0001104659-07-055445.txt : 20070723 0001104659-07-055445.hdr.sgml : 20070723 20070723170115 ACCESSION NUMBER: 0001104659-07-055445 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20070723 DATE AS OF CHANGE: 20070723 GROUP MEMBERS: CHARLES R. KAYE GROUP MEMBERS: JOSEPH P. LANDY GROUP MEMBERS: WARBURG PINCUS & CO. GROUP MEMBERS: WARBURG PINCUS IX, LLC GROUP MEMBERS: WARBURG PINCUS LLC GROUP MEMBERS: WARBURG PINCUS PARTNERS LLC SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: INSPIRE PHARMACEUTICALS INC CENTRAL INDEX KEY: 0001040416 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 043209022 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-60379 FILM NUMBER: 07994188 BUSINESS ADDRESS: STREET 1: 4222 EMPEROR BLVD STE 200 CITY: DURHAM STATE: NC ZIP: 27703-8466 BUSINESS PHONE: 9199419777 MAIL ADDRESS: STREET 1: 4222 EMPEROR BLVD STREET 2: STE 200 CITY: DURHAM STATE: NC ZIP: 27703-8466 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: Warburg Pincus Private Equity IX, L.P. CENTRAL INDEX KEY: 0001332737 IRS NUMBER: 202976029 FISCAL YEAR END: 1204 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: C/O WARBURG PINCUS LLC STREET 2: 466 LEXINGTON AVENUE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 212-878-0600 MAIL ADDRESS: STREET 1: C/O WARBURG PINCUS LLC STREET 2: 466 LEXINGTON AVENUE CITY: NEW YORK STATE: NY ZIP: 10017 SC 13D 1 a07-19806_1sc13d.htm SC 13D

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 13D

Under the Securities Exchange Act of 1934*

INSPIRE PHARMACEUTICALS, INC.

(Name of Issuer)

Common Stock, Par Value $0.001 Per Share

Series A Exchangeable Preferred Stock, Par Value $0.001 Per Share

(Title of Class of Securities)

457733103

(CUSIP Number)

Scott A. Arenare, Esq.

Managing Director and General Counsel

Warburg Pincus LLC

466 Lexington Avenue

New York, NY 10017

(212) 878-0600

(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)

With copies to:

Steven J. Gartner, Esq.

Mark A. Cognetti, Esq.

Willkie Farr & Gallagher LLP

787 Seventh Avenue

New York, NY 10019

(212) 728-8000

July 20, 2007

(Date of Event which Requires Filing of this Statement)

If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§ 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box: o

NOTE: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 240.13d-7 for other parties to whom copies are to be sent.

* The remainder of this cover page shall be filled out for a reporting person’s initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.

The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).

CUSIP No. 457733103

	1.	Names of Reporting Persons. I.R.S. Identification Nos. of above persons (entities only) Warburg Pincus Private Equity IX, L.P. 20-2975990

	2.	Check the Appropriate Box if a Member of a Group (See Instructions)
		(a)			o
		(b)			x

	3.	SEC Use Only

	4.	Source of Funds (See Instructions) N/A

	5.	Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) o

	6.	Citizenship or Place of Organization Delaware

Number of Shares Beneficially Owned by Each Reporting Person With			7.	Sole Voting Power -0-

			8.	Shared Voting Power 140,186**

			9.	Sole Dispositive Power -0-

			10.	Shared Dispositive Power 140,186**

	11.	Aggregate Amount Beneficially Owned by Each Reporting Person 140,186**

	12.	Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) o

	13.	Percent of Class Represented by Amount in Row (11) 24.8%

	14.	Type of Reporting Person (See Instructions) PN

** Represents 14,018,600 shares of Common Stock issuable upon exchange of the Exchangeable Preferred Stock (with the percentage ownership calculated using the number of outstanding shares of Common Stock after giving effect to the exchange of the outstanding shares of Exchangeable Preferred Stock).

CUSIP No. 457733103

	1.	Names of Reporting Persons. I.R.S. Identification Nos. of above persons (entities only) Warburg Pincus IX, LLC 20-2528842

	2.	Check the Appropriate Box if a Member of a Group (See Instructions)
		(a)			o
		(b)			x

	3.	SEC Use Only

	4.	Source of Funds (See Instructions) N/A

	5.	Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) o

	6.	Citizenship or Place of Organization New York

Number of Shares Beneficially Owned by Each Reporting Person With			7.	Sole Voting Power -0-

			8.	Shared Voting Power 140,186**

			9.	Sole Dispositive Power -0-

			10.	Shared Dispositive Power 140,186**

	11.	Aggregate Amount Beneficially Owned by Each Reporting Person 140,186**

	12.	Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) o

	13.	Percent of Class Represented by Amount in Row (11) 24.8%

	14.	Type of Reporting Person (See Instructions) OO

**Represents 14,018,600 shares of Common Stock issuable upon exchange of the Exchangeable Preferred Stock (with the percentage ownership calculated using the number of outstanding shares of Common Stock after giving effect to the exchange of the outstanding shares of Exchangeable Preferred Stock).

CUSIP No. 457733103

	1.	Names of Reporting Persons. I.R.S. Identification Nos. of above persons (entities only) Warburg Pincus Partners LLC 13-4069737

	2.	Check the Appropriate Box if a Member of a Group (See Instructions)
		(a)			o
		(b)			x

	3.	SEC Use Only

	4.	Source of Funds (See Instructions) N/A

	5.	Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) o

	6.	Citizenship or Place of Organization New York

Number of Shares Beneficially Owned by Each Reporting Person With			7.	Sole Voting Power -0-

			8.	Shared Voting Power 140,186**

			9.	Sole Dispositive Power -0-

			10.	Shared Dispositive Power 140,186**

	11.	Aggregate Amount Beneficially Owned by Each Reporting Person 140,186**

	12.	Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) o

	13.	Percent of Class Represented by Amount in Row (11) 24.8%

	14.	Type of Reporting Person (See Instructions) OO

**Represents 14,018,600 shares of Common Stock issuable upon exchange of the Exchangeable Preferred Stock (with the percentage ownership calculated using the number of outstanding shares of Common Stock after giving effect to the exchange of the outstanding shares of Exchangeable Preferred Stock).

CUSIP No. 457733103

	1.	Names of Reporting Persons. I.R.S. Identification Nos. of above persons (entities only) Warburg Pincus LLC 13-3536050

	2.	Check the Appropriate Box if a Member of a Group (See Instructions)
		(a)			o
		(b)			x

	3.	SEC Use Only

	4.	Source of Funds (See Instructions) N/A

	5.	Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) o

	6.	Citizenship or Place of Organization New York

Number of Shares Beneficially Owned by Each Reporting Person With			7.	Sole Voting Power -0-

			8.	Shared Voting Power 140,186**

			9.	Sole Dispositive Power -0-

			10.	Shared Dispositive Power 140,186**

	11.	Aggregate Amount Beneficially Owned by Each Reporting Person 140,186**

	12.	Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) o

	13.	Percent of Class Represented by Amount in Row (11) 24.8%

	14.	Type of Reporting Person (See Instructions) OO

**Represents 14,018,600 shares of Common Stock issuable upon exchange of the Exchangeable Preferred Stock (with the percentage ownership calculated using the number of outstanding shares of Common Stock after giving effect to the exchange of the outstanding shares of Exchangeable Preferred Stock).

CUSIP No. 457733103

	1.	Names of Reporting Persons. I.R.S. Identification Nos. of above persons (entities only) Warburg Pincus & Co. 13-6358475

	2.	Check the Appropriate Box if a Member of a Group (See Instructions)
		(a)			o
		(b)			x

	3.	SEC Use Only

	4.	Source of Funds (See Instructions) N/A

	5.	Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) o

	6.	Citizenship or Place of Organization New York

Number of Shares Beneficially Owned by Each Reporting Person With			7.	Sole Voting Power -0-

			8.	Shared Voting Power 140,186**

			9.	Sole Dispositive Power -0-

			10.	Shared Dispositive Power 140,186**

	11.	Aggregate Amount Beneficially Owned by Each Reporting Person 140,186**

	12.	Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) o

	13.	Percent of Class Represented by Amount in Row (11) 24.8%

	14.	Type of Reporting Person (See Instructions) PN

**Represents 14,018,600 shares of Common Stock issuable upon exchange of the Exchangeable Preferred Stock (with the percentage ownership calculated using the number of outstanding shares of Common Stock after giving effect to the exchange of the outstanding shares of Exchangeable Preferred Stock).

CUSIP No. 457733103

	1.	Names of Reporting Persons. I.R.S. Identification Nos. of above persons (entities only) Charles R. Kaye

	2.	Check the Appropriate Box if a Member of a Group (See Instructions)
		(a)			o
		(b)			x

	3.	SEC Use Only

	4.	Source of Funds (See Instructions) N/A

	5.	Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) o

	6.	Citizenship or Place of Organization United States of America

Number of Shares Beneficially Owned by Each Reporting Person With			7.	Sole Voting Power -0-

			8.	Shared Voting Power 140,186**

			9.	Sole Dispositive Power -0-

			10.	Shared Dispositive Power 140,186**

	11.	Aggregate Amount Beneficially Owned by Each Reporting Person 140,186**

	12.	Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) o

	13.	Percent of Class Represented by Amount in Row (11) 24.8%

	14.	Type of Reporting Person (See Instructions) IN

**Represents 14,018,600 shares of Common Stock issuable upon exchange of the Exchangeable Preferred Stock (with the percentage ownership calculated using the number of outstanding shares of Common Stock after giving effect to the exchange of the outstanding shares of Exchangeable Preferred Stock).

CUSIP No. 457733103

	1.	Names of Reporting Persons. I.R.S. Identification Nos. of above persons (entities only) Joseph P. Landy

	2.	Check the Appropriate Box if a Member of a Group (See Instructions)
		(a)			o
		(b)			x

	3.	SEC Use Only

	4.	Source of Funds (See Instructions) N/A

	5.	Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) o

	6.	Citizenship or Place of Organization United States of America

Number of Shares Beneficially Owned by Each Reporting Person With			7.	Sole Voting Power -0-

			8.	Shared Voting Power 140,186**

			9.	Sole Dispositive Power -0-

			10.	Shared Dispositive Power 140,186**

	11.	Aggregate Amount Beneficially Owned by Each Reporting Person 140,186**

	12.	Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) o

	13.	Percent of Class Represented by Amount in Row (11) 24.8%

	14.	Type of Reporting Person (See Instructions) IN

**Represents 14,018,600 shares of Common Stock issuable upon exchange of the Exchangeable Preferred Stock (with the percentage ownership calculated using the number of outstanding shares of Common Stock after giving effect to the exchange of the outstanding shares of Exchangeable Preferred Stock).

Item 1. Security and Issuer

This statement on Schedule 13D (the “Schedule 13D”) relates to the common stock, par value $0.001 per share (the “Common Stock”), and the Series A Exchangeable Preferred Stock, par value $0.001 per share (the “Exchangeable Preferred Stock”), of Inspire Pharmaceuticals, Inc., a Delaware corporation (the “Issuer”), and is being filed pursuant to Rule 13d-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The principal executive offices of the Issuer are located at 4222 Emperor Boulevard, Suite 200, Durham, North Carolina 27703.

Item 2. Identity and Background

(a) This Schedule 13D is being filed by Warburg Pincus Private Equity IX, L.P., a Delaware limited partnership (“WP IX”), Warburg Pincus IX, LLC, a New York limited liability company and the sole general partner of WP IX (“WP IX LLC”), Warburg Pincus Partners LLC, a New York limited liability company and the sole member of WP IX LLC (“WPP LLC”), Warburg Pincus LLC, a New York limited liability company that manages WP IX (“WP LLC”), Warburg Pincus & Co., a New York general partnership and the managing member of WPP LLC (“WP”), and Messrs. Charles R. Kaye and Joseph P. Landy, each a Managing General Partner of WP and Co-President and Managing Member of WP LLC (Mr. Kaye, Mr. Landy, WP IX, WP IX LLC, WPP LLC, WP LLC and WP collectively being referred to as the “Reporting Persons”). The agreement among the Reporting Persons to file this Schedule 13D jointly in accordance with Rule 13d-1(k) of the Exchange Act is attached hereto as Exhibit 1.

(b) The address of the principal business and principal office of each of the Reporting Persons is c/o Warburg Pincus LLC, 466 Lexington Avenue, New York, New York 10017. The general partners of WP and the members of WP LLC, and their respective business addresses, are set forth on Schedule I hereto.

(c) The principal business of WP IX is that of making private equity and related investments. The principal business of WP is acting as the managing member of WPP LLC. The principal business of WPP LLC is acting as general partner to certain private equity funds and as the sole member of WP IX LLC. The principal business of WP IX LLC is acting as general partner of WP IX. The principal business of WP LLC is managing certain private equity funds, including WP IX. The principal business of each Mr. Kaye and Mr. Landy is acting as a Managing General Partner of WP and Co-President and Managing Member of WP LLC. The principal occupation of each of the general partners of WP and the members of WP LLC is set forth on Schedule I hereto.

(d) During the last five years, none of the Reporting Persons and, to the knowledge of the Reporting Persons, none of the partners, members or directors named on Schedule I, have been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors).

(e) During the last five years, none of the Reporting Persons and, to the knowledge of the Reporting Persons, none of the partners, members or directors named on Schedule I, have been a party to a civil proceeding of a judicial or

administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree, or final order enjoining future violations of, or prohibiting or mandating activity subject to, federal or state securities laws or finding any violations with respect to such laws.

(f) WP IX is a limited partnership organized under the laws of the State of Delaware. WP IX LLC, WPP LLC and WP LLC are each limited liability companies organized under the laws of the State of New York. WP is a general partnership organized under the laws of the State of New York. Messrs. Kaye and Landy are citizens of the United States of America. Except as otherwise indicated on Schedule I hereto, each of the individuals referred to on Schedule I hereto is a citizen of the United States of America.

Item 3. Source and Amount of Funds or Other Consideration

On July 17, 2007, WP IX and the Issuer entered into a Securities Purchase Agreement (a copy of which is attached hereto as Exhibit 2 and hereinafter referred to as the “Purchase Agreement”), pursuant to which WP IX agreed to purchase shares of Exchangeable Preferred Stock. At the closing of the transaction on July 20, 2007 (the “Closing Date”), the Issuer sold 140,186 shares of Exchangeable Preferred Stock to WP IX for an aggregate purchase price of $74,999,510, or $535.00 per share.

All of the funds required to acquire the Exchangeable Preferred Stock were obtained from capital contributions from WP IX’s partners.

Item 4. Purpose of Transaction

The acquisition by WP IX of the Exchangeable Preferred Stock as described herein was effected because of the belief that the Exchangeable Preferred Stock and the Common Stock represents an attractive investment. The Reporting Persons beneficially own the Exchangeable Preferred Stock, and will own the Common Stock to be issued upon the automatic exchange of the Exchangeable Preferred Stock, as an investment. Subject to certain restrictions described below and depending on prevailing market, economic and other conditions, the Reporting Persons may from time to time acquire additional shares of the Common Stock or engage in discussions with the Issuer concerning future acquisitions of shares of its capital stock. The Reporting Persons intend to review their investment in the Issuer on a continuing basis and, depending upon the price and availability of shares of the Issuer’s capital stock, subsequent developments affecting the Issuer, the Issuer’s business and prospects, other investment and business opportunities available to the Reporting Persons, general stock market and economic conditions, tax considerations and other factors considered relevant, may decide at any time to increase or to decrease the size of their investment in the Issuer.

As discussed in Item 3 above, WP IX entered into the Purchase Agreement pursuant to which the Issuer agreed to issue and sell and WP IX agreed to purchase shares of Exchangeable Preferred Stock on the Closing Date. A copy of the Purchase Agreement is attached hereto as Exhibit 2 and incorporated herein by reference, a copy of the Certificate of Designations, Number, Voting Powers, Preferences and Rights of Series A Exchangeable Preferred Stock of Inspire Pharmaceuticals, Inc. (the

“Certificate of Designations”) is attached hereto as Exhibit 3 and incorporated herein by reference, a copy of the Registration Rights Agreement, dated as of July 20, 2007, by and among WP IX and the Issuer (the “Registration Rights Agreement”) is attached hereto as Exhibit 4 and incorporated herein by reference, and a copy of the letter agreement, dated July 20, 2007, between WP IX, WP IX LLC, WPP LLC, WP and the Issuer (the “Standstill Agreement”), is attached hereto as Exhibit 5 and incorporated herein by reference. Set forth below is a summary of certain terms of the Purchase Agreement, the Certificate of Designations, the Registration Rights Agreement and the Standstill Agreement. Such summary is qualified in its entirety by reference to the Purchase Agreement, the Certificate of Designations, the Registration Rights Agreement and the Standstill Agreement.

Terms of the Purchase Agreement

Pursuant to Section 5.3(a) of the Purchase Agreement, for so long as WP IX owns (i) at least a number of shares of Exchangeable Preferred Stock equal to 50% of the shares of Exchangeable Preferred Stock acquired by WP IX pursuant to the terms of the Purchase Agreement, or (ii) in the event that all or a portion of the Exchangeable Preferred Stock is exchanged into Common Stock (the “Exchange”), at least either (y) 10% of the Common Stock or (z) a number of shares of Common Stock equal to 50% of the Common Stock acquired pursuant to the Exchange, then, subject to applicable law and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) and the NASDAQ Global Market, at the request of the WP IX, the Issuer will nominate and use its reasonable best efforts to cause to be elected, and cause to remain as a director on the Board of Directors of the Issuer (the “Board”), one individual designated by the Investor (the “Investor Designee”). Subject to applicable law and the rules and regulations of the SEC and the NASDAQ Global Market, for so long as the Investor Designee continues to serve as a director on the Board, at the request of WP IX, the Issuer shall cause the Investor Designee to be a member of each principal committee of the Board. In addition, pursuant to Section 6.6 of the Purchase Agreement, effective as of the Closing Date, Jonathan S. Leff was elected to the Board. Mr. Leff is a managing director and member of WP LLC and a general partner of WP.

Pursuant to Section 5.4 of the Purchase Agreement, if at any time the Issuer proposes to issue equity securities (including, without limitation, Common Stock, warrants, options or other rights to acquire equity securities convertible or exchangeable into equity securities) of the Issuer, then, for so long as the WP IX owns (within the meaning of Rule 13d-3 under the Exchange Act and giving effect to the exchange of all outstanding Exchangeable Preferred Stock, including all accrued and unpaid dividends (whether or not declared) thereon, into Common Stock at the then applicable exchange rate (whether or not then exchangeable)) at least 10% of the shares of Common Stock, the Issuer shall then, subject to certain restrictions, be required to offer to WP IX a portion of the equity securities proposed to be issued equal to: (a) the percentage of the Common Stock (including the Exchange Shares issuable upon the Exchange, if the Exchange has not occurred) owned by the WP IX immediately prior to the issuance of the equity securities relative to the total number of shares of Common Stock (including the Exchange Shares issuable upon the Exchange, if the Exchange has not occurred) outstanding immediately prior to the issuance of the equity securities, multiplied by (b) the total number of the securities

proposed to be issued.

These subscription rights shall not apply to: (i) the issuance of equity securities to employees, officers or directors of, or consultants or advisors to the Issuer pursuant to any employee benefit plan approved by the Board; (ii) any equity securities issued as consideration in connection with an acquisition, merger, consolidation, restructuring, reorganization, or other change in capitalization by the company provided such transaction has been approved by the Board and, if the Exchange has not yet occurred, the Exchangeable Preferred Stock is redeemed in connection therewith; (iii) any equity security issued in connection with a collaboration, disposition or acquisition of assets, product promotion, marketing, manufacturing or supply, and/or research and development, including without limitation pursuant to a license agreement, purchase agreement, (co-)promotion agreement, manufacturing agreement, collaboration or other similar agreement related thereto; (iv) shares of Exchangeable Preferred Stock issued as dividends with respect to Exchangeable Preferred Stock; or (v) shares of Common Stock issued or issuable upon exchange of the Exchangeable Preferred Stock.

Pursuant to Section 5.5 of the Purchase Agreement, the Issuer has agreed to call a meeting of its stockholders (the “Stockholders Meeting”) to approve, among other things, an exchange of the Exchangeable Preferred Stock for shares of Common Stock. As described in the Certificate of Designations, if the necessary approval pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) (the “HSR Approval”) is obtained prior to the stockholder approval being obtained at the Stockholders Meeting, each share of Exchangeable Preferred Stock will be exchanged for 100 shares of Common Stock (subject to the appropriate adjustment in the event of any stock dividend, stock split, stock distribution or combination, subdivision, reclassification or other corporate actions having the similar effect with respect to the Common Stock) upon receipt of stockholder approval; provided, however, that if the stockholder approval is obtained prior to the HSR Approval, then a portion of the shares of Exchangeable Preferred Stock will be automatically exchanged for shares of Common Stock provided that the number of shares to be exchanged shall not have a value in excess of the lowest notification threshold then in effect under the HSR Act. Any shares of Exchangeable Preferred Stock that are then outstanding after giving effect to the exchange of a portion of the shares of Exchangeable Preferred Stock into shares of Common Stock (the “Remaining Shares”), which shares of Exchangeable Preferred Stock are not then exchangeable into shares of Common Stock without obtaining HSR Approval, shall remain outstanding pursuant to their terms.

Terms of Exchangeable Preferred Stock

As discussed above, the Exchangeable Preferred Stock is exchangeable into shares of Common Stock upon receipt of HSR Approval and Stockholder Approval at an initial exchange rate of one share of Exchangeable Preferred Stock for 100 shares of Common Stock, subject to adjustment pursuant to the terms of the Certificate of Designations. The Exchangeable Preferred Stock is non-voting stock, except as otherwise required by Delaware law and subject to a right of its holders to consent to any amendment of its terms.

Pursuant to Section 4 of the Certificate of Designations, beginning on the first anniversary of the Closing Date (unless, subject to certain restrictions as set forth in the Certificate of Designations, the HSR Approval has not yet been obtained, in which case, beginning on the date that the HSR Approval is obtained) and for so long as the Exchangeable Preferred Stock remains outstanding, the holders of the Exchangeable Preferred Stock will be entitled to receive, in preference to all other classes of the Issuer’s preferred and Common Stock, cumulative dividends at an annual rate of 10%, compounded quarterly, of the Stated Value (as defined in the Certificate of Designations). If the Issuer fails to pay dividends in accordance with the terms of the Certificate of Designations when it is lawfully permitted to do so, or fails to redeem all shares of Exchangeable Preferred Stock within 30 days after receipt of a Redemption Demand Notice (as defined in the Certificate of Designations), the dividend rate is automatically increased to 20% per annum (the “Default Dividends”). Such Default Dividends are payable in additional shares of Exchangeable Preferred Stock at the option of the holders of a majority of the outstanding Exchangeable Preferred Stock.

Pursuant to Section 8 of the Certificate of Designations, for so long as the Exchangeable Preferred Stock remains outstanding on or following the fourth anniversary of the Closing Date, the Issuer will have the option to redeem its outstanding shares of Exchangeable Preferred Stock for cash in a per share amount equal to the greater of: (a) the sum of the State Value of a share of Exchangeable Preferred Stock plus all accrued but unpaid dividends (whether or not declared) through the date of such redemption or (b) the Fair Market Value (as defined in the Certificate of Designations) of one share of Common Stock on the date which the Issuer exercises such right multiplied by the then current Exchange Rate (the “Redemption Price”).

Pursuant to Section 5 of the Certificate of Designations, for so long as the Exchangeable Preferred Stock remains outstanding, upon any voluntary or involuntary liquidation, dissolution or winding up of the Issuer, the holders of the Exchangeable Preferred Stock will be entitled to payment in cash out of the assets of the Issuer legally available for distribution an amount per share of Exchangeable Preferred Stock equal to the Redemption Price (as defined in the Certificate of Designations). In addition, pursuant to the terms of the Certificate of Designations, for so long as the Exchangeable Preferred Stock remains outstanding, upon a “change in control” of the Issuer (as defined in the Certificate of Designations), the holders will be entitled to payment in cash out of the assets of the Issuer legally available for distribution an amount per share of Exchangeable Preferred Stock equal to the Acquisition Price (as defined in the Certificate of Designations).

For the purpose of this Schedule 13D, it has been assumed that the Exchangeable Preferred Stock will be exchanged into 14,018,600 shares of Common Stock (determined by multiplying the aggregate number of shares of Exchangeable Preferred Stock purchased on the Closing Date by 100). This assumption, however, does not give effect to the dividends that may accrue on the Exchangeable Preferred Stock which may be paid in shares of Exchangeable Preferred Stock in certain circumstances at the option of the holders of a majority of the then outstanding Exchangeable Preferred Stock.

Terms of the Registration Rights Agreement

Pursuant to the Registration Rights Agreement, WP IX has been granted certain registration rights. Pursuant to Section 1(a) of the Registration Rights Agreement, so long as any Registrable Shares (as defined in the Registration Rights Agreement) are outstanding, the Issuer will, within 30 days after the Exchange Date, file and use its best efforts to cause to become and remain effective, no later than 120 days after the Exchange Date, a registration statement on an appropriate form under the Securities Act relating to the offer and sale of the Registrable Common Shares (as defined in the Registration Rights Agreement).

Pursuant to Section 2(a) of the Registration Rights Agreement, if the Registrable Exchangeable Shares (as defined in the Registration Rights Agreement) are outstanding on July 20, 2008 (the “Outside Date”), the Issuer will, on the Outside Date, file and use its best efforts to cause to become and remain effective, no later than 120 days from the Outside Date, a registration statement on an appropriate form under the Securities Act relating to the offer and sale of the Registrable Exchangeable Shares (as defined in the Registration Rights Agreement).

Terms of the Standstill Agreement

Pursuant to Section 2(a) of the Standstill Agreement, the Purchaser Group (as defined in the Standstill Agreement) has agreed that for a period of three years from the date of the Standstill Agreement (the “Standstill Period”), no member of the Purchaser Group shall: (i) acquire or offer to acquire, seek, propose or agree to acquire, by means of a purchase, tender or exchange offer, business combination or in any other manner, beneficial ownership of any voting securities; (ii) seek or propose to influence, advise change or control the management, Board or governing policies of the Issuer, including without limitation, by means of solicitation of proxies, contacting any person relating to any of the matters set forth in the Standstill Agreement or seeking to influence, advise or direct the vote of any holder of voting securities of the Issuer; or (iii) form, join, encourage, influence, advise or participate in a “group” (as defined in Section 13(d)(3) of the Exchange Act) in connection with any of the foregoing; provided, however, that the Purchaser Group is not prohibited from acquiring beneficial ownership of the lesser of: (x) 32.5% of the Company’s voting securities on a fully diluted basis and (y) 34.9% of the then outstanding voting securities plus the outstanding Exchangeable Preferred Stock on an as exchanged to Common Stock basis immediately after giving effect to the transaction pursuant to which the Purchaser Group became the beneficial owner of such additional shares of voting securities.

Pursuant to Section 2(b) of the Standstill Agreement, upon the occurrence of any of the following at any time during the Standstill Period, the Standstill Period will be suspended and tolled, and the limitations set forth in Section 2(a) of the Standstill Agreement shall not be applicable to the Purchaser Group during the pendency of such event: (i) any person or 13D Group (as defined in the Standstill Agreement) (other than any which includes a member of the Purchaser Group or its affiliate) acquires beneficial ownership of voting securities of the Issuer representing 40% or more of the then outstanding voting securities of the Issuer; (ii) such other person or 13D Group (other than any which includes a member of the Purchaser Group or its affiliate) announces or commences a tender offer to acquire voting securities which

would result in ownership by such person or 13D Group of more than 50% of the outstanding voting securities of the Issuer; or (ii) the Issuer enters into any merger, sale or business combination transaction pursuant to which the outstanding shares of Common Stock would be converted into cash and/or securities and/or property of another person or 13D Group (other than any which includes a member of the Purchaser Group or its affiliate), or 50% or more of the outstanding shares of Common Stock as of immediately prior to the transaction would be owned by persons other than the current holders of the Common Stock and any person or 13D Group which includes the Purchaser Group and its their Affiliates.

Pursuant to Section 5 of the Standstill Agreement, the Issuer agreed to amend the Rights Agreement, dated October 21, 2002, by and between the Issuer and Computershare Trust Company, N.A., as rights agent (the “Rights Agreement”), to exclude the Purchaser Group and its affiliates and associates from the definition of “Acquiring Person” in the Rights Agreement. The Issuer has agreed not to further amend or modify the definition of the term “Acquiring Person” in the Rights Agreement, if, as a result of such amendment or modification the Purchaser Group would be deemed to be an “Acquiring Person” thereunder; provided that such limitation shall no longer be applicable if the Purchaser Group no longer has beneficial ownership of 15% or more of the outstanding Common Stock as a result of any sale or disposition of beneficial ownership of Common Stock by the Purchaser Group. In addition, the Issuer has agreed that it will not adopt a new Rights Agreement if the Purchaser Group would be considered an “Acquiring Person” (or would have the same or substantially similar effect of an “Acquiring Person” under the Rights Agreement); provided that such limitation shall no longer be applicable if the Purchaser Group no longer has beneficial ownership of 15% or more of the outstanding Common Stock as a result of any sale or disposition of beneficial ownership of Common Stock by the Purchaser Group.

Additional Disclosure

Except as set forth above in this statement, none of the Reporting Persons nor, to the best of their knowledge, any persons set forth on Schedule I or listed in Item 2(e) hereto, has any plans or proposals that relate to or would result in: (a) the acquisition by any person of additional securities of the Issuer, or the disposition of securities of the Issuer; (b) an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Issuer or any of its subsidiaries; (c) a sale or transfer of a material amount of assets of the Issuer or any of its subsidiaries; (d) any change in the present Board or management of the Issuer, including any plans or proposals to change the number or term of directors or to fill any existing vacancies on the Board; (e) any material change in the present capitalization or dividend policy of the Issuer; (f) any other material change in the Issuer’s business or corporate structure; (g) changes in the Issuer’s charter, by-laws or instruments corresponding thereto or other actions which may impede the acquisition of control of the Issuer by any person; (h) causing a class of securities of the Issuer to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association; (i) a class of equity securities of the Issuer becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Exchange Act; or (j) any action similar to any of those enumerated above.

Item 5. Interest in Securities of the Issuer

(a) WP IX is the direct record owner of 140,186 shares of Exchangeable Preferred Stock. Each share of Exchangeable Preferred Stock is initially exchangeable, subject to adjustment pursuant to the terms of the Certificate of Designations, into 100 shares of Common Stock. Accordingly, as of July 20, 2007, WP IX may be deemed to beneficially own an aggregate of 14,018,600 shares of Common Stock that are issuable upon the automatic exchange of the Exchangeable Preferred Stock, representing approximately 24.8% of the outstanding shares of Common Stock, which percentage is based on 42,399,345 shares of Common Stock which were outstanding as of March 31, 2007 as reported in the Company’s Form 10-Q filed with the Securities and Exchange Commission on May 10, 2007, and 14,018,600 shares of Common Stock which will be issued upon exchange of the Exchangeable Preferred Stock.

Due to their respective relationships with WP IX and each other, each of the Reporting Persons may be deemed to beneficially own, in the aggregate, 14,018,600 shares of the Issuer’s Common Stock that are issuable upon the automatic exchange of the Exchangeable Preferred Stock. Each of WP, WPP LLC, WP LLC, WP IX LLC, Mr. Kaye and Mr. Landy disclaim beneficial ownership of all shares of the Common Stock except to the extent of any indirect pecuniary interest therein.

(b) Each of the Reporting Persons is deemed to share with WP IX the power to vote or to direct the vote and to dispose or to direct the disposition of 14,018,600 shares of the Issuer’s Common Stock.

(c) Except for the transactions described in Items 3 and 4 above, no other transactions in shares of the Issuer’s Common Stock or Exchangeable Preferred Stock were effected by the Reporting Persons or any persons set forth on Schedule I or in Item 2(e) hereto during the sixty days before the date of this Schedule 13D.

(d) Except as set forth in this Item 5, no person other than each respective record owner referred to herein of the shares of Exchangeable Preferred Stock is known to have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, such securities.

(e) Not applicable.

Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer

Pursuant to Rule 13d-1(k) promulgated under the Exchange Act, the Reporting Persons have entered into an agreement, attached hereto as Exhibit 1, with respect to the joint filing of this statement and any amendment or amendments hereto.

The Purchase Agreement is described in Item 3 and Item 4 above, such summary being incorporated in this Item 6 by reference. The summary of the Purchase Agreement in this Schedule 13D is qualified in its entirety by reference to the Purchase Agreement, which is attached hereto, as Exhibit 2.

The Certificate of Designations is described in Item 4 above, such summary being incorporated in this Item 6 by reference. The summary of the Certificate of Designations in this Schedule 13D is qualified in its entirety by reference to the Certificate of Designations, which is attached hereto, as Exhibit 3

The Registration Rights Agreement is described in Item 4 above, such summary being incorporated in this Item 6 by reference. The summary of the Registration Rights Agreement in this Schedule 13D is qualified in its entirety by reference to the Registration Rights Agreement, which is attached hereto, as Exhibit 4.

The Standstill Agreement is described in Item 4 above, such summary being incorporated in this Item 6 by reference. The summary of the Standstill Agreement in this Schedule 13D is qualified in its entirety by reference to the Standstill Agreement, which is attached hereto, as Exhibit 5.

Except as described herein, there are no contracts, arrangements, understandings or relationships (legal or otherwise) among the persons named in Item 2 above or between such persons and any other person with respect to any securities of the Issuer.

Item 7. Material to Be Filed as Exhibits

Exhibit 1		Joint Filing Agreement, dated July 23, 2007, among the Reporting Persons, relating to the filing of a joint statement on Schedule 13D.

Exhibit 2		Securities Purchase Agreement, dated July 17, 2007, by and between the Investor listed on Exhibit A thereto and Inspire Pharmaceuticals, Inc.

Exhibit 3		Certificate of Designations, Number, Voting Powers, Preferences and Rights of Series A Exchangeable Preferred Stock of Inspire Pharmaceuticals, Inc.

Exhibit 4		Registration Rights Agreement, dated July 20, 2007, between the Investors from time to time signatory thereto and Inspire Pharmaceuticals, Inc.

Exhibit 5		Standstill Agreement, dated July 20, 2007, between Warburg Pincus Private Equity IX, L.P., Warburg Pincus IX LLC, Warburg Pincus Partners, LLC, Warburg Pincus & Co. and Inspire Pharmaceuticals, Inc.

SIGNATURES

After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

Dated: July 23, 2007

	WARBURG PINCUS PRIVATE EQUITY IX, L.P.

	By:		Warburg Pincus IX, LLC, its General Partner

			By:		Warburg Pincus Partners, LLC, its Sole Member

					By:		Warburg Pincus & Co., its Managing
							Member

	By:		/s/ Scott A. Arenare
			Name: Scott A. Arenare
			Title: Partner


	WARBURG PINCUS IX, LLC

	By:	Warburg Pincus Partners, LLC, its Sole
		Member

		By:				Warburg Pincus & Co., its Managing
						Member

	By:	/s/ Scott A. Arenare
		Name: Scott A. Arenare
		Title: Partner


	WARBURG PINCUS PARTNERS, LLC

		By:		Warburg Pincus & Co., its Managing
				Member

	By:	/s/ Scott A. Arenare
		Name: Scott A. Arenare
		Title: Partner


	WARBURG PINCUS LLC

	By:		/s/ Scott A. Arenare
			Name: Scott A. Arenare
			Title: Managing Director

	WARBURG PINCUS & CO.

	By:	/s/ Scott A. Arenare
		Name: Scott A. Arenare
		Title: Partner

	By:	/s/ Scott A. Arenare
		Name: Charles R. Kaye
		By: Scott A. Arenare, Attorney-in-Fact*

	By:	/s/ Scott A. Arenare
		Name: Joseph P. Landy
		By: Scott A. Arenare, Attorney-in-Fact**

* Power of Attorney given by Mr. Kaye was previously filed with the Securities and Exchange Commission on March 2, 2006 as an exhibit to a Schedule 13D filed by Building Products, LLC with respect to Builders FirstSource, Inc.

** Power of Attorney given by Mr. Landy was previously filed with the Securities and Exchange Commission on March 2, 2006 as an exhibit to a Schedule 13D filed by Building Products, LLC with respect to Builders FirstSource, Inc.

EX-1 2 a07-19806_1ex1.htm EX-1

SCHEDULE I

Set forth below is the name, position and present principal occupation of each of the general partners of Warburg Pincus & Co. (“WP”) and members of Warburg Pincus LLC (including its subsidiaries, “WP LLC”). The sole general partner of Warburg Pincus Private Equity IX, L.P. (“WP IX”) is Warburg Pincus IX, LLC (“WP IX LLC”), an indirect subsidiary of WP. WP IX, WP IX LLC, WP and WP LLC are hereinafter collectively referred to as the “Reporting Persons”. Except as otherwise indicated, the business address of each of such persons is 466 Lexington Avenue, New York, New York 10017, and each of such persons is a citizen of the United States.

GENERAL PARTNERS OF WP

NAME		PRESENT PRINCIPAL OCCUPATION IN ADDITION TO POSITION WITH WP, AND POSITIONS WITH THE REPORTING ENTITIES
Joel Ackerman		Partner of WP; Member and Managing Director of WP LLC
Scott A. Arenare		Partner of WP; Member and Managing Director of WP LLC
David Barr		Partner of WP; Member and Managing Director of WP LLC
Sean D. Carney		Partner of WP; Member and Managing Director of WP LLC
Mark Colodny		Partner of WP; Member and Managing Director of WP LLC
David A. Coulter		Partner of WP; Member and Managing Director of WP LLC
Timothy J. Curt		Partner of WP; Member and Managing Director of WP LLC
W. Bowman Cutter		Partner of WP; Member and Managing Director of WP LLC
Cary J. Davis		Partner of WP; Member and Managing Director of WP LLC
David W. Dorman		Partner of WP; Member and Senior Advisor of WP LLC
Michael Graff		Partner of WP; Member and Managing Director of WP LLC
Patrick T. Hackett		Partner of WP; Member and Managing Director of WP LLC
E. Davisson Hardman		Partner of WP; Member and Managing Director of WP LLC
Jeffrey A. Harris		Partner of WP; Member and Managing Director of WP LLC
Stewart J. Hen		Partner of WP; Member and Managing Director of WP LLC
William H. Janeway		Partner of WP; Member and Senior Advisor of WP LLC
Julie A. Johnson Staples		Partner of WP; Member and Managing Director of WP LLC
Chansoo Joung		Partner of WP; Member and Managing Director of WP LLC
Peter R. Kagan		Partner of WP; Member and Managing Director of WP LLC
Charles R. Kaye		Managing General Partner of WP; Managing Member and Co-President of WP LLC
Henry Kressel		Partner of WP; Member and Managing Director of WP LLC
David Krieger		Partner of WP; Member and Managing Director of WP LLC
Kevin Kruse		Partner of WP; Member and Managing Director of WP LLC
Joseph P. Landy		Managing General Partner of WP; Managing Member and Co-President of WP LLC
Sidney Lapidus		Partner of WP; Member and Senior Advisor of WP LLC
Kewsong Lee		Partner of WP; Member and Managing Director of WP LLC
Jonathan S. Leff		Partner of WP; Member and Managing Director of WP LLC
Philip Mintz		Partner of WP; Member and Managing Director of WP LLC
James Neary		Partner of WP; Member and Managing Director of WP LLC
Bilge Ogut		Partner of WP; Member and Managing Director of WP LLC
Dalip Pathak		Partner of WP; Member and Managing Director of WP LLC
Michael F. Profenius		Partner of WP; Member and Managing Director of WP LLC
Stan Raatz		Partner of WP; Member and Managing Director of WP LLC
Justin Sadrian		Partner of WP; Member and Managing Director of WP LLC
Henry B. Schacht		Partner of WP; Member and Senior Advisor of WP LLC
Steven G. Schneider		Partner of WP; Member and Managing Director of WP LLC
John Shearburn		Partner of WP; Member and Managing Director of WP LLC
Mimi Strouse		Partner of WP; Member and Managing Director of WP LLC
Barry Taylor		Partner of WP; Member and Managing Director of WP LLC
Christopher H. Turner		Partner of WP; Member and Managing Director of WP LLC

John L. Vogelstein		Partner of WP; Member and Senior Advisor of WP LLC
Elizabeth H. Weatherman		Partner of WP; Member and Managing Director of WP LLC
David J. Wenstrup		Partner of WP; Member and Managing Director of WP LLC
Rosanne Zimmerman		Partner of WP; Member and Managing Director of WP LLC
Pincus & Company LLC*
WP & Co. Partners, L.P.**
Warburg Pincus Principal Partnership, L.P.***
Warburg Pincus Real Estate Principal Partnership, L.P.***
Warburg Pincus 2006 Limited Partnership***

* New York limited liability company; primary activity is ownership interest in WP and WP LLC

** New York limited partnership; primary activity is ownership interest in WP

*** Delaware limited partnership; primary activity is ownership interest in WP

MEMBERS OF WP LLC

NAME		PRESENT PRINCIPAL OCCUPATION IN ADDITION TO POSITION WITH WP LLC, AND POSITIONS WITH THE REPORTING ENTITIES
Joel Ackerman		Member and Managing Director of WP LLC; Partner of WP
Scott A. Arenare		Member and Managing Director of WP LLC; Partner of WP
David Barr		Member and Managing Director of WP LLC; Partner of WP
Sean D. Carney		Member and Managing Director of WP LLC; Partner of WP
Julian Cheng (1)		Member and Managing Director of WP LLC
Stephen John Coates (2)		Member and Managing Director of WP LLC
Mark Colodny		Member and Managing Director of WP LLC; Partner of WP
David A. Coulter		Member and Managing Director of WP LLC; Partner of WP
Timothy J. Curt		Member and Managing Director of WP LLC; Partner of WP
W. Bowman Cutter		Member and Managing Director of WP LLC; Partner of WP
Cary J. Davis		Member and Managing Director of WP LLC; Partner of WP
David W. Dorman		Member and Senior Advisor of WP LLC; Partner of WP
Rajiv Ghatalia (1)		Member and Managing Director of WP LLC
Michael Graff		Member and Managing Director of WP LLC; Partner of WP
Patrick T. Hackett		Member and Managing Director of WP LLC; Partner of WP
E. Davisson Hardman		Member and Managing Director of WP LLC; Partner of WP
Jeffrey A. Harris		Member and Managing Director of WP LLC; Partner of WP
Stewart J. Hen		Member and Managing Director of WP LLC; Partner of WP
William H. Janeway		Member and Senior Advisor of WP LLC; Partner of WP
Julie A. Johnson Staples		Member and Managing Director of WP LLC; Partner of WP
Chansoo Joung		Member and Managing Director of WP LLC; Partner of WP
Peter R. Kagan		Member and Managing Director of WP LLC; Partner of WP
Charles R. Kaye		Managing Member and Co-President of WP LLC; Managing General Partner of WP
Rajesh Khanna (3)		Member and Managing Director of WP LLC
Henry Kressel		Member and Managing Director of WP LLC; Partner of WP
David Krieger		Member and Managing Director of WP LLC; Partner of WP
Kevin Kruse		Member and Managing Director of WP LLC; Partner of WP
Joseph P. Landy		Managing Member and Co-President of WP LLC; Managing General Partner of WP
Sidney Lapidus		Member and Senior Advisor of WP LLC; Partner of WP
Kewsong Lee		Member and Managing Director of WP LLC; Partner of WP
Jonathan S. Leff		Member and Managing Director of WP LLC; Partner of WP
Jeff Leng (1)		Member and Managing Director of WP LLC
David Li (1)		Member and Managing Director of WP LLC
Nicholas J. Lowcock (2)		Member and Managing Director of WP LLC
Niten Malhan (3)		Member and Managing Director of WP LLC
Philip Mintz		Member and Managing Director of WP LLC; Partner of WP
James Neary		Member and Managing Director of WP LLC; Partner of WP
Bilge Ogut		Member and Managing Director of WP LLC; Partner of WP
Dalip Pathak		Member and Managing Director of WP LLC; Partner of WP
Michael F. Profenius		Member and Managing Director of WP LLC; Partner of WP
Leo Puri (3)		Member and Managing Director of WP LLC
Stan Raatz		Member and Managing Director of WP LLC; Partner of WP
Justin Sadrian		Member and Managing Director of WP LLC; Partner of WP
Henry B. Schacht		Member and Senior Advisor of WP LLC; Partner of WP
Steven G. Schneider		Member and Managing Director of WP LLC; Partner of WP
Joseph C. Schull (4)		Member and Managing Director of WP LLC
John Shearburn		Member and Managing Director of WP LLC; Partner of WP
Mimi Strouse		Member and Managing Director of WP LLC; Partner of WP
Chang Q. Sun (1)		Member and Managing Director of WP LLC
Barry Taylor		Member and Managing Director of WP LLC; Partner of WP

Christopher H. Turner		Member and Managing Director of WP LLC; Partner of WP
Simon Turton (2)		Member and Managing Director of WP LLC
John L. Vogelstein		Member and Senior Advisor of WP LLC; Partner of WP
Elizabeth H. Weatherman		Member and Managing Director of WP LLC; Partner of WP
David J. Wenstrup		Member and Managing Director of WP LLC; Partner of WP
Peter Wilson (2)		Member and Managing Director of WP LLC
Jeremy S. Young (2)		Member and Managing Director of WP LLC
Rosanne Zimmerman		Member and Managing Director of WP LLC; Partner of WP
Pincus & Company LLC*

(1) Citizen of Hong Kong

(2) Citizen of United Kingdom

(3) Citizen of India

(4) Citizen of Canada

* New York limited liability company; primary activity is ownership interest in WP and WP LLC

As of July 1, 2007

EXHIBIT 1

JOINT FILING AGREEMENT

THIS JOINT FILING AGREEMENT is entered into as of July 23, 2007, by and among the parties signatories hereto. The undersigned hereby agree that the Statement on Schedule 13D with respect to the shares of the common stock, par value $0.001 per share, and the Series A Exchangeable Preferred Stock, par value $0.001 per share, of Inspire Pharmaceuticals, Inc., a Delaware corporation, is, and any amendment thereafter signed by each of the undersigned shall be, filed on behalf of each undersigned pursuant to and in accordance with the provisions of 13d-1(k) under the Securities Exchange Act of 1934, as amended.

WARBURG PINCUS PRIVATE EQUITY IX, L.P.

By:	Warburg Pincus IX, LLC, its General Partner

	By:	Warburg Pincus Partners, LLC, its Sole Member

		By:	Warburg Pincus & Co., its Managing
			Member

By:	/s/ Scott A. Arenare
	Name: Scott A. Arenare
	Title: Partner


WARBURG PINCUS IX, LLC

By:	Warburg Pincus Partners, LLC, its Sole
	Member

	By:	Warburg Pincus & Co., its Managing
		Member

By:	/s/ Scott A. Arenare
	Name: Scott A. Arenare
	Title: Partner


WARBURG PINCUS PARTNERS, LLC

	By:	Warburg Pincus & Co., its Managing
		Member

By:	/s/ Scott A. Arenare
	Name: Scott A. Arenare
	Title: Partner

	WARBURG PINCUS LLC

	By:	/s/ Scott A. Arenare
		Name: Scott A. Arenare
		Title: Managing Director


	WARBURG PINCUS & CO.

	By:	/s/ Scott A. Arenare
		Name: Scott A. Arenare
		Title: Partner

	By:	/s/ Scott A. Arenare
		Name: Charles R. Kaye
		By: Scott A. Arenare, Attorney-in-Fact


	By:	/s/ Scott A. Arenare
		Name: Joseph P. Landy
		By: Scott A. Arenare, Attorney-in-Fact

EX-2 3 a07-19806_1ex2.htm EX-2

EXHIBIT 2

EXECUTION VERSION

SECURITIES PURCHASE AGREEMENT

BY AND BETWEEN

THE INVESTOR LISTED ON THE SIGNATURE PAGE HERETO

AND

INSPIRE PHARMACEUTICALS, INC.

July 17, 2007

TABLE OF CONTENTS

SECTION 1.	INTERPRETATION OF THIS AGREEMENT	1
1.1.	Defined Terms	1

SECTION 2.	AUTHORIZATION OF SHARES; PURCHASE AND SALE OF SHARES	5
2.1.	Authorization of Shares	5
2.2.	Issuance of Shares	5
2.3.	Closing and Closing Date	6
2.4.	Delivery	6

SECTION 3.	REPRESENTATIONS AND WARRANTIES OF THE COMPANY	6
3.1.	Corporate Organization	6
3.2.	Subsidiaries	6
3.3.	Capitalization	7
3.4.	Corporate Proceedings, etc.	7
3.5.	Consents and Approvals	8
3.6.	Absence of Defaults, Conflicts, etc.	8
3.7.	Reports and Financial Statements	8
3.8.	Absence of Certain Developments	9
3.9.	Compliance with Law	10
3.10.	Litigation	11
3.11.	Absence of Undisclosed Liabilities	11
3.12.	Employees; Company Benefit Plans	11
3.13.	Tax Matters	12
3.14.	Intellectual Property	12
3.15.	Real Property	13
3.16.	Title to Tangible Assets	13
3.17.	Condition and Sufficiency of Properties	14
3.18.	Transactions with Related Parties	14
3.19.	Registration Rights	14
3.20.	Brokerage	14
3.21.	Illegal or Unauthorized Payments; Political Contributions	14
3.22.	Takeover Statute	15
3.23.	NASDAQ Compliance	15
3.24.	Reporting Status	15
3.25.	No Manipulation of Common Stock	15
3.26.	Accountants	15
3.27.	Internal Accounting Controls	15
3.28.	Environmental Matters	16
3.29.	FDA Approval	16
3.30.	Insurance	17
3.31.	Transfer Taxes	17
3.32.	Investment Company	17
3.33.	Private Offering	17
3.34.	Vote Required	18
3.35.	Rights Amendment	18

SECTION 4.	REPRESENTATIONS AND WARRANTIES OF THE INVESTOR	18

SECTION 5.	ADDITIONAL AGREEMENTS OF THE PARTIES	20
5.1.	Covenants Pending Closing	20
5.2.	Further Assurances	20
5.3.	Investor Designees	20
5.4.	Subscription Right	21
5.5.	Consents and Approvals; Proxy Statement	23
5.6.	Use of Proceeds	24
5.7.	Takeover Statute	24
5.8.	Tax Covenants	24

SECTION 6.	INVESTOR’S CLOSING CONDITIONS	25
6.1.	Representations and Warranties	25
6.2.	Compliance with Agreement	25
6.3.	Injunction	25
6.4.	Counsel’s Opinion	25
6.5.	Adverse Development	25
6.6.	Director	26
6.7.	Registration Rights Agreement	26
6.8.	Standstill Agreement	26
6.9.	Rights Amendment	26
6.10.	Stop Orders	26
6.11.	Listing of the Common Stock	26
6.12.	Filing of Certificate of Designations	26
6.13.	Officer’s Certificate	26
6.14.	Secretary’s Certificate	26
6.15.	Approval of Proceedings	27
6.16.	Waiver of Section 203	27
6.17.	Confidentiality Agreement	27

SECTION 7.	COMPANY CLOSING CONDITIONS	27
7.1.	Representations and Warranties	27
7.2.	Compliance with Agreement	28
7.3.	Investor’s Certificates	28
7.4.	Injunction	28
7.5.	Standstill Agreement	28
7.6.	Approval of Proceedings	28

SECTION 8.	COVENANTS	28
8.1.	Management Rights	28
8.2.	Confidentiality	29
8.3.	Lost, etc. Certificates Evidencing Shares; Exchange	30
8.4.	Securities Law Disclosure; Publicity	30
8.5.	HSR Act Filing	31
8.6.	Insurance	31

SECTION 9.	MISCELLANEOUS	31
9.1.	Notices	31

9.2.	Expenses and Taxes	32
9.3.	Reproduction of Documents	32
9.4.	Termination and Survival	32
9.5.	Successors and Assigns	33
9.6.	Severability	33
9.7.	Governing Law	33
9.8.	Paragraph and Section Headings	33
9.9.	Limitation on Enforcement of Remedies	34
9.10.	Counterparts	34
9.11.	Entire Agreement; Amendment and Waiver	34

Exhibit A	Schedule of Investors
Exhibit B	Certificate of Designations
Exhibit C	Certificate of Incorporation
Exhibit D	Bylaws
Exhibit E	Registration Rights Agreement
Exhibit F	Standstill Agreement
Exhibit G	First Amendment to Rights Agreement
Exhibit H	Press Release

iii

INSPIRE PHARMACEUTICALS, INC.

SECURITIES PURCHASE AGREEMENT

THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of July 17, 2007, is made by and between Inspire Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and the investor listed on Exhibit A hereto (the “Investor”).

RECITALS:

WHEREAS, subject to the terms and conditions hereof, the Company desires to sell to the Investor and the Investor desires to purchase from the Company 140,186 shares of its Series A Exchangeable Preferred Stock, par value $0.001 per share (the “Exchangeable Preferred Stock”);

WHEREAS, the shares of Exchangeable Preferred Stock are, under certain conditions, exchangeable into shares of common stock, par value $0.001 per share of the Company (the “Common Stock”);

WHEREAS, the Board of Directors of the Company (the “Board”) has approved, and deems it advisable and in the best interests of the stockholders of the Company to consummate, the transactions contemplated by this Agreement, upon the terms and subject to the conditions set forth herein; and

WHEREAS, as an inducement to the Investor to enter into this Agreement, the Board has approved the terms of a Registration Rights Agreement, substantially in the form of Exhibit E hereto (the “Registration Rights Agreement”), and the Standstill Agreement, substantially in the form of Exhibit F hereto (the “Standstill Agreement”), in each case, to be entered into by the Company and the Investor.

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows:

SECTION 1. INTERPRETATION OF THIS AGREEMENT

1.1. Defined Terms

As used in this Agreement, the following terms have the respective meanings set forth below or set forth in the Section hereof following such term:

8-K Filing: shall have the meaning set forth in Section 8.4.

Affiliate: shall mean any Person or entity, directly or indirectly, controlling, controlled by or under common control with such Person or entity.

Agreement: shall have the meaning set forth in the introduction hereto.

Board: shall have the meaning set forth in the recitals hereto.

Business Day: shall mean a day other than a Saturday, Sunday or other day on which banks in the State of New York are required or authorized to close.

Certificate of Designations: shall mean the Certificate of Designations, Number, Voting Powers, Preferences and Rights of Series A Exchangeable Preferred Stock of the Company, substantially in the form attached hereto as Exhibit B.

Closing: shall have the meaning set forth in Section 2.3.

Closing Date: shall have the meaning set forth in Section 2.3.

Code: shall mean the Internal Revenue Code of 1986, as amended.

Common Stock: shall have the meaning set forth in the recitals hereto.

Company: shall have the meaning set forth in the introduction hereto.

Company Benefit Plan: shall mean each “employee benefit plan” within the meaning of Section 3(3) of ERISA, including multiemployer plans within the meaning of Section 3(37) of ERISA, and each other stock purchase, stock option, restricted stock, restricted stock unit, severance, retention, employment, consulting, change-of-control, collective bargaining, bonus, incentive, deferred compensation, employee loan, fringe benefit and other benefit plan, agreement, program, policy, commitment or other arrangement, whether or not subject to ERISA, in each case under which any past or present director, officer, employee, consultant or independent contractor of the Company has any present or future right to benefits, or otherwise as a result of which the Company has any liability.

Company SEC Reports: shall have the meaning set forth in Section 3.7.

Confidentiality Agreement: shall mean the confidentiality agreement, dated May 14, 2007, by and between the Company and Warburg Pincus LLC.

Contract: shall mean any material agreement, contract, commitment, lease, mortgage, indenture, deed of trust, debt instrument, understanding, arrangement, restriction or other instrument to which the Company is currently a party and that is or was required to be filed as an exhibit to any Company SEC Report.

DGCL: shall mean the Delaware General Corporation Law.

Disregarded Entity: shall have the meaning set forth in Section 5.8(b).

Environmental Laws: shall mean federal, state, local and foreign laws (including common law), regulations, and codes, as well as orders, decrees, judgments or injunctions,

issued, promulgated, applying, approved or entered thereunder relating to pollution, protection of the environment or human health and safety, or natural resources.

ERISA: shall mean the Employee Retirement Income Security Act of 1974, as amended.

Exchange: shall mean the exchange of the Exchangeable Preferred Stock for shares of Common Stock in accordance with the terms of the Certificate of Designations.

Exchange Act: shall mean the Securities Exchange Act of 1934, as amended.

Exchange Date Shares: shall have the meaning set forth in Section 5.3(a).

Exchange Shares: shall mean those shares of Common Stock to be issued upon exchange of the Exchangeable Preferred Stock.

Exchangeable Preferred Stock: shall have the meaning set forth in the recitals hereto.

FDA: shall mean the United States Food and Drug Administration.

Filed Company SEC Reports: shall have the meaning set forth in Section 3.7.

FTC: shall have the meaning set forth in Section 4(g).

GAAP: shall have the meaning set forth in Section 3.7.

Governmental Authority: shall mean the government of any nation, state, city, locality or other political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing.

HSR Act: shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

Intellectual Property: shall mean all of the following owned by the Company or used in the current business of the Company: (i) registered and unregistered trademarks and service marks, trade dress, product configurations, trade names and other indications of origin, applications or registrations in any jurisdiction pertaining to the foregoing and all goodwill associated therewith; (ii) patentable and unpatentable inventions, discoveries, improvements, ideas, know-how, formula methodology, processes, compounds, technology, software (including password unprotected interpretive code or source code, object code, development documentation, programming tools, drawings, specifications and data) and applications and patents in any jurisdiction pertaining to the foregoing, including re-issues, continuations, divisions, continuations-in-part, renewals or extensions; (iii) trade secrets, including confidential information and the right in any jurisdiction to limit the use or disclosure thereof; (iv) copyrights in writings, designs software, mask works or other works, applications or registrations in any jurisdiction for the foregoing and all moral rights related thereto; (v) database rights; (vi) Internet

Web sites, domain names and applications and registrations pertaining thereto and all intellectual property used in connection with or contained in all versions of the Company’s Web sites; (vii) rights under all agreements relating to the foregoing (other than “shrink-wrap” or “click-through” licenses applicable thereto); (viii) books and records pertaining to the foregoing; and (ix) claims or causes of action arising out of or related to past, present or future infringement or misappropriation of the foregoing.

Investor: shall mean Warburg Pincus Private Equity IX, L.P., a Delaware limited partnership.

Investor Designee: shall have the meaning set forth in Section 5.3(a).

Material Adverse Effect: shall mean, collectively, a material adverse effect on, or a material adverse change in, or group of such effects on or changes in the business, properties, assets, liabilities, operations or condition (financial or otherwise) of the Company taken as a whole.

NASD: shall mean National Association of Securities Dealers, Inc.

NASDAQ Stock Market: shall have the meaning set forth in Section 3.23.

Nomination Policy: shall have the meaning set forth in Section 5.3(a).

Organizational Documents: shall have the meaning set forth in Section 3.1(a).

Owns, Own, Owned: shall mean the aggregate beneficial ownership, within the meaning of Rule 13d-3 under the Exchange Act, of an Investor and any of its Affiliates.

Person: shall mean an individual, partnership, joint-stock company, corporation, limited liability company, trust or unincorporated organization, and a government or agency or political subdivision thereof.

Prohibited Transaction: shall have the meaning set forth in Section 4(k).

Proposed Securities: shall have the meaning set forth in Section 5.4(a)(1).

Proxy Statement: shall have the meaning set forth in Section 5.5(b).

Purchase Price: shall mean $535.00 per share.

Registration Rights Agreement: shall have the meaning set forth in the recitals hereto.

Rights Amendment: shall have the meaning set forth in Section 3.35.

Sarbanes-Oxley Act: shall mean the Sarbanes-Oxley Act of 2002.

SEC: shall mean the U.S. Securities and Exchange Commission.

SEC Disclosure: shall have the meaning set forth in Section 3.8.

Section 203: shall have the meaning set forth in Section 3.22.

Securities Act: shall mean the Securities Act of 1933, as amended.

Series H Preferred Stock: shall mean the Company’s Series H Preferred Stock, par value $0.001 per share.

Shares: shall mean the shares of Exchangeable Preferred Stock to be purchased by the Investor hereunder.

Standstill Agreement: shall have the meaning set forth in the recitals hereto.

Stockholder Approval: shall have the meaning set forth in Section 5.5(b).

Subsidiary: shall mean an entity of which a Person owns, directly or indirectly, more than 50% of the Voting Stock.

Takeover Statute: shall mean any corporate takeover provision under laws of the State of Delaware or any other state or federal “fair price”, “moratorium”, “control share acquisition” or other similar anti-takeover statute or regulation.

Trading Affiliates: shall have the meaning set forth in Section 4(k).

Voting Stock: shall mean securities of any class or classes of an entity, the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directors (or Persons performing similar functions).

SECTION 2. AUTHORIZATION OF SHARES; PURCHASE AND SALE OF SHARES

2.1. Authorization of Shares

On or prior to the Closing, the Company shall have authorized the sale and issuance of up to an aggregate of 140,186 shares of Exchangeable Preferred Stock, on the terms and conditions set forth in this Agreement. The terms, limitations and relative rights and preferences of the Exchangeable Preferred Stock shall be as set forth in the Certificate of Designations.

2.2. Issuance of Shares

Subject to the terms and conditions set forth in this Agreement, and in reliance upon the Company’s and the Investor’s representations set forth below, at the Closing, the Company shall sell to the Investor and the Investor shall purchase from the Company, the number of shares of Exchangeable Preferred Stock set forth opposite the Investor’s name on Exhibit A, at the aggregate Purchase Price for such Shares.

2.3. Closing and Closing Date

The closing of the transactions contemplated by Section 2.2 (the “Closing”) shall take place at 10:00 A.M., New York City time, on the third Business Day following the date on which the last to be fulfilled or waived of the conditions set forth in Sections 6 and 7 hereof shall have been fulfilled or waived in accordance with this Agreement, or on such earlier date as may be mutually agreed by the Company and the Investor (the “Closing Date”), at the offices of Willkie Farr & Gallagher LLP, 787 Seventh Avenue, New York, New York 10019, or such other location as the Investor and the Company shall mutually select.

2.4. Delivery

The sale and purchase of the Shares shall be effected on the Closing Date by the Company executing and delivering to the Investor, duly registered in the Investor’s name, one or more duly executed stock certificates evidencing the Shares being purchased by it, against payment of the purchase price therefore by wire transfer of immediately available funds to such account as the Company shall designate in writing.

SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as set forth in the Disclosure Schedule delivered by the Company to the Investor on the date of this Agreement, the Company hereby represents and warrants to the Investor as of the date hereof and as of the Closing Date (or, if made as of a specified date, as of such other date) as follows:

3.1. Corporate Organization

(a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Attached hereto as Exhibits C and D, respectively, are true and complete copies of the Amended and Restated Certificate of Incorporation and Amended and Restated By-laws of the Company, as amended through the date hereof (collectively, the “Organizational Documents”).

(b) The Company has all requisite corporate power and authority to carry on its business as now conducted. The Company has all requisite power and authority to execute and deliver this Agreement and to perform its obligations hereunder.

(c) The Company has filed all necessary documents to qualify to do business as a foreign corporation in each jurisdiction in which the conduct of the Company’s business or the nature of the property owned requires such qualification, except where the failure to so qualify would not be reasonably likely to have a Material Adverse Effect, and each such jurisdiction is set forth in Section 3.1(c) of the Disclosure Schedule.

3.2. Subsidiaries

Except as set forth in Section 3.2 of the Disclosure Schedule, the Company has no Subsidiaries and no equity interests or investments in any partnership, trust or other entity or organization.

3.3. Capitalization

(a) As of the date hereof, the authorized capital stock of the Company consists of (i) 100,000,000 shares of Common Stock and (ii) 2,000,000 shares of Preferred Stock, of which 60,000 shares are designated as Series H Preferred Stock. As of the date hereof, the issued and outstanding shares of capital stock of the Company consists of 42,399,345 shares of Common Stock and no shares of Preferred Stock.

(b) All the outstanding shares of capital stock of the Company have been duly and validly issued and are fully paid and non-assessable, and were issued in accordance with the registration or qualification requirements of the Securities Act and any relevant state securities laws or pursuant to valid exemptions therefrom. As of the Closing Date, the Shares will be duly authorized and, upon issuance, sale and delivery as contemplated by this Agreement, the Shares will be validly issued, fully paid and non-assessable securities of the Company. Upon the Exchange, the Exchange Shares will be free and clear of any and all security interests, pledges, liens, charges, claims, options, restrictions on transfer, preemptive or similar rights, proxies and voting or other agreements, or other encumbrances of any nature whatsoever, except for those provided for herein, by the transactions contemplated hereby or otherwise created or imposed upon the Investor and other than restrictions on transfer imposed by federal or state securities laws, and except as set forth in the Standstill Agreement. Upon registration of the Shares or Exchange Shares as contemplated by the Registration Rights Agreement, such shares shall be freely tradeable without restriction under applicable federal and state securities laws. The Company has reserved for issuance sufficient Exchange Shares to be issued upon consummation of the Exchange.

(c) On the Closing Date, except for equity incentive plans (including the agreements thereunder), the Exchangeable Preferred Stock and the Series H Preferred Stock, there will be no shares of Common Stock or any other equity security of the Company issuable upon conversion, exchange or exercise of any outstanding security of the Company, nor will there be any rights, options, calls or warrants outstanding or other agreements to acquire shares of Common Stock nor will the Company be contractually obligated to purchase, redeem or otherwise acquire any of its outstanding shares. Except to the extent otherwise provided in this Agreement or the Standstill Agreement, (i) no stockholder of the Company is entitled to any preemptive or similar rights to subscribe for shares of capital stock of the Company and no stockholder of the Company has any rights, contractual or otherwise, to designate members of the Board, other than in accordance with the DGCL, and (ii) there are no stockholder, voting or other agreements to which the Company is a party relating to the rights and obligations of the Company’s stockholders.

3.4. Corporate Proceedings, etc.

The Company has authorized the execution, delivery and performance of this Agreement and each of the transactions and agreements contemplated hereby. No other corporate action is necessary to authorize such execution, delivery and performance of this Agreement, and upon such execution and delivery, this Agreement shall constitute the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except that such enforcement may be subject to bankruptcy, insolvency, reorganization,

moratorium or other similar laws now or hereafter in effect relating to creditors’ rights and general principles of equity. The Company has authorized the issuance and delivery of the Shares and the Exchange Shares in accordance with this Agreement and the Company has reserved for issuance shares of Common Stock issuable upon exchange of the Shares.

3.5. Consents and Approvals

Except as set forth in Section 3.5 of the Disclosure Schedule, the execution and delivery by the Company of this Agreement, the issuance of any of the Shares, the performance by the Company of its obligations hereunder and the consummation by the Company of the transactions contemplated hereby, including, without limitation, the Exchange, do not require the Company to obtain any consent, approval, clearance or action of, or make any filing, submission or registration with, or give any notice to, any governmental authority or judicial authority.

3.6. Absence of Defaults, Conflicts, etc.

(a) The execution and delivery of this Agreement by the Company does not, and the fulfillment of the terms hereof and thereof by the Company, and the issuance, sale and delivery of the Shares will not, (i) violate or conflict with the Organizational Documents; (ii) result in a breach of any of the terms, conditions or provisions of, or constitute a default (with or without the giving of notice or the passage of time (or both)) under, or result in the modification of, or permit the acceleration of rights under or termination of, any Contract, license, permit or authorization of the Company; (iii) violate any law, ordinance, standard, judgment, rule or regulation of any court or federal, state or foreign regulatory board or body or administrative agency having jurisdiction over the Company or over its properties or business; or (iv) result in the creation or imposition of any lien, encumbrance, claim, security interest or restriction whatsoever upon any of the material properties or assets of the Company, except, in the cases of clauses (ii), (iii) or (iv), where such event would not be reasonably likely to have a Material Adverse Effect.

(b) The Company is not in default under or in violation of (and no event has occurred and no condition exists which, upon notice or the passage of time (or both), would constitute a default under) (i) the Company’s Organizational Documents, (ii) any Contract of the Company, (iii) any license, permit or authorization to which the Company is a party or by which it may be bound or (iv) any order, writ, injunction or decree of any court or any Federal, state, municipal or other domestic or foreign governmental department, commission, board, bureau, agency or instrumentality except, in the case of clause (ii), (iii) or (iv), for defaults or violations which would not be reasonably likely to have a Material Adverse Effect. Each Contract of the Company is valid, binding and enforceable against the Company and, to the Company’s knowledge, the other parties thereto, in accordance with its terms, and in full force and effect on the date hereof.

3.7. Reports and Financial Statements

The Company has furnished or made available to the Investor via the SEC’s EDGAR filing system true and complete copies of the Company’s (i) Annual Reports on Form 10-K for the fiscal years ended December 31, 2006, December 31, 2005, and December 31,

2004, as filed with the SEC, (ii) proxy statements related to all meetings of its stockholders (whether annual or special) held since January 1, 2004, and (iii) all other reports filed with or registration statements declared effective by the SEC since January 1, 2004, except registration statements on Form S-8 relating to employee benefit plans, which are all the documents (other than preliminary material) that the Company was required to file with the SEC since that date (the documents referred to in clauses (i) through (iii), together with all accompanying exhibits and all information incorporated therein by reference, being referred to herein collectively as the “Company SEC Reports”). The Company has timely made all filings and furnishings with the SEC required of the Company pursuant to the Exchange Act during the 12 months preceding the date of this Agreement. As of their respective dates, the Company SEC Reports were duly filed or furnished with the SEC and complied in all material respects with the requirements of the Sarbanes-Oxley Act, the Securities Act or the Exchange Act, as the case may be, and the rules and regulations promulgated by the SEC and the NASDAQ Stock Market thereunder applicable to such Company SEC Reports. Except to the extent that information contained in any Company SEC Report filed or furnished with the SEC and made publicly available prior to the date of this Agreement (a “Filed Company SEC Report”) has been revised or superseded by a later Filed Company SEC Report, as of their respective dates, none of the Filed Company SEC Reports contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Each of the audited consolidated financial statements and unaudited interim financial statements (including, in each case, the schedules and notes thereto) included in the Filed Company SEC Reports comply in all material respects with applicable accounting requirements of the Securities Act or the Exchange Act and with the published rules and regulations of the SEC with respect thereto. The financial statements (including the schedules and notes thereto) included in the Company’s SEC Reports (i) have been prepared in accordance with generally accepted accounting principles of the United States (“GAAP”) applied on a consistent basis throughout the periods indicated, except as disclosed therein, and (ii) present fairly, in all material respects, the financial position of the Company as at the dates thereof and the results of its operations and cash flow for the periods then ended.

3.8. Absence of Certain Developments

Except as disclosed in a reasonably apparent manner in any Company SEC Report filed or furnished with the SEC and made publicly available prior to the date of this Agreement, without giving effect to any risk factors or forward looking statements contained therein (collectively, the “SEC Disclosure”), since December 31, 2006, there has been no (i) change, event or series of events that is or are reasonably likely to have a Material Adverse Effect, (ii) declaration, setting aside or payment of any dividend or other distribution with respect to the capital stock of the Company, (iii) issuance of capital stock (other than pursuant to (1) the exercise of options, warrants, or convertible securities outstanding at such date or (2) employee benefit plans) or options, warrants or rights to acquire capital stock (other than the rights granted pursuant to employee benefit plans) other than the Shares, (iv) material loss, destruction or damage to any property of the Company, whether or not insured, (v) acceleration of any indebtedness for borrowed money or the refunding of any such indebtedness, (vi) labor trouble involving the Company or any material change in its personnel or the terms and conditions of employment, (vii) waiver of any valuable right in favor of the Company, (viii) loan or extension of credit by the Company to any officer of the Company or to any employee of the Company in

an amount in excess of $25,000, (ix) acquisition or disposition of any material assets (or any contract or arrangement therefore) or any other material transaction by the Company, or (x) any material change in any method of accounting or accounting principle, method, estimate or practice except for any such change required by reason of a concurrent change in GAAP.

3.9. Compliance with Law

(a) Except as disclosed in the SEC Disclosure, since December 31, 2005, the Company has not been in violation of any foreign, federal, state or local laws, ordinances, governmental rules or regulations to which it is subject, including without limitation laws or regulations relating to Environmental Laws or to occupational health and safety, except for violations that would not be reasonably likely to have a Material Adverse Effect, no material expenditures are known to be or expected to be required in order to cause its current operations or properties to comply with any such laws, ordinances, governmental rules or regulations, and the Company has received no complaints from any foreign, federal state or local agency or regulatory body alleging such material violations of any such laws and regulations.

(b) The Company has all material licenses, permits, franchises or other governmental authorizations necessary for the ownership of its property and to the conduct of its business in the manner described in the SEC Disclosure. Except as disclosed in the SEC Disclosure, the Company has not been finally denied any application for any such material licenses, permits, franchises or other governmental authorizations necessary to its business. There has not been, and there is no proceeding pending, served or, to the Company’s knowledge, threatened, to suspend, revoke or limit any such licenses, permits, franchises or other governmental authorizations and, to the Company’s knowledge, there is no circumstance that exists which with notice or the passage of time or both, will result in such revocation, suspension or limitation where such revocation, suspension or limitation would be reasonably likely to have a Material Adverse Effect.

(c) Except as set forth in Section 3.9(c) of the Disclosure Schedule, since December 31, 2005, to the Company’s knowledge, no third party manufacturer that is currently producing product on behalf of the Company has been in material violation of any laws, ordinances, governmental rules or regulations to which it is subject and which relates to the manufacturing undertaken by such third party on behalf of the Company with respect to any ongoing clinical programs or commercial products.

(d) The Company is in material compliance with all provisions of the Sarbanes-Oxley Act and the rules and regulations promulgated thereunder and all provisions of the NASDAQ Stock Market, in each case as to which the Company is required to be in compliance.

(e) Any clinical, pre-clinical and other studies and test conducted or being conducted by or on behalf of or sponsored by the Company were and are, to the Company’s knowledge, conducted in material compliance with all U.S. and foreign statutes, laws, rules, directives, and regulations.

3.10. Litigation

Except as disclosed in the SEC Disclosure, there is no legal action, suit, arbitration or other legal, administrative or other governmental investigation, inquiry or proceeding (whether federal, state, local or foreign) pending or, to the Company’s knowledge, threatened against or affecting the Company or any of its properties, assets or business or any of its directors, trustees, officers or employees in such capacity, which would be reasonably likely to have a Material Adverse Effect. Except as disclosed in the SEC Disclosure, neither the Company nor any of its directors, trustees, officers or employees in such capacity is subject to any order, writ, judgment, injunction, decree, determination or award of any court or of any governmental agency or instrumentality (whether federal, state, local or foreign), which would be reasonably likely to have a Material Adverse Effect.

3.11. Absence of Undisclosed Liabilities

Except as disclosed in the SEC Disclosure and as contemplated in this Agreement, since December 31, 2006, the Company has not incurred any liability or obligation, direct or contingent, or entered into any transaction, not in the ordinary course of business, that is material to the Company taken as a whole, and there has not been any change in the capital stock of the Company, except for the increase in the number of authorized shares of Series H Preferred Stock, the filing of the Certificate of Designations and the issuance of the Shares in accordance with the terms thereof, or increase in the short-term or long-term debt of the Company taken as a whole.

3.12. Employees; Company Benefit Plans

(a) The Company is not engaged in any unfair labor practice or discriminatory employment practice and no complaint of any such practice against the Company has been filed or, to the Company’s knowledge, threatened to be filed with or by the National Labor Relations Board, the Equal Employment Opportunity Commission or any other administrative agency, federal or state, that regulates labor or employment practices, nor is any grievance filed or, to the Company’s knowledge, threatened to be filed, against the Company by any employee pursuant to any collective bargaining or other employment agreement to which the Company is a party or is bound which, in any such case, would be reasonably likely to have a Material Adverse Effect.

(b) There are no pending or, to the Company’s knowledge, threatened strikes, lockouts, picketing, slow downs, work stoppages or union organization activities with respect to the Company. Except as set forth in Section 3.12 of the Disclosure Schedule, the Company is not aware that any officer or key employee, or that any group of key employees, intends to terminate their employment with the Company, nor does the Company have a present intention to terminate the employment of any of the foregoing.

(c) Except as would not reasonably be likely to have a Material Adverse Effect: (i) the Company Benefit Plans are in compliance with all applicable requirements of ERISA, the Code, and other applicable laws and have been administered in accordance with their terms and such laws, and (ii) each Company Benefit Plan that is intended to be qualified within the meaning of Section 401 of the Code has received a favorable determination letter as to its

qualification or an opinion letter indicating that the prototype form of the plan document does not, in and of itself, violate Section 401 of the Code and nothing has occurred that could adversely affect such qualification.

(d) Except as would not reasonably be expected to result in a Material Adverse Effect, there are no pending or, to the Company’s knowledge, threatened claims (in writing) and no pending or, to the Company’s knowledge, threatened (in writing) litigation with respect to any Company Benefit Plan, other than ordinary and usual claims for benefits by participants and beneficiaries.

(e) Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) result in any payment becoming due, or increase the amount of any compensation or benefits due, to any current or former employee of the Company or with respect to any Company Benefit Plan; (ii) result in the acceleration of the time of payment or vesting of any such compensation or benefits; or (iii) result in the payment of any amount that would, individually or in combination with any other such payment, not be deductible as a result of Section 280G of the Code.

3.13. Tax Matters

There are no federal, state, county or local taxes due and payable by the Company which have not been paid. The Company has duly filed (except in cases where valid extensions have been obtained) all federal, state, county and local tax returns required to have been filed by it and there are in effect no waivers of applicable statutes of limitations with respect to taxes for any year. No material tax deficiency has been determined adversely to the Company. The Company is not currently subject to a federal or state tax audit of any kind. The Company does not have any current material liability for taxes of any person (A) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign law), (B) as a transferee or successor or (C) by contract. The Company is not a party to, is not bound by and has no obligation under any tax sharing or tax indemnity contract or similar arrangement. The Company has not been a party to a “reportable transaction,” as such term is defined in Treasury Regulations Section 1.6011-4(b)(1) or to a transaction that is or is substantially similar to a “listed transaction,” as such term is defined in Treasury Regulations Section 1.6011-4(b)(2).

3.14. Intellectual Property

(a) To the Company’s knowledge, the Company owns all right, title and interest in and to, or has a valid and enforceable license to use all the Intellectual Property necessary to the conduct of its business as now conducted, except where the failure to own or license such Intellectual Property would not be reasonably likely to have a Material Adverse Effect. The Company is not in breach of any license agreement concerning the Company’s Intellectual Property, except for breaches that could not be material to the Company taken as a whole. Except as disclosed in the SEC Disclosure, to the knowledge of the Company, there are no conflicts with or infringements of any Intellectual Property by any third party, except for conflicts or

infringements that could not be material to the Company taken as a whole. To the knowledge of the Company, the conduct of the business of the Company as currently conducted does not conflict with or infringe any proprietary right of any third party, except for conflicts or infringements that could not be material to the Company taken as a whole. There is no claim, suit, action or proceeding pending or, to the knowledge of the Company, threatened against the Company: (i) alleging any such conflict or infringement with any third party’s proprietary rights or (ii) challenging the Company’s ownership or use of, or the validity or enforceability of any Intellectual Property.

(b) Except as set forth in Section 3.14 of the Disclosure Schedule, to the Company’s knowledge, no present or former employee, officer or director of the Company, or agent or outside contractor of the Company, holds any right, title or interest, directly or indirectly, in whole or in part, in or to any Intellectual Property owned by the Company. To the Company’s knowledge, no person has claimed rights to any patent owned by or, to the Company’s knowledge, licensed to the Company by reason of being an inventor or co-inventor of any claim in such patents, other than the inventors named on each such patent, and all such inventors have duly assigned their rights to the patents to the Company or the assignor or licensor of such patents to the Company.

(c) To the Company’s knowledge, it will not be necessary to utilize any inventions of any of its employees made prior to their employment by the Company, except those formally assigned or transferred to the Company by such employees.

(d) To the Company’s knowledge: (i) no trade secret of the Company has been used, disclosed or appropriated to the detriment of the Company or for the benefit of any Person other than the Company; and (ii) no employee, independent contractor or agent of the Company has misappropriated any trade secrets or other confidential information of any other Person in the course of the performance of his or her duties as an employee, independent contractor or agent of the Company, except in the cases of clauses (i) and (ii) as could not be material to the Company taken as a whole. All employees of the Company have executed agreements acknowledging their obligation to assign all inventions made in the course of their employment to the Company.

(e) Each employee, consultant and contractor of the Company who has had access to confidential information of the Company which is material to the conduct of the Company’s business as currently conducted has executed an agreement to maintain the confidentiality of such confidential information.

3.15. Real Property.

The Company has not at any time, and does not currently own any real property.

3.16. Title to Tangible Assets

The Company has good and marketable title to its properties and assets and good title to all its leasehold estates. Such properties, assets and leasehold estates constitute all of the properties, assets and leasehold estates as are necessary for the Company to conduct its business in all material respects as currently conducted. Except as set forth in Section 3.16 of the Disclosure Schedule, such properties and assets are not subject to any mortgage, pledge, lien, lease, encumbrance or charge, other than or resulting from taxes which have not yet become delinquent and minor liens and encumbrances which do not in any case materially detract from

the value of the property subject thereto or materially impair the operations of the Company and which have not arisen otherwise than in the ordinary course of business.

3.17. Condition and Sufficiency of Properties

The property, assets and operations of the Company owned, leased or used by the Company are in good operating condition and repair, are adequate and sufficient for the Company’s business as now conducted and as presently contemplated to be conducted and comply in all material respects with all applicable ordinances, regulations and laws.

3.18. Transactions with Related Parties

The Company is not a party to any agreement with any of the Company’s directors, officers or stockholders or any Affiliate or family member of any of the foregoing under which it: (i) leases any real or personal property (either to or from such Person); (ii) licenses technology (either to or from such Person); (iii) is obligated to purchase any tangible or intangible asset from or sell such asset to such Person; (iv) purchases products or services from such Person; or (v) has borrowed money from or lent money to such Person. The Company does not employ as an employee or engage as a consultant any family member of any of the Company’s directors, officers or Affiliates. Except to the extent otherwise provided in this Agreement and except as disclosed in Schedules 13G filed with the SEC, to the knowledge of the Company there exist no agreements among stockholders of the Company to act in concert with respect to the voting or holding of the Company’s securities.

3.19. Registration Rights

Except as set forth on Section 3.19 of the Disclosure Schedule, the Company will not, as of the Closing Date, be under any obligation to register any of its securities under the Securities Act.

3.20. Brokerage

There are no claims for brokerage commissions or finder’s fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement made by or on behalf of the Company, and the Company agrees to indemnify and hold the Investor harmless against any costs or damages incurred as a result of any such claim.

3.21. Illegal or Unauthorized Payments; Political Contributions

Neither the Company nor, to its knowledge, any of its officers, directors, employees, agents or other representatives of the Company or any other business entity or enterprise with which the Company is or has been affiliated or associated, has, directly or indirectly, made or authorized any payment, contribution or gift of money, property, or services, whether or not in contravention of applicable law, (a) as a kickback or bribe to any Person or (b) to any political organization, or the holder of or any aspirant to any elective or appointive public office except for personal political contributions not involving the direct or indirect use of funds of the Company.

3.22. Takeover Statute

The Board has heretofore taken all necessary action to approve, and has approved, for purposes of Section 203 of the DGCL (including any successor statute thereto “Section 203”) the Investor’s becoming, together with its affiliates and associates, an “interested stockholder” within the meaning of Section 203 by virtue of the execution, delivery and performance of this Agreement, such that, as of the date hereof and from and after the Closing, Section 203 will not be applicable to the Investor or any “business combination” within the meaning of Section 203 that may take place between the Investor and/or its affiliates and associates, on the one hand, and the Company, on the other, as a result of the transactions contemplated by this Agreement. To the Company’s knowledge, no other Takeover Statute is applicable to the transactions contemplated hereby.

3.23. NASDAQ Compliance

The Common Stock is registered pursuant to Section 12(g) of the Exchange Act, and is listed on The NASDAQ Global Market (the “NASDAQ Stock Market”), and trading in the Common Stock has not been suspended and the Company has taken no action designed to, or that is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act or delisting the Common Stock from the NASDAQ Stock Market, nor has the Company received any notification that the SEC or the NASD is contemplating terminating such registration or listing. To the best of the Company’s knowledge, the Company and the Common Stock meet the criteria for continued listing and trading on the NASDAQ Stock Market.

3.24. Reporting Status

The Company is currently eligible to register the resale of the Shares and the Exchange Shares in a secondary offering on a registration statement on Form S-3 under the Securities Act.

3.25. No Manipulation of Common Stock

The Company has not taken any action outside the ordinary course of business designed to or that might reasonably be expected to cause or result in unlawful manipulation of the price of the Common Stock to facilitate the sale or resale of the Shares or the Exchange Shares.

3.26. Accountants

PricewaterhouseCoopers LLP has advised the Company that it is, and to the knowledge of the Company it is, an independent registered public accounting firm as required by the Sarbanes-Oxley Act, the Securities Act and the Exchange Act and the rules and regulations promulgated thereunder.

3.27. Internal Accounting Controls

The Company maintains a system of internal accounting controls sufficient, in the judgment of the management of the Company, 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.

3.28. Environmental Matters

To its knowledge, the Company is in material compliance with all Environmental Laws. There is no civil, criminal or administrative judgment, action, suit, settlement, decree, order, demand, claim, hearing, notice of violation, investigation, proceeding, notice or demand letter pending or to the Company’s knowledge threatened against the Company related to Environmental Laws. To the Company’s knowledge, there are no past or present events, conditions, circumstances, activities, practices, incidents, agreements, actions or plans which could reasonably be expected to prevent compliance with, or which have given rise to or will give rise to liability which could be material to the Company taken as a whole under the Environmental Laws.

3.29. FDA Approval

(a) To the Company’s knowledge, all clinical trials conducted by or for the benefit of the Company have been, and are being, conducted in material compliance with the applicable requirements of “Good Clinical Practice”, informed consent, and all applicable requirements relating to protection of human subjects contained in 21 C.F.R.;

(b) Except as set forth in Section 3.29 of the Disclosure Schedule, to the Company’s knowledge, all manufacturing operations currently conducted by or for the benefit of the Company relating to drugs for human use have been and are being conducted in material compliance with the FDA’s applicable current “Good Manufacturing Practice” regulations;

(c) To the Company’s knowledge, no product (co-)promoted by the Company has been recalled, suspended or discontinued in the United States as a result of any action by the FDA;

(d) The Company has not received any notice, and to its knowledge Allergan has not received any notice, that the FDA has commenced, or threatened to initiate, any action to withdraw approval, place marketing or sale restrictions, or request the recall of any product (co-)promoted by the Company, or commenced, or threatened to initiate, any action to enjoin or place restrictions on the production, sale, or marketing of any such products;

(e) The Company has no product on clinical hold nor has the Company received written notice indicating that any product is reasonably likely to be placed on clinical hold;

(f) Neither the Company nor any officer or employee of the Company has been convicted of any crime or engaged in any conduct that would reasonably be expected to

result in (A) debarment under 21 U.S.C. Section 335a or any similar state law or regulation or (B) exclusion under 42 U.S.C. Section 1320a-7 or any similar state law or regulation; and

(g) The Company has made available to the Investor all submissions to the FDA and the FDA responses (and other material correspondence received from or submitted to the FDA), including, but not limited to, all FDA warning letters, regulatory letters and notice of adverse finding letters and the relevant responses, received by the Company or any agent thereof relative to the development of the Company’s products and in the possession of the Company.

3.30. Insurance

Section 3.30 of the Disclosure Schedule sets forth all primary, excess and umbrella policies of general liability, fire, workers’ compensation, products liability, completed operations, employers’ liability, bonds and other forms of insurance providing insurance coverage to the Company including the name of insurer, limits of liability, per occurrence and annual aggregate, if any, or combined single limit as applicable. All current policies set forth on Schedule 3.30 are in full force and effect, and all premiums currently payable or previously due and payable have been paid and no notice of cancellation or termination has been received with respect to any such policy. None of such policies contain a provision that would permit the termination, limitation, lapse, exclusion, or change in the terms of coverage (including, without limitation, a change in the limits of liability) by reason of the consummation of the transactions contemplated by this Agreement. Except as disclosed in Section 3.30 of the Disclosure Schedule, the Company has not received notice from, and has no knowledge of any threat by, any insurer that has issued any insurance policy to the Company that such insurer intends to deny coverage under or cancel, discontinue or not renew any insurance policy presently in force.

3.31. Transfer Taxes

No stock transfer or other taxes are required to be paid in connection with the sale and issuance of the Shares hereunder.

3.32. Investment Company

The Company is not an “investment company” or an “affiliated person” of, or “promoter” or “principal underwriter” for an investment company, within the meaning of the Investment Company Act of 1940, as amended.

3.33. Private Offering

Neither the Company nor to the Company’s knowledge, anyone acting on its behalf has sold or has offered any of the Shares for sale to, or solicited offers to buy from, or otherwise approached or negotiated with respect thereto with, any prospective purchaser, other than the Investor. Neither the Company nor anyone acting on its behalf shall offer the Shares for issue or sale to, or solicit any offer to acquire any of the same from, anyone so as to bring the issuance and sale of such Shares within the provisions of Section 5 of the Securities Act. Based upon the representations of the Investor set forth in Section 4, the offer, issuance and sale of the Shares are and will be exempt from the registration and prospectus delivery requirements of the Securities Act, and have been registered or qualified (or are exempt from registration and

qualification) under the registration, permit or qualification requirements of all applicable state securities laws.

3.34. Vote Required

A quorum of the holders of the outstanding Common Stock, represented in person or by proxy, is necessary to hold a meeting of the Company’s stockholders to approve the Exchange contemplated by both this Agreement and by the Certificate of Designations, and a majority of the votes cast at such stockholder meeting by the holders of the outstanding Common Stock, whether in person or by proxy, is required to approve the Exchange contemplated by both this Agreement and by the Certificate of Designations. No other vote of the holders of any class or series of the Company securities is necessary to approve the transaction documents and the transactions contemplated hereby and thereby.

3.35. Rights Amendment

The Company and Computershare Trust Company, as Rights Agent, have executed the First Amendment to Rights Agreement, an executed copy of which is attached as Exhibit G hereto (the “Rights Amendment”), which amendment is in full force and effect.

SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR

The Investor represents and warrants to the Company as of the date of this Agreement (or, if made as of a specified date, as of such date) that:

(a) It is acquiring the Shares and, subject to Stockholder Approval, the Exchange Shares for its own account for investment and not with a view towards the resale, transfer or distribution thereof, nor with any present intention of distributing the Shares or the Exchange Shares, but subject, nevertheless, to any requirement of law that the disposition of the Investor’s property shall at all times be within the Investor’s control, and without prejudice to the Investor’s right at all times to sell or otherwise dispose of all or any part of such securities under a registration under the Securities Act or under an exemption from said registration available under the Securities Act.

(b) It has full power and legal right to execute and deliver this Agreement and to perform its obligations hereunder.

(c) It is a validly existing partnership, limited liability company, trust or corporation, as the case may be, duly organized under the laws of its jurisdiction of organization or formation.

(d) It has taken all action necessary for the authorization, execution, delivery, and performance of this Agreement and its obligations hereunder, and, upon execution and delivery by the Company, this Agreement shall constitute the valid and binding obligation of the Investor, enforceable against the Investor in accordance with its terms, except that such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors’ rights and general principles of equity.

(e) There are no claims for brokerage commissions or finder’s fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement made by or on behalf of the Investor and the Investor agrees to indemnify and hold the Company harmless against any costs or damages incurred as a result of any such claim.

(f) It has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its investment in the Company as contemplated by this Agreement, and is able to bear the economic risk of such investment for an indefinite period of time. It has been furnished access to such information and documents as it has requested and has been afforded an opportunity to ask questions of and receive answers from representatives of the Company concerning the terms and conditions of this Agreement and the purchase of the Shares contemplated hereby. It is a “qualified institutional buyer” within the meaning of Rule 144A(a) of the Securities Act or an “accredited investor” within the meaning of Rule 501(a) of Regulation D under the Securities Act.

(g) Except the Notification and Report Forms under the HSR Act to be filed with the Federal Trade Commission (the “FTC”) and such consents, approvals and filings, the failure to obtain or make would not, individually or in the aggregate, have a material adverse effect on the ability of the Investor to consummate the transactions contemplated by this Agreement, the execution and delivery by it of this Agreement and the performance by the Investor of its obligations hereunder and the consummation by the Investor of the transactions contemplated hereby do not require the Investor to obtain any consent, approval, clearance or action of, or make any filing, submission or registration with, or give any notice to, any governmental authority or judicial authority.

(h) The execution and delivery of this Agreement by the Investor do not, and the fulfillment of the terms hereof and thereof by the Investor will not, (i) violate or conflict with its partnership agreement, trust agreement, the articles of incorporation, other constitutive documents or by-laws (or other similar applicable documents) of the Investor, as applicable; (ii) result in a breach of any of the terms, conditions or provisions of, or constitute a default (with or without the giving of notice or the passage of time (or both)) under, or result in the modification of, or permit the acceleration of rights under or termination of, any material contract to which the Investor is a party or (iii) violate any law, ordinance, standard, judgment, rule or regulation of any court or federal, state or foreign regulatory board or body or administrative agency having jurisdiction over the Investor or over its properties or businesses; except, in the cases of clauses (ii) and (iii) where such event would not be reasonably likely to have a material adverse effect on the Investor’s ability to consummate the transactions contemplated by this Agreement.

(i) On the date of this Agreement, the Investor (1) is not an “interested stockholder” within the meaning of Section 203(c)(5) of the DGCL nor (2) has it been an “interested stockholder” for a period of more than three years preceding the date of this Agreement.

(j) The Investor understands that the Shares are characterized as “restricted securities” under the Securities Act inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may not be resold without registration under the Securities Act or an exemption

therefrom. The Investor further understands that a legend may be affixed to the certificates evidencing the Shares setting forth the fact that such Shares are “restricted securities” under the Securities Act.

(k) During the last 30 days prior to the date hereof, neither the Investor nor any Affiliate of the Investor that, during such period, (x) had knowledge of the transactions contemplated hereby, (y) had or shared discretion relating to the Investor’s investments or trading or information concerning the Investor’s investments, including in respect of the Shares, or (z) is subject to the Investor’s approval concerning such Affiliate’s investments or trading (collectively, “Trading Affiliates”) has, directly or indirectly, (a) acquired, agreed to acquire (other than pursuant to this Agreement), offered for sale, sold, pledged or otherwise disposed of any Common Stock, (b) effected or agreed to effect any short sale, whether or not against the box, established any “put equivalent position” (as defined in Rule 16a-1(h) under the Exchange Act) with respect to the Common Stock, granted any other right (including, without limitation, any put or call option) with respect to the Common Stock or with respect to any security that includes, relates to or derived any significant part of its value from the Common Stock or otherwise sought to hedge its position in the Shares or (c) entered into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of any securities of the Company, whether any such transaction described in clauses (a), (b) or (c) was or is to be settled by delivery of securities of the Company, other securities, cash or otherwise (each, a “Prohibited Transaction”).

SECTION 5. ADDITIONAL AGREEMENTS OF THE PARTIES

5.1. Covenants Pending Closing

Between the date hereof and the Closing Date, the Company will conduct its business in the ordinary course, and will not, without the Investor’s prior written consent, such consent not to be unreasonably withheld, delayed or conditioned, take any action which would result in any of the representations or warranties contained in this Agreement not being true at and as of the time immediately after such action, or in any of the covenants contained in this Agreement becoming incapable of performance. Pending the Closing, the Company will promptly advise the Investor of any action or event of which it becomes aware which has the effect of making materially incorrect any of such representations or warranties or which has the effect of rendering any of such covenants incapable of performance. The Company and the Investor shall each use its reasonable efforts to fulfill or obtain the fulfillment of the conditions to the Closing as promptly as practicable.

5.2. Further Assurances

The Company and the Investor shall execute such documents and other papers and take such further actions as may be reasonably required or desirable to carry out the provisions hereof and the transactions contemplated hereby.

5.3. Investor Designee

(a) For so long as the Investor Owns (i) at least a number of Shares equal to 50% of the Shares acquired by it pursuant to this Agreement, or (ii) in the event the Exchange

occurs, at least either (y) 10% of the Common Stock or (z) a number of shares of Common Stock equal to 50% of the Common Stock acquired pursuant to the Exchange (the “Exchange Date Shares”), then, subject to applicable law and the rules and regulations of the SEC and the NASDAQ Stock Market, at the request of the Investor, the Company will nominate and use its reasonable best efforts to cause to be elected and cause to remain as a director on the Board one individual designated by the Investor (the “Investor Designee”). The initial Investor Designee shall be Jonathan S. Leff. For the purposes of this Section 5.3, Mr. Leff shall be deemed qualified under the Company’s Policies Regarding Criteria for Nomination to the Board of Directors and Procedures for Nomination of Directors by Stockholders as in effect on the date hereof (the “Nomination Policy”), and to the extent that Mr. Leff’s nomination, election and service as director on the Board is in actual or apparent conflict with any of the provisions of the Nomination Policy, such provisions shall be waived by the Company with respect to Mr. Leff prior to his appointment to the Board and such waiver shall remain in effect until such time as Mr. Leff ceases to be a member of the Board, provided that there has not been a material change to the facts and circumstances pursuant to which such waiver was granted. The qualifications of any subsequent Investor Designee shall be determined based upon the Nomination Policy as in effect on the date hereof. The Company agrees that it will evaluate the qualifications of any potential Investor Designee in good faith based upon such Nomination Policy.

(b) Subject to applicable law and the rules and regulations of the SEC and NASDAQ Stock Market, for so long as at least the Investor Designee continues to serve as a director on the Board, at the request of the Investor, the Company shall cause the Investor Designee to be a member of each principal committee of the Board.

(c) The Company and the Investor hereby declare that it is impossible to measure in money the damages which will accrue to the parties hereto by reason of the failure of any party to perform any of its obligations set forth in this Section 5.3. Therefore, the Investor shall have the right to specific performance of such obligations, and if the Investor shall institute any action or proceeding to enforce the provisions hereof, the Company hereby waives the claim or defense that the party instituting such action or proceeding has an adequate remedy at law.

5.4. Subscription Right

(a) If at any time after the date hereof, the Company determines to issue equity securities of any kind (for these purposes, the term “equity securities” shall include, without limitation, Common Stock, warrants, options or other rights to acquire equity securities convertible or exchangeable into equity securities) of the Company (other than: (i) the issuance of equity securities to employees, officers or directors of, or consultants or advisors to the Company pursuant to any employee benefit plan approved by the Board; (ii) any equity securities issued as consideration in connection with an acquisition, merger, consolidation, restructuring, reorganization, or other change in capitalization by the company provided such transaction has been approved by the Board and, if the Exchange has not yet occurred, the Exchangeable Preferred Stock is redeemed in connection therewith; (iii) any equity security issued in connection with a collaboration, disposition or acquisition or assets, product promotion, marketing, manufacturing or supply, and/or research and development, including without limitation pursuant to a license agreement, purchase agreement, (co-)promotion agreement, manufacturing agreement, collaboration or other similar agreement related thereto; (iv) shares of

Exchangeable Preferred Stock issued as dividends with respect to Exchangeable Preferred Stock; or (v) shares of Common Stock issued or issuable upon exchange of the Exchangeable Preferred Stock) then, for so long as the Investor owns (within the meaning of Rule 13d-3 under the Exchange Act and giving effect to the exchange of all outstanding Exchangeable Preferred Stock, including all accrued and unpaid dividends (whether or not declared) thereon, into Common Stock at the then applicable exchange rate (whether or not then exchangeable)) at least 10% of the shares of Common Stock, the Company shall:

(1) give written notice to the Investor setting forth in reasonable detail (A) the designation and all of the terms and provisions of the securities proposed to be issued (the “Proposed Securities”), including, where applicable, the voting powers, preferences and relative participating, optional or other special rights, and the qualification, limitations or restrictions thereof and interest rate and maturity; (B) the price and other terms of the proposed sale of such securities; (C) the amount of such Proposed Securities; and (D) such other information as the Investor may reasonably request in order to evaluate the proposed issuance; and

(2) subject to applicable law and the rules and regulations of the SEC and the NASDAQ Stock Market, offer to issue to the Investor upon the terms described in the notice delivered pursuant to Section 5.4(a)(1) above, a portion of the Proposed Securities equal to (i) the percentage of the Common Stock (including the Exchange Shares issuable upon the Exchange, if the Exchange has not occurred) Owned by the Investor immediately prior to the issuance of the equity securities relative to the total number of shares of Common Stock (including the Exchange Shares issuable upon the Exchange, if the Exchange has not occurred) outstanding immediately prior to the issuance of the equity securities, multiplied by (ii) the total number of Proposed Securities. Notwithstanding the foregoing, the Company shall not be required to offer or sell such Proposed Securities to the Investor if it would cause the Company to be in violation of applicable federal securities laws by virtue of such offer or sale.

(b) The Investor must give notice of its intent to exercise its purchase rights hereunder within 20 Business Days after receipt of such notice from the Company. To the extent that the Company offers two or more securities in units, the Investor must purchase such units as a whole and will not be given the opportunity to purchase only one of the securities making up such unit.

(c) Upon the expiration of the offering period described above, the Company will be free to sell such Proposed Securities that the Investor has not elected to purchase during the 90 days following such expiration on terms and conditions no more favorable to the purchasers thereof than those offered to the Investor.

(d) The election by the Investor not to exercise its subscription rights under this Section 5.4 in any one instance shall not affect its right (other than in respect of a reduction in its percentage holdings) as to any subsequent proposed issuance. Any sale of such securities by the Company without first giving the Investor the rights described in this Section 5.4 shall be void and of no force and effect.

(e) The subscription rights established by this Section 5.4 shall not apply to, and shall terminate upon a consolidation, merger, restructuring, reorganization, recapitalization or other form of acquisition of or by the Company that results in a Change of Control (as defined in the Certificate of Designations) and, if the Exchange has not occurred, in connection with which the Exchangeable Preferred Stock is redeemed.

(f) The Company and the Investor hereby declare that it is impossible to measure in money the damages which will accrue to the parties hereto by reason of the failure of any party to perform any of its obligations set forth in this Section 5.4. Therefore, the Company and the Investor shall have the right to specific performance of such obligations, and if any party hereto shall institute any action or proceeding to enforce the provisions hereof, each of the Company and the Investor hereby waive the claim or defense that the party instituting such action or proceeding has an adequate remedy at law.

5.5. Consents and Approvals; Proxy Statement

(a) From and after the date hereof, the Company shall use its reasonable best efforts to obtain as promptly as practicable any consent or approval of any Person, including any regulatory authority, required in connection with the transactions contemplated hereby.

(b) From and after the date of the Closing, the Company shall use its reasonable best efforts to obtain any vote of stockholders necessary for approval of the Exchange (“Stockholder Approval”). In furtherance of the foregoing statement, the Company shall prepare and use its reasonable best efforts to promptly file with the SEC and to have cleared by the SEC, a preliminary proxy statement, and as soon as practicable thereafter (subject to applicable waiting periods under the Exchange Act, review by the SEC or as required by the Organizational Documents and applicable law) file with the SEC and promptly thereafter mail a definitive proxy statement to the Company’s stockholders (the “Proxy Statement”). The Proxy Statement shall contain the recommendation of the Board, to the extent consistent with its fiduciary duties, that the Company’s stockholders approve the Exchange in accordance with the Organizational Documents and applicable law, including without limitation, the requirements of NASD Rule 4350. The Investor will be given a reasonable opportunity to review and comment on drafts of the Proxy Statement and the Company will use its reasonable best efforts to accept comments thereto given by the Investor and its representatives. The Company shall take all action necessary in accordance with applicable law and its Organizational Documents to convene a meeting of the Company’s stockholders as soon as practicable after the filing of the definitive proxy statement. To the extent consistent with its fiduciary duties, the Company shall use its reasonable best efforts to solicit from the Company’s stockholders proxies in favor of the Exchange and shall take all other action reasonably necessary to secure Stockholder Approval. Notwithstanding the foregoing, the Company shall be deemed to have used its “reasonable best efforts” to secure Stockholder Approval if the Company convenes on or before December 31, 2007 a meeting of its stockholders in accordance with the provisions of this Section 5.5(b) for the purpose of securing Stockholder Approval.

(c) The Company and the Investor hereby declare that it is impossible to measure in money the damages which will accrue to the parties hereto by reason of the failure of any party to perform any of its obligations set forth in this Section 5.5. Therefore, the Investor

shall have the right to specific performance of such obligations, and if the Investor shall institute any action or proceeding to enforce the provisions hereof, the Company hereby waives the claim or defense that the party instituting such action or proceeding has an adequate remedy at law.

5.6. Use of Proceeds

The proceeds received by the Company from the issuance and sale of the Shares shall be used by the Company for working capital and other general corporate purposes.

5.7. Takeover Statute

If any Takeover Statute shall become applicable to the transactions contemplated hereby, including without limitation any takeover provision under the laws of the State of Delaware, the Company and the members of the Board shall, to the extent consistent with its fiduciary duties, grant such approvals and take such actions as are necessary so that the transactions contemplated hereby may be consummated as promptly as practicable on the terms contemplated hereby and otherwise use their reasonable best efforts to act to eliminate or minimize the effects of such statute or regulation on the transactions contemplated hereby and the ownership of shares or Exchange Shares by the Investor.

5.8. Tax Covenants

(a) The Investor and the Company agree not to treat the Shares as “preferred stock” within the meaning of Treasury Regulation Section 1.305-5 for United States income tax purposes, and therefore as not subject to section 305 of the Code, and based upon the terms of the Shares as of the Closing Date, the Company shall report dividend income for federal, and any applicable state and local income tax purposes to the Investor solely to the extent that cash dividends are paid on the Shares. Neither the Company nor the Investor shall take any position contrary to the foregoing on any tax return. Notwithstanding the foregoing, neither the Investor nor the Company shall be required to take any action pursuant to this Section 5.8(a) if doing so would be reasonably likely, based upon advice of the Company’s tax advisers, to be unfounded, unlawful or potentially subject the Investor or the Company to a material penalty.

(b) For so long as no Shares have been exchanged, neither the Company nor any Disregarded Entity shall issue any debt security convertible or exchangeable into any capital stock of the Company, which debt security shall have preference or priority over, or be on par with, the Shares without the written consent or affirmative vote of the holders of at least a majority of the then outstanding Shares, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class. For purposes of the preceding sentence, a “Disregarded Entity” shall mean (i) a direct subsidiary of the Company if such subsidiary is treated as a disregarded entity for U.S. federal income tax purposes, and (ii) an indirect subsidiary of the Company provided that (a) such subsidiary is treated as a disregarded entity for U.S. federal income tax purposes and (b) such subsidiary is owned by an entity treated as a disregarded entity for U.S. federal income tax purposes. In addition for so long as no Shares have been exchanged, the Company shall not make any distribution on any class of stock (other than the Exchangeable Preferred Stock or Common Stock) which in the opinion of both the Investor’s tax advisors and the Company’s tax advisors would result in any non-cash distribution

or accumulation on the Shares being currently taxable under Section 305(b)(2) of the Code; provided, however, that if the Investor’s tax advisors and the Company’s tax advisors disagree as to whether such distribution would result in any non-cash distribution or accumulation on the Shares being currently taxable under Section 305(b)(2) of the Code, the Investor and the Company shall appoint a nationally known, independent tax advisor mutually acceptable to the Investor and the Company who shall render an opinion as to whether such distribution would result in any non-cash distribution or accumulation on the Shares being currently taxable under Section 305(b)(2) of the Code, which opinion shall be binding on the Investor and the Company. The fees of the independent tax advisor shall be borne 50% by the Investor and 50% by the Company.

SECTION 6. INVESTOR’S CLOSING CONDITIONS

The Investor’s obligations to purchase the Shares at Closing shall be subject to the performance by the Company of its agreements theretofore to be performed hereunder and to the satisfaction (or waiver), prior thereto or concurrently therewith, of the following further conditions:

6.1. Representations and Warranties

The representations and warranties of the Company contained in Section 3 of this Agreement shall be true on and as of the Closing Date (or, if made as of a specified date, as of such other date) in all material respects (except for such representations and warranties that are qualified as to materiality, which shall be true in all respects) as though such representations and warranties were made at and as of such date.

6.2. Compliance with Agreement

The Company shall have performed and complied in all material respects with all agreements, covenants and conditions contained in this Agreement which are required to be performed or complied with by the Company prior to or on the Closing Date.

6.3. Injunction

There shall be no effective injunction, writ, preliminary restraining order or any order of any nature issued by a court of competent jurisdiction directing that the transactions provided for herein or any of them not be consummated as herein provided.

6.4. Counsel’s Opinion

Investor shall have received an opinion, dated the Closing Date from the Company’s counsel, Reed Smith LLP, in a form reasonably acceptable to the Investor.

6.5. Adverse Development

There shall have been no developments in the business of the Company which would be reasonably likely to have a Material Adverse Effect.

6.6. Director

Jonathan S. Leff shall have been elected to the Board, effective on the Closing Date. Subject to applicable law and the rules and regulations of the SEC and the NASDAQ Stock Market, at the request of the Investor, the Company shall cause the Investor Designee to be a member of each principal committee of the Board.

6.7. Registration Rights Agreement

The Company and the Investor shall have executed the Registration Rights Agreement.

6.8. Standstill Agreement

The Company and the Investor shall have executed the Standstill Agreement.

6.9. Rights Amendment

The Rights Amendment shall be in full force and effect.

6.10. Stop Orders

No stop order or suspension of trading shall have been imposed by the NASDAQ Stock Market, the SEC or any other governmental regulatory body with respect to public trading in the Common Stock.

6.11. Listing of the Common Stock

In connection with the issuance of the Shares and the transactions contemplated hereby, the Company shall have submitted or shall submit on the date hereof to the NASDAQ Stock Market a “Notification Form: Listing of Additional Shares” as well as any necessary supporting documentation.

6.12. Filing of Certificate of Designations

The Certificate of Designations shall have been filed with the Secretary of State of the State of Delaware and shall continue to be in full force and effect as of the Closing Date.

6.13. Officer’s Certificate

The Investor shall have received a certificate, dated the Closing Date, signed by a duly authorized executive officer of the Company, certifying that the conditions specified in the foregoing Sections 6.1, 6.2, 6.3 and 6.5 hereof have been fulfilled.

6.14. Secretary’s Certificate

The Investor shall have received a certificate, dated the Closing Date, of the Secretary of the Company attaching: (i) a true and complete copy of the Restated Certificate of Incorporation of the Company, with all amendments thereto; (ii) true and complete copies of the

Company’s By-laws, as amended, in effect as of such date; (iii) a certificate from the Secretary of State of the State of Delaware as to the good standing of the Company; (iv) a certificate of authorization to do business as a foreign corporation from the appropriate officials of the jurisdictions set forth in Section 3.1(c) of the Disclosure Schedule; and (v) resolutions of the Board authorizing the execution and delivery of this Agreement, the transactions contemplated hereby, and the issuance of the Shares.

6.15. Approval of Proceedings

All proceedings to be taken in connection with the transactions contemplated by this Agreement, and all documents incident thereto, shall be reasonably satisfactory in form and substance to the Investor and its special counsel, Willkie Farr & Gallagher LLP. The Investor shall have received copies of all documents or other evidence which it and Willkie Farr & Gallagher LLP may reasonably request in connection with such transactions and of all records of corporate proceedings in connection therewith in form and substance reasonably satisfactory to the Investor and Willkie Farr & Gallagher LLP.

6.16. Waiver of Section 203

The Board shall have approved, for purposes of Section 203 the Investor’s becoming, together with its Affiliates and associates, an “interested stockholder” within the meaning of Section 203 by virtue of the execution, delivery and performance of this Agreement, including, without limitation the acquisition of Exchangeable Preferred Stock pursuant hereto and any common stock exchangeable therefor, such that, as of the date hereof and from and after the Closing, Section 203 will not be applicable to the Investor or any “business combination” within the meaning of Section 203 that may take place between the Investor and/or its affiliates and associates, on the one hand, and the Company, on the other, as a result of the transactions contemplated by this Agreement.

6.17. Confidentiality Agreement.

The Confidentiality Agreement shall have been terminated, with no further obligations to the Investor.

SECTION 7. COMPANY CLOSING CONDITIONS

The Company’s obligation to issue and sell the Shares at the Closing shall be subject to the performance by the Investor of its agreements theretofore to be performed hereunder and to the satisfaction (or waiver), prior thereto or concurrently therewith, of the following further conditions:

7.1. Representations and Warranties

The representations and warranties of the Investor contained in Section 4 of this Agreement shall be true in all material respects on and as of the Closing Date (or, if made as of a specified date, as of such other date) (except for such representations and warranties that are qualified as to materiality, which shall be true in all respects) as though such representations and warranties were made at and as of such date.

7.2. Compliance with Agreement

The Investor shall have performed and complied in all material respects with all agreements, covenants and conditions contained in this Agreement which are required to be performed or complied with by them prior to or on the Closing Date.

7.3. Investor’s Certificates

The Company shall have received a certificate from the Investor, dated the Closing Date, signed by a duly authorized representative of the Investor, certifying that the conditions specified in the foregoing Sections 7.1, 7.2 and 7.4 hereof have been fulfilled.

7.4. Injunction

7.5. Standstill Agreement

The Company and the Investor shall have executed the Standstill Agreement.

7.6. Approval of Proceedings

All proceedings to be taken in connection with the transactions contemplated by this Agreement, and all documents incident thereto, shall be reasonably satisfactory in form and substance to the Company and its special counsel, Reed Smith LLP. The Company shall have received copies of all documents or other evidence which it and Reed Smith LLP may reasonably request in connection with such transactions in form and substance reasonably satisfactory to the Company and Reed Smith LLP.

SECTION 8. COVENANTS

8.1. Management Rights

Following the Closing, the Investor will be entitled to certain contractual management rights, in addition to any rights to non-public financial information, inspection rights, and other rights expressly agreed to be provided to the Investor pursuant to the Agreement and any other transaction documents, which such management rights shall include the following:

(a) The right to be consulted with and express its views as to the management of the Company on significant business issues, including management’s proposed annual operating plans, and to meet with management during each year at the Company’s facilities at mutually agreeable times for such purposes and to review progress in achieving said plans.

(b) The right to examine the books and records of the Company and inspect its facilities and request information at reasonable times and intervals concerning the general status of the Company’s financial condition and operations.

(c) The right to assign and/or transfer the rights set forth in this Section 8.1 to any other investor advised or managed by Warburg Pincus LLC.

(d) The right, if the Investor Designee is not a member of the Board, to have a representative of the Investor attend all meetings of its Board, in a nonvoting observer capacity and, in this respect, the Company shall give such representative copies of all notices, minutes, consents, and other materials that it provides to its directors, except that the representative may be excluded from access to any material or meeting or portion thereof if the Company believes, upon advice of counsel, that such exclusion is reasonably necessary to preserve the attorney-client privilege, to protect highly confidential proprietary information or for other similar reasons. Such representative may participate in discussions of matters brought to the Board.

The rights set forth in this Section 8.1 are intended to satisfy the requirement of management rights for purposes of qualifying the Investor’s investments in the Company as “venture capital investments” for purposes of the Department of Labor “plan assets” regulation, 29 C.F.R. §2510.3-101. In the event the aforementioned rights are not satisfactory for such purpose, the Company and the Investor shall reasonably cooperate in good faith to agree upon mutually satisfactory management rights that satisfy such regulations. The rights described in this Section 8.1 shall terminate and be of no further force or effect upon the date on which the Investor does not Own, either directly or indirectly, any interest in or capital stock of the Company

8.2. Confidentiality

As to so much of the information and other material furnished under or in connection with this Agreement (including without limitation information furnished pursuant to Section 8.1 hereof), or under or in connection with the Confidentiality Agreement, as constitutes or contains confidential business, financial or other information of the Company, the Investor covenants for itself and its members and officers that it will not disclose such confidential information and will use due care to prevent its officers, employees, agents, advisors and other representatives from disclosing such information to Persons other than their authorized stockholders, owners, partners, directors, managers, officers, members, employees, agents, counsel, accountants, advisors and other authorized representatives or from using such information except as Investor or for the benefit of the Company. Should the Investor be advised by its counsel that such disclosure or delivery is required by law, regulation or judicial or administrative order, to the extent reasonably practicable, the Investor shall give the Company prior notice of the request or requirement so that the Company may seek a protective order or other appropriate remedy; provided, however, that in the absence of such protective order, the Investor or any of its representatives may disclose or deliver any information or other material disclosed to or received by it upon the advice of counsel provided the Investor exercises reasonable efforts at the Company’s expense, to protect the confidentiality of the information. It being understood that the Investor makes investments in the ordinary course of business in various Persons and, as a result of such investments, such Persons may be deemed to be affiliated or associated with the Investor, and to the extent that the Investor does not make such information available to such Persons, this Section 8.2 shall not apply to such Persons. The Investor shall use reasonable care to ensure proper secure storage for the confidential information and other material furnished in connection with this Agreement to protect such

information from unauthorized access and to promptly inform the Company if the Investor becomes aware that any confidential information has been disclosed to an unauthorized person and to take reasonable steps to retrieve such information and protect it from further disclosure. The investor agrees to be responsible for any breach of this Section 8.2 by its officers, employees, agents, advisors and other representatives due to the disclosure of such information to Persons other than their authorized stockholders, owners, partners, directors, managers, officers, members, employees, agents, counsel, accountants, advisors and other authorized representatives. For purposes of this Section 8.2, “reasonable care” means at least a reasonably comparable level of care that the Investor would use to protect the confidentiality of its own sensitive or proprietary information, and this obligation shall survive termination of this Agreement. In the event of any termination of this Agreement prior to the Closing Date, the Investor shall return to the Company or destroy all confidential material furnished to the Investor or its officers, members, employees, agents, counsel, accountants, advisors and other authorized representatives in connection with this transaction except that the Director and such Persons may retain a copy of such confidential material if required by law, regulation or internal compliance procedures.

8.3. Lost, etc. Certificates Evidencing Shares; Exchange

Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of any certificate evidencing any Shares or Exchange Shares owned by the Investor, and (in the case of loss, theft or destruction) of an unsecured indemnity satisfactory to it, and upon reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of such certificate, if mutilated, the Company will make and deliver in lieu of such certificate a new certificate of like tenor and for the number of securities evidenced by such certificate which remain outstanding. The Investor’s agreement of indemnity shall constitute indemnity satisfactory to the Company for purposes of this Section 8.3. Upon surrender of any certificate representing any Shares or Exchange Shares, for exchange at the office of the Company, the Company at its expense will cause to be issued in exchange therefor new certificates in such denomination or denominations as may be requested for the same aggregate number of Shares or Exchange Shares represented by the certificate so surrendered and registered as such holder may request. The Company will also pay the cost of all deliveries of certificates for such Shares or Exchange Shares to the office of the Investor (including the cost of insurance against loss or theft in an amount satisfactory to the holders) upon any exchange provided for in this Section 8.3.

8.4. Securities Law Disclosure; Publicity

The Company shall, at or prior to 8:30 a.m., Eastern Time, on the first day following the date of this Agreement on which trading occurs on the NASDAQ Stock Market, (i) issue a press release reasonably acceptable to the Investor disclosing the transactions contemplated hereby. No later than the fourth Business Day after the signing of this Agreement, the Company shall file a Current Report on Form 8-K with the SEC (the “8-K Filing”) describing the transactions contemplated hereby, in the form required by the Exchange Act. The Company shall file this Agreement as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 or if it so chooses, as an exhibit to the 8-K Filing. Thereafter, the Company shall timely file any filings and notices required by the SEC or the NASD with

respect to the transactions contemplated hereby. Notwithstanding the foregoing, the Company shall not name the Investor in any press release in any statement made with the intent of widespread pubic dissemination without prior notice to the Investor, except to the extent such press release or disclosure is required by law, SEC regulations or forms, NASD regulations or as set forth in the form of press release attached here to as Exhibit H, in which case the Company shall provide the Investor with prior notice of such disclosure. In furtherance of the foregoing, but not in limitation thereof, the parties acknowledge and agree that the Company shall be able to name the Investor in any private conference or presentation and to respond to questions (even in public conferences or presentation) regarding the Investor, based on information already in the public domain.

8.5. HSR Act Filing

The Company and the Investor shall (a) as soon as practicable after the date of this Agreement, but in no event later than 20 days following the Closing Date, file Notification and Report Forms under the HSR Act with the FTC relating to the transaction contemplated by this Agreement, (b) use their reasonable best efforts to respond as promptly as practicable to all inquiries received from the FTC for additional information or documentation and (c) request that the waiting period under the HSR Act be terminated early.

8.6. Insurance

The Company will use its reasonable efforts to maintain insurance, including without limitation directors and officers insurance, with responsible and reputable insurance companies or associations in such amounts and covering such risks as the Company determines is reasonably adequate for the conduct of its business and the value of its property. For purposes of clarity, the parties acknowledge and agree that the Company shall not be required to expand its insurance coverage beyond those risk areas insured by the Company as of the date hereof and that the Company shall not be required to maintain its current level of insurance coverage with respect to any area of risk if the Board has determined that such level is no longer necessary or appropriate.

SECTION 9. MISCELLANEOUS

9.1. Notices

(a) All communications under this Agreement shall be in writing and shall be delivered by hand or facsimile or mailed by overnight courier or by registered mail or certified mail, postage prepaid:

if to the Investor, at the address or facsimile number set forth on Exhibit A, or at such other address or facsimile number as the Investor may have furnished the Company in writing; and

if to the Company, at: 4222 Emperor Boulevard, Suite 200, Durham, North Carolina 27703-8030 (facsimile: (919) 941-9797), Attention: General Counsel, or at such other address or facsimile number as it may have furnished the Investor in writing, with a copy (which shall not constitute notice) to Reed Smith LLP, Princeton Forrestal

Village, 136 Main Street, Suite 250, Princeton, New Jersey 08540 (facsimile: (609) 951-0824), Attention: Edward P. Bromley III, Esq.

(b) Any notice so addressed shall be deemed to be given: if delivered by hand or facsimile, on the date of such delivery; if mailed by overnight courier, on the first Business Day following the date of such mailing; and if mailed by registered or certified mail, on the third Business Day after the date of such mailing.

9.2. Expenses and Taxes

(a) The Company shall reimburse the Investor, within 30 days of the Company’s receipt of an invoice prepared by the Investor, all of the Investor’s reasonable out-of-pocket fees and expenses incurred in connection with the negotiation, preparation, execution and delivery of this Agreement and the transactions contemplated hereby, including, without limitation, the reasonable fees and expenses of the Investor’s attorneys, accountants and consultants employed in connection with the Investor’s consideration, negotiation and consummation of the transactions contemplated hereby, the Investor’s due diligence on the Company and any documentation relating to the transactions contemplated hereby.

(b) The Company will pay, and save and hold the Investor harmless from any and all liabilities (including interest and penalties) with respect to, or resulting from any delay or failure in paying, stamp and other taxes (other than income taxes), if any, which may be payable or determined to be payable on the execution and delivery or acquisition of the Shares or the Exchange Shares.

9.3. Reproduction of Documents

This Agreement and all documents relating thereto, including, without limitation, (i) consents, waivers and modifications which may hereafter be executed, (ii) documents received by the Investor on the Closing Date (except for certificates evidencing the Shares themselves), and (iii) financial statements, certificates and other information previously or hereafter furnished to the Investor, may be reproduced by the Company and the Investor by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process and the Company and the Investor may destroy any original document so reproduced. All parties hereto agree and stipulate that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by the Company or any such Investor in the regular course of business) and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence.

9.4. Termination and Survival

Notwithstanding anything to the contrary contained herein, this Agreement may be terminated at any time:

(a) by mutual consent of the Company and the Investor;

(b) by either the Company or the Investor if the Closing shall not have occurred on or prior to the date that is thirty (30) days from the date hereof (unless such date is extended by mutual written consent);

(c) by the Investor, for any material breach of this Agreement by the Company; provided, however, that the Investor may not terminate this Agreement pursuant to this Section 9.4(c) if it is then in material breach of the terms of this Agreement; and

(d) by the Company prior to the Closing, for any material breach of this Agreement by the Investor; provided, however, that the Company may not terminate this Agreement pursuant to this Section 9.4(d) if it is then in material breach of the terms of this Agreement.

In the event of termination pursuant to this Section 9.4, this Agreement shall become null and void and have no effect, with no liability on the part of the Company or the Investor, or their members, partners, directors, officers, agents or stockholders, with respect to this Agreement, except for the liability for any breach of any representation, warranty or covenant contained in this Agreement.

9.5. Successors and Assigns

Except as otherwise expressly provided herein, this Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties. The Company may not assign its rights or obligations hereunder without the prior written consent of the Investor. The Investor may not assign its rights or obligations hereunder without the prior written consent of the Company, except that the Investor may assign its rights and obligations hereunder to any of its members or Affiliates or Affiliates of its members; provided, except with regard to any assignment and/or transfer pursuant to Section 8.1, that, the assignee provides the Company with written representations and warranties substantially similar to those provided in Section 4.

9.6. Severability

In the event that any part or parts of this Agreement shall be held illegal or unenforceable by any court or administrative body of competent jurisdiction, such determination shall not affect the remaining provisions of this Agreement which shall remain in full force and effect.

9.7. Governing Law

This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed entirely within such State.

9.8. Paragraph and Section Headings

The headings of the sections and subsections of this Agreement are inserted for convenience only and shall not be deemed to constitute a part thereof.

9.9. Limitation on Enforcement of Remedies

The Company hereby agrees that it will not assert against the limited partners of the Investor any claim it may have under this Agreement by reason of any failure or alleged failure by such Investor to meet its obligations hereunder.

9.10. Counterparts

This Agreement may be executed in one or more counterparts (including by facsimile), each of which shall be deemed an original and all of which together shall be considered one and the same agreement.

9.11. Entire Agreement; Amendment and Waiver

This Agreement, the schedules and exhibits attached hereto constitute the entire understandings of the parties hereto and supersede all prior agreements or understandings with respect to the subject matter hereof among such parties. This Agreement may be amended, and the observance of any term of this Agreement may be waived, with (and only with) the written consent of the Company and the Investor.

[Signature Page to Follow]

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first set forth above.

	INSPIRE PHARMACEUTICALS, INC.


	By:	/s/ CHRISTY L. SHAFFER
		Name: Christy L. Shaffer
		Title: President and Chief Executive Officer


	WARBURG PINCUS PRIVATE EQUITY IX,
		L.P.

	By:	Warburg Pincus IX LLC, General Partner

	By:	Warburg Pincus Partners, LLC, Sole Member

	By:	Warburg Pincus & Co., Managing Member


	By:	/s/ JONATHAN LEFF
		Name: Jonathan Leff
		Title: Partner

SIGNATURE PAGE TO

SECURITIES PURCHASE AGREEMENT

EXHIBIT A

SCHEDULE OF INVESTORS

INVESTOR NAME AND ADDRESS		SHARES OF EXCHANGEABLE PREFERRED STOCK

Warburg Pincus Private Equity IX, L.P. 466 Lexington Avenue New York, NY 10017 Facsimile: (212) 878-0850 Attention: Mr. Jonathan S. Leff		140,186

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

Willkie Farr & Gallagher LLP 787 Seventh Avenue New York, NY 10019 Facsimile: (212) 728-8111 Attention: Steven J. Gartner, Esq. Mark A. Cognetti, Esq.

EXHIBIT B

CERTIFICATE OF DESIGNATIONS

EXHIBIT C

CERTIFICATE OF INCORPORATION

EXHIBIT D

BYLAWS

EXHIBIT E

REGISTRATION RIGHTS AGREEMENT

EXHIBIT F

STANDSTILL AGREEMENT

EXHIBIT G

RIGHTS AMENDMENT

EXHIBIT H

PRESS RELEASE

EX-3 4 a07-19806_1ex3.htm EX-3

Exhibit 3

CERTIFICATE OF DESIGNATIONS, NUMBER, VOTING POWERS,
PREFERENCES AND RIGHTS OF
SERIES A EXCHANGEABLE PREFERRED STOCK
OF
INSPIRE PHARMACEUTICALS, INC.

Pursuant to Section 151 of the

General Corporation Law of the State of Delaware

The undersigned DOES HEREBY CERTIFY that the following resolution was duly adopted by the Board of Directors (the “Board”) of Inspire Pharmaceuticals, Inc., a Delaware corporation (hereinafter called the “Company”), with the preferences and rights set forth therein relating to dividends, exchange, redemption, dissolution and distribution of assets of the Company having been fixed by the Board pursuant to authority granted to it under Article IV of the Company’s Amended and Restated Certificate of Incorporation and in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware:

RESOLVED: That, pursuant to authority conferred upon the Board by the Amended and Restated Certificate of Incorporation of the Company, the Board hereby authorizes the issuance of 140,186 shares of Series A Exchangeable Preferred Stock, par value $0.001 per share, of the Company, and hereby fixes the designations, powers, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of such shares, in addition to those set forth in the Amended and Restated Certificate of Incorporation of the Company, as follows:

SECTION 1. Designation. The shares of such series shall be designated “Series A Exchangeable Preferred Stock” (the “Exchangeable Preferred Stock”) and the number of shares constituting such series shall be 250,000. Such number of shares may be increased or decreased by resolution of the Board and the approval of the holders of a majority of the outstanding shares of the Exchangeable Preferred Stock; provided, that no decrease shall reduce the number of shares of Exchangeable Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the payment of dividends pursuant to Section 4 hereof.

SECTION 2. Currency. All Exchangeable Preferred Stock shall be denominated in United States currency, and all payments and distributions thereon or with respect thereto shall be made in United States currency. All references herein to “$” or “dollars” refer to United States currency.

SECTION 3. Ranking. The Exchangeable Preferred Stock shall, with respect to dividend rights and rights upon liquidation, winding up or dissolution, rank prior to each other class or series of shares of the Company. For purposes hereof, “Junior Stock” shall mean the Common Stock of the Company, par value $0.001 per share (the “Common Stock”), the Series H Preferred Stock of the Company, and the shares of any other class or series of equity securities of the Company; provided, however, that nothing contained herein shall prohibit the exercise, repurchase or redemption of the Preferred Stock Purchase Rights.

SECTION 4. Dividends.

(a) The holders of the Exchangeable Preferred Stock shall be entitled to receive, when and as declared by the Board, out of the net profits or surplus of the Company legally available for distribution, dividends on each outstanding share of Exchangeable Preferred Stock at the rate of 10% per annum, compounded quarterly, of the Stated Value (as herein defined) of such share of Exchangeable Preferred Stock (the “Original Dividend Rate”) from and including the one year anniversary of the date of issuance of such share of Exchangeable Preferred Stock to and including the first to occur of (i) the date on which the Redemption Price (as defined below) of such share of Exchangeable Preferred Stock is paid to the holder thereof in connection with a Liquidation (as defined below) of the Company or the redemption of such share of Exchangeable Preferred Stock by the Company, (ii) the date on which the Acquisition Price (as defined in Section 12 below) of such share of Exchangeable Preferred Stock is paid to the holder thereof in connection with a Change in Control (as defined below), (iii) the date on which such share of Exchangeable Preferred Stock is exchanged for shares of Common Stock as provided herein, or (iv) the date on which such share of Exchangeable Preferred Stock is otherwise acquired by the Company; provided, however, that, in the event that the Stockholder Approval is obtained prior to the HSR Approval (as defined in Section 7(a)), the holders of the Remaining Shares, if any, shall not be entitled to receive dividends and no dividends shall accrue and be payable on such Remaining Shares provided that the Company has (i) filed the Notification and Report Forms under the HSR Act (the “HSR Forms”) relating to the transaction contemplated by, and has satisfied its obligation to use reasonable efforts in respect thereof under, the Securities Purchase Agreement and (ii) responded to all inquiries received from the FTC for additional information or documentation in respect of such HSR Forms. For purposes hereof, the term “Stated Value” shall mean $535.00 per share of Exchangeable Preferred Stock, subject to appropriate adjustment in the event of any stock dividend, stock split, stock distribution, recapitalization or combination with respect to the Exchangeable Preferred Stock; provided, however, that there shall be no adjustment to the Stated Value in respect of any dividends paid in additional shares of Exchangeable Preferred Stock pursuant to this Section 4. Dividends pursuant to this Section 4(a) shall be paid by the Company in cash on the Dividend Reference Dates (as defined below) to the extent that it may lawfully do so; provided, however, that, in the event that the Company may not lawfully pay such dividends in cash, then (x) such dividends shall be cumulative and continue to accrue (whether or not declared) as otherwise set forth herein or, (y) upon the affirmative vote of the holders of a majority of the shares of Exchangeable Preferred Stock then outstanding, such dividends shall be paid in additional shares of Exchangeable Preferred Stock (which additional shares of Exchangeable Preferred Stock shall be deemed to accrue and accumulate dividends (whether or not declared) as otherwise set forth herein from the Dividend Reference Date in respect of which such dividends are paid). Notwithstanding the foregoing, the Original Dividend Rate shall automatically be increased to 20% per annum (the “Default Dividend Rate”), subject to appropriate adjustment in the event of any stock dividend, stock split, stock distribution, recapitalization or combination with respect to the Exchangeable Preferred Stock, in the event that the Company fails for any reason to (i) pay dividends in accordance with the terms of this Section 4 when lawfully permitted to do so; provided, that if the holders of a majority of the shares of Exchangeable Preferred Stock then outstanding elect to receive such dividends in additional shares of Exchangeable Preferred Stock and such shares of Exchangeable Preferred Stock are paid to such holders, then the Original Dividend Rate shall remain in effect, or (ii) redeem all shares of the Exchangeable Preferred

Stock within thirty (30) days after receipt of a Redemption Demand Notice (as defined below), in which case, all accrued and unpaid dividends (whether or not declared) shall be payable in cash, or, upon the affirmative vote of the holders of a majority of the shares of Exchangeable Preferred Stock then outstanding, in additional shares of Exchangeable Preferred Stock (which additional shares of Exchangeable Preferred Stock shall be deemed to accrue and accumulate dividends (whether or not declared) as otherwise set forth herein from the Dividend Reference Date in respect of which such dividends are paid). The Default Dividend Rate shall apply to all shares of Exchangeable Preferred Stock then outstanding and shall remain in effect until such time as the Exchangeable Preferred Stock set forth in the applicable Redemption Demand Notice has been redeemed pursuant to Section 8 hereof.

(b) To the extent not paid on March 31, June 30, September 30 and December 31 of each year, beginning September 30, 2008 (the “Dividend Reference Dates”), all dividends that have accrued on each share of Exchangeable Preferred Stock outstanding during the three-month period (or other period in the case of the initial Dividend Reference Date) ending upon each such Dividend Reference Date shall be accumulated and shall remain accumulated dividends with respect to such share of Exchangeable Preferred Stock until paid to the holder thereof.

(c) Dividends on the Exchangeable Preferred Stock shall be cumulative and shall continue to accrue whether or not declared and whether or not in any fiscal year there shall be net profits or surplus legally available for the payment of dividends in such fiscal year, so that if in any fiscal year or years, dividends in whole or in part are not paid upon the Exchangeable Preferred Stock, unpaid dividends shall accumulate as against the holders of the Junior Stock.

(d) Except as otherwise provided herein, if at any time the Company pays less than the total amount of dividends then accrued with respect to the Exchangeable Preferred Stock, such payment shall be distributed pro rata among the holders thereof based upon the aggregate accrued but unpaid dividends on all shares of Exchangeable Preferred Stock held by each such holder.

(e) In the event that dividends on the Exchangeable Preferred Stock are paid in additional shares of Exchangeable Preferred Stock, the number of shares of Exchangeable Preferred Stock to be issued in payment of the dividend with respect to each outstanding share of Exchangeable Preferred Stock shall be determined by dividing (i) the amount of the dividend that would have been payable with respect to such share of Exchangeable Preferred Stock had such dividend been paid in cash by (ii) the Stated Value per share of the Exchangeable Preferred Stock being issued. To the extent that any such dividend would result in the issuance of a fractional share of Exchangeable Preferred Stock (which shall be determined with respect to the aggregate number of shares of Exchangeable Preferred Stock held of record by each holder) then the amount of such fraction multiplied by the Stated Value shall be paid in cash (unless there are no legally available funds with which to make such cash payment, in which event such cash payment shall be made as soon as possible). No fractional shares of Exchangeable Preferred Stock will be issued in respect of accrued but unpaid dividends on the Exchangeable Preferred Stock. All shares of Exchangeable Preferred Stock (including fractions thereof) issuable in respect of accrued but unpaid dividends of more than one share of Exchangeable Preferred Stock (including accrued but unpaid dividends thereon) by a holder thereof shall be aggregated for

purposes of determining whether the dividend would result in the issuance of any fractional share. If, after the aforementioned aggregation, the dividend would result in the issuance of any fractional share of Exchangeable Preferred Stock, the Company shall, in lieu of issuing any such fractional share, pay cash equal to the product of such fraction multiplied by the Stated Value of per share of the Exchangeable Preferred Stock. In the event that dividends on the Exchangeable Preferred Stock are to be paid in additional shares of Exchangeable Preferred Stock, within five Business Days of the applicable vote of the holders of a majority of the Exchangeable Preferred Stock permitting the Company to do so, the Company shall cause to be issued and delivered to each holder, a certificate or certificates for the number of full shares of Exchangeable Preferred Stock issuable in respect of such accrued but unpaid dividend and cash as provided in this Section 4(e) in respect of any fraction of a share of Exchangeable Preferred Stock otherwise payable upon such dividend.

(f) For so long as no shares of Exchangeable Preferred Stock have been exchanged, the Company shall not, without the prior consent of the holders of a majority of the outstanding shares of Exchangeable Preferred Stock, pay any dividend upon the Junior Stock, whether in cash or other property (other than shares of Junior Stock), or purchase, redeem or otherwise acquire any such Junior Stock. Notwithstanding the provisions of this Section 4(f), without declaring or paying dividends on the Exchangeable Preferred Stock, the Company may, subject to applicable law, repurchase or redeem shares of capital stock of the Company from current or former officers or employees of the Company pursuant to the terms of repurchase or similar agreements in effect from time to time, provided that such agreements (or the forms thereof) have been approved by the Board and the terms of such agreements provide for a repurchase or redemption price not in excess of the price per share paid by such current or former officers or employee for such share.

(g) For so long as any shares of Exchangeable Preferred Stock remain outstanding, in addition to the dividends referred to in Section 4(a), the Company shall not declare, set aside for or pay any dividends or make any distributions on shares of Junior Stock unless the holders of Exchangeable Preferred Stock then outstanding shall simultaneously receive such dividend or distribution on a pro rata basis as if the shares of Exchangeable Preferred Stock had been exchanged into the greatest number of shares of Common Stock into which such shares of Exchangeable Preferred Stock could exchange pursuant to Section 7 immediately prior to the record date for determining the stockholders eligible to receive such dividends or distributions on Junior Stock.

SECTION 5. Liquidation Preference; Change in Control. Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company (each, a “Liquidation”) or upon any Change in Control (as defined below), before any distribution or payment shall be made to holders of any Junior Stock, each holder of Exchangeable Preferred Stock shall be entitled to payment in cash out of the assets of the Company legally available for distribution an amount per share of Exchangeable Preferred Stock equal to (i) in the event of a Liquidation, the Redemption Price (as defined below) or (ii) in the event of a Change in Control, the Acquisition Price (as defined in Section 12). If, upon any such Liquidation or Change in Control, the assets of the Company shall be insufficient to make payment in full to all holders of Exchangeable Preferred Stock of the amount of the preference set forth in this Section 5, the holders of Exchangeable Preferred Stock shall share equally and ratably in any distribution of such assets in

proportion to the full Redemption Price or Acquisition Price, as applicable, to which each such holder would otherwise be entitled. Upon payment of all amounts due under this Section 5, the holders of Exchangeable Preferred Stock shall have no further rights in respect of such shares of Exchangeable Preferred Stock and shall not be entitled to participate in any further distributions of the Company’s assets distributed in such Liquidation or Change in Control.

SECTION 6. Voting Rights. For so long as any shares of Exchangeable Preferred Stock remain outstanding, the Company shall not amend, alter or repeal the preferences, special rights or other powers of the Exchangeable Preferred Stock without the written consent or affirmative vote of the holders of at least a majority of the then outstanding shares of Exchangeable Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class. For so long as no shares of Exchangeable Preferred Stock have been exchanged, the Company shall not create, issue or approve for creation or issuance (i) any series or class of capital stock of the Company or (ii) any debt security convertible or exchangeable into any capital stock of the Company, in the case of each (i) and (ii), which capital stock or debt security, as the case may be, shall have preference or priority over, or be on par with, the Exchangeable Preferred Stock, without the written consent or affirmative vote of the holders of at least a majority of the then outstanding shares of Exchangeable Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class. Except as expressly provided in this Section 6 or as required by applicable Delaware law, the holders of Exchangeable Preferred Stock shall not be entitled to any voting rights as stockholders of the Company.

SECTION 7. Exchange.

(a) Upon the later to occur of (i) receipt of the Stockholder Approval (as defined in Section 12 below), and (ii) to the extent required, the expiration or termination of any waiting period under the HSR Act that are applicable to the exchange of the Exchangeable Preferred Stock for Common Stock (“HSR Approval”) (the “Exchange Date”), each outstanding share of Exchangeable Preferred Stock shall automatically be exchanged for such number of shares of Common Stock determined by dividing (i) the Stated Value of the Exchangeable Preferred Stock then in effect (determined as provided in Section 4(a) above) by (ii) the Exchange Price (as defined below) of the Exchangeable Preferred Stock then in effect (the “Exchange Rate”). The initial exchange price of the Exchangeable Preferred Stock shall be $535.00 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, stock distribution or combination, subdivision, reclassification or other corporate action having the similar effect with respect to the Common Stock (the “Exchange Price”). For the avoidance of doubt, the Exchange Price will not be subject to adjustment for any price-based anti-dilution. The initial Exchange Rate for the Exchangeable Preferred Stock shall be one hundred (100) shares of Common Stock for each one (1) share of Exchangeable Preferred Stock. In addition, upon any such exchange all accrued but unpaid dividends (whether or not declared) on the Exchangeable Preferred Stock shall be paid in shares of Common Stock. The number of shares of Common Stock to be issued in payment of the accrued but unpaid dividends (whether or not declared) with respect to each outstanding share of Exchangeable Preferred Stock shall be determined by dividing the amount of the dividend that would have been payable had such dividend been paid in cash by an amount equal to the Exchange Price. Notwithstanding the foregoing, the holders shall have no obligation to exchange the Exchangeable Preferred Stock for

Common Stock if on or prior to the one year anniversary of the Initial Issuance Date (as defined in Section 12 below) (the “Exchange Termination Date”), the Stockholder Approval has not been obtained. If the Stockholder Approval has not been obtained by the Exchange Termination Date, then the Company shall not have the option to exchange all or any portion of the then outstanding Exchangeable Preferred Stock for shares of Common Stock and such Exchangeable Preferred Stock shall remain outstanding pursuant to its terms. If the Stockholder Approval has been obtained prior to the Exchange Termination Date and prior to the HSR Approval, then a portion of the then outstanding shares of Exchangeable Preferred Stock will be automatically exchanged for shares of Common Stock upon receipt of the Stockholder Approval; provided, however, that the number of shares of Exchangeable Preferred Stock to be exchanged shall not have a value in excess of the lowest notification threshold then in effect under the HSR Act and the rules and regulations promulgated thereunder. The shares of Exchangeable Preferred Stock that are then outstanding after giving effect to the exchange of a portion of the shares of Exchangeable Preferred Stock into shares of Common Stock (the “Remaining Shares”), which shares of Exchangeable Preferred Stock are not then exchangeable into shares of Common Stock without obtaining HSR Approval, shall remain outstanding pursuant to their terms; provided, however, that such shares of Exchangeable Preferred Stock shall automatically be converted into shares of Common Stock (a “Subsequent Exchange”) if, as of any such date, such exchange does not require HSR Approval or is not otherwise prohibited by the provisions of the HSR Act, including, but not limited to, in the event of a transfer by a holder of Exchangeable Preferred Stock to any other Person, whether or not such Person is an affiliate of the holder, the result of which is that the exchange of such shares would not violate the HSR Act. The holder shall deliver written notice to the Company at least five (5) days prior to the date on which such holder plans to take any action which such holder intends to result in a Subsequent Exchange. On the Exchange Date or the date of any Subsequent Exchange (each, a “Subsequent Exchange Date”), all rights with respect to the Exchangeable Preferred Stock so exchanged will terminate, except only the rights of the holders thereof, upon surrender of their certificate or certificates therefor, to receive certificates for the number of shares of Common Stock into which such Exchangeable Preferred Stock and any accrued but unpaid dividends thereon (whether or not declared) have been exchanged. If so required by the Company, certificates surrendered for exchange shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Company, duly executed by the registered holder or by his attorneys duly authorized in writing. All certificates evidencing shares of Exchangeable Preferred Stock that are required to be surrendered for exchange in accordance with the provisions hereof shall, from and after the Exchange Date or Subsequent Exchange Date, be deemed to have been retired and canceled and the shares of Exchangeable Preferred Stock represented thereby exchanged into Common Stock for all purposes, notwithstanding the failure of the holder or holders thereof to surrender such certificates on or prior to such date. As soon as practicable after the Exchange Date or Subsequent Exchange Date and the surrender of the certificate or certificates for Exchangeable Preferred Stock as aforesaid, the Company shall cause to be issued and delivered to such holder, or on his or its written order, a certificate or certificates for the number of full shares of Common Stock issuable on such exchange in accordance with the provisions hereof and cash as provided in Section 5(b) hereof in respect of any fraction of a share of Common Stock otherwise issuable upon such exchange. Any shares of Exchangeable Preferred Stock so exchanged shall be retired and canceled and shall not be reissued, and the Company may from time to time take such

appropriate action as may be necessary to reduce the authorized Exchangeable Preferred Stock accordingly.

(b) No fractional shares of Common Stock will be issued upon exchange of the Exchangeable Preferred Stock or accrued but unpaid dividends thereon. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Exchangeable Preferred Stock (including accrued but unpaid dividends thereon) by a holder thereof shall be aggregated for purposes of determining whether the exchange would result in the issuance of any fractional share. If, after the aforementioned aggregation, the exchange would result in the issuance of any fractional share of Common Stock, the Company shall, in lieu of issuing any such fractional share, pay cash equal to the product of such fraction multiplied by the Fair Market Value of one share of the Common Stock.

SECTION 8. Redemption.

(a) Subject to the limitations on the holders of Exchangeable Preferred Stock set forth in this Section, for so long as the Exchangeable Preferred Stock remains outstanding on or following the Optional Redemption Date (as defined below), the Company and the holders of at least a majority of the outstanding shares of Exchangeable Preferred Stock (the “Initiating Holders”) shall each have the option to cause the Company, to the extent it may lawfully do so, to redeem, from time to time, any or all of the outstanding shares of Exchangeable Preferred Stock for cash in a per share amount equal to the greater of: (i) the sum of the Stated Value of a share of Exchangeable Preferred Stock plus all accrued but unpaid dividends thereon (whether or not declared) through the date of such redemption and (ii) the Fair Market Value (as defined in Section 12 below) of one share of Common Stock on the date which the Company or the Initiating Holders exercise such right multiplied by the then current Exchange Rate (the “Redemption Price”). The holders of the Remaining Shares shall not be entitled to cause the Company to redeem the Remaining Shares under this Section 8 if HSR Approval has not been obtained. For purposes hereof, the “Optional Redemption Date” shall mean the fourth anniversary of the Initial Issuance Date.

(b) The Initiating Holders may exercise their option by delivering written notice thereof (a “Redemption Demand Notice”) to the Company, and the Company shall be required to redeem the Exchangeable Preferred Stock with respect to which such option has been exercised, to the extent it may lawfully do so, within thirty (30) days after receipt of such Redemption Demand Notice. As promptly as practicable following (i) the Company’s receipt of a Redemption Demand Notice pursuant to this Section 8(b), or (ii) the Company’s election to redeem the Exchangeable Preferred Stock pursuant to Section 8(a) above, and in any event at least fifteen (15) days prior to the date on which such redemption is to be made (the “Redemption Date”), written notice shall be mailed, postage prepaid, to each holder of record of Exchangeable Preferred Stock, at his or its post office address last shown on the records of the Company, specifying the Redemption Date and calling upon such holder to surrender to the Company, in the manner and at the place designated, his or its certificate or certificates representing the shares of Exchangeable Preferred Stock to be redeemed (such notice is hereinafter referred to as the “Redemption Notice”). Each holder of Exchangeable Preferred Stock shall surrender his or its certificate or certificates representing such shares of Exchangeable Preferred Stock to be redeemed to the Company, in the manner and at the place

designated in the Redemption Notice and in any event no later than the Redemption Date, and thereupon the Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. In the event less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. In the event of any redemption of only a part of the then outstanding Exchangeable Preferred Stock, the Company shall effect such redemption pro rata among the holders of Exchangeable Preferred Stock based upon the aggregate Redemption Price of all shares held by each such holder. If the funds of the Company legally available for redemption of shares of Exchangeable Preferred Stock to be redeemed on the Redemption Date are insufficient to redeem such outstanding shares of Exchangeable Preferred Stock, those funds that are legally available shall be used to redeem the maximum number of shares pro rata among the holders of Exchangeable Preferred Stock to be redeemed based upon the aggregate Redemption Price of all shares held by each such holder. At any time thereafter when additional funds of the Company are legally available for the redemption of additional shares of Exchangeable Preferred Stock that were previously to have been redeemed, such funds shall immediately be used to redeem such additional shares of Exchangeable Preferred Stock that it has not previously redeemed. From and after the Redemption Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holders of the Exchangeable Preferred Stock that have been redeemed (except the right to receive the Redemption Price without interest upon surrender of their certificate or certificates) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Company or be deemed to be outstanding for any purpose whatsoever. In the event that the Company fails for any reason to redeem all shares of the Exchangeable Preferred Stock in accordance with this Section 8, any and all proceeds received by, or on behalf or for the benefit of, the Company in connection with any subsequent offering, issuance or sale of capital stock of the Company (including in connection with any securities convertible or exchangeable into, or rights to acquire, capital stock of the Company or any arrangement or agreement to offer, issue or sell capital stock of the Company or securities convertible or exchangeable into, or rights to acquire, capital stock of the Company) shall be used to redeem the shares of Exchangeable Preferred Stock then outstanding, including the payment of any accrued and accumulated dividends (whether or not declared) thereon.

(c) Except as provided in Section 8(a) hereof, the Company shall have no right to redeem the shares of Exchangeable Preferred Stock and the holders of the Exchangeable Preferred Stock shall have no right to cause the Company to redeem the shares of Exchangeable Preferred Stock. Any shares of Exchangeable Preferred Stock redeemed pursuant hereto shall be permanently retired, shall no longer be deemed outstanding and shall not under any circumstances be reissued, and the Company may from time to time take such appropriate corporate action as may be necessary to reduce the authorized Exchangeable Preferred Stock accordingly. For the avoidance of doubt, nothing herein shall prevent or restrict the purchase by the Company, from time to time, either at public or private sale, of the whole or any part of the Exchangeable Preferred Stock at such price or prices as the Company and the holders of Exchangeable Preferred Stock subject to such sale may determine, subject to applicable law.

SECTION 9. Issue Taxes. The Company shall pay all issue taxes, if any, incurred in respect of the issue of Common Stock on exchange. If a holder of shares surrendered for exchange specifies that the Common Stock to be issued on exchange are to be issued in a

name or names other than the name or names in which such surrendered shares stand, the Company shall not be required to pay any transfer or other taxes incurred by reason of the issuance of such Common Stock to the name of another.

SECTION 10. Reservation of Shares. The Company shall at all times reserve and keep available, free from preemptive rights, for issuance upon the exchange of Exchangeable Preferred Stock, such number of its authorized but unissued Common Stock as will from time to time be sufficient to permit the exchange of all outstanding Exchangeable Preferred Stock. Prior to the delivery of any securities which the Company shall be obligated to deliver upon exchange of the Exchangeable Preferred Stock, the Company shall comply with all applicable laws and regulations which require action to be taken by the Company. All Common Stock delivered upon exchange of the Exchangeable Preferred Stock will upon delivery be duly and validly issued and fully paid and nonassessable, free of all liens and charges and not subject to any preemptive rights.

SECTION 11. No Affect on the Rights Agreement. Notwithstanding anything to the contrary in this Certificate of Designations, nothing in this Certificate of Designations shall confer upon the holders of the Exchangeable Preferred Stock the right to consent to or approve any action that may be taken by the Company under that certain Rights Agreement, dated as of October 21, 2002, by and between the Company and Computershare Trust Company, N.A., as may be amended from time to time (the “Rights Agreement”), or to in any way interfere with the operation of the Rights Agreement.

SECTION 12. Certain Definitions. As used in this Certificate, the following terms shall have the following meanings, unless the context otherwise requires:

“Acquisition Fair Market Value” shall mean the consideration per share of Common Stock received by the holders thereof in a Change in Control; provided, that, if the consideration is other than cash, its value will be deemed its fair market value as determined in good faith by the Board and the holders of at least a majority of the outstanding shares of Exchangeable Preferred Stock.

“Acquisition Price” shall mean the greater of: (A) (i) the sum of the Stated Value of a share of Exchangeable Preferred Stock plus all accrued but unpaid dividends thereon (whether or not declared) through the date of such Change in Control or (ii) the Acquisition Fair Market Value multiplied by the then current Exchange Rate and (B) the Acquisition Fair Market Value; provided, that, the Acquisition Price, if based on the sum of the Stated Value of a share of Exchangeable Preferred Stock plus accrued but unpaid dividends thereon (whether or not declared) through the date of any Change in Control, shall be payable in cash.

“Board” shall have the meaning set forth in the preamble hereto.

“Business Day” shall mean a day other than a Saturday, Sunday or other day on which banks in the State of New York are required or authorized to close.

“Certificate of Designations” shall mean this Certificate of Designations, Number, Voting Powers, Preferences, and Rights of Series A Exchangeable Preferred Stock of the Company.

“Change in Control” shall mean (i) a consolidation, merger, share exchange, reorganization or other form of acquisition of or by the Company in which the Company’s stockholders immediately prior to the transaction retain less than 50% of the voting power of or economic interest in the surviving or resulting entity (or its parent) immediately after the transaction, (ii) a sale of the Company’s assets in excess of a majority of the Company’s assets (valued at fair market value as determined in good faith by the Board), (iii) the acquisition by any person of 50% or more of the Company’s outstanding voting securities, or (iv) during any period of 24 consecutive months, Continuing Directors cease for any reason to constitute a majority of the directors on the Board or the board of directors of the surviving or resulting entity (or its parent).

“Common Stock” shall have the meaning set forth in Section 3 hereto.

“Company” shall have the meaning set forth in the preamble hereto.

“Continuing Director” means, as of any date, any member of the Board or the board of directors of any entity (or its parent) surviving or resulting from any consolidation, merger, reorganization or other acquisition with the Company, who: (i) was a member of the Board on the date that was 24 months prior to such date; or (ii) was nominated for election to the Board by Warburg Pincus Private Equity IX, L.P. or with the approval of a majority of the Continuing Directors who were members of the Board at the time of such nomination.

“Default Dividend Rate” shall have the meaning set forth in Section 4(a) hereto.

“Dividend Reference Dates” shall have the meaning set forth in Section 4(b) hereto.

“Exchange Date” shall have the meaning set forth in Section 7(a) hereto.

“Exchange Price” shall have the meaning set forth in Section 7(a) hereto.

“Exchange Rate” shall have the meaning set forth in Section 7(a) hereto.

“Exchange Termination Date” shall have the meaning set forth in Section 7(a) hereto.

“Exchangeable Preferred Stock” shall have the meaning set forth in Section 1.

“Fair Market Value” shall mean an amount equal to the average of the closing prices for the Common Stock on NASDAQ for the twenty (20) trading days immediately preceding the relevant date.

“FTC” means the Federal Trade Commission.

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

“HSR Approval” shall have the meaning set forth in Section 7(a) hereto.

“HSR Forms” shall have the meaning set forth in Section 4(a) hereto.

“Initial Issuance Date” shall mean July 20, 2007, or such other date on which the Company first issues a share of Exchangeable Preferred Stock.

“Initiating Holders” shall have the meaning set forth in Section 8(a) hereto.

“Junior Stock” shall have the meaning set forth in Section 3 hereto.

“Liquidation” shall have the meaning set forth in Section 5 hereto.

“Original Dividend Rate” shall have the meaning set forth in Section 4(a) hereto.

“Optional Redemption Date” shall have the meaning set forth in Section 8(a) hereto.

“Person” means an individual, partnership, joint-stock company, corporation, limited liability company, trust or unincorporated organization, and a government or agency or political subdivision thereof.

“Preferred Stock Purchase Rights” means the rights issued under the Rights Agreement, each of which represents the right to purchase one one-thousandth of a share of the Series H Preferred Stock.

“Redemption Date” shall have the meaning set forth in Section 8(b) hereto.

“Redemption Demand Notice” shall have the meaning set forth in Section 8(b) hereto.

“Redemption Notice” shall have the meaning set forth in Section 8(b) hereto.

“Redemption Price” shall have the meaning set forth in Section 8(a) hereto.

“Remaining Shares” shall have the meaning set forth in Section 7(a) hereto.

“Rights Agreement” shall have the meaning set forth in Section 11 hereto.

“Securities Purchase Agreement” means the Securities Purchase Agreement, dated as of July 17, 2007, by and between the Company and the Purchaser named therein, as amended from time to time in accordance with its terms.

“Series H Preferred Stock” means the Company’s Series H Preferred Stock, par value $0.001 per share.

“Stated Value” shall have the meaning set forth in Section 4(a) hereto.

“Stockholder Approval” means the approval by the holders of Common Stock of the Company of the exchange of all shares of Exchangeable Preferred Stock issued under the

Securities Purchase Agreement or issued as dividends thereon for shares of Common Stock, as required by the applicable rules of the NASDAQ Global Market.

“Subsequent Exchange” shall have the meaning set forth in Section 7(a) hereto.

“Subsequent Exchange Date” shall have the meaning set forth in Section 7(a) hereto.

SECTION 13. Headings. The headings of the paragraphs of this Schedule are for convenience of reference only and shall not define, limit or affect any of the provisions hereof.

SECTION 14. Waivers. Any of the rights of the holders of the Exchangeable Preferred Stock set forth herein may be waived by any holder of the Exchangeable Preferred Stock with respect to such holder and by the affirmative consent or vote of the holders of a majority of the shares of the Exchangeable Preferred Stock then outstanding with respect to all holders of the Exchangeable Preferred Stock.

[The remainder of this page is intentionally left blank.]

IN WITNESS WHEREOF, Inspire Pharmaceuticals, Inc. has caused this Certificate of Designations of Series A Exchangeable Preferred Stock to be duly executed by its Senior Vice President and General Counsel this 19th day of July, 2007.

INSPIRE PHARMACEUTICALS, INC.


By	/s/ Joseph M. Spagnardi
Name:		Joseph M. Spagnardi
Title:		Senior Vice President and General Counsel

EX-4 5 a07-19806_1ex4.htm EX-4

Exhibit 4

INSPIRE PHARMACEUTICALS, INC.

Series A Exchangeable Preferred Stock

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (this “Agreement”), dated July 20, 2007, among Inspire Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and the investors from time to time signatory hereto (each such investor, an “Investor” and all such investors collectively, the “Investors”), is entered into pursuant to that certain Securities Purchase Agreement, dated July 17, 2007, among the Company and Warburg Pincus Private Equity IX, L.P. (the “Purchase Agreement”), providing for the Company’s issuance and sale of an aggregate of 140,186 shares (the “Exchangeable Preferred Stock”) of Series A Preferred Stock, in the amounts set forth on Exhibit A to the Purchase Agreement. The Series A Preferred Stock will be exchangeable into shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), as set forth in the applicable Certificate of Designations. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in Section 9(q) herein.

1. Common Shelf Registration. So long as any Registrable Shares are outstanding, the Company shall take the following actions:

(a) The Company shall, as soon as practicable but in any event by the date that is thirty (30) days after the Exchange Date, file with the Securities and Exchange Commission (the “Commission”), and thereafter use its best efforts to cause to be declared effective as soon as practicable but in any event no later than one hundred twenty (120) days after the Exchange Date, in each case subject to Section 3(h), a registration statement (the “Common Shelf Registration Statement”) on an appropriate form under the Securities Act relating to the offer and sale of the Registrable Common Shares by the Holders thereof from time to time in accordance with the methods of distribution set forth in the Common Shelf Registration Statement and Rule 415 under the Securities Act (hereinafter, the “Common Shelf Registration”).

Notwithstanding the foregoing, if the Commission prevents the Company from including any or all of the Registrable Common Shares on the Common Shelf Registration Statement due to limitations on the use of Rule 415 of the Securities Act for the resale of the Registrable Securities by the Holders (a “Rule 415 Limitation”), the Common Shelf Registration Statement shall register the resale of a number of shares of Common Stock which is equal to the maximum number of shares as is permitted by the Commission, and, subject to the provisions of this Section 1(a), the Company shall continue to its use best efforts to register all remaining Registrable Common Shares as set forth in this Section 1. In such event, the number of shares of Common Stock to be registered for each Holder in the Common Shelf Registration Statement shall be reduced pro rata among all Holders. The Company shall continue to use its best efforts to register all

remaining Registrable Common Shares as promptly as practicable in accordance with the applicable rules, regulations and guidance of the Commission, but in no event will the Company file a subsequent Common Shelf Registration with respect to the registration of the resale of Registrable Common Shares held by the Holders earlier than 180 calendar days following the effective date of the initial Common Shelf Registration Statement. Notwithstanding anything herein to the contrary, if the Commission, by written or oral comment or otherwise, limits the Company’s ability to file, or prohibits or delays the filing of, a Common Shelf Registration Statement with respect to any or all the Registrable Common Shares which were not included in the initial Common Shelf Registration Statement (a “Subsequent Shelf Limitation”), it shall not be a breach or default by the Company under this Agreement and shall not be deemed a failure by the Company to use “reasonable efforts”, “reasonable best efforts” or “best efforts” as set forth above or elsewhere in this Agreement.

(b) The Company shall use its best efforts to keep the Common Shelf Registration Statement continuously effective, in order to permit the prospectus included therein to be lawfully delivered by the Holders of the Registrable Common Shares included therein, until the date on which all Registrable Shares cease to be Registrable Shares (such period being called the “Common Shelf Registration Period”). The Company shall be deemed not to have used its best efforts to keep the Common Shelf Registration Statement effective during the Common Shelf Registration Period if it voluntarily takes any action that would result in Holders of Registrable Common Shares covered thereby not being able to offer and sell such Registrable Common Shares during such period, unless such action is required by applicable law or except as provided in Section 3(h).

(c) Notwithstanding any other provisions of this Agreement to the contrary, the Company shall cause (i) the Common Shelf Registration Statement (as of the effective date of the Common Shelf Registration Statement), any amendment thereof (as of the effective date thereof) or supplement thereto (as of its date), (A) to comply in all material respects with the applicable requirements of the Securities Act and the rules and regulations of the Commission and (B) not to contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading, and (ii) any related prospectus, preliminary prospectus or Free Writing Prospectus and any amendment thereof or supplement thereto, as of its date, (A) to comply in all material respects with the applicable requirements of the Securities Act and the rules and regulations of the Commission and (B) not to contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, the Company shall have no such obligations or liabilities with respect to any written information pertaining to any Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein.

(d) The Company shall use its best efforts to cause the Registrable Common Shares included in the Common Shelf Registration Statement to be, upon resale thereunder, listed on the NASDAQ Global Market (“NASDAQ Stock Market”) or, if the

Common Stock is not then listed on the NASDAQ Stock Market, on the principal national securities exchange on which the Common Stock is then listed, or if the Common Stock is not then listed on a national securities exchange, authorized for quotation on any automated quotation system on which the Common Stock is then quoted.

2. Exchangeable Shelf Registration. If any Registrable Exchangeable Shares are outstanding on July 20, 2008 (the “Outside Date”), the Company shall take the following actions:

(a) The Company shall, on the Outside Date, file with the Commission, and thereafter use best efforts to cause to be declared effective as soon as practicable but in any event no later than one hundred twenty (120) days after the Outside Date, a registration statement (the “Exchangeable Shelf Registration Statement”) on an appropriate form under the Securities Act relating to the offer and sale of the Registrable Exchangeable Shares by the Holders thereof from time to time in accordance with the methods of distribution set forth in the Exchangeable Shelf Registration Statement and Rule 415 under the Securities Act (hereinafter, the “Exchangeable Shelf Registration”). The Company’s obligation under this Section 2 shall be subject to any Rule 415 Limitation and Subsequent Shelf Limitation.

(b) The Company shall use its best efforts to keep the Exchangeable Shelf Registration Statement continuously effective, in order to permit the prospectus included therein to be lawfully delivered by the Holders of the Registrable Exchangeable Shares included therein, until the date on which all Registrable Exchangeable Shares covered by the Exchangeable Shelf Registration Statement cease to be Registrable Exchangeable Shares (such period being called the “Exchangeable Shelf Registration Period”). The Company shall be deemed not to have used its best efforts to keep the Exchangeable Shelf Registration Statement effective during the Exchangeable Shelf Registration Period if it voluntarily takes any action that would result in Holders of Registrable Exchangeable Shares covered thereby not being able to offer and sell such Registrable Exchangeable Shares during such period, unless such action is required by applicable law or except as provided in Section 3(h).

(c) Notwithstanding any other provisions of this Agreement to the contrary, the Company shall cause (i) the Exchangeable Shelf Registration Statement (as of the effective date of the Exchangeable Shelf Registration Statement), any amendment thereof (as of the effective date thereof) or supplement thereto (as of its date), (A) to comply in all material respects with the applicable requirements of the Securities Act and the rules and regulations of the Commission and (B) not to contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading, and (ii) any related prospectus, preliminary prospectus or Free Writing Prospectus and any amendment thereof or supplement thereto, as of its date, (A) to comply in all material respects with the applicable requirements of the Securities Act and the rules and regulations of the Commission and (B) not to contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading;

provided, however, the Company shall have no such obligations or liabilities with respect to any written information pertaining to any Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein.

(d) The Company shall use reasonable efforts to cause the Registrable Exchangeable Shares included in the Exchangeable Shelf Registration Statement, to be, upon resale thereunder, listed on the NASDAQ Stock Market or, if the Common Stock is not then listed on the NASDAQ Stock Market, on the principal national securities exchange on which the Common Stock is then listed, or if the Common Stock is not then listed on a national securities exchange, authorized for quotation on any automated quotation system on which the Common Stock is then quoted.

3. Registration Procedures. In connection with a Shelf Registration contemplated by Section 1 or Section 2 hereof, the following provisions shall apply:

(a) At the time the Commission declares such Shelf Registration Statement effective, each Holder shall be named as a selling security holder in such Shelf Registration Statement and the related prospectus in such a manner as to permit such Holder to deliver such prospectus to purchasers of Registrable Shares included in the Shelf Registration Statement in accordance with applicable law, subject to the terms and conditions hereof. From and after the date a Shelf Registration Statement is declared effective, the Company shall, as promptly as practicable and in any event upon the later of (x) five (5) Business Days after such date or (y) five (5) Business Days after the expiration of any Deferral Period (as defined in Section 3(h)) that is either in effect or put into effect within five (5) Business Days of such date:

(i) if required by applicable law, prepare and file with the Commission a post-effective amendment to the Shelf Registration Statement or prepare and, if required by applicable law, file a supplement to the related prospectus or a supplement or amendment to any document incorporated therein by reference or file with the Commission any other required document so that the Holder is named as a selling security holder in the Shelf Registration Statement and the related prospectus in such a manner as to permit such Holder to deliver such prospectus to purchasers of such Holder’s Registrable Shares included in the Shelf Registration Statement in accordance with applicable law and, if the Company shall file a post-effective amendment to the Shelf Registration Statement, use its best efforts to cause such post-effective amendment to be declared effective under the Securities Act as promptly as is practicable, but in any event by the date (the “Amendment Effectiveness Deadline Date”) that is sixty (60) days after the date such post-effective amendment is required by this clause to be filed;

(ii) provide such Holder copies of any documents filed pursuant to Section 3(a)(i); and

(iii) notify such Holder as promptly as practicable after the effectiveness under the Securities Act of any post-effective amendment filed pursuant to Section 3(a)(i);

provided, that if the request by such Holder is delivered during a Deferral Period, the Company shall so inform the Holder making such request and shall take the actions set forth in clauses (i), (ii) and (iii) above upon expiration of the Deferral Period in accordance with this Section 3(a) and Section 3(h) of this Agreement. Notwithstanding anything contained herein to the contrary, the Amendment Effectiveness Deadline Date shall be extended by five (5) Business Days from the expiration of a Deferral Period if such Deferral Period shall be in effect on the Amendment Effectiveness Deadline Date; and provided, further, that in no event shall the Company be required to file pursuant to this Section 3(a) in the case where a post-effective amendment is required, more than one post-effective amendment to the Shelf Registration Statement in any 120-day period.

(b) The Company shall notify the Holders of the Registrable Shares included within the coverage of the Shelf Registration Statement (which notice may, at the discretion of the Company (or as required pursuant to Section 3(h)), state that it constitutes a Deferral Notice, in which event the provisions of Section 3(h) shall apply):

(i) when the Shelf Registration Statement or any amendment thereto has been filed with the Commission and when the Shelf Registration Statement or any post-effective amendment thereto has become effective;

(ii) of any request by the Commission for amendments or supplements to the Shelf Registration Statement or the prospectus included therein or for additional information;

(iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Shelf Registration Statement or the initiation of any proceedings for that purpose and of any other action, event or failure to act that would cause the Shelf Registration Statement not to remain effective;

(iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any Registrable Shares for sale in any jurisdiction or the initiation of any proceeding for such purpose; and

(v) of the occurrence of any Material Event (as defined in Section 3(h)).

(c) The Company shall use its best efforts to obtain the withdrawal at the earliest possible time of any stop order suspending the effectiveness of the Shelf Registration Statement and the elimination of any other impediment to the continued effectiveness of the Shelf Registration Statement.

(d) The Company shall promptly furnish to each Holder of Registrable Shares included within the coverage of the Shelf Registration, without charge, if the Holder so

requests in writing, at least one conformed copy of the Shelf Registration Statement and any post-effective amendment thereto, including financial statements and schedules and all exhibits thereto (including those, if any, incorporated by reference).

(e) The Company shall promptly deliver to each Holder of Registrable Shares included within the coverage of the Shelf Registration Statement, without charge, as many copies of the prospectus (including each preliminary prospectus) included in the Shelf Registration Statement and any amendment thereof or supplement thereto and any Free Writing Prospectus used in connection therewith as such Holder may reasonably request. The Company consents, subject to the provisions of this Agreement and except during such periods that a Deferral Notice is outstanding and has not been revoked, to the use of the prospectus and each amendment or supplement thereto and any Free Writing Prospectus used in connection therewith by each of the selling Holders in connection with the offering and sale of the Registrable Shares covered by the prospectus, or any amendment or supplement thereto, included in the Shelf Registration Statement.

(f) The Company shall use reasonable efforts to register or qualify, or cooperate with the Holders of the Registrable Shares included in the Shelf Registration Statement and their respective counsel in connection with the registration or qualification of, the resale of the Registrable Shares under the securities or “blue sky” laws of such states of the United States as any Holder requests in writing and to do any and all other acts or things necessary or advisable to enable the offer and sale in such jurisdictions of the Registrable Shares covered by the Shelf Registration Statement; provided, however, that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it is not then so qualified or (ii) take any action that would subject it to general service of process or to taxation in any jurisdiction to which it is not then so subject.

(g) The Company shall cooperate with the Holders of the Registrable Shares to facilitate the timely preparation and delivery of certificates representing the Registrable Shares to be delivered to a transferee pursuant to the Shelf Registration Statement, which certificates shall be free of any restrictive legends and in such denominations and registered in such names as the Holders may request.

(h) Upon (i) the issuance by the Commission of a stop order suspending the effectiveness of the Shelf Registration Statement or the initiation of proceedings with respect to the Shelf Registration Statement under Section 8(d) or 8(e) of the Securities Act, (ii) the occurrence of any event or the existence of any fact (a “Material Event”) as a result of which (x) the Shelf Registration Statement shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading or (y) any prospectus included in the Shelf Registration Statement shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or (iii) the occurrence or existence of any pending corporate development that, in the reasonable judgment of the Company, makes it necessary to suspend the availability of the Shelf Registration Statement and the related prospectus for a period of time:

(A) in the case of clause (ii) above, subject to clause (B) below, as promptly as practicable, the Company shall prepare and file, if necessary pursuant to applicable law, a post-effective amendment to such Shelf Registration Statement or a supplement to the related prospectus or any document incorporated therein by reference or file any other required document that would be incorporated by reference into such Shelf Registration Statement and related prospectus so that (1) such Shelf Registration Statement does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and (2) such prospectus does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, as thereafter delivered to the purchasers of the Registrable Shares being sold thereunder, and, in the case of a post-effective amendment to the Shelf Registration Statement, subject to the next sentence, use reasonable efforts to cause it to be declared effective as promptly as is practicable; and

(B) the Company shall give notice to the Holders with respect to such Shelf Registration Statement, that the availability of the Shelf Registration Statement is suspended (a “Deferral Notice”) and, upon receipt of any Deferral Notice, each Holder agrees not to sell any Registrable Shares pursuant to the Shelf Registration Statement until such Holder’s receipt of copies of the supplemented or amended prospectus provided for in clause (A) above, or until it is advised in writing by the Company that the prospectus may be used, and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in such prospectus.

The Company will use its best efforts to ensure that the use of the prospectus with respect to such Shelf Registration Statement may be resumed (x) in the case of clause (i) above, as promptly as is practicable, (y) in the case of clause (ii) above, as soon as, in the reasonable judgment of the Company, public disclosure of such Material Event would not be prejudicial to or contrary to the interests of the Company or, as soon as practicable thereafter and (z) in the case of clause (iii) above, as soon as, in the reasonable judgment of the Company, such suspension is no longer necessary; provided, that in no event shall (A) the aggregate duration of any such suspension arising from an event described in clause (iii) above exceed 60 days, (B) the aggregate duration of all such suspensions arising from events described in clause (iii) above exceed 90 days in any 12-month period or (C) a suspension arising from an event described in clause (ii) or clause (iii) above be invoked more than twice in any 12-month period. Any such period during which the availability of the Shelf Registration Statement and any related prospectus is suspended is referred to as the “Deferral Period.”

(i) Not later than the effective date of the Shelf Registration Statement, the Company will provide CUSIP numbers for the Registrable Shares registered for resale

under such Shelf Registration Statement and provide the transfer agent for the Registrable Shares one or more certificates for such Registrable Shares, in a form eligible for deposit with The Depository Trust Company.

(j) The Company will comply with all rules and regulations of the Commission to the extent and so long as they are applicable to the Shelf Registration and will make generally available to its security holders (or otherwise provide in accordance with Section 11(a) of the Securities Act) an earnings statement (which need not be audited) satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder, no later than 45 days after the end of a 12-month period (or 90 days, if such period is a fiscal year) beginning with the first month of the Company’s first fiscal quarter commencing after the effective date of the Shelf Registration Statement, which statement shall cover such 12-month period.

(k) If requested in writing in connection with a disposition of Registrable Shares pursuant to a Shelf Registration Statement, the Company shall make reasonably available for inspection during normal business hours by a representative for the holders of a majority of the number of such Registrable Shares, any broker-dealers, attorneys and accountants retained by such holders, and any attorneys or other agents retained by a broker-dealer engaged by such holders, all relevant financial and other records and pertinent corporate documents and properties of the Company and its subsidiaries, and cause the appropriate officers, directors and employees of the Company and its subsidiaries to make reasonably available for inspection during normal business hours on reasonable notice all relevant information reasonably requested by such representative for the Holders, or any such broker-dealers, attorneys or accountants in connection with such disposition, in each case as is customary for similar “due diligence” examinations; provided, that such persons shall first agree in writing with the Company that any information that is reasonably and in good faith designated by the Company in writing as confidential at the time of delivery of such information shall be kept confidential by such persons and shall be used solely for the purposes of exercising rights under this Agreement, unless (i) disclosure of such information is required by court or administrative order or is necessary to respond to inquiries of regulatory authorities, (ii) disclosure of such information is required by law (including any disclosure requirements pursuant to federal securities laws in connection with the filing of the Shelf Registration Statement or the use of any prospectus or Free Writing Prospectus referred to in this Agreement) or (iii) such information becomes generally available to the public other than as a result of a disclosure or failure to safeguard by any such person, and provided further that the foregoing inspection and information gathering shall, to the greatest extent possible, be coordinated on behalf of all the Holders and the other parties entitled thereto by one legal counsel (“Holders Counsel”) designated by the Holders of a majority of the number of Registrable Shares with respect to such Shelf Registration Statement.

(l) The Company shall (i) permit such Holders Counsel to review and comment upon (A) a Shelf Registration Statement at least five (5) Business Days prior to its filing with the Commission and (B) all Free Writing Prospectuses and all amendments and supplements to all Shelf Registration Statements within a reasonable number of days prior to their filing with the Commission, and (ii) not file any Shelf Registration

Statement or amendment thereof or supplement thereto or any Free Writing Prospectus in a form to which such Holders Counsel reasonably objects. The Company shall furnish to such Holders Counsel, without charge, (x) copies of any correspondence from the Commission or the staff of the Commission to the Company or its representatives relating to any Shelf Registration Statement or any document incorporated by reference therein, (y) promptly after the same is prepared and filed with the Commission, one copy of any Shelf Registration Statement and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference, if requested by a Holder, and all exhibits; and (z) promptly upon the effectiveness of any Shelf Registration Statement, one copy of the prospectus included in such Shelf Registration Statement and all amendments and supplements thereto. The Company shall reasonably cooperate with such Holders Counsel in performing the Company’s obligations pursuant to this Section 3.

(m) The Company shall make such representations and warranties to the Holders of Registrable Shares included in a Shelf Registration Statement and to any underwriters in connection with such disposition in form, substance and scope as are customarily made by issuers to underwriters in primary underwritten offerings. The Company will enter into and perform customary agreements (including underwriting and indemnification and contribution agreements in customary form with the managing underwriter or underwriters, as applicable) and take such other commercially reasonable actions as are required in order to expedite or facilitate each disposition of Registrable Shares and shall provide all reasonable cooperation, including causing appropriate officers to attend and participate in “road shows” and other information meetings organized by the managing underwriter or underwriters, if applicable.

(n) If reasonably requested by a Holder, the Company shall as soon as practicable (i) incorporate in a prospectus supplement or post-effective amendment such information as such Holder reasonably requests to be included therein relating to the sale and distribution of Registrable Shares, including, without limitation, information with respect to the number of Registrable Shares being offered or sold, the purchase price being paid therefor and any other terms of the offering of the Registrable Shares to be sold in such offering; (ii) make all required filings of such prospectus supplement or post-effective amendment after being notified of the matters to be incorporated in such prospectus supplement or post-effective amendment; and (iii) supplement or make amendments to any Shelf Registration Statement if reasonably requested by a Holder holding any Registrable Shares.

(o) The Company shall obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters, if any) addressed to each selling Holder of Registrable Shares included in a Shelf Registration Statement and the underwriters, if any, covering such matters as are customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such Holders and underwriters.

(p) The Company shall obtain “comfort” letters and updates thereof from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included in, or incorporated by reference into, the Shelf Registration Statement), addressed to each selling Holder of Registrable Shares included in a Shelf Registration Statement and the underwriters, if any, in customary form and covering matters of the type customarily covered in “comfort” letters in connection with underwritten offerings.

(q) If any Holder is deemed to be, alleged to be or reasonably believes it may be deemed or alleged to be, an underwriter or is required under applicable securities laws to be described in the Shelf Registration Statement as an underwriter, at the reasonable request of such Holder, the Company shall use reasonable efforts to cause to be furnished to such Holder, on the date of the effectiveness of the Shelf Registration Statement and thereafter from time to time on such dates as such Holder may reasonably request (i) a letter, dated such date, from the Company’s independent certified public accountants (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included in, or incorporated by reference into, the Shelf Registration Statement) in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the Holders, and (ii) a legal opinion, dated as of such date, in form, scope and substance as is customarily given in an underwritten public offering, addressed to the Holders.

4. Holder’s Obligations. Each Holder agrees promptly to furnish to the Company all information required to be disclosed under Item 507 of Regulation S-K under the Securities Act and any other material information regarding such Holder and the distribution of such Registrable Shares as the Company may from time to time reasonably request. Any sale of any Registrable Shares by any Holder shall constitute a representation and warranty by such Holder that the information relating to such Holder and its plan of distribution is as set forth in the prospectus delivered by such Holder in connection with such disposition, that such prospectus does not as of the time of such sale contain any untrue statement of a material fact provided in writing by such Holder and that such prospectus does not as of the time of such sale omit to state any material fact relating to or provided in writing by such Holder necessary to make the statements in such Prospectus, in light of the circumstances under which they were made, not misleading.

5. Registration Expenses.

(a) All fees and expenses incident to the Company’s performance of and compliance with this Agreement will be borne by the Company, regardless of whether the applicable Shelf Registration Statement or Requested Underwritten Offering is ever filed or becomes effective, including without limitation:

(i) all registration and filing fees and expenses;

(ii) all fees and expenses of compliance with federal securities and state “blue sky” or securities laws;

(iii) all expenses of printing (including, without limitation, printing certificates and prospectuses), messenger and delivery services and telephone;

(iv) all fees and disbursements of counsel for the Company;

(v) all application and filing fees in connection with listing on a national securities exchange or automated quotation system pursuant to the requirements hereof; and

(vi) all fees and disbursements of independent certified public accountants of the Company (including, without limitation, the expenses of any special audit and “comfort” letters required by or incident to such performance).

The Company will bear its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expenses of any annual audit and the fees and expenses of any person, including special experts, retained by the Company.

(b) In connection with a Shelf Registration Statement, the Company will reimburse the Holders of Registrable Shares who are selling or reselling Registrable Shares pursuant to the “Plan of Distribution” contained in such Shelf Registration Statement for the reasonable fees and disbursements of not more than one counsel, which shall be chosen by the Holders of a majority in number of shares of the Registrable Shares for whose benefit such Shelf Registration Statement is being prepared, such amount not to exceed $25,000.

6. Indemnification.

(a) The Company agrees to indemnify and hold harmless each Holder of the Registrable Shares included within the coverage of the applicable Shelf Registration Statement, the directors, officers, employees, Affiliates and agents of each such Holder and each person who controls any such Holder within the meaning of the Securities Act or the Exchange Act (collectively, the “Holder Indemnified Parties”) from and against any losses, claims, damages or liabilities, joint or several, or any actions in respect thereof (including, but not limited to, any losses, claims, damages, liabilities or actions relating to purchases and sales of the Registrable Shares) to which each Holder Indemnified Party may become subject under the Securities Act, the Exchange Act or otherwise and shall reimburse, as incurred, the Holder Indemnified Parties for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action in respect thereof; provided, however, that the Company shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of or is based upon any untrue statement or omission made in the Shelf Registration Statement, the Disclosure Package, any prospectus or in any amendment thereof or supplement thereto in reliance upon and in conformity with written information pertaining to such Holder and furnished to the

Company by or on behalf of such Holder Indemnified Party specifically for inclusion therein; provided further, however, that this indemnity agreement will be in addition to any liability that the Company may otherwise have to such Holder Indemnified Party. The Company shall also indemnify underwriters (including, without limitation, any Holder Indemnified Party deemed or alleged to be an underwriter or required under applicable securities laws to be described in the applicable Shelf Registration Statement as an underwriter), their officers and directors and each person who controls such underwriters within the meaning of the Securities Act or the Exchange Act to the same extent as provided above with respect to the indemnification of the Holders of the Registrable Shares if requested by such Holders. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of any Holder Indemnified Parties and shall survive the transfer of the Registrable Shares by any Holder.

(b) Each Holder of the Registrable Shares covered by a Shelf Registration Statement severally, and not jointly, agrees to indemnify and hold harmless the Company, each of its directors, each of its officers who signs the Shelf Registration Statement, as well as any officers, employees, Affiliates and agents of the Company, and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act (a “Company Indemnified Party”) from and against any losses, claims, damages or liabilities or any actions in respect thereof, to which a Company Indemnified Party may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained in a Shelf Registration Statement or in any amendment thereof, in each case at the time such became effective under the Securities Act, or in any Disclosure Package, prospectus or in any amendment thereof or supplement thereto, or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of the Disclosure Package or any prospectus, in the light of the circumstances under which they were made) not misleading, but in each case only to the extent that the untrue statement or omission or alleged untrue statement or omission was made in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein; and, subject to the limitation set forth immediately preceding this clause, shall reimburse, as incurred, the Company Indemnified Parties for any legal or other expenses reasonably incurred by them in connection with investigating or defending any loss, claim, damage, liability or action in respect thereof. This indemnity agreement will be in addition to any liability that such Holder may otherwise have to the Company Indemnified Parties. Notwithstanding any other provision of this Section 6(b), no Holder shall be required to indemnify or hold harmless any Company Indemnified Party in an amount in excess of the amount by which the net proceeds received by such Holder from the sale of the Registrable Shares pursuant to the Shelf Registration Statement exceeds the amount of damages that such Holder has otherwise been required to pay by reason of such untrue statement or omission.

(c) Promptly after receipt by a Holder Indemnified Party or a Company Indemnified Party (each, an “Indemnified Party”) of notice of the commencement of any

action or proceeding (including a governmental investigation), such Indemnified Party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 6, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party (i) will not relieve the indemnifying party from liability under paragraph (a) or (b) above unless and to the extent it did not otherwise learn of such action and the indemnifying party has been materially prejudiced by such failure and (ii) will not, in any event, relieve the indemnifying party from any obligations to any Indemnified Party other than the indemnification obligation provided in paragraph (a) or (b) above. In case any such action is brought against any Indemnified Party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such Indemnified Party (who shall not, except with the consent of the Indemnified Party, be counsel to the indemnifying party), and after notice from the indemnifying party to such Indemnified Party of its election so to assume the defense thereof the indemnifying party will not be liable to such Indemnified Party under this Section 6 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such Indemnified Party in connection with the defense thereof; provided, however, if such Indemnified Party shall have been advised by counsel that there are one or more defenses available to it that are in conflict with those available to the indemnifying party (in which case the indemnifying party shall not have the right to direct the defense of such action on behalf of the Indemnified Party), the reasonable fees and expenses of such Indemnified Party’s counsel shall be borne by the indemnifying party. In no event shall the indemnifying party be liable for the fees and expenses of more than one counsel (together with appropriate local counsel) at any time for any Indemnified Party in connection with any one action or separate but substantially similar or related actions arising in the same jurisdiction out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the Indemnified Party (not to be unreasonably withheld or delayed), effect any settlement of any pending or threatened action in respect of which any Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party unless such settlement (i) includes an unconditional release of such Indemnified Party from all liability on any claims that are the subject matter of such action and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any Indemnified Party.

(d) If the indemnification provided for in this Section 6 is unavailable or insufficient to hold harmless an Indemnified Party under subsections (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such Indemnified Party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to in subsection (a) or (b) above in such proportion as is appropriate to reflect the relative fault of the indemnifying party or parties on the one hand and the Indemnified Party on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a

material fact relates to information supplied by the Company on the one hand or the Holder or Holder Indemnified Party, as the case may be, on the other, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid by an Indemnified Party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any action or claim that is the subject of this subsection (d). The parties agree that it would not be just and equitable if contributions were determined by pro rata allocation (even if the Holders were treated as one entity for such purpose) or any other method of allocation that does not take account of the equitable considerations referred to above. Notwithstanding any other provision of this Section 6(d), no Holder shall be required to contribute any amount in excess of the amount by which the net proceeds received by such Holder from the sale of the Registrable Shares pursuant to the Shelf Registration Statement exceeds the amount of damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

(e) The agreements contained in this Section 6 shall survive the sale of the Registrable Shares pursuant to the Shelf Registration Statement and shall remain in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of any Indemnified Party.

7. Information Requirements. The Company covenants that, if at any time before the end of the applicable Effectiveness Period, the Company is not subject to the reporting requirements of the Exchange Act, it will take such further action as any Holder of Registrable Shares may reasonably request, all to the extent required from time to time to enable such Holder to sell Registrable Shares without registration under the Securities Act within the limitation of the exemptions provided by Rules 144 and 144A (including the requirements of Rule 144A(d)(4)) under the Securities Act. Upon the request of any Holder of Registrable Shares, the Company shall deliver to such Holder a written statement as to whether it has complied with such requirements.

8. Underwritten Registrations.

(a) Request for Underwritten Offering. Upon written request, a Holder or Holders (the “Initiating Holders”) may sell all or a portion of its Registrable Shares in an underwritten offering, subject to the terms of this Section 8. From time to time, upon written request by the Initiating Holders, which request shall specify the amount of the Initiating Holders’ Registrable Shares to be sold (the “Requested Registrable Shares”), the Company shall use reasonable efforts to cause the sale of such Requested Registrable Shares to be in the form of a firm commitment underwritten public offering if the anticipated aggregate offering price (calculated based upon the market price of the Registrable Shares on the date of such written request) to the public equals or exceeds $20,000,000 (a “Requested Underwritten Offering”) (including causing to be produced

and filed any necessary prospectuses or prospectus supplements with respect to such offering). The managing underwriter or underwriters for a Requested Underwritten Offering shall be an investment banking firm or firms of national reputation selected by the Holders holding a majority of the Registrable Shares (the “Approved Underwriters”); provided, however, that the Approved Underwriters shall, in any case, also be reasonably acceptable to the Company. The Company’s obligations under this Section 8 shall be limited to one Requested Underwritten Offering in any eighteen (18) month period; provided, however, that in the event that the Holders participating in a Requested Underwritten Offering are unable to include at least seventy-five percent (75%) of the Requested Registrable Shares in such offering as a result of the cutback of an Approved Underwriter or the participation of the Company in accordance with Section 8(c), such offering shall not constitute an offering for purposes of this limitation.

(b) Participation in Requested Underwritten Offering. The Company shall (i) as promptly as practicable but in no event later than five (5) Business Days after the receipt of a request for a Requested Underwritten Offering from any Initiating Holders, give written notice thereof to all of the Holders (other than such Initiating Holders), which notice shall specify the number of Requested Registrable Shares, the names and notice information of the Initiating Holders and the intended disposition of such Registrable Shares through an underwritten public offering and (ii) subject to Section 8(c), include in the Requested Underwritten Offering all of the Registrable Shares requested by such Holders for inclusion in such Requested Underwritten Offering from whom the Company has received a written request for inclusion therein within ten (10) Business Days after the receipt by such Holders of such written notice referred to in clause (i) above. Each such request by such Holders shall specify the number of Registrable Shares proposed to be included in the Requested Underwritten Offering and such Holder shall send a copy of such written request to the Company and the Initiating Holders. The failure of any Holder to respond within such ten (10) Business Day period referred to in clause (ii) above shall be deemed to be a waiver of such Holder’s rights under this Section 8 with respect to such Requested Underwritten Offering. Any Holder may waive its rights under this Section 8 prior to the expiration of such ten (10) Business Day period by giving written notice to the Company, with a copy to the Initiating Holders. Notwithstanding anything to the contrary herein, no equity securities of the Company held by any person other than a Holder or the Company may be included in such Requested Underwritten Offering without the prior written consent of the Holders holding a majority of the Registrable Shares.

(c) Limitation on Requested Underwritten Offering. In connection with any Requested Underwritten Offering, none of the Registrable Shares held by any Holder (including the Initiating Holders) shall be included in such Requested Underwritten Offering unless such Holder (i) agrees to sell such Holder’s Registrable Shares on the basis reasonably provided in any underwriting arrangements approved by the Holders holding a majority of the Registrable Shares to be included in such Requested Underwritten Offering and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements, and then only in such aggregate amount as, in the opinion of the Approved Underwriters, can be sold in such offering

within a price range acceptable to the Holders holding a majority of the Registrable Shares to be included in such Requested Underwritten Offering. If the Approved Underwriters advise the Company in writing that the aggregate amount of such Registrable Shares requested to be included in such offering exceeds the amount which can be sold in such offering within such acceptable price range, then the Approved Underwriters shall include in such Requested Underwritten Offering only the aggregate amount of shares that the Approved Underwriters believe may be sold within such acceptable price range consisting of, first, the Registrable Shares of the Holders (including the Initiating Holders) participating in such Requested Underwritten Offering, as a group, and any equity securities offered by the Company for its own account on up to a 50/50 basis (i.e., at least fifty percent (50%) of the shares to be sold shall be sold on behalf of the Holders as a group and up to a maximum of 50% of the shares to be sold may be securities offered by the Company for its own account); and, second, any other equity securities requested to be in such Requested Underwritten Offering, as a group, pro rata within each group based on the amount of Registrable Shares or equity securities, as applicable, owned by each such party.

(d) Company Lock-up Agreement. With respect to any Requested Underwritten Offering, the Company shall not effect any sale or transfer of any Registrable Shares or any securities convertible into or exchangeable or exercisable for such Registrable Shares during the period beginning on the date it is provided written notice of the Requested Underwritten Offering and ending on the date that is ninety (90) days after the date of the final prospectus relating to the Requested Underwritten Offering, except as part of such Requested Underwritten Offering or pursuant to a registration on Form S-4 or Form S-8 or any successor forms thereto; provided, that in no event shall the Company be prohibited from effecting any sale or transfer of Registrable Shares or any securities convertible into or exchangeable or exercisable for Registrable Shares pursuant to this Section 8(d) more than once in any 12-month period.

(e) Additional Lock-up Agreements. With respect to each Requested Underwritten Offering, the Company shall use reasonable efforts to cause all of its directors and officers who are not otherwise Holders to execute lock-up agreements that cover the period beginning on the date such holder is provided written notice of the Requested Underwritten Offering and ending on the date that is ninety (90) days after the date of the final prospectus relating to the Requested Underwritten Offering.

9. Miscellaneous.

(a) Recapitalizations, Exchanges, Etc. The provisions of this Agreement shall apply to the full extent set forth herein with respect to (i) the shares of Common Stock, (ii) any and all shares of voting Common Stock of the Company into which the shares of Common Stock are converted, exchanged or substituted in any recapitalization or other capital reorganization by the Company and (iii) any and all equity securities of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise) which may be issued in respect of, in conversion of, in exchange for or in substitution of, the shares of Common Stock and shall be appropriately adjusted for any stock dividends, splits, reverse splits, combinations, recapitalizations and

the like occurring after the date hereof. The Company shall cause any successor or assign (whether by merger, consolidation, sale of assets or otherwise) to assume this Agreement or enter into a new registration rights agreement with the Holders on terms substantially the same as this Agreement as a condition of any such transaction.

(b) No Inconsistent Agreements. The Company will not on or after the date of this Agreement enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company’s securities under any agreement in effect on the date hereof.

(c) Interpretation. Article, Section and Annex references are to this Agreement, unless otherwise specified. All references to instruments, documents, contracts, and agreements are references to such instruments, documents, contracts and agreements as the same may be amended, supplemented and otherwise modified from time to time, unless otherwise specified. The word “including” shall mean “including, without limitation.”

(d) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, except by the written consent of the Company and the Holders of a majority in number of then outstanding Registrable Shares; provided, however, that, notwithstanding the foregoing, any amendment or modification of or supplement to this Agreement which would materially and adversely affect any Investor in a manner that is disproportionate to the other Investors will be binding upon and enforceable against such Investor only with its prior written consent. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders whose securities are being sold pursuant to a Shelf Registration Statement and that does not directly or indirectly affect the rights of other Holders may be given by Holders of at least a majority of the Registrable Shares being sold by such Holders pursuant to such Shelf Registration Statement; provided, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence. Each Holder of Registrable Shares outstanding at the time of any such amendment, modification, supplement, waiver or consent or thereafter shall be bound by any such amendment, modification, supplement, waiver or consent effected pursuant to this Section 9(d), whether or not any notice, writing or marking indicating such amendment, modification, supplement, waiver or consent appears on the Registrable Shares. Any amendment, supplement or modification of or to any provision of this Agreement, any waiver of any provision of this Agreement, and any consent to any departure from the terms of any provision of this Agreement shall be effective only in the specific instance and for the specific purpose for which made or given. No failure or delay on the part of any party in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any right, power or remedy. The remedies provided for herein are cumulative and are not

exclusive of any remedies that may be available to a party at law or in equity or otherwise. A copy of each amendment, modification or supplement to this Agreement shall be delivered by the Company to each Holder.

(e) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing and shall be given by registered or certified mail, return receipt requested, telecopy, air courier guaranteeing overnight delivery or personal delivery to the following addresses:

(i) if to the Company, at its address as follows:

Inspire Pharmaceuticals, Inc.

4222 Emperor Boulevard, Suite 200

Durham, NC 27703-8030

Attention: General Counsel

Telephone: (919) 287-1224

Facsimile: (919) 941-9797

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

Reed Smith LLP

136 Main Street, Suite 250

Princeton Forrestal Village

Princeton, NJ 08540

Attention: Edward P. Bromley III

Telephone: (609) 514-8544

Facsimile: (609) 951-0824

(ii) if to a Holder, at the most current address shown for such Holder in the records of the Company;

or to such other address as the Company or such Holder may designate in writing. All notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; upon actual receipt if sent by certified mail, return receipt requested, or regular mail, if mailed; when receipt acknowledged, if sent via facsimile; and upon actual receipt when delivered to an air courier guaranteeing overnight delivery.

(f) Successors and Assigns. This Agreement shall be binding upon the Company, each Holder and their respective successors and permitted assigns. Except as expressly provided in this Agreement, this Agreement shall not be construed so as to confer any right or benefit upon any person or entity other than the parties hereto and their respective successors and permitted assigns. The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Holder. Any Holder may assign its rights under this Agreement to any Person to whom such Holder transfers at least 1,000,000 Registrable Common Shares or that number of Registrable Exchangeable Shares that is exchangeable for at least 1,000,000

shares of Common Stock; provided, that no transferee shall be entitled to have the Registrable Shares held by it included in a Shelf Registration Statement unless such transferee agrees in writing to be bound by this Agreement as if a party hereto.

(g) Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which counterpart, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute one and the same agreement.

(h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

(i) Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York without regard to principles of conflicts of laws.

(j) Submission to Jurisdiction. The parties to this Agreement (i) irrevocably submit to the exclusive jurisdiction of any state or federal courts located in New York County, New York in connection with any disputes arising out of or relating to this Agreement and (ii) waive any claim of improper venue or any claim that those courts are an inconvenient forum. The parties to this Agreement agree that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 9(e) or in such other manner as may be permitted by applicable laws, shall be valid and sufficient service thereof.

(k) Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by virtue of any applicable law, or due to any public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner so that the transaction contemplated hereby are fulfilled to the extent possible.

(l) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and is intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein, superseding all prior agreements and understandings among the parties with respect to such subject matter.

(m) Further Assurances. Each of the parties shall execute such documents and perform such further acts as may be reasonably required or desirable to carry out or to perform the provisions of this Agreement.

(n) Termination. This Agreement and the obligations of the parties hereunder shall terminate upon the end of the applicable Effectiveness Period, except for any

liabilities or obligations, each of which shall remain in effect in accordance with its terms.

(o) Securities Held by the Company. Whenever the consent or approval of Holders of a specified number of Registrable Shares is required hereunder, shares of Common Stock or Series A Preferred Stock held by the Company or its subsidiaries shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage.

(p) Independent Nature of Obligations. The obligations of each Investor under this Agreement are several and not joint with the obligations of any other Investor, and no Investor shall be responsible in any way for the performance of the obligations of any other Investor under this Agreement. The failure or waiver of performance under this Agreement by any Investor shall not excuse performance by any other Investor. Each Investor shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement, and it shall not be necessary for any other Investor to be joined as an additional party in any proceeding for such purpose.

(q) Definitions. The following terms shall have the following meanings:

“Affiliate” means, with respect to any specified person, an “affiliate,” as defined in Rule 144(a)(1) of the Securities Act, of such person.

“Agreement” shall have the meaning set forth in the recitals hereto.

“Amendment Effectiveness Deadline Date” shall have the meaning set forth in Section 3(a)(i).

“Approved Underwriters” shall have the meaning set forth in Section 8(a).

“Business Day” shall mean any day other than a Saturday, Sunday or other day on which banks in the State of New York are required or authorized to close.

“Capital Stock” means, with respect to any Person, any and all securities (including equity linked securities), interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preference Stock.

“Certificate of Designation” means the Certificate of Designations, Number, Voting Power, Preferences and Rights of the Series A Preferred Stock.

“Commission” shall have the meaning set forth in Section 1(a).

“Common Shelf Registration” shall have the meaning set forth in Section 1(a).

“Common Shelf Registration Period” shall have the meaning set forth in Section 1(b).

“Common Shelf Registration Statement” shall have the meaning set forth in Section 1(a).

“Common Stock” shall have the meaning set forth in the recitals hereto.

“Company” shall have the meaning set forth in the recitals hereto.

“Company Indemnified Party” shall have the meaning set forth in Section 6(b).

“Controlled Affiliate” shall mean with respect to any Person, any Person which, directly or indirectly, is controlled by such Person, including without limitation any general partner, officer or director of such Person and any investment fund now or hereafter existing which is controlled by or under common control with one or more general partners or shares the same management company with such Person; for the purposes of this definition of Controlled Affiliate, “control” means direct or indirect beneficial ownership of capital stock or other interests in an entity or enterprise entitling the holder to cast more than 50% of the total number of votes generally entitled to be cast in the election of directors (or persons performing comparable functions) of such entity or enterprise, or any entity with respect to which such Person has directly approved the entity’s investments in the Company’s equity securities or trading of the Company’s equity securities (it being understood that in no event shall solely the membership or participation on an entity’s Board of Directors or similar governing body be deemed to be control for the purposes hereof).

“Deferral Notice” shall have the meaning set forth in Section 3(h)(B).

“Deferral Period” shall have the meaning set forth in Section 3(h).

“Disclosure Package” means, with respect to any offering of securities, (i) the preliminary prospectus, (ii) each Free Writing Prospectus and (iii) all other information, in each case, that is deemed, under Rule 159 promulgated under the Securities Act, to have been conveyed to purchasers of securities at the time of sale of such securities (including, without limitation, a contract of sale).

“Effectiveness Period” means, as the case may be, either the Common Shelf Registration Period or the Exchangeable Shelf Registration Period.

“Exchange” means the exchange of the Series A Preferred Stock for shares of Common Stock in accordance with the terms of the Purchase Agreement.

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

“Exchange Date” mean the date on which the Exchange occurs.

“Exchangeable Preferred Stock” shall have the meaning set forth in the recitals hereto.

“Exchangeable Shelf Registration” shall have the meaning set forth in Section 2(a).

“Exchangeable Shelf Registration Period” shall have the meaning set forth in Section 2(b).

“Exchangeable Shelf Registration Statement” shall have the meaning set forth in Section 2(a).

“Free Writing Prospectus” means any “free writing prospectus” as defined in Rule 405 promulgated under the Securities Act.

“Holder” means a holder of record of Registrable Shares.

“Holder Indemnified Party” shall have the meaning set forth in Section 6(a).

“Holders Counsel” shall have the meaning set forth in Section 4(k).

“Indemnified Party” shall have the meaning set forth in Section 6(c).

“Initiating Holders” shall have the meaning set forth in Section 8(a).

“Investor” shall have the meaning set forth in the recitals hereto.

“Material Event” shall have the meaning set forth in Section 3(h).

“NASDAQ Stock Market” shall have the meaning set forth in Section 1(d).

“Outside Date” shall have the meaning set forth in Section 2.

“Person” means any individual, partnership, joint-stock company, corporation, limited liability company, trust or unincorporated organization, and a government or agency or political subdivision thereof.

“Preference Stock”, as applied to the Capital Stock of any Person, means Capital Stock of any series, class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other series or class of such Person.

“Purchase Agreement” shall have the meaning set forth in the recitals hereto.

“Registrable Common Shares” means (A) each share of Common Stock issued or issuable upon the exchange of the Exchangeable Preferred Stock in accordance with the Certificate of Designations, (B) any other shares of Common Stock acquired by Warburg Pincus Private Equity IX, L.P., Warburg Pincus & Co., Warburg Pincus LLC, Warburg Pincus IX LLC, Warburg Pincus Partners LLC and their Controlled Affiliates (but excluding their successors and assigns) and (C) any stock of the Company issued as a dividend, or other distribution with respect to, the Common Stock referred to in clause

(A) or (B); until the earlier of (i) the date on which all of the Registrable Common Shares then owned by such Holder have been effectively registered under the Securities Act and disposed of in accordance with such registration statement and (ii) the date on which all of the Registrable Common Shares then owned by such Holder may be sold in any ninety (90) day period pursuant to Rule 144 under the Securities Act or is eligible for resale pursuant to Rule 144 (without giving effect to Rule 144(k)) under the Securities Act.

“Registrable Exchangeable Shares” means (A) each share of Exchangeable Preferred Stock issued to the Holder pursuant to the Purchase Agreement, (B) any other shares of Exchangeable Preferred Stock acquired by Warburg Pincus Private Equity IX, L.P., Warburg Pincus & Co., Warburg Pincus LLC, Warburg Pincus IX LLC, Warburg Pincus Partners LLC and their Controlled Affiliates (but excluding their successors and assigns) and (C) any stock of the Company issued as a dividend or other distribution with respect to, the Exchangeable Preferred Stock referred to in clause (A) or (B), until the earlier of (i) the date on which all of the Registrable Exchangeable Shares then owned by such Holder have been effectively registered under the Securities Act and disposed of in accordance with such registration statement and (ii) the date on which all of the Registrable Exchangeable Shares then owned by such Holder may be sold in any ninety (90) day period pursuant to Rule 144 under the Securities Act or is eligible for resale pursuant to Rule 144 (without giving effect to Rule 144(k)) under the Securities Act.

“Registrable Shares” means, as the case may be, either the Registrable Common Shares or the Registrable Exchangeable Shares.

“Requested Registrable Shares” shall have the meaning set forth in Section 8(a).

“Requested Underwritten Offering” shall have the meaning set forth in Section 8(a).

“Rule 415 Limitation” shall have the meaning set forth in Section 1(a).

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

“Series A Preferred Stock” means the series of preferred stock, par value $0.001 per share, of the Company designated as the “Series A Exchangeable Preferred Stock” having the rights and privileges set forth in the Certificate of Designations setting forth the terms of the Series A Preferred Stock.

“Shelf Registration” means, as the case may be, either the Common Shelf Registration or the Exchangeable Shelf Registration.

“Shelf Registration Statement” means, as the case may be, either the Common Shelf Registration Statement or the Exchangeable Shelf Registration Statement.

“Subsequent Shelf Limitation” shall have the meaning set forth in Section 1(a).

[The remainder of this page is intentionally left blank.]

If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the Investor and the Company in accordance with its terms.

		Very truly yours,

	INSPIRE PHARMACEUTICALS, INC.


	By:	/s/ Christy L. Shaffer
		Name: Christy L. Shaffer
		Title: President and Chief Executive Officer

AGREED AND ACCEPTED AS OF THE DATE
FIRST SET FORTH ABOVE


WARBURG PINCUS PRIVATE EQUITY IX, L.P.

	By:	Warburg Pincus IX, LLC, its General Partner

	By:			Warburg Pincus Partners LLC, its Sole Member

			By:		Warburg Pincus & Co., its Managing Member



By:	/s/ Jonathan Leff
	Name: Jonathan Leff
	Title: Partner

Signature Page to Registration Rights Agreement

EX-5 6 a07-19806_1ex5.htm EX-5

Exhibit 5

WARBURG PINCUS PRIVATE EQUITY IX, L.P.
466 Lexington Avenue
New York, NY 10017

July 20, 2007

Inspire Pharmaceuticals, Inc.
4222 Emperor Boulevard, Suite 200
Durham, North Carolina
Attention: Chief Executive Officer

Ladies and Gentlemen:

In connection with the acquisition of shares of Series A Exchangeable Preferred Stock, par value $0.001 per share (the “Exchangeable Preferred Stock”), of Inspire Pharmaceuticals, Inc., a Delaware corporation (the “Company”), by Warburg Pincus Private Equity IX, L.P., a Delaware limited partnership (the “Purchaser”), the Company and the Purchaser agree as follows:

1. Definitions. For purposes of this letter agreement, the following terms have the respective meanings set forth below:

“13D Group” shall mean any group of Persons formed for the purpose of acquiring, holding, voting or disposing of Voting Securities which would be required under Section 13(d) of the Exchange Act, and the rules and regulations promulgated thereunder, to file a statement on Schedule 13D pursuant to Rule 13d-1(a) or Schedule 13G pursuant to Rule 13d-1(c) with the Securities and Exchange Commission as a “person” within the meaning of Section 13(d)(3) of the Exchange Act if such group Beneficially Owned Voting Securities representing more than 5% of any class of Voting Securities then outstanding.

“Beneficially Owns” (including the terms “Beneficial Ownership”, “Beneficially Owned” or “Beneficially Owning”) shall mean beneficial ownership within the meaning of Rule 13d-3 under the Exchange Act.

“Board” shall mean the Board of Directors of the Company.

“Certificate of Designation” means the Certificate of Designations, Number, Voting Power, Preferences and Rights of the Exchangeable Preferred Stock.

“Closing” shall mean the closing of the transactions contemplated by Section 2.2 of the Purchase Agreement.

“Common Stock” shall mean the common stock, $0.001 par value per share, of the Company.

“Continuing Director” shall mean, as of any date, any member of the Board or the board of directors of any entity (or its parent) surviving or resulting from any consolidation, merger, reorganization or other acquisition with the Company, which member: (i) was a member of the Board on the date that was 24 months prior to such date; or (ii) was nominated for election to the Board by the Purchaser or with the approval of a majority of the Continuing Directors who were members of the Board at the time of such nomination.

“DGCL” shall mean the Delaware General Corporation Law.

“Exchange” shall mean the exchange of the Exchangeable Preferred Stock for shares of Common Stock pursuant to the terms of the Purchase Agreement.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

“Exchange Termination Date” shall have the meaning set forth in the Certificate of Designations.

“Fully Diluted Basis” shall include, when used to refer to the number of shares of Common Stock then outstanding, (i) all shares of Common Stock that are issued and outstanding at such time, plus (ii) all shares of Common Stock that are issuable upon the conversion, exercise or exchange of all other debt or equity securities that are issued and outstanding at such time and that are, by their terms, convertible into or exercisable or exchangeable for shares of Common Stock, regardless of whether such securities are then convertible, exercisable or exchangeable.

“Person” shall mean an individual, partnership, joint-stock company, corporation, limited liability company, trust or unincorporated organization, and a government or agency or political subdivision thereof.

“Purchase Agreement” shall mean that certain Securities Purchase Agreement, dated July 17, 2007, by and between the Company and the Purchaser relating to the acquisition of the Exchangeable Preferred Stock.

“Purchaser Group” shall mean, collectively, (i) Purchaser; (ii) Warburg Pincus & Co., a New York general partnership and the sole general partner of the Purchaser; (iii) Warburg Pincus LLC, a New York limited liability company and the sole manager of the Purchaser; (iv) Warburg Pincus IX LLC; (v) Warburg Pincus Partners, LLC, (vi) any Controlled Affiliates of each of such entities, including without limitation the Investor Designee under the Purchase Agreement, and (vii) any 13D Group that includes any of the entities listed in clauses (i) through (vi) hereof.

“Registration Rights Agreement” shall mean that certain Registration Rights Agreement, dated as of the date hereof, by and between the Company and the investors listed from time to time on the signature pages thereto.

“Voting Securities” shall mean the shares of Common Stock and any other securities of the Company having ordinary power to vote in the election of members of the Board and any securities convertible, exchangeable or otherwise exercisable to acquire such Voting Securities.

2. Standstill.

(a) Without the prior written consent of the Board, from and after the date hereof until the third anniversary of this letter agreement (the “Standstill Period”), no member of the Purchaser Group shall:

(i) Acquire or offer to acquire, seek, propose or agree to acquire, by means of a purchase, tender or exchange offer, business combination or in any other manner, Beneficial Ownership of any Voting Securities; provided, however, that this Section 2(a)(i) shall in no way prohibit the acquisition by the Purchaser Group of Beneficial Ownership of the lesser of: (i) 32.5% of the Voting Securities on a Fully Diluted Basis and (ii) 34.9% of the then outstanding Voting Securities plus the outstanding Exchangeable Preferred Stock on an as exchanged to Common Stock basis immediately after giving effect to the transaction pursuant to which the Purchaser Group became the Beneficial Owner of such additional shares of Voting Securities.

(ii) Subject to Section 3 hereof, seek or propose to influence, advise, change or control the management, Board or governing policies of the Company, including without limitation, by means of a solicitation of proxies, contacting any Person relating to any of the matters set forth herein or seeking to influence, advise or direct the vote of any holder of Voting Securities of the Company; and

(iii) form, join, encourage, influence, advise or participate in a “group” (as defined in Section 13(d)(3) of the Exchange Act) in connection with any of the foregoing.

(b) Notwithstanding the foregoing, if, at any time during the Standstill Period,

(i) any Person or 13D Group (other than any Person or 13D Group which includes a member of the Purchaser Group or any affiliates) acquires Beneficial Ownership of Voting Securities of the Company representing 40% or more of the then outstanding Voting Securities of the Company;

(ii) any Person or 13D Group (other than any Person or 13D Group which includes a member of the Purchaser Group or any affiliates) announces or commences a tender or exchange offer to acquire Voting Securities of the Company which, if successful, would result in such Person or 13D Group owning, when combined with any other Voting Securities of the Company owned by such Person or 13D Group, 50% or more of the then outstanding Voting Securities of the Company;

(iii) the Company enters into, or resolves to enter into, any merger, sale or other business combination transaction pursuant to which the outstanding shares of Common Stock would be converted into cash and/or securities and/or property of another Person or 13D Group (other than any Person or 13D Group which includes a member of the Purchaser Group or any affiliates) or 50% or more of the outstanding shares of Common Stock as of immediately prior to such transaction would be owned by Persons other than the then current holders of shares of Common Stock and any Person or 13D Group which includes the Purchaser Group and their affiliates;

then, except as otherwise provided herein, the Standstill Period shall be suspended and tolled during the pendency of any such event with respect to the Purchaser Group and their affiliates and the provisions of Section 2(a)(i), (ii) and (iii) shall not be applicable to the Purchaser Group and their affiliates during the pendency of any such event. For the avoidance of doubt, the Standstill Period shall resume and be extended by an amount of time equal to the time during which such event was pending, and the provisions of Section 2(a)(i), (ii) and (iii) shall resume to be applicable to the Purchaser Group and their affiliates in event that the provisions of this Section 2(b)(i), (ii) and (iii) cease to be applicable, such as, for example and without limitation, disposition of the Voting Securities of the Company to below 40% by the Person or 13D Group, withdrawal of the tender or exchange offer by the Person or 13D Group, or termination of merger, sale or other business combination transaction.

(c) Notwithstanding the foregoing, the provisions of this Section 2 shall only be in effect so long as the Company is not in material breach of its obligations under this Agreement, the Certificate of Designations, the Registration Rights Agreement or under Section 5.3 of the Purchase Agreement with respect to the Purchaser.

3. No Effect on Directors. Notwithstanding any of the foregoing, the provisions set forth in Section 2 shall in no way limit the ability of any individual who is serving as a director of the Company to take any actions (or to refrain from taking any actions) in their capacity as directors of the Company.

4. Waiver of Section 203. The Company represents and warrants to the Purchaser Group that the Board has heretofore taken all necessary action to approve, and has approved, for purposes of Section 203 of the DGCL (including any successor statute thereto “Section 203”) the Investor’s becoming, together with its affiliates and associates, an “interested

stockholder” within the meaning of Section 203 by virtue of the execution, delivery and performance of this Agreement, including, without limitation the acquisition of Exchangeable Preferred Stock pursuant to the Purchase Agreement, and any common stock exchangeable therefor (the “Waiver”), such that, as of the date hereof and from and after the Closing, Section 203 will not be applicable to the Investor or any “business combination” within the meaning of Section 203 that may take place between the Investor and/or its affiliates and associates, on the one hand, and the Company, on the other, as a result of the transactions contemplated by this Agreement; provided, however, such Waiver provides that, to the fullest extent permitted by law, it shall no longer be applicable if, subsequent to becoming an “interested stockholder” (as defined in Section 203), the Purchaser Group no longer has Beneficial Ownership of 15% or more of the Common Stock as a result of any sale or disposition of Beneficial Ownership of Common Stock by the Purchaser Group.

5. Amendments to Rights Agreement. The Company represents and warrants to the Purchaser that the Rights Agreement, dated October 21, 2002, by and between the Company and Computershare Trust Company, N.A., as rights agent (the “Rights Agreement”), has been duly amended by the First Amendment to Rights Agreement in the form attached hereto as Exhibit A. The Company shall not amend or modify the definition of “Acquiring Person” in the Rights Agreement, if, as a result of such amendment or modification, the Purchaser Group would be deemed to be an “Acquiring Person” thereunder; provided that such limitation shall no longer be applicable if the Purchaser Group no longer has Beneficial Ownership of 15% or more of the outstanding Common Stock as a result of any sale or disposition of Beneficial Ownership of Common Stock by the Purchaser Group or, in the event the Purchaser Group no longer has Beneficial Ownership of 15% or more of the outstanding Common Stock as a result of anything other than a sale or disposition of Beneficial Ownership of Common Stock by the Purchaser Group, the Purchaser Group thereafter reduces its Beneficial Ownership (while it continues to have Beneficial Ownership of less than 15% of the outstanding Common Stock) through sale or other disposition (in which case such limitation shall no longer be applicable). The Company shall not adopt a new rights agreement or an agreement having substantially the same effect of the Rights Agreement if the Purchaser Group would be considered an “Acquiring Person” (or would have the same or substantially similar effect of an “Acquiring Person” under the Rights Agreement); provided that such limitation shall no longer be applicable if the Purchaser Group no longer has Beneficial Ownership of 15% or more of the outstanding Common Stock as a result of any sale or disposition of Beneficial Ownership of Common Stock by the Purchaser Group or, in the event the Purchaser Group no longer has Beneficial Ownership of 15% or more of the outstanding Common Stock as a result of anything other than a sale or disposition of Beneficial Ownership of Common Stock by the Purchaser Group, the Purchaser Group thereafter reduces its Beneficial Ownership (while it continues to have Beneficial Ownership of less than 15% of the outstanding Common Stock) through sale or other disposition (in which case such limitation shall no longer be applicable).

6. Representations. Each party represents to the other that: (a) this letter agreement has been duly authorized by all necessary corporate or partnership action, as the case may be; and (b) this letter agreement is a valid and binding agreement of such party, enforceable against it in accordance with its terms.

7. Specific Enforcement; Legal Effect. The parties hereto agree that any breach of this letter agreement would result in irreparable injury to other party and that money damages would not be an adequate remedy for such breach. Accordingly, without prejudice to the rights and remedies otherwise available under applicable law, either party shall be entitled to specific performance and equitable relief by way of injunction or otherwise if the other party breaches or threatens to breach any of the provisions of this letter agreement. It is further understood and agreed that no failure or delay by either party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any right, power or privilege hereunder. If any term, provision, covenant or restriction in this letter agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this letter agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated, provided that the parties hereto shall negotiate in good faith to attempt to place the parties in the same position as they would have been in had such provision not been held to be invalid, void or unenforceable. This letter agreement contains the entire agreement between the parties hereto concerning the matters addressed herein. No modification of this letter agreement or waiver of the terms and conditions hereof shall be binding upon either party hereto, unless approved in writing by the party against which enforcement of such waiver or amendment is sought; provided, however, that no waiver or amendment shall be effective as against the Company unless such waiver or amendment is approved in writing by the vote of a majority of the independent members of the Board who are not affiliated with the Purchaser Group This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without regard to principles of conflicts of law that would cause the application of the laws of any jurisdiction other than the State of Delaware. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties.

8. Counterparts. This letter agreement may be executed in counterpart (including by facsimile), each of which shall be deemed an original.

[The remainder of this page is intentionally left blank.]

If you are in agreement with the terms set forth above, please sign this letter agreement in the space provided below and return an executed copy to the undersigned.

	Very truly yours,

	WARBURG PINCUS PRIVATE EQUITY IX, L.P.

	By:	Warburg Pincus IX LLC, its general partner

	By:	Warburg Pincus Partners, LLC, its sole member

	By:	Warburg Pincus & Co., its managing member

	By:	/s/ Jonathan Leff
	Name:	Jonathan Leff
	Title:	Partner

	WARBURG PINCUS IX LLC

	By:	Warburg Pincus Partners, LLC, its sole member

	By:	Warburg Pincus & Co., its managing member

	By:	/s/ Jonathan Leff
	Name:	Jonathan Leff
	Title:	Partner

	WARBURG PINCUS PARTNERS, LLC

	By:	/s/ Jonathan Leff
	Name:	Jonathan Leff
	Title:	Partner

	WARBURG PINCUS & CO.

	By:	/s/ Jonathan Leff
	Name:	Jonathan Leff
	Title:	Partner

Confirmed and Agreed:

INSPIRE PHARMACEUTICALS, INC.

By:	/s/ Christy L. Shaffer
Name:	Christy L. Shaffer
Title:	President and Chief Executive Officer