SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “ Agreement ”) is dated as of March 31, 2009, by and among Sunesis Pharmaceuticals, Inc., a Delaware corporation (the “ Company ”), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “ Purchaser ” and collectively, the “ Purchasers ”).

A.           The Company and each Purchaser are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Section 4(2) of the Securities Act of 1933, as amended, or any successor statute, and the rules and regulations promulgated thereunder (the “ Securities Act ”), and Rule 506 of Regulation D (“ Regulation D ”) as promulgated by the United States Securities and Exchange Commission (the “ Commission ”) under the Securities Act.

B.           The Company has authorized, upon the terms and conditions stated in this Agreement, (i) the sale and issuance of up to fifteen million dollars ($15,000,000) of units of the Company (each of which shall be referred to herein as a “ Unit ” and collectively as the “ Units ”), with each Unit consisting of (A) one share of the Series A Preferred Stock of the Company, par value $0.0001 per share (the “ Preferred Stock ”), and (B) one warrant (as amended, modified, restated or supplemented from time to time, each, a “ Warrant , ” and collectively, the “ Warrants ”) to purchase ten (10) shares of the common stock of the Company, par value $0.0001 per share (the “ Common Stock ”); and (ii) the sale and issuance of $28,500,000 of Common Stock at the Common Equity Closing (as hereinafter defined). Each share of Preferred Stock shall initially be convertible into ten (10) shares of Common Stock (collectively, the “ Conversion Shares ”), subject to adjustment in accordance with the terms of the Certificate of Designation (as hereinafter defined).  Each Purchaser’s subscription amount for each closing is as set forth on Schedule I hereto.

C.           The Company has adopted the Certificate of Designation (the “ Certificate of Designation ”) in substantially the form attached hereto as Exhibit A which, among other matters, establishes the rights, preferences and privileges of the Preferred Stock.

D.           At the First Unit Closing (as hereinafter defined), each Purchaser, severally and not jointly, wishes to purchase, and the Company wishes to sell, upon the terms and conditions stated in this Agreement, the number of Units as hereafter determined, with each Unit consisting of (i) one share of Preferred Stock (each a “ Unit Share ,” collectively, the “ Unit Shares ”), and (ii) a Warrant to purchase ten (10) shares of Common Stock (such amount being referred to herein as the “ Warrant Ratio ”) in substantially the form attached hereto as Exhibit B .  The shares of Common Stock issuable upon exercise of the Warrants, including, without limitation, all shares issuable as a result of any adjustments pursuant to Section 4 and Section 6 of the Warrants, are referred to herein as the “ Warrant Shares .”

E.           At the Second Unit Closing (as hereinafter defined), if any, each Purchaser, severally and not jointly, wishes to purchase, and the Company wishes to sell, upon the terms and conditions stated in this Agreement, the number of Units as hereafter determined, with each Unit consisting of (i) one Unit Share and (ii) a Warrant to purchase ten (10) shares of Common Stock.

F.           At the Common Equity Closing (as hereinafter defined), if any, each Purchaser, severally and not jointly, wishes to purchase, and the Company wishes to sell, upon the terms and conditions stated in this Agreement, the number of shares of Common Stock as hereafter determined.

G.           At the First Unit Closing, the parties hereto shall execute and deliver an Investor Rights Agreement, in substantially the form attached hereto as Exhibit C (as amended, modified, restated or supplemented from time to time, the “ Investor Rights Agreement ”), pursuant to which, among other things, the Company will agree to provide certain registration rights with respect to the Conversion Shares, the Warrant Shares and the Common Equity Shares (as hereinafter defined) under the Securities Act and the rules and regulations promulgated thereunder and applicable state securities laws and will agree to provide certain other rights to the Purchasers.

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

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

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

“ Aggregate Common Equity Closing Subscription Amount ” means $28,500,000.

“ Agreement ” shall have the meaning set forth in the Preamble to this Agreement.

“ Alternative Common Stock Financing ” means the issuance of shares of Common Stock with gross proceeds to the Company of at least an amount equal to $30,000,000   and at a per share purchase price equal to or greater than the Common Per Share Purchase Price.

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

“ Board Recommendation ” has the meaning set forth in Section 4.11(f).

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

“ California Courts ” means the state and federal courts sitting in the County of San Francisco, State of California.

“ Capital Stock ” means all shares, interests, participations or other equivalents (however designated and whether or not voting) of corporate stock.

“ Cash ” means unrestricted cash, unrestricted cash equivalents and unrestricted marketable securities.

“ Cash Balance Notice ” means a written notice delivered by the Company to the Lead Purchasers setting forth the Company’s Cash balance as of a given date, certified by the Company’s Chief Financial Officer.

“ Certificate of Designation ” has the meaning set forth in the Recitals to this Agreement.

“ Change in Recommendation ” has the meaning set forth in Section 4.11(d).

“ Charter Amendment ” has the meaning set forth in Section 5.5(f).

“ Closing ” means the First Unit Closing, the Second Unit Closing or the Common Equity Closing, as the context may require.

“ Closing Bid Price ” means, for any security as of any date, the last closing price for such security on the Principal Trading Market, as reported by Bloomberg, or, if the Principal Trading Market begins to operate on an extended hours basis and does not designate the closing bid price, then the last bid price of such security prior to 4:00 p.m., Eastern Time, as reported by Bloomberg, or, if the Principal Trading Market is not the principal securities exchange or trading market for such security, the last closing price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price is reported for such security by Bloomberg, the average of the bid prices of any market makers for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price of such security on such date shall be the fair market value as determined in good faith by the Board, in its sole discretion. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.

“ Commission ” has the meaning set forth in the Recitals to this Agreement.

“ Common Equity Closing ” means the closing of the purchase by the Purchasers and sale by the Company to such Purchasers of the Common Equity Shares pursuant to this Agreement on the Common Equity Closing Date as provided in Section 2.1(a)(iii) hereof.

“ Common Equity Closing Date ” means the first (1 ^st ) Trading Day after the date on which the last to be satisfied or waived of the applicable conditions set forth in Sections 2.1(a)(iii), 2.2(c)-(e), 5.5 and 5.6, except for those conditions and deliveries that are to be made at the Common Equity Closing; provided, however , that the Common Equity Closing Date shall not occur prior to (i) the earlier of (X) the fifteenth (15 ^th ) Trading Day after the date on which the Majority Purchasers would have been required to have delivered a Non-Participation Notice   pursuant to Section 2.1(a)(iii) of this Agreement in order for the Purchasers to be not required to participate in the Common Equity Closing and (Y) the fifteenth (15 ^th ) Trading Day after the date on which the Lead Purchasers deliver a Purchaser Put Notice pursuant to Section 2.1(a)(iii) of this Agreement, or (ii) the consummation of the Second Unit Closing if the Purchasers have previously delivered the Purchaser Second Unit Closing Notice (including delivery of such notice after delivery by the Company of the Company Election Notice and prior to the consummation of the Common Equity Closing).

“ Common Equity Closing Notice ” has the meaning set forth in Section 2.1(a)(iii).

“ Common Equity Closing Subscription Amount ” means with respect to each Purchaser, the aggregate amount to be paid for the Common Stock purchased hereunder at the Common Equity Closing as indicated on such Purchaser’s signature page to this Agreement next to the heading “Common Equity Closing Subscription Amount.”

“ Common Equity Shares ” means the aggregate number of shares of Common Stock derived by dividing (i) the aggregate dollar amount of the Common Equity Closing Subscription Amounts, by (ii) the Common Per Share Purchase Price, rounded down to the nearest whole share.

“ Common Per Share Purchase Price ” means, with respect to each share of Common Stock sold at the Common Equity Closing, an amount per share which shall equal $0.275.

“ Common Stock ” has the meaning set forth in the Recitals to this Agreement, and also includes any securities into which the Common Stock may hereafter be reclassified or changed.

“ Company ” shall have the meaning set forth in the Preamble to this Agreement.

“ Company Counsel ” means Cooley Godward Kronish LLP.

“ Company Deliverables ” means, collectively, the documents deliverable by the Company pursuant to Section 2.2.

“ Company Election Notice ” has the meaning set forth in Section 2.1(a)(iii).

“ Company Second Unit Closing Notice ” has the meaning set forth in Section 2.1(a)(ii).

“ Company’s Knowledge ” means with respect to any statement made to the knowledge of the Company, that the statement is based upon the actual knowledge of the executive officers of the Company having responsibility for the matter or matters that are the subject of the statement; provided, however , that such executive officers have conducted reasonable investigation and due inquiry of such matter or matters.

“ Competing Transaction ” has the meaning set forth in Section 4.11(a).

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

“ Control ” (including the terms “controlling,” “controlled by” or “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

“ Conversion Shares ” has the meaning set forth in the Recitals to this Agreement.

“ DGCL ” means the Delaware General Corporation Law.

“ Disclosure Materials ” has the meaning set forth in Section 3.1(g).

“ Environmental Laws ” has the meaning set forth in Section 3.1(p).

“ Evaluation Date ” has the meaning set forth in Section 3.1(v).

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

“ Execution Date ” means the date first set forth above.

“ FDA ” has the meaning set forth in Section 3.1(x).

“ Financing ” has the meaning set forth in Section 7.16.

“ First Unit Closing ” means the closing of the purchase by the Purchasers and sale by the Company of Units to such Purchasers pursuant to this Agreement on the First Unit Closing Date as provided in Section 2.1(a)(i) hereof.

“ First Unit Closing Date ” means the first (1st) Trading Day after the date on which the last to be satisfied or waived of the applicable conditions set forth in Sections 2.1(a)(i), 2.2(a), (d) and (e), 5.1 and 5.2 shall have been satisfied or waived, except for those conditions and deliveries that are to be made at the First Unit Closing.

“ First Unit Closing Subscription Amount ” means with respect to each Purchaser, the aggregate amount to be paid for the Units purchased hereunder at the First Unit Closing as indicated on such Purchaser’s signature page to this Agreement next to the heading “First Unit Closing Subscription Amount.”

“ GAAP ” means U.S. generally accepted accounting principles.

“ Governmental Authority ” means any nation or government, any Federal, state, city, town, municipality, county, local or other political subdivision thereof or thereto and any department, commission, board, bureau, instrumentality, agency or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

“ Hazardous Materials ” means (a) any element, compound or chemical that is defined, listed or otherwise classified as a contaminant, pollutant, toxic pollutant, toxic or hazardous substance, extremely hazardous substance or chemical, hazardous waste, special waste, or solid waste under Environmental Laws or that is likely to cause immediately, or at some future time, harm to or have an adverse effect on, the environment or risk to human health or safety, including any pollutant, contaminant, waste, hazardous waste, toxic substance or dangerous good which is defined or identified in any Environmental Law and which is present in the environment in such quantity or state that it contravenes any Environmental Law; (b) petroleum and its refined products; (c) polychlorinated biphenyls; (d) any substance exhibiting a hazardous waste characteristic, including corrosivity, ignitability, toxicity or reactivity as well as any radioactive or explosive materials; and (e) any raw materials, building components (including asbestos-containing materials) and manufactured products containing hazardous substances listed or classified as such under Environmental Laws.

“ Intellectual Property ” means all of the following: (i) patents, patent applications, patent disclosures and inventions (whether or not patentable and whether or not reduced to practice); (ii)  trademarks, service marks, trade dress, trade names, corporate names, logos, slogans and Internet domain names, together with all goodwill associated with each of the foregoing; (iii) copyrights and copyrightable works; and (iv) registrations, applications and renewals for any of the foregoing.

“ Investor Rights Agreement ” has the meaning set forth in the Recitals to this Agreement.

“ IRC ” means the Internal Revenue Code of 1986, as amended, or any successor statute, and the rules and regulations promulgated thereunder.

“ Irrevocable Transfer Agent Instructions ” has the meaning set forth in Section 4.1(d).

“ Lead Purchasers ” means the Purchasers who are affiliated with Alta BioPharma Partners III, L.P. and the Purchasers who are affiliated with Bay City Capital, L.P.

“ Legal Restraint ” has the meaning set forth in Section 5.1(c).

“ Lien ” means any mortgage, deed of trust, lien, charge, claim, encumbrance, security interest, right of first refusal, preemptive right or other restrictions of any kind.

“ Majority Purchaser Second Unit Closing Notice ” has the meaning set forth in Section 2.1(a)(ii).

“ Majority Purchasers ” means the Purchasers holding a majority-in-interest of the Unit Shares issued pursuant to the terms of this Agreement.

“ Material Adverse Effect ” on or with respect to the Company means any state of facts, change, development, event, effect, condition, occurrence, action or omission (each, an “ Event ”) that, individually or in the aggregate, would reasonably be expected to result in a material adverse effect on the business, financial condition or results of operations of the Company.

“ Material Contract ” means (i) any contract of the Company that has been filed, was required to have been filed, or is required to be filed but has not yet been filed, as an exhibit to the SEC Reports pursuant to Item 601(b)(4) or Item 601(b)(10) of Regulation S-K or (ii) any agreement or contract to which the Company is a party and involving the receipt or payment of amounts in the aggregate exceeding $200,000 per year, other than contracts entered into in the ordinary course of business in connection with the conduct of clinical trials.

“ Minimum Aggregate Common Equity Subscription Amount ” means $28,500,000.

“ Non-Participation Notice ” has the meaning set forth in Section 2.1(a)(iii).

“ Permitted Liens ” means (i) mechanics’, carriers’, or workmen’s, repairmen’s or similar Liens arising or incurred in the ordinary course of business, (ii) Liens for taxes, assessments and other governmental charges that are not due and payable or which may hereafter be paid without penalty or which are being contested in good faith by appropriate proceedings and (iii) other imperfections of title or encumbrances, if any, that do not, individually or in the aggregate, materially impair the use or value of the property to which they relate.

“ Permits ”   has the meaning set forth in Section 3.1(m).

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

“ Placement Agent ” means Jefferies & Company, Inc.

“ Placement Agent Fees ” has the meaning set forth in Section 3.1(z).

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

“ Preferred Stock Per Share Price ” means $0.22.

“ Press Release ” has the meaning set forth in Section 4.6.

“ Principal Trading Market ” means the Trading Market on which the Common Stock is primarily listed on and quoted for trading, which, as of the date of this Agreement, shall be The NASDAQ Global Market.

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

“ Proxy Statement ” has the meaning set forth in Section 4.11(a).

“ Purchaser ” and “ Purchasers ” have the respective meanings set forth in the Preamble to this Agreement.

“ Purchaser Deliverables ” has the meaning set forth in Section 2.2(e).

“ Purchaser Party ” has the meaning set forth in Section 4.8.

“ Purchaser Put Notice ” means a written notice by the Lead Purchasers to the Company and all Purchasers, which shall be delivered if the Majority Purchasers elect to consummate the Common Equity Closing and shall set forth such election, delivered (i) at any time prior to January 8, 2010, (ii) on or before January 15, 2010, if a Cash Balance Notice is delivered no later than January 12, 2010 and such Cash Balance Notice reflects a Cash balance of less than $4.0 million as of January 8, 2010 or (iii) if a Cash Balance Notice delivered no later than January 12, 2010 sets forth the Company’s Cash balance as greater than $4.0 million as of January 8, 2010, at any time prior to the earlier of (A) December 31, 2010, (B) five (5) Trading Days following the delivery to the Lead Purchasers of a Cash Balance Notice reflecting a Cash balance of the Company of less than $4.0 million and (C) the closing of an Alternative Common Stock Financing.

“ Purchaser Second Unit Closing Notice ” has the meaning set forth in Section 2.1(a)(ii).

“ Registration Statement ” means a registration statement meeting the requirements set forth in the Investor Rights Agreement and covering the resale by the Purchasers of the Registrable Securities (as defined in the Investor Rights Agreement).

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

“ Required Approvals ” has the meaning set forth in Section 3.1(f).

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

“ Second Closing Milestone ” means the receipt by the Board, following a meeting or written interactions with the FDA, of a positive recommendation from at least a majority of the members of a five (5) person panel engaged by the Board that it would be reasonable to expect that (i) an [ * ] clinical trial in an acute myeloid leukemia (AML) population would be successful and sufficient for [ * ] approval of the Company’s voreloxin drug candidate by the FDA [ * ] , (ii) the proceeds from the Second Unit Closing and the Common Equity Closing, assuming each were to take place, together with other Cash resources of the Company, would be sufficient to fund the [ * ] clinical trial and the Company’s other corporate, development and regulatory activities to support the submission of a New Drug Application (NDA) to the FDA for the marketing and sale of voreloxin to treat an identified portion of the AML population and (iii) if the NDA is approved, voreloxin would be a commercially viable drug.  The five (5) person panel shall be comprised of key opinion leaders with respect to the development and/or commercialization of drugs to treat AML or similar or related indications, [ * ] ; the Company and the Majority Purchasers shall use commercially reasonable efforts to identify the members of the panel by no later than [ * ] or another date mutually agreed by the Majority Purchasers and the Company.

“ Second Closing Units ” has the meaning set forth in Section 2.1(a)(ii).

“ SEC Report s ” has the meaning set forth in Section 3.1(g).

“ Second Unit Closing ” means the closing of the purchase by the Purchasers and sale by the Company of the Units to such Purchasers pursuant to this Agreement on the Second Unit Closing Date as provided in Section 2.1(a)(ii) hereof.

“ Second Unit Closing Date ” means the first (1 ^st ) Trading Day after the date on which the last to be satisfied or waived of the conditions set forth in Sections 2.1(a)(ii), 2.2(b), (d) and (e), 5.3 and 5.4 shall have been satisfied or waived, except for those conditions and deliveries that are to be made at the Second Unit Closing; provided, however , that the Second Unit Closing Date shall not occur prior to the fifteenth (15 ^th ) Trading Day after the date on which a Company Second Unit Closing Notice, Purchaser Second Unit Closing Notice or Majority Purchaser Second Unit Closing Notice, as applicable, is validly delivered pursuant to this Agreement.

“ Second Unit Closing Subscription Amount ” means with respect to each Purchaser, the aggregate amount to be paid for the Units purchased hereunder at the Second Unit Closing as indicated on such Purchaser’s signature page to this Agreement next to the heading “Second Unit Closing Subscription Amount.”

“ Secretary’s Certificate ” has the meaning set forth in Section 2.2(d)(i).

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

“ Securities Act ” has the meaning set forth in the Recitals to this Agreement.

“ Shares ” means, collectively, the Unit Shares, the Conversion Shares, the Warrant Shares and the Common Equity Shares.

“ Short Sales ” include, without limitation, (i) all “short sales” as defined in Rule 200 promulgated under Regulation SHO under the Exchange Act, whether or not against the box, and all types of direct and indirect stock pledges, forward sale contracts, options, puts, calls, short sales, swaps, “put equivalent positions” (as defined in Rule 16a-1(h) under the Exchange Act) and similar arrangements (including on a total return basis), and (ii) sales and other transactions through non-U.S. broker dealers or foreign regulated brokers.

“ Stockholder Approval ” means the approval from the Company’s stockholders of each of the Transaction Stockholder Approval Matters by the requisite vote of the Company’s stockholders at the Stockholders’ Meeting.

“ Stockholder Approval Date ” means the date on which each of the Transaction Stockholder Approval Matters has been approved by the requisite vote of the Company’s stockholders.

“ Stockholders’ Meeting ” has the meaning set forth in Section 4.11(a).

“ Subsidiary ” means, with respect to any Person at any date, any corporation, limited or general partnership, limited liability company, trust, estate, association, joint venture or other business entity (i) the accounts of which would be consolidated with those of such Person in such Person’s consolidated financial statements if such financial statements were prepared in accordance with GAAP or (ii) of which more than 50% of (A) the outstanding Capital Stock having (in the absence of contingencies) ordinary voting power to elect a majority of the board of directors or other managing body of such Person, (B) in the case of a partnership or limited liability company, the interest in the capital or profits of such partnership or limited liability company or (C) in the case of a trust, estate, association, joint venture or other entity, the beneficial interest in such trust, estate, association or other entity business is, at the time of determination, owned or controlled directly or indirectly through one or more intermediaries, by such Person, and “ Subsidiaries ” mean, collectively, each Subsidiary with respect to any Person.

“ Superior Proposal ” means a bona fide proposal for a transaction that a majority of the Board determines, at a duly constituted meeting of the Board, in its reasonable good faith judgment (after consultation with its financial advisor) to be a transaction more favorable to the Company’s stockholders from a financial point of view than the transactions contemplated by this Agreement.

“ Trading Affiliates ” has the meaning set forth in Section 3.2(h).

“ Trading Day ” means (i) a day on which the Common Stock is listed or quoted and traded on its Principal Trading Market (other than the OTC Bulletin Board), or (ii) if the Common Stock is not listed on a Trading Market (other than the OTC Bulletin Board), a day on which the Common Stock is traded in the over-the-counter market, as reported by the OTC Bulletin Board, or (iii) if the Common Stock is not quoted on any Trading Market, a day on which the Common Stock is quoted in the over-the-counter market as reported in the “pink sheets” by Pink Sheets LLC (or any similar organization or agency succeeding to its functions of reporting prices); provided , that in the event that the Common Stock is not listed or quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business Day.

“ Trading Market ” means whichever of The NASDAQ Global Select Market, The NASDAQ Global Market, The NASDAQ Capital Market or the OTC Bulletin Board on which the Common Stock is listed or quoted for trading on the date in question.

“ Transaction Documents ” means this Agreement and the schedules and exhibits attached hereto, the Warrants, the Investor Rights Agreement and the schedules and exhibits attached thereto, the Certificate of Designation, the Irrevocable Transfer Agent Instructions and any other agreement, instrument, and other document executed and delivered pursuant hereto or thereto.

“ Transaction Stockholder Approval Matters ” has the meaning set forth in Section 4.11(a).

“ Transfer Agent ” means American Stock Transfer & Trust Company, or any successor transfer agent for the Company.

“ Unit Purchase Price ” means, with respect to the Units sold at the First Unit Closing or the Second Unit Closing, as applicable, $3.45 per Unit, which equals the sum of (i) $2.20   and (ii) $1.25, which represents a $0.125 purchase price for each Warrant Share.

“ Units ” has the meaning set forth in the Recitals to this Agreement.  Units will not be issued or certificated. The Unit Shares and Warrants are immediately separable and will be issued separately.

“ Unit Share ” and “ Unit Shares ” have the respective meaning set forth in the Recitals to this Agreement.

“ Unrestricted Securities ” has the meaning set forth in Section 4.1(c).

“ Warrant ” and “ Warrants ” have the respective meaning set forth in the Recitals to this Agreement.

“ Warrant Exercise Cap ” means the restrictions set forth in Section 2.3 of each of the Warrants.

“ Warrant Exercise Price ” means $0.22 per Warrant Share.

“ Warrant Shares ” has the meaning set forth in the Recitals to this Agreement.

“ Warrant Ratio ” has the meaning set forth in the Recitals to this Agreement.

2.1            Closings, Delivery and Payment .

(a)            Purchase and Sale .  Subject to and upon the terms and conditions set forth in this Agreement, the Company shall issue and sell to the Purchasers, and the Purchasers shall purchase from the Company, the Units and the Common Equity Shares, if any, as applicable, as follows:

(i)            First Unit Closing .  At the First Unit Closing, the Company shall issue and sell to each Purchaser, and each Purchaser shall, severally and not jointly, purchase from the Company, such number of Units equal to the quotient resulting from dividing (i) the First Unit Closing Subscription Amount for such Purchaser by (ii) the Unit Purchase Price, rounded down to the nearest whole Unit.

(ii)            Second Unit Closing .  Provided that the Stockholder Approval has been obtained, following (x) the satisfaction of the Second Closing Milestone and delivery by the Company of written notice to the Purchasers of the satisfaction thereof and the election by the Company to consummate the Second Unit Closing (the “ Company Second Unit Closing Notice ”), or (y) the delivery by the Majority Purchasers of written notice to the Company on or before the earliest of (A) December 31, 2009, (B) the consummation of the Common Equity Closing or (C) the consummation of an Alternate Common Stock Financing of the election on behalf of the Purchasers to consummate the Second Unit Closing (the “ Purchaser Second Unit Closing Notice ”), the Company shall issue and sell to each Purchaser, and each Purchaser shall, severally and not jointly, purchase from the Company, such number of Units equal to the quotient resulting from dividing (i) the Second Unit Closing Subscription Amount for such Purchaser by (ii) the Unit Purchase Price, rounded down to the nearest whole Unit (the “ Second Closing Units ”); provided, however , that if the Company Second Unit Closing Notice has been delivered, but the Purchaser Second Unit Closing Notice has not been delivered, the Purchasers shall have no obligation to purchase the Second Closing Units if the average Closing Bid Price of the Common Stock over the five (5) Trading Days immediately preceding the delivery of the Company Second Unit Closing Notice is less than [ * ] unless within ten (10) Trading Days following the delivery of the Company Second Unit Closing Notice the Majority Purchasers provide the Company and the Purchasers with written notice of their election, on behalf of all Purchasers, to purchase the Second Closing Units (the “ Majority Purchaser Second Unit Closing Notice ”), provided that the Company may not deliver a Company Second Unit Closing Notice if, during the five (5) Trading Day period immediately preceding delivery thereof, the Company was not in compliance with the disclosure requirements of NASDAQ Marketplace Rule 4310(c)(16) (without regard to the first proviso thereof) and its SEC Reports, together with any press release publicly released, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.  The Company shall not be entitled to deliver the Company Second Unit Closing Notice at any time after the earliest of (AA) the consummation of the Common Equity Closing, (BB) the consummation of an Alternative Common Stock Financing or (CC) December 31, 2009.  The delivery of the Company Second Unit Closing Notice shall be in the sole discretion of the Board, and the delivery of the Purchaser Second Unit Closing Notice or Majority Purchaser Second Unit Closing Notice shall be in the sole discretion of the Majority Purchasers. For the avoidance of doubt, the Purchasers shall be permitted to deliver the Purchaser Second Unit Closing Notice after delivery by the Company of the Company Election Notice and prior to the consummation of the Common Equity Closing, in which case the consummation of the Common Equity Closing will not occur until after the consummation of the Second Unit Closing.

(iii)           Common Equity Closing .  Provided that the Stockholder Approval has been obtained, following the First Unit Closing and the earlier of (i) delivery by the Company of written notice to the Purchasers of the election by the Company to consummate the Common Equity Closing on or before the earlier of (A) the delivery of a Purchaser Put Notice, (B) the consummation of an Alternative Common Stock Financing and (C) December 31, 2010 (the “ Company Election Notice ”) and (ii) delivery by the Lead Purchasers of the Purchaser Put Notice (in the case of either (i) or (ii) above, the “ Common Equity Closing Notice ”), the Company shall issue and sell to each Purchaser, and each Purchaser shall, severally and not jointly, purchase from the Company, such number of shares of Common Stock equal to the quotient resulting from dividing (i) the Common Equity Closing Subscription Amount for such Purchaser by (ii) the Common Per Share Purchase Price, rounded down to the nearest whole share (the “ Pro Rata Share ”); provided, however , that the Purchasers shall have no obligation to purchase the Common Equity Shares if the Majority Purchasers provide written notice to the Company within ten (10) Trading Days following the delivery of the Company Election Notice, that the Purchasers will not participate in the Common Equity Closing (the “ Non-Participation Notice ”) or if the gross amount to be received at the Common Equity Closing is less than   the Minimum Aggregate Common Equity Subscription Amount, taking into account any agreement by a Purchaser to purchase more than its Pro Rata Share of the shares of Common Stock to be sold in the Common Equity Closing, and the Company is unable to secure additional purchasers, acceptable to the Lead Purchasers, to participate in the Common Equity Closing such that the Minimum Aggregate Common Equity Subscription Amount is met.  The delivery of the Company Election Notice shall be in the sole discretion of the Board, and the delivery of the Non-Participation Notice or the Common Equity Closing Notice shall be in the sole discretion of the Majority Purchasers.  There shall be no obligation on the part of the Majority Purchasers to elect to consummate the Common Equity Closing and, by extension, to cause the Lead Purchasers to deliver a Purchaser Put Notice, but if such Purchaser Put Notice is delivered, or a Non-Participation Notice is not timely delivered following a Common Equity Closing Notice, each Purchaser shall be obligated to purchase its Pro Rata Share of the shares of Common Stock to be sold in the Common Equity Closing, and if a Purchaser Put Notice is delivered, the Company shall be obligated to sell the shares of Common Stock to be sold in the Common Equity Closing.  In the event that any Purchaser does not satisfy the foregoing obligation, the other Purchasers shall have the right, but not the obligation, to purchase the Pro Rata Portion of such defaulting Purchaser.  Notwithstanding any other provision of this Agreement, in the event the Common Equity Closing is consummated, if any Purchaser fails to purchase its Pro Rata Share of Common Stock in such Common Equity Closing, then such Purchaser’s Preferred Stock shall automatically be converted into Common Stock in such amounts and on such terms as provided in Section 4(m) of the Certificate of Designation, which shall be the Company’s and each other Purchaser’s sole and exclusive remedy for such Purchaser’s failure to purchase its Pro Rata Share in the Common Equity Closing. No later than January 12, 2010, the Company shall deliver to the Lead Purchasers a Cash Balance Notice reflecting the Company’s Cash balance as of January 8, 2010 and, if such Cash Balance Notice sets forth the Company’s Cash balance as greater than $4.0 million as of January 8, 2010, the Lead Purchasers may request until such time as the Company delivers a Cash Balance Notice that sets forth the Company’s Cash balance as less than $4.0 million (in which case the Company shall promptly deliver such requested Cash Balance Notice, which shall be dated as of a recent practicable date), or the Company may elect to deliver one or more future Cash Balance Notice(s) at any time prior to the earlier of December 31, 2010 and the closing of an Alternative Common Stock Financing.

(b)            Closings .  Each of the First Unit Closing, the Second Unit Closing, if any, and the Common Equity Closing, if any, shall take place at the offices of Company Counsel, 3175 Hanover Street, Palo Alto, California 94304, on the First Unit Closing Date, Second Unit Closing Date and Common Equity Closing Date, respectively, or at such other locations or remotely by facsimile transmission or other electronic means as the parties may mutually agree.

(c)            Forms of Payment .

(i)           On the First Unit Closing Date, (x) each Purchaser shall pay to the Company its First Unit Closing Subscription Amount in United States dollars and in immediately available funds, by wire transfer to the Company’s account as set forth in instructions previously delivered to each Purchaser, (y) the Company shall deliver to each Purchaser one or more stock certificates, free and clear of all restrictive and other legends except as expressly provided in Section 4.1(b) hereof, evidencing the number of Unit Shares such Purchaser is acquiring at the First Unit Closing and (z) the Company shall issue to each Purchaser a Warrant pursuant to which such Purchaser shall have the right to acquire such number of Warrant Shares determined by multiplying the number of Unit Shares such Purchaser is acquiring at the First Unit Closing by the Warrant Ratio and rounding down to the nearest whole number, in the case of clauses (y) and (z), duly executed on behalf of the Company and registered in the name of such Purchaser as set forth on the Stock Certificate Questionnaire included as Exhibit D .  The Warrants issued and sold at the First Unit Closing shall have an exercise price equal to the Warrant Exercise Price.

(ii)           On the Second Unit Closing Date, if any, (x) each Purchaser shall pay to the Company its Second Unit Closing Subscription Amount, in United States dollars and in immediately available funds, by wire transfer to the Company’s account, as set forth in instructions delivered to each Purchaser not more than ten (10) nor less than three (3) Business Days prior to the Second Unit Closing Date, (y) the Company shall deliver to each Purchaser one or more stock certificates, free and clear of all restrictive and other legends except as expressly provided in Section 4.1(b) hereof, evidencing the number of Unit Shares such Purchaser is acquiring at the Second Unit Closing and (z) the Company shall issue to each Purchaser a Warrant pursuant to which such Purchaser shall have the right to acquire such number of Warrant Shares determined by multiplying the number of Unit Shares such Purchaser is acquiring at the Second Unit Closing by the Warrant Ratio and rounding down to the nearest whole number, in the case of clauses (y) and (z), duly executed on behalf of the Company and registered in the name of such Purchaser as set forth on the Stock Certificate Questionnaire included as Exhibit D .  The Warrants issued and sold at the Second Unit Closing shall have an exercise price equal to the Warrant Exercise Price.

(iii)          On the Common Equity Closing Date, if any, (x) each Purchaser shall pay to the Company its Common Equity Closing Subscription Amount, in United States dollars and in immediately available funds, by wire transfer to the Company’s account, as set forth in instructions delivered to each Purchaser not more than ten (10) nor less than three (3) Business Days prior to the Common Equity Closing Date, and (y) the Company shall irrevocably instruct the Transfer Agent to deliver to each Purchaser one or more stock certificates within three (3) Business Days after the Common Equity Closing Date, free and clear of all restrictive and other legends except as expressly provided in Section 4.1(b) hereof, evidencing the number of Common Equity Shares that such Purchaser is acquiring at the Common Equity Closing, and duly executed on behalf of the Company and registered in the name of such Purchaser as set forth on the Stock Certificate Questionnaire included as Exhibit D .

2.2            Closing Deliveries .

(a)           At the First Unit Closing, the Company shall issue, deliver or cause to be delivered to each of the Purchasers the following:

(i)           this Agreement and the Investor Rights Agreement, each duly executed by the Company;

(ii)          one or more stock certificates, as provided in Section 2.1(c)(i);

(iii)         a Warrant, as provided in Section 2.1(c)(i); and

(iv)         a legal opinion of Company Counsel, dated as of the First Unit Closing Date, and in the form attached hereto as Exhibit E-1 , executed by such counsel and addressed to the Purchasers.

(b)           At the Second Unit Closing, the Company shall issue, deliver or cause to be delivered to each of the Purchasers, the following:

(i)           one or more stock certificates, as provided in Section 2.1(c)(ii);

(ii)          a Warrant, as provided in Section 2.1(c)(ii); and

(iii)         a legal opinion of Company Counsel, dated as of the Second Unit Closing Date, and in the form attached hereto as Exhibit E-1 , executed by such counsel and addressed to the Purchasers.

(c)           At the Common Equity Closing, the Company shall issue, deliver or cause to be delivered to each of the Purchasers, the following:

(i)           a copy of irrevocable instructions to the Transfer Agent to deliver to each Purchaser one or more stock certificates, as provided in Section 2.1(c)(iii), with the original stock certificates delivered within three (3) Business Days of the Common Equity Closing; and

(ii)          a legal opinion of Company Counsel, dated as of the Common Equity Closing Date, and in the form attached hereto as Exhibit E-2 , executed by such counsel and addressed to the Purchasers.

(d)           On or prior to each Closing, the Company shall issue, deliver or cause to be delivered to each of the Purchasers, the following:

(i)           a certificate of the Secretary of the Company (the “ Secretary’s Certificate ”), dated as of the First Unit Closing Date, Second Unit Closing Date or Common Equity Closing Date, as applicable, (a) certifying the resolutions adopted by the Board or a duly authorized committee thereof approving the transactions contemplated by this Agreement and the other Transaction Documents and the issuance of the Securities to be issued at such Closing and that such resolutions remain in full force and effect, (b) with respect to the Second Unit Closing and the Common Equity Closing, certifying the resolutions adopted by the stockholders of the Company approving the issuance of the Securities to be issued at the Second Unit Closing or the Common Equity Closing, as applicable, (c) certifying the current versions of the Company’s certificate of incorporation (including any certificates of designation) and bylaws, each as amended, and (d) certifying as to the signatures and authority of Persons signing the Transaction Documents and related documents on behalf of the Company, in the form attached hereto as Exhibit G ;

(ii)          the Compliance Certificate referred to in Section 5.1(g), Section 5.3(h), or Section 5.5(i), as applicable;

(iii)         a certificate evidencing the formation and good standing of the Company issued by the Secretary of State of the State of Delaware, as of a date within three (3) Trading Days of the First Unit Closing Date, Second Unit Closing Date or Common Equity Closing Date, as applicable;

(iv)         a certificate evidencing the Company’s qualification as a foreign corporation and good standing issued by each state where the Company is qualified to do business as a foreign corporation, as of a date within three (3) Trading Days of the First Unit Closing Date, Second Unit Closing Date or Common Equity Closing Date, as applicable; and

(v)          a certified copy of (i) the Company’s current certificate of incorporation, and any amendments and certificates of designation thereto, as certified by the Secretary of State of the State of Delaware as of a date within three (3) Trading Days of the First Unit Closing Date, Second Unit Closing Date or Common Equity Closing Date, as applicable.

(e)           On or prior to each applicable Closing, each Purchaser shall deliver or cause to be delivered to the Company the following, as applicable (the “ Purchaser Deliverables ”):

(i)           on or prior the First Unit Closing, this Agreement and the Investor Rights Agreement, each duly executed by such Purchaser;

(ii)           on or prior to the First Unit Closing, a fully completed and duly executed Stock Certificate Questionnaire in the form attached hereto as Exhibit D .

(iii)          with respect to the First Unit Closing, such Purchaser’s First Unit Closing Subscription Amount, in United States dollars and in immediately available funds, by wire transfer to the Company’s account as previously delivered to each Purchaser in accordance with Section 2.1(c)(i) prior to the First Unit Closing;

(iv)          with respect to the Second Unit Closing, such Purchaser’s Second Unit Closing Subscription Amount, in United States dollars and in immediately available funds, by wire transfer to the Company’s account as previously delivered to each Purchaser in accordance with Section 2.1(c)(ii) prior to the Second Unit Closing; and

(v)          with respect to the Common Equity Closing, such Purchaser’s Common Equity Closing Subscription Amount, in United States dollars and in immediately available funds, by wire transfer to the Company’s account as previously delivered to each Purchaser in accordance with Section 2.1(c)(iii) prior to the Common Equity Closing.

3.1           Representations and Warranties of the Company .  The Company hereby represents and warrants as of the date hereof and as of the First Unit Closing Date, the Second Unit Closing Date and the Common Equity Closing Date, as applicable (except for the representations and warranties that speak as of a specific date, which shall be made as of such date), to each of the Purchasers that, except as otherwise set forth in the Schedules delivered herewith or at the applicable Closing:

(a)            Organization, Good Standing and Qualification .  The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted and as described in the SEC Reports and to own its properties.  The Company is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property makes such qualification necessary, except where the failure to so qualify, individually or in the aggregate, would not have a Material Adverse Effect.  To the Company’s Knowledge, no proceeding has been instituted in any jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail, such power and authority or qualification. The Company’s sole Subsidiary is Sunesis Europe Limited, a United Kingdom company, which is a non-operating company with de minimis assets and liabilities and no business operations.

(b)           Authorization .  The Company has full corporate power and authority and has taken all requisite action on the part of the Company, its officers, directors and stockholders necessary for (i) the authorization, execution and delivery of the Transaction Documents, (ii) the authorization of the performance of all obligations of the Company hereunder or thereunder and (iii) the authorization, issuance, sale and delivery of the Securities in accordance with Section 4.3 hereof, except for the Required Approvals.

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

(d)            Capitalization .  The authorized Capital Stock of the Company consists of: (i) 100,000,000 shares of Common Stock, of which 34,409,768   shares are outstanding on the Execution Date and (ii) 5,000,000 shares of preferred stock, of which no shares are outstanding on the Execution Date.  All of the issued and outstanding shares of the Company’s Capital Stock have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights.  Except for (i) options to purchase Common Stock or other equity awards issued to employees, members of the Board and consultants of the Company pursuant to the equity incentive plans disclosed in the SEC Reports and (ii) outstanding warrants disclosed in the SEC Reports, 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.  Except as provided in the Investor Rights Agreement and that certain Eighth Amended and Restated Investor Rights Agreement, dated August 30, 2004, as amended, no Person has the right to require the Company to register any securities of the Company under the Securities Act, whether on a demand basis or in connection with the registration of securities of the Company for its own account or for the account of any other Person.  The issue and sale of the Securities will not result in the right of any holder of Company securities to adjust the exercise, conversion or exchange price under such securities.

(e)            Valid Issuance .  The Securities have been duly and validly authorized and, when issued and paid for pursuant to this Agreement, and with respect to the Warrant Shares, when issued and paid for pursuant to the Warrants, will be validly issued, fully paid and nonassessable, and will be free of encumbrances and restrictions (other than those created by the Purchasers), except for restrictions on transfer set forth in the Transaction Documents or imposed by applicable securities laws.

(f)             Consents .  The Company is not required to obtain any approval, consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any Governmental Authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents (including the issuance of the Securities), other than (i) the filing with the Commission of one or more Registration Statements in accordance with the requirements of the Investor Rights Agreement, (ii) filings required by applicable state and federal securities laws, (iii) the filing of a Notice of Sale of Securities on Form D with the Commission under Regulation D of the Securities Act, (iv) the filing of any requisite notices and/or application(s) to the Principal Trading Market for the issuance and sale of the Securities, and the listing of the Common Stock for trading or quotation, as the case may be, thereon in the time and manner required thereby, (v) the filing of the Certificate of Designation with the Secretary of State of the State of Delaware, (vi) those that have been made or obtained prior to the date hereof, (vii) the consent of the holders of a majority of the Registrable Securities (as such term is defined in that certain Eighth Amended and Restated Investor Rights Agreement, dated August 30, 2004, by and among the Company and the investors identified on Exhibit A thereto), which has been obtained prior to the date hereof, and (viii) the Stockholder Approval (collectively, the “ Required Approvals ”).

(g)            SEC Reports .  The Company has filed all proxy statements, reports and other documents required to be filed by it under the Exchange Act.  The Company has made available to the Purchasers, through the Commission’s EDGAR system, true and complete copies of (a) the Company’s most recent Annual Report on Form 10-K, (b) the Company’s Quarterly Reports on Form 10-Q for the quarters ended subsequent to the period covered by such Annual Report, including all exhibits thereto and documents incorporated by reference therein, and (c) any other statement, report (including, without limitation, Current Reports on Form 8-K), registration statement or definitive proxy statement filed by the Company with the Commission during the period commencing subsequent to the period covered by such Annual Report (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “ SEC Reports ” and together with this Agreement and the Schedules to this Agreement (if any), the “ Disclosure Materials ”).  The Company is not aware of any event that requires the filing of a Current Report on Form 8-K that has not been filed.  The Company has filed as an exhibit to an SEC Report all documents required to be filed by Item 601 of Regulation S-K prior to the date of this Agreement.  As of their respective filing dates, except to the extent corrected by a subsequent restatement or amendment or superceded by a subsequent filing, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.  As of the date of this Agreement, the Company satisfies the registrant requirements set forth in General Instruction 1.A. to Form S-3 for the use of a Registration Statement on Form S-3.

(h)            Use of Proceeds .  The net proceeds of the sale of the Securities hereunder shall be used by the Company for working capital and general corporate purposes.

(i)             No Material Adverse Change .  Between September 30, 2008 and the date of this Agreement, except as disclosed in the SEC Reports or in the draft audited financial statements for the fiscal year ended December 31, 2008 made available to the Purchasers prior to the execution of this Agreement, there has not been:

(i) any material change in the consolidated assets, liabilities, financial condition or operating results of the Company from that reflected in the financial statements included in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008;

(ii) any declaration or payment of any dividend, or any authorization or payment of any distribution, on any of the Capital Stock of the Company, or any redemption or repurchase of any securities of the Company (other than in connection with a termination of employment);

(iii) any material damage, destruction or loss to any assets or properties of the Company;

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

(v) any change or amendment to the Company’s Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws, or change to any Material Contract or arrangement by which the Company is bound or to which its assets or properties is subject;

(vi) any transaction entered into by the Company other than in the ordinary course of business;

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

(ix) any commitment or arrangement by the Company to do any of the foregoing; or

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

(j)            No Conflict, Breach, Violation or Default .  Neither the execution, delivery and performance of the Transaction Documents by the Company nor the consummation of any of the transactions contemplated hereby (including without limitation the issuance and sale of the Securities) will (i) conflict with or result in violation of any of the terms and provisions of the Company’s Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws, both as in effect on the date hereof, or (ii) will give rise to the right to terminate or accelerate the due date of any payment under or result in a breach of any term or provision of, or constitute a default (or any event which with notice or lapse of time or both would constitute a default) under, or require any consent or waiver under or result in the execution or imposition of any Lien upon the properties or assets of the Company pursuant to the terms of (x) any Material Contract or (y) any license, permit, statute, rule, regulation, judgment, decree or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company or any of its assets or properties, other than with respect to clause (y) as would not have a Material Adverse Effect.

(k)            Tax Matters .  The Company has timely filed all tax returns required to have been filed by the Company with all appropriate governmental agencies and timely paid all taxes shown thereon or otherwise owed by it.  The charges, accruals and reserves on the books of the Company in respect of taxes for all fiscal periods are adequate in all material respects, and there are no material unpaid assessments against the Company.  All taxes and other assessments and levies that the Company is required to withhold or to collect for payment have been duly withheld and collected and paid to the proper governmental entity or third party when due.  There are no tax Liens or claims pending or, to the Company’s Knowledge, threatened against the Company or any of its assets or property, other than Permitted Liens.  To the Company’s Knowledge, there are no tax audits or investigations pending.  There are no outstanding tax sharing agreements or other such arrangements between the Company and any other Person.

(l)            Title to Properties .  The Company has good and marketable title to all properties and assets owned by it, in each case free from Liens and defects, other than Permitted Liens.  The Company holds any leased real or personal property under valid and enforceable leases.  The Company is in material compliance with all material terms of each lease to which it is a party or is otherwise bound.  The Company does not own any real property.

(m)            Certificates, Authorities and Permits .  The Company possesses adequate certificates, approvals, authorities or permits (“ Permits ”) issued by governmental agencies or bodies necessary to own, lease and license its assets and properties and conduct the business now operated by it, all of which are valid and in full force and effect, except where the lack of such Permits, individually or in the aggregate, would not be reasonably expected to have a Material Adverse Effect.  The Company has performed in all material respects all of its material obligations with respect to such Permits and no event has occurred that allows, or after notice or lapse of time, would allow, revocation or termination thereof. The Company has not received any written notice of proceedings relating to the revocation or modification of any such certificate, authority or permit that, if determined adversely to the Company, would reasonably be expected to, individually or in the aggregate, have a Material Adverse Effect.

(n)            Labor Matters .

(i)           The Company is not a party to or bound by any collective bargaining agreement.  The Company has not violated in any material respect any laws, regulations, orders or contract terms, affecting the collective bargaining rights of employees, labor organizations or any laws, regulations or orders affecting employment discrimination, equal opportunity employment or employees’ health, safety, welfare, wages and hours.

(ii)           (A) There are no labor disputes existing, or to the Company’s Knowledge, threatened, involving strikes, slow-downs, work stoppages, job actions, disputes, lockouts or any other disruptions of or by the Company’s employees, (B) there are no unfair labor practices or petitions for election pending or, to the Company’s Knowledge, threatened before the National Labor Relations Board or any other federal, state or local labor commission relating to the Company’s employees, (C) no demand for recognition or certification heretofore made by any labor organization or group of employees is pending with respect to the Company and (D) to the Company’s Knowledge, the Company enjoys good labor and employee relations with its employees.

(iii)         The Company is in compliance in all material respects with applicable laws respecting employment (including laws relating to classification of employees and independent contractors) and employment practices, terms and conditions of employment, wages and hours, severance and bonuses, and immigration and naturalization.  No claims are pending against the Company before the Equal Employment Opportunity Commission or any other administrative body or in any court asserting any violation of Title VII of the Civil Rights Act of 1964, the Age Discrimination Act of 1967, 42 U.S.C. §§ 1981 or 1983 or any other federal, state or local law, statute or ordinance barring discrimination in employment.

(iv)         The Company is not a party to, or bound by, any employment or other contract or agreement that contains any severance, termination pay or change of control liability or obligation, including, without limitation, any “excess parachute payment,” as defined in Section 280G(b) of the IRC other than as set forth in the Company’s SEC Reports.

(o)            Intellectual Property .

(i)           To the Company’s Knowledge, none of the Intellectual Property of the Company is invalid or unenforceable.  No Intellectual Property owned or licensed by the Company that is necessary for the conduct of Company’s business as currently conducted or as proposed to be conducted as described in the SEC Reports is involved in any cancellation, dispute or litigation, and, to the Company’s Knowledge, no such action is threatened.  No issued patent owned or exclusively licensed by the Company is involved in any interference, reissue, re-examination or opposition proceeding.

(ii)          All of the in-bound licenses and sublicenses and consent, royalty or other agreements concerning Intellectual Property to which the Company is a party (other than  generally commercially available, non-custom, off-the-shelf software application programs having a retail acquisition price of less than $50,000 per license) that are necessary for the conduct of the Company’s business as currently conducted and as proposed to be conducted as described in the SEC Reports (collectively, “ In-Bound License Agreements ”) are valid and binding obligations of the Company, enforceable in accordance with their terms, except to the extent that enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws affecting the enforcement of creditors’ rights generally, and the Company is not in material breach of any of its obligations under any such In-Bound License Agreements.

(iii)         To the Company’s Knowledge, the Company owns or has the valid right to use all of the Intellectual Property, including third party Intellectual Property and Confidential Information, that is necessary for the conduct of the Company’s business as currently conducted and as proposed to be conducted as described in the SEC Reports and for the ownership, maintenance and operation of the Company’s properties and assets, free and clear of all liens, encumbrances, adverse claims or, with respect to Intellectual Property owned or exclusively licensed by the Company, obligations to license such Intellectual Property, other than licenses to third parties of the Intellectual Property owned by the Company that  are set forth on Schedule 3.1(o)(iii) . 

(iv)          To the Company’s Knowledge, (1) the conduct of the Company’s business as currently conducted or as proposed to be conducted as described in the SEC Reports, (2) the use or exploitation by or on behalf of the Company of any Intellectual Property owned by the Company, or (3) the use or exploitation by or on behalf of the Company of any Intellectual Property licensed by the Company, does not infringe, misappropriate or otherwise materially impair or conflict with any Intellectual Property rights of any third party. To the Company’s Knowledge, the Intellectual Property owned or exclusively licensed by the Company which is necessary for the conduct of Company’s business as currently conducted or as proposed to be conducted as set forth in the SEC Reports is not being Infringed by any third party.  There is no litigation, court order, claim or assertion pending or outstanding or, to the Company’s Knowledge, threatened, that seeks to limit or challenge the ownership, use, validity or enforceability of any Intellectual Property owned or licensed by the Company or the Company’s use of any Intellectual Property owned by a third party.

(v)          The consummation of the transactions contemplated hereunder and under the other Transaction Documents will not result in the (1) loss, material impairment of or material restriction on any of the Intellectual Property or Confidential Information owned by the Company which is necessary for the conduct of Company’s business as currently conducted or as proposed to be conducted as set forth in the SEC Reports or (2) material breach of any In-Bound License Agreement.

(vi)         The Company has taken reasonable steps to protect the Company’s rights in Intellectual Property and Confidential Information owned or licensed by the Company.  Each employee, independent contractor, and consultant of the Company has executed an agreement to maintain the confidentiality of such Confidential Information and a proprietary information and inventions agreement in the form(s) as set forth on Schedule 3.1(o)(vi) .  To the Company’s Knowledge, and except as necessary to secure rights through information filings in U.S. and other patent offices and pursuant to non-disclosure agreements entered into between the Company and third parties in the ordinary course of business, there has been no disclosure of the Company’s Intellectual Property or Confidential Information to any third party.  To the Company’s Knowledge, there have been no misappropriations or infringements by any Person of any Intellectual Property used in the conduct or operation of the Company’s business.

(p)            Environmental Matters .  The Company is not in violation of any statute, rule, regulation, decision or order of any governmental agency or body or any court, domestic or foreign, relating to the use, disposal or release of Hazardous Materials or relating to the protection or restoration of the environment or human exposure to Hazardous Materials (collectively, “ Environmental Laws ”).  To the Company’s Knowledge, the Company does not own or operate any real property contaminated with any substance that is subject to any Environmental Laws, is not liable for any off-site disposal or contamination pursuant to any Environmental Laws, and is not subject to any claim relating to any Environmental Laws.  There is no pending or, to the Company’s Knowledge, threatened investigation that might lead to such a claim.

(q)            Litigation .  There are no pending or, to the Company’s Knowledge, threatened actions, suits, proceedings, inquiries or investigations against or affecting the Company or any of its properties or any of the Company’s officers and directors in their capacities as such.  The Company is not party to or subject to the provisions of any injunction, judgment, decree or order of any court, regulatory body, administrative agency or other governmental body.

(r)            Financial Statements .  The financial statements included in each SEC Report and the draft audited financial statements for the period ended December 31, 2008 made available to the Purchasers prior to execution of this Agreement present fairly, in all material respects, the financial position of the Company as of the dates shown and its results of operations and cash flows for the periods shown, and such financial statements have been prepared in conformity with GAAP (except as may be disclosed therein or in the notes thereto, and, in the case of quarterly financial statements, as permitted by Form 10-Q under the Exchange Act).  Except as set forth in the financial statements of the Company included in the SEC Reports and the draft audited financial statements for the period ended December 31, 2008 made available to the Purchasers prior to execution of this Agreement, the Company has not incurred any liabilities, contingent or otherwise, except those incurred in the ordinary course of business, consistent with past practices since the date of such financial statements, none of which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.

(s)            Insurance Coverage .  The Company maintains in full force and effect insurance coverage that is customary for comparably situated companies for the business being conducted and properties owned or leased by the Company.

(t)            Questionable Payments .   Neither the Company nor any of its directors, officers or employees,  or, to the Company’s Knowledge, any of its agents or other Persons acting on behalf of the Company, has on behalf of the Company or in connection with its business: (a) used any corporate funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity; (b) made any direct or indirect unlawful payments to any governmental officials or employees from corporate funds; (c) established or maintained any unlawful or unrecorded fund of corporate monies or other assets; (d) made any false or fictitious entries on the books and records of the Company; or (e) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment of any nature.

(u)            Transactions With Affiliates and Employees .  Except as set forth in the SEC Reports and other than the grant of stock options or other equity awards that are not individually or in the aggregate material in amount, none of the officers or directors of the Company and, to the Company’s Knowledge, none of the employees of the Company, is presently a party to any transaction with the Company or to a presently contemplated transaction (other than for services as employees, officers and directors) that would be required to be disclosed pursuant to Item 404 of Regulation S-K promulgated under the Securities Act that has not been disclosed.

(v)            Internal Controls .  The Company is in material compliance with the provisions of the Sarbanes-Oxley Act of 2002 currently applicable to the Company.  The Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 and 15d-15) for the Company and designed such disclosure controls and procedures to ensure that material information relating to the Company is made known to the certifying officers by others within those entities.  The Company’s certifying officers have evaluated the effectiveness of the Company’s controls and procedures as of the end of the period covered by the most recently filed periodic report under the Exchange Act (such date, the “ Evaluation Date ”).  The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date.  Since the Evaluation Date, there have been no significant changes in the Company’s internal controls (as such term is defined in Item 307(b) of Regulation S-K) or, to the Company’s Knowledge, in other factors that could significantly affect the Company’s internal controls.  The books, records and accounts of the Company accurately and fairly reflect, in all material respects, the transactions in, and dispositions of, the assets of, and the results of operations of, the Company.  The Company maintains and will continue to maintain a standard system of accounting established and administered in accordance with GAAP and the applicable requirements of the Exchange Act.

(w)           Independent Accountants.   The Company has engaged an independent registered public accounting firm as required by the Exchange Act and the rules and regulations of the Commission thereunder.

(x)            Regulatory Compliance .  The human clinical trials, animal studies and other preclinical tests conducted by the Company or in which the Company has participated or that are described in the SEC Reports or the results of which are referred to in the SEC Reports, and such studies and tests conducted on behalf of the Company or that the Company intends to rely on in support of regulatory approval by the United States Food and Drug Administration (the “ FDA ”) or foreign regulatory agencies, were and, if still pending, are being conducted in all material respects in accordance with experimental protocols, procedures and controls generally used by qualified experts in the preclinical or clinical study of new drugs. The descriptions of the results of such studies, test and trials contained in the SEC Reports are accurate and complete in all material respects, and, except as set forth in the SEC Reports, to the Company’s Knowledge, there are no other trials, studies or tests, the results of which the Company believes reasonably call into question the clinical trial results described or referred to in the SEC Reports when viewed in the context in which such results are described and the clinical stage of development.  The Company has not received any notices or correspondence from the FDA or any other domestic or foreign governmental agency requiring the termination, suspension or material modification, other than modifications customarily implemented during the drug development process, of any preclinical tests or clinical trials conducted by or on behalf of the Company or in which the Company has participated that are described in the SEC Reports or the results of which are referred to in the SEC Reports.

(y)            Material Contracts .  The description of the Material Contracts, documents or other agreements contained in the SEC Reports (as the case may be) reflect in all material respects the terms of the underlying contract, document or other agreement.  Each such Material Contract, document or other agreement is in full force and effect and is valid and enforceable by and against the Company in accordance with its terms.  The Company is not in default in the observance or performance of any term or obligation to be performed by it under any such agreement, and no event has occurred which with notice or lapse of time or both would constitute such a default, in any such case which default or event, individually or in the aggregate, would result in a Material Adverse Effect.

(z)            Certain Fees .  Except for the fees paid to Jefferies & Company, Inc., Cowen & Company and RBC Capital Markets Corporation as a result of the transactions contemplated by this Agreement   (the “ Placement Agent Fees ”) (which Placement Agent Fees are being paid by the Company), no Person will have, as a result of the transactions contemplated by this Agreement, any valid right, interest or claim against or upon the Company or a Purchaser for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of the Company. The Company shall indemnify, pay, and hold each Purchaser harmless against, any liability, loss or expense (including, without limitation, attorneys’ fees and out-of-pocket expenses) arising in connection with any such right, interest or claim.

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

(bb)           No Integrated Offering .  Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2 of this Agreement, neither the Company nor any Person acting on its behalf has, directly or indirectly, at any time within the past six months, made any offers or sales of any Company security or solicited any offers to buy any security under circumstances that would (i) eliminate the availability of the exemption from registration under Regulation D under the Securities Act in connection with the offer and sale by the Company of the Securities as contemplated hereby or (ii) cause the offering of the Securities pursuant to the Transaction Documents to be integrated with prior offerings by the Company for purposes of any applicable law, regulation or stockholder approval provisions, including, without limitation, under the rules and regulations of any Trading Market on which any of the securities of the Company are listed or designated.

(cc)           Listing and Maintenance Requirements .  The Company’s Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to terminate the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration.  The Company has not, in the 12 months preceding the date hereof, received written notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market, except as set forth on Schedule 3.1(cc) .  As of the date hereof, the Company is in compliance in all material respects with the listing and maintenance requirements for continued trading of the Common Stock on the Principal Trading Market, except as set forth on Schedule 3.1(cc) .

(dd)           Investment Company .  The Company is not required to be registered as, and is not an Affiliate of, and immediately following the First Unit Closing, Second Unit Closing or Common Equity Closing, as applicable, will not be required to register as, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

(ee)           Off Balance Sheet Arrangements .  There is no transaction, arrangement, or other relationship between the Company and an unconsolidated or other off balance sheet entity that is required to be disclosed by the Company in its Exchange Act filings and is not so disclosed or that otherwise would have a Material Adverse Effect.

(ff)            Acknowledgment Regarding Purchasers’ Purchase of Securities .  The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated hereby and thereby.  The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by any Purchaser or its representatives or agents in connection with the Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to the Purchasers’ purchase of the Securities.

(gg)           No Additional Agreements .  The Company does not have any agreement or understanding with any Purchaser with respect to the transactions contemplated by the Transaction Documents other than as specified in the Transaction Documents.

(hh)          Solvency .  After giving effect to the First Unit Closing, Second Unit Closing or Common Equity Closing, as applicable, including, without limitation, the expenses to be incurred by the Company in connection herewith, the Company will not be insolvent, left with unreasonably small capital with which to engage in its business or have incurred debts beyond its ability to pay such debts as they mature.

(ii)            Change of Control Benefits .  Neither the consummation of any Change of Control (either alone or in connection with any other event, including any termination of employment or service), will (i) result in any payment (including any bonus, golden parachute or severance payment) becoming due to any employee or consultant of the Company, (ii) result in any forgiveness of indebtedness owing by any employee or consultant of the Company to the Company or, to the Company’s Knowledge, owing by any employee  or consultant to any third party, (iii) materially increase the benefits payable by the Company, or (iv) result in any acceleration of the time of payment or vesting of any such benefits.

(jj)            Voting Agreements .  To the Company’s Knowledge, no stockholder of the Company has entered into any agreement with respect to the voting of Capital Stock of the Company.

(kk)          Disclosure .  None of the Transaction Documents (including this Agreement) or the exhibits and schedules hereto or thereto (including this Agreement) contain any untrue statement of a material fact nor omit to state a material fact necessary in order to the make the statements contained therein, in light of the circumstances in which they are made, not misleading.

(ll)            Stockholder Approval .  No vote of the Company’s stockholders is required in connection with the issuance and sale of the Securities in the First Unit Closing or any of the other transactions contemplated by the Transaction Documents with respect to the First Unit Closing. 

3.2            Representations and Warranties of the Purchasers .  Each Purchaser hereby, for itself and for no other Purchaser, represents and warrants as of the date hereof, and as of (A) the First Unit Closing Date, the Second Unit Closing Date and the Common Equity Closing Date, as applicable (expect for the representations and warranties that speak as of a specific date, which shall be made as of such date), to the Company as follows:

(a)            Organization; Authority .  Such Purchaser is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, with the requisite corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the applicable Transaction Documents and otherwise to carry out its obligations hereunder and thereunder.  To the extent that Purchaser is an entity, the execution, delivery and performance by such Purchaser of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate or, if such Purchaser is not a corporation, such partnership, limited liability company or other applicable like action, on the part of such Purchaser.  Each of this Agreement and the Investor Rights Agreement has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application.

(b)            No Conflicts .  The execution, delivery and performance by such Purchaser of this Agreement and the Investor Rights Agreement and the consummation by such Purchaser of the transactions contemplated hereby and thereby will not (i) result in a violation of the organizational documents of such Purchaser (to the extent an entity), (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which such Purchaser is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment  or decree (including federal and state securities laws) applicable to such Purchaser, except in the case of clauses (ii) and (iii) above, for such conflicts, defaults, rights or violations which would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of such Purchaser to perform its obligations hereunder.

(c)            Investment Intent .  Such Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to, or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities laws; provided ,   however , that by making the representations herein, such Purchaser does not agree to hold any of the Securities for any minimum period of time and reserves the right, subject to the provisions of this Agreement and the Investor Rights Agreement, at all times to sell or otherwise dispose of any or all of the Warrant Shares or the Shares pursuant to an effective registration statement under the Securities Act or under an exemption from such registration and in compliance with applicable federal and state securities laws.  Such Purchaser (to the extent an entity) is acquiring the Securities hereunder in the ordinary course of its business. Such Purchaser does not presently have any agreement, plan or understanding, directly or indirectly, with any Person to distribute or effect any distribution of any of the Securities (or any securities which are derivatives thereof) to or through any Person; such Purchaser is not a registered broker-dealer under Section 15 of the Exchange Act or an entity engaged in a business that would require it to be so registered as a broker-dealer.

(d)            Purchaser Status .  At the time such Purchaser was offered the Securities, it was, and at the date hereof it is, and on each date on which it exercises any Warrants, it will be, an “accredited investor” as defined in Rule 501(a) of Regulation D promulgated under the Securities Act.

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

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

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

(h)            Certain Trading Activities .  Other than with respect to the transactions contemplated herein, since the time that such Purchaser was first contacted by the Company, the Placement Agent or any other Person regarding the transactions contemplated hereby until the date hereof, neither the Purchaser nor any Affiliate of such Purchaser which (x) had knowledge of the transactions contemplated hereby, (y) has or shares discretion relating to such Purchaser’s investments or trading or information concerning such Purchaser’s investments, including in respect of the Securities, and (z) is subject to such Purchaser’s review or input concerning such Affiliate’s investments or trading (collectively, “ Trading Affiliate s ”) has directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser or Trading Affiliate, effected or agreed to effect any transactions in the securities of the Company (including, without limitation, any Short Sales involving the Company’s securities).  Notwithstanding the foregoing, in the case of a Purchaser and/or Trading Affiliate that is, individually or collectively, a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser's or Trading Affiliate’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser's or Trading Affiliate’s assets, the representation set forth above shall apply only with respect to the portion of assets managed by the portfolio manager that has knowledge about the transactions contemplated by this Agreement.  Other than to other Persons who are parties to this Agreement, such Purchaser has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction).

(i)             Brokers and Finders .  Except for the Placement Agent Fees, no Person will have, as a result of the transactions contemplated by this Agreement, any valid right, interest or claim against or upon the Company or any Purchaser for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of the Purchaser.

(j)             Independent Investment Decision .  Such Purchaser has independently evaluated the merits of its decision to purchase Securities pursuant to the Transaction Documents, and such Purchaser confirms that it has not relied on the advice of any other Purchaser’s business and/or legal counsel in making such decision.  Such Purchaser understands that nothing in this Agreement or any other materials presented by or on behalf of the Company to the Purchaser in connection with the purchase of the Securities constitutes legal, tax or investment advice.

(k)            Reliance on Exemptions .  Such Purchaser understands that the Securities being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and such Purchaser’s compliance with, the representations, warranties, agreements, acknowledgements and understandings of such Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of such Purchaser to acquire the Securities.

(l)             No Governmental Review .  Such Purchaser understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities.

(m)           Regulation M .  Such Purchaser is aware that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of Common Stock and other activities with respect to the Common Stock by the Purchasers.

(n)            Residency .  Such Purchaser’s principal executive offices (or residence, in the case of a Purchaser that is an individual) are in the jurisdiction set forth immediately below Purchaser’s name on the applicable signature page attached hereto.

(o)            Complete Agreement .  No Purchaser has made or makes any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in this Article III.

4.1            Transfer Restrictions .

(a)            Compliance with Laws .  Notwithstanding any other provision of this Article IV, each Purchaser covenants that the Securities may be disposed of only pursuant to an effective registration statement under, and in compliance with the requirements of, the Securities Act, or pursuant to an available exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, and in compliance with any applicable state and federal securities laws.  In connection with any transfer of the Securities other than (i) pursuant to an effective registration statement, (ii) to the Company, (iii) to an Affiliate of a Purchaser, (iv) pursuant to Rule 144 ( provided that the Purchaser provides the Company with reasonable assurances (in the form of seller and broker representation letters) that the securities may be sold pursuant to such rule) or Rule 144A or (v) pursuant to Rule 144 following the applicable holding period, the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act.  As a condition of transfer of any Securities other than Unrestricted Securities (as defined below), any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights of a Purchaser under this Agreement and the Investor Rights Agreement.

(b)            Legends .  Each of the Warrants and the certificates evidencing the Shares shall bear any legend as required by the “blue sky” laws of any state and a restrictive legend in substantially the following form, as applicable, until such time as they are not required under Section 4.1(c) (and a stock transfer order may be placed against transfer of the certificates for the Shares):

In addition, if any Purchaser is an Affiliate of the Company, the Warrants and the certificates evidencing the Shares issued to such Purchaser shall bear a customary “affiliates” legend.

(c)            Removal of Legends.   The legend set forth in Section 4.1(b) above shall be removed and the Company shall issue a certificate without such legend or any other legend to the holder of the applicable Securities upon which it is stamped or issue to such holder by electronic delivery at the applicable balance account at DTC, if (i) such Securities are sold or transferred pursuant to an effective Registration Statement covering the resale of such Securities by the Purchasers, (ii) such Securities are sold or transferred pursuant to Rule 144 (if the transferor is not an Affiliate of the Company), or (iii) such Securities are eligible for sale without any restrictions under Rule 144 (any Securities meeting any of such criteria being referred to as “ Unrestricted Securities ”).  Following such time as a legend is no longer required for certain Securities, the Company will no later than three (3) Trading Days (or such shorter time as may in the future be required pursuant to applicable law or regulation for the settlement of trades in securities on the Principal Trading Market) following the delivery by a Purchaser to the Company or the Transfer Agent (with notice to the Company) of a legended certificate representing such Securities (endorsed or with stock powers attached, signatures guaranteed if so required by the Transfer Agent in the ordinary course of business, and otherwise in form necessary to affect the reissuance and/or transfer), deliver or cause to be delivered to the transferee of such Purchaser or such Purchaser, as applicable, a certificate representing such Securities that is free from all restrictive and other legends.  The Company may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section 4.1.  In lieu of delivering physical certificates, upon the written request of any Purchaser, the Company shall use its commercially reasonable efforts to transmit certificates for Securities subject to legend removal hereunder to such Purchaser by crediting the account of the transferee’s Purchaser’s prime broker with DTC through its Deposit Withdrawal Agent Commission (DWAC) system, or any successor system thereto.  The time periods for delivery and penalties described herein shall apply to the electronic transmittals described herein.  Any delivery not effected by electronic transmission shall be effected by delivery of physical certificates.  Each Purchaser agrees that the removal of the restrictive legend from any certificates representing Securities as set forth in this Section 4.1(c) above is predicated upon the Company’s reliance that such Purchaser would sell, transfer, assign, pledge, hypothecate or otherwise dispose of such Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if such Securities are sold pursuant to a Registration Statement, they will be sold in compliance with the plan of distribution set forth therein.

(d)            Irrevocable Transfer Agent Instructions .  The Company shall execute and deliver irrevocable instructions to its Transfer Agent, which irrevocable instructions shall be acknowledged in writing by the Transfer Agent, in the form of Exhibit F attached hereto (the “ Irrevocable Transfer Agent Instructions ”). The Company represents and warrants that no instruction other than the Irrevocable Transfer Agent Instructions or instructions consistent therewith referred to in this Section 4.1(d) will be given by the Company to its transfer agent in connection with this Agreement, and that the Shares shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement, the other Transaction Documents and applicable law. The Company acknowledges that a breach by it of its obligations under this Section 4.1(d) will cause irreparable harm to a Purchaser. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 4.1(d) will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 4.1(d), that a Purchaser shall be entitled, in addition to all other available remedies, to an order and/or injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required.

(e)            Acknowledgment .  Each Purchaser hereunder acknowledges its primary responsibilities under the Securities Act and accordingly will not sell or otherwise transfer any of the Securities or any interest therein without complying with the requirements of the Securities Act.  While any Registration Statement remains effective, each Purchaser hereunder may sell the Shares in accordance with the plan of distribution contained in such Registration Statement and, if it does so, it will comply therewith and with the related prospectus delivery requirements unless an exemption therefrom is available.  Each Purchaser, severally and not jointly with the other Purchasers, agrees that if it is notified by the Company in writing at any time that a Registration Statement registering the resale of any of the Shares is not effective or that the prospectus included in such Registration Statement no longer complies with the requirements of Section 10 of the Securities Act, the Purchaser will refrain from selling such Shares until such time as the Purchaser is notified by the Company that such Registration Statement is effective or such prospectus is compliant with Section 10 of the Exchange Act, unless such Purchaser is able to, and does, sell such Shares pursuant to an available exemption from the registration requirements of Section 5 of the Securities Act.  Both the Company and its Transfer Agent, and their respective directors, officers, employees and agents, may rely on this subsection (e), and each Purchaser hereunder will indemnify and hold harmless each of such persons from any breaches or violations of this paragraph.

4.2            Reservation of Common Stock .  As of the First Unit Closing Date, the Company shall have taken all action necessary to authorize, and reserve for the purpose of issuance from and after the First Unit Closing, no less than the maximum number of shares of Common Stock issuable as Conversion Shares at the First Unit Closing, and issuable upon exercise of the Warrants issued at the First Unit Closing.  As of the Second Unit Closing Date, the Company shall have taken all action necessary to authorize, and reserve for the purpose of issuance from and after the Second Unit Closing, no less than the maximum number of shares of Common Stock issuable as Conversion Shares at the Second Unit Closing, and issuable upon exercise of the Warrants issued at the Second Unit Closing.  As of the Common Equity Closing Date, the Company shall have taken all action necessary to authorize, and reserve for the purpose of issuance at the Common Equity Closing, no less than the maximum number of shares of Common Stock issuable at the Common Equity Closing.

4.3            Furnishing of Information .  In order to enable the Purchasers to sell the Securities under Rule 144 of the Securities Act, commencing on the date hereof and ending at such time as all Purchasers can freely sell Securities without restriction under the Securities Act, the Company shall use its commercially reasonable efforts to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act.  During such period, if the Company is not required to file reports pursuant to such laws, it will prepare and furnish to the Purchasers and make publicly available in accordance with Rule 144(c) such information as is required for the Purchasers to sell the Shares under Rule 144.

4.4            Form D and Blue Sky .  The Company agrees to timely file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to each Purchaser who requests a copy in writing promptly after such filing.  The Company shall make all filings and reports relating to the offer and sale of the Securities required under applicable securities or “Blue Sky” laws of the states of the United States following each of the First Unit Closing Date, the Second Unit Closing Date and the Common Equity Closing Date.

4.5            No Integration .  The Company shall not, and shall use its commercially reasonable efforts to ensure that no Affiliate of the Company shall, sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that will be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities to the Purchasers, or that will be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market such that it would require stockholder approval prior to the closing of such other transaction unless stockholder approval is obtained before the closing of such subsequent transaction.

4.6            Securities Laws Disclosure; Publicity .  By 9:00 a.m., Eastern Time, on the Trading Day immediately following the execution of this Agreement, the Company shall issue a press release (the “ Press Release ”) reasonably acceptable to the Lead Purchasers disclosing all material terms of the transactions contemplated hereby.  On or before 5:30 p.m., Eastern Time, on the fourth Trading Day following the execution of this Agreement (or such earlier time as required by law), the Company will file a Current Report on Form 8-K with the Commission describing the terms of the Transaction Documents (and including as exhibits to such Current Report on Form 8-K the material Transaction Documents (including, without limitation, this Agreement, the forms of Warrant and the Investor Rights Agreement)).  Each Purchaser, severally and not jointly with the other Purchasers, covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company as described in this Section 4.6, such Purchaser will maintain the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction), except that such Purchaser may disclose the terms to its financial, accounting, legal and other advisors.

4.7            Non-Public Information .  Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company shall not and shall cause each of its officers, directors, employees and agents, not to, provide any Purchaser with any material, non-public information regarding the Company from and after the issuance of the Press Release without the express written consent of such Purchaser, unless prior thereto such Purchaser shall have executed a written agreement regarding the confidentiality and use of such information.

4.8            Indemnification .  In addition to the indemnity provided in the Investor Rights Agreement, the Company agrees to, jointly and severally, indemnify and hold each Purchaser and all of their respective directors, officers, stockholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such Purchaser, each Person who Controls a Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, stockholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling person (each, a “ Purchaser Party ”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur whether direct, indirect or consequential, as a result of or arising from or relating to or in connection with (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against a Purchaser, or any of their respective Affiliates, by any Person who is not an Affiliate of such Purchaser, with respect to any of transactions contemplated by the Transaction Documents (unless such action is based upon any agreements or understanding such Purchaser may have with any such Person or any violations by the Purchaser of state or federal securities laws or any conduct by such Purchaser which constitutes fraud, gross negligence or willful misconduct).  The Company will not be liable to any Purchaser Party under this Agreement to the extent, but only to the extent, that a loss, claim, damage or liability is attributable to such Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents, any violation by such Purchaser Party of state or federal securities laws or any conduct by such Purchaser Party which constitutes fraud, gross negligence or willful misconduct.  To the extent that the undertaking to indemnify, pay and hold harmless set forth in this Section 4.8 may be unenforceable because it is violative of any law or public policy, the Company shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law, to the payment and satisfaction of all indemnified matters incurred by the Purchaser Parties.

4.9            Listing of Securities .  In the time and manner required by the Principal Trading Market, the Company shall prepare and file with such Trading Market an additional shares listing application covering all of the Securities and shall use its commercially reasonable efforts to take all steps necessary to maintain, so long as any other shares of Common Stock shall be so listed, such listing.

4.10            Dispositions and Confidentiality After the Date Hereof .  Each Purchaser, severally and not jointly with the other Purchasers, covenants that neither it, nor any Affiliate acting on its behalf or pursuant to any understanding with it, will engage in any transactions in the Company’s securities (including, without limitation, any Short Sales involving the Company’s securities) during the period from the date hereof until the earlier of such time as (i) the transactions contemplated by this Agreement are first publicly announced as described in Section 4.6 or (ii) this Agreement is terminated in full pursuant to Section 6.1 hereof.  Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser's assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the covenants set forth above shall apply only with respect to the portion of assets managed by the portfolio manager that has knowledge about the transactions contemplated by this Agreement.  Each Purchaser understands and acknowledges, severally and not jointly with any other Purchaser, that the Commission currently takes the position that covering a short position established prior to effectiveness of a resale registration statement with shares included in such registration statement would be a violation of Section 5 of the Securities Act, as set forth in Item 65, Section 5 under Section A, of the Manual of Publicly Available Telephone Interpretations, dated July 1997, compiled by the Office of Chief Counsel, Division of Corporation Finance.

4.11          Preparation of Proxy Statement; Stockholders Meeting .

(a)           The Company shall use commercially reasonable efforts to prepare and file with the Commission, as soon as practicable after the First Unit Closing, and in no event later than May 31, 2009, a proxy statement (as amended or supplemented, the “ Proxy Statement ”) to be sent to the stockholders of the Company in connection with the annual meeting of the Company’s stockholders (the “ Stockholders’ Meeting ”) for the purpose of obtaining the requisite vote of the Company’s stockholders to approve: (i) the sale and issuance of the Units at the Second Unit Closing, including the issuance of the Unit Shares, the Warrants and the Warrant Shares to be sold in such Closing; (ii) the expiration of the Warrant Exercise Cap; (iii) the amendments to the Company’s Amended and Restated Certificate of Incorporation described on Exhibit I hereto and (iv) the sale and issuance of the Common Equity Shares at the Common Equity Closing, as well as other matters contemplated by the Transaction Documents or otherwise in the ordinary course of the Company’s business and acceptable to the Lead Purchasers, which requisite vote shall be obtained in accordance with the rules of the Principal Trading Market, the provisions of the Company’s Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws, and the requirements of the DGCL (collectively, items (i)-(iv) above being the “ Transaction Stockholder Approval Matters ”).  The Company shall provide the Lead Purchasers a draft of the Proxy Statement (including any amendments or supplements thereto) at least five (5) Business Days prior to filing thereof (and copies of each subsequent draft thereof), and the Company shall give reasonable consideration to any comments by the Lead Purchasers and their counsel to such Proxy Statement prior to filing with the Commission or distribution to the Company’s stockholders. The information supplied by the Company for inclusion in the Proxy Statement shall not, on the date the Proxy Statement is first mailed to the Company’s stockholders and at the time of the Stockholders’ Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not false or misleading; or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the Stockholders’ Meeting which has become false or misleading.  The Proxy Statement will comply as to form in all material respects with the provisions of the Exchange Act and the rules and regulations thereunder.  If at any time prior to the Stockholders’ Meeting, any event or information should be discovered by the Company which should be set forth in a supplement to the Proxy Statement, the Company shall promptly inform the Lead Purchasers.  Notwithstanding the foregoing, the Company makes no representation or warranty with respect to any written information supplied by the Purchasers and relating to the Purchasers for use in the Proxy Statement.

(b)           The Company shall use its commercially reasonable efforts to have the Proxy Statement cleared by the Commission and its staff under the Exchange Act as promptly as practicable after such filing.  The Company shall cause the Proxy Statement to be mailed to holders of Common Stock as promptly as practicable after the Proxy Statement is cleared by the Commission.  Without limiting any other provision herein, the Proxy Statement will contain such information and disclosure so that the Proxy Statement conforms in all material respects to the requirements of the Exchange Act.

(c)           The Company shall promptly notify the Lead Purchasers of the receipt of any comments from the Commission or its staff and of any request by the Commission or its staff for amendments or supplements to the Proxy Statement or for additional information and shall supply the Lead Purchasers with copies of all correspondence between the Company or any of its representatives and the Commission or its staff.

(d)           If at any time prior to the Stockholders’ Meeting there shall occur any event with respect to the Company, or with respect to other information supplied by the Company for inclusion in the Proxy Statement, which event is required to be described in an amendment of or a supplement to the Proxy Statement, such event shall be so described, and such amendment or supplement shall be promptly filed with the Commission and, as required by applicable law, rule or regulation, disseminated to the stockholders of the Company.

(e)           The Company shall duly call, give notice of, convene and hold the Stockholders’ Meeting for the purpose of seeking the Stockholder Approval.  The Stockholders’ Meeting shall be held no later than June 30, 2009; provided , that if the Company does not hold the Stockholders’ Meeting by such date, then it shall exercise all reasonable efforts to promptly convene a special meeting of the Company’s Stockholders to consider and approve the Transaction Stockholder Approval Matters.

(f)           The Proxy Statement shall include a statement to the effect that the Board unanimously (of those voting) recommends that the Company’s stockholders give the Stockholder Approval (the “ Board Recommendation ”), and, except to the extent that the Board shall have withdrawn or modified the Board Recommendation in accordance with this Agreement, the Board Recommendation shall not be withdrawn or modified in a manner adverse to the Purchasers, and no resolution by the Board or any committee thereof to withdraw or modify the Board Recommendation in a manner adverse to the Purchasers shall be adopted or proposed.

(g)           Each Purchaser covenants and represents, severally and not jointly, that: (A) the information supplied by such Purchaser for inclusion in the Proxy Statement shall not, on the date the Proxy Statement is first mailed to the Company’s stockholders and at the time of the Stockholders’ Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not false or misleading, and (B) if at any time prior to the Stockholders’ Meeting, any event or information should be discovered by such Purchaser which should be set forth in a supplement to the Proxy Statement, such Purchaser shall promptly inform the Company of the same.  Notwithstanding the foregoing, no Purchaser makes any representation or warranty with respect to any information supplied by the Company which is contained in the Proxy Statement.

4.12            No Shop Agreement.   Until the earlier to occur of (i) the First Unit Closing or (ii) a valid termination of this Agreement pursuant to Article VI hereof, the Company will not, and will not cause nor permit any of its Affiliates or any of its or their officers, directors, stockholders, employees, agents or representatives to, directly or indirectly:

(a)           negotiate, authorize, recommend, enter into or propose to enter into, with any Person other than Persons designated by mutual agreement of the Company and the Lead Purchasers, any transaction involving (directly or indirectly) an issuance, sale or acquisition of any Capital Stock of the Company (other than (i) the issuance of Securities pursuant to the Transaction Documents, (ii) employee, director and consultant stock option grants consistent with past custom and practice and (iii) shares of Common Stock issued upon the exercise of (A) warrants in existence as of the date hereof or (B) stock options granted to employees, directors or consultants of the Company and that are either in existence as of the date hereof or that have been granted consistent with past custom and practice), a sale, lease or other conveyance of a substantial portion of the business or assets of the Company, or any merger, recapitalization, business combination, strategic alliance, joint venture or similar transaction involving the Company (a “ Competing Transaction ”);

(b)           continue to engage in any pending discussions or negotiations with any third party concerning any previously proposed Competing Transaction;

(c)           knowingly encourage, solicit or initiate discussions, negotiations or submissions of proposals, indications of interest or offers in respect of a Competing Transaction; or

(d)           knowingly furnish or cause to be furnished to any person any information in furtherance of a Competing Transaction.

Notwithstanding the foregoing, nothing contained in this Agreement shall prevent the Company or the Board from (A) providing information in response to a request therefor by a person who has made an unsolicited bona fide written proposal for a Competing Transaction; (B) engaging in any negotiations or discussions with any person who has made an unsolicited bona fide written proposal for a Competing Transaction; or (C) withdrawing the Board Recommendation or modifying the Board Recommendation in a manner adverse to the Purchasers (any such action, a “ Change in Recommendation ”); (D) terminating this Agreement pursuant to and subject to the terms of Article VI hereof, and/or (E) taking any action that any court of competent jurisdiction orders the Company or the Board to take, if and only to the extent that, (i) in each such case referred to in clause (B) (to the extent that activities exceed such level of discussion as is reasonably necessary to obtain sufficient information to assess the likely value of such proposal) or (C) above, the failure to take such action would be reasonably likely to result in a breach of the Board’s fiduciary duties under applicable law, (ii) in each such case referred to in clause (A) or (B) above, the Board also determines in good faith that such proposed Competing Transaction constitutes or would reasonably be expected to lead to a Superior Proposal, and (iii) in the case referred to in clauses (C) or (D) above, (x) the Board has given the Purchasers five (5) Business Days’ prior written notice of its intention to take such action, (y) the Board has considered any changes to this Agreement (if any) proposed by the Purchasers, and (z) if such action is in connection with a Superior Proposal, the Board has determined in good faith and by a majority vote of the Board, after consultation with the Company’s outside legal counsel, that any applicable unsolicited proposal remains a Superior Proposal even after the changes proposed by any of the Purchasers (if any).  Nothing contained in this Agreement shall prevent the Company or the Board from complying with its disclosure obligations under Rule 14d-9 or 14e-2 or Item 1012(a) of Regulation M-A promulgated under the Exchange Act with regard to a proposed Competing Transaction.  If the Company receives any inquiry, proposal, indication of interest or offer with respect to a Competing Transaction, the Company will promptly notify the Lead Purchasers of the same, which notice shall identify the Person or Persons making such inquiry, proposal, indication of interest or offer and shall summarize the terms thereof in reasonable detail.

4.13            Use of Proceeds .  Unless otherwise approved in writing by the Majority Purchasers, the Company shall not use any proceeds from the sale of the Securities hereunder other than for working capital and general corporate purposes.

4.14            Section 16 .  Prior to any of the Second Unit Closing, the Common Equity Closing or a closing of an Alternate Common Stock Financing, to the extent permissable under applicable law, the Company shall cause the Board to take such action necessary or advisable to exempt from the provisions of Section 16(b) of the Exchange Act, including by virtue or Rule 16b-3(d) thereunder, the acquisition of securities at such closing by any Purchaser who at that time may be deemed to be a director of the Company through any theory of director-by-deputization.

5.1            Conditions Precedent to the Obligations of the Purchasers to Purchase Securities at the First Unit Closing . The obligation of each Purchaser to purchase Units at the First Unit Closing is subject to the fulfillment to such Purchaser’s satisfaction, on or prior to the First Unit Closing Date, of each of the following conditions, any of which may be waived by such Purchaser (as to itself only):

(a)            Representations and Warranties .  The representations and warranties of the Company contained herein shall be true and correct as of the date when made and as of the First Unit Closing Date, as though made on and as of such date, except for such representations and warranties that speak as of a specific date, which shall have been true and correct as of such date.

(b)            Performance .  The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by it at or prior to the First Unit Closing.

(c)            No Legal Restraint .  No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any Governmental Authority of competent jurisdiction (collectively, a “ Legal Restraint ”) that remains in effect and prohibits the consummation of any of the transactions contemplated by the Transaction Documents.

(d)            Consents and Approvals .  The Company shall have obtained in a timely fashion any and all consents, permits, approvals, registrations and waivers necessary for consummation of the purchase and sale of the Units at the First Unit Closing (including, without limitation, all Required Approvals (other than the Stockholder Approval, which is not applicable to the First Unit Closing) and any other necessary regulatory and third party consents and approvals), all of which shall be and remain so long as necessary in full force and effect.

(e)            Company Deliverables .  The Company shall have delivered the Company Deliverables in accordance with Section 2.2(a).

(f)            Compliance Certificate .  The Company shall have delivered to each Purchaser a certificate, dated as of the First Unit Closing Date and signed by its Chief Executive Officer or its Chief Financial Officer, certifying to the fulfillment of the conditions specified in Sections 5.1(a), (b), (d) and (e) in substantially the form attached hereto as Exhibit H .

(g)            Employee Retention Plan .  The Company shall have adopted an Employee Retention Plan on substantially the terms set forth on Exhibit J hereto, including the modifications to existing arrangements described therein, and the parties to the existing arrangements shall have agreed to modify such arrangements as may be required by the terms of the Employee Retention Plan.

(h)            Board of Directors .  Upon the First Unit Closing, the authorized size of the Board shall be eight (8) members, of which three (3) members shall be designated by the Purchasers pursuant to the Investor Rights Agreement.

5.2            Conditions Precedent to the Obligations of the Company to Sell Securities at the First Unit Closing .  The Company's obligation to sell and issue the Units to each Purchaser at the First Unit Closing is subject to the fulfillment to the satisfaction of the Company on or prior to the First Unit Closing Date of the following conditions, any of which may be waived by the Company:

(a)            Representations and Warranties .  The representations and warranties made by such Purchaser in Section 3.2 hereof shall be true and correct in all material respects as of the date when made, and as of the First Unit Closing Date as though made on and as of such date, except for representations and warranties that speak as of a specific date, which shall have been true and correct as of such date.

(b)            Performance .  Such Purchaser shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by such Purchaser at or prior to the First Unit Closing Date.

(c)            No Legal Restraint .  No Legal Restraint shall have been enacted, entered, promulgated or endorsed by any Governmental Authority of competent jurisdiction that remains in effect and prohibits the consummation of any of the transactions contemplated by the Transaction Documents.

(d)            Consents and Approvals .  The Company shall have obtained in a timely fashion any and all consents, permits, approvals, registrations and waivers necessary for consummation of the purchase and sale of the Units at the First Unit Closing (including, without limitation, all Required Approvals, other than the Stockholder Approval, and any other necessary regulatory and third party consents and approvals), all of which shall be and remain so long as necessary in full force and effect.

(e)            Purchaser Deliverables .  Such Purchaser shall have delivered its Purchaser Deliverables in accordance with Section 2.2(e).

5.3            Conditions Precedent to the Obligations of the Purchasers to Purchase Securities at the Second Unit Closing .  The obligation of each Purchaser to acquire the Units at the Second Unit Closing is subject to the fulfillment to such Purchaser’s satisfaction, on or prior to the Second Unit Closing Date, of each of the following conditions, any of which may be waived by such Purchaser (as to itself only):

(a)            Representations and Warranties .  The representations and warranties of the Company contained herein shall be true and correct in all material respects (except for those representations and warranties which are qualified as to materiality, in which case such representations and warranties shall be true and correct in all respects) as of the Second Unit Closing Date, as though made on and as of such date, except for such representations and warranties that speak as of a specific date, which shall have been true and correct in all material respects (except for those representations and warranties which are qualified as to materiality, in which case such representations and warranties shall be true and correct in all respects) as of such date.

(b)            Performance .  The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by it at or prior to the Second Unit Closing.

(c)            No Legal Restraint .  No Legal Restraint shall have been enacted, entered, promulgated or endorsed by any Governmental Authority of competent jurisdiction that remains in effect and prohibits the consummation of any of the transactions contemplated by the Transaction Documents.

(d)            Consents and Approvals .  The Company shall have obtained in a timely fashion any and all consents, permits, approvals, registrations and waivers necessary for consummation of the purchase and sale of the Units at the Second Unit Closing (including, without limitation, all Required Approvals and any other necessary regulatory and third party consents and approvals), all of which shall be and remain so long as necessary in full force and effect.

(e)            Company Deliverables .  The Company shall have delivered the Company Deliverables in accordance with Section 2.2(b).

(f)            First Unit Closing .  The First Unit Closing shall have occurred.

(g)            Compliance Certificate .  The Company shall have delivered to such Purchaser a certificate, dated as of the Second Unit Closing Date and signed by its Chief Executive Officer or its Chief Financial Officer, certifying to the fulfillment of the conditions specified in Sections 5.3(a), (b), (d) and (e) in the form attached hereto as Exhibit H.

(h)            Board of Directors .  Upon the Second Unit Closing, the authorized size of the Board shall be nine (9) members, of which five (5) members shall be designated by the Purchasers to the extent provided by the Investor Rights Agreement.

(i)            Solvency .  After giving effect to the Second Unit Closing, the Company is not insolvent, does not have unreasonably small capital with which to engage in its business or have incurred debts beyond its ability to pay such debts as they mature, and as of the Second Unit Closing, the Board has no plan or intention to commence a process to liquidate or wind down the Company, or a reasonable basis to believe that such a process would be commenced immediately following the Second Unit Closing.

5.4            Conditions Precedent to the Obligations of the Company to sell Securities at the Second Unit Closing .  The Company's obligation to sell and issue the Units at the Second Unit Closing to each Purchaser is subject to the fulfillment to the satisfaction of the Company on or prior to the Second Unit Closing Date of the following conditions, any of which may be waived by the Company:

(a)            Representations and Warranties .  The representations and warranties made by such Purchaser in Section 3.2 hereof shall be true and correct in all material respects as of the date when made, and as of the Second Unit Closing Date as though made on and as of such date, except for representations and warranties that speak as of a specific date, which shall have been true and correct in all material respects (except for those representations and warranties which are qualified as to materiality, in which case such representations and warranties shall be true and correct in all respects) as of such date.

(b)            Performance .  Such Purchaser shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by such Purchaser at or prior to the Second Unit Closing Date.

(c)            No Legal Restraint .  No Legal Restraint shall have been enacted, entered, promulgated or endorsed by any Governmental Authority of competent jurisdiction that remains in effect and prohibits the consummation of any of the transactions contemplated by the Transaction Documents.

(d)            Consents and Approvals .  The Company shall have obtained in a timely fashion any and all consents, permits, approvals, registrations and waivers necessary for consummation of the purchase and sale of the Units at the Second Unit Closing (including, without limitation, all Required Approvals and any other necessary regulatory and third party consents and approvals), all of which shall be and remain so long as necessary in full force and effect.

(e)            Purchaser Deliverables .  Such Purchaser shall have delivered its Purchaser Deliverables in accordance with Section 2.2(e).

5.5            Conditions Precedent to the Obligations of the Purchasers to Purchase Common Stock at the Common Equity Closing . The obligation of each Purchaser to acquire the Common Stock at the Common Equity Closing is subject to the fulfillment to such Purchaser’s satisfaction, on or prior to the Common Equity Closing Date, of each of the following conditions, any of which may be waived by such Purchaser (as to itself only):

(a)            Representations and Warranties .  The representations and warranties of the Company contained herein shall be true and correct in all material respects (except for those representations and warranties which are qualified as to materiality, in which case such representations and warranties shall be true and correct in all respects) as of the Common Equity Closing Date, as though made on and as of such date, except for such representations and warranties that speak as of a specific date, which shall have been true and correct in all material respects (except for those representations and warranties which are qualified as to materiality, in which case such representations and warranties shall be true and correct in all respects) as of such date.

(b)            Performance .  The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by it at or prior to the Common Equity Closing.

(c)            No Legal Restraint .  No Legal Restraint shall have been enacted, entered, promulgated or endorsed by any Governmental Authority of competent jurisdiction that remains in effect and prohibits the consummation of any of the transactions contemplated by the Transaction Documents.

(d)            Consents and Approvals .  The Company shall have obtained in a timely fashion any and all consents, permits, approvals, registrations and waivers necessary for consummation of the purchase and sale of the Common Stock at the Common Equity Closing (including, without limitation, all Required Approvals and any other necessary regulatory and third party consents and approvals), all of which shall be and remain so long as necessary in full force and effect.

(e)            Filing of Certificate of Amendment .  A Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation (or, in lieu thereof, a new Amended and Restated Certificate of Incorporation) containing the amendments to the Company’s Amended and Restated Certificate of Incorporation described on Exhibit I hereto (the “ Charter Amendment ”) shall have been duly filed by the Company with the Secretary of State of the State of Delaware in accordance with the DGCL, and the Purchasers shall have received evidence of such filing in form and substance reasonably satisfactory to the Purchasers.

(f)            Company Deliverables .  The Company shall have delivered the Company Deliverables in accordance with Section 2.2(c).

(g)            First Unit Closing .  The First Unit Closing shall have occurred.

(h)            Compliance Certificate .  The Company shall have delivered to such Purchaser a certificate, dated as of the Common Equity Closing Date and signed by its Chief Executive Officer or its Chief Financial Officer, certifying to the fulfillment of the conditions specified in Sections 5.5(a), (b), (d), (e) and (f) in the form attached hereto as Exhibit H.

(i)            Board of Directors .  Upon the Common Equity Closing, the authorized size of the Board shall be nine (9) members, of which five (5) members shall be designated by the Purchasers to the extent required by the Investor Rights Agreement.

5.6            Conditions Precedent to the Obligations of the Company to Sell Common Stock at the Common Equity Closing .  The Company's obligation to sell and issue the Common Stock at the Common Equity Closing to each Purchaser is subject to the fulfillment to the satisfaction of the Company on or prior to the Common Equity Closing Date of the following conditions, any of which may be waived by the Company:

(a)            Representations and Warranties .  The representations and warranties made by such Purchaser in Section 3.2 hereof shall be true and correct in all material respects as of the date when made, and as of the Common Equity Closing Date as though made on and as of such date, except for representations and warranties that speak as of a specific date, which shall have been true and correct in all material respects (except for those representations and warranties which are qualified as to materiality, in which case such representations and warranties shall be true and correct in all respects) as of such date.

(b)            Performance .  Such Purchaser shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by such Purchaser at or prior to the Common Equity Closing Date.

(c)            No Legal Restraint .  No Legal Restraint shall have been enacted, entered, promulgated or endorsed by any Governmental Authority of competent jurisdiction that remains in effect and prohibits the consummation of any of the transactions contemplated by the Transaction Documents.

(d)            Consents and Approvals .  The Company shall have obtained in a timely fashion any and all consents, permits, approvals, registrations and waivers necessary for consummation of the purchase and sale of the Common Stock at the Common Equity Closing (including, without limitation, all Required Approvals and any other necessary regulatory and third party consents and approvals), all of which shall be and remain so long as necessary in full force and effect.

(e)            Purchaser Deliverables .  Such Purchaser shall have delivered its Purchaser Deliverables in accordance with Section 2.2(e).

6.1            Termination Prior to the First Unit Closing .  This Agreement and the purchase and sale of the Units at the First Unit Closing may be terminated at any time following the Execution Date and prior to the First Unit Closing:

(a)           by mutual written consent of the Company and the Majority Purchasers;

(b)           by the Lead Purchasers or the Company, if (i) the First Unit Closing shall not have been consummated on or prior to April 30, 2009   or such other date, if any, as the Lead Purchasers and the Company may agree in writing; or (ii) any Legal Restraint (which Legal Restraint the parties hereto shall have used all commercially reasonable efforts to resist, resolve or lift, as applicable) permanently restraining, enjoining or otherwise prohibiting consummation of the First Unit Closing shall become final and non-appealable, provided that the right to terminate this Agreement pursuant to this Section 6.1(b) shall not be available to any party hereto whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, with respect to clauses (i) above, the failure of the First Unit Closing to be consummated or, with respect to clause (ii) above, such Legal Restraint having been issued; or

(c)           by the Company, if the Board authorizes the Company, subject to complying with the terms of this Agreement, to accept (or to enter into a written agreement for a transaction constituting) a Superior Proposal, provided that (i) the Company notifies each Purchaser, in writing and at least five (5) Business Days prior to such termination, of its intention to terminate this Agreement to accept (or to enter into a written agreement for a transaction constituting) a Superior Proposal; and (ii) the Purchasers do not make prior to such termination a binding, unconditional offer that the Board determines, in good faith after consultation with its financial advisor, is at least as favorable to the stockholders of the Company as such Superior Proposal, it being understood that the Company shall not enter into any such binding agreement during such five (5) Business Day period.

6.2            Effect of Termination .

(a)           In the event that this Agreement is validly terminated as provided herein, then neither the Company nor the Purchasers shall have any further obligation or liability (including arising from such termination) to the other, and no Purchaser will have any liability to any other Purchaser under the Transaction Documents as a result therefrom; provided ,   however , that nothing in this Section 6.2 shall be deemed to release any party from any liability for any willful breach by such party of the terms and provisions of this Agreement or the other Transaction Documents or to impair the right of any party to compel specific performance by any other party of its obligations under this Agreement or the other Transaction Documents.  In the event that this Agreement is validly terminated as provided herein, the Company shall promptly notify all non-terminating Purchasers.

(b)           The provisions of Article I (Definitions), Section 4.8 (Indemnification), this Section 6.2, and Article VII (Miscellaneous) shall survive any termination of this Agreement pursuant to Section 6.1 hereof.

7.1            Fees and Expenses .  The Company shall reimburse the Lead Purchasers for all reasonable legal fees and expenses incurred in connection with the Lead Purchasers’ negotiation, execution, delivery and performance of this Agreement and the other Transaction Documents (and any amendments, modifications or waivers thereto), provided   that the Company shall not be required to reimburse such fees and expenses in excess of two hundred thousand dollars ($200,000.00) in the aggregate, unless a higher amount is mutually agreed to by the Company and the Lead Purchasers in writing.  The Company shall also reimburse the Lead Purchasers for all reasonable legal fees and expenses incurred in connection with their participation and investment in the Common Equity Closing or an Alternative Common Stock Financing, as the case may be, provided   that the Company shall not be required to reimburse such fees and expenses in excess of one hundred thousand dollars ($100,000.00) in the aggregate, unless a higher amount is mutually agreed to by the Company and the Lead Purchasers in writing.  Subject to the foregoing limitations, such fees and expenses shall be reimbursed by the Company within ten (10) days following receipt of a written invoice documenting in reasonable detail such fees and expenses of the Lead Purchasers.  Except as provided above, the Company and the Purchasers shall each pay the fees and expenses of their respective advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party in connection with the preparation, negotiation, execution, delivery and performance of this Agreement and the other Transaction Documents.  The Company shall pay all Transfer Agent fees, stamp taxes and other taxes and duties levied in connection with the sale and issuance of the Securities to the Purchasers, and shall pay the Placement Agent Fees and any other placement agent fees in connection with the transactions contemplated by this Agreement.

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

7.3            Notices .  Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile (provided the sender receives a machine-generated confirmation of successful transmission) at the facsimile number specified in this Section 7.3 prior to 5:00 p.m., Pacific Time, on a Trading Day, except in the event that the recipient is located outside the United States, in which case notice shall be deemed given and effective on the next Trading Day after the date of transmission, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 5:00 p.m., Pacific Time, on any Trading Day, (c) the Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service with next day delivery specified, or in the event the recipient is located outside the United States, five (5) Trading Days following the date of mailing, if sent by internationally recognized overnight courier service with next day delivery specified, or (d) upon actual receipt by the party to whom such notice is required to be given.  The address for such notices and communications shall be as follows:

(a)          If to the Company:

Five Palo Alto Square

Palo Alto, California 94306-2155

(b)          If to a Purchaser:

To the address set forth under such Purchaser’s name on the signature page hereof.

(c)           If to the Lead Purchasers:

Bay City Capital L.P.

37 ^th Floor

San Francisco, CA  94111

Telephone No: (415) 362-4022

Facsimile No.: (415) 362-6178

Attention:  Hilary Strain

140 Scott Drive

Linda J. Lorenat, Esq.

7.4            Amendments; Waivers; No Additional Consideration .  No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment,