8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

November 18, 2002

Date of Report (Date of earliest event reported)

VIROLOGIC, INC.

(Exact name of Registrant as specified in charter)

Delaware	000-30369	94-3234479
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

345 Oyster Point Blvd.
South San Francisco, California 94080
(650) 635-1100

(Address, including zip code, and telephone number, including area code, of principal executive officers)

270 East Grand Avenue
South San Francisco, California 94080
(650) 635-1100

(Former name or former address, if changed since last report)

TABLE OF CONTENTS

	Item 5. Other Events
	Item 7. Financial Statements and Exhibits.
SIGNATURE
INDEX TO EXHIBITS
EXHIBIT 4.1
EXHIBIT 4.2
EXHIBIT 4.3
EXHIBIT 4.4
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 10.3
EXHIBIT 10.4
EXHIBIT 10.5
EXHIBIT 10.6
EXHIBIT 99.1

Item 5. Other Events

Issuance of Series C Preferred Stock

     On November 14, 2002, ViroLogic, Inc. ( “ViroLogic” ) entered into a Securities Purchase Agreement in the form attached hereto as Exhibit 10.1 (the “Purchase Agreement” ) with several investors (collectively, the “Purchasers” ), pursuant to which ViroLogic agreed to issue and sell to the Purchasers, and the Purchasers agreed to purchase from ViroLogic, an aggregate of 706 shares of ViroLogic’s Series C Convertible Preferred Stock (the “Series C Stock”), and warrants to purchase an aggregate of 4,376,033 shares of ViroLogic’s common stock (the “Warrants” ), for an aggregate purchase price of $7,060,000 in a private placement (the “Financing” ). The closing occurred on November 19, 2002 and ViroLogic received $7,060,000 in gross proceeds. The rights, preferences and privileges of the Series C Stock are set forth in the Certificate of Designations, Preferences and Rights (the “Certificate”) in the form attached as Exhibit 4.4, filed with the Delaware Secretary of State. The Warrants are subject to the terms and conditions of the form of Stock Purchase Warrant attached as Exhibit 4.1.

     The Series C Stock bears an initial 8% annual premium rate which increases to a 9% annual premium rate on June 30, 2004, then increases by 1 percentage point every quarter thereafter up to a maximum annual rate of 14%, subject to an additional increase to an annual rate of 15% under certain circumstances. This premium is paid as a cash dividend each calendar quarter. Subject to the limitations described below, the holders of Series C Stock may elect to convert their shares into ViroLogic’s common stock at any time. Upon conversion, each share of Series C Stock is convertible into approximately 8,264.46 shares of ViroLogic’s common stock. Subject to the limitations described below, ViroLogic may, at its option, convert the Series C Stock into common stock (i) at any time after the first anniversary of the issuance of the Series C Stock, but only if ViroLogic’s stock price exceeds $2.42 for 20 consecutive trading days or (ii) with the consent of a majority of the holders of the Series C Stock. The Warrants are exercisable beginning May 20, 2003 and expire November 19, 2007. The exercise price of the Warrants is $1.11 per share.

     The holders of Series C Stock are not subject to any limitations on the number of conversions of Series C Stock or subsequent sales of the corresponding common stock that they can effect, other than a prohibition on any holder acquiring, upon conversion, beneficial ownership of more than 4.99% of the outstanding shares of ViroLogic’s common stock, or, in the case of Biotech Target NV and its affiliates, more than 19.99% of the outstanding shares of ViroLogic’s common stock. This limitation also applies to ViroLogic’s ability to convert Series C Stock to common stock.

     The holders of Series C Stock have the right to require ViroLogic to redeem all of the Series C Stock for cash equal to the greater of (i) 120% of their original purchase price plus 120% of any accrued and unpaid premium or (ii) the aggregate fair market value of the shares of common stock into which such shares of Series C Stock are then convertible, upon certain triggering events, as defined in the Certificate. The Series C Stock is non-voting, except with respect to certain extraordinary transactions as set forth in the Certificate. In addition, until November 19, 2004, in the event that ViroLogic proposes to issue any equity securities or debt which is convertible into equity securities, each holder of Series C Stock will have the right to purchase a certain amount of such securities or debt based upon its holdings of Series C Stock.

     ViroLogic expects to record a deemed dividend of approximately $8 million in the fourth quarter of 2002 relating to the issuance of the Series C Stock. The charge includes deemed dividends associated with an automatic adjustment of the conversion price of ViroLogic’s Series A Redeemable Convertible Preferred Stock (the “Series A Stock”), which was triggered as a result of the issuance of the Series C Stock. The charge also includes deemed dividends associated with the exchange of the Series B Redeemable Convertible Preferred Stock (the “Series B Stock”) described below, and the sale of the Series C Stock together with the Warrants described above. The deemed dividend will increase the loss applicable to common stockholders in the calculation of basic and diluted net loss per common share for the fourth quarter and fiscal year 2002 and will be included in stockholders’ equity as offsetting charges and credits to additional paid-in capital.

Exchange of Series B Preferred Stock; Issuance of Notes; Exchange of Warrants

     Also on November 14, 2002, ViroLogic entered into an Exchange Agreement in the form attached hereto as Exhibit 10.2 (the “Exchange Agreement”) with all of the holders of its Series B Stock (the “Series B Holders”) in order to secure their consent to the Financing and the resulting impact on the Series B Stock and to increase the number of shares of ViroLogic’s common stock available for issuance upon conversion of the Series C Stock. Pursuant to the Exchange Agreement, on November 19, 2002, ViroLogic repurchased all of the issued and outstanding Series B Stock in exchange for convertible secured promissory notes, each in the form attached as Exhibit 4.2 (the “Notes”). The aggregate principal amount of the Notes is $12,045,987.94. In addition, the Notes bear an interest rate of 8%, have a maturity date of March 19, 2003 and are secured by substantially all of ViroLogic’s assets pursuant to the terms and condition of a Security Agreement in the form attached hereto as Exhibit 10.3, and an Intellectual Property Security Agreement in the form attached as Exhibit 10.4. Subject to and promptly following the approval of ViroLogic’s stockholders (as described below) (i) the principal amount of the Notes (together with all unpaid interest accruing from the date of the then most recent premium payment on the Series C Stock, or November 19, 2002, if no such premium payment has been made) will be automatically converted into an aggregate of 1,204.6 shares of Series C Stock, and (ii) all accrued and unpaid interest due on the principal amount of the Notes and not converted into Series C Stock shall immediately become due and payable. In addition, pursuant to the Exchange Agreement, subject to and promptly following approval of ViroLogic’s stockholders, the Series B Holders will receive warrants to purchase ViroLogic common stock in exchange for the warrants originally issued to the Series B Holders in connection with their purchase of Series B Stock (the “Replacement Warrants”). The Replacement Warrants will be in the form of Stock Purchase Warrant attached as Exhibit 4.3. Upon consummation of the warrant exchange, ViroLogic expects to record an additional charge related to the modification of the warrants that were originally issued in connection with the issuance of the Series B Stock.

Special Meeting of Stockholders

     ViroLogic has also agreed with the Series B Holders and the Purchasers to call a special meeting of its stockholders to seek approval (i) of an increase in the number of authorized shares of ViroLogic’s common stock to a number that is sufficient to provide for (a) the issuance of the common stock underlying the Series C Stock issuable upon conversion of the Notes, (b) the exercise of all of the replacement Warrants, and (c) the conversion or exercise of all other outstanding securities of ViroLogic that are convertible into or exercisable for shares of ViroLogic’s common stock, (ii) of the conversion of the Notes into Series C Stock and the issuance of the Replacement Warrants, in accordance with Rule 4350 of the Rules of the National Association of Securities Dealers, Inc., and (iii) to amend the Certificate to include (a) the right of ViroLogic to pay any premium payments on the Series C Stock in either cash or shares of ViroLogic’s common stock and (b) the same anti-dilution protections as are currently afforded to ViroLogic’s Series A Stock pursuant to Article XI, Section G of the Certificate of Designations, Preferences and Rights related thereto.

Issuance of Common Stock

     In connection with the Financing, ViroLogic also entered into a Stock Purchase Agreement in the form attached hereto as Exhibit 10.5 (the “Pfizer Purchase Agreement”), pursuant to which ViroLogic agreed to issue and sell to an affiliate of Pfizer, Inc., an aggregate of 2,608,695 shares of ViroLogic’s common stock (the “Pfizer Transaction”). The closing occurred on November 18, 2002 and ViroLogic received $3,000,000 in gross proceeds. Concurrent with the execution of the Pfizer Purchase Agreement, ViroLogic and Pfizer, Inc. entered into a Non-Exclusive License Agreement and a Master Services Agreement for ViroLogic’s HIV drug resistance tests and services.

Securities to be Registered

     Pursuant to a Registration Rights Agreement in the form attached hereto as Exhibit 10.6 and the Pfizer Purchase Agreement, ViroLogic has agreed to prepare and file with the Securities and Exchange Commission registration statements covering the shares of common stock issuable pursuant to the Purchase Agreement, the Exchange Agreement and the Pfizer Purchase Agreement. The first registration statement that ViroLogic expects to file will cover the resale of (i) the shares of ViroLogic common stock issuable upon conversion of the Series C Stock issued pursuant to the Purchase Agreement, (ii) the shares of ViroLogic common stock issued pursuant to the Pfizer Purchase Agreement, and (iii) the shares of common stock issuable upon exercise of the Warrants. Following the special meeting described above, in the event that each of the proposals is approved by the stockholders, ViroLogic expects to file a second registration statement that will cover the resale of (i) the shares of ViroLogic common stock issuable upon the conversion of the Series C Stock that will be issued upon conversion of the Notes and (ii) the shares of common stock issuable upon exercise of the Replacement Warrants.

     The foregoing summaries and descriptions do not purport to be a complete description of the terms and conditions of the securities sold or the transactions described and are entirely qualified by the transaction documents attached as exhibits hereto, each of which is incorporated herein in its entirety and which you must read for complete information on these transactions.

     The press release issued by ViroLogic on November 14, 2002 announcing the Financing and related transactions is filed herewith as Exhibit 99.1.

Item 7. Financial Statements and Exhibits.

     Exhibits.

4.1	Form of Stock Purchase Warrant issued to purchasers of Series C Preferred Stock.
4.2	Form of Convertible Secured Promissory Note issued to the Series B Holders.
4.3	Form of Stock Purchase Warrant to be issued to the Series B Holders.
4.4	Certificate of Designations, Preferences and Rights of Series C Convertible Preferred Stock, as filed with the Secretary of State of the State of Delaware on November 15, 2002.
10.1	Securities Purchase Agreement, dated as of November 14, 2002, by and among ViroLogic, Inc. and each of the Purchasers.
10.2	Exchange Agreement, dated as of November 14, 2002, by and among ViroLogic, Inc. and the Series B Holders.
10.3	Security Agreement, dated as of November 19, 2002 by and among ViroLogic, Inc. and SDS Merchant Fund, L.P. (as collateral agent for the benefit of the holders of the Notes)
10.4	Intellectual Property Security Agreement, dated as of November 19, 2002 by and among ViroLogic, Inc. and SDS Merchant Fund, L.P. (as collateral agent for the benefit of the holders of the Notes)
10.5	Stock Purchase Agreement, dated as of November 14, 2002, by and among ViroLogic, Inc. and Pfizer Ireland Pharmaceuticals.
10.6	Registration Rights Agreement, dated as of November 19, 2002, by and between ViroLogic, Inc. and each of the Purchasers.
99.1	Press Release issued November 14, 2002.

SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	VIROLOGIC, INC.
Dated: November 25, 2002	By:	/s/ William D. Young
		William D. Young Chief Executive Officer

INDEX TO EXHIBITS

4.1	Form of Stock Purchase Warrant issued to purchasers of Series C Preferred Stock.
4.2	Form of Convertible Secured Promissory Note issued to the Series B Holders.
4.3	Form of Stock Purchase Warrant to be issued to the Series B Holders.
4.4	Certificate of Designations, Preferences and Rights of Series C Convertible Preferred Stock, as filed with the Secretary of State of the State of Delaware on November 15, 2002.
10.1	Securities Purchase Agreement, dated as of November 14, 2002, by and among ViroLogic, Inc. and each of the Purchasers.
10.2	Exchange Agreement, dated as of November 14, 2002, by and among ViroLogic, Inc. and the Series B Holders.
10.3	Security Agreement, dated as of November 19, 2002 by and among ViroLogic, Inc. and SDS Merchant Fund, L.P. (as collateral agent for the benefit of the holders of the Notes)
10.4	Intellectual Property Security Agreement, dated as of November 19, 2002 by and among ViroLogic, Inc. and SDS Merchant Fund, L.P. (as collateral agent for the benefit of the holders of the Notes)
10.5	Stock Purchase Agreement, dated as of November 14, 2002, by and among ViroLogic, Inc. and Pfizer Ireland Pharmaceuticals.
10.6	Registration Rights Agreement, dated as of November 19, 2002, by and between ViroLogic, Inc. and each of the Purchasers.
99.1	Press Release issued November 14, 2002.

EX-4.1 3 a86207exv4w1.txt EXHIBIT 4.1 EXHIBIT 4.1 EXHIBIT B TO SECURITIES PURCHASE AGREEMENT VOID AFTER 5:00 P.M., NEW YORK CITY TIME, ON NOVEMBER 19, 2007 (UNLESS EXTENDED PURSUANT TO SECTION 2 HEREOF) THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER JURISDICTION. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. Right to Purchase ________ Shares of Common Stock, par value $.001 per share Date: November 19, 2002 VIROLOGIC, INC. STOCK PURCHASE WARRANT THIS CERTIFIES THAT, for value received, _______________________, or its registered assigns, is entitled to purchase from ViroLogic, Inc., a corporation organized under the laws of the State of Delaware (the "COMPANY"), at any time or from time to time during the period specified in Section 2 hereof, _____________________________________ fully paid and nonassessable shares of the Company's common stock, par value $.001 per share (the "COMMON STOCK"), at an exercise price per share (the "EXERCISE PRICE") equal to $1.11. The number of shares of Common Stock purchasable hereunder (the "WARRANT SHARES") and the Exercise Price are subject to adjustment as provided in Section 4 hereof. The term "WARRANTS" means this Warrant and the other warrants of the Company issued pursuant to that certain Securities Purchase Agreement, dated as of November 14, 2002, by and among the Company and the other signatories thereto (the "SECURITIES PURCHASE AGREEMENT"). This Warrant is subject to the following terms, provisions and conditions: 1. Manner of Exercise; Issuance of Certificates; Payment for Shares. Subject to the provisions hereof, including, without limitation, the limitations contained in Section 7 hereof, this Warrant may be exercised by the holder hereof, in whole or in part, by the surrender of this Warrant, together with a completed exercise agreement in the form attached hereto (the "EXERCISE AGREEMENT"), to the Company during normal business hours on any business day at the Company's principal executive offices (or such other office or agency of the Company as it may designate by notice to the holder hereof), and (i) payment to the Company in cash, by certified or official bank check or by wire transfer for the account of the Company, of the Exercise Price for the Warrant Shares specified in the Exercise Agreement or (ii) if the holder is effectuating a Cashless Exercise (as defined in Section 11(c) hereof) pursuant to Section 11(c) hereof, delivery to the Company of a written notice of an election to effect a Cashless Exercise for the Warrant Shares specified in the Exercise Agreement. The Warrant Shares so purchased shall be deemed to be issued to the holder hereof or such holder's designee, as the record owner of such shares, as of the close of business on the date on which this Warrant shall have been surrendered, the completed Exercise Agreement shall have been delivered, and payment shall have been made for such shares as set forth above or, if such date is not a business date, on the next succeeding business date. The Warrant Shares so purchased, representing the aggregate number of shares specified in the Exercise Agreement, shall (by the Company or through its transfer agent) be delivered (i.e., deposited with a nationally-recognized overnight courier service postage prepaid) to the holder hereof within a reasonable time, not exceeding two business days, after this Warrant shall have been so exercised (the "DELIVERY PERIOD"). If the Company's transfer agent is participating in the Depository Trust Company ("DTC") Fast Automated Securities Transfer program, and so long as the certificates therefor do not bear a legend (pursuant to the terms of the Securities Purchase Agreement) and the holder is not obligated to return such certificate for the placement of a legend thereon (pursuant to the terms of the Securities Purchase Agreement), the Company shall cause its transfer agent to electronically transmit the Warrant Shares so purchased to the holder by crediting the account of the holder or its nominee with DTC through its Deposit Withdrawal Agent Commission system ("DTC TRANSFER"). If the aforementioned conditions to a DTC Transfer are not satisfied, the Company shall deliver as provided herein to the holder physical certificates representing the Warrant Shares so purchased. Further, the holder may instruct the Company to deliver to the holder physical certificates representing the Warrant Shares so purchased in lieu of delivering such shares by way of DTC Transfer. Any certificates so delivered shall be in such denominations as may be reasonably requested by the holder hereof, shall be registered in the name of such holder or such other name as shall be designated by such holder and, following the date on which the Warrant Shares have been registered under the Securities Act pursuant to that certain Registration Rights Agreement, dated as of November 19, 2002, by and between the Company and the other signatories thereto (the "REGISTRATION RIGHTS AGREEMENT") or otherwise may be sold by the holder pursuant to Rule 144 promulgated under the Securities Act (or a successor rule), shall not bear any restrictive legend. If this Warrant shall have been exercised only in part, then the Company shall, at its expense, at the time of delivery of such certificates, deliver to the holder a new Warrant representing the number of shares with respect to which this Warrant shall not then have been exercised. 2 If, at any time, a holder of this Warrant submits this Warrant, an Exercise Agreement and payment to the Company of the Exercise Price for each of the Warrant Shares specified in the Exercise Agreement (including pursuant to a Cashless Exercise), and the Company fails for any reason to deliver, on or prior to the fourth business day following the expiration of the Delivery Period for such exercise, the number of shares of Common Stock to which the holder is entitled upon such exercise (an "EXERCISE DEFAULT"), then the Company shall pay to the holder payments ("EXERCISE DEFAULT PAYMENTS") for an Exercise Default in the amount of (a) (N/365), multiplied by (b) the amount by which the Market Price (as defined in Section 4(l) hereof) on the date the Exercise Agreement giving rise to the Exercise Default is transmitted in accordance with this Section 1 (the "EXERCISE DEFAULT DATE") exceeds the Exercise Price in respect of such Warrant Shares, multiplied by (c) the number of shares of Common Stock the Company failed to so deliver in such Exercise Default, multiplied by (d) .24, where N = the number of days from the Exercise Default Date to the date that the Company effects the full exercise of this Warrant which gave rise to the Exercise Default. The accrued Exercise Default Payment for each calendar month shall be paid in cash and shall be made to holder by the fifth day of the month following the month in which it has accrued. Nothing herein shall limit the holder's right to pursue actual damages for the Company's failure to maintain a sufficient number of authorized shares of Common Stock as required pursuant to the terms of Section 3(b) hereof or to otherwise issue shares of Common Stock upon exercise of this Warrant in accordance with the terms hereof, and the holder shall have the right to pursue all remedies available at law or in equity (including a decree of specific performance and/or injunctive relief). 2. Period of Exercise. This Warrant shall be exercisable at any time or from time to time during the period beginning on the date six months and one day from the date of initial issuance of this Warrant (the "ISSUE DATE") and ending at 5:00 p.m., New York City time, on the fifth anniversary of the Issue Date (the "EXERCISE PERIOD"). The Exercise Period shall automatically be extended by one (1) day for each day on which the Company does not have a number of shares of Common Stock reserved for issuance upon exercise hereof at least equal to the number of shares of Common Stock issuable upon exercise hereof. 3. Certain Agreements of the Company. The Company hereby covenants and agrees as follows: (a) Shares to be Fully Paid. All Warrant Shares will, upon issuance in accordance with the terms of this Warrant, be validly issued, fully paid, and nonassessable and free from all taxes, liens, claims and encumbrances. (b) Reservation of Shares. During the Exercise Period, the Company shall at all times have authorized, and reserved for the purpose of issuance upon exercise of this Warrant, a sufficient number of shares of Common Stock to provide for the exercise in full of this Warrant (without giving effect to the limitations on exercise set forth in Section 7(g) hereof). (c) Listing. The Company shall promptly secure the listing of the shares of Common Stock issuable upon exercise of this Warrant upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed or become listed (subject to official notice of issuance upon exercise of this Warrant) and shall maintain, so 3 long as any other shares of Common Stock shall be so listed, such listing of all shares of Common Stock from time to time issuable upon the exercise of this Warrant; and the Company shall so list on each national securities exchange or automated quotation system, as the case may be, and shall maintain such listing of, any other shares of capital stock of the Company issuable upon the exercise of this Warrant if and so long as any shares of the same class shall be listed on such national securities exchange or automated quotation system. (d) Certain Actions Prohibited. The Company will not, by amendment of its charter or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may reasonably be requested by the holder of this Warrant in order to protect the economic benefit inuring to the holder hereof and the exercise privilege of the holder of this Warrant against dilution or other impairment, consistent with the tenor and purpose of this Warrant. Without limiting the generality of the foregoing, the Company (i) will not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, and (ii) will take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant. (e) Successors and Assigns. This Warrant will be binding upon any entity succeeding to the Company by merger, consolidation, or acquisition of all or substantially all of the Company's assets. (f) Blue Sky Laws. The Company shall, on or before the date of issuance of any Warrant Shares, take such actions as the Company shall reasonably determine are necessary to qualify the Warrant Shares for, or obtain exemption for the Warrant Shares for, sale to the holder of this Warrant upon the exercise hereof under applicable securities or "blue sky" laws of the states of the United States, and shall provide evidence of any such action so taken to the holder of this Warrant prior to such date; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (a) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(f), (b) subject itself to general taxation in any such jurisdiction or (c) file a general consent to service of process in any such jurisdiction. 4. Antidilution Provisions. During the Exercise Period, the Exercise Price and the number of Warrant Shares issuable hereunder shall be subject to adjustment from time to time as provided in this Section 4. In the event that any adjustment of the Exercise Price as required herein results in a fraction of a cent, such Exercise Price shall be rounded up or down to the nearest cent. (a) [Intentionally Omitted] (b) [Intentionally Omitted] 4 (c) Subdivision or Combination of Common Stock. If the Company, at any time during the Exercise Period, subdivides (by any stock split, stock dividend, recapitalization, reorganization, reclassification or otherwise) its shares of Common Stock into a greater number of shares, then, after the date of record for effecting such subdivision, the Exercise Price in effect immediately prior to such subdivision will be proportionately reduced. If the Company, at any time during the Exercise Period, combines (by reverse stock split, recapitalization, reorganization, reclassification or otherwise) its shares of Common Stock into a smaller number of shares, then, after the date of record for effecting such combination, the Exercise Price in effect immediately prior to such combination will be proportionately increased. (d) Adjustment in Number of Shares. Upon each adjustment of the Exercise Price pursuant to the provisions of this Section 4, the number of shares of Common Stock issuable upon exercise of this Warrant at each such Exercise Price shall be adjusted by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of shares of Common Stock issuable upon exercise of this Warrant at such Exercise Price immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. (e) Consolidation, Merger or Sale. In case of (i) any consolidation of the Company with, or merger of the Company into, any other entity, (ii) any sale or conveyance of all or substantially all of the assets of the Company other than in connection with a plan of complete liquidation of the Company or (iii) any share exchange pursuant to which all of the outstanding shares of Common Stock are converted into other securities or property (each of (i) - (iii) above being a "CORPORATE CHANGE") at any time during the Exercise Period, then as a condition of such Corporate Change, adequate provision will be made whereby the holder hereof will have the right to acquire and receive upon exercise of this Warrant in lieu of the shares of Common Stock immediately theretofore acquirable upon the exercise of this Warrant, such shares of stock, securities, cash or assets as may be issued or payable with respect to or in exchange for the number of shares of Common Stock immediately theretofore acquirable and receivable upon exercise of this Warrant had such Corporate Change not taken place. In any such case, the Company will make appropriate provision to insure that the provisions of this Section 4 hereof will thereafter be applicable as nearly as may be in relation to any shares of stock or securities thereafter deliverable upon the exercise of this Warrant. The Company will not effect any Corporate Change unless prior to the consummation thereof, the successor corporation (if other than the Company) assumes by written instrument the obligations under this Warrant and the obligations to deliver to the holder hereof such shares of stock, securities or assets as, in accordance with the foregoing provisions, the holder may be entitled to acquire. Notwithstanding the foregoing, in the event of any Corporate Change at any time during the Exercise Period, the holder hereof shall, at its option, have the right to receive, in connection with such transaction, cash consideration equal to the fair market value of this Warrant as determined in accordance with customary valuation methodology used in the investment banking industry. (f) Distribution of Assets. In case the Company shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a partial liquidating dividend, stock repurchase by way of return of capital or otherwise (including any dividend or distribution to the Company's stockholders of cash or shares (or rights to acquire shares) of capital stock of a subsidiary) (a "DISTRIBUTION"), at any time during the Exercise Period, then the 5 holder hereof shall be entitled upon exercise of this Warrant for the purchase of any or all of the shares of Common Stock subject hereto, to receive the amount of such assets (or rights) which would have been payable to the holder had such holder been the holder of such shares of Common Stock on the record date for the determination of stockholders entitled to such Distribution. If the Company distributes rights, warrants, options or any other form of convertible securities and the right to exercise or convert such securities would expire in accordance with their terms prior to the expiration of the Exercise Period, then the terms of such securities shall provide that such exercise or convertibility right shall remain in effect until 30 days after the date the holder hereof receives such securities pursuant to the exercise hereof. (g) Notice of Adjustment. Upon the occurrence of any event which requires any adjustment of the Exercise Price, then, and in each such case, the Company shall give notice thereof to the holder hereof, which notice shall state the Exercise Price resulting from such adjustment and the increase or decrease in the number of Warrant Shares purchasable at such price upon exercise, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Such calculation shall be certified by the chief financial officer of the Company. (h) Minimum Adjustment of Exercise Price. No adjustment of the Exercise Price shall be made in an amount of less than $.01, but any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which, together with any adjustments so carried forward, shall amount to not less than $.01. (i) No Fractional Shares. No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but the Company shall pay a cash adjustment in respect of any fractional share which would otherwise be issuable in an amount equal to the same fraction of the Market Price of a share of Common Stock on the date of such exercise. (j) Other Notices. In case at any time: (i) the Company shall declare any dividend upon the Common Stock payable in shares of stock of any class or make any other distribution (other than dividends or distributions payable in cash out of retained earnings consistent with the Company's past practices with respect to declaring dividends and making distributions) to the holders of the Common Stock; (ii) the Company shall offer for subscription pro rata to the holders of the Common Stock any additional shares of stock of any class or other rights; (iii) there shall be any capital reorganization of the Company, or reclassification of the Common Stock, or consolidation or merger of the Company with or into, or sale of all or substantially all of its assets to, another corporation or entity; or (iv) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; then, in each such case, the Company shall give to the holder of this Warrant (a) notice of the date or estimated date on which the books of the Company shall close or a record shall be taken for determining the holders of Common Stock entitled to receive any such dividend, distribution, or 6 subscription rights or for determining the holders of Common Stock entitled to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, notice of the date (or, if not then known, a reasonable estimate thereof by the Company) when the same shall take place. Such notice shall also specify the date on which the holders of Common Stock shall be entitled to receive such dividend, distribution, or subscription rights or to exchange their Common Stock for stock or other securities or property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, or winding-up, as the case may be. Such notice shall be given at least fifteen (15) days prior to the record date or the date on which the Company's books are closed in respect thereto. Failure to give any such notice or any defect therein shall not affect the validity of the proceedings referred to in clauses (i), (ii), (iii) and (iv) above. Notwithstanding the foregoing, the Company shall publicly disclose the substance of any notice delivered hereunder prior to delivery of such notice to the holder hereof. (k) Certain Events. If, at any time during the Exercise Period, any event occurs of the type contemplated by the adjustment provisions of this Section 4 but not expressly provided for by such provisions, the Company will give notice of such event as provided in Section 4(g) hereof, and an appropriate adjustment in the Exercise Price and the number of shares of Common Stock acquirable upon exercise of this Warrant at each such Exercise Price shall be made so that the rights of the holder shall be neither enhanced nor diminished by such event. (l) Certain Definitions. (i) "MARKET PRICE," as of any date, (i) means the average of the closing sales prices for the shares of Common Stock on the Nasdaq National Market or other trading market where such security is listed or traded as reported by Bloomberg Financial Markets (or a comparable reporting service of national reputation selected by the Company and reasonably acceptable to the holders if Bloomberg Financial Markets is not then reporting sales prices of such security)(collectively, "BLOOMBERG") for the ten (10) consecutive trading days immediately preceding such date, or (ii) if the Nasdaq National Market is not the principal trading market for the shares of Common Stock, the average of the reported sales prices reported by Bloomberg on the principal trading market for the Common Stock during the same period, or, if there is no sales price for such period, the last sales price reported by Bloomberg for such period, or (iii) if the foregoing do not apply, the last sales price of such security in the over-the-counter market on the pink sheets or bulletin board for such security as reported by Bloomberg, or if no sales price is so reported for such security, the last bid price of such security as reported by Bloomberg, or (iv) if market value cannot be calculated as of such date on any of the foregoing bases, the Market Price shall be the average fair market value as reasonably determined by an investment banking firm selected by the Company and reasonably acceptable to the holder, with the costs of the appraisal to be borne by the Company. The manner of determining the Market Price of the Common Stock set forth in the foregoing definition shall apply with respect to any other security in respect of which a determination as to market value must be made hereunder. (ii) "COMMON STOCK," for purposes of this Section 4, includes the Common Stock and any additional class of stock of the Company having no preference as to 7 dividends or distributions on liquidation, provided that the shares purchasable pursuant to this Warrant shall include only Common Stock in respect of which this Warrant is exercisable, or shares resulting from any subdivision or combination of such Common Stock, or in the case of any reorganization, reclassification, consolidation, merger, or sale of the character referred to in Section 4(e) hereof, the stock or other securities or property provided for in such Section. 5. Issue Tax. The issuance of certificates for Warrant Shares upon the exercise of this Warrant shall be made without charge to the holder of this Warrant or such shares for any issuance tax or other costs in respect thereof, provided that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than the holder of this Warrant. 6. No Rights or Liabilities as a Stockholder. This Warrant shall not entitle the holder hereof to any voting rights or other rights as a stockholder of the Company. No provision of this Warrant, in the absence of affirmative action by the holder hereof to purchase Warrant Shares, and no mere enumeration herein of the rights or privileges of the holder hereof, shall give rise to any liability of such holder for the Exercise Price or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 7. Transfer, Exchange and Replacement of Warrant. (a) Restriction on Transfer. This Warrant and the rights granted to the holder hereof are transferable, in whole or in part, upon surrender of this Warrant, together with a properly executed assignment in the form attached hereto, at the office or agency of the Company referred to in Section 7(e) below, provided, however, that any transfer or assignment shall be subject to the conditions set forth in Sections 7(f) and (g) hereof and to the provisions of Sections 2(f) and 2(g) of the Securities Purchase Agreement. Until due presentment for registration of transfer on the books of the Company, the Company may treat the registered holder hereof as the owner and holder hereof for all purposes, and the Company shall not be affected by any notice to the contrary. Notwithstanding anything to the contrary contained herein, the registration rights described in Section 8 hereof are assignable only in accordance with the provisions of the Registration Rights Agreement. (b) Warrant Exchangeable for Different Denominations. This Warrant is exchangeable, upon the surrender hereof by the holder hereof at the office or agency of the Company referred to in Section 7(e) below, for new warrants of like tenor of different denominations representing in the aggregate the right to purchase the number of shares of Common Stock which may be purchased hereunder, each of such new warrants to represent the right to purchase such number of shares (at the Exercise Price therefor) as shall be designated by the holder hereof at the time of such surrender, and all such warrants thereafter constituting the Warrant referenced herein. (c) Replacement of Warrant. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant and, in the case of any such loss, theft, or destruction, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company, or, in the case of any such mutilation, upon surrender and cancellation 8 of this Warrant, the Company, at its expense, will execute and deliver, in lieu thereof, a new Warrant of like tenor. (d) Cancellation; Payment of Expenses. Upon the surrender of this Warrant in connection with any transfer, exchange, or replacement as provided in this Section 7, this Warrant shall be promptly canceled by the Company. The Company shall pay all taxes (other than securities transfer taxes) and all other expenses (other than legal expenses, if any, incurred by the Holder or transferees) and charges payable in connection with the preparation, execution, and delivery of any Warrant pursuant to this Section 7. (e) Warrant Register. The Company shall maintain, at its principal executive offices (or such other office or agency of the Company as it may designate by notice to the holder hereof), a register for this Warrant, in which the Company shall record the name and address of the person in whose name this Warrant has been issued, as well as the name and address of each transferee and each prior owner of this Warrant. (f) Exercise or Transfer Without Registration. If, at the time of the surrender of this Warrant in connection with any exercise, transfer, or exchange of this Warrant, this Warrant (or, in the case of any exercise, the Warrant Shares issuable hereunder), shall not be registered under the Securities Act and under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such exercise, transfer, or exchange, (i) that the holder or transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that such exercise, transfer, or exchange may be made without registration under the Securities Act and under applicable state securities or blue sky laws (the cost of which shall be borne by the Company if the Company's counsel renders such an opinion and up to $500 of such cost shall be borne by the Company if the holder's counsel is requested to render such opinion), (ii) that the holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company and (iii) that the transferee be an "ACCREDITED INVESTOR" as defined in Rule 501(a) promulgated under the Securities Act; provided that no such opinion, letter, or status as an "accredited investor" shall be required in connection with a transfer pursuant to Rule 144 under the Securities Act. (g) Additional Restrictions on Exercise or Transfer. In no event shall the holder hereof have the right to exercise any portion of this Warrant for shares of Common Stock or to dispose of any portion of this Warrant to the extent that such right to effect such exercise or disposition would result in the holder or any of its affiliates together beneficially owning more than (i) 19.99% of the outstanding shares of Common Stock, in the case of Biotech Target N.V. and its affiliates for so long as they continue to hold Warrants, or (b) 4.99% of the outstanding shares of Common Stock, in the case of all other holders of Warrants. For purposes of this Section 7(g), beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder. The restriction contained in this Section 7(g) may not be altered, amended, deleted or changed in any manner whatsoever unless the holders of a majority of the outstanding shares of Common Stock and the holder hereof shall approve, in writing, such alteration, amendment, deletion or change. 9 8. Registration Rights. The initial holder of this Warrant (and certain assignees thereof) is entitled to the benefit of such registration rights in respect of the Warrant Shares as are set forth in the Registration Rights Agreement, including the right to assign such rights to certain assignees, as set forth therein. 9. Notices. Any notices required or permitted to be given under the terms of this Warrant shall be sent by certified or registered mail (return receipt requested) or delivered personally or by courier or by confirmed telecopy, and shall be effective five days after being placed in the mail, if mailed, or upon receipt or refusal of receipt, if delivered personally or by courier, or by confirmed telecopy, in each case addressed to a party. The addresses for such communications shall be: If to the Company: ViroLogic, Inc. 270 East Grand Avenue South San Francisco, California 94080 Telephone: (650) 635-1100 Attn: Chief Executive Officer with a copy simultaneously transmitted by like means to: Cooley Godward LLP 4401 Eastgate Mall San Diego, California 92121 Telephone: (858) 550-6000 If to the holder, at such address as such holder shall have provided in writing to the Company, or at such other address as such holder furnishes by notice given in accordance with this Section 9. 10. Governing Law; Jurisdiction. This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware. The Company irrevocably consents to the jurisdiction of the United States federal courts and state courts located in the State of Delaware in any suit or proceeding based on or arising under this Warrant and irrevocably agrees that all claims in respect of such suit or proceeding may be determined in such courts. The Company irrevocably waives any objection to the laying of venue and the defense of an inconvenient forum to the maintenance of such suit or proceeding. The Company further agrees that service of process upon the Company mailed by certified or registered mail shall be deemed in every respect effective service of process upon the Company in any such suit or proceeding. Nothing herein shall affect the holder's right to serve process in any other manner permitted by law. The Company agrees that a final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner. 10 11. Miscellaneous. (a) Amendments. Except as provided in Section 7(g) hereof, this Warrant and any provision hereof may only be amended by an instrument in writing signed by the Company and the holder hereof. (b) Descriptive Headings. The descriptive headings of the several Sections of this Warrant are inserted for purposes of reference only, and shall not affect the meaning or construction of any of the provisions hereof. (c) Cashless Exercise. This Warrant may be exercised at any time after the first anniversary of the Issue Date and before the expiration of the Exercise Period by presentation and surrender of this Warrant to the Company at its principal executive offices with a written notice of the holder's intention to effect a cashless exercise, including a calculation of the number of shares of Common Stock to be issued upon such exercise in accordance with the terms hereof (a "CASHLESS EXERCISE"). In the event of a Cashless Exercise, in lieu of paying the Exercise Price in cash, the holder shall surrender this Warrant for that number of shares of Common Stock determined by multiplying the number of Warrant Shares to which it would otherwise be entitled by a fraction, the numerator of which shall be the difference between the then current Market Price of a share of the Common Stock on the date of exercise and the Exercise Price, and the denominator of which shall be the then current Market Price per share of Common Stock. (d) Trading Day. For purposes of this Warrant, the term "trading day" means any day on which the principal United States securities exchange or trading market where the Common Stock is then listed is open for trading. (e) Redemption of Warrant by Company. (i) In the event that the Company consummates a Corporate Change in which the holders of the Company's Common Stock immediately prior to such Corporate Change hold fifty percent (50%) or less of the outstanding voting power of the entity surviving such Corporate Change, then the Company may elect, upon delivery of at least twenty (20) days' prior written notice (the "REDEMPTION NOTICE") to the holder hereof, to redeem all or a portion of the Warrant for a redemption amount (the "REDEMPTION AMOUNT") equal to the value of the Warrant derived using the Black-Scholes formula (using Bloomberg), assuming that the volatility of the Company's Common Stock equals 60% and the risk-free interest rate equals 5% per annum. In the event the Company elects to redeem only some of the outstanding Warrants pursuant to this Section 11(e), such Warrants shall be redeemed pro rata among all the holders of the Warrants based upon the percentage of Warrants held by such holders against the total outstanding Warrants. (ii) [Intentionally Omitted] (iii) The Company may not deliver a Redemption Notice pursuant to clause (i) above unless on or prior to the date of delivery of a Redemption Notice, the Company shall have segregated on the books and records of the Company an amount of cash sufficient to pay all amounts to which holders of the Warrants that are being redeemed are entitled pursuant to this Section 11(e). 11 Any Redemption Notice delivered shall be irrevocable and shall be accompanied by a statement executed by a duly authorized officer of the Company. (iv) The Redemption Amount shall be paid to the holder within three (3) business days of the date of redemption set forth in the Redemption Notice pursuant to clause (i) above; provided, however, that the Company shall not be obligated to deliver any portion of the Redemption Amount until either this Warrant is delivered to the Company or the holder notifies the Company that the Warrant has been lost, stolen or destroyed and delivers the documentation in accordance with Section 7(c) hereof. In the event only a portion of this Warrant is being redeemed, the Company shall issue, at its expense, a new Warrant representing the number of shares with respect to which this Warrant shall not then have been redeemed or exercised. (v) Notwithstanding the delivery of a Redemption Notice pursuant to clause (i) above, the holder may exercise all or a portion of this Warrant subject to such Redemption Notice by the delivery prior to the date of redemption set forth in such notice of an Exercise Agreement pursuant to the procedures set forth in Section 1. (f) Indemnification by Company. (i) The Company shall hold harmless and indemnify the holder of this Warrant from and against, and shall compensate and reimburse such holder for, any damages which are directly or indirectly suffered or incurred by such holder or to which such holder may otherwise become subject (regardless of whether or not such damages relate to any third-party claim) and which arise from or as a result of, or are directly or indirectly connected with any breach of any of the Company's covenants set forth herein. (ii) In the event of the assertion or commencement by any person of any claim or legal proceeding with respect to which the holder may have indemnification rights pursuant to this Section 11(f)(i), the holder shall promptly notify the Company thereof in writing, but the failure to so notify the Company will not limit the holder's rights to indemnification hereunder, except to the extent the Company demonstrates that the defense of such action is prejudiced by the failure to so give such notice. 12 IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer. VIROLOGIC, INC. By: ------------------------------------ Name: ------------------------------- Title: ------------------------------ 13 FORM OF EXERCISE AGREEMENT (TO BE EXECUTED BY THE HOLDER IN ORDER TO EXERCISE THE WARRANT) To: ViroLogic,Inc. 270 East Grand Avenue South San Francisco, California 94080 Telephone: (650) 635-1100 Attn: Chief Executive Officer The undersigned hereby irrevocably exercises the right to purchase _____________ shares of the Common Stock of ViroLogic, Inc., a corporation organized under the laws of the State of Delaware (the "COMPANY"), evidenced by the attached Warrant, and herewith [makes payment of the Exercise Price with respect to such shares in full][elects to effect a Cashless Exercise (as defined in Section 11(c) of such Warrant)], all in accordance with the conditions and provisions of said Warrant. The undersigned agrees not to offer, sell, transfer or otherwise dispose of any Common Stock obtained on exercise of the Warrant, except under circumstances that will not result in a violation of the Securities Act of 1933, as amended, or any state securities laws. The undersigned represents that it is an "accredited investor" as that term is defined in Rule 501(a) of Regulation D under the Securities Act of 1933, as amended. [ ] The undersigned requests that the Company cause its transfer agent to electronically transmit the Common Stock issuable pursuant to this Exercise Agreement to the account of the undersigned or its nominee (which is _________________) with DTC through its Deposit Withdrawal Agent Commission System ("DTC TRANSFER"), provided that such transfer agent participates in the DTC Fast Automated Securities Transfer program. [ ] In lieu of receiving the shares of Common Stock issuable pursuant to this Exercise Agreement by way of DTC Transfer, the undersigned hereby requests that the Company cause its transfer agent to issue and deliver to the undersigned physical certificates representing such shares of Common Stock. The undersigned requests that a Warrant representing any unexercised portion hereof be issued, pursuant to the Warrant, in the name of the Holder and delivered to the undersigned at the address set forth below: Dated: ----------------- ---------------------------------------- Signature of Holder ---------------------------------------- Name of Holder (Print) Address: ---------------------------------------- ---------------------------------------- ---------------------------------------- 14 FORM OF ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers all the rights of the undersigned under the within Warrant, with respect to the number of shares of Common Stock covered thereby set forth hereinbelow, to: Name of Assignee Address No. of Shares - ---------------- ------- ------------- , and hereby irrevocably constitutes and appoints _____________________________________ as agent and attorney-in-fact to transfer said Warrant on the books of the within-named corporation, with full power of substitution in the premises. Dated: , --------------------- ---- In the presence of - ------------------ Name: --------------------------------------- Signature: ---------------------------- Title of Signing Officer or Agent (if any): ---------------------------- Address: ---------------------------- ---------------------------- Note: The above signature should correspond exactly with the name on the face of the within Warrant. 15 EX-4.2 4 a86207exv4w2.txt EXHIBIT 4.2 EXHIBIT 4.2 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR IN ANY OTHER JURISDICTION. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. SERIES C CONVERTIBLE SECURED PROMISSORY NOTE Date: November 19, 2002 $_________ FOR VALUE RECEIVED, VIROLOGIC, INC., a corporation organized under the laws of the State of Delaware (hereinafter called the "BORROWER" or the "CORPORATION"), hereby promises to pay to the order of ____________________, a ____________________, or registered assigns (individually, the "HOLDER", and collectively with the holders of all other notes of same like and tenor, the "HOLDERS"), the sum of _______________________($_________) on March 19, 2003 (the "SCHEDULED MATURITY DATE"), and to pay interest on the unpaid principal balance hereof at the rate of eight percent (8%) per annum. The principal amount hereof, together with all accrued and unpaid interest thereon, shall be due and payable on the Scheduled Maturity Date. Interest shall accrue on the unpaid principal balance hereof from the date hereof (the "ISSUE DATE") until the same becomes due and payable, whether at maturity, or upon prepayment, repayment, or otherwise. Interest shall be calculated based on a 365 day year and shall be payable in arrears. All payments of principal (to the extent not converted in accordance with the terms hereof) and interest shall be made in, and all references herein to monetary denominations shall refer to, lawful money of the United States of America. All payments shall be made at such address as the Holder shall have given or shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. The term "NOTE" and all references thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented. This Note is being issued by the Borrower along with similar convertible notes designated as Series C Convertible Secured Promissory Notes (the "OTHER NOTES" and, together with this Note, the "NOTES") pursuant to that certain Exchange Agreement, dated as of the date hereof, between the Borrower and the signatories thereto (the "EXCHANGE AGREEMENT"). The obligations under the Notes are secured as provided in a Security Agreement, dated as of the date hereof, by the Borrower in favor of SDS Merchant Fund, L.P., as collateral agent for the benefit of the Holders of the Notes (the "SECURITY AGREEMENT") and in the Intellectual Property Security Agreement, dated as of the date hereof, by the Borrower in favor of SDS Merchant Fund, L.P., as collateral agent for the benefit of the Holders of the Notes (the "IP SECURITY AGREEMENT"). The Notes, the Exchange Agreement, the Security Agreement, the IP Security Agreement and the Registration Rights Agreement, dated as of the date hereof, between the Corporation and the parties thereto (the "REGISTRATION RIGHTS AGREEMENT") are collectively referred to herein as the "TRANSACTION DOCUMENTS." ARTICLE I PREPAYMENT A. Mandatory Prepayment. Upon the occurrence of an Event of Default (as defined below), this Note shall be prepaid by the Borrower in accordance with the provisions of Article V hereof. B. Prepayment at Borrower's Option. This Note may not be prepaid at the option of Borrower without the prior written consent of the Holder. ARTICLE II CERTAIN DEFINITIONS The following terms shall have the following meanings: A. "CONVERSION AMOUNT" means the outstanding principal amount of this Note (but none of the accrued and unpaid interest thereon) on the Conversion Date. B. "CONVERSION DATE" means the date of the Automatic Conversion Trigger Event. C. "CONVERSION SHARES" means the shares of Series C Preferred Stock issuable upon conversion of this Note. D. "CONVERSION PRICE" means $10,000 per share of Series C Preferred Stock, subject to adjustment as set forth herein. E. "EXCESS INTEREST PAYMENT AMOUNT" means an amount equal to the amount by which the Interest Payment Amount exceeds the Premium Payment Amount. F. "INTEREST PAYMENT AMOUNT" an amount equal to the amount of all accrued and unpaid interest due on the principal amount of this Note on the Conversion Date. G. "PREMIUM PAYMENT AMOUNT" means an amount equal to the amount of all accrued and unpaid Premium (as such term is defined in the Series C Certificate of Designations) due on the Conversion Shares on the Conversion Date. - 2 - H. "SERIES C CERTIFICATE OF DESIGNATIONS" means the Corporation's Certificate of Designation, Preferences and Rights of Series C Preferred Stock, as in effect from time to time. I. "SERIES C PREFERRED STOCK" means shares of the Corporation's Series C Convertible Preferred Stock, par value $.001 per share. ARTICLE III CONVERSION A. Mandatory Conversion. If each of the Authorized Stock Approval (as such term is defined in the Exchange Agreement) and the NASD Rule Approval (as such term is defined in the Exchange Agreement) is obtained on or prior to the Scheduled Maturity Date (the "AUTOMATIC CONVERSION TRIGGER EVENT"), then (i) the principal amount of each of the Notes (but none of the accrued and unpaid interest due thereon), shall be automatically converted into a number of fully paid and nonassessable shares of Series C Preferred Stock (determined in accordance with the formula set forth in Article III.B) and (ii) (A) the Excess Interest Payment Amount shall immediately become due and payable and (B) all other accrued and unpaid interest due on the principal amount of each of the Notes shall be forgiven. The Corporation shall provide immediate written notice to each Holder of an Automatic Conversion Trigger Event and the Corporation and the Holders shall follow the applicable conversion procedures set forth in Article III.C. B. Conversion Formula. The number of shares of Series C Preferred Stock issuable upon payment of the Conversion Price shall be determined in accordance with the following formula: CONVERSION AMOUNT CONVERSION PRICE C. Mechanics of Conversion. Upon receipt by the Holder of written notice of an Automatic Conversion Trigger Event, the Holder shall surrender or cause to be surrendered this Note, duly endorsed, as soon as practicable thereafter to the Corporation or the transfer agent. Upon receipt by the Corporation of a facsimile copy of this Note from the Holder, the Corporation shall immediately send, via facsimile, a confirmation to the Holder stating that this Note has been received, the date upon which the Corporation expects to deliver the Series C Preferred Stock issuable upon such conversion and the name and telephone number of a contact person at the Corporation regarding the conversion. The Corporation shall not be obligated to issue shares of Series C Preferred Stock upon a conversion unless either this Note is delivered to the Corporation or the transfer agent as provided above, or the Holder notifies the Corporation or the transfer agent that such certificates have been lost, stolen or destroyed and delivers the documentation to the Corporation required by Article IX.H hereof. (i) Delivery of Series C Preferred Stock Upon Conversion. Upon the surrender of this Note pursuant to Paragraph C above, the Corporation shall, no later than the - 3 - later of (a) the second business day following the Conversion Date and (b) the business day following the date of such surrender (or, in the case of lost, stolen or destroyed certificates, after provision of indemnity pursuant to Article IX.H), issue and deliver to the Holder or its nominee the number of shares of Series C Preferred Stock issuable upon conversion of the Note. The Corporation shall deliver to the Holder physical certificates representing the Series C Preferred Stock issuable upon conversion. (ii) Taxes. The Corporation shall pay any and all taxes which may be imposed upon it with respect to the issuance and delivery of the shares of Series C Preferred Stock upon the conversion of this Note. (iii) Fractional Shares. If any conversion of this Note would result in the issuance of a fractional share of Series C Preferred Stock, the Corporation shall issue such fractional share upon such conversion. ARTICLE IV RESERVATION OF SHARES OF SERIES C PREFERRED STOCK A. Reserved Amount. On the Issue Date, the Corporation shall reserve 1205 shares of the authorized but unissued shares of Series C Preferred Stock for issuance upon conversion of each of the Notes pursuant to Article III.A thereof and thereafter the number of authorized but unissued shares of Series C Preferred Stock so reserved shall not be decreased and shall at all times be sufficient to provide for the conversion of each of the Notes pursuant to Article III.A thereof at the then current Conversion Price thereof. ARTICLE V EVENTS OF DEFAULT A. Events of Default. In the event (each of the events described in clauses (i)-(vii) below after expiration of the applicable cure period (if any) being an "EVENT OF DEFAULT"): (i) the Corporation fails to pay the principal hereof, and/or the accrued and unpaid interest thereon, when due, whether at maturity, upon acceleration or otherwise; (ii) except with respect to matters covered by subparagraph (i) above, as to which such subparagraph shall apply, the Corporation otherwise shall breach any material term hereunder or under the other Transaction Documents, including, without limitation, the representations and warranties contained therein (i.e., in the event of a material breach as of the date such representation and warranty was made) and if such breach is curable, shall fail to cure such breach within 10 business days after the Corporation has been notified thereof in writing by the Holder; (iii) the Corporation shall: - 4 - (a) sell, convey or dispose of all or substantially all of its assets (the presentation of any such transaction for stockholder approval being conclusive evidence that such transaction involves the sale of all or substantially all of the assets of the Corporation); (b) merge, consolidate or engage in any other business combination with any other entity (other than pursuant to a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Corporation and other than pursuant to a merger in which the Corporation is the surviving or continuing entity and its capital stock is unchanged) provided that such merger, consolidation or business combination is required to be reported by the Corporation on a Current Report pursuant to Item 1 of Form 8-K, or any successor form; (c) either (i) fail to pay, when due, or within any applicable grace period, any payment with respect to any indebtedness of the Corporation in excess of $350,000 due to any third party, other than payments contested by the Corporation in good faith, or otherwise breach or violate any agreement for monies owed or owing in an amount in excess of $350,000 which breach or violation permits the other party thereto to declare a default or otherwise accelerate amounts due thereunder, or (ii) suffer to exist any other default or event of default under any agreement binding the Corporation which default or event of default would or is likely to have a material adverse effect on the business, operations, properties, prospects or financial condition of the Corporation; (d) on or prior to the second anniversary of the Issue Date, issue or agree to issue any future equity or equity-linked securities or debt which is convertible into equity or in which there is an equity component, except for any Excluded Issuance (as such term is defined in the Series C Certificate of Designations); (iv) the Corporation or any subsidiary of the Corporation shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business; or such a receiver or trustee shall otherwise be appointed; (v) bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Corporation or any subsidiary of the Corporation, and if instituted against the Corporation or any subsidiary of the Corporation by a third party, shall not be dismissed within 60 days of their initiation, or (vi) a Redemption Event (as such term is defined in the Series C Certificate of Designations) shall occur and be continuing under the Series C Certificate of Designations, (vii) an Event of Default (as such term is defined in the applicable Transaction Document) shall occur and be continuing under any other Transaction Document, then, upon the occurrence of any such Event of Default, at the option of each Holder, exercisable in whole or in part at any time and from time to time by delivery of a Default Notice (as defined in Paragraph C below) to the Corporation while such Event of Default continues, the Corporation - 5 - shall pay the Holders (and upon the occurrence of an Event of Default specified in subparagraphs (iv) and (v) of this Paragraph A, the Corporation shall be required to pay the Holders), in satisfaction of its obligation to pay the outstanding principal amount of the Notes and accrued and unpaid interest thereon, an amount equal to the Default Amount (as defined in Paragraph B below) and such Default Amount, together with all other ancillary amounts payable hereunder, shall immediately become due and payable, all without demand, presentment or notice, all of which are hereby expressly waived, together with all costs, including, without limitation, legal fees and expenses of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity. For the avoidance of doubt, the occurrence of any event described in clauses (i), (iii), (iv), (v), (vi) and (vii) above shall immediately constitute an Event of Default and there shall be no cure period. Upon the Corporation's receipt of any Default Notice hereunder, the Corporation shall immediately (and in any event within one business day following such receipt) deliver a written notice (a "DEFAULT ANNOUNCEMENT") to all Holders of the Notes stating the date upon which the Corporation received such Default Notice and the amount of the Notes covered thereby. Following the delivery of a Default Announcement hereunder, at any time and from time to time, each Holder of the Notes may request (either orally or in writing) information from the Corporation with respect to the instant default (including, but not limited to, the aggregate principal amount outstanding of Notes covered by Default Notices received by the Corporation) and the Corporation shall furnish (either orally or in writing) as soon as practicable such requested information to such requesting Holder. B. Definition of Default Amount. The "DEFAULT AMOUNT" with respect to a Note means an amount equal to the aggregate principal amount outstanding of the Notes being paid plus all accrued and unpaid interest thereon through the payment date. C. Failure to Pay Default Amounts. If the Corporation fails to pay any Holder the Default Amount with respect to any Note within five business days after its receipt of a notice requiring such repayment (a "DEFAULT NOTICE"), then the Holder of any Note delivering such Default Notice shall be entitled to interest on the Default Amount at a per annum rate equal to the lower of twenty-four percent (24%) and the highest interest rate permitted by applicable law from the date on which the Corporation receives the Default Notice until the date of payment of the Default Amount hereunder. In the event the Corporation is not able to repay all of the outstanding Notes subject to Default Notices delivered prior to the date upon which such repayment is to be effected, the Corporation shall repay the outstanding Notes from each Holder pro rata, based on the total amounts due on the Notes at the time of repayment included by such Holder in all Default Notices delivered prior to the date upon which such repayment is to be effected relative to the total amounts due under the Notes at the time of repayment included in all of the Default Notices delivered prior to the date upon which such repayment is to be effected. ARTICLE VI ADJUSTMENTS TO THE CONVERSION PRICE The Conversion Price shall be subject to adjustment from time to time as follows: - 6 - A. Stock Splits, Stock Dividends, Etc. If, at any time on or after the Issue Date, the number of outstanding shares of Series C Preferred Stock is increased by a stock split, stock dividend, combination, reclassification or other similar event, the Conversion Price shall be proportionately reduced, or if the number of outstanding shares of Series C Preferred Stock is decreased by a reverse stock split, combination or reclassification of shares, or other similar event, the Conversion Price shall be proportionately increased. In such event, the Corporation shall notify the Corporation's transfer agent of such change on or before the effective date thereof. B. Adjustment Due to Merger, Consolidation, Etc. If, at any time after the Issue Date, there shall be (i) any reclassification or change of the outstanding shares of Series C Preferred Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), (ii) any consolidation or merger of the Corporation with any other entity (other than a merger in which the Corporation is the surviving or continuing entity and its capital stock is unchanged), (iii) any sale or transfer of all or substantially all of the assets of the Corporation or (iv) any share exchange pursuant to which all of the outstanding shares of Series C Preferred Stock are converted into other securities or property (each of (i) - (iv) above being a "CORPORATE CHANGE"), then appropriate provisions (in form and substance reasonably satisfactory to the Holders of a majority of the principal amount of the Notes then outstanding) shall be made with respect to the rights and interests of the Holders of the Notes to the end that the economic value of the Notes are in no way diminished by such Corporate Change and that the provisions hereof (including, without limitation, in the case of any such consolidation, merger or sale in which the successor entity or purchasing entity is not the Corporation, an immediate adjustment of the Conversion Price so that the Conversion Price immediately after the Corporate Change reflects the same relative value as compared to the value of the surviving entity's common stock that existed between the Conversion Price and the value of the Corporation's common stock immediately prior to such Corporate Change) shall thereafter be applicable, as nearly as may be practicable in relation to any shares of stock or securities thereafter deliverable upon the conversion thereof. The Corporation shall not effect any Corporate Change unless (i) each Holder of the Notes has received written notice of such transaction at least 45 days prior thereto, but in no event later than 15 days prior to the record date for the determination of shareholders entitled to vote with respect thereto, (ii) the resulting successor or acquiring entity (if not the Corporation) assumes by written instrument (in form and substance reasonably satisfactory to the Holders of a majority of the principal amount of the Notes then outstanding) the obligations of the Notes and (iii) the Corporation shall have received the prior written consent of the Holders of a majority of the principal amount of the Notes then outstanding. The above provisions shall apply regardless of whether or not there would have been a sufficient number of shares of Series C Preferred Stock authorized and available for issuance upon conversion of the Notes outstanding as of the date of such transaction, and shall similarly apply to successive reclassifications, consolidations, mergers, sales, transfers or share exchanges. C. Adjustment Due to Distribution. If, at any time after the Issue Date, the Corporation shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Series C Preferred Stock as a partial liquidating dividend, by way of return of capital or otherwise (including any dividend or distribution to the Corporation's shareholders in cash or - 7 - shares (or rights to acquire shares) of capital stock of a subsidiary (i.e. a spin-off)) (a "DISTRIBUTION"), then the Holders of the Notes shall be entitled, upon any conversion of the Notes after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Series C Preferred Stock issuable upon such conversion had such Holder been the holder of such shares of Series C Preferred Stock on the record date for the determination of shareholders entitled to such Distribution. D. Purchase Rights. If, at any time after the Issue Date, the Corporation issues any warrants, rights or options, whether or not immediately exercisable, to subscribe for or to purchase Series C Preferred Stock or securities exercisable, convertible into or exchangeable for Series C Preferred Stock or rights to purchase stock, warrants, securities or other property (the "PURCHASE RIGHTS") pro rata to the record holders of Series C Preferred Stock, then the Holders of the Notes will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Series C Preferred Stock acquirable upon complete conversion of the Notes immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Series C Preferred Stock are to be determined for the grant, issue or sale of such Purchase Rights. E. Notice of Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Article VI amounting to a more than 5% change in such Conversion Price, the Corporation, at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to each Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any Holder of the Notes, furnish to such Holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Series C Preferred Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of any Note. F. Other Action Affecting Conversion Price. If the Corporation takes any action affecting the Series C Preferred Stock after the date hereof that would be covered by Article VI.A through D, but for the manner in which such action is taken or structured, which would in any way diminish the value of the Notes, then the Conversion Price shall be adjusted in such manner as the Board of Directors of the Corporation shall in good faith determine to be equitable under the circumstances. ARTICLE VII CONSENT RIGHTS A. So long as any Notes are outstanding, except as otherwise expressly provided in the Exchange Agreement, the Corporation shall not, in each case without first obtaining the - 8 - written consent of the Holders of a majority of the then outstanding principal amount of the Notes: (i)(a) redeem, or declare or pay any dividends (whether in cash or stock), or otherwise make any distributions with respect to any class or series of capital stock of the Corporation, except for dividends and distributions payable solely in the capital stock of the Corporation, or (b) prepay any outstanding indebtedness of the Corporation, or (ii) create or sell any securities that rank senior to or pari passu with the Notes. ARTICLE VIII MISCELLANEOUS A. Failure or Indulgency Not Waiver. No failure or delay on the part of any Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. B. Notices. Any notices required or permitted to be given under the terms of this Note shall be sent by certified or registered mail (return receipt requested) or delivered personally or by courier or by confirmed telecopy, and shall be effective five days after being placed in the mail, if mailed, or upon receipt or refusal of receipt, if delivered personally or by courier or confirmed telecopy, in each case addressed to a party. The addresses for such communications shall be: If to the Corporation: ViroLogic, Inc. 270 East Grand Avenue South San Francisco, California 94080 Telephone: (650) 635-1100 Attn: Chief Executive Officer with a copy simultaneously transmitted by like means to (which transmittal shall not constitute notice hereunder): Cooley Godward LLP 4401 Eastgate Mall San Diego, California 92121 Telephone: (858) 550-6000 If to the Holder, to the address set forth under such Holder's name on the signature page to the Exchange Agreement executed by such Holder. Each party shall provide notice to the other parties of any change in address or the address of any transferee of the Note. - 9 - C. Amendment Provision. This Note and any provision hereof may be amended only by an instrument in writing signed by the Corporation and the Holders of a majority of the then outstanding principal amount of the Notes. D. Assignability. This Note shall be binding upon the Corporation and its successors and assigns and shall inure to the benefit of the Holder and its successors and assigns. Notwithstanding anything to the contrary contained in this Note or the Transaction Documents, this Note may be pledged and all rights of the Holder under this Note may be assigned to any affiliate or to any other person or entity without the consent of the Corporation. E. Cost of Collection. If an Event of Default occurs hereunder, the Corporation shall pay the Holder hereof costs of collection, including reasonable attorneys' fees. F. Governing Law; Jurisdiction. This Note shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in the State of Delaware. The Corporation irrevocably consents to the jurisdiction of the United States federal courts and the state courts located in the State of Delaware in any suit or proceeding based on or arising under this Note and irrevocably agrees that all claims in respect of such suit or proceeding may be determined in such courts. The Corporation irrevocably waives the defense of an inconvenient forum to the maintenance of such suit or proceeding. The Corporation further agrees that service of process upon the Corporation mailed by first class mail shall be deemed in every respect effective service of process upon the Corporation in any such suit or proceeding. Nothing herein shall affect the right of any Holder to serve process in any other manner permitted by law. The Corporation agrees that a final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner. G. Denominations. At the request of the Holder, upon surrender of this Note, the Corporation shall promptly issue new Notes in the aggregate outstanding principal amount hereof, in the form hereof, in such denominations of at least $25,000 as the Holder shall request. H. Lost or Stolen Notes. Upon receipt by the Corporation of (i) evidence of the loss, theft, destruction or mutilation of any Note and (ii) (y) in the case of loss, theft or destruction, of indemnity (without any bond or other security) reasonably satisfactory to the Corporation, or (z) in the case of mutilation, upon surrender and cancellation of any Note, the Corporation shall execute and deliver a new Note of like tenor and date. I. Payment of Cash; Defaults. Whenever the Corporation is required to make any cash payment to a Holder under the Notes (whether a Default Amount or upon prepayment, repayment or otherwise), such cash payment shall be made in U.S. dollars to the Holder within five business days after delivery by such Holder of a notice specifying that the Holder elects to receive such payment in cash and the method (e.g., by check, wire transfer) in which such payment should be made. If such payment is not delivered within such five business day period, such Holder shall thereafter be entitled to interest on the unpaid amount at a per annum rate equal to the lower of twenty-four percent (24%) and the highest interest rate permitted by applicable law until such amount is paid in full to the Holder. - 10 - J. Status as Note Holder. Upon an Automatic Conversion Trigger Event, (i) the principal amount of the Notes (but none of the accrued and unpaid interest thereon) shall be deemed converted into shares of Series C Preferred Stock as of the Conversion Date and (ii) the Holder's rights as a Holder of such Notes shall cease and terminate, excepting only the right (A) to receive certificates for such shares of Series C Preferred Stock, (B) to receive payment of the Excess Interest Payment Amount, and (C) to exercise any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Corporation to comply with the terms of the Notes. K. Remedies Cumulative. The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit a Holder's right to pursue actual damages for any failure by the Corporation to comply with the terms of this Note. The Corporation acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holders of the Notes and that the remedy at law for any such breach may be inadequate. The Corporation therefore agrees, in the event of any such breach or threatened breach, that the Holders of the Notes shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required. L. Business Day. For purposes of this Note, the term "BUSINESS DAY" means any day, other than a Saturday or Sunday or a day on which banking institutions in the State of Delaware are authorized or obligated by law, regulation or executive order to close. If any payment to be made hereunder shall be stated to be or become due on a day which is not a business day, such payment shall be made on the next following business day and such extension of time shall be included in computing interest in connection with such payment. M. Certain Waivers. Borrower and each endorser hereby waive presentment, notice of nonpayment or dishonor, protest, notice of protest and all other notices in connection with the delivery, acceptance, performance, default or enforcement of payment of this Note, and hereby waive all notice or right of approval of any extensions, renewals, modifications or forbearances which may be allowed. N. JURY TRIAL WAIVER. BORROWER HEREBY WAIVES, AND HOLDER BY ITS ACCEPTANCE HEREOF THEREBY WAIVES, TRIAL BY JURY IN ANY LEGAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF OR RELATED TO THIS NOTE OR THE RELATIONSHIP EVIDENCED HEREBY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR HOLDER TO ACCEPT AND RELY UPON THIS NOTE. O. Severability. If any provision of this Note shall be prohibited or invalid, under applicable law, it shall be ineffective only to such extent, without invalidating the remainder of this Note. - 11 - P. Maximum Interest Rate. If the effective interest rate on this Note would otherwise violate any applicable usury law, then the interest rate shall be reduced to the maximum permissible rate and any payment received by the Holder in excess of the maximum permissible rate shall be treated as a prepayment of the principal of this Note. [Remainder of this page intentionally left blank.] - 12 - IN WITNESS WHEREOF, Borrower has caused this Note to be executed by its duly authorized officer as of the date first written above. VIROLOGIC, INC. By: ------------------------------------- Name: Title: [Signature page to Series C Convertible Secured Promissory Note.] - 13 - EX-4.3 5 a86207exv4w3.txt EXHIBIT 4.3 EXHIBIT 4.3 EXHIBIT B TO EXCHANGE AGREEMENT VOID AFTER 5:00 P.M., NEW YORK CITY TIME, ON SEPTEMBER 25, 2006 (UNLESS EXTENDED PURSUANT TO SECTION 2 HEREOF) THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER JURISDICTION. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. Right to Purchase ________ Shares of Common Stock, par value $.001 per share Date: ________, 200_ VIROLOGIC, INC. STOCK PURCHASE WARRANT THIS CERTIFIES THAT, for value received, _______________________, or its registered assigns, is entitled to purchase from ViroLogic, Inc., a corporation organized under the laws of the State of Delaware (the "COMPANY"), at any time or from time to time during the period specified in Section 2 hereof, _____________________________________ fully paid and nonassessable shares of the Company's common stock, par value $.001 per share (the "COMMON STOCK"), at an exercise price per share (the "EXERCISE PRICE") equal to [insert "Exercise Price" of the Series C Warrants in effect on the Approval Date]. The number of shares of Common Stock purchasable hereunder (the "WARRANT SHARES") and the Exercise Price are subject to adjustment as provided in Section 4 hereof. The term "WARRANTS" means this Warrant and the other warrants of the Company issued pursuant to that certain Exchange Agreement, dated as of November 14, 2002, by and among the Company and the other signatories thereto (the "EXCHANGE AGREEMENT"). This Warrant is subject to the following terms, provisions and conditions: 1. Manner of Exercise; Issuance of Certificates; Payment for Shares. Subject to the provisions hereof, including, without limitation, the limitations contained in Section 7 hereof, this Warrant may be exercised by the holder hereof, in whole or in part, by the surrender of this Warrant, together with a completed exercise agreement in the form attached hereto (the "EXERCISE AGREEMENT"), to the Company during normal business hours on any business day at the Company's principal executive offices (or such other office or agency of the Company as it may designate by notice to the holder hereof), and (i) payment to the Company in cash, by certified or official bank check or by wire transfer for the account of the Company, of the Exercise Price for the Warrant Shares specified in the Exercise Agreement or (ii) if the holder is effectuating a Cashless Exercise (as defined in Section 11(c) hereof) pursuant to Section 11(c) hereof, delivery to the Company of a written notice of an election to effect a Cashless Exercise for the Warrant Shares specified in the Exercise Agreement. The Warrant Shares so purchased shall be deemed to be issued to the holder hereof or such holder's designee, as the record owner of such shares, as of the close of business on the date on which this Warrant shall have been surrendered, the completed Exercise Agreement shall have been delivered, and payment shall have been made for such shares as set forth above or, if such date is not a business date, on the next succeeding business date. The Warrant Shares so purchased, representing the aggregate number of shares specified in the Exercise Agreement, shall (by the Company or through its transfer agent) be delivered (i.e., deposited with a nationally-recognized overnight courier service postage prepaid) to the holder hereof within a reasonable time, not exceeding two business days, after this Warrant shall have been so exercised (the "DELIVERY PERIOD"). If the Company's transfer agent is participating in the Depository Trust Company ("DTC") Fast Automated Securities Transfer program, and so long as the certificates therefor do not bear a legend (pursuant to the terms of the Exchange Agreement) and the holder is not obligated to return such certificate for the placement of a legend thereon (pursuant to the terms of the Exchange Agreement), the Company shall cause its transfer agent to electronically transmit the Warrant Shares so purchased to the holder by crediting the account of the holder or its nominee with DTC through its Deposit Withdrawal Agent Commission system ("DTC TRANSFER"). If the aforementioned conditions to a DTC Transfer are not satisfied, the Company shall deliver as provided herein to the holder physical certificates representing the Warrant Shares so purchased. Further, the holder may instruct the Company to deliver to the holder physical certificates representing the Warrant Shares so purchased in lieu of delivering such shares by way of DTC Transfer. Any certificates so delivered shall be in such denominations as may be reasonably requested by the holder hereof, shall be registered in the name of such holder or such other name as shall be designated by such holder and, following the date on which the Warrant Shares have been registered under the Securities Act pursuant to that certain Registration Rights Agreement, dated as of November 14, 2002, by and between the Company and the other signatories thereto (the "REGISTRATION RIGHTS AGREEMENT") or otherwise may be sold by the holder pursuant to Rule 144 promulgated under the Securities Act (or a successor rule), shall not bear any restrictive legend. If this Warrant shall have been exercised only in part, then the Company shall, at its expense, at the time of delivery of such certificates, deliver to the holder a new Warrant representing the number of shares with respect to which this Warrant shall not then have been exercised. 2 If, at any time, a holder of this Warrant submits this Warrant, an Exercise Agreement and payment to the Company of the Exercise Price for each of the Warrant Shares specified in the Exercise Agreement (including pursuant to a Cashless Exercise), and the Company fails for any reason to deliver, on or prior to the fourth business day following the expiration of the Delivery Period for such exercise, the number of shares of Common Stock to which the holder is entitled upon such exercise (an "EXERCISE DEFAULT"), then the Company shall pay to the holder payments ("EXERCISE DEFAULT PAYMENTS") for an Exercise Default in the amount of (a) (N/365), multiplied by (b) the amount by which the Market Price (as defined in Section 4(l) hereof) on the date the Exercise Agreement giving rise to the Exercise Default is transmitted in accordance with this Section 1 (the "EXERCISE DEFAULT DATE") exceeds the Exercise Price in respect of such Warrant Shares, multiplied by (c) the number of shares of Common Stock the Company failed to so deliver in such Exercise Default, multiplied by (d) .24, where N = the number of days from the Exercise Default Date to the date that the Company effects the full exercise of this Warrant which gave rise to the Exercise Default. The accrued Exercise Default Payment for each calendar month shall be paid in cash and shall be made to holder by the fifth day of the month following the month in which it has accrued. Nothing herein shall limit the holder's right to pursue actual damages for the Company's failure to maintain a sufficient number of authorized shares of Common Stock as required pursuant to the terms of Section 3(b) hereof or to otherwise issue shares of Common Stock upon exercise of this Warrant in accordance with the terms hereof, and the holder shall have the right to pursue all remedies available at law or in equity (including a decree of specific performance and/or injunctive relief). 2. Period of Exercise. This Warrant shall be exercisable at any time or from time to time during the period beginning on the date hereof and ending at 5:00 p.m., New York City time, on September 25, 2006 (the "EXERCISE PERIOD"). The Exercise Period shall automatically be extended by one (1) day for each day on which the Company does not have a number of shares of Common Stock reserved for issuance upon exercise hereof at least equal to the number of shares of Common Stock issuable upon exercise hereof. 3. Certain Agreements of the Company. The Company hereby covenants and agrees as follows: (a) Shares to be Fully Paid. All Warrant Shares will, upon issuance in accordance with the terms of this Warrant, be validly issued, fully paid, and nonassessable and free from all taxes, liens, claims and encumbrances. (b) Reservation of Shares. During the Exercise Period, the Company shall at all times have authorized, and reserved for the purpose of issuance upon exercise of this Warrant, a sufficient number of shares of Common Stock to provide for the exercise in full of this Warrant (without giving effect to the limitations on exercise set forth in Section 7(g) hereof). (c) Listing. The Company shall promptly secure the listing of the shares of Common Stock issuable upon exercise of this Warrant upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed or become listed (subject to official notice of issuance upon exercise of this Warrant) and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all shares of Common 3 Stock from time to time issuable upon the exercise of this Warrant; and the Company shall so list on each national securities exchange or automated quotation system, as the case may be, and shall maintain such listing of, any other shares of capital stock of the Company issuable upon the exercise of this Warrant if and so long as any shares of the same class shall be listed on such national securities exchange or automated quotation system. (d) Certain Actions Prohibited. The Company will not, by amendment of its charter or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may reasonably be requested by the holder of this Warrant in order to protect the economic benefit inuring to the holder hereof and the exercise privilege of the holder of this Warrant against dilution or other impairment, consistent with the tenor and purpose of this Warrant. Without limiting the generality of the foregoing, the Company (i) will not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, and (ii) will take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant. (e) Successors and Assigns. This Warrant will be binding upon any entity succeeding to the Company by merger, consolidation, or acquisition of all or substantially all of the Company's assets. (f) Blue Sky Laws. The Company shall, on or before the date of issuance of any Warrant Shares, take such actions as the Company shall reasonably determine are necessary to qualify the Warrant Shares for, or obtain exemption for the Warrant Shares for, sale to the holder of this Warrant upon the exercise hereof under applicable securities or "blue sky" laws of the states of the United States, and shall provide evidence of any such action so taken to the holder of this Warrant prior to such date; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (a) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(f), (b) subject itself to general taxation in any such jurisdiction or (c) file a general consent to service of process in any such jurisdiction. 4. Antidilution Provisions. During the Exercise Period, the Exercise Price and the number of Warrant Shares issuable hereunder shall be subject to adjustment from time to time as provided in this Section 4. In the event that any adjustment of the Exercise Price as required herein results in a fraction of a cent, such Exercise Price shall be rounded up or down to the nearest cent. (a) [Intentionally Omitted] (b) [Intentionally Omitted] 4 (c) Subdivision or Combination of Common Stock. If the Company, at any time during the Exercise Period, subdivides (by any stock split, stock dividend, recapitalization, reorganization, reclassification or otherwise) its shares of Common Stock into a greater number of shares, then, after the date of record for effecting such subdivision, the Exercise Price in effect immediately prior to such subdivision will be proportionately reduced. If the Company, at any time during the Exercise Period, combines (by reverse stock split, recapitalization, reorganization, reclassification or otherwise) its shares of Common Stock into a smaller number of shares, then, after the date of record for effecting such combination, the Exercise Price in effect immediately prior to such combination will be proportionately increased. (d) Adjustment in Number of Shares. Upon each adjustment of the Exercise Price pursuant to the provisions of this Section 4, the number of shares of Common Stock issuable upon exercise of this Warrant at each such Exercise Price shall be adjusted by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of shares of Common Stock issuable upon exercise of this Warrant at such Exercise Price immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. (e) Consolidation, Merger or Sale. In case of (i) any consolidation of the Company with, or merger of the Company into, any other entity, (ii) any sale or conveyance of all or substantially all of the assets of the Company other than in connection with a plan of complete liquidation of the Company or (iii) any share exchange pursuant to which all of the outstanding shares of Common Stock are converted into other securities or property (each of (i) - (iii) above being a "CORPORATE CHANGE") at any time during the Exercise Period, then as a condition of such Corporate Change, adequate provision will be made whereby the holder hereof will have the right to acquire and receive upon exercise of this Warrant in lieu of the shares of Common Stock immediately theretofore acquirable upon the exercise of this Warrant, such shares of stock, securities, cash or assets as may be issued or payable with respect to or in exchange for the number of shares of Common Stock immediately theretofore acquirable and receivable upon exercise of this Warrant had such Corporate Change not taken place. In any such case, the Company will make appropriate provision to insure that the provisions of this Section 4 hereof will thereafter be applicable as nearly as may be in relation to any shares of stock or securities thereafter deliverable upon the exercise of this Warrant. The Company will not effect any Corporate Change unless prior to the consummation thereof, the successor corporation (if other than the Company) assumes by written instrument the obligations under this Warrant and the obligations to deliver to the holder hereof such shares of stock, securities or assets as, in accordance with the foregoing provisions, the holder may be entitled to acquire. Notwithstanding the foregoing, in the event of any Corporate Change at any time during the Exercise Period, the holder hereof shall, at its option, have the right to receive, in connection with such transaction, cash consideration equal to the fair market value of this Warrant as determined in accordance with customary valuation methodology used in the investment banking industry. (f) Distribution of Assets. In case the Company shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a partial liquidating dividend, stock repurchase by way of return of capital or otherwise (including any dividend or distribution to the Company's stockholders of cash or shares (or rights to acquire shares) of capital stock of a subsidiary) (a "DISTRIBUTION"), at any time during the Exercise Period, then the 5 holder hereof shall be entitled upon exercise of this Warrant for the purchase of any or all of the shares of Common Stock subject hereto, to receive the amount of such assets (or rights) which would have been payable to the holder had such holder been the holder of such shares of Common Stock on the record date for the determination of stockholders entitled to such Distribution. If the Company distributes rights, warrants, options or any other form of convertible securities and the right to exercise or convert such securities would expire in accordance with their terms prior to the expiration of the Exercise Period, then the terms of such securities shall provide that such exercise or convertibility right shall remain in effect until 30 days after the date the holder hereof receives such securities pursuant to the exercise hereof. (g) Notice of Adjustment. Upon the occurrence of any event which requires any adjustment of the Exercise Price, then, and in each such case, the Company shall give notice thereof to the holder hereof, which notice shall state the Exercise Price resulting from such adjustment and the increase or decrease in the number of Warrant Shares purchasable at such price upon exercise, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Such calculation shall be certified by the chief financial officer of the Company. (h) Minimum Adjustment of Exercise Price. No adjustment of the Exercise Price shall be made in an amount of less than $.01, but any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which, together with any adjustments so carried forward, shall amount to not less than $.01. (i) No Fractional Shares. No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but the Company shall pay a cash adjustment in respect of any fractional share which would otherwise be issuable in an amount equal to the same fraction of the Market Price of a share of Common Stock on the date of such exercise. (j) Other Notices. In case at any time: (i) the Company shall declare any dividend upon the Common Stock payable in shares of stock of any class or make any other distribution (other than dividends or distributions payable in cash out of retained earnings consistent with the Company's past practices with respect to declaring dividends and making distributions) to the holders of the Common Stock; (ii) the Company shall offer for subscription pro rata to the holders of the Common Stock any additional shares of stock of any class or other rights; (iii) there shall be any capital reorganization of the Company, or reclassification of the Common Stock, or consolidation or merger of the Company with or into, or sale of all or substantially all of its assets to, another corporation or entity; or (iv) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; then, in each such case, the Company shall give to the holder of this Warrant (a) notice of the date or estimated date on which the books of the Company shall close or a record shall be taken for determining the holders of Common Stock entitled to receive any such dividend, distribution, or 6 subscription rights or for determining the holders of Common Stock entitled to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, notice of the date (or, if not then known, a reasonable estimate thereof by the Company) when the same shall take place. Such notice shall also specify the date on which the holders of Common Stock shall be entitled to receive such dividend, distribution, or subscription rights or to exchange their Common Stock for stock or other securities or property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, or winding-up, as the case may be. Such notice shall be given at least fifteen (15) days prior to the record date or the date on which the Company's books are closed in respect thereto. Failure to give any such notice or any defect therein shall not affect the validity of the proceedings referred to in clauses (i), (ii), (iii) and (iv) above. Notwithstanding the foregoing, the Company shall publicly disclose the substance of any notice delivered hereunder prior to delivery of such notice to the holder hereof. (k) Certain Events. If, at any time during the Exercise Period, any event occurs of the type contemplated by the adjustment provisions of this Section 4 but not expressly provided for by such provisions, the Company will give notice of such event as provided in Section 4(g) hereof, and an appropriate adjustment in the Exercise Price and the number of shares of Common Stock acquirable upon exercise of this Warrant at each such Exercise Price shall be made so that the rights of the holder shall be neither enhanced nor diminished by such event. (l) Certain Definitions. (i) "MARKET PRICE," as of any date, (i) means the average of the closing sales prices for the shares of Common Stock on the Nasdaq National Market or other trading market where such security is listed or traded as reported by Bloomberg Financial Markets (or a comparable reporting service of national reputation selected by the Company and reasonably acceptable to the holders if Bloomberg Financial Markets is not then reporting sales prices of such security)(collectively, "BLOOMBERG") for the ten (10) consecutive trading days immediately preceding such date, or (ii) if the Nasdaq National Market is not the principal trading market for the shares of Common Stock, the average of the reported sales prices reported by Bloomberg on the principal trading market for the Common Stock during the same period, or, if there is no sales price for such period, the last sales price reported by Bloomberg for such period, or (iii) if the foregoing do not apply, the last sales price of such security in the over-the-counter market on the pink sheets or bulletin board for such security as reported by Bloomberg, or if no sales price is so reported for such security, the last bid price of such security as reported by Bloomberg, or (iv) if market value cannot be calculated as of such date on any of the foregoing bases, the Market Price shall be the average fair market value as reasonably determined by an investment banking firm selected by the Company and reasonably acceptable to the holder, with the costs of the appraisal to be borne by the Company. The manner of determining the Market Price of the Common Stock set forth in the foregoing definition shall apply with respect to any other security in respect of which a determination as to market value must be made hereunder. (ii) "COMMON STOCK," for purposes of this Section 4, includes the Common Stock and any additional class of stock of the Company having no preference as to 7 dividends or distributions on liquidation, provided that the shares purchasable pursuant to this Warrant shall include only Common Stock in respect of which this Warrant is exercisable, or shares resulting from any subdivision or combination of such Common Stock, or in the case of any reorganization, reclassification, consolidation, merger, or sale of the character referred to in Section 4(e) hereof, the stock or other securities or property provided for in such Section. 5. Issue Tax. The issuance of certificates for Warrant Shares upon the exercise of this Warrant shall be made without charge to the holder of this Warrant or such shares for any issuance tax or other costs in respect thereof, provided that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than the holder of this Warrant. 6. No Rights or Liabilities as a Stockholder. This Warrant shall not entitle the holder hereof to any voting rights or other rights as a stockholder of the Company. No provision of this Warrant, in the absence of affirmative action by the holder hereof to purchase Warrant Shares, and no mere enumeration herein of the rights or privileges of the holder hereof, shall give rise to any liability of such holder for the Exercise Price or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 7. Transfer, Exchange and Replacement of Warrant. (a) Restriction on Transfer. This Warrant and the rights granted to the holder hereof are transferable, in whole or in part, upon surrender of this Warrant, together with a properly executed assignment in the form attached hereto, at the office or agency of the Company referred to in Section 7(e) below, provided, however, that any transfer or assignment shall be subject to the conditions set forth in Sections 7(f) and (g) hereof and to the provisions of Sections 2(f) and 2(g) of the Exchange Agreement. Until due presentment for registration of transfer on the books of the Company, the Company may treat the registered holder hereof as the owner and holder hereof for all purposes, and the Company shall not be affected by any notice to the contrary. Notwithstanding anything to the contrary contained herein, the registration rights described in Section 8 hereof are assignable only in accordance with the provisions of the Registration Rights Agreement. (b) Warrant Exchangeable for Different Denominations. This Warrant is exchangeable, upon the surrender hereof by the holder hereof at the office or agency of the Company referred to in Section 7(e) below, for new warrants of like tenor of different denominations representing in the aggregate the right to purchase the number of shares of Common Stock which may be purchased hereunder, each of such new warrants to represent the right to purchase such number of shares (at the Exercise Price therefor) as shall be designated by the holder hereof at the time of such surrender, and all such warrants thereafter constituting the Warrant referenced herein. (c) Replacement of Warrant. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant and, in the case of any such loss, theft, or destruction, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company, or, in the case of any such mutilation, upon surrender and cancellation of this Warrant, the Company, at its expense, will execute and deliver, in lieu thereof, a new Warrant of like tenor. 8 (d) Cancellation; Payment of Expenses. Upon the surrender of this Warrant in connection with any transfer, exchange, or replacement as provided in this Section 7, this Warrant shall be promptly canceled by the Company. The Company shall pay all taxes (other than securities transfer taxes) and all other expenses (other than legal expenses, if any, incurred by the Holder or transferees) and charges payable in connection with the preparation, execution, and delivery of any Warrant pursuant to this Section 7. (e) Warrant Register. The Company shall maintain, at its principal executive offices (or such other office or agency of the Company as it may designate by notice to the holder hereof), a register for this Warrant, in which the Company shall record the name and address of the person in whose name this Warrant has been issued, as well as the name and address of each transferee and each prior owner of this Warrant. (f) Exercise or Transfer Without Registration. If, at the time of the surrender of this Warrant in connection with any exercise, transfer, or exchange of this Warrant, this Warrant (or, in the case of any exercise, the Warrant Shares issuable hereunder), shall not be registered under the Securities Act and under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such exercise, transfer, or exchange, (i) that the holder or transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that such exercise, transfer, or exchange may be made without registration under the Securities Act and under applicable state securities or blue sky laws (the cost of which shall be borne by the Company if the Company's counsel renders such an opinion and up to $500 of such cost shall be borne by the Company if the holder's counsel is requested to render such opinion), (ii) that the holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company and (iii) that the transferee be an "ACCREDITED INVESTOR" as defined in Rule 501(a) promulgated under the Securities Act; provided that no such opinion, letter, or status as an "accredited investor" shall be required in connection with a transfer pursuant to Rule 144 under the Securities Act. (g) Additional Restrictions on Exercise or Transfer. In no event shall the holder hereof have the right to exercise any portion of this Warrant for shares of Common Stock or to dispose of any portion of this Warrant to the extent that such right to effect such exercise or disposition would result in the holder or any of its affiliates together beneficially owning more than (i) 19.99% of the outstanding shares of Common Stock, in the case of Biotech Target N.V. and its affiliates for so long as they continue to hold Warrants, or (b) 4.99% of the outstanding shares of Common Stock, in the case of all other holders of Warrants. For purposes of this Section 7(g), beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder. The restriction contained in this Section 7(g) may not be altered, amended, deleted or changed in any manner whatsoever unless the holders of a majority of the outstanding shares of Common Stock and the holder hereof shall approve, in writing, such alteration, amendment, deletion or change. 8. Registration Rights. The initial holder of this Warrant (and certain assignees thereof) is entitled to the benefit of such registration rights in respect of the Warrant Shares as are set forth in 9 the Registration Rights Agreement, including the right to assign such rights to certain assignees, as set forth therein. 9. Notices. Any notices required or permitted to be given under the terms of this Warrant shall be sent by certified or registered mail (return receipt requested) or delivered personally or by courier or by confirmed telecopy, and shall be effective five days after being placed in the mail, if mailed, or upon receipt or refusal of receipt, if delivered personally or by courier, or by confirmed telecopy, in each case addressed to a party. The addresses for such communications shall be: If to the Company: ViroLogic, Inc. 270 East Grand Avenue South San Francisco, California 94080 Telephone: (650) 635-1100 Attn: Chief Executive Officer with a copy simultaneously transmitted by like means to: Cooley Godward LLP 4401 Eastgate Mall San Diego, California 92121 Telephone: (858) 550-6000 If to the holder, at such address as such holder shall have provided in writing to the Company, or at such other address as such holder furnishes by notice given in accordance with this Section 9. 10. Governing Law; Jurisdiction. This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware. The Company irrevocably consents to the jurisdiction of the United States federal courts and state courts located in the State of Delaware in any suit or proceeding based on or arising under this Warrant and irrevocably agrees that all claims in respect of such suit or proceeding may be determined in such courts. The Company irrevocably waives any objection to the laying of venue and the defense of an inconvenient forum to the maintenance of such suit or proceeding. The Company further agrees that service of process upon the Company mailed by certified or registered mail shall be deemed in every respect effective service of process upon the Company in any such suit or proceeding. Nothing herein shall affect the holder's right to serve process in any other manner permitted by law. The Company agrees that a final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner. 11. Miscellaneous. (a) Amendments. Except as provided in Section 7(g) hereof, this Warrant and any provision hereof may only be amended by an instrument in writing signed by the Company and the holder hereof. 10 (b) Descriptive Headings. The descriptive headings of the several Sections of this Warrant are inserted for purposes of reference only, and shall not affect the meaning or construction of any of the provisions hereof. (c) Cashless Exercise. This Warrant may be exercised at any time after March 25, 2003 and before the expiration of the Exercise Period by presentation and surrender of this Warrant to the Company at its principal executive offices with a written notice of the holder's intention to effect a cashless exercise, including a calculation of the number of shares of Common Stock to be issued upon such exercise in accordance with the terms hereof (a "CASHLESS EXERCISE"). In the event of a Cashless Exercise, in lieu of paying the Exercise Price in cash, the holder shall surrender this Warrant for that number of shares of Common Stock determined by multiplying the number of Warrant Shares to which it would otherwise be entitled by a fraction, the numerator of which shall be the difference between the then current Market Price of a share of the Common Stock on the date of exercise and the Exercise Price, and the denominator of which shall be the then current Market Price per share of Common Stock. (d) Trading Day. For purposes of this Warrant, the term "trading day" means any day on which the principal United States securities exchange or trading market where the Common Stock is then listed is open for trading. (e) Redemption of Warrant by Company. (i) In the event that the Company consummates a Corporate Change in which the holders of the Company's Common Stock immediately prior to such Corporate Change hold fifty percent (50%) or less of the outstanding voting power of the entity surviving such Corporate Change, then the Company may elect, upon delivery of at least twenty (20) days' prior written notice (the "REDEMPTION NOTICE") to the holder hereof, to redeem all or a portion of the Warrant for a redemption amount (the "REDEMPTION AMOUNT") equal to the value of the Warrant derived using the Black-Scholes formula (using Bloomberg), assuming that the volatility of the Company's Common Stock equals 60% and the risk-free interest rate equals 5% per annum. In the event the Company elects to redeem only some of the outstanding Warrants pursuant to this Section 11(e), such Warrants shall be redeemed pro rata among all the holders of the Warrants based upon the percentage of Warrants held by such holders against the total outstanding Warrants. (ii) [Intentionally Omitted] (iii) The Company may not deliver a Redemption Notice pursuant to clause (i) above unless on or prior to the date of delivery of a Redemption Notice, the Company shall have segregated on the books and records of the Company an amount of cash sufficient to pay all amounts to which holders of the Warrants that are being redeemed are entitled pursuant to this Section 11(e). Any Redemption Notice delivered shall be irrevocable and shall be accompanied by a statement executed by a duly authorized officer of the Company. (iv) The Redemption Amount shall be paid to the holder within three (3) business days of the date of redemption set forth in the Redemption Notice pursuant to clause (i) above; provided, however, that the Company shall not be obligated to deliver any portion of the 11 Redemption Amount until either this Warrant is delivered to the Company or the holder notifies the Company that the Warrant has been lost, stolen or destroyed and delivers the documentation in accordance with Section 7(c) hereof. In the event only a portion of this Warrant is being redeemed, the Company shall issue, at its expense, a new Warrant representing the number of shares with respect to which this Warrant shall not then have been redeemed or exercised. (v) Notwithstanding the delivery of a Redemption Notice pursuant to clause (i) above, the holder may exercise all or a portion of this Warrant subject to such Redemption Notice by the delivery prior to the date of redemption set forth in such notice of an Exercise Agreement pursuant to the procedures set forth in Section 1. (f) Indemnification by Company. (i) The Company shall hold harmless and indemnify the holder of this Warrant from and against, and shall compensate and reimburse such holder for, any damages which are directly or indirectly suffered or incurred by such holder or to which such holder may otherwise become subject (regardless of whether or not such damages relate to any third-party claim) and which arise from or as a result of, or are directly or indirectly connected with any breach of any of the Company's covenants set forth herein. (ii) In the event of the assertion or commencement by any person of any claim or legal proceeding with respect to which the holder may have indemnification rights pursuant to this Section 11(f)(i), the holder shall promptly notify the Company thereof in writing, but the failure to so notify the Company will not limit the holder's rights to indemnification hereunder, except to the extent the Company demonstrates that the defense of such action is prejudiced by the failure to so give such notice. 12 IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer. VIROLOGIC, INC. By: ____________________________________ Name:_______________________________ Title:______________________________ 13 FORM OF EXERCISE AGREEMENT (TO BE EXECUTED BY THE HOLDER IN ORDER TO EXERCISE THE WARRANT) To: ViroLogic,Inc. 270 East Grand Avenue South San Francisco, California 94080 Telephone: (650) 635-1100 Attn: Chief Executive Officer The undersigned hereby irrevocably exercises the right to purchase _____________ shares of the Common Stock of ViroLogic, Inc., a corporation organized under the laws of the State of Delaware (the "COMPANY"), evidenced by the attached Warrant, and herewith [makes payment of the Exercise Price with respect to such shares in full][elects to effect a Cashless Exercise (as defined in Section 11(c) of such Warrant)], all in accordance with the conditions and provisions of said Warrant. The undersigned agrees not to offer, sell, transfer or otherwise dispose of any Common Stock obtained on exercise of the Warrant, except under circumstances that will not result in a violation of the Securities Act of 1933, as amended, or any state securities laws. The undersigned represents that it is an "accredited investor" as that term is defined in Rule 501(a) of Regulation D under the Securities Act of 1933, as amended. [ ] The undersigned requests that the Company cause its transfer agent to electronically transmit the Common Stock issuable pursuant to this Exercise Agreement to the account of the undersigned or its nominee (which is _________________) with DTC through its Deposit Withdrawal Agent Commission System ("DTC TRANSFER"), provided that such transfer agent participates in the DTC Fast Automated Securities Transfer program. [ ] In lieu of receiving the shares of Common Stock issuable pursuant to this Exercise Agreement by way of DTC Transfer, the undersigned hereby requests that the Company cause its transfer agent to issue and deliver to the undersigned physical certificates representing such shares of Common Stock. The undersigned requests that a Warrant representing any unexercised portion hereof be issued, pursuant to the Warrant, in the name of the Holder and delivered to the undersigned at the address set forth below: Dated:_________________ ____________________________________ Signature of Holder ____________________________________ Name of Holder (Print) Address: ____________________________________ ____________________________________ ____________________________________ 14 FORM OF ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers all the rights of the undersigned under the within Warrant, with respect to the number of shares of Common Stock covered thereby set forth hereinbelow, to: Name of Assignee Address No. of Shares , and hereby irrevocably constitutes and appoints _____________________________________ as agent and attorney-in-fact to transfer said Warrant on the books of the within-named corporation, with full power of substitution in the premises. Dated: _____________________, ____ In the presence of ___________________________ Name: _____________________________ Signature: _____________________ Title of Signing Officer or Agent (if any): _______________________ Address: _______________________ _______________________ Note: The above signature should correspond exactly with the name on the face of the within Warrant. 15 EX-4.4 6 a86207exv4w4.txt EXHIBIT 4.4 EXHIBIT 4.4 CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF SERIES C CONVERTIBLE PREFERRED STOCK OF VIROLOGIC, INC. (Pursuant to Section 151 of the Delaware General Corporation Law) ViroLogic, Inc., a corporation organized and existing under the laws of the State of Delaware (the "CORPORATION"), hereby certifies that the Board of Directors of the Corporation (the "BOARD OF DIRECTORS" or the "BOARD") pursuant to authority of the Board of Directors as required by Section 151 of the Delaware General Corporation Law, and in accordance with the provisions of its Certificate of Incorporation and Bylaws, each as amended and restated through the date hereof, has and hereby authorizes a series of the Corporation's previously authorized Preferred Stock, par value $.001 per share (the "PREFERRED STOCK"), and hereby states the designation and number of shares, and fixes the relative rights, preferences, privileges, powers and restrictions thereof as follows: I. DESIGNATION AND AMOUNT The designation of this series, which consists of 1911 shares of Preferred Stock, is the Series C Convertible Preferred Stock (the "SERIES C PREFERRED STOCK") and the face amount shall be Ten Thousand U.S. Dollars ($10,000.00) per share (the "FACE AMOUNT"). II. NO DIVIDENDS The Series C Preferred Stock will bear no dividends, and the holders of the Series C Preferred Stock shall not be entitled to receive dividends on the Series C Preferred Stock. III. CERTAIN DEFINITIONS For purposes of this Certificate of Designation, the following terms shall have the following meanings: A. "CLOSING SALES PRICE" means, for any security as of any date, the last sales price of such security on the Nasdaq National Market ("NNM") or other trading market where such security is listed or traded as reported by Bloomberg Financial Markets (or a comparable reporting service of national reputation selected by the Corporation and reasonably acceptable to holders of a majority of the then outstanding shares of Series C Preferred Stock ("MAJORITY HOLDERS") if Bloomberg Financial Markets is not then reporting closing sales prices of such security) (collectively, "BLOOMBERG"), or if the foregoing does not apply, the last reported sales price of such security on a national exchange or in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no such price is reported for such security by Bloomberg, the average of the bid prices of all market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc., in each case for such date or, if such date was not a trading day for such security, on the next preceding date which was a trading day. If the Closing Sales Price cannot be calculated for such security as of either of such dates on any of the foregoing bases, the Closing Sales Price of such security on such date shall be the fair market value as reasonably determined by an investment banking firm selected by the Corporation and reasonably acceptable to the Majority Holders, with the costs of such appraisal to be borne by the Corporation. B. "COMMON STOCK DEEMED OUTSTANDING" shall mean the number of shares of Common Stock actually outstanding (not including shares of Common Stock held in the treasury of the Corporation). C. "CONVERSION DATE" means, (i) for any Optional Conversion (as defined below), the date specified in the notice of conversion in the form attached hereto (the "NOTICE OF CONVERSION"), so long as a copy of the Notice of Conversion is faxed (or delivered by other means resulting in notice) to the Corporation before 11:59 p.m., New York City time, on the Conversion Date indicated in the Notice of Conversion; provided, however, that if the Notice of Conversion is not so faxed or otherwise delivered before such time, then the Conversion Date shall be the date the holder faxes or otherwise delivers the Notice of Conversion to the Corporation, and (ii) for any Mandatory Conversion, that date specified in the notice delivered to the holders of the Series C Preferred Stock being converted pursuant to Article IV.C in the event that such Mandatory Conversion occurs. D. "CONVERSION PRICE" means $1.21, and shall be subject to adjustment as provided herein. E. "EXCHANGE AGREEMENT" means the Exchange Agreement by and among the Corporation and the purchasers named therein. F. "ISSUANCE DATE" means the date of the closing under the Securities Purchase Agreement by and among the Corporation and the purchasers named therein (the "SECURITIES PURCHASE AGREEMENT"). G. "N" means the number of days from, but excluding, the Issuance Date or the date that the last payment of the Premium was made in full, whichever is less. H. "PREMIUM" means initially an amount equal to (the Rate)x(N/365)x(10,000). The "RATE" shall initially be equal to .08. Thereafter, on June 30, 2004, the Rate will increase by .01, and the Rate shall thereafter continue to increase by .01 on the last day of each successive calendar quarter until the Series C Preferred Stock is converted or redeemed in full; provided, however, that the Rate shall not exceed .14. Notwithstanding the foregoing (including the limit on the Rate set forth in the preceding sentence), in the event that at any time and from time to time (i) the Common Stock is suspended from trading on any of, or is not listed (and authorized) for trading on at least one of, the NYSE (as defined below), the AMEX (as defined below), the NNM or SmallCap (as defined 2 below) at any time, or (ii) the Closing Sales Price of the Common Stock is less than 65% of the Conversion Price (as adjusted to reflect any stock dividends, distributions, combinations, reclassifications and other similar transactions effected by the Corporation in respect to its Common Stock) for at least seventy-five (75) consecutive calendar days (each of (i) and (ii) being a "PREMIUM DEFAULT"), then, commencing on the first day of the calendar quarter next succeeding the calendar quarter in which such Premium Default occurs and continuing until the Company has cured such Premium Default, the Rate shall be increased to equal .15, and upon cure of such Premium Default (provided that no other Premium Default has occurred and is continuing), the Rate shall be automatically decreased to equal such amount as it would have equaled but for the occurrence of such Premium Default(s) (including all increases to the Rate that would have occurred during the term of such Premium Default pursuant to the preceding sentence). I. "WARRANTS" shall mean the warrants issued by the Corporation to the initial holders of Series C Preferred Stock pursuant to the Securities Purchase Agreement. IV. CONVERSION; PAYMENT OF PREMIUM A. Premium; Conversion at the Option of the Holder. (i) The Premium shall be payable, at the applicable Rate, (a) upon any conversion (regardless of whether it is an Optional Conversion or a Mandatory Conversion) of each share of Series C Preferred Stock and (b) as to each outstanding share of Series C Preferred Stock on March 31, June 30, September 30 and December 31 of each year, commencing on December 31, 2002, until such share is fully converted or fully redeemed. Payment of the Premium shall be made in cash. (ii) Subject to the limitations on conversions contained in Paragraph D of this Article IV, each holder of shares of Series C Preferred Stock may, at any time and from time to time, convert (an "OPTIONAL CONVERSION") each of its shares of Series C Preferred Stock into a number of fully paid and nonassessable shares of Common Stock determined in accordance with the following formula: $10,000 CONVERSION PRICE B. Mechanics of Conversion. In order to effect an Optional Conversion, a holder shall: (x) fax (or otherwise deliver) a copy of the fully executed Notice of Conversion to the Corporation (Attention: Secretary) and (y) surrender or cause to be surrendered the original certificates representing the Series C Preferred Stock being converted (the "PREFERRED STOCK CERTIFICATES"), duly endorsed, along with a copy of the Notice of Conversion as soon as practicable thereafter to the Corporation. Upon receipt by the Corporation of a facsimile copy of a Notice of Conversion from a holder, the Corporation shall promptly send, via facsimile, a confirmation to such holder stating that the Notice of Conversion has been received, the date upon which the Corporation expects to deliver the Common Stock issuable upon such conversion and the name and telephone number of a contact person at the Corporation regarding the conversion. The Corporation shall not be obligated to issue shares of Common Stock upon a conversion unless either the Preferred Stock Certificates are delivered to the Corporation as provided above, or the holder notifies the Corporation that such 3 Preferred Stock Certificates have been lost, stolen or destroyed and delivers the documentation to the Corporation required by Article XV.B hereof. (i) Delivery of Common Stock Upon Conversion. Upon the surrender of Preferred Stock Certificates accompanied by a Notice of Conversion, the Corporation (itself, or through its transfer agent) shall, no later than the later of (a) the second business day following the Conversion Date and (b) the business day following the date of such surrender (or, in the case of lost, stolen or destroyed certificates, after provision of indemnity pursuant to Article XV.B) (the "DELIVERY PERIOD"), issue and deliver (i.e., deposit with a nationally recognized overnight courier service postage prepaid) to the holder or its nominee (x) that number of shares of Common Stock issuable upon conversion of such shares of Series C Preferred Stock being converted and (y) a certificate representing the number of shares of Series C Preferred Stock not being converted, if any. Notwithstanding the foregoing, if the Corporation's transfer agent is participating in the Depository Trust Company ("DTC") Fast Automated Securities Transfer program, and so long as the certificates therefor do not bear a legend (pursuant to the terms of the Securities Purchase Agreement) and the holder thereof is not then required to return such certificate for the placement of a legend thereon (pursuant to the terms of the Securities Purchase Agreement), the Corporation shall cause its transfer agent to promptly electronically transmit the Common Stock issuable upon conversion to the holder by crediting the account of the holder or its nominee with DTC through its Deposit Withdrawal Agent Commission system ("DTC TRANSFER"). If the aforementioned conditions to a DTC Transfer are not satisfied, the Corporation shall deliver as provided above to the holder physical certificates representing the Common Stock issuable upon conversion. Further, a holder may instruct the Corporation to deliver to the holder physical certificates representing the Common Stock issuable upon conversion in lieu of delivering such shares by way of DTC Transfer. (ii) Taxes. The Corporation shall pay any and all taxes that may be imposed upon it with respect to the issuance and delivery of the shares of Common Stock upon the conversion of the Series C Preferred Stock. (iii) No Fractional Shares. If any conversion of Series C Preferred Stock would result in the issuance of a fractional share of Common Stock, such fractional share shall be payable in cash based upon the ten (10) day average Closing Sales Price at such time, and the number of shares of Common Stock issuable upon conversion of the Series C Preferred Stock shall be the next lower whole number of shares. (iv) Conversion Disputes. In the case of any dispute with respect to a conversion, the Corporation shall promptly issue such number of shares of Common Stock as are not disputed in accordance with subparagraph (i) above. If such dispute involves the calculation of the Conversion Price, and such dispute is not promptly resolved by discussion between the relevant holder and the Corporation, the Corporation shall submit the disputed calculations to an independent outside accountant via facsimile within three business days of receipt of the Notice of Conversion. The accountant, at the Corporation's sole expense, shall promptly audit the calculations and notify the Corporation and the holder of the results no later than three business days from the date it receives the disputed calculations. The accountant's calculation shall be deemed conclusive, absent manifest error. The Corporation shall then issue the appropriate number of shares of Common Stock in accordance with subparagraph (i) above. 4 C. Mandatory Conversion. Subject to the limitations on conversion contained in paragraph D of this Article IV, if at any time all of the Required Conditions (as defined herein) are satisfied and (i) at any time after the first anniversary of the Issuance Date, the Closing Sales Price of the Common Stock is greater than $2.42 (as adjusted to reflect any stock dividends, distributions, combinations, reclassifications and other similar transactions effected by the Corporation in respect to its Common Stock) for at least twenty (20) consecutive trading days, or (ii) the holders of a majority of the then-outstanding shares of Series C Preferred Stock shall consent thereto in writing, then, at the option of the Corporation exercisable by the delivery of written notice to the holders of the Series C Preferred Shares, delivered no more than ten (10) days prior to and no less than three (3) days prior to the Conversion Date stated in such notice, convert all or any shares of Series C Preferred Shares into a number of fully paid and nonassessable shares of Common Stock determined in accordance with the formula set forth in Paragraph A of this Article IV (a "MANDATORY CONVERSION"). Thereafter, the Corporation and the holders shall follow the applicable conversion procedures set forth in Article IV.B (including the requirement that the Holder deliver the Preferred Stock Certificates representing the Series C Preferred Stock being converted to the Corporation); provided, however, the Holder shall not be required to deliver a Notice of Conversion to the Corporation. In the event the Corporation elects to convert only a portion of the outstanding shares of Series C Preferred Stock pursuant to this Article IV.C, the outstanding shares of Series C Preferred Stock shall be converted pro rata among the holders based upon their aggregate relative ownership of outstanding shares of Series C Preferred Stock as of the Conversion Date. (i) The "REQUIRED CONDITIONS" shall consist of the following: (a) the registration statements required to be filed by the Corporation pursuant to Section 2(a) of the Registration Rights Agreement, dated as of the Issuance Date, by and among the Corporation and the initial holders of Series C Preferred Stock (the "REGISTRATION RIGHTS AGREEMENT") shall have been declared effective by the Securities and Exchange Commission (it being understood that the Corporation shall comply with its obligations under Article 3 of the Registration Rights Agreement relating to the effectiveness of such registration statements); (b) all shares of Common Stock issuable upon conversion of the Series C Preferred Stock and exercise of the Warrants are then (a) authorized and reserved for issuance, (b) registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"), for resale by the holders and (c) eligible to be listed or traded on any of the New York Stock Exchange ("NYSE"), the American Stock Exchange ("AMEX"), the NNM, or the NASDAQ SmallCap Market ("SMALLCAP") (or the successor to any of them); (c) no Redemption Event (as defined in Article VIII below) shall have occurred without having been cured; (d) all amounts, if any, then accrued or payable under this Certificate of Designation (including, without limitation, all Premiums) or the Registration Rights Agreement shall have been paid. 5 D. Limitations on Conversions. The conversion of shares of Series C Preferred Stock shall be subject to the following limitations (each of which limitations shall be applied independently): (i) Cap Amount. If, notwithstanding the representations and warranties of the Corporation contained in Section 3(c) of the Securities Purchase Agreement and the Exchange Agreement, the Corporation is prohibited by Rule 4350(i) of the National Association of Securities Dealers, Inc. ("NASD"), or any successor or similar rule, or the rules or regulations of any other securities exchange on which the Common Stock is then listed or traded, from issuing a number of shares of Common Stock upon conversion of Series C Preferred Stock (together with any shares of Common Stock, or securities convertible into Common Stock, issued pursuant to the Securities Purchase Agreement, the Exchange Agreement or other agreements entered in connection therewith) in excess of a prescribed amount (the "CAP AMOUNT") (without stockholder approval or otherwise), then the Corporation shall not issue shares upon conversion of Series C Preferred Stock in excess of the Cap Amount. Assuming solely for purposes of this paragraph (D) that such Rule 4350(i) or similar rule is applicable, the Cap Amount shall be 4,962,589 shares. The Cap Amount shall be allocated pro rata to the holders of Series C Preferred Stock as provided in Article XV.C. In the event the Corporation is prohibited from issuing shares of Common Stock as a result of the operation of this subparagraph (i), the Corporation shall comply with Article VII. (ii) Additional Restrictions on Conversion or Transfer. In no event shall a holder of shares of Series C Preferred Stock of the Corporation have the right to convert shares of Series C Preferred Stock into shares of Common Stock or to dispose of any shares of Series C Preferred Stock to the extent that such right to effect such conversion or disposition would result in the holder or any of its affiliates together beneficially owning more than (a) 19.99% of the outstanding shares of Common Stock, in the case of Biotech Target N.V. and its affiliates for so long as they continue to hold shares of Series C Preferred Stock, or (b) 4.99% of the outstanding shares of Common Stock, in the case of all other holders of shares of Series C Preferred Stock. For purposes of this subparagraph, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder. The restriction contained in this subparagraph may not be altered, amended, deleted or changed in any manner whatsoever unless the holders of a majority of the outstanding shares of Common Stock and the Majority Holders shall approve, in writing, such alteration, amendment, deletion or change. V. RESERVATION OF SHARES OF COMMON STOCK A. Reserved Amount. On or prior to the Issuance Date, the Corporation shall reserve 5,834,711 shares of its authorized but unissued shares of Common Stock for issuance upon conversion of the Series C Preferred Stock and thereafter the number of authorized but unissued shares of Common Stock so reserved (the "RESERVED AMOUNT") shall at all times be sufficient to provide for the conversion of all of the Series C Preferred Stock outstanding at the then current Conversion Price thereof. The Reserved Amount shall be allocated to the holders of Series C Preferred Stock as provided in Article XV.C. In the event that the Corporation receives the Authorized Stock Approval and the NASD Rule Approval (as such terms are defined in the Exchange Agreement), then the Reserved Amount shall be automatically increased to 15,793,389, or such higher number as shall then be necessary to provide for the conversion of all of the Series C 6 Preferred Stock outstanding at the then current Conversion Price thereof (including, without limitation, all shares of Series C Preferred Stock issued upon conversion of the Notes (as such term is defined in the Exchange Agreement) issued to the former holders of the Corporation's Series B Convertible Preferred Stock pursuant to the Exchange Agreement), and the Corporation shall immediately take such corporate action as shall be necessary to reserve such additional number of shares of its authorized but unissued shares of Common Stock for issuance upon conversion of the Series C Preferred Stock. B. Increases to Reserved Amount. If the Reserved Amount for any three consecutive trading days (the last of such three trading days being the "AUTHORIZATION TRIGGER DATE") shall be less than 100% of the number of shares of Common Stock issuable upon conversion of the then outstanding shares of Series C Preferred Stock and upon exercise of the then outstanding Warrants, the Corporation shall immediately notify the holders of Series C Preferred Stock of such occurrence and shall take immediate action (including, if necessary, seeking stockholder approval to authorize the issuance of additional shares of Common Stock) to increase the Reserved Amount to 100% of the number of shares of Common Stock then issuable upon conversion of all of the outstanding Series C Preferred Stock at the then current Conversion Price. In the event the Corporation fails to so increase the Reserved Amount within 90 days after an Authorization Trigger Date, each holder of Series C Preferred Stock shall thereafter have the option, exercisable in whole or in part at any time and from time to time by delivery of a Redemption Notice (as defined in Article VIII.D) to the Corporation, to require the Corporation to purchase for cash, at an amount per share equal to the Redemption Amount (as defined in Article VIII.B), a portion of the holder's Series C Preferred Stock such that, after giving effect to such purchase, the holder's allocated portion of the Reserved Amount exceeds 100% of the total number of shares of Common Stock issuable to such holder upon conversion of its Series C Preferred Stock. If the Corporation fails to redeem any of such shares within five (5) business days after its receipt of such Redemption Notice, then such holder shall be entitled to the remedies provided in Article VIII.D. VI. FAILURE TO SATISFY CONVERSIONS A. Conversion Defaults. If, at any time, (x) a holder of shares of Series C Preferred Stock submits a Notice of Conversion and the Corporation fails for any reason (other than because such issuance would exceed such holder's allocated portion of the Reserved Amount or Cap Amount, for which failures the holders shall have the remedies set forth in Articles V and VII, respectively) to deliver, on or prior to the fifth business day following the expiration of the Delivery Period for such conversion, such number of freely tradable shares of Common Stock to which such holder is entitled upon such conversion, or (y) the Corporation provides written notice to any holder of Series C Preferred Stock (or makes a public announcement via press release) at any time of its intention not to issue freely tradable shares of Common Stock upon exercise by any holder of its conversion rights in accordance with the terms of this Certificate of Designation (other than because such issuance would exceed such holder's allocated portion of the Reserved Amount or Cap Amount) (each of (x) and (y) being a "CONVERSION DEFAULT") then the holder may elect at any time and from time to time prior to the Default Cure Date (as defined below) for such Conversion Default, by delivery of a Redemption Notice to the Corporation, to have all or any portion of such holder's outstanding shares of Series C Preferred Stock purchased by the Corporation for cash, at an amount per share equal to the Redemption Amount (as defined in Article VIII.B). If the Corporation fails to redeem any of such 7 shares within five business days after its receipt of such Redemption Notice, then such holder shall be entitled to the remedies provided in Article VIII.D. "DEFAULT CURE DATE" means, as applicable, (i) with respect to a Conversion Default described in clause (x) of its definition, the date the Corporation effects the conversion of the full number of shares of Series C Preferred Stock, and (ii) with respect to a Conversion Default described in clause (y) of its definition, the date the Corporation issues freely tradable shares of Common Stock in satisfaction of all conversions of Series C Preferred Stock in accordance with Article IV.A, or (iii) with respect to either type of a Conversion Default, the date on which the Corporation redeems shares of Series C Preferred Stock held by such holder pursuant to this Article VI.A. B. Buy-In Cure. Unless the Corporation has notified the applicable holder in writing prior to the delivery by such holder of a Notice of Conversion that the Corporation is unable to honor conversions, if (i) (a) the Corporation fails to promptly deliver during the Delivery Period shares of Common Stock to a holder upon a conversion of shares of Series C Preferred Stock or (b) there shall occur a Legend Removal Failure (as defined in Article VIII.A(ii) below) and (ii) thereafter, such holder purchases (in an open market transaction or otherwise) shares of Common Stock to make delivery in satisfaction of a sale by such holder of the unlegended shares of Common Stock (the "SOLD SHARES") which such holder anticipated receiving upon such conversion (a "BUY-IN"), the Corporation shall pay such holder (in addition to any other remedies available to the holder) the amount by which (x) such holder's total purchase price (including brokerage commissions, if any) for the unlegended shares of Common Stock so purchased exceeds (y) the net proceeds received by such holder from the sale of the Sold Shares. For example, if a holder purchases unlegended shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to shares of Common Stock it sold for $10,000, the Corporation will be required to pay the holder $1,000. A holder shall provide the Corporation written notification and supporting documentation indicating any amounts payable to such holder pursuant to this Paragraph B. The Corporation shall make any payments required pursuant to this Paragraph B in accordance with and subject to the provisions of Article XV.E. VII. INABILITY TO CONVERT DUE TO CAP AMOUNT A. Obligation to Cure. If at any time after the Issuance Date the then unissued portion of any holder's Cap Amount is less than 100% of the number of shares of Common Stock then issuable upon conversion of such holder's shares of Series C Preferred Stock, the Corporation shall immediately notify the holders of Series C Preferred Stock of such occurrence and each holder of Series C Preferred Stock shall thereafter have the option, exercisable in whole or in part at any time and from time to time, by delivery of a Redemption Notice (as defined in Article VIII.D) to the Corporation, to require the Corporation to purchase for cash, at an amount per share equal to the Redemption Amount (as defined in Article VIII.B), a number of the holder's shares of Series C Preferred Stock such that, after giving effect to such redemption, the then unissued portion of such holder's Cap Amount exceeds 100% of the total number of shares of Common Stock issuable upon conversion of such holder's shares of Series C Preferred Stock. If the Corporation fails to redeem any of such shares within five (5) business days after its receipt of such Redemption Notice, then such holder shall be entitled to the remedies provided in Article VIII.D. 8 VIII. REDEMPTION DUE TO CERTAIN EVENTS A. Redemption by Holder. In the event (each of the events described in clauses (i)-(vii) below after expiration of the applicable cure period (if any) being a "REDEMPTION EVENT"): (i) the registration statement required to be filed by the Corporation pursuant to Section 2(a) of the Registration Rights Agreement has not been declared effective by the 130th day following the Issuance Date or such registration statement, after being declared effective, cannot be utilized by the holders of Series C Preferred Stock for the resale of all of their Registrable Securities (as defined in the Registration Rights Agreement) for an aggregate of more than 30 days (other than as permitted under the Registration Rights Agreement); (ii) the Corporation fails to remove any restrictive legend on any certificate or any shares of Common Stock issued to the holders of Series C Preferred Stock upon conversion of the Series C Preferred Stock as and when required by this Certificate of Designation, the Securities Purchase Agreement, the Exchange Agreement or the Registration Rights Agreement (a "LEGEND REMOVAL FAILURE"), and any such failure continues uncured for five business days after the Corporation has been notified thereof in writing by the holder that the holder has complied with the terms of the Securities Purchase Agreement or the Exchange Agreement, as applicable, with respect to such legend removal; (iii) the Corporation provides written notice (or otherwise indicates) to any holder of Series C Preferred Stock, or states by way of public announcement distributed via a press release, at any time, of its intention not to issue, or otherwise refuses to issue, shares of Common Stock to any holder of Series C Preferred Stock upon conversion in accordance with the terms of this Certificate of Designation (other than due to the circumstances contemplated by Articles V or VII for which the holders shall have the remedies set forth in such Articles); (iv) the Corporation or any subsidiary of the Corporation shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed; (v) bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for the relief of debtors shall be instituted by the Corporation or any subsidiary of the Corporation; (vi) the Corporation shall: (a) sell, convey or dispose of all or substantially all of its assets (the presentation of any such transaction for stockholder approval being conclusive evidence that such transaction involves the sale of all or substantially all of the assets of the Corporation); (b) merge, consolidate or engage in any other business combination with any other entity (other than pursuant to a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Corporation and other than pursuant to a merger in which the Corporation is the surviving or continuing entity and its capital stock is unchanged) 9 provided that such merger, consolidation or business combination is required to be reported by the Company on a Current Report pursuant to Item 1 of Form 8-K, or any successor form; (c) either (i) fail to pay, when due, or within any applicable grace period, any payment with respect to any indebtedness of the Corporation in excess of $350,000 due to any third party, other than payments contested by the Corporation in good faith, or otherwise is in breach or violation of any agreement for monies owed or owing in an amount in excess of $350,000 which breach or violation permits the other party thereto to declare a default or otherwise accelerate amounts due thereunder, or (ii) suffer to exist any other default or event of default under any agreement binding the Corporation which default or event of default would or is likely to have a material adverse effect on the business, operations, properties, prospects or financial condition of the Corporation; or (d) on or prior to the second anniversary of the Issuance Date, issue or agree to issue any future equity or equity-linked securities or debt which is convertible into equity or in which there is an equity component (as the case may be, "ADDITIONAL SECURITIES"), except for any Excluded Issuance (as defined herein); or (vii) except with respect to matters covered by subparagraphs (i) - -- (vi) above, as to which such applicable subparagraphs shall apply, the Corporation otherwise shall breach any material term hereunder or under the Securities Purchase Agreement, the Exchange Agreement, the Registration Rights Agreement or the Warrants, including, without limitation, the representations and warranties contained therein (i.e., in the event of a material breach as of the date such representation and warranty was made) and if such breach is curable, shall fail to cure such breach within 10 business days after the Corporation has been notified thereof in writing by the holder; then, upon the occurrence of any such Redemption Event, each holder of shares of Series C Preferred Stock shall thereafter have the option, exercisable in whole or in part at any time and from time to time by delivery of a Redemption Notice (as defined in Paragraph D below) to the Corporation while such Redemption Event continues, to require the Corporation to purchase for cash any or all of the then outstanding shares of Series C Preferred Stock held by such holder for an amount per share equal to the Redemption Amount (as defined in Paragraph B below) in effect at the time of the redemption hereunder. For the avoidance of doubt, the occurrence of any event described in clauses (i), (iii), (iv) or (vi)(d) above shall immediately constitute a Redemption Event and there shall be no cure period. Upon the Corporation's receipt of any Redemption Notice hereunder (other than during the three trading day period following the Corporation's delivery of a Redemption Announcement (as defined below) to all of the holders in response to the Corporation's initial receipt of a Redemption Notice from a holder of Series C Preferred Stock), the Corporation shall immediately (and in any event within one business day following such receipt) deliver a written notice (a "REDEMPTION ANNOUNCEMENT") to all holders of Series C Preferred Stock stating the date upon which the Corporation received such Redemption Notice and the amount of Series C Preferred Stock covered thereby. The Corporation shall not redeem any shares of Series C Preferred Stock during the three trading day period following the delivery of a required Redemption Announcement hereunder. At any time and from time to time during such three trading day period, each holder of Series C Preferred Stock may request (either orally or in writing) information from the Corporation with respect to the instant redemption (including, but not limited to, the aggregate number of shares of 10 Series C Preferred Stock covered by Redemption Notices received by the Corporation) and the Corporation shall furnish (either orally or in writing) as soon as practicable such requested information to such requesting holder. B. Definition of Redemption Amount. The "REDEMPTION AMOUNT" with respect to a share of Series C Preferred Stock means an amount equal to the greater of: (i) V X M ----- C P and (ii) V X R where: "V" means the Face Amount thereof plus the accrued Premium thereon through the date of payment of the Redemption Amount; "CP" means the Conversion Price in effect on the date on which the Corporation receives the Redemption Notice; "M" means (i) with respect to all redemptions other than redemptions pursuant to Article VIII.A(vi) hereof, the highest Closing Sales Price of the Corporation's Common Stock during the period beginning on the date on which the Corporation receives the Redemption Notice and ending on the date immediately preceding the date of payment of the Redemption Amount and (ii) with respect to redemptions pursuant to Article VIII.A(vi) hereof, the greater of (a) the amount determined pursuant to clause (i) of this definition or (b) the fair market value, as of the date on which the Corporation receives the Redemption Notice, of the consideration payable to the holder of a share of Common Stock pursuant to the transaction which triggers the redemption. For purposes of this definition, "fair market value" shall be determined by the mutual agreement of the Corporation and holders of a majority-in-interest of the shares of Series C Preferred Stock then outstanding, or if such agreement cannot be reached within five business days prior to the date of redemption, by an investment banking firm selected by the Corporation and reasonably acceptable to holders of a majority-in-interest of the then outstanding shares of Series C Preferred Stock, with the costs of such appraisal to be borne by the Corporation; and "R" means 120%. C. [Intentionally omitted]. D. Redemption Defaults. If the Corporation fails to pay any holder the Redemption Amount with respect to any share of Series C Preferred Stock within five business days after its receipt of a notice requiring such redemption (a "REDEMPTION NOTICE"), then the holder of Series C Preferred Stock entitled to redemption shall be entitled to interest on the Redemption Amount at a per annum rate equal to the lower of twenty-four percent (24%) and the highest interest rate permitted by applicable law from the date on which the Corporation receives the Redemption Notice 11 until the date of payment of the Redemption Amount hereunder. In the event the Corporation is not able to redeem all of the shares of Series C Preferred Stock subject to Redemption Notices delivered prior to the date upon which such redemption is to be effected, the Corporation shall redeem shares of Series C Preferred Stock from each holder pro rata, based on the total number of shares of Series C Preferred Stock outstanding at the time of redemption included by such holder in all Redemption Notices delivered prior to the date upon which such redemption is to be effected relative to the total number of shares of Series C Preferred Stock outstanding at the time of redemption included in all of the Redemption Notices delivered prior to the date upon which such redemption is to be effected. IX. RANK All shares of the Series C Preferred Stock shall rank (i) prior to (a) the Corporation's Common Stock; and (b) any class or series of capital stock of the Corporation hereafter created (unless, with the consent of the holders of a majority of the Series C Preferred Stock obtained in accordance with Article XIII hereof, such class or series of capital stock specifically, by its terms, ranks senior to or pari passu with the Series C Preferred Stock) (collectively with the Common Stock, "JUNIOR SECURITIES"); (ii) pari passu with the Corporation's Series A Convertible Preferred Stock, Series B Convertible Preferred Stock and any other class or series of capital stock of the Corporation hereafter created (with the written consent of the holders of a majority of the Series C Preferred Stock obtained in accordance with Article XIII hereof) specifically ranking, by its terms, on parity with the Series C Preferred Stock (the "PARI PASSU SECURITIES"); and (iii) junior to any class or series of capital stock of the Corporation hereafter created (with the written consent of the holders of a majority of the Series C Preferred Stock obtained in accordance with Article XIII hereof) specifically ranking, by its terms, senior to the Series C Preferred Stock (collectively, the "SENIOR SECURITIES"), in each case as to distribution of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary. X. LIQUIDATION PREFERENCE A. If the Corporation shall commence a voluntary case under the U.S. Federal bankruptcy laws or any other applicable bankruptcy, insolvency or similar law, or consent to the entry of an order for relief in an involuntary case under any law or to the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or make an assignment for the benefit of its creditors, or admit in writing its inability to pay its debts generally as they become due, or if a decree or order for relief in respect of the Corporation shall be entered by a court having jurisdiction in the premises in an involuntary case under the U.S. Federal bankruptcy laws or any other applicable bankruptcy, insolvency or similar law resulting in the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and any such decree or order shall be unstayed and in effect for a period of 60 consecutive days and, on account of any such event, the Corporation shall liquidate, dissolve or wind up, or if the Corporation shall otherwise liquidate, dissolve or wind up, including, but not limited to, the sale or transfer of all or substantially all of the Corporation's assets in one transaction or in a series of related transactions (only in the event a holder does not elect its rights with respect to such sale of transfer as set forth in Article XI.B. if applicable) (a "LIQUIDATION EVENT"), no distribution shall be made to the holders of any shares of capital stock 12 of the Corporation (other than Senior Securities pursuant to the rights, preferences and privileges thereof) upon liquidation, dissolution or winding up unless prior thereto the holders of shares of Series C Preferred Stock shall have received the Liquidation Preference with respect to each share. If, upon the occurrence of a Liquidation Event, the assets and funds available for distribution among the holders of the Series C Preferred Stock and holders of Pari Passu Securities, if any, shall be insufficient to permit the payment to such holders of the preferential amounts payable thereon, then the entire assets and funds of the Corporation legally available for distribution to the Series C Preferred Stock and the Pari Passu Securities, if any, shall be distributed ratably among such shares in proportion to the ratio that the Liquidation Preference payable on each such share bears to the aggregate Liquidation Preference payable on all such shares. B. The purchase or redemption by the Corporation of stock of any class, in any manner permitted by law, shall not, for the purposes hereof, be regarded as a liquidation, dissolution or winding up of the Corporation. Neither the consolidation or merger of the Corporation with or into any other entity nor the sale or transfer by the Corporation of less than substantially all of its assets shall, for the purposes hereof, be deemed to be a liquidation, dissolution or winding up of the Corporation. C. The "LIQUIDATION PREFERENCE" with respect to a share of Series C Preferred Stock means an amount equal to the greater of (i) the Face Amount thereof plus the accrued Premium thereon through the date of final distribution or (ii) such amount as would have been payable per share of Series C Preferred Stock had each share of Series C Preferred Stock been converted into Common Stock in accordance with Article IV immediately prior to such liquidation, dissolution or winding up. The Liquidation Preference with respect to any Pari Passu Securities, if any, shall be as set forth in the Certificate of Designation filed in respect thereof. XI. ADJUSTMENTS TO THE CONVERSION PRICE The Conversion Price shall be subject to adjustment from time to time as follows: A. Stock Splits, Stock Dividends, Etc. If, at any time on or after the Issuance Date, the number of outstanding shares of Common Stock is increased by a stock split, stock dividend, combination, reclassification or other similar event, the Conversion Price shall be proportionately reduced, or if the number of outstanding shares of Common Stock is decreased by a reverse stock split, combination or reclassification of shares, or other similar event, the Conversion Price shall be proportionately increased. In such event, the Corporation shall notify the Corporation's transfer agent of such change on or before the effective date thereof. B. Adjustment Due to Merger, Consolidation, Etc. If, at any time after the Issuance Date, there shall be (i) any reclassification or change of the outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), (ii) any consolidation or merger of the Corporation with any other entity (other than a merger in which the Corporation is the surviving or continuing entity and its capital stock is unchanged), (iii) any sale or transfer of all or substantially all of the assets of the Corporation or (iv) any share exchange pursuant to which all of the outstanding shares of Common Stock are converted into other securities or property (each of (i) - (iv) above 13 being a "CORPORATE CHANGE"), then the holders of Series C Preferred Stock shall thereafter have the right to receive upon conversion, in lieu of the shares of Common Stock otherwise issuable, such shares of stock, securities and/or other property as would have been issued or payable in such Corporate Change with respect to or in exchange for the number of shares of Common Stock which would have been issuable upon conversion had such Corporate Change not taken place, and in any such case, appropriate provisions (in form and substance reasonably satisfactory to the holders of a majority of the Series C Preferred Stock then outstanding) shall be made with respect to the rights and interests of the holders of the Series C Preferred Stock to the end that the economic value of the shares of Series C Preferred Stock are in no way diminished by such Corporate Change and that the provisions hereof (including, without limitation, in the case of any such consolidation, merger or sale in which the successor entity or purchasing entity is not the Corporation, an immediate adjustment of the Conversion Price so that the Conversion Price immediately after the Corporate Change reflects the same relative value as compared to the value of the surviving entity's common stock that existed between the Conversion Price and the value of the Corporation's Common Stock immediately prior to such Corporate Change shall thereafter be applicable, as nearly as may be practicable in relation to any shares of stock or securities thereafter deliverable upon the conversion thereof). The Corporation shall not effect any Corporate Change unless (i) each holder of Series C Preferred Stock has received written notice of such transaction at least 45 days prior thereto, but in no event later than 15 days prior to the record date for the determination of stockholders entitled to vote with respect thereto, (ii) if required by Section 4(j) of the Securities Purchase Agreement, the consent of the Purchasers (as defined in the Securities Purchase Agreement) shall have been obtained in accordance with such Section 4(j), and (iii) the resulting successor or acquiring entity (if not the Corporation) assumes by written instrument (in form and substance reasonable satisfactory to the holders of a majority of the Series C Preferred Stock) the obligations of this Certificate of Designation (including, without limitation, the obligation to make payments of Premium accrued but unpaid through the date of such consolidation, merger or sale and accruing thereafter). The above provisions shall apply regardless of whether or not there would have been a sufficient number of shares of Common Stock authorized and available for issuance upon conversion of the shares of Series C Preferred Stock outstanding as of the date of such transaction, and shall similarly apply to successive reclassifications, consolidations, mergers, sales, transfers or share exchanges. C. [Intentionally omitted]. D. Adjustment Due to Distribution. If, at any time after the Issuance Date, the Corporation shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a partial liquidating dividend, by way of return of capital or otherwise (including any dividend or distribution to the Corporation's stockholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a "DISTRIBUTION"), then the holders of Series C Preferred Stock shall be entitled, upon any conversion of shares of Series C Preferred Stock after the date of record for determining stockholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the holder with respect to the shares of Common Stock issuable upon such conversion had such holder been the holder of such shares of Common Stock on the record date for the determination of stockholders entitled to such Distribution. If the Distribution involves rights, warrants, options or any other form of convertible securities and the right to exercise or convert such securities would expire in accordance with its terms prior to the conversion of the Series C Preferred Stock, then the terms of such securities shall 14 provide that such exercise or convertibility right shall remain in effect until 30 days after the date the holder of Series C Preferred Stock receives such securities pursuant to the conversion hereof. E. [Intentionally omitted]. F. Purchase Rights. If, at any time after the Issuance Date, the Corporation issues any securities which are convertible into or exercisable or exchangeable for Common Stock ("CONVERTIBLE SECURITIES") or rights to purchase stock, warrants, securities or other property (the "PURCHASE RIGHTS") pro rata to the record holders of any class of Common Stock, then the holders of Series C Preferred Stock will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder had held the number of shares of Common Stock acquirable upon complete conversion of the Series C Preferred Stock (without giving effect to the limitations contained in Article IV.D) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. G. [Intentionally omitted]. H. Exceptions to Adjustment of Conversion Price. No adjustment to the Conversion Price will be made (i) upon the exercise of any warrants, options or convertible securities issued and outstanding on the Issuance Date that are set forth on Schedule 3(d) of the Securities Purchase Agreement and the Exchange Agreement in accordance with the terms of such securities as of such date; (ii) upon the grant or exercise of any stock or options to employees, directors or consultants of the Corporation which may hereafter be granted to or exercised by any employee, director or consultant under any stock option or similar benefit plan of the Corporation now existing or to be implemented in the future, so long as the issuance of such stock or options is approved by a majority of the Board of Directors of the Corporation or a majority of the members of a committee of non-employee directors established for such purpose; (iii) upon issuance or conversion of the Series C Preferred Stock or exercise of the Warrants, (iv) the issuance of securities in connection with strategic business partnerships or joint ventures (including, without limitation, such transactions with major pharmaceutical lab or life sciences companies), the primary purpose of which transactions, in the reasonable judgment of the Board of Directors, is not to raise additional capital, or (v) the issuance of securities pursuant to any equipment financing from a bank or similar financial or lending institution approved by the Board of Directors (any such issuance in accordance with one of the foregoing clauses (i) through (v), an "EXCLUDED ISSUANCE"). I. Notice of Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Article XI amounting to a more than 5% change in such Conversion Price, the Corporation, at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to each holder of Series C Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series C Preferred Stock, furnish to such holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of 15 Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of a share of Series C Preferred Stock. J. Other Action Affecting Conversion Price. If the Corporation takes any action affecting the Common Stock after the date hereof that would be covered by Article XI.A through H, but for the manner in which such action is taken or structured, which would in any way diminish the value of the Series C Preferred Stock, then the Conversion Price shall be adjusted in such manner as the Board of Directors of the Corporation shall in good faith determine to be equitable under the circumstances. XII. VOTING RIGHTS The holders of the Series C Preferred Stock have no voting power whatsoever, except as otherwise provided by the Delaware General Corporation Law (the "BUSINESS CORPORATION Law"), in this Article XII and in Article XIII below. Notwithstanding the above, the Corporation shall provide each holder of Series C Preferred Stock with prior notification of any meeting of the stockholders (and copies of proxy materials and other information sent to stockholders). If the Corporation takes a record of its stockholders for the purpose of determining stockholders entitled to (a) receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation or recapitalization) any share of any class or any other securities or property, or to receive any other right, or (b) to vote in connection with any proposed sale, lease or conveyance of all or substantially all of the assets of the Corporation, or any proposed merger, consolidation, liquidation, dissolution or winding up of the Corporation, the Corporation shall mail a notice to each holder, at least 15 days prior to the record date specified therein (or 45 days prior to the consummation of the transaction or event, whichever is earlier, but in no event earlier than public announcement of such proposed transaction), of the date on which any such record is to be taken for the purpose of such vote, dividend, distribution, right or other event, and a brief statement regarding the amount and character of such vote, dividend, distribution, right or other event to the extent known at such time. To the extent that under the Business Corporation Law the vote of the holders of the Series C Preferred Stock, voting separately as a class or series, as applicable, is required to authorize a given action of the Corporation, the affirmative vote or consent of the holders of at least a majority of the then outstanding shares of the Series C Preferred Stock represented at a duly held meeting at which a quorum is present or by written consent of the holders of at least a majority of the then outstanding shares of Series C Preferred Stock (except as otherwise may be required under the Business Corporation Law) shall constitute the approval of such action by the class. To the extent that under the Business Corporation Law holders of the Series C Preferred Stock are entitled to vote on a matter with holders of Common Stock, voting together as one class, each share of Series C Preferred Stock shall be entitled to a number of votes equal to the number of shares of Common Stock into which it is then convertible (subject to the limitations contained in Article IV.D(ii)) using the record date for the taking of such vote of stockholders as the date as of which the Conversion Price is calculated. 16 XIII. PROTECTION PROVISIONS So long as any shares of Series C Preferred Stock are outstanding, the Corporation shall not take any of the following corporate actions (whether by merger, consolidation or otherwise) without first obtaining the approval (by vote or written consent, as provided by the Business Corporation Law) of the holders of a majority of the then outstanding shares of Series C Preferred Stock: (a) alter or change the rights, preferences or privileges of the Series C Preferred Stock; (b) alter or change the rights, preferences or privileges of any capital stock of the Corporation so as to affect adversely the Series C Preferred Stock; (c) create any Senior Securities; (d) create any Pari Passu Securities; (e) increase the authorized number of shares of Series C Preferred Stock; (f) issue any shares of Senior Securities or Pari Passu Securities; (g) issue any shares of Series C Preferred Stock other than pursuant to the Securities Purchase Agreement or the Notes issued pursuant to the Exchange Agreement; (h) redeem, or declare or pay any cash dividend or distribution on, any Junior Securities; (i) increase the par value of the Common Stock; or (j) issue any debt securities that would have any preferences over the Series C Preferred Shares upon liquidation of the Corporation. Notwithstanding the foregoing, no change pursuant to this Article XIII shall be effective to the extent that, by its terms, it applies to less than all of the holders of shares of Series C Preferred Stock then outstanding. XIV. PARTICIPATION RIGHT A. Participation Right. Subject to the terms and conditions specified in this Article XIV, until the second anniversary of the Issuance Date, the holders of shares of Series C Preferred Stock shall have a right to participate with respect to the issuance or possible issuance of any Additional Securities on the same terms and conditions as offered by the Corporation to the other purchasers of such Additional Securities. Each time the Corporation proposes to offer any Additional Securities, the Corporation shall make an offering of such Additional Securities to each holder of shares of Series C Preferred Stock in accordance with the following provisions: (i) The Corporation shall deliver a notice (the "ISSUANCE NOTICE") to the holders of shares of Series C Preferred Stock stating (a) its bona fide intention to offer such Additional 17 Securities, (b) the number of such Additional Securities to be offered, (c) the price and terms, if any, upon which it proposes to offer such Additional Securities, and (d) the anticipated closing date of the sale of such Additional Securities. (ii) By written notification received by the Corporation, within twenty (20) days after giving of the Issuance Notice, any holder of shares of Series C Preferred Stock may elect to purchase or obtain, at the price and on the terms specified in the Issuance Notice, up to that number of such Additional Securities which equals such holder's Pro Rata Amount (as defined below). The "PRO RATA AMOUNT" for any given holder of shares of Series C Preferred Stock shall equal that portion of the Additional Securities that the Corporation proposes to offer which equals the proportion that the number of shares of Common Stock that such holder owns or has the right to acquire (without giving effect to the limitations contained in Article IV.D) bears to the total number of shares of Common Stock then outstanding (assuming in each case the full conversion and exercise of all convertible and exercisable securities then outstanding); provided, however, that in the event that any such holder exercises its right to redeem its shares of Series C Preferred Stock in connection with the issuance of such Additional Securities (as provided in Article VIII.A(vi)(d)), then such holder's Pro Rata Amount shall be increased (but not decreased) to the extent necessary to equal (x) such number of shares of Common Stock (if the Additional Securities being issued are Common Stock) or (y) that number of Additional Securities as are convertible into or exchangeable for such number of shares of Common Stock (if the Additional Securities being issued are Convertible Securities), as is obtained by dividing (a) the Redemption Amount attributable to such holder's shares of Series C Preferred Stock being redeemed by (b) (i) the price per share at which such Common Stock is being issued (if the Additional Securities being issued are Common Stock) or (ii) the conversion or exchange price at which such Additional Securities are convertible into or exchangeable for shares of Common Stock (if the Additional Securities being issued are Convertible Securities), and in such event the Corporation shall be obligated to sell such number of Additional Securities to each such holder, even if the aggregate Pro Rata Amount for all such holders exceeds the aggregate amount of Additional Securities that the Corporation had initially proposed to offer. The Corporation shall promptly, in writing, inform each holder of shares of Series C Preferred Stock which elects to purchase all of the Additional Shares available to it ("FULLY-EXERCISING HOLDER") of any other holder's failure to do likewise. During the five-day period commencing after such information is given, each Fully-Exercising Holder shall be entitled to obtain that portion of the Additional Securities for which the holders of shares of Series C Preferred Stock were entitled to subscribe but which were not subscribed for by such holders which is equal to the proportion that the number of shares of Series C Preferred Stock held by such Fully-Exercising Holder bears to the total number of shares of Series C Preferred Stock held by all Fully-Exercising Holders who wish to purchase some of the unsubscribed shares. (iii) If all Additional Securities which the holders of shares of Series C Preferred Stock are entitled to obtain pursuant to Article XIV.A(ii) are not elected to be obtained as provided in Article XIV.A(ii) hereof, the Corporation may, during the 75-day period following the expiration of the period provided in Article XIV.A(ii) hereof, offer the remaining unsubscribed portion of such Additional Securities to any person or persons at a price not less than, and upon terms no more favorable to the offeree than, those specified in the Issuance Notice. If the Corporation does not consummate the sale of such Additional Securities within such period, the right provided hereunder shall be deemed to be revived and such Additional Securities shall not be offered or sold unless first 18 reoffered to the holders of shares of Series C Preferred Stock in accordance herewith. (iv) The participation right in this Article XIV shall not be applicable to (a) any Excluded Issuance, or (b) any issuance of securities as to which the holders of a majority of the then outstanding shares of Series C Preferred Stock shall have executed a written waiver of the rights contained in this Article XIV. (v) The participation right set forth in this Article XIV may not be assigned or transferred, except that such right is assignable by each holder of shares of Series C Preferred Stock to any wholly-owned subsidiary or parent of, or to any corporation or entity that is, within the meaning of the Securities Act, controlling, controlled by or under common control with, any such holder. B. Prohibition on Issuance of Additional Securities. Notwithstanding any other provision in this Certificate of Designation to the contrary, the Corporation shall not be permitted to issue any Additional Securities to any party (including, without limitation, the holders of Series C Preferred Stock pursuant to this Article XIV) in the event that the Corporation is currently in default (or an event has occurred that, with notice or lapse of time or both, would put the Corporation in default) of its redemption obligations pursuant to this Certificate of Designation. XV. MISCELLANEOUS A. Cancellation of Series C Preferred Stock. If any shares of Series C Preferred Stock are converted pursuant to Article IV or redeemed or repurchased by the Corporation, the shares so converted or redeemed shall be canceled, shall return to the status of authorized, but unissued preferred stock of no designated series, and shall not be issuable by the Corporation as Series C Preferred Stock. B. Lost or Stolen Certificates. Upon receipt by the Corporation of (i) evidence of the loss, theft, destruction or mutilation of any Preferred Stock Certificate(s) and (ii) (y) in the case of loss, theft or destruction, of indemnity (without any bond or other security) reasonably satisfactory to the Corporation, or (z) in the case of mutilation, upon surrender and cancellation of the Preferred Stock Certificate(s), the Corporation shall execute and deliver new Preferred Stock Certificate(s) of like tenor and date. However, the Corporation shall not be obligated to reissue such lost or stolen Preferred Stock Certificate(s) if the holder contemporaneously requests the Corporation to convert such Series C Preferred Stock. C. Allocation of Cap Amount and Reserved Amount. The initial Cap Amount and Reserved Amount shall be allocated pro rata among the holders of Series C Preferred Stock based on the number of shares of Series C Preferred Stock issued to each holder. Each increase to the Cap Amount and the Reserved Amount shall be allocated pro rata among the holders of Series C Preferred Stock based on the number of shares of Series C Preferred Stock held by each holder at the time of the increase in the Cap Amount or Reserved Amount. In the event a holder shall sell or otherwise transfer any of such holder's shares of Series C Preferred Stock, each transferee shall be allocated a pro rata portion of such transferor's Cap Amount and Reserved Amount. Any portion of the Cap Amount or Reserved Amount which remains allocated to any person or entity which does 19 not hold any Series C Preferred Stock shall be allocated to the remaining holders of shares of Series C Preferred Stock, pro rata based on the number of shares of Series C Preferred Stock then held by such holders. D. Quarterly Statements of Available Shares. For each calendar quarter beginning in the quarter in which the initial registration statement required to be filed pursuant to Section 2(a) of the Registration Rights Agreement is declared effective and thereafter so long as any shares of Series C Preferred Stock are outstanding, the Corporation shall deliver (or cause its transfer agent to deliver) to each holder a written report notifying the holders of any occurrence which prohibits the Corporation from issuing Common Stock upon any such conversion. The report shall also specify (i) the total number of shares of Series C Preferred Stock outstanding as of the end of such quarter, (ii) the total number of shares of Common Stock issued upon all conversions of Series C Preferred Stock prior to the end of such quarter, (iii) the total number of shares of Common Stock which are reserved for issuance upon conversion of the Series C Preferred Stock as of the end of such quarter and (iv) the total number of shares of Common Stock which may thereafter be issued by the Corporation upon conversion of the Series C Preferred Stock before the Corporation would exceed the Cap Amount and the Reserved Amount. The Corporation (or its transfer agent) shall use its best efforts to deliver the report for each quarter to each holder prior to the tenth day of the calendar month following the quarter to which such report relates. In addition, the Corporation (or its transfer agent) shall provide, as promptly as practicable delivery to the Corporation of a written request by any holder, any of the information enumerated in clauses (i) - (iv) of this Paragraph D as of the date of such request. E. Payment of Cash; Defaults. Whenever the Corporation is required to make any cash payment to a holder under this Certificate of Designation (as payment of any Premium, upon redemption or otherwise), such cash payment shall be made to the holder within five business days after delivery by such holder of a notice specifying that the holder elects to receive such payment in cash and the method (e.g., by check, wire transfer) in which such payment should be made and any supporting documentation reasonably requested by the Corporation to substantiate the holder's claim to such cash payment or the amount thereof. If such payment is not delivered within such five business day period, such holder shall thereafter be entitled to interest on the unpaid amount at a per annum rate equal to the lower of eighteen percent (18%) and the highest interest rate permitted by applicable law until such amount is paid in full to the holder. F. Status as Stockholder. Upon submission of a Notice of Conversion by a holder of Series C Preferred Stock, (i) the shares covered thereby (other than the shares, if any, which cannot be issued because their issuance would exceed such holder's allocated portion of the Reserved Amount or Cap Amount) shall be deemed converted into shares of Common Stock and (ii) the holder's rights as a holder of such converted shares of Series C Preferred Stock shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such holder because of a failure by the Corporation to comply with the terms of this Certificate of Designation. In situations where Article VI.B is applicable, the number of shares of Common Stock referred to in clauses (i) and (ii) of the immediately preceding sentence shall be determined on the date on which such shares of Common Stock are delivered to the holder. Notwithstanding the foregoing, if a holder has not received certificates for all shares of Common Stock prior to the sixth business day after the 20 expiration of the Delivery Period with respect to a conversion of Series C Preferred Stock for any reason, then (unless the holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Corporation within five business days after the expiration of such 6 business day period after expiration of the Delivery Period) the holder shall regain the rights of a holder of Series C Preferred Stock with respect to such unconverted shares of Series C Preferred Stock and the Corporation shall, as soon as practicable, return such unconverted shares to the holder. In all cases, the holder shall retain all of its rights and remedies for the Corporation's failure to convert Series C Preferred Stock. G. Remedies Cumulative. The remedies provided in this Certificate of Designation shall be cumulative and in addition to all other remedies available under this Certificate of Designation, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit a holder's right to pursue actual damages for any failure by the Corporation to comply with the terms of this Certificate of Designation. The Corporation acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the holders of Series C Preferred Stock and that the remedy at law for any such breach may be inadequate. The Corporation therefore agrees, in the event of any such breach or threatened breach, that the holders of Series C Preferred Stock shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required. H. Waiver. Notwithstanding any provision in this Certificate of Designation to the contrary, any provision contained herein and any right of the holders of Series C Preferred Stock granted hereunder may be waived as to all shares of Series C Preferred Stock (and the holders thereof) upon the written consent of the holders of not less than a majority of the shares of Series C Preferred Stock then outstanding, unless a higher percentage is required by applicable law, in which case the written consent of the holders of not less than such higher percentage shall be required. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 21 IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf of the Corporation this 15th day of November, 2002. VIROLOGIC, INC. By: /s/ WILLIAM D. YOUNG --------------------------------- Name: William D. Young Title: Chairman & CEO 22 NOTICE OF CONVERSION (To be Executed by the Registered Holder in order to Convert the Series C Preferred Stock) The undersigned hereby irrevocably elects to convert ____________ shares of Series C Preferred Stock (the "CONVERSION"), represented by stock certificate No(s). ___________ (the "PREFERRED STOCK CERTIFICATES"), into shares of common stock ("COMMON STOCK") of ViroLogic, Inc. (the "CORPORATION") according to the conditions of the Certificate of Designations, Preferences and Rights of Series C Convertible Preferred Stock (the "CERTIFICATE OF DESIGNATION"), as of the date written below. If securities are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. No fee will be charged to the holder for any conversion, except for transfer taxes, if any. Each Preferred Stock Certificate is attached hereto (or evidence of loss, theft or destruction thereof). Except as may be provided below, the Corporation shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee (which is _________________) with DTC through its Deposit Withdrawal Agent Commission System ("DTC TRANSFER"). The undersigned acknowledges and agrees that all offers and sales by the undersigned of the securities issuable to the undersigned upon conversion of the Series C Preferred Stock have been or will be made only pursuant to an effective registration of the transfer of the Common Stock under the Securities Act of 1933, as amended (the "ACT"), or pursuant to an exemption from registration under the Act. [ ] In lieu of receiving the shares of Common Stock issuable pursuant to this Notice of Conversion by way of DTC Transfer, the undersigned hereby requests that the Corporation issue and deliver to the undersigned physical certificates representing such shares of Common Stock. Date of Conversion: ------------------------------ Applicable Conversion Price: --------------------- Signature: --------------------------------------- Name: -------------------------------------------- Address: ----------------------------------------- ----------------------------------------- ----------------------------------------- 23 EX-10.1 7 a86207exv10w1.txt EXHIBIT 10.1 EXHIBIT 10.1 SECURITIES PURCHASE AGREEMENT SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of November 14, 2002, between ViroLogic, Inc., a corporation organized under the laws of the State of Delaware (the "COMPANY"), and each of the purchasers (individually, a "PURCHASER" and collectively the "PURCHASERS") set forth on the execution pages hereof (the "EXECUTION PAGES, and each an "EXECUTION PAGE"). WHEREAS: A. The Company and each Purchaser are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the provisions of Regulation D ("REGULATION D"), as promulgated by the United States Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "SECURITIES ACT"). B. The Company desires to sell, and each Purchaser desires to purchase, upon the terms and conditions stated in this Agreement, units (the "UNITS"), each Unit consisting of (i) one share of the Company's Series C Convertible Preferred Stock, par value $.001 per share (the "PREFERRED SHARES"), convertible into approximately 8,264.46 shares of the Company's common stock, par value $.001 per share (the "COMMON STOCK"), and (ii) a warrant, in the form attached hereto as Exhibit B (the "WARRANTS"), to acquire approximately 6,198.35 shares of Common Stock. The rights, preferences and privileges of the Preferred Shares, including the terms upon which such Preferred Shares are convertible into shares of Common Stock, are set forth in the form of Certificate of Designations, Preferences and Rights attached hereto as Exhibit A (the "CERTIFICATE OF DESIGNATION"). The shares of Common Stock issuable upon conversion of the Preferred Shares pursuant to the Certificate of Designation are referred to herein as the "CONVERSION SHARES" and the shares of Common Stock issuable upon exercise of or otherwise pursuant to the Warrants are referred to herein as the "WARRANT SHARES." The Preferred Shares, the Warrants, the Conversion Shares and the Warrant Shares are collectively referred to herein as the "SECURITIES" and each of them may individually be referred to herein as a "SECURITY." C. In connection with the Closing (as defined herein) pursuant to this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement, in the form attached hereto as Exhibit C (the "REGISTRATION RIGHTS AGREEMENT"), pursuant to which the Company has agreed to provide certain registration rights under the Securities Act and the rules and regulations promulgated thereunder, and applicable state securities laws. This Agreement, the Certificate of Designation, the Warrants and the Registration Rights Agreement are collectively referred to herein as the "TRANSACTION DOCUMENTS." NOW, THEREFORE, the Company and the Purchasers hereby agree as follows: 1. PURCHASE AND SALE OF UNITS. (a) Purchase of Units. The issuance, sale and purchase of the Units shall take place in one closing, which is referred to herein as the "CLOSING." On the Closing Date (as defined below), subject to the satisfaction (or waiver) of the conditions set forth in Section 6 and Section 7 below, the Company shall issue and sell to each Purchaser, and each Purchaser agrees to purchase from the Company, such number of Units as is set forth on such Purchaser's Execution Page attached hereto. The purchase price (the "PURCHASE PRICE") per Unit shall be equal to Ten Thousand Dollars ($10,000). (b) Form of Payment. On the Closing Date, each Purchaser shall pay the applicable purchase price by wire transfer to the Company in accordance with the Company's written wiring instructions, against delivery of the Units being purchased at the Closing by such Purchaser, and the Company shall deliver such Units against delivery of the applicable purchase price. (c) Closing Date. Subject to the satisfaction (or waiver) of the conditions thereto set forth in Section 6 and Section 7 below, the date and time of the issuance and sale of the Units to each of the Purchasers pursuant to this Agreement at the Closing shall be 12:00 noon, New York City time, on November 18, 2002, subject to a two business day grace period at either party's option, but in any event not later than November 20, 2002, or such other time as may be mutually agreed upon by the Company and the Purchasers purchasing a majority of the Units at the Closing (the "CLOSING DATE"). The Closing shall occur at the offices of Drinker Biddle & Reath LLP at One Logan Square, 18th & Cherry Streets, Philadelphia, PA 19103. 2. PURCHASER'S REPRESENTATIONS AND WARRANTIES. Each Purchaser severally, but not jointly, represents and warrants to the Company as follows: (a) Purchase for Own Account, Etc.. Such Purchaser is purchasing the Units for such Purchaser's own account and not with a present view towards the public sale or distribution thereof, except pursuant to sales that are exempt from the registration requirements of the Securities Act and/or sales registered under the Securities Act. Such Purchaser understands that Purchaser must bear the economic risk of this investment indefinitely, unless the Securities are registered pursuant to the Securities Act and any applicable state securities or blue sky laws or an exemption from such registration is available, and that the Company has no present intention of registering the resale of any such Securities other than as contemplated by the Registration Rights Agreement. Notwithstanding anything in this Section 2(a) to the contrary, by making the representations herein, the Purchaser does not agree to hold the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption from the registration requirements under the Securities Act. (b) Accredited Investor Status. Such Purchaser is an "ACCREDITED INVESTOR" as that term is defined in Rule 501(a) of Regulation D under the Securities Act; the Purchaser is also knowledgeable, sophisticated and experienced in making, and is qualified to make decisions with respect to, investments in shares presenting an investment decision like that involved in the purchase of the Units, including investments in securities issued by the Company and investments in comparable companies; and the Purchaser has requested, received, reviewed and considered all information it deems relevant in making an informed decision to purchase the Units. (c) Reliance on Exemptions. Such Purchaser understands that the Units are being offered and sold to such Purchaser in reliance upon specific exemptions from the registration 2 requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and such Purchaser's compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of such Purchaser to acquire the Securities. (d) Information. Such Purchaser and its counsel, if any, have been furnished all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been specifically requested by such Purchaser or its counsel. Such Purchaser and its counsel have been afforded the opportunity to ask questions of the Company and have received what such Purchaser believes to be satisfactory answers to any such inquiries. Neither such inquiries nor any other investigation conducted by such Purchaser or its counsel or any of its representatives shall modify, amend or affect such Purchaser's right to rely on the Company's representations and warranties contained in Section 3 below. Such Purchaser understands that such Purchaser's investment in the Securities involves a high degree of risk. (e) Governmental Review. Such Purchaser understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities. (f) Transfer or Resale. Such Purchaser understands that (i) except as provided in the Registration Rights Agreement, the sale or resale of the Securities have not been and are not being registered under the Securities Act or any state securities laws, and the Securities may not be transferred unless (a) the transfer is made pursuant to and as set forth in an effective registration statement under the Securities Act covering the Securities; or (b) such Purchaser shall have delivered to the Company an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration; or (c) sold under and in compliance with Rule 144 promulgated under the Securities Act (or a successor rule) ("RULE 144"); or (d) sold or transferred in accordance with applicable securities laws to an affiliate of such Purchaser who agrees to sell or otherwise transfer the Securities only in accordance with the provisions of this Section 2(f) and who is an Accredited Investor; and (ii) neither the Company nor any other person is under any obligation to register such Securities under the Securities Act or any state securities laws (other than pursuant to the Registration Rights Agreement). Notwithstanding the foregoing or anything else contained herein to the contrary, the Securities may be pledged as collateral in connection with a bona fide margin account or other lending arrangement, provided such pledge is consistent with applicable laws, rules and regulations. (g) Legends. Such Purchaser understands that the certificates for the Preferred Shares, Warrants and, until such time as the Conversion Shares and Warrant Shares have been registered under the Securities Act (including registration pursuant to Rule 416 thereunder) as contemplated by the Registration Rights Agreement or otherwise may be sold by such Purchaser under Rule 144(k), the certificates for the Conversion Shares and Warrant Shares shall bear a restrictive legend in substantially the following form: 3 The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended, or the securities laws of any state of the United States or in any other jurisdiction. The securities represented hereby may not be offered, sold or transferred in the absence of an effective registration statement for the securities under applicable securities laws unless offered, sold or transferred pursuant to an available exemption from the registration requirements of those laws. The Company agrees that at any time the Registration Statement is effective, and assuming compliance with the applicable provisions of the Certificate of Designation or the Warrant, as applicable, the Company shall instruct its transfer agent to issue (and provide such transfer agent with any additional documentation that may be necessary to cause the Conversion Shares and the Warrant Shares to be issued without the restrictive legend above), in connection with the issuance of the Conversion Shares and Warrant Shares, certificates representing such Conversion Shares and Warrant Shares without the restrictive legend above, provided such Conversion Shares and Warrant Shares are to be sold pursuant to the prospectus contained in the Registration Statement. The parties acknowledge that the Company has certain rights with respect to transfers of the Securities as set forth in the Registration Rights Agreements. The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of any Security upon which it is stamped, if, unless otherwise required by state securities laws, (a) the sale of such Security is registered under the Securities Act (including registration pursuant to Rule 416 thereunder) as contemplated by the Registration Rights Agreement and the Security is sold pursuant to and as set forth in such Registration Statement and in the Securities Act; (b) such holder provides the Company with an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Security may be made without registration under the Securities Act; or (c) such holder provides the Company with reasonable assurances that such Security can be sold under Rule 144. In the event the above legend is removed from any Security and thereafter the effectiveness of a registration statement covering such Security is suspended or the Company determines that a supplement or amendment thereto is required by applicable securities laws, then upon reasonable advance written notice to such Purchaser the Company may require that the above legend be placed on any such Security that cannot then be sold pursuant to an effective registration statement or under Rule 144 and such Purchaser shall cooperate in the replacement of such legend. Such legend shall thereafter be removed when such Security may again be sold pursuant to an effective registration statement or under Rule 144. (h) Authorization; Enforcement. This Agreement and the Registration Rights Agreement have been duly and validly authorized, executed and delivered on behalf of such Purchaser and are valid and binding agreements of such Purchaser enforceable against such Purchaser in accordance with their terms. (i) Residency. Such Purchaser is a resident of the jurisdiction set forth under such Purchaser's name on the Execution Page hereto executed by such Purchaser. 4 The Purchasers' representations and warranties made in this Article 2 are made solely for the purpose of permitting the Company to make a determination that the offer and sale of the Preferred Shares and Warrants pursuant to this Agreement complies with applicable U.S. federal and state securities laws and not for any other purpose. Accordingly, the Company should not rely on such representations and warranties for any other purpose. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth on a Schedule of Exceptions executed and delivered by the Company to the Purchasers at Closing (the "SCHEDULE OF EXCEPTIONS"), the Company represents and warrants to each Purchaser as follows: (a) Organization and Qualification. The Company and each of its subsidiaries is a corporation duly organized and existing in good standing under the laws of the jurisdiction in which it is incorporated, and has the requisite corporate power to own its properties and to carry on its business as now being conducted. The Company and each of its subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary and where the failure so to qualify would have a Material Adverse Effect. "MATERIAL ADVERSE EFFECT" means any material adverse effect on (i) the Securities, (ii) the ability of the Company to perform its obligations hereunder or under the Certificate of Designation, the Warrants or the Registration Rights Agreement or (iii) the business, operations, properties, prospects or financial condition of the Company and its subsidiaries, taken as a whole. (b) Authorization; Enforcement. (i) The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement, the Warrants and the Registration Rights Agreement, to issue and sell the Units in accordance with the terms hereof, to issue the Conversion Shares upon conversion of the Preferred Shares in accordance with the terms of the Certificate of Designation and to issue the Warrant Shares upon exercise of the Warrants in accordance with the terms of such Warrants; (ii) the execution, delivery and performance of this Agreement, the Warrants and the Registration Rights Agreement by the Company and the consummation by it of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Preferred Shares and Warrants and the issuance and reservation for issuance of the Conversion Shares and Warrant Shares) have been duly authorized by the Company's Board of Directors and no further consent or authorization of the Company, its Board of Directors, or any committee of the Board of Directors is required, and (iii) this Agreement constitutes, and, upon execution and delivery by the Company of the Warrants and the Registration Rights Agreement, such agreements will constitute, valid and binding obligations of the Company enforceable against the Company in accordance with their terms. (c) Stockholder Authorization. Neither the execution, delivery or performance by the Company of this Agreement, the Warrants or the Registration Rights Agreement nor the consummation by it of the transactions contemplated hereby or thereby (including, without limitation, the issuance of the Preferred Shares or Warrants or the issuance or reservation for issuance of the Conversion Shares or Warrant Shares) requires any consent or authorization of the Company's stockholders. 5 (d) Capitalization. The capitalization of the Company as of the date hereof, including the authorized capital stock, the number of shares issued and outstanding, the number of shares issuable and reserved for issuance pursuant to the Company's stock option plans, the number of shares issuable and reserved for issuance pursuant to securities (other than the Preferred Shares and Warrants) exercisable or exchangeable for, or convertible into, any shares of capital stock and the number of shares to be reserved for issuance upon conversion of the Preferred Shares and exercise of the Warrants is set forth on Schedule 3(d) of the Schedule of Exceptions. All of such outstanding shares of capital stock have been, or upon issuance in accordance with the terms of any such warrants, options or preferred stock, will be, validly issued, fully paid and non-assessable. No shares of capital stock of the Company (including the Preferred Shares, the Conversion Shares and the Warrant Shares) are subject to preemptive rights or any other similar rights of the stockholders of the Company or any liens or encumbrances. Except for the Securities and as set forth on Schedule 3(d) of the Schedule of Exceptions, as of the date of this Agreement, (i) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exercisable or exchangeable for, any shares of capital stock of the Company or any of its subsidiaries, or arrangements by which the Company or any of its subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its subsidiaries, nor are any such issuances or arrangements contemplated, and (ii) there are no agreements or arrangements under which the Company or any of its subsidiaries is obligated to register the sale of any of its or their securities under the Securities Act (except the Registration Rights Agreements). Schedule 3(d) of the Schedule of Exceptions sets forth all of the Company issued securities or instruments containing antidilution or similar provisions that will be triggered by, and all of the resulting adjustments that will be made to such securities and instruments as a result of, the issuance of the Securities in accordance with the terms of this Agreement, the Certificate of Designation or the Warrants. The Company has furnished to the Purchasers true and correct copies of the Company's Certificate of Incorporation as in effect on the date hereof ("CERTIFICATE OF INCORPORATION"), the Company's By-laws as in effect on the date hereof (the "BY-LAWS"), and all other instruments and agreements governing securities convertible into or exercisable or exchangeable for capital stock of the Company. The Certificate of Designation, in the form attached hereto, will be duly filed prior to Closing with the Secretary of State of the State of Delaware and, upon the issuance of the Preferred Shares in accordance with the terms hereof, each Purchaser shall be entitled to the rights set forth therein. (e) Issuance of Shares. The Preferred Shares are duly authorized and, upon issuance in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and encumbrances (other than restrictions on transfer contained in this Agreement and in the Registration Rights Agreements) and will not be subject to preemptive rights, rights of first refusal or other similar rights of stockholders of the Company and will not impose personal liability on the holders thereof. The Conversion Shares are duly authorized and reserved for issuance, and, upon conversion of the Preferred Shares in accordance with the terms thereof, will be validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and encumbrances (other than restrictions on transfer contained in this Agreement and in the Registration Rights Agreements) and will not be subject to preemptive rights, rights of first refusal or other similar rights of stockholders of the Company and will not impose personal liability upon the holder thereof. The Warrant Shares shall be duly authorized and reserved for issuance, and, upon exercise of the Warrants in accordance with the terms 6 thereof, will be validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and encumbrances (other than restrictions on transfer contained in this Agreement and in the Registration Rights Agreements) and will not be subject to preemptive rights, rights of first refusal or other similar rights of stockholders of the Company and will not impose personal liability upon the holder thereof. (f) No Conflicts. The execution, delivery and performance of this Agreement, the Warrants and the Registration Rights Agreement by the Company, the performance by the Company of its obligations under the Certificate of Designation, and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance and reservation for issuance, as applicable, of the Preferred Shares, Warrants, Conversion Shares and Warrant Shares) will not (i) result in a violation of the Certificate of Incorporation or By-laws or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment (including, without limitation, the triggering of any anti-dilution provisions), acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment or decree (including United States federal and state securities laws and regulations and rules or regulations of any self-regulatory organizations to which either the Company or its securities are subject) applicable to the Company or any of its subsidiaries or by which any property or asset of the Company or any of its subsidiaries is bound or affected (except, with respect to clause (ii), for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations that would not, individually or in the aggregate, have a Material Adverse Effect). Neither the Company nor any of its subsidiaries is in violation of its Certificate of Incorporation, By-laws or other organizational documents and neither the Company nor any of its subsidiaries is in default (and no event has occurred which, with notice or lapse of time or both, would put the Company or any of its subsidiaries in default) under, nor has there occurred any event giving others (with notice or lapse of time or both) any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its subsidiaries is a party, except for actual or possible violations, defaults or rights that would not, individually or in the aggregate, have a Material Adverse Effect. The businesses of the Company and its subsidiaries are not being conducted, and shall not be conducted so long as a Purchaser owns any of the Preferred Shares, in violation of any law, ordinance or regulation of any governmental entity, except for possible violations the sanctions for which either singly or in the aggregate would not have a Material Adverse Effect. Except as specifically contemplated by this Agreement and the Registration Rights Agreement, the Company is not required to obtain any consent, approval, authorization or order of, or make any filing or registration with, any court or governmental agency or any regulatory or self regulatory agency in order for it to execute, deliver or perform any of its obligations under this Agreement, the Warrants or the Registration Rights Agreement or to perform its obligations under the Certificate of Designation, in each case in accordance with the terms hereof or thereof. The Company is not in violation of the listing requirements of the Nasdaq National Market ("NNM") and has received no notice regarding the potential delisting of the Common Stock by the NNM. (g) SEC Documents, Financial Statements. Since December 31, 2001, the Company has timely filed (within applicable extension periods) all reports, schedules, forms, statements 7 and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein, being hereinafter referred to herein as the "SEC DOCUMENTS"). The Company has delivered to each Purchaser true and complete copies of the SEC Documents. To the extent that any SEC Document is available under the SEC's EDGAR filing system prior to the date hereof, such SEC Document shall be deemed to have been delivered to each of the Purchasers. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act or the Securities Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. None of the statements made in any such SEC Documents is, or has been, required to be amended or updated under applicable law (except for such statements as have been amended or updated in subsequent filings made prior to the date hereof). As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC applicable with respect thereto. Such financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP"), consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements) and fairly present in all material respects the consolidated financial position of the Company and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to immaterial year-end audit adjustments). Except as set forth in the financial statements of the Company included in the SEC Documents filed prior to the date hereof, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to the date of such financial statements and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under GAAP to be reflected in such financial statements, which liabilities and obligations referred to in clauses (i) and (ii), individually or in the aggregate, are not material to the financial condition or operating results of the Company. (h) Absence of Certain Changes. Since December 31, 2001, there has been no material adverse change and no material adverse development in the business, properties, operations, prospects, financial condition or results of operations of the Company and its subsidiaries, taken as a whole, except as disclosed in the SEC Documents filed prior to the date hereof. (i) Absence of Litigation. Except as disclosed in the SEC Documents filed prior to the date hereof, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body, including, without limitation, the SEC or NASDAQ, pending or, to the knowledge of the Company or any of its subsidiaries, threatened against or affecting the Company, any of its subsidiaries, or any of their 8 respective directors or officers in their capacities as such. There are no facts which, if known by a potential claimant or governmental authority, could give rise to a claim or proceeding which, if asserted or conducted with results unfavorable to the Company or any of its subsidiaries, could reasonably be expected to have a Material Adverse Effect. (j) Intellectual Property. Each of the Company and its subsidiaries owns or is licensed to use all patents, patent applications, trademarks, trademark applications, trade names, service marks, copyrights, copyright applications, licenses, permits, inventions, discoveries, processes, scientific, technical, engineering and marketing data, object and source codes, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures) and other similar rights and proprietary knowledge (collectively, "INTANGIBLES") necessary for the conduct of its business as now being conducted. To the best knowledge of the Company, neither the Company nor any subsidiary of the Company infringes or is in conflict with any right of any other person with respect to any Intangibles. Except as set forth on Schedule 3(j) of the Schedule of Exceptions, neither the Company nor any of its subsidiaries has received written notice of any pending conflict with or infringement upon such third party Intangibles. Except as set forth on Schedule 3(j) of the Schedule of Exceptions, the termination of the Company's ownership of, or right to use, any single Intangible would not result in a Material Adverse Effect on the Company. Neither the Company nor any of its subsidiaries has entered into any consent agreement, indemnification agreement, forbearance to sue or settlement agreement with respect to the validity of the Company's or its subsidiaries' ownership or right to use its Intangibles and, to the best knowledge of the Company, there is no reasonable basis for any such claim to be successful. The Intangibles are valid and enforceable and no registration relating thereto has lapsed, expired or been abandoned or canceled or is the subject of cancellation or other adversarial proceedings, and all applications therefor are pending and in good standing. The Company and its subsidiaries have complied, in all material respects, with their respective contractual obligations relating to the protection of the Intangibles used pursuant to licenses. To the best knowledge of the Company, no person is infringing on or violating the Intangibles owned or used by the Company or its subsidiaries. (k) Foreign Corrupt Practices. Neither the Company, nor any of its subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the Company or any subsidiary has, in the course of his actions for, or on behalf of, the Company, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee. (l) Disclosure. All information relating to or concerning the Company set forth in this Agreement or provided to any Purchaser pursuant to Section 2(d) hereof or otherwise in connection with the transactions contemplated hereby is true and correct in all material respects and the Company has not omitted to state any material fact necessary in order to make the statements made herein or therein, in light of the circumstances under which they were made, not misleading. 9 (m) Acknowledgment Regarding Purchasers' Purchase of the Units. The Company acknowledges and agrees that none of the Purchasers is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement or the transactions contemplated hereby, the relationship between the Company and the Purchasers is "arms-length" and any statement made by any Purchaser or any of its representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to such Purchaser's purchase of Securities and has not been relied upon by the Company, its officers or directors in any way. The Company further acknowledges that the Company's decision to enter into this Agreement has been based solely on an independent evaluation by the Company and its representatives. (n) Listing. The Company has secured the listing of the Conversion Shares and the Warrant Shares upon each national securities exchange or automated quotation system upon which shares of Common Stock are currently listed (subject to official notice of issuance). (o) Form S-3 Eligibility. The Company is currently eligible to register the resale of its Common Stock on a registration statement on Form S-3 under the Securities Act. There exist no facts or circumstances that would prohibit or delay the preparation and filing of a registration statement on Form S-3 with respect to the Registrable Securities (as defined in the Registration Rights Agreement). The Company has no basis to believe that its past or present independent public auditors will withhold their consent to the inclusion, or incorporation by reference, of their audit opinion concerning the Company's financial statements which are included in the Registration Statement required to be filed pursuant to the Registration Rights Agreement. (p) No General Solicitation. Neither the Company nor any distributor participating on the Company's behalf in the transactions contemplated hereby (if any) nor any person acting for the Company, or any such distributor, has conducted any "general solicitation," as such term is defined in Regulation D, with respect to any of the Securities being offered hereby. (q) No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would require registration of the Securities being offered hereby under the Securities Act or cause this offering of Securities to be integrated with any prior offering of securities of the Company for purposes of the Securities Act or any applicable stockholder approval provisions, including, without limitation, Rule 4350(i) of the NASD or any similar rule. (r) No Brokers. The Company has taken no action which would give rise to any claim by any person for brokerage commissions or finder's fees or for similar payments by any Purchaser relating to this Agreement or the transactions contemplated hereby. (s) Acknowledgment Regarding Securities. The number of Conversion Shares issuable upon conversion of the Preferred Shares may increase in certain circumstances. The Company's executive officers have studied and fully understand the nature of the Securities being sold hereunder. The Company acknowledges that its obligation to issue Conversion Shares upon conversion of the Preferred Shares in accordance with the Certificate of Designation is, other than as set forth in the Certificate of Designation, absolute and unconditional, regardless 10 of the dilution that such issuance may have on the ownership interests of other stockholders and the availability of remedies provided for in the Transaction Documents relating to a failure or refusal to issue Conversion Shares. Taking the foregoing into account, the Company's Board of Directors has determined in its good faith business judgment that the issuance of the Preferred Shares and Warrants hereunder and the consummation of the other transactions contemplated hereby are in the best interests of the Company and its stockholders. The Company's Board of Directors and executive officers fully intend to honor their obligations hereunder to issue Conversion Shares upon conversion of the Preferred Shares regardless of the dilution that such issuance may have on the ownership interests of other stockholders and the availability of remedies provided for in the Transaction Documents relating to their failure or refusal to issue Conversion Shares. (t) Title. The Company and its subsidiaries have good and marketable title in fee simple to all real property and good and merchantable title to all personal property owned by them that is material to the business of the Company and its subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and its subsidiaries. Any real property and facilities held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not materially interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries. (u) Tax Status. Except as set forth in the SEC Documents, the Company and each of its subsidiaries has made or filed all foreign, U.S. federal, state and local income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. The Company has not executed a waiver with respect to any statute of limitations relating to the assessment or collection of any federal, state or local tax. None of the Company's tax returns is presently being audited by any taxing authority. (v) Key Employees. Each of the Company's directors, officers and any Key Employee (as defined below) is currently serving the Company in the capacity disclosed in the SEC Documents. No Key Employee, to the best of the knowledge of the Company and its subsidiaries, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract or agreement or any restrictive covenant, and the continued employment of each Key Employee does not subject the Company or any of its subsidiaries to any liability with respect to any of the foregoing matters. No Key Employee has, to the knowledge of the Company and its subsidiaries, any intention to terminate or limit his employment with, or services to, the Company or any of its subsidiaries, nor, to the knowledge 11 of the Company, is any such Key Employee subject to any constraints which would cause such employee to be unable to devote his full time and attention to such employment or services. "KEY EMPLOYEE" means the persons listed on Schedule 3(v) of the Schedule of Exceptions and any individual who assumes or performs any of the duties of a Key Employee. (w) Insurance. The Company and its subsidiaries have in force fire, casualty, product liability and other insurance policies, with extended coverage and in such amounts as are customarily carried by persons engaged in the same or similar business as the Company and its subsidiaries. No default or event has occurred that could give rise to a default under any such policy. (x) Environmental Matters. There is no environmental litigation or other environmental proceeding pending or threatened by any governmental regulatory authority or others with respect to the current or any former business of the Company or its subsidiaries or any partnership or joint venture currently or at any time affiliated with the Company or its subsidiaries. No state of facts exists as to environmental matters or Hazardous Substances (as defined below) that involves the reasonable likelihood of a material capital expenditure by the Company or its subsidiaries or that may otherwise have a Material Adverse Effect. No Hazardous Substances have been treated, stored or disposed of, or otherwise deposited, in or on the properties owned or leased by the Company or its subsidiaries or by any partnership or joint venture currently or at any time affiliated with the Company or its subsidiaries in violation of any applicable environmental laws. The environmental compliance programs of the Company and its subsidiaries comply in all respects with all environmental laws, whether federal, state or local, currently in effect. As used herein, "HAZARDOUS SUBSTANCES" means any substance, waste, contaminant, pollutant or material that has been determined by any governmental authority to be capable of posing a risk of injury to health, safety, property or the environment. (y) Inventory. All inventory of the Company and its subsidiaries is valued on the Company's consolidated books and records at the lower of standard cost, which approximates actual cost, or the fair market value thereof. Except, to the extent of the Company's reserves for obsolete or unmerchantable inventory reflected in the Company's SEC Documents, all such inventory, after consideration of reserves consisting of finished goods is of merchantable quality and is saleable in the ordinary course of business consistent with past practice. (z) Regulatory Permits. The Company and its subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities which are material to conduct its business, and neither the Company nor any of its subsidiaries has received any written notice of any proceeding relating to the revocation or modification of any such certificate, authorization or permit. 4. COVENANTS. (a) Best Efforts. The parties shall use their best efforts timely to satisfy each of the conditions described in Section 6 and Section 7 of this Agreement. (b) Form D: Blue Sky Laws. The Company shall file with the SEC a Form D with respect to the Securities as required under Regulation D and provide a copy thereof to each 12 Purchaser promptly after such filing. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary to qualify the Securities for sale to each Purchaser pursuant to this Agreement under applicable securities or "blue sky" laws of the states of the United States or obtain exemption therefrom, and shall provide evidence of any such action so taken to each Purchaser on or prior to the Closing Date. Within four (4) trading days after the Closing Date, the Company shall file a Form 8-K concerning this Agreement and the transactions contemplated hereby, which Form 8-K shall attach this Agreement and its Exhibits as exhibits to such Form 8-K. (c) Reporting Status. So long as any Purchaser beneficially owns any of the Securities, the Company shall timely file (within applicable extension periods) all reports required to be filed with the SEC pursuant to the Exchange Act, and the Company shall not terminate its status as an issuer required to file reports under the Exchange Act even if the Exchange Act or the rules and regulations thereunder would permit such termination. In addition, the Company shall take all actions reasonably necessary to meet the "registrant eligibility" requirements set forth in the general instructions to Form S-3 or any successor form thereto, to continue to be eligible to register the resale of its Common Stock on a registration statement on Form S-3 under the Securities Act. (d) Use of Proceeds. The Company shall use the proceeds from the sale of the Preferred Shares and Warrants for general corporate purposes and working capital and such proceeds shall not be used to repay indebtedness (other than indebtedness incurred in the ordinary course of business), make acquisitions, or make payments to stockholders or affiliates of the Company. Subject to the use of proceeds as outlined above, the Company will invest the proceeds (i) in evidences of indebtedness issued or fully guaranteed by the United States of America and having a maturity of not more than one year from the date of acquisition; (ii) in certificates of deposit, notes, acceptances and repurchase agreements having a maturity of not more than one year from the date of acquisition issued by a bank organized in the United States having capital, surplus and undivided profits of at least $500,000,000; (iii) in the highest-rated commercial paper having a maturity of not more than one year from the date of acquisition; and (iv) in "Money Market" fund shares, or in money market accounts fully insured by the Federal Deposit Insurance Corporation and sponsored by banks and other financial institutions, provided that the investments consist principally of the types of investments described in clauses (i), (ii), or (iii) above. (e) [Intentionally Omitted.] (f) Expenses. The Company shall pay to SDS Capital Partners ("SDS CAPITAL") at the Closing, reimbursement for the out-of-pocket expenses reasonably incurred by SDS Capital's advisors in connection with the negotiation, preparation, execution and delivery of this Agreement and the other agreements to be executed in connection herewith, including, without limitation, SDS Capital's advisors' reasonable due diligence and attorneys' fees and expenses (the "EXPENSES"); provided, however, that in lieu of such payment SDS Capital (or its affiliates) shall be permitted to deduct all Expenses from the purchase price payable by SDS Capital (or its affiliates) hereunder. In addition, from time to time thereafter, upon SDS Capital's written request, the Company shall pay to SDS Capital such additional Expenses, if any, not covered by such payment, in each case to the extent reasonably incurred by SDS Capital's agents prior to the 13 Closing in connection with the negotiation, preparation, execution and delivery of this Agreement. (g) Financial Information. The Company shall send the following reports to each Purchaser until such Purchaser transfers, assigns or sells all of its Securities: within ten (10) days after the filing with the SEC, a copy of its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, its proxy statements and any Current Reports on Form 8-K. To the extent that any of the foregoing documents is available under the SEC's EDGAR filing system, such documents shall be deemed to have been delivered to each of the Purchasers. (h) Reservation of Shares. The Company shall at all times have authorized and reserved for the purpose of issuance a sufficient number of shares of Common Stock to provide for the full conversion of the outstanding Preferred Shares and issuance of the Conversion Shares in connection therewith and the full exercise of the Warrants and the issuance of the Warrant Shares in connection therewith, in each case to the extent required by the Certificate of Designation and the Warrants. (i) Listing. The Company shall have filed an application for the listing of the Conversion Shares and the Warrant Shares on the NNM on or before the Closing. From the time that such application has been approved and thereafter, the Company shall maintain, so long as any Purchaser (or any of their affiliates) own any Securities, the listing of all Conversion Shares and Warrant Shares from time to time issuable upon conversion of the Preferred Shares and exercise of the Warrants on each national securities exchange or automated quotation system on which shares of Common Stock are currently listed. The Company will use its best efforts to continue the listing and trading of its Common Stock on the NNM, the New York Stock Exchange ("NYSE"), the American Stock Exchange ("AMEX") or the Nasdaq SmallCap Market (the "SMALLCAP") and will comply in all material respects with the reporting, filing and other obligations under the bylaws or rules of the NASD and such exchanges, as applicable. The Company shall promptly provide to each holder of Preferred Shares and/or Warrants copies of any notices it receives regarding the continued eligibility of the Common Stock for trading on the NNM or, if applicable, any securities exchange or automated quotation system on which securities of the same class or series issued by the Company are then listed or quoted, if any. (j) Corporate Existence. So long as a Purchaser beneficially owns any Securities, the Company shall maintain its corporate existence, and in the event of a merger, consolidation or sale of all or substantially all of the Company's assets, the Company shall ensure that the surviving or successor entity in such transaction (i) assumes the Company's obligations hereunder and under the Certificate of Designation, the Warrants and the agreements and instruments entered into in connection herewith regardless of whether or not the Company would have had a sufficient number of shares of Common Stock authorized and available for issuance in order to effect the conversion of all Preferred Shares and exercise in full of all Warrants outstanding as of the date of such transaction and (ii) is a publicly traded corporation whose common stock is listed for trading on the NNM, SmallCap, NYSE or AMEX. Notwithstanding the foregoing, the Company covenants and agrees that it will not engage in any merger, consolidation or sale of all or substantially all of its assets at any time prior to the effectiveness of the Registration Statement required to be filed pursuant to the Registration Rights Agreement without (A) providing each Purchaser with written notice of such transaction at least 60 days 14 prior to the consummation of such transaction and (B) obtaining the written consent of the Purchasers holding a majority-in-interest of the then outstanding Preferred Shares on or before the 10th day after the delivery of such notice by the Company. (k) No Integrated Offerings. The Company shall not make any offers or sales of any security (other than the Securities) under circumstances that would require registration of the Securities being offered or sold hereunder under the Securities Act or cause this offering of the Securities to be integrated with any other offering of securities by the Company for purposes of any stockholder approval provision applicable to the Company or its securities. (l) Legal Compliance. The Company shall conduct its business and the business of its subsidiaries in compliance with all laws, ordinances or regulations of governmental entities applicable to such businesses, except where the failure to do so would not have a Material Adverse Effect. (m) Redemptions and Dividends. So long as any Purchaser beneficially owns any Preferred Shares, the Company shall not, without first obtaining the written approval of the holders of a majority of the Preferred Shares then outstanding, repurchase, redeem, or declare or pay any cash dividend or distribution on, any shares of capital stock of the Company; provided, however, that the foregoing shall not prohibit the Company from repurchasing, redeeming or declaring or paying cash dividends or distributions on shares of the Company's Series A Convertible Preferred Stock provided that any such repurchases, redemptions, dividends and distributions are made solely in accordance with the terms of such Series A Convertible Preferred Stock as in effect on the date hereof. (n) Information. The Company will furnish to each Purchaser, so long as it holds any Preferred Shares: (i) concurrently with the filing with the SEC of its annual reports on Form 10-K, a certificate of the President, a Vice President or a senior financial officer of the Company stating that, based upon such examination or investigation and review of this Agreement as in the opinion of the signer is necessary to enable the signer to express an informed opinion with respect thereto, neither the Company nor any of its subsidiaries is or has during such period been in default in the performance or observance of any of the terms, covenants or conditions hereof, or, if the Company or any of its subsidiaries shall be or shall have been in default, specifying all such defaults, and the nature and period of existence thereof, and what action the Company or such subsidiary has taken, is taking or proposes to take with respect thereto; and (ii) the information the Company must deliver to any holder or to any prospective transferee of Securities in order to permit the sale or other transfer of such Securities pursuant to Rule 144A of the SEC or any similar rule then in effect. The Company will keep at its principal executive office a true copy of this Agreement (as at the time in effect), and cause the same to be available for inspection at such office during normal business hours by any holder of Securities or any prospective transferee of Securities designated by a holder thereof. 15 (o) Inspection of Properties and Books. So long as any Purchaser shall hold any Securities, such Purchaser and its representatives and agents (collectively, the "INSPECTORS") shall have the right, at such Purchaser's expense, to visit and inspect any of the properties of the Company and of its subsidiaries, to examine the books of account and records of the Company and of its subsidiaries, to make or be provided with copies and extracts therefrom, to discuss the affairs, finances and accounts of the Company and of its subsidiaries with, and to be advised as to the same by, its and their officers, employees and independent public accountants (and by this provision the Company authorizes such accountants to discuss such affairs, finances and accounts, whether or not a representative of the Company is present) all at such reasonable times and intervals and to such reasonable extent as such Purchaser may desire; provided, however, that each Inspector shall hold in confidence and shall not make any disclosure (except to such Purchaser) of any such information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (a) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement filed pursuant to the Registration Rights Agreement, (b) the release of such information is ordered pursuant to a subpoena or other order from a court or government body of competent jurisdiction, or (c) such information has been made generally available to the public other than by disclosure in violation of this or any other agreement. The Company shall not be required to disclose any confidential information to any Inspector until and unless such Inspector shall have entered into confidentiality agreements (in form and substance satisfactory to the Company) with the Company with respect thereto, substantially in the form of this Section 4(o). Each Purchaser agrees that it shall, upon learning that disclosure of such information is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the information deemed confidential. Notwithstanding the foregoing, the Company shall be permitted to withhold from disclosure under this paragraph any material protected by attorney-client privilege. (p) Waivers and Consents. Prior to the effectiveness any Registration Statement filed in accordance with Section 2(a) of the Registration Rights Agreement, the Company shall have obtained proper waivers from the stockholders and warrant holders referred to on Schedule 3(f) of the Schedule of Exceptions to this Agreement. (q) Confidential Agreement. Each Purchaser will hold in confidence all information concerning this Agreement and the placement of shares hereunder until the earlier of such time as (i) the Company has made a public announcement concerning the Agreement and the placement of shares hereunder or (ii) this Agreement is terminated. (r) Stockholder Approval. The Company shall call a meeting of its stockholders to be held as promptly as practicable (but in any event no later than 90 days after the Closing Date) for the purpose of voting upon and approving (i) the increase in the number of authorized shares of the Company's Common Stock to a number sufficient to provide for (A) the issuance and conversion of the Preferred Shares issuable upon conversion of the Notes (as defined in the Exchange Agreement (as defined herein)) issued pursuant to the Exchange Agreement, (B) the exercise of all of the Warrants issued by the Company to the holders of the Notes upon conversion thereof into Preferred Shares in exchange for outstanding warrants held by such 16 holders (the "NEW SERIES B WARRANTS"), and (C) the conversion or exercise of all other outstanding securities of the Company that are convertible into or exercisable for shares of Common Stock (the "AUTHORIZED STOCK APPROVAL"), (ii) to approve the conversion of the Notes into Preferred Shares and the issuance of the New Series B Warrants, in accordance with Rule 4350(i) of the NASD or any similar rule (the "NASD RULE APPROVAL"), and (iii) to amend the Certificate of Designation to include (a) the right of the Company to pay any premium payments due thereunder in either cash or shares of Common Stock at the Company's election and (b) the same anti-dilution protections as are currently afforded to the Company's Series A Convertible Preferred Stock pursuant to Article XI, Section G of the Certificate of Designations, Preferences and Rights related thereto (the "SERIES C AMENDMENT APPROVAL" and, together with the Authorized Stock Approval and the NASD Rule Approval, the "STOCKHOLDER APPROVAL"). The Company shall recommend to its stockholders approval of such matters. The Company shall use its best efforts to solicit from its stockholders proxies in favor of such matters sufficient to obtain the Stockholder Approval (including any such approval required by the NASD), and shall vote such proxies, and shall use its best efforts to cause all "affiliates" (as such term is defined in Rule 12b-2 promulgated under the Exchange Act) of the Company to vote any shares of Common Stock beneficially owned by such persons or entities, in favor of such matters. In the event and upon obtaining the Series C Amendment Approval, (x) the Company shall prepare and, subject to the approval of the holders of Preferred Shares in accordance with the Certificate of Designation, file an amendment to the Certificate of Designation to include such additional provisions, and (y) provided that the stockholders have approved all of the amendments described in clause (ii) of this Section 4(r), the Purchasers shall, in their capacity as holders of Preferred Shares, consent to such amendment. 5. TRANSFER AGENT INSTRUCTIONS. (a) The Company shall instruct its transfer agent to issue certificates (subject to the legend and other provisions hereof and in the Certificate of Designation and the Warrants), registered in the name of each Purchaser or its nominee, for the Conversion Shares and the Warrant Shares in such amounts as specified from time to time by such Purchaser to the Company upon conversion of the Preferred Shares or exercise of the Warrants, as applicable. To the extent and during the periods provided in Sections 2(f) and 2(g) of this Agreement, all such certificates shall bear the restrictive legend specified in Section 2(g) of this Agreement. (b) The Company warrants that no instruction other than such instructions referred to in this Section 5, the Registration Rights Agreement and stop transfer instructions to give effect to Section 2(f) hereof in the case of the transfer of the Conversion Shares or Warrant Shares prior to registration of the Conversion Shares and Warrant Shares under the Securities Act or without an exemption therefrom, will be given by the Company to its transfer agent and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the Registration Rights Agreement. Nothing in this Section shall affect in any way each Purchaser's obligations and agreement set forth in Section 2(g) hereof to resell the Securities pursuant to an effective registration statement or under an exemption from the registration requirements of applicable securities law. (c) If any Purchaser provides the Company and the transfer agent with an opinion of counsel, which opinion of counsel shall be in form, substance and scope customary for opinions 17 of counsel in comparable transactions, to the effect that the Securities have been sold or transferred pursuant to an exemption from registration, or any Purchaser provides the Company with an opinion of counsel, which opinion of counsel shall be in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that such Securities may be sold under Rule 144(k), the Company shall permit the transfer and, in the case of the Conversion Shares and Warrant Shares, promptly instruct its transfer agent to issue one or more certificates in such name and in such denominations as specified by such Purchaser. 6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the Company hereunder to issue and sell the Units to each Purchaser hereunder is subject to the satisfaction, at or before the Closing, of each of the following conditions thereto, provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion. (a) Each Purchaser shall have executed such Purchaser's Execution Page to this Agreement and the Registration Rights Agreement and delivered the same to the Company. (b) Each Purchaser shall have delivered such Purchaser's Purchase Price for the Units being purchased at the Closing in accordance with Section 1(b) above. (c) The representations and warranties of each Purchaser shall be true and correct as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which representations and warranties shall be true and correct as of such date), and such Purchaser shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by such Purchaser at or prior to the Closing Date. (d) No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement. 7. CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE. The obligation of each Purchaser hereunder to purchase the Units to be purchased by it at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that such conditions are for such Purchaser's sole benefit and may be waived by such Purchaser at any time in such Purchaser's sole discretion: (a) The Company shall have executed this Agreement, the Warrants and the Registration Rights Agreement, and delivered executed original copies of the same to such Purchaser. (b) The Certificate of Designation shall have been filed and accepted for filing with the Secretary of State of the State of Delaware and a copy thereof certified by the Secretary of State of Delaware shall have been delivered to such Purchaser. 18 (c) The Company shall have delivered to such Purchaser duly executed certificates and Warrant agreements (each in such denominations as such Purchaser shall request) representing the Preferred Shares and Warrants being so purchased by such Purchaser at the Closing in accordance with Section 1(b) above. (d) The Common Stock shall be authorized for quotation and listed on the NNM and trading in the Common Stock (or the NNM generally) shall not have been suspended by the SEC or the NNM. (e) The representations and warranties of the Company shall be true and correct as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which representations and warranties shall be true and correct as of such date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing Date. The Company shall have delivered for the benefit of the Purchasers, a certificate, executed by the Chief Executive Officer of the Company after reasonable investigation, dated as of the Closing Date to the foregoing effect and as to such other matters as may reasonably be requested by such Purchaser. (f) No statute, rule, regulation, executive order, decree, ruling, injunction, action or proceeding shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which questions the validity of, challenges or prohibits the consummation of, any of the transactions contemplated by this Agreement. (g) Each Purchaser shall have received an opinion of the Company's counsel, dated as of the Closing Date, in form, scope and substance reasonably satisfactory to the Purchaser and in substantially the form of Exhibit D attached hereto. (h) Each Purchaser shall have received a copy of resolutions, duly adopted by the Board of Directors of the Company, which shall be in full force and effect at the time of the Closing, authorizing the consummation by the Company of the transactions contemplated hereby and by the Registration Rights Agreement and the Warrant, certified as such by the Secretary or Assistant Secretary of the Company. (i) On or prior to the Closing Date, the Company shall have entered into the following agreements with Pfizer Inc. (or one of its affiliates): (i) Master Services Agreement, (ii) Non-Exclusive License Agreement and (iii) Stock Purchase Agreement, and shall have consummated the transactions contemplated by the Stock Purchase Agreement. (j) On or prior to the Closing Date, the Company shall have entered into the Exchange Agreement with all of the holders of the Company's outstanding Series B Convertible Preferred Stock and certain of the Company's outstanding Series A Convertible Preferred Stock (the "EXCHANGE AGREEMENT") and shall have consummated the transactions contemplated thereby. 19 (k) On or prior to the Closing Date, the Company shall have obtained the consent of the holders of the Company's outstanding Series A Convertible Preferred Stock (other than those which are a party to the Exchange Agreement) to all of the transactions contemplated hereby (including, without limitation, a waiver of any participation, preemptive or similar rights in respect of the issuance of the Securities pursuant hereto and pursuant to the Exchange Agreement). (l) On or prior to the Closing Date, the Company shall have obtained waivers, in respect of a sufficient number of shares of Common Stock, from certain of the Company's officers that hold options to purchase shares of Common Stock, pursuant to which waivers such officers shall irrevocably waive of all their respective rights to purchase shares of Common Stock pursuant to such options unless and until the Authorized Stock Approval is obtained, such that, after giving effect to such waivers, the Company will have a sufficient number of shares of its Common Stock authorized, unissued and unreserved (other than for conversion of the Preferred Shares) in order to provide for the full conversion of all Preferred Shares and the full exercise of all Warrants issued hereunder. (m) The Company shall have timely filed (within applicable extension periods) with the SEC its Quarterly Report on Form 10-Q for the quarter ended September 30, 2002. 8. GOVERNING LAW; MISCELLANEOUS. (a) Governing Law; Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in the State of Delaware. The Company and the Purchasers irrevocably consent to the jurisdiction of the United States federal courts and the state courts located in the State of Delaware in any suit or proceeding based on or arising under this Agreement and irrevocably agree that all claims in respect of such suit or proceeding may be determined in such courts. The Company irrevocably waives the defense of an inconvenient forum to the maintenance of such suit or proceeding. The Company further agrees that service of process upon the Company mailed by first class mail shall be deemed in every respect effective service of process upon the Company in any such suit or proceeding. Nothing herein shall affect the right of any Purchaser to serve process in any other manner permitted by law. The Company agrees that a final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner. (b) Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. This Agreement, once executed by a party, may be delivered to the other parties hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement. In the event any signature is delivered by facsimile transmission, the party using such means of delivery shall cause the manually executed Execution Page(s) hereof to be physically delivered to the other party within five (5) days of the execution hereof, provided that the failure to so deliver any manually executed Execution Page shall not affect the validity or enforceability of this Agreement. 20 (c) Headings. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. (d) Severability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction. (e) Entire Agreement; Amendments. This Agreement and the instruments referenced herein contain the entire understanding of the Purchasers, the Company, their affiliates and persons acting on their behalf with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor any Purchaser makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived other than by an instrument in writing signed by the party to be charged with enforcement and no provision of this Agreement may be amended other than by an instrument in writing signed by the Company and each Purchaser. (f) Notices. Any notices required or permitted to be given under the terms of this Agreement shall be sent by certified or registered mail (return receipt requested) or delivered personally, by responsible overnight carrier or by confirmed facsimile, and shall be effective five (5) days after being placed in the mail, if mailed, or upon receipt or refusal of receipt, if delivered personally or by responsible overnight carrier or confirmed facsimile, in each case addressed to a party. The addresses for such communications shall be: If to the Company: ViroLogic, Inc. 270 East Grand Avenue South San Francisco, California 94080 Telephone: (650) 635-1100 Attn: Chief Executive Officer with a copy simultaneously transmitted by like means to (which transmittal shall not constitute notice hereunder): Cooley Godward LLP 4401 Eastgate Mall San Diego, California 92121 Telephone: (858) 550-6000 If to any Purchaser, to such address set forth under such Purchaser's name on the Execution Page hereto executed by such Purchaser. Each party shall provide notice to the other parties of any change in address. (g) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. Except as provided herein or therein, 21 neither the Company nor any Purchaser shall assign this Agreement or any rights or obligations hereunder. Notwithstanding the foregoing, any Purchaser may assign its rights hereunder to any of its "affiliates," as that term is defined under the Exchange Act, without the consent of the Company or to any other person or entity with the consent of the Company, which consent shall not be unreasonably withheld. This provision shall not limit a Purchaser's right to transfer the Securities pursuant to the terms of the Certificate of Designation, the Warrants and this Agreement or to assign such Purchaser's rights hereunder or thereunder to any such transferee. In addition, and notwithstanding anything to the contrary contained in this Agreement, the Registration Rights Agreement or the Warrants, the Securities may be pledged and all rights of any Purchaser under this Agreement or any other agreement or document related to the transactions contemplated hereby may be assigned, without further consent of the Company, to a bona fide pledgee in connection with such Purchaser's margin or brokerage account. (h) Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person; provided that Section 4(f) may be enforced by SDS Capital. (i) Survival. The representations and warranties of the Company and the agreements and covenants set forth in Sections 3, 4, 5 and 8 hereof shall survive the Closing notwithstanding any due diligence investigation conducted by or on behalf of any Purchaser. Moreover, none of the representations and warranties made by the Company herein shall act as a waiver of any rights or remedies any Purchaser may have under applicable U.S. federal or state securities laws. (j) Publicity. The Company and each Purchaser shall have the right to approve before issuance any press releases, SEC or NASD filings, or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of the Purchasers, to make any press release or SEC or NASD filings with respect to such transactions as is required by applicable law and regulations (although the Purchasers shall be consulted by the Company in connection with any such press release and filing prior to its release and shall be provided with a copy thereof). (k) Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. (l) Termination. In the event that the Closing shall not have occurred on or before November 22, 2002, unless the parties agree otherwise, this Agreement shall terminate at the close of business on such date. Notwithstanding any termination of this Agreement, any party not in breach of this Agreement shall preserve all rights and remedies it may have against another party hereto for a breach of this Agreement prior to or relating to the termination hereof. (m) Joint Participation in Drafting. Each party to this Agreement has participated in the negotiation and drafting of this Agreement, the Certificate of Designation, the Warrants and the Registration Rights Agreement. As such, the language used herein and therein shall be 22 deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party to this Agreement. (n) Equitable Relief. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to each Purchaser by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations hereunder (including, but not limited to, its obligations pursuant to Section 5 hereof) will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Agreement (including, but not limited to, its obligations pursuant to Section 5 hereof), that each Purchaser shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate issuance and transfer of the Securities, without the necessity of showing economic loss and without any bond or other security being required. (o) Additional Acknowledgement. Each Purchaser acknowledges that it has independently evaluated the merits of the transactions contemplated by this Agreement, the Certificate of Designation, the Registration Rights Agreement and the Warrants, that it has independently determined to enter into the transactions contemplated hereby and thereby, that it is not relying on any advice from or evaluation by any other Purchaser, and that it is not acting in concert with any other Purchaser in making its purchase of securities hereunder. The Purchasers and, to its knowledge, the Company agree that the Purchasers have not taken any actions that would deem such Purchasers to be members of a "group" for purposes of Section 13(d) of the Exchange Act. (p) Indemnification by Company. (i) From and after the Closing, the Company shall hold harmless and indemnify each of the Purchasers from and against, and shall compensate and reimburse each of the Purchasers for, any damages which are directly or indirectly suffered or incurred by any of the Purchasers or to which any of the Purchasers may otherwise become subject (regardless of whether or not such damages relate to any third-party claim) and which arise from or as a result of, or are directly or indirectly connected with any inaccuracy in or breach of any of the Company's representations, warranties or covenants set forth herein. (ii) In the event of the assertion or commencement by any person of any claim or legal proceeding with respect to which any Purchaser may have indemnification rights pursuant to Section 8(p)(i), such Purchaser shall promptly notify the Company thereof in writing, but the failure to so notify the Company will not limit any Purchaser's rights to indemnification hereunder, except to the extent the Company demonstrates that the defense of such action is prejudiced by the failure to so give such notice. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 23 IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused this Agreement to be duly executed as of the date first above written. VIROLOGIC, INC. By: /s/ WILLIAM D. YOUNG --------------------------------- Name: William D. Young ------------------------------- Title: Chairman & CEO ------------------------------ PURCHASER: [PURCHASER] By: ------------------------------------- Name: Title: RESIDENCE: ADDRESS: AGGREGATE SUBSCRIPTION AMOUNT Number of Units: Purchase Price ($10,000 per Unit): 24 EX-10.2 8 a86207exv10w2.txt EXHIBIT 10.2 EXHIBIT 10.2 EXCHANGE AGREEMENT EXCHANGE AGREEMENT (this "AGREEMENT"), dated as of November 14, 2002, between ViroLogic, Inc., a corporation organized under the laws of the State of Delaware (the "COMPANY"), and each of the purchasers (individually, a "PURCHASER" and collectively the "PURCHASERS") set forth on the execution pages hereof (the "EXECUTION PAGES, and each an "EXECUTION PAGE"). WHEREAS: A. The Company and each Purchaser are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the provisions of Regulation D ("REGULATION D"), as promulgated by the United States Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "SECURITIES ACT"). B. In connection with the Securities Purchase Agreement, dated as of November 14, 2002, by and among the Company and the purchasers named therein (the "SECURITIES PURCHASE AGREEMENT"), the Company has agreed, upon the terms and subject to the conditions contained therein, to issue and sell to such purchasers (the "SERIES C PURCHASERS") (i) shares of its Series C Convertible Preferred Stock, par value $.001 per share (the "PREFERRED SHARES"), that are convertible into shares of the Company's common stock, par value $.001 per share (the "COMMON STOCK"), and (ii) warrants (the "SERIES C WARRANTS") to acquire additional shares of Common Stock. The rights, preferences and privileges of the Preferred Shares, including the terms upon which such Preferred Shares are convertible into shares of Common Stock, are set forth in the form of Certificate of Designations, Preferences and Rights attached hereto as Exhibit A (the "CERTIFICATE OF DESIGNATION"). C. In order to consummate the transactions contemplated by the Securities Purchase Agreement, the Company requires the consent of the holders of the Purchasers, each of which is a holder of either shares of the Company's Series A Convertible Preferred Stock, par value $.001 per share (the "SERIES A PREFERRED STOCK"), or shares of the Company's Series B Convertible Preferred Stock, par value $.001 per share (the "SERIES B PREFERRED STOCK"), and, in order to obtain such consent, the Company desires to (i) repurchase from the Purchasers, and the Purchasers desire to sell to the Company, all of the Series A Preferred Stock and/or Series B Preferred Stock owned by the Purchasers, in exchange for promissory notes in the form attached hereto as Exhibit B (the "NOTES"), which Notes shall, under certain circumstances, be automatically converted into Preferred Shares, and (ii) with respect to the Purchasers that are holders of Series B Preferred Stock, upon conversion of the Notes, issue to such Purchasers, in exchange for the warrants (the "OLD WARRANTS") issued to such Purchasers in connection with their acquisition of the Series B Preferred Stock, new warrants, in the form attached hereto as Exhibit C (the "REPLACEMENT WARRANTS"), to acquire additional shares of Common Stock. The shares of Common Stock issuable upon conversion of the Preferred Shares pursuant to the Certificate of Designation are referred to herein as the "CONVERSION SHARES" and the shares of Common Stock issuable upon exercise of or otherwise pursuant to the Replacement Warrants are referred to herein as the "WARRANT SHARES." The Notes, the Preferred Shares, the Replacement Warrants, the Conversion Shares and the Warrant Shares are collectively referred to herein as the "SECURITIES" and each of them may individually be referred to herein as a "SECURITY." D. In connection with the Closing (as defined herein) pursuant to this Agreement, the Company is executing and delivering a Security Agreement, in the form attached hereto as Exhibit D, in favor of the Collateral Agent (as defined herein) for the benefit of all of the Purchasers, and an Intellectual Property Security Agreement, in the form attached hereto as Exhibit E, in favor of the Collateral Agent for the benefit of all of the Purchasers (collectively, together with any other document securing the Notes, the "SECURITY DOCUMENTS"), pursuant to which the Company has agreed to grant a security interest in all of its properties and assets in order to secure its obligations under the Notes. E. In connection with the Closing pursuant to this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement, in the form attached hereto as Exhibit F (the "REGISTRATION RIGHTS AGREEMENT"), pursuant to which the Company has agreed to provide certain registration rights under the Securities Act and the rules and regulations promulgated thereunder, and applicable state securities laws. This Agreement, the Certificate of Designation, the Notes, the Replacement Warrants, the Security Documents and the Registration Rights Agreement are collectively referred to herein as the "TRANSACTION DOCUMENTS." NOW, THEREFORE, the Company and the Purchasers hereby agree as follows: 1. REPURCHASE OF PREFERRED STOCK; ISSUANCE OF NOTES. (a) Repurchase of Preferred Stock. The repurchase of the Series A Preferred Stock and the Series B Preferred Stock by the Company pursuant to this Agreement shall take place in one closing, which is referred to herein as the "CLOSING." On the Closing Date (as defined below), subject to the satisfaction (or waiver) of the conditions set forth in Section 6 and Section 7 below, the Company shall repurchase from each Purchaser, and each Purchaser agrees to sell to the Company, all of the Series A Preferred Stock and/or Series B Preferred Stock owned by such Purchaser, the amount of which is set forth on such Purchaser's Execution Page attached hereto. The purchase price (the "PURCHASE PRICE") per share of Series A Preferred Stock and Series B Preferred Stock shall be equal to the applicable Redemption Amount (as defined in the Certificate of Designations, Preferences and Rights of the Series A Preferred Stock (the "SERIES A CERTIFICATE OF DESIGNATIONS") and the Certificate of Designations, Preferences and Rights of the Series B Preferred Stock (the "SERIES B CERTIFICATE OF DESIGNATIONS"), respectively) applicable to such shares on the Closing Date. Upon the repurchase of the Series A Preferred Stock and the Series B Preferred Stock pursuant to this Agreement, the shares so repurchased shall be canceled, shall return to the status of authorized, but unissued preferred stock of no designated series, and shall not be issuable by the Company as Series A Preferred Stock or Series B Preferred Stock, respectively. (b) Form of Payment. On the Closing Date, the Company shall pay the applicable Purchase Price to each Purchaser by the issuance of a Note to such Purchaser, and the Company shall deliver such Note against delivery of the share certificates representing such Purchaser's shares of Series A Preferred Stock and/or Series B Preferred Stock. 2 (c) Closing Date. Subject to the satisfaction (or waiver) of the conditions thereto set forth in Section 6 and Section 7 below, the date and time of the repurchase of the Series A Preferred Stock and the Series B Preferred Stock and issuance of the Notes pursuant to this Agreement at the Closing shall be 12:00 noon, New York City time, on November 18, 2002, subject to a two business day grace period at either party's option, but in any event not later than November 20, 2002, or such other time as may be mutually agreed upon by the Company and the Purchasers holding a majority of the shares of Series A Preferred Stock and Series B Preferred Stock voting together (the "CLOSING DATE"). The Closing shall occur at the offices of Drinker Biddle & Reath LLP at One Logan Square, 18th & Cherry Streets, Philadelphia, PA 19103. 2. PURCHASER'S REPRESENTATIONS AND WARRANTIES. Each Purchaser severally, but not jointly, represents and warrants to the Company as follows: (a) Purchase for Own Account, Etc.. Such Purchaser is acquiring the Securities for such Purchaser's own account and not with a present view towards the public sale or distribution thereof, except pursuant to sales that are exempt from the registration requirements of the Securities Act and/or sales registered under the Securities Act. Such Purchaser understands that Purchaser must bear the economic risk of this investment indefinitely, unless the Securities are registered pursuant to the Securities Act and any applicable state securities or blue sky laws or an exemption from such registration is available, and that the Company has no present intention of registering the resale of any such Securities other than as contemplated by the Registration Rights Agreement. Notwithstanding anything in this Section 2(a) to the contrary, by making the representations herein, the Purchaser does not agree to hold the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption from the registration requirements under the Securities Act. (b) Accredited Investor Status. Such Purchaser is an "ACCREDITED INVESTOR" as that term is defined in Rule 501(a) of Regulation D under the Securities Act; the Purchaser is also knowledgeable, sophisticated and experienced in making, and is qualified to make decisions with respect to, investments in shares presenting an investment decision like that involved in the acquisition of the Securities, including investments in securities issued by the Company and investments in comparable companies; and the Purchaser has requested, received, reviewed and considered all information it deems relevant in making an informed decision to acquire the Securities. (c) Reliance on Exemptions. Such Purchaser understands that the Securities are being offered and issued to such Purchaser in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and such Purchaser's compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of such Purchaser to acquire the Securities. (d) Information. Such Purchaser and its counsel, if any, have been furnished all materials relating to the business, finances and operations of the Company and materials relating to the offer and issuance of the Securities which have been specifically requested by such 3 Purchaser or its counsel. Such Purchaser and its counsel have been afforded the opportunity to ask questions of the Company and have received what such Purchaser believes to be satisfactory answers to any such inquiries. Neither such inquiries nor any other investigation conducted by such Purchaser or its counsel or any of its representatives shall modify, amend or affect such Purchaser's right to rely on the Company's representations and warranties contained in Section 3 below. Such Purchaser understands that such Purchaser's investment in the Securities involves a high degree of risk. (e) Governmental Review. Such Purchaser understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities. (f) Transfer or Resale. Such Purchaser understands that (i) except as provided in the Registration Rights Agreement, the sale or resale of the Securities have not been and are not being registered under the Securities Act or any state securities laws, and the Securities may not be transferred unless (a) the transfer is made pursuant to and as set forth in an effective registration statement under the Securities Act covering the Securities; or (b) such Purchaser shall have delivered to the Company an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration; or (c) sold under and in compliance with Rule 144 promulgated under the Securities Act (or a successor rule) ("RULE 144"); or (d) sold or transferred in accordance with applicable securities laws to an affiliate of such Purchaser who agrees to sell or otherwise transfer the Securities only in accordance with the provisions of this Section 2(f) and who is an Accredited Investor; and (ii) neither the Company nor any other person is under any obligation to register such Securities under the Securities Act or any state securities laws (other than pursuant to the Registration Rights Agreement). Notwithstanding the foregoing or anything else contained herein to the contrary, the Securities may be pledged as collateral in connection with a bona fide margin account or other lending arrangement, provided such pledge is consistent with applicable laws, rules and regulations. (g) Legends. Such Purchaser understands that the Notes and the certificates for the Preferred Shares and the Replacement Warrants (to the extent issued upon conversion of the Notes) and the Conversion Shares and the Warrant Shares (until such time as the Conversion Shares and Warrant Shares have been registered under the Securities Act (including registration pursuant to Rule 416 thereunder) as contemplated by the Registration Rights Agreement or otherwise may be sold by such Purchaser under Rule 144(k)), shall bear a restrictive legend in substantially the following form: The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended, or the securities laws of any state of the United States or in any other jurisdiction. The securities represented hereby may not be offered, sold or transferred in the absence of an effective registration statement for the securities under applicable securities laws unless offered, sold or transferred pursuant to an available exemption from the registration requirements of those laws. 4 The Company agrees that at any time the Registration Statement is effective, and assuming compliance with the applicable provisions of the Certificate of Designation or the Replacement Warrant, as applicable, the Company shall instruct its transfer agent to issue (and provide such transfer agent with any additional documentation that may be necessary to cause the Conversion Shares and the Warrant Shares to be issued without the restrictive legend above), in connection with the issuance of the Conversion Shares and Warrant Shares, certificates representing such Conversion Shares and Warrant Shares without the restrictive legend above, provided such Conversion Shares and Warrant Shares are to be sold pursuant to the prospectus contained in the Registration Statement. The parties acknowledge that the Company has certain rights with respect to transfers of the Securities as set forth in the Registration Rights Agreements. The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of any Security upon which it is stamped, if, unless otherwise required by state securities laws, (a) the sale of such Security is registered under the Securities Act (including registration pursuant to Rule 416 thereunder) as contemplated by the Registration Rights Agreement and the Security is sold pursuant to and as set forth in such Registration Statement and in the Securities Act; (b) such holder provides the Company with an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Security may be made without registration under the Securities Act; or (c) such holder provides the Company with reasonable assurances that such Security can be sold under Rule 144. In the event the above legend is removed from any Security and thereafter the effectiveness of a registration statement covering such Security is suspended or the Company determines that a supplement or amendment thereto is required by applicable securities laws, then upon reasonable advance written notice to such Purchaser the Company may require that the above legend be placed on any such Security that cannot then be sold pursuant to an effective registration statement or under Rule 144 and such Purchaser shall cooperate in the replacement of such legend. Such legend shall thereafter be removed when such Security may again be sold pursuant to an effective registration statement or under Rule 144. (h) Authorization; Enforcement. This Agreement, the Security Documents and the Registration Rights Agreement have been duly and validly authorized, executed and delivered on behalf of such Purchaser and are valid and binding agreements of such Purchaser enforceable against such Purchaser in accordance with their terms. (i) Residency. Such Purchaser is a resident of the jurisdiction set forth under such Purchaser's name on the Execution Page hereto executed by such Purchaser. (j) Ownership. Such Purchaser owns, beneficially and of record, good and marketable title to that number of shares of Series A Preferred Stock and/or Series B Preferred Stock as is set forth on such Purchaser's Execution Page attached hereto. The Purchasers' representations and warranties made in this Article 2 are made solely for the purpose of permitting the Company to make a determination that the offer and issuance of the Securities pursuant to this Agreement complies with applicable U.S. federal and state securities 5 laws and not for any other purpose. Accordingly, the Company should not rely on such representations and warranties for any other purpose. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth on a Schedule of Exceptions executed and delivered by the Company to the Purchasers at Closing (the "SCHEDULE OF EXCEPTIONS"), the Company represents and warrants to each Purchaser as follows: (a) Organization and Qualification. The Company and each of its subsidiaries is a corporation duly organized and existing in good standing under the laws of the jurisdiction in which it is incorporated, and has the requisite corporate power to own its properties and to carry on its business as now being conducted. The Company and each of its subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary and where the failure so to qualify would have a Material Adverse Effect. "MATERIAL ADVERSE EFFECT" means any material adverse effect on (i) the Securities, (ii) the ability of the Company to perform its obligations hereunder or under the Certificate of Designation, the Notes, the Replacement Warrants, the Security Documents or the Registration Rights Agreement or (iii) the business, operations, properties, prospects or financial condition of the Company and its subsidiaries, taken as a whole. (b) Authorization; Enforcement. (i) The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement, the Notes, the Replacement Warrants, the Security Documents and the Registration Rights Agreement, to repurchase the Series A Preferred Stock and the Series B Preferred Stock and issue the Notes in accordance with the terms hereof and, subject to obtaining the Authorized Stock Approval and NASD Rule Approval contemplated by Section 4(r) below, to issue the Preferred Shares upon conversion of the Notes in accordance with the terms thereof, the Replacement Warrants in exchange for the Old Warrants in accordance with the terms hereof, the Conversion Shares upon conversion of the Preferred Shares in accordance with the terms of the Certificate of Designation and the Warrant Shares upon exercise of the Replacement Warrants in accordance with the terms of such Replacement Warrants; (ii) the execution, delivery and performance of this Agreement, the Notes, the Replacement Warrants, the Security Documents and the Registration Rights Agreement by the Company and the consummation by it of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Notes and, subject to obtaining the Authorized Stock Approval and NASD Rule Approval contemplated by Section 4(r) below, the issuance of the Replacement Warrants and the issuance and reservation for issuance of the Preferred Shares, the Conversion Shares and the Warrant Shares) have been duly authorized by the Company's Board of Directors and no further consent or authorization of the Company, its Board of Directors, or any committee of the Board of Directors is required, and (iii) this Agreement constitutes, and, upon execution and delivery by the Company of the Notes, the Replacement Warrants, the Security Documents and the Registration Rights Agreement, such agreements will constitute, valid and binding obligations of the Company enforceable against the Company in accordance with their terms. (c) Stockholder Authorization. Neither the execution, delivery or performance by the Company of this Agreement, the Notes, the Replacement Warrants, the Security Documents or 6 the Registration Rights Agreement nor the consummation by it of the transactions contemplated hereby or thereby (including, without limitation, the issuance of the Notes, the issuance of the Replacement Warrants or the issuance or reservation for issuance of the Preferred Shares, the Conversion Shares or the Warrant Shares) requires any consent or authorization of the Company's stockholders, except for the Authorized Stock Approval and the NASD Rule Approval contemplated by Section 4(r) below. (d) Capitalization. The capitalization of the Company as of the date hereof, including the authorized capital stock, the number of shares issued and outstanding, the number of shares issuable and reserved for issuance pursuant to the Company's stock option plans, the number of shares issuable and reserved for issuance pursuant to securities (other than the Notes, Preferred Shares and the Replacement Warrants) exercisable or exchangeable for, or convertible into, any shares of capital stock and the number of shares to be reserved for issuance upon conversion of the Notes and the Preferred Shares and exercise of the Replacement Warrants is set forth on Schedule 3(d) of the Schedule of Exceptions. All of such outstanding shares of capital stock have been, or upon issuance in accordance with the terms of any such warrants, options or preferred stock, will be, validly issued, fully paid and non-assessable. No shares of capital stock of the Company (including the Notes, the Preferred Shares, the Conversion Shares and the Warrant Shares) are subject to preemptive rights or any other similar rights of the stockholders of the Company or any liens or encumbrances. Except for the Securities and as set forth on Schedule 3(d) of the Schedule of Exceptions, as of the date of this Agreement, (i) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exercisable or exchangeable for, any shares of capital stock of the Company or any of its subsidiaries, or arrangements by which the Company or any of its subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its subsidiaries, nor are any such issuances or arrangements contemplated, and (ii) there are no agreements or arrangements under which the Company or any of its subsidiaries is obligated to register the sale of any of its or their securities under the Securities Act (except the Registration Rights Agreements). Schedule 3(d) of the Schedule of Exceptions sets forth all of the Company issued securities or instruments containing antidilution or similar provisions that will be triggered by, and all of the resulting adjustments that will be made to such securities and instruments as a result of, the issuance of the Securities in accordance with the terms of this Agreement, the Certificate of Designation, the Notes or the Replacement Warrants. The Company has furnished to the Purchasers true and correct copies of the Company's Certificate of Incorporation as in effect on the date hereof ("CERTIFICATE OF INCORPORATION"), the Company's By-laws as in effect on the date hereof (the "BY-LAWS"), and all other instruments and agreements governing securities convertible into or exercisable or exchangeable for capital stock of the Company. The Certificate of Designation, in the form attached hereto, will be duly filed prior to Closing with the Secretary of State of the State of Delaware and, in the event of and upon the issuance of the Preferred Shares in accordance with the terms of the Notes, each Purchaser shall be entitled to the rights set forth therein. (e) Issuance of Shares. The Preferred Shares are duly authorized and, in the event of and upon issuance in accordance with the terms of the Notes, will be validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and encumbrances (other than restrictions on transfer contained in this Agreement and in the Registration Rights Agreements) and will not be subject to preemptive rights, rights of first refusal or other similar rights of 7 stockholders of the Company and will not impose personal liability on the holders thereof. Upon obtaining the Authorized Stock Approval contemplated by Section 4(r) below, the Conversion Shares shall be duly authorized and reserved for issuance, and, upon conversion of the Preferred Shares in accordance with the terms thereof, will be validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and encumbrances (other than restrictions on transfer contained in this Agreement and in the Registration Rights Agreements) and will not be subject to preemptive rights, rights of first refusal or other similar rights of stockholders of the Company and will not impose personal liability upon the holder thereof. Upon obtaining the Authorized Stock Approval contemplated by Section 4(r) below, the Warrant Shares shall be duly authorized and reserved for issuance, and, upon exercise of the Replacement Warrants in accordance with the terms thereof, will be validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and encumbrances (other than restrictions on transfer contained in this Agreement and in the Registration Rights Agreements) and will not be subject to preemptive rights, rights of first refusal or other similar rights of stockholders of the Company and will not impose personal liability upon the holder thereof. (f) No Conflicts. The execution, delivery and performance of this Agreement, the Notes, the Replacement Warrants, the Security Documents and the Registration Rights Agreement by the Company, the performance by the Company of its obligations under the Notes, the Replacement Warrants and the Certificate of Designation, and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Notes, the issuance of the Replacement Warrants and the issuance and reservation of the Preferred Shares, the Conversion Shares and the Warrant Shares) will not (i) result in a violation of the Certificate of Incorporation or By-laws or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment (including, without limitation, the triggering of any anti-dilution provisions), acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment or decree (including United States federal and state securities laws and regulations and rules or regulations of any self-regulatory organizations to which either the Company or its securities are subject) applicable to the Company or any of its subsidiaries or by which any property or asset of the Company or any of its subsidiaries is bound or affected (except, with respect to clause (ii), for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations that would not, individually or in the aggregate, have a Material Adverse Effect). Neither the Company nor any of its subsidiaries is in violation of its Certificate of Incorporation, By-laws or other organizational documents and neither the Company nor any of its subsidiaries is in default (and no event has occurred which, with notice or lapse of time or both, would put the Company or any of its subsidiaries in default) under, nor has there occurred any event giving others (with notice or lapse of time or both) any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its subsidiaries is a party, except for actual or possible violations, defaults or rights that would not, individually or in the aggregate, have a Material Adverse Effect. The businesses of the Company and its subsidiaries are not being conducted, and shall not be conducted so long as a Purchaser owns any of the Securities, in violation of any law, ordinance or regulation of any governmental entity, except for possible violations the sanctions for which either singly or in the aggregate would not have a Material Adverse Effect. Except as specifically contemplated by this Agreement and the 8 Registration Rights Agreement, the Company is not required to obtain any consent, approval, authorization or order of, or make any filing or registration with, any court or governmental agency or any regulatory or self regulatory agency in order for it to execute, deliver or perform any of its obligations under this Agreement, the Notes, the Replacement Warrants, the Security Documents or the Registration Rights Agreement or to perform its obligations under the Notes, the Replacement Warrants or the Certificate of Designation, in each case in accordance with the terms hereof or thereof. The Company is not in violation of the listing requirements of the Nasdaq National Market ("NNM") and has received no notice regarding the potential delisting of the Common Stock by the NNM. (g) SEC Documents, Financial Statements. Since December 31, 2001, the Company has timely filed (within applicable extension periods) all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein, being hereinafter referred to herein as the "SEC DOCUMENTS"). The Company has delivered to each Purchaser true and complete copies of the SEC Documents. To the extent that any SEC Document is available under the SEC's EDGAR filing system prior to the date hereof, such SEC Document shall be deemed to have been delivered to each of the Purchasers. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act or the Securities Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. None of the statements made in any such SEC Documents is, or has been, required to be amended or updated under applicable law (except for such statements as have been amended or updated in subsequent filings made prior to the date hereof). As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC applicable with respect thereto. Such financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP"), consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements) and fairly present in all material respects the consolidated financial position of the Company and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to immaterial year-end audit adjustments). Except as set forth in the financial statements of the Company included in the SEC Documents filed prior to the date hereof, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to the date of such financial statements and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under GAAP to be reflected in such financial statements, which liabilities and obligations referred to in clauses (i) and (ii), individually or in the aggregate, are not material to the financial condition or operating results of the Company. 9 (h) Absence of Certain Changes. Since December 31, 2001, there has been no material adverse change and no material adverse development in the business, properties, operations, prospects, financial condition or results of operations of the Company and its subsidiaries, taken as a whole, except as disclosed in the SEC Documents filed prior to the date hereof. (i) Absence of Litigation. Except as disclosed in the SEC Documents filed prior to the date hereof, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body, including, without limitation, the SEC or NASDAQ, pending or, to the knowledge of the Company or any of its subsidiaries, threatened against or affecting the Company, any of its subsidiaries, or any of their respective directors or officers in their capacities as such. There are no facts which, if known by a potential claimant or governmental authority, could give rise to a claim or proceeding which, if asserted or conducted with results unfavorable to the Company or any of its subsidiaries, could reasonably be expected to have a Material Adverse Effect. (j) Intellectual Property. Each of the Company and its subsidiaries owns or is licensed to use all patents, patent applications, trademarks, trademark applications, trade names, service marks, copyrights, copyright applications, licenses, permits, inventions, discoveries, processes, scientific, technical, engineering and marketing data, object and source codes, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures) and other similar rights and proprietary knowledge (collectively, "INTANGIBLES") necessary for the conduct of its business as now being conducted. To the best knowledge of the Company, neither the Company nor any subsidiary of the Company infringes or is in conflict with any right of any other person with respect to any Intangibles. Except as set forth on Schedule 3(j) of the Schedule of Exceptions, neither the Company nor any of its subsidiaries has received written notice of any pending conflict with or infringement upon such third party Intangibles. Except as set forth on Schedule 3(j) of the Schedule of Exceptions, the termination of the Company's ownership of, or right to use, any single Intangible would not result in a Material Adverse Effect on the Company. Neither the Company nor any of its subsidiaries has entered into any consent agreement, indemnification agreement, forbearance to sue or settlement agreement with respect to the validity of the Company's or its subsidiaries' ownership or right to use its Intangibles and, to the best knowledge of the Company, there is no reasonable basis for any such claim to be successful. The Intangibles are valid and enforceable and no registration relating thereto has lapsed, expired or been abandoned or canceled or is the subject of cancellation or other adversarial proceedings, and all applications therefor are pending and in good standing. The Company and its subsidiaries have complied, in all material respects, with their respective contractual obligations relating to the protection of the Intangibles used pursuant to licenses. To the best knowledge of the Company, no person is infringing on or violating the Intangibles owned or used by the Company or its subsidiaries. (k) Foreign Corrupt Practices. Neither the Company, nor any of its subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the Company or any subsidiary has, in the course of his actions for, or on behalf of, the Company, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any 10 provision of the U.S. Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee. (l) Disclosure. All information relating to or concerning the Company set forth in this Agreement or provided to any Purchaser pursuant to Section 2(d) hereof or otherwise in connection with the transactions contemplated hereby is true and correct in all material respects and the Company has not omitted to state any material fact necessary in order to make the statements made herein or therein, in light of the circumstances under which they were made, not misleading. (m) Acknowledgment Regarding Repurchase of Preferred Stock and Issuance of Notes. The Company acknowledges and agrees that none of the Purchasers is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement or the transactions contemplated hereby, the relationship between the Company and the Purchasers is "arms-length" and any statement made by any Purchaser or any of its representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to such Purchaser's acquisition of Securities and has not been relied upon by the Company, its officers or directors in any way. The Company further acknowledges that the Company's decision to enter into this Agreement has been based solely on an independent evaluation by the Company and its representatives. (n) Listing. Upon obtaining the Authorized Stock Approval and the NASD Rule Approval, the Company will secure the listing of the Conversion Shares and the Warrant Shares upon each national securities exchange or automated quotation system upon which shares of Common Stock are currently listed (subject to official notice of issuance). (o) Form S-3 Eligibility. The Company is currently eligible to register the resale of its Common Stock on a registration statement on Form S-3 under the Securities Act. There exist no facts or circumstances that would prohibit or delay the preparation and filing of a registration statement on Form S-3 with respect to the Registrable Securities (as defined in the Registration Rights Agreement). The Company has no basis to believe that its past or present independent public auditors will withhold their consent to the inclusion, or incorporation by reference, of their audit opinion concerning the Company's financial statements which are included in the Registration Statement required to be filed pursuant to the Registration Rights Agreement. (p) No General Solicitation. Neither the Company nor any distributor participating on the Company's behalf in the transactions contemplated hereby (if any) nor any person acting for the Company, or any such distributor, has conducted any "general solicitation," as such term is defined in Regulation D, with respect to any of the Securities being offered hereby. (q) No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would require registration of the Securities being offered hereby under the Securities Act or cause this offering of Securities to be integrated with any prior offering of securities of the Company for purposes of 11 the Securities Act or any applicable stockholder approval provisions, including, without limitation, Rule 4350(i) of the NASD or any similar rule. (r) No Brokers. The Company has taken no action which would give rise to any claim by any person for brokerage commissions or finder's fees or for similar payments by any Purchaser relating to this Agreement or the transactions contemplated hereby. (s) Acknowledgment Regarding Securities. The number of Conversion Shares issuable upon conversion of the Preferred Shares may increase in certain circumstances. The Company's executive officers have studied and fully understand the nature of the Securities being sold hereunder. The Company acknowledges that its obligation to issue Conversion Shares upon conversion of the Preferred Shares in accordance with the Certificate of Designation is, other than as set forth in the Certificate of Designation, absolute and unconditional, regardless of the dilution that such issuance may have on the ownership interests of other stockholders and the availability of remedies provided for in the Transaction Documents relating to a failure or refusal to issue Conversion Shares. Taking the foregoing into account, the Company's Board of Directors has determined in its good faith business judgment that the issuance of the Notes and Replacement Warrants hereunder and the Preferred Shares pursuant to the Notes and the consummation of the other transactions contemplated hereby and thereby are in the best interests of the Company and its stockholders. The Company's Board of Directors and executive officers fully intend to honor their obligations hereunder to issue Conversion Shares upon conversion of the Preferred Shares regardless of the dilution that such issuance may have on the ownership interests of other stockholders and the availability of remedies provided for in the Transaction Documents relating to their failure or refusal to issue Conversion Shares. (t) Title. The Company and its subsidiaries have good and marketable title in fee simple to all real property and good and merchantable title to all personal property owned by them that is material to the business of the Company and its subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and its subsidiaries. Any real property and facilities held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not materially interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries. (u) Tax Status. Except as set forth in the SEC Documents, the Company and each of its subsidiaries has made or filed all foreign, U.S. federal, state and local income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. The Company has not executed a waiver with respect to any statute of limitations relating to the 12 assessment or collection of any federal, state or local tax. None of the Company's tax returns is presently being audited by any taxing authority. (v) Key Employees. Each of the Company's directors, officers and any Key Employee (as defined below) is currently serving the Company in the capacity disclosed in the SEC Documents. No Key Employee, to the best of the knowledge of the Company and its subsidiaries, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract or agreement or any restrictive covenant, and the continued employment of each Key Employee does not subject the Company or any of its subsidiaries to any liability with respect to any of the foregoing matters. No Key Employee has, to the knowledge of the Company and its subsidiaries, any intention to terminate or limit his employment with, or services to, the Company or any of its subsidiaries, nor, to the knowledge of the Company, is any such Key Employee subject to any constraints which would cause such employee to be unable to devote his full time and attention to such employment or services. "KEY EMPLOYEE" means the persons listed on Schedule 3(v) of the Schedule of Exceptions and any individual who assumes or performs any of the duties of a Key Employee. (w) Insurance. The Company and its subsidiaries have in force fire, casualty, product liability and other insurance policies, with extended coverage and in such amounts as are customarily carried by persons engaged in the same or similar business as the Company and its subsidiaries. No default or event has occurred that could give rise to a default under any such policy. (x) Environmental Matters. There is no environmental litigation or other environmental proceeding pending or threatened by any governmental regulatory authority or others with respect to the current or any former business of the Company or its subsidiaries or any partnership or joint venture currently or at any time affiliated with the Company or its subsidiaries. No state of facts exists as to environmental matters or Hazardous Substances (as defined below) that involves the reasonable likelihood of a material capital expenditure by the Company or its subsidiaries or that may otherwise have a Material Adverse Effect. No Hazardous Substances have been treated, stored or disposed of, or otherwise deposited, in or on the properties owned or leased by the Company or its subsidiaries or by any partnership or joint venture currently or at any time affiliated with the Company or its subsidiaries in violation of any applicable environmental laws. The environmental compliance programs of the Company and its subsidiaries comply in all respects with all environmental laws, whether federal, state or local, currently in effect. As used herein, "HAZARDOUS SUBSTANCES" means any substance, waste, contaminant, pollutant or material that has been determined by any governmental authority to be capable of posing a risk of injury to health, safety, property or the environment. (y) Inventory. All inventory of the Company and its subsidiaries is valued on the Company's consolidated books and records at the lower of standard cost, which approximates actual cost, or the fair market value thereof. Except, to the extent of the Company's reserves for obsolete or unmerchantable inventory reflected in the Company's SEC Documents, all such inventory, after consideration of reserves consisting of finished goods is of merchantable quality and is saleable in the ordinary course of business consistent with past practice. 13 (z) Regulatory Permits. The Company and its subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities which are material to conduct its business, and neither the Company nor any of its subsidiaries has received any written notice of any proceeding relating to the revocation or modification of any such certificate, authorization or permit. (aa) Subsidiaries. The business of the Company is and has been conducted solely by and through the Company and not by or through any other person or entity. The Company does not directly or indirectly own, control or have any investment or other interest in any corporation, company, partnership, joint venture, business trust or other entity. 4. COVENANTS. (a) Best Efforts. The parties shall use their best efforts timely to satisfy each of the conditions described in Section 6 and Section 7 of this Agreement. (b) Form D: Blue Sky Laws. The Company shall file with the SEC a Form D with respect to the Securities as required under Regulation D and provide a copy thereof to each Purchaser promptly after such filing. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary to qualify the Securities for sale to each Purchaser pursuant to this Agreement under applicable securities or "blue sky" laws of the states of the United States or obtain exemption therefrom, and shall provide evidence of any such action so taken to each Purchaser on or prior to the Closing Date. Within four (4) trading days after the Closing Date, the Company shall file a Form 8-K concerning this Agreement and the transactions contemplated hereby, which Form 8-K shall attach this Agreement and its Exhibits as exhibits to such Form 8-K. (c) Reporting Status. So long as any Purchaser beneficially owns any of the Securities, the Company shall timely file (within applicable extension periods) all reports required to be filed with the SEC pursuant to the Exchange Act, and the Company shall not terminate its status as an issuer required to file reports under the Exchange Act even if the Exchange Act or the rules and regulations thereunder would permit such termination. In addition, the Company shall take all actions reasonably necessary to meet the "registrant eligibility" requirements set forth in the general instructions to Form S-3 or any successor form thereto, to continue to be eligible to register the resale of its Common Stock on a registration statement on Form S-3 under the Securities Act. (d) Purchaser Waivers. In connection with the transactions contemplated hereby and by the Securities Purchase Agreement and the other Transaction Documents, each Purchaser hereby: (i) approves (A) the designation of the "Series C Convertible Preferred Stock," which will be pari-passu in some circumstances with the Series A Preferred Stock and the Series B Preferred Stock, and (B) the issuance and sale to the Series C Purchasers of the Preferred Shares and the Series C Warrants in accordance with the terms of the Securities Purchase Agreement; 14 (ii) waives its right, pursuant to Section 4(e) of that certain Securities Purchase Agreement dated June 29, 2001 by and among the Company and certain purchasers of the Company's Series A Preferred Stock (the "SERIES A SECURITIES PURCHASE AGREEMENT") and Securities Purchase Agreement dated March 22, 2002 by and among the Company and certain purchasers of the Company's Series B Preferred Stock (the "SERIES B SECURITIES PURCHASE AGREEMENT"), as applicable, to participate in the issuance to the Series C Purchasers of the Preferred Shares and the Series C Warrants in accordance with the terms of the Securities Purchase Agreement (including all notices and notice periods required thereby); (iii) waives compliance by the Company with Section 4(m) of the Series A Securities Purchase Agreement and the Series B Securities Purchase Agreement, as applicable, to the extent necessary to comply with the terms of this Agreement and the Preferred Shares; and (iv) as required by the terms of that certain First Registration Rights Agreement and Second Registration Rights Agreement, each dated June 29, 2001 by and among the Company and the purchasers of Series A Preferred Stock, and that certain Registration Rights Agreement dated March 22, 2002 by and among the Company and the purchasers of the Series B Preferred Stock, as applicable, (A) consents to the registration rights granted to the Series C Purchasers pursuant to the Registration Rights Agreement; (B) consents to the filing of the Registration Statements and all amendments or supplements thereto, and any subsequent filings, contemplated by the Registration Rights Agreement; and (C) waives all rights to notice and all rights to include shares to be registered under such Registration Statements (except to the extent provided in the Registration Rights Agreement), and any other rights triggered by the actions consented to hereby. (e) Participation Right. Subject to the terms and conditions specified in this Section 4(e), for so long as the Notes remain outstanding, the Purchasers shall have a right to participate with respect to the issuance or possible issuance of (i) future equity or equity-linked securities, or (ii) debt which is convertible into equity or in which there is an equity component ("ADDITIONAL SECURITIES") on the same terms and conditions as offered by the Company to the other purchasers of such Additional Securities. Each time the Company proposes to offer any Additional Securities, the Company shall make an offering of such Additional Securities to each Purchaser in accordance with the following provisions: (i) the Company shall deliver a notice (the "NOTICE") to the Purchasers stating (i) its bona fide intention to offer such Additional Securities, (ii) the number of such Additional Securities to be offered, (iii) the price and terms, if any, upon which it proposes to offer such Additional Securities, and (iv) the anticipated closing date of the sale of such Additional Securities. (ii) by written notification received by the Company, within twenty (20) days after giving of the Notice, any Purchaser may elect to purchase or obtain, at the price and on the terms specified in the Notice, up to that portion of such Additional Securities which equals the proportion that the number of shares of Common Stock that such Purchaser would have the right to acquire assuming the full conversion of such Purchaser's Notes into Preferred Shares and the full conversion of such Preferred Shares into Conversion Shares bears to the total number of shares of Common Stock then outstanding (assuming in each case full conversion and exercise of 15 all convertible or exercisable securities then outstanding). The Company shall promptly, in writing, inform each Purchaser which elects to purchase all of the Additional Shares available to it ("FULLY-EXERCISING PURCHASER") of any other Purchaser's failure to do likewise. During the five-day period commencing after such information is given, each Fully-Exercising Purchaser shall be entitled to obtain that portion of the Additional Securities for which the Purchasers were entitled to subscribe but which were not subscribed for by the Purchasers which is equal to the proportion that the number of shares of Common Stock that such Fully-Exercising Purchaser would have the right to acquire assuming the full conversion of such Purchaser's Notes into Preferred Shares and the full conversion of such Preferred Shares into Conversion Shares bears to the total number of shares of Common Stock that all Fully-Exercising Purchasers who wish to purchase some of the unsubscribed shares would have the right to acquire assuming the full conversion of such Purchasers' Notes into Preferred Shares and the full conversion of such Preferred Shares into Conversion Shares; (iii) if all Additional Securities which the Purchasers are entitled to obtain pursuant to subsection 4(e)(ii) are not elected to be obtained as provided in subsection 4(e)(ii) hereof, the Company may, during the 75-day period following the expiration of the period provided in subsection 4(e)(ii) hereof, offer the remaining unsubscribed portion of such Additional Securities to any person or persons at a price not less than, and upon terms no more favorable to the offeree than, those specified in the Notice. If the Company does not consummate the sale of such Additional Securities within such period, the right provided hereunder shall be deemed to be revived and such Additional Securities shall not be offered or sold unless first reoffered to the Purchasers in accordance herewith; (iv) the participation right in this Section 4(e) shall not be applicable to (i) the issuance or sale of shares of Common Stock (or options therefor) to employees, officers, directors, or consultants of the Company for the primary purpose of soliciting or retaining their employment or service pursuant to a stock option plan (or similar equity incentive plan) approved by the Board of Directors, (ii) the issuance of securities in connection with a bona fide underwritten public offering at an offering price per share (prior to underwriter's commissions and discounts) of not less than 200% of the Conversion Price (as such term is defined in the Certificate of Designation) (as adjusted to reflect any stock dividends, distributions, combinations, reclassifications and other similar transactions effected by the Corporation in respect to its Common Stock) that results in total proceeds to the Company of at least $40,000,000, (iii) the issuance or sale of the Preferred Shares, (iv) the issuance of securities in connection with mergers, acquisitions, strategic business partnerships or joint ventures (including, without limitation, such transactions with major pharmaceutical labs or life sciences companies), the primary purpose of which, in the reasonable judgment of the Board of Directors, is not to raise additional capital, (v) the issuance of securities pursuant to any equipment financing from a bank or similar financial or lending institution approved by the Board of Directors, or (vi) any issuance of securities as to which the holders of a majority of the then outstanding Notes shall have executed a written waiver of the rights contained in this Section 4(e). (v) the participation right set forth in this Section 4(e) may not be assigned or transferred, except that such right is assignable by each Purchaser to any wholly-owned 16 subsidiary or parent of, or to any corporation or entity that is, within the meaning of the Securities Act, controlling, controlled by or under common control with, any such Purchaser. (f) Expenses. The Company shall pay to SDS Capital Partners ("SDS CAPITAL") at the Closing, reimbursement for the out-of-pocket expenses reasonably incurred by SDS Capital's advisors in connection with the negotiation, preparation, execution and delivery of this Agreement and the other agreements to be executed in connection herewith, including, without limitation, SDS Capital's advisors' reasonable due diligence and attorneys' fees and expenses (the "EXPENSES"); provided, however, that in lieu of such payment SDS Capital (or its affiliates) shall be permitted to deduct all Expenses from the purchase price payable by SDS Capital (or its affiliates) hereunder. In addition, from time to time thereafter, upon SDS Capital's written request, the Company shall pay to SDS Capital such additional Expenses, if any, not covered by such payment, in each case to the extent reasonably incurred by SDS Capital's agents prior to the Closing in connection with the negotiation, preparation, execution and delivery of this Agreement. (g) Financial Information. The Company shall send the following reports to each Purchaser until such Purchaser transfers, assigns or sells all of its Securities: within ten (10) days after the filing with the SEC, a copy of its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, its proxy statements and any Current Reports on Form 8-K. To the extent that any of the foregoing documents is available under the SEC's EDGAR filing system, such documents shall be deemed to have been delivered to each of the Purchasers. (h) Reservation of Shares. The Company shall at all times have authorized and reserved for the purpose of issuance a sufficient number of Preferred Shares to provide for the full conversion of the Notes and issuance of the Preferred Shares in connection therewith and, subject to obtaining the Authorized Stock Approval contemplated by Section 4(r) below, a sufficient number of shares of Common Stock to provide for the full conversion of the Preferred Shares issuable upon conversion of the Notes and issuance of the Conversion Shares in connection therewith and the full exercise of the Replacement Warrants and issuance of the Warrant Shares in connection therewith, in each case to the extent required by the Certificate of Designation and the Replacement Warrants. (i) Listing. The Company shall file an application for the listing of the Conversion Shares and the Warrant Shares promptly, but in any event within three (3) business days following, the date on which the Company obtains the Authorized Stock Approval and the NASD Rule Approval. From the time that such application has been approved and thereafter, the Company shall maintain, so long as any Purchaser (or any of their affiliates) own any Securities, the listing of all Conversion Shares and the Warrant Shares from time to time issuable upon conversion of the Preferred Shares and exercise of the Replacement Warrants on each national securities exchange or automated quotation system on which shares of Common Stock are currently listed. The Company will use its best efforts to continue the listing and trading of its Common Stock on the NNM, the New York Stock Exchange ("NYSE"), the American Stock Exchange ("AMEX") or the Nasdaq SmallCap Market (the "SMALLCAP") and will comply in all material respects with the reporting, filing and other obligations under the bylaws or rules of the NASD and such exchanges, as applicable. The Company shall promptly provide to each holder of Preferred Shares and/or Replacement Warrants copies of any notices it receives regarding the 17 continued eligibility of the Common Stock for trading on the NNM or, if applicable, any securities exchange or automated quotation system on which securities of the same class or series issued by the Company are then listed or quoted, if any. (j) Corporate Existence. So long as a Purchaser beneficially owns any Securities, the Company shall maintain its corporate existence, and in the event of a merger, consolidation or sale of all or substantially all of the Company's assets, the Company shall ensure that the surviving or successor entity in such transaction (i) assumes the Company's obligations hereunder and under the Certificate of Designation, the Notes, the Replacement Warrants, the Security Documents and the agreements and instruments entered into in connection herewith regardless of whether or not the Company would have had a sufficient number of shares of Common Stock authorized and available for issuance in order to effect the conversion of all Preferred Shares and exercise in full of all Replacement Warrants outstanding as of the date of such transaction and (ii) is a publicly traded corporation whose common stock is listed for trading on the NNM, SmallCap, NYSE or AMEX. Notwithstanding the foregoing, the Company covenants and agrees that it will not engage in any merger, consolidation or sale of all or substantially all of its assets at any time prior to the effectiveness of the Registration Statement required to be filed pursuant to the Registration Rights Agreement without (A) providing each Purchaser with written notice of such transaction at least 60 days prior to the consummation of such transaction and (B) obtaining the written consent of the Purchasers holding a majority-in-interest of the then outstanding Preferred Shares held by such Purchasers on or before the 10th day after the delivery of such notice by the Company. (k) No Integrated Offerings. The Company shall not make any offers or sales of any security (other than the Securities) under circumstances that would require registration of the Securities being offered or sold hereunder under the Securities Act or cause this offering of the Securities to be integrated with any other offering of securities by the Company for purposes of any stockholder approval provision applicable to the Company or its securities. (l) Legal Compliance. The Company shall conduct its business and the business of its subsidiaries in compliance with all laws, ordinances or regulations of governmental entities applicable to such businesses, except where the failure to do so would not have a Material Adverse Effect. (m) Redemptions and Dividends. So long as any Purchaser beneficially owns any Notes or Preferred Shares, the Company shall not, without first obtaining the written approval of the Purchasers holding a majority-in-interest of the Notes then outstanding or the holders of a majority of the Preferred Shares then outstanding, as applicable, repurchase, redeem, or declare or pay any cash dividend or distribution on, any shares of capital stock of the Company; provided, however, that the foregoing shall not prohibit the Company from repurchasing, redeeming or declaring or paying cash dividends or distributions on shares of the Series A Preferred Stock and Series C Convertible Preferred Stock provided that any such repurchases, redemptions, dividends and distributions are made solely in accordance with the terms of such Series A Preferred Stock and Series C Convertible Preferred Stock as in effect on the date hereof. 18 (n) Information. The Company will furnish to each Purchaser, so long as it holds any Securities: (i) concurrently with the filing with the SEC of its annual reports on Form 10-K, a certificate of the President, a Vice President or a senior financial officer of the Company stating that, based upon such examination or investigation and review of this Agreement as in the opinion of the signer is necessary to enable the signer to express an informed opinion with respect thereto, neither the Company nor any of its subsidiaries is or has during such period been in default in the performance or observance of any of the terms, covenants or conditions hereof, or, if the Company or any of its subsidiaries shall be or shall have been in default, specifying all such defaults, and the nature and period of existence thereof, and what action the Company or such subsidiary has taken, is taking or proposes to take with respect thereto; and (ii) the information the Company must deliver to any holder or to any prospective transferee of Securities in order to permit the sale or other transfer of such Securities pursuant to Rule 144A of the SEC or any similar rule then in effect. The Company will keep at its principal executive office a true copy of this Agreement (as at the time in effect), and cause the same to be available for inspection at such office during normal business hours by any holder of Securities or any prospective transferee of Securities designated by a holder thereof. (o) Inspection of Properties and Books. So long as any Purchaser shall hold any Securities, such Purchaser and its representatives and agents (collectively, the "INSPECTORS") shall have the right, at such Purchaser's expense, to visit and inspect any of the properties of the Company and of its subsidiaries, to examine the books of account and records of the Company and of its subsidiaries, to make or be provided with copies and extracts therefrom, to discuss the affairs, finances and accounts of the Company and of its subsidiaries with, and to be advised as to the same by, its and their officers, employees and independent public accountants (and by this provision the Company authorizes such accountants to discuss such affairs, finances and accounts, whether or not a representative of the Company is present) all at such reasonable times and intervals and to such reasonable extent as such Purchaser may desire; provided, however, that each Inspector shall hold in confidence and shall not make any disclosure (except to such Purchaser) of any such information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (a) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement filed pursuant to the Registration Rights Agreement, (b) the release of such information is ordered pursuant to a subpoena or other order from a court or government body of competent jurisdiction, or (c) such information has been made generally available to the public other than by disclosure in violation of this or any other agreement. The Company shall not be required to disclose any confidential information to any Inspector until and unless such Inspector shall have entered into confidentiality agreements (in form and substance satisfactory to the Company) with the Company with respect thereto, substantially in the form of this Section 4(o). Each Purchaser agrees that it shall, upon learning that disclosure of such information is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the information 19 deemed confidential. Notwithstanding the foregoing, the Company shall be permitted to withhold from disclosure under this paragraph any material protected by attorney-client privilege. (p) Waivers and Consents. Prior to the effectiveness any Registration Statement filed in accordance with Section 2(a)(ii) of the Registration Rights Agreement, the Company shall have obtained proper waivers from the stockholders and warrant holders referred to on Schedule 3(f) of the Schedule of Exceptions to this Agreement. (q) Confidential Agreement. Each Purchaser will hold in confidence all information concerning this Agreement and the placement of shares hereunder until the earlier of such time as (i) the Company has made a public announcement concerning the Agreement and the placement of shares hereunder or (ii) this Agreement is terminated. (r) Stockholder Approval. The Company shall call a meeting of its stockholders to be held as promptly as practicable (but in any event no later than 90 days after the Closing Date) for the purpose of voting upon and approving (i) the increase in the number of authorized shares of the Company's Common Stock to a number sufficient to provide for (A) the issuance and conversion of all of the Preferred Shares issuable by the Company to the Purchasers upon conversion of the Notes, (B) the exercise of the Replacement Warrants issued by the Company to the Purchasers pursuant hereto, and (C) the conversion or exercise of all other outstanding securities of the Company that are convertible into or exercisable for shares of Common Stock (the "AUTHORIZED STOCK APPROVAL"), (ii) to approve the conversion of the Notes into Preferred Shares and the issuance of the Replacement Warrants, in accordance with Rule 4350(i) of the NASD or any similar rule (the "NASD RULE APPROVAL"), and (iii) to amend the Certificate of Designation to include (a) the right of the Company to pay any premium payments due thereunder in either cash or shares of Common Stock at the Company's election and (b) the same anti-dilution protections as are currently afforded to the Company's Series A Preferred Stock pursuant to Article XI, Section G of the Series A Certificate of Designations (the "SERIES C AMENDMENT APPROVAL" and, together with the Authorized Stock Approval and the NASD Rule Approval, the "STOCKHOLDER APPROVAL"). The Company shall recommend to its stockholders approval of such matters. The Company shall use its best efforts to solicit from its stockholders proxies in favor of such matters sufficient to obtain the Stockholder Approval (including any such approval required by the NASD), and shall vote such proxies, and shall use its best efforts to cause all "affiliates" (as such term is defined in Rule 12b-2 promulgated under the Exchange Act) of the Company to vote any shares of Common Stock beneficially owned by such persons or entities, in favor of such matters. In the event and upon obtaining the Authorized Stock Approval and the NASD Rule Approval, the Company shall take all such corporate action as shall be necessary to reserve the Conversion Shares for issuance upon conversion of the Preferred Shares in accordance with the terms thereof, the Warrant Shares for issuance upon exercise of the Replacement Warrants in accordance with the terms thereof and such number of additional shares of Common Stock as shall be issuable upon the conversion or exercise of all other outstanding securities of the Company that are convertible into or exercisable for shares of Common Stock. In the event and upon obtaining the Series C Amendment Approval, (x) the Company shall prepare and, subject to the approval of the holders of Preferred Shares in accordance with the Certificate of Designation, file an amendment to the Certificate of Designation to include such additional provisions, and (y) provided that the stockholders have 20 approved all of the amendments described in clause (ii) of this Section 4(r), the Purchasers shall, in their capacity as holders of Preferred Shares, consent to such amendment. (s) Warrant Exchange. In the event that the Authorized Stock Approval and the NASD Rule Approval are obtained as contemplated by Section 4(r) above (the date on which such approvals are obtained, the "APPROVAL DATE"), the Company shall issue to each Purchaser who, prior to the consummation of the repurchase pursuant hereto, was a holder of Series B Preferred Stock, in exchange for delivery of such Purchaser's Old Warrant for cancellation, a Replacement Warrant, dated the Approval Date, representing the right to purchase a number of shares of Common Stock equal to the product obtained by multiplying (i) the number of shares issuable upon full exercise of the Old Warrant by (ii) a fraction, the numerator of which is $2.508 and the denominator of which is the "Exercise Price" of the Series C Warrants in effect on the Approval Date, and otherwise in the form attached hereto as Exhibit B, which exchange shall be conducted in the manner set forth in this Section 4(s). Promptly following the Approval Date, but in any event within two business days thereafter, the Company shall send written notice to the Purchasers who are entitled to participate in the exchange pursuant to this Section 4(s) of such approvals, and each such Purchaser shall deliver to the Company such Purchaser's Old Warrant (or evidence of the loss, theft, destruction or mutilation thereof in accordance with Section 7(c) of the Old Warrant) for cancellation by the Company. Promptly upon receipt of an Old Warrant (or evidence of the loss, theft, destruction or mutilation thereof) from any given Purchaser, the Company shall promptly, but in any event within two business days following such receipt, issue to such Purchaser the Replacement Warrant to which such Purchaser is entitled pursuant to this Section 4(s). 5. TRANSFER AGENT INSTRUCTIONS. (a) The Company shall instruct its transfer agent to issue certificates (subject to the legend and other provisions hereof and in the Notes, the Certificate of Designation and the Replacement Warrants), registered in the name of each Purchaser or its nominee, for the Preferred Shares, the Conversion Shares and the Warrant Shares in such amounts as specified from time to time by such Purchaser to the Company upon conversion of the Notes or the Preferred Shares or exercise of the Replacement Warrants, as applicable. To the extent and during the periods provided in Sections 2(f) and 2(g) of this Agreement, all such certificates shall bear the restrictive legend specified in Section 2(g) of this Agreement. (b) The Company warrants that no instruction other than such instructions referred to in this Section 5, the Registration Rights Agreement and stop transfer instructions to give effect to Section 2(f) hereof in the case of the transfer of the Conversion Shares or Warrant Shares prior to registration of the Conversion Shares or Warrant Shares under the Securities Act or without an exemption therefrom, will be given by the Company to its transfer agent and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the Registration Rights Agreement. Nothing in this Section shall affect in any way each Purchaser's obligations and agreement set forth in Section 2(g) hereof to resell the Securities pursuant to an effective registration statement or under an exemption from the registration requirements of applicable securities law. 21 (c) If any Purchaser provides the Company and the transfer agent with an opinion of counsel, which opinion of counsel shall be in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that the Securities have been sold or transferred pursuant to an exemption from registration, or any Purchaser provides the Company with an opinion of counsel, which opinion of counsel shall be in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that such Securities may be sold under Rule 144(k), the Company shall permit the transfer and, in the case of the Conversion Shares and the Warrant Shares, promptly instruct its transfer agent to issue one or more certificates in such name and in such denominations as specified by such Purchaser. 6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the Company hereunder to repurchase the Series B Preferred Stock and issue the Notes to each Purchaser hereunder is subject to the satisfaction, at or before the Closing, of each of the following conditions thereto, provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion. (a) Each Purchaser shall have executed such Purchaser's Execution Page to this Agreement and the Registration Rights Agreement and delivered the same to the Company. (b) Each Purchaser shall have delivered the share certificate(s) representing such Purchaser's shares of Series B Preferred Stock being repurchased at the Closing in accordance with Section 1(a) above. (c) The representations and warranties of each Purchaser shall be true and correct as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which representations and warranties shall be true and correct as of such date), and such Purchaser shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by such Purchaser at or prior to the Closing Date. (d) No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement. 7. CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE. The obligation of each Purchaser hereunder to have its shares of Series B Preferred Stock repurchased in exchange for a Note at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that such conditions are for such Purchaser's sole benefit and may be waived by such Purchaser at any time in such Purchaser's sole discretion: (a) The Company shall have executed this Agreement, the Notes, the Security Documents (together with any other documents necessary to perfect the security interests created 22 thereby or otherwise contemplated therein) and the Registration Rights Agreement, and delivered executed original copies of the same to such Purchaser. (b) The Certificate of Designation shall have been filed and accepted for filing with the Secretary of State of the State of Delaware and a copy thereof certified by the Secretary of State of Delaware shall have been delivered to such Purchaser. (c) The Company shall have delivered to such Purchaser duly executed Notes (each in such denominations as such Purchaser shall request) representing the aggregate Purchase Price to be paid by the Company to such Purchaser at the Closing in accordance with Section 1(b) above. (d) The Common Stock shall be authorized for quotation and listed on the NNM and trading in the Common Stock (or the NNM generally) shall not have been suspended by the SEC or the NNM. (e) The representations and warranties of the Company in this Agreement and in the other Transaction Documents shall be true and correct as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which representations and warranties shall be true and correct as of such date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement or any other Transaction Document to be performed, satisfied or complied with by the Company at or prior to the Closing Date. The Company shall have delivered for the benefit of the Purchasers, a certificate, executed by the Chief Executive Officer of the Company after reasonable investigation, dated as of the Closing Date to the foregoing effect and as to such other matters as may reasonably be requested by such Purchaser. (f) No statute, rule, regulation, executive order, decree, ruling, injunction, action or proceeding shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which questions the validity of, challenges or prohibits the consummation of, any of the transactions contemplated by this Agreement. (g) Each Purchaser shall have received an opinion of the Company's counsel, dated as of the Closing Date, in form, scope and substance reasonably satisfactory to the Purchaser and in substantially the form of Exhibit G attached hereto. (h) Each Purchaser shall have received a copy of resolutions, duly adopted by the Board of Directors of the Company, which shall be in full force and effect at the time of the Closing, authorizing the consummation by the Company of the transactions contemplated hereby and by the Notes, the Replacement Warrants, the Security Documents and the Registration Rights Agreement, certified as such by the Secretary or Assistant Secretary of the Company. (i) On or prior to the Closing Date, the Company shall have entered into the following agreements with Pfizer Inc. (or one of its affiliates): (i) Master Services Agreement, (ii) Non-Exclusive License Agreement and (iii) Stock Purchase Agreement, and shall have consummated the transactions contemplated by the Stock Purchase Agreement. 23 (j) On or prior to the Closing Date, the Company shall have entered into the Securities Purchase Agreement with the Series C Purchasers and shall have consummated the transactions contemplated thereby. 8. COLLATERAL AGENCY PROVISIONS. (a) Appointment of Collateral Agent. The Purchasers hereby appoint SDS Merchant Fund, LP, to act as collateral agent (the "COLLATERAL AGENT") and SDS Merchant Fund, LP, agrees to act as Collateral Agent for the Purchasers, as contemplated herein and in the Security Documents. (b) Collateral Agent Authorized to Enter into Collateral Documents. Each of the Purchasers authorizes the Collateral Agent to enter into the Security Documents on its behalf. (c) Amendment to Security Documents. The Purchasers holding a majority of the total outstanding principal balance of the Notes (the "REQUIRED HOLDERS") shall have the right to direct the Collateral Agent, from time to time, to consent to any amendment, modification or supplement to or waiver of any provision of any Security Document and to release any Collateral (as defined in the Security Documents) from any lien or security interest held by the Collateral Agent; provided, however, that (i) no such direction shall require the Collateral Agent to consent to the modification of any provision or portion thereof which (in the sole judgment of the Collateral Agent) is intended to benefit the Collateral Agent, (ii) the Collateral Agent shall have the right to decline to follow any such direction if the Collateral Agent shall determine in good faith that the directed action is not permitted by the terms of any Security Document or may not lawfully be taken and (iii) no such direction shall waive or modify any provision of any Security Document the waiver or modification of which requires the consent of all Purchasers unless all Purchasers consent thereto. The Collateral Agent may rely on any such direction given to it by the Required Holders and shall be fully protected in relying thereon, and shall under no circumstances be liable, except in circumstances involving the Collateral Agent's gross negligence or willful misconduct as shall have been determined in a final nonappealable judgment of a court of competent jurisdiction, to any holder of the Notes or any other person or entity for taking or refraining from taking action in accordance with any direction or otherwise in accordance with any of the Security Documents. (d) Duties of Collateral Agent. (i) Powers. The Collateral Agent shall have and may exercise such powers under the Security Documents as are specifically delegated to the Collateral Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto. The Collateral Agent shall not have any implied duties or any obligations to take any action under the Security Documents except any action specifically provided by the Security Documents to be taken by the Collateral Agent. (ii) Reliance on Instructions of Required Holders. The Collateral Agent shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the written instructions of the Required Holders and such instructions shall be binding upon all the Purchasers; provided that the Collateral Agent shall not be required to take 24 any action which the Collateral Agent in good faith believes (i) could reasonably be expected to expose it to personal liability or (ii) is contrary to this Agreement, the Security Documents and applicable law. (iii) Action Without Instructions After Event of Default. Absent written instructions from the Required Holders at a time when an Event of Default shall have occurred and be continuing, the Collateral Agent may take, but shall have no obligation to take, any and all actions under the Security Documents or any of them or otherwise as it shall deem to be in the best interests of the Purchasers; provided, however, that in the absence of written instructions from the Required Holders, the Collateral Agent shall not exercise remedies available to it under any Security Document with respect to the Collateral or any part thereof (other than preserving, collecting and protecting the Collateral and the proceeds thereof). (iv) Independent Right of Each Purchaser to Instruct Collateral Agent. The right of each Purchaser to instruct the Collateral Agent is the separate and individual property of such Purchaser and may be exercised as such Purchaser sees fit in its sole discretion and with no liability to any other such Purchaser for the exercise or non-exercise thereof. Without limiting the foregoing, the Required Holders shall not be liable under any circumstances to any other Purchaser for any action taken or omitted to be taken hereunder by the Collateral Agent upon written instructions from the Required Holders. (v) Relationship Between Collateral Agent and Purchasers. The relationship between the Collateral Agent and the Purchasers is and shall be only to the extent explicitly provided for herein that of agent and principal and nothing herein contained shall be construed to constitute the Collateral Agent a trustee for any Purchaser or to impose on the Collateral Agent duties and obligations other than those expressly provided for herein. Without limiting the generality of the foregoing, neither the Collateral Agent nor any of its directors, officers, employees, partners or agents shall: (A) be responsible to the other Purchasers for any recitals, representations or warranties contained in, or for the execution, validity, genuineness, perfection, effectiveness or enforceability of, the Security Documents (it being expressly understood that any determination of the foregoing is the responsibility of each Purchaser), (B) be responsible to the other Purchasers for the validity, genuineness, perfection, effectiveness, enforceability, existence, value or enforcement of any security interest in the Collateral (it being expressly understood that any determination of the foregoing is the responsibility of each Purchaser), (C) be under any duty to inquire into or pass upon any of the foregoing matters, or to make any inquiry concerning the performance by any person or entity of its or their obligations under any Security Document (it being expressly understood that any determination of the foregoing is the responsibility of each Purchaser), (D) be deemed to have knowledge of the occurrence of an Event of Default (as defined in the Notes), or any event, condition or circumstance the occurrence of 25 which would, with the giving of notice or the passage of time or both, constitute an Event of Default, (E) be responsible or liable to the Purchasers for any shortage, discrepancy, damage, loss or destruction of any part of the Collateral wherever the same may be located regardless of the cause thereof unless the same shall happen solely through the gross negligence or willful misconduct of the Collateral Agent as shall have been determined in a final nonappealable judgment of a court of competent jurisdiction, (F) have any liability to the Purchasers for any error or omission or action or failure to act of any kind made in the settlement, collection or payment in connection with any of the Security Documents or any of the Collateral or any instrument received in payment therefor or for any damage resulting therefrom other than as a sole result of its own gross negligence or willful misconduct as shall have been determined in a final nonappealable judgment of a court of competent jurisdiction, or (G) in any event, be liable to the Purchasers as such for any action taken or omitted by it, absent, in each case described in this subsection, its gross negligence or willful misconduct as shall have been determined in a final nonappealable judgment of a court of competent jurisdiction. (e) Standard of Care. Each Purchaser agrees with all other Purchasers and the Collateral Agent that nothing contained in this Agreement shall be construed to give rise to, nor shall such Purchaser have, any claims whatsoever against the Collateral Agent on account of any act or omission to act in connection with the exercise of any right or remedy of the Collateral Agent with respect to the Security Documents or the Collateral in the absence of gross negligence or willful misconduct of the Collateral Agent as shall have been determined in a final nonappealable judgment of a court of competent jurisdiction. (f) Collateral In Possession of Collateral Agent. The Collateral Agent shall be at liberty to place any of the Collateral, this Agreement, the Security Documents and any other instruments, documents or deeds delivered to it pursuant to or in connection with any of such documents in any safe deposit box, safe or receptacle selected by it or with any bank, any company whose business includes undertaking the safe custody of documents or any firm of lawyers of good repute and the Collateral Agent shall not be responsible for any loss thereby incurred unless such loss is solely the result of the Collateral Agent's gross negligence or willful misconduct as shall have been determined in a final nonappealable judgment of a court of competent jurisdiction. The Collateral Agent's books and records shall at all times show that the Collateral is held by the Collateral Agent subject to the pledge and lien of the Security Documents. (g) Agents, Officers and Employees of Collateral Agent. The Collateral Agent may execute any of its duties under the Security Documents by or through its agents, officers or employees. Neither the Collateral Agent nor any of its agents, officers or employees shall be liable for any action taken or omitted to be taken by it or them in good faith, be responsible for the consequence of any oversight or error of judgment or answerable for any loss unless any of 26 the foregoing shall happen through its or their gross negligence or willful misconduct as shall have been determined in a final nonappealable judgment of a court of competent jurisdiction. (h) Appointment of Co-Agent. Whenever the Collateral Agent shall deem it necessary or prudent in order either to conform to any law of any jurisdiction in which all or any part of the Collateral shall be situated or to make any claim or bring any suit with respect to the Collateral or the Security Documents, or in the event that the Collateral Agent shall have been requested to do so by or on behalf of the Required Holders, the Collateral Agent shall execute and deliver a supplemental agreement and all other instruments and agreements necessary or proper to constitute a bank or trust company, or one or more other persons or entities approved by the Collateral Agent, either to act as co-agent or co-agents with respect to all or any part of the Collateral or with respect to the Security Documents, jointly with the Collateral Agent or any successor or successors, or to act as separate agent or agents of any such property, in any such case with such powers as may be provided in such supplemental agreement, and to vest in such bank, trust company or other persons or entities as such co-agent or separate agent, as the case may be, any property, title, right or power of the Collateral Agent deemed necessary or advisable by the Required Holders or the Collateral Agent. (i) Reliance on Certain Documents. The Collateral Agent shall be entitled to rely on any communication, instrument or document believed by it to be genuine and correct and to have been signed or sent by the proper person or entity, and with respect to all legal matters shall be entitled to rely on the advice of legal advisors selected by it concerning all matters relating to the Security Documents and its duties hereunder and thereunder and otherwise shall rely on such experts as it deems necessary or desirable, and shall not be liable to any Purchaser or any other person or entity for the consequences of such reliance in the absence of gross negligence or willful misconduct as shall have been determined in a final nonappealable judgment of a court of competent jurisdiction. (j) Collateral Agent May Have Separate Relationship with Parties. The Collateral Agent (or any affiliate of the Collateral Agent) may, notwithstanding the fact that it is the Collateral Agent, act as a lender to the Company and lend money to, and generally engage in any kind of business with such party in the same manner and to the same effect as though it were not the Collateral Agent; and such business shall not constitute a breach of any obligation of the Collateral Agent to the other Purchasers. (k) Indemnification of Collateral Agent. The Company (and, to the extent that the Company fails to do so, each of the Purchasers, ratably on the basis of the respective principal amounts of the Notes outstanding at the time of the occurrence giving rise to the below liabilities, losses, etc.), agrees to indemnify the Collateral Agent for any and all liabilities, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever that may be imposed on, incurred by or asserted against the Collateral Agent in its capacity as the Collateral Agent, in any way relating to or arising out of the Security Documents or the transactions contemplated hereby or thereby or the enforcement of any of the terms hereof or thereof, provided that neither the Company nor any Purchaser shall be liable for any of the foregoing to the extent they arise from gross negligence or willful misconduct on the part of the Collateral Agent as shall have been determined in a final nonappealable judgment of a court of competent jurisdiction. This Section 8(k) shall survive the termination of this 27 Agreement. Prior to taking any action hereunder as Collateral Agent, the Collateral Agent may require each Purchaser to deposit with it sufficient sums as it determines in good faith is necessary to protect the Collateral Agent for costs and expenses associated with taking such action, and the Collateral Agent shall have no liability hereunder for failure to take such action unless the Purchasers promptly deposit such sums. (l) Resignation. The Collateral Agent at any time may resign, upon 30 days' prior written notice, by an instrument addressed and delivered to the Purchasers and the Company and may be removed at any time with or without cause upon 30 days' prior written notice, by an instrument in writing duly executed by duly authorized signatories of the Required Holders. The Required Holders shall also have the right to appoint a successor to the Collateral Agent upon any such resignation or removal, by instrument of substitution complying with the requirements of applicable law, or, in the absence of any such requirement, without any formality other than appointment and designation in writing, a copy of which instrument or writing shall be sent to each Purchaser. Upon the making of such appointment and delivery to such successor Collateral Agent of the Collateral then held by the retiring Collateral Agent, such successor Collateral Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties conferred hereby and by the Security Documents upon the Collateral Agent named herein, and one or more such appointments and designations shall not exhaust the right to appoint and designate further successor Collateral Agents hereunder. The retiring Collateral Agent shall not be discharged from its duties and obligations hereunder until, and the retiring Collateral Agent shall be so discharged when, all the Collateral held by the retiring Collateral Agent has been delivered to the successor Collateral Agent and such successor Collateral Agent shall execute, acknowledge and deliver to each holder of the Notes and to the Company an instrument accepting such appointment. If no successor shall be appointed and approved on or prior to the date of any such resignation, the resigning Collateral Agent may apply to any court of competent jurisdiction to appoint a successor to act until a successor shall have been appointed by the Required Holders as above provided. (m) Rights with Respect to Collateral. (i) Each Purchaser agrees with all other Purchasers (A) that it shall not, and shall not attempt to, exercise any rights with respect to its security interest in the Collateral, whether pursuant to any other agreement or otherwise (other than pursuant to this Agreement), or take or institute any action against the Collateral Agent or any of the other Purchasers in respect of the Collateral or its rights hereunder (other than any such action arising from the breach of this Agreement) and (B) that such Purchaser has no other rights with respect to the Collateral other than as set forth in this Agreement and the Security Documents. (ii) Each Purchaser agrees with all other Purchasers and the Collateral Agent that nothing contained in this Section 8 shall be construed to give rise to, nor shall such Purchaser have, any claims whatsoever against any other Purchaser or the Collateral Agent on account of any act or omission to act in connection with the exercise of any right or remedy of the Collateral Agent or any other Purchaser with respect to the Collateral in the absence of gross negligence or willful misconduct of such other Purchaser or Collateral Agent, as applicable, as shall have been determined in a final nonappealable judgment of a court of competent jurisdiction. 28 9. GOVERNING LAW; MISCELLANEOUS. (a) Governing Law; Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in the State of Delaware. The Company and the Purchasers irrevocably consent to the jurisdiction of the United States federal courts and the state courts located in the State of Delaware in any suit or proceeding based on or arising under this Agreement and irrevocably agree that all claims in respect of such suit or proceeding may be determined in such courts. The Company irrevocably waives the defense of an inconvenient forum to the maintenance of such suit or proceeding. The Company further agrees that service of process upon the Company mailed by first class mail shall be deemed in every respect effective service of process upon the Company in any such suit or proceeding. Nothing herein shall affect the right of any Purchaser to serve process in any other manner permitted by law. The Company agrees that a final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner. (b) Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. This Agreement, once executed by a party, may be delivered to the other parties hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement. In the event any signature is delivered by facsimile transmission, the party using such means of delivery shall cause the manually executed Execution Page(s) hereof to be physically delivered to the other party within five (5) days of the execution hereof, provided that the failure to so deliver any manually executed Execution Page shall not affect the validity or enforceability of this Agreement. (c) Headings. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. (d) Severability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction. (e) Entire Agreement; Amendments. This Agreement and the instruments referenced herein contain the entire understanding of the Purchasers, the Company, their affiliates and persons acting on their behalf with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor any Purchaser makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived other than by an instrument in writing signed by the party to be charged with enforcement and no provision of this Agreement may be amended other than by an instrument in writing signed by the Company and each Purchaser. (f) Notices. Any notices required or permitted to be given under the terms of this Agreement shall be sent by certified or registered mail (return receipt requested) or delivered personally, by responsible overnight carrier or by confirmed facsimile, and shall be effective five 29 (5) days after being placed in the mail, if mailed, or upon receipt or refusal of receipt, if delivered personally or by responsible overnight carrier or confirmed facsimile, in each case addressed to a party. The addresses for such communications shall be: If to the Company: ViroLogic, Inc. 270 East Grand Avenue South San Francisco, California 94080 Telephone: (650) 635-1100 Attn: Chief Executive Officer with a copy simultaneously transmitted by like means to (which transmittal shall not constitute notice hereunder): Cooley Godward LLP 4401 Eastgate Mall San Diego, California 92121 Telephone: (858) 550-6000 If to any Purchaser, to such address set forth under such Purchaser's name on the Execution Page hereto executed by such Purchaser. Each party shall provide notice to the other parties of any change in address. (g) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. Except as provided herein or therein, neither the Company nor any Purchaser shall assign this Agreement or any rights or obligations hereunder. Notwithstanding the foregoing, any Purchaser may assign its rights hereunder to any of its "affiliates," as that term is defined under the Exchange Act, without the consent of the Company or to any other person or entity with the consent of the Company, which consent shall not be unreasonably withheld. This provision shall not limit a Purchaser's right to transfer the Securities pursuant to the terms of the Notes, the Replacement Warrants, the Certificate of Designation and this Agreement or to assign such Purchaser's rights hereunder or thereunder to any such transferee. In addition, and notwithstanding anything to the contrary contained in this Agreement, the Registration Rights Agreement, the Notes, the Replacement Warrants or the Security Documents, the Securities may be pledged and all rights of any Purchaser under this Agreement or any other agreement or document related to the transactions contemplated hereby may be assigned, without further consent of the Company, to a bona fide pledgee in connection with such Purchaser's margin or brokerage account. (h) Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person; provided that Section 4(f) may be enforced by SDS Capital. 30 (i) Survival. The representations and warranties of the Company and the agreements and covenants set forth in Sections 3, 4, 5 and 9 hereof shall survive the Closing notwithstanding any due diligence investigation conducted by or on behalf of any Purchaser. Moreover, none of the representations and warranties made by the Company herein shall act as a waiver of any rights or remedies any Purchaser may have under applicable U.S. federal or state securities laws. (j) Publicity. The Company and each Purchaser shall have the right to approve before issuance any press releases, SEC or NASD filings, or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of the Purchasers, to make any press release or SEC or NASD filings with respect to such transactions as is required by applicable law and regulations (although the Purchasers shall be consulted by the Company in connection with any such press release and filing prior to its release and shall be provided with a copy thereof). (k) Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. (l) Termination. In the event that the Closing shall not have occurred on or before November 22, 2002, unless the parties agree otherwise, this Agreement shall terminate at the close of business on such date. Notwithstanding any termination of this Agreement, any party not in breach of this Agreement shall preserve all rights and remedies it may have against another party hereto for a breach of this Agreement prior to or relating to the termination hereof. (m) Joint Participation in Drafting. Each party to this Agreement has participated in the negotiation and drafting of this Agreement, the Certificate of Designation, the Notes, the Replacement Warrants, the Security Documents and the Registration Rights Agreement. As such, the language used herein and therein shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party to this Agreement. (n) Equitable Relief. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to each Purchaser by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations hereunder (including, but not limited to, its obligations pursuant to Section 5 hereof) will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Agreement (including, but not limited to, its obligations pursuant to Section 5 hereof), that each Purchaser shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate issuance and transfer of the Securities, without the necessity of showing economic loss and without any bond or other security being required. (o) Additional Acknowledgement. Each Purchaser acknowledges that it has independently evaluated the merits of the transactions contemplated by this Agreement, the Certificate of Designation, the Notes, the Replacement Warrants, the Security Documents and 31 the Registration Rights Agreement, that it has independently determined to enter into the transactions contemplated hereby and thereby, that it is not relying on any advice from or evaluation by any other Purchaser, and that it is not acting in concert with any other Purchaser in making its purchase of securities hereunder. The Purchasers and, to its knowledge, the Company agree that the Purchasers have not taken any actions that would deem such Purchasers to be members of a "group" for purposes of Section 13(d) of the Exchange Act. (p) Indemnification by Company. (i) From and after the Closing, the Company shall hold harmless and indemnify each of the Purchasers from and against, and shall compensate and reimburse each of the Purchasers for, any damages which are directly or indirectly suffered or incurred by any of the Purchasers or to which any of the Purchasers may otherwise become subject (regardless of whether or not such damages relate to any third-party claim) and which arise from or as a result of, or are directly or indirectly connected with any inaccuracy in or breach of any of the Company's representations, warranties or covenants set forth herein. (ii) In the event of the assertion or commencement by any person of any claim or legal proceeding with respect to which any Purchaser may have indemnification rights pursuant to Section 9(p)(i), such Purchaser shall promptly notify the Company thereof in writing, but the failure to so notify the Company will not limit any Purchaser's rights to indemnification hereunder, except to the extent the Company demonstrates that the defense of such action is prejudiced by the failure to so give such notice. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 32 IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused this Agreement to be duly executed as of the date first above written. VIROLOGIC, INC. By: /s/ WILLIAM D. YOUNG --------------------------------- Name: William D. Young ------------------------------- Title: Chairman & CEO ------------------------------ PURCHASER: [PURCHASER] By: ------------------------------------- Name: Title: RESIDENCE: ADDRESS: AGGREGATE REPURCHASE Number of Shares of Series A Preferred Stock being Repurchased: Number of Shares of Series B Preferred Stock being Repurchased: Principal Amount of Notes to be Issued: 33 EX-10.3 9 a86207exv10w3.txt EXHIBIT 10.3 EXHIBIT 10.3 SECURITY AGREEMENT THIS SECURITY AGREEMENT (this "AGREEMENT") is made and entered into as of November 14, 2002 by VIROLOGIC, INC., a Delaware corporation (the "GRANTOR"), in favor of SDS Merchant Fund, L.P., as Collateral Agent, for the benefit of the holders of the Notes (each a "SECURED PARTY" and collectively the "SECURED PARTIES"). All capitalized terms used but not otherwise defined herein shall have the respective meanings assigned thereto in the Exchange Agreement (as defined below). W I T N E S S E T H : WHEREAS, Grantor and the Secured Parties have entered into that certain Exchange Agreement dated as of the date hereof (as from time to time amended, supplemented or otherwise modified, the "EXCHANGE AGREEMENT"); WHEREAS, pursuant to the Exchange Agreement, Grantor has issued to the Secured Parties $12,045,987.94 in aggregate principal amount of Grantor's Series C Convertible Secured Promissory Notes (as from time to time amended, supplemented or otherwise modified, the "NOTES"); WHEREAS, as collateral security for payment and performance of its obligations under the Exchange Agreement, the Notes and the other Transaction Documents, Grantor is willing to grant to the Collateral Agent (for the benefit of the Secured Parties) a security interest in certain of its property and assets; and WHEREAS, Grantor is contemporaneously entering into that certain Intellectual Property Security Agreement dated as of the date hereof in favor of the Collateral Agent (for the benefit of the Secured Parties)(as from time to time amended, supplemented or otherwise modified, the "INTELLECTUAL PROPERTY SECURITY AGREEMENT"); NOW, THEREFORE, in order to induce the Secured Parties to enter into the Exchange Agreement and the other Transaction Documents and in consideration of the premises and the mutual covenants contained herein, the parties hereto hereby agree as follows: 1. COLLATERAL. As collateral security for the prompt and complete payment and performance of all Secured Obligations (as defined below), Grantor hereby pledges, hypothecates, delivers and assigns to the Collateral Agent (for the benefit of the Secured Parties), and grants to the Collateral Agent (for the benefit of the Secured Parties) a continuing first priority security interest, subject only to Permitted Liens (as defined below) in and to, all of Grantor's right, title and interest in and to all of the following property now owned or at any time hereafter acquired by Grantor or in which Grantor now has or at any time in the future may acquire right, title or interest and wheresoever located (all of the same being hereinafter referred to as the "COLLATERAL"): all personal property and fixtures of every kind and nature, including, without limitation all goods (including inventory, equipment and any accessions thereto), instruments (including promissory notes), documents, accounts (including health-care-insurance receivables), chattel paper (whether tangible or electronic), deposit accounts, letter-of-credit rights (whether or not the letter of credit is evidenced by a writing), commercial tort claims, securities and all other investment property, supporting obligations, any other contract rights or rights to the payment of money, insurance claims and proceeds, and all general intangibles including, without limitation, all payment intangibles, patents, patent applications, trademarks, trademark applications, trade names, copyrights, copyright applications, software, engineering drawings, service marks, customer lists, goodwill, and all licenses, permits, agreements of any kind or nature pursuant to which Grantor possesses, uses or has authority to possess or use property (whether tangible or intangible) of others or others possess, use or have authority to possess or use property (whether tangible or intangible) of Grantor, and all recorded data of any kind or nature, regardless of the medium of recording including, without limitation, all software, writings, plans, specifications and schematics. 2. SECURED OBLIGATIONS. For purposes of this Agreement, "SECURED OBLIGATIONS" shall mean: (a) all obligations and liabilities to the Secured Parties, whether now existing or hereafter arising, under the Exchange Agreement, the Notes, this Agreement, the Intellectual Property Security Agreement, and/or any document or agreement related to any of the foregoing and the due performance and compliance with the terms of the Exchange Agreement, the Notes, this Agreement, the Intellectual Property Security Agreement, and/or any document or agreement related to any of the foregoing; (b) any and all sums advanced by the Collateral Agent in order to preserve the Collateral or to preserve the Secured Parties' security interest in the Collateral; and (c) in the event of any proceeding for the collection or enforcement of any obligations or liabilities of Grantor referred to in the immediately preceding clauses (a) and (b) in accordance with the terms of the Exchange Agreement, the Notes, this Agreement, the Intellectual Property Security Agreement, and/or any document or agreement related to the foregoing, the expenses of re-taking, holding, preparing for sale, selling or otherwise disposing of or realizing on the Collateral, or of any other exercise by the Collateral Agent (for the benefit of the Secured Parties) of its rights hereunder, together with reasonable attorneys' fees and court costs. 3. FINANCING STATEMENTS. Grantor hereby irrevocably authorizes the Collateral Agent at any time and from time to time to file in any Uniform Commercial Code jurisdiction any initial financing statements and amendments or continuations thereto that describe the Collateral. Grantor shall execute and deliver as reasonably required by the Collateral Agent any additional financing statements or other documents, together with any necessary amendments or continuation statements so long as this Agreement remains in effect. 4. MAINTENANCE OF SECURITY INTEREST. Grantor will, from time to time, upon the request of the Secured Parties, deliver specific assignments of Collateral, together with such other instruments and documents, financing statements, amendments thereto, assignments or other writings as the Collateral Agent may reasonably request to carry out the terms of this Agreement or to protect or enforce the Secured Parties' security interest in the Collateral. With respect to any and all Collateral to be secured and conveyed under this Agreement, Grantor agrees to do and cause to be done all things necessary to perfect and keep in full force the -2- security interest granted in favor of the Collateral Agent (for the benefit of the Secured Parties), including, but not limited to, the prompt payment of all fees and expenses incurred in connection with any filings made to perfect or continue a security interest in the Collateral in favor of the Collateral Agent (for the benefit of the Secured Parties). Grantor agrees to make appropriate entries upon its financial statements and books and records disclosing the security interest granted hereunder in favor of the Collateral Agent (for the benefit of the Secured Parties). 5. RECEIPT OF PAYMENT. In the event an Event of Default (as hereinafter defined) shall occur and be continuing and Grantor (or any of its affiliates, subsidiaries, stockholders, directors, officers, employees or agents) shall receive any proceeds of Collateral, including without limitation monies, checks, notes, drafts or any other items of payment, Grantor shall hold all such items of payment in trust for the Collateral Agent (for the benefit of the Secured Parties), and as the property of the Collateral Agent (for the benefit of the Secured Parties), separate from the funds of Grantor, and no later than the first business day following the receipt thereof, Grantor shall cause the same to be forwarded to the Collateral Agent (for the benefit of the Secured Parties) for its custody and possession as additional Collateral. 6. COLLECTIONS. Grantor hereby authorizes the Collateral Agent (for the benefit of the Secured Parties), at all times after the occurrence and during the continuation of an Event of Default to open Grantor's mail and collect any and all amounts due to Grantor from any third parties obligated on any accounts that constitute part of the Collateral ("ACCOUNT DEBTORS"); and (b) to take over Grantor's post office boxes or make other arrangements as the Collateral Agent deems necessary to receive Grantor's mail, including notifying the post office authorities to change the address for delivery of Grantor's mail to such address as the Collateral Agent may designate. 7. GRANTOR REMAINS LIABLE UNDER ACCOUNTS AND CONTRACTS. Anything herein to the contrary notwithstanding, Grantor shall remain liable under each of the accounts and contracts that constitute part of the Collateral to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise to each such account and in accordance with and pursuant to the terms and provisions of each such contract. The Collateral Agent shall not have any obligation or liability under any account that constitutes part of the Collateral (or any agreement giving rise thereto) or under any contract that constitutes part of the Collateral by reason of or arising out of this Agreement or the receipt by the Collateral Agent of any payment relating to such account or contract pursuant hereto, nor shall the Collateral Agent be obligated in any manner to perform any of the obligations of Grantor under or pursuant to any such account (or any agreement giving rise thereto) or under or pursuant to any such contract, to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party under any such account (or any agreement giving rise thereto) or under any such contract, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. -3- 8. COVENANTS. Grantor covenants with the Collateral Agent (for the benefit of the Secured Parties) that from and after the date of this Agreement until termination hereof in accordance with Section 29 hereof: (a) INSPECTION. The Collateral Agent (by any of its officers, employees and agents) shall have the right upon its request and prior notice, and at any reasonable times during Grantor's usual business hours, to inspect the Collateral, all records related thereto (and to make extracts or copies from such records), and the premises upon which any of the Collateral is located, to discuss Grantor's affairs and finances with any individual, corporation, partnership, limited liability company, trust, unincorporated association, business, or other legal entity, and any government or any governmental agency or political subdivision thereof ("PERSON") (other than Account Debtors) and to verify with any such Person the amount, quality, quantity, value and condition of, or any other matter relating to, the Collateral and, if an Event of Default has occurred and is continuing, to discuss Grantor's affairs and finances with Grantor's Account Debtors and to verify the amount, quality, value and condition of, or any other matter relating to, the Collateral and such Account Debtors. Upon or after the occurrence and during the continuation of an Event of Default, the Collateral Agent (for the benefit of the Secured Parties) may at any time and from time to time employ and maintain on Grantor's premises a custodian selected by the Collateral Agent who shall have full authority to do all acts necessary to protect the interests of the Collateral Agent (for the benefit of the Secured Parties). All expenses incurred by the Collateral Agent by reason of the employment of such custodian shall be paid by Grantor, added to the Secured Obligations and secured by the Collateral. (b) ASSIGNMENTS, RECORDS AND SCHEDULES OF ACCOUNTS. Grantor shall keep accurate and complete records of its accounts ("ACCOUNT RECORDS") and from time to time at intervals reasonably designated by the Collateral Agent, but, other than during the continuance of an Event of Default, not more often than once per month, Grantor shall provide the Collateral Agent (for the benefit of the Secured Parties) with a schedule of accounts in form and substance reasonably acceptable to the Collateral Agent describing all accounts created or acquired by Grantor ("SCHEDULE OF ACCOUNTS"); provided, however, that Grantor's failure to execute and deliver any such Schedule of Accounts shall not affect or limit the security interest or other rights of the Collateral Agent (for the benefit of the Secured Parties) in and to any accounts. Grantor shall furnish to the Collateral Agent such documents relating to the accounts so scheduled, including without limitation repayment histories and present status reports to the extent maintained by Grantor in the ordinary course of its business (collectively, "ACCOUNT DOCUMENTS") and such other matter and information relating to the status of then existing accounts as the Collateral Agent shall reasonably request. Grantor shall not remove any Account Records or Account Documents or change its chief executive offices from 345 Oyster Point Boulevard, South San Francisco, California 94080 (the "CHIEF EXECUTIVE OFFICE") hereto without thirty (30) days prior written notice to the Collateral Agent as provided in Section 23 hereof. (c) NOTICE REGARDING DISPUTED ACCOUNTS. In the event any amounts due and owing in excess of $50,000 are in dispute between any Account Debtor and Grantor (which shall include without limitation any dispute in which an offset claim or counterclaim may result), -4- Grantor shall provide the Collateral Agent with written notice thereof as soon as practicable, explaining in detail the reason for the dispute, all claims related thereto and the amount in controversy. (d) VERIFICATION OF ACCOUNTS. If an Event of Default has occurred and is continuing, each of the Collateral Agent's officers, employees or agents shall have the right, at any reasonable time or times hereafter, to verify with Account Debtors the validity, amount or any other matter relating to any accounts and, whether or not an Event of Default has occurred, each of the Collateral Agent's officers, employees or agents shall have the right to verify the same with Grantor. (e) SAFEKEEPING OF INVENTORY. Grantor shall be responsible for the safekeeping of its inventory, and in no event shall the Collateral Agent and/or any of the Secured Parties have any responsibility for: (i) any loss or damage to inventory or destruction thereof occurring or arising in any manner or fashion from any cause; (ii) any diminution in the value of inventory; or (iii) any act or default of any carrier, warehouseman, bailee or forwarding agency thereof or other Person in any way dealing with or handling inventory; unless, in each case, caused by Collateral Agent's or such Secured Party's gross negligence or willful misconduct. (f) LOCATION, RECORDS AND SCHEDULES OF INVENTORY. Grantor shall keep correct and accurate records itemizing and describing the kind, type, location and quantity of inventory, its cost therefor and the selling price of inventory held for sale, and the daily withdrawals therefrom and additions thereto, and shall furnish to the Collateral Agent from time to time at reasonable intervals designated by the Collateral Agent, but, other than during the continuance of an Event of Default, not more often than once per month, a current schedule of inventory based upon its most recent physical inventory and its daily inventory records. Grantor shall conduct a physical inventory, no less than annually, and shall furnish to the Collateral Agent such other documents and reports thereof as the Collateral Agent shall reasonably request with respect to inventory. (g) RETURNS OF INVENTORY. If any Account Debtor returns any inventory to Grantor after shipment thereof, and such return generates a credit in excess of $50,000 in the aggregate on any account or accounts of such Account Debtor, Grantor shall notify the Collateral Agent of the same as soon as practicable. (h) EVIDENCE OF OWNERSHIP OF EQUIPMENT. Grantor, as soon as practicable following a request therefor by the Collateral Agent, shall deliver to the Collateral Agent any and all evidence of ownership of any of its equipment (including without limitation certificates of title and applications for title). (i) LOCATION, RECORDS AND SCHEDULES OF EQUIPMENT. Grantor shall maintain accurate, itemized records itemizing and describing the kind, type, quality, quantity and value of its equipment and shall furnish the Collateral Agent upon request with a current schedule containing the foregoing information, but, other than during the continuance of an Event of Default, not more often than once per fiscal quarter. -5- (j) SALE OR MORTGAGE OF EQUIPMENT. Other than in the ordinary course of business with respect to disposition of obsolescent equipment or replacement of equipment with other equipment performing similar functions and having similar or better utility and value, and except as may be permitted by the Exchange Agreement prior to the occurrence and continuance of an Event of Default, Grantor shall not sell, exchange, lease, mortgage, encumber, pledge or otherwise dispose of or transfer any of its equipment or any part thereof without the prior written consent of the Collateral Agent, which consent shall not be unreasonably withheld. (k) MAINTENANCE OF EQUIPMENT. Grantor shall keep and maintain its equipment in good operating condition and repair, ordinary wear and tear excepted. Grantor shall not permit any such items to become a fixture to real property (unless Grantor has granted the Collateral Agent a lien on such real property) or accessions to other personal property. (l) COMMERCIAL TORT CLAIMS. If Grantor shall at any time hold or acquire a commercial tort claim, Grantor shall immediately notify the Collateral Agent in a writing signed by Grantor of the brief details thereof and grant to the Collateral Agent (for the benefit of the Secured Parties) in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to the Collateral Agent. (m) LETTER OF CREDIT RIGHTS. To the extent that any Collateral consists of letter-of-credit rights, Grantor shall cause the issuer of each underlying letter of credit to consent to the assignment to the Collateral Agent (for the benefit of the Secured Parties) of the proceeds of such letter of credit. (n) INVESTMENT PROPERTY AND DEPOSIT ACCOUNTS. If there is any investment property included as Collateral that can be perfected by "control" through an account control agreement, Grantor shall use its best effort to cause such an account control agreement to be entered into and delivered to the Collateral Agent. If there are any deposit accounts included as Collateral that can be perfected by "control" through an account control agreement, Grantor shall cause such an account control agreement to be entered into and delivered to the Collateral Agent. If Grantor shall at any time hold or acquire any certificated securities, Grantor shall forthwith endorse, assign and deliver the same to the Collateral Agent, accompanied by such instruments of transfer or assignment duly executed in blank as the Collateral Agent may from time to time specify. (o) PROMISSORY NOTES AND CHATTEL PAPER. If Grantor shall at any time hold or acquire any promissory notes or tangible chattel paper representing an amount in excess of $50,000, Grantor shall forthwith endorse, assign and deliver the same to the Collateral Agent, accompanied by such instruments of transfer or assignment duly executed in blank as the Collateral Agent may from time to time specify. To the extent that any Collateral consists of electronic chattel paper, Grantor shall cause the underlying chattel paper to be marked within the meaning of Section 9-105 of the Code (or successor section thereto). (p) COLLATERAL IN POSSESSION OF THIRD PARTIES. To the extent that any Collateral is in the possession of a third party, Grantor will join with the Collateral Agent in -6- notifying the third party of the security interest in favor of the Collateral Agent (for the benefit of the Secured Parties) and in obtaining an acknowledgement from the third party that it is holding the Collateral for the Collateral Agent (for the benefit of the Secured Parties). (q) NOTICES. Grantor will advise the Collateral Agent promptly, in reasonable detail, (i) of any Lien (other than Liens permitted hereunder) on, or claim asserted against, any of the Collateral and (ii) of the occurrence of any other event which could reasonably be expected to have a material adverse effect on the value of any material portion of the Collateral or on the Liens created hereunder. "LIEN" shall mean any lien, mortgage, security interest, chattel mortgage, pledge or other encumbrance (statutory or otherwise) of any kind securing satisfaction or performance of an obligation, including any agreement to give any of the foregoing, any conditional sales or other title retention agreement, any lease in the nature thereof, and the filing of or the agreement to give any financing statement under the Code of any jurisdiction or similar evidence of any encumbrance, whether within or outside the United States. (r) CHANGE OF NAME; LOCATION; ETC. Grantor shall not make any change (a) in its name, (b) in the location of its chief executive office, its principal place of business, any office in which it maintains books or records relating to Collateral owned by it or any office facility at which Collateral owned by it is located (including the establishment of any such new office or facility) from 345 Oyster Point Boulevard, South San Francisco, California 94080, (c) in its identity or type of organization or corporate structure, (d) in its Federal Taxpayer Identification Number or organizational identification number or (e) in its jurisdiction of organization unless (i) Grantor provides the Collateral Agent at least thirty (30) days prior written notice of such change and (ii) all filings have been made under the Uniform Commercial Code or otherwise that are required in order for the Collateral Agent (for the benefit of the Secured Parties) to continue at all times following such change to have a valid, legal and perfected security interest in all the Collateral. (s) TRANSFER OF COLLATERAL. Except for Permitted Liens or as otherwise expressly permitted herein, other than the disposition of items of Collateral in the ordinary course of Grantor's business as presently conducted, Grantor shall not sell, assign, transfer, encumber or otherwise dispose of any Collateral without the prior written consent of the Collateral Agent, which consent shall not be unreasonably withheld. For purposes of this provision, "dispose of Collateral" shall include, without limitation, the creation of a Lien (whether voluntary or involuntary) on such Collateral. (t) TAXES AND ASSESSMENTS. Grantor shall promptly pay when due and payable, all taxes and assessments imposed upon the Collateral or operations or business of Grantor, provided that no such charge or claim need be paid if being contested in good faith by appropriate proceedings promptly initiated and diligently conducted and if such reserve or other appropriate provision, if any, as shall be required by generally accepted accounting principles, shall have been made therefor and, if the filing of a bond or other indemnity is necessary to avoid the creation of a lien against any of the assets of Grantor, such bond shall have been filed or indemnity provided. -7- (u) FURTHER IDENTIFICATION OF COLLATERAL. Grantor will furnish to the Collateral Agent from time to time, upon the request of the Collateral Agent, statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Collateral Agent may reasonably request, all in reasonable detail. (v) CASH MANAGEMENT. At any time that the Collateral Agent so requests, the Grantor will work with the Collateral Agent to set up such lock boxes and segregated accounts as the Collateral Agent may reasonably request in order to better perfect the security interest created hereunder in proceeds of the Collateral. (w) ASSIGNMENT OF CLAIMS ACT. Grantor shall immediately notify Collateral Agent if any of its accounts arise out of contracts with the United States or any agency or instrumentality thereof; and at such time as any of such accounts, individually or in the aggregate, exceed $50,000, Grantor shall execute any instruments and take any steps required by Collateral Agent in order that all moneys due and to become due under such contracts shall be assigned to Collateral Agent (for the benefit of the Secured Parties) and notice given to the government under the Federal Assignment of Claims Act. 9. GENERAL WARRANTIES AND REPRESENTATIONS. Grantor represents and warrants to the Collateral Agent (for the benefit of the Secured Parties) that: (a) Grantor is and, except as permitted by the Exchange Agreement, will continue to be the owner of the Collateral hereunder, now owned and upon the acquisition of the same, free and clear of all Liens other than the security interest in favor of the Collateral Agent (for the benefit of the Secured Parties) hereunder and under the Intellectual Property Security Agreement and Permitted Liens, and that it will defend such Collateral and any products and proceeds thereof against all claims and demands of all third parties at any time claiming the same or any interest therein adverse to the Collateral Agent. "PERMITTED LIENS" means (1) capital leases and purchase money security interests incurred with respect to equipment acquired by Grantor in the ordinary course of business, involving the incurrence of an aggregate amount of capital lease obligations and purchase money indebtedness of not more than $2,500,000 outstanding at any one time for all such Liens, provided that no such Liens shall extend to or cover any property other than the leased property or equipment purchased by proceeds of such permitted purchase money indebtedness; (2) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings and for which Borrower maintains adequate reserves, (3) Liens for mechanics and other similar liens not delinquent, (4) Liens to secure payment of workers' compensation, employment insurance, old age pensions, social security or other like obligations incurred in the ordinary course of business, and (5) Liens in favor of financial institutions arising in connection with Grantor's deposit accounts held at such institutions. (b) Grantor has the full legal right and power and all authority and approval required to enter into, execute and deliver this Agreement, to grant the security interest of the Collateral Agent (for the benefit of the Secured Parties) hereunder and to perform fully each of its obligations hereunder. This Agreement has been duly executed and delivered and constitutes the valid and binding obligation of Grantor enforceable in accordance with its terms, except as may -8- be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to creditor's rights generally. No approval or consent of any foreign, federal, state, country, local or other governmental or regulatory body, and no approval or consent of any other Person is required in connection with the execution and delivery by Grantor of this Agreement, the grant of the security interest of the Collateral Agent (for the benefit of the Secured Parties) hereunder and the consummation and performance by Grantor of the transactions contemplated hereby. The execution and delivery of this Agreement, the grant of the security interest of the Collateral Agent (for the benefit of the Secured Parties) hereunder and the consummation and performance by Grantor of the transactions contemplated hereby will not conflict with or result in the breach or violation of any of the terms or conditions of, or constitute (or with notice or lapse of time or both would constitute) a default under any material instrument, contract or other agreement to which Grantor is a party or by or to which it or its assets or properties are bound or subject or any statute or any regulation, order, judgment or decree of any court or governmental or regulatory body. 10. PERFECTION WARRANTIES AND REPRESENTATIONS. Grantor represents and warrants to the Collateral Agent (for the benefit of the Secured Parties) that: (a) Grantor is a corporation duly organized, validly existing and in good standing in the State of Delaware and its exact legal name, state issued organizational identification number and federal employer identification number are as set forth on Schedule 1. (b) Grantor has not used any name other than that set forth on Schedule 1 for the preceding five (5) years and no entity has merged into Grantor or been acquired by Grantor within the past five (5) years. (c) Grantor's chief executive office and chief place of business is located at 345 Oyster Point Boulevard, South San Francisco, California 94080. (d) Set forth on Schedule 1 are the names and addresses of all entities from whom Grantor has acquired any personal property in a transaction not in the ordinary course of business during the past five (5) years, together with the date of such acquisition and the type of personal property acquired (e.g., equipment, inventory, etc.). (e) Set forth on Schedule 1 are all banks or savings institutions at which Grantor maintains deposit accounts, all securities accounts maintained by Grantor and a list of all investment property owned or held by Grantor. (f) Set forth on Schedule 1 is a list and description of all now existing commercial tort claims of Grantor. 11. ACCOUNT WARRANTIES AND REPRESENTATIONS. With respect to its accounts, Grantor represents and warrants to the Collateral Agent (for the benefit of the Secured Parties) that the Collateral Agent may rely on all statements or representations made by Grantor on or with respect to any Schedule of Accounts prepared and delivered by it and that: -9- (a) All Account Records and Account Documents are located only at the Chief Executive Office; (b) All accounts are genuine, are in all material respects what they purport to be, are not evidenced by an instrument or document or, if evidenced by an instrument or document, are only evidenced by one original instrument or document; (c) All accounts cover bona fide sales and deliveries of inventory usually dealt in by Grantor, or the rendition by Grantor of services, to an Account Debtor in the ordinary course of business; (d) The amounts of the face value shown on any Schedule of Accounts or invoice statement delivered to the Collateral Agent with respect to any account, are actually owing to Grantor and are not contingent for any reason; and there are no setoffs, discounts, allowances, claims, counterclaims or disputes of any kind or description in an amount greater than $100,000 in the aggregate for all Account Debtors, or greater than $50,000 individually, existing or asserted with respect thereto and Grantor has not made any agreement with any Account Debtor thereunder for any deduction therefrom, except as may be stated in the Schedule of Accounts and reflected in the calculation of the face value of each respective invoice related thereto; (e) Except for conditions generally applicable to Grantor's industry and markets, there are no facts, events, or occurrences known to Grantor pertaining particularly to any accounts which are reasonably expected to materially impair in any way the validity, collectibility or enforcement of accounts that would reasonably be likely, in the aggregate, to be of material economic value, or in the aggregate materially reduce the amount payable thereunder from the amount of the invoice face value shown on any Schedule of Accounts, and on all contracts, invoices and statements delivered to the Collateral Agent, with respect thereto; (f) The goods or services giving rise thereto are not, and were not at the time of the sale or performance thereof, subject to any Lien, except those of the Collateral Agent (for the benefit of the Secured Parties), Permitted Liens, and those removed or terminated prior to the date hereof; (g) Its accounts have not been pledged to any Person other than to the Collateral Agent (for the benefit of the Secured Parties) under this Agreement and will be owned by Grantor free and clear of any Liens; and (h) The security interest of the Collateral Agent (for the benefit of the Secured Parties) therein will not be subject to any offset, deduction, counterclaim, lien or other adverse condition. 12. INVENTORY WARRANTIES AND REPRESENTATIONS. With respect to its inventory, Grantor represents and warrants to the Collateral Agent (for the benefit of the Secured Parties) that the Collateral Agent may rely on all statements or representations made by Grantor on or with respect to any inventory and that: -10- (a) All inventory is located only at the locations set forth on Schedule 1 hereto; (b) None of its inventory is or will be subject to any Lien, except for the security interest of the Collateral Agent (for the benefit of the Secured Parties) hereunder and Permitted Liens; (c) No inventory of Grantor that would reasonably be likely, in the aggregate, to be of value in excess of $50,000 is, and shall not at any time or times hereafter be, stored with a bailee, warehouseman, or similar party without the Collateral Agent's prior written consent and, if the Collateral Agent gives such consent, Grantor will concurrently therewith cause any such bailee, warehouseman, or similar party to issue and deliver to the Collateral Agent upon its request therefor, in form and substance reasonably acceptable to the Collateral Agent, warehouse receipts therefor in the Collateral Agent's name and take such other action and be party to such document as deemed necessary or prudent by the Collateral Agent to maintain the security interest of the Collateral Agent (for the benefit of the Secured Parties) in such inventory; (d) No inventory is, and shall not at any time or times hereafter be, under consignment to any Person, the value of which, when aggregated with all other inventory under consignment of Grantor, would exceed $50,000; and (e) No inventory is at or shall be kept at any location that is leased by Grantor from any other Person with contractual, statutory or other rights to obtain a Lien, or other right in any inventory which may take priority over the Lien of the Collateral Agent (for the benefit of the Secured Parties), unless such lessor waives its rights with respect to such inventory in form and substance acceptable to the Collateral Agent and delivered in writing to the Collateral Agent prior to such amount of inventory being at such one or more locations. 13. EQUIPMENT REPRESENTATIONS AND WARRANTIES. With respect to its equipment, Grantor represents and warrants to the Collateral Agent (for the benefit of the Secured Parties) that the Collateral Agent may rely on all statements or representations made by Grantor on or with respect to any equipment and that: (a) All equipment is located only at the locations set forth in Schedule 1 hereto; (b) None of its equipment is or will be subject to any Lien, except for the security interest of the Collateral Agent (for the benefit of the Secured Parties) hereunder and Permitted Liens; (c) No equipment of Grantor is at or shall be kept at any location that is leased by Grantor from any other Person with contractual, statutory or other rights to obtain a Lien, or other right in any equipment which may take priority over the Lien of the Collateral Agent (for the benefit of the Secured Parties), unless such lessor waives its rights with respect to such equipment in form and substance acceptable to the Collateral Agent and delivered in writing to the Collateral Agent prior to such amount of equipment being at such one or more locations. -11- 14. CASUALTY AND LIABILITY INSURANCE REQUIRED. (a) Grantor will keep the Collateral continuously insured against such risks as are customarily insured against by businesses of like size and type engaged in the same or similar operations including, without limiting the generality of any other covenant herein contained: (i) casualty insurance on inventory and equipment in an amount not less than the full insurable value thereof, against loss or damage by theft, fire and lightning and other hazards ordinarily included under uniform broad form standard extended coverage policies, limited only as may be provided in the standard broad form of extended coverage endorsement at the time in use in the states in which the Collateral is located; (ii) comprehensive general liability insurance against claims for bodily injury, death or property damage occurring with or about such Collateral (such coverage to include provisions waiving subrogation against the Collateral Agent), with the Collateral Agent (for the benefit of the Secured Parties) as additional insured parties and as loss payees, in amounts as shall be reasonably satisfactory to the Collateral Agent; (iii) liability insurance with respect to the operation of its facilities under the workers' compensation laws of the states in which such Collateral is located; and (iv) business interruption insurance. (b) Each insurance policy obtained in satisfaction of the requirements of Section 14(a) hereof: (i) may be provided by blanket policies now or hereafter maintained by Grantor; (ii) shall be issued by such insurer (or insurers) as shall be financially responsible, of recognized standing and reasonably acceptable to the Collateral Agent; (iii) shall be in such form and have such provisions (including without limitation the loss payable clause, the waiver of subrogation clause, the deductible amount, if any, and the standard mortgagee endorsement clause), as are generally considered standard provisions for the type of insurance involved and are reasonably acceptable in all respects to the Collateral Agent; (iv) shall prohibit cancellation or substantial modification, termination or lapse in coverage by the insurer without at least thirty (30) days' prior written notice to the Collateral Agent, except for non-payment of premium, in which case such policies shall provide ten (10) days' prior written notice; (v) without limiting the generality of the foregoing, all insurance policies where applicable under Section 14(a)(i) carried on the Collateral shall name the Collateral Agent (for the benefit of the Secured Parties), as loss payees and the Collateral Agent (for the benefit of the Secured Parties) as additional insured. -12- (c) Prior to the expiration of any such policy, Grantor shall furnish the Collateral Agent with evidence satisfactory to the Collateral Agent that the policy or certificate has been renewed or replaced or is no longer required by this Agreement. (d) Grantor hereby irrevocably makes, constitutes and appoints the Collateral Agent (and all officers, employees or agents designated by the Secured Parties) effective upon the occurrence and during the continuance of an Event of Default, as Grantor's true and lawful attorney (and agent-in-fact) for the purpose of making, settling and adjusting claims under such policies of insurance, endorsing the name of Grantor on any check, draft, instrument or other item or payment for the proceeds of such policies of insurance and for making all determinations and decisions with respect to such policies of insurance. (e) In the event Grantor shall fail to maintain, or fail to cause to be maintained, the full insurance coverage required hereunder or shall fail to keep any of its Collateral in good repair and good operating condition, the Collateral Agent may (but shall be under no obligation to), without waiving or releasing any Secured Obligation or Event of Default by Grantor hereunder, contract for the required policies of insurance and pay the premiums on the same or make any required repairs, renewals and replacements; and all sums so disbursed by the Collateral Agent, including reasonable attorneys' fees, court costs, expenses and other charges related thereto, shall be payable on demand by Grantor to the Collateral Agent (for the benefit of the Secured Parties) and shall be additional Secured Obligations secured by the Collateral. (f) Grantor agrees that to the extent that it shall not carry insurance required by Section 14(a) hereof, it shall in the event of any loss or casualty pay promptly to the Collateral Agent (for the benefit of the Secured Parties), for application in accordance with the provisions of Section 14(h) hereof, such amount as would have been received as Net Proceeds (as hereinafter defined) by the Collateral Agent, under the provisions of Section 14(h) hereof had such insurance been carried to the extent required. (g) The Net Proceeds of the insurance carried pursuant to the provisions of Sections 12(a)(ii) and 12(a)(iii) hereof shall be applied by Grantor toward extinguishment of the defect or claim or satisfaction of the liability with respect to which such insurance proceeds may be paid. (h) The Net Proceeds of the insurance carried with respect to the Collateral pursuant to the provisions of Section 14(a)(i) hereof shall be paid to Grantor and held by Grantor in a separate account and applied as follows: (i) as long as no Event of Default shall have occurred and be continuing, after any loss under any such insurance and payment of the proceeds of such insurance, Grantor shall have a period of thirty (30) days after payment of the insurance proceeds with respect to such loss to elect to either (x) repair or replace the Collateral so damaged, (y) deliver such Net Proceeds to the Collateral Agent (for the benefit of the Secured Parties), as additional Collateral or (z) apply such Net Proceeds to the acquisition of tangible assets used or useful in the conduct of the business of Grantor, subject to the provisions of this Agreement. If Grantor elects to repair or replace the Collateral so damaged, Grantor agrees the Collateral shall be repaired to a condition substantially similar to its condition prior to damage or replaced with Collateral in a condition substantially similar to the condition of the Collateral so replaced prior to damage; and (ii) at all times during which an Event of Default shall have occurred and be -13- continuing, after any loss under such insurance and payment of the proceeds of such insurance, Grantor shall immediately deliver such Net Proceeds to the Collateral Agent (for the benefit of the Secured Parties), as additional Collateral. (i) "NET PROCEEDS" when used with respect to any insurance proceeds shall mean the gross proceeds from such proceeds, award or other amount, less all taxes, fees and expenses (including attorneys' fees) incurred in the realization thereof. (j) In case of any material damage to or destruction of all or any material part of the Collateral pledged hereunder by Grantor, Grantor shall give prompt notice thereof to the Collateral Agent. Each such notice shall describe generally the nature and extent of such damage, destruction, taking, loss, proceeding or negotiations. Grantor is hereby authorized and empowered to adjust or compromise any loss under any such insurance. 15. EVENTS OF DEFAULT. It is understood and agreed that the occurrence of any one or more of the following shall constitute an "EVENT OF DEFAULT" hereunder and shall entitle the Collateral Agent (for the benefit of the Secured Parties) to take such actions as are elsewhere provided in this Agreement in respect of Events of Default: (a) an "Event of Default" as defined in the Notes shall have occurred and be continuing; or (b) any representation or warranty made by Grantor herein shall prove to have been false in any material respect when made; or (c) any covenant made by Grantor herein (other than those covenants contained in Section 8(a) hereof) is breached, violated, or not complied with and not cured within ten (10) days after notice thereof from the Collateral Agent; provided, however, that any breach, violation or non-compliance with any covenant contained in Section 8(a) hereof shall immediately result in an Event of Default; or (d) any material uninsured damage to or loss, theft or destruction of any of the Collateral shall occur; or (e) the security interests granted herein do not constitute for any reason a first priority perfected security interest in the Collateral covered thereby, subject only to Permitted Liens. 16. RIGHTS AND REMEDIES UPON AN EVENT OF DEFAULT. Upon and during the continuance of an Event of Default, the Collateral Agent (for the benefit of the Secured Parties) shall have the following rights and remedies in addition to any rights and remedies set forth elsewhere in this Agreement, all of which may be exercised with or, if allowed by law, without notice to Grantor: (a) All of the rights and remedies of a secured party under the Uniform Commercial Code of the state where such rights and remedies are asserted, or under other applicable law, all of which rights and remedies shall be cumulative, and none of which shall be exclusive, to the extent permitted by law, in addition to any other rights and remedies contained in this Agreement or the other Transaction Documents; (b) The right to foreclose the Liens created under this Agreement by any available judicial procedure or without judicial process; (c) The right to (i) enter upon the premises of Grantor through self-help and without judicial process, without first obtaining a final judgment or giving Grantor notice and opportunity for a hearing on the validity of the Collateral Agent's claim and without any obligation to pay -14- rent to Grantor, or any other place or places where any Collateral is located and kept, and remove the Collateral therefrom to the premises of the Collateral Agent or any agent of the Collateral Agent, for such time as the Collateral Agent may desire, in order effectively to collect or liquidate the Collateral, and/or (ii) require Grantor to assemble the Collateral and make it available to the Collateral Agent (for the benefit of the Secured Parties) at a place to be designated by the Collateral Agent that is reasonably convenient to both parties; (d) The right to (i) demand payment of its accounts; (ii) enforce payment of Grantor's accounts, by legal proceedings or otherwise; (iii) exercise all of Grantor's rights and remedies with respect to the collection of Grantor's accounts; (iv) settle, adjust, compromise, extend or renew Grantor's accounts; (v) settle, adjust or compromise any legal proceedings brought to collect Grantor's accounts; (vi) if permitted by applicable law, sell or assign Grantor's accounts upon such terms, for such amounts and at such time or times as the Collateral Agent deems advisable; (vii) discharge and release Grantor's accounts; (viii) take control, in any manner, of any item of payment or proceeds referred to in Section 5 above; (ix) prepare, file and sign Grantor's name on a Proof of Claim in bankruptcy or similar document against any Account Debtor; (x) prepare, file and sign Grantor's name on any notice of lien, assignment or satisfaction of lien or similar document in connection with Grantor's accounts; (xi) endorse the name of Grantor upon any chattel paper, document, instrument, invoice, freight bill, bill of lading or similar document or agreement relating to Grantor's accounts or inventory; (xii) use Grantor's stationery for verifications of Grantor's accounts and notices thereof to Account Debtors; (xiii) use the information recorded on or contained in any data processing equipment and computer hardware and software relating to any Collateral to which Grantor has access; and (xiv) do all acts and things and execute all documents necessary, in the Collateral Agent's sole discretion, to collect Grantor's accounts; and (e) The right to sell, assign, lease or to otherwise dispose of all or any Collateral in its then existing condition, or after any further manufacturing or processing thereof, at public or private sale or sales, with such notice as may be required by law, in lots or in bulk, for cash or on credit with or without representations and warranties, all as the Collateral Agent, in its sole discretion, may deem advisable. The Collateral Agent shall have the right to conduct such sales on Grantor's premises or elsewhere and shall have the right to use Grantor's premises without charge, subject to the rights of any lessor, for such sales for such time or times as the Collateral Agent may reasonably determine. The Collateral Agent may, if its deems it reasonable, postpone or adjourn any sale of the Collateral from time to time by an announcement at the time and place of such postponed or adjourned sale, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Grantor agrees that the Collateral Agent have no obligation to preserve rights to the Collateral against prior parties or to marshall any Collateral for the benefit of any Person. The Collateral Agent is hereby granted a license or other right to use, without charge, Grantor's labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale and selling any Collateral and Grantor's rights under any license and any franchise agreement shall inure to the benefit of the Collateral Agent. If any of the Collateral shall require repairs, maintenance, preparation or the like, or is in process or other unfinished state, the Collateral Agent shall have the right, but shall -15- not be obligated, to perform such repairs, maintenance, preparation, processing or completion of manufacturing for the purpose of putting the same in such saleable form as the Collateral Agent shall deem appropriate, but the Collateral Agent shall have the right to sell or dispose of the Collateral without such processing. In addition, Grantor agrees that in the event notice is necessary under applicable law, written notice mailed to Grantor in the manner specified herein ten (10) days prior to the date of public sale of any of the Collateral or prior to the date after which any private sale or other disposition of the Collateral will be made shall constitute commercially reasonable notice to Grantor. The Secured Parties may purchase all or any part of the Collateral at public or, if permitted by law, private sale, free from any right of redemption which is hereby expressly waived by Grantor and, in lieu of actual payment of such purchase price, may set off the amount of such price against the Secured Obligations. The net cash proceeds resulting from the collection, liquidation, sale, lease or other disposition of the Collateral shall be applied first to the expenses (including all attorneys' fees) of retaking, holding, storing, processing and preparing for sale, selling, collecting, liquidating and the like, and then to the satisfaction of all Secured Obligations. Any sale or other disposition of the Collateral and the possession thereof by the Collateral Agent shall be in compliance with all provisions of applicable law (including applicable provisions of the Uniform Commercial Code). Grantor shall be liable to the Secured Parties, and shall pay to the Collateral Agent (for the benefit of the Secured Parties), on demand any deficiency which may remain after such sale, disposition, collection or liquidation of the Collateral. The Secured Parties shall remit to Grantor or other Person entitled thereto any surplus remaining after this Agreement has been terminated in accordance with Section 29 hereof. 17. ANTI-MARSHALLING PROVISIONS. The right is hereby given by Grantor to the Collateral Agent (for the benefit of the Secured Parties), to make releases (whether in whole or in part) of all or any part of the Collateral agreeable to the Collateral Agent without notice to, or the consent, approval or agreement of other parties and interests, including junior lienors, which releases shall not impair in any manner the validity of or priority of the Liens in the remaining Collateral conferred under such documents, nor release Grantor from personal liability for the Secured Obligations hereby secured. Notwithstanding the existence of any other security interest in the Collateral held by the Secured Parties, the Collateral Agent (for the benefit of the Secured Parties) shall have the right to determine the order in which any or all of the Collateral shall be subjected to the remedies provided in this Agreement. The proceeds realized upon the exercise of the remedies provided herein shall be applied by the Collateral Agent in the manner herein provided. Grantor hereby waives any and all right to require the marshalling of assets in connection with the exercise of any of the remedies permitted by applicable law or provided herein. 18. APPOINTMENT OF THE COLLATERAL AGENT AS GRANTOR'S LAWFUL ATTORNEY. Without limitation of any other provision of this Agreement, upon and during the continuance of an Event of Default, Grantor irrevocably designates, makes, constitutes and appoints the Collateral Agent (for the benefit of the Secured Parties) (and all third parties designated by the Collateral Agent), as Grantor's true and lawful attorney (and agent-in-fact) to take all actions and to do all things required to be taken or done by Grantor under this Agreement. All acts of the Collateral Agent or its designees taken pursuant to this Section 18 are -16- hereby ratified and confirmed and the Collateral Agent or its designees shall not be liable for any acts of omission or commission nor for any error of judgment or mistake of fact or law, other than as a result of its gross negligence or willful misconduct. This power, being coupled with an interest, is irrevocable by Grantor until this Agreement has been terminated in accordance with Section 29 hereof. 19. PERFORMANCE BY COLLATERAL AGENT OF GRANTOR'S OBLIGATIONS. If Grantor fails to perform or comply with any of its agreements contained herein after any applicable cure period and the Collateral Agent, as provided for by the terms of this Agreement, shall itself perform or comply, or otherwise cause performance or compliance, with such agreements, the expenses of the Collateral Agent incurred in connection with such performance or compliance shall be payable by Grantor to the Collateral Agent on demand and shall constitute Secured Obligations secured hereby. 20. RIGHTS AND REMEDIES CUMULATIVE; NON-WAIVER; ETC. The enumeration of the rights and remedies of the Collateral Agent (for the benefit of the Secured Parties), set forth in this Agreement is not intended to be exhaustive and the exercise by the Collateral Agent of any right or remedy shall not preclude the exercise of any other rights or remedies, all of which shall be cumulative, and shall be in addition to any other right or remedy given hereunder, or under any other agreement between Grantor and the Collateral Agent and/or any Secured Party or which may now or hereafter exist in law or in equity or by suit or otherwise. No delay or failure to take action on the part of the Collateral Agent in exercising any right, power or privilege shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or privilege preclude other or further exercise thereof or the exercise of any other right, power or privilege or shall be construed to be a waiver of any Event of Default. No waiver by a party hereunder shall be effective unless it is in writing and signed by the party making such waiver, and then only to the extent specifically stated in such writing. No course of dealing between Grantor and the Collateral Agent or the Collateral Agent's agents or employees shall be effective to change, modify or discharge any provision of this Agreement or to constitute a waiver of any Event of Default. Neither the Collateral Agent nor any Secured Party shall have any liability for any error, omission or delay of any kind occurring in the handling or liquidation of the Collateral or for any damages resulting therefrom, other than as a result of its gross negligence or willful misconduct. 21. SUPPLEMENTAL DOCUMENTATION. At the Collateral Agent's request, Grantor shall execute and deliver to the Collateral Agent, at any time or times hereafter, all documents, instruments and other written matter that the Collateral Agent may request to perfect and maintain perfected the security interest of the Collateral Agent (for the benefit of the Secured Parties) in the Collateral, in form and substance acceptable to the Collateral Agent, and pay all charges, expenses and fees the Collateral Agent may reasonably incur in filing any of such documents, and all taxes relating thereto. Grantor agrees that a carbon, photographic, photostatic, or other reproduction of this Agreement or a financing statement is sufficient as a financing statement and may be filed by the Collateral Agent in any filing office. 22. WAIVERS. In addition to the other waivers contained herein, Grantor hereby expressly waives, to the extent permitted by law: presentment for payment, demand, protest, -17- notice of demand, notice of protest, notice of default or dishonor, notice of payments and nonpayments and all other notices and consents to any action taken by the Collateral Agent (on behalf of the Secured Parties) unless expressly required by this Agreement. 23. NOTICE. Any notice shall be conclusively deemed to have been received by any party hereto and be effective on the day on which delivered to such party (against receipt therefor) at the address set forth below or such other address as such party shall specify to the other parties in writing (or, in the case of telephonic notice or notice by telecopy (where the receipt of such message is verified by return) expressly provided for hereunder, when received at such telephone or telecopy number as may from time to time be specified in written notice to the other parties hereto or otherwise received), or if sent prepaid by certified or registered mail return receipt requested on the third business day after the day on which mailed, or if sent prepaid by a national overnight courier service, on the first business day after the day on which delivered to such service against receipt therefor, addressed to such party at said address: (a) if to Grantor: ViroLogic, Inc. 345 Oyster Point Boulevard South San Francisco, California 94080 Telephone: (650) 603-1100 Facsimile: Attn: Chief Executive Officer with a copy simultaneously transmitted by like means to (which transmittal shall not constitute notice hereunder): Cooley Godward LLP 4401 Eastgate Mall San Diego, California 92121 Telephone: (858) 550-6000 Facsimile: (858) 453-3555 (b) if to the Collateral Agent: SDS Merchant Fund, L.P. 53 Forest Avenue Second Floor Old Greenwich, CT 06870 Telephone: (203) 967-5850, ext. 75 Facsimile: (203) 967-5851 Attn: Steve Derby with a copy simultaneously transmitted by like means to (which transmittal shall not constitute notice hereunder): -18- Drinker Biddle & Reath LLP One Logan Square 18th and Cherry Streets Philadelphia, PA 19103 Telephone: (215) 988-2700 Facsimile: (215) 988-2757 Attn: Stephen T. Burdumy, Esq. or to such other address as each party may designate for itself by like notice given in accordance with this Section 23. 24. DEFINITIONS. All terms defined in Article 9 of the Uniform Commercial Code of the State of Delaware (the "CODE") and used in this Agreement shall have the same definitions herein as specified in Article 9 of the Code, and such definitions are hereby incorporated herein by reference and made a part hereof. 25. ENTIRE AGREEMENT. This Agreement, together with the Exchange Agreement and the other Transaction Documents, constitute and express the entire understanding between the parties hereto with respect to the subject matter hereof, and supersede all prior agreements and understandings, inducements, commitments or conditions, express or implied, oral or written, except as herein contained. The express terms hereof control and supersede any course of performance or usage of the trade inconsistent with any of the terms hereof. Neither this Agreement nor any portion or provision hereof may be changed, altered, modified, supplemented, discharged, canceled, terminated, or amended orally or in any manner other than by an agreement, in writing signed by the parties hereto. 26. SEVERABILITY. The provisions of this Agreement are independent of and separable from each other. If any provision hereof shall for any reason be held invalid or unenforceable, such invalidity or unenforceability shall not affect the validity or enforceability of any other provision hereof, but this Agreement shall be construed as if such invalid or unenforceable provision had never been contained herein. 27. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the successors and assigns of Grantor, and the rights, remedies, powers, and privileges of the Collateral Agent (for the benefit of the Secured Parties) hereunder shall inure to the benefit of the successors and assigns of the Collateral Agent; provided, however, that Grantor shall not make any assignment hereof without the prior written consent of the Collateral Agent. 28. COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may be executed in any number of counterparts and all the counterparts taken together shall be deemed to constitute one and the same instrument. A telephone line facsimile transmission of this Agreement bearing a signature on behalf of a party hereto shall be legal and binding on such party. 29. TERMINATION; RELEASE. Upon the indefeasible payment in full of all Secured Obligations, this Agreement and all obligations of Grantor hereunder shall terminate -19- without delivery of any instrument or performance of any act by any party, and the Collateral shall automatically be released from the Liens created by this Agreement and all rights to such Collateral shall automatically revert to Grantor. Notwithstanding the immediately preceding sentence, upon such termination of this Agreement, the Collateral Agent, at the expense of Grantor, shall reassign and redeliver such Collateral then held by or for the Secured Parties and execute and deliver to Grantor such documents as Grantor shall reasonably request to evidence such termination. 30. PARAGRAPH HEADINGS. The paragraph headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 31. INDEMNIFICATION. Grantor agrees to pay, and to save the Collateral Agent and each Secured Party harmless from, any and all liabilities, costs and expenses (including, without limitation, legal fees and expenses) (i) with respect to, or resulting from, any delay in paying, any and all excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral, (ii) with respect to, or resulting from, any delay by Grantor in complying with any law or regulation applicable to any of the Collateral, (iii) in connection with any action taken by the Collateral Agent in exercising its rights under this Agreement, and (iv) in connection with the preparation and enforcement of this Agreement and/or and document or agreement related thereto, except to the extent caused by Collateral Agent's or such Secured Party's gross negligence or willful misconduct. In any suit, proceeding or action brought by the Collateral Agent under any Account or contract that constitutes part of the Collateral for any sum owing thereunder, or to enforce any provisions of any such Account or contract, Grantor will save, indemnify and keep the Collateral Agent harmless from and against all expense, loss or damage suffered by reason of any defense, setoff, counterclaim, recoupment or reduction or liability whatsoever of the Account Debtor thereunder, arising out of a breach by Grantor of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to or in favor of such Account Debtor or its successors from Grantor. The obligations under this Section 30 shall survive termination of this Agreement. 32. GOVERNING LAW. (a) This Agreement and the rights and obligations of Grantor hereunder shall be governed by, and construed and interpreted in accordance with, the law of the State of Delaware, except to the extent that under the Code the laws of another jurisdiction govern matters of perfection and the effect of perfection or non-perfection of any security interest granted hereunder. (b) Each party hereby expressly and irrevocably agrees and consents that any suit, action or proceeding arising out of or relating to this Agreement and the transactions contemplated herein may be instituted in any state or federal court sitting in the State of Delaware, and, by the execution and delivery of this Agreement, each party expressly waives any objection that it may have now or hereafter to the laying of the venue or to the jurisdiction of any such suit, action or proceeding, and irrevocably submits generally and unconditionally to the jurisdiction of any such court in any such suit, action or proceeding. -20- (c) Each party agrees that service of process may be made by personal service of a copy of the summons and complaint or other legal process in any such suit, action or proceeding, or by registered or certified mail (postage prepaid) to the address of such party provided by Section 23 hereof, or by any other method of service provided for under the applicable laws in effect in the State of Delaware. (d) Nothing contained in subsections (b) or (c) hereof shall preclude any party from bringing any suit, action or proceeding arising out of or relating to this Agreement in the courts of any place where any party or any of such party's property or assets may be found or located. To the extent permitted by the applicable laws of any such jurisdiction, each party hereby irrevocably submits to the jurisdiction of any such court and expressly waives, in respect of any such suit, action or proceeding, the jurisdiction of any other court or courts which now or hereafter, by reason of its present or future domicile, or otherwise, may be available to it. (e) IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER OR RELATED TO THIS AGREEMENT OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR THAT MAY IN THE FUTURE BE DELIVERED IN CONNECTION WITH THE FOREGOING, EACH PARTY HEREBY AGREES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY AND EACH PARTY HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY HAVE THAT EACH ACTION OR PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. [Remainder of this page intentionally left blank.] -21- IN WITNESS WHEREOF, Grantor has caused this Agreement to be duly executed and delivered as of the date first above written. VIROLOGIC, INC. By: /s/ WILLIAM D. YOUNG -------------------------------- Name: William D. Young ------------------------------ Title: Chairman & CEO ----------------------------- Acknowledged and agreed to by the Collateral Agent: SDS MERCHANT FUND, L.P., as Collateral Agent, by its Managing Member, SDS Capital Partners, L.L.C. By: /s/ STEVE DERBY -------------------------------- Name: Steve Derby ------------------------------ Title: Managing Member ----------------------------- -22- EX-10.4 10 a86207exv10w4.txt EXHIBIT 10.4 EXHIBIT 10.4 INTELLECTUAL PROPERTY SECURITY AGREEMENT THIS INTELLECTUAL PROPERTY SECURITY AGREEMENT (this "AGREEMENT") is made and entered into as November 14, 2002 by VIROLOGIC, INC., a Delaware corporation (the "GRANTOR"), in favor of SDS Merchant Fund, L.P., as Collateral Agent, for the benefit of the holders of the Notes (each a "SECURED PARTY" and collectively the "SECURED PARTIES"). All capitalized terms used but not otherwise defined herein shall have the respective meanings assigned thereto in the Exchange Agreement (as defined below). W I T N E S S E T H: WHEREAS, Grantor and the Secured Parties have entered into that certain Exchange Agreement dated as of the date hereof (as from time to time amended, supplemented or otherwise modified, the "EXCHANGE AGREEMENT"); WHEREAS, pursuant to the Exchange Agreement, Grantor has issued to the Secured Parties $12,045,987.94 in aggregate principal amount of Grantor's Series C Convertible Secured Promissory Notes (as from time to time amended, supplemented or otherwise modified, the "NOTES"); WHEREAS, as collateral security for payment and performance of its obligations under the Exchange Agreement, the Notes and the other Transaction Documents, Grantor is willing to grant to the Collateral Agent (for the benefit of the Secured Parties) a security interest in certain of its property and assets; and WHEREAS, Grantor is contemporaneously entering into that certain Security Agreement dated as of the date hereof in favor of the Collateral Agent (for the benefit of the Secured Parties)(as from time to time amended, supplemented or otherwise modified, the "SECURITY AGREEMENT"); and NOW, THEREFORE, in order to induce the Secured Parties to enter into the Exchange Agreement and the other Transaction Documents and in consideration of the premises and the mutual covenants contained herein, the parties hereto hereby agree as follows: 1. GRANT OF SECURITY. Grantor hereby grants to the Collateral Agent (for the benefit of the Secured Parties), and hereby reaffirms its prior grant to the Collateral Agent (for the benefit of the Secured Parties) pursuant to the Security Agreement of, a first priority continuing security interest, subject to Permitted Liens (as defined in the Security Agreement), in all of the following (collectively, the "COLLATERAL"): (a) Patents. All of Grantor's right, title and interest, whether now owned or hereafter acquired, in and to all United States issued patents and patent applications (including without limitation the patents and patent applications identified on Schedule I attached hereto and incorporated herein by reference), including, without limitation, the inventions and improvements described and claimed therein, and all reissues, divisions, continuations, continuations-in-part, substitutes, renewals, and extensions thereof, all foreign patent applications based thereof and foreign patents issuing therefrom, and all income, royalties, damages and payments now or hereafter due and/or payable under or with respect to any of the foregoing, including, without limitation, damages and payments for past, present and future infringements of any of the foregoing and the right to sue for past, present and future infringements of any of the foregoing, and all other rights of any kind whatsoever of Grantor accruing thereunder or pertaining thereto (collectively, the "PATENTS"). (b) Trademarks. All of Grantor's right, title and interest, whether now owned or hereafter acquired, in and to all United States trademarks, trade names, trade dress, domain names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos, other business identifiers, prints and labels on which any of the foregoing have appeared or appear, all registrations and recordings thereof, and all applications (other than "intent to use" applications until a verified statement of use is filed with respect to such applications) in connection therewith (including without limitation each trademark, trade name, trade dress, domain name, registration and application identified in Schedule II attached hereto and incorporated herein by reference), and any renewals thereof, and all income, royalties, damages and payments now or hereafter due and/or payable under or with respect to any of the foregoing, including, without limitation, damages and payments for past, present and future infringements of any of the foregoing and the right to sue for past, present and future infringements of any of the foregoing, and all rights corresponding thereto throughout the world (but only such rights as now exist or may come to exist under applicable local law) and all other rights of any kind whatsoever of Grantor accruing thereunder or pertaining thereto (collectively, the "TRADEMARKS"), together in each case with the goodwill of the business connected with the use of, and symbolized by, each such Trademark. (c) Copyrights. All of Grantor's right, title and interest, whether now owned or hereafter acquired, in and to all United States copyrights and copyright applications (including without limitation the copyrights and copyright applications identified on Schedule III attached hereto and incorporated herein by reference) and all reissues, divisions, continuations, continuations-in-part, substitutes, renewals, and extensions thereof, all improvements thereon, and all income, royalties, damages and payments now or hereafter due and/or payable under or with respect to any of the foregoing, including, without limitation, damages and payments for past, present and future infringements of any of the foregoing and the right to sue for past, present and future infringements of any of the foregoing, and all other rights of any kind whatsoever of Grantor accruing thereunder or pertaining thereto (collectively, the "COPYRIGHTS"). (d) Licenses. All license agreements regarding Patents, Trademarks or Copyrights (other than "off the shelf" software) with any other party, whether Grantor is a licensor or licensee under any such license agreement (including without limitation the licenses listed on Schedule IV attached hereto and incorporated herein by reference), as from time to time amended, supplemented or otherwise modified, and all income, royalties, damages and payments now or hereafter due and/or payable under or with respect to any of the foregoing, and the right to prepare for sale, sell and advertise for sale, all inventory now or hereafter owned by Grantor -2- and now or hereafter covered by such licenses, and all other rights of any kind whatsoever of Grantor accruing thereunder or pertaining thereto (collectively, the "LICENSES"). (e) Proceeds. To the extent not otherwise included, all proceeds of any of the foregoing, including without limitation (i) any and all proceeds of any guarantee, insurance or indemnity payable to Grantor from time to time with respect to any of the Collateral; (ii) any and all payments (in any form whatsoever) made or due and payable to Grantor from time to time as consideration for any confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental authority; (iii) all proceeds of any sale, lease, license or other disposition of any of the Collateral or rights therein whether or not the lien therein purportedly granted hereunder is valid or attaches or is perfected; and (iv) any and all other amounts from time to time paid or payable with respect to or in connection with any of the Collateral. 2. SECURED OBLIGATIONS. The security interests granted under this Agreement (the "SECURITY INTERESTS") by Grantor secure the prompt and complete payment and performance of all Secured Obligations (as such term is defined herein). For purposes of this Agreement, "SECURED OBLIGATIONS" shall mean: (a) all obligations and liabilities to the Secured Parties, whether now existing or hereafter arising, under the Exchange Agreement, the Notes, this Agreement, the Security Agreement, and/or any document or agreement related to any of the foregoing and the due performance and compliance with the terms of the Exchange Agreement, the Notes, this Agreement, the Security Agreement, and/or any document or agreement related to any of the foregoing; (b) any and all sums advanced by the Collateral Agent in order to preserve the Collateral or to preserve the Secured Parties' security interest in the Collateral; and (c) in the event of any proceeding for the collection or enforcement of any obligations or liabilities of Grantor referred to in the immediately preceding clauses (a) and (b) in accordance with the terms of the Exchange Agreement, the Notes, this Agreement, the Security Agreement, and/or any document or agreement related to the foregoing, the expenses of re-taking, holding, preparing for sale, selling or otherwise disposing of or realizing on the Collateral, or of any other exercise by the Collateral Agent (for the benefit of the Secured Parties) of its rights hereunder, together with reasonable attorneys' fees and court costs. The Security Interests granted by this Agreement are granted in conjunction with the security interests granted to the Collateral Agent (for the benefit of the Secured Parties) in certain assets of Grantor under the Security Agreement. 3. FURTHER ASSURANCES. (a) Grantor agrees that from time to time, at the expense of Grantor, Grantor will promptly execute and deliver all further instruments and documents and take all further actions that may be necessary or desirable in the Collateral Agent's reasonable determination, or that the Collateral Agent may reasonably request, in order to (i) continue, perfect and protect any Security Interest granted or purported to be granted hereby and (ii) enable the Collateral Agent (for the benefit of the Secured Parties) to exercise and enforce its rights and remedies hereunder with respect to any part of the Collateral. Without limiting the generality of the foregoing, Grantor will execute and file (with the appropriate governmental offices, authorities, agencies and regulatory bodies in the United States) such supplements to this Agreement and such financing or continuation statements, or amendments thereto, and such other instruments or notices, including executed Notices, with the U.S. Patent and Trademark Office and the U.S. -3- Copyright Office, as may be necessary or desirable, or as the Collateral Agent may reasonably request, in order to perfect and preserve the Security Interests granted hereby. (b) If, before the Secured Obligations have been indefeasibly paid and/or performed in full, Grantor shall (i) adopt, use, acquire or apply for registration of any trademark, service mark or trade name (each deemed a "FUTURE TRADEMARK"), (ii) apply for any U.S. and foreign patent or obtain any U.S. and foreign patent or patent application (each deemed a "FUTURE PATENT"); (iii) create or acquire any published or material unpublished works of authorship that is registered with the U.S. Copyright Office (each deemed a "FUTURE COPYRIGHT"); or (iv) enter into any license agreement in respect of any Patent, Trademark or Copyright that is not now identified on Schedule IV (each deemed a "FUTURE LICENSE"); then the provisions of Section 1 above shall automatically apply thereto, and Grantor shall give to Collateral Agent reasonably prompt notice thereof in writing. Such written notice shall act to modify this Agreement unilaterally by amending Schedule I, Schedule II, Schedule III or Schedule IV hereto, as appropriate, to include any Future Trademark, Future Patent, Future Copyright or Future License described therein. (c) Grantor agrees that simultaneously with the execution of this Agreement, and thereafter upon any amendment of Schedule I, Schedule II or Schedule III, Grantor shall execute notices in the form appended hereto as Exhibit A, Exhibit B, or Exhibit C (each, a "NOTICE"), as appropriate, with respect to all of the Collateral, now owned or hereafter acquired, and shall deliver each Notice to Collateral Agent for the purpose of recordation at the U.S. Patent and Trademark Office or the U.S. Copyright Office, as appropriate. (d) Grantor agrees that it (i) will not take any action, nor enter into any license, royalty, assignment or other agreement which will conflict with Grantor's obligations under this Agreement; (ii) will not take any action, nor enter into any license, royalty, assignment or other agreement, except for commercially reasonable purposes, which has the effect of diluting, reducing the distinctiveness of or otherwise reducing the value of the Collateral, including the unreasonable failure to maintain any patent or patent pending or unreasonably allowing for the abandonment of any trademark or service mark application or the cancellation or expiration of any trademark or service mark registration; (iii) will give Collateral Agent thirty (30) days prior written notice of any proposed license, royalty, assignment or other agreement relating to the Collateral; and (iv) will actively defend any claim or allegation that any of the Collateral infringes upon or misappropriates the proprietary rights of any third party and will actively pursue any third-party infringers of the Collateral unless otherwise agreed to by the Collateral Agent, which agreement shall not be unreasonably withheld. (e) Grantor shall have the duty (i) with respect to the Trademarks, to prosecute diligently any applications for any Trademarks pending as of the date of this Agreement or thereafter filed, to maintain any trademark/service mark registrations in effect as of the date of this Agreement or thereafter obtained, and to preserve and maintain all rights in the Trademarks and any registrations thereof and/or the applications therefor; (ii) with respect to the Patents, to prosecute diligently any patent applications pending as of the date of this Agreement or thereafter acquired or filed and to maintain any Patents issued as of the date of this Agreement or thereafter issued and (iii) with respect to the Copyrights, to register in the U.S. Copyright -4- Office any works of authorship material to the business of Grantor; unless, in each case, Grantor determines in its good faith business judgment that Grantor's business would be better served by not taking such actions. Any expenses incurred in connection with such applications, registrations and/or maintenance activities shall be borne by Grantor. (f) Grantor shall not do any act or omit to do any act whereby any of the Collateral may become dedicated or abandoned, except where such dedication or abandonment (i) will not materially adversely affect the business, condition (financial or otherwise), operations, performance, or properties of Grantor, and (ii) is in the ordinary course of Grantor's business. Grantor agrees to notify the Collateral Agent promptly and in writing if it learns that any of the Collateral may become abandoned or dedicated or of any adverse determination or any development (including without limitation the institution of any proceeding in the U.S. Patent and Trademark Office, the U.S. Copyright Office, or any court) regarding any material part of the Collateral. (g) Grantor shall have the duty to take any and all action which reasonably may be necessary or desirable to protect the Collateral, including, without limitation, the prosecution and defense of infringement actions involving the Collateral unless otherwise agreed to by the Collateral Agent, which agreement shall not be unreasonably withheld. During the continuance of an Event of Default, the Collateral Agent shall have the right, but shall in no way be obligated, to bring suit in its own or in Grantor's name to enforce and protect rights to the Collateral in which event Grantor shall, at the request of the Collateral Agent, do any and all lawful acts and execute any and all proper documents reasonably required by the Collateral Agent in aid of such enforcement and Grantor shall promptly, upon demand, reimburse and indemnify the Collateral Agent for all reasonable costs and expenses incurred by the Collateral Agent in the exercise of its rights under this subsection. (h) To preserve and protect the goodwill associated with the Trademarks, Grantor covenants that it shall maintain the quality of the products and services sold under or in connection with the Trademarks and shall not at any time permit any impairment of the quality of such products and services, and will provide the Collateral Agent with a certificate to such effect signed by an officer of Grantor upon the reasonable request of the Collateral Agent. (i) Grantor shall continue to mark its products as required by statute with the numbers of all appropriate Patents. 4. FINANCING STATEMENTS. Grantor hereby irrevocably authorizes the Collateral Agent at any time and from time to time to file in any Uniform Commercial Code jurisdiction any initial financing statements and amendments or continuations thereto that describe the Collateral. Grantor shall execute and deliver as reasonably required by the Collateral Agent any additional financing statements or other documents, together with any necessary amendments or continuation statements so long as this Agreement remains in effect. 5. RECEIPT OF PAYMENT. In the event an Event of Default (as hereinafter defined) shall occur and be continuing and Grantor (or any of its affiliates, subsidiaries, stockholders, directors, officers, employees or agents) shall receive any proceeds of Collateral, -5- including without limitation monies, checks, notes, drafts or any other items of payment, Grantor shall hold all such items of payment in trust for the Collateral Agent (for the benefit of the Secured Parties), and as the property of the Collateral Agent (for the benefit of the Secured Parties), separate from the funds of Grantor, and no later than the first business day following the receipt thereof, Grantor shall cause the same to be forwarded to the Collateral Agent (for the benefit of the Secured Parties) for its custody and possession as additional Collateral. 6. COVENANTS. Grantor covenants with the Collateral Agent (for the benefit of the Secured Parties) that from and after the date of this Agreement until termination hereof in accordance with Section 27 hereof: (a) TRANSFER OF COLLATERAL. Except for Permitted Liens or as otherwise expressly permitted herein, other than the disposition of items of Collateral in the ordinary course of Grantor's business as presently conducted, Grantor shall not sell, assign, transfer, encumber or otherwise dispose of any Collateral without the prior written consent of the Collateral Agent, which consent shall not be unreasonably withheld. For purposes of this provision, "dispose of Collateral" shall include, without limitation, the creation of a Lien (whether voluntary or involuntary) on such Collateral. (b) FURTHER IDENTIFICATION OF COLLATERAL. Grantor will furnish to the Collateral Agent from time to time, upon the request of the Collateral Agent, statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Collateral Agent may reasonably request, all in reasonable detail. 7. GENERAL WARRANTIES AND REPRESENTATIONS. Grantor represents and warrants to the Collateral Agent (for the benefit of the Secured Parties) that: (c) Grantor is and, except as permitted by the Exchange Agreement, will continue to be the owner of the Collateral hereunder, now owned and upon the acquisition of the same, free and clear of all Liens other than the security interest in favor of the Collateral Agent (for the benefit of the Secured Parties) hereunder and under the Security Agreement and Permitted Liens, and that it will defend such Collateral and any products and proceeds thereof against all claims and demands of all third parties at any time claiming the same or any interest therein adverse to the Collateral Agent. (d) Grantor has the full legal right and power and all authority and approval required to enter into, execute and deliver this Agreement, to grant the security interest of the Collateral Agent (for the benefit of the Secured Parties) hereunder and to perform fully each of its obligations hereunder. This Agreement has been duly executed and delivered and constitutes the valid and binding obligation of Grantor enforceable in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to creditor's rights generally. No approval or consent of any foreign, federal, state, country, local or other governmental or regulatory body, and no approval or consent of any other Person is required in connection with the execution and delivery by Grantor of this Agreement, the grant of the security interest of the Collateral Agent (for the benefit of the Secured Parties) hereunder and the consummation and performance by Grantor of the -6- transactions contemplated hereby. The execution and delivery of this Agreement, the grant of the security interest of the Collateral Agent (for the benefit of the Secured Parties) hereunder and the consummation and performance by Grantor of the transactions contemplated hereby will not conflict with or result in the breach or violation of any of the terms or conditions of, or constitute (or with notice or lapse of time or both would constitute) a default under any material instrument, contract or other agreement to which Grantor is a party or by or to which it or its assets or properties are bound or subject or any statute or any regulation, order, judgment or decree of any court or governmental or regulatory body. (e) To the best of Grantor's knowledge, the Collateral does not infringe any rights owned or possessed by any third party. (f) There are no claims, judgments or settlements to be paid by Grantor or pending claims or litigation relating to the Collateral. (g) No action or proceeding is pending or, to Grantor's knowledge, threatened seeking to limit, cancel or question the scope or validity of any of the Collateral. (h) The actions contemplated under or in connection with the Transaction Documents will not impair the legal right of Grantor to use any of the Collateral. (i) Grantor has no knowledge of the existence of any right under any patent, trademark, license agreement, trade name, trade secret, know-how, confidential research, development and commercial information, or other proprietary information held by any other person that would preclude Grantor from publishing, distributing, marketing, selling, or using any product currently made by it, being made for it or sold or used by it, imported by it or exported by it, as the case may be, or to use any processes currently used by it, or materially interfere with the ability of Grantor to carry on its business as currently carried on, and Grantor has no knowledge of any claim to the contrary that is reasonably likely to be made. (j) To the best of Grantor's knowledge, there are no other users of the Trademarks or variations thereof that are similar enough to the Trademarks, with due regard to goods and services with which the respective Trademarks are used, as to be likely to cause confusion or mistake among consumers. (k) Grantor has complied with, and will continue for the duration of this Agreement to comply with, the requirements set forth in 15 U.S.C. Sections 1051-1127, 17 U.S.C. Section 101, et seq., 35 U.S.C. Section 101 et seq. and any other applicable statutes, rules and regulations in connection with its use of the Collateral. (l) Set forth on Schedule IV is a list, which is complete and accurate in all material respects as of the date hereof, of Licenses of Grantor necessary for the conduct of its business as currently conducted or used in the selling or marketing of Grantor's products, including the expiration date of such Licenses. Each License of Grantor identified on Schedule IV is validly subsisting and has not been adjudged invalid or unenforceable, in whole or in part, and is, to Grantor's knowledge, valid and enforceable. -7- 8. PATENT REPRESENTATIONS AND WARRANTIES. Grantor represents and warrants as follows: (a) It is the sole, legal and beneficial owner of the entire right, title and interest in and to each of the Patents, free and clear of any lien, security interest, option, charge, pledge, registered user agreement, assignment (whether conditional or not), or any other encumbrance except for the security interests created hereunder and under the Security Agreement and Permitted Liens. No effective financing statement or other instrument similar in effect covering all or any part of such Collateral is on file in any recording office, except such as may have been filed in favor of the Collateral Agent (for the benefit of the Secured Parties). (b) Set forth on Schedule I is a list of all of the Patents owned by Grantor necessary for the conduct of its business as currently conducted or used in the selling or marketing of Grantor's products. (c) Each Patent of Grantor identified on Schedule I hereto is subsisting and has not been adjudged unpatentable, invalid or unenforceable, in whole or in part, and to the knowledge of Grantor is patentable, valid and enforceable, and each Patent application of Grantor identified on Schedule I hereto has been filed in conformity with applicable rules and procedures of the U.S. Patent and Trademark Office. 9. TRADEMARK REPRESENTATIONS AND WARRANTIES. Grantor represents and warrants as follows: (a) It is the sole, legal and beneficial owner of the entire right, title and interest in and to each of the Trademarks, free and clear of any lien, security interest, option, charge, pledge, registered user agreement, assignment (whether conditional or not), or covenant, or any other encumbrance, except for the security interests created hereunder and under the Security Agreement and Permitted Liens. No effective financing statement or other instrument similar in effect covering all or any part of such Collateral is on file in any recording office, including, without limitation, the U.S. Patent and Trademark Office, except such as may have been filed in favor of the Collateral Agent (for the benefit of the Secured Parties). (b) Set forth on Schedule II is a list of all of the Trademarks owned by Grantor necessary for the conduct of its business as currently conducted or used in the selling or marketing of Grantor's products. (c) Each Trademark of Grantor identified on Schedule II is validly subsisting and has not been abandoned or adjudged invalid, unregistrable or unenforceable, in whole or in part, and is, to Grantor's knowledge, valid, registrable and enforceable. (d) Grantor has used consistent standards of quality in manufacturing, distribution and marketing of each product sold and provision of each service provided under any Trademark. 10. COPYRIGHT REPRESENTATIONS AND WARRANTIES. Grantor represents and warrants as follows: -8- (a) It is the sole, legal and beneficial owner of the entire right, title and interest in and to each of the Copyrights, free and clear of any lien, security interest, option, charge, pledge, registered user agreement, assignment (whether conditional or not), or covenant, or any other encumbrance, except for the security interests created hereunder and under the Security Agreement and Permitted Liens. No effective financing statement or other instrument similar in effect covering all or any part of such Collateral is on file in any recording office, including, without limitation, the U.S. Copyright Office, except such as may have been filed in favor of the Collateral Agent (for the benefit of the Secured Parties). (b) Set forth on Schedule III is a list of all of the Copyrights owned by Grantor necessary for the conduct of its business as currently conducted or materially used in the selling or marketing of Grantor's products. (c) Each Copyright of Grantor identified on Schedule III is validly subsisting and has not been abandoned or adjudged invalid, unregistrable or unenforceable, in whole or in part, and is, to Grantor's knowledge, valid and enforceable. 11. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT. Without limiting any other provision of this Agreement, upon the occurrence and during the continuance of an Event of Default, Grantor hereby irrevocably appoints the Collateral Agent (for the benefit of the Secured Parties), as Grantor's attorney-in-fact, with full authority in the place and stead of Grantor and in the name of Grantor or otherwise, from time to time in the Collateral Agent's discretion, to take any action and to execute any instrument that the Collateral Agent may reasonably deem necessary or advisable to accomplish the purposes of this Agreement, including without limitation: (a) to ask, demand, collect, receive and give acquittances and receipts for any and all moneys due and to become due under any License and, in the name of Grantor or its own name or otherwise, to take possession of and endorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any License and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Collateral Agent for the purpose of collecting any and all such moneys due under any License whenever payable; (b) to pay or discharge taxes, liens, security interests or other encumbrances levied or placed on or threatened against the Collateral, to effect any repairs or any insurance called for by the terms of this Agreement and to pay all or any part of the premiums therefor and the costs thereof; and (c) to direct any party liable for any payment under any of the Licenses to make payment of any and all moneys due and to become due thereunder directly to the Collateral Agent or as the Collateral Agent shall direct; (d) to receive payment of and receipt for any and all moneys, claims and other amounts due and to become due at any time in respect of or arising out of any Collateral; -9- (e) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any part thereof and to enforce any other right in respect of any Collateral; (f) to defend any suit, action or proceeding brought against Grantor with respect to any Collateral; (g) to settle, compromise, or adjust any suit, action or proceeding described above and, in connection therewith, to give such discharges or releases as the Collateral Agent may deem appropriate; and (h) generally to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Collateral Agent was the absolute owner thereof for all purposes, and to do, at the Collateral Agent's option all acts and things which the Collateral Agent deems necessary to protect, preserve or realize upon the Collateral and the Collateral Agent's (for the benefit of the Secured Parties') security interest therein, in order to effect the intent of this Agreement, all as fully and effectively as Grantor might do. This power of attorney is a power coupled with an interest and shall be irrevocable. Notwithstanding the foregoing, Grantor further agrees to execute any additional documents which the Collateral Agent may reasonably require in order to confirm this power of attorney, or which the Collateral Agent may reasonably deem necessary to enforce any of its rights contained in this Agreement. The powers conferred on the Collateral Agent hereunder are solely to protect its interests in the Collateral and shall not impose any duty upon it to exercise any such powers. The Collateral Agent shall be accountable only for amounts that it actually receives as a result of the exercise of such powers and neither it nor any of its officers, directors, employees or agents shall be responsible to Grantor for any act or failure to act, except for their own gross (not mere) negligence or willful misconduct. The Grantor also authorizes the Collateral Agent to execute, in connection with any sale provided for herein, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral. 12. COLLATERAL AGENT MAY PERFORM. If Grantor fails to perform any agreement contained herein after any applicable cure period, the Collateral Agent may itself perform, or cause performance of, such agreement, and the expenses of the Collateral Agent incurred in connection therewith shall be payable by Grantor to the fullest extent permitted by applicable law. 13. COLLATERAL AGENT'S DUTIES. The powers conferred on the Collateral Agent hereunder are solely to protect the interest of the Collateral Agent (for the benefit of the Secured Parties) in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder the Collateral Agent shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against other parties or any other rights pertaining to any Collateral. The Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if such -10- Collateral is accorded treatment substantially equal to that which such party accords its own similar property. 14. EVENTS OF DEFAULT. It is understood and agreed that the occurrence of any one or more of the following shall constitute an "EVENT OF DEFAULT" hereunder and shall entitle the Collateral Agent (for the benefit of the Secured Parties) to take such actions as are elsewhere provided in this Agreement in respect of Events of Default: (a) an "Event of Default" as defined in the Notes shall have occurred and be continuing; or (b) any representation or warranty made by Grantor herein shall prove to have been false in any material respect when made; or (c) any covenant made by Grantor herein is breached, violated, or not complied with and not cured within ten (10) days after notice thereof from the Collateral Agent; or (d) any material uninsured damage to or loss, theft or destruction of any of the Collateral shall occur; or (e) the security interests granted herein do not constitute for any reason a first priority perfected security interest in the Collateral covered thereby. 15. RIGHTS AND REMEDIES UPON AN EVENT OF DEFAULT. If an Event of Default shall have occurred and be continuing: (a) The Collateral Agent (for the benefit of the Secured Parties) may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party upon default under the Uniform Commercial Code as in effect in the State of Delaware (the "Code") and also may (i) exercise any and all rights and remedies of Grantor under, in connection with, or otherwise in respect of, such Collateral, including the completion and filing of any Notice, (ii) require Grantor to, and Grantor hereby agrees that it will at its expense and upon request of the Collateral Agent forthwith, assemble all or part of the documents embodying such Collateral as directed by the Collateral Agent and make it available to the Collateral Agent, at a place to be designated by the Collateral Agent that is reasonably convenient to both the Collateral Agent and Grantor, (iii) subject to the rights of any lessor, occupy any premises owned or leased by Grantor where documents embodying such Collateral or any part thereof are assembled for a reasonable period in order to effectuate the rights and remedies of the Collateral Agent (for the benefit of the Secured Parties) hereunder or under applicable law, without obligation to Grantor in respect of such occupation, (iv) license such Collateral or any part thereof, (v) with notice as specified below, sell such Collateral or any part thereof in one or more parcels at public or private sale, at any of the Collateral Agent's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Collateral Agent may deem commercially reasonable, and (vi) without prior notice to Grantor, direct any licensee of any Collateral to pay all royalties and other payments which may be or which may thereafter become payable to Grantor directly to the Collateral Agent or any designee of the Collateral Agent, but the Collateral Agent shall give notice to Grantor of any such direction no later than five (5) business days after giving any such direction. Grantor agrees that at least ten (10) days' notice to Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Collateral Agent shall not be obligated to make any sale of the Collateral regardless of notice of sale having been given. The Collateral Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such -11- sale may, with further notice to Grantor, be made at the time and place to which it was so adjourned. (b) All payments made under or in connection with or otherwise in respect of the Collateral, and all cash proceeds received by the Collateral Agent in respect of any sale of, collection from, or other realization upon all or any part of such Collateral may, in the discretion of the Collateral Agent, be held by the Collateral Agent, as collateral for, and then or at any time thereafter applied against all or any part of the Secured Obligations. Any sale or other disposition of the Collateral and the possession thereof by the Collateral Agent shall be in compliance with all provisions of applicable law (including applicable provisions of the Code). 16. CONDUCT OF BUSINESS AFTER DEFAULT. The parties understand and agree that the security interest granted to the Collateral Agent (for the benefit of the Secured Parties) with respect to the Collateral, as defined in this Agreement, together with the other Collateral, as defined in the Security Agreement (the "OTHER COLLATERAL"), will and is intended to permit the Collateral Agent and its successors and assigns, during the continuance of an Event of Default as provided herein, to take title to and make use of all rights to the Collateral in conjunction with the Other Collateral, all of which will permit the Collateral Agent to manufacture and sell the products and/or provide the services with which the Collateral is associated and maintain substantially the same product specifications and quality and/or quality of services as maintained by Grantor. 17. PERFORMANCE BY COLLATERAL AGENT OF GRANTOR'S OBLIGATIONS. If Grantor fails to perform or comply with any of its agreements contained herein after any applicable cure period and the Collateral Agent, as provided for by the terms of this Agreement, shall itself perform or comply, or otherwise cause performance or compliance, with such agreements, the expenses of the Collateral Agent incurred in connection with such performance or compliance shall be payable by Grantor to the Collateral Agent on demand and shall constitute Secured Obligations secured hereby. 18. RIGHTS AND REMEDIES CUMULATIVE; NON-WAIVER; ETC. The enumeration of the rights and remedies of the Collateral Agent (for the benefit of the Secured Parties), set forth in this Agreement is not intended to be exhaustive and the exercise by the Collateral Agent of any right or remedy shall not preclude the exercise of any other rights or remedies, all of which shall be cumulative, and shall be in addition to any other right or remedy given hereunder, or under any other agreement between Grantor and the Collateral Agent and/or any Secured Party or which may now or hereafter exist in law or in equity or by suit or otherwise. No delay or failure to take action on the part of the Collateral Agent in exercising any right, power or privilege shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or privilege preclude other or further exercise thereof or the exercise of any other right, power or privilege or shall be construed to be a waiver of any Event of Default. No waiver by a party hereunder shall be effective unless it is in writing and signed by the party making such waiver, and then only to the extent specifically stated in such writing. No course of dealing between Grantor and the Collateral Agent or the Collateral Agent's agents or employees shall be effective to change, modify or discharge any provision of this Agreement or to constitute a waiver of any Event of Default. Neither the Collateral Agent nor any Secured Party shall have -12- any liability for any error, omission or delay of any kind occurring in the handling or liquidation of the Collateral or for any damages resulting therefrom, other than as a result of its gross negligence or willful misconduct. 19. SUPPLEMENTAL DOCUMENTATION. At the Collateral Agent's request, Grantor shall execute and deliver to the Collateral Agent, at any time or times hereafter, all documents, instruments and other written matter that the Collateral Agent may reasonably request to perfect and maintain perfected the security interest of the Collateral Agent (for the benefit of the Secured Parties) in the Collateral, in form and substance reasonably acceptable to the Collateral Agent, and pay all charges, expenses and fees the Collateral Agent may reasonably incur in filing any of such documents, and all taxes relating thereto. Grantor agrees that a carbon, photographic, photostatic, or other reproduction of this Agreement or a financing statement is sufficient as a financing statement and may be filed by the Collateral Agent in any filing office. 20. WAIVERS. In addition to the other waivers contained herein, Grantor hereby expressly waives, to the extent permitted by law: presentment for payment, demand, protest, notice of demand, notice of protest, notice of default or dishonor, notice of payments and nonpayments and all other notices and consents to any action taken by the Collateral Agent (on behalf of the Secured Parties) unless expressly required by this Agreement. 21. NOTICE. Any notice shall be conclusively deemed to have been received by any party hereto and be effective on the day on which delivered to such party (against receipt therefor) at the address set forth below or such other address as such party shall specify to the other parties in writing (or, in the case of telephonic notice or notice by telecopy (where the receipt of such message is verified by return) expressly provided for hereunder, when received at such telephone or telecopy number as may from time to time be specified in written notice to the other parties hereto or otherwise received), or if sent prepaid by certified or registered mail return receipt requested on the third business day after the day on which mailed, or if sent prepaid by a national overnight courier service, on the first business day after the day on which delivered to such service against receipt therefor, addressed to such party at said address: (a) if to Grantor: ViroLogic, Inc. 270 East Grand Avenue South San Francisco, California 94080 Telephone: (650) 635-1100 Facsimile: Attn: Chief Executive Officer -13- with a copy simultaneously transmitted by like means to (which transmittal shall not constitute notice hereunder): Cooley Godward LLP 4401 Eastgate Mall San Diego, California 92121 Telephone: (858) 550-6000 Facsimile: (858) 453-3555 (b) if to the Collateral Agent: SDS Merchant Fund, L.P. 53 Forest Avenue Second Floor Old Greenwich, CT 06870 Telephone: (203) 967-5850 x75 Facsimile: (203) 967-5851 Attn: Steve Derby with a copy simultaneously transmitted by like means to (which transmittal shall not constitute notice hereunder): Drinker Biddle & Reath LLP One Logan Square 18th and Cherry Streets Philadelphia, PA 19103 Telephone: (215) 988-2700 Facsimile: (215) 988-2757 Attn: Stephen T. Burdumy, Esq. or to such other address as each party may designate for itself by like notice given in accordance with this Section 21. 22. DEFINITIONS. All terms defined in Article 9 of the Uniform Commercial Code of the State of Delaware (the "CODE") and used in this Agreement shall have the same definitions herein as specified in Article 9 of the Code, and such definitions are hereby incorporated herein by reference and made a part hereof. 23. ENTIRE AGREEMENT. This Agreement and the other Transaction Documents constitute and express the entire understanding between the parties hereto with respect to the subject matter hereof and thereof, and supersede all prior agreements and understandings, inducements, commitments or conditions, express or implied, oral or written, except as herein contained. The express terms hereof control and supersede any course of performance or usage of the trade inconsistent with any of the terms hereof. Neither this Agreement nor any portion or provision hereof may be changed, altered, modified, supplemented, discharged, canceled, -14- terminated, or amended orally or in any manner other than by an agreement, in writing signed by the parties hereto. 24. SEVERABILITY. The provisions of this Agreement are independent of and separable from each other. If any provision hereof shall for any reason be held invalid or unenforceable, such invalidity or unenforceability shall not affect the validity or enforceability of any other provision hereof, but this Agreement shall be construed as if such invalid or unenforceable provision had never been contained herein. 25. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the successors and assigns of Grantor, and the rights, remedies, powers, and privileges of the Collateral Agent (for the benefit of the Secured Parties) hereunder shall inure to the benefit of the successors and assigns of the Collateral Agent; provided, however, that Grantor shall not make any assignment hereof without the prior written consent of the Collateral Agent. 26. COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. A telephone line facsimile transmission of this Agreement bearing a signature on behalf of a party hereto shall be legal and binding on such party. 27. TERMINATION; RELEASE. Upon the indefeasible payment in full of all Secured Obligations, this Agreement and all obligations of Grantor hereunder shall terminate without delivery of any instrument or performance of any act by any party, and the Collateral shall automatically be released from the Liens created by this Agreement and all rights to such Collateral shall automatically revert to Grantor. Notwithstanding the immediately preceding sentence, upon such termination of this Agreement, the Collateral Agent, at the expense of Grantor, shall reassign and redeliver such Collateral then held by or for the Secured Parties and execute and deliver to Grantor such documents as Grantor shall reasonably request to evidence such termination. 28. PARAGRAPH HEADINGS. The paragraph headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 29. INDEMNIFICATION. Grantor agrees to pay, and to save the Collateral Agent and each Secured Party harmless from, any and all liabilities, costs and expenses (including, without limitation, legal fees and expenses) (i) with respect to, or resulting from, any delay in paying, any and all excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral, (ii) with respect to, or resulting from, any delay by Grantor in complying with any law or regulation applicable to any of the Collateral, (iii) in connection with any action taken by the Collateral Agent in exercising its rights under this Agreement, except to the extent caused by Collateral Agent's or such Secured Party's gross negligence or willful misconduct, and (iv) in connection with the preparation and enforcement of -15- this Agreement and/or and document or agreement related thereto. The obligations under this Section 29 shall survive termination of this Agreement. 30. GOVERNING LAW. (a) This Agreement and the rights and obligations of Grantor hereunder shall be governed by, and construed and interpreted in accordance with, the law of the State of Delaware, except to the extent that under the Code the laws of another jurisdiction govern matters of perfection and the effect of perfection or non-perfection of any security interest granted hereunder. (b) Each party hereby expressly and irrevocably agrees and consents that any suit, action or proceeding arising out of or relating to this Agreement and the transactions contemplated herein may be instituted in any state or federal court sitting in the State of Delaware, and, by the execution and delivery of this Agreement, each party expressly waives any objection that it may have now or hereafter to the laying of the venue or to the jurisdiction of any such suit, action or proceeding, and irrevocably submits generally and unconditionally to the jurisdiction of any such court in any such suit, action or proceeding. (c) Each party agrees that service of process may be made by personal service of a copy of the summons and complaint or other legal process in any such suit, action or proceeding, or by registered or certified mail (postage prepaid) to the address of such party provided by Section 21 hereof, or by any other method of service provided for under the applicable laws in effect in the State of Delaware. (d) Nothing contained in subsections (b) or (c) hereof shall preclude any party from bringing any suit, action or proceeding arising out of or relating to this Agreement in the courts of any place where any party or any of such party's property or assets may be found or located. To the extent permitted by the applicable laws of any such jurisdiction, each party hereby irrevocably submits to the jurisdiction of any such court and expressly waives, in respect of any such suit, action or proceeding, the jurisdiction of any other court or courts which now or hereafter, by reason of its present or future domicile, or otherwise, may be available to it. (e) IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER OR RELATED TO THIS AGREEMENT OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR THAT MAY IN THE FUTURE BE DELIVERED IN CONNECTION WITH THE FOREGOING, EACH PARTY HEREBY AGREES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY AND EACH PARTY HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY HAVE THAT EACH ACTION OR PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. -16- [Remainder of this page intentionally left blank.] -17- IN WITNESS WHEREOF, Grantor has caused this Agreement to be duly executed and delivered as of the date first above written. VIROLOGIC, INC. By: /s/ WILLIAM D. YOUNG ----------------------------- Name: William D. Young --------------------------- Title: Chairman & CEO -------------------------- Acknowledged and agreed to by the Collateral Agent: SDS MERCHANT FUND, L.P., as Collateral Agent, by its Managing Member, SDS Capital Partners, L.L.C. By: /s/ STEVE DERBY ----------------------------- Name: Steve Derby --------------------------- Title: Managing Member -------------------------- -18- EX-10.5 11 a86207exv10w5.txt EXHIBIT 10.5 EXHIBIT 10.5 VIROLOGIC, INC. STOCK PURCHASE AGREEMENT NOVEMBER 14, 2002 STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT ("AGREEMENT") is made as of November 14, 2002 (the "EFFECTIVE DATE"), by and between VIROLOGIC, INC., a Delaware corporation with its principal place of business at 270 East Grand Avenue, South San Francisco, California 94080 (the "COMPANY"), and PFIZER IRELAND PHARMACEUTICALS, Pottery Road, Dun Laoghaire, Co. Dublin, Ireland (the "PURCHASER"). WHEREAS, 1. The Company and the Purchaser have agreed to enter into a relationship where the Company shall provide the Purchaser with certain services and access to certain technology. As part of that relationship the Parties shall execute at the same time as this Agreement (i) an agreement to license certain patent rights and HIV assay technology (the "NON-EXCLUSIVE LICENSE") and (ii) an agreement for the provision of certain drug evaluation and/or clinical services (the "MASTER SERVICES AGREEMENT"). 2. Under this Agreement the Company wishes to sell to the Purchaser, and Purchaser wishes to purchase from the Company, shares of the Company's common stock, par value $0.001 per share (the "COMMON STOCK"), on the terms and subject to the conditions set forth in this Agreement. AGREEMENT In consideration of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Company and the Purchaser hereby agree as follows: 1. Execution of this Stock Purchase Agreement is contingent upon the following: (a) simultaneous execution of the Non-Exclusive License (b) simultaneous execution of the Master Services Agreement (c) simultaneous execution of other third party agreements with the express purpose of raising a further US$6MM (the "CAPITAL"), in addition to the US$3MM raised through this Agreement; such Capital to be in the form of other equity investments ("ADDITIONAL SECURITIES"), direct payment of salaried employees and/or bona fide loan agreements other than short term loan arrangements. 2. AUTHORIZATION OF SALE OF THE SECURITIES; SALES OF ADDITIONAL SECURITIES. Subject to the terms and conditions of this Agreement, the Company has authorized the sale and issuance of up to 2,608,695 shares of Common Stock (the "SECURITIES") at the Closing (as defined below). 3. AGREEMENT TO SELL AND PURCHASE THE SECURITIES. 3.1 At the Closing, the Company will sell to the Purchaser, and the Purchaser will purchase from the Company, the Securities at a per share purchase price equal to one hundred and five percent of the average of the closing price of the Common Stock as reported on the Nasdaq National Market for the 20 trading days ending on the trading day immediately preceding the Closing Date, for a total purchase price of three million dollars (the "TOTAL PURCHASE PRICE"). 4. CLOSING AND DELIVERY. 4.1 CLOSING. The closing of the purchase and sale of the Securities pursuant to this Agreement (the "CLOSING") shall be held at the offices of Cooley Godward LLP, 4401 Eastgate Mall, San Diego, California 92121 on the Effective Date, or on such other date and place as may be agreed to by the Company and the Purchaser (the "CLOSING DATE"). At or prior to the Closing, the Purchaser and the Company shall execute any related agreements or other documents required to be executed hereunder, dated as of the Closing Date. 4.2 DELIVERY. (a) At the Closing, the Company shall deliver to the Purchaser the stock certificates registered in the name of the Purchaser, and/or in such nominee name(s) as designated in writing by the Purchaser, representing the Securities against payment of the Total Purchase Price. 5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. Except as set forth on the Schedule of Exceptions delivered to the Purchaser concurrently herewith, the Company hereby represents and warrants as of the date hereof to, and covenants with, the Purchaser as follows: 5.1 ORGANIZATION AND GOOD STANDING. The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, has full corporate power and authority to own or lease its properties and conduct its business as described in the SEC Documents (as defined in Section 5.5 below), and is duly qualified as a foreign corporation and in good standing in all jurisdictions in which the character of the property owned or leased or the nature of the business transacted by it makes qualification necessary, except where the failure to be so qualified would not have a material adverse effect on the business, properties, financial condition or results of operations of the Company. 5.2 CORPORATE POWER; AUTHORIZATION. The Company has all requisite corporate power, and has taken all requisite corporate action, to execute and deliver this Agreement, sell and issue the Securities and carry out and perform all of its obligations under this Agreement. This Agreement constitutes a legal, valid and binding obligation of the Company, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting the enforcement of creditors' rights generally, (ii) as limited by equitable principles generally, including any specific performance, and (iii) to the extent that the enforceability of those 2 provisions of Section 10.7 relating to indemnity or contribution may be limited by applicable laws. 5.3 COMPLIANCE WITH OTHER INSTRUMENTS. The execution, delivery and performance of and compliance with this Agreement and the issuance, sale and delivery of the Securities by the Company will not result in a material breach or violation of the terms, conditions or provisions of, (a) the Certificate of Incorporation or Bylaws of the Company, (b) any statute, law, rule or regulation (including without limitation, the rules and regulations applicable to the Nasdaq Stock Market and applicable securities laws) applicable to the Company, (c) any state or federal order, judgment or decree applicable to the Company or (d) any indenture, mortgage, lease or other material agreement or instrument to which the Company or any of its properties is subject, where such breach or violation would have a material adverse effect on the Company. The execution, delivery and performance of and compliance with this Agreement and the issuance, sale and delivery of the Securities by the Company will not require the approval of its stockholders, or result in the creation or imposition of any lien upon any of the properties or assets of the Company. 5.4 VALID ISSUANCE. The Securities, when issued and paid for in compliance with the provisions of this Agreement, will be validly issued, fully paid and nonassessable and will not be issued in violation of any preemptive right that has not been effectively waived. 5.5 SEC DOCUMENTS; FINANCIAL STATEMENTS. The Company has filed in a timely manner all documents that the Company was required to file with the United States Securities and Exchange Commission (the "SEC") under Sections 13, 14(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), during the twelve (12) months preceding the Effective Date. As of their respective filing dates (or, if amended, when amended), all documents filed by the Company with the SEC (the "SEC DOCUMENTS") complied in all material respects with the requirements of the Exchange Act. None of the SEC Documents as of their respective dates contained any untrue statement of material fact or omitted to state a material fact required (under the federal securities laws in connection with the sale of the Securities) to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Documents (the "FINANCIAL STATEMENTS") comply as to form and substance in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto. The Financial Statements have been prepared in accordance with generally accepted accounting principles consistently applied and fairly present the financial position of the Company at the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal, recurring adjustments). 5.6 INTELLECTUAL PROPERTY. The Company owns or possesses adequate rights to use all material patents, patent rights, inventions, trade secrets and know-how that are necessary for the conduct of its business as presently conducted and as described in the SEC Documents. Except as set forth in the SEC Documents, the Company has not received any written notice of, nor has any knowledge of, any infringement of or conflict with asserted rights of others with respect to any patent, patent right, invention, trade secret or know-how that, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, 3 would have a material adverse effect on the business, properties, financial condition or results or operations of the Company. 5.7 CAPITALIZATION. The capitalization of the Company is as described in the Company's SEC Documents. The Company has not issued any capital stock since June 30, 2002 other than pursuant to employee benefit plans disclosed in the Company's SEC Documents. The outstanding shares of capital stock of the Company have been duly and validly issued and are fully paid and nonassessable and were not issued in violation of any preemptive rights not effectively waived. Except as set forth in or contemplated by the Company's SEC Documents or as otherwise described in this Agreement, there are no outstanding rights (including, without limitation, preemptive rights), warrants or options to acquire, or instruments convertible into or exchangeable for, any unissued shares of capital stock or other equity interest in the Company, or any contract, commitment, agreement, understanding or arrangement of any kind to which the Company is a party and relating to the issuance or sale of any capital stock of the Company, any such convertible or exchangeable securities or any such rights, warrants or options. 5.8 LITIGATION. There is no pending or, to the Company's knowledge, threatened, action, suit or other proceeding to which the Company is a party or to which its property or assets are subject that is not disclosed in the SEC Documents that is required to be so disclosed. 5.9 GOVERNMENTAL CONSENTS. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state, or local governmental authority on the part of the Company is required in connection with the consummation of the transactions contemplated by this Agreement except for compliance with the securities and blue sky laws in the states and other jurisdictions in which Securities are offered and/or sold, which compliance will be effected in accordance with such laws. 5.10 NO MATERIAL ADVERSE CHANGE. Except as otherwise disclosed herein, since June 30, 2002, there have not been any changes in the assets, liabilities, financial condition or operations of the Company from that reflected in the Company's Form 10-Q for the period ended June 30, 2002 except changes in the ordinary course of business or which have not been, either individually or in the aggregate, materially adverse. 5.11 SECURITIES VIOLATIONS. The Company represents and warrants that none of its directors or officers is or has within the last five years, been the subject of, or a defendant in: (i) an enforcement action or prosecution (or settlement in lieu thereof) brought by a governmental authority relating to a violation of securities, tax, fiduciary or criminal laws, or (ii) a civil action (or settlement in lieu thereof) brought by shareholders or investors in a common investment vehicle for violation of duties owed to the shareholders or investors. 5.12 NASDAQ. The Company's Common Stock is listed on The Nasdaq National Market and the Company shall use its commercially reasonable efforts to maintain such listing. 5.13 OFFERING VALID. Assuming the accuracy of the representations and warranties of the Purchaser contained in Section 5.1 hereof, the offer and issuance of the 4 Securities will be exempt from the registration requirements of the Securities Act of 1933, as amended (the "SECURITIES ACT"), and will 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. Neither the Company nor any agent on its behalf has solicited or will solicit any offers to sell or has offered to sell or will offer to sell all or any part of the Securities to any person or persons so as to bring the sale of such Securities by the Company within the registration provisions of the Securities Act or any state securities laws. 6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER. 6.1 The Purchaser represents and warrants to and covenants with the Company that: (a) The Purchaser, taking into account the personnel and resources it can practically bring to bear on the purchase of the Securities contemplated hereby, either alone or together with the advice of the Purchaser's representative, is knowledgeable, sophisticated and experienced in making, and is qualified to make, decisions with respect to investments in securities presenting an investment decision like that involved in the purchase of the Securities, including investments in securities issued by the Company, and has requested, received, reviewed and considered, either alone or with the Purchaser's representative, all information the Purchaser deems relevant (including the SEC Documents) in making an informed decision to purchase the Securities. (b) The Purchaser is acquiring the Securities being acquired by the Purchaser pursuant to this Agreement for its own account for investment only and with no present intention of distributing any of such Securities or any arrangement or understanding with any other persons regarding the distribution of such Securities, except in compliance with Section 6.1(c). (c) The Purchaser will not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of) any of the Securities purchased hereunder except in compliance with the Securities Act, applicable blue sky laws, and the rules and regulations promulgated thereunder. (d) The Purchaser is an "accredited investor" within the meaning of Rule 501 of Regulation D promulgated under the Securities Act. (e) The Purchaser has full right, power, authority and capacity to enter into this Agreement and to consummate the transactions contemplated hereby and has taken all necessary action to authorize the execution, delivery and performance of this Agreement. Upon the execution and delivery of this Agreement by the Purchaser, this Agreement shall constitute a valid and binding obligation of the Purchaser, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting the enforcement of creditors' rights generally, (ii) as limited by equitable principles generally, including any specific performance, and (iii) as to those provisions of Section 10.7 relating to indemnity or contribution. 5 6.2 The Purchaser represents and warrants to and covenants with the Company that it has not engaged in any short sales of the Company's Common Stock within the three (3) month period prior to the Closing Date. 6.3 The Purchaser understands that nothing in the SEC Documents, this Agreement or any other materials presented to the Purchaser in connection with the purchase and sale of the Securities constitutes legal, tax or investment advice and that independent legal counsel has reviewed these documents and materials on the Purchaser's behalf. The Purchaser has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its purchase of the Securities. 7. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS, DISCLAIMER, INDEMNIFICATION. 7.1 SURVIVAL. Notwithstanding any investigation made by any party to this Agreement, all covenants, agreements, representations and warranties made by the Company and the Purchaser herein and in the certificates for the securities delivered pursuant hereto shall survive for a period of two years after the execution of this Agreement, the delivery to the Purchaser of the Securities being purchased and the payment therefore. 7.2 DISCLAIMER. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATION OR WARRANTY TO THE OTHER PARTY OF ANY NATURE, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF NONINFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 7.3 LIMITATION OF LIABILITY. NEITHER PARTY SHALL BE ENTITLED TO RECOVER FROM THE OTHER PARTY ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES IN CONNECTION WITH THIS AGREEMENT. 8. CONDITIONS TO COMPANY'S OBLIGATIONS AT CLOSING. The Company's obligation to sell, issue and deliver the Securities to the Purchaser at the Closing shall be subject to the following conditions to the extent not waived by the Company: 8.1 RECEIPT OF PAYMENT. The Company shall have received payment within seven (7) days, by check or wire transfer of immediately available funds, in the full amount of the Total Purchase Price. 8.2 REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and warranties made by the Purchaser in Section 6 hereof shall be true and correct when made at the Closing. The Purchaser shall have performed and complied with all obligations and conditions required to be performed and complied with by the Purchaser under this Agreement on or prior to the Closing. 6 9. CONDITIONS TO PURCHASERS' OBLIGATIONS AT CLOSING. The Purchaser's obligation to accept delivery of and pay for the Securities at the Closing shall be subject to the following conditions to the extent not waived by such Purchaser: 9.1 ISSUANCE OF STOCK. The Purchaser shall have received evidence of the issuance of a certificate representing the Securities in the name of the Purchaser. 9.2 REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and warranties made by the Company in Section 5 hereof shall be true and correct when made at the Closing. The Company shall have performed and complied with all obligations and conditions to be performed and complied with by the Company under this Agreement on or prior to the Closing. 10. RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS. 10.1 CERTAIN DEFINITIONS. When used in this Section 10 of this Agreement, the following terms shall have the following respective meanings: (a) "FORM S-3" shall mean Form S-3 under the Securities Act as in effect on the date of this Agreement, or any substantially similar, equivalent or successor form under the Securities Act. (b) "HOLDER" shall mean the Purchaser and each of its permitted assigns under Section 9.2(c) then holding any Securities. (c) "REGISTRATION EXPENSES" shall mean all expenses incurred by the Company in complying with Sections 10.3 and 10.4 hereof, including, without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel to the Company, blue sky fees and expenses, and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company). (d) "SELLING EXPENSES" shall mean all underwriting discounts and selling commissions and fees and disbursements of counsel applicable to the applicable sale. (e) "SPECIAL REGISTRATION STATEMENT" shall mean (i) a registration statement relating to any employee benefit plan or (ii) a registration statement relating to any corporate reorganization or transaction under Rule 145 of the Securities Act, including any registration statements related to the resale of securities issued in such a transaction or (iii) a registration statement related to stock issued upon conversion of debt securities. 10.2 RESTRICTIONS ON TRANSFER. (a) The Purchaser agrees not to make any disposition of all or any portion of the Securities unless and until: 7 (i) There is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or (ii) (A) Except in connection with a sale exempt from registration under Rule 144, the transferee has agreed in writing to be bound by the terms of this Agreement, and (B) if reasonably requested by the Company, the Purchaser shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such securities under the Securities Act, provided that the Company will not require an opinion of counsel for transactions pursuant to Rule 144 except in unusual circumstances. (iii) Notwithstanding the provisions of paragraphs (a)(i) and (a)(ii) above, no such registration statement or opinion of counsel shall be necessary for a transfer by the Purchaser (or its permitted transferee) to the extent such transfer is made by (A) a partnership to its partners or former partners in accordance with partnership interests, (B) a limited liability company to its members or former members in accordance with their interest in the limited liability company, or (C) a corporation to a subsidiary of which it owns at least eighty percent (80%) of the capital stock or a parent corporation that owns at least eighty percent (80%) of the capital stock of the Purchaser. (b) Each certificate representing Securities shall be stamped or otherwise imprinted with a legend substantially similar to the following (in addition to any legend required under applicable state securities laws, as provided elsewhere in this Agreement or any other applicable agreement or instrument): "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED." The Company shall be obligated to reissue promptly unlegended certificates at the request of the Purchaser if the Purchaser shall have obtained an opinion of counsel (which counsel may be counsel to the Company) reasonably acceptable to the Company to the effect that the securities proposed to be disposed of may lawfully be so disposed of (with no need for compliance with Rule 144) without registration, qualification or legend. Any legend endorsed on an instrument pursuant to applicable state securities laws and the stop-transfer instructions with respect to such securities shall be removed upon receipt by the Company of an order of the appropriate blue sky authority authorizing such removal. 8 (c) The registration rights granted under Section 10.3 of this Agreement shall not be transferable except in connection with transfers permitted under Section 10.2(a)(iii). 10.3 REGISTRATION PROCEDURES. The Company is obligated to do the following: (a) The Company shall use commercially reasonable efforts to prepare and file with the SEC, no later than thirty (30) days following the Closing Date, one or more registration statements in order to register with the SEC the resale by the Holders, from time to time, of the Securities through Nasdaq or the facilities of any national securities exchange on which the Common Stock is then traded, or in privately negotiated transactions (a "REGISTRATION STATEMENT"). The Company shall use commercially reasonable efforts to cause such Registration Statement to be declared effective within one hundred fifty (150) days following the Closing Date. The Company shall promptly notify the Holders of the effectiveness of such Registration Statement. (b) The Company shall prepare and file with the SEC (i) such amendments and supplements to the Registration Statement and the prospectus used in connection therewith, (ii) such SEC Documents and (iii) such other filings required by the SEC, in each case as may be necessary to keep the Registration Statement continuously effective and not misleading until all of the Securities held by the Holders that are registered under such Registration Statement have been resold. Notwithstanding the foregoing, if, at any time following the effectiveness of a Registration Statement, the Company shall have determined that the Company may be required to disclose any material corporate development, the Company may suspend the effectiveness of a Registration Statement until such time as an amendment to such Registration Statement has been filed by the Company and declared effective by the SEC or until such time as the Company has filed an appropriate report with the SEC pursuant to the Exchange Act, which suspension shall endure for such period as deemed necessary by the Company upon advice of counsel (a "SUSPENSION PERIOD"), by giving notice to the Holders. The Company will use commercially reasonable efforts to limit the length of any Suspension Period to a reasonable period of time (anticipated to be no more then ninety (90) days except to the extent a longer period is required due to extenuating circumstances), and further, the Company will use reasonable efforts to amend or supplement such prospectus in order to cause such prospectus not to include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing and end the Suspension Period. Each Holder agrees that, upon receipt of any notice from the Company of a Suspension Period, the Holder will not sell any Securities pursuant to the Registration Statement until (i) the Holder is advised in writing by the Company that the use of the applicable prospectus may be resumed, (ii) the Holder has received copies of any additional or supplemental or amended prospectus, if applicable, and (iii) the Holder has received copies of any additional or supplemental filings which are incorporated or deemed to be incorporated by reference in such prospectus. (c) In order to facilitate the public sale or other disposition of all or any of the Securities by the Holders, the Company shall furnish to the Holders with respect to the Securities registered under a Registration Statement such number of copies of prospectuses, 9 prospectus supplements and preliminary prospectuses as the Holders reasonably request in conformity with the requirements of the Securities Act. (d) The Company shall file any documents required of the Company for normal blue sky clearance in states specified in writing by the Holders; provided, however, that the Company shall not be required to qualify to do business or consent to service of process in any jurisdiction in which it is not now so qualified or has not so consented. (e) The Company shall furnish to the Holders copies of reasonably complete drafts of all such documents proposed to be filed (including exhibits), and any such holder shall have the opportunity to object to any information pertaining solely to such Holder that is contained therein and the Company will make the corrections reasonably requested by such holder with respect to such information prior to filing any such registration statement or amendment. (f) The Company shall promptly notify each Holder and the underwriter or underwriters, if any: (i) when such registration statement or any prospectus used in connection therewith, or any amendment or supplement thereto, has been filed and, with respect to such registration statement or any post-effective amendment thereto, when the same has become effective; (ii) of any written comments from the Commission with respect to any filing referred to in clause (i) or of any written request by the Commission for amendments or supplements to such registration statement or prospectus. (g) The Company shall use its best efforts to cause all Securities covered by such registration statement to be registered with or approved by such other United States governmental agencies or authorities as may be necessary to enable each holder thereof to consummate the disposition of such Securities. (h) In connection with any underwritten public offering of the Securities, the Company shall furnish to each Holder a signed counterpart, addressed to such holder (and the underwriters), 10 (i) an opinion of counsel for the Company, dated the effective date of the underwriting agreement, reasonably satisfactory in form and substance to such holder, and (ii) a "comfort" letter, dated the effective date of such registration statement (and a bring-down comfort letter) dated the date of any closing under the underwriting agreement), signed by the independent public accountants who have certified the Company's financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of the accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to the underwriters in underwritten Public Offerings of securities and, in the case of the accountants' letter, such other financial matters, as such holder (or the underwriters) may reasonably request. (i) The Company shall provide a transfer agent and registrar for all Securities covered by such registration statement not later than the effective date of such registration statement. 10.4 EXPENSES OF REGISTRATION. Except as specifically provided herein, all Registration Expenses incurred in connection with any registration under Section 10.3 herein shall be borne by the Company. All Selling Expenses incurred in connection with any registrations hereunder, shall be borne by the Holders. 10.5 TERMINATION OF REGISTRATION RIGHTS. All registration rights granted to the Holders under this Section 10 shall terminate and be of no further force and effect upon the date that all Registrable Securities held by the Holders may be sold under Rule 144(k) during any ninety (90) day period. 10.6 FURNISHING INFORMATION. It shall be a condition precedent to the obligations of the Company to take any action pursuant to Section 10.3 that each Holder shall furnish to the Company such information regarding itself, the Securities held by the Holder and the intended method of disposition of such securities as shall be required to effect the registration of the Securities. As soon as practicable following the Closing Date, the Company shall Deliver a questionnaire (a "Questionnaire") to each Holder requesting, among other things, the following information regarding the Holder: (i) legal name, address, telephone and fax number, (ii) beneficial ownership of the Securities to be registered and other securities of the Company held by Holder, (iii) relationships with the Company, and (iv) intended plan of distribution of the Securities to be registered. If a properly completed and signed Questionnaire is received by the Company not later than 10 business days after receipt thereof by the Holder, the Holder delivering such questionnaire shall be entitled to have its Securities included in the Registration Statement. 11 10.7 INDEMNIFICATION. In the event any Securities are included in a Registration Statement under Section 10.3: (a) To the extent permitted by law, the Company will indemnify and hold harmless the Holders, the partners, officers, directors and legal counsel of the Holders, any underwriter (as defined in the Securities Act) for the Holders and each person, if any, who controls the Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages, expenses (including attorney fees) or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "VIOLATION") by the Company: (i) any untrue statement or alleged untrue statement of a material fact contained in such Registration Statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law in connection with the offering covered by such Registration Statement; and the Company will reimburse the Holders and each such partner, officer or director, underwriter or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided however, that the indemnity agreement contained in this Section 10.7(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by the Holders or any such partner, officer, director, underwriter or controlling person of the Holders. (b) To the extent permitted by law, the Holders will, if Securities held by the Holders are included in the securities as to which such registration, qualifications or compliance is being effected, indemnify and hold harmless the Company, each of its directors, its officers and legal counsel and each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter and any other Holder selling securities under such Registration Statement or any of such other Holder's partners, directors or officers or any person who controls the Holder, against any losses, claims, damages, expenses (including attorney fees), or liabilities (several) to which the Company or any such director, officer, counsel, controlling person, underwriter or other such Holder, or partner, director, officer or controlling person of such other Holder may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by the Holders under an instrument duly executed by the Holders and stated to be specifically for use in connection with such registration; and the Holders will 12 reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, counsel, controlling person, underwriter or other Holder, or partner, officer, director or controlling person of such other Holder in connection with investigating or defending any such loss, claim, damage, liability or action if it is judicially determined that there was such a Violation; provided, however, that the indemnity agreement contained in this Section 10.7(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided further, that in no event shall any indemnity under this Section 10.7(b) exceed the proceeds from the offering received by the Holder. (c) Promptly after receipt by an indemnified party under this Section 10.7 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 10.7, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 10.7, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 10.7. (d) If the indemnification provided for in this Section 10.7 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any losses, claims, damages or liabilities referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the Violation(s) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, that in no event shall any contribution by the Purchaser hereunder exceed the proceeds from the offering received by the Holders. (e) The obligations of the Company and the Holders under this Section 10.7 shall survive completion of any offering of Registrable Securities in a Registration Statement. No indemnifying party, in the defense of any such claim or litigation, shall, except 13 with the consent of each indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. 11. MISCELLANEOUS. 11.1 BROKER'S FEE. The Company and the Purchaser hereby represent that, other than Leerink Swann & Company, UBS Warburg and CIBC World Markets, to whom the Company will pay commissions in connection with the sale of the Securities and Additional Securities pursuant to heretofore executed engagement letters, there are no brokers or finders entitled to compensation in connection with the sale of the Securities; and the Company and the Purchaser shall indemnify each other for any such fees for which they are responsible. 11.2 NOTICES. All notices, requests, consents and other communications hereunder shall be in writing, shall be sent by confirmed facsimile or mailed by first-class registered or certified airmail, or nationally recognized overnight express courier, postage prepaid, and shall be deemed given when so sent in the case of facsimile transmission, or when so received in the case of mail or courier, and addressed as follows: (a) if to the Company, to: ViroLogic, Inc. 270 East Grand Avenue South San Francisco, CA 94080 Attention: General Counsel Fax No.: 650-635-0397 with a copy to (which copy shall not constitute notice hereunder): Cooley Godward LLP 4401 Eastgate Mall San Diego, CA 92121 Attention: Carl R. Sanchez, Esq. Fax No.: 858-550-6420 or to such other person at such other place as the Company shall designate to the Purchaser in writing; and (b) if to the Purchaser, to: Pfizer, Inc. 235 East 42nd Street New York, NY 10017 Attention: _______________ Fax No.: ________________ 14 or to such other person at such other place as the Purchaser shall designate to the Company in writing. 11.3 WAIVERS AND AMENDMENTS. Neither this Agreement nor any provision hereof may be changed, waived, discharged, terminated, modified or amended except upon the written consent of the Company and the Purchaser. 11.4 HEADINGS. The headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Agreement. 11.5 SEVERABILITY. In case any provision contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. 11.6 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflicts of law principles. 11.7 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other parties. 11.8 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 11.9 PAYMENT OF FEES AND EXPENSES. Each of the Company and the Purchaser shall bear its own expenses and legal fees incurred on its behalf with respect to this Agreement and the transactions contemplated hereby. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. [SIGNATURE PAGE TO FOLLOW] 15 IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase Agreement to be executed by their duly authorized representatives as of the day and year first above written. VIROLOGIC, INC. By: /s/ WILLIAM D. YOUNG --------------------------------- William D. Young Chief Executive Officer PFIZER IRELAND PHARMACEUTICALS By: ILLEGIBLE --------------------------------- Name: -------------------------------- 16 EX-10.6 12 a86207exv10w6.txt EXHIBIT 10.6 EXHIBIT 10.6 EXHIBIT C TO SECURITIES PURCHASE AGREEMENT REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of November 14, 2002, by and among ViroLogic, Inc., a corporation organized under the laws of the State of Delaware (the "COMPANY"), and the undersigned (together with their respective affiliates, the "INITIAL INVESTORS"). WHEREAS: A. In connection with the Securities Purchase Agreement, dated as of November 14, 2002, by and among the Company and certain of the Initial Investors (the "SECURITIES PURCHASE AGREEMENT"), the Company has agreed, upon the terms and subject to the conditions contained therein, to issue and sell to those Initial Investors (i) shares of its Series C Convertible Preferred Stock (the "PREFERRED STOCK") that are convertible into shares of the Company's common stock, par value $.001 per share (the "COMMON STOCK"), upon the terms and subject to the limitations and conditions set forth in the Certificate of Designations, Rights and Preferences with respect to such Preferred Stock (the "CERTIFICATE OF Designation") and (ii) warrants (the "SERIES C WARRANTS") to acquire shares of Common Stock. The shares of Common Stock issuable upon conversion of the Preferred Stock are referred to herein as the "CONVERSION SHARES." B. In connection with the Exchange Agreement, dated as of November 14, 2002, by and among the Company and certain of the Initial Investors (the "EXCHANGE AGREEMENT"), the Company has agreed, upon the terms and subject to the conditions contained therein, to issue to those Initial Investors (i) promissory notes (the "NOTES") that, under certain circumstances, will be automatically converted into shares of Preferred Stock, and (ii) in the event that the Notes are so converted, warrants (the "ADDITIONAL WARRANTS" and, together with the Series C Warrants, the "WARRANTS") to acquire shares of Common Stock in exchange for certain warrants currently held by such Initial Investors. The shares of Common Stock issuable upon exercise of or otherwise pursuant to the Warrants are referred to herein as the "WARRANT SHARES." C. To induce the Initial Investors to execute and deliver the Securities Purchase Agreement and the Exchange Agreement, as applicable, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the "SECURITIES Act"), and applicable state securities laws. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Initial Investors hereby agree as follows: 1. DEFINITIONS. (a) As used in this Agreement, the following terms shall have the following meanings: (i) "INVESTORS" means the Initial Investors and any transferees or assignees who agree to become bound by the provisions of this Agreement in accordance with Section 10 hereof. (ii) "REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration effected by preparing and filing a Registration Statement or Statements in compliance with the Securities Act and pursuant to Rule 415 under the Securities Act or any successor rule providing for offering securities on a continuous basis ("RULE 415"), and the declaration or ordering of effectiveness of such Registration Statement by the United States Securities and Exchange Commission (the "SEC"). (iii) "REGISTRABLE SECURITIES" means (a) the Conversion Shares, (b) the Warrant Shares and (c) any shares of capital stock issued or issuable, from time to time (with any adjustments), as a distribution or dividend on or in exchange for or otherwise with respect to any of the foregoing, whether as default payments or otherwise. (iv) "REGISTRATION STATEMENT" means a registration statement of the Company under the Securities Act. (b) Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in the Securities Purchase Agreement. 2. REGISTRATION. (a) Mandatory Registration. (i) The Company shall use its best efforts to prepare promptly and file with the SEC as soon as practicable, but in no event later than the forty-fifth (45th) day following the Closing Date (the "FIRST FILING DATE"), a Registration Statement on Form S-3 (or, if Form S-3 is not then available, on such form of Registration Statement as is then available to effect a registration of all of the Registrable Securities to be so registered, subject to the consent of the Initial Investors whose Registrable Securities are being so registered) covering the resale of all of the Conversion Shares underlying the shares of Preferred Stock and the Warrant Shares underlying the Series C Warrants issued to the Initial Investors pursuant to the Securities Purchase Agreement (and any other Registrable Securities related to such Conversion Shares). The Registration Statement filed hereunder, to the extent allowable under the Securities Act and the Rules promulgated thereunder (including Rule 416), shall state that such Registration Statement also covers such indeterminate number of additional shares of Common Stock as may become issuable upon conversion of such Preferred Stock or exercise of such Series C Warrants to prevent dilution resulting from stock splits, stock dividends or similar transactions. The Registrable Securities included in the Registration Statement shall be allocated to the Investors as set forth in Section 12(k) hereof. The Registration Statement (and each amendment or supplement thereto, and each request for acceleration of 2 effectiveness thereof) shall be provided to (and subject to the approval of, which shall not be unreasonably withheld) the Initial Investors and their counsel prior to its filing or other submission. (ii) In the event that the Company obtains the Authorized Stock Approval and the NASD Rule Approval (as such terms are defined in the Securities Purchase Agreement and the Exchange Agreement), the Company shall use its best efforts to prepare promptly and file with the SEC as soon as practicable, but in no event later than the forty-fifth (45th) day following the date (the "STOCKHOLDER APPROVAL DATE") on which the Company obtains such Authorized Stock Approval (the "SECOND FILING DATE" and, together with the First Filing Date, the "FILING DATES"), a Registration Statement on Form S-3 (or, if Form S-3 is not then available, on such form of Registration Statement as is then available to effect a registration of all of the Registrable Securities to be so registered, subject to the consent of the Initial Investors whose Registrable Securities are being so registered) covering the resale of all of the Conversion Shares underlying the shares of Preferred Stock issued to the Initial Investors pursuant to the Exchange Agreement and all of the Warrant Shares underlying the Additional Warrants issued to the Initial Investors pursuant to the Exchange Agreement (and any other Registrable Securities related to such Conversion Shares or Warrant Shares). The Registration Statement filed hereunder, to the extent allowable under the Securities Act and the Rules promulgated thereunder (including Rule 416), shall state that such Registration Statement also covers such indeterminate number of additional shares of Common Stock as may become issuable upon conversion of such Preferred Stock and exercise of such Additional Warrants to prevent dilution resulting from stock splits, stock dividends or similar transactions. The Registrable Securities included in the Registration Statement shall be allocated to the Investors as set forth in Section 12(k) hereof. The Registration Statement (and each amendment or supplement thereto, and each request for acceleration of effectiveness thereof) shall be provided to (and subject to the approval of, which shall not be unreasonably withheld) the Initial Investors and their counsel prior to its filing or other submission. (b) Payments by the Company. The Company shall use its best efforts to cause the Registration Statements required to be filed pursuant to Section 2(a) hereof to become effective as soon as practicable, but in no event later than the one hundredth (100th) day following (1) the Closing Date (in the case of the Registration Statement required to be filed pursuant to Section 2(a)(i) hereof) or (2) the Stockholder Approval Date (in the case of the Registration Statement required to be filed pursuant to Section 2(a)(ii) hereof). At the time of effectiveness, the Company shall ensure that such Registration Statement covers all of the Registrable Securities issuable at such time pursuant to the Preferred Stock and/or the Warrants required to be included thereon (including, if necessary, by filing an amendment prior to the effective date of the Registration Statement to increase the number of shares covered thereby). If (i) (A) the Registration Statement required to be filed by the Company pursuant to Section 2(a)(i) hereof is not filed with the SEC prior to the First Filing Date or declared effective by the SEC on or before the one hundred thirtieth (130th) day after the Closing Date (the "FIRST REGISTRATION DEADLINE"), or (B) the Company has obtained the Authorized Stock Approval and the Registration Statement required to be filed by the Company pursuant to Section 2(a)(ii) hereof is not filed with the SEC prior to the Second Filing Date or declared effective by the SEC on or before the one hundred thirtieth (130th) day after the Stockholder Approval Date (the "SECOND REGISTRATION DEADLINE" and, together with the First Registration Deadline, the "REGISTRATION DEADLINES"), or (C) any Registration Statement required to 3 be filed by the Company pursuant to Section 4(b) hereof is not declared effective by the SEC within sixty (60) days after the applicable Registration Trigger Date (as defined in Section 4(b) hereof), or (ii) if, after any such Registration Statement has been declared effective by the SEC, sales of any of the Registrable Securities required to be covered by such Registration Statement (including any Registrable Securities required to be registered pursuant to Section 4(b) hereof) cannot be made pursuant to such Registration Statement (by reason of a stop order or the Company's failure to update the Registration Statement or any other reason outside the control of the Investors), except as otherwise provided herein or (iii) the Common Stock is not listed or included for quotation on the Nasdaq National Market ("NNM"), the Nasdaq SmallCap Market ("SMALLCAP"), the New York Stock Exchange (the "NYSE") or the American Stock Exchange (the "AMEX") at any time after the applicable Registration Deadline hereunder, then the Company will make payments to the Investors in such amounts and at such times as shall be determined pursuant to this Section 2(b) as partial relief for the damages to the Investors by reason of any such delay in or reduction of their ability to sell the Registrable Securities (which remedy shall not be exclusive of any other remedies available at law or in equity). The Company shall pay to each Investor an amount equal to the product of (i) the aggregate purchase price of the Preferred Stock and/or Warrants acquired pursuant to the Securities Purchase Agreement or the Exchange Agreement or upon conversion of the Notes acquired pursuant to the Exchange Agreement, as applicable, and held by such Investor (including, without limitation, Preferred Stock that has been converted into Conversion Shares and Warrants that have been exercised for Warrant Shares then held by such Investor) (the "AGGREGATE SHARE PRICE"), multiplied by (ii) two hundredths (.02), for each thirty (30) day period (or portion thereof) (A) after the applicable Filing Date and prior to the date the Registration Statement is filed with the SEC pursuant to Section 2(a), (B) after the applicable Registration Deadline and prior to the date the Registration Statement filed pursuant to Section 2(a) is declared effective by the SEC, (C) after the sixtieth (60th) day following a Registration Trigger Date (as defined in Section 4(b)) and prior to the date the Registration Statement filed pursuant to Section 4(b) hereof is declared effective by the SEC, and (D) during which sales of any Registrable Securities cannot be made pursuant to any such Registration Statement after the Registration Statement has been declared effective or the Common Stock is not listed or included for quotation on the NNM, SmallCap, NYSE or AMEX; provided, however, that there shall be excluded from each such period any delays which are solely attributable to changes (other than corrections of Company mistakes with respect to information previously provided by the Investors) required by the Investors in the Registration Statement with respect to information relating to the Investors, including, without limitation, changes to the plan of distribution. Notwithstanding the foregoing, in no event shall the Company be required to pay amounts with respect to (x) both (A) and (B), and (y) both (C) and (D) above for the same period of time. (For example, if the Registration Statement is not effective by the applicable Registration Deadline, the Company would pay $20,000 for each thirty (30) day period thereafter with respect to each $1,000,000 of Aggregate Share Price until the Registration Statement becomes effective.) Such amounts shall be paid in cash. Payments of cash pursuant hereto shall be made within five (5) days after the end of each period that gives rise to such obligation, provided that, if any such period extends for more than thirty (30) days, interim payments shall be made for each such thirty (30) day period. The requirement to make payments pursuant to this section can be waived as to all Investors entitled to a given payment by the written consent of such Investors holding a majority of the Registrable Securities held by all such Investors. 4 (c) Piggy-Back Registrations. If at any time prior to the expiration of the Registration Period (as hereinafter defined) the Company shall file with the SEC a Registration Statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities (other than on Form S-4 or Form S-8 or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans), the Company shall send to each Investor written notice of such determination and, if within fifteen (15) days after the date of such notice, such Investor shall so request in writing, the Company shall include in such Registration Statement all or any part of the Registrable Securities such Investor requests to be registered, except that if, in connection with any underwritten public offering, the managing underwriter(s) thereof shall impose a limitation on the number of shares of Common Stock which may be included in the Registration Statement because, in such underwriter(s)' judgment, marketing or other factors dictate such limitation is necessary to facilitate public distribution, then the Company shall be obligated to include in such Registration Statement only such limited portion of the Registrable Securities with respect to which such Investor has requested inclusion hereunder as the underwriter shall permit. Any exclusion of Registrable Securities shall be made pro rata among the Investors seeking to include Registrable Securities, in proportion to the number of Registrable Securities sought to be included by such Investors; provided, however, that the Company shall not exclude any Registrable Securities unless the Company has first excluded all outstanding securities, the holders of which are not contractually entitled to inclusion of such securities in such Registration Statement or are not contractually entitled to pro rata inclusion with the Registrable Securities; and provided, further, however, that, after giving effect to the immediately preceding proviso, any exclusion of Registrable Securities shall be made pro rata with holders of other securities having the contractual right to include such securities in the Registration Statement other than holders of securities contractually entitled to inclusion of their securities in such Registration Statement by reason of demand registration rights. Notwithstanding the foregoing, no such reduction shall reduce the amount of Registrable Securities included in the registration below twenty-five (25%) of the total amount of securities included in such registration. No right to registration of Registrable Securities under this Section 2(c) shall be construed to limit any registration required under Section 2(a) hereof. If an offering in connection with which an Investor is entitled to registration under this Section 2(c) is an underwritten offering, then each Investor whose Registrable Securities are included in such Registration Statement shall, unless otherwise agreed by the Company, offer and sell such Registrable Securities in an underwritten offering using the same underwriter or underwriters and, subject to the provisions of this Agreement, on the same terms and conditions as other shares of Common Stock included in such underwritten offering. (d) Eligibility for Form S-3. The Company represents and warrants that it meets the requirements for the use of Form S-3 for registration of the sale by the Initial Investors and any other Investor of the Registrable Securities and the Company shall file all reports required to be filed by the Company with the SEC in a timely manner so as to maintain such eligibility for the use of Form S-3. (e) Registrable Securities Not Permitted to be Included on Registration Statement. Notwithstanding any other provision in this Agreement to the contrary, in the event that the Company is prohibited by the Securities Act and the Rules promulgated thereunder (including as a result of the interpretation thereof by the SEC) from including any Registrable Securities on a 5 Registration Statement that would otherwise be required to be included on such Registration Statement by operation of this Agreement, after having used its best efforts to have such Registrable Securities so included, then the Company shall be permitted to exclude such Registrable Securities (but only such Registrable Securities) from such Registration Statement, and such exclusion shall not alone constitute a breach of this Agreement; provided, however, that the Company shall be required, pursuant to Section 4(b) below, to register such Registrable Securities (either by the amendment of the existing applicable Registration Statement or the filing of a new Registration Statement) upon such prohibition no longer being applicable to such Registrable Securities. 3. DELAY PERIODS; SUSPENSION OF SALES. (a) Delay Period. If, at any time prior to the expiration of the Registration Period (as defined below), in the good faith reasonable judgment of the Company's Board of Directors, the disposition of Registrable Securities would require the premature disclosure of material non-public information which may reasonably be expected to have an adverse effect on the Company, then the Company shall not be required to maintain the effectiveness of or amend or supplement the Registration Statement for a period (a "DISCLOSURE DELAY PERIOD") expiring upon the earlier to occur of (i) the date on which such material information is disclosed to the public or ceases to be material or (ii) subject to Section 3(b) hereof, up to ten (10) trading days after the date on which the Company provides a notice to the Investors under Section 4(e) hereof stating that the failure to disclose such non-public information causes the prospectus included in the Registration Statement, as then in effect, to include an untrue statement of a material fact or to omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading (each, a "DISCLOSURE DELAY PERIOD NOTICE"). For the avoidance of doubt, in no event shall a Disclosure Delay Period exceed ten (10) trading days. (b) The Company will give prompt written notice, in the manner prescribed by Section 12 hereof, to the Investors of each Disclosure Delay Period. If practicable, such notice shall estimate the duration of such Disclosure Delay Period. Each Investor agrees that, upon receipt of a Disclosure Delay Period Notice prior to the Investor's disposition of all such Registrable Securities, the Investor will forthwith discontinue the disposition of such Registrable Securities pursuant to the Registration Statement, and will not deliver any prospectus forming a part thereof in connection with any sale of such Registrable Securities until the expiration of such Disclosure Delay Period. In addition, the provisions of Section 2(b) hereof shall not apply to the Disclosure Delay Periods. Notwithstanding anything in this Section 3 to the contrary, the Company shall not deliver more than two (2) Disclosure Delay Period Notices in any one (1) year period and there shall not be more than an aggregate of sixty (60) calendar days in any twelve (12) month period during which the Company is in a Disclosure Delay Period nor more than an aggregate of thirty (30) calendar days in any ninety (90) calendar day period during which the Company is in a Disclosure Delay Period. 4. OBLIGATIONS OF THE COMPANY. In connection with the registration of the Registrable Securities, the Company shall have the following obligations: 6 (a) The Company shall respond promptly to any and all comments made by the staff of the SEC to the Registration Statements required by Section 2(a), and shall submit to the SEC before the close of business on or before the second business day immediately following the business day on which the Company learns (either by telephone or in writing) that no review of such Registration Statements will be made by the SEC or that the staff of the SEC has no further comments on such Registration Statements, as the case may be, a request for acceleration of the effectiveness of such Registration Statements to a time and date as soon as practicable. The Company shall keep each such Registration Statement effective pursuant to Rule 415 at all times until such date as is the earlier of (i) the date on which all of the Registrable Securities covered thereby have been sold and (ii) the date on which all of the Registrable Securities covered thereby may be immediately sold to the public without registration or restriction pursuant to Rule 144(k) under the Securities Act or any successor provision (the "REGISTRATION PERIOD"), which Registration Statements (including any amendments or supplements thereto and prospectuses contained therein and all documents incorporated by reference therein) (i) shall comply in all material respects with the requirements of the Securities Act and the rules and regulations of the SEC promulgated thereunder and (ii) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein not misleading. The financial statements of the Company included in the Registration Statements or incorporated by reference therein will comply as to form in all material respects with the applicable accounting requirements and the published rules and regulations of the SEC applicable with respect thereto. Such financial statements will be prepared in accordance with U.S. generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed on summary statements and fairly present in all material respects the consolidated financial position of the Company and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to immaterial year-end adjustments)). (b) The Company shall use its best efforts, to prepare and file with the SEC such amendments (including post-effective amendments) and supplements to the Registration Statements and the prospectus used in connection with the Registration Statements as may be necessary to keep the Registration Statements effective at all times during the applicable Registration Period, and, during such period, comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company covered by the Registration Statements until such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in the Registration Statements. In the event the number of shares available under any Registration Statement filed pursuant to this Agreement is, for any three (3) consecutive trading days (the last of such three (3) trading days being the "REGISTRATION TRIGGER DATE"), insufficient to cover one hundred percent (100%) of the Registrable Securities issued or issuable upon conversion (without giving effect to any limitations on conversion contained in Article IV.D of the Certificate of Designation) of the Preferred Stock and exercise of the Warrants (without giving effect to any limitations on exercise contained in Section 7(g) of the Warrants) and required to be included thereon, the Company shall amend the applicable Registration Statement, or file a new Registration Statement (on the short form available therefor, if applicable), 7 or both, so as to cover one hundred percent (100%) of the Registrable Securities issued or issuable (without giving effect to any limitations on conversion or exercise contained in the Certificate of Designation or the Warrants) as of the Registration Trigger Date, in each case, as soon as practicable, but in any event within fifteen (15) days after the Registration Trigger Date (based on the market price then in effect of the Common Stock and other relevant factors on which the Company reasonably elects to rely). The Company shall use its best efforts to cause such amendment(s) and/or new Registration Statement to become effective as soon as practicable following the filing thereof. In the event the Company fails to obtain the effectiveness of any such Registration Statement within sixty (60) days after a Registration Trigger Date, each Investor shall thereafter have the option, exercisable in whole or in part at any time and from time to time by delivery of a written notice to the Company (a "MANDATORY REDEMPTION NOTICE"), to require the Company to purchase for cash, at an amount per share equal to the Redemption Amount (as defined in Article VIII.B of the Certificate of Designation), a portion of the Investor's Preferred Stock such that the total number of Registrable Securities included on the Registration Statements for resale by such Investor exceeds 100% of the Registrable Securities issued or issuable upon conversion (without giving effect to any limitations on conversion contained in Article IV.D of the Certificate of Designation) of such Investor's Preferred Stock and exercise of such Investor's Warrants. If the Corporation fails to redeem any of such shares within five (5) business days after its receipt of a Mandatory Redemption Notice, then such Investor shall be entitled to the remedies provided in Article VIII.D of the Certificate of Designation. (c) The Company shall furnish to each Investor whose Registrable Securities are included in a Registration Statement and its legal counsel (i) promptly after the same is prepared and publicly distributed, filed with the SEC, or received by the Company, one copy of the Registration Statement and any amendment thereto, each preliminary prospectus and prospectus and each amendment or supplement thereto, and, in the case of one of the Registration Statements referred to in Section 2(a), each letter written by or on behalf of the Company to the SEC or the staff of the SEC (including, without limitation, any request to accelerate the effectiveness of the Registration Statement or amendment thereto), and each item of correspondence from the SEC or the staff of the SEC, in each case relating to the Registration Statement (other than any portion, if any, thereof which contains information for which the Company has sought confidential treatment), (ii) by the next business day after the date of effectiveness of the Registration Statement or any amendment thereto, a notice stating that the Registration Statement or amendment has been declared effective, and (iii) such number of copies of a prospectus, including a preliminary prospectus, and all amendments and supplements thereto and such other documents as such Investor may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Investor. (d) The Company shall use its best efforts to (i) register and qualify the Registrable Securities covered by the Registration Statements under such other securities or "blue sky" laws of such jurisdictions in the United States as each Investor who holds Registrable Securities being offered reasonably requests, (ii) prepare and file in those jurisdictions such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the applicable Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the applicable Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to 8 (a) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 4(d), (b) subject itself to general taxation in any such jurisdiction, (c) file a general consent to service of process in any such jurisdiction, (d) provide any undertakings that cause the Company undue expense or burden, or (e) make any change in its charter or bylaws, which in each case the Board of Directors of the Company determines to be contrary to the best interests of the Company and its stockholders. (e) As promptly as practicable after becoming aware of such event, the Company shall notify each Investor by telephone and facsimile of the happening of any event, of which the Company has knowledge, as a result of which the prospectus included in a Registration Statement, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and, use its best efforts promptly to prepare a supplement or amendment to the Registration Statement to correct such untrue statement or omission, and deliver such number of copies of such supplement or amendment to each Investor as such Investor may reasonably request. (f) The Company shall use its best efforts (i) to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement (other than as permitted herein), and, if such an order is issued, to obtain the withdrawal of such order at the earliest practicable moment (including in each case by amending or supplementing such Registration Statement) and (ii) to notify each Investor who holds Registrable Securities being sold (or, in the event of an underwritten offering, the managing underwriters) of the issuance of such order and the resolution thereof (and if such Registration Statement is supplemented or amended, deliver such number of copies of such supplement or amendment to each Investor as such Investor may reasonably request). (g) The Company shall permit a single firm of counsel designated by the Initial Investors to review the Registration Statements and all amendments and supplements thereto a reasonable period of time prior to its filing with the SEC, and not file any document in a form to which such counsel reasonably objects. (h) The Company shall make generally available to its security holders as soon as practical, but not later than ninety (90) days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 under the Securities Act) covering a twelve-month period beginning not later than the first day of the Company's fiscal quarter next following the effective date of the Registration Statement required to be filed pursuant to Section 2(a)(i), which compliance will be met through the Company's filing, on an appropriate form, the appropriate report of the Company as required by the Securities Exchange Act of 1934, as amended. (i) The Company shall hold in confidence and not make any disclosure of information concerning an Investor provided to the Company unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other order from a court or governmental body of competent jurisdiction, (iv) such information has been made generally available to the public other than by disclosure in violation of this or any other agreement, 9 or (v) such Investor consents to the form and content of any such disclosure. The Company agrees that it shall, upon learning that disclosure of such information concerning an Investor is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to such Investor prior to making such disclosure, and allow the Investor, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information. (j) The Company shall use its best efforts to promptly either (i) cause all of the Registrable Securities covered by any Registration Statement to be listed on the NYSE or the AMEX or another national securities exchange and on each additional national securities exchange on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange, or (ii) secure the designation and quotation of all of the Registrable Securities covered by any Registration Statement on the NNM or SmallCap and, without limiting the generality of the foregoing, to arrange for or maintain at least two market makers to register with the National Association of Securities Dealers, Inc. ("NASD") as such with respect to such Registrable Securities. (k) The Company shall provide a transfer agent and registrar, which may be a single entity, for the Registrable Securities not later than the effective date of the Registration Statement. (l) The Company shall cooperate with the Investors who hold Registrable Securities being offered to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends to the extent permitted by the Securities Purchase Agreement or Exchange Agreement, as applicable) representing Registrable Securities to be offered pursuant to the Registration Statements and enable such certificates to be in such denominations or amounts, as the case may be, as the Investors may reasonably request and registered in such names as the Investors may request. (m) At the request of any Investor, the Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration Statement and the prospectus used in connection with such Registration Statement as may be necessary in order to change the plan of distribution set forth in such Registration Statement. (n) The Company shall comply with all applicable laws related to a Registration Statement and offering and sale of securities and all applicable rules and regulations of governmental authorities in connection therewith (including, without limitation, the Securities Act and the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the SEC). (o) From and after the date of this Agreement, the Company shall not, and shall not agree to, allow the holders of any securities of the Company to include any of their securities which are not Registrable Securities in a Registration Statement under Section 2(a) hereof or any amendment or supplement thereto under Section 4(b) hereof without the consent of the holders of a majority in interest of the Registrable Securities (other than as set forth in the Schedule of Exceptions to the Securities Purchase Agreement and the Exchange Agreement). 10 5. OBLIGATIONS OF THE INVESTORS. In connection with the registration of the Registrable Securities, the Investors shall have the following obligations: (a) It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities of a particular Investor that such Investor shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request. At least five trading days prior to the first anticipated filing date of a Registration Statement, the Company shall notify each Investor of the information the Company requires from each such Investor. (b) Each Investor, by such Investor's acceptance of the Registrable Securities, agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of the Registration Statements hereunder, unless such Investor has notified the Company in writing of such Investor's election to exclude all of such Investor's Registrable Securities from such Registration Statements. (c) Each Investor agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Sections 4(e) or 3(a), such Investor will immediately discontinue disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such Investor's receipt of the copies of the supplemented or amended prospectus contemplated by Sections 4(e) or 3(a) and, if so directed by the Company, such Investor shall deliver to the Company (at the expense of the Company) or destroy (and deliver to the Company a certificate of destruction) all copies in such Investor's possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice. Notwithstanding anything to the contrary, subject to compliance with applicable laws, the Company shall cause the transfer agent for the Registrable Securities to deliver unlegended shares of Common Stock to a transferee of an Investor in accordance with the terms of the Certificate of Designation and Warrants in connection with any sale of Registrable Securities with respect to which such Investor has entered into a contract for sale prior to receipt of such notice and for which such Investor has not yet settled. 11 6. EXPENSES OF REGISTRATION. All reasonable expenses incurred by the Company or the Investors (but only for reasonable attorney's fees of one counsel for the Investors) in connection with registrations, filings or qualifications pursuant to Sections 2 and 4 above, including, without limitation, all registration, listing and qualifications fees, printers and accounting fees, the fees and disbursements of counsel for the Company, the fees and disbursements of one counsel selected by the Investors, and the underwriting discounts and commissions, shall be borne by the Company. In addition, the Company shall pay all of the Investors' reasonable costs and expenses (including legal fees) incurred in connection with the enforcement of the rights of the Investors hereunder. 7. INDEMNIFICATION. In the event any Registrable Securities are included in a Registration Statement under this Agreement: (a) To the extent permitted by law, the Company will indemnify, hold harmless and defend (i) each Investor who holds such Registrable Securities, and (ii) the directors, officers, partners, members, employees and agents of such Investor and each person who controls any Investor within the meaning of Section 15 of the Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), if any, (each, an "INDEMNIFIED PERSON"), against any joint or several losses, claims, damages, liabilities or expenses (collectively, together with actions, proceedings or inquiries by any regulatory or self-regulatory organization, whether commenced or threatened, in respect thereof, "CLAIMS") to which any of them may become subject insofar as such Claims arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or the omission or alleged omission to state therein a material fact required to be stated or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus if used prior to the effective date of such Registration Statement, or contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities (the matters in the foregoing clauses (i) through (iii) being, collectively, "VIOLATIONS"). Subject to the restrictions set forth in Section 7(c) with respect to the number of legal counsel, the Company shall reimburse the Investors and each other Indemnified Person, promptly as such expenses are incurred and are due and payable, for any reasonable legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 7(a): (i) shall not apply to a Claim arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by such Indemnified Person expressly for use in the Registration Statement or any such amendment thereof or supplement thereto; (ii) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld; and (iii) with respect to any preliminary prospectus, shall not inure to the benefit of any Indemnified Person if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected on a timely basis in the prospectus, as then amended or 12 supplemented, if such corrected prospectus was timely made available by the Company pursuant to Section 4(c) hereof, and the Indemnified Person was promptly advised in writing not to use the incorrect prospectus prior to the use giving rise to a Violation and such Indemnified Person, notwithstanding such advice, used it. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 10 hereof. (b) In connection with any Registration Statement in which an Investor is participating, each such Investor agrees severally and not jointly to indemnify, hold harmless and defend, to the same extent and in the same manner set forth in Section 7(a), the Company, each of its directors, each of its officers who signs the Registration Statement, its employees, agents and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, and any other stockholder selling securities pursuant to the Registration Statement or any of its directors or officers or any person who controls such stockholder within the meaning of the Securities Act or the Exchange Act (collectively and together with an Indemnified Person, an "INDEMNIFIED PARTY"), against any Claim to which any of them may become subject, under the Securities Act, the Exchange Act or otherwise, insofar as such Claim arises out of or is based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by such Investor expressly for use in connection with such Registration Statement; and subject to Section 7(c) such Investor will reimburse any legal or other expenses (promptly as such expenses are incurred and are due and payable) reasonably incurred by them in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 7(b) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Investor, which consent shall not be unreasonably withheld; provided, further, however, that the Investor shall be liable under this Agreement (including this Section 7(b) and Section 8) for only that amount as does not exceed the net proceeds actually received by such Investor as a result of the sale of Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 10 hereof. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 7(b) with respect to any preliminary prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected on a timely basis in the prospectus, as then amended or supplemented. (c) Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 7 of notice of the commencement of any action (including any governmental action), such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to made against any indemnifying party under this Section 7, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that such indemnifying party shall not be entitled to assume such defense and an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses to be paid 13 by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential conflicts of interest between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding or the actual or potential defendants in, or targets of, any such action include both the Indemnified Person or the Indemnified Party and the indemnifying party and any such Indemnified Person or Indemnified Party reasonably determines that there may be legal defenses available to such Indemnified Person or Indemnified Party which are in conflict with those available to such indemnifying party. The indemnifying party shall pay for only one separate legal counsel for the Indemnified Persons or the Indemnified Parties, as applicable, and such legal counsel shall be selected by Investors holding a majority-in-interest of the Registrable Securities included in the Registration Statement to which the Claim relates (with the approval of the Initial Investors if it holds Registrable Securities included in such Registration Statement), if the Investors are entitled to indemnification hereunder, or by the Company, if the Company is entitled to indemnification hereunder, as applicable. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 7, except to the extent that the indemnifying party is actually prejudiced in its ability to defend such action. The indemnification required by this Section 7 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as such expense, loss, damage or liability is incurred and is due and payable. 8. CONTRIBUTION. To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 7 to the fullest extent permitted by law as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and the Indemnified Person or Indemnified Party, as the case may be, on the other hand, with respect to the Violation giving rise to the applicable Claim; provided, however, that (i) no contribution shall be made under circumstances where the maker would not have been liable for indemnification under the fault standards set forth in Section 7, (ii) no person guilty of fraudulent misrepresentation (within the meaning of Section 12(f) of the Securities Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of such fraudulent misrepresentation, and (iii) contribution (together with any indemnification or other obligations under this Agreement) by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities. 9. REPORTS UNDER THE EXCHANGE ACT. With a view to making available to the Investors the benefits of Rule 144 promulgated under the Securities Act or any other similar rule or regulation of the SEC that may at any time permit the Investors to sell securities of the Company to the public without registration ("RULE 144"), the Company agrees to: (i) file with the SEC in a timely manner and make and keep available all reports and other documents required of the Company under the Securities Act and the Exchange Act so long as the Company remains subject to such requirements (it being understood that nothing herein shall limit the Company's obligations under Section 4(c) of the Securities Purchase Agreement 14 or the Exchange Agreement, as applicable) and the filing and availability of such reports and other documents is required for the applicable provisions of Rule 144; and (ii) furnish to each Investor so long as such Investor owns shares of Preferred Stock, Warrants or Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the Investors to sell such securities under Rule 144 without registration. 10. ASSIGNMENT OF REGISTRATION RIGHTS. The rights of the Investors hereunder, including the right to have the Company register Registrable Securities pursuant to this Agreement, shall be automatically assignable by each Investor to any transferee of all or any portion of the shares of Preferred Stock, the Warrants or the Registrable Securities if: (i) the Investor agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company after such assignment, (ii) the Company is furnished with written notice of (a) the name and address of such transferee or assignee, and (b) the securities with respect to which such registration rights are being transferred or assigned, (iii) following such transfer or assignment, the further disposition of such securities by the transferee or assignee is restricted under the Securities Act and applicable state securities laws, (iv) the transferee or assignee agrees in writing for the benefit of the Company to be bound by all of the provisions contained herein, and (v) such transfer shall have been made in accordance with the applicable requirements of the Securities Purchase Agreement, the Exchange Agreement, the Certificate of Designation for the Preferred Stock, the Warrants and the Notes, as applicable. In addition, and notwithstanding anything to the contrary contained in this Agreement, the Securities Purchase Agreement, the Exchange Agreement, the Certificate of Designation, the Warrants or the Notes, the Securities (as defined in the Securities Purchase Agreement and the Exchange Agreement) may be pledged, and all rights of the Investors under this Agreement or any other agreement or document related to the transactions contemplated hereby may be assigned, without further consent of the Company, to a bona fide pledgee in connection with an Investor's margin or brokerage account. 11. AMENDMENT OF REGISTRATION RIGHTS. Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with written consent of the Company, and Investors who hold a majority of the Registrable Securities or, in the case of a waiver, with the written consent of the party charged with the enforcement of any such provision; provided, however, that no consideration shall be paid to an Investor by the Company in connection with an amendment hereto unless each Investor similarly affected by such amendment receives a pro-rata amount of consideration from the Company. Any amendment or waiver effected in accordance with this Section 11 shall be binding upon each Investor and the Company. 12. MISCELLANEOUS. (a) A person or entity is deemed to be a holder of Registrable Securities whenever such person or entity owns of record such Registrable Securities. If the Company receives 15 conflicting instructions, notices or elections from two or more persons or entities with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities. (b) Any notices required or permitted to be given under the terms of this Agreement shall be sent by certified or registered mail (return receipt requested), or by a nationally recognized overnight delivery service, or delivered personally or by courier or by confirmed telecopy, and shall be effective five (5) days after being placed in the mail, if mailed certified or registered mailed, or one (1) day after being delivered to the nationally recognized overnight delivery service, if delivered in such manner, or upon receipt or refusal of receipt, if delivered personally or by courier or confirmed telecopy, in each case addressed to a party. The addresses for such communications shall be: If to the Company: ViroLogic, Inc. 270 East Grand Avenue South San Francisco, California 94080 Telephone: (650) 635-1100 Attn: Chief Executive Officer with a copy simultaneously transmitted by like means to: Cooley Godward LLP 4401 Eastgate Mall San Diego, California 92121 Telephone: (858) 550-6000 and if to any Investor, at such address as such Investor shall have provided in writing to the Company, or at such other address as each such party furnishes by notice given in accordance with this Section 12(b). (c) Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. (d) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in the State of Delaware. The Company irrevocably consents to the jurisdiction of the United States federal courts and the state courts located in the State of Delaware in any suit or proceeding based on or arising under this Agreement and irrevocably agrees that all claims in respect of such suit or proceeding may be determined in such courts. The Company irrevocably waives the defense of an inconvenient forum to the maintenance of such suit or proceeding. The Company further agrees that service of process upon the Company, mailed by first class mail shall be deemed in every respect effective service of process upon the Company in any such suit or proceeding. Nothing herein shall affect the Investors' right to serve process in any other manner permitted by law. The Company agrees that a 16 final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner. (e) This Agreement, the Securities Purchase Agreement (including all schedules and exhibits thereto), the Exchange Agreement (including all schedules and exhibits thereto), the Warrants, the Notes and the Security Documents (as defined in the Exchange Agreement) constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement, the Securities Purchase Agreement, the Exchange Agreement, the Warrants, the Notes and the Security Documents supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof. (f) Subject to the requirements of Section 10 hereof, this Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto. (g) The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (h) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement. (i) Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. (j) All consents, approvals and other determinations to be made by the Investors pursuant to this Agreement shall be made by the Investors holding a majority in interest of the Registrable Securities (determined as if all shares of Preferred Stock and Warrants then outstanding had been converted into or exercised for Registrable Securities) held by all Investors. (k) The initial number of Registrable Securities included on any Registration Statement and each increase to the number of Registrable Securities included thereon shall be allocated pro rata among the Investors based on the number of Registrable Securities held by each Investor at the time of such establishment or increase, as the case may be, and required to be included on such Registration Statement. In the event an Investor shall sell or otherwise transfer any of such holder's Registrable Securities, each transferee shall be allocated a pro rata portion of the number of Registrable Securities included on a Registration Statement for such transferor. Any shares of Common Stock included on a Registration Statement and which remain allocated to any person or entity which does not hold any Registrable Securities shall be allocated to the remaining Investors, pro rata based on the number of shares of Registrable Securities then held by such Investors. For the avoidance of doubt, the number of Registrable Securities held by any Investor 17 shall be determined as if all shares of Preferred Stock and Warrants then outstanding were converted into or exercised for Registrable Securities. (l) Each party to this Agreement has participated in the negotiation and drafting of this Agreement. As such, the language used herein shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party to this Agreement. (m) For purposes of this Agreement, the term "business day" means any day other than a Saturday or Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law, regulation or executive order to close, and the term "trading day" means any day on which NNM, or if the Common Stock is not then traded on NNM the principal securities exchange or trading market where the Common Stock is then listed or traded, is open for trading. 18 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. VIROLOGIC, INC. By: /s/ WILLIAM D. YOUNG -------------------------------- Name: William D. Young ------------------------------ Its: Chairman & CEO ------------------------------- INITIAL INVESTORS: [PURCHASER] By: -------------------------------- Name: Title: 19 EX-99.1 13 a86207exv99w1.txt EXHIBIT 99.1 EXHIBIT 99.1 [VIROLOGIC LOGO] FOR IMMEDIATE RELEASE Contact: NOVEMBER 14, 2002 Karen Wilson, CFO (650) 624-4164 kwilson@virologic.com VIROLOGIC ANNOUNCES $7.0 MILLION PRIVATE PLACEMENT SOUTH SAN FRANCISCO, Calif., November 14, 2002 -- ViroLogic, Inc. (Nasdaq: VLGC) today announced it has entered into an agreement to sell newly issued shares of 8% convertible preferred stock to a group of investors comprised of existing and new stockholders. The Company expects to raise $7 million from the private placement, which is subject to closing conditions and expected to close by November 19, 2002. These proceeds are in addition to a 5% equity investment in ViroLogic made by Pfizer Inc., also announced today.* ViroLogic expects to use the net proceeds from this financing to support and enhance ongoing commercial activities and for general administrative expenses, capital expenditures and working capital. The preferred stock will be convertible into common stock at a premium to the current market price. The purchasers will also receive warrants to purchase a total of 4.4 million shares of common stock, at an exercise price that is based on the five day trading average. In connection with the closing of the private placement, the Company's Series B Preferred Stock is expected to be exchanged for short-term convertible debt which, subject to the approval of our stockholders, would automatically convert into the new preferred stock. * Pfizer's ownership percentage is calculated on an as-converted to common stock basis, assuming conversion of all the outstanding preferred stock. ABOUT VIROLOGIC ViroLogic is a biotechnology company advancing individualized medicine by discovering, developing and marketing innovative products to guide and improve treatment of serious viral diseases such as AIDS and hepatitis. The Company's products are designed to help doctors optimize treatment regimens for their patients that lead to better outcomes and reduced costs. The Company's technology is also being used by numerous biopharmaceutical companies to develop new and improved antiviral therapeutics and vaccines targeted at emerging drug-resistant viruses. The offer and sale of the securities being sold by ViroLogic in the private placements will not be and has not been registered under the Securities Act of 1933, as amended, and may not be sold by ViroLogic absent registration or an applicable exemption from registration requirements. However, the Company has agreed to file a registration statement for the resale of the shares underlying the preferred stock and the warrants, as well as shares issuable as dividends on the preferred stock. This news release is not an offer to sell, or a solicitation of an offer to buy, the securities discussed herein. This announcement is neither an offer to sell nor a solicitation of an offer to buy any securities of ViroLogic. Certain statements in this press release are forward-looking, including statements relating to expected proceeds from financing activities. These forward-looking statements are subject to risks and uncertainties and other factors, which may cause actual results to differ materially from the anticipated results or other expectations expressed in such forward-looking statements. These risks and uncertainties include, but are not limited to, the risk that the equity investments do not close as expected, whether ViroLogic's products will achieve market acceptance, the timing of pharmaceutical company clinical trials, whether payors will authorize reimbursement for its products, whether the Company will be able to expand its sales and marketing capabilities, whether the FDA or any other agency will decide to regulate its products or services, whether the Company encounters problems or delays in automating its processes, whether it successfully introduces new products, whether others introduce competitive products, whether intellectual property underlying its PhenoSense technology is adequate, whether it is able to build brand loyalty and expand revenues, whether it will be able to raise sufficient capital and other risks and uncertainties detailed from time to time in the Company's reports to the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2001. # # # -----END PRIVACY-ENHANCED MESSAGE-----

EX-4.1

                                                                     EXHIBIT 4.1



                                                                       EXHIBIT B
                                                                   TO SECURITIES
                                                                        PURCHASE
                                                                       AGREEMENT

        VOID AFTER 5:00 P.M., NEW YORK CITY
        TIME, ON NOVEMBER 19, 2007
        (UNLESS EXTENDED PURSUANT TO SECTION 2 HEREOF)


        THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
        NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
        "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED
        STATES OR ANY OTHER JURISDICTION. THE SECURITIES REPRESENTED HEREBY MAY
        NOT BE OFFERED, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
        REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES
        LAWS UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE
        EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.

                                         Right to Purchase ________ Shares of
                                         Common Stock, par value $.001 per share

Date: November 19, 2002

                                 VIROLOGIC, INC.
                             STOCK PURCHASE WARRANT

        THIS CERTIFIES THAT, for value received, _______________________, or its
registered assigns, is entitled to purchase from ViroLogic, Inc., a corporation
organized under the laws of the State of Delaware (the "COMPANY"), at any time
or from time to time during the period specified in Section 2 hereof,
_____________________________________ fully paid and nonassessable shares of the
Company's common stock, par value $.001 per share (the "COMMON STOCK"), at an
exercise price per share (the "EXERCISE PRICE") equal to $1.11. The number of
shares of Common Stock purchasable hereunder (the "WARRANT SHARES") and the
Exercise Price are subject to adjustment as provided in Section 4 hereof. The
term "WARRANTS" means this Warrant and the other warrants of the Company issued
pursuant to that certain Securities Purchase Agreement, dated as of November 14,
2002, by and among the Company and the other signatories thereto (the
"SECURITIES PURCHASE AGREEMENT").



        This Warrant is subject to the following terms, provisions and
conditions:

        1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
Subject to the provisions hereof, including, without limitation, the limitations
contained in Section 7 hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "EXERCISE
AGREEMENT"), to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof), and (i) payment to
the Company in cash, by certified or official bank check or by wire transfer for
the account of the Company, of the Exercise Price for the Warrant Shares
specified in the Exercise Agreement or (ii) if the holder is effectuating a
Cashless Exercise (as defined in Section 11(c) hereof) pursuant to Section 11(c)
hereof, delivery to the Company of a written notice of an election to effect a
Cashless Exercise for the Warrant Shares specified in the Exercise Agreement.
The Warrant Shares so purchased shall be deemed to be issued to the holder
hereof or such holder's designee, as the record owner of such shares, as of the
close of business on the date on which this Warrant shall have been surrendered,
the completed Exercise Agreement shall have been delivered, and payment shall
have been made for such shares as set forth above or, if such date is not a
business date, on the next succeeding business date. The Warrant Shares so
purchased, representing the aggregate number of shares specified in the Exercise
Agreement, shall (by the Company or through its transfer agent) be delivered
(i.e., deposited with a nationally-recognized overnight courier service postage
prepaid) to the holder hereof within a reasonable time, not exceeding two
business days, after this Warrant shall have been so exercised (the "DELIVERY
PERIOD"). If the Company's transfer agent is participating in the Depository
Trust Company ("DTC") Fast Automated Securities Transfer program, and so long as
the certificates therefor do not bear a legend (pursuant to the terms of the
Securities Purchase Agreement) and the holder is not obligated to return such
certificate for the placement of a legend thereon (pursuant to the terms of the
Securities Purchase Agreement), the Company shall cause its transfer agent to
electronically transmit the Warrant Shares so purchased to the holder by
crediting the account of the holder or its nominee with DTC through its Deposit
Withdrawal Agent Commission system ("DTC TRANSFER"). If the aforementioned
conditions to a DTC Transfer are not satisfied, the Company shall deliver as
provided herein to the holder physical certificates representing the Warrant
Shares so purchased. Further, the holder may instruct the Company to deliver to
the holder physical certificates representing the Warrant Shares so purchased in
lieu of delivering such shares by way of DTC Transfer. Any certificates so
delivered shall be in such denominations as may be reasonably requested by the
holder hereof, shall be registered in the name of such holder or such other name
as shall be designated by such holder and, following the date on which the
Warrant Shares have been registered under the Securities Act pursuant to that
certain Registration Rights Agreement, dated as of November 19, 2002, by and
between the Company and the other signatories thereto (the "REGISTRATION RIGHTS
AGREEMENT") or otherwise may be sold by the holder pursuant to Rule 144
promulgated under the Securities Act (or a successor rule), shall not bear any
restrictive legend. If this Warrant shall have been exercised only in part, then
the Company shall, at its expense, at the time of delivery of such certificates,
deliver to the holder a new Warrant representing the number of shares with
respect to which this Warrant shall not then have been exercised.


                                       2


        If, at any time, a holder of this Warrant submits this Warrant, an
Exercise Agreement and payment to the Company of the Exercise Price for each of
the Warrant Shares specified in the Exercise Agreement (including pursuant to a
Cashless Exercise), and the Company fails for any reason to deliver, on or prior
to the fourth business day following the expiration of the Delivery Period for
such exercise, the number of shares of Common Stock to which the holder is
entitled upon such exercise (an "EXERCISE DEFAULT"), then the Company shall pay
to the holder payments ("EXERCISE DEFAULT PAYMENTS") for an Exercise Default in
the amount of (a) (N/365), multiplied by (b) the amount by which the Market
Price (as defined in Section 4(l) hereof) on the date the Exercise Agreement
giving rise to the Exercise Default is transmitted in accordance with this
Section 1 (the "EXERCISE DEFAULT DATE") exceeds the Exercise Price in respect of
such Warrant Shares, multiplied by (c) the number of shares of Common Stock the
Company failed to so deliver in such Exercise Default, multiplied by (d) .24,
where N = the number of days from the Exercise Default Date to the date that the
Company effects the full exercise of this Warrant which gave rise to the
Exercise Default. The accrued Exercise Default Payment for each calendar month
shall be paid in cash and shall be made to holder by the fifth day of the month
following the month in which it has accrued. Nothing herein shall limit the
holder's right to pursue actual damages for the Company's failure to maintain a
sufficient number of authorized shares of Common Stock as required pursuant to
the terms of Section 3(b) hereof or to otherwise issue shares of Common Stock
upon exercise of this Warrant in accordance with the terms hereof, and the
holder shall have the right to pursue all remedies available at law or in equity
(including a decree of specific performance and/or injunctive relief).

        2. Period of Exercise. This Warrant shall be exercisable at any time or
from time to time during the period beginning on the date six months and one day
from the date of initial issuance of this Warrant (the "ISSUE DATE") and ending
at 5:00 p.m., New York City time, on the fifth anniversary of the Issue Date
(the "EXERCISE PERIOD"). The Exercise Period shall automatically be extended by
one (1) day for each day on which the Company does not have a number of shares
of Common Stock reserved for issuance upon exercise hereof at least equal to the
number of shares of Common Stock issuable upon exercise hereof.

        3. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:

               (a) Shares to be Fully Paid. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly issued, fully
paid, and nonassessable and free from all taxes, liens, claims and encumbrances.

               (b) Reservation of Shares. During the Exercise Period, the
Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise in full of this Warrant (without giving effect
to the limitations on exercise set forth in Section 7(g) hereof).

               (c) Listing. The Company shall promptly secure the listing of the
shares of Common Stock issuable upon exercise of this Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed or become listed (subject to official notice of
issuance upon exercise of this Warrant) and shall maintain, so


                                       3


long as any other shares of Common Stock shall be so listed, such listing of all
shares of Common Stock from time to time issuable upon the exercise of this
Warrant; and the Company shall so list on each national securities exchange or
automated quotation system, as the case may be, and shall maintain such listing
of, any other shares of capital stock of the Company issuable upon the exercise
of this Warrant if and so long as any shares of the same class shall be listed
on such national securities exchange or automated quotation system.

               (d) Certain Actions Prohibited. The Company will not, by
amendment of its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may reasonably be requested by the holder of
this Warrant in order to protect the economic benefit inuring to the holder
hereof and the exercise privilege of the holder of this Warrant against dilution
or other impairment, consistent with the tenor and purpose of this Warrant.
Without limiting the generality of the foregoing, the Company (i) will not
increase the par value of any shares of Common Stock receivable upon the
exercise of this Warrant above the Exercise Price then in effect, and (ii) will
take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.

               (e) Successors and Assigns. This Warrant will be binding upon any
entity succeeding to the Company by merger, consolidation, or acquisition of all
or substantially all of the Company's assets.

               (f) Blue Sky Laws. The Company shall, on or before the date of
issuance of any Warrant Shares, take such actions as the Company shall
reasonably determine are necessary to qualify the Warrant Shares for, or obtain
exemption for the Warrant Shares for, sale to the holder of this Warrant upon
the exercise hereof under applicable securities or "blue sky" laws of the states
of the United States, and shall provide evidence of any such action so taken to
the holder of this Warrant prior to such date; provided, however, that the
Company shall not be required in connection therewith or as a condition thereto
to (a) qualify to do business in any jurisdiction where it would not otherwise
be required to qualify but for this Section 3(f), (b) subject itself to general
taxation in any such jurisdiction or (c) file a general consent to service of
process in any such jurisdiction.

        4. Antidilution Provisions. During the Exercise Period, the Exercise
Price and the number of Warrant Shares issuable hereunder shall be subject to
adjustment from time to time as provided in this Section 4.

               In the event that any adjustment of the Exercise Price as
required herein results in a fraction of a cent, such Exercise Price shall be
rounded up or down to the nearest cent.

               (a) [Intentionally Omitted]

               (b) [Intentionally Omitted]


                                       4


               (c) Subdivision or Combination of Common Stock. If the Company,
at any time during the Exercise Period, subdivides (by any stock split, stock
dividend, recapitalization, reorganization, reclassification or otherwise) its
shares of Common Stock into a greater number of shares, then, after the date of
record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company, at
any time during the Exercise Period, combines (by reverse stock split,
recapitalization, reorganization, reclassification or otherwise) its shares of
Common Stock into a smaller number of shares, then, after the date of record for
effecting such combination, the Exercise Price in effect immediately prior to
such combination will be proportionately increased.

               (d) Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant at each such
Exercise Price shall be adjusted by multiplying a number equal to the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Common Stock issuable upon exercise of this Warrant at such Exercise Price
immediately prior to such adjustment and dividing the product so obtained by the
adjusted Exercise Price.

               (e) Consolidation, Merger or Sale. In case of (i) any
consolidation of the Company with, or merger of the Company into, any other
entity, (ii) any sale or conveyance of all or substantially all of the assets of
the Company other than in connection with a plan of complete liquidation of the
Company or (iii) any share exchange pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or property (each of
(i) - (iii) above being a "CORPORATE CHANGE") at any time during the Exercise
Period, then as a condition of such Corporate Change, adequate provision will be
made whereby the holder hereof will have the right to acquire and receive upon
exercise of this Warrant in lieu of the shares of Common Stock immediately
theretofore acquirable upon the exercise of this Warrant, such shares of stock,
securities, cash or assets as may be issued or payable with respect to or in
exchange for the number of shares of Common Stock immediately theretofore
acquirable and receivable upon exercise of this Warrant had such Corporate
Change not taken place. In any such case, the Company will make appropriate
provision to insure that the provisions of this Section 4 hereof will thereafter
be applicable as nearly as may be in relation to any shares of stock or
securities thereafter deliverable upon the exercise of this Warrant. The Company
will not effect any Corporate Change unless prior to the consummation thereof,
the successor corporation (if other than the Company) assumes by written
instrument the obligations under this Warrant and the obligations to deliver to
the holder hereof such shares of stock, securities or assets as, in accordance
with the foregoing provisions, the holder may be entitled to acquire.
Notwithstanding the foregoing, in the event of any Corporate Change at any time
during the Exercise Period, the holder hereof shall, at its option, have the
right to receive, in connection with such transaction, cash consideration equal
to the fair market value of this Warrant as determined in accordance with
customary valuation methodology used in the investment banking industry.

               (f) Distribution of Assets. In case the Company shall declare or
make any distribution of its assets (or rights to acquire its assets) to holders
of Common Stock as a partial liquidating dividend, stock repurchase by way of
return of capital or otherwise (including any dividend or distribution to the
Company's stockholders of cash or shares (or rights to acquire shares) of
capital stock of a subsidiary) (a "DISTRIBUTION"), at any time during the
Exercise Period, then the


                                       5


holder hereof shall be entitled upon exercise of this Warrant for the purchase
of any or all of the shares of Common Stock subject hereto, to receive the
amount of such assets (or rights) which would have been payable to the holder
had such holder been the holder of such shares of Common Stock on the record
date for the determination of stockholders entitled to such Distribution. If the
Company distributes rights, warrants, options or any other form of convertible
securities and the right to exercise or convert such securities would expire in
accordance with their terms prior to the expiration of the Exercise Period, then
the terms of such securities shall provide that such exercise or convertibility
right shall remain in effect until 30 days after the date the holder hereof
receives such securities pursuant to the exercise hereof.

               (g) Notice of Adjustment. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the holder hereof, which notice shall state
the Exercise Price resulting from such adjustment and the increase or decrease
in the number of Warrant Shares purchasable at such price upon exercise, setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based. Such calculation shall be certified by the chief
financial officer of the Company.

               (h) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than $.01, but any such lesser
adjustment shall be carried forward and shall be made at the time and together
with the next subsequent adjustment which, together with any adjustments so
carried forward, shall amount to not less than $.01.

               (i) No Fractional Shares. No fractional shares of Common Stock
are to be issued upon the exercise of this Warrant, but the Company shall pay a
cash adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the Market Price of a share
of Common Stock on the date of such exercise.

               (j) Other Notices. In case at any time:

                      (i) the Company shall declare any dividend upon the Common
Stock payable in shares of stock of any class or make any other distribution
(other than dividends or distributions payable in cash out of retained earnings
consistent with the Company's past practices with respect to declaring dividends
and making distributions) to the holders of the Common Stock;

                      (ii) the Company shall offer for subscription pro rata to
the holders of the Common Stock any additional shares of stock of any class or
other rights;

                      (iii) there shall be any capital reorganization of the
Company, or reclassification of the Common Stock, or consolidation or merger of
the Company with or into, or sale of all or substantially all of its assets to,
another corporation or entity; or

                      (iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;

then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date or estimated date on which the books of the Company shall
close or a record shall be taken for determining the holders of Common Stock
entitled to receive any such dividend, distribution, or


                                       6


subscription rights or for determining the holders of Common Stock entitled to
vote in respect of any such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding-up and (b) in the case of any
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, notice of the date (or, if not then known, a
reasonable estimate thereof by the Company) when the same shall take place. Such
notice shall also specify the date on which the holders of Common Stock shall be
entitled to receive such dividend, distribution, or subscription rights or to
exchange their Common Stock for stock or other securities or property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation, or winding-up, as the case may be. Such notice
shall be given at least fifteen (15) days prior to the record date or the date
on which the Company's books are closed in respect thereto. Failure to give any
such notice or any defect therein shall not affect the validity of the
proceedings referred to in clauses (i), (ii), (iii) and (iv) above.
Notwithstanding the foregoing, the Company shall publicly disclose the substance
of any notice delivered hereunder prior to delivery of such notice to the holder
hereof.

               (k) Certain Events. If, at any time during the Exercise Period,
any event occurs of the type contemplated by the adjustment provisions of this
Section 4 but not expressly provided for by such provisions, the Company will
give notice of such event as provided in Section 4(g) hereof, and an appropriate
adjustment in the Exercise Price and the number of shares of Common Stock
acquirable upon exercise of this Warrant at each such Exercise Price shall be
made so that the rights of the holder shall be neither enhanced nor diminished
by such event.

               (l) Certain Definitions.

                      (i) "MARKET PRICE," as of any date, (i) means the average
of the closing sales prices for the shares of Common Stock on the Nasdaq
National Market or other trading market where such security is listed or traded
as reported by Bloomberg Financial Markets (or a comparable reporting service of
national reputation selected by the Company and reasonably acceptable to the
holders if Bloomberg Financial Markets is not then reporting sales prices of
such security)(collectively, "BLOOMBERG") for the ten (10) consecutive trading
days immediately preceding such date, or (ii) if the Nasdaq National Market is
not the principal trading market for the shares of Common Stock, the average of
the reported sales prices reported by Bloomberg on the principal trading market
for the Common Stock during the same period, or, if there is no sales price for
such period, the last sales price reported by Bloomberg for such period, or
(iii) if the foregoing do not apply, the last sales price of such security in
the over-the-counter market on the pink sheets or bulletin board for such
security as reported by Bloomberg, or if no sales price is so reported for such
security, the last bid price of such security as reported by Bloomberg, or (iv)
if market value cannot be calculated as of such date on any of the foregoing
bases, the Market Price shall be the average fair market value as reasonably
determined by an investment banking firm selected by the Company and reasonably
acceptable to the holder, with the costs of the appraisal to be borne by the
Company. The manner of determining the Market Price of the Common Stock set
forth in the foregoing definition shall apply with respect to any other security
in respect of which a determination as to market value must be made hereunder.

                      (ii) "COMMON STOCK," for purposes of this Section 4,
includes the Common Stock and any additional class of stock of the Company
having no preference as to


                                       7


dividends or distributions on liquidation, provided that the shares purchasable
pursuant to this Warrant shall include only Common Stock in respect of which
this Warrant is exercisable, or shares resulting from any subdivision or
combination of such Common Stock, or in the case of any reorganization,
reclassification, consolidation, merger, or sale of the character referred to in
Section 4(e) hereof, the stock or other securities or property provided for in
such Section.

        5. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.

        6. No Rights or Liabilities as a Stockholder. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a stockholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.

        7. Transfer, Exchange and Replacement of Warrant.

               (a) Restriction on Transfer. This Warrant and the rights granted
to the holder hereof are transferable, in whole or in part, upon surrender of
this Warrant, together with a properly executed assignment in the form attached
hereto, at the office or agency of the Company referred to in Section 7(e)
below, provided, however, that any transfer or assignment shall be subject to
the conditions set forth in Sections 7(f) and (g) hereof and to the provisions
of Sections 2(f) and 2(g) of the Securities Purchase Agreement. Until due
presentment for registration of transfer on the books of the Company, the
Company may treat the registered holder hereof as the owner and holder hereof
for all purposes, and the Company shall not be affected by any notice to the
contrary. Notwithstanding anything to the contrary contained herein, the
registration rights described in Section 8 hereof are assignable only in
accordance with the provisions of the Registration Rights Agreement.

               (b) Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the holder hereof at the
office or agency of the Company referred to in Section 7(e) below, for new
warrants of like tenor of different denominations representing in the aggregate
the right to purchase the number of shares of Common Stock which may be
purchased hereunder, each of such new warrants to represent the right to
purchase such number of shares (at the Exercise Price therefor) as shall be
designated by the holder hereof at the time of such surrender, and all such
warrants thereafter constituting the Warrant referenced herein.

               (c) Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation


                                       8


of this Warrant, the Company, at its expense, will execute and deliver, in lieu
thereof, a new Warrant of like tenor.

               (d) Cancellation; Payment of Expenses. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided in
this Section 7, this Warrant shall be promptly canceled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses (other than legal expenses, if any, incurred by the Holder or
transferees) and charges payable in connection with the preparation, execution,
and delivery of any Warrant pursuant to this Section 7.

               (e) Warrant Register. The Company shall maintain, at its
principal executive offices (or such other office or agency of the Company as it
may designate by notice to the holder hereof), a register for this Warrant, in
which the Company shall record the name and address of the person in whose name
this Warrant has been issued, as well as the name and address of each transferee
and each prior owner of this Warrant.

               (f) Exercise or Transfer Without Registration. If, at the time of
the surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act and under applicable state securities or blue sky laws, the Company may
require, as a condition of allowing such exercise, transfer, or exchange, (i)
that the holder or transferee of this Warrant, as the case may be, furnish to
the Company a written opinion of counsel (which opinion shall be in form,
substance and scope customary for opinions of counsel in comparable
transactions) to the effect that such exercise, transfer, or exchange may be
made without registration under the Securities Act and under applicable state
securities or blue sky laws (the cost of which shall be borne by the Company if
the Company's counsel renders such an opinion and up to $500 of such cost shall
be borne by the Company if the holder's counsel is requested to render such
opinion), (ii) that the holder or transferee execute and deliver to the Company
an investment letter in form and substance acceptable to the Company and (iii)
that the transferee be an "ACCREDITED INVESTOR" as defined in Rule 501(a)
promulgated under the Securities Act; provided that no such opinion, letter, or
status as an "accredited investor" shall be required in connection with a
transfer pursuant to Rule 144 under the Securities Act.

               (g) Additional Restrictions on Exercise or Transfer. In no event
shall the holder hereof have the right to exercise any portion of this Warrant
for shares of Common Stock or to dispose of any portion of this Warrant to the
extent that such right to effect such exercise or disposition would result in
the holder or any of its affiliates together beneficially owning more than (i)
19.99% of the outstanding shares of Common Stock, in the case of Biotech Target
N.V. and its affiliates for so long as they continue to hold Warrants, or (b)
4.99% of the outstanding shares of Common Stock, in the case of all other
holders of Warrants. For purposes of this Section 7(g), beneficial ownership
shall be determined in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended, and Regulation 13D-G thereunder. The restriction
contained in this Section 7(g) may not be altered, amended, deleted or changed
in any manner whatsoever unless the holders of a majority of the outstanding
shares of Common Stock and the holder hereof shall approve, in writing, such
alteration, amendment, deletion or change.


                                       9


        8. Registration Rights. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in the Registration Rights
Agreement, including the right to assign such rights to certain assignees, as
set forth therein.

        9. Notices. Any notices required or permitted to be given under the
terms of this Warrant shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five days after being placed in the mail, if
mailed, or upon receipt or refusal of receipt, if delivered personally or by
courier, or by confirmed telecopy, in each case addressed to a party. The
addresses for such communications shall be:

                      If to the Company:

                      ViroLogic, Inc.
                      270 East Grand Avenue
                      South San Francisco, California 94080
                      Telephone:  (650) 635-1100
                      Attn:  Chief Executive Officer

                      with a copy simultaneously transmitted by like means to:

                      Cooley Godward LLP
                      4401 Eastgate Mall
                      San Diego, California 92121
                      Telephone:  (858) 550-6000

If to the holder, at such address as such holder shall have provided in writing
to the Company, or at such other address as such holder furnishes by notice
given in accordance with this Section 9.

        10. Governing Law; Jurisdiction. This Warrant shall be governed by and
construed in accordance with the laws of the State of Delaware. The Company
irrevocably consents to the jurisdiction of the United States federal courts and
state courts located in the State of Delaware in any suit or proceeding based on
or arising under this Warrant and irrevocably agrees that all claims in respect
of such suit or proceeding may be determined in such courts. The Company
irrevocably waives any objection to the laying of venue and the defense of an
inconvenient forum to the maintenance of such suit or proceeding. The Company
further agrees that service of process upon the Company mailed by certified or
registered mail shall be deemed in every respect effective service of process
upon the Company in any such suit or proceeding. Nothing herein shall affect the
holder's right to serve process in any other manner permitted by law. The
Company agrees that a final non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.


                                       10


        11. Miscellaneous.

               (a) Amendments. Except as provided in Section 7(g) hereof, this
Warrant and any provision hereof may only be amended by an instrument in writing
signed by the Company and the holder hereof.

               (b) Descriptive Headings. The descriptive headings of the several
Sections of this Warrant are inserted for purposes of reference only, and shall
not affect the meaning or construction of any of the provisions hereof.

               (c) Cashless Exercise. This Warrant may be exercised at any time
after the first anniversary of the Issue Date and before the expiration of the
Exercise Period by presentation and surrender of this Warrant to the Company at
its principal executive offices with a written notice of the holder's intention
to effect a cashless exercise, including a calculation of the number of shares
of Common Stock to be issued upon such exercise in accordance with the terms
hereof (a "CASHLESS EXERCISE"). In the event of a Cashless Exercise, in lieu of
paying the Exercise Price in cash, the holder shall surrender this Warrant for
that number of shares of Common Stock determined by multiplying the number of
Warrant Shares to which it would otherwise be entitled by a fraction, the
numerator of which shall be the difference between the then current Market Price
of a share of the Common Stock on the date of exercise and the Exercise Price,
and the denominator of which shall be the then current Market Price per share of
Common Stock.

               (d) Trading Day. For purposes of this Warrant, the term "trading
day" means any day on which the principal United States securities exchange or
trading market where the Common Stock is then listed is open for trading.

               (e) Redemption of Warrant by Company.

                      (i) In the event that the Company consummates a Corporate
Change in which the holders of the Company's Common Stock immediately prior to
such Corporate Change hold fifty percent (50%) or less of the outstanding voting
power of the entity surviving such Corporate Change, then the Company may elect,
upon delivery of at least twenty (20) days' prior written notice (the
"REDEMPTION NOTICE") to the holder hereof, to redeem all or a portion of the
Warrant for a redemption amount (the "REDEMPTION AMOUNT") equal to the value of
the Warrant derived using the Black-Scholes formula (using Bloomberg), assuming
that the volatility of the Company's Common Stock equals 60% and the risk-free
interest rate equals 5% per annum. In the event the Company elects to redeem
only some of the outstanding Warrants pursuant to this Section 11(e), such
Warrants shall be redeemed pro rata among all the holders of the Warrants based
upon the percentage of Warrants held by such holders against the total
outstanding Warrants.

                      (ii) [Intentionally Omitted]

                      (iii) The Company may not deliver a Redemption Notice
pursuant to clause (i) above unless on or prior to the date of delivery of a
Redemption Notice, the Company shall have segregated on the books and records of
the Company an amount of cash sufficient to pay all amounts to which holders of
the Warrants that are being redeemed are entitled pursuant to this Section
11(e).


                                       11


Any Redemption Notice delivered shall be irrevocable and shall be accompanied by
a statement executed by a duly authorized officer of the Company.

                      (iv) The Redemption Amount shall be paid to the holder
within three (3) business days of the date of redemption set forth in the
Redemption Notice pursuant to clause (i) above; provided, however, that the
Company shall not be obligated to deliver any portion of the Redemption Amount
until either this Warrant is delivered to the Company or the holder notifies the
Company that the Warrant has been lost, stolen or destroyed and delivers the
documentation in accordance with Section 7(c) hereof. In the event only a
portion of this Warrant is being redeemed, the Company shall issue, at its
expense, a new Warrant representing the number of shares with respect to which
this Warrant shall not then have been redeemed or exercised.

                      (v) Notwithstanding the delivery of a Redemption Notice
pursuant to clause (i) above, the holder may exercise all or a portion of this
Warrant subject to such Redemption Notice by the delivery prior to the date of
redemption set forth in such notice of an Exercise Agreement pursuant to the
procedures set forth in Section 1.

               (f) Indemnification by Company.

                      (i) The Company shall hold harmless and indemnify the
holder of this Warrant from and against, and shall compensate and reimburse such
holder for, any damages which are directly or indirectly suffered or incurred by
such holder or to which such holder may otherwise become subject (regardless of
whether or not such damages relate to any third-party claim) and which arise
from or as a result of, or are directly or indirectly connected with any breach
of any of the Company's covenants set forth herein.

                      (ii) In the event of the assertion or commencement by any
person of any claim or legal proceeding with respect to which the holder may
have indemnification rights pursuant to this Section 11(f)(i), the holder shall
promptly notify the Company thereof in writing, but the failure to so notify the
Company will not limit the holder's rights to indemnification hereunder, except
to the extent the Company demonstrates that the defense of such action is
prejudiced by the failure to so give such notice.


                                       12


        IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.


                                        VIROLOGIC, INC.


                                        By:
                                            ------------------------------------
                                            Name:
                                                 -------------------------------
                                            Title:
                                                  ------------------------------


                                       13


                           FORM OF EXERCISE AGREEMENT

                (TO BE EXECUTED BY THE HOLDER IN ORDER TO EXERCISE THE WARRANT)

To:     ViroLogic,Inc.
        270 East Grand Avenue
        South San Francisco, California 94080
        Telephone:  (650) 635-1100
        Attn:  Chief Executive Officer

        The undersigned hereby irrevocably exercises the right to purchase
_____________ shares of the Common Stock of ViroLogic, Inc., a corporation
organized under the laws of the State of Delaware (the "COMPANY"), evidenced by
the attached Warrant, and herewith [makes payment of the Exercise Price with
respect to such shares in full][elects to effect a Cashless Exercise (as defined
in Section 11(c) of such Warrant)], all in accordance with the conditions and
provisions of said Warrant.

        The undersigned agrees not to offer, sell, transfer or otherwise dispose
of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws. The undersigned represents that it is
an "accredited investor" as that term is defined in Rule 501(a) of Regulation D
under the Securities Act of 1933, as amended.

[ ]     The undersigned requests that the Company cause its transfer agent to
        electronically transmit the Common Stock issuable pursuant to this
        Exercise Agreement to the account of the undersigned or its nominee
        (which is _________________) with DTC through its Deposit Withdrawal
        Agent Commission System ("DTC TRANSFER"), provided that such transfer
        agent participates in the DTC Fast Automated Securities Transfer
        program.

[ ]     In lieu of receiving the shares of Common Stock issuable pursuant to
        this Exercise Agreement by way of DTC Transfer, the undersigned hereby
        requests that the Company cause its transfer agent to issue and deliver
        to the undersigned physical certificates representing such shares of
        Common Stock.

        The undersigned requests that a Warrant representing any unexercised
portion hereof be issued, pursuant to the Warrant, in the name of the Holder and
delivered to the undersigned at the address set forth below:

Dated:
      -----------------                 ----------------------------------------
                                              Signature of Holder

                                        ----------------------------------------
                                              Name of Holder (Print)

                                              Address:

                                        ----------------------------------------

                                        ----------------------------------------

                                        ----------------------------------------


                                       14


                               FORM OF ASSIGNMENT


        FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:

Name of Assignee                    Address                       No. of Shares
- ----------------                    -------                       -------------





, and hereby irrevocably constitutes and appoints
_____________________________________ as agent and attorney-in-fact to transfer
said Warrant on the books of the within-named corporation, with full power of
substitution in the premises.


Dated:                      ,
       ---------------------  ----

In the presence of

- ------------------

                                   Name:
                                         ---------------------------------------

                                         Signature:
                                                    ----------------------------
                                         Title of Signing Officer or Agent (if
                                         any):
                                                    ----------------------------

                                         Address:
                                                    ----------------------------

                                                    ----------------------------

                                         Note:  The above signature should
                                                correspond exactly with the name
                                                on the face of the within
                                                Warrant.


                                       15

EX-4.2

                                                                     EXHIBIT 4.2



THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES OR IN ANY OTHER JURISDICTION. THE SECURITIES REPRESENTED
HEREBY MAY NOT BE OFFERED, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS
UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THOSE LAWS.


                  SERIES C CONVERTIBLE SECURED PROMISSORY NOTE

Date: November 19, 2002                                               $_________


               FOR VALUE RECEIVED, VIROLOGIC, INC., a corporation organized
under the laws of the State of Delaware (hereinafter called the "BORROWER" or
the "CORPORATION"), hereby promises to pay to the order of ____________________,
a ____________________, or registered assigns (individually, the "HOLDER", and
collectively with the holders of all other notes of same like and tenor, the
"HOLDERS"), the sum of _______________________($_________) on March 19, 2003
(the "SCHEDULED MATURITY DATE"), and to pay interest on the unpaid principal
balance hereof at the rate of eight percent (8%) per annum. The principal amount
hereof, together with all accrued and unpaid interest thereon, shall be due and
payable on the Scheduled Maturity Date. Interest shall accrue on the unpaid
principal balance hereof from the date hereof (the "ISSUE DATE") until the same
becomes due and payable, whether at maturity, or upon prepayment, repayment, or
otherwise. Interest shall be calculated based on a 365 day year and shall be
payable in arrears. All payments of principal (to the extent not converted in
accordance with the terms hereof) and interest shall be made in, and all
references herein to monetary denominations shall refer to, lawful money of the
United States of America. All payments shall be made at such address as the
Holder shall have given or shall hereafter give to the Borrower by written
notice made in accordance with the provisions of this Note.

        The term "NOTE" and all references thereto, as used throughout this
instrument, shall mean this instrument as originally executed, or if later
amended or supplemented, then as so amended or supplemented. This Note is being
issued by the Borrower along with similar convertible notes designated as Series
C Convertible Secured Promissory Notes (the "OTHER NOTES" and, together with
this Note, the "NOTES") pursuant to that certain Exchange Agreement, dated as of
the date hereof, between the Borrower and the signatories thereto (the "EXCHANGE
AGREEMENT"). The obligations under the Notes are secured as provided in a
Security Agreement, dated as of the date hereof, by the Borrower in favor of SDS
Merchant Fund, L.P., as collateral agent for the benefit of the Holders of the
Notes (the "SECURITY AGREEMENT") and in the Intellectual Property Security
Agreement, dated as of the date hereof, by the Borrower in favor of SDS Merchant
Fund, L.P., as collateral agent for the benefit of the Holders of the Notes (the



"IP SECURITY AGREEMENT"). The Notes, the Exchange Agreement, the Security
Agreement, the IP Security Agreement and the Registration Rights Agreement,
dated as of the date hereof, between the Corporation and the parties thereto
(the "REGISTRATION RIGHTS AGREEMENT") are collectively referred to herein as the
"TRANSACTION DOCUMENTS."


                                    ARTICLE I

                                   PREPAYMENT

        A. Mandatory Prepayment. Upon the occurrence of an Event of Default (as
defined below), this Note shall be prepaid by the Borrower in accordance with
the provisions of Article V hereof.

        B. Prepayment at Borrower's Option. This Note may not be prepaid at the
option of Borrower without the prior written consent of the Holder.


                                   ARTICLE II

                               CERTAIN DEFINITIONS

        The following terms shall have the following meanings:

        A. "CONVERSION AMOUNT" means the outstanding principal amount of this
Note (but none of the accrued and unpaid interest thereon) on the Conversion
Date.

        B. "CONVERSION DATE" means the date of the Automatic Conversion Trigger
Event.

        C. "CONVERSION SHARES" means the shares of Series C Preferred Stock
issuable upon conversion of this Note.

        D. "CONVERSION PRICE" means $10,000 per share of Series C Preferred
Stock, subject to adjustment as set forth herein.

        E. "EXCESS INTEREST PAYMENT AMOUNT" means an amount equal to the amount
by which the Interest Payment Amount exceeds the Premium Payment Amount.

        F. "INTEREST PAYMENT AMOUNT" an amount equal to the amount of all
accrued and unpaid interest due on the principal amount of this Note on the
Conversion Date.

        G. "PREMIUM PAYMENT AMOUNT" means an amount equal to the amount of all
accrued and unpaid Premium (as such term is defined in the Series C Certificate
of Designations) due on the Conversion Shares on the Conversion Date.



                                     - 2 -


        H. "SERIES C CERTIFICATE OF DESIGNATIONS" means the Corporation's
Certificate of Designation, Preferences and Rights of Series C Preferred Stock,
as in effect from time to time.

        I. "SERIES C PREFERRED STOCK" means shares of the Corporation's Series C
Convertible Preferred Stock, par value $.001 per share.


                                   ARTICLE III

                                   CONVERSION

        A. Mandatory Conversion. If each of the Authorized Stock Approval (as
such term is defined in the Exchange Agreement) and the NASD Rule Approval (as
such term is defined in the Exchange Agreement) is obtained on or prior to the
Scheduled Maturity Date (the "AUTOMATIC CONVERSION TRIGGER EVENT"), then (i) the
principal amount of each of the Notes (but none of the accrued and unpaid
interest due thereon), shall be automatically converted into a number of fully
paid and nonassessable shares of Series C Preferred Stock (determined in
accordance with the formula set forth in Article III.B) and (ii) (A) the Excess
Interest Payment Amount shall immediately become due and payable and (B) all
other accrued and unpaid interest due on the principal amount of each of the
Notes shall be forgiven. The Corporation shall provide immediate written notice
to each Holder of an Automatic Conversion Trigger Event and the Corporation and
the Holders shall follow the applicable conversion procedures set forth in
Article III.C.

        B. Conversion Formula. The number of shares of Series C Preferred Stock
issuable upon payment of the Conversion Price shall be determined in accordance
with the following formula:

                                CONVERSION AMOUNT
                                CONVERSION PRICE

        C. Mechanics of Conversion. Upon receipt by the Holder of written notice
of an Automatic Conversion Trigger Event, the Holder shall surrender or cause to
be surrendered this Note, duly endorsed, as soon as practicable thereafter to
the Corporation or the transfer agent. Upon receipt by the Corporation of a
facsimile copy of this Note from the Holder, the Corporation shall immediately
send, via facsimile, a confirmation to the Holder stating that this Note has
been received, the date upon which the Corporation expects to deliver the Series
C Preferred Stock issuable upon such conversion and the name and telephone
number of a contact person at the Corporation regarding the conversion. The
Corporation shall not be obligated to issue shares of Series C Preferred Stock
upon a conversion unless either this Note is delivered to the Corporation or the
transfer agent as provided above, or the Holder notifies the Corporation or the
transfer agent that such certificates have been lost, stolen or destroyed and
delivers the documentation to the Corporation required by Article IX.H hereof.

               (i) Delivery of Series C Preferred Stock Upon Conversion. Upon
the surrender of this Note pursuant to Paragraph C above, the Corporation shall,
no later than the



                                     - 3 -


later of (a) the second business day following the Conversion Date and (b) the
business day following the date of such surrender (or, in the case of lost,
stolen or destroyed certificates, after provision of indemnity pursuant to
Article IX.H), issue and deliver to the Holder or its nominee the number of
shares of Series C Preferred Stock issuable upon conversion of the Note. The
Corporation shall deliver to the Holder physical certificates representing the
Series C Preferred Stock issuable upon conversion.

               (ii) Taxes. The Corporation shall pay any and all taxes which may
be imposed upon it with respect to the issuance and delivery of the shares of
Series C Preferred Stock upon the conversion of this Note.

               (iii) Fractional Shares. If any conversion of this Note would
result in the issuance of a fractional share of Series C Preferred Stock, the
Corporation shall issue such fractional share upon such conversion.


                                   ARTICLE IV

                RESERVATION OF SHARES OF SERIES C PREFERRED STOCK

        A. Reserved Amount. On the Issue Date, the Corporation shall reserve
1205 shares of the authorized but unissued shares of Series C Preferred Stock
for issuance upon conversion of each of the Notes pursuant to Article III.A
thereof and thereafter the number of authorized but unissued shares of Series C
Preferred Stock so reserved shall not be decreased and shall at all times be
sufficient to provide for the conversion of each of the Notes pursuant to
Article III.A thereof at the then current Conversion Price thereof.

                                    ARTICLE V

                                EVENTS OF DEFAULT

        A. Events of Default. In the event (each of the events described in
clauses (i)-(vii) below after expiration of the applicable cure period (if any)
being an "EVENT OF DEFAULT"):

               (i) the Corporation fails to pay the principal hereof, and/or the
accrued and unpaid interest thereon, when due, whether at maturity, upon
acceleration or otherwise;

               (ii) except with respect to matters covered by subparagraph (i)
above, as to which such subparagraph shall apply, the Corporation otherwise
shall breach any material term hereunder or under the other Transaction
Documents, including, without limitation, the representations and warranties
contained therein (i.e., in the event of a material breach as of the date such
representation and warranty was made) and if such breach is curable, shall fail
to cure such breach within 10 business days after the Corporation has been
notified thereof in writing by the Holder;

               (iii)  the Corporation shall:



                                     - 4 -


                      (a) sell, convey or dispose of all or substantially all of
its assets (the presentation of any such transaction for stockholder approval
being conclusive evidence that such transaction involves the sale of all or
substantially all of the assets of the Corporation);

                      (b) merge, consolidate or engage in any other business
combination with any other entity (other than pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of incorporation of
the Corporation and other than pursuant to a merger in which the Corporation is
the surviving or continuing entity and its capital stock is unchanged) provided
that such merger, consolidation or business combination is required to be
reported by the Corporation on a Current Report pursuant to Item 1 of Form 8-K,
or any successor form;

                      (c) either (i) fail to pay, when due, or within any
applicable grace period, any payment with respect to any indebtedness of the
Corporation in excess of $350,000 due to any third party, other than payments
contested by the Corporation in good faith, or otherwise breach or violate any
agreement for monies owed or owing in an amount in excess of $350,000 which
breach or violation permits the other party thereto to declare a default or
otherwise accelerate amounts due thereunder, or (ii) suffer to exist any other
default or event of default under any agreement binding the Corporation which
default or event of default would or is likely to have a material adverse effect
on the business, operations, properties, prospects or financial condition of the
Corporation;

                      (d) on or prior to the second anniversary of the Issue
Date, issue or agree to issue any future equity or equity-linked securities or
debt which is convertible into equity or in which there is an equity component,
except for any Excluded Issuance (as such term is defined in the Series C
Certificate of Designations);

               (iv) the Corporation or any subsidiary of the Corporation shall
make an assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part of its
property or business; or such a receiver or trustee shall otherwise be
appointed;

               (v) bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Corporation or
any subsidiary of the Corporation, and if instituted against the Corporation or
any subsidiary of the Corporation by a third party, shall not be dismissed
within 60 days of their initiation, or

               (vi) a Redemption Event (as such term is defined in the Series C
Certificate of Designations) shall occur and be continuing under the Series C
Certificate of Designations,

               (vii) an Event of Default (as such term is defined in the
applicable Transaction Document) shall occur and be continuing under any other
Transaction Document,

then, upon the occurrence of any such Event of Default, at the option of each
Holder, exercisable in whole or in part at any time and from time to time by
delivery of a Default Notice (as defined in Paragraph C below) to the
Corporation while such Event of Default continues, the Corporation



                                     - 5 -


shall pay the Holders (and upon the occurrence of an Event of Default specified
in subparagraphs (iv) and (v) of this Paragraph A, the Corporation shall be
required to pay the Holders), in satisfaction of its obligation to pay the
outstanding principal amount of the Notes and accrued and unpaid interest
thereon, an amount equal to the Default Amount (as defined in Paragraph B below)
and such Default Amount, together with all other ancillary amounts payable
hereunder, shall immediately become due and payable, all without demand,
presentment or notice, all of which are hereby expressly waived, together with
all costs, including, without limitation, legal fees and expenses of collection,
and the Holder shall be entitled to exercise all other rights and remedies
available at law or in equity. For the avoidance of doubt, the occurrence of any
event described in clauses (i), (iii), (iv), (v), (vi) and (vii) above shall
immediately constitute an Event of Default and there shall be no cure period.
Upon the Corporation's receipt of any Default Notice hereunder, the Corporation
shall immediately (and in any event within one business day following such
receipt) deliver a written notice (a "DEFAULT ANNOUNCEMENT") to all Holders of
the Notes stating the date upon which the Corporation received such Default
Notice and the amount of the Notes covered thereby. Following the delivery of a
Default Announcement hereunder, at any time and from time to time, each Holder
of the Notes may request (either orally or in writing) information from the
Corporation with respect to the instant default (including, but not limited to,
the aggregate principal amount outstanding of Notes covered by Default Notices
received by the Corporation) and the Corporation shall furnish (either orally or
in writing) as soon as practicable such requested information to such requesting
Holder.

        B. Definition of Default Amount. The "DEFAULT AMOUNT" with respect to a
Note means an amount equal to the aggregate principal amount outstanding of the
Notes being paid plus all accrued and unpaid interest thereon through the
payment date.

        C. Failure to Pay Default Amounts. If the Corporation fails to pay any
Holder the Default Amount with respect to any Note within five business days
after its receipt of a notice requiring such repayment (a "DEFAULT NOTICE"),
then the Holder of any Note delivering such Default Notice shall be entitled to
interest on the Default Amount at a per annum rate equal to the lower of
twenty-four percent (24%) and the highest interest rate permitted by applicable
law from the date on which the Corporation receives the Default Notice until the
date of payment of the Default Amount hereunder. In the event the Corporation is
not able to repay all of the outstanding Notes subject to Default Notices
delivered prior to the date upon which such repayment is to be effected, the
Corporation shall repay the outstanding Notes from each Holder pro rata, based
on the total amounts due on the Notes at the time of repayment included by such
Holder in all Default Notices delivered prior to the date upon which such
repayment is to be effected relative to the total amounts due under the Notes at
the time of repayment included in all of the Default Notices delivered prior to
the date upon which such repayment is to be effected.


                                   ARTICLE VI

                       ADJUSTMENTS TO THE CONVERSION PRICE

        The Conversion Price shall be subject to adjustment from time to time as
follows:



                                     - 6 -


        A. Stock Splits, Stock Dividends, Etc. If, at any time on or after the
Issue Date, the number of outstanding shares of Series C Preferred Stock is
increased by a stock split, stock dividend, combination, reclassification or
other similar event, the Conversion Price shall be proportionately reduced, or
if the number of outstanding shares of Series C Preferred Stock is decreased by
a reverse stock split, combination or reclassification of shares, or other
similar event, the Conversion Price shall be proportionately increased. In such
event, the Corporation shall notify the Corporation's transfer agent of such
change on or before the effective date thereof.

        B. Adjustment Due to Merger, Consolidation, Etc. If, at any time after
the Issue Date, there shall be (i) any reclassification or change of the
outstanding shares of Series C Preferred Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination), (ii) any consolidation or merger
of the Corporation with any other entity (other than a merger in which the
Corporation is the surviving or continuing entity and its capital stock is
unchanged), (iii) any sale or transfer of all or substantially all of the assets
of the Corporation or (iv) any share exchange pursuant to which all of the
outstanding shares of Series C Preferred Stock are converted into other
securities or property (each of (i) - (iv) above being a "CORPORATE CHANGE"),
then appropriate provisions (in form and substance reasonably satisfactory to
the Holders of a majority of the principal amount of the Notes then outstanding)
shall be made with respect to the rights and interests of the Holders of the
Notes to the end that the economic value of the Notes are in no way diminished
by such Corporate Change and that the provisions hereof (including, without
limitation, in the case of any such consolidation, merger or sale in which the
successor entity or purchasing entity is not the Corporation, an immediate
adjustment of the Conversion Price so that the Conversion Price immediately
after the Corporate Change reflects the same relative value as compared to the
value of the surviving entity's common stock that existed between the Conversion
Price and the value of the Corporation's common stock immediately prior to such
Corporate Change) shall thereafter be applicable, as nearly as may be
practicable in relation to any shares of stock or securities thereafter
deliverable upon the conversion thereof. The Corporation shall not effect any
Corporate Change unless (i) each Holder of the Notes has received written notice
of such transaction at least 45 days prior thereto, but in no event later than
15 days prior to the record date for the determination of shareholders entitled
to vote with respect thereto, (ii) the resulting successor or acquiring entity
(if not the Corporation) assumes by written instrument (in form and substance
reasonably satisfactory to the Holders of a majority of the principal amount of
the Notes then outstanding) the obligations of the Notes and (iii) the
Corporation shall have received the prior written consent of the Holders of a
majority of the principal amount of the Notes then outstanding. The above
provisions shall apply regardless of whether or not there would have been a
sufficient number of shares of Series C Preferred Stock authorized and available
for issuance upon conversion of the Notes outstanding as of the date of such
transaction, and shall similarly apply to successive reclassifications,
consolidations, mergers, sales, transfers or share exchanges.

        C. Adjustment Due to Distribution. If, at any time after the Issue Date,
the Corporation shall declare or make any distribution of its assets (or rights
to acquire its assets) to holders of Series C Preferred Stock as a partial
liquidating dividend, by way of return of capital or otherwise (including any
dividend or distribution to the Corporation's shareholders in cash or



                                     - 7 -


shares (or rights to acquire shares) of capital stock of a subsidiary (i.e. a
spin-off)) (a "DISTRIBUTION"), then the Holders of the Notes shall be entitled,
upon any conversion of the Notes after the date of record for determining
shareholders entitled to such Distribution, to receive the amount of such assets
which would have been payable to the Holder with respect to the shares of Series
C Preferred Stock issuable upon such conversion had such Holder been the holder
of such shares of Series C Preferred Stock on the record date for the
determination of shareholders entitled to such Distribution.

        D. Purchase Rights. If, at any time after the Issue Date, the
Corporation issues any warrants, rights or options, whether or not immediately
exercisable, to subscribe for or to purchase Series C Preferred Stock or
securities exercisable, convertible into or exchangeable for Series C Preferred
Stock or rights to purchase stock, warrants, securities or other property (the
"PURCHASE RIGHTS") pro rata to the record holders of Series C Preferred Stock,
then the Holders of the Notes will be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which such
Holder could have acquired if such Holder had held the number of shares of
Series C Preferred Stock acquirable upon complete conversion of the Notes
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Series C Preferred Stock are to be determined for
the grant, issue or sale of such Purchase Rights.

        E. Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Article VI amounting to a
more than 5% change in such Conversion Price, the Corporation, at its expense,
shall promptly compute such adjustment or readjustment and prepare and furnish
to each Holder a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any Holder of the
Notes, furnish to such Holder a like certificate setting forth (i) such
adjustment or readjustment, (ii) the Conversion Price at the time in effect and
(iii) the number of shares of Series C Preferred Stock and the amount, if any,
of other securities or property which at the time would be received upon
conversion of any Note.

        F. Other Action Affecting Conversion Price. If the Corporation takes any
action affecting the Series C Preferred Stock after the date hereof that would
be covered by Article VI.A through D, but for the manner in which such action is
taken or structured, which would in any way diminish the value of the Notes,
then the Conversion Price shall be adjusted in such manner as the Board of
Directors of the Corporation shall in good faith determine to be equitable under
the circumstances.


                                   ARTICLE VII

                                 CONSENT RIGHTS

        A. So long as any Notes are outstanding, except as otherwise expressly
provided in the Exchange Agreement, the Corporation shall not, in each case
without first obtaining the



                                     - 8 -


written consent of the Holders of a majority of the then outstanding principal
amount of the Notes: (i)(a) redeem, or declare or pay any dividends (whether in
cash or stock), or otherwise make any distributions with respect to any class or
series of capital stock of the Corporation, except for dividends and
distributions payable solely in the capital stock of the Corporation, or (b)
prepay any outstanding indebtedness of the Corporation, or (ii) create or sell
any securities that rank senior to or pari passu with the Notes.


                                  ARTICLE VIII

                                  MISCELLANEOUS

        A. Failure or Indulgency Not Waiver. No failure or delay on the part of
any Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.

        B. Notices. Any notices required or permitted to be given under the
terms of this Note shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier or by confirmed telecopy, and
shall be effective five days after being placed in the mail, if mailed, or upon
receipt or refusal of receipt, if delivered personally or by courier or
confirmed telecopy, in each case addressed to a party. The addresses for such
communications shall be:

                      If to the Corporation:

                      ViroLogic, Inc.
                      270 East Grand Avenue
                      South San Francisco, California 94080
                      Telephone:  (650) 635-1100
                      Attn: Chief Executive Officer

                      with a copy simultaneously transmitted by like means to
                      (which transmittal shall not constitute notice hereunder):

                      Cooley Godward LLP
                      4401 Eastgate Mall
                      San Diego, California 92121
                      Telephone:  (858) 550-6000

        If to the Holder, to the address set forth under such Holder's name on
the signature page to the Exchange Agreement executed by such Holder. Each party
shall provide notice to the other parties of any change in address or the
address of any transferee of the Note.



                                     - 9 -


        C. Amendment Provision. This Note and any provision hereof may be
amended only by an instrument in writing signed by the Corporation and the
Holders of a majority of the then outstanding principal amount of the Notes.

        D. Assignability. This Note shall be binding upon the Corporation and
its successors and assigns and shall inure to the benefit of the Holder and its
successors and assigns. Notwithstanding anything to the contrary contained in
this Note or the Transaction Documents, this Note may be pledged and all rights
of the Holder under this Note may be assigned to any affiliate or to any other
person or entity without the consent of the Corporation.

        E. Cost of Collection. If an Event of Default occurs hereunder, the
Corporation shall pay the Holder hereof costs of collection, including
reasonable attorneys' fees.

        F. Governing Law; Jurisdiction. This Note shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The Corporation
irrevocably consents to the jurisdiction of the United States federal courts and
the state courts located in the State of Delaware in any suit or proceeding
based on or arising under this Note and irrevocably agrees that all claims in
respect of such suit or proceeding may be determined in such courts. The
Corporation irrevocably waives the defense of an inconvenient forum to the
maintenance of such suit or proceeding. The Corporation further agrees that
service of process upon the Corporation mailed by first class mail shall be
deemed in every respect effective service of process upon the Corporation in any
such suit or proceeding. Nothing herein shall affect the right of any Holder to
serve process in any other manner permitted by law. The Corporation agrees that
a final non-appealable judgment in any such suit or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on such judgment
or in any other lawful manner.

        G. Denominations. At the request of the Holder, upon surrender of this
Note, the Corporation shall promptly issue new Notes in the aggregate
outstanding principal amount hereof, in the form hereof, in such denominations
of at least $25,000 as the Holder shall request.

        H. Lost or Stolen Notes. Upon receipt by the Corporation of (i) evidence
of the loss, theft, destruction or mutilation of any Note and (ii) (y) in the
case of loss, theft or destruction, of indemnity (without any bond or other
security) reasonably satisfactory to the Corporation, or (z) in the case of
mutilation, upon surrender and cancellation of any Note, the Corporation shall
execute and deliver a new Note of like tenor and date.

        I. Payment of Cash; Defaults. Whenever the Corporation is required to
make any cash payment to a Holder under the Notes (whether a Default Amount or
upon prepayment, repayment or otherwise), such cash payment shall be made in
U.S. dollars to the Holder within five business days after delivery by such
Holder of a notice specifying that the Holder elects to receive such payment in
cash and the method (e.g., by check, wire transfer) in which such payment should
be made. If such payment is not delivered within such five business day period,
such Holder shall thereafter be entitled to interest on the unpaid amount at a
per annum rate equal to the lower of twenty-four percent (24%) and the highest
interest rate permitted by applicable law until such amount is paid in full to
the Holder.



                                     - 10 -


        J. Status as Note Holder. Upon an Automatic Conversion Trigger Event,
(i) the principal amount of the Notes (but none of the accrued and unpaid
interest thereon) shall be deemed converted into shares of Series C Preferred
Stock as of the Conversion Date and (ii) the Holder's rights as a Holder of such
Notes shall cease and terminate, excepting only the right (A) to receive
certificates for such shares of Series C Preferred Stock, (B) to receive payment
of the Excess Interest Payment Amount, and (C) to exercise any remedies provided
herein or otherwise available at law or in equity to such Holder because of a
failure by the Corporation to comply with the terms of the Notes.

        K. Remedies Cumulative. The remedies provided in this Note shall be
cumulative and in addition to all other remedies available under this Note, at
law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit a Holder's right to pursue
actual damages for any failure by the Corporation to comply with the terms of
this Note. The Corporation acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holders of the Notes and that the
remedy at law for any such breach may be inadequate. The Corporation therefore
agrees, in the event of any such breach or threatened breach, that the Holders
of the Notes shall be entitled, in addition to all other available remedies, to
an injunction restraining any breach, without the necessity of showing economic
loss and without any bond or other security being required.

        L. Business Day. For purposes of this Note, the term "BUSINESS DAY"
means any day, other than a Saturday or Sunday or a day on which banking
institutions in the State of Delaware are authorized or obligated by law,
regulation or executive order to close. If any payment to be made hereunder
shall be stated to be or become due on a day which is not a business day, such
payment shall be made on the next following business day and such extension of
time shall be included in computing interest in connection with such payment.

        M. Certain Waivers. Borrower and each endorser hereby waive presentment,
notice of nonpayment or dishonor, protest, notice of protest and all other
notices in connection with the delivery, acceptance, performance, default or
enforcement of payment of this Note, and hereby waive all notice or right of
approval of any extensions, renewals, modifications or forbearances which may be
allowed.

        N. JURY TRIAL WAIVER. BORROWER HEREBY WAIVES, AND HOLDER BY ITS
ACCEPTANCE HEREOF THEREBY WAIVES, TRIAL BY JURY IN ANY LEGAL PROCEEDING
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF OR RELATED TO THIS NOTE OR THE
RELATIONSHIP EVIDENCED HEREBY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR
HOLDER TO ACCEPT AND RELY UPON THIS NOTE.

        O. Severability. If any provision of this Note shall be prohibited or
invalid, under applicable law, it shall be ineffective only to such extent,
without invalidating the remainder of this Note.



                                     - 11 -


        P. Maximum Interest Rate. If the effective interest rate on this Note
would otherwise violate any applicable usury law, then the interest rate shall
be reduced to the maximum permissible rate and any payment received by the
Holder in excess of the maximum permissible rate shall be treated as a
prepayment of the principal of this Note.

               [Remainder of this page intentionally left blank.]



                                     - 12 -


        IN WITNESS WHEREOF, Borrower has caused this Note to be executed by its
duly authorized officer as of the date first written above.


                                        VIROLOGIC, INC.



                                        By:
                                           -------------------------------------
                                           Name:
                                           Title:



        [Signature page to Series C Convertible Secured Promissory Note.]




                                     - 13 -

EX-4.3

                                                                     EXHIBIT 4.3

                                                                       EXHIBIT B
                                                                     TO EXCHANGE
                                                                       AGREEMENT


        VOID AFTER 5:00 P.M., NEW YORK CITY
        TIME, ON SEPTEMBER 25, 2006
        (UNLESS EXTENDED PURSUANT TO SECTION 2 HEREOF)

        THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
        NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
        "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED
        STATES OR ANY OTHER JURISDICTION. THE SECURITIES REPRESENTED HEREBY MAY
        NOT BE OFFERED, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
        REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES
        LAWS UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE
        EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.

                                            Right to Purchase ________ Shares of
                                         Common Stock, par value $.001 per share


Date: ________, 200_

                                 VIROLOGIC, INC.
                             STOCK PURCHASE WARRANT


        THIS CERTIFIES THAT, for value received, _______________________, or its
registered assigns, is entitled to purchase from ViroLogic, Inc., a corporation
organized under the laws of the State of Delaware (the "COMPANY"), at any time
or from time to time during the period specified in Section 2 hereof,
_____________________________________ fully paid and nonassessable shares of the
Company's common stock, par value $.001 per share (the "COMMON STOCK"), at an
exercise price per share (the "EXERCISE PRICE") equal to [insert "Exercise
Price" of the Series C Warrants in effect on the Approval Date]. The number of
shares of Common Stock purchasable hereunder (the "WARRANT SHARES") and the
Exercise Price are subject to adjustment as provided in Section 4 hereof. The
term "WARRANTS" means this Warrant and the other warrants of the Company issued
pursuant to that certain Exchange Agreement, dated as of November 14, 2002, by
and among the Company and the other signatories thereto (the "EXCHANGE
AGREEMENT").





        This Warrant is subject to the following terms, provisions and
conditions:

        1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
Subject to the provisions hereof, including, without limitation, the limitations
contained in Section 7 hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "EXERCISE
AGREEMENT"), to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof), and (i) payment to
the Company in cash, by certified or official bank check or by wire transfer for
the account of the Company, of the Exercise Price for the Warrant Shares
specified in the Exercise Agreement or (ii) if the holder is effectuating a
Cashless Exercise (as defined in Section 11(c) hereof) pursuant to Section 11(c)
hereof, delivery to the Company of a written notice of an election to effect a
Cashless Exercise for the Warrant Shares specified in the Exercise Agreement.
The Warrant Shares so purchased shall be deemed to be issued to the holder
hereof or such holder's designee, as the record owner of such shares, as of the
close of business on the date on which this Warrant shall have been surrendered,
the completed Exercise Agreement shall have been delivered, and payment shall
have been made for such shares as set forth above or, if such date is not a
business date, on the next succeeding business date. The Warrant Shares so
purchased, representing the aggregate number of shares specified in the Exercise
Agreement, shall (by the Company or through its transfer agent) be delivered
(i.e., deposited with a nationally-recognized overnight courier service postage
prepaid) to the holder hereof within a reasonable time, not exceeding two
business days, after this Warrant shall have been so exercised (the "DELIVERY
PERIOD"). If the Company's transfer agent is participating in the Depository
Trust Company ("DTC") Fast Automated Securities Transfer program, and so long as
the certificates therefor do not bear a legend (pursuant to the terms of the
Exchange Agreement) and the holder is not obligated to return such certificate
for the placement of a legend thereon (pursuant to the terms of the Exchange
Agreement), the Company shall cause its transfer agent to electronically
transmit the Warrant Shares so purchased to the holder by crediting the account
of the holder or its nominee with DTC through its Deposit Withdrawal Agent
Commission system ("DTC TRANSFER"). If the aforementioned conditions to a DTC
Transfer are not satisfied, the Company shall deliver as provided herein to the
holder physical certificates representing the Warrant Shares so purchased.
Further, the holder may instruct the Company to deliver to the holder physical
certificates representing the Warrant Shares so purchased in lieu of delivering
such shares by way of DTC Transfer. Any certificates so delivered shall be in
such denominations as may be reasonably requested by the holder hereof, shall be
registered in the name of such holder or such other name as shall be designated
by such holder and, following the date on which the Warrant Shares have been
registered under the Securities Act pursuant to that certain Registration Rights
Agreement, dated as of November 14, 2002, by and between the Company and the
other signatories thereto (the "REGISTRATION RIGHTS AGREEMENT") or otherwise may
be sold by the holder pursuant to Rule 144 promulgated under the Securities Act
(or a successor rule), shall not bear any restrictive legend. If this Warrant
shall have been exercised only in part, then the Company shall, at its expense,
at the time of delivery of such certificates, deliver to the holder a new
Warrant representing the number of shares with respect to which this Warrant
shall not then have been exercised.


                                       2


        If, at any time, a holder of this Warrant submits this Warrant, an
Exercise Agreement and payment to the Company of the Exercise Price for each of
the Warrant Shares specified in the Exercise Agreement (including pursuant to a
Cashless Exercise), and the Company fails for any reason to deliver, on or prior
to the fourth business day following the expiration of the Delivery Period for
such exercise, the number of shares of Common Stock to which the holder is
entitled upon such exercise (an "EXERCISE DEFAULT"), then the Company shall pay
to the holder payments ("EXERCISE DEFAULT PAYMENTS") for an Exercise Default in
the amount of (a) (N/365), multiplied by (b) the amount by which the Market
Price (as defined in Section 4(l) hereof) on the date the Exercise Agreement
giving rise to the Exercise Default is transmitted in accordance with this
Section 1 (the "EXERCISE DEFAULT DATE") exceeds the Exercise Price in respect of
such Warrant Shares, multiplied by (c) the number of shares of Common Stock the
Company failed to so deliver in such Exercise Default, multiplied by (d) .24,
where N = the number of days from the Exercise Default Date to the date that the
Company effects the full exercise of this Warrant which gave rise to the
Exercise Default. The accrued Exercise Default Payment for each calendar month
shall be paid in cash and shall be made to holder by the fifth day of the month
following the month in which it has accrued. Nothing herein shall limit the
holder's right to pursue actual damages for the Company's failure to maintain a
sufficient number of authorized shares of Common Stock as required pursuant to
the terms of Section 3(b) hereof or to otherwise issue shares of Common Stock
upon exercise of this Warrant in accordance with the terms hereof, and the
holder shall have the right to pursue all remedies available at law or in equity
(including a decree of specific performance and/or injunctive relief).

        2. Period of Exercise. This Warrant shall be exercisable at any time or
from time to time during the period beginning on the date hereof and ending at
5:00 p.m., New York City time, on September 25, 2006 (the "EXERCISE PERIOD").
The Exercise Period shall automatically be extended by one (1) day for each day
on which the Company does not have a number of shares of Common Stock reserved
for issuance upon exercise hereof at least equal to the number of shares of
Common Stock issuable upon exercise hereof.

        3. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:

           (a) Shares to be Fully Paid. All Warrant Shares will, upon issuance
in accordance with the terms of this Warrant, be validly issued, fully paid, and
nonassessable and free from all taxes, liens, claims and encumbrances.

           (b) Reservation of Shares. During the Exercise Period, the Company
shall at all times have authorized, and reserved for the purpose of issuance
upon exercise of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise in full of this Warrant (without giving effect to the
limitations on exercise set forth in Section 7(g) hereof).

           (c) Listing. The Company shall promptly secure the listing of the
shares of Common Stock issuable upon exercise of this Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed or become listed (subject to official notice of
issuance upon exercise of this Warrant) and shall maintain, so long as any other
shares of Common Stock shall be so listed, such listing of all shares of Common


                                       3



Stock from time to time issuable upon the exercise of this Warrant; and the
Company shall so list on each national securities exchange or automated
quotation system, as the case may be, and shall maintain such listing of, any
other shares of capital stock of the Company issuable upon the exercise of this
Warrant if and so long as any shares of the same class shall be listed on such
national securities exchange or automated quotation system.

           (d) Certain Actions Prohibited. The Company will not, by amendment of
its charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the economic benefit inuring to the holder hereof
and the exercise privilege of the holder of this Warrant against dilution or
other impairment, consistent with the tenor and purpose of this Warrant. Without
limiting the generality of the foregoing, the Company (i) will not increase the
par value of any shares of Common Stock receivable upon the exercise of this
Warrant above the Exercise Price then in effect, and (ii) will take all such
actions as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant.

           (e) Successors and Assigns. This Warrant will be binding upon any
entity succeeding to the Company by merger, consolidation, or acquisition of all
or substantially all of the Company's assets.

           (f) Blue Sky Laws. The Company shall, on or before the date of
issuance of any Warrant Shares, take such actions as the Company shall
reasonably determine are necessary to qualify the Warrant Shares for, or obtain
exemption for the Warrant Shares for, sale to the holder of this Warrant upon
the exercise hereof under applicable securities or "blue sky" laws of the states
of the United States, and shall provide evidence of any such action so taken to
the holder of this Warrant prior to such date; provided, however, that the
Company shall not be required in connection therewith or as a condition thereto
to (a) qualify to do business in any jurisdiction where it would not otherwise
be required to qualify but for this Section 3(f), (b) subject itself to general
taxation in any such jurisdiction or (c) file a general consent to service of
process in any such jurisdiction.

        4. Antidilution Provisions. During the Exercise Period, the Exercise
Price and the number of Warrant Shares issuable hereunder shall be subject to
adjustment from time to time as provided in this Section 4.

        In the event that any adjustment of the Exercise Price as required
herein results in a fraction of a cent, such Exercise Price shall be rounded up
or down to the nearest cent.

        (a) [Intentionally Omitted]

        (b) [Intentionally Omitted]



                                       4


        (c) Subdivision or Combination of Common Stock. If the Company, at any
time during the Exercise Period, subdivides (by any stock split, stock dividend,
recapitalization, reorganization, reclassification or otherwise) its shares of
Common Stock into a greater number of shares, then, after the date of record for
effecting such subdivision, the Exercise Price in effect immediately prior to
such subdivision will be proportionately reduced. If the Company, at any time
during the Exercise Period, combines (by reverse stock split, recapitalization,
reorganization, reclassification or otherwise) its shares of Common Stock into a
smaller number of shares, then, after the date of record for effecting such
combination, the Exercise Price in effect immediately prior to such combination
will be proportionately increased.

        (d) Adjustment in Number of Shares. Upon each adjustment of the Exercise
Price pursuant to the provisions of this Section 4, the number of shares of
Common Stock issuable upon exercise of this Warrant at each such Exercise Price
shall be adjusted by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common Stock
issuable upon exercise of this Warrant at such Exercise Price immediately prior
to such adjustment and dividing the product so obtained by the adjusted Exercise
Price.

        (e) Consolidation, Merger or Sale. In case of (i) any consolidation of
the Company with, or merger of the Company into, any other entity, (ii) any sale
or conveyance of all or substantially all of the assets of the Company other
than in connection with a plan of complete liquidation of the Company or (iii)
any share exchange pursuant to which all of the outstanding shares of Common
Stock are converted into other securities or property (each of (i) - (iii) above
being a "CORPORATE CHANGE") at any time during the Exercise Period, then as a
condition of such Corporate Change, adequate provision will be made whereby the
holder hereof will have the right to acquire and receive upon exercise of this
Warrant in lieu of the shares of Common Stock immediately theretofore acquirable
upon the exercise of this Warrant, such shares of stock, securities, cash or
assets as may be issued or payable with respect to or in exchange for the number
of shares of Common Stock immediately theretofore acquirable and receivable upon
exercise of this Warrant had such Corporate Change not taken place. In any such
case, the Company will make appropriate provision to insure that the provisions
of this Section 4 hereof will thereafter be applicable as nearly as may be in
relation to any shares of stock or securities thereafter deliverable upon the
exercise of this Warrant. The Company will not effect any Corporate Change
unless prior to the consummation thereof, the successor corporation (if other
than the Company) assumes by written instrument the obligations under this
Warrant and the obligations to deliver to the holder hereof such shares of
stock, securities or assets as, in accordance with the foregoing provisions, the
holder may be entitled to acquire. Notwithstanding the foregoing, in the event
of any Corporate Change at any time during the Exercise Period, the holder
hereof shall, at its option, have the right to receive, in connection with such
transaction, cash consideration equal to the fair market value of this Warrant
as determined in accordance with customary valuation methodology used in the
investment banking industry.

        (f) Distribution of Assets. In case the Company shall declare or make
any distribution of its assets (or rights to acquire its assets) to holders of
Common Stock as a partial liquidating dividend, stock repurchase by way of
return of capital or otherwise (including any dividend or distribution to the
Company's stockholders of cash or shares (or rights to acquire shares) of
capital stock of a subsidiary) (a "DISTRIBUTION"), at any time during the
Exercise Period, then the



                                       5


holder hereof shall be entitled upon exercise of this Warrant for the purchase
of any or all of the shares of Common Stock subject hereto, to receive the
amount of such assets (or rights) which would have been payable to the holder
had such holder been the holder of such shares of Common Stock on the record
date for the determination of stockholders entitled to such Distribution. If the
Company distributes rights, warrants, options or any other form of convertible
securities and the right to exercise or convert such securities would expire in
accordance with their terms prior to the expiration of the Exercise Period, then
the terms of such securities shall provide that such exercise or convertibility
right shall remain in effect until 30 days after the date the holder hereof
receives such securities pursuant to the exercise hereof.

           (g) Notice of Adjustment. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the holder hereof, which notice shall state
the Exercise Price resulting from such adjustment and the increase or decrease
in the number of Warrant Shares purchasable at such price upon exercise, setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based. Such calculation shall be certified by the chief
financial officer of the Company.

           (h) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than $.01, but any such lesser
adjustment shall be carried forward and shall be made at the time and together
with the next subsequent adjustment which, together with any adjustments so
carried forward, shall amount to not less than $.01.

           (i) No Fractional Shares. No fractional shares of Common Stock are to
be issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Market Price of a share of Common
Stock on the date of such exercise.

           (j) Other Notices. In case at any time:

               (i) the Company shall declare any dividend upon the Common Stock
payable in shares of stock of any class or make any other distribution (other
than dividends or distributions payable in cash out of retained earnings
consistent with the Company's past practices with respect to declaring dividends
and making distributions) to the holders of the Common Stock;

               (ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;

               (iii) there shall be any capital reorganization of the Company,
or reclassification of the Common Stock, or consolidation or merger of the
Company with or into, or sale of all or substantially all of its assets to,
another corporation or entity; or

               (iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;

then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date or estimated date on which the books of the Company shall
close or a record shall be taken for determining the holders of Common Stock
entitled to receive any such dividend, distribution, or


                                       6


subscription rights or for determining the holders of Common Stock entitled
to vote in respect of any such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding-up and (b) in the case of any
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, notice of the date (or, if not then known, a
reasonable estimate thereof by the Company) when the same shall take place. Such
notice shall also specify the date on which the holders of Common Stock shall be
entitled to receive such dividend, distribution, or subscription rights or to
exchange their Common Stock for stock or other securities or property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation, or winding-up, as the case may be. Such notice
shall be given at least fifteen (15) days prior to the record date or the date
on which the Company's books are closed in respect thereto. Failure to give any
such notice or any defect therein shall not affect the validity of the
proceedings referred to in clauses (i), (ii), (iii) and (iv) above.
Notwithstanding the foregoing, the Company shall publicly disclose the substance
of any notice delivered hereunder prior to delivery of such notice to the holder
hereof.

           (k) Certain Events. If, at any time during the Exercise Period, any
event occurs of the type contemplated by the adjustment provisions of this
Section 4 but not expressly provided for by such provisions, the Company will
give notice of such event as provided in Section 4(g) hereof, and an appropriate
adjustment in the Exercise Price and the number of shares of Common Stock
acquirable upon exercise of this Warrant at each such Exercise Price shall be
made so that the rights of the holder shall be neither enhanced nor diminished
by such event.

           (l) Certain Definitions.

               (i) "MARKET PRICE," as of any date, (i) means the average of the
closing sales prices for the shares of Common Stock on the Nasdaq National
Market or other trading market where such security is listed or traded as
reported by Bloomberg Financial Markets (or a comparable reporting service of
national reputation selected by the Company and reasonably acceptable to the
holders if Bloomberg Financial Markets is not then reporting sales prices of
such security)(collectively, "BLOOMBERG") for the ten (10) consecutive trading
days immediately preceding such date, or (ii) if the Nasdaq National Market is
not the principal trading market for the shares of Common Stock, the average of
the reported sales prices reported by Bloomberg on the principal trading market
for the Common Stock during the same period, or, if there is no sales price for
such period, the last sales price reported by Bloomberg for such period, or
(iii) if the foregoing do not apply, the last sales price of such security in
the over-the-counter market on the pink sheets or bulletin board for such
security as reported by Bloomberg, or if no sales price is so reported for such
security, the last bid price of such security as reported by Bloomberg, or (iv)
if market value cannot be calculated as of such date on any of the foregoing
bases, the Market Price shall be the average fair market value as reasonably
determined by an investment banking firm selected by the Company and reasonably
acceptable to the holder, with the costs of the appraisal to be borne by the
Company. The manner of determining the Market Price of the Common Stock set
forth in the foregoing definition shall apply with respect to any other security
in respect of which a determination as to market value must be made hereunder.

               (ii) "COMMON STOCK," for purposes of this Section 4, includes the
Common Stock and any additional class of stock of the Company having no
preference as to



                                       7


dividends or distributions on liquidation, provided that the shares purchasable
pursuant to this Warrant shall include only Common Stock in respect of which
this Warrant is exercisable, or shares resulting from any subdivision or
combination of such Common Stock, or in the case of any reorganization,
reclassification, consolidation, merger, or sale of the character referred to in
Section 4(e) hereof, the stock or other securities or property provided for in
such Section.

        5. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.

        6. No Rights or Liabilities as a Stockholder. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a stockholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.

        7. Transfer, Exchange and Replacement of Warrant.

           (a) Restriction on Transfer. This Warrant and the rights granted to
the holder hereof are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the form attached
hereto, at the office or agency of the Company referred to in Section 7(e)
below, provided, however, that any transfer or assignment shall be subject to
the conditions set forth in Sections 7(f) and (g) hereof and to the provisions
of Sections 2(f) and 2(g) of the Exchange Agreement. Until due presentment for
registration of transfer on the books of the Company, the Company may treat the
registered holder hereof as the owner and holder hereof for all purposes, and
the Company shall not be affected by any notice to the contrary. Notwithstanding
anything to the contrary contained herein, the registration rights described in
Section 8 hereof are assignable only in accordance with the provisions of the
Registration Rights Agreement.

           (b) Warrant Exchangeable for Different Denominations. This Warrant is
exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in Section 7(e) below, for new warrants of
like tenor of different denominations representing in the aggregate the right to
purchase the number of shares of Common Stock which may be purchased hereunder,
each of such new warrants to represent the right to purchase such number of
shares (at the Exercise Price therefor) as shall be designated by the holder
hereof at the time of such surrender, and all such warrants thereafter
constituting the Warrant referenced herein.

           (c) Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.



                                       8


           (d) Cancellation; Payment of Expenses. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided in
this Section 7, this Warrant shall be promptly canceled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses (other than legal expenses, if any, incurred by the Holder or
transferees) and charges payable in connection with the preparation, execution,
and delivery of any Warrant pursuant to this Section 7.

           (e) Warrant Register. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.

           (f) Exercise or Transfer Without Registration. If, at the time of the
surrender of this Warrant in connection with any exercise, transfer, or exchange
of this Warrant, this Warrant (or, in the case of any exercise, the Warrant
Shares issuable hereunder), shall not be registered under the Securities Act and
under applicable state securities or blue sky laws, the Company may require, as
a condition of allowing such exercise, transfer, or exchange, (i) that the
holder or transferee of this Warrant, as the case may be, furnish to the Company
a written opinion of counsel (which opinion shall be in form, substance and
scope customary for opinions of counsel in comparable transactions) to the
effect that such exercise, transfer, or exchange may be made without
registration under the Securities Act and under applicable state securities or
blue sky laws (the cost of which shall be borne by the Company if the Company's
counsel renders such an opinion and up to $500 of such cost shall be borne by
the Company if the holder's counsel is requested to render such opinion), (ii)
that the holder or transferee execute and deliver to the Company an investment
letter in form and substance acceptable to the Company and (iii) that the
transferee be an "ACCREDITED INVESTOR" as defined in Rule 501(a) promulgated
under the Securities Act; provided that no such opinion, letter, or status as an
"accredited investor" shall be required in connection with a transfer pursuant
to Rule 144 under the Securities Act.

           (g) Additional Restrictions on Exercise or Transfer. In no event
shall the holder hereof have the right to exercise any portion of this Warrant
for shares of Common Stock or to dispose of any portion of this Warrant to the
extent that such right to effect such exercise or disposition would result in
the holder or any of its affiliates together beneficially owning more than (i)
19.99% of the outstanding shares of Common Stock, in the case of Biotech Target
N.V. and its affiliates for so long as they continue to hold Warrants, or (b)
4.99% of the outstanding shares of Common Stock, in the case of all other
holders of Warrants. For purposes of this Section 7(g), beneficial ownership
shall be determined in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended, and Regulation 13D-G thereunder. The restriction
contained in this Section 7(g) may not be altered, amended, deleted or changed
in any manner whatsoever unless the holders of a majority of the outstanding
shares of Common Stock and the holder hereof shall approve, in writing, such
alteration, amendment, deletion or change.

        8. Registration Rights. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in



                                       9


the Registration Rights Agreement, including the right to assign such rights to
certain assignees, as set forth therein.

        9. Notices. Any notices required or permitted to be given under the
terms of this Warrant shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five days after being placed in the mail, if
mailed, or upon receipt or refusal of receipt, if delivered personally or by
courier, or by confirmed telecopy, in each case addressed to a party. The
addresses for such communications shall be:

                      If to the Company:

                      ViroLogic, Inc.
                      270 East Grand Avenue
                      South San Francisco, California 94080
                      Telephone:  (650) 635-1100
                      Attn:  Chief Executive Officer

                      with a copy simultaneously transmitted by like means to:

                      Cooley Godward LLP
                      4401 Eastgate Mall
                      San Diego, California 92121
                      Telephone:  (858) 550-6000

If to the holder, at such address as such holder shall have provided in writing
to the Company, or at such other address as such holder furnishes by notice
given in accordance with this Section 9.

        10. Governing Law; Jurisdiction. This Warrant shall be governed by and
construed in accordance with the laws of the State of Delaware. The Company
irrevocably consents to the jurisdiction of the United States federal courts and
state courts located in the State of Delaware in any suit or proceeding based on
or arising under this Warrant and irrevocably agrees that all claims in respect
of such suit or proceeding may be determined in such courts. The Company
irrevocably waives any objection to the laying of venue and the defense of an
inconvenient forum to the maintenance of such suit or proceeding. The Company
further agrees that service of process upon the Company mailed by certified or
registered mail shall be deemed in every respect effective service of process
upon the Company in any such suit or proceeding. Nothing herein shall affect the
holder's right to serve process in any other manner permitted by law. The
Company agrees that a final non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.

        11. Miscellaneous.

            (a) Amendments. Except as provided in Section 7(g) hereof, this
Warrant and any provision hereof may only be amended by an instrument in writing
signed by the Company and the holder hereof.



                                       10


            (b) Descriptive Headings. The descriptive headings of the several
Sections of this Warrant are inserted for purposes of reference only, and shall
not affect the meaning or construction of any of the provisions hereof.

            (c) Cashless Exercise. This Warrant may be exercised at any time
after March 25, 2003 and before the expiration of the Exercise Period by
presentation and surrender of this Warrant to the Company at its principal
executive offices with a written notice of the holder's intention to effect a
cashless exercise, including a calculation of the number of shares of Common
Stock to be issued upon such exercise in accordance with the terms hereof (a
"CASHLESS EXERCISE"). In the event of a Cashless Exercise, in lieu of paying the
Exercise Price in cash, the holder shall surrender this Warrant for that number
of shares of Common Stock determined by multiplying the number of Warrant Shares
to which it would otherwise be entitled by a fraction, the numerator of which
shall be the difference between the then current Market Price of a share of the
Common Stock on the date of exercise and the Exercise Price, and the denominator
of which shall be the then current Market Price per share of Common Stock.

            (d) Trading Day. For purposes of this Warrant, the term "trading
day" means any day on which the principal United States securities exchange or
trading market where the Common Stock is then listed is open for trading.

            (e) Redemption of Warrant by Company.

                  (i) In the event that the Company consummates a Corporate
Change in which the holders of the Company's Common Stock immediately prior to
such Corporate Change hold fifty percent (50%) or less of the outstanding voting
power of the entity surviving such Corporate Change, then the Company may elect,
upon delivery of at least twenty (20) days' prior written notice (the
"REDEMPTION NOTICE") to the holder hereof, to redeem all or a portion of the
Warrant for a redemption amount (the "REDEMPTION AMOUNT") equal to the value of
the Warrant derived using the Black-Scholes formula (using Bloomberg), assuming
that the volatility of the Company's Common Stock equals 60% and the risk-free
interest rate equals 5% per annum. In the event the Company elects to redeem
only some of the outstanding Warrants pursuant to this Section 11(e), such
Warrants shall be redeemed pro rata among all the holders of the Warrants based
upon the percentage of Warrants held by such holders against the total
outstanding Warrants.

                  (ii) [Intentionally Omitted]

                  (iii) The Company may not deliver a Redemption Notice pursuant
to clause (i) above unless on or prior to the date of delivery of a Redemption
Notice, the Company shall have segregated on the books and records of the
Company an amount of cash sufficient to pay all amounts to which holders of the
Warrants that are being redeemed are entitled pursuant to this Section 11(e).
Any Redemption Notice delivered shall be irrevocable and shall be accompanied by
a statement executed by a duly authorized officer of the Company.

                  (iv) The Redemption Amount shall be paid to the holder within
three (3) business days of the date of redemption set forth in the Redemption
Notice pursuant to clause (i) above; provided, however, that the Company shall
not be obligated to deliver any portion of the



                                       11


Redemption Amount until either this Warrant is delivered to the Company or the
holder notifies the Company that the Warrant has been lost, stolen or destroyed
and delivers the documentation in accordance with Section 7(c) hereof. In the
event only a portion of this Warrant is being redeemed, the Company shall issue,
at its expense, a new Warrant representing the number of shares with respect to
which this Warrant shall not then have been redeemed or exercised.

                  (v) Notwithstanding the delivery of a Redemption Notice
pursuant to clause (i) above, the holder may exercise all or a portion of this
Warrant subject to such Redemption Notice by the delivery prior to the date of
redemption set forth in such notice of an Exercise Agreement pursuant to the
procedures set forth in Section 1.

            (f) Indemnification by Company.

                  (i) The Company shall hold harmless and indemnify the holder
of this Warrant from and against, and shall compensate and reimburse such holder
for, any damages which are directly or indirectly suffered or incurred by such
holder or to which such holder may otherwise become subject (regardless of
whether or not such damages relate to any third-party claim) and which arise
from or as a result of, or are directly or indirectly connected with any breach
of any of the Company's covenants set forth herein.

                  (ii) In the event of the assertion or commencement by any
person of any claim or legal proceeding with respect to which the holder may
have indemnification rights pursuant to this Section 11(f)(i), the holder shall
promptly notify the Company thereof in writing, but the failure to so notify the
Company will not limit the holder's rights to indemnification hereunder, except
to the extent the Company demonstrates that the defense of such action is
prejudiced by the failure to so give such notice.


                                       12


        IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.


                                       VIROLOGIC, INC.


                                       By: ____________________________________
                                           Name:_______________________________
                                           Title:______________________________



                                       13


                           FORM OF EXERCISE AGREEMENT

         (TO BE EXECUTED BY THE HOLDER IN ORDER TO EXERCISE THE WARRANT)


To:     ViroLogic,Inc.
        270 East Grand Avenue
        South San Francisco, California 94080
        Telephone:  (650) 635-1100
        Attn:  Chief Executive Officer

        The undersigned hereby irrevocably exercises the right to purchase
_____________ shares of the Common Stock of ViroLogic, Inc., a corporation
organized under the laws of the State of Delaware (the "COMPANY"), evidenced by
the attached Warrant, and herewith [makes payment of the Exercise Price with
respect to such shares in full][elects to effect a Cashless Exercise (as defined
in Section 11(c) of such Warrant)], all in accordance with the conditions and
provisions of said Warrant.

        The undersigned agrees not to offer, sell, transfer or otherwise dispose
of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws. The undersigned represents that it is
an "accredited investor" as that term is defined in Rule 501(a) of Regulation D
under the Securities Act of 1933, as amended.

[ ]     The undersigned requests that the Company cause its transfer agent to
        electronically transmit the Common Stock issuable pursuant to this
        Exercise Agreement to the account of the undersigned or its nominee
        (which is _________________) with DTC through its Deposit Withdrawal
        Agent Commission System ("DTC TRANSFER"), provided that such transfer
        agent participates in the DTC Fast Automated Securities Transfer
        program.

[ ]     In lieu of receiving the shares of Common Stock issuable pursuant to
        this Exercise Agreement by way of DTC Transfer, the undersigned hereby
        requests that the Company cause its transfer agent to issue and deliver
        to the undersigned physical certificates representing such shares of
        Common Stock.

        The undersigned requests that a Warrant representing any unexercised
portion hereof be issued, pursuant to the Warrant, in the name of the Holder and
delivered to the undersigned at the address set forth below:

Dated:_________________                     ____________________________________
                                            Signature of Holder

                                            ____________________________________
                                            Name of Holder (Print)

                                            Address:

                                            ____________________________________
                                            ____________________________________
                                            ____________________________________


                                       14


                               FORM OF ASSIGNMENT


        FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:


Name of Assignee                Address                           No. of Shares


, and hereby irrevocably constitutes and appoints
_____________________________________ as agent and attorney-in-fact to transfer
said Warrant on the books of the within-named corporation, with full power of
substitution in the premises.


Dated: _____________________, ____

In the presence of

___________________________


                                            Name: _____________________________


                                               Signature: _____________________
                                               Title of Signing Officer or
                                               Agent (if any):

                                                        _______________________
                                               Address: _______________________
                                                        _______________________

                                               Note: The above signature should
                                                     correspond exactly with the
                                                     name on the face of the
                                                     within Warrant.


                                       15

EX-4.4

                                                                     EXHIBIT 4.4



                          CERTIFICATE OF DESIGNATIONS,
                             PREFERENCES AND RIGHTS

                                       OF

                      SERIES C CONVERTIBLE PREFERRED STOCK

                                       OF

                                 VIROLOGIC, INC.

                         (Pursuant to Section 151 of the
                        Delaware General Corporation Law)


        ViroLogic, Inc., a corporation organized and existing under the laws of
the State of Delaware (the "CORPORATION"), hereby certifies that the Board of
Directors of the Corporation (the "BOARD OF DIRECTORS" or the "BOARD") pursuant
to authority of the Board of Directors as required by Section 151 of the
Delaware General Corporation Law, and in accordance with the provisions of its
Certificate of Incorporation and Bylaws, each as amended and restated through
the date hereof, has and hereby authorizes a series of the Corporation's
previously authorized Preferred Stock, par value $.001 per share (the "PREFERRED
STOCK"), and hereby states the designation and number of shares, and fixes the
relative rights, preferences, privileges, powers and restrictions thereof as
follows:

                            I. DESIGNATION AND AMOUNT

        The designation of this series, which consists of 1911 shares of
Preferred Stock, is the Series C Convertible Preferred Stock (the "SERIES C
PREFERRED STOCK") and the face amount shall be Ten Thousand U.S. Dollars
($10,000.00) per share (the "FACE AMOUNT").

                                II. NO DIVIDENDS

        The Series C Preferred Stock will bear no dividends, and the holders of
the Series C Preferred Stock shall not be entitled to receive dividends on the
Series C Preferred Stock.

                            III. CERTAIN DEFINITIONS

        For purposes of this Certificate of Designation, the following terms
shall have the following meanings:

        A. "CLOSING SALES PRICE" means, for any security as of any date, the
last sales price of such security on the Nasdaq National Market ("NNM") or other
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets (or a comparable reporting service of national reputation
selected by the Corporation and reasonably acceptable to holders of a majority
of the then outstanding shares of Series C Preferred Stock ("MAJORITY HOLDERS")
if Bloomberg Financial Markets is not then reporting closing sales prices of
such security) (collectively,



"BLOOMBERG"), or if the foregoing does not apply, the last reported sales price
of such security on a national exchange or in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
such price is reported for such security by Bloomberg, the average of the bid
prices of all market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc., in each case for such date or, if such
date was not a trading day for such security, on the next preceding date which
was a trading day. If the Closing Sales Price cannot be calculated for such
security as of either of such dates on any of the foregoing bases, the Closing
Sales Price of such security on such date shall be the fair market value as
reasonably determined by an investment banking firm selected by the Corporation
and reasonably acceptable to the Majority Holders, with the costs of such
appraisal to be borne by the Corporation.

        B. "COMMON STOCK DEEMED OUTSTANDING" shall mean the number of shares of
Common Stock actually outstanding (not including shares of Common Stock held in
the treasury of the Corporation).

        C. "CONVERSION DATE" means, (i) for any Optional Conversion (as defined
below), the date specified in the notice of conversion in the form attached
hereto (the "NOTICE OF CONVERSION"), so long as a copy of the Notice of
Conversion is faxed (or delivered by other means resulting in notice) to the
Corporation before 11:59 p.m., New York City time, on the Conversion Date
indicated in the Notice of Conversion; provided, however, that if the Notice of
Conversion is not so faxed or otherwise delivered before such time, then the
Conversion Date shall be the date the holder faxes or otherwise delivers the
Notice of Conversion to the Corporation, and (ii) for any Mandatory Conversion,
that date specified in the notice delivered to the holders of the Series C
Preferred Stock being converted pursuant to Article IV.C in the event that such
Mandatory Conversion occurs.

        D. "CONVERSION PRICE" means $1.21, and shall be subject to adjustment as
provided herein.

        E. "EXCHANGE AGREEMENT" means the Exchange Agreement by and among the
Corporation and the purchasers named therein.

        F. "ISSUANCE DATE" means the date of the closing under the Securities
Purchase Agreement by and among the Corporation and the purchasers named therein
(the "SECURITIES PURCHASE AGREEMENT").

        G. "N" means the number of days from, but excluding, the Issuance Date
or the date that the last payment of the Premium was made in full, whichever is
less.

        H. "PREMIUM" means initially an amount equal to (the
Rate)x(N/365)x(10,000). The "RATE" shall initially be equal to .08. Thereafter,
on June 30, 2004, the Rate will increase by .01, and the Rate shall thereafter
continue to increase by .01 on the last day of each successive calendar quarter
until the Series C Preferred Stock is converted or redeemed in full; provided,
however, that the Rate shall not exceed .14. Notwithstanding the foregoing
(including the limit on the Rate set forth in the preceding sentence), in the
event that at any time and from time to time (i) the Common Stock is suspended
from trading on any of, or is not listed (and authorized) for trading on at
least one of, the NYSE (as defined below), the AMEX (as defined below), the NNM
or SmallCap (as defined



                                       2


below) at any time, or (ii) the Closing Sales Price of the Common Stock is less
than 65% of the Conversion Price (as adjusted to reflect any stock dividends,
distributions, combinations, reclassifications and other similar transactions
effected by the Corporation in respect to its Common Stock) for at least
seventy-five (75) consecutive calendar days (each of (i) and (ii) being a
"PREMIUM DEFAULT"), then, commencing on the first day of the calendar quarter
next succeeding the calendar quarter in which such Premium Default occurs and
continuing until the Company has cured such Premium Default, the Rate shall be
increased to equal .15, and upon cure of such Premium Default (provided that no
other Premium Default has occurred and is continuing), the Rate shall be
automatically decreased to equal such amount as it would have equaled but for
the occurrence of such Premium Default(s) (including all increases to the Rate
that would have occurred during the term of such Premium Default pursuant to the
preceding sentence).

        I. "WARRANTS" shall mean the warrants issued by the Corporation to the
initial holders of Series C Preferred Stock pursuant to the Securities Purchase
Agreement.

                       IV. CONVERSION; PAYMENT OF PREMIUM

        A. Premium; Conversion at the Option of the Holder.

               (i) The Premium shall be payable, at the applicable Rate, (a)
upon any conversion (regardless of whether it is an Optional Conversion or a
Mandatory Conversion) of each share of Series C Preferred Stock and (b) as to
each outstanding share of Series C Preferred Stock on March 31, June 30,
September 30 and December 31 of each year, commencing on December 31, 2002,
until such share is fully converted or fully redeemed. Payment of the Premium
shall be made in cash.

               (ii) Subject to the limitations on conversions contained in
Paragraph D of this Article IV, each holder of shares of Series C Preferred
Stock may, at any time and from time to time, convert (an "OPTIONAL CONVERSION")
each of its shares of Series C Preferred Stock into a number of fully paid and
nonassessable shares of Common Stock determined in accordance with the following
formula:

                                     $10,000
                                CONVERSION PRICE

        B. Mechanics of Conversion. In order to effect an Optional Conversion, a
holder shall: (x) fax (or otherwise deliver) a copy of the fully executed Notice
of Conversion to the Corporation (Attention: Secretary) and (y) surrender or
cause to be surrendered the original certificates representing the Series C
Preferred Stock being converted (the "PREFERRED STOCK CERTIFICATES"), duly
endorsed, along with a copy of the Notice of Conversion as soon as practicable
thereafter to the Corporation. Upon receipt by the Corporation of a facsimile
copy of a Notice of Conversion from a holder, the Corporation shall promptly
send, via facsimile, a confirmation to such holder stating that the Notice of
Conversion has been received, the date upon which the Corporation expects to
deliver the Common Stock issuable upon such conversion and the name and
telephone number of a contact person at the Corporation regarding the
conversion. The Corporation shall not be obligated to issue shares of Common
Stock upon a conversion unless either the Preferred Stock Certificates are
delivered to the Corporation as provided above, or the holder notifies the
Corporation that such



                                       3


Preferred Stock Certificates have been lost, stolen or destroyed and delivers
the documentation to the Corporation required by Article XV.B hereof.

               (i) Delivery of Common Stock Upon Conversion. Upon the surrender
of Preferred Stock Certificates accompanied by a Notice of Conversion, the
Corporation (itself, or through its transfer agent) shall, no later than the
later of (a) the second business day following the Conversion Date and (b) the
business day following the date of such surrender (or, in the case of lost,
stolen or destroyed certificates, after provision of indemnity pursuant to
Article XV.B) (the "DELIVERY PERIOD"), issue and deliver (i.e., deposit with a
nationally recognized overnight courier service postage prepaid) to the holder
or its nominee (x) that number of shares of Common Stock issuable upon
conversion of such shares of Series C Preferred Stock being converted and (y) a
certificate representing the number of shares of Series C Preferred Stock not
being converted, if any. Notwithstanding the foregoing, if the Corporation's
transfer agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer program, and so long as the certificates therefor
do not bear a legend (pursuant to the terms of the Securities Purchase
Agreement) and the holder thereof is not then required to return such
certificate for the placement of a legend thereon (pursuant to the terms of the
Securities Purchase Agreement), the Corporation shall cause its transfer agent
to promptly electronically transmit the Common Stock issuable upon conversion to
the holder by crediting the account of the holder or its nominee with DTC
through its Deposit Withdrawal Agent Commission system ("DTC TRANSFER"). If the
aforementioned conditions to a DTC Transfer are not satisfied, the Corporation
shall deliver as provided above to the holder physical certificates representing
the Common Stock issuable upon conversion. Further, a holder may instruct the
Corporation to deliver to the holder physical certificates representing the
Common Stock issuable upon conversion in lieu of delivering such shares by way
of DTC Transfer.

               (ii) Taxes. The Corporation shall pay any and all taxes that may
be imposed upon it with respect to the issuance and delivery of the shares of
Common Stock upon the conversion of the Series C Preferred Stock.

               (iii) No Fractional Shares. If any conversion of Series C
Preferred Stock would result in the issuance of a fractional share of Common
Stock, such fractional share shall be payable in cash based upon the ten (10)
day average Closing Sales Price at such time, and the number of shares of Common
Stock issuable upon conversion of the Series C Preferred Stock shall be the next
lower whole number of shares.

               (iv) Conversion Disputes. In the case of any dispute with respect
to a conversion, the Corporation shall promptly issue such number of shares of
Common Stock as are not disputed in accordance with subparagraph (i) above. If
such dispute involves the calculation of the Conversion Price, and such dispute
is not promptly resolved by discussion between the relevant holder and the
Corporation, the Corporation shall submit the disputed calculations to an
independent outside accountant via facsimile within three business days of
receipt of the Notice of Conversion. The accountant, at the Corporation's sole
expense, shall promptly audit the calculations and notify the Corporation and
the holder of the results no later than three business days from the date it
receives the disputed calculations. The accountant's calculation shall be deemed
conclusive, absent manifest error. The Corporation shall then issue the
appropriate number of shares of Common Stock in accordance with subparagraph (i)
above.



                                       4


        C. Mandatory Conversion. Subject to the limitations on conversion
contained in paragraph D of this Article IV, if at any time all of the Required
Conditions (as defined herein) are satisfied and (i) at any time after the first
anniversary of the Issuance Date, the Closing Sales Price of the Common Stock is
greater than $2.42 (as adjusted to reflect any stock dividends, distributions,
combinations, reclassifications and other similar transactions effected by the
Corporation in respect to its Common Stock) for at least twenty (20) consecutive
trading days, or (ii) the holders of a majority of the then-outstanding shares
of Series C Preferred Stock shall consent thereto in writing, then, at the
option of the Corporation exercisable by the delivery of written notice to the
holders of the Series C Preferred Shares, delivered no more than ten (10) days
prior to and no less than three (3) days prior to the Conversion Date stated in
such notice, convert all or any shares of Series C Preferred Shares into a
number of fully paid and nonassessable shares of Common Stock determined in
accordance with the formula set forth in Paragraph A of this Article IV (a
"MANDATORY CONVERSION"). Thereafter, the Corporation and the holders shall
follow the applicable conversion procedures set forth in Article IV.B (including
the requirement that the Holder deliver the Preferred Stock Certificates
representing the Series C Preferred Stock being converted to the Corporation);
provided, however, the Holder shall not be required to deliver a Notice of
Conversion to the Corporation. In the event the Corporation elects to convert
only a portion of the outstanding shares of Series C Preferred Stock pursuant to
this Article IV.C, the outstanding shares of Series C Preferred Stock shall be
converted pro rata among the holders based upon their aggregate relative
ownership of outstanding shares of Series C Preferred Stock as of the Conversion
Date.

               (i) The "REQUIRED CONDITIONS" shall consist of the following:

                      (a) the registration statements required to be filed by
the Corporation pursuant to Section 2(a) of the Registration Rights Agreement,
dated as of the Issuance Date, by and among the Corporation and the initial
holders of Series C Preferred Stock (the "REGISTRATION RIGHTS AGREEMENT") shall
have been declared effective by the Securities and Exchange Commission (it being
understood that the Corporation shall comply with its obligations under Article
3 of the Registration Rights Agreement relating to the effectiveness of such
registration statements);

                      (b) all shares of Common Stock issuable upon conversion of
the Series C Preferred Stock and exercise of the Warrants are then (a)
authorized and reserved for issuance, (b) registered under the Securities Act of
1933, as amended (the "SECURITIES ACT"), for resale by the holders and (c)
eligible to be listed or traded on any of the New York Stock Exchange ("NYSE"),
the American Stock Exchange ("AMEX"), the NNM, or the NASDAQ SmallCap Market
("SMALLCAP") (or the successor to any of them);

                      (c) no Redemption Event (as defined in Article VIII below)
shall have occurred without having been cured;

                      (d) all amounts, if any, then accrued or payable under
this Certificate of Designation (including, without limitation, all Premiums) or
the Registration Rights Agreement shall have been paid.



                                       5


        D. Limitations on Conversions. The conversion of shares of Series C
Preferred Stock shall be subject to the following limitations (each of which
limitations shall be applied independently):

               (i) Cap Amount. If, notwithstanding the representations and
warranties of the Corporation contained in Section 3(c) of the Securities
Purchase Agreement and the Exchange Agreement, the Corporation is prohibited by
Rule 4350(i) of the National Association of Securities Dealers, Inc. ("NASD"),
or any successor or similar rule, or the rules or regulations of any other
securities exchange on which the Common Stock is then listed or traded, from
issuing a number of shares of Common Stock upon conversion of Series C Preferred
Stock (together with any shares of Common Stock, or securities convertible into
Common Stock, issued pursuant to the Securities Purchase Agreement, the Exchange
Agreement or other agreements entered in connection therewith) in excess of a
prescribed amount (the "CAP AMOUNT") (without stockholder approval or
otherwise), then the Corporation shall not issue shares upon conversion of
Series C Preferred Stock in excess of the Cap Amount. Assuming solely for
purposes of this paragraph (D) that such Rule 4350(i) or similar rule is
applicable, the Cap Amount shall be 4,962,589 shares. The Cap Amount shall be
allocated pro rata to the holders of Series C Preferred Stock as provided in
Article XV.C. In the event the Corporation is prohibited from issuing shares of
Common Stock as a result of the operation of this subparagraph (i), the
Corporation shall comply with Article VII.

               (ii) Additional Restrictions on Conversion or Transfer. In no
event shall a holder of shares of Series C Preferred Stock of the Corporation
have the right to convert shares of Series C Preferred Stock into shares of
Common Stock or to dispose of any shares of Series C Preferred Stock to the
extent that such right to effect such conversion or disposition would result in
the holder or any of its affiliates together beneficially owning more than (a)
19.99% of the outstanding shares of Common Stock, in the case of Biotech Target
N.V. and its affiliates for so long as they continue to hold shares of Series C
Preferred Stock, or (b) 4.99% of the outstanding shares of Common Stock, in the
case of all other holders of shares of Series C Preferred Stock. For purposes of
this subparagraph, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13D-G thereunder. The restriction contained in this subparagraph may not be
altered, amended, deleted or changed in any manner whatsoever unless the holders
of a majority of the outstanding shares of Common Stock and the Majority Holders
shall approve, in writing, such alteration, amendment, deletion or change.

                    V. RESERVATION OF SHARES OF COMMON STOCK

        A. Reserved Amount. On or prior to the Issuance Date, the Corporation
shall reserve 5,834,711 shares of its authorized but unissued shares of Common
Stock for issuance upon conversion of the Series C Preferred Stock and
thereafter the number of authorized but unissued shares of Common Stock so
reserved (the "RESERVED AMOUNT") shall at all times be sufficient to provide for
the conversion of all of the Series C Preferred Stock outstanding at the then
current Conversion Price thereof. The Reserved Amount shall be allocated to the
holders of Series C Preferred Stock as provided in Article XV.C. In the event
that the Corporation receives the Authorized Stock Approval and the NASD Rule
Approval (as such terms are defined in the Exchange Agreement), then the
Reserved Amount shall be automatically increased to 15,793,389, or such higher
number as shall then be necessary to provide for the conversion of all of the
Series C



                                       6


Preferred Stock outstanding at the then current Conversion Price thereof
(including, without limitation, all shares of Series C Preferred Stock issued
upon conversion of the Notes (as such term is defined in the Exchange Agreement)
issued to the former holders of the Corporation's Series B Convertible Preferred
Stock pursuant to the Exchange Agreement), and the Corporation shall immediately
take such corporate action as shall be necessary to reserve such additional
number of shares of its authorized but unissued shares of Common Stock for
issuance upon conversion of the Series C Preferred Stock.

        B. Increases to Reserved Amount. If the Reserved Amount for any three
consecutive trading days (the last of such three trading days being the
"AUTHORIZATION TRIGGER DATE") shall be less than 100% of the number of shares of
Common Stock issuable upon conversion of the then outstanding shares of Series C
Preferred Stock and upon exercise of the then outstanding Warrants, the
Corporation shall immediately notify the holders of Series C Preferred Stock of
such occurrence and shall take immediate action (including, if necessary,
seeking stockholder approval to authorize the issuance of additional shares of
Common Stock) to increase the Reserved Amount to 100% of the number of shares of
Common Stock then issuable upon conversion of all of the outstanding Series C
Preferred Stock at the then current Conversion Price. In the event the
Corporation fails to so increase the Reserved Amount within 90 days after an
Authorization Trigger Date, each holder of Series C Preferred Stock shall
thereafter have the option, exercisable in whole or in part at any time and from
time to time by delivery of a Redemption Notice (as defined in Article VIII.D)
to the Corporation, to require the Corporation to purchase for cash, at an
amount per share equal to the Redemption Amount (as defined in Article VIII.B),
a portion of the holder's Series C Preferred Stock such that, after giving
effect to such purchase, the holder's allocated portion of the Reserved Amount
exceeds 100% of the total number of shares of Common Stock issuable to such
holder upon conversion of its Series C Preferred Stock. If the Corporation fails
to redeem any of such shares within five (5) business days after its receipt of
such Redemption Notice, then such holder shall be entitled to the remedies
provided in Article VIII.D.

                       VI. FAILURE TO SATISFY CONVERSIONS

        A. Conversion Defaults. If, at any time, (x) a holder of shares of
Series C Preferred Stock submits a Notice of Conversion and the Corporation
fails for any reason (other than because such issuance would exceed such
holder's allocated portion of the Reserved Amount or Cap Amount, for which
failures the holders shall have the remedies set forth in Articles V and VII,
respectively) to deliver, on or prior to the fifth business day following the
expiration of the Delivery Period for such conversion, such number of freely
tradable shares of Common Stock to which such holder is entitled upon such
conversion, or (y) the Corporation provides written notice to any holder of
Series C Preferred Stock (or makes a public announcement via press release) at
any time of its intention not to issue freely tradable shares of Common Stock
upon exercise by any holder of its conversion rights in accordance with the
terms of this Certificate of Designation (other than because such issuance would
exceed such holder's allocated portion of the Reserved Amount or Cap Amount)
(each of (x) and (y) being a "CONVERSION DEFAULT") then the holder may elect at
any time and from time to time prior to the Default Cure Date (as defined below)
for such Conversion Default, by delivery of a Redemption Notice to the
Corporation, to have all or any portion of such holder's outstanding shares of
Series C Preferred Stock purchased by the Corporation for cash, at an amount per
share equal to the Redemption Amount (as defined in Article VIII.B). If the
Corporation fails to redeem any of such



                                       7


shares within five business days after its receipt of such Redemption Notice,
then such holder shall be entitled to the remedies provided in Article VIII.D.

               "DEFAULT CURE DATE" means, as applicable, (i) with respect to a
Conversion Default described in clause (x) of its definition, the date the
Corporation effects the conversion of the full number of shares of Series C
Preferred Stock, and (ii) with respect to a Conversion Default described in
clause (y) of its definition, the date the Corporation issues freely tradable
shares of Common Stock in satisfaction of all conversions of Series C Preferred
Stock in accordance with Article IV.A, or (iii) with respect to either type of a
Conversion Default, the date on which the Corporation redeems shares of Series C
Preferred Stock held by such holder pursuant to this Article VI.A.

        B. Buy-In Cure. Unless the Corporation has notified the applicable
holder in writing prior to the delivery by such holder of a Notice of Conversion
that the Corporation is unable to honor conversions, if (i) (a) the Corporation
fails to promptly deliver during the Delivery Period shares of Common Stock to a
holder upon a conversion of shares of Series C Preferred Stock or (b) there
shall occur a Legend Removal Failure (as defined in Article VIII.A(ii) below)
and (ii) thereafter, such holder purchases (in an open market transaction or
otherwise) shares of Common Stock to make delivery in satisfaction of a sale by
such holder of the unlegended shares of Common Stock (the "SOLD SHARES") which
such holder anticipated receiving upon such conversion (a "BUY-IN"), the
Corporation shall pay such holder (in addition to any other remedies available
to the holder) the amount by which (x) such holder's total purchase price
(including brokerage commissions, if any) for the unlegended shares of Common
Stock so purchased exceeds (y) the net proceeds received by such holder from the
sale of the Sold Shares. For example, if a holder purchases unlegended shares of
Common Stock having a total purchase price of $11,000 to cover a Buy-In with
respect to shares of Common Stock it sold for $10,000, the Corporation will be
required to pay the holder $1,000. A holder shall provide the Corporation
written notification and supporting documentation indicating any amounts payable
to such holder pursuant to this Paragraph B. The Corporation shall make any
payments required pursuant to this Paragraph B in accordance with and subject to
the provisions of Article XV.E.

                   VII. INABILITY TO CONVERT DUE TO CAP AMOUNT

        A. Obligation to Cure. If at any time after the Issuance Date the then
unissued portion of any holder's Cap Amount is less than 100% of the number of
shares of Common Stock then issuable upon conversion of such holder's shares of
Series C Preferred Stock, the Corporation shall immediately notify the holders
of Series C Preferred Stock of such occurrence and each holder of Series C
Preferred Stock shall thereafter have the option, exercisable in whole or in
part at any time and from time to time, by delivery of a Redemption Notice (as
defined in Article VIII.D) to the Corporation, to require the Corporation to
purchase for cash, at an amount per share equal to the Redemption Amount (as
defined in Article VIII.B), a number of the holder's shares of Series C
Preferred Stock such that, after giving effect to such redemption, the then
unissued portion of such holder's Cap Amount exceeds 100% of the total number of
shares of Common Stock issuable upon conversion of such holder's shares of
Series C Preferred Stock. If the Corporation fails to redeem any of such shares
within five (5) business days after its receipt of such Redemption Notice, then
such holder shall be entitled to the remedies provided in Article VIII.D.



                                       8


                     VIII. REDEMPTION DUE TO CERTAIN EVENTS

        A. Redemption by Holder. In the event (each of the events described in
clauses (i)-(vii) below after expiration of the applicable cure period (if any)
being a "REDEMPTION EVENT"):

               (i) the registration statement required to be filed by the
Corporation pursuant to Section 2(a) of the Registration Rights Agreement has
not been declared effective by the 130th day following the Issuance Date or such
registration statement, after being declared effective, cannot be utilized by
the holders of Series C Preferred Stock for the resale of all of their
Registrable Securities (as defined in the Registration Rights Agreement) for an
aggregate of more than 30 days (other than as permitted under the Registration
Rights Agreement);

               (ii) the Corporation fails to remove any restrictive legend on
any certificate or any shares of Common Stock issued to the holders of Series C
Preferred Stock upon conversion of the Series C Preferred Stock as and when
required by this Certificate of Designation, the Securities Purchase Agreement,
the Exchange Agreement or the Registration Rights Agreement (a "LEGEND REMOVAL
FAILURE"), and any such failure continues uncured for five business days after
the Corporation has been notified thereof in writing by the holder that the
holder has complied with the terms of the Securities Purchase Agreement or the
Exchange Agreement, as applicable, with respect to such legend removal;

               (iii) the Corporation provides written notice (or otherwise
indicates) to any holder of Series C Preferred Stock, or states by way of public
announcement distributed via a press release, at any time, of its intention not
to issue, or otherwise refuses to issue, shares of Common Stock to any holder of
Series C Preferred Stock upon conversion in accordance with the terms of this
Certificate of Designation (other than due to the circumstances contemplated by
Articles V or VII for which the holders shall have the remedies set forth in
such Articles);

               (iv) the Corporation or any subsidiary of the Corporation shall
make an assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part of its
property or business, or such a receiver or trustee shall otherwise be
appointed;

               (v) bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for the relief of debtors shall be instituted
by the Corporation or any subsidiary of the Corporation;

               (vi) the Corporation shall:

                      (a) sell, convey or dispose of all or substantially all of
its assets (the presentation of any such transaction for stockholder approval
being conclusive evidence that such transaction involves the sale of all or
substantially all of the assets of the Corporation);

                      (b) merge, consolidate or engage in any other business
combination with any other entity (other than pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of incorporation of
the Corporation and other than pursuant to a merger in which the Corporation is
the surviving or continuing entity and its capital stock is unchanged)



                                       9


provided that such merger, consolidation or business combination is required to
be reported by the Company on a Current Report pursuant to Item 1 of Form 8-K,
or any successor form;

                      (c) either (i) fail to pay, when due, or within any
applicable grace period, any payment with respect to any indebtedness of the
Corporation in excess of $350,000 due to any third party, other than payments
contested by the Corporation in good faith, or otherwise is in breach or
violation of any agreement for monies owed or owing in an amount in excess of
$350,000 which breach or violation permits the other party thereto to declare a
default or otherwise accelerate amounts due thereunder, or (ii) suffer to exist
any other default or event of default under any agreement binding the
Corporation which default or event of default would or is likely to have a
material adverse effect on the business, operations, properties, prospects or
financial condition of the Corporation; or

                      (d) on or prior to the second anniversary of the Issuance
Date, issue or agree to issue any future equity or equity-linked securities or
debt which is convertible into equity or in which there is an equity component
(as the case may be, "ADDITIONAL SECURITIES"), except for any Excluded Issuance
(as defined herein); or

               (vii) except with respect to matters covered by subparagraphs (i)
- -- (vi) above, as to which such applicable subparagraphs shall apply, the
Corporation otherwise shall breach any material term hereunder or under the
Securities Purchase Agreement, the Exchange Agreement, the Registration Rights
Agreement or the Warrants, including, without limitation, the representations
and warranties contained therein (i.e., in the event of a material breach as of
the date such representation and warranty was made) and if such breach is
curable, shall fail to cure such breach within 10 business days after the
Corporation has been notified thereof in writing by the holder;

then, upon the occurrence of any such Redemption Event, each holder of shares of
Series C Preferred Stock shall thereafter have the option, exercisable in whole
or in part at any time and from time to time by delivery of a Redemption Notice
(as defined in Paragraph D below) to the Corporation while such Redemption Event
continues, to require the Corporation to purchase for cash any or all of the
then outstanding shares of Series C Preferred Stock held by such holder for an
amount per share equal to the Redemption Amount (as defined in Paragraph B
below) in effect at the time of the redemption hereunder. For the avoidance of
doubt, the occurrence of any event described in clauses (i), (iii), (iv) or
(vi)(d) above shall immediately constitute a Redemption Event and there shall be
no cure period. Upon the Corporation's receipt of any Redemption Notice
hereunder (other than during the three trading day period following the
Corporation's delivery of a Redemption Announcement (as defined below) to all of
the holders in response to the Corporation's initial receipt of a Redemption
Notice from a holder of Series C Preferred Stock), the Corporation shall
immediately (and in any event within one business day following such receipt)
deliver a written notice (a "REDEMPTION ANNOUNCEMENT") to all holders of Series
C Preferred Stock stating the date upon which the Corporation received such
Redemption Notice and the amount of Series C Preferred Stock covered thereby.
The Corporation shall not redeem any shares of Series C Preferred Stock during
the three trading day period following the delivery of a required Redemption
Announcement hereunder. At any time and from time to time during such three
trading day period, each holder of Series C Preferred Stock may request (either
orally or in writing) information from the Corporation with respect to the
instant redemption (including, but not limited to, the aggregate number of
shares of



                                       10


Series C Preferred Stock covered by Redemption Notices received by the
Corporation) and the Corporation shall furnish (either orally or in writing) as
soon as practicable such requested information to such requesting holder.

        B. Definition of Redemption Amount. The "REDEMPTION AMOUNT" with respect
to a share of Series C Preferred Stock means an amount equal to the greater of:

               (i)        V      X      M
                        -----
                         C P

        and    (ii)       V      X      R

where:

               "V" means the Face Amount thereof plus the accrued Premium
thereon through the date of payment of the Redemption Amount;

               "CP" means the Conversion Price in effect on the date on which
the Corporation receives the Redemption Notice;

               "M" means (i) with respect to all redemptions other than
redemptions pursuant to Article VIII.A(vi) hereof, the highest Closing Sales
Price of the Corporation's Common Stock during the period beginning on the date
on which the Corporation receives the Redemption Notice and ending on the date
immediately preceding the date of payment of the Redemption Amount and (ii) with
respect to redemptions pursuant to Article VIII.A(vi) hereof, the greater of (a)
the amount determined pursuant to clause (i) of this definition or (b) the fair
market value, as of the date on which the Corporation receives the Redemption
Notice, of the consideration payable to the holder of a share of Common Stock
pursuant to the transaction which triggers the redemption. For purposes of this
definition, "fair market value" shall be determined by the mutual agreement of
the Corporation and holders of a majority-in-interest of the shares of Series C
Preferred Stock then outstanding, or if such agreement cannot be reached within
five business days prior to the date of redemption, by an investment banking
firm selected by the Corporation and reasonably acceptable to holders of a
majority-in-interest of the then outstanding shares of Series C Preferred Stock,
with the costs of such appraisal to be borne by the Corporation; and

               "R" means 120%.

        C. [Intentionally omitted].

        D. Redemption Defaults. If the Corporation fails to pay any holder the
Redemption Amount with respect to any share of Series C Preferred Stock within
five business days after its receipt of a notice requiring such redemption (a
"REDEMPTION NOTICE"), then the holder of Series C Preferred Stock entitled to
redemption shall be entitled to interest on the Redemption Amount at a per annum
rate equal to the lower of twenty-four percent (24%) and the highest interest
rate permitted by applicable law from the date on which the Corporation receives
the Redemption Notice



                                       11


until the date of payment of the Redemption Amount hereunder. In the event the
Corporation is not able to redeem all of the shares of Series C Preferred Stock
subject to Redemption Notices delivered prior to the date upon which such
redemption is to be effected, the Corporation shall redeem shares of Series C
Preferred Stock from each holder pro rata, based on the total number of shares
of Series C Preferred Stock outstanding at the time of redemption included by
such holder in all Redemption Notices delivered prior to the date upon which
such redemption is to be effected relative to the total number of shares of
Series C Preferred Stock outstanding at the time of redemption included in all
of the Redemption Notices delivered prior to the date upon which such redemption
is to be effected.

                                    IX. RANK

        All shares of the Series C Preferred Stock shall rank (i) prior to (a)
the Corporation's Common Stock; and (b) any class or series of capital stock of
the Corporation hereafter created (unless, with the consent of the holders of a
majority of the Series C Preferred Stock obtained in accordance with Article
XIII hereof, such class or series of capital stock specifically, by its terms,
ranks senior to or pari passu with the Series C Preferred Stock) (collectively
with the Common Stock, "JUNIOR SECURITIES"); (ii) pari passu with the
Corporation's Series A Convertible Preferred Stock, Series B Convertible
Preferred Stock and any other class or series of capital stock of the
Corporation hereafter created (with the written consent of the holders of a
majority of the Series C Preferred Stock obtained in accordance with Article
XIII hereof) specifically ranking, by its terms, on parity with the Series C
Preferred Stock (the "PARI PASSU SECURITIES"); and (iii) junior to any class or
series of capital stock of the Corporation hereafter created (with the written
consent of the holders of a majority of the Series C Preferred Stock obtained in
accordance with Article XIII hereof) specifically ranking, by its terms, senior
to the Series C Preferred Stock (collectively, the "SENIOR SECURITIES"), in each
case as to distribution of assets upon liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary.

                            X. LIQUIDATION PREFERENCE

        A. If the Corporation shall commence a voluntary case under the U.S.
Federal bankruptcy laws or any other applicable bankruptcy, insolvency or
similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the U.S. Federal bankruptcy laws or any other
applicable bankruptcy, insolvency or similar law resulting in the appointment of
a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and any such decree or
order shall be unstayed and in effect for a period of 60 consecutive days and,
on account of any such event, the Corporation shall liquidate, dissolve or wind
up, or if the Corporation shall otherwise liquidate, dissolve or wind up,
including, but not limited to, the sale or transfer of all or substantially all
of the Corporation's assets in one transaction or in a series of related
transactions (only in the event a holder does not elect its rights with respect
to such sale of transfer as set forth in Article XI.B. if applicable) (a
"LIQUIDATION EVENT"), no distribution shall be made to the holders of any shares
of capital stock



                                       12


of the Corporation (other than Senior Securities pursuant to the rights,
preferences and privileges thereof) upon liquidation, dissolution or winding up
unless prior thereto the holders of shares of Series C Preferred Stock shall
have received the Liquidation Preference with respect to each share. If, upon
the occurrence of a Liquidation Event, the assets and funds available for
distribution among the holders of the Series C Preferred Stock and holders of
Pari Passu Securities, if any, shall be insufficient to permit the payment to
such holders of the preferential amounts payable thereon, then the entire assets
and funds of the Corporation legally available for distribution to the Series C
Preferred Stock and the Pari Passu Securities, if any, shall be distributed
ratably among such shares in proportion to the ratio that the Liquidation
Preference payable on each such share bears to the aggregate Liquidation
Preference payable on all such shares.

        B. The purchase or redemption by the Corporation of stock of any class,
in any manner permitted by law, shall not, for the purposes hereof, be regarded
as a liquidation, dissolution or winding up of the Corporation. Neither the
consolidation or merger of the Corporation with or into any other entity nor the
sale or transfer by the Corporation of less than substantially all of its assets
shall, for the purposes hereof, be deemed to be a liquidation, dissolution or
winding up of the Corporation.

        C. The "LIQUIDATION PREFERENCE" with respect to a share of Series C
Preferred Stock means an amount equal to the greater of (i) the Face Amount
thereof plus the accrued Premium thereon through the date of final distribution
or (ii) such amount as would have been payable per share of Series C Preferred
Stock had each share of Series C Preferred Stock been converted into Common
Stock in accordance with Article IV immediately prior to such liquidation,
dissolution or winding up. The Liquidation Preference with respect to any Pari
Passu Securities, if any, shall be as set forth in the Certificate of
Designation filed in respect thereof.

                     XI. ADJUSTMENTS TO THE CONVERSION PRICE

        The Conversion Price shall be subject to adjustment from time to time as
follows:

        A. Stock Splits, Stock Dividends, Etc. If, at any time on or after the
Issuance Date, the number of outstanding shares of Common Stock is increased by
a stock split, stock dividend, combination, reclassification or other similar
event, the Conversion Price shall be proportionately reduced, or if the number
of outstanding shares of Common Stock is decreased by a reverse stock split,
combination or reclassification of shares, or other similar event, the
Conversion Price shall be proportionately increased. In such event, the
Corporation shall notify the Corporation's transfer agent of such change on or
before the effective date thereof.

        B. Adjustment Due to Merger, Consolidation, Etc. If, at any time after
the Issuance Date, there shall be (i) any reclassification or change of the
outstanding shares of Common Stock (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a result of
a subdivision or combination), (ii) any consolidation or merger of the
Corporation with any other entity (other than a merger in which the Corporation
is the surviving or continuing entity and its capital stock is unchanged), (iii)
any sale or transfer of all or substantially all of the assets of the
Corporation or (iv) any share exchange pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or property (each of
(i) - (iv) above



                                       13


being a "CORPORATE CHANGE"), then the holders of Series C Preferred Stock shall
thereafter have the right to receive upon conversion, in lieu of the shares of
Common Stock otherwise issuable, such shares of stock, securities and/or other
property as would have been issued or payable in such Corporate Change with
respect to or in exchange for the number of shares of Common Stock which would
have been issuable upon conversion had such Corporate Change not taken place,
and in any such case, appropriate provisions (in form and substance reasonably
satisfactory to the holders of a majority of the Series C Preferred Stock then
outstanding) shall be made with respect to the rights and interests of the
holders of the Series C Preferred Stock to the end that the economic value of
the shares of Series C Preferred Stock are in no way diminished by such
Corporate Change and that the provisions hereof (including, without limitation,
in the case of any such consolidation, merger or sale in which the successor
entity or purchasing entity is not the Corporation, an immediate adjustment of
the Conversion Price so that the Conversion Price immediately after the
Corporate Change reflects the same relative value as compared to the value of
the surviving entity's common stock that existed between the Conversion Price
and the value of the Corporation's Common Stock immediately prior to such
Corporate Change shall thereafter be applicable, as nearly as may be practicable
in relation to any shares of stock or securities thereafter deliverable upon the
conversion thereof). The Corporation shall not effect any Corporate Change
unless (i) each holder of Series C Preferred Stock has received written notice
of such transaction at least 45 days prior thereto, but in no event later than
15 days prior to the record date for the determination of stockholders entitled
to vote with respect thereto, (ii) if required by Section 4(j) of the Securities
Purchase Agreement, the consent of the Purchasers (as defined in the Securities
Purchase Agreement) shall have been obtained in accordance with such Section
4(j), and (iii) the resulting successor or acquiring entity (if not the
Corporation) assumes by written instrument (in form and substance reasonable
satisfactory to the holders of a majority of the Series C Preferred Stock) the
obligations of this Certificate of Designation (including, without limitation,
the obligation to make payments of Premium accrued but unpaid through the date
of such consolidation, merger or sale and accruing thereafter). The above
provisions shall apply regardless of whether or not there would have been a
sufficient number of shares of Common Stock authorized and available for
issuance upon conversion of the shares of Series C Preferred Stock outstanding
as of the date of such transaction, and shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or share exchanges.

        C. [Intentionally omitted].

        D. Adjustment Due to Distribution. If, at any time after the Issuance
Date, the Corporation shall declare or make any distribution of its assets (or
rights to acquire its assets) to holders of Common Stock as a partial
liquidating dividend, by way of return of capital or otherwise (including any
dividend or distribution to the Corporation's stockholders in cash or shares (or
rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off))
(a "DISTRIBUTION"), then the holders of Series C Preferred Stock shall be
entitled, upon any conversion of shares of Series C Preferred Stock after the
date of record for determining stockholders entitled to such Distribution, to
receive the amount of such assets which would have been payable to the holder
with respect to the shares of Common Stock issuable upon such conversion had
such holder been the holder of such shares of Common Stock on the record date
for the determination of stockholders entitled to such Distribution. If the
Distribution involves rights, warrants, options or any other form of convertible
securities and the right to exercise or convert such securities would expire in
accordance with its terms prior to the conversion of the Series C Preferred
Stock, then the terms of such securities shall



                                       14


provide that such exercise or convertibility right shall remain in effect until
30 days after the date the holder of Series C Preferred Stock receives such
securities pursuant to the conversion hereof.

        E. [Intentionally omitted].

        F. Purchase Rights. If, at any time after the Issuance Date, the
Corporation issues any securities which are convertible into or exercisable or
exchangeable for Common Stock ("CONVERTIBLE SECURITIES") or rights to purchase
stock, warrants, securities or other property (the "PURCHASE RIGHTS") pro rata
to the record holders of any class of Common Stock, then the holders of Series C
Preferred Stock will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such holder could have
acquired if such holder had held the number of shares of Common Stock acquirable
upon complete conversion of the Series C Preferred Stock (without giving effect
to the limitations contained in Article IV.D) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights.

        G. [Intentionally omitted].

        H. Exceptions to Adjustment of Conversion Price. No adjustment to the
Conversion Price will be made (i) upon the exercise of any warrants, options or
convertible securities issued and outstanding on the Issuance Date that are set
forth on Schedule 3(d) of the Securities Purchase Agreement and the Exchange
Agreement in accordance with the terms of such securities as of such date; (ii)
upon the grant or exercise of any stock or options to employees, directors or
consultants of the Corporation which may hereafter be granted to or exercised by
any employee, director or consultant under any stock option or similar benefit
plan of the Corporation now existing or to be implemented in the future, so long
as the issuance of such stock or options is approved by a majority of the Board
of Directors of the Corporation or a majority of the members of a committee of
non-employee directors established for such purpose; (iii) upon issuance or
conversion of the Series C Preferred Stock or exercise of the Warrants, (iv) the
issuance of securities in connection with strategic business partnerships or
joint ventures (including, without limitation, such transactions with major
pharmaceutical lab or life sciences companies), the primary purpose of which
transactions, in the reasonable judgment of the Board of Directors, is not to
raise additional capital, or (v) the issuance of securities pursuant to any
equipment financing from a bank or similar financial or lending institution
approved by the Board of Directors (any such issuance in accordance with one of
the foregoing clauses (i) through (v), an "EXCLUDED ISSUANCE").

        I. Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Article XI amounting to a
more than 5% change in such Conversion Price, the Corporation, at its expense,
shall promptly compute such adjustment or readjustment and prepare and furnish
to each holder of Series C Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series C Preferred Stock, furnish to such
holder a like certificate setting forth (i) such adjustment or readjustment,
(ii) the Conversion Price at the time in effect and (iii) the number of shares
of



                                       15


Common Stock and the amount, if any, of other securities or property which at
the time would be received upon conversion of a share of Series C Preferred
Stock.

        J. Other Action Affecting Conversion Price. If the Corporation takes any
action affecting the Common Stock after the date hereof that would be covered by
Article XI.A through H, but for the manner in which such action is taken or
structured, which would in any way diminish the value of the Series C Preferred
Stock, then the Conversion Price shall be adjusted in such manner as the Board
of Directors of the Corporation shall in good faith determine to be equitable
under the circumstances.

                               XII. VOTING RIGHTS

        The holders of the Series C Preferred Stock have no voting power
whatsoever, except as otherwise provided by the Delaware General Corporation Law
(the "BUSINESS CORPORATION Law"), in this Article XII and in Article XIII below.

        Notwithstanding the above, the Corporation shall provide each holder of
Series C Preferred Stock with prior notification of any meeting of the
stockholders (and copies of proxy materials and other information sent to
stockholders). If the Corporation takes a record of its stockholders for the
purpose of determining stockholders entitled to (a) receive payment of any
dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or (b) to vote in connection with any proposed sale,
lease or conveyance of all or substantially all of the assets of the
Corporation, or any proposed merger, consolidation, liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice to each
holder, at least 15 days prior to the record date specified therein (or 45 days
prior to the consummation of the transaction or event, whichever is earlier, but
in no event earlier than public announcement of such proposed transaction), of
the date on which any such record is to be taken for the purpose of such vote,
dividend, distribution, right or other event, and a brief statement regarding
the amount and character of such vote, dividend, distribution, right or other
event to the extent known at such time.

        To the extent that under the Business Corporation Law the vote of the
holders of the Series C Preferred Stock, voting separately as a class or series,
as applicable, is required to authorize a given action of the Corporation, the
affirmative vote or consent of the holders of at least a majority of the then
outstanding shares of the Series C Preferred Stock represented at a duly held
meeting at which a quorum is present or by written consent of the holders of at
least a majority of the then outstanding shares of Series C Preferred Stock
(except as otherwise may be required under the Business Corporation Law) shall
constitute the approval of such action by the class. To the extent that under
the Business Corporation Law holders of the Series C Preferred Stock are
entitled to vote on a matter with holders of Common Stock, voting together as
one class, each share of Series C Preferred Stock shall be entitled to a number
of votes equal to the number of shares of Common Stock into which it is then
convertible (subject to the limitations contained in Article IV.D(ii)) using the
record date for the taking of such vote of stockholders as the date as of which
the Conversion Price is calculated.



                                       16


                           XIII. PROTECTION PROVISIONS

        So long as any shares of Series C Preferred Stock are outstanding, the
Corporation shall not take any of the following corporate actions (whether by
merger, consolidation or otherwise) without first obtaining the approval (by
vote or written consent, as provided by the Business Corporation Law) of the
holders of a majority of the then outstanding shares of Series C Preferred
Stock:

                      (a) alter or change the rights, preferences or privileges
of the Series C Preferred Stock;

                      (b) alter or change the rights, preferences or privileges
of any capital stock of the Corporation so as to affect adversely the Series C
Preferred Stock;

                      (c) create any Senior Securities;

                      (d) create any Pari Passu Securities;

                      (e) increase the authorized number of shares of Series C
Preferred Stock;

                      (f) issue any shares of Senior Securities or Pari Passu
Securities;

                      (g) issue any shares of Series C Preferred Stock other
than pursuant to the Securities Purchase Agreement or the Notes issued pursuant
to the Exchange Agreement;

                      (h) redeem, or declare or pay any cash dividend or
distribution on, any Junior Securities;

                      (i) increase the par value of the Common Stock; or

                      (j) issue any debt securities that would have any
preferences over the Series C Preferred Shares upon liquidation of the
Corporation.

Notwithstanding the foregoing, no change pursuant to this Article XIII shall be
effective to the extent that, by its terms, it applies to less than all of the
holders of shares of Series C Preferred Stock then outstanding.

                            XIV. PARTICIPATION RIGHT

        A. Participation Right. Subject to the terms and conditions specified in
this Article XIV, until the second anniversary of the Issuance Date, the holders
of shares of Series C Preferred Stock shall have a right to participate with
respect to the issuance or possible issuance of any Additional Securities on the
same terms and conditions as offered by the Corporation to the other purchasers
of such Additional Securities. Each time the Corporation proposes to offer any
Additional Securities, the Corporation shall make an offering of such Additional
Securities to each holder of shares of Series C Preferred Stock in accordance
with the following provisions:

               (i) The Corporation shall deliver a notice (the "ISSUANCE
NOTICE") to the holders of shares of Series C Preferred Stock stating (a) its
bona fide intention to offer such Additional



                                       17


Securities, (b) the number of such Additional Securities to be offered, (c) the
price and terms, if any, upon which it proposes to offer such Additional
Securities, and (d) the anticipated closing date of the sale of such Additional
Securities.

               (ii) By written notification received by the Corporation, within
twenty (20) days after giving of the Issuance Notice, any holder of shares of
Series C Preferred Stock may elect to purchase or obtain, at the price and on
the terms specified in the Issuance Notice, up to that number of such Additional
Securities which equals such holder's Pro Rata Amount (as defined below). The
"PRO RATA AMOUNT" for any given holder of shares of Series C Preferred Stock
shall equal that portion of the Additional Securities that the Corporation
proposes to offer which equals the proportion that the number of shares of
Common Stock that such holder owns or has the right to acquire (without giving
effect to the limitations contained in Article IV.D) bears to the total number
of shares of Common Stock then outstanding (assuming in each case the full
conversion and exercise of all convertible and exercisable securities then
outstanding); provided, however, that in the event that any such holder
exercises its right to redeem its shares of Series C Preferred Stock in
connection with the issuance of such Additional Securities (as provided in
Article VIII.A(vi)(d)), then such holder's Pro Rata Amount shall be increased
(but not decreased) to the extent necessary to equal (x) such number of shares
of Common Stock (if the Additional Securities being issued are Common Stock) or
(y) that number of Additional Securities as are convertible into or exchangeable
for such number of shares of Common Stock (if the Additional Securities being
issued are Convertible Securities), as is obtained by dividing (a) the
Redemption Amount attributable to such holder's shares of Series C Preferred
Stock being redeemed by (b) (i) the price per share at which such Common Stock
is being issued (if the Additional Securities being issued are Common Stock) or
(ii) the conversion or exchange price at which such Additional Securities are
convertible into or exchangeable for shares of Common Stock (if the Additional
Securities being issued are Convertible Securities), and in such event the
Corporation shall be obligated to sell such number of Additional Securities to
each such holder, even if the aggregate Pro Rata Amount for all such holders
exceeds the aggregate amount of Additional Securities that the Corporation had
initially proposed to offer. The Corporation shall promptly, in writing, inform
each holder of shares of Series C Preferred Stock which elects to purchase all
of the Additional Shares available to it ("FULLY-EXERCISING HOLDER") of any
other holder's failure to do likewise. During the five-day period commencing
after such information is given, each Fully-Exercising Holder shall be entitled
to obtain that portion of the Additional Securities for which the holders of
shares of Series C Preferred Stock were entitled to subscribe but which were not
subscribed for by such holders which is equal to the proportion that the number
of shares of Series C Preferred Stock held by such Fully-Exercising Holder bears
to the total number of shares of Series C Preferred Stock held by all
Fully-Exercising Holders who wish to purchase some of the unsubscribed shares.

               (iii) If all Additional Securities which the holders of shares of
Series C Preferred Stock are entitled to obtain pursuant to Article XIV.A(ii)
are not elected to be obtained as provided in Article XIV.A(ii) hereof, the
Corporation may, during the 75-day period following the expiration of the period
provided in Article XIV.A(ii) hereof, offer the remaining unsubscribed portion
of such Additional Securities to any person or persons at a price not less than,
and upon terms no more favorable to the offeree than, those specified in the
Issuance Notice. If the Corporation does not consummate the sale of such
Additional Securities within such period, the right provided hereunder shall be
deemed to be revived and such Additional Securities shall not be offered or sold
unless first



                                       18


reoffered to the holders of shares of Series C Preferred Stock in accordance
herewith.

               (iv) The participation right in this Article XIV shall not be
applicable to (a) any Excluded Issuance, or (b) any issuance of securities as to
which the holders of a majority of the then outstanding shares of Series C
Preferred Stock shall have executed a written waiver of the rights contained in
this Article XIV.

               (v) The participation right set forth in this Article XIV may not
be assigned or transferred, except that such right is assignable by each holder
of shares of Series C Preferred Stock to any wholly-owned subsidiary or parent
of, or to any corporation or entity that is, within the meaning of the
Securities Act, controlling, controlled by or under common control with, any
such holder.

        B. Prohibition on Issuance of Additional Securities. Notwithstanding any
other provision in this Certificate of Designation to the contrary, the
Corporation shall not be permitted to issue any Additional Securities to any
party (including, without limitation, the holders of Series C Preferred Stock
pursuant to this Article XIV) in the event that the Corporation is currently in
default (or an event has occurred that, with notice or lapse of time or both,
would put the Corporation in default) of its redemption obligations pursuant to
this Certificate of Designation.

                                XV. MISCELLANEOUS

        A. Cancellation of Series C Preferred Stock. If any shares of Series C
Preferred Stock are converted pursuant to Article IV or redeemed or repurchased
by the Corporation, the shares so converted or redeemed shall be canceled, shall
return to the status of authorized, but unissued preferred stock of no
designated series, and shall not be issuable by the Corporation as Series C
Preferred Stock.

        B. Lost or Stolen Certificates. Upon receipt by the Corporation of (i)
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificate(s) and (ii) (y) in the case of loss, theft or destruction, of
indemnity (without any bond or other security) reasonably satisfactory to the
Corporation, or (z) in the case of mutilation, upon surrender and cancellation
of the Preferred Stock Certificate(s), the Corporation shall execute and deliver
new Preferred Stock Certificate(s) of like tenor and date. However, the
Corporation shall not be obligated to reissue such lost or stolen Preferred
Stock Certificate(s) if the holder contemporaneously requests the Corporation to
convert such Series C Preferred Stock.

        C. Allocation of Cap Amount and Reserved Amount. The initial Cap Amount
and Reserved Amount shall be allocated pro rata among the holders of Series C
Preferred Stock based on the number of shares of Series C Preferred Stock issued
to each holder. Each increase to the Cap Amount and the Reserved Amount shall be
allocated pro rata among the holders of Series C Preferred Stock based on the
number of shares of Series C Preferred Stock held by each holder at the time of
the increase in the Cap Amount or Reserved Amount. In the event a holder shall
sell or otherwise transfer any of such holder's shares of Series C Preferred
Stock, each transferee shall be allocated a pro rata portion of such
transferor's Cap Amount and Reserved Amount. Any portion of the Cap Amount or
Reserved Amount which remains allocated to any person or entity which does



                                       19


not hold any Series C Preferred Stock shall be allocated to the remaining
holders of shares of Series C Preferred Stock, pro rata based on the number of
shares of Series C Preferred Stock then held by such holders.

        D. Quarterly Statements of Available Shares. For each calendar quarter
beginning in the quarter in which the initial registration statement required to
be filed pursuant to Section 2(a) of the Registration Rights Agreement is
declared effective and thereafter so long as any shares of Series C Preferred
Stock are outstanding, the Corporation shall deliver (or cause its transfer
agent to deliver) to each holder a written report notifying the holders of any
occurrence which prohibits the Corporation from issuing Common Stock upon any
such conversion. The report shall also specify (i) the total number of shares of
Series C Preferred Stock outstanding as of the end of such quarter, (ii) the
total number of shares of Common Stock issued upon all conversions of Series C
Preferred Stock prior to the end of such quarter, (iii) the total number of
shares of Common Stock which are reserved for issuance upon conversion of the
Series C Preferred Stock as of the end of such quarter and (iv) the total number
of shares of Common Stock which may thereafter be issued by the Corporation upon
conversion of the Series C Preferred Stock before the Corporation would exceed
the Cap Amount and the Reserved Amount. The Corporation (or its transfer agent)
shall use its best efforts to deliver the report for each quarter to each holder
prior to the tenth day of the calendar month following the quarter to which such
report relates. In addition, the Corporation (or its transfer agent) shall
provide, as promptly as practicable delivery to the Corporation of a written
request by any holder, any of the information enumerated in clauses (i) - (iv)
of this Paragraph D as of the date of such request.

        E. Payment of Cash; Defaults. Whenever the Corporation is required to
make any cash payment to a holder under this Certificate of Designation (as
payment of any Premium, upon redemption or otherwise), such cash payment shall
be made to the holder within five business days after delivery by such holder of
a notice specifying that the holder elects to receive such payment in cash and
the method (e.g., by check, wire transfer) in which such payment should be made
and any supporting documentation reasonably requested by the Corporation to
substantiate the holder's claim to such cash payment or the amount thereof. If
such payment is not delivered within such five business day period, such holder
shall thereafter be entitled to interest on the unpaid amount at a per annum
rate equal to the lower of eighteen percent (18%) and the highest interest rate
permitted by applicable law until such amount is paid in full to the holder.

        F. Status as Stockholder. Upon submission of a Notice of Conversion by a
holder of Series C Preferred Stock, (i) the shares covered thereby (other than
the shares, if any, which cannot be issued because their issuance would exceed
such holder's allocated portion of the Reserved Amount or Cap Amount) shall be
deemed converted into shares of Common Stock and (ii) the holder's rights as a
holder of such converted shares of Series C Preferred Stock shall cease and
terminate, excepting only the right to receive certificates for such shares of
Common Stock and to any remedies provided herein or otherwise available at law
or in equity to such holder because of a failure by the Corporation to comply
with the terms of this Certificate of Designation. In situations where Article
VI.B is applicable, the number of shares of Common Stock referred to in clauses
(i) and (ii) of the immediately preceding sentence shall be determined on the
date on which such shares of Common Stock are delivered to the holder.
Notwithstanding the foregoing, if a holder has not received certificates for all
shares of Common Stock prior to the sixth business day after the



                                       20


expiration of the Delivery Period with respect to a conversion of Series C
Preferred Stock for any reason, then (unless the holder otherwise elects to
retain its status as a holder of Common Stock by so notifying the Corporation
within five business days after the expiration of such 6 business day period
after expiration of the Delivery Period) the holder shall regain the rights of a
holder of Series C Preferred Stock with respect to such unconverted shares of
Series C Preferred Stock and the Corporation shall, as soon as practicable,
return such unconverted shares to the holder. In all cases, the holder shall
retain all of its rights and remedies for the Corporation's failure to convert
Series C Preferred Stock.

        G. Remedies Cumulative. The remedies provided in this Certificate of
Designation shall be cumulative and in addition to all other remedies available
under this Certificate of Designation, at law or in equity (including a decree
of specific performance and/or other injunctive relief), and nothing herein
shall limit a holder's right to pursue actual damages for any failure by the
Corporation to comply with the terms of this Certificate of Designation. The
Corporation acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the holders of Series C Preferred Stock and that the
remedy at law for any such breach may be inadequate. The Corporation therefore
agrees, in the event of any such breach or threatened breach, that the holders
of Series C Preferred Stock shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.

        H. Waiver. Notwithstanding any provision in this Certificate of
Designation to the contrary, any provision contained herein and any right of the
holders of Series C Preferred Stock granted hereunder may be waived as to all
shares of Series C Preferred Stock (and the holders thereof) upon the written
consent of the holders of not less than a majority of the shares of Series C
Preferred Stock then outstanding, unless a higher percentage is required by
applicable law, in which case the written consent of the holders of not less
than such higher percentage shall be required.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]



                                       21


        IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation this 15th day of November, 2002.

                                            VIROLOGIC, INC.



                                            By: /s/ WILLIAM D. YOUNG
                                               ---------------------------------
                                               Name: William D. Young
                                               Title: Chairman & CEO



                                       22


                              NOTICE OF CONVERSION

                    (To be Executed by the Registered Holder
                in order to Convert the Series C Preferred Stock)

        The undersigned hereby irrevocably elects to convert ____________ shares
of Series C Preferred Stock (the "CONVERSION"), represented by stock certificate
No(s). ___________ (the "PREFERRED STOCK CERTIFICATES"), into shares of common
stock ("COMMON STOCK") of ViroLogic, Inc. (the "CORPORATION") according to the
conditions of the Certificate of Designations, Preferences and Rights of Series
C Convertible Preferred Stock (the "CERTIFICATE OF DESIGNATION"), as of the date
written below. If securities are to be issued in the name of a person other than
the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto. No fee will be charged to the holder for any conversion, except
for transfer taxes, if any. Each Preferred Stock Certificate is attached hereto
(or evidence of loss, theft or destruction thereof).

        Except as may be provided below, the Corporation shall electronically
transmit the Common Stock issuable pursuant to this Notice of Conversion to the
account of the undersigned or its nominee (which is _________________) with DTC
through its Deposit Withdrawal Agent Commission System ("DTC TRANSFER").

        The undersigned acknowledges and agrees that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of the
Series C Preferred Stock have been or will be made only pursuant to an effective
registration of the transfer of the Common Stock under the Securities Act of
1933, as amended (the "ACT"), or pursuant to an exemption from registration
under the Act.

[ ]     In lieu of receiving the shares of Common Stock issuable pursuant to
        this Notice of Conversion by way of DTC Transfer, the undersigned hereby
        requests that the Corporation issue and deliver to the undersigned
        physical certificates representing such shares of Common Stock.

                               Date of Conversion:
                                                  ------------------------------

                               Applicable Conversion Price:
                                                           ---------------------

                               Signature:
                                         ---------------------------------------

                               Name:
                                    --------------------------------------------

                               Address:
                                       -----------------------------------------

                                       -----------------------------------------

                                       -----------------------------------------



                                       23

EX-10.1

                                                                    EXHIBIT 10.1



                         SECURITIES PURCHASE AGREEMENT


        SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of November
14, 2002, between ViroLogic, Inc., a corporation organized under the laws of the
State of Delaware (the "COMPANY"), and each of the purchasers (individually, a
"PURCHASER" and collectively the "PURCHASERS") set forth on the execution pages
hereof (the "EXECUTION PAGES, and each an "EXECUTION PAGE").

        WHEREAS:

        A. The Company and each Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("REGULATION D"), as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "SECURITIES ACT").

        B. The Company desires to sell, and each Purchaser desires to purchase,
upon the terms and conditions stated in this Agreement, units (the "UNITS"),
each Unit consisting of (i) one share of the Company's Series C Convertible
Preferred Stock, par value $.001 per share (the "PREFERRED SHARES"), convertible
into approximately 8,264.46 shares of the Company's common stock, par value
$.001 per share (the "COMMON STOCK"), and (ii) a warrant, in the form attached
hereto as Exhibit B (the "WARRANTS"), to acquire approximately 6,198.35 shares
of Common Stock. The rights, preferences and privileges of the Preferred Shares,
including the terms upon which such Preferred Shares are convertible into shares
of Common Stock, are set forth in the form of Certificate of Designations,
Preferences and Rights attached hereto as Exhibit A (the "CERTIFICATE OF
DESIGNATION"). The shares of Common Stock issuable upon conversion of the
Preferred Shares pursuant to the Certificate of Designation are referred to
herein as the "CONVERSION SHARES" and the shares of Common Stock issuable upon
exercise of or otherwise pursuant to the Warrants are referred to herein as the
"WARRANT SHARES." The Preferred Shares, the Warrants, the Conversion Shares and
the Warrant Shares are collectively referred to herein as the "SECURITIES" and
each of them may individually be referred to herein as a "SECURITY."

        C. In connection with the Closing (as defined herein) pursuant to this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement, in the form attached hereto as Exhibit C (the "REGISTRATION RIGHTS
AGREEMENT"), pursuant to which the Company has agreed to provide certain
registration rights under the Securities Act and the rules and regulations
promulgated thereunder, and applicable state securities laws. This Agreement,
the Certificate of Designation, the Warrants and the Registration Rights
Agreement are collectively referred to herein as the "TRANSACTION DOCUMENTS."

        NOW, THEREFORE, the Company and the Purchasers hereby agree as follows:

1.      PURCHASE AND SALE OF UNITS.

        (a) Purchase of Units. The issuance, sale and purchase of the Units
shall take place in one closing, which is referred to herein as the "CLOSING."
On the Closing Date (as defined below), subject to the satisfaction (or waiver)
of the conditions set forth in Section 6 and Section



7 below, the Company shall issue and sell to each Purchaser, and each Purchaser
agrees to purchase from the Company, such number of Units as is set forth on
such Purchaser's Execution Page attached hereto. The purchase price (the
"PURCHASE PRICE") per Unit shall be equal to Ten Thousand Dollars ($10,000).

        (b) Form of Payment. On the Closing Date, each Purchaser shall pay the
applicable purchase price by wire transfer to the Company in accordance with the
Company's written wiring instructions, against delivery of the Units being
purchased at the Closing by such Purchaser, and the Company shall deliver such
Units against delivery of the applicable purchase price.

        (c) Closing Date. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the issuance and sale of the Units to each of the Purchasers pursuant to this
Agreement at the Closing shall be 12:00 noon, New York City time, on November
18, 2002, subject to a two business day grace period at either party's option,
but in any event not later than November 20, 2002, or such other time as may be
mutually agreed upon by the Company and the Purchasers purchasing a majority of
the Units at the Closing (the "CLOSING DATE"). The Closing shall occur at the
offices of Drinker Biddle & Reath LLP at One Logan Square, 18th & Cherry
Streets, Philadelphia, PA 19103.

2. PURCHASER'S REPRESENTATIONS AND WARRANTIES. Each Purchaser severally, but not
jointly, represents and warrants to the Company as follows:

        (a) Purchase for Own Account, Etc.. Such Purchaser is purchasing the
Units for such Purchaser's own account and not with a present view towards the
public sale or distribution thereof, except pursuant to sales that are exempt
from the registration requirements of the Securities Act and/or sales registered
under the Securities Act. Such Purchaser understands that Purchaser must bear
the economic risk of this investment indefinitely, unless the Securities are
registered pursuant to the Securities Act and any applicable state securities or
blue sky laws or an exemption from such registration is available, and that the
Company has no present intention of registering the resale of any such
Securities other than as contemplated by the Registration Rights Agreement.
Notwithstanding anything in this Section 2(a) to the contrary, by making the
representations herein, the Purchaser does not agree to hold the Securities for
any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption from the registration requirements under the
Securities Act.

        (b) Accredited Investor Status. Such Purchaser is an "ACCREDITED
INVESTOR" as that term is defined in Rule 501(a) of Regulation D under the
Securities Act; the Purchaser is also knowledgeable, sophisticated and
experienced in making, and is qualified to make decisions with respect to,
investments in shares presenting an investment decision like that involved in
the purchase of the Units, including investments in securities issued by the
Company and investments in comparable companies; and the Purchaser has
requested, received, reviewed and considered all information it deems relevant
in making an informed decision to purchase the Units.

        (c) Reliance on Exemptions. Such Purchaser understands that the Units
are being offered and sold to such Purchaser in reliance upon specific
exemptions from the registration



                                       2


requirements of United States federal and state securities laws and that the
Company is relying upon the truth and accuracy of, and such Purchaser's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of such Purchaser set forth herein in order to determine the
availability of such exemptions and the eligibility of such Purchaser to acquire
the Securities.

        (d) Information. Such Purchaser and its counsel, if any, have been
furnished all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Securities which
have been specifically requested by such Purchaser or its counsel. Such
Purchaser and its counsel have been afforded the opportunity to ask questions of
the Company and have received what such Purchaser believes to be satisfactory
answers to any such inquiries. Neither such inquiries nor any other
investigation conducted by such Purchaser or its counsel or any of its
representatives shall modify, amend or affect such Purchaser's right to rely on
the Company's representations and warranties contained in Section 3 below. Such
Purchaser understands that such Purchaser's investment in the Securities
involves a high degree of risk.

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

        (f) Transfer or Resale. Such Purchaser understands that (i) except as
provided in the Registration Rights Agreement, the sale or resale of the
Securities have not been and are not being registered under the Securities Act
or any state securities laws, and the Securities may not be transferred unless
(a) the transfer is made pursuant to and as set forth in an effective
registration statement under the Securities Act covering the Securities; or (b)
such Purchaser shall have delivered to the Company an opinion of counsel (which
opinion shall be in form, substance and scope customary for opinions of counsel
in comparable transactions) to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from such
registration; or (c) sold under and in compliance with Rule 144 promulgated
under the Securities Act (or a successor rule) ("RULE 144"); or (d) sold or
transferred in accordance with applicable securities laws to an affiliate of
such Purchaser who agrees to sell or otherwise transfer the Securities only in
accordance with the provisions of this Section 2(f) and who is an Accredited
Investor; and (ii) neither the Company nor any other person is under any
obligation to register such Securities under the Securities Act or any state
securities laws (other than pursuant to the Registration Rights Agreement).
Notwithstanding the foregoing or anything else contained herein to the contrary,
the Securities may be pledged as collateral in connection with a bona fide
margin account or other lending arrangement, provided such pledge is consistent
with applicable laws, rules and regulations.

        (g) Legends. Such Purchaser understands that the certificates for the
Preferred Shares, Warrants and, until such time as the Conversion Shares and
Warrant Shares have been registered under the Securities Act (including
registration pursuant to Rule 416 thereunder) as contemplated by the
Registration Rights Agreement or otherwise may be sold by such Purchaser under
Rule 144(k), the certificates for the Conversion Shares and Warrant Shares shall
bear a restrictive legend in substantially the following form:



                                       3


               The securities represented by this certificate have not been
               registered under the Securities Act of 1933, as amended, or the
               securities laws of any state of the United States or in any other
               jurisdiction. The securities represented hereby may not be
               offered, sold or transferred in the absence of an effective
               registration statement for the securities under applicable
               securities laws unless offered, sold or transferred pursuant to
               an available exemption from the registration requirements of
               those laws.

        The Company agrees that at any time the Registration Statement is
effective, and assuming compliance with the applicable provisions of the
Certificate of Designation or the Warrant, as applicable, the Company shall
instruct its transfer agent to issue (and provide such transfer agent with any
additional documentation that may be necessary to cause the Conversion Shares
and the Warrant Shares to be issued without the restrictive legend above), in
connection with the issuance of the Conversion Shares and Warrant Shares,
certificates representing such Conversion Shares and Warrant Shares without the
restrictive legend above, provided such Conversion Shares and Warrant Shares are
to be sold pursuant to the prospectus contained in the Registration Statement.
The parties acknowledge that the Company has certain rights with respect to
transfers of the Securities as set forth in the Registration Rights Agreements.

        The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by state securities laws, (a) the sale of
such Security is registered under the Securities Act (including registration
pursuant to Rule 416 thereunder) as contemplated by the Registration Rights
Agreement and the Security is sold pursuant to and as set forth in such
Registration Statement and in the Securities Act; (b) such holder provides the
Company with an opinion of counsel, in form, substance and scope customary for
opinions of counsel in comparable transactions, to the effect that a public sale
or transfer of such Security may be made without registration under the
Securities Act; or (c) such holder provides the Company with reasonable
assurances that such Security can be sold under Rule 144. In the event the above
legend is removed from any Security and thereafter the effectiveness of a
registration statement covering such Security is suspended or the Company
determines that a supplement or amendment thereto is required by applicable
securities laws, then upon reasonable advance written notice to such Purchaser
the Company may require that the above legend be placed on any such Security
that cannot then be sold pursuant to an effective registration statement or
under Rule 144 and such Purchaser shall cooperate in the replacement of such
legend. Such legend shall thereafter be removed when such Security may again be
sold pursuant to an effective registration statement or under Rule 144.

        (h) Authorization; Enforcement. This Agreement and the Registration
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of such Purchaser and are valid and binding agreements of such
Purchaser enforceable against such Purchaser in accordance with their terms.

        (i) Residency. Such Purchaser is a resident of the jurisdiction set
forth under such Purchaser's name on the Execution Page hereto executed by such
Purchaser.



                                       4


        The Purchasers' representations and warranties made in this Article 2
are made solely for the purpose of permitting the Company to make a
determination that the offer and sale of the Preferred Shares and Warrants
pursuant to this Agreement complies with applicable U.S. federal and state
securities laws and not for any other purpose. Accordingly, the Company should
not rely on such representations and warranties for any other purpose.

3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth on a
Schedule of Exceptions executed and delivered by the Company to the Purchasers
at Closing (the "SCHEDULE OF EXCEPTIONS"), the Company represents and warrants
to each Purchaser as follows:

        (a) Organization and Qualification. The Company and each of its
subsidiaries is a corporation duly organized and existing in good standing under
the laws of the jurisdiction in which it is incorporated, and has the requisite
corporate power to own its properties and to carry on its business as now being
conducted. The Company and each of its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary and where the failure so to qualify would have a Material Adverse
Effect. "MATERIAL ADVERSE EFFECT" means any material adverse effect on (i) the
Securities, (ii) the ability of the Company to perform its obligations hereunder
or under the Certificate of Designation, the Warrants or the Registration Rights
Agreement or (iii) the business, operations, properties, prospects or financial
condition of the Company and its subsidiaries, taken as a whole.

        (b) Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Warrants and the Registration Rights Agreement, to issue and
sell the Units in accordance with the terms hereof, to issue the Conversion
Shares upon conversion of the Preferred Shares in accordance with the terms of
the Certificate of Designation and to issue the Warrant Shares upon exercise of
the Warrants in accordance with the terms of such Warrants; (ii) the execution,
delivery and performance of this Agreement, the Warrants and the Registration
Rights Agreement by the Company and the consummation by it of the transactions
contemplated hereby and thereby (including, without limitation, the issuance of
the Preferred Shares and Warrants and the issuance and reservation for issuance
of the Conversion Shares and Warrant Shares) have been duly authorized by the
Company's Board of Directors and no further consent or authorization of the
Company, its Board of Directors, or any committee of the Board of Directors is
required, and (iii) this Agreement constitutes, and, upon execution and delivery
by the Company of the Warrants and the Registration Rights Agreement, such
agreements will constitute, valid and binding obligations of the Company
enforceable against the Company in accordance with their terms.

        (c) Stockholder Authorization. Neither the execution, delivery or
performance by the Company of this Agreement, the Warrants or the Registration
Rights Agreement nor the consummation by it of the transactions contemplated
hereby or thereby (including, without limitation, the issuance of the Preferred
Shares or Warrants or the issuance or reservation for issuance of the Conversion
Shares or Warrant Shares) requires any consent or authorization of the Company's
stockholders.



                                       5


        (d) Capitalization. The capitalization of the Company as of the date
hereof, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares issuable and reserved for issuance pursuant to
the Company's stock option plans, the number of shares issuable and reserved for
issuance pursuant to securities (other than the Preferred Shares and Warrants)
exercisable or exchangeable for, or convertible into, any shares of capital
stock and the number of shares to be reserved for issuance upon conversion of
the Preferred Shares and exercise of the Warrants is set forth on Schedule 3(d)
of the Schedule of Exceptions. All of such outstanding shares of capital stock
have been, or upon issuance in accordance with the terms of any such warrants,
options or preferred stock, will be, validly issued, fully paid and
non-assessable. No shares of capital stock of the Company (including the
Preferred Shares, the Conversion Shares and the Warrant Shares) are subject to
preemptive rights or any other similar rights of the stockholders of the Company
or any liens or encumbrances. Except for the Securities and as set forth on
Schedule 3(d) of the Schedule of Exceptions, as of the date of this Agreement,
(i) there are no outstanding options, warrants, scrip, rights to subscribe to,
calls or commitments of any character whatsoever relating to, or securities or
rights convertible into or exercisable or exchangeable for, any shares of
capital stock of the Company or any of its subsidiaries, or arrangements by
which the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries,
nor are any such issuances or arrangements contemplated, and (ii) there are no
agreements or arrangements under which the Company or any of its subsidiaries is
obligated to register the sale of any of its or their securities under the
Securities Act (except the Registration Rights Agreements). Schedule 3(d) of the
Schedule of Exceptions sets forth all of the Company issued securities or
instruments containing antidilution or similar provisions that will be triggered
by, and all of the resulting adjustments that will be made to such securities
and instruments as a result of, the issuance of the Securities in accordance
with the terms of this Agreement, the Certificate of Designation or the
Warrants. The Company has furnished to the Purchasers true and correct copies of
the Company's Certificate of Incorporation as in effect on the date hereof
("CERTIFICATE OF INCORPORATION"), the Company's By-laws as in effect on the date
hereof (the "BY-LAWS"), and all other instruments and agreements governing
securities convertible into or exercisable or exchangeable for capital stock of
the Company. The Certificate of Designation, in the form attached hereto, will
be duly filed prior to Closing with the Secretary of State of the State of
Delaware and, upon the issuance of the Preferred Shares in accordance with the
terms hereof, each Purchaser shall be entitled to the rights set forth therein.

        (e) Issuance of Shares. The Preferred Shares are duly authorized and,
upon issuance in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and free from all taxes, liens, claims
and encumbrances (other than restrictions on transfer contained in this
Agreement and in the Registration Rights Agreements) and will not be subject to
preemptive rights, rights of first refusal or other similar rights of
stockholders of the Company and will not impose personal liability on the
holders thereof. The Conversion Shares are duly authorized and reserved for
issuance, and, upon conversion of the Preferred Shares in accordance with the
terms thereof, will be validly issued, fully paid and non-assessable, and free
from all taxes, liens, claims and encumbrances (other than restrictions on
transfer contained in this Agreement and in the Registration Rights Agreements)
and will not be subject to preemptive rights, rights of first refusal or other
similar rights of stockholders of the Company and will not impose personal
liability upon the holder thereof. The Warrant Shares shall be duly authorized
and reserved for issuance, and, upon exercise of the Warrants in accordance with
the terms



                                       6


thereof, will be validly issued, fully paid and non-assessable, and free from
all taxes, liens, claims and encumbrances (other than restrictions on transfer
contained in this Agreement and in the Registration Rights Agreements) and will
not be subject to preemptive rights, rights of first refusal or other similar
rights of stockholders of the Company and will not impose personal liability
upon the holder thereof.

        (f) No Conflicts. The execution, delivery and performance of this
Agreement, the Warrants and the Registration Rights Agreement by the Company,
the performance by the Company of its obligations under the Certificate of
Designation, and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the issuance and
reservation for issuance, as applicable, of the Preferred Shares, Warrants,
Conversion Shares and Warrant Shares) will not (i) result in a violation of the
Certificate of Incorporation or By-laws or (ii) conflict with, or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment
(including, without limitation, the triggering of any anti-dilution provisions),
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, or result in a violation of
any law, rule, regulation, order, judgment or decree (including United States
federal and state securities laws and regulations and rules or regulations of
any self-regulatory organizations to which either the Company or its securities
are subject) applicable to the Company or any of its subsidiaries or by which
any property or asset of the Company or any of its subsidiaries is bound or
affected (except, with respect to clause (ii), for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations that would
not, individually or in the aggregate, have a Material Adverse Effect). Neither
the Company nor any of its subsidiaries is in violation of its Certificate of
Incorporation, By-laws or other organizational documents and neither the Company
nor any of its subsidiaries is in default (and no event has occurred which, with
notice or lapse of time or both, would put the Company or any of its
subsidiaries in default) under, nor has there occurred any event giving others
(with notice or lapse of time or both) any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, except for actual or possible
violations, defaults or rights that would not, individually or in the aggregate,
have a Material Adverse Effect. The businesses of the Company and its
subsidiaries are not being conducted, and shall not be conducted so long as a
Purchaser owns any of the Preferred Shares, in violation of any law, ordinance
or regulation of any governmental entity, except for possible violations the
sanctions for which either singly or in the aggregate would not have a Material
Adverse Effect. Except as specifically contemplated by this Agreement and the
Registration Rights Agreement, the Company is not required to obtain any
consent, approval, authorization or order of, or make any filing or registration
with, any court or governmental agency or any regulatory or self regulatory
agency in order for it to execute, deliver or perform any of its obligations
under this Agreement, the Warrants or the Registration Rights Agreement or to
perform its obligations under the Certificate of Designation, in each case in
accordance with the terms hereof or thereof. The Company is not in violation of
the listing requirements of the Nasdaq National Market ("NNM") and has received
no notice regarding the potential delisting of the Common Stock by the NNM.

        (g) SEC Documents, Financial Statements. Since December 31, 2001, the
Company has timely filed (within applicable extension periods) all reports,
schedules, forms, statements



                                       7


and other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT") (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein, being hereinafter referred to
herein as the "SEC DOCUMENTS"). The Company has delivered to each Purchaser true
and complete copies of the SEC Documents. To the extent that any SEC Document is
available under the SEC's EDGAR filing system prior to the date hereof, such SEC
Document shall be deemed to have been delivered to each of the Purchasers. As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the Exchange Act or the Securities Act, as the case may be,
and the rules and regulations of the SEC promulgated thereunder applicable to
the SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. None of the statements made in any such SEC Documents is,
or has been, required to be amended or updated under applicable law (except for
such statements as have been amended or updated in subsequent filings made prior
to the date hereof). As of their respective dates, the financial statements of
the Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC applicable with respect thereto. Such financial
statements have been prepared in accordance with U.S. generally accepted
accounting principles ("GAAP"), consistently applied, during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto, or (ii) in the case of unaudited interim statements, to
the extent they may not include footnotes or may be condensed or summary
statements) and fairly present in all material respects the consolidated
financial position of the Company and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
immaterial year-end audit adjustments). Except as set forth in the financial
statements of the Company included in the SEC Documents filed prior to the date
hereof, the Company has no liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent to the date
of such financial statements and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
GAAP to be reflected in such financial statements, which liabilities and
obligations referred to in clauses (i) and (ii), individually or in the
aggregate, are not material to the financial condition or operating results of
the Company.

        (h) Absence of Certain Changes. Since December 31, 2001, there has been
no material adverse change and no material adverse development in the business,
properties, operations, prospects, financial condition or results of operations
of the Company and its subsidiaries, taken as a whole, except as disclosed in
the SEC Documents filed prior to the date hereof.

        (i) Absence of Litigation. Except as disclosed in the SEC Documents
filed prior to the date hereof, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body, including, without limitation, the SEC or
NASDAQ, pending or, to the knowledge of the Company or any of its subsidiaries,
threatened against or affecting the Company, any of its subsidiaries, or any of
their



                                       8


respective directors or officers in their capacities as such. There are no facts
which, if known by a potential claimant or governmental authority, could give
rise to a claim or proceeding which, if asserted or conducted with results
unfavorable to the Company or any of its subsidiaries, could reasonably be
expected to have a Material Adverse Effect.

        (j) Intellectual Property. Each of the Company and its subsidiaries owns
or is licensed to use all patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, copyright applications,
licenses, permits, inventions, discoveries, processes, scientific, technical,
engineering and marketing data, object and source codes, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) and other similar rights and
proprietary knowledge (collectively, "INTANGIBLES") necessary for the conduct of
its business as now being conducted. To the best knowledge of the Company,
neither the Company nor any subsidiary of the Company infringes or is in
conflict with any right of any other person with respect to any Intangibles.
Except as set forth on Schedule 3(j) of the Schedule of Exceptions, neither the
Company nor any of its subsidiaries has received written notice of any pending
conflict with or infringement upon such third party Intangibles. Except as set
forth on Schedule 3(j) of the Schedule of Exceptions, the termination of the
Company's ownership of, or right to use, any single Intangible would not result
in a Material Adverse Effect on the Company. Neither the Company nor any of its
subsidiaries has entered into any consent agreement, indemnification agreement,
forbearance to sue or settlement agreement with respect to the validity of the
Company's or its subsidiaries' ownership or right to use its Intangibles and, to
the best knowledge of the Company, there is no reasonable basis for any such
claim to be successful. The Intangibles are valid and enforceable and no
registration relating thereto has lapsed, expired or been abandoned or canceled
or is the subject of cancellation or other adversarial proceedings, and all
applications therefor are pending and in good standing. The Company and its
subsidiaries have complied, in all material respects, with their respective
contractual obligations relating to the protection of the Intangibles used
pursuant to licenses. To the best knowledge of the Company, no person is
infringing on or violating the Intangibles owned or used by the Company or its
subsidiaries.

        (k) Foreign Corrupt Practices. Neither the Company, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977;
or made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.

        (l) Disclosure. All information relating to or concerning the Company
set forth in this Agreement or provided to any Purchaser pursuant to Section
2(d) hereof or otherwise in connection with the transactions contemplated hereby
is true and correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading.



                                       9


        (m) Acknowledgment Regarding Purchasers' Purchase of the Units. The
Company acknowledges and agrees that none of the Purchasers is acting as a
financial advisor or fiduciary of the Company (or in any similar capacity) with
respect to this Agreement or the transactions contemplated hereby, the
relationship between the Company and the Purchasers is "arms-length" and any
statement made by any Purchaser or any of its representatives or agents in
connection with this Agreement and the transactions contemplated hereby is
merely incidental to such Purchaser's purchase of Securities and has not been
relied upon by the Company, its officers or directors in any way. The Company
further acknowledges that the Company's decision to enter into this Agreement
has been based solely on an independent evaluation by the Company and its
representatives.

        (n) Listing. The Company has secured the listing of the Conversion
Shares and the Warrant Shares upon each national securities exchange or
automated quotation system upon which shares of Common Stock are currently
listed (subject to official notice of issuance).

        (o) Form S-3 Eligibility. The Company is currently eligible to register
the resale of its Common Stock on a registration statement on Form S-3 under the
Securities Act. There exist no facts or circumstances that would prohibit or
delay the preparation and filing of a registration statement on Form S-3 with
respect to the Registrable Securities (as defined in the Registration Rights
Agreement). The Company has no basis to believe that its past or present
independent public auditors will withhold their consent to the inclusion, or
incorporation by reference, of their audit opinion concerning the Company's
financial statements which are included in the Registration Statement required
to be filed pursuant to the Registration Rights Agreement.

        (p) No General Solicitation. Neither the Company nor any distributor
participating on the Company's behalf in the transactions contemplated hereby
(if any) nor any person acting for the Company, or any such distributor, has
conducted any "general solicitation," as such term is defined in Regulation D,
with respect to any of the Securities being offered hereby.

        (q) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would require registration of the
Securities being offered hereby under the Securities Act or cause this offering
of Securities to be integrated with any prior offering of securities of the
Company for purposes of the Securities Act or any applicable stockholder
approval provisions, including, without limitation, Rule 4350(i) of the NASD or
any similar rule.

        (r) No Brokers. The Company has taken no action which would give rise to
any claim by any person for brokerage commissions or finder's fees or for
similar payments by any Purchaser relating to this Agreement or the transactions
contemplated hereby.

        (s) Acknowledgment Regarding Securities. The number of Conversion Shares
issuable upon conversion of the Preferred Shares may increase in certain
circumstances. The Company's executive officers have studied and fully
understand the nature of the Securities being sold hereunder. The Company
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Preferred Shares in accordance with the Certificate of Designation is, other
than as set forth in the Certificate of Designation, absolute and unconditional,
regardless



                                       10


of the dilution that such issuance may have on the ownership interests of other
stockholders and the availability of remedies provided for in the Transaction
Documents relating to a failure or refusal to issue Conversion Shares. Taking
the foregoing into account, the Company's Board of Directors has determined in
its good faith business judgment that the issuance of the Preferred Shares and
Warrants hereunder and the consummation of the other transactions contemplated
hereby are in the best interests of the Company and its stockholders. The
Company's Board of Directors and executive officers fully intend to honor their
obligations hereunder to issue Conversion Shares upon conversion of the
Preferred Shares regardless of the dilution that such issuance may have on the
ownership interests of other stockholders and the availability of remedies
provided for in the Transaction Documents relating to their failure or refusal
to issue Conversion Shares.

        (t) Title. The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and merchantable title to all
personal property owned by them that is material to the business of the Company
and its subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as do not materially affect the value of such property and
do not materially interfere with the use made and proposed to be made of such
property by the Company and its subsidiaries. Any real property and facilities
held under lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not materially interfere with the use made and proposed to be
made of such property and buildings by the Company and its subsidiaries.

        (u) Tax Status. Except as set forth in the SEC Documents, the Company
and each of its subsidiaries has made or filed all foreign, U.S. federal, state
and local income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim. The Company has not executed a waiver with respect to
any statute of limitations relating to the assessment or collection of any
federal, state or local tax. None of the Company's tax returns is presently
being audited by any taxing authority.

        (v) Key Employees. Each of the Company's directors, officers and any Key
Employee (as defined below) is currently serving the Company in the capacity
disclosed in the SEC Documents. No Key Employee, to the best of the knowledge of
the Company and its subsidiaries, is, or is now expected to be, in violation of
any material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued employment
of each Key Employee does not subject the Company or any of its subsidiaries to
any liability with respect to any of the foregoing matters. No Key Employee has,
to the knowledge of the Company and its subsidiaries, any intention to terminate
or limit his employment with, or services to, the Company or any of its
subsidiaries, nor, to the knowledge



                                       11


of the Company, is any such Key Employee subject to any constraints which would
cause such employee to be unable to devote his full time and attention to such
employment or services. "KEY EMPLOYEE" means the persons listed on Schedule 3(v)
of the Schedule of Exceptions and any individual who assumes or performs any of
the duties of a Key Employee.

        (w) Insurance. The Company and its subsidiaries have in force fire,
casualty, product liability and other insurance policies, with extended coverage
and in such amounts as are customarily carried by persons engaged in the same or
similar business as the Company and its subsidiaries. No default or event has
occurred that could give rise to a default under any such policy.

        (x) Environmental Matters. There is no environmental litigation or other
environmental proceeding pending or threatened by any governmental regulatory
authority or others with respect to the current or any former business of the
Company or its subsidiaries or any partnership or joint venture currently or at
any time affiliated with the Company or its subsidiaries. No state of facts
exists as to environmental matters or Hazardous Substances (as defined below)
that involves the reasonable likelihood of a material capital expenditure by the
Company or its subsidiaries or that may otherwise have a Material Adverse
Effect. No Hazardous Substances have been treated, stored or disposed of, or
otherwise deposited, in or on the properties owned or leased by the Company or
its subsidiaries or by any partnership or joint venture currently or at any time
affiliated with the Company or its subsidiaries in violation of any applicable
environmental laws. The environmental compliance programs of the Company and its
subsidiaries comply in all respects with all environmental laws, whether
federal, state or local, currently in effect. As used herein, "HAZARDOUS
SUBSTANCES" means any substance, waste, contaminant, pollutant or material that
has been determined by any governmental authority to be capable of posing a risk
of injury to health, safety, property or the environment.

        (y) Inventory. All inventory of the Company and its subsidiaries is
valued on the Company's consolidated books and records at the lower of standard
cost, which approximates actual cost, or the fair market value thereof. Except,
to the extent of the Company's reserves for obsolete or unmerchantable inventory
reflected in the Company's SEC Documents, all such inventory, after
consideration of reserves consisting of finished goods is of merchantable
quality and is saleable in the ordinary course of business consistent with past
practice.

        (z) Regulatory Permits. The Company and its subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities which are material to conduct its
business, and neither the Company nor any of its subsidiaries has received any
written notice of any proceeding relating to the revocation or modification of
any such certificate, authorization or permit.

4.      COVENANTS.

        (a) Best Efforts. The parties shall use their best efforts timely to
satisfy each of the conditions described in Section 6 and Section 7 of this
Agreement.

        (b) Form D: Blue Sky Laws. The Company shall file with the SEC a Form D
with respect to the Securities as required under Regulation D and provide a copy
thereof to each



                                       12


Purchaser promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary to qualify the Securities for sale to each Purchaser pursuant to this
Agreement under applicable securities or "blue sky" laws of the states of the
United States or obtain exemption therefrom, and shall provide evidence of any
such action so taken to each Purchaser on or prior to the Closing Date. Within
four (4) trading days after the Closing Date, the Company shall file a Form 8-K
concerning this Agreement and the transactions contemplated hereby, which Form
8-K shall attach this Agreement and its Exhibits as exhibits to such Form 8-K.

        (c) Reporting Status. So long as any Purchaser beneficially owns any of
the Securities, the Company shall timely file (within applicable extension
periods) all reports required to be filed with the SEC pursuant to the Exchange
Act, and the Company shall not terminate its status as an issuer required to
file reports under the Exchange Act even if the Exchange Act or the rules and
regulations thereunder would permit such termination. In addition, the Company
shall take all actions reasonably necessary to meet the "registrant eligibility"
requirements set forth in the general instructions to Form S-3 or any successor
form thereto, to continue to be eligible to register the resale of its Common
Stock on a registration statement on Form S-3 under the Securities Act.

        (d) Use of Proceeds. The Company shall use the proceeds from the sale of
the Preferred Shares and Warrants for general corporate purposes and working
capital and such proceeds shall not be used to repay indebtedness (other than
indebtedness incurred in the ordinary course of business), make acquisitions, or
make payments to stockholders or affiliates of the Company. Subject to the use
of proceeds as outlined above, the Company will invest the proceeds (i) in
evidences of indebtedness issued or fully guaranteed by the United States of
America and having a maturity of not more than one year from the date of
acquisition; (ii) in certificates of deposit, notes, acceptances and repurchase
agreements having a maturity of not more than one year from the date of
acquisition issued by a bank organized in the United States having capital,
surplus and undivided profits of at least $500,000,000; (iii) in the
highest-rated commercial paper having a maturity of not more than one year from
the date of acquisition; and (iv) in "Money Market" fund shares, or in money
market accounts fully insured by the Federal Deposit Insurance Corporation and
sponsored by banks and other financial institutions, provided that the
investments consist principally of the types of investments described in clauses
(i), (ii), or (iii) above.

        (e) [Intentionally Omitted.]

        (f) Expenses. The Company shall pay to SDS Capital Partners ("SDS
CAPITAL") at the Closing, reimbursement for the out-of-pocket expenses
reasonably incurred by SDS Capital's advisors in connection with the
negotiation, preparation, execution and delivery of this Agreement and the other
agreements to be executed in connection herewith, including, without limitation,
SDS Capital's advisors' reasonable due diligence and attorneys' fees and
expenses (the "EXPENSES"); provided, however, that in lieu of such payment SDS
Capital (or its affiliates) shall be permitted to deduct all Expenses from the
purchase price payable by SDS Capital (or its affiliates) hereunder. In
addition, from time to time thereafter, upon SDS Capital's written request, the
Company shall pay to SDS Capital such additional Expenses, if any, not covered
by such payment, in each case to the extent reasonably incurred by SDS Capital's
agents prior to the



                                       13


Closing in connection with the negotiation, preparation, execution and delivery
of this Agreement.

        (g) Financial Information. The Company shall send the following reports
to each Purchaser until such Purchaser transfers, assigns or sells all of its
Securities: within ten (10) days after the filing with the SEC, a copy of its
Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, its proxy
statements and any Current Reports on Form 8-K. To the extent that any of the
foregoing documents is available under the SEC's EDGAR filing system, such
documents shall be deemed to have been delivered to each of the Purchasers.

        (h) Reservation of Shares. The Company shall at all times have
authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the full conversion of the outstanding
Preferred Shares and issuance of the Conversion Shares in connection therewith
and the full exercise of the Warrants and the issuance of the Warrant Shares in
connection therewith, in each case to the extent required by the Certificate of
Designation and the Warrants.

        (i) Listing. The Company shall have filed an application for the listing
of the Conversion Shares and the Warrant Shares on the NNM on or before the
Closing. From the time that such application has been approved and thereafter,
the Company shall maintain, so long as any Purchaser (or any of their
affiliates) own any Securities, the listing of all Conversion Shares and Warrant
Shares from time to time issuable upon conversion of the Preferred Shares and
exercise of the Warrants on each national securities exchange or automated
quotation system on which shares of Common Stock are currently listed. The
Company will use its best efforts to continue the listing and trading of its
Common Stock on the NNM, the New York Stock Exchange ("NYSE"), the American
Stock Exchange ("AMEX") or the Nasdaq SmallCap Market (the "SMALLCAP") and will
comply in all material respects with the reporting, filing and other obligations
under the bylaws or rules of the NASD and such exchanges, as applicable. The
Company shall promptly provide to each holder of Preferred Shares and/or
Warrants copies of any notices it receives regarding the continued eligibility
of the Common Stock for trading on the NNM or, if applicable, any securities
exchange or automated quotation system on which securities of the same class or
series issued by the Company are then listed or quoted, if any.

        (j) Corporate Existence. So long as a Purchaser beneficially owns any
Securities, the Company shall maintain its corporate existence, and in the event
of a merger, consolidation or sale of all or substantially all of the Company's
assets, the Company shall ensure that the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and under the
Certificate of Designation, the Warrants and the agreements and instruments
entered into in connection herewith regardless of whether or not the Company
would have had a sufficient number of shares of Common Stock authorized and
available for issuance in order to effect the conversion of all Preferred Shares
and exercise in full of all Warrants outstanding as of the date of such
transaction and (ii) is a publicly traded corporation whose common stock is
listed for trading on the NNM, SmallCap, NYSE or AMEX. Notwithstanding the
foregoing, the Company covenants and agrees that it will not engage in any
merger, consolidation or sale of all or substantially all of its assets at any
time prior to the effectiveness of the Registration Statement required to be
filed pursuant to the Registration Rights Agreement without (A) providing each
Purchaser with written notice of such transaction at least 60 days



                                       14


prior to the consummation of such transaction and (B) obtaining the written
consent of the Purchasers holding a majority-in-interest of the then outstanding
Preferred Shares on or before the 10th day after the delivery of such notice by
the Company.

        (k) No Integrated Offerings. The Company shall not make any offers or
sales of any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder under the
Securities Act or cause this offering of the Securities to be integrated with
any other offering of securities by the Company for purposes of any stockholder
approval provision applicable to the Company or its securities.

        (l) Legal Compliance. The Company shall conduct its business and the
business of its subsidiaries in compliance with all laws, ordinances or
regulations of governmental entities applicable to such businesses, except where
the failure to do so would not have a Material Adverse Effect.

        (m) Redemptions and Dividends. So long as any Purchaser beneficially
owns any Preferred Shares, the Company shall not, without first obtaining the
written approval of the holders of a majority of the Preferred Shares then
outstanding, repurchase, redeem, or declare or pay any cash dividend or
distribution on, any shares of capital stock of the Company; provided, however,
that the foregoing shall not prohibit the Company from repurchasing, redeeming
or declaring or paying cash dividends or distributions on shares of the
Company's Series A Convertible Preferred Stock provided that any such
repurchases, redemptions, dividends and distributions are made solely in
accordance with the terms of such Series A Convertible Preferred Stock as in
effect on the date hereof.

        (n) Information. The Company will furnish to each Purchaser, so long as
it holds any Preferred Shares:

               (i) concurrently with the filing with the SEC of its annual
reports on Form 10-K, a certificate of the President, a Vice President or a
senior financial officer of the Company stating that, based upon such
examination or investigation and review of this Agreement as in the opinion of
the signer is necessary to enable the signer to express an informed opinion with
respect thereto, neither the Company nor any of its subsidiaries is or has
during such period been in default in the performance or observance of any of
the terms, covenants or conditions hereof, or, if the Company or any of its
subsidiaries shall be or shall have been in default, specifying all such
defaults, and the nature and period of existence thereof, and what action the
Company or such subsidiary has taken, is taking or proposes to take with respect
thereto; and

               (ii) the information the Company must deliver to any holder or to
any prospective transferee of Securities in order to permit the sale or other
transfer of such Securities pursuant to Rule 144A of the SEC or any similar rule
then in effect.

               The Company will keep at its principal executive office a true
copy of this Agreement (as at the time in effect), and cause the same to be
available for inspection at such office during normal business hours by any
holder of Securities or any prospective transferee of Securities designated by a
holder thereof.



                                       15


        (o) Inspection of Properties and Books. So long as any Purchaser shall
hold any Securities, such Purchaser and its representatives and agents
(collectively, the "INSPECTORS") shall have the right, at such Purchaser's
expense, to visit and inspect any of the properties of the Company and of its
subsidiaries, to examine the books of account and records of the Company and of
its subsidiaries, to make or be provided with copies and extracts therefrom, to
discuss the affairs, finances and accounts of the Company and of its
subsidiaries with, and to be advised as to the same by, its and their officers,
employees and independent public accountants (and by this provision the Company
authorizes such accountants to discuss such affairs, finances and accounts,
whether or not a representative of the Company is present) all at such
reasonable times and intervals and to such reasonable extent as such Purchaser
may desire; provided, however, that each Inspector shall hold in confidence and
shall not make any disclosure (except to such Purchaser) of any such information
which the Company determines in good faith to be confidential, and of which
determination the Inspectors are so notified, unless (a) the disclosure of such
information is necessary to avoid or correct a misstatement or omission in any
Registration Statement filed pursuant to the Registration Rights Agreement, (b)
the release of such information is ordered pursuant to a subpoena or other order
from a court or government body of competent jurisdiction, or (c) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company shall not be
required to disclose any confidential information to any Inspector until and
unless such Inspector shall have entered into confidentiality agreements (in
form and substance satisfactory to the Company) with the Company with respect
thereto, substantially in the form of this Section 4(o). Each Purchaser agrees
that it shall, upon learning that disclosure of such information is sought in or
by a court or governmental body of competent jurisdiction or through other
means, give prompt notice to the Company and allow the Company, at its expense,
to undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, the information deemed confidential. Notwithstanding the
foregoing, the Company shall be permitted to withhold from disclosure under this
paragraph any material protected by attorney-client privilege.

        (p) Waivers and Consents. Prior to the effectiveness any Registration
Statement filed in accordance with Section 2(a) of the Registration Rights
Agreement, the Company shall have obtained proper waivers from the stockholders
and warrant holders referred to on Schedule 3(f) of the Schedule of Exceptions
to this Agreement.

        (q) Confidential Agreement. Each Purchaser will hold in confidence all
information concerning this Agreement and the placement of shares hereunder
until the earlier of such time as (i) the Company has made a public announcement
concerning the Agreement and the placement of shares hereunder or (ii) this
Agreement is terminated.

        (r) Stockholder Approval. The Company shall call a meeting of its
stockholders to be held as promptly as practicable (but in any event no later
than 90 days after the Closing Date) for the purpose of voting upon and
approving (i) the increase in the number of authorized shares of the Company's
Common Stock to a number sufficient to provide for (A) the issuance and
conversion of the Preferred Shares issuable upon conversion of the Notes (as
defined in the Exchange Agreement (as defined herein)) issued pursuant to the
Exchange Agreement, (B) the exercise of all of the Warrants issued by the
Company to the holders of the Notes upon conversion thereof into Preferred
Shares in exchange for outstanding warrants held by such



                                       16


holders (the "NEW SERIES B WARRANTS"), and (C) the conversion or exercise of all
other outstanding securities of the Company that are convertible into or
exercisable for shares of Common Stock (the "AUTHORIZED STOCK APPROVAL"), (ii)
to approve the conversion of the Notes into Preferred Shares and the issuance of
the New Series B Warrants, in accordance with Rule 4350(i) of the NASD or any
similar rule (the "NASD RULE APPROVAL"), and (iii) to amend the Certificate of
Designation to include (a) the right of the Company to pay any premium payments
due thereunder in either cash or shares of Common Stock at the Company's
election and (b) the same anti-dilution protections as are currently afforded to
the Company's Series A Convertible Preferred Stock pursuant to Article XI,
Section G of the Certificate of Designations, Preferences and Rights related
thereto (the "SERIES C AMENDMENT APPROVAL" and, together with the Authorized
Stock Approval and the NASD Rule Approval, the "STOCKHOLDER APPROVAL"). The
Company shall recommend to its stockholders approval of such matters. The
Company shall use its best efforts to solicit from its stockholders proxies in
favor of such matters sufficient to obtain the Stockholder Approval (including
any such approval required by the NASD), and shall vote such proxies, and shall
use its best efforts to cause all "affiliates" (as such term is defined in Rule
12b-2 promulgated under the Exchange Act) of the Company to vote any shares of
Common Stock beneficially owned by such persons or entities, in favor of such
matters. In the event and upon obtaining the Series C Amendment Approval, (x)
the Company shall prepare and, subject to the approval of the holders of
Preferred Shares in accordance with the Certificate of Designation, file an
amendment to the Certificate of Designation to include such additional
provisions, and (y) provided that the stockholders have approved all of the
amendments described in clause (ii) of this Section 4(r), the Purchasers shall,
in their capacity as holders of Preferred Shares, consent to such amendment.

5.      TRANSFER AGENT INSTRUCTIONS.

        (a) The Company shall instruct its transfer agent to issue certificates
(subject to the legend and other provisions hereof and in the Certificate of
Designation and the Warrants), registered in the name of each Purchaser or its
nominee, for the Conversion Shares and the Warrant Shares in such amounts as
specified from time to time by such Purchaser to the Company upon conversion of
the Preferred Shares or exercise of the Warrants, as applicable. To the extent
and during the periods provided in Sections 2(f) and 2(g) of this Agreement, all
such certificates shall bear the restrictive legend specified in Section 2(g) of
this Agreement.

        (b) The Company warrants that no instruction other than such
instructions referred to in this Section 5, the Registration Rights Agreement
and stop transfer instructions to give effect to Section 2(f) hereof in the case
of the transfer of the Conversion Shares or Warrant Shares prior to registration
of the Conversion Shares and Warrant Shares under the Securities Act or without
an exemption therefrom, will be given by the Company to its transfer agent and
that the Securities shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section shall affect in any way
each Purchaser's obligations and agreement set forth in Section 2(g) hereof to
resell the Securities pursuant to an effective registration statement or under
an exemption from the registration requirements of applicable securities law.

        (c) If any Purchaser provides the Company and the transfer agent with an
opinion of counsel, which opinion of counsel shall be in form, substance and
scope customary for opinions



                                       17


of counsel in comparable transactions, to the effect that the Securities have
been sold or transferred pursuant to an exemption from registration, or any
Purchaser provides the Company with an opinion of counsel, which opinion of
counsel shall be in form, substance and scope customary for opinions of counsel
in comparable transactions, to the effect that such Securities may be sold under
Rule 144(k), the Company shall permit the transfer and, in the case of the
Conversion Shares and Warrant Shares, promptly instruct its transfer agent to
issue one or more certificates in such name and in such denominations as
specified by such Purchaser.

6.      CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

        The obligation of the Company hereunder to issue and sell the Units to
each Purchaser hereunder is subject to the satisfaction, at or before the
Closing, of each of the following conditions thereto, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion.

        (a) Each Purchaser shall have executed such Purchaser's Execution Page
to this Agreement and the Registration Rights Agreement and delivered the same
to the Company.

        (b) Each Purchaser shall have delivered such Purchaser's Purchase Price
for the Units being purchased at the Closing in accordance with Section 1(b)
above.

        (c) The representations and warranties of each Purchaser shall be true
and correct as of the date when made and as of the Closing Date as though made
at that time (except for representations and warranties that speak as of a
specific date, which representations and warranties shall be true and correct as
of such date), and such Purchaser shall have performed, satisfied and complied
in all material respects with the covenants, agreements and conditions required
by this Agreement to be performed, satisfied or complied with by such Purchaser
at or prior to the Closing Date.

        (d) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
prohibits the consummation of any of the transactions contemplated by this
Agreement.

7.      CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE. The obligation
of each Purchaser hereunder to purchase the Units to be purchased by it at the
Closing is subject to the satisfaction, at or before the Closing Date, of each
of the following conditions, provided that such conditions are for such
Purchaser's sole benefit and may be waived by such Purchaser at any time in such
Purchaser's sole discretion:

        (a) The Company shall have executed this Agreement, the Warrants and the
Registration Rights Agreement, and delivered executed original copies of the
same to such Purchaser.

        (b) The Certificate of Designation shall have been filed and accepted
for filing with the Secretary of State of the State of Delaware and a copy
thereof certified by the Secretary of State of Delaware shall have been
delivered to such Purchaser.



                                       18


        (c) The Company shall have delivered to such Purchaser duly executed
certificates and Warrant agreements (each in such denominations as such
Purchaser shall request) representing the Preferred Shares and Warrants being so
purchased by such Purchaser at the Closing in accordance with Section 1(b)
above.

        (d) The Common Stock shall be authorized for quotation and listed on the
NNM and trading in the Common Stock (or the NNM generally) shall not have been
suspended by the SEC or the NNM.

        (e) The representations and warranties of the Company shall be true and
correct as of the date when made and as of the Closing Date as though made at
that time (except for representations and warranties that speak as of a specific
date, which representations and warranties shall be true and correct as of such
date) and the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Company at or prior
to the Closing Date. The Company shall have delivered for the benefit of the
Purchasers, a certificate, executed by the Chief Executive Officer of the
Company after reasonable investigation, dated as of the Closing Date to the
foregoing effect and as to such other matters as may reasonably be requested by
such Purchaser.

        (f) No statute, rule, regulation, executive order, decree, ruling,
injunction, action or proceeding shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent jurisdiction or
any self-regulatory organization having authority over the matters contemplated
hereby which questions the validity of, challenges or prohibits the consummation
of, any of the transactions contemplated by this Agreement.

        (g) Each Purchaser shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Purchaser and in substantially the form of Exhibit D
attached hereto.

        (h) Each Purchaser shall have received a copy of resolutions, duly
adopted by the Board of Directors of the Company, which shall be in full force
and effect at the time of the Closing, authorizing the consummation by the
Company of the transactions contemplated hereby and by the Registration Rights
Agreement and the Warrant, certified as such by the Secretary or Assistant
Secretary of the Company.

        (i) On or prior to the Closing Date, the Company shall have entered into
the following agreements with Pfizer Inc. (or one of its affiliates): (i) Master
Services Agreement, (ii) Non-Exclusive License Agreement and (iii) Stock
Purchase Agreement, and shall have consummated the transactions contemplated by
the Stock Purchase Agreement.

        (j) On or prior to the Closing Date, the Company shall have entered into
the Exchange Agreement with all of the holders of the Company's outstanding
Series B Convertible Preferred Stock and certain of the Company's outstanding
Series A Convertible Preferred Stock (the "EXCHANGE AGREEMENT") and shall have
consummated the transactions contemplated thereby.



                                       19


        (k) On or prior to the Closing Date, the Company shall have obtained the
consent of the holders of the Company's outstanding Series A Convertible
Preferred Stock (other than those which are a party to the Exchange Agreement)
to all of the transactions contemplated hereby (including, without limitation, a
waiver of any participation, preemptive or similar rights in respect of the
issuance of the Securities pursuant hereto and pursuant to the Exchange
Agreement).

        (l) On or prior to the Closing Date, the Company shall have obtained
waivers, in respect of a sufficient number of shares of Common Stock, from
certain of the Company's officers that hold options to purchase shares of Common
Stock, pursuant to which waivers such officers shall irrevocably waive of all
their respective rights to purchase shares of Common Stock pursuant to such
options unless and until the Authorized Stock Approval is obtained, such that,
after giving effect to such waivers, the Company will have a sufficient number
of shares of its Common Stock authorized, unissued and unreserved (other than
for conversion of the Preferred Shares) in order to provide for the full
conversion of all Preferred Shares and the full exercise of all Warrants issued
hereunder.

        (m) The Company shall have timely filed (within applicable extension
periods) with the SEC its Quarterly Report on Form 10-Q for the quarter ended
September 30, 2002.

8.      GOVERNING LAW; MISCELLANEOUS.

        (a) Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The Company and the
Purchasers irrevocably consent to the jurisdiction of the United States federal
courts and the state courts located in the State of Delaware in any suit or
proceeding based on or arising under this Agreement and irrevocably agree that
all claims in respect of such suit or proceeding may be determined in such
courts. The Company irrevocably waives the defense of an inconvenient forum to
the maintenance of such suit or proceeding. The Company further agrees that
service of process upon the Company mailed by first class mail shall be deemed
in every respect effective service of process upon the Company in any such suit
or proceeding. Nothing herein shall affect the right of any Purchaser to serve
process in any other manner permitted by law. The Company agrees that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.

        (b) Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. This Agreement, once executed by a party, may be
delivered to the other parties hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
In the event any signature is delivered by facsimile transmission, the party
using such means of delivery shall cause the manually executed Execution Page(s)
hereof to be physically delivered to the other party within five (5) days of the
execution hereof, provided that the failure to so deliver any manually executed
Execution Page shall not affect the validity or enforceability of this
Agreement.



                                       20


        (c) Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.

        (d) Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.

        (e) Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the Purchasers, the
Company, their affiliates and persons acting on their behalf with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor any Purchaser makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived other than by an instrument in writing signed by
the party to be charged with enforcement and no provision of this Agreement may
be amended other than by an instrument in writing signed by the Company and each
Purchaser.

        (f) Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally, by responsible overnight carrier or
by confirmed facsimile, and shall be effective five (5) days after being placed
in the mail, if mailed, or upon receipt or refusal of receipt, if delivered
personally or by responsible overnight carrier or confirmed facsimile, in each
case addressed to a party. The addresses for such communications shall be:

                      If to the Company:

                      ViroLogic, Inc.
                      270 East Grand Avenue
                      South San Francisco, California 94080
                      Telephone:  (650) 635-1100
                      Attn:  Chief Executive Officer

                      with a copy simultaneously transmitted by like means to
                      (which transmittal shall not constitute notice hereunder):

                      Cooley Godward LLP
                      4401 Eastgate Mall
                      San Diego, California 92121
                      Telephone:  (858) 550-6000

        If to any Purchaser, to such address set forth under such Purchaser's
name on the Execution Page hereto executed by such Purchaser.

        Each party shall provide notice to the other parties of any change in
address.

        (g) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Except as
provided herein or therein,



                                       21


neither the Company nor any Purchaser shall assign this Agreement or any rights
or obligations hereunder. Notwithstanding the foregoing, any Purchaser may
assign its rights hereunder to any of its "affiliates," as that term is defined
under the Exchange Act, without the consent of the Company or to any other
person or entity with the consent of the Company, which consent shall not be
unreasonably withheld. This provision shall not limit a Purchaser's right to
transfer the Securities pursuant to the terms of the Certificate of Designation,
the Warrants and this Agreement or to assign such Purchaser's rights hereunder
or thereunder to any such transferee. In addition, and notwithstanding anything
to the contrary contained in this Agreement, the Registration Rights Agreement
or the Warrants, the Securities may be pledged and all rights of any Purchaser
under this Agreement or any other agreement or document related to the
transactions contemplated hereby may be assigned, without further consent of the
Company, to a bona fide pledgee in connection with such Purchaser's margin or
brokerage account.

        (h) Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person; provided that Section 4(f) may be enforced by SDS Capital.

        (i) Survival. The representations and warranties of the Company and the
agreements and covenants set forth in Sections 3, 4, 5 and 8 hereof shall
survive the Closing notwithstanding any due diligence investigation conducted by
or on behalf of any Purchaser. Moreover, none of the representations and
warranties made by the Company herein shall act as a waiver of any rights or
remedies any Purchaser may have under applicable U.S. federal or state
securities laws.

        (j) Publicity. The Company and each Purchaser shall have the right to
approve before issuance any press releases, SEC or NASD filings, or any other
public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of the Purchasers, to make any press release or SEC or NASD filings
with respect to such transactions as is required by applicable law and
regulations (although the Purchasers shall be consulted by the Company in
connection with any such press release and filing prior to its release and shall
be provided with a copy thereof).

        (k) Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

        (l) Termination. In the event that the Closing shall not have occurred
on or before November 22, 2002, unless the parties agree otherwise, this
Agreement shall terminate at the close of business on such date. Notwithstanding
any termination of this Agreement, any party not in breach of this Agreement
shall preserve all rights and remedies it may have against another party hereto
for a breach of this Agreement prior to or relating to the termination hereof.

        (m) Joint Participation in Drafting. Each party to this Agreement has
participated in the negotiation and drafting of this Agreement, the Certificate
of Designation, the Warrants and the Registration Rights Agreement. As such, the
language used herein and therein shall be



                                       22


deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction will be applied against any party to
this Agreement.

        (n) Equitable Relief. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to each Purchaser by
vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations hereunder (including, but not limited to, its obligations pursuant
to Section 5 hereof) will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Agreement (including,
but not limited to, its obligations pursuant to Section 5 hereof), that each
Purchaser shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate issuance and transfer
of the Securities, without the necessity of showing economic loss and without
any bond or other security being required.

        (o) Additional Acknowledgement. Each Purchaser acknowledges that it has
independently evaluated the merits of the transactions contemplated by this
Agreement, the Certificate of Designation, the Registration Rights Agreement and
the Warrants, that it has independently determined to enter into the
transactions contemplated hereby and thereby, that it is not relying on any
advice from or evaluation by any other Purchaser, and that it is not acting in
concert with any other Purchaser in making its purchase of securities hereunder.
The Purchasers and, to its knowledge, the Company agree that the Purchasers have
not taken any actions that would deem such Purchasers to be members of a "group"
for purposes of Section 13(d) of the Exchange Act.

        (p) Indemnification by Company.

               (i) From and after the Closing, the Company shall hold harmless
and indemnify each of the Purchasers from and against, and shall compensate and
reimburse each of the Purchasers for, any damages which are directly or
indirectly suffered or incurred by any of the Purchasers or to which any of the
Purchasers may otherwise become subject (regardless of whether or not such
damages relate to any third-party claim) and which arise from or as a result of,
or are directly or indirectly connected with any inaccuracy in or breach of any
of the Company's representations, warranties or covenants set forth herein.

               (ii) In the event of the assertion or commencement by any person
of any claim or legal proceeding with respect to which any Purchaser may have
indemnification rights pursuant to Section 8(p)(i), such Purchaser shall
promptly notify the Company thereof in writing, but the failure to so notify the
Company will not limit any Purchaser's rights to indemnification hereunder,
except to the extent the Company demonstrates that the defense of such action is
prejudiced by the failure to so give such notice.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]



                                       23


        IN WITNESS WHEREOF, the undersigned Purchaser and the Company have
caused this Agreement to be duly executed as of the date first above written.


VIROLOGIC, INC.

    By: /s/ WILLIAM D. YOUNG
       ---------------------------------

    Name: William D. Young
         -------------------------------

    Title: Chairman & CEO
          ------------------------------

PURCHASER:

[PURCHASER]


By:
   -------------------------------------
      Name:
      Title:

RESIDENCE:

ADDRESS:




AGGREGATE SUBSCRIPTION AMOUNT

Number of Units:
Purchase Price ($10,000 per Unit):




                                       24

EX-10.2

                                                                    EXHIBIT 10.2



                               EXCHANGE AGREEMENT


        EXCHANGE AGREEMENT (this "AGREEMENT"), dated as of November 14, 2002,
between ViroLogic, Inc., a corporation organized under the laws of the State of
Delaware (the "COMPANY"), and each of the purchasers (individually, a
"PURCHASER" and collectively the "PURCHASERS") set forth on the execution pages
hereof (the "EXECUTION PAGES, and each an "EXECUTION PAGE").

        WHEREAS:

        A. The Company and each Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("REGULATION D"), as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "SECURITIES ACT").

        B. In connection with the Securities Purchase Agreement, dated as of
November 14, 2002, by and among the Company and the purchasers named therein
(the "SECURITIES PURCHASE AGREEMENT"), the Company has agreed, upon the terms
and subject to the conditions contained therein, to issue and sell to such
purchasers (the "SERIES C PURCHASERS") (i) shares of its Series C Convertible
Preferred Stock, par value $.001 per share (the "PREFERRED SHARES"), that are
convertible into shares of the Company's common stock, par value $.001 per share
(the "COMMON STOCK"), and (ii) warrants (the "SERIES C WARRANTS") to acquire
additional shares of Common Stock. The rights, preferences and privileges of the
Preferred Shares, including the terms upon which such Preferred Shares are
convertible into shares of Common Stock, are set forth in the form of
Certificate of Designations, Preferences and Rights attached hereto as Exhibit A
(the "CERTIFICATE OF DESIGNATION").

        C. In order to consummate the transactions contemplated by the
Securities Purchase Agreement, the Company requires the consent of the holders
of the Purchasers, each of which is a holder of either shares of the Company's
Series A Convertible Preferred Stock, par value $.001 per share (the "SERIES A
PREFERRED STOCK"), or shares of the Company's Series B Convertible Preferred
Stock, par value $.001 per share (the "SERIES B PREFERRED STOCK"), and, in order
to obtain such consent, the Company desires to (i) repurchase from the
Purchasers, and the Purchasers desire to sell to the Company, all of the Series
A Preferred Stock and/or Series B Preferred Stock owned by the Purchasers, in
exchange for promissory notes in the form attached hereto as Exhibit B (the
"NOTES"), which Notes shall, under certain circumstances, be automatically
converted into Preferred Shares, and (ii) with respect to the Purchasers that
are holders of Series B Preferred Stock, upon conversion of the Notes, issue to
such Purchasers, in exchange for the warrants (the "OLD WARRANTS") issued to
such Purchasers in connection with their acquisition of the Series B Preferred
Stock, new warrants, in the form attached hereto as Exhibit C (the "REPLACEMENT
WARRANTS"), to acquire additional shares of Common Stock. The shares of Common
Stock issuable upon conversion of the Preferred Shares pursuant to the
Certificate of Designation are referred to herein as the "CONVERSION SHARES" and
the shares of Common Stock issuable upon exercise of or otherwise pursuant to
the Replacement Warrants are referred to herein as the "WARRANT SHARES." The
Notes, the Preferred Shares, the Replacement



Warrants, the Conversion Shares and the Warrant Shares are collectively referred
to herein as the "SECURITIES" and each of them may individually be referred to
herein as a "SECURITY."

        D. In connection with the Closing (as defined herein) pursuant to this
Agreement, the Company is executing and delivering a Security Agreement, in the
form attached hereto as Exhibit D, in favor of the Collateral Agent (as defined
herein) for the benefit of all of the Purchasers, and an Intellectual Property
Security Agreement, in the form attached hereto as Exhibit E, in favor of the
Collateral Agent for the benefit of all of the Purchasers (collectively,
together with any other document securing the Notes, the "SECURITY DOCUMENTS"),
pursuant to which the Company has agreed to grant a security interest in all of
its properties and assets in order to secure its obligations under the Notes.

        E. In connection with the Closing pursuant to this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as Exhibit F (the "REGISTRATION RIGHTS AGREEMENT"),
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act and the rules and regulations promulgated thereunder,
and applicable state securities laws. This Agreement, the Certificate of
Designation, the Notes, the Replacement Warrants, the Security Documents and the
Registration Rights Agreement are collectively referred to herein as the
"TRANSACTION DOCUMENTS."

        NOW, THEREFORE, the Company and the Purchasers hereby agree as follows:

1.      REPURCHASE OF PREFERRED STOCK; ISSUANCE OF NOTES.

        (a) Repurchase of Preferred Stock. The repurchase of the Series A
Preferred Stock and the Series B Preferred Stock by the Company pursuant to this
Agreement shall take place in one closing, which is referred to herein as the
"CLOSING." On the Closing Date (as defined below), subject to the satisfaction
(or waiver) of the conditions set forth in Section 6 and Section 7 below, the
Company shall repurchase from each Purchaser, and each Purchaser agrees to sell
to the Company, all of the Series A Preferred Stock and/or Series B Preferred
Stock owned by such Purchaser, the amount of which is set forth on such
Purchaser's Execution Page attached hereto. The purchase price (the "PURCHASE
PRICE") per share of Series A Preferred Stock and Series B Preferred Stock shall
be equal to the applicable Redemption Amount (as defined in the Certificate of
Designations, Preferences and Rights of the Series A Preferred Stock (the
"SERIES A CERTIFICATE OF DESIGNATIONS") and the Certificate of Designations,
Preferences and Rights of the Series B Preferred Stock (the "SERIES B
CERTIFICATE OF DESIGNATIONS"), respectively) applicable to such shares on the
Closing Date. Upon the repurchase of the Series A Preferred Stock and the Series
B Preferred Stock pursuant to this Agreement, the shares so repurchased shall be
canceled, shall return to the status of authorized, but unissued preferred stock
of no designated series, and shall not be issuable by the Company as Series A
Preferred Stock or Series B Preferred Stock, respectively.

        (b) Form of Payment. On the Closing Date, the Company shall pay the
applicable Purchase Price to each Purchaser by the issuance of a Note to such
Purchaser, and the Company shall deliver such Note against delivery of the share
certificates representing such Purchaser's shares of Series A Preferred Stock
and/or Series B Preferred Stock.


                                       2


        (c) Closing Date. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the repurchase of the Series A Preferred Stock and the Series B Preferred
Stock and issuance of the Notes pursuant to this Agreement at the Closing shall
be 12:00 noon, New York City time, on November 18, 2002, subject to a two
business day grace period at either party's option, but in any event not later
than November 20, 2002, or such other time as may be mutually agreed upon by the
Company and the Purchasers holding a majority of the shares of Series A
Preferred Stock and Series B Preferred Stock voting together (the "CLOSING
DATE"). The Closing shall occur at the offices of Drinker Biddle & Reath LLP at
One Logan Square, 18th & Cherry Streets, Philadelphia, PA 19103.

2. PURCHASER'S REPRESENTATIONS AND WARRANTIES. Each Purchaser severally, but not
jointly, represents and warrants to the Company as follows:

        (a) Purchase for Own Account, Etc.. Such Purchaser is acquiring the
Securities for such Purchaser's own account and not with a present view towards
the public sale or distribution thereof, except pursuant to sales that are
exempt from the registration requirements of the Securities Act and/or sales
registered under the Securities Act. Such Purchaser understands that Purchaser
must bear the economic risk of this investment indefinitely, unless the
Securities are registered pursuant to the Securities Act and any applicable
state securities or blue sky laws or an exemption from such registration is
available, and that the Company has no present intention of registering the
resale of any such Securities other than as contemplated by the Registration
Rights Agreement. Notwithstanding anything in this Section 2(a) to the contrary,
by making the representations herein, the Purchaser does not agree to hold the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption from the registration requirements under
the Securities Act.

        (b) Accredited Investor Status. Such Purchaser is an "ACCREDITED
INVESTOR" as that term is defined in Rule 501(a) of Regulation D under the
Securities Act; the Purchaser is also knowledgeable, sophisticated and
experienced in making, and is qualified to make decisions with respect to,
investments in shares presenting an investment decision like that involved in
the acquisition of the Securities, including investments in securities issued by
the Company and investments in comparable companies; and the Purchaser has
requested, received, reviewed and considered all information it deems relevant
in making an informed decision to acquire the Securities.

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

        (d) Information. Such Purchaser and its counsel, if any, have been
furnished all materials relating to the business, finances and operations of the
Company and materials relating to the offer and issuance of the Securities which
have been specifically requested by such


                                       3


Purchaser or its counsel. Such Purchaser and its counsel have been afforded the
opportunity to ask questions of the Company and have received what such
Purchaser believes to be satisfactory answers to any such inquiries. Neither
such inquiries nor any other investigation conducted by such Purchaser or its
counsel or any of its representatives shall modify, amend or affect such
Purchaser's right to rely on the Company's representations and warranties
contained in Section 3 below. Such Purchaser understands that such Purchaser's
investment in the Securities involves a high degree of risk.

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

        (f) Transfer or Resale. Such Purchaser understands that (i) except as
provided in the Registration Rights Agreement, the sale or resale of the
Securities have not been and are not being registered under the Securities Act
or any state securities laws, and the Securities may not be transferred unless
(a) the transfer is made pursuant to and as set forth in an effective
registration statement under the Securities Act covering the Securities; or (b)
such Purchaser shall have delivered to the Company an opinion of counsel (which
opinion shall be in form, substance and scope customary for opinions of counsel
in comparable transactions) to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from such
registration; or (c) sold under and in compliance with Rule 144 promulgated
under the Securities Act (or a successor rule) ("RULE 144"); or (d) sold or
transferred in accordance with applicable securities laws to an affiliate of
such Purchaser who agrees to sell or otherwise transfer the Securities only in
accordance with the provisions of this Section 2(f) and who is an Accredited
Investor; and (ii) neither the Company nor any other person is under any
obligation to register such Securities under the Securities Act or any state
securities laws (other than pursuant to the Registration Rights Agreement).
Notwithstanding the foregoing or anything else contained herein to the contrary,
the Securities may be pledged as collateral in connection with a bona fide
margin account or other lending arrangement, provided such pledge is consistent
with applicable laws, rules and regulations.

        (g) Legends. Such Purchaser understands that the Notes and the
certificates for the Preferred Shares and the Replacement Warrants (to the
extent issued upon conversion of the Notes) and the Conversion Shares and the
Warrant Shares (until such time as the Conversion Shares and Warrant Shares have
been registered under the Securities Act (including registration pursuant to
Rule 416 thereunder) as contemplated by the Registration Rights Agreement or
otherwise may be sold by such Purchaser under Rule 144(k)), shall bear a
restrictive legend in substantially the following form:

               The securities represented by this certificate have not been
               registered under the Securities Act of 1933, as amended, or the
               securities laws of any state of the United States or in any other
               jurisdiction. The securities represented hereby may not be
               offered, sold or transferred in the absence of an effective
               registration statement for the securities under applicable
               securities laws unless offered, sold or transferred pursuant to
               an available exemption from the registration requirements of
               those laws.


                                       4


        The Company agrees that at any time the Registration Statement is
effective, and assuming compliance with the applicable provisions of the
Certificate of Designation or the Replacement Warrant, as applicable, the
Company shall instruct its transfer agent to issue (and provide such transfer
agent with any additional documentation that may be necessary to cause the
Conversion Shares and the Warrant Shares to be issued without the restrictive
legend above), in connection with the issuance of the Conversion Shares and
Warrant Shares, certificates representing such Conversion Shares and Warrant
Shares without the restrictive legend above, provided such Conversion Shares and
Warrant Shares are to be sold pursuant to the prospectus contained in the
Registration Statement. The parties acknowledge that the Company has certain
rights with respect to transfers of the Securities as set forth in the
Registration Rights Agreements.

        The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by state securities laws, (a) the sale of
such Security is registered under the Securities Act (including registration
pursuant to Rule 416 thereunder) as contemplated by the Registration Rights
Agreement and the Security is sold pursuant to and as set forth in such
Registration Statement and in the Securities Act; (b) such holder provides the
Company with an opinion of counsel, in form, substance and scope customary for
opinions of counsel in comparable transactions, to the effect that a public sale
or transfer of such Security may be made without registration under the
Securities Act; or (c) such holder provides the Company with reasonable
assurances that such Security can be sold under Rule 144. In the event the above
legend is removed from any Security and thereafter the effectiveness of a
registration statement covering such Security is suspended or the Company
determines that a supplement or amendment thereto is required by applicable
securities laws, then upon reasonable advance written notice to such Purchaser
the Company may require that the above legend be placed on any such Security
that cannot then be sold pursuant to an effective registration statement or
under Rule 144 and such Purchaser shall cooperate in the replacement of such
legend. Such legend shall thereafter be removed when such Security may again be
sold pursuant to an effective registration statement or under Rule 144.

        (h) Authorization; Enforcement. This Agreement, the Security Documents
and the Registration Rights Agreement have been duly and validly authorized,
executed and delivered on behalf of such Purchaser and are valid and binding
agreements of such Purchaser enforceable against such Purchaser in accordance
with their terms.

        (i) Residency. Such Purchaser is a resident of the jurisdiction set
forth under such Purchaser's name on the Execution Page hereto executed by such
Purchaser.

        (j) Ownership. Such Purchaser owns, beneficially and of record, good and
marketable title to that number of shares of Series A Preferred Stock and/or
Series B Preferred Stock as is set forth on such Purchaser's Execution Page
attached hereto.

        The Purchasers' representations and warranties made in this Article 2
are made solely for the purpose of permitting the Company to make a
determination that the offer and issuance of the Securities pursuant to this
Agreement complies with applicable U.S. federal and state securities


                                       5


laws and not for any other purpose. Accordingly, the Company should not rely on
such representations and warranties for any other purpose.

3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth on a
Schedule of Exceptions executed and delivered by the Company to the Purchasers
at Closing (the "SCHEDULE OF EXCEPTIONS"), the Company represents and warrants
to each Purchaser as follows:

        (a) Organization and Qualification. The Company and each of its
subsidiaries is a corporation duly organized and existing in good standing under
the laws of the jurisdiction in which it is incorporated, and has the requisite
corporate power to own its properties and to carry on its business as now being
conducted. The Company and each of its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary and where the failure so to qualify would have a Material Adverse
Effect. "MATERIAL ADVERSE EFFECT" means any material adverse effect on (i) the
Securities, (ii) the ability of the Company to perform its obligations hereunder
or under the Certificate of Designation, the Notes, the Replacement Warrants,
the Security Documents or the Registration Rights Agreement or (iii) the
business, operations, properties, prospects or financial condition of the
Company and its subsidiaries, taken as a whole.

        (b) Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Notes, the Replacement Warrants, the Security Documents and
the Registration Rights Agreement, to repurchase the Series A Preferred Stock
and the Series B Preferred Stock and issue the Notes in accordance with the
terms hereof and, subject to obtaining the Authorized Stock Approval and NASD
Rule Approval contemplated by Section 4(r) below, to issue the Preferred Shares
upon conversion of the Notes in accordance with the terms thereof, the
Replacement Warrants in exchange for the Old Warrants in accordance with the
terms hereof, the Conversion Shares upon conversion of the Preferred Shares in
accordance with the terms of the Certificate of Designation and the Warrant
Shares upon exercise of the Replacement Warrants in accordance with the terms of
such Replacement Warrants; (ii) the execution, delivery and performance of this
Agreement, the Notes, the Replacement Warrants, the Security Documents and the
Registration Rights Agreement by the Company and the consummation by it of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance of the Notes and, subject to obtaining the Authorized Stock Approval
and NASD Rule Approval contemplated by Section 4(r) below, the issuance of the
Replacement Warrants and the issuance and reservation for issuance of the
Preferred Shares, the Conversion Shares and the Warrant Shares) have been duly
authorized by the Company's Board of Directors and no further consent or
authorization of the Company, its Board of Directors, or any committee of the
Board of Directors is required, and (iii) this Agreement constitutes, and, upon
execution and delivery by the Company of the Notes, the Replacement Warrants,
the Security Documents and the Registration Rights Agreement, such agreements
will constitute, valid and binding obligations of the Company enforceable
against the Company in accordance with their terms.

        (c) Stockholder Authorization. Neither the execution, delivery or
performance by the Company of this Agreement, the Notes, the Replacement
Warrants, the Security Documents or


                                       6


the Registration Rights Agreement nor the consummation by it of the transactions
contemplated hereby or thereby (including, without limitation, the issuance of
the Notes, the issuance of the Replacement Warrants or the issuance or
reservation for issuance of the Preferred Shares, the Conversion Shares or the
Warrant Shares) requires any consent or authorization of the Company's
stockholders, except for the Authorized Stock Approval and the NASD Rule
Approval contemplated by Section 4(r) below.

        (d) Capitalization. The capitalization of the Company as of the date
hereof, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares issuable and reserved for issuance pursuant to
the Company's stock option plans, the number of shares issuable and reserved for
issuance pursuant to securities (other than the Notes, Preferred Shares and the
Replacement Warrants) exercisable or exchangeable for, or convertible into, any
shares of capital stock and the number of shares to be reserved for issuance
upon conversion of the Notes and the Preferred Shares and exercise of the
Replacement Warrants is set forth on Schedule 3(d) of the Schedule of
Exceptions. All of such outstanding shares of capital stock have been, or upon
issuance in accordance with the terms of any such warrants, options or preferred
stock, will be, validly issued, fully paid and non-assessable. No shares of
capital stock of the Company (including the Notes, the Preferred Shares, the
Conversion Shares and the Warrant Shares) are subject to preemptive rights or
any other similar rights of the stockholders of the Company or any liens or
encumbrances. Except for the Securities and as set forth on Schedule 3(d) of the
Schedule of Exceptions, as of the date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exercisable or exchangeable for, any shares of capital stock
of the Company or any of its subsidiaries, or arrangements by which the Company
or any of its subsidiaries is or may become bound to issue additional shares of
capital stock of the Company or any of its subsidiaries, nor are any such
issuances or arrangements contemplated, and (ii) there are no agreements or
arrangements under which the Company or any of its subsidiaries is obligated to
register the sale of any of its or their securities under the Securities Act
(except the Registration Rights Agreements). Schedule 3(d) of the Schedule of
Exceptions sets forth all of the Company issued securities or instruments
containing antidilution or similar provisions that will be triggered by, and all
of the resulting adjustments that will be made to such securities and
instruments as a result of, the issuance of the Securities in accordance with
the terms of this Agreement, the Certificate of Designation, the Notes or the
Replacement Warrants. The Company has furnished to the Purchasers true and
correct copies of the Company's Certificate of Incorporation as in effect on the
date hereof ("CERTIFICATE OF INCORPORATION"), the Company's By-laws as in effect
on the date hereof (the "BY-LAWS"), and all other instruments and agreements
governing securities convertible into or exercisable or exchangeable for capital
stock of the Company. The Certificate of Designation, in the form attached
hereto, will be duly filed prior to Closing with the Secretary of State of the
State of Delaware and, in the event of and upon the issuance of the Preferred
Shares in accordance with the terms of the Notes, each Purchaser shall be
entitled to the rights set forth therein.

        (e) Issuance of Shares. The Preferred Shares are duly authorized and, in
the event of and upon issuance in accordance with the terms of the Notes, will
be validly issued, fully paid and non-assessable, and free from all taxes,
liens, claims and encumbrances (other than restrictions on transfer contained in
this Agreement and in the Registration Rights Agreements) and will not be
subject to preemptive rights, rights of first refusal or other similar rights of


                                       7


stockholders of the Company and will not impose personal liability on the
holders thereof. Upon obtaining the Authorized Stock Approval contemplated by
Section 4(r) below, the Conversion Shares shall be duly authorized and reserved
for issuance, and, upon conversion of the Preferred Shares in accordance with
the terms thereof, will be validly issued, fully paid and non-assessable, and
free from all taxes, liens, claims and encumbrances (other than restrictions on
transfer contained in this Agreement and in the Registration Rights Agreements)
and will not be subject to preemptive rights, rights of first refusal or other
similar rights of stockholders of the Company and will not impose personal
liability upon the holder thereof. Upon obtaining the Authorized Stock Approval
contemplated by Section 4(r) below, the Warrant Shares shall be duly authorized
and reserved for issuance, and, upon exercise of the Replacement Warrants in
accordance with the terms thereof, will be validly issued, fully paid and
non-assessable, and free from all taxes, liens, claims and encumbrances (other
than restrictions on transfer contained in this Agreement and in the
Registration Rights Agreements) and will not be subject to preemptive rights,
rights of first refusal or other similar rights of stockholders of the Company
and will not impose personal liability upon the holder thereof.

        (f) No Conflicts. The execution, delivery and performance of this
Agreement, the Notes, the Replacement Warrants, the Security Documents and the
Registration Rights Agreement by the Company, the performance by the Company of
its obligations under the Notes, the Replacement Warrants and the Certificate of
Designation, and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the issuance of
the Notes, the issuance of the Replacement Warrants and the issuance and
reservation of the Preferred Shares, the Conversion Shares and the Warrant
Shares) will not (i) result in a violation of the Certificate of Incorporation
or By-laws or (ii) conflict with, or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment (including, without limitation, the
triggering of any anti-dilution provisions), acceleration or cancellation of,
any agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, or result in a violation of any law, rule, regulation,
order, judgment or decree (including United States federal and state securities
laws and regulations and rules or regulations of any self-regulatory
organizations to which either the Company or its securities are subject)
applicable to the Company or any of its subsidiaries or by which any property or
asset of the Company or any of its subsidiaries is bound or affected (except,
with respect to clause (ii), for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations that would not,
individually or in the aggregate, have a Material Adverse Effect). Neither the
Company nor any of its subsidiaries is in violation of its Certificate of
Incorporation, By-laws or other organizational documents and neither the Company
nor any of its subsidiaries is in default (and no event has occurred which, with
notice or lapse of time or both, would put the Company or any of its
subsidiaries in default) under, nor has there occurred any event giving others
(with notice or lapse of time or both) any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, except for actual or possible
violations, defaults or rights that would not, individually or in the aggregate,
have a Material Adverse Effect. The businesses of the Company and its
subsidiaries are not being conducted, and shall not be conducted so long as a
Purchaser owns any of the Securities, in violation of any law, ordinance or
regulation of any governmental entity, except for possible violations the
sanctions for which either singly or in the aggregate would not have a Material
Adverse Effect. Except as specifically contemplated by this Agreement and the


                                       8


Registration Rights Agreement, the Company is not required to obtain any
consent, approval, authorization or order of, or make any filing or registration
with, any court or governmental agency or any regulatory or self regulatory
agency in order for it to execute, deliver or perform any of its obligations
under this Agreement, the Notes, the Replacement Warrants, the Security
Documents or the Registration Rights Agreement or to perform its obligations
under the Notes, the Replacement Warrants or the Certificate of Designation, in
each case in accordance with the terms hereof or thereof. The Company is not in
violation of the listing requirements of the Nasdaq National Market ("NNM") and
has received no notice regarding the potential delisting of the Common Stock by
the NNM.

        (g) SEC Documents, Financial Statements. Since December 31, 2001, the
Company has timely filed (within applicable extension periods) all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT") (all of the foregoing filed prior to the
date hereof and all exhibits included therein and financial statements and
schedules thereto and documents incorporated by reference therein, being
hereinafter referred to herein as the "SEC DOCUMENTS"). The Company has
delivered to each Purchaser true and complete copies of the SEC Documents. To
the extent that any SEC Document is available under the SEC's EDGAR filing
system prior to the date hereof, such SEC Document shall be deemed to have been
delivered to each of the Purchasers. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the
Exchange Act or the Securities Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. None of the statements made in any such SEC Documents is, or has
been, required to be amended or updated under applicable law (except for such
statements as have been amended or updated in subsequent filings made prior to
the date hereof). As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC applicable with respect thereto. Such financial
statements have been prepared in accordance with U.S. generally accepted
accounting principles ("GAAP"), consistently applied, during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto, or (ii) in the case of unaudited interim statements, to
the extent they may not include footnotes or may be condensed or summary
statements) and fairly present in all material respects the consolidated
financial position of the Company and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
immaterial year-end audit adjustments). Except as set forth in the financial
statements of the Company included in the SEC Documents filed prior to the date
hereof, the Company has no liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent to the date
of such financial statements and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
GAAP to be reflected in such financial statements, which liabilities and
obligations referred to in clauses (i) and (ii), individually or in the
aggregate, are not material to the financial condition or operating results of
the Company.


                                       9


        (h) Absence of Certain Changes. Since December 31, 2001, there has been
no material adverse change and no material adverse development in the business,
properties, operations, prospects, financial condition or results of operations
of the Company and its subsidiaries, taken as a whole, except as disclosed in
the SEC Documents filed prior to the date hereof.

        (i) Absence of Litigation. Except as disclosed in the SEC Documents
filed prior to the date hereof, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body, including, without limitation, the SEC or
NASDAQ, pending or, to the knowledge of the Company or any of its subsidiaries,
threatened against or affecting the Company, any of its subsidiaries, or any of
their respective directors or officers in their capacities as such. There are no
facts which, if known by a potential claimant or governmental authority, could
give rise to a claim or proceeding which, if asserted or conducted with results
unfavorable to the Company or any of its subsidiaries, could reasonably be
expected to have a Material Adverse Effect.

        (j) Intellectual Property. Each of the Company and its subsidiaries owns
or is licensed to use all patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, copyright applications,
licenses, permits, inventions, discoveries, processes, scientific, technical,
engineering and marketing data, object and source codes, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) and other similar rights and
proprietary knowledge (collectively, "INTANGIBLES") necessary for the conduct of
its business as now being conducted. To the best knowledge of the Company,
neither the Company nor any subsidiary of the Company infringes or is in
conflict with any right of any other person with respect to any Intangibles.
Except as set forth on Schedule 3(j) of the Schedule of Exceptions, neither the
Company nor any of its subsidiaries has received written notice of any pending
conflict with or infringement upon such third party Intangibles. Except as set
forth on Schedule 3(j) of the Schedule of Exceptions, the termination of the
Company's ownership of, or right to use, any single Intangible would not result
in a Material Adverse Effect on the Company. Neither the Company nor any of its
subsidiaries has entered into any consent agreement, indemnification agreement,
forbearance to sue or settlement agreement with respect to the validity of the
Company's or its subsidiaries' ownership or right to use its Intangibles and, to
the best knowledge of the Company, there is no reasonable basis for any such
claim to be successful. The Intangibles are valid and enforceable and no
registration relating thereto has lapsed, expired or been abandoned or canceled
or is the subject of cancellation or other adversarial proceedings, and all
applications therefor are pending and in good standing. The Company and its
subsidiaries have complied, in all material respects, with their respective
contractual obligations relating to the protection of the Intangibles used
pursuant to licenses. To the best knowledge of the Company, no person is
infringing on or violating the Intangibles owned or used by the Company or its
subsidiaries.

        (k) Foreign Corrupt Practices. Neither the Company, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any


                                       10


provision of the U.S. Foreign Corrupt Practices Act of 1977; or made any bribe,
rebate, payoff, influence payment, kickback or other unlawful payment to any
foreign or domestic government official or employee.

        (l) Disclosure. All information relating to or concerning the Company
set forth in this Agreement or provided to any Purchaser pursuant to Section
2(d) hereof or otherwise in connection with the transactions contemplated hereby
is true and correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading.

        (m) Acknowledgment Regarding Repurchase of Preferred Stock and Issuance
of Notes. The Company acknowledges and agrees that none of the Purchasers is
acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement or the transactions contemplated
hereby, the relationship between the Company and the Purchasers is "arms-length"
and any statement made by any Purchaser or any of its representatives or agents
in connection with this Agreement and the transactions contemplated hereby is
merely incidental to such Purchaser's acquisition of Securities and has not been
relied upon by the Company, its officers or directors in any way. The Company
further acknowledges that the Company's decision to enter into this Agreement
has been based solely on an independent evaluation by the Company and its
representatives.

        (n) Listing. Upon obtaining the Authorized Stock Approval and the NASD
Rule Approval, the Company will secure the listing of the Conversion Shares and
the Warrant Shares upon each national securities exchange or automated quotation
system upon which shares of Common Stock are currently listed (subject to
official notice of issuance).

        (o) Form S-3 Eligibility. The Company is currently eligible to register
the resale of its Common Stock on a registration statement on Form S-3 under the
Securities Act. There exist no facts or circumstances that would prohibit or
delay the preparation and filing of a registration statement on Form S-3 with
respect to the Registrable Securities (as defined in the Registration Rights
Agreement). The Company has no basis to believe that its past or present
independent public auditors will withhold their consent to the inclusion, or
incorporation by reference, of their audit opinion concerning the Company's
financial statements which are included in the Registration Statement required
to be filed pursuant to the Registration Rights Agreement.

        (p) No General Solicitation. Neither the Company nor any distributor
participating on the Company's behalf in the transactions contemplated hereby
(if any) nor any person acting for the Company, or any such distributor, has
conducted any "general solicitation," as such term is defined in Regulation D,
with respect to any of the Securities being offered hereby.

        (q) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would require registration of the
Securities being offered hereby under the Securities Act or cause this offering
of Securities to be integrated with any prior offering of securities of the
Company for purposes of


                                       11


the Securities Act or any applicable stockholder approval provisions, including,
without limitation, Rule 4350(i) of the NASD or any similar rule.

        (r) No Brokers. The Company has taken no action which would give rise to
any claim by any person for brokerage commissions or finder's fees or for
similar payments by any Purchaser relating to this Agreement or the transactions
contemplated hereby.

        (s) Acknowledgment Regarding Securities. The number of Conversion Shares
issuable upon conversion of the Preferred Shares may increase in certain
circumstances. The Company's executive officers have studied and fully
understand the nature of the Securities being sold hereunder. The Company
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Preferred Shares in accordance with the Certificate of Designation is, other
than as set forth in the Certificate of Designation, absolute and unconditional,
regardless of the dilution that such issuance may have on the ownership
interests of other stockholders and the availability of remedies provided for in
the Transaction Documents relating to a failure or refusal to issue Conversion
Shares. Taking the foregoing into account, the Company's Board of Directors has
determined in its good faith business judgment that the issuance of the Notes
and Replacement Warrants hereunder and the Preferred Shares pursuant to the
Notes and the consummation of the other transactions contemplated hereby and
thereby are in the best interests of the Company and its stockholders. The
Company's Board of Directors and executive officers fully intend to honor their
obligations hereunder to issue Conversion Shares upon conversion of the
Preferred Shares regardless of the dilution that such issuance may have on the
ownership interests of other stockholders and the availability of remedies
provided for in the Transaction Documents relating to their failure or refusal
to issue Conversion Shares.

        (t) Title. The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and merchantable title to all
personal property owned by them that is material to the business of the Company
and its subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as do not materially affect the value of such property and
do not materially interfere with the use made and proposed to be made of such
property by the Company and its subsidiaries. Any real property and facilities
held under lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not materially interfere with the use made and proposed to be
made of such property and buildings by the Company and its subsidiaries.

        (u) Tax Status. Except as set forth in the SEC Documents, the Company
and each of its subsidiaries has made or filed all foreign, U.S. federal, state
and local income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim. The Company has not executed a waiver with respect to
any statute of limitations relating to the


                                       12


assessment or collection of any federal, state or local tax. None of the
Company's tax returns is presently being audited by any taxing authority.

        (v) Key Employees. Each of the Company's directors, officers and any Key
Employee (as defined below) is currently serving the Company in the capacity
disclosed in the SEC Documents. No Key Employee, to the best of the knowledge of
the Company and its subsidiaries, is, or is now expected to be, in violation of
any material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued employment
of each Key Employee does not subject the Company or any of its subsidiaries to
any liability with respect to any of the foregoing matters. No Key Employee has,
to the knowledge of the Company and its subsidiaries, any intention to terminate
or limit his employment with, or services to, the Company or any of its
subsidiaries, nor, to the knowledge of the Company, is any such Key Employee
subject to any constraints which would cause such employee to be unable to
devote his full time and attention to such employment or services. "KEY
EMPLOYEE" means the persons listed on Schedule 3(v) of the Schedule of
Exceptions and any individual who assumes or performs any of the duties of a Key
Employee.

        (w) Insurance. The Company and its subsidiaries have in force fire,
casualty, product liability and other insurance policies, with extended coverage
and in such amounts as are customarily carried by persons engaged in the same or
similar business as the Company and its subsidiaries. No default or event has
occurred that could give rise to a default under any such policy.

        (x) Environmental Matters. There is no environmental litigation or other
environmental proceeding pending or threatened by any governmental regulatory
authority or others with respect to the current or any former business of the
Company or its subsidiaries or any partnership or joint venture currently or at
any time affiliated with the Company or its subsidiaries. No state of facts
exists as to environmental matters or Hazardous Substances (as defined below)
that involves the reasonable likelihood of a material capital expenditure by the
Company or its subsidiaries or that may otherwise have a Material Adverse
Effect. No Hazardous Substances have been treated, stored or disposed of, or
otherwise deposited, in or on the properties owned or leased by the Company or
its subsidiaries or by any partnership or joint venture currently or at any time
affiliated with the Company or its subsidiaries in violation of any applicable
environmental laws. The environmental compliance programs of the Company and its
subsidiaries comply in all respects with all environmental laws, whether
federal, state or local, currently in effect. As used herein, "HAZARDOUS
SUBSTANCES" means any substance, waste, contaminant, pollutant or material that
has been determined by any governmental authority to be capable of posing a risk
of injury to health, safety, property or the environment.

        (y) Inventory. All inventory of the Company and its subsidiaries is
valued on the Company's consolidated books and records at the lower of standard
cost, which approximates actual cost, or the fair market value thereof. Except,
to the extent of the Company's reserves for obsolete or unmerchantable inventory
reflected in the Company's SEC Documents, all such inventory, after
consideration of reserves consisting of finished goods is of merchantable
quality and is saleable in the ordinary course of business consistent with past
practice.


                                       13


        (z) Regulatory Permits. The Company and its subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities which are material to conduct its
business, and neither the Company nor any of its subsidiaries has received any
written notice of any proceeding relating to the revocation or modification of
any such certificate, authorization or permit.

        (aa) Subsidiaries. The business of the Company is and has been conducted
solely by and through the Company and not by or through any other person or
entity. The Company does not directly or indirectly own, control or have any
investment or other interest in any corporation, company, partnership, joint
venture, business trust or other entity.

4.      COVENANTS.

        (a) Best Efforts. The parties shall use their best efforts timely to
satisfy each of the conditions described in Section 6 and Section 7 of this
Agreement.

        (b) Form D: Blue Sky Laws. The Company shall file with the SEC a Form D
with respect to the Securities as required under Regulation D and provide a copy
thereof to each Purchaser promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to each Purchaser
pursuant to this Agreement under applicable securities or "blue sky" laws of the
states of the United States or obtain exemption therefrom, and shall provide
evidence of any such action so taken to each Purchaser on or prior to the
Closing Date. Within four (4) trading days after the Closing Date, the Company
shall file a Form 8-K concerning this Agreement and the transactions
contemplated hereby, which Form 8-K shall attach this Agreement and its Exhibits
as exhibits to such Form 8-K.

        (c) Reporting Status. So long as any Purchaser beneficially owns any of
the Securities, the Company shall timely file (within applicable extension
periods) all reports required to be filed with the SEC pursuant to the Exchange
Act, and the Company shall not terminate its status as an issuer required to
file reports under the Exchange Act even if the Exchange Act or the rules and
regulations thereunder would permit such termination. In addition, the Company
shall take all actions reasonably necessary to meet the "registrant eligibility"
requirements set forth in the general instructions to Form S-3 or any successor
form thereto, to continue to be eligible to register the resale of its Common
Stock on a registration statement on Form S-3 under the Securities Act.

        (d) Purchaser Waivers. In connection with the transactions contemplated
hereby and by the Securities Purchase Agreement and the other Transaction
Documents, each Purchaser hereby:

               (i) approves (A) the designation of the "Series C Convertible
Preferred Stock," which will be pari-passu in some circumstances with the Series
A Preferred Stock and the Series B Preferred Stock, and (B) the issuance and
sale to the Series C Purchasers of the Preferred Shares and the Series C
Warrants in accordance with the terms of the Securities Purchase Agreement;


                                       14


               (ii) waives its right, pursuant to Section 4(e) of that certain
Securities Purchase Agreement dated June 29, 2001 by and among the Company and
certain purchasers of the Company's Series A Preferred Stock (the "SERIES A
SECURITIES PURCHASE AGREEMENT") and Securities Purchase Agreement dated March
22, 2002 by and among the Company and certain purchasers of the Company's Series
B Preferred Stock (the "SERIES B SECURITIES PURCHASE AGREEMENT"), as applicable,
to participate in the issuance to the Series C Purchasers of the Preferred
Shares and the Series C Warrants in accordance with the terms of the Securities
Purchase Agreement (including all notices and notice periods required thereby);

               (iii) waives compliance by the Company with Section 4(m) of the
Series A Securities Purchase Agreement and the Series B Securities Purchase
Agreement, as applicable, to the extent necessary to comply with the terms of
this Agreement and the Preferred Shares; and

               (iv) as required by the terms of that certain First Registration
Rights Agreement and Second Registration Rights Agreement, each dated June 29,
2001 by and among the Company and the purchasers of Series A Preferred Stock,
and that certain Registration Rights Agreement dated March 22, 2002 by and among
the Company and the purchasers of the Series B Preferred Stock, as applicable,
(A) consents to the registration rights granted to the Series C Purchasers
pursuant to the Registration Rights Agreement; (B) consents to the filing of the
Registration Statements and all amendments or supplements thereto, and any
subsequent filings, contemplated by the Registration Rights Agreement; and (C)
waives all rights to notice and all rights to include shares to be registered
under such Registration Statements (except to the extent provided in the
Registration Rights Agreement), and any other rights triggered by the actions
consented to hereby.

        (e) Participation Right. Subject to the terms and conditions specified
in this Section 4(e), for so long as the Notes remain outstanding, the
Purchasers shall have a right to participate with respect to the issuance or
possible issuance of (i) future equity or equity-linked securities, or (ii) debt
which is convertible into equity or in which there is an equity component
("ADDITIONAL SECURITIES") on the same terms and conditions as offered by the
Company to the other purchasers of such Additional Securities. Each time the
Company proposes to offer any Additional Securities, the Company shall make an
offering of such Additional Securities to each Purchaser in accordance with the
following provisions:

               (i) the Company shall deliver a notice (the "NOTICE") to the
Purchasers stating (i) its bona fide intention to offer such Additional
Securities, (ii) the number of such Additional Securities to be offered, (iii)
the price and terms, if any, upon which it proposes to offer such Additional
Securities, and (iv) the anticipated closing date of the sale of such Additional
Securities.

               (ii) by written notification received by the Company, within
twenty (20) days after giving of the Notice, any Purchaser may elect to purchase
or obtain, at the price and on the terms specified in the Notice, up to that
portion of such Additional Securities which equals the proportion that the
number of shares of Common Stock that such Purchaser would have the right to
acquire assuming the full conversion of such Purchaser's Notes into Preferred
Shares and the full conversion of such Preferred Shares into Conversion Shares
bears to the total number of shares of Common Stock then outstanding (assuming
in each case full conversion and exercise of


                                       15


all convertible or exercisable securities then outstanding). The Company shall
promptly, in writing, inform each Purchaser which elects to purchase all of the
Additional Shares available to it ("FULLY-EXERCISING PURCHASER") of any other
Purchaser's failure to do likewise. During the five-day period commencing after
such information is given, each Fully-Exercising Purchaser shall be entitled to
obtain that portion of the Additional Securities for which the Purchasers were
entitled to subscribe but which were not subscribed for by the Purchasers which
is equal to the proportion that the number of shares of Common Stock that such
Fully-Exercising Purchaser would have the right to acquire assuming the full
conversion of such Purchaser's Notes into Preferred Shares and the full
conversion of such Preferred Shares into Conversion Shares bears to the total
number of shares of Common Stock that all Fully-Exercising Purchasers who wish
to purchase some of the unsubscribed shares would have the right to acquire
assuming the full conversion of such Purchasers' Notes into Preferred Shares and
the full conversion of such Preferred Shares into Conversion Shares;

               (iii) if all Additional Securities which the Purchasers are
entitled to obtain pursuant to subsection 4(e)(ii) are not elected to be
obtained as provided in subsection 4(e)(ii) hereof, the Company may, during the
75-day period following the expiration of the period provided in subsection
4(e)(ii) hereof, offer the remaining unsubscribed portion of such Additional
Securities to any person or persons at a price not less than, and upon terms no
more favorable to the offeree than, those specified in the Notice. If the
Company does not consummate the sale of such Additional Securities within such
period, the right provided hereunder shall be deemed to be revived and such
Additional Securities shall not be offered or sold unless first reoffered to the
Purchasers in accordance herewith;

               (iv) the participation right in this Section 4(e) shall not be
applicable to (i) the issuance or sale of shares of Common Stock (or options
therefor) to employees, officers, directors, or consultants of the Company for
the primary purpose of soliciting or retaining their employment or service
pursuant to a stock option plan (or similar equity incentive plan) approved by
the Board of Directors, (ii) the issuance of securities in connection with a
bona fide underwritten public offering at an offering price per share (prior to
underwriter's commissions and discounts) of not less than 200% of the Conversion
Price (as such term is defined in the Certificate of Designation) (as adjusted
to reflect any stock dividends, distributions, combinations, reclassifications
and other similar transactions effected by the Corporation in respect to its
Common Stock) that results in total proceeds to the Company of at least
$40,000,000, (iii) the issuance or sale of the Preferred Shares, (iv) the
issuance of securities in connection with mergers, acquisitions, strategic
business partnerships or joint ventures (including, without limitation, such
transactions with major pharmaceutical labs or life sciences companies), the
primary purpose of which, in the reasonable judgment of the Board of Directors,
is not to raise additional capital, (v) the issuance of securities pursuant to
any equipment financing from a bank or similar financial or lending institution
approved by the Board of Directors, or (vi) any issuance of securities as to
which the holders of a majority of the then outstanding Notes shall have
executed a written waiver of the rights contained in this Section 4(e).

               (v) the participation right set forth in this Section 4(e) may
not be assigned or transferred, except that such right is assignable by each
Purchaser to any wholly-owned


                                       16


subsidiary or parent of, or to any corporation or entity that is, within the
meaning of the Securities Act, controlling, controlled by or under common
control with, any such Purchaser.

        (f) Expenses. The Company shall pay to SDS Capital Partners ("SDS
CAPITAL") at the Closing, reimbursement for the out-of-pocket expenses
reasonably incurred by SDS Capital's advisors in connection with the
negotiation, preparation, execution and delivery of this Agreement and the other
agreements to be executed in connection herewith, including, without limitation,
SDS Capital's advisors' reasonable due diligence and attorneys' fees and
expenses (the "EXPENSES"); provided, however, that in lieu of such payment SDS
Capital (or its affiliates) shall be permitted to deduct all Expenses from the
purchase price payable by SDS Capital (or its affiliates) hereunder. In
addition, from time to time thereafter, upon SDS Capital's written request, the
Company shall pay to SDS Capital such additional Expenses, if any, not covered
by such payment, in each case to the extent reasonably incurred by SDS Capital's
agents prior to the Closing in connection with the negotiation, preparation,
execution and delivery of this Agreement.

        (g) Financial Information. The Company shall send the following reports
to each Purchaser until such Purchaser transfers, assigns or sells all of its
Securities: within ten (10) days after the filing with the SEC, a copy of its
Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, its proxy
statements and any Current Reports on Form 8-K. To the extent that any of the
foregoing documents is available under the SEC's EDGAR filing system, such
documents shall be deemed to have been delivered to each of the Purchasers.

        (h) Reservation of Shares. The Company shall at all times have
authorized and reserved for the purpose of issuance a sufficient number of
Preferred Shares to provide for the full conversion of the Notes and issuance of
the Preferred Shares in connection therewith and, subject to obtaining the
Authorized Stock Approval contemplated by Section 4(r) below, a sufficient
number of shares of Common Stock to provide for the full conversion of the
Preferred Shares issuable upon conversion of the Notes and issuance of the
Conversion Shares in connection therewith and the full exercise of the
Replacement Warrants and issuance of the Warrant Shares in connection therewith,
in each case to the extent required by the Certificate of Designation and the
Replacement Warrants.

        (i) Listing. The Company shall file an application for the listing of
the Conversion Shares and the Warrant Shares promptly, but in any event within
three (3) business days following, the date on which the Company obtains the
Authorized Stock Approval and the NASD Rule Approval. From the time that such
application has been approved and thereafter, the Company shall maintain, so
long as any Purchaser (or any of their affiliates) own any Securities, the
listing of all Conversion Shares and the Warrant Shares from time to time
issuable upon conversion of the Preferred Shares and exercise of the Replacement
Warrants on each national securities exchange or automated quotation system on
which shares of Common Stock are currently listed. The Company will use its best
efforts to continue the listing and trading of its Common Stock on the NNM, the
New York Stock Exchange ("NYSE"), the American Stock Exchange ("AMEX") or the
Nasdaq SmallCap Market (the "SMALLCAP") and will comply in all material respects
with the reporting, filing and other obligations under the bylaws or rules of
the NASD and such exchanges, as applicable. The Company shall promptly provide
to each holder of Preferred Shares and/or Replacement Warrants copies of any
notices it receives regarding the


                                       17


continued eligibility of the Common Stock for trading on the NNM or, if
applicable, any securities exchange or automated quotation system on which
securities of the same class or series issued by the Company are then listed or
quoted, if any.

        (j) Corporate Existence. So long as a Purchaser beneficially owns any
Securities, the Company shall maintain its corporate existence, and in the event
of a merger, consolidation or sale of all or substantially all of the Company's
assets, the Company shall ensure that the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and under the
Certificate of Designation, the Notes, the Replacement Warrants, the Security
Documents and the agreements and instruments entered into in connection herewith
regardless of whether or not the Company would have had a sufficient number of
shares of Common Stock authorized and available for issuance in order to effect
the conversion of all Preferred Shares and exercise in full of all Replacement
Warrants outstanding as of the date of such transaction and (ii) is a publicly
traded corporation whose common stock is listed for trading on the NNM,
SmallCap, NYSE or AMEX. Notwithstanding the foregoing, the Company covenants and
agrees that it will not engage in any merger, consolidation or sale of all or
substantially all of its assets at any time prior to the effectiveness of the
Registration Statement required to be filed pursuant to the Registration Rights
Agreement without (A) providing each Purchaser with written notice of such
transaction at least 60 days prior to the consummation of such transaction and
(B) obtaining the written consent of the Purchasers holding a
majority-in-interest of the then outstanding Preferred Shares held by such
Purchasers on or before the 10th day after the delivery of such notice by the
Company.

        (k) No Integrated Offerings. The Company shall not make any offers or
sales of any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder under the
Securities Act or cause this offering of the Securities to be integrated with
any other offering of securities by the Company for purposes of any stockholder
approval provision applicable to the Company or its securities.

        (l) Legal Compliance. The Company shall conduct its business and the
business of its subsidiaries in compliance with all laws, ordinances or
regulations of governmental entities applicable to such businesses, except where
the failure to do so would not have a Material Adverse Effect.

        (m) Redemptions and Dividends. So long as any Purchaser beneficially
owns any Notes or Preferred Shares, the Company shall not, without first
obtaining the written approval of the Purchasers holding a majority-in-interest
of the Notes then outstanding or the holders of a majority of the Preferred
Shares then outstanding, as applicable, repurchase, redeem, or declare or pay
any cash dividend or distribution on, any shares of capital stock of the
Company; provided, however, that the foregoing shall not prohibit the Company
from repurchasing, redeeming or declaring or paying cash dividends or
distributions on shares of the Series A Preferred Stock and Series C Convertible
Preferred Stock provided that any such repurchases, redemptions, dividends and
distributions are made solely in accordance with the terms of such Series A
Preferred Stock and Series C Convertible Preferred Stock as in effect on the
date hereof.


                                       18


        (n) Information. The Company will furnish to each Purchaser, so long as
it holds any Securities:

               (i) concurrently with the filing with the SEC of its annual
reports on Form 10-K, a certificate of the President, a Vice President or a
senior financial officer of the Company stating that, based upon such
examination or investigation and review of this Agreement as in the opinion of
the signer is necessary to enable the signer to express an informed opinion with
respect thereto, neither the Company nor any of its subsidiaries is or has
during such period been in default in the performance or observance of any of
the terms, covenants or conditions hereof, or, if the Company or any of its
subsidiaries shall be or shall have been in default, specifying all such
defaults, and the nature and period of existence thereof, and what action the
Company or such subsidiary has taken, is taking or proposes to take with respect
thereto; and

               (ii) the information the Company must deliver to any holder or to
any prospective transferee of Securities in order to permit the sale or other
transfer of such Securities pursuant to Rule 144A of the SEC or any similar rule
then in effect.

        The Company will keep at its principal executive office a true copy of
this Agreement (as at the time in effect), and cause the same to be available
for inspection at such office during normal business hours by any holder of
Securities or any prospective transferee of Securities designated by a holder
thereof.

        (o) Inspection of Properties and Books. So long as any Purchaser shall
hold any Securities, such Purchaser and its representatives and agents
(collectively, the "INSPECTORS") shall have the right, at such Purchaser's
expense, to visit and inspect any of the properties of the Company and of its
subsidiaries, to examine the books of account and records of the Company and of
its subsidiaries, to make or be provided with copies and extracts therefrom, to
discuss the affairs, finances and accounts of the Company and of its
subsidiaries with, and to be advised as to the same by, its and their officers,
employees and independent public accountants (and by this provision the Company
authorizes such accountants to discuss such affairs, finances and accounts,
whether or not a representative of the Company is present) all at such
reasonable times and intervals and to such reasonable extent as such Purchaser
may desire; provided, however, that each Inspector shall hold in confidence and
shall not make any disclosure (except to such Purchaser) of any such information
which the Company determines in good faith to be confidential, and of which
determination the Inspectors are so notified, unless (a) the disclosure of such
information is necessary to avoid or correct a misstatement or omission in any
Registration Statement filed pursuant to the Registration Rights Agreement, (b)
the release of such information is ordered pursuant to a subpoena or other order
from a court or government body of competent jurisdiction, or (c) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company shall not be
required to disclose any confidential information to any Inspector until and
unless such Inspector shall have entered into confidentiality agreements (in
form and substance satisfactory to the Company) with the Company with respect
thereto, substantially in the form of this Section 4(o). Each Purchaser agrees
that it shall, upon learning that disclosure of such information is sought in or
by a court or governmental body of competent jurisdiction or through other
means, give prompt notice to the Company and allow the Company, at its expense,
to undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, the information


                                       19


deemed confidential. Notwithstanding the foregoing, the Company shall be
permitted to withhold from disclosure under this paragraph any material
protected by attorney-client privilege.

        (p) Waivers and Consents. Prior to the effectiveness any Registration
Statement filed in accordance with Section 2(a)(ii) of the Registration Rights
Agreement, the Company shall have obtained proper waivers from the stockholders
and warrant holders referred to on Schedule 3(f) of the Schedule of Exceptions
to this Agreement.

        (q) Confidential Agreement. Each Purchaser will hold in confidence all
information concerning this Agreement and the placement of shares hereunder
until the earlier of such time as (i) the Company has made a public announcement
concerning the Agreement and the placement of shares hereunder or (ii) this
Agreement is terminated.

        (r) Stockholder Approval. The Company shall call a meeting of its
stockholders to be held as promptly as practicable (but in any event no later
than 90 days after the Closing Date) for the purpose of voting upon and
approving (i) the increase in the number of authorized shares of the Company's
Common Stock to a number sufficient to provide for (A) the issuance and
conversion of all of the Preferred Shares issuable by the Company to the
Purchasers upon conversion of the Notes, (B) the exercise of the Replacement
Warrants issued by the Company to the Purchasers pursuant hereto, and (C) the
conversion or exercise of all other outstanding securities of the Company that
are convertible into or exercisable for shares of Common Stock (the "AUTHORIZED
STOCK APPROVAL"), (ii) to approve the conversion of the Notes into Preferred
Shares and the issuance of the Replacement Warrants, in accordance with Rule
4350(i) of the NASD or any similar rule (the "NASD RULE APPROVAL"), and (iii) to
amend the Certificate of Designation to include (a) the right of the Company to
pay any premium payments due thereunder in either cash or shares of Common Stock
at the Company's election and (b) the same anti-dilution protections as are
currently afforded to the Company's Series A Preferred Stock pursuant to Article
XI, Section G of the Series A Certificate of Designations (the "SERIES C
AMENDMENT APPROVAL" and, together with the Authorized Stock Approval and the
NASD Rule Approval, the "STOCKHOLDER APPROVAL"). The Company shall recommend to
its stockholders approval of such matters. The Company shall use its best
efforts to solicit from its stockholders proxies in favor of such matters
sufficient to obtain the Stockholder Approval (including any such approval
required by the NASD), and shall vote such proxies, and shall use its best
efforts to cause all "affiliates" (as such term is defined in Rule 12b-2
promulgated under the Exchange Act) of the Company to vote any shares of Common
Stock beneficially owned by such persons or entities, in favor of such matters.
In the event and upon obtaining the Authorized Stock Approval and the NASD Rule
Approval, the Company shall take all such corporate action as shall be necessary
to reserve the Conversion Shares for issuance upon conversion of the Preferred
Shares in accordance with the terms thereof, the Warrant Shares for issuance
upon exercise of the Replacement Warrants in accordance with the terms thereof
and such number of additional shares of Common Stock as shall be issuable upon
the conversion or exercise of all other outstanding securities of the Company
that are convertible into or exercisable for shares of Common Stock. In the
event and upon obtaining the Series C Amendment Approval, (x) the Company shall
prepare and, subject to the approval of the holders of Preferred Shares in
accordance with the Certificate of Designation, file an amendment to the
Certificate of Designation to include such additional provisions, and (y)
provided that the stockholders have


                                       20


approved all of the amendments described in clause (ii) of this Section 4(r),
the Purchasers shall, in their capacity as holders of Preferred Shares, consent
to such amendment.

        (s) Warrant Exchange. In the event that the Authorized Stock Approval
and the NASD Rule Approval are obtained as contemplated by Section 4(r) above
(the date on which such approvals are obtained, the "APPROVAL DATE"), the
Company shall issue to each Purchaser who, prior to the consummation of the
repurchase pursuant hereto, was a holder of Series B Preferred Stock, in
exchange for delivery of such Purchaser's Old Warrant for cancellation, a
Replacement Warrant, dated the Approval Date, representing the right to purchase
a number of shares of Common Stock equal to the product obtained by multiplying
(i) the number of shares issuable upon full exercise of the Old Warrant by (ii)
a fraction, the numerator of which is $2.508 and the denominator of which is the
"Exercise Price" of the Series C Warrants in effect on the Approval Date, and
otherwise in the form attached hereto as Exhibit B, which exchange shall be
conducted in the manner set forth in this Section 4(s). Promptly following the
Approval Date, but in any event within two business days thereafter, the Company
shall send written notice to the Purchasers who are entitled to participate in
the exchange pursuant to this Section 4(s) of such approvals, and each such
Purchaser shall deliver to the Company such Purchaser's Old Warrant (or evidence
of the loss, theft, destruction or mutilation thereof in accordance with Section
7(c) of the Old Warrant) for cancellation by the Company. Promptly upon receipt
of an Old Warrant (or evidence of the loss, theft, destruction or mutilation
thereof) from any given Purchaser, the Company shall promptly, but in any event
within two business days following such receipt, issue to such Purchaser the
Replacement Warrant to which such Purchaser is entitled pursuant to this Section
4(s).

5.      TRANSFER AGENT INSTRUCTIONS.

        (a) The Company shall instruct its transfer agent to issue certificates
(subject to the legend and other provisions hereof and in the Notes, the
Certificate of Designation and the Replacement Warrants), registered in the name
of each Purchaser or its nominee, for the Preferred Shares, the Conversion
Shares and the Warrant Shares in such amounts as specified from time to time by
such Purchaser to the Company upon conversion of the Notes or the Preferred
Shares or exercise of the Replacement Warrants, as applicable. To the extent and
during the periods provided in Sections 2(f) and 2(g) of this Agreement, all
such certificates shall bear the restrictive legend specified in Section 2(g) of
this Agreement.

        (b) The Company warrants that no instruction other than such
instructions referred to in this Section 5, the Registration Rights Agreement
and stop transfer instructions to give effect to Section 2(f) hereof in the case
of the transfer of the Conversion Shares or Warrant Shares prior to registration
of the Conversion Shares or Warrant Shares under the Securities Act or without
an exemption therefrom, will be given by the Company to its transfer agent and
that the Securities shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section shall affect in any way
each Purchaser's obligations and agreement set forth in Section 2(g) hereof to
resell the Securities pursuant to an effective registration statement or under
an exemption from the registration requirements of applicable securities law.


                                       21


        (c) If any Purchaser provides the Company and the transfer agent with an
opinion of counsel, which opinion of counsel shall be in form, substance and
scope customary for opinions of counsel in comparable transactions, to the
effect that the Securities have been sold or transferred pursuant to an
exemption from registration, or any Purchaser provides the Company with an
opinion of counsel, which opinion of counsel shall be in form, substance and
scope customary for opinions of counsel in comparable transactions, to the
effect that such Securities may be sold under Rule 144(k), the Company shall
permit the transfer and, in the case of the Conversion Shares and the Warrant
Shares, promptly instruct its transfer agent to issue one or more certificates
in such name and in such denominations as specified by such Purchaser.

6.      CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

        The obligation of the Company hereunder to repurchase the Series B
Preferred Stock and issue the Notes to each Purchaser hereunder is subject to
the satisfaction, at or before the Closing, of each of the following conditions
thereto, provided that these conditions are for the Company's sole benefit and
may be waived by the Company at any time in its sole discretion.

        (a) Each Purchaser shall have executed such Purchaser's Execution Page
to this Agreement and the Registration Rights Agreement and delivered the same
to the Company.

        (b) Each Purchaser shall have delivered the share certificate(s)
representing such Purchaser's shares of Series B Preferred Stock being
repurchased at the Closing in accordance with Section 1(a) above.

        (c) The representations and warranties of each Purchaser shall be true
and correct as of the date when made and as of the Closing Date as though made
at that time (except for representations and warranties that speak as of a
specific date, which representations and warranties shall be true and correct as
of such date), and such Purchaser shall have performed, satisfied and complied
in all material respects with the covenants, agreements and conditions required
by this Agreement to be performed, satisfied or complied with by such Purchaser
at or prior to the Closing Date.

        (d) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
prohibits the consummation of any of the transactions contemplated by this
Agreement.

7.      CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE. The obligation of
each Purchaser hereunder to have its shares of Series B Preferred Stock
repurchased in exchange for a Note at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that such conditions are for such Purchaser's sole benefit
and may be waived by such Purchaser at any time in such Purchaser's sole
discretion:

        (a) The Company shall have executed this Agreement, the Notes, the
Security Documents (together with any other documents necessary to perfect the
security interests created


                                       22


thereby or otherwise contemplated therein) and the Registration Rights
Agreement, and delivered executed original copies of the same to such Purchaser.

        (b) The Certificate of Designation shall have been filed and accepted
for filing with the Secretary of State of the State of Delaware and a copy
thereof certified by the Secretary of State of Delaware shall have been
delivered to such Purchaser.

        (c) The Company shall have delivered to such Purchaser duly executed
Notes (each in such denominations as such Purchaser shall request) representing
the aggregate Purchase Price to be paid by the Company to such Purchaser at the
Closing in accordance with Section 1(b) above.

        (d) The Common Stock shall be authorized for quotation and listed on the
NNM and trading in the Common Stock (or the NNM generally) shall not have been
suspended by the SEC or the NNM.

        (e) The representations and warranties of the Company in this Agreement
and in the other Transaction Documents shall be true and correct as of the date
when made and as of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date, which
representations and warranties shall be true and correct as of such date) and
the Company shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement or any other Transaction Document to be performed, satisfied or
complied with by the Company at or prior to the Closing Date. The Company shall
have delivered for the benefit of the Purchasers, a certificate, executed by the
Chief Executive Officer of the Company after reasonable investigation, dated as
of the Closing Date to the foregoing effect and as to such other matters as may
reasonably be requested by such Purchaser.

        (f) No statute, rule, regulation, executive order, decree, ruling,
injunction, action or proceeding shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent jurisdiction or
any self-regulatory organization having authority over the matters contemplated
hereby which questions the validity of, challenges or prohibits the consummation
of, any of the transactions contemplated by this Agreement.

        (g) Each Purchaser shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Purchaser and in substantially the form of Exhibit G
attached hereto.

        (h) Each Purchaser shall have received a copy of resolutions, duly
adopted by the Board of Directors of the Company, which shall be in full force
and effect at the time of the Closing, authorizing the consummation by the
Company of the transactions contemplated hereby and by the Notes, the
Replacement Warrants, the Security Documents and the Registration Rights
Agreement, certified as such by the Secretary or Assistant Secretary of the
Company.

        (i) On or prior to the Closing Date, the Company shall have entered into
the following agreements with Pfizer Inc. (or one of its affiliates): (i) Master
Services Agreement, (ii) Non-Exclusive License Agreement and (iii) Stock
Purchase Agreement, and shall have consummated the transactions contemplated by
the Stock Purchase Agreement.


                                       23


        (j) On or prior to the Closing Date, the Company shall have entered into
the Securities Purchase Agreement with the Series C Purchasers and shall have
consummated the transactions contemplated thereby.

8.      COLLATERAL AGENCY PROVISIONS.

        (a) Appointment of Collateral Agent. The Purchasers hereby appoint SDS
Merchant Fund, LP, to act as collateral agent (the "COLLATERAL AGENT") and SDS
Merchant Fund, LP, agrees to act as Collateral Agent for the Purchasers, as
contemplated herein and in the Security Documents.

        (b) Collateral Agent Authorized to Enter into Collateral Documents. Each
of the Purchasers authorizes the Collateral Agent to enter into the Security
Documents on its behalf.

        (c) Amendment to Security Documents. The Purchasers holding a majority
of the total outstanding principal balance of the Notes (the "REQUIRED HOLDERS")
shall have the right to direct the Collateral Agent, from time to time, to
consent to any amendment, modification or supplement to or waiver of any
provision of any Security Document and to release any Collateral (as defined in
the Security Documents) from any lien or security interest held by the
Collateral Agent; provided, however, that (i) no such direction shall require
the Collateral Agent to consent to the modification of any provision or portion
thereof which (in the sole judgment of the Collateral Agent) is intended to
benefit the Collateral Agent, (ii) the Collateral Agent shall have the right to
decline to follow any such direction if the Collateral Agent shall determine in
good faith that the directed action is not permitted by the terms of any
Security Document or may not lawfully be taken and (iii) no such direction shall
waive or modify any provision of any Security Document the waiver or
modification of which requires the consent of all Purchasers unless all
Purchasers consent thereto. The Collateral Agent may rely on any such direction
given to it by the Required Holders and shall be fully protected in relying
thereon, and shall under no circumstances be liable, except in circumstances
involving the Collateral Agent's gross negligence or willful misconduct as shall
have been determined in a final nonappealable judgment of a court of competent
jurisdiction, to any holder of the Notes or any other person or entity for
taking or refraining from taking action in accordance with any direction or
otherwise in accordance with any of the Security Documents.

        (d) Duties of Collateral Agent.

               (i) Powers. The Collateral Agent shall have and may exercise such
powers under the Security Documents as are specifically delegated to the
Collateral Agent by the terms hereof and thereof, together with such powers as
are reasonably incidental thereto. The Collateral Agent shall not have any
implied duties or any obligations to take any action under the Security
Documents except any action specifically provided by the Security Documents to
be taken by the Collateral Agent.

               (ii) Reliance on Instructions of Required Holders. The Collateral
Agent shall be required to act or to refrain from acting (and shall be fully
protected in so acting or refraining from acting) upon the written instructions
of the Required Holders and such instructions shall be binding upon all the
Purchasers; provided that the Collateral Agent shall not be required to take


                                       24


any action which the Collateral Agent in good faith believes (i) could
reasonably be expected to expose it to personal liability or (ii) is contrary to
this Agreement, the Security Documents and applicable law.

               (iii) Action Without Instructions After Event of Default. Absent
written instructions from the Required Holders at a time when an Event of
Default shall have occurred and be continuing, the Collateral Agent may take,
but shall have no obligation to take, any and all actions under the Security
Documents or any of them or otherwise as it shall deem to be in the best
interests of the Purchasers; provided, however, that in the absence of written
instructions from the Required Holders, the Collateral Agent shall not exercise
remedies available to it under any Security Document with respect to the
Collateral or any part thereof (other than preserving, collecting and protecting
the Collateral and the proceeds thereof).

               (iv) Independent Right of Each Purchaser to Instruct Collateral
Agent. The right of each Purchaser to instruct the Collateral Agent is the
separate and individual property of such Purchaser and may be exercised as such
Purchaser sees fit in its sole discretion and with no liability to any other
such Purchaser for the exercise or non-exercise thereof. Without limiting the
foregoing, the Required Holders shall not be liable under any circumstances to
any other Purchaser for any action taken or omitted to be taken hereunder by the
Collateral Agent upon written instructions from the Required Holders.

               (v) Relationship Between Collateral Agent and Purchasers. The
relationship between the Collateral Agent and the Purchasers is and shall be
only to the extent explicitly provided for herein that of agent and principal
and nothing herein contained shall be construed to constitute the Collateral
Agent a trustee for any Purchaser or to impose on the Collateral Agent duties
and obligations other than those expressly provided for herein. Without limiting
the generality of the foregoing, neither the Collateral Agent nor any of its
directors, officers, employees, partners or agents shall:

                      (A) be responsible to the other Purchasers for any
recitals, representations or warranties contained in, or for the execution,
validity, genuineness, perfection, effectiveness or enforceability of, the
Security Documents (it being expressly understood that any determination of the
foregoing is the responsibility of each Purchaser),

                      (B) be responsible to the other Purchasers for the
validity, genuineness, perfection, effectiveness, enforceability, existence,
value or enforcement of any security interest in the Collateral (it being
expressly understood that any determination of the foregoing is the
responsibility of each Purchaser),

                      (C) be under any duty to inquire into or pass upon any of
the foregoing matters, or to make any inquiry concerning the performance by any
person or entity of its or their obligations under any Security Document (it
being expressly understood that any determination of the foregoing is the
responsibility of each Purchaser),

                      (D) be deemed to have knowledge of the occurrence of an
Event of Default (as defined in the Notes), or any event, condition or
circumstance the occurrence of


                                       25


which would, with the giving of notice or the passage of time or both,
constitute an Event of Default,

                      (E) be responsible or liable to the Purchasers for any
shortage, discrepancy, damage, loss or destruction of any part of the Collateral
wherever the same may be located regardless of the cause thereof unless the same
shall happen solely through the gross negligence or willful misconduct of the
Collateral Agent as shall have been determined in a final nonappealable judgment
of a court of competent jurisdiction,

                      (F) have any liability to the Purchasers for any error or
omission or action or failure to act of any kind made in the settlement,
collection or payment in connection with any of the Security Documents or any of
the Collateral or any instrument received in payment therefor or for any damage
resulting therefrom other than as a sole result of its own gross negligence or
willful misconduct as shall have been determined in a final nonappealable
judgment of a court of competent jurisdiction, or

                      (G) in any event, be liable to the Purchasers as such for
any action taken or omitted by it, absent, in each case described in this
subsection, its gross negligence or willful misconduct as shall have been
determined in a final nonappealable judgment of a court of competent
jurisdiction.

        (e) Standard of Care. Each Purchaser agrees with all other Purchasers
and the Collateral Agent that nothing contained in this Agreement shall be
construed to give rise to, nor shall such Purchaser have, any claims whatsoever
against the Collateral Agent on account of any act or omission to act in
connection with the exercise of any right or remedy of the Collateral Agent with
respect to the Security Documents or the Collateral in the absence of gross
negligence or willful misconduct of the Collateral Agent as shall have been
determined in a final nonappealable judgment of a court of competent
jurisdiction.

        (f) Collateral In Possession of Collateral Agent. The Collateral Agent
shall be at liberty to place any of the Collateral, this Agreement, the Security
Documents and any other instruments, documents or deeds delivered to it pursuant
to or in connection with any of such documents in any safe deposit box, safe or
receptacle selected by it or with any bank, any company whose business includes
undertaking the safe custody of documents or any firm of lawyers of good repute
and the Collateral Agent shall not be responsible for any loss thereby incurred
unless such loss is solely the result of the Collateral Agent's gross negligence
or willful misconduct as shall have been determined in a final nonappealable
judgment of a court of competent jurisdiction. The Collateral Agent's books and
records shall at all times show that the Collateral is held by the Collateral
Agent subject to the pledge and lien of the Security Documents.

        (g) Agents, Officers and Employees of Collateral Agent. The Collateral
Agent may execute any of its duties under the Security Documents by or through
its agents, officers or employees. Neither the Collateral Agent nor any of its
agents, officers or employees shall be liable for any action taken or omitted to
be taken by it or them in good faith, be responsible for the consequence of any
oversight or error of judgment or answerable for any loss unless any of


                                       26


the foregoing shall happen through its or their gross negligence or willful
misconduct as shall have been determined in a final nonappealable judgment of a
court of competent jurisdiction.

        (h) Appointment of Co-Agent. Whenever the Collateral Agent shall deem it
necessary or prudent in order either to conform to any law of any jurisdiction
in which all or any part of the Collateral shall be situated or to make any
claim or bring any suit with respect to the Collateral or the Security
Documents, or in the event that the Collateral Agent shall have been requested
to do so by or on behalf of the Required Holders, the Collateral Agent shall
execute and deliver a supplemental agreement and all other instruments and
agreements necessary or proper to constitute a bank or trust company, or one or
more other persons or entities approved by the Collateral Agent, either to act
as co-agent or co-agents with respect to all or any part of the Collateral or
with respect to the Security Documents, jointly with the Collateral Agent or any
successor or successors, or to act as separate agent or agents of any such
property, in any such case with such powers as may be provided in such
supplemental agreement, and to vest in such bank, trust company or other persons
or entities as such co-agent or separate agent, as the case may be, any
property, title, right or power of the Collateral Agent deemed necessary or
advisable by the Required Holders or the Collateral Agent.

        (i) Reliance on Certain Documents. The Collateral Agent shall be
entitled to rely on any communication, instrument or document believed by it to
be genuine and correct and to have been signed or sent by the proper person or
entity, and with respect to all legal matters shall be entitled to rely on the
advice of legal advisors selected by it concerning all matters relating to the
Security Documents and its duties hereunder and thereunder and otherwise shall
rely on such experts as it deems necessary or desirable, and shall not be liable
to any Purchaser or any other person or entity for the consequences of such
reliance in the absence of gross negligence or willful misconduct as shall have
been determined in a final nonappealable judgment of a court of competent
jurisdiction.

        (j) Collateral Agent May Have Separate Relationship with Parties. The
Collateral Agent (or any affiliate of the Collateral Agent) may, notwithstanding
the fact that it is the Collateral Agent, act as a lender to the Company and
lend money to, and generally engage in any kind of business with such party in
the same manner and to the same effect as though it were not the Collateral
Agent; and such business shall not constitute a breach of any obligation of the
Collateral Agent to the other Purchasers.

        (k) Indemnification of Collateral Agent. The Company (and, to the extent
that the Company fails to do so, each of the Purchasers, ratably on the basis of
the respective principal amounts of the Notes outstanding at the time of the
occurrence giving rise to the below liabilities, losses, etc.), agrees to
indemnify the Collateral Agent for any and all liabilities, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind and nature whatsoever that may be imposed on, incurred by or asserted
against the Collateral Agent in its capacity as the Collateral Agent, in any way
relating to or arising out of the Security Documents or the transactions
contemplated hereby or thereby or the enforcement of any of the terms hereof or
thereof, provided that neither the Company nor any Purchaser shall be liable for
any of the foregoing to the extent they arise from gross negligence or willful
misconduct on the part of the Collateral Agent as shall have been determined in
a final nonappealable judgment of a court of competent jurisdiction. This
Section 8(k) shall survive the termination of this


                                       27


Agreement. Prior to taking any action hereunder as Collateral Agent, the
Collateral Agent may require each Purchaser to deposit with it sufficient sums
as it determines in good faith is necessary to protect the Collateral Agent for
costs and expenses associated with taking such action, and the Collateral Agent
shall have no liability hereunder for failure to take such action unless the
Purchasers promptly deposit such sums.

        (l) Resignation. The Collateral Agent at any time may resign, upon 30
days' prior written notice, by an instrument addressed and delivered to the
Purchasers and the Company and may be removed at any time with or without cause
upon 30 days' prior written notice, by an instrument in writing duly executed by
duly authorized signatories of the Required Holders. The Required Holders shall
also have the right to appoint a successor to the Collateral Agent upon any such
resignation or removal, by instrument of substitution complying with the
requirements of applicable law, or, in the absence of any such requirement,
without any formality other than appointment and designation in writing, a copy
of which instrument or writing shall be sent to each Purchaser. Upon the making
of such appointment and delivery to such successor Collateral Agent of the
Collateral then held by the retiring Collateral Agent, such successor Collateral
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties conferred hereby and by the Security Documents upon the
Collateral Agent named herein, and one or more such appointments and
designations shall not exhaust the right to appoint and designate further
successor Collateral Agents hereunder. The retiring Collateral Agent shall not
be discharged from its duties and obligations hereunder until, and the retiring
Collateral Agent shall be so discharged when, all the Collateral held by the
retiring Collateral Agent has been delivered to the successor Collateral Agent
and such successor Collateral Agent shall execute, acknowledge and deliver to
each holder of the Notes and to the Company an instrument accepting such
appointment. If no successor shall be appointed and approved on or prior to the
date of any such resignation, the resigning Collateral Agent may apply to any
court of competent jurisdiction to appoint a successor to act until a successor
shall have been appointed by the Required Holders as above provided.

        (m) Rights with Respect to Collateral.

               (i) Each Purchaser agrees with all other Purchasers (A) that it
shall not, and shall not attempt to, exercise any rights with respect to its
security interest in the Collateral, whether pursuant to any other agreement or
otherwise (other than pursuant to this Agreement), or take or institute any
action against the Collateral Agent or any of the other Purchasers in respect of
the Collateral or its rights hereunder (other than any such action arising from
the breach of this Agreement) and (B) that such Purchaser has no other rights
with respect to the Collateral other than as set forth in this Agreement and the
Security Documents.

               (ii) Each Purchaser agrees with all other Purchasers and the
Collateral Agent that nothing contained in this Section 8 shall be construed to
give rise to, nor shall such Purchaser have, any claims whatsoever against any
other Purchaser or the Collateral Agent on account of any act or omission to act
in connection with the exercise of any right or remedy of the Collateral Agent
or any other Purchaser with respect to the Collateral in the absence of gross
negligence or willful misconduct of such other Purchaser or Collateral Agent, as
applicable, as shall have been determined in a final nonappealable judgment of a
court of competent jurisdiction.


                                       28


9.      GOVERNING LAW; MISCELLANEOUS.

        (a) Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The Company and the
Purchasers irrevocably consent to the jurisdiction of the United States federal
courts and the state courts located in the State of Delaware in any suit or
proceeding based on or arising under this Agreement and irrevocably agree that
all claims in respect of such suit or proceeding may be determined in such
courts. The Company irrevocably waives the defense of an inconvenient forum to
the maintenance of such suit or proceeding. The Company further agrees that
service of process upon the Company mailed by first class mail shall be deemed
in every respect effective service of process upon the Company in any such suit
or proceeding. Nothing herein shall affect the right of any Purchaser to serve
process in any other manner permitted by law. The Company agrees that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.

        (b) Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. This Agreement, once executed by a party, may be
delivered to the other parties hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
In the event any signature is delivered by facsimile transmission, the party
using such means of delivery shall cause the manually executed Execution Page(s)
hereof to be physically delivered to the other party within five (5) days of the
execution hereof, provided that the failure to so deliver any manually executed
Execution Page shall not affect the validity or enforceability of this
Agreement.

        (c) Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.

        (d) Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.

        (e) Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the Purchasers, the
Company, their affiliates and persons acting on their behalf with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor any Purchaser makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived other than by an instrument in writing signed by
the party to be charged with enforcement and no provision of this Agreement may
be amended other than by an instrument in writing signed by the Company and each
Purchaser.

        (f) Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally, by responsible overnight carrier or
by confirmed facsimile, and shall be effective five


                                       29


(5) days after being placed in the mail, if mailed, or upon receipt or refusal
of receipt, if delivered personally or by responsible overnight carrier or
confirmed facsimile, in each case addressed to a party. The addresses for such
communications shall be:

                      If to the Company:

                      ViroLogic, Inc.
                      270 East Grand Avenue
                      South San Francisco, California 94080
                      Telephone:  (650) 635-1100
                      Attn:  Chief Executive Officer

                      with a copy simultaneously transmitted by like means to
                      (which transmittal shall not constitute notice hereunder):

                      Cooley Godward LLP
                      4401 Eastgate Mall
                      San Diego, California 92121
                      Telephone:  (858) 550-6000

        If to any Purchaser, to such address set forth under such Purchaser's
name on the Execution Page hereto executed by such Purchaser.

        Each party shall provide notice to the other parties of any change in
address.

        (g) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Except as
provided herein or therein, neither the Company nor any Purchaser shall assign
this Agreement or any rights or obligations hereunder. Notwithstanding the
foregoing, any Purchaser may assign its rights hereunder to any of its
"affiliates," as that term is defined under the Exchange Act, without the
consent of the Company or to any other person or entity with the consent of the
Company, which consent shall not be unreasonably withheld. This provision shall
not limit a Purchaser's right to transfer the Securities pursuant to the terms
of the Notes, the Replacement Warrants, the Certificate of Designation and this
Agreement or to assign such Purchaser's rights hereunder or thereunder to any
such transferee. In addition, and notwithstanding anything to the contrary
contained in this Agreement, the Registration Rights Agreement, the Notes, the
Replacement Warrants or the Security Documents, the Securities may be pledged
and all rights of any Purchaser under this Agreement or any other agreement or
document related to the transactions contemplated hereby may be assigned,
without further consent of the Company, to a bona fide pledgee in connection
with such Purchaser's margin or brokerage account.

        (h) Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person; provided that Section 4(f) may be enforced by SDS Capital.


                                       30


        (i) Survival. The representations and warranties of the Company and the
agreements and covenants set forth in Sections 3, 4, 5 and 9 hereof shall
survive the Closing notwithstanding any due diligence investigation conducted by
or on behalf of any Purchaser. Moreover, none of the representations and
warranties made by the Company herein shall act as a waiver of any rights or
remedies any Purchaser may have under applicable U.S. federal or state
securities laws.

        (j) Publicity. The Company and each Purchaser shall have the right to
approve before issuance any press releases, SEC or NASD filings, or any other
public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of the Purchasers, to make any press release or SEC or NASD filings
with respect to such transactions as is required by applicable law and
regulations (although the Purchasers shall be consulted by the Company in
connection with any such press release and filing prior to its release and shall
be provided with a copy thereof).

        (k) Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

        (l) Termination. In the event that the Closing shall not have occurred
on or before November 22, 2002, unless the parties agree otherwise, this
Agreement shall terminate at the close of business on such date. Notwithstanding
any termination of this Agreement, any party not in breach of this Agreement
shall preserve all rights and remedies it may have against another party hereto
for a breach of this Agreement prior to or relating to the termination hereof.

        (m) Joint Participation in Drafting. Each party to this Agreement has
participated in the negotiation and drafting of this Agreement, the Certificate
of Designation, the Notes, the Replacement Warrants, the Security Documents and
the Registration Rights Agreement. As such, the language used herein and therein
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be applied against any
party to this Agreement.

        (n) Equitable Relief. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to each Purchaser by
vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations hereunder (including, but not limited to, its obligations pursuant
to Section 5 hereof) will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Agreement (including,
but not limited to, its obligations pursuant to Section 5 hereof), that each
Purchaser shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate issuance and transfer
of the Securities, without the necessity of showing economic loss and without
any bond or other security being required.

        (o) Additional Acknowledgement. Each Purchaser acknowledges that it has
independently evaluated the merits of the transactions contemplated by this
Agreement, the Certificate of Designation, the Notes, the Replacement Warrants,
the Security Documents and


                                       31


the Registration Rights Agreement, that it has independently determined to enter
into the transactions contemplated hereby and thereby, that it is not relying on
any advice from or evaluation by any other Purchaser, and that it is not acting
in concert with any other Purchaser in making its purchase of securities
hereunder. The Purchasers and, to its knowledge, the Company agree that the
Purchasers have not taken any actions that would deem such Purchasers to be
members of a "group" for purposes of Section 13(d) of the Exchange Act.

        (p) Indemnification by Company.

               (i) From and after the Closing, the Company shall hold harmless
and indemnify each of the Purchasers from and against, and shall compensate and
reimburse each of the Purchasers for, any damages which are directly or
indirectly suffered or incurred by any of the Purchasers or to which any of the
Purchasers may otherwise become subject (regardless of whether or not such
damages relate to any third-party claim) and which arise from or as a result of,
or are directly or indirectly connected with any inaccuracy in or breach of any
of the Company's representations, warranties or covenants set forth herein.

               (ii) In the event of the assertion or commencement by any person
of any claim or legal proceeding with respect to which any Purchaser may have
indemnification rights pursuant to Section 9(p)(i), such Purchaser shall
promptly notify the Company thereof in writing, but the failure to so notify the
Company will not limit any Purchaser's rights to indemnification hereunder,
except to the extent the Company demonstrates that the defense of such action is
prejudiced by the failure to so give such notice.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       32


        IN WITNESS WHEREOF, the undersigned Purchaser and the Company have
caused this Agreement to be duly executed as of the date first above written.


VIROLOGIC, INC.

    By: /s/ WILLIAM D. YOUNG
       ---------------------------------

    Name: William D. Young
         -------------------------------

    Title: Chairman & CEO
          ------------------------------

PURCHASER:

[PURCHASER]


By:
   -------------------------------------
      Name:
      Title:

RESIDENCE:

ADDRESS:




AGGREGATE REPURCHASE

Number of Shares of Series A Preferred Stock being Repurchased:
Number of Shares of Series B Preferred Stock being Repurchased:
Principal Amount of Notes to be Issued:


                                       33

EX-10.3

                                                                   EXHIBIT 10.3


                               SECURITY AGREEMENT

        THIS SECURITY AGREEMENT (this "AGREEMENT") is made and entered into as
of November 14, 2002 by VIROLOGIC, INC., a Delaware corporation (the "GRANTOR"),
in favor of SDS Merchant Fund, L.P., as Collateral Agent, for the benefit of the
holders of the Notes (each a "SECURED PARTY" and collectively the "SECURED
PARTIES"). All capitalized terms used but not otherwise defined herein shall
have the respective meanings assigned thereto in the Exchange Agreement (as
defined below).

                             W I T N E S S E T H :

        WHEREAS, Grantor and the Secured Parties have entered into that certain
Exchange Agreement dated as of the date hereof (as from time to time amended,
supplemented or otherwise modified, the "EXCHANGE AGREEMENT");

        WHEREAS, pursuant to the Exchange Agreement, Grantor has issued to the
Secured Parties $12,045,987.94 in aggregate principal amount of Grantor's Series
C Convertible Secured Promissory Notes (as from time to time amended,
supplemented or otherwise modified, the "NOTES");

        WHEREAS, as collateral security for payment and performance of its
obligations under the Exchange Agreement, the Notes and the other Transaction
Documents, Grantor is willing to grant to the Collateral Agent (for the benefit
of the Secured Parties) a security interest in certain of its property and
assets; and

        WHEREAS, Grantor is contemporaneously entering into that certain
Intellectual Property Security Agreement dated as of the date hereof in favor of
the Collateral Agent (for the benefit of the Secured Parties)(as from time to
time amended, supplemented or otherwise modified, the "INTELLECTUAL PROPERTY
SECURITY AGREEMENT");

        NOW, THEREFORE, in order to induce the Secured Parties to enter into the
Exchange Agreement and the other Transaction Documents and in consideration of
the premises and the mutual covenants contained herein, the parties hereto
hereby agree as follows:

        1. COLLATERAL. As collateral security for the prompt and complete
payment and performance of all Secured Obligations (as defined below), Grantor
hereby pledges, hypothecates, delivers and assigns to the Collateral Agent (for
the benefit of the Secured Parties), and grants to the Collateral Agent (for the
benefit of the Secured Parties) a continuing first priority security interest,
subject only to Permitted Liens (as defined below) in and to, all of Grantor's
right, title and interest in and to all of the following property now owned or
at any time hereafter acquired by Grantor or in which Grantor now has or at any
time in the future may acquire right, title or interest and wheresoever located
(all of the same being hereinafter referred to as the "COLLATERAL"): all
personal property and fixtures of every kind and nature, including, without
limitation all goods (including inventory, equipment and any accessions
thereto),




instruments (including promissory notes), documents, accounts (including
health-care-insurance receivables), chattel paper (whether tangible or
electronic), deposit accounts, letter-of-credit rights (whether or not the
letter of credit is evidenced by a writing), commercial tort claims, securities
and all other investment property, supporting obligations, any other contract
rights or rights to the payment of money, insurance claims and proceeds, and all
general intangibles including, without limitation, all payment intangibles,
patents, patent applications, trademarks, trademark applications, trade names,
copyrights, copyright applications, software, engineering drawings, service
marks, customer lists, goodwill, and all licenses, permits, agreements of any
kind or nature pursuant to which Grantor possesses, uses or has authority to
possess or use property (whether tangible or intangible) of others or others
possess, use or have authority to possess or use property (whether tangible or
intangible) of Grantor, and all recorded data of any kind or nature, regardless
of the medium of recording including, without limitation, all software,
writings, plans, specifications and schematics.

        2. SECURED OBLIGATIONS. For purposes of this Agreement, "SECURED
OBLIGATIONS" shall mean: (a) all obligations and liabilities to the Secured
Parties, whether now existing or hereafter arising, under the Exchange
Agreement, the Notes, this Agreement, the Intellectual Property Security
Agreement, and/or any document or agreement related to any of the foregoing and
the due performance and compliance with the terms of the Exchange Agreement, the
Notes, this Agreement, the Intellectual Property Security Agreement, and/or any
document or agreement related to any of the foregoing; (b) any and all sums
advanced by the Collateral Agent in order to preserve the Collateral or to
preserve the Secured Parties' security interest in the Collateral; and (c) in
the event of any proceeding for the collection or enforcement of any obligations
or liabilities of Grantor referred to in the immediately preceding clauses (a)
and (b) in accordance with the terms of the Exchange Agreement, the Notes, this
Agreement, the Intellectual Property Security Agreement, and/or any document or
agreement related to the foregoing, the expenses of re-taking, holding,
preparing for sale, selling or otherwise disposing of or realizing on the
Collateral, or of any other exercise by the Collateral Agent (for the benefit of
the Secured Parties) of its rights hereunder, together with reasonable
attorneys' fees and court costs.

        3. FINANCING STATEMENTS. Grantor hereby irrevocably authorizes the
Collateral Agent at any time and from time to time to file in any Uniform
Commercial Code jurisdiction any initial financing statements and amendments or
continuations thereto that describe the Collateral. Grantor shall execute and
deliver as reasonably required by the Collateral Agent any additional financing
statements or other documents, together with any necessary amendments or
continuation statements so long as this Agreement remains in effect.

        4. MAINTENANCE OF SECURITY INTEREST. Grantor will, from time to time,
upon the request of the Secured Parties, deliver specific assignments of
Collateral, together with such other instruments and documents, financing
statements, amendments thereto, assignments or other writings as the Collateral
Agent may reasonably request to carry out the terms of this Agreement or to
protect or enforce the Secured Parties' security interest in the Collateral.
With respect to any and all Collateral to be secured and conveyed under this
Agreement, Grantor agrees to do and cause to be done all things necessary to
perfect and keep in full force the


                                      -2-


security interest granted in favor of the Collateral Agent (for the benefit of
the Secured Parties), including, but not limited to, the prompt payment of all
fees and expenses incurred in connection with any filings made to perfect or
continue a security interest in the Collateral in favor of the Collateral Agent
(for the benefit of the Secured Parties). Grantor agrees to make appropriate
entries upon its financial statements and books and records disclosing the
security interest granted hereunder in favor of the Collateral Agent (for the
benefit of the Secured Parties).

        5. RECEIPT OF PAYMENT. In the event an Event of Default (as hereinafter
defined) shall occur and be continuing and Grantor (or any of its affiliates,
subsidiaries, stockholders, directors, officers, employees or agents) shall
receive any proceeds of Collateral, including without limitation monies, checks,
notes, drafts or any other items of payment, Grantor shall hold all such items
of payment in trust for the Collateral Agent (for the benefit of the Secured
Parties), and as the property of the Collateral Agent (for the benefit of the
Secured Parties), separate from the funds of Grantor, and no later than the
first business day following the receipt thereof, Grantor shall cause the same
to be forwarded to the Collateral Agent (for the benefit of the Secured Parties)
for its custody and possession as additional Collateral.

        6. COLLECTIONS. Grantor hereby authorizes the Collateral Agent (for the
benefit of the Secured Parties), at all times after the occurrence and during
the continuation of an Event of Default to open Grantor's mail and collect any
and all amounts due to Grantor from any third parties obligated on any accounts
that constitute part of the Collateral ("ACCOUNT DEBTORS"); and (b) to take over
Grantor's post office boxes or make other arrangements as the Collateral Agent
deems necessary to receive Grantor's mail, including notifying the post office
authorities to change the address for delivery of Grantor's mail to such address
as the Collateral Agent may designate.

        7. GRANTOR REMAINS LIABLE UNDER ACCOUNTS AND CONTRACTS. Anything herein
to the contrary notwithstanding, Grantor shall remain liable under each of the
accounts and contracts that constitute part of the Collateral to observe and
perform all the conditions and obligations to be observed and performed by it
thereunder, all in accordance with the terms of any agreement giving rise to
each such account and in accordance with and pursuant to the terms and
provisions of each such contract. The Collateral Agent shall not have any
obligation or liability under any account that constitutes part of the
Collateral (or any agreement giving rise thereto) or under any contract that
constitutes part of the Collateral by reason of or arising out of this Agreement
or the receipt by the Collateral Agent of any payment relating to such account
or contract pursuant hereto, nor shall the Collateral Agent be obligated in any
manner to perform any of the obligations of Grantor under or pursuant to any
such account (or any agreement giving rise thereto) or under or pursuant to any
such contract, to make any payment, to make any inquiry as to the nature or the
sufficiency of any payment received by it or as to the sufficiency of any
performance by any party under any such account (or any agreement giving rise
thereto) or under any such contract, to present or file any claim, to take any
action to enforce any performance or to collect the payment of any amounts which
may have been assigned to it or to which it may be entitled at any time or
times.



                                      -3-


        8. COVENANTS. Grantor covenants with the Collateral Agent (for the
benefit of the Secured Parties) that from and after the date of this Agreement
until termination hereof in accordance with Section 29 hereof:

        (a) INSPECTION. The Collateral Agent (by any of its officers, employees
and agents) shall have the right upon its request and prior notice, and at any
reasonable times during Grantor's usual business hours, to inspect the
Collateral, all records related thereto (and to make extracts or copies from
such records), and the premises upon which any of the Collateral is located, to
discuss Grantor's affairs and finances with any individual, corporation,
partnership, limited liability company, trust, unincorporated association,
business, or other legal entity, and any government or any governmental agency
or political subdivision thereof ("PERSON") (other than Account Debtors) and to
verify with any such Person the amount, quality, quantity, value and condition
of, or any other matter relating to, the Collateral and, if an Event of Default
has occurred and is continuing, to discuss Grantor's affairs and finances with
Grantor's Account Debtors and to verify the amount, quality, value and condition
of, or any other matter relating to, the Collateral and such Account Debtors.
Upon or after the occurrence and during the continuation of an Event of Default,
the Collateral Agent (for the benefit of the Secured Parties) may at any time
and from time to time employ and maintain on Grantor's premises a custodian
selected by the Collateral Agent who shall have full authority to do all acts
necessary to protect the interests of the Collateral Agent (for the benefit of
the Secured Parties). All expenses incurred by the Collateral Agent by reason of
the employment of such custodian shall be paid by Grantor, added to the Secured
Obligations and secured by the Collateral.

        (b) ASSIGNMENTS, RECORDS AND SCHEDULES OF ACCOUNTS. Grantor shall keep
accurate and complete records of its accounts ("ACCOUNT RECORDS") and from time
to time at intervals reasonably designated by the Collateral Agent, but, other
than during the continuance of an Event of Default, not more often than once per
month, Grantor shall provide the Collateral Agent (for the benefit of the
Secured Parties) with a schedule of accounts in form and substance reasonably
acceptable to the Collateral Agent describing all accounts created or acquired
by Grantor ("SCHEDULE OF ACCOUNTS"); provided, however, that Grantor's failure
to execute and deliver any such Schedule of Accounts shall not affect or limit
the security interest or other rights of the Collateral Agent (for the benefit
of the Secured Parties) in and to any accounts. Grantor shall furnish to the
Collateral Agent such documents relating to the accounts so scheduled, including
without limitation repayment histories and present status reports to the extent
maintained by Grantor in the ordinary course of its business (collectively,
"ACCOUNT DOCUMENTS") and such other matter and information relating to the
status of then existing accounts as the Collateral Agent shall reasonably
request. Grantor shall not remove any Account Records or Account Documents or
change its chief executive offices from 345 Oyster Point Boulevard, South San
Francisco, California 94080 (the "CHIEF EXECUTIVE OFFICE") hereto without thirty
(30) days prior written notice to the Collateral Agent as provided in Section 23
hereof.

        (c) NOTICE REGARDING DISPUTED ACCOUNTS. In the event any amounts due and
owing in excess of $50,000 are in dispute between any Account Debtor and Grantor
(which shall include without limitation any dispute in which an offset claim or
counterclaim may result),



                                      -4-


Grantor shall provide the Collateral Agent with written notice thereof as soon
as practicable, explaining in detail the reason for the dispute, all claims
related thereto and the amount in controversy.

        (d) VERIFICATION OF ACCOUNTS. If an Event of Default has occurred and is
continuing, each of the Collateral Agent's officers, employees or agents shall
have the right, at any reasonable time or times hereafter, to verify with
Account Debtors the validity, amount or any other matter relating to any
accounts and, whether or not an Event of Default has occurred, each of the
Collateral Agent's officers, employees or agents shall have the right to verify
the same with Grantor.

        (e) SAFEKEEPING OF INVENTORY. Grantor shall be responsible for the
safekeeping of its inventory, and in no event shall the Collateral Agent and/or
any of the Secured Parties have any responsibility for: (i) any loss or damage
to inventory or destruction thereof occurring or arising in any manner or
fashion from any cause; (ii) any diminution in the value of inventory; or (iii)
any act or default of any carrier, warehouseman, bailee or forwarding agency
thereof or other Person in any way dealing with or handling inventory; unless,
in each case, caused by Collateral Agent's or such Secured Party's gross
negligence or willful misconduct.

        (f) LOCATION, RECORDS AND SCHEDULES OF INVENTORY. Grantor shall keep
correct and accurate records itemizing and describing the kind, type, location
and quantity of inventory, its cost therefor and the selling price of inventory
held for sale, and the daily withdrawals therefrom and additions thereto, and
shall furnish to the Collateral Agent from time to time at reasonable intervals
designated by the Collateral Agent, but, other than during the continuance of an
Event of Default, not more often than once per month, a current schedule of
inventory based upon its most recent physical inventory and its daily inventory
records. Grantor shall conduct a physical inventory, no less than annually, and
shall furnish to the Collateral Agent such other documents and reports thereof
as the Collateral Agent shall reasonably request with respect to inventory.

        (g) RETURNS OF INVENTORY. If any Account Debtor returns any inventory to
Grantor after shipment thereof, and such return generates a credit in excess of
$50,000 in the aggregate on any account or accounts of such Account Debtor,
Grantor shall notify the Collateral Agent of the same as soon as practicable.

        (h) EVIDENCE OF OWNERSHIP OF EQUIPMENT. Grantor, as soon as practicable
following a request therefor by the Collateral Agent, shall deliver to the
Collateral Agent any and all evidence of ownership of any of its equipment
(including without limitation certificates of title and applications for title).

        (i) LOCATION, RECORDS AND SCHEDULES OF EQUIPMENT. Grantor shall maintain
accurate, itemized records itemizing and describing the kind, type, quality,
quantity and value of its equipment and shall furnish the Collateral Agent upon
request with a current schedule containing the foregoing information, but, other
than during the continuance of an Event of Default, not more often than once per
fiscal quarter.



                                      -5-


        (j) SALE OR MORTGAGE OF EQUIPMENT. Other than in the ordinary course of
business with respect to disposition of obsolescent equipment or replacement of
equipment with other equipment performing similar functions and having similar
or better utility and value, and except as may be permitted by the Exchange
Agreement prior to the occurrence and continuance of an Event of Default,
Grantor shall not sell, exchange, lease, mortgage, encumber, pledge or otherwise
dispose of or transfer any of its equipment or any part thereof without the
prior written consent of the Collateral Agent, which consent shall not be
unreasonably withheld.

        (k) MAINTENANCE OF EQUIPMENT. Grantor shall keep and maintain its
equipment in good operating condition and repair, ordinary wear and tear
excepted. Grantor shall not permit any such items to become a fixture to real
property (unless Grantor has granted the Collateral Agent a lien on such real
property) or accessions to other personal property.

        (l) COMMERCIAL TORT CLAIMS. If Grantor shall at any time hold or acquire
a commercial tort claim, Grantor shall immediately notify the Collateral Agent
in a writing signed by Grantor of the brief details thereof and grant to the
Collateral Agent (for the benefit of the Secured Parties) in such writing a
security interest therein and in the proceeds thereof, all upon the terms of
this Agreement, with such writing to be in form and substance satisfactory to
the Collateral Agent.

        (m) LETTER OF CREDIT RIGHTS. To the extent that any Collateral consists
of letter-of-credit rights, Grantor shall cause the issuer of each underlying
letter of credit to consent to the assignment to the Collateral Agent (for the
benefit of the Secured Parties) of the proceeds of such letter of credit.

        (n) INVESTMENT PROPERTY AND DEPOSIT ACCOUNTS. If there is any investment
property included as Collateral that can be perfected by "control" through an
account control agreement, Grantor shall use its best effort to cause such an
account control agreement to be entered into and delivered to the Collateral
Agent. If there are any deposit accounts included as Collateral that can be
perfected by "control" through an account control agreement, Grantor shall cause
such an account control agreement to be entered into and delivered to the
Collateral Agent. If Grantor shall at any time hold or acquire any certificated
securities, Grantor shall forthwith endorse, assign and deliver the same to the
Collateral Agent, accompanied by such instruments of transfer or assignment duly
executed in blank as the Collateral Agent may from time to time specify.

        (o) PROMISSORY NOTES AND CHATTEL PAPER. If Grantor shall at any time
hold or acquire any promissory notes or tangible chattel paper representing an
amount in excess of $50,000, Grantor shall forthwith endorse, assign and deliver
the same to the Collateral Agent, accompanied by such instruments of transfer or
assignment duly executed in blank as the Collateral Agent may from time to time
specify. To the extent that any Collateral consists of electronic chattel paper,
Grantor shall cause the underlying chattel paper to be marked within the meaning
of Section 9-105 of the Code (or successor section thereto).

        (p) COLLATERAL IN POSSESSION OF THIRD PARTIES. To the extent that any
Collateral is in the possession of a third party, Grantor will join with the
Collateral Agent in



                                      -6-


notifying the third party of the security interest in favor of the Collateral
Agent (for the benefit of the Secured Parties) and in obtaining an
acknowledgement from the third party that it is holding the Collateral for the
Collateral Agent (for the benefit of the Secured Parties).

        (q) NOTICES. Grantor will advise the Collateral Agent promptly, in
reasonable detail, (i) of any Lien (other than Liens permitted hereunder) on, or
claim asserted against, any of the Collateral and (ii) of the occurrence of any
other event which could reasonably be expected to have a material adverse effect
on the value of any material portion of the Collateral or on the Liens created
hereunder. "LIEN" shall mean any lien, mortgage, security interest, chattel
mortgage, pledge or other encumbrance (statutory or otherwise) of any kind
securing satisfaction or performance of an obligation, including any agreement
to give any of the foregoing, any conditional sales or other title retention
agreement, any lease in the nature thereof, and the filing of or the agreement
to give any financing statement under the Code of any jurisdiction or similar
evidence of any encumbrance, whether within or outside the United States.

        (r) CHANGE OF NAME; LOCATION; ETC. Grantor shall not make any change (a)
in its name, (b) in the location of its chief executive office, its principal
place of business, any office in which it maintains books or records relating to
Collateral owned by it or any office facility at which Collateral owned by it is
located (including the establishment of any such new office or facility) from
345 Oyster Point Boulevard, South San Francisco, California 94080, (c) in its
identity or type of organization or corporate structure, (d) in its Federal
Taxpayer Identification Number or organizational identification number or (e) in
its jurisdiction of organization unless (i) Grantor provides the Collateral
Agent at least thirty (30) days prior written notice of such change and (ii) all
filings have been made under the Uniform Commercial Code or otherwise that are
required in order for the Collateral Agent (for the benefit of the Secured
Parties) to continue at all times following such change to have a valid, legal
and perfected security interest in all the Collateral.

        (s) TRANSFER OF COLLATERAL. Except for Permitted Liens or as otherwise
expressly permitted herein, other than the disposition of items of Collateral in
the ordinary course of Grantor's business as presently conducted, Grantor shall
not sell, assign, transfer, encumber or otherwise dispose of any Collateral
without the prior written consent of the Collateral Agent, which consent shall
not be unreasonably withheld. For purposes of this provision, "dispose of
Collateral" shall include, without limitation, the creation of a Lien (whether
voluntary or involuntary) on such Collateral.

        (t) TAXES AND ASSESSMENTS. Grantor shall promptly pay when due and
payable, all taxes and assessments imposed upon the Collateral or operations or
business of Grantor, provided that no such charge or claim need be paid if being
contested in good faith by appropriate proceedings promptly initiated and
diligently conducted and if such reserve or other appropriate provision, if any,
as shall be required by generally accepted accounting principles, shall have
been made therefor and, if the filing of a bond or other indemnity is necessary
to avoid the creation of a lien against any of the assets of Grantor, such bond
shall have been filed or indemnity provided.


                                      -7-


        (u) FURTHER IDENTIFICATION OF COLLATERAL. Grantor will furnish to the
Collateral Agent from time to time, upon the request of the Collateral Agent,
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Collateral Agent may
reasonably request, all in reasonable detail.

        (v) CASH MANAGEMENT. At any time that the Collateral Agent so requests,
the Grantor will work with the Collateral Agent to set up such lock boxes and
segregated accounts as the Collateral Agent may reasonably request in order to
better perfect the security interest created hereunder in proceeds of the
Collateral.

        (w) ASSIGNMENT OF CLAIMS ACT. Grantor shall immediately notify
Collateral Agent if any of its accounts arise out of contracts with the United
States or any agency or instrumentality thereof; and at such time as any of such
accounts, individually or in the aggregate, exceed $50,000, Grantor shall
execute any instruments and take any steps required by Collateral Agent in order
that all moneys due and to become due under such contracts shall be assigned to
Collateral Agent (for the benefit of the Secured Parties) and notice given to
the government under the Federal Assignment of Claims Act.

        9. GENERAL WARRANTIES AND REPRESENTATIONS. Grantor represents and
warrants to the Collateral Agent (for the benefit of the Secured Parties) that:

        (a) Grantor is and, except as permitted by the Exchange Agreement, will
continue to be the owner of the Collateral hereunder, now owned and upon the
acquisition of the same, free and clear of all Liens other than the security
interest in favor of the Collateral Agent (for the benefit of the Secured
Parties) hereunder and under the Intellectual Property Security Agreement and
Permitted Liens, and that it will defend such Collateral and any products and
proceeds thereof against all claims and demands of all third parties at any time
claiming the same or any interest therein adverse to the Collateral Agent.
"PERMITTED LIENS" means (1) capital leases and purchase money security interests
incurred with respect to equipment acquired by Grantor in the ordinary course of
business, involving the incurrence of an aggregate amount of capital lease
obligations and purchase money indebtedness of not more than $2,500,000
outstanding at any one time for all such Liens, provided that no such Liens
shall extend to or cover any property other than the leased property or
equipment purchased by proceeds of such permitted purchase money indebtedness;
(2) Liens for taxes, fees, assessments or other governmental charges or levies,
either not delinquent or being contested in good faith by appropriate
proceedings and for which Borrower maintains adequate reserves, (3) Liens for
mechanics and other similar liens not delinquent, (4) Liens to secure payment of
workers' compensation, employment insurance, old age pensions, social security
or other like obligations incurred in the ordinary course of business, and (5)
Liens in favor of financial institutions arising in connection with Grantor's
deposit accounts held at such institutions.

        (b) Grantor has the full legal right and power and all authority and
approval required to enter into, execute and deliver this Agreement, to grant
the security interest of the Collateral Agent (for the benefit of the Secured
Parties) hereunder and to perform fully each of its obligations hereunder. This
Agreement has been duly executed and delivered and constitutes the valid and
binding obligation of Grantor enforceable in accordance with its terms, except
as may



                                      -8-


be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to creditor's rights generally. No approval
or consent of any foreign, federal, state, country, local or other governmental
or regulatory body, and no approval or consent of any other Person is required
in connection with the execution and delivery by Grantor of this Agreement, the
grant of the security interest of the Collateral Agent (for the benefit of the
Secured Parties) hereunder and the consummation and performance by Grantor of
the transactions contemplated hereby. The execution and delivery of this
Agreement, the grant of the security interest of the Collateral Agent (for the
benefit of the Secured Parties) hereunder and the consummation and performance
by Grantor of the transactions contemplated hereby will not conflict with or
result in the breach or violation of any of the terms or conditions of, or
constitute (or with notice or lapse of time or both would constitute) a default
under any material instrument, contract or other agreement to which Grantor is a
party or by or to which it or its assets or properties are bound or subject or
any statute or any regulation, order, judgment or decree of any court or
governmental or regulatory body.

        10. PERFECTION WARRANTIES AND REPRESENTATIONS. Grantor represents and
warrants to the Collateral Agent (for the benefit of the Secured Parties) that:

        (a) Grantor is a corporation duly organized, validly existing and in
good standing in the State of Delaware and its exact legal name, state issued
organizational identification number and federal employer identification number
are as set forth on Schedule 1.

        (b) Grantor has not used any name other than that set forth on Schedule
1 for the preceding five (5) years and no entity has merged into Grantor or been
acquired by Grantor within the past five (5) years.

        (c) Grantor's chief executive office and chief place of business is
located at 345 Oyster Point Boulevard, South San Francisco, California 94080.

        (d) Set forth on Schedule 1 are the names and addresses of all entities
from whom Grantor has acquired any personal property in a transaction not in the
ordinary course of business during the past five (5) years, together with the
date of such acquisition and the type of personal property acquired (e.g.,
equipment, inventory, etc.).

        (e) Set forth on Schedule 1 are all banks or savings institutions at
which Grantor maintains deposit accounts, all securities accounts maintained by
Grantor and a list of all investment property owned or held by Grantor.

        (f) Set forth on Schedule 1 is a list and description of all now
existing commercial tort claims of Grantor.

        11. ACCOUNT WARRANTIES AND REPRESENTATIONS. With respect to its
accounts, Grantor represents and warrants to the Collateral Agent (for the
benefit of the Secured Parties) that the Collateral Agent may rely on all
statements or representations made by Grantor on or with respect to any Schedule
of Accounts prepared and delivered by it and that:



                                      -9-


        (a) All Account Records and Account Documents are located only at the
Chief Executive Office;

        (b) All accounts are genuine, are in all material respects what they
purport to be, are not evidenced by an instrument or document or, if evidenced
by an instrument or document, are only evidenced by one original instrument or
document;

        (c) All accounts cover bona fide sales and deliveries of inventory
usually dealt in by Grantor, or the rendition by Grantor of services, to an
Account Debtor in the ordinary course of business;

        (d) The amounts of the face value shown on any Schedule of Accounts or
invoice statement delivered to the Collateral Agent with respect to any account,
are actually owing to Grantor and are not contingent for any reason; and there
are no setoffs, discounts, allowances, claims, counterclaims or disputes of any
kind or description in an amount greater than $100,000 in the aggregate for all
Account Debtors, or greater than $50,000 individually, existing or asserted with
respect thereto and Grantor has not made any agreement with any Account Debtor
thereunder for any deduction therefrom, except as may be stated in the Schedule
of Accounts and reflected in the calculation of the face value of each
respective invoice related thereto;

        (e) Except for conditions generally applicable to Grantor's industry and
markets, there are no facts, events, or occurrences known to Grantor pertaining
particularly to any accounts which are reasonably expected to materially impair
in any way the validity, collectibility or enforcement of accounts that would
reasonably be likely, in the aggregate, to be of material economic value, or in
the aggregate materially reduce the amount payable thereunder from the amount of
the invoice face value shown on any Schedule of Accounts, and on all contracts,
invoices and statements delivered to the Collateral Agent, with respect thereto;

        (f) The goods or services giving rise thereto are not, and were not at
the time of the sale or performance thereof, subject to any Lien, except those
of the Collateral Agent (for the benefit of the Secured Parties), Permitted
Liens, and those removed or terminated prior to the date hereof;

        (g) Its accounts have not been pledged to any Person other than to the
Collateral Agent (for the benefit of the Secured Parties) under this Agreement
and will be owned by Grantor free and clear of any Liens; and

        (h) The security interest of the Collateral Agent (for the benefit of
the Secured Parties) therein will not be subject to any offset, deduction,
counterclaim, lien or other adverse condition.

        12. INVENTORY WARRANTIES AND REPRESENTATIONS. With respect to its
inventory, Grantor represents and warrants to the Collateral Agent (for the
benefit of the Secured Parties) that the Collateral Agent may rely on all
statements or representations made by Grantor on or with respect to any
inventory and that:



                                      -10-


        (a) All inventory is located only at the locations set forth on Schedule
1 hereto;

        (b) None of its inventory is or will be subject to any Lien, except for
the security interest of the Collateral Agent (for the benefit of the Secured
Parties) hereunder and Permitted Liens;

        (c) No inventory of Grantor that would reasonably be likely, in the
aggregate, to be of value in excess of $50,000 is, and shall not at any time or
times hereafter be, stored with a bailee, warehouseman, or similar party without
the Collateral Agent's prior written consent and, if the Collateral Agent gives
such consent, Grantor will concurrently therewith cause any such bailee,
warehouseman, or similar party to issue and deliver to the Collateral Agent upon
its request therefor, in form and substance reasonably acceptable to the
Collateral Agent, warehouse receipts therefor in the Collateral Agent's name and
take such other action and be party to such document as deemed necessary or
prudent by the Collateral Agent to maintain the security interest of the
Collateral Agent (for the benefit of the Secured Parties) in such inventory;

        (d) No inventory is, and shall not at any time or times hereafter be,
under consignment to any Person, the value of which, when aggregated with all
other inventory under consignment of Grantor, would exceed $50,000; and

        (e) No inventory is at or shall be kept at any location that is leased
by Grantor from any other Person with contractual, statutory or other rights to
obtain a Lien, or other right in any inventory which may take priority over the
Lien of the Collateral Agent (for the benefit of the Secured Parties), unless
such lessor waives its rights with respect to such inventory in form and
substance acceptable to the Collateral Agent and delivered in writing to the
Collateral Agent prior to such amount of inventory being at such one or more
locations.

        13. EQUIPMENT REPRESENTATIONS AND WARRANTIES. With respect to its
equipment, Grantor represents and warrants to the Collateral Agent (for the
benefit of the Secured Parties) that the Collateral Agent may rely on all
statements or representations made by Grantor on or with respect to any
equipment and that:

        (a) All equipment is located only at the locations set forth in Schedule
1 hereto;

        (b) None of its equipment is or will be subject to any Lien, except for
the security interest of the Collateral Agent (for the benefit of the Secured
Parties) hereunder and Permitted Liens;

        (c) No equipment of Grantor is at or shall be kept at any location that
is leased by Grantor from any other Person with contractual, statutory or other
rights to obtain a Lien, or other right in any equipment which may take priority
over the Lien of the Collateral Agent (for the benefit of the Secured Parties),
unless such lessor waives its rights with respect to such equipment in form and
substance acceptable to the Collateral Agent and delivered in writing to the
Collateral Agent prior to such amount of equipment being at such one or more
locations.


                                      -11-


        14. CASUALTY AND LIABILITY INSURANCE REQUIRED.

            (a) Grantor will keep the Collateral continuously insured against
such risks as are customarily insured against by businesses of like size and
type engaged in the same or similar operations including, without limiting the
generality of any other covenant herein contained:

                  (i) casualty insurance on inventory and equipment in an amount
not less than the full insurable value thereof, against loss or damage by theft,
fire and lightning and other hazards ordinarily included under uniform broad
form standard extended coverage policies, limited only as may be provided in the
standard broad form of extended coverage endorsement at the time in use in the
states in which the Collateral is located;

                  (ii) comprehensive general liability insurance against claims
for bodily injury, death or property damage occurring with or about such
Collateral (such coverage to include provisions waiving subrogation against the
Collateral Agent), with the Collateral Agent (for the benefit of the Secured
Parties) as additional insured parties and as loss payees, in amounts as shall
be reasonably satisfactory to the Collateral Agent;

                  (iii) liability insurance with respect to the operation of its
facilities under the workers' compensation laws of the states in which such
Collateral is located; and

                  (iv) business interruption insurance.

            (b) Each insurance policy obtained in satisfaction of the
requirements of Section 14(a) hereof:

                  (i) may be provided by blanket policies now or hereafter
maintained by Grantor;

                  (ii) shall be issued by such insurer (or insurers) as shall be
financially responsible, of recognized standing and reasonably acceptable to the
Collateral Agent;

                  (iii) shall be in such form and have such provisions
(including without limitation the loss payable clause, the waiver of subrogation
clause, the deductible amount, if any, and the standard mortgagee endorsement
clause), as are generally considered standard provisions for the type of
insurance involved and are reasonably acceptable in all respects to the
Collateral Agent;

                  (iv) shall prohibit cancellation or substantial modification,
termination or lapse in coverage by the insurer without at least thirty (30)
days' prior written notice to the Collateral Agent, except for non-payment of
premium, in which case such policies shall provide ten (10) days' prior written
notice;

                  (v) without limiting the generality of the foregoing, all
insurance policies where applicable under Section 14(a)(i) carried on the
Collateral shall name the Collateral Agent (for the benefit of the Secured
Parties), as loss payees and the Collateral Agent (for the benefit of the
Secured Parties) as additional insured.


                                      -12-


            (c) Prior to the expiration of any such policy, Grantor shall
furnish the Collateral Agent with evidence satisfactory to the Collateral Agent
that the policy or certificate has been renewed or replaced or is no longer
required by this Agreement.

            (d) Grantor hereby irrevocably makes, constitutes and appoints the
Collateral Agent (and all officers, employees or agents designated by the
Secured Parties) effective upon the occurrence and during the continuance of an
Event of Default, as Grantor's true and lawful attorney (and agent-in-fact) for
the purpose of making, settling and adjusting claims under such policies of
insurance, endorsing the name of Grantor on any check, draft, instrument or
other item or payment for the proceeds of such policies of insurance and for
making all determinations and decisions with respect to such policies of
insurance.

            (e) In the event Grantor shall fail to maintain, or fail to cause to
be maintained, the full insurance coverage required hereunder or shall fail to
keep any of its Collateral in good repair and good operating condition, the
Collateral Agent may (but shall be under no obligation to), without waiving or
releasing any Secured Obligation or Event of Default by Grantor hereunder,
contract for the required policies of insurance and pay the premiums on the same
or make any required repairs, renewals and replacements; and all sums so
disbursed by the Collateral Agent, including reasonable attorneys' fees, court
costs, expenses and other charges related thereto, shall be payable on demand by
Grantor to the Collateral Agent (for the benefit of the Secured Parties) and
shall be additional Secured Obligations secured by the Collateral.

            (f) Grantor agrees that to the extent that it shall not carry
insurance required by Section 14(a) hereof, it shall in the event of any loss or
casualty pay promptly to the Collateral Agent (for the benefit of the Secured
Parties), for application in accordance with the provisions of Section 14(h)
hereof, such amount as would have been received as Net Proceeds (as hereinafter
defined) by the Collateral Agent, under the provisions of Section 14(h) hereof
had such insurance been carried to the extent required.

            (g) The Net Proceeds of the insurance carried pursuant to the
provisions of Sections 12(a)(ii) and 12(a)(iii) hereof shall be applied by
Grantor toward extinguishment of the defect or claim or satisfaction of the
liability with respect to which such insurance proceeds may be paid.

            (h) The Net Proceeds of the insurance carried with respect to the
Collateral pursuant to the provisions of Section 14(a)(i) hereof shall be paid
to Grantor and held by Grantor in a separate account and applied as follows: (i)
as long as no Event of Default shall have occurred and be continuing, after any
loss under any such insurance and payment of the proceeds of such insurance,
Grantor shall have a period of thirty (30) days after payment of the insurance
proceeds with respect to such loss to elect to either (x) repair or replace the
Collateral so damaged, (y) deliver such Net Proceeds to the Collateral Agent
(for the benefit of the Secured Parties), as additional Collateral or (z) apply
such Net Proceeds to the acquisition of tangible assets used or useful in the
conduct of the business of Grantor, subject to the provisions of this Agreement.
If Grantor elects to repair or replace the Collateral so damaged, Grantor agrees
the Collateral shall be repaired to a condition substantially similar to its
condition prior to damage or replaced with Collateral in a condition
substantially similar to the condition of the Collateral so replaced prior to
damage; and (ii) at all times during which an Event of Default shall have
occurred and be



                                      -13-


continuing, after any loss under such insurance and payment of the proceeds of
such insurance, Grantor shall immediately deliver such Net Proceeds to the
Collateral Agent (for the benefit of the Secured Parties), as additional
Collateral.

        (i) "NET PROCEEDS" when used with respect to any insurance proceeds
shall mean the gross proceeds from such proceeds, award or other amount, less
all taxes, fees and expenses (including attorneys' fees) incurred in the
realization thereof.

        (j) In case of any material damage to or destruction of all or any
material part of the Collateral pledged hereunder by Grantor, Grantor shall give
prompt notice thereof to the Collateral Agent. Each such notice shall describe
generally the nature and extent of such damage, destruction, taking, loss,
proceeding or negotiations. Grantor is hereby authorized and empowered to adjust
or compromise any loss under any such insurance.

        15. EVENTS OF DEFAULT. It is understood and agreed that the occurrence
of any one or more of the following shall constitute an "EVENT OF DEFAULT"
hereunder and shall entitle the Collateral Agent (for the benefit of the Secured
Parties) to take such actions as are elsewhere provided in this Agreement in
respect of Events of Default: (a) an "Event of Default" as defined in the Notes
shall have occurred and be continuing; or (b) any representation or warranty
made by Grantor herein shall prove to have been false in any material respect
when made; or (c) any covenant made by Grantor herein (other than those
covenants contained in Section 8(a) hereof) is breached, violated, or not
complied with and not cured within ten (10) days after notice thereof from the
Collateral Agent; provided, however, that any breach, violation or
non-compliance with any covenant contained in Section 8(a) hereof shall
immediately result in an Event of Default; or (d) any material uninsured damage
to or loss, theft or destruction of any of the Collateral shall occur; or (e)
the security interests granted herein do not constitute for any reason a first
priority perfected security interest in the Collateral covered thereby, subject
only to Permitted Liens.

        16. RIGHTS AND REMEDIES UPON AN EVENT OF DEFAULT. Upon and during the
continuance of an Event of Default, the Collateral Agent (for the benefit of the
Secured Parties) shall have the following rights and remedies in addition to any
rights and remedies set forth elsewhere in this Agreement, all of which may be
exercised with or, if allowed by law, without notice to Grantor:

        (a) All of the rights and remedies of a secured party under the Uniform
Commercial Code of the state where such rights and remedies are asserted, or
under other applicable law, all of which rights and remedies shall be
cumulative, and none of which shall be exclusive, to the extent permitted by
law, in addition to any other rights and remedies contained in this Agreement or
the other Transaction Documents;

        (b) The right to foreclose the Liens created under this Agreement by any
available judicial procedure or without judicial process;

        (c) The right to (i) enter upon the premises of Grantor through
self-help and without judicial process, without first obtaining a final judgment
or giving Grantor notice and opportunity for a hearing on the validity of the
Collateral Agent's claim and without any obligation to pay



                                      -14-


rent to Grantor, or any other place or places where any Collateral is located
and kept, and remove the Collateral therefrom to the premises of the Collateral
Agent or any agent of the Collateral Agent, for such time as the Collateral
Agent may desire, in order effectively to collect or liquidate the Collateral,
and/or (ii) require Grantor to assemble the Collateral and make it available to
the Collateral Agent (for the benefit of the Secured Parties) at a place to be
designated by the Collateral Agent that is reasonably convenient to both
parties;

        (d) The right to (i) demand payment of its accounts; (ii) enforce
payment of Grantor's accounts, by legal proceedings or otherwise; (iii) exercise
all of Grantor's rights and remedies with respect to the collection of Grantor's
accounts; (iv) settle, adjust, compromise, extend or renew Grantor's accounts;
(v) settle, adjust or compromise any legal proceedings brought to collect
Grantor's accounts; (vi) if permitted by applicable law, sell or assign
Grantor's accounts upon such terms, for such amounts and at such time or times
as the Collateral Agent deems advisable; (vii) discharge and release Grantor's
accounts; (viii) take control, in any manner, of any item of payment or proceeds
referred to in Section 5 above; (ix) prepare, file and sign Grantor's name on a
Proof of Claim in bankruptcy or similar document against any Account Debtor; (x)
prepare, file and sign Grantor's name on any notice of lien, assignment or
satisfaction of lien or similar document in connection with Grantor's accounts;
(xi) endorse the name of Grantor upon any chattel paper, document, instrument,
invoice, freight bill, bill of lading or similar document or agreement relating
to Grantor's accounts or inventory; (xii) use Grantor's stationery for
verifications of Grantor's accounts and notices thereof to Account Debtors;
(xiii) use the information recorded on or contained in any data processing
equipment and computer hardware and software relating to any Collateral to which
Grantor has access; and (xiv) do all acts and things and execute all documents
necessary, in the Collateral Agent's sole discretion, to collect Grantor's
accounts; and

        (e) The right to sell, assign, lease or to otherwise dispose of all or
any Collateral in its then existing condition, or after any further
manufacturing or processing thereof, at public or private sale or sales, with
such notice as may be required by law, in lots or in bulk, for cash or on credit
with or without representations and warranties, all as the Collateral Agent, in
its sole discretion, may deem advisable. The Collateral Agent shall have the
right to conduct such sales on Grantor's premises or elsewhere and shall have
the right to use Grantor's premises without charge, subject to the rights of any
lessor, for such sales for such time or times as the Collateral Agent may
reasonably determine. The Collateral Agent may, if its deems it reasonable,
postpone or adjourn any sale of the Collateral from time to time by an
announcement at the time and place of such postponed or adjourned sale, and such
sale may, without further notice, be made at the time and place to which it was
so adjourned. Grantor agrees that the Collateral Agent have no obligation to
preserve rights to the Collateral against prior parties or to marshall any
Collateral for the benefit of any Person. The Collateral Agent is hereby granted
a license or other right to use, without charge, Grantor's labels, patents,
copyrights, rights of use of any name, trade secrets, trade names, trademarks
and advertising matter, or any property of a similar nature, as it pertains to
the Collateral, in completing production of, advertising for sale and selling
any Collateral and Grantor's rights under any license and any franchise
agreement shall inure to the benefit of the Collateral Agent. If any of the
Collateral shall require repairs, maintenance, preparation or the like, or is in
process or other unfinished state, the Collateral Agent shall have the right,
but shall


                                      -15-


not be obligated, to perform such repairs, maintenance, preparation, processing
or completion of manufacturing for the purpose of putting the same in such
saleable form as the Collateral Agent shall deem appropriate, but the Collateral
Agent shall have the right to sell or dispose of the Collateral without such
processing. In addition, Grantor agrees that in the event notice is necessary
under applicable law, written notice mailed to Grantor in the manner specified
herein ten (10) days prior to the date of public sale of any of the Collateral
or prior to the date after which any private sale or other disposition of the
Collateral will be made shall constitute commercially reasonable notice to
Grantor. The Secured Parties may purchase all or any part of the Collateral at
public or, if permitted by law, private sale, free from any right of redemption
which is hereby expressly waived by Grantor and, in lieu of actual payment of
such purchase price, may set off the amount of such price against the Secured
Obligations. The net cash proceeds resulting from the collection, liquidation,
sale, lease or other disposition of the Collateral shall be applied first to the
expenses (including all attorneys' fees) of retaking, holding, storing,
processing and preparing for sale, selling, collecting, liquidating and the
like, and then to the satisfaction of all Secured Obligations. Any sale or other
disposition of the Collateral and the possession thereof by the Collateral Agent
shall be in compliance with all provisions of applicable law (including
applicable provisions of the Uniform Commercial Code). Grantor shall be liable
to the Secured Parties, and shall pay to the Collateral Agent (for the benefit
of the Secured Parties), on demand any deficiency which may remain after such
sale, disposition, collection or liquidation of the Collateral. The Secured
Parties shall remit to Grantor or other Person entitled thereto any surplus
remaining after this Agreement has been terminated in accordance with Section 29
hereof.

        17. ANTI-MARSHALLING PROVISIONS. The right is hereby given by Grantor to
the Collateral Agent (for the benefit of the Secured Parties), to make releases
(whether in whole or in part) of all or any part of the Collateral agreeable to
the Collateral Agent without notice to, or the consent, approval or agreement of
other parties and interests, including junior lienors, which releases shall not
impair in any manner the validity of or priority of the Liens in the remaining
Collateral conferred under such documents, nor release Grantor from personal
liability for the Secured Obligations hereby secured. Notwithstanding the
existence of any other security interest in the Collateral held by the Secured
Parties, the Collateral Agent (for the benefit of the Secured Parties) shall
have the right to determine the order in which any or all of the Collateral
shall be subjected to the remedies provided in this Agreement. The proceeds
realized upon the exercise of the remedies provided herein shall be applied by
the Collateral Agent in the manner herein provided. Grantor hereby waives any
and all right to require the marshalling of assets in connection with the
exercise of any of the remedies permitted by applicable law or provided herein.

        18. APPOINTMENT OF THE COLLATERAL AGENT AS GRANTOR'S LAWFUL ATTORNEY.
Without limitation of any other provision of this Agreement, upon and during the
continuance of an Event of Default, Grantor irrevocably designates, makes,
constitutes and appoints the Collateral Agent (for the benefit of the Secured
Parties) (and all third parties designated by the Collateral Agent), as
Grantor's true and lawful attorney (and agent-in-fact) to take all actions and
to do all things required to be taken or done by Grantor under this Agreement.
All acts of the Collateral Agent or its designees taken pursuant to this Section
18 are



                                      -16-


hereby ratified and confirmed and the Collateral Agent or its designees shall
not be liable for any acts of omission or commission nor for any error of
judgment or mistake of fact or law, other than as a result of its gross
negligence or willful misconduct. This power, being coupled with an interest, is
irrevocable by Grantor until this Agreement has been terminated in accordance
with Section 29 hereof.

        19. PERFORMANCE BY COLLATERAL AGENT OF GRANTOR'S OBLIGATIONS. If Grantor
fails to perform or comply with any of its agreements contained herein after any
applicable cure period and the Collateral Agent, as provided for by the terms of
this Agreement, shall itself perform or comply, or otherwise cause performance
or compliance, with such agreements, the expenses of the Collateral Agent
incurred in connection with such performance or compliance shall be payable by
Grantor to the Collateral Agent on demand and shall constitute Secured
Obligations secured hereby.

        20. RIGHTS AND REMEDIES CUMULATIVE; NON-WAIVER; ETC. The enumeration of
the rights and remedies of the Collateral Agent (for the benefit of the Secured
Parties), set forth in this Agreement is not intended to be exhaustive and the
exercise by the Collateral Agent of any right or remedy shall not preclude the
exercise of any other rights or remedies, all of which shall be cumulative, and
shall be in addition to any other right or remedy given hereunder, or under any
other agreement between Grantor and the Collateral Agent and/or any Secured
Party or which may now or hereafter exist in law or in equity or by suit or
otherwise. No delay or failure to take action on the part of the Collateral
Agent in exercising any right, power or privilege shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
privilege preclude other or further exercise thereof or the exercise of any
other right, power or privilege or shall be construed to be a waiver of any
Event of Default. No waiver by a party hereunder shall be effective unless it is
in writing and signed by the party making such waiver, and then only to the
extent specifically stated in such writing. No course of dealing between Grantor
and the Collateral Agent or the Collateral Agent's agents or employees shall be
effective to change, modify or discharge any provision of this Agreement or to
constitute a waiver of any Event of Default. Neither the Collateral Agent nor
any Secured Party shall have any liability for any error, omission or delay of
any kind occurring in the handling or liquidation of the Collateral or for any
damages resulting therefrom, other than as a result of its gross negligence or
willful misconduct.

        21. SUPPLEMENTAL DOCUMENTATION. At the Collateral Agent's request,
Grantor shall execute and deliver to the Collateral Agent, at any time or times
hereafter, all documents, instruments and other written matter that the
Collateral Agent may request to perfect and maintain perfected the security
interest of the Collateral Agent (for the benefit of the Secured Parties) in the
Collateral, in form and substance acceptable to the Collateral Agent, and pay
all charges, expenses and fees the Collateral Agent may reasonably incur in
filing any of such documents, and all taxes relating thereto. Grantor agrees
that a carbon, photographic, photostatic, or other reproduction of this
Agreement or a financing statement is sufficient as a financing statement and
may be filed by the Collateral Agent in any filing office.

        22. WAIVERS. In addition to the other waivers contained herein, Grantor
hereby expressly waives, to the extent permitted by law: presentment for
payment, demand, protest,



                                      -17-


notice of demand, notice of protest, notice of default or dishonor, notice of
payments and nonpayments and all other notices and consents to any action taken
by the Collateral Agent (on behalf of the Secured Parties) unless expressly
required by this Agreement.

        23. NOTICE. Any notice shall be conclusively deemed to have been
received by any party hereto and be effective on the day on which delivered to
such party (against receipt therefor) at the address set forth below or such
other address as such party shall specify to the other parties in writing (or,
in the case of telephonic notice or notice by telecopy (where the receipt of
such message is verified by return) expressly provided for hereunder, when
received at such telephone or telecopy number as may from time to time be
specified in written notice to the other parties hereto or otherwise received),
or if sent prepaid by certified or registered mail return receipt requested on
the third business day after the day on which mailed, or if sent prepaid by a
national overnight courier service, on the first business day after the day on
which delivered to such service against receipt therefor, addressed to such
party at said address:

        (a) if to Grantor:

        ViroLogic, Inc.
        345 Oyster Point Boulevard
        South San Francisco, California 94080
        Telephone:   (650) 603-1100
        Facsimile:
        Attn:  Chief Executive Officer

        with a copy simultaneously transmitted by like means to (which
        transmittal shall not constitute notice hereunder):

        Cooley Godward LLP
        4401 Eastgate Mall
        San Diego, California 92121
        Telephone:  (858) 550-6000
        Facsimile: (858) 453-3555

        (b) if to the Collateral Agent:

        SDS Merchant Fund, L.P.
        53 Forest Avenue
        Second Floor
        Old Greenwich, CT 06870
        Telephone:  (203) 967-5850, ext. 75
        Facsimile: (203) 967-5851
        Attn: Steve Derby

        with a copy simultaneously transmitted by like means to (which
        transmittal shall not constitute notice hereunder):



                                      -18-


        Drinker Biddle & Reath LLP
        One Logan Square
        18th and Cherry Streets
        Philadelphia, PA 19103
        Telephone:  (215) 988-2700
        Facsimile:  (215) 988-2757
        Attn:  Stephen T. Burdumy, Esq.

or to such other address as each party may designate for itself by like notice
given in accordance with this Section 23.

        24. DEFINITIONS. All terms defined in Article 9 of the Uniform
Commercial Code of the State of Delaware (the "CODE") and used in this Agreement
shall have the same definitions herein as specified in Article 9 of the Code,
and such definitions are hereby incorporated herein by reference and made a part
hereof.

        25. ENTIRE AGREEMENT. This Agreement, together with the Exchange
Agreement and the other Transaction Documents, constitute and express the entire
understanding between the parties hereto with respect to the subject matter
hereof, and supersede all prior agreements and understandings, inducements,
commitments or conditions, express or implied, oral or written, except as herein
contained. The express terms hereof control and supersede any course of
performance or usage of the trade inconsistent with any of the terms hereof.
Neither this Agreement nor any portion or provision hereof may be changed,
altered, modified, supplemented, discharged, canceled, terminated, or amended
orally or in any manner other than by an agreement, in writing signed by the
parties hereto.

        26. SEVERABILITY. The provisions of this Agreement are independent of
and separable from each other. If any provision hereof shall for any reason be
held invalid or unenforceable, such invalidity or unenforceability shall not
affect the validity or enforceability of any other provision hereof, but this
Agreement shall be construed as if such invalid or unenforceable provision had
never been contained herein.

        27. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
successors and assigns of Grantor, and the rights, remedies, powers, and
privileges of the Collateral Agent (for the benefit of the Secured Parties)
hereunder shall inure to the benefit of the successors and assigns of the
Collateral Agent; provided, however, that Grantor shall not make any assignment
hereof without the prior written consent of the Collateral Agent.

        28. COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may be executed
in any number of counterparts and all the counterparts taken together shall be
deemed to constitute one and the same instrument. A telephone line facsimile
transmission of this Agreement bearing a signature on behalf of a party hereto
shall be legal and binding on such party.

        29. TERMINATION; RELEASE. Upon the indefeasible payment in full of all
Secured Obligations, this Agreement and all obligations of Grantor hereunder
shall terminate



                                      -19-


without delivery of any instrument or performance of any act by any party, and
the Collateral shall automatically be released from the Liens created by this
Agreement and all rights to such Collateral shall automatically revert to
Grantor. Notwithstanding the immediately preceding sentence, upon such
termination of this Agreement, the Collateral Agent, at the expense of Grantor,
shall reassign and redeliver such Collateral then held by or for the Secured
Parties and execute and deliver to Grantor such documents as Grantor shall
reasonably request to evidence such termination.

        30. PARAGRAPH HEADINGS. The paragraph headings used in this Agreement
are for convenience of reference only and are not to affect the construction
hereof or be taken into consideration in the interpretation hereof.

        31. INDEMNIFICATION. Grantor agrees to pay, and to save the Collateral
Agent and each Secured Party harmless from, any and all liabilities, costs and
expenses (including, without limitation, legal fees and expenses) (i) with
respect to, or resulting from, any delay in paying, any and all excise, sales or
other taxes which may be payable or determined to be payable with respect to any
of the Collateral, (ii) with respect to, or resulting from, any delay by Grantor
in complying with any law or regulation applicable to any of the Collateral,
(iii) in connection with any action taken by the Collateral Agent in exercising
its rights under this Agreement, and (iv) in connection with the preparation and
enforcement of this Agreement and/or and document or agreement related thereto,
except to the extent caused by Collateral Agent's or such Secured Party's gross
negligence or willful misconduct. In any suit, proceeding or action brought by
the Collateral Agent under any Account or contract that constitutes part of the
Collateral for any sum owing thereunder, or to enforce any provisions of any
such Account or contract, Grantor will save, indemnify and keep the Collateral
Agent harmless from and against all expense, loss or damage suffered by reason
of any defense, setoff, counterclaim, recoupment or reduction or liability
whatsoever of the Account Debtor thereunder, arising out of a breach by Grantor
of any obligation thereunder or arising out of any other agreement, indebtedness
or liability at any time owing to or in favor of such Account Debtor or its
successors from Grantor. The obligations under this Section 30 shall survive
termination of this Agreement.

        32. GOVERNING LAW.

        (a) This Agreement and the rights and obligations of Grantor hereunder
shall be governed by, and construed and interpreted in accordance with, the law
of the State of Delaware, except to the extent that under the Code the laws of
another jurisdiction govern matters of perfection and the effect of perfection
or non-perfection of any security interest granted hereunder.

        (b) Each party hereby expressly and irrevocably agrees and consents that
any suit, action or proceeding arising out of or relating to this Agreement and
the transactions contemplated herein may be instituted in any state or federal
court sitting in the State of Delaware, and, by the execution and delivery of
this Agreement, each party expressly waives any objection that it may have now
or hereafter to the laying of the venue or to the jurisdiction of any such suit,
action or proceeding, and irrevocably submits generally and unconditionally to
the jurisdiction of any such court in any such suit, action or proceeding.


                                      -20-


        (c) Each party agrees that service of process may be made by personal
service of a copy of the summons and complaint or other legal process in any
such suit, action or proceeding, or by registered or certified mail (postage
prepaid) to the address of such party provided by Section 23 hereof, or by any
other method of service provided for under the applicable laws in effect in the
State of Delaware.

        (d) Nothing contained in subsections (b) or (c) hereof shall preclude
any party from bringing any suit, action or proceeding arising out of or
relating to this Agreement in the courts of any place where any party or any of
such party's property or assets may be found or located. To the extent permitted
by the applicable laws of any such jurisdiction, each party hereby irrevocably
submits to the jurisdiction of any such court and expressly waives, in respect
of any such suit, action or proceeding, the jurisdiction of any other court or
courts which now or hereafter, by reason of its present or future domicile, or
otherwise, may be available to it.

        (e) IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS OR
REMEDIES UNDER OR RELATED TO THIS AGREEMENT OR ANY AMENDMENT, INSTRUMENT,
DOCUMENT OR AGREEMENT DELIVERED OR THAT MAY IN THE FUTURE BE DELIVERED IN
CONNECTION WITH THE FOREGOING, EACH PARTY HEREBY AGREES, TO THE EXTENT PERMITTED
BY APPLICABLE LAW, THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A
COURT AND NOT BEFORE A JURY AND EACH PARTY HEREBY WAIVES, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY HAVE THAT EACH ACTION OR
PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.


               [Remainder of this page intentionally left blank.]


                                      -21-


        IN WITNESS WHEREOF, Grantor has caused this Agreement to be duly
executed and delivered as of the date first above written.


                                            VIROLOGIC, INC.



                                            By: /s/ WILLIAM D. YOUNG
                                               --------------------------------
                                            Name: William D. Young
                                                 ------------------------------
                                            Title: Chairman & CEO
                                                  -----------------------------


Acknowledged and agreed to by the Collateral Agent:

SDS MERCHANT FUND, L.P.,
as Collateral Agent,
by its Managing Member,
SDS Capital Partners, L.L.C.


By: /s/ STEVE DERBY
   --------------------------------
Name: Steve Derby
     ------------------------------
Title: Managing Member
      -----------------------------



                                      -22-

EX-10.4

                                                                   EXHIBIT 10.4


                    INTELLECTUAL PROPERTY SECURITY AGREEMENT


        THIS INTELLECTUAL PROPERTY SECURITY AGREEMENT (this "AGREEMENT") is made
and entered into as November 14, 2002 by VIROLOGIC, INC., a Delaware corporation
(the "GRANTOR"), in favor of SDS Merchant Fund, L.P., as Collateral Agent, for
the benefit of the holders of the Notes (each a "SECURED PARTY" and collectively
the "SECURED PARTIES"). All capitalized terms used but not otherwise defined
herein shall have the respective meanings assigned thereto in the Exchange
Agreement (as defined below).

                              W I T N E S S E T H:

        WHEREAS, Grantor and the Secured Parties have entered into that certain
Exchange Agreement dated as of the date hereof (as from time to time amended,
supplemented or otherwise modified, the "EXCHANGE AGREEMENT");

        WHEREAS, pursuant to the Exchange Agreement, Grantor has issued to the
Secured Parties $12,045,987.94 in aggregate principal amount of Grantor's Series
C Convertible Secured Promissory Notes (as from time to time amended,
supplemented or otherwise modified, the "NOTES");

        WHEREAS, as collateral security for payment and performance of its
obligations under the Exchange Agreement, the Notes and the other Transaction
Documents, Grantor is willing to grant to the Collateral Agent (for the benefit
of the Secured Parties) a security interest in certain of its property and
assets; and

        WHEREAS, Grantor is contemporaneously entering into that certain
Security Agreement dated as of the date hereof in favor of the Collateral Agent
(for the benefit of the Secured Parties)(as from time to time amended,
supplemented or otherwise modified, the "SECURITY AGREEMENT"); and

        NOW, THEREFORE, in order to induce the Secured Parties to enter into the
Exchange Agreement and the other Transaction Documents and in consideration of
the premises and the mutual covenants contained herein, the parties hereto
hereby agree as follows:

        1. GRANT OF SECURITY. Grantor hereby grants to the Collateral Agent (for
the benefit of the Secured Parties), and hereby reaffirms its prior grant to the
Collateral Agent (for the benefit of the Secured Parties) pursuant to the
Security Agreement of, a first priority continuing security interest, subject to
Permitted Liens (as defined in the Security Agreement), in all of the following
(collectively, the "COLLATERAL"):

           (a) Patents. All of Grantor's right, title and interest, whether now
owned or hereafter acquired, in and to all United States issued patents and
patent applications (including without limitation the patents and patent
applications identified on Schedule I attached hereto and incorporated herein by
reference), including, without limitation, the inventions and improvements
described and claimed therein, and all reissues, divisions, continuations,




continuations-in-part, substitutes, renewals, and extensions thereof, all
foreign patent applications based thereof and foreign patents issuing therefrom,
and all income, royalties, damages and payments now or hereafter due and/or
payable under or with respect to any of the foregoing, including, without
limitation, damages and payments for past, present and future infringements of
any of the foregoing and the right to sue for past, present and future
infringements of any of the foregoing, and all other rights of any kind
whatsoever of Grantor accruing thereunder or pertaining thereto (collectively,
the "PATENTS").

           (b) Trademarks. All of Grantor's right, title and interest, whether
now owned or hereafter acquired, in and to all United States trademarks, trade
names, trade dress, domain names, corporate names, company names, business
names, fictitious business names, trade styles, service marks, logos, other
business identifiers, prints and labels on which any of the foregoing have
appeared or appear, all registrations and recordings thereof, and all
applications (other than "intent to use" applications until a verified statement
of use is filed with respect to such applications) in connection therewith
(including without limitation each trademark, trade name, trade dress, domain
name, registration and application identified in Schedule II attached hereto and
incorporated herein by reference), and any renewals thereof, and all income,
royalties, damages and payments now or hereafter due and/or payable under or
with respect to any of the foregoing, including, without limitation, damages and
payments for past, present and future infringements of any of the foregoing and
the right to sue for past, present and future infringements of any of the
foregoing, and all rights corresponding thereto throughout the world (but only
such rights as now exist or may come to exist under applicable local law) and
all other rights of any kind whatsoever of Grantor accruing thereunder or
pertaining thereto (collectively, the "TRADEMARKS"), together in each case with
the goodwill of the business connected with the use of, and symbolized by, each
such Trademark.

           (c) Copyrights. All of Grantor's right, title and interest, whether
now owned or hereafter acquired, in and to all United States copyrights and
copyright applications (including without limitation the copyrights and
copyright applications identified on Schedule III attached hereto and
incorporated herein by reference) and all reissues, divisions, continuations,
continuations-in-part, substitutes, renewals, and extensions thereof, all
improvements thereon, and all income, royalties, damages and payments now or
hereafter due and/or payable under or with respect to any of the foregoing,
including, without limitation, damages and payments for past, present and future
infringements of any of the foregoing and the right to sue for past, present and
future infringements of any of the foregoing, and all other rights of any kind
whatsoever of Grantor accruing thereunder or pertaining thereto (collectively,
the "COPYRIGHTS").

           (d) Licenses. All license agreements regarding Patents, Trademarks or
Copyrights (other than "off the shelf" software) with any other party, whether
Grantor is a licensor or licensee under any such license agreement (including
without limitation the licenses listed on Schedule IV attached hereto and
incorporated herein by reference), as from time to time amended, supplemented or
otherwise modified, and all income, royalties, damages and payments now or
hereafter due and/or payable under or with respect to any of the foregoing, and
the right to prepare for sale, sell and advertise for sale, all inventory now or
hereafter owned by Grantor



                                      -2-


and now or hereafter covered by such licenses, and all other rights of any kind
whatsoever of Grantor accruing thereunder or pertaining thereto (collectively,
the "LICENSES").

           (e) Proceeds. To the extent not otherwise included, all proceeds of
any of the foregoing, including without limitation (i) any and all proceeds of
any guarantee, insurance or indemnity payable to Grantor from time to time with
respect to any of the Collateral; (ii) any and all payments (in any form
whatsoever) made or due and payable to Grantor from time to time as
consideration for any confiscation, condemnation, seizure or forfeiture of all
or any part of the Collateral by any governmental authority; (iii) all proceeds
of any sale, lease, license or other disposition of any of the Collateral or
rights therein whether or not the lien therein purportedly granted hereunder is
valid or attaches or is perfected; and (iv) any and all other amounts from time
to time paid or payable with respect to or in connection with any of the
Collateral.

        2. SECURED OBLIGATIONS. The security interests granted under this
Agreement (the "SECURITY INTERESTS") by Grantor secure the prompt and complete
payment and performance of all Secured Obligations (as such term is defined
herein). For purposes of this Agreement, "SECURED OBLIGATIONS" shall mean: (a)
all obligations and liabilities to the Secured Parties, whether now existing or
hereafter arising, under the Exchange Agreement, the Notes, this Agreement, the
Security Agreement, and/or any document or agreement related to any of the
foregoing and the due performance and compliance with the terms of the Exchange
Agreement, the Notes, this Agreement, the Security Agreement, and/or any
document or agreement related to any of the foregoing; (b) any and all sums
advanced by the Collateral Agent in order to preserve the Collateral or to
preserve the Secured Parties' security interest in the Collateral; and (c) in
the event of any proceeding for the collection or enforcement of any obligations
or liabilities of Grantor referred to in the immediately preceding clauses (a)
and (b) in accordance with the terms of the Exchange Agreement, the Notes, this
Agreement, the Security Agreement, and/or any document or agreement related to
the foregoing, the expenses of re-taking, holding, preparing for sale, selling
or otherwise disposing of or realizing on the Collateral, or of any other
exercise by the Collateral Agent (for the benefit of the Secured Parties) of its
rights hereunder, together with reasonable attorneys' fees and court costs. The
Security Interests granted by this Agreement are granted in conjunction with the
security interests granted to the Collateral Agent (for the benefit of the
Secured Parties) in certain assets of Grantor under the Security Agreement.

        3. FURTHER ASSURANCES.

           (a) Grantor agrees that from time to time, at the expense of Grantor,
Grantor will promptly execute and deliver all further instruments and documents
and take all further actions that may be necessary or desirable in the
Collateral Agent's reasonable determination, or that the Collateral Agent may
reasonably request, in order to (i) continue, perfect and protect any Security
Interest granted or purported to be granted hereby and (ii) enable the
Collateral Agent (for the benefit of the Secured Parties) to exercise and
enforce its rights and remedies hereunder with respect to any part of the
Collateral. Without limiting the generality of the foregoing, Grantor will
execute and file (with the appropriate governmental offices, authorities,
agencies and regulatory bodies in the United States) such supplements to this
Agreement and such financing or continuation statements, or amendments thereto,
and such other instruments or notices, including executed Notices, with the U.S.
Patent and Trademark Office and the U.S.



                                      -3-


Copyright Office, as may be necessary or desirable, or as the Collateral Agent
may reasonably request, in order to perfect and preserve the Security Interests
granted hereby.

           (b) If, before the Secured Obligations have been indefeasibly paid
and/or performed in full, Grantor shall (i) adopt, use, acquire or apply for
registration of any trademark, service mark or trade name (each deemed a "FUTURE
TRADEMARK"), (ii) apply for any U.S. and foreign patent or obtain any U.S. and
foreign patent or patent application (each deemed a "FUTURE PATENT"); (iii)
create or acquire any published or material unpublished works of authorship that
is registered with the U.S. Copyright Office (each deemed a "FUTURE COPYRIGHT");
or (iv) enter into any license agreement in respect of any Patent, Trademark or
Copyright that is not now identified on Schedule IV (each deemed a "FUTURE
LICENSE"); then the provisions of Section 1 above shall automatically apply
thereto, and Grantor shall give to Collateral Agent reasonably prompt notice
thereof in writing. Such written notice shall act to modify this Agreement
unilaterally by amending Schedule I, Schedule II, Schedule III or Schedule IV
hereto, as appropriate, to include any Future Trademark, Future Patent, Future
Copyright or Future License described therein.

           (c) Grantor agrees that simultaneously with the execution of this
Agreement, and thereafter upon any amendment of Schedule I, Schedule II or
Schedule III, Grantor shall execute notices in the form appended hereto as
Exhibit A, Exhibit B, or Exhibit C (each, a "NOTICE"), as appropriate, with
respect to all of the Collateral, now owned or hereafter acquired, and shall
deliver each Notice to Collateral Agent for the purpose of recordation at the
U.S. Patent and Trademark Office or the U.S. Copyright Office, as appropriate.

           (d) Grantor agrees that it (i) will not take any action, nor enter
into any license, royalty, assignment or other agreement which will conflict
with Grantor's obligations under this Agreement; (ii) will not take any action,
nor enter into any license, royalty, assignment or other agreement, except for
commercially reasonable purposes, which has the effect of diluting, reducing the
distinctiveness of or otherwise reducing the value of the Collateral, including
the unreasonable failure to maintain any patent or patent pending or
unreasonably allowing for the abandonment of any trademark or service mark
application or the cancellation or expiration of any trademark or service mark
registration; (iii) will give Collateral Agent thirty (30) days prior written
notice of any proposed license, royalty, assignment or other agreement relating
to the Collateral; and (iv) will actively defend any claim or allegation that
any of the Collateral infringes upon or misappropriates the proprietary rights
of any third party and will actively pursue any third-party infringers of the
Collateral unless otherwise agreed to by the Collateral Agent, which agreement
shall not be unreasonably withheld.

           (e) Grantor shall have the duty (i) with respect to the Trademarks,
to prosecute diligently any applications for any Trademarks pending as of the
date of this Agreement or thereafter filed, to maintain any trademark/service
mark registrations in effect as of the date of this Agreement or thereafter
obtained, and to preserve and maintain all rights in the Trademarks and any
registrations thereof and/or the applications therefor; (ii) with respect to the
Patents, to prosecute diligently any patent applications pending as of the date
of this Agreement or thereafter acquired or filed and to maintain any Patents
issued as of the date of this Agreement or thereafter issued and (iii) with
respect to the Copyrights, to register in the U.S. Copyright



                                      -4-


Office any works of authorship material to the business of Grantor; unless, in
each case, Grantor determines in its good faith business judgment that Grantor's
business would be better served by not taking such actions. Any expenses
incurred in connection with such applications, registrations and/or maintenance
activities shall be borne by Grantor.

           (f) Grantor shall not do any act or omit to do any act whereby any of
the Collateral may become dedicated or abandoned, except where such dedication
or abandonment (i) will not materially adversely affect the business, condition
(financial or otherwise), operations, performance, or properties of Grantor, and
(ii) is in the ordinary course of Grantor's business. Grantor agrees to notify
the Collateral Agent promptly and in writing if it learns that any of the
Collateral may become abandoned or dedicated or of any adverse determination or
any development (including without limitation the institution of any proceeding
in the U.S. Patent and Trademark Office, the U.S. Copyright Office, or any
court) regarding any material part of the Collateral.

           (g) Grantor shall have the duty to take any and all action which
reasonably may be necessary or desirable to protect the Collateral, including,
without limitation, the prosecution and defense of infringement actions
involving the Collateral unless otherwise agreed to by the Collateral Agent,
which agreement shall not be unreasonably withheld. During the continuance of an
Event of Default, the Collateral Agent shall have the right, but shall in no way
be obligated, to bring suit in its own or in Grantor's name to enforce and
protect rights to the Collateral in which event Grantor shall, at the request of
the Collateral Agent, do any and all lawful acts and execute any and all proper
documents reasonably required by the Collateral Agent in aid of such enforcement
and Grantor shall promptly, upon demand, reimburse and indemnify the Collateral
Agent for all reasonable costs and expenses incurred by the Collateral Agent in
the exercise of its rights under this subsection.

           (h) To preserve and protect the goodwill associated with the
Trademarks, Grantor covenants that it shall maintain the quality of the products
and services sold under or in connection with the Trademarks and shall not at
any time permit any impairment of the quality of such products and services, and
will provide the Collateral Agent with a certificate to such effect signed by an
officer of Grantor upon the reasonable request of the Collateral Agent.

           (i) Grantor shall continue to mark its products as required by
statute with the numbers of all appropriate Patents.

        4. FINANCING STATEMENTS. Grantor hereby irrevocably authorizes the
Collateral Agent at any time and from time to time to file in any Uniform
Commercial Code jurisdiction any initial financing statements and amendments or
continuations thereto that describe the Collateral. Grantor shall execute and
deliver as reasonably required by the Collateral Agent any additional financing
statements or other documents, together with any necessary amendments or
continuation statements so long as this Agreement remains in effect.

        5. RECEIPT OF PAYMENT. In the event an Event of Default (as hereinafter
defined) shall occur and be continuing and Grantor (or any of its affiliates,
subsidiaries, stockholders, directors, officers, employees or agents) shall
receive any proceeds of Collateral,



                                      -5-


including without limitation monies, checks, notes, drafts or any other items of
payment, Grantor shall hold all such items of payment in trust for the
Collateral Agent (for the benefit of the Secured Parties), and as the property
of the Collateral Agent (for the benefit of the Secured Parties), separate from
the funds of Grantor, and no later than the first business day following the
receipt thereof, Grantor shall cause the same to be forwarded to the Collateral
Agent (for the benefit of the Secured Parties) for its custody and possession as
additional Collateral.

        6. COVENANTS. Grantor covenants with the Collateral Agent (for the
benefit of the Secured Parties) that from and after the date of this Agreement
until termination hereof in accordance with Section 27 hereof:

        (a) TRANSFER OF COLLATERAL. Except for Permitted Liens or as otherwise
expressly permitted herein, other than the disposition of items of Collateral in
the ordinary course of Grantor's business as presently conducted, Grantor shall
not sell, assign, transfer, encumber or otherwise dispose of any Collateral
without the prior written consent of the Collateral Agent, which consent shall
not be unreasonably withheld. For purposes of this provision, "dispose of
Collateral" shall include, without limitation, the creation of a Lien (whether
voluntary or involuntary) on such Collateral.

        (b) FURTHER IDENTIFICATION OF COLLATERAL. Grantor will furnish to the
Collateral Agent from time to time, upon the request of the Collateral Agent,
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Collateral Agent may
reasonably request, all in reasonable detail.

        7. GENERAL WARRANTIES AND REPRESENTATIONS. Grantor represents and
warrants to the Collateral Agent (for the benefit of the Secured Parties) that:

        (c) Grantor is and, except as permitted by the Exchange Agreement, will
continue to be the owner of the Collateral hereunder, now owned and upon the
acquisition of the same, free and clear of all Liens other than the security
interest in favor of the Collateral Agent (for the benefit of the Secured
Parties) hereunder and under the Security Agreement and Permitted Liens, and
that it will defend such Collateral and any products and proceeds thereof
against all claims and demands of all third parties at any time claiming the
same or any interest therein adverse to the Collateral Agent.

        (d) Grantor has the full legal right and power and all authority and
approval required to enter into, execute and deliver this Agreement, to grant
the security interest of the Collateral Agent (for the benefit of the Secured
Parties) hereunder and to perform fully each of its obligations hereunder. This
Agreement has been duly executed and delivered and constitutes the valid and
binding obligation of Grantor enforceable in accordance with its terms, except
as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to creditor's rights generally.
No approval or consent of any foreign, federal, state, country, local or other
governmental or regulatory body, and no approval or consent of any other Person
is required in connection with the execution and delivery by Grantor of this
Agreement, the grant of the security interest of the Collateral Agent (for the
benefit of the Secured Parties) hereunder and the consummation and performance
by Grantor of the



                                      -6-


transactions contemplated hereby. The execution and delivery of this Agreement,
the grant of the security interest of the Collateral Agent (for the benefit of
the Secured Parties) hereunder and the consummation and performance by Grantor
of the transactions contemplated hereby will not conflict with or result in the
breach or violation of any of the terms or conditions of, or constitute (or with
notice or lapse of time or both would constitute) a default under any material
instrument, contract or other agreement to which Grantor is a party or by or to
which it or its assets or properties are bound or subject or any statute or any
regulation, order, judgment or decree of any court or governmental or regulatory
body.

        (e) To the best of Grantor's knowledge, the Collateral does not infringe
any rights owned or possessed by any third party.

        (f) There are no claims, judgments or settlements to be paid by Grantor
or pending claims or litigation relating to the Collateral.

        (g) No action or proceeding is pending or, to Grantor's knowledge,
threatened seeking to limit, cancel or question the scope or validity of any of
the Collateral.

        (h) The actions contemplated under or in connection with the Transaction
Documents will not impair the legal right of Grantor to use any of the
Collateral.

        (i) Grantor has no knowledge of the existence of any right under any
patent, trademark, license agreement, trade name, trade secret, know-how,
confidential research, development and commercial information, or other
proprietary information held by any other person that would preclude Grantor
from publishing, distributing, marketing, selling, or using any product
currently made by it, being made for it or sold or used by it, imported by it or
exported by it, as the case may be, or to use any processes currently used by
it, or materially interfere with the ability of Grantor to carry on its business
as currently carried on, and Grantor has no knowledge of any claim to the
contrary that is reasonably likely to be made.

        (j) To the best of Grantor's knowledge, there are no other users of the
Trademarks or variations thereof that are similar enough to the Trademarks, with
due regard to goods and services with which the respective Trademarks are used,
as to be likely to cause confusion or mistake among consumers.

        (k) Grantor has complied with, and will continue for the duration of
this Agreement to comply with, the requirements set forth in 15 U.S.C. Sections
1051-1127, 17 U.S.C. Section 101, et seq., 35 U.S.C. Section 101 et seq. and any
other applicable statutes, rules and regulations in connection with its use of
the Collateral.

        (l) Set forth on Schedule IV is a list, which is complete and accurate
in all material respects as of the date hereof, of Licenses of Grantor necessary
for the conduct of its business as currently conducted or used in the selling or
marketing of Grantor's products, including the expiration date of such Licenses.
Each License of Grantor identified on Schedule IV is validly subsisting and has
not been adjudged invalid or unenforceable, in whole or in part, and is, to
Grantor's knowledge, valid and enforceable.



                                      -7-


        8. PATENT REPRESENTATIONS AND WARRANTIES. Grantor represents and
warrants as follows:

           (a) It is the sole, legal and beneficial owner of the entire right,
title and interest in and to each of the Patents, free and clear of any lien,
security interest, option, charge, pledge, registered user agreement, assignment
(whether conditional or not), or any other encumbrance except for the security
interests created hereunder and under the Security Agreement and Permitted
Liens. No effective financing statement or other instrument similar in effect
covering all or any part of such Collateral is on file in any recording office,
except such as may have been filed in favor of the Collateral Agent (for the
benefit of the Secured Parties).

           (b) Set forth on Schedule I is a list of all of the Patents owned by
Grantor necessary for the conduct of its business as currently conducted or used
in the selling or marketing of Grantor's products.

           (c) Each Patent of Grantor identified on Schedule I hereto is
subsisting and has not been adjudged unpatentable, invalid or unenforceable, in
whole or in part, and to the knowledge of Grantor is patentable, valid and
enforceable, and each Patent application of Grantor identified on Schedule I
hereto has been filed in conformity with applicable rules and procedures of the
U.S. Patent and Trademark Office.

        9. TRADEMARK REPRESENTATIONS AND WARRANTIES. Grantor represents and
warrants as follows:

            (a) It is the sole, legal and beneficial owner of the entire right,
title and interest in and to each of the Trademarks, free and clear of any lien,
security interest, option, charge, pledge, registered user agreement, assignment
(whether conditional or not), or covenant, or any other encumbrance, except for
the security interests created hereunder and under the Security Agreement and
Permitted Liens. No effective financing statement or other instrument similar in
effect covering all or any part of such Collateral is on file in any recording
office, including, without limitation, the U.S. Patent and Trademark Office,
except such as may have been filed in favor of the Collateral Agent (for the
benefit of the Secured Parties).

            (b) Set forth on Schedule II is a list of all of the Trademarks
owned by Grantor necessary for the conduct of its business as currently
conducted or used in the selling or marketing of Grantor's products.

            (c) Each Trademark of Grantor identified on Schedule II is validly
subsisting and has not been abandoned or adjudged invalid, unregistrable or
unenforceable, in whole or in part, and is, to Grantor's knowledge, valid,
registrable and enforceable.

            (d) Grantor has used consistent standards of quality in
manufacturing, distribution and marketing of each product sold and provision of
each service provided under any Trademark.

        10. COPYRIGHT REPRESENTATIONS AND WARRANTIES. Grantor represents and
warrants as follows:



                                      -8-


            (a) It is the sole, legal and beneficial owner of the entire right,
title and interest in and to each of the Copyrights, free and clear of any lien,
security interest, option, charge, pledge, registered user agreement, assignment
(whether conditional or not), or covenant, or any other encumbrance, except for
the security interests created hereunder and under the Security Agreement and
Permitted Liens. No effective financing statement or other instrument similar in
effect covering all or any part of such Collateral is on file in any recording
office, including, without limitation, the U.S. Copyright Office, except such as
may have been filed in favor of the Collateral Agent (for the benefit of the
Secured Parties).

            (b) Set forth on Schedule III is a list of all of the Copyrights
owned by Grantor necessary for the conduct of its business as currently
conducted or materially used in the selling or marketing of Grantor's products.

            (c) Each Copyright of Grantor identified on Schedule III is validly
subsisting and has not been abandoned or adjudged invalid, unregistrable or
unenforceable, in whole or in part, and is, to Grantor's knowledge, valid and
enforceable.

        11. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT. Without limiting any
other provision of this Agreement, upon the occurrence and during the
continuance of an Event of Default, Grantor hereby irrevocably appoints the
Collateral Agent (for the benefit of the Secured Parties), as Grantor's
attorney-in-fact, with full authority in the place and stead of Grantor and in
the name of Grantor or otherwise, from time to time in the Collateral Agent's
discretion, to take any action and to execute any instrument that the Collateral
Agent may reasonably deem necessary or advisable to accomplish the purposes of
this Agreement, including without limitation:

            (a) to ask, demand, collect, receive and give acquittances and
receipts for any and all moneys due and to become due under any License and, in
the name of Grantor or its own name or otherwise, to take possession of and
endorse and collect any checks, drafts, notes, acceptances or other instruments
for the payment of moneys due under any License and to file any claim or to take
any other action or proceeding in any court of law or equity or otherwise deemed
appropriate by the Collateral Agent for the purpose of collecting any and all
such moneys due under any License whenever payable;

            (b) to pay or discharge taxes, liens, security interests or other
encumbrances levied or placed on or threatened against the Collateral, to effect
any repairs or any insurance called for by the terms of this Agreement and to
pay all or any part of the premiums therefor and the costs thereof; and

            (c) to direct any party liable for any payment under any of the
Licenses to make payment of any and all moneys due and to become due thereunder
directly to the Collateral Agent or as the Collateral Agent shall direct;

            (d) to receive payment of and receipt for any and all moneys, claims
and other amounts due and to become due at any time in respect of or arising out
of any Collateral;


                                      -9-


            (e) to commence and prosecute any suits, actions or proceedings at
law or in equity in any court of competent jurisdiction to collect the
Collateral or any part thereof and to enforce any other right in respect of any
Collateral;

            (f) to defend any suit, action or proceeding brought against Grantor
with respect to any Collateral;

            (g) to settle, compromise, or adjust any suit, action or proceeding
described above and, in connection therewith, to give such discharges or
releases as the Collateral Agent may deem appropriate; and

            (h) generally to sell, transfer, pledge, make any agreement with
respect to or otherwise deal with any of the Collateral as fully and completely
as though the Collateral Agent was the absolute owner thereof for all purposes,
and to do, at the Collateral Agent's option all acts and things which the
Collateral Agent deems necessary to protect, preserve or realize upon the
Collateral and the Collateral Agent's (for the benefit of the Secured Parties')
security interest therein, in order to effect the intent of this Agreement, all
as fully and effectively as Grantor might do.

This power of attorney is a power coupled with an interest and shall be
irrevocable. Notwithstanding the foregoing, Grantor further agrees to execute
any additional documents which the Collateral Agent may reasonably require in
order to confirm this power of attorney, or which the Collateral Agent may
reasonably deem necessary to enforce any of its rights contained in this
Agreement. The powers conferred on the Collateral Agent hereunder are solely to
protect its interests in the Collateral and shall not impose any duty upon it to
exercise any such powers. The Collateral Agent shall be accountable only for
amounts that it actually receives as a result of the exercise of such powers and
neither it nor any of its officers, directors, employees or agents shall be
responsible to Grantor for any act or failure to act, except for their own gross
(not mere) negligence or willful misconduct. The Grantor also authorizes the
Collateral Agent to execute, in connection with any sale provided for herein,
any endorsements, assignments or other instruments of conveyance or transfer
with respect to the Collateral.

        12. COLLATERAL AGENT MAY PERFORM. If Grantor fails to perform any
agreement contained herein after any applicable cure period, the Collateral
Agent may itself perform, or cause performance of, such agreement, and the
expenses of the Collateral Agent incurred in connection therewith shall be
payable by Grantor to the fullest extent permitted by applicable law.

        13. COLLATERAL AGENT'S DUTIES. The powers conferred on the Collateral
Agent hereunder are solely to protect the interest of the Collateral Agent (for
the benefit of the Secured Parties) in the Collateral and shall not impose any
duty upon it to exercise any such powers. Except for the safe custody of any
Collateral in its possession and the accounting for moneys actually received by
it hereunder the Collateral Agent shall have no duty as to any Collateral or as
to the taking of any necessary steps to preserve rights against other parties or
any other rights pertaining to any Collateral. The Collateral Agent shall be
deemed to have exercised reasonable care in the custody and preservation of the
Collateral in its possession if such



                                      -10-


Collateral is accorded treatment substantially equal to that which such party
accords its own similar property.

        14. EVENTS OF DEFAULT. It is understood and agreed that the occurrence
of any one or more of the following shall constitute an "EVENT OF DEFAULT"
hereunder and shall entitle the Collateral Agent (for the benefit of the Secured
Parties) to take such actions as are elsewhere provided in this Agreement in
respect of Events of Default: (a) an "Event of Default" as defined in the Notes
shall have occurred and be continuing; or (b) any representation or warranty
made by Grantor herein shall prove to have been false in any material respect
when made; or (c) any covenant made by Grantor herein is breached, violated, or
not complied with and not cured within ten (10) days after notice thereof from
the Collateral Agent; or (d) any material uninsured damage to or loss, theft or
destruction of any of the Collateral shall occur; or (e) the security interests
granted herein do not constitute for any reason a first priority perfected
security interest in the Collateral covered thereby.

        15. RIGHTS AND REMEDIES UPON AN EVENT OF DEFAULT. If an Event of Default
shall have occurred and be continuing:

            (a) The Collateral Agent (for the benefit of the Secured Parties)
may exercise in respect of the Collateral, in addition to other rights and
remedies provided for herein or otherwise available to it, all the rights and
remedies of a secured party upon default under the Uniform Commercial Code as in
effect in the State of Delaware (the "Code") and also may (i) exercise any and
all rights and remedies of Grantor under, in connection with, or otherwise in
respect of, such Collateral, including the completion and filing of any Notice,
(ii) require Grantor to, and Grantor hereby agrees that it will at its expense
and upon request of the Collateral Agent forthwith, assemble all or part of the
documents embodying such Collateral as directed by the Collateral Agent and make
it available to the Collateral Agent, at a place to be designated by the
Collateral Agent that is reasonably convenient to both the Collateral Agent and
Grantor, (iii) subject to the rights of any lessor, occupy any premises owned or
leased by Grantor where documents embodying such Collateral or any part thereof
are assembled for a reasonable period in order to effectuate the rights and
remedies of the Collateral Agent (for the benefit of the Secured Parties)
hereunder or under applicable law, without obligation to Grantor in respect of
such occupation, (iv) license such Collateral or any part thereof, (v) with
notice as specified below, sell such Collateral or any part thereof in one or
more parcels at public or private sale, at any of the Collateral Agent's offices
or elsewhere, for cash, on credit or for future delivery, and upon such other
terms as the Collateral Agent may deem commercially reasonable, and (vi) without
prior notice to Grantor, direct any licensee of any Collateral to pay all
royalties and other payments which may be or which may thereafter become payable
to Grantor directly to the Collateral Agent or any designee of the Collateral
Agent, but the Collateral Agent shall give notice to Grantor of any such
direction no later than five (5) business days after giving any such direction.
Grantor agrees that at least ten (10) days' notice to Grantor of the time and
place of any public sale or the time after which any private sale is to be made
shall constitute reasonable notification. The Collateral Agent shall not be
obligated to make any sale of the Collateral regardless of notice of sale having
been given. The Collateral Agent may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such



                                      -11-


sale may, with further notice to Grantor, be made at the time and place to which
it was so adjourned.

            (b) All payments made under or in connection with or otherwise in
respect of the Collateral, and all cash proceeds received by the Collateral
Agent in respect of any sale of, collection from, or other realization upon all
or any part of such Collateral may, in the discretion of the Collateral Agent,
be held by the Collateral Agent, as collateral for, and then or at any time
thereafter applied against all or any part of the Secured Obligations. Any sale
or other disposition of the Collateral and the possession thereof by the
Collateral Agent shall be in compliance with all provisions of applicable law
(including applicable provisions of the Code).

        16. CONDUCT OF BUSINESS AFTER DEFAULT. The parties understand and agree
that the security interest granted to the Collateral Agent (for the benefit of
the Secured Parties) with respect to the Collateral, as defined in this
Agreement, together with the other Collateral, as defined in the Security
Agreement (the "OTHER COLLATERAL"), will and is intended to permit the
Collateral Agent and its successors and assigns, during the continuance of an
Event of Default as provided herein, to take title to and make use of all rights
to the Collateral in conjunction with the Other Collateral, all of which will
permit the Collateral Agent to manufacture and sell the products and/or provide
the services with which the Collateral is associated and maintain substantially
the same product specifications and quality and/or quality of services as
maintained by Grantor.

        17. PERFORMANCE BY COLLATERAL AGENT OF GRANTOR'S OBLIGATIONS. If Grantor
fails to perform or comply with any of its agreements contained herein after any
applicable cure period and the Collateral Agent, as provided for by the terms of
this Agreement, shall itself perform or comply, or otherwise cause performance
or compliance, with such agreements, the expenses of the Collateral Agent
incurred in connection with such performance or compliance shall be payable by
Grantor to the Collateral Agent on demand and shall constitute Secured
Obligations secured hereby.

        18. RIGHTS AND REMEDIES CUMULATIVE; NON-WAIVER; ETC. The enumeration of
the rights and remedies of the Collateral Agent (for the benefit of the Secured
Parties), set forth in this Agreement is not intended to be exhaustive and the
exercise by the Collateral Agent of any right or remedy shall not preclude the
exercise of any other rights or remedies, all of which shall be cumulative, and
shall be in addition to any other right or remedy given hereunder, or under any
other agreement between Grantor and the Collateral Agent and/or any Secured
Party or which may now or hereafter exist in law or in equity or by suit or
otherwise. No delay or failure to take action on the part of the Collateral
Agent in exercising any right, power or privilege shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
privilege preclude other or further exercise thereof or the exercise of any
other right, power or privilege or shall be construed to be a waiver of any
Event of Default. No waiver by a party hereunder shall be effective unless it is
in writing and signed by the party making such waiver, and then only to the
extent specifically stated in such writing. No course of dealing between Grantor
and the Collateral Agent or the Collateral Agent's agents or employees shall be
effective to change, modify or discharge any provision of this Agreement or to
constitute a waiver of any Event of Default. Neither the Collateral Agent nor
any Secured Party shall have



                                      -12-


any liability for any error, omission or delay of any kind occurring in the
handling or liquidation of the Collateral or for any damages resulting
therefrom, other than as a result of its gross negligence or willful misconduct.

        19. SUPPLEMENTAL DOCUMENTATION. At the Collateral Agent's request,
Grantor shall execute and deliver to the Collateral Agent, at any time or times
hereafter, all documents, instruments and other written matter that the
Collateral Agent may reasonably request to perfect and maintain perfected the
security interest of the Collateral Agent (for the benefit of the Secured
Parties) in the Collateral, in form and substance reasonably acceptable to the
Collateral Agent, and pay all charges, expenses and fees the Collateral Agent
may reasonably incur in filing any of such documents, and all taxes relating
thereto. Grantor agrees that a carbon, photographic, photostatic, or other
reproduction of this Agreement or a financing statement is sufficient as a
financing statement and may be filed by the Collateral Agent in any filing
office.

        20. WAIVERS. In addition to the other waivers contained herein, Grantor
hereby expressly waives, to the extent permitted by law: presentment for
payment, demand, protest, notice of demand, notice of protest, notice of default
or dishonor, notice of payments and nonpayments and all other notices and
consents to any action taken by the Collateral Agent (on behalf of the Secured
Parties) unless expressly required by this Agreement.

        21. NOTICE. Any notice shall be conclusively deemed to have been
received by any party hereto and be effective on the day on which delivered to
such party (against receipt therefor) at the address set forth below or such
other address as such party shall specify to the other parties in writing (or,
in the case of telephonic notice or notice by telecopy (where the receipt of
such message is verified by return) expressly provided for hereunder, when
received at such telephone or telecopy number as may from time to time be
specified in written notice to the other parties hereto or otherwise received),
or if sent prepaid by certified or registered mail return receipt requested on
the third business day after the day on which mailed, or if sent prepaid by a
national overnight courier service, on the first business day after the day on
which delivered to such service against receipt therefor, addressed to such
party at said address:

        (a) if to Grantor:

            ViroLogic, Inc.
            270 East Grand Avenue
            South San Francisco, California 94080
            Telephone:  (650) 635-1100
            Facsimile:
            Attn:  Chief Executive Officer



                                      -13-


            with a copy simultaneously transmitted by like means to (which
              transmittal shall not constitute notice hereunder):

            Cooley Godward LLP
            4401 Eastgate Mall
            San Diego, California 92121
            Telephone:  (858) 550-6000
            Facsimile: (858) 453-3555

        (b) if to the Collateral Agent:

            SDS Merchant Fund, L.P.
            53 Forest Avenue
            Second Floor
            Old Greenwich, CT 06870
            Telephone:  (203) 967-5850 x75
            Facsimile: (203) 967-5851
            Attn: Steve Derby

            with a copy simultaneously transmitted by like means to (which
              transmittal shall not constitute notice hereunder):

            Drinker Biddle & Reath LLP
            One Logan Square
            18th and Cherry Streets
            Philadelphia, PA 19103
            Telephone:  (215) 988-2700
            Facsimile:  (215) 988-2757
            Attn:  Stephen T. Burdumy, Esq.

or to such other address as each party may designate for itself by like notice
given in accordance with this Section 21.

        22. DEFINITIONS. All terms defined in Article 9 of the Uniform
Commercial Code of the State of Delaware (the "CODE") and used in this Agreement
shall have the same definitions herein as specified in Article 9 of the Code,
and such definitions are hereby incorporated herein by reference and made a part
hereof.

        23. ENTIRE AGREEMENT. This Agreement and the other Transaction Documents
constitute and express the entire understanding between the parties hereto with
respect to the subject matter hereof and thereof, and supersede all prior
agreements and understandings, inducements, commitments or conditions, express
or implied, oral or written, except as herein contained. The express terms
hereof control and supersede any course of performance or usage of the trade
inconsistent with any of the terms hereof. Neither this Agreement nor any
portion or provision hereof may be changed, altered, modified, supplemented,
discharged, canceled,



                                      -14-

terminated, or amended orally or in any manner other than by an agreement, in
writing signed by the parties hereto.

        24. SEVERABILITY. The provisions of this Agreement are independent of
and separable from each other. If any provision hereof shall for any reason be
held invalid or unenforceable, such invalidity or unenforceability shall not
affect the validity or enforceability of any other provision hereof, but this
Agreement shall be construed as if such invalid or unenforceable provision had
never been contained herein.

        25. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
successors and assigns of Grantor, and the rights, remedies, powers, and
privileges of the Collateral Agent (for the benefit of the Secured Parties)
hereunder shall inure to the benefit of the successors and assigns of the
Collateral Agent; provided, however, that Grantor shall not make any assignment
hereof without the prior written consent of the Collateral Agent.

        26. COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
agreement. A telephone line facsimile transmission of this Agreement bearing a
signature on behalf of a party hereto shall be legal and binding on such party.

        27. TERMINATION; RELEASE. Upon the indefeasible payment in full of all
Secured Obligations, this Agreement and all obligations of Grantor hereunder
shall terminate without delivery of any instrument or performance of any act by
any party, and the Collateral shall automatically be released from the Liens
created by this Agreement and all rights to such Collateral shall automatically
revert to Grantor. Notwithstanding the immediately preceding sentence, upon such
termination of this Agreement, the Collateral Agent, at the expense of Grantor,
shall reassign and redeliver such Collateral then held by or for the Secured
Parties and execute and deliver to Grantor such documents as Grantor shall
reasonably request to evidence such termination.

        28. PARAGRAPH HEADINGS. The paragraph headings used in this Agreement
are for convenience of reference only and are not to affect the construction
hereof or be taken into consideration in the interpretation hereof.

        29. INDEMNIFICATION. Grantor agrees to pay, and to save the Collateral
Agent and each Secured Party harmless from, any and all liabilities, costs and
expenses (including, without limitation, legal fees and expenses) (i) with
respect to, or resulting from, any delay in paying, any and all excise, sales or
other taxes which may be payable or determined to be payable with respect to any
of the Collateral, (ii) with respect to, or resulting from, any delay by Grantor
in complying with any law or regulation applicable to any of the Collateral,
(iii) in connection with any action taken by the Collateral Agent in exercising
its rights under this Agreement, except to the extent caused by Collateral
Agent's or such Secured Party's gross negligence or willful misconduct, and (iv)
in connection with the preparation and enforcement of



                                      -15-


this Agreement and/or and document or agreement related thereto. The obligations
under this Section 29 shall survive termination of this Agreement.

        30. GOVERNING LAW.

            (a) This Agreement and the rights and obligations of Grantor
hereunder shall be governed by, and construed and interpreted in accordance
with, the law of the State of Delaware, except to the extent that under the Code
the laws of another jurisdiction govern matters of perfection and the effect of
perfection or non-perfection of any security interest granted hereunder.

            (b) Each party hereby expressly and irrevocably agrees and consents
that any suit, action or proceeding arising out of or relating to this Agreement
and the transactions contemplated herein may be instituted in any state or
federal court sitting in the State of Delaware, and, by the execution and
delivery of this Agreement, each party expressly waives any objection that it
may have now or hereafter to the laying of the venue or to the jurisdiction of
any such suit, action or proceeding, and irrevocably submits generally and
unconditionally to the jurisdiction of any such court in any such suit, action
or proceeding.

            (c) Each party agrees that service of process may be made by
personal service of a copy of the summons and complaint or other legal process
in any such suit, action or proceeding, or by registered or certified mail
(postage prepaid) to the address of such party provided by Section 21 hereof, or
by any other method of service provided for under the applicable laws in effect
in the State of Delaware.

            (d) Nothing contained in subsections (b) or (c) hereof shall
preclude any party from bringing any suit, action or proceeding arising out of
or relating to this Agreement in the courts of any place where any party or any
of such party's property or assets may be found or located. To the extent
permitted by the applicable laws of any such jurisdiction, each party hereby
irrevocably submits to the jurisdiction of any such court and expressly waives,
in respect of any such suit, action or proceeding, the jurisdiction of any other
court or courts which now or hereafter, by reason of its present or future
domicile, or otherwise, may be available to it.

            (e) IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS OR
REMEDIES UNDER OR RELATED TO THIS AGREEMENT OR ANY AMENDMENT, INSTRUMENT,
DOCUMENT OR AGREEMENT DELIVERED OR THAT MAY IN THE FUTURE BE DELIVERED IN
CONNECTION WITH THE FOREGOING, EACH PARTY HEREBY AGREES, TO THE EXTENT PERMITTED
BY APPLICABLE LAW, THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A
COURT AND NOT BEFORE A JURY AND EACH PARTY HEREBY WAIVES, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY HAVE THAT EACH ACTION OR
PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.


                                      -16-


               [Remainder of this page intentionally left blank.]




                                      -17-


        IN WITNESS WHEREOF, Grantor has caused this Agreement to be duly
executed and delivered as of the date first above written.


                                            VIROLOGIC, INC.



                                            By: /s/ WILLIAM D. YOUNG
                                               -----------------------------
                                            Name: William D. Young
                                                 ---------------------------
                                            Title: Chairman & CEO
                                                  --------------------------


Acknowledged and agreed
to by the Collateral Agent:

SDS MERCHANT FUND, L.P.,
as Collateral Agent,
by its Managing Member,
SDS Capital Partners, L.L.C.


By: /s/ STEVE DERBY
   -----------------------------
Name: Steve Derby
     ---------------------------
Title: Managing Member
      --------------------------



                                      -18-

EX-10.5

                                                                   EXHIBIT 10.5




                                 VIROLOGIC, INC.

                                      STOCK
                               PURCHASE AGREEMENT


                                NOVEMBER 14, 2002




                            STOCK PURCHASE AGREEMENT


        THIS STOCK PURCHASE AGREEMENT ("AGREEMENT") is made as of November 14,
2002 (the "EFFECTIVE DATE"), by and between VIROLOGIC, INC., a Delaware
corporation with its principal place of business at 270 East Grand Avenue, South
San Francisco, California 94080 (the "COMPANY"), and PFIZER IRELAND
PHARMACEUTICALS, Pottery Road, Dun Laoghaire, Co. Dublin, Ireland (the
"PURCHASER").

        WHEREAS,

        1. The Company and the Purchaser have agreed to enter into a
relationship where the Company shall provide the Purchaser with certain services
and access to certain technology. As part of that relationship the Parties shall
execute at the same time as this Agreement (i) an agreement to license certain
patent rights and HIV assay technology (the "NON-EXCLUSIVE LICENSE") and (ii) an
agreement for the provision of certain drug evaluation and/or clinical services
(the "MASTER SERVICES AGREEMENT").

        2. Under this Agreement the Company wishes to sell to the Purchaser, and
Purchaser wishes to purchase from the Company, shares of the Company's common
stock, par value $0.001 per share (the "COMMON STOCK"), on the terms and subject
to the conditions set forth in this Agreement.


                                    AGREEMENT

        In consideration of the mutual covenants contained in this Agreement,
and for other good and valuable consideration, the receipt of which is hereby
acknowledged, the Company and the Purchaser hereby agree as follows:

        1. Execution of this Stock Purchase Agreement is contingent upon the
following:

           (a)   simultaneous execution of the Non-Exclusive License

           (b)   simultaneous execution of the Master Services Agreement

           (c)   simultaneous execution of other third party agreements with the
                 express purpose of raising a further US$6MM (the "CAPITAL"), in
                 addition to the US$3MM raised through this Agreement; such
                 Capital to be in the form of other equity investments
                 ("ADDITIONAL SECURITIES"), direct payment of salaried employees
                 and/or bona fide loan agreements other than short term loan
                 arrangements.

        2. AUTHORIZATION OF SALE OF THE SECURITIES; SALES OF ADDITIONAL
SECURITIES. Subject to the terms and conditions of this Agreement, the Company
has authorized the sale and issuance of up to 2,608,695 shares of Common Stock
(the "SECURITIES") at the Closing (as defined below).


        3. AGREEMENT TO SELL AND PURCHASE THE SECURITIES.

           3.1 At the Closing, the Company will sell to the Purchaser, and the
Purchaser will purchase from the Company, the Securities at a per share purchase
price equal to one hundred and five percent of the average of the closing price
of the Common Stock as reported on the Nasdaq National Market for the 20 trading
days ending on the trading day immediately preceding the Closing Date, for a
total purchase price of three million dollars (the "TOTAL PURCHASE PRICE").

        4. CLOSING AND DELIVERY.

           4.1 CLOSING. The closing of the purchase and sale of the Securities
pursuant to this Agreement (the "CLOSING") shall be held at the offices of
Cooley Godward LLP, 4401 Eastgate Mall, San Diego, California 92121 on the
Effective Date, or on such other date and place as may be agreed to by the
Company and the Purchaser (the "CLOSING DATE"). At or prior to the Closing, the
Purchaser and the Company shall execute any related agreements or other
documents required to be executed hereunder, dated as of the Closing Date.

           4.2 DELIVERY.

               (a) At the Closing, the Company shall deliver to the Purchaser
the stock certificates registered in the name of the Purchaser, and/or in such
nominee name(s) as designated in writing by the Purchaser, representing the
Securities against payment of the Total Purchase Price.

        5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.

           Except as set forth on the Schedule of Exceptions delivered to the
Purchaser concurrently herewith, the Company hereby represents and warrants as
of the date hereof to, and covenants with, the Purchaser as follows:

           5.1 ORGANIZATION AND GOOD STANDING. The Company has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the State of Delaware, has full corporate power and authority to own or
lease its properties and conduct its business as described in the SEC Documents
(as defined in Section 5.5 below), and is duly qualified as a foreign
corporation and in good standing in all jurisdictions in which the character of
the property owned or leased or the nature of the business transacted by it
makes qualification necessary, except where the failure to be so qualified would
not have a material adverse effect on the business, properties, financial
condition or results of operations of the Company.

           5.2 CORPORATE POWER; AUTHORIZATION. The Company has all requisite
corporate power, and has taken all requisite corporate action, to execute and
deliver this Agreement, sell and issue the Securities and carry out and perform
all of its obligations under this Agreement. This Agreement constitutes a legal,
valid and binding obligation of the Company, enforceable in accordance with its
terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting the
enforcement of creditors' rights generally, (ii) as limited by equitable
principles generally, including any specific performance, and (iii) to the
extent that the enforceability of those



                                       2


provisions of Section 10.7 relating to indemnity or contribution may be limited
by applicable laws.

           5.3 COMPLIANCE WITH OTHER INSTRUMENTS. The execution, delivery and
performance of and compliance with this Agreement and the issuance, sale and
delivery of the Securities by the Company will not result in a material breach
or violation of the terms, conditions or provisions of, (a) the Certificate of
Incorporation or Bylaws of the Company, (b) any statute, law, rule or regulation
(including without limitation, the rules and regulations applicable to the
Nasdaq Stock Market and applicable securities laws) applicable to the Company,
(c) any state or federal order, judgment or decree applicable to the Company or
(d) any indenture, mortgage, lease or other material agreement or instrument to
which the Company or any of its properties is subject, where such breach or
violation would have a material adverse effect on the Company. The execution,
delivery and performance of and compliance with this Agreement and the issuance,
sale and delivery of the Securities by the Company will not require the approval
of its stockholders, or result in the creation or imposition of any lien upon
any of the properties or assets of the Company.

           5.4 VALID ISSUANCE. The Securities, when issued and paid for in
compliance with the provisions of this Agreement, will be validly issued, fully
paid and nonassessable and will not be issued in violation of any preemptive
right that has not been effectively waived.

           5.5 SEC DOCUMENTS; FINANCIAL STATEMENTS. The Company has filed in a
timely manner all documents that the Company was required to file with the
United States Securities and Exchange Commission (the "SEC") under Sections 13,
14(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), during the twelve (12) months preceding the Effective Date. As
of their respective filing dates (or, if amended, when amended), all documents
filed by the Company with the SEC (the "SEC DOCUMENTS") complied in all material
respects with the requirements of the Exchange Act. None of the SEC Documents as
of their respective dates contained any untrue statement of material fact or
omitted to state a material fact required (under the federal securities laws in
connection with the sale of the Securities) to be stated therein or necessary to
make the statements made therein, in light of the circumstances under which they
were made, not misleading. The financial statements of the Company included in
the SEC Documents (the "FINANCIAL STATEMENTS") comply as to form and substance
in all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto. The Financial
Statements have been prepared in accordance with generally accepted accounting
principles consistently applied and fairly present the financial position of the
Company at the dates thereof and the results of its operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal, recurring adjustments).

           5.6 INTELLECTUAL PROPERTY. The Company owns or possesses adequate
rights to use all material patents, patent rights, inventions, trade secrets and
know-how that are necessary for the conduct of its business as presently
conducted and as described in the SEC Documents. Except as set forth in the SEC
Documents, the Company has not received any written notice of, nor has any
knowledge of, any infringement of or conflict with asserted rights of others
with respect to any patent, patent right, invention, trade secret or know-how
that, individually or in the aggregate, if the subject of an unfavorable
decision, ruling or finding,


                                       3


would have a material adverse effect on the business, properties, financial
condition or results or operations of the Company.

           5.7 CAPITALIZATION. The capitalization of the Company is as described
in the Company's SEC Documents. The Company has not issued any capital stock
since June 30, 2002 other than pursuant to employee benefit plans disclosed in
the Company's SEC Documents. The outstanding shares of capital stock of the
Company have been duly and validly issued and are fully paid and nonassessable
and were not issued in violation of any preemptive rights not effectively
waived. Except as set forth in or contemplated by the Company's SEC Documents or
as otherwise described in this Agreement, there are no outstanding rights
(including, without limitation, preemptive rights), warrants or options to
acquire, or instruments convertible into or exchangeable for, any unissued
shares of capital stock or other equity interest in the Company, or any
contract, commitment, agreement, understanding or arrangement of any kind to
which the Company is a party and relating to the issuance or sale of any capital
stock of the Company, any such convertible or exchangeable securities or any
such rights, warrants or options.

           5.8 LITIGATION. There is no pending or, to the Company's knowledge,
threatened, action, suit or other proceeding to which the Company is a party or
to which its property or assets are subject that is not disclosed in the SEC
Documents that is required to be so disclosed.

           5.9 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement except for compliance with the securities and
blue sky laws in the states and other jurisdictions in which Securities are
offered and/or sold, which compliance will be effected in accordance with such
laws.

           5.10 NO MATERIAL ADVERSE CHANGE. Except as otherwise disclosed
herein, since June 30, 2002, there have not been any changes in the assets,
liabilities, financial condition or operations of the Company from that
reflected in the Company's Form 10-Q for the period ended June 30, 2002 except
changes in the ordinary course of business or which have not been, either
individually or in the aggregate, materially adverse.

           5.11 SECURITIES VIOLATIONS. The Company represents and warrants that
none of its directors or officers is or has within the last five years, been the
subject of, or a defendant in: (i) an enforcement action or prosecution (or
settlement in lieu thereof) brought by a governmental authority relating to a
violation of securities, tax, fiduciary or criminal laws, or (ii) a civil action
(or settlement in lieu thereof) brought by shareholders or investors in a common
investment vehicle for violation of duties owed to the shareholders or
investors.

           5.12 NASDAQ. The Company's Common Stock is listed on The Nasdaq
National Market and the Company shall use its commercially reasonable efforts to
maintain such listing.

           5.13 OFFERING VALID. Assuming the accuracy of the representations and
warranties of the Purchaser contained in Section 5.1 hereof, the offer and
issuance of the



                                        4


Securities will be exempt from the registration requirements of the Securities
Act of 1933, as amended (the "SECURITIES ACT"), and will 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. Neither the Company nor any agent on its behalf has solicited
or will solicit any offers to sell or has offered to sell or will offer to sell
all or any part of the Securities to any person or persons so as to bring the
sale of such Securities by the Company within the registration provisions of the
Securities Act or any state securities laws.

        6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER.

           6.1 The Purchaser represents and warrants to and covenants with the
Company that:

               (a) The Purchaser, taking into account the personnel and
resources it can practically bring to bear on the purchase of the Securities
contemplated hereby, either alone or together with the advice of the Purchaser's
representative, is knowledgeable, sophisticated and experienced in making, and
is qualified to make, decisions with respect to investments in securities
presenting an investment decision like that involved in the purchase of the
Securities, including investments in securities issued by the Company, and has
requested, received, reviewed and considered, either alone or with the
Purchaser's representative, all information the Purchaser deems relevant
(including the SEC Documents) in making an informed decision to purchase the
Securities.

               (b) The Purchaser is acquiring the Securities being acquired by
the Purchaser pursuant to this Agreement for its own account for investment only
and with no present intention of distributing any of such Securities or any
arrangement or understanding with any other persons regarding the distribution
of such Securities, except in compliance with Section 6.1(c).

               (c) The Purchaser will not, directly or indirectly, offer, sell,
pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase
or otherwise acquire or take a pledge of) any of the Securities purchased
hereunder except in compliance with the Securities Act, applicable blue sky
laws, and the rules and regulations promulgated thereunder.

               (d) The Purchaser is an "accredited investor" within the meaning
of Rule 501 of Regulation D promulgated under the Securities Act.

               (e) The Purchaser has full right, power, authority and capacity
to enter into this Agreement and to consummate the transactions contemplated
hereby and has taken all necessary action to authorize the execution, delivery
and performance of this Agreement. Upon the execution and delivery of this
Agreement by the Purchaser, this Agreement shall constitute a valid and binding
obligation of the Purchaser, enforceable in accordance with its terms, except
(i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to or affecting the enforcement of creditors' rights
generally, (ii) as limited by equitable principles generally, including any
specific performance, and (iii) as to those provisions of Section 10.7 relating
to indemnity or contribution.


                                       5


           6.2 The Purchaser represents and warrants to and covenants with the
Company that it has not engaged in any short sales of the Company's Common Stock
within the three (3) month period prior to the Closing Date.

           6.3 The Purchaser understands that nothing in the SEC Documents, this
Agreement or any other materials presented to the Purchaser in connection with
the purchase and sale of the Securities constitutes legal, tax or investment
advice and that independent legal counsel has reviewed these documents and
materials on the Purchaser's behalf. The Purchaser has consulted such legal, tax
and investment advisors as it, in its sole discretion, has deemed necessary or
appropriate in connection with its purchase of the Securities.

        7. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS, DISCLAIMER,
INDEMNIFICATION.

           7.1 SURVIVAL. Notwithstanding any investigation made by any party to
this Agreement, all covenants, agreements, representations and warranties made
by the Company and the Purchaser herein and in the certificates for the
securities delivered pursuant hereto shall survive for a period of two years
after the execution of this Agreement, the delivery to the Purchaser of the
Securities being purchased and the payment therefore.

           7.2 DISCLAIMER. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT,
NEITHER PARTY MAKES ANY REPRESENTATION OR WARRANTY TO THE OTHER PARTY OF ANY
NATURE, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF
NONINFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

           7.3 LIMITATION OF LIABILITY. NEITHER PARTY SHALL BE ENTITLED TO
RECOVER FROM THE OTHER PARTY ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE
DAMAGES IN CONNECTION WITH THIS AGREEMENT.

        8. CONDITIONS TO COMPANY'S OBLIGATIONS AT CLOSING. The Company's
obligation to sell, issue and deliver the Securities to the Purchaser at the
Closing shall be subject to the following conditions to the extent not waived by
the Company:

           8.1 RECEIPT OF PAYMENT. The Company shall have received payment
within seven (7) days, by check or wire transfer of immediately available funds,
in the full amount of the Total Purchase Price.

           8.2 REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations
and warranties made by the Purchaser in Section 6 hereof shall be true and
correct when made at the Closing. The Purchaser shall have performed and
complied with all obligations and conditions required to be performed and
complied with by the Purchaser under this Agreement on or prior to the Closing.



                                       6


        9. CONDITIONS TO PURCHASERS' OBLIGATIONS AT CLOSING. The Purchaser's
obligation to accept delivery of and pay for the Securities at the Closing shall
be subject to the following conditions to the extent not waived by such
Purchaser:

           9.1 ISSUANCE OF STOCK. The Purchaser shall have received evidence of
the issuance of a certificate representing the Securities in the name of the
Purchaser.

           9.2 REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations
and warranties made by the Company in Section 5 hereof shall be true and correct
when made at the Closing. The Company shall have performed and complied with all
obligations and conditions to be performed and complied with by the Company
under this Agreement on or prior to the Closing.

        10. RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS.

            10.1 CERTAIN DEFINITIONS. When used in this Section 10 of this
Agreement, the following terms shall have the following respective meanings:

                  (a) "FORM S-3" shall mean Form S-3 under the Securities Act as
in effect on the date of this Agreement, or any substantially similar,
equivalent or successor form under the Securities Act.

                  (b) "HOLDER" shall mean the Purchaser and each of its
permitted assigns under Section 9.2(c) then holding any Securities.

                  (c) "REGISTRATION EXPENSES" shall mean all expenses incurred
by the Company in complying with Sections 10.3 and 10.4 hereof, including,
without limitation, all registration, qualification and filing fees, printing
expenses, escrow fees, fees and disbursements of counsel to the Company, blue
sky fees and expenses, and the expense of any special audits incident to or
required by any such registration (but excluding the compensation of regular
employees of the Company which shall be paid in any event by the Company).

                  (d) "SELLING EXPENSES" shall mean all underwriting discounts
and selling commissions and fees and disbursements of counsel applicable to the
applicable sale.

                  (e) "SPECIAL REGISTRATION STATEMENT" shall mean (i) a
registration statement relating to any employee benefit plan or (ii) a
registration statement relating to any corporate reorganization or transaction
under Rule 145 of the Securities Act, including any registration statements
related to the resale of securities issued in such a transaction or (iii) a
registration statement related to stock issued upon conversion of debt
securities.

            10.2 RESTRICTIONS ON TRANSFER.

                  (a) The Purchaser agrees not to make any disposition of all or
any portion of the Securities unless and until:



                                       7


                      (i) There is then in effect a registration statement under
the Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or

                      (ii) (A) Except in connection with a sale exempt from
registration under Rule 144, the transferee has agreed in writing to be bound by
the terms of this Agreement, and (B) if reasonably requested by the Company, the
Purchaser shall have furnished the Company with an opinion of counsel,
reasonably satisfactory to the Company, that such disposition will not require
registration of such securities under the Securities Act, provided that the
Company will not require an opinion of counsel for transactions pursuant to Rule
144 except in unusual circumstances.

                      (iii) Notwithstanding the provisions of paragraphs (a)(i)
and (a)(ii) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by the Purchaser (or its permitted transferee) to the
extent such transfer is made by (A) a partnership to its partners or former
partners in accordance with partnership interests, (B) a limited liability
company to its members or former members in accordance with their interest in
the limited liability company, or (C) a corporation to a subsidiary of which it
owns at least eighty percent (80%) of the capital stock or a parent corporation
that owns at least eighty percent (80%) of the capital stock of the Purchaser.

                  (b) Each certificate representing Securities shall be stamped
or otherwise imprinted with a legend substantially similar to the following (in
addition to any legend required under applicable state securities laws, as
provided elsewhere in this Agreement or any other applicable agreement or
instrument):

        "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
        SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE OFFERED
        FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
        EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
        SAID ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF
        COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
        NOT REQUIRED."

        The Company shall be obligated to reissue promptly unlegended
certificates at the request of the Purchaser if the Purchaser shall have
obtained an opinion of counsel (which counsel may be counsel to the Company)
reasonably acceptable to the Company to the effect that the securities proposed
to be disposed of may lawfully be so disposed of (with no need for compliance
with Rule 144) without registration, qualification or legend.

        Any legend endorsed on an instrument pursuant to applicable state
securities laws and the stop-transfer instructions with respect to such
securities shall be removed upon receipt by the Company of an order of the
appropriate blue sky authority authorizing such removal.



                                       8


                  (c) The registration rights granted under Section 10.3 of this
Agreement shall not be transferable except in connection with transfers
permitted under Section 10.2(a)(iii).

           10.3 REGISTRATION PROCEDURES. The Company is obligated to do the
following:

                  (a) The Company shall use commercially reasonable efforts to
prepare and file with the SEC, no later than thirty (30) days following the
Closing Date, one or more registration statements in order to register with the
SEC the resale by the Holders, from time to time, of the Securities through
Nasdaq or the facilities of any national securities exchange on which the Common
Stock is then traded, or in privately negotiated transactions (a "REGISTRATION
STATEMENT"). The Company shall use commercially reasonable efforts to cause such
Registration Statement to be declared effective within one hundred fifty (150)
days following the Closing Date. The Company shall promptly notify the Holders
of the effectiveness of such Registration Statement.

                  (b) The Company shall prepare and file with the SEC (i) such
amendments and supplements to the Registration Statement and the prospectus used
in connection therewith, (ii) such SEC Documents and (iii) such other filings
required by the SEC, in each case as may be necessary to keep the Registration
Statement continuously effective and not misleading until all of the Securities
held by the Holders that are registered under such Registration Statement have
been resold. Notwithstanding the foregoing, if, at any time following the
effectiveness of a Registration Statement, the Company shall have determined
that the Company may be required to disclose any material corporate development,
the Company may suspend the effectiveness of a Registration Statement until such
time as an amendment to such Registration Statement has been filed by the
Company and declared effective by the SEC or until such time as the Company has
filed an appropriate report with the SEC pursuant to the Exchange Act, which
suspension shall endure for such period as deemed necessary by the Company upon
advice of counsel (a "SUSPENSION PERIOD"), by giving notice to the Holders. The
Company will use commercially reasonable efforts to limit the length of any
Suspension Period to a reasonable period of time (anticipated to be no more then
ninety (90) days except to the extent a longer period is required due to
extenuating circumstances), and further, the Company will use reasonable efforts
to amend or supplement such prospectus in order to cause such prospectus not to
include any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing and end the
Suspension Period. Each Holder agrees that, upon receipt of any notice from the
Company of a Suspension Period, the Holder will not sell any Securities pursuant
to the Registration Statement until (i) the Holder is advised in writing by the
Company that the use of the applicable prospectus may be resumed, (ii) the
Holder has received copies of any additional or supplemental or amended
prospectus, if applicable, and (iii) the Holder has received copies of any
additional or supplemental filings which are incorporated or deemed to be
incorporated by reference in such prospectus.

                  (c) In order to facilitate the public sale or other
disposition of all or any of the Securities by the Holders, the Company shall
furnish to the Holders with respect to the Securities registered under a
Registration Statement such number of copies of prospectuses,



                                       9



prospectus supplements and preliminary prospectuses as the Holders reasonably
request in conformity with the requirements of the Securities Act.

                  (d) The Company shall file any documents required of the
Company for normal blue sky clearance in states specified in writing by the
Holders; provided, however, that the Company shall not be required to qualify to
do business or consent to service of process in any jurisdiction in which it is
not now so qualified or has not so consented.

                  (e) The Company shall furnish to the Holders copies of
reasonably complete drafts of all such documents proposed to be filed (including
exhibits), and any such holder shall have the opportunity to object to any
information pertaining solely to such Holder that is contained therein and the
Company will make the corrections reasonably requested by such holder with
respect to such information prior to filing any such registration statement or
amendment.

                  (f) The Company shall promptly notify each Holder and the
underwriter or underwriters, if any:

                      (i)  when such registration statement or any prospectus
                           used in connection therewith, or any amendment or
                           supplement thereto, has been filed and, with respect
                           to such registration statement or any post-effective
                           amendment thereto, when the same has become
                           effective;

                      (ii) of any written comments from the Commission with
                           respect to any filing referred to in clause (i) or of
                           any written request by the Commission for amendments
                           or supplements to such registration statement or
                           prospectus.


                  (g) The Company shall use its best efforts to cause all
Securities covered by such registration statement to be registered with or
approved by such other United States governmental agencies or authorities as may
be necessary to enable each holder thereof to consummate the disposition of such
Securities.

                  (h) In connection with any underwritten public offering of the
Securities, the Company shall furnish to each Holder a signed counterpart,
addressed to such holder (and the underwriters),



                                       10


                      (i)  an opinion of counsel for the Company, dated the
                           effective date of the underwriting agreement,
                           reasonably satisfactory in form and substance to such
                           holder, and

                      (ii) a "comfort" letter, dated the effective date of such
                           registration statement (and a bring-down comfort
                           letter) dated the date of any closing under the
                           underwriting agreement), signed by the independent
                           public accountants who have certified the Company's
                           financial statements included in such registration
                           statement,

        in each case covering substantially the same matters with respect to
        such registration statement (and the prospectus included therein) and,
        in the case of the accountants' letter, with respect to events
        subsequent to the date of such financial statements, as are customarily
        covered in opinions of issuer's counsel and in accountants' letters
        delivered to the underwriters in underwritten Public Offerings of
        securities and, in the case of the accountants' letter, such other
        financial matters, as such holder (or the underwriters) may reasonably
        request.

           (i) The Company shall provide a transfer agent and registrar for all
Securities covered by such registration statement not later than the effective
date of such registration statement.


           10.4 EXPENSES OF REGISTRATION. Except as specifically provided
herein, all Registration Expenses incurred in connection with any registration
under Section 10.3 herein shall be borne by the Company. All Selling Expenses
incurred in connection with any registrations hereunder, shall be borne by the
Holders.

           10.5 TERMINATION OF REGISTRATION RIGHTS. All registration rights
granted to the Holders under this Section 10 shall terminate and be of no
further force and effect upon the date that all Registrable Securities held by
the Holders may be sold under Rule 144(k) during any ninety (90) day period.

           10.6 FURNISHING INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Section 10.3 that each
Holder shall furnish to the Company such information regarding itself, the
Securities held by the Holder and the intended method of disposition of such
securities as shall be required to effect the registration of the Securities.

As soon as practicable following the Closing Date, the Company shall Deliver a
questionnaire (a "Questionnaire") to each Holder requesting, among other things,
the following information regarding the Holder: (i) legal name, address,
telephone and fax number, (ii) beneficial ownership of the Securities to be
registered and other securities of the Company held by Holder, (iii)
relationships with the Company, and (iv) intended plan of distribution of the
Securities to be registered. If a properly completed and signed Questionnaire is
received by the Company not later than 10 business days after receipt thereof by
the Holder, the Holder delivering such questionnaire shall be entitled to have
its Securities included in the Registration Statement.



                                       11


           10.7 INDEMNIFICATION. In the event any Securities are included in a
Registration Statement under Section 10.3:

                  (a) To the extent permitted by law, the Company will indemnify
and hold harmless the Holders, the partners, officers, directors and legal
counsel of the Holders, any underwriter (as defined in the Securities Act) for
the Holders and each person, if any, who controls the Holder or underwriter
within the meaning of the Securities Act or the Exchange Act, against any
losses, claims, damages, expenses (including attorney fees) or liabilities
(joint or several) to which they may become subject under the Securities Act,
the Exchange Act or other federal or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations (collectively a
"VIOLATION") by the Company: (i) any untrue statement or alleged untrue
statement of a material fact contained in such Registration Statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto; (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading; or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law in connection with the offering
covered by such Registration Statement; and the Company will reimburse the
Holders and each such partner, officer or director, underwriter or controlling
person for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided however, that the indemnity agreement contained in this Section
10.7(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Company, which consent shall not be unreasonably withheld, nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by the Holders or any
such partner, officer, director, underwriter or controlling person of the
Holders.

                  (b) To the extent permitted by law, the Holders will, if
Securities held by the Holders are included in the securities as to which such
registration, qualifications or compliance is being effected, indemnify and hold
harmless the Company, each of its directors, its officers and legal counsel and
each person, if any, who controls the Company within the meaning of the
Securities Act, any underwriter and any other Holder selling securities under
such Registration Statement or any of such other Holder's partners, directors or
officers or any person who controls the Holder, against any losses, claims,
damages, expenses (including attorney fees), or liabilities (several) to which
the Company or any such director, officer, counsel, controlling person,
underwriter or other such Holder, or partner, director, officer or controlling
person of such other Holder may become subject under the Securities Act, the
Exchange Act or other federal or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereto) arise out of or are based
upon any Violation, in each case to the extent (and only to the extent) that
such Violation occurs in reliance upon and in conformity with written
information furnished by the Holders under an instrument duly executed by the
Holders and stated to be specifically for use in connection with such
registration; and the Holders will



                                       12


reimburse any legal or other expenses reasonably incurred by the Company or any
such director, officer, counsel, controlling person, underwriter or other
Holder, or partner, officer, director or controlling person of such other Holder
in connection with investigating or defending any such loss, claim, damage,
liability or action if it is judicially determined that there was such a
Violation; provided, however, that the indemnity agreement contained in this
Section 10.7(b) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Holder, which consent shall not be unreasonably withheld;
provided further, that in no event shall any indemnity under this Section
10.7(b) exceed the proceeds from the offering received by the Holder.

                  (c) Promptly after receipt by an indemnified party under this
Section 10.7 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 10.7, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 10.7, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section
10.7.

                  (d) If the indemnification provided for in this Section 10.7
is held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any losses, claims, damages or liabilities referred to
herein, the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided, that in no event shall any contribution by the
Purchaser hereunder exceed the proceeds from the offering received by the
Holders.

                  (e) The obligations of the Company and the Holders under this
Section 10.7 shall survive completion of any offering of Registrable Securities
in a Registration Statement. No indemnifying party, in the defense of any such
claim or litigation, shall, except



                                       13


with the consent of each indemnified party, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect to such claim or litigation.

        11. MISCELLANEOUS.

            11.1 BROKER'S FEE. The Company and the Purchaser hereby represent
that, other than Leerink Swann & Company, UBS Warburg and CIBC World Markets, to
whom the Company will pay commissions in connection with the sale of the
Securities and Additional Securities pursuant to heretofore executed engagement
letters, there are no brokers or finders entitled to compensation in connection
with the sale of the Securities; and the Company and the Purchaser shall
indemnify each other for any such fees for which they are responsible.

            11.2 NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing, shall be sent by confirmed
facsimile or mailed by first-class registered or certified airmail, or
nationally recognized overnight express courier, postage prepaid, and shall be
deemed given when so sent in the case of facsimile transmission, or when so
received in the case of mail or courier, and addressed as follows:

                 (a)  if to the Company, to:

                      ViroLogic, Inc.
                      270 East Grand Avenue
                      South San Francisco, CA  94080
                      Attention: General Counsel
                      Fax No.:  650-635-0397

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

                      Cooley Godward LLP
                      4401 Eastgate Mall
                      San Diego, CA  92121
                      Attention:  Carl R. Sanchez, Esq.
                      Fax No.:  858-550-6420

or to such other person at such other place as the Company shall designate to
the Purchaser in writing; and

                 (b) if to the Purchaser, to:

                      Pfizer, Inc.
                      235 East 42nd Street
                      New York, NY 10017
                      Attention: _______________
                      Fax No.:  ________________



                                       14


or to such other person at such other place as the Purchaser shall designate to
the Company in writing.

            11.3 WAIVERS AND AMENDMENTS. Neither this Agreement nor any
provision hereof may be changed, waived, discharged, terminated, modified or
amended except upon the written consent of the Company and the Purchaser.

            11.4 HEADINGS. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.

            11.5 SEVERABILITY. In case any provision contained in this Agreement
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.

            11.6 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to conflicts of law principles.

            11.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument, and shall become effective
when one or more counterparts have been signed by each party hereto and
delivered to the other parties.

            11.8 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.

            11.9 PAYMENT OF FEES AND EXPENSES. Each of the Company and the
Purchaser shall bear its own expenses and legal fees incurred on its behalf with
respect to this Agreement and the transactions contemplated hereby. If any
action at law or in equity is necessary to enforce or interpret the terms of
this Agreement, the prevailing party shall be entitled to reasonable attorney's
fees, costs and necessary disbursements in addition to any other relief to which
such party may be entitled.

                           [SIGNATURE PAGE TO FOLLOW]



                                       15


        IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase
Agreement to be executed by their duly authorized representatives as of the day
and year first above written.


                                         VIROLOGIC, INC.


                                         By: /s/ WILLIAM D. YOUNG
                                             ---------------------------------
                                             William D. Young
                                             Chief Executive Officer


                                         PFIZER IRELAND PHARMACEUTICALS


                                         By:  ILLEGIBLE
                                             ---------------------------------
                                         Name:
                                              --------------------------------


                                       16

EX-10.6

                                                                    EXHIBIT 10.6



                                                                       EXHIBIT C
                                                                   TO SECURITIES
                                                                        PURCHASE
                                                                       AGREEMENT


                          REGISTRATION RIGHTS AGREEMENT

        REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of November
14, 2002, by and among ViroLogic, Inc., a corporation organized under the laws
of the State of Delaware (the "COMPANY"), and the undersigned (together with
their respective affiliates, the "INITIAL INVESTORS").

                                    WHEREAS:

        A. In connection with the Securities Purchase Agreement, dated as of
November 14, 2002, by and among the Company and certain of the Initial Investors
(the "SECURITIES PURCHASE AGREEMENT"), the Company has agreed, upon the terms
and subject to the conditions contained therein, to issue and sell to those
Initial Investors (i) shares of its Series C Convertible Preferred Stock (the
"PREFERRED STOCK") that are convertible into shares of the Company's common
stock, par value $.001 per share (the "COMMON STOCK"), upon the terms and
subject to the limitations and conditions set forth in the Certificate of
Designations, Rights and Preferences with respect to such Preferred Stock (the
"CERTIFICATE OF Designation") and (ii) warrants (the "SERIES C WARRANTS") to
acquire shares of Common Stock. The shares of Common Stock issuable upon
conversion of the Preferred Stock are referred to herein as the "CONVERSION
SHARES."

        B. In connection with the Exchange Agreement, dated as of November 14,
2002, by and among the Company and certain of the Initial Investors (the
"EXCHANGE AGREEMENT"), the Company has agreed, upon the terms and subject to the
conditions contained therein, to issue to those Initial Investors (i) promissory
notes (the "NOTES") that, under certain circumstances, will be automatically
converted into shares of Preferred Stock, and (ii) in the event that the Notes
are so converted, warrants (the "ADDITIONAL WARRANTS" and, together with the
Series C Warrants, the "WARRANTS") to acquire shares of Common Stock in exchange
for certain warrants currently held by such Initial Investors. The shares of
Common Stock issuable upon exercise of or otherwise pursuant to the Warrants are
referred to herein as the "WARRANT SHARES."

        C. To induce the Initial Investors to execute and deliver the Securities
Purchase Agreement and the Exchange Agreement, as applicable, the Company has
agreed to provide certain registration rights under the Securities Act of 1933,
as amended, and the rules and regulations thereunder, or any similar successor
statute (collectively, the "SECURITIES Act"), and applicable state securities
laws.

        NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investors hereby agree as follows:



        1. DEFINITIONS.

               (a) As used in this Agreement, the following terms shall have the
following meanings:

                      (i) "INVESTORS" means the Initial Investors and any
transferees or assignees who agree to become bound by the provisions of this
Agreement in accordance with Section 10 hereof.

                      (ii) "REGISTER," "REGISTERED," and "REGISTRATION" refer to
a registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("RULE 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").

                      (iii) "REGISTRABLE SECURITIES" means (a) the Conversion
Shares, (b) the Warrant Shares and (c) any shares of capital stock issued or
issuable, from time to time (with any adjustments), as a distribution or
dividend on or in exchange for or otherwise with respect to any of the
foregoing, whether as default payments or otherwise.

                      (iv) "REGISTRATION STATEMENT" means a registration
statement of the Company under the Securities Act.

               (b) Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set forth in the Securities Purchase
Agreement.

        2. REGISTRATION.

               (a) Mandatory Registration.

                      (i) The Company shall use its best efforts to prepare
promptly and file with the SEC as soon as practicable, but in no event later
than the forty-fifth (45th) day following the Closing Date (the "FIRST FILING
DATE"), a Registration Statement on Form S-3 (or, if Form S-3 is not then
available, on such form of Registration Statement as is then available to effect
a registration of all of the Registrable Securities to be so registered, subject
to the consent of the Initial Investors whose Registrable Securities are being
so registered) covering the resale of all of the Conversion Shares underlying
the shares of Preferred Stock and the Warrant Shares underlying the Series C
Warrants issued to the Initial Investors pursuant to the Securities Purchase
Agreement (and any other Registrable Securities related to such Conversion
Shares). The Registration Statement filed hereunder, to the extent allowable
under the Securities Act and the Rules promulgated thereunder (including Rule
416), shall state that such Registration Statement also covers such
indeterminate number of additional shares of Common Stock as may become issuable
upon conversion of such Preferred Stock or exercise of such Series C Warrants to
prevent dilution resulting from stock splits, stock dividends or similar
transactions. The Registrable Securities included in the Registration Statement
shall be allocated to the Investors as set forth in Section 12(k) hereof. The
Registration Statement (and each amendment or supplement thereto, and each
request for acceleration of


                                       2


effectiveness thereof) shall be provided to (and subject to the approval of,
which shall not be unreasonably withheld) the Initial Investors and their
counsel prior to its filing or other submission.

                      (ii) In the event that the Company obtains the Authorized
Stock Approval and the NASD Rule Approval (as such terms are defined in the
Securities Purchase Agreement and the Exchange Agreement), the Company shall use
its best efforts to prepare promptly and file with the SEC as soon as
practicable, but in no event later than the forty-fifth (45th) day following the
date (the "STOCKHOLDER APPROVAL DATE") on which the Company obtains such
Authorized Stock Approval (the "SECOND FILING DATE" and, together with the First
Filing Date, the "FILING DATES"), a Registration Statement on Form S-3 (or, if
Form S-3 is not then available, on such form of Registration Statement as is
then available to effect a registration of all of the Registrable Securities to
be so registered, subject to the consent of the Initial Investors whose
Registrable Securities are being so registered) covering the resale of all of
the Conversion Shares underlying the shares of Preferred Stock issued to the
Initial Investors pursuant to the Exchange Agreement and all of the Warrant
Shares underlying the Additional Warrants issued to the Initial Investors
pursuant to the Exchange Agreement (and any other Registrable Securities related
to such Conversion Shares or Warrant Shares). The Registration Statement filed
hereunder, to the extent allowable under the Securities Act and the Rules
promulgated thereunder (including Rule 416), shall state that such Registration
Statement also covers such indeterminate number of additional shares of Common
Stock as may become issuable upon conversion of such Preferred Stock and
exercise of such Additional Warrants to prevent dilution resulting from stock
splits, stock dividends or similar transactions. The Registrable Securities
included in the Registration Statement shall be allocated to the Investors as
set forth in Section 12(k) hereof. The Registration Statement (and each
amendment or supplement thereto, and each request for acceleration of
effectiveness thereof) shall be provided to (and subject to the approval of,
which shall not be unreasonably withheld) the Initial Investors and their
counsel prior to its filing or other submission.

               (b) Payments by the Company. The Company shall use its best
efforts to cause the Registration Statements required to be filed pursuant to
Section 2(a) hereof to become effective as soon as practicable, but in no event
later than the one hundredth (100th) day following (1) the Closing Date (in the
case of the Registration Statement required to be filed pursuant to Section
2(a)(i) hereof) or (2) the Stockholder Approval Date (in the case of the
Registration Statement required to be filed pursuant to Section 2(a)(ii)
hereof). At the time of effectiveness, the Company shall ensure that such
Registration Statement covers all of the Registrable Securities issuable at such
time pursuant to the Preferred Stock and/or the Warrants required to be included
thereon (including, if necessary, by filing an amendment prior to the effective
date of the Registration Statement to increase the number of shares covered
thereby). If (i) (A) the Registration Statement required to be filed by the
Company pursuant to Section 2(a)(i) hereof is not filed with the SEC prior to
the First Filing Date or declared effective by the SEC on or before the one
hundred thirtieth (130th) day after the Closing Date (the "FIRST REGISTRATION
DEADLINE"), or (B) the Company has obtained the Authorized Stock Approval and
the Registration Statement required to be filed by the Company pursuant to
Section 2(a)(ii) hereof is not filed with the SEC prior to the Second Filing
Date or declared effective by the SEC on or before the one hundred thirtieth
(130th) day after the Stockholder Approval Date (the "SECOND REGISTRATION
DEADLINE" and, together with the First Registration Deadline, the "REGISTRATION
DEADLINES"), or (C) any Registration Statement required to



                                       3


be filed by the Company pursuant to Section 4(b) hereof is not declared
effective by the SEC within sixty (60) days after the applicable Registration
Trigger Date (as defined in Section 4(b) hereof), or (ii) if, after any such
Registration Statement has been declared effective by the SEC, sales of any of
the Registrable Securities required to be covered by such Registration Statement
(including any Registrable Securities required to be registered pursuant to
Section 4(b) hereof) cannot be made pursuant to such Registration Statement (by
reason of a stop order or the Company's failure to update the Registration
Statement or any other reason outside the control of the Investors), except as
otherwise provided herein or (iii) the Common Stock is not listed or included
for quotation on the Nasdaq National Market ("NNM"), the Nasdaq SmallCap Market
("SMALLCAP"), the New York Stock Exchange (the "NYSE") or the American Stock
Exchange (the "AMEX") at any time after the applicable Registration Deadline
hereunder, then the Company will make payments to the Investors in such amounts
and at such times as shall be determined pursuant to this Section 2(b) as
partial relief for the damages to the Investors by reason of any such delay in
or reduction of their ability to sell the Registrable Securities (which remedy
shall not be exclusive of any other remedies available at law or in equity). The
Company shall pay to each Investor an amount equal to the product of (i) the
aggregate purchase price of the Preferred Stock and/or Warrants acquired
pursuant to the Securities Purchase Agreement or the Exchange Agreement or upon
conversion of the Notes acquired pursuant to the Exchange Agreement, as
applicable, and held by such Investor (including, without limitation, Preferred
Stock that has been converted into Conversion Shares and Warrants that have been
exercised for Warrant Shares then held by such Investor) (the "AGGREGATE SHARE
PRICE"), multiplied by (ii) two hundredths (.02), for each thirty (30) day
period (or portion thereof) (A) after the applicable Filing Date and prior to
the date the Registration Statement is filed with the SEC pursuant to Section
2(a), (B) after the applicable Registration Deadline and prior to the date the
Registration Statement filed pursuant to Section 2(a) is declared effective by
the SEC, (C) after the sixtieth (60th) day following a Registration Trigger Date
(as defined in Section 4(b)) and prior to the date the Registration Statement
filed pursuant to Section 4(b) hereof is declared effective by the SEC, and (D)
during which sales of any Registrable Securities cannot be made pursuant to any
such Registration Statement after the Registration Statement has been declared
effective or the Common Stock is not listed or included for quotation on the
NNM, SmallCap, NYSE or AMEX; provided, however, that there shall be excluded
from each such period any delays which are solely attributable to changes (other
than corrections of Company mistakes with respect to information previously
provided by the Investors) required by the Investors in the Registration
Statement with respect to information relating to the Investors, including,
without limitation, changes to the plan of distribution. Notwithstanding the
foregoing, in no event shall the Company be required to pay amounts with respect
to (x) both (A) and (B), and (y) both (C) and (D) above for the same period of
time. (For example, if the Registration Statement is not effective by the
applicable Registration Deadline, the Company would pay $20,000 for each thirty
(30) day period thereafter with respect to each $1,000,000 of Aggregate Share
Price until the Registration Statement becomes effective.) Such amounts shall be
paid in cash. Payments of cash pursuant hereto shall be made within five (5)
days after the end of each period that gives rise to such obligation, provided
that, if any such period extends for more than thirty (30) days, interim
payments shall be made for each such thirty (30) day period. The requirement to
make payments pursuant to this section can be waived as to all Investors
entitled to a given payment by the written consent of such Investors holding a
majority of the Registrable Securities held by all such Investors.



                                       4


               (c) Piggy-Back Registrations. If at any time prior to the
expiration of the Registration Period (as hereinafter defined) the Company shall
file with the SEC a Registration Statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities (other than on Form S-4 or Form S-8 or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans), the Company shall
send to each Investor written notice of such determination and, if within
fifteen (15) days after the date of such notice, such Investor shall so request
in writing, the Company shall include in such Registration Statement all or any
part of the Registrable Securities such Investor requests to be registered,
except that if, in connection with any underwritten public offering, the
managing underwriter(s) thereof shall impose a limitation on the number of
shares of Common Stock which may be included in the Registration Statement
because, in such underwriter(s)' judgment, marketing or other factors dictate
such limitation is necessary to facilitate public distribution, then the Company
shall be obligated to include in such Registration Statement only such limited
portion of the Registrable Securities with respect to which such Investor has
requested inclusion hereunder as the underwriter shall permit. Any exclusion of
Registrable Securities shall be made pro rata among the Investors seeking to
include Registrable Securities, in proportion to the number of Registrable
Securities sought to be included by such Investors; provided, however, that the
Company shall not exclude any Registrable Securities unless the Company has
first excluded all outstanding securities, the holders of which are not
contractually entitled to inclusion of such securities in such Registration
Statement or are not contractually entitled to pro rata inclusion with the
Registrable Securities; and provided, further, however, that, after giving
effect to the immediately preceding proviso, any exclusion of Registrable
Securities shall be made pro rata with holders of other securities having the
contractual right to include such securities in the Registration Statement other
than holders of securities contractually entitled to inclusion of their
securities in such Registration Statement by reason of demand registration
rights. Notwithstanding the foregoing, no such reduction shall reduce the amount
of Registrable Securities included in the registration below twenty-five (25%)
of the total amount of securities included in such registration. No right to
registration of Registrable Securities under this Section 2(c) shall be
construed to limit any registration required under Section 2(a) hereof. If an
offering in connection with which an Investor is entitled to registration under
this Section 2(c) is an underwritten offering, then each Investor whose
Registrable Securities are included in such Registration Statement shall, unless
otherwise agreed by the Company, offer and sell such Registrable Securities in
an underwritten offering using the same underwriter or underwriters and, subject
to the provisions of this Agreement, on the same terms and conditions as other
shares of Common Stock included in such underwritten offering.

               (d) Eligibility for Form S-3. The Company represents and warrants
that it meets the requirements for the use of Form S-3 for registration of the
sale by the Initial Investors and any other Investor of the Registrable
Securities and the Company shall file all reports required to be filed by the
Company with the SEC in a timely manner so as to maintain such eligibility for
the use of Form S-3.

               (e) Registrable Securities Not Permitted to be Included on
Registration Statement. Notwithstanding any other provision in this Agreement to
the contrary, in the event that the Company is prohibited by the Securities Act
and the Rules promulgated thereunder (including as a result of the
interpretation thereof by the SEC) from including any Registrable Securities on
a



                                       5


Registration Statement that would otherwise be required to be included on such
Registration Statement by operation of this Agreement, after having used its
best efforts to have such Registrable Securities so included, then the Company
shall be permitted to exclude such Registrable Securities (but only such
Registrable Securities) from such Registration Statement, and such exclusion
shall not alone constitute a breach of this Agreement; provided, however, that
the Company shall be required, pursuant to Section 4(b) below, to register such
Registrable Securities (either by the amendment of the existing applicable
Registration Statement or the filing of a new Registration Statement) upon such
prohibition no longer being applicable to such Registrable Securities.

        3. DELAY PERIODS; SUSPENSION OF SALES.

               (a) Delay Period. If, at any time prior to the expiration of the
Registration Period (as defined below), in the good faith reasonable judgment of
the Company's Board of Directors, the disposition of Registrable Securities
would require the premature disclosure of material non-public information which
may reasonably be expected to have an adverse effect on the Company, then the
Company shall not be required to maintain the effectiveness of or amend or
supplement the Registration Statement for a period (a "DISCLOSURE DELAY PERIOD")
expiring upon the earlier to occur of (i) the date on which such material
information is disclosed to the public or ceases to be material or (ii) subject
to Section 3(b) hereof, up to ten (10) trading days after the date on which the
Company provides a notice to the Investors under Section 4(e) hereof stating
that the failure to disclose such non-public information causes the prospectus
included in the Registration Statement, as then in effect, to include an untrue
statement of a material fact or to omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading (each,
a "DISCLOSURE DELAY PERIOD NOTICE"). For the avoidance of doubt, in no event
shall a Disclosure Delay Period exceed ten (10) trading days.

               (b) The Company will give prompt written notice, in the manner
prescribed by Section 12 hereof, to the Investors of each Disclosure Delay
Period. If practicable, such notice shall estimate the duration of such
Disclosure Delay Period. Each Investor agrees that, upon receipt of a Disclosure
Delay Period Notice prior to the Investor's disposition of all such Registrable
Securities, the Investor will forthwith discontinue the disposition of such
Registrable Securities pursuant to the Registration Statement, and will not
deliver any prospectus forming a part thereof in connection with any sale of
such Registrable Securities until the expiration of such Disclosure Delay
Period. In addition, the provisions of Section 2(b) hereof shall not apply to
the Disclosure Delay Periods. Notwithstanding anything in this Section 3 to the
contrary, the Company shall not deliver more than two (2) Disclosure Delay
Period Notices in any one (1) year period and there shall not be more than an
aggregate of sixty (60) calendar days in any twelve (12) month period during
which the Company is in a Disclosure Delay Period nor more than an aggregate of
thirty (30) calendar days in any ninety (90) calendar day period during which
the Company is in a Disclosure Delay Period.

        4. OBLIGATIONS OF THE COMPANY.

        In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:



                                       6


               (a) The Company shall respond promptly to any and all comments
made by the staff of the SEC to the Registration Statements required by Section
2(a), and shall submit to the SEC before the close of business on or before the
second business day immediately following the business day on which the Company
learns (either by telephone or in writing) that no review of such Registration
Statements will be made by the SEC or that the staff of the SEC has no further
comments on such Registration Statements, as the case may be, a request for
acceleration of the effectiveness of such Registration Statements to a time and
date as soon as practicable. The Company shall keep each such Registration
Statement effective pursuant to Rule 415 at all times until such date as is the
earlier of (i) the date on which all of the Registrable Securities covered
thereby have been sold and (ii) the date on which all of the Registrable
Securities covered thereby may be immediately sold to the public without
registration or restriction pursuant to Rule 144(k) under the Securities Act or
any successor provision (the "REGISTRATION PERIOD"), which Registration
Statements (including any amendments or supplements thereto and prospectuses
contained therein and all documents incorporated by reference therein) (i) shall
comply in all material respects with the requirements of the Securities Act and
the rules and regulations of the SEC promulgated thereunder and (ii) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements therein not
misleading. The financial statements of the Company included in the Registration
Statements or incorporated by reference therein will comply as to form in all
material respects with the applicable accounting requirements and the published
rules and regulations of the SEC applicable with respect thereto. Such financial
statements will be prepared in accordance with U.S. generally accepted
accounting principles, consistently applied, during the periods involved (except
(i) as may be otherwise indicated in such financial statements or the notes
thereto, or (ii) in the case of unaudited interim statements, to the extent they
may not include footnotes or may be condensed on summary statements and fairly
present in all material respects the consolidated financial position of the
Company and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to immaterial year-end
adjustments)).

               (b) The Company shall use its best efforts, to prepare and file
with the SEC such amendments (including post-effective amendments) and
supplements to the Registration Statements and the prospectus used in connection
with the Registration Statements as may be necessary to keep the Registration
Statements effective at all times during the applicable Registration Period,
and, during such period, comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities of the Company covered
by the Registration Statements until such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in the Registration
Statements. In the event the number of shares available under any Registration
Statement filed pursuant to this Agreement is, for any three (3) consecutive
trading days (the last of such three (3) trading days being the "REGISTRATION
TRIGGER DATE"), insufficient to cover one hundred percent (100%) of the
Registrable Securities issued or issuable upon conversion (without giving effect
to any limitations on conversion contained in Article IV.D of the Certificate of
Designation) of the Preferred Stock and exercise of the Warrants (without giving
effect to any limitations on exercise contained in Section 7(g) of the Warrants)
and required to be included thereon, the Company shall amend the applicable
Registration Statement, or file a new Registration Statement (on the short form
available therefor, if applicable),



                                       7


or both, so as to cover one hundred percent (100%) of the Registrable Securities
issued or issuable (without giving effect to any limitations on conversion or
exercise contained in the Certificate of Designation or the Warrants) as of the
Registration Trigger Date, in each case, as soon as practicable, but in any
event within fifteen (15) days after the Registration Trigger Date (based on the
market price then in effect of the Common Stock and other relevant factors on
which the Company reasonably elects to rely). The Company shall use its best
efforts to cause such amendment(s) and/or new Registration Statement to become
effective as soon as practicable following the filing thereof. In the event the
Company fails to obtain the effectiveness of any such Registration Statement
within sixty (60) days after a Registration Trigger Date, each Investor shall
thereafter have the option, exercisable in whole or in part at any time and from
time to time by delivery of a written notice to the Company (a "MANDATORY
REDEMPTION NOTICE"), to require the Company to purchase for cash, at an amount
per share equal to the Redemption Amount (as defined in Article VIII.B of the
Certificate of Designation), a portion of the Investor's Preferred Stock such
that the total number of Registrable Securities included on the Registration
Statements for resale by such Investor exceeds 100% of the Registrable
Securities issued or issuable upon conversion (without giving effect to any
limitations on conversion contained in Article IV.D of the Certificate of
Designation) of such Investor's Preferred Stock and exercise of such Investor's
Warrants. If the Corporation fails to redeem any of such shares within five (5)
business days after its receipt of a Mandatory Redemption Notice, then such
Investor shall be entitled to the remedies provided in Article VIII.D of the
Certificate of Designation.

               (c) The Company shall furnish to each Investor whose Registrable
Securities are included in a Registration Statement and its legal counsel (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one copy of the Registration Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto, and, in the case of one of the Registration Statements
referred to in Section 2(a), each letter written by or on behalf of the Company
to the SEC or the staff of the SEC (including, without limitation, any request
to accelerate the effectiveness of the Registration Statement or amendment
thereto), and each item of correspondence from the SEC or the staff of the SEC,
in each case relating to the Registration Statement (other than any portion, if
any, thereof which contains information for which the Company has sought
confidential treatment), (ii) by the next business day after the date of
effectiveness of the Registration Statement or any amendment thereto, a notice
stating that the Registration Statement or amendment has been declared
effective, and (iii) such number of copies of a prospectus, including a
preliminary prospectus, and all amendments and supplements thereto and such
other documents as such Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor.

               (d) The Company shall use its best efforts to (i) register and
qualify the Registrable Securities covered by the Registration Statements under
such other securities or "blue sky" laws of such jurisdictions in the United
States as each Investor who holds Registrable Securities being offered
reasonably requests, (ii) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the applicable Registration Period, (iii) take such
other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the applicable Registration Period,
and (iv) take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to



                                       8


(a) qualify to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 4(d), (b) subject itself to general
taxation in any such jurisdiction, (c) file a general consent to service of
process in any such jurisdiction, (d) provide any undertakings that cause the
Company undue expense or burden, or (e) make any change in its charter or
bylaws, which in each case the Board of Directors of the Company determines to
be contrary to the best interests of the Company and its stockholders.

               (e) As promptly as practicable after becoming aware of such
event, the Company shall notify each Investor by telephone and facsimile of the
happening of any event, of which the Company has knowledge, as a result of which
the prospectus included in a Registration Statement, as then in effect, includes
an untrue statement of a material fact or omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and, use its best efforts promptly to prepare a supplement or
amendment to the Registration Statement to correct such untrue statement or
omission, and deliver such number of copies of such supplement or amendment to
each Investor as such Investor may reasonably request.

               (f) The Company shall use its best efforts (i) to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement (other than as permitted herein), and, if such an order
is issued, to obtain the withdrawal of such order at the earliest practicable
moment (including in each case by amending or supplementing such Registration
Statement) and (ii) to notify each Investor who holds Registrable Securities
being sold (or, in the event of an underwritten offering, the managing
underwriters) of the issuance of such order and the resolution thereof (and if
such Registration Statement is supplemented or amended, deliver such number of
copies of such supplement or amendment to each Investor as such Investor may
reasonably request).

               (g) The Company shall permit a single firm of counsel designated
by the Initial Investors to review the Registration Statements and all
amendments and supplements thereto a reasonable period of time prior to its
filing with the SEC, and not file any document in a form to which such counsel
reasonably objects.

               (h) The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the Securities Act) covering a
twelve-month period beginning not later than the first day of the Company's
fiscal quarter next following the effective date of the Registration Statement
required to be filed pursuant to Section 2(a)(i), which compliance will be met
through the Company's filing, on an appropriate form, the appropriate report of
the Company as required by the Securities Exchange Act of 1934, as amended.

               (i) The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement,



                                       9


or (v) such Investor consents to the form and content of any such disclosure.
The Company agrees that it shall, upon learning that disclosure of such
information concerning an Investor is sought in or by a court or governmental
body of competent jurisdiction or through other means, give prompt notice to
such Investor prior to making such disclosure, and allow the Investor, at its
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.

               (j) The Company shall use its best efforts to promptly either (i)
cause all of the Registrable Securities covered by any Registration Statement to
be listed on the NYSE or the AMEX or another national securities exchange and on
each additional national securities exchange on which securities of the same
class or series issued by the Company are then listed, if any, if the listing of
such Registrable Securities is then permitted under the rules of such exchange,
or (ii) secure the designation and quotation of all of the Registrable
Securities covered by any Registration Statement on the NNM or SmallCap and,
without limiting the generality of the foregoing, to arrange for or maintain at
least two market makers to register with the National Association of Securities
Dealers, Inc. ("NASD") as such with respect to such Registrable Securities.

               (k) The Company shall provide a transfer agent and registrar,
which may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.

               (l) The Company shall cooperate with the Investors who hold
Registrable Securities being offered to facilitate the timely preparation and
delivery of certificates (not bearing any restrictive legends to the extent
permitted by the Securities Purchase Agreement or Exchange Agreement, as
applicable) representing Registrable Securities to be offered pursuant to the
Registration Statements and enable such certificates to be in such denominations
or amounts, as the case may be, as the Investors may reasonably request and
registered in such names as the Investors may request.

               (m) At the request of any Investor, the Company shall prepare and
file with the SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and the prospectus used in connection
with such Registration Statement as may be necessary in order to change the plan
of distribution set forth in such Registration Statement.

               (n) The Company shall comply with all applicable laws related to
a Registration Statement and offering and sale of securities and all applicable
rules and regulations of governmental authorities in connection therewith
(including, without limitation, the Securities Act and the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated by the SEC).

               (o) From and after the date of this Agreement, the Company shall
not, and shall not agree to, allow the holders of any securities of the Company
to include any of their securities which are not Registrable Securities in a
Registration Statement under Section 2(a) hereof or any amendment or supplement
thereto under Section 4(b) hereof without the consent of the holders of a
majority in interest of the Registrable Securities (other than as set forth in
the Schedule of Exceptions to the Securities Purchase Agreement and the Exchange
Agreement).



                                       10


        5. OBLIGATIONS OF THE INVESTORS. In connection with the registration of
the Registrable Securities, the Investors shall have the following obligations:

               (a) It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least five
trading days prior to the first anticipated filing date of a Registration
Statement, the Company shall notify each Investor of the information the Company
requires from each such Investor.

               (b) Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statements hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from such Registration Statements.

               (c) Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Sections 4(e)
or 3(a), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Sections 4(e) or 3(a) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
Notwithstanding anything to the contrary, subject to compliance with applicable
laws, the Company shall cause the transfer agent for the Registrable Securities
to deliver unlegended shares of Common Stock to a transferee of an Investor in
accordance with the terms of the Certificate of Designation and Warrants in
connection with any sale of Registrable Securities with respect to which such
Investor has entered into a contract for sale prior to receipt of such notice
and for which such Investor has not yet settled.



                                       11


        6. EXPENSES OF REGISTRATION. All reasonable expenses incurred by the
Company or the Investors (but only for reasonable attorney's fees of one counsel
for the Investors) in connection with registrations, filings or qualifications
pursuant to Sections 2 and 4 above, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, the
fees and disbursements of counsel for the Company, the fees and disbursements of
one counsel selected by the Investors, and the underwriting discounts and
commissions, shall be borne by the Company. In addition, the Company shall pay
all of the Investors' reasonable costs and expenses (including legal fees)
incurred in connection with the enforcement of the rights of the Investors
hereunder.

        7. INDEMNIFICATION. In the event any Registrable Securities are included
in a Registration Statement under this Agreement:

               (a) To the extent permitted by law, the Company will indemnify,
hold harmless and defend (i) each Investor who holds such Registrable
Securities, and (ii) the directors, officers, partners, members, employees and
agents of such Investor and each person who controls any Investor within the
meaning of Section 15 of the Securities Act or Section 20 of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), if any, (each, an
"INDEMNIFIED PERSON"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, "CLAIMS") to which any of them may become
subject insofar as such Claims arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or the omission or alleged omission to state therein a material fact
required to be stated or necessary to make the statements therein not
misleading, (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus if used prior to the effective date
of such Registration Statement, or contained in the final prospectus (as amended
or supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading, or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any other law, including, without limitation, any state
securities law, or any rule or regulation thereunder relating to the offer or
sale of the Registrable Securities (the matters in the foregoing clauses (i)
through (iii) being, collectively, "VIOLATIONS"). Subject to the restrictions
set forth in Section 7(c) with respect to the number of legal counsel, the
Company shall reimburse the Investors and each other Indemnified Person,
promptly as such expenses are incurred and are due and payable, for any
reasonable legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 7(a): (i) shall not apply to a Claim arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by such Indemnified Person
expressly for use in the Registration Statement or any such amendment thereof or
supplement thereto; (ii) shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of the
Company, which consent shall not be unreasonably withheld; and (iii) with
respect to any preliminary prospectus, shall not inure to the benefit of any
Indemnified Person if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or



                                       12


supplemented, if such corrected prospectus was timely made available by the
Company pursuant to Section 4(c) hereof, and the Indemnified Person was promptly
advised in writing not to use the incorrect prospectus prior to the use giving
rise to a Violation and such Indemnified Person, notwithstanding such advice,
used it. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall survive
the transfer of the Registrable Securities by the Investors pursuant to Section
10 hereof.

               (b) In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees severally and not jointly
to indemnify, hold harmless and defend, to the same extent and in the same
manner set forth in Section 7(a), the Company, each of its directors, each of
its officers who signs the Registration Statement, its employees, agents and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act, and any other
stockholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such stockholder within the
meaning of the Securities Act or the Exchange Act (collectively and together
with an Indemnified Person, an "INDEMNIFIED PARTY"), against any Claim to which
any of them may become subject, under the Securities Act, the Exchange Act or
otherwise, insofar as such Claim arises out of or is based upon any Violation,
in each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished to the
Company by such Investor expressly for use in connection with such Registration
Statement; and subject to Section 7(c) such Investor will reimburse any legal or
other expenses (promptly as such expenses are incurred and are due and payable)
reasonably incurred by them in connection with investigating or defending any
such Claim; provided, however, that the indemnity agreement contained in this
Section 7(b) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of such Investor, which
consent shall not be unreasonably withheld; provided, further, however, that the
Investor shall be liable under this Agreement (including this Section 7(b) and
Section 8) for only that amount as does not exceed the net proceeds actually
received by such Investor as a result of the sale of Registrable Securities
pursuant to such Registration Statement. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
Indemnified Party and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 10 hereof. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 7(b) with respect to any preliminary prospectus shall not inure to the
benefit of any Indemnified Party if the untrue statement or omission of material
fact contained in the preliminary prospectus was corrected on a timely basis in
the prospectus, as then amended or supplemented.

               (c) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 7 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to made against any
indemnifying party under this Section 7, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that such indemnifying party shall not be
entitled to assume such defense and an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and expenses to be
paid



                                       13


by the indemnifying party, if, in the reasonable opinion of counsel retained by
the indemnifying party, the representation by such counsel of the Indemnified
Person or Indemnified Party and the indemnifying party would be inappropriate
due to actual or potential conflicts of interest between such Indemnified Person
or Indemnified Party and any other party represented by such counsel in such
proceeding or the actual or potential defendants in, or targets of, any such
action include both the Indemnified Person or the Indemnified Party and the
indemnifying party and any such Indemnified Person or Indemnified Party
reasonably determines that there may be legal defenses available to such
Indemnified Person or Indemnified Party which are in conflict with those
available to such indemnifying party. The indemnifying party shall pay for only
one separate legal counsel for the Indemnified Persons or the Indemnified
Parties, as applicable, and such legal counsel shall be selected by Investors
holding a majority-in-interest of the Registrable Securities included in the
Registration Statement to which the Claim relates (with the approval of the
Initial Investors if it holds Registrable Securities included in such
Registration Statement), if the Investors are entitled to indemnification
hereunder, or by the Company, if the Company is entitled to indemnification
hereunder, as applicable. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 7, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Section 7 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.

        8. CONTRIBUTION. To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 7 to the fullest extent permitted by law as is appropriate
to reflect the relative fault of the indemnifying party, on the one hand, and
the Indemnified Person or Indemnified Party, as the case may be, on the other
hand, with respect to the Violation giving rise to the applicable Claim;
provided, however, that (i) no contribution shall be made under circumstances
where the maker would not have been liable for indemnification under the fault
standards set forth in Section 7, (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 12(f) of the Securities Act)
shall be entitled to contribution from any seller of Registrable Securities who
was not guilty of such fraudulent misrepresentation, and (iii) contribution
(together with any indemnification or other obligations under this Agreement) by
any seller of Registrable Securities shall be limited in amount to the net
amount of proceeds received by such seller from the sale of such Registrable
Securities.

        9. REPORTS UNDER THE EXCHANGE ACT. With a view to making available to
the Investors the benefits of Rule 144 promulgated under the Securities Act or
any other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
("RULE 144"), the Company agrees to:

                      (i) file with the SEC in a timely manner and make and keep
available all reports and other documents required of the Company under the
Securities Act and the Exchange Act so long as the Company remains subject to
such requirements (it being understood that nothing herein shall limit the
Company's obligations under Section 4(c) of the Securities Purchase Agreement



                                       14


or the Exchange Agreement, as applicable) and the filing and availability of
such reports and other documents is required for the applicable provisions of
Rule 144; and

                      (ii) furnish to each Investor so long as such Investor
owns shares of Preferred Stock, Warrants or Registrable Securities, promptly
upon request, (i) a written statement by the Company that it has complied with
the reporting requirements of Rule 144, the Securities Act and the Exchange Act,
(ii) a copy of the most recent annual or quarterly report of the Company and
such other reports and documents so filed by the Company, and (iii) such other
information as may be reasonably requested to permit the Investors to sell such
securities under Rule 144 without registration.

        10. ASSIGNMENT OF REGISTRATION RIGHTS. The rights of the Investors
hereunder, including the right to have the Company register Registrable
Securities pursuant to this Agreement, shall be automatically assignable by each
Investor to any transferee of all or any portion of the shares of Preferred
Stock, the Warrants or the Registrable Securities if: (i) the Investor agrees in
writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company after such assignment, (ii) the
Company is furnished with written notice of (a) the name and address of such
transferee or assignee, and (b) the securities with respect to which such
registration rights are being transferred or assigned, (iii) following such
transfer or assignment, the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act and applicable
state securities laws, (iv) the transferee or assignee agrees in writing for the
benefit of the Company to be bound by all of the provisions contained herein,
and (v) such transfer shall have been made in accordance with the applicable
requirements of the Securities Purchase Agreement, the Exchange Agreement, the
Certificate of Designation for the Preferred Stock, the Warrants and the Notes,
as applicable. In addition, and notwithstanding anything to the contrary
contained in this Agreement, the Securities Purchase Agreement, the Exchange
Agreement, the Certificate of Designation, the Warrants or the Notes, the
Securities (as defined in the Securities Purchase Agreement and the Exchange
Agreement) may be pledged, and all rights of the Investors under this Agreement
or any other agreement or document related to the transactions contemplated
hereby may be assigned, without further consent of the Company, to a bona fide
pledgee in connection with an Investor's margin or brokerage account.

        11. AMENDMENT OF REGISTRATION RIGHTS. Provisions of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with
written consent of the Company, and Investors who hold a majority of the
Registrable Securities or, in the case of a waiver, with the written consent of
the party charged with the enforcement of any such provision; provided, however,
that no consideration shall be paid to an Investor by the Company in connection
with an amendment hereto unless each Investor similarly affected by such
amendment receives a pro-rata amount of consideration from the Company. Any
amendment or waiver effected in accordance with this Section 11 shall be binding
upon each Investor and the Company.

        12. MISCELLANEOUS.

               (a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives



                                       15


conflicting instructions, notices or elections from two or more persons or
entities with respect to the same Registrable Securities, the Company shall act
upon the basis of instructions, notice or election received from the registered
owner of such Registrable Securities.

               (b) Any notices required or permitted to be given under the terms
of this Agreement shall be sent by certified or registered mail (return receipt
requested), or by a nationally recognized overnight delivery service, or
delivered personally or by courier or by confirmed telecopy, and shall be
effective five (5) days after being placed in the mail, if mailed certified or
registered mailed, or one (1) day after being delivered to the nationally
recognized overnight delivery service, if delivered in such manner, or upon
receipt or refusal of receipt, if delivered personally or by courier or
confirmed telecopy, in each case addressed to a party. The addresses for such
communications shall be:

                      If to the Company:

                      ViroLogic, Inc.
                      270 East Grand Avenue
                      South San Francisco, California 94080
                      Telephone:  (650) 635-1100
                      Attn:  Chief Executive Officer

                      with a copy simultaneously transmitted by like means to:

                      Cooley Godward LLP
                      4401 Eastgate Mall
                      San Diego, California 92121
                      Telephone:  (858) 550-6000

and if to any Investor, at such address as such Investor shall have provided in
writing to the Company, or at such other address as each such party furnishes by
notice given in accordance with this Section 12(b).

               (c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.

               (d) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts made
and to be performed in the State of Delaware. The Company irrevocably consents
to the jurisdiction of the United States federal courts and the state courts
located in the State of Delaware in any suit or proceeding based on or arising
under this Agreement and irrevocably agrees that all claims in respect of such
suit or proceeding may be determined in such courts. The Company irrevocably
waives the defense of an inconvenient forum to the maintenance of such suit or
proceeding. The Company further agrees that service of process upon the Company,
mailed by first class mail shall be deemed in every respect effective service of
process upon the Company in any such suit or proceeding. Nothing herein shall
affect the Investors' right to serve process in any other manner permitted by
law. The Company agrees that a



                                       16


final non-appealable judgment in any such suit or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on such judgment or in any
other lawful manner.

               (e) This Agreement, the Securities Purchase Agreement (including
all schedules and exhibits thereto), the Exchange Agreement (including all
schedules and exhibits thereto), the Warrants, the Notes and the Security
Documents (as defined in the Exchange Agreement) constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and thereof.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein and therein. This Agreement, the
Securities Purchase Agreement, the Exchange Agreement, the Warrants, the Notes
and the Security Documents supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and thereof.

               (f) Subject to the requirements of Section 10 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.

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

               (h) This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.

               (i) Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.

               (j) All consents, approvals and other determinations to be made
by the Investors pursuant to this Agreement shall be made by the Investors
holding a majority in interest of the Registrable Securities (determined as if
all shares of Preferred Stock and Warrants then outstanding had been converted
into or exercised for Registrable Securities) held by all Investors.

               (k) The initial number of Registrable Securities included on any
Registration Statement and each increase to the number of Registrable Securities
included thereon shall be allocated pro rata among the Investors based on the
number of Registrable Securities held by each Investor at the time of such
establishment or increase, as the case may be, and required to be included on
such Registration Statement. In the event an Investor shall sell or otherwise
transfer any of such holder's Registrable Securities, each transferee shall be
allocated a pro rata portion of the number of Registrable Securities included on
a Registration Statement for such transferor. Any shares of Common Stock
included on a Registration Statement and which remain allocated to any person or
entity which does not hold any Registrable Securities shall be allocated to the
remaining Investors, pro rata based on the number of shares of Registrable
Securities then held by such Investors. For the avoidance of doubt, the number
of Registrable Securities held by any Investor



                                       17


shall be determined as if all shares of Preferred Stock and Warrants then
outstanding were converted into or exercised for Registrable Securities.

               (l) Each party to this Agreement has participated in the
negotiation and drafting of this Agreement. As such, the language used herein
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be applied against any
party to this Agreement.

               (m) For purposes of this Agreement, the term "business day" means
any day other than a Saturday or Sunday or a day on which banking institutions
in the State of New York are authorized or obligated by law, regulation or
executive order to close, and the term "trading day" means any day on which NNM,
or if the Common Stock is not then traded on NNM the principal securities
exchange or trading market where the Common Stock is then listed or traded, is
open for trading.



                                       18


        IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.


VIROLOGIC, INC.

By: /s/ WILLIAM D. YOUNG
   --------------------------------
Name: William D. Young
     ------------------------------
Its: Chairman & CEO
    -------------------------------

INITIAL INVESTORS:

[PURCHASER]


By:
   --------------------------------
   Name:
   Title:



                                       19

EX-99.1

                                                                    EXHIBIT 99.1


[VIROLOGIC LOGO]

FOR IMMEDIATE RELEASE                                  Contact:
NOVEMBER 14, 2002                                      Karen Wilson, CFO
                                                       (650) 624-4164
                                                       kwilson@virologic.com


               VIROLOGIC ANNOUNCES $7.0 MILLION PRIVATE PLACEMENT


SOUTH SAN FRANCISCO, Calif., November 14, 2002 -- ViroLogic, Inc. (Nasdaq: VLGC)
today announced it has entered into an agreement to sell newly issued shares of
8% convertible preferred stock to a group of investors comprised of existing and
new stockholders.

The Company expects to raise $7 million from the private placement, which is
subject to closing conditions and expected to close by November 19, 2002. These
proceeds are in addition to a 5% equity investment in ViroLogic made by Pfizer
Inc., also announced today.*

ViroLogic expects to use the net proceeds from this financing to support and
enhance ongoing commercial activities and for general administrative expenses,
capital expenditures and working capital.

The preferred stock will be convertible into common stock at a premium to the
current market price.  The purchasers will also receive warrants to purchase a
total of 4.4 million shares of common stock, at an exercise price that is based
on the five day trading average. In connection with the closing of the private
placement, the Company's Series B Preferred Stock is expected to be exchanged
for short-term convertible debt which, subject to the approval of our
stockholders, would automatically convert into the new preferred stock.

*  Pfizer's ownership percentage is calculated on an as-converted to common
stock basis, assuming conversion of all the outstanding preferred stock.

ABOUT VIROLOGIC

ViroLogic is a biotechnology company advancing individualized medicine by
discovering, developing and marketing innovative products to guide and improve
treatment of serious viral diseases such as AIDS and hepatitis.  The Company's
products are designed to help doctors optimize treatment regimens for their
patients that lead to better outcomes and reduced costs.  The Company's
technology is also being used by numerous biopharmaceutical companies to develop
new and improved antiviral therapeutics and vaccines targeted at emerging
drug-resistant viruses.

The offer and sale of the securities being sold by ViroLogic in the private
placements will not be and has not been registered under the Securities Act of
1933, as amended, and may not be sold by ViroLogic absent registration or an
applicable exemption from registration requirements. However, the Company has
agreed to file a registration statement for the resale of the shares underlying
the preferred stock and the warrants, as well as shares issuable as dividends on
the preferred stock. This news release is not an offer to sell, or a
solicitation of an offer to buy, the securities discussed herein.

This announcement is neither an offer to sell nor a solicitation of an offer to
buy any securities of ViroLogic. Certain statements in this press release are
forward-looking, including statements relating to expected proceeds from
financing activities.  These forward-looking statements are subject to risks and
uncertainties and other factors, which may cause actual results to differ
materially from the anticipated results or other expectations expressed in such
forward-looking statements.  These risks and uncertainties include, but are not
limited to, the risk that the equity investments do not close as expected,
whether ViroLogic's products will achieve market acceptance, the timing of
pharmaceutical company clinical trials, whether payors will authorize
reimbursement for its products, whether the Company will be able to expand its
sales and marketing capabilities, whether the FDA or any other agency will
decide to regulate its products or services, whether the Company encounters
problems or delays in automating its processes, whether it successfully
introduces new products, whether others introduce competitive products, whether
intellectual property underlying its PhenoSense technology is adequate, whether
it is able to build brand loyalty and expand revenues, whether it will be able
to raise sufficient capital and other risks and uncertainties detailed from time
to time in the Company's reports to the Securities and Exchange Commission,
including its Annual Report on Form 10-K for the year ended December 31, 2001.

                                     # # #