Exhibit 10.32

 

COMMON STOCK PURCHASE AGREEMENT

 

Dated as of October 6, 2009

 

by and between

 

ARYX THERAPEUTICS, INC.

 

and

 

COMMERCE COURT SMALL CAP VALUE FUND, LTD.

 

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TABLE OF CONTENTS

 

 

 

Page

 

 

 

ARTICLE I

DEFINITIONS

1

 

 

 

ARTICLE II

PURCHASE AND SALE OF COMMON STOCK

1

Section 2.1.

Purchase and Sale of Stock

1

Section 2.2.

Closing Date; Settlement Dates

2

Section 2.3.

Initial Public Announcements and Required Filings

2

 

 

 

ARTICLE III

FIXED REQUEST TERMS

3

Section 3.1.

Fixed Request Notice

3

Section 3.2.

Fixed Requests

3

Section 3.3.

Share Calculation

5

Section 3.4.

Limitation of Fixed Requests

6

Section 3.5.

Reduction of Commitment

6

Section 3.6.

Below Threshold Price

6

Section 3.7.

Settlement

6

Section 3.8.

Reduction of Pricing Period

7

Section 3.9.

Failure to Deliver Shares

8

Section 3.10.

Certain Limitations

8

 

 

 

ARTICLE IV

REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR

9

Section 4.1.

Organization and Standing of the Investor

9

Section 4.2.

Authorization and Power

9

Section 4.3.

No Conflicts

10

Section 4.4.

Investment Purpose

10

Section 4.5.

Accredited Investor Status

10

Section 4.6.

Reliance on Exemptions

10

Section 4.7.

Information

11

Section 4.8.

No Governmental Review

11

Section 4.9.

No General Solicitation

11

Section 4.10.

Not an Affiliate

11

Section 4.11.

Statutory Underwriter Status

11

Section 4.12.

Resales of Securities

11

 

 

 

ARTICLE V

REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY

12

Section 5.1.

Organization, Good Standing and Power

12

Section 5.2.

Authorization, Enforcement

12

Section 5.3.

Capitalization

12

Section 5.4.

Issuance of Securities

13

Section 5.5.

No Conflicts

13

Section 5.6.

Commission Documents, Financial Statements

14

 

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Section 5.7.

Subsidiaries

16

Section 5.8.

No Material Adverse Effect

16

Section 5.9.

No Undisclosed Liabilities

16

Section 5.10.

No Undisclosed Events or Circumstances

16

Section 5.11.

Indebtedness; Solvency

17

Section 5.12.

Title To Assets

17

Section 5.13.

Actions Pending

17

Section 5.14.

Compliance With Law

18

Section 5.15.

Certain Fees

18

Section 5.16.

Disclosure

18

Section 5.17.

Operation of Business

19

Section 5.18.

Environmental Compliance

20

Section 5.19.

Material Agreements

21

Section 5.20.

Transactions With Affiliates

21

Section 5.21.

Employees

22

Section 5.22.

Use of Proceeds

22

Section 5.23.

Investment Company Act Status

22

Section 5.24.

ERISA

22

Section 5.25.

Taxes

23

Section 5.26.

Insurance

23

Section 5.27.

U.S. Real Property Holding Corporation

23

Section 5.28.

Exemption from Registration; Valid Issuances

23

Section 5.29.

No General Solicitation or Advertising

23

Section 5.30.

No Integrated Offering

24

Section 5.31.

Dilutive Effect

24

Section 5.32.

Manipulation of Price

24

Section 5.33.

Securities Act

24

Section 5.34.

Listing and Maintenance Requirements

25

Section 5.35.

Application of Takeover Protections

25

Section 5.36.

Acknowledgement Regarding Investor’s Acquisition of Securities

25

 

 

 

ARTICLE VI

ADDITIONAL COVENANTS

25

Section 6.1.

Securities Compliance

25

Section 6.2.

Reservation of Common Stock

26

Section 6.3.

Registration and Listing

26

Section 6.4.

Compliance with Laws

26

Section 6.5.

Keeping of Records and Books of Account; Foreign Corrupt Practices Act

27

Section 6.6.

Limitations on Holdings and Issuances

27

Section 6.7.

Other Agreements and Alternate Transactions

27

Section 6.8.

Corporate Existence

29

Section 6.9.

Fundamental Transaction

30

Section 6.10.

Delivery of Registration Statement and Prospectus; Subsequent Changes

30

Section 6.11.

Amendments to the Registration Statement; Prospectus Supplements

31

Section 6.12.

Stop Orders

31

Section 6.13.

Selling Restrictions

32

Section 6.14.

Effective Registration Statement

32

Section 6.15.

Blue Sky

33

 

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Section 6.16.

Non-Public Information

33

Section 6.17.

Broker/Dealer

33

Section 6.18.

Additional Registration Statements

33

Section 6.19.

Disclosure Schedule

33

 

 

 

ARTICLE VII

CONDITIONS TO CLOSING AND CONDITIONS TO THE SALE AND PURCHASE OF THE SHARES

34

Section 7.1.

Conditions Precedent to Closing

34

Section 7.2.

Conditions Precedent to a Fixed Request

35

 

 

 

ARTICLE VIII

TERMINATION

38

Section 8.1.

Termination

38

Section 8.2.

Other Termination

38

Section 8.3.

Effect of Termination

39

 

 

 

ARTICLE IX

INDEMNIFICATION

40

Section 9.1.

Indemnification of Investor

40

Section 9.2.

Indemnification Procedures

41

 

 

 

ARTICLE X

MISCELLANEOUS

42

Section 10.1.

Fees and Expenses

42

Section 10.2.

Specific Enforcement, Consent to Jurisdiction, Waiver of Jury Trial

44

Section 10.3.

Entire Agreement; Amendment

45

Section 10.4.

Notices

45

Section 10.5.

No Waivers

46

Section 10.6.

Headings

46

Section 10.7.

Construction

47

Section 10.8.

Successors and Assigns

47

Section 10.9.

No Third Party Beneficiaries

47

Section 10.10.

Governing Law

47

Section 10.11.

Survival

47

Section 10.12.

Counterparts

47

Section 10.13.

Publicity

48

Section 10.14.

Severability

48

Section 10.15.

Further Assurances

48

 

 

 

Annex I.

Definitions

 

 

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COMMON STOCK PURCHASE AGREEMENT

 

This COMMON STOCK PURCHASE AGREEMENT is made and entered into as of October 6,
2009 (this “Agreement”), by and between Commerce Court Small Cap Value Fund,
Ltd., a business company incorporated under the laws of the British Virgin
Islands (the “Investor”), and ARYx Therapeutics, Inc., a corporation organized
and existing under the laws of the State of Delaware (the “Company”).

 

RECITALS

 

WHEREAS, the parties desire that, upon the terms and subject to the conditions
and limitations set forth herein, the Company may issue and sell to the
Investor, from time to time as provided herein, and the Investor shall purchase
from the Company, up to the lesser of (i) $35,000,000 of newly issued shares of
the Company’s common stock, $0.001 par value (“Common Stock”), and (ii) the
Trading Market Limit; and

 

WHEREAS, such investments will be made in reliance upon the provisions of
Section 4(2) of the Securities Act (“Section 4(2)”) and Regulation D promulgated
by the Commission under the Securities Act (“Regulation D”), and upon such other
exemption from the registration requirements of the Securities Act as may be
available with respect to any or all of the investments in Common Stock to be
made hereunder; and

 

WHEREAS, the parties hereto are concurrently entering into a Registration Rights
Agreement in the form of Exhibit A hereto (the “Registration Rights Agreement”),
pursuant to which the Company shall register the Registrable Securities (as
defined in the Registration Rights Agreement), upon the terms and subject to the
conditions set forth therein; and

 

WHEREAS, in consideration for the Investor’s execution and delivery of this
Agreement, the Company is concurrently causing its transfer agent to issue to
the Investor the Commitment Shares, upon the terms and subject to the conditions
set forth in this Agreement;

 

NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree
as follows:

 

ARTICLE I
DEFINITIONS

 

Capitalized terms used in this agreement shall have the meanings ascribed to
such terms in Annex I hereto, and hereby made a part hereof, or as otherwise set
forth in this agreement.

 

ARTICLE II
PURCHASE AND SALE OF COMMON STOCK

 

Section 2.1.           Purchase and Sale of Stock.  Upon the terms and subject
to the conditions of this Agreement, during the Investment Period, the Company
in its discretion may issue and sell to the Investor, and the Investor shall
purchase from the Company, up to the lesser of (i) $35,000,000 (the “Total
Commitment”) of duly authorized, validly issued, fully paid and

 

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nonassessable shares of Common Stock and (ii) the Trading Market Limit (the
“Aggregate Limit”), by the delivery to the Investor of not more than 24 separate
Fixed Request Notices as provided in Article III hereof.

 

Section 2.2.           Closing Date; Settlement Dates. This Agreement shall
become effective and binding (the “Closing”) upon payment of the Document
Preparation Fee prior to the Closing Date pursuant to Sections 7.1 and 10.1, the
delivery of irrevocable instructions to issue the Commitment Shares to the
Investor or its designees as provided in Sections 7.1 and 10.1, the delivery of
counterpart signature pages of this Agreement and the Registration Rights
Agreement executed by each of the parties hereto and thereto, and the delivery
of all other documents, instruments and writings required to be delivered at the
Closing, in each case as provided in Section 7.1, to the offices of Greenberg
Traurig, LLP, 200 Park Avenue, New York, New York 10166, at 5:00 p.m., New York
City time, on the Closing Date. In consideration of and in express reliance upon
the representations, warranties and covenants contained in, and upon the terms
and subject to the conditions of, this Agreement, during the Investment Period
the Company shall issue and sell to the Investor, and the Investor shall
purchase from the Company, the Shares in respect of each Fixed Request. The
issuance and sale of Shares to the Investor pursuant to any Fixed Request shall
occur on the applicable Settlement Date(s) in accordance with Section 3.7 and
Section 3.8 (as applicable), provided that all of the conditions precedent
thereto set forth in Article VII theretofore shall have been fulfilled on or
prior to each such Settlement Date.

 

Section 2.3.           Initial Public Announcements and Required Filings.  The
Company shall, at or before 8:30 a.m., New York City time, on the first Trading
Day after the Closing Date, issue a press release (the “Press Release”)
reasonably acceptable to the Investor disclosing the execution of this Agreement
and the Registration Rights Agreement by the Company and the Investor and the
issuance of the Commitment Shares to the Investor, and briefly describing the
transactions contemplated thereby. At or before 8:30 a.m., New York City time,
on the second Trading Day following the Closing Date, the Company shall file a
Current Report on Form 8 K describing all the material terms of the transactions
contemplated by the Transaction Documents in the form required by the Exchange
Act and attaching copies of each of this Agreement, the Registration Rights
Agreement and the Press Release as exhibits thereto (including all exhibits
thereto, the “Current Report”). The Company heretofore has provided the Investor
a reasonable opportunity to comment on a draft of such Current Report and has
given due consideration to such comments. From and after the issuance of the
Press Release and the filing of the Current Report, the Company shall have
disclosed all material, nonpublic information delivered to the Investor (or the
Investor’s representatives or agents) by the Company or any of its Subsidiaries,
or any of their respective officers, directors, employees, agents or
representatives (if any) in connection with the transactions contemplated by the
Transaction Documents. The Investor covenants that until such time as the
transactions contemplated by this Agreement are publicly disclosed by the
Company as described in this Section 2.3, the Investor will maintain the
confidentiality of all disclosures made to it in connection with the
transactions contemplated by the Transaction Documents (including the existence
and terms of the transactions), except that the Investor may disclose the terms
of such transactions to its financial, accounting, legal and other advisors. Not
later than 15 calendar days following the Closing Date, the Company shall file a
Form D with respect to the Securities in accordance with Regulation D and shall
provide a copy thereof to the Investor promptly after such filing. The Company
shall prepare and file with the Commission the Registration Statement (including
the Prospectus) covering only the resale

 

2

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by the Investor of the Registrable Securities in accordance with the Securities
Act and the Registration Rights Agreement. Pursuant to Section 6.10, at or
before 8:30 a.m., New York City time, on each Settlement Date, the Company shall
file with the Commission a Prospectus Supplement pursuant to Rule 424(b) under
the Securities Act (whether or not such a prospectus supplement is technically
required by such rule) with respect to the applicable Fixed Request disclosing
the total Fixed Amount Requested, the number of Shares to be issued and sold to
the Investor on such Settlement Date, the total purchase price therefor, the
applicable Discount Price and the net proceeds to be received by the Company
therefrom.

 

ARTICLE III
FIXED REQUEST TERMS

 

Subject to the satisfaction of the conditions set forth in this Agreement, the
parties agree as follows:

 

Section 3.1.           Fixed Request Notice.  From time to time during the
Investment Period, the Company may, in its sole discretion, no later than
9:30 a.m. (New York City time) on the first Trading Day of the Pricing Period,
provide to the Investor a Fixed Request Notice, substantially in the form
attached hereto as Exhibit B (the “Fixed Request Notice”), which Fixed Request
Notice shall become effective at 9:30 a.m. (New York City time) on the first
Trading Day of the Pricing Period specified in the Fixed Request Notice;
provided, however, that if the Company delivers the Fixed Request Notice to the
Investor later than 9:30 a.m. (New York City time) on a Trading Day, then the
first Trading Day of such Pricing Period shall not be the Trading Day on which
the Investor received such Fixed Request Notice, but rather shall be the next
Trading Day (unless a subsequent Trading Day is therein specified). The Fixed
Request Notice shall specify the Fixed Amount Requested (up to the Maximum Fixed
Amount Requested), establish the Threshold Price for such Fixed Request and
designate the first and last Trading Day of the Pricing Period. Upon the terms
and subject to the conditions of this Agreement, the Investor is obligated to
accept each Fixed Request Notice prepared and delivered in accordance with the
provisions of this Agreement.

 

Section 3.2.           Fixed Requests.  From time to time during the Investment
Period, the Company may, in its sole discretion, deliver to the Investor a Fixed
Request Notice for a specified Fixed Amount Requested (up to the Maximum Fixed
Amount Requested), and the applicable discount price (the “Discount Price”)
shall be determined, in accordance with the price and share amount parameters as
set forth in the below pricing grid, and upon the terms and subject to the
conditions of this Agreement, the Investor shall purchase from the Company the
Shares subject to such Fixed Request Notice at the Discount Price; provided,
however, that (i) if an ex-dividend date is established by the Trading Market in
respect of the Common Stock on or between the first Trading Day of the
applicable Pricing Period and the applicable Settlement Date, the Discount Price
shall be reduced by the per share dividend amount and (ii) the Company may not
deliver any single Fixed Request Notice for a Fixed Amount Requested in excess
of the amount in the applicable Fixed Amount Requested column below (the
“Maximum Fixed Amount Requested”).

 

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Threshold Price

 

Fixed Amount Requested

 

Discount Price

 

 

 

 

 

Equal to or greater than $8.00

 

Not to exceed, at the Company’s option, the greater of (i) $4,000,000 and
(ii) the Alternative Fixed Amount Requested

 

95.80% of the VWAP

 

 

 

 

 

Equal to or greater than $7.00 and less than $8.00

 

Not to exceed, at the Company’s option, the greater of (i) $3,500,000 and
(ii) the Alternative Fixed Amount Requested

 

95.60% of the VWAP

 

 

 

 

 

Equal to or greater than $6.00 and less than $7.00

 

Not to exceed, at the Company’s option, the greater of (i) $3,000,000 and
(ii) the Alternative Fixed Amount Requested

 

95.40% of the VWAP

 

 

 

 

 

Equal to or greater than $5.00 and less than $6.00

 

Not to exceed, at the Company’s option, the greater of (i) $2,500,000 and
(ii) the Alternative Fixed Amount Requested

 

95.20% of the VWAP

 

 

 

 

 

Equal to or greater than $4.00 and less than $5.00

 

Not to exceed, at the Company’s option, the greater of (i) $2,000,000 and
(ii) the Alternative Fixed Amount Requested

 

95.00% of the VWAP

 

 

 

 

 

Equal to or greater than $3.00 and less than $4.00

 

Not to exceed, at the Company’s option, the greater of (i) $1,500,000 and
(ii) the Alternative Fixed Amount Requested

 

94.000% of the VWAP

 

 

 

 

 

Equal to or greater than $2.00 and less than $3.00

 

Not to exceed, at the Company’s option, the greater of (i) $1,000,000 and
(ii) the Alternative Fixed Amount Requested

 

93.000% of the VWAP

 

 

 

 

 

Equal to or greater than $1.50 and less than $2.00

 

Not to exceed, at the Company’s option, the greater of (i) $750,000 and (ii) the
Alternative Fixed Amount Requested

 

93.000% of the VWAP

 

Anything to the contrary in this Agreement notwithstanding, at no time shall the
Investor be required to purchase more than the Maximum Fixed Amount Requested in
respect of any Pricing Period (subject in all cases to the provisions of
Section 3.10 and 6.6 of this Agreement).

 

For purposes of this Agreement, “Alternative Fixed Amount Requested” shall mean
a dollar amount equal to the aggregate sum of each quotient (calculated for each
Trading Day during the applicable Pricing Period for which the VWAP equals or
exceeds the Threshold Price) determined pursuant to the following equation
(rounded to the nearest cent):

 

AFAR = A x B x C, where:

 

AFAR = Alternative Fixed Amount Requested,

 

A =         0.25

 

B =          the trading volume of the Common Stock for the applicable Trading
Day during the applicable Pricing Period, as reported by Bloomberg L.P. using
the AQR function (excluding block trades of 25,000 shares or more), and

 

C =          the applicable Discount Price;

 

4

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provided, however, that the Alternative Fixed Amount Requested shall not exceed
the dollar amount cap therefor to be specified by the Company in the applicable
Fixed Request Notice (and shall in all cases be subject to the provisions of
Section 3.10 and 6.6 of this Agreement).

 

The date on which the Company delivers any Fixed Request Notice in accordance
with this Section 3.2 hereinafter shall be referred to as a “Fixed Request
Exercise Date”. The parties hereto hereby acknowledge and agree that the
provisions of this Section 3.2 shall not be amended or waived under any
circumstances.

 

Section 3.3.           Share Calculation.

 

(a)           If, with respect to any Fixed Request Notice, the Company does not
elect the Alternative Fixed Amount Requested in accordance with the provisions
of Section 3.2 hereof, then, with respect to the Trading Days during the
applicable Pricing Period for which the VWAP equals or exceeds the Threshold
Price, the number of Shares to be issued by the Company to the Investor pursuant
to a Fixed Request shall equal the aggregate sum of each quotient (calculated
for each Trading Day during the applicable Pricing Period for which the VWAP
equals or exceeds the Threshold Price) determined pursuant to the following
equation (rounded to the nearest whole Share):

 

N =          (A x B)/C, where:

 

N =          the number of Shares to be issued by the Company to the Investor in
respect of a Trading Day during the applicable Pricing Period for which the VWAP
equals or exceeds the Threshold Price,

 

A =         0.10 (the “Multiplier”),

 

B =          the total Fixed Amount Requested, and

 

C =          the applicable Discount Price.

 

(b)           If, with respect to any Fixed Request Notice, the Company elects
the Alternative Fixed Amount Requested in accordance with the provisions of
Section 3.2 hereof, then, with respect to the Trading Days during the applicable
Pricing Period for which the VWAP equals or exceeds the Threshold Price, the
number of Shares to be issued by the Company to the Investor pursuant to a Fixed
Request shall equal the aggregate sum of each quotient (calculated for each
Trading Day during the applicable Pricing Period for which the VWAP equals or
exceeds the Threshold Price) determined pursuant to the following equation
(rounded to the nearest whole Share):

 

N =          A x B, where:

 

N =          the number of Shares to be issued by the Company to the Investor in
respect of a Trading Day during the applicable Pricing Period for which the VWAP
equals or exceeds the Threshold Price,

 

A =         0.25, and

 

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B =          the trading volume of the Common Stock for the applicable Trading
Day during the applicable Pricing Period, as reported by Bloomberg L.P. using
the AQR function (excluding block trades of 25,000 shares or more).

 

Section 3.4.           Limitation of Fixed Requests.  The Company shall not make
more than one Fixed Request in each Pricing Period.  Not less than five Trading
Days shall elapse between the end of one Pricing Period and the commencement of
any other Pricing Period during the Investment Period. There shall be permitted
a maximum of 24 Fixed Requests during the Investment Period. Each Fixed Request
automatically shall expire immediately following the last Trading Day of each
Pricing Period.

 

Section 3.5.           Reduction of Commitment.  On each Settlement Date, the
Investor’s Total Commitment under this Agreement automatically (and without the
need for any amendment to this Agreement) shall be reduced, on a
dollar-for-dollar basis, by the total amount of the Fixed Request Amount for the
portion of such Pricing Period paid to the Company on such Settlement Date.

 

Section 3.6.           Below Threshold Price.

 

(a)           If, with respect to any Fixed Request Notice, the Company does not
elect the Alternative Fixed Amount Requested in accordance with the provisions
of Section 3.2 hereof, then, if the VWAP on any Trading Day in a Pricing Period
is lower than the Threshold Price, then for each such Trading Day the Fixed
Amount Requested shall be reduced, on a dollar-for-dollar basis, by an amount
equal to the product of (x) the Multiplier and (y) the total Fixed Amount
Requested, and no Shares shall be purchased or sold with respect to such Trading
Day.  If trading in the Common Stock on the Trading Market is suspended for any
reason for more than three hours on any Trading Day, then for each such Trading
Day the Fixed Amount Requested shall be reduced, on a dollar-for-dollar basis,
as provided in the immediately preceding sentence, and no Shares shall be
purchased or sold with respect to such Trading Day.

 

(b)           If, with respect to any Fixed Request Notice, the Company elects
the Alternative Fixed Amount Requested in accordance with the provisions of
Section 3.2 hereof, then, if the VWAP on any Trading Day in a Pricing Period is
lower than the Threshold Price, then for each such Trading Day no Shares shall
be purchased or sold with respect to such Trading Day. If trading in the Common
Stock on the Trading Market is suspended for any reason for more than three
hours on any Trading Day, then for each such Trading Day no Shares shall be
purchased or sold with respect to such Trading Day.

 

Section 3.7.           Settlement. The payment for, against simultaneous
delivery of, Shares in respect of any Fixed Request shall be settled as provided
in this Section 3.7 and Section 3.8 (as applicable). With respect to any Fixed
Request for which the Pricing Period is not reduced pursuant to Section 3.8,
Shares purchased by the Investor during the first five Trading Days of such
Pricing Period shall be determined and settled on the sixth Trading Day of such
Pricing Period, and Shares purchased by the Investor during the second five
Trading Days of such Pricing Period shall be determined and settled on the first
Trading Day next following the last Trading Day of such Pricing Period. If a
Pricing Period in respect of any Fixed Request is reduced to five or fewer
Trading Days pursuant to Section 3.8, the payment for, against

 

6

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simultaneous delivery of, Shares in respect of such Fixed Request shall be
determined and settled on the Trading Day as provided in Section 3.8. If a
Pricing Period in respect of any Fixed Request is reduced to six or more Trading
Days pursuant to Section 3.8, the payment for, against simultaneous delivery of,
Shares in respect of such Fixed Request shall be settled as follows: (i) Shares
purchased by the Investor during the first five Trading Days of such Pricing
Period shall be determined and settled on the sixth Trading Day of such Pricing
Period and (ii) Shares purchased by the Investor during the remaining Trading
Days of such Pricing Period shall be determined and settled on the Trading Day
as provided in Section 3.8. Each date on which settlement of the purchase and
sale of Shares occurs under this Section 3.7 and Section 3.8 (as applicable)
shall be referred to herein as a “Settlement Date”. On each Settlement Date, the
Company shall, or shall cause its transfer agent to, electronically transfer the
Shares purchased by the Investor by crediting the Investor’s or its designees’
account (provided the Investor shall have given the Company written notice of
such designee prior to the Settlement Date) at DTC through its
Deposit/Withdrawal at Custodian (DWAC) system, which Shares shall be freely
tradable and transferable and without restriction on resale, against
simultaneous payment therefor to the Company’s designated account by wire
transfer of immediately available funds; provided that if the Shares are
received by the Investor later than 1:00 p.m., New York City time, payment
therefor shall be made with next day funds.  As set forth in Section 3.9, a
failure by the Company or its transfer agent (if applicable) to deliver such
Shares on the applicable Settlement Date shall result in the payment of
liquidated damages by the Company to the Investor.

 

Section 3.8.           Reduction of Pricing Period.

 

(a)           If during a Pricing Period the Company elects to reduce the number
of Trading Days in such Pricing Period, the Company shall so notify the Investor
before 9:00 a.m. (New York City time) on any Trading Day during a Pricing Period
(a “Reduction Notice”) and the last Trading Day of such Pricing Period shall be
the Trading Day immediately preceding the Trading Day on which the Investor
received such Reduction Notice; provided, however, that (i) the Company may not
elect to reduce the number of Trading Days in any such Pricing Period to less
than two Trading Days and (ii) if the Company delivers the Reduction Notice
later than 9:00 a.m. (New York City time) on a Trading Day during a Pricing
Period, then the last Trading Day of such Pricing Period instead shall be the
Trading Day on which the Investor received such Reduction Notice. Upon receipt
of a Reduction Notice, the Investor shall purchase the Shares in respect of each
Trading Day in such reduced Pricing Period for which the VWAP equals or exceeds
the Threshold Price in accordance with Section 3.3 hereof. The payment for,
against simultaneous delivery of, Shares to be purchased and sold in accordance
with this Section 3.8(a) shall be determined and settled on the Trading Day next
following the Trading Day on which the Investor receives a Reduction Notice.

 

(b)           If, with respect to any Fixed Request Notice, the Company elects
the Alternative Fixed Amount Requested in accordance with the provisions of
Section 3.2 hereof, the last Trading Day of the applicable Pricing Period shall
be the earliest of: (i) the Trading Day on which the Alternative Fixed Amount
Requested (calculated in accordance with Section 3.2 hereof) shall have reached
the dollar amount cap therefor specified by the Company in the applicable Fixed
Request Notice, (ii) the last Trading Day of the Pricing Period, if such Pricing
Period is reduced by the Company pursuant to clause (a) of this Section 3.8, and
(iii) the 10th Trading Day of the Pricing Period. If the last Trading Day of the
applicable Pricing Period is the

 

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Trading Day specified in clause (i) of this Section 3.8(b), the payment for,
against simultaneous delivery of, Shares to be purchased and sold in accordance
with this Section 3.8(b) shall be determined and settled on the Trading Day next
following the last Trading Day of the Pricing Period.

 

Section 3.9.           Failure to Deliver Shares.  If the Company issues a Fixed
Request Notice and fails to deliver the Shares to the Investor on the applicable
Settlement Date and such failure continues for 10 Trading Days, the Company
shall pay the Investor, in cash, in addition to all other remedies available to
the Investor, as partial damages for such failure and not as a penalty, an
amount equal to 2.0% of the payment required to be paid by the Investor on such
Settlement Date for the initial 30 days following such Settlement Date until the
Shares have been delivered, and an additional 2.0% for each additional 30-day
period thereafter until the Shares have been delivered, which amount shall be
prorated for such periods less than 30 days (the “Make Whole Amount”). In the
event that the Make Whole Amount is not paid within two Trading Days following a
demand therefor from the Investor, the Make Whole Amount shall accrue annual
interest (on the basis of the 365 day year) compounded daily at a rate equal to
the greater of (i) the prime rate of interest then in effect as published by the
Wall Street Journal plus 3.0% and (ii) 10.0%, up to and including the date on
which the Make Whole Amount is actually paid.

 

Section 3.10.        Certain Limitations.  Notwithstanding anything to the
contrary contained in this Agreement, in no event may the Company issue a Fixed
Request Notice to the extent that (i) the Fixed Amount Requested in such Fixed
Request Notice exceeds the Maximum Fixed Amount Requested determined in
accordance with Section 3.2, (ii) the sale of Shares pursuant to such Fixed
Request Notice would cause the Company to sell or the Investor to purchase (A) a
dollar value of shares Common Stock which, when aggregated with all Fixed
Request Amounts paid by the Investor pursuant to all prior Fixed Request Notices
issued under this Agreement, would exceed the Aggregate Limit or (B) a number of
shares of Common Stock which, when aggregated with all Shares purchased by the
Investor pursuant to all prior Fixed Request Notices issued under this
Agreement, would exceed the Aggregate Limit, as the case may be, or (iii) the
sale of Shares pursuant to such Fixed Request Notice would cause the Company to
sell or the Investor to purchase a number of shares of Common Stock which, when
aggregated with all other shares of Common Stock then beneficially owned (as
calculated pursuant to Section 13(d) of the Exchange Act and Rule 13d-3
promulgated thereunder) by the Investor and its Affiliates, would result in the
beneficial ownership by the Investor or any of its Affiliates of more than 9.9%
of the then issued and outstanding shares of Common Stock (the “Ownership
Limitation”). If the Company issues a Fixed Request Notice in which the Fixed
Amount Requested exceeds the Maximum Fixed Amount Requested determined in
accordance with Section 3.2, such Fixed Request Notice shall be void ab initio
to the extent the Fixed Amount Requested exceeds the Maximum Fixed Amount
Requested. If the Company issues a Fixed Request Notice that otherwise would
require the Investor to purchase shares of Common Stock which would cause the
aggregate purchases of Common Stock by the Investor under this Agreement to
exceed the Aggregate Limit, such Fixed Request Notice shall be void ab initio to
the extent of (x) the amount by which the dollar value of shares of Common Stock
otherwise issuable pursuant to such Fixed Request Notice, together with all
Fixed Request Amounts paid by the Investor pursuant to all prior Fixed Request
Notices issued under this Agreement, would exceed the Aggregate Limit, or
(y) the amount by which the number of shares of Common Stock otherwise issuable
pursuant to such Fixed Request Notice, together with all Shares purchased by the

 

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Investor pursuant to all prior Fixed Request Notices issued under this
Agreement, would exceed the Aggregate Limit, as the case may be. If the Company
issues a Fixed Request Notice that otherwise would require the Investor to
purchase shares of Common Stock which would cause the aggregate number of shares
of Common Stock then beneficially owned (as calculated pursuant to Section 13(d)
of the Exchange Act and Rule 13d-3 promulgated thereunder) by the Investor and
its Affiliates to exceed the Ownership Limitation, such Fixed Request Notice
shall be void ab initio to the extent of the amount by which the number of
shares of Common Stock otherwise issuable pursuant to such Fixed Request Notice,
together with all shares of Common Stock then beneficially owned by the Investor
and its Affiliates, would exceed the Ownership Limitation. The Company hereby
represents, warrants and covenants that neither it nor any of its Subsidiaries
(1) has effected any transaction or series of transactions, (2) is a party to
any pending transaction or series of transactions or (3) shall enter into any
contract, agreement, agreement-in-principle, arrangement or understanding with
respect to, or shall effect, any Alternate Transaction which, in any of such
cases, may be aggregated with the transactions contemplated by this Agreement
for purposes of determining whether approval of the Company’s stockholders is
required under any bylaw, listed securities maintenance standards or other
rules of the Trading Market; provided, however, that the Company shall be
permitted to take any action referred to in clause (3) above if (x) the Company
has timely provided the Investor with an Aggregation Notice as provided in
Section 6.7(ii) hereof and (y) unless the Investor has previously terminated
this Agreement pursuant to Section 8.2, the Company obtains the requisite
stockholder approval prior to the closing of such Alternate Transaction. The
parties hereto hereby acknowledge and agree that the provisions of this
Section 3.10 shall not be amended or waived under any circumstances.

 

ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR

 

The Investor hereby makes the following representations, warranties and
covenants to the Company:

 

Section 4.1.           Organization and Standing of the Investor.  The Investor
is a business company duly organized, validly existing and in good standing
under the laws of the British Virgin Islands.

 

Section 4.2.           Authorization and Power.  The Investor has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement and the Registration Rights Agreement and to purchase the Shares
in accordance with the terms hereof. The execution, delivery and performance by
the Investor of this Agreement and the Registration Rights Agreement and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action, and no further consent or
authorization of the Investor, its Board of Directors or its stockholders is
required. Each of this Agreement and the Registration Rights Agreement has been
duly executed and delivered by the Investor and constitutes a valid and binding
obligation of the Investor enforceable against it in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation, conservatorship,
receivership, or similar laws relating to, or affecting generally the
enforcement of, creditor’s rights and

 

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remedies or by other equitable principles of general application (including any
limitation of equitable remedies).

 

Section 4.3.           No Conflicts.  The execution, delivery and performance by
the Investor of this Agreement and the Registration Rights Agreement and the
consummation by the Investor of the transactions contemplated hereby and thereby
do not and shall not (i) result in a violation of such Investor’s charter
documents, bylaws or other applicable organizational instruments, (ii) conflict
with, constitute a default (or an event which, with notice or lapse of time or
both, would become a default) under, or give rise to any rights of termination,
amendment, acceleration or cancellation of, any material agreement, mortgage,
deed of trust, indenture, note, bond, license, lease agreement, instrument or
obligation to which the Investor is a party or is bound, (iii) create or impose
any lien, charge or encumbrance on any property of the Investor under any
agreement or any commitment to which the Investor is party or under which the
Investor is bound or under which any of its properties or assets are bound, or
(iv) result in a violation of any federal, state, local or foreign statute,
rule, or regulation, or any order, judgment or decree of any court or
governmental agency applicable to the Investor or by which any of its properties
or assets are bound or affected, except, in the case of clauses (ii), (iii) and
(iv), for such conflicts, defaults, terminations, amendments, acceleration,
cancellations and violations as would not, individually or in the aggregate,
prohibit or otherwise interfere with, in any material respect, the ability of
the Investor to enter into and perform its obligations under this Agreement and
the Registration Rights Agreement. The Investor is not required under any
applicable federal, state, local or foreign law, rule or regulation to obtain
any consent, authorization or order of, or make any filing or registration with,
any court or governmental agency in order for it to execute, deliver or perform
any of its obligations under this Agreement and the Registration Rights
Agreement or to purchase the Shares in accordance with the terms hereof;
provided, however, that for purposes of the representation made in this
sentence, the Investor is assuming and relying upon the accuracy of the relevant
representations and warranties and the compliance with the relevant covenants
and agreements of the Company in the Transaction Documents to which it is a
party.

 

Section 4.4.           Investment Purpose. The Investor is acquiring the
Securities for its own account, for investment purposes and not with a view
towards, or for resale in connection with, the public sale or distribution
thereof, except pursuant to sales registered under or exempt from the
registration requirements of the Securities Act; provided, however, that by
making the representations herein, the Investor does not agree, or make any
representation or warranty, to hold any of 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
under the Securities Act. The Investor does not presently have any agreement or
understanding, directly or indirectly, with any Person to distribute any of the
Securities.

 

Section 4.5.           Accredited Investor Status. The Investor is an
“accredited investor” as that term is defined in Rule 501(a)(3) of Regulation D.

 

Section 4.6.           Reliance on Exemptions. The Investor understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
the Investor’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Investor set forth herein in order to

 

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determine the availability of such exemptions and the eligibility of the
Investor to acquire the Securities.

 

Section 4.7.           Information.  All materials relating to the business,
financial condition, management and operations of the Company and materials
relating to the offer and sale of the Securities which have been requested by
the Investor have been furnished or otherwise made available to the Investor or
its advisors, including, without limitation, the Commission Documents.  The
Investor understands that its investment in the Securities involves a high
degree of risk. The Investor is able to bear the economic risk of an investment
in the Securities and has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of a
proposed investment in the Securities. The Investor and its advisors have been
afforded the opportunity to ask questions of and receive answers from
representatives of the Company concerning the financial condition and business
of the Company and other matters relating to an investment in the Securities. 
Neither such inquiries nor any other due diligence investigations conducted by
the Investor or its advisors, if any, or its representatives shall modify, amend
or affect the Investor’s right to rely on the Company’s representations and
warranties contained in this Agreement or in any other Transaction Document to
which the Company is a party or the Investor’s right to rely on any other
document or instrument executed and/or delivered in connection with this
Agreement or the consummation of the transaction contemplated hereby (including,
without limitation, the opinions of the Company’s counsel delivered pursuant to
Sections 7.1(iv) and 7.2(xiv)). The Investor has sought such accounting, legal
and tax advice as it has considered necessary to make an informed investment
decision with respect to its acquisition of the Securities.

 

Section 4.8.           No Governmental Review. The Investor understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Securities
or the fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities. The Investor understands that it (and not the Company) shall be
responsible for its own tax liabilities that may arise as a result of this
investment or the transactions contemplated by this Agreement.

 

Section 4.9.           No General Solicitation. The Investor is not purchasing
the Securities as a result of any form of general solicitation or general
advertising (within the meaning of Regulation D) in connection with the offer or
sale of the Securities.

 

Section 4.10.        Not an Affiliate. The Investor is not an officer, director
or an Affiliate of the Company.

 

Section 4.11.        Statutory Underwriter Status. The Investor acknowledges
that it will be disclosed as an “underwriter” and a “selling stockholder” in the
Registration Statement and in any Prospectus contained therein to the extent
required by applicable law and to the extent the Prospectus is related to the
resale of Registrable Securities.

 

Section 4.12.        Resales of Securities. The Investor represents and
covenants that unless the Securities are eligible for resale pursuant to
Rule 144, it will resell such Securities only pursuant to the Registration
Statement, in a manner described under the caption “Plan of

 

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Distribution” in the Registration Statement, and in a manner in compliance with
all applicable United States federal and state securities laws, rules and
regulations, including, without limitation, any applicable prospectus delivery
requirements of the Securities Act.

 

ARTICLE V
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY

 

Except as set forth in the disclosure schedule delivered by the Company to the
Investor (which is hereby incorporated by reference in, and constitutes an
integral part of, this Agreement) (the “Disclosure Schedule”), the Company
hereby makes the following representations, warranties and covenants to the
investor:

 

Section 5.1.           Organization, Good Standing and Power.  The Company and
each of its Subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has the requisite
corporate power and authority to own, lease and operate its properties and
assets and to conduct its business as it is now being conducted. The Company and
each Subsidiary 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 or property owned by it makes such qualification necessary, except for
any jurisdiction in which the failure to be so qualified would not have a
Material Adverse Effect.

 

Section 5.2.           Authorization, Enforcement.  The Company has the
requisite corporate power and authority to enter into and perform its
obligations under each of the Transaction Documents to which it is a party and
to issue the Securities in accordance with the terms hereof and thereof. Except
for approvals of the Company’s Board of Directors or a committee thereof as may
be required in connection with any issuance and sale of Shares to the Investor
hereunder (which approvals shall be obtained prior to the delivery of any Fixed
Request Notice), the execution, delivery and performance by the Company of each
of the Transaction Documents to which it is a party and the consummation by it
of the transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action, and no further consent or
authorization of the Company, its Board of Directors or its stockholders is
required. Each of the Transaction Documents to which the Company is a party has
been duly executed and delivered by the Company and constitutes a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditor’s rights and remedies or by other
equitable principles of general application (including any limitation of
equitable remedies).

 

Section 5.3.           Capitalization.  The authorized capital stock of the
Company and the shares thereof issued and outstanding are as set forth in the
Commission Documents as of the dates reflected therein. All of the outstanding
shares of Common Stock have been duly authorized and validly issued, and are
fully paid and nonassessable. Except as set forth in the Commission Documents,
this Agreement and the Registration Rights Agreement, there are no agreements or
arrangements under which the Company is obligated to register the sale of any
securities under the Securities Act. Except as set forth in the Commission
Documents, no shares of Common Stock are entitled to preemptive rights and there
are no outstanding options,

 

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warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
for, any shares of capital stock of the Company.  Except as set forth in the
Commission Documents, there are no outstanding debt securities and no contracts,
commitments, understandings, or arrangements by which the Company is or may
become bound to issue additional shares of the capital stock of the Company or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into or
exchangeable for, any shares of capital stock of the Company other than those
issued or granted in the ordinary course of business pursuant to the Company’s
equity incentive and/or compensatory plans or arrangements. Except for customary
transfer restrictions contained in agreements entered into by the Company to
sell restricted securities or as set forth in the Commission Documents, the
Company is not a party to, and it has no Knowledge of, any agreement restricting
the voting or transfer of any shares of the capital stock of the Company. Except
as set forth in the Commission Documents, the offer and sale of all capital
stock, convertible or exchangeable securities, rights, warrants or options of
the Company issued prior to the Closing Date complied with all applicable
federal and state securities laws, and no stockholder has any right of
rescission or damages or any “put” or similar right with respect thereto that
would have a Material Adverse Effect. There are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by this
Agreement or any of the other Transaction Documents or the consummation of the
transactions described herein or therein. The Company has furnished or made
available to the Investor via EDGAR true and correct copies of the Company’s
Certificate of Incorporation as in effect on the Closing Date (the “Charter”),
and the Company’s Bylaws as in effect on the Closing Date (the “Bylaws”), and
true and correct copies (redacted as appropriate) of all executed resolutions of
the Company’s Board of Directors (and committees thereof) relating to the
capital stock of the Company (and transactions in respect thereof) since
December 31, 2006 (except with respect to issuances of shares of capital stock
of the Company to directors or employees of the Company as fees or compensation
that were duly approved by the Company’s Board of Directors or a committee
thereof).

 

Section 5.4.           Issuance of Securities. The Commitment Shares have been,
and the Shares to be issued under this Agreement have been or will be (prior to
the delivery of any Fixed Request Notice to the Investor hereunder), duly
authorized by all necessary corporate action on the part of the Company. The
Commitment Shares, when issued in accordance with the terms of this Agreement,
and the Shares, when paid for in accordance with the terms of this Agreement,
shall be validly issued and outstanding, fully paid and nonassessable and free
from all liens, charges, taxes, security interests, encumbrances, rights of
first refusal, preemptive or similar rights and other encumbrances with respect
to the issue thereof.

 

Section 5.5.           No Conflicts.  The execution, delivery and performance by
the Company of each of the Transaction Documents to which it is a party and the
consummation by the Company of the transactions contemplated hereby and thereby
do not and shall not (i) result in a violation of any provision of the Company’s
Charter or Bylaws, (ii) conflict with, constitute a default (or an event which,
with notice or lapse of time or both, would become a default) under, or give
rise to any rights of termination, amendment, acceleration or cancellation of,
any material agreement, mortgage, deed of trust, indenture, note, bond, license,
lease agreement, instrument or obligation to which the Company or any of its
Significant Subsidiaries is a party or is bound (including, without limitation,
any listing agreement with the Trading Market), (iii) create or

 

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impose a lien, charge or encumbrance on any property of the Company or any of
its Significant Subsidiaries under any agreement or any commitment to which the
Company or any of its Significant Subsidiaries is a party or under which the
Company or any of its Significant Subsidiaries is bound or under which any of
their respective properties or assets are bound, or (iv) result in a violation
of any federal, state, local or foreign statute, rule, regulation, order,
judgment or decree applicable to the Company or any of its Subsidiaries or by
which any property or asset of the Company or any of its Subsidiaries are bound
or affected (including federal and state securities laws and regulations and the
rules and regulations of the Trading Market), except, in the case of clauses
(ii), (iii) and (iv), for such conflicts, defaults, terminations, amendments,
acceleration, cancellations, liens, charges, encumbrances and violations as
would not, individually or in the aggregate, have a Material Adverse Effect. 
Except as specifically contemplated by this Agreement or the Registration Rights
Agreement and as required under the Securities Act and any applicable state
securities laws, the Company is not required under any federal, state, local or
foreign law, rule or regulation to obtain any consent, authorization or order
of, or make any filing or registration with, any court or governmental agency
(including, without limitation, the Trading Market) in order for it to execute,
deliver or perform any of its obligations under the Transaction Documents to
which it is a party, or to issue the Securities to the Investor in accordance
with the terms hereof and thereof (other than such consents, authorizations,
orders, filings or registrations as have been obtained or made prior to the
Closing Date); provided, however, that, for purposes of the representation made
in this sentence, the Company is assuming and relying upon the accuracy of the
representations and warranties of the Investor in this Agreement and the
compliance by it with its covenants and agreements contained in this Agreement
and the Registration Rights Agreement.

 

Section 5.6.           Commission Documents, Financial Statements.  (a)  The
Company has timely filed (giving effect to permissible extensions in accordance
with Rule 12b-25 under the Exchange Act) all Commission Documents. The Company
has delivered or made available to the Investor via EDGAR or otherwise true and
complete copies of the Commission Documents filed with or furnished to the
Commission prior to the Closing Date (including, without limitation, the 2008
Form 10-K). No Subsidiary of the Company is required to file or furnish any
report, schedule, registration, form, statement, information or other document
with the Commission. As of its filing date, each Commission Document filed with
or furnished to the Commission prior to the Closing Date (including, without
limitation, the 2008 Form 10-K) complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as applicable, and other
federal, state and local laws, rules and regulations applicable to it, and, as
of its filing date (or, if amended or superseded by a filing prior to the
Closing Date, on the date of such amended or superseded filing), such Commission
Document did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The Registration Statement, on the date it is filed with
the Commission, on the date it is declared effective by the Commission, on each
Fixed Request Exercise Date and on each Settlement Date, shall comply in all
material respects with the requirements of the Securities Act (including,
without limitation, Rule 415 under the Securities Act) and shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein not
misleading, except that this representation and warranty shall not apply to
statements in or omissions from the Registration Statement made in reliance upon
and in conformity with information relating to the Investor furnished to the

 

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Company in writing by or on behalf of the Investor expressly for use therein
(which to the Company’s Knowledge are not false or misleading). The Prospectus
and each Prospectus Supplement required to be filed pursuant to this Agreement
or the Registration Rights Agreement after the Closing Date, when taken
together, on its date, on each Fixed Request Exercise Date and on each
Settlement Date, shall comply in all material respects with the requirements of
the Securities Act (including, without limitation, Rule 424(b) under the
Securities Act) and shall not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, except that this representation and warranty
shall not apply to statements in or omissions from the Prospectus or any
Prospectus Supplement made in reliance upon and in conformity with information
relating to the Investor furnished to the Company in writing by or on behalf of
the Investor expressly for use therein (which to the Company’s Knowledge are not
false or misleading). Each Commission Document (other than the Registration
Statement, the Prospectus or any Prospectus Supplement) to be filed with or
furnished to the Commission after the Closing Date and incorporated by reference
in the Registration Statement, the Prospectus or any Prospectus Supplement
required to be filed pursuant to this Agreement or the Registration Rights
Agreement (including, without limitation, the Current Report), when such
document is filed with or furnished to the Commission and, if applicable, when
such document becomes effective, as the case may be, shall comply in all
material respects with the requirements of the Securities Act or the Exchange
Act, as applicable, and other federal, state and local laws, rules and
regulations applicable to it, and shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The Company has delivered or made
available to the Investor via EDGAR or otherwise true and complete copies of all
comment letters and substantive correspondence received by the Company from the
Commission relating to the Commission Documents filed with or furnished to the
Commission as of the Closing Date, together with all written responses of the
Company thereto. There are no outstanding or unresolved comments or undertakings
in such comment letters received by the Company from the Commission. The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company under the
Securities Act or the Exchange Act.

 

(b)           The financial statements, together with the related notes and
schedules, of the Company included in the Commission Documents comply as to form
in all material respects with all applicable accounting requirements and the
published rules and regulations of the Commission and all other applicable
rules and regulations with respect thereto as may be subject to any applicable
out of period adjustments disclosed in the Commission Documents. Such financial
statements, together with the related notes and schedules, have been prepared in
accordance with GAAP applied on a consistent basis 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 are
subject to customary year-end audit adjustments), and fairly present in all
material respects the financial condition of the Company and its consolidated
Subsidiaries as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments).

 

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(c)           The Company has timely filed with the Commission and made
available to the Investor via EDGAR or otherwise all certifications and
statements required by (x) Rule 13a-14 or Rule 15d-14 under the Exchange Act or
(y) 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002
(“SOXA”)) with respect to all relevant Commission Documents.  The Company is in
compliance in all material respects with the provisions of SOXA applicable to it
as of the date hereof.  The Company maintains disclosure controls and procedures
required by Rule 13a-15 or Rule 15d-15 under the Exchange Act; such controls and
procedures are effective to ensure that all material information concerning the
Company and its Subsidiaries is made known on a timely basis to the individuals
responsible for the timely and accurate preparation of the Company’s Commission
filings and other public disclosure documents.  As used in this Section 5.6(c),
the term “file” shall be broadly construed to include any manner in which a
document or information is furnished, supplied or otherwise made available to
the Commission.

 

(d)           Ernst & Young LLP, who shall express their opinion on the audited
financial statements and related schedules to be included or incorporated by
reference in the Registration Statement and the Prospectus are, with respect to
the Company, independent public accountants as required by the Securities Act
and is an independent registered public accounting firm within the meaning of
SOXA as required by the rules of the Public Company Accounting Oversight Board.

 

Section 5.7.           Subsidiaries.  The 2008 Form 10-K sets forth each
Subsidiary of the Company as of the Closing Date, showing its jurisdiction of
incorporation or organization and the percentage of the Company’s ownership of
the outstanding capital stock or other ownership interests of such Subsidiary,
and the Company does not have any other Subsidiaries as of the Closing Date.

 

Section 5.8.           No Material Adverse Effect. Except as disclosed in any
Commission Documents filed since December 31, 2008 or which may be deemed to
have resulted from the Company’s continued losses from operations, since
December 31, 2008, the Company has not experienced or suffered any Material
Adverse Effect, and there exists no current state of facts, condition or event
which would have a Material Adverse Effect.

 

Section 5.9.           No Undisclosed Liabilities. Neither the Company nor any
of its Subsidiaries has any liabilities, obligations, claims or losses (whether
liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent
or otherwise) that would be required to be disclosed on a balance sheet of the
Company or any Subsidiary (including the notes thereto) in conformity with GAAP
and are not disclosed in the Commission Documents, other than those incurred in
the ordinary course of the Company’s or its Subsidiaries respective businesses
since June 30, 2009 and which, individually or in the aggregate, do not or would
not have a Material Adverse Effect.

 

Section 5.10.        No Undisclosed Events or Circumstances. No event or
circumstance has occurred or information exists with respect to the Company or
any of its Subsidiaries or its or their business, properties, liabilities,
prospects, operations (including results thereof) or conditions (financial or
otherwise), which, under applicable law, rule or regulation, requires public
disclosure or announcement by the Company at or before the Closing but which has
not

 

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been so publicly announced or disclosed, except for events or circumstances
which, individually or in the aggregate, do not or would not have a Material
Adverse Effect.

 

Section 5.11.        Indebtedness; Solvency.  The Company’s Quarterly Report on
Form 10-Q for its fiscal quarter ended June 30, 2009 sets forth, as of June 30,
2009, all outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has commitments through
such date.  For the purposes of this Agreement, “Indebtedness” shall mean
(a) any liabilities for borrowed money or amounts owed in excess of $1,000,000
(other than trade accounts payable incurred in the ordinary course of business),
(b) all guaranties, endorsements, indemnities and other contingent obligations
in respect of Indebtedness of others in excess of $1,000,000, whether or not the
same are or should be reflected in the Company’s balance sheet (or the notes
thereto), except guaranties by endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of business; and
(c) the present value of any lease payments in excess of $1,000,000 due under
leases required to be capitalized in accordance with GAAP.  There is no existing
or continuing default or event of default in respect of any Indebtedness of the
Company or any of its Subsidiaries. The Company has not taken any steps, and
does not currently expect to take any steps, to seek protection pursuant to
Title 11 of the United States Code or any similar federal or state bankruptcy
law or law for the relief of debtors, nor does the Company have any Knowledge
that its creditors intend to initiate involuntary bankruptcy, insolvency,
reorganization or liquidation proceedings or other proceedings for relief under
Title 11 of the United States Code or any other federal or state bankruptcy law
or any law for the relief of debtors. The Company is financially solvent and is
generally able to pay its debts as they become due.

 

Section 5.12.        Title To Assets.  Each of the Company and its Subsidiaries
has good and marketable title to all of their respective real and personal
property reflected in the Commission Documents, free of mortgages, pledges,
charges, liens, security interests or other encumbrances, except for those
indicated in the Commission Documents and those that 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 or
otherwise do not result in a Material Adverse Effect. To the Company’s
Knowledge, all real property and facilities held under lease by the Company or
any of its Subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with the
use made and proposed to be made of such property and buildings by the Company
or any of its Subsidiaries.

 

Section 5.13.        Actions Pending.  There is no action, suit, claim,
investigation or proceeding pending, or to the Knowledge of the Company
threatened, against the Company or any Subsidiary which questions the validity
of the Transaction Documents or the transactions contemplated thereby or any
action taken or to be taken pursuant thereto.  Except as set forth in the
Commission Documents, there is no action, suit, claim, investigation or
proceeding pending, or to the Knowledge of the Company threatened, against or
involving the Company, any Subsidiary or any of their respective properties or
assets, or involving any officers or directors of the Company or any of its
Subsidiaries, including, without limitation, any securities class action lawsuit
or stockholder derivative lawsuit, in each case which, if determined adversely
to the Company, its Subsidiary or any officer or director of the Company or its
Subsidiaries, would have a Material Adverse Effect. Except as set forth in the
Commission Documents, no judgment,

 

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order, writ, injunction or decree or award has been issued by or, to the
Knowledge of the Company, requested of any court, arbitrator or governmental
agency (including, without limitation, the Trading Market) which would be
reasonably expected to result in a Material Adverse Effect.

 

Section 5.14.        Compliance With Law. The business of the Company and the
Subsidiaries has been and is presently being conducted in compliance with all
applicable federal, state, local and foreign governmental laws, rules,
regulations and ordinances, except as set forth in the Commission Documents and
except for such non-compliance which, individually or in the aggregate, would
not have a Material Adverse Effect. To the Company’s Knowledge, neither the
Company nor any of its Subsidiaries is in violation of any judgment, decree or
order applicable to the Company or any of its Subsidiaries, and neither the
Company nor any of its Subsidiaries will conduct its business in violation of
any of the foregoing, except in all cases for possible violations which could
not, individually or in the aggregate, have a Material Adverse Effect. Without
limiting the generality of the foregoing, except as set forth in the Commission
Documents, the Company has maintained all requirements for the continued listing
or quotation of its Common Stock on the Trading Market, and the Company is not
in violation of any of the rules, regulations or requirements of the Trading
Market and has no Knowledge of any facts or circumstances that could reasonably
lead to delisting or suspension of the Common Stock by the Trading Market in the
foreseeable future.

 

Section 5.15.        Certain Fees.  Except for the placement fee payable by the
Company to Reedland Capital Partners, an Institutional Division of Financial
West Group, Member FINRA/SIPC (“Reedland”), which shall be set forth in a
separate engagement letter between the Company and Reedland (a true and complete
fully executed copy of which has heretofore been provided to the Investor) (the
“Placement Agent Engagement Letter”), no brokers, finders or financial advisory
fees or commissions shall be payable by the Company or any Subsidiary (or any of
their respective Affiliates) with respect to the transactions contemplated by
the Transaction Documents.

 

Section 5.16.        Disclosure.  The Company confirms that neither it nor any
other Person acting on its behalf has provided the Investor or any of its
agents, advisors or counsel with any information that constitutes or could
reasonably be expected to constitute material, nonpublic information concerning
the Company or any of its Subsidiaries, other than the existence of the
transactions contemplated by the Transaction Documents. The Company understands
and confirms that the Investor will rely on the foregoing representations in
effecting transactions in securities of the Company. All disclosure provided to
Investor regarding the Company and its Subsidiaries, their businesses and the
transactions contemplated by the Transaction Documents (including, without
limitation, the representations and warranties of the Company contained in the
Transaction Documents to which it is a party and the disclosures contained in
the Disclosure Schedule) furnished by or on behalf of the Company or any of its
Subsidiaries is true and correct and does not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading. Each press release issued by the Company or any of its
Subsidiaries during the 12 months preceding the date of this Agreement did not
at the time of release contain any untrue statement of a material fact or omit
to state a material fact required to

 

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be stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading.

 

Section 5.17.        Operation of Business.  (a)  The Company or one or more of
its Subsidiaries possesses such permits, licenses, approvals, consents and other
authorizations (including licenses, accreditation and other similar
documentation or approvals of any local health departments) (collectively,
“Governmental Licenses”) issued by the appropriate federal, state, local or
foreign regulatory agencies or bodies, including, without limitation, the United
States Food and Drug Administration (“FDA”), necessary to conduct the business
now operated by it, except where the failure to possess such Governmental
Licenses, individually or in the aggregate, would not have a Material Adverse
Effect or except as otherwise disclosed in the Commission Documents. To the
Company’s Knowledge, the Company and its Subsidiaries are in compliance with the
terms and conditions of all such Governmental Licenses and all applicable FDA
rules and regulations, guidelines and policies, and all applicable rules and
regulations, guidelines and policies of any governmental authority exercising
authority comparable to that of the FDA (including any non-governmental
authority whose approval or authorization is required under foreign law
comparable to that administered by the FDA), except where the failure to so
comply, individually or in the aggregate, would not have a Material Adverse
Effect or except as otherwise disclosed in the Commission Documents.  All of the
Governmental Licenses are valid and in full force and effect, except where the
invalidity of such Governmental Licenses or the failure of such Governmental
Licenses to be in full force and effect, individually or in the aggregate, would
not have a Material Adverse Effect or except as otherwise disclosed in the
Commission Documents.  As to each product that is subject to FDA regulation or
similar legal provisions in any foreign jurisdiction that is developed,
manufactured, tested, packaged, labeled, marketed, sold, distributed and/or
commercialized by the Company or any of its Subsidiaries, each such product is
being developed, manufactured, tested, packaged, labeled, marketed, sold,
distributed and/or commercialized in compliance with all applicable requirements
of the FDA (and any non-governmental authority whose approval or authorization
is required under foreign law comparable to that administered by the FDA),
including, but not limited to, those relating to investigational use,
investigational device exemption, premarket notification, premarket approval,
good clinical practices, good manufacturing practices, record keeping, filing of
reports, and patient privacy and medical record security, except where such
non-compliance, individually or in the aggregate, would not have a Material
Adverse Effect or except as otherwise disclosed in the Commission Documents.  As
to each product or product candidate of the Company or any of its Subsidiaries
subject to FDA regulation or similar legal provision in any foreign
jurisdiction, all manufacturing facilities of the Company and its Subsidiaries
are operated in compliance with the FDA’s Quality System Regulation requirements
at 21 C.F.R. Part 820, as applicable, except where such non-compliance,
individually or in the aggregate, would not have a Material Adverse Effect. 
Except as set forth in the Commission Documents, neither the Company nor any of
its Subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses or relating to a
potential violation of, failure to comply with, or request to produce additional
information under, any FDA rules and regulations, guidelines or policies which,
if the subject of any unfavorable decision, ruling or finding, individually or
in the aggregate, would have a Material Adverse Effect.  Except as set forth in
the Commission Documents, neither the Company nor any of its Subsidiaries has
received any correspondence, notice or request from the FDA, including, without
limitation, notice that any one or more products or product candidates

 

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of the Company or any of its Subsidiaries failed to receive approval from the
FDA for use for any one or more indications.  This Section 5.17 does not relate
to environmental matters, such items being the subject of Section 5.18.

 

(b)           The Company or one or more of its Subsidiaries owns or possesses
adequate rights to use patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), trademarks,
service marks, trade names, trade dress, logos, copyrights and other
intellectual property, including, without limitation, all of the intellectual
property described in the Commission Documents as being owned or licensed by the
Company (collectively, “Intellectual Property”), necessary to carry on the
business now operated by it, except where failure to own, license or have such
rights would not, individually or in the aggregate, have a Material Adverse
Effect.  Except as set forth in the Commission Documents, there are no actions,
suits or judicial proceedings pending, or to the Company’s Knowledge threatened,
relating to patents or proprietary information to which the Company or any of
its Subsidiaries is a party or of which any property of the Company or any of
its Subsidiaries is subject, and neither the Company nor any of its Subsidiaries
has received any notice or is otherwise aware of any infringement of or conflict
with asserted rights of others with respect to any Intellectual Property or of
any facts or circumstances which could render any Intellectual Property invalid
or inadequate to protect the interest of the Company and its Subsidiaries
therein, and which infringement or conflict (if the subject of any unfavorable
decision, ruling or finding) or invalidity or inadequacy, individually or in the
aggregate, would have a Material Adverse Effect.

 

(c)           All clinical trials conducted by, or on behalf of, the Company or
any of its Subsidiaries, or in which the Company or any of its Subsidiaries has
participated that are described in the Commission Documents, or the results of
which are referred to in the Commission Documents, if any, are the only clinical
trials currently being conducted by or on behalf of the Company and its
Subsidiaries.  To the Company’s Knowledge, all such clinical trials conducted,
supervised or monitored by, or on behalf of, the Company or any of its
Subsidiaries have been conducted in compliance with all applicable federal,
state, local and foreign laws, and the regulations and requirements of any
applicable governmental entity, including, but not limited to, FDA good clinical
practice and good laboratory practice requirements (or the foreign equivalent
requirements), except as otherwise disclosed in the Commission Documents or
where such noncompliance does not result in a Material Adverse Effect.  Except
as set forth in the Commission Documents, neither the Company nor any of its
Subsidiaries has received any notices or correspondence from the FDA or any
other governmental agency requiring the termination, suspension, delay or
modification of any clinical trials conducted by, or on behalf of, the Company
or any of its Subsidiaries or in which the Company or any of its Subsidiaries
has participated that are described in the Commission Documents, if any, or the
results of which are referred to in the Commission Documents.

 

Section 5.18.        Environmental Compliance.  Except as disclosed in the
Commission Documents, the Company and each of its Subsidiaries have obtained all
material approvals, authorization, certificates, consents, licenses, orders and
permits or other similar authorizations of all governmental authorities, or from
any other person, that are required under any Environmental Laws, except for any
approvals, authorization, certificates, consents, licenses,

 

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orders and permits or other similar authorizations the failure of which to
obtain does not or would not have a Material Adverse Effect.  “Environmental
Laws” shall mean all applicable laws relating to the protection of the
environment including, without limitation, all requirements pertaining to
reporting, licensing, permitting, controlling, investigating or remediating
emissions, discharges, releases or threatened releases of hazardous substances,
chemical substances, pollutants, contaminants or toxic substances, materials or
wastes, whether solid, liquid or gaseous in nature, into the air, surface water,
groundwater or land, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances,
material or wastes, whether solid, liquid or gaseous in nature.  Except for such
instances as would not, individually or in the aggregate, have a Material
Adverse Effect, to the Company’s Knowledge, there are no past or present events,
conditions, circumstances, incidents, actions or omissions relating to or in any
way affecting the Company or its Subsidiaries that violate or could reasonably
be expected to violate any Environmental Law after the Closing Date or that
could reasonably be expected to give rise to any environmental liability, or
otherwise form the basis of any claim, action, demand, suit, proceeding,
hearing, study or investigation (i) under any Environmental Law, or (ii) based
on or related to the manufacture, processing, distribution, use, treatment,
storage (including without limitation underground storage tanks), disposal,
transport or handling, or the emission, discharge, release or threatened release
of any hazardous substance.

 

Section 5.19.        Material Agreements.  Except as set forth in the Commission
Documents, neither the Company nor any Subsidiary of the Company is a party to
any written or oral contract, instrument, agreement commitment, obligation, plan
or arrangement, a copy of which would be required to be filed with the
Commission as an exhibit to an annual report on Form 10-K (collectively,
“Material Agreements”).  Except as set forth in the Commission Documents, the
Company and each of its Subsidiaries have performed in all material respects all
the obligations required to be performed by them under the Material Agreements,
have received no notice of default or an event of default by the Company or any
of its Subsidiaries thereunder and are not aware of any basis for the assertion
thereof, and neither the Company or any of its Subsidiaries nor, to the
Knowledge of the Company, any other contracting party thereto are in default
under any Material Agreement now in effect, the result of which would have a
Material Adverse Effect.  Except as set forth in the Commission Documents, each
of the Material Agreements is in full force and effect, and constitutes a legal,
valid and binding obligation enforceable in accordance with its terms against
the Company and/or any of its Subsidiaries and, to the Knowledge of the Company,
each other contracting party thereto, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, receivership or similar laws relating to, or
affecting generally the enforcement of, creditor’s rights and remedies or by
other equitable principles of general application.

 

Section 5.20.        Transactions With Affiliates.  Except as set forth in the
Commission Documents, there are no loans, leases, agreements, contracts, royalty
agreements, management contracts, service arrangements or other continuing
transactions exceeding $120,000 between (a) the Company or any Subsidiary, on
the one hand, and (b) any person or entity who would be covered by Item
404(a) of Regulation S-K, on the other hand.  Except as disclosed in the
Commission Documents, there are no outstanding amounts payable to or receivable
from, or advances by the Company or any of its Subsidiaries to, and neither the
Company nor any of its

 

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Subsidiaries is otherwise a creditor of or debtor to, any beneficial owner of
more than 5% of the outstanding shares of Common Stock, or any director,
employee or affiliate of the Company or any of its Subsidiaries, other than
(i) reimbursement for reasonable expenses incurred on behalf of the Company or
any of its Subsidiaries or (ii) as part of the normal and customary terms of
such persons’ employment or service as a director with the Company or any of its
Subsidiaries.

 

Section 5.21.        Employees.  Neither the Company nor any Subsidiary of the
Company has any collective bargaining arrangements or agreements covering any of
its employees, except as set forth in the Commission Documents.  Except as
disclosed in the Commission Documents, no officer, consultant or key employee of
the Company or any Subsidiary whose termination, either individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect, has
terminated or, to the Knowledge of the Company, has any present intention of
terminating his or her employment or engagement with the Company or any
Subsidiary.

 

Section 5.22.        Use of Proceeds.  The proceeds from the sale of the Shares
shall be used by the Company and its Subsidiaries as set forth in the Prospectus
and any Prospectus Supplement filed pursuant to Sections 2.3 and 6.10 of this
Agreement and pursuant to the Registration Rights Agreement.

 

Section 5.23.        Investment Company Act Status.  The Company is not, and as
a result of the consummation of the transactions contemplated by the Transaction
Documents and the application of the proceeds from the sale of the Shares as set
forth in the Prospectus and any Prospectus Supplement shall not be, an
“investment company” or a company “controlled” by an “investment company,”
within the meaning of the Investment Company Act of 1940, as amended.

 

Section 5.24.        ERISA.  No liability to the Pension Benefit Guaranty
Corporation has been incurred with respect to any Plan by the Company or any of
its Subsidiaries which has had or would have a Material Adverse Effect.  No
“prohibited transaction” (as defined in Section 406 of ERISA or Section 4975 of
the Code) or “accumulated funding deficiency” (as defined in Section 203 of
ERISA) or any of the events set forth in Section 4043(b) of ERISA has occurred
with respect to any Plan which has had or would have a Material Adverse Effect,
and the execution and delivery of this Agreement and the issuance and sale of
the Shares hereunder shall not result in any of the foregoing events.  Each Plan
is in compliance in all material respects with applicable law, including ERISA
and the Code; the Company has not incurred and does not expect to incur
liability under Title IV of ERISA with respect to the termination of, or
withdrawal from, any Plan; and each Plan for which the Company would have any
liability that is intended to be qualified under Section 401(a) of the Code is
so qualified in all material respects and nothing has occurred, whether by
action or failure to act, which would cause the loss of such qualifications.  As
used in this Section 5.24, the term “Plan” shall mean an “employee pension
benefit plan” (as defined in Section 3 of ERISA) which is or has been
established or maintained, or to which contributions are or have been made, by
the Company or any Subsidiary or by any trade or business, whether or not
incorporated, which, together with the Company or any Subsidiary, is under
common control, as described in Section 414(b) or (c) of the Code.

 

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Section 5.25.        Taxes.  The Company and each of its Subsidiaries (i) has
filed all necessary federal, state and foreign income and franchise tax returns
or has duly requested extensions thereof, except for those the failure of which
to file would not have a Material Adverse Effect, (ii) has paid all federal,
state, local and foreign taxes due and payable for which it is liable, except to
the extent that any such taxes are being contested in good faith and by
appropriate proceedings, except for such taxes the failure of which to pay would
not have a Material Adverse Effect, and (iii) does not have any tax deficiency
or claims outstanding or assessed or, to the Company’s Knowledge, proposed
against it which would have a Material Adverse Effect. 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 and its Subsidiaries know of no
basis for any such claim. The Company is not operated in such a manner as to
qualify as a passive foreign investment company, as defined in Section 1297 of
the U.S. Internal Revenue Code of 1986, as amended.

 

Section 5.26.        Insurance. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has been
refused any insurance coverage sought or applied for, and neither the Company
nor any such Subsidiary has any reason to believe that it will be unable to
renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not have a Material Adverse Effect.

 

Section 5.27.        U.S. Real Property Holding Corporation. Neither the Company
nor any of its Subsidiaries is, or has ever been, and so long as any of the
Securities are held by the Investor, shall become a U.S. real property holding
corporation within the meaning of Section 897 of the Code.

 

Section 5.28.        Exemption from Registration; Valid Issuances. Subject to,
and in reliance on, the representations, warranties and covenants made herein by
the Investor, the offer and sale of the Securities in accordance with the terms
and conditions of this Agreement is exempt from the registration requirements of
the Securities Act pursuant to Section 4(2) and Regulation D; provided, however,
that at the request of and with the express agreement of the Investor, the
Shares will be delivered to the Investor via book entry through DTC and will not
bear legends noting restrictions as to resale of such securities under federal
or state securities laws, nor will any such securities be subject to stop
transfer instructions. Neither the offer or sale of the Securities pursuant to,
nor the Company’s performance of its obligations under, the Transaction
Documents to which it is a party shall (i) result in the creation or imposition
of any liens, charges, claims or other encumbrances upon the Securities, or
(ii) entitle the holders of any outstanding shares of capital stock of the
Company to preemptive or other rights to subscribe to or acquire the shares of
Common Stock or other securities of the Company.

 

Section 5.29.        No General Solicitation or Advertising. Neither the
Company, nor any of its Subsidiaries or Affiliates, nor any Person acting on its
or their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D) in connection with the offer or
sale of the Securities.

 

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Section 5.30.        No Integrated Offering. None of the Company, its
Subsidiaries or any of their Affiliates, nor any Person acting on 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 issuance of any of the Securities under the Securities Act,
whether through integration with prior offerings or otherwise, or cause this
offering of the Securities to require approval of stockholders of the Company
under any applicable stockholder approval provisions, including, without
limitation, under the rules and regulations of the Trading Market.  None of the
Company, its Subsidiaries, their Affiliates nor any Person acting on their
behalf will take any action or steps referred to in the preceding sentence that
would require registration of the issuance of any of the Securities under the
Securities Act or cause the offering of any of the Securities to be integrated
with other offerings.

 

Section 5.31.        Dilutive Effect. The Company is aware and acknowledges that
issuance of the Securities could cause dilution to existing stockholders and
could significantly increase the outstanding number of shares of Common Stock.

 

Section 5.32.        Manipulation of Price. Neither the Company nor any of its
officers, directors or Affiliates has, and, to the Knowledge of the Company, no
Person acting on their behalf has, (i) taken, directly or indirectly, any action
designed or intended to cause or to result in the stabilization or manipulation
of the price of any security of the Company, or which caused or resulted in, or
which would in the future reasonably be expected to cause or result in, the
stabilization or manipulation of the price of any security of the Company, in
each case to facilitate the sale or resale of any of the Securities, (ii) sold,
bid for, purchased, or paid any compensation for soliciting purchases of, any of
the Securities, or (iii) paid or agreed to pay to any person any compensation
for soliciting another to purchase any other securities of the Company, other
than, in the case of clauses (ii) and (iii), compensation paid to Reedland on
the Closing Date in connection with the placement of the Securities pursuant to
the Placement Agent Engagement Letter. Except as customary and required in
connection with an Acceptable Transaction, neither the Company nor any of its
officers, directors or Affiliates will during the term of this Agreement, and,
to the Knowledge of the Company, no Person acting on their behalf will during
the term of this Agreement, take any of the actions referred to in clauses
(i) through (iii) of the immediately preceding sentence, other than, in the case
of clauses (ii) and (iii), compensation paid to Reedland in connection with the
settlement of each Fixed Request pursuant to the Placement Agent Engagement
Letter.

 

Section 5.33.        Securities Act. The Company has complied and shall comply
with all applicable federal and state securities laws in connection with the
offer, issuance and sale of the Securities hereunder, including, without
limitation, the applicable requirements of the Securities Act. Without limiting
the generality of the foregoing, the Company satisfies, and the Registration
Statement upon filing with the Commission and at the time it is declared
effective by the Commission shall satisfy, all of the requirements of the
Securities Act to register the resale of the Registrable Securities by the
Investor in accordance with the Registration Rights Agreement on a delayed or
continuous basis under Rule 415 under the Securities Act at then-prevailing
market prices, and not fixed prices. The Company is not, and has never been, an
issuer identified in, or subject to, Rule 144(i).

 

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Section 5.34.        Listing and Maintenance Requirements. The Company’s Common
Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and
the Company has taken no action designed to, or which to its Knowledge is likely
to have the effect of, terminating the registration of the Common Stock under
the Exchange Act, nor has the Company received any notification that the
Commission is contemplating terminating such registration. The Company has not,
in the 12 months preceding the Closing Date, received notice from any Trading
Market on which the Common Stock is or has been listed or quoted to the effect
that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company currently is, and has no reason
to believe that it will not in the foreseeable future continue to be, in
compliance with all such listing and maintenance requirements.

 

Section 5.35.        Application of Takeover Protections. The Company and its
Board of Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company’s Charter or the laws of its state of
incorporation that is or could become applicable to the Investor as a result of
the Investor and the Company fulfilling their respective obligations or
exercising their respective rights under the Transaction Documents (as
applicable), including, without limitation, as a result of the Company’s
issuance of the Securities and the Investor’s ownership of the Securities.

 

Section 5.36.        Acknowledgement Regarding Investor’s Acquisition of
Securities. The Company acknowledges and agrees that the Investor is acting
solely in the capacity of an arm’s length purchaser with respect to this
Agreement and the transactions contemplated by the Transaction Documents. The
Company further acknowledges that the Investor is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect to
this Agreement and the transactions contemplated by the Transaction Documents,
and any advice given by the Investor or any of its representatives or agents in
connection therewith is merely incidental to the Investor’s acquisition of the
Securities. The Company further represents to the Investor that the Company’s
decision to enter into the Transaction Documents to which it is a party has been
based solely on the independent evaluation of the transactions contemplated
thereby by the Company and its representatives. The Company acknowledges and
agrees that the Investor has not made and does not make any representations or
warranties with respect to the transactions contemplated by the Transaction
Documents other than those specifically set forth in Article IV of this
Agreement.

 

ARTICLE VI

ADDITIONAL COVENANTS

 

The Company covenants with the Investor, and the Investor covenants with the
Company, as follows, which covenants of one party are for the benefit of the
other party, during the Investment Period:

 

Section 6.1.           Securities Compliance. The Company shall notify the
Commission and the Trading Market, if and as applicable, in accordance with
their respective rules and regulations, of the transactions contemplated by the
Transaction Documents, and shall take all necessary action, undertake all
proceedings and obtain all registrations, permits, consents and

 

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approvals for the legal and valid issuance of the Securities to the Investor in
accordance with the terms of the Transaction Documents, as applicable.

 

Section 6.2.           Reservation of Common Stock. The Company has available
and the Company shall reserve and keep available at all times, free of
preemptive and other similar rights of stockholders, the requisite aggregate
number of authorized but unissued shares of Common Stock to enable the Company
to timely effect the issuance, sale and delivery in full to the Investor of all
Shares to be issued and delivered in respect of all Fixed Requests under this
Agreement, in any case prior to the issuance to the Investor of such Shares. The
number of shares of Common Stock so reserved from time to time, as theretofore
increased or reduced as hereinafter provided, may be reduced by the number of
shares of Common Stock actually delivered pursuant to this Agreement.

 

Section 6.3.           Registration and Listing.  The Company shall take all
action necessary to cause the Common Stock to continue to be registered as a
class of securities under Sections 12(b) or 12(g) of the Exchange Act, shall
comply with its reporting and filing obligations under the Exchange Act, and
shall not take any action or file any document (whether or not permitted by the
Securities Act or the Exchange Act) to terminate or suspend such registration or
to terminate or suspend its reporting and filing obligations under the Exchange
Act or Securities Act, except as permitted herein. The Company shall take all
action necessary to continue the listing and trading of its Common Stock and the
listing of the Commitment Shares and the Shares acquired or purchased by the
Investor hereunder on the Trading Market (including, without limitation,
maintaining sufficient tangible net assets), and shall comply with the Company’s
reporting, filing and other obligations under the bylaws, listed securities
maintenance standards and other rules and regulations of the FINRA and the
Trading Market. The Company shall not take any action which could be reasonably
expected to result in the delisting or suspension of the Common Stock on the
Trading Market.

 

Section 6.4.           Compliance with Laws.

 

(i)            The Company shall comply, and cause each Subsidiary to comply,
(a) with all laws, rules, regulations and orders applicable to the business and
operations of the Company and its Subsidiaries, except as would not have a
Material Adverse Effect and (b) with all applicable provisions of the Securities
Act and the Exchange Act and the rules and regulations of the FINRA and the
Trading Market.

 

(ii)           The Investor shall comply with all laws, rules, regulations and
orders applicable to the performance by it of its obligations under this
Agreement and its investment in the Securities, except as would not,
individually or in the aggregate, prohibit or otherwise interfere with the
ability of the Investor to enter into and perform its obligations under this
Agreement in any material respect. Without limiting the foregoing, the Investor
shall comply with all applicable provisions of the Securities Act and the
Exchange Act.

 

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Section 6.5.           Keeping of Records and Books of Account; Foreign Corrupt
Practices Act.

 

(i)            The Company shall keep and cause each Subsidiary to keep adequate
records and books of account, in which complete entries shall be made in
accordance with GAAP consistently applied, reflecting all financial transactions
of the Company and its Subsidiaries, and in which, for each fiscal year, all
proper reserves for depreciation, depletion, obsolescence, amortization, taxes,
bad debts and other purposes in connection with its business shall be made.  The
Company shall maintain a system of internal accounting controls that (a) pertain
to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the assets of the Company;
(b) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of management and directors of
the Company; and (c) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the Company’s
assets that could have a material effect on the Company’s financial statements.

 

(ii)           Neither the Company, nor any of its Subsidiaries, nor to the
Knowledge of the Company, any of their respective directors, officers, agents,
employees or any other persons acting on their behalf shall, in connection with
the operation of the Company’s and its Subsidiaries’ respective businesses,
(a) use any corporate funds for unlawful contributions, payments, gifts or
entertainment or to make any unlawful expenditures relating to political
activity to government officials, candidates or members of political parties or
organizations, (b) pay, accept or receive any unlawful contributions, payments,
expenditures or gifts, or (c) violate or operate in noncompliance with any
export restrictions, anti-boycott regulations, embargo regulations or other
applicable domestic or foreign laws and regulations.

 

(iii)          The Investor shall have the right, from time to time following
the Closing Date, to perform due diligence on the Company as it may deem
appropriate in its sole discretion. Subject to the requirements of Section 6.16
of this Agreement, from time to time from and after the Closing Date, the
Company shall make available for inspection and review by the Investor,
customary documentation allowing the Investor and/or its appointed counsel or
advisors to conduct due diligence; provided, however, that after the Closing
Date, the Investor’s continued due diligence shall not be a condition to the
issuance of any Fixed Request Notice or the settlement of any Fixed Request.

 

Section 6.6.           Limitations on Holdings and Issuances.  The Company shall
not be obligated to issue and the Investor shall not be obligated to purchase
any shares of Common Stock which would cause the aggregate number of shares of
Common Stock then beneficially owned (as calculated pursuant to Section 13(d) of
the Exchange Act and Rule 13d-3 promulgated thereunder) by the Investor and its
Affiliates to exceed the Ownership Limitation. The parties hereto hereby
acknowledge and agree that the provisions of this Section 6.6 shall not be
amended or waived under any circumstances.

 

Section 6.7.           Other Agreements and Alternate Transactions.

 

(i)            The Company shall not enter into, announce or recommend to its
stockholders any agreement, plan, arrangement or transaction in or of which the
terms thereof would restrict, materially delay, conflict with or impair the
ability or right of the Company to

 

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perform its obligations under the Transaction Documents to which it is a party,
including, without limitation, the obligation of the Company to deliver the
Commitment Shares to the Investor not later than 4:00 p.m. (New York time) on
the second Trading Day immediately following the Closing Date and to deliver the
Shares to the Investor in respect of a Fixed Request on the applicable
Settlement Date.

 

(ii)           The Company shall notify the investor promptly (but in no event
later than 48 hours) if it enters into any agreement, plan, arrangement or
transaction with a third party, the principal purpose of which is to implement,
effect or consummate during a Pricing Period an Alternate Transaction that does
not constitute an Acceptable Transaction (an “Alternate Transaction Notice”);
provided, however, that the Company shall notify the Investor promptly (but in
no event later than 24 hours) (an “Aggregation Notice”) if it enters into any
agreement, plan, arrangement or transaction with a third party, the principal
purpose of which is to implement, effect or consummate at any time during the
term of this Agreement an Alternate Transaction that the Company reasonably
believes, upon advice of legal counsel, may be aggregated with the transactions
contemplated by the Transaction Documents for purposes of determining whether
approval of the Company’s stockholders is required under any bylaw, listed
securities maintenance standards or other rules of the Trading Market and, if
required under applicable law, including, without limitation, Regulation FD
promulgated by the Commission, or under the applicable rules and regulations of
the Trading Market, the Company shall simultaneously publicly disclose such
information in accordance with Regulation FD and the applicable rules and
regulations of the Trading Market. For purposes of this Section 6.7(ii), any
press release issued by, or Commission Document filed by, the Company shall
constitute sufficient notice, provided that it is issued or filed, as the case
may be, within the time requirements set forth in the first sentence of this
Section 6.7(ii) for an Alternate Transaction Notice or an Aggregation Notice, as
applicable.  For greater certainty, the entry by the Company into any agreement,
plan, arrangement or transaction with a third party to implement, effect or
consummate an Alternate Transaction (whether or not constituting an Acceptable
Transaction) outside of a Pricing Period shall not trigger any requirement for
the Company to deliver an Alternate Transaction Notice (it being acknowledged
and agreed that nothing contained in this sentence shall limit or modify in any
respect the Company’s obligation to deliver an Aggregation Notice to the extent
required by the proviso to the first sentence of this Section 6.7(ii)). During
any Pricing Period with respect to which the Company is required to provide an
Alternate Transaction Notice pursuant to the first sentence of this
Section 6.7(ii), the Investor shall purchase the shares subject to the
applicable Fixed Request at the lower of (x) the price therefor in accordance
with the terms of this Agreement or (y) the third party’s per share purchase
price (or exercise or conversion price, as the case may be) in connection with
the Alternate Transaction, net of such third party’s discounts, Warrant Value
and fees.

 

(iii)          For all purposes of this Agreement, an “Alternate Transaction”
shall mean (x) the issuance of Common Stock for a purchase price less than, or
the issuance of securities convertible into or exchangeable for Common Stock at
an exercise or conversion price (as the case may be) less than, the then Current
Market Price of the Common Stock (including, without limitation, pursuant to any
“equity line” or other financing that is substantially similar to the financing
provided for under this Agreement, or pursuant to any other transaction in which
the purchase, conversion or exchange price for such Common Stock is determined
using a floating discount or other post-issuance adjustable discount to the then
Current Market Price), in

 

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each case, after all fees, discounts, Warrant Value and commissions associated
with the transaction (a “Below Market Offering”); (y) the implementation by the
Company of any mechanism in respect of any securities convertible into or
exchangeable for Common Stock for the reset of the purchase price of the Common
Stock to below the then Current Market Price of the Common Stock (including,
without limitation, any antidilution or similar adjustment provisions in respect
of any Company securities, but specifically excluding customary antidilution
adjustments for stock splits, stock dividends, stock combinations,
recapitalizations, reclassifications and similar events); or (z) the issuance of
options, warrants or similar rights of subscription or the issuance of
convertible equity or debt securities, in each case not constituting an
Acceptable Transaction. For all purposes of this Agreement, an “Acceptable
Transaction” shall mean the issuance by the Company of: (1) debt securities or
any class or series of preferred stock of the Company, in each case that are not
convertible into or exchangeable for Common Stock or securities convertible into
or exchangeable for Common Stock; (2) shares of Common Stock or securities
convertible into or exchangeable for Common Stock other than in connection with
a Below Market Offering, and the issuance of shares of Common Stock upon the
conversion, exercise or exchange thereof; (3) shares of Common Stock or
securities convertible into or exchangeable for Common Stock in connection with
an underwritten public offering of equity securities of the Company or a
registered direct public offering of equity securities of the Company, in each
case where the price per share of such Common Stock (or the conversion or
exercise price of such securities, as applicable) is fixed concurrently with the
execution of definitive documentation relating to such offering, and the
issuance of shares of Common Stock upon the conversion, exercise or exchange
thereof; (4) shares of Common Stock or securities convertible into or
exchangeable for Common Stock in connection with awards under the Company’s
benefit and equity plans and arrangements or shareholder rights plan (as
applicable), and the issuance of shares of Common Stock upon the conversion,
exercise or exchange thereof; (5) shares of Common Stock issuable upon the
conversion or exchange of equity awards or convertible or exchangeable
securities outstanding as of the Closing Date; (6) shares of Common Stock in
connection with stock splits, stock dividends, stock combinations,
recapitalizations, reclassifications and similar events; (7) shares of Common
Stock or securities convertible into or exchangeable for Common Stock issued in
connection with the acquisition, license or sale of one or more other companies,
equipment, technologies, other assets or lines of business, and the issuance of
shares of Common Stock upon the conversion, exercise or exchange thereof;
(8) shares of Common Stock or securities convertible into or exchangeable for
Common Stock or similar rights to subscribe for the purchase of shares of Common
Stock in connection with technology sharing, collaboration, partnering,
licensing, research and joint development agreements (or amendments thereto)
with third parties, and the issuance of shares of Common Stock upon the
conversion, exercise or exchange thereof; (9) shares of Common Stock or
securities convertible into or exchangeable for Common Stock to employees,
consultants and/or advisors as consideration for services rendered or to be
rendered, and the issuance of shares of Common Stock upon the conversion,
exercise or exchange thereof; and (10) shares of Common Stock or securities
convertible into or exchangeable for Common Stock issued in connection with
capital or equipment financings and/or real property lease arrangements, and the
issuance of shares of Common Stock upon the conversion, exercise or exchange
thereof.

 

Section 6.8.           Corporate Existence.  The Company shall take all steps
necessary to preserve and continue the corporate existence of the Company;
provided, however, that, except

 

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as provided in Section 6.9, nothing in this Agreement shall be deemed to
prohibit the Company from engaging in any Fundamental Transaction with another
Person.

 

Section 6.9.           Fundamental Transaction. If a Fixed Request Notice has
been delivered to the Investor and the transactions contemplated therein have
not yet been fully settled in accordance with the terms and conditions of this
Agreement, the Company shall not effect any Fundamental Transaction until the
expiration of five Trading Days following the last Settlement Date with respect
to such Fixed Request Notice.

 

Section 6.10.        Delivery of Registration Statement and Prospectus;
Subsequent Changes. In accordance with the Registration Rights Agreement, the
Company shall deliver or make available to the Investor and its counsel, without
charge, an electronic copy of the Registration Statement, the Prospectus and all
amendments and supplements to the Registration Statement or Prospectus that are
filed with the Commission during any period in which a Prospectus (or in lieu
thereof, the notice referred to in Rule 173(a) under the Securities Act) is
required by the Securities Act to be delivered in connection with resales of the
Registrable Securities, in each case as soon as reasonably practicable after the
filing thereof with the Commission. At or before 8:30 a.m., New York City time,
on each Settlement Date, the Company shall file with the Commission a Prospectus
Supplement pursuant to Rule 424(b) under the Securities Act (whether or not such
a prospectus supplement is technically required by such rule) with respect to
the applicable Fixed Request disclosing the total Fixed Amount Requested, the
number of Shares to be issued and sold to the Investor on such Settlement Date,
the total purchase price therefor, the applicable Discount Price and the net
proceeds to be received by the Company therefrom. The Company shall provide the
Investor a reasonable opportunity to comment on a draft of each such Prospectus
Supplement, shall give due consideration to all such comments and shall deliver
or make available to the Investor, without charge, an electronic copy of the
Prospectus on each applicable Settlement Date. The Company consents to the use
of the Prospectus (and of any Prospectus Supplement thereto) in accordance with
the provisions of the Securities Act and with the securities or “blue sky” laws
of the jurisdictions in which the Registrable Securities may be sold by the
Investor, in connection with the resale of the Registrable Securities and for
such period of time thereafter as the Prospectus (or in lieu thereof, the notice
referred to in Rule 173(a) under the Securities Act) is required by the
Securities Act to be delivered in connection with resales of the Registrable
Securities. If during such period of time any event shall occur that in the
reasonable judgment of the Company and its counsel is required to be set forth
in the Registration Statement, the Prospectus or any Prospectus Supplement or
should be set forth therein in order to make the statements made therein (in the
case of the Prospectus or any Prospectus Supplement, in light of the
circumstances under which they were made) not misleading, or if it is necessary
to amend the Registration Statement or supplement or amend the Prospectus or any
Prospectus Supplement to comply with the Securities Act or any other applicable
law or regulation, the Company shall forthwith (i) notify the Investor to
suspend the resale of Registrable Securities during such period and (ii) prepare
and file with the Commission an appropriate amendment to the Registration
Statement or Prospectus Supplement to the Prospectus, and shall expeditiously
furnish or make available to the Investor an electronic copy thereof, so as to
correct such statement or omission or effect such compliance.

 

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Section 6.11.        Amendments to the Registration Statement; Prospectus
Supplements. Except as provided in this Agreement and other than periodic
reports required to be filed pursuant to the Exchange Act, the Company shall not
file with the Commission any amendment to the Registration Statement that
relates to the Investor, the Transaction Documents or the transactions
contemplated thereby or file with the Commission any Prospectus Supplement that
relates to the Investor, the Transaction Documents or the transactions
contemplated thereby with respect to which (a) the Investor shall not previously
have been advised, (b) the Company shall not have given due consideration to any
comments thereon received from the Investor or its counsel, or (c) the Investor
shall reasonably object after being so advised, unless it is necessary to amend
the Registration Statement or make any supplement to the Prospectus to comply
with the Securities Act or any other applicable law or regulation, in which case
the Company shall immediately so inform the Investor, the Investor shall be
provided with a reasonable opportunity to review and comment upon any disclosure
relating to the Investor and the Company shall expeditiously furnish to the
Investor an electronic copy thereof. In addition, for so long as, in the
reasonable opinion of counsel for the Investor, the Prospectus (or in lieu
thereof, the notice referred to in Rule 173(a) under the Securities Act) is
required to be delivered in connection with any sales of Registrable Securities
by the Investor, the Company shall not file any Prospectus Supplement without
delivering or making available a copy of such Prospectus Supplement to the
Investor promptly.

 

Section 6.12.        Stop Orders.  The Company shall immediately notify the
Investor, and confirm in writing, upon its becoming aware of the occurrence of
any of the following events in respect of the Registration Statement or related
Prospectus or Prospectus Supplement relating to an offering of Registrable
Securities: (i) receipt of any request by the Commission or any other federal or
state governmental authority for any additional information relating to the
Registration Statement, the Prospectus or any Prospectus Supplement, or for any
amendment of or supplement to the Registration Statement, the Prospectus, or any
Prospectus Supplement; (ii) the issuance by the Commission or any other federal
or state governmental authority of any stop order suspending the effectiveness
of the Registration Statement or prohibiting or suspending the use of the
Prospectus or any Prospectus Supplement, or of the suspension of qualification
or exemption from qualification of the Securities for offering or sale in any
jurisdiction, or the initiation or contemplated initiation of any proceeding for
such purpose; and (iii) the occurrence of any event or the existence of any
condition or state of facts, which makes any statement of a material fact made
in the Registration Statement, the Prospectus or any Prospectus Supplement
untrue or which requires the making of any additions to or changes to the
statements then made in the Registration Statement, the Prospectus or any
Prospectus Supplement in order to state a material fact required by the
Securities Act to be stated therein or necessary in order to make the statements
then made therein (in the case of the Prospectus or any Prospectus Supplement,
in light of the circumstances under which they were made) not misleading, or
which requires an amendment to the Registration Statement or a supplement to the
Prospectus or any Prospectus Supplement to comply with the Securities Act or any
other law (other than the transactions contemplated by any Fixed Request Notice
and the settlement thereof). The Company shall not be required to disclose to
the Investor the substance or specific reasons of any of the events set forth in
clauses (i) through (iii) of the immediately preceding sentence, but rather,
shall only be required to disclose that the event has occurred.  The Company
shall not issue any Fixed Request during the continuation of any of the
foregoing events. If at any time the Commission or any other federal or state
governmental authority shall issue any stop order suspending the

 

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effectiveness of the Registration Statement or prohibiting or suspending the use
of the Prospectus or any Prospectus Supplement, the Company shall use
commercially reasonable efforts to obtain the withdrawal of such order at the
earliest possible time.

 

Section 6.13.        Selling Restrictions.

 

(i)            Except as expressly set forth below, the investor covenants that
from and after the Closing Date through and including the Trading Day next
following the expiration or termination of this Agreement (the “Restricted
Period”), neither the Investor nor any of its Affiliates nor any entity managed
or controlled by the Investor (collectively, the “Restricted Persons” and each
of the foregoing is referred to herein as a “Restricted Person”) shall, directly
or indirectly, (i) intentionally engage in any Short Sales involving the
Company’s securities or (ii) grant any option to purchase, or acquire any right
to dispose of or otherwise dispose for value of, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for any shares of
Common Stock, or enter into any swap, hedge or other similar agreement that
transfers, in whole or in part, the economic risk of ownership of the Common
Stock. Notwithstanding the foregoing, it is expressly understood and agreed that
nothing contained herein shall (without implication that the contrary would
otherwise be true) prohibit any Restricted Person during the Restricted Period
from: (1) selling “long” (as defined under Rule 200 promulgated under Regulation
SHO) the Shares and the Commitment Shares; (2) selling a number of shares of
Common Stock equal to the number of Shares that such Restricted Person is or may
be obligated to purchase under a pending Fixed Request Notice but has not yet
taken possession of so long as such Restricted Person (or the Broker-Dealer, as
applicable) delivers the Shares purchased pursuant to such Fixed Request Notice
to the purchaser thereof or the applicable Broker-Dealer; provided, however,
such Restricted Person (or the applicable Broker-Dealer, as applicable) shall
not be required to so deliver any such Shares subject to such Fixed Request
Notice if the Company fails for any reason to deliver such Shares to the
Investor on the applicable Settlement Date upon the terms and subject to the
provisions of this Agreement; or (3) executing one or more transactions of any
kind or nature from time to time and at any time so long as such transaction or
transactions (as the case may be) do not result, at any one time during the
Restricted Period, in a then-outstanding aggregate open “short” position (within
the meaning of Rule 200 under Regulation SHO) and open “put equivalent
positions” (within the meaning of Section 16 of the Exchange Act) (without
duplication) in a number of shares of Common Stock that exceeds 114,200 shares
of Common Stock (as adjusted for stock dividends, splits, combinations and other
similar events after the date hereof) (it being understood and agreed that
clause (2) above shall not be taken into account in making determinations under
this clause (3)).

 

(ii)           In addition to the foregoing, in connection with any sale of
Securities (including any sale permitted by paragraph (i) above), the investor
shall comply in all respects with all applicable laws, rules, regulations and
orders, including, without limitation, the requirements of the Securities Act
and the Exchange Act.

 

Section 6.14.        Effective Registration Statement.  During the Investment
Period, the Company shall use its best efforts to maintain the continuous
effectiveness of the Registration Statement under the Securities Act.

 

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Section 6.15.        Blue Sky.  The Company shall take such action, if any, as
is necessary in order to obtain an exemption for or to qualify the Securities
for sale to the Investor pursuant to the Transaction Documents and the
subsequent resale of Registrable Securities by the Investor, in each case, under
applicable state securities or “blue sky” laws and shall provide evidence of any
such action so taken to the Investor from time to time following the Closing
Date.

 

Section 6.16.        Non-Public Information.  Neither the Company or any of its
Subsidiaries, nor any of their respective directors, officers, employees or
agents shall disclose any material non-public information about the Company to
the Investor, unless a simultaneous public announcement thereof is made by the
Company in the manner contemplated by Regulation FD. In the event of a breach of
the foregoing covenant by the Company or any of its Subsidiaries, or any of
their respective directors, officers, employees and agents (as determined in the
reasonable good faith judgment of the Investor), in addition to any other remedy
provided herein or in the other Transaction Documents, the Investor shall have
the right to make a public disclosure, in the form of a press release, public
advertisement or otherwise, of such material, non-public information without the
prior approval by the Company, any of its Subsidiaries, or any of their
respective directors, officers, employees or agents. The Investor shall not have
any liability to the Company, any of its Subsidiaries, or any of their
respective directors, officers, employees, stockholders or agents, for any such
disclosure.

 

Section 6.17.        Broker/Dealer.  The Investor shall use one or more
broker-dealers to effectuate all sales, if any, of Securities that it may
purchase or otherwise acquire from the Company pursuant to the Transaction
Documents, as applicable, which (or whom) shall be unaffiliated with the
Investor and Reedland and not then currently engaged or used by the Company
(collectively, the “Broker-Dealer”). The Investor shall, from time to time,
provide the Company with all information regarding the Broker-Dealer reasonably
requested by the Company. The Investor shall be solely responsible for all fees
and commissions of the Broker-Dealer, which shall not exceed customary brokerage
fees and commissions.

 

Section 6.18.        Additional Registration Statements. Until the effective
date of the Registration Statement required to be filed by the Company pursuant
to Section 2(a) of the Registration Rights Agreement which covers all of the
Registrable Securities and at any time while such Registration Statement is not
effective, the Company shall not file a registration statement under the
Securities Act relating to securities that are not the Registrable Securities.

 

Section 6.19.        Disclosure Schedule.

 

(i)            The Company may, from time to time, update the Disclosure
Schedule as may be required to satisfy the condition set forth in Section
7.2(i).  For purposes of this Section 6.19, any disclosure made in a schedule to
the Compliance Certificate substantially in the form attached hereto as Exhibit
D shall be deemed to be an update of the Disclosure Schedule. Notwithstanding
anything in this Agreement to the contrary, no update to the Disclosure Schedule
pursuant to this Section 6.19 shall cure any breach of a representation or
warranty of the Company contained in this Agreement and shall not affect any of
the Investor’s rights or remedies with respect thereto.

 

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(ii)           Notwithstanding anything to the contrary contained in the
Disclosure Schedule or in this Agreement, the information and disclosure
contained in any Schedule of the Disclosure Schedule shall be deemed to be
disclosed and incorporated by reference in any other Schedule of the Disclosure
Schedule as though fully set forth in such Schedule for which applicability of
such information and disclosure is readily apparent on its face.  The fact that
any item of information is disclosed in the Disclosure Schedule shall not be
construed to mean that such information is required to be disclosed by this
Agreement.  Except as expressly set forth in this Agreement, such information
and the thresholds (whether based on quantity, qualitative characterization,
dollar amounts or otherwise) set forth herein shall not be used as a basis for
interpreting the terms “material” or “Material Adverse Effect” or other similar
terms in this Agreement.

 

ARTICLE VII

CONDITIONS TO CLOSING AND CONDITIONS TO THE SALE AND

PURCHASE OF THE SHARES

 

Section 7.1.           Conditions Precedent to Closing. The Closing is subject
to the satisfaction of each of the conditions set forth in this Section 7.1.

 

(i)            Accuracy of the Investor’s Representations and Warranties.  The
representations and warranties of the investor contained in this Agreement (a)
that are not qualified by “materiality” shall be true and correct in all
material respects as of the Closing Date, except to the extent such
representations and warranties are as of another date, in which case, such
representations and warranties shall be true and correct in all material
respects as of such other date and (b) that are qualified by “materiality” shall
be true and correct as of the Closing Date, except to the extent such
representations and warranties are as of another date, in which case, such
representations and warranties shall be true and correct as of such other date.

 

(ii)           Accuracy of the Company’s Representations and Warranties.  The
representations and warranties of the Company contained in this Agreement (a)
that are not qualified by “materiality” or “Material Adverse Effect” shall be
true and correct in all material respects as of the Closing Date, except to the
extent such representations and warranties are as of another date, in which
case, such representations and warranties shall be true and correct in all
material respects as of such other date and (b) that are qualified by
“materiality” or “Material Adverse Effect” shall be true and correct as of the
Closing Date, except to the extent such representations and warranties are as of
another date, in which case, such representations and warranties shall be true
and correct as of such other date.

 

(iii)          Payment of Document Preparation fee; Issuance of Commitment
Shares. On or prior to the Closing Date, the Company shall have paid by wire
transfer of immediately available funds to an account designated by the
Investor’s counsel, the Document Preparation Fee in accordance with Section
10.1(i) hereof, all of which fees shall be non-refundable regardless of whether
any Fixed Requests are issued by the Company or settled hereunder. On the
Closing Date, the Company shall deliver irrevocable instructions to its transfer
agent to issue to the investor, not later than 4:00 p.m. (New York city time) on
the second Trading Day immediately following the Closing Date, a certificate
representing the Commitment Shares in the name of the Investor or its designee
(in which case such designee name shall have

 

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been provided to the Company prior to the Closing Date), in consideration for
the Investor’s execution and delivery of this Agreement. Such certificate shall
be delivered to the Investor by overnight courier at its address set forth in
Section 10.4 hereof. For the avoidance of doubt, all of the Commitment Shares
shall be fully earned as of the Closing Date regardless of whether any Fixed
Requests are issued by the Company or settled hereunder.

 

(iv)          Closing Deliverables. At the Closing, counterpart signature pages
of this Agreement and the Registration Rights Agreement executed by each of the
parties hereto shall be delivered as provided in Section 2.2. Simultaneously
with the execution and delivery of this Agreement and the Registration Rights
Agreement, the Investor’s counsel shall have received (a) an opinion of outside
counsel to the Company, dated the Closing Date, in the form mutually agreed to
by the parties hereto, (b) a certificate from the Company, dated the Closing
Date, in the form of Exhibit C hereto, (c) a copy of the irrevocable
instructions to the Company’s transfer agent regarding the issuance to the
Investor of the certificate representing the Commitment Shares, and (d) a copy
of the Placement Agent Engagement Letter executed by each of the parties
thereto.

 

Section 7.2.           Conditions Precedent to a Fixed Request. The right of the
Company to deliver a Fixed Request Notice and the obligation of the Investor to
accept a Fixed Request Notice and to acquire and pay for the Shares in
accordance therewith is subject to the satisfaction, at each Fixed Request
Exercise Date and at each Settlement Date (except as otherwise expressly set
forth below), of each of the conditions set forth in this Section 7.2.

 

(i)            Accuracy of the Company’s Representations and Warranties.  The
representations and warranties of the Company contained in this Agreement (a)
that are not qualified by “materiality” or “Material adverse Effect” shall have
been true and correct in all material respects when made and shall be true and
correct in all material respects as of the applicable Fixed Request Exercise
Date and each applicable Settlement Date with the same force and effect as if
made on such dates, except to the extent such representations and warranties are
as of another date, in which case, such representations and warranties shall be
true and correct in all material respects as of such other date and (b) that are
qualified by “materiality” or “Material Adverse Effect” shall have been true and
correct when made and shall be true and correct as of the applicable Fixed
Request Exercise Date and each applicable Settlement Date with the same force
and effect as if made on such dates, except to the extent such representations
and warranties are as of another date, in which case, such representations and
warranties shall be true and correct as of such other date.

 

(ii)           Performance of the Company.  The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement and the Registration Rights Agreement
to be performed, satisfied or complied with by the Company at or prior to the
applicable Fixed Request Exercise Date and each applicable Settlement Date. The
Company shall have delivered to the Investor on each applicable Settlement Date
the Compliance Certificate substantially in the form attached hereto as Exhibit
D.

 

(iii)          Registration Statement Effective. The Registration Statement
covering the resale by the Investor of the Registrable Securities shall have
been declared effective under

 

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the Securities Act by the Commission and shall remain effective, and the
Investor shall be permitted to utilize the Prospectus therein to resell (a) all
of the Commitment Shares, (b) all of the Shares issued pursuant to all prior
Fixed Request Notices, and (c) all of the Shares issuable pursuant to the
applicable Fixed Request Notice.

 

(iv)          No Material Notices. None of the following events shall have
occurred and be continuing: (a) receipt of any request by the Commission or any
other federal or state governmental authority for any additional information
relating to the Registration Statement, the Prospectus or any Prospectus
Supplement, or for any amendment of or supplement to the Registration Statement,
the Prospectus, or any Prospectus Supplement; (b) the issuance by the Commission
or any other federal or state governmental authority of any stop order
suspending the effectiveness of the Registration Statement or prohibiting or
suspending the use of the Prospectus or any Prospectus Supplement, or of the
suspension of qualification or exemption from qualification of the securities
for offering or sale in any jurisdiction, or the initiation or contemplated
initiation of any proceeding for such purpose; or (c) the occurrence of any
event or the existence of any condition or state of facts, which makes any
statement of a material fact made in the Registration Statement, the Prospectus
or any Prospectus Supplement untrue or which requires the making of any
additions to or changes to the statements then made in the Registration
Statement, the Prospectus or any Prospectus Supplement in order to state a
material fact required by the Securities Act to be stated therein or necessary
in order to make the statements then made therein (in the case of the Prospectus
or any Prospectus Supplement, in light of the circumstances under which they
were made) not misleading, or which requires an amendment to the Registration
Statement or a supplement to the Prospectus or any Prospectus Supplement to
comply with the Securities Act or any other law (other than the transactions
contemplated by the applicable Fixed Request Notice and the settlement thereof).
The Company shall have no Knowledge of any event that could reasonably be
expected to have the effect of causing the suspension of the effectiveness of
the Registration Statement or the prohibition or suspension of the use of the
Prospectus or any Prospectus Supplement in connection with the resale of the
Registrable Securities by the Investor.

 

(v)           Other Commission Filings. The Current Report and the Form D shall
have been filed with the Commission, as required pursuant to Section 2.3, all
Prospectus Supplements required pursuant to Sections 2.3 and 6.10 shall have
been filed with the Commission on each applicable Settlement Date, and all other
Prospectus Supplements required by Rule 424 under the Securities Act to have
been filed with the Commission in accordance with the Registration Rights
Agreement shall have been filed with the Commission within the applicable time
period prescribed for such filing by Rule 424. All reports, schedules,
registrations, forms, statements, information and other documents required to
have been filed by the Company with the Commission pursuant to the reporting
requirements of the Exchange Act, including all material required to have been
filed pursuant to Section 13(a) or 15(d) of the Exchange Act, shall have been
filed with the Commission within the applicable time period prescribed for such
filing under the Exchange Act.

 

(vi)          No Suspension of Trading in or Delisting of Common Stock.  Trading
in the Common Stock shall not have been suspended by the Commission, the Trading
Market or the FINRA (except for any suspension of trading of limited duration
agreed to by the Company, which suspension shall be terminated prior to the
applicable Fixed Request Exercise Date and

 

36

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each applicable Settlement Date), the Company shall not have received any final
and non-appealable notice that the listing or quotation of the Common Stock on
the Trading Market shall be terminated on a date certain, and, at any time prior
to the applicable Fixed Request Exercise Date and applicable Settlement Date,
trading in securities generally as reported on the Trading Market shall not have
been suspended or limited, nor shall a banking moratorium have been declared
either by the United States or New York State authorities, nor shall there have
occurred any material outbreak or escalation of hostilities or other national or
international calamity or crisis of such magnitude in its effect on, or any
material adverse change in, any financial, credit or securities market.

 

(vii)         Compliance with Laws.  The Company shall have complied with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances in connection with the execution, delivery and performance of this
Agreement and the other Transaction Documents to which it is a party and the
consummation of the transactions contemplated hereby and thereby, including,
without limitation, the Company shall have obtained all permits and
qualifications required by any applicable state securities or “blue sky” laws
for the offer and sale of the Securities by the Company to the Investor and the
subsequent resale of the Registrable Securities by the Investor (or shall have
the availability of exemptions therefrom).

 

(viii)        No Injunction.  No statute, regulation, order, decree, writ,
ruling or injunction shall have been enacted, entered, promulgated, threatened
or endorsed by any court or governmental authority of competent jurisdiction
which prohibits the consummation of or which would materially modify or delay
any of the transactions contemplated by the Transaction Documents.

 

(ix)           No Proceedings or Litigation.  No action, suit or proceeding
before any arbitrator or any court or governmental authority shall have been
commenced or threatened, and no inquiry or investigation by any governmental
authority shall have been commenced or threatened, against the Company or any
Subsidiary, or any of the officers, directors or affiliates of the Company or
any Subsidiary, seeking to restrain, prevent or change the transactions
contemplated by the Transaction Documents, or seeking damages in connection with
such transactions.

 

(x)            Aggregate Limit.  The issuance and sale of the Shares issuable
pursuant to such Fixed Request Notice shall not violate Sections 3.2, 3.10 and
6.6 hereof.

 

(xi)           Shares Authorized and Delivered. The Shares issuable pursuant to
such Fixed Request Notice shall have been duly authorized by all necessary
corporate action of the company. The Company shall have delivered all Shares
relating to all prior Fixed Request Notices, as applicable.

 

(xii)          Listing of Securities.  Either (a) the Securities shall have been
approved for listing or quotation on the Trading Market, subject only to notice
of issuance, or (b) the Company shall have submitted to the Trading Market, at
or prior to the Closing Date, a notification form of listing of additional
shares related to the Commitment Shares and, at or prior to the Fixed Request
Exercise Date, a notification form of listing of additional shares related to

 

37

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the Shares issuable pursuant to such Fixed Request, in each case in accordance
with the bylaws, listed securities maintenance standards and other rules of the
Trading Market.

 

(xiii)         No Material Adverse Effect. No condition, occurrence, state of
facts or event constituting a Material Adverse Effect shall have occurred and be
continuing.

 

(xiv)        No Restrictive Legends. If requested by the Investor from and after
the Effective Date, the Company shall have either (i) issued and delivered (or
caused to be issued and delivered) to the Investor a certificate representing
the Commitment Shares that is free from all restrictive and other legends or
(ii) caused the Company’s transfer agent to credit the Investor’s or its
designee’s account at DTC through its Deposit/Withdrawal at Custodian (DWAC)
system with a number of shares of Common Stock equal to the number of Commitment
Shares represented by the certificate delivered by the Investor to the Company
in accordance with Section 10.1(iv) of this Agreement.

 

(xv)         Opinion of Counsel; Bring-Down. Prior to the first Fixed Request
Exercise Date, the Investor shall have received an opinion from outside counsel
to the Company, in the form mutually agreed to by the parties hereto. On each
Settlement Date, the Investor shall have received an opinion “bring down” from
outside counsel to the Company, dated the applicable Settlement Date, in the
form mutually agreed to by the parties hereto.

 

(xvi)        Payment of Due Diligence Expenses.  The Company shall have paid by
wire transfer of immediately available funds to an account designated by the
Investor, the due diligence expenses incurred by the investor in accordance with
the provisions of Section 10.1(i) of this Agreement.

 

ARTICLE VIII

TERMINATION

 

Section 8.1.           Termination.  Unless earlier terminated as provided
hereunder, this Agreement shall terminate automatically on the earlier to occur
of (i) the first day of the month next following the 24-month anniversary of the
Effective Date (it being hereby acknowledged and agreed that such term may not
be extended by the parties hereto) and (ii) the date on which the Investor shall
have purchased the Aggregate Limit. Subject to Section 8.3, the Company may
terminate this Agreement effective upon five Trading Days’ prior written notice
to the Investor in accordance with Section 10.4; provided, however, that (A) the
Company shall have paid all fees and amounts and issued all Commitment Shares
owed to the Investor or its counsel, as applicable, pursuant to Section 10.1 of
this Agreement prior to such termination, and (B) prior to issuing any press
release, or making any public statement or announcement, with respect to such
termination, the Company shall consult with the Investor and shall obtain the
Investor’s consent to the form and substance of such press release or other
disclosure, which consent shall not be unreasonably delayed or withheld. Subject
to Section 8.3, this Agreement may be terminated at any time by the mutual
written consent of the parties, effective as of the date of such mutual written
consent unless otherwise provided in such written consent.

 

Section 8.2.           Other Termination.  Subject to Section 8.3, the Investor
shall have the right to terminate this Agreement effective upon one Trading
Day’s prior written notice to the

 

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Company in accordance with Section 10.4, if: (i) any condition, occurrence,
state of facts or event constituting a Material Adverse Effect has occurred and
is continuing; (ii) the Company shall have provided the Investor an Aggregation
Notice pursuant to Section 6.7(ii); (iii) a Fundamental Transaction shall have
occurred; (iv) the Registration Statement is not filed by the Filing Deadline
(as defined in the Registration Statement) or declared effective by the
Effectiveness Deadline (as defined in the Registration Rights Agreement), or the
Company is otherwise in breach or default in any material respect under any of
the other provisions of the Registration Rights Agreement, and, if such failure,
breach or default is capable of being cured, such failure, breach or default is
not cured within 10 Trading Days after notice of such failure, breach or default
is delivered to the Company pursuant to Section 10.4; (v) while the Registration
Statement is required to be maintained effective pursuant to the terms of the
Registration Rights Agreement, the effectiveness of the Registration Statement
lapses for any reason (including, without limitation, the issuance of a stop
order) or the Registration Statement, the Prospectus or any Prospectus
Supplement is otherwise unavailable to the Investor for the resale of all of the
Registrable Securities in accordance with the terms of the Registration Rights
Agreement, and such lapse or unavailability continues for a period of 10
consecutive Trading Days or for more than an aggregate of 30 Trading Days in any
365-day period, other than due to acts of the Investor (unless all of such
Registrable Securities may be resold by the Investor without registration and
without any time, volume or manner of sale limitations pursuant to Rule 144);
(vi) trading in the Common Stock on the Trading Market shall have been suspended
or the Common Stock shall have failed to be listed or quoted on the Trading
Market, and such suspension or failure continues for a period of 10 consecutive
Trading Days or for more than an aggregate of 30 Trading Days in any 365-day
period; (vii) the Company has filed for and/or is subject to any bankruptcy,
insolvency, reorganization or liquidation proceedings or other proceedings for
relief under any bankruptcy law or any law for the relief of debtors instituted
by or against the Company or (viii) the Company is in material breach or default
of this Agreement, and, if such breach or default is capable of being cured,
such breach or default is not cured within 10 Trading Days after notice of such
breach or default is delivered to the Company pursuant to Section 10.4. Unless
notification thereof is required elsewhere in this Agreement (in which case such
notification shall be provided in accordance with such other provision), the
Company shall promptly (but in no event later than 24 hours) notify the Investor
(and, if required under applicable law, including, without limitation,
Regulation FD promulgated by the Commission, or under the applicable rules and
regulations of the Trading Market, the Company shall publicly disclose such
information in accordance with Regulation FD and the applicable rules and
regulations of the Trading Market) upon becoming aware of any of the events set
forth in the immediately preceding sentence.

 

Section 8.3.           Effect of Termination.  In the event of termination by
the Company or the Investor pursuant to Section 8.1 or 8.2, as applicable,
written notice thereof shall forthwith be given to the other party as provided
in Section 10.4 and the transactions contemplated by this Agreement shall be
terminated without further action by either party. If this Agreement is
terminated as provided in Section 8.1 or 8.2 herein, this Agreement shall become
void and of no further force and effect, except that (i) the provisions of
Article V (Representations and Warranties of the Company), Article IX
(Indemnification), Article X (Miscellaneous) and this Article VIII (Termination)
shall remain in full force and effect indefinitely notwithstanding such
termination, and, (ii) so long as the Investor owns any Securities, the
covenants and agreements of the Company contained in Article VI (Additional
Covenants) shall remain in full force and

 

39

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notwithstanding such termination for a period of six months following such
termination. Notwithstanding anything in this Agreement to the contrary, no
termination of this Agreement by any party shall (i) become effective prior to
the first Trading Day immediately following the last Settlement Date related to
any pending Fixed Request Notice that has not been fully settled in accordance
with the terms and conditions of this Agreement (it being hereby acknowledged
and agreed that no termination of this Agreement shall limit, alter, modify,
change or otherwise affect any of the Company’s or the Investor’s rights or
obligations under the Transaction Documents with respect to any pending Fixed
Request, and that the parties shall fully perform their respective obligations
with respect to any such pending Fixed Request under the Transaction Documents,
provided all of the conditions to the settlement thereof set forth in Article
VII are timely satisfied), (ii) limit, alter, modify, change or otherwise affect
the Company’s or the Investor’s rights or obligations under the Registration
Rights Agreement, all of which shall survive any such termination (it being
hereby acknowledged and agreed that all of the Commitment Shares shall be fully
earned as of the Closing Date, regardless of whether any Fixed Requests are
issued by the Company or settled hereunder), (iii) affect any Commitment Shares
previously issued or delivered, or any rights of any holder thereof, or (iv)
affect any cash fees paid to the Investor or its counsel pursuant to Section
10.1 (including, without limitation, the Document Preparation Fee), in each case
all of which fees shall be non-refundable regardless of whether any Fixed
Requests are issued by the Company or settled hereunder. Nothing in this Section
8.3 shall be deemed to release the Company or the Investor from any liability
for any breach or default under this Agreement or any of the other Transaction
Documents to which it is a party, or to impair the rights of the Company and the
Investor to compel specific performance by the other party of its obligations
under the Transaction Documents to which it is a party.

 

ARTICLE IX

INDEMNIFICATION

 

Section 9.1.           Indemnification of Investor. In consideration of the
Investor’s execution and delivery of this Agreement and acquiring the Shares
hereunder and in addition to all of the Company’s other obligations under the
Transaction Documents to which it is a party, subject to the provisions of this
Section 9.1, the Company shall indemnify and hold harmless the Investor, each of
its directors, officers, shareholders, members, partners, employees,
representatives, agents and advisors (and any other Persons with a functionally
equivalent role of a Person holding such titles notwithstanding the lack of such
title or any other title), each Person, if any, who controls the Investor
(within the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act), and the respective directors, officers, shareholders, members,
partners, employees, representatives, agents and advisors (and any other Persons
with a functionally equivalent role of a Person holding such titles
notwithstanding the lack of such title or any other title) of such controlling
Persons (each, an “Investor Party”), from and against all losses, liabilities,
obligations, claims, contingencies, damages, costs and expenses (including all
judgments, amounts paid in settlement, court costs, reasonable attorneys’ fees
and costs of defense and investigation) (collectively, “Damages”) that any
Investor Party may suffer or incur as a result of or relating to (a) any breach
of any of the representations, warranties, covenants or agreements made by the
Company in this Agreement or in the other Transaction Documents to which it is a
party or (b) any action, suit, claim or proceeding (including for these purposes
a derivative action brought on behalf of the Company) instituted against such
Investor Party arising out of or resulting from the execution, delivery,
performance or enforcement of the

 

40

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Transaction Documents; provided, however, that (x) the foregoing indemnity shall
not apply to any Damages to the extent, but only to the extent, that such
Damages resulted directly and primarily from a breach of any of the Investor’s
representations, warranties, covenants or agreements contained in this Agreement
or the Registration Rights Agreement, and (y) the Company shall not be liable
under subsection (b) of this Section 9.1 to the extent, but only to the extent,
that a court of competent jurisdiction shall have determined by a final judgment
(from which no further appeals are available) that such Damages resulted
directly and primarily from any acts or failures to act, undertaken or omitted
to be taken by such Investor Party through its fraud, bad faith or willful
misconduct.

 

The Company shall reimburse any Investor Party promptly upon demand (with
accompanying presentation of documentary evidence) for all legal and other costs
and expenses reasonably incurred by such Investor Party in connection with (i)
any action, suit, claim or proceeding, whether at law or in equity, to enforce
compliance by the Company with any provision of the Transaction Documents or
(ii) any other any action, suit, claim or proceeding, whether at law or in
equity, with respect to which it is entitled to indemnification under this
Section 9.1.

 

An Investor Party’s right to indemnification or other remedies based upon the
representations, warranties, covenants and agreements of the Company set forth
in the Transaction Documents shall not in any way be affected by any
investigation or knowledge of such Investor Party. Such representations,
warranties, covenants and agreements shall not be affected or deemed waived by
reason of the fact that an Investor Party knew or should have known that any
representation or warranty might be inaccurate or that the Company failed to
comply with any agreement or covenant. Any investigation by such Investor Party
shall be for its own protection only and shall not affect or impair any right or
remedy hereunder.

 

To the extent that the foregoing undertakings by the Company set forth in this
Section 9.1 may be unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of each of the Damages
which is permissible under applicable law.

 

Section 9.2.           Indemnification Procedures.  Promptly after an Investor
Party receives notice of a claim or the commencement of an action for which the
Investor Party intends to seek indemnification under Section 9.1, the Investor
Party will notify the Company in writing of the claim or commencement of the
action, suit or proceeding; provided, however, that failure to notify the
Company will not relieve the Company from liability under Section 9.1, except to
the extent it has been materially prejudiced by the failure to give notice.  The
Company will be entitled to participate in the defense of any claim, action,
suit or proceeding as to which indemnification is being sought, and if the
Company acknowledges in writing the obligation to indemnify the Investor Party
against whom the claim or action is brought, the Company may (but will not be
required to) assume the defense against the claim, action, suit or proceeding
with counsel satisfactory to it.  After the Company notifies the Investor Party
that the Company wishes to assume the defense of a claim, action, suit or
proceeding, the Company will not be liable for any further legal or other
expenses incurred by the Investor Party in connection with the defense against
the claim, action, suit or proceeding except that if, in the opinion of counsel
to the Investor Party, one or more of the Investor Parties should be separately
represented in connection with a claim, action, suit or proceeding, the Company
will pay the reasonable fees

 

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and expenses of one separate counsel for such Investor Parties.  Each Investor
Party, as a condition to receiving indemnification as provided in Section 9.1,
will cooperate in all reasonable respects with the Company in the defense of any
action or claim as to which indemnification is sought.  The Company will be
liable for any settlement of any action effected without its prior written
consent, which consent shall not be unreasonably withheld or delayed. 
Notwithstanding the foregoing sentence, if at any time an Investor Party shall
have requested (by written notice provided in accordance with Section 10.4) the
Company to reimburse such Investor Party for fees and expenses of counsel, the
Company agrees that it shall be liable for any settlement of the nature
contemplated hereby effected without its written consent if (i) such settlement
is entered into more than 45 days after receipt by the Company of the aforesaid
request, (ii) the Company shall have received written notice of the terms of
such settlement at least 30 days prior to such settlement being entered into and
(iii) the Company shall not have reimbursed such Investor Party in accordance
with such request prior to the date of such settlement.  The Company will not,
without the prior written consent of the Investor Party, effect any settlement
of a pending or threatened action with respect to which an Investor Party is, or
is informed that it may be, made a party and for which it would be entitled to
indemnification, unless the settlement includes an unconditional release of the
Investor Party from all liability and claims which are the subject matter of the
pending or threatened action.

 

The remedies provided for in this Article IX are not exclusive and shall not
limit any rights or remedies which may otherwise be available to any Investor
Party at law or in equity.

 

ARTICLE X

MISCELLANEOUS

 

Section 10.1.        Fees and Expenses.

 

(i)            Counsel Fees; Diligence Expenses. Each party shall bear its own
fees and expenses related to the transactions contemplated by this Agreement;
provided, however, that the Company shall have paid prior to the Closing Date by
wire transfer of immediately available funds to an account designated by the
Investor’s counsel, a non-accountable and non-refundable document preparation
fee of $50,000, exclusive of disbursements and out-of-pocket expenses (the
“Document Preparation Fee”), in connection with the preparation, negotiation,
execution and delivery of the Transaction Documents and legal due diligence of
the Company. For the avoidance of doubt, the Document Preparation Fee shall be
non-refundable, regardless of whether any Fixed Requests are issued by the
Company or settled hereunder. In addition, during any full calendar quarter that
falls within the Investment Period when no Shares have been purchased or sold
because the Company did not deliver a Fixed Request Notice, the Company shall
pay following the end of such calendar quarter, promptly upon receipt of an
invoice therefor (however, the Investor shall not be required to provide
detailed time sheets), all reasonable attorneys’ fees and expenses, up to
$7,500, representing the due diligence expenses incurred by the Investor during
such calendar quarter. The Company shall pay all U.S. federal, state and local
stamp and other similar transfer and other taxes and duties levied in connection
with issuance of the Securities pursuant hereto.

 

(ii)           Commitment Shares. In consideration for the investor’s execution
and delivery of this Agreement, concurrently with the execution and delivery of
this Agreement on

 

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the Closing Date, the Company shall deliver irrevocable instructions to its
transfer agent to issue to the Investor, not later than 4:00 p.m. (New York City
time) on the second Trading Day immediately following the Closing Date, a
certificate representing the Commitment Shares in the name of the Investor or
its designee (in which case such designee name shall have been provided to the
Company prior to the Closing Date), in consideration for the Investor’s
execution and delivery of this Agreement. Such certificate shall be delivered to
the Investor by overnight courier at its address set forth in Section 10.4
hereof. For the avoidance of doubt, all of the Commitment Shares shall be fully
earned as of the Closing Date regardless of whether any Fixed Requests are
issued by the Company or settled hereunder. Upon issuance, the Commitment Shares
shall constitute “restricted securities” as such term is defined in Rule
144(a)(3) under the Securities Act and, subject to the provisions of subsection
(iv) of this Section 10.1, the certificate representing the Commitment Shares
shall bear the restrictive legend set forth below in subsection (iii) of this
Section 10.1. The Commitment Shares shall constitute Registrable Securities and
shall be included in the Registration Statement in accordance with the terms of
the Registration Rights Agreement.

 

(iii)          Legends. The certificate representing the Commitment Shares,
except as set forth below, shall bear a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of such
stock certificate):

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE HOLDER
(IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY,
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE
TO BE SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING,
THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

Notwithstanding the foregoing and for the avoidance of doubt, all Shares to be
issued in respect of any Fixed Request Notice delivered to the Investor pursuant
to this Agreement shall be issued to the Investor in accordance with Section 3.7
by crediting the Investor’s or its designees’ account at DTC through its
Deposit/Withdrawal at Custodian (DWAC) system, and all such Shares shall be
freely tradable and transferable and without restriction on resale (and no
stop-transfer order shall be placed against transfer thereof), and the Company
shall not take any action or give instructions to any transfer agent of the
Company otherwise.

 

(iv)          Removal of legend. From and after the Effective Date, the Company
shall, no later than two Trading Days following the delivery by the Investor to
the Company or the Company’s transfer agent (with notice to the Company) of a
legended certificate representing

 

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the Commitment Shares (endorsed or with stock powers attached, signatures
guaranteed, and otherwise in form necessary to affect the reissuance and/or
transfer, if applicable), as directed by the Investor, either: (A) issue and
deliver (or cause to be issued and delivered) to the Investor a certificate
representing such Commitment Shares that is free from all restrictive and other
legends or (B) cause the Company’s transfer agent to credit the investor’s or
its designee’s account at DTC through its Deposit/Withdrawal at Custodian (DWAC)
system with a number of shares of Common Stock equal to the number of Commitment
Shares represented by the certificate so delivered by the Investor (the date by
which such certificate is required to be delivered to the investor or such
credit is so required to be made to the account of the Investor or its designee
at DTC pursuant to the foregoing is referred to herein as the “Required Delivery
Date”). If the Company fails on or prior to the Required Delivery Date to either
(i) issue and deliver (or cause to be issued and delivered) to the Investor a
certificate representing the Commitment Shares that is free from all restrictive
and other legends or (ii) cause the Company’s transfer agent to credit the
balance account of the investor or its designee at DTC through its
Deposit/Withdrawal at Custodian (DWAC) system with a number of shares of Common
Stock equal to the number of Commitment Shares represented by the certificate
delivered by the investor pursuant hereto, then, in addition to all other
remedies available to the Investor, the Company shall pay in cash to the
investor on each day after the Required Delivery Date that the issuance or
credit of such shares is not timely effected an amount equal to 2.0% of the
product of (A) the sum of the number of Commitment Shares not issued to the
Investor on a timely basis and to which the investor is entitled and (B) the
VWAP for the five Trading Day period immediately preceding the Required Delivery
Date. In addition to the foregoing, if the Company fails to so properly deliver
such unlegended certificates or so properly credit the account of the investor
or its designee at DTC by the Required Delivery Date, and if on or after the
Required Delivery Date the Investor purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by the
Investor of shares of Common Stock that the Investor anticipated receiving from
the Company without any restrictive legend, then the Company shall, within three
Trading Days after the Investor’s request, pay cash to the Investor in an amount
equal to the Investor’s total purchase price (including brokerage commissions,
if any) for the shares of Common Stock so purchased, at which point the
Company’s obligation to deliver a certificate or credit such investor’s or its
designee’s account at DTC for such shares of Common Stock shall terminate and
such shares shall be cancelled.

 

Section 10.2.        Specific Enforcement, Consent to Jurisdiction, Waiver of
Jury Trial.

 

(i)            The Company and the Investor acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that either party shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Agreement by the other party and to enforce specifically the terms and
provisions hereof (without the necessity of showing economic loss and without
any bond or other security being required), this being in addition to any other
remedy to which either party may be entitled by law or equity.

 

(ii)           Each of the Company and the Investor (a) hereby irrevocably
submits to the jurisdiction of the United States District Court and other courts
of the United States sitting in the state of Delaware for the purposes of any
suit, action or proceeding arising out of or relating

 

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to this Agreement, and (b) hereby waives, and agrees not to assert in any such
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of such court, that the suit, action or proceeding is brought in an
inconvenient forum or that the venue of the suit, action or proceeding is
improper. Each of the Company and the Investor consents to process being served
in any such suit, action or proceeding by mailing a copy thereof to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing in this Section 10.2 shall affect or limit any right to serve
process in any other manner permitted by law.

 

(iii)          Each of the Company and the Investor hereby waives to the fullest
extent permitted by applicable law, any right it may have to a trial by jury in
respect to any litigation directly or indirectly arising out of, under or in
connection with this Agreement or the transactions contemplated hereby or
disputes relating hereto. Each of the Company and the Investor (a) certifies
that no representative, agent or attorney of any other party has represented,
expressly or otherwise, that such other party would not, in the event of
litigation, seek to enforce the foregoing waiver and (b) acknowledges that it
and the other parties hereto have been induced to enter into this Agreement by,
among other things, the mutual waivers and certifications in this Section 10.2.

 

Section 10.3.        Entire Agreement; Amendment.  The Transaction Documents set
forth the entire agreement and understanding of the parties with respect to the
subject matter hereof and supersedes all prior and contemporaneous agreements,
negotiations and understandings between the parties, both oral and written, with
respect to such matters. There are no promises, undertakings, representations or
warranties by either party relative to subject matter hereof not expressly set
forth in the Transaction Documents. No provision of this Agreement may be
amended other than by a written instrument signed by both parties hereto. The
Disclosure Schedule and all exhibits to this Agreement are hereby incorporated
by reference in, and made a part of, this Agreement as if set forth in full
herein.

 

Section 10.4.        Notices.  Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery or facsimile (with facsimile
machine confirmation of delivery received) at the address or number designated
below (if delivered on a business day during normal business hours where such
notice is to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such
notice is to be received) or (b) on the second business day following the date
of mailing by express courier service, fully prepaid, addressed to such address,
or upon actual receipt of such mailing, whichever shall first occur. The address
for such communications shall be:

 

If to the Company:

 

ARYx Therapeutics, Inc.

6300 Dumbarton Circle

Freemont, California 94555

Telephone Number: (510) 585-2200

Fax: (510) 585-2202

Attention: John Varian

 

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

 

Cooley Godward Kronish LLP

Five Palo Alto Square

3000 El Camino Real

Palo Alto, California 94306-2155

Telephone Number: (650) 843-5005

Fax: (650) 849-7400

Attention:  Jim F. Fulton, Jr., Esq.

 

If to the Investor:

 

Commerce Court Small Cap Value Fund, Ltd.

Fiduciary Services (BVI) Limited Qwomar Complex, 4th Floor

P.O. Box 3170

Road Town, Tortola British Virgin Islands

Telephone Number: (284) 494-8086

Fax:  (284) 494-9474

Attention: Peter W. Pool

 

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

 

Greenberg Traurig, LLP

The MetLife Building

200 Park Avenue

New York, NY 10166

Telephone Number: (212) 801-9200

Fax:  (212) 801-6400

Attention: Anthony J. Marsico, Esq.

 

Either party hereto may from time to time change its address for notices by
giving at least 10 days advance written notice of such changed address to the
other party hereto.

 

Section 10.5.        No Waivers.  No failure or delay 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 exercises thereof or of any other right, power or privilege.

 

Section 10.6.        Headings.  The article, section and subsection headings in
this Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof. Unless the context clearly indicates otherwise, each
pronoun herein shall be deemed to include the masculine, feminine, neuter,
singular and plural forms thereof. The terms “including,” “includes,” “include”
and words of like import shall be construed broadly as if followed by the words
“without limitation.”  The terms “herein,” “hereunder,” “hereof” and words of
like import refer to this entire Agreement instead of just the provision in
which they are found.

 

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Section 10.7.        Construction. The parties agree that each of them and their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents. In addition, each and every
reference to share prices and shares of Common Stock in any Transaction Document
shall be subject to adjustment for any stock splits, stock combinations, stock
dividends, recapitalizations and other similar transactions that occur on or
after the date of this Agreement

 

Section 10.8.        Successors and Assigns.  This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
assigns. The Company may not assign this Agreement or any rights or obligations
hereunder to any Person without the prior written consent of the Investor, which
may be withheld or delayed in the Investor’s sole discretion, including by any
Fundamental Transaction. The Investor may not assign its rights or obligations
under this Agreement.

 

Section 10.9.        No Third Party Beneficiaries.  Except as expressly provided
in Article IX, this Agreement is intended only 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.

 

Section 10.10.      Governing Law.  This Agreement shall be governed by and
construed in accordance with the internal procedural and substantive laws of the
State of Delaware, without giving effect to the choice of law provisions of such
state that would cause the application of the laws of any other jurisdiction.

 

Section 10.11.      Survival.  The representations, warranties, covenants and
agreements of the Company and the Investor contained in this Agreement shall
survive the execution and delivery hereof until the termination of this
Agreement; provided, however, that (i) the provisions of Article V
(Representations and Warranties of the Company), Article VIII (Termination),
Article IX (Indemnification) and this Article X (Miscellaneous) shall remain in
full force and effect indefinitely notwithstanding such termination, and, (ii)
so long as the Investor owns any Securities, the covenants and agreements of the
Company contained in Article VI (Additional Covenants), shall remain in full
force and effect notwithstanding such termination for a period of six months
following such termination.

 

Section 10.12.      Counterparts.  This Agreement may be executed in
counterparts, all of which taken together shall constitute one and the same
original and binding instrument and shall become effective when all counterparts
have been signed by each party and delivered to the other parties hereto, it
being understood that all parties hereto need not sign the same counterpart. In
the event any signature is delivered by facsimile, digital or electronic
transmission, such transmission shall constitute delivery of the manually
executed original and the party using such means of delivery shall thereafter
cause four additional executed signature pages to be physically delivered to the
other parties within five days of the execution and delivery hereof.  Failure to
provide or delay in the delivery of such additional executed signature pages
shall not adversely affect the efficacy of the original delivery.

 

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Section 10.13.      Publicity.  The Investor shall have the right to approve
before the issuance of any press release, Commission filing or any other public
disclosure made by or on behalf of the Company relating to the Investor, its
purchases hereunder or any aspect of the Transaction Documents or the
transactions contemplated thereby; provided, however, that except as otherwise
provided in this Agreement, the Company shall be entitled, without the prior
approval of the Investor, to make any press release or other public disclosure
(including any filings with the Commission) with respect thereto as is required
by applicable law and regulations (including the regulations of the Trading
Market), so long as prior to making any such press release or other public
disclosure, the Company and its counsel shall have provided the Investor and its
counsel with a reasonable opportunity to review and comment upon, and shall have
consulted with the Investor and its counsel on the form and substance of, such
press release or other disclosure.

 

Section 10.14.      Severability.  The provisions of this Agreement are
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement, and this Agreement shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of such provision, had
never been contained herein, so that such provisions would be valid, legal and
enforceable to the maximum extent possible.

 

Section 10.15.      Further Assurances.  From and after the Closing Date, upon
the request of the Investor or the Company, each of the Company and the Investor
shall execute and deliver such instrument, documents and other writings as may
be reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement.

 

[Signature Page Follows]

 

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

 

 

ARYX THERAPEUTICS, INC.:

 

 

 

 

 

 

 

By:

/s/ Paul Goddard

 

Name:

Paul Goddard, Ph.D.

 

Title:

Chairman and Chief Executive Officer

 

 

 

 

COMMERCE COURT SMALL CAP VALUE FUND, LTD.:

 

 

 

 

By:

/s/ Peter Poole

 

Name:

Peter Poole

 

Title:

Director

 

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ANNEX I TO THE
COMMON STOCK PURCHASE AGREEMENT

 

DEFINITIONS

 

“Acceptable Transaction” shall have the meaning assigned to such term in
Section 6.7(iii) hereof.

 

“Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with a
Person, as such terms are used in and construed under Rule 144.  With respect to
the Investor, without limitation, any Person owning, owned by, or under common
ownership with the Investor, and any investment fund or managed account that is
managed on a discretionary basis by the same investment manager as the Investor
will be deemed to be an Affiliate.

 

“Aggregate Limit” shall have the meaning assigned to such term in Section 2.1
hereof.

 

“Aggregation Notice” shall have the meaning assigned to such term in
Section 6.7(ii) hereof.

 

“Agreement” shall have the meaning assigned to such term in the preamble hereof.

 

“Alternate Transaction” shall have the meaning assigned to such term in
Section 6.7(iii) hereof.

 

“Alternate Transaction Notice” shall have the meaning assigned to such term in
Section 6.7(ii) hereof.

 

“Alternative Fixed Amount Requested” shall have the meaning assigned to such
term in Section 3.2 hereof.

 

“Below Market Offering” shall have the meaning assigned to such term in
Section 6.7(iii) hereof.

 

“Broker-Dealer” shall have the meaning assigned to such term in Section 6.17
hereof.

 

“Bylaws” shall have the meaning assigned to such term in Section 5.3 hereof.

 

“Charter” shall have the meaning assigned to such term in Section 5.3 hereof.

 

“Closing” shall have the meaning assigned to such term in Section 2.2 hereof.

 

“Closing Date” means the date of this Agreement.

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Commission” means the United States Securities and Exchange Commission or any
successor entity.

 

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“Commission Documents” shall mean (1) all reports, schedules, registrations,
forms, statements, information and other documents filed with or furnished to
the Commission by the Company pursuant to the reporting requirements of the
Exchange Act, including all material filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act, which have been filed or furnished
by the Company since December 31, 2008, including, without limitation, the
Annual Report on Form 10-K filed by the Company for the year ended December 31,
2008 (the “2008 Form 10-K”), and which hereafter shall be filed with or
furnished to the Commission by the Company, including, without limitation, the
Current Report, (2) the Registration Statement, as the same may be amended from
time to time, the Prospectus and each Prospectus Supplement and (3) all
information contained in such filings and all documents and disclosures that
have been and heretofore shall be incorporated by reference therein.

 

“Commitment Shares” means 114,200 shares of duly authorized, validly issued,
fully paid and nonassessable shares of Common Stock which, concurrently with the
execution and delivery of this Agreement on the Closing Date, the Company has
caused its transfer agent to issue and deliver to the Investor not later than
4:00 p.m. (New York City time) on the second Trading Day immediately following
the Closing Date.

 

“Common Stock” shall have the meaning assigned to such term in the Recitals.

 

“Company” shall have the meaning assigned to such term in the preamble hereof.

 

“Current Market Price” means, with respect to any particular measurement date,
the closing price of a share of Common Stock as reported on the Trading Market
for the Trading Day immediately preceding such measurement date.

 

“Current Report” shall have the meaning assigned to such term in Section 2.3
hereof.

 

“Damages” shall have the meaning assigned to such term in Section 9.1 hereof.

 

“Disclosure Schedule” shall have the meaning assigned to such term in the
preamble to Article V hereof.

 

“Discount Price” shall have the meaning assigned to such term in Section 3.2
hereof.

 

“Document Preparation Fee” shall have the meaning assigned to such term in
Section 10.1 hereof.

 

“DTC” means The Depository Trust Company, or any successor thereto.

 

“EDGAR” means the Commission’s Electronic Data Gathering, Analysis and Retrieval
System.

 

“Effective Date” means the first Trading Day immediately following the date on
which the Registration Statement is declared effective by the Commission.

 

“Environmental Laws” shall have the meaning assigned to such term in
Section 5.18 hereof.

 

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

 

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

 

“FDA” shall have the meaning assigned to such term in Section 5.17 hereof.

 

“FINRA” means the Financial Industry Regulatory Authority.

 

“Fixed Amount Requested” shall mean the amount of a Fixed Request requested by
the Company in a Fixed Request Notice delivered pursuant to Sections 3.1 and 3.2
hereof.

 

“Fixed Request” means the transactions contemplated under Article III of this
Agreement.

 

“Fixed Request Amount” means the actual amount of proceeds received by the
Company pursuant to a Fixed Request under this Agreement.

 

“Fixed Request Exercise Date” shall have the meaning assigned to such term in
Section 3.2 hereof.

 

“Fixed Request Notice” shall have the meaning assigned to such term in
Section 3.1 hereof.

 

“Fundamental Transaction” means that (i) the Company shall, directly or
indirectly, in one or more related transactions, (1) consolidate or merge with
or into (whether or not the Company is the surviving corporation) another
Person, or (2) sell, lease, license, assign, transfer, convey or otherwise
dispose of all or substantially all of the properties or assets of the Company
to another Person, or (3) allow another Person to make a purchase, tender or
exchange offer that is accepted by the holders of more than 50% of the
outstanding shares of Common Stock (not including any shares of Common Stock
held by the Person or Persons making or party to, or associated or affiliated
with the Persons making or party to, such purchase, tender or exchange offer),
or (4) consummate a stock or share purchase agreement or other business
combination (including, without limitation, a reorganization, recapitalization,
spin-off or scheme of arrangement) with another Person whereby such other Person
acquires more than 50% of the outstanding shares of Common Stock (not including
any shares of Common Stock held by the other Person or other Persons making or
party to, or associated or affiliated with the other Persons making or party to,
such stock or share purchase agreement or other business combination), or
(5) reorganize, recapitalize or reclassify its Common Stock, or (ii) any
“person” or “group” (as these terms are used for purposes of Sections 13(d) and
14(d) of the 1934 Act) is or shall become the “beneficial owner” (as defined in
Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate
ordinary voting power represented by issued and outstanding Common Stock.

 

“GAAP” shall mean generally accepted accounting principles in the United States
of America as applied by the Company.

 

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“Governmental Licenses” shall have the meaning assigned to such term in
Section 5.17 hereof.

 

“Indebtedness” shall have the meaning assigned to such term in Section 5.11
hereof.

 

“Intellectual Property” shall have the meaning assigned to such term in
Section 5.17(b) hereof.

 

“Investor Party” shall have the meaning assigned to such term in Section 9.1
hereof.

 

“Investment Period” means the period commencing on the Effective Date and
expiring on the date this Agreement is terminated pursuant to Article VIII
hereof.

 

“Investor” shall have the meaning assigned to such term in the preamble hereof.

 

“Knowledge” means the actual knowledge of the Company’s Chief Executive Officer
or Chief Financial Officer, after reasonable inquiry of all officers, directors
and employees of the Company who could reasonably be expected to have knowledge
or information with respect to the matter in question.

 

“Make Whole Amount” shall have the meaning assigned to such term in Section 3.9
hereof.

 

“Material Adverse Effect” means (i) any condition, occurrence, state of facts or
event having, or insofar as reasonably can be foreseen would likely have, any
material adverse effect on the legality, validity or enforceability of the
Transaction Documents or the transactions contemplated thereby, (ii) any
condition, occurrence, state of facts or event having, or insofar as reasonably
can be foreseen would likely have, any effect on the business, operations,
properties or condition (financial or otherwise) of the Company that is material
and adverse to the Company and its Subsidiaries, taken as a whole, and/or
(iii) any condition, occurrence, state of facts or event that would, or insofar
as reasonably can be foreseen would likely, prohibit or otherwise materially
interfere with or delay the ability of the Company to perform any of its
obligations under any of the Transaction Documents to which it is a party;
provided, however, that none of the following, individually or in the aggregate,
shall be taken into account in determining whether a Material Adverse Effect has
occurred or insofar as reasonably can be foreseen would likely occur:
(a) changes in conditions in the U.S. or global capital, credit or financial
markets generally, including changes in the availability of capital or currency
exchange rates, provided such changes shall not have affected the Company in a
materially disproportionate manner as compared to other similarly situated
companies; (b) changes generally affecting the biotechnology or pharmaceutical
industries, provided such changes shall not have affected the Company in a
materially disproportionate manner as compared to other similarly situated
companies; (c) any effect of the announcement of, or the consummation of the
transactions contemplated by, this Agreement and the other Transaction Documents
on the Company’s relationships, contractual or otherwise, with customers,
suppliers, vendors, bank lenders, strategic venture partners or employees; and
(d) the receipt of any notice that the Common Stock may be ineligible to
continue listing or quotation on the Trading Market, other

 

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than a final and non-appealable notice that the listing or quotation of the
Common Stock on the Trading Market shall be terminated on a date certain.

 

“Material Agreements” shall have the meaning assigned to such term in
Section 5.19 hereof.

 

“Maximum Fixed Amount Requested” shall have the meaning assigned to such term in
Section 3.2 hereof.

 

“Multiplier” shall have the meaning assigned to such term in
Section 3.3(a) hereof.

 

“Ownership Limitation” shall have the meaning assigned to such term in
Section 3.10 hereof.

 

“Person” means any person or entity, whether a natural person, trustee,
corporation, partnership, limited partnership, limited liability company, trust,
unincorporated organization, business association, firm, joint venture,
governmental agency or authority.

 

“Placement Agent Engagement Letter” shall have the meaning assigned to such term
in Section 5.15 hereof.

 

“Plan” shall have the meaning assigned to such term in Section 5.24 hereof.

 

“Press Release” shall have the meaning assigned to such term in Section 2.3
hereof.

 

“Pricing Period” shall mean, with respect to each Fixed Request, a period of 10
consecutive Trading Days commencing on the Pricing Period start date set forth
in the Fixed Request Notice, or such shorter period of Trading Days as
determined in accordance with Section 3.8.

 

“Prospectus” means the prospectus in the form included in the Registration
Statement, as supplemented from time to time by any Prospectus Supplement,
including the documents incorporated by reference therein.

 

“Prospectus Supplement” means any prospectus supplement to the Prospectus filed
with the Commission from time to time pursuant to Rule 424(b) under the
Securities Act, including the documents incorporated by reference therein.

 

“Reduction Notice” shall have the meaning assigned to such term in
Section 3.8(a) hereof.

 

“Reedland” shall have the meaning assigned to such term in Section 5.15 hereof.

 

“Registrable Securities” shall have the meaning assigned to such term in the
Registration Rights Agreement.

 

“Registration Rights Agreement” shall have the meaning assigned to such term in
the Recitals.

 

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“Registration Statement” shall have the meaning assigned to such term in the
Registration Rights Agreement.

 

“Regulation D” shall have the meaning assigned to such term in the Recitals.

 

“Required Delivery Date” shall have the meaning assigned to such term in
Section 10.1(iv).

 

“Restricted Period” shall have the meaning assigned to such term in
Section 6.13(i) hereof.

 

“Restricted Person” shall have the meaning assigned to such term in
Section 6.13(i) hereof.

 

“Restricted Persons” shall have the meaning assigned to such term in
Section 6.13(i) hereof.

 

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

 

“Section 4(2)” shall have the meaning assigned to such term in the Recitals.

 

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

 

“Securities Act” shall mean the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder.

 

“Settlement Date” shall have the meaning assigned to such term in Section 3.7
hereof.

 

“Shares” shall mean the shares of Common Stock that are and/or may be purchased
by the Investor under this Agreement pursuant to one or more Fixed Requests.

 

“Short Sales” shall mean “short sales” as defined in Rule 200 promulgated under
Regulation SHO under the Exchange Act.

 

“Significant Subsidiary” means any Subsidiary of the Company that would
constitute a Significant Subsidiary of the Company within the meaning of
Rule 1-02 of Regulation S-X of the Commission.

 

“SOXA” shall mean the Sarbanes-Oxley Act of 2002 and the rules and regulations
of the Commission thereunder.

 

“Subsidiary” shall mean any corporation or other entity of which at least a
majority of the securities or other ownership interest having ordinary voting
power (absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other Subsidiaries.

 

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“Threshold Price” is the lowest price at which the Company may sell Shares
during the applicable Pricing Period as set forth in a Fixed Request Notice (not
taking into account the applicable percentage discount during such Pricing
Period determined in accordance with Section 3.2); provided, however, that at no
time shall the Threshold Price be lower than $1.50 per share.

 

“Total Commitment” shall have the meaning assigned to such term in Section 2.1
hereof.

 

“Trading Day” shall mean a full trading day (beginning at 9:30 a.m., New York
City time, and ending at 4:00 p.m., New York City time) on the Trading Market.

 

“Trading Market” means the NASDAQ Capital Market, the NASDAQ Global Select
Market, the NASDAQ Global Market, the NYSE Amex, or the New York Stock Exchange,
whichever is at the time the principal trading exchange or market for the Common
Stock.

 

“Trading Market Limit” means 5,380,090 shares of duly authorized, validly
issued, fully paid and nonassessable shares of Common Stock (as adjusted for any
stock splits, stock combinations, stock dividends, recapitalizations and other
similar transactions that occur on or after the date of this Agreement);
provided, however, that the Trading Market Limit shall not exceed under any
circumstances that number of shares of Common Stock that the Company may issue
pursuant to this Agreement and the transactions contemplated hereby without
(a) breaching the Company’s obligations under the rules and regulations of the
Trading Market or (b) obtaining stockholder approval under the applicable
rules and regulations of the Trading Market (notwithstanding that such approval
may have been obtained).

 

“Transaction Documents” means, collectively, this Agreement and the exhibits
hereto, the Registration Rights Agreement and each of the other agreements,
documents, certificates and instruments entered into or furnished by the parties
hereto in connection with the transactions contemplated hereby and thereby,
including, without limitation, the Disclosure Schedule.

 

“VWAP” means the volume weighted average price (the aggregate sales price of all
trades of Common Stock during a Trading Day divided by the total number of
shares of Common Stock traded during such Trading Day) of the Common Stock
during any Trading Day as reported by Bloomberg L.P. using the AQR function.

 

“Warrant Value” shall mean the fair value of all warrants, options and other
similar rights issued to a third party in connection with an Alternate
Transaction, determined by using a standard Black-Scholes option-pricing model
using a reasonable and appropriate expected volatility percentage based on
applicable volatility data from an investment banking firm of nationally
recognized reputation.

 

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EXHIBIT A TO THE
COMMON STOCK PURCHASE AGREEMENT
FORM OF REGISTRATION RIGHTS AGREEMENT

 

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REGISTRATION RIGHTS AGREEMENT

 

This REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of October 6,
2009, is by and between ARYx Therapeutics, Inc., a Delaware corporation (the
“Company”), and Commerce Court Small Cap Value Fund, Ltd., a business company
incorporated under the laws of the British Virgin Islands (the “Investor”).

 

RECITALS

 

A.                                   The Company and the Investor have entered
into that certain Common Stock Purchase Agreement, dated as of the date hereof
(the “Purchase Agreement”), pursuant to which the Company may issue, from time
to time, to the Investor up to the lesser of (i) $35,000,000 of newly issued
shares of the Company’s common stock, $0.001 par value (“Common Stock”), and
(ii) the Trading Market Limit (as defined in the Purchase Agreement), as
provided for therein.

 

B.                                     Pursuant to the terms of, and in
consideration for the Investor entering into, the Purchase Agreement, the
Company has issued to the Investor the Commitment Shares (as defined in the
Purchase Agreement) in accordance with the terms of the Purchase Agreement.

 

C.                                     Pursuant to the terms of, and in
consideration for the Investor entering into, the Purchase Agreement, and to
induce the Investor to execute and deliver the Purchase Agreement, the Company
has agreed to provide the Investor with certain registration rights with respect
to the Registrable Securities (as defined herein) as set forth herein.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the premises, the representations,
warranties, covenants and agreements contained herein and in the Purchase
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, intending to be legally bound
hereby, the Company and the Investor hereby agree as follows:

 

1.                                       Definitions.

 

Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:

 

(a)                                  “Business Day” means any day other than
Saturday, Sunday or any other day on which commercial banks in New York, New
York are authorized or required by law to remain closed.

 

(b)                                 “Closing Date” shall mean the date of this
Agreement.

 

(c)                                  “Effective Date” means the date that the
applicable Registration Statement has been declared effective by the SEC.

 

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(d)                                 “Effectiveness Deadline” means (i) with
respect to the initial Registration Statement required to be filed to pursuant
to Section 2(a), the earlier of (A) the 120th calendar day after the Closing
Date (or the 180th calendar day after the Closing Date in the event that such
Registration Statement is subject to review by the SEC) and (B) the fifth
Business Day after the date the Company is notified (orally or in writing,
whichever is earlier) by the SEC that such Registration Statement will not be
reviewed or will not be subject to further review and (ii) with respect to any
additional Registration Statements that may be required to be filed by the
Company pursuant to this Agreement, the earlier of (A) the 120th calendar day
following the date on which the Company was required to file such additional
Registration Statement (or the 180th calendar day after such date in the event
that such Registration Statement is subject to review by the SEC) and (B) the
fifth Business Day after the date the Company is notified (orally or in writing,
whichever is earlier) by the SEC that such Registration Statement will not be
reviewed or will not be subject to further review.

 

(e)                                  “Filing Deadline” means (i) with respect to
the initial Registration Statement required to be filed to pursuant to
Section 2(a), the 60th calendar day after the Closing Date and (ii) with respect
to any additional Registration Statements that may be required to be filed by
the Company pursuant to this Agreement, the date on which the Company was
required to file such additional Registration Statement pursuant to the terms of
this Agreement.

 

(f)                                    “Person” means any person or entity,
whether a natural person, trustee, corporation, partnership, limited
partnership, limited liability company, trust, unincorporated organization,
business association, firm, joint venture, governmental agency or authority.

 

(g)                                 “register,” “registered,” and “registration”
refer to a registration effected by preparing and filing one or more
Registration Statements in compliance with the Securities Act and pursuant to
Rule 415 and the declaration of effectiveness of such Registration
Statement(s) by the SEC.

 

(h)                                 “Registrable Securities” means (i) the
Shares, (ii) the Commitment Shares and (iii) any capital stock of the Company
issued or issuable with respect to the Shares or the Commitment Shares,
including, without limitation, (1) as a result of any stock split, stock
dividend, recapitalization, exchange or similar event or otherwise and
(2) shares of capital stock of the Company into which the shares of Common Stock
are converted or exchanged and shares of capital stock of a successor entity
into which the shares of Common Stock are converted or exchanged.

 

(i)                                     “Registration Statement” means a
registration statement or registration statements of the Company filed under the
Securities Act covering the resale by the Investor of Registrable Securities, as
such registration statement or registration statements may be amended and
supplemented from time to time (including pursuant to Rule 462(b) under the
Securities Act), including all documents filed as part thereof or incorporated
by reference therein.

 

(j)                                     “Rule 144” means Rule 144 promulgated by
the SEC under the Securities Act, as such rule may be amended from time to time,
or any other similar or successor rule or regulation of the SEC that may at any
time permit the Investor to sell securities of the Company to the public without
registration.

 

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(k)                                  “Rule 415” means Rule 415 promulgated by
the SEC under the Securities Act, as such rule may be amended from time to time,
or any other similar or successor rule or regulation of the SEC providing for
offering securities on a delayed or continuous basis.

 

(l)                                     “SEC” means the United States Securities
and Exchange Commission or any successor entity.

 

2.                                       Registration.

 

(a)                                  Mandatory Registration.  The Company shall
prepare and, as soon as practicable, but in no event later than the Filing
Deadline, file with the SEC an initial Registration Statement on Form S-1, or
such other form reasonably acceptable to the Investor and Legal Counsel,
covering the resale by the Investor of Registrable Securities in an amount equal
to 5,494,290 shares of Common Stock. Such initial Registration Statement shall
contain (except if otherwise directed by the Investor) the “Selling Stockholder”
and “Plan of Distribution” sections in substantially the form attached hereto as
Exhibit B. The Company shall use its best efforts to have such initial
Registration Statement, and each other Registration Statement required to be
filed pursuant to the terms hereof, declared effective by the SEC as soon as
practicable, but in no event later than the applicable Effectiveness Deadline.

 

(b)                                 Legal Counsel.  Subject to Section 5 hereof,
the Investor shall have the right to select one legal counsel to review and
oversee, solely on its behalf, any registration pursuant to this Section 2
(“Legal Counsel”), which shall be Greenberg Traurig, LLP or such other counsel
as thereafter designated by the Investor. Except as provided under
Section 10.1(i) of the Purchase Agreement, the Company shall have no obligation
to reimburse the Investor for any and all legal fees and expenses of the Legal
Counsel incurred in connection with the transactions contemplated hereby.

 

(c)                                  [RESERVED]

 

(d)                                 Sufficient Number of Shares Registered. If
at any time all Registrable Securities are not covered by the initial
Registration Statement filed pursuant to Section 2(a) as a result of
Section 2(h) or otherwise, the Company shall amend such Registration Statement
(if permissible), or file with the SEC a new Registration Statement (on the
short form available therefor, if applicable), or both, so as to cover all of
the Registrable Securities not covered by such initial Registration Statement,
in each case, as soon as practicable, but in any event not later than fifteen
(15) days after the necessity therefor arises (but taking account of any Staff
position with respect to date on which the Staff will permit such amendment to
the Registration Statement and/or such new Registration Statement (as the case
may be) to be filed with the SEC). The Company shall use its best efforts to
cause such amendment to such Registration Statement and/or such new Registration
Statement (as the case may be) to become effective as soon as practicable
following the filing thereof with the SEC, but in no event later than the
applicable Effectiveness Deadline for such Registration Statement.

 

(e)                                  Effect of Failure to Maintain Effectiveness
of any Registration Statement. If (i) on any Settlement Date the Company shall
not have filed the prospectus supplement with the SEC under Rule 424(b) (whether
or not such a prospectus supplement is technically required by such

 

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rule) in accordance with Section 3(b) below (a “Prospectus Supplement Filing
Failure”), (ii) other than during an Allowable Grace Period, on any day after
the Effective Date of any Registration Statement sales of all of the Registrable
Securities required to be included on such Registration Statement (disregarding
any reduction pursuant to Section 2(h)) cannot be made pursuant to such
Registration Statement (including, without limitation, because of a failure to
keep such Registration Statement effective, a failure to disclose such
information as is necessary for sales to be made pursuant to such Registration
Statement, a suspension or delisting of (or a failure to timely list) the shares
of Common Stock on its principal trading market or exchange, a failure to
register a sufficient number of shares of Common Stock or by reason of a stop
order) or the prospectus contained therein is not available for use (a
“Maintenance Failure”) or (iii) if a Registration Statement is not effective or
available for use for any reason, the Company fails to file with the SEC any
required reports under Section 13 or 15(d) of the 1934 Act such that it is not
in compliance with Rule 144(c)(1) (and/or Rule 144(i)(2), if applicable) (a
“Current Public Information Default”) as a result of which the Investor is
unable to sell Registrable Securities without restriction under Rule 144
(including, without limitation, volume restrictions), then, as partial relief
for the damages to the Investor by reason of any such delay in or reduction of
its ability to sell the underlying shares of Common Stock (which remedy shall
not be exclusive of any other remedies available at law or in equity), the
Company shall pay on demand to the Investor in immediately available funds into
an account designated by the Investor an amount equal to the product of (x) the
total number of Registrable Securities issued to the Investor under the Purchase
Agreement that are owned by the Investor at any time during such Prospectus
Supplement Filing Failure, Maintenance Failure or Current Public Information
Default (as applicable) and (y) the result, if greater than zero, obtained by
subtracting the VWAP (as defined in the Purchase Agreement) on the Trading Day
(as defined in the Purchase Agreement) immediately following the last day of
such Prospectus Supplement Filing Failure, Maintenance Failure or Current Public
Information Default, as applicable, from the VWAP on the Trading Day immediately
preceding the day on which any such Prospectus Supplement Filing Failure,
Maintenance Failure or Current Public Information Default, as applicable, began.
The payments to which the Investor shall be entitled pursuant to this
Section 2(e) are referred to herein as “Registration Failure Payments.” In the
event the Company fails to make Registration Failure Payments in a timely manner
in accordance with the foregoing, such Registration Failure Payments shall bear
interest at the rate of one and one-half percent (1.5%) per month (prorated for
partial months) until paid in full. Notwithstanding the foregoing, no
Registration Failure Payments shall be owed to the Investor (other than with
respect to a Maintenance Failure resulting from a suspension or delisting of the
shares of Common Stock on the Company’s principal trading market or exchange)
with respect to any period during which all of the Investor’s Registrable
Securities may be sold by the Investor without restriction under Rule 144
(including, without limitation, volume restrictions).

 

(f)                                    Piggyback Registrations. Without limiting
any of the Company’s obligations hereunder or under the Purchase Agreement, if
there is not an effective Registration Statement covering all of the Registrable
Securities and the Company shall determine to prepare and 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 (each as promulgated under the Securities
Act) 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 the Company’s stock option or other
employee

 

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benefit plans), then the Company shall deliver to the Investor a written notice
of such determination and, if within fifteen (15) days after the date of the
delivery of such notice, the Investor shall so request in writing, the Company
shall include in such registration statement all or any part of such Registrable
Securities the Investor requests to be registered; provided, however, the
Company shall not be required to register any Registrable Securities pursuant to
this Section 2(f) that are eligible for resale pursuant to Rule 144 without
restriction (including, without limitation, volume restrictions) and without the
need for current public information required by Rule 144(c)(1) (or
Rule 144(i)(2), if applicable) or that are the subject of a then-effective
Registration Statement.

 

(g)                                 No Inclusion of Other Securities. In no
event shall the Company include any securities other than Registrable Securities
on any Registration Statement without the prior written consent of the Investor.
Until the Effective Date of the initial Registration Statement filed pursuant to
Section 2(a), the Company shall not enter into any agreement providing any
registration rights to any of its security holders. In connection with any
offering involving an underwriting of shares, the Company shall not be required
under this Section 2 or otherwise to include the Registrable Securities of any
Investor therein unless such Investor accepts and agrees to the terms of the
underwriting, which shall be reasonable and customary, as agreed upon between
the Company and the underwriters selected by the Company.

 

(h)                                 Offering. Without limiting any of the
Company’s obligations under Section 2(e), in the event the staff of the SEC (the
“Staff”) or the SEC seeks to characterize any offering pursuant to a
Registration Statement filed pursuant to this Agreement as constituting an
offering of securities that does not permit such Registration Statement to
become effective and be used for resales by the Investor on a delayed or
continuous basis under Rule 415 at then-prevailing market prices (and not fixed
prices) (or as otherwise may be acceptable to the Investor), then the Company
shall reduce the number of Registrable Securities to be included in such
Registration Statement (with the prior consent of the Investor and Legal Counsel
as to the specific Registrable Securities to be removed therefrom) until such
time as the Staff and the SEC shall so permit such Registration Statement to
become effective and be used as aforesaid. Notwithstanding anything in this
Agreement to the contrary, if after giving effect to the actions referred to in
the immediately preceding sentence, the Staff or the SEC does not permit such
Registration Statement to become effective and be used for resales by the
Investor on a delayed or continuous basis under Rule 415 at then-prevailing
market prices (and not fixed prices) (or as otherwise may be acceptable to the
Investor), the Company shall not request acceleration of the Effective Date of
such Registration Statement, the Company shall promptly (but in no event later
than 48 hours) request the withdrawal of such Registration Statement pursuant to
Rule 477 under the Securities Act, and the Effectiveness Deadline shall
automatically be deemed to have elapsed with respect to such Registration
Statement at such time as the Staff or the SEC has made a final and
non-appealable determination that the SEC will not permit such Registration
Statement to be so utilized (unless prior to such time the Company and the
Investor have received assurances from the Staff or the SEC reasonably
acceptable to Legal Counsel that a new Registration Statement filed by the
Company with the SEC promptly thereafter may be so utilized). In the event of
any reduction in Registrable Securities pursuant to the first sentence this
paragraph, the Company shall file additional Registration Statements in
accordance with Section 2(d) until such time as all Registrable Securities have
been included in Registration Statements that have been declared effective and
the prospectus contained therein is available for use by the Investor.

 

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3.                                       Related Obligations.

 

The Company shall use its best efforts to effect the registration of the
Registrable Securities in accordance with the intended method of disposition
thereof, and, pursuant thereto, the Company shall have the following
obligations:

 

(a)                                  The Company shall promptly prepare and file
with the SEC a Registration Statement with respect to the Registrable Securities
(but in no event later than the applicable Filing Deadline) and use its best
efforts to cause such Registration Statement to become effective as soon as
practicable after such filing (but in no event later than the applicable
Effectiveness Deadline). Subject to Allowable Grace Periods, the Company shall
keep each Registration Statement effective (and the prospectus contained therein
available for use) pursuant to Rule 415 for resales by the Investor on a delayed
or continuous basis at then-prevailing market prices (and not fixed prices) at
all times until the earlier of (i) the date as of which the Investor may sell
all of the Registrable Securities required to be covered by such Registration
Statement (disregarding any reduction pursuant to Section 2(h)) without
restriction pursuant to Rule 144 and without the need for current public
information as required by Rule 144(c)(1) (or Rule 144(i)(2), if applicable) or
(ii) the date on which the Investor shall have sold all of the Registrable
Securities covered by such Registration Statement (the “Registration Period”).
Notwithstanding anything to the contrary contained in this Agreement, the
Company shall ensure that, when filed and at all times while effective, each
Registration Statement (including, without limitation, all amendments and
supplements thereto) and the prospectus (including, without limitation, all
amendments and supplements thereto) used in connection with such Registration
Statement (1) 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 (in the case of prospectuses, in the light of the
circumstances in which they were made) not misleading and (2) will disclose
(whether directly or through incorporation by reference to other SEC filings to
the extent permitted) all material information regarding the Company and its
securities. The Company shall submit to the SEC, within two (2) Business Days
after the later of the date that (i) the Company learns that no review of a
particular Registration Statement will be made by the Staff or that the Staff
has no further comments on a particular Registration Statement (as the case may
be) and (ii) the approval of Legal Counsel is obtained pursuant to
Section 3(c) (which approval shall be immediately sought), a request for
acceleration of effectiveness of such Registration Statement to a time and date
not later than forty-eight (48) hours after the submission of such request.

 

(b)                                 Subject to Section 3(q) of this Agreement,
the Company shall prepare and file with the SEC such amendments (including,
without limitation, post-effective amendments) and supplements to each
Registration Statement and the prospectus used in connection with each such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the Securities Act, as may be necessary to keep each such
Registration Statement effective at all times during the Registration Period for
such Registration Statement, and, during such period, comply with the provisions
of the Securities Act with respect to the disposition of all Registrable
Securities of the Company required to be covered by such Registration Statement
until such time as all of such Registrable Securities shall have been disposed
of in accordance with the intended methods of disposition by the seller or
sellers thereof as set forth in such Registration Statement; provided, however,
by 8:30 a.m. (New York City time) on the Business Day immediately following each
Effective Date, the Company shall file with the SEC in

 

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accordance with Rule 424(b) under the Securities Act the final prospectus to be
used in connection with sales pursuant to the applicable Registration Statement
(whether or not such a prospectus is technically required by such rule), and
provided further that by 8:30 a.m. (New York City time) on each Settlement Date,
the Company shall file with the SEC in accordance with Rule 424(b) under the
Securities Act a prospectus supplement (whether or not such a prospectus
supplement is technically required by such rule) with respect to the applicable
Fixed Request (as defined in the Purchase Agreement) disclosing the total Fixed
Amount Requested (as defined in the Purchase Agreement), the number of Shares
(as defined in the Purchase Agreement) to be issued and sold to the Investor on
such Settlement Date, the total purchase price therefor, the applicable Discount
Price (as defined in the Purchase Agreement) and the net proceeds to be received
by the Company therefrom. In the case of amendments and supplements to any
Registration Statement which are required to be filed pursuant to this Agreement
(including, without limitation, pursuant to this Section 3(b)) by reason of the
Company filing a report on Form 10-Q or Form 10-K or any analogous report under
the Securities Exchange Act of 1934, as amended (the “1934 Act”), the Company
shall have incorporated such report by reference into such Registration
Statement, if applicable, or shall file such amendments or supplements with the
SEC on the same day on which the 1934 Act report is filed which created the
requirement for the Company to amend or supplement such Registration Statement.
The Company consents to the use of the prospectus (including, without
limitation, any supplement thereto) included in each Registration Statement in
accordance with the provisions of the Securities Act and with the securities or
“blue sky” laws of the jurisdictions in which the Registrable Securities may be
sold by the Investor, in connection with the resale of the Registrable
Securities and for such period of time thereafter as such prospectus (including,
without limitation, any supplement thereto) (or in lieu thereof, the notice
referred to in Rule 173(a) under the Securities Act) is required by the
Securities Act to be delivered in connection with resales of Registrable
Securities.

 

(c)                                  The Company shall (A) permit Legal Counsel
to review and comment upon (i) each Registration Statement at least five
(5) Business Days prior to its filing with the SEC and (ii) all amendments and
supplements to each Registration Statement (including, without limitation, the
prospectus contained therein) (except for Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K, and any similar or successor
reports) within a reasonable number of days prior to their filing with the SEC,
and (B) not file any Registration Statement or amendment or supplement thereto
or to any prospectus contained therein in a form to which Legal Counsel
reasonably objects. The Company shall not submit a request for acceleration of
the effectiveness of a Registration Statement or any amendment or supplement
thereto without the prior consent of Legal Counsel, which consent shall not be
unreasonably withheld. The Company shall promptly furnish to Legal Counsel,
without charge, (i) copies of any correspondence from the SEC or the Staff to
the Company or its representatives relating to each Registration Statement,
provided that such correspondence shall not contain any material, non-public
information regarding the Company or any of its Subsidiaries (as defined in the
Purchase Agreement), (ii) after the same is prepared and filed with the SEC, one
(1) copy of each Registration Statement and any amendment(s) and
supplement(s) thereto, including, without limitation, financial statements and
schedules, all documents incorporated therein by reference, if requested by the
Investor, and all exhibits and (iii) upon the effectiveness of each Registration
Statement, one (1) copy of the prospectus included in such Registration
Statement

 

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and all amendments and supplements thereto. The Company shall reasonably
cooperate with Legal Counsel in performing the Company’s obligations pursuant to
this Section 3.

 

(d)                                 Without limiting any obligation of the
Company under the Purchase Agreement, the Company shall promptly furnish to the
Investor, without charge, (i) after the same is prepared and filed with the SEC,
at least one (1) copy of each any Registration Statement and any
amendment(s) and supplement(s) thereto, including, without limitation, financial
statements and schedules, all documents incorporated therein by reference, if
requested by the Investor, all exhibits and each preliminary prospectus,
(ii) upon the effectiveness of each Registration Statement, ten (10) copies of
the prospectus included in such Registration Statement and all amendments and
supplements thereto (or such other number of copies as the Investor may
reasonably request from time to time) and (iii) such other documents, including,
without limitation, copies of any preliminary or final prospectus, as the
Investor may reasonably request from time to time in order to facilitate the
disposition of the Registrable Securities owned by the Investor.

 

(e)                                  The Company shall use its best efforts to
(i) register and qualify, unless an exemption from registration and
qualification applies, the resale by the Investor of the Registrable Securities
covered by a Registration Statement under such other securities or “blue sky”
laws of all applicable jurisdictions in the United States, (ii) prepare and file
in those jurisdictions, such amendments (including, without limitation,
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof during
the Registration Period, (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, the Company shall not be required in connection therewith or
as a condition thereto to (x) qualify to do business in any jurisdiction where
it would not otherwise be required to qualify but for this Section 3(e),
(y) subject itself to general taxation in any such jurisdiction, or (z) file a
general consent to service of process in any such jurisdiction.  The Company
shall promptly notify Legal Counsel and the Investor of the receipt by the
Company of any notification with respect to the suspension of the registration
or qualification of any of the Registrable Securities for sale under the
securities or “blue sky” laws of any jurisdiction in the United States or its
receipt of actual notice of the initiation or threatening of any proceeding for
such purpose.

 

(f)                                    The Company shall notify Legal Counsel
and the Investor in writing of the happening of any event, as promptly as
practicable after becoming aware of such event, 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, in
the light of the circumstances under which they were made, not misleading
(provided that in no event shall such notice contain any material, non-public
information regarding the Company or any of its Subsidiaries), and, subject to
Section 3(q), promptly prepare a supplement or amendment to such Registration
Statement and such prospectus contained therein to correct such untrue statement
or omission and deliver ten (10) copies of such supplement or amendment to Legal
Counsel and the Investor (or such other number of copies as Legal Counsel or the
Investor may reasonably request). The Company shall also promptly notify Legal
Counsel and the Investor in writing (i) when a prospectus or any

 

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prospectus supplement or post-effective amendment has been filed, when a
Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to Legal Counsel and the
Investor by facsimile or e-mail on the same day of such effectiveness and by
overnight mail), and when the Company receives written notice from the SEC that
a Registration Statement or any post-effective amendment will be reviewed by the
SEC, (ii) of any request by the SEC for amendments or supplements to a
Registration Statement or related prospectus or related information, (iii) of
the Company’s reasonable determination that a post-effective amendment to a
Registration Statement would be appropriate and (iv) of the receipt of any
request by the SEC or any other federal or state governmental authority for any
additional information relating to the Registration Statement or any amendment
or supplement thereto or any related prospectus.  The Company shall respond as
promptly as practicable to any comments received from the SEC with respect to a
Registration Statement or any amendment thereto. Nothing in this
Section 3(f) shall limit any obligation of the Company under the Purchase
Agreement.

 

(g)                                 The Company shall (i) use its best efforts
to prevent the issuance of any stop order or other suspension of effectiveness
of a Registration Statement or the use of any prospectus contained therein, or
the suspension of the qualification, or the loss of an exemption from
qualification, of any of the Registrable Securities for sale in any jurisdiction
and, if such an order or suspension is issued, to obtain the withdrawal of such
order or suspension at the earliest possible time and (ii) notify Legal Counsel
and the Investor of the issuance of such order and the resolution thereof or its
receipt of actual notice of the initiation or threat of any proceeding for such
purpose.

 

(h)                                 Upon the written request of the Investor,
the Company shall make available for inspection by (i) the Investor, (ii) legal
counsel for the Investor and (iii) one (1) firm of accountants or other agents
retained by such Investor (collectively, the “Inspectors”), all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the “Records”), as shall be reasonably deemed
necessary by each Inspector, and cause the Company’s officers, directors and
employees to supply all information which any Inspector may reasonably request;
provided, however, each Inspector shall agree in writing to hold in strict
confidence and not to make any disclosure (except to the Investor) or use of any
Record or other information which the Company’s board of directors determines in
good faith to be confidential, and of which determination the Inspectors are so
notified, unless (a) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in any Registration Statement or is otherwise
required under the Securities Act, (b) the release of such Records is ordered
pursuant to a final, non-appealable subpoena or order from a court or government
body of competent jurisdiction, or (c) the information in such Records has been
made generally available to the public other than by disclosure in violation of
this Agreement or any other Transaction Document (as defined in the Purchase
Agreement). The Investor agrees that it shall, upon learning that disclosure of
such Records 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 Records deemed
confidential. Nothing herein (or in any other confidentiality agreement between
the Company and the Investor, if any) shall be deemed to limit the Investor’s
ability to sell Registrable Securities in a manner which is otherwise consistent
with applicable laws and regulations.

 

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(i)                                     The Company shall hold in confidence and
not make any disclosure of information concerning the 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 or is otherwise required to be disclosed in such Registration
Statement pursuant to the Securities Act, (iii) the release of such information
is ordered pursuant to a subpoena or other final, non-appealable order from a
court or governmental body of competent jurisdiction, or (iv) such information
has been made generally available to the public other than by disclosure in
violation of this Agreement or any other Transaction Document. The Company
agrees that it shall, upon learning that disclosure of such information
concerning the Investor is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt written notice to the
Investor and allow the Investor, at the Investor’s expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.

 

(j)                                     Without limiting any obligation of the
Company under the Purchase Agreement, the Company shall use its best efforts
either to (i) cause all of the Registrable Securities covered by each
Registration Statement to be listed on each 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 designation and quotation of all of the
Registrable Securities covered by each Registration Statement on the OTC
Bulletin Board, or (iii) if, despite the Company’s best efforts to satisfy the
preceding clauses (i) or (ii) the Company is unsuccessful in satisfying the
preceding clauses (i) or (ii), without limiting the generality of the foregoing,
to use its best efforts to arrange for at least two market makers to register
with the Financial Industry Regulatory Authority (f/k/a the National Association
of Securities Dealers, Inc.) (“FINRA”) as such with respect to such Registrable
Securities. In addition, the Company shall cooperate with the Investor and any
Broker-Dealer (as defined in the Purchase Agreement) through which the Investor
proposes to sell its Registrable Securities in effecting a filing with FINRA
pursuant to FINRA Rule 5110 as requested by the Investor. The Company shall pay
all fees and expenses in connection with satisfying its obligation under this
Section 3(j).

 

(k)                                  The Company shall cooperate with the
Investor and, to the extent applicable, facilitate the timely preparation and
delivery of certificates (not bearing any restrictive legend) representing the
Registrable Securities to be offered pursuant to a Registration Statement and
enable such certificates to be in such denominations or amounts (as the case may
be) as the Investor may reasonably request from time to time and registered in
such names as the Investor may request.  Certificates for Registrable Securities
free from all restrictive legends may be transmitted by the transfer agent to
the Investor by crediting an account at DTC as directed by the Investor.

 

(l)                                     If requested by the Investor, the
Company shall as soon as practicable after receipt of notice from the Investor
and subject to Section 3(q) hereof, (i) incorporate in a prospectus supplement
or post-effective amendment such information as the Investor reasonably requests
to be included therein relating to the sale and distribution of Registrable
Securities, including, without limitation, information with respect to the
number of Registrable Securities being offered or sold, the purchase price being
paid therefor and any other terms of the offering of the Registrable Securities
to be sold in such offering; (ii) make all required filings of such prospectus

 

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supplement or post-effective amendment after being notified of the matters to be
incorporated in such prospectus supplement or post-effective amendment; and
(iii) supplement or make amendments to any Registration Statement or prospectus
contained therein if reasonably requested by the Investor.

 

(m)                               The Company shall use its best efforts to
cause the Registrable Securities covered by a Registration Statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to consummate the disposition of such Registrable
Securities.

 

(n)                                 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, and in the manner provided by, 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 applicable
Effective Date of each Registration Statement.

 

(o)                                 The Company shall otherwise use its best
efforts to comply with all applicable rules and regulations of the SEC in
connection with any registration hereunder.

 

(p)                                 Within one (1) Business Day after each
Registration Statement which covers Registrable Securities is declared effective
by the SEC, the Company shall deliver, and shall cause legal counsel for the
Company to deliver, to the transfer agent for such Registrable Securities (with
copies to the Investor) confirmation that such Registration Statement has been
declared effective by the SEC in the form attached hereto as Exhibit A.

 

(q)                                 Notwithstanding anything to the contrary
herein (but subject to the last sentence of this Section 3(q)), at any time
after the Effective Date of a particular Registration Statement, the Company may
delay the disclosure of material, non-public information concerning the Company
or any of its Subsidiaries the disclosure of which at the time is not, in the
good faith opinion of the board of directors of the Company, in the best
interest of the Company and, in the opinion of counsel to the Company, otherwise
required (a “Grace Period”), provided that the Company shall promptly notify the
Investor in writing of the (i) existence of material, non-public information
giving rise to a Grace Period (provided that in each such notice the Company
shall not disclose the content of such material, non-public information to the
Investor) and the date on which such Grace Period will begin and (ii) date on
which such Grace Period ends, provided further that (I) no Grace Period shall
exceed 10 consecutive Trading Days and during any 365-day period all such Grace
Periods shall not exceed an aggregate of 30 Trading Days; provided, further,
that the Company shall not register any securities for the account of itself or
any other stockholder during any such Grace Period (other than pursuant to a
registration statement on Form S-4 or S-8), (II) the first day of any Grace
Period must be at least five Trading Days after the last day of any prior Grace
Period and (III) no Grace Period may exist during (A) the first 60 Trading Days
after the Effective Date of the particular Registration Statement or (B) the
five-Trading Day period following each Settlement Date (each, an “Allowable
Grace Period”). For purposes of determining the length of a Grace Period above,
such Grace Period shall begin on and include the date the Investor receives the
notice referred to in clause (i) above and shall end on and include the later of
the date the Investor receives the notice referred to in clause (ii) above

 

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and the date referred to in such notice. The provisions of Section 3(g) hereof
shall not be applicable during the period of any Allowable Grace Period.  Upon
expiration of each Grace Period, the Company shall again be bound by the first
sentence of Section 3(f) with respect to the information giving rise thereto
unless such material, non-public information is no longer applicable.
Notwithstanding anything to the contrary contained in this Section 3(q), the
Company shall cause its transfer agent to deliver unlegended shares of Common
Stock to a transferee of the Investor in accordance with the terms of the
Purchase Agreement in connection with any sale of Registrable Securities with
respect to which the Investor has entered into a contract for sale, and
delivered a copy of the prospectus included as part of the particular
Registration Statement to the extent applicable, prior to the Investor’s receipt
of the notice of a Grace Period and for which the Investor has not yet settled.

 

(r)                                    The Company shall use its best efforts to
maintain eligibility for use of Form S-3 (or any successor form thereto) for the
registration of the resale of all the Registrable Securities.

 

(s)                                  The Company shall take all other reasonable
actions necessary to expedite and facilitate disposition by the Investor of its
Registrable Securities pursuant to each Registration Statement.

 

4.                                       Obligations of the Investor.

 

(a)                                  At least five Business Days prior to the
first anticipated filing date of each Registration Statement, the Company shall
notify the Investor in writing of the information the Company requires from the
Investor with respect to such Registration Statement. 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 the
Investor that the 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 and maintain the effectiveness of the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request.

 

(b)                                 The Investor, by its 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 each
Registration Statement hereunder, unless the Investor has notified the Company
in writing of the Investor’s election to exclude all of the Investor’s
Registrable Securities from such Registration Statement.

 

(c)                                  The Investor agrees that, upon receipt of
any notice from the Company of the happening of any event of the kind described
in Section 3(g) or the first sentence of 3(f), the Investor will immediately
discontinue disposition of Registrable Securities pursuant to any Registration
Statement(s) covering such Registrable Securities until the Investor’s receipt
of the copies of the supplemented or amended prospectus contemplated by
Section 3(g) or the first sentence of Section 3(f) or receipt of notice that no
supplement or amendment is required.  Notwithstanding anything to the contrary
in this Section 4(c), the Company shall cause its transfer agent to deliver
unlegended shares of Common Stock to a transferee of the Investor in accordance
with the terms of the Purchase Agreement in connection with any sale of
Registrable

 

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Securities with respect to which the Investor has entered into a contract for
sale prior to the Investor’s receipt of a notice from the Company of the
happening of any event of the kind described in Section 3(g) or the first
sentence of Section 3(f) and for which the Investor has not yet settled.

 

(d)                                 The Investor covenants and agrees that it
will comply with the prospectus delivery requirements of the Securities Act as
applicable to it in connection with sales of Registrable Securities pursuant to
a Registration Statement.

 

5.                                       Expenses of Registration.

 

All reasonable expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant to
Sections 2 and 3, including, without limitation, all registration, listing and
qualifications fees, printers and accounting fees, FINRA filing fees (if any)
and fees and disbursements of counsel for the Company shall be paid by the
Company.

 

6.                                       Indemnification.

 

(a)                                  In the event any Registrable Securities are
included in any Registration Statement under this Agreement, to the fullest
extent permitted by law, the Company will, and hereby does, indemnify, hold
harmless and defend the Investor, each of its directors, officers, shareholders,
members, partners, employees, agents, advisors, representatives (and any other
Persons with a functionally equivalent role of a Person holding such titles
notwithstanding the lack of such title or any other title) and each Person, if
any, who controls the Investor within the meaning of the Securities Act or the
1934 Act and each of the directors, officers, shareholders, members, partners,
employees, agents, advisors, representatives (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding the
lack of such title or any other title) of such controlling Persons (each, an
“Investor Party” and collectively, the “Investor Parties”), against any losses,
obligations, claims, damages, liabilities, contingencies, judgments, fines,
penalties, charges, costs (including, without limitation, court costs,
reasonable attorneys’ fees, costs of defense and investigation), amounts paid in
settlement or expenses, joint or several, (collectively, “Claims”) incurred in
investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or before any
court or governmental, administrative or other regulatory agency, body or the
SEC, whether pending or threatened, whether or not an Investor Party is or may
be a party thereto (“Indemnified Damages”), to which any of them may become
subject insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or any post-effective amendment thereto or in any filing made in
connection with the qualification of the offering under the securities or other
“blue sky” laws of any jurisdiction in which Registrable Securities are offered
(“Blue Sky Filing”), or the omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading or (ii) any untrue statement or alleged untrue statement of a
material fact contained in any prospectus (as amended or supplemented) or in any
prospectus supplement 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

 

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made, not misleading (the matters in the foregoing clauses (i) and (ii) being,
collectively, “Violations”). Subject to Section 6(c), the Company shall
reimburse the Investor Parties, promptly as such expenses are incurred and are
due and payable, for any 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 6(a): (i) shall not apply to a Claim by an
Investor Party 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 Investor Party for such Investor Party expressly for use in connection with
the preparation of such Registration Statement, prospectus or prospectus
supplement or any such amendment thereof or supplement thereto; (ii) shall not
be available to the Investor to the extent such Claim is based on a failure of
the Investor to deliver or to cause to be delivered the prospectus (as amended
or supplemented) made available by the Company (to the extent applicable),
including, without limitation, a corrected prospectus, if such prospectus (as
amended or supplemented) or corrected prospectus was timely made available by
the Company pursuant to Section 3(d) and then only if, and to the extent that,
following the receipt of the corrected prospectus no grounds for such Claim
would have existed; and (iii) 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 or delayed. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Investor Party and shall survive the transfer of any
of the Registrable Securities by the Investor pursuant to Section 9.

 

(b)                                 In connection with any Registration
Statement in which the Investor is participating, the Investor agrees to
severally and not jointly indemnify, hold harmless and defend, to the same
extent and in the same manner as is set forth in Section 6(a), the Company, each
of its directors, each of its officers who signs the Registration Statement and
each Person, if any, who controls the Company within the meaning of the
Securities Act or the 1934 Act (each, an “Company Party”), against any Claim or
Indemnified Damages to which any of them may become subject, under the
Securities Act, the 1934 Act or otherwise, insofar as such Claim or Indemnified
Damages 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 relating to the Investor furnished to the
Company by the Investor expressly for use in connection with such Registration
Statement; and, subject to Section 6(c) and the below provisos in this
Section 6(b), the Investor will reimburse a Company Party any legal or other
expenses reasonably incurred by such Company Party in connection with
investigating or defending any such Claim; provided, however, the indemnity
agreement contained in this Section 6(b) and the agreement with respect to
contribution contained in Section 7 shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Investor, which consent shall not be unreasonably withheld or
delayed, provided further that the Investor shall be liable under this
Section 6(b) for only that amount of a Claim or Indemnified Damages as does not
exceed the net proceeds to the Investor as a result of the applicable 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 Company Party and shall survive the transfer of any of the
Registrable Securities by the Investor pursuant to Section 9.

 

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(c)                                  Promptly after receipt by an Investor Party
or Company Party (as the case may be) under this Section 6 of notice of the
commencement of any action or proceeding (including, without limitation, any
governmental action or proceeding) involving a Claim, such Investor Party or
Company Party (as the case may be) shall, if a Claim in respect thereof is to be
made against any indemnifying party under this Section 6, 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 Investor Party or the
Company Party (as the case may be); provided, however, an Investor Party or
Company Party (as the case may be) shall have the right to retain its own
counsel with the fees and expenses of such counsel to be paid by the
indemnifying party if: (i) the indemnifying party has agreed in writing to pay
such fees and expenses; (ii) the indemnifying party shall have failed promptly
to assume the defense of such Claim and to employ counsel reasonably
satisfactory to such Investor Party or Company Party (as the case may be) in any
such Claim; or (iii) the named parties to any such Claim (including, without
limitation, any impleaded parties) include both such Investor Party or Company
Party (as the case may be) and the indemnifying party, and such Investor Party
or such Company Party (as the case may be) shall have been advised by counsel
that a conflict of interest is likely to exist if the same counsel were to
represent such Investor Party or such Company Party and the indemnifying party
(in which case, if such Investor Party or such Company Party (as the case may
be) notifies the indemnifying party in writing that it elects to employ separate
counsel at the expense of the indemnifying party, then the indemnifying party
shall not have the right to assume the defense thereof and such counsel shall be
at the expense of the indemnifying party, provided further that in the case of
clause (iii) above the indemnifying party shall not be responsible for the
reasonable fees and expenses of more than one (1) separate legal counsel for
such Investor Party or Company Party (as the case may be). The Company Party or
Investor Party (as the case may be) shall reasonably cooperate with the
indemnifying party in connection with any negotiation or defense of any such
action or Claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the Company Party or Investor
Party (as the case may be) which relates to such action or Claim. The
indemnifying party shall keep the Company Party or Investor Party (as the case
may be) reasonably apprised at all times as to the status of the defense or any
settlement negotiations with respect thereto. No indemnifying party shall be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent; provided, however, the indemnifying party shall not
unreasonably withhold, delay or condition its consent.  No indemnifying party
shall, without the prior written consent of the Company Party or Investor Party
(as the case may be), consent to entry of any judgment or enter into any
settlement or other compromise which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Company Party or
Investor Party (as the case may be) of a release from all liability in respect
to such Claim or litigation, and such settlement shall not include any admission
as to fault on the part of the Company Party. Following indemnification as
provided for hereunder, the indemnifying party shall be subrogated to all rights
of the Company Party or Investor Party (as the case may be) with respect to all
third parties, firms or corporations relating to the matter for which
indemnification has been made. 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
Investor Party or Company Party (as the case may be) under this

 

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Section 6, except to the extent that the indemnifying party is materially and
adversely prejudiced in its ability to defend such action.

 

(d)                                 No Person involved in the sale of
Registrable Securities who is guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) in connection with such sale
shall be entitled to indemnification from any Person involved in such sale of
Registrable Securities who is not guilty of fraudulent misrepresentation.

 

(e)                                  The indemnification required by this
Section 6 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
Indemnified Damages are incurred.

 

(f)                                    The indemnity and contribution agreements
contained herein shall be in addition to (i) any cause of action or similar
right of the Company Party or Investor Party against the indemnifying party or
others, and (ii) any liabilities the indemnifying party may be subject to
pursuant to the law.

 

7.                                       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 6 to the fullest extent permitted by law; provided, however: (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 6
of this Agreement, (ii) no Person involved in the sale of Registrable Securities
which Person is guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) in connection with such sale shall be
entitled to contribution from any Person involved in such sale of Registrable
Securities who was not guilty of fraudulent misrepresentation; and
(iii) contribution by any seller of Registrable Securities shall be limited in
amount to the amount of net proceeds received by such seller from the applicable
sale of such Registrable Securities pursuant to such Registration Statement.
Notwithstanding the provisions of this Section 7, the Investor shall not be
required to contribute, in the aggregate, any amount in excess of the amount by
which the net proceeds actually received by the Investor from the applicable
sale of the Registrable Securities subject to the Claim exceeds the amount of
any damages that the Investor has otherwise been required to pay, or would
otherwise be required to pay under Section 6(b), by reason of such untrue or
alleged untrue statement or omission or alleged omission.

 

8.                                       Reports Under the 1934 Act.

 

With a view to making available to the Investor the benefits of Rule 144, the
Company agrees to:

 

(a)                                  make and keep public information available,
as those terms are understood and defined in Rule 144;

 

(b)                                 file with the SEC in a timely manner all
reports and other documents required of the Company under the Securities Act and
the 1934 Act so long as the Company

 

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remains subject to such requirements (it being understood that nothing herein
shall limit any of the Company’s obligations under the Purchase Agreement) and
the filing of such reports and other documents is required for the applicable
provisions of Rule 144; and

 

(c)                                  furnish to the Investor so long as the
Investor owns Registrable Securities, promptly upon request, (i) a written
statement by the Company, if true, that it has complied with the reporting,
submission and posting requirements of Rule 144 and the 1934 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 with the SEC if such reports are not
publicly available via EDGAR, and (iii) such other information as may be
reasonably requested to permit the Investor to sell such securities pursuant to
Rule 144 without registration.

 

9.                                       Assignment of Registration Rights.

 

All or any portion of the rights under this Agreement shall be automatically
assignable by the Investor to any transferee or assignee of all or any portion
of the Investor’s Registrable Securities if: (i) the Investor agrees in writing
with such transferee or assignee to assign all or any portion of such rights,
and a copy of such agreement is furnished to the Company within a reasonable
time after such assignment; (ii) the Company is, within a reasonable time after
such transfer or assignment, 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) immediately following such transfer or assignment the further disposition
of such securities by such transferee or assignee is restricted under the
Securities Act or applicable state securities laws if so required; (iv) at or
before the time the Company receives the written notice contemplated by clause
(ii) of this sentence such transferee or assignee agrees in writing with the
Company to be bound by all of the provisions contained herein; (v) such transfer
or assignment shall have been made in accordance with the applicable
requirements of the Purchase Agreement; and (vi) such transfer or assignment
shall have been conducted in accordance with all applicable federal and state
securities laws. The term “Investor” in this Agreement shall also include all
such transferees and assignees.

 

10.                                 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 the written consent of the Company and the Investor,
provided that the Investor may give a waiver in writing as to itself. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon the Investor and the Company. No such amendment or waiver (unless given
pursuant to the foregoing proviso in the case of a waiver) shall be effective to
the extent that it applies to less than all of the holders of the Registrable
Securities. No consideration shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of this Agreement unless
the same consideration also is offered to all of the parties to this Agreement.

 

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11.                                 Miscellaneous.

 

(a)                                  Solely for purposes of this Agreement, a
Person is deemed to be a holder of Registrable Securities whenever such Person
owns or is deemed to own of record such Registrable Securities.  If the Company
receives conflicting instructions, notices or elections from two or more Persons
with respect to the same Registrable Securities, the Company shall act upon the
basis of instructions, notice or election received from such record owner of
such Registrable Securities.

 

(b)                                 Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement shall be given in accordance with Section 10.4 of the Purchase
Agreement.

 

(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.  The Company and
the Investor acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that either party shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement by
the other party and to enforce specifically the terms and provisions hereof
(without the necessity of showing economic loss and without any bond or other
security being required), this being in addition to any other remedy to which
either party may be entitled by law or equity.

 

(d)                                 All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
the internal laws of the State of Delaware, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of Delaware or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of Delaware. Each party hereby irrevocably
submits to the exclusive jurisdiction of the United States District Court and
other courts of the United States sitting in the State of Delaware, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. 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 in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.

 

A-18

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(e)                                  The Transaction Documents set forth the
entire agreement and understanding of the parties solely with respect to the
subject matter thereof and supersedes all prior and contemporaneous agreements,
negotiations and understandings between the parties, both oral and written,
solely with respect to such matters. There are no promises, undertakings,
representations or warranties by either party relative to subject matter hereof
not expressly set forth in the Transaction Documents. Notwithstanding anything
in this Agreement to the contrary and without implication that the contrary
would otherwise be true, nothing contained in this Agreement shall limit, modify
or affect in any manner whatsoever (i) the conditions precedent to a Fixed
Request contained in Article VII of the Purchase Agreement, including, without
limitation, the condition precedent contained in Section 7.2(iii) thereof or
(ii) any of the Company’s obligations under the Purchase Agreement.

 

(f)                                    Subject to compliance with Section 9,
this Agreement shall inure to the benefit of and be binding upon the permitted
successors and assigns of each of the parties hereto. This Agreement is not for
the benefit of, nor may any provision hereof be enforced by, any Person, other
than the parties hereto, their respective permitted successors and assigns and
the Persons referred to in Sections 6 and 7 hereof.

 

(g)                                 The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof. Unless the context clearly indicates otherwise, each pronoun
herein shall be deemed to include the masculine, feminine, neuter, singular and
plural forms thereof. The terms “including,” “includes,” “include” and words of
like import shall be construed broadly as if followed by the words “without
limitation.” The terms “herein,” “hereunder,” “hereof” and words of like import
refer to this entire Agreement instead of just the provision in which they are
found.

 

(h)                                 This Agreement may be executed in two or
more identical 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. In the event that any signature is
delivered by facsimile transmission or by an e-mail which contains a portable
document format (.pdf) file of an executed signature page, such signature
page shall create a valid and binding obligation of the party executing (or on
whose behalf such signature is executed) with the same force and effect as if
such signature page were an original thereof.

 

(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 any 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)                                     The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent and no rules of strict construction will be applied against any party.

 

[signature pages follow]

 

A-19

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IN WITNESS WHEREOF, Investor and the Company have caused their respective
signature page to this Registration Rights Agreement to be duly executed as of
the date first written above.

 

 

COMPANY:

 

 

 

ARYX THERAPEUTICS, INC.

 

 

 

 

 

By:

 

 

 

Name:

 

 

 

Title:

 

 

A-20

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IN WITNESS WHEREOF, Investor and the Company have caused their respective
signature page to this Registration Rights Agreement to be duly executed as of
the date first written above.

 

 

INVESTOR:

 

 

 

COMMERCE COURT SMALL CAP VALUE FUND, LTD.

 

 

 

 

 

By:

 

 

Its:

 

 

A-21

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EXHIBIT A

 

FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT

 

 

 

 

 

 

 

Attention:

 

 

 

Re:          [                                  ]

 

Ladies and Gentlemen:

 

[We are][I am] counsel to ARYx Therapeutics, Inc., a Delaware corporation (the
“Company”), and have represented the Company in connection with that certain
Common Stock Purchase Agreement, dated October [    ], 2009 (the “Purchase
Agreement”), entered into by and among the Company and the Investor named
therein (the “Holder”) pursuant to which the Company (i) will issue to the
Holder from time to time shares of the Company’s common stock, $0.001 par value
per share (the “Common Stock”), and (ii) has issued [                          ]
shares of its Common Stock (the “Commitment Shares”). Pursuant to the Purchase
Agreement, the Company also has entered into a Registration Rights Agreement
with the Holder (the “Registration Rights Agreement”) pursuant to which the
Company agreed, among other things, to register the Registrable Securities (as
defined in the Registration Rights Agreement), including the Commitment Shares,
under the Securities Act of 1933, as amended (the “Securities Act”). In
connection with the Company’s obligations under the Registration Rights
Agreement, on                                , 20    , the Company filed a
Registration Statement on Form S-     (File No. 333-                          )
(the “Registration Statement”) with the Securities and Exchange Commission (the
“SEC”) relating to the Registrable Securities which names the Holder as an
underwriter and a selling stockholder thereunder.

 

In connection with the foregoing, based solely upon oral advice from the staff
of the SEC, the Registration Statement was declared effective under the
Securities Act on [ENTER DATE OF EFFECTIVENESS], and no stop order suspending
its effectiveness has been issued and no proceedings for that purpose have been
instituted or overtly threatened.

 

This letter shall serve as our standing opinion to you that the shares of Common
Stock are freely transferable by the Holder pursuant to the Registration
Statement, provided the Registration Statement remains effective.

 

 

Very truly yours,

 

 

 

[ISSUER’S COUNSEL]

 

 

 

By:

 

 

CC:          [INVESTOR]

 

A-22

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EXHIBIT B

 

SELLING STOCKHOLDER

 

This prospectus relates to the possible resale from time to time by the selling
stockholder, Commerce Court Small Cap Value Fund, Ltd., of any or all of the
shares of common stock that (i) may be issued by the Company to the selling
stockholder under the Purchase Agreement and (ii)  have been issued as of the
date hereof to the selling stockholder as commitment shares under the terms of
the Purchase Agreement. For additional information regarding the issuance of
common stock, see “Equity Line of Credit” above. We are registering the shares
of common stock pursuant to the provisions of the registration rights agreement
we entered into with the selling stockholder on October 6, 2009 in order to
permit the selling stockholder to offer the shares for resale from time to time.
Except for the ownership of the shares of common stock issued pursuant to the
Purchase Agreement, the selling stockholder has not had any material
relationship with us within the past three years.

 

The table below presents information regarding the selling stockholder and the
shares of common stock that it may offer from time to time under this
prospectus.  This table is prepared based on information supplied to us by the
selling stockholder, and reflects holdings as of                   , 2009.  As
used in this prospectus, the term “selling stockholder” includes Commerce Court
Small Cap Value Fund, Ltd. and any donees, pledgees, transferees or other
successors in interest selling shares received after the date of this prospectus
from the selling stockholder as a gift, pledge, or other non-sale related
transfer.  The number of shares in the column “Maximum Number of Shares of
Common Stock to be Offered Pursuant to this Prospectus” represents all of the
shares of common stock that the selling stockholder may offer under this
prospectus.  The selling stockholder may sell some, all or none of its shares. 
We do not know how long the selling stockholder will hold the shares before
selling them, and we currently have no agreements, arrangements or
understandings with the selling stockholder regarding the sale of any of the
shares.

 

Beneficial ownership is determined in accordance with Rule 13d-3(d)  promulgated
by the SEC under the Securities Exchange Act of 1934, as amended, and includes
shares of common stock with respect to which the selling stockholder has voting
and investment power. The percentage of shares of common stock beneficially
owned by the selling stockholder prior to the offering shown in the table below
is based both on an aggregate of                          shares of our common
stock outstanding on                       , 2009, and on the assumption that
all shares of common stock under the common stock purchase agreement with the
selling stockholder are outstanding as of that date.

 

In accordance with the terms of a registration rights agreement with the selling
stockholder, this prospectus generally covers the resale of that number of
shares of common stock equal to the sum of (i) the maximum number of shares of
common stock issuable under the Purchase Agreement and (ii) the total number of
shares of common stock issued to the selling stockholder as commitment shares
under the terms of the Purchase Agreement, in each case, as of the trading day
immediately preceding the date this registration statement was initially filed
with the SEC. Because the purchase price of the shares of common stock issuable
under the

 

A-23

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Purchase Agreement is determined on each settlement date, the number of shares
that may actually be sold by the Company under the Purchase Agreement may be
more than the number of shares being offered by this prospectus. The fourth
column assumes the sale of all of the shares offered by the selling stockholder
pursuant to this prospectus.

 

Under the terms of the Purchase Agreement, the Company may not issue shares of
common stock to the selling stockholder to the extent that the selling
stockholder or any of its affiliates would beneficially own greater than 9.9% of
our common stock. [The number of shares in the second column reflects this
limitation.] The selling stockholder may sell all, some or none of its shares in
this offering. See “Plan of Distribution.”

 

 

 

Number of Shares of
Common Stock Owned
Prior to Offering

 

Maximum Number of Shares
of Common Stock to be
Offered Pursuant to this

 

Number of Shares of
Common Stock Owned
After Offering

 

Name of Selling Stockholder

 

Number

 

Percent

 

Prospectus

 

Number

 

Percent

 

 

 

 

 

 

 

 

 

 

 

 

 

[                                    ] (1)

 

 

 

 

 

 

 

 

 

 

 

 

A-24

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PLAN OF DISTRIBUTION

 

We are registering (i) shares of common stock that may be issued by the Company
from time to time to the Investor under the Purchase Agreement to permit the
resale of these shares of common stock after the issuance thereof by the
Investor from time to time after the date of this prospectus and (ii) shares of
common stock that have been issued as of the date hereof as “commitment shares”
to the Investor under the terms of the Purchase Agreement to permit the resale
of these shares of common stock by the Investor from time to time after the date
of this prospectus. We will not receive any of the proceeds from the sale by the
selling stockholder of the shares of common stock. We will bear all fees and
expenses incident to our obligation to register the shares of common stock.

 

The selling stockholder may decide not to sell any shares of common stock. The
selling stockholder may sell all or a portion of the shares of common stock
beneficially owned by it and offered hereby from time to time directly or
through one or more underwriters, broker-dealers or agents, who may receive
compensation in the form of discounts, concessions or commissions from the
selling stockholder and/or the purchasers of the shares of common stock for whom
they may act as agent. In effecting sales, broker-dealers that are engaged by
the selling stockholder may arrange for other broker-dealers to participate. The
selling stockholder is an “underwriter” within the meaning of the Securities
Act. Any brokers, dealers or agents who participate in the distribution of the
shares of common stock by the selling stockholder may also be deemed to be
“underwriters,” and any profits on the sale of the shares of common stock by
them and any discounts, commissions or concessions received by any such brokers,
dealers or agents may be deemed to be underwriting discounts and commissions
under the Securities Act. The selling stockholder has advised us that it will
use an unaffiliated broker-dealer to effectuate all resales of our common stock.
To our knowledge, the selling stockholder has not entered into any agreement,
arrangement or understanding with any particular broker-dealer or market maker
with respect to the shares of common stock offered hereby, nor do we know the
identity of the broker-dealers or market makers that may participate in the
resale of the shares. Because the selling stockholder is an “underwriter,” the
selling stockholder will be subject to the prospectus delivery requirements of
the Securities Act and may be subject to certain statutory liabilities of the
Securities Act (including, without limitation, Sections 11, 12 and 17 thereof)
and Rule 10b-5 under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”).

 

The selling stockholder will act independently of us in making decisions with
respect to the timing, manner and size of each sale. The shares of common stock
may be sold in one or more transactions at fixed prices, at prevailing market
prices at the time of the sale, at varying prices determined at the time of
sale, or at negotiated prices. These sales may be effected in transactions,
which may involve crosses or block transactions, pursuant to one or more of the
following methods:

 

·                  on any national securities exchange or quotation service on
which the securities may be listed or quoted at the time of sale;

 

·                  in the over-the-counter market in accordance with the
rules of NASDAQ;

 

A-25

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·                  in transactions otherwise than on these exchanges or systems
or in the over-the-counter market;

 

·                  through the writing or settlement of options, whether such
options are listed on an options exchange or otherwise;

 

·                  ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;

 

·                  block trades in which the broker-dealer will attempt to sell
the shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;

 

·                  purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;

 

·                  an exchange distribution in accordance with the rules of the
applicable exchange;

 

·                  privately negotiated transactions;

 

·                  broker-dealers may agree with the selling stockholder to sell
a specified number of such shares at a stipulated price per share;

 

·                  a combination of any such methods of sale;

 

·                  and any other method permitted pursuant to applicable law.

 

The selling stockholder may also sell shares of common stock covered by this
prospectus pursuant to Rule 144 promulgated under the Securities Act of 1933, as
amended (the “Securities Act”), if available, rather than under this prospectus.
In addition, the selling stockholder may transfer the shares of common stock by
other means not described in this prospectus.

 

Any broker-dealer participating in such transactions as agent may receive
commissions from the selling stockholder (and, if they act as agent for the
purchaser of such shares, from such purchaser). The selling stockholder has
informed us that each such broker-dealer will receive commissions from the
selling stockholder which will not exceed customary brokerage commissions.
Broker-dealers may agree with the selling stockholder to sell a specified number
of shares at a stipulated price per share, and, to the extent such a
broker-dealer is unable to do so acting as agent for the selling stockholder, to
purchase as principal any unsold shares at the price required to fulfill the
broker-dealer commitment to the selling stockholder. Broker-dealers who acquire
shares as principal may thereafter resell such shares from time to time in one
or more transactions (which may involve crosses and block transactions and which
may involve sales to and through other broker-dealers, including transactions of
the nature described above and pursuant to the one or more of the methods
described above) at fixed prices, at prevailing market prices at the time of the
sale, at varying prices determined at the time of sale, or at negotiated prices,
and in connection with such resales may pay to or receive from the purchasers of
such shares commissions computed as described above. To the extent required
under the Securities

 

A-26

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Act, an amendment to this prospectus or a supplemental prospectus will be filed,
disclosing: the name of any such broker-dealers;

 

·                  the number of shares involved;

 

·                  the price at which such shares are to be sold;

 

·                  the commission paid or discounts or concessions allowed to
such broker-dealers, where applicable;

 

·                  that such broker-dealers did not conduct any investigation to
verify the information set out or incorporated by reference in this prospectus,
as supplemented; and

 

·                  other facts material to the transaction.

 

The selling stockholder has informed the Company that it does not have any
written or oral agreement or understanding, directly or indirectly, with any
person to distribute the common stock. Pursuant to a requirement of the
Financial Industry Regulatory Authority, or FINRA, the maximum commission or
discount and other compensation to be received by any FINRA member or
independent broker-dealer shall not be greater than eight percent (8%) of the
gross proceeds received by us for the sale of any securities being registered
pursuant to SEC Rule 415 under the Securities Act.

 

Under the securities laws of some states, the shares of common stock may be sold
in such states only through registered or licensed brokers or dealers. In
addition, in some states the shares of common stock may not be sold unless such
shares have been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied with.

 

There can be no assurance that the selling stockholder will sell any or all of
the shares of common stock registered pursuant to the registration statement, of
which this prospectus forms a part.

 

Underwriters and purchasers that are deemed underwriters under the Securities
Act may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock, including the entry of stabilizing bids or syndicate
covering transactions or the imposition of penalty bids. The selling stockholder
and any other person participating in the sale or distribution of the shares of
common stock will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder (including, without limitation, Regulation
M of the Exchange Act), which may restrict certain activities of, and limit the
timing of purchases and sales of any of the shares of common stock by, the
selling stockholder and any other participating person. To the extent
applicable, Regulation M may also restrict the ability of any person engaged in
the distribution of the shares of common stock to engage in market-making and
certain other activities with respect to the shares of common stock. In
addition, the anti-manipulation rules under the Exchange Act may apply to sales
of the shares of common stock in the market. All of the foregoing may affect the
marketability of the shares of common stock and

 

A-27

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the ability of any person or entity to engage in market-making activities with
respect to the shares of common stock.

 

We have agreed to pay all expenses of the registration of the shares of common
stock pursuant to the registration rights agreement, estimated to be $[     ] in
total, including, without limitation, Securities and Exchange Commission filing
fees and expenses of compliance with state securities or “blue sky” laws;
provided, however, the selling stockholder will pay all selling commissions,
concessions and discounts, and other amounts payable to underwriters, dealers or
agents, if any, as well as transfer taxes an certain other expenses associated
with the sale of the shares of common stock. We have agreed to indemnify the
selling stockholder and certain other persons against certain liabilities in
connection with the offering of shares of common stock offered hereby, including
liabilities arising under the Securities Act or, if such indemnity is
unavailable, to contribute amounts required to be paid in respect of such
liabilities. The selling stockholder has agreed to indemnify us against
liabilities under the Securities Act that may arise from any written information
furnished to us by the selling stockholder specifically for use in this
prospectus or, if such indemnity is unavailable, to contribute amounts required
to be paid in respect of such liabilities.

 

At any time a particular offer of the shares of common stock is made by the
selling stockholder, a revised prospectus or prospectus supplement, if required,
will be distributed. Such prospectus supplement or post-effective amendment will
be filed with the Securities and Exchange Commission to reflect the disclosure
of any required additional information with respect to the distribution of the
shares of common stock. We may suspend the sale of shares by the selling
stockholder pursuant to this prospectus for certain periods of time for certain
reasons, including if the prospectus is required to be supplemented or amended
to include additional material information.

 

A-28

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EXHIBIT B TO THE
COMMON STOCK PURCHASE AGREEMENT
FORM OF FIXED REQUEST NOTICE

 

Reference is made to the Common Stock Purchase Agreement dated as of October 6,
2009, (the “Purchase Agreement”) between ARYx Therapeutics, Inc., a corporation
organized and existing under the laws of the State of Delaware (the “Company”),
and Commerce Court Small Cap Value Fund, Ltd., a business company incorporated
under the laws of the British Virgin Islands. Capitalized terms used and not
otherwise defined herein shall have the meanings given such terms in the
Purchase Agreement. In accordance with and pursuant to Section 3.1 of the
Purchase Agreement, the Company hereby issues this Fixed Request Notice to
exercise a Fixed Request for the Fixed Amount Requested indicated below.

 

 

Fixed Amount Requested (if Alternative Fixed Amount Requested not selected):

 

 

 

Alternative Fixed Amount Requested Cap (if Alternative Fixed Amount Requested is
selected):

 

 

 

Pricing Period start date:

 

 

 

Pricing Period end date:

 

 

 

First Settlement Date:

 

 

 

Second Settlement Date:

 

 

 

Fixed Request Threshold Price:

 

 

 

On behalf of the Company, the undersigned hereby certifies to the Investor that
(i) the above Fixed Amount Requested does not exceed the Maximum Fixed Amount
Requested determined in accordance with Section 3.2 of the Purchase Agreement,
(ii) the sale of Shares pursuant to this Fixed Request Notice shall not cause
the Company to sell or the Investor to purchase shares of Common Stock which,
when aggregated with all purchases made by the Investor pursuant to all prior
Fixed Request Notices issued under the Purchase Agreement, would exceed the
Aggregate Limit, and (iii) to the Company’s Knowledge, the sale of Shares
pursuant to this Fixed Request Notice shall not cause the Company to sell or the
Investor to purchase shares of Common Stock which would cause the aggregate
number of shares of Common Stock then beneficially owned (as calculated pursuant
to Section 13(d) of the Exchange Act and Rule 13d-3 promulgated thereunder) by
the Investor and its Affiliates to exceed the Ownership Limitation.

 

 

Dated:

By:

 

 

 

Name

 

 

Title:

 

 

 

 

 

Address:

Facsimile No.

 

AGREED AND ACCEPTED

 

 

 

 

 

By:

 

 

 

 

Name

 

 

Title:

 

 

B-1

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EXHIBIT C TO THE
COMMON STOCK PURCHASE AGREEMENT
CERTIFICATE OF THE COMPANY
CLOSING CERTIFICATE

 

                   200  

 

The undersigned, the [                      ] of ARYx Therapeutics, Inc., a
corporation organized and existing under the laws of the State of Delaware (the
“Company”), delivers this certificate in connection with the Common Stock
Purchase Agreement, dated as of October 6, 2009 (the “Agreement”), by and
between the Company and Commerce Court Small Cap Value Fund, Ltd., a business
company incorporated under the laws of the British Virgin Islands (the
“Investor”), and hereby certifies on the date hereof that (capitalized terms
used herein without definition have the meanings assigned to them in the
Agreement):

 

1.             Attached hereto as Exhibit A is a true, complete and correct copy
of the Certificate of Incorporation of the Company as filed with the Secretary
of State of the State of Delaware. The Certificate of Incorporation of the
Company has not been further amended or restated, and no document with respect
to any amendment to the Certificate of Incorporation of the Company has been
filed in the office of the Secretary of State of the State of Delaware since the
date shown on the face of the state certification relating to the Company’s
Certificate of Incorporation, which is in full force and effect on the date
hereof, and no action has been taken by the Company in contemplation of any such
amendment or the dissolution, merger or consolidation of the Company.

 

2.             Attached hereto as Exhibit B is a true and complete copy of the
Bylaws of the Company, as amended and restated through, and as in full force and
effect on, the date hereof, and no proposal for any amendment, repeal or other
modification to the Bylaws of the Company has been taken or is currently pending
before the Board of Directors or stockholders of the Company.

 

3.             The Board of Directors of the Company has approved the
transactions contemplated by the Transaction Documents; said approval has not
been amended, rescinded or modified and remains in full force and effect as of
the date hereof.

 

4.             Each person who, as an officer of the Company, or as
attorney-in-fact of an officer of the Company, signed the Transaction Documents
to which the Company is a party, was duly elected, qualified and acting as such
officer or duly appointed and acting as such attorney-in-fact, and the signature
of each such person appearing on any such document is his genuine signature.

 

IN WITNESS WHEREOF, I have signed my name as of the date first above written.

 

 

 

 

By:

 

Title:

 

C-1

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EXHIBIT D TO THE
COMMON STOCK PURCHASE AGREEMENT
COMPLIANCE CERTIFICATE

 

In connection with the issuance of shares of common stock of ARYx
Therapeutics, Inc., a corporation organized and existing under the laws of the
State of Delaware (the “Company”), pursuant to the Fixed Request Notice, dated
[                          ], delivered by the Company to Commerce Court Small
Cap Value Fund, Ltd. (the “Investor”) pursuant to Article III of the Common
Stock Purchase Agreement, dated October [_], 2009, by and between the Company
and the Investor (the “Agreement”), the undersigned hereby certifies to the
Investor as follows:

 

1.             The undersigned is the duly elected [                          ]
of the Company.

 

2.             Except as set forth in the attached Disclosure Schedule, the
representations and warranties of the Company set forth in Article V of the
Agreement (i) that are not qualified by “materiality” or “Material Adverse
Effect” are true and correct in all material respects as of [insert Fixed
Request Exercise Date] and as of the date hereof with the same force and effect
as if made on such dates, except to the extent such representations and
warranties are as of another date, in which case, such representations and
warranties are true and correct in all material respects as of such other date
and (ii) that are qualified by “materiality” or “Material Adverse Effect” are
true and correct as of [insert Fixed Request Exercise Date] and as of the date
hereof with the same force and effect as if made on such dates, except to the
extent such representations and warranties are as of another date, in which
case, such representations and warranties are true and correct as of such other
date.

 

3.             The Company has performed, satisfied and complied in all material
respects with all covenants, agreements and conditions required by the Agreement
and the Registration Rights Agreement to be performed, satisfied or complied
with by the Company at or prior to [insert Fixed Request Exercise Date] and the
date hereof.

 

4.             The Shares issuable on the date hereof in respect of the Fixed
Request Notice referenced above shall be delivered electronically by crediting
the Investor’s or its designees’ account at DTC through its Deposit/Withdrawal
at Custodian (DWAC) system, and shall be freely tradable and transferable and
without restriction on resale. To the extent requested by the Investor pursuant
to Section 10.1(iv) under the Agreement, the legend set forth in
Section 10.1(iii) has been removed from the certificate representing the
Commitment Shares in accordance with Section 10.1(iv) of the Agreement.

 

Capitalized terms used but not otherwise defined herein shall have the meanings
assigned to them in the Agreement.

 

The undersigned has executed this Certificate this [      ] day of
[                      ], 200[    ].

 

 

By:

 

 

 

Name:

 

 

 

Title:

 

 

D-1

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DISCLOSURE SCHEDULE
RELATING TO THE COMMON STOCK
PURCHASE AGREEMENT, DATED AS OF OCTOBER 6, 2009
BETWEEN ARYX THERAPEUTICS, INC. AND COMMERCE COURT SMALL CAP VALUE FUND, LTD.

 

This disclosure schedule is made and given pursuant to Article V of the Common
Stock Purchase Agreement, dated as of October 6, 2009 (the “Agreement”), by and
between ARYx Therapeutics, Inc., a Delaware corporation (the “Company”), and
Commerce Court Small Cap Value Fund, Ltd., a business company incorporated under
the laws of the British Virgin Islands.  Unless the context otherwise requires,
all capitalized terms are used herein as defined in the Agreement.  The numbers
below correspond to the section numbers of representations and warranties in the
Agreement most directly modified by the below exceptions.

 

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