given to the
transfer agent of the Company’s Common Stock and that after the Effectiveness Date (as defined in the Registration Rights Agreement) the Note Shares issued will be freely transferable subject to the prospectus delivery requirements of the
Securities Act and the provisions of this Agreement, and will not contain a legend restricting the resale or transferability of the Note Shares. 
  
 (b) The Purchaser will give notice of its decision to exercise its right to convert the Note or part thereof by telecopying or otherwise
delivering an executed and completed notice of the number of shares to be converted to the Company (the “Notice of Conversion”). The Purchaser will not be required to surrender the Note until the Purchaser receives a credit to the account
of the Purchaser’s prime broker through the DWAC system (as defined below), representing the Note Shares or until the Note has been fully satisfied. Each date on which a Notice of Conversion is telecopied or delivered to the Company in
accordance with the provisions hereof shall be deemed a “Conversion Date.” Pursuant to the terms of the Notice of Conversion, the Company will 

 
issue instructions to the transfer agent accompanied by an opinion of counsel within three (3) business days of the date of the delivery to the Company of
the Notice of Conversion and shall cause the transfer agent to transmit the certificates representing the Conversion Shares to the Holder by crediting the account of the Purchaser’s prime broker with the Depository Trust Company
(“DTC”) through its Deposit Withdrawal Agent Commission (“DWAC”) system within three (3) business days after receipt by the Company of the Notice of Conversion (the “Delivery Date”). 
  
 (c) The Company understands that a delay in the delivery of
the Note Shares in the form required pursuant to Section 9 hereof beyond the Delivery Date could result in economic loss to the Purchaser. In the event that the Company fails to direct its transfer agent to deliver the Note Shares to the Purchaser
via the DWAC system within the time frame set forth in Section 9.1(b) above and the Note Shares are not delivered to the Purchaser by the Delivery Date, as compensation to the Purchaser for such loss, the Company agrees to pay late payments to the
Purchaser for late issuance of the Note Shares in the form required pursuant to Section 9 hereof upon conversion of the Note in the amount equal to $500 per business day after the Delivery Date; or (ii) the Purchaser’s actual damages from such
delayed delivery. Notwithstanding the foregoing, the Company will not owe the Purchaser any late payments if the delay in the delivery of the Note Shares beyond the Delivery Date is solely out of the control of the Company and the Company is
actively trying to cure the cause of the delay. The Company shall pay any payments incurred under this Section in immediately available funds upon demand and, in the case of actual damages, accompanied by reasonable documentation of the amount of
such damages. Such documentation shall show the number of shares of Common Stock the Purchaser is forced to purchase (in an open market transaction) which the Purchaser anticipated receiving upon such conversion, and shall be calculated as the
amount by which (A) the Purchaser’s total purchase price (including customary brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (B) the aggregate principal and/or interest amount of the Note, for which such
Conversion Notice was not timely honored. 
  
 10. Registration
Rights. 
  
 10.1 Registration Rights Granted. The
Company hereby grants registration rights to the Purchaser pursuant to the Registration Rights Agreement. 
  
 10.2 Offering Restrictions. Except as previously disclosed in the SEC Reports or in the Exchange Act Filings, or stock or stock options granted to
employees or directors of the Company (these exceptions hereinafter referred to as the “Excepted Issuances”), neither the Company nor any of its Subsidiaries will, prior to the full repayment or conversion of the Note (together with all
accrued and unpaid interest and fees related thereto), (x) enter into any equity line of credit agreement or similar agreement or (y) issue, or enter into any agreement to issue, any securities with a variable/floating conversion and/or pricing
feature which are or could be (by conversion or registration) free-trading securities (i.e. common stock subject to a registration statement). 

 11. Miscellaneous. 
  
 11.1 Governing Law, Jurisdiction and Waiver of Jury Trial. 
  
 (a) THIS AGREEMENT AND THE OTHER RELATED AGREEMENTS SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS (OTHER THAN THE PRINCIPLES SET FORTH IN SECTION
5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK). 
  
 (b) THE COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN
THE COMPANY, ON THE ONE HAND, AND THE PURCHASER, ON THE OTHER HAND, PERTAINING TO THIS AGREEMENT OR ANY OF THE RELATED AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE OTHER RELATED AGREEMENTS; PROVIDED,
THAT THE PURCHASER AND THE COMPANY ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK; AND FURTHER PROVIDED, THAT NOTHING IN THIS AGREEMENT SHALL
BE DEEMED OR OPERATE TO PRECLUDE THE PURCHASER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL (AS DEFINED IN THE MASTER SECURITY AGREEMENT) OR ANY OTHER SECURITY FOR
THE OBLIGATIONS (AS DEFINED IN THE MASTER SECURITY AGREEMENT), OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE PURCHASER. THE COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY
SUCH COURT, AND THE COMPANY HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. THE COMPANY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS
ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE COMPANY AT THE ADDRESS SET FORTH IN SECTION 11.9 AND THAT SERVICE SO MADE SHALL BE
DEEMED COMPLETED UPON THE EARLIER OF THE COMPANY’S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. 
  
 (c) THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST
COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND 

 
OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN
CONTRACT, TORT, OR OTHERWISE BETWEEN THE PURCHASER AND/OR THE COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, ANY OTHER RELATED AGREEMENT OR THE
TRANSACTIONS RELATED HERETO OR THERETO. 
  
 11.2
Severability. Wherever possible each provision of this Agreement and the Related Agreements shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement or any Related Agreement
shall be prohibited by or invalid under applicable law such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions thereof. 
  
 11.3 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by either party and the closing of the transactions contemplated hereby to the extent provided therein. All statements as to factual matters contained in any certificate or other instrument
delivered by or on behalf of the Company pursuant hereto in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the Company hereunder solely as of the date of such certificate or instrument.

  
 11.4 Successors. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, heirs, executors and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each entity which shall be a holder
of the Securities from time to time, other than the holders of Common Stock which has been sold by the Purchaser pursuant to Rule 144 or an effective registration statement. The Purchaser may not assign its rights hereunder to a competitor of the
Company. 
  
 11.5 Entire Agreement; Maximum Interest. This
Agreement, the Related Agreements, the exhibits and schedules hereto and thereto and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and
no party shall be liable or bound to any other in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein and therein. Nothing contained herein or in any document referred to herein or
delivered in connection herewith shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law. In the event that the rate of interest or dividends required to be paid
or other charges hereunder exceed the maximum amount permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Company to the Purchaser and thus refunded to the Company. 

 11.6 Severability. In case any provision of the Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 
  
 11.7 Amendment and Waiver. 
  
 (a) This Agreement may be amended or modified only upon the written consent of the Company and the Purchaser. 
  
 (b) The obligations of the Company and the rights of the
Purchaser under this Agreement may be waived only with the written consent of the Purchaser. 
  
 (c) The obligations of the Purchaser and the rights of the Company under this Agreement may be waived only with the written consent of the
Company. 
  
 11.8 Delays or Omissions. It is agreed that no
delay or omission to exercise any right, power or remedy accruing to any party, upon any breach, default or noncompliance by another party under this Agreement or the Related Agreements, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of or in any similar breach, default or noncompliance thereafter occurring. All remedies, either under this Agreement or the Related Agreements,
by law or otherwise afforded to any party, shall be cumulative and not alternative. 
  
 11.9 Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: 
  
 (a) upon personal delivery to the party to be notified; 
  
 (b) when sent by confirmed facsimile if sent during normal business hours of the recipient, if not, then on
the next business day; 
  
 (c) three (3) business
days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or 
  
 (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of
receipt. 
  
 All communications shall be sent as follows: 
  

					
	If to the Company, to:	  	BioDelivery Sciences International, Inc.
	 	  	2501 Aerial Center Parkway, Suite 205
	 	  	Morrisville, North Carolina 27560
	 	  	Attention:	  	Mark A. Sirgo
	 	  	Facsimile:	  	(919) 653-5161

					
	 	  	with a copy to:
		
	 	  	Ellenoff Grossman & Schole LLP
	 	  	370 Lexington Ave.
	 	  	New York, New York 10017
	 	  	Attention:	  	Barry I. Grossman
	 	  	Facsimile:	  	(212) 370-7889
		
	If to the Purchaser, to:	  	Laurus Master Fund, Ltd.
	 	  	c/o M&C Corporate Services Limited
	 	  	P.O. Box 309 GT
	 	  	Ugland House
	 	  	George Town
	 	  	South Church Street
	 	  	Grand Cayman, Cayman Islands
	 	  	Facsimile:	  	345-949-8080
		
	 	  	with a copy to:
		
	 	  	John E. Tucker, Esq.
	 	  	825 Third Avenue 14th Floor
	 	  	New York, NY 10022
	 	  	Facsimile:	  	212-541-4434

  
 or at such other address as the
Company or the Purchaser may designate by written notice to the other parties hereto given in accordance herewith. 
  
 11.10 Attorneys’ Fees. In the event that any suit or action is instituted to enforce any provision in this Agreement or any Related Agreement,
the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement and/or such Related Agreement, including,
without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals. 
  
 11.11 Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of
reference only and are not to be considered in construing this Agreement. 
  
 11.12 Facsimile Signatures; Counterparts. This Agreement may be executed by facsimile signatures and in any number of counterparts, each of which shall be an original, but all of which together shall constitute
one agreement. 
  
 11.13 Broker’s Fees. Except as set
forth on Schedule 11.13 hereof, each party hereto represents and warrants that no agent, broker, investment banker, person or firm acting on behalf of or under the authority of such party hereto is or will be entitled to any broker’s or
finder’s fee or any other commission directly or indirectly in connection with the transactions contemplated herein. Each party hereto further agrees to indemnify each other party for any claims, losses or expenses incurred by such other party
as a result of the representation in this Section 11.13 being untrue. 

 11.14 Construction. Each party acknowledges that its legal counsel participated in the preparation
of this Agreement and the Related Agreements and, therefore, stipulates that the rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in the interpretation of this Agreement or any Related
Agreement to favor any party against the other. 
  
 [THE
REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 

 IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES PURCHASE AGREEMENT as of the date set
forth in the first paragraph hereof. 
  

							
	COMPANY:	 	PURCHASER:
		
	 BIODELIVERY SCIENCES
 INTERNATIONAL,
INC.
	 	LAURUS MASTER FUND, LTD.
				
	By:	 	 /s/ Francis E. O’Donnell, Jr.

	 	By:	 	 /s/ Eugene Grin

	Name:	 	Francis E. O’Donnell, Jr.	 	Name:	 	Eugene Grin
	Title:	 	Chairman and Chief Executive Officer	 	Title:	 	Director

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