Document:

exv10w1

 

Exhibit 10.1

COMMON STOCK PURCHASE AGREEMENT

Dated August 21, 2006

by and between

PHARMACYCLICS, INC.

and

AZIMUTH OPPORTUNITY LTD.

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	Page	 
	Article I PURCHASE AND SALE OF COMMON STOCK
	 	 	1	 
	Section 1.1    Purchase and Sale of Stock
	 	 	1	 
	Section 1.2    Effective Date; Settlement Dates
	 	 	1	 
	Section 1.3    The Shares
	 	 	2	 
	Section 1.4    Current Report; Prospectus Supplement
	 	 	2	 
	 
	 	 	 	 
	Article II FIXED REQUEST TERMS; OPTIONAL AMOUNT
	 	 	2	 
	Section 2.1    Fixed Request Notice
	 	 	2	 
	Section 2.2    Fixed Requests
	 	 	3	 
	Section 2.3    Share Calculation
	 	 	4	 
	Section 2.4    Limitation of Fixed Requests
	 	 	4	 
	Section 2.5    Reduction of Commitment
	 	 	4	 
	Section 2.6    Below Threshold Price
	 	 	5	 
	Section 2.7    Settlement
	 	 	5	 
	Section 2.8    Reduction of Pricing Period
	 	 	5	 
	Section 2.9    Optional Amount
	 	 	6	 
	Section 2.10    Calculation of Optional Amount Shares
	 	 	6	 
	Section 2.11    Exercise of Optional Amount
	 	 	7	 
	Section 2.12    Aggregate Limit
	 	 	7	 
	 
	 	 	 	 
	Article III REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
	 	 	8	 
	Section 3.1    Organization and Standing of the Investor
	 	 	8	 
	Section 3.2    Authorization and Power
	 	 	8	 
	Section 3.3    No Conflicts
	 	 	8	 
	Section 3.4    Information
	 	 	8	 
	 
	 	 	 	 
	Article IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY
	 	 	9	 
	Section 4.1    Organization, Good Standing and Power
	 	 	9	 
	Section 4.2    Authorization, Enforcement
	 	 	9	 
	Section 4.3    Capitalization
	 	 	9	 
	Section 4.4    Issuance of Shares
	 	 	10	 
	Section 4.5    No Conflicts
	 	 	10	 
	Section 4.6    Commission Documents, Financial Statements
	 	 	11	 
	Section 4.7    Subsidiaries
	 	 	12	 
	Section 4.8    No Material Adverse Effect
	 	 	12	 
	Section 4.9    Indebtedness
	 	 	12	 
	Section 4.10    Title To Assets
	 	 	13	 
	Section 4.11    Actions Pending
	 	 	13	 
	Section 4.12    Compliance With Law
	 	 	13	 
	Section 4.13    Certain Fees
	 	 	13	 
	Section 4.14    Operation of Business
	 	 	14	 

i

 

	 	 	 	 	 
	 	 	Page	 
	Section 4.15    Environmental Compliance
	 	 	16	 
	Section 4.16   Material Agreements
	 	 	16	 
	Section 4.17   Transactions With Affiliates
	 	 	17	 
	Section 4.18   Securities Act
	 	 	17	 
	Section 4.19   Employees
	 	 	19	 
	Section 4.20   Use of Proceeds
	 	 	19	 
	Section 4.21   Public Utility Holding Company Act and Investment Company Act Status

	 	 	19	 
	Section 4.22   ERISA
	 	 	19	 
	Section 4.23   Taxes
	 	 	19	 
	Section 4.24   Insurance
	 	 	20	 
	Section 4.25    Acknowledgement Regarding Investor’s Purchase of Shares
	 	 	20	 
	 
	 	 	 	 
	Article V COVENANTS
	 	 	20	 
	Section 5.1    Securities Compliance; NASD Filing
	 	 	20	 
	Section 5.2   Registration and Listing
	 	 	21	 
	Section 5.3   Compliance with Laws
	 	 	21	 
	Section 5.4   Keeping of Records and Books of Account; Foreign Corrupt Practices Act
	 	 	22	 
	Section 5.5   Limitations on Holdings and Issuances
	 	 	22	 
	Section 5.6   Other Agreements and Other Financings
	 	 	23	 
	Section 5.7   Stop Orders
	 	 	24	 
	Section 5.8   Amendments to the Registration Statement; Prospectus Supplements; Free
Writing Prospectuses
	 	 	24	 
	Section 5.9   Prospectus Delivery
	 	 	25	 
	Section 5.10    Selling Restrictions
	 	 	26	 
	Section 5.11   Effective Registration Statement
	 	 	26	 
	Section 5.12    Non-Public Information
	 	 	27	 
	Section 5.13    Broker/Dealer
	 	 	27	 
	Section 5.14    Update of Disclosure Schedule
	 	 	27	 
	 
	 	 	 	 
	Article VI OPINION OF COUNSEL AND CERTIFICATE; CONDITIONS TO THE SALE AND PURCHASE OF THE SHARES
	 	 	27	 
	Section 6.1    Opinion of Counsel and Certificate
	 	 	27	 
	Section 6.2    Conditions Precedent to the Obligation of the Company
	 	 	27	 
	Section 6.3   Conditions Precedent to the Obligation of the Investor
	 	 	29	 
	 
	 	 	 	 
	Article VII TERMINATION
	 	 	31	 
	Section 7.1    Term, Termination by Mutual Consent
	 	 	31	 
	Section 7.2   Other Termination
	 	 	32	 
	Section 7.3    Effect of Termination
	 	 	32	 
	 
	 	 	 	 
	Article VIII INDEMNIFICATION
	 	 	32	 
	Section 8.1    General Indemnity
	 	 	32	 
	Section 8.2   Indemnification Procedures
	 	 	34	 
	 
	 	 	 	 
	Article IX MISCELLANEOUS
	 	 	36	 
	Section 9.1    Fees and Expenses
	 	 	36	 
	Section 9.2   Specific Enforcement, Consent to Jurisdiction, Waiver of Jury Trial
	 	 	36	 

ii

 

	 	 	 	 	 
	 	 	Page	 
	Section 9.3    Entire Agreement; Amendment
	 	 	37	 
	Section 9.4    Notices
	 	 	37	 
	Section 9.5    Waivers
	 	 	38	 
	Section 9.6    Headings
	 	 	38	 
	Section 9.7    Successors and Assigns
	 	 	38	 
	Section 9.8    Governing Law
	 	 	39	 
	Section 9.9    Survival
	 	 	39	 
	Section 9.10    Counterparts
	 	 	39	 
	Section 9.11    Publicity
	 	 	39	 
	Section 9.12    Severability
	 	 	39	 
	Section 9.13    Further Assurances
	 	 	39	 
	 
	 	 	 	 
	Annex A. Definitions
	 	 	 	 

iii

 

COMMON STOCK PURCHASE AGREEMENT

     This COMMON STOCK PURCHASE AGREEMENT, made and entered into on this 21st day of
August 2006 (this “Agreement”), by and between Azimuth Opportunity Ltd., an international
business company incorporated under the laws of the British Virgin Islands (the
“Investor”), and Pharmacyclics, Inc., a corporation organized and existing under the laws
of the State of Delaware (the “Company”).

RECITALS

     WHEREAS, the parties desire that, upon the terms and subject to the conditions contained
herein, the Company may issue and sell to the Investor and the Investor shall thereupon purchase
from the Company up to $20,000,000 worth of newly issued shares of the Company’s common stock,
$.0001 par value (“Common Stock”), subject, in all cases, to the Trading Market Limit;

     WHEREAS, the offer and sale of the shares of Common Stock hereunder have been registered by
the Company in the Registration Statement, which has been declared effective by order of the
Commission under the Securities Act;

     NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:

ARTICLE I

PURCHASE AND SALE OF COMMON STOCK

     Section 1.1 Purchase and Sale of Stock. Upon the terms and subject to the conditions of
this Agreement, during the Investment Period the Company in its discretion may issue and sell to
the Investor up to $20,000,000 (the “Total Commitment”) worth of duly authorized, validly
issued, fully paid and non-assessable shares of Common Stock (subject in all cases to the Trading
Market Limit, the “Aggregate Limit”), by (i) the delivery to the Investor of not more than
24 separate Fixed Request Notices (unless the Investor and the Company mutually agree that a
different number of Fixed Request Notices may be delivered) as provided in Article II hereof and
(ii) the exercise by the Investor of Optional Amounts, which the Company may in its discretion
grant to the Investor and which may be exercised by the Investor, in whole or in part, as provided
in Article II hereof. The aggregate of all Fixed Request Amounts and Optional Amount Dollar
Amounts shall not exceed the Aggregate Limit.

     Section 1.2 Effective Date; Settlement Dates. This Agreement shall become effective and
binding upon delivery of counterpart signature pages of this Agreement executed by each of the
parties hereto, and by delivery of an opinion of counsel and a certificate of the Company as
provided in Section 6.1 hereof, to the offices of Greenberg Traurig, LLP, 200 Park Avenue, New
York, New York 10166, at l0:00 a.m., New York time, on the Effective Date. In consideration of and
in express reliance upon the representations, warranties and covenants, and otherwise upon the
terms and subject to the
conditions, of this Agreement, from and after the Effective Date and during the Investment Period
(i) the Company shall issue and sell to the Investor, and the Investor agrees to purchase from the
Company, the Shares in respect of each Fixed Request and (ii) the Investor may in its discretion
elect to purchase Shares in respect of

 

each Optional Amount. The issuance and sale of Shares to
the Investor pursuant to any Fixed Request or Optional Amount shall occur on the applicable
Settlement Date in accordance with Sections 2.7 and 2.9 (or on such Trading Day in accordance with
Section 2.8, as applicable), provided in each case that all of the conditions precedent thereto set
forth in Article VI theretofore shall have been fulfilled or (to the extent permitted by applicable
law) waived.

     Section 1.3 The Shares. The Company has duly authorized and reserved for issuance,
and covenants to continue to reserve for issuance, free of all preemptive and other similar rights,
at all times during the Investment Period, the requisite aggregate number of authorized but
unissued shares of its Common Stock to timely effect the issuance, sale and delivery in full to the
Investor of all Shares to be issued in respect of all Fixed Requests and Optional Amounts under
this Agreement.

     Section 1.4 Current Report; Prospectus Supplement. Within four business days after the
Effective Date, the Company shall file with the Commission a report on Form 8-K relating to the
transactions contemplated by, and briefly describing the material terms and conditions of, this
Agreement and, to the extent not included in a Prospectus Supplement, disclosing all information
relating to the transactions contemplated hereby required to be disclosed in the Registration
Statement and the Base Prospectus (but which permissibly has been omitted therefrom in accordance
with the Securities Act), including, without limitation, information required to be disclosed in
the section captioned “Plan of Distribution” in the Base Prospectus (the “Current Report”).
The Current Report may include a copy of this Agreement as an exhibit. To the extent applicable,
the Current Report shall be incorporated by reference in the Registration Statement in accordance
with the provisions of Rule 430B under the Securities Act. Prior to filing the Current Report with
the Commission, the Company shall provide the Investor a reasonable opportunity to comment on a
draft of such Current Report and shall give due consideration to such comments.

     If required under the Securities Act, the Company shall file a final Base Prospectus pursuant
to Rule 424(b) under the Securities Act on or prior to the first Fixed Request Exercise Date.
Pursuant to Section 5.9 and subject to the provisions of Section 5.8, on the first Trading Day
immediately following the end of each Pricing Period, the Company shall file with the Commission a
Prospectus Supplement disclosing the number of Shares to be issued and sold to the Investor
thereunder, the total purchase price therefor and the net proceeds to be received by the Company
therefrom and, to the extent required by the Securities Act, identifying the Current Report.

ARTICLE II

FIXED REQUEST TERMS; OPTIONAL AMOUNT

     Subject to the satisfaction of the conditions set forth in this Agreement, the parties agree
(unless otherwise mutually agreed upon by the parties in writing) as follows:

     Section 2.1 Fixed Request Notice. Upon three Trading Days’ prior written notice to the
Investor, the Company may, from time to time in its sole discretion, provide a notice to the
Investor of a Fixed Request before 9:30 a.m. (New York time) on the first Trading Day of the
Pricing Period (the “Fixed Request Notice”), substantially in the form attached hereto as
Exhibit

2

 

A. The Fixed Request Notice shall specify the Fixed Amount Requested, establish
the Threshold Price for such Fixed Request, designate the first Trading Day of the Pricing Period
and specify the Optional Amount, if any, that the Company elects to grant to the Investor during
the Pricing Period and the applicable Threshold Price for such Optional Amount (the “Optional
Amount Threshold Price”). The Threshold Price and the Optional Amount Threshold Price
established by the Company in a Fixed Request Notice may be the same or different, in the Company’s
sole discretion. Upon the terms and subject to the conditions of this Agreement, the Investor is
obligated to accept each Fixed Request Notice prepared and delivered in accordance with the
provisions of this Agreement.

     Section 2.2 Fixed Requests. From time to time during the Investment Period, the Company
may in its sole discretion deliver to the Investor a Fixed Request Notice for a specified Fixed
Amount Requested, and the applicable discount price (the “Discount Price”) shall be
determined, in accordance with the price and share amount parameters as set forth below or such
other parameters mutually agreed upon by the Investor and the Company, and upon the terms and
subject to the conditions of this Agreement, the Investor shall purchase from the Company the
Shares subject to such Fixed Request Notice; provided, however, that the Company
may not deliver any single Fixed Request Notice for a Fixed Amount Requested in excess of the
lesser of: (i) the amount in the applicable Fixed Amount Requested column below and (ii) 2.5% of
the Market Capitalization:

	 	 	 	 	 
	Threshold Price	 	Fixed Amount Requested	 	Discount Price
	Equal to or greater than $15.00

	 	Not to exceed $3,750,000
	 	95.00% of the VWAP
	Equal to or greater than $14.00 and less than $15.00

	 	Not to exceed $3,500,000
	 	94.90% of the VWAP
	Equal to or greater than $13.00 and less than $14.00

	 	Not to exceed $3,250,000
	 	94.80% of the VWAP
	Equal to or greater than $12.00 and less than $13.00

	 	Not to exceed $3,000,000
	 	94.70% of the VWAP
	Equal to or greater than $11.00 and less than $12.00

	 	Not to exceed $2,750,000
	 	94.60% of the VWAP
	Equal to or greater than $10.00 and less than $11.00

	 	Not to exceed $2,500,000
	 	94.50% of the VWAP
	Equal to or greater than $9.00 and less than $10.00

	 	Not to exceed $2,250,000
	 	94.40% of the VWAP
	Equal to or greater than $8.00 and less than $9.00

	 	Not to exceed $2,000,000
	 	94.30% of the VWAP
	Equal to or greater than $7.00 and less than $8.00

	 	Not to exceed $1,750,000
	 	94.20% of the VWAP
	Equal to or greater than $6.00 and less than $7.00

	 	Not to exceed $1,500,000
	 	94.10% of the VWAP
	Equal to or greater than $5.00 and less than $6.00

	 	Not to exceed $1,250,000
	 	94.00% of the VWAP
	Equal to or greater than $4.50 and less than $5.00

	 	Not to exceed $1,000,000
	 	93.75% of the VWAP
	Equal to or greater than $4.00 and less than $4.50

	 	Not to exceed $750,000
	 	93.50% of the VWAP

3

 

	 	 	 	 	 
	Threshold Price	 	Fixed Amount Requested	 	Discount Price
	Equal to or greater than $3.50 and less than $4.00

	 	Not to exceed $625,000
	 	93.25% of the VWAP
	Equal to or greater than $3.00 and less than $3.50

	 	Not to exceed $500,000
	 	93.00% of the VWAP

     Anything to the contrary in this Agreement notwithstanding, at no time shall the Investor
be required to purchase more than $3,750,000 worth of Common Stock in respect of any Pricing Period
(not including Common Stock subject to any Optional Amount). The date on which the Company
delivers any Fixed Request Notice in accordance with this Section 2.2 hereinafter shall be referred
to as a “Fixed Request Exercise Date”.

     Section 2.3 Share Calculation. Subject to Section 2.6, the number of Shares to be issued
by the Company to the Investor pursuant to a Fixed Request shall equal the aggregate sum of each
quotient (calculated for each Trading Day during the applicable Pricing Period for which the VWAP
equals or exceeds the Threshold Price) determined pursuant to the following equation (rounded to
the nearest whole Share):

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	N

	 	=
	 	(A x B)/C,
where:
	 
	 

	N 	 = 	 the number of Shares to be issued by the Company to the Investor in respect of a Trading
Day during the applicable Pricing Period for which the VWAP equals or exceeds the Threshold
Price,
	 
	A 	 = 	0.10 (the “Multiplier”); provided, however, that if the number of
Trading Days constituting a Pricing Period is decreased as set forth in Section 2.8 hereof,
then the Multiplier correspondingly shall be increased to equal the decimal equivalent (in
10-millionths) of a fraction, the numerator of which is one and the denominator of which
equals the number of Trading Days in the Pricing Period as so decreased,
	 
	B 	 = 	the Fixed Amount Requested, and
	 
	C 	= 	the applicable Discount Price.

     Section 2.4 Limitation of Fixed Requests. The Company shall not make more than one Fixed
Request in each Pricing Period. Not less than five Trading Days shall elapse between the end of
one Pricing Period and the commencement of any other Pricing Period during the Investment Period.
There shall be permitted a maximum of 24 Fixed Requests during the Investment Period. Each Fixed
Request automatically shall expire immediately following the last Trading Day of each Pricing
Period.

     Section 2.5 Reduction of Commitment. On the last Trading Day of each Pricing Period, the
Investor’s Total Commitment under this Agreement automatically (and without the need for any
amendment to this Agreement) shall be
reduced, on a dollar-for-dollar basis, by the total amount of the Fixed Request Amount and the
Optional Amount Dollar Amount, if any, for such Pricing Period.

4

 

     Section 2.6 Below Threshold Price. If the VWAP on any Trading Day in a Pricing Period is
lower than the Threshold Price, then for each such Trading Day the total amount of the Fixed Amount
Requested shall be reduced, on a dollar-for-dollar basis, by an amount equal to the product of (x)
the Multiplier and (y) the original Fixed Amount Requested, and no Shares shall be purchased or
sold with respect to such Trading Day, except as provided below. If trading in the Common Stock on
NASDAQ (or any national securities exchange on which the Common Stock is then listed) is suspended
for any reason for more than three hours on any Trading Day, the Investor may at its option deem
the price of the Common Stock to be lower than the Threshold Price for such Trading Day and, for
each such Trading Day, the total amount of the Fixed Amount Requested shall be reduced as provided
in the immediately preceding sentence, and no Shares shall be purchased or sold with respect to
such Trading Day, except as provided below. For each Trading Day during a Pricing Period on which
the VWAP is (or is deemed to be) lower than the Threshold Price, the Investor may in its sole
discretion elect to purchase such U.S. dollar amount of Shares equal to the amount by which the
Fixed Amount Requested has been reduced in accordance with this Section 2.6, at the Threshold Price
multiplied by the applicable percentage determined in accordance with the price and share amount
parameters set forth in Section 2.2. The Investor shall inform the Company via facsimile
transmission not later than 8:00 p.m. (New York time) on the last Trading Day of such Pricing
Period as to the number of Shares, if any, the Investor elects to purchase as provided in this
Section 2.6.

     Section 2.7 Settlement. The payment for, against simultaneous delivery of, Shares in
respect of each Fixed Request shall be settled on the second Trading Day next following the last
Trading Day of each Pricing Period (the “Settlement Date”). On each Settlement Date, the
Company shall deliver the Shares purchased by the Investor to the Investor or its designees via
DTC’s Deposit Withdrawal Agent Commission (DWAC) system, against simultaneous payment therefor to
the Company’s designated account by wire transfer of immediately available funds, provided that if
the Shares are received by the Investor later than 1:00 p.m. (New York time), payment therefor
shall be made with next day funds. As set forth in Section 9.1(ii), a failure by the Company to
deliver such Shares shall result in the payment of liquidated damages by the Company to the
Investor.

     Section 2.8 Reduction of Pricing Period. If during a Pricing Period the Company elects to
reduce the number of Trading Days in such Pricing Period (and thereby amend its previously
delivered Fixed Request Notice), the Company shall so notify the Investor before 9:00 a.m. (New
York time) on any Trading Day during a Pricing Period (a “Reduction Notice”) and the last
Trading Day of such Pricing Period shall be the Trading Day immediately preceding the Trading Day
on which the Investor received such Reduction Notice; provided, however, that if
the Company delivers the Reduction Notice later than 9:00 a.m. (New York time) on a Trading Day
during a Pricing Period, then the last Trading
Day of such Pricing Period instead shall be the Trading Day on which the Investor received such
Reduction Notice.

     Upon receipt of a Reduction Notice, the Investor (i) shall purchase the Shares in respect of
each Trading Day in such reduced Pricing Period for which the VWAP equals or exceeds the Threshold
Price in accordance with Section 2.3 hereof; (ii) may elect to purchase the Shares in respect of
any Trading Day in such reduced Pricing Period for which the VWAP is (or is deemed to be) lower
than the Threshold Price in accordance with Section 2.6 hereof; and (iii) may elect

5

 

to exercise all
or any portion of an Optional Amount on any Trading Day during such reduced Pricing Period in
accordance with Sections 2.10 and 2.11 hereof.

     In addition, upon receipt of a Reduction Notice, the Investor may elect to purchase such U.S.
dollar amount of additional Shares equal to the quotient determined pursuant to the following
equation:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	D

	 	=
	 	A x 1/B x (B – C), where:

	D  	= 	 the U.S. dollar amount of additional Shares to be purchased,
	 
	A  	= 	 the Fixed Amount Requested,
	 
	B  	= 	 10 or, for purposes of this Section 2.8, such lesser number of Trading Days as the parties
may mutually agree to, and
	 
	C  	= 	 the number of Trading Days in the reduced Pricing Period,

at a per Share price equal to (x) the Fixed Amount Requested attributable to the reduced Pricing
Period divided by (y) the number of Shares to be purchased during such reduced Pricing Period
pursuant to clause (i) of the immediately preceding paragraph.

     The Investor may also elect to exercise any portion of the applicable Optional Amount which
was unexercised during the reduced Pricing Period by issuing an Optional Amount Notice to the
Company not later than 10:00 a.m. (New York time) on the first Trading Day next following the last
Trading Day of the reduced Pricing Period. The number of Shares to be issued upon exercise of such
Optional Amount shall be calculated pursuant to the equation set forth in Section 2.10 hereof,
except that “C” shall equal the greater of (i) the VWAP for the Common Stock on the last Trading
Day of the reduced Pricing Period or (ii) the Optional Amount Threshold Price.

     The payment for, against simultaneous delivery of, Shares to be purchased and sold in
accordance with this Section 2.8 shall be settled on the second Trading Day next following the
Trading Day on which the Investor receives a Reduction Notice.

     Section 2.9 Optional Amount. With respect to any Pricing Period, the Company may in its
sole discretion grant to the Investor the right to exercise, from time to time during the Pricing
Period (but not more than once on any Trading Day), all or any portion of an Optional Amount. The
maximum Optional Amount
Dollar Amount and the Optional Amount Threshold Price shall be set forth in the Fixed Request
Notice. Each daily Optional Amount exercise shall be aggregated during the Pricing Period and
settled on the next Settlement Date. The Optional Amount Threshold Price designated by the Company
in its Fixed Request Notice shall apply to each Optional Amount during the applicable Pricing
Period.

     Section 2.10 Calculation of Optional Amount Shares. The number of shares of Common Stock
to be issued in connection with the exercise of an Optional Amount shall be the quotient determined
pursuant to the following equation (rounded to the nearest whole Share):

6

 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	O

	 	=
	 	A/(B x C), where:

	O  	= 	the number of shares of Common Stock to be issued in connection with such Optional Amount
exercise,

	A  	= 	the Optional Amount Dollar Amount with respect to which the Investor has delivered an
Optional Amount Notice,

	B  	= 	 the applicable percentage determined in accordance with the price and shares amount
parameters set forth in Section 2.2 (with the Optional Amount Threshold Price serving as the
Threshold Price for such purposes), and

	C 	= 	the greater of (i) the VWAP for the Common Stock on the day the Investor delivers the
Optional Amount Notice or (ii) the Optional Amount Threshold Price.

     Section 2.11 Exercise of Optional Amount. If granted by the Company to the Investor with
respect to a Pricing Period, all or any portion of the Optional Amount may be exercised by the
Investor on any Trading Day during the Pricing Period, subject to the limitations set forth in
Section 2.9. As a condition to each exercise of an Optional Amount pursuant to this Section 2.11,
the Investor shall issue an Optional Amount Notice to the Company no later than 8:00 p.m. (New York
time) on the day of such Optional Amount exercise. If the Investor does not exercise an Optional
Amount in full by 8:00 p.m. (New York time) on the last Trading Day of the applicable Pricing
Period, such unexercised portion of the Investor’s Optional Amount with respect to that Pricing
Period automatically shall lapse and terminate.

     Section 2.12 Aggregate Limit. Notwithstanding anything to the contrary contained in this
Agreement, in no event may the Company issue a Fixed Request Notice or grant an Optional Amount to
the extent that the sale of Shares pursuant thereto and pursuant to all prior Fixed Request Notices
or Optional Amounts issued hereunder would cause the Company to sell or the Investor to purchase
Shares which in the aggregate are in excess of the Aggregate Limit. If the Company issues a Fixed
Request Notice or Optional Amount that otherwise would permit the Investor to purchase shares of
Common Stock which would cause the aggregate purchases by Investor hereunder to exceed the
Aggregate Limit, such Fixed Request Notice or Optional Amount shall be void ab initio to the extent
of the amount by which the dollar value of shares or number of shares, as the case may be, of
Common Stock otherwise issuable pursuant to such Fixed Request Notice or Optional Amount together
with the dollar value of shares or number of shares, as the case may be, of all other Common Stock
purchased by the Investor pursuant hereto would exceed the Aggregate Limit. The Company hereby
represents, warrants and covenants that neither it nor any of its Subsidiaries (i) has effected any
transaction or series of transactions, (ii) is a party to any pending transaction or series of
transactions or (iii) shall enter into any contract, agreement, agreement-in-principle, arrangement
or understanding with respect to, or shall effect, any Other Financing which, in any of such cases,
would be integrated with the transactions contemplated by this Agreement for purposes of
determining whether approval of the Company’s stockholders is required under any bylaw, listed
securities maintenance standards or other rules of the Trading Market; provided,
however, that the Company shall be permitted to take any action referred to in clause (iii)
above if the Company has timely provided the Investor with an Integration Notice as provided in
Section 5.6(ii) hereof.

7

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE INVESTOR

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

     Section 3.1 Organization and Standing of the Investor. The Investor is an international
business company duly organized, validly existing and in good standing under the laws of the
British Virgin Islands.

     Section 3.2 Authorization and Power. The Investor has the requisite corporate power and
authority to enter into and perform its obligations under this Agreement and to purchase the Shares
in accordance with the terms hereof. The execution, delivery and performance of this Agreement by
the Investor and the consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action, and no further consent or authorization of the
Investor, its Board of Directors or stockholders is required. This Agreement has been duly
executed and delivered by the Investor. This Agreement constitutes a valid and binding obligation
of the Investor enforceable against it in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership, or similar laws relating to, or affecting generally the enforcement
of, creditor’s rights and remedies or by other equitable principles of general application.

     Section 3.3 No Conflicts. The execution, delivery and performance by the Investor of this
Agreement and the consummation by the Investor of the transactions contemplated herein do not and
shall not (i) result in a violation of such Investor’s charter documents, bylaws or other
applicable organizational instruments, (ii) conflict with, constitute a default (or an event which,
with notice or lapse of time or both, would become a default) under, or give rise to any rights of
termination, amendment, acceleration or cancellation of, any material agreement, mortgage, deed of
trust,
indenture, note, bond, license, lease agreement, instrument or obligation to which the Investor is
a party or is bound, (iii) create or impose any lien, charge or encumbrance on any property of the
Investor under any agreement or any commitment to which the Investor is party or under which the
Investor is bound or under which any of its properties or assets are bound, or (iv) result in a
violation of any federal, state, local or foreign statute, rule, or regulation, or any order,
judgment or decree of any court or governmental agency applicable to the Investor or by which any
of its properties or assets are bound or affected, except, in the case of clauses (ii), (iii) and
(iv), for such conflicts, defaults, terminations, amendments, acceleration, cancellations and
violations as would not, individually or in the aggregate, prohibit or otherwise interfere with the
ability of the Investor to enter into and perform its obligations under this Agreement in any
material respect. The Investor is not required under federal, state, local or foreign law, rule or
regulation to obtain any consent, authorization or order of, or make any filing or registration
with, any court or governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or to purchase the Shares in accordance with the terms hereof.

     Section 3.4 Information. The Investor and its advisors have been furnished with all
materials relating to the business, financial condition, management and operations of the Company
and materials relating to the offer and sale of the Shares which have been requested by the
Investor. The Investor and its advisors have been afforded the opportunity to ask questions

8

 

of
representatives of the Company. The Investor has sought such accounting, legal and tax advice as
it has considered necessary to make an informed investment decision with respect to its acquisition
of the Shares. The Investor understands that it (and not the Company) shall be responsible for its
own tax liabilities that may arise as a result of this investment or the transactions contemplated
by this Agreement.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     Except as set forth in the disclosure schedule delivered by the Company to the Investor (which
is hereby incorporated by reference in, and constitutes an integral part of, this Agreement) (the
“Disclosure Schedule”), the Company hereby makes the following representations and
warranties to the Investor:

     Section 4.1 Organization, Good Standing and Power. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of Delaware and has
the requisite corporate power and authority to own, lease and operate its properties and assets and
to conduct its business as it is now being conducted. The Company and each such Subsidiary is duly
qualified as a foreign corporation to do business and is in good standing in every jurisdiction in
which the nature of the business conducted or property owned by it makes such qualification
necessary, except for any jurisdiction in which the failure to be so qualified would not have a
Material Adverse Effect.

     Section 4.2 Authorization, Enforcement. The Company has the requisite corporate power and
authority to enter into and perform this Agreement and to issue and sell the Shares in accordance
with the terms hereof. Except for
approvals of the Company’s Board of Directors or a committee thereof as may be required in
connection with any issuance and sale of Shares to the Investor hereunder (which approvals shall be
obtained prior to the delivery of any Fixed Request Notice), the execution, delivery and
performance by the Company of this Agreement and the consummation by it of the transactions
contemplated hereby have been duly and validly authorized by all necessary corporate action and no
further consent or authorization of the Company or its Board of Directors or stockholders is
required This Agreement has been duly executed and delivered by the Company and constitutes a
valid and binding obligation of the Company enforceable against the Company in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or similar laws relating to,
or affecting generally the enforcement of, creditor’s rights and remedies or by other equitable
principles of general application.

     Section 4.3 Capitalization. The authorized capital stock of the Company and the shares
thereof issued and outstanding as of the Effective Date are as set forth in the 2005 Form 10-K.
All of the outstanding shares of Common Stock have been duly authorized and validly issued, and are
fully paid and nonassessable. Except as set forth in the Commission Documents, as of the Effective
Date, no shares of Common Stock were entitled to preemptive rights or registration rights and there
were no outstanding options, warrants, scrip, rights to subscribe to, call or commitments of any
character whatsoever relating to, or securities or rights convertible into or exchangeable for, any
shares of capital stock of the Company. Except as set forth in the

9

 

Commission Documents, there
were no contracts, commitments, understandings, or arrangements by which the Company is or may
become bound to issue additional shares of the capital stock of the Company or options, securities
or rights convertible into or exchangeable for any shares of capital stock of the Company. Except
for customary transfer restrictions contained in agreements entered into by the Company to sell
restricted securities or as set forth in the Commission Documents, as of the Effective Date, the
Company was not a party to, and it had no knowledge of, any agreement restricting the voting or
transfer of any shares of the capital stock of the Company. Except as set forth in the Commission
Documents, the offer and sale of all capital stock, convertible or exchangeable securities, rights,
warrants or options of the Company issued prior to the Effective Date complied with all applicable
federal and state securities laws, and no stockholder has any right of rescission or damages or any
“put” or similar right with respect thereto which would have a Material Adverse Effect. The
Company has furnished or made available to the Investor true and correct copies of the Company’s
Certificate of Incorporation as in effect on the Effective Date (the “Charter”), and the
Company’s Bylaws as in effect on the Effective Date (the “Bylaws”), and true and correct
copies (redacted as appropriate) of all executed resolutions of the Company’s Board of Directors
(and committees thereof) relating to the capital stock of the Company (and transactions in respect
thereof) since December 31, 2004 (except with respect to issuances of shares of capital stock of
the Company to directors or employees of the Company as fees or compensation that were duly
approved by the Company’s Board of Directors or a committee thereof).

     Section 4.4 Issuance of Shares. The Shares to be issued under this Agreement have been or will be duly authorized by all
necessary corporate action and, when paid for or issued in accordance with the terms hereof, the
Shares shall be validly issued and outstanding, fully paid and nonassessable, and the Investor
shall be entitled to all rights accorded to a holder and beneficial owner of Common Stock.

     Section 4.5 No Conflicts. The execution, delivery and performance by the Company of this
Agreement and the consummation by the Company of the transactions contemplated herein do not and
shall not (i) result in a violation of any provision of the Company’s Charter or Bylaws, (ii)
conflict with, constitute a default (or an event which, with notice or lapse of time or both, would
become a default) under, or give rise to any rights of termination, amendment, acceleration or
cancellation of, any material agreement, mortgage, deed of trust, indenture, note, bond, license,
lease agreement, instrument or obligation to which the Company or any of its Significant
Subsidiaries is a party or is bound (including, without limitation, any listing agreement with the
Trading Market), (iii) create or impose a lien, charge or encumbrance on any property of the
Company or any of its Significant Subsidiaries under any agreement or any commitment to which the
Company or any of its Significant Subsidiaries is a party or under which the Company or any of its
Significant Subsidiaries is bound or under which any of their respective properties or assets are
bound, or (iv) result in a violation of any federal, state, local or foreign statute, rule,
regulation, order, judgment or decree applicable to the Company or any of its Subsidiaries or by
which any property or asset of the Company or any of its Subsidiaries are bound or affected,
except, in the case of clauses (ii), (iii) and (iv), for such conflicts, defaults, terminations,
amendments, acceleration, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect. The Company is not required under federal, state, local
or foreign law, rule or regulation to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in order for it to execute,

10

 

deliver
or perform any of its obligations under this Agreement, or to issue and sell the Shares to the
Investor in accordance with the terms hereof (other than any filings which may be required to be
made by the Company with the Commission, the National Association of Securities Dealers, Inc. (the
“NASD”) or the Trading Market subsequent to the Effective Date, including but not limited
to a Prospectus Supplement under Sections 1.4 and 5.9 of this Agreement, the NASD Filing under
Section 5.1 of this Agreement and any registration statement, prospectus or prospectus supplement
which has been or may be filed pursuant to this Agreement).

     Section 4.6 Commission Documents, Financial Statements. (a) The Common Stock is
registered pursuant to Section 12(b) or 12(g) of the Exchange Act and, except as disclosed in the
Commission Documents, as of the Effective Date the Company had timely filed (giving effect to
permissible extensions in accordance with Rule 12b-25 under the Exchange Act) all Commission
Documents. The Company has delivered or made available to the Investor true and complete copies of
the Commission Documents filed with the Commission prior to the Effective Date (including, without
limitation, the 2005 Form 10-K) and has delivered or made available to the Investor true and
complete copies of all of the Commission Documents heretofore incorporated by reference in the
Registration Statement and the Prospectus. The Company has not provided to the Investor any
information which, according to applicable law, rule or regulation, should have been disclosed
publicly by the Company but which has not been so disclosed, other than with respect to the transactions contemplated by this
Agreement. As of its filing date, each Commission Document filed with the Commission and
incorporated by reference in the Registration Statement and the Prospectus (including, without
limitation, the 2005 Form 10-K) complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as applicable, and other federal, state and local laws, rules
and regulations applicable to it, and, as of its filing date, such Commission Document did not
contain any untrue statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. Each Commission Document to be filed with the
Commission after the Effective Date and incorporated by reference in the Registration Statement,
the Prospectus and any Prospectus Supplement required to be filed pursuant to Sections 1.4 and 5.9
hereof during the Investment Period (including, without limitation, the Current Report), when such
document becomes effective or is filed with the Commission, as the case may be, shall comply in all
material respects with the requirements of the Securities Act or the Exchange Act, as applicable,
and other federal, state and local laws, rules and regulations applicable to it, and shall not
contain any untrue statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.

          (b) The financial statements, together with the related notes and schedules, of the Company
included in the Commission Documents comply as to form in all material respects with all applicable
accounting requirements and the published rules and regulations of the Commission and all other
applicable rules and regulations with respect thereto. Such financial statements, together with
the related notes and schedules, have been prepared in accordance with GAAP applied on a consistent
basis during the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim statements, to the extent
they may not include footnotes or may be condensed or summary statements), and fairly present in
all material respects the financial condition of the Company and

11

 

its consolidated Subsidiaries as
of the dates thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit adjustments).

          (c) The Company has timely filed with the Commission and made available to the Investor all
certifications and statements required by (x) Rule 13a-14 or Rule 15d-14 under the Exchange Act or
(y) 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002 (“SOXA”)) with
respect to all relevant Commission Documents. The Company is in compliance in all material
respects with the provisions of SOXA applicable to it as of the date hereof. The Company maintains
disclosure controls and procedures required by Rule 13a-15 or Rule 15d-15 under the Exchange Act;
such controls and procedures are effective to ensure that all material information concerning the
Company and its Subsidiaries is made known on a timely basis to the individuals responsible for the
timely and accurate preparation of the Company’s Commission filings and other public disclosure
documents. As used in this Section 4.6(c), the term “file” shall be broadly construed to include
any manner in which a document or information is furnished, supplied or otherwise made available to
the Commission.

          (d) PricewaterhouseCoopers LLP, who have expressed their opinions on the audited financial
statements and related schedules included or incorporated by reference in the
Registration Statement and the Base Prospectus is, with respect to the Company, an independent
registered public accounting firm as required by the rules of the Public Company Accounting
Oversight Board.

     Section 4.7 Subsidiaries. The 2005 Form 10-K sets forth each Subsidiary of the Company as
of the Effective Date, showing its jurisdiction of incorporation or organization and the percentage
of the Company’s ownership of the outstanding capital stock or other ownership interests of such
Subsidiary, and the Company does not have any other Subsidiaries as of the Effective Date.

     Section 4.8 No Material Adverse Effect. Since March 31, 2006 the Company has not
experienced or suffered any Material Adverse Effect, and there exists no current state of facts,
condition or event which would have a Material Adverse Effect, except (i) as disclosed in any
Commission Documents filed since May 9, 2006 or (ii) continued losses from operations.

     Section 4.9 Indebtedness. The Company’s Quarterly Report on Form 10-Q for its fiscal
quarter ended March 31, 2006 sets forth, as of March 31, 2006, all outstanding secured and
unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary
has commitments through such date. For the purposes of this Agreement, “Indebtedness”
shall mean (a) any liabilities for borrowed money or amounts owed in excess of $10,000,000 (other
than trade accounts payable incurred in the ordinary course of business), (b) all guaranties,
endorsements, indemnities and other contingent obligations in respect of Indebtedness of others in
excess of $10,000,000, whether or not the same are or should be reflected in the Company’s balance
sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary course of business; and (c) the
present value of any lease payments in excess of $10,000,000 due under leases required to be
capitalized in accordance with GAAP. There is no

12

 

existing or continuing default or event of
default in respect of any Indebtedness of the Company or any of its Subsidiaries.

     Section 4.10 Title To Assets. Each of the Company and its Subsidiaries has good and
marketable title to all of their respective real and personal property reflected in the Commission
Documents, free of mortgages, pledges, charges, liens, security interests or other encumbrances,
except for those indicated in the Commission Documents or those that would not have a Material
Adverse Effect. All real property leases of the Company are valid and subsisting and in full force
and effect in all material respects.

     Section 4.11 Actions Pending. There is no action, suit, claim, investigation or proceeding
pending, or to the knowledge of the Company threatened, against the Company or any Subsidiary which
questions the validity of this Agreement or the transactions contemplated hereby or any action
taken or to be taken pursuant
hereto or thereto. Except as set forth in the Commission Documents, there is no action, suit,
claim, investigation or proceeding pending, or to the knowledge of the Company threatened, against
or involving the Company, any Subsidiary or any of their respective properties or assets, or
involving any officers or directors of the Company or any of its Subsidiaries, including, without
limitation, any securities class action lawsuit or stockholder derivative lawsuit, in each case
which, if determined adversely to the Company, its Subsidiary or any officer or director of the
Company or its Subsidiaries, would have a Material Adverse Effect.

     Section 4.12 Compliance With Law. The business of the Company and the Subsidiaries has
been and is presently being conducted in compliance with all applicable federal, state, local and
foreign governmental laws, rules, regulations and ordinances, except as set forth in the Commission
Documents and except for such non-compliance which, individually or in the aggregate, would not
have a Material Adverse Effect.

     Section 4.13 Certain Fees. Except for the placement fee payable by the Company to Reedland
Capital Partners, an Institutional Division of the Financial West Group, Member NASD/SIPC
(“Reedland”), which shall be set forth in a separate placement agency agreement between the
Company and Reedland (a true and complete fully executed copy of which has heretofore been provided
to the Investor), no brokers, finders or financial advisory fees or commissions shall be payable by
the Company or any Subsidiary with respect to the transactions contemplated by this Agreement.
Except as set forth in this Section 4.13 or as disclosed in Section 4.13 of the Disclosure Schedule
or in the Registration Statement, the Prospectus or the Current Report, there are no contracts,
agreements or understandings between the Company and any person that would give rise to a valid
claim against the Company, the Investor or the Broker-Dealer for a brokerage commission, finder’s
fee or other like payment in connection with the transactions contemplated by this Agreement or, to
the Company’s knowledge, any arrangements, agreements, understandings, payments or issuance with
respect to the Company or any of its officers, directors, stockholders, partners, employees,
Subsidiaries or affiliates that may affect the NASD’s determination of the amount of compensation
to be received by any NASD member (including, without limitation, those NASD members set forth on
Schedule 4.13 of the Disclosure Schedule) or person associated with any NASD member in connection
with the transactions contemplated by this Agreement. Except as set forth in this Section 4.13 or
as disclosed in Section 4.13 of the Disclosure Schedule or in the Registration Statement, the

13

 

Prospectus or the Current Report, no “items of value” (within the meaning of Rule 2710 of the
NASD’s Conduct Rules) have been received, and no arrangements have been entered into for the future
receipt of any items of value, from the Company or any of its officers, directors, stockholders,
partners, employees, Subsidiaries or affiliates by any NASD member (including, without limitation,
those NASD members set forth on Schedule 4.13 of the Disclosure Schedule) or person associated with
any NASD member, during the period commencing 180 days immediately preceding the Effective Date and
ending on the date this Agreement is terminated in accordance with Article VII, that may affect the
NASD’s determination of the amount of compensation to be received by any NASD member or person
associated with any NASD member in connection with the transactions contemplated by this Agreement.
The Company hereby acknowledges and agrees that the Investor may rely on the
representations and warranties contained in this Section 4.13 and elsewhere in this Agreement in
connection with its preparation of the NASD Filing.

     Section 4.14 Operation of Business. (a) The Company or one or more of its Subsidiaries
possesses such permits, licenses, approvals, consents and other authorizations (including licenses,
accreditation and other similar documentation or approvals of any local health departments)
(collectively, “Governmental Licenses”) issued by the appropriate federal, state, local or
foreign regulatory agencies or bodies, including, without limitation, the United States Food and
Drug Administration (“FDA”), necessary to conduct the business now operated by it, except
where the failure to possess such Governmental Licenses, individually or in the aggregate, would
not have a Material Adverse Effect. The Company and its Subsidiaries are in compliance with the
terms and conditions of all such Governmental Licenses and all applicable FDA rules and
regulations, guidelines and policies, and all applicable rules and regulations, guidelines and
policies of any governmental authority exercising authority comparable to that of the FDA
(including any non-governmental authority whose approval or authorization is required under foreign
law comparable to that administered by the FDA), except where the failure to so comply,
individually or in the aggregate, would not have a Material Adverse Effect. All of the
Governmental Licenses are valid and in full force and effect, except where the invalidity of such
Governmental Licenses or the failure of such Governmental Licenses to be in full force and effect,
individually or in the aggregate, would not have a Material Adverse Effect. As to each product
that is subject to FDA regulation or similar legal provisions in any foreign jurisdiction that is
developed, manufactured, tested, packaged, labeled, marketed, sold, distributed and/or
commercialized by the Company or any of its Subsidiaries, each such product is being developed,
manufactured, tested, packaged, labeled, marketed, sold, distributed and/or commercialized in
compliance with all applicable requirements of the FDA (and any non-governmental authority whose
approval or authorization is required under foreign law comparable to that administered by the
FDA), including, but not limited to, those relating to investigational use, investigational device
exemption, premarket notification, premarket approval, good clinical practices, good manufacturing
practices, record keeping, filing of reports, and patient privacy and medical record security,
except where such non-compliance, individually or in the aggregate, would not have a Material
Adverse Effect. As to each product or product candidate of the Company or any of its Subsidiaries
subject to FDA regulation or similar legal provision in any foreign jurisdiction, all manufacturing
facilities of the Company and its Subsidiaries are operated in compliance with the FDA’s Quality
System Regulation requirements at 21 C.F.R. Part 820, as applicable, except where such
non-compliance, individually or in the aggregate, would not have a Material Adverse Effect. Except
as set forth in the Commission

14

 

Documents or the Registration Statement, neither the Company nor any
of its Subsidiaries has received any notice of proceedings relating to the revocation or
modification of any such Governmental Licenses or relating to a potential violation of, failure to
comply with, or request to produce additional information under, any FDA rules and regulations,
guidelines or policies which, if the subject of any unfavorable decision, ruling or finding,
individually or in the aggregate, would have a Material Adverse Effect. Except as set forth in the
Commission Documents or the Registration Statement, neither the Company nor any of its Subsidiaries
has received any correspondence, notice or request from the FDA, including, without limitation,
notice that any one or more products or product candidates of the Company or any of its
Subsidiaries failed to receive approval from the FDA for use for any one or more
indications, which correspondence, notice or request would have a Material Adverse Effect, and
neither the Company nor any of its Subsidiaries knows of any basis therefor. This Section 4.14
does not relate to environmental matters, such items being the subject of Section 4.15.

          (b) The Company or one or more of its Subsidiaries owns or possesses adequate patents, patent
rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or procedures), trademarks,
service marks, trade names, trade dress, logos, copyrights and other intellectual property,
including, without limitation, all of the intellectual property described in the Commission
Documents as being owned or licensed by the Company (collectively, “Intellectual
Property”), necessary to carry on the business now operated by it. Except as set forth in the
Commission Documents, there are no actions, suits or judicial proceedings pending, or to the
Company’s knowledge threatened, relating to patents or proprietary information to which the Company
or any of its Subsidiaries is a party or of which any property of the Company or any of its
Subsidiaries is subject, and neither the Company nor any of its Subsidiaries has received any
notice or is otherwise aware of any infringement of or conflict with asserted rights of others with
respect to any Intellectual Property or of any facts or circumstances which could render any
Intellectual Property invalid or inadequate to protect the interest of the Company and its
Subsidiaries therein, and which infringement or conflict (if the subject of any unfavorable
decision, ruling or finding) or invalidity or inadequacy, individually or in the aggregate, would
have a Material Adverse Effect.

          (c) All pre-clinical and clinical trials conducted by the Company or any of its Subsidiaries
or in which the Company or any of its Subsidiaries has participated that are described in the
Registration Statement or the Commission Documents, or the results of which are referred to in the
Registration Statement or the Commission Documents, if any, are the only pre-clinical and clinical
trials currently being conducted by or on behalf of the Company and its Subsidiaries. All such
pre-clinical and clinical trials conducted, supervised or monitored by the Company or any of its
Subsidiaries have been conducted in compliance with all applicable federal, state, local and
foreign laws, and the regulations and requirements of any applicable governmental entity,
including, but not limited to, FDA good clinical practice and good laboratory practice
requirements, except where such non-compliance would not have a Material Adverse Effect. Except as
set forth in the Registration Statement or the Commission Documents, neither the Company nor any of
its Subsidiaries has received any notices or correspondence from the FDA or any other governmental
agency requiring the termination, suspension, delay or modification of any pre-clinical or clinical
trials conducted by, or on behalf of, the Company or any of its Subsidiaries or in which the
Company or any of its Subsidiaries has participated that

15

 

are described in the Registration
Statement or the Commission Documents, if any, or the results of which are referred to in the
Registration Statement or the Commission Documents. All pre-clinical and clinical trials
previously conducted by or on behalf of the Company or any of its Subsidiaries while conducted by
or on behalf of the Company or any of its Subsidiaries, were conducted in compliance with all
applicable federal, state, local and foreign laws, and the regulations and requirements of any
applicable governmental entity, including, but not limited to, FDA good clinical practice and good
laboratory practice requirements.

     Section 4.15 Environmental Compliance. Except as disclosed in the Commission Documents, the Company and each of its Subsidiaries have
obtained all material approvals, authorization, certificates, consents, licenses, orders and
permits or other similar authorizations of all governmental authorities, or from any other person,
that are required under any Environmental Laws, except for any approvals, authorization,
certificates, consents, licenses, orders and permits or other similar authorizations the failure of
which to obtain does not or would not have a Material Adverse Effect. “Environmental Laws”
shall mean all applicable laws relating to the protection of the environment including, without
limitation, all requirements pertaining to reporting, licensing, permitting, controlling,
investigating or remediating emissions, discharges, releases or threatened releases of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances, materials or wastes,
whether solid, liquid or gaseous in nature, into the air, surface water, groundwater or land, or
relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport
or handling of hazardous substances, chemical substances, pollutants, contaminants or toxic
substances, material or wastes, whether solid, liquid or gaseous in nature. Except for such
instances as would not, individually or in the aggregate, have a Material Adverse Effect, to the
best of the Company’s knowledge, there are no past or present events, conditions, circumstances,
incidents, actions or omissions relating to or in any way affecting the Company or its Subsidiaries
that violate or could reasonably be expected to violate any Environmental Law after the Effective
Date or that could reasonably be expected to give rise to any environmental liability, or otherwise
form the basis of any claim, action, demand, suit, proceeding, hearing, study or investigation (i)
under any Environmental Law, or (ii) based on or related to the manufacture, processing,
distribution, use, treatment, storage (including without limitation underground storage tanks),
disposal, transport or handling, or the emission, discharge, release or threatened release of any
hazardous substance.

     Section 4.16 Material Agreements. Except as set forth in the Commission Documents, neither
the Company nor any Subsidiary of the Company is a party to any written or oral contract,
instrument, agreement commitment, obligation, plan or arrangement, a copy of which would be
required to be filed with the Commission as an exhibit to an annual report on Form 10-K
(collectively, “Material Agreements”). The Company and each of its Subsidiaries have
performed in all material respects all the obligations required to be performed by them under the
Material Agreements, have received no notice of default or an event of default by the Company or
any of its Subsidiaries thereunder and are not aware of any basis for the assertion thereof, and
neither the Company or any of its Subsidiaries nor, to the best knowledge of the Company, any other
contracting party thereto are in default under any Material Agreement now in effect, the result of
which would have a Material Adverse Effect. Each of the Material Agreements is in full force and
effect, and constitutes a legal, valid and binding obligation enforceable in accordance with its
terms against the Company and/or any of its Subsidiaries and, to the best knowledge of the Company,
each other contracting party thereto, except as such

16

 

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

     Section 4.17 Transactions With Affiliates. Except as set forth in the Commission Documents, there are no loans, leases, agreements,
contracts, royalty agreements, management contracts, service arrangements or other continuing
transactions exceeding $120,000 between (a) the Company or any Subsidiary, on the one hand, and (b)
any person or entity who would be covered by Item 404(a) of Regulation S-K, on the other hand.
Except as disclosed in the Commission Documents, there are no outstanding amounts payable to or
receivable from, or advances by the Company or any of its Subsidiaries to, and neither the Company
nor any of its Subsidiaries is otherwise a creditor of or debtor to, any beneficial owner of more
than 5% of the outstanding shares of Common Stock, or any director, employee or affiliate of the
Company or any of its Subsidiaries, other than (i) reimbursement for reasonable expenses incurred
on behalf of the Company or any of its Subsidiaries or (ii) as part of the normal and customary
terms of such persons’ employment or service as a director with the Company or any of its
Subsidiaries.

     Section 4.18 Securities Act. The Company has complied with all applicable federal and
state securities laws in connection with the offer, issuance and sale of the Shares hereunder.

          (i) The Company has prepared and filed with the Commission in accordance with the provisions
of the Securities Act the Registration Statement, including the Base Prospectus, relating to the
Shares. The Registration Statement was declared effective by order of the Commission on February
18, 2004. As of the date hereof, no stop order suspending the effectiveness of the Registration
Statement has been issued by the Commission or is continuing in effect under the Securities Act and
no proceedings therefor are pending before or, to the Company’s knowledge, threatened by the
Commission. No order preventing or suspending the use of the Prospectus or any Permitted Free
Writing Prospectus has been issued by the Commission.

          (ii) The Company meets the requirements for the use of Form S-3 under the Securities Act. The
Company has not received any notice from the Commission of any objection to the use of the form of
the Registration Statement. The Registration Statement complied in all material respects on the
date on which it was declared effective by the Commission and on the Effective Date of this
Agreement, and will comply in all material respects on each applicable Fixed Request Exercise Date
and on each applicable Settlement Date, with the requirements of the Securities Act and the
Registration Statement (including the documents incorporated by reference therein) did not as of
the Effective Date and shall not on each applicable Fixed Request Exercise Date and on each
applicable Settlement Date contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements therein, in the
case of the Prospectus, in light of the circumstances under which they were made, not misleading;
provided that this representation and warranty does not apply to statements in or omissions
from the Registration Statement made in reliance upon and in conformity with information relating
to the Investor furnished to the Company in writing by or on behalf of the Investor expressly for
use therein. The Registration Statement, as of the Effective Date, meets the requirements set forth
in Rule 415(a)(1)(x) under the Securities Act.

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The Base Prospectus complied in all material
respects on its date and on the Effective Date, and will comply in all material respects on each
applicable Fixed Request Exercise Date and on each applicable Settlement Date, with the
requirements of the Securities Act and did not as of the
Effective Date and shall not on each applicable Fixed Request Exercise Date and on each
applicable Settlement Date contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading; provided that this
representation and warranty does not apply to statements in or omissions from the Base Prospectus
made in reliance upon and in conformity with information relating to the Investor furnished to the
Company in writing by or on behalf of the Investor expressly for use therein.

          (iii) Each Prospectus Supplement required to be filed pursuant to Sections 1.4 and 5.9 hereof,
when filed with the Commission under Rule 424(b) under the Securities Act and on the applicable
Settlement Date, shall comply in all material respects with the provisions of the Securities Act
and shall not when filed or on the Settlement Date contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they are made, not misleading, except that
this representation and warranty does not apply to statements in or omissions from any Prospectus
Supplement made in reliance upon and in conformity with information relating to the Investor or
Reedland furnished to the Company in writing by or on behalf of the Investor or Reedland expressly
for use therein.

          (iv) At the earliest time after the filing of the Registration Statement that the Company or
another offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) under the
Securities Act) relating to the Shares, the Company was not and is not an Ineligible Issuer (as
defined in Rule 405 under the Securities Act), without taking account of any determination by the
Commission pursuant to Rule 405 that it is not necessary that the Company be considered an
Ineligible Issuer. Each Issuer Free Writing Prospectus (a) shall conform in all material respects
to the requirements of the Securities Act on the date of its first use, (b) when considered
together with the Prospectus on each applicable Fixed Request Exercise Date and on each applicable
Settlement Date, shall not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements therein, in the
light of the circumstances under which they are made, not misleading, and (c) shall not include any
information that conflicts with the information contained in the Registration Statement, including
any document incorporated by reference therein and any Prospectus Supplement deemed to be a part
thereof that has not been superseded or modified. The immediately preceding sentence does not
apply to statements in or omissions from any Issuer Free Writing Prospectus made in reliance upon
and in conformity with information relating to the Investor or Reedland furnished to the Company in
writing by or on behalf of the Investor or Reedland expressly for use therein.

          (v) Prior to the Effective Date, the Company has not distributed any offering material in
connection with the offering and sale of the Shares. From and after the Effective Date and prior
to the completion of the distribution of the Shares, the Company shall not distribute any offering
material in connection with the offering and sale of the Shares, other than the Registration
Statement, the Base Prospectus as supplemented by any Prospectus Supplement or any Permitted Free
Writing Prospectus.

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     Section 4.19 Employees. As of the Effective Date, neither the Company nor any Subsidiary of the Company has any
collective bargaining arrangements or agreements covering any of its employees, except as set forth
in the Commission Documents. As of the Effective Date, except as disclosed in the Registration
Statement or the Commission Documents, no officer, consultant or key employee of the Company or any
Subsidiary whose termination, either individually or in the aggregate, would reasonably be expected
to have a Material Adverse Effect, has terminated or, to the knowledge of the Company, has any
present intention of terminating his or her employment or engagement with the Company or any
Subsidiary.

     Section 4.20 Use of Proceeds. The proceeds from the sale of the Shares shall be used by
the Company and its Subsidiaries as set forth in the Base Prospectus and any Prospectus Supplement
filed pursuant to Sections 1.4 and 5.9.

     Section 4.21 Public Utility Holding Company Act and Investment Company Act Status. The
Company is not a “holding company” or a “public utility company” as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended. The Company is not, and as a result of the
consummation of the transactions contemplated by this Agreement and the application of the proceeds
from the sale of the Shares as set forth in the Base Prospectus and any Prospectus Supplement shall
not be, an “investment company” or a company “controlled” by an “investment company,” within the
meaning of the Investment Company Act of 1940, as amended.

     Section 4.22 ERISA. No liability to the Pension Benefit Guaranty Corporation has been
incurred with respect to any Plan by the Company or any of its Subsidiaries which has had or would
have a Material Adverse Effect. No “prohibited transaction” (as defined in Section 406 of ERISA or
Section 4975 of the Code) or “accumulated funding deficiency” (as defined in Section 203 of ERISA)
or any of the events set forth in Section 4043(b) of ERISA has occurred with respect to any Plan
which has had or would have a Material Adverse Effect, and the execution and delivery of this
Agreement and the issuance and sale of the Shares hereunder shall not result in any of the
foregoing events. Each Plan is in compliance in all material respects with applicable law,
including ERISA and the Code; the Company has not incurred and does not expect to incur liability
under Title IV of ERISA with respect to the termination of, or withdrawal from, any Plan; and each
Plan for which the Company would have any liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by
action or failure to act, which would cause the loss of such qualifications. As used in this
Section 4.22, the term “Plan” shall mean an “employee pension benefit plan” (as
defined in Section 3 of ERISA) which is or has been established or maintained, or to which
contributions are or have been made, by the Company or any Subsidiary or by any trade or business,
whether or not incorporated, which, together with the Company or any Subsidiary, is under common
control, as described in Section 414(b) or (c) of the Code.

     Section 4.23 Taxes. The Company (i) has filed all necessary federal, state and foreign
income and franchise tax returns or has duly requested extensions thereof, except for those the
failure of which to file would not have a Material Adverse Effect, (ii) has paid all federal,
state, local and foreign taxes due and payable for which it is liable, except to the extent that
any such taxes are being contested in good faith and by appropriate proceedings, except for such
taxes the

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failure of which to pay would not have a Material Adverse Effect, and (iii) does not have
any tax deficiency or claims outstanding or assessed or, to the best of the Company’s knowledge,
proposed against it which would have a Material Adverse Effect.

     Section 4.24 Insurance. The Company carries, or is covered by, insurance in such amounts
and covering such risks as is adequate for the conduct of its and its Subsidiaries’ businesses and
the value of their respective properties and as is customary for companies engaged in similar
businesses in similar industries.

     Section 4.25 Acknowledgement Regarding Investor’s Purchase of Shares. The Company
acknowledges and agrees that the Investor is acting solely in the capacity of an arm’s length
purchaser with respect to this Agreement and the transactions contemplated hereunder. The Company
further acknowledges that the Investor is not acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to this Agreement and the transactions
contemplated hereunder, and any advice given by the Investor or any of its representatives or
agents in connection with this Agreement and the transactions contemplated hereunder is merely
incidental to the Investor’s purchase of the Shares.

ARTICLE V

COVENANTS

     The Company covenants with the Investor, and the Investor covenants with the Company, as
follows, which covenants of one party are for the benefit of the other party, during the Investment
Period:

     Section 5.1 Securities Compliance; NASD Filing.

          (i) The Company shall notify the Commission and the Trading Market, as applicable, in
accordance with their respective rules and regulations, of the transactions contemplated by this
Agreement, and shall take all necessary action, undertake all proceedings and obtain all
registrations, permits, consents and approvals for the legal and valid issuance of the Shares to
the Investor in accordance with the terms of this Agreement.

          (ii) As promptly as practicable, the Investor shall prepare and, no later than 24 hours after
the Effective Date, file with the NASD’s Corporate Financing Department via CobraDesk all documents
and information required to be filed with the NASD pursuant to Rule 2710 of the NASD’s Conduct
Rules with regard to the transactions contemplated by this
Agreement (the “NASD Filing”). In connection therewith, on the Effective Date, the
Company shall pay to the NASD by wire transfer of immediately available funds the applicable filing
fee with respect to the NASD Filing, and the Company shall be solely responsible for payment of
such fee. The Company hereby agrees to provide the Investor all requisite information and
otherwise to assist the Investor in a timely fashion in order for the Investor to complete the
preparation and submission of the NASD Filing in accordance with this Section 5.1(ii) and to
promptly respond to any inquiries or requests from NASD or its staff. Each party hereto shall (A)
promptly notify the other party of any communication to that party or its affiliates from the NASD,
including, without limitation, any request from the NASD or its staff for amendments or supplements
to or additional information in respect of the NASD Filing and permit the other

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party to review in
advance any proposed written communication to the NASD and (B) furnish the other party with copies
of all written correspondence, filings and communications between them and their affiliates and
their respective representatives and advisors, on the one hand, and the NASD or members of its
staff, on the other hand, with respect to this Agreement or the transactions contemplated hereby.
Each of the parties hereto agrees to use its commercially reasonable efforts to take, or cause to
be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other
party in doing, all things necessary, proper or advisable to obtain as promptly as practicable (but
in no event later than 60 days after the Effective Date) written confirmation from the NASD to the
effect that the NASD’s Corporate Financing Department has determined not to raise any objection
with respect to the fairness and reasonableness of the terms of this Agreement or the transactions
contemplated hereby; provided, however, that the Investor shall not be required to
(x) disclose to the NASD or to any other governmental agency, person or entity any business,
financial or other information that the Investor deems, in its sole and absolute discretion, to be
proprietary, confidential or otherwise sensitive information, (y) amend, modify or change any of
the terms or conditions of this Agreement or (z) otherwise take any other action, including,
without limitation, modifying the Discount Price thresholds referred to in Section 2.2 or the
amount of fees and commissions to be paid to the Broker-Dealer in connection with the transactions
contemplated by this Agreement, in each case, in such a manner that would, in the Investor’s sole
and absolute discretion, render the terms and conditions of this Agreement and the transactions
contemplated hereby to be no longer advisable to the Investor. Notwithstanding anything to the
contrary contained in this Agreement, the Company shall not be permitted to deliver any Fixed
Request Notice to the Investor, and the Investor shall not be obligated to purchase any Shares
pursuant to a Fixed Request Notice, unless and until the parties hereto shall have received written
confirmation from the NASD to the effect that the NASD’s Corporate Financing Department has
determined not to raise any objection with respect to the fairness and reasonableness of the terms
of this Agreement or the transactions contemplated hereby.

     Section 5.2 Registration and Listing. The Company shall take all action necessary to cause
the Common Stock to continue to be registered as a class of securities under Sections 12(b) or
12(g) of the Exchange Act, shall comply with its reporting and filing obligations under the
Exchange Act, and shall not take any action or file any document (whether or not permitted by the
Securities Act) to terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under the Exchange Act or Securities Act, except as permitted herein. The
Company shall take all action necessary to continue the listing and trading of its Common Stock and
the listing of the Shares
purchased by Investor hereunder on the Trading Market, and shall comply with the Company’s
reporting, filing and other obligations under the bylaws, listed securities maintenance standards
and other rules of the Trading Market.

     Section 5.3 Compliance with Laws.

          (i) The Company shall comply, and cause each Subsidiary to comply, (a) with all laws, rules,
regulations and orders applicable to the business and operations of the Company and its
Subsidiaries except as would not have a Material Adverse Effect and (b) with all applicable
provisions of the Securities Act, the Exchange Act, the rules and regulations of the NASD and the
listing standards of the Trading Market. Without limiting the generality of the foregoing, neither
the Company nor any of its officers, directors or affiliates has taken or will

21

 

take, directly or
indirectly, any action designed or intended to stabilize or manipulate the price of any security of
the Company, or which caused or resulted in, or which would in the future reasonably be expected to
cause or result in, stabilization or manipulation of the price of any security of the Company.

          (ii) The Investor shall comply with all laws, rules, regulations and orders applicable to the
performance by it of its obligations under this Agreement and its investment in the Shares, except
as would not, individually or in the aggregate, prohibit or otherwise interfere with the ability of
the Investor to enter into and perform its obligations under this Agreement in any material
respect. Without limiting the foregoing, the Investor shall comply with all applicable provisions
of the Securities Act and the Exchange Act.

     Section 5.4 Keeping of Records and Books of Account; Foreign Corrupt Practices Act.

          (i) The Company shall keep and cause each Subsidiary to keep adequate records and books of
account, in which complete entries shall be made in accordance with GAAP consistently applied,
reflecting all financial transactions of the Company and its Subsidiaries, and in which, for each
fiscal year, all proper reserves for depreciation, depletion, obsolescence, amortization, taxes,
bad debts and other purposes in connection with its business shall be made. The Company shall
maintain a system of internal accounting controls which are sufficient to provide reasonable
assurance that (a) transactions are executed with management’s authorization; (b) transactions are
recorded as necessary to permit preparation of the consolidated financial statements of the Company
and to maintain accountability for the Company’s consolidated assets; (c) access to the Company’s
assets is permitted only in accordance with management’s authorization; and (d) the reporting of
the Company’s assets is compared with existing assets at regular intervals.

          (ii) Neither the Company, nor any of its Subsidiaries, nor to the knowledge of the Company,
any of their respective directors, officers, agents, employees or any other persons acting on their
behalf shall, in connection with the operation of their respective businesses, (a) use any
corporate funds for unlawful contributions, payments, gifts or entertainment or to make any
unlawful expenditures relating to political activity to government officials, candidates or
members of political parties or organizations, (b) pay, accept or receive any unlawful
contributions, payments, expenditures or gifts, or (c) violate or operate in noncompliance with any
export restrictions, anti-boycott regulations, embargo regulations or other applicable domestic or
foreign laws and regulations.

          (iii) From time to time from and after the period beginning with the third Trading Day
immediately preceding each Fixed Request Exercise Date through and including the applicable
Settlement Date, the Company shall make available for inspection and review by the Investor,
customary documentation allowing the Investor and/or its appointed counsel or advisors to conduct
due diligence.

     Section 5.5 Limitations on Holdings and Issuances. At no time during the term of this
Agreement shall the Investor directly or indirectly own more than 9.9% of the then issued and
outstanding shares of Common Stock. The Company shall not be obligated to issue and the

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Investor
shall not be obligated to purchase any shares of Common Stock which would result in the issuance
under this Agreement to the Investor at any time of Shares which, when aggregated with all other
shares of Common Stock then owned beneficially by the Investor, would result in the beneficial
ownership by the Investor of more than 9.9% of the then issued and outstanding shares of the Common
Stock.

     Section 5.6 Other Agreements and Other Financings.

          (i) The Company shall not enter into, announce or recommend to its stockholders any agreement,
plan, arrangement or transaction in or of which the terms thereof would restrict, materially delay,
conflict with or impair the ability or right of the Company or any Subsidiary to perform its
obligations under this Agreement, including, without limitation, the obligation of the Company to
deliver Shares to the Investor in respect of a Fixed Request on the applicable Settlement Date.

          (ii) The Company shall notify the Investor, within 48 hours, if it enters into any agreement,
plan, arrangement or transaction with a third party, the principal purpose of which is to obtain
during a Pricing Period an Other Financing not constituting an Acceptable Financing (an “Other
Financing Notice”); provided, however, that the Company shall notify the
Investor immediately (an “Integration Notice”) if it enters into any agreement, plan,
arrangement or transaction with a third party, the principal purpose of which is to obtain an Other
Financing which would be integrated with the transactions contemplated by this Agreement for
purposes of determining whether approval of the Company’s stockholders is required under any bylaw,
listed securities maintenance standards or other rules of the Trading Market and, if required under
applicable law, including, without limitation, Regulation FD promulgated by the Commission, or
under the applicable rules and regulations of the Trading Market, the Company shall simultaneously
publicly disclose such information in accordance with Regulation FD and the applicable rules and
regulations of the Trading Market. For purposes of this Section 5.6(ii), any press release issued
by, or Commission Document filed by, the Company shall constitute sufficient notice, provided that
it is issued or filed, as the case may be, within the time requirements set forth in the first
sentence of this Section 5.6(ii) for an Other Financing Notice or an Integration Notice, as
applicable. During any Pricing Period in which the Company is
required to provide notice pursuant to the first sentence of this Section 5.6(ii), the
Investor shall (i) have the option to purchase the Shares subject to the Fixed Request at (x) the
price therefor in accordance with the terms of this Agreement or (y) the third party’s price in
connection with the Other Financing, net of such third party’s discounts, Warrant Value and fees,
or (ii) the Investor may elect to not purchase any Shares subject to the Fixed Request for that
Pricing Period. An “Other Financing” shall mean (x) the issuance of Common Stock or
securities convertible into or exchangeable for Common Stock at a net discount (after all fees,
discounts, Warrant Value and commissions associated with the transaction) to the then Current
Market Price of the Common Stock; (y) the implementation by the Company of any mechanism in respect
of any securities convertible into or exchangeable for Common Stock for the reset of the purchase
price of the Common Stock to below the then Current Market Price of the Common Stock (including,
without limitation, any antidilution or similar adjustment provisions in respect of any Company
securities); or (z) the issuance of options, warrants or similar rights of subscription in each
case not constituting an Acceptable Financing. “Acceptable Financing” shall mean the
issuance by the Company of shares of Common Stock or securities convertible into or exchangeable
for

23

 

Common Stock in connection with awards under the Company’s benefit and equity plans and
arrangements and the issuance of shares of Common Stock upon the conversion, exercise or exchange
thereof, shares of Common Stock issuable upon the conversion or exchange of equity awards or
convertible or exchangeable securities outstanding as of the Effective Date, shares of Common Stock
and/or warrants or similar rights to subscribe for the purchase of shares of Common Stock in
connection with asset or other acquisition, technology sharing, licensing, research and joint
development agreements (or amendments thereto) with third parties, and the issuance of shares of
Common Stock upon the exercise thereof, and warrants or similar rights to subscribe for the
purchase of shares of Common Stock issued in connection with equipment financings and/or real
property leases (or amendments thereto) and the issuance of shares of Common Stock upon the
exercise thereof.

     Section 5.7 Stop Orders. The Company shall advise the Investor immediately and shall
confirm such advice in writing: (i) of the Company’s receipt of notice of any request by the
Commission for amendment of or a supplement to the Registration Statement, the Prospectus, any
Permitted Free Writing Prospectus or for any additional information; (ii) of the Company’s receipt
of notice of the issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the suspension of qualification of the Shares for offering or sale in
any jurisdiction or the initiation of any proceeding for such purpose; and (iii) of the Company
becoming aware of the happening of any event, which makes any statement of a material fact made in
the Prospectus or any Permitted Free Writing Prospectus untrue or which requires the making of any
additions to or changes to the statements then made in the Prospectus or any Permitted Free Writing
Prospectus in order to state a material fact required by the Securities Act to be stated therein or
necessary in order to make the statements then made therein, in light of the circumstances under
which they were made, not misleading, or of the necessity to amend the Registration Statement or
supplement the Prospectus or any Permitted Free Writing Prospectus to comply with the Securities
Act or any other law. If at any time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, the Company shall use commercially reasonable efforts
to obtain the withdrawal of such order at the earliest possible time. The Company shall also advise
the Investor immediately and shall confirm such advice in
writing of the Company becoming aware of the happening of any event, which makes any statement
made in the NASD Filing untrue or which requires the making of any additions to or changes to the
statements then made in the NASD Filing in order to comply with Rule 2710 of the NASD’s Conduct
Rules.

     Section 5.8 Amendments to the Registration Statement; Prospectus Supplements; Free Writing
Prospectuses.

          (i) Except as provided in this Agreement and other than periodic reports required to be filed
pursuant to the Exchange Act, the Company shall not file with the Commission any amendment to the
Registration Statement that relates to the Investor, the Agreement or the transactions contemplated
hereby or file with the Commission any Prospectus Supplement that relates to the Investor, this
Agreement or the transactions contemplated hereby with respect to which (a) the Investor shall not
previously have been advised, (b) the Company shall not have given due consideration to any
comments thereon received from the Investor or its counsel, or (c) the Investor shall reasonably
object after being so advised, unless it is necessary to amend the Registration Statement or make
any supplement to the Prospectus to comply with

24

 

the Securities Act or any other applicable law or
regulation, in which case the Company shall immediately so inform the Investor, the Investor shall
be provided with a reasonable opportunity to review and comment upon any disclosure relating to the
Investor and the Company shall expeditiously furnish to the Investor an electronic copy thereof. In
addition, for so long as, in the reasonable opinion of counsel for the Investor, the Prospectus (or
in lieu thereof, the notice referred to in Rule 173(a) under the Securities Act) is required to be
delivered in connection with any purchase of Shares by the Investor, the Company shall not file any
Prospectus Supplement with respect to the Shares without delivering or making available a copy of
such Prospectus Supplement, together with the Base Prospectus, to the Investor promptly.

          (ii) The Company agrees that, unless it obtains the prior written consent of the Investor, it
has not made and will not make an offer relating to the Shares that would constitute an Issuer Free
Writing Prospectus or that would otherwise constitute a Free Writing Prospectus required to be
filed by the Company or the Investor with the Commission or retained by the Company or the Investor
under Rule 433 under the Securities Act. The Investor agrees that, unless it obtains the prior
written consent of the Company, it has not made and will not make an offer relating to the Shares
that would constitute a Free Writing Prospectus required to be filed by the Company with the
Commission or retained by the Company under Rule 433 under the Securities Act. Any such Issuer
Free Writing Prospectus or other Free Writing Prospectus consented to by the Investor or the
Company is referred to in this Agreement as a “Permitted Free Writing Prospectus.” The
Company agrees that (x) it has treated and will treat, as the case may be, each Permitted Free
Writing Prospectus as an Issuer Free Writing Prospectus and (y) it has complied and will comply, as
the case may be, with the requirements of Rules 164 and 433 under the Securities Act applicable to
any Permitted Free Writing Prospectus, including in respect of timely filing with the Commission,
legending and record keeping.

     Section 5.9 Prospectus Delivery. The Company shall file with the Commission a Prospectus Supplement on the first Trading Day
immediately following the end of each Pricing Period. The Company shall provide the Investor a
reasonable opportunity to comment on a draft of each such Prospectus Supplement and any Issuer Free
Writing Prospectus (and shall give due consideration to all such comments) and, subject to the
provisions of Section 5.8 hereof, shall deliver or make available to the Investor, without charge,
an electronic copy of each form of Prospectus Supplement, together with the Base Prospectus, and
any Permitted Free Writing Prospectus on each applicable Settlement Date. The Company consents to
the use of the Prospectus (and of any Prospectus Supplement thereto) in accordance with the
provisions of the Securities Act and with the securities or “blue sky” laws of the jurisdictions in
which the Shares may be sold by the Investor, in connection with the offering and sale of the
Shares and for such period of time thereafter as the Prospectus (or in lieu thereof, the notice
referred to in Rule 173(a) under the Securities Act) is required by the Securities Act to be
delivered in connection with sales of the Shares. If during such period of time any event shall
occur that in the judgment of the Company and its counsel is required to be set forth in the
Prospectus or any Permitted Free Writing Prospectus or should be set forth therein in order to make
the statements made therein, in the light of the circumstances under which they were made, not
misleading, or if it is necessary to supplement or amend the Prospectus or any Permitted Free
Writing Prospectus to comply with the Securities Act or any other applicable law or regulation, the
Company shall forthwith prepare and, subject to Section 5.8 above, file with the Commission an
appropriate Prospectus

25

 

Supplement to the Prospectus (or supplement to the Permitted Free Writing
Prospectus) and shall expeditiously furnish or make available to the Investor an electronic copy
thereof.

     Section 5.10 Selling Restrictions.

          (i) The Investor covenants that from and after the date hereof through and including the
90th day next following the termination of this Agreement (the “Restricted
Period”), neither the Investor nor any of its affiliates (within the meaning of the Exchange
Act) nor any entity managed by the Investor shall, directly or indirectly, sell any securities of
the Company, except the Shares that it owns or has the right to purchase as provided in a Fixed
Request Notice. During the Restricted Period, neither the Investor or any of its affiliates nor
any entity managed by the Investor shall sell any shares of Common Stock of the Company it does not
“own” or have the unconditional right to receive under the terms of this Agreement (within the
meaning of Rule 200 of Regulation SHO promulgated by the Commission under the Exchange Act),
including Shares in any account of the Investor or in any account directly or indirectly managed by
the Investor or any of its affiliates or any entity managed by the Investor. Without limiting the
generality of the foregoing, prior to and during the Restricted Period, neither the Investor nor
any of its affiliates nor any entity managed by the Investor or any of its affiliates shall enter
into a short position with respect to shares of Common Stock of the Company, including in any
account of the Investor’s or in any account directly or indirectly managed by the Investor or any
of its Affiliates or any entity managed by the Investor, except that the Investor may sell Shares
that it is obligated to purchase under a pending Fixed Request Notice but has not yet taken
possession of so long as the Investor (or the Broker-Dealer, as applicable) covers any such sales
with the Shares purchased pursuant to such Fixed Request Notice; provided, however,
that the Investor (or the Broker-Dealer, as applicable) shall not be required to cover any such
sales with the Shares purchased pursuant to such Fixed Request Notice if (a) the Fixed Request is
terminated by mutual agreement of the Company and the
Investor and, as a result of such termination, no Shares are delivered to the Investor under
this Agreement or (b) the Company otherwise fails to deliver such Shares to the Investor on the
applicable Settlement Date upon the terms and subject to the provisions of this Agreement. Prior
to and during the Restricted Period, the Investor shall not grant any option to purchase or acquire
any right to dispose or otherwise dispose for value of any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for, or warrants to purchase, any shares of Common
Stock, or enter into any swap, hedge or other agreement that transfers, in whole or in part, the
economic risk of ownership of the Common Stock, except for such sales expressly permitted by this
Section 5.10(i).

          (ii) In addition to the foregoing, in connection with any sale of the Company’s securities
(including any sale permitted by paragraph (i) above), the Investor shall comply in all respects
with all applicable laws, rules, regulations and orders, including, without limitation, the
requirements of the Securities Act and the Exchange Act.

     Section 5.11 Effective Registration Statement. During the Investment Period, the Company
shall use its best efforts to maintain the continuous effectiveness of the Registration Statement
under the Securities Act.

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     Section 5.12 Non-Public Information. Neither the Company nor any of its directors,
officers or agents shall disclose any material non-public information about the Company to the
Investor, unless a simultaneous public announcement thereof is made by the Company in the manner
contemplated by Regulation FD.

     Section 5.13 Broker/Dealer. The Investor shall use one or more broker-dealers to
effectuate all sales, if any, of the Shares that it may purchase from the Company pursuant to this
Agreement which (or whom) shall be unaffiliated with the Investor and not then currently engaged or
used by the Company (collectively, the “Broker-Dealer”). The Investor will provide the
Company with all information regarding the Broker-Dealer reasonably requested by the Company. The
Investor shall be solely responsible for all fees and commissions of the Broker-Dealer.

     Section 5.14 Update of Disclosure Schedule. During the Investment Period, the Company
shall from time to time update the Disclosure Schedule as may be required to satisfy the condition
set forth in Section 6.3(i). For purposes of this Section 5.14, any disclosure made in a schedule
to the Compliance Certificate shall be deemed to be an update of the Disclosure Schedule.
Notwithstanding anything in this Agreement to the contrary, no update to the Disclosure Schedule
pursuant to this Section 5.14 shall cure any breach of a representation or warranty of the Company
contained in this Agreement and shall not affect any of the Investor’s remedies with respect
thereto.

ARTICLE VI

OPINION OF COUNSEL AND CERTIFICATE; CONDITIONS TO THE SALE AND

PURCHASE OF THE SHARES

     Section 6.1 Opinion of Counsel and Certificate. Simultaneously with the execution and
delivery of this Agreement, the Investor has received and relied upon (i) an opinion of outside
counsel to the Company, dated the Effective Date, in the form of Exhibit C hereto, and (ii)
a certificate from the Company, dated the Effective Date, in the form of Exhibit D hereto.

     Section 6.2 Conditions Precedent to the Obligation of the Company. The obligation
hereunder of the Company to issue and sell the Shares to the Investor under any Fixed Request
Notice or Optional Amount is subject to the satisfaction or (to the extent permitted by applicable
law) waiver of each of the conditions set forth below. These conditions are for the Company’s sole
benefit and (to the extent permitted by applicable law) may be waived by the Company at any time in
its sole discretion.

          (i) Accuracy of the Investor’s Representations and Warranties. The representations
and warranties of the Investor contained in this Agreement (i) that are not qualified by
“materiality” shall have been true and correct in all material respects when made and shall be true
and correct in all material respects as of the applicable Fixed Request Exercise Date and the
applicable Settlement Date with the same force and effect as if made on such dates, except to the
extent such representations and warranties are as of another date, in which case, such
representations and warranties shall be true and correct in all material respects as of such other
date and (ii) that are qualified by “materiality” shall have been true and correct when made and
shall be true and correct as of the applicable Fixed Request Exercise Date and the applicable

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Settlement Date with the same force and effect as if made on such dates, except to the extent such
representations and warranties are as of another date, in which case, such representations and
warranties shall be true and correct as of such other date.

          (ii) Registration Statement. The Registration Statement is effective and neither the
Company nor the Investor shall have received notice that the Commission has issued or intends to
issue a stop order with respect to the Registration Statement. The Company shall have a maximum
dollar amount certain of Shares registered under the Registration Statement which are in an amount
not less than the maximum dollar amount worth of Shares issuable pursuant to all Fixed Request
Notices and Optional Amounts during the Investment Period. The Current Report shall have been
filed with the Commission, as required pursuant to Section 1.4, and all Prospectus Supplements
shall have been filed with the Commission, as required pursuant to Sections 1.4 and 5.9 hereof, to
disclose the sale of the Shares prior to each Settlement Date, as applicable. Any other material
required to be filed by the Company or any other offering participant pursuant to Rule 433(d) under
the Securities Act shall have been filed with the Commission within the applicable time periods
prescribed for such filings by Rule 433 under the Securities Act.

          (iii) Performance by the Investor. The Investor shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Investor at or prior to the applicable
Fixed Request Exercise Date and the applicable Settlement Date.

          (iv) No Injunction. No statute, regulation, order, decree, writ, ruling or injunction
shall have been enacted, entered, promulgated, threatened or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation of or which would materially
modify or delay any of the transactions contemplated by this Agreement.

          (v) No Suspension, Etc. Trading in the Common Stock shall not have been suspended by
the Commission or the Trading Market (except for any suspension of trading of limited duration
agreed to by the Company, which suspension shall be terminated prior to the applicable Fixed
Request Exercise Date and applicable Settlement Date), and, at any time prior to the applicable
Fixed Request Exercise Date and applicable Settlement Date, none of the events described in clauses
(i), (ii) and (iii) or the last sentence of Section 5.7 shall have occurred, trading in securities
generally as reported on the Trading Market shall not have been suspended or limited, nor shall a
banking moratorium have been declared either by the United States or New York State authorities,
nor shall there have occurred any material outbreak or escalation of hostilities or other national
or international calamity or crisis of such magnitude in its effect on, or any material adverse
change in, any financial market which, in each case, in the reasonable judgment of the Company,
makes it impracticable or inadvisable to issue the Shares.

          (vi) No Proceedings or Litigation. No action, suit or proceeding before any
arbitrator or any court or governmental authority shall have been commenced or threatened, and no
inquiry or investigation by any governmental authority shall have been commenced or threatened,
against the Company or any Subsidiary, or any of the officers, directors or affiliates of the
Company or any Subsidiary, seeking to restrain, prevent or change the transactions contemplated by
this Agreement, or seeking damages in connection with such transactions.

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          (vii) Aggregate Limit. The issuance and sale of the Shares issuable pursuant to such
Fixed Request Notice or Optional Amount shall not violate Sections 2.2, 2.12 and 5.5 hereof.

          (viii) No Unresolved NASD Objection. There shall not exist any unresolved objection
raised by the NASD’s Corporate Financing Department with respect to the fairness and reasonableness
of the terms of this Agreement or the transactions contemplated hereby, and the parties hereto
shall have obtained written confirmation thereof from the NASD.

     Section 6.3 Conditions Precedent to the Obligation of the Investor. The obligation
hereunder of the Investor to accept a Fixed Request or Optional Amount grant and to acquire and pay
for the Shares is subject to the satisfaction or (to the extent permitted by applicable law)
waiver, at or before each Fixed Request Exercise Date and each Settlement Date, of each of the
conditions set forth below. These conditions are for the Investor’s sole benefit and (to the extent
permitted by applicable law) may be waived by the Investor at any time in its sole discretion.

          (i) Accuracy of the Company’s Representations and Warranties. The representations and
warranties of the Company contained in this Agreement (i) that are not qualified by “materiality”
or “Material Adverse Effect” shall have been true and correct in all material respects when made
and shall be true and correct in all material respects as of the applicable Fixed Request Exercise
Date and the applicable Settlement Date with the same force and effect as if made on such dates,
except to the extent such representations and warranties are as of another date, in which case,
such representations and warranties shall be true and correct in all material respects as of such
other date and (ii) that are qualified by “materiality” or “Material Adverse Effect” shall have
been true and correct when made and shall be true and correct as of the applicable Fixed Request
Exercise Date and the applicable Settlement Date with the same force and effect as if made on such
dates, except to the extent such representations and warranties are as of another date, in which
case, such representations and warranties shall be true and correct as of such other date.

          (ii) Registration Statement. The Registration Statement is effective and neither the
Company nor the Investor shall have received notice that the Commission has issued or intends to
issue a stop order with respect to the Registration Statement. The Company shall have a maximum
dollar amount certain of Shares registered under the Registration Statement which are in an amount
not less than the maximum dollar amount worth of Shares issuable pursuant to all Fixed Request
Notices and Optional Amounts during the Investment Period. The Current Report shall have been
filed with the Commission, as required pursuant to Section 1.4, and all Prospectus Supplements
shall have been filed with the Commission, as required pursuant to Sections 1.4 and 5.9 hereof, to
disclose the sale of the Shares prior to each Settlement Date, as applicable, and an electronic
copy of each such Prospectus Supplement together with the Base Prospectus shall have been delivered
or made available to the Investor in accordance with Section 5.9 hereof. Any other material
required to be filed by the Company or any other offering participant pursuant to Rule 433(d) under
the Securities Act shall have been filed with the Commission within the applicable time periods
prescribed for such filings by Rule 433 under the Securities Act.

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          (iii) No Suspension. Trading in the Common Stock shall not have been suspended by the
Commission or the Trading Market (except for any suspension of trading of limited duration agreed
to by the Company, which suspension shall be terminated prior to the applicable Fixed Request
Exercise Date and applicable Settlement Date), and, at any time prior to the applicable Fixed
Request Exercise Date and applicable Settlement Date, none of the events described in clauses (i),
(ii) and (iii) or the last sentence of Section 5.7 shall have occurred, trading in securities
generally as reported on the Trading Market shall not have been suspended or limited, nor shall a
banking moratorium have been declared either by the United States or New York State authorities,
nor shall there have occurred any material outbreak or escalation of hostilities or other national
or international calamity or crisis of such magnitude in its effect on, or any material adverse
change in, any financial market which, in each case, in the reasonable judgment of the Investor,
makes it impracticable or inadvisable to purchase the Shares.

          (iv) Performance of the Company. The Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Company at or prior to the applicable
Fixed Request Exercise Date and the applicable Settlement Date and shall
have delivered to the Investor on the applicable Settlement Date the Compliance Certificate
substantially in the form attached hereto as Exhibit E.

          (v) No Injunction. No statute, rule, regulation, order, decree, writ, ruling or
injunction shall have been enacted, entered, promulgated, threatened or endorsed by any court or
governmental authority of competent jurisdiction which prohibits the consummation of or which would
materially modify or delay any of the transactions contemplated by this Agreement.

          (vi) No Proceedings or Litigation. No action, suit or proceeding before any
arbitrator or any court or governmental authority shall have been commenced or threatened, and no
inquiry or investigation by any governmental authority shall have been commenced or threatened,
against the Company or any Subsidiary, or any of the officers, directors or affiliates of the
Company or any Subsidiary, seeking to restrain, prevent or change the transactions contemplated by
this Agreement, or seeking damages in connection with such transactions.

          (vii) Aggregate Limit. The issuance and sale of the Shares issuable pursuant to such
Fixed Request Notice or Optional Amount shall not violate Sections 2.2, 2.12 and 5.5 hereof.

          (viii) Shares Authorized. The Shares issuable pursuant to such Fixed Request Notice
or Optional Amount shall have been duly authorized by all necessary corporate action of the
Company.

          (ix) Notification of Listing of Shares. The Company shall have submitted to the
Trading Market a notification form of listing of additional shares related to the Shares issuable
pursuant to such Fixed Request or Optional Amount in accordance with the bylaws, listed securities
maintenance standards and other rules of the Trading Market.

          (x) Opinions of Counsel; Bring-Down. Subsequent to the filing of the Current Report
pursuant to Section 1.4 and prior to the first Fixed Request Exercise Date, the

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Investor shall have
received an opinion and a separate negative assurance letter from outside counsel to the Company in
the form of Exhibit F hereto. On each Settlement Date, the Investor shall have received an
opinion “bring down” from outside counsel to the Company in the form of Exhibit G hereto.

          (xi) No Unresolved NASD Objection. There shall not exist any unresolved objection
raised by the NASD’s Corporate Financing Department with respect to the fairness and reasonableness
of the terms of this Agreement or the transactions contemplated hereby, and the parties hereto
shall have obtained written confirmation thereof from the NASD.

          (xii) Payment of Investor’s Counsel Fees; Due Diligence Expenses. On the Effective
Date, the Company shall have paid by wire transfer of immediately available funds to an account
designated by the Investor’s counsel, the fees and expenses of the Investor’s counsel in accordance
with the proviso to the first sentence of Section 9.1(i) of this Agreement. On the 30th
day of the third month in each calendar quarter during the Investment Period, the Company shall
have paid by wire transfer of immediately available funds (a) to an account designated by the
Investor, the due diligence expenses incurred by the Investor and (b) to an account designated
by the Investor’s counsel, the fees and expenses of the Investor’s counsel, in each case, in
accordance with the provisions of the second sentence of Section 9.1(i) of this Agreement.

ARTICLE VII

TERMINATION

     Section 7.1 Term, Termination by Mutual Consent. Unless earlier terminated as provided
hereunder, this Agreement shall terminate automatically on the earliest of (i) the first day of the
month next following the 18-month anniversary of the Effective Date (the “Investment
Period”), (ii) the date that the entire dollar amount of Shares registered under the
Registration Statement have been issued and sold and (iii) the date the Investor shall have
purchased the Total Commitment of shares of Common Stock (subject in all cases to the Trading
Market Limit). The Company may terminate this Agreement effective upon three Trading Days’ prior
written notice to the Investor under Section 9.4; provided, however, that such
termination shall not occur during a Pricing Period or prior to a Settlement Date. This Agreement
may be terminated at any time (A) by the mutual written consent of the parties, effective as of the
date of such mutual written consent unless otherwise provided in such written consent, it being
hereby acknowledged and agreed that the Investor may not consent to such termination during a
Pricing Period or prior to a Settlement Date in the event the Investor has instructed the
Broker-Dealer to effect an open-market sale of Shares which are subject to a pending Fixed Request
Notice but which have not yet been physically delivered by the Company (and/or credited by
book-entry) to the Investor in accordance with the terms and subject to the conditions of this
Agreement, or (B) by either the Company or the Investor effective upon written notice to the other
party under Section 9.4, if the NASD’s Corporate Financing Department has raised any objection with
respect to the fairness and reasonableness of the terms of this Agreement or the transactions
contemplated hereby, or has otherwise failed to confirm in writing that it has determined not to
raise any such objection, and such objection shall not have been resolved, or such confirmation of
no objection shall not have been obtained, prior to (1) the 60th day immediately
following the Effective Date, in the case of an objection raised or confirmation failure occurring
prior to the first Fixed Request Exercise Date, or (2) prior to the 60th day immediately
following the receipt by the Company or

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the Investor of notice of such objection, in the case of an
objection raised after the first Fixed Request Exercise Date; provided however,
that (x) the party seeking to terminate this Agreement pursuant to this clause (B) of Section 7.1
shall have used its commercially reasonable efforts to resolve such objection and/or to obtain such
confirmation of no objection in accordance with and subject to the provisions of Section 5.1(ii) of
this Agreement and (y) the right to terminate this Agreement pursuant to this clause (B) of Section
7.1 shall not be available to any party whose action or failure to act has been a principal cause
of, or has resulted in, such objection or confirmation failure and such action or failure to act
constitutes a breach of this Agreement.

     Section 7.2 Other Termination. If the Company provides the Investor with an Other
Financing Notice (other than in respect of an underwritten public offering or an Acceptable
Financing) or an Integration Notice, the Investor shall have the right to terminate this Agreement
within the subsequent 30-day period (the “Event Period”), effective upon one Trading Day’s
prior written notice delivered to the
Company in accordance with Section 9.4 at any time during the Event Period. The Company shall
notify the Investor and the Investor shall have the right to terminate this Agreement at any time
if: (i) an event constituting a Material Adverse Effect has occurred or an event has occurred which
would result in the occurrence of a Material Adverse Effect; (ii) a Material Change in Ownership
has occurred; or (iii) a default or event of default has occurred and is continuing under the terms
of any agreement, contract, note or other instrument to which the Company or any of its
Subsidiaries is a party with respect to any indebtedness for borrowed money representing more than
10% of the Company’s consolidated assets, in any such case, upon one Trading Day’s prior written
notice delivered to the Company in accordance with Section 9.4 hereof.

     Section 7.3 Effect of Termination. In the event of termination by the Company or the
Investor, written notice thereof shall forthwith be given to the other party as provided in Section
9.4 and the transactions contemplated by this Agreement shall be terminated without further action
by either party. If this Agreement is terminated as provided in Section 7.1 or 7.2 herein, this
Agreement shall become void and of no further force and effect, except as provided in Section 9.9
hereof. Nothing in this Section 7.3 shall be deemed to release the Company or the Investor from any
liability for any breach under this Agreement, or to impair the rights of the Company and the
Investor to compel specific performance by the other party of its obligations under this Agreement.

ARTICLE VIII

INDEMNIFICATION

     Section 8.1 General Indemnity.

          (i) Indemnification by the Company. The Company shall indemnify and hold harmless the
Investor, the Broker-Dealer, each affiliate, employee, representative and advisor of and to the
Investor and the Broker-Dealer, and each person, if any, who controls the Investor or the
Broker-Dealer within the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act from and against all losses, claims, damages, liabilities and expenses (including
reasonable costs of defense and investigation and all attorneys’ fees) to which the Investor, the
Broker-Dealer and each such other person may become subject, under the Securities Act or otherwise,
insofar as such losses, claims, damages, liabilities and expenses (or actions in

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respect thereof)
arise out of or are based upon (i) any violation of law (including United States federal securities
laws) in connection with the transactions contemplated by this Agreement by the Company or any of
its Subsidiaries, affiliates, officers, directors or employees, (ii) any untrue statement or
alleged untrue statement of a material fact contained, or incorporated by reference, in the
Registration Statement or any amendment thereto or any omission or alleged omission to state
therein, or in any document incorporated by reference therein, a material fact required to be
stated therein or necessary to make the statements therein not misleading, (iii) any untrue
statement or alleged untrue statement of a material fact contained, or incorporated by reference,
in the Prospectus, any Issuer Free Writing Prospectus, or in any amendment thereof or supplement
thereto, or in any “issuer information” (as defined in Rule 433 under the Securities Act) of the
Company, which “issuer information” is required to be, or is, filed with the Commission or
otherwise contained in any Free Writing Prospectus, or any amendment or
supplement thereto, or any omission or alleged omission to state therein, or in any document
incorporated by reference therein, 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, or (iv) any untrue statement or alleged untrue statement contained in the NASD Filing,
or any amendment thereof or supplement thereto, or any omission or alleged omission to state
therein a fact necessary in order to comply with Rule 2710 of the NASD’s Conduct Rules, but only to
the extent the untrue statement, alleged untrue statement, omission or alleged omission was made in
reliance upon, and in conformity with, information furnished by the Company to the Investor
expressly for inclusion in the NASD Filing, or any amendment thereof or supplement thereto;
provided, however, that (A) the Company shall not be liable under this Section
8.1(i) to the extent that a court of competent jurisdiction shall have determined by a final
judgment (from which no further appeals are available) that such loss, claim, damage, liability or
expense resulting directly and solely from any such acts or failures to act, undertaken or omitted
to be taken by the Investor, Broker-Dealer or such person through its bad faith or willful
misconduct, (B) the foregoing indemnity shall not apply to any loss, claim, damage, liability or
expense to the extent, but only to the extent, arising out of or based upon any untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon and in conformity
with written information furnished to the Company by the Investor, Reedland or any Broker-Dealer
expressly for use in the Current Report or any Prospectus Supplement or Permitted Free Writing
Prospectus, or any amendment thereof or supplement thereto, and (C) with respect to the Prospectus,
the foregoing indemnity shall not inure to the benefit of the Investor or any such person from whom
the person asserting any loss, claim, damage, liability or expense purchased Common Stock, if
copies of all Prospectus Supplements required to be filed pursuant to Section 1.4 and 5.9, together
with the Base Prospectus, were timely delivered or made available to the Investor pursuant hereto
and a copy of the Base Prospectus, together with a Prospectus Supplement (as applicable), was not
sent or given by or on behalf of the Investor or any such person to such person, if required by law
to have been delivered, at or prior to the written confirmation of the sale of the Common Stock to
such person, and if delivery of the Base Prospectus, together with a Prospectus Supplement (as
applicable), would have cured the defect giving rise to such loss, claim, damage, liability or
expense.

     The Company shall reimburse the Investor, the Broker-Dealer and each such controlling person
promptly upon demand (with accompanying presentation of documentary evidence) for all legal and
other costs and expenses reasonably incurred by the Investor, the Broker-Dealer or

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such indemnified
persons in investigating, defending against, or preparing to defend against any such claim, action,
suit or proceeding with respect to which it is entitled to indemnification.

          (ii) Indemnification by the Investor. The Investor shall indemnify and hold harmless
the Company, each of its directors and officers, and each person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act from
and against all losses, claims, damages, liabilities and expenses (including reasonable costs of
defense and investigation and all attorneys fees) to which the Company and each such other person
may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages,
liabilities and expenses (or actions in respect thereof) arise out of or are based upon (i) any
violation of law (including United States federal securities laws) in connection with the
transactions contemplated by this Agreement by the Investor or any of its affiliates, officers,
directors or employees, (ii) any untrue statement or alleged untrue statement
of a material fact contained in the Current Report or any Prospectus Supplement or Permitted
Free Writing Prospectus, or in any amendment thereof or supplement thereto, or any omission or
alleged omission to state therein 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, in each case, to the extent, but only to the extent, the untrue statement, alleged
untrue statement, omission or alleged omission was made in reliance upon, and in conformity with,
written information furnished by the Investor to the Company expressly for inclusion in the Current
Report or such Prospectus Supplement or Permitted Free Writing Prospectus, or any amendment thereof
or supplement thereto, or (iii) any untrue statement or alleged untrue statement contained in the
NASD Filing, or any amendment thereof or supplement thereto, or any omission or alleged omission to
state therein a fact necessary in order to comply with Rule 2710 of the NASD’s Conduct Rules;
provided, however, that the foregoing indemnity for statements or omissions
referred to in clause (iii) above shall not apply to any loss, claim, damage, liability or expense
to the extent, but only to the extent, arising out of or based upon any untrue statement or alleged
untrue statement or omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Investor by the Company expressly for use in the NASD Filing,
or any amendment thereof or supplement thereto.

     The Investor shall reimburse the Company and each such director, officer or controlling person
promptly upon demand for all legal and other costs and expenses reasonably incurred by the Company
or such indemnified persons in investigating, defending against, or preparing to defend against any
such claim, action, suit or proceeding with respect to which it is entitled to indemnification.

     Section 8.2 Indemnification Procedures. Promptly after a person receives notice of a claim
or the commencement of an action for which the person intends to seek indemnification under Section
8.1, the person will notify the indemnifying party in writing of the claim or commencement of the
action, suit or proceeding; provided, however, that failure to notify the
indemnifying party will not relieve the indemnifying party from liability under Section 8.1, except
to the extent it has been materially prejudiced by the failure to give notice. The indemnifying
party will be entitled to participate in the defense of any claim, action, suit or proceeding as to
which indemnification is being sought, and if the indemnifying party acknowledges in writing the
obligation to indemnify the party against whom the claim or action is brought, the indemnifying
party may (but will not be required to) assume the defense against

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the claim, action, suit or
proceeding with counsel satisfactory to it. After an indemnifying party notifies an indemnified
party that the indemnifying party wishes to assume the defense of a claim, action, suit or
proceeding, the indemnifying party will not be liable for any legal or other expenses incurred by
the indemnified party in connection with the defense against the claim, action, suit or proceeding
except that if, in the opinion of counsel to the indemnifying party, one or more of the indemnified
parties should be separately represented in connection with a claim, action, suit or proceeding,
the indemnifying party will pay the reasonable fees and expenses of one separate counsel for the
indemnified parties. Each indemnified party, as a condition to receiving indemnification as
provided in Section 8.1, will cooperate in all reasonable respects with the indemnifying party in
the defense of any action or claim as to which indemnification is sought. No indemnifying party
will be liable for any settlement of any action effected without its prior written consent.
Notwithstanding the
foregoing sentence, if at any time an indemnified party shall have requested (by written notice
provided in accordance with Section 9.4) an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated hereby effected without its written consent if (i) such
settlement is entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received written notice of the terms of
such settlement at least 30 days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in accordance with such request
prior to the date of such settlement. No indemnifying party will, without the prior written
consent of the indemnified party, effect any settlement of a pending or threatened action with
respect to which an indemnified party is, or is informed that it may be, made a party and for which
it would be entitled to indemnification, unless the settlement includes an unconditional release of
the indemnified party from all liability and claims which are the subject matter of the pending or
threatened action.

     If for any reason the indemnification provided for in this Agreement is not available to, or
is not sufficient to hold harmless, an indemnified party in respect of any loss or liability
referred to in Section 8.1 as to which such indemnified party is entitled to indemnification
thereunder, each indemnifying party shall, in lieu of indemnifying the indemnified party,
contribute to the amount paid or payable by the indemnified party as a result of such loss or
liability, (i) in the proportion which is appropriate to reflect the relative benefits received by
the indemnifying party, on the one hand, and by the indemnified party, on the other hand, from the
sale of Shares which is the subject of the claim, action, suit or proceeding which resulted in the
loss or liability or (ii) if the allocation provided by clause (i) is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative benefits referred to in
clause (i) above, but also the relative fault of the indemnifying party, on the one hand, and the
indemnified party, on the other hand, with respect to the statements or omissions which are the
subject of the claim, action, suit or proceeding that resulted in the loss or liability, as well as
any other relevant equitable considerations.

     The remedies provided for in Section 8.1 and this Section 8.2 are not exclusive and shall not
limit any rights or remedies which may otherwise be available to any Indemnified Person at law or
in equity.

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ARTICLE IX

MISCELLANEOUS

     Section 9.1 Fees and Expenses.

          (i) Each party shall bear its own fees and expenses related to the transactions contemplated
by this Agreement; provided, however, that the Company shall pay, on the Effective
Date, by wire transfer of immediately available funds (A) to the NASD, the applicable filing fee
with respect to the NASD Filing and (B) to an account designated by the Investor’s counsel, up to
$35,000, representing actual attorneys’ fees and expenses (exclusive of disbursements and
out-of-pocket expenses) incurred by the Investor in connection with the preparation, negotiation,
execution and delivery of this Agreement, legal due diligence of the Company and review of the
Registration Statement, the Base Prospectus, the Current Report, any
Permitted Free Writing Prospectus and preparation of the NASD Filing. In addition, the Company
shall pay, on the 30th day of the third month in each calendar quarter during the
Investment Period, $12,500, representing (x) the due diligence expenses incurred by the Investor
during the Investment Period and (y) the attorneys’ fees and expenses incurred by the Investor in
connection with ongoing legal due diligence of the Company, any amendments, modifications or
waivers of this Agreement, any amendments of or supplements to the NASD Filing and review of
Prospectus Supplements, Permitted Free Writing Prospectuses, opinion “bring downs” and all other
related documents to be delivered by the Company and its counsel in connection with a Fixed Request
Exercise Date and the applicable Settlement Date. The Company shall pay all U.S. federal, state and
local stamp and other similar transfer and other taxes and duties levied in connection with
issuance of the Shares pursuant hereto.

          (ii) If the Company issues a Fixed Request Notice and fails to deliver the Shares to the
Investor on the applicable Settlement Date and such failure continues for 10 Trading Days, the
Company shall pay the Investor, in cash (or, at the option of the Investor, in shares of Common
Stock which have not been registered under the Securities Act), as liquidated damages for such
failure and not as a penalty, an amount equal to 2.0% of the payment required to be paid by the
Investor on such Settlement Date (i.e., the sum of the Fixed Amount Requested and the Optional
Amount Dollar Amount) for the initial 30 days following such Settlement Date until the Shares have
been delivered, and an additional 2.0% for each additional 30-day period thereafter until the
Shares have been delivered, which amount shall be prorated for such periods less than thirty 30
days.

     Section 9.2 Specific Enforcement, Consent to Jurisdiction, Waiver of Jury Trial. (i) The
Company and the Investor acknowledge and agree that irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed in accordance with their specific
terms or were otherwise breached. It is accordingly agreed that either party shall be entitled to
an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement by the
other party and to enforce specifically the terms and provisions hereof this being in addition to
any other remedy to which either party may be entitled by law or equity.

          (i) Each of the Company and the Investor (a) hereby irrevocably submits to the jurisdiction of
the United States District Court and other courts of the United States sitting in the State of New
York for the purposes of any suit, action or proceeding arising out of or relating

36

 

to this
Agreement, and (b) hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper. Each of the Company and the Investor consents to process being served in
any such suit, action or proceeding by mailing a copy thereof to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing in this Section 9.2 shall affect or
limit any right to serve process in any other manner permitted by law.

          (iii) Each of the Company and the Investor hereby waives to the fullest extent permitted by
applicable law, any right it may have to a trial by jury in respect to any litigation directly or
indirectly arising out of, under or in connection with this Agreement or the
transactions contemplated hereby or disputes relating hereto. Each of the Company and the
Investor (a) certifies that no representative, agent or attorney of any other party has
represented, expressly or otherwise, that such other party would not, in the event of litigation,
seek to enforce the foregoing waiver and (b) acknowledges that it and the other parties hereto have
been induced to enter into this Agreement by, among other things, the mutual waivers and
certifications in this Section 9.2.

     Section 9.3 Entire Agreement; Amendment. This Agreement, together with the exhibits
referred to herein and the Disclosure Schedule, represents the entire agreement of the parties with
respect to the subject matter hereof, and there are no promises, undertakings, representations or
warranties by either party relative to subject matter hereof not expressly set forth herein. No
provision of this Agreement may be amended other than by a written instrument signed by both
parties hereto. The Disclosure Schedule and all exhibits to this Agreement are hereby incorporated
by reference in, and made a part of, this Agreement as if set forth in full herein.

     Section 9.4 Notices. Any notice, demand, request, waiver or other communication required
or permitted to be given hereunder shall be in writing and shall be effective (a) upon hand
delivery or facsimile (with facsimile machine confirmation of delivery received) at the address or
number designated below (if delivered on a business day during normal business hours where such
notice is to be received), or the first business day following such delivery (if delivered other
than on a business day during normal business hours where such notice is to be received) or (b) on
the second business day following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The
address for such communications shall be:

	 	 	 	 	 
	 

	 	If to the Company:
	 	Pharmacyclics, Inc.
	 

	 	 	 	995 East Arques Avenue
	 

	 	 	 	Sunnyvale, California 94085
	 

	 	 	 	Telephone Number: (408) 774-0330
	 

	 	 	 	Fax: (408) 328-3665
	 

	 	 	 	Attention: Chief Financial Officer
	 
	 	 	 	 
	 

	 	With copies to:
	 	Latham & Watkins LLP
	 

	 	 	 	140 Scott Drive

37

 

	 	 	 	 	 
	 

	 	 	 	Menlo Park, California 94025
	 

	 	 	 	Telephone Number: (650) 463-4600
	 

	 	 	 	Fax: (650) 463-2600
	 

	 	 	 	Attention: Alan C. Mendelson, Esq.
	 

	 	 	 	                    Laura I. Bushnell, Esq.
	 
	 	 	 	 
	 

	 	If to the Investor:
	 	Azimuth Opportunity Ltd.
	 

	 	 	 	c/o Fortis Prime Fund Solutions (BVI) Limited
	 

	 	 	 	P.O. Box 761, 1st Floor
	 

	 	 	 	James Frett Building
	 

	 	 	 	Road Town, Tortola
	 

	 	 	 	British Virgin Islands
	 

	 	 	 	Telephone Number: (284) 494-6046
	 

	 	 	 	Fax: (284) 494-6898
	 

	 	 	 	Attention: Peter O’Connell
	 
	 	 	 	 
	 

	 	With copies to:
	 	Greenberg Traurig, LLP
	 

	 	 	 	The MetLife Building
	 

	 	 	 	200 Park Avenue
	 

	 	 	 	New York, NY 10166
	 

	 	 	 	Telephone Number: (212) 801-9200
	 

	 	 	 	Fax: (212) 801-6400
	 

	 	 	 	Attention: Clifford E. Neimeth, Esq.
	 

	 	 	 	                     Anthony J. Marsico, Esq.

Either party hereto may from time to time change its address for notices by giving at least 10 days
advance written notice of such changed address to the other party hereto.

     Section 9.5 Waivers. No waiver by either party of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in
the future or a waiver of any other provisions, condition or requirement hereof nor shall any delay
or omission of any party to exercise any right hereunder in any manner impair the exercise of any
such right accruing to it thereafter. No provision of this Agreement may be waived other than in a
written instrument signed by the party against whom enforcement of such waiver is sought.

     Section 9.6 Headings. The article, section and subsection headings in this Agreement are
for convenience only and shall not constitute a part of this Agreement for any other purpose and
shall not be deemed to limit or affect any of the provisions hereof.

     Section 9.7 Successors and Assigns. The Investor may not assign this Agreement to any
person without the prior consent of the Company, in the Company’s sole discretion. This Agreement
shall be binding upon and inure to the benefit of the parties and their successors and assigns. The
assignment by a party to this Agreement of any rights hereunder shall not affect the obligations of
such party under this Agreement.

38

 

     Section 9.8 Governing Law. This Agreement shall be governed by and construed in accordance
with the internal procedural and substantive laws of the State of New York, without giving effect
to the choice of law provisions of such state.

     Section 9.9 Survival. The representations and warranties of the Company and the Investor
contained in Articles III and IV and the covenants contained in Article V shall survive the
execution and delivery hereof until the termination of this Agreement, and the agreements and
covenants set forth in Article VIII of this Agreement shall survive the execution and delivery
hereof.

     Section 9.10 Counterparts. This Agreement may be executed in counterparts, all of which
taken together shall constitute one and the same original and binding instrument and shall become
effective when all counterparts have been signed by each party and delivered to the other parties
hereto, it being understood that all parties hereto need not sign the same counterpart. In the
event any signature is delivered by facsimile transmission, the party using such means of delivery
shall cause four additional executed signature pages to be physically delivered to the other
parties within five days of the execution and delivery hereof.

     Section 9.11 Publicity. On or after the Effective Date, the Company may issue a press
release or otherwise make a public statement or announcement with respect to this Agreement or the
transactions contemplated hereby or the existence of this Agreement (including, without limitation,
by filing a copy of this Agreement with the Commission); provided, however, that
prior to issuing any such press release, or making any such public statement or announcement, the
Company shall consult with the Investor on the form and substance of such press release or other
disclosure.

     Section 9.12 Severability. The provisions of this Agreement are severable and, in the
event that any court of competent jurisdiction shall determine that any one or more of the
provisions or part of the provisions contained in this Agreement shall, for any reason, be held to
be invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of this Agreement, and
this Agreement shall be reformed and construed as if such invalid or illegal or unenforceable
provision, or part of such provision, had never been contained herein, so that such provisions
would be valid, legal and enforceable to the maximum extent possible.

     Section 9.13 Further Assurances. From and after the date of this Agreement, upon the
request of the Investor or the Company, each of the Company and the Investor shall execute and
deliver such instrument, documents and other writings as may be reasonably necessary or desirable
to confirm and carry out and to effectuate fully the intent and purposes of this Agreement.

39

 

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

	 	 	 	 	 	 	 
	 	 	PHARMACYCLICS, INC.:	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Leiv Lea
 

Name: Leiv Lea
	 	 
	 

	 	 	 	Title: Vice President, Finance & Administration
and CFO and Secretary	 	 
	 
	 	 	 	 	 	 
	 	 	AZIMUTH OPPORTUNITY LTD.:	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Deirdre M. McCoy
 

Name: Deirdre M. McCoy
	 	 
	 

	 	 	 	Title: Corporate Secretary	 	 

40

 

ANNEX A TO THE

COMMON STOCK PURCHASE AGREEMENT

DEFINITIONS

     (a) “Acceptable Financing” shall have the meaning assigned to such term in Section
5.6(ii) hereof.

     (b) “Aggregate Limit” shall have the meaning assigned to such term in Section 1.1
hereof.

     (c) “Base
Prospectus” shall mean the Company’s prospectus, dated August 21, 2006, a
preliminary form of which is included in the Registration Statement.

     (d) “Broker-Dealer” shall have the meaning assigned to such term in Section 5.13
hereof.

     (e) “Bylaws” shall have the meaning assigned to such term in Section 4.3 hereof.

     (f) “Charter” shall have the meaning assigned to such term in Section 4.3 hereof.

     (g) “Code” shall mean the Internal Revenue Code of 1986, as amended.

     (h) “Commission” shall mean the Securities and Exchange Commission or any successor
entity.

     (i) “Commission Documents” shall mean (1) all reports, schedules, registrations,
forms, statements, information and other documents filed by the Company with the Commission
pursuant to the reporting requirements of the Exchange Act, including all material filed pursuant
to Section 13(a) or 15(d) of the Exchange Act, which have been filed by the Company since July 1,
2005 and which hereafter shall be filed by the Company during the Investment Period, including,
without limitation, the Current Report and the Form 10-K filed by the Company for its fiscal year
ended June 30, 2005 (the “2005 Form 10-K”), (2) the Registration Statement, as the same may
be amended from time to time, the Prospectus and each Prospectus Supplement, and each Issuer Free
Writing Prospectus and (3) all information contained in such filings and all documents and
disclosures that have been and heretofore shall be incorporated by reference therein.

     (j) “Common Stock” shall have the meaning assigned to such term in the Recitals.

     (k) “Current Market Price” means, with respect to any particular measurement date, the
closing price of a share of Common Stock as reported on the Trading Market for the Trading Day
immediately preceding such measurement date.

     (l) “Current Report” shall have the meaning assigned to such term in Section 1.4
hereof.

     (m) “Discount Price” shall have the meaning assigned to such term in Section 2.2
hereof.

 

 

     (n) “Effective Date” shall mean August 21, 2006.

     (o) “Environmental Laws” shall have the meaning assigned to such term in Section 4.15
hereof.

     (p) “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as
amended.

     (q) “Event Period” shall have the meaning assigned to such term in Section 7.2 hereof.

     (r) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Commission thereunder.

     (s) “FDA” shall have the meaning assigned to such term in Section 4.14(a) hereof.

     (t) “Fixed Amount Requested” shall mean the amount of a Fixed Request requested by the
Company in a Fixed Request Notice delivered pursuant to Section 2.1 hereof.

     (u) “Fixed Request” means the transactions contemplated under Sections 2.1 through 2.8
of this Agreement.

     (v) “Fixed Request Amount” means the actual amount of proceeds received by the Company
pursuant to a Fixed Request under this Agreement.

     (w) “Fixed Request Exercise Date” shall have the meaning assigned to such term in
Section 2.2 hereof.

     (x) “Fixed Request Notice” shall have the meaning assigned to such term in Section 2.1
hereof.

     (y) “Free Writing Prospectus” shall mean a “free writing prospectus” as defined in
Rule 405 promulgated under the Securities Act.

     (z) “GAAP” shall mean generally accepted accounting principles in the United States of
America as applied by the Company.

     (aa) “Governmental Licenses” shall have the meaning assigned to such term in Section
4.14(a) hereof.

     (bb) “Indebtedness” shall have the meaning assigned to such term in Section 4.9
hereof.

     (cc) “Integration Notice” shall have the meaning assigned to such term in Section
5.6(ii) hereof.

     (dd) “Intellectual Property” shall have the meaning assigned to such term in Section
4.14(b) hereof.

 

 

     (ee) “Investment Period” shall have the meaning assigned to such term in Section 7.1
hereof.

     (ff) “Issuer Free Writing Prospectus” shall mean an “issuer free writing prospectus”
as defined in Rule 433 promulgated under the Securities Act.

     (gg) “Market Capitalization” shall be calculated on the Trading Day preceding the
applicable Pricing Period and shall be the product of (x) the number of shares of Common Stock
outstanding and (y) the closing bid price of the Common Stock, both as determined by Bloomberg
Financial LP using the DES and HP functions.

     (hh) “Material Adverse Effect” shall mean any condition, occurrence, state of facts or
event having, or insofar as reasonably can be foreseen would likely have, any effect on the
business, operations, properties or condition (financial or otherwise) of the Company that is
material and adverse to the Company and its Subsidiaries, taken as a whole, and/or any condition,
occurrence, state of facts or event that would prohibit or otherwise materially interfere with or
delay the ability of the Company to perform any of its obligations under this Agreement.

     (ii) “Material Agreements” shall have the meaning assigned to such term in Section
4.16 hereof.

     (jj) “Material Change in Ownership” shall mean the occurrence of any one or more of
the following: (i) the acquisition by any person, including any syndicate or group deemed to be a
“person” under Section 13(d)(3) of the Exchange Act, of beneficial ownership, directly or
indirectly, through a purchase, merger or other acquisition transaction or series of transactions,
of shares of capital stock or other securities of the Company entitling such person to exercise,
upon an event of default or default or otherwise, 50% or more of the total voting power of all
series and classes of capital stock and other securities of the Company entitled to vote generally
in the election of directors, other than any such acquisition by the Company, any Subsidiary of the
Company or any employee benefit plan of the Company; (ii) any consolidation or merger of the
Company with or into any other person, any merger of another person into the Company, or any
conveyance, transfer, sale, lease or other disposition of all or substantially all of the
properties and assets of the Company to another person, other than (a) any such transaction (x)
that does not result in any reclassification, conversion, exchange or cancellation of outstanding
shares of capital stock of the Company and (y) pursuant to which holders of capital stock of the
Company immediately prior to such transaction have the entitlement to exercise, directly or
indirectly, 50% or more of the total voting power of all shares of capital stock of the Company
entitled to vote generally in the election of directors of the continuing or surviving person
immediately after such transaction or (b) any merger which is effected solely to change the
jurisdiction of incorporation of the Company and results in a reclassification, conversion or
exchange of outstanding shares of Common Stock solely into shares of common stock of the surviving
entity; (iii) during any consecutive two-year period, individuals who at the beginning of that
two-year period constituted the Board of Directors (together with any new directors whose election
to the Board of Directors, or whose nomination for election by the stockholders of the Company, was
approved by a vote of a majority of the directors then still in office who were either directors at
the beginning of such period or whose elections or nominations for election were previously so
approved) cease for any reason to constitute a majority of the Board of Directors then in office;

 

 

or (iv) the Company is liquidated or dissolved or a resolution is passed by the Company’s
stockholders approving a plan of liquidation or dissolution of the Company. Beneficial ownership
shall be determined in accordance with Rule 13d-3 promulgated by the SEC under the Exchange Act.
The term “person” shall include any syndicate or group which would be deemed to be a “person” under
Section 13(d)(3) of the Exchange Act.

     (kk) “Multiplier” shall have the meaning assigned to such term in Section 2.3 hereof.

     (ll) “NASD” shall have the meaning assigned to such term in Section 4.5 hereof.

     (mm) “NASD Filing” shall have the meaning assigned to such term in Section 5.1 hereof.

     (nn) “NASDAQ” means the NASDAQ Global Market or any successor thereto.

     (oo) “Optional Amount” means the transactions contemplated under Sections 2.9 through
2.11 of this Agreement.

     (pp) “Optional Amount Dollar Amount” shall mean the actual amount of proceeds received
by the Company pursuant to the exercise of an Optional Amount under this Agreement.

     (qq) “Optional Amount Notice” shall mean a notice sent to the Company with regard to
the Investor’s election to exercise all or any portion of an Optional Amount, as provided in
Section 2.11 hereof and substantially in the form attached hereto as Exhibit B.

     (rr) “Optional Amount Threshold Price” shall have the meaning assigned to such term in
Section 2.1 hereof.

     (ss) “Other Financing” shall have the meaning assigned to such term in Section 5.6(ii)
hereof.

     (tt) “Other Financing Notice” shall have the meaning assigned to such term in Section
5.6(ii) hereof.

     (uu) “Permitted Free Writing Prospectus” shall have the meaning assigned to such term
in Section 5.8(ii) hereof.

     (vv) “Plan” shall have the meaning assigned to such term in Section 4.22 hereof.

     (ww) “Pricing Period shall mean a period of 10 consecutive Trading Days commencing on
the day of delivery of a Fixed Request Notice (or, if the Fixed Request Notice is delivered after
9:30 a.m. (New York time), on the next Trading Day), or such other period mutually agreed upon by
the Investor and the Company.

     (xx) “Prospectus” shall mean the Base Prospectus, together with any final prospectus
filed with the Commission pursuant to Rule 424(b), as supplemented by any Prospectus Supplement.

 

 

     (yy) “Prospectus Supplement” shall mean any prospectus supplement to the Base
Prospectus filed with the Commission pursuant to Rule 424(b) under the Securities Act.

     (zz) “Reduction Notice” shall have the meaning assigned to such term in Section 2.8
hereof.

     (aaa) “Registration Statement” shall mean the registration statement on Form S-3,
Commission File Number 333-112632, filed by the Company with the Commission under the Securities
Act for the registration of the Shares, as such Registration Statement may be amended and
supplemented from time to time.

     (bbb) “Restricted Period” shall have the meaning assigned to such term in Section 5.10
hereof.

     (ccc) “Securities Act” shall mean the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder.

     (ddd) “Settlement Date” shall have the meaning assigned to such term in Section 2.7
hereof.

     (eee) “Shares” shall mean shares of Common Stock issuable to the Investor upon
exercise of a Fixed Request and shares of Common Stock issuable to the Investor upon exercise of an
Optional Amount.

     (fff) “Significant Subsidiary” means any Subsidiary of the Company that would
constitute a Significant Subsidiary of the Company within the meaning of Rule 1-02 of Regulation
S-X of the Commission.

     (ggg) “SOXA” shall have the meaning assigned to such term in Section 4.6(c) hereof.

     (hhh) “Subsidiary” shall mean any corporation or other entity of which at least a
majority of the securities or other ownership interest having ordinary voting power (absolutely or
contingently) for the election of directors or other persons performing similar functions are at
the time owned directly or indirectly by the Company and/or any of its other Subsidiaries.

     (iii) “Total Commitment” shall have the meaning assigned to such term in Section 1.1
hereof.

     (jjj) “Threshold Price” is the lowest price (except to the extent otherwise provided
in Section 2.6) at which the Company may sell Shares during the applicable Pricing Period as set
forth in a Fixed Request Notice (not taking into account the applicable percentage discount during
such Pricing Period determined in accordance with Section 2.2); provided, however,
that at no time shall the Threshold Price be lower than $3.00 per share unless the Company and the
Investor mutually shall agree.

     (kkk) “Trading Day” shall mean a full trading day (beginning at 9:30 a.m., New York
City time, and ending at 4:00 p.m., New York City time) on the NASDAQ.

 

 

     (lll) “Trading Market” means the following markets or exchanges on which the Common
Stock is listed or quoted for trading on the date in question: the American Stock Exchange, the New
York Stock Exchange or the NASDAQ.

     (mmm) “Trading Market Limit” means that number of shares which is one less than 20.0%
of the issued and outstanding shares of the Company’s Common Stock as of the Effective Date.

     (nnn) “VWAP” shall mean the daily volume weighted average price (based on a Trading
Day from 9:30 p.m. to 4:00 p.m. (New York time)) of the Company on the NASDAQ as reported by
Bloomberg Financial L.P. using the AQR function.

     (ooo) “Warrant Value” shall mean the fair value of all warrants, options and other
similar rights issued to a third party in connection with an Other Financing, determined by using a
standard Black-Scholes option-pricing model assuming an expected volatility percentage as shall be
mutually agreed by the Investor and the Company. In the case of a dispute relating to such
expected volatility assumption, the Investor shall obtain applicable volatility data from three
investment banking firms of nationally recognized reputation, and the parties hereto shall use the
average thereof for purposes of determining the expected volatility percentage in connection with
the Black-Scholes calculation referred to in the immediately preceding sentence.exv10w1

 

Exhibit 10.1

SHARE PURCHASE AGREEMENT

effective as of the 31st day of May, 2006

BETWEEN

THE SHAREHOLDERS OF STRIPPER ENERGY SERVICES INC., as Vendors

and

WEST PEAK VENTURES of CANADA LTD., as Purchaser

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	ARTICLE 1

	 	INTERPRETATION
	 	 	1	 
	1.1

	 	Definitions
	 	 	1	 
	1.2

	 	Schedules
	 	 	3	 
	1.3

	 	Construction
	 	 	3	 
	1.4

	 	Entire Agreement
	 	 	4	 
	1.5

	 	Conflicts
	 	 	4	 
	ARTICLE 2

	 	PURCHASE AND SALE
	 	 	4	 
	2.1

	 	Purchase and Sale
	 	 	4	 
	2.2

	 	Escrow Agreement
	 	 	4	 
	2.3

	 	Purchase Price
	 	 	4	 
	2.4

	 	Allocation of Purchase Price
	 	 	5	 
	2.5

	 	Estimate for Closing
	 	 	5	 
	2.6

	 	Review of Books
	 	 	5	 
	2.7

	 	Post Closing Adjustments to Working Capital
	 	 	5	 
	2.8

	 	Arbitration
	 	 	5	 
	ARTICLE 3

	 	COMPLETION
	 	 	6	 
	3.1

	 	Closing
	 	 	6	 
	3.2

	 	Escrow Agent’s Deliveries
	 	 	6	 
	3.3

	 	Vendor’s Deliveries
	 	 	6	 
	3.4

	 	Purchaser’s Deliveries
	 	 	7	 
	3.5

	 	Purchaser’s Conditions Precedent
	 	 	7	 
	3.6

	 	Vendors’ Conditions Precedent
	 	 	7	 
	3.7

	 	Failure of Purchaser to pay Purchase Price
	 	 	8	 
	ARTICLE 4

	 	REPRESENTATIONS AND WARRANTIES OF THE VENDORS
	 	 	8	 
	4.1

	 	Representations of Each Vendor
	 	 	8	 
	4.2

	 	Representations of the Principal Vendors
	 	 	9	 
	ARTICLE 5

	 	REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
	 	 	13	 
	5.1

	 	Good Standing
	 	 	13	 
	5.2

	 	No Conflicts
	 	 	13	 
	5.3

	 	Authority Relative to this Agreement
	 	 	14	 
	5.4

	 	Finder’s Fees
	 	 	14	 

-i-

 

	 	 	 	 	 	 	 
	5.5

	 	Investment Canada Act
	 	 	14	 
	ARTICLE 6

	 	LIMITATIONS
	 	 	14	 
	6.1

	 	Representations and Warranties
	 	 	14	 
	6.2

	 	Value Limitation
	 	 	14	 
	ARTICLE 7

	 	INTERIM PERIOD
	 	 	15	 
	7.1

	 	Maintenance of Assets
	 	 	15	 
	7.2

	 	Financial and Corporate Information
	 	 	15	 
	7.3

	 	Negative Covenants
	 	 	15	 
	ARTICLE 8

	 	LIABILITY AND INDEMNIFICATION
	 	 	16	 
	8.1

	 	Liability and Indemnification
	 	 	16	 
	8.2

	 	Non-Exclusivity
	 	 	16	 
	8.3

	 	Enforcement Limitation
	 	 	16	 
	ARTICLE 9

	 	GENERAL
	 	 	17	 
	9.1

	 	Exclusivity
	 	 	17	 
	9.2

	 	Communications
	 	 	17	 
	9.3

	 	Transaction Costs
	 	 	17	 
	9.4

	 	Assignment
	 	 	17	 
	9.5

	 	Further Assurances
	 	 	17	 
	9.6

	 	Waiver
	 	 	18	 
	9.7

	 	Non-Merger
	 	 	18	 
	9.8

	 	Counterpart Execution
	 	 	18	 
	9.9

	 	Enurement
	 	 	18	 

	 	 	 	 	 
	Schedule A

	 	-
	 	List of Shareholders, their addresses and their
Share Ownership and the portion of the Purchase
Price allocated to them
	 
	 	 	 	 
	Schedule B

	 	-
	 	Escrow Agreement
	 
	 	 	 	 
	Schedule C

	 	-
	 	Form of Release and Resignation from Vendors
	 
	 	 	 	 
	Schedule D

	 	-
	 	Form of Release from the Company
	 
	 	 	 	 
	Schedule E

	 	-
	 	Financial Statements

-ii-

 

SHARE PURCHASE AGREEMENT

     THIS AGREEMENT effective as of the 31st day of May, 2006.

BETWEEN:

	 	 	THE SHAREHOLDERS OF STRIPPER ENERGY SERVICES INC., who are more
particularly set forth and described in Schedule “A” attached hereto

(collectively, the “Vendors”)

OF THE FIRST PART

- and -

	 	 	WEST PEAK VENTURES of CANADA LTD., a corporation carrying on
business in the Province of Alberta

(the “Purchaser”)

OF THE SECOND PART

     WHEREAS the Vendors are the owners of all of the issued and outstanding shares of Stripper
Energy Services Inc.;

     AND WHEREAS the Vendors have agreed to sell and transfer, and the Purchaser has agreed to
purchase and accept, on the terms and conditions hereinafter set forth, all of the Vendors’ right,
title, estate and interest in and to the said shares;

     NOW THEREFORE THIS AGREEMENT WITNESSETH THAT, in consideration of the premises and of the
respective covenants and agreements of the parties hereto hereinafter set forth, the parties hereto
hereby covenant and agree with one another as follows:

ARTICLE 1

INTERPRETATION

1.1 Definitions

     In this Agreement, including the premises, the Schedules and Exhibits hereto:

	 	 	"Agreement”, “this Agreement”, “hereto”, “hereof”, “herein”, “hereunder” and similar
expressions refer to this Agreement including the Schedules and Exhibits
incorporated herein together with any and all amendments or instruments
supplementary hereto or in implementation hereof.
	 
	 	 	"Business Day” means any day of the week except Saturday, Sunday or any statutory
holiday in Calgary, Alberta, Canada.
	 
	 	 	"Closing” has the meaning ascribed thereto in Section 3.1.

-1-

 

	 	 	"Closing Date” has the meaning ascribed thereto in Section 3.1.
	 
	 	 	"Company” means Stripper Energy Services Inc., a corporation incorporated under the
laws of the Province of Alberta.
	 
	 	 	"Current Assets” means those assets of the Company consisting of cash, short term
liquid investments, trade and other receivables and other assets commonly
characterized as current assets under Canadian generally accepted accounting
principles (including, without limitation, prepaid expenses of any nature
whatsoever), but does not include any capital assets or other tangible assets.
	 
	 	 	"Current Liabilities” means all debts, obligations and liabilities of any nature
whatsoever (whether absolute or contingent, known or unknown, accrued or unaccrued,
or due or to become due) to which the Company is subject as at the Effective Date,
including, without limitation, all accrued and contingent debts, obligations and
liabilities in respect of taxes, all accrued and contingent debts, obligations and
liabilities to employees or any of them for salary, wages, bonuses, holiday pay,
vacation and other earned time off with pay and other forms of recompense or reward,
and all accrued and contingent guarantee and indemnification obligations and
liabilities of any nature.
	 
	 	 	"Deposit” means the sum of $1,250,000 paid pursuant to Section 2.3(a).
	 
	 	 	"Effective Date” means the Closing Date.
	 
	 	 	"Escrow Agent” means Heenan Blaikie LLP.
	 
	 	 	"Escrow Agreement” means the agreement among each of the Vendors, the Purchaser and
the Escrow Agent, a copy of which is attached hereto as Schedule “B”.
	 
	 	 	"Escrowed Shares” means all the Purchased Shares which shall be delivered to the
Escrow Agent contemporaneously with execution of this Agreement.
	 
	 	 	"Estimated Capital” means the estimated amount of the Working Capital to be used for
the adjustments to be made at Closing, as more particularly set forth in clause 2.5
hereof.
	 
	 	 	"Financial Statements” means the unaudited financial statements of the Company for
the four (4) month period ending April 30, 2006 and consisting of the balance sheet,
the statement of income and retained earnings, the statement of changes in financial
position, and all notes thereto.
	 
	 	 	"Principal Vendors” means Joda Partnership, David Pinkman and Neil Cusworth
	 
	 	 	"Purchase Price” means Cdn. $20,000,000, as adjusted.
	 
	 	 	"Purchased Shares” means all of the issued and outstanding shares of the Company,
consisting of 685,833 Class A common shares and 394,167 Class B common shares.
	 
	 	 	"Requisite Approvals” means all governmental, regulatory, director, shareholder and
third party consents, approvals and authorizations of any nature required to be
obtained in connection with the sale and transfer of the Purchased Shares to the
Purchaser pursuant hereto.

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	 	 	"Royalty” means the two and one-half percent (2.5%) gross overriding royalty granted
to the Company pursuant to the Royalty Agreement.
	 
	 	 	"Royalty Agreement” means the Gross Overriding Royalty Agreement (Firebag Area,
Saskatchewan) between Stripper Energy Services Limited, as Royalty Owner, and 808099
Alberta Ltd., as Grantor, dated as of September 29, 2004 pursuant to which the
Royalty was granted to the Company.
	 
	 	 	"Time of Closing” means 2:00 pm (Calgary time) on the Closing Date or such other
time on the Closing Date as the Vendors and the Purchaser may mutually agree.
	 
	 	 	"Vendor’s Representative” means Heenan Blaikie LLP.
	 
	 	 	"Working Capital” means at a particular time the amount of any Current Assets less
the amount of any Current Liabilities of any nature.

1.2 Schedules

The following schedules attached (or to be attached) hereto form part of this Agreement:

	 	 	 	 	 
	Schedule A

	 	-
	 	List of Shareholders, their addresses and their
Share Ownership and the portion of the Purchase
Price allocated to them
	 
	 	 	 	 
	Schedule B

	 	-
	 	Escrow Agreement
	 
	 	 	 	 
	Schedule C

	 	-
	 	Form of Release and Resignation from Vendors
	 
	 	 	 	 
	Schedule D

	 	-
	 	Form of Release from Company
	 
	 	 	 	 
	Schedule E

	 	-
	 	Financial Statements

1.3 Construction

     In this Agreement, unless otherwise expressly stated:

	 	(a)	 	references to a “party” or “parties” are references to a party or parties to
this Agreement and references to an “Article”, “Section”, “subsection”, “clause” or
“Schedule” are references to an Article, Section, subsection, clause or Schedule of or
to this Agreement;
	 
	 	(b)	 	references to dollar amounts are references to Canadian dollar amounts;
	 
	 	(c)	 	words importing the singular shall include the plural and vice versa, words
importing gender shall include the masculine, feminine and neuter genders, and
references to a “person” or “persons” shall include individuals, corporations,
partnerships, associations, bodies politic and other entities, all as may be applicable
in the context;
	 
	 	(d)	 	the use of headings is for convenience of reference only and shall not affect
the construction or interpretation hereof;
	 
	 	(e)	 	where a word or phrase is defined, its derivatives or other grammatical forms
have a corresponding meaning;

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	 	(f)	 	where a word or phrase appears in quotations or parenthesis or both, that word
or phrase is deemed to be a defined word or phrase and gets its meaning from the words
or phrases that immediately precede or follow that word or phrase;
	 
	 	(g)	 	references to a statute, regulation or other legal enactment include all of its
amendments and re-enactments;
	 
	 	(h)	 	references to a manner of conduct include, without limitation, any omission,
representation, statement or undertaking, whether or not in writing; and
	 
	 	(i)	 	time is of the essence.

1.4 Entire Agreement

     This Agreement expresses and constitutes the entire agreement between the parties hereto with
respect to the purchase and sale of the Purchased Shares, and supersedes any previous agreements or
understandings with respect to the purchase and sale of the Purchased Shares. This Agreement may
be amended only by written instrument executed by the Vendors and the Purchaser.

1.5 Conflicts

     If any provision in the main body of this Agreement conflicts with a provision in a Schedule
or Exhibit to this Agreement, the provision in the main body of this Agreement shall prevail over
the conflicting provision in the Schedule to this Agreement, and in such case the meaning of the
conflicting provision shall be modified accordingly but only to the extent necessary to resolve
such conflict, and, as so modified, shall continue in full force and effect.

ARTICLE 2

PURCHASE AND SALE

2.1 Purchase and Sale

     Subject to the terms and conditions hereof, the Vendors hereby agree to sell, assign and
transfer to the Purchaser and the Purchaser shall purchase from the Vendors as at the Effective
Date the Purchased Shares.

2.2 Escrow Agreement

     Contemporaneously with execution of this Agreement the Vendors, Purchaser and Escrow Agent
have executed the Escrow Agreement.

2.3 Purchase Price

     The Purchase Price for the Purchased Shares shall be paid and satisfied as follows:

	 	(a)	 	contemporaneously with execution of this Agreement, the Purchaser has delivered
to the Vendors’ Representative a certified cheque, bank draft or solicitor’s trust
cheque payable to the Vendors’ Representative in the amount of $1,250,000 (the
“Deposit”); and

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	 	(b)	 	at Closing the Purchaser will tender a certified cheque, bank draft or
solicitor’s trust cheque payable to the Vendor’s Representative for the Purchase Price
less the amount of the Deposit plus or minus the Estimated Capital at the Effective
Date:

2.4 Allocation of Purchase Price

     The Purchase Price shall be allocated among the Shareholders as set forth in Schedule “A” and
any Working Capital adjustment shall be allocated proportionally among the Shareholders.

2.5 Estimate for Closing

     No less than three (3) business days prior to the Time of Closing, the Vendors shall prepare
and deliver to the Purchaser an estimate of the Purchase Price and a detailed estimate of the
Working Capital at the Effective Date (the “Estimated Capital”). For the purposes of Closing, the
Purchase Price shall be determined utilizing the Estimated Capital. If the parties cannot agree on
the amount of the Estimated Capital then the parties shall submit the matter to Smythe Ratcliffe
who shall determine the amount of Estimated Capital to be used for the purposes of Closing.

2.6 Review of Books

     As soon as is practicable the Vendors shall cause the Company to provide access to the
Purchaser to the Company’s books and records for the purpose of determining the Working Capital at
the Effective Date.

2.7 Post Closing Adjustments to Working Capital

     If, after Closing, it is determined that at the Effective Date the Working Capital is
different from the Estimated Capital then:

	 	(a)	 	if the Working Capital at the Effective Date exceeds the Estimated Capital by
more than One Thousand Dollars ($1,000), then Purchaser shall on the later of the Time
of Closing or ten (10) days following the determination pay an amount equal to the
difference between such amounts to the Vendors; and
	 
	 	(b)	 	if the Working Capital at the Effective Date is less than the Estimated Capital
by more than One Thousand Dollars ($1,000), then Vendors shall on the later of the Time
of Closing or ten (10) days following the determination pay an amount equal to the
difference between such amounts to the Purchaser.

No adjustments shall be made to the Working Capital at the Effective Date after one (1) year
following the Time of Closing unless a party shall have given written notice to the other party
prior to such time objecting to the calculation of the Working Capital. Such notice shall also
state the reasons for that party’s objection.

2.8 Arbitration

     If a party has objected to the calculation of Working Capital and the parties are unable to
agree on the calculation of the Working Capital then either party may submit the matter to
arbitration pursuant to the provisions of the Arbitration Act (Alberta) and any arbitration with
respect to the calculation of the Working Capital shall be final and binding upon the parties
hereto.

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ARTICLE 3

COMPLETION

3.1 Closing

	 	(a)	 	The Purchaser shall deliver to the Vendors and the Escrow Agent a notice
designating the date on which the closing of the purchase and sale contemplated hereby
(the “Closing”) shall occur, provided that the Purchaser shall not designate a closing
date earlier than June 27, 2006 or later than August 15, 2006, unless otherwise
mutually agreed upon in writing by the Purchaser and the Vendors. Such notice shall be
delivered by the Purchaser at least five days prior to the date designated for the
Closing. The date designated in such notice shall be the Closing Date and the Closing
shall take place at the offices of Macleod Dixon llp, 3700 — 400 Third Avenue
SW, Calgary, Alberta, T2P 4H2 at the Time of Closing on the Closing Date.
	 
	 	(b)	 	If the Purchaser designates a date other than June 27, 2006 as the Closing
Date, interest shall accrue on the Purchase Price less the Deposit as adjusted for
Estimated Capital at the rate of six per cent (6%) per annum from June 27, 2006 to the
Closing Date designated by the Purchaser.

3.2 Escrow Agent’s Deliveries

     The Escrow Agent shall deliver at the Time of Closing on the Closing Date:

	 	(a)	 	a certified copy of a resolution passed by the board of directors of the
Company authorizing the transfer of the Purchased Shares to the Purchaser;
	 
	 	(b)	 	duly executed share transfers transferring the Purchased Shares to the
Purchaser, together with the existing share certificates for the Purchased Shares, or
share certificates for the Purchased Shares, duly endorsed in favour of the Purchaser;
	 
	 	(c)	 	resignations and releases of each of the officers and directors of the Company
in such form as is set forth in Schedule “C” attached hereto;
	 
	 	(d)	 	releases from the Company of each of the officers and directors of the Company
in the form set forth in Schedule “D”;
	 
	 	(e)	 	a resolution of the Purchaser, in its capacity as sole shareholder of the
Company, appointing new directors and resolution of the new directors approving
officers;
	 
	 	(f)	 	originally executed copy of Royalty Agreement, Trust Agreement and any and all
documents, agreements, amendments or assignments relating thereto, and all files and
correspondence relating thereto;
	 
	 	(g)	 	the minute book and all other corporate records, documents and materials of the
Company;
	 
	 	(h)	 	certificates of each of the Vendors certifying that his representations and
warranties are true as of the Closing Date; and

-6-

 

	 	(i)	 	certificate of the Purchaser certifying that its representations and warranties
are true as of the Closing Date.

3.3 Vendor’s Deliveries

     The Vendors shall deliver or cause to be delivered at the Time of Closing on the Closing Date
to the Purchaser (in form and substance satisfactory to the Purchaser’s counsel, acting
reasonably), the following documents:

	 	(a)	 	copies of income tax returns for the Company for the periods ended December 31,
2004 and December 31, 2005; and
	 
	 	(b)	 	all other documents and instruments, transfers and conveyances stated herein to
have been delivered to the Purchaser or as may be reasonably required by the Purchaser
to consummate the transactions contemplated by this Agreement.

3.4 Purchaser’s Deliveries

     The Purchaser shall, at the Time of Closing on the Closing Date, deliver or cause to be
delivered to the Vendors the following documents duly executed by the Purchaser:

	 	(a)	 	bank draft payable to the Vendor’s Representative in an aggregate amount equal
to the Purchase Price less the Deposit and adjusted for Estimated Capital, plus any
interest payable thereon pursuant to Section 3.1(b); and
	 
	 	(b)	 	all other documents and instruments as may be reasonably required to consummate
the transactions contemplated by this Agreement.

3.5 Purchaser’s Conditions Precedent

     The obligations of the Purchaser to complete the transactions herein contemplated are subject
to the following conditions (which are for the exclusive benefit of the Purchaser) having been
satisfied or expressly waived in writing by the Purchaser on or before the Closing Date:

	 	(a)	 	the Escrow Agent shall have delivered all of the items to be delivered by it;
	 
	 	(b)	 	the Vendors shall have delivered all of the items to be delivered by them and
shall have performed and complied with all of the covenants, agreements and obligations
herein; and
	 
	 	(c)	 	the Vendors’ representations and warranties contained in Article 4 shall be
true and correct as at the date hereof and as at the Closing Date, the Purchaser shall
not at the Closing Date be aware of any facts indicating to the contrary.

The foregoing conditions shall be for the sole benefit of the Purchaser and may be waived in whole
or in part by the Purchaser in writing. In the event that any of the foregoing conditions is not
satisfied or waived by the Closing Date, the Purchaser shall be entitled to terminate this
Agreement by notice in writing given to the Vendors on the Closing Date.

-7-

 

3.6 Vendors’ Conditions Precedent

     The obligations of the Vendors to complete the transactions herein contemplated are subject to
the following conditions (which are for the exclusive benefit of the Vendors) having been satisfied
or expressly waived in writing by the Vendors on or before the Closing Date:

	 	(a)	 	the Purchaser shall have performed and complied with all of the covenants,
agreements and obligations herein;
	 
	 	(b)	 	the Purchaser shall have delivered or cause to be delivered all of the
documents and items set forth in Section 3.4 above; and
	 
	 	(c)	 	the Purchaser’s representations and warranties contained in Article 5 shall be
true and correct as at the date hereof and as at the Closing Date, the Vendor shall not
at the Closing Date be aware of any facts indicating to the contrary.

The foregoing conditions shall be for the sole benefit of the Vendors and may be waived in whole or
in part by the Vendors in writing. In the event that any of the foregoing conditions is not
satisfied or waived by the Closing Date, the Vendors shall be entitled to terminate this Agreement
by notice in writing given to the Purchaser on the Closing Date.

3.7 Failure of Purchaser to pay Purchase Price

     If the Purchaser fails to tender at Closing a bank draft for the Purchase Price less an amount
equal to the Deposit as adjusted for the Estimated Capital, and the Vendors elect to terminate this
Agreement on the Closing Date, then the Escrow Agent shall deliver the items listed in clause
3.2(a) to (h) inclusive to the Vendors and item listed as clause 3.2(i) to the Purchaser. In all
cases under this Agreement, should the transactions contemplated herein not close on the Closing
Date, for any reason, the Deposit shall be forfeited to the Vendors, the forfeiture of the Deposit
shall constitute a genuine pre-estimate of liquidated damages and shall fully satisfy all of the
Vendors’ claims against the Purchaser as the result of the Purchaser not completing the purchase
and sale herein contemplated and each party shall be released from its obligations under this
Agreement.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF THE VENDORS

4.1 Representations of Each Vendor

     Each Vendor severally (and not jointly or jointly and severally) represents and warrants to
the Purchaser as follows and acknowledges that the Purchaser is relying on such representations and
warranties in connection with its purchase of the Purchased Shares from such Vendor (irrespective
of any due diligence or other examinations or investigations conducted by or on behalf of the
Purchaser):

	 	(a)	 	Capacity
	 
	 	 	 	The Vendor, if the Vendor is an individual, is of the full age of majority and is
legally competent to execute this Agreement and take all actions pursuant hereto.

-8-

 

	 	(b)	 	Authority Relative to this Agreement
	 
	 	 	 	The Vendor, if the Vendor is a partnership or corporation, has the requisite
partnership or corporate authority (as the case may be) to enter into this Agreement
and to carry out its obligations hereunder. The execution and delivery of this
Agreement and the consummation by such Vendor of the transactions contemplated
hereby have been duly authorized by all necessary partnership action or by its board
of directors (as the case may be) and no other partnership or corporate proceedings
on its part are or will be necessary to authorize this Agreement and the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by such Vendor and constitutes a legal, valid and binding obligation of
the partnership or corporate Vendor (as the case may be) enforceable against it in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws relating to or affecting creditors’ rights
generally, and to general principles of equity.
	 
	 	(c)	 	No Other Agreement to Purchase or Options
	 
	 	 	 	No person, firm or corporation has any agreement, option, right or privilege
(whether by law, pre-emptive or contractual) capable of becoming an agreement,
including convertible securities, warrants or convertible obligations of any nature,
for the purchase, transfer and assignment of the Vendor’s Purchased Shares.
	 
	 	(d)	 	Good and Marketable Title to Purchased Shares
	 
	 	 	 	The Vendor is the registered and beneficial owner of the Purchased Shares as set
forth opposite their name in Schedule A, and has good and marketable title thereto,
and the Purchased Shares owned by the Vendor will on Closing be transferred to the
Purchaser, free and clear of all liens, encumbrances, security interests and other
third party claims and interests of any nature whatsoever.
	 
	 	(e)	 	Transferability of Purchased Shares
	 
	 	 	 	There are no Requisite Approvals or other restrictions of any nature on the sale and
transfer of the Purchased Shares to the Purchaser pursuant hereto, and the Vendor
has the absolute right to effect such sale and transfer, other than the approval of
the board of directors of the Company relating to the sale and transfer of the
Purchased Shares.
	 
	 	(f)	 	Execution and Delivery of Agreement
	 
	 	 	 	This Agreement has been duly executed and delivered by the Vendor and constitutes a
legal, valid and binding obligation enforceable against the Vendor in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws relating to or affecting creditors’ rights
generally, and to general principles of equity.
	 
	 	(g)	 	Residency
	 
	 	 	 	The Vendor is a resident of Canada for the purposes of the Income Tax Act (Canada).

-9-

 

4.2 Representations of the Principal Vendors

     Each Principal Vendor jointly and severally represents and warrants to the Purchaser as
follows and acknowledges that the Purchaser is relying on such representations and warranties in
connection with its purchase of the Purchased Shares from the Vendors (irrespective of any due
diligence or other examinations or investigations conducted on behalf of the Purchaser):

     (a) Respecting the Company

	 	(i)	 	Good Standing
	 
	 	 	 	The Company is, and at the Time of Closing shall continue to be, a
corporation duly organized, and valid and subsisting under the laws of the
Province of Alberta and has the corporate power to own or lease its property
and assets and to carry on its business as is now being conducted by it and
is duly registered to carry on business in each jurisdiction as the nature
of its business requires.
	 
	 	(ii)	 	No Conflicts
	 
	 	 	 	To the best of their knowledge, the consummation of the transactions
contemplated by this Agreement will not violate, nor be in conflict with,
any provision of its charter, by-laws or any agreement or instrument to
which the Company is a party or is bound, or any judgment, decree, order,
statute, rule or regulation applicable to the Company.
	 
	 	(iii)	 	Outstanding Financial Commitments
	 
	 	 	 	There are no material financial commitments of the Company that are now
outstanding or due, or that to the best of the Vendor’s knowledge, hereafter
may become due except as set forth in the Financial Statements.
	 
	 	(iv)	 	No Changes
	 
	 	 	 	The business and affairs of the Company will be carried on from the date
hereof to the Closing Date in the ordinary and normal course subject to the
provisions of this Agreement.
	 
	 	(v)	 	Accounts Receivable
	 
	 	 	 	There are no accounts receivable
	 
	 	(vi)	 	Minute Book
	 
	 	 	 	The minute book of the Company contains copies of minutes of all meetings
and all consent resolutions of the directors and shareholders of the Company
and the registers therein are current, true and correct.
	 
	 	(vii)	 	Books of Account and Operating Records
	 
	 	 	 	To the best of the knowledge of the Principal Vendors the books of account
and other records maintained by the Company of a financial or an accounting
nature are maintained in accordance with generally accepted accounting
practices,

-10-

 

	 	 	 	reflect the financial transactions of the Company and are maintained on a
basis consistent with previous practices of the Company, and the other
records relative to the operations of the Company have been maintained in
accordance with prudent business practices.
	 
	 	(viii)	 	No Default
	 
	 	 	 	It has no knowledge of, nor has it been informed of any material default or
notice of material default or violation of any order, rule, regulation,
unit, injunction, or decree of any court or governmental authority, or any
statute, or agreement to which the Company is a party which would materially
and adversely affect the business, property or financial condition of the
Company.
	 
	 	(ix)	 	Finders’ Fees
	 
	 	 	 	Neither it nor the Company have incurred any obligation or liability,
contingent or otherwise, for brokers’ or finders’ fees in respect of the
transaction herein for which the Purchaser will be liable.
	 
	 	(x)	 	No Judgments, Lawsuits or Claims
	 
	 	 	 	As of the date hereof, there are no judgments unsatisfied against the
Company or any consent decrees or injunctions to which the Company is
subject and to the knowledge of the Principal Vendors there are no claims,
proceedings, actions or lawsuits in existence or threatened against the
Company.
	 
	 	(xi)	 	Financial Statements
	 
	 	 	 	The Financial Statements have been prepared in accordance with Canadian
generally accepted accounting principles applied on a consistent basis and
the unaudited Financial Statements fairly present the financial condition of
the Company and the results of its operations for the periods therein
referred to and the Financial Statements do not contain any untrue statement
of a material fact and do not omit to state any material fact required to be
stated to make the Financial Statements not misleading.
	 
	 	(xii)	 	Bank Accounts
	 
	 	 	 	The only bank accounts, term deposits or safety deposit boxes which the
Company has is chequing account number 08-596-27, Branch 1405 at the
National Bank of Canada.
	 
	 	(xiii)	 	Employees and Consultants
	 
	 	 	 	The Company has no employees or consultants.
	 
	 	(xiv)	 	Subsidiaries
	 
	 	 	 	The Company does not have any subsidiaries or agreements to acquire any
subsidiary and will not, prior to Closing, acquire or agree to acquire any
subsidiary.

-11-

 

	 	(xv)	 	No Guarantees
	 
	 	 	 	The Company has not guaranteed, endorsed, assumed, or indemnified,
contingently or otherwise, the obligations or indebtedness of any person,
firm or corporation.
	 
	 	(xvi)	 	Non-Arm’s Length Loans
	 
	 	 	 	The Company has no loans or other indebtedness outstanding which has been
made to any of its shareholders, officers, directors or employees, past or
present, or any person not dealing at arm’s length with the Company.
	 
	 	(xvii)	 	Office Lease
	 
	 	 	 	The Company does not have any office leases.
	 
	 	(xviii)	 	Assets
	 
	 	 	 	The only asset owned or which has ever been owned by the Company is the
Royalty.

     (b) Respecting Taxes

	 	(i)	 	Taxation Year
	 
	 	 	 	The taxation year of the Company is December 31.
(ii) Tax Liabilities
	 
	 	 	 	Any tax, levy or charge, together with interest or penalties thereon which
have become due and which the Company is required to pay for any filing
period ending prior to Closing have been or will be duly paid by the Company
prior to Closing.
	 
	 	(iii)	 	Tax Withholding
	 
	 	 	 	All taxes and other assessments and levies which the Company is required by
law to withhold or collect prior to Closing including withholding taxes and
source deductions with respect to payments to employees and to the Vendors
have been duly withheld and collected and paid to the proper governmental
authorities or held by the Company for such payment.
	 
	 	(iv)	 	Tax Returns
	 
	 	 	 	Any Tax Returns of the Company required by the law of any jurisdiction to be
filed in respect of any filing period ending before Closing have been or
will be filed.
	 
	 	(v)	 	Tax Elections
	 
	 	 	 	The Company has not made or agreed to make any tax elections or
designations, entered into any tax agreements, filed any tax consents or
waivers or entered into
any agreements with any federal, provincial, state, local, municipal or
other tax authority.

-12-

 

	 	(vi)	 	Tax Assessments, Reassessments
	 
	 	 	 	Canadian federal and provincial income tax assessments have been issued to
the Company covering all prior taxation years up to and including the
taxation year ending on December 31, 2004.

     (c) Respecting the Royalty

	 	(i)	 	Title to Royalty
	 
	 	 	 	Except as set forth in this Agreement, the Vendors do not warrant title to
the Royalty but the Principal Vendors do warrant that from the date the
Royalty was granted to the Time of Closing, the Company has not done any act
or thing whereby the Royalty may be cancelled or terminated and the Royalty
and the Royalty Agreement on the date of execution of this Agreement and at
the Time of Closing will be free and clear of all liens, charges,
encumbrances, and adverse claims of any nature or kind.
	 
	 	(ii)	 	Validity of Royalty Agreement
	 
	 	 	 	To the knowledge of the Principal Vendors:

	 	(A)	 	the Royalty Agreement remains in full force and effect; and
	 
	 	(B)	 	the Corporation has not received any notice challenging the
validity of the Royalty Agreement or any portion thereof.

     (d) Respecting the Shares

	 	(i)	 	Share Capital of the Company
	 
	 	 	 	The authorized capital of the Company consists of:

	 	(A)	 	an unlimited number of Class A common shares;
	 
	 	(B)	 	an unlimited number of Class B common shares;
and
	 
	 	(C)	 	an unlimited number of Class A preferred shares,
	 
	 	 	 	and at Closing the Purchased Shares will be the only issued and outstanding shares of the Company.

	 	(ii)	 	No Rights to Acquire Unissued Securities
	 
	 	 	 	Other than as provided for in this Agreement, there are no agreements,
options, right or privileges, including convertible securities, warrants or
convertible obligations of any nature, relating to or providing for the
purchase, subscription, allotment or issuance of any of the authorized but
unissued shares in the capital of the Company.

-13-

 

ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

     The Purchaser represents and warrants to the Vendors as follows and acknowledges that the
Vendors are relying on such representations and warranties in connection with their sale and
transfer of the Purchased Shares (irrespective of any due diligence or other examinations or
investigations conducted by or on behalf of the Vendors):

5.1 Good Standing

     The Purchaser is, and at the Time of Closing shall continue to be, a corporation duly
organized, and valid and subsisting under the laws of its jurisdiction of incorporation and has the
corporate power to own or lease its property and assets and to carry on its business as is now
being conducted by it and is duly registered to carry on business in each jurisdiction as the
nature of its business requires.

5.2 No Conflicts

     To the best of its knowledge, the consummation of the transactions contemplated by this
Agreement will not violate, nor be in conflict with, any provision of its charter, by-laws or any
agreement or instrument to which it is a party or is bound, or any judgment, decree, order,
statute, rule or regulation applicable to it.

5.3 Authority Relative to this Agreement

     The Purchaser has the requisite corporate authority to enter into this Agreement and to carry
out its obligations hereunder. The execution and delivery of this Agreement and the consummation
by the Purchaser of the transactions contemplated hereby have been duly authorized by its board of
directors and no other corporate proceedings on its part are or will be necessary to authorize this
Agreement and the transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Purchaser and constitutes a legal, valid and binding obligation of the Purchaser
enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and other laws relating to or affecting creditors’ rights
generally, and to general principles of equity.

5.4 Finder’s Fees

     The Purchaser has not incurred any obligation or liability, contingent or otherwise, for
brokers or finders fees in respect of this transaction for which the Vendors shall have any
liability or obligations.

5.5 Investment Canada Act

     The Purchaser is not a non-Canadian within the meaning and for the purposes of the Investment
Canada Act (Canada).

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ARTICLE 6

LIMITATIONS

6.1 Representations and Warranties

     The Vendors and Purchaser make no representation, warranty or indemnity whatsoever except as
and to the extent expressly set forth in this Agreement. In particular the parties agree that
except for the representations and warranties set forth in Article 4 hereof, the Vendors expressly
negate and disclaim any liability and responsibility for any representation or warranty which may
have been made or alleged to have been made and which are contained in any instrument or document
relative hereto or the transactions herein provided for, or contained in any statement or
information made or communicated (orally or in writing) to the Purchaser including, without
limitation of the generality of the foregoing, any opinion, information or advice which may have
been provided to the Purchaser by any officer, shareholder, director, employee, agent, consultant
or representative of the Vendors.

6.2 Value Limitation

     The liability of each Vendor shall be several except for the Principal Vendors whose liability
only in respect of those representations and warranties in Section 4.2 shall be joint and several,
provided however that:

	 	(a)	 	the total liability of all Vendors shall not exceed the Purchase Price;
	 
	 	(b)	 	the liability of each Vendor, except the Principal Vendors, shall not exceed
the amount of the Purchase Price allocated to that Vendor, as more particularly set
forth in Schedule “A” attached hereto; and
	 
	 	(c)	 	the total liability of the Principal Vendors for breach of any representations
and warranties contained in Section 4.2, shall not exceed the Purchase Price, and in
all other cases shall not exceed the amount of the Purchase Price allocated to that
Principal Vendor, as more particularly set forth in Schedule “A” attached hereto.

ARTICLE 7

INTERIM PERIOD

7.1 Maintenance of Assets

     Until Closing, the Vendors shall cause the Company to:

	 	(a)	 	cause the assets to be maintained in a proper and prudent manner in accordance
with generally accepted oil and gas industry practices;
	 
	 	(b)	 	cause to be performed all covenants and conditions contained in the Royalty
Agreement and all other agreements relating to the Royalty; and
	 
	 	(c)	 	promptly provide notice to the Purchaser and consult with the Purchaser with
respect to any proposed changes or revisions to the Royalty Agreement or to the permits
which are subject to the Royalty.

	

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7.2 Financial and Corporate Information

     The Vendors shall cause the Company to make available to the Purchaser, and its solicitors,
auditors and other representatives at the Company’s Calgary office, all of its corporate,
accounting and financial records for the purpose of allowing the Purchasers and its solicitors,
auditors and other representatives to conduct such inspection as the Purchaser requires.

7.3 Negative Covenants

     The Vendors covenants with the Purchaser that during the period from the date of execution of
this Agreement until the earlier of Closing or termination of this Agreement, the Vendor shall not
permit the Company without the prior written consent of the Purchaser, to:

	 	(a)	 	No Encumbrances: sell, transfer or dispose of or create any mortgage,
pledge, lien, security interest or other encumbrance on or in respect of the Royalty;
	 
	 	(b)	 	No Transactions: enter into any transaction not in the ordinary course
of its business;
	 
	 	(c)	 	No Indebtedness: borrow money or incur any indebtedness for money
borrowed;
	 
	 	(d)	 	No Loans: make loans or advances;
	 
	 	(e)	 	Payments of Salary: pay or commit to pay any salary or consulting
fees;
	 
	 	(f)	 	No Dividends and Interest: declare, set aside, make or pay any
dividend or other distribution in respect of any securities issued by the Company;
	 
	 	(g)	 	Issuance of Shares: issue, sell or agree to issue or sell any shares,
rights, options, warrants, or other securities of the Company;
	 
	 	(h)	 	Purchase of Purchased Shares: purchase, cancel, retire, redeem or
otherwise acquire any of the Purchased Shares; or
	 
	 	(i)	 	Amendments: change, amend or modify its charter documents by-laws or
the Royalty Agreement.

ARTICLE 8

LIABILITY AND INDEMNIFICATION

8.1 Liability and Indemnification

     Subject to Section 6.2 and Section 8.2, the Vendors shall be severally (and not jointly or
jointly and severally) liable to the Purchaser for, and shall indemnify the Purchaser from and
against, any and all liability, loss, costs, claims or damages of any nature (including, without
limitation, indirect, consequential and special damages, and legal costs on a full indemnity basis)
suffered or incurred by the Purchaser (whether directly or by virtue of any third party claim) as a
result of any occurrence, matter or thing the occurrence, existence or non-disclosure of which
would constitute or give rise to a breach or failure of any representation, warranty, covenant,
agreement or other obligation of the Vendors or any of them hereunder.

-16-

 

8.2 Non-Exclusivity

     The rights and remedies conferred by Section 8.1 are not intended to be exclusive of any other
rights or remedies available to either party in connection with the breach or failure of any of the
covenants, warranties, representations or other obligations of the other party hereunder, and
nothing in the said Article 8 contained shall be construed as in any manner restricting or
derogating from any other such rights or remedies.

8.3 Enforcement Limitation

     No claim for breach of the covenants, representations and warranties set forth in this
Agreement or for misrepresentation herein or pursuant or with respect hereto of Vendors or
Purchaser shall be made or be enforceable, whether by legal proceedings or otherwise howsoever,
unless written notice of the claim setting out reasonable details of the full particulars of the
claim is given by the claimant to the other party within one (1) year of the Closing provided
however that any of the covenants, representations, warranties and indemnities set forth in this
Agreement relating to taxes shall continue in full force and effect until the expiry of all
statutory assessment or reassessment periods in respect of such taxes (or in the event of an
assessment or reassessment, settlement of all matters in relation thereto).

ARTICLE 9

GENERAL

9.1 Exclusivity

     The Vendors shall not after the date hereof initiate, pursue, entertain or consider any offer
or opportunity for the sale of the Purchased Shares or any portion thereof, to any person or entity
other than the Purchaser.

9.2 Communications

     All notices and other communications given in connection with this Agreement shall be in
writing. The respective addresses of the Vendors for the service of any such notices or other
communications are as set forth in Schedule “A” and the address for service for the Purchaser is as
follows:

WEST PEAK VENTURES OF CANADA LTD.

420 — 475 Howe Street

Vancouver BC V6C 2B3

Attention: Tim Brock

Fax: (604) 606-7980

     All notices and communications given in connection with this Agreement shall be sufficiently
given if addressed as aforesaid and either delivered by hand or by courier service to the intended
recipient’s address for service as set forth above, or sent by direct facsimile telecommunication
to such party at its fax number. Any notice so given shall be deemed to have been given and
received on the first Business Day on which it is delivered during normal business hours at the
address for service of the addressee thereof, or, in the case of a direct facsimile
telecommunication, on the day on which it is transmitted if transmitted prior to or during normal
business hours on a Business Day, or on the first Business Day following the day on which it is transmitted if transmitted otherwise. A party may
change its address for service by giving written notice thereof to the other parties.

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9.3 Transaction Costs

     Each of the parties shall be responsible for its own legal, accounting, evaluation and other
transaction fees and costs incurred in connection with the purchase and sale contemplated hereby.

9.4 Assignment

     None of the Vendors shall be entitled to assign any rights or obligations under or in respect
of this Agreement without the prior written consent of the Purchaser, which consent may be
unreasonably withheld. The Purchaser shall be entitled to assign the whole or any portion of its
interest in and in respect of this Agreement at any time prior to Closing.

9.5 Further Assurances

     Each of the parties shall from time to time and at all times following Closing, without
further consideration, do and perform all such further acts and things, and execute and deliver all
such further agreements, assurances, deeds, assignments, conveyances, notices, releases and other
documents and instruments, as may reasonably be required to more fully assure the transfer of the
Purchased Shares to the Purchaser in accordance with the provisions of this Agreement, and
otherwise to assure the carrying out of the intent and purpose of this Agreement.

9.6 Waiver

     No waiver by either party shall be effective unless in writing, and a waiver shall affect
only the matter, and the occurrence thereof, specifically identified in the writing granting such
waiver and shall not extend to any other matter or occurrence.

9.7 Non-Merger

     The provisions contained in this Agreement shall survive the Closing and shall not merge in
any conveyance, transfer, assignment or other document or instrument issuing pursuant hereto or in
connection herewith. Without limiting the generality of the foregoing, the liability of a party
for any breach of any of its representations, warranties, covenants, agreements or other
obligations hereunder prior to the completion of the purchase and sale contemplated hereby shall
not be extinguished or in any manner diminished by such completion.

9.8 Counterpart Execution

     This Agreement may be executed in separate counterparts and by fax, and the executed
counterparts shall together constitute one instrument and have the same force and effect as if both
of the parties had executed the same instrument.

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9.9 Enurement

     This Agreement shall enure to the benefit of and be binding upon the parties and their
respective heirs, executors, administrators, successors and assigns.

     IN WITNESS WHEREOF the parties have executed and delivered this Agreement on the date first
above written.

	 	 	 	 	 
	 

	 	 	 	 
	Witness
	 	 	 	 
	 
	 	 	 	 
	OR
	 	 	 	 
	 
	 	 	 	 
	 

	 	Per:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	Per:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	WEST PEAK VENTURES OF CANADA LTD.
	 
	 	 	 	 
	 

	 	Per:	 	 
	 

	 	 	 	 

(Exhibits intentionally omitted)

-19-

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