Document:

Exhibit 4.3 Certificate of Designation

CERTIFICATE
OF DESIGNATION

OF

SERIES
B PREFERRED STOCK OF

MIRAVANT
MEDICAL TECHNOLOGIES

(pursuant
to Section 151 of the Delaware General Corporation Law)

GARY
S. KLEDZIK and
JOSEPH
E. NIDA certify
that:

1. They are
the Chief Executive Officer and Secretary, respectively, of MIRAVANT
MEDICAL TECHNOLOGIES, a
Delaware corporation (the “Corporation”).

 

2. The
Corporation is authorized to issue THIRTY
MILLION (30,000,000) shares of
preferred stock. 

 

3. The
following resolutions were duly adopted by the Board of Directors:

 

WHEREAS, the
Amended and Restated Certificate of Incorporation (the “Certificate
of Incorporation”) of the
Corporation provides for a class of its authorized stock known as preferred
stock, comprising THIRTY
MILLION (30,000,000) shares,
par
value $0.01;

 

WHEREAS,
the Board
of Directors of the Corporation is authorized to determine the rights,
preferences, privileges and restrictions, including the dividend rights,
dividend rate, voting rights, conversion rights, rights and terms of redemption
and liquidation preferences of any wholly unissued series of preferred stock and
the number of shares constituting any series and the designation thereof, of any
of them; and

 

WHEREAS, the
Corporation has issued one series of preferred stock, the "Series
A-1 Preferred Stock,"
consisting of ONE
MILLION ONE HUNDRED AND TWELVE THOUSAND NINE HUNDRED AND SIXTY SIX
(1,112,966) shares;
and

 

WHEREAS,
the
Corporation wishes to issue a new class of preferred stock, "Series
B Preferred Stock."

 

NOW,
THEREFORE, BE IT RESOLVED, that the
Board of Directors does hereby provide for the issuance of the Series B
Preferred Stock and does hereby fix and determine the rights, preferences,
privileges, restrictions and other matters relating to the Series B Preferred
Stock as follows:

 

1. Designation. The
series of preferred stock shall consist of EIGHT
MILLION (8,000,000) shares
designated and known as “Series
B Preferred Stock.”

 

2. Voting.

 

(a) The
holders of the Series B Preferred Stock shall be entitled to notice of all
stockholder meetings in accordance with the Corporation’s bylaws, and except as
provided in the Certificate of Incorporation, any Certificate of Designation of
the Corporation, or as required by the Delaware General Corporation Law, the
holders of the Series B Preferred Stock shall be entitled to vote on all matters
submitted to the stockholders for a vote, voting together with the holders of
the Common Stock as a single class, with each share of Series B Preferred Stock
entitled to one vote for each share of Common Stock into which the Series B
Preferred Stock may be converted. This provision for determination of the number
of votes to which each holder of Series B Preferred Stock is entitled shall also
apply in cases in which the holders of Series B Preferred Stock have the right
to vote as a separate class.

 

(b) The
Corporation shall not, without the affirmative vote or written consent of the
holders of at least a majority of the then outstanding Series B Preferred Stock,
voting together as a separate class:

 

(i) repurchase
any shares of capital stock (except for the repurchase of shares of
capital stock from
directors, employees and consultants pursuant
to approval by the Board of Directors);

 

(ii) authorize,
create (by reclassification or otherwise) or issue, or obligate itself to issue,
any other equity
security, including any other security convertible into or exercisable for any
equity security, ranking
senior to or having a preference over the Series B Preferred Stock or ranking on
a parity therewith as to rights, preferences or privileges, including, without
limitation, as to voting, dividends or the distribution of assets upon
liquidation;

 

(iii) declare
or pay dividends on or make any distribution on account of the Corporation’s
Common Stock or Preferred Stock;

 

(iv) increase
or decrease the number of authorized shares of Series B Preferred
Stock;

 

(v) alter or
amend the rights, privileges, powers, preferences or limitations of the Series B
Preferred Stock by amendment of the Corporation's Certificate of Incorporation,
merger, consolidation or otherwise;

 

(vi) sell,
lease, license or otherwise dispose of all or substantially all of its assets,
or consolidate with or merge into any other corporation or entity, or permit any
other corporation or entity to consolidate or merge into it, or enter into a
plan of exchange with any other corporation or entity, unless following such
consolidation, merger or exchange the stockholders of this Corporation
immediately prior to such consolidation, merger or exchange own a majority of
the equity of the combined entity.

 

(vii) liquidate,
dissolve, wind-up the Corporation or seek relief under the provisions of the
bankruptcy or any insolvency laws, including without limitation, voluntary
dissolution, winding-up of its business, or the making of a creditors
arrangement, or the cessation of all or a substantial part of the Corporation's
business.

 

(viii) sell or
grant an exclusive license not in the ordinary course of business to, or
transfer of, all or substantially all of the material intellectual property of
the Corporation or its subsidiaries related to the Corporation's and its
subsidiaries' core technology or core products.

 

3. Dividends.
Each
holder of Series B Preferred Stock, in preference and priority to the holders of
all other classes of stock except for the Series A-1, A-2 and A-3 Preferred
Stock, shall be entitled to receive, with respect to each share of Series B
Preferred Stock then outstanding and held by such holder of Series B Preferred
Stock, dividends, commencing from the date of issuance of such share of Series B
Preferred Stock, at the rate of ten percent (10%) per annum of the Series B
Liquidation Preference (the “Series
B Preferred Dividends”). The
Series B Preferred Dividends shall be paid annually commencing one (1) year from
the date of issuance. The Corporation shall also declare and pay to the holders
of the Series B Preferred Stock at the same time that it declares and pays such
dividends to the holders of any capital stock of the Corporation, a dividend of
Ten Percent (10%) per annum of the Series B Liquidation Preference (on an as
converted to Common Stock basis). The Series B Preferred Dividends shall be
cumulative in the event unpaid. No dividend shall be paid or declared on or with
respect to any class or series of Junior Securities unless a dividend, payable
in the same consideration and manner, is simultaneously declared and paid, as
the case may be, on each share of Series B Preferred Stock in an amount
determined as set forth above. “Junior
Securities” means
the Common Stock of the Corporation and any other class or series of stock or
other equity securities of the Corporation ranking junior to the Series B
Preferred Stock in respect of rights on liquidation, dissolution and winding up
of the affairs of the Corporation.

 

4. Liquidation,
Dissolution or Winding Up.

 

(a) In the
event of any liquidation, dissolution or winding up of the Corporation,
either voluntary or involuntary (a “Liquidation
Event”), all
assets and funds of the Corporation legally available for distribution shall be
first distributed to the holders of the Series B Preferred Stock equal to ONE
DOLLAR ($1.00) per share (the "Series
B Liquidation Preference"), plus
accrued but unpaid dividends, after
distributions are first made to the Series A-1, A-2 ad A-3 Preferred Stock, but
prior to any other distributions to any Junior Securities. If upon such
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the assets to be distributed among the holders of the Series B
Preferred Stock and any class or series of capital stock ranking on a parity
with the Series B Preferred Stock as to such distributions shall be insufficient
to permit payment to the holders of the Series B Preferred Stock and any such
class or series of capital stock of their respective liquidation amount, then
the entire assets of the Corporation to be distributed shall be distributed,
following any liquidation preference of the Series A-1, A-2 and A-3 Preferred
Stock existing as of the date of this Certificate of Designation, pro rata to
the holders of Series B Preferred Stock and the holders of such class or series
of capital stock ranking on a parity with the Series B Preferred Stock as to
such distributions according to the preferential amounts due thereon. Unless
waived in writing by the holders of a majority of the Series B Preferred Stock
then outstanding, voting together as one class, either (i) the acquisition
of the Corporation by another entity by means of any transaction or series of
related transactions (including, without limitation, any reorganization, merger,
consolidation or similar transaction of the Corporation with or into any other
corporation or entity, but excluding any merger effected exclusively for the
purpose of changing the domicile of the Corporation), or (ii) a sale of all or
substantially all of the assets of the Corporation, in any case in which
transactions under clause (i) or (ii) above the Corporation's stockholders
immediately prior to such transaction own immediately after such transaction
less than a majority of the voting power of the surviving or acquiring entity
(each such transaction being hereinafter referred to as a “Corporate
Transaction”), shall
be deemed to be a Liquidation Event within the meaning of this Section
4;
provided, however, that the holder(s) of any share or shares of Series B
Preferred Stock shall have the right, at his, her or its option, upon
consummation of a Corporate Transaction, to require the Corporation to redeem
such holder(s) shares or shares of Series B Preferred Stock, for an amount equal
to such holder's Series B Liquidation Preference.

 

(b) The
dollar amounts specified in Section 4(a) shall be
equitably adjusted in the event of any stock splits, stock dividends or similar
capital modifications affecting the Common Stock or the Series B Preferred Stock
after the filing of this Certificate of Designation. No adjustment to any
Conversion Price (as defined hereinafter) pursuant to this Certificate of
Designation shall otherwise alter the above liquidation preference dollar
amounts.

 

(c) Insofar
as any distribution pursuant to Section 4(a) consists
of property other than cash, the value thereof shall, for purposes of the
provisions of Section 4(a), be the
Fair Market Value (as hereinafter defined) at the time of such
distribution.

 

5. Conversion.

 

(a) At the
election of each holder of Series B Preferred Stock at any time prior to or at
the occurrence of and upon compliance with the provisions of Section
5(b) as to
surrender thereof, each share of Series B Preferred Stock may be converted into
such number of fully paid and non-assessable shares of Common Stock as is
determined by dividing ONE DOLLAR ($1.00) by the applicable Conversion Price
(the “Conversion
Price”)
determined as hereinafter provided, in effect at the time of conversion. The
initial Conversion Price shall be ONE DOLLAR ($1.00), and will be subject to
adjustment as provided in Section
6
hereof.

 

(b) To
convert any or all of his, her or its shares of Series B Preferred Stock into
Common Stock, the holder shall surrender the certificate or certificates
evidencing such Series B Preferred Stock, duly endorsed, accompanied by a
written notice that the holder elects to convert such Series B Preferred Stock,
stating therein the name or names in which the holder wishes the certificate or
certificates for the Common Stock to be issued. As soon as practicable after the
surrender of such certificates and subject to compliance with applicable
securities laws, there shall be issued and delivered to such holder, or to the
holder's nominee or nominees, a certificate or certificates for the number of
Common Stock to which the holder shall be entitled, together with cash, if any,
in lieu of any fraction of a share as provided herein. Such conversion shall be
deemed to have been made as of the date of such surrender of the certificate or
certificates for Series B Preferred Stock to be converted, and on and after such
date the Person or Persons entitled to receive the Common Stock issued upon such
conversion shall be treated for all purposes as the record holder or holders of
such Common Stock.

 

(c) Any
Series B Preferred Stock which at any time has been converted shall be restored
to the status of authorized but unissued Preferred Stock and shall in no
circumstances be reissued as Series B Preferred Stock, and the Corporation may,
from time to time, take such appropriate action as may be necessary to reduce
the authorized Series B Preferred Stock accordingly.

 

(d) The
Corporation shall at all times reserve and keep available out of its authorized
Common Stock, solely for issuance upon the conversion of Series B Preferred
Stock, as herein provided, such number of Common Stock as shall, from time to
time, be issuable upon the conversion of all outstanding Series B Preferred
Stock.

 

(e) Upon any
conversion, at the election of the Corporation, fractional shares shall not be
issued but any fractions shall be adjusted by payment in cash by the Corporation
on the basis of the Market Price of the Common Stock at the close of business on
the date of conversion. For purposes hereof, “Market
Price” shall
be determined as follows:

 

(i) If the
Common Stock is traded on a national securities exchange or is listed on the
Nasdaq National Market (the “NNM”) or
other over-the-counter quotation system, the Market Price shall be the last
reported sale price of a share of Common Stock on such exchange or on the NNM or
other over-the-counter quotation system on the last business day before the
effective date of exercise of the net issuance election or if no such sale is
made on such day, the mean of the closing bid and asked prices for such day on
such exchange, the NNM or over-the-counter quotation system; and 

 

(ii) If the
Common Stock is not so listed and bid and ask prices are not reported, the
Market Price shall be the price per share of Common Stock which the Corporation
could obtain from a willing buyer for shares sold by the Corporation, as such
price shall be determined in good faith by the Corporation’s Board of Directors.

 

(f) The
Corporation shall pay all issue taxes, if any, incurred in respect of the
issuance of Common Stock on conversion; provided, however, that the Corporation
shall not be required to pay any transfer or other taxes incurred by reason of
the issuance of such Common Stock in names other than those in which the Series
B Preferred Stock surrendered for conversion is then registered.

 

(g) In case
the Corporation shall propose at any time to take any action described in
Section
4(a), then,
in each such case, the Corporation shall mail to the holders of record of Series
B Preferred Stock at their last known post office addresses as shown by the
Corporation's records, a statement, signed by an officer of the Corporation,
with respect to the proposed action, setting forth such facts with respect
thereto as shall be reasonably necessary to inform the holders of Series B
Preferred Stock as to the effect of such action upon their conversion rights.
Such statement shall be mailed at least twenty (20) days prior to the date of
the taking of such action.

 

6. Adjustments;
Priority Distributions; Reclassification; Reorganization and
Merger.

 

(a)  If the
Corporation increases or decreases the number of its issued and outstanding
shares of Common Stock, or changes in any way the rights and privileges of the
Common Stock, by means of (i) the making of a distribution on Common Stock
payable in Common Stock, (ii) the creation of a new series of stock, (iii) a
consolidation or combination of stock or (iv) a reclassification or
recapitalization involving its Common Stock, then the Conversion Price in effect
at the time of such action and the number of Common Stock into which the Series
B Preferred Stock is then convertible shall be adjusted to be the same as they
would have been if such Series B Preferred Stock had been converted immediately
prior to the occurrence of the event at issue and the Common Stock into which
the Series B Preferred Stock were convertible immediately prior to the event at
issue had been issued and outstanding at the time of such event.

 

(b)  If the
Corporation declares a distribution payable in cash on its Common Stock and at
substantially the same time offers to the holders of Common Stock a right to
purchase new Common Stock from the proceeds of such distribution or for an
amount substantially equal to such distribution, then the holders of Series B
Preferred Stock shall have the same subscription rights that such holders would
have been entitled to if such holders had converted all of the Series B
Preferred Stock into Common Stock immediately prior to such grant, and the
Corporation shall notify the holders of Series B Preferred Stock of such right
concurrently with notice to the holders of Common Stock of their subscription
right.

 

(c)  If at any
time the Corporation grants to the holders of Common Stock any right to
subscribe pro rata for additional securities of the Corporation, whether Common
Stock, convertible securities, or other classifications, or for any other
securities or interests that a holder of Series B Preferred Stock would have
been entitled to subscribe for if, immediately prior to such grant, such holder
had converted Series B Preferred Stock into Common Stock, and if such action by
the Corporation does not result in a readjustment of the Conversion Price under
any other subsection of this Section
6, then
the holders of Series B Preferred Stock shall have the same subscription rights
that such holders would have been entitled to if such holders had converted all
of the Series B Preferred Stock into Common Stock immediately prior to such
grant, and the Corporation shall notify the holders of Series B Preferred Stock
of such right concurrently with notice to the holders of Common Stock of their
subscription right.

 

(d)  In the
event the Corporation shall declare a distribution payable in securities of
other Persons or evidences of indebtedness issued by the Corporation or other
Persons, assets (excluding cash distributions), then, in each such case for the
purpose of this Section
6(d), the
holders of Series B Preferred Stock shall be entitled to a proportionate share
of any such distribution as though they were the holders of the number of Common
Stock of the Corporation into which their Series B Preferred Stock is
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Corporation entitled to receive such
distribution.

 

(e)  Upon the
occurrence of any of the following events, the Corporation shall cause any
effective provision to be made so that each holder of Series B Preferred Stock
shall have the right thereafter, by converting such Series B Preferred Stock, to
acquire the kind and amount of shares and other securities, and property and
interests, as would be issued or payable with respect to or in exchange for the
number of Common Stock of the Corporation into which the Series B Preferred
Stock is then convertible as if such Series B Preferred Stock had been converted
into Common Stock immediately prior to such event: (i) the reclassification,
capital reorganization or other similar change of outstanding Common Stock of
the Corporation, other than as described and provided for in Section
6(a); (ii)
the merger or consolidation of the Corporation with one or more other
corporations or other entities, other than a merger with a subsidiary or
affiliate pursuant to which the Corporation is the surviving Corporation and the
outstanding Common Stock, including the Common Stock into which the Series B
Preferred Stock is then convertible pursuant hereto, are not affected, or (iii)
the spin-off of assets, a subsidiary, or an affiliated entity, or the sale,
lease, or exchange of a significant portion of the Corporation's assets, in a
transaction pursuant to which the Corporation's stockholders are to receive
securities or other interests in a successor entity. Any such provision made by
the Corporation for adjustments with respect to the Series B Preferred Stock
shall be as nearly equivalent to the adjustments otherwise provided for herein
as is reasonably practicable.

 

(f)  If any
Liquidation Event is proposed, in addition to obtaining the requisite consent of
the holders of the Series B Preferred Stock as set forth in Section
2(b), and in
addition to the rights of the holders of the Series B Preferred Stock set forth
in Section
4(a), the
rights set forth herein shall be applicable. The Corporation shall deliver
written notice to each holder of Series B Preferred Stock no later than twenty
(20) days prior to the consummation of such Liquidation Event as a condition
precedent to the consummation of any such Liquidation Event. If, as a result of
such a Liquidation Event, stockholders of the Corporation are to receive
securities or other interests of a successor entity, the provisions of
Section
4(c) above
shall apply. However, if the result of such a Liquidation Event is that
stockholders of the Corporation are to receive money or property other than
securities or other interest in a successor entity, each holder of Series B
Preferred Stock shall be entitled to convert such shares into Common Stock prior
to the consummation of such Liquidation Event, and, with respect to any Common
Stock so acquired, shall be entitled to all of the rights of the other holders
of Common Stock with respect to any distribution by the Corporation in
connection with such Liquidation Event. If no successor entity is involved, all
conversion rights provided for herein shall terminate at the close of business
on the date as of which holders of record of the Common Stock shall be entitled
to participate in a distribution of the assets of the Corporation in connection
with such Liquidation Event; provided,
however, that in
no event shall that date be less than twenty (20) days after delivery to the
holders of Series B Preferred Stock of the written notice described above. If
the termination of conversion rights hereunder is to occur as a result of such
Liquidation Event, a statement to that effect shall be included in that written
notice.

 

(g)  If the
Corporation shall offer, sell, grant any option to purchase or offer, sell or
grant any right to re-price its securities, or otherwise dispose of or issue (or
announce any offer, sale, grant or any option to purchase or other disposition)
any Common Stock or Common Stock Equivalents entitling any Person to acquire
shares of Common Stock, at an effective price per share less than the Conversion
Price then in effect (such lower price, the “Issuance
Price”) (if
the holder of the Common Stock or Common Stock Equivalents so issued shall at
any time, whether by operation of purchase price adjustments, reset provisions,
floating conversion, exercise or exchange prices or otherwise, or due to
warrants, options or rights per share which is issued in connection with such
issuance, be entitled to receive shares of Common Stock at an effective price
per share which is less than the Conversion Price, such issuance shall be deemed
to have occurred for less than the Conversion Price), then, the Conversion Price
shall immediately be reduced to the Issuance Price. “Common
Stock Equivalents” means
any securities of the Corporation or any subsidiary which would entitle the
holder thereof to acquire at any time Common Stock, including without
limitation, any debt, preferred stock, rights, options, warrants or other
instrument that is at any time convertible into or exchangeable for, or
otherwise entitles the holder thereof to receive, Common Stock. This
Section
6(g) shall
not apply to (i) shares of Common Stock issued or issuable to officers,
directors and employees of, or consultants to, the Corporation pursuant to stock
grants, option plans, purchase plans or other employee stock incentive programs
or arrangements approved by the Board of Directors, or upon exercise of options
or warrants granted to such parties pursuant to any such plan or arrangements,
not to exceed 9,000,000 shares
in the aggregate, or (ii) shares of Common Stock issued or issuable to banks,
equipment lessors or other financial institutions pursuant to a debt financing
or commercial leasing transaction approved by the Board of
Directors.

 

(h)  Calculation
of Consideration Received. If any Common Stock, option or convertible security
is issued or sold or deemed to have been issued or sold for cash, the
consideration paid therefor shall be deemed to be the aggregate gross
consideration paid by the purchasers therefor before deducting any discounts,
commissions or other expenses in connection with the issuance and sale thereof.
If any Common Stock, option or convertible security is issued or sold for a
consideration other than cash, the amount of the consideration other than cash
received by the Corporation shall be the Fair Market Value of such
consideration. If any Common Stock, option or convertible security is issued to
the owners of the non-surviving entity in connection with any merger in which
the Corporation is the surviving entity, the amount of consideration therefor
shall be deemed to be the Fair Market Value of such portion of the net assets
and business of the non-surviving entity as is attributable to such Common
Stock, option or convertible security, as the case may be. “Fair Market Value”
shall mean, with respect to securities, the Market Price, and as to any other
property, the value of such property determined in good faith jointly by the
Board of Directors and the holders of a majority of the issued and outstanding
Series B Preferred Stock. 

 

(i) Notice
of Adjustments to Conversion Price.
Whenever the Conversion Price is adjusted pursuant to this Section
6, the
Corporation shall promptly mail to each holder of Series B Preferred Stock, a
notice setting forth the Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment.

 

RESOLVED,
FURTHER, that the
Chairman, the president or any vice-president, and the secretary or any
assistant secretary, of the Corporation be and they hereby are authorized and
directed to prepare and file a Certificate of Designation for the Series B
Preferred Stock in accordance with the foregoing resolution and the provisions
of Delaware law.

 

 

	
      #80039824.2
      
	
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We
declare, under penalty of perjury under the laws of the State of California,
that the matters set forth in this certificate are true and correct of our own
knowledge.

 

Date: May
3, 2005

 

____________________________________

GARY
S. KLEDZIK,

Chief
Executive Officer

____________________________________

JOSEPH
E. NIDA,

SecretaryExhibit 10.1 Series B Convertible Preferred Stock

SERIES
B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT

 

THIS
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is
entered into as of May
3, 2005, by and
between MIRAVANT
MEDICAL TECHNOLOGIES, a
Delaware corporation (the "Company"), with
headquarters located at 336 Bollay Drive, Santa Barbara, California 93117,
and the purchasers (collectively, the "Purchasers" and
each a "Purchaser") set
forth on Schedule 1 hereof,
with regard to the following:

 

RECITALS

 

A. The
Company and Purchasers are executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by the provisions of
Regulation D ("Regulation D"), as
promulgated by the United States Securities and Exchange Commission (the
"SEC") under
the Securities Act of 1933, as amended (the "Securities
Act").

 

B. The
Purchasers desire to (a) purchase, upon the terms and conditions stated in
this Agreement, shares of the Company's Series B Convertible Preferred Stock,
par value $0.01 per share (the "Preferred
Stock") and
the Certificate of Designation for the Preferred Stock is attached hereto as
Exhibit
A; and
(b) to purchase, upon the terms and conditions stated in this Agreement,
the Stock Purchase Warrants (the "Warrants"), in
the form attached hereto as Exhibit B, to
acquire shares of Common Stock. The shares of Common Stock issuable upon
exercise of or otherwise pursuant to the Warrants are referred to herein as
"Warrant
Shares". The
shares of Preferred Stock issued to the Purchasers hereunder (exclusive of the
Warrant Shares) are referred to herein as the "Preferred
Shares." The
Preferred Shares are initially convertible into one (1) share of Common Stock
for each share of Preferred Stock purchased. The shares of the Company's common
stock, par value $0.01 per share, issuable upon conversion of the Preferred
Shares are referred to herein as the "Conversion
Shares." The
Preferred Shares, the Warrants, the Warrant Shares and the Conversion Shares are
collectively referred to herein as the "Securities".

 

C. Contemporaneously
with the execution and delivery of this Agreement, the parties hereto are
executing and delivering a Registration Rights Agreement in the form attached
hereto as Exhibit C (the
"Registration
Rights Agreement," and
collectively with this Agreement, the Warrants and any other documents or
agreements executed in connection with the transactions contemplated hereunder,
the "Transaction
Documents"),
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act, the rules and regulations promulgated thereunder and
applicable state securities laws.

 

AGREEMENTS

 

NOW,
THEREFORE, in consideration of their respective promises contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company and Purchasers hereby agree as
follows:

 

ARTICLE
I  

 

PURCHASE
AND SALE OF PREFERRED STOCK AND WARRANTS

 

1.1  Purchase
of Preferred Stock and Warrants. Subject
to the terms and conditions of this Agreement, the issuance, sale and purchase
of the Preferred Shares and Warrants shall be consummated in a "Closing." The
purchase price (the "Purchase
Price") shall
be ONE DOLLAR ($1.00) per Unit. Each Unit will purchase one (1) share of
Preferred Stock, and a Warrant for the purchase of one (1) a share of
Common Stock at an exercise price of ONE DOLLAR ($1.00), with a term of
five (5) years. Each Purchaser agrees to purchase the amounts set forth on
Schedule 1 hereof.
On the date of the Closing, subject to the satisfaction or waiver of the
conditions set forth in ARTICLES VI and
VII hereof,
the Company shall issue and sell to each Purchaser, and each Purchaser severally
agrees to purchase from the Company, the number of shares of Preferred Stock set
forth on the signature page executed by such Purchaser. Each Purchaser's
obligation to purchase Preferred Shares and Warrants hereunder is distinct and
separate from each other Purchaser's obligation to purchase, and no Purchaser
shall be required to purchase hereunder more than the number of Preferred Shares
and Warrants set forth on such Purchaser's signature page. The obligations of
the Company with respect to each Purchaser shall be separate from the
obligations of each other Purchaser and shall not be conditioned as to any
Purchaser upon the performance of obligations of any other Purchaser.

 

1.2  Form
of Payment. Each
Purchaser shall pay the aggregate Purchase Price for the Preferred Shares and
Warrants being purchased by such Purchaser by wire transfer to the account
designated by the Company.

 

1.3  Conversion
of Preferred Stock. Each
share of Preferred Stock purchased is initially convertible into one (1) share
of Common Stock.

 

1.4  Closing
Fee. At the
Closing, the Company will pay Northeast Securities, Inc. (the "Placement
Agent") a four
percent (4%) placement fee of the total funds received hereunder. The Company
hereby agrees to indemnify and hold harmless the Placement Agent and its
officers, directors and shareholders, individually and collectively
("Placement
Agent Indemnified Person(s)") from
and against any and all claims, liabilities, losses, damages, costs and
reasonable expenses incurred by any Placement Agent Indemnified Person
(including reasonable fees and disbursements of counsel) which are related to or
arising out of: (i) any untrue statement of any material fact made by the
Company; or (ii) any omission of material fact necessary to make any statement
not misleading, made by the Company. The Company will not however, be
responsible for any claims, liabilities, losses, damages, or expenses, which
resulted directly or indirectly from the Placement Agent's negligence or willful
misconduct.

 

1.5  Closing
Date. Subject
to the satisfaction (or waiver) of the conditions set forth in ARTICLES VI and
VII below,
the date and time of the issuance, sale and purchase of the Preferred Shares and
Warrants pursuant to this Agreement shall be at 10:00 a.m. California time,
on May 3, 2005.

 

 

 

ARTICLE
II  

 

PURCHASER'S
REPRESENTATIONS AND

 

WARRANTIES

 

Each
Purchaser represents and warrants as of the date hereof and as of the Closing,
severally and solely with respect to itself and its purchase hereunder and not
with respect to any other Purchaser or the purchase hereunder by any other
Purchaser (and no Purchaser shall be deemed to make or have any liability for
any representation or warranty made by any other Purchaser), to the Company as
set forth in this ARTICLE II. No
Purchaser makes any other representations or warranties, express or implied, to
the Company in connection with the transactions contemplated hereby and any and
all prior representations and warranties, if any, which may have been made by a
Purchaser to the Company in connection with the transactions contemplated hereby
shall be deemed to have been merged in this Agreement and any such prior
representations and warranties, if any, shall not survive the execution and
delivery of this Agreement.

 

2.1  Investment
Purpose.
Purchaser is purchasing the Preferred Shares and the Warrants for Purchaser's
own account for investment only and not with a view toward or in connection with
the public sale or distribution thereof. Purchaser will not, directly or
indirectly, offer, sell, pledge or otherwise transfer its Preferred Shares or
Warrants or any interest therein except pursuant to transactions that are exempt
from the registration requirements of the Securities Act and/or sales registered
under the Securities Act. Purchaser understands that Purchaser must bear the
economic risk of this investment indefinitely, unless the Securities are
registered pursuant to the Securities Act and any applicable state securities
laws or an exemption from such registration is available, and that the Company
has no present intention of registering any such Securities other than as
contemplated by the Registration Rights Agreement.

 

2.2  Accredited
Investor Status.
Purchaser is an "accredited investor" as that term is defined in
Rule 501(a) of Regulation D.

 

2.3  Reliance
on Exemptions.
Purchaser understands that the Preferred Shares and Warrants are being offered
and sold to Purchaser in reliance upon specific exemptions from the registration
requirements of United States federal and state securities laws and that the
Company is relying upon the truth and accuracy of, and Purchaser's compliance
with, the representations, warranties, agreements, acknowledgments and
understandings of Purchaser set forth herein in order to determine the
availability of such exemptions and the eligibility of Purchaser to acquire the
Preferred Shares and Warrants.

 

2.4  Information. The
Company has made available all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Securities which have been specifically requested by Purchaser, including
without limitation the Company's Annual Report on Form 10-K for the year ended
December 31, 2004 filed with the SEC (such documents collectively, the
"SEC
Documents").
Purchaser has been afforded the opportunity to ask questions of the Company, was
permitted to meet with the Company's officers and has received what the
Purchaser believes to be complete and satisfactory answers to any such
inquiries. Neither such inquiries nor any other due diligence investigation
conducted by Purchaser or any of its representations shall modify, amend or
affect Purchaser's right to rely on the Company's representations and warranties
contained in ARTICLE III.
Purchaser understands that Purchaser's investment in the Securities involves a
high degree of risk, including without limitation the risks and uncertainties
disclosed in the SEC Documents.

 

2.5  Governmental
Review.
Purchaser understands that no United States federal or state agency or any other
government or governmental agency has passed upon or made any recommendation or
endorsement of the Securities.

 

2.6  Transfer
or Resale.
Purchaser understands that (i) except as provided in the Registration
Rights Agreement, the Securities have not been and are not being registered
under the Securities Act or any state securities laws, and may not be offered,
sold, pledged or otherwise transferred unless subsequently registered thereunder
or an exemption from such registration is available (which exemption the Company
expressly agrees may be established as contemplated in clauses (b) and (c) of
Section 5.1
hereof);
(ii) any sale of such Securities made in reliance on Rule 144 under the
Securities Act (or a successor rule) ("Rule 144") may be
made only in accordance with the terms of Rule 144 and further, if
Rule 144 is not applicable, any resale of such Securities without
registration under the Securities Act under circumstances in which the seller
may be deemed to be an underwriter (as that term is defined in the Securities
Act) may require compliance with some other exemption under the Securities Act
or the rules and regulations of the SEC thereunder in order for such resale to
be allowed, (iii) the Company is under no obligation to register such
Securities under the Securities Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder (in each case, other
than pursuant to this Agreement or the Registration Rights Agreement) and
(iv) the Company has agreed to register the shares of Preferred Stock as
provided in the Registration Rights Agreement.

 

2.7  Legends.
Purchaser understands that, subject to ARTICLE V hereof,
the certificates for the Warrants and, until such time as the Conversion Shares
and Warrant Shares have been registered under the Securities Act as contemplated
by the Registration Rights Agreement or otherwise may be sold by Purchaser
pursuant to Rule 144 (subject to and in accordance with the procedures specified
in ARTICLE V hereof),
the certificates for the Preferred Shares, Conversion Shares and Warrant Shares
and the Warrants will bear a restrictive legend (the "Legend") in the
following form:

 

THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER APPLICABLE SECURITIES LAWS OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.

 

2.8  Authorization;
Enforcement. This
Agreement and the Registration Rights Agreement have been duly and validly
authorized, executed and delivered on behalf of Purchaser and are valid and
binding agreements of Purchaser enforceable in accordance with their respective
terms, except to the extent that such validity or enforceability may be subject
to or affected by any bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors' rights or remedies of creditors generally, or by other equitable
principles of general application.

 

2.9  Residency.
Purchaser is a resident of the jurisdiction set forth under Purchaser's name on
the signature page hereto executed by Purchaser.

 

2.10  SBIC
Status.
Purchaser is a federally licensed Small Business Investment Company under the
Small Business Investment Act of 1958. As such, it is required to submit certain
information from its portfolio companies and its is required that all portfolio
companies sign certain representations that they will provide such information.
In additional, the Small Business Administration ("SBA") examiners may require
access to a portfolio company's books and records.

 

ARTICLE
III  

 

REPRESENTATIONS
AND WARRANTIES OF THE COMPANY

 

The
Company represents and warrants to each Purchaser as of the date hereof and as
of the Closing that:

 

3.1  Organization
and Qualification. Each of
the Company and its subsidiaries is a corporation duly organized and existing in
good standing under the laws of the jurisdiction in which it is incorporated,
and has the requisite corporate power to own its properties and to carry on its
business as now being conducted. The Company and each of its subsidiaries is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction where the failure so to qualify or be in good standing
could reasonably be expected to have a Material Adverse Effect. "Material
Adverse Effect" means
any effect which, individually or in the aggregate with all other effects,
reasonably would be expected to be materially adverse to the business,
operations, properties, financial condition, operating results or prospects of
the Company and its subsidiaries, taken as a whole on a consolidated basis or on
the transactions contemplated hereby.

 

3.2  Authorization;
Enforcement.
(a) The Company has the requisite corporate power and authority to enter
into and perform under the Transaction Documents, and to issue, sell and perform
its obligations with respect to the Securities in accordance with the terms
hereof and thereof and in accordance with the terms and conditions of the
Securities; (b) the execution, delivery and performance of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby and thereby (including, without limitation, the issuance of
the Preferred Shares and the Warrants, and, upon approval of the Proposal (as
defined in Section
4.6), the
issuance and reservation for issuance of the Warrant Shares) have been duly
authorized by all necessary corporate action and, except as set forth on
Schedule 3.2 hereof,
no further consent or authorization of the Company, its board of directors, or
its stockholders or any other Person is required with respect to any of the
transactions contemplated hereby or thereby; (c)  this Agreement, the
Registration Rights Agreement, the Preferred Shares, and the Warrants have been
duly executed and delivered by the Company; and (d) this Agreement, the
Registration Rights Agreement, the Preferred Shares, and the Warrants constitute
legal, valid and binding obligations of the Company enforceable against the
Company in accordance with their respective terms, except (i) to the extent
that such validity or enforceability may be subject to or affected by any
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally the enforcement of, creditors' rights or
remedies of creditors generally, or by other equitable principles of general
application, and (ii) as rights to indemnity and contribution under the
Registration Rights Agreement may be limited by federal or state securities
laws. "Person" means
any individual, sole proprietorship, partnership, limited liability company,
joint venture, trust, unincorporated association, corporation, entity or
government (whether federal, state, county, city or otherwise, including,
without limitation, any instrumentality, division, agency or department
thereof).

 

3.3  Capitalization. The
capitalization of the Company as of March 31, 2005, including the authorized
capital stock, the number of shares issued and outstanding, the number of shares
reserved for issuance pursuant to the Company's stock option plans, the number
of shares reserved for issuance pursuant to securities (other than the Warrants)
exercisable for, or convertible into or exchangeable for, any shares of
Preferred Stock and the number of shares to be reserved for issuance upon
exercise of the Warrants is set forth on Schedule 3.3 hereof.
All of such outstanding shares of capital stock have been, or upon issuance will
be, validly issued, fully paid and nonassessable. No shares of capital stock of
the Company (including the Preferred Shares and the Warrant Shares) are subject
to preemptive rights or any other similar rights of the stockholders of the
Company or any liens or encumbrances. Except as disclosed in Schedule 3.3 hereof,
as of the date of this Agreement, (i) there are no outstanding options,
warrants, scrip, rights to subscribe for, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exercisable
or exchangeable for, any shares of capital stock of the Company or any of its
subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries,
(ii) issuance of the Securities will not trigger antidilution rights for
any other outstanding or authorized securities of the Company, and
(iii) there are no agreements or arrangements under which the Company or
any of its subsidiaries is obligated to register the sale of any of its or their
securities under the Securities Act (except the Registration Rights Agreement).
The Company has made available to Purchaser true and correct copies of the
Company's Certificate of Incorporation as in effect on the date hereof
("Certificate
of Incorporation"), and
the Company's By-laws as in effect on the date hereof (the "By-laws"). The
Company has set forth on Schedule 3.3 hereof
all instruments and agreements (other than the Certificate of Incorporation and
By-laws) governing securities convertible into or exercisable or exchangeable
for Preferred Stock of the Company (and the Company shall provide to Purchaser
copies thereof upon the request of Purchaser).

 

3.4  Issuance
of Shares. The
Preferred Shares are duly authorized and reserved for issuance. The Company has
currently 8,739,950 shares of Common Stock duly authorized and reserved for
issuance pursuant to the conversion of the Preferred Shares and the exercise of
the Warrants. Such shares, as well as any additional shares of Common Stock
subsequently authorized by the Company's stockholders and Board of Directors for
issuance pursuant to the conversion of the Preferred Shares, and, in the case of
the Warrant Shares, upon the exercise of the Warrants in accordance with the
terms thereof, as applicable, will be validly issued, fully paid and
non-assessable, and free from all taxes, liens, claims and encumbrances imposed
or suffered by the Company and will not be subject to preemptive rights or other
similar rights of stockholders of the Company. The Preferred Shares and Warrants
are duly authorized and validly issued, fully paid and nonassessable, and free
from all liens, claims and encumbrances imposed or suffered by the Company and
are not and will not be subject to preemptive rights or other similar rights of
stockholders of the Company.

 

3.5  No
Conflicts. The
execution, delivery and performance of the Transaction Documents by the Company,
and the consummation by the Company of transactions contemplated hereby and
thereby (including, without limitation, the issuance and reservation for
issuance, as applicable, of the Securities) do not and will not (a) result
in a violation of the Certificate of Incorporation or By-laws or
(b) conflict with, or constitute a default (or an event which, with notice
or lapse of time or both, would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, or result in a violation of any law, rule, regulation,
order, judgment or decree (including U.S. federal and state securities laws)
applicable to the Company or any of its subsidiaries, or by which any property
or asset of the Company or any of its subsidiaries, is bound or affected (except
for such possible conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the aggregate,
have a Material Adverse Effect). Neither the Company nor any of its subsidiaries
is in violation of its Certificate of Incorporation or other organizational
documents. Neither the Company nor any of its subsidiaries, is in default (and
no event has occurred which has not been waived which, with notice or lapse of
time or both, could reasonably be expected to put the Company or any of its
subsidiaries in default) under, nor has there occurred any event giving others
(with notice or lapse of time or both) any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, except for possible
violations, defaults or rights as would not, individually or in the aggregate,
have a Material Adverse Effect. The businesses of the Company and its
subsidiaries are not being conducted, and shall not be conducted so long as a
Purchaser owns any of the Securities, in violation of any law, ordinance or
regulation of any governmental entity, except for possible violations the
sanctions for which either individually or in the aggregate would not have a
Material Adverse Effect. Except as (A) such as may be required under the
Securities Act in connection with the performance of the Company's obligations
under the Registration Rights Agreement, (B) filing of a Form D with
the SEC, and (C) compliance with the state securities or Blue Sky laws of
applicable jurisdictions, the Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency or any regulatory or self-regulatory agency in order for it
to execute, deliver or perform any of its obligations under this Agreement or
the Registration Rights Agreement or to perform its obligations in accordance
with the terms hereof or thereof.

 

3.6  Consents. Except
for approval of the Proposal by its stockholders as contemplated in Section
4.6, the
execution, delivery and performance by the Company of the Transaction Documents
and the offer, issuance and sale of the Securities require no consent of, action
by or in respect of, or filing with, any Person, governmental body, agency, or
official other than (i) filings that have been made pursuant to applicable state
securities laws, and (ii) post-sale filings pursuant to applicable state and
federal securities laws. Subject to the accuracy of the representations and
warranties of each Purchaser set forth in ARTICLE
II hereof,
the Company has taken all action necessary to exempt (i) the issuance and sale
of the Preferred Shares, (ii) the issuance of the Conversion Shares upon the due
conversion of the Preferred Shares, (iii) the issuance of the Warrants, and (iv)
the issuance of the Warrant Shares upon due conversion of the Warrants, from the
provisions of any stockholder rights plan or other “poison pill” arrangement,
any anti-takeover, business combination or control share law or statute binding
on the Company or to which the Company or any of its assets and properties may
be subject and any provision of the Company’s Certificate of Incorporation or
By-laws that is or could reasonably be expected to become applicable to the
Purchasers as a result of the transactions contemplated hereby, including
without limitation, the issuance of the Securities and the ownership,
disposition or voting of the Securities by the Purchasers or the exercise of any
right granted to the Purchaser pursuant to this Agreement or the other
Transaction Documents.

 

3.7  SEC
Documents; Financial Statements. Since
December 31, 2004, the Company has timely filed the SEC Documents required
to be filed by it with the SEC pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The
Company has made available to each Purchaser true and complete copies of the SEC
Documents. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. None of the statements made in any such SEC Documents which is
required to be updated or amended under applicable law has not been so updated
or amended. The consolidated financial statements of the Company included in the
SEC Documents have been prepared in accordance with U.S. generally accepted
accounting principles, consistently applied, and the rules and regulations of
the SEC during the periods involved (except (i) as may be otherwise
indicated in such consolidated financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they do not
include footnotes or are condensed or summary statements) and present accurately
and completely the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). Except as
set forth in a manner clearly evident to a sophisticated institutional investor
in the consolidated financial statements or the notes thereto of the Company
included in the SEC Documents, the Company has no liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business consistent with past practice subsequent to the date of such financial
statements and (ii) obligations under contracts and commitments incurred in
the ordinary course of business consistent with past practice and not required
under generally accepted accounting principles to be reflected in such financial
statements. To the extent required by the rules of the SEC applicable thereto,
the SEC Documents contain a complete and accurate list of all material
undischarged written or oral contracts, agreements, leases or other instruments
to which the Company or any subsidiary is a party or by which the Company or any
subsidiary is bound or to which any of the properties or assets of the Company
or any subsidiary is subject (each a "Contract"). None
of the Company, its subsidiaries or, to the Company's Knowledge, any of the
other parties thereto, is in breach or violation of any Contract, which breach
or violation would have a Material Adverse Effect. No event, occurrence or
condition exists which, with the lapse of time, the giving of notice, or both,
could become a default by the Company or its subsidiaries thereunder which could
reasonably be expected to have a Material Adverse Effect. For purposes of this
Agreement, "Company's
Knowledge" means
the actual knowledge of the executive officers (as defined in Rule 405 under the
Securities Act) of the Company, after due inquiry.

 

3.8  Absence
of Certain Changes. Since
December 31, 2004, there has been no material adverse change and no material
adverse development in the business, properties, operations, financial
condition, results of operations or prospects of the Company, or clearly evident
to a sophisticated institutional investor from the SEC Documents, including,
without limitation:

 

(i)  any
change in the consolidated assets, liabilities, financial condition or operating
results of the Company from that reflected in the financial statements included
in the Company's Annual Report on Form 10-K for the year ended December 31,
2004, except for changes in the ordinary course of business which have not and
could not reasonably be expected to have a Material Adverse Effect, individually
or in the aggregate;

 

(ii)  any
declaration or payment of any dividend, or any authorization or payment of any
distribution, on any of the capital stock of the Company, or any redemption or
repurchase of any securities of the Company;

 

(iii)  any
material damage, destruction or loss, whether or not covered by insurance to any
assets or properties of the Company or its subsidiaries;

 

(iv)  any
waiver, not in the ordinary course of business, by the Company or any subsidiary
of a material right or of a material debt owed to it;

 

(v)  any
satisfaction or discharge of any lien, claim or encumbrance or payment of any
obligation by the Company or a subsidiary, except in the ordinary course of
business and which is not material to the assets, properties, financial
condition, operating results or business of the Company and its subsidiaries
taken as a whole (as such business is presently conducted and as it is proposed
to be conducted);

 

(vi)  any
change or amendment to the Company's Certificate of Incorporation or By-laws, or
material change to any material contract or arrangement by which the Company or
any subsidiary is bound or to which any of their respective assets or properties
is subject;

 

(vii)  any
material labor difficulties or labor union organizing activities with respect to
employees of the Company or any subsidiary;

 

(viii)  any
material transaction entered into by the Company or a subsidiary other than in
the ordinary course of business;

 

(ix)  the loss
of the services of any key employee, or material change in the composition or
duties of the senior management of the Company or any subsidiary;

 

(x)  the loss
or threatened loss of any customer which has had or could reasonably be expected
to have a Material Adverse Effect; or

 

(xi)  any other
event or condition of any character that has had or could reasonably be expected
to have a Material Adverse Effect.

 

3.9  Absence
of Litigation. Except
as disclosed in Schedule 3.9, there
is no action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, or self-regulatory organization or body pending
or, to the Company's Knowledge or any of its subsidiaries, threatened against or
affecting the Company, any of its subsidiaries, or any of their respective
directors or officers in their capacities as such. There are no facts known to
the Company which, if known by a potential claimant or governmental authority,
could reasonably be expected to give rise to a claim or proceeding which, if
asserted or conducted with results unfavorable to the Company or any of its
subsidiaries, could reasonably be expected to have a Material Adverse
Effect.

 

3.10  Tax
Matters. Except
as described in Schedule
3.10, the
Company and each subsidiary has timely prepared and filed all tax returns
required to have been filed by the Company or such subsidiary with all
appropriate governmental agencies and timely paid all taxes shown thereon or
otherwise owed by it. The charges, accruals and reserves on the books of the
Company in respect of taxes for all fiscal periods are adequate in all material
respects, and there are no material unpaid assessments against the Company or
any subsidiary nor, to the Company's Knowledge, any basis for the assessment of
any additional taxes, penalties or interest for any fiscal period or audits by
any federal, state or local taxing authority except for any assessment which is
not material to the Company and its subsidiaries, taken as a whole. All taxes
and other assessments and levies that the Company or any subsidiary is required
to withhold or to collect for payment have been duly withheld and collected and
paid to the proper governmental entity or third party when due. There are no tax
liens or claims pending or, to the Company's Knowledge, threatened against the
Company or any subsidiary or any of their respective assets or property. Except
as described on Schedule
3.10, there
are no outstanding tax sharing agreements or other such arrangements between the
Company and any subsidiary or other corporation or entity.

 

3.11  Transactions
with Affiliates. Except
as disclosed in the SEC Documents, none of the officers or directors of the
Company and, to the Company's Knowledge, none of the employees of the Company is
presently a party to any transaction with the Company or any subsidiary (other
than as holders of stock options and/or warrants, and for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the Company's Knowledge, any entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.

 

3.12  Internal
Controls. The
Company and the subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
difference. The Company maintains and will continue to maintain a standard
system of accounting established and administered in accordance with GAAP and
the applicable requirements of the Exchange Act. The Company's officers
certified to the Company's internal controls as of the filing of the Company's
Form 10-K for the period ending December 31, 2004 and since that date, that
there have been no significant changes in the Company's internal controls (as
such term is defined in Section 307(b) of Regulation S-K) or, to the Company's
Knowledge, any other facts that would significantly affect the Company's
internal controls. The Company is not required at this date to certify its
internal controls under Section 404 of the Sarbanes-Oxley Act of 2002 and has
not taken any steps necessary to evaluate its internal controls to determine
whether it will be able to take such a certification.

 

3.13  Disclosure. No
information relating to or concerning the Company set forth in this Agreement
contains an untrue statement of a material fact. No information relating to or
concerning the Company set forth in any of the SEC Documents contains a
statement of material fact that was untrue as of the date such SEC Document was
filed with the SEC. The Company has not omitted to state a material fact
necessary in order to make the statements made herein or therein, in light of
the circumstances under which they were made, not misleading. Except for the
execution and performance of this Agreement, no material fact (within the
meaning of the federal securities laws of the United States and of applicable
state securities laws) exists with respect to the Company which has not been
publicly disclosed.

 

3.14  Acknowledgment
Regarding Purchaser's Purchase of the Securities. The
Company acknowledges and agrees that Purchaser is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect to
this Agreement or the transactions contemplated hereby, that this Agreement and
the transaction contemplated hereby, and the relationship between each Purchaser
and the Company, are "arms-length," and that any statement made by Purchaser
(except as set forth in ARTICLE II), or any
of its representatives or agents, in connection with this Agreement and the
transactions contemplated hereby is not advice or a recommendation, is merely
incidental to Purchaser's purchase of the Securities and has not been relied
upon as such in any way by the Company, its officers or directors. The Company
further represents to Purchaser that the Company's decision to enter into this
Agreement and the transactions contemplated hereby have been based solely on an
independent evaluation by the Company and its representatives.

 

3.15  S-3
Registration. The
Company is not currently eligible to register the resale by Purchaser of the
Warrant Shares and to register the Conversion Shares on a registration statement
on Form S-3 under the Securities Act because the Company's shares of Common
Stock must be listed on a national exchange or Nasdaq. However, the Company will
use its commercially reasonable best efforts to become eligible to register the
Warrant Shares and the Conversion Shares on a Form S-2 after the
Closing.

 

3.16  No
General Solicitation. Neither
the Company nor any distributor participating on the Company's behalf in the
transactions contemplated hereby (if any) nor any person acting for the Company,
or any such distributor, has conducted any "general solicitation," as described
in Rule 502(c) under Regulation D, with respect to any of the
Securities being offered hereby.

 

3.17  No
Integrated Offering. Neither
the Company, nor any of its affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales of any security or
solicited any offers to buy any security under circumstances that would prevent
the parties hereto from consummating the transactions contemplated hereby
pursuant to an exemption from the registration under the Securities Act pursuant
to the provisions of Regulation D. The transactions contemplated hereby are
exempt from the registration requirements of the Securities Act, assuming the
accuracy of the representations and warranties herein contained of each
Purchaser.

 

3.18  No
Brokers. The
Company has taken no action which would give rise to any claim by any person for
brokerage commissions, finder's fees or similar payments by Purchaser relating
to this Agreement or the transactions contemplated hereby.

 

3.19  Intellectual
Property.

 

(i)  To the
Company's Knowledge, all Intellectual Property of the Company and its
subsidiaries is currently in compliance with all legal requirements (including
timely filings, proofs and payments of fees) and is valid and enforceable,
except where the failure to be in compliance or to be valid and enforceable has
not and could not reasonably be expected to have a Material Adverse Effect on
the Company and its subsidiaries taken as a whole. No Intellectual Property of
the Company or its subsidiaries which is necessary for the conduct of Company's
and each of its subsidiaries' respective businesses as currently conducted or as
currently proposed to be conducted has been or is now involved in any
cancellation, dispute or litigation, and, to the Company's Knowledge, no such
action is threatened. No patent of the Company or its subsidiaries has been or
is now involved in any interference, reissue, re-examination or opposition
proceeding. "Intellectual
Property" means
all of the following: (a) patents, patent applications, patent disclosures and
inventions (whether or not patentable and whether or not reduced to practice);
(b) trademarks, service marks, trade dress, trade names, corporate names, logos,
slogans and Internet domain names, together with all goodwill associated with
each of the foregoing; (c) copyrights and copyrightable works; (d)
registrations, applications and renewals for any of the foregoing; and (e)
proprietary computer software (including but not limited to data, data bases and
documentation).

 

(ii)  All of
the licenses and sublicenses and consent, royalty or other agreements concerning
Intellectual Property which are necessary for the conduct of the Company's and
each of its subsidiaries' respective businesses as currently conducted or as
currently proposed to be conducted to which the Company or any subsidiary is a
party or by which any of their assets are bound (other than generally
commercially available, non custom, off the shelf software application programs
having a retail acquisition price of less than $10,000 per license)
(collectively, "License
Agreements") are
valid and binding obligations of the Company or its subsidiaries that are
parties thereto and, to the Company's Knowledge, the other parties thereto,
enforceable in accordance with their terms, except to the extent that
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other similar laws affecting the
enforcement of creditors' rights generally, and there exists no event or
condition which will result in a material violation or breach of or constitute
(with or without due notice or lapse of time or both) a default by the Company
or any of its subsidiaries under any such License Agreement.

 

(iii)  The
Company and its subsidiaries own or have the valid right to use all of the
Intellectual Property that is necessary for the conduct of the Company's and
each of its subsidiaries' respective businesses as currently conducted or as
currently proposed to be conducted and for the ownership, maintenance and
operation of the Company's and its subsidiaries' properties and assets, free and
clear of all liens, encumbrances, adverse claims or obligations to license all
such owned Intellectual Property, other than licenses entered into in the
ordinary course of the Company's and its subsidiaries' businesses. The Company
and its subsidiaries have a valid and enforceable right to use all third party
Intellectual Property and confidential information used or held for use in the
respective businesses of the Company and its subsidiaries.

 

(iv)  To the
Company's Knowledge, the conduct of the Company's and its subsidiaries'
businesses as currently conducted does not infringe or otherwise impair or
conflict with (collectively, "Infringe") any
Intellectual Property rights of any third party or any confidentiality
obligation owed to a third party, and, to the Company's Knowledge, the
Intellectual Property and confidential information of the Company and its
subsidiaries which are necessary for the conduct of Company's and each of its
subsidiaries' respective businesses as currently conducted or as currently
proposed to be conducted are not being Infringed by any third party. There is no
litigation or order pending or outstanding or, to the Company's Knowledge,
threatened or imminent, that seeks to limit or challenge or that concerns the
ownership, use, validity or enforceability of any Intellectual Property or
confidential information of the Company and its subsidiaries and the Company's
and its subsidiaries' use of any Intellectual Property or confidential
information owned by a third party, and, to the Company's Knowledge, there is no
valid basis for the same.

 

(v)  The
consummation of the transactions contemplated hereby will not result in the
alteration, loss, impairment of or restriction on the Company's or any of its
subsidiaries' ownership or right to use any of the Intellectual Property or
confidential information which is necessary for the conduct of Company's and
each of its subsidiaries' respective businesses as currently conducted or as
currently proposed to be conducted.

 

(vi)  The
Company and its subsidiaries have taken reasonable steps to protect the
Company's and its subsidiaries' rights in their Intellectual Property. Each
employee, consultant and contractor who has had access to confidential
information which is necessary for the conduct of Company's and each of its
subsidiaries' respective businesses as currently conducted or as currently
proposed to be conducted has executed an agreement to maintain the
confidentiality of such confidential information and has executed appropriate
agreements that are substantially consistent with the Company's standard forms
thereof. Except under confidentiality obligations, there has been no material
disclosure of any of the Company's or its subsidiaries' confidential information
to any third party.

 

3.20  Environmental
Matters. Neither
the Company nor any subsidiary is in violation of any statute, rule, regulation,
decision or order of any governmental agency or body or any court, domestic or
foreign, relating to the use, disposal or release of hazardous or toxic
substances or relating to the protection or restoration of the environment or
human exposure to hazardous or toxic substances (collectively, "Environmental
Laws"), owns
or operates any real property contaminated with any substance that is subject to
any Environmental Laws, is liable for any off-site disposal or contamination
pursuant to any Environmental Laws, or is subject to any claim relating to any
Environmental Laws; and there is no pending or, to the Company's Knowledge,
threatened investigation that might lead to such a claim.

 

3.21  Certificates,
Authorities and Permits. The
Company and each subsidiary possess adequate certificates, authorities or
permits issued by appropriate governmental agencies or bodies necessary to
conduct the business now operated by it, and neither the Company nor any
subsidiary has received any notice of proceedings relating to the revocation or
modification of any such certificate, authority or permit that, if determined
adversely to the Company or such subsidiary, could reasonably be expected to
have a Material Adverse Effect, individually or in the aggregate.

 

3.22  Key
Employees. No Key
Employee, to the Company's Knowledge, is, or is now expected to be, in violation
of any material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued employment
of each Key Employee does not subject the Company or any of its subsidiaries to
any liability with respect to any of the foregoing matters. No Key Employee has,
to the Company's Knowledge, any intention to terminate his employment with, or
services to, the Company or any of its subsidiaries. "Key
Employee" means
each of Gary S. Kledzik, Chairman of the Board and Chief Executive Officer,
and David E. Mai, President.

 

3.23  Labor
Matters.

 

(i)  Except as
set forth on Schedule
3.23, the
Company is not a party to or bound by any collective bargaining agreements or
other agreements with labor organizations. The Company has not violated in any
material respect any laws, regulations, orders or contract terms, affecting the
collective bargaining rights of employees, labor organizations or any laws,
regulations or orders affecting employment discrimination, equal opportunity
employment, or employees' health, safety, welfare, wages and hours.

 

(ii)  (A) There
are no labor disputes existing, or to the Company's Knowledge, threatened,
involving strikes, slow-downs, work stoppages, job actions, disputes, lockouts
or any other disruptions of or by the Company's employees, (B) there are no
unfair labor practices or petitions for election pending or, to the Company's
Knowledge, threatened before the National Labor Relations Board or any other
federal, state or local labor commission relating to the Company's employees,
(C) no demand for recognition or certification heretofore made by any labor
organization or group of employees is pending with respect to the Company and
(D) to the Company's Knowledge, the Company enjoys good labor and employee
relations with its employees and labor organizations.

 

(iii)  To the
Company's Knowledge, the Company is, and at all times has been, in full
compliance in all material respects with all applicable laws respecting
employment (including laws relating to classification of employees and
independent contractors) and employment practices, terms and conditions of
employment, wages and hours, and immigration and naturalization. There are no
claims pending against the Company before the Equal Employment Opportunity
Commission or any other administrative body or in any court asserting any
violation of Title VII of the Civil Rights Act of 1964, the Age Discrimination
Act of 1967, 42 U.S.C. §§ 1981 or 1983 or any other federal, state or local law,
statute or ordinance barring discrimination in employment.

 

(iv)  The
Company is not a party to, or bound by, any employment or other contract or
agreement that contains any severance, termination pay or change of control
liability or obligation, including, without limitation, any "excess parachute
payment," as defined in Section 2806(b) of the Internal Revenue
Code.

 

ARTICLE
IV  

 

COVENANTS

 

4.1  Reasonable
Efforts. The
parties shall use their commercially reasonable efforts to timely satisfy each
of the conditions described in ARTICLES
VI and
VII of this
Agreement and to seek its Board of Directors' approval of this
Agreement.

 

4.2  Securities
Laws; Disclosure; Press Release. The
Company agrees to file a Form D with respect to the Securities with the SEC
as required under Regulation D and to provide a copy thereof to each Purchaser
within fifteen (15) days after the date of Closing. The Company shall, on
or prior to the date of Closing, take such action as is necessary to sell the
Securities to each Purchaser under applicable securities laws of the states of
the United States, and shall provide evidence of any such action so taken to
each Purchaser on or prior to the date of the Closing. The Company agrees to
file a Form 8-K disclosing this Agreement and the transactions contemplated
hereby with the SEC within four (4) business days following the date of
Closing. The Company and each Purchaser shall consult with each other in
connection with the Form 8-K disclosing this Agreement and the transactions
contemplated hereby, and in issuing any other press releases with respect to the
transactions contemplated hereby, and neither the Company nor any Purchaser
shall issue any such press release or otherwise make any such public statement
without the prior consent of the Company, with respect to any press release of
any Purchaser, or without the prior consent of each Purchaser, with respect to
any press release of the Company, which consent shall not unreasonably be
withheld, except if such disclosure is required by law, in which case the
disclosing party shall promptly provide the other party with prior notice of
such public statement or communication. 

 

4.3  Reporting
Status. So long
as any Purchaser beneficially owns any of the Securities, the Company shall
timely file all reports required to be filed with the SEC pursuant to the
Exchange Act, and the Company shall not terminate its status as an issuer
required to file reports under the Exchange Act even if the Exchange Act or the
rules and regulations thereunder would permit such termination.

 

4.4  Reservation
of Common Stock. The
Company has currently 8,739,950 shares of Common Stock duly authorized and
reserved for issuance pursuant to the conversion of the Preferred Shares and the
exercise of the Warrants. Such shares, as well as any additional shares of
Common Stock subsequently authorized by the Company's stockholders and Board of
Directors for issuance pursuant to the conversion of the Preferred Shares, and,
in the case of the Warrant Shares, upon the exercise of the Warrants in
accordance with the terms thereof, as applicable, shall be reserved by the
Company, and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, a sufficient number of shares of Common Stock
for the purpose of enabling the Company to issue Conversion Shares, upon
approval of the Proposal, the Warrant Shares pursuant to any exercise of the
Warrants.

 

4.5  Listing
of Common Stock. The
Company hereby agrees to use commercially reasonable efforts to maintain the
listing of the Common Stock. The Company further agrees, if, following the
effective date of a registration statement covering the Conversion Shares or the
Warrant Shares, the Company applies to have the Common Stock traded on any other
trading market, it will include in such application all of the Conversion Shares
and Warrant Shares, and will take such other action as is reasonably necessary
to cause all of the Conversion Shares and Warrant Shares to be listed on such
other trading market as promptly as possible. The Company will take all action
reasonably necessary to continue the listing and trading of its Common Stock on
a trading market and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the trading
market.

 

4.6  Proxy
Statement; Stockholders Meeting.

 

(i)  Promptly
following the execution and delivery of this Agreement the Company shall take
all action necessary to call a meeting of its stockholders (the "Stockholders
Meeting"), which
shall occur promptly following the Company’s next annual stockholders meeting
scheduled for June 23, 2005, but not later than September 30, 2005 (the
"Stockholders
Meeting Deadline"), for
the purpose of seeking approval of the Company's stockholders to certain actions
including, without limitation, the amendment to the Company’s Certificate of
Incorporation to increase the authorized number of shares of Common Stock to not
less than 100,000,000 (the “Proposal”). In
connection therewith, the Company will promptly prepare and file with the SEC
proxy materials (including a proxy statement and form of proxy) for use at the
Stockholders Meeting and, after receiving and promptly responding to any
comments of the SEC thereon, shall promptly mail such proxy materials to the
stockholders of the Company. Each Purchaser shall promptly furnish in writing to
the Company such information relating to such Purchaser and its investment in
the Company as the Company may reasonably request for inclusion in the Proxy
Statement. The Company will comply with Section 14(a) of the Exchange Act and
the rules promulgated thereunder in relation to any proxy statement (as amended
or supplemented, the "Proxy
Statement") and
any form of proxy to be sent to the stockholders of the Company in connection
with the Stockholders Meeting, and the Proxy Statement shall not, on the date
that the Proxy Statement (or any amendment thereof or supplement thereto) is
first mailed to stockholders or at the time of the Stockholders Meeting, contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein not false or misleading,
or omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies or the
Stockholders Meeting which has become false or misleading. If the Company should
discover at any time prior to the Stockholders Meeting, any event relating to
the Company or any of its Subsidiaries or any of their respective affiliates,
officers or directors that is required to be set forth in a supplement or
amendment to the Proxy Statement, in addition to the Company's obligations under
the Exchange Act, the Company will promptly inform the Purchasers
thereof.

 

(ii)  Subject
to their fiduciary obligations under applicable law (as determined in good faith
by the Company's Board of Directors after consultation with the Company's
outside counsel), the Company's Board of Directors shall recommend to the
Company's stockholders (and, subject to their fiduciary obligations, not revoke
or amend such recommendation) that the stockholders vote in favor of the
Proposal and shall cause the Company to take all commercially reasonable action
to solicit the approval of the stockholders for the Proposal. Whether or not the
Company's Board of Directors determines at any time after the date hereof that,
due to its fiduciary duties, it must revoke or amend its recommendation to the
Company's stockholders, the Company shall be required to, and will take, in
accordance with applicable law and its Certificate of Incorporation and By-laws,
all action necessary to convene the Stockholders Meeting as promptly as
practicable, but no later than the Stockholders Meeting Deadline, to consider
and vote upon the approval of the Proposal.

 

4.7  Right
of First Refusal on Future Financings. From
the date hereof until one year after the Closing Date, upon any financing by the
Company of its Common Stock or Common Stock Equivalents (a "Subsequent
Financing"), each
Purchaser shall have the right to participate in up to 50% of such Subsequent
Financing. At least five (5) business days prior to the closing of the
Subsequent Financing, the Company shall deliver to each Purchaser a written
notice of its intention to effect a Subsequent Financing ("Pre-Notice"), which
Pre-Notice shall ask such Purchaser if it wants to review the details of such
financing (such additional notice, a "Subsequent
Financing Notice"). Upon
the request of a Purchaser, and only upon a request by such Purchaser, for a
Subsequent Financing Notice, the Company shall promptly, but no later than one
business day after such request, deliver a Subsequent Financing Notice to such
Purchaser. The Subsequent Financing Notice shall describe in reasonable detail
the proposed terms of such Subsequent Financing, the amount of proceeds intended
to be raised thereunder, the Person with whom such Subsequent Financing is
proposed to be effected, and attached to which shall be a term sheet or similar
document relating thereto. Each Purchaser shall notify the Company by 6:30 p.m.
(New York City time) on the fifth (5th) business day after their receipt of the
Subsequent Financing Notice of its willingness to provide the Subsequent
Financing on the terms described in the Subsequent Financing Notice, subject to
completion of mutually acceptable documentation. If one or more Purchasers shall
fail to so notify the Company of their willingness to participate in the
Subsequent Financing, the Purchasers agreeing to participate in the Subsequent
Financing (the "Participating
Purchasers") shall
have the right to provide all of the Subsequent Financing. If one or more
Purchasers fail to notify the Company of their willingness to provide all of the
Subsequent Financing and the Participating Purchasers do not agree to provide
all of the Subsequent Financing, the Company may effect the remaining portion of
such Subsequent Financing on the terms and to the Persons set forth in the
Subsequent Financing Notice; provided that the Company must provide the
Purchasers with a second Subsequent Financing Notice, and the Purchasers will
again have the right of first refusal set forth above in this Section
4.7, if the
Subsequent Financing subject to the initial Subsequent Financing Notice is not
consummated for any reason on the terms set forth in such Subsequent Financing
Notice within 60 business days after the date of the initial Subsequent
Financing Notice with the Person identified in the Subsequent Financing Notice.
In the event the Company receives responses to Subsequent Financing Notices from
Purchasers seeking to purchase more than the financing sought by the Company in
the Subsequent Financing such Purchasers shall have the right to purchase their
Pro Rata Portion (as defined below) of the Common Stock or Common Stock
Equivalents to be issued in such Subsequent Financing. "Pro
Rata Portion" is the
ratio of (x) the amount invested by such Purchaser pursuant to this Agreement
(the "Subscription
Amount") and
(y) the aggregate sum of all of the Subscription Amounts. Notwithstanding the
foregoing, this Section
4.7 shall
not apply in respect of the issuance of (a) shares of Common Stock or options to
employees, consultants, officers or directors of the Company pursuant to any
stock or option plan duly adopted by a majority of the non-employee members of
the Board of Directors of the Company or a majority of the members of a
committee of non-employee directors established for such purpose, (b) securities
upon the exercise of or conversion of any convertible securities, options or
warrants issued and outstanding on the date of this Agreement, provided that
such securities have not been amended since the date of this Agreement and (c)
securities to a strategic partner in a transaction, the primary purpose of which
is not the raising of capital and (d) securities to a lender in connection with
the provision of credit to the Company. "Common
Stock Equivalents" means
any securities of the Company or its subsidiaries which would entitle the holder
thereof to acquire at any time Common Stock, including without limitation, any
debt, preferred stock, rights, options, warrants or other instrument that is at
any time convertible into or exchangeable for, or otherwise entitles the holder
thereof to receive, Common Stock.

 

4.8  Information. The
Company agrees to make available the following reports to each Purchaser until
such Purchaser transfers, assigns or sells all of its Securities in transactions
in which the transferee is (unless such transferee is an affiliate of the
Company) not subject to securities law resale restrictions: (a) within
three (3) business days after the filing with the SEC, a copy of its Annual
Report on Form 10-K, its Quarterly Reports on Form 10-Q, any proxy
statements and any Current Reports on Form 8-K; and (b) within
one (1) business day after release, copies of all press releases issued by
the Company or any of its subsidiaries. The Company further agrees to promptly
provide to any Purchaser any information with respect to the Company, its
properties, or its business or Purchaser's investment as such Purchaser may
reasonably request; provided,
however, that
the Company shall not be required to give any Purchaser any material nonpublic
information. If any information requested by a Purchaser from the Company
contains material nonpublic information, the Company shall inform the Purchaser
in writing that the information requested contains material nonpublic
information and shall in no event provide such information to Purchaser without
the express written consent of such Purchaser after being so
informed.

 

4.9  Conversion
Limit. In no
event shall any Purchaser have the right (i) to convert Preferred Shares or the
Warrant Shares, or (ii) to vote the Preferred Shares, Conversion Shares, or
Warrant Shares, to the extent that such right to convert Preferred Shares or the
Warrant Shares, or to vote the Preferred Shares, Conversion Shares or Warrant
Shares, would result in the Purchaser and its affiliates together beneficially
owning more than 4.95% of the outstanding shares of Common Stock. For purposes
of this subparagraph, beneficial ownership shall be determined in accordance
with Section 13(d) of the Exchange Act, and Regulation 13D-G thereunder. The
restriction contained in this Section
4.9 may not
be altered, amended, deleted or changed in any manner whatsoever unless the
holders of a majority of the outstanding shares of Common Stock and the
Purchaser shall approve, in writing, such alteration, amendment, deletion or
change.

 

4.10  Corporate
Existence. So long
as any Purchaser beneficially owns any Securities, the Company shall maintain
its corporate existence, except in the event of a merger, consolidation or sale
of all or substantially all of the Company's assets, as long as the surviving or
successor entity in such transaction assumes the Company's obligations hereunder
and under the agreements and instruments entered into in connection
herewith.

 

4.11  Hedging
Transactions. No
Purchaser has an existing short position with respect to the Company’s common
stock (the “Common
Shares”). Each
Purchaser agrees not to, directly or indirectly, enter into any short sales with
respect to the Common Shares prior to the date on which such Purchaser is
entitled to sell, transfer the number of shares of Preferred Stock as to which
such Purchaser proposes to establish a short position. This Section 4.11 shall
not prohibit Purchaser from at any time entering into options contracts with
respect to the Common Shares, including puts and calls including delivering
Preferred Stock in satisfaction of any exercised options.

 

4.12  Use of
Proceeds. The
Company will use the proceeds of the sale of the Securities for working capital
needs consistent with financial budgets approved from time to time by the
Company's Board of Directors.

 

ARTICLE
V  

 

LEGEND
REMOVAL, TRANSFER, CERTAIN SALES, ADDITIONAL SHARES

 

5.1  Removal
of Legend. The
Legend shall be removed and the Company shall issue a certificate without such
Legend to the holder of any Security upon which it is stamped, and a certificate
for a security shall be originally issued without the Legend, if, (a) the
sale of such Security is registered under the Securities Act, (b) such
holder provides the Company with an opinion of counsel, in form, substance and
scope customary for opinions of counsel in comparable transactions and
reasonably satisfactory to the Company and its counsel (the reasonable cost of
which shall be borne by the Company if, after one (1) year, neither an
effective registration statement under the Securities Act or Rule 144 is
available in connection with such sale) to the effect that a public sale or
transfer of such Security may be made without registration under the Securities
Act pursuant to an exemption from such registration requirements or
(c) such Security can be sold pursuant to Rule 144 and the holder
provides the Company with reasonable assurances that the Security can be so sold
without restriction or (d) such Security can be sold pursuant to
Rule 144(k). The Company may not make any notation on its records or give
instructions to any transfer agent of the Company that enlarge the restrictions
on transfer set forth in this Section. Each Purchaser agrees to sell all
Securities, including those represented by a certificate(s) from which the
Legend has been removed, or which were originally issued without the Legend,
pursuant to an effective registration statement, in accordance with the manner
of distribution described in such registration statement and to deliver a
prospectus in connection with such sale, or in compliance with an exemption from
the registration requirements of the Securities Act. In the event the Legend is
removed from any Security or any Security is issued without the Legend and the
Security is to be disposed of other than pursuant to the registration statement
or pursuant to Rule 144, then prior to, and as a condition to, such
disposition such Security shall be relegended as provided herein in connection
with any disposition if the subsequent transfer thereof would be restricted
under the Securities Act. Also, in the event the Legend is removed from any
Security or any Security is issued without the Legend and thereafter the
effectiveness of a registration statement covering the resale of such Security
is suspended or the Company determines that a supplement or amendment thereto is
required by applicable securities laws, then upon reasonable advance notice to
Purchaser holding such Security, the Company may require that the Legend be
placed on any such Security that cannot then be sold pursuant to an effective
registration statement or Rule 144 or with respect to which the opinion referred
to in clause (b) next above has not been rendered, which Legend shall be
removed when such Security may be sold pursuant to an effective registration
statement or Rule 144 or such holder provides the opinion with respect
thereto described in clause (b) next above.

 

5.2  Transfer
Agent Instructions. The
Company agrees that following the effective date of the registration statement
or at such time as such legend is no longer required under Section
5.1, it
will, no later than five trading days following the delivery by a Purchaser to
the Company or the Company's transfer agent of a certificate representing
Conversion Shares or Warrant Shares, as the case may be, issued with a
restrictive legend (such date, the "Legend
Removal Date"),
deliver or cause to be delivered to such Purchaser a certificate representing
such Securities that is free from all restrictive and other legends, registered
in the name of each Purchaser or its nominee, for the Conversion Shares, and for
the Warrant Shares in such amounts determined in accordance with the terms of
the Warrants. The Company covenants that no instruction other than such
instructions referred to in this ARTICLE V, and
stop transfer instructions to give effect to Section 2.6 hereof
in the case of the Conversion Shares and Warrant Shares prior to registration of
the Conversion Shares and Warrant Shares under the Securities Act, will be given
by the Company to its transfer agent and that the Securities shall otherwise be
freely transferable on the books and records of the Company. Nothing in this
Section shall affect in any way each Purchaser's obligations and agreement set
forth in Section 5.1 hereof
to resell the Securities pursuant to an effective registration statement and to
deliver a prospectus in connection with such sale or in compliance with an
exemption from the registration requirements of applicable securities laws. If
(a) a Purchaser provides the Company with an opinion of counsel, which
opinion of counsel shall be in form, substance and scope customary for opinions
of counsel in comparable transactions and reasonably satisfactory to the Company
and its counsel (the reasonable cost of which shall be borne by the Company if,
after one (1) year, neither an effective registration statement under the
Securities Act or Rule 144 is available in connection with such sale), to
the effect that the Securities to be sold or transferred may be sold or
transferred pursuant to an exemption from registration or (b) a Purchaser
transfers Securities to an affiliate which is an accredited investor (within the
meaning of Regulation D under the Securities Act) and which delivers to the
Company in written form the same representations, warranties and covenants made
by Purchaser hereunder or pursuant to Rule 144, the Company shall permit
the transfer, and, in the case of the Conversion Shares and Warrant Shares,
promptly instruct its transfer agent to issue one or more certificates in such
name and in such denomination as specified by such Purchaser. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to a Purchaser by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this ARTICLE V will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this ARTICLE V, that a
Purchaser shall be entitled, in addition to all other available remedies to an
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required.

 

ARTICLE
VI  

 

CONDITIONS
TO THE COMPANY'S OBLIGATION TO SELL

 

6.1  Conditions
to the Company's Obligation to Sell. The
obligation of the Company hereunder to issue and sell the Preferred Shares and
Warrants to a Purchaser at the Closing is subject to the satisfaction, as of the
date of the Closing and with respect to such Purchaser, of each of the following
conditions thereto, provided that these conditions are for the Company's sole
benefit and may be waived by the Company at any time in its sole
discretion:

 

(i)  Such
Purchaser shall have executed and delivered the signature page to this Agreement
and the Registration Rights Agreement;

 

(ii)  Such
Purchaser shall have wired its Purchase Price to the account designated by the
Company;

 

(iii)  The
representations and warranties of such Purchaser shall be true and correct in
all material respects as of the date when made and as of the Closing as though
made at that time (except for representations and warranties that speak as of a
specific date), and such Purchaser shall have performed, satisfied and complied
in all material respects with the covenants, agreements and conditions required
by this Agreement to be performed, satisfied or complied with by the applicable
Purchaser at or prior to the Closing;

 

(iv)  No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction or any self-regulatory organization having
authority over the matters contemplated hereby which restricts or prohibits the
consummation of any of the transactions contemplated by this Agreement;
and

 

(v)  Purchaser
shall have delivered an officer's certificate, in form and substance reasonably
acceptable to the Company, as to the accuracy of such Purchaser's
representations and warranties pursuant to ARTICLE
II.

 

ARTICLE
VII  

 

CONDITIONS
TO EACH PURCHASER'S OBLIGATION TO PURCHASE

 

7.1  The
obligation of each Purchaser hereunder to purchase the Preferred Shares and
Warrants to be purchased by it on the date of the Closing is subject to the
satisfaction of each of the following conditions, provided that these conditions
are for each Purchaser's sole benefit and may be waived by such Purchaser at any
time in such Purchaser's sole discretion:

 

(i)  The
Company shall have executed and delivered the signature page to this Agreement
and the Registration Rights Agreement;

 

(ii)  The
Company shall have delivered to the Purchaser's counsel duly issued certificates
for the Preferred Shares being so purchased by Purchaser and Warrants being
issued to such Purchaser at the Closing;

 

(iii)  The
Company shall have filed with the Delaware Secretary of State the Preferred
Stock Certificate of Designation, attached hereto as Exhibit
A;

 

(iv)  The
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the Closing as though made
at that time and the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Company at or prior
to the Closing. Purchaser shall have received a certificate, executed by the
Chief Executive Officer or Chief Financial Officer of the Company, dated as of
the Closing to the foregoing effect;

 

(v)  No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction or any self-regulatory organization having
authority over the matters contemplated hereby which prohibits the consummation
of any of the transactions contemplated by this Agreement;

 

(vi)  The
Company shall have delivered an officer's certificate, in form and substance
reasonably acceptable to the Purchaser, as to the accuracy of the Company's
representations and warranties pursuant to ARTICLE
III;
and

 

(vii)  Purchaser
shall have received the legal opinion from the Company's counsel in the form
attached hereto as Exhibit D.

 

ARTICLE
VIII  

 

GOVERNING
LAW; MISCELLANEOUS

 

8.1  Governing
Law: Jurisdiction. This
Agreement shall be governed by and construed in accordance with the Delaware
General Corporation Law (in respect of matters of corporation law) and the laws
of the State of California (in respect of all other matters) applicable to
contracts made and to be performed in the State of California. The parties
hereto irrevocably consent to the jurisdiction of the United States federal
courts and state courts located in the County of New Castle in the State of
Delaware in any suit or proceeding based on or arising under this Agreement or
the transactions contemplated hereby and irrevocably agree that all claims in
respect of such suit or proceeding may be determined in such courts. The Company
and each Purchaser irrevocably waives the defense of an inconvenient forum to
the maintenance of such suit or proceeding in such forum. The Company and each
Purchaser further agrees that service of process upon the Company or such
Purchaser, as applicable, mailed by the first class mail in accordance with
Section 8.6 shall be
deemed in every respect effective service of process upon the Company or such
Purchaser in any suit or proceeding arising hereunder. Nothing herein shall
affect Purchaser's right to serve process in any other manner permitted by law.
The parties hereto agree that a final non-appealable judgment in any such suit
or proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner. The parties hereto
irrevocably waive any right to a trial by jury under applicable
law.

 

8.2  Counterparts. This
Agreement may be executed in two or more counterparts, including, without
limitation, by facsimile transmission, all of which counterparts shall be
considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party. In
the event any signature page is delivered by facsimile transmission, the party
using such means of delivery shall cause additional original executed signature
pages to be delivered to the other parties as soon as practicable
thereafter.

 

8.3  Headings. The
headings of this Agreement are for convenience of reference and shall not form
part of, or affect the interpretation of, this Agreement.

 

8.4  Severability. If any
provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.

 

8.5  Entire
Agreement; Amendments. This
Agreement and the instruments referenced herein contain the entire understanding
of the parties with respect to the maters covered herein and therein and, except
as specifically set forth herein or therein, neither the Company nor any
Purchaser makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be waived other than
by an instrument in writing signed by the party to be charged with enforcement
and no provision of this Agreement may be amended other than by an instrument in
writing signed by the Company and each Purchaser.

 

8.6  Notice. Any
notice herein required or permitted to be given shall be in writing and may be
personally served or delivered by nationally-recognized overnight courier or by
facsimile machine confirmed telecopy, and shall be deemed delivered at the time
and date of receipt (which shall include telephone line facsimile transmission).
The addresses for such communications shall be:

 

if
to the Company:

 

Miravant
Medical Technologies

 

336
Bollay Drive

 

Santa
Barbara, CA 93117

 

Attention:
Gary S. Kledzik

 

Facsimile:
(805) 685-7981

 

with
copy to:

 

Sheppard
Mullin Richter & Hampton, LLP

 

800
Anacapa Street

 

Santa
Barbara, CA 93101

 

Attention:
Joseph E. Nida, Esq.

 

Facsimile:
(805) 568-1955

 

If
to the Purchasers:

Scorpion
Capital Partners, L.P.

245 Fifth
Avenue, 25th Floor

New York,
New York 10016

Attention:
Kevin R. McCarthy

Facsimile:
(212) 213-9607

with
a copy to:

Liner
Yankelevitz Sunshine & Regenstreif LLP

1100
Glendon Ave., 14th Floor

Los
Angeles, CA 90024-3503

Attention:
David M. Tamman, Esq.

Facsimile:
(310) 500-3501

Alba
Ltd.

__________________________

__________________________

Alert
Investments Limited

__________________________

__________________________

If to any
other Purchaser, to such address set forth under such Purchaser's name on the
signature page hereto executed by such Purchaser. Each party shall provide
notice to the other parties of any change in address.

 

8.7  Successors
and Assigns. This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and assigns. Neither the Company nor any Purchaser shall assign
this Agreement or any rights or obligations hereunder without the prior written
consent of the other. Notwithstanding the foregoing, each Purchaser may assign
its rights and obligations hereunder to any of its "affiliates," as that term is
defined under the Securities Act, without the consent of the Company so long as
such affiliate is an accredited investor (within the meaning of
Regulation D under the Securities Act) and agrees in writing to be bound by
this Agreement. This provision shall not limit each Purchaser's right to
transfer the Securities pursuant to the terms of this Agreement or to assign
such Purchaser's rights hereunder to any such transferee. In that regard, if
Purchaser sells all or part of its Common Shares to someone that acquires the
shares subject to restrictions on transferability (other than restrictions, if
any, arising out of the transferee's status as an affiliate of the Company),
Purchaser shall be permitted to assign its rights hereunder, in whole or in
part, to such transferee.

 

8.8  Third
Party Beneficiaries. This
Agreement is intended for the benefit of the parties hereto and their respective
permitted successors and assigns and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person.

 

8.9  Survival;
Indemnification. The
representations and warranties of the Company and the agreements and covenants
shall survive the closing hereunder notwithstanding any due diligence
investigation conducted by or on behalf of Purchaser. The Company agrees to
indemnify and hold harmless each Purchaser and each of each Purchaser's
officers, directors, employees, partners, agents and affiliates from and against
any and all losses, claims, damages, liabilities and expenses (including without
limitation reasonable attorneys' fees and disbursements and other expenses
incurred in connection with investigating, preparing or defending any action,
claim or proceeding, pending or threatened and the costs of enforcement thereof)
(collectively, "Losses")
arising as a result of or related to any breach or alleged breach by the Company
of any of its representations or covenants set forth herein, including
advancement of expenses as they are incurred. The representations and warranties
of the Purchasers shall survive the Closing hereunder and each Purchaser shall
indemnify and hold harmless the Company and each of its officers, directors,
employees, partners, agents and affiliates from and against any and all Losses
arising as a result of the breach of such Purchaser's representations and
warranties.

 

8.10  Further
Assurances. Each
party shall do and perform, or cause to be done and performed, all such further
acts and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as the other party may reasonably
request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated
hereby.

 

8.11  Expenses. The
Company will reimburse the Purchasers collectively for up to FIFTY THOUSAND
DOLLARS ($50,000) for actual documented legal expenses, consulting expenses, due
diligence expenses and travel expenses.

 

8.12  Remedies. No
provision of this Agreement providing for any remedy to a Purchaser shall limit
any remedy which would otherwise be available to such Purchaser at law or in
equity. Nothing in this Agreement shall limit any rights a Purchaser may have
with any applicable federal or state securities laws with respect to the
investment contemplated hereby. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to a Purchaser.
Accordingly, the Company acknowledges that the remedy at law for a material
breach of its obligations under this Agreement will be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the provisions of
this Agreement, that a Purchaser shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate compliance, without the necessity of showing economic loss and without
any bond or other security being required.

 

8.13  Final
Agreement. This
Agreement, when executed by the parties hereto, shall constitute the final
agreement between the parties and upon such execution Purchasers and the Company
accept the terms hereof and have no cause of action against each other for prior
negotiations preceding the execution of this Agreement.

 

IN
WITNESS WHEREOF, the undersigned Purchasers and the Company have caused this
Agreement to be duly executed as of the date first above written.

 

COMPANY:

 

MIRAVANT
MEDICAL TECHNOLOGIES:

 

By:       

 

	
      Name:
	
      John
      M. Philpott

 

	
      Title:
	
      Chief
      Financial Officer

 

PURCHASERS:

 

SCORPION
CAPITAL PARTNERS, LP:

 

By: SCORPION,
LLC, its general partner

 

By:
          

Name: Nuno
Brandolini

Title: Managing
Partner

 

Aggregate
Number of Preferred Shares:  4,000,000

 

Number of
Warrants:    4,000,000

 

 

 

ALBA
LTD.:

 

 

By:
          

 

 

Aggregate
Number of Preferred Shares:  1,000,000

 

Number of
Warrants:    1,000,000

 

 

 

 

ALERT
INVESTMENTS LIMITED:

 

 

By:
          

 

 

Aggregate
Number of Preferred Shares:  3,000,000

 

Number of
Warrants:    3,000,000

 

 

	
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LIST
OF EXHIBITS

 

EXHIBIT
A - CERTIFICATE
OF DESIGNATION OF PREFERRED STOCK

 

EXHIBIT
B - WARRANT

 

EXHIBIT
C - REGISTRATION
RIGHTS AGREEMENT

 

EXHIBIT
D - LEGAL
OPINION OF COMPANY'S COUNSEL

 

	
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Exhibit
A

 

To

 

Series
B Preferred Stock Purchase Agreement

 

CERTIFICATE
OF DESIGNATION OF PREFERRED STOCK

 

	
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Exhibit
B

 

To

 

Series
B Preferred Stock Purchase Agreement

 

STOCK
PURCHASE WARRANT

 

	
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Exhibit
C

 

To

 

Series
B Preferred Stock Purchase Agreement

 

REGISTRATION
RIGHTS AGREEMENT

 

	
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Exhibit
D

 

To

 

Series
B Preferred Stock Purchase Agreement

 

LEGAL
OPINION OF COMPANY'S COUNSEL

	
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List
of Schedules

 

to

 

Series
B Preferred Stock Purchase Agreement

 

Schedule 1 - List of
Investors

 

Schedule 3.2 - Authorization;
Enforcement

 

Schedule 3.3 - Capitalization

 

Schedule 3.5 - Conflicts

 

Schedule 3.9 - Litigation

 

Schedule 3.10 - Tax
Matters

 

Schedule
3.23 - Labor
Matter

	
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SCHEDULE
1

 

TO
SERIES B PREFERRED STOCK PURCHASE AGREEMENT

 

LIST
OF INVESTORS

 

	
      Investor

       
	
      Shares
      of Preferred Stock

       
	
      Warrant
      Shares

       

	
      Scorpion
      Capital Partners, LP

       
	
      4,000,000

       
	
      4,000,000

       

	
      Alba
      Ltd.

       
	
      1,000,000

       
	
      1,000,000

       

	
      Alert
      Investments Limited

       
	
      3,000,000

       
	
      3,000,000

       

	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 

	
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SCHEDULE
3.2

 

TO

 

SERIES
B PREFERRED STOCK PURCHASE AGREEMENT

 

AUTHORIZATION;
ENFORCEMENT

 

None

	
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SCHEDULE
3.3

 

TO

 

SERIES
B PREFERRED STOCK PURCHASE AGREEMENT

 

CAPITALIZATION

 

AS OF
DECEMBER 31, 2004

 

Number
of Shares

 

Authorized
Stock as:

Preferred
Stock 30,000,000

Common
Stock 75,000,000

 

Outstanding
Stock:

Preferred
Stock 1,112,966

Common
Stock 36,718,605

 

Stock
Options:

Issued
($2.57 avg exercise price)  5,028,254

Exercisable
(vested; $2.98 avg exercise price) 3,541,652

 

Warrants:

Issued
($0.85 avg exercise price) 10,005,750 

 

Other
Convertible Instruments:

Reserved
for Preferred Stock conversion 1,112,966

 

Convertible
Debentures Issued 10,317,026

 

Note:
There currently are available only 8,739,950 shares of authorized common stock.

 

 

	
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SCHEDULE
3.5

 

TO

 

SERIES
B PREFERRED STOCK PURCHASE AGREEMENT

 

CONFLICTS

 

 

None

 

	
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SCHEDULE
3.9

 

TO

 

SERIES
B PREFERRED STOCK PURCHASE AGREEMENT

 

LITIGATION

 

None

 

	
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SCHEDULE
3.10

 

TO

 

SERIES
B PREFERRED STOCK PURCHASE AGREEMENT

 

TAX
MATTERS

 

 

	·  	
      The
      Company has received a preliminary report from Ernst & Young LLP,
      which discusses the impact of IRS Section 382, on the Company’s current
      Net Operating Losses (NOLs). The preliminary report states that there has
      been no limitations on the Company’s NOLs from equity or equity equivalent
      transactions through June 30, 2004. The report does not take into account
      this transaction and its impact on the potential NOL
      limitation.

 

	·  	
      The
      Company is currently in the process of analyzing the impact of withholding
      taxes which should have been paid on behalf of certain non-US entities in
      regard to the interest payments made to those entities. The Company does
      not currently have an estimate on the amount to be
    withheld.

 

	·  	
      

 

	
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SCHEDULE
3.23

 

TO

 

SERIES
B PREFERRED STOCK PURCHASE AGREEMENT

 

LABOR
MATTERS

The
Company currently has employment agreements with Dr. Gary S. Kledzik, Chief
Executive Officer, David E. Mai, President, John M. Philpott Chief Financial
Officer and Glenn A. Wilson, Senior Vice-President Pharmaceutical Development.
Each agreement contains severance payments upon termination by the Company as
described in the Company’s Proxy Statement.

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