Document:

Exhibit 10.32

 

SECURITIES PURCHASE AGREEMENT

 

This
SECURITIES PURCHASE AGREEMENT (this “Agreement”) is dated as of the 13th day of February, 2009 (the “Effective Date”) by
and between Affymax, Inc., a Delaware corporation, with its principal
office at 4001 Miranda Avenue, Palo Alto, California 94304 (the “Company”), and the
several purchasers identified in the attached Exhibit A
(individually, a “Purchaser”
and collectively, the “Purchasers”).

 

WHEREAS, the
Company desires to issue and sell to the Purchasers an aggregate of (i) 
652,262 shares (the “Shares”)
of the authorized but unissued shares of common stock, $0.001 par value per
share, of the Company (the “Common Stock”); and (ii) warrants in the form
attached as Exhibit B to purchase an aggregate of 423,971 shares of
Common Stock (each, a “Warrant,”
and collectively, the “Warrants”);
and

 

WHEREAS, the
Purchasers, severally but not jointly, wish to purchase the Shares and the
Warrants on the terms and subject to the conditions set forth in this
Agreement.

 

NOW,
THEREFORE, in consideration of the mutual agreements, representations,
warranties and covenants herein contained, the parties hereto agree as follows:

 

1.             Definitions.  As used in this Agreement, the following
terms shall have the following respective meanings:

 

(a)           “Affiliate” of a party
means any corporation or other business entity controlled by, controlling or
under common control with such party. 
For this purpose “control”
shall mean direct or indirect beneficial ownership of fifty percent (50%)
or more of the voting or income interest in such corporation or other business
entity.

 

(b)           “Closing Date” means
the date of the Closing.

 

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

 

(d)           “Majority Purchasers”
shall mean Purchasers which, at any given time, hold or have the right to
acquire hereunder greater than fifty percent (50%) of the voting power of
the Shares issued and sold or to be issued and sold pursuant to this Agreement,
that have not been resold pursuant to an effective registration statement under
the Securities Act or Rule 144 under the Securities Act.

 

(e)           “Operative Agreements”
shall mean the Warrants together with this Agreement.

 

(f)            “Registration Statement”
shall mean any registration statement required to be filed by Section 7.1
below, and shall include any preliminary prospectus,

 

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final prospectus, exhibit or amendment included in or relating to such
registration statements.

 

(g)           “Registrable Shares”  shall mean all of the Shares and the
Warrant Shares.

 

(h)           “Rules and Regulations”
shall mean the rules and regulations of the SEC.

 

(i)            “SEC” shall mean the
Securities and Exchange Commission.

 

(j)            “SEC Documents” shall
have the meaning set forth in Section 3.23 below.

 

(k)           “Securities” shall
mean the Shares, the Warrants and the Warrant Shares.

 

(l)            “Securities Act” shall
mean the Securities Act of 1933, as amended, and all of the rules and
regulations promulgated thereunder.

 

(m)          “Warrant Shares” shall
mean the shares of Common Stock issuable upon exercise of the Warrants.

 

2.             Purchase
and Sale of Securities.

 

2.1           Purchase
and Sale.  Subject to and upon the
terms and conditions set forth in this Agreement, the Company agrees to issue
and sell to each Purchaser, and each Purchaser, severally but not jointly,
hereby agrees to purchase from the Company, at the Closing (as defined below), (i) the
number of Shares of Common Stock set forth opposite the name of such Purchaser
under the heading “Number of Shares to be Purchased” on Exhibit A
hereto, at a purchase price equal to $15.25 per share (the “Common Stock Purchase Price”)
and (ii) a Warrant to purchase sixty-five percent (65%) of the number of
Shares purchased by such Purchaser (rounded up to the nearest whole share)
pursuant to this Agreement, for a total number of Warrant Shares as set forth
under the heading “Number of Warrant Shares to be Purchased under Warrants”
on Exhibit A hereto, at a purchase price per Warrant Share of
twelve and one-half cents ($0.125) and having a term of five (5) years
from the Closing Date and an exercise price of $16.775 per Warrant Share, which
is equal to one hundred ten percent (110%) of the Common Stock Purchase Price.  The total purchase price payable by each
Purchaser for the Shares and the Warrants that such Purchaser is hereby
agreeing to purchase is set forth opposite the name of such Purchaser under the
heading “Aggregate Purchase Price” on Exhibit A hereto. The aggregate
purchase price payable by the Purchasers to the Company for all of the Shares
and Warrants shall be equal to approximately $10.0 million.

 

2.2           Closing.  Subject to the satisfaction (or waiver) of
the closing conditions set forth in Sections 5.1 and 5.2 of this Agreement, the
closing of the transactions contemplated under this Agreement (the “Closing”) shall take
place at the

 

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offices of Cooley Godward Kronish LLP (“Cooley”), counsel to the Company,
located at Five Palo Alto Square, 3000 El Camino Real, Palo Alto, CA 94306, at
10:00 a.m. California time on March 2, 2009, or at such other
location, date and time as may be agreed upon between the Purchasers and the
Company.

 

2.3           Delivery.  At the Closing, the Company shall deliver to
each Purchaser (a) one or more original stock certificates, free and clear
of all restrictive and other legends (except as provided in Section 6
hereof), evidencing the Shares subscribed for by Purchaser hereunder; and (b) a
single Warrant representing the number of Shares and the right to acquire the
number of Warrant Shares purchased by such Purchaser; each to be registered in
the name of such Purchaser, against payment of the purchase price therefor by
wire transfer of immediately available funds to such account or accounts as the
Company shall designate in writing or such other method of closing upon which
the Company and the Purchasers may agree.

 

3.             Representations
and Warranties of the Company. Except as disclosed in the SEC Documents,
the Company hereby represents and warrants to each of the Purchasers, as of the
Effective Date and the Closing Date, as follows:

 

3.1           Organization
and Qualification. The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the State of
Delaware, has the corporate power and authority to own, lease and operate, as
the case may be, its properties and assets and to conduct its business as
currently conducted and as described in the SEC Documents and is duly qualified
to transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property or its
employment of employees or consultants therein requires such qualification, except
to the extent that the failure to be so qualified or be in good standing would
not, individually or in the aggregate, have a material adverse effect on the
Company, including, without limitation, a material adverse effect on the
condition, financial or otherwise, or in the earnings, business, properties,
operations or prospects of the Company or on the power or ability of the
Company to perform its obligations under the Operative Agreements (a “Material Adverse Effect”).
The Company has not received a written notification that any proceeding has
been instituted in any such jurisdiction, revoking, limiting or curtailing, or
seeking to revoke, limit or curtail, such power and authority or qualification,
and to the Company’s knowledge, no proceeding has been instituted in any such
jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification.  The Company is in possession of and operating
in material compliance with all authorizations, licenses, certificates,
consents, orders and permits from state, federal and other regulatory
authorities that are material to the conduct of its business, all of which are
valid and in full force and effect.  The
Company is not in violation of its certificate of incorporation or bylaws as in
effect on the Effective Date and the Closing Date, complete and correct copies
of which have been filed by the Company with the SEC.

 

3.2           Subsidiaries.
The Company has no subsidiaries other than its wholly owned subsidiary, Affymax
Pharma Limited, which has no operations, assets, liabilities or employees. The
Company does not own any shares of stock or any other

 

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equity or long-term debt securities of any corporation or have any
equity interest in any firm, partnership, limited liability company, joint
venture, association or other entity except as set forth in the SEC Documents.

 

3.3           Due
Authorization; Enforcement. (a) The Company has all requisite
corporate power and authority to enter into this Agreement and to perform the
transactions contemplated hereby, (b) the Operative Agreements have been
duly authorized, executed and delivered by the Company, and (c) the
Operative Agreements constitute valid and binding obligations of the Company
enforceable against the Company in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors’ rights
generally or by general equitable principles and except as to the
enforceability of any rights to indemnification or contribution that may be
violative of the public policy underlying any law, rule or regulation
(including any federal or state securities law, rule or regulation).

 

3.4           Capitalization.
The authorized capital stock of the Company consists of (i) 100,000,000
shares of Common Stock, of which 15,315,000 shares are outstanding on the
Effective Date and (ii) 10,000,000 shares of preferred stock, of which no
shares are outstanding on the Effective Date. 
The shares of Common Stock outstanding prior to the issuance of the
Shares have been duly authorized and are validly issued, fully paid and
non-assessable, have been issued in compliance with all federal and state securities
laws, and have not been issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities.  Except for (i) options to purchase
Common Stock or other equity awards issued to employees and consultants of the
Company pursuant to the employee benefits plans disclosed in the SEC Documents
and (ii) outstanding warrants disclosed in the SEC Documents, there are no
existing options, warrants, calls, preemptive (or similar) rights,
subscriptions or other rights, agreements, arrangements or commitments of any
character obligating the Company to issue, transfer or sell, or cause to be
issued, transferred or sold, any shares of the capital stock of the Company or
other equity interests in the Company or any securities convertible into or
exchangeable for such shares of capital stock or other equity interests, and
there are no outstanding contractual obligations of the Company to repurchase,
redeem or otherwise acquire any shares of its capital stock or other equity
interests.  The description of the
Company’s warrants, stock option plans, employee stock purchase plans or
similar arrangements, and the options or other rights granted and exercised
thereunder, set forth in the SEC Documents accurately and fairly presents, in
all material respects, the information required to be shown with respect to
such warrants, plans, arrangements, options and rights.  The issuance and sale of the Shares and the
Warrants will not result in a right of any current holder of Company securities
to adjust the exercise, conversion, exchange or reset price under such
securities.

 

3.5           Issuance
of the Shares and Warrants. The Shares and the Warrants (including the
Warrant Shares reserved for and subject to issuance pursuant to the terms of
the Warrant) to be issued and sold by the Company to the Purchasers hereunder
have been duly and validly authorized, and the Shares and
Warrants (including the Warrant Shares reserved for and subject to
issuance pursuant to the terms of the Warrant), when

 

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issued and delivered against payment therefor as provided herein and in
the Warrant, will be duly and validly issued, fully paid and non-assessable and
will be sold free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest. 
No preemptive right, co-sale right, right of first refusal or other
similar right of stockholders exists with respect to any of the Shares or
Warrants (including the Warrant Shares reserved for and subject to issuance
pursuant to the terms of the Warrant), or the issuance and sale thereof, other
than those that have been expressly waived prior to the date hereof.  No further approval or authorization of any
stockholder or the Board of Directors of the Company is required for the
issuance and sale or transfer of the Shares or the Warrants (including the
Warrant Shares reserved for and subject to issuance pursuant to the terms of
the Warrant), or the filing of the Registration Statement by the Company.  No further approval or authorization of any
other third party is required for the issuance and sale or transfer of the
Shares or the Warrants (including the Warrant Shares reserved for and subject
to issuance pursuant to the terms of the Warrant), or the filing of the
Registration Statement by the Company, except as may be required under federal,
state or other securities or blue sky laws.

 

3.6           No
Conflict. The execution and delivery by the Company of, the performance by
the Company of its obligations under, and the consummation of the transactions
contemplated by the Operative Agreements (including, without limitation, the
issuance and sale of the Shares and the Warrants) will not contravene any
provision of (i) applicable law, (ii) the amended and restated certificate
of incorporation or bylaws of the Company, (iii) any contract, agreement,
license, understanding, indenture, mortgage, deed of trust, loan agreement,
joint venture, lease, bond, debenture, note or other evidence of indebtedness
or other instrument binding upon the Company or by or to which it or its
properties are or may be subject (each, a “Contract”), or (iv) any judgment, order
or decree of any governmental body, agency or court having jurisdiction over
the Company except, in the cases of clauses (i) and (iii) above for
any such contraventions that would not, individually or in the aggregate, have
a Material Adverse Effect, and no consent, approval, authorization or order of,
or qualification with, any governmental body, agency or court or the NASDAQ
Stock Market LLC (“NASDAQ”)
is required for the execution and delivery by the Company of, the performance
by the Company of its obligations under, or the consummation of the
transactions contemplated by this Agreement (including, without limitation, the
issuance and sale of the Shares and the Warrants), except such as may be
contemplated under the Operative Agreements or required by the securities or
Blue Sky laws of the various states in connection with the offer and sale of
the Shares or the Warrants.

 

3.7           Material
Changes.  Since the date of the
latest financial statements included in the SEC Documents, except as
specifically disclosed in the SEC Documents, there has not occurred any
Material Adverse Effect, or any development, occurrence or change that has had
or would reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect.

 

3.8           Litigation;
Contracts.  There are no actions,
suits, claims, investigations or proceedings pending or, to the Company’s
knowledge, threatened, to which the Company, or to the Company’s knowledge, any
of its respective directors or

 

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officers is a party or to which any of the properties of the Company is
subject, at law or in equity, before or by any federal, state, local or foreign
governmental or regulatory commission, board, body, authority or agency, other
than proceedings accurately described in all material respects in the SEC
Documents and proceedings that would not have a Material Adverse Effect.  There are no Contracts of a character
required to be described or referred to in the SEC Documents, and/or filed as
an exhibit to the SEC Documents, by the Securities Act, the Exchange Act or the
Rules and Regulations, which have not been accurately described in all
material respects in the SEC Documents, and/or filed as an exhibit to the SEC
Documents, other than the omission of which would not reasonably be expected to
have a Material Adverse Effect.  The
Contracts described in the SEC Documents are in full force and effect and are
valid agreements, enforceable by the Company, except as the enforcement thereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting creditors’ rights generally or
by general equitable principles.  No
event has occurred, and no circumstance or condition exists, that (with or
without notice or lapse of time) (A) has resulted or is reasonably likely
to result in a breach, default, violation or waiver of any Contract or any
provision thereof; (B) gives or is reasonably likely to give any party to
any Contract the right to declare a breach, default or violation of or exercise
any remedy under such Contract; (C) gives or is reasonably likely to give
any party to any Contract the right to cancel, terminate, modify or be excused
from performance of any obligations under such Contract; or (D) has
resulted or is reasonably likely to result in a violation of any Law or in
imposition of any fines, penalties, damages, injunctions, prohibitions or other
sanctions, except where such breaches, defaults, violations, waivers, remedies,
cancellations, terminations, modifications, excuses or impositions would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.

 

3.9           Investment
Company. 
The Company is not and, after giving effect to the offering
and sale of the Securities and the receipt of the proceeds contemplated herein,
will not be an “investment company,” as such term is defined in the Investment
Company Act of 1940, as amended.

 

3.10         Environmental
Matters.  The Company (i) is in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants (“Environmental
Laws”), (ii) has received all permits, licenses or other
approvals required under applicable Environmental Laws to conduct its business and
(iii) is in compliance with all terms and conditions of any such permit,
license or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or failure to
comply with the terms and conditions of such permits, licenses or approvals
would not, singly or in the aggregate, have a Material Adverse Effect.  There are no costs or liabilities associated
with Environmental Laws (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval, any
related constraints on operating activities and any potential liabilities to
third parties) that would, singly or in the aggregate, have a Material Adverse
Effect. Except as set forth in the SEC Documents,

 

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(x) the Company has not received any notice from any governmental
authority or third party of an asserted claim under Environmental Laws, which
claim is required to be disclosed in the SEC Documents and (y) to the
Company’s knowledge, no property that is owned, leased or occupied by the
Company has been designated a Superfund site pursuant to the Comprehensive
Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Section 9601,
et seq.), or otherwise designated as a contaminated site under applicable state
or local law.

 

3.11         Registration
Rights.  Other than as set forth in
that certain Amended and Restated Investor Rights Agreement, dated September 7,
2006, by and between the Company and the other parties thereto, (i) no
stockholder of the Company has any right to require the Company to register the
sale of any shares owned by such stockholder under the Securities Act in the
Registration Statement other than as set forth herein and as set forth pursuant
to that certain Securities Purchase Agreement, dated as of even date herewith
(the “Concurrent
Purchase Agreement”), and (ii) no stockholder of the
Company has any right to require the Company to file a registration statement
under the Securities Act with respect to any securities of the Company other
than as set forth herein and as set forth pursuant to the Concurrent Purchase
Agreement.

 

3.12         Liabilities.  Since the date of the latest financial
statements included in the SEC Documents: (i) the Company has not incurred
any material liability or obligation, direct or contingent, nor entered into
any material transaction not in the ordinary course of business; (ii) the
Company has not purchased any of its outstanding capital stock other than
ordinary and customary repurchases of restricted stock from employees upon
termination of service pursuant to the terms of the Company’s equity incentive
plans, nor declared, paid or otherwise made any dividend or distribution of any
kind on its capital stock; (iii) there has not been any material change in
the capital stock, short-term debt or long-term debt of the Company; and (iv) there
has not been any loss or damage (whether or not insured) to the property of the
Company that has been sustained or will have been sustained that would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect, except in each case as described in the SEC Documents.

 

3.13         Title
to Assets.  The Company has good and
marketable title to all properties and assets owned by it that are material to
the business of the Company, free and clear of all liens, encumbrances and
defects except as described in the SEC Documents or such as do not materially
affect the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company; and any real property and
buildings held under lease by the Company is held under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company, except as described in the SEC Documents.  Except as set forth in the SEC Documents, the
Company owns or leases all such properties and assets as are necessary to its
operations as now conducted or as proposed to be conducted.  The Company does not own any real property.

 

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3.14         Intellectual
Property.

 

(a)           Except as set
forth in the SEC Documents, all patents and patent applications filed by or on
behalf of the Company (the “Owned Patents”) are owned or co-owned by the Company
free and clear of all liens, encumbrances, defects or other restrictions,
except as would not, singly or in the aggregate, have a Material Adverse
Effect; and the Company is not aware of any valid or bona fide basis for a
finding that any of the Owned Patents in their entirety is unpatentable,
invalid or unenforceable; and the Company reasonably believes that the Owned
Patents are patentable, valid and enforceable, except as would not, singly or
in the aggregate, have a Material Adverse Effect.

 

(b)           In connection
with the Company’s Owned Patents, all known relevant prior art references were
disclosed or will be disclosed to the USPTO to the extent required by and in
accordance with 37 C.F.R. Section 1.56; all information submitted to the
USPTO in such patent applications, and in connection with the prosecution of
such applications, was accurate in all material respects; and neither the
Company nor, to the Company’s knowledge, any other person made any material
misrepresentations or concealed any material information from the USPTO in such
applications, or in connection with the prosecution of such applications, in
violation of 37 C.F.R. Section 1.56.

 

(c)           Except as set
forth in the SEC Documents, the Company owns or possesses rights to use, or can
acquire on reasonable terms ownership of or rights to use, all patents, patent
applications, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary
or confidential information, systems or procedures), trademarks, service marks,
trade names and other intellectual property (collectively, “Intellectual Property”)
necessary for the conduct of the Company’s business as now conducted, and for
the manufacture, use or sale of its presently proposed products, as described
in the SEC Documents, and except as set forth in the SEC Documents, the Company
has not received any notice of infringement of or conflict with asserted rights
of others with respect to any of the foregoing that, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
have a Material Adverse Effect. The Company’s Intellectual Property is free and
clear of any pledge, lien, security interest, encumbrance, claim or equitable
interest, whether imposed by agreement, contract, understanding, law, equity or
otherwise, except as described in the SEC Documents.  The Company is not obligated to pay a
material royalty, grant a material license or provide other material
consideration to any third party in connection with the Company’s Intellectual
Property other than as disclosed or referenced in the SEC Documents.

 

(d)           Except as set
forth in the SEC Documents, to the Company’s knowledge, after due inquiry, and
except as would not have a Material Adverse Effect, there are no valid and
enforceable rights of third parties to the Company’s Intellectual Property that
are or would be infringed by the business currently conducted by the Company or
in the manufacture, use, sale, offer for sale or import of its presently
proposed products, as described in the SEC Documents.

 

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(e)           Except as set
forth in the SEC Documents, the Company is not subject to any judgment, order,
writ, injunction or decree of any court or any federal, state, local, foreign
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or any arbitrator. Except as set forth in
the SEC documents, the Company is not a party to any contract, which restricts
or impairs its use of any Intellectual Property in a manner that would have a
Material Adverse Effect.

 

(f)            To the
Company’s knowledge, there are no ongoing infringements by others of any
Intellectual Property owned by the Company in connection with the business
currently conducted by the Company or its presently proposed products, except
as described in the SEC Documents.

 

(g)           Other than as
set forth in the SEC Documents and except as would not have a Material Adverse
Effect, to the Company’s knowledge, there is no U.S. patent or published U.S.
patent application which contains valid and enforceable claims that dominate or
that would dominate any Owned Patent or other Intellectual Property owned by
the Company or that interferes with the issued or pending claims of any such
Owned Patent or other Intellectual Property.

 

(h)           Subject to
the disclosures in the SEC Documents, the Company has taken those steps
required in accordance with sound business practice and commercially reasonable
business judgment to establish and preserve its ownership of, and licenses to,
all of the Company’s Intellectual Property. 
Each former and current employee and independent contractor of the
Company has signed and delivered one or more written contracts with the Company
pursuant to which such employee or independent contractor assigns to the
Company all of his, her or its rights in and to any inventions, discoveries,
improvements, works of authorship, know-how, or information made, conceived,
reduced to practice, authored, or discovered in the course of employment by or
performance of services for the Company, as well as any and all patent rights,
copyrights, trademark rights, and other intellectual property rights therein or
thereto except where the failure to do so would not have a Material Adverse
Effect.  Neither the Company nor, to the
knowledge of the Company, any of its employees or independent contractors have
any agreements or arrangements with any third party restricting the Company’s
or any such employee’s or independent contractor’s engagement in business
activities that are material aspects of the Company’s business as described in
the SEC Documents.  To the Company’s
knowledge, no employee or independent contractor of the Company is in violation
of any term of any employment contract, patent disclosure agreement, invention
assignment agreement, non-competition agreement, non-disclosure agreement, or
any other agreement or arrangement with any former employer, customer, or other
third party as a result of such employee’s or independent contractors
relationship with the Company or any actions undertaken by such employee or
independent contractor while employed by or engaged with the Company, except as
such violation would not reasonably be expected to have a Material Adverse
Effect.

 

3.15         Employment
Matters.  No material labor dispute
with the employees of the Company exists or, to the knowledge of the Company,
is imminent; and

 

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the Company is not aware of any existing, threatened or imminent labor
disturbance by the employees of any of its principal suppliers, manufacturers or
contractors that would reasonably be expected to have a Material Adverse
Effect. No collective bargaining agreement exists with any of the Company’s
employees and, to the Company’s knowledge, no such agreement is imminent.

 

3.16         Insurance.
The Company is insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as are prudent and customary
in the businesses in which it is engaged; the Company has not been refused any
insurance coverage previously held in the last year or customarily carried in
the business in which it is engaged; and the Company has no 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 at a cost that would not have a
Material Adverse Effect.

 

3.17         No
Integrated Offering.  The Company has
not sold, issued or distributed any shares of Common Stock during the six-month
period preceding the date hereof, including any sales pursuant to Rule 144A
under, or Regulation D or S of, the Securities Act, other than shares issued
pursuant to employee benefit plans, qualified stock option plans or other
employee compensation plans or arrangements, or pursuant to outstanding
options, restricted stock units, rights or warrants.  The Company has not in the past nor will it
hereafter take any action to sell, offer for sale or solicit offers to buy any
securities of the Company which would require the offer, issuance or sale of
the Securities, as contemplated by this Agreement, to be registered under Section 5
of the Securities Act.

 

3.18         Disclosure
Controls. The Company has established and maintains disclosure controls and
procedures (as such term is defined in Rule 13a-15 and 15d-15 under the
Exchange Act) in the manner and to the extent required by the Exchange Act and
the rules promulgated thereunder by the SEC.  Such disclosure controls and procedures are
designed to ensure that information required to be disclosed by the Company is
recorded, processed, summarized and reported, within the time periods specified
in the SEC’s rules and forms and that such information is accumulated and
communicated to the Company’s principal executive officer and its principal
financial officer.  Such disclosure
controls and procedures are sufficient to provide reasonable assurance that the
Company’s principal executive officer and principal financial officer are
alerted to material information required to be included in the Company’s
periodic reports required under the Exchange Act so as to allow timely
decisions regarding required disclosure. 
Since the filing of the Company’s most recent annual report on Form 10-K,
the Company’s auditors and the Audit Committee of the Board of Directors have
been advised of (i) any significant deficiencies in the design or
operation of internal controls which could adversely affect the Company’s
ability to record, process, summarize and report financial data and (ii) any
fraud, whether or not material, that involves management or other employees who
have a role in the Company’s internal controls. 
Since the filing of the Company’s most recent annual report on Form 10-K,
any material weaknesses in internal controls have been identified for the
Company’s auditors.  Since the date of
the most recent evaluation of such disclosure controls and procedures,

 

10

 

there have been no significant changes in internal controls or in other
factors that could significantly affect internal controls.

 

3.19         Internal
Accounting Controls. Except as described in the SEC Documents, the Company
maintains a system of internal control over financial reporting (as defined in Rule 13a-15
under the Exchange Act) 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 accordance with generally accepted
accounting principles and to maintain asset accountability; (iii) access
to assets is permitted only in accordance with management’s general or specific
authorization; and (iv) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.

 

3.20         Sarbanes-Oxley.
The principal executive officers (or their equivalents) and principal financial
officers (or their equivalents) of the Company have made all certifications
required by the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”)
and any related Rules and Regulations, and the statements contained in any
such certifications are complete and correct. 
The Company is in compliance in all material respects with all
applicable effective provisions of the Sarbanes-Oxley Act of 2002, as amended.

 

3.21         Regulatory
Approvals.

 

(a)           The Company
has all necessary consents, authorizations, approvals, orders, certificates and
permits of and from, and has made all required declarations and filings with,
and complied with all formal recommendations of, all federal, state, local and
other governmental authorities, all self-regulatory organizations and all
courts and other tribunals, to own, lease, license and use its properties and
assets and to conduct its business in the manner described in the SEC
Documents, including, without limitation, all necessary U.S. Food and Drug
Administration (“FDA”),
independent data monitoring committee, and applicable foreign regulatory agency
approvals and recommendations, except as disclosed in the SEC Documents, and
except to the extent that the failure to obtain such consents, authorizations,
approvals, orders, certificates, permits, or to make such declarations or filings,
or to follow such recommendations would not have a Material Adverse
Effect.  The Company has not received any
notice of proceedings relating to the revocation or modification of any such
consent, authorization, approval, order, certificate, permit or recommendation
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would have a Material Adverse Effect.

 

(b)           No
investigational new drug (“IND”)
application filed by or on behalf of the Company with the FDA has been
terminated by the FDA, and none of the FDA, any independent data monitoring
committee, or any applicable foreign regulatory agency has recommended,
commenced, or, to the knowledge of the Company, threatened to initiate, any
action to place a clinical hold order on, or otherwise delay or suspend,

 

11

 

proposed or ongoing clinical investigations conducted or proposed to be
conducted by or on behalf of the Company.

 

(c)           To the best
of the Company’s knowledge, all the operations of the Company and all the
manufacturing facilities and operations of the Company’s suppliers of products
and product candidates and the components thereof manufactured in or imported
into the United States are in compliance with applicable FDA regulations,
including current Good Manufacturing Practices, and meet sanitation standards
set by the Federal Food, Drug and Cosmetic Act of 1938, as amended, and all the
operations of the Company and all the manufacturing facilities and operations
of the Company’s suppliers of products and product candidates manufactured
outside, or exported from, the United States are in compliance with applicable
foreign regulatory requirements and standards, except to the extent that the
failure to be in compliance with such regulations and standards would not have
a Material Adverse Effect.

 

(d)           The Company
has operated its business and currently is in compliance in all material
respects with all applicable rules, regulations and policies of the FDA and any
applicable foreign regulatory organization and all recommendations and actions
of any independent data monitoring committee.

 

3.22         NASDAQ
Global Market.  The Common Stock is
registered pursuant to Section 12(g) of the Exchange Act and is
listed on the NASDAQ Global Market, and the Company has taken no action
designed to, or likely to have the effect of, terminating the registration of
the Common Stock under the Exchange Act or delisting the Common Stock from the
NASDAQ Global Market.  The Company has
not received any notification that the SEC or NASDAQ is contemplating
terminating such registration or listing. 
The Company is in compliance with all corporate governance requirements
of the NASDAQ Global Market.  At Closing,
the Company shall have complied with the requirements of the NASDAQ Global
Market with respect to the issuance of the Securities.

 

3.23         SEC
Documents.  The Company has made
available to each Purchaser, a true and complete copy of the Company’s Annual
Report on Form 10-K for the year ended December 31, 2007 and the
Company’s Quarterly Reports on Form 10-Q for the periods ended March 31,
2008, June 30, 2008 and September 30, 2008, and any other statement,
report (including, without limitation, Current Reports on Form 8-K),
registration statement (other than registration statements on Form S-8) or
definitive proxy statement filed by the Company with the SEC during the
12-month period ending on the Effective Date. 
The Company will, promptly upon the filing thereof, also make available
to each Purchaser all statements, reports (including, without limitation,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K),
registration statements and definitive proxy statements filed by the Company
with the SEC during the period commencing on the date hereof and ending on the
Closing Date (all such materials being called, collectively, the “SEC Documents”).  The Company has filed in a timely manner all
documents that the Company was required to file under the Exchange Act during
the 12 months preceding the date of this Agreement.  As of their respective filing dates, the SEC
Documents complied or will comply in all material respects with the
requirements of the

 

12

 

Exchange Act or the Securities Act, as applicable, and none of the SEC
Documents contained or will contain any untrue statement of a material fact or
omitted or will omit to state a material fact required to be stated therein or
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading, as of their
respective filing dates, except to the extent corrected by a subsequently filed
SEC Document.  The Company meets the
registration and transaction requirements for the use of Form S-3 for the
registration of the Securities for resale by the Purchasers.

 

3.24         Brokers
and Finders.  The Company has not
retained, utilized or been represented by any broker or finder in connection
with the transactions contemplated by this Agreement and has not incurred, and
shall not incur, directly or indirectly, any liability for any brokerage or
finders’ fees or agents commissions or any similar charges in connection with
this Agreement or any transaction contemplated hereby.

 

3.25         No
General Solicitation; Securities Laws. Neither the Company nor, to the
knowledge of the Company, any person acting for the Company, has conducted any “general
solicitation” (as such term is defined in Regulation D) with respect to any of
the Securities being offered hereby. 
Assuming that all of the representations and warranties of the
Purchasers set forth in Section 4, are true and correct, the offer and
sale of the Securities was conducted and completed in compliance with the
Securities Act.

 

3.26         Accountants.  Ernst & Young LLP, the Company’s
accountants, are, to the Company’s knowledge, independent registered public
accountants as required by the Securities Act and the Rules and
Regulations.  Except as described in the
SEC Documents and as pre-approved in accordance with the requirements set forth
in Section 10A of the Exchange Act, to the Company’s knowledge, Ernst &
Young LLP has not engaged in any “prohibited activities” (as defined in Section 10A
of the Exchange Act) on behalf of the Company. 
PricewaterhouseCoopers LLP, whose report on the financial statements of
the Company is filed with the SEC in the Company’s Annual Report on Form 10-K
for the year ended December 31, 2007 are, to the Company’s knowledge,
independent registered public accountants as required by the Securities Act and
the Rules and Regulations.

 

3.27         Financial
Statements.  The financial statements
of the Company, together with the related schedules and notes, set forth in the
SEC Documents:  (i) present fairly, in all material respects, the
financial position of the Company as of the dates indicated and the results of
operations and cash flows of the Company for the periods specified; and (ii) have
been prepared in compliance with requirements of the Securities Act and the Rules and
Regulations and in conformity with generally accepted accounting principles in
the United States applied on a consistent basis during the periods presented,
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 the schedules included in such financial
statements present fairly, in all material respects, the information required
to be stated therein (provided, however,
that

 

13

 

the statements that are unaudited are subject to normal year-end
adjustments).  There are no financial
statements (historical or pro forma) and/or related schedules and notes that
are required to be included in the SEC Documents that are not included as
required by the Securities Act, the Exchange Act and/or the Rules and
Regulations, except where a failure to so include would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.

 

3.28         Tax
Returns.  The Company has timely
filed all federal, state and foreign income and franchise tax returns required
to be filed by the Company on or prior to the date hereof, and has paid all
taxes shown thereon as due, and there is no tax deficiency that has been or, to
the Company’s knowledge, might be asserted against the Company that would
reasonably be expected to have a Material Adverse Effect.  All tax liabilities are adequately provided
for on the books of the Company except where such inadequate provision would
not have a Material Adverse Effect.

 

3.29         Audit
Committee.  The Company’s Board of
Directors has validly appointed an Audit Committee whose composition satisfies
the requirements of Rule 4350(d)(2) of the Rules of NASDAQ (the “NASDAQ Rules”) and
the Board of Directors and/or the Audit Committee has adopted a charter that
satisfies the requirements of Rule 4350(d)(1) of the NASDAQ Rules.

 

3.30         Losses.  The Company has not sustained since the date
of the latest financial statements included in the SEC Documents, any losses or
interferences with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, other than any losses or interferences
which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.

 

3.31         No
Manipulation of Stock.  Neither the
Company nor, to its knowledge, any of its affiliates has taken, directly or
indirectly, any action designed to or which has constituted or which might
reasonably be expected to cause or result, under the Exchange Act or otherwise,
in the stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities.

 

3.32         ERISA.  The Company is in compliance in all material
respects with all currently applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, including the regulations and
published interpretations thereunder, except where a failure to so comply would
not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.

 

3.33         Outstanding
Loans to Officers or Directors. 
There are no outstanding loans, advances (except normal advances for
business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them
as prohibited by the Sarbanes-Oxley Act.

 

14

 

4.             Representations
and Warranties of the Purchasers. 
Each Purchaser severally for itself, and not jointly with the other
Purchasers, represents and warrants to the Company, as of the Effective Date
and the Closing Date, as follows:

 

4.1           Authorization.  All action on the part of such Purchaser and,
if applicable, its officers, directors and stockholders necessary for the
authorization, execution, delivery and performance of the Operative Agreements
and the consummation of the transactions contemplated herein and therein has
been taken.  When executed and delivered,
each of the Operative Agreements will constitute the legal, valid and binding
obligation of such Purchaser, enforceable against such Purchaser in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors’ rights generally or by general equitable principles and
except as to the enforceability of any rights to indemnification or
contribution that may be violative of the public policy underlying any law, rule or
regulation (including any federal or state securities law, rule or
regulation). Such Purchaser has the knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of an
investment in the Securities and has the ability to bear the economic risks of
an investment in the Securities for an indefinite period of time.

 

4.2           Purchase
Entirely for Own Account.  Such
Purchaser is acquiring the Securities being purchased by it hereunder for
investment, for its own account, and not for resale or with a view to
distribution thereof in violation of the Securities Act. Such Purchaser has not
entered into an agreement or understanding with any other party to resell or
distribute such Securities.

 

4.3           Investor
Status; Etc.  Such Purchaser
certifies and represents to the Company that it is now, and at the time such
Purchaser acquires any of the Securities, such Purchaser will be, an “Accredited
Investor” as defined in Rule 501 of Regulation D promulgated under the
Securities Act and was not organized for the purpose of acquiring the
Securities.  Such Purchaser’s financial
condition is such that it is able to bear the risk of holding the Securities
for an indefinite period of time and the risk of loss of its entire
investment.  Such Purchaser has received,
reviewed and considered all information it deems necessary in making an
informed decision to make an investment in the Securities and has been afforded
the opportunity to ask questions of and receive answers from the management of
the Company concerning this investment and has sufficient knowledge and
experience in investing in companies similar to the Company in terms of the
Company’s stage of development so as to be able to evaluate the risks and
merits of its investment in the Company.

 

4.4           Confidential
Information.  Each Purchaser
understands that any information, other than the SEC Documents, provided to
such Purchaser by the Company, including, without limitation, the existence and
nature of all discussions and presentations, if any, regarding this offering
and the Operative Agreements, is strictly confidential and proprietary to the
Company and is being submitted to the Purchaser solely for such Purchaser’s
confidential use in connection with its investment decision regarding the
Securities.  Such Purchaser agrees to use
such information for the sole

 

15

 

purpose of evaluating a possible investment in the Securities and such
Purchaser hereby acknowledges that it is prohibited from reproducing or
distributing such information, the Operative Agreements, or any other offering
materials, in whole or in part, or divulging or discussing any of their
contents except for use internally and by its legal counsel and except as
required by law or legal process.  Such
Purchaser understands that the federal securities laws prohibit any person who
possesses material nonpublic information about a company from trading in
securities of such company.

 

4.5           Shares
Not Registered.  Such Purchaser
understands that the Securities have not been registered under the Securities
Act, by reason of their issuance by the Company in a transaction exempt from
the registration requirements of the Securities Act, and that the Securities
must continue to be held by such Purchaser unless a subsequent disposition
thereof is registered under the Securities Act or is exempt from such
registration.  The Purchaser understands
that the exemptions from registration afforded by Rule 144 (the provisions
of which are known to it) promulgated under the Securities Act depend on the
satisfaction of various conditions, and that, if applicable, Rule 144 may
afford the basis for sales only in limited amounts.

 

4.6           No
Conflict.  The execution and delivery
of the Operative Agreements by such Purchaser and the consummation of the
transactions contemplated hereby and thereby will not conflict with or result
in any material violation of or default by such Purchaser (with or without
notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any material obligation or to a
loss of a material benefit under (i) any provision of the organizational
documents of such Purchaser, (ii) any material agreement or instrument,
permit, franchise, or license or (iii) any judgment, order, statute, law,
ordinance, rule or regulations, applicable to such Purchaser or its
respective properties or assets.

 

4.7           Brokers
and Finders.  Such Purchaser has not
retained, utilized or been represented by any broker or finder in connection
with the transactions contemplated by this Agreement.

 

4.8           Consents.  All consents, approvals, orders and
authorizations required on the part of such Purchaser in connection with the
execution, delivery or performance of this Agreement and the consummation of
the transactions contemplated herein have been obtained and are, or will be,
effective as of the Closing.

 

4.9           Information.
Each Purchaser and its advisors, if any, have been furnished with all materials
relating to the business, finances and operations of the Company, and materials
relating to the offer and sale of the Securities, if any, that have been
requested by the Purchaser or its advisors, if any.  The Purchaser and its advisors, if any, have
been afforded the opportunity to ask questions of the Company.  The Purchaser acknowledges and understands
that its investment in the Securities involves a significant degree of risk,
including the risks reflected in the SEC Documents.

 

4.10         No
Public Offering.  Such Purchaser has
not received any information relating to the Securities or the Company, and is
not purchasing the

 

16

 

Securities as a result of or in connection with, any form of general
solicitation or general advertising, including but not limited to, any
advertisement, prospectus, article, notice or other communication published in
any newspaper, magazine or similar media or broadcast over television or radio
or pursuant to any seminar or meeting whose attendees were invited by any
general solicitation or general advertising. Each Purchaser has a prior
existing relationship with the Company.

 

4.11                           Short Positions. Such
Purchaser represents, warrants and agrees that, since the date that is the
tenth (10th) trading day prior to the date of this Agreement, it has not
engaged in any short selling of the Company’s securities, or established or
increased any “put equivalent position” as defined in Rule 16(a)-1(h) under
the Securities Exchange Act of 1934 with respect to the Company’s securities
and will not use any of the Securities acquired pursuant to this Agreement to
cover any short position in the Common Stock if doing so would be in violation
of applicable securities laws.

 

4.12                           Residency.  Purchaser’s
principal executive offices are in the jurisdiction set forth immediately below
Purchaser’s name on the applicable signature page attached hereto.

 

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

 

4.14                           Beneficial Ownership. 
The purchase by such Purchaser of the Securities issuable to it at the Closing
will not result in such Purchaser (individually or together with any other
Person with whom such Purchaser has identified, or will have identified, itself
as part of a “group” in a public filing made with the SEC involving the Company’s
securities) acquiring, or obtaining the right to acquire, in excess of 19.9% of
the outstanding shares of Common Stock or the voting power of the Company on a
post-transaction basis that assumes that such Closing shall have occurred. 
Such Purchaser does not presently intend to, alone or together with others,
make a public filing with the SEC to disclose that it has (or that it together
with such other Persons have) acquired, or obtained the right to acquire, as a
result of such Closing (when added to any other securities of the Company that
it or they then own or have the right to acquire), in excess of 19.9% of the
outstanding shares of Common Stock or the voting power of the Company on a
post-transaction basis that assumes that each Closing shall have occurred.

 

5.                                       Conditions
Precedent to Closing.

 

5.1                                 Conditions to the
Obligation of the Purchasers to Consummate the Closing.  The obligation of each Purchaser to
consummate the Closing and to purchase and pay for the Shares and Warrants
being purchased by it pursuant to this Agreement is subject to the satisfaction
of the following conditions, any of which may be waived by such Purchaser:

 

(a)                                  The
representations and warranties of the Company contained herein shall be true
and correct on and as of the Closing Date with the same

 

17

 

force and effect as though made on and as of the Closing Date (it being
understood and agreed by each Purchaser that, in the case of any representation
and warranty of the Company contained herein which is not hereinabove qualified
by application thereto of a materiality standard, such representation and
warranty need be true and correct only in all material respects in order to
satisfy as to such representation or warranty the condition precedent set forth
in the foregoing provisions of this Section 5.1(a)).

 

(b)                                 The
Company shall have performed all obligations and conditions required to be
performed or observed by the Company under this Agreement on or prior to the
Closing Date.

 

(c)                                  The
applicable Warrant shall have been executed and delivered by the Company.

 

(d)                                 The
Company shall have delivered a Certificate, executed on behalf of the Company
by its Chief Executive Officer or its Chief Financial Officer, dated as of the
Closing Date, certifying to the fulfillment of the conditions specified in
Sections 5.1(a) and (b).

 

(e)                                  The
Company shall have delivered a Certificate, executed on behalf of the Company
by its Secretary, its Chief Executive Officer or its Chief Financial Officer,
dated as of the Closing Date, certifying the resolutions adopted by the Board
of Directors of the Company approving the transactions contemplated by this
Agreement and the issuance of the Securities, certifying the current versions
of the Certificate of Incorporation and Bylaws of the Company and certifying as
to the signatures and authority of persons signing this Agreement and related
documents on behalf of the Company.

 

(f)                                    Since
the date of execution of this Agreement, no event or series of events shall
have occurred that has had or would reasonably be expected to have a Material
Adverse Effect.

 

(g)                                 No
stop order or suspension of trading shall have been imposed by the NASDAQ
Global Market, the SEC or any other governmental regulatory body with respect
to public trading in the Common Stock, nor shall suspension by the NASDAQ
Global Market or the SEC have been threatened, as of the Closing Date, in
writing by the NASDAQ Global Market or the SEC.

 

(h)                                 No
proceeding challenging this Agreement or the transactions contemplated hereby,
or seeking to prohibit, alter, prevent or materially delay the Closing, shall
have been instituted before any court, arbitrator or governmental body, agency
or official and shall be pending.

 

(i)                                     The
purchase of and payment for the Securities by the Purchaser shall not be
prohibited by any law or governmental order or regulation.  All necessary consents, approvals, licenses,
permits, orders and authorizations of, or registrations, declarations and filings
with, any governmental or administrative agency or of any other person with
respect to any of the transactions contemplated hereby shall

 

18

 

have been duly obtained or made and shall be in full force and effect
(except for the filing of a Form D and related blue sky law filings which
will be timely filed after the Closing Date).

 

(j)                                     The
NASDAQ Global Market listing of additional shares application for the
Securities shall have been filed in accordance with the NASDAQ Rules.

 

(k)                                  All
instruments and corporate proceedings in connection with the transactions
contemplated by this Agreement to be consummated at the Closing shall be
satisfactory in form and substance to such Purchaser; the Purchaser shall have
received an opinion of legal counsel to the Company substantially in the form
of Exhibit C attached hereto; such Purchaser shall have received
counterpart originals, or certified or other copies of all documents, including
without limitation, records of corporate or other proceedings, which it may
have reasonably requested in connection therewith.

 

(l)                                     The
Purchasers shall have received a copy of the irrevocable instructions to the
Company’s transfer agent instructing the transfer agent to deliver the Securities
to the Purchasers in accordance with the amounts set forth in Exhibit A.

 

5.2                                 Conditions to the
Obligation of the Company to Consummate the Closing.  The obligation of the Company to consummate
the Closing and to issue and sell to each of the Purchasers the Shares and
Warrants to be purchased by it at the Closing is subject to the satisfaction of
the following conditions precedent:

 

(a)                                  The
representations and warranties contained herein of such Purchaser shall be true
and correct on and as of the Closing Date with the same force and effect as
though made on and as of the Closing Date (it being understood and agreed by
the Company that, in the case of any representation and warranty of each
Purchaser contained herein which is not hereinabove qualified by application
thereto of a materiality standard, such representation and warranty need be
true and correct only in all material respects in order to satisfy as to such
representation or warranty the condition precedent set forth in the foregoing
provisions of this Section 5.2(a)).

 

(b)                                 The
Purchasers shall have performed all obligations and conditions herein required
to be performed or observed by the Purchasers on or prior to the Closing Date.

 

(c)                                  No
proceeding challenging this Agreement or the transactions contemplated hereby,
or seeking to prohibit, alter, prevent or materially delay the Closing, shall
have been instituted before any court, arbitrator or governmental body, agency
or official and shall be pending.

 

(d)                                 The
sale of the Securities by the Company shall not be prohibited by any law or
governmental order or regulation.  All
necessary consents, approvals, licenses, permits, orders and authorizations of,
or registrations, declarations

 

19

 

and filings with, any governmental or administrative agency or of any
other person with respect to any of the transactions contemplated hereby shall
have been duly obtained or made and shall be in full force and effect (except
for the filing of a Form D and related blue sky law filings which will be
timely filed after the Closing Date).

 

(e)                                  All
instruments and corporate proceedings in connection with the transactions
contemplated by this Agreement to be consummated at the Closing shall be
satisfactory in form and substance to the Company, and the Company shall have
received counterpart originals, or certified or other copies of all documents,
including without limitation records of corporate or other proceedings, which
it may have reasonably requested in connection therewith.

 

6.                                       Transfer,
Legends.

 

6.1                                 Securities Law
Transfer Restrictions.

 

(a)                                  Each
Purchaser understands that the Securities have not been registered under the
Securities Act or any state securities laws, and each Purchaser agrees that,
except as provided in Section 7 of this Agreement, it will not sell, offer
to sell, solicit offers to buy, dispose of, loan, pledge or grant any right
with respect to (collectively, a “Disposition”), the Securities nor will such
Purchaser engage in any hedging or other transaction which is designed to or
could be reasonably expected to lead to or result in a Disposition of
Securities by such Purchaser or any other person or entity unless (a) the
Securities are registered under the Securities Act, (b) the Securities are
transferred to the Company, (c) the Securities are transferred pursuant to
Rule 144 (provided that the Purchaser provides the Company with reasonable
assurances (in the form of seller and, if applicable, broker representation
letters) that the securities may be sold pursuant to such rule), (d) the
Securities are transferred in connection with a bona fide pledge as
contemplated in Section 6.2(a) below or (e) such Purchaser shall
have delivered to the Company an opinion of counsel in form, substance and
scope reasonably acceptable to the Company, to the effect that registration is
not required under the Securities Act or any applicable state securities law
due to the applicability of an exemption therefrom.

 

(b)                                 Each
Purchaser acknowledges that no action has been or will be taken in any
jurisdiction outside the United States by the Company that would permit an
offering of the Securities, or possession or distribution of offering materials
in connection with the issue of Securities, in any jurisdiction outside of the
United States where action by the Company for that purpose is required.  Each Purchaser outside the United States will
comply with all applicable laws and regulations in each foreign jurisdiction in
which it purchases, offers, sells or delivers Securities or has in its
possession or distributes any offering material, in all cases at its own
expense.  No third party is authorized to
make any representation or use any information in connection with the issue,
placement, purchase and sale of the Securities.

 

(c)                                  Each
Purchaser hereby covenants with the Company not to make any sale of the
Securities without complying with the provisions of the Operative

 

20

 

Agreements and with all applicable securities laws and regulations, and
such Purchaser acknowledges that the certificates evidencing the Shares and the
Warrants will be imprinted with a legend that prohibits their transfer except
in accordance therewith.

 

6.2                                 Legends.

 

(a)                                  Each
certificate representing any of the Shares and each Warrant shall be endorsed
with the legend substantially in the form as set forth below, together with
other legends as may be required by applicable securities laws, and each
Purchaser covenants that, except to the extent such restrictions are waived by
the Company, it shall not transfer the securities represented by any such
certificate without complying with the restrictions on transfer described in
this Agreement and the legends endorsed on such certificate:

 

“[NEITHER
THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES
HAVE BEEN REGISTERED][THESE SECURITIES HAVE NOT BEEN REGISTERED] UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED, SOLD, ASSIGNED,
PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF (I) IN THE ABSENCE OF (A) AN
EFFECTIVE REGISTRATION STATEMENT UNDER SAID SECURITIES ACT OR (B) AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, REGISTRATION
UNDER SAID SECURITIES ACT AND, IF REQUESTED BY THE COMPANY, UPON DELIVERY OF AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT THE PROPOSED
TRANSFER IS EXEMPT FROM SAID SECURITIES ACT OR (II) UNLESS SOLD PURSUANT
TO RULE 144 UNDER THE SECURITIES ACT. NOTWITHSTANDING THE FOREGOING, THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”

 

The Company acknowledges and agrees that a Purchaser may from time to
time pledge, and/or grant a security interest in, some or all of the legended
Securities in connection with applicable securities laws, pursuant to a bona
fide margin agreement in compliance with a bona fide margin loan.  Such a pledge would not be subject to approval
or consent of the Company and no legal opinion of legal counsel to the pledgee,
secured party or pledgor shall be required in connection with the pledge, but
such legal opinion shall be required in connection with a subsequent transfer
or foreclosure following default by the Purchaser transferee of the
pledge.  No notice shall be required of
such pledge, but Purchaser’s transferee shall promptly notify the Company of
any such subsequent transfer or foreclosure. 
Each Purchaser acknowledges that the Company shall not be responsible
for any pledges relating to, or the grant of any security interest in, any of
the Securities or for any agreement, understanding or arrangement between any

 

21

 

Purchaser and its
pledgee or secured party.  At the
appropriate Purchaser’s expense, the Company will execute and deliver such
reasonable documentation as a pledgee or secured party of Securities may
reasonably request in connection with a pledge or transfer of the Securities,
including the preparation and filing of any required prospectus supplement
under Rule 424(b)(3) of the Securities Act or other applicable
provision of the Securities Act to appropriately amend the list of Selling
Stockholders thereunder.  Each Purchaser
acknowledges and agrees that, except as otherwise provided in Section 6.2(b),
any Securities subject to a pledge or security interest as contemplated by this
Section 6.2(a) shall continue to bear the legend set forth in this Section 6.2(a) and
be subject to the restrictions on transfer set forth in Section 6.1(a).

 

(b)                                 Certificates
evidencing the Shares or Warrant Shares shall not contain any legend
(including, without limitation, the legend set forth in Section 6.2(a) hereof):
(i) while a registration statement (including, without limitation, the
Registration Statement) covering the resale of such Shares or Warrant Shares is
effective under the Securities Act, or (ii) following any sale of such
Shares or Warrant Shares pursuant to Rule 144, or (iii) if such
Shares or Warrant Shares are eligible for sale under Rule 144(b)(1), or (iv) if
such legend is not required under applicable requirements of the Securities Act
(including, without limitation, judicial interpretations and pronouncements
issued by the staff of the SEC).  The
Company agrees that following the effectiveness of the Registration Statement
or at such time as such legend is no longer required under this Section 6.2(b),
it will, no later than three (3) business days following the delivery by a
Purchaser to the Company or the Company’s transfer agent of (i) a
certificate representing Shares or Warrant Shares issued with a restrictive
legend and (ii) a letter acknowledging that sales of such Shares or
Warrant Shares shall be made in a manner consistent with the plan of
distribution set forth in the Registration Statement (such third business day,
the “Legend Removal Date”)
deliver or cause to be delivered to such Purchaser a certificate representing
such Shares or Warrant Shares that is free from all restrictive and other
legends.  The Company may not make any
notation on its records or give instructions to any transfer agent of the
Company that enlarge the restrictions on transfer set forth in this Section.  Certificates for Shares subject to legend
removal hereunder shall be transmitted by the transfer agent of the Company to
the Purchaser by crediting the account of the Purchaser’s prime broker with the
Depository Trust Company System.  The
failure to timely deliver certificates without restrictive legends by the
Legend Removal Date shall not be a breach of the foregoing covenant if such
delay is solely due to the action or inaction of the Company’s transfer agent
and if the Company has taken all reasonable steps necessary to facilitate the
removal of such legends (provided that if permitted by the Company’s
transfer agent counsel to the Purchasers shall be permitted to submit a legal
opinion to the Company’s transfer agent authorizing legend removal in order to
meet any requirement for an opinion of counsel by such transfer agent). The
Company’s obligation to issue unlegended certificates pursuant to this Section 6.2(b) shall
be excused if (i) the SEC promulgates any rule or interpretation
expressly prohibiting removal of legends in such circumstances, (ii) the
SEC or other regulatory authority instructs the Company or its transfer agent
not to remove such legends, (iii) the SEC makes it a condition to the
effectiveness of a registration statement that the Company continue to keep
such legends in place, and (iv) with respect to a Purchaser, so long as
such Purchaser is deemed to be an “affiliate” of the Company

 

22

 

pursuant to the Securities Act and Rule 144 promulgated thereunder
(in which case, the certificate(s) evidencing such Purchaser’s shares
shall also bear a legend disclosing Purchaser’s status as an “affiliate” of the
Company until such time as such Purchaser is no longer deemed by the Company,
in its reasonable discretion with the advice of its legal counsel, to be an “affiliate”
of the Company in accordance with the Securities Act).

 

(c)                                  Each
Purchaser agrees that the removal of the restrictive legend from certificates
representing Shares or the Warrant Shares as set forth in this Section 6.2
is predicated upon the Company’s reliance that such Purchaser will sell any
Shares or the Warrant Shares pursuant to either the registration requirements
of the Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom.

 

(d)                                 Notwithstanding
anything herein to the contrary, no registration statement or opinion of
counsel shall be necessary for a transfer (i) by a Purchaser that is a
partnership to a partner (limited or general) of such partnership or a retired
partner of such partnership who retires after the date hereof, or to the estate
of any such partner or retired partner or the transfer by gift, will or
intestate succession of any partner to his or her spouse or to the siblings,
lineal descendants or ancestors of such partner or his or her spouse, (ii) by
a Purchaser that is a limited liability company to a member of such limited
liability company or a retired member of such limited liability company who
retires after the date hereof, or to the estate of any such member or retired
member or the transfer by gift, will or intestate succession of any member to
his or her spouse or to the siblings, lineal descendants or ancestors of such
member or his or her spouse or (iii) by a Purchaser to an affiliate of
such Purchaser, if the prospective transferee agrees in all such instances in
writing to be subject to the terms hereof to the same extent as if he or she
were an original Purchaser hereunder.

 

(e)                                  Notwithstanding
anything to the contrary in this Agreement, in the case of a partnership
distribution by any Purchaser (or its transferee in accordance with Section 6.1(a)),
if the terms of this Agreement require any agreement or acknowledgment by the
transferees to be bound by the terms of this Agreement, then such agreement or
acknowledgment may be evidenced by a unilateral instruction letter or similar
notice provided by the Purchaser (or its transferee in accordance with Section 6.1(a))
to each transferee referencing this Agreement and informing the transferee
that, by accepting the distribution of the Securities, the transferee will be
subject to the provisions and conditions specified in this Section 6 if
and to the extent that such Securities continue to be restricted securities in
the hands of the transferee.

 

7.                                       Covenants.

 

7.1                                 Registration
Procedures and Expenses.  The Company
shall:

 

(a)                                  file
a Registration Statement with the SEC within forty-five (45) days
following the Closing Date to register the Registrable Shares on Form S-3
under the Securities Act (providing for shelf registration of such Registrable
Shares under SEC Rule 415) or, only if the Company is not eligible to use Form S-3,
on such other

 

23

 

form which is appropriate to register such Registrable Shares for
resale from time to time by the Purchasers;

 

(b)                                 subject
to receipt of necessary information from the Purchasers, cause any such
Registration Statement filed pursuant to Section 7.1(a) above to
become effective as promptly after filing of such Registration Statement as
practicable but in any event by the date (the “Effectiveness Deadline Date”) that is
ninety (90) days following the Closing Date; provided,
however, that in the event that the Registration Statement is
reviewed by the SEC (subject to the exception contained in 7.1(b)(1)), then the
Effectiveness Deadline Date shall mean, with respect to such Registration
Statement, the date that is one hundred twenty (120) days following the
Closing Date;

 

(1)                                  notwithstanding the
foregoing, if the SEC reviews the Registration Statement and provides comments
solely relating to the Company’s absence of certain Part II or Part III
information from the Company’s Annual Report on Form 10-K for the year
ended December 31, 2008 (similar to the SEC comment letter issued to the
Company March 25, 2008), then such comments shall not be considered a “review”
for purposes of Section 7.1(b) and the Effectiveness Deadline Date in
such case shall be 90 days from the Closing Date;

 

(c)                                  prepare
and file with the SEC such amendments and supplements to such Registration
Statement and the prospectus used in connection therewith as may be necessary
to keep such Registration Statement continuously effective until termination of
such obligation as provided in Section 7.5 below, subject to the Company’s
right to suspend pursuant to Section 7.4;

 

(d)                                 furnish
to each Purchaser (and to each underwriter, if any, of such Registrable Shares)
such number of copies of prospectuses in conformity with the requirements of
the Securities Act and such other documents as the Purchasers may reasonably
request, in order to facilitate the public sale or other disposition of all or
any of the Registrable Shares by the Purchasers;

 

(e)                                  file
such documents as may be required of the Company for normal securities law
clearance for the resale of the Registrable Shares in such states of the United
States as may be reasonably requested by each Purchaser; provided, however, that the Company shall
not be required in connection with this paragraph (e) to qualify as a
foreign corporation or execute a general consent to service of process in any
jurisdiction;

 

(f)                                    advise
each Purchaser promptly:

 

(1)                                  of
the effectiveness of the Registration Statement or any post-effective
amendments thereto;

 

(2)                                  of
any request by the SEC for amendments to the Registration Statement or
amendments to the prospectus or for additional information relating thereto;

 

24

 

(3)                                  of
the issuance by the SEC of any stop order suspending the effectiveness of the
Registration Statement under the Securities Act or of the suspension by any
state securities commission of the qualification of the Registrable Shares for
offering or sale in any jurisdiction, or the initiation of any proceeding for
any of the preceding purposes; and

 

(4)                                  of
the existence of any fact and the happening of any event that makes any
statement of a material fact made in the Registration Statement, the prospectus
and amendment or supplement thereto, or any document incorporated by reference
therein, untrue, or that requires the making of any additions to or changes in
the Registration Statement or the prospectus in order to make the statements
therein not misleading;

 

(g)                                 use
its best efforts to cause all Registrable Shares to be listed on each
securities exchange, if any, on which equity securities by the Company are then
listed; and

 

(h)                                 bear
all expenses in connection with the procedures in paragraphs (a) through (g) of
this Section 7.1 and the registration of the Registrable Shares on such
Registration Statement and the satisfaction of the blue sky laws of such
states.

 

Notwithstanding
the registration obligations set forth in this Section 7.1, in the event
the SEC informs the Company that all of the Registrable Shares cannot, as a
result of the application of Rule 415, be registered for resale as a
secondary offering on a single registration statement, the Company agrees to
promptly (i) inform each of the Purchasers thereof and file amendments to
the initial Registration Statement as required by the SEC and/or (ii) withdraw
the initial Registration Statement and file a new registration statement, in
either case covering the maximum number of Registrable Shares permitted to be
registered by the SEC, on Form S-3 or such other form available to
register for resale the Registrable Shares as a secondary offering; provided, however, that prior to filing
such amendment or new Registration Statement, the Company shall be obligated to
use its best efforts to advocate with the SEC for the registration of all of
the Registrable Shares in accordance with the SEC Guidance, including without
limitation, the Manual of Publicly Available Telephone Interpretations D.29.
Notwithstanding any other provision of this Agreement and subject to the payment
of liquidated damages in Section 7.2, if the SEC requires a limitation on
the number of Registrable Shares permitted to be registered on a particular
Registration Statement as a secondary offering (and notwithstanding that the
Company used best efforts to advocate with the SEC for the registration of all
or a greater number of Registrable Shares), the number of Registrable Shares to
be registered on such Registration Statement shall be reduced on a pro rata
basis based on the total number of unregistered Shares held by such Purchasers
and the total number of unregistered Shares (as defined in the Concurrent
Purchase Agreement) then held by the purchasers named in the Concurrent
Purchase Agreement, provided that the Company shall have an ongoing obligation
to register the remaining Registrable Shares in one or more additional
Registration Statements to be filed within 30 days of the Company becoming
eligible to do so (the “Springing
Date”), with such subsequent Registration

 

25

 

Statement(s) to
be declared effective within 90 days from the Springing Date or, in the case of
an SEC review as contemplated in Section 7.1(b), 120 days from the
Springing Date.

 

7.2                                 Delay in
Effectiveness.  If the Registration Statement is
not declared effective by the SEC on or prior to the Effectiveness Deadline
Date, then for each partial or whole thirty (30) day period following the
Effectiveness Deadline Date, until but excluding the date the Registration
Statement is declared effective, the Company shall, for such period, pay each
Purchaser, as liquidated damages and not as a penalty, an amount equal to 1.0%
of the purchase price of the Shares purchased by such Purchaser hereunder, for
such period (or prorated for any partial period), up to a maximum of 10% in the
aggregate; and for any such period, such payment shall be made no later than
the first business day of the calendar month next succeeding the last month in
which such period occurs.  The parties
hereto agree that the liquidated damages provided for in this Section 7.2
constitute a reasonable estimate of the damages that may be incurred by the
Purchasers by reason of the failure of the Registration Statement to be
declared effective in accordance with the provisions hereof.

 

7.3                                 Indemnification.

 

(a)                                  The
Company agrees to indemnify and hold harmless each Purchaser, the partners,
members, officers, directors, controlling persons or Affiliates of each
Purchaser and each person, if any, who controls such Purchaser within the meaning
of the Securities Act or the Exchange Act, from and against any losses, claims,
damages or liabilities to which they may become subject (under the Securities
Act or otherwise) insofar as such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) arise out of, or are based upon, any
untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading or arise out of any failure by the Company to fulfill any
undertaking included in the Registration Statement and the Company will, as
incurred, reimburse such Purchaser, partner, member, officer, director,
controlling person or Affiliate for any legal or other expenses reasonably
incurred in investigating, defending or preparing to defend any such action,
proceeding or claim; provided, however,
that the Company shall not be liable in any such case to the extent that such
loss, claim, damage or liability (collectively, “Loss”) arises solely out of, or is based
solely upon, an untrue statement or omission or alleged untrue statement or
omission made in such Registration Statement in reliance upon and in conformity
with written information furnished to the Company by or on behalf of such
Purchaser, partner, member, officer, director, controlling person or Affiliate
specifically for use in preparation of the Registration Statement or any breach
of this Agreement by such Purchaser; and provided,
further, however, that the Company shall not be liable to any
Purchaser of Registrable Shares (or any partner, member, officer, director,
controlling person or Affiliate of such Purchaser) to the extent that any such
Loss is caused by an untrue statement or omission or alleged untrue statement
or omission made in any preliminary prospectus if such Purchaser sold
Registrable Shares in violation of such Purchaser’s covenant contained in Section 7.4
of this Agreement.

 

26

 

(b)           Each
Purchaser, severally and not jointly, agrees to indemnify and hold harmless the
Company (and each person, if any, who controls the Company within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange
Act, each officer of the Company who signs the Registration Statement and each
director of the Company), from and against any losses, claims, damages or
liabilities to which the Company (or any such officer, director or controlling
person) may become subject (under the Securities Act or otherwise), insofar as
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise solely out of, or are based solely upon, any breach of
this Agreement by such Purchaser or any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading in each case, on the
effective date thereof, if, and to the extent, such untrue statement or
omission or alleged untrue statement or omission was made in reliance upon and
in conformity with written information furnished by or on behalf of such
Purchaser specifically for use in preparation of the Registration Statement,
and such Purchaser will reimburse the Company (and each of its officers,
directors or controlling persons) for any legal or other expenses reasonably
incurred in investigating, defending or preparing to defend any such action,
proceeding or claim; provided, however,
that in no event shall any indemnity under this Section 7.3(b) be
greater in amount than the dollar amount of the proceeds (net of the amount of any
damages such Purchaser has otherwise been required to pay by reason of such
untrue statement or omission or alleged untrue statement or omission) received
by such Purchaser upon the sale of the Registrable Shares included in the
Registration Statement giving rise to such indemnification obligation.

 

(c)           Promptly
after receipt by any indemnified person of a notice of a claim or the beginning
of any action in respect of which indemnity is to be sought against an
indemnifying person pursuant to this Section 7.3, such indemnified person
shall promptly notify the indemnifying person in writing of such claim or of
the commencement of such action, and, subject to the provisions hereinafter
stated, in case any such action shall be brought against an indemnified person
and such indemnifying person shall have been notified thereof, such
indemnifying person shall be entitled to participate therein, and, to the
extent that it shall wish, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified person.  After notice from the indemnifying person to
such indemnified person of its election to assume the defense thereof, such
indemnifying person shall not be liable to such indemnified person for any legal
expenses subsequently incurred by such indemnified person in connection with
the defense thereof; provided, however,
that if there exists or shall exist a conflict of interest that would make it
inappropriate in the reasonable judgment of the indemnified person for the same
counsel to represent both the indemnified person and such indemnifying person
or any Affiliate or associate thereof, the indemnified person shall be entitled
to retain its own counsel at the expense of such indemnifying person; provided, further, that no indemnifying
person shall be responsible for the fees and expense of more than one separate
counsel for all indemnified parties.  The
indemnifying party shall not settle an action without the consent of the
indemnified party, which consent shall not be unreasonably withheld.

 

27

 

(d)           If after
proper notice of a claim or the commencement of any action against the
indemnified party, the indemnifying party does not choose to participate, then
the indemnified party shall assume the defense thereof and upon written notice
by the indemnified party requesting advance payment of a stated amount for its
reasonable defense costs and expenses, the indemnifying party shall advance
payment for such reasonable defense costs and expenses (the “Advance Indemnification Payment”)
to the indemnified party.  In the event
that the indemnified party’s actual defense costs and expenses exceed the
amount of the Advance Indemnification Payment, then upon written request by the
indemnified party, the indemnifying party shall reimburse the indemnified party
for such difference; in the event that the Advance Indemnification Payment
exceeds the indemnified party’s actual costs and expenses, the indemnified
party shall promptly remit payment of such difference to the indemnifying
party.

 

(e)           If the
indemnification provided for in this Section 7.3 is held by a court of
competent jurisdiction to be unavailable to an indemnified party with respect
to any losses, claims, damages or liabilities referred to herein, the
indemnifying party, in lieu of indemnifying such indemnified party thereunder,
shall to the extent permitted by applicable law contribute to the amount paid
or payable by such indemnified party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the
other, as well as any other relevant equitable considerations; provided, that in no event shall any
contribution by an indemnifying party hereunder be greater in amount than the
dollar amount of the proceeds (net of the amount of any damages such
indemnifying party has otherwise been required to pay by reason of such untrue
statement or omission or alleged untrue statement or omission) received by such
indemnifying party upon the sale of the Registrable Shares included in the
Registration Statement giving rise to such indemnification obligation..

 

7.4           Prospectus Delivery.  Each Purchaser hereby covenants with the
Company not to make any sale of the Registrable Shares without complying with Section 6.  The Purchaser acknowledges that there may be
times when the Company must suspend the use of the prospectus forming a part of
the Registration Statement until such time as an amendment to the Registration
Statement has been filed by the Company and declared effective by the SEC, or
until such time as the Company has filed an appropriate report with the SEC
pursuant to the Exchange Act.  The
Purchaser hereby covenants that it will not sell any Registrable Shares
pursuant to said prospectus during the period commencing at the time at which
the Company gives the Purchaser notice of the suspension of the use of said
prospectus and ending at the time the Company gives the Purchaser notice that
the Purchaser may thereafter effect sales pursuant to said prospectus; provided that (i) such suspension
periods shall in no event exceed ten (10) days in any twelve (12) month
period and (ii) the Board of Directors of the Company shall have made a
good faith judgment that the Company would, in the absence of such delay or
suspension hereunder, be required under state or federal securities laws to
disclose a specific corporate development or potentially significant
transaction or event, the disclosure of which would reasonably be expected to
have a material adverse effect upon the Company or its shareholders.

 

28

 

7.5           Termination of Obligations.  The obligations of the Company pursuant to Section 7.1
hereof shall cease and terminate upon the earlier to occur of (a) such
time as all of the Registrable Shares have been resold, (b) such time as
all of the Registrable Shares may be resold without restriction pursuant to Rule 144,
or (c) the third anniversary of the Closing Date, but not so long as any
Purchaser is deemed an Affiliate of the Company.

 

7.6           Reporting Requirements.  With a view to making available the benefits
of Rule 144 and any other rules and regulations of the SEC that may
at any time permit the sale of the Securities to the public without
registration or pursuant to a registration statement on Form S-3, the
Company agrees to use its best efforts to:

 

(1)           make
and keep public information available, as those terms are understood and defined
in Rule 144 under the Securities Act;

 

(2)           file
with the SEC in a timely manner all reports and other documents required of the
Company under the Securities Act and the Exchange Act; and

 

(3)           so
long as any of the Purchasers own Registrable Shares, to furnish to such
Purchaser upon request (A) a written statement by the Company as to
whether it is in compliance with the reporting requirements of Rule 144,
the Securities Act and the Exchange Act, or whether it is qualified as a
registrant whose securities may be resold pursuant to SEC Form S-3, and (B) a
copy of the most recent annual or quarterly report of the Company and such
other reports and documents so filed by the Company.

 

7.7           Blue Sky.  The Company shall obtain and maintain all
necessary blue sky law permits and qualifications, or secured exemptions
therefrom, required by any state for the offer and sale of Securities.

 

8.             Termination; Liabilities Consequent
Thereon.  This Agreement may be
terminated and the transactions contemplated hereunder abandoned at any time
prior to the Closing only as follows:

 

(a)           by any Purchaser (with
respect to such Purchaser providing notice only), upon notice to the Company if
the conditions set forth in Section 5.1 shall not have been satisfied on
or prior to March 13, 2009 (other than as a result of the failure on the
part of the Purchaser giving such notice of termination to perform its
covenants and obligations under this Agreement in all material respects); or

 

(b)           by the Company, upon
notice to the Purchasers if the conditions set forth in Section 5.2 shall
not have been satisfied on or prior to March 13, 2009; or

 

(c)           at any time by mutual
agreement of the Company and the Purchasers; or

 

(d)           by any Purchaser (with
respect to such Purchaser providing notice only), if there has been any breach
of any representation or warranty or any material breach of any

 

29

 

covenant of
the Company contained herein and the same has not been cured within 15 days
after notice thereof (it being understood and agreed by each Purchaser that, in
the case of any representation or warranty of the Company contained herein
which is not hereinabove qualified by application thereto of a materiality
standard, such representation or warranty will be deemed to have been breached
for purposes of this Section 8(d) only if such representation or
warranty was not true and correct in all material respects at the time such
representation or warranty was made by the Company); or

 

(e)           by the Company, if there
has been any breach of any representation, warranty or any material breach of
any covenant of any Purchaser contained herein and the same has not been cured
within 15 days after notice thereof (it being understood and agreed by the
Company that, in the case of any representation and warranty of the Purchaser
contained herein which is not hereinabove qualified by application thereto of a
materiality standard, such representation or warranty will be deemed to have
been breached for purposes of this Section 8(e) only if such
representation or warranty was not true and correct in all material respects at
the time such representation or warranty was made by such Purchaser).

 

Notwithstanding
the foregoing, with respect to Sections 8(b) and 8(e), the Company may not
terminate this Agreement as to any Purchaser who (i) has met its closing
obligations under Section 5.2, (ii) is not in breach of any
representation or warranty or material breach of any covenant of such
Purchaser, and (iii) elects to proceed with the Closing despite the
failure of one or more other Purchasers to meet their respective closing
obligations under Section 5.2, which shall include any act that causes any
closing obligation under Section 5.2 to not be met, or the breach by one
or more other Purchasers of any representation, warranty or material covenant
of any such Purchaser. Any termination pursuant to this Section 8 shall be
without liability on the part of any party, unless such termination is the
result of a material breach of this Agreement by a party to this Agreement in
which case such breaching party shall remain liable for such breach
notwithstanding any termination of this Agreement. Any liability of a Purchaser
under this Section 8 shall be several, and not joint, with the obligations
of any other Purchaser.

 

9.             Indemnification
Provisions.

 

9.1           Indemnification. In addition to the
indemnification provisions set forth in Section 7 hereof, the Company
agrees to indemnify and hold harmless each Purchaser from and against any
losses, claims, damages, judgments, fines, penalties, expenses (including
reasonable attorney’s fees and expenses), amounts paid in settlement, and
liabilities joint or several (“Claims”) to which such Purchaser may become subject
(under the Securities Act or otherwise) or which it may incur in connection
with investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or before any
court or governmental, administrative or other regulatory agency, body or the
SEC, whether pending or threatened, whether or not an indemnified party is or
may be a party thereto insofar as such Claims (or actions or proceedings in
respect thereof) arise out of or are based upon any breach of the
representations or warranties of the Company contained in the Operative
Agreements or failure to comply with the covenants and agreements of the
Company contained in the Operative Agreements. The Company shall reimburse each
Purchaser for the amounts provided for herein on demand as such expenses are
incurred

 

30

 

as reasonably documented by the Purchaser.  The Company will not be liable to any
Purchaser under this Agreement to the extent, but only to the extent that a
loss, claim, damage or liability is attributable to any Purchaser’s breach of
any of the representations, warranties, covenants or agreements made by such
Purchaser in this Agreement.

 

9.2           Conduct of Indemnification Proceedings.
Promptly after receipt by any Purchaser of notice of any claim or the beginning
of any action in respect of which indemnity is to be sought against an
indemnifying person pursuant to this Section 9, such Purchaser shall
promptly notify the Company in writing of such claim or of the commencement of
such action, and the Company shall be entitled to participate therein, and, to
the extent that it shall wish, to assume the defense thereof, with counsel
reasonably satisfactory to Purchaser; provided,
however, that the failure of any Purchaser to so notify the Company
shall not relieve the Company of its obligations hereunder except to the
extent, and only to the extent, that the Company is actually and materially and
adversely prejudiced by such failure to notify.  After notice from the
Company to the Purchaser of its election to assume the defense thereof, the
Company shall not be liable to such Purchaser for any legal expenses
subsequently incurred by such Purchaser in connection with the defense thereof;
provided, however, that if there
exists or shall exist a conflict of interest that would make it inappropriate
in the reasonable judgment of the Purchaser for the same counsel to represent
both the Purchaser and the Company or any Affiliate or associate thereof, the
Purchaser shall be entitled to retain its own counsel at the expense of the
Company; provided, further, that
the Company shall not be responsible for the fees and expense of more than one
separate counsel for all Purchasers.  The
Company shall not be liable for any settlement of any proceeding effected
without its written consent, which consent shall not be unreasonably withheld,
delayed or conditioned unless the Company fails to defend any proceeding or
fails to promptly respond to a settlement offer.  Without the prior
written consent of the Purchaser, which consent shall not be unreasonably
withheld, delayed or conditioned, the Company shall not effect any settlement
of any pending or threatened proceeding in respect of which any Purchaser is or
could have been a party and indemnity could have been sought hereunder by such
Purchaser, unless such settlement includes an unconditional release of such
Purchaser from all liability arising out of such proceeding.

 

10.           Miscellaneous Provisions.

 

10.1         Public Statements or Releases.  The Company shall, on the business day
following the date of this Agreement, issue a press release announcing the
entry into this Agreement and disclosing the transactions contemplated hereby,
as well as make such other filings and notices in the manner and time required
by the SEC.  Prior to such announcement,
no Purchaser shall make, issue, or release any announcement, whether to the
public generally, or to any of its limited partners or other third parties,
with respect to this Agreement or the transactions provided for herein, or make
any statement or acknowledgment of the existence of, or reveal the status of,
this Agreement or the transactions provided for herein, without the prior
consent of the Company, which shall not be unreasonably withheld or delayed, provided, that nothing in this Section 10.1
shall prevent any of the parties hereto from making such public announcements
as it may consider necessary in order to satisfy its legal obligations, but to
the extent not

 

31

 

inconsistent with such obligations, it shall provide the other parties
with an opportunity to review and comment on any proposed public announcement
before it is made.

 

10.2         Further Assurances.  Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances, as may be reasonably requested by
the other parties to better evidence and reflect the transactions described
herein and contemplated hereby, and to carry into effect the intents and
purposes of the Operative Agreements.

 

10.3         Rights Cumulative.  Each and all of the various rights, powers
and remedies of the parties shall be considered to be cumulative with and in
addition to any other rights, powers and remedies which such parties may have
at law or in equity in the event of the breach of any of the terms of the
Operative Agreements.  The exercise or
partial exercise of any right, power or remedy shall neither constitute the
exclusive election thereof nor the waiver of any other right, power or remedy
available to such party.

 

10.4         Pronouns.  All pronouns or any variation thereof shall
be deemed to refer to the masculine, feminine or neuter, singular or plural, as
the identity of the person, persons, entity or entities may require.

 

10.5         Notices.  Any notices, reports or other correspondence
(hereinafter collectively referred to as “correspondence”) required or
permitted to be given hereunder shall be in writing, addressed as set forth
below and shall be deemed effectively given: (a) upon personal delivery to
the party to be notified, (b) when sent by confirmed electronic mail or
facsimile if sent during normal business hours of the recipient, if not, then
on the next business day, (c) three business (3) days after having
been sent by registered or certified mail, return receipt requested, postage
prepaid, or (d) one (1) day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt, in each case costs prepaid.

 

(a)           All correspondence to
the Company shall be addressed as follows:

 

	
  Affymax, Inc.

  	
   

  
	
  4001 Miranda Avenue

  	
   

  
	
  Palo Alto, California 94304

  	
   

  
	
   

  	
   

  
	
  Attention:

  	
  Grace U. Shin

  	
   

  
	
   

  	
  General Counsel

  	
   

  
	
  Facsimile:

  	
  (650)
  424-0832

  	
   

  

 

32

 

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

 

	
  Cooley Godward Kronish, LLP

  	
   

  
	
  Five Palo Alto Square

  	
   

  
	
  3000 El Camino Real

  	
   

  
	
  Palo Alto, CA 94306

  	
   

  
	
   

  	
   

  
	
  Attention:

  	
  Laura A. Berezin, Esq.

  	
   

  
	
  Facsimile:

  	
  (650) 849-7400

  	
   

  

 

All
correspondence to any Purchaser shall be sent to such Purchaser at the address
set forth in Exhibit A.

 

(b)           Any
entity may change the address to which correspondence to it is to be addressed
by ten (10) days advance written notification as provided for herein.

 

10.6         Captions.  The captions and paragraph headings of this
Agreement are solely for the convenience of reference and shall not affect its
interpretation.

 

10.7         Severability.  Should any part or provision of this
Agreement be held unenforceable or in conflict with the applicable laws or
regulations of any jurisdiction, the invalid or unenforceable part or
provisions shall be replaced with a provision which accomplishes, to the extent
possible, the original business purpose of such part or provision in a valid
and enforceable manner, and the remainder of this Agreement shall remain
binding upon the parties hereto.

 

10.8         Governing Law; Injunctive Relief.

 

(a)           This
Agreement shall be governed by and construed in accordance with the internal and
substantive laws of the State of California and without regard to any conflicts
of laws concepts which would apply the substantive law of some other
jurisdiction.

 

(b)           Each of
the parties hereto acknowledges and agrees that damages will not be an adequate
remedy for any material breach or violation of the Operative Agreements if such
material breach or violation would cause immediate and irreparable harm (an “Irreparable Breach”).  Accordingly, in the event of a threatened or
ongoing Irreparable Breach, each party hereto shall be entitled to seek
equitable relief of a kind appropriate in light of the nature of the ongoing or
threatened Irreparable Breach, which relief may include, without limitation,
specific performance or injunctive relief; provided,
however, that if the party bringing such action is unsuccessful in
obtaining the relief sought, the moving party shall pay the non-moving party’s
reasonable costs, including attorney’s fees, incurred in connection with
defending such action.  Such remedies shall
not be the parties’ exclusive remedies, but shall be in addition to all other
remedies provided in this Agreement.

 

10.9         Amendments. This Agreement may not be
amended or modified, and no rights or provisions may be waived, except pursuant
to an instrument in writing

 

33

 

signed by the Company and the Majority Purchasers; provided, however, that this Agreement may
not be amended or modified, and no rights or provisions may be waived, in any
way that materially adversely affects the rights and/or obligations of any
Purchaser under this Agreement in a manner materially different from the manner
in which it affects the rights and/or obligations of the other Purchasers
without the written consent of such adversely affected party. The Company shall
give prompt written notice of any amendment, modification or waiver hereof to
any party hereto that did not consent in writing to such amendment,
modification or waiver. Any amendment, modification or waiver effected in
accordance with this Section 10.9 shall be binding on all parties hereto,
even if they do not execute such consent.

 

10.10       Waiver. 
No waiver of any term, provision or condition of this Agreement, whether
by conduct or otherwise, in any one or more instances, shall be deemed to be,
or be construed as, a further or continuing waiver of any such term, provision
or condition or as a waiver of any other term, provision or condition of the
Operative Agreements.

 

10.11       Expenses. 
Each party will bear its own costs and expenses in connection with this
Agreement; provided, however that
the Company shall reimburse reasonably documented legal, due diligence and
other fees and expenses incurred by the Purchasers in connection with the
transaction described in this Agreement (not to exceed the total amount agreed
to between the Company and such counsel).

 

10.12       Assignment.  The rights and obligations of the parties
hereto shall inure to the benefit of and shall be binding upon the authorized
successors and permitted assigns of each party. 
No party may assign its rights or obligations under this Agreement or
designate another person (i) to perform all or part of its obligations
under this Agreement or (ii) to have all or part of its rights and
benefits under this Agreement, in each case without the prior written consent
of the Company, provided, however,
that a Purchaser may assign its rights hereunder with respect to any Securities
transferred pursuant to and in compliance with Section 6 of this
Agreement, and may designate such transferee to perform the duties of the
Purchaser hereunder with respect to such transferred Securities; provided, further that irrespective of
such transfer and designation the Purchaser shall remain obligated hereunder
with respect to all of such Purchaser’s purchased Securities.  In the event of any assignment in accordance
with the terms of this Agreement, the assignee shall specifically assume and be
bound by the provisions of the Agreement by executing and agreeing to an
assumption agreement reasonably acceptable to the Company.

 

10.13       Counterpart. This Agreement may be
executed in two or more counterparts, each of which shall be deemed an original
and all of which together shall constitute one instrument. A facsimile,
photocopy or other reproduction of this Agreement may be executed by one or
more parties hereto and delivered by such party by facsimile or any similar
electronic transmission device pursuant to which the signature of or on behalf
of such party can be seen. Such execution and delivery shall be considered
valid, binding and effective for all purposes. 
At the request of any party hereto, all

 

34

 

parties hereto agree to execute and deliver an original of this
Agreement as well as any facsimile, photocopy or other reproduction hereof.

 

10.14       Entire Agreement.  The Operative Agreements constitute the
entire agreement between the parties hereto respecting the subject matter
hereof and supersede all prior agreements, negotiations, understandings,
representations and statements respecting the subject matter hereof, whether
written or oral.  No modification,
alteration, waiver or change in any of the terms of the Operative Agreements
shall be valid or binding upon the parties hereto unless made in writing and
duly executed by the Company and the Majority Purchasers.

 

10.15       Waiver of Conflicts.  Each party to this Agreement acknowledges
that Cooley, outside general counsel to the Company, has in the past performed
and is or may now or in the future represent one or more Purchasers or their
affiliates in matters unrelated to the transactions contemplated by this
Agreement (the “Financing”),
including representation of such Purchasers or their affiliates in matters of a
similar nature to the Financing.  The
applicable rules of professional conduct require that Cooley inform the
parties hereunder of this representation and obtain their consent.  Cooley has served as outside general counsel
to the Company and has negotiated the terms of the Financing solely on behalf
of the Company.  The Company and each
Purchaser hereby (a) acknowledge that they have had an opportunity to ask
for and have obtained information relevant to such representation, including
disclosure of the reasonably foreseeable adverse consequences of such
representation; (b) acknowledge that with respect to the Financing, Cooley
has represented solely the Company, and not any Purchaser or any stockholder,
director or employee of the Company or any Purchaser; and (c) gives its
informed consent to Cooley’s representation of the Company in the Financing.

 

10.16       Independent Nature of Purchasers’ Obligations
and Rights. The obligations of each Purchaser under this Agreement are
several and not joint with the obligations of any other Purchaser, and no
Purchaser shall be responsible in any way for the performance of the
obligations of any other Purchaser under this Agreement. Nothing contained
herein, and no action taken by any Purchaser, 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 transaction
contemplated hereby. Each Purchaser shall be entitled to independently protect
and enforce its rights, including without limitation the rights arising out of
this Agreement, and it shall not be necessary for any other Purchaser to be
joined as an additional party in any proceeding for such purpose.

 

10.17       Use of Proceeds.  The Company agrees that all proceeds from the
sale of the Shares and the Warrants pursuant to this Agreement shall be used
only for working capital and other corporate/operational purposes of the
Company; provided, however, that
the Company shall be permitted to use such proceeds to make required payments
on the Company’s outstanding indebtedness on the Effective Date as disclosed in
the SEC Documents.

 

35

 

[SIGNATURE PAGE TO FOLLOW]

 

36

 

IN
WITNESS WHEREOF, the parties hereto have executed this
SECURITIES PURCHASE AGREEMENT as
of the day and year first above written.

 

 

	
   

  	
  AFFYMAX, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  Paul B. Cleveland

  
	
   

  	
  Name: Paul
  B. Cleveland

  
	
   

  	
  Title:
   Chief Financial Officer

  

 

 

IN
WITNESS WHEREOF, the parties hereto have executed this
SECURITIES PURCHASE AGREEMENT as
of the day and year first above written.

 

	
   

  	
  PURCHASER:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Sprout
  Entrepreneurs Fund, L.P.

  
	
   

  	
  [Print Full Name of Entity]

  
	
   

  	
   

  
	
   

  	
  By: 

  	
    /s/
  Craig Slutzkin

  
	
   

  	
  Name: Craig
  Slutzkin

  
	
   

  	
  Title:
  Attorney in Fact for DLJ Capital Corp.,

  its General Partner

  
	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
  c/o New Leaf Venture Partners

  
	
   

  	
  7 Times Square, Suite 1603

  
	
   

  	
  New York, NY 10036

  
	
   

  	
  Facsimile:
  (646) 871-6450

  

 

 

IN
WITNESS WHEREOF, the parties hereto have executed this
SECURITIES PURCHASE AGREEMENT as
of the day and year first above written.

 

	
   

  	
  PURCHASER:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Sprout
  Capital IX, L.P.

  
	
   

  	
  [Print Full Name of Entity]

  
	
   

  	
   

  
	
   

  	
  By: 

  	
    /s/
  Craig Slutzkin

  
	
   

  	
  Name: Craig
  Slutzkin

  
	
   

  	
  Title:
  Attorney in Fact for DLJ Capital Corp.,

  its Managing General Partner

  
	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
  c/o New Leaf Venture Partners

  
	
   

  	
  7 Times Square, Suite 1603

  
	
   

  	
  New York, NY 10036

  
	
   

  	
  Facsimile:
  (646) 871-6450

  

 

 

IN
WITNESS WHEREOF, the parties hereto have executed this
SECURITIES PURCHASE AGREEMENT as
of the day and year first above written.

 

	
   

  	
  PURCHASER:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Sprout IX
  Plan Investors, L.P.

  
	
   

  	
  [Print Full Name of Entity]

  
	
   

  	
   

  
	
   

  	
  By: 

  	
    /s/
  Craig Slutzkin

  
	
   

  	
  Name: Craig
  Slutzkin

  
	
   

  	
  Title:
  Attorney in Fact for DLJ LBO Plans

  Management Corp., its General Partner

  
	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
  c/o New Leaf Venture Partners

  
	
   

  	
  7 Times Square, Suite 1603

  
	
   

  	
  New York, NY 10036

  
	
   

  	
  Facsimile:
  (646) 871-6450

  

 

 

IN
WITNESS WHEREOF, the parties hereto have executed this
SECURITIES PURCHASE AGREEMENT as
of the day and year first above written.

 

	
   

  	
  PURCHASER:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  DLJ Capital
  Corporation

  
	
   

  	
  [Print Full Name of Entity]

  
	
   

  	
   

  
	
   

  	
  By: 

  	
    /s/
  Craig Slutzkin

  
	
   

  	
  Name: Craig
  Slutzkin

  
	
   

  	
  Title:
  Attorney in Fact

  
	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
  c/o NLV Partners

  
	
   

  	
  7 Times Square, Suite 1603

  
	
   

  	
  New York, NY 10036

  
	
   

  	
  Facsimile: (646)
  871-6420

  

 

 

Exhibit A

 

SCHEDULE
OF PURCHASERS

 

	
  Purchaser Name and Address

  	
   

  	
  Number of

  Shares to be

  Purchased

  	
   

  	
  Number of

  Warrant Shares to

  be Purchased under

  Warrants

  	
   

  	
  Aggregate

  Purchase Price

  
	
  Sprout
  Entrepreneurs Fund, L.P.

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  c/o New Leaf Venture
  Partners

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7 Times Square,
  Suite 1603

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  New York, NY 10036

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Attn: Craig Slutzkin

  	
   

  	
  2,394

  	
   

  	
  1,557

  	
   

  	
  $

  	
   36,703.13

  
	
  Sprout
  Capital IX, L.P.

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  c/o New Leaf Venture
  Partners

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7 Times Square,
  Suite 1603

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  New York, NY 10036

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Attn: Craig Slutzkin

  	
   

  	
  607,440

  	
   

  	
  394,836

  	
   

  	
  $

  	
   9,312,814.50

  
	
  Sprout IX
  Plan Investors, L.P.

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  c/o New Leaf Venture
  Partners

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7 Times Square,
  Suite 1603

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  New York, NY 10036

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Attn: Craig Slutzkin

  	
   

  	
  35,065

  	
   

  	
  22,792

  	
   

  	
  $

  	
  537,590.25

  
	
  DLJ Capital Corporation

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  c/o New Leaf Venture
  Partners

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7 Times Square,
  Suite 1603

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  New York, NY 10036

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Attn: Craig Slutzkin

  	
   

  	
  7,363

  	
   

  	
  4,786

  	
   

  	
  $

  	
   112,884.00

  

 

 

Exhibit B

 

 

 

Exhibit C

 

FORM OF LEGAL OPINION

 

March     ,
2009

 

To
the Purchasers Set Forth on Schedule A Hereto

 

RE:         Affymax, Inc.

 

Ladies and
Gentlemen:

 

We have acted
as counsel for Affymax, Inc., a Delaware corporation (the “Company”), in
connection with the issuance and sale of 652,262 shares of the Company’s common
stock (the “Common
Stock”),
$0.001 par value per share (the “Shares”), and warrants (the “Warrants”) to
purchase up to 423,971 shares of the Common Stock (the “Warrant Shares,” and,
collectively with the Shares and Warrants, the “Securities”), to the Purchasers under
the Securities Purchase Agreement dated as of February 13, 2009 (the “Purchase  Agreement”).  We are rendering this opinion pursuant to Section 5.1(k) of
the Purchase Agreement.  Except as otherwise
defined herein, capitalized terms used but not defined herein have the
respective meanings given to them in the Purchase Agreement.

 

In connection
with this opinion, we have examined and relied upon the representations and
warranties as to factual matters contained in and made pursuant to the Purchase
Agreement by the various parties and originals or copies certified to our
satisfaction, of such records, documents, certificates, opinions, memoranda and
other instruments as in our judgment are necessary or appropriate to enable us
to render the opinion expressed below. 
As to certain factual matters, we have relied upon certificates of
officers of the Company and have not sought to independently verify such matters.

 

In rendering
this opinion, we have assumed: (i) the authenticity of all documents
submitted to us as originals; (ii) the conformity to originals of all
documents submitted to us as copies; (iii) the accuracy, completeness and
authenticity of certificates of public officials; (iv) the due
authorization, execution and delivery of all documents (except the due
authorization, execution and delivery by the Company of the Purchase Agreement
and the Warrants (together, the “Transaction  Documents”)), where authorization,
execution and delivery are prerequisites to the effectiveness of such
documents; and (v) the genuineness and authenticity of all signatures on
original documents (except the signatures on behalf of the Company on the
Transaction Documents). We have also assumed: that all individuals executing
and delivering documents had the legal capacity to so execute and deliver; that
the Transaction Documents are obligations binding upon the parties thereto
other than the Company; that the parties to the Transaction Documents other
than the Company have filed any required California franchise or income tax
returns and have paid any required California franchise or income taxes; and
that there are no extrinsic agreements or understandings among the parties to
the Transaction Documents or to the Material Agreements (as defined below) that
would modify or interpret the terms of any of the Transaction Documents or the
respective rights or obligations of the parties thereunder.

 

Our opinion is
expressed only with respect to the federal laws of the United States of America
and the laws of the State of California and the General Corporation Law of the
State of Delaware. We express no opinion as to whether the laws of any
particular jurisdiction would apply and no opinion to the

 

 

extent that
the laws of any jurisdiction other than those identified above are applicable
to the subject matter hereof or any liquidated damages provisions in the
Purchase Agreement.

 

We are not
rendering any opinion as to any statute, rule, regulation, ordinance, decree or
decisional law relating to antitrust, banking, land use, environmental,
pension, employee benefits, tax, fraudulent conveyance, usury, laws governing
the legality of investments for regulated entities, Regulations T, U or X of
the Board of Governors of the Federal Reserve System, any law, rules or
regulations relating to the United States Food and Drug Administration or any
other federal, state or foreign agencies or bodies engaged in the regulation of
pharmaceuticals or the bylaws, rules or regulations of the Financial
Industry Regulatory Authority, Inc. (“FINRA”). 
Furthermore, we express no opinion with respect to compliance with
antifraud laws, rules or regulations relating to securities or the offer
and sale thereof; compliance with fiduciary duties by the Company’s Board of
Directors or stockholders; compliance with safe harbors for disinterested Board
of Director or stockholder approvals; compliance with state securities or blue
sky laws except as specifically set forth below; or compliance with laws that
place limitations on corporate distributions.

 

With regard to
our opinion in paragraph 1 below with respect to the good standing and due
qualification of the Company, we have relied solely upon certificates of the
Secretaries of State of the indicated jurisdictions as of a recent date and a
certificate from the California Franchise Tax Board as of a recent date.

 

With regard to
our opinion in paragraph 4 below with respect to securities of the Company to
be issued after the date hereof, we express no opinion to the extent that,
notwithstanding its current reservation of shares of Common Stock, future
issuance of securities of the Company and/or antidilution adjustments to
outstanding securities of the Company cause the Warrants to be exercisable for
more shares of Common Stock than the number that then remain authorized but
unissued.

 

With regard to
our opinion in paragraph 5 below concerning defaults under and any material
breaches of any Material Agreement, we have relied solely upon an examination
of the contracts identified in the list attached hereto as Schedule B (the “Material  Agreements”), in the
form provided to us by the Company.  We
have made no further investigation. 
Further, with regard to our opinion in paragraph 5 below concerning
Material Agreements, we express no opinion as to (i) financial covenants
or similar provisions therein requiring financial calculations or
determinations to ascertain compliance, (ii) provisions therein relating
to the occurrence of a “material adverse event” or words of similar import or (iii) any
statement or writing that may constitute parol evidence bearing on
interpretation or construction.  We have
assumed that the Material Agreements are enforceable against the parties
thereto in accordance with their respective terms.  To the extent that laws other than those of
California govern any of the Material Agreements, we have also assumed that the
Material Agreements would be interpreted in accordance with their plain
meaning.

 

With regard to
our opinion in paragraph 7 below, we have assumed the following: (a) that
the representations made by each Purchaser in the Purchase Agreement are true
and correct; and (b) that neither the Company nor any person acting on
behalf of the Company has offered or sold the Securities by any form of general
solicitation or general advertising within the meaning of Rule 502(c) of
Regulation D promulgated under the Securities Act.

 

With regard to
our opinion in paragraph 7 concerning exemption from registration, our opinion
is expressed only with respect to the offer and sale of the Shares and Warrants
without regard to any offers or sales of other securities occurring prior to or
subsequent to the date hereof.

 

 

With regard to
our opinion in paragraph 8 below, we have based our opinion, to the extent we
consider appropriate, on Rule 3a-8 under the Investment Company Act of
1940, as amended, and a certificate of an officer of the Company as to
compliance with each of the requirements necessary to comply with Rule 3a-8.  We have conducted no further investigation.

 

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

 

1.             The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has all corporate power and authority necessary to own and
lease its properties and to conduct its business as it is currently being
conducted. The Company is qualified to do business as a foreign corporation and
is in good standing in California.

 

2.             The Company has the requisite
corporate power to execute, deliver and perform its obligations under the
Transaction Documents.

 

3.             All corporate action on the part of
the Company necessary for the authorization, execution and delivery of the
Transaction Documents by the Company and the authorization, sale, issuance and
delivery of the Securities has been taken. Each of the Transaction Documents
has been duly and validly authorized, executed and delivered by the Company and
each such agreement constitutes a valid and binding agreement of the Company
enforceable against the Company in accordance with its respective terms, except
that we express no opinion as to the validity of rights to indemnity and
contribution under Sections 7.3 and 9 of the Purchase Agreement and except as
such enforceability may be limited by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, arrangement, moratorium or other similar
laws affecting creditors’ rights generally, and subject to general equity
principles and to limitations on availability of equitable relief, including
specific performance.

 

4.             The Shares have been duly
authorized, and upon issuance and delivery against payment therefor in
accordance with the terms of the Purchase Agreement, the Shares will be validly
issued, outstanding, fully paid and nonassessable.  The Warrant Shares, when issued upon exercise
of the Warrants in accordance with their terms, will be validly issued, fully
paid and nonassessable. The issuance and sale of the Shares and the Warrants is
not subject to any preemptive right under (i) the Delaware General
Corporation Law, (ii) the Company’s Certificate of Incorporation or
Bylaws, or (iii) any of the Material Agreements.

 

5.             The execution and delivery of the
Transaction Documents, and the issuance of the Shares and the Warrants pursuant
thereto, do not violate any provision of the Company’s Certificate of
Incorporation or Bylaws, do not constitute a default under or a material breach
of any Material Agreement and do not violate (a) any governmental statute,
rule or regulation which in our experience is typically applicable to
transactions of the nature contemplated by the Transaction Documents or (b) any
order, writ, judgment, injunction, decree, determination or award which has
been entered against the Company and of which we are aware.

 

6.             All consents, approvals,
authorizations, or orders of, and filings, registrations, and qualifications
with any U.S. Federal or California regulatory authority or governmental body
required for the issuance of the Shares and Warrants, have been made or
obtained, except (a) for the filing of a Form D pursuant to
Securities and Exchange Commission Regulation D, and (b) for the filing of
the notice to be filed under California Corporations Code Section 25102.1(d).

 

 

7.             The offer and sale of the Shares
and Warrants are exempt from the registration requirements of the Securities
Act of 1933, as amended.

 

8.             The Company is not, and, after
giving effect to the offering and sale of the Shares and the application of the
proceeds thereof, will not be an “investment company,” as that term is defined
in the Investment Company Act of 1940, as amended.

 

[Signature Page Follows]

 

 

This opinion
is intended solely for your benefit and is not to be made available to or be
relied upon by any other person, firm, or entity without our prior written
consent.

 

Very truly
yours,

 

	
  COOLEY GODWARD KRONISH LLP

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Laura A. Berezin, Esq.

  	
   

  

 

 

SCHEDULE A

 

PURCHASERS

 

Sprout
Entrepreneurs Fund, L.P.

 

Sprout Capital
IX, L.P.

 

Sprout IX Plan
Investors, L.P.

 

DLJ Capital
Corporation

 

 

SCHEDULE B

 

MATERIAL AGREEMENTS

 

Amended and
Restated Investor Rights Agreement, dated September 7, 2006

 

Form of
Indemnity Agreement between the Company and each of its officers and directors

 

2001 Stock
Option/Stock Issuance Plan

 

2006 Employee
Stock Purchase Plan

 

Employment
Agreement, dated June 10, 2003, by and between the Company and Arlene M.
Morris

 

Executive
Employment Agreement, dated November 17, 2005, by and between the Company
and Paul B. Cleveland

 

Executive
Employment Agreement, dated July 21, 2007, by and between the Company and
Steven Love

 

Research and
Development/Office Lease, dated May 30, 1990, by and between Miranda
Associates and Affymax Research Institute

 

First
Amendment to Lease, dated November 16, 1999, by and between Spieker
Properties, L.P., successor in interest to Miranda Associates, and Affymax
Research Institute

 

Second
Amendment to Lease, dated December 20, 1999, by and between Spieker Properties, L.P.
and Affymax Research Institute

 

Third
Amendment, dated December 31, 2001, by and between EOP-Foothill Research
Center, L.L.C., successor by merger to Spieker Properties L.P., and the
Company

 

EPO Receptor
License Agreement, dated September 5, 1996, by and between the Company and
Genetics Institute, Inc.

 

License
Agreement (Therapeutic Products), dated June 28, 1996, by and between the
Company, Dyax Corp. and Protein Engineering Corporation

 

License
Agreement, dated July 25, 2001, by and between the Company and Dyax Corp.

 

License
Agreement, dated July 27, 2001, by and between the Company, Glaxo Group
Limited, SmithKline Beecham Corporation, Affymax N.V., Affymax Research
Institute and Affymax Technologies N.V.

 

License
Agreement, dated August 13, 2001, by and between the Company and XOMA
Ireland Limited

 

License,
Manufacturing, and Supply Agreement, dated April 8, 2004, by and between
the Company and Nektar Therapeutics AL, Corporation

 

 

Collaboration
and License Agreement, dated February 13, 2006, by and between the Company
and Takeda Pharmaceutical Company Limited

 

Collaboration
and License Agreement, dated June 27, 2006, by and between the Company and
Takeda Pharmaceutical Company Limited

 

Research and
Development Agreement, dated April 2, 1992, by and between the Company and
The R.W. Johnson Pharmaceutical Research Institute

 

Sublease
Agreement, dated September 1, 2006, by and between the Company and TIBCO
Software Inc.

 

First
Amendment to Collaboration and License Agreement, dated April 1, 2007, by
and between Company and Takeda Pharmaceutical Company Limited

 

Fourth
Amendment to Lease, dated November 30, 2006, by and between Company and
CA-Foothill Research Center L.P.

 

Second
Amendment to Collaboration and License Agreements between Company and Takeda
Pharmaceutical Company Limited effective January 1, 2008Exhibit 4.1

 

NEITHER THIS SECURITY NOR ANY SECURITIES INTO
WHICH THIS SECURITY IS CONVERTIBLE HAS BEEN REGISTERED WITH THE U.S. SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY U.S. STATE OR OTHER
JURISDICTION OR ANY EXCHANGE OR SELF-REGULATORY ORGANIZATION, IN RELIANCE UPON
EXEMPTIONS FROM REGISTRATION UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED,
AND SUCH OTHER LAWS AND REQUIREMENTS, AND, ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR LISTING OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
SUCH REGISTRATION AND/OR LISTING REQUIREMENTS AS EVIDENCED BY A LEGAL OPINION
OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH WILL BE
REASONABLY ACCEPTABLE TO THE ISSUER.

 

	
  ASPYRA, INC.

  
	
   

  	
   

  	
   

  
	
  SECURED, CONVERTIBLE PROMISSORY NOTE

  
	
   

  
	
  $                           

  	
   

  	
  February 12, 2009

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Calabasas, California

  

 

FOR VALUE RECEIVED,
and upon and subject to the terms and conditions set forth herein, Aspyra, Inc.,
a California corporation (“Issuer”),
hereby promises to pay to the order of                                              ,
a                                   
(together with its permitted successors and assigns, “Holder”),
the principal sum of                                     
UNITED STATED DOLLARS (U.S. $                       )
on the Maturity Date, together with interest as provided herein.  This Note was issued under and is subject to
a Securities Purchase Agreement (the “Purchase Agreement”)
dated as of February 12, 2009 among Issuer, payee and certain other
parties.  Capitalized terms used and not
otherwise defined herein will have the respective meanings given to such terms
in the Purchase Agreement.

 

1.             Maturity
Date.  This
Note will mature, and be due and payable in full, on March 26, 2010 (the “Maturity Date”), unless Holder has elected
to convert this Note pursuant to Section 3 hereof.

 

2.             Interest.  From and after the date hereof, all
outstanding principal of this Note will bear interest at the rate of twelve
percent (12%) per annum. Outstanding interest shall be compounded on each July 15
and January 15 during which any interest on this Note shall be
outstanding. Upon the occurrence and during the continuance of any Event of
Default (as hereinafter defined) under this Note, all outstanding principal of
this Note shall bear interest at the rate of 24% per annum. All accrued
interest on this Note shall be payable on the Maturity Date or on such earlier
date as this Note shall be prepaid or converted into Common Stock.

 

 

3.             Optional
Conversion of the Note.

 

3.1          By
Holder.  At any time prior to repayment of this Note,
Holder may elect, in lieu of repayment, to convert all or a portion of the
outstanding principal and/or interest on this Note into that number of shares
of Common Stock (as defined in the Purchase Agreement) equal to the quotient
obtained by dividing (a) 100.0% of the amount of principal and/or interest
on this Note being converted, by (b) the Conversion Price (as hereinafter
defined).  Holder will inform Issuer of
such election at least 14 days prior to the date the Note or portion thereof is
converted into Common Stock.  If Holder
delivers such notice to Issuer, Issuer may not elect to pay to Holder the
amount of this Note to be converted without Holder’s written consent. For
purposes of this Note, “Conversion Price” will initially mean $.31 per share.
The Conversion Price will be subject to adjustment as provided in Section 3.3.
The Holder shall effect conversions by delivering to the Issuer a Notice
of Conversion, the form of which is attached hereto as Annex A (a “Notice
of Conversion”), specifying therein the principal amount of this Note to be
converted and the date on which such conversion shall be effected (such date,
the “Conversion Date”), provided that such date is on or after the date
of delivery of the Notice of Conversion. 
If no Conversion Date is specified in a Notice of Conversion, or the
stated conversion date is prior to date of delivery of the Notice of Conversion,
the Conversion Date shall be the date that such Notice of Conversion is deemed
delivered hereunder.  To effect
conversions hereunder, the Holder shall not be required to physically surrender
this Note to the Issuer unless the entire principal amount of this Note, plus
all accrued and unpaid interest thereon, has been so converted. Conversions
hereunder shall have the effect of lowering the outstanding principal amount of
this Note in an amount equal to the applicable conversion.  The Holder and the Issuer shall maintain
records showing the principal amount(s) converted and the date of such
conversion(s).  The Issuer may deliver an
objection to any Notice of Conversion within 1 Business Day of delivery of such
Notice of Conversion.  The Holder, and
any assignee by acceptance of this Note, acknowledge and agree that, by reason
of the provisions of this paragraph, following conversion of a portion of this
Note, the unpaid and unconverted principal amount of this Note may be less than
the amount stated on the face hereof.

 

3.2          By Issuer.  At any time after August 30, 2009, but prior
to repayment of this Note, if the
volume weighted average price of the Common Stock on the NYSE Alternext exceeds
200% of the Conversion Price then in effect during each day for twenty
consecutive trading days or more (whether or not such volume weighted average
for any day thereafter is 200% or less of the Conversion Price then in effect),
then Issuer may give notice to Holder of its election to convert all or a
portion of the outstanding principal of, but not any outstanding interest on,
this Note into the same number of shares of Common Stock as would be calculated
pursuant to Section 3.1 above in the case of an optional conversion by
Holder.  Upon conversion, Issuer will pay
any outstanding interest on this Note in cash to Holder.  Any
notice of conversion will be delivered at least 15 days prior to the date of
such conversion and the Conversion Price used in calculating the number of
shares of Common Stock to be issued to Holder will be the Conversion Price on
the date of the actual conversion (which will be the first date on which Holder
becomes fully vested with all rights of such holders of shares of Common
Stock). To effect conversions hereunder, the Holder shall not be
required to physically surrender this Note to the Issuer unless the entire
principal amount of this Note, plus all accrued and unpaid interest thereon,
has been so converted. Conversions hereunder shall have the effect of lowering
the 

 

 

outstanding principal amount of
this Note in an amount equal to the applicable conversion.  The Holder and the Issuer shall maintain
records showing the principal amount(s) converted and the date of such
conversion(s).  The Issuer may deliver an
objection to any Notice of Conversion within 1 Business Day of delivery of such
Notice of Conversion.  The Holder, and
any assignee by acceptance of this Note, acknowledge and agree that, by reason
of the provisions of this paragraph, following conversion of a portion of this
Note, the unpaid and unconverted principal amount of this Note may be less than
the amount stated on the face hereof.

 

3.3          Adjustments.

 

(a)           Stock
Dividends, Reclassifications, Recapitalizations, Etc.  In the event the Issuer:  (i) pays a dividend in Common Stock or
makes a distribution in Common Stock, (ii) subdivides its outstanding
Common Stock into a greater number of shares, (iii) combines its
outstanding Common Stock into a smaller number of shares or (iv) increases
or decreases the number of shares of Common Stock outstanding by
reclassification of its Common Stock (including a recapitalization in
connection with a consolidation or merger in which the Issuer is the continuing
corporation), then the Conversion Price on the record date of such division
or distribution or the effective date of such action shall be adjusted by
multiplying such Conversion Price by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately before such event and
the denominator of which is the number of shares of Common Stock outstanding
immediately after such event.

 

(b)           Notice
of Adjustment.  Whenever the
Conversion Price is adjusted, as herein provided, the Issuer shall deliver to
the holders of the Note in a certificate of the Issuer’s Chief Financial
Officer setting forth, in reasonable detail, the event requiring the adjustment
and the method by which such adjustment was calculated (including a description
of the basis on which (i) the Board of Directors determined the fair value
of any evidences of indebtedness, other securities or property or warrants,
options or other subscription or purchase rights and specifying the Conversion
Price after giving effect to such adjustment.

 

(c)           Notice
of Certain Transactions.  In the
event that the Issuer shall propose (i) to pay any dividend payable in
securities of any class to the holders of its Common Stock or to make any other
non-cash dividend or distribution to the holders of its Common Stock, (ii) to
offer the holders of its Common Stock rights to subscribe for or to purchase
any securities convertible into shares of Common Stock or shares of stock of
any class or any other securities, rights or options, (iii) to effect any
capital reorganization, reclassification, consolidation or merger affecting the
class of Common Stock, as a whole, or (iv) to effect the voluntary or
involuntary dissolution, liquidation or winding-up of the Issuer, the Issuer
shall, within the time limits specified below, send to each Holder a notice of
such proposed action or offer.  Such
notice shall be mailed to the Holders at their addresses as they appear in the
records of the Issuer, which shall specify the record date for the purposes of
such dividend, distribution or rights, or the date such issuance or event is to
take place and the date of participation therein by the holders of Common
Stock, if any such date is to be fixed, and shall briefly indicate the effect
of such action on the Common Stock and the Conversion Price Such notice shall
be given as promptly as possible and (x) in the case of any action covered
by clause (i) or (ii) above, at least ten (10) days prior to the
record date for determining holders of the Common Stock for purposes of such
action or (y) in the case of any other such action, at least twenty (20)
days prior to the date of the taking of such proposed action or the date of
participation therein by the holders of Common Stock, whichever shall be the
earlier.

 

 

3.4          No Rights as a Shareholder.  Without limiting any rights that Holder is
entitled to under the Purchase Agreement, and if this Note has not been
converted, Holder will not be entitled to any voting or other rights as a
shareholder of Issuer in connection with this Note.

 

[The following clause is optional at the request of the Purchaser of
this Note, with the choice between 4.99% and 9.99% being at the option of the
Purchaser.]

 

3.5          Limitation on Beneficial Ownership. 
 Issuer will not effect and will have no obligation to effect any
conversion of this Note, and the Holder will have no right to convert any
portion of this Note, to the extent that after giving effect to such
conversion, the beneficial owner of such shares (together with such person’s
affiliates) would have acquired, through conversion of this Note or otherwise,
beneficial ownership of a number of shares of Common Stock that exceeds [4.99%
/ 9.99%] (“Maximum Percentage”) of
the number of shares of Common Stock outstanding immediately after giving
effect to such conversion.    For purposes of the foregoing
sentence, the number of shares of Common Stock beneficially owned by a person
and its affiliates shall include the number of shares of Common Stock issuable
upon conversion of this Note with respect to which the determination of such
sentence is being made, but shall exclude the number of shares of Common Stock
which would be issuable upon (A) conversion of the remaining, nonconverted
portion of this Note beneficially owned by such person or any of its affiliates
and (B) exercise or conversion of the unexercised or unconverted portion
of any other securities of Issuer (including, without limitation, any Warrants)
subject to a limitation on conversion or exercise analogous to the limitation
contained herein beneficially owned by such person or any of its
affiliates.  Except as set forth in the preceding sentence, for purposes
of this Section 3.5, beneficial ownership will be calculated in accordance
with Section 13(d) of the Exchange Act.  For purposes of this Section 3.5,
in determining the number of outstanding shares of Common Stock, a Holder may
rely on the number of shares of outstanding Common Stock as reflected in (1) Issuer’s
most recent Form 8-K, Form 10-Q, Form 10-QSB, Form 10-K or Form 10-KSB
as the case may be, (2) a more recent public announcement by Issuer, or (3) any
other notice by Issuer or its transfer agent setting forth the number of shares
of Common Stock outstanding.  Upon the written request of any Holder,
Issuer will promptly, but in no event later than 2 business days following the
receipt of such notice, confirm orally and in writing to any such Holder the
number of shares of Common Stock then outstanding.  In any case, the
number of outstanding shares of Common Stock will be determined after giving
effect to conversions of Preferred Shares by such Holder and its affiliates
since the date as of which such number of outstanding Common Stock was
reported.  By written notice to Issuer, the Holder may increase or
decrease the Maximum Percentage to any other percentage not in excess of 9.99%
specified in such notice, but (i) any such increase will not be effective
until the sixty-first (61st) day after such notice is delivered to Issuer, and (ii) any
such increase or decrease will apply only to the Holder and not to any other
Holder.

 

3.6  Shareholder Approval 
 Unless and until
Shareholder Approval has been obtained and deemed effective, the Issuer shall
not upon the conversion of this Note issue shares of Common Stock to the extent
that such issuance, together with all previous issuances of Common Stock
pursuant to the exercise of all Warrants and the conversion of all Notes issued
pursuant to the Purchase Agreement, would in the aggregate exceed a number of
shares of Common Stock equal to more than 19.99% of the Issuer’s issued and
outstanding Common Stock on the Closing Date.

 

 

4.             Security.  Repayment of this Note is secured, pari passu with Holders of all other Notes issued pursuant
to the Purchase Agreement, by a security interest in substantially all the
assets of Issuer pursuant to a security agreement, related collateral
assignments and such other necessary documents entered into by Issuer in favor
of Jay Weil, as collateral agent for the purchasers.

 

5.             Prepayment.  Issuer may not prepay this Note prior to the
Maturity Date, without the written consent of Holder.

 

6.             Transfer.  Purchaser may transfer this Note in
compliance with applicable U.S. federal and state and/or foreign securities
laws and in accordance with Section 5.1 of the Purchase Agreement.

 

7.             Financial
Covenants. Until this Note has been redeemed or
otherwise satisfied in accordance with its terms the Issuer shall not, unless
the holders of Notes representing at least a majority of the aggregate
principal amount of the Notes then outstanding, shall otherwise consent in
writing, the Issuer shall comply with every financial covenant contained in the
Issuer’s loan agreements, notes and other documents with any person to which
the Issuer owes any Material Indebtedness, including, without limitation,
Western Commercial Bank.

 

8.             Events of Default.  An “Event of Default” will occur if:

 

(a)           The Issuer fails to
pay (a) any principal of any Note when such amount becomes due and payable
in accordance with the terms thereof and such payment is not made with three
Business Days of when it is due, or (b) any interest on any Note or any
other payment of money required to be made to any of the Purchaser and such
payment is not made within three Business Days of when it is due; or

 

(b)           Any representation
or warranty made to the Purchasers in any Transaction Document or in any
certificate, agreement or instrument executed and delivered to the Purchasers
by the Issuers or any of its subsidiaries or by its accountants or officers
pursuant to any Transaction Document is false, inaccurate or misleading in any
material respect on the date as of which made, and the Issuer receives notice
thereof from the Placement Agent, a Purchaser, or a third party; or

 

(c)           the Issuer or any of
its subsidiaries defaults in the performance of any term, covenant, agreement,
condition, undertaking or provision of any Transaction Document, including, but
not limited to, its covenants under Section 4.4 of the Purchase Agreement,
or any financial covenants set forth in or referred to in this Note, or, in the
case of any default in the performance of any term, covenant, agreement,
condition, undertaking or provision of any Transaction Document which is
capable of being cured, such default is not cured or waived within five (5) Business
Days after the Issuer receives notice of such default from the Placement Agent,
a Purchaser, or from a third party, or after an officer or director of the Issuer;
or

 

 

(d)           (i) the Issuer
or any of its subsidiaries fails to pay any principal of or interest on any of
its Material Indebtedness for a period longer than the grace period, if any, provided
for such payment; or (ii) any default, other than one described in (i) of
this Section 8(d), under any instrument or agreement evidencing, creating,
securing or otherwise relating to Material Indebtedness (including, without
limitation, any guaranty or assumption agreement relating to such indebtedness)
or other event occurs and continues beyond any applicable notice and cure
period (for purposes of this Note the term “Material Indebtedness” means mean
indebtedness, in an amount of $100,000  or
more, for borrowed money, under capitalized leases or evidenced by a bond,
debenture, note or similar instrument, and shall include, without limitation,
any such indebtedness assumed or guaranteed); or

 

(e)           (i) One or more
final judgments, decrees or orders shall be entered against the Issuer or any
of its subsidiaries involving in the aggregate a liability (not fully covered
by insurance other than applicable deductibles) of $75,000 or more and all such
judgments, decrees or orders shall not have been vacated, paid or discharged,
dismissed, or stayed or bonded pending appeal (or other contest by appropriate
proceedings) within sixty (60) days from the entry thereof; (ii) pursuant
to one (1) or more judgments, decrees, orders, or other proceedings,
whether legal or equitable, any warrant of attachment, execution or other writ
is levied upon any property or assets of the Issuer or any subsidiary and is
not satisfied, dismissed or stayed (or other contests by appropriate
proceedings without bond or stay) within sixty (60) days; (iii) all or any
substantial part of the assets or properties of the Issuer or any subsidiary are
condemned, seized or appropriated by any government or governmental authority;
or (iv) any order is entered in any proceeding directing the winding up,
dissolution or split-up of the Issuer or any subsidiary; or

 

(f)            The Issuer (i) commences
any case, proceeding or other action (A) under any existing or future law
of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief
entered with respect to it, or seeking to adjudicate it bankrupt or insolvent,
or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts, or (B) seeking
appointment of a receiver, trustee, custodian or other similar official for it
or for all or any substantial part of its assets, or (ii) is the debtor
named in any other case, proceeding or other action of a nature referred to in
clause (i) above which (A) results in the entry of an order for
relief or any such adjudication or appointment or (ii) remains
undismissed, undischarged or unbonded for a period of sixty (60) days, or (iii) takes
any action in furtherance of, or indicating its consent to, approval of, or
acquiescence to, any order, adjudication or appointment of a nature referred to
in clause (i) or (ii) above, or (iv) shall generally not be
paying, shall be unable to pay, or shall admit in writing its inability to pay
its debts as they become due, or (e) shall make a general assignment for
the benefit of its creditors; or

 

 

(g)           At
any time there occurs a Change of Control Transaction (for purposes of this
Note, a “Change of Control Transaction” shall mean (i) a sale, lease or
other disposition of assets or properties of the Issuer and it subsidiaries
(calculated on a consolidated basis) having a book value of fifty-one percent
(51%) or more of the book value of all the assets and properties thereof, or (ii) any
transaction in which any person shall directly or indirectly acquire from the
holders thereof, by purchase or in a merger, consolidation or other transfer or
exchange of outstanding capital stock, ownership of or control over capital
stock of the Issuer (or securities exchangeable for or convertible into such
stock or interests) entitled to elect a majority of the Issuer’s Board of
Directors or representing at least fifty-one percent (51%) of the number of shares
of Common Stock outstanding;

 

(h)           On
or at any time after the date of this Note (i) any of the Transaction
Documents for any reason, other than a partial or full release in accordance
with the terms thereof, ceases to be in full force and effect or is declared to
be null and void, (ii) the Security Agreement shall cease to provide the
Purchasers a valid security interest in any of the collateral purported to be
covered thereby, perfected and with the priority required thereby, subject only
to liens permitted under this Agreement and such Security Agreement, and such
default in clause (i) or (ii) is not cured or waived within ten (10) days
after the Issuer receives notice of such default from a Purchaser or from a
third party, or (c) the Issuer or any subsidiary of the Issuer contests
the validity or enforceability of any Transaction Document in writing or denies
that it has any further liability under any Transaction Document to which it is
party, or gives notice to such effect; or

 

(i)            Prior
to April 1, 2009, without the consent of the holders of a majority in
principal amount of all of the notes issued pursuant to the Purchase Agreement,
the Issuer does not extend or renew its line of credit with the Bank until at
least February 28, 2010 and upon terms substantially similar to the Issuer’s
existing agreement with the Bank.

 

9.             Remedies.  At such time that an Event of Default has
occurred and is continuing, then Holder, by written notice to Issuer (the “Notice”),
may declare all amounts hereunder immediately due and payable in cash and
Holder will be entitled to reimbursement of its reasonable costs and expenses
related to collection of all amounts owing in connection thereof.  Except for the Notice, Holder need not
provide, and Issuer hereby waives, any presentment, demand, protest or other
notice of any kind, and Holder may immediately and without expiration of any
grace period enforce any and all of its rights and remedies hereunder and all
other remedies available to it under applicable law. Such election may be
rescinded and annulled by Holder at any time prior to payment hereunder.  No such rescission or annulment will affect
any subsequent Event of Default or impair any right consequent thereon. In the
case of the occurrence of an Event of Default arising out of a breach by the
Issuer of the covenant contained in Section 4.4 of the Purchase Agreement
(but in no other event), in lieu of declaring all amounts immediately due
hereunder, each Purchaser, upon prior written notice to the Issuer, may sell to
the Issuer all of the Notes (or all shares of Common Stock issued to the
Purchaser upon conversion of the Notes) for a price equal to 125% of the
Subscription Price paid by the Purchaser. 
The sale referred to in the preceding sentence shall be consummated at a
closing to be held not later than ten (10) days after such notice is given
and the purchase price shall be paid by the Issuer to the Purchaser at such
closing in full in cash.

 

 

10.          Notices.  Any and all notices or other communications
or deliveries required or permitted to be provided hereunder will be in writing
and will be deemed given and effective on the earliest of (a) the date of
transmission if such notice or communication is delivered by fax prior to 5:30 p.m.
(Eastern Time) on a Business Day, (b) the next Business Day after the date
of transmission if such notice or communication is delivered via fax on a day
that is not a Business Day or later than 5:30 p.m. (Eastern Time) on a
Business Day, (c) the 2nd business day after 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
facsimile number and address for such notices and communications are as set
forth on the signature pages to the Purchase Agreement or as otherwise
notified by any party in a writing to the others in accordance herewith from
time to time.

 

 

SIGNED, SEALED AND DELIVERED
as of the date first above written.

 

	
   

  	
  ASPYRA, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
					

 

 

ANNEX
A

 

NOTICE OF CONVERSION

 

 

The undersigned hereby elects to convert principal under the Secured
Convertible Promissory Note due March 26, 2010 (the “Note”) of Aspyra, Inc.,
a California corporation (the “Company”), into shares of common stock, no par value per share (the “Common
Stock”), of the Company according to the conditions hereof, as of the date
written below.  If shares of Common Stock
are to be issued in the name of a person other than the undersigned, the
undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith.  No
fee will be charged to the holder for any conversion, except for such transfer
taxes, if any.

 

By the delivery of this Notice of Conversion the undersigned represents
and warrants to the Company that its ownership of the Common Stock does not
exceed the amounts specified under Section 3.6 of the Note, as determined
in accordance with Section 13(d) of the Exchange Act.

 

The undersigned agrees to comply with the prospectus delivery
requirements under the applicable securities laws in connection with any
transfer of the aforesaid shares of Common Stock.

 

	
  Conversion calculations:

  	
   

  
	
   

  	
  Date to Effect Conversion:

  
	
   

  	
   

  
	
   

  	
  Principal Amount of Note to be Converted:

  
	
   

  	
   

  
	
   

  	
  Payment of Interest in Common Stock o
  yes o no

  
	
   

  	
   

  
	
   

  	
  If yes $           of Interest Accrued on Account of Conversion at Issue.

  
	
   

  	
   

  
	
   

  	
  Number of shares of Common Stock to be issued:

  
	
   

  	
   

  
	
   

  	
  Signature:

  
	
   

  	
  Name:

  
	
   

  	
  Address:

  
	
   

  	
   

  
	
   

  	
  Or

  
	
   

  	
   

  
	
   

  	
  DWAC Instructions:

  
	
   

  	
  Broker No:                                 

  
	
   

  	
  Account No:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00153-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00153-of-00352.parquet"}]]