Document:

exv10w19

Exhibit 10.19

PENN MILLERS HOLDING CORPORATION

EMPLOYEE STOCK OWNERSHIP PLAN

(Effective                                         , 2009)

 

 

Table of Contents

	 	 	 	 	 
	 	 	Page
	 
	 	 	 	 
	ARTICLE I
	 	 	 	 
	INTRODUCTION
	 	 	1	 
	 
	 	 	 	 
	ARTICLE II
	 	 	 	 
	DEFINITIONS
	 	 	2	 
	 
	 	 	 	 
	ARTICLE III
	 	 	 	 
	ELIGIBILITY
	 	 	10	 
	 
	 	 	 	 
	3.1 Eligibility Generally
	 	 	10	 
	3.2 Commencement of Participation
	 	 	10	 
	3.3 Cessation of Participation
	 	 	10	 
	3.4 Participation upon Reemployment
	 	 	10	 
	3.5 Change in Control
	 	 	11	 
	 
	 	 	 	 
	ARTICLE IV
	 	 	 	 
	VESTING
	 	 	12	 
	 
	 	 	 	 
	4.1 In General
	 	 	12	 
	4.2 Normal Retirement Date
	 	 	12	 
	4.3 Death or Disability
	 	 	12	 
	4.4 Vesting upon Reemployment
	 	 	12	 
	4.5 Forfeiture of Account
	 	 	12	 
	4.6 Change in Control
	 	 	13	 
	 
	 	 	 	 
	ARTICLE V
	 	 	 	 
	CONTRIBUTIONS AND ALLOCATIONS
	 	 	14	 
	 
	 	 	 	 
	5.1 Company Contributions
	 	 	14	 
	5.2 Time and Manner of Contributions
	 	 	14	 
	5.3 Employee Contributions
	 	 	14	 
	5.4 Recovery of Contributions
	 	 	14	 
	5.5 Allocation of Employer Contributions
	 	 	14	 
	5.6 Income on Investments
	 	 	15	 
	5.7 Certain Stock Transactions
	 	 	15	 
	5.8 Valuation of Trust Fund
	 	 	15	 
	 
	 	 	 	 
	ARTICLE VI
	 	 	 	 
	MAXIMUM LIMITATION ON ALLOCATIONS
	 	 	16	 
	 
	 	 	 	 
	6.1 Participation Solely in This Plan
	 	 	16	 
	6.2 Participation in Another Defined Contribution Plan
	 	 	16	 
	6.3 Definitions
	 	 	16	 
	 
	 	 	 	 
	ARTICLE VII
	 	 	 	 
	INVESTMENT OF TRUST ASSETS
	 	 	18	 

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	 	 	Page
	 
	 	 	 	 
	ARTICLE VIII
	 	 	 	 
	COMPANY STOCK APPRAISAL
	 	 	19	 
	 
	 	 	 	 
	ARTICLE IX
	 	 	 	 
	DISTRIBUTIONS
	 	 	20	 
	 
	 	 	 	 
	9.1 Termination of Employment
	 	 	20	 
	9.2 Death
	 	 	20	 
	9.3 Time of Payment
	 	 	20	 
	9.4 Manner of Making Payments
	 	 	21	 
	9.5 Form of Payment
	 	 	21	 
	9.6 Direct Rollover
	 	 	21	 
	9.7 Diversification Election
	 	 	22	 
	9.8 Election to Retain Interests in Plan
	 	 	22	 
	9.9 Mandatory Distributions
	 	 	23	 
	9.10 Dividend Distributions
	 	 	23	 
	9.11 Right of First Refusal
	 	 	24	 
	9.12 Prohibited Allocations
	 	 	24	 
	 
	 	 	 	 
	ARTICLE X
	 	 	 	 
	RIGHT TO SELL COMPANY STOCK
	 	 	26	 
	 
	 	 	 	 
	10.1 Put Requirements
	 	 	26	 
	 
	 	 	 	 
	ARTICLE XI
	 	 	 	 
	VOTING AND TENDER OF COMPANY STOCK
	 	 	28	 
	 
	 	 	 	 
	11.1 Voting
	 	 	28	 
	11.2 Tender
	 	 	28	 
	11.3 Fiduciary Responsibilities
	 	 	29	 
	11.4 Procedures for Voting and Tender
	 	 	29	 
	 
	 	 	 	 
	ARTICLE XII
	 	 	 	 
	ADMINISTRATION
	 	 	30	 
	 
	 	 	 	 
	12.1 Fiduciary Responsibilities
	 	 	30	 
	12.2 The Administrative Committee
	 	 	30	 
	12.3 Plan Expenses
	 	 	31	 
	12.4 Meetings and Voting
	 	 	31	 
	12.5 Compensation
	 	 	31	 
	12.6 Claims Procedures
	 	 	32	 
	12.7 Liabilities
	 	 	33	 
	 
	 	 	 	 
	ARTICLE XIII
	 	 	 	 
	AMENDMENTS
	 	 	34	 
	 
	 	 	 	 
	13.1 Right to Amend
	 	 	34	 
	13.2 Amendment by Administrative Committee
	 	 	34	 
	13.3 Plan Merger and Asset Transfers
	 	 	34	 
	13.4 Amendment of Vesting Schedule
	 	 	34	 

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	 	 	Page
	 
	 	 	 	 
	ARTICLE XIV
	 	 	 	 
	TERMINATION
	 	 	35	 
	 
	 	 	 	 
	14.1 Right to Terminate
	 	 	35	 
	14.2 Effect of Termination
	 	 	35	 
	14.3 Change in Control
	 	 	35	 
	 
	 	 	 	 
	ARTICLE XV
	 	 	 	 
	MISCELLANEOUS
	 	 	36	 
	 
	 	 	 	 
	15.1 Non-alienation of Benefits
	 	 	36	 
	15.2 Appointment of Guardian
	 	 	36	 
	15.3 Satisfaction of Benefit Claims
	 	 	36	 
	15.4 Controlling Law
	 	 	36	 
	15.5 Non-guarantee of Employment
	 	 	36	 
	15.6 Severability and Construction of the Plan
	 	 	36	 
	15.7 No Requirement of Profits
	 	 	37	 
	15.8 All Risk on Participants and Beneficiaries
	 	 	37	 
	 
	 	 	 	 
	ARTICLE XVI
	 	 	 	 
	TOP-HEAVY PROVISIONS
	 	 	38	 
	 
	 	 	 	 
	16.1 Determination of Top-Heavy Status
	 	 	38	 
	16.2 Top-Heavy Definitions
	 	 	38	 
	16.3 Top-Heavy Rules
	 	 	40	 
	 
	 	 	 	 
	ARTICLE XVII
	 	 	 	 
	EXEMPT LOANS
	 	 	42	 
	 
	 	 	 	 
	17.1 General
	 	 	42	 
	17.2 Terms of Exempt Loan Agreements
	 	 	42	 
	17.3 Prohibition on Purchase Arrangements
	 	 	42	 
	17.4 Suspense Account
	 	 	42	 

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ARTICLE I

INTRODUCTION

          The Penn Millers Holding Corporation Employee Stock Ownership Plan (the “Plan”) is hereby
established by Penn Millers Holding Corporation (the “Company”) in order for its employees to
participate in the ownership of the Company. The Plan, effective as of                     , 2009, is
intended to be an employee stock ownership plan within the meaning of Section 4975(e)(7) of the
Internal Revenue Code of 1986, as amended, and is designed to invest primarily in Company Stock,
which meets the requirements for qualifying employer securities under Code Section 409(l). The
purchase of Company Stock for the Plan may be made with the proceeds of exempt loans meeting the
requirements of Section 54.4975-7(b) of the Treasury Regulations (including any amendments thereto)
and Section 2550.408(b)-3 of the Department of Labor Regulations (including any amendments
thereto), employer contributions, dividends on qualified employer securities or a combination
thereof.

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ARTICLE II

DEFINITIONS

          The following initially capitalized words and phrases when used in the Plan shall have the
following meanings, unless the context clearly requires otherwise.

          2.1 Account means the bookkeeping account established for each Participant which
reflects the value of the Participant’s interest in the Plan. This Account shall include a Company
Stock Account, which reflects the number of shares of Company Stock allocated to the Participant
and an Investment Account which reflects other investments allocated to the Participant.

          2.2 Administrative Committee and Committee, used interchangeably, means the
named fiduciary of the Plan, which is appointed by the Board of Directors, as is more fully
described in Article XII. In the event the Board of Directors does not appoint an Administrative
Committee, Administrative Committee means the Board of Directors.

          2.3 Affiliate means the Company and any corporation which is a member of a controlled
group of corporations (as defined in Code Section 414(b)) which includes the Company; any trade or
business (whether or not incorporated) which is under common control (as defined in Code
Section 414(c)) with the Company; any organization (whether or not incorporated) which is a member
of an affiliated service group (as defined in Code Section 414(m)) which includes the Company; and
any other entity required to be aggregated with the Company pursuant to regulations under Code
Section 414(o).

          2.4 Beneficiary means the individual(s) or entities entitled to receive the
Participant’s benefits under the Plan in the event of the Participant’s death prior to receiving
all benefits payable under the Plan.

          2.5 Board of Directors means the Board of Directors of the Company as constituted
from time to time.

          2.6 Break in Service means a Plan Year during which an Employee (a) has terminated
employment or is no longer employed with the Company or an Affiliate, and (b) fails to complete
more than five hundred (500) Hours of Service.

          2.7 Change in Control means the first to occur of any of the following events:

               (a) any “Person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended), except for any of the Company’s employee benefit plans, or any entity
holding the Company’s voting securities for, or pursuant to, the terms of any such plan (or any
trust forming a part thereof) (the “Benefit Plan(s)”), is or becomes the beneficial owner, directly
or indirectly, of the Company’s securities representing 19.9% or more of the combined voting power
of the Company’s then outstanding securities other than pursuant to a transaction excepted in
Clause (d);

               (b) there occurs a contested proxy solicitation of the Company’s shareholders that results in
the contesting party obtaining the ability to vote securities

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representing 19.9% or more of the combined voting power of the Company’s then outstanding
securities;

               (c) a binding written agreement is executed providing for a sale, exchange, transfer, or other
disposition of all or substantially all of the assets of the Company to another entity, except to
an entity controlled directly or indirectly by the Company;

               (d) the shareholders of the Company approve a merger, consolidation, or other reorganization
of the Company, unless:

                    (i) under the terms of the agreement providing for such merger, consolidation, or
reorganization, the shareholders of the Company immediately before such merger, consolidation, or
reorganization, will own, directly or indirectly immediately following such merger, consolidation,
or reorganization, at least 19.9% of the combined voting power of the outstanding voting securities
of the Company resulting from such merger, consolidation, or reorganization (the “Surviving
Company”) in substantially the same proportion as their ownership of the voting securities
immediately before such merger, consolidation, or reorganization;

                    (ii) under the terms of the agreement providing for such merger, consolidation, or
reorganization, the individuals who were members of the Board immediately prior to the execution of
such agreement will constitute at least 19.9% of the members of the board of directors of the
Surviving Company after such merger, consolidation, or reorganization; and

                    (iii) based on the terms of the agreement providing for such merger, consolidation, or
reorganization, no Person (other than (A) the Company or any Subsidiary of the Company, (B) any
Benefit Plan, (C) the Surviving Company or any Subsidiary of the Surviving Company, or (D) any
Person who, immediately prior to such merger, consolidation, or reorganization had beneficial
ownership of 19.9% or more of the then outstanding voting securities) will have beneficial
ownership of 19.9% or more of the combined voting power of the Surviving Company’s then outstanding
voting securities;

               (e) a plan of liquidation or dissolution of the Company, other than pursuant to bankruptcy or
insolvency laws, is adopted; or

               (f) during any period of two consecutive years, individuals, who at the beginning of such
period, constituted the Board cease for any reason to constitute at least a majority of the Board
unless the election, or the nomination for election by the Company’s shareholders, of each new
director was approved by a vote of at least two-thirds of the directors then still in office who
were directors at the beginning of the period.

     Notwithstanding Clause (a), a Change in Control shall not be deemed to have occurred if a
Person becomes the beneficial owner, directly or indirectly, of the Company’s securities
representing 19.9% or more of the combined voting power of the Company’s then outstanding
securities solely as a result of an acquisition by the Company of its voting securities which, by
reducing the number of shares outstanding, increases the proportionate number of shares
beneficially owned by such Person to 19.9% or more of the combined voting power of the

3

 

Company’s then outstanding securities; provided, however, that if a Person becomes a
beneficial owner of 19.9% or more of the combined voting power of the Company’s then outstanding
securities by reason of share purchases by the Company and shall, after such share purchases by the
Company, become the beneficial owner, directly or indirectly, of any additional voting securities
of the Company (other than as a result of a stock split, stock dividend or similar transaction),
then a Change in Control of the Company shall be deemed to have occurred with respect to such
Person under Clause (a). In no event shall a Change in Control of the Company be deemed to occur
under Clause (a) by virtue of the acquisition of the Company’s securities by Benefit Plans.

          2.8 Code means the Internal Revenue Code of 1986, as amended, and the regulations
promulgated thereunder.

          2.9 Company means Penn Millers Holding Corporation and any Affiliate which adopts
this Plan with the approval of the Board of Directors of the Company and any successor to the
business of the Company that agrees to assume the Company’s obligations under the Plan.

          2.10 Company Stock means shares of common stock issued by the Company that are
readily tradable on an established securities market; provided, however, if the Company’s common
stock is not readily tradable on an established securities market, “Company Stock” means common
stock issued by the Company having a combination of voting power and dividend rates equal to or in
excess of: (a) that class of common stock of the Company having the greatest voting power and (b)
that class of common stock of the Company having the greatest dividend rights. Non-callable
preferred stock shall be treated as Company Stock for purposes of the Plan if such stock is
convertible at any time into stock that is readily tradable on an established securities market
(or, if applicable, that meets the requirements of (a) and (b) next above) and if such conversion
is at a conversion price that, as of the date of the acquisition by the Plan, is reasonable. For
purposes of the immediately preceding sentence, preferred stock shall be treated as non-callable
if, after the call, there will be a reasonable opportunity for a conversion that meets the
requirements of the immediately preceding sentence. Company Stock shall be held under the Trust
only if such stock satisfies the requirements of Section 407(d)(5) of ERISA. For purposes of this
definition “Company” includes any corporation that is a member of a controlled group of
corporations with the Company (within the meaning of Section 409(l)(4) of the Code).

          2.11 Compensation means wages within the meaning of Code Section 3401(a) and all
other payments of compensation to a Participant by the Employer during a Plan Year for which the
Employer is required to report on Form W-2. Compensation must be determined without regard to any
rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature
or location of the employment or the services performed. Compensation also includes any salary
reduction contributions elected by a Participant which is not includible in the gross income of the
Participant pursuant to any plan maintained by the Company in accordance with Code Sections 401(k),
125 or 132(f)(4).

               Payments made within 2 1/2 months after severance from employment (within the meaning of Code
Section 401(k)(2)(B)(i)(I)) will be Compensation if they are payments that, absent a severance from
employment, would have been paid to the Participant

4

 

while the Participant continued in employment with the Employer and are regular compensation
for services during the Participant’s regular working hours, compensation for services outside the
Participant’s regular working hours (such as overtime or shift differential), commissions, bonuses,
or other similar compensation, and payments for accrued bona fide sick, vacation or other leave,
but only if the Participant would have been able to use the leave if employment had continued. Any
payments not described above are not considered Compensation if paid after severance from
employment, even if they are paid within 2 1/2 months following severance from employment, except for
payments to an individual who does not currently perform services for the Employer by reason of
qualified military service (within the meaning of Code Section 414(u)(1)) to the extent these
payments do not exceed the amounts the individual would have received if the individual had
continued to perform services for the Employer rather than entering qualified military service.

               Notwithstanding the foregoing, Compensation shall not include any amounts earned prior to
becoming a Participant in the Plan.

               The annual compensation for each Participant taken into account under the Plan shall not
exceed $200,000, as adjusted by the Internal Revenue Service at the same time and in the same
manner as under Code Section 415(d).

          2.12 Disability means a medically determinable physical or mental impairment which is
of such permanence and degree that it can be expected to result in death or that a Participant is
unable, because of such impairment, to perform any substantial gainful activity for which the
Participant is suited by virtue of such Participant’s experience, training or education and which
would entitle the Participant to benefits under the Employer’s long-term disability plan, if any,
or to Social Security disability benefits as evidenced by a disability award letter.

          2.13 Disqualified Person means a person defined in Code Section 4975(e), including
but not limited to (i) a fiduciary of the Plan; (ii) a person providing services to the Plan;
(iii) an owner of 50% or more of the combined voting power or value of all classes of stock of the
Company entitled to vote or the total value of shares of all classes of stock of the Company and
certain members of such owner’s family; or (iv) an officer, director, 10% or greater shareholder or
highly compensated employee (who earns 10% or more of the yearly wages) of the Company.

          2.14 Effective Date means                                         , 2009 which is the date on which the
provisions of this Plan become effective.

          2.15 Employee means an individual who is employed as a common law employee by the
Company or an Affiliate on a salaried or hourly basis and with respect to whom the Company or the
Affiliate is required to withhold taxes from remuneration paid to such Employee by the Company or
Affiliate for personal services rendered to the Company, including any officer or director who
shall so qualify. If an individual is not considered to be an Employee in accordance with the
preceding sentence for a Plan Year, a subsequent determination by the Company, any governmental
agency or court that the individual is a common law employee of the Company, even if such
determination is applicable to prior years, will not have a retroactive effect for purposes of
eligibility to participate in the Plan.

5

 

          2.16 Employer means the Company.

          2.17 Entry Date means January 1, March 1, July 1 and October 1 of each Plan Year.

          2.18 ERISA means the Employee Retirement Income Security Act of 1974, as amended from
time to time, including any regulations promulgated thereunder.

          2.19 Exempt Loan means the issuance of notes, a series of notes or other installment
obligations incurred by the Trustee, in accordance with the Trust, in connection with the purchase
of Company Stock, the terms of which shall satisfy the requirements of Treasury Regulations
Section 54.4975-7(b), including the requirements: (a) that the loan bear a reasonable rate of
interest, be for a definite period (rather than payable on demand), and be without recourse against
the Plan, and (b) that the only assets of the Plan that may be given as collateral are shares of
Common Stock purchased with the proceeds of that loan or with the proceeds of a prior Exempt Loan.

          2.20 Highly Compensated Employee

               (a) Highly Compensated Employee means an Employee who performs service during the
determination year and is described in one or more of the following groups:

                    (i) An Employee who is a 5% owner, as defined in Code Section 416(i)(1)(A)(iii), at any time
during the determination year or the look-back year.

                    (ii) An Employee who receives compensation in excess of $80,000 (indexed in accordance with
Code Section 415(d)) during the look-back year and is a member of the top-paid group for the
look-back year.

               (b) For purposes of the definition of Highly Compensated Employee, the following definitions
and rules shall apply:

                    (i) The determination year is the Plan Year for which the determination of who is highly
compensated is being made.

                    (ii) The look-back year is the 12 month period immediately preceding the determination year,
or if the Employer elects, the calendar year ending with or within the determination year.

                    (iii) The top-paid group consists of the top 20% of employees ranked on the basis of
compensation received during the year. For purposes of determining the number of employees in the
top-paid group, employees described in Code Section 414(q)(8) and Treasury Regulations
Section 1.414(q)-1T Q&A 9(b) are excluded.

               (c) Compensation is compensation within the meaning of Code Section 415(c)(3), plus, for
purposes thereof, elective or salary reduction contributions to a cafeteria plan, cash or deferred
arrangement under Code Section 401(k) or tax-sheltered annuity

6

 

under Code Section 403(b), or made pursuant to Code Section 132(f)(4). Employers aggregated
under Code Sections 414(b), (c), (m), or (o) are treated as a single employer.

          2.21 Hours of Service means:

               (a) Performance of Duties. The actual hours for which an Employee is paid or entitled
to be paid by the Company for the performance of duties;

               (b) Nonworking Paid Time. Each hour for which an Employee is paid or entitled to be
paid by the Company on account of a period of time during which no duties are performed
(irrespective of whether the employment relationship has terminated) due to vacation, holiday,
illness, incapacity, disability (to the extent not already included in Compensation), layoff, jury
duty, military duty or leave of absence; provided, however, no more than 501 Hours of Service shall
be credited to an Employee under this subsection for any single continuous period (whether or not
such period occurs in a single computation period); and provided further that no credit shall be
given for payments made or due under a plan maintained solely for the purpose of complying with
applicable worker’s or unemployment compensation or disability insurance laws or for payments which
solely reimburse an Employee for medical or medically related expenses incurred by the Employee;
and

               (c) Maternity, Paternity and FMLA Leave. Solely for purposes of determining whether a
one year Break in Service has occurred for purposes of determining eligibility to participate and
vesting, each hour for which an Employee is absent from employment by reason of (i) pregnancy of
the Employee, (ii) birth of a child of the Employee, (iii) placement of a child in connection with
the adoption of the child by an individual, or (iv) caring for the child during the period
immediately following the birth or placement for adoption. Hours of Service shall also, for these
limited purposes, include each hour for which an Employee who has worked for the Company or an
Affiliate for at least 12 months and for at least 1,250 Hours of Service during the year preceding
the start of the leave, is absent from employment on an unpaid family leave for up to 12 weeks, as
provided for in the Family and Medical Leave Act of 1993 (the “FMLA Leave”), by reason of (A) the
birth or adoption of a child, (B) the care of a spouse, child or parent with a serious health
condition, or (C) the Employee’s own serious health condition, provided that such an Employee
provides the Company with a 30-day advance notice if the leave is foreseeable, and/or medical
certification satisfactory to support the Employee’s request for leave because of a serious health
condition. For purposes of determining whether an Employee’s leave qualifies as a “FMLA Leave” in
order to be credited with Hours of Service under this Plan, the Family and Medical Leave Act of
1993 (“FMLA”) and the regulations promulgated thereunder shall apply. During the period of
absence, the Employee shall be credited with the number of hours that would be generally credited
but for such absence or if the general number of work hours is unknown, eight Hours of Service for
each normal workday during the leave (whether or not approved). These hours shall be credited to
the computation period in which the leave of absence commences if crediting of such hours is
required to prevent the occurrence of a one year Break in Service in such computation period, and
in other cases, in the immediately following computation period. The computation period shall be
the same as the relevant period for determining eligibility computation periods and vesting
computation periods. Unless otherwise required under the FMLA and the regulations promulgated
thereunder, no more than 501 Hours of Service shall be

7

 

credited under this paragraph for any single continuous period (whether or not such period
occurs in a single computation period).

               (d) Back Pay. Each hour for which back pay, irrespective of mitigation of damages, is
either awarded or agreed to by the Company; provided, however, Hours of Service credited under
paragraphs (a), (b) and (c) above shall not be recredited by operation of this paragraph.

               (e) Equivalencies. The Administrative Committee shall have the authority to adopt any
of the following equivalency methods for counting Hours of Service that are permissible under
regulations issued by the Department of Labor: (i) Working Time; (ii) Periods of Employment;
(iii) Earnings; or (iv) Elapsed Time. The adoption of any equivalency method for counting Hours of
Service shall be evidenced by a certified resolution of the Committee, which shall be attached to
and made part of the Plan. Such resolution shall indicate the date from which such equivalency
shall be effective.

               (f) Miscellaneous. Unless the Administrative Committee directs otherwise, the methods
of determining Hours of Service when payments are made for other than the performance of duties and
of crediting such Hours of Service to Plan Years set forth in Department of Labor Regulations
Sections 2530.200b-2(b) and (c), shall be used hereunder and are incorporated by reference into the
Plan.

               Participants on military leaves of absence who are not directly or indirectly compensated or
entitled to be compensated by the Company while on such leave shall be credited with Hours of
Service as required by the Uniformed Services Employment and Reemployment Rights Act.

               Notwithstanding any other provision of this Plan to the contrary, an Employee shall not be
credited with Hours of Service more than once with respect to the same period of time.

          2.22 Investment Manager means an investment advisor, bank or insurance company,
meeting the requirements of ERISA Section 3(38), appointed by the Company to manage the Plan’s
assets in accordance with the Trust Agreement.

          2.23 Leased Employee means any person who performs services for an Employer or an
Affiliate (the “recipient”) (other than an employee of the “recipient”) pursuant to an agreement
between the “recipient” and any other person (the “leasing organization”) on a substantially
full-time basis for a period of at least one year, provided that such services are performed under
primary direction of or control by the “recipient”.

          2.24 Normal Retirement Date means the first day of the calendar month coincident with
or following the later of (i) the date on which a Participant attains age 65 or (ii) the date on
which the Participant attains five Years of Service.

          2.25 Participant means an Employee participating in the Plan in accordance with
Article III.

8

 

          2.26 Plan means the Penn Millers Holding Corporation Employee Stock Ownership Plan,
as set forth in this document and in the Trust Agreement pursuant to which the Trust is maintained,
in each case as amended from time to time.

          2.27 Plan Year means the calendar year.

          2.28 Suspense Account means the account established and maintained to hold Company
Stock acquired with the proceeds of an Exempt Loan and held in the Trust, which Company Stock has
not been allocated to the Accounts of Participants with respect to the year of such acquisition.

          2.29 Trust or Trust Fund means all property held by the Trustee pursuant to
the terms of the Trust Agreement and this Plan. Such property shall be held for the exclusive
benefit of Participants and Beneficiaries.

          2.30 Trust Agreement means the agreement of trust established by the Company and the
Trustee for purposes of holding title to the assets of the Plan.

          2.31 Trustee means the trustee as named in the Trust Agreement, or a successor
thereto or substitute therefor, in any case as appointed by the Board of Directors of the Company
in accordance with Article XII to hold legal title to the assets of the Trust and that expressly
agrees to be bound by the terms and conditions of the Trust Agreement.

          2.32 Valuation Date means the last business day of each calendar quarter, and such
other more frequent dates as the Administrative Committee may from time to time establish.

          2.33 Year of Service means a Plan Year during which a Participant is credited with at
least 1,000 Hours of Service. Notwithstanding the foregoing, a Year of Service for purposes of
determining eligibility in the Plan under Article III shall be the earlier of (1) the
12-consecutive month period commencing with the day on which the Employee is first credited with an
Hour of Service if the Employee has been credited with at least 1,000 Hours of Service or (2) any
Plan Year commencing after the day on which the Employee first is credited with an Hour of Service
in which the Employee has been credited with at least 1,000 Hours of Service. For purposes of
determining eligibility to participate in the Plan under Article III, Years of Service shall
include periods of employment with the Employer prior to the Effective Date of the Plan.

9

 

ARTICLE III

ELIGIBILITY

          3.1 Eligibility Generally. An Employee is eligible to become a Participant in the
Plan when the Employee attains age 21 and has completed one Year of Service.

          Notwithstanding the foregoing, the following individuals shall not be eligible to participate
in the Plan:

               (a) Leased Employees;

               (b) Individuals whose employment with the Company or an Affiliate is governed by a collective
bargaining agreement between the Company and representatives of the employee bargaining unit if
evidence exists that retirement benefits were a subject of good faith bargaining between the
parties, and provided such bargaining agreement does not provide for participation in this Plan;
and

               (c) Non-resident aliens who do not receive earned income from sources within the United
States.

          3.2 Commencement of Participation. Each Employee who has satisfied the requirements
of Section 3.1 of the Plan shall commence participation in the Plan on the later of the Effective
Date or the Entry Date concurrent with or next following the date on which such requirements are
satisfied.

          3.3 Cessation of Participation. An Employee shall cease to be a Participant upon the
earliest of (a) the date on which the Employee retires under the Plan; (b) the date on which the
Employee’s employment with the Company terminates for any reason, including death or Disability;
(c) the date on which the Employee’s employment with the Company is governed by a collective
bargaining agreement that does not provide for participation in this Plan; or (d) the date on which
the Employee becomes a “leased employee” as defined in Code Section 414(n).

          3.4 Participation upon Reemployment. Upon the reemployment of any person after the
Effective Date who had previously been employed by the Company on or after the Effective Date, the
following rules shall apply in determining the Employee’s participation in the Plan and Years of
Service under the Plan:

               (a) No Prior Participation. If the reemployed Employee was not a Participant in the
Plan during the prior period of employment and the reemployed Employee incurred a Break in Service,
only Service with the Company after reemployment will count for purposes of meeting the
requirements of Section 2.1 of the Plan. If the reemployed Employee was not a Participant in the
Plan during the prior period of employment and the reemployed Employee did not incur a Break in
Service, all Service with the Company (both before and after the Break in Service) will be
aggregated for purposes of meeting the requirements of Section 2.1 of the Plan.

10

 

               (b) Prior Participation. If the reemployed Employee was a Participant in the Plan
during the prior period of employment, the reemployed Employee shall be entitled to resume
participation in the Plan on the date of the Employee’s reemployment.

               (c) Years of Service. Upon reemployment following a Break in Service, any Employee
who was previously entitled to a nonforfeitable (vested) benefit will have all Years of Service
(both before and after the Break in Service) aggregated. Any Employee who was not eligible for a
nonforfeitable (vested) benefit will have all Years of Service (both before and after the Break in
Service) aggregated unless the period of unemployment with the Company exceeds the greater of
(i) Years of Service prior to the Break in Service or (ii) five years. For purposes of this
paragraph (c) of this Section 2.5, the period of unemployment commences with the Employee’s
termination date and ends with the date of reemployment.

               (d) Veterans Reemployment Rights. Notwithstanding any other provision of the Plan to
the contrary, contributions, benefits, and service credit with respect to qualified military
service shall be provided in accordance with Code Section 414(u).

          3.5 Change in Control. Notwithstanding the provisions of this Article III or any
other provisions of the Plan to the contrary, upon a change in Control, no additional Employee
shall be eligible to become a Participant in the Plan.

11

 

ARTICLE IV

VESTING

     4.1 In General. Each Participant shall have a vested interest in the Participant’s
Account, if any, in accordance with the following vesting schedule:

	 	 	 	 	 
	Years of Service After the Effective Date	 	Vested Percentage
	0-1 Years of Service
	 	 	0	%
	 
	2 Years of Service
	 	 	20	%
	 
	3 Years of Service
	 	 	40	%
	 
	4 Years of Service
	 	 	60	%
	 
	5 Years of Service
	 	 	80	%
	 
	6 or more Years of Service
	 	 	100	%

          4.2 Normal Retirement Date. Notwithstanding the provisions of Section 4.1 of the
Plan, a Participant whose employment terminates on or after such Participant’s Normal Retirement
Date shall be 100 percent vested.

          4.3 Death or Disability. Notwithstanding the provisions of Section 4.1 of the Plan,
a Participant whose employment is terminated on account of death or Disability shall be 100 percent
vested.

          4.4 Vesting upon Reemployment. Upon the reemployment of any person after the
Effective Date who had previously been employed by the Company on or after the Effective Date, the
following rules shall apply in determining the reemployed Employee’s vesting in the Plan:

               (a) Five Consecutive Breaks in Service. If a Participant has five consecutive Breaks
in Service, all Years of Service after such Breaks in Service will be disregarded for the purpose
of vesting the Employer-derived Account balance that accrued before such Breaks in Service. Both
pre-Break and post-Break service, however, will count for the purposes of vesting the
Employer-derived Account balance that accrues after such Breaks in Service. Both Accounts will
share in the earnings and losses of the fund.

               (b) Less than Five Consecutive Breaks in Service. If a Participant does not have five
consecutive Breaks in Service, both the pre-Break and post-Break service will count in vesting all
Account balances.

          4.5 Forfeiture of Account. If prior to being 100 percent vested, a Participant
terminates employment for a reason other than death, Disability or attainment of Normal Retirement
Date, the nonvested portion will be treated as a forfeiture. Assets in the Participant’s Account
other than Company Stock acquired with the proceeds of an Exempt Loan will be forfeited before
Company Stock acquired with the proceeds of an Exempt Loan are forfeited. Forfeitures shall be
allocated to the Accounts of Participants who were employed by the

12

 

Company on the last day of the Plan Year or, in the Company’s discretion, used to pay Plan
administrative expenses. Forfeitures allocated to Participants shall be allocated in the ratio
that the Compensation of each Participant for such Plan Year bears to the total Compensation of all
such Participants for such Plan Year. For purposes of this Section 4.5, if the value of a
Participant’s vested account balance is zero, the participant shall be deemed to have received a
distribution of such vested account balance.

               If any former Participant shall be reemployed by the Employer before incurring five
consecutive Breaks in Service, and such former Participant had received, or was deemed to have
received, a distribution of the Participant’s entire vested interest prior to reemployment, the
forfeited account shall be reinstated upon the reemployment of such Participant. In the event of a
deemed distribution, the undistributed portion of the Participant’s account must be restored in
full, unadjusted by any gains or losses occurring subsequent to the Valuation Date coinciding with
or next following the Participant’s termination of employment. The source for such reinstatement
shall be any forfeitures occurring during the Plan Year. If such source is insufficient, then the
Employer shall contribute an amount which is sufficient to restore any such forfeited account
provided, however, that if a discretionary contribution is made for such Plan Year pursuant to
Section 5.1, such contribution shall first be applied to restoring such accounts and the remainder
shall be allocated in accordance with Section 5.5.

          4.6 Change in Control. Notwithstanding the provisions of Section 4.1 of the Plan, a
Participant shall be 100 percent vested upon a Change in Control.

13

 

ARTICLE V

CONTRIBUTIONS AND ALLOCATIONS

          5.1 Company Contributions. For each Plan Year, the Company may contribute cash or
shares of Company Stock, or both, to the Plan in such amounts as may be determined by the Board of
Directors.

          In the event shares of Company Stock are sold to the Trustee for a Plan Year, the fair market
value of such Company Stock shall be determined in accordance with the provisions of Article VIII.

          5.2 Time and Manner of Contributions. All Company contributions shall be paid
directly to the Trustee, and a contribution for any Plan Year shall be made not later than the date
prescribed by law for filing the Company’s Federal income tax return (including extensions, if any)
for the Company’s taxable year that ends within or with that Plan Year.

          5.3 Employee Contributions. Participants are neither permitted nor required to make
contributions to the Plan.

          5.4 Recovery of Contributions. The Company may recover contributions to the Plan,
only as set forth in this Section 5.4.

               (a) Contributions made to the Plan shall be conditioned upon the initial and continuing
qualification of the Plan. If the Plan is determined to be disqualified, contributions made in
respect of any period subsequent to the effective date of such disqualification shall be returned
to the Company. With respect to the initial qualification of the Plan, the Company may recover
contributions only if (i) the Plan receives an adverse determination letter with respect to its
initial qualification and (ii) the application for determination letter is filed within the
applicable remedial amendment period that applies to new plans (determined in accordance with the
concepts of Rev. Proc. 2007-44).

               (b) Contributions made to the Plan shall be conditioned upon their deductibility under the
Code. To the extent that a deduction is disallowed for any contribution, such amount shall be
returned to the Company within one year after the disallowance of the deduction.

               (c) If a contribution, or any part thereof, is made on account of a mistake of fact, the
amount of the contribution attributable to such mistake shall be returned to the Company within one
year after it is made.

          5.5  Allocation of Employer Contributions. Subject to the limitations set forth in
Article VI, Employer contributions made to the Trust in the form of cash or Company Stock for a
Plan Year shall be allocated to the Accounts of Participants in the ratio of the Compensation of
each Participant for the Plan Year to the total Compensation of all Participants for the Plan Year,
provided that the Participant has completed 1,000 Hours of Service and is actively employed on the
last date of the Plan Year.

14

 

          5.6 Income on Investments. The income, gains, and losses attributable to investments
under the Plan shall be allocated as of each Valuation Date or at such other times as the
Administrative Committee may determine to the Accounts of Participants and Beneficiaries who have
undistributed balances in their Accounts on the Valuation Date, in proportion to the amounts in the
Accounts immediately after the preceding Valuation Date, but after first reducing each Account by
any distributions, withdrawals or transfers from the Trust during the interim period and increasing
each Account by any transfers to the Trust and by contributions made to the Trust during the
interim period.

          Distributions from the Plan shall include income, gains, and losses accrued as of the
coincident or immediately preceding Valuation Date, and shall not be adjusted proportionately to
reflect any income, gains, or losses accrued after that Valuation Date. All valuations shall be
based on the fair market value of the assets in the Trust on the Valuation Date.

          5.7 Certain Stock Transactions. Shares of Company Stock received by the Trustee as a
result of a stock split, dividend, conversion, or as a result of a reorganization or other
recapitalization of the Company shall be allocated as of the day on which such shares are received
by the Trustee in the same manner as the shares of Company Stock to which they are attributable are
then allocated.

          5.8 Valuation of Trust Fund. As of each Valuation Date, the Trustee shall determine
the fair market value of the Trust, after deducting withdrawals, distributions, and any expenses of
Plan administration paid out of the Trust, and including any contributions allocated to
Participants’ Accounts, for the valuation period ending on the Valuation Date. In determining
value, the Trustee may use such generally accepted methods as the Trustee, in its discretion, deems
advisable, which, in the case of Company Stock shall be in accordance with the provisions of
Article VIII.

15

 

ARTICLE VI

MAXIMUM LIMITATION ON ALLOCATIONS

          6.1 Participation Solely in This Plan.

               (a) If the Participant does not participate in, and has never participated in another plan
qualified under Code Section 401(a) that is maintained by the Employer, or a welfare benefit fund
(as defined in Code Section 419(e)) maintained by the Employer, or an individual medical account
(as defined in Code Section 415(l)(2)) maintained by the Employer, which provides an Annual
Addition, the amount of Annual Additions which may be credited to the Participant’s Account for any
Limitation Year shall not exceed the lesser of the Maximum Permissible Amount or any other
limitation contained in the Plan. Except as provided in Section 6.1(d), if the Company’s
contribution that would otherwise be contributed or allocated to the Participant’s Account would
cause the Annual Additions for the Limitation Year to exceed the Maximum Permissible Amount, the
amount contributed or allocated will be reduced so that the Annual Additions for the Limitation
Year will equal the Maximum Permissible Amount.

               (b) Prior to determining the Participant’s actual Compensation for the Limitation Year, the
Company may determine the Maximum Permissible Amount for a Participant on the basis of a reasonable
estimation of the Participant’s Compensation for the Limitation Year, uniformly determined for all
Participants similarly situated.

               (c) As soon as is administratively feasible after the end of the Limitation Year, the Maximum
Permissible Amount for the Limitation Year will be determined on the basis of the Participant’s
actual Compensation for the Limitation Year.

          6.2 Participation in Another Defined Contribution Plan. This Section 6.2 applies if
a Participant is also covered under another defined contribution plan or a welfare benefit fund (as
defined in Code Section 419(e)), an individual medical account (as defined in Code Section
415(l)(2) or a simplified employee pension (as defined in Code Section 408(k)) maintained by the
Employer which provides an Annual Addition during any Limitation Year. If the Participant
participates in one or more such plans, all reductions in Annual Additions shall be made under such
plans and not under this Plan. In the event that, notwithstanding the preceding sentence, the
Annual Additions to be credited under this Plan should exceed the Maximum Permissible Amount, the
Annual Additions which would otherwise be credited to the Participant’s Account under any other
such plan shall be reduced prior to making any reduction hereunder, which reduction shall be
reduced in the manner set forth in Section 6.1 of the Plan.

          6.3 Definitions. The following definitions apply solely for purposes of this Article
VI.

               (a) Annual Additions means the sum of the following amounts credited to a Participant’s
Account for the Limitation Year:

                    (i) employer contributions

                    (ii) employee contributions

16

 

                    (iii) forfeitures

                    (iv) amounts allocated to an individual medical account (as defined in Code Section
415(l)(2)) which is part of a pension or annuity plan maintained by the Employer which are treated
as Annual Additions to a defined contribution plan, and

                    (v) amounts derived from contributions paid or accrued, which are attributable to
post-retirement medical benefits, allocated to the separate account of a key employee, as defined
in Code Section 419A(d)(3), under a welfare benefit fund maintained by the Employer which are
treated as Annual Additions to a defined contribution plan.

                    (vi) Excess amounts applied to reduce Employer contributions under Sections 6.2 or 6.1 of the
Plan in the Limitation Year will be Annual Additions for such Limitation Year.

               (b) Employer means the Company and all members of a controlled group of corporations (as
defined in Code Section 414(b) and modified by Code Section 415(h)) all commonly controlled trades
or businesses (as defined in Code Section 414(c) as modified by Code Section 415(h)), any
affiliated service group (as defined in Code Section 414(m)) of which the Company is a part, and
any other entity required to be aggregated with the Employer pursuant to regulations under Code
Section 414(o).

               (c) Excess Amount means the excess of the Participant’s Annual Additions for the Limitation
Year over the Maximum Permissible Amount.

               (d) Limitation Year means the calendar year.

               (e) Maximum Permissible Amount means the Maximum Annual Additions that may be contributed or
allocated to a Participant’s Account for any Limitation Year. Such amount shall not exceed the
lesser of:

                    (i) $40,000 (as adjusted for increases in the cost-of-living under Code Section 415(d)), or

                    (ii) 100 percent of the Participant’s Compensation for the Limitation Year.

          The Maximum Permissible Amount shall be pro-rated in the case of any Limitation Year of less
than 12 months created by the changing of the Limitation Year.

          If no more than one-third of Company contributions to the Plan for a Plan Year which are
deductible under Code Section 404(a)(9) are allocated to the Accounts of Participants who are
Highly Compensated Employees, there shall be excluded in determining the Maximum Permissible Amount
of each Participant for such Plan Year (A) the contributions applied to the payment of interest on
an Exempt Loan; and (B) any forfeitures of Company contributions if the forfeited contributions
were Company Stock acquired with the proceeds of an Exempt Loan.

17

 

ARTICLE VII

INVESTMENT OF TRUST ASSETS

          All assets of the Plan shall be held in the Trust. To the extent the Trustee deems practical,
the Trustee shall use all available cash, as directed by the Administrative Committee, to purchase
Company Stock in open market transactions, from other stockholders or to buy newly issued Company
Stock from the Company. If the purchase is from the Company or a Disqualified Person, such
purchase shall be for adequate consideration and no commission is to be charged with respect to the
purchase. If no such stock is available for purchase, or if the Trustee determines that the
purchase of such additional stock is not practical, the Trustee shall invest in other securities or
property, real or personal, consistent with the requirements of Title I of ERISA. These other
securities, property and cash shall be held by the Trustee in the Trust. The Trust income shall be
allocated as of each Valuation Date to Participant’s Investment Accounts in accordance with Section
5.6 of the Plan.

18

 

ARTICLE VIII

COMPANY STOCK APPRAISAL

          The fair market value of Company Stock shall be determined, on any relevant day, as follows:
(a) if such stock is then traded in the over-the-counter market, the closing sale price (as
reported in the National Market System by NASDAQ with respect to such stock) for the most recent
date (including such relevant day) during which a trade in such stock has occurred, or (b) if such
stock is then traded on a national securities exchange, the closing sale price for the most recent
date (including such relevant date) during which a trade in such stock has occurred. In accordance
with the provisions of Code Section 401(a)(28)(C), if Company stock is not actively traded in the
over-the-counter market, or on a national securities exchange, a valuation of Company stock
required to be made under this Plan shall be made by an independent appraiser who satisfies
requirements similar to those contained in regulations issued under Code Section 170(a)(1).

19

 

ARTICLE IX

DISTRIBUTIONS

          9.1 Termination of Employment. In the event of the Participant’s termination of
employment for any reason (including attainment of Normal Retirement Date or on account of death),
a Participant shall be entitled to a distribution of all amounts determined under Article IV that
are credited to the Participant’s Account at the times set forth in this Article IX.

          9.2 Death. Upon the death of a Participant, all amounts credited to the
Participant’s Account shall be distributed to the Participant’s Beneficiary, determined in
accordance with this Section 9.2.

               (a) The Administrative Committee may require such proof of death and such other evidence of
the right of any person to receive payment of the Account of a deceased Participant as the
Administrative Committee deems necessary. The Administrative Committee’s determination of death
and of the right of any person to receive payment shall be conclusive and binding on all parties.

               (b) The Beneficiary upon the death of a Participant shall be the Participant’s spouse;
provided, however, that the Participant may designate, on a form provided by the Administrative
Committee for such purpose, a Beneficiary other than the Participant’s spouse, if:

                    (i) the spouse has waived the right to be the Participant’s Beneficiary in the manner set
forth in subsection (c) of this Section 9.2; or

                    (ii) the Participant has established to the satisfaction of the Administrative Committee that
the Participant has no spouse or that the spouse cannot be located.

               (c) Any consent by a Participant’s spouse to waive a death benefit must be filed with the
Administrative Committee in writing, in a manner, and on a form provided by the Committee for such
purpose. The spouse’s consent must acknowledge the effect of the consent and must be witnessed by
a notary public or a Plan representative. The designation of a Beneficiary other than the spouse
made by a married Participant must be consented to by the Participant’s spouse and may be revoked
by the Participant in writing without the consent of the spouse. Any new beneficiary designation
must comply with the requirements of this subsection (c). A former spouse’s waiver shall not be
binding on a new spouse.

               (d) In the event the designated Beneficiary fails to survive the Participant, or if such
designation shall be ineffective for any reason, the Participant’s Account shall be paid in the
following order of priority: first to the Participant’s surviving spouse, if any; second, if there
is no surviving spouse, to the Participant’s surviving children, if any, in equal shares; third, if
there is neither a surviving spouse nor surviving children, to the legal representatives of the
estate of the Participant.

          9.3  Time of Payment. The distribution of a Participant’s Account shall begin as
soon as administratively feasible. Unless a Participant elects otherwise, such distribution shall

20

 

not be later than 60 days after the latest of the close of the Plan Year in which occurs (i)
the date on which the Participant attains Normal Retirement Date, (ii) the 10th anniversary of the
year in which the Participant commenced participation in the Plan, or (iii) the date the
Participant terminates service with the Employer.

          9.4 Manner of Making Payments. A Participant’s Account will be distributed in one
lump sum.

          9.5 Form of Payment. Distributions of a Participant’s Account balance shall be made
in Company Stock unless the distributee elects cash. In the event the Participant’s Account
includes securities acquired with the proceeds of the Exempt Loan and such proceeds consist of more
than one class of securities, the amount distributed shall include substantially the same
proportion of each class of securities acquired with the proceeds of the Exempt Loan.

          Such distributions shall be the fair market value of each share multiplied by the number of
shares credited to the Participant’s Account, with appropriate adjustments to reflect intervening
stock dividends, stock splits, stock redemptions, or similar changes to the number of outstanding
shares. The fair market value of a share shall be determined as of the Valuation Date coinciding
with or immediately following the date of the distribution request or, in the case of a transaction
between the Plan and a Disqualified Person, determined as of the date of the transaction.

          9.6 Direct Rollover.

               (a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a
distributee’s election under this Article IX, a distributee may elect, at the time and in the
manner prescribed by the Plan Administrator, to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan specified by the distributee in a direct
rollover.

               For purposes of this Section 9.6, the following definitions apply:

          “Eligible rollover distribution”. An eligible rollover distribution is any distribution of
all or any portion of the balance to the credit of the distributee, except that an eligible
rollover distribution does not include: any distribution that is one of a series of substantially
equal periodic payments (not less frequently than annually) made for the life (or life expectancy)
of the distributee or the joint lives (or joint life expectancies) of the distributee and the
distributee’s designated Beneficiary, or for a specified period of ten years or more; any
distribution to the extent such distribution is required under Code Section 401(a)(9); a
distribution on account of hardship; or the portion of any distribution that is not includable in
gross income (determined without regard to the exclusion for net unrealized appreciation with
respect to employer securities).

          “Eligible retirement plan”. An eligible retirement plan is an eligible plan under Code
Section 457(b) which is maintained by a state, political subdivision of a state, or any agency or
instrumentality of a state, or political subdivision of a state and which agrees to separately
account for amounts transferred into such plan from this Plan, an individual retirement account
described in Code Section 408(a), an individual retirement annuity described in Code

21

 

Section 408(b), an annuity plan described in Code Section 403(a), an annuity contract
described in Code Section 403(b), a qualified plan described in Code Section 401(a), or a Roth IRA
described in Code Section 408A, that accepts the distributee’s eligible rollover distribution. The
definition of eligible retirement plan shall also apply in the case of a distribution to a
surviving spouse, or to a spouse or former spouse who is the alternate payee under a qualified
domestic relations order, as defined in Code Section 414(p).

          “Distributee”. A distributee includes an employee or former employee. In addition, the
employee’s or former employee’s surviving spouse and the employee’s or former employee’s spouse or
former spouse who is the alternate payee under a qualified domestic relations order, as defined in
Code Section 414(p), are distributees with respect to the interest of the spouse or former spouse.
A distributee also includes the Participant’s nonspouse designated Beneficiary, in which case, the
direct rollover may be made only to an individual retirement account or annuity described in Code
Sections 408(a) or 408(b) that is established on behalf of the designated Beneficiary and that will
be treated as an inherited IRA pursuant to the provisions of Code Section 402(c)(11); provided,
however, that the determination of any required minimum distribution that is ineligible for
rollover shall be made in accordance with Notice 2007-7, Q&A 17 and 18.

          “Direct rollover”. A direct rollover is a payment by the plan to the eligible retirement plan
specified by the distributee.

          9.7  Diversification Election. Notwithstanding any provision of this Article to the
contrary, a Participant who has attained age 55 and completed at least ten years of participation
in this Plan may elect in writing, on a form provided by the Administrative Committee for such
purpose, within ninety days after the close of each Plan Year during the Qualified Election Period,
to direct the investment of a portion of the Participant’s interest in the Company Stock Account
not in excess of 25 percent of such interest, less amounts subject to all prior elections under
this Section 9.7 as a transfer to the applicable Penn Millers Insurance Company 401(k) Plan which
permits Participants to make investment elections. Upon a Participant’s election to diversify a
portion of the Participant’s interest in the Company Stock Account, Company Stock in an amount
equal to the portion so elected, valued as of the Valuation Date concurrent with or immediately
following the date of such election will be transferred to the applicable Penn Millers Insurance
Company 401(k) Plan which permits Participants to make investment elections. A participant may
then make investment elections among the several funds. Starting from the sixth Plan Year during
the Qualified Election Period of a Participant, 50 percent shall be substituted for 25 percent in
the preceding sentence.

          For purposes of this Section 9.7, “Qualified Election Period” means, with respect to a
Participant, the period beginning with the later of (a) the Plan Year in which the Participant
attains age 55 or (b) the Plan Year in which the Participant completes at least ten years of
participation in the Plan and ending with the year in which the Participant terminates employment
for any reason.

          9.8 Election to Retain Interests in Plan. No distribution shall be made to a
Participant before such Participant’s Normal Retirement Date unless (a) the Participant’s prior
written consent to the distribution has been obtained by the Administrative Committee, or (b) the

22

 

value of the Participant’s vested Account does not exceed $1,000 as of the date of the event
giving rise to the distribution.

          9.9 Mandatory Distributions.

               (a) notwithstanding any provision of this Plan to the contrary, all amounts credited to a
Participant’s Account shall commence to be distributed not later than the later of (i) April 1 of
the calendar year following the calendar year in which the Participant attains age 701/2 or (ii) the
date the Participant retires; except that distributions to a 5% owner (as defined in Code Section
416) must commence by the April 1 of the calendar year following the calendar year in which such
Participant attains age 701/2. Any and all subsequent distributions shall be made in accordance with
the rules set forth in Code Section 401(a)(9), including the minimum distribution incidental death
requirements of Code Section 401(a)(9)(G).

               (b) In the event the Participant dies after distributions have commenced under this Article IX
but before the Participant’s entire Account is distributed, the remaining portion of the
Participant’s Account shall be distributed at least as rapidly as under the method of distribution
being used as of the date of the Participant’s death.

               (c) In the event the Participant dies before distributions under this Article IX have
commenced, then, unless the Beneficiary of the Participant is the Participant’s spouse, the entire
balance in the Account of the Participant shall be distributed on or before the December 31 of the
calendar year in which occurs the fifth anniversary of the death of such Participant.

               (d) If the Participant’s designated Beneficiary is the surviving spouse of such Participant or
former Participant, such distribution shall not be required to begin prior to the date on which the
Participant or former Participant would have attained age 70 1/2 (if the surviving spouse dies prior
to commencement of distributions to such spouse, then this subsection (i) shall be applied as if
the surviving spouse were the Participant or former Participant).

          Any amount payable to a child pursuant to the death of a Participant or former Participant
shall be treated as if it were payable to the Participant’s or former Participant’s surviving
spouse if such amount would become payable to the surviving spouse upon such child reaching
majority (or other designated event permitted by regulations).

          Any distribution required under the incidental death benefit requirements of Code Section
401(a)(9) shall be treated as a distribution required under this Section of 9.9.

          9.10 Dividend Distributions.

               (a) Any cash dividends on Company Stock acquired with the proceeds of an Exempt Loan and held
in the Suspense Account shall be applied first to repay the principal and, at the Committee’s
discretion, the interest, of the Exempt Loan. In addition, if any cash dividends on shares of such
Company Stock allocated to Participant’s Accounts are used to pay the principal and/or the interest
of the Exempt Loan at the Committee’s discretion, Company

23

 

Stock with a fair market value not less than the amount of the dividends so used must be
allocated to the Participants’ Accounts to which such cash dividends would have been allocated.

               (b) After the payment of the principal and the interest of the Exempt Loan, any remaining cash
dividends on Company Stock may be used to purchase Company Stock or allocated to Accounts of
Participants in accordance with subsection (c) below.

               (c) In the case of any cash dividends on Company Stock that are allocable to the Accounts of
Participants with respect to vested shares, they may be paid currently (or within ninety days after
the end of the Plan Year in which the dividends are paid to the Trust) as cash, or the Company may
pay such dividends directly to the Participants’ Accounts as the Administrative Committee may
determine.

          9.11 Right of First Refusal. In the event a Participant, former Participant, or
Beneficiary desires to sell to a third person Company Stock received as a distribution from the
Plan, such person must first offer the Company, then the Plan, the right to purchase such Company
Stock at a price and on such terms not less favorable to the Participant than the greater of (a)
the price established by a bona fide offer or (b) the fair market value of the Company Stock using
the value determined as of the concurrent or next following Valuation Date. The right of the
Company and the Plan to purchase such stock shall lapse on the 14th day after such written notice
is given to the Company or the Plan of the fact that an offer has been received from a third party
to purchase the Company Stock and of the price and other terms of such offer.

          9.12 Prohibited Allocations.

               (a) No portion of the assets of the Plan attributable to (or allocable in lieu of) Company
Stock acquired by the Plan in a sale to which Code Section 1042 applies may be allocated to the
Account of (i) any Qualifying Selling Shareholder during the Nonallocation Period, or (ii) any
other person who owns more than 25 percent of (A) any class of outstanding stock of the Company or
any of its Affiliates, or (B) the total value of any class of outstanding stock of the Company or
any of its Affiliates.

               (b) For purposes of this Section 9.12, the following initially capitalized words shall carry
the following meanings:

                    (i) “Affiliate” means Affiliate as defined in Section 2.3 of the Plan, modified in accordance
with Code Section 409(l)(4).

                    (ii) “Qualifying Selling Shareholder” means any shareholder of Company Stock who makes an
election under Code Section 1042(a) with respect to Company Stock, or any individual who is related
to (within the meaning of Code Section 267(b)) the shareholder of Company Stock as defined above.
The term shall not include any lineal descendant of such shareholder or if the aggregate amount
allocated to the benefit of all such lineal descendants during the Nonallocation Period does not
exceed more than 5 percent of Company Stock (or amounts allocated in lieu thereof) held by the Plan
which are attributable to a sale to the Plan by any person related to such descendants (within the
meaning of Code Section 267(c)(4)) in a transaction to which Code Section 1042 applied.

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                    (iii) “Nonallocation Period” means the period beginning on the date of the sale of Company
Stock and ending on the later of the date which is 10 years after the date of the sale, or the date
of the Plan allocation attributable to the final payment of acquisition indebtedness incurred in
connection with such sale.

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ARTICLE X

RIGHT TO SELL COMPANY STOCK

          10.1 Put Requirements.

               (a) In the event Company Stock is distributed and is not publicly traded in the
over-the-counter market or on a national securities exchange at the time of distribution, the
Participant, former Participant, or Beneficiary may have an option (the “Put”) to require the
Company to purchase all of the shares actually distributed to such individual. The Put may be
exercised at any time during the Option Period (as defined in subsection (f) below) by giving the
Administrative Committee and the Company written notice of the election to exercise the Put. The
Put may be exercised by a former Participant or a Beneficiary only during the Option Period with
respect to which the former Participant or Beneficiary receives a distribution of Company Stock.

               (b) (i) The price paid for Company Stock sold to the Plan or the Company pursuant to the Put
shall be the fair market value of each share multiplied by the number of shares to be sold under
the Put, with appropriate adjustments to reflect intervening stock dividends, stock splits, stock
redemptions, or similar changes to the number of outstanding shares. The fair market value of a
share shall be determined (A) as of the Valuation Date concurrent with or immediately following the
date the Put is exercised, or (B) in the case of a transaction between the Plan and a Disqualified
Person, determined as of the date of the transaction.

                    (ii) If the distribution of Company Stock to a former Participant or Beneficiary constituted a
distribution within one taxable year of the balance of the Participant’s Account, the Company
reserves the right to establish guidelines to be exercised in a uniform and nondiscriminatory
manner, to make payment for the shares subject to the Put on an installment basis in substantially
equal annual, quarterly or monthly payments over a period not to exceed five years, such period
beginning no later than thirty days after exercise of the Put. The Company shall pay reasonable
interest at least annually on the unpaid balance of the price and shall provide to the former
Participant or Beneficiary adequate security with respect to the unpaid balance. If the
distribution was part of an installment distribution, the Company shall pay the Participant in cash
within thirty days after exercise of the Put.

               (c) The Put shall not be assignable, except that the Participant’s or former Participant’s
legal representative (in the event of a Participant’s incapacity) or, the Participant’s Beneficiary
(in the event of a Participant’s or former Participant’s death) shall be entitled to exercise the
Put during the Option Period for which it is applicable.

               (d) The Trustee (on behalf of the Plan) in its discretion, may assume the Company’s
obligations under this Section at the time a Participant, former Participant, or Beneficiary
exercises the Put, with the Company’s consent. If the Trustee assumes the Company’s obligations,
the provisions of this Section that apply to the Company shall also apply to the Trustee.

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               (e) The Administrative Committee shall notify each Participant, former Participant, and
Beneficiary who is eligible to exercise the Put of the fair market value of each share of Company
Stock as soon as practicable following its determination. The Administrative Committee shall send
all notices required under this Section to the last known address of a Participant, former
Participant, or Beneficiary, and it shall be the duty of those persons to inform the Administrative
Committee of any changes in address.

               (f) For purposes of this Section, the “Option Period” is the period of sixty days following
the day on which a Participant, former Participant, or Beneficiary receives a distribution. If
such person does not exercise the Put during that sixty-day period, the Option Period shall also be
the sixty-day period beginning on the first anniversary of the day on which such person received a
distribution. Notwithstanding the preceding sentences, when Company Stock is acquired with the
proceeds of an Exempt Loan, the “Option Period” shall be the fifteen (15) month period beginning on
the date such Company Stock is distributed to a Participant (or the Participant’s Beneficiary).
Such 15-month period shall be extended by a period equal to the number of days, if any, during
which the Company is precluded from honoring the put option by reason of applicable federal or
state law.

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ARTICLE XI

VOTING AND TENDER OF COMPANY STOCK

          11.1 Voting.

               (a) All shares of Company Stock held in the Trust shall be voted by the Trustee.

               (b) Each Participant and Beneficiary shall be entitled to direct the Trustee as to the manner
in which Company Stock allocated to the Participant’s Account is to be voted on any and all matters
which may be presented to the shareholders of Company Stock.

               (c) With respect to (i) allocated Company Stock as to which no direction is received, (ii)
unallocated shares of Company Stock in the Suspense Account and (iii) allocated shares of Company
Stock that are not subject to voting right pass through requirement under Code Section 409(e), the
Trustee shall vote such shares in the same ratio as the allocated and voted shares. When voting
such shares, however, the Trustee shall comply with its fiduciary duties as required by ERISA.

          11.2 Tender.

               (a) The Trustee shall not sell, alienate, encumber, pledge, transfer or otherwise dispose of
any Company Stock; except (i) as specifically provided for in the Plan or a Trust Agreement, or
(ii) in the case of a “tender or exchange offer”, as set forth in subsection (b) of this Section
11.2.

          For purposes of this Article XI, the term “tender or exchange offer” shall mean: (A) any
offer for, or request for or invitation for tenders or exchanges of, or offers to purchase or
acquire any shares of Company Stock that is directed generally to shareholders of the Company, or
(B) any transaction involving Company Stock which may be defined as a “tender offer” under proposed
or final rules or regulations promulgated by the Securities and Exchange Commission.

               (b) (i) In the event of a tender or exchange offer, each Participant or, if the Participant
is not alive, the Participant’s Beneficiary, shall have the right to determine confidentially
whether to tender or exchange any whole and fractional shares of Company Stock allocated to the
Participant’s Account and shall be entitled to instruct the Trustee as to the tender of such
shares. Upon receipt of such instructions, the Trustee shall act with respect to such Company
Stock as instructed. With respect to Company Stock as to which no instruction is received and
shares of Company Stock in the Suspense Account, the Trustee shall tender such shares in the
Trustee’s discretion. In exercising such discretion, the Trustee shall comply with its fiduciary
requirements of ERISA.

                    (ii) All shares of Company Stock held in the Fund and not tendered pursuant to subsection
(b)(i) of this Section 11.2, including allocated shares for which no instructions are received,
shall continue to be held by the Trustee.

                    (iii) Any shares of Company Stock not tendered by a Participant or Beneficiary pursuant to
subsection (b)(i) of this Section 11.2 shall continue to be held by the

28

 

Trustee in such Participant’s or Beneficiary’s Account. The Account of each Participant or
Beneficiary tendering shares of Company Stock pursuant to subsection (b)(i) of this Section 11.2
shall be credited with the cash received by the Trustee in exchange for the shares tendered from
such Participant’s or Beneficiary’s Account.

          11.3 Fiduciary Responsibilities.

          Each Participant shall be a “named fiduciary,” within the meaning of ERISA Section 402(a),
with respect to the voting and tender of Company Stock pursuant to Sections 11.1 and 11.2 of the
Plan.

          11.4 Procedures for Voting and Tender.

               (a) The Administrative Committee shall establish and maintain procedures by which Participants
and Beneficiaries shall be (i) timely notified of their right to direct the voting and tender of
Company Stock allocated to their Accounts and the manner in which any such directions are to be
conveyed to the Trustee, and (ii) given information relevant to making such decisions. No
directions shall be honored by the Trustee unless timely and properly conveyed in accordance with
such procedures.

               (b) Voting instructions received from Participants and Beneficiaries shall be held in
confidence by the Trustee or its delegate for this purpose and shall not be divulged to the Company
or to any officer or employee of the Company or to any other person.

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ARTICLE XII

ADMINISTRATION

          12.1 Fiduciary Responsibilities. A fiduciary shall have only those specific powers,
duties, responsibilities and obligations as are specifically given to such person under the Plan or
the Trust. The Company shall have sole responsibility to make the contributions provided for under
the Plan and, by action of the Board of Directors, to amend or terminate, in whole or in part, the
Plan or the Trust. The Board of Directors shall have sole responsibility to appoint and remove
members of the Administrative Committee and the Trustees of the Plan. The Administrative Committee
shall have sole responsibility for the general administration of this Plan and for the investment
policies of the Plan, for the selection of the Plan’s investment funds pursuant to the Plan, and
for the appointment and removal of any Investment Manager. Subject to the provisions of the Plan
and the Trust Agreement, the Trustee shall have sole responsibility for the administration of the
Trust and the management of the assets held in the Trust, as set forth in the Plan and the Trust.
It is intended that each fiduciary shall be responsible for the proper exercise of such fiduciary’s
own powers, duties, responsibilities, and obligations and, except as otherwise provided by law,
shall not be responsible for any act or failure to act by another fiduciary. A fiduciary may serve
in more than one fiduciary capacity with respect to the Plan. A fiduciary of the Plan who is also
an Employee shall not be compensated in such individual’s capacity as fiduciary.

          12.2 The Administrative Committee. Any member of the Administrative Committee may
resign with sixty (60) days advance written notice to the Board of Directors. The Administrative
Committee shall select a Chairman and a Secretary to keep records or to assist it in the discharge
of its responsibilities. The Administrative Committee shall have such duties and powers as are
necessary to discharge its responsibilities under the Plan, including, but not limited to, the
following:

               (a) To require any person to furnish such information as it requests for the purpose of the
proper administration of the Plan;

               (b) To make and enforce such rules and regulations and prescribe the use of such forms as it
deems necessary for the efficient administration of the Plan;

               (c) To construe and interpret the Plan, including the right to determine eligibility for
participation, eligibility for payment, the amount of benefits payable, the timing of distributions
and all other issues arising under the Plan as well as the right to remedy possible ambiguities,
inconsistencies or omissions; provided, however, that all such interpretations and decisions shall
be applied in a uniform manner to all similarly situated Participants and Beneficiaries;

               (d) To employ and rely upon such advisors (including attorneys, independent public
accountants, investment advisors and enrolled actuaries) as it deems appropriate or helpful in
connection with the operation and administration of the Plan;

               (e) To maintain complete records of the administration of the Plan;

30

 

               (f) To prepare and file with the appropriate governmental agencies such reports as required
from time to time with respect to the Plan under ERISA, the Code, or other laws and regulations
governing the administration of the Plan;

               (g) To furnish or disclose to Participants, Employees who may become Participants, and
Beneficiaries information about the Plan and statements of accrued benefits under the Plan, in
accordance with ERISA, the Code, or other laws and regulations governing the administration of the
Plan;

               (h) To delegate to one or more members of the Administrative Committee, or to persons other
than Administrative Committee members, any authority, duty or responsibility pertaining to the
administration or operation of the Plan; provided, however, that each such delegation shall be made
by a written instrument authorized by the Administrative Committee and maintained with the records
of the Plan. If any person other than an Employee is so designated, such person must acknowledge,
in writing, acceptance of the duties and responsibilities delegated. All such instruments and
acknowledgments shall be considered a part of the Plan;

               (i) To determine, pursuant to procedures adopted by it, whether a state domestic relations
order served upon the Plan is a “qualified domestic relations order” (as defined in Code Section
414(p)); to place in escrow any benefits payable in the period during which the Administrative
Committee determines the status of an order; and to take any necessary action to administer
distributions under the terms of a “qualified domestic relations order”;

               (j) To discharge any responsibilities which are allocated to the Administrative Committee
elsewhere in this Plan.

          All decisions and interpretations of the Administrative Committee shall be binding and shall
be entitled to the maximum deference permitted under the law.

          12.3 Plan Expenses. All expenses authorized and incurred by the Administrative
Committee shall be from the assets of the Plan, except to the extent such expenses are paid by the
Company.

          12.4 Meetings and Voting. The Administrative Committee shall act by a majority vote
of its respective members at a meeting or, by written consent of a majority of its members, without
a meeting. The Administrative Committee shall hold meetings, as deemed necessary by them, although
any member may call a special meeting of the committee by giving reasonable notice to the other
members. The Secretary of the Administrative Committee shall have authority to give certified
notice in writing of any action taken by the committee.

          12.5 Compensation. The members of the Administrative Committee, if Employees, shall
serve without compensation.

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          12.6 Claims Procedures.

               (a) Any Participant or Beneficiary (“Claimant”) may file a written claim for a benefit under
the Plan with the Administrative Committee or with a person named by the Administrative Committee
to receive such claims;

               (b) In the event of a denial or limitation of any benefit or payment due or requested by any
Claimant, such Claimant shall be given a written notification containing specific reasons for the
denial or limitation of the benefit. The written notification shall contain specific reference to
the pertinent Plan provisions on which the denial or limitation is based. In addition, it shall
contain a description of any additional material or information necessary for the Claimant to
perfect a claim and an explanation of why such material or information is necessary. Further, the
notification shall provide appropriate information as to the steps to be taken if the Claimant
wishes to submit such claim for review. This written notification shall be given to a Claimant
within ninety days after receipt of the claim by the Administrative Committee (or its delegatee to
receive such claims), unless special circumstances require an extension of time for processing the
claim. If such an extension of time is required, written notice of the extension shall be
furnished to the Claimant prior to the termination of the ninety-day period and such notice shall
indicate the special circumstances which make the postponement appropriate;

               (c) In the event of a denial or limitation of benefits, the Claimant or the Claimant’s duly
authorized representative shall be permitted to review pertinent documents and to submit issues and
comments in writing to the Administrative Committee. In addition, the Claimant or the Claimant’s
duly authorized representative may make a written request for a full and fair review of the claim
and its denial by the Administrative Committee; provided, however, that such written request must
be received by the Administrative Committee (or its delegatee to receive such requests) within
sixty days after receipt by the Claimant of written notification of the denial or limitation. The
sixty-day requirement may be waived by the Administrative Committee in appropriate cases; and

               (d) (i) A decision shall be rendered by the Administrative Committee within sixty days after
the receipt of the request for review; provided, however, that where special circumstances require
an extension of time for processing the decision, it may be postponed, on written notice to the
Claimant (prior to the expiration of the initial sixty-day period) for an additional sixty days,
but in no event shall the decision be rendered more than one hundred and twenty days after the
receipt of such request for review.

                    (ii) Notwithstanding subsection (d)(i) of this Section 12.6, if the Administrative Committee
holds regularly scheduled meetings at least quarterly to review such appeals, a Claimant’s request
for review shall be acted upon at the meeting immediately following the receipt of the Claimant’s
request unless such request is filed within thirty days preceding such meeting. In such instance,
the decision shall be made no later than the date of the second meeting following the receipt of
such request by the Administrative Committee (or its delegatee to receive such requests). If
special circumstances require a further extension of time for processing a request, a decision
shall be rendered not later than the third meeting of the Administrative Committee following the
receipt of such request for review, and written notice of the extension shall be furnished to the
Claimant prior to the commencement of the extension.

32

 

                    (iii) Any decision by the Administrative Committee shall be furnished to the Claimant in
writing and in a manner calculated to be understood by the Claimant and shall set forth the
specific reason(s) for the decision and the specific Plan provision(s) on which the decision is
based.

          12.7 Liabilities. The Administrative Committee, each member or former member of such
Committee, and each person to whom duties and responsibilities have been delegated under the Plan
shall be indemnified and held harmless by the Company, to the fullest extent permitted by ERISA,
other applicable laws, and the charter and By-laws of the Company.

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ARTICLE XIII

AMENDMENTS

          13.1 Right to Amend. Except as otherwise set forth in this Article XIII or as may be
required by law, the Board of Directors reserves the right to amend the Plan at any time and in any
manner, without prior notification, consultation, or bargaining with any Employee or representative
of Employees by written resolution of the Board of Directors adopted at a duly convened meeting of
the Board of Directors in accordance with the By-Laws of the Company and the laws of the
Commonwealth of Pennsylvania. To the extent required by the Code or ERISA, no amendment to the
Plan shall decrease a Participant’s benefit or eliminate an optional form of distribution. No
amendment shall make it possible for any assets of the Plan to be used for or diverted to any
purposes other than for the exclusive benefit of Participants and Beneficiaries.

          13.2 Amendment by Administrative Committee. The Administrative Committee may adopt
any ministerial and nonsubstantive amendment it deems necessary or appropriate to (a) facilitate
the administration, management and interpretation of the Plan, (b) conform the Plan to current
practice, or (c) cause the Plan and its related Trust to qualify under Code Sections 401(a)(1),
501(a) and 4975(e)(7) or to comply with ERISA or any other applicable laws; provided that such
amendment does not have any material effect on the estimated cost to the Company of maintaining the
Plan.

          13.3 Plan Merger and Asset Transfers. No assets of the Trust shall be merged or
consolidated with, nor shall any assets or liabilities be transferred to any other plan, unless the
benefits payable to each Participant or Beneficiary, if this Plan were terminated immediately after
such action, would be equal to or greater than the benefits such individuals would have been
entitled to receive if this Plan had been terminated immediately before such action.

          13.4 Amendment of Vesting Schedule. Notwithstanding anything to the contrary, no
amendment to the Plan shall have the effect of decreasing a Participant’s nonforfeitable percentage
determined without regard to such amendment as of the later of the date such amendment is adopted
or the date it becomes effective. If the Plan’s vesting schedule is amended, or the Plan is
amended in any way that directly or indirectly affects the computation of a Participant’s
nonforfeitable percentage, each Participant with at least 3 Years of Service may elect, within a
reasonable period after the adoption of the amendment, to have the nonforfeitable percentage
computed under the Plan without regard to such amendment. The Participant’s election may be made
at any time during the period ending on the latest of:

               (a) 60 days after the amendment is adopted;

               (b) 60 days after the amendment becomes effective; or

               (c) 60 days after the Participant is issued written notice of the amendment by the Company or
the Administrative Committee.

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ARTICLE XIV

TERMINATION

          14.1 Right to Terminate. While the Company intends the Plan to be permanent, the
Board of Directors reserves the right to terminate the Plan at any time, without prior
notification, consultation, or bargaining with any Employee or representative of Employees by
written resolution of the Board of Directors adopted at a duly convened meeting of the Board of
Directors in accordance with the By-laws of the Company and the laws of the Commonwealth of
Pennsylvania.

          14.2 Effect of Termination. If the Plan is terminated, contributions shall cease,
and the assets remaining in the Trust, after payment of any expenses, including expenses of
administration or liquidation, shall be retained in the Trust for distribution in accordance with
the terms of the Plan. Upon termination (including a partial termination), or upon the complete
discontinuance of contributions by the Company, all Participants shall be 100 percent vested in
their Accounts.

          14.3 Change in Control. Notwithstanding the provisions of this Article XIII or any
other provisions of the Plan to the contrary, the Plan will terminate, upon a Change in Control.
Such termination shall be effective as of the date of an occurrence of Change in Control determined
under Section 2.7(a), (b), (e), or (f) of the Plan. For purposes of a Change in Control as
described under Plan Section 2.7(c), such termination shall be effective as of the “closing” or
“effective date” of a transaction described in Section 2.7(c) or (d).

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ARTICLE XV

MISCELLANEOUS

          15.1 Non-alienation of Benefits. Except as provided in Code Section 401(a)(13)
(relating to qualified domestic relations orders), Code Section 401(a)(13)(C) and (D) (relating to
offsets ordered or required under a criminal conviction involving the Plan, a civil judgment in
connection with a violation or alleged violation of fiduciary responsibilities under ERISA, or a
settlement agreement between the Participant and the Department of Labor in connection with a
violation or alleged violation of fiduciary responsibilities under ERISA), Section
1.401(a)-13(b)(2) of Treasury regulations (relating to Federal tax levies and judgments), or as
otherwise required by law, no benefit under the Plan at any time shall be subject in any manner to
anticipation, alienation, assignment (either at law or in equity), encumbrance, garnishment, levy,
execution, or other legal or equitable process; and no person shall have power in any manner to
anticipate, transfer, assign (either at law or in equity), alienate or subject to attachment,
garnishment, levy, execution, or other legal or equitable process, or in any way encumber the
Participant’s benefits under the Plan, or any part thereof, and any attempt to do so shall be void.

          15.2 Appointment of Guardian. Where it is established to the satisfaction of the
Administrative Committee that a guardian has been duly appointed on behalf of a person entitled to
a distribution under the Plan, the Administrative Committee may cause payment to be made to the
guardian for the benefit of the entitled person. The Administrative Committee shall have no
responsibility with respect to the application of amounts so paid.

          15.3 Satisfaction of Benefit Claims. The assets of the Trust shall be the sole
source of benefits under this Plan, and each Participant or any other person who shall claim the
right to any payment or benefit under this Plan shall be entitled to look only to the Trust for
such payment or benefit, and shall not have any right, claim or demand against the Company or any
officer or director of the Company. Such Participant or person shall not have a right to or
interest in any assets of the Trust, except as provided from time to time under this Plan.

          15.4 Controlling Law. The provisions of the Plan shall be construed, administered
and enforced under the laws of the United States and the Commonwealth of Pennsylvania.

          15.5 Non-guarantee of Employment. Nothing contained in this Plan shall be construed
as a contract of employment between the Company and any Employee, or as a right of any Employee to
be continued in the employment of the Company or as a limitation of the right of the Company to
discharge any of its Employees, with or without cause.

          15.6 Severability and Construction of the Plan.

               (a) If any provision of the Plan or the application of it to any circumstance(s) or person(s)
is invalid, the remainder of the Plan and the application of such provision to other circumstances
or persons shall not be affected thereby.

               (b) Unless the context otherwise indicates, the masculine wherever used shall include the
feminine and neuter; the singular shall include the plural; and words such as

36

 

“herein”, “hereof,” “hereby,” “hereunder” and words of similar import shall refer to the Plan
as a whole and not any particular part of it.

          15.7  No Requirement of Profits. Contributions may be made to the Plan without
regard to current or accumulated profits of the Company.

          15.8 All Risk on Participants and Beneficiaries. Each Participant and Beneficiary
shall assume all risk in connection with any decrease in the value of the assets of the Trust and
the Participants’ and Beneficiaries’ Accounts.

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ARTICLE XVI

TOP-HEAVY PROVISIONS

          16.1 Determination of Top-Heavy Status.

               (a) Any provision of this Plan to the contrary notwithstanding, for any Plan Year in which the
Plan is a Top-Heavy Plan, the provisions of this Article shall apply. The provisions of this
Article shall have effect only to the extent required under Code Section 416. This Plan shall be
deemed a Top-Heavy Plan only with respect to any Plan Year in which, as of the Determination Date,
the Top-Heavy Ratio exceeds 60 percent.

               (b) If the Plan is not included in a Required Aggregation Group with other plans, then it
shall be Top-Heavy only if (i) when considered by itself it is a Top-Heavy Plan and (ii) it is not
included in a Permissive Aggregation Group that is not a Top-Heavy Group.

               (c) If the Plan is included in a Required Aggregation Group with other plans, it shall be
Top-Heavy only if the Required Aggregation Group, including any permissively aggregated plans, is
Top-Heavy.

          16.2 Top-Heavy Definitions. Solely for purposes of this Article, the following words
and phrases shall have the following meaning;

               (a) “Aggregation Group or Top Heavy Group” means either a Required Aggregation Group or a
Permissive Aggregation Group.

               (b) “Determination Date” means, with respect to any Plan Year, the last day of the preceding
Plan Year or in the case of the first Plan Year of any plan, the last day of such Plan Year or such
other date as permitted under rules issued by the U.S. Department of the Treasury.

               (c) “The Company” means the Company and all members of a controlled group of corporations (as
defined in Code Section 414(b) as modified by Code Section 415(h)), all commonly controlled trades
or businesses (as defined in Code Section 414(c) as modified by Code Section 415(h)), or affiliated
service groups (as defined in Code Section 414(m)) of which the Company is a part.

               (d) “Key Employee” means any employee or former employee (including any deceased employee) who
at any time during the Plan Year that includes the Determination Date was an officer of the Company
having annual compensation greater than $130,000 (as adjusted under Code Section 416(i)(1)), a five
percent owner of the Company, or a one percent owner of the Company having annual compensation of
more than $150,000. For this purpose, annual compensation means compensation within the meaning of
Code Section 415(c)(3). The determination of who is a Key Employee will be made in accordance with
Code Section 416(i)(1) and the applicable regulations and other guidance of general applicability
issued thereunder.

               (e) “Non-Key Employee” means any Employee who is not a Key Employee.

38

 

               (f) “Permissive Aggregation Group” means a Required Aggregation Group plus any other plans
maintained and selected by the Company; provided that all such plans when considered together
satisfy the requirements of Code Sections 401(a)(4) and 410.

               (g) “Required Aggregation Group” means each qualified plan of the Company in which at least
one Key Employee participates or which enables any plan in which a Key Employee participates to
meet the requirements of Code Sections 401(a)(4) or 410.

               (h) “Top-Heavy Ratio” means:

                    (i) If the Company maintains one or more defined contribution plans (including any Simplified
Employee Pension Plan) and the Company has not maintained any defined benefit plan which during the
5-year period ending on the Determination Date(s) has or has had accrued benefits, the Top-Heavy
Ratio is a fraction, the numerator of which is the sum of the Account balances of all Key Employees
as of the Determination Date(s) (including any part of any Account balance distributed in the
1-year period (5-year period in the case of a distribution made for a reason other than severance
from employment, death or disability) ending on the Determination Date(s)), and the denominator of
which is the sum of all Account balances (including any part of any Account balance distributed in
the 1-year period (5-year period in the case of a distribution made for a reason other than
severance from employment, death or disability) ending on the Determination Date(s)), both computed
in accordance with Code Section 416 and the regulations thereunder. Both the numerator and
denominator of the Top-Heavy Ratio are increased to reflect any contribution not actually made as
of the Determination Date, but which is required to be taken into account on that date under Code
Section 416 and the regulations thereunder.

                    (ii) If the Company maintains or has maintained one or more defined benefit plans which
during the 5-year period ending on the Determination Date(s) has or has had any accrued benefits,
the Top-Heavy Ratio for any required or permissive aggregation group as appropriate is a fraction,
the numerator of which is the sum of Account Balances under the aggregated defined contribution
plan or plans for all Key Employees, determined in accordance with (i) above, and the present value
of accrued benefits under the aggregated defined benefit plan or plans for all Key Employees as of
the Determination Date(s), and the denominator of which is the sum of the Account balances under
the aggregated defined contribution plan or plans for all Participants, determined in accordance
with (i) above, and the present value of accrued benefits under the defined benefit plan or plans
for all Participants as of the Determination Date(s), all determined in accordance with Code
Section 416 and the regulations thereunder. The accrued benefits under a defined benefit plan in
both the numerator and denominator of the Top-Heavy Ratio are increased for any distribution of an
accrued benefit made in the 1-year period (5-year period in the case of a distribution made for a
reason other than severance from employment, death or disability) ending on the Determination Date.

                    (iii) For purposes of (i) and (ii) above the value of Account balances and the present value
of accrued benefits will be determined as of the most recent Valuation Date that falls within or
ends with the 12-month period ending on the Determination Date, except as provided in Code Section
416 and the regulations thereunder for the first and second plan years of a defined benefit plan.
The Account balances and accrued benefits of a Participant (1) who is

39

 

not a Key Employee but who was a Key Employee in a prior year, or (2) who has not been
credited with at least one hour of service with any Employer maintaining the plan at any time
during the 1-year period ending on the Determination Date will be disregarded. The calculation of
the Top-Heavy Ratio, and the extent to which distributions, rollovers, and transfers are taken into
account will be made in accordance with Code Section 416 and the regulations thereunder.
Deductible employee contributions will not be taken into account for purposes of computing the
Top-Heavy Ratio. When aggregating plans the value of Account balances and accrued benefits will be
calculated with reference to the Determination Dates that fall within the same calendar year.

                         The accrued benefit of a Participant other than a Key Employee shall be determined under (1)
the method, if any, that uniformly applies for accrual purposes under all defined benefit plans
maintained by the employer, or (2) if there is no such method, as if such benefit accrued not more
rapidly than the slowest accrual rate permitted under the fractional rule of Code Section
411(b)(1)(C).

               (i) “Valuation Date” means, for purposes of determining if the Plan is Top-Heavy, the most
recent Valuation Date in the period of twelve months ending on the Determination Date.

          16.3  Top-Heavy Rules. For any year in which a Plan is determined to be a Top-Heavy
Plan the following rules shall apply:

               (a) For each Plan Year in which the Plan is Top-Heavy, minimum contributions for a Participant
who is a Non-Key Employee shall be required to be made on behalf of each Participant who is
employed by the Company on the last day of the Plan Year. The amount of the minimum contribution
shall be the lesser of the following percentage of compensation:

                    (i) 3 percent, or

                    (ii) the highest percentage at which Contributions are made under the Plan for the Plan Year
on behalf of any Key Employee.

                         (A) For purposes of this paragraph (ii), all defined contribution plans included in a Required
Aggregation Group shall be treated as one plan.

                         (B) This paragraph (ii) shall not apply if the Plan is included in a Required Aggregation
Group and the Plan enables a defined benefit plan included in the Required Aggregation Group to
meet the requirements of Code Sections 401(a)(4) or 410.

                         (C) If the highest percentage at which Contributions are made under the Plan for a top-heavy
Plan Year on behalf of Key Employees is less than 3%, the amounts contributed as a result of a
salary reduction agreement must be included in determining Contributions made on behalf of Key
Employees.

          Any contributions that must be made under this subsection (a) shall be made under the Penn
Millers Insurance Company 401(k) Plan.

40

 

               (b) The vesting schedule when the Plan is Top-Heavy is as follows:

	 	 	 	 	 
	Years of Service After the Effective Date	 	Vested Percentage
	0-1 Years of Service
	 	 	0	%
	 
	2 Years of Service
	 	 	20	%
	 
	3 Years of Service
	 	 	40	%
	 
	4 Years of Service
	 	 	60	%
	 
	5 Years of Service
	 	 	80	%
	 
	6 or more Years of Service
	 	 	100	%

41

 

ARTICLE XVII

EXEMPT LOANS

          17.1 General. The Trustee shall have the authority and discretion to borrow money
from a Disqualified Person, or another source which is guaranteed by a Disqualified Person for the
purpose of (a) purchasing Company Stock, or (b) repaying a prior Exempt Loan. Any Exempt Loan
shall satisfy all of the requirements of this Article XVII.

          17.2 Terms of Exempt Loan Agreements. All Exempt Loans shall satisfy the following
requirements:

               (a) The loan shall be primarily for the benefit of Participants and their Beneficiaries;

               (b) The loan shall be for a specified term and shall bear no more than a reasonable rate of
interest.

               (c) The collateral pledged by the Trustee shall consist only of the Company Stock purchased
with the borrowed funds, or Company Stock that was pledged as collateral in connection with a prior
Exempt Loan that was repaid with the proceeds of the current Exempt Loan.

               (d) Under the terms of the agreement, the lender shall have no recourse against the Trust, or
any of its assets, except with respect to the collateral and contributions (other than
contributions of Company Stock) by the Company that are made to satisfy its obligations under the
loan agreement and earnings attributable to such collateral and such contributions.

               (e) The payments made on the loan during a Plan Year shall not exceed an amount equal to the
sum of such contributions and the earnings received during or prior to the year less such payments
on the exempt loan in prior years.

               (f) In the event of default, the value of the assets transferred in satisfaction of the loan
shall not exceed the amount of default; moreover, if the lender is a Disqualified Person, the loan
agreement shall provide for a transfer of assets upon default only upon and to the extent of the
failure of the Plan to meet the payment schedule of the loan.

          17.3 Prohibition on Purchase Arrangements. Except as provided in Article X and as
hereinafter provided in this Article XVII, no Company Stock shall be subject to a put, call, or
other option, or buy-sell or similar arrangement while held by and when distributed from the Trust,
whether or not at the time of distribution the Plan is an employee stock ownership plan. These
protections and rights which attach to Company Stock acquired with the proceeds of an Exempt Loan
shall not be terminable.

          17.4 Suspense Account.

               (a) Company contributions made to the Trust in the form of Company Stock purchased with the
proceeds of an Exempt Loan shall be held in the Suspense Account as

42

 

the collateral for that Exempt Loan. Such stock shall be released from the Suspense Account
on a pro-rata basis according to the amount of the payment on the Exempt Loan for the Plan Year,
determined under one of the following two alternative formulas in the discretion of the
Administrative Committee:

                         (i) for each Plan Year during the duration of the Exempt Loan, the number of shares of
Company Stock released shall equal the number of such shares held in the Suspense Account
immediately before release for the current Plan Year multiplied by a fraction, the numerator of
which is the amount of principal and interest paid for the year and the denominator of which is the
sum of the numerator plus the remaining principal and interest to be paid for all future years.
The number of future years under the Exempt Loan must be definitely ascertainable and must be
determined without taking into account any possible extensions or renewal periods. If the interest
rate under the loan is variable, the interest to be paid in future years must be computed by using
the interest rate applicable as of the end of the Plan Year. If the collateral includes more than
one class of Company Stock, the number of shares of each class to be released for a Plan Year must
be determined by applying the same fraction to each class; or

                         (ii) for each Plan Year during the duration of the Exempt Loan, the number of shares of
Company Stock released is determined solely with reference to the principal payment of the Exempt
Loan. If Company Stock in the Suspense Account is released in accordance with this subsection
(ii), (A) the Exempt Loan must provide for annual payments of principal and interest at a
cumulative rate that is not less rapid at any time than level annual payments of such amounts for
10 years; and (B) interest included in any payment is disregarded only to the extent that it would
be determined to be interest under standard loan amortization tables.

          This subsection (ii) will not be applicable if by reason of a renewal, extension, or
refinancing, the sum of the expired duration of the Exempt Loan, the renewal period, the extension
period, and the duration of a new Exempt Loan exceeds 10 years.

               (b) Shares of Company Stock released in accordance with Section 17.4(a) of the Plan shall then
be allocated to the Accounts of Participants first, in an amount equal in value to any dividends
paid on shares previously allocated to Participant’s Accounts that are used to repay the Exempt
Loan. The remaining shares of such stock shall be allocated to the Accounts of Participants in the
same manner as described in Section 5.5.

43

 

          IN WITNESS WHEREOF, Penn Millers Holding Corporation has caused this Plan to be duly executed
under seal this ___ day of                     , 2009.

	 	 	 	 	 
	 	PENN MILLERS HOLDING CORPORATION

 	 
	 	By  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

Attest:

         
                 
                
                  

[SEAL]

44exv4w1

Exhibit 4.1

SECURITIES PURCHASE AGREEMENT

     This Securities Purchase Agreement (this “Agreement”) is dated as of June 29, 2009,
between ADVENTRX Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and each
purchaser identified on the signature pages hereto (each, including its successors and assigns, a
“Purchaser” and collectively, the “Purchasers”).

     WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to an
effective registration statement under the Securities Act of 1933, as amended (the “Securities
Act”), the Company desires to issue and sell to each Purchaser, and each Purchaser, severally
and not jointly, desires to purchase from the Company, securities of the Company as more fully
described in this Agreement.

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

ARTICLE I.

DEFINITIONS

     1.1 Definitions. In addition to the terms defined elsewhere in this Agreement: (a)
capitalized terms that are not otherwise defined herein have the meanings given to such terms in
the Certificate of Designation (as defined herein), and (b) the following terms have the meanings
set forth in this Section 1.1:

     “Acquiring Person” shall have the meaning ascribed to such term in Section 4.7.

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

     “Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a Person, as
such terms are used in and construed under Rule 405 under the Securities Act.

     “Board of Directors” means the board of directors of the Company.

     “Business Day” means any day except any Saturday, any Sunday, any day which is
a federal legal holiday in the United States or any day on which banking institutions in the
State of New York are authorized or required by law or other governmental action to close.

     “Certificate of Designation” means the Certificate of Designation to be filed
prior to the Closing by the Company with the Secretary of State of Delaware, in the form of
Exhibit A attached hereto.

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

     “Closing Date” means the Trading Day on which all of the Transaction Documents
have been executed and delivered by the applicable parties thereto, and all conditions
precedent to (i) the Purchasers’ obligations to pay the Subscription Amount

 

 

and (ii) the Company’s obligations to deliver the Securities, in each case, have been
satisfied or waived.

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

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

     “Common Stock Equivalents” means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock,
including, without limitation, any debt, preferred stock, rights, options, warrants or other
instrument that is at any time convertible into or exercisable or exchangeable for, or
otherwise entitles the holder thereof to receive, Common Stock.

     “Company Counsel” means DLA Piper LLP (US), with offices located at 4365
Executive Drive, Suite 1100, San Diego, CA 92121.

     “Disclosure Schedules” means the Disclosure Schedules of the Company delivered
concurrently herewith.

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

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

     “Exempt Issuance” means the issuance of (a) a Common Stock purchase warrant to
Rodman & Renshaw LLC, as compensation for its services as the Company’s placement agent, and
shares of Common Stock issuable upon exercise thereof, (b) shares of Common Stock, options
or other equity awards to employees, officers, directors or consultants of the Company
pursuant to any equity incentive plan duly adopted for such purpose, by a majority of the
non-employee members of the Board of Directors or a majority of the members of a committee
of non-employee directors established for such purpose, (c) securities upon the exercise or
exchange of or conversion of any Securities issued hereunder and/or other securities
exercisable or exchangeable for or convertible into shares of Common Stock issued and
outstanding on the date of this Agreement, provided that such securities have not been
amended since the date of this Agreement to increase the number of such securities or to
decrease the exercise price, exchange price or conversion price of such securities, and (d)
securities issued pursuant to acquisitions or strategic transactions approved by a majority
of the disinterested directors of the Company, provided that any such issuance shall only be
to a Person (or to the equityholders of a Person) which is, itself or through its
subsidiaries, an operating company or an asset in a business synergistic with the business
of the Company and shall provide to the Company additional benefits in addition to the
investment of funds, but shall not include a transaction in which the Company is issuing
securities primarily for the purpose of raising capital or to an entity whose primary
business is investing in securities.

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

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

2

 

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

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

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

     “Liens” means a lien, charge, security interest, encumbrance, right of first
refusal, preemptive right or other restriction other than restrictions imposed by securities
laws.

     “Make-Whole Payment” shall have the meaning ascribed to such term in the
Certificate of Designation.

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

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

     “Maximum Rate” shall have the meaning ascribed to such term in Section 5.17.

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

     “Pharmaceutical Product” shall have the meaning ascribed to such term in
Section 3.1(gg).

     “Preferred Stock” means the up to 1,361 shares of the Company’s 5% Series B
Convertible Preferred Stock issued hereunder having the rights, preferences, privileges and
limitations set forth in the Certificate of Designation, in the form of Exhibit A
hereto.

     “Previous Prospectus Supplement” means prospectus supplement no. 1 to the
Prospectus, dated June 8, 2009.

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

     “Prospectus” means the final prospectus filed for the Registration Statement.

     “Prospectus Supplement” means the supplement to the Prospectus complying with
Rule 424(b) of the Securities Act that is filed with the Commission and delivered by the
Company to each Purchaser before or at the Closing.

     “Purchaser Party” shall have the meaning ascribed to such term in Section 4.10.

     “Registration Statement” means the effective registration statement with the
Commission file No. 333-159376 which registers the sale of the Preferred Stock and
Underlying Shares to the Purchasers.

3

 

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

     “Required Minimum” means, as of any date, the maximum aggregate number of
shares of Common Stock then issued or potentially issuable in the future pursuant to the
Transaction Documents, including any Underlying Shares issuable upon conversion in full of
all shares of Preferred Stock, ignoring any conversion or exercise limits set forth therein.

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

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

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

     “Securities” means the Preferred Stock and the Underlying Shares.

     “Securities Act” means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.

     “Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO
under the Exchange Act (but shall not be deemed to include the location and/or reservation
of borrowable shares of Common Stock).

     “Stated Value” means $1,000 per share of Preferred Stock.

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

     “Subsidiary” means any subsidiary of the Company as set forth on Schedule
3.1(a) and shall, where applicable, also include any direct or indirect subsidiary of
the Company formed or acquired after the date hereof.

     “Trading Day” means a day on which the principal Trading Market for the Common
Stock is open for trading.

     “Trading Market” means any of the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the NYSE AMEX, the
Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New
York Stock Exchange or the OTC Bulletin Board (or any successors to any of the foregoing).

4

 

     “Transaction Documents” means this Agreement, the Certificate of Designation,
all exhibits and schedules thereto and hereto and any other documents or agreements executed
in connection with the transactions contemplated hereunder.

     “Transfer Agent” means American Stock Transfer & Trust Company LLC, the current
transfer agent of the Company, with a mailing address of 6201 15th Avenue, 2nd Floor,
Brooklyn, NY 11219 and a facsimile number of (718) 921-8310, and any successor transfer
agent of the Company.

     “Underlying Shares” means the shares of Common Stock issued and issuable upon
conversion or redemption of the Preferred Stock and issued and issuable in lieu of the cash
payment of dividends on the Preferred Stock in accordance with the terms of the Certificate
of Designation.

     “Variable Rate Transaction” shall have the meaning ascribed to such term in
Section 4.13(b).

     “WS” means Weinstein Smith LLP with offices located at 420 Lexington Avenue,
Suite 2620, New York, New York 10170-0002.

ARTICLE II.

PURCHASE AND SALE

     2.1 Closing. On the Closing Date, upon the terms and subject to the conditions set
forth herein, substantially concurrent with the execution and delivery of this Agreement by the
parties hereto, the Company agrees to sell, and the Purchasers, severally and not jointly, agree to
purchase, up to an aggregate of $1,361,000 of shares of Preferred Stock with an aggregate Stated
Value for each Purchaser equal to such Purchaser’s Subscription Amount as set forth on the
signature page hereto executed by such Purchaser. The aggregate number of shares of Preferred
Stock sold hereunder shall be up to 1,361. At the Closing, each Purchaser shall deliver to the
Company via wire transfer or a certified check of immediately available funds equal to its
Subscription Amount, and the Company shall deliver to each Purchaser its respective shares of
Preferred Stock, and the Company and each Purchaser shall deliver the other items set forth in
Section 2.2 deliverable at the Closing. Upon satisfaction of the covenants and conditions set
forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of WS or such other location
as the parties shall mutually agree.

     2.2 Deliveries.

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

     (i) this Agreement duly executed by the Company;

     (ii) a legal opinion of Company Counsel, substantially in the form to be
mutually agreed upon by the parties hereto;

     (iii) a certificate evidencing a number of shares of Preferred Stock equal to
such Purchaser’s Subscription Amount divided by the Stated Value, registered in the
name of such Purchaser and evidence of the filing and

5

 

acceptance of the Certificate of Designation from the Secretary of State of
Delaware;

     (iv) an escrow agreement in form and substance reasonably satisfactory to the
Company and the Purchasers pursuant to which the Make-Whole Payment shall be
deposited; and

     (v) the Prospectus and Prospectus Supplement (which may be delivered in
accordance with Rule 172 under the Securities Act).

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

     (i) this Agreement duly executed by such Purchaser;

     (ii) an escrow agreement in form and substance reasonably satisfactory to the
Company and the Purchasers pursuant to which the Make-Whole Payment (as defined in
the Certificate of Designation) shall be deposited; and

     (iii) such Purchaser’s Subscription Amount by wire transfer to the account as
specified in writing by the Company, of which the Make-Whole Payment shall be
deposited directly in the above-referenced escrow account.

     2.3 Closing Conditions. 

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

     (i) the accuracy in all material respects when made and on the Closing Date of
the representations and warranties each Purchaser contained herein (unless as of a
specific date therein);

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

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

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

     (i) the accuracy in all material respects when made and on the Closing Date of
the representations and warranties of the Company contained herein (unless as of a
specific date therein);

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

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

6

 

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

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

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

     3.1 Representations and Warranties of the Company. Except as set forth or
incorporated by reference into the Registration Statement, the Prospectus, the Prospectus
Supplement or the Disclosure Schedules, which disclosures in such filings with the Commission and
in the Disclosure Schedules shall be deemed a part hereof and shall qualify any representation or
otherwise made herein to the extent of the disclosure contained in such filings with the Commission
or in the Disclosure Schedule corresponding to this Section 3.1, the Company hereby makes the
following representations and warranties to each Purchaser:

     (a) Subsidiaries. All of the direct and indirect subsidiaries of the Company
are set forth on Schedule 3.1(a). The Company owns, directly or indirectly, all of
the capital stock or other equity interests of each Subsidiary free and clear of any Liens,
and all of the issued and outstanding shares of capital stock of each Subsidiary are validly
issued and are fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities. If the Company has no subsidiaries, all other
references to the Subsidiaries or any of them in the Transaction Documents shall be
disregarded.

     (b) Organization and Qualification. The Company and each of the Subsidiaries
is an entity duly incorporated or otherwise organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization, with the requisite
power and authority to own and use its properties and assets and to carry on its business as
currently conducted. Neither the Company nor any Subsidiary is in violation nor default of
any of the provisions of its respective certificate or articles of incorporation, bylaws or
other organizational or charter documents. Each of the Company and the Subsidiaries is duly
qualified to conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted or property owned
by it makes such qualification necessary, except where the failure to be so qualified or in
good standing, as the case may be, could not reasonably be expected to result in: (i) a
material adverse effect on the legality,

7

 

validity or enforceability of any Transaction Document, (ii) a material adverse change
in the results of operations, assets, business, prospects or condition (financial or
otherwise) of the Company and the Subsidiaries, taken as a whole, from that set forth or
incorporated by reference in the Prospectus and Prospectus Supplement, or (iii) a material
adverse effect on the Company’s ability to perform in any material respect on a timely basis
its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material
Adverse Effect”) and no Proceeding has been instituted or, to the knowledge of the
Company, threatened in any such jurisdiction revoking, limiting or curtailing or seeking to
revoke, limit or curtail such power and authority or qualification.

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

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

     (e) Filings, Consents and Approvals. The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any filing or

8

 

registration with, any court or other federal, state, local or other governmental
authority or other Person in connection with the execution, delivery and performance by the
Company of the Transaction Documents, other than: (i) the filings required pursuant to
Section 4.6 of this Agreement, (ii) the filing with the Commission of the Prospectus
Supplement, (iii) the filing of application(s) with and approval by the NYSE Amex LLC for
the issuance and sale of the Securities and the listing of the Underlying Shares for trading
thereon in the time and manner required thereby, (iv) the filing with the Secretary of State
of the State of Delaware of the Certificate of Designation, (v) an approval or waiver under
that certain Rights Agreement, dated July 27, 2005, as amended (the “Rights
Agreement”), and (vi) such filings as are required to be made under applicable state
securities laws and the rules and regulations of the Financial Industry Regulatory Authority
(FINRA) (collectively, the “Required Approvals”).

     (f) Issuance of the Securities; Registration. The Securities are duly
authorized and, the Preferred Stock, when issued and paid for in accordance with the
applicable Transaction Documents, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company. The Underlying Shares,
when issued in accordance with the terms of the applicable Transaction Documents, will be
validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the
Company. The Company has reserved from its duly authorized capital stock a number of shares
of Common Stock for issuance of the Underlying Shares at least equal to the Required Minimum
on the date hereof. The Company has prepared and filed the Registration Statement in
conformity with the requirements of the Securities Act, which became effective on June 4,
2009 (the “Effective Date”), including the Prospectus, and such amendments and
supplements thereto as may have been required to the date of this Agreement. The
Registration Statement is effective under the Securities Act and no stop order preventing or
suspending the effectiveness of the Registration Statement or suspending or preventing the
use of the Prospectus has been issued by the Commission and no proceedings for that purpose
have been instituted or, to the knowledge of the Company, are threatened by the Commission.
The Company, if required by the rules and regulations of the Commission, proposes to file
the Prospectus, with the Commission pursuant to Rule 424(b). At the time the Registration
Statement and any amendments thereto became effective, at the date of this Agreement and at
the Closing Date, the Registration Statement and any amendments thereto conformed and will
conform in all material respects to the requirements of the Securities Act and did not and
will not contain any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not misleading;
and the Prospectus and any amendments or supplements thereto, at time the Prospectus or any
amendment or supplement thereto was issued and at the Closing Date, conformed and will
conform in all material respects to the requirements of the Securities Act and did not and
will not contain an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in light of the circumstances under which
they were made, not misleading.

     (g) Capitalization. The capitalization of the Company is as set forth in the
Prospectus and the Prospectus Supplement. The Company has not issued any capital stock since
its most recently filed periodic report under the Exchange Act, other than pursuant to the
offering described in the Previous Prospectus Supplement, the exercise of employee stock
options under the Company’s equity incentive plans, the issuance of shares of Common Stock
to employees pursuant to the Company’s employee stock

9

 

purchase plans and pursuant to the conversion and/or exercise of Common Stock
Equivalents outstanding as of the date of the most recently filed periodic report under the
Exchange Act. Except as set forth in the Rights Agreement, no Person has any right of first
refusal, preemptive right, right of participation, or any similar right to participate in
the transactions contemplated by the Transaction Documents. Except (i) as a result of the
purchase and sale of the Securities, (ii) pursuant to the Registration Statement in the
offering described in the Previous Prospectus Supplement, (iii) the warrant issued to Rodman
& Renshaw LLC as compensation for its services as placement agent to the Company in the
offering described in the Previous Prospectus Supplement, (iv) pursuant to the Company’s
equity incentive plans, and (v) pursuant to agreements or instruments, including the Rights
Agreement, filed as exhibits to SEC Reports incorporated by reference into the Prospectus
Supplement, and (vi) pursuant to the warrant to be issued to Rodman & Renshaw LLC as
compensation for its services as placement agent to the Company in connection with the
purchase and sale of the Securities, there are no outstanding options, warrants, scrip
rights to subscribe to, calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exercisable or exchangeable for, or
giving any Person any right to subscribe for or acquire any shares of Common Stock, or
contracts, commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock
Equivalents. The issuance and sale of the Securities will not obligate the Company to issue
shares of Common Stock or other securities to any Person (other than the Purchasers and the
Company’s placement agent) and will not result in a right of any holder of Company
securities to adjust the exercise, conversion, exchange or reset price under any of such
securities. All of the outstanding shares of capital stock of the Company are validly
issued, fully paid and nonassessable, have been issued in compliance with all federal and
state securities laws, and none of such outstanding shares was issued in violation of any
preemptive rights or similar rights to subscribe for or purchase securities. Except for the
Required Approvals, no further approval or authorization of any stockholder, the Board of
Directors or others is required for the issuance and sale of the Securities. There are no
stockholders agreements, voting agreements or other similar agreements with respect to the
Company’s capital stock to which the Company is a party or, to the knowledge of the Company,
between or among any of the Company’s stockholders.

     (h) SEC Reports; Financial Statements. The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by the Company under
the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d)
thereof, for the two years preceding the date hereof (or such shorter period as the Company
was required by law or regulation to file such material) (the foregoing materials, including
the exhibits thereto and documents incorporated by reference therein, together with the
Registration Statement, the Prospectus, the Previous Prospectus Supplement, and the
Prospectus Supplement, being collectively referred to herein as the “SEC Reports”)
on a timely basis or has received a valid extension of such time of filing and has filed any
such SEC Reports prior to the expiration of any such extension. As of their respective
dates, the SEC Reports complied in all material respects with the requirements of the
Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. The Company has
never been an issuer subject to Rule 144(i) under the

10

 

Securities Act. The financial statements of the Company included in the SEC Reports
comply in all material respects with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at the time of filing or as
amended or corrected in a subsequent SEC Report. Such financial statements have been
prepared in accordance with United States generally accepted accounting principles applied
on a consistent basis during the periods involved (“GAAP”), except as may be
otherwise specified in such financial statements or the notes thereto and except that
unaudited financial statements may not contain all footnotes required by GAAP, and fairly
present in all material respects the financial position of the Company and its consolidated
Subsidiaries as of and for the dates thereof and the results of operations and cash flows
for the periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.

     (i) Material Changes; Undisclosed Events, Liabilities or Developments. Since
the date of the latest audited financial statements included within the SEC Reports, except
as specifically disclosed in a subsequent SEC Report filed prior to the date hereof: (i)
there has been no event, occurrence or development that has had or that could reasonably be
expected to result in a Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice and (B)
liabilities not required to be reflected in the Company’s financial statements pursuant to
GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its
method of accounting, (iv) the Company has not declared or made any dividend or distribution
of cash or other property to its stockholders or purchased, redeemed or made any agreements
to purchase or redeem any shares of its capital stock and (v) the Company has not issued any
equity securities to any officer, director or Affiliate, except pursuant to existing Company
equity incentive plans. The Company does not have pending before the Commission any request
for confidential treatment of information. Except for the issuance of the Securities
contemplated by this Agreement, the issuance of a warrant to Rodman & Renshaw, LLC as
compensation for its services as placement agent, and as set forth on Schedule
3.1(i), no event, liability, fact, circumstance, occurrence or development has occurred
or exists or is reasonably expected to occur or exist with respect to the Company or its
Subsidiaries or their respective business, properties, operations, assets or financial
condition, that would be required to be disclosed by the Company under applicable securities
laws at the time this representation is made or deemed made that has not been publicly
disclosed at least 1 Trading Day prior to the date that this representation is made.

     (j) Litigation. There is no action, suit, inquiry, notice of violation,
proceeding or investigation pending or, to the knowledge of the Company, threatened against
or affecting the Company, any Subsidiary or any of their respective properties before or by
any court, arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “Action”) which (i)
adversely affects or challenges the legality, validity or enforceability of any of the
Transaction Documents or the Securities or (ii) could, if there were an unfavorable
decision, reasonably be expected to result in a Material Adverse Effect. Neither the
Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject
of any Action involving a claim of violation of or liability under federal or state
securities laws or a claim of breach of fiduciary duty. There has not been, and to the
knowledge of the Company, there is not pending or contemplated, any investigation by the
Commission

11

 

involving the Company or any current or former director or officer of the Company. The
Commission has not issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the Exchange Act or the
Securities Act.

     (k) Labor Relations. No material labor dispute exists or, to the knowledge of
the Company, is imminent with respect to any of the employees of the Company, which could
reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its
Subsidiaries’ employees is a member of a union that relates to such employee’s relationship
with the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries is
a party to a collective bargaining agreement, and the Company and its Subsidiaries believe
that their relationships with their employees are good. No executive officer, to the
knowledge of the Company, is, or is now expected to be, in violation of any material term of
any employment contract, confidentiality, disclosure or proprietary information agreement or
non-competition agreement, or any other contract or agreement or any restrictive covenant in
favor of any third party, and the continued employment of each such executive officer does
not subject the Company or any of its Subsidiaries to any liability with respect to any of
the foregoing matters. The Company and its Subsidiaries are in compliance with all U.S.
federal, state, local and foreign laws and regulations relating to employment and employment
practices, terms and conditions of employment and wages and hours, except where the failure
to be in compliance could not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect.

     (l) Compliance. Neither the Company nor any Subsidiary: (i) is in default
under or in violation of (and no event has occurred that has not been waived that, with
notice or lapse of time or both, would result in a default by the Company or any Subsidiary
under), nor has the Company or any Subsidiary received notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or credit agreement or any
other agreement or instrument to which it is a party or by which it or any of its properties
is bound (whether or not such default or violation has been waived), (ii) is in violation of
any judgment, decree or order of any court, arbitrator or governmental body or (iii) is or
has been in violation of any statute, rule, ordinance or regulation of any governmental
authority, including without limitation all foreign, federal, state and local laws
applicable to its business and all such laws that affect the environment, except in each
case as could not reasonably be expected to result in a Material Adverse Effect.

     (m) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal, state, local or
foreign regulatory authorities necessary to conduct their respective businesses as described
in the SEC Reports, except where the failure to possess such permits could not reasonably be
expected to result in a Material Adverse Effect (“Material Permits”), and neither
the Company nor any Subsidiary has received any notice of proceedings relating to the
revocation or modification of any Material Permit. For clarity, the Company has not received
the approval of any regulatory agency to market or sell any of its product candidates.

     (n) Title to Assets. The Company and the Subsidiaries have good and marketable
title in fee simple to all real property owned by them and good and marketable title in all
personal property owned by them that is material to the business of

12

 

the Company and the Subsidiaries, in each case free and clear of all Liens, except for
Liens as do not materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the Company and the
Subsidiaries and Liens for the payment of federal, state or other taxes, the payment of
which is neither delinquent nor subject to penalties. Any real property and facilities held
under lease by the Company and the Subsidiaries are held by them under valid, subsisting and
enforceable leases with which the Company and the Subsidiaries are in compliance, except
where such non-compliance would not reasonably be expected to have a Material Adverse
Effect.

     (o) Patents and Trademarks. The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks, trademark applications, service
marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual
property rights and similar rights as described in the SEC Reports as necessary or material
for use in connection with their respective businesses and which the failure to could
reasonably be expected to have a Material Adverse Effect (collectively, the
“Intellectual Property Rights”). In the last 12 months, neither the Company nor any
Subsidiary has received a notice (written or otherwise) that any of the Intellectual
Property Rights used by the Company or any Subsidiary violates or infringes upon the rights
of any Person. To the knowledge of the Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of any of the
Intellectual Property Rights. The Company and its Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of all of their
intellectual properties, except where failure to do so could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.

     (p) Insurance. The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such amounts as are
prudent and customary for companies of similar size as the Company in the businesses in
which the Company and the Subsidiaries are engaged, including, but not limited to, directors
and officers insurance coverage at least equal to the aggregate Subscription Amount.
Neither the Company nor any Subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business without a
significant increase in cost.

     (q) Transactions With Affiliates and Employees. Except as set forth in the SEC
Reports, none of the officers or directors of the Company and, to the knowledge of the
Company, none of the employees of the Company is presently a party to any transaction with
the Company or any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal property to or
from, or otherwise requiring payments to or from any officer, director or such employee or,
to the knowledge of the Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or partner, in each
case in excess of $120,000 other than for: (i) payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and
(iii) other employee benefits, including stock option or other equity award agreements under
any equity incentive plan of the Company.

13

 

     (r) Sarbanes-Oxley; Internal Accounting Controls. The Company is in material
compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it
as of the Closing Date. The Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that: (i) transactions are
executed in accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to assets is
permitted only in accordance with management’s general or specific authorization, and (iv)
the recorded accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The Company has
established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) for the Company designed to ensure that information required to be disclosed
by the Company in the reports it files or submits under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the Commission’s
rules and forms. The Company’s certifying officers have evaluated the effectiveness of the
Company’s disclosure controls and procedures as of the end of the period covered by the
Company’s most recently filed periodic report under the Exchange Act (such date, the
“Evaluation Date”). The Company presented in its most recently filed periodic
report under the Exchange Act the conclusions of the certifying officers about the
effectiveness of the disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no changes in the Company’s
internal control over financial reporting (as such term is defined in the Exchange Act) that
has materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.

     (s) Certain Fees. Except as set forth in the Prospectus Supplement, no
brokerage or finder’s fees or commissions are or will be payable by the Company to any
broker, financial advisor or consultant, finder, placement agent, investment banker, bank or
other Person with respect to the transactions contemplated by the Transaction Documents.
The Purchasers shall have no obligation with respect to any fees or with respect to any
claims made by or on behalf of other Persons for fees of a type contemplated in this Section
that may be due in connection with the transactions contemplated by the Transaction
Documents.

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

     (u) Registration Rights. No Person has any right to cause the Company to
effect the registration under the Securities Act of any securities of the Company.

     (v) Listing and Maintenance Requirements. The Common Stock is registered
pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action
designed to, or which to its knowledge is likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act nor has the Company received any
notification that the Commission is contemplating terminating such

14

 

registration. The Company has not, in the 12 months preceding the date hereof,
received notice from any Trading Market on which the Common Stock is or has been listed or
quoted to the effect that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market.

     (w) Application of Takeover Protections. The Company and the Board of
Directors have taken all necessary action, if any, in order to render inapplicable any
control share acquisition, business combination, poison pill (including any distribution
under a rights agreement) or other similar anti-takeover provision under the Company’s
certificate of incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to the Purchasers as a result of the
Purchasers and the Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation as a result of the Company’s issuance of
the Securities and the Purchasers’ ownership of the Securities.

     (x) Disclosure. Except with respect to the material terms and conditions of
the transactions contemplated by the Transaction Documents, the Company confirms that
neither it nor any other Person acting on its behalf has provided any of the Purchasers or
their agents or counsel with any information that it believes constitutes or might
constitute material, non-public information which is not otherwise disclosed in the
Prospectus Supplement. The Company understands and confirms that the Purchasers will rely
on the foregoing representation in effecting transactions in securities of the Company. All
of the disclosure furnished by or on behalf of the Company to the Purchasers regarding the
Company, its business and the transactions contemplated hereby, including the Disclosure
Schedules to this Agreement, is true and correct in all material respects and does not
contain any untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in light of the circumstances under which they
were made, not misleading. The press releases disseminated by the Company during the
twelve months preceding the date of this Agreement taken as a whole do not contain any
untrue statement of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the circumstances
under which they were made and when made, not misleading. The Company acknowledges and
agrees that no Purchaser makes or has made any representations or warranties with respect to
the transactions contemplated hereby other than those specifically set forth in Section 3.2
hereof.

     (y) No Integrated Offering. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, neither the Company, nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made
any offers or sales of any security or solicited any offers to buy any security, under
circumstances that would cause this offering of the Securities to be integrated with prior
offerings by the Company for purposes of any applicable shareholder approval provisions of
any Trading Market on which any of the securities of the Company are listed or
designated. 

     (z) Solvency. Based on the consolidated financial condition of the Company as
of the Closing Date, after giving effect to the receipt by the Company of the proceeds from
the sale of the Securities hereunder: (i) the fair saleable value of the Company’s assets
exceeds the amount that will be required to be paid on or in respect of the Company’s
existing debts and other liabilities (including known contingent liabilities) as

15

 

they mature, and (ii) the current cash flow of the Company, together with the proceeds
the Company would receive, were it to liquidate all of its assets, after taking into account
all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of
its liabilities when such amounts are required to be paid. The Company does not intend to
incur debts beyond its ability to pay such debts as they mature (taking into account the
timing and amounts of cash to be payable on or in respect of its debt). The Company has no
knowledge of any facts or circumstances which lead it to believe that it will file for
reorganization or liquidation under the bankruptcy or reorganization laws of any
jurisdiction within one year from the Closing Date. Schedule 3.1(z) sets forth as
of the date hereof all outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has commitments. For the purposes of
this Agreement, “Indebtedness” means (x) any liabilities for borrowed money or
amounts owed in excess of $50,000 (other than accrued liabilities and trade accounts payable
incurred in the ordinary course of business), (y) all guaranties, endorsements and other
contingent obligations in respect of indebtedness of others, whether or not the same are or
should be reflected in the Company’s balance sheet (or the notes thereto), except guaranties
by endorsement of negotiable instruments for deposit or collection or similar transactions
in the ordinary course of business; and (z) the present value of any lease payments in
excess of $50,000 due under leases required to be capitalized in accordance with GAAP.
Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.

     (aa) Tax Status. Except for matters that would not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect, the Company and
each Subsidiary has filed all necessary federal, state and foreign income and franchise tax
returns and has paid or accrued all taxes shown as due thereon, and the Company has no
knowledge of a tax deficiency which has been asserted or threatened against the Company or
any Subsidiary.

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

     (cc) Accountants. The Company’s accounting firm is J.H. Cohn LLP. To the
knowledge and belief of the Company, such accounting firm: (i) is a registered public
accounting firm as required by the Exchange Act and (ii) shall express its opinion with
respect to the financial statements to be included in the Company’s Annual Report on Form
10-K for the year ending December 31, 2009.

     (dd) Acknowledgment Regarding Purchasers’ Purchase of Securities. The Company
acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an
arm’s length purchaser with respect to the Transaction Documents and the transactions
contemplated thereby. The Company further acknowledges that no

16

 

Purchaser is acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to the Transaction Documents and the transactions
contemplated thereby and any advice given by any Purchaser or any of their respective
representatives or agents in connection with the Transaction Documents and the transactions
contemplated thereby is merely incidental to the Purchasers’ purchase of the Securities.
The Company further represents to each Purchaser that the Company’s decision to enter into
this Agreement and the other Transaction Documents has been based solely on the independent
evaluation of the transactions contemplated hereby by the Company and its representatives.

     (ee) Acknowledgment Regarding Purchaser’s Trading Activity. Anything in this
Agreement or elsewhere herein to the contrary notwithstanding (except for Sections 3.2(f)
and 4.14 hereof), it is understood and acknowledged by the Company that: (i) none of the
Purchasers have been asked by the Company to agree, nor has any Purchaser agreed, to desist
from purchasing or selling, long and/or short, securities of the Company, or “derivative”
securities based on securities issued by the Company or to hold the Securities for any
specified term, (ii) past or future open market or other transactions by any Purchaser,
specifically including, without limitation, Short Sales or “derivative” transactions, before
or after the closing of this or future private placement transactions, may negatively impact
the market price of the Company’s publicly-traded securities, (iii) any Purchaser, and
counter-parties in “derivative” transactions to which any such Purchaser is a party,
directly or indirectly, may presently have a “short” position in the Common Stock and (iv)
each Purchaser shall not be deemed to have any affiliation with or control over any arm’s
length counter-party in any “derivative” transaction. The Company further understands and
acknowledges that (y) one or more Purchasers may engage in hedging activities at various
times during the period that the Securities are outstanding, including, without limitation,
during the periods that the value of the Underlying Shares deliverable with respect to
Securities are being determined, and (z) such hedging activities (if any) could reduce the
value of the existing stockholders’ equity interests in the Company at and after the time
that the hedging activities are being conducted. The Company acknowledges that such
aforementioned hedging activities do not constitute a breach of any of the Transaction
Documents.

     (ff) Regulation M Compliance. The Company has not, and to its knowledge no one
acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or
to result in the stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or
paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid or
agreed to pay to any Person any compensation for soliciting another to purchase any other
securities of the Company, other than, in the case of clauses (ii) and (iii), compensation
paid to the Company’s placement agent in connection with the placement of the Securities.

     (gg) FDA. As to each product subject to the jurisdiction of the U.S. Food and
Drug Administration (“FDA”) under the Federal Food, Drug and Cosmetic Act, as
amended, and the regulations thereunder (“FDCA”) that is manufactured, packaged,
labeled, tested, distributed, sold, and/or marketed by the Company or any of its
Subsidiaries (each such product, a “Pharmaceutical Product”), such Pharmaceutical
Product is being manufactured, packaged, labeled, tested, distributed, sold and/or marketed
by the Company in compliance with all applicable requirements under FDCA

17

 

and similar laws, rules and regulations relating to registration, investigational use,
premarket clearance, licensure, or application approval, good manufacturing practices, good
laboratory practices, good clinical practices, product listing, quotas, labeling,
advertising, record keeping and filing of reports, except where the failure to be in
compliance would not have a Material Adverse Effect. There is no pending, completed or, to
the Company’s knowledge, threatened, action (including any lawsuit, arbitration, or legal or
administrative or regulatory proceeding, charge, complaint, or investigation) against the
Company or any of its Subsidiaries, and none of the Company or any of its Subsidiaries has
received any notice, warning letter or other communication from the FDA or any other
governmental entity, which (i) contests the premarket clearance, licensure, registration, or
approval of, the uses of, the distribution of, the manufacturing or packaging of, the
testing of, the sale of, or the labeling and promotion of any Pharmaceutical Product, (ii)
withdraws its approval of, requests the recall, suspension, or seizure of, or withdraws or
orders the withdrawal of advertising or sales promotional materials relating to, any
Pharmaceutical Product, (iii) imposes a clinical hold on any clinical investigation by the
Company or any of its Subsidiaries, (iv) enjoins production at any facility of the Company
or any of its Subsidiaries, (v) enters or proposes to enter into a consent decree of
permanent injunction with the Company or any of its Subsidiaries, or (vi) otherwise alleges
any violation of any laws, rules or regulations by the Company or any of its Subsidiaries,
and which, either individually or in the aggregate, would have a Material Adverse Effect.
The properties, business and operations of the Company have been and are being conducted in
all material respects in accordance with all applicable laws, rules and regulations of the
FDA. The Company has not been informed by the FDA that the FDA will prohibit the marketing,
sale, license or use in the United States of any product proposed to be developed, produced
or marketed by the Company nor has the FDA expressed any concern as to approving or clearing
for marketing any product being developed or proposed to be developed by the Company.

     (hh) Stock Option Plans. To the knowledge of the Company, each stock option
granted by the Company under the Company’s equity incentive plan was granted (i) in
accordance with the terms of the Company’s stock option plan and (ii) with an exercise price
at least equal to the fair market value of the Common Stock on the date such stock option
would be considered granted under GAAP and applicable law. To the knowledge of the Company,
no stock option granted under the Company’s stock option plan has been backdated. The
Company has not knowingly granted, and there is no and has been no Company policy or
practice to knowingly grant, stock options prior to, or otherwise knowingly coordinate the
grant of stock options with, the release or other public announcement of material
information regarding the Company or its Subsidiaries or their financial results or
prospects.

     3.2 Representations and Warranties of the Purchasers. Each Purchaser, for itself and
for no other Purchaser, hereby represents and warrants as of the date hereof and as of the Closing
Date to the Company as follows (unless as of a specific date therein):

     (a) Organization; Authority. Such Purchaser is either an individual or an
entity duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or partnership power and
authority to enter into and to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations hereunder and thereunder. The execution
and delivery of the Transaction Documents and performance

18

 

by such Purchaser of the transactions contemplated by the Transaction Documents have
been duly authorized by all necessary corporate, partnership, limited liability company or
similar action, as applicable, on the part of such Purchaser. Each Transaction Document to
which it is a party has been duly executed by such Purchaser, and when delivered by such
Purchaser in accordance with the terms hereof, will constitute the valid and legally binding
obligation of such Purchaser, enforceable against it in accordance with its terms, except:
(i) as limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting enforcement of
creditors’ rights generally, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable law.

     (b) No Conflicts. The execution, delivery and performance by such Purchaser of
this Agreement and the consummation by the Purchaser of the transactions contemplated hereby
do not and will not (i) conflict with or violate any provision of the Purchaser’s
certificate or articles of incorporation, bylaws, or other organizational or charter
documents, or (ii) conflict with or result in a violation of any law, rule, regulation,
order, judgment, injunction, decree or other restriction of any court or governmental
authority to which the Purchaser is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Purchaser is bound or affected.

     (c) Own Account. Such Purchaser is acquiring the Securities as principal for
its own account and not with a view to or for distributing or reselling such Securities or
any part thereof in violation of the Securities Act or any applicable state securities law,
has no present intention of distributing any of such Securities in violation of the
Securities Act or any applicable state securities law and has no direct or indirect
arrangement or understandings with any other Persons to distribute or regarding the
distribution of such Securities in violation of the Securities Act or any applicable state
securities law (this representation and warranty not limiting such Purchaser’s right to sell
the Securities pursuant to the Registration Statement or otherwise in compliance with
applicable federal and state securities laws). Such Purchaser is acquiring the Securities
hereunder in the ordinary course of its business.

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

     (e) Experience of Such Purchaser. Such Purchaser acknowledges and understands
that (i) its investment in the Securities involves a high degree of risk and (ii) nothing in
the Transaction Documents or SEC Reports constitutes legal, tax or investment advice. Such
Purchaser, either alone or together with its representatives, has such knowledge,
sophistication and experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment. Such Purchaser is able to bear the
economic risk of an investment in the Securities and, at the present time, is able to afford
a complete loss of such investment.

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     (f) Certain Transactions and Confidentiality. Other than consummating the
transactions contemplated hereunder, such Purchaser has not directly or indirectly, nor has
any Person acting on behalf of or pursuant to any understanding with such Purchaser,
executed any purchases or sales, including Short Sales, of the securities of the Company
during the period commencing as of the time that such Purchaser first received information
(written or oral) from the Company or any other Person representing the Company setting
forth the proposed terms of the transactions contemplated hereunder and ending immediately
prior to the execution hereof. Notwithstanding the foregoing, in the case of a Purchaser
that is a multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser’s assets and the portfolio managers have no direct
knowledge of the investment decisions made by the portfolio managers managing other portions
of such Purchaser’s assets, the representation set forth above shall only apply with respect
to the portion of assets managed by the portfolio manager that made the investment decision
to purchase the Securities covered by this Agreement. Other than to other Persons party to
this Agreement, such Purchaser has maintained the confidentiality of all disclosures made to
it in connection with this transaction (including the existence and terms of this
transaction). Notwithstanding the foregoing, for avoidance of doubt, nothing contained
herein shall constitute a representation or warranty, or preclude any actions, with respect
to the identification of the availability of, or securing of, available shares to borrow in
order to effect Short Sales or similar transactions in the future.

The Company acknowledges and agrees that the representations contained in Section 3.2 shall not
modify, amend or affect such Purchaser’s right to rely on the Company’s representations and
warranties contained in this Agreement or any representations and warranties contained in any other
Transaction Document or any other document or instrument executed and/or delivered in connection
with this Agreement or the consummation of the transaction contemplated hereby.

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

     4.1 Underlying Shares. The shares of Common Stock underlying the shares of Preferred
Stock shall be issued free of legends.

     4.2 Acknowledgment of Dilution. The Company acknowledges that the issuance of the
Securities may result in dilution of the outstanding shares of Common Stock, which dilution may be
substantial under certain market conditions. The Company further acknowledges that its obligations
under the Transaction Documents, including, without limitation, its obligation to issue the
Underlying Shares pursuant to the Transaction Documents, are unconditional and absolute and not
subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any
such dilution or any claim the Company may have against any Purchaser and regardless of the
dilutive effect that such issuance may have on the ownership of the other stockholders of the
Company.

     4.3 Furnishing of Information; Public Information. Until the earliest of the time
that (i) no Purchaser owns Securities or (ii) one year from the Closing Date, the Company covenants
to use its reasonable best efforts to maintain the registration of the Common Stock under Section
12(b) or 12(g) of the Exchange Act and to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by the Company after the

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date hereof pursuant to the Exchange Act even if the Company is not then subject to the
reporting requirements of the Exchange Act. As long as any Purchaser owns Securities, if the
Company is not required to file reports pursuant to the Exchange Act, it will prepare and furnish
to the Purchasers and make publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell the Securities under Rule 144. The Company further covenants
that it will take such further action as any holder of Securities may reasonably request, to the
extent required from time to time to enable such Person to sell such Securities without
registration under the Securities Act within the requirements of the exemption provided by Rule
144.

     4.4 Integration. The Company shall not sell, offer for sale or solicit offers to buy
or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act)
that would be integrated with the offer or sale of the Securities for purposes of the rules and
regulations of any Trading Market such that it would require shareholder approval prior to the
closing of such other transaction unless shareholder approval is obtained before the closing of
such subsequent transaction.

     4.5 Conversion Procedures. The form of Notice of Conversion included in the
Certificate of Designation sets forth the totality of the procedures required of the Purchasers in
order to convert the Preferred Stock. No additional legal opinion, other information or
instructions shall be required of the Purchasers to convert their Preferred Stock. The Company
shall honor conversions of the Preferred Stock and shall deliver Underlying Shares in accordance
with the terms, conditions and time periods set forth in the Transaction Documents.

     4.6 Securities Laws Disclosure; Publicity. The Company shall, by 3:30 p.m. (New York
City time) on the date hereof, issue a press release disclosing the material terms of the
transactions contemplated hereby and, by 9:30 a.m. (New York City time) on the Business Day
following the date hereof, shall file a Current Report on Form 8-K, and including the Transaction
Documents as exhibits thereto. From and after the issuance of such press release and the filing of
such Form 8-K, the Company shall have publicly disclosed all material, non-public information
delivered to any of the Purchasers by the Company or any of its subsidiaries, or any of their
respective officers, directors, employees or agents in connection with the transactions
contemplated by the Transaction Documents. The Company and each Purchaser shall consult with each
other in issuing any other press releases with respect to the transactions contemplated hereby, and
neither the Company nor any Purchaser shall issue any such press release nor otherwise make any
such public statement without the prior consent of the Company, with respect to any press release
of any Purchaser, or without the prior consent of each Purchaser, with respect to any press release
of the Company, which consent shall not unreasonably be withheld or delayed, except if such
disclosure is required by law, in which case the disclosing party shall promptly provide the other
party with prior notice of such public statement or communication. Notwithstanding the foregoing,
the Company shall not publicly disclose the name of any Purchaser, or include the name of any
Purchaser in any filing with the Commission or any regulatory agency or Trading Market, without the
prior written consent of such Purchaser, except: (a) as required by federal securities law in
connection with the filing of final Transaction Documents (including signature pages thereto) with
the Commission and (b) to the extent such disclosure is required by law or Trading Market
regulations, in which case the Company shall provide the Purchasers with prior notice of such
disclosure permitted under this clause (b).

     4.7 Shareholder Rights Plan. No claim will be made or enforced by the Company or,
with the consent of the Company, any other Person, that any Purchaser is an “Acquiring
Person”

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under any control share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or
hereafter adopted by the Company, or that any Purchaser could be deemed to trigger the provisions
of any such plan or arrangement, solely by virtue of receiving Securities under the Transaction
Documents or under any other agreement between the Company and the Purchasers.

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

     4.9 Use of Proceeds. Except as set forth in the Prospectus Supplement, the Company
shall use the net proceeds from the sale of the Securities hereunder for working capital purposes
and shall not use such proceeds for: (a) the satisfaction of any portion of the Company’s debt
(other than payment of trade payables in the ordinary course of the Company’s business and prior
practices), (b) the redemption of any Common Stock or Common Stock Equivalents or (c) the
settlement of any outstanding litigation.

     4.10 Indemnification of Purchasers. Subject to the provisions of this Section 4.10
and to the extent permitted by law, the Company will indemnify and hold each Purchaser and its
directors, officers, shareholders, members, partners, employees and agents (and any other Persons
with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such
title or any other title), each Person who controls such Purchaser (within the meaning of Section
15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers,
shareholders, agents, members, partners or employees (and any other Persons with a functionally
equivalent role of a Person holding such titles notwithstanding a lack of such title or any other
title) of such controlling persons (each, a “Purchaser Party”) harmless from any and all
losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all
judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a)
any breach of any of the representations, warranties, covenants or agreements made by the Company
in this Agreement or in the other Transaction Documents or (b) any action instituted against a
Purchaser in any capacity, or any of them or their respective Affiliates, by any stockholder of the
Company who is not an Affiliate of such Purchaser, with respect to any of the transactions
contemplated by the Transaction Documents (unless such action is based upon a breach of such
Purchaser’s representations, warranties or covenants under the Transaction Documents or any
agreements or understandings such Purchaser may have with any such stockholder or any violations by
such Purchaser of state or federal securities laws or any conduct by such Purchaser which
constitutes fraud, gross negligence, willful misconduct or malfeasance). If any action shall be
brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this
Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall
have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable
to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any
such action and participate in the defense thereof, but the fees and expenses of such counsel shall
be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has
been specifically authorized by the Company in writing, (ii)

22

 

the Company has failed after a reasonable period of time to assume such defense and to employ
counsel or (iii) in such action there is, in the reasonable opinion of counsel, a material conflict
on any material issue between the position of the Company and the position of such Purchaser Party,
in which case the Company shall be responsible for the reasonable fees and expenses of no more than
one such separate counsel. The Company will not be liable to any Purchaser Party under this
Agreement (y) for any settlement by a Purchaser Party effected without the Company’s prior written
consent, which shall not be unreasonably withheld or delayed; or (z) to the extent, but only to the
extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of
any of the representations, warranties, covenants or agreements made by such Purchaser Party in
this Agreement or in the other Transaction Documents. The Company will have the exclusive right to
settle any claim or proceeding provided that the Company will not settle any such claim, action or
proceeding without the prior written consent of the Purchaser Party, which shall not be
unreasonably withheld or delayed; provided that such consent shall not be required if the
settlement includes a full and unconditional release of the Purchase Party from all liability
arising or that may arise out of such claim or proceeding and does not include a statement as to or
an admission or fault, culpability or a failure to act by or on behalf of any Purchaser Party.

     4.11 Reservation and Listing of Securities.

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

     (b) If, on any date, the number of authorized but unissued (and otherwise unreserved)
shares of Common Stock is less than the Required Minimum on such date, then the Board of
Directors shall use commercially reasonable efforts to amend the Company’s certificate or
articles of incorporation to increase the number of authorized but unissued shares of Common
Stock to at least the Required Minimum at such time, as soon as possible and in any event
not later than the 75th day after such date.

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

     4.12 Subsequent Equity Sales. 

     (a) From the date hereof until sixty (60) days after June 12, 2009, neither the Company
nor any Subsidiary shall issue, enter into any agreement to issue or announce the issuance
or proposed issuance of any shares of Common Stock or Common Stock Equivalents.

     (b) From the date hereof until such time as the earlier of one year after the Closing
Date or the date that no Purchaser holds any of the Securities, the Company shall

23

 

be prohibited from effecting or entering into an agreement to effect any issuance by
the Company or any of its Subsidiaries of Common Stock or Common Stock Equivalents for cash
consideration (or a combination of units thereof) involving a Variable Rate Transaction.
“Variable Rate Transaction” means a transaction in which the Company (i) issues or
sells any debt or equity securities that are convertible into, exchangeable or exercisable
for, or include the right to receive, additional shares of Common Stock either (A) at a
conversion price, exercise price or exchange rate or other price that is based upon, and/or
varies with, the trading prices of or quotations for the shares of Common Stock at any time
after the initial issuance of such debt or equity securities or (B) with a conversion,
exercise or exchange price that is subject to being reset at some future date after the
initial issuance of such debt or equity security or upon the occurrence of specified or
contingent events directly or indirectly related to the business of the Company or the
market for the Common Stock or (ii) enters into any agreement, including, but not limited
to, an equity line of credit, whereby the Company may sell securities at a future determined
price. Any Purchaser shall be entitled to obtain injunctive relief against the Company to
preclude any such issuance, which remedy shall be in addition to any right to collect
damages.

     (c) Notwithstanding the foregoing, this Section 4.12 shall not apply in respect of an
Exempt Issuance, except that no Variable Rate Transaction shall be an Exempt Issuance.

     4.13 Equal Treatment of Purchasers. No consideration (including any modification of
any Transaction Document) shall be offered or paid to any Person to amend or consent to a waiver or
modification of any provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. For clarification purposes, this
provision constitutes a separate right granted to each Purchaser by the Company and negotiated
separately by each Purchaser, and is intended for the Company to treat the Purchasers as a class
and shall not in any way be construed as the Purchasers acting in concert or as a group with
respect to the purchase, disposition or voting of Securities or otherwise.

     4.14 Certain Transactions and Confidentiality. Each Purchaser, severally and not
jointly with the other Purchasers, covenants that neither it, nor any Affiliate acting on its
behalf or pursuant to any understanding with it will execute any purchases or sales, including
Short Sales, of any of the Company’s securities during the period commencing with the execution of
this Agreement and ending at such time that the transactions contemplated by this Agreement are
first publicly announced pursuant to the initial press release as described in Section 4.6. Each
Purchaser, severally and not jointly with the other Purchasers, covenants that until such time as
the transactions contemplated by this Agreement are publicly disclosed by the Company pursuant to
the initial press release as described in Section 4.6, such Purchaser will maintain the
confidentiality of the existence and terms of this transaction and the information included in the
Transaction Documents and the Disclosure Schedules. Notwithstanding the foregoing, and
notwithstanding anything contained in this Agreement to the contrary, the Company expressly
acknowledges and agrees that (i) no Purchaser makes any representation, warranty or covenant hereby
that it will not engage in effecting transactions in any securities of the Company after the time
that the transactions contemplated by this Agreement are first publicly announced pursuant to the
initial press release as described in Section 4.6, (ii) no Purchaser shall be restricted or
prohibited from effecting any transactions in any securities of the Company in accordance with
applicable securities laws from and after the time that the transactions contemplated by this
Agreement are first publicly announced pursuant to the initial press release as described in

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Section 4.6 and (iii) no Purchaser shall have any duty of confidentiality to the Company or
its Subsidiaries after the issuance of the initial press release as described in Section 4.6.
Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment
vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and
the portfolio managers have no direct knowledge of the investment decisions made by the portfolio
managers managing other portions of such Purchaser’s assets, the covenant set forth above shall
only apply with respect to the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this Agreement.

     4.15 Delivery of Certificates After Closing. The Company shall deliver, or cause to
be delivered, the respective Securities purchased by each Purchaser to such Purchaser within 3
Trading Days of the Closing Date.

ARTICLE V.

MISCELLANEOUS

     5.1 Termination. This Agreement may be terminated by any Purchaser, as to such
Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between
the Company and the other Purchasers, by written notice to the other parties, if the Closing has
not been consummated on or before July 6, 2009; provided, however, that such termination will not
affect the right of any party to sue for any breach by the other party (or parties).

     5.2 Fees and Expenses. At the Closing, the Company has agreed to reimburse the
Purchasers the non-accountable sum of $25,000 for their legal fees and expenses. Accordingly, in
lieu of the foregoing payments, the aggregate amount that the Purchasers are to pay for the
Securities at the Closing shall be reduced by $25,000 in lieu thereof. Except as expressly set
forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of
its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by
such party incident to the negotiation, preparation, execution, delivery and performance of this
Agreement. The Company shall pay all Transfer Agent fees, stamp taxes and other taxes and duties
levied in connection with the delivery of any Securities to the Purchasers.

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

     5.4 Notices. Any and all notices or other communications or deliveries required or
permitted to be provided hereunder shall be in writing and shall be deemed given and effective on
the earliest of: (a) the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number set forth on the signature pages attached hereto prior to 5:30
p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto on a day that is not a Trading Day or later than
5:30 p.m. (New York City time) on any Trading Day, (c) the second (2nd) Trading Day
following the date of mailing, if sent by U.S. nationally recognized overnight courier service or
(d) upon actual receipt by the party to whom such notice is required to be given. The address for
such notices and communications shall be as set forth on the signature pages attached hereto.

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     5.5 Amendments; Waivers. No provision of this Agreement may be waived, modified,
supplemented or amended except in a written instrument signed, in the case of an amendment, by the
Company and the Purchasers holding at least 67% in interest of the Securities then outstanding or,
in the case of a waiver, by the party against whom enforcement of any such waived provision is
sought. No waiver of any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or
omission of any party to exercise any right hereunder in any manner impair the exercise of any such
right.

     5.6 Headings. The headings herein are for convenience only, do not constitute a part
of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

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

     5.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the
parties hereto and their respective successors and permitted assigns and is not for the benefit of,
nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in
Section 4.10.

     5.9 Governing Law. All questions concerning the construction, validity, enforcement
and interpretation of the Transaction Documents shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York, without regard to the principles of
conflicts of law thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by this Agreement and any
other Transaction Documents (whether brought against a party hereto or its respective affiliates,
directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state
and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of
Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to the enforcement of
any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any
such court, that such suit, action or proceeding is improper or is an inconvenient venue for such
proceeding. Each party hereby irrevocably waives personal service of process and consents to
process being served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any other manner permitted by
law. If either party shall commence an action or proceeding to enforce any provisions of the
Transaction Documents, then, in addition to the obligations of the Company under Section 4.10, the
prevailing party in such action or proceeding shall be reimbursed by the

26

 

other party for its reasonable attorneys’ fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.

     5.10 Survival. The representations and warranties contained herein shall survive the
Closing and the delivery of the Securities.

     5.11 Execution. This Agreement may be executed in two or more counterparts, all of
which when taken together shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each party and delivered to the other party, it being
understood that both parties need not sign the same counterpart. In the event that any signature
is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such
signature shall create a valid and binding obligation of the party executing (or on whose behalf
such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature
page were an original thereof.

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

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

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

     5.15 Remedies. In addition to being entitled to exercise all rights provided herein
or granted by law, including recovery of damages, each of the Purchasers and the Company will be
entitled to specific performance under the Transaction Documents. The parties agree that monetary
damages may not be adequate compensation for any loss incurred by reason of any breach of
obligations contained in the Transaction Documents and hereby agree to waive and not

27

 

to assert in any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.

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

     5.17 Usury. To the extent it may lawfully do so, the Company hereby agrees not to
insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be
compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time
hereafter in force, in connection with any claim, action or proceeding that may be brought by any
Purchaser in order to enforce any right or remedy under any Transaction Document. Notwithstanding
any provision to the contrary contained in any Transaction Document, it is expressly agreed and
provided that the total liability of the Company under the Transaction Documents for payments in
the nature of interest shall not exceed the maximum lawful rate authorized under applicable law
(the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of
interest or default interest, or both of them, when aggregated with any other sums in the nature of
interest that the Company may be obligated to pay under the Transaction Documents exceed such
Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or any official
governmental action subsequent to the date hereof, the new maximum contract rate of interest
allowed by law will be the Maximum Rate applicable to the Transaction Documents from the Closing
Date thereof forward, unless such application is precluded by applicable law. If under any
circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to any
Purchaser with respect to indebtedness evidenced by the Transaction Documents, such excess shall be
applied by such Purchaser to the unpaid principal balance of any such indebtedness or be refunded
to the Company, the manner of handling such excess to be at such Purchaser’s election.

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

28

 

and its respective counsel have chosen to communicate with the Company through WS. The
Company has elected to provide all Purchasers with the same terms and Transaction Documents for the
convenience of the Company and not because it was required or requested to do so by any of the
Purchasers.

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

     5.20 Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking
of any action or the expiration of any right required or granted herein shall not be a Business
Day, then such action may be taken or such right may be exercised on the next succeeding Business
Day.

     5.21 Construction. The parties agree that each of them and/or their respective
counsel has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the
normal rule of construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of the Transaction Documents or any
amendments hereto. In addition, each and every reference to share prices and shares of Common Stock
in any Transaction Document shall be subject to adjustment for reverse and forward stock splits,
stock dividends, stock combinations and other similar transactions of the Common Stock that occur
after the date of this Agreement.

     5.22 WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT
BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST
EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY
WAIVES FOREVER TRIAL BY JURY. 

(Signature Pages Follow)

29

 

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

	 	 	 	 	 
	ADVENTRX PHARMACEUTICALS, INC.

 	 	 
	By:  	/s/ Brian M. Culley
 	 	 
	 	Name:  	Brian M. Culley 	 	 
	 	Title:  	Chief Business Officer and Senior Vice
President 	 	 
	 

	 	 	 
	Address for Notice:

	 	6725 Mesa Ridge Road, Suite 100
	 

	 	San Diego, CA 92121
	 

	 	Fax: (858) 552-0876
	 
	 	 
	With a copy to (which shall not constitute notice):

	 	DLA Piper LLP (US)
	 

	 	4365 Executive Drive, Suite 1100
	 

	 	San Diego, CA 92121
	 

	 	Attention: Michael S. Kagnoff 

Fax: (858) 677-1401

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

 

 

[PURCHASER SIGNATURE PAGES TO ANX SECURITIES PURCHASE AGREEMENT]

     IN WITNESS WHEREOF, the undersigned has caused this Securities Purchase Agreement to be duly
executed by its authorized signatory as of the date first indicated above.

Name of Purchaser:  

Signature of Authorized Signatory of Purchaser:  

Name of Authorized Signatory:  

Title of Authorized Signatory:  

Email Address of Authorized Signatory:  

Facsimile Number of Authorized Signatory:  

Address
for Notice of Purchaser:  

 

 

Address for Delivery of Preferred Stock certificate for Purchaser (if not same as address for
notice):

 

 

Subscription Amount: _____________

Shares of Preferred Stock: ____________

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

 

 

Schedule 3.1(a)

	 	 	 
	Name of Subsidiary	 	Jurisdiction of Organization
	SD Pharmaceuticals, Inc.

	 	Delaware
	 
	 	 
	ADVENRTRX (Europe) Ltd.

	 	United Kingdom

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