exv10w1






Exhibit 10.1




SOMAXON PHARMACEUTICALS, INC.

Common Stock

($0.0001 par value per share)




AT-THE-MARKET EQUITY OFFERING SALES AGREEMENT




August 1, 2011




CITADEL SECURITIES LLC

601 Lexington Avenue, 28th Floor

New York, NY 10003




Ladies and Gentlemen:




Somaxon Pharmaceuticals, Inc., a Delaware corporation (the “Company”), proposes,
subject to the terms and conditions stated herein, to issue and sell from time to time to or
through Citadel Securities LLC (“Citadel”), as sales agent and/or principal (“Agent”),
shares (the “Shares”) of the Company’s common stock, $0.0001 par value per share (the
“Common Stock”), having an aggregate offering price of up to $30,000,000 on the terms set
forth in Section 2 of this Sales Agreement (the “Agreement”). The Company agrees that
whenever it determines to sell Shares directly to the Agent as principal, it will enter into a
separate agreement (each, a “Terms Agreement”) in substantially the form of Annex I hereto,
relating to such sale in accordance with Section 3 of this Agreement.



The Company has filed with the Securities and Exchange Commission (the “Commission”)
registration statements under the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder (the “1933 Act”), on Form S-3 (File Nos. 333-162788 and 333-167789),
in respect of the Company’s Common Stock (including the Shares) not earlier than three years prior
to the date hereof; such registration statements, and any post-effective amendments thereto, have
become effective; and no stop order suspending the effectiveness of such registration statements or
any part thereof has been issued and no proceeding for that purpose has been initiated or, to the
knowledge of the Company, threatened by the Commission (each base prospectus filed as part of each
such registration statement, in the form in which it has most recently been filed with the
Commission on or prior to the date of this Agreement, are hereinafter collectively called the
“Base Prospectus”; the various parts of such registration statements, including all
exhibits thereto and any prospectus supplement or prospectus relating to the Shares that is filed
with the Commission and deemed by virtue of Rule 430B under the 1933 Act to be part of such
registration statements, each as amended at the time such part of the registration statements
became effective, are hereinafter collectively called the “Registration Statement” and all
references to the Registration Statement herein shall be deemed to collectively refer to each such
registration statement, unless the context requires otherwise; the prospectus supplements
specifically relating to the Shares to be prepared and filed with the Commission pursuant to Rule
424(b) under the 1933 Act are hereinafter collectively called the “Prospectus Supplement”
and all references to the Prospectus Supplement herein shall be deemed to collectively refer to
each such prospectus supplement, unless the context requires otherwise; the Base Prospectus, as
amended and supplemented by the Prospectus Supplement, is hereinafter called the
“Prospectus”; any reference herein to the Base Prospectus, the Prospectus Supplement or the
Prospectus shall be deemed to refer to and include the documents incorporated by reference therein
pursuant to Item 12 of Form S-3 under the 1933 Act; any reference to any amendment or supplement


 


 









 





to
the Base Prospectus, the Prospectus Supplement or the Prospectus
shall be deemed to refer to and include any post-effective amendment to the Registration Statement, any
prospectus supplement or prospectus relating to the Shares filed with the Commission pursuant to
Rule 424(b) under the 1933 Act and any documents filed under the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder (the “1934 Act”), and
incorporated therein, in each case after the date of the Base Prospectus, the Prospectus Supplement
or the Prospectus, as the case may be; any reference to any amendment to the Registration Statement
shall be deemed to refer to and include any annual report of the Company filed pursuant to Section
13(a) or 15(d) of the 1934 Act after the effective date of the Registration Statement that is
incorporated by reference in the Registration Statement; and any “issuer free writing prospectus”
as defined in Rule 433 under the 1933 Act relating to the Shares is hereinafter called an
“Issuer Free Writing Prospectus”).




For the purposes of this Agreement, the “Applicable Time” means, with respect to any
Shares, the time of sale of such Shares pursuant to this Agreement. The Prospectus and the
applicable Issuer Free Writing Prospectus(es) issued at or prior to such Applicable Time, taken
together, collectively, and, with respect to any Shares, together with the public offering price of
such Shares, shall be referred to herein as the “General Disclosure Package”.



Section 1. Representations and Warranties. The Company represents, warrants and
covenants to the Agent, as of the date of this Agreement, any applicable Registration Statement
Amendment Date (as defined in Section 3 below), each Company Periodic Report Date (as defined in
Section 3 below), each Applicable Time (as defined in Section 1(a) below) and each Settlement Date
(as defined in Section 2 below), if any, and covenants with the Agent, as follows:



(a) Compliance with Registration Requirements. The Registration Statement and any
Rule 462(b) Registration Statement have been declared effective by the Commission under the 1933
Act. The Company has complied, to the Commission’s satisfaction, with all requests of the
Commission for additional or supplemental information. No stop order suspending the effectiveness
of the Registration Statement or any Rule 462(b) Registration Statement is in effect and no
proceedings for such purpose have been instituted or are pending or, to the Company’s knowledge,
are contemplated or threatened by the Commission. 



The Base Prospectus when filed complied in all material respects with the 1933 Act and,
if filed by electronic transmission pursuant to the Commission’s Electronic Data Gathering,
Analysis and Retrieval System (except as may be permitted by Regulation S-T under the 1933 Act),
was identical to the copy thereof delivered to the Agent for use in connection with the offer and
sale of the Shares. Each of the Registration Statement, any Rule 462(b) Registration Statement and
any post-effective amendment thereto, at the time it became effective and at all subsequent times
during any period when the delivery of a prospectus is required in connection with the offering or
sale of Shares (whether physically or through compliance with Rule 153 or 172 under the 1933 Act,
or in lieu thereof, a notice referred to in Rule 173(a) under the 1933 Act) (the “Prospectus
Delivery Period”), complied and will comply in all material respects with the 1933 Act and did
not and will not contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not misleading. As of
the Applicable Time, the General Disclosure Package (including any Prospectus wrapper) did not, and
at the time of each sale of the Shares and at the Settlement Date (as hereinafter defined in
Section 2), the General Disclosure Package, as then amended or supplemented by the Company, if
applicable, will not, contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the circumstances under which they
were made, not misleading. The Prospectus (including any Prospectus wrapper), as amended or
supplemented, as of its date and at all subsequent times during the Prospectus Delivery Period, did
not and will not contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the circumstances under which
they were made, not misleading. The representations and warranties set forth in the three
immediately preceding sentences do not apply to statements in or omissions from the Registration
Statement, any


 


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Rule 462(b) Registration Statement, or any post-effective amendment thereto, or the Base
Prospectus, the Prospectus or the General Disclosure Package, or any amendments or supplements
thereto, made in reliance upon and in conformity with information relating to the Agent furnished
to the Company in writing by the Agent expressly for use therein, it being understood and agreed
that the only such information furnished by the Agent to the Company consists of the information
described in Section 7(b) below. There are no contracts or other documents required to be
described in the General Disclosure Package or the Prospectus or to be filed as exhibits to the
Registration Statement which have not been described or filed as required.




The Company is not an “ineligible issuer” in connection with the offering of the Shares
pursuant to Rules 164, 405 and 433 under the 1933 Act. Any free writing prospectus that the
Company is required to file pursuant to Rule 433(d) under the 1933 Act has been, or will be, filed
with the Commission in accordance with the requirements of the 1933 Act. Each free writing
prospectus that the Company has filed, or is required to file, pursuant to Rule 433(d) under the
1933 Act or that was prepared by or behalf of or used or referred to by the Company complies or
will comply in all material respects with the requirements of Rule 433 under the 1933 Act including
timely filing with the Commission or retention where required and legending, and each such free
writing prospectus, as of its issue date and at all subsequent times through the completion of the
public offer and sale of the Shares did not, does not and will not include any information that
conflicted, conflicts with or will conflict with the information contained in the Registration
Statement, the Base Prospectus or the Prospectus, including any document incorporated by reference
therein. The Company has not prepared, used or referred to, and will not, without your prior
consent, prepare, use or refer to, any free writing prospectus.



(b) Offering Materials Furnished to Agent. If so requested by the Agent, the Company
has delivered to the Agent two complete copies of the Registration Statement, each amendment
thereto and any Rule 462(b) Registration Statement and of each consent and certificate of experts
filed as a part thereof.



(c) Distribution of Offering Material By the Company. The Company has not distributed
and will not distribute, prior to the completion of the Agent’s distribution of the Shares, any
offering material in connection with the offering and sale of the Shares pursuant to this Agreement
other than the Base Prospectus, the General Disclosure Package, the Prospectus, any free writing
prospectus reviewed and consented to by the Agent, or the Registration Statement.



(d) The Sales Agreement. This Agreement has been duly authorized, executed and
delivered by, and is a valid and binding agreement of, the Company, enforceable against the Company
in accordance with its terms, except as rights to indemnification hereunder may be limited by
applicable law and except as the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the rights and remedies
of creditors or by general equitable principles.



(e) Authorization of the Shares. The Shares have been duly authorized for issuance
and sale pursuant to this Agreement and, when issued and delivered by the Company pursuant to this
Agreement, will be validly issued, fully paid and nonassessable, and the issuance and sale of the
Shares is not subject to any preemptive rights, rights of first refusal or other similar rights to
subscribe for or purchase the Shares, except for such rights as have been duly waived. No approval
of the stockholders of the Company under the rules and regulations of Nasdaq (including Rule 5635
of the Nasdaq Marketplace Rules) is required for the Company to issue and deliver to the Agent the
Shares.



(f) No Applicable Registration or Other Similar Rights. There are no persons with
registration or other similar rights to have any equity or debt securities registered for sale
under the Registration Statement or included in the offering contemplated by this Agreement, except
for such rights as have been duly waived.



 


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(g) No Material Adverse Change. Except as otherwise disclosed in the General
Disclosure Package, subsequent to the respective dates as of which information is given in the
General Disclosure Package: (i) there has been no material adverse change, or any development that
could reasonably be expected to result in a material adverse change, in the condition, financial or otherwise, or in the earnings, business,
operations or prospects, whether or not arising from transactions in the ordinary course of
business, of the Company (any such change is called a “Material Adverse Change”); (ii) the
Company has not incurred any material liability or obligation, indirect, direct or contingent, not
in the ordinary course of business nor entered into any material transaction or agreement not in
the ordinary course of business; and (iii) there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of capital stock or repurchase or redemption by
the Company of any class of capital stock.




(h) Independent Accountants. PricewaterhouseCoopers LLP, who have expressed their
opinion with respect to the financial statements (which term as used in this Agreement includes the
related notes thereto) and supporting schedules filed with the Commission as a part of the
Registration Statement and incorporated by reference into the Base Prospectus, the Prospectus and
General Disclosure Package (each, an “Applicable Prospectus” and collectively, the
“Applicable Prospectuses”), are (i) an independent registered public accounting firm with
respect to the Company within the meaning of the 1933 Act, the 1934 Act and the applicable rules
and regulations thereunder adopted by the Commission, (ii) in compliance with the applicable
requirements relating to the qualification of accountants under Rule 2-01 of Regulation S-X and
(iii) an independent registered public accounting firm as defined by the Public Company Accounting
Oversight Board (the “PCAOB”) whose registration has not been suspended or revoked and, to
the Company’s knowledge, who has not requested such registration to be withdrawn.



(i) Preparation of the Financial Statements. The financial statements filed with the
Commission as a part of the Registration Statement and included in the Base Prospectus, the General
Disclosure Package and the Prospectus present fairly in all material respects the financial
position of the Company as of and at the dates indicated and the results of its operations and cash
flows for the periods specified. The supporting schedules included in the Registration Statement
present fairly in all material respects the information required to be stated therein. Such
financial statements and supporting schedules have been prepared in conformity with generally
accepted accounting principles as applied in the United States applied on a consistent basis
throughout the periods involved, except as may be expressly stated in the related notes thereto.
No other financial statements or supporting schedules are required to be included in the
Registration Statement or any Applicable Prospectus. The financial data set forth or incorporated
by reference in each Applicable Prospectus fairly present the information set forth therein on a
basis consistent with that of the audited financial statements contained in the Registration
Statement and each Applicable Prospectus. To the Company’s knowledge, no person who has been
suspended or barred from being associated with a registered public accounting firm, or who has
failed to comply with any sanction pursuant to Rule 5300 promulgated by the PCAOB, has participated
in or otherwise aided the preparation of, or audited, the financial statements, supporting
schedules or other financial data filed with the Commission as a part of the Registration Statement
and included in any Applicable Prospectus.



(j) Company’s Accounting System. The Company makes and keeps accurate books and
records and maintains a system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management’s general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles as applied in the United
States and to maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management’s general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences. The Company is not aware of any material weakness
in the Company’s internal control over financial reporting (whether or not remediated) as of
December 31, 2010 and as of the date hereof, and since December 31, 2010, there has been no change
in the Company’s internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over financial reporting.



 


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(k) Incorporation and Good Standing of the Company. The Company has been duly
incorporated and is validly existing as a corporation in good standing under the laws of Delaware
and has the power and authority to own, lease and operate its properties and to conduct its business as described in each
Applicable Prospectus and to enter into and perform its obligations under this Agreement, except
where the failure to be in good standing would not reasonably be expected to result in a Material
Adverse Change. The Company is duly qualified as a foreign corporation to transact business and is
in good standing in the State of California and each other jurisdiction in which such qualification
is required, whether by reason of the ownership or leasing of property or the conduct of business,
except where the failure to be so qualified or in good standing would not reasonably be expected to
result in a Material Adverse Change. The Company does not own or control, directly or indirectly,
any corporation, association or other entity and the Company has no subsidiaries.




(l) Capitalization and Other Capital Stock Matters. The authorized, issued and
outstanding capital stock of the Company is as set forth in each Applicable Prospectus (other than
for subsequent issuances, if any, pursuant to employee benefit plans described in the General
Disclosure Package or upon the exercise of outstanding options or warrants described in each
Applicable Prospectus). The Shares conform in all material respects to the description thereof
contained in the General Disclosure Package. All of the issued and outstanding Shares have been
duly authorized and validly issued, are fully paid and nonassessable and have been issued in
compliance with federal and state securities laws. None of the outstanding Shares was issued in
violation of any preemptive rights, rights of first refusal or other similar rights to subscribe
for or purchase securities of the Company. There are no authorized or outstanding options,
warrants, preemptive rights, rights of first refusal or other rights to purchase, or equity or debt
securities convertible into or exchangeable or exercisable for, any capital stock of the Company
other than those accurately described in each Applicable Prospectus. The description of the
Company’s stock option, stock bonus and other stock plans or arrangements, and the options or other
rights granted thereunder, set forth in each Applicable Prospectus accurately and fairly presents
the information required to be shown with respect to such plans, arrangements, options and rights.
All grants of options to acquire Shares (each, a “Company Stock Option”) were validly
issued and approved by the Board of Directors of the Company, a committee thereof or an individual
with authority duly delegated by the Board of Directors of the Company or a committee thereof.
Grants of Company Stock Options were (i) made in material compliance with all applicable laws and
(ii) as a whole, made in material compliance with the terms of the plans under which such Company
Stock Options were issued. There is no and has been no policy or practice of the Company to
coordinate the grant of Company Stock Options with the release or other public announcement of
material information regarding the Company or its results of operations or prospects. Except as
described in the General Disclosure Package and the Prospectus, the Company has not sold or issued
any Shares during the six-month period preceding the date of the Prospectus, including any sales
pursuant to Rule 144A under, or Regulations D or S of, the 1933 Act other than Shares issued
pursuant to employee benefit plans, qualified stock options plans or other employee compensation
plans or pursuant to outstanding options, rights or warrants.



(m) Stock Exchange Listing. The Shares are registered pursuant to Section 12(b) of
the 1934 Act and are listed on the Nasdaq Capital Market (“Nasdaq”), and the Company has
taken no action designed to, or likely to have the effect of, terminating the registration of the
Shares under the 1934 Act or delisting the Shares from Nasdaq, nor has the Company received any
notification that the Commission or Nasdaq is contemplating terminating such registration or
listing, except for such notifications described in the General Disclosure Package and the
Prospectus.



(n) Non-Contravention of Existing Instruments; No Further Authorizations or Approvals
Required. The Company is not in violation of its charter or by-laws and is not in default (or,
with the giving of notice or lapse of time, would be in default) (“Default”) under any
indenture, mortgage, loan or credit agreement, note, contract, franchise, lease or other instrument
to which the Company is a party or by which it may be bound (including, without limitation, any
credit agreement, indenture, pledge agreement, security agreement or other instrument or agreement
evidencing, guaranteeing, securing or relating to indebtedness of the Company), or to which any of
the property or assets of the Company is subject (each, an “Existing Instrument”), except
for such Defaults as would not reasonably be expected to, individually or in the aggregate, result
in a Material Adverse Change. The Company’s execution, delivery and performance of this Agreement,
consummation of the transactions contemplated hereby and by each Applicable Prospectus and


 


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the
issuance and sale of the Shares (i) have been duly authorized by all necessary corporate action and will not result in any violation of the
provisions of the charter or by-laws of the Company, (ii) will not conflict with or constitute a
breach of, or Default under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company pursuant to, or require the consent of any
other party to, any Existing Instrument, except for consents that have been validly obtained and
except for such breaches, Defaults or results, or failure to obtain such consent, as would not
reasonably be expected, individually or in the aggregate, to result in a Material Adverse Change,
and (iii) will not result in any violation of any law, administrative regulation or administrative
or court decree applicable to the Company, except for such violations as would not reasonably be
expected, individually or in the aggregate, to result in a Material Adverse Change. No consent,
approval, authorization or other order of, or registration or filing with, any court or other
governmental or regulatory authority or agency, is required for the Company’s execution, delivery
and performance of this Agreement and consummation of the transactions contemplated hereby and by
each Applicable Prospectus, except such as have been obtained or made or will be made by the
Company under the 1933 Act, or that may be required under applicable state securities or blue sky
laws and from the Financial Industry Regulatory Authority (“FINRA”).




(o) No Material Actions or Proceedings. Except as disclosed in the General Disclosure
Package and the Prospectus with respect to notices and related litigation regarding “paragraph IV
certifications” (including the fact that the Company cannot predict the outcome of any such related
litigation), there are no legal or governmental actions, suits or proceedings pending or, to the
best of the Company’s knowledge, threatened (i) against or affecting the Company, (ii) which have
as the subject thereof any officer or director of, or property owned or leased by, the Company or
(iii) relating to environmental or discrimination matters, where in any such case (A) such action,
suit or proceeding (including without limitation, any such action, suit or proceeding for which, to
the Company’s knowledge, there is a substantial likelihood that it will be determined adversely to
the Company or such officer or director), if so determined adversely, would reasonably be expected
to result in a Material Adverse Change or adversely affect the consummation of the transactions
contemplated by this Agreement or (B) any such action, suit or proceeding is or would be material
in the context of the sale of Shares. No material labor dispute with the employees of the Company,
or to the Company’s knowledge, with the employees of any principal supplier, manufacturer, customer
or contractor of the Company, exists or, to the Company’s knowledge, is threatened or imminent.



(p) Intellectual Property Rights. The Company owns, possesses or can acquire on
reasonable terms sufficient trademarks, trade names, patent rights, copyrights, domain names,
licenses, approvals, trade secrets and other similar rights (collectively, “Intellectual
Property Rights”) reasonably necessary to conduct its businesses as now conducted; except to
the extent failure to own, possess or acquire such Intellectual Property Rights would not result in
a Material Adverse Change. The Company has not received and has no reason to believe that it will
receive, any notice of infringement or conflict with asserted Intellectual Property Rights of
others. Except as would not be reasonably likely to result, individually or in the aggregate, in a
Material Adverse Change or except as disclosed in the General Disclosure Package and the Prospectus
with respect to notices and related litigation regarding “paragraph IV certifications” (including
the fact that the Company cannot predict the outcome of any such related litigation), (A) to the
Company’s knowledge there is no infringement, misappropriation or violation by third parties of any
of the Intellectual Property Rights owned by the Company; (B) there is no pending or, to the
Company’s knowledge, threatened action, suit, proceeding or claim by others challenging the rights
of the Company in or to any such Intellectual Property Rights, and the Company is unaware of any
facts which would form a reasonable basis for any such claim, that would reasonably be expected,
individually or in the aggregate, together with any other claims in this subsection (p) to result
in a Material Adverse Change; (C) the Intellectual Property Rights owned by the Company and, to the
Company’s knowledge, the Intellectual Property Rights licensed to the Company have not been
adjudged by a court of competent jurisdiction invalid or unenforceable, in whole or in part, and
there is no pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by
others challenging the validity or scope of any such Intellectual Property Rights, and, except as
described in the General Disclosure Package and the Prospectus (including the fact that there may
be additional “paragraph IV certifications”), the Company is unaware of any facts which would form
a reasonable basis for any such claim that would


 


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reasonably be expected, individually or in the
aggregate, together with any other claims in this subsection (p) to result in a Material Adverse Change; (D) there is no pending or, to the
Company’s knowledge, threatened action, suit, proceeding or claim by others that the Company
infringes, misappropriates or otherwise violates any Intellectual Property Rights or other
proprietary rights of others, the Company has not received any written notice of such claim and the
Company is unaware of any other facts which would form a reasonable basis for any such claim that
would reasonably be expected, individually or in the aggregate, together with any other claims in
this subsection (p) to result in a Material Adverse Change; (E) to the Company’s knowledge, all
prior art references relevant to the patentability of any pending claim of any patent applications
comprising or that have resulted in Intellectual Property Rights known to the Company, applicable
inventor(s) or licensors, or any of their counsel during the prosecution of such patent
applications that were required to be disclosed to the relevant patent authority were so disclosed
by the required time, and, to the best of the Company’s knowledge, neither the Company nor any such
inventor, licensor or counsel made any misrepresentation to, or omitted any material fact from, the
relevant patent authority during such prosecution; and (F) to the Company’s knowledge, no employee
of the Company is in or has ever been in violation in any material respect of any term of any
employment contract, patent disclosure agreement, invention assignment agreement, non-competition
agreement, non-solicitation agreement, nondisclosure agreement or any restrictive covenant to or
with a former employer where the basis of such violation relates to such employee’s employment with
the Company, or actions undertaken by the employee while employed with the Company and would
reasonably be expected to result, individually or in the aggregate, in a Material Adverse Change.
To the Company’s knowledge, all material technical information developed by and belonging to the
Company for which it has not sought, and does not intend to seek, to patent or otherwise protect
pursuant to applicable intellectual property laws has been kept confidential or disclosed only
under obligations of confidentiality. The Company is not a party to or bound by any options,
licenses or agreements with respect to the Intellectual Property Rights of any other person or
entity that are required to be set forth in the Prospectus and are not described therein. The
General Disclosure Package contains in all material respects the same description of the matters
set forth in the preceding sentence contained in the Prospectus. None of the technology employed
by the Company has been obtained or is being used by the Company in violation of any contractual
obligation binding on the Company or, to the Company’s knowledge, any of its officers, directors or
employees or otherwise in violation of the rights of any persons, except in each case for such
violations that would not reasonably be expected to result in a Material Adverse Change.




(q) All Necessary Permits, etc. The Company possesses such valid and current
certificates, authorizations or permits issued by the appropriate state, federal or foreign
regulatory agencies or bodies necessary to conduct their respective businesses as currently
conducted by them and described in the General Disclosure Package and the Prospectus, and the
Company has not received and has no reason to believe that it will receive, any notice of
proceedings relating to the revocation or modification of, or non-compliance with, any such
certificate, authorization or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would reasonably be expected to result in a Material
Adverse Change.



(r) Title to Properties. The Company has good and marketable title to all of the real
and personal property and other assets reflected as owned in the financial statements referred to
in Section 1(i) above (or elsewhere in any Applicable Prospectus), in each case free and clear of
any security interests, mortgages, liens, encumbrances, equities, adverse claims and other defects,
except such as do not materially and adversely affect the value of such property and do not
materially interfere with the use made or proposed to be made of such property by the Company,
except as described in the General Disclosure Package and the Prospectus. To the Company’s
knowledge, the real property, improvements, equipment and personal property held under lease by the
Company are held under valid and enforceable leases, with such exceptions as are not material and
do not materially interfere with the use made or proposed to be made of such real property,
improvements, equipment or personal property by the Company.



 


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(s) Tax Law Compliance. The Company has filed all necessary federal, state and
foreign income and franchise tax returns or has properly requested extensions thereof and has paid
all taxes required to be paid by the Company and, if due and payable, any related or similar
assessment, fine or penalty levied against the Company except as may be being contested in good faith and by appropriate proceedings. The Company
has made adequate charges, accruals and reserves in the applicable financial statements referred to
in Section 1(i) above in respect of all federal, state and foreign income and franchise taxes for
all periods as to which the tax liability of the Company has not been finally determined.




(t) Company Not an “Investment Company”. The Company has been advised of the rules
and requirements under the Investment Company Act of 1940, as amended (the “Investment Company
Act”). The Company is not, and will not be, either after receipt of payment for the Shares or
after the application of the proceeds therefrom as described under “Use of Proceeds” in each
Applicable Prospectus, an “investment company” within the meaning of Investment Company Act
and will conduct its business in a manner so that it will not become subject to the Investment
Company Act.



(u) Insurance. The Company is insured by recognized, financially sound and reputable
institutions with policies in such amounts and with such deductibles and covering such risks as are
reasonably adequate and customary for its business as currently conducted and described in the
General Disclosure Package and the Prospectus, including, but not limited to, policies covering
real and personal property owned or leased by the Company against theft, damage, destruction, acts
of vandalism and policies covering the Company for product liability claims and clinical trial
liability claims. The Company has no reason to believe that it will not be able (i) to renew its
existing insurance coverage as and when such policies expire or (ii) to obtain comparable coverage
from similar institutions as may be necessary or appropriate to conduct its business as now
conducted and at a cost that would not result in a Material Adverse Change. The Company has not
been denied any insurance coverage material to the Company which it has sought or for which it has
applied.



(v) No Price Stabilization or Manipulation; Compliance with Regulation M. The Company
has not taken, directly or indirectly, any action designed to or that might be reasonably expected
to cause or result in stabilization or manipulation of the price of the Shares or any other
“reference security” (as defined in Rule 100 of Regulation M under the 1934 Act
(“Regulation M”)) whether to facilitate the sale or resale of the Shares or otherwise, and
has taken no action which would directly or indirectly violate Regulation M.



(w) Related Party Transactions. There are no business relationships or related-party
transactions involving the Company or any other person required to be described in each Applicable
Prospectus which have not been described as required. The General Disclosure Package contains in
all material respects the same description of the matters set forth in the preceding sentence
contained in the Prospectus.



(x) S-3 Eligibility. At the time the Registration Statement was originally declared
effective and at the time the Company’s Annual Report on Form 10-K for the year ended December 31,
2010 was filed with the Commission, the Company met the then applicable requirements for use of
Form S-3 under the 1933 Act. The Company is eligible to offer and sell securities under the
Registration Statement (including the offer and sale of the Shares) without reliance on General
Instruction I.B.6 of Form S-3.



(y) 1934 Act Compliance. The documents incorporated or deemed to be incorporated by
reference in the Prospectus, at the time they were or hereafter are filed with the Commission,
complied and will comply in all material respects with the requirements of the 1934 Act, and, when
read together with the other information in the Prospectus, at the time the Registration Statement
and any amendments thereto become effective and at the Settlement Date, as the case may be, will
not contain an 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 light of the circumstances under
which they were made, not misleading.



 


8









 





(z) FINRA Matters. All of the information provided to the Agent or to counsel for the
Agent by the Company, its officers and directors and, to the Company’s knowledge, the holders of
any securities (debt or equity) or options to acquire any securities of the Company in connection
with letters, filings or other supplemental information provided to FINRA Rule 5110 or the National
Association of Securities Dealers Inc. (the “NASD”) Conduct Rule 2710 or 2720 is true, complete and correct. Neither the
Company nor, to the knowledge of the Company, any of its affiliates (within the meaning of the NASD
Conduct Rule 2720(f)(1)) directly or indirectly controls, is controlled by, or is under common
control with, or is an associated person (within the meaning of Article I, Section 1(ee) of the
By-laws of FINRA) of, any member firm of FINRA.




(aa) Statistical and Market-Related Data. The statistical, demographic and
market-related data included in the Registration Statement and each Applicable Prospectus are based
on or derived from sources that the Company believes to be reliable and accurate or represent the
Company’s good faith estimates that are made on the basis of data derived from such sources.



(bb) No Unlawful Contributions or Other Payments. The Company and, to the Company’s
knowledge, any employee or agent of the Company, have not made any contribution or other payment to
any official of, or candidate for, any federal, state or foreign office in violation of any law or
of the character required to be disclosed in the Registration Statement and each Applicable
Prospectus.



(cc) Disclosure Controls and Procedures; Deficiencies in or Changes to Internal Control
Over Financial Reporting. The Company has established and maintains disclosure controls and
procedures (as defined in 1934 Act Rules 13a-15(e) and 15d-15(e)), which (i) are designed to ensure
that material information relating to the Company is made known to the Company’s principal
executive officer and its principal financial officer by others within the Company, particularly
during the periods in which the periodic reports required under the 1934 Act are being prepared;
(ii) have been evaluated by management of the Company for effectiveness as of the end of the
Company’s most recent fiscal quarter; and (iii) the Company’s principal executive officer and
principal financial officer concluded to be effective at the reasonable assurance level. Based on
the most recent evaluation of its internal control over financial reporting, the Company is not
aware of (i) any significant deficiencies or material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
Company’s ability to record, process, summarize and report financial information or (ii) any fraud,
whether or not material, that involves management or other employees who have a significant role in
the Company’s internal control over financial reporting. The Company is not aware of any change in
its internal control over financial reporting that has occurred during its most recent fiscal
quarter that has materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.



(dd) Compliance with Environmental Laws. Except as described in each Applicable
Prospectus and except as would not reasonably be expected to, singly or in the aggregate, result in
a Material Adverse Change, (i) the Company is not in violation of any federal, state, local or
foreign statute, law, rule, regulation, ordinance, code, policy or rule of common law or any
judicial or administrative interpretation thereof, including any judicial or administrative order,
consent, decree or judgment, relating to pollution or protection of human health, the environment
(including, without limitation, ambient air, surface water, groundwater, land surface or subsurface
strata) or wildlife, including, without limitation, laws and regulations relating to the release or
threatened release of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous
substances, petroleum or petroleum products (collectively, “Hazardous Materials”) or to the
manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials (collectively, “Environmental Laws”), (ii) the Company has all permits,
authorizations and approvals required under any applicable Environmental Laws and is in compliance
with their requirements, (iii) there are no pending or, to the knowledge of the Company, threatened
administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens,
notices of noncompliance or violation, investigation or proceedings relating to any Environmental
Law against the Company, and (iv) there are no events or circumstances that might reasonably be
expected to form the basis of an order for clean-up or remediation, or an action, suit or
proceeding by any private party or governmental body or agency, against or affecting the Company
relating to Hazardous Materials or any Environmental Laws.



 


9









 





(ee) ERISA Compliance. The Company and any “employee benefit plan” (as
defined under the Employee Retirement Income Security Act of 1974, as amended, and the regulations
and published interpretations thereunder (collectively, “ERISA”)) established or maintained
by the Company or its “ERISA Affiliates” (as defined below) are in compliance in all material respects with ERISA. “ERISA
Affiliate” means, with respect to the Company, any member of any group of organizations
described in Sections 414(b),(c),(m) or (o) of the Internal Revenue Code of 1986, as amended, and
the regulations and published interpretations thereunder (the “Code”) of which the Company
is a member. No “reportable event” (as defined under ERISA) has occurred or is reasonably expected
to occur with respect to any “employee benefit plan” established or maintained by the Company or
any of its ERISA Affiliates. No “employee benefit plan” established or maintained by the Company
or any of its ERISA Affiliates, if such “employee benefit plan” were terminated, would have any
“amount of unfunded benefit liabilities” (as defined under ERISA). Neither the Company nor any of
its ERISA Affiliates has incurred or reasonably expects to incur any liability under (i) Title IV
of ERISA with respect to termination of, or withdrawal from, any “employee benefit plan” or (ii)
Sections 412, 4971, 4975 or 4980B of the Code. Each “employee benefit plan” established or
maintained by the Company or any of its ERISA Affiliates that is intended to be qualified under
Section 401(a) of the Code is so qualified and nothing has occurred, whether by action or failure
to act, which would reasonably be expected to result in the loss of such qualification.




(ff) Brokers. Except as contemplated by this Agreement, there is no broker, finder or
other party that is entitled to receive from the Company any brokerage or finder’s fee or other fee
or commission as a result of any transactions contemplated by this Agreement.



(gg) No Outstanding Loans or Other Extensions of Credit. Since the adoption of
Section 13(k) of the 1934 Act, the Company has not extended or maintained credit, arranged for the
extension of credit, or renewed any extension of credit, in the form of a personal loan, to or for
any director or executive officer (or equivalent thereof) of the Company except for such extensions
of credit as are expressly permitted by Section 13(k) of the 1934 Act.



(hh) Compliance with Laws. The Company has not been advised, and has no reason to
believe, that it is not conducting business in compliance with all applicable laws, rules and
regulations of the jurisdictions in which it is conducting business, except where failure to be so
in compliance would not result in a Material Adverse Change. The Company has not received any FDA
Form 483, notice of adverse finding, warning letter, untitled letter or other correspondence or
notice from the U.S. Food and Drug Administration or any other governmental authority alleging or
asserting noncompliance with any laws applicable to the Company, except for such noncompliance the
correction of which would not result in a Material Adverse Change.



(ii) Clinical Trials. The studies, tests and preclinical and clinical trials
conducted by or on behalf of the Company were and, if still pending, are being conducted in
compliance with experimental protocols, procedures and controls pursuant to accepted professional
scientific standards and all applicable laws and authorizations, including, without limitation, the
Federal Food, Drug and Cosmetic Act and the rules and regulations promulgated thereunder, except
where the failure to be in compliance has not resulted and would not reasonably be expected to
result in a Material Adverse Change; the descriptions of the results of such studies, tests and
trials contained in any Applicable Prospectus are accurate and complete in all material respects
and fairly present the data derived from such studies, tests and trials; except to the extent
disclosed in any Applicable Prospectus, the Company is not aware of any studies, tests or trials,
the results of which the Company believes reasonably call into question the study, test, or trial
results described or referred to in any Applicable Prospectus when viewed in the context in which
such results are described and the clinical state of development; and the Company has not received
any notices or correspondence from any applicable governmental authority requiring the termination,
suspension or material modification of any studies, tests or preclinical or clinical trials
conducted by or on behalf of the Company.



 


10









 





(jj) Foreign Corrupt Practices Act. Neither the Company nor, to the Company’s
knowledge, any director, officer, agent, employee, affiliate or other person acting on behalf of
the Company is aware of or has taken any action, directly or indirectly, that has resulted or would
result in a violation of the Foreign Corrupt Practices Act of 1977, as amended, and the rules and
regulations thereunder (the “FCPA”), including, without limitation, making use of the mails
or any means or instrumentality of interstate commerce corruptly in
furtherance of an offer, payment, promise to pay or authorization of the payment of any money, or other
property, gift, promise to give, or authorization of the giving of anything of value to any
“foreign official” (as such term is defined in the FCPA) or any foreign political party or official
thereof or any candidate for foreign political office, in contravention of the FCPA; and the
Company and, to the Company’s knowledge, the Company’s affiliates have conducted their respective
businesses in compliance with the FCPA and have instituted and maintain policies and procedures
designed to ensure, and which are reasonably expected to continue to ensure, continued compliance
therewith.




(kk) Money Laundering Laws. The operations of the Company are, and have been
conducted at all times, in compliance with applicable financial recordkeeping and reporting
requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money
laundering statutes of all applicable jurisdictions, the rules and regulations thereunder and any
related or similar applicable rules, regulations or guidelines, issued, administered or enforced by
any governmental agency (collectively, the “Money Laundering Laws”) and no action, suit or
proceeding by or before any court or governmental agency, authority or body or any arbitrator
involving the Company with respect to the Money Laundering Laws is pending or, to the best
knowledge of the Company, threatened.



(ll) OFAC. Neither the Company nor, to the Company’s knowledge, any director,
officer, agent, employee, affiliate or person acting on behalf of the Company is currently subject
to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury
Department (“OFAC”); and the Company will not directly or indirectly use the proceeds of
this offering, or lend, contribute or otherwise make available such proceeds to any subsidiary,
joint venture partner or other person or entity, for the purpose of financing the activities of any
person currently subject to any U.S. sanctions administered by OFAC.



Any certificate signed by any officer of the Company and delivered to the Agent or to counsel
for the Agent shall be deemed a representation and warranty by the Company to the Agent as to the
matters covered thereby.



The Company acknowledges that the Agent and, for purposes of the opinions to be
delivered pursuant to Section 6 hereof, counsel to the Company, will rely upon the accuracy and
truthfulness of the foregoing representations and hereby consents to such reliance.



Section 2. Sale and Delivery of Shares.



(a) Subject to the terms and conditions set forth herein, the Company agrees to issue and sell
exclusively through the Agent acting as sales agent or directly to the Agent acting as principal
from time to time, and the Agent agrees to use its commercially reasonable efforts to sell as sales
agent for the Company, the Shares. Sales of the Shares, if any, through the Agent acting as sales
agent or directly to the Agent acting as principal will be made by means of ordinary brokers’
transactions on the Nasdaq or any other market for the Common Stock, in privately negotiated
transactions or otherwise at market prices prevailing at the time of sale, at prices related to
prevailing market prices or at negotiated prices. Nothing contained herein shall be deemed to
restrict the Company from undertaking a simultaneous offering of its securities, provided the Agent
is given notice pursuant to Section 3(q).



(b) The Shares are to be sold on a daily basis or otherwise as shall be agreed to by the
Company and the Agent on that trading day (other than a day on which the Nasdaq is scheduled to
close prior to its regular weekday closing time, each, a “Trading Day”) that the Company
has satisfied its obligations under Section 6 of this Agreement and that the Company has instructed
the Agent to make such sales (the “Purchase Date”); provided that the foregoing limitation
shall not apply to sales solely to employees or security holders of the Company, or to a trustee or
other person acquiring such securities for the accounts of such persons in which Citadel is acting
for


 


11









 





the Company in a capacity other than as Agent under this Agreement; and further provided that
so long as the Company’s Common Stock is not an “actively-traded security” within the meaning of
Rule 101(c)(1) of Regulation M or if deemed necessary, in the Agent’s reasonable discretion, in
connection with the Agent’s initiation of research reports about the Company, the Agent may, in its
reasonable discretion, by notice to the Company, delay the Purchase Date in respect of all or any
portion of the Shares deliverable pursuant to this Agreement or any Terms Agreement to such date as
it determines is reasonably necessary to ensure compliance with Regulation M and any other
applicable legal or regulatory requirements. On any Trading Day, the Company may instruct the Agent
by telephone (confirmed promptly by telecopy or email, which confirmation will be promptly
acknowledged by the Agent) as to the maximum number of Shares to be sold by the Agent on such day
(in any event not in excess of the number available for issuance under the Prospectus and the
currently effective Registration Statement) and the minimum price per Share at which such Shares
may be sold. On any Trading Day, the Company may instruct the Agent by telephone (confirmed
promptly by telecopy or email, which confirmation will be promptly acknowledged by the Agent) not
to sell any Shares. Subject to the terms and conditions hereof, the Agent shall use its
commercially reasonable efforts to sell as sales agent all of the Shares so designated by the
Company, and such sales will be made only by methods deemed to be an “at the market offering” as
defined in Rule 415 under the 1933 Act or as otherwise agreed to by the Agent and the Company. The
Company and the Agent each acknowledge and agree that (A) there can be no assurance that the Agent
will be successful in selling the Shares, (B) the Agent will incur no liability or obligation to
the Company or any other person or entity if they do not sell Shares for any reason other than a
failure by the Agent to use its commercially reasonable efforts consistent with its normal trading
and sales practices and applicable law and regulations to sell such Shares as required by this
Agreement, and (C) the Agent shall be under no obligation to purchase Shares on a principal basis
except as otherwise specifically agreed by each of the Agent and the Company pursuant to a Terms
Agreement. In the event of a conflict between the terms of this Agreement and the terms of a Terms
Agreement, the terms of such Terms Agreement will control.




(c) Notwithstanding the foregoing, the Company shall not authorize the issuance and sale of,
and the Agent as sales agent shall not be obligated to use its commercially reasonable efforts to
sell, any Shares (i) at a price lower than the minimum price therefor authorized from time to time,
or (ii) in a number in excess of the number of Shares authorized from time to time to be issued and
sold under this Agreement, in each case, by the Company’s board of directors, or a duly authorized
committee thereof, and notified to the Agent in writing. In addition, the Company may, upon notice
to the Agent, suspend the offering of the Shares or the Agent may, upon notice to the Company,
suspend the offering of the Shares with respect to which the Agent is acting as sales agent for any
reason and at any time; provided, however, that such suspension or termination
shall not affect or impair the parties’ respective obligations with respect to the Shares sold
hereunder prior to the giving of such notice. Any notice given pursuant to the preceding sentence
may be given by telephone (confirmed promptly by telecopy or email, which confirmation will be
promptly acknowledged).



(d) The gross sales price of any Shares sold pursuant to this Agreement by the Agent acting as
sales agent of the Company shall be the market price prevailing at the time of sale for shares of
the Company’s Common Stock sold by the Agent on the Nasdaq or any other market for the Common
Stock, at prices relating to prevailing market prices or at negotiated prices. The compensation
payable to the Agent for sales of Shares with respect to which the Agent acts as sales agent shall
be equal to 3.0% of the gross sales price of the Shares for amounts of Shares sold pursuant to this
Agreement. The Company may sell Shares to the Agent, acting as principal, at a price agreed upon
with the Agent at the relevant Applicable Time and pursuant to a separate Terms Agreement. The
remaining proceeds, after further deduction for any transaction fees imposed by any governmental,
regulatory or self-regulatory organization in respect of such sales, shall constitute the net
proceeds to the Company for such Shares (the “Net Proceeds”). The Agent shall notify the Company as promptly as
practicable if any deduction referenced in the preceding sentence will be required.


 


12









 







(e) If acting as a sales agent hereunder, the Agent shall provide written confirmation to the
Company following the close of trading on the Nasdaq, each day in which Shares are sold under this
Agreement setting forth the number of Shares sold on such day, the aggregate gross sales proceeds
of the Shares, the Net Proceeds to the Company and the compensation payable by the Company to the
Agent with respect to such sales.



(f) Under no circumstances shall the aggregate offering price or number, as the case may be,
of Shares sold pursuant to this Agreement and any Terms Agreement exceed the aggregate offering
price or number, as the case may be, of Shares of Common Stock (i) set forth in the preamble
paragraph of this Agreement, (ii) available for issuance under the Prospectus and the then
currently effective Registration Statement or (iii) authorized from time to time to be issued and
sold under this Agreement or any Terms Agreement by the Company’s board of directors, or a duly
authorized committee thereof, and notified to the Agent in writing. In addition, under no
circumstances shall any Shares with respect to which the Agent acts as sales agent be sold at a
price lower than the minimum price therefor authorized from time to time by the Company’s board of
directors, or a duly authorized committee thereof, and notified to the Agent in writing. Any
Shares sold pursuant to this Agreement and any Terms Agreement shall be issued under the
registration statement on Form S-3 (File No. 333-162788) and the prospectus supplement thereto to
the extent Shares are available for issuance pursuant to such registration statement; thereafter,
any Shares sold pursuant to this Agreement and any Terms Agreement shall be issued under the
registration statement on Form S-3 (File No. 333-167789) and the prospectus supplement thereto.



(g) Settlement for sales of Shares pursuant to this Section 2 will occur on the third business
day that is also a Trading Day following the trade date on which such sales are made, unless
another date shall be agreed to by the Company and the Agent (each such day, a “Settlement
Date”). On each Settlement Date, the Shares sold through the Agent for settlement on such date
shall be delivered by the Company to the Agent against payment of the Net Proceeds from the sale of
such Shares. Settlement for all Shares shall be effected by book-entry delivery of Shares to the
Agent’s account at The Depository Trust Company against payments by the Agent of the Net Proceeds
from the sale of such Shares in same day funds delivered to an account designated by the Company.
If the Company shall default on its obligation to deliver Shares on any Settlement Date, the
Company shall (i) indemnify and hold the Agent harmless against any loss, claim or damage arising
from or as a result of such default by the Company and (ii) pay the Agent any commission to which
it would otherwise be entitled absent such default.



(h) Notwithstanding any other provision of this Agreement, the Company and the Agent agree
that no sales of Shares shall take place, and the Company shall not request the sale of any Shares
that would be sold, and the Agent shall not be obligated to sell, during any period in which the
Company is, or could be deemed to be, in possession of material non-public information; provided
that, unless otherwise agreed between the Company and the Agent, for purposes of this paragraph (h)
any such period shall be deemed to end on the date on which the Company’s next subsequent Annual
Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be, is filed with the
Commission.



(i) At each Applicable Time, Settlement Date, Registration Amendment Date and each Company
Periodic Report Date, the Company shall be deemed to have affirmed each representation and warranty
contained in this Agreement. Any obligation of the Agent to use its commercially reasonable efforts
to sell the Shares on behalf of the Company as sales agent shall be subject to the continuing
accuracy of the representations and warranties of the Company herein, to the performance by the Company of its obligations hereunder and to the
continuing satisfaction of the additional conditions specified in Section 6 of this Agreement.


 


13









 







Section 3. Covenants. The Company agrees with the Agent:



(a) During the Prospectus Delivery Period, (i) that the Company will not file any amendment or
any supplement to the Registration Statement or the Prospectus prior to any Settlement Date unless
a copy thereof has been submitted to the Agent a reasonable period before the filing and the Agent
has not reasonably objected thereto (provided, the failure to object shall not relieve the Company
of liability or obligations hereunder or affect the Agent’s rights to rely on the representations
and warranties herein) and will advise the Agent, promptly after it receives notice thereof, of the
time when any amendment to the Registration Statement has been filed or becomes effective or any
amendment or supplement to the Prospectus has been filed and to furnish the Agent with copies
thereof, (ii) to file promptly all other material required to be filed by the Company with the
Commission pursuant to Rule 433(d) under the 1933 Act, (iii) to file promptly all reports and any
definitive proxy or information statements required to be filed by the Company with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act, (iv) to advise the Agent, promptly
after it receives notice thereof, of the issuance by the Commission of any stop order or of any
order preventing or suspending the use of the Prospectus or other prospectus in respect of the
Shares, of the suspension of the qualification of the Shares for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any such purpose, or of any
request by the Commission for the amending or supplementing of the form of the Registration
Statement or the Prospectus or for additional information, and (v) in the event of the issuance of
any such stop order or of any such order preventing or suspending the use of the Prospectus in
respect of the Shares or suspending any such qualification, to promptly use its commercially
reasonable efforts to obtain the withdrawal of such order; and in the event of any such issuance of
a notice of objection, promptly to take such reasonable steps as may be reasonably necessary to
permit offers and sales of the Shares by the Agent, which may include, without limitation, amending
the Registration Statement or filing a new registration statement, at the Company’s expense
(references herein to the Registration Statement shall include any such amendment or new
registration statement).



(b) Promptly from time to time to take such action as the Agent may reasonably request to
qualify the Shares for offering and sale under the securities laws of such jurisdictions as the
Agent may reasonably request and to comply with such laws so as to permit the continuance of sales
and dealings therein in such jurisdictions for as long as may be necessary to complete the sale of
the Shares, provided that in connection therewith the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process in any jurisdiction; and to
promptly advise the Agent of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Shares for offer or sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose.



(c) During the Prospectus Delivery Period, the Company will make available to the Agent, as
soon as practicable after the execution of this Agreement, and thereafter from time to time furnish
to the Agent, copies of the most recent Prospectus in such quantities and at such locations as the
Agent may reasonably request for the purposes contemplated by the 1933 Act. During the Prospectus
Delivery Period, and if at such time any event shall have occurred as a result of which the
Prospectus as then amended or supplemented would include an untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made when such Prospectus is delivered, not misleading, or,
if for any other reason it shall be necessary during such same period to amend or supplement the
Prospectus or to file under the 1934 Act any document incorporated by reference in the Prospectus
in order to comply with the 1933 Act or the 1934 Act, to notify the Agent and to file such document and to prepare and
furnish without charge to the Agent as many written and electronic copies as the Agent may from
time to time reasonably request of an amended Prospectus or a supplement to the Prospectus which
will correct such statement or omission or effect such compliance.


 


14









 







(d) To make generally available to its securityholders as soon as practicable, but in any
event not later than sixteen months after the effective date of the Registration Statement (as
defined in Rule 158(c) under the 1933 Act), an earnings statement of the Company (which need not be
audited) complying with Section 11(a) of the 1933 Act and the rules and regulations of the
Commission thereunder (including, at the option of the Company, Rule 158).



(e) To pay the required Commission filing fees relating to the Shares within the time required
by Rule 456(b)(1) under the 1933 Act without regard to the proviso therein and otherwise in
accordance with Rules 456(b) and 457(r) under the 1933 Act.



(f) To use the Net Proceeds received by it from the sale of the Shares pursuant to this
Agreement and any Terms Agreement in the manner specified in the Disclosure Package.



(g) In connection with the offering and sale of the Shares, the Company will file with the
Nasdaq all documents and notices, and make all certifications, required by the Nasdaq of companies
that have securities that are listed or quoted on the Nasdaq and will maintain such listings or
quotations.



(h) To not take, directly or indirectly, and to cause its affiliates to refrain from taking,
any action designed to cause or result in, or that has constituted or might reasonably be expected
to constitute, under the 1934 Act or otherwise, the stabilization or manipulation of the price of
any securities of the Company to facilitate the sale or resale of the Shares.



(i) At each Applicable Time, each Settlement Date, each Registration Statement Amendment Date
(as defined below), each Company Periodic Report Date (as defined below) and each date on which
Shares are delivered to the Agent pursuant to a Terms Agreement, the Company shall be deemed to
have affirmed each representation, warranty, covenant and other agreement contained in this
Agreement or any Terms Agreement. In each Annual Report on Form 10-K or Quarterly Report on Form
10-Q filed by the Company in respect of any quarter in which sales of Shares were made by or
through the Agent under this Agreement or any Terms Agreement (each date on which any such document
is filed, and any date on which an amendment to any such document is filed, a “Company Periodic
Report Date”), the Company shall set forth with regard to such quarter the number of Shares
sold through the Agent under this Agreement or any Terms Agreement and the Net Proceeds received by
the Company with respect to sales of Shares pursuant to this Agreement or any Terms Agreement.



(j) Upon commencement of the offering of Shares under this Agreement and each time the Shares
are delivered to the Agent as principal on a Settlement Date and promptly after each (i) date the
Registration Statement or the Prospectus shall be amended or supplemented (other than (1) by an
amendment or supplement providing solely for the determination of the terms of the Shares, (2) in
connection with the filing of a prospectus supplement that contains solely the information set
forth in Section 3(i), (3) in connection with the filing of any current reports on Form 8-K (other
than any current reports on Form 8-K which contain financial statements, supporting schedules or
other financial data, including any current report on Form 8-K under Item 2.02 of such form that is
considered “filed” under the 1934 Act) or (4) by a prospectus supplement relating to the offering
of other securities (including, without limitation,


 


15









 





other shares of Common Stock)) (each such date,
a “Registration Statement Amendment Date”) and (ii) filing by the Company of an Annual Report on Form
10-K, the Company will furnish or cause to be furnished forthwith to the Agent a certificate dated
the date of effectiveness of such amendment or the date of filing with the Commission of such
supplement or other document, as the case may be, in a form reasonably satisfactory to the Agent to
the effect that the statements contained in the certificate referred to in Section 6(e) of this
Agreement which were last furnished to the Agent are true and correct at the time of such
amendment, supplement or filing, as the case may be, as though made at and as of such time (except
that such statements shall be deemed to relate to the Registration Statement, the General
Disclosure Package and the Prospectus as amended and supplemented to such time) or, in lieu of such
certificate, a certificate of the same tenor as the certificate referred to in said Section 6(e),
but modified as necessary to relate to the Registration Statement and the Prospectus as amended and
supplemented, or to the document incorporated by reference into the Prospectus, to the time of
delivery of such certificate. As used in this paragraph, to the extent there shall be an Applicable
Time on or following the date referred to in clause (i) or (ii) above, promptly shall be deemed to
be on or prior to the next succeeding Applicable Time.




(k) Upon commencement of the offering of Shares under this Agreement and promptly after each
(i) Registration Statement Amendment Date and (ii) filing by the Company of an Annual Report on
Form 10-K, the Company will furnish or cause to be furnished to the Agent and to counsel to the
Agent the written opinion and letter of Latham & Watkins LLP or other counsel reasonably
satisfactory to the Agent, dated the date of effectiveness of such amendment or the date of filing
with the Commission of such supplement or other document, as the case may be, in a form and
substance reasonably satisfactory to the Agent and its counsel, of the same tenor as the opinions
and letters referred to in Section 6(b) of this Agreement, but modified as necessary to relate to
the Registration Statement, the General Disclosure Package and the Prospectus as amended and
supplemented, or to the document incorporated by reference into the Prospectus, to the time of
delivery of such opinion and letter or, in lieu of such opinion and letter, counsel last furnishing
such letter to the Agent shall furnish the Agent with a letter substantially to the effect that the
Agent may rely on such last opinion and letter to the same extent as though each were dated the
date of such letter authorizing reliance (except that statements in such last letter shall be
deemed to relate to the Registration Statement and the Prospectus as amended and supplemented to
the time of delivery of such letter authorizing reliance). As used in this paragraph, to the extent
there shall be an Applicable Time on or following the date referred to in clause (i) or (ii) above,
promptly shall be deemed to be on or prior to the next succeeding Applicable Time.



(l) Upon commencement of the offering of Shares under this Agreement and promptly after each
(i) Registration Statement Amendment Date and (ii) filing by the Company of an Annual Report on
Form 10-K, the Company will cause PricewaterhouseCoopers LLP, or other independent accountants
reasonably satisfactory to the Agent, to furnish to the Agent a letter, dated the date of
effectiveness of such amendment or the date of filing of such supplement or other document with the
Commission, as the case may be, in form reasonably satisfactory to the Agent and its counsel, of
the same tenor as the letter referred to in Section 6(c) hereof, but modified as necessary to
relate to the Registration Statement, the Disclosure Package and the Prospectus, as amended and
supplemented, or to the document incorporated by reference into the Prospectus, to the date of such
letter. As used in this paragraph, to the extent there shall be an Applicable Time on or following
the date referred to in clause (i) or (ii) above, promptly shall be deemed to be on or prior to the
next succeeding Applicable Time.



(m) Upon commencement of the offering of Shares under this Agreement, the Company will furnish
or cause to be furnished to the Agent and to counsel to the Agent the written opinion of Knobbe,
Martens, Olson & Bear LLP, intellectual property counsel for the Company, with respect to certain
intellectual property matters, dated as of the Applicable Time, in a form and substance reasonably satisfactory to the Agent and its
counsel, of the same tenor as the opinions and letters referred to in Section 6(d) of this
Agreement.


 


16









 







(n) The Company consents to Citadel trading in the Company’s Common Stock for Citadel’s own
account and for the account of its clients at the same time as sales of Shares occur pursuant to
this Agreement or any Terms Agreement.



(o) If, to the knowledge of the Company, all filings required by Rule 424 in connection with
this offering shall not have been made or the representations in Section 1(a) shall not be true and
correct on the applicable Settlement Date, the Company will offer to any person who has agreed to
purchase Shares from the Company as the result of an offer to purchase solicited by the Agent the
right to refuse to purchase and pay for such Shares.



(p) The Company will cooperate timely with any reasonable due diligence review conducted by
the Agent or its counsel from time to time in connection with the transactions contemplated hereby
or in any Terms Agreement, including, without limitation, and upon reasonable notice providing
information and making available documents and appropriate corporate officers, during regular
business hours and at the Company’s principal offices or electronically or telephonically, as the
Agent may reasonably request.



(q) The Company will not, without (i) giving the Agent at least five business days’ prior
written notice specifying the nature of the proposed sale and the date of such proposed sale and
(ii) the Agent suspending activity under this program for such period of time as requested by the
Company or as deemed appropriate by the Agent in light of the proposed sale, (A) (1) offer, pledge,
announce the intention to sell, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant for the sale of, lend
or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or
securities convertible into or exchangeable or exercisable for or repayable with Common Stock, or
file any registration statement under the 1933 Act with respect to any of the foregoing (other than
a shelf registration statement under Rule 415 under the 1933 Act, a registration statement on Form
S-8 or post-effective amendment to the Registration Statement) or (2) enter into any swap or other
agreement or any transaction that transfers in whole or in part, directly or indirectly, any of the
economic consequence of ownership of the Common Stock, or any securities convertible into or
exchangeable or exercisable for or repayable with Common Stock, whether any such swap or
transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or
such other securities, in cash or otherwise; or (B) directly or indirectly repurchase, offer to
repurchase, announce its intention to repurchase, or otherwise enter into any transaction with the
economic effect of repurchasing any shares of its Common Stock. The foregoing sentence shall not
apply to (y) the Shares to be offered and sold through the Agent pursuant to this Agreement or any
Terms Agreement and (z) equity incentive awards approved by the board of directors of the Company
or the compensation committee thereof or the issuance of Common Stock upon exercise thereof.



(r) If immediately prior to the third anniversary (the “Renewal Deadline”) of the
initial effective date of the Registration Statement, any of the Shares remain unsold, the Company
will, prior to the Renewal Deadline file, if it has not already done so and is eligible to do so,
an “automatic shelf registration statement” (as defined in Rule 405 under the 1933 Act) relating to
the Shares, in a form reasonably satisfactory to the Agent. If the Company is not eligible to file
an automatic shelf registration statement, the Company will, prior to the Renewal Deadline, if it
has not already done so, file a new shelf registration statement relating to the Shares, in a form
reasonably satisfactory to the Agent, and will use its reasonable best efforts to cause such
registration statement to be declared effective within 60 days after the Renewal Deadline. The
Company will take all other action necessary or appropriate to permit the issuance and sale of the
Shares to continue as contemplated in the expired registration statement relating to the Shares. References herein to the Registration Statement shall
include such new automatic shelf registration statement or such new shelf registration statement,
as the case may be.


 


17









 







Section 4. Free Writing Prospectus.



(a) (i) The Company represents and agrees that without the prior consent of the Agent, it has
not made and will not make any offer relating to the Shares that would constitute a “free writing
prospectus” as defined in Rule 405 under the 1933 Act and (ii) the Agent represents and agrees
that, without the prior consent of the Company, it has not made and will not make any offer
relating to the Shares that would constitute a free writing prospectus required to be filed with
the Commission.



(b) The Company has complied and will comply with the requirements of Rule 433 under the 1933
Act applicable to any Issuer Free Writing Prospectus (including any free writing prospectus
identified in Section 4(a) hereof), including timely filing with the Commission or retention where
required and legending.



Section 5. Payment of Expenses. The Company covenants and agrees with the Agent that
the Company will pay or cause to be paid the following: (i) the fees, disbursements and expenses of
the Company’s counsel and accountants in connection with the registration of the Shares under the
1933 Act and all other expenses in connection with the preparation, printing and filing of the
Registration Statement, the Base Prospectus, Prospectus Supplement, any Issuer Free Writing
Prospectus and the Prospectus and amendments and supplements thereto and the mailing and delivering
of copies thereof to the Agent; (ii) the cost of printing or producing this Agreement or any Terms
Agreement, any Blue Sky Memoranda, closing documents (including any compilations thereof) and any
other documents in connection with the offering, purchase, sale and delivery of the Shares; (iii)
all documented expenses in connection with the qualification of the Shares for offering and sale
under state securities laws as provided in Section 3(b) hereof, including the reasonable documented
fees and disbursements of counsel for the Agent in connection with such qualification and in
connection with the Blue Sky Surveys; (iv) any documented filing fees incident to, and the
reasonable documented fees and disbursements of counsel for the Agent in connection with, any
required review by FINRA of the terms of the sale of the Shares; (v) the reasonable documented fees
and expenses of counsel to the Agent in connection with this Agreement and the offering
contemplated hereby, which fees, expenses and other amounts pursuant to subsections (iii), (iv) and
(v) herein shall not exceed $50,000 in the aggregate; (vi) all fees and expenses in connection with
listing or quoting the Shares on the Nasdaq; (vii) the cost of preparing the Shares; (vii) the
costs and charges of any transfer agent or registrar or any dividend distribution agent; and (ix)
all other costs and expenses incident to the performance of its obligations hereunder which are not
otherwise specifically provided for in this Section. It is understood, however, that, except as
provided in this Section, and Section 7 hereof, the Agent will pay all of its own costs and
expenses, including the fees of its counsel, transfer taxes on resale of any of the Shares by it,
and any advertising expenses connected with any offers it may make.



Section 6. Conditions of the Agent’s Obligation. The obligations of the Agent
hereunder shall be subject, in its discretion, to the condition that all representations and
warranties and other statements of the Company herein or in certificates of any officer of the
Company delivered pursuant to the provisions hereof are true and correct as of the time of the
execution of this Agreement, the date of any executed Terms Agreement and as of each Registration
Statement Amendment Date, Company Periodic Report Date, Applicable Time and Settlement Date, to the
condition that the Company shall have performed in all material respects all of its obligations
hereunder theretofore to be performed, and the following additional conditions:


 


18









 





(a) The Prospectus Supplement shall have been filed with the Commission pursuant to Rule
424(b) under the 1933 Act prior to the commencement of the offering of Shares under this Agreement
and in accordance with Section 3(a) hereof, any other material required to be filed by the Company
pursuant to Rule 433(d) under the 1933 Act shall have been filed with the Commission within the
applicable time periods prescribed for such filings by Rule 433; no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose shall have been initiated or threatened by the Commission and no notice
of objection of the Commission to the use of the form of the Registration Statement or any
post-effective amendment thereto pursuant to Rule 401(g)(2) under the 1933 Act shall have been
received; no stop order suspending or preventing the use of the Prospectus or any Issuer Free
Writing Prospectus shall have been initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been complied with to the
reasonable satisfaction of the Agent.



(b) On every date specified in Section 3(k) hereof and on such other dates as reasonably
requested by the Agent, Latham & Watkins LLP, counsel for the Company, shall have furnished to the
Agent a written opinion or opinions and a negative assurance letter, dated as of such date, in form
and substance reasonably satisfactory to the Agent.



(c) At the dates specified in Section 3(l) hereof and on such other dates as reasonably
requested by the Agent, the independent accountants of the Company who have certified the financial
statements of the Company included or incorporated by reference in the Registration Statement, the
General Disclosure Package and the Prospectus shall have furnished to the Agent a letter dated as
of the date of delivery thereof and addressed to the Agent in form and substance reasonably
satisfactory to the Agent and its counsel, containing statements and information of the type
ordinarily included in accountants’ “comfort letters” to underwriters with respect to the financial
statements of the Company included or incorporated by reference in the Registration Statement, the
General Disclosure Package and the Prospectus.



(d) On the date specified in Section 3(m) hereof and on such other dates as reasonably
requested by the Agent in connection with a Material Adverse Change with respect to the Company’s
intellectual property, Knobbe, Martens, Olson & Bear LLP, intellectual property counsel for the
Company, shall have furnished to the Agent a written opinion with respect to certain intellectual
property matters, dated as of such date, in form and substance reasonably satisfactory to the
Agent.



(e) (i) Upon commencement of the offering of Shares under this Agreement and on such other
dates as reasonably requested by the Agent, the Company will furnish or cause to be furnished
promptly to the Agent a certificate of an officer in a form satisfactory to the Agent stating the
minimum price for the sale of such Shares pursuant to this Agreement and the maximum number of
Shares that may be issued and sold pursuant to this Agreement or, alternatively, maximum gross
proceeds from such sales, as authorized from time to time by the Company’s board of directors or a
duly authorized committee thereof or, in connection with any amendment, revision or modification of
such minimum price or maximum Share number or amount, a new certificate with respect thereto and
(ii) on each date specified in Section 3(j) and on such other dates as reasonably requested by the
Agent, the Agent shall have received a certificate of the Company executed by two executive
officers of the Company, one of whom shall be the Chief Financial Officer, Chief Accounting
Officer, Treasurer, or Senior Vice President in the area of capital markets and investments, dated
as of the date thereof, certifying, after reasonable inquiry, that (A) there has been no Material
Adverse Change since the date as of which information is given in the General Disclosure Package
and the Prospectus as then amended or supplemented, (B) the representations


 


19









 





and warranties in
Section 1 hereof are true and correct as of such date, (C) no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration Statement is in effect and no
proceedings for such purpose have been instituted or are pending or, to the Company’s knowledge,
are contemplated or threatened by the Commission and (D) the Company has complied with all of the
agreements entered into in connection with the transaction contemplated herein and satisfied all
conditions on its part to be performed or satisfied, in each case, in all material respects.




(f) Since the date of the latest audited financial statements then included or incorporated by
reference in the General Disclosure Package and the Prospectus, no Material Adverse Change shall
have occurred.



(g) The Company shall have complied with the provisions of Section 3(c) hereof with respect to
the timely furnishing of prospectuses.



(h) On such dates as reasonably requested by the Agent, the Company shall have cooperated with
and permitted the Agent to conduct due diligence sessions, in form and substance satisfactory to
the Agent.



(i) All filings with the Commission required by Rule 424 under the 1933 Act to have been filed
by each Applicable Time or related Settlement Date shall have been made within the applicable time
period prescribed for such filing by Rule 424 (without reliance on Rule 424(b)(8)).



(j) The Shares shall have received approval for listing or quotation on the Nasdaq prior to
the first Settlement Date.



(k) Prior to any Settlement Date, the Company shall have furnished to the Agent such further
information, documents or certificates as the Agent may reasonably request.



Section 7. Indemnification.



(a) The Company will indemnify and hold harmless the Agent against any losses, claims, damages
or liabilities, joint or several, to which the Agent may become subject, under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, the Base Prospectus, the Prospectus Supplement or the
Prospectus or any amendment or supplement thereto, any Issuer Free Writing Prospectus or any
“issuer information” filed or required to be filed pursuant to Rule 433(d) under the 1933 Act, or
arise out of or are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not misleading, and will
reimburse the Agent for any legal or other expenses reasonably incurred by the Agent in connection
with investigating or defending any such action or claim as such expenses are incurred; provided,
however, that the Company shall not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement, the Base Prospectus,
the Prospectus Supplement or the Prospectus, or any amendment or supplement thereto, or any Issuer
Free Writing Prospectus, in reliance upon and in strict conformity with written information
furnished to the Company by the Agent expressly for use therein, it being understood and agreed
upon that the only such information furnished by the Agent consists of the information in the
Prospectus as specified in Annex II hereto.



 


20









 





(b) The Agent will indemnify and hold harmless the Company against any losses, claims, damages
or liabilities to which the Company may become subject, under the 1933 Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are
based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, the Base
Prospectus, the Prospectus Supplement or the Prospectus, or any amendment or supplement thereto, or
any Issuer Free Writing Prospectus, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was made in the
Registration Statement, the Base Prospectus, the Prospectus Supplement or the Prospectus, or any
such amendment or supplement thereto, or any Issuer Free Writing Prospectus, in reliance upon and
in conformity with written information furnished to the Company by the Agent expressly for use
therein, it being understood and agreed upon that the only such information furnished by the Agent
consists of the information in the Prospectus as specified in Annex II hereto; and will reimburse
the Company for any legal or other expenses reasonably incurred by the Company in connection with
investigating or defending any such action or claim as such expenses are incurred.




(c) Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice
of the commencement of any action, such indemnified party shall, if a claim in respect thereof is
to be made against the indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the indemnifying party shall not
relieve it from any liability which it may have to any indemnified party otherwise than under such
subsection except and then only to the extent such indemnifying party is materially prejudiced
thereby. In case any such action shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party and, after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be liable to such
indemnified party under this Section 7 for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by such indemnified party, in connection with the
defense thereof other than reasonable costs of investigation; provided, however, if the defendants
in any such action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded, based on the opinion of its legal counsel, that
a conflict may arise between the positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to select separate
counsel to assume such legal defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties, in which event the reasonable fees and expenses of
such single separate counsel shall be borne by the indemnifying party or parties and reimbursed to
the indemnified party as incurred. No indemnifying party shall, without the written consent of the
indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment
with respect to, any pending or threatened action or claim in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or judgment (i)
includes an unconditional release of the indemnified party from all liability arising out of such
action or claim and (ii) does not include a statement as to or an admission of fault, culpability
or a failure to act, by or on behalf of any indemnified party.



 


21









 




(d) If the indemnification provided for in this Section 7 is unavailable to hold harmless an
indemnified party under subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in
such proportion as is appropriate to reflect the relative benefits received by the Company on the
one hand and the Agent on the other from the offering of the Shares to which such loss, claim,
damage or liability (or action in respect thereof) relates. If, however, the allocation provided by
the immediately preceding sentence is not permitted by applicable law, then each indemnifying party
shall contribute to such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative fault of the Company
on the one hand and the Agent on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as
any other relevant equitable considerations. The relative benefits received by the Company on the
one hand and the Agent on the other shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the Company bear to the total
commissions received by the Agent. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the Company on the one
hand or the Agent on the other and the parties’ relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Company and the Agent agree
that it would not be just and equitable if contribution pursuant to this subsection (d) were
determined by pro rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to above in this subsection (d). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this subsection (d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the provisions of this
subsection (d), the Agent shall not be required to contribute any amount in excess of the amount by
which the total compensation received by the Agent with respect to sales of the Shares sold by it
to the public exceeds the amount of any damages which the Agent has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall
be entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.




(e) The obligations of the Company under this Section 7 shall be in addition to any liability
which the Company may otherwise have and shall extend, upon the same terms and conditions, to the
directors, officers and employees of the Agent and to each person, if any, who controls the Agent
within the meaning of the 1933 Act and each broker dealer affiliate of the Agent; and the
obligations of the Agent under this Section 7 shall be in addition to any liability which the Agent
may otherwise have and shall extend, upon the same terms and conditions, to each director, officer
and employee of the Company and to each person, if any, who controls the Company within the meaning
of the 1933 Act.



Section 8. Representations, Warranties and Agreements to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other statements of the Company
and the Agent, as set forth in this Agreement or made by or on behalf of them, respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation
(or any statement as to the results thereof) made by or on behalf of the Agent or any controlling
person of the Agent, or the Company, or any officer or director or controlling person of the
Company, and shall survive delivery of and payment for the Shares.



 


22









 





Section 9. No Advisory or Fiduciary Relationship. The Company acknowledges and agrees
that (i) the Agent is acting solely in the capacity of an arm’s length contractual counterparty to
the Company with respect to the offering of Shares contemplated hereby (including in connection
with determining the terms of such offering) and (ii) the Agent has not assumed an advisory or
fiduciary responsibility in favor of the Company with respect to the offering contemplated hereby or the process leading thereto (irrespective of whether the Agent
has advised or is currently advising the Company on other matters) or any other obligation to the
Company except the obligations expressly set forth in this Agreement and (iii) the Company has
consulted its own legal and financial advisors to the extent it deemed appropriate. The Company
agrees that it will not claim that the Agent has rendered advisory services of any nature or
respect, or owe a fiduciary or similar duty to the Company, in connection with such transaction or
the process leading thereto.




Section 10. Termination.



(a) The Company shall have the right, by giving written notice as hereinafter specified, to
terminate this Agreement in its sole discretion at any time. Any such termination shall be without
liability of any party to any other party, except that (i) with respect to any pending sale through
the Agent for the Company, the obligations of the Company, including in respect of compensation of
the Agent, shall remain in full force and effect notwithstanding such termination; and (ii) the
provisions of Section 1, Section 5, Section 7 and Section 8 of this Agreement shall remain in full
force and effect notwithstanding such termination.



(b) The Agent shall have the right, by giving written notice as hereinafter specified, to
terminate this Agreement in its sole discretion at any time. Any such termination shall be without
liability of any party to any other party except that the provisions of Section 1, Section 5,
Section 7 and Section 8 of this Agreement shall remain in full force and effect notwithstanding
such termination.



(c) This Agreement shall remain in full force and effect until and unless terminated pursuant
to Section 10(a) or (b) above or otherwise by mutual agreement of the parties; provided
that any such termination by mutual agreement or pursuant to this clause (c) shall in all cases be
deemed to provide that Section 1, Section 5, Section 7 and Section 8 of this Agreement shall remain
in full force and effect. This Agreement shall terminate automatically upon the issuance and sale
of Shares having an aggregate offering price equal to the amount set forth in the introductory
paragraph of this Agreement.



(d) Any termination of this Agreement shall be effective on the date specified in such notice
of termination; provided that such termination shall not be effective until the close of
business on the date of receipt of such notice by the Agent or the Company, as the case may be. If
such termination shall occur prior to the Settlement Date for any sale of Shares, such sale shall
settle in accordance with the provisions of Section 2(h) hereof.



(e) In the case of any purchase by the Agent pursuant to a Terms Agreement, the Agent may
terminate this Agreement at any time at or prior to the Settlement Date (i) if there has been,
since the time of execution of this Agreement or since the respective dates as of which information
is given in the General Disclosure Package or the Prospectus, any Material Adverse Change, or (ii)
if there has occurred any material adverse change in the financial markets in the United States or
the international financial markets, any outbreak of hostilities or escalation thereof or other
calamity or crisis or any change or development involving a prospective change in national or
international political, financial or economic conditions, in each case the effect of which is such
as to make it, in the judgment of the Agent, impracticable or inadvisable to market the Shares or
to enforce contracts for the sale of Shares, or (iii) if trading in any securities of the Company
has been suspended or materially limited by the Commission or the Nasdaq, or if trading generally
on the NYSE or Nasdaq has been suspended or materially limited, or minimum or maximum prices for
trading have been fixed, or maximum ranges for prices have been required, by any of said exchanges
or by such system or by order of the Commission, FINRA or any other governmental authority, or (iv)
a material disruption has occurred in commercial banking or
securities settlement or clearance services in the United States, or (v) if a banking moratorium has been
declared by either Federal or New York authorities.


 


23









 







(f) Subject to the additional limitations set forth in Section 5 of this Agreement, in the
event of termination of this Agreement prior to the sale of any Shares (i) by the Company pursuant
to subsection (a) above or (ii) as a result of an event set forth under clauses (i) or (iii) in
subsection (e) above, the Agent shall be entitled only to reimbursement of its out-of-pocket
expenses actually incurred.



Section 11. Notices. All statements, requests, notices and agreements hereunder shall
be in writing, and if to Citadel shall be delivered or sent by mail, telex or facsimile
transmission to:




Citadel Securities LLC

601 Lexington Avenue, 29th Floor

New York, NY 10003

Fax No. (212) 220-8977

Attention: Equity Capital Markets




with a copy to:




Citadel LLC

131 S. Dearborn Street, 32nd Floor

Chicago, IL 60603

Fax No. (312) 267-7602

Attention: Legal Department




and if to the Company to:




Somaxon Pharmaceuticals, Inc.

3750 Carmel Mountain Road

Suite 100

San Diego, CA 92130

Fax: (858) 509-1761

Attention: General Counsel



Any such statements, requests, notices or agreements shall take effect upon receipt thereof.



Section 12. Parties. This Agreement shall be binding upon, and inure solely to the
benefit of, the Agent and the Company and, to the extent provided in Sections 7 and 8 hereof, the
officers, directors and employees of the Company and the Agent and each person who controls the
Company or the Agent, and their respective heirs, executors, administrators, successors and
assigns, and no other person shall acquire or have any right under or by virtue of this Agreement.
No purchaser of Shares through the Agent shall be deemed a successor or assign by reason merely of
such purchase.



Section 13. Time of the Essence. Time shall be of the essence of this Agreement. As
used herein, the term “business day” shall mean any day when the Commission’s office in Washington,
D.C. is open for business.


 


24









 





Section 14. Waiver of Jury Trial. The Company and the Agent hereby irrevocably waive,
to the fullest extent permitted by applicable law, any and all right to jury trial by jury in any
legal proceeding arising out of or relating to this Agreement or the transactions contemplated
hereby.



Section 15. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO ITS PRINCIPLES OF CONFLICTS
OF LAW THAT WOULD RESULT IN THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE LAWS OF
THE STATE OF NEW YORK.



Section 16. Counterparts. This Agreement and any Terms Agreement may be executed by
any one or more of the parties hereto and thereto in any number of counterparts, each of which
shall be deemed to be an original, but all such respective counterparts shall together constitute
one and the same instrument. This Agreement and any Terms Agreement may be delivered by any party
by facsimile or other electronic transmission.



Section 17. Severability. The invalidity or unenforceability of any Section, paragraph
or provision of this Agreement shall not affect the validity or enforceability of any other
Section, paragraph or provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid and enforceable.


 


25









 





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



	 	 	 	 	 
	 	Very truly yours,



SOMAXON PHARMACEUTICALS, INC.

 	 
	 	By:  	/s/
Matthew W. Onaitis	 
	 	 	Name:  	Matthew W. Onaitis	 
	 	 	Title:  	SVP and General Counsel	 
	 



	 	 	 	 	 

	Accepted as of the date hereof:	 	 
	 
	 	 	 	 
	CITADEL SECURITIES LLC	 	 
	 
	 	 	 	 
	By:
	 	/s/ Christopher L. Ramsay	 	 
	 

	 	 	 
	 

	 	Name: Christopher L. Ramsay	 	 
	 

	 	Title: Authorized Signatory	 	 





 


26









 





Annex I




SOMAXON PHARMACEUTICALS, INC.




Common Stock

($0.0001 par value per share)



TERMS AGREEMENT



CITADEL SECURITIES LLC

601 Lexington Avenue, 28th Floor

New York, NY 10003

Attn: Equity Capital Markets




Ladies and Gentlemen:




Somaxon Pharmaceuticals, Inc., a Delaware corporation (the “Company”), proposes,
subject to the terms and conditions stated herein and in the At-the-Market Equity Offering Sales
Agreement, dated August 1, 2011 (the “Sales Agreement”), between the Company and Citadel
Securities LLC (the “Agent”), to issue and sell to the Agent the securities specified in
the Schedule hereto (the “Purchased Securities”). All capitalized terms used herein and
not otherwise defined herein shall have the meanings ascribed to them in the Sales Agreement.



Each of the provisions of the Sales Agreement not specifically related to the solicitation by
the Agent, as agent of the Company, of offers to purchase securities is incorporated herein by
reference in its entirety, and shall be deemed to be part of this Terms Agreement to the same
extent as if such provisions had been set forth in full herein. Each of the representations and
warranties set forth therein shall be deemed to have been made at and as of the date of this Terms
Agreement and the Applicable Time, except that each representation and warranty in Section 1 of the
Sales Agreement which makes reference to the Prospectus (as therein defined) shall be deemed to be
a representation and warranty as of the date of the Sales Agreement in relation to the Prospectus,
and also a representation and warranty as of the date of this Terms Agreement and the Settlement
Date in relation to the Prospectus as amended and supplemented to relate to the Purchased
Securities.



An amendment to the Registration Statement (as defined in the Sales Agreement), or a
supplement to the Prospectus, as the case may be, relating to the Purchased Securities, in the form
heretofore delivered to the Agent is now proposed to be filed with the Securities and Exchange
Commission.



Subject to the terms and conditions set forth herein and in the Sales Agreement which are
incorporated herein by reference, the Company agrees to issue and sell to the Agent and the latter
agrees to purchase from the Company the number of shares of the Purchased Securities at the time
and place and at the purchase price set forth in the Schedule hereto.


 


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



	 	 	 	 	 
	 	Very truly yours,



SOMAXON PHARMACEUTICALS, INC.

 	 
	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 



	 	 	 	 	 

	Accepted as of the date hereof:	 	 
	 
	 	 	 	 
	CITADEL SECURITIES LLC	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 	 
	 

	 	Name:	 	 
	 

	 	Title:	 	 





 


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Annex II




Information Supplied by the Agent




As sales agent, Citadel will not engage in any transactions that stabilize the Company’s
common stock.



Subject to the terms and conditions of this Agreement, Citadel will use its commercially
reasonable efforts to sell shares of common stock on the Company’s behalf on a daily basis or as
otherwise agreed upon by the Company and Citadel.



 


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