Document:

Exhibit
10.1

SECURITIES
PURCHASE AGREEMENT

This
Securities Purchase Agreement (this “Agreement”) is
dated as of May 26, 2005, among NovaDel Pharma Inc., a Delaware corporation (the
“Company”), and
each purchaser identified on the signature pages hereto (each, including its
successors and assigns, a “Purchaser” and collectively the “Purchasers”).

WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant to
Section 4(2) of the Securities Act of 1933, as amended (the “Securities
Act”), and
Rule 506 promulgated thereunder, the Company hereby offers to issue and sell to
each Purchaser (the “Offering”), and
each Purchaser, severally and not jointly, desires to purchase from the Company,
securities of the Company as more fully described in this
Agreement.

NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration the receipt and adequacy of which
are hereby acknowledged, the Company and each Purchaser agree as
follows:

Article
I.

DEFINITIONS

1.1 Definitions. In
addition to the terms defined elsewhere in this Agreement, the following terms
have the meanings indicated in this Section 1.1:

“Action” shall
have the meaning ascribed to such term in Section 3.1(j).

“Affiliate” means
any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a Person, as such
terms are defined in and construed under Rule 144 promulgated under the
Securities Act. With respect to a Purchaser, any investment fund or managed
account that is managed on a discretionary basis by the same investment manager
as such Purchaser will be deemed to be an Affiliate of such
Purchaser.

“AMEX” means
the American Stock Exchange.

“Closing” means
the closing of the purchase and sale of the Securities pursuant to Section
2.1.

“Closing
Date” means
the Trading Day when all of the Transaction Documents have been executed and
delivered by the applicable parties thereto, and all conditions precedent to (i)
the Purchasers’ obligations to pay the Subscription Amount and (ii) the
Company’s obligations to deliver the Securities have been satisfied or
waived.

“Closing
Price” means,
for any date, the price determined by the first of the following clauses that
applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
the last reported closing sale price of the Common Stock for such date (or the
nearest preceding date) on the Trading Market on which the Common Stock is then
listed or quoted as reported by Bloomberg Financial L.P. (based on a Trading Day
from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b) if the Common Stock
is not then listed or quoted on a Trading Market and if prices for the Common
Stock are then quoted on the OTC Bulletin Board®, the
last reported closing sale price of the Common Stock for such date (or the
nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock is
not then listed or quoted on the OTC Bulletin Board and if prices for the Common
Stock are then reported in the “Pink Sheets” published by the Pink Sheets, LLC
(or a similar organization or agency succeeding to its functions of reporting
prices), the last reported closing sale price of the Common Stock so reported;
or (d) in all other cases, the fair market value of a share of Common Stock as
determined by an independent appraiser selected in good faith by the Purchasers
and reasonably acceptable to the Board of Directors of the Company.

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

“Common
Stock” means
the common stock, par value $0.001 per share, of the Company and stock of any
other class of securities into which such securities may hereafter have been
reclassified or changed into.

“Common
Stock Equivalents” means
any securities of the Company which would entitle the holder thereof to acquire
Common Stock from the Company at any time, 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.

“Company
Counsel” means
Dickstein Shapiro Morin & Oshinsky LLP.

“Disclosure
Schedules” shall
have the meaning ascribed to such term in Section 3.1.

“Effective
Date” means
the date that the initial Registration Statement filed by the Company pursuant
to the Registration Rights Agreement is first declared effective by the
Commission.

“Evaluation
Date” shall
have the meaning ascribed to such term in Section 3.1(r).

“Exchange
Act” means
the Securities Exchange Act of 1934, as amended.

“GAAP” shall
have the meaning ascribed to such term in Section 3.1(h).

“Intellectual
Property Rights” shall
have the meaning ascribed to such term in Section 3.1(o).

“KDW” means
Kelley Drye & Warren LLP with offices at 101 Park Avenue, New York, NY
10178.

“Legend
Removal Date” shall
have the meaning ascribed to such term in Section 4.1(c).

“Liens” means a
lien, charge, security interest, encumbrance, right of first refusal or
preemptive right (but shall not include (a) liens for taxes and assessments or
governmental charges or levies not at the time due and (b) liens in respect of
pledges or deposits under workmen’s compensation laws or similar legislation,
carriers’, warehousemen’s, mechanics’, laborers’ and materialmen’s and similar
liens).

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“Material
Adverse Effect” shall
have the meaning assigned to such term in Section 3.1(b).

“Material
Permits” shall
have the meaning ascribed to such term in Section 3.1(m).

“Person” means
an individual, corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.

“Placement
Agent” means
Paramount BioCapital, Inc.

“Placement
Warrants” means
the Common Stock purchase warrants, substantially in the form of Exhibit
A, to
purchase up to five percent (5%) of the number of Shares being purchased by the
Purchasers hereunder (excluding from this calculation, the Warrant Shares)
deliverable to the Placement Agent in connection with the transactions set forth
herein.

“Placement
Warrant Shares” means
the shares of Common Stock issuable upon exercise of the Placement
Warrants.

“Proceeding” means
an action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened.

“Purchase
Price” means
$1.05.

“Registration
Rights Agreement” means
the Registration Rights Agreement, made and entered into as of the date hereof,
among the Company and the Purchasers, substantially in the form of Exhibit
B attached
hereto.

“Registration
Statement” means a
registration statement meeting the requirements set forth in, and filed pursuant
to, the Registration Rights Agreement covering the resale of the Shares and
Warrant Shares by each Purchaser and the Placement Warrant Shares, and any
shares of Common Stock issued as a dividend or distribution with respect to or
in replacement of the Common Stock issued, directly or indirectly, in connection
with this Offering.

“Required
Approvals” shall
have the meaning ascribed to such term in Section 3.1(e).

“Required
Minimum” means,
as of any date, the maximum aggregate number of shares of Common Stock then
issued or potentially issuable in the future pursuant to the Transaction
Documents, including any Warrant Shares issuable upon exercise of all of the
Warrants and the Placement Warrants.

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“Rule
144” means
Rule 144 promulgated by the Commission pursuant to the Securities Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same effect as such
Rule.

“SEC
Reports” shall
have the meaning ascribed to such term in Section 3.1(h).

“Securities” means
the Shares, the Warrants and the Warrant Shares.

“Securities
Act” means
the Securities Act of 1933, as amended.

“Shares” means
the shares of Common Stock to be issued by the Company to the Purchasers
hereunder.

“Short
Sales” shall
include, without limitation, all “short sales” as defined in Rule 3b-3
promulgated under the Exchange Act.

“Subscription
Amount”
means, as
to each Purchaser, the aggregate amount to be paid for the Shares and Warrants
purchased hereunder as specified below such Purchaser’s name on the signature
page of this Agreement and next to the heading “Subscription Amount”, in United
States Dollars and in immediately available funds.

“Trading
Day” means a
day on which the Common Stock is traded on a Trading Market.

“Trading
Market” means
the following markets or exchanges on which the Common Stock is listed or quoted
for trading on the date in question: the Nasdaq SmallCap Market, the AMEX, the
New York Stock Exchange or the Nasdaq National Market.

“Transaction
Documents” means
this Agreement, the Warrants, the Placement Warrants, the Registration Rights
Agreement and any other documents or agreements executed or delivered in
connection with the transactions contemplated hereunder.

“Warrants” means
collectively the Common Stock purchase warrants, in the form of Exhibit
A
delivered to the Purchasers at the Closing in accordance with Section 2.2(a)
hereof, which Warrants shall be exercisable during the period beginning six (6)
months from the Closing Date and have a term of exercise equal to five (5) years
from such initial exercise date.

“Warrant
Shares” means
the shares of Common Stock issuable upon exercise of the Warrants.

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Article
II.

PURCHASE
AND SALE

2.1 Closing. On the
Closing Date, upon the terms and subject to the conditions set forth herein,
concurrent with the execution and delivery of this Agreement by the parties
hereto, the Company agrees to sell, and each Purchaser agrees to purchase in the
aggregate, severally and not jointly, the number of Shares set forth opposite
its or his name, at a price per Share equal to the Purchase Price. In addition
to the Shares, each Purchaser shall also be entitled to receive a Warrant to
purchase a number of additional shares of Common Stock equal to thirty-five
percent (35%) of the number of Shares purchased hereunder. Each Purchaser shall
deliver to the Company via wire transfer or a certified check immediately
available funds equal to their aggregate Purchase Price and the Company shall
deliver to each Purchaser their respective Shares and Warrants as determined
pursuant to Section 2.2(a) and the other items set forth in Section 2.2 issuable
at the Closing. Upon satisfaction of the conditions set forth in Sections 2.2
and 2.3, the Closing shall occur at the offices of KDW, or such other location
as the parties shall mutually agree.

2.2 Deliveries.

a) On the
Closing Date, the Company shall deliver or cause to be delivered to each
Purchaser the following:

	 	
      (i)
	
      this
      Agreement duly executed by the Company;

	 	
      (ii)
	
      the
      number of Shares being purchased by such Purchaser, registered in the name
      of such Purchaser;

	 	
      (iii)
	
      a
      Warrant registered in the name of such Purchaser to purchase up to a
      number of shares of Common Stock equal to 35% of the number of Shares
      being purchased by such Purchaser pursuant to Section 2.2 (a)(ii), with an
      exercise price equal to $1.30 subject to
adjustment;

	 	
      (iv)
	
      the
      Registration Rights Agreement duly executed by the Company;
      and

	 	
      (v)
	
      a
      legal opinion of Company Counsel, substantially in the form of
      Exhibit
      C
      attached hereto.

b) On the
Closing Date, each Purchaser shall deliver or cause to be delivered to the
Company the following:

	 	
      (i)
	
      this
      Agreement duly executed by such Purchaser;

	 	
      (ii)
	
      such
      Purchaser’s Subscription Amount by wire transfer to the account as
      specified in writing by the Company;

 

 

5

 

	 	
      (iii)
	
      the
      Registration Rights Agreement duly executed by such Purchaser;
      

	 	
      (iv)
	
      a
      duly executed Selling Securityholder Notice and Questionnaire
      substantially in the Form set forth in Exhibit
      D;

	 	
      (v)
	
      a
      duly executed Confidential Purchaser Questionnaire substantially in the
      form attached hereto as Exhibit
      E;
      and 

(vi) a duly
executed Form W-8BEN or W-9, as applicable.

2.3 Closing
Conditions.

a) The
obligations of the Company hereunder in connection with the Closing are subject
to the following conditions being met:

	 	
      (i)
	
      the
      accuracy in all material respects when made and on the Closing Date of the
      representations and warranties of the Purchasers contained
      herein;

	 	
      (ii)
	
      all
      obligations, covenants and agreements of the Purchasers required to be
      performed at or prior to the Closing Date shall have been performed; and
      

	 	
      (iii)
	
      the
      delivery by the Purchasers of the items set forth in Section 2.2(b) of
      this Agreement.

b) The
respective obligations of the Purchasers hereunder in connection with the
Closing are subject to the following conditions being met:

	 	
      (i)
	
      the
      accuracy in all material respects on the Closing Date of the
      representations and warranties of the Company contained
      herein;

	 	
      (ii)
	
      all
      obligations, covenants and agreements of the Company required to be
      performed at or prior to the Closing Date shall have been
      performed;

	 	
      (iii)
	
      the
      delivery by the Company of the items set forth in Section 2.2(a) of this
      Agreement;

	 	
      (iv)
	
      there
      shall have been no Material Adverse Effect with respect to the Company
      since the date hereof; and

	 	
      (v)
	
      from
      the date hereof to the Closing Date, trading in the Common Stock shall not
      have been suspended by the Commission (except for any suspension of
      trading of limited duration agreed to by the Company, which suspension
      shall be terminated prior to the Closing), and, at any time prior to the
      Closing Date, trading in securities generally as reported by Bloomberg
      Financial Markets shall not have been suspended or limited, or minimum
      prices shall not have been established on securities whose trades are
      reported by such service, or on any Trading Market, nor shall a banking
      moratorium have been declared either by the United States or New York
      State authorities nor shall there have occurred any material outbreak or
      escalation of hostilities or other national or international calamity of
      such magnitude in its effect on, or any material adverse change in, any
      financial market which, in each case, in the reasonable judgment of each
      Purchaser, makes it impracticable or inadvisable to purchase the Shares at
      the Closing.

 

 

6

Article
III.

REPRESENTATIONS
AND WARRANTIES

3.1 Representations
and Warranties of the Company. Except
as set forth under the corresponding section of the disclosure schedules
delivered to the Purchasers concurrently herewith (the “Disclosure
Schedules”) which
Disclosure Schedules shall be deemed a part hereof, the Company hereby makes the
representations and warranties set forth below to each Purchaser.

a) Subsidiaries. The
Company does not have any subsidiaries.

b) Organization
and Qualification. The
Company is an entity duly incorporated, validly existing and in good standing
under the laws of the State of Delaware, with the requisite corporate power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. The Company is not in violation or default of any of the
provisions of its certificate of incorporation, bylaws or other organizational
or charter documents. The Company is duly qualified to conduct business and is
in good standing as a foreign corporation or other entity in each jurisdiction
in which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not have or reasonably be expected to result
in (i) a material adverse effect on the legality, validity or enforceability of
any Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business or financial condition of the Company or (iii) a
material adverse effect on the Company’s ability to perform in any material
respect on a timely basis its obligations under any Transaction Document (any of
(i), (ii) or (iii), a “Material
Adverse Effect”) and to
the Company’s knowledge no Proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.

c) Authorization;
Enforcement. The
Company has the requisite corporate power and authority to enter into and to
consummate the transactions contemplated by each of the Transaction Documents
and otherwise to carry out its obligations thereunder. The execution and
delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary action on the part of the Company and no further
action is required by the Company in connection therewith other than in
connection with the Required Approvals. Each Transaction Document has been (or
upon delivery will have been) duly executed by the Company and, when delivered
in accordance with the terms hereof, will constitute the valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.

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d) No
Conflicts. The
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the other transactions contemplated
thereby do not and will not: (i) conflict with or violate any provision of the
Company’s certificate of incorporation, bylaws or other organizational or
charter documents, (ii) conflict with, or constitute a default (or an event that
with notice or lapse of time or both would become a default) under, result in
the creation of any Lien upon any of the properties or assets of the Company, or
give to others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of, any agreement,
credit facility, debt or other instrument (evidencing a Company debt or
otherwise) or other understanding to which the Company is a party or by which
any property or asset of the Company is bound or affected or (iii) subject to
the Required Approvals, conflict with or result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of any
court or governmental authority to which the Company is subject (including
federal and state securities or “blue sky” laws and regulations), or by which
any property or asset of the Company is bound or affected; except in the case of
each of clauses (ii) and (iii), such as would not have a Material Adverse
Effect.

e) Filings,
Consents and Approvals. The
Company is not required to obtain any consent, waiver, authorization or order
of, give any notice to, or make any filing or registration with, any court or
other federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) filings required pursuant to Section 4.6,
(ii) the filing with the Commission of the Registration Statement, (iii) the
notice and/or application(s) to each applicable Trading Market for the issuance
and sale of the Shares and Warrants and the listing of the Warrants Shares for
trading thereon in the time and manner required thereby and (iv) the filing of
Form D with the Commission and such filings as are required to be made under
applicable state securities or “blue sky” laws and regulations (collectively,
the “Required
Approvals”).

f) Issuance
of the Securities. The
Securities are duly authorized and, when issued and paid for in accordance with
the applicable Transaction Documents, will be duly and validly issued, fully
paid and nonassessable, free and clear of all Liens imposed by the Company other
than restrictions on transfer provided for in the Transaction Documents. The
Warrant Shares, when issued in accordance with the terms of the Transaction
Documents, will be validly issued, fully paid and nonassessable, free and clear
of all Liens imposed by the Company. The Company has reserved from its duly
authorized capital stock a number of shares of Common Stock for issuance of the
Warrant Shares at least equal to the Required Minimum on the date
hereof.

8

g) Capitalization. The
capitalization of the Company is as set forth on Schedule
3.1(g). The
Company has not issued any capital stock since its most
recently filed periodic report under the Exchange Act, other
than pursuant to the exercise of employee stock options under the Company’s
stock option plans and pursuant to the conversion or exercise of outstanding
Common Stock Equivalents. No Person has any right of first refusal, preemptive
right, right of participation or any similar right to participate in the
transactions contemplated by the Transaction Documents. Except as a result of
the purchase and sale of the Securities, there are no outstanding options,
warrants, script rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company is or may become bound to issue additional
shares of Common Stock or Common Stock Equivalents. The issuance and sale of the
Securities will not obligate the Company to issue shares of Common Stock or
other securities to any Person (other than the Purchasers and the Placement
Agent or its designees) and will not result in a right of any holder of Company
securities to adjust the exercise, conversion, exchange or reset price under
such securities. All of the outstanding shares of capital stock of the Company
are validly issued, fully paid and nonassessable, have been issued in compliance
with all federal and state securities or “blue sky” laws, and none of such
outstanding shares were issued in violation of any preemptive rights or similar
rights to subscribe for or purchase securities. Except as otherwise provided in
this Agreement, no further approval or authorization of any stockholder, the
Board of Directors of the Company or others is required for the issuance and
sale of the Securities. There are no stockholders agreements, voting agreements
or other similar agreements with respect to the Company’s capital stock to which
the Company is a party or, to the knowledge of the Company, between or among any
of the Company’s stockholders.

h) SEC
Reports; Financial Statements. The
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it under the Securities Act and the Exchange Act,
including pursuant to Section 13(a) or 15(d) of the Exchange Act, for the two
(2) years preceding the date hereof (or such shorter period as the Company was
required by law to file such material) (the foregoing materials, including the
exhibits thereto and documents incorporated by reference therein, being
collectively referred to herein as the “SEC
Reports”) on a
timely basis or has received a valid extension of such time of filing and has
filed any such SEC Reports prior to the expiration of any such extension. Except
to the extent of any subsequent correction filed prior to the date hereof (and a
copy of which has been heretofore provided to the Purchasers), as of their
respective dates, the SEC Reports complied in all material respects with the
requirements of the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the SEC
Reports, when filed, 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. The financial statements of the Company included
in the SEC Reports, as subsequently amended and restated (provided such
amendments, if any, have been heretofore provided to the Purchasers), complied
in all material respects with applicable accounting requirements and the rules
and regulations of the Commission with respect thereto as in effect at the time
of filing. Such financial statements have been prepared in accordance with
United States generally accepted accounting principles applied on a consistent
basis during the periods involved (“GAAP”),
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company as of and for the dates thereof and the
results of operations and cash flows for the periods then ended, subject, in the
case of unaudited statements, to normal, immaterial, year-end audit
adjustments.

9

i) Material
Changes. Since
the date of the latest audited financial statements included within the SEC
Reports, except as specifically disclosed in the SEC Reports, (i) there has been
no event, occurrence or development that has had a Material Adverse Effect, (ii)
the Company has not incurred any liabilities (contingent or otherwise) other
than (A) trade payables and accrued expenses incurred in the ordinary course of
business consistent with past practice, (B) liabilities not required to be
reflected in the Company’s financial statements pursuant to GAAP or required to
be disclosed in filings made with the Commission and (C) expenses incurred in
connection with the transactions contemplated hereunder, (iii) the Company has
not altered its method of accounting, (iv) the Company has not declared or made
any dividend or distribution of cash or other property to its stockholders or
purchased, redeemed or made any agreements to purchase or redeem any shares of
its capital stock and (v) the Company has not issued any equity securities to
any officer, director or Affiliate, except pursuant to existing Company stock
option plans. Except with respect to license agreements entered into with each
of Velcera Pharmaceuticals, Inc., Par Pharmaceutical, Inc. and Hana Biosciences,
Inc., which have been filed as exhibits to certain SEC Reports, the Company does
not have pending before the Commission any request for confidential treatment of
information.

j) Litigation. Except
as set forth in Schedule
3.1(o), there
is no action, suit, inquiry, notice of violation, proceeding or investigation
pending or, to the knowledge of the Company, threatened, against or affecting
the Company or its properties before or by any court, arbitrator, governmental
or administrative agency or regulatory authority (federal, state, county, local
or foreign) (collectively, an “Action”) which
(i) adversely affects or challenges the legality, validity or enforceability of
any of the Transaction Documents or the Securities or (ii) could, if there were
an unfavorable decision, have a Material Adverse Effect. Neither the Company nor
any of its directors or officers, is or has been the subject of any Action
involving a claim of violation of or liability under federal or state securities
laws or a claim of breach of fiduciary duty. There has not been, and to the
knowledge of the Company, there is not pending or contemplated, any
investigation by the Commission involving the Company or any current or former
director or officer of the Company. The Commission has not issued any stop order
or other order suspending the effectiveness of any registration statement filed
by the Company under the Exchange Act or the Securities Act.

k) Labor
Relations. No
material labor dispute exists or, to the knowledge of the Company, is imminent,
with respect to any of the employees of the Company which would have a Material
Adverse Effect. 

l) Compliance. The
Company (i) is not in default under or in violation of (and no event has
occurred that has not been waived that, with notice or lapse of time or both,
would result in a default by the Company under), nor has the Company received
notice of a claim that it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other agreement or instrument to
which it is a party or by which it or any of its properties is bound (whether or
not such default or violation has been waived), (ii) is not in violation of any
order of any court, arbitrator or governmental body or (iii) is not or has not
been in violation of any statute, rule or regulation of any governmental
authority, including without limitation all foreign, federal, state and local
laws applicable to its business except in each case as would not have a Material
Adverse Effect.

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m) Regulatory
Permits. The
Company possesses all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities necessary to
conduct its businesses as described in the SEC Reports, except where the failure
to possess such permits would not have a Material Adverse Effect (“Material
Permits”), and
the Company has not received any notice of proceedings relating to the
revocation or modification of any Material Permit.

n) Title
to Assets. The
Company has good and marketable title in fee simple to all real property owned
by it that is material to the business of the Company and good and marketable
title in all personal property owned by it that is material to the business of
the Company, in each case free and clear of all Liens. Any real property and
facilities held under lease by the Company is held by the Company under valid,
subsisting and enforceable leases of which the Company is in material
compliance.

o) Patents
and Trademarks. The
Company has, or has rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights, licenses and
other similar rights necessary or material for use in connection with its
business as described in the SEC Reports and which the failure to so have would
have a Material Adverse Effect (collectively, the “Intellectual
Property Rights”).
Except as set forth herein in Schedule
3.1(o), the
Company has not received a written notice that the Intellectual Property Rights
used by the Company violates or infringes upon the rights of any Person. To the
knowledge of the Company, all such Intellectual Property Rights are enforceable
and there is no existing infringement by another Person of any of the
Intellectual Property Rights of others.

p) Insurance. The
Company is insured by insurers of recognized financial responsibility against
such losses and risks and in such amounts as are prudent and customary in the
businesses in which the Company is engaged. To the best of Company’s knowledge,
such insurance contracts and policies are accurate and complete. The Company
does not have any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business without a significant increase in cost.

q) Transactions
With Officers, Directors and Employees. Except
as set forth in the SEC Reports, none of the officers or directors of the
Company and, to the knowledge of the Company, none of the employees of the
Company is presently a party to any transaction with the Company (other than 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
knowledge of the Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner, in each case in excess of $60,000 other than (i) for payment of salary
or consulting fees for services rendered, (ii) reimbursement for expenses
incurred on behalf of the Company and (iii) for other employee benefits,
including stock option agreements under any stock option plan of the
Company.

11

r) Sarbanes-Oxley;
Internal Accounting Controls. Except
as set forth in the SEC Reports, the Company is in material compliance with all
provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as of
the Closing Date. The
Company has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such
disclosure controls and procedures to ensure that material information relating
to the Company is made known to the certifying officers by others within those
entities, particularly during the period in which the Company’s most recently
filed periodic report under the Exchange Act, as the case may be, is being
prepared. The Company’s certifying officers have evaluated the effectiveness of
the Company’s controls and procedures as of the date prior to the filing date of
the most recently filed periodic report under the Exchange Act (such date, the
“Evaluation
Date”). The
Company presented in its most recently filed periodic report under the Exchange
Act the conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no significant
changes in the Company’s internal controls (as such term is defined in Item
307(b) of Regulation S-K under the Exchange Act) or, to the Company’s knowledge,
in other factors that could significantly affect the Company’s internal
controls.

s) Certain
Fees. Neither
the Company nor any of its officers has retained any broker, financial advisor
or consultant, finder, placement agent, investment banker, bank or other Person
(collectively, “Intermediary”) with
respect to the transactions contemplated by this Agreement other than the
Placement Agent, an Affiliate of the Company, who shall be paid a fee for acting
as such equal to seven percent (7%) of the proceeds of the Offering and the
Placement Warrants, and the Company shall indemnify and hold harmless the
Purchasers from any liability for any compensation to any Intermediary engaged
by the Company and the fees and expenses of defending against said liability or
alleged liability.

t) Private
Placement.
Assuming the accuracy of the Purchasers’ representations and warranties set
forth in Section 3.2, and compliance by the Placement Agent with its
obligations, (i) no registration under the Securities Act is required for the
offer and sale of the Shares or the Warrants to be delivered at Closing by the
Company to the Purchasers as contemplated hereby and (ii) the issuance and sale
of the Securities hereunder does not contravene the rules and regulations of the
Trading Market.

u) Investment
Company. The
Company is not, and is not an Affiliate of, and immediately after receipt of
payment for the Securities, will not be or be an Affiliate of, an “investment
company” within the meaning of the Investment Company Act of 1940, as amended.
The Company shall conduct its business in a manner so that it will not become
subject to the Investment Company Act.

v) Registration
Rights. Except
as set forth on Schedule 3.1(v), other than each of the Purchasers and the
Placement Agent, no Person has any right to cause the Company to effect the
registration under the Securities Act of any securities of the
Company.

12

w) Listing
and Maintenance Requirements. The
Company’s Common Stock is registered pursuant to Section 12(g) of the Exchange
Act, and the Company has taken no action designed to, or which to its knowledge
is likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act nor has the Company received any notification that
the Commission is contemplating terminating such registration. The Company has
not, in the 12 months preceding the date hereof, received notice from any
Trading Market on which the Common Stock is or has been listed or quoted to the
effect that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company is in compliance with all such
listing and maintenance requirements.

x) Disclosure. The
Company confirms that neither it nor any other Person acting on its behalf has
provided any of the Purchasers or their agents or counsel with any information
that constitutes or might constitute material, nonpublic information. The
Company understands and confirms that the Purchasers will rely on the foregoing
representations and covenants in effecting transactions in securities of the
Company. All disclosure provided to the Purchasers regarding the Company, its
business and the transactions contemplated hereby, including the Disclosure
Schedules to this Agreement, furnished by or on behalf of the Company with
respect to the representations and warranties made herein are true and correct
in all material respects with respect to such representations and warranties and
do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, and when taken as a whole, not
misleading. The Company acknowledges and agrees that no Purchaser makes or has
made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section 3.2
hereof.

y) No
Integrated Offering. Neither
the Company nor, to the Company’s knowledge, any Person acting on its behalf
has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would cause
this offering of the Securities to be integrated with prior offerings by the
Company for purposes of the Securities Act or any applicable shareholder
approval provisions, including, without limitation, under the rules and
regulations of any Trading Market on which any of the securities of the Company
are listed or quoted.

z) Solvency. Based
on the financial condition of the Company as of the Closing Date after giving
effect to the receipt by the Company of the proceeds from the sale of the
Securities hereunder, (i) the Company’s fair saleable value of its assets
exceeds the amount that will be required to be paid on or in respect of the
Company’s existing debts and other liabilities (including known contingent
liabilities) as they mature; (ii) the Company’s assets do not constitute
unreasonably small capital to carry on its business for the current fiscal year
as now conducted and as proposed to be conducted including its capital needs
taking into account the particular capital requirements of the business
conducted by the Company, and projected capital requirements and capital
availability thereof; and (iii) the current cash flow of the Company, together
with the proceeds the Company would receive, were it to liquidate all of its
assets, after taking into account all anticipated uses of the cash, would be
sufficient to pay all amounts on or in respect of its debt when such amounts are
required to be paid. The Company does not intend to incur debts beyond its
ability to pay such debts as they mature (taking into account the timing and
amounts of cash to be payable on or in respect of its debt). The Company has no
knowledge of any facts or circumstances which lead it to reasonably believe
(based in part on the Company’s belief that it will be able successfully to
raise equity financing) that it will file for reorganization or liquidation
under the bankruptcy or reorganization laws of any jurisdiction within one year
from the Closing Date. 

13

aa) Form
S-3 Eligibility. The
Company is eligible to register the resale of the Shares and the Warrant Shares
for resale by the Purchasers on Form S-3 promulgated under the Securities
Act.

bb) Tax
Status. Except
for matters that would not, individually or in the aggregate, have a Material
Adverse Effect, the Company has filed all necessary federal, state and foreign
income and franchise tax returns and has paid or accrued all taxes shown as due
thereon, and the Company has no knowledge of a material tax deficiency which has
been asserted or threatened against the Company.

cc) No
General Solicitation. Neither
the Company nor any person acting on behalf of the Company has offered or sold
any of the Securities by any form of general solicitation or general
advertising. The Company has offered the Securities for sale only to the
Purchasers and certain other “accredited investors” within the meaning of Rule
501 under the Securities Act.

dd) Foreign
Corrupt Practices. Neither
the Company, nor to the knowledge of the Company, any agent or other person
acting on behalf of the Company, has (i) directly or indirectly, used any funds
for unlawful contributions, gifts, entertainment or other unlawful expenses
related to foreign or domestic political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to any
foreign or domestic political parties or campaigns from corporate funds, (iii)
failed to disclose fully any contribution made by the Company (or made by any
person acting on its behalf of which the Company is aware) which is in violation
of law or (iv) violated in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended.

ee) Accountants. J.H.
Cohn LLP is currently the Company’s independent registered public accounting
firm. To the Company’s knowledge, such firm is a registered public accounting
firm as required by the Securities Act.

ff) No
Disagreements with Accountants and Lawyers. There
are no disagreements of any kind presently existing, or currently reasonably
anticipated by the Company to arise, between the accountants and lawyers
formerly or presently employed by the Company that would cause the Company to be
required to file a Current Report on Form 8-K under items 4.01 or 4.02 and the
Company is current with respect to any fees owed to its accountants and
lawyers.

gg) Acknowledgment
Regarding the Trading Market for Common Stock. Since
the Discussion Time (as defined below), neither the Company, nor any of its
officers and directors, nor, to the best of its knowledge, any of their
respective Affiliates have taken any action which
would constitute a violation of Regulation M under the Exchange Act or any other
rule, regulation or law applicable to the trading of the Company’s Common Stock
on AMEX. 

14

3.2 Representations
and Warranties of the Purchasers. Each
Purchaser, for itself and for no other Purchaser, represents and warrants as of
the date hereof and as of the Closing Date to the Company as
follows:

a) Organization;
Authority. Such
Purchaser is an entity duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization with full right,
corporate or partnership power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and otherwise to carry
out its obligations thereunder. The execution, delivery and performance by such
Purchaser of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate or similar action on the part of such
Purchaser. Each Transaction Document to which it is a party has been duly
executed by such Purchaser, and when delivered by such Purchaser in accordance
with the terms hereof, will constitute the valid and legally binding obligation
of such Purchaser, enforceable against it in accordance with its terms, except
(i) as limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies and (iii) insofar as indemnification and contribution
provisions may be limited by applicable law.

b) Own
Account. Such
Purchaser understands that the Securities are “restricted securities” and have
not been registered under the Securities Act or any applicable state securities
or “blue sky” law and is acquiring the Securities as principal for its own
account and not with a view to or for distributing or reselling such Securities
or any part thereof, has no present intention of distributing any of such
Securities and has no arrangement or understanding with any other persons
regarding the distribution of such Securities (this representation and warranty
not limiting such Purchaser’s right to sell the Securities pursuant to the
Registration Statement or otherwise in compliance with applicable federal and
state securities laws). Such Purchaser is acquiring the Securities hereunder in
the ordinary course of its business. Such Purchaser does not have any agreement
or understanding, directly or indirectly, with any Person with respect to the
holding, distribution or voting of any of the Securities.

c) Purchaser
Status. At the
time such Purchaser was offered the Securities, it was, and at the date hereof
it is, and on each date on which it exercises any Warrant it will be either: (i)
an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(5),
(a)(6), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified
institutional buyer” as defined in Rule 144A(a) under the Securities Act. Such
Purchaser is not required to be registered as a broker-dealer under Section 15
of the Exchange Act.

d) Experience
of Such Purchaser. Such
Purchaser, either alone or together with its representatives, has such
knowledge, sophistication and experience in business and financial matters so as
to be capable of evaluating the merits and risks of the prospective investment
in the Securities, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of such
investment.

15

e) General
Solicitation. Such
Purchaser is not purchasing the Securities as a result of any advertisement,
article, notice or other communication regarding the Securities published in any
newspaper, magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.

f) Short
Sales.
Such
Purchaser has not, directly or indirectly, nor has any Person acting on behalf
of or pursuant to any understanding with such Purchaser, sold “short” or “short
against the box” or otherwise engaged in any disposition of the securities of
the Company (including, without limitation, any Short Sales involving the
Company’s securities) since the time that such Purchaser was first contacted by
the Company, the Placement Agent or any other Person regarding an investment in
the Company until the date hereof (“Discussion
Time”). Other
than to other Persons party to this Agreement, such Purchaser has maintained the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this
transaction).

g) Access
to Information. Such
Purchaser acknowledges that it has reviewed the SEC Reports and the Transaction
Documents and has been afforded: (i) the opportunity to ask such questions as it
has deemed necessary of, and to receive answers from, representatives of the
Company concerning the terms and conditions of the offering of the Securities
and the merits and risks of investing in the Securities; (ii) access to
information about the Company and its financial condition, results of
operations, business, properties, management and prospects sufficient to enable
it to evaluate its investment; and (iii) the opportunity to obtain such
additional information that the Company possesses or can acquire without
unreasonable effort or expense that is necessary to make an informed investment
decision with respect to the Securities. Neither such inquiries nor any other
investigation conducted by or on behalf of such Purchaser or its representatives
or counsel shall modify, amend or affect such Purchaser’s right to rely on the
truth, accuracy and completeness of the SEC Reports and the Transaction
Documents, and the Company’s representations and warranties contained in the
Transaction Documents.

h) Fees
and Commissions. Such
Purchaser has not retained any Intermediary with respect to the transactions
contemplated by this Agreement and agrees to indemnify and hold harmless the
Company from any liability for any compensation to any Intermediary retained by
such Purchaser and the fees and expenses of defending against said liability or
alleged liability.

i) No
Review. Such
Purchaser understands, acknowledges and agrees that the offering of the
Securities hereby has not been reviewed, recommended or endorsed by the
Commission or any state securities regulatory authority or other governmental
body or agency, since the offering of the Securities hereby is intended to be
exempt from the registration requirements of Section 5 of the Securities Act
pursuant to Regulation D promulgated thereunder. Such Purchaser shall not sell
or otherwise transfer the Securities unless such transfer is registered under
the Securities Act or unless an exemption from such registration is available.
Such Purchaser understands that if required by the laws or regulations or any
applicable jurisdictions, the offering of the Securities hereby contemplated
hereby will be submitted to the appropriate authorities of such State(s) for
registration of exemption therefrom. 

16

j) Residence. The
address of such Purchaser furnished by such Purchaser on the signature page
hereof is such Purchaser’s principal residence if Purchaser is an individual or
its principal business address if it is a corporation or other entity. If such
Purchaser is a corporation, partnership, limited liability company, trust,
employee benefit plan, individual retirement account, Keogh Plan, or other
entity (a) it is authorized and qualified to become an investor in the Company
and the Person signing this Agreement on behalf of such entity has been duly
authorized by such entity to do so and (b) it is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization.

k) NASD
Members. Such
Purchaser acknowledges that if he or she is a Registered Representative of an
NASD member firm, he or she must give such firm the notice required by the NASD
Rules of Fair Practice, receipt of which must be acknowledged by such firm in
accordance with such rules.

l) Limited
Availability of Sales. Such
Purchaser understands, acknowledges and agrees that there can be no assurance
that such Purchaser will be able to sell or dispose of the Securities.

m) Confidentiality. Such
Purchaser understands, acknowledges and agrees that the information contained in
this Agreement or otherwise made available to such Purchaser by the Company
(collectively, the “Confidential
Information”) is to
be used solely for the purpose of evaluating a possible investment in the
Securities and is confidential and non-public and agrees that except as required
by law, all such Confidential Information shall be kept in confidence by such
Purchaser and neither used by such Purchaser for such Purchaser’s personal
benefit (other than in connection with evaluating a possible investment in the
Securities) nor disclosed to any third party for any reason and in any manner,
notwithstanding that such Purchaser’s subscription may not be accepted by the
Company; provided,
however, that
this obligation shall not apply to any such Confidential Information that (i) is
now or substantially becomes generally known or available by publication,
commercial use or otherwise or part of the public knowledge or literature and
readily accessible at the date hereof (except as a result of a breach of this
provision by any party) or (ii) is rightfully received by such Purchaser from a
third party without knowledge of violation of any obligation of confidentiality,
or (iii) is known by the Purchaser prior to the time of receiving such
Confidential Information.

The
Company acknowledges and agrees that each Purchaser does not make or has not
made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section
3.2.

Article
IV.

OTHER
AGREEMENTS OF THE PARTIES

4.1 Transfer
Restrictions.

a) Each
Purchaser acknowledges and understands, severally and not jointly, that (i) the
Securities may only be disposed of in compliance with federal and state or “blue
sky” securities laws and (ii) in connection with any transfer of Securities
other than pursuant to an effective registration statement or Rule 144, to the
Company or to an affiliate of a Purchaser or in connection with a pledge as
contemplated in Section 4.1(b), the Company may require the transferor thereof
to provide to the Company an opinion of counsel selected by the transferor and
reasonably acceptable to the Company, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred Securities under the
Securities Act. As a condition of transfer, any such transferee shall agree in
writing to be bound by the terms of this Agreement and shall have the rights of
a Purchaser under this Agreement and the Registration Rights
Agreement.

17

b) The
Purchasers agree to the imprinting, so long as is required by this Section
4.1(b), of a legend on any of the Securities in the following form:

[NEITHER]
THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE] HAVE [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES
ACT”), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES OR “BLUE SKY” LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE
TRANSFEROR REASONABLY ACCEPTABLE TO THE COMPANY TO SUCH EFFECT, THE SUBSTANCE OF
WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES [AND THE
SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES] MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.

The
Company acknowledges and agrees that a Purchaser may from time to time pledge
pursuant to a bona fide margin agreement with a registered broker-dealer or
grant a security interest in some or all of the Securities to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this Agreement
and the Registration Rights Agreement and, if required under the terms of such
arrangement, such Purchaser may transfer pledged or secured Securities to the
pledgees or secured parties. Such a pledge or transfer would not be subject to
approval of the Company and no legal opinion of legal counsel of the pledgee,
secured party or pledgor shall be required in connection therewith. Further, no
notice shall be required of such pledge. At the appropriate Purchaser’s expense,
the Company will execute and deliver such reasonable documentation as a pledgee
or secured party of Securities may reasonably request in connection with a
pledge or transfer of the Securities, including, if the Securities are subject
to registration pursuant to the Registration Rights Agreement, the preparation
and filing of any required prospectus supplement under Rule 424(b)(3) under the
Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of Selling Stockholders thereunder.

18

c) Certificates
evidencing the Shares, the Warrant Shares and the Placement Warrant Shares shall
not contain any legend (including the legend set forth in Section 4.1(b)
hereof): (i) while a registration statement (including the Registration
Statement) covering the resale of such security is effective under the
Securities Act; (ii) following any sale of such Shares or the Warrant Shares
pursuant to Rule 144; (iii) if such Shares, Warrant Shares or Placement Warrant
Shares are eligible for sale under Rule 144(k); or (iv) if such legend is not
required under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). The
Company shall cause its counsel to issue a legal opinion to the Company’s
transfer agent promptly after the Effective Date if required by the Company’s
transfer agent to effect the removal of the legend hereunder. If all or any
portion of a Warrant or Placement Warrant is exercised at a time when there is
an effective registration statement to cover the resale of the Warrant Shares
and the Placement Warrant Shares, or if such Warrant Shares and Placement
Warrant Shares may be sold under Rule 144(k) or if such legend is not otherwise
required under applicable requirements of the Securities Act (including judicial
interpretations thereof), then such Warrant Shares and Placement Warrant Shares
shall be issued free of all legends. The Company agrees that following the
Effective Date or at such time as such legend is no longer required under this
Section 4.1(c), it will, no later than five (5) Trading Days following the
delivery by any Purchaser (or the Placement Agent) to the Company or the
Company’s transfer agent with respect to a request for legend removal from a
certificate representing Shares, Warrant Shares or Placement Warrant Shares, as
applicable, issued with a restrictive legend (such third Trading Day, the
“Legend
Removal Date”),
deliver or cause to be delivered to the holder of such securities a certificate
representing such shares that is free from all restrictive and other legends.
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. Certificates for Shares, Warrant Shares or Placement
Warrant Shares subject to legend removal hereunder shall be transmitted by the
transfer agent of the Company to the holders thereof by crediting the account of
the holder’s prime broker with the Depository Trust Company System, or, the
request of such holder, by physical delivery of a stock certificate for such
shares. 

d) In
addition to such Purchaser’s other available remedies, the Company shall pay to
a Purchaser, in cash, as liquidated damages and not as a penalty, for each
$1,000 worth of Shares or Warrant Shares (based on the Closing Price of the
Common Stock on the date such Securities are submitted to the Company’s transfer
agent) delivered for removal of the restrictive legend and subject to this
Section 4.1, $5 per Trading Day (increasing to $10 per Trading Day 10 Trading
Days after such damages have begun to accrue) for each Trading Day after the
2nd Trading
Day following the Legend Removal Date until such certificate is delivered
without a legend. Nothing herein shall limit such Purchaser’s right to pursue
actual damages for the Company’s failure to deliver certificates representing
any Securities as required by the Transaction Documents, and such Purchaser
shall have the right to pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief.

e) Each
Purchaser, severally and not jointly with the other Purchasers, agrees that the
removal of the restrictive legend from certificates representing Securities as
set forth in this Section 4.1 is predicated upon the Company’s reliance that the
Purchaser will sell all Securities pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom.

19

4.2 Acknowledgment
of Dilution. The
Company acknowledges that the issuance of the Securities may result in dilution
of the outstanding shares of Common Stock, which dilution may be substantial
under certain market conditions.

4.3 Furnishing
of Information. As long
as any Purchaser owns Securities, the Company covenants to timely file (or
obtain extensions in respect thereof and file within the applicable grace
period) all reports required to be filed by the Company after the date hereof
pursuant to the Exchange Act. As long as any Purchaser owns Securities, but only
until such Securities may be sold under Rule 144(k), if the Company is not
required to file reports pursuant to the Exchange Act, it will prepare and
furnish to the Purchasers and make publicly available in accordance with Rule
144(c) such information as is required for the Purchasers to sell the Securities
under Rule 144. The Company further covenants that it will take such further
action as any holder of Securities may reasonably request, all to the extent
required from time to time to enable such Person to sell such Securities without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144.

4.4 Integration. On or
after the Closing Date, the Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market that would violate the rules and
regulations of such Trading Market.

4.5 Exercise
Procedures. The
form of Notice of Exercise included in the Warrants set forth the totality of
the procedures required of the Purchasers in order to exercise the Warrants. No
additional legal opinion or other information or instructions shall be required
of the Purchasers to exercise their Warrants (provided that the applicable
Purchaser requests that the Warrant Shares be issued only in the name of such
Purchaser). The Company shall honor exercises of the Warrants and shall deliver
Warrant Shares in accordance with the terms, conditions and time periods set
forth in the Transaction Documents.

4.6 Securities
Laws Disclosure; Publicity. The
Company shall, by 5:30 p.m. Eastern time on the fourth Trading Day following the
date hereof, issue a Current Report on Form 8-K in connection with the Closing
reasonably acceptable to Purchaser(s) holding at least 51% of the number of
Shares purchased hereunder disclosing the material terms of the transactions
contemplated hereby, and shall attach this agreement along with the form of
Registration Rights Agreement and form of Warrant. The Company and Purchaser(s)
holding at least 51% of the number of Shares purchased hereunder shall consult
with each other 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 the Purchaser(s) holding at least
51% of the aggregate number of Shares purchased hereunder, with respect to any
press release of the Company, which consent shall not unreasonably be withheld
or delayed, 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. Notwithstanding the foregoing, the
Company shall not publicly disclose the name of any Purchaser, or include the
name of any Purchaser in any filing with the Commission or any regulatory agency
or Trading Market, without the prior written consent of such Purchaser, except
(i) as required by federal securities laws and regulations in connection with
the registration statement contemplated by the Registration Rights Agreement and
(ii) to the extent such disclosure is required by law or regulation, or Trading
Market regulations, in which case, to the extent practical, the Company shall
provide the Purchasers with prior notice of such disclosure permitted under
subclause (i) or (ii).

20

4.7 Non-Public
Information. The
Company covenants and agrees that neither it nor any other Person acting on its
behalf will provide any Purchaser or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto such Purchaser shall have executed a written agreement regarding
the confidentiality and use of such information. The Company understands and
confirms that each Purchaser shall be relying on the foregoing representations
in effecting transactions in securities of the Company.

4.8 Use of
Proceeds. The
Company shall use the net proceeds from the sale of the Securities hereunder for
working capital and general corporate purposes. The Company shall not use any
proceeds from the sale of Securities hereunder to repay any indebtedness of the
Company, including, but not limited to, any indebtedness to current executive
officers or principal stockholders of the Company, but excluding trade payable
and accrued expenses incurred in the ordinary course of business and consistent
with prior practices.

4.9 Reimbursement. If any
Purchaser becomes involved in any capacity in any Proceeding by or against any
Person who is a stockholder of the Company (except as result of sales, pledges,
margin sales and similar transactions by such Purchaser to or with any current
stockholder), solely as a result of such Purchaser’s acquisition of the
Securities under this Agreement, the Company will reimburse such Purchaser for
its reasonable legal and other expenses (including the cost of any investigation
preparation and travel in connection therewith) incurred in connection
therewith, as such expenses are incurred. The reimbursement obligations of the
Company under this paragraph shall be in addition to any liability which the
Company may otherwise have, shall extend upon the same terms and conditions to
any Affiliates of the Purchaser who are actually named in such action,
proceeding or investigation, and partners, directors, agents, employees and
controlling person (if any), as the case may be, of the Purchasers and any such
Affiliate, and shall be binding upon and inure to the benefit of any successors,
assigns, heirs and personal representatives of the Company, the Purchasers and
any such Affiliate and any such Person. The Company also agrees that neither the
Purchasers nor any such Affiliates, partners, directors, agents, employees or
controlling persons shall have any liability of the Company or any Person
asserting claims on behalf of or in right of the Company solely as a result of
acquiring the Securities under this Agreement.

4.10 Reservation
and Listing of Securities.

a) The
Company shall maintain a reserve from its duly authorized shares of Common Stock
for issuance pursuant to the Transaction Documents in such amount as may be
required to fulfill its obligations in full under the Transaction
Documents.

21

b) If, on
any date, the number of authorized but unissued (and otherwise unreserved)
shares of Common Stock is less than the Required Minimum on such date, then the
Board of Directors of the Company shall use commercially reasonable efforts to
amend the Company’s certificate or articles of incorporation to increase the
number of authorized but unissued shares of Common Stock to at least the
Required Minimum at such time as the next scheduled annual meeting of the
Stockholders of the Company.

c) The
Company shall, if applicable: (i) in the time and manner required by the Trading
Market, prepare and file with such Trading Market an additional shares listing
application covering a number of shares of Common Stock at least equal to the
Required Minimum on the date of such application; (ii) take all steps necessary
to cause such shares of Common Stock to be approved for listing on the Trading
Market as soon as possible thereafter; (iii) provide to the Purchasers evidence
of such listing; and (iv) maintain the listing of such Common Stock on any date
at least equal to the Required Minimum on such date on such Trading Market or
another Trading Market.

4.11 Subsequent
Equity Sales.

a) From the
date hereof until the greater of (i) 30 days after the Effective Date or (ii) 90
days after the Closing Date, the Company shall not file a registration statement
with the Commission other than the Registration Statement(s) required to be
filed pursuant to the Registration Rights Agreement or Registration Statements
filed using Form S-8 or S-4; provided, however, the no file period set forth in
this Section 4.11 shall be extended for the number of Trading Days during such
period in which (i) trading in the Common Stock is suspended by any Trading
Market, or (ii) following the Effective Date, the Registration Statement is not
effective or the prospectus included in the Registration Statement may not be
used by the Purchasers for the resale of the Shares and Warrant Shares.

b) The
Company shall not make any issuance whatsoever of Common Stock or Common Stock
Equivalents or any distribution of indebtedness or assets (including cash or
cash dividends) or rights or warrants to purchase any security, which would
cause any holders of the Warrants to not be permitted, to exercise their
respective Warrants in full. Any Purchaser shall be entitled to obtain
injunctive relief against the Company to preclude any such issuance, which
remedy shall be in addition to any right to collect damages.

4.12 Equal
Treatment of Purchasers. Except
as set forth herein, no consideration shall be offered or paid to any person to
amend or consent to a waiver or modification of any provision of any of the
Transaction Documents unless the same consideration is also offered to all of
the parties to the Transaction Documents. For clarification purposes, this
provision constitutes a separate right granted to each Purchaser by the Company
and negotiated separately by each Purchaser, and is intended to treat for the
Company the Warrant holders as a class and shall not in any way be construed as
the Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.

22

4.13 Short
Sales and Confidentiality. Each
Purchaser, severally and not jointly with the other Purchasers, covenants that
neither it nor any Person acting on its behalf or pursuant to any understanding
with it will engage in any transactions in the securities of the Company
(including Short Sales) prior to the 180th day
after the Closing Date. Each Purchaser, severally and not jointly with the other
Purchasers, covenants that until such time as the transactions contemplated by
this Agreement are publicly disclosed by the Company as described in Section
4.6, such Purchaser will maintain, the confidentiality of all disclosures made
to it in connection with this transaction (including the existence and terms of
this transaction). Each Purchaser understands and acknowledges, severally and
not jointly with any other Purchaser, that the SEC currently takes the position
that coverage of short sales of shares of the Common Stock “against the box”
prior to the Effective Date of the Registration Statement with the Shares and
the Warrant Shares is a violation of Section 5 of the Securities Act, as set
forth in Item 65, Section 5 under Section A, of the Manual of Publicly Available
Telephone Interpretations, dated July 1997, compiled by the Office of Chief
Counsel, Division of Corporation Finance. Notwithstanding the foregoing, no
Purchaser makes any representation, warranty or covenant hereby that it will not
engage in Short Sales in the securities of the Company after the 180th day
after the Closing Date.

Article
V.

MISCELLANEOUS

5.1 Termination. This
Agreement may be terminated by any Purchaser, by written notice to the other
parties, if the Closing has not been consummated on or before June 30, 2005;
provided that no such termination will affect the right of any party to sue for
any breach by the other party (or parties).

5.2 Fees
and Expenses. At the
Closing, the Company has agreed to reimburse ProQuest Investments III, L.P.
(“ProQuest”), up to
$20,000, for its actual, reasonable, out-of-pocket legal fees and expenses. The
Company shall deliver, prior to the Closing, a completed and executed copy of
the Closing Statement, attached hereto as Annex
A. Except
as expressly set forth in the Transaction Documents to the contrary, each party
shall pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement.
The Company shall pay all transfer agent fees, stamp taxes and other taxes and
duties levied in connection with the delivery of any Securities.

5.3 Entire
Agreement. The
Transaction Documents, together with the exhibits and schedules thereto, contain
the entire understanding of the parties with respect to the subject matter
hereof and supersede all prior agreements and understandings, oral or written,
with respect to such matters, which the parties acknowledge have been merged
into such documents, exhibits and schedules.

5.4 Notices. Any and
all notices or other communications or deliveries required or permitted to be
provided hereunder shall be in writing and shall be deemed given and effective
on the earliest of (a) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile number set forth on the signature
pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading Day,
(b) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth on
the signature pages attached hereto on a day that is not a Trading Day or later
than 5:30 p.m. (New York City time) on any Trading Day, (c) the second Trading
Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service or (d) upon actual receipt by the party to whom such
notice is required to be given. Notwithstanding anything herein to the contrary,
in the event notice is sent by facsimile transmission, the sending party shall
also send such notification by e-mail if the receiving party has included an
e-mail address below or on their respective signature page. The address for such
notices and communications shall be as follows:

23

 

 

	If to Company, to:	 	
       NovaDel
      Pharma Inc.

      25
      Minneakoning Road

      Flemington,
      New Jersey 08822

      Attention:
      Michael E.B. Spicer

      Facsimile:
      908-782-2445

      E-mail
      address: mspicer@NovaDel.com

       

	With a copy to:	 	Dickstein
      Shapiro Morin & Oshinsky LLP
      1177
      Avenue of the Americas

      New
      York, New York 10036-2714

      Attention:
      Ira L. Kotel, Esq.

      Facsimile:
      (212) 997-9880

      E-mail
      address: KotelI@DSMO.com

       

	If to a Purchaser:	 	
      To the address set forth under such Purchaser’s name on
      the signature pages hereof;

       

	With a copy to: 	 	
      Kelley
      Drye & Warren LLP

      101
      Park Avenue

      New
      York, New York 10178

      Attention:
      Jane E. Jablons, Esq.

      Facsimile:
      (212) 808-7660

      E-mail
      address: jjablons@kelleydrye.com

       

 

 

or such
other address as may be designated in writing hereafter, in the same manner, by
such Person.

5.5 Amendments;
Waivers. No
provision of this Agreement may be waived or amended except in a written
instrument signed, in the case of an amendment, by the Company and each
Purchaser or, in the case of a waiver, by the party against whom enforcement of
any such waiver is sought. No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right.

24

5.6 Headings. The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof. The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent, and no rules of strict
construction will be applied against any party.

5.7 Successors
and Assigns. This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of each Purchaser. Any Purchaser may assign any or all of its rights
under this Agreement to any Person to whom such Purchaser assigns or transfers
any Securities, provided such transferee agrees in writing to be bound, with
respect to the transferred Securities, by the provisions hereof that apply to
the “Purchasers”.

5.8 No
Third-Party Beneficiaries. Except
as set forth in Section 4.1(c), this Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person.

5.9 Governing
Law. All
questions concerning the construction, validity, enforcement and interpretation
of the Transaction Documents shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York, without regard to
the principles of conflicts of law thereof. Each party agrees that all legal
proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement and any other Transaction Documents
(whether brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced exclusively in
the state and federal courts sitting in the City of New York. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper or inconvenient venue for such
proceeding. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law. The parties hereby waive all rights to a trial by jury. If
either party shall commence an action or proceeding to enforce any provisions of
the Transaction Documents, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys’ fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.

5.10 Survival. The
representations and warranties contained herein shall survive the Closing and
the delivery and/or exercise of the Securities, as applicable, for the
applicable statute of limitations.

25

5.11 Execution. This
Agreement may be executed in two or more counterparts, all of which when taken
together 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, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile signature page were an original
thereof.

5.12 Severability. If any
provision of this Agreement is held to be invalid or unenforceable in any
respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and the
parties will attempt to agree upon a valid and enforceable provision that is a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.

5.13 Rescission
and Withdrawal Right.
Notwithstanding anything to the contrary contained in (and without limiting any
similar provisions of) the Transaction Documents, whenever any Purchaser
exercises a right, election, demand or option under a Transaction Document and
the Company does not timely perform its related obligations within the periods
therein provided, then such Purchaser may rescind or withdraw, in its sole
discretion from time to time upon written notice to the Company, any relevant
notice, demand or election in whole or in part without prejudice to its future
actions and rights; provided,
however, in the
case of a rescission of an exercise of a Warrant, the Purchaser shall be
required to return any shares of Common Stock subject to any such rescinded
conversion or exercise notice.

5.14 Replacement
of Securities. If any
certificate or instrument evidencing any Securities is mutilated, lost, stolen
or destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation thereof, or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
customary and reasonable indemnity, if requested. The applicants for a new
certificate or instrument under such circumstances shall also pay any reasonable
third-party costs associated with the issuance of such replacement
Securities.

5.15 Remedies. In
addition to being entitled to exercise all rights provided herein or granted by
law, including recovery of damages, each of the Purchasers and the Company will
be entitled to specific performance under the Transaction Documents. The parties
agree that monetary damages may not be adequate compensation for any loss
incurred by reason of any breach of obligations described in the foregoing
sentence and hereby agrees to waive in any action for specific performance of
any such obligation the defense that a remedy at law would be adequate. If any
action at law or in equity is necessary to enforce or interpret the terms of any
of the Transaction Documents, the prevailing party shall be entitled to
reasonable attorneys’ fees, costs and disbursements in addition to any other
relief to which such party may be entitled.

5.16 Payment
Set Aside. To the
extent that the Company makes a payment or payments to any Purchaser pursuant to
any Transaction Document or a Purchaser enforces or exercises its rights
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other person under any law (including, without limitation, any
bankruptcy law, state or federal law, common law or equitable cause of action),
then to the extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full force
and effect as if such payment had not been made or such enforcement or setoff
had not occurred.

26

5.17 Independent
Nature of Purchasers’ Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. Each Purchaser has been represented by its own separate legal counsel
in its review and negotiation of the Transaction Documents. 

5.18 Liquidated
Damages. The
Company’s obligations to pay any partial liquidated damages or other amounts
owing under the Transaction Documents is a continuing obligation of the Company
and shall not terminate until all unpaid partial liquidated damages and other
amounts have been paid notwithstanding the fact that the instrument or security
pursuant to which such partial liquidated damages or other amounts are due and
payable shall have been canceled.

5.19 Construction. The
parties agree that each of them and/or their respective counsel has reviewed and
had an opportunity to revise the Transaction Documents and, therefore, the
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of the Transaction Documents or any amendments hereto.

(Signature
Pages Follow)

27

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

 

	 	 	 
	 	NOVADEL PHARMA
      INC.
	 
 	 
 	 
 
	Date: 	By:  	
	 	
      

    
	 	
      Name:

      Title:

 

 

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

[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE
PAGE FOR PURCHASER FOLLOWS]

[PURCHASER
SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]

IN
WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement
to be duly executed by their respective authorized signatories as of the date
first indicated above.

Name of
Purchaser:
__________________________________________________________

 

Signature
of Authorized Signatory of Purchaser:
____________________________________

 

Name of
Authorized Signatory:
__________________________________________________

 

Title of
Authorized Signatory:
___________________________________________________

 

Email
Address of
Purchaser:_____________________________________________________

Address
for Notice of Purchaser:

Address
for Delivery of Securities for Purchaser (if not same as above):

Subscription
Amount:

Warrant
Shares:

EIN
Number: [PROVIDE
THIS UNDER SEPARATE COVER]

[SIGNATURE
PAGES CONTINUE]Exhibit
10.2

REGISTRATION
RIGHTS AGREEMENT

This
Registration Rights Agreement (this “Agreement”) is
made and entered into as of May 26, 2005, among NovaDel Pharma Inc., a Delaware
corporation (the “Company”), and
the purchasers signatory hereto (each such purchaser is a “Purchaser” and
collectively, the “Purchasers”).

This
Agreement is made pursuant to the Securities Purchase Agreement, dated as of May
26, 2005, among the Company and the Purchasers (the “Purchase
Agreement”).

The
Company and the Purchasers hereby agree as follows:

1. Definitions.

Capitalized
terms used and not otherwise defined herein that are defined in the Purchase
Agreement shall have the meanings given to such terms in the Purchase
Agreement. As used
in this Agreement, the following terms shall have the following
meanings:

“Advice” shall
have the meaning set forth in Section 6(c).

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

“Effectiveness
Date” means,
(a) with respect to the initial Registration Statement required to be filed
hereunder, the 90th calendar
day following the date hereof (120th calendar
day in the event that the Commission reviews and provides written comments to
the Registration Statement), and (b) with respect to any additional Registration
Statements which may be required pursuant to Section 3(c), the 90th calendar
day following the date on which the Company first knows, or reasonably should
have known, that such additional Registration Statement is required hereunder
(120th calendar
day in the event that the Commission reviews and provides written comments to
any additional Registration Statement); provided,
however, in the
event the Company is notified by the Commission that one of the above
Registration Statements will not be reviewed or is no longer subject to further
review and comments, the Effectiveness Date as to such Registration Statement
shall be the fifth Trading Day following the date on which the Company is so
notified if such fifth Trading Date precedes the applicable date required above.
Notwithstanding the foregoing, if any day otherwise designated as an
“Effectiveness Date” pursuant to this definition falls on a day other than a
Trading Day, the Effectiveness Date shall be deemed to be the next Trading
Day.

“Effectiveness
Period” shall
have the meaning set forth in Section 2(a).

“Event” shall
have the meaning set forth in Section 2(b).

“Event
Date” shall
have the meaning set forth in Section 2(b).

“Filing
Date” means,
with respect to the initial Registration Statement required hereunder, the
45th calendar
day following the date hereof and with respect to any additional Registration
Statements which may be required pursuant to Section 3(c), the 45th day
following the date on which the Company first knows, or reasonably should have
known, that such additional Registration Statement is required hereunder.
Notwithstanding the foregoing, if any day otherwise designated as a “Filing
Date” pursuant to this definition falls on a day other than a Trading Day, the
Filing Date shall be deemed to be the next Trading Day.

1

“Holder” or
“Holders” means
the holder or holders, as the case may be, from time to time of Registrable
Securities.

“Indemnified
Party” shall
have the meaning set forth in Section 5(c).

“Indemnifying
Party” shall
have the meaning set forth in Section 5(c).

“Initial
Filing Date” means
the 45th calendar
day following the date hereof. Notwithstanding the foregoing, if the day
otherwise designated as the “Initial Filing Date” pursuant to this definition
falls on a day other than a Trading Day, the Initial Filing Date shall be deemed
to be the next Trading Day.

“Liquidated
Damages Payment Date” shall
have the meaning set forth in Section 2(b).

“Losses” shall
have the meaning set forth in Section 5(a).

“Person” means
an individual, corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.

“Plan
of Distribution” shall
have the meaning set forth in Section 2(a). 

“Proceeding” means
an action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened.

“Prospectus” means
the prospectus included in a Registration Statement (including, without
limitation, a prospectus that includes any information previously omitted from a
prospectus filed as part of an effective registration statement in reliance upon
Rule 430A promulgated under the Securities Act), as amended or supplemented by
any prospectus supplement, with respect to the terms of the offering of any
portion of the Registrable Securities covered by a Registration Statement, and
all other amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.

“Registrable
Securities” means
(i) (A) all Shares and (B) all shares of Common Stock issuable upon exercise of
the Warrants and the Placement Warrants and (ii) any securities issued or
issuable upon any stock split, dividend or other distribution, recapitalization
or similar event with respect to the foregoing; provided,
however, that
Registrable Securities shall not include those securities that (a) have been
effectively registered under Section 5 of the Securities Act and disposed of
pursuant to a registration statement or (b) have been transferred pursuant to
Rule 144 promulgated under the Securities Act or any successor
rule.

2

“Registration
Statement” means
any registration statement required to be filed hereunder and any additional
registration statements contemplated by Section 3(c), including (in each case)
the Prospectus, amendments and supplements to such registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits thereto,
and all material incorporated by reference or deemed to be incorporated by
reference in such registration statement.

“Rule
415” means
Rule 415 promulgated by the Commission pursuant to the Securities Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same purpose and
effect as such Rule.

“Rule
424” means
Rule 424 promulgated by the Commission pursuant to the Securities Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same purpose and
effect as such Rule.

2. Shelf
Registration.

(a) On or
prior to the Initial Filing Date, the Company shall prepare and file with the
Commission a shelf Registration Statement covering the resale of all of the
Shares and the Registrable Securities underlying the Warrants and Placement
Warrants on such Filing Date for an offering to be made on a continuous basis
pursuant to Rule 415. The Registration Statement shall be on Form S-3 (except if
the Company is not then eligible to register for resale the Registrable
Securities on Form S-3, in which case such registration shall be on another
appropriate form in accordance herewith) and shall contain (unless otherwise
directed by the Holders holding a majority of the Registrable Securities to be
registered under the applicable Registration Statement) a “Plan
of Distribution” section
substantially in the form attached hereto as Annex
A. Subject
to the terms, conditions and limitations of this Agreement, the Company shall
use its commercially reasonable efforts to cause the Registration Statement to
be declared effective under the Securities Act as promptly as possible after the
filing thereof, but in any event prior to the applicable Effectiveness Date, and
shall use its commercially reasonable efforts to keep such Registration
Statement continuously effective under the Securities Act until the date on
which all of the Registrable Securities covered by such Registration Statement
have been sold or may be sold without volume restrictions pursuant to Rule
144(k) as determined by counsel to the Company pursuant to a written opinion
letter to such effect, addressed and acceptable to the Company’s transfer agent
and the affected Holders but in any event for no more than two years from the
date on which all of the shares of Common Stock issuable upon exercise of the
Warrants and Placement Warrants have been issued (the “Effectiveness
Period”). The
Company shall immediately notify the Holders (which may be via e-mail or
facsimile) of the effectiveness of the Registration Statement within the next
Trading Day following the day that the Company receives notification of the
effectiveness from the Commission. Failure to so notify the Holders within one
Trading Day of such notification shall be deemed an “Event” under Section
2(b).

(b) If: (i) a
Registration Statement is not filed on or prior to its Filing Date (if the
Company files a Registration Statement without affording the Holders the
opportunity to review and comment on the same as required by Section 3(a), the
Company shall not be deemed to have satisfied this clause (i); (ii) the Company
fails to file with the Commission a request for acceleration in accordance with
Rule 461 promulgated under the Securities Act, within five Trading Days of the
date that the Company is notified (orally or in writing, whichever is earlier)

 

3

 

by the
Commission that a Registration Statement will not be “reviewed,” or not subject
to further review; (iii) prior to its Effectiveness Date, the Company fails to
file a pre-effective amendment and otherwise respond in writing to comments made
by the Commission in respect of such Registration Statement within 15 Trading
Days after the receipt of written comments by or notice from the Commission that
such amendment is required in order for a Registration Statement to be declared
effective; (iv) a Registration Statement filed or required to be filed hereunder
is not declared effective by the Commission by its Effectiveness Date; or (v)
after the Effectiveness Date and during the Effectiveness Period, a Registration
Statement ceases for any reason to remain continuously effective as to all
Registrable Securities for which it is required to be effective and the Holders
are not permitted to utilize the Prospectus therein to resell such Registrable
Securities for 10 consecutive Trading Days but no more than an aggregate of 20
Trading Days during any 12-month period (which need not be consecutive Trading
Days); (any such failure or breach being referred to as an “Event”, and
for purposes of clause (i) or (iv) the date on which such Event occurs, or for
purposes of clause (ii) the date on which such five Trading Day period is
exceeded, or for purposes of clause (iii) the date which such 15 Trading Day
period is exceeded, or for purposes of clause (v) the date on which such 10 or
20 Trading Day period, as applicable, is exceeded being referred to as
“Event
Date”), then,
as long as such Holders shall have complied with their obligations hereunder, in
addition to any other rights the Holders may have hereunder or under applicable
law, on each such Event Date and on each monthly anniversary of each such Event
Date beginning with the first monthly anniversary of the applicable Event Date
(if the applicable Event shall not have been cured by such date) until the
applicable Event is cured (each a “Liquidated
Damages Payment Date”), the
Company shall pay to each Holder an amount in cash, as partial liquidated
damages and not as a penalty, with respect to each Liquidated Damages Payment
Date, equal to 1% of the aggregate purchase price paid by such Holder pursuant
to the Purchase Agreement for any issued and outstanding unregistered
Registrable Securities then held by such Holder or issued and outstanding
Registrable Securities held by such Holder that are registered by a suspended
Registration Statement as applicable. If the Company fails to pay any partial
liquidated damages pursuant to this Section in full within seven calendar days
after the date payable, the Company will pay interest on such payment at a rate
equal to 10% per annum (or such lesser maximum amount that is permitted to be
paid by applicable law) to the Holder, accruing daily from the date such partial
liquidated damages are due until such amounts, plus all such interest thereon,
are paid in full. The partial liquidated damages pursuant to the terms hereof
shall apply on a daily pro-rata basis for any portion of a month prior to the
cure of an Event; provided, that
there shall be no penalty or damages in the event that the Company suspends the
use of the Registration Statement (or the Prospectus forming a part thereof) in
response to a request from the Commission for technical supplements to such
Registration Statement or if the Company suspends the use of the Registration
Statement in connection with a primary offering by the Company of equity
securities of the Company for a limited time preceding and including the date
such offering is declared effective by the Commission; and provided,
further, that it
shall not be deemed an “Event” if the Company files a Registration Statement (or
any amendment or supplement to a Registration Statement) by the applicable
Filing Date but such Registration Statement (or any amendment or supplement to a
Registration Statement) is not declared effective by the applicable
Effectiveness Date due to the Commission’s failure to respond within the
customary time period or if the delay in effectiveness is not reasonably
attributable to the Company and the Company has complied and continues to comply
with its obligation to use its commercially reasonable efforts to cause the
Registration Statement (or any amendment or supplement to a Registration
Statement) to become effective.

4

3. Registration
Procedures. In
connection with the Company’s registration obligations hereunder, the Company
shall:

(a) Not less
than five Trading Days prior to the filing of each Registration Statement or any
related Prospectus or any amendment or supplement thereto (including any
document that would be incorporated or deemed to be incorporated therein by
reference), the Company shall (i) furnish to each Holder copies of all documents
proposed to be filed, (which may be delivered via e-mail or facsimile) which
documents (other than those incorporated or deemed to be incorporated by
reference) will be subject to the review of such Holders and (ii) cause its
officers and directors, counsel and independent registered public accounting
firm to respond to such inquiries as shall be necessary, in the reasonable
opinion of respective counsel to conduct a reasonable investigation within the
meaning of the Securities Act. The Company shall not file the Registration
Statement or any such Prospectus or any amendments or supplements thereto to
which the Holders holding a majority of the Registrable Securities proposed to
be registered under such Registration Statement shall reasonably object in good
faith; provided, that
the Company is notified of such objection in writing no later than three Trading
Days after the Holders have been so furnished copies (which may be delivered via
email or facsimile) of such documents.

(b) (i)
Prepare and file with the Commission such amendments, including post-effective
amendments, to a Registration Statement and the Prospectus used in connection
therewith as may be necessary to keep a Registration Statement continuously
effective as to the applicable Registrable Securities for the Effectiveness
Period and prepare and file with the Commission such additional Registration
Statements in order to register for resale under the Securities Act all of the
Registrable Securities; (ii) cause the related Prospectus to be amended or
supplemented by any required Prospectus supplement (subject to the terms of this
Agreement), and as so supplemented or amended to be filed pursuant to Rule 424;
(iii) respond as promptly as reasonably possible to any comments received from
the Commission with respect to a Registration Statement or any amendment thereto
and as promptly as reasonably possible provide the Holders true and complete
copies (which may be delivered via email or facsimile) of all material written
correspondence from and to the Commission relating to a Registration Statement;
and (iv) comply in all material respects with the provisions of the Securities
Act and the Exchange Act with respect to the disposition of all Registrable
Securities covered by a Registration Statement during the applicable period in
accordance with (subject to the terms of this Agreement) the intended methods of
disposition by the Holders thereof set forth in such Registration Statement as
so amended or in such Prospectus as so supplemented.

(c) If during
the Effectiveness Period, the number of Registrable Securities outstanding or
issuable at any time exceeds 100% of the number of shares of Common Stock then
registered in a Registration Statement, the Company shall file as soon as
reasonably practicable but in any case prior to the applicable Filing Date, an
additional Registration Statement covering the resale by the Holders of not less
than 120% of the number of Registrable Securities outstanding or issuable less
the number of shares of Common Stock then registered in a Registration Statement
or otherwise disposed of pursuant to a Registration Statement or an exemption
therefrom. 

5

(d) Notify
the Holders of Registrable Securities to be sold (which notice shall, pursuant
to clauses (ii) through (vi) hereof, be accompanied by an instruction to suspend
the use of the Prospectus until the requisite changes have been made) as
promptly as reasonably possible (and, in the case of (i)(A) below, not less than
five Trading Days prior to such filing) and (if requested by any such Person)
confirm such notice in writing no later than one Trading Day following the day
(i)(A) when a Prospectus or any Prospectus supplement or post-effective
amendment to a Registration Statement is proposed to be filed; (B) when the
Commission notifies the Company whether there will be a “review” of such
Registration Statement and whenever the Commission comments in writing on such
Registration Statement (the Company shall provide true and complete copies
(which may be delivered via e-mail or facsimile) thereof and all written
responses thereto to each of the Holders); and (C) with respect to a
Registration Statement or any post-effective amendment, when the same has become
effective; (ii) of any request by the Commission or any other Federal or state
governmental authority for amendments or supplements to a Registration Statement
or Prospectus or for additional information; (iii) of the issuance by the
Commission or any other federal or state governmental authority of any stop
order suspending the effectiveness of a Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) of the receipt by the Company of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction, or the initiation or
threatening of any Proceeding for such purpose; (v) of the occurrence of any
event or passage of time that makes the financial statements included in a
Registration Statement ineligible for inclusion therein or any statement made in
a Registration Statement or Prospectus or any document incorporated or deemed to
be incorporated therein by reference untrue in any material respect or that
requires any revisions to a Registration Statement, Prospectus or other
documents so that, in the case of a Registration Statement or the Prospectus, as
the case may be, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading; and (vi) the occurrence or existence of any pending
corporate development with respect to the Company that the Company believes may
be material and that, in the determination of the Company (which determination
shall be conclusive if made by the Company in good faith), makes it not in the
best interest of the Company to allow continued availability of the Registration
Statement or Prospectus; provided that any and all of such information shall
remain confidential to each Holder until such information otherwise becomes
public, unless disclosure by a Holder is required by law; provided,
further, that
notwithstanding each Holder’s agreement to keep such information confidential,
the Holders make no acknowledgement that any such information is material,
non-public information.

(e) Use its
commercially reasonable efforts to avoid the issuance of, or, if issued, obtain
the withdrawal of, (i) any order suspending the effectiveness of a Registration
Statement or (ii) any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.

(f) Furnish
to each Holder (upon the request of such Holder, without charge, which may be
delivered via e-mail or facsimile), at least one conformed copy of each such
Registration Statement and each amendment or supplement thereto, including
financial statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference to the extent requested by such Person, and
all exhibits to the extent requested by such Person (including those previously
furnished or incorporated by reference) promptly after the filing of such
documents with the Commission.

6

(g) Promptly
deliver to each Holder (upon the request of such Holder, without charge, which
may be delivered via email or facsimile), as many copies of the Prospectus or
Prospectuses (including each form of prospectus) and each amendment or
supplement thereto as such Persons may reasonably request in connection with
resales by the Holder of Registrable Securities. Subject to the terms of this
Agreement, the Company hereby consents to the use of such Prospectus and each
amendment or supplement thereto by each of the selling Holders in connection
with the offering and sale of the Registrable Securities covered by such
Prospectus and any amendment or supplement thereto, except after the giving on
any notice pursuant to Section 3(d).

(h) Prior to
any resale of Registrable Securities by a Holder, use its commercially
reasonable efforts to register or qualify or cooperate with the selling Holders
in connection with the registration or qualification (or exemption from such
registration or qualification) of such Registrable Securities for the resale by
the Holder under the securities or Blue Sky laws of such jurisdictions within
the United States as any Holder reasonably requests in writing, to keep each
registration or qualification (or exemption therefrom) effective during the
Effectiveness Period and to do any and all other acts or things reasonably
necessary to enable the disposition in such jurisdictions of the Registrable
Securities covered by each Registration Statement; provided, that
the Company shall not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified, subject itself to any material
tax in any such jurisdiction where it is not then so subject or file a general
consent to service of process in any such jurisdiction.

(i) If
requested by the Holders, cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be delivered to a transferee pursuant to a Registration Statement, which
certificates shall be free, to the extent permitted by applicable laws and
regulations, and the Purchase Agreement, of all restrictive legends, and to
enable such Registrable Securities to be in such denominations and registered in
such names as any such Holders may request. Each
Holder acknowledges and agrees that the Registrable Securities sold pursuant to
a Registration Statement are not transferable on the books of the Company unless
the stock certificate submitted to the transfer agent evidencing such
Registrable Securities is accompanied by a certificate reasonably satisfactory
to the Company to the effect that (i) the Registrable Securities have been sold
in accordance with such Registration Statement and (ii) the requirement of
delivering a current Prospectus has been satisfied.

(j) Upon the
occurrence of any event contemplated by Section 3(d)(ii)-(vi), as promptly as
reasonably possible under the circumstances taking into account the Company’s
good faith assessment of any adverse consequences to the Company and its
stockholders of the premature disclosure of such event, prepare a supplement or
amendment, including a post-effective amendment, to a Registration Statement or
a supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither a Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. If the
Company notifies the Holders in accordance with Section 3(d)(ii)-(vi) to suspend
the use of any Prospectus until the requisite changes to such Prospectus have
been made, then the Holders shall suspend use of such Prospectus. The Company
shall use its commercially reasonable efforts to ensure that the use of the
Prospectus may be resumed as promptly as is practicable. The Company shall be
entitled to exercise its right under this Section 3(j) to suspend the
availability of a Registration Statement and Prospectus, subject to the payment
of partial liquidated damages pursuant to Section 2(b), if any, for a period not
to exceed 60 days (which need not be consecutive days) in any 12 month
period.

7

(k) The
Company may require each selling Holder, and each Holder hereby agrees, to
furnish to the Company a certified statement as to the number of Registrable
Securities beneficially owned by such Holder and other information relating to
such Holder (to the extent required for a Registration Statement), the
Registrable Securities it intends to sell and its plan of distribution, and, if
required by the Commission, the Person who has voting and dispositive control
over such Registrable Securities. It is a condition precedent to the Company’s
performance of its obligations under this Agreement that such Holder supplies
such requested information and during any periods that the Company is unable to
meet its obligations hereunder with respect to the registration of the
Registrable Securities solely because any Holder fails to furnish such
information within three Trading Days of the Company’s request, any liquidated
damages that are accruing at such time as to such Holder only shall be tolled
and any Event that may otherwise occur solely because of such delay shall be
suspended as to such Holder only, until such information is delivered to the
Company and such Holder shall be responsible for any additional reasonable
expenses incurred by the Company of said failure or delay; provided,
further, that
the Holders agree and acknowledge that the Company will not delay the filing of
a Registration Statement (or amendment or supplement to a Registration
Statement) due to the failure of any Holder to deliver the information required
hereby in accordance with the terms hereof and if a Registration Statement (or
amendment or supplement to a Registration Statement) is filed without any
Holder’s information, such Holder shall not have any right under this Agreement
to require the Company to file any additional Registration Statement (or
amendment or supplement to a Registration Statement) on behalf of such
Holder.

(l) Each
Holder agrees not to take any action with respect to any distribution deemed to
be made pursuant to such registration statement which would constitute a
violation of Regulation M under the Exchange Act or any other applicable rule,
regulation or law.

4. Registration
Expenses. All
fees and expenses incident to the performance of or compliance with this
Agreement by the Company shall be borne by the Company whether or not any
Registrable Securities are sold pursuant to the Registration Statement. The fees
and expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without limitation,
fees and expenses (A) with respect to filings required to be made with the
Trading Market on which the Common Stock is then listed for trading and (B) in
compliance with applicable state securities or “blue sky” laws reasonably agreed
to by the Company in writing (including, without limitation, fees and
disbursements of counsel for the 

 

8

 

Company
in connection with blue sky qualifications or exemptions of the Registrable
Securities and determination of the eligibility of the Registrable Securities
for investment under the laws of such jurisdictions as requested by the
Holders), (ii) printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities and of printing prospectuses if
the printing of prospectuses is reasonably requested by the Holders of a
majority of the Registrable Securities included in a Registration Statement),
(iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company, (v) Securities Act liability insurance, if the Company
so desires such insurance, and (vi) fees and expenses of all other Persons
retained by the Company in connection with the consummation of the transactions
contemplated by this Agreement). In addition, the Company shall be responsible
for all of its internal expenses incurred in connection with the consummation of
the transactions contemplated by this Agreement (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder. Notwithstanding the foregoing, in no
event shall the Company be responsible for any underwriters’ discount or broker
or similar commissions or, except to the extent provided for in the Transaction
Documents, any legal fees or other costs of the Holders.

 

5. Indemnification.

(a) Indemnification
by the Company. The
Company shall, notwithstanding any termination of this Agreement, indemnify and
hold harmless each Holder, the officers, directors, agents, investment advisors
and employees of each of them, each Person who controls any such Holder (within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) and the officers, directors, agents and employees of each such controlling
Person, to the fullest extent permitted by applicable law, from and against any
and all losses, claims, damages, liabilities, costs (including, without
limitation, reasonable attorneys’ fees) and expenses (collectively,
“Losses”), as
incurred, arising out of or relating to any untrue or alleged untrue statement
of a material fact contained in a Registration Statement, any Prospectus or any
form of prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or relating to any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading, except to the extent, but only to the extent, that (i) such
untrue statements or omissions are based solely upon information regarding such
Holder furnished in writing to the Company by such Holder expressly for use
therein, or to the extent that such information relates to such Holder or such
Holder’s proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in a
Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto (it being understood that the Holder has
approved Annex A hereto for this purpose) or (ii) such losses were caused by the
use by such Holder of a suspended, outdated or defective Prospectus after the
Company has notified such Holder in writing that such Prospectus is suspended,
outdated or defective and prior to the receipt by such Holder of the Advice
contemplated in Section 6(c). The Company shall notify the Holders promptly of
the institution, threat or assertion of any Proceeding arising from or in
connection with the transactions contemplated by this Agreement of which the
Company is aware.

9

(b) Indemnification
by Holders. Each
Holder shall, severally and not jointly, indemnify and hold harmless each other
Holder, the Company, its directors, officers, agents and employees, each Person
who controls the Company (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, agents or
employees of such controlling Persons, to the fullest extent permitted by
applicable law, from and against all Losses, as incurred, to the extent arising
out of or based solely upon: (x) such Holder’s failure to comply with the
prospectus delivery requirements of the Securities Act or (y) any untrue or
alleged untrue statement of a material fact contained in any Registration
Statement, any Prospectus, or any form of prospectus, or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein not misleading (i) to
the extent, but only to the extent, that such untrue statement or omission is
contained in any information so furnished in writing by such Holder to the
Company specifically for inclusion in such Registration Statement or such
Prospectus or (ii) to the extent that (1) such untrue statements or omissions
are based solely upon information regarding such Holder furnished in writing to
the Company by such Holder expressly for use therein, or to the extent that such
information relates to such Holder or such Holder’s proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement (it
being understood that the Holder has approved Annex A hereto for this purpose),
such Prospectus or such form of Prospectus or in any amendment or supplement
thereto or (2) such losses were caused by the use by such Holder of an outdated
or defective Prospectus after the Company has notified such Holder in writing
that the Prospectus is outdated or defective and prior to the receipt by such
Holder of the Advice contemplated in Section 6(c). In no event shall the
liability of any selling Holder hereunder be greater in amount than the dollar
amount of the net proceeds received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification
obligation.

(c) Conduct
of Indemnification Proceedings. If any
Proceeding shall be brought or asserted against any Person entitled to indemnity
hereunder (an “Indemnified
Party”), such
Indemnified Party shall promptly notify the Person from whom indemnity is sought
(the “Indemnifying
Party”) in
writing, and the Indemnifying Party shall have the right to assume the defense
thereof, including the employment of counsel reasonably satisfactory to the
Indemnified Party and the payment of all reasonable fees and expenses incurred
in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have prejudiced the Indemnifying
Party.

An
Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless: (1) the Indemnifying Party has agreed in writing to pay such fees and
expenses; (2) the Indemnifying Party shall have failed promptly to assume the
defense of such Proceeding and to employ counsel reasonably satisfactory to such
Indemnified Party in any such Proceeding; or (3) the named parties to any such
Proceeding (including any impleaded parties) include both such Indemnified Party
and the Indemnifying Party, in the reasonable written opinion of counsel
satisfactory to the Indemnifying 

 

10

 

Party a
material conflict of interest under applicable rules of professional
responsibilities for attorneys is likely to exist if the same counsel were to
represent such Indemnified Party and the Indemnifying Party (in which case, if
such Indemnified Party notifies the Indemnifying Party in writing that it elects
to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense thereof and
the reasonable fees and expenses of one separate counsel shall be at the expense
of the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such
Proceeding.

 

(d) Contribution. If the
indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified
Party or insufficient to hold an Indemnified Party harmless for any Losses, then
each Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party, in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material fact,
has been taken or made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties’ relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a result
of any Losses shall be deemed to include, subject to the limitations set forth
in this Agreement, any reasonable attorneys’ or other reasonable fees or
expenses incurred by such party in connection with any Proceeding to the extent
such party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms.

The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 5(d) were determined by pro rata allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission, except in the case of fraud by
such Holder. 

The
indemnity and contribution agreements contained in this Section are in addition
to any liability that the Indemnifying Parties may have to the Indemnified
Parties.

11

6. Miscellaneous.

(a) Remedies. In the
event of a breach by the Company or by a Holder, of any of their obligations
under this Agreement, each Holder or the Company, as the case may be, in
addition to being entitled to exercise all rights granted by law and under this
Agreement, including recovery of damages, will be entitled to specific
performance of its rights under this Agreement. The Company and each Holder
agree that monetary damages would not provide adequate compensation for any
losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.

(b) Compliance. Each
Holder covenants and agrees that it will comply with the prospectus delivery
requirements of the Securities Act as applicable to it in connection with sales
of Registrable Securities pursuant to the Registration Statement.

(c) Discontinued
Disposition. Each
Holder agrees by its acquisition of such Registrable Securities that, upon
receipt of a notice from the Company of the occurrence of any event of the kind
described in Section 3(d)(ii)-(vi), such Holder will forthwith discontinue
disposition of such Registrable Securities under a Registration Statement until
such Holder’s receipt of the copies of the supplemented Prospectus and/or
amended Registration Statement, or until it is advised in writing (the
“Advice”) by the
Company that the use of the applicable Prospectus may be resumed, and, in either
case, has received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement. The Company will use its commercially reasonable efforts
to ensure that the use of the Prospectus may be resumed as promptly as it
practicable.

(d) Piggy-Back
Registrations. If at
any time during the Effectiveness Period there is not an effective Registration
Statement covering all of the Registrable Securities and the Company shall
determine to prepare and file with the Commission a registration statement
relating to an offering for the account of others under the Securities Act of
any of its equity securities, other than on Form S-4 or Form S-8 (each as
promulgated under the Securities Act) or their then equivalents relating to
equity securities to be issued solely in connection with any acquisition of any
entity or business or equity securities issuable in connection with the stock
option or other employee benefit plans, then the Company shall send to each
Holder a written notice of such determination and, if within fifteen days after
the date of such notice, any such Holder shall so request in writing, the
Company shall include in such registration statement all or any part of such
Registrable Securities such Holder requests to be registered; provided, that,
the Company shall not be required to register any Registrable Securities
pursuant to this Section 6(d) that are eligible for resale pursuant to Rule
144(k) promulgated under the Securities Act or that are the subject of a then
effective registration statement.

(e) Amendments
and Waivers. The
provisions of this Agreement, including the provisions of this sentence, may not
be amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, unless the same shall be in writing and
signed by the Company and the Holders holding 75% of Registrable Securities.
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with respect to a matter that relates exclusively to the rights of a
Holders and that does not directly or indirectly affect the rights of other
Holders may be given by the Holder(s) of all of the Registrable Securities to
which such waiver or consent relates; provided,
however, that
the provisions of this sentence may not be amended, modified or supplemented
except in accordance with the provisions of the immediately preceding sentence.

12

(f) Notices. Any and
all notices or other communications or deliveries required or permitted to be
provided hereunder shall be delivered as set forth in the Purchase Agreement.

(g) Successors
and Assigns. This
Agreement shall inure to the benefit of and be binding upon the successors and
permitted assigns of each of the parties and shall inure to the benefit of each
Holder. The right
to cause the Company to register Registrable Securities granted to the Holders
by the Company under this Agreement may be assigned in full by a Holder in
connection with a transfer by such Holder of its Registrable Securities, but
only if: (i) such transfer may otherwise be effected in accordance with
applicable securities laws; (ii) such Holder gives written notice of the
proposed transfer to the Company including the name and address of such
transferee and a copy of the transfer documents and agreements; and (iii) such
transfer is otherwise in compliance with this Agreement. Except as specifically
permitted by this Section 6(g), the rights of a Holder with respect to
Registrable Securities as set out herein shall not be transferable to any other
Person, the Company may impose stop transfer orders with respect to any such
transfer or attempted transfer, and any such transfer or attempted transfer
shall be null and void.

(h) No
Inconsistent Agreements. Neither
the Company nor any of its subsidiaries has entered, as of the date hereof, nor
shall the Company or any of its subsidiaries, during the period beginning on the
date of this Agreement and ending at the end of the Effectiveness Period, enter
into any agreement with respect to its securities, that would have the effect of
impairing the rights granted to the Holders in this Agreement or that otherwise
conflicts with the provisions hereof. Except as set forth on Schedule
6(h), neither
the Company nor any of its subsidiaries has previously entered into any
agreement granting any registration rights with respect to any of its securities
to any Person that have not been satisfied in full.

(i) Execution
and Counterparts. This
Agreement may be executed in any number of counterparts, each of which when so
executed shall be deemed to be an original and, all of which taken together
shall constitute one and the same Agreement. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid binding
obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
were the original thereof.

(j) Governing
Law. All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be determined in accordance with the governing law
provisions set forth in the Purchase Agreement.

(k) Cumulative
Remedies. The
remedies provided herein are cumulative and not exclusive of any remedies
provided by law.

13

(l) Severability. If any
term, provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their commercially reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.

(m) Headings. The
headings in this Agreement are for convenience of reference only and shall not
limit or otherwise affect the meaning hereof.

(n) Independent
Nature of Holders’ Obligations and Rights. The
obligations of each Holder hereunder are several and not joint with the
obligations of any other Holder hereunder, and no Holder shall be responsible in
any way for the performance of the obligations of any other Holder hereunder.
Nothing contained herein or in any other agreement or document delivered at any
closing, and no action taken by any Holder pursuant hereto or thereto, shall be
deemed to constitute the Holders as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the Holders
are in any way acting in concert with respect to such obligations or the
transactions contemplated by this Agreement. Each Holder shall be entitled to
protect and enforce its rights, including without limitation the rights arising
out of this Agreement, and it shall not be necessary for any other Holder to be
joined as an additional party in any Proceeding for such purpose.

********************

14

 

IN
WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as
of the date first written above.

	 	 	 
	 	NOVADEL PHARMA
      INC.
	 
 	 
 	 
 
		By:  	
	 	
      

    
	 	
      Name:

      Title:

 

15

[SIGNATURE
PAGE OF HOLDERS FOLLOWS]

[SIGNATURE
PAGE OF HOLDERS TO NOVADEL PHARMA INC.]

 

Name of
Holder: __________________________

Signature
of Authorized Signatory of Holder:
__________________________

Name of
Authorized Signatory: _________________________

Title of
Authorized Signatory: __________________________

Facsimile
Number: __________________________

Email
Address: __________________________

[SIGNATURE
PAGES CONTINUE]

16

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