Document:

EXHIBIT
10.17

POLICY
ON REIMBURSEMENT

OF
INCENTIVE PAYMENTS

WHEREAS, section 304 of the Sarbanes-Oxley Act of 2002 already requires
the Chief Executive Officer and the Chief Financial Officer of 3M Company to
reimburse the Company for certain incentive compensation they receive and
profits they realize on the sale of Company securities during the 12-month
period following the issuance by the Company of a financial report that, due to
misconduct, is materially noncompliant with the federal securities laws; and

WHEREAS, the Board of Directors of the Company believes it would be in
the best interests of the Company to adopt a similar policy on reimbursement of
incentive compensation payments made to more of the Company’s executives;

RESOLVED, That the Board shall, in all appropriate circumstances
and to the extent permitted by governing law, require reimbursement of any annual incentive payment or long-term
incentive payment to an Executive where:

(1)                                  the payment was predicated upon achieving
certain financial results that were subsequently the subject of a material
restatement of Company financial statements filed with the Securities and
Exchange Commission;

(2)                                  the Board determines the Executive engaged in
intentional misconduct that caused or substantially caused the need for the
material restatement; and

(3)                                  a lower payment would have been made to the
Executive based upon the restated financial results.

In
each such instance, the Company will, to the extent practicable, seek to
recover from the individual Executive the amount by which the individual
Executive’s incentive payments for the relevant periods exceeded the lower
payment that would have been made based on the restated financial results.  For purposes of this policy, the term “Executive”
means executive officer for purposes of the Securities Exchange Act of 1934, as
amended.

 96Exhibit 10.1

Execution Copy

3,745,645 Shares

Warrants to Purchase 1,872,823
Shares

CYTORI THERAPEUTICS, INC.

Common Stock

PLACEMENT AGENCY AGREEMENT

February 23, 2007

Piper
Jaffray & Co.

U.S.
Bancorp Center

800
Nicollet Mall

Minneapolis, Minnesota 
55402

Ladies and Gentlemen:

Cytori Therapeutics, Inc., a Delaware corporation (the “Company”), proposes, subject to the terms
and conditions stated herein, to issue and sell to certain investors located by you or set forth on Schedule II
attached hereto (each an “Investor”
and, collectively, the “Investors”),
(i) up to 3,745,645 shares (the “Shares”)
of the Company’s common stock, $0.001 par value per share (the “Common Stock”) and (ii) warrants to
purchase up to 1,872,823 shares of Common Stock (the “Warrants” and together with the Shares,
the “Securities”).  The shares of Common Stock issuable upon
exercise of the Warrants are hereinafter referred to as the “Warrant Shares”.  The Company desires to engage Piper Jaffray
& Co. as its exclusive placement agent (the “Placement Agent”) in connection with such issuance and
sale.  The Securities are more fully
described in the Registration Statement (as hereinafter defined).

The Company has
prepared and filed in conformity with the requirements of the Securities Act of
1933, as amended (the “Securities
Act”), and the published rules
and regulations thereunder (the “Rules and
Regulations”) adopted by the Securities and Exchange Commission (the
“Commission”) a Registration
Statement on Form S-3 (No. 333-134129), relating to the Securities and the
offering thereof from time to time in accordance with Rule 415 of the Rules and
Regulations, and such amendments thereof as may have been required. The
Registration Statement includes a prospectus dated June 5, 2006 (the “Base Prospectus”). The Company has filed
the Base Prospectus with the Commission and has filed with, or transmitted for
filing to, or shall promptly hereafter file with or transmit for filing to the
Commission, a prospectus supplement relating to the Securities in accordance
with Rule 424(b) under the Act (the “Final
Prospectus Supplement”). The term “Registration Statement” as used
in this Agreement means the initial registration statement (including all
exhibits, financial schedules and all documents and information deemed to be a
part of the Registration Statement (through incorporation by reference or
otherwise)), as amended, at the time and on the date it became effective (the “Effective Date”), including the
information (if any) contained in the form of final prospectus filed with the
Commission pursuant to Rule 424(b) of the Rules and Regulations and deemed to
be part thereof at the time of effectiveness pursuant to Rule 430A of the Rules
and Regulations. The term “Prospectus”
as used in this Agreement means the Base Prospectus together with the Final
Prospectus Supplement. Any preliminary prospectus or prospectus subject to
completion included in the Registration Statement or filed with the Commission 

pursuant to Rule 424
under the Securities Act is hereafter called a “Preliminary Prospectus.” As used herein, the terms “Base
Prospectus,” “Prospectus,” “Registration Statement,” “Preliminary Prospectus”
and “Final Prospectus Supplement” shall include any documents incorporated by
reference therein; and any reference to any amendment or supplement to the
Registration Statement or the Prospectus shall be deemed to refer to and
include any document filed under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”),
after the date of the Base Prospectus by the Company with the Commission and on
or before the last to occur of the Effective Date, the date of the Preliminary
Prospectus, or the date of the Prospectus; and any reference herein to the
terms “amend,” “amendment,” or “supplement” with respect to the Registration
Statement, any Preliminary Prospectus or the Prospectus shall be deemed to
refer to and include the filing of any document under the Exchange Act before
or after the Effective Date, the date of such Preliminary Prospectus or the
date of the Prospectus, as the case may be, which is incorporated by reference
into such amendment or supplement, but excluding any documents or information
furnished to the Commission under Item 2.02 or Item 7.01 of any Current Report
on Form 8-K.  If the Company has filed an abbreviated registration statement to
register additional Shares and Warrants pursuant to Rule 462(b) under the Rules
and Regulations (the “Rule 462(b)
Registration Statement”), then any reference herein to the term “Registration Statement” shall also be
deemed to include such Rule 462(b) Registration Statement.  The Company hereby confirms that
the Placement Agent, in connection with its duties in such capacity, is
authorized to distribute or cause to be distributed the Prospectus (as from time
to time amended or supplemented if the Company furnishes amendments or
supplements thereto to such Placement Agent).

All references in
this Agreement to financial statements and schedules and other information
which is “contained,” “included” or “stated” in the Registration Statement or
the Prospectus (or other references of like import) shall be deemed to mean and
include all such financial statements and schedules and other information which
is incorporated by reference in the Registration Statement or the Prospectus,
as the case may be; and all references in this Agreement to amendments or
supplements to the Registration Statement or the Prospectus shall be deemed to
mean and include the filing of any document under the Exchange Act on or before
the Closing Date (as defined herein), which is incorporated by reference in the
Registration Statement or the Prospectus, as the case may be.

For
purposes of this Agreement, all references to the Registration Statement, the
Rule 462(b) Registration Statement, the Base Prospectus, any Preliminary
Prospectus, the Prospectus or any amendment or supplement to any of the
foregoing shall be deemed to include the copy filed with the Commission
pursuant to its Electronic Data Gathering, Analysis and Retrieval System (“EDGAR”).

1.             Agreement
to Act as Placement Agent; Delivery and Payment.  On
the basis of the representations, warranties and agreements of the Company
herein contained, and subject to the terms and conditions set forth in this
Agreement:

(a)           The
Company hereby engages the Placement Agent to act as its exclusive placement
agent in connection with the issuance and sale, by the Company, of Securities
to the Investors and the Placement Agent hereby agrees, as an agent of the
Company, to use its best efforts to solicit offers to purchase all or part of
the Securities from the Company upon the terms and conditions set forth in the
Prospectus. The Company expressly acknowledges and agrees that this Agreement
shall not give rise to a commitment by the Placement Agent or any of its
affiliates to underwrite or purchase any of the Securities or otherwise provide
any financing, and the Placement Agent shall have no authority to bind (and
agrees not to purport to bind) the Company in respect of the sale of any
Securities.

(b)           Concurrently with the
execution and delivery of this Agreement, the Company, the Placement Agent and JP Morgan Chase, as escrow agent
(the “Escrow Agent”), shall enter
into an escrow agreement, dated as of the date hereof (the “Escrow Agreement”) pursuant to
which an escrow 

 2
 

account
will be established, at the Company’s expense, for the benefit of the Company
and the Investors who
desire to settle their purchase through the facilities of The Depository Trust
Company’s DWAC system (the “Escrow
Account”). Prior to the Closing Date, (i) each such Investor will
deposit in the Escrow Account an amount equal to $5.74 per unit (each unit
consisting of one Share and 0.5 Warrants) multiplied by the number of units to
be purchased by such Investor (the “Purchase
Amount”), and (ii) the Escrow Agent will notify the Company and the
Placement Agent in writing of the amount of funds deposited in the Escrow
Account.

(c)           Upon
the occurrence of the Closing (as hereinafter defined), the Company shall pay
to the Placement Agent, by wire transfer of immediately available funds payable
to the order of the Placement Agent, to an account designated by the Placement
Agent, an aggregate of six and one-half percent (6.5%) of the gross proceeds
received by the Company from its sale of the Securities at such Closing (the “Agency Fee”) provided, however, that with
respect to Securities sold in the offering to those Investors whose names are
set forth on Schedule II attached hereto, the fee to be paid to the
Placement Agent shall equal five percent (5.0%) of the gross proceeds received
by the Company at Closing from its sale of such Securities to such Investors.

(d)           Payment
of the purchase price for, and delivery of, the Securities shall be made at a
closing (the “Closing”) at the
offices of Heller Ehrman LLP, counsel for the Company, located at 4350 La Jolla
Village Drive, 7th Floor, San Diego, California at 10:00 a.m., local time, on
February 28, 2007 or at such other time and date as the Placement Agent and the
Company determine pursuant to Rule 15c6-1(a) under the Exchange Act (such date
of payment and delivery being herein referred to as the “Closing Date”), and upon satisfaction of
the conditions set forth in this Agreement and the Subscription Agreements (as
defined below), the Company shall deliver the Securities, which shall be
registered in the name or names and shall be in such denominations as the
Placement Agent may request at least one business day before the Closing Date,
to the Investors, which delivery, with respect to the Shares, may be made
through the facilities of the Depository Trust Company, and the Escrow Agent
will disburse the aggregate funds in the Escrow Account to the Company reduced
by an amount equal to the sum of the aggregate Agency Fee payable to the Placement
Agent and the Placement Agent’s bona fide estimate of the amount, if any, of
expenses for which the Placement Agent is entitled to reimbursement pursuant
hereto, with such amounts being delivered to the Placement Agent, by wire in
federal (same day) funds, as provided in the Escrow Agreement. All such actions
taken at the Closing shall be deemed to have occurred simultaneously.  Each of the Company and the Placement Agent
hereby agree to deliver to the Escrow Agent a Closing Notice in the form
attached as Exhibit C to the Escrow Agreement at least one day prior to
the Closing Date.  At least one day prior to the Closing Date, the
Placement Agent shall submit to the Company its bona fide estimate of the
amount, if any, of expenses for which such Placement Agent is entitled to
reimbursement pursuant hereto. If the Company shall default in its obligations
to deliver Securities to an Investor whose offer it has accepted, the Company
shall indemnify and hold the Placement Agent harmless against any loss, claim or
damage arising from or as a result of such default by the Company.

(e)           The
sale of the Securities shall be made pursuant to subscription agreements in the
form included as Exhibit A hereto (the “Subscription
Agreements”). The Company shall have the sole right to accept offers
to purchase the Securities and may reject any such offer in whole or in part,
and, except as set forth in Section 4 hereof, in no event shall fees be payable
on any proposed purchase which is rejected for any reason or which otherwise
does not close for any reason.

(f)            Prior
to the earlier of (i) the date on which this Agreement is terminated and (ii)
the Closing Date, the Company shall not, without the prior written consent of
the Placement Agent, solicit or accept offers to purchase Securities of the
Company (other than pursuant to the exercise of options or 

 3
 

warrants
to purchase shares of Common Stock that are outstanding at the date hereof)
otherwise than through the Placement Agent in accordance herewith.

(g)           Any Investor not settling its purchase of Securities pursuant to Section 1(b) above shall
deposit its respective Purchase Amount into an account or accounts established with the Placement Agent.  On the Closing Date, the Placement Agent shall, with respect to each such Investor, cause the Purchase Amount for such Securities to be wired from such accounts to an account
designated by the Company in exchange for the release of such Investor’s Securities.

2.             Representations
and Warranties of the Company.  The Company represents and warrants to
the Placement Agent as of the date hereof and as of the Closing Date, and
agrees with the Placement Agent, as follows:

(a)           Registration Statement and Prospectus.        The Company and the transactions
contemplated by this Agreement meet the requirements and comply with the
conditions for the use of Form S-3 under the Securities Act.  The offering of the Securities by the Company
complies with the applicable requirements of Rule 415 under the Securities
Act.  The
Company has complied to the Commission’s
satisfaction with all requests of the Commission for additional or supplemental
information. The Registration Statement has become effective under the
Securities Act.  No stop order preventing
or suspending use of the Registration Statement or the Prospectus or the
effectiveness of the Registration Statement, has been issued by the Commission,
and no proceedings for such purpose have been instituted or are pending or, to
the Company’s knowledge, are contemplated or threatened by the Commission.

(b)           Compliance with Registration Requirements.  Each part of the Registration Statement and
any post-effective amendment thereto, at the time such part became effective (including each deemed effective date with
respect to the Placement Agent pursuant to Rule 430B under the Securities Act)
and as of the Closing Date, complied and will comply, in all material respects,
with the requirements of the Securities Act, the Rules and Regulations and the
Exchange Act and did not and will not contain any 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 not misleading. The Prospectus (or any
amendment or supplement to the Prospectus), at the time of filing or the time
of first use within the meaning of the Rules and Regulations and as of the
Closing Date, complied and will comply, in all material respects, with the
requirements of the Securities Act, the Rules and Regulations and the Exchange
Act and did not and will not contain an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, that the
Company makes no representations or warranty in this paragraph with respect to
any Placement Agent Information (as defined in Section 7).

(c)           Disclosure Package.  As of the Time of Sale (as hereinafter
defined) and as of the Closing Date, neither (A) any Issuer General Use Free
Writing Prospectus(es)(as defined below), if any, issued at or prior to the
Time of Sale, the Statutory Prospectus (as hereinafter defined), all considered
together (collectively, the “Disclosure Package”),
nor (B) any individual Issuer Limited-Use Free Writing Prospectus (as
hereinafter defined), when considered together with the Disclosure Package,
included or will include any untrue statement of a material fact or omitted or
will omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, that the
Company makes no representations or warranty in this paragraph with respect to
statements in or omissions from the Disclosure Package in reliance upon, and in
conformity with any Placement Agent Information.  No statement of material fact included in the
Prospectus has been omitted from the Disclosure Package and no statement of
material fact included in the Disclosure Package that is required to be
included in the Prospectus has been omitted therefrom. As used in this
paragraph and elsewhere in this Agreement:

 4
 

(1)           “Time of
Sale” with respect to any Investor, means 12:55 p.m. Pacific
Standard Time on the date of this Agreement.

(2)           “Statutory
Prospectus” means the Preliminary Prospectus, if any, and  the Base Prospectus, each as amended and
supplemented as of immediately prior to the Time of Sale, including any
document incorporated by reference therein and any prospectus supplement deemed
to be a part thereof.  For purposes of
this definition, information contained in a form of prospectus that is deemed
retroactively to be a part of the Registration Statement pursuant to Rule 430B
under the Securities Act shall be considered to be included in the Statutory
Prospectus as of the actual time that form of prospectus is filed with the
Commission pursuant to Rule 424(b) under the Securities Act.

(3)           “Issuer Free Writing Prospectus” means any “issuer free writing prospectus,” as
defined in Rule 433 under the Securities Act (“Rule
433”), relating to the Securities in the form filed or required to
be filed with the Commission or, if not required to be filed, in the form retained in the Company’s records pursuant to
Rule 433(g) under the Securities Act.

(4)           “Issuer
General Use Free Writing Prospectus” means any Issuer Free Writing
Prospectus that is intended for general distribution to prospective investors as identified on Schedule
I hereto, and does not include a “bona fide electronic road show” as
defined in Rule 433.

(5)           “Issuer Limited-Use Free
Writing Prospectus” means any Issuer Free Writing Prospectus that is
not an Issuer General Free Writing Prospectus, including any “bona fide
electronic road show” as defined in Rule 433, that is made available without
restriction pursuant to Rule 433(d)(8)(ii), even though not required to be
filed with the Commission.

(d)           Conflict with Registration Statement.    Each Issuer Free Writing Prospectus, as of
its issue date and at all subsequent times through the completion of the
offering and sale of the Securities or until any earlier date that the Company
notified or notifies the Placement Agent, did not, does not and will not
include any information that conflicted, conflicts or will conflict with the
information contained in the Registration Statement, any Statutory Prospectus
or the Prospectus including any document incorporated by reference therein and
any prospectus supplement deemed to be a part thereof that has not been
superseded or modified or included or would include an untrue statement of a
material fact or omitted or would omit to state a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading; provided, that the Company makes no representations or warranty in
this paragraph with respect to any Placement Agent Information.

(e)           Distributed Materials.        The Company has not, directly or
indirectly, distributed and will not distribute any prospectus or other
offering material in connection with the offering and sale of the Securities other
than the Disclosure Package or the Prospectus, and other materials, if any,
permitted under the Securities Act to be distributed and consistent with Section
3 below. The Company will file with the Commission all Issuer Free Writing
Prospectuses required to be filed in the time required under Rule 433(d) under
the Securities Act. The Company has satisfied or will satisfy the conditions in
Rule 433 under the Securities Act to avoid a requirement to file with the
Commission any electronic road show. The parties hereto agree and understand
that the content of any and all “road shows” related to the offering of the
Securities contemplated hereby is solely the property of the Company.

 5
 

(f)            Not an Ineligible Issuer.  (1) At the earliest time after the filing of
the Registration Statement that the Company or another offering participant
made a bona fide offer (within the meaning of Rule 164(h)(2) under the
Securities Act) of the Securities and (2) at the date hereof, the Company was
not and is not an “ineligible issuer,” as defined in Rule 405 under the
Securities Act, without taking account of any determination by the Commission
pursuant to Rule 405 that it is not necessary that the Company be considered an
ineligible issuer, including, without limitation, for purposes of Rules 164 and
433 under the Securities Act with respect to the offering of the Securities as
contemplated by the Registration Statement.

(g)           Incorporated Documents.  The documents incorporated by reference in
the Disclosure Package and in the Prospectus, when they became effective or
were filed with the Commission, as the case may be, conformed in all material
respects to the requirements of the Securities Act or the Exchange Act, as
applicable, and were filed on a timely basis with the Commission and none of
such documents contained an untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.

(h)           Due Incorporation.  The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, with the corporate power and authority to own
its properties and to conduct its business as currently being carried on and as
described in the Registration Statement, the Disclosure Package and the
Prospectus and is duly qualified to transact business as a foreign corporation
in good standing under the laws of each other jurisdiction in which its
ownership or leasing of property or the conduct of its business requires such
qualification, except where the failure to be so qualified and in good standing
(i) would not, individually or in the aggregate, result in any material adverse
effect upon, or change in, the general affairs, business, operations,
prospects, properties, financial condition, or results of operations of the
Company taken as a whole or (ii) would not impair in any material respect the
ability of the Company to perform its obligations under this Agreement or to
consummate any transactions contemplated by this Agreement, the Disclosure
Package or the Prospectus (any such effect as described in clauses (i) or (ii),
a “Material Adverse Effect”).

(i)            Capitalization.  All of the issued and outstanding shares of
capital stock of the Company, including the outstanding shares of Common Stock,
have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase or acquire any securities
of the Company that have not been waived in writing.

(j)            The Securities.  The Shares have been duly and validly
authorized by the Company and, when issued, delivered and paid for in
accordance with the terms of this Agreement and the Subscription Agreements,
will have been duly and validly issued and will be fully paid and nonassessable
and will not be subject to any statutory or contractual preemptive rights or
other rights to subscribe for or purchase or acquire any shares of Common Stock
of the Company, which have not been waived or complied with and will conform in
all material respects to the description thereof contained in the Disclosure
Package and the Prospectus and such description conforms in all material
respects to the rights set forth in the instruments defining the same.  The Warrants conform, or when issued will
conform, to the description thereof contained in the Disclosure Package and the
Prospectus and have been duly and validly authorized by the Company and upon
delivery to the Investors at the Closing Date will be valid and binding
obligations of the Company, enforceable in accordance with their terms, except as
such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the rights and remedies of creditors
generally or subject to general principles of equity. The 

 6
 

Warrant
Shares initially issuable upon exercise of the Warrants conform, or when issued
will conform, to the description thereof contained in the Disclosure Package
and the Prospectus and have been duly authorized and reserved for issuance and
when issued in accordance with the terms thereof will be validly issued, fully
paid and nonassessable.

(k)           Description of Capital Stock.   The capital stock of the Company, including
the Common Stock, conforms as to legal matters to the description thereof, if
any, contained in the Registration Statement, the Statutory Prospectus and the
Prospectus, and as of the date thereof, the Company had authorized capital
stock as set forth therein.  The
Securities are in due and proper form and the holders of the Securities will not
be subject to personal liability by reason of being such holders.

(l)            No Registration Rights.   Except
as otherwise described in the Disclosure Package, there are no preemptive
rights or other rights to subscribe for or to purchase, or any restriction upon
the voting of transfer of, any shares of Common Stock pursuant to the Company’s
charter, by-laws or any agreement or other instrument to which the Company is a
party or by which the Company is bound. 
There are no contracts, agreements or understandings between the Company
and any person granting such person the right (other than rights which have
been waived in writing in connection with the transactions contemplated by this
Agreement or otherwise satisfied) to require the Company to file a registration
statement under the Securities Act with respect to any securities of the
Company owned or to be owned by such person or to require the Company to
include such securities in the securities registered pursuant to the
Registration Statement or in any securities being registered pursuant to any other
registration statement filed by the Company under the Securities Act.

(m)          Subsidiaries.   The Company has no significant subsidiaries
(as such term is defined in Rule 1-02(w) of Regulation S-X promulgated by the
Commission).

(n)           Due Authorization and Enforceability.    The Company has the full right, power and
authority to enter into this Agreement, each of the Subscription Agreements and
the Escrow Agreement, and to perform and discharge its obligations hereunder
and thereunder; and each of this Agreement, the Escrow Agreement and each
Subscription Agreement has been duly authorized, executed and delivered by the
Company, and constitutes a valid, legal and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as rights
to indemnity hereunder may be limited by federal or state securities laws and
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or similar laws affecting the rights of creditors
generally and subject to general principles of equity.

(o)           No Conflict.  The execution, delivery and performance by
the Company of this Agreement each Subscription Agreement and the Escrow
Agreement and the consummation of the transactions herein contemplated,
including the issuance and sale by the Company of the Securities and the
issuance of the Warrant Shares upon due exercise of the Warrants in accordance
with their terms, will not conflict with or result in a breach or violation of,
or constitute a default under (nor constitute any event which with notice,
lapse of time or both would result in any breach or violation of or constitute
a default under) (i) the provisions of the charter or by-laws of the Company,
(ii) any material indenture, mortgage, deed of trust, bank loan or credit
agreement or other evidence of indebtedness, or any license, lease, contract or
other agreement or instrument to which the Company is a party or by which it or
any of its properties may be bound or affected, or (iii) any federal, state,
local or foreign law, regulation or rule or any decree, judgment or order
applicable to the Company.

(p)           No Consents Required.  No approval, authorization, consent or order
of or filing with any federal, state, local or foreign governmental or
regulatory commission, board, body, authority or agency, or of or with any
self-regulatory organization or other non-governmental regulatory authority 

 7
 

(including,
without limitation, the National Association of Securities Dealers Automated
Quotation (“Nasdaq”) Global Market,
or approval of the stockholders of the Company (including such as may be
required pursuant to Rule 4350 of the Nasdaq Marketplace Rules), is required in
connection with the execution, delivery and performance of this Agreement, the
Subscription Agreements and the Escrow Agreement by the Company, the issuance
and sale of the Securities and the issuance of the Warrant Shares upon due
exercise of the Warrants in accordance with their terms, or the consummation by
the Company of the transactions contemplated hereby other than (i) as may
be required under the Securities Act, (ii) any necessary qualification of
the Securities under the securities or blue sky laws of the various
jurisdictions in which the Securities are being offered by the Placement Agent
and (iii) under the rules and regulations of the National Association of
Securities Dealers, Inc. (“NASD”).

(q)           No Violation.  The Company is not in breach or violation of
or in default (nor has any event occurred which with notice, lapse of time or
both would result in any breach or violation of, or constitute a default) (i)
under the provisions of its charter or bylaws or (ii) in the performance
or observance of any term, covenant, obligation, agreement or condition
contained in any indenture, mortgage, deed of trust, bank loan or credit
agreement or other evidence of indebtedness, or any license, lease, contract or
other agreement or instrument to which the Company is a party or by which it or
any of its properties may be bound or affected, or (iii) in the performance or
observance of any statute, law, rule, regulation, ordinance, judgment, order or
decree of any court, regulatory body, administrative agency, governmental body,
arbitrator or other authority having jurisdiction over the Company or any of its
properties, as applicable (including, without limitation, those administered by
the Food and Drug Administration of the U.S. Department of Health and Human
Services (the “FDA”) or by any
foreign, federal, state or local governmental or regulatory authority
performing functions similar to those performed by the FDA), except, with
respect to clauses (ii) and (iii) above, to the extent any such contravention
has been waived or would not result in a Material Adverse Effect.

(r)            Absence of Material Changes. Subsequent to
the respective dates as of which information is given in the Disclosure Package
(and taking into account any updates included within the Disclosure Package),
(a) the Company has
not sustained any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, (b) the Company has not incurred any material
liability or obligation, direct or contingent, or entered into any material
transaction not in the ordinary course of business; (c) the Company has not purchased any of the Company’s outstanding capital
stock, or declared, paid or otherwise made any dividend or distribution of any
kind on the Company’s capital stock; and (d) there has not been any change in
the capital stock (other than a change in the number of outstanding shares of
Common Stock due to the issuance of shares upon the exercise of outstanding
options or warrants or the conversion of convertible indebtedness), or material
change in the short-term debt or long-term debt of the Company
(other than upon conversion of convertible indebtedness) or any issue of
options, warrants, convertible securities or other rights to purchase the
capital stock (other than grants of stock options under the Company’s stock
option plans existing on the date hereof) of the Company, or any Material
Adverse Effect.

(s)           Permits.  The Company possesses, and is operating in
compliance in all material respects with, all necessary franchises, licenses,
grants, permits, easements, authorizations, consents, certificates and orders
of any governmental or self-regulatory body required for the conduct of its
business and all such franchises, licenses, grants, permits, easements,
authorizations, consents, certificates and orders are valid and in full force
and effect.  The Company has made all
necessary filings required under any federal, state, local or foreign law,
regulation or rule (including, without
limitation, those from the FDA, and any other foreign, federal, state or local
government or regulatory authorities performing functions similar to those
performed by the FDA), in order to conduct its business.  The Company has not received notice of any
proceedings relating to revocation or modification of, any such franchise,
license, 

 8
 

grant,
permit, easement, authorization, consent, certificate and order except where
such violation, default or proceeding would not, individually or in the
aggregate, have a Material Adverse Effect.

(t)            Legal Proceedings. There are no legal or
governmental proceedings pending or, to the Company’s knowledge, threatened or
contemplated to which the Company is or would be a party or of which any of its
properties is or would be subject at law or in equity, before or by any
federal, state, local or foreign governmental or regulatory commission, board,
body, authority or agency, or before or by any self-regulatory organization or
other non-governmental regulatory authority (including, without limitation,
Nasdaq), except (i) as described in the Registration Statement, the Prospectus,
and the Disclosure Package, (ii) any such proceeding, which if resolved
adversely to the Company, would not result in a judgment, decree or order
having, individually or in the aggregate, a Material Adverse Effect or (iii)
any such proceeding that would not prevent or materially and adversely affect
the ability of the Company to consummate the transactions contemplated hereby.
The Disclosure Package contains in all material respects the same description
of the foregoing matters contained in the Prospectus.

(u)           Statutes; Contracts.  There are no statutes or regulations
applicable to the Company or contracts or other documents of the Company which
are required to be described in the Registration Statement, the Disclosure
Package or the Prospectus or filed as exhibits to the Registration Statement by
the Securities Act or by the Rules and Regulations which have not been so
described or filed.

(v)           Good Title to Property.  The Company has good and valid title to all
property (whether real or personal) described in the Registration Statement,
the Disclosure Package and the Prospectus as being owned by it, in each case
free and clear of all liens, claims, security interests, other encumbrances or
defects except such as are described in the Registration Statement, the
Disclosure Package and the Prospectus and those that would not, individually or
in the aggregate materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such property
by the Company.  All of the property
described in the Registration Statement, the Disclosure Package and the
Prospectus as being held under lease by the Company is held thereby under
valid, subsisting and enforceable leases, without any liens, restrictions,
encumbrances or claims, except those that, individually or in the
aggregate, are not material and do not materially interfere with the use made
and proposed to be made of such property by the Company.

(w)          Intellectual Property Rights.  The Company owns, or has obtained valid and
enforceable licenses for, or other rights to use, the inventions, patent
applications, patents, trademarks (both registered and unregistered),
tradenames, copyrights, trade secrets and other proprietary information
described in the Registration Statement, the Disclosure Package and the
Prospectus as being owned or licensed by it or which are necessary for the
conduct of its business, except where the failure to own, license or have such
rights would not, individually or in the aggregate, result in a Material
Adverse Effect (collectively, “Intellectual
Property”); except as described in the Registration Statement, the
Disclosure Package and the Prospectus (i) there are no third parties who
have or, to the Company’s knowledge, will be able to establish rights to any
Intellectual Property, except for the ownership rights of the owners of the
Intellectual Property which is licensed to the Company; (ii) to the
Company’s knowledge, there is no infringement by third parties of any
Intellectual Property; (iii) there is no pending or, to the Company’s
knowledge, threatened action, suit, proceeding or claim by others challenging
the Company’s rights in or to, or the validity, enforceability, or scope of,
any Intellectual Property owned by or licensed to the Company, and the Company
is unaware of any facts which could form a reasonable basis for any such claim;
(iv) there is no pending or, to the Company’s knowledge, threatened
action, suit, proceeding or claim by others that the Company infringes or
otherwise violates any patent, trademark, copyright, trade secret or other
proprietary rights of others, and the Company is unaware of any facts which
could form a reasonable basis for any such claim; (v) to the Company’s
knowledge, there is no patent or patent 

 9
 

application
that contains claims that interfere with the issued or pending claims of any of
the Intellectual Property; and (vi) to the Company’s knowledge, each
issued patent was validly issued under the laws of the country that issued it.

(x)            Financial Statements.  The financial statements of the Company,
together with the related schedules and notes thereto, set forth or
incorporated by reference in the Registration Statement, the Disclosure Package
and the Prospectus comply in all material respects with the applicable
requirements of the Securities Act and the Exchange Act, as applicable, and
present fairly in all material respects (i) the financial condition of the
Company, taken as a whole, as of the dates indicated and (ii) the consolidated
results of operations, stockholders’ equity and changes in cash flows of the
Company, taken as a whole, for the periods therein specified; and such
financial statements and related schedules and notes thereto have been prepared
in conformity with United States generally accepted accounting principles,
consistently applied throughout the periods involved (except as otherwise
stated therein and subject, in the case of unaudited financial statements, to
the absence of footnotes and normal year-end adjustments).  There are no other financial statements
(historical or pro forma) that are required to be included in the Registration
Statement, the Disclosure Package and the Prospectus; and the Company does not
have any material liabilities or obligations, direct or contingent (including
any off-balance sheet obligations), not disclosed in the Registration
Statement, the Disclosure Package and the Prospectus; and all disclosures
contained in the Registration Statement, the Disclosure Package and the
Prospectus regarding “non-GAAP financial measures” (as such term is defined by
the rules and regulations of the Commission) comply with Regulation G of
the Exchange Act and Item 10(e) of Regulation S-K of the Commission,
to the extent applicable, and present fairly the information shown therein and
the Company’s basis for using such measures.

(y)           Independent
Accountants.  To the Company’s
knowledge, KPMG LLP, who have certified certain of the financial statements of
the Company, is (i) an independent public
accounting firm within the meaning of the Securities Act and the Rules and
Regulations, (ii) a registered public accounting firm (as defined in Section
2(a)(12) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”)), and (iii) not in violation of the
auditor independence requirements of the Sarbanes-Oxley Act.

(z)            Taxes. 
The Company has timely filed all federal, state, local and foreign
income and franchise tax returns (or timely filed applicable extensions
therefore) that have been required to be filed and are not in default in the
payment of any taxes which were payable pursuant to said returns or any
assessments with respect thereto, other than any which the Company is
contesting in good faith and for which adequate reserves have been provided and
reflected in the Company’s financial statements included in the Registration
Statement, the Disclosure Package and the Prospectus.  The Company does not have any tax deficiency
that has been or, to the knowledge of the Company, might be asserted or
threatened against it that would result in a Material Adverse Effect.

(aa)         Nasdaq; Exchange Act Registration.  The Common Stock  is registered pursuant to Section 12(b) or
12(g) of the Exchange Act and is accepted for quotation on the Nasdaq Global
Market, and the Company has taken no action designed to, or likely to have the
effect of, termination the registration of the Common Stock under the Exchange
Act or delisting the Common Stock from the Nasdaq Global Market, nor has the
Company received any notification that the Commission or the NASD is
contemplating terminating such registration or listing. The Company has
complied in all material respects with the applicable requirements of the
Nasdaq Global Market for maintenance of inclusion of the Common Stock
thereon.  The Company has filed an
application to include the Shares and Warrant Shares on the Nasdaq Global
Market.

(bb)         Accounting Controls.  The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with 

 10
 

management’s
general or specific authorization; (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
management’s general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.  Except as
described in the Registration Statement, in the Disclosure Package and in the
Prospectus, since the most recent audit of the effectiveness of the Company’s
internal control over financial reporting, there has been (i) no material
weakness in the Company’s internal control over financial reporting (whether or
not remediated) and (ii) no change in the Company’s internal control over
financial reporting that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial reporting.

(cc)         Disclosure Controls.  The Company has established, maintains and
evaluates “disclosure controls and procedures” (as such term is defined in
Rule 13a-15(e) and 15d-15(e) under the Exchange Act), which (i) are
designed to ensure that material information relating to the Company is made
known to the Company’s principal executive officer and its principal financial
officer by others within those entities, particularly during the periods in
which the periodic reports required under the Exchange Act are being prepared,
(ii) have been evaluated for effectiveness as of the end of the last fiscal
period covered by the Registration Statement; and (iii) such disclosure
controls and procedures are effective to perform the functions for which they
were established. There are no significant deficiencies and material weaknesses
in the design or operation of internal controls which could adversely affect
the Company’s ability to record, process, summarize, and report financial data
to management and the Board of Directors. The Company is not aware of any
fraud, whether or not material, that involves management or other employees who
have a role in the Company’s internal controls; and since the date of the most
recent evaluation of such disclosure controls and procedures, there have been
no significant changes in internal controls or in other factors that could
significantly affect internal controls, including any corrective actions with
regard to significant deficiencies and material weaknesses.

(dd)         Sarbanes-Oxley Act.  The Company, and to its knowledge after due
inquiry, all of the Company’s directors or officers, in their capacities as
such, is in compliance in all material respects with all applicable effective
provisions of the Sarbanes-Oxley Act and any related rules and regulations
promulgated by the Commission.

(ee)         Minute
Books.      The minute books of
the Company and each Subsidiary have been made available to the Placement Agent
and counsel for the Placement Agent, and such books (i) contain a complete
summary of all meetings and actions of the board of directors (including each
board committee) and shareholders of the Company (or analogous governing bodies
and interest holders, as applicable), and each Subsidiary since the time of its
respective incorporation or organization through the date of the latest meeting
and action, and (ii) accurately in all material respects reflect all
transactions referred to in such minutes.

(ff)           Not an Investment Company.  The Company is not, nor after giving effect
to the offering and sale of the Securities and the application of the proceeds
thereof as described in the Prospectus, will be, (i) required to register as an
“investment company” as defined in the Investment Company Act of 1940, as
amended (the “  Investment Company Act “), and the rules
and regulations of the Commission thereunder or (ii) a “business
development company” (as defined in Section 2(a)(48) of the Investment
Company Act).

(gg)         Insurance. 
The Company maintains insurance in such amounts and covering such risks
as is reasonably considered to be adequate for the conduct of its business and
the value of its properties and as is customary for companies engaged in
similar businesses in similar industries. 
All such insurance is fully in force on the date hereof and will be
fully in force as of the Closing Date. 
The Company has no reason to believe that it will not be able to renew
its existing insurance coverage as and 

 11
 

when
such coverage expires or to obtain similar coverage from similar insurers as
may be necessary to continue its business at a cost that would not have a
Material Adverse Effect.

(hh)         Brokers Fees.  Except as set forth on Schedule 2(hh)
attached hereto, the Company is not a party to any contract, agreement or
understanding with any person (other than this Agreement) that would give rise
to a valid claim against the Company or the Placement Agent for a brokerage
commission, finder’s fee or other like payment in connection with the offering
and sale of the Securities.

(ii)           Integration.          The
Company has not sold or issued any securities that would be integrated with the
offering of the Securities contemplated by this Agreement pursuant to the
Securities Act, the Rules and Regulations or the interpretations thereof by the
Commission.

(jj)           Corrupt Practices.  Neither the Company nor, to the Company’s
knowledge, any other person associated with or acting on behalf of the Company,
including without limitation any director, officer, agent or employee of the
Company has, directly or indirectly, while acting on behalf of the Company (i)
used any corporate funds for unlawful contributions, gifts, entertainment or
other unlawful expenses relating to political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to foreign
or domestic political parties or campaigns from corporate funds, (iii) violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended or (iv) made
any other unlawful payment.

(kk)         Critical Accounting Policies.           The section entitled “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations—Critical Accounting Policies” in the Company’s most recent Annual
Report on Form 10-K and Quarterly Report on Form 10-Q accurately and fully
describes (A) the accounting policies that the Company believes are the
most important in the portrayal of the Company’s financial condition and
results of operations and that require management’s most difficult, subjective
or complex judgments (“Critical Accounting
Policies”); and (B) the judgments and uncertainties affecting
the application of Critical Accounting Policies.

(ll)           No Price Stabilization.  Neither the Company nor, to the Company’s knowledge,
any of its officers, directors, affiliates or controlling persons has taken or
will take, directly or indirectly, any action designed to cause or result in,
or which has constituted or which might reasonably be expected to constitute
the stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Securities.

(mm)       No Undisclosed Relationships.  No relationship, direct or indirect, exists
between or among the Company on the one hand and the directors, officers,
stockholders, customers or suppliers of the Company on the other hand which is
required to be described in the Registration Statement, the Disclosure Package
and the Prospectus which has not been so described.

(nn)         Exchange Act
Requirements. The Company has filed in a timely manner all reports
required to be filed pursuant to Sections 13(a), 13(e), 14 and 15(d) of
the Exchange Act during the preceding 12 months (except to the extent that
Section 15(d) requires reports to be filed pursuant to Sections 13(d)
and 13(g) of the Exchange Act, which shall be governed by the next clause of
this sentence); and the Company has filed in a timely manner all reports
required to be filed pursuant to Sections 13(d) and 13(g) of the Exchange
Act since January 1, 2003, except where the failure to timely file could not
reasonably be expected individually or in the aggregate to have a Material
Adverse Effect.

(oo)         NASD Affiliations.  To the Company’s knowledge, there are no
affiliations or associations between (i) any member of the NASD and (ii) the
Company or any of the Company’s 

 12
 

officers,
directors or 5% or greater securityholders (other than Neil Gagnon and Gagnon
Securities LLC) or any beneficial owner of the Company’s unregistered equity
securities that were acquired from the Company at any time on or after the one
hundred eightieth (180th) day immediately preceding the date the Registration
Statement was initially filed with the Commission, except as set forth in the
Registration Statement, the Disclosure Package and the Prospectus.

(pp)         Compliance with
Environmental Laws.  The Company (a) is in compliance with any and
all applicable foreign, federal, state and local laws, orders, rules,
regulations, directives, decrees and judgments relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants (“Environmental
Laws”), (b) has received all permits, licenses or other approvals
required of them under applicable Environmental Laws to conduct its business
and (c) is in compliance with all terms and conditions of any such permit,
license or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or failure to comply
with the terms and conditions of such permits, licenses or approvals would not,
individually or in the aggregate, result in a Material Adverse Effect.  There are no costs or liabilities associated
with Environmental Laws (including, without limitation, any capital or operating expenditures required for
clean-up, closure of properties or compliance with Environmental Laws or any
permit, license or approval, any related constraints on operating activities
and any potential liabilities to third parties) which would, individually or in
the aggregate, result in a Material Adverse Effect.

(qq)         No Labor Disputes.  The Company is not engaged in any unfair
labor practice; except for matters that would not, individually or in the
aggregate, result in a Material Adverse Effect 
(i) there is (A) no unfair labor practice complaint pending
or, to the Company’s knowledge after due inquiry, threatened against the
Company before the National Labor Relations Board, and no grievance or
arbitration proceeding arising out of or under collective bargaining agreements
is pending or threatened, (B) no strike, labor dispute, slowdown or
stoppage pending or, to the Company’s knowledge after due inquiry,
threatened against the Company and (C) no union representation dispute
currently existing concerning the employees of the Company, and (ii) to
the Company’s knowledge (A) no union organizing activities are currently
taking place concerning the employees of the Company and (B) there has
been no violation of any federal, state, local or foreign law relating to
discrimination in the hiring, promotion or pay of employees or any applicable
wage or hour laws concerning the employees of the Company.

(rr)           ERISA. 
The Company is in compliance in all material respects with all presently
applicable provisions of the Employee Retirement Income Security Act of 1974,
as amended, including the regulations and published interpretations thereunder
(“ERISA”); no “reportable event”
(as defined in ERISA) has occurred with respect to any “pension plan” (as
defined in ERISA) for which the Company would have any liability; the Company
has not incurred and does not expect to incur liability under (i) Title IV of
ERISA with respect to termination of, or withdrawal from, any “pension plan” or
(ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the “Code”); and each “pension plan” for which
the Company would have any liability that is intended to be qualified under
Section 401(a) of the Code is so qualified in all material respects and nothing
has occurred, whether by action or by failure to act, which would cause the
loss of such qualification.

(ss)         Statistical or Market-Related Data.  Any statistical, industry-related and
market-related data included or incorporated by reference in the Registration
Statement, the Disclosure Package and the Prospectus, are based on or derived
from sources that the Company reasonably and in good faith believes to be
reliable and accurate, and such data agree with the sources from which they are
derived.

 13
 

(tt)           Clinical Studies.  The clinical, pre-clinical and other studies
and tests conducted by or on behalf of or sponsored by the Company or in which
the Company or products or product candidates have participated that are
described in the Registration Statement, the Disclosure Package and the
Prospectus were and, if still pending, are being conducted in accordance in all
material respects with all statutes, laws, rules and regulations, as applicable
(including, without limitation, those administered by the FDA or by any
foreign, federal, state or local governmental or regulatory authority
performing functions similar to those performed by the FDA) and with standard
medical and scientific research procedures. 
The descriptions in the Registration Statement, the Disclosure Package
and the Prospectus of the results of such studies and tests are accurate and
complete in all material respects and fairly present the published data derived
from such studies and tests.  The Company
has not received any notices or other correspondence from the FDA or any other
foreign, federal, state or local governmental or regulatory authority
performing functions similar to those performed by the FDA with respect to any
ongoing clinical or pre-clinical studies or tests requiring the termination,
suspension or material modification of such studies or tests, which such
termination, suspension or material modification would reasonably be expected
to result in a Material Adverse Effect. 
The Company is in compliance with all applicable federal, state, local
and foreign laws, regulations, orders and decrees governing its business as
prescribed by the FDA, or any other federal, state or foreign agencies or
bodies, including those bodies and agencies engaged in the regulation of
pharmaceuticals or biohazardous substances or materials, except where
noncompliance would not, singly or in the aggregate, result in a Material
Adverse Effect.

Any
certificate signed by any officer of the Company and delivered to the Placement
Agent or to counsel for the Placement Agent in connection with the offering of
the Securities shall be deemed a representation and warranty by the Company to
the Placement Agent and the Investors as to the matters covered thereby.

3.             Covenants.         The
Company covenants and agrees with the Placement Agent as follows:

(a)           Reporting
Obligations; Exchange Act Compliance.  The Company will (i) prepare the
Prospectus in a form approved by the Placement Agent containing information
previously omitted at the time of effectiveness of the Registration Statement
in reliance on Rules 430A, 430B and 430C and to file such Prospectus with the
Commission within the time periods specified by Rule 424(b) and Rules 430A and
430B, as applicable under the Securities Act, (ii) not file any amendment to
the Registration Statement or distribute an amendment or supplement to the
Disclosure Package or the Prospectus or document incorporated by reference
therein of which the Placement Agent shall not previously have been advised and
furnished with a copy or to which the Placement Agent shall have reasonably
objected in writing or which is not in compliance with the Rules and
Regulations and (iii) promptly file all reports and any definitive proxy or
information statements required to be filed by the Company with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date of the Prospectus and during such period as the Prospectus would be
required by law to be delivered  (whether
physically or through compliance with Rule 172 under the Securities Act or
any similar rule) (the “Prospectus Delivery
Period”).

(b)           Abbreviated Registration Statement.  If the Company elects to rely upon Rule
462(b) under the Securities Act, the Company shall file a registration
statement under Rule 462(b) with the Commission in compliance with Rule 462(b)
by 8:00 a.m., Washington, D.C. time, on the business day next succeeding
the date of this Agreement, and the Company shall at the time of filing either
pay to the Commission the filing fee for such Rule 462(b) registration
statement or give irrevocable instructions for the payment of such fee pursuant
to the Rules and Regulations.

 14

(c)           Issuer
Free Writing Prospectuses. 
The Company will (i) not make any offer relating to the Securities that
would constitute an Issuer Free Writing Prospectus or that would otherwise
constitute a “free writing prospectus” (as defined in Rule 405 under the
Securities Act) required to be filed by the Company with the Commission under
Rule 433 under the Securities Act unless the Placement Agent approves its use
in writing prior to first use (each, a “Permitted
Free Writing Prospectus”); provided that the prior written consent
of the Placement Agent hereto shall be deemed to have been given in respect of
the Issuer Free Writing Prospectus(es) included in Schedule I hereto,
(ii) treat each Permitted Free Writing Prospectus as an Issuer Free Writing
Prospectus, (iii) comply with the requirements of Rules 164 and 433 under the
Securities Act applicable to any Issuer Free Writing Prospectus, including the
requirements relating to timely filing with the Commission, legending and
record keeping and (iv) not take any action that would result in a Placement
Agent or the Company being required to file with the Commission pursuant to
Rule 433(d) under the Securities Act a free writing prospectus prepared by or
on behalf of such Placement Agent that such Placement Agent otherwise would not
have been required to file thereunder. The Company will satisfy the conditions
in Rule 433 under the Securities Act to avoid a requirement to file with the
Commission any electronic road show.

(d)           Final
Term Sheet. The Company has prepared or will prepare a final term
sheet (the “Final Term Sheet”)
reflecting the final terms of the Securities, in form and substance
satisfactory to the Placement Agent, and shall file such Final Term Sheet as an
Issuer Free Writing Prospectus pursuant to Rule 433 under the Securities Act
prior to the close of business two business days after the date hereof;
provided that the Company shall provide the Placement Agent with copies of any
such Final Term Sheet within a reasonable amount of time prior to such proposed
filing and will not use or file any such document to which the Placement Agent
or counsel to the Placement Agent shall reasonably object.

(e)           Notice
to Placement Agent.  The
Company will notify the Placement Agent promptly, and will, if requested, confirm
such notification in writing: (i) of the receipt of any comments of, or
requests for additional or supplemental information from, the Commission; (ii)
of the time and date of any filing of any post-effective amendment to the
Registration Statement or any amendment or supplement to any Preliminary
Prospectus, the Disclosure Package or the Prospectus, (iii) the time and date
when any post-effective amendment to the Registration Statement becomes
effective, but only during the Prospectus Delivery Period; (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement, or any post-effective amendment thereto or any
order preventing or suspending the use of any Preliminary Prospectus, the
Disclosure Package, the Prospectus or any Issuer Free Writing Prospectus, or
the initiation of any proceedings for that purpose or pursuant to Section 8A of
the Securities Act or the threat thereof, but only during the Prospectus
Delivery Period; (v) of receipt by the Company of any notification with
respect to any suspension or the approval of the Shares and Warrant Shares from
any securities exchange upon which it is listed for trading or included or
designated for quotation, or the initiation or threatening of any proceeding
for such purpose.   The Company will use
its reasonable best efforts to prevent the issuance or invocation of any such
stop order or suspension by the Commission and, if any such stop order or
suspension is so issued or invoked, to obtain as soon as possible the
withdrawal or removal thereof.

(f)            Filing
of Amendments or Supplements. If, during the Prospectus Delivery
Period, any event shall occur or condition exist as a result of which, in the
judgment of the Company or in the reasonable opinion of the Placement Agent, it
becomes necessary to amend or supplement the Prospectus (or, if the Prospectus
is not yet available to prospective purchasers, the Disclosure Package) in
order to make the statements therein, in the light of the circumstances when the
Prospectus (or, if the Prospectus is not yet available to prospective
purchasers, the Disclosure Package) is delivered to an Investor, not
misleading, or if it is necessary to amend or supplement the Prospectus (or, if
the Prospectus is not yet available to prospective purchasers, the Disclosure
Package) to comply with applicable law, forthwith to prepare, file with the
Commission and furnish, at its own expense, to the Placement Agent, either 

 15
 

amendments or supplements
to the Prospectus (or, if the Prospectus is not yet available to prospective
purchasers, the Disclosure Package) so that the statements in the Prospectus
(or, if the Prospectus is not yet available to prospective purchasers, the
Disclosure Package) as so amended or supplemented will not, in the light of the
circumstances when the Prospectus (or, if the Prospectus is not yet available
to prospective purchasers, the Disclosure Package) is delivered to an Investor,
be misleading or so that the Prospectus (or, if the Prospectus is not yet available
to prospective purchasers, the Disclosure Package), as amended or supplemented,
will comply with law.

(g)           Conflicting
Issuer Free Writing Prospectus. 
If at any time following issuance of an Issuer Free Writing Prospectus
there occurred or occurs an event or development as a result of which such
Issuer Free Writing Prospectus conflicted or would conflict with the
information contained in the Registration Statement relating to the Securities
or included or would include an untrue statement of a material fact or omitted
or would omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances prevailing at that
subsequent time, not misleading, the Company promptly will notify the Placement
Agent and will promptly amend or supplement, at its own expense, such Issuer
Free Writing Prospectus to eliminate or correct such conflict, untrue statement
or omission.

(h)           Delivery of Copies.  The Company will deliver promptly to the
Placement Agent and its counsel such number of the following documents as the
Placement Agent shall reasonably request: 
(i) conformed copies of the Registration Statement as originally filed
with the Commission and each amendment thereto (in each case excluding
exhibits), (ii) copies of each Preliminary Prospectus, if any; (iii) any Issuer
Free Writing Prospectus, (iv) during the Prospectus Delivery Period, copies of
the Prospectus (or any amendments or supplements thereto); (v) any document
incorporated by reference in the Prospectus (other than any such document that
is filed with the Commission electronically via EDGAR or any successor system)
and (vi) all correspondence to and from, and all documents issued to and by,
the Commission in connection with the registration of the Securities under the
Securities Act.

(i)            Blue
Sky Laws.  The Company will
promptly take or cause to be taken, from time to time, such actions as the
Placement Agent may reasonably request to qualify the Securities for offering
and sale under the state securities, or blue sky, laws of such states or other
jurisdictions as the Placement Agent may reasonably request and to maintain
such qualifications in effect so long as the Placement Agent may request for
the distribution of the Securities, provided,
that in no event shall the Company be obligated to qualify as a foreign
corporation in any jurisdiction in which it is not so qualified or to file a
general consent to service of process in any jurisdiction or subject itself to
taxation as doing business in any jurisdiction. 
The Company will advise the Placement Agent promptly of the suspension
of the qualification or registration of (or any exemption relating to) the
Securities for offering, sale or trading in any jurisdiction or any initiation
or threat of any proceeding for any such purpose, and in the event of the
issuance of any order suspending such qualification, registration or exemption,
the Company shall use its best efforts to obtain the withdrawal thereof at the
earliest possible moment.

(j)            Earnings
Statement.  As soon as practicable, but in any event not
later than 18 months after the effective date of the Registration Statement (as
defined in Rule 158(c) under the Securities Act), the Company will make
generally available to holders of its securities and deliver to the Placement
Agent, an earnings statement of the Company (which need not be audited) that
will satisfy the provisions of Section 11(a) of the Securities Act and Rule 158
of the Rules and Regulations.

(k)           Use of Proceeds.  The Company will apply the net proceeds
from the sale of the Securities in the manner set forth in the Disclosure
Package and the Prospectus under the heading “Use of Proceeds”.

 16
 

(l)            Lock-Up
Period.  Beginning on the date
hereof and continuing for a period of 90
days after the date of the Prospectus (the “Lock-Up
Period”), the Company will not (1) offer to sell,
hypothecate, pledge, announce the intention to sell, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, or establish or increase a put equivalent
position or liquidate or decrease a call equivalent position within the meaning
of Section 16 of the Exchange Act, with respect to, any shares of Common Stock,
any securities convertible into or exercisable or exchangeable for Common
Stock; (2) file or cause to become effective a registration statement
under the Securities Act relating to the offer and sale of any shares of Common
Stock or securities convertible into or exercisable or exchangeable for Common
Stock except for a registration statement on Form S-8 relating to employee
benefit plans or (3) enter into any swap or other agreement that transfers, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (i), (ii) or (iii)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise, without the prior written consent of the Placement Agent
(which consent may be withheld in its sole discretion), other than (i) the
Securities to be sold hereunder, (ii) the issuance of employee stock
options pursuant to stock option plans described in the Registration Statement (excluding
the exhibits thereto), the Disclosure Package and the Prospectus, (iii)
issuances of Common Stock upon the exercise of options or warrants (either upon
current terms thereof or upon subsequently amended terms but excluding a
general repricing) disclosed as outstanding in the Registration Statement
(excluding the exhibits thereto), the Disclosure Package and the Prospectus or
upon the conversion or exchange of convertible or exchangeable securities
outstanding as of the date of this Agreement; (iv) the issuance by the Company
of any shares of Common Stock as consideration for mergers, acquisitions, other
business combinations, or strategic alliances, occurring after the date of this
Agreement; provided that each
recipient of shares pursuant to this clause (iv) agrees that all such shares
remain subject to restrictions substantially similar to those contained in this
Section 3(l); or (v) the purchase or sale of the Company’s securities
pursuant to a plan, contract or instruction that satisfies all of the
requirements of Rule 10b5-1(c)(1)(i)(B) that was in effect prior to the date
hereof.  Notwithstanding the foregoing,
for the purpose of allowing the Placement Agent to comply with NASD Rule
2711(f)(4), if (1) during the last 17 days of the Lock-Up Period, the Company
releases earnings results or publicly announces other material news or a
material event relating to the Company occurs or (2) prior to the expiration of
the Lock-Up Period, the Company announces that it will release earnings results
during the 16 day period beginning on the last day of the Lock-Up Period, then
in each case the Lock-Up Period will be extended until the expiration of the 18
day period beginning on the date of release of the earnings results or the
public announcement regarding the material news or the occurrence of the
material event, as applicable, unless the Placement Agent waives, in writing,
such extension.  The Company agrees not
to accelerate the vesting of any option or warrant or the lapse of any
repurchase right prior to the expiration of the Lock-Up Period.

(m)          Lock-Up Agreements.  The Company will cause
each of its executive officers and directors whose names are set forth on Exhibit
C hereto to furnish to the Placement Agent, on the date hereof, a letter,
substantially in the form of Exhibit B hereto (the “Lock-Up Agreement”).  The Company will enforce the terms of each
Lock-Up Agreement and issue stop transfer instructions to the transfer agent
for the Common Stock with respect to any transaction or contemplated transaction
that would constitute a breach or default under the applicable Lock-Up
Agreement.

(n)           Public
Communications.  Prior to the
Closing Date, the Company will not issue any press release or other
communication directly or indirectly or hold any press conference with respect
to the Company, its condition, financial or otherwise, or its earnings,
business, operations or prospects, or the offering of the Securities, without
the prior written consent of the Placement Agent, unless in the reasonable
judgment of the Company and its counsel, and after notification to the
Placement Agent, such press release or communication is required by law or by
Nasdaq rules, in which case the Company shall 

 17
 

use its reasonable best
efforts to allow the Placement Agent reasonable time to comment on such release
or other communication in advance of such issuance.

(o)           Stabilization.  The
Company will not take, directly or indirectly, any action designed, or that
might reasonably be expected to cause or result in, or that will constitute,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of any of the Securities.

(p)           Transfer
Agent.  The Company shall
engage and maintain, at its expense, a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar for the Shares
and Warrant Shares.

(q)           Listing.  The Company shall use its commercially
reasonable efforts to cause the Shares and Warrant Shares to be listed for
quotation on the Nasdaq Global Market at the Closing Date and to maintain such
listing.

(r)            Investment
Company Act.  The Company
shall not invest, or otherwise use the proceeds received by the Company from
its sale of the Securities in such a manner as would require the Company to register
as an investment company under the Investment Company Act.

(s)           Broker’s
Fee. The Company will not incur any liability for any finder’s or
broker’s fee or agent’s commission in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby (other than as set forth in this Agreement and as set forth on Schedule
2(hh) attached hereto).

(t)            Interim
Financial Statements. Prior to the Closing Date, the Company will
furnish to the Placement Agent, as soon as practicable after they have been
prepared, copies of any unaudited interim consolidated financial statements of
the Company for any periods subsequent to the periods covered by the financial
statements appearing in the Registration Statement and the Prospectus.

(u)           Reservation
of Warrant Shares.  The
Company shall reserve and keep available at all times a sufficient number of
shares of Common Stock for the purpose of enabling the Company to issue the
Warrant Shares.

(v)           Performance.
The Company shall use its best efforts to do and perform all things required to
be done or performed under this Agreement by the Company prior to the Closing
Date and to satisfy all conditions precedent to the delivery of the Securities.

4.             Costs
and Expenses.  The Company,
whether or not the transactions contemplated hereunder are consummated or this
Agreement is terminated, will pay or reimburse if paid by the Placement Agent
all reasonable costs and expenses incident to the performance of the
obligations of the Company under this Agreement and in connection with the
transactions contemplated hereby, including but not limited to costs and
expenses of or relating to (i) the preparation, printing, filing, delivery and
shipping of the Registration Statement, any Issuer Free Writing Prospectus,
each Preliminary Prospectus, the Disclosure Package and the Prospectus, and any
amendment or supplement to any of the foregoing and the printing and furnishing
of copies of each thereof to the Placement Agent and dealers (including costs
of mailing and shipment), (ii) the registration, issue, sale and delivery of
the Securities including any stock or transfer taxes and stamp or similar
duties payable upon the sale, issuance or delivery of the Securities and the
printing, delivery, and shipping of the certificates representing the
Securities, (iii) the registration or qualification of the Securities for offer
and sale under the securities or Blue Sky laws of 

 18
 

such jurisdictions
designated pursuant to Section 3(i), (including the reasonable
legal fees and filing fees, and other disbursements of counsel to the Placement
Agent in connection therewith), and, if reasonably requested by the Placement
Agent, the preparation and printing and furnishing of copies of any blue sky
surveys to the Placement Agent and to dealers, 
(iv) the fees and expenses of any transfer agent or registrar for the
Shares and Warrant Shares, (v) any filings required to be made by the Placement
Agent or the Company with the NASD, and the reasonable fees, disbursements and
other charges of counsel for the Placement Agent in connection with the NASD’s
review and approval of the Placement Agent’s participation in the offering
(including all COBRADesk fees), (vi) fees, disbursements and other charges of
counsel to the Company, (vii) listing fees, if any, for the listing or
quotation of the Shares and Warrant Shares on the Nasdaq Global Market, (viii)
fees and disbursements of the Company’s auditor incurred in delivering the
letter(s) described in Sections 5(j) and (k) of this Agreement,
(ix) fees of the Escrow Agent, (x) fees, disbursements and other charges of
counsel to the Placement Agent (in addition to (iii) and (v) above) in an
amount not to exceed $75,000, and (xi) the costs and expenses of the Company
and the Placement Agent in connection with the marketing of the offering and
the sale of the Securities to prospective investors including, but not limited
to, those related to any presentations or meetings undertaken in connection
therewith including, without limitation, expenses associated with the
production of road show slides and graphics, fees and expenses of any
consultants engaged with the written consent of the Company in connection with
the road show presentations, travel, lodging and other expenses incurred by the
officers of the Company and any such consultants, and the cost of any aircraft
or other transportation chartered in connection with the road show.  If this Agreement shall be terminated by the
Placement Agent pursuant to Section 8 hereof, the Company will, in
addition to paying the amounts described in Section 4 hereof, reimburse
the Placement Agent for all of its reasonable out-of-pocket
disbursements (including, but not limited to, the fees and disbursements of its
counsel) incurred by the Placement Agent in connection with its investigation,
preparing to market and marketing of the Securities or in contemplation of
performing its obligations hereunder.

5.             Conditions of Placement Agent’s
Obligations.  The obligations
of the Placement Agent hereunder and the Investors under the Subscription
Agreements are subject to the following conditions:

(a)           Filings
with the Commission.  The
Preliminary Prospectus (if any), Prospectus and any Issuer Free Writing
Prospectus required to be filed under the Securities Act or the Rules and
Regulations shall have been filed with the Commission pursuant to Rule 424(b)
or Rule 164, as the case may be, in the manner and within the time period so
required.

(b)           Abbreviated
Registration Statement.  If
the Company has elected to rely upon Rule 462(b), the registration statement
filed under Rule 462(b) shall have become effective under the Securities Act by
8:00 a.m., Washington, D.C. time, on the business day next succeeding the date
of this Agreement.

(c)           No
Stop Orders.  Prior to the
Closing: (i) no stop order suspending the effectiveness of the Registration
Statement or any part thereof, preventing or suspending the use of any Base
Prospectus, any Preliminary Prospectus, the Prospectus or Permitted Free
Writing Prospectus or any part thereof shall have been issued under the
Securities Act and no proceedings for that purpose or pursuant to Section 8A
under the Securities Act shall have been initiated or threatened by the
Commission, (ii) no order suspending the qualification or registration of the
Securities under the securities or blue sky laws of any jurisdiction shall be
in effect and (iii) all requests for additional information on the part of the
Commission (to be included or incorporated by reference in the Registration
Statement, the Disclosure Package, the Prospectus or any Issuer Free Writing
Prospectus or otherwise) shall have been complied with to the reasonable
satisfaction of the Placement Agent.

 19
 

(d)           Action
Preventing Issuance.  No
action shall have been taken and no statute, rule, regulation or order shall
have been enacted, adopted or issued by any governmental agency or body which
would, as of the Closing Date, prevent the issuance or sale of the Securities
or materially and adversely affect or reasonably be believed to potentially
materially and adversely affect the business or operations of the Company; and
no injunction, restraining order or order of any other nature by any federal or
state court of competent jurisdiction shall have been issued as of the Closing
Date which would prevent the issuance or sale of the Securities or materially
and adversely affect or reasonably be believed to potentially materially and
adversely affect the business or operations of the Company.

(e)           Objection
of Placement Agent.  No
Prospectus or amendment or supplement to the Registration Statement shall have
been filed to which the Placement Agent shall have objected in writing, which
objection shall not be unreasonable.  The
Placement Agent shall not have in good faith advised the Company on or prior to
the Closing Date that the Registration Statement or any amendment thereof or
supplement thereto contains an untrue statement of fact which, in its opinion,
is material, or omits to state a fact which, in its opinion, is material and is
required to be stated therein or necessary to make the statements therein not
misleading, or that the Disclosure Package or any Issuer Free Writing
Prospectus or the Prospectus or any amendment thereof or supplement thereto
contains an untrue statement of fact which, in its opinion, is material, or
omits to state a fact which, in its opinion, is material and is required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.

(f)            No Material Adverse Change.  Prior to the Closing, there shall not have
occurred any change, or any development involving a prospective change, in the
condition, financial or otherwise, or in the earnings, business, operations or
prospects of the Company, taken as a whole, from that set forth in the Disclosure Package and the
Prospectus that, in the Placement Agent’s judgment, is material and adverse and
that makes it, in the Placement Agent’s judgment, impracticable to market the Securities on the terms and in the manner contemplated
in the Disclosure Package.

(g)           Representations
and Warranties.  Each of the
representations and warranties of the Company contained herein shall be true
and correct in all material respects (except for those representations and
warranties which are qualified by materiality, in which case such
representations and warranties shall be true and correct in all respects) when
made and on and as of the Closing Date, as if made on such date (except that
those representations and warranties that address matters only as of a
particular date shall remain true and correct in all material respects (except
for those representations and warranties which are qualified by materiality, in
which case such representations and warranties shall be true and correct in all
respects) as of such date), and all covenants and agreements herein contained
to be performed on the part of the Company and all conditions herein contained
to be fulfilled or complied with by the Company at or prior to the Closing Date
shall have been duly performed, fulfilled or complied with in all material
respects.

(h)           Opinion
of Counsel to the Company. 
The Placement Agent shall have received from Heller Ehrman LLP, counsel
to the Company, such counsel’s written opinion, addressed to the Placement
Agent and the Investors and dated the Closing Date, in form and substance as is
set forth on Exhibit D attached hereto. 
Such counsel shall also have furnished to the Placement Agent a written
statement (“Negative Assurance”),
addressed to the Placement Agent and dated the Closing Date, in form and
substance as set forth in Exhibit E attached hereto.

(i)            Opinion
of Counsel to the Placement Agent. 
The Placement Agent shall have received from Lowenstein Sandler PC,
counsel to the Placement Agent, such opinion or opinions (including Negative
Assurance), dated the Closing Date and addressed to the Placement Agent,
covering such matters as are customarily covered in transactions of this type.

 20
 

(j)            Accountant’s Comfort Letter.  The
Placement Agent shall have received on the date of the Time of Sale, a letter
dated the date hereof, (the “Original Letter”),
addressed to the Placement Agent and in form and substance reasonably
satisfactory to the Placement Agent and its counsel, from KPMG LLP, which
letter shall cover, without limitation, the various financial disclosures, if
any, contained in the Disclosure Package and shall contain statements and
information of the type customarily included in accountants’ “comfort letters”
to underwriters, delivered according to Statement of Auditing Standards No. 72
and Statement of Auditing Standard No. 100 (or successor bulletins), with
respect to the audited and unaudited financial statements and certain financial
information contained in or incorporated by reference into the Registration
Statement, the Disclosure Package and the Prospectus.

(k)           Bring-Down Letter.  At
the Closing Date, the Placement Agent shall have received from KPMG LLP a
letter (the “Bring-Down Letter”),
dated the Closing Date, addressed to the Placement Agent, which shall confirm,
as of the date of the Bring-Down Letter (or, with respect to matters involving
changes or developments since the respective dates as of which specified
financial information is given in the Disclosure Package and the Prospectus, as
the case may be, as of a date nor more than three (3) business days prior to
the date of the Bring-Down Letter) that on the basis of a review in accordance
with the procedures set forth in the Original Letter, that nothing has come to
their attention during the period from the date of the Original Letter referred
to in the prior sentence to a date (specified in the letter) not more than
three days prior to the Closing Date which would require any change in the
Original Letter if it were required to be dated and delivered at the Closing
Date.

(l)            Officer’s
Certificate.  The Placement
Agent shall have received on the Closing Date a certificate, addressed to the
Placement Agent and dated the Closing Date, of the chief executive or chief
operating officer and the chief financial officer or chief accounting officer
of the Company to the effect that:

(i)            each of the representations,
warranties and agreements of the Company in this Agreement were true and
correct in all material respects (except for those representations and
warranties which are qualified by materiality, in which case such
representations and warranties shall be true and correct in all respects) when
originally made and are true and correct in all material respects (except for
those representations and warranties which are qualified by materiality, in
which case such representations and warranties shall be true and correct in all
respects) as of the Time of Sale and the Closing Date; and the Company has
complied in all material respects with all agreements and satisfied all the
conditions on its part required under this Agreement to be performed or
satisfied at or prior to the Closing Date;

(ii)           subsequent
to the respective dates as of which information is given in the Disclosure Package
(taking into account any updates included within the Disclosure Package), there
has not been (A) a material adverse change or any development involving a
prospective material adverse change in the general affairs, business,
prospects, properties, management, financial condition or results of operations
of the Company, taken as a whole, (B) any transaction that is material to the
Company, taken as a whole, except transactions entered into in the ordinary
course of business, (C) any obligation, direct or contingent, that is material
to the Company, taken as a whole, incurred by the Company, except obligations
incurred in the ordinary course of business, (D) any change in the capital
stock (other than a change in the number of outstanding shares of Common Stock
due to the issuance of shares upon the exercise of outstanding options or
warrants) or any material change in the short term or long term indebtedness of
the Company, taken as a whole, (E) any dividend or distribution of any kind
declared, paid or made on the capital stock of the Company or (F) any loss or
damage (whether or not insured) to the property of the Company which has been
sustained or will have been sustained which has had or is reasonably likely to
result in a Material Adverse Effect.

 21
 

(iii)          no
stop order suspending the effectiveness of the Registration Statement or any
part thereof or any amendment thereof or the qualification of the Securities
for offering or sale, nor suspending or preventing the use of the Disclosure
Package, the Prospectus or any Issuer Free Writing Prospectus shall have been
issued, and no proceedings for that purpose or pursuant to Section 8A under the
Securities Act shall be pending or to their knowledge, threatened by the
Commission or any state or regulatory body; and

(iv)          the signers of said certificate have reviewed the
Registration Statement, the Disclosure Package, any Permitted Free Writing
Prospectus and the Prospectus, and any amendments thereof or supplements
thereto (and any documents filed under the Exchange Act and deemed to be
incorporated by reference into the Disclosure Package and the Prospectus), and
(A) (i) each part of the Registration Statement and any amendment thereof do
not and did not contain when the Registration Statement (or such amendment) became
effective, any untrue statement of a material fact or omit to state, and did
not omit to state when the Registration Statement (or such amendment) became
effective, any material fact required to be stated therein or necessary to make
the statements therein not misleading, (ii) as of the Time of Sale, neither the
Disclosure Package nor any individual Issuer Free Writing Prospectus, when
considered together with the Disclosure Package, contained any untrue statement
of material fact or omits to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading and (iii) the Prospectus, as amended or supplemented, does not
contain, as of the Closing Date, and did not contain, as of its issue date, any
untrue statement of material fact or omit to state and did not omit to state as
of such date, a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and (B)
since the Time of Sale, there has occurred no event required to be set forth in
an amendment or supplement to the Registration Statement, the Disclosure
Package or the Prospectus which has not been so set forth and there has been no
document required to be filed under the Exchange Act that upon such filing
would be deemed to be incorporated by reference in to the Disclosure Package
and into the Prospectus that has not been so filed.

(m)          Secretary’s
Certificate.  On the Closing
Date, the Company shall have furnished to the Placement Agent a Secretary’s
Certificate of the Company.

(n)           The
Nasdaq Global Market.  The
Shares and Warrant Shares shall have been listed and authorized for trading on
the Nasdaq Global Market.

(o)           Other  Filings with the Commission.  The Company shall have prepared and filed
with the Commission a Current Report on Form 8-K with respect to the
transactions contemplated hereby, and filed with the Commission including as an
exhibit thereto this Agreement and any other material documents relating
thereto.

(p)           No
NASD Objection.  The NASD
shall not have raised any unresolved objection with respect to the fairness and
reasonableness of the placement agency terms and arrangements relating to the
issuance and sale of the Securities.

(q)           Lock-Up
Agreements.  The Placement
Agent shall have received copies of the executed Lock-Up Agreements executed by
each person listed on Exhibit C hereto, and such Lock-Up Agreements
shall be in full force and effect on the Closing Date.

(r)            Subscription
Agreements.  The Placement
Agent shall have entered into the Subscription Agreements with each of the
Investors, and such agreements shall be in full force and effect on the Closing
Date.

 

 22

(s)           Escrow
Agreement.  The Placement
Agent shall have entered into the Escrow Agreement, and such agreement shall be
in full force and effect on the Closing Date.

(t)            Additional Documents.  Prior to the Closing Date, the Company shall
have furnished to the Placement Agent such further information, certificates or
documents as the Placement Agent shall have reasonably requested.

All opinions,
letters, evidence and certificates mentioned above or elsewhere in this
Agreement shall be deemed to be in compliance with the provisions hereof only
if they are in form and substance reasonably satisfactory to counsel for the
Placement Agent.

6.             Indemnification and
Contribution.

(a)           Indemnification of the Placement Agent.  The Company agrees to indemnify,
defend and hold harmless the Placement Agent, its directors and officers, and
each person, if any, who controls the Placement Agent within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange
Act, and the successors and assigns of all of the foregoing persons, from and
against any loss, damage, claim or liability, which, jointly or severally, the
Placement Agent or any such person may become subject under the Securities Act,
the Exchange Act, or other federal or state statutory law or regulation, the
common law or otherwise, (including in settlement of any litigation, if such
settlement is effected with the written consent of the Company), insofar as
such loss, damage, claim or liability (or actions in respect thereof as
contemplated below) arises out of or is based upon: (i) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, or any amendment thereto
(including the information deemed to be a part of the Registration Statement at
the time of effectiveness and at any subsequent time pursuant to Rules 430A and
430B of the Rules and Regulations, if applicable) or the omission or alleged
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; (ii) any untrue statement or alleged untrue statement of a material
fact contained in the Base Prospectus, any Preliminary Prospectus, any Issuer
Free Writing Prospectus, any “issuer information” filed or required to be filed
pursuant to Rule 433(d) of the Rules and Regulations or the Prospectus (or any
amendment or supplement thereto including any documents filed under the
Exchange Act and deemed to be incorporated by reference into the Prospectus),
or in any materials or information provided
to investors by, or with the approval of, the Company in connection with the
marketing of the offering of the Common Stock (“Marketing
Materials”), including any roadshow or investor presentations made
to investors by the Company (whether in person or electronically) or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements made therein, in light of
the circumstances under which they were made, not misleading; and, in the case
of (i) and (ii) above, to reimburse the Placement Agent and each such
controlling person for any and all reasonable expenses (including reasonable
fees and disbursements of counsel) as such expenses are incurred by the
Placement Agent or such controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action, (iii) any untrue statement or alleged untrue
statement made by the Company in Section 3 hereof or the failure by
the Company to perform when and as required any agreement or covenant contained
herein or (iv) any untrue statement or alleged untrue statement of any
material fact contained in any audio or visual materials provided to Investors
by or with the approval of the Company or based upon written information
furnished by or on behalf of the Company including, without limitation, slides,
videos, films or tape recordings used in any road show or investor
presentations made to investors by the Company (whether in person or
electronically) or in connection with the marketing of the Securities; provided, however, that the foregoing
indemnity shall not apply to any loss, claim, damage, liability or expense to
the extent, but only to the extent, it arises out of or is based upon any
untrue statement or alleged untrue statement of a material fact contained in or
omitted from the Registration Statement,
the Base Prospectus, any Preliminary Prospectus, the Prospectus, or any such
amendment or 

 

 23
 

 

supplement,
any Issuer Free Writing Prospectus, any “issuer information” filed or required
to be filed pursuant to Rule 433(d) of the Rules and Regulations or in any
Marketing Materials, in reliance upon and in conformity with information
concerning the Placement Agent furnished in writing by or on behalf of the
Placement Agent to the Company expressly for use therein, which information the
parties hereto agree is limited to the Placement Agent Information.

(b)           Indemnification
of the Company.  The Placement
Agent agrees to indemnify, defend and hold harmless the Company, its directors
and officers, and any person, if any, who controls the Company within the
meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act, and the successors and assigns of all of the foregoing
persons, from and against any loss, claim, damage, liability or expense, as
incurred to which, jointly or severally, the Company or any such person may
become subject under the Securities Act, the Exchange Act, or other federal or
state statutory law or regulation, the common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of the Placement Agent), insofar as such loss, claim, damage, liability
or expense (or actions in respect thereof as contemplated below) arises out of
or is based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, or any amendment thereto, or the omission or alleged
omission therefrom to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii) any untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus, the
Disclosure Package, the Prospectus, or any amendment or supplement thereto or
any Issuer Free Writing Prospectus, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances under which
they were made, not misleading, in the case of each of (i) and (ii) above, to
the extent but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration Statement,
the Disclosure Package, the Prospectus (or any amendment or supplement thereto)
or any Issuer Free Writing Prospectus in reliance upon and in conformity with
information concerning the Placement Agent furnished in writing by or on behalf
of the Placement Agent to the Company expressly for use therein, which
information the parties hereto agree is limited to the Placement Agent
Information and shall reimburse the Company, or any such director, officer or
controlling person for any legal and other expense reasonably incurred by the
Company, or any such director, officer or controlling person in connection with
investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action. 
Notwithstanding the provisions of this Section 6(b), in no event
shall any indemnity by the Placement Agent under this Section 6(b)
exceed the total compensation received by such Placement Agent in accordance
with Section 1(c).

(c)           Notice
and Procedures.  If any
action, suit or proceeding (each, a “Proceeding”)
is brought against a person (an “indemnified
party”) in respect of which indemnity may be sought against the
Company or the Placement Agent (as applicable, the “indemnifying party”) pursuant to subsection (a) or
(b), respectively, of this Section 6, such indemnified party
shall promptly notify such indemnifying party in writing of the institution of
such Proceeding and such indemnifying party shall assume the defense of such
Proceeding, including the employment of counsel reasonably satisfactory to such
indemnified party and payment of all fees and expenses; provided, however, that the omission to so
notify such indemnifying party shall not relieve such indemnifying party from
any liability which such indemnifying party may have to any indemnified party
or otherwise, except to the extent the indemnifying party does not otherwise
learn of the Proceeding and such failure results in the forfeiture by the
indemnifying party of substantial rights or defenses. The indemnified party or parties
shall have the right to employ its or their own counsel in any such case, but
the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by the indemnifying party in connection with
the defense of such Proceeding, (ii) the indemnifying party shall not have,
within a reasonable period of time in light of the circumstances, employed
counsel to defend such Proceeding or (iii) such indemnified party or parties
shall have 

 

 24
 

 

reasonably concluded that
there may be one or more legal defenses available to it or them which are
different from, additional to or in conflict with those available to such
indemnifying party (in which case such indemnifying party shall not have the
right to direct the defense of such Proceeding on behalf of the indemnified
party or parties ), in any of which events such reasonable fees and expenses
shall be borne by such indemnifying party and paid as incurred (it being
understood, however, that such indemnifying party shall not be liable for the
expenses of more than one separate counsel (in addition to any local counsel)
in any one Proceeding or series of related Proceedings in the same jurisdiction
representing the indemnified parties who are parties to such Proceeding). An
indemnifying party shall not be liable for any settlement of any Proceeding
effected without its written consent but, if settled with its written consent
or if there be a final judgment for the plaintiff, such indemnifying party
agrees to indemnify and hold harmless the indemnified party or parties from and
against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by the second sentence of this
Section 6(c), then the indemnifying party agrees that it shall be
liable for any settlement of any Proceeding effected without its written
consent if (i) such settlement is entered into more than 60 days after
receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall not have fully reimbursed the indemnified party in
accordance with such request prior to the date of such settlement and
(iii) such indemnified party shall have given the indemnifying party at
least 30 days’ prior notice of its intention to settle. No indemnifying
party shall, without the prior written consent of the indemnified party, effect
any settlement, compromise or consent to the entry of judgment in any pending
or threatened Proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified 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 and does not include an admission of fault or culpability or
a failure to act by or on behalf of such indemnified party.

(d)           Contribution.  If the indemnification provided for in
this Section 6 is unavailable to an indemnified party under subsections
(a) or (b) of this Section 6 or insufficient
to hold an indemnified party harmless in respect of any losses, claims,
damages, liabilities or expenses referred to therein, then each applicable indemnifying party shall, in lieu of indemnifying
such indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of the losses, claims, damages, liabilities or
expenses referred to in subsection (a) or (b) above,
(i) in such proportion as is appropriate to reflect the relative benefits
received by the indemnifying party or parties on the one hand and the
indemnified party or parties on the other from the offering of the Securities or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the indemnifying party or
parties on the one hand and the indemnified party or parties on the other hand
in connection with the statements or omissions that resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations.  The relative
benefits received by the Company on the one hand and the Placement Agent on the
other hand shall be deemed to be in the same respective proportions as the
total net proceeds from the offering of the Securities (before deducting
expenses) received by the Company and the total placement agent commissions
received by the Placement Agent, in each case as set forth on the cover of the
Prospectus, bear to the aggregate public offering price of the Securities.  The relative fault of the Company on the one
hand and the Placement Agent on the other hand shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, on the one hand, or by the
Placement Agent, on the other hand, and the parties’ relevant intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement, omission, act or failure to act; provided that the parties
hereto agree that the written information furnished to the Company by the
Placement Agent for use in any Preliminary Prospectus, any Registration
Statement or the Prospectus, or in any amendment or supplement thereto,
consists solely of the Placement Agent Information.  The Company and the Placement Agent agree 

 

 25
 

 

that it
would not be just and equitable if contribution pursuant to this subsection (d)
were to be determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in the first sentence of this Section 6(d).  The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities referred to in
the first sentence of this Section 6(d) shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending against any action or claim which is
the subject of this Section 6(d). 
Notwithstanding the provisions of this Section 6(d), the
Placement Agent shall not be required to contribute any amount in excess of the
total commissions received by such Placement Agent in accordance with Section
1(c).  No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.

(e)           Representations
and Agreements to Survive Delivery. 
The obligations of the Company under this Section 6 shall be
in addition to any liability which the Company may otherwise have.  The indemnity and contribution agreements
contained in this Section 6 and the covenants, agreements,
warranties and representations of the Company contained in this Agreement shall
remain operative and in full force and effect regardless of (i) any termination
of this Agreement, (ii) any investigation made by or on behalf of the Placement
Agent, any person who controls the Placement Agent within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act or
any affiliate of the Placement Agent, or by or on behalf of the Company, its directors
or officers or any person who controls the Company within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act,
and (iii) the issuance and delivery of the Securities.
The Company and the Placement Agent agree promptly to notify each other of the
commencement of any Proceeding against it and, in the case of the Company,
against any of the Company’s officers or directors in connection with the
issuance and sale of the Securities,
or in connection with the Registration Statement, the Disclosure Package or the
Prospectus.

7.             Information
Furnished by Placement Agent. The
Company acknowledges that the statements set forth in (a) the first sentence of
the eighth paragraph and (b) the eleventh paragraph under the heading “Plan of
Distribution” in the Prospectus (the “Placement Agent
Information”) constitute the only information relating to the
Placement Agent furnished in writing to the Company by the Placement Agent as
such information is referred to in Sections 2 and 6 hereof.

8.             Termination.  (a)  The Placement Agent shall have the
right to terminate this Agreement by giving notice as hereinafter specified at
any time at or prior to the Closing Date, without liability on the part of the
Placement Agent to the Company, if (i) prior to delivery and payment for the
Securities (A) trading in securities generally shall have been suspended on or
by the New York Stock Exchange, the American Stock Exchange, the Nasdaq Global
Market or in the over-the-counter market, (each, a “Trading Market”), (B) trading in the Common Stock of
the Company shall have been suspended on any such exchange, in the
over-the-counter market or by the Commission, (C) a general moratorium on
commercial banking activities shall have been declared by federal or New York
state authorities or a material disruption shall have occurred in commercial
banking or securities settlement or clearance services in the United States,
(D) there shall have occurred any outbreak or material escalation of
hostilities or acts of terrorism involving the United States or there shall
have been a declaration by the United States of a national emergency or war,
(E) there shall have occurred any other calamity or crisis or any material
change in general economic, political or financial conditions in the United
States or elsewhere, if the effect of any such event specified in clause (D) or
(E), in the judgment of the Placement Agent, is material and adverse and makes
it impractical or inadvisable to proceed with the completion of the sale of and
payment for the Securities on the Closing Date on the terms and in the manner
contemplated by this Agreement, the Disclosure Package and the Prospectus, (ii)
since the time of execution of this Agreement or the earlier respective dates
as of which information is given in the 

 

 26
 

 

Disclosure Package or incorporated by reference therein, there has been
any Material Adverse Effect or the Company shall have sustained a loss or
interference with its business by strike, fire, flood, earthquake, accident or
other calamity, whether or not covered by insurance, of such character that in
the judgment of the Placement Agent would, individually or in the aggregate,
result in a Material Adverse Effect and which would, in the judgment of the
Placement Agent, make it impracticable or inadvisable to proceed with the
offering or the delivery of the Securities on the terms and in the manner
contemplated in the Disclosure Package, (iii) the Company shall have failed,
refused or been unable to comply with the terms or perform any agreement or
obligation of this Agreement or any Subscription Agreement, other than by
reason of a default by the Placement Agent, or (iv) any condition of the
Placement Agent’s obligations hereunder is not fulfilled.  Any such termination shall be without
liability of any party to any other party except that the provisions of Section 4,
Section 6, and Section 11 hereof shall at all times be
effective notwithstanding such termination.

9.             Notices.  All
statements, requests, notices and agreements hereunder shall be in writing or
by facsimile, and:

(a)           if to the Placement
Agent, shall be delivered or sent by mail or facsimile transmission to :

Piper Jaffray & Co.

U.S. Bancorp Center

800 Nicollet Mall

Minneapolis, Minnesota 55402

Attention: James Martin, Esq.

Facsimile No.: 612-303-1410

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

Lowenstein Sandler PC

1251 Avenue of the Americas

New York, New York 10020

Attention: Michael D. Maline, Esq.

Facsimile No.: 973-422-6873

(b)           if
to the Company shall be delivered or sent by mail or facsimile transmission to:
Cytori Therapeutics, Inc., 3020 Callan Road, San Diego, California 92121,
Attention: Chief Executive Officer, (Facsimile No.: 858-458-0995), with a copy
(which shall not constitute notice) to: Heller Ehrman LLP, 4350 La Jolla
Village Drive, 7th Floor, San Diego, California 92122, Attention:  Hayden J. Trubit, Esq., (Facsimile No.:
858-587-5903). Any such statements, requests, notices or agreements shall be
effective only upon receipt.  Any party
to this Agreement may change such address for notices by sending to the parties
to this Agreement written notice of a new address for such purpose.

10.           Persons Entitled to Benefit
of Agreement.  This Agreement
shall inure to the benefit of and shall be binding upon the Placement Agent,
the Company and their respective successors and assigns.  Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person other than the
persons mentioned in the preceding sentence, any legal or equitable right,
remedy or claim under or in respect of this Agreement, or any provisions herein
contained, except that (i) the representations, warranties, covenants,
agreements and indemnities of the Company contained in this Agreement shall
also be for the benefit of the controlling persons, officers and directors
referred to in Section 6(a) and the indemnities of the Placement Agent
shall also be for the benefit of the controlling persons, officers and
directors referred to in Section 6(b) 
and (ii) the Investors are relying on the 

 

 27
 

 

representations made by the Company under, and are intended third party
beneficiaries of, this Agreement..  The
term “successors and assigns” as herein used shall not include any purchaser of
the Securities by reason merely of such purchase.

11.           Governing Law.  This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to the conflicts of laws provisions thereof.

12.           No Fiduciary Relationship. The Company hereby acknowledges
and agrees that the Placement Agent is acting solely as a placement agent in
connection with the offering of the Company’s securities. The Company further
acknowledges that the Placement Agent is acting pursuant to a contractual relationship
created solely by this Agreement entered into on an arm’s length basis and in
no event do the parties intend that the Placement Agent act or be responsible
as a fiduciary to the Company, its management, stockholders, creditors or any
other person in connection with any activity that the Placement Agent may
undertake or has undertaken in furtherance of the offering of the Company’s
securities, either before or after the date hereof. The Placement Agent hereby
expressly disclaims any fiduciary or similar obligations to the Company, either
in connection with the transactions contemplated by this Agreement or any
matters leading up to such transactions, and the Company hereby confirms its
understanding and agreement to that effect. The price of the Securities set
forth in this Agreement was established by the Company following discussions
and arms-length negotiations with the Investors and the Placement Agent, and
the Company is capable of evaluating and understanding, and understands and
accepts, the terms, risks and conditions of the transactions contemplated by
this Agreement.  The Company has been
advised that the Placement Agent and its affiliates are engaged in a broad
range of transactions which may involve interests that differ from those of the
Company and that the Placement Agent has no obligation to disclose such
interests and transactions to the Company by virtue of any fiduciary, advisory
or agency relationship.  The Company and
the Placement Agent agree that they are each responsible for making their own
independent judgments with respect to any such transactions. The Company hereby
waives and releases, to the fullest extent permitted by law, any claims that
the Company may have against the Placement Agent with respect to any breach or
alleged breach of any fiduciary or similar duty to the Company in connection
with the transactions contemplated by this Agreement or any matters leading up
to such transactions and agrees that the Placement Agent shall have no
liability (whether direct or indirect) to the Company in respect of such a
fiduciary duty claim to any person asserting a fiduciary duty claim on behalf
of the Company.

13.           Headings.  The Section
headings in this Agreement have been inserted as a matter of convenience of
reference and are not a part of this Agreement.

14.           Amendments and Waivers.   
No supplement, modification or waiver of this Agreement shall be binding
unless executed in writing by the party to be bound thereby. The failure of a
party to exercise any right or remedy shall not be deemed or constitute a
waiver of such right or remedy in the future. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (regardless of whether similar), nor shall any such waiver
constitute a continuing waiver unless otherwise expressly provided.

15.           Submission to Jurisdiction. Except as set forth below, no
Proceeding may be commenced, prosecuted or continued in any court other than
the courts of the State of New York located in the City and County of New York
or in the United States District Court for the Southern District of New York,
which courts shall have jurisdiction over the adjudication of such matters, and
the Company and the Placement Agent each hereby consents to the jurisdiction of
such courts and personal service with respect thereto.  The Company hereby waives all right to trial
by jury in any Proceeding (whether based upon contract, tort or otherwise) in
any way arising out of or relating to this Agreement. The Company agrees that a
final and no-longer-appealable judgment in any such Proceeding brought in any
such court shall be 

 

 28
 

 

conclusive and binding upon the Company and may be enforced in any
other courts in the jurisdiction of which the Company is or may be subject, by
suit upon such judgment.

16.           Counterparts.  This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original and all such counterparts
shall together constitute one and the same instrument.  Delivery of an executed counterpart by
facsimile shall be effective as delivery of a manually executed counterpart
thereof.

17.           Research Analyst Independence. The Company acknowledges that
the Placement Agent’s research analysts and research department are required to
be independent from its investment banking division and is subject to certain
regulations and internal policies, and that such Placement Agent’s research
analysts may hold views and make statements or investment recommendations
and/or publish research reports with respect to the Company and/or the offering
that differ from the views of its investment banking division. The Company
hereby waives and releases, to the fullest extent permitted by law, any claims
that the Company may have against the Placement Agent with respect to any
conflict of interest that may arise from the fact that the views expressed by
its independent research analysts and research department may be different from
or inconsistent with the views or advice communicated to the Company by such
Placement Agent’s investment banking division. The Company acknowledges that
the Placement Agent is a full service securities firm and as such from time to
time, subject to applicable securities laws, rules and regulations, may effect
transactions for its own account or the account of its customers and hold long
or short positions in debt or equity securities of the Company; provided, however, that nothing in this Section 17
shall relieve the Placement Agent of any responsibility or liability that it
may otherwise bear in connection with activities in violation of applicable
securities laws, rules and regulations.

18.           Entire Agreement. This Agreement, together with that certain
Engagement Letter dated February 14, 2007, constitutes the entire agreement of
the parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect
to the subject matter hereof.

19.           Partial Unenforceability. The invalidity or unenforceability
of any section, paragraph, clause or provision of this Agreement shall not
affect the validity or enforceability of any other section, paragraph, clause
or provision hereof.

[Signature Page Follows]

 29
 

 

If the foregoing is in accordance with your
understanding of the agreement between the Company and the Placement Agent,
kindly indicate your acceptance in the space provided for that purpose below.

	
  

  	
  Very truly yours,

  
	
   

  	
   

  
	
  

  	
  CYTORI THERAPEUTICS, INC

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mark
  E. Saad

  
	
   

  	
   

  	
  Name: Mark E. Saad

  
	
   

  	
   

  	
  Title: Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Accepted as of the date first above written:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  PIPER JAFFRAY & CO.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ David
  W. Stadinsky

  	
   

  
	
   

  	
  Name: David W. Stadinsky

  	
   

  
	
   

  	
  Title: Managing Director

  	
   

  
				

 

 30
 

Schedules and Exhibits

	
  Schedule I:

  	
   

  	
  Permitted Free Writing Prospectuses

  
	
   

  	
   

  	
   

  
	
  Schedule II:

  	
   

  	
  Certain Investors

  
	
   

  	
   

  	
   

  
	
  Schedule 2(hh):

  	
   

  	
  Brokers Fees

  
	
   

  	
   

  	
   

  
	
  Exhibit A:

  	
   

  	
  Form of Subscription Agreement

  
	
   

  	
   

  	
   

  
	
  Exhibit B:

  	
   

  	
  Form of Lock-Up Agreement

  
	
   

  	
   

  	
   

  
	
  Exhibit C:

  	
   

  	
  List of Directors and Executive Officers Executing
  Lock-Up Agreements

  
	
   

  	
   

  	
   

  
	
  Exhibit D:

  	
   

  	
  Matters To Be Covered In The Opinion Of Counsel To
  The Company

  
	
   

  	
   

  	
   

  
	
  Exhibit E:

  	
   

  	
  Form of Written Statement of Corporate Counsel to
  the Company

  

 31
 

Schedule
I

 

Permitted
Free Writing Prospectuses

Final Term Sheet dated
February 23, 2007

 

 32

Schedule
II

Certain
Investors

Gagnon Securities

Schwartzberg, Aranoff & Menard, LLC and affiliates

Quintiles Transnational - NovaQuest

Schedule
2(hh)

Brokers
Fees

WBB Securities, LLC shall
be entitled to a fee of 1.5% of the gross proceeds raised in connection with
this Placement Agency Agreement for a period of 30 days beginning on February
16, 2007 (including  any mutually agreed
extensions thereof ) due to the Financial Advisory Services Agreement between
the Company and WBB Securities.

Exhibit
A

Form
of Subscription Agreement

Exhibit
B

Form
of Lock-Up Agreement

                      ,
2007

Piper
Jaffray & Co.

U.S.
Bancorp Center

800
Nicollet Mall

Minneapolis,
Minnesota  55402

Ladies and Gentlemen:

The undersigned
understands that you, as Placement Agent, propose to enter into the Placement
Agency Agreement (the “Placement Agreement”) with Cytori Therapeutics,
Inc., a  Delaware corporation (the “Company”),
providing for the offering (the “Offering”) of shares (the “Shares”)
of common stock, par value $0.001 per share (the “Common Stock”), of the
Company. Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Placement Agreement.

In consideration of the
foregoing, and in order to induce you to participate in the Offering, and for
other good and valuable consideration receipt of which is hereby acknowledged,
the undersigned hereby agrees that, without your prior written consent (which consent may be withheld in your
sole discretion), the undersigned will
not, during the period (the “Lock-Up Period”) beginning on the date
hereof and ending on the date 90  days
after the date of the final prospectus (including the final prospectus
supplement) to be used in confirming the sale of the Shares, (1) offer,
pledge, announce the intention to sell, sell, contract to sell, sell any option
or contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, or file (or participate in the filing of) a
registration statement with the Securities and Exchange Commission in respect
of, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock (including without limitation,
Common Stock which may be deemed to be beneficially owned by the undersigned in
accordance with the rules and regulations of the Securities and Exchange
Commission and securities which may be issued upon exercise of a stock option
or warrant), (2) enter into any swap or other agreement that transfers, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (1) or
(2) above is to be settled by delivery of Common Stock or such other securities,
in cash or otherwise, (3) make any demand for or exercise any right with
respect to, the registration of any shares of Common Stock or any security
convertible into or exercisable or exchangeable for Common Stock, or (4)
publicly announce an intention to effect any transaction specific in clause
(1), (2) or (3) above.

Notwithstanding the
foregoing, the restrictions set forth in clause (1) and (2) above
shall not apply to (a) transfers (i) as a bona fide gift or gifts,
provided that the donee or donees thereof agree to be bound in writing by the
restrictions set forth herein, (ii) to any trust for the direct or
indirect benefit of the undersigned or the immediate family of the undersigned,  provided
that the trustee of the trust agrees to be bound in writing by the restrictions
set forth herein, and provided further that any such transfer shall not involve
a disposition for value, (iii) with your prior written consent or
(iv) effected pursuant to any exchange of “underwater” options with the
Company, (b) the acquisition or exercise of any stock option issued
pursuant to the Company’s existing stock option plan, including any exercise
effected by the

delivery of Shares of
the Company held by the undersigned, or (c) the purchase or sale of the
Company’s securities pursuant to a plan, contract or instruction that satisfies
all of the requirements of Rule 10b5-1(c)(1)(i)(B) that was in effect
prior to the date hereof.  For purposes of this Lock-Up Agreement, “immediate
family” shall mean any relationship by blood, marriage or adoption, not more
remote than first cousin.  None of the restrictions set forth in this
Lock-Up Agreement shall apply to Common Stock acquired in open market
transactions.

For
the purpose of allowing you to comply with NASD Rule 2711(f)(4), if (1) during
the last 17 days of the Lock-Up Period, the Company releases earnings results
or publicly announces other material news or a material event relating to the
Company occurs or (2) prior to the expiration of the Lock-Up Period, the
Company announces that it will release earnings results during the 16 day
period beginning on the last day of the Lock-Up Period, then in each case the
Lock-Up Period will be extended until the expiration of the 18 day period
beginning on the date of release of the earnings results or the public
announcement regarding the material news or the occurrence of the material
event, as applicable, unless you waive, in writing, such extension.  The
undersigned hereby acknowledges that the Company has agreed not to accelerate
the vesting of any option or warrant or the lapse of any repurchase right prior
to the expiration of the Lock-Up Period. 
In furtherance of the
foregoing, the Company, and any duly appointed transfer agent for the
registration or transfer of the securities described herein, are hereby
authorized to decline to make any transfer of securities if such transfer would
constitute a violation or breach of this Lock-Up Agreement.

The
foregoing restrictions are expressly agreed to preclude the undersigned from
engaging in any hedging or other transaction which is designed to or reasonably
expected to lead to or result in a sale or disposition of the Common Stock even
if such Common Stock would be disposed of by someone other than the
undersigned.  Such prohibited hedging or
other transactions would include without limitation any short sale or any
purchase, sale or grant of any right (including without limitation any put
option or put equivalent position or call option or call equivalent position)
with respect to any of the Common Stock or with respect to any security that
includes, relates to, or derives any significant part of its value from such
Common Stock.

The undersigned hereby
represents and warrants that the undersigned has full power and authority to
enter into this Lock-Up Agreement.  All authority herein conferred or
agreed to be conferred and any obligations of the undersigned shall be binding
upon the successors, assigns, heirs or personal representatives of the
undersigned.

The undersigned also
agrees and consents to the entry of stop transfer instructions with the Company’s
transfer agent and registrar against the transfer of the undersigned’s shares
of Common Stock except in compliance with the foregoing restrictions.

The undersigned
understands that, if the Placement Agreement does not become effective, or if
the Placement Agreement (other than the provisions thereof which survive
termination) shall terminate or be terminated prior to payment for and delivery
of the Shares to be sold thereunder, the undersigned shall be released from all
obligations under this Lock-Up Agreement.

This Lock-Up Agreement
shall be governed by and construed in accordance with the laws of the State of
New York, without regard to the conflict of laws principles thereof.

	
  

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  Print Name:

  	
   

  
	
   

  	
   

  
	
   

  	
  Print Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  Signature:

  	
   

  
					

 

Exhibit
C

List
of Directors and Executive Officers

Executing Lock-Up Agreements

Marshall G. Cox

Christopher J. Calhoun

Marc H. Hedrick, MD

Mark E. Saad

Bruce A. Reuter

Seijiro Shirahama

Douglas Arm, Ph.D.

Alexander M. Milstein, MD

John T. Ransom, Ph.D.

Paul W. Hawran

Ronald D. Henriksen

E. Carmack Holmes, MD

David M. Rickey

Exhibit
D

Matters
To Be Covered In The

Opinion
Of Counsel To The Company

In form and substance
reasonably satisfactory to the Placement Agent and delivered by Heller Ehrman
LLP at Closing

Exhibit
E

Form of
Written Statement of

Corporate
Counsel to the Company

In form and
substance reasonably satisfactory to the Placement Agent and delivered by
Heller Ehrman LLP at Closing

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