Document:

Exhibit 10.24

 

PURCHASE
AGREEMENT

 

THIS PURCHASE AGREEMENT (“Agreement”)
is made as of this 11th day of March, 2004 (the “Signing Date”) by and among Aerogen, Inc., a Delaware
corporation (the “Company”),
Xmark Fund, L.P., a Delaware limited partnership (“Xmark LP”), Xmark Fund, Ltd., a Cayman
Islands exempted company (“Xmark Ltd”,
and together with Xmark LP, the “Lead
Investor”), and the other investors set forth on Schedule I, Schedule II and Schedule III  affixed hereto, as such
Schedule may be amended from time to time in accordance with the terms of this
Agreement (each an “Investor”
and collectively the “Investors”;
for the avoidance of doubt, the Lead Investor is an Investor).

 

Recitals:

 

A.            The Company desires, pursuant to
this Agreement, to raise up to the Investment Amount (as defined below) through
the issuance and sale of the following to the Investors (the “Private Placement”): (i) up to
1,572,685 shares of a newly created series of the Company’s Preferred Stock,
par value $0.001 per share, designated “Series A-1 Convertible Preferred
Stock”, par value $0.001 per share (the “Preferred
Stock”), which Preferred Stock shall have the rights,
preferences and privileges set forth in the Certificate of Designations,
Preferences and Rights, in the form of Exhibit
A annexed hereto and made a part hereof (the “Certificate of Designations”), and each
share of Preferred Stock shall have a stated value of $30.00 and shall
initially be convertible into shares of the Company’s Common Stock, par value
$0.001 per share (the “Common Stock”),
at a price of $3.00 per share (the “Conversion
Price”), for an aggregate of 15,726,850 shares of Common Stock;
and (ii) warrants to acquire up to 15,351,963 shares of Common Stock, at an
exercise price of $3.25 per share, in the form of Exhibit B annexed hereto and made a part hereof (the “Warrants”); and

 

B.            The Investors desire to purchase
from the Company, and the Company desires to issue and sell to the Investors,
upon the terms and conditions stated in this Agreement, such number of shares
of Preferred Stock and Warrants to purchase such number of shares of Common
Stock as is set forth next to each such Investor’s name on Schedule I affixed hereto; and

 

C.            The Private Placement is structured
to occur in two closings, subject to the conditions hereinafter set forth: (i)
on the date hereof, the Investors will purchase $15,000,000 of the Preferred
Stock and Warrants in the Private Placement (the “First Closing”); and (ii) if Stockholder Approval (as
defined below) is obtained, the Investors will promptly thereafter purchase up
to an additional $30,000,000 of the Preferred Stock and Warrants in the Private
Placement (the “Second Closing”),
and all of the foregoing funds will be placed in escrow pending consummation of
each Closing (as defined below), and if the Second Closing shall not occur,
such funds shall be returned to the Investors in accordance with the terms
hereinafter set forth;

 

D.            Contemporaneous with the sale of the
Preferred Stock and the Warrants at the Second Closing, the Carpenter 1983
Family Trust UA dated 9 March 1983 (the “Carpenter
Family Trust”) shall exchange that certain convertible debenture
(the “Carpenter Debenture”),

 

1

 

issued to the Carpenter Family Trust and described in more detail on Schedule III affixed hereto for such
number of shares of Preferred Stock as is set forth next to the Carpenter
Family Trust’s name on Schedule III
affixed hereto; and

 

E.             Contemporaneous with the sale of
the Preferred Stock and the Warrants at the Second Closing, to the extent not
converted into Common Stock prior to the Second Closing Date, SF Capital
Partners, Ltd. (“SF Capital”)
shall exchange that certain debenture dated as of September 9, 2003 (the “September SF Debenture”) and that
certain debenture dated as of November 2, 2003 (the “November SF Debenture” and, together
with the September SF Debenture, the “SF
Debentures”) described in more detail on Schedule III affixed hereto for such
number of shares of Preferred Stock and Warrants as is set forth next to SF
Capital’s name on Schedule III
affixed hereto; and

 

F.             The Company has engaged CIBC World
Markets Corp. as its placement agent (the “Placement Agent”) for the Private
Placement on a “best efforts” basis; and

 

G.            Contemporaneous with the sale of the
Preferred Stock and the Warrants at the First Closing, the parties hereto will
enter into a Registration Rights Agreement, in the form attached hereto as Exhibit C (the “Registration Rights Agreement”),
pursuant to which, among other things, the Company will provide certain
registration rights to the Investors with respect to the Private Placement
under the Securities Act of 1933 (as amended, the “1933 Act”) and the rules and
regulations promulgated thereunder, and applicable state securities laws; and

 

H.            The Company and the Investors are
executing and delivering this Agreement in reliance upon the exemption from
securities registration afforded by the provisions of Regulation D (“Regulation D”), as promulgated by the
U.S. Securities and Exchange Commission (the “SEC”) under the 1933 Act and Regulation S (“Regulation S”), as promulgated by
the SEC under the 1933 Act; and

 

I.              The issuance of the Securities at
the First Closing has been granted an exemption from approval by the
stockholders of the Company pursuant to NASD Rule 4350 (“Stockholder Approval”) by the Nasdaq
Stock Market (as defined herein) and the issuance of the Securities at the
Second Closing is subject to Stockholder Approval, and the Company covenants to
seek Stockholder Approval in accordance with such rule and applicable law; and

 

J.             The exemption from Stockholder
Approval requires 10 days advance notice to the Company’s stockholders; in
order to provide the Company with working capital during the 10 day notice
period, SF Capital will loan the Company $300,000 pursuant to a secured
debenture due upon the earlier of (i) 30 days after the date of the debenture
and (ii) the First Closing (the “SF
Capital Bridge”).

 

NOW, THEREFORE, in
consideration of the mutual promises made herein and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:

 

2

 

1.             Definitions.  In
addition to those terms defined above and elsewhere in this Agreement, for the
purposes of this Agreement, the following terms shall have the meanings set
forth in this Section 1:

 

“1933 Act” has the
meaning set forth in the Recitals.

 

“1934 Act” means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

 

“10-K” has the
meaning set forth in Section 5.6.

 

“Affiliate” means,
with respect to any Person, any other Person which directly or indirectly
Controls, is Controlled by, or is under common Control with, such Person.

 

“Acquisition Proposal”
has the meaning set forth in Section 9.15(c).

 

“Agreement” has the
meaning set forth in the Recitals.

 

“Alternative Transaction”
has the meaning set forth in Section 9.11.

 

“Business Day” means
a day, other than a Saturday or Sunday, on which banks in New York City are
open for the general transaction of business.

 

“Carpenter Debenture”
has the meaning set forth in the Recitals.

 

“Carpenter Family Trust”
has the meaning set forth in the Recitals.

 

“Carpenter Warrant”
has the meaning set forth in the Recitals.

 

“Cash Placement Agent Fee”
has the meaning set forth in Section 5.19.

 

“Certificate of Designations”
has the meaning set forth in the Recitals.

 

“CG Opinion” means
a legal opinion from Cooley Godward LLP, the Company’s counsel, dated
as of the applicable Closing Date, in the form attached hereto as Exhibit D-1 in the case of the First
Closing, and Exhibit D-2 in
the case of the Second Closing.

 

“Closing” has the
meaning set forth in Section 4.

 

“Closing Date” means, as applicable, the
First Closing Date or the Second Closing Date.

 

“Common Stock” has
the meaning set forth in the Recitals, and also includes any securities into
which the Common Stock may be reclassified.

 

“Company” has the meaning
set forth in the Recitals.

 

3

 

“Company’s Knowledge”
means the actual knowledge of the officers of the Company, after due inquiry
and investigation.

 

“Confidential Information”
means trade secrets, confidential information and know-how (including but not
limited to ideas, formulae, compositions, processes, procedures and techniques,
research and development information, computer program code, performance
specifications, support documentation, drawings, specifications, designs,
business and marketing plans, and customer and supplier lists and related
information).

 

“Control” means the
possession, direct or indirect, of the power to direct or cause the direction
of the management and policies of a Person, whether through the ownership of
voting securities, by contract or otherwise.

 

“Conversion Price”
has the meaning set forth in the Recitals.

 

“Covenant Expiration Date”
has the meaning set forth in Section 9.9.

 

“Disclosure Schedules”
has the meaning set forth in Section 5.

 

“Environmental Laws”
has the meaning set forth in Section 5.15.

 

“Escrow Amount” has
the meaning set forth in Section 3.1(a).

 

“Escrow Termination Date” means the 65th
calendar day after the Signing Date; provided, however, the Lead
Investor may, in its sole discretion, extend the Escrow Termination Date for up
to two additional 15-day periods by giving written notice to the Company and
Lead Investor Counsel of its election to so extend the Escrow Termination Date,
in each case for up to an additional 15 calendar days, and in each such case,
the Escrow Termination Date shall be the date specified in such notice; provided,
further, however, the Escrow Termination Date shall not be later
than July 1, 2004, on which date, if the Closing has not occurred, Lead
Investor Counsel shall return the Escrow Amount in accordance with Section
3.1(b); provided, further, however, the Escrow
Termination Date shall occur upon termination of this Agreement pursuant to Section
9.15.

 

“Exemption Notice”
has the meaning ascribed thereto in Section 9.16.

 

“First Closing” has
the meaning ascribed thereto in Section 2.1.

 

“First Closing Date” means the date on
which the First Closing occurs, if at all.

 

“Foreign Investor”
shall mean OFCO Club IV (for the avoidance of doubt, except with respect to
Sections 6.2, 6.3, 6.5, 6.6, 6.7 and 6.8 of this Agreement, each Foreign
Investor shall also be an Investor for purposes of this Agreement).

 

“Indemnified Person”
has the meaning set forth in Section 10.3.

 

4

 

“Intellectual Property”
means all of the following: (i) patents, patent applications, patent
disclosures and inventions (whether or not patentable and whether or not
reduced to practice); (ii) trademarks, service marks, trade dress, trade names,
corporate names, logos, slogans and Internet domain names, together with all
goodwill associated with each of the foregoing; (iii) copyrights and
copyrightable works; (iv) registrations, applications and renewals for any of the
foregoing; (v) trade secrets, Confidential Information and know-how (including,
but not limited to, ideas, formulae, compositions, manufacturing and production
processes and techniques, research and development information, drawings,
specifications, designs, business and marketing plans, and customer and
supplier lists and related information); and (vi) computer software (including,
but not limited to, data, data bases and documentation).

 

“Investment Amount”
means amount equal to $45,000,000, but in no event less than $25,000,000.

 

“Investor(s)” has
the meaning set forth in the Recitals, and for purposes of clarification, also
includes the Foreign Investor to the extent provided in the definition thereof.

 

“Lead Investor” has
the meaning set forth in the Recitals.

 

“Lead Investor Counsel”
has the meaning set forth in Section 3.1(a).

 

“Lead Investor Counsel Duties”
has the meaning set forth in Section 3.2(a).

 

“Lead Investor Counsel Fees”
has the meaning set forth in Section 10.5.

 

“Lead Investor Directors”
has the meaning set forth in Section 9.8.

 

“License Agreements”
has the meaning set forth in Section 5.14(b).

 

“Losses” has the
meaning set forth in Section 10.2.

 

“Material Adverse Effect” means a
material adverse effect on (i) the assets and liabilities, results of
operations, condition (financial or otherwise) or business of the Company and
its Subsidiaries taken as a whole, or (ii) the ability of the Company to issue
and sell the Securities and to perform its obligations under the Transaction
Documents; provided, however,
that: (A) any adverse effect that results from general economic, business or
industry conditions, the taking by the Company of any action permitted or
required by the Agreement, or the announcement or pendency of transactions
contemplated hereunder, shall not, in and of itself, constitute a “Material
Adverse Effect” on the Company, and shall not be considered in determining
whether there has been or would be a “Material Adverse Effect” on the Company
and (B) a decline in the Company’s stock price shall not, in and of itself,
constitute a “Material Adverse Effect” on the Company and shall not be
considered in determining whether there has been or would be a “Material
Adverse Effect” on the Company.

 

“Material Contract”
means any contract of the Company or any Subsidiary (i) that was required to be
filed as an exhibit to the SEC Filings pursuant to Item 601(b)(4) or Item

 

5

 

601(b)(10) of Regulation S-K of the 1933 Act or (ii) the loss of which
could reasonably be expected to have a Material Adverse Effect.

 

“NASDAQ Stock Market”
has the meaning set forth in Section 5.26.

 

“Non-U.S. Investor”
means any Investor that is not domiciled in the United States.

 

“Notice of Acquisition Proposal”
has the meaning set forth in Section 9.15(a).

 

“November SF Debenture”
has the meaning set forth in the Recitals.

 

“Person” means an
individual, corporation, partnership, limited liability company, trust,
business trust, association, joint stock company, joint venture, sole
proprietorship, unincorporated organization, governmental authority or any
other form of entity not specifically listed herein.

 

“Placement Agent” has the meaning set
forth in the Recitals.

 

“Placement Agent Termination
Agreement” means that certain letter from the Company to the
Placement Agent, dated October 3, 2003.

 

“Preferred Shares”
means the shares of Common Stock issuable upon conversion of the Preferred
Stock.

 

“Preferred Stock”
has the meaning set forth in the Recitals.

 

“Private Placement”
has the meaning set forth in the Recitals.

 

“Proposal” has the meaning set forth in Section
9.7(a).

 

“Proxy Statement” has the meaning set
forth in Section 9.7(a).

 

“Registration Rights Agreement” has the
meaning set forth in the Recitals.

 

“Regulation D” has the meaning set forth
in the Recitals.

 

“Requisite Holders” shall mean (i) the
holders of at least a majority of the then outstanding shares of Preferred
Stock and (ii) the Lead Investor, so long as the Lead Investor owns at least
80,000 shares of Preferred Stock (appropriately adjusted for any stock
dividend, stock split, reverse stock split, reclassification, stock combination
or other recapitalization occurring after the date hereof).

 

“Rights Plan”
means that certain Rights Agreement, dated as of June 5, 2001, by and
between the Company and Mellon Investor Services, LLC, as amended on February
24, 2003.

 

6

 

“Rights Plan Termination”
has the meaning set forth in Section 9.17.

 

“SEC” has the meaning set forth in the
Recitals.

 

“SEC Filings”
has the meaning set forth in Section 5.6.

 

“Second Closing” has the meaning set
forth in Section 2.2.

 

“Second Closing Date” means the date on
which the Second Closing occurs, if at all.

 

“Securities”
means the Preferred Stock, the Preferred Shares, the shares of Common Stock
issuable as payment-in-kind dividends on the Preferred Stock in accordance with
the terms thereof, the Warrants and the Warrant Shares.

 

“September SF Debenture”
has the meaning set forth in the Recitals.

 

“SF Capital” has
the meaning set forth in the Recitals.

 

“SF Capital Bridge”
has the meaning set forth in the Recitals.

 

“SF Debentures” has
the meaning set forth in the Recitals.

 

“Signing Date” has
the meaning set forth in the Recitals.

 

“Stockholder Approval”
has the meaning set forth in the Recitals.

 

“Stockholders Meeting”
has the meaning set forth in Section 9.7(a).

 

“Stockholders Meeting Deadline”
has the meaning set forth in Section 9.7(a).

 

“Subsidiary” has
the meaning set forth in Section 5.1.

 

“Termination Fee”
has the meaning set forth in Section 9.15(d).

 

“Third Party” has
the meaning set forth in Section 9.15(c).

 

“Transaction Documents”
means this Agreement, the Certificate of Designations, the Warrants and the
Registration Rights Agreement.

 

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

 

“Warrants” has the
meaning set forth in the Recitals.

 

7

 

“Xmark LP” has the
meaning set forth in the Recitals.

 

“Xmark Ltd” has the
meaning set forth in the Recitals.

 

2.             Purchase and Sale of Securities.

 

2.1.          First Closing.  Subject to the terms and conditions of this
Agreement, including without limitation, the conditions set forth in Section
8 (excluding Stockholder Approval in Section 8.1(b)) and including
without limitation expiration of the 10-day notice period required by NASD Rule
4350(i)(2) specified in Section 8.1(l), there shall be a closing at
which the Company shall issue and sell, and each Investor listed on Schedule I attached hereto, which Schedule I may be amended from time to
time, with the prior written consent of the Lead Investor, to add additional
Investors who agree to purchase Preferred Stock in the Private Placement by
executing a counterpart to this Agreement following the date hereof, shall
severally, and not jointly, purchase, the number of shares of Preferred Stock
and the number of Warrants, in each case, in the respective amounts set forth
opposite their names on Schedule I
affixed hereto, in exchange for the cash consideration set forth as the “First
Closing Purchase Price” opposite their respective names on Schedule I affixed hereto.

 

2.2.          Second Closing.  Subject to the terms and conditions of this
Agreement, including without limitation, the occurrence of Stockholder
Approval, at the Second Closing: (i) the Investors shall severally, and not
jointly, purchase, and the Company shall sell and issue to the Investors, the
number of shares of Preferred Stock and the number of Warrants, in each case,
in the respective amounts set forth opposite their names on Schedule II affixed hereto, in exchange
for the cash consideration set forth as the “Second Closing Purchase Price”
opposite their respective names on Schedule
II affixed hereto; and (ii) the Company shall exchange the
Carpenter Debenture and the SF Debentures, to the extent not converted into
Common Stock, for such number of shares of Preferred Stock set forth opposite
their names on Schedule III
affixed hereto, provided that if the Second Closing shall not occur, then such
conversion shall occur as provided in Section 4.4.

 

3.             Escrow.

 

3.1.          (a) Simultaneously with the execution
and delivery of this Agreement by an Investor, such Investor shall promptly
cause a wire transfer of immediately available funds (U.S. dollars) in an
amount representing the “Aggregate Purchase Price” on such Investor’s signature
page affixed hereto and opposite such Investor’s name thereon, to be paid to an
interest bearing escrow account of Lowenstein Sandler PC, the Lead Investor’s
counsel (“Lead Investor Counsel”),
set forth on Schedule IV
affixed hereto (the aggregate amounts received being held in escrow by Lead
Investor Counsel are referred to herein as the “Escrow Amount”); provided, however, that if
(1) an Investor shall not have provided a U.S. taxpayer identification number
or (2) a Non-U.S. Investor shall not have completed, executed and delivered to
Lead Investor Counsel a Form W-8BEN (Certificate of Foreign Status of
Beneficial Owner for United States Tax Withholding), any funds provided to the
Lead Investor Counsel by such Investor or Non-U.S. Investor which constitute
part of the Escrow Amount will be placed in a non-interest bearing escrow
account.  Lead Investor Counsel shall
hold the Escrow Amount in escrow in accordance with Section 3.1(b).  Lead Investor Counsel shall invest that
portion of the Escrow

 

8

 

Amount constituting the Second Closing Purchase Price in accordance
with the instructions set forth on Schedule
V, affixed hereto and made a part hereof.

 

(b)           The Lead Investor Counsel shall
continue to hold the Escrow Amount in escrow (as may be invested pursuant to Schedule V) in accordance with and
subject to this Agreement, from the date of its receipt of the funds
constituting the Escrow Amount until the soonest of:

 

(i) the
Escrow Termination Date, in which case, if Lead Investor Counsel then holds
any portion of the Escrow Amount, then: (A) Lead Investor Counsel shall return
the portion of the Escrow Amount received from each Investor (together with
accrued interest thereon, if any) which it then holds, to each such Investor,
in accordance with written wire transfer instructions received from such
Investor; and (B) if Lead Investor Counsel has not received written wire
transfer instructions from any Investor before the 30th day after
the Escrow Termination Date, then Lead Investor Counsel may, in its sole and
absolute discretion, either (x) deposit that portion of the Escrow Amount to be
returned to such Investor (together with accrued interest thereon, if any) in a
court of competent jurisdiction on written notice to such Investor, and Lead
Investor Counsel shall thereafter have no further liability with respect to
such deposited funds, or (y) continue to hold such portion of the Escrow Amount
(together with accrued interest thereon, if any) pending receipt of written
wire transfer instructions from such Investor or an order from a court of
competent jurisdiction; OR

 

(ii) in the
case of the First Closing, receipt of written instructions from the Lead
Investor that the First Closing shall have been consummated, in which case,
Lead Investor Counsel shall release that portion of the Escrow Amount
constituting the aggregate “First Closing Purchase Price” as follows: (A) the
portion of the Cash Placement Agent Fee applicable to the First Closing to the
Placement Agent, (B) the Lead Investor Counsel Fees for the First Closing to
Lead Investor Counsel, and (C) the balance of the aggregate “First Closing
Purchase Price” to the Company; OR

 

(iii) in
the case of the Second Closing, receipt of written instructions from the
Lead Investor that the Second Closing shall have been consummated, in which
case, the Lead Investor Counsel shall release that portion of the Escrow Amount
constituting the aggregate “Second Closing Purchase Price” as follows: (A) the
portion of the Cash Placement Agent Fee applicable to the Second Closing to the
Placement Agent, (B) the Lead Investor Counsel Fees for the Second Closing to
Lead Investor Counsel, and (C) the balance of the Escrow Amount (together with
accrued interest thereon, if any) to the Company.

 

3.2.          The Company and the Investors
acknowledge and agree for the benefit of Lead Investor Counsel (which shall be
deemed to be a third party beneficiary of this Section 3 and of Section
11) as follows:

 

(a)           Lead
Investor Counsel: (i) is not responsible for the performance by the Company,
the Investors or Placement Agent of this Agreement or any of the Transaction
Documents or for determining or compelling compliance therewith; (ii) is only
responsible for (A) holding the Escrow Amount in escrow pending receipt of
written instructions from the Lead

 

9

 

Investor
and/or the Company directing the release of the Escrow Amount, (B) disbursing
the Escrow Amount in accordance with the written instructions from the Lead
Investor and/or the Company, and (C) investing the Escrow Amount in accordance
with Schedule V, each of
the responsibilities of Lead Investor Counsel in clause (A), (B) and (C) is
ministerial in nature, and no implied duties or obligations of any kind shall
be read into this Agreement against or on the part of Lead Investor Counsel
(collectively, the “Lead Investor Counsel
Duties”); (iii) shall not be obligated to take any legal or
other action hereunder which might in its judgment involve or cause it to incur
any expense or liability unless it shall have been furnished with
indemnification acceptable to it, in its sole discretion; (iv) may rely on and
shall be protected in acting or refraining from acting upon any written notice,
instruction (including, without limitation, wire transfer instructions, whether
incorporated herein or provided in a separate written instruction), instrument,
statement, certificate, request or other document furnished to it hereunder and
believed by it to be genuine and to have been signed or presented by the proper
Person, and shall have no responsibility for making inquiry as to, or for determining,
the genuineness, accuracy or validity thereof, or of the authority of the
Person signing or presenting the same; (v) may consult counsel satisfactory to
it, and the opinion or advice of such counsel in any instance shall be full and
complete authorization and protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in accordance with the opinion or
advice of such counsel; and (vi) shall be authorized to receive from the Escrow
Amount, on the applicable Closing Date, the Lead Investor Counsel Fees.  Documents and written materials referred to
in this Section 3.2(a) include, without limitation, e-mail and other
electronic transmissions capable of being printed, whether or not they are in
fact printed; and any such e-mail or other electronic transmission may be
deemed and treated by Lead Investor Counsel as having been signed or presented
by a Person if it bears, as sender, the Person’s e-mail address.

 

(b)           Lead Investor Counsel shall not be
liable to anyone for any action taken or omitted to be taken by it hereunder,
except in the case of Lead Investor Counsel’s gross negligence or willful
misconduct in breach of the Lead Investor Counsel Duties.  IN NO EVENT SHALL LEAD INVESTOR COUNSEL BE
LIABLE FOR INDIRECT, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGE OR LOSS
(INCLUDING BUT NOT LIMITED TO LOST PROFITS) WHATSOEVER, EVEN IF LEAD INVESTOR
COUNSEL HAS BEEN INFORMED OF THE LIKELIHOOD OF SUCH LOSS OR DAMAGE AND
REGARDLESS OF THE FORM OF ACTION.

 

(c)           The Company and the Investors hereby
indemnify and hold harmless Lead Investor Counsel from and against any and all
loss, liability, cost, damage and expense, including, without limitation,
reasonable counsel fees and expenses, which Lead Investor Counsel may suffer or
incur by reason of any action, claim or proceeding brought against Lead
Investor Counsel arising out of or relating to the performance of the Lead
Investor Counsel Duties, unless such action, claim or proceeding is exclusively
the result of the willful misconduct, bad faith or gross negligence of Lead
Investor Counsel.

 

(d)           Lead Investor Counsel has acted as
legal counsel to one or more of the Investors in connection with this Agreement
and the other Transaction Documents, is merely acting as a stakeholder under this
Agreement and is, therefore, hereby authorized to continue acting as legal
counsel to such Investors including, without limitation, with regard to any
dispute arising out of this Agreement, the other Transaction Documents, the
Escrow Amount or any

 

10

 

other matter.  Each of the
Company and the Investors hereby expressly consents to permit Lead Investor
Counsel to represent such Investors in connection with all matters relating to
this Agreement, including, without limitation, with regard to any dispute
arising out of this Agreement, the other Transaction Documents, the Escrow
Amount or any other matter, and hereby waives any conflict of interest or
appearance of conflict or impropriety with respect to such representation.  Each of the Company and the Investors has
consulted with its own counsel specifically about this Section 3 to the
extent they deemed necessary, and has entered into this Agreement after being
satisfied with such advice.

 

(e)           Lead Investor Counsel shall have the
right at any time to resign for any reason and be discharged of its duties as
escrow agent hereunder (including without limitation the Lead Investor Counsel
Duties) by giving written notice of its resignation to the Company and the Lead
Investor at least ten (10) calendar days prior to the specified effective date
of such resignation.  All obligations of
the Lead Investor Counsel hereunder shall cease and terminate on the effective
date of its resignation and its sole responsibility thereafter shall be to hold
the Escrow Amount, for a period of ten (10) calendar days following the
effective date of resignation, at which time,

 

(i)            Lead Investor
Counsel shall be entitled to receive from the Escrow Amount the Lead Investor
Counsel Fees through and including the effective date of resignation; and

 

(ii)           if a successor
escrow agent shall have been appointed and have accepted such appointment in a
writing to both the Company and the Lead Investor, then upon written notice
thereof given to each of the Investors, the Lead Investor Counsel shall deliver
the Escrow Amount to the successor escrow agent, and upon such delivery, Lead
Investor Counsel shall have no further liability or obligation; or

 

(iii)          if a successor
escrow agent shall not have been appointed, for any reason whatsoever, Lead
Investor Counsel shall at its option in its sole discretion, either (A) deliver
the Escrow Amount to a court of competent jurisdiction selected by Lead
Investor Counsel and give written notice thereof to the Company and the
Investors, or (B) continue to hold Escrow Amount in escrow pending written
direction from the Company and the Lead Investor in form and formality
satisfactory to Lead Investor Counsel.

 

(f)            In the event that the Lead Investor
Counsel shall be uncertain as to its duties or rights hereunder or shall
receive instructions with respect to the Escrow Amount or any portion
thereunder which, in its sole discretion, are in conflict either with other
instructions received by it or with any provision of this Agreement, Lead
Investor Counsel shall have the absolute right to suspend all further
performance under this Agreement (except for the safekeeping of such Escrow
Amount) until such uncertainty or conflicting instructions have been resolved
to the Lead Investor Counsel’s sole satisfaction by final judgment of a court
of competent jurisdiction, joint written instructions from the Company and all
of the Investors, or otherwise.  In the
event that any controversy arises between the Company and one or more of the
Investors or any other party with respect to this Agreement or the Escrow
Amount, the Lead

 

11

 

Investor Counsel shall not be required to determine the proper
resolution of such controversy or the proper disposition of the Escrow Amount,
and shall have the absolute right, in its sole discretion, to deposit the
Escrow Amount with the clerk of a court selected by the Lead Investor Counsel
and file a suit in interpleader in that court and obtain an order from that
court requiring all parties involved to litigate in that court their respective
claims arising out of or in connection with the Escrow Amount.  Upon the deposit by the Lead Investor
Counsel of the Escrow Amount with the clerk of such court in accordance with
this provision, the Lead Investor Counsel shall thereupon be relieved of all
further obligations and released from all liability hereunder.

 

(g)           The provisions of this Section 3
shall survive any termination of this Agreement.

 

4.             Closings.

 

4.1           Place.  The closings of the transactions
contemplated by this Agreement (the “Closing”)
shall take place at the offices of Lead Investor Counsel, 1330 Avenue of the
Americas, 21st Floor, New York, New York 10019, or at such other
location and on such other date as the Company and the Lead Investor shall
mutually agree, on the applicable Closing Date.

 

4.2           First Closing.  Upon satisfaction of the conditions to the
closing of the First Closing set forth in Section 7 hereof (excluding
Stockholder Approval specified in Section 8.1(b) and including without
limitation expiration of the 10-day notice period required by NASD Rule
4350(i)(2) specified in Section 8.1(l)), the Lead Investor shall
instruct Lead Investor Counsel to immediately release, and upon receipt of such
instructions, Lead Investor Counsel shall release, that portion of the Escrow
Amount constituting the aggregate “First Closing Purchase Price” as follows:
(A) the portion of the Cash Placement Agent Fee applicable to the First Closing
to the Placement Agent, (B) the Lead Investor Counsel Fees for the First
Closing to Lead Investor Counsel, and (C) the balance of the aggregate “First
Closing Purchase Price” to the Company (the date of receipt of such balance by
the Company is hereinafter referred to as the “First Closing Date”). 
On the First Closing Date, the Company shall issue or cause to be issued
to each Investor a certificate or certificates, registered in such name or
names as each such Investor may designate, representing the number of shares of
Preferred Stock  as is set forth
opposite such Investor’s name on Schedule
I affixed hereto and shall also issue to each such Investor, or
such Investor’s respective designees, the number of Warrants as is set forth
opposite such Investor’s name on Schedule
I affixed hereto.

 

4.3           Second Closing.  Upon satisfaction of the conditions to the
closing of the Second Closing set forth in Section 8 (except that Section
8.1(i) shall have been satisfied in connection with the First Closing)
hereof, the Lead Investor shall instruct Lead Investor Counsel to immediately
release, and upon receipt of such instructions, Lead Investor Counsel shall
release, the remaining Escrow Amount, constituting the aggregate “Second Closing Purchase Price”
(together with accrued interest thereon, if any) as follows: (A) the portion of
the Cash Placement Agent Fee applicable to the Second Closing to the Placement
Agent, (B) the Lead Investor Counsel Fees for the Second Closing to Lead
Investor Counsel, and (C) the balance of the Escrow Amount (together with
accrued interest thereon, if any) to the Company (the date of receipt of such
balance by the Company is hereinafter referred to as the “Second Closing

 

12

 

Date”).  On the Second Closing Date, the Company
shall issue or cause to be issued to each Investor a certificate or
certificates, registered in such name or names as each such Investor may
designate, representing the number of shares of Preferred Stock  as is set forth opposite such Investor’s
name on Schedule II affixed
hereto and shall also issue to each such Investor, or such Investor’s
respective designees, the number of Warrants as is set forth opposite such
Investor’s name on Schedule
II affixed hereto.

 

4.4           Exchange of Existing Debt.  Upon the terms and subject to the conditions
of this Agreement, at the soonest of (a) Second Closing and (b) the 55th
day after the First Closing Date (if such 55th day is not a Business
Day, then the first Business Day thereafter) (such sooner date, the “Debt Conversion Date”), each of the
Carpenter Family Trust and SF Capital shall deliver or cause to be delivered to
the Company for cancellation the Carpenter Debenture and the SF Debentures (to
the extent not converted into Common Stock prior to the Debt Conversion Date),
and the Company shall, upon such delivery by each of the Carpenter Family Trust
and SF Capital, cancel the Carpenter Debenture and the SF Debentures (to the
extent not converted into Common Stock prior to the Debt Conversion Date),
respectively, and in exchange therefor shall issue the number of shares of
Preferred Stock and, in the case of the November SF Debenture, issue the number
of Warrants to SF Capital, as is set forth opposite such Person’s name on Schedule  III affixed hereto. 
On the Debt Conversion Date, the Carpenter Debenture and the SF
Debentures (to the extent not converted into Common Stock prior to the Debt
Conversion Date) shall, by virtue of such Debt Conversion Date and without any
action on the part of the Company, the Investors or the holder thereof, be
converted into and shall become the right to receive the number of shares of
Preferred Stock and, in the case of the November SF Debenture, the right to
receive the number of Warrants, as is set forth opposite such Person’s name on Schedule  III affixed hereto. 
If, on or after the Debt Conversion Date, the Carpenter Debenture or the
SF Debentures are presented to the Company for any reason, they shall be
canceled and exchanged as provided in this Section 4.4.

 

5.             Representations and Warranties of the Company.  The Company hereby represents and warrants
to the Investors on and as of the Signing Date and on the applicable Closing
Date, knowing and intending their reliance hereon, that, except as set forth in
the schedules delivered on the Signing Date (collectively, the “Disclosure Schedules”):

 

5.1.          Organization, Good Standing and
Qualification.  Each of the Company
and its Subsidiaries, a complete list of which is set forth in Schedule 5.1
hereto (“Subsidiaries”), is
a corporation duly incorporated, validly existing and in good standing under
the laws of the jurisdiction of its incorporation and has all requisite
corporate power and authority to carry on its business as now conducted and to
own its properties.  Each of the Company
and its Subsidiaries is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction in which the conduct of its
business or its ownership or its leasing of property makes such qualification
or licensing necessary, unless the failure to so qualify would not have a
Material Adverse Effect.

 

5.2.          Authorization.  The Company has full power and authority and
has taken all requisite action on the part of the Company, its officers,
directors and stockholders necessary for (i) the authorization, execution and
delivery of the Transaction Documents, (ii) authorization of the performance of
all obligations of the Company hereunder or thereunder, and (iii) the

 

13

 

authorization,
issuance (or reservation for issuance) and delivery of the Securities.  The Transaction Documents constitute the
legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their respective terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability, relating to or affecting creditors’ rights generally.

 

5.3.          Capitalization.

 

(a)           Schedule 5.3 sets forth (i)
the authorized capital stock of the Company on the date hereof, (ii) the number
of shares of capital stock issued and outstanding, (iii) the number of shares
of capital stock issuable pursuant to the Company’s stock plans, and (iv) the
number of shares of capital stock issuable and reserved for issuance pursuant
to securities (other than the Securities) exercisable for, or convertible into
or exchangeable for any shares of capital stock of the Company.  All of the issued and outstanding shares of
the Company’s capital stock have been duly authorized and validly issued and
are fully paid, nonassessable and free of pre-emptive rights and were issued in
full compliance with applicable law and any rights of third parties.  All of the issued and outstanding shares of
capital stock of each Subsidiary have been duly authorized and validly issued
and are fully paid, nonassessable and free of pre-emptive rights, were issued
in full compliance with applicable law and any rights of third parties and are
owned by the Company, beneficially and of record, and, except as described on Schedule
5.3, are subject to no lien, encumbrance or other adverse claim.  No Person is entitled to pre-emptive or
similar statutory or contractual rights with respect to any securities of the
Company.  Except as described on Schedule
5.3, there are no outstanding warrants, options, convertible securities or
other rights, agreements or arrangements of any character under which the
Company or any of its Subsidiaries is or may be obligated to issue any equity
securities of any kind and, except as contemplated by this Agreement, neither
the Company nor any of its Subsidiaries is currently in negotiations for the
issuance of any equity securities of any kind. 
Except as described on Schedule 5.3 and except for the Registration
Rights Agreement, there are no voting agreements, buy-sell agreements, option
or right of first purchase agreements or other agreements of any kind among the
Company and any of its security holders relating to the securities of the
Company.  Except as described on Schedule
5.3, the Company has not granted any Person the right to require the
Company to register any of its securities under the 1933 Act, whether on a
demand basis or in connection with the registration of securities of the
Company for its own account or for the account of any other Person.

 

(b)           Schedule 5.3 sets forth a true
and complete table setting forth the pro forma capitalization of the Company on
a fully diluted basis giving effect to (i) the issuance of the Preferred Stock
and the Warrants in the First Closing and the Second Closing, (ii) any
adjustments in other securities resulting from the issuance of the Preferred
Stock and the Warrants in the First Closing and the Second Closing, and (iii)
the exercise or conversion of all outstanding securities. Except as described
on Schedule 5.3, the issuance and sale of the Securities hereunder will
not obligate the Company to issue shares of Common Stock or other securities to
any other Person (other than the Investors) and will not result in the
adjustment of the exercise, conversion, exchange or reset price of any
outstanding security.

 

14

 

(c)           Except as set forth on Schedule
5.3, the Company does not have outstanding stockholder purchase rights or
any similar arrangement in effect giving any Person the right to purchase any
equity interest in the Company upon the occurrence of certain events.

 

(d)           As of the date hereof, the total
amount, together with all accrued and unpaid interest, owing on (i) the
Carpenter Debenture is equal to $573,009.95 and (ii) the SF Debentures is equal
to $1,607,527.50, in the aggregate.

 

5.4.          Valid Issuance.  The Preferred Stock has been duly and
validly authorized and when issued to the Investors in accordance with the
terms of this Agreement will be validly issued, fully paid and nonassessable,
shall have the rights, preferences and limitations set forth in the Certificate
of Designations and shall be free and clear of all liens, claims, encumbrances
and restrictions, except for restrictions on transfer set forth in the
Transaction Documents or imposed by applicable securities laws.  Upon the due conversion of the Preferred
Stock, the Preferred Shares will be validly issued, fully paid and
nonassessable, and shall be free and clear of all liens, claims, encumbrances
and restrictions, except for restrictions on transfer set forth in the
Transaction Documents or imposed by applicable securities laws. The Warrants
have been duly and validly authorized and, upon the due exercise of the
Warrants, the Warrant Shares will be validly issued, fully paid and
non-assessable, and shall be free and clear of all liens, claims, encumbrances
and restrictions, except for restrictions on transfer set forth in the
Transaction Documents or imposed by applicable securities laws.  The Company has reserved a sufficient number
of shares of Common Stock for issuance upon conversion of the Preferred Stock
and exercise of the Warrants.  As of the
relevant Closing Date, the Preferred Shares and the Warrant Shares have been
authorized for listing on the NASDAQ Small Cap Market.

 

5.5.          Consents.   The
execution, delivery and performance by the Company of the Transaction Documents
and the offer, issuance and sale of the Securities require no consent of,
action by or in respect of, or filing with, any Person, governmental body,
agency, or official other than those consents set forth on Schedule 5.5
and filings that have been made pursuant to applicable state securities laws
and post-sale filings pursuant to applicable state and federal securities laws
which the Company undertakes to file within the applicable time periods.  The Company has taken all action necessary
to exempt (i) the issuance and sale of the Securities, (ii) the issuance of the
Preferred Shares upon due conversion of the Preferred Stock, (iii) the issuance
of the Warrant Shares upon due exercise of the Warrants, and (iv) the other
transactions contemplated by the Transaction Documents from the provisions of
any anti-takeover, business combination or control share law or statute binding
on the Company or to which the Company or any of its assets and properties may
be subject or any provision of the Company’s Certificate of Incorporation,
Bylaws or any stockholder rights agreement that is or could become applicable
to the Investors as a result of the transactions contemplated hereby, including
without limitation, the issuance of the Securities and the ownership,
disposition or voting of the Securities by the Investors or the exercise of any
right granted to the Investors pursuant to this Agreement or the other
Transaction Documents.

 

5.6.          Delivery of SEC Filings; Business.  Copies of the Company’s most recent Annual
Report on Form 10-K for the fiscal year ended December 31, 2002 (the “10-K”), and all other reports filed by
the Company pursuant to the 1934 Act since the filing of the 10-K and

 

15

 

prior to the date
hereof (collectively, the “SEC Filings”)
are available on EDGAR.  The SEC Filings
are the only filings required of the Company pursuant to the 1934 Act for such
period.  The Company and its
Subsidiaries are engaged only in the business described in the SEC Filings and
the SEC Filings contain a complete and accurate description in all material
respects of the business of the Company and its Subsidiaries, taken as a whole.

 

5.7.          No Material Adverse Change.  Except as identified and described in the
SEC Filings or as described on Schedule 5.7(a), since September 30,
2003, there has not been:

 

(i)            any change in the
consolidated assets, liabilities, financial condition or operating results of
the Company from that reflected in the financial statements included in the SEC
Filings, except for changes in the ordinary course of business which have not
and could not reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate;

 

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

 

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

 

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

 

(v)           any satisfaction or
discharge of any lien, claim or encumbrance or payment of any obligation by the
Company or a Subsidiary, except in the ordinary course of business and which is
not material to the assets, properties, financial condition, operating results,
prospects or business of the Company and its Subsidiaries taken as a whole;

 

(vi)          any change or
amendment to the Company’s Certificate of Incorporation or Bylaws, or material
change to any material contract or arrangement by which the Company or any
Subsidiary is bound or to which any of their respective assets or properties is
subject;

 

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

 

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

 

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

 

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

 

16

 

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

 

5.8.          SEC Filings.

 

(a)           At the time of filing thereof, the
SEC Filings complied as to form in all material respects with the requirements
of the 1934 Act and did not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.  The Company is not (with or
without the lapse of time or the giving of notice, or both) in breach or
default of any Material Contract and, to the Company’s Knowledge, no other
party to any Material Contract is (with or without the lapse of time or the
giving of notice, or both) in breach or default of any Material Contract.  Neither the Company nor any Subsidiary has
received any notice of the intention of any party to terminate any Material
Contract.

 

(b)           Each registration statement and any
amendment thereto filed by the Company since January 1, 2001 pursuant to the
1933 Act and the rules and regulations thereunder, as of the date such
statement or amendment became effective, complied as to form in all material
respects with the 1933 Act and did not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading; and each prospectus
filed pursuant to Rule 424(b) under the 1933 Act, as of its issue date and as
of the closing of any sale of securities pursuant thereto did not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.

 

5.9.          No Conflict, Breach, Violation or
Default.  The execution, delivery
and performance of the Transaction Documents by the Company and the issuance
and sale of the Securities will not conflict with or result in a breach or
violation of any of the terms and provisions of, or constitute a default under
(i) the Company’s Certificate of Incorporation or Bylaws, both as in effect on
the date hereof (true and accurate copies of which have been provided to the
Investors before the date hereof), or (ii)(a) any statute, rule, regulation or
order of any governmental agency or body or any court, domestic or foreign,
having jurisdiction over the Company, any Subsidiary or any of their respective
assets or properties, or (b) except as set forth on Schedule 5.9, any
agreement or instrument to which the Company or any Subsidiary is a party or by
which the Company or a Subsidiary is bound or to which any of their respective
assets or properties is subject.

 

5.10.        Tax Matters.  Each of the Company and each Subsidiary has
timely prepared and filed all tax returns required to have been filed by the
Company or such Subsidiary with all appropriate governmental agencies and
timely paid all taxes shown thereon or otherwise owed by it.  The charges, accruals and reserves on the
books of the Company in respect of taxes for all fiscal periods are adequate in
all material respects, and there are no material unpaid assessments against the
Company or any Subsidiary nor, to the Company’s Knowledge, any basis for the
assessment of any additional taxes, penalties or interest for any fiscal period
or audits by any federal, state or local taxing authority except for any
assessment which is not

 

17

 

material to the
Company and its Subsidiaries, taken as a whole.  All taxes and other assessments and levies that the Company or any
Subsidiary is required to withhold or to collect for payment have been duly
withheld and collected and paid to the proper governmental entity or third
party when due.  There are no tax liens
or claims pending or, to the Company’s Knowledge, threatened against the
Company or any Subsidiary or any of their respective assets or properties.  Except as described on Schedule 5.10,
there are no outstanding tax sharing agreements or other such arrangements
between the Company and any Subsidiary or other corporation or entity.  Neither the Company nor any Subsidiary is
presently undergoing any audit by a taxing authority, or has waived or extended
any statute of limitations at the request of any taxing authority.

 

5.11.        Title to Properties.  Except as disclosed in the SEC Filings or as
set forth on Schedule 5.11, the Company and each Subsidiary has good and
marketable title to all real properties and all other properties and assets
owned by it, in each case free from liens, encumbrances and defects that would
materially affect the value thereof or materially interfere with the use made
or currently planned to be made thereof by them; and except as disclosed in the
SEC Filings, the Company and each Subsidiary holds any leased real or personal
property under valid and enforceable leases with no exceptions that would
materially interfere with the use made or currently planned to be made thereof
by them.

 

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

 

5.13.        No Labor Disputes.  No material labor dispute with the employees
of the Company or any Subsidiary exists or, to the Company’s Knowledge, is
imminent.

 

5.14.        Intellectual Property.

 

(a)           All Intellectual Property of the
Company and its Subsidiaries is currently in compliance with all legal
requirements (including timely filings, proofs and payments of fees) and is
valid and enforceable.  Except as listed
on Schedule 5.14(a), no Intellectual Property of the Company or its
Subsidiaries which is necessary for the conduct of Company’s and each of its
Subsidiaries’ respective businesses as currently conducted or as currently
proposed to be conducted has been or is now involved in any cancellation,
dispute or litigation, and, to the Company’s Knowledge, no such action is
threatened.  Except as listed on Schedule
5.14(a), no patent of the Company or its Subsidiaries has been or is now
involved in any interference, reissue, re-examination or opposition proceeding.

 

(b)           All of the licenses and sublicenses
and consent, royalty or other agreements concerning Intellectual Property which
are necessary for the conduct of the Company’s and each of its Subsidiaries’
respective businesses as currently conducted or as currently proposed to be
conducted to which the Company or any Subsidiary is a party or by which any of
their assets are bound (other than  generally commercially available,
non-custom,

 

18

 

off-the-shelf
software application programs having a retail acquisition price of less than
$10,000 per license) (collectively, “License
Agreements”) are valid and binding obligations of the Company or
its Subsidiaries that are parties thereto and, to the Company’s Knowledge, the
other parties thereto, enforceable in accordance with their terms, except to
the extent that enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws
affecting the enforcement of creditors’ rights generally, and there exists no
event or condition which will result in a material violation or breach of or
constitute (with or without due notice or lapse of time or both) a default by
the Company or any of its Subsidiaries under any such License Agreement.

 

(c)           The Company and its Subsidiaries own
or have the valid right to use all of the Intellectual Property that is
necessary for the conduct of the Company’s and each of its Subsidiaries’
respective businesses as currently conducted or as currently proposed to be
conducted, free and clear of all liens, encumbrances, adverse claims or obligations
to license all such owned Intellectual Property and Confidential Information,
other than licenses entered into in the ordinary course of the Company’s and
its Subsidiaries’ businesses.  The
Company and its Subsidiaries have a valid and enforceable right to use all
third party Intellectual Property and Confidential Information used or held for
use in the respective businesses of the Company and its Subsidiaries as
currently conducted or as currently proposed to be conducted.

 

(d)           To the Company’s Knowledge, the
conduct of the Company’s and its Subsidiaries’ businesses as currently
conducted and as currently proposed to be conducted does not and will not
infringe any Intellectual Property rights of any third party or any
confidentiality obligation owed to a third party. To the Company’s Knowledge,
the Intellectual Property and Confidential Information of the Company and its
Subsidiaries which are necessary for the conduct of Company’s and each of its
Subsidiaries’ respective businesses as currently conducted or as currently
proposed to be conducted are not being infringed by any third party.  Except as set forth on Schedule 5.14(d),
there is no litigation or order pending or outstanding or, to the Company’s
Knowledge, threatened or imminent, that seeks to limit or challenge or that
concerns the ownership, use, validity or enforceability of any Intellectual
Property or Confidential Information of the Company and its Subsidiaries and
the Company’s and its Subsidiaries’ use of any Intellectual Property or Confidential
Information owned by a third party, and, to the Company’s Knowledge, there is
no valid basis for the same.

 

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

 

(f)            To the Company’s Knowledge, all
software owned by the Company or any of its Subsidiaries, and, to the Company’s
Knowledge, all software licensed from third parties by the Company or any of
its Subsidiaries, (i) is free from any material defect, bug, virus, or
programming, design or documentation error; (ii) operates and runs in a
reasonable and efficient business manner; and (iii) conforms in all material
respects to the specifications and purposes thereof.

 

19

 

(g)           The Company and its Subsidiaries have
taken reasonable steps to protect the Company’s and its Subsidiaries’ rights in
their Intellectual Property and Confidential Information.  Each employee, consultant and contractor who
has had access to Confidential Information which is necessary for the conduct
of Company’s and each of its Subsidiaries’ respective businesses as currently
conducted or as currently proposed to be conducted has executed an agreement to
maintain the confidentiality of such Confidential Information and has executed
appropriate agreements that are substantially consistent with the Company’s
standard forms therefor.  To the
Company’s Knowledge, there has been no material disclosure of any of the
Company’s or its Subsidiaries’ Confidential Information to any third party
without the Company’s consent.

 

5.15.        Environmental Matters.  Neither the Company nor any Subsidiary (i)
is in violation of any statute, rule, regulation, decision or order of any
governmental agency or body or any court, domestic or foreign, relating to the
use, disposal or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to hazardous or
toxic substances (collectively, “Environmental
Laws”), (ii) owns or operates any real property contaminated
with any substance that is subject to any Environmental Laws, (iii) is liable
for any off-site disposal or contamination pursuant to any Environmental Laws,
and (iv) is subject to any claim relating to any Environmental Laws; which
violation, contamination, liability or claim has had or could reasonably be
expected to have a Material Adverse Effect, individually or in the aggregate;
and there is no pending or, to the Company’s Knowledge, threatened
investigation that might lead to such a claim.

 

5.16.        Litigation.  Except as disclosed in the SEC Filings,
there are no pending actions, suits or proceedings against or affecting the
Company, its Subsidiaries or any of its or their properties; and to the
Company’s Knowledge, no such actions, suits or proceedings are threatened or
contemplated.

 

5.17.        Financial Statements.  The financial statements included in each
SEC Filing fairly present the consolidated financial position of the Company as
of the dates shown and its consolidated results of operations and cash flows
for the periods shown, and such financial statements have been prepared in
conformity with United States generally accepted accounting principles applied
on a consistent basis.  Except as set
forth in the financial statements of the Company included in the SEC Filings
filed prior to the date hereof, neither the Company nor any of its Subsidiaries
has incurred any liabilities, contingent or otherwise, except those which,
individually or in the aggregate, have not had or could not reasonably be
expected to have a Material Adverse Effect.

 

5.18.        Insurance Coverage.  The Company and each Subsidiary maintains in
full force and effect insurance coverage and the Company reasonably believes
such insurance coverage is adequate.

 

5.19.        Brokers and
Finders.  Except for the cash
commission to be paid (the “Cash Placement
Agent Fee”) to the Placement Agent pursuant to the terms of the
Placement Agent Agreement as disclosed in Schedule 5.19, no Person will have,
as a result of the transactions contemplated by this Agreement, any valid
right, interest or claim against or upon the Company, any Subsidiary or any
Investor for any commission, fee or other compensation

 

20

 

pursuant to any agreement, arrangement or understanding entered into by
or on behalf of the Company.

 

5.20.        No Directed Selling Efforts or
General Solicitation.  Neither the
Company nor any Affiliate, nor any Person acting on its behalf has conducted
any “general solicitation” or “general advertising” (as those terms are used in
Regulation D) in connection with the offer or sale of any of the Securities.

 

5.21.        No Integrated Offering.  Neither the Company nor any of its Affiliates,
nor any Person acting on its or their behalf has, directly or indirectly, made
any offers or sales of any Company security or solicited any offers to buy any
security, under circumstances that would adversely affect reliance by the
Company on Section 4(2) of the 1933 Act for the exemption from the registration
requirements imposed under Section 5 of the 1933 Act for the transactions
contemplated hereby or would require such registration the 1933 Act.

 

5.22.        Private Placement.  Subject to the accuracy of the
representations and warranties of (i) the Investors contained in Section 6
hereof and (ii) the Foreign Investor contained in Section 7 hereof, the
offer and sale of the Securities to the Investors as contemplated hereby is
exempt from the registration requirements of the 1933 Act.

 

5.23.        Questionable Payments. 
Neither the Company nor any of its Subsidiaries nor, to
the Company’s Knowledge, any of their respective current or former
stockholders, directors, officers, employees, agents or other Persons acting on
behalf of the Company or any Subsidiary, has on behalf of the Company or any
Subsidiary or in connection with their respective businesses: (a) used any
corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity; (b) made any direct or
indirect unlawful payments to any governmental officials or employees from
corporate funds; (c) established or maintained any unlawful or unrecorded fund
of corporate monies or other assets; (d) made any false or fictitious entries
on the books and records of the Company or any Subsidiary; or (e) made any
unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful
payment of any nature.

 

5.24.        Transactions with Affiliates.  Except as disclosed in SEC Filings made on
or prior to the date hereof, none of the officers or directors of the Company
or a Subsidiary and, to the Company’s Knowledge, none of the employees of the
Company is presently a party to any transaction with the Company or a
Subsidiary or to a presently contemplated transaction (other than for services
as employees, officers and directors) that would be required to be disclosed
pursuant to Item 404 of Regulation S-K promulgated under the 1933 Act, without
regard to the dollar thresholds contained in such Item.

 

5.25.        Scientific Disclosures.  The written scientific materials delivered
to the Lead Investor in connection with the transactions contemplated by the
Transaction Documents, as identified on Schedule 5.25, are true,
accurate and complete.

 

5.26         NASDAQ Compliance.  The Common Stock is registered pursuant to
Section 12(g) of the Exchange Act, and is listed on the NASDAQ SmallCap Market
(the “NASDAQ Stock Market”),
and the Company has taken no action designed to, or which to the

 

21

 

Company’s Knowledge is likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or delisting the Common
Stock from the NASDAQ Stock Market.  No
order ceasing or suspending trading in any securities of the Company or
prohibiting the issuance and/or sale of the Securities is in effect and no
proceedings for such purpose are pending or threatened.  The Company has received from NASDAQ a valid
exemption under NASD Rule 4350(i)(2) from NASD Rules 4350(i)(1) and 4351 with
respect to the issuance of all the Securities in the First Closing in
accordance with all of the terms and conditions of the Transaction Documents,
which exemption has been provided to the Lead Investor.

 

6.             Representations and Warranties of the Investors.  Except with respect to Sections 6.2, 6.3,
6.5, 6.6, 6.7 and 6.8, which shall not apply to the Foreign Investor, each of
the Investors hereby severally, and not jointly, represents and warrants to the
Company on and as of the Signing Date and on the applicable Closing Date,
knowing and intending that the Company rely thereon, that:

 

6.1.          Authorization.  The execution, delivery and performance by
the Investor of the Transaction Documents to which such Investor is a party
have been duly authorized and will each constitute the valid and legally
binding obligation of the Investor, enforceable against the Investor in
accordance with their respective terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability,
relating to or affecting creditors’ rights generally.

 

6.2.          Purchase Entirely for Own Account.  The Securities to be received by the
Investor hereunder will be acquired for the Investor’s own account, not as
nominee or agent, and not with a view to the resale or distribution of any part
thereof in violation of the 1933 Act, and the Investor has no present intention
of selling, granting any participation in, or otherwise distributing the same
in violation of the 1933 Act.  The
Investor is not a registered broker dealer or an entity engaged in the business
of being a broker dealer.

 

6.3.          Investment Experience.  The Investor acknowledges that it can bear
the economic risk and complete loss of its investment in the Securities and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment contemplated
hereby.  The Investor is
experienced in making private investments, similar to the purchase of the
Securities hereunder.

 

6.4.          Disclosure of Information.  The Investor has had an opportunity to
receive all additional information related to the Company requested by it and
to ask questions of and receive answers from the Company regarding the Company,
its business and the terms and conditions of the offering of the
Securities.  The Investor acknowledges
receipt of copies of and its satisfactory review of the SEC Filings.  Neither such inquiries nor any other due
diligence investigation conducted by the Investor shall modify, amend or affect
the Investor’s right to rely on the Company’s representations and warranties
contained in this Agreement.

 

6.5.          Restricted Securities.  The Investor understands that the Securities
are characterized as “restricted securities” under the U.S. federal securities
laws inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that

 

22

 

under such laws
and applicable regulations such securities may be resold without registration
under the 1933 Act only in certain limited circumstances.

 

6.6.          Legends.

 

(a)           It is understood that, except as
provided below, certificates evidencing such Securities may bear the following
or any similar legend:

 

“THE SECURITIES
REPRESENTED HEREBY MAY NOT BE TRANSFERRED UNLESS (I) SUCH SECURITIES HAVE BEEN
REGISTERED FOR SALE PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, OR (II)
THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO IT THAT SUCH
TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF
1933 OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS.”

 

(b)           If required by the authorities of any
state in connection with the issuance of sale of the Securities, the legend
required by such state authority.

 

(c)           From and after the earlier of (i) the
registration of the Preferred Shares and the Warrant Shares for resale pursuant
to the Registration Rights Agreement and (ii) the time when such Securities may
be transferred pursuant to Rule 144(k) of the 1933 Act, the Company shall, upon
an Investor’s written request, promptly cause certificates evidencing such
Securities to be replaced with certificates which do not bear such restrictive
legends.   When the Company is required
to cause unlegended certificates to replace previously issued legended
certificates, if unlegended certificates are not delivered to an Investor
within three (3) Business Days of submission by that Investor of legended
certificate(s) to the Company’s transfer agent together with a representation
letter in customary form, the Company shall be liable to the Investor for
liquidated damages equal to 1.5% of the aggregate purchase price of the
Securities evidenced by such certificate(s) for each 10-day period (or portion
thereof) beyond such three (3) Business Day-period that the unlegended
certificates have not been so delivered.

 

6.7.          Accredited Investor.  The Investor is an “accredited investor” as
defined in Rule 501(a) of Regulation D, as amended, under the 1933 Act.

 

6.8.          No General Solicitation.  The Investor did not learn of the investment
in the Securities as a result of any “general advertising” or “general
solicitation” as those terms are contemplated in Regulation D, as amended,
under the 1933 Act.

 

6.9.          Brokers and Finders.  No Person will have, as a result of the
transactions contemplated by this Agreement, any valid right, interest or claim
against or upon the Company, any Subsidiary or any other Investor for any
commission, fee or other compensation pursuant to any agreement, arrangement or
understanding entered into by or on behalf of the Investor.

 

7.             Representations and Warranties of the Foreign
Investor.  The Foreign Investor
hereby represents and warrants to the Company on and as of the Signing Date and
on the

 

23

 

applicable Closing
Date, knowing and intending that the Company rely thereon, that:

 

7.1           Purchase for Own Account.  This Agreement is made with the Foreign
Investor in reliance upon the Foreign Investor’s representation to the Company,
which by the Foreign Investor’s execution of this Agreement the Foreign
Investor hereby confirms, that Securities to be received by the Foreign Investor
will be acquired for investment for the Foreign Investor’s own account, not as
a nominee or agent, and not with a view to the sale or distribution of any part
thereof, and that the Foreign Investor has no present intention of selling,
granting any participation in, or otherwise distributing the same.  By executing this Agreement, the Foreign
Investor further represents that the Foreign Investor has no contract,
undertaking, agreement or arrangement with any person to sell, transfer, or
grant participations to such person or to any third person, with respect to any
of the Securities.

 

7.2           Non-U.S. Person. The Foreign Investor represents that it is not
a “U.S. Person” (as defined under Regulation S) and that the Securities to be
purchased by the Foreign Investor will be acquired for investment for the
Foreign Investor’s own account, not as a nominee or agent, and not for the
account or benefit of, a U.S. Person, and not with a view to the resale or
distribution of any part thereof in the United States and that the Foreign
Investor has no present intention of selling, granting any participation in, or
otherwise distributing the same.

 

7.3           No Contracts.       The Foreign Investor represents that it
does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to such person or to any third
person in the United States or to a U.S. Person, or any hedging transaction
with any third person in the United States or to a United States resident, with
respect to any of the Securities.

 

7.4           Restricted Securities.           The Foreign Investor understands that
the Securities are not registered under the Securities Act on the ground that
the sale provided for in the Agreement and the issuance of Securities
thereunder is exempt from registration under the Securities Act pursuant to
Regulation S thereof, and that the Company’s reliance on such exemption is
predicated on the Investors’ representations set forth herein.  The Foreign Investor hereby agrees to resell
the Securities only in accordance with the provisions of Regulation S, pursuant
to registration under the 1933 Act, or pursuant to an exemption from
registration.  The Foreign Investor
further agrees not to engage in hedging transactions with regard to such
Securities unless in compliance with the Securities Act.

 

7.5           Foreign Securities Laws.  The Foreign Investor hereby represents that
it has satisfied itself as to the full observance of all applicable securities
laws of its jurisdiction of organization or incorporation in connection with
any invitation to subscribe for or to purchase the Securities under this
Agreement.

 

7.6           Legends.                The Foreign Investor has been
informed, and it understands and agrees that a legend substantially similar to
the one set forth below will be placed on the certificates for the Securities
and stop transfer instructions will be placed with the transfer agent of the
Securities:

 

24

 

“THE SHARES
REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF ANY STATES
IN THE UNITED STATES.  THESE SECURITIES
ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES
LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF THESE
SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY
TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN
COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.  FURTHER, THESE SECURITIES MAY NOT BE OFFERED
OR SOLD WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF U.S.  PERSONS (AS DEFINED IN REGULATION S UNDER
THE ACT) (I) AS PART OF THEIR DISTRIBUTION AT ANYTIME OR (II) OTHERWISE UNTIL
THE EXPIRATION OF THE APPLICABLE RESTRICTED PERIOD AS DETERMINED IN ACCORDANCE
WITH REGULATION S, EXCEPT IN EITHER CASE IN ACCORDANCE WITH REGULATIONS UNDER
THE ACT.  IN ADDITION, NO HEDGING
TRANSACTION MAY BE CONDUCTED WITH RESPECT TO THESE SHARES UNLESS SUCH
TRANSACTIONS ARE IN COMPLIANCE WITH THE ACT.”

 

7.7           Investment Experience.  The Foreign Investor acknowledges that it
can bear the economic risk and complete loss of its investment in the
Securities and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of the investment
contemplated hereby.

 

8.             Conditions to Closing.

 

8.1.          Conditions to the Investors’
Obligations. The obligation of the Investors to purchase the Securities at
Closing is subject to the fulfillment to the Lead Investor’s satisfaction, on
or prior to the relevant Closing Date, of the following conditions, any of
which may be waived in writing by the Lead Investor:

 

(a)           The representations and warranties
made by the Company in Section 5 hereof that are qualified as to
materiality shall be true and correct in all respects, and those not so
qualified shall be true and correct in all material respects, at all times
prior to and on the applicable Closing Date, in each case except for breaches
as to matters that, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect. 
The Company shall have performed in all material respects all
obligations herein required to be performed or observed by it on or prior to
the relevant Closing Date, in each case except where the failure, individually
or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect;

 

25

 

(b)           The Company shall have obtained in a
timely fashion any and all consents, permits, approvals, registrations and
waivers necessary or appropriate for consummation of the purchase and sale of the
Securities then being issued and sold, and all of which shall be and remain so
long as necessary in full force and effect, including without limitation, in
the case of the Second Closing only, the Stockholder Approval;

 

(c)           The Company shall have executed and
delivered a counterpart to the Registration Rights Agreement to the Lead
Investor;

 

(d)           No judgment, writ, order, injunction,
award or decree of or by any court, or judge, justice or magistrate, including
any bankruptcy court or judge, or any order of or by any governmental
authority, shall have been issued, and no action or proceeding shall have been
instituted by any governmental authority, or self-regulatory organization
enjoining or preventing the consummation of the transactions contemplated hereby
or in the other Transaction Documents;

 

(e)           The Company shall have delivered a
Certificate, executed on behalf of the Company by its Chief Executive Officer
or its Chief Financial Officer, dated as of the Closing Date, certifying to the
fulfillment of the conditions specified in subsections (a), (b), (d) and (h) of
this Section 8.1;

 

(f)            The Company shall have delivered a
Certificate, executed on behalf of the Company by its Secretary, dated as of
the Closing Date, certifying the resolutions adopted by the Board of Directors
of the Company approving the transactions contemplated by this Agreement and
the other Transaction Documents and the issuance and sale of the Securities,
certifying the current versions of the Certificate of Incorporation and Bylaws
of the Company and certifying as to the signatures and authority of persons
signing the Transaction Documents and all related documents on behalf of the
Company;

 

(g)           The Investors shall have received the
applicable CG Opinion;

 

(h)           No stop order or suspension of
trading shall have been imposed by any Person with respect to public trading in
the Common Stock;

 

(i)            The Company shall have delivered
evidence satisfactory to the Lead Investor of the filing of the Certificate of
Designations with the Secretary of State of the State of Delaware;

 

(j)            The Escrow Amount shall, as of the
First Closing, equal or exceed the Investment Amount;

 

(k)           The Lead Investor shall have received
a lock-up and voting agreement, in the form of Exhibit E, annexed hereto and made a part hereof, duly
executed by each of the Persons identified in Schedule 8.1(k);

 

(l)            10 calendar days shall have elapsed
from the date the Company mailed the Exemption Notice to its stockholders in
accordance with Section 9.16;

 

26

 

(m)          The Rights Plan Termination shall have
been approved by the Company’s Board of Directors, the Company shall have taken
all of the steps specified in Section 23(c) or Section 23(d) of the Rights
Plan, and the Company shall have entered into a written agreement with the
Rights Agent (as defined in the Rights Plan) providing for the termination of
the Rights Plan immediately, without further action or deed, upon completion of
the redemption procedures specified in Section 23 of the Rights Plan.

 

8.2.          Conditions to Obligations of the
Company. The Company’s obligation to sell and issue the Securities at
Closing is subject to the fulfillment to the satisfaction by the Company on or
prior to the relevant Closing Date of the following conditions, any of which
may be waived in writing by the Company:

 

(a)           The representations and warranties
made by the Investors in Section 6 hereof shall be true and correct in
all material respects when made, and shall be true and correct in all material respects
on the relevant Closing Date with the same force and effect as if they had been
made on and as of said date.

 

(b)           The Investors shall have executed and
delivered the Registration Rights Agreement to the Company.

 

(c)           Each of the Investors shall have
delivered to Lead Investor Counsel the “Aggregate
Purchase Price” set forth opposite such Investor’s name on Schedule I and Schedule II affixed hereto.

 

(d)           No judgment, writ, order, injunction,
award or decree of or by any court, or judge, justice or magistrate, including
any bankruptcy court or judge, or any order of or by any governmental
authority, shall have been issued, and no action or proceeding shall have been
instituted by any governmental authority, or self-regulatory organization
enjoining or preventing the consummation of the transactions contemplated
hereby or in the other Transaction Documents.

 

9.             Covenants and Agreements of the Company.

 

9.1.          Reservation of Common Stock.  The Company shall at all times reserve and
keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of providing for the conversion of the Preferred Stock
and the exercise of the Warrants, such number of shares of Common Stock as
shall from time to time equal the number of shares sufficient to permit the
conversion of the Preferred Stock and the exercise of the Warrants issued
pursuant to this Agreement in accordance with their respective terms, without
regard to any exercise limitations contained therein.

 

9.2.          Reports.  The Company will furnish to the Investors
and/or their assignees such information relating to the Company and its
Subsidiaries as from time to time may reasonably be requested by any Investor
and/or their assignees; provided, however, that the Company shall
not disclose material nonpublic information to the Investors, or to advisors to
or representatives of the Investors, unless prior to disclosure of such
information the Company

 

27

 

identifies such
information as being material nonpublic information and provides the Investors,
such advisors and representatives, with the opportunity to accept or refuse to
accept such material nonpublic information for review and any Investor wishing
to obtain such information enters into an appropriate confidentiality agreement
with the Company with respect thereto.

 

9.3.          No Conflicting Agreements.  The Company will not take any action, enter
into any agreement or make any commitment that would conflict or interfere in
any material respect with the obligations to the Investors under the
Transaction Documents.

 

9.4.          Insurance.  The Company shall not materially reduce the
insurance coverages described in Section 5.18.

 

9.5.          Compliance with Laws.  The Company will comply in all material respects
with all applicable laws, rules, regulations, orders and decrees of all
governmental authorities, except to the extent non-compliance would not have a
Material Adverse Effect.

 

9.6.          Termination of Certain Covenants.  The provisions of Sections 9.2 through
9.5 shall terminate and be of no further force and effect upon the date
on which the Company’s obligations under the Registration Rights Agreement to
register and maintain the effectiveness of any registration covering the
Registrable Securities (as such term is defined in the Registration Rights
Agreement) shall terminate.

 

9.7.          Proxy Statement; Stockholders
Meeting.   (a) Promptly following
the execution and delivery of this Agreement, the Company shall take all action
necessary to call a meeting of its stockholders (the “Stockholders Meeting”), which shall
occur not later than the sixtieth (60th) day following the Signing
Date (the “Stockholders Meeting Deadline”)
for the purpose of seeking approval of the Company’s stockholders for the
issuance and sale to the Investors of the Securities (the “Proposal”) to be issued and sold at the
Second Closing.  In connection
therewith, the Company will promptly prepare proxy materials (including a proxy
statement and form of proxy) and, after providing the Lead Investor and Lead
Investor Counsel with an opportunity to review and comment on such proxy
materials, file with the SEC such proxy materials for use at the Stockholders
Meeting and, after receiving and promptly responding to any comments of the SEC
thereon, shall promptly mail such proxy materials to the stockholders of the
Company.  Prior to responding to any
comments of the SEC on such proxy materials, the Company shall furnish to the
Lead Investor and Lead Investor Counsel a copy of any correspondence from the
SEC relating the proxy materials and the proposed response to the SEC’s
comments and provide the Lead Investor and Lead Investor Counsel with the
opportunity to review and comment on such proposed response to the SEC.  Each Investor shall promptly furnish in
writing to the Company such information relating to such Investor and its
investment in the Company as the Company may reasonably request for inclusion
in the Proxy Statement (as defined below). 
The Company will comply with Section 14(a) of the 1934 Act and the rules
promulgated thereunder in relation to any proxy statement (as amended or
supplemented, the “Proxy Statement”)
and any form of proxy to be sent to the stockholders of the Company in
connection with the Stockholders Meeting, and the Proxy Statement shall not, on
the date that the Proxy Statement (or any amendment thereof or supplement
thereto) is first mailed to stockholders or at the time of the Stockholders
Meeting, contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made

 

28

 

therein not false or misleading, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies or the Stockholders Meeting which has become false
or misleading.  If the Company should
discover at any time prior to the Stockholders Meeting, any event relating to
the Company or any of its Subsidiaries or any of their respective Affiliates,
officers or directors that is required to be set forth in a supplement or
amendment to the Proxy Statement, in addition to the Company’s obligations
under the 1934 Act, the Company will promptly inform the Investors thereof.

 

(b)           Subject to the provisions of Section
9.15, the Company’s Board of Directors shall recommend to the Company’s
stockholders (and, subject to the provisions of Section 9.15, not revoke
or amend such recommendation) that the stockholders vote in favor of the Proposal
and shall cause the Company to take all commercially reasonable action
(including, without limitation, the hiring of a proxy solicitation firm of
nationally recognized standing) to solicit the approval of the stockholders for
the Proposal.  Whether or not the
Company’s Board of Directors determines at any time after the date hereof that,
due to its fiduciary duties, it must revoke or amend its recommendation to the
Company’s stockholders, the Company shall be required to, and will take, in
accordance with applicable law and its Certificate of Incorporation and Bylaws,
all action necessary to convene the Stockholders Meeting as promptly as
practicable, but no later than the Stockholders Meeting Deadline, to consider
and vote upon the approval of the Proposal.

 

9.8           Lead Investor Directors.

 

(a)           From and after the Closing until the
Lead Investor no longer owns at least eighty thousand (80,000) shares of
Preferred Stock (appropriately adjusted for any stock dividend, stock split,
reverse stock split, reclassification, stock combination or other
recapitalization occurring after the date hereof), the Lead Investor shall have
the right to designate two (2) members to the Company’s Board of Directors (the
“Lead Investor Directors”).  The
Company shall use its best efforts to cause the Lead Investor Directors to be
elected to the Company’s Board of Directors. 
The Lead Investor shall have the right to remove or replace either of
the Lead Investor Directors by giving notice to such Lead Investor Director and
the Company, and the Company shall use its best efforts to effect the removal
or replacement of any such Lead Investor Director.

 

(b)           Subject to any limitations imposed by
applicable law, the Lead Investor Directors shall be entitled to the same
perquisites, including stock options, reimbursement of expenses and other
similar rights in connection with such person’s membership on the Board of
Directors of the Company, as every other non-employee member of the Board of
Directors of the Company.

 

9.9           Affirmative Covenants. 
From and after the Signing Date until the earliest to occur of (i) the
Second Closing and (ii) the Escrow Termination Date (after taking into account
any extensions of the Escrow Termination Date)(each of (i) and (ii), a “Covenant Expiration Event”), the
Company shall (and shall cause its Subsidiaries to):

 

(a)           use its best efforts to consummate
the First Closing and the Second Closing on or before the Escrow Termination
Date;

 

29

 

(b)           use its best efforts to keep in full
force and effect its corporate existence and all material rights, franchises,
intellectual property rights and goodwill relating or pertaining to its
businesses;

 

(c)           conduct its operations only in the
ordinary course of business consistent with past practice;

 

(d)           maintain its books, accounts and
records in accordance with past practice or as required by generally accepted
accounting principles;

 

(e)           duly pay and discharge, or cause to
be paid and discharged, before the same shall become overdue, all taxes,
assessments and other governmental charges imposed upon it and its properties
(real and personal), sales and activities, or any part thereof, or upon the
income or profits therefrom, as well as all claims for labor, materials, or supplies
that if unpaid could reasonably be expected to by law become a lien on any of
its property; provided that any such tax, assessment, charge, levy or claim
need not be paid if the validity or amount thereof shall currently be contested
in good faith by appropriate proceedings and if the Company or any Subsidiary
shall have set aside on its books adequate reserves with respect thereto in
accordance with generally accepted accounting principals, consistently applied;
and provided, further that it pay all such taxes, assessments, charges, levies
or claims forthwith upon the commencement of proceedings to foreclose any lien
or other encumbrance that may have attached as security therefore;

 

(f)            use its best efforts to obtain all
authorizations, consents, waivers, approvals (including without limitation the
Stockholder Approval) or other actions and to make all filings and applications
necessary or desirable to consummate the transactions contemplated hereby and
to cause the conditions to the 
obligation to close to be satisfied;

 

(g)           promptly notify the Investors in
writing if, to the Company’s Knowledge, (i) any of the representations and
warranties (together with the Disclosure Schedules) made by it herein or in any
of the other Transaction Document cease to be accurate and complete in all
material respects, or (ii) it fails to comply with or satisfy any material
covenant, condition or agreement to be complied with or satisfied by it
hereunder or under any other Transaction Document;

 

(h)           give notice to the Investors in
writing within three (3) days of becoming aware of any litigation or
proceedings threatened in writing against the Company or any of its
Subsidiaries or any pending litigation and proceedings affecting the Company or
any of its Subsidiaries or to which any of them is or becomes a party involving
a claim against any of them that could reasonably be expected to result in a
Material Adverse Effect, stating the nature and status of such litigation or
proceedings, provided, however, that the Investors shall not be
provided with material non-public information without their express prior
written consent;

 

(i)            promptly notify the Investors in
writing of the occurrence of any breach of any term of this Agreement; and

 

(j)            comply in all
material respects with (i) the applicable laws and regulations wherever its
business is conducted, (ii) the provisions of its Certificate of Incorporation
and

 

30

 

Bylaws, (iii) all material agreements by which the Company, its
Subsidiaries or any of their respective properties may be bound, and (iv) all
applicable decrees, orders, and judgments.

 

9.10         Negative
Covenants.  From and
after the Signing Date until the occurrence of a Covenant Expiration Event,
without the prior written consent of the Lead Investor, the Company shall not
(and shall cause its respective 
Subsidiaries not to):

 

(a)           take any action that
would likely result in the representations and warranties set forth herein
(other than representations made as of a particular date) becoming false or
inaccurate in any material respect (or, as to representations and warranties,
which, by their terms, are qualified as to materiality, becoming false or
inaccurate in any respect);

 

(b)           take or omit to be taken any action,
or permit any of its Affiliates to take or to omit to take any action, which
would reasonably be expected to result in a Material Adverse Effect;

 

(c)           subject to Section
9.15, directly or indirectly, merge or consolidate with any Person, or
sell, transfer, lease or otherwise dispose of all or any substantial portion of
its assets in one transaction or a series of related transactions,

 

(d)           except for the
filing of the Certificate of Designations, amend, alter or modify, its
Certificate of Incorporation or Bylaws, or change its jurisdiction of
organization, structure, status or existence, or liquidate or dissolve itself;

 

(e)           (i) other than to increase the salary
of the Company’s Chief Executive Officer to an amount equal to or less than
$275,000 per year,  increase the compensation or benefits payable or to
become payable to its directors, officers or employees other than pursuant to
the terms of any agreement as in effect on the Signing Date, provided, that the
Company shall not pay any back-salary, deferred compensation or previously
reduced salary to the Company’s Chief Executive Officer, (ii) pay any
compensation or benefits not required by any existing plan or arrangement
(including the granting of stock options, stock appreciation rights, shares of
restricted stock or performance units) or grant any severance or termination
pay to (except pursuant to existing agreements, plans or policies), or enter
into any employment or severance agreement with, any director, officer or other
employee, or (iii) establish, adopt, enter into, amend or take any action
to accelerate rights under any collective bargaining, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
savings, welfare, deferred compensation, employment, termination, severance or
other employee benefit plan, agreement, trust, fund, policy or arrangement for
the benefit or welfare of any directors, officers or current or former
employees, except in each case to the extent required by applicable law;

 

(f)            make any loans to its directors,
officers or stockholders;

 

(g)           waive, release, assign, settle or
compromise any material rights, claims or litigation;

 

31

 

(h)           create, incur, assume or suffer to
exist, or increase the amount of, any liability for borrowed money, directly or
indirectly other than: (i) indebtedness existing on the date hereof, consisting
of the Carpenter Debenture and the SF Debentures; (ii) the SF Capital Bridge;
and (iii) purchase money indebtedness of the Company (including, without
limitation, capital leases to the extent secured by purchase money security
interests in equipment acquired pursuant thereto);

 

(i)            assume, endorse, be or become liable
for or guaranty the obligations of any other Person;

 

(j)            directly or indirectly, pay any
dividends or distributions on, or purchase, redeem or retire, any shares of any
class of its capital stock or other equity interests or any securities
convertible into capital stock, whether now or hereafter outstanding, or make
any payment on account of or set apart assets for a sinking or other analogous
fund for, the purchase, redemption, defeasance, retirement or other acquisition
of its capital stock or other equity interests, or make any other distribution in
respect thereof, either directly or indirectly, whether in cash or property or
in obligations of the Company or any of its Subsidiaries;

 

(k)           enter into any transaction with any
Affiliates or its or any of its Affiliate’s equity holders, directors, officers,
employees (including upstreaming and downstreaming of cash and intercompany
advances and payments) in an amount in excess of $25,000 in the aggregate or
amend any material provision of any agreement with any Affiliate, or waive any
material right of the Company or any Subsidiary under any such agreement;

 

(l)            at any time create any direct or
indirect Subsidiary, enter into any joint venture or similar arrangement or
become a partner in any general or limited partnership or enter into any
management contract permitting third party management rights with respect to
the business of the Company or any of its Subsidiaries;

 

(m)          cancel any liability or debt owed to
it, except for consideration equal to or exceeding the outstanding balance of
such liability or debt, and in any event, in the ordinary course of business;

 

(n)           create, incur, assume or suffer to
exist, any lien, charge or other encumbrance on any of their or its respective
properties or assets now owned or hereafter acquired;

 

(o)           make any changes in any of its
business objectives, purposes, or operations or engage in any business other
than that presently engaged in or presently proposed to be engaged in by the
Company;

 

(p)           issue any capital stock or any
security or instrument which, pursuant to its terms, may be converted,
exercised or exchanged for capital stock, other than upon the conversion or
exercise of any presently outstanding options, warrants or convertible
securities; or

 

(q)           enter into an agreement to do any of
the foregoing.

 

32

 

9.11.        No Solicitation or Negotiation.  Subject to Section 9.15, the Company
agrees that from and after the Signing Date until the occurrence of a Covenant
Expiration Event, neither the Company, nor any of its Subsidiaries, Affiliates,
officers, directors, representatives or agents will: (1) solicit, initiate,
consider, encourage or accept any other proposals or offers from any Person (i)
relating to any acquisition or purchase of all or any portion of the capital
stock of the Company or assets of the Company, or (ii) to enter into any
merger, consolidation, reorganization, or other business combination with the
Company (each of the events described in clauses (i) and (ii) an “Alternative Transaction”), or (2)
participate in any discussions, conversations, negotiations or other
communications regarding, or furnish to any other Person any information with
respect to, or otherwise cooperate in any way, assist or participate in,
facilitate or encourage any effort or attempt by any other Person to seek to do
any Alternative Transaction.  The
Company shall immediately cease and cause to be terminated all existing
discussions, conversations, negotiations and other communications with any
Persons conducted heretofore with respect to any of the foregoing.  The Company shall notify the Investors
promptly if any such proposal or offer, or any inquiry or other contact with
any Person with respect thereto, is made and shall, in any such notice to the
Investors, indicate in reasonable detail the identity of the Person making such
proposal, offer, inquiry or contact and the terms and conditions of such
proposal, offer, inquiry or other contact. 
The Company agrees not to, without the prior written consent of the
Requisite Holders, release any Person from, or waive any provision of, any
confidentiality or standstill agreement to which it is a party.  For the purposes of clarification, joint
ventures or other similar collaborative transactions with non-financial
participants which are not primarily intended to raise capital shall not be
deemed an Alternative Transaction.

 

9.12.        Listing.  The Company shall promptly following the
date hereof secure and maintain the listing of the Preferred Shares and the
Warrant Shares upon each securities exchange or quotation system upon which the
Common Stock is then listed, so that as of the relevant Closing Date such
Preferred Shares and Warrant Shares shall have been authorized for listing on
the relevant securities exchange or quotation system.

 

9.13.        Use of Proceeds.  Except for repayment of the principal and
accrued interest of the SF Capital Bridge, the proceeds of the sale of the
Preferred Stock and the Warrants hereunder shall not be used by the Company for
capital expenditures in excess of 105% of the aggregate amount of capital
expenditures specified in the business plan of the Company, dated January 27,
2004 (a copy of which business plan has been provided to all Investors prior to
the Signing Date); provided, however, the Company may expend more
than 105% of the aggregate amount of capital expenditures specified in such
business plan with the prior approval of the Board.

 

9.14.        Other Covenants.   For as long as the Investors own at least
Two Hundred Thousand (200,000) shares of Preferred Stock (appropriately
adjusted for any stock dividend, stock split, reverse stock split,
reclassification, stock combination or other recapitalization occurring after
the date hereof), the Company shall not, without the prior written consent of
the Lead Investor, (i) pay more than Seven Hundred Fifty Thousand Dollars
($750,000) per annum for rental and maintenance of its facilities in Mountain
View, California and (ii) enter into any real property lease with a term in
excess of five (5) years.

 

33

 

9.15.        Fiduciary Obligations of the Board of
Directors; Termination Fee. 
(a)  Notwithstanding the
provisions of Section 9.10(c) and 9.11, nothing in this Agreement will
prohibit the Company or its Board of Directors from taking any of the following
actions if the Company’s Board of Directors determines in good faith, after
consultation with and the receipt of written legal advice from its outside
legal advisors that the failure to take such an action would be inconsistent
with the fiduciary duties of the Company’s Board of Directors to the Company’s
stockholders: (i) providing public or non-public information in response
to a request therefor by a Third Party (as defined below) who has made an
unsolicited bona fide written Acquisition Proposal (as defined below), so long
as the Company’s Board of Directors receives from such Third Party an executed
confidentiality agreement with customary confidentiality provisions, (ii)
engaging in negotiations or discussions with such a Third Party who has made an
unsolicited bona fide written Acquisition Proposal, (iii) approving such
an Acquisition Proposal, or recommending such an Acquisition Proposal to the
shareholders of the Company, or entering into a definitive agreement with
respect to such Acquisition Proposal, or (iv) failing to make the
recommendation referred to in Section 9.7(b), or withdrawing,
amending, modifying or changing such recommendation, following the receipt of
such an Acquisition Proposal; provided that in the case of the actions
described in clauses (iii) and (iv), the Company shall provide prompt written
notice (within one (1) Business Day) to each of the Investors (a “Notice of Acquisition Proposal”)
advising each of the Investors of such action and specifying the material terms
and conditions of any Acquisition Proposal and identifying the person or group
making any Acquisition Proposal.  The
Requisite Investors shall, within ten (10) Business Days after the receipt
of the Notice of Acquisition Proposal by all of the Investors, have a right to
terminate this Agreement.  In addition, in the case of the
actions described in clauses (iii) and (iv) above, the Company shall have the
right to terminate this Agreement upon five (5) Business Days prior written
notice to each of the Investors.

 

(b)  The Company will notify each of the
Investors promptly in writing (within one (1) Business Day) if any inquiries,
proposals or offers with respect to an Acquisition Proposal are received by,
any information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with the Company after the date hereof,
and, as part of such notification, shall disclose to each of the Investors the
identity of the Person making such inquiry, proposal or offer and the substance
of such inquiry, proposal or offer in reasonable detail and will keep the
Investors informed of any developments with respect thereto immediately upon
the occurrence thereof.

 

(c)  As used in this Agreement, the term “Acquisition Proposal” means (i) a
transaction pursuant to which any Person (or “group” of Persons as such term is
defined under Section 13(d) of the 1934 Act) other than the Investors (a “Third Party”) acquires 25% or more of
the outstanding shares of Company Common Stock, (ii) a merger or other business
combination involving the Company pursuant to which any Third Party acquires
securities representing 25% or more of the aggregate voting power of all
outstanding securities of the Company surviving the merger or business
combination or (iii) any other transaction pursuant to which any Third Party
acquires control of assets of the Company having a fair market value equal to
25% or more of the fair value of all of the assets of the Company immediately
prior to such a transaction; provided, however, that the term
“Acquisition Proposal” does not include the Private Placement and the other
transactions contemplated by this Agreement.

 

34

 

(d)           If this Agreement is terminated by
the Requisite Holders or the Company pursuant to Section 9.15(a) hereof
then the Company shall pay, within two (2) Business Days following such
termination, to each of the Investors (i) liquidated damages in the amount
equal to seven percent (7%) of the “Aggregate Purchase Price” set forth on such
Investor’s signature page affixed hereto (it being specifically agreed that
such amount represents liquidated damages and not a penalty)  (the
“Termination Fee”) and (ii)
all fees and expenses required by Section 11.5. The parties hereto
acknowledge and agree that the Termination Fee is an integral element of the
transactions contemplated by this Agreement, and the Investors would not have
entered into this Agreement without the termination fee provisions in this Section
9.15, including the agreed upon amount of the Termination Fee.  For purposes of clarification, no
Termination Fee shall be payable by the Company if the Second Closing shall
fail to occur solely as a result of a failure to obtain Stockholder Approval as
contemplated by Section 9.7.

 

9.16         Nasdaq Exemption Notice.  As promptly as practicable, and in no event
more than three Business Days after the Signing Date, in compliance with NASD
Rule 4350(i)(2), the Company shall cause to be mailed to all of the Company’s
stockholders, at the Company’s expense, a written notice, in form and substance
reasonably satisfactory to the Lead Investor (the “Exemption Notice”), alerting such
stockholders to the Company’s omission to seek the stockholder approval that
would otherwise be required in connection with the First Closing by virtue of
the exemption described in Section 5.26, and indicating that the audit
committee of the Company’s Board of Directors has expressly approved the First
Closing and the Company’s request to the Nasdaq Stock Market for the exemption in
connection therewith.

 

9.17         Rights Plan Termination.  The Rights Plan and all rights provided to
the Company’s stockholders thereunder shall be terminated by the Company’s
Board of Directors (the “Rights Plan
Termination”) within 10 calendar days after the Signing
Date.  The Rights Plan Termination shall
be effected by (a) the Company in accordance with Section 23(b)(i) of the Right
Plan, pursuant to which the Company shall redeem all of the “Rights” (as
defined in the Rights Plan) in accordance with Section 23(c) and/or Section
23(d) of the Rights Plan, and (b) the Company entering into a written agreement
with the Rights Agent providing for the termination of the Rights Plan
immediately, without further action or deed, upon completion of the redemption procedures
specified in Section 23 of the Rights Plan.

 

10.           Survival and Indemnification.

 

10.1.        Survival.  All representations, warranties, covenants
and agreements contained in this Agreement shall be deemed to be
representations, warranties, covenants and agreements as of the date hereof and
shall survive the Closing Date until the third anniversary thereof; provided,
however, that the provisions contained in: (a) Sections 3.2 and 5.4
hereof shall survive indefinitely; and (b) Sections 5.10 and 5.15
shall survive until 90 days after the applicable statute of limitations.  Notwithstanding the foregoing, all
representations, warranties, covenants and agreements contained in this
Agreement shall expire and have no further force and effect in the event that the
Agreement is terminated pursuant to Section 9.15 hereof.

 

10.2.        Indemnification.  The Company agrees to indemnify and hold
harmless, each Investor and its Affiliates and the directors, officers,
employees and agents of each Investor

 

35

 

and its
Affiliates, from and against any and all losses, claims, damages, liabilities
and expenses (including without limitation reasonable attorney fees and
disbursements and other expenses incurred in connection with investigating,
preparing or defending any action, claim or proceeding, pending or threatened
and the costs of enforcement hereof) (collectively, “Losses”) to which such Person may
become subject as a result of any breach of representation, warranty, covenant or
agreement made by, or to be performed on the part of, the Company under the
Transaction Documents, and will reimburse any such Person for all such amounts
as they are incurred by such Person.

 

10.3.        Conduct of Indemnification
Proceedings.  Promptly after receipt by any
Person (the “Indemnified Person”)
of notice of any demand, claim or circumstances which would or might give rise
to a claim or the commencement of any action, proceeding or investigation in
respect of which indemnity may be sought pursuant to Section 10.2, such
Indemnified Person shall promptly notify the Company in writing and the Company
shall assume the defense thereof, including the employment of counsel
reasonably satisfactory to such Indemnified Person, and shall assume the
payment of all fees and expenses; provided, however,  that
the failure of any Indemnified Person so to notify the Company shall not
relieve the Company of its obligations hereunder except to the extent that the
Company is actually and materially prejudiced by such failure to notify.  In any such proceeding, any Indemnified
Person shall have the right to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Person
unless: (i) the Company and the Indemnified Person shall have mutually agreed
to the retention of such counsel; or (ii) in the reasonable judgment of counsel
to such Indemnified Person representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them.  The Company shall not be liable
for any settlement of any proceeding effected without its written consent,
which consent shall not be unreasonably withheld, delayed or conditioned, but
if settled with such consent, or if there be a final judgment for the
plaintiff, the Company shall indemnify and hold harmless such Indemnified
Person from and against any Losses by reason of such settlement or
judgment.  Without the prior written
consent of the Indemnified Person, which consent shall not be unreasonably
withheld, delayed or conditioned, the Company shall not effect any settlement
of any pending or threatened proceeding in respect of which any Indemnified
Person 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 Person from all liability arising out
of such proceeding.

 

11.           Miscellaneous.

 

11.1.        Successors and Assigns.  This Agreement may not be assigned by a
party hereto without the prior written consent of the Company or the Investors,
as applicable; provided, however, that an Investor may assign its
rights and delegate its duties hereunder in whole or in part to an Affiliate or
to a third party acquiring some or all of its Securities in a private
transaction without the prior written consent of the Company or the other
Investors, after notice duly given by such Investor to the Company, provided,
that no such assignment or obligation shall affect the obligations of such
Investor hereunder.  The provisions of
this Agreement shall inure to the benefit of and be binding upon the respective
permitted successors and assigns of the parties.  Except for the Lead Investor Counsel, which is an express
intended third party beneficiary of this Agreement, and except for provisions
of this Agreement expressly

 

36

 

to the contrary, nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement.

 

11.2.        Counterparts; Faxes.  This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.  This Agreement may also be executed via
facsimile, which shall be deemed an original.

 

11.3.        Titles and Subtitles.  The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.

 

11.4.        Notices.  Unless otherwise provided, any notice
required or permitted under this Agreement shall be given in writing and shall
be deemed effectively given as hereinafter described (i) if given by personal
delivery, then such notice shall be deemed given upon such delivery, (ii) if
given by telex or telecopier, then such notice shall be deemed given upon
receipt of confirmation of complete transmittal, (iii) if given by mail, then
such notice shall be deemed given upon the earlier of (A) receipt of such
notice by the recipient or (B) three (3) days after such notice is deposited in
first class mail, postage prepaid, and (iv) if given by an internationally
recognized overnight air courier, then such notice shall be deemed given one
(1) day after delivery to such carrier. 
All notices shall be addressed to the party to be notified at the
address as follows, or at such other address as such party may designate by ten
(10) days’ advance written notice to the other party:

 

If to the Company:

 

Aerogen, Inc.

2071 Stierlin
Court

Mountain View,
CA 94043

Attention:  Chief Executive Officer

Fax:  650-864-7435 and 650-864-7433

 

With a copy
to:

 

Cooley Godward
LLP

Five Palo Alto
Square

3000 El Camino
Real

Palo Alto,
CA  94306

Attn:  Robert J. Brigham, Esq.

Fax:  650-849-7400

 

If to any of the Investors:

 

to the addresses set forth on Schedule
I or Schedule II
affixed hereto.

 

37

 

With a copy to:

 

CIBC World Markets

2420 Sand Hill Road

Suite 300

Menlo Park, CA  94025

Attn: Michael Fekete

Fax: 650-234-2450

 

And a copy to:

 

Lowenstein Sandler PC

65 Livingston Ave.

Roseland, NJ 07068

Attn:  Steven E. Siesser, Esq.

Fax:  973-597-2507

 

11.5.        Expenses.  The Company shall pay the reasonable fees
and expenses of Lead Investor Counsel in connection with the Private Placement
(the “Lead Investor Counsel Fees”),
in an amount not to exceed $100,000 through the First Closing Date, which Lead
Investor Counsel Fees shall include, without limitation, the fees and expenses
associated with the negotiation, preparation and execution and delivery of this
Agreement and the other Transaction Documents and any amendments, modifications
or waivers thereto.  The Lead Investor
Counsel Fees shall be paid to Lead Investor Counsel on each Closing Date by
release to Lead Investor Counsel of the portion of the Escrow Amount equal to
the Lead Investor Counsel Fees applicable to such Closing Date.  Except as set forth above, the Company and
the Investors shall each bear their own expenses in connection with the
negotiation, preparation, execution and delivery of this Agreement.  In the event that legal proceedings are commenced
by any party to this Agreement against another party to this Agreement in
connection with this Agreement or the other Transaction Documents, the party or
parties which do not prevail in such proceedings shall severally, but not
jointly, pay their pro rata share of the reasonable attorneys’ fees and other
reasonable out-of-pocket costs and expenses incurred by the prevailing party in
such proceedings.

 

11.6.        Amendments and Waivers.  This Agreement shall not be amended and the
observance of any term of this Agreement shall not be waived (either generally
or in a particular instance and either retroactively or prospectively) without
the prior written consent of the Company and the Requisite Holders; provided,
however, that any provision hereof which impairs the rights or increases
the obligations of a specific Investor disproportionately to other Investors
shall not be amended or waived without the prior written consent of the Company
and that particular Investor; provided, further, that any
provision affecting the rights or obligations of Lead Investor Counsel, shall
not be waived or amended without the prior written consent of the Lead Investor
Counsel.   Any amendment or waiver effected in
accordance with this Section 11.6 shall be binding upon each holder of
any Securities purchased under this Agreement at the time outstanding, each
future holder of all such Securities, and the Company.

 

11.7.        Publicity.  No public release or announcement concerning
the transactions

 

38

 

contemplated hereby shall be issued by the Company or
the Investors without the prior consent of the Company (in the case of a
release or announcement by the Investors) or the Lead Investor, as
representative of the Investors (in the case of a release or announcement by
the Company) (which consents shall not be unreasonably withheld), except as
such release or announcement may be required by law or the applicable rules or
regulations of any securities exchange or securities market on which the
Securities are then listed and trading, in which case the Company or the Lead
Investor, as the case may be, shall allow the Investors or the Company, as
applicable, to the extent reasonably practicable in the circumstances,
reasonable time to comment on such release or announcement in advance of such
issuance.

 

11.8.        Severability.  Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof but shall be interpreted as if it
were written so as to be enforceable to the maximum extent permitted by
applicable law, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.  To the extent
permitted by applicable law, the parties hereby waive any provision of law
which renders any provision hereof prohibited or unenforceable in any respect.

 

11.9.        Entire Agreement.  This Agreement, including the Exhibits and
Disclosure Schedules, and the other Transaction Documents constitute the entire
agreement among the parties hereof with respect to the subject matter hereof
and thereof and supersede all prior agreements and understandings, both oral
and written, between the parties with respect to the subject matter hereof and
thereof.  Prior drafts or versions of
this Agreement shall not be used to interpret this Agreement.

 

11.10.      Further Assurances.  The parties shall execute and deliver all
such further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.

 

11.11.      Governing Law; Consent to Jurisdiction.  This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of New York
without regard to the choice of law principles thereof.  Each of the parties hereto irrevocably
submits to the exclusive jurisdiction of the courts of the State of New York
located in New York County and the United States District Court for the
Southern District of New York for the purpose of any suit, action, proceeding
or judgment relating to or arising out of this Agreement and the transactions
contemplated hereby.  Service of process
in connection with any such suit, action or proceeding may be served on each
party hereto anywhere in the world by the same methods as are specified for the
giving of notices under this Agreement. 
Each of the parties hereto irrevocably consents to the jurisdiction of
any such court in any such suit, action or proceeding and to the laying of
venue in such court.  Each party hereto
irrevocably waives any objection to the laying of venue of any such suit,
action or proceeding brought in such courts and irrevocably waives any claim
that any such suit, action or proceeding brought in any such court has been
brought in an inconvenient forum.  THE COMPANY
AND EACH OF THE INVESTORS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL
BY JURY IN ANY LEGAL PROCEEDING RELATING TO OR ARISING OUT OF

 

39

 

THIS
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY.

 

 

[signature page follows]

 

40

 

[Company Signature Page]

 

IN WITNESS WHEREOF, the undersigned has executed this Purchase
Agreement or caused its duly authorized officers to execute this Purchase
Agreement as of the date first above written.

 

	
   

  	
  AEROGEN, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: /s/ Jane
  E. Shaw

  	
   

  
	
   

  	
  Name:  Jane E. Shaw

  
	
   

  	
  Title:  CEO

  

 

41

 

[Investor Signature Page]

 

IN WITNESS
WHEREOF, the undersigned has executed this Purchase Agreement or caused its
duly authorized officers to execute this Purchase Agreement as of the date
first above written.

 

	
  Date:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  IF AN
  INDIVIDUAL:

  	
   

  	
  IF A
  CORPORATION, PARTNERSHIP,

  
	
   

  	
   

  	
  TRUST, ESTATE OR OTHER ENTITY:

  
	
   

  	
   

  	
   

  
	
  (Signature)

  	
   

  	
  The Carpenter 1983 Family Trust

  	
   

  
	
   

  	
   

  	
  Print name
  of entity

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  (Printed
  Name)

  	
   

  	
  By:

  	
  /s/ Jane
  Elizabeth Carpenter TTEE

  	
   

  
	
   

  	
   

  	
   

  	
  /s/ Peter
  Fredrick Carpenter TTEE

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Jane
  Elizabeth Carpenter TTEE

  Peter Fredrick Carpenter

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Print
  jurisdiction of organization of entity

  
	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  The
  signatory’s U.S. taxpayer identification number is set forth opposite, and is
  provided under penalty of perjury under U.S. law.  In the event that a taxpayer
  identification number is not provided, any funds provided to the Lead
  Investor Counsel which constitute part of the Escrow Amount will be placed in
  a non-interest bearing escrow account.

  	
   

  	
   

  	
   

  
	
  Taxpayer ID#

  
	
   

  
													

 

Aggregate dollar amount of
Securities committed to be purchased pursuant to the terms of the Agreement:

 

	
  First Closing Purchase Price:

  	
   

  	
  $

  	
   

  	
   

  
	
  Second Closing Purchase Price

  	
   

  	
  $

  	
   

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
   

  	
   

  

 

42

 

[Investor Signature Page]

 

IN WITNESS
WHEREOF, the undersigned has executed this Purchase Agreement or caused its
duly authorized officers to execute this Purchase Agreement as of the date
first above written.

 

	
  Date: 

  	
  March 8,
  2004

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  IF AN
  INDIVIDUAL:

  	
   

  	
  IF A
  CORPORATION, PARTNERSHIP,

  
	
   

  	
   

  	
  TRUST, ESTATE OR OTHER ENTITY:

  
	
   

  	
   

  	
   

  
	
  (Signature)

  	
   

  	
  Xmark Fund,
  Ltd.

  	
   

  
	
   

  	
   

  	
  Print name
  of entity

  
	
   

  	
   

  	
   

  
	
  (Printed
  Name)

  	
   

  	
  By:

  	
  /s/ David C.
  Cavalier

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:  David C. Cavalier

  
	
   

  	
   

  	
  Title:Chief
  Operating Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Cayman
  Islands

  	
   

  
	
   

  	
   

  	
  Print
  jurisdiction of organization of entity

  
	
  Address:

  	
   

  	
  Address:

  152 West 57th Street

  21st Floor

  New York, NY 10019

  
	
   

  
	
   

  
	
   

  
	
   

  	
   

  	
   

  
	
  The
  signatory’s U.S. taxpayer identification number is set forth opposite, and is
  provided under penalty of perjury under U.S. law.  In the event that a taxpayer
  identification number is not provided, any funds provided to the Lead Investor
  Counsel which constitute part of the Escrow Amount will be placed in a
  non-interest bearing escrow account.

  	
   

  	
   

  	
   

  
	
  Taxpayer ID#

  
	
   

  
							

 

 

Aggregate dollar amount of
Securities committed to be purchased pursuant to the terms of the Agreement:

 

	
  First Closing Purchase Price:

  	
   

  	
  $

  	
   

  	
   

  
	
  Second Closing Purchase Price

  	
   

  	
  $

  	
   

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  2,779,250

  	
   

  

 

43

 

[Investor Signature Page]

 

IN WITNESS
WHEREOF, the undersigned has executed this Purchase Agreement or caused its
duly authorized officers to execute this Purchase Agreement as of the date
first above written.

 

 

	
  Date:

  	
  March 8,
  2004

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  IF AN
  INDIVIDUAL:

  	
   

  	
  IF A
  CORPORATION, PARTNERSHIP,

  
	
   

  	
   

  	
  TRUST, ESTATE OR OTHER ENTITY:

  
	
   

  	
   

  	
   

  
	
  (Signature)

  	
   

  	
  Xmark Fund,
  L.P.

  	
   

  
	
   

  	
   

  	
  Print name
  of entity

  
	
   

  	
   

  	
   

  
	
  (Printed
  Name)

  	
   

  	
  By:

  	
  /s/ David C.
  Cavalier

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:  David C. Cavalier

  
	
   

  	
   

  	
  Title:Chief
  Operating Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Cayman
  Islands

  
	
   

  	
   

  	
  Print
  jurisdiction of organization of entity

  
	
  Address:

  	
   

  	
  Address:

  152 West 57th Street

  21st Floor

  New York, NY 10019

  
	
   

  
	
   

  
	
   

  
	
   

  	
   

  	
   

  
	
  The
  signatory’s U.S. taxpayer identification number is set forth opposite, and is
  provided under penalty of perjury under U.S. law.  In the event that a taxpayer
  identification number is not provided, any funds provided to the Lead
  Investor Counsel which constitute part of the Escrow Amount will be placed in
  a non-interest bearing escrow account.

  	
   

  	
   

  	
   

  
	
  Taxpayer ID#

  
	
   

  
	
   

  
						

 

 

Aggregate dollar amount of
Securities committed to be purchased pursuant to the terms of the Agreement:

 

	
  First Closing Purchase Price:

  	
   

  	
  $

  	
   

  	
   

  
	
  Second Closing Purchase Price

  	
   

  	
  $

  	
   

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  2,220,750

  	
   

  

 

44

 

[Investor Signature Page]

 

IN WITNESS
WHEREOF, the undersigned has executed this Purchase Agreement or caused its
duly authorized officers to execute this Purchase Agreement as of the date
first above written.

 

 

	
  Date:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  IF AN
  INDIVIDUAL:

  	
   

  	
  IF A
  CORPORATION, PARTNERSHIP,

  
	
   

  	
   

  	
  TRUST, ESTATE OR OTHER ENTITY:

  
	
   

  	
   

  	
   

  
	
  (Signature)

  	
   

  	
  HealthCap
  IV, L.P.

  	
   

  
	
   

  	
   

  	
  Print name
  of entity

  
	
   

  	
   

  	
   

  
	
  (Printed
  Name)

  	
   

  	
  By:

  	
  /s/ Peder
  Fredrickson

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name Peder
  Fredrickson

  
	
   

  	
   

  	
  Title:Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Switzerland

  	
   

  
	
   

  	
   

  	
  Print
  jurisdiction of organization of entity

  
	
  Address:

  	
   

  	
  Address:

  c/o HealthCap IV GPSA

  18 Avenue d’Ouchy

  1006 Lausanne/Switzerland

  
	
   

  
	
   

  
	
   

  
	
   

  	
   

  	
   

  
	
  The
  signatory’s U.S. taxpayer identification number is set forth opposite, and is
  provided under penalty of perjury under U.S. law.  In the event that a taxpayer
  identification number is not provided, any funds provided to the Lead
  Investor Counsel which constitute part of the Escrow Amount will be placed in
  a non-interest bearing escrow account.

  	
   

  	
   

  	
   

  
	
  Taxpayer ID#

  
	
   

  
	
   

  
								

 

Aggregate dollar amount of
Securities committed to be purchased pursuant to the terms of the Agreement:

 

	
  First Closing Purchase Price:

  	
   

  	
  $

  	
  30

  	
   

  
	
  Second Closing Purchase Price

  	
   

  	
  $

  	
  30

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  2,742,900.00

  	
   

  

 

45

 

[Investor Signature Page]

 

IN WITNESS
WHEREOF, the undersigned has executed this Purchase Agreement or caused its
duly authorized officers to execute this Purchase Agreement as of the date
first above written.

 

 

	
  Date:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  IF AN
  INDIVIDUAL:

  	
   

  	
  IF A
  CORPORATION, PARTNERSHIP,

  
	
   

  	
   

  	
  TRUST, ESTATE OR OTHER ENTITY:

  
	
   

  	
   

  	
   

  
	
  (Signature)

  	
   

  	
  HealthCap IV
  Bis, L.P.

  	
   

  
	
   

  	
   

  	
  Print name
  of entity

  
	
   

  	
   

  	
   

  
	
  (Printed
  Name)

  	
   

  	
  By:

  	
  /s/ Peder
  Fredrickson

  	
   

  
	
   

  	
   

  	
  Name Peder
  Fredrickson

  
	
   

  	
   

  	
  Title:Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Switzerland

  
	
   

  	
   

  	
  Print
  jurisdiction of organization of entity

  
	
  Address:

  	
   

  	
  Address:

  c/o HealthCap IV GPSA

  18 Avenue d’Ouchy

  1006 Lausanne/Switzerland

  
	
   

  
	
   

  
	
   

  
	
   

  	
   

  	
   

  
	
  The
  signatory’s U.S. taxpayer identification number is set forth opposite, and is
  provided under penalty of perjury under U.S. law.  In the event that a taxpayer
  identification number is not provided, any funds provided to the Lead
  Investor Counsel which constitute part of the Escrow Amount will be placed in
  a non-interest bearing escrow account.

  	
   

  	
   

  	
   

  
	
  Taxpayer ID#

  
	
   

  
	
   

  
							

 

Aggregate dollar amount of
Securities committed to be purchased pursuant to the terms of the Agreement:

 

	
  First Closing Purchase Price:

  	
   

  	
  $

  	
  30

  	
   

  
	
  Second Closing Purchase Price

  	
   

  	
  $

  	
  30

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  1,565,280.00

  	
   

  

 

46

 

[Investor Signature Page]

 

IN WITNESS
WHEREOF, the undersigned has executed this Purchase Agreement or caused its
duly authorized officers to execute this Purchase Agreement as of the date
first above written.

 

 

	
  Date:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  IF AN
  INDIVIDUAL:

  	
   

  	
  IF A
  CORPORATION, PARTNERSHIP,

  
	
   

  	
   

  	
  TRUST, ESTATE OR OTHER ENTITY:

  
	
   

  	
   

  	
   

  
	
  (Signature)

  	
   

  	
  HealthCap IV
  KB by HealthCap IV

  GP AB, its General Partner

  	
   

  
	
   

  	
   

  	
  Print name
  of entity

  
	
   

  	
   

  	
   

  
	
  (Printed
  Name)

  	
   

  	
  By:

  	
  /s/ Per
  Samuelson

  /s/ Anki Forsberg

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name

  	
  Per
  Samuelson

  Anki Forsberg

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Partners

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Sweden

  	
   

  
	
   

  	
   

  	
  Print
  jurisdiction of organization of entity

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  Address:

  Strandvagen 5B

  11451 Stockholm

  Sweden

  
	
   

  
	
   

  
	
   

  
	
   

  	
   

  	
   

  
	
  The
  signatory’s U.S. taxpayer identification number is set forth opposite, and is
  provided under penalty of perjury under U.S. law.  In the event that a taxpayer
  identification number is not provided, any funds provided to the Lead
  Investor Counsel which constitute part of the Escrow Amount will be placed in
  a non-interest bearing escrow account.

  	
   

  	
   

  	
   

  
	
  Taxpayer ID#

  
	
   

  
	
   

  
													

 

Aggregate dollar amount of
Securities committed to be purchased pursuant to the terms of the Agreement:

 

	
  First Closing Purchase Price:

  	
   

  	
  $

  	
  30

  	
   

  
	
  Second Closing Purchase Price

  	
   

  	
  $

  	
  30

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  616,800.00

  	
   

  

 

47

 

[Investor Signature Page]

 

IN WITNESS
WHEREOF, the undersigned has executed this Purchase Agreement or caused its
duly authorized officers to execute this Purchase Agreement as of the date
first above written.

 

 

	
  Date:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  IF AN
  INDIVIDUAL:

  	
   

  	
  IF A
  CORPORATION, PARTNERSHIP,

  
	
   

  	
   

  	
  TRUST, ESTATE OR OTHER ENTITY:

  
	
   

  	
   

  	
   

  
	
  (Signature)

  	
   

  	
  OFCO Club IV
  by Odlander, Fredrickson

  & Co AB, its member

  	
   

  
	
   

  	
   

  	
  Print name
  of entity

  
	
   

  	
   

  	
   

  
	
  (Printed
  Name)

  	
   

  	
  By:

  	
  /s/ Bjorn
  Odlander

  /s/ Anki Forsberg

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name

  	
  Bjorn
  Odlander

  Anki Forsberg

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Partners

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Sweden

  
	
   

  	
   

  	
  Print
  jurisdiction of organization of entity

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  Address:

  Strandvagen 5B

  11451 Stockholm

  Sweden

  
	
   

  
	
   

  
	
   

  
	
   

  	
   

  	
   

  
	
  The
  signatory’s U.S. taxpayer identification number is set forth opposite, and is
  provided under penalty of perjury under U.S. law.  In the event that a taxpayer
  identification number is not provided, any funds provided to the Lead
  Investor Counsel which constitute part of the Escrow Amount will be placed in
  a non-interest bearing escrow account.

  	
   

  	
   

  	
   

  
	
  Taxpayer ID#

  
	
   

  
	
   

  
										

 

Aggregate dollar amount of
Securities committed to be purchased pursuant to the terms of the Agreement:

 

	
  First Closing Purchase Price:

  	
   

  	
  $

  	
  30

  	
   

  
	
  Second Closing Purchase Price

  	
   

  	
  $

  	
  30

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  75,000.00

  	
   

  

 

48

 

[Investor Signature Page]

 

IN WITNESS
WHEREOF, the undersigned has executed this Purchase Agreement or caused its
duly authorized officers to execute this Purchase Agreement as of the date
first above written.

 

	
  Date:

  	
  March 8,
  2004

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  IF AN
  INDIVIDUAL:

  	
   

  	
  IF A
  CORPORATION, PARTNERSHIP,

  
	
   

  	
   

  	
  TRUST, ESTATE OR OTHER ENTITY:

  
	
   

  	
   

  	
   

  
	
  (Signature)

  	
   

  	
  Pequot Scout
  Fund, L.P.

  	
   

  
	
   

  	
   

  	
  Print name
  of entity

  
	
   

  	
   

  	
   

  
	
  (Printed
  Name)

  	
   

  	
  By:

  	
  /s/ Richard
  J. Joslin

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name

  	
  Richard J.
  Joslin

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Principal

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Print
  jurisdiction of organization of entity

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  Address:

  c/o Pequot Capital Management, Inc.

  500 Nyala Farm Road

  Westport, CT 06880

  
	
   

  
	
   

  
	
   

  
	
   

  	
   

  	
   

  
	
  The
  signatory’s U.S. taxpayer identification number is set forth opposite, and is
  provided under penalty of perjury under U.S. law.  In the event that a taxpayer
  identification number is not provided, any funds provided to the Lead
  Investor Counsel which constitute part of the Escrow Amount will be placed in
  a non-interest bearing escrow account.

  	
   

  	
   

  	
   

  
	
  Taxpayer ID#

  
	
   

  
	
   

  
										

 

Aggregate dollar amount of
Securities committed to be purchased pursuant to the terms of the Agreement:

 

	
  First Closing Purchase Price:

  	
   

  	
  $

  	
   

  	
   

  
	
  Second Closing Purchase Price

  	
   

  	
  $

  	
   

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  1,170,000.00

  	
   

  

 

49

 

[Investor Signature Page]

 

IN WITNESS
WHEREOF, the undersigned has executed this Purchase Agreement or caused its
duly authorized officers to execute this Purchase Agreement as of the date
first above written.

 

 

	
  Date:

  	
  March 8,
  2004

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  IF AN
  INDIVIDUAL:

  	
   

  	
  IF A
  CORPORATION, PARTNERSHIP,

  
	
   

  	
   

  	
  TRUST, ESTATE OR OTHER ENTITY:

  
	
   

  	
   

  	
   

  
	
  (Signature)

  	
   

  	
  Pequot
  Navigator Offshore Fund, Inc.

  
	
   

  	
   

  	
  Print name
  of entity

  
	
   

  	
   

  	
   

  
	
  (Printed
  Name)

  	
   

  	
  By:

  	
  /s/ Richard
  J.  Joslin

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name

  	
   Richard
  J. Joslin

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Principal

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Print
  jurisdiction of organization of entity

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  Address:

  c/o Pequot Capital Management, Inc.

  500 Nyala Farm Road

  Westport, CT 06880

  
	
   

  
	
   

  
	
   

  
	
   

  	
   

  	
   

  
	
  The
  signatory’s U.S. taxpayer identification number is set forth opposite, and is
  provided under penalty of perjury under U.S. law.  In the event that a taxpayer
  identification number is not provided, any funds provided to the Lead Investor
  Counsel which constitute part of the Escrow Amount will be placed in a
  non-interest bearing escrow account.

  	
   

  	
   

  	
   

  
	
  Taxpayer ID#

  
	
   

  
	
   

  
									

 

Aggregate dollar amount of
Securities committed to be purchased pursuant to the terms of the Agreement:

 

	
  First Closing Purchase Price:

  	
   

  	
  $

  	
   

  	
   

  
	
  Second Closing Purchase Price

  	
   

  	
  $

  	
   

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  543,000.00

  	
   

  

 

50

 

[Investor Signature Page]

 

IN WITNESS
WHEREOF, the undersigned has executed this Purchase Agreement or caused its
duly authorized officers to execute this Purchase Agreement as of the date
first above written.

 

 

	
  Date:

  	
  March 8,
  2004

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  IF AN
  INDIVIDUAL:

  	
   

  	
  IF A
  CORPORATION, PARTNERSHIP,

  
	
   

  	
   

  	
  TRUST, ESTATE OR OTHER ENTITY:

  
	
   

  	
   

  	
   

  
	
  (Signature)

  	
   

  	
  Pequot Navigator
  Onshore Fund, L.P.

  	
   

  
	
   

  	
   

  	
  Print name
  of entity

  
	
   

  	
   

  	
   

  
	
  (Printed
  Name)

  	
   

  	
  By:

  	
  /s/ Richard
  J.  Joslin

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name

  	
   Richard
  J. Joslin

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Principal

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Print
  jurisdiction of organization of entity

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  Address:

  c/o Pequot Capital Management, Inc.

  500 Nyala Farm Road

  Westport, CT 06880

  
	
   

  
	
   

  
	
   

  
	
   

  	
   

  	
   

  
	
  The
  signatory’s U.S. taxpayer identification number is set forth opposite, and is
  provided under penalty of perjury under U.S. law.  In the event that a taxpayer
  identification number is not provided, any funds provided to the Lead
  Investor Counsel which constitute part of the Escrow Amount will be placed in
  a non-interest bearing escrow account.

  	
   

  	
   

  	
   

  
	
  Taxpayer ID#

  
	
   

  
	
   

  
										

 

Aggregate dollar amount of
Securities committed to be purchased pursuant to the terms of the Agreement:

 

	
  First Closing Purchase Price:

  	
   

  	
  $

  	
   

  	
   

  
	
  Second Closing Purchase Price

  	
   

  	
  $

  	
   

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  288,000.00

  	
   

  

 

51

 

[Investor Signature Page]

 

IN WITNESS
WHEREOF, the undersigned has executed this Purchase Agreement or caused its
duly authorized officers to execute this Purchase Agreement as of the date
first above written.

 

 

	
  Date:

  	
  March 10,
  2004

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  IF AN
  INDIVIDUAL:

  	
   

  	
  IF A
  CORPORATION, PARTNERSHIP,

  
	
   

  	
   

  	
  TRUST, ESTATE OR OTHER ENTITY:

  
	
   

  	
   

  	
   

  
	
  (Signature)

  	
   

  	
  SF Capital
  Partners Ltd.

  	
   

  
	
   

  	
   

  	
  Print name
  of entity

  
	
   

  	
   

  	
   

  
	
  (Printed
  Name)

  	
   

  	
  By:

  	
  /s/ Brian H.
  Davidson

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name

  	
   Brian
  H. Davidson

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Authorized
  Signatory

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  British
  Virgin Island

  	
   

  
	
   

  	
   

  	
  Print
  jurisdiction of organization of entity

  
	
   

  	
   

  	
   

  
	
  Address: 

  	
   

  	
  Address:

  Staro Asset Management LLC

  3600 South Lake Drive

  St. Francis, WI 53235

  
	
   

  
	
   

  
	
   

  
	
   

  	
   

  	
   

  
	
  The
  signatory’s U.S. taxpayer identification number is set forth opposite, and is
  provided under penalty of perjury under U.S. law.  In the event that a taxpayer
  identification number is not provided, any funds provided to the Lead
  Investor Counsel which constitute part of the Escrow Amount will be placed in
  a non-interest bearing escrow account.

  	
   

  	
   

  	
   

  
	
  Taxpayer ID#

  
	
   

  
	
   

  
											

 

Aggregate dollar amount of
Securities committed to be purchased pursuant to the terms of the Agreement:

 

	
  First Closing Purchase Price:

  	
   

  	
  $

  	
   

  	
   

  
	
  Second Closing Purchase Price

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  Plus balance of SF Debentures

  	
   

  

 

52

 

[Investor Signature Page]

 

IN WITNESS
WHEREOF, the undersigned has executed this Purchase Agreement or caused its
duly authorized officers to execute this Purchase Agreement as of the date
first above written.

 

	
  Date:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  IF AN
  INDIVIDUAL:

  	
   

  	
  IF A
  CORPORATION, PARTNERSHIP,

  
	
   

  	
   

  	
  TRUST, ESTATE OR OTHER ENTITY:

  
	
   

  	
   

  	
   

  
	
  (Signature)

  	
   

  	
  North Sound
  Legacy Fund LLC

  	
   

  
	
   

  	
   

  	
  Print name
  of entity

  
	
   

  	
   

  	
   

  
	
  (Printed
  Name)

  	
   

  	
  By:

  	
  /s/ Andrew
  Wilder

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name

  	
   Andrew  Wilder

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Chief
  Financial Officer

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Print
  jurisdiction of organization of entity

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  Address:

  c/o North Sound Capital LLC

  53 Forest Avenue, Suite 202

  Old Greenwich, CT 06870

  
	
   

  
	
   

  
	
   

  
	
   

  	
   

  	
   

  
	
  The
  signatory’s U.S. taxpayer identification number is set forth opposite, and is
  provided under penalty of perjury under U.S. law.  In the event that a taxpayer
  identification number is not provided, any funds provided to the Lead
  Investor Counsel which constitute part of the Escrow Amount will be placed in
  a non-interest bearing escrow account.

  	
   

  	
  52-2324838

  	
   

  
	
  Taxpayer ID#

  
	
   

  
	
   

  
												

 

Aggregate dollar amount of
Securities committed to be purchased pursuant to the terms of the Agreement:

 

	
  First Closing Purchase Price:

  	
   

  	
  $

  	
   

  	
   

  
	
  Second Closing Purchase Price

  	
   

  	
  $

  	
   

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  90,000

  	
   

  

 

53

 

[Investor Signature Page]

 

IN WITNESS
WHEREOF, the undersigned has executed this Purchase Agreement or caused its
duly authorized officers to execute this Purchase Agreement as of the date
first above written.

 

	
  Date:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  IF AN
  INDIVIDUAL:

  	
   

  	
  IF A
  CORPORATION, PARTNERSHIP,

  
	
   

  	
   

  	
  TRUST, ESTATE OR OTHER ENTITY:

  
	
   

  	
   

  	
   

  
	
  (Signature)

  	
   

  	
  North Sound
  Legacy Institutional Fund

  LLC

  	
   

  
	
   

  	
   

  	
  Print name
  of entity

  
	
   

  	
   

  	
   

  
	
  (Printed
  Name)

  	
   

  	
  By:

  	
  /s/ Andrew
  Wilder

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name

  	
   Andrew  Wilder

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Chief
  Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Print
  jurisdiction of organization of entity

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  Address:

  c/o North Sound Capital LLC

  53 Forest Avenue, Suite 202

  Old Greenwich, CT 06870

  
	
   

  
	
   

  
	
   

  
	
   

  	
   

  	
   

  
	
  The
  signatory’s U.S. taxpayer identification number is set forth opposite, and is
  provided under penalty of perjury under U.S. law.  In the event that a taxpayer
  identification number is not provided, any funds provided to the Lead
  Investor Counsel which constitute part of the Escrow Amount will be placed in
  a non-interest bearing escrow account.

  	
   

  	
   

  	
   

  
	
  Taxpayer ID#

  
	
   

  
	
   

  
											

 

 

Aggregate dollar amount of
Securities committed to be purchased pursuant to the terms of the Agreement:

 

	
  First Closing Purchase Price:

  	
   

  	
  $

  	
   

  	
   

  
	
  Second Closing Purchase Price

  	
   

  	
  $

  	
   

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  990,000.00

  	
   

  

 

54

 

[Investor Signature Page]

 

IN WITNESS
WHEREOF, the undersigned has executed this Purchase Agreement or caused its
duly authorized officers to execute this Purchase Agreement as of the date
first above written.

 

	
  Date:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  IF AN
  INDIVIDUAL:

  	
   

  	
  IF A
  CORPORATION, PARTNERSHIP,

  
	
   

  	
   

  	
  TRUST, ESTATE OR OTHER ENTITY:

  
	
   

  	
   

  	
   

  
	
  (Signature)

  	
   

  	
  North Sound
  Legacy International Ltd.

  	
   

  
	
   

  	
   

  	
  Print name
  of entity

  
	
   

  	
   

  	
   

  
	
  (Printed
  Name)

  	
   

  	
  By:

  	
  /s/ Andrew
  Wilder

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name

  	
  Andrew  Wilder

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Chief
  Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Print
  jurisdiction of organization of entity

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  Address:

  c/o North Sound Capital LLC

  53 Forest Avenue, Suite 202

  Old Greenwich, CT 06870

  
	
   

  
	
   

  
	
   

  
	
   

  	
   

  	
   

  
	
  The
  signatory’s U.S. taxpayer identification number is set forth opposite, and is
  provided under penalty of perjury under U.S. law.  In the event that a taxpayer
  identification number is not provided, any funds provided to the Lead
  Investor Counsel which constitute part of the Escrow Amount will be placed in
  a non-interest bearing escrow account.

  	
   

  	
   

  	
   

  
	
  Taxpayer ID#

  
	
   

  
	
   

  
											

 

Aggregate dollar amount of
Securities committed to be purchased pursuant to the terms of the Agreement:

 

	
  First Closing Purchase Price:

  	
   

  	
  $

  	
   

  	
   

  
	
  Second Closing Purchase Price

  	
   

  	
  $

  	
   

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  1,920,000

  	
   

  

 

55

 

[Investor Signature Page]

 

IN WITNESS
WHEREOF, the undersigned has executed this Purchase Agreement or caused its
duly authorized officers to execute this Purchase Agreement as of the date
first above written.

 

	
  Date:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  IF AN
  INDIVIDUAL:

  	
   

  	
  IF A
  CORPORATION, PARTNERSHIP,

  
	
   

  	
   

  	
  TRUST, ESTATE OR OTHER ENTITY:

  
	
   

  	
   

  	
   

  
	
  (Signature)

  	
   

  	
  Bay Star
  Capital II, L.P.

  	
   

  
	
   

  	
   

  	
  Print name
  of entity

  
	
   

  	
   

  	
   

  
	
  (Printed
  Name)

  	
   

  	
  By:

  	
  /s/ Steve
  Derby

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name

  	
   Steve
  Derby

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Managing
  Member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Print
  jurisdiction of organization of entity

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  Address:

  c/o Bay Star Capital Management, LLC

  53 Forest Avenue, Suite 203

  Old Greenwich, CT 06870

  
	
   

  
	
   

  
	
   

  
	
   

  	
   

  	
   

  
	
  The
  signatory’s U.S. taxpayer identification number is set forth opposite, and is
  provided under penalty of perjury under U.S. law.  In the event that a taxpayer
  identification number is not provided, any funds provided to the Lead
  Investor Counsel which constitute part of the Escrow Amount will be placed in
  a non-interest bearing escrow account.

  	
   

  	
   

  	
   

  
	
  Taxpayer ID#

  
	
   

  
	
   

  
												

 

Aggregate dollar amount of
Securities committed to be purchased pursuant to the terms of the Agreement:

 

	
  First Closing Purchase Price:

  	
   

  	
  $

  	
   

  	
   

  
	
  Second Closing Purchase Price

  	
   

  	
  $

  	
   

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  1,500,000

  	
   

  

 

56

 

[Investor Signature Page]

 

IN WITNESS
WHEREOF, the undersigned has executed this Purchase Agreement or caused its
duly authorized officers to execute this Purchase Agreement as of the date
first above written.

 

	
  Date:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  IF AN
  INDIVIDUAL:

  	
   

  	
  IF A
  CORPORATION, PARTNERSHIP,

  
	
   

  	
   

  	
  TRUST, ESTATE OR OTHER ENTITY:

  
	
   

  	
   

  	
   

  
	
  (Signature)

  	
   

  	
  SDS Capital
  Group SPC, Ltd.

  	
   

  
	
   

  	
   

  	
  Print name
  of entity

  
	
   

  	
   

  	
   

  
	
  (Printed
  Name)

  	
   

  	
  By:

  	
  /s/ Steve
  Derby

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name

  	
   Steve
  Derby

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Managing
  Member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Print
  jurisdiction of organization of entity

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  Address:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  The
  signatory’s U.S. taxpayer identification number is set forth opposite, and is
  provided under penalty of perjury under U.S. law.  In the event that a taxpayer
  identification number is not provided, any funds provided to the Lead
  Investor Counsel which constitute part of the Escrow Amount will be placed in
  a non-interest bearing escrow account.

  	
   

  	
   

  	
   

  
	
  Taxpayer ID#

  
	
   

  
	
   

  
											

 

Aggregate dollar amount of
Securities committed to be purchased pursuant to the terms of the Agreement:

 

	
  First Closing Purchase Price:

  	
   

  	
  $

  	
   

  	
   

  
	
  Second Closing Purchase Price

  	
   

  	
  $

  	
   

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  1,500,000

  	
   

  

 

57

 

[Investor Signature Page]

 

IN WITNESS
WHEREOF, the undersigned has executed this Purchase Agreement or caused its
duly authorized officers to execute this Purchase Agreement as of the date
first above written.

 

	
  Date:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  IF AN
  INDIVIDUAL:

  	
   

  	
  IF A
  CORPORATION, PARTNERSHIP,

  
	
   

  	
   

  	
  TRUST, ESTATE OR OTHER ENTITY:

  
	
   

  	
   

  	
   

  
	
  (Signature)

  	
   

  	
  Perceptive
  Life Sciences Master Fund Ltd

  By: Perceptive Advisors, LLC

  Investment Manager.

  	
   

  
	
   

  	
   

  	
  Print name
  of entity

  
	
   

  	
   

  	
   

  
	
  (Printed
  Name)

  	
   

  	
  By:

  	
  /s/ Andrew
  C. Sankin

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name

  	
  Andrew C.
  Sankin

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Chief
  Operating Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Cayman
  Island

  	
   

  
	
   

  	
   

  	
  Print
  jurisdiction of organization of entity

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  Address:

  5437 Connecticut Ave., N.W.

  Suite 100

  Washington, DC 20015

  
	
   

  
	
   

  
	
   

  
	
   

  	
   

  	
   

  
	
  The
  signatory’s U.S. taxpayer identification number is set forth opposite, and is
  provided under penalty of perjury under U.S. law.  In the event that a taxpayer
  identification number is not provided, any funds provided to the Lead
  Investor Counsel which constitute part of the Escrow Amount will be placed in
  a non-interest bearing escrow account.

  	
   

  	
   

  	
   

  
	
  Taxpayer ID#

  
	
   

  
	
   

  
											

 

Aggregate dollar amount of
Securities committed to be purchased pursuant to the terms of the Agreement:

 

	
  First Closing Purchase Price:

  	
   

  	
  $

  	
   

  	
   

  
	
  Second Closing Purchase Price

  	
   

  	
  $

  	
   

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  4,000,000.00

  	
   

  

 

58

 

[Investor Signature Page]

 

IN WITNESS
WHEREOF, the undersigned has executed this Purchase Agreement or caused its
duly authorized officers to execute this Purchase Agreement as of the date
first above written.

 

 

	
  Date:

  	
  March 9,
  2004

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  IF AN
  INDIVIDUAL:

  	
   

  	
  IF A
  CORPORATION, PARTNERSHIP,

  
	
   

  	
   

  	
  TRUST, ESTATE OR OTHER ENTITY:

  
	
   

  	
   

  	
   

  
	
  (Signature)

  	
   

  	
  Porter
  Partners, L.P.

  	
   

  
	
   

  	
   

  	
  Print name
  of entity

  
	
   

  	
   

  	
   

  
	
  (Printed
  Name)

  	
   

  	
  By:

  	
  /s/ Jeffrey
  H. Porter

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name

  	
   Jeffrey
  H. Porter

  	
   

  
	
   

  	
   

  	
  Title:

  	
  General
  Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  California,
  USA

  
	
   

  	
   

  	
  Print
  jurisdiction of organization of entity

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  Address:

  300 Drakes Landing Road

  Suite 175

  Greenbrae, CA 94904

  
	
   

  
	
   

  
	
   

  
	
   

  	
   

  	
   

  
	
  The
  signatory’s U.S. taxpayer identification number is set forth opposite, and is
  provided under penalty of perjury under U.S. law.  In the event that a taxpayer
  identification number is not provided, any funds provided to the Lead
  Investor Counsel which constitute part of the Escrow Amount will be placed in
  a non-interest bearing escrow account.

  	
   

  	
   

  	
   

  
	
  Taxpayer ID#

  
	
   

  
	
   

  
											

 

Aggregate dollar amount of
Securities committed to be purchased pursuant to the terms of the Agreement:

 

	
  First Closing Purchase Price:

  	
   

  	
  $

  	
   

  	
   

  
	
  Second Closing Purchase Price

  	
   

  	
  $

  	
   

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  800,000.00

  	
   

  

 

59

 

[Investor Signature Page]

 

IN WITNESS
WHEREOF, the undersigned has executed this Purchase Agreement or caused its
duly authorized officers to execute this Purchase Agreement as of the date
first above written.

 

 

	
  Date:

  	
  March 9,
  2004

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  IF AN
  INDIVIDUAL:

  	
   

  	
  IF A
  CORPORATION, PARTNERSHIP,

  
	
   

  	
   

  	
  TRUST, ESTATE OR OTHER ENTITY:

  
	
   

  	
   

  	
   

  
	
  (Signature)

  	
   

  	
  EDJ Limted

  	
   

  
	
   

  	
   

  	
  Print name
  of entity

  
	
   

  	
   

  	
   

  
	
  (Printed
  Name)

  	
   

  	
  By:

  	
  /s/ Jeffrey
  H. Porter

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name

  	
   Jeffrey
  H. Porter

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Investment
  Advisor

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Print
  jurisdiction of organization of entity

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  Address:

  c/o Deltec Bank & Trust

  Deltec House/Lyford Cay

  P.O. Box N-3229  Nassau, Bahamas

  
	
   

  
	
   

  
	
   

  
	
   

  	
   

  	
   

  
	
  The
  signatory’s U.S. taxpayer identification number is set forth opposite, and is
  provided under penalty of perjury under U.S. law.  In the event that a taxpayer
  identification number is not provided, any funds provided to the Lead
  Investor Counsel which constitute part of the Escrow Amount will be placed in
  a non-interest bearing escrow account.

  	
   

  	
   

  	
   

  
	
  Taxpayer ID#

  
	
   

  
	
   

  
										

 

Aggregate dollar amount of
Securities committed to be purchased pursuant to the terms of the Agreement:

 

	
  First Closing Purchase Price:

  	
   

  	
  $

  	
   

  	
   

  
	
  Second Closing Purchase Price

  	
   

  	
  $

  	
   

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  200,000.00

  	
   

  

 

60

 

[Investor Signature Page]

 

IN WITNESS
WHEREOF, the undersigned has executed this Purchase Agreement or caused its
duly authorized officers to execute this Purchase Agreement as of the date
first above written.

 

	
  Date:

  	
   

  	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
  IF AN
  INDIVIDUAL:

  	
   

  	
  IF A
  CORPORATION, PARTNERSHIP,

  	 

	
   

  	
   

  	
  TRUST, ESTATE OR OTHER ENTITY:

  	 

	
   

  	
   

  	
   

  	 

	
  (Signature)

  	
   

  	
  Winchester
  Global Trust Company

  Limited as Trustee for Caduceus Capital

  Trust

  	
   

  	 

	
   

  	
   

  	
  Print name
  of entity

  	 

	
   

  	
   

  	
   

  	 

	
  (Printed
  Name)

  	
   

  	
  By:

  	
  /s/ Samuel
  D. Isaly

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
  Name

  	
  Samuel D.
  Isaly

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Managing
  Member of the

  Investment Advisor

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	
  Bermuda

  	
   

  	 

	
   

  	
   

  	
  Print
  jurisdiction of organization of entity

  	 

	
   

  	
   

  	
   

  	 

	
  Address: 

  	
   

  	
  Address: 

  	 

	
   

  	
   

  	
  c/o OrbiMed
  Advisors LLC

  	 

	
   

  	
   

  	
  767 Third
  Avenue, 30th Floor

  	 

	
   

  	
   

  	
  New York, NY
  10017

  	 

	
   

  	
   

  	
  Tel.:
  212-739-6400

  	 

	
   

  	
   

  	
  Fax:
  212-739-6444

  	 

	
   

  	
   

  	
   

  	 

	
  The
  signatory’s U.S. taxpayer identification number is set forth opposite, and is
  provided under penalty of perjury under U.S. law.  In the event that a taxpayer
  identification number is not provided, any funds provided to the Lead
  Investor Counsel which constitute part of the Escrow Amount will be placed in
  a non-interest bearing escrow account.

  	
   

  	
   

  	 

	
   

  	
   

  	 

	
  Taxpayer ID#

  	 

	
   

  	 

														

 

61

 

Aggregate dollar amount of
Securities committed to be purchased pursuant to the terms of the Agreement:

 

	
  First Closing Purchase Price:

  	
   

  	
  $

  	
   

  	
   

  
	
  Second Closing Purchase Price

  	
   

  	
  $

  	
   

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  1,500,000.00

  	
   

  

 

62

 

[Investor Signature Page]

 

IN WITNESS
WHEREOF, the undersigned has executed this Purchase Agreement or caused its
duly authorized officers to execute this Purchase Agreement as of the date
first above written.

 

	
  Date:

  	
   

  	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
  IF AN
  INDIVIDUAL:

  	
   

  	
  IF A
  CORPORATION, PARTNERSHIP,

  	 

	
   

  	
   

  	
  TRUST, ESTATE OR OTHER
  ENTITY:

  	 

	
   

  	
   

  	
   

  	 

	
  (Signature)

  	
   

  	
  Caduceus
  Capital II, L.P.

  	
   

  	 

	
   

  	
   

  	
  Print name
  of entity

  	 

	
   

  	
   

  	
   

  	 

	
  (Printed
  Name)

  	
   

  	
  By:

  	
  /s/ Samuel
  D. Isaly

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
  Name

  	
  Samuel D.
  Isaly

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Managing
  Member of the General

  Partner

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	
  Delaware, L.P.

  	
   

  	 

	
   

  	
   

  	
  Print
  jurisdiction of organization of entity

  	 

	
   

  	
   

  	
   

  	 

	
  Address: 

  	
   

  	
  Address: 

  	 

	
   

  	
   

  	
  c/o OrbiMed
  Advisors LLC

  	 

	
   

  	
   

  	
  767 Third
  Avenue, 30th Floor

  	 

	
   

  	
   

  	
  New York, NY
  10017

  	 

	
   

  	
   

  	
  Tel.:
  212-739-6400

  	 

	
   

  	
   

  	
  Fax: 212-739-6444

  	 

	
   

  	
   

  	
   

  	 

	
  The
  signatory’s U.S. taxpayer identification number is set forth opposite, and is
  provided under penalty of perjury under U.S. law.  In the event that a taxpayer
  identification number is not provided, any funds provided to the Lead
  Investor Counsel which constitute part of the Escrow Amount will be placed in
  a non-interest bearing escrow account.

  	
   

  	
   

  	 

	
   

  	 

	
  Taxpayer ID#

  	 

	
   

  	 

													

 

Aggregate dollar amount of
Securities committed to be purchased pursuant to the terms of the Agreement:

 

	
  First Closing Purchase Price:

  	
   

  	
  $

  	
   

  	
   

  
	
  Second Closing Purchase Price

  	
   

  	
  $

  	
   

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  645,000.00

  	
   

  

 

63

 

[Investor Signature Page]

 

IN WITNESS
WHEREOF, the undersigned has executed this Purchase Agreement or caused its
duly authorized officers to execute this Purchase Agreement as of the date
first above written.

 

	
  Date:

  	
   

  	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
  IF AN
  INDIVIDUAL:

  	
   

  	
  IF A
  CORPORATION, PARTNERSHIP,

  	 

	
   

  	
   

  	
  TRUST, ESTATE OR OTHER
  ENTITY:

  	 

	
   

  	
   

  	
   

  	 

	
  (Signature)

  	
   

  	
  UBS
  Eucalyptus Fund, L.L.C. 

  	
   

  	 

	
   

  	
   

  	
  Print name
  of entity

  	 

	
   

  	
   

  	
   

  	 

	
  (Printed
  Name)

  	
   

  	
  By:

  	
  /s/ Samuel
  D. Isaly

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
  Name

  	
  Samuel D.
  Isaly

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Managing
  Member of the JV

  Partner

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	
  Delaware, L.P.

  	
   

  	 

	
   

  	
   

  	
  Print
  jurisdiction of organization of entity

  	 

	
   

  	
   

  	
   

  	 

	
  Address: 

  	
   

  	
  Address: 

  	 

	
   

  	
   

  	
  c/o OrbiMed
  Advisors LLC

  	 

	
   

  	
   

  	
  767 Third
  Avenue, 30th Floor

  	 

	
   

  	
   

  	
  New York, NY
  10017

  	 

	
   

  	
   

  	
  Tel.:
  212-739-6400

  	 

	
   

  	
   

  	
  Fax:
  212-739-6444

  	 

	
   

  	
   

  	
   

  	 

	
  The
  signatory’s U.S. taxpayer identification number is set forth opposite, and is
  provided under penalty of perjury under U.S. law.  In the event that a taxpayer
  identification number is not provided, any funds provided to the Lead
  Investor Counsel which constitute part of the Escrow Amount will be placed in
  a non-interest bearing escrow account.

  	
   

  	
   

  	 

	
   

  	
   

  	 

	
  Taxpayer ID#

  	 

	
   

  	 

														

 

Aggregate dollar amount of
Securities committed to be purchased pursuant to the terms of the Agreement:

 

	
  First Closing Purchase Price:

  	
   

  	
  $

  	
   

  	
   

  
	
  Second Closing Purchase Price

  	
   

  	
  $

  	
   

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  1,500,000.00

  	
   

  

 

64

 

[Investor Signature Page]

 

IN WITNESS
WHEREOF, the undersigned has executed this Purchase Agreement or caused its
duly authorized officers to execute this Purchase Agreement as of the date
first above written.

 

	
  Date:

  	
   

  	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
  IF AN
  INDIVIDUAL:

  	
   

  	
  IF A CORPORATION,
  PARTNERSHIP,

  	 

	
   

  	
   

  	
  TRUST, ESTATE OR OTHER
  ENTITY:

  	 

	
   

  	
   

  	
   

  	 

	
  (Signature)

  	
   

  	
  PW
  Eucalyptus Fund, Ltd.

  	
   

  	 

	
   

  	
   

  	
  Print name
  of entity

  	 

	
   

  	
   

  	
   

  	 

	
  (Printed
  Name)

  	
   

  	
  By:

  	
  /s/ Samuel
  D. Isaly

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
  Name

  	
  Samuel D.
  Isaly

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Managing
  Member of the JV Partner

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	
  Cayman Islands

  	
   

  	 

	
   

  	
   

  	
  Print
  jurisdiction of organization of entity

  	 

	
   

  	
   

  	
   

  	 

	
  Address: 

  	
   

  	
  Address: 

  	 

	
   

  	
   

  	
  c/o OrbiMed
  Advisors LLC

  	 

	
   

  	
   

  	
  767 Third
  Avenue, 30th Floor

  	 

	
   

  	
   

  	
  New York, NY
  10017

  	 

	
   

  	
   

  	
  Tel.:
  212-739-6400

  	 

	
   

  	
   

  	
  Fax:
  212-739-6444

  	 

	
   

  	
   

  	
   

  	 

	
  The
  signatory’s U.S. taxpayer identification number is set forth opposite, and is
  provided under penalty of perjury under U.S. law.  In the event that a taxpayer
  identification number is not provided, any funds provided to the Lead
  Investor Counsel which constitute part of the Escrow Amount will be placed in
  a non-interest bearing escrow account.

  	
   

  	
   

  	 

	
   

  	
   

  	 

	
  Taxpayer ID#

  	 

	
   

  	 

														

 

Aggregate dollar amount of
Securities committed to be purchased pursuant to the terms of the Agreement:

 

	
  First Closing Purchase Price:

  	
   

  	
  $

  	
   

  	
   

  
	
  Second Closing Purchase Price

  	
   

  	
  $

  	
   

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  180,000.00

  	
   

  

 

42

 

[Investor Signature Page]

 

IN WITNESS
WHEREOF, the undersigned has executed this Purchase Agreement or caused its
duly authorized officers to execute this Purchase Agreement as of the date
first above written.

 

	
  Date:

  	
   

  	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
  IF AN
  INDIVIDUAL:

  	
   

  	
  IF A
  CORPORATION, PARTNERSHIP,

  	 

	
   

  	
   

  	
  TRUST, ESTATE OR OTHER
  ENTITY:

  	 

	
   

  	
   

  	
   

  	 

	
  (Signature)

  	
   

  	
  Finsbury
  Worldwide Pharmaceutical Trust 

  	
   

  	 

	
   

  	
   

  	
  Print name
  of entity

  	 

	
   

  	
   

  	
   

  	 

	
  (Printed
  Name)

  	
   

  	
  By:

  	
  /s/ Samuel
  D. Isaly

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
  Name

  	
  Samuel D.
  Isaly

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Director

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	
  United Kingdom

  	
   

  	 

	
   

  	
   

  	
  Print
  jurisdiction of organization of entity

  	 

	
   

  	
   

  	
   

  	 

	
  Address: 

  	
   

  	
  Address: 

  	 

	
   

  	
   

  	
  c/o OrbiMed
  Advisors LLC

  	 

	
   

  	
   

  	
  767 Third
  Avenue, 30th Floor

  	 

	
   

  	
   

  	
  New York, NY
  10017

  	 

	
   

  	
   

  	
  Tel.:
  212-739-6400

  	 

	
   

  	
   

  	
  Fax:
  212-739-6444

  	 

	
   

  	
   

  	
   

  	 

	
  The
  signatory’s U.S. taxpayer identification number is set forth opposite, and is
  provided under penalty of perjury under U.S. law.  In the event that a taxpayer
  identification number is not provided, any funds provided to the Lead
  Investor Counsel which constitute part of the Escrow Amount will be placed in
  a non-interest bearing escrow account.

  	
   

  	
   

  	 

	
   

  	
   

  	 

	
  Taxpayer ID#

  	 

	
   

  	 

														

 

Aggregate dollar amount of
Securities committed to be purchased pursuant to the terms of the Agreement:

 

	
  First Closing Purchase Price:

  	
   

  	
  $

  	
   

  	
   

  
	
  Second Closing Purchase Price

  	
   

  	
  $

  	
   

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  1,950,000.00

  	
   

  

 

42

 

[Investor Signature Page]

 

IN WITNESS
WHEREOF, the undersigned has executed this Purchase Agreement or caused its
duly authorized officers to execute this Purchase Agreement as of the date
first above written.

 

	
  Date:

  	
   

  	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
  IF AN
  INDIVIDUAL:

  	
   

  	
  IF A
  CORPORATION, PARTNERSHIP,

  	 

	
   

  	
   

  	
  TRUST, ESTATE OR OTHER
  ENTITY:

  	 

	
   

  	
   

  	
   

  	 

	
  (Signature)

  	
   

  	
  HFC SHC
  Aggressive Fund

  	
   

  	 

	
   

  	
   

  	
  Print name
  of entity

  	 

	
   

  	
   

  	
   

  	 

	
  (Printed
  Name)

  	
   

  	
  By:

  	
  /s/ Dora
  Hines

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
  Name

  	
  Dora Hines

  	
   

  
	
   

  	
   

  	
  Title:     for and on behalf of HFR Asset
  Management as attorney in fact 

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	
  Bermuda

  	
   

  	 

	
   

  	
   

  	
  Print
  jurisdiction of organization of entity

  	 

	
   

  	
   

  	
   

  	 

	
  Address: 

  	
   

  	
  Address: 

  	 

	
   

  	
   

  	
  c/o OrbiMed
  Advisors LLC

  	 

	
   

  	
   

  	
  767 Third
  Avenue, 30th Floor

  	 

	
   

  	
   

  	
  New York, NY
  10017

  	 

	
   

  	
   

  	
  Tel.:
  212-739-6400

  	 

	
   

  	
   

  	
  Fax:
  212-739-6444

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
  The
  signatory’s U.S. taxpayer identification number is set forth opposite, and is
  provided under penalty of perjury under U.S. law.  In the event that a taxpayer
  identification number is not provided, any funds provided to the Lead
  Investor Counsel which constitute part of the Escrow Amount will be placed in
  a non-interest bearing escrow account.

  	
   

  	
   

  	 

	
   

  	
   

  	 

	
  Taxpayer ID#

  	 

	
   

  	 

														

 

Aggregate dollar amount of
Securities committed to be purchased pursuant to the terms of the Agreement:

 

	
  First Closing Purchase Price:

  	
   

  	
  $

  	
   

  	
   

  
	
  Second Closing Purchase Price

  	
   

  	
  $

  	
   

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  225,000.00

  	
   

  

 

42

 

[Investor Signature Page]

 

IN WITNESS
WHEREOF, the undersigned has executed this Purchase Agreement or caused its
duly authorized officers to execute this Purchase Agreement as of the date
first above written.

 

	
  Date:

  	
  March 8,
  2004

  	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
  IF AN
  INDIVIDUAL:

  	
   

  	
  IF A
  CORPORATION, PARTNERSHIP,

  	 

	
   

  	
   

  	
  TRUST, ESTATE OR OTHER
  ENTITY:

  	 

	
  /s/ Anders
  D. Hove

  	
   

  	
   

  	 

	
  (Signature)

  	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
  Print name
  of entity

  	 

	
  Anders D.
  Hove

  	
   

  	
   

  	 

	
  (Printed
  Name)

  	
   

  	
  By:

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
  Name

  	
   

  	
   

  
	
   

  	
   

  	
  Title: 

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
  Print
  jurisdiction of organization of entity

  	 

	
   

  	
   

  	
   

  	 

	
  Address: 

  	
   

  	
  Address: 

  	 

	
   7 Stratton Road

  	
   

  	
   

  	 

	
  Scarsdale,
  NY 10583

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
  The
  signatory’s U.S. taxpayer identification number is set forth opposite, and is
  provided under penalty of perjury under U.S. law.  In the event that a taxpayer
  identification number is not provided, any funds provided to the Lead
  Investor Counsel which constitute part of the Escrow Amount will be placed in
  a non-interest bearing escrow account.

  	
   

  	
   

  	 

	
   

  	
   

  	 

	
  Taxpayer ID#

  	 

	
   

  	 

										

 

Aggregate dollar amount of
Securities committed to be purchased pursuant to the terms of the Agreement:

 

	
  First Closing Purchase Price:

  	
   

  	
  $

  	
   

  	
   

  
	
  Second Closing Purchase Price

  	
   

  	
  $

  	
   

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  150,000.00

  	
   

  

 

42

 

[Investor Signature Page]

 

IN WITNESS
WHEREOF, the undersigned has executed this Purchase Agreement or caused its
duly authorized officers to execute this Purchase Agreement as of the date
first above written.

 

	
  Date:

  	
   

  	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
  IF AN
  INDIVIDUAL:

  	
   

  	
  IF A
  CORPORATION, PARTNERSHIP,

  	 

	
   

  	
   

  	
  TRUST, ESTATE OR OTHER
  ENTITY:

  	 

	
   

  	
   

  	
   

  	 

	
  (Signature)

  	
   

  	
  Ursus
  Capital, L.P.

  	
   

  	 

	
   

  	
   

  	
  Print name
  of entity

  	 

	
   

  	
   

  	
   

  	 

	
  (Printed
  Name)

  	
   

  	
  By:

  	
     /s/
  Evan Storza

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
  Name:

  	
  Evan Storza

  	
   

  
	
   

  	
   

  	
  Title: 

  	
  General
  Partner

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	
  Delaware

  	
   

  	 

	
   

  	
   

  	
  Print
  jurisdiction of organization of entity

  	 

	
   

  	
   

  	
   

  	 

	
  Address: 

  	
   

  	
  Address: 

  	 

	
   

  	
   

  	
  Ursus
  Capital

  	 

	
   

  	
   

  	
  156 West 56th
  Street, 16th Floor

  	 

	
   

  	
   

  	
  New York, NY
  10019

  	 

	
   

  	
   

  	
   

  	 

	
  The
  signatory’s U.S. taxpayer identification number is set forth opposite, and is
  provided under penalty of perjury under U.S. law.  In the event that a taxpayer
  identification number is not provided, any funds provided to the Lead
  Investor Counsel which constitute part of the Escrow Amount will be placed in
  a non-interest bearing escrow account.

  	
   

  	
   

  	 

	
   

  	
   

  	 

	
  Taxpayer ID#

  	 

	
   

  	 

											

 

Aggregate dollar amount of
Securities committed to be purchased pursuant to the terms of the Agreement:

 

	
  First Closing Purchase Price:

  	
   

  	
  $

  	
   

  	
   

  
	
  Second Closing Purchase Price

  	
   

  	
  $

  	
   

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  540,000.00

  	
   

  

 

42

 

[Investor Signature Page]

 

IN WITNESS
WHEREOF, the undersigned has executed this Purchase Agreement or caused its
duly authorized officers to execute this Purchase Agreement as of the date
first above written.

 

	
  Date:

  	
   

  	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
  IF AN
  INDIVIDUAL:

  	
   

  	
  IF A
  CORPORATION, PARTNERSHIP,

  	 

	
   

  	
   

  	
  TRUST, ESTATE OR OTHER
  ENTITY:

  	 

	
   

  	
   

  	
   

  	 

	
  (Signature)

  	
   

  	
  Ursus
  OffShore Ltd.

  	
   

  	 

	
   

  	
   

  	
  Print name
  of entity

  	 

	
   

  	
   

  	
   

  	 

	
  (Printed
  Name)

  	
   

  	
  By:

  	
     /s/
  Evan Storza

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
  Name:

  	
  Evan Storza

  	
   

  
	
   

  	
   

  	
  Title: 

  	
  Managing

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	
  Cayman Islands

  	
   

  	 

	
   

  	
   

  	
  Print
  jurisdiction of organization of entity

  	 

	
   

  	
   

  	
   

  	 

	
  Address: 

  	
   

  	
  Address: 

  	 

	
   

  	
   

  	
  c/o Ursus
  Capital

  	 

	
   

  	
   

  	
  156 West 56th
  Street, 16th Floor

  	 

	
   

  	
   

  	
  New York, NY
  10019

  	 

	
   

  	
   

  	
   

  	 

	
  The
  signatory’s U.S. taxpayer identification number is set forth opposite, and is
  provided under penalty of perjury under U.S. law.  In the event that a taxpayer
  identification number is not provided, any funds provided to the Lead
  Investor Counsel which constitute part of the Escrow Amount will be placed in
  a non-interest bearing escrow account.

  	
   

  	
   

  	 

	
   

  	
   

  	 

	
  Taxpayer ID#

  	 

	
   

  	 

										

 

Aggregate dollar amount of
Securities committed to be purchased pursuant to the terms of the Agreement:

 

	
  First Closing Purchase Price:

  	
   

  	
  $

  	
   

  	
   

  
	
  Second Closing Purchase Price

  	
   

  	
  $

  	
   

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  465,000.00

  	
   

  

 

42

[Investor Signature Page]

 

IN WITNESS
WHEREOF, the undersigned has executed this Purchase Agreement or caused its
duly authorized officers to execute this Purchase Agreement as of the date
first above written.

 

 

	
  Date:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  IF AN
  INDIVIDUAL:

  	
   

  	
  IF A
  CORPORATION, PARTNERSHIP,

  
	
   

  	
   

  	
  TRUST, ESTATE OR OTHER ENTITY:

  
	
   

  	
   

  	
   

  
	
  (Signature)

  	
   

  	
  Paul W.
  Brown & Theresa Donovan Brown TTEE Paul & Theresa Brown 1994 Trust
  dtd 10/8/94

  	
   

  
	
   

  	
   

  	
  Print name
  of entity

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  (Printed
  Name)

  	
   

  	
  By:

  	
  /s/ Paul W.
  Brown

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Paul W.
  Brown

  	
   

  
	
   

  	
   

  	
  Title:

  	
  General
  Partner

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  CA

  	
   

  
	
   

  	
   

  	
  Print
  jurisdiction of organization of entity

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  Address:

  
	
   

  	
   

  	
  115 Arbor
  Ct.

  
	
   

  	
   

  	
  Woodside, CA
  94062

  
	
   

  	
   

  	
   

  
	
  The
  signatory’s U.S. taxpayer identification number is set forth opposite, and is
  provided under penalty of perjury under U.S. law.  In the event that a taxpayer
  identification number is not provided, any funds provided to the Lead Investor
  Counsel which constitute part of the Escrow Amount will be placed in a
  non-interest bearing escrow account.

  	
   

  	
   

  	
   

  
	
  Taxpayer ID#

  
	
   

  
													

 

Aggregate dollar amount of
Securities committed to be purchased pursuant to the terms of the Agreement:

 

	
  First Closing Purchase Price:

  	
   

  	
  $

  	
   

  	
   

  
	
  Second Closing Purchase Price

  	
   

  	
  $

  	
   

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  100,000

  	
   

  

 

43

 

[Investor Signature Page]

 

IN WITNESS
WHEREOF, the undersigned has executed this Purchase Agreement or caused its
duly authorized officers to execute this Purchase Agreement as of the date
first above written.

 

 

	
  Date:

  	
  March 8,
  2004

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  IF AN
  INDIVIDUAL:

  	
   

  	
  IF A
  CORPORATION, PARTNERSHIP,

  
	
   

  	
   

  	
  TRUST, ESTATE OR OTHER ENTITY:

  
	
   

  	
   

  	
   

  
	
  (Signature)

  	
   

  	
  Pro Med
  Partners, L.P.

  	
   

  
	
   

  	
   

  	
  Print name
  of entity

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  (Printed
  Name)

  	
   

  	
  By:

  	
  /s/David B. Musket

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  David B.
  Musket

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Managing
  Partner

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  DE

  	
   

  
	
   

  	
   

  	
  Print
  jurisdiction of organization of entity

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  Address:

  
	
   

  	
   

  	
  125
  Cambridge Park Drive

  
	
   

  	
   

  	
  Cambridge,
  MA 02140

  
	
   

  	
   

  	
   

  
	
  The
  signatory’s U.S. taxpayer identification number is set forth opposite, and is
  provided under penalty of perjury under U.S. law.  In the event that a taxpayer
  identification number is not provided, any funds provided to the Lead
  Investor Counsel which constitute part of the Escrow Amount will be placed in
  a non-interest bearing escrow account.

  	
   

  	
   

  	
   

  
	
  Taxpayer ID#

  
	
   

  
													

 

 

Aggregate dollar amount of
Securities committed to be purchased pursuant to the terms of the Agreement:

 

 

	
  First Closing Purchase Price:

  	
   

  	
  $

  	
  22,900

  	
   

  
	
  Second Closing Purchase Price

  	
   

  	
  $

  	
  445,800

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  668,700

  	
   

  

 

44

 

[Investor Signature Page]

 

IN WITNESS
WHEREOF, the undersigned has executed this Purchase Agreement or caused its
duly authorized officers to execute this Purchase Agreement as of the date
first above written.

 

 

	
  Date:

  	
  March 8,
  2004

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  IF AN
  INDIVIDUAL:

  	
   

  	
  IF A
  CORPORATION, PARTNERSHIP,

  
	
   

  	
   

  	
  TRUST, ESTATE OR OTHER ENTITY:

  
	
   

  	
   

  	
   

  
	
  (Signature)

  	
   

  	
  Pro Med
  Partners, II, L.P.

  	
   

  
	
   

  	
   

  	
  Print name
  of entity

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  (Printed
  Name)

  	
   

  	
  By:

  	
  /s/David B. Musket

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  David B.
  Musket

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Managing
  Director

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  DE

  	
   

  
	
   

  	
   

  	
  Print
  jurisdiction of organization of entity

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  Address:

  
	
   

  	
   

  	
  125
  Cambridge Park Drive

  
	
   

  	
   

  	
  Cambridge,
  MA 02140

  
	
   

  	
   

  	
   

  
	
  The
  signatory’s U.S. taxpayer identification number is set forth opposite, and is
  provided under penalty of perjury under U.S. law.  In the event that a taxpayer
  identification number is not provided, any funds provided to the Lead
  Investor Counsel which constitute part of the Escrow Amount will be placed in
  a non-interest bearing escrow account.

  	
   

  	
   

  	
   

  
	
  Taxpayer ID#

  
	
   

  
													

 

 

Aggregate dollar amount of
Securities committed to be purchased pursuant to the terms of the Agreement:

 

 

	
  First Closing Purchase Price:

  	
   

  	
  $

  	
  41,100

  	
   

  
	
  Second Closing Purchase Price

  	
   

  	
  $

  	
  82,200

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  123,300

  	
   

  

 

45

 

[Investor Signature Page]

 

IN WITNESS WHEREOF,
the undersigned has executed this Purchase Agreement or caused its duly
authorized officers to execute this Purchase Agreement as of the date first
above written.

 

 

	
  Date:

  	
  March 8,
  2004

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  IF AN
  INDIVIDUAL:

  	
   

  	
  IF A
  CORPORATION, PARTNERSHIP,

  
	
   

  	
   

  	
  TRUST, ESTATE OR OTHER ENTITY:

  
	
   

  	
   

  	
   

  
	
  (Signature)

  	
   

  	
  Pro Med
  Offshore Fund, Ltd.

  	
   

  
	
   

  	
   

  	
  Print name
  of entity

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  (Printed
  Name)

  	
   

  	
  By:

  	
  /s/David B. Musket

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  David B.
  Musket

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Managing
  Manager

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Offshore

  	
   

  
	
   

  	
   

  	
  Print
  jurisdiction of organization of entity

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  Address:

  
	
   

  	
   

  	
  125
  Cambridge Park Drive

  
	
   

  	
   

  	
  Cambridge,
  MA 02140

  
	
   

  	
   

  	
   

  
	
  The
  signatory’s U.S. taxpayer identification number is set forth opposite, and is
  provided under penalty of perjury under U.S. law.  In the event that a taxpayer
  identification number is not provided, any funds provided to the Lead
  Investor Counsel which constitute part of the Escrow Amount will be placed in
  a non-interest bearing escrow account.

  	
   

  	
   

  	
   

  
	
  Taxpayer ID#

  
	
   

  
													

 

 

Aggregate dollar amount of
Securities committed to be purchased pursuant to the terms of the Agreement:

 

 

 

	
  First Closing Purchase Price:

  	
   

  	
  $

  	
  36,000

  	
   

  
	
  Second Closing Purchase Price

  	
   

  	
  $

  	
  72,000

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  108,000

  	
   

  

 

46

 

[Investor Signature Page]

 

IN WITNESS
WHEREOF, the undersigned has executed this Purchase Agreement or caused its
duly authorized officers to execute this Purchase Agreement as of the date
first above written.

 

	
  Date:

  	
  March 8,
  2004

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  IF AN
  INDIVIDUAL:

  	
   

  	
  IF A CORPORATION, PARTNERSHIP,

  TRUST, ESTATE OR OTHER ENTITY:

  
	
  /s/ Paul
  Scharfer

  	
   

  	
   

  	
   

  
	
  (Signature)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Print name
  of entity

  
	
  Paul
  Scharfer

  	
   

  	
   

  
	
  (Printed
  Name)

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Print
  jurisdiction of organization of entity

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  Address:

  
	
  265
  East  66th Street

  Apt. 6C

  New York, NY 10021

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  The
  signatory’s U.S. taxpayer identification number is set forth opposite, and is
  provided under penalty of perjury under U.S. law.  In the event that a taxpayer
  identification number is not provided, any funds provided to the Lead
  Investor Counsel which constitute part of the Escrow Amount will be placed in
  a non-interest bearing escrow account.

  	
   

  	
   

  	
   

  
	
  Taxpayer ID#

  
								

 

Aggregate dollar amount of
Securities committed to be purchased pursuant to the terms of the Agreement:

 

	
  First Closing Purchase Price:

  	
   

  	
  $

  	
  83,330

  	
   

  
	
  Second Closing Purchase Price

  	
   

  	
  $

  	
  166,660

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  249,990

  	
   

  

 

42

 

[Investor Signature Page]

 

IN WITNESS WHEREOF,
the undersigned has executed this Purchase Agreement or caused its duly
authorized officers to execute this Purchase Agreement as of the date first
above written.

 

	
  Date:

  	
  March 8,
  2004

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  IF AN
  INDIVIDUAL:

  	
   

  	
  IF A CORPORATION, PARTNERSHIP,

  TRUST, ESTATE OR OTHER ENTITY:

  
	
  /s/ David B.
  Musket

  	
   

  	
   

  	
   

  
	
  (Signature)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Print name
  of entity

  
	
  David B.
  Musket

  	
   

  	
   

  
	
  (Printed
  Name)

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Print
  jurisdiction of organization of entity

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  Address:

  
	
  c/o Promed

  125 Cambridge Park Drive

  Cambridge, MA 02140

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  The
  signatory’s U.S. taxpayer identification number is set forth opposite, and is
  provided under penalty of perjury under U.S. law.  In the event that a taxpayer
  identification number is not provided, any funds provided to the Lead
  Investor Counsel which constitute part of the Escrow Amount will be placed in
  a non-interest bearing escrow account.

  	
   

  	
   

  	
   

  
	
  Taxpayer ID#

  
								

 

Aggregate dollar amount of
Securities committed to be purchased pursuant to the terms of the Agreement:

 

	
  First Closing Purchase Price:

  	
   

  	
  $

  	
  80,000

  	
   

  
	
  Second Closing Purchase Price

  	
   

  	
  $

  	
  160,000

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  240,000

  	
   

  

 

43

 

Exhibits

 

	
  Exhibit A

  	
   

  	
  Certificate of Designations

  
	
  Exhibit B

  	
   

  	
  Warrant

  
	
  Exhibit C

  	
   

  	
  Registration Rights Agreement

  
	
  Exhibit D-1

  	
   

  	
  CG Opinion for the First Closing

  
	
  Exhibit D-2

  	
   

  	
  CG Opinion for the Second Closing

  
	
  Exhibit E

  	
   

  	
  Lock-Up and Voting Agreement

  

 

II-1

 

Exhibit A

 

[CERTIFICATE OF DESIGNATIONS]

 

[The Certificate of Designations is filed separately as Exhibit 10.25
of the Company’s

Current Report on Form 8-K, filed on March 26, 2004.]

 

II-1

 

Exhibit B

 

[WARRANT]

 

[The Form of Warrant is filed separately as Exhibit 10.26 of the
Company’s

Current Report on Form 8-K, filed on March 26, 2004.]

 

II-1

 

Exhibit C

 

[REGISTRATION RIGHTS AGREEMENT]

 

[The Registration Rights Agreement is filed separately as Exhibit 10.27
of the Company’s

Current Report on Form 8-K, filed on March 26, 2004.]

 

II-1

 

Exhibit D-1

 

FORM OF CG OPINION FOR FIRST CLOSING

 

March   , 2004

 

To the Purchasers identified

in the Agreement defined below

c/o Xmark Asset Management, LLC

152 West 57th
Street, 21st Floor

New York, NY 10019

 

Ladies and Gentlemen:

 

We have acted as counsel for Aerogen, Inc., a Delaware
corporation (the “Company”), in connection with the issuance and sale of an
aggregate of up to 500,000 shares of Series A-1 Convertible Preferred Stock of
the Company (the “Preferred Stock”) and warrants (the “Warrants”) exercisable
for the purchase of shares of Common Stock of the Company issued in the First
Closing under that certain Purchase Agreement, dated as of March 11, 2004 (the
“Purchase Agreement”) entered into between the Company and the investors set
forth on Schedules I, II and III thereto (collectively, the “Purchasers”).

 

This opinion is furnished to you at the request and on behalf of the
Company pursuant to Section 8.1 of the Purchase Agreement in
connection with the First Closing. 
Capitalized terms used but not defined herein have the meanings given
them in the Purchase Agreement.

 

In connection with this opinion, we have examined the following
documents:

 

(a) the Purchase Agreement;

 

(b) the Warrants, issued by the Company to the
Purchasers, in connection with the First Closing;

 

(c) the Registration Rights Agreement between the Company
and the Purchasers (the “Rights Agreement”); and

 

(d)
the Certificate of Designations.

 

In addition, for purposes of rendering our
opinions below, we have examined the following:

 

(e) that certain Rights Agreement, dated June 5, 2001, by
and between the Company and Mellon Investor Services LLC, a New Jersey limited
liability corporation, as rights agent, as amended on February 24, 2003 and
March 19, 2004 (the “Rights Plan”);

 

 

(f) the Amended and Restated Certificate of Incorporation
of the Company as certified by the Secretary of State of the State of Delaware
on November 15, 2000, as amended by the Certificate of Amendment thereto as
certified by the Secretary of State of the State of Delaware on May 23, 2002,
the Certificate of Amendment thereto certified by the Secretary of State of the
State of Delaware on October 31, 2003 and the Certificate of Designations
thereto certified by the Secretary of State of the State of Delaware on March
19, 2004 (together, the “Restated Certificate”);

 

(g) the Amended and Restated Bylaws of the Company
certified to us by an officer of the Company to be in full force and effect as
of the date of this opinion letter;

 

(h) the resolutions adopted by the board of directors of
the Company at a meeting held on March 8, 2004 and March 17, 2004;

 

(i) the Certificate of Status issued by the Secretary of
State of the State of Delaware stating that the Company is a domestic
corporation in good standing in such state, dated March 17, 2004;

 

(j) the Certificate of Status as a Foreign Corporation
issued by the Secretary of State of the State of California stating that the
Company is a foreign corporation in good standing in such state, dated
March  12, 2004; and

 

(k) certificate of tax good standing for the Company
issued by the Franchise Tax Board of the State of California on March 12, 2004.

 

Items (a) through (d) above are hereinafter collectively referred to as
the “Transaction Documents”; items (f) through (h) above are hereinafter
collectively referred to as the “Organizational Documents”; and items (i)
through (k) above are hereafter referred to as the “Good Standing
Certificates.”

 

In connection with this opinion, we have examined and relied upon the
representations and warranties as to certain factual matters contained in and
made pursuant to the Transaction Documents by the various parties and upon
originals or copies certified to our satisfaction of such records, documents,
certificates, memoranda and other instruments as in our judgment are necessary
or appropriate to enable us to render the opinions expressed below.  Where we render an opinion “to our
knowledge” or concerning an item “known to us” or our opinion otherwise refers
to our knowledge, it is based solely upon (a) an inquiry of attorneys
currently within this firm who represent the Company in connection with this
transaction or who regularly perform substantive legal services for the Company
and (b) receipt of certificates executed by officers of the Company
covering such matters.  We have made no
further investigation.

 

In rendering the opinions expressed below, we have assumed, without
investigation:

 

(a) the genuineness
and authenticity of all signatures on original written documents (except that
such assumption is not made, as to the Company, with respect to the signatures
of the person(s) executing the Transaction Documents on behalf of the Company);

 

3

 

(b)  the authenticity of all documents submitted
to us as originals;

 

(c) the conformity
to originals of all documents submitted to us as copies;

 

(d) the accuracy,
completeness and authenticity of certificates of public officials;

 

(e) the due
incorporation or formation, valid existence, good standing and the corporate or
similar power to enter into, and perform in accordance with their respective
terms, the Transaction Documents, of all parties thereto (except that such
assumption is not made with respect to the Company);

 

(f) the due
authorization, execution and delivery of all documents (except that such
assumption is not made with respect to the due authorization, execution and
delivery of the Transaction Documents by the Company), in each case where the
authorization, execution and delivery thereof by such parties are prerequisites
to the effectiveness of such documents;

 

(g) the legal
capacity of all individuals executing and delivering documents to so execute
and deliver;

 

(h) that the
Transaction Documents are obligations binding upon all parties (except that
such assumption is not made with respect to the Company); and

 

(i) there are no
extrinsic agreements or understandings among the parties to the Transaction
Documents that would modify or interpret the terms of the Transaction Documents
or the respective rights or obligations of the parties thereunder, and no such
agreements or understandings are known to us.

 

We have also
assumed, without investigation, that the Purchasers have filed any required
California franchise or income tax returns and have paid any required
California state franchise, income or similar taxes.

 

Our opinions expressed below are expressed with respect only to the
laws of the State of California, the General Corporation Law of the State of
Delaware and applicable federal laws of the United States and are expressed
only as to the outcome that would pertain were California law, the General
Corporation Law of the State of Delaware or the federal laws of the United
States (excluding choice of law principles and excluding the effect of any law
other than California law, the General Corporation Law of the State of Delaware
or the federal laws of the United States)  the governing law applicable to the
relevant issue.  We express no opinion
as to whether the laws of any particular jurisdiction apply.  We note that the parties to the Transaction
Documents have designated the laws of the State of New York as the laws
governing such Transaction Documents. 
Accordingly, with your permission, our opinion in paragraph 3 below
as to the validity, binding effect and enforceability of the Transaction
Documents, is premised upon the result that would obtain if a California court
were to apply the internal laws of the State of California (notwithstanding the
designation of the laws of the State of New York to govern the

 

4

 

interpretation and enforcement of the Transaction Documents).  Neither special rulings of any governmental
authorities nor opinions of counsel in said jurisdiction have been obtained.

 

Our opinion in paragraph 1 below as to the good standing of the Company
as a domestic corporation in the State of Delaware and as a foreign corporation
in the State of California  is based solely upon our review of the Good Standing
Certificates.  We have made no further
investigation.

 

On
the basis of the foregoing, in reliance thereon, and with the foregoing
qualifications, we are of the opinion that:

 

1.             The Company has
been duly incorporated and is a validly existing corporation in good standing
under the laws of the State of Delaware and has the requisite corporate power
to own its property and assets, to conduct its business as it is currently
being conducted and to enter into and perform its obligations under the
Transaction Documents.  The Company is
qualified as a foreign corporation to do business and is in good standing in
the State of California.

 

2.             The execution,
delivery and performance by the Company of the Transaction Documents and the
issuance of the Preferred Stock and the Warrants in the First Closing have been
duly authorized by all requisite corporate action on the part of the Company
and do not require any further approval of its directors or stockholders.

 

3.             The Purchase
Agreement, Warrants and Rights Agreement have been duly executed and delivered
by the Company and constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms.

 

4.             The rights,
preferences and privileges of the Preferred Stock are as stated in the
Certificate of Designations.

 

5.             The execution and
delivery by the Company of each of the Transaction Documents and the issuance
of the Preferred Stock and Warrants in the First Closing, and the issuance by
the Company of the shares of Common Stock issuable upon conversion of the
Preferred Stock and exercise of the Warrants (assuming such conversion and
exercise occurs on the date hereof): (i) will not violate or contravene or be
in conflict with (a) any provision of the Organizational Documents; (b)
any provision of the General Corporation Law of the State of Delaware and any provision
of any federal or California law, rule or regulation applicable to the Company
in commercial transactions of the nature contemplated by the Transaction
Documents; (c) any order, judgment or decree of any court or other
governmental agency which is known to us and which is binding on the Company or
any of its property; (d) any agreement, indenture or other written agreement or
understanding to which the Company is a party and is identified on Exhibit A
attached hereto (the “Material Agreements”); and (ii) will not result in (a)
any one or more of the Purchasers becoming an Acquiring Person; (b) a Shares
Acquisition Date or a Distribution Date, as each of those terms are defined in
the Rights Plan, or entitle any holder of Rights to exercise any such Rights,
as such term is defined in the Rights Plan.

 

5

 

6.             Other than as
provided in Section 5.5 of the Purchase Agreement and the Disclosure Schedule
delivered in connection with the Purchase Agreement, no further consents,
approvals, authorizations, registrations, declarations or filings are required
to be obtained or made by the Company from or with any federal or California
governmental authority or pursuant to the General Corporation Law of the State
of Delaware or from any other Person under any Material Agreement in order for
it to execute and deliver each of the Transaction Documents, to issue the
Preferred Stock and Warrants in the First Closing and to perform its
obligations as of the date hereof under the Transaction Documents, other than
those consents, approvals, authorizations, registrations, declarations or
filings that have already been obtained and remain in full force and effect and
except for (a)  the filing of a Form D (the “Form D”) with the
Securities and Exchange Commission pursuant to Regulation D promulgated
under the Securities Act of 1933, as amended (the “Securities Act”) and (b) the
filing of the Form D with requisite state jurisdictions.

 

7.             The shares of
Common Stock issuable upon conversion of the Preferred Stock and exercise of
the Warrants issued in the First Closing have been duly authorized and, upon
issuance and delivery upon conversion of such Preferred Stock in accordance
with the terms of the Purchase Agreement and exercise of such Warrants in
accordance with the terms of the Warrants, will be validly issued, outstanding,
fully paid and nonassessable.  Other
than as disclosed in the Purchase Agreement, and the Disclosure Schedule
delivered in connection with the Purchase Agreement, there are no preemptive
rights or, to the best of our knowledge, any options, warrants, conversion
privileges or other rights presently outstanding to purchase any of the
authorized but unissued capital stock of the Company.

 

8.             Assuming the
accuracy of the representations and warranties of the Company set forth in
Section 5 of the Purchase Agreement, of the Purchasers set forth in Section 6
of the Purchase Agreement, and of the Foreign Investors set forth in Section 7
of the Purchase Agreement, the offer, issuance and sale to the Purchasers in
the First Closing pursuant to the Purchase Agreement of the Preferred Stock and
Warrants are exempt from the registration requirements of the Securities Act
and if the Preferred Stock were converted and the Warrants were exercised by
the Purchasers on the date hereof, the issuance of the Preferred Shares and
Warrant Shares would be exempt from the registration requirements of the
Securities Act.

 

9.             Assuming that the Amendment No. 2
to Rights Agreement dated March 19, 2004 by and between the Company and Mellon
Investor Services LLC (the “Rights Agent”) has been validly executed and duly
authorized by the Rights Agent, all Rights (as defined in the Rights Plan) have
expired.

 

The opinions
expressed herein are subject to and limited by the following qualifications,
assumptions, limitations and exceptions:

 

(a)           We express no
opinion as to the enforceability of “choice of forum” or “submission to
jurisdiction” provisions contained in any of the Transaction Documents.

 

6

 

(b)           The legality,
validity, binding nature and enforceability of the Company’s obligations under
the Transaction Documents may be subject to or limited by (1) general
equity principles and the limitations on the availability of equitable relief,
including, without limitation, specific performance; (2) the effect of
applicable bankruptcy, insolvency, fraudulent transfer or conveyance,
reorganization, arrangement, dissolution, moratorium or other similar laws relating
to or affecting creditors’ rights generally; and (3) limitations imposed
by law and public policy on indemnification or exculpation.

 

Notwithstanding the
limitations on rights, remedies and waivers set forth herein, such limitations
do not render the Transaction Documents invalid as a whole, and there exist (in
the Transaction Documents and pursuant to applicable law) legally adequate
remedies for the realization by the Purchasers of the principal benefits
intended to be provided by the Transaction Documents (but subject to the
economic consequences of any delay that may result under applicable law or
judicial decisions).

 

Our opinions set forth
above are limited to the matters expressly set forth in this opinion letter,
and no opinion has been implied, or may be inferred, beyond the matters
expressly stated.  This opinion speaks
only as to law and facts in effect or existing as of the date hereof and we
undertake no obligation or responsibility to update or supplement this opinion
to reflect any facts or circumstances that may hereafter come to our attention
or any changes in any law which may hereafter occur.

 

This opinion letter is intended solely for the benefit of the
addressees of this letter, and is not to be made available to or relied upon by
any other person, firm or entity without our prior written consent (provided,
that copies of this opinion letter may be made available to the counsel,
assignees, transferees, and regulators of the addressees of this letter).

 

	
  Very truly
  yours,

  
	
   

  
	
  COOLEY GODWARD
  LLP

  
	
   

  
	
   

  
	
  By

  	
   

  	
   

  
	
   

  	
  Robert J. Brigham

  	
   

  

 

7

 

Exhibit D-2

 

FORM OF CG OPINION FOR SECOND CLOSING

 

          ,
2004

 

To the Purchasers identified

in the Agreement defined below

c/o Xmark Asset Management, LLC

152 West 57th
Street, 21st Floor

New York, NY 10019

 

Ladies and Gentlemen:

 

We have acted as counsel for Aerogen, Inc., a Delaware
corporation (the “Company”), in connection with the issuance and sale of an
aggregate of up to 1,072,685 shares of Series A-1 Convertible Preferred Stock
of the Company (the “Preferred Stock”) and warrants (the “Warrants”)
exercisable for the purchase of shares of Common Stock of the Company issued in
the Second Closing under that certain Purchase Agreement, dated as of March 11,
2004 (the “Purchase Agreement”) entered into between the Company and the other
investors set forth of Schedules I, II and III thereto (collectively, the
“Purchasers”).

 

This opinion is furnished to you at the request and on behalf of the
Company pursuant to Section 8.1 of the Purchase Agreement in
connection with the Second Closing. 
Capitalized terms used but not defined herein have the meanings given
them in the Purchase Agreement.

 

In connection with this opinion, we have examined the following documents:

 

(a) the Purchase Agreement;

 

(b) the Warrants, issued by the Company to the
Purchasers, in connection with the Second Closing;

 

(c) the Registration Rights Agreement between the Company
and the Purchasers (the “Rights Agreement”); and

 

(d)
the Certificate of Designations.

 

In addition,
for purposes of rendering our opinions below, we have examined the following:

 

 

(e) that certain Rights Agreement, dated June 5, 2001, by
and between the Company and Mellon Investor Services LLC, a New Jersey limited liability
corporation, as rights agent, as amended on February 24, 2004 and March 19,
2004 (the “Rights Plan”);

 

(f) the Amended and Restated Certificate of Incorporation
of the Company  as certified by the
Secretary of State of the State of Delaware on November 15, 2000, as amended by
the Certificate of Amendment thereto as certified by the Secretary of State of
the State of Delaware on May 23, 2002 and the Certificate of Amendment thereto
certified by the Secretary of State of the State of Delaware on October 31,
2003 and the Certificate of Designations thereto certified by the Secretary of
State of the State of Delaware on March   , 2004 (together, the
“Restated Certificate”);

 

(g) the Amended and Restated Bylaws of the Company
certified to us by an officer of the Company to be in full force and effect as
of the date of this opinion letter;

 

(h) the resolutions adopted by the board of directors of
the Company at a meeting held on March 8, 2004;

 

(i) the Certificate of Status issued by the Secretary of
State of the State of Delaware stating that the Company is a domestic
corporation in good standing in such state, dated
                      
  , 2004;

 

(j) the Certificate of Status as a Foreign Corporation
issued by the Secretary of State of the State of California stating that the
Company is a foreign corporation in good standing in such state, dated
              
  , 2004; and

 

(k) certificate of tax good standing for the Company
issued by the Franchise Tax Board of the State of California on
               
  , 2004.

 

Items (a) through (d) above are hereinafter collectively referred to as
the “Transaction Documents”; items (f) through (h) above are hereinafter
collectively referred to as the “Organizational Documents”; and items (i)
through (k) above are hereafter referred to as the “Good Standing
Certificates.”

 

In connection with this opinion, we have examined and relied upon the
representations and warranties as to factual matters contained in and made
pursuant to the Transaction Documents by the various parties and upon originals
or copies certified to our satisfaction of such records, documents,
certificates, memoranda and other instruments as in our judgment are necessary
or appropriate to enable us to render the opinions expressed below.  Where we render an opinion “to our
knowledge” or concerning an item “known to us” or our opinion otherwise refers
to our knowledge, it is based solely upon (a) an inquiry of attorneys
currently within this firm who represent the Company in connection with this
transaction or who regularly perform substantive legal services for the Company
and (b) receipt of certificates executed by officers of the Company
covering such matters.  We have made no
further investigation.

 

9

 

In rendering the opinions expressed below, we have assumed, without
investigation:

 

(a) the genuineness
and authenticity of all signatures on original written documents (except that
such assumption is not made, as to the Company, with respect to the signatures
of the person(s) executing the Transaction Documents on behalf of the Company);

 

(b)  the authenticity of all documents submitted
to us as originals;

 

(c) the conformity
to originals of all documents submitted to us as copies;

 

(d) the accuracy, completeness
and authenticity of certificates of public officials;

 

(e) the due
incorporation or formation, valid existence, good standing and the corporate or
similar power to enter into, and perform in accordance with their respective
terms, the Transaction Documents, of all parties thereto (except that such
assumption is not made with respect to the Company);

 

(f) the due
authorization, execution and delivery of all documents (except that such
assumption is not made with respect to the due authorization, execution and
delivery of the Transaction Documents by the Company), in each case where the
authorization, execution and delivery thereof by such parties are prerequisites
to the effectiveness of such documents;

 

(g) the legal
capacity of all individuals executing and delivering documents to so execute
and deliver;

 

(h) that the
Transaction Documents are obligations binding upon all parties (except that
such assumption is not made with respect to the Company); and

 

(i) there are no
extrinsic agreements or understandings among the parties to the Transaction
Documents that would modify or interpret the terms of the Transaction Documents
or the respective rights or obligations of the parties thereunder, and no such
agreements or understandings are known to us.

 

We have also
assumed, without investigation, that the Purchasers have filed any required
California franchise or income tax returns and have paid any required
California state franchise, income or similar taxes.

 

Our opinions expressed below are expressed with respect only to the
laws of the State of California, the General Corporation Law of the State of
Delaware and applicable federal laws of the United States and are expressed
only as to the outcome that would pertain were California law, the General Corporation
Law of the State of Delaware or the federal laws of the United States
(excluding choice of law principles and excluding the effect of any law other
than California law, the General Corporation Law of the State of Delaware or
the federal laws of the United States)  the governing law applicable to the
relevant issue.  We express no opinion
as to whether the laws of any particular jurisdiction apply.  We note that the parties to the Transaction

 

10

 

Documents have designated the laws of the State of New York as the laws
governing such Transaction Documents. 
Accordingly, with your permission, our opinion in paragraph 3 below
as to the validity, binding effect and enforceability of the Transaction Documents,
is premised upon the result that would obtain if a California court were to
apply the internal laws of the State of California (notwithstanding the
designation of the laws of the State of New York to govern the interpretation
and enforcement of the Transaction Documents). 
Neither special rulings of any governmental authorities nor opinions of
counsel in said jurisdiction have been obtained.

 

Our opinion in paragraph 1 below as to the good standing of the Company
as a domestic corporation in the State of Delaware and as a foreign corporation
in the State of California  is based solely upon our review of the Good Standing
Certificates.  We have made no further
investigation.

 

On
the basis of the foregoing, in reliance thereon, and with the foregoing qualifications,
we are of the opinion that:

 

1.             The Company has
been duly incorporated and is a validly existing corporation in good standing
under the laws of the State of Delaware and has the requisite corporate power
to own its property and assets, to conduct its business as it is currently
being conducted and to enter into and perform its obligations under the
Transaction Documents.  The Company is
qualified as a foreign corporation to do business and is in good standing in
the State of California.

 

2.             The execution,
delivery and performance by the Company of the Transaction Documents and the
issuance of the Preferred Stock and the Warrants in the Second Closing have
been duly authorized by all requisite corporate action on the part of the
Company and do not require any further approval of its directors or
stockholders.

 

3.             The Purchase
Agreement, Warrants and Rights Agreement have been duly executed and delivered
by the Company and constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms.

 

4.             The rights,
preferences and privileges of the Preferred Stock are as stated in the
Certificate of Designations.

 

5.             The execution and
delivery by the Company of each of the Transaction Documents and the issuance
of the Preferred Stock and Warrants in the Second Closing, and the issuance by
the Company of the shares of Common Stock issuable upon conversion of the
Preferred Stock and exercise of the Warrants (assuming such conversion and
exercise occurs on the date hereof): (i) will not violate or contravene or be
in conflict with  (a) any provision
of the Organizational Documents; (b) any provision of the General Corporation
Law of the State of Delaware and any provision of any federal or California
law, rule or regulation applicable to the Company in commercial transactions of
the nature contemplated by the Transaction Documents; (c) any order,
judgment or decree of any court or other governmental agency which is known to
us and which is binding on the Company or any of its property; (d) any
agreement, indenture or other written agreement or understanding to which the
Company is a party and is identified on

 

11

 

Exhibit A attached hereto (the “Material Agreements”);
and (ii) will not result in (a) any one or more of the Purchasers becoming an
Acquiring Person; (b) a Shares Acquisition Date or a Distribution Date, as each
of those terms are defined in the Rights Plan, or entitle any holder of Rights
to exercise any such Rights, as such term is defined in the Rights Plan.

 

6.             Other than as
provided in Section 5.5 of the Purchase Agreement and the Disclosure Schedule
delivered in connection with the Purchase Agreement, no further consents,
approvals, authorizations, registrations, declarations or filings are required
to be obtained or made by the Company from or with any federal or California
governmental authority or pursuant to the General Corporation Law of the State
of Delaware or from any other Person under any Material Agreement in order for
it to execute and deliver each of the Transaction Documents, to issue the
Preferred Stock and Warrants in the Second Closing and to perform its
obligations as of the date hereof under the Transaction Documents, other than
those consents, approvals, authorizations, registrations, declarations or
filings that have already been obtained and remain in full force and effect and
except for (a)  the filing of a Form D (the “Form D”) with the
Securities and Exchange Commission pursuant to Regulation D promulgated
under the Securities Act of 1933, as amended (the “Securities Act”) and (b) the
filing of the Form D with requisite state jurisdictions.

 

7.             The shares of
Common Stock issuable upon conversion of the Preferred Stock and exercise of
the Warrants issued in the Second Closing have been duly authorized and, upon
issuance and delivery upon conversion of such Preferred Stock in accordance
with the terms of the Purchase Agreement and 
exercise of such Warrants in accordance with the terms of the Warrants,
will be validly issued, outstanding, fully paid and nonassessable.  Other than as disclosed in the Purchase
Agreement, and the Disclosure Schedule delivered in connection with the
Purchase Agreement, there are no preemptive rights or, to the best of our
knowledge, any options, warrants, conversion privileges or other rights
presently outstanding to purchase any of the authorized but unissued capital
stock of the Company.

 

8.             Assuming the
accuracy of the representations and warranties of the Company set forth in
Section 5 of the Purchase Agreement, of the Purchasers set forth in Section 6
of the Purchase Agreement, and of the Foreign Investors set forth in Section 7
of the Purchase Agreement, the offer, issuance and sale to the Purchasers in
the Second Closing pursuant to the Purchase Agreement of the Preferred Stock
and Warrants are exempt from the registration requirements of the Securities
Act and if the Preferred Stock were converted and the Warrants were exercised
by the Purchasers on the date hereof, the issuance of the Preferred Shares and
Warrant Shares would be exempt from the registration requirements of the
Securities Act.

 

The opinions
expressed herein are subject to and limited by the following qualifications,
assumptions, limitations and exceptions:

 

(a)           We express no
opinion as to the enforceability of “choice of forum” or “submission to
jurisdiction” provisions contained in any of the Transaction Documents.

 

12

 

(b)           The legality, validity,
binding nature and enforceability of the Company’s obligations under the
Transaction Documents may be subject to or limited by (1) general equity
principles and the limitations on the availability of equitable relief,
including, without limitation, specific performance; (2) the effect of
applicable bankruptcy, insolvency, fraudulent transfer or conveyance,
reorganization, arrangement, dissolution, moratorium or other similar laws
relating to or affecting creditors’ rights generally; and (3) limitations
imposed by law and public policy on indemnification or exculpation.

 

Notwithstanding the
limitations on rights, remedies and waivers set forth herein, such limitations
do not render the Transaction Documents invalid as a whole, and there exist (in
the Transaction Documents and pursuant to applicable law) legally adequate
remedies for the realization by the Purchasers of the principal benefits
intended to be provided by the Transaction Documents (but subject to the
economic consequences of any delay that may result under applicable law or
judicial decisions).

 

Our opinions set forth
above are limited to the matters expressly set forth in this opinion letter,
and no opinion has been implied, or may be inferred, beyond the matters
expressly stated.  This opinion speaks
only as to law and facts in effect or existing as of the date hereof and we
undertake no obligation or responsibility to update or supplement this opinion
to reflect any facts or circumstances that may hereafter come to our attention
or any changes in any law which may hereafter occur.

 

This opinion letter is intended solely for the benefit of the
addressees of this letter, and is not to be made available to or relied upon by
any other person, firm or entity without our prior written consent (provided,
that copies of this opinion letter may be made available to the counsel,
assignees, transferees, and regulators of the addressees of this letter).

 

	
  Very truly
  yours,

  
	
   

  
	
  COOLEY
  GODWARD LLP

  
	
   

  
	
   

  
	
  By

  	
   

  	
   

  
	
   

  	
  Robert J. Brigham

  	
   

  

 

13

 

Exhibit E

 

FORM OF LOCK-UP AND VOTING AGREEMENT

 

This VOTING AND
LOCK-UP AGREEMENT (the “Agreement”)
is made and entered into as of this • day of
March, 2004 by [Name of Stockholder] (“Stockholder”),
pursuant to the terms of that certain Purchase Agreement, dated as of even date
herewith (the “Purchase Agreement”),
for the benefit of Xmark Fund, L.P., a Delaware limited partnership (“Xmark LP”), Xmark Fund, Ltd., a Cayman
Islands exempted company (“Xmark Ltd”,
and together with Xmark LP, the “Lead
Investor”) and certain other “Investors” who are signatories to
the Purchase Agreement.

 

Recitals:

 

WHEREAS,
Stockholder is the beneficial owner of • shares of
common stock, par value $0.001 per share (the “Shares”), of Aerogen, Inc.,  a Delaware corporation (the “Company”);

 

WHEREAS, the
Company, the Lead Investor and the Investors are entering into the Purchase
Agreement contemporaneously herewith; and

 

WHEREAS, in order
to induce the Lead Investor and the other Investors to enter into the Purchase
Agreement, Stockholder has agreed to enter into this Agreement.

 

NOW, THEREFORE, in
consideration of the foregoing and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Stockholder agrees as
follows:

 

ARTICLE I

 

GRANT OF PROXY; VOTING
AGREEMENT AND LOCK-UP

 

SECTION 1.01.  Voting
Agreement.  Stockholder
hereby agrees to (1) so long as the Lead Investor is entitled to designate Lead
Investor Directors under Section 8.8 of the Purchase Agreement, vote all Shares
that Stockholder is entitled to vote at the time of any meeting or meetings of
the stockholders of the Company at such times as would ensure that the Lead
Investor Directors are represented on the Board of Directors of the Company at
all times until the Lead Investor no longer owns any of the Securities, and (2)
to vote all Shares that Stockholder is entitled to vote at the time of any
meeting or meetings of the stockholders of the Company at such times in favor
of the Private Placement and the other transactions contemplated by the
Purchase Agreement.  Stockholder hereby
agrees that he or she will not vote any Shares in favor of the approval of any
action the consummation of which would frustrate the purposes, or prevent or
delay the consummation, of the transactions contemplated by the Purchase
Agreement or any of the foregoing matters.

 

SECTION 1.02.  Irrevocable
Proxy.  By entering into this
Agreement, Stockholder hereby grants a proxy appointing the Lead Investor as
Stockholder’s attorney-in-fact and proxy, with full power of substitution, for
and in Stockholder’s name, to vote, express, consent or

 

1

 

dissent, or
otherwise to utilize such voting power in the manner provided by Section 1.01
above with respect to all the Shares of Stockholder.  The proxy granted by Stockholder pursuant to this Article 1 is
irrevocable and is granted in consideration of the Lead Investor entering into
this Agreement and the Purchase Agreement and incurring certain related fees
and expenses.  The proxy granted by
Stockholder pursuant hereto shall be revoked upon termination of this Agreement
in accordance with its terms.

 

SECTION 1.03.  Lock-up.  Stockholder hereby agrees that during the
period (the “Lock-Up Period”)
beginning on the date hereof and continuing to and including the earlier of (x)
the date that is 365 calendar days after the date that the “Registration
Statement” (as that term is defined in the Registration Rights Agreement) is
declared effective, and (y) the Escrow Termination Date, Stockholder will not,
directly or indirectly, issue, sell, offer or agree to sell, grant any option
for the sale of, pledge, enter into any swap, derivative transaction or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of any of the Shares (whether any such transaction is
to be settled by delivery of common stock, other securities, cash or other
consideration) or otherwise dispose (or publicly announce the undersigned’s
intention to do any of the foregoing) of, directly or indirectly, any Shares; provided,
however, during the Lock-up Period, the Stockholder may sell up to an
aggregate of five percent of the number of Shares (5.00%) held by the
Stockholder on the date of this Agreement (counting shares issuable upon
exercise of options and/or warrants).(1)

 

ARTICLE 2

 

REPRESENTATIONS AND
WARRANTIES OF STOCKHOLDER

 

Stockholder
represents and warrants to the Lead Investor that:

 

(a)           The Shares beneficially owned by
Stockholder do not constitute marital property under applicable laws, or if
such Shares constitute marital property, the consent of Stockholder’s spouse is
not required for the execution and delivery of this Agreement or the
performance by Stockholder of the obligations hereunder.

 

(b)           The execution, delivery and
performance by Stockholder of this Agreement and the consummation of the
transactions contemplated hereby do not and will not (i) violate any applicable
law, rule, regulation, judgment, injunction, order or decree, (ii) require any
consent or other action by any Person under, constitute a default under, or
give rise to any right of termination, cancellation or acceleration or to a
loss of any benefit to which Stockholder is entitled under any provision of any
agreement or other instrument binding on Stockholder, or (iii) result in the
imposition of any lien on any assets of Stockholder;

 

(c)           With respect to the Shares set forth
on the first page of this Agreement, Stockholder (x) is the record or
beneficial owner of such Shares free and clear of any lien and any other
limitation or restriction (including any restriction on the right to vote or
otherwise

 

(1) For Mr. Ivri’s Agreement,
this proviso will instead read: ; provided, however, during the Lock-up Period,
the Stockholder may sell such number of Shares held by the Stockholder on the
date of this Agreement (counting shares issuable upon exercise of options
and/or warrants), as long as all of the proceeds thereof are used solely to
repay indebtedness owing to the Company by Stockholder.

 

2

 

dispose of the
Shares) or (y) has and, throughout the Lock-Up Period, will have the full power
and authority to vote, express consent or dissent, or otherwise utilize the
voting power of such Shares; and

 

(d)           Except for the Shares set forth on
the first page of this Agreement, Stockholder does not beneficially own or
otherwise have the right to vote any (i) shares of capital stock or voting
securities of the Company, (ii) securities of the Company convertible into or
exchangeable for shares of capital stock or voting securities of the Company or
(iii) options or other rights to acquire from the Company any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of the Company.

 

ARTICLE 3

 

MISCELLANEOUS

 

SECTION 3.01.  Further
Assurances.  The Stockholder
will each execute and deliver, or cause to be executed and delivered, all
further documents and instruments and use their best efforts to take, or cause
to be taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations, to consummate and
make effective the transactions contemplated by this Agreement.

 

SECTION 3.02.  Stop
Transfer; Changes In Shares. 
Stockholder agrees and covenants that Stockholder shall not request that
the Company register the transfer (book-entry or otherwise) of any certificate
or uncertificated interest representing any of such Stockholder’s Shares,
without the prior written consent of the Lead Investor.  In the event of a stock dividend or
distribution, or any change in the Common Stock by reason of any stock dividend,
split-up, recapitalization, combination, exchange of shares or the like, the
term “Shares” shall be deemed to refer to and include the Shares as well as all
such stock dividends and distributions and any shares into which or for which
any or all of the Shares may be changed or exchanged.

 

SECTION 3.03.  Amendments.  Any provision of this Agreement may be
amended or waived if, but only if, such amendment or waiver is in writing and
is signed, in the case of an amendment, by Stockholder and the Lead Investor or
in the case of a waiver, by the Person against whom the waiver is to be
effective.

 

SECTION 3.04.  Successors
and Assigns.  The provisions
of this Agreement shall be binding upon and inure to the benefit of the parties
and/or beneficiaries hereto and their respective successors and assigns; provided that Stockholder may not assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of the Lead Investor.  Stockholder agrees that this Agreement and the obligations
hereunder shall attach to the Shares and shall be binding upon any Person to
which legal or beneficial ownership of such Shares shall pass, whether by
operation of law or otherwise, including, without limitation, such
Stockholder’s heirs, guardians, administrators or successors.  Notwithstanding any such transfer of Shares,
the transferor shall remain liable for the performance of all obligations under
this Agreement of the transferor.

 

3

 

SECTION 3.05.  Governing
Law.  This Agreement shall be
construed in accordance with and governed by the laws of the State of New York.

 

SECTION 3.06.  Severability.
 If any term or provision of
this Agreement is held by a court of competent jurisdiction or other authority
to be invalid, void or unenforceable the remainder of the terms and provisions
of this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.

 

SECTION 3.07.  Specific
Performance.  Stockholder
agrees that irreparable damage would occur in the event any provision of this
Agreement is not performed in accordance with the terms hereof and that the
beneficiaries hereof shall be entitled to specific performance of the terms
hereof in addition to any other remedy to which they are entitled at law or in
equity.

 

SECTION 3.08.  Capitalized
Terms.  Capitalized terms
used but not defined herein shall have the respective meanings set forth in the
Purchase Agreement.

 

SECTION 3.09  Termination.  This Agreement may be terminated by either
party upon written notice to the other given after the earlier of (x) the
Escrow Termination Date, and (y) the date on which the Stockholder is no longer
obligated to vote the Shares under Section 1 of this Agreement; but in no event
sooner than the expiration of the Lock-Up Period.

 

IN WITNESS
WHEREOF, Stockholder has executed this Agreement as of the date first above
written.

 

 

	
   

  	
   

  
	
   

  	
  [Stockholder]

  

 

4Exhibit 10.25

 

CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
RIGHTS

 

OF

 

SERIES A-1 PREFERRED STOCK

 

OF

 

AEROGEN, INC.

 

(Pursuant to Section 151 of the

Delaware General Corporation Law)

 

Aerogen, Inc. (the “Corporation”),
a corporation organized and existing under the laws of the State of Delaware,
hereby certifies that, pursuant to authority conferred on its Board of
Directors (the “Board”) by
the Amended and Restated Certificate of Incorporation of the Corporation, the
following resolution was adopted by the Board at a meeting of the Board duly
held on March 8, 2004, which resolution remains in full force and effect
on the date hereof:

 

RESOLVED, that there
is hereby established a series of the Corporation’s authorized Preferred Stock
(the “Preferred Stock”)
having a par value of $0.001 per share, which series shall be designated as
“Series A-1 Preferred Stock” (the “Series
A-1 Preferred Stock”) and shall consist of One Million Five
Hundred Seventy Two Thousand Six Hundred Eighty Five (1,572,685) shares.  The shares of Series A-1 Preferred Stock
shall have the voting powers, designations, preferences and other special
rights, and qualifications, limitations and restrictions thereof set forth
below:

 

1.                                      Certain Definitions.  As used herein, the following terms
shall have the following meanings:

 

(a)                                  “Affiliate” shall mean, with respect to
any Person, any other Person directly or indirectly controlling or controlled
by or under direct or indirect common control with such specified Person.  For the purposes of this definition, “control,” when used with respect to
any Person, means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms “affiliated,” “controlling” and “controlled” have meanings correlative
to the foregoing.

 

(b)                                 “Business Day” shall mean a day, other
than a Saturday or Sunday, on which banks in New York City are open for the
general transaction of business.

 

(c)                                  “Fair Market Value” shall mean, with
respect to any listed security, its Market Price, and with respect to any
property or assets other than cash or listed securities, the fair value thereof
determined in good faith by the Board and the Requisite Holders.

 

 

(d)                                 “Initial Issue Date” shall mean the
date that shares of Series A-1 Preferred Stock are first issued by the
Corporation.

 

(e)                                  “Lead Series A-1 Preferred  Investors” shall mean each of Xmark Fund, L.P. and
Xmark Fund, Ltd.

 

(f)                                    “Market Price”, as of a particular date
(the “Valuation Date”),
shall mean the following with respect to any class of listed securities: (A) if
such security is then listed on a national stock exchange, the Market Price
shall be the closing sale price of one share of such security on such exchange
on the last trading day prior to the Valuation Date, provided that if such
security has not traded in the prior ten (10) trading sessions, the Market
Price shall be the average closing price of such security in the most recent
ten (10) trading sessions during which such security has traded; (B) if such
security is then included in The Nasdaq Stock Market, Inc. (“Nasdaq”), the Market Price shall be
the closing sale price of one share of such security on Nasdaq on the last
trading day prior to the Valuation Date or, if no such closing sale price is
available, the average of the high bid and the low ask price quoted on Nasdaq
as of the end of the last trading day prior to the Valuation Date, provided
that if such security has not traded in the prior ten (10) trading sessions,
the Market Price shall be the average closing price of one share of such
security in the most recent ten (10) trading sessions during which such
security has traded; (C) if such security is then included in the
Over-the-Counter Bulletin Board, the Market Price shall be the closing sale
price of one share of such security on the Over-the-Counter Bulletin Board on
the last trading day prior to the Valuation Date or, if no such closing sale
price is available, the average of the high bid and the low ask price quoted on
the Over-the-Counter Bulletin Board as of the end of the last trading day prior
to the Valuation Date, provided that if such stock has not traded in the prior
ten (10) trading sessions, the Market Price shall be the average closing price
of one share of such security in the most recent ten (10) trading sessions
during which such security has traded; or (D) if such security is then included
in the “pink sheets,” the Market Price shall be the closing sale price of one
share of such security on the “pink sheets” on the last trading day prior to
the Valuation Date or, if no such closing sale price is available, the average
of the high bid and the low ask price quoted on the “pink sheets” as of the end
of the last trading day prior to the Valuation Date, provided that if such
stock has not traded in the prior ten (10) trading sessions, the Market Price
shall be the average closing price of one share of such security in the most
recent ten (10) trading sessions during which such security has traded.

 

(g)                                 “Person” shall mean any individual,
partnership, company, limited liability company, joint venture, association,
joint-stock company, trust, unincorporated organization, government or agency
or political subdivision thereof, or other entity.

 

(h)                                 “Requisite Holders” shall mean (i) the
holders of at least a majority of the then outstanding shares of Series A-1
Preferred Stock, and (ii) each of the Lead Series A-1 Preferred Investors, so
long as the Lead Series A-1 Preferred Investors own at least eighty thousand
(80,000) shares of Preferred Stock in the aggregate (in each case as
appropriately adjusted for any stock dividend, stock split, reverse stock
split,

 

 

reclassification, stock combination or other recapitalization occurring
after the date hereof).

 

(i)                                     “Series A-1 Stated Value” shall mean,
with respect to each share of Series A-1 Preferred Stock, Thirty Dollars
($30.00), which Series A-1 Stated Value shall be subject to appropriate
adjustment from time to time in the event of any stock dividend, stock split,
reverse stock split, reclassification, stock combination or other
recapitalization affecting the Series A-1 Preferred Stock.

 

2.                                      Designation; Preference and Ranking.  The Series A-1 Preferred Stock shall consist
of One Million Five Hundred Seventy Two Thousand Six Hundred Eighty Five
(1,572,685) shares.  The preferences of
each share of Series A-1 Preferred Stock with respect to dividend payments and
distributions of the Corporation’s assets upon voluntary or involuntary liquidation,
dissolution or winding up of the Corporation shall be equal to the preferences
of every other share of Series A-1 Preferred Stock from time to time
outstanding in every respect. 
Notwithstanding the terms and conditions of any series of Preferred
Stock now or hereafter existing providing that the Series A-1 Preferred Stock
shall rank junior or senior thereto, the Series A-1 Preferred Stock shall rank
senior to all other outstanding series of Preferred Stock and senior to the
Common Stock, par value $0.001 per share (the “Common Stock”), of the Corporation as to the payment of
dividends and the distribution of assets upon voluntary or involuntary
liquidation, dissolution or winding up of the Corporation.

 

3.                                      Dividend Rights.  (a) 
Each holder of Series A-1 Preferred Stock, in preference and priority to
the holders of all other classes of stock, shall be entitled to receive, with
respect to each share of Series A-1 Preferred Stock then outstanding and held
by such holder of Series A-1 Preferred Stock, dividends, commencing from the
date of issuance of such share of Series A-1 Preferred Stock, at the rate of
six percent (6%) per annum of the Series A-1 Stated Value (the “Series A-1 Preferred Dividends”).  The Series A-1 Preferred Dividends shall be
cumulative, whether or not earned or declared, and shall be paid quarterly in
arrears on the first day of January, April, July and October in each
year.  The Series A-1 Preferred
Dividends shall be paid to each holder of Series A-1 Preferred Stock, at the
Corporation’s election, out of legally available funds or through the issuance
of such number of shares of Common Stock determined by dividing the amount of
the total accrued but unpaid dividends then outstanding on such holder’s shares
of the Common Stock by the then existing Fair Market Value (rounded up to the
nearest whole share).  Any election by
the Corporation to pay dividends in cash or shares of Common Stock shall be
made uniformly with respect to all outstanding shares of Series A-1 Preferred
Stock for a given dividend period.

 

(b)                                 No
dividends shall be paid on any Common Stock of the Corporation or any other
capital stock of the Corporation during any fiscal year of the Corporation
until all outstanding Series A-1 Preferred Dividends (with respect to the
current fiscal year and all prior fiscal years) shall have been paid or
declared and set apart for payment to the holders of Series A-1 Preferred
Stock.

 

 

(c)                                  In
the event that the Corporation shall at any time pay a dividend on the Common
Stock (other than a dividend payable solely in shares of Common Stock) or any
other class or series of capital stock of the Corporation, the Corporation
shall, at the same time, pay to each holder of Series A-1 Preferred Stock
a dividend equal to the dividend that would have been payable to such holder if
the shares of Series A-1 Preferred Stock held by such holder had been
converted into Common Stock on the date of determination of holders of Common
Stock entitled to receive such dividends, subject to the limitations on
conversion set forth in Section 6(j) below.

 

4.                                      Liquidation Rights. (a)  In the event of any liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, the holders
of Series A-1 Preferred Stock shall be entitled to receive, on a pro rata
basis, prior and in preference to any distribution of any of the assets or
surplus funds of the Corporation to the holders of the Common Stock, or any
other class of capital stock of the Corporation, an amount equal to the Series
A-1 Stated Value for each share of Series A-1 Preferred Stock then held by such
holder, plus an amount equal to all declared but unpaid dividends, and all
accrued but unpaid dividends set forth in Section 3(a) above, on each such
share of Series A-1 Preferred Stock (the “Liquidation
Preference Payment”). 
If, upon the occurrence of any such liquidation, dissolution or winding
up of the Corporation, the assets and funds to be distributed among the holders
of Series A-1 Preferred Stock shall be insufficient to permit the payment to
such holders of the full Liquidation Preference Payment, then  the
entire assets and funds of the Corporation legally available for distribution
shall be distributed ratably among the holders of Series A-1 Preferred Stock in
proportion to the Liquidation Preference Payment each such holder is entitled
to receive, and no assets of the Corporation shall be distributed to the
holders of the Common Stock or any other class or series of capital stock of
the Corporation in respect of such Common Stock or such other stock unless and
until the Liquidation Preference Payment payable to all holders of the Series
A-1 Preferred Stock has been indefeasibly paid in full.

 

(b)                                 After
payment of the full Liquidation Preference Payment to the holders of the Series
A-1 Preferred Stock as set forth in Section 4(a) above and subject to any
other distribution that may be required with respect to any future series of
Preferred Stock that may from time to time come into existence, the remaining
assets and funds of the Corporation, if any, available for distribution to
stockholders shall be distributed ratably among the holders of the Series A-1
Preferred Stock, any other class or series of capital stock that participates
with the Common Stock in the distribution of assets upon any liquidation,
dissolution or winding up of the Corporation and the Common Stock, with the
holders of the Series A-1 Preferred Stock deemed to hold that number of shares
of Common Stock into which such shares of Series A-1 Preferred Stock are then
convertible.

 

(c)                                  The
Requisite Holders, by written notice to the Corporation at least two (2)
Business Days prior to the effective date thereof (and in no event less than
eighteen (18) Business Days after receipt of an Acquisition Notice (as defined
below) or less than eight (8) Business Days after a Change Notice (as defined
below)),  may
elect to

 

 

treat any of the following transactions as a dissolution or winding up
of the Corporation for the purposes of this Section 4:  (1) a consolidation or merger of the
Corporation with or into any other corporation or corporations which results in
the stockholders of the Corporation owning less than fifty percent (50%) of the
outstanding capital stock of the surviving entity; (2) a sale of all or substantially
all of the assets of the Corporation; (3) the issuance and/or sale by the
Corporation in one or a series of related transactions of shares of Common
Stock (or securities convertible or exchangeable into or exercisable for shares
of Common Stock) constituting a majority of the shares of Common Stock
outstanding immediately following such issuance (treating all securities
convertible or exchangeable into or exercisable for shares of Common Stock as
having been fully converted, exchanged and exercised); and (4) any other form
of acquisition or business combination where the Corporation is the target of
such acquisition and where a change in control occurs such that the Person
seeking to acquire the Corporation has the power to elect a majority of the Board
as a result of the transaction  (each
such event an “Acquisition”).  The Corporation shall give written notice
(the “Acquisition Notice”)
to the holders of Series A-1 Preferred Stock at least twenty (20) Business Days
prior to the consummation of any Acquisition. 
Such Acquisition Notice shall describe the material terms and conditions
of such Acquisition and the rights of the holders of Series A-1 Preferred Stock
pursuant to this Section 4, and the Corporation shall give such holders
written notice (a “Change Notice”)
of any material changes at least ten (10) Business Days prior to the
consummation of any Acquisition.

 

(d)                                 Distributions
Other than Cash.  Whenever the distributions provided for in
this Section 4 shall be payable in property other than cash, the value of
such distribution shall be the  Fair Market Value thereof.  All distributions (including distributions
other than cash) made hereunder shall be made pro  rata to the
holders of Series A-1 Preferred Stock, based on the number of shares of Series A-1
Preferred Stock held by each such holder.

 

(e)                                  Nothing
in this Section 4 shall affect in any way the right of each holder of
Series A-1 Preferred Stock to convert such shares at any time and from time to
time into Common Stock in accordance with Section 6 hereof prior to the
liquidation, dissolution or winding up of the Corporation or consummation of
any Acquisition.

 

5.                                      Voting
Rights; Protective Provisions.

 

(a)                                  Except
as otherwise provided herein or as required by applicable law, the holders of
Series A-1 Preferred Stock shall be entitled to vote on all matters on which
the holders of Common Stock shall be entitled to vote, in the same manner and
with the same effect as the holders of Common Stock, voting together with the
holders of Common Stock as a single class. 
For this purpose, the holders of Series A-1 Preferred Stock shall be
given notice of any meeting of stockholders as to which the holders of Common
Stock are given notice in accordance with the by-laws of the Corporation.  As to any matter on which the holders of
Series A-1 Preferred Stock shall be entitled to vote, each holder of Series A-1
Preferred Stock shall have a number of votes per share of Series A-1 Preferred
Stock held of record by such holder on the record date for the

 

 

meeting of stockholders, if such matter is subject to a vote at a
meeting of stockholders, or on the effective date of any written consent, if
such matter is subject to a written consent of the stockholders without a
meeting of stockholders, equal to the number of shares of Common Stock into
which such share of Series A-1 Preferred Stock is then convertible on such
record date or effective date, as the case may be, in accordance with
Section 6 hereof (subject to the limitations on conversion set forth in Section 6(j)
below).

 

(b)                                 As
long as at least two hundred thousand (200,000) shares of Series A-1 Preferred
Stock are outstanding (appropriately adjusted for any stock dividend, stock
split, reverse stock split, reclassification, stock combination or other
recapitalization occurring after the date hereof), the Corporation shall not,
without the affirmative vote or written consent of the Requisite Holders,
directly or indirectly, take any of the following actions or agree to take any
of the following actions:

 

(1)                                  amend,
alter or repeal any of the provisions of the Corporation’s Amended and Restated
Certificate of Incorporation or Bylaws or this Certificate of Designations, or
in any way change the preferences, privileges, rights or powers with respect to
the Series A-1 Preferred Stock or reclassify any class of stock, including,
without limitation, by way of merger or consolidation;

 

(2)                                  authorize,
create, designate, issue or sell any (A) class or series of capital stock
(including shares of treasury stock), (B) rights, options, warrants or other
securities convertible into or exercisable or exchangeable for capital stock or
(C) any debt security which by its terms is convertible into or exchangeable
for any capital stock or has any other equity feature or any security that is a
combination of debt and equity, which capital stock, in each case, is senior to
or pari  passu with the Series A-1 Preferred Stock;

 

(3)                                  increase
the number of authorized shares of Series A-1 Preferred Stock or authorize the
issuance of or issue any shares of Series A-1 Preferred Stock (other than in
connection with the payment of Series A-1 Preferred Dividends in accordance
with Section 3 hereof);

 

(4)                                  increase
or decrease the number of authorized shares of any class of capital stock of
the Corporation;

 

(5)                                  agree
to any restriction on the Corporation’s ability to satisfy its obligations
hereunder to holders of Series A-1 Preferred Stock or the Corporation’s ability
to honor the exercise of any rights of the holders of the Series A-1 Preferred
Stock;

 

(6)                                  directly
or indirectly declare or pay any dividend or make any distribution (whether in
cash, shares of capital stock of the Corporation, or other property) on shares
of capital stock of the Corporation (except with respect to shares of Series
A-1 Preferred Stock in accordance with the terms of this Certificate of
Designations), or redeem, purchase or otherwise acquire for value (including
through an exchange), or set apart money or other property for any mandatory
purchase or analogous

 

 

fund for the redemption, purchase or acquisition of any shares of
capital stock of the Corporation (except with respect to the repurchase of
shares of Common Stock held by employees, officers or directors of the
Corporation, which has been approved by the Board);

 

(7)                                  consummate
an Acquisition or enter into an agreement with respect to an Acquisition;

 

(8)                                  materially
change the nature or scope of the business of the Corporation to a business
other than the manufacturing or formulation of devices or drugs for aerosol
delivery;

 

(9)                                  consummate
or agree to make any sale, transfer, assignment, pledge, lease, license or
similar transaction by which the Corporation grants on an exclusive basis any
rights to any of the Corporation’s intellectual property other than intellectual
property relating to the Corporation’s insulin program or the licensing of any
of the Corporation’s intellectual property to a ventilator manufacturer for
incorporation into such manufacturer’s ventilator technology;

 

(10)                            create,
incur, assume or suffer to exist, any lien, charge or other encumbrance on any
of its properties or assets, other than liens of carriers, warehousemen,
artisans, bailees, mechanics and materialmen incurred in the ordinary course of
business securing sums not overdue; or

 

(11)                            agree
to do any of the foregoing.

 

(c)                                  As
long as at least two hundred thousand (200,000) shares of Series A-1 Preferred
Stock are outstanding (appropriately adjusted for any stock dividend, stock
split, reverse stock split, reclassification, stock combination or other
recapitalization occurring after the date hereof), the Corporation shall not,
without the affirmative vote or written consent of the Requisite Holders,
directly or indirectly, take any of the following actions or agree to take any
of the following actions unless such action has been approved by the Board:

 

(1)                                  approve
the annual budget of the Corporation or any changes thereto;

 

(2)                                  incur
any indebtedness for borrowed money (whether directly or indirectly through an
Affiliate or otherwise) in excess of twenty-five thousand dollar ($25,000) in
one or a series of related transactions other than trade payables incurred in
the ordinary course of business or indebtedness provided for in and consistent
with the approved current annual budget;

 

(3)                                  increase
the compensation or benefits payable or to become payable to its directors or
executive officers other than pursuant to the terms of any agreement as in
effect prior to the Initial Issue Date;

 

 

(4)                                  make
any loans to its directors, officers or shareholders;

 

(5)                                  assume,
endorse or become liable for or guaranty the obligations of any Person;

 

(6)                                  cancel
any liability or debt owed to it, except for consideration equal to or
exceeding the outstanding balance of such liability or debt, and in any event,
in the ordinary course of business; or

 

(7)                                  agree
to do any of the foregoing.

 

For this purpose, the holders of Series A-1 Preferred Stock shall be
given notice of any meeting of stockholders as to which the holders of Common
Stock or any other class or series of capital stock of the Corporation are
given notice in accordance with the by-laws of the Corporation.  As to any matter on which the holders of
Series A-1 Preferred Stock shall be entitled to vote in accordance with this
Sections 5(b) and 5(c), each holder of Series A-1 Preferred Stock shall have
one vote for each share of Series A-1 Preferred Stock held of record by such
holder on the record date for the meeting of stockholders, if such matter is
subject to a vote at a meeting of stockholders, or on the effective date of any
written consent, if such matter is subject to a written consent of the
stockholders without a meeting of stockholders.

 

6.                                      Conversion.  The holders of shares of Series A-1 Preferred Stock shall
have the following conversion rights:

 

(a)                                  Subject
to the terms and conditions of this Section 6, the holder of any share or
shares of Series A-1 Preferred Stock shall have the right, at its option at any
time, to convert any such shares of Series A-1 Preferred Stock into such number
of fully paid and nonassessable shares of Common Stock as is obtained by: (i)
multiplying the number of shares of Series A-1 Preferred Stock to be converted
by the Series A-1 Stated Value and adding to such product the amount of any
accrued but unpaid dividends with respect to such shares of Series A-1
Preferred Stock to be converted; and (ii) dividing the result obtained pursuant
to clause (i) above by the Series A-1 Conversion Price then in effect.  The “Series
A-1 Conversion Price” shall initially be $3.00, and shall be
subject to adjustment from time to time in accordance with the provisions of
this Section 6.  The rights of
conversion set forth in this Section 6 shall be exercised by any holder of
Series A-1 Preferred Stock by giving written notice to the Corporation that
such holder elects to convert a stated number of shares of Series A-1 Preferred
Stock into Common Stock and by surrender of a certificate or certificates for
the shares of Series A-1 Preferred Stock so to be converted (or, in lieu thereof,
by delivery of an appropriate lost stock affidavit in the event such
certificate or certificates have been lost or destroyed) to the Corporation at
its principal office (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the holders of Series A-1
Preferred Stock) at any time on the date set forth in such notice (which date
shall not be earlier than the Corporation’s receipt of such notice), together
with a statement of the name or names (with address) in which the certificate
or certificates for shares of Common Stock shall be issued.

 

 

(b)                                 Promptly
after receipt of the written notice referred to in Section 6(a) above and
surrender of the certificate or certificates for the share or shares of Series
A-1 Preferred Stock to be converted (or, in lieu thereof, by delivery of an
appropriate lost stock affidavit in the event such certificate or certificates
have been lost or destroyed), but in no event more than three (3) Business Days
thereafter, the Corporation shall issue and deliver, or cause to be issued and
delivered, to the holder of Series A-1 Preferred Stock, registered in such name
or names as such holder may direct in writing, a certificate or certificates
for the number of whole shares of Common Stock issuable upon the conversion of
such share or shares of Series A-1 Preferred Stock. To the extent permitted by
law, such conversion shall be deemed to have been effected, and the Series A-1
Conversion Price shall be determined, as of the close of business on the date
on which such written notice shall have been received by the Corporation and
the certificate or certificates for such share or shares of Series A-1
Preferred Stock shall have been surrendered as aforesaid (or, in lieu thereof,
an appropriate lost stock affidavit has been delivered to the Corporation), and
at such time, the rights of the holder of such share or shares of Series A-1
Preferred Stock shall cease with respect to the shares of Series A-1 Preferred
Stock being converted, and the Person or Persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
of the shares represented thereby.

 

(c)                                  No
fractional shares shall be issued upon any conversion of shares of Series A-1
Preferred Stock into Common Stock.  If
any fractional share of Common Stock would, except for the provisions of the
first sentence of this Section 6(c), be delivered upon such conversion,
the Corporation, in lieu of delivering such fractional share, shall pay to the
holder surrendering the shares of Series A-1 Preferred Stock for conversion an
amount in cash equal to the Market Price of such fractional share of Common
Stock.  In case the number of shares of
Series A-1 Preferred Stock represented by the certificate or certificates
surrendered pursuant to Section 6(a) above exceeds the number of shares
converted, the Corporation shall, upon such conversion, execute and deliver to
the holder, at the expense of the Corporation, a new certificate or
certificates for the number of shares of Series A-1 Preferred Stock represented
by the certificate or certificates surrendered which are not to be converted.

 

(d)                                 Except as provided in
Section 6(e) below, if and whenever the Corporation shall issue or sell,
or is, in accordance with Sections 6(d)(1) through 6(d)(5) hereof, deemed to
have issued or sold, any shares of Common Stock for a consideration per share
less than the Series A-1 Conversion Price in effect immediately prior to the
time of such issue or sale, then and in each such case (a “Trigger Issuance”), regardless of
whether such issuance or sale was approved under Section 5 above,
effective as of the close of business on the effective date of the Trigger
Issuance the then-existing Series A-1 Conversion Price shall be reduced to the
lowest price per share at which any share of Common Stock was issued or sold or
deemed to be issued or sold in such Trigger Issuance.

 

 

For purposes of this Section 6(d), the following subsections
(d)(l) to (d)(5) shall also be applicable (subject, in each such case, to the
provisions of Section 6(e) hereof):

 

(d)(1) In case at any time after the date
hereof the Corporation shall in any manner grant, issue or sell any stock or
security convertible into or exchangeable for Common Stock (“Convertible Securities”) or any
warrants or other rights to subscribe for or to purchase, or any options for
the purchase of, Common Stock or any Convertible Securities (such warrants,
rights or options being called “Options”),
whether or not the right to convert, exchange or exercise any such Convertible
Securities or such Options are immediately exercisable, and the price per share
for which Common Stock is issuable upon the conversion or exchange of such
Convertible Securities or upon the exercise of such Options (determined by
dividing (i) the sum of (x) the total amount, if any, received or receivable by
the Corporation as consideration for the issue or sale of such Convertible
Securities or the granting of such Options, plus (y) the aggregate amount of
additional consideration, if any, payable to the Corporation upon the
conversion or exchange of all such Convertible Securities or the exercise of
all such Options, plus (z), in the case of such Options to purchase Convertible
Securities, the aggregate amount of additional consideration, if any, payable
upon the conversion or exchange of such Convertible Securities, by (ii) the
maximum number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities, or upon the exercise of such
Options, or upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options), shall be less than the Series A-1
Conversion Price in effect immediately prior to the time of the issue or sale
of such Convertible Securities or the granting of such Options, then the total
number of shares of Common Stock issuable upon the conversion or exchange of
such Convertible Securities, or the exercise of such Options, or upon the
conversion or exchange of the maximum amount of such Convertible Securities
issuable upon the exercise of such Options shall be deemed to have been issued
for such price per share as of the date of the issuance or sale of such
Convertible Securities or the granting of such Options (including Options to
purchase Convertible Securities) and thereafter shall be deemed to be
outstanding for purposes of adjusting the Series A-1 Conversion Price.  Except as otherwise provided in
Section 6(d)(2), no additional adjustment of the Series A-1 Conversion
Price shall be made upon the actual issue of such Common Stock upon conversion
or exchange of such Convertible Securities or upon exercise of such Options.

 

(d)(2) Upon the happening of any of the
following events, namely, if the purchase price provided for in any Option
referred to in Section 6(d)(l) hereof, the additional consideration, if
any, payable upon the conversion or exchange of any Convertible Securities referred
to in Section 6(d)(l), or the rate at which Convertible Securities
referred to in

 

 

Section 6(d)(l) are convertible into or exchangeable for Common
Stock shall change at any time (including, but not limited to, changes under or
by reason of provisions designed to protect against dilution), the Series A-1
Conversion Price in effect at the time of such event shall forthwith be
readjusted to the Series A-1 Conversion Price which would have been in effect
at such time had such Options or Convertible Securities still outstanding
provided for such changed purchase price, additional consideration or
conversion rate, as the case may be, at the time initially granted, issued or
sold, but only if as a result of such adjustment the Series A-1 Conversion
Price then in effect hereunder is thereby reduced.

 

(d)(3) 
In case any shares of Common Stock, Options or Convertible Securities
shall be issued or sold for cash, the consideration received therefor shall be
deemed to be the net amount received by the Corporation therefor, after
deduction therefrom of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection therewith.  In case any shares of Common Stock, Options
or Convertible Securities shall be issued or sold for a consideration other
than cash, the amount of the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such consideration as
determined in good faith by the Board, after deduction of any expenses incurred
or any underwriting commissions or concessions paid or allowed by the
Corporation in connection therewith.

 

(d)(4) 
In case the Corporation shall take a record of the holders of its Common
Stock for the purpose of entitling them (i) to receive a dividend or other
distribution payable in Common Stock, Options or Convertible Securities or (ii)
to subscribe for or purchase Common Stock, Options or Convertible Securities,
then such record date shall be deemed to be the date of the issue or sale of
the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.  Notwithstanding the foregoing, no
anti-dilution adjustment provided for in this Section 6 shall be effected
with respect to any transaction for which a record date is set by the
Corporation if the transaction is abandoned by the Corporation prior to the
time such transaction becomes effective.

 

(d)(5) 
The number of shares of Common Stock outstanding at any given time shall
not include shares owned or held by or for the account of the Corporation or
any of its subsidiaries, and the disposition of any such shares (other than the
cancellation or retirement thereof) shall be considered an issue or sale of
Common Stock for the purpose of this Section 6(d).

 

 

(e)                                  Anything
herein to the contrary notwithstanding, the Corporation shall not be required
to make any adjustment of the Series A-1 Conversion Price in the case of the
following issuances of shares of Common Stock from and after the Initial Issue
Date: (i) issuances upon the exercise of any Options or Convertible Securities
granted, issued and outstanding on the Initial Issue Date; (ii) issuances upon
the grant or exercise of any stock or options which may hereafter be granted or
exercised under any employee benefit plan, stock option plan or restricted
stock plan of the Corporation in existence on the Initial Issue Date, so long
as the issuance of such stock or options is approved by a majority of the
independent members of the Board or a majority of the members of a committee of
independent directors established for such purpose; (iii) issuances of
securities as consideration for a merger or consolidation with, or purchase of
assets from, a non-Affiliated third party or in connection with any strategic
partnership or joint venture with a non-Affiliated third party with which the
Corporation will enter into technology agreements (the primary purpose of any
such action is not to raise equity capital); (iv) shares of Common Stock
issuable upon conversion of Series A-1 Preferred Stock or as payment-in-kind
dividends on the Series A-1 Preferred Stock in accordance with the terms
hereof; (v) shares of Common Stock issued or issuable as a result of any stock
split, combination, dividend, distribution, reclassification, exchange or
substitution for which an equitable adjustment is provided for in Sections
6(f), (g), (h) or (i) below; and (vi) shares of Common Stock issued (or
issuable upon exercise, exchange or conversion of rights, options or warrants
outstanding from time to time) which the Requisite Holders expressly elect in
writing to treat as an excluded issuance hereunder (collectively, “Excluded Issuances”).

 

(f)                                    If,
at any time after the Initial Issue Date, the number of shares of Common Stock
outstanding is increased by a stock dividend payable in shares of Common Stock
or by a subdivision or split-up of shares of Common Stock, then, following the
record date for the determination of holders of Common Stock entitled to
receive such stock dividend, or to be affected by such subdivision or split-up,
the Series A-1 Conversion Price shall be appropriately decreased so that the
number of shares of Common Stock issuable on conversion of Series A-1 Preferred
Stock shall be increased in proportion to such increase in outstanding shares.

 

(g)                                 If,
at any time after the Initial Issue Date, the number of shares of Common Stock
outstanding is decreased by a combination of the outstanding shares of Common
Stock into a smaller number of shares of Common Stock, then, following the
record date to determine shares affected by such combination, the Series A-1
Conversion Price shall be appropriately increased so that the number of shares
of Common Stock issuable on conversion of each share of Series A-1 Preferred
Stock shall be decreased in proportion to such decrease in outstanding shares.

 

(h)                                 If
the Common Stock issuable upon the conversion of the Series A-1 Preferred Stock
shall be changed into the same or different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination or shares of stock dividend
provided for elsewhere in this Section 6, or the sale of all or
substantially all of the Corporation’s

 

 

properties and assets to any other Person), then and in each such event
the holder of each share of Series A-1 Preferred Stock shall have the right
thereafter to convert such share into the kind and amount of shares of stock
and other securities and property receivable upon such reorganization,
reclassification or other change by holders of the number of shares of Common
Stock into which such shares of Series A-1 Preferred Stock might have been
converted, as the case may be, immediately prior to such reorganization,
reclassification or change, all subject to further adjustment as provided
herein.

 

(i)                                     If
at any time or from time to time there shall be a merger or consolidation of
the Corporation with or into another corporation, or the sale of all or
substantially all of the Corporation’s properties and assets to any other
Person, then, as a part of such merger, or consolidation or sale, provision
shall be made so that holders of Series A-1 Preferred Stock, as the case may
be, shall thereafter be entitled to receive upon conversion of the Series A-1
Preferred Stock, the number of shares of stock or other securities or property
of the Corporation, or of the successor corporation resulting from such merger,
consolidation or sale, to which such holder would have been entitled if such
holder had converted its shares of Series A-1 Preferred Stock immediately prior
to such merger, consolidation or sale, without regard to any conversion
limitation specified in Section 6(j). 
In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 6 with respect to the rights
of the holders of the Series A-1 Preferred Stock after the merger, consolidation
or sale to the end that the provisions of this Section 6, including
adjustment of the Series A-1 Conversion Price then in effect for the Series A-1
Preferred Stock and the number of shares issuable upon conversion of the Series
A-1 Preferred Stock) shall be applicable after that event in as nearly
equivalent a manner as may be practicable.

 

(j)                                     Notwithstanding
anything herein to the contrary, in no event shall a holder of Series A-1
Preferred Stock be entitled to convert any portion of the Series A-1 Preferred
Stock so held by such holder in excess of that portion upon conversion of which
the sum of (1) the number of shares of Common Stock beneficially owned by such
holder and its Affiliates (other than shares of Common Stock which may be deemed
beneficially owned through ownership of the unconverted shares of Series A-1
Preferred Stock or the unexercised or unconverted portion of any other security
of the holder subject to a limitation on conversion analogous to the
limitations contained herein) and (2) the number of shares of Common Stock
issuable upon the conversion of that portion of the Series A-1 Preferred Stock
with respect to which the determination of this proviso is being made, would
result in beneficial ownership by such holder and its Affiliates of more than
4.99% of the then outstanding shares of Common Stock.  The waiver by a holder of Series A-1 Preferred Stock of any
limitation contained in an Option or Convertible Security now or hereafter held
by such holder that is similar or analogous to the limitations set forth in
this Section 6(j) shall not be deemed a waiver or otherwise effect the
limitation set forth in this Section 6(j), unless such waiver expressly
states it is a waiver of the provisions of this Section 6(j).  For purposes of this Section 6(j),
beneficial ownership shall be determined in accordance with Section 13(d)
of the Securities Exchange Act of 1934, as amended, and Regulations 13D-G
thereunder, except as otherwise provided in clause (1) of such proviso.  Any holder of Series A-1 Preferred

 

 

Stock may waive the limitations set forth herein by sixty-one (61) days
written notice to the Corporation.

 

(k)                                  Notices
of Record Date.  In case at any
time:

 

(1)                                  the
Corporation shall declare any dividend upon its Common Stock or any other class
or series of capital stock of the Corporation payable in cash or stock or make
any other distribution to the holders of its Common Stock or any such other
class or series of capital stock;

 

(2)                                  the
Corporation shall offer for subscription pro  rata to the holders
of its Common Stock or any other class or series of capital stock of the
Corporation any additional shares of stock of any class or other rights; or

 

(3)                                  there
shall be any capital reorganization or reclassification of the capital stock of
the Corporation, any Acquisition or a liquidation, dissolution or winding up of
the Corporation;

 

then, in any one or more of said cases, the
Corporation shall give, by delivery in person or by certified or registered
mail, return receipt requested, addressed to each holder of any shares of
Series A-1 Preferred Stock at the address of such holder as shown on the books
of the Corporation, (a) at least 20 Business Days’ prior written notice of the
date on which the books of the Corporation shall close or a record shall be
taken for such dividend, distribution or subscription rights or for determining
rights to vote in respect of any event set forth in clause (3) of this
Section 6(k) and (b) in the case of any event set forth in clause (3) of
this Section 6(k), at least 20 Business Days’ prior written notice of the
date when the same shall take place. 
Such notice in accordance with the foregoing clause (a) shall also
specify, in the case of any such dividend, distribution or subscription rights,
the date on which the holders of Common Stock or such other class or series of
capital stock shall be entitled thereto and such notice in accordance with the
foregoing clause (b) shall also specify the date on which the holders of Common
Stock and such other series or class of capital stock shall be entitled to
exchange their Common Stock and other stock for securities or other property
deliverable upon consummation of the applicable event set forth in clause (3)
of this Section 6(k).

 

(l)                                     Upon any
adjustment of the Series A-1 Conversion Price, then and in each such case the
Corporation shall give prompt written notice thereof, by delivery in person or
by certified or registered mail, return receipt requested, addressed to each
holder of shares of Series A-1 Preferred Stock at the address of such holder as
shown on the books of the Corporation, which notice shall state the Series A-1
Conversion Price resulting from such adjustment and setting forth in reasonable
detail the method upon which such calculation is based.

 

(m)                               The Corporation will at
all times reserve and keep available out of its authorized Common Stock, solely
for the purpose of issuance upon conversion of the

 

 

Series A-1 Preferred Stock as herein provided, such number of shares of
Common Stock as shall then be issuable upon the conversion of all outstanding
shares of Series A-1 Preferred Stock without regard to the limitation set forth
in Section 6(j). The Corporation covenants that all shares of Common Stock
which shall be so issued shall be duly and validly issued and fully paid and
nonassessable, and free from all taxes, liens and charges with respect to the
issue thereof, and, without limiting the generality of the foregoing, the
Corporation covenants that it will from time to time take all such action as
may be requisite to assure that the par value per share of the Common Stock is
at all times equal to or less than the Series A-1 Conversion Price in effect at
the time. The Corporation will take all such action as may be necessary to
assure that all such shares of Common Stock may be so issued without violation
of any applicable law or regulation, or of any requirement of any national
securities exchange upon which the Common Stock may be listed. The Corporation
will not take any action which results in any adjustment of the Series A-1
Conversion Price if the total number of shares of Common Stock issued and
issuable after such action upon conversion of the Series A-1 Preferred Stock
would exceed the total number of shares of Common Stock then authorized by the
Corporation’s Amended and Restated Certificate of Incorporation.

 

(n)                                 The
issuance of certificates for shares of Common Stock upon conversion of Series
A-1 Preferred Stock shall be made without charge to the holders thereof for any
issuance tax in respect thereof, provided that the Corporation shall not be
required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any certificate in a name other than
that of the holder of the Series A-1 Preferred Stock which is being converted.

 

(o)                                 The
Corporation will at no time close its transfer books against the transfer of
any Series A-1 Preferred Stock or of any shares of Common Stock issued or
issuable upon the conversion of any shares of Series A-1 Preferred Stock in any
manner which interferes with the timely conversion of such Series A-1 Preferred
Stock, except as may otherwise be required to comply with applicable securities
laws.

 

7.                                      Right
of First Refusal.

 

(a)                                  In
the event the Corporation desires to raise capital pursuant to any equity or
debt financing transaction (which shall include, without limitation, any
transaction where the Corporation raises capital through the issuance and sale
of any of its equity or debt securities, or any securities that are convertible
into or exercisable for such securities (other than pursuant to an Excluded
Issuance)) at any time prior to the date that is one (1) year from the Initial
Issue Date (a “Proposed Financing”),
the Corporation shall, as long as at least two hundred thousand (200,000)
shares of Series A-1 Preferred Stock are outstanding (appropriately adjusted
for any stock dividend, stock split, reverse stock split, reclassification,
stock combination or other recapitalization occurring after the date hereof),
deliver to the then current holders of Series A-1 Preferred Stock a
comprehensive term sheet containing all of the significant business terms of
the Proposed Financing (the “Proposed
Financing Notice”). The delivery of the Proposed Financing Notice
to the holders of Series A-1 Preferred Stock shall constitute an irrevocable
offer by the Corporation to the holders of Series A-1 Preferred Stock to

 

 

provide the Proposed Financing on the terms set forth in the Proposed
Financing Notice.  For a period of
thirty (30) days following receipt of the Proposed Financing Notice (the “Series A-1 Exercise Notice Period”),
upon written notice to the Corporation, the holders of Series A-1 Preferred
Stock shall have the right, but not the obligation, to provide the entire
Proposed Financing (but not less than the entire Proposed Financing) on the
terms set forth in the Proposed Financing Notice, and each such holder shall
have the right to purchase its pro rata share of the securities being issued
and sold in the Proposed Financing, based on the aggregate Stated Value of the
Series A-1 Preferred held by each such holder; provided, however,
if any such holder shall decline to exercise its rights under this
Section 7, then in determining the pro rata share of the other holders who
are exercising their rights under this Section 7, the aggregate Stated
Value of the Series A-1 Preferred held by each such declining holder shall be
excluded from such determination, and each exercising holder shall have the
right of over-subscription to the extent of the declining holder’s or holders’
(as the case may be)  pro rata share.

 

(b)                                 If
the holders of Series A-1 Preferred Stock do not exercise their right to
provide the entire Proposed Financing within the aforementioned thirty (30) day
period, the Corporation shall have the right, for a period of thirty (30) days
following the expiration of the Series A-1 Exercise Notice Period, to
consummate the Proposed Financing with any third party on the terms and
conditions set forth in the Proposed Financing Notice (but on no less favorable
terms to the Corporation than those set forth in the Proposed Financing
Notice); provided, however, in the event the Proposed Financing
is not consummated within the thirty (30) day period following the expiration
of the Series A-1 Exercise Notice Period, this Section 7 shall again apply
to such Proposed Financing and any subsequent Proposed Financing.  The failure of the holders of Series A-1
Preferred Stock to exercise their rights under this Section 7 shall not be
deemed a waiver of such right with respect to any future Proposed Financing,
and the Corporation shall be obligated to comply with the provisions of this
Section 7 with respect to any Proposed Financing so long as any shares of
Series A-1 Preferred Stock are outstanding.

 

8.                                      Amendment.  This Certificate of Designations may only be
amended with the prior written consent of the Requisite Holders.  The Corporation may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Corporation shall have obtained the written consent to such
amendment, action or omission to act, of the Requisite Holders.

 

[Signature page follows]

 

 

IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designations
to be duly executed as of the 19th day of March, 2004.

 

	
   

  	
  AEROGEN, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Jane E. Shaw

  	
   

  
	
   

  	
  Name:

  	
  Jane E. Shaw

  
	
   

  	
  Title:

  	
  Chief Executive Officer

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