EXHIBIT 10.1


 


At Market Issuance Sales
Agreement


 


May 20, 2010


 


McNicoll, Lewis & Vlak LLC

420 Lexington Ave., Suite 628 

New York, NY 10170


 


Wm Smith & Co.

1700 Lincoln Street, Suite 2545

Denver, CO 80203


 


Ladies and Gentlemen:


 


ARYx Therapeutics, Inc.,
a Delaware corporation (the “Company”), confirms its agreement (this “Agreement”)
with McNicoll, Lewis & Vlak LLC, a Delaware limited liability company
(“MLV”), and Wm Smith & Co., a Colorado corporation (“Wm
Smith” and, together with MLV, the “Agents”), as follows:


 


1.                                       Issuance and
Sale of Shares.  The Company
agrees that, from time to time during the term of this Agreement, on the terms
and subject to the conditions set forth herein, it may issue and sell through
MLV, acting as lead agent, and Wm Smith, acting as secondary agent, shares (the
“Shares”) of the Company’s common stock, par value $0.001 per share (the
“Common Stock”) up to an aggregate offering price of $6,000,000;
provided, however, that in no event shall the Company issue or sell through
Agents such number of Shares that would cause the Company to not satisfy the
eligibility requirements for use of Form S-3 (including Instruction I.B.6.
thereof).  Notwithstanding anything to
the contrary contained herein, the parties hereto agree that compliance with
the limitations set forth in this Section 1 on the number of Shares issued
and sold under this Agreement shall be the sole responsibility of the Company
and that Agents shall have no obligation in connection with such
compliance.  The issuance and sale of
Shares through Agents will be effected pursuant to the Registration Statement
(as defined below) filed by the Company and declared effective by the
Securities and Exchange Commission (the “Commission”), although nothing
in this Agreement shall be construed as requiring the Company to use the
Registration Statement to issue Common Stock or Preferred Stock.


 


The Company intends to file,
in accordance with the provisions of the Securities Act of 1933, as amended,
and the rules and regulations thereunder (collectively, the “Securities
Act”), with the Commission a registration statement on Form S-3,
including a base prospectus, with respect to equity and other offerings,
including the Shares, and which will incorporate by reference documents that
the Company has filed or will file in accordance with the provisions of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (collectively, the “Exchange Act”).  The Company will, if necessary, prepare a
prospectus supplement (the “Prospectus Supplement”) to the base
prospectus to be included as part of such registration statement.  The Company will furnish to Agents, for use
by Agents, copies of the prospectus included as part of such registration
statement, as supplemented by any Prospectus 


 

















 


Supplement, relating to the
Shares.  Except where the context
otherwise requires, such registration statement, as amended when it becomes
effective, including all documents filed as part thereof or incorporated by reference
therein, and including any information contained in a Prospectus (as defined
below) subsequently filed with the Commission pursuant to Rule 424(b) under
the Securities Act and also including any other registration statement filed
pursuant to Rule 462(b) under the Securities Act, collectively, are
herein called the “Registration Statement,” and the base prospectus,
including all documents incorporated therein by reference, included in the
Registration Statement, as it may be supplemented by the Prospectus Supplement,
in the form in which such prospectus and/or Prospectus Supplement is filed by
the Company with the Commission pursuant to Rule 424(b) under the
Securities Act is herein called the “Prospectus.” Any reference herein
to the Registration Statement, the Prospectus or any amendment or supplement
thereto shall be deemed to refer to and include the documents incorporated by
reference therein, and any reference herein to the terms “amend,” “amendment”
or “supplement” with respect to the Registration Statement or the Prospectus
shall be deemed to refer to and include the filing after the execution hereof
of any document with the Commission deemed to be incorporated by reference
therein.  For purposes of this Agreement,
all references to the Registration Statement, the Prospectus or to any
amendment or supplement thereto shall be deemed to include any copy filed with
the Commission pursuant to its Electronic Data Gathering Analysis and Retrieval
System, or if applicable, the Interactive Data Electronic Application system when
used by the Commission (collectively, “EDGAR”).


 


2.                                       Placements.  Each time that the Company wishes to issue
and sell Shares hereunder (each, a “Placement”), it will notify MLV (on
behalf of MLV and Wm Smith) by email notice (or other method mutually agreed to
in writing by the Parties) of the number of Shares (the “Placement Shares”)
to be issued, the type of Shares, the time period during which sales are
requested to be made, any limitation on the number of Shares that may be sold
in any one day and any minimum price below which sales may not be made (a “Placement
Notice”), the form of which is attached hereto as Schedule 1.  The Placement Notice shall originate from any
of the individuals from the Company set forth on Schedule 3 (with a copy to
each of the other individuals from the Company listed on such schedule), and
shall be addressed to each of the individuals from MLV set forth on Schedule 3,
as such Schedule 3 may be amended from time to time.  The Placement Notice shall be effective
unless and until (i) MLV, on behalf of itself and Wm Smith, declines to
accept the terms contained therein for any reason, in its sole discretion, (ii) the
entire amount of the Placement Shares have been sold, (iii) the Company
suspends or terminates the Placement Notice or (iv) the Agreement has been
terminated under the provisions of Section 12.  The amount of any discount, commission or
other compensation to be paid by the Company to Agents in connection with the
sale of the Placement Shares shall be calculated in accordance with the terms
set forth in Schedule 2.  It is expressly
acknowledged and agreed that neither the Company nor either Agent will have any
obligation whatsoever with respect to a Placement or any Placement Shares
unless and until the Company delivers a Placement Notice to MLV and MLV does
not decline such Placement Notice pursuant to the terms set forth above, and
then only upon the terms specified therein and herein.  In the event of a conflict between the terms
of this Agreement and the terms of a Placement Notice, the terms of the
Placement Notice will control.


 


3.                                       Sale of
Placement Shares by Agents.  Subject to the terms and conditions herein
set forth, upon the Company’s issuance of a Placement Notice, and unless the
sale of the 


 


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Placement Shares described therein has been
declined, suspended, or otherwise terminated in accordance with the terms of
this Agreement, MLV, acting as lead agent, and Wm Smith, acting as secondary
agent, will use their commercially reasonable efforts consistent with their
normal trading and sales practices to sell such Placement Shares up to the
amount specified, and otherwise in accordance with the terms of such Placement
Notice.  Agents will provide written
confirmation to the Company no later than the opening of the Trading Day (as
defined below) immediately following the Trading Day on which it has made sales
of Placement Shares hereunder setting forth the number of Placement Shares sold
on such day, the compensation payable by the Company to Agents pursuant to Section 2
with respect to such sales, and the Net Proceeds (as defined below) payable to
the Company.  Agents may determine a
single Agent to be responsible for making this confirmation on behalf of both
Agents.  Agents may sell Placement Shares
by any method permitted by law deemed to be an “at the market” offering as
defined in Rule 415 of the Securities Act, including without limitation
sales made directly on NASDAQ Global Market (the “Exchange”), on any other
existing trading market for the Common Stock or to or through a market
maker.  Agents may also sell Placement
Shares in privately negotiated transactions. 
The Company acknowledges and agrees that (i) there can be no
assurance that Agents will be successful in selling Placement Shares, and (ii) neither
Agent will incur any liability or obligation to the Company or any other person
or entity if it does not sell Placement Shares for any reason other than a
failure by it to use its commercially reasonable efforts consistent with its
normal trading and sales practices to sell such Placement Shares as required
under this Section 3.  For the
purposes hereof, “Trading Day” means any day on which Common Stock is
purchased and sold on the principal market on which the Common Stock is listed
or quoted.


 


4.                                       Suspension of
Sales.  The Company or either Agent
may, upon notice to the other parties in writing (including by email
correspondence to each of the individuals of the other Parties set forth on
Schedule 3, if receipt of such correspondence is actually acknowledged by any
of the individuals to whom the notice is sent, other than via auto-reply) or by
telephone (confirmed immediately by verifiable facsimile transmission or email
correspondence to each of the individuals of the other Parties set forth on
Schedule 3), suspend any sale of Placement Shares; provided, however, that such
suspension shall not affect or impair any party’s obligations with respect to
any Placement Shares sold hereunder prior to the receipt of such notice.  Each of the Parties agrees that no such
notice under this Section 4 shall be effective against any other Party
unless it is made to one of the individuals named on Schedule 3 hereto, as such
Schedule may be amended from time to time.


 


5.                                       Settlement.


 


(a)                                  Settlement of
Placement Shares.  Unless
otherwise specified in the applicable Placement Notice, settlement for sales of
Placement Shares will occur on the third (3rd) Trading Day (or such earlier day
as is industry practice for regular-way trading) (each, a “Settlement Date”)
following the respective Point of Sale (as defined below).  The amount of proceeds to be delivered to the
Company on a Settlement Date against receipt of the Placement Shares sold (the
“Net Proceeds”) will be equal to the aggregate sales price received by
Agents at which such Placement Shares were sold, after deduction for (i) Agents’
commission, discount or other compensation for such sales payable by the
Company pursuant to Section 2 hereof, (ii) any other amounts due and
payable by the Company to Agents hereunder pursuant to Section 7(g) 


 


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(Expenses) hereof, and (iii) any
transaction fees imposed by any governmental or self-regulatory organization in
respect of such sales.


 


(b)                                 Delivery of
Placement Shares.  On or
before each Settlement Date, the Company will, or will cause its transfer agent
to, electronically transfer the Placement Shares being sold by crediting the
applicable Agent’s or its designee’s account at The Depository Trust Company
through its Deposit and Withdrawal at Custodian System or by such other means
of delivery as may be mutually agreed upon by the parties hereto which in all
cases shall be freely tradeable, transferable, registered shares in good deliverable
form.  On each Settlement Date, the
applicable Agent will deliver the related Net Proceeds in same day funds to an
account designated by the Company on, or prior to, the Settlement Date.  The Company agrees that if the Company, or
its transfer agent (if applicable), defaults in its obligation to deliver
Placement Shares on a Settlement Date, the Company agrees that in addition to
and in no way limiting the rights and obligations set forth in Section 10(a) (Indemnification
and Contribution) hereto, it will hold Agents harmless against any loss, claim,
damage, or expense (including reasonable legal fees and expenses), as incurred,
arising out of or in connection with such default by the Company.


 


6.                                       Representations
and Warranties of the Company.  Except as disclosed in the Registration
Statement, the Prospectus and/or a Disclosure Schedule delivered in connection
herewith, the Company represents and warrants to, and agrees with, Agents that
as of the date of this Agreement (except as to the last sentence of Section 6(a))
and as of each Representation Date (as defined in Section 7(m) below)
on which a certificate is required to be delivered pursuant to Section 7(m) of
this Agreement, as the case may be:


 


(a)                                  Registration
Statement and Prospectus.  The Company
and, assuming no act or omission on the part of Agents that would make such
statement untrue, the transactions contemplated by this Agreement meet the
requirements for and comply with the conditions for the use of Form S-3
under the Securities Act.  The
Registration Statement has been filed with the Commission.  The Prospectus Supplement will name Agents as
underwriters, each acting as agent, that the Company might engage in the
section entitled “Plan of Distribution.” The Company has not received, and has
no notice of, any order of the Commission preventing or suspending the use of
the Registration Statement, or threatening or instituting proceedings for that
purpose.  The Registration Statement and
the offer and sale of Shares as contemplated hereby meet the requirements of Rule 415
under the Act and comply in all material respects with said Rule.  Any statutes, regulations, contracts or other
documents that are required to be described in the Registration Statement or
the Prospectus or to be filed as exhibits to the Registration Statement have
been so described or filed.  Copies of
the Registration Statement, the Prospectus, and any such amendments or
supplements and all documents incorporated by reference therein that were filed
with the Commission on or prior to the date of this Agreement have been
delivered, or are available through EDGAR, to Agents and their respective
counsel.  The Company has not distributed
and, prior to the later to occur of each Settlement Date and completion of the
distribution of the Placement Shares, will not distribute any offering material
in connection with the offering or sale of the Placement Shares other than the
Registration Statement and the Prospectus and any Issuer Free Writing
Prospectus (as defined below) to which Agents have consented.  The Common Stock is currently listed on the
NASDAQ Global Market under the trading symbol “ARYX”.  Except as disclosed in the Registration
Statement, 


 


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the Company has not, in the 12 months
preceding the date hereof, received notice from the Exchange to the effect that
the Company is not in compliance with the listing or maintenance
requirements.  The Company has no reason
to believe that it will not in the foreseeable future continue to be in
compliance with all such listing and maintenance requirements.  The Registration Statement has been declared
effective under the Securities Act


 


(b)                                 No Misstatement
or Omission.  The
Registration Statement, when it became or becomes effective, and the
Prospectus, and any amendment or supplement thereto, on the date of such
Prospectus or amendment or supplement, conformed or will conform in all
material respects with the requirements of the Securities Act.  At each Settlement Date, the Registration
Statement and the Prospectus, as of such date, will conform in all material
respects with the requirements of the Securities Act.  The Registration Statement, when it became or
becomes effective, did not, or 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 not misleading.  The Prospectus and any amendment or
supplement thereto, on the date thereof and at each Point of Sale, did not or
will not include an untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.  The documents incorporated by reference in
the Prospectus or any Prospectus Supplement did not, and any further documents
filed and incorporated by reference therein will not, when filed with the
Commission, contain an untrue statement of a material fact or omit to state a
material fact required to be stated in such document or necessary to make the
statements in such document, in light of the circumstances under which they
were made, not misleading.  The foregoing
shall not apply to statements in, or omissions from, any such document made in
reliance upon, and in conformity with, information furnished to the Company by
either Agent specifically for use in the preparation thereof.  “Point of Sale” means, for a
Placement, the time at which an acquiror of Placement Shares entered into a
contract, binding upon such acquiror, to acquire such Shares.


 


(c)                                  Conformity with
Securities Act and Exchange Act.  The documents incorporated by reference in
the Registration Statement, the Prospectus or any amendment or supplement
thereto, when such documents were or are filed with the Commission under the
Securities Act or the Exchange Act or became or become effective under the
Securities Act, as the case may be, conformed or will conform in all material
respects with the requirements of the Securities Act and the Exchange Act, as
applicable.


 


(d)                                 Financial
Information.  The
consolidated financial statements and the related notes thereto included or
incorporated by reference in the Registration Statement and the Prospectus
comply with the applicable requirements of the Act and the Exchange Act, as
applicable, and present fairly, the financial position of the Company and its
Subsidiary (as defined below) as of the dates indicated and the results of
their operations and the changes in their consolidated cash flows for the
periods specified; such financial statements have been prepared in conformity
with generally accepted accounting principles applied on a consistent basis
throughout the periods covered thereby (except (i) as may be otherwise
indicated in such financial statements or the notes thereto or (ii) in the
case of unaudited interim financial statements, to the extent that they may not
include footnotes or may be condensed or summary statements), and the other
financial information included or incorporated by reference in the Registration
Statement and the Prospectus has been derived from the accounting records of
the 


 


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Company and its Subsidiary and presents
fairly the information shown thereby. 
Any pro forma financial statements or data included or incorporated by
reference in the Registration Statement and the Prospectus comply with the
requirements of Regulation S-X of the Securities Act, including, without
limitation, Article 11 thereof, and the assumptions used in the preparation
of such pro forma financial statements and data are reasonable, the pro forma
adjustments used therein are appropriate to give effect to the circumstances
referred to therein and the pro forma adjustments have been properly applied to
the historical amounts in the compilation of those statements and data.  No other financial statements or schedules of
the Company or any other entity are required by the Act to be included in the
Registration Statement or the Prospectus. 
All disclosures contained in the Registration Statement, the Pricing
Disclosure Materials and the Prospectus regarding “non-GAAP financial measures”
(as such term is defined by Item 10 of Regulation S-K under the Act) comply
with Regulation G of the Exchange Act and Item 10 of Regulation S-K under the
Act, to the extent applicable.  The
Company does not have any material liabilities or obligations, direct or
contingent (including any off-balance sheet obligations and any “variable
interest entities” within the meaning of Financial Accounting Standards Board
Interpretation No. 46), not disclosed in the Registration Statement, the
Pricing Disclosure Materials and the Prospectus.


 


(e)                                  Conformity with
EDGAR Filing.  The
Prospectus delivered to Agents for use in connection with the sale of the
Placement Shares pursuant to this Agreement will be identical to the versions
of the Prospectus created to be transmitted to the Commission for filing via
EDGAR, except to the extent permitted by Regulation S-T.


 


(f)                                    Organization.  The Company and its Subsidiary are, and will
be, duly organized, validly existing as a corporation and in good standing
under the laws of their respective jurisdictions of organization.  The Company and its Subsidiary are, and will
be, duly licensed or qualified as a foreign corporation for transaction of
business and in good standing under the laws of each other jurisdiction in
which their respective ownership or lease of property or the conduct of their
respective businesses requires such license or qualification, and have all
corporate power and authority necessary to own or hold their respective
properties and to conduct their respective businesses as described in the
Registration Statement and the Prospectus, except where the failure to be so
qualified or in good standing or have such power or authority would not,
individually or in the aggregate, have a material adverse effect or would
reasonably be expected to have a material adverse effect on or affecting the
business, properties, management, consolidated financial position,
stockholders’ equity or results of operations of the Company and its Subsidiary
taken as a whole (a “Material Adverse Effect”).


 


(g)                                 Subsidiaries.  ARYx Therapeutics Limited, a company formed
under the laws of the United Kingdom (the “Subsidiary”), is the
Company’s only significant subsidiary (as such term is defined in Rule 1-02
of Regulation S-X promulgated by the Commission).  Except as set forth in the Registration
Statement in and the Prospectus, the Company owns, directly or indirectly, all
of the equity interests of the Subsidiary free and clear of any lien, charge,
security interest, encumbrance, right of first refusal or other restriction,
and all the equity interests of the Subsidiary are validly issued and are fully
paid, nonassessable and free of preemptive and similar rights.


 


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(h)                                 No Violation or
Default.  Neither the Company nor its
Subsidiary are (i) in violation of its charter or by-laws or similar
organizational documents; (ii) in default, and no event has occurred that,
with notice or lapse of time or both, would constitute such a default, in the
due performance or observance of any term, covenant or condition contained in
any indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or its Subsidiary are a party or by which the
Company or its Subsidiary are bound or to which any of the property or assets
of the Company or its Subsidiary are subject; or (iii) in violation of any
law or statute or any judgment, order, rule or regulation of any court or
arbitrator or governmental or regulatory authority, except, in the case of each
of clauses (ii) and (iii) above, for any such violation or default
that would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect.  To the
Company’s knowledge, no other party under any material contract or other
agreement to which it or a Subsidiary is a party is in default in any respect
thereunder where such default would have a Material Adverse Effect.


 


(i)                                     No Material
Adverse Change.  Except as
set forth in or otherwise contemplated by the Registration Statement (exclusive
of any amendment thereof) or the Prospectus (exclusive of any supplement
thereto), since the date of the most recent financial statements of the Company
included or incorporated by reference in the Registration Statement and the
Prospectus and prior to each Settlement Date, (i) there has not been and
will not have been any change in the capital stock of the Company (except for
changes in the number of outstanding shares of Common Stock of the Company due
to the issuance of shares upon the exercise or conversion of securities
exercisable for, or convertible into, shares of Common Stock outstanding on the
date hereof) or long-term debt of the Company or of its Subsidiary or any
dividend or distribution of any kind declared, set aside for payment, paid or
made by the Company on any class of capital stock, that has resulted in or that
would reasonably be expected to result in a Material Adverse Effect to the
Company and its Subsidiary taken as a whole; (ii) other than this
Agreement, neither the Company nor its Subsidiary have entered or will enter
into any transaction or agreement, not in the ordinary course of business, that
is material to the Company and its Subsidiary taken as a whole or incurred or
will incur any liability or obligation, direct or contingent, not in the
ordinary course of business, that is material to the Company and its Subsidiary
taken as a whole; (iii) there has not been any material adverse change in
the business, properties, management, financial position, stockholders’ equity,
or results of operations of the Company and its Subsidiary, taken as a whole;
and (iv) neither the Company nor its Subsidiary have sustained any
material loss or interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from any labor
disturbance or dispute or any action, order or decree of any court or
arbitrator or governmental or regulatory authority.


 


(j)                                     Capitalization.  The issued and outstanding shares of capital
stock of the Company have been validly issued, are fully paid and nonassessable
and, other than as disclosed in or contemplated by the Registration Statement
or the Prospectus, are not subject to any preemptive rights, rights of first
refusal or similar rights.  The Company
has an authorized, issued and outstanding capitalization as set forth in the Registration
Statement and the Prospectus as of the dates referred to therein (other than
the grant of additional options under the Company’s existing stock option
plans, or changes in the number of outstanding shares of Common Stock of the
Company due to the issuance of shares upon the exercise or conversion of
securities exercisable for, or convertible into, shares of Common Stock
outstanding on the date 


 


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hereof) and such authorized capital stock
conforms to the description thereof set forth in the Registration Statement and
the Prospectus.  The description of the
securities of the Company in the Registration Statement and the Prospectus is
complete and accurate in all material respects. 
Except as disclosed in or contemplated by the Registration Statement or
the Prospectus, as of the date referred to therein, the Company does not have
outstanding any options to purchase, or any rights or warrants to subscribe
for, or any securities or obligations convertible into, or exchangeable for, or
any contracts or commitments to issue or sell, any shares of capital stock or
other securities.


 


(k)                                  Authorization;
Enforceability.  The Company
has full legal right, power and authority to enter into this Agreement and
perform the transactions contemplated hereby. 
This Agreement has been duly authorized, executed and delivered by the
Company and is a legal, valid and binding agreement of the Company enforceable
in accordance with its terms, except to the extent that (i) enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors’ rights generally and by general equitable principles
and (ii) the indemnification and contribution provisions of Section 10
hereof may be limited by federal or state securities laws and public policy
considerations in respect thereof.


 


(l)                                     Authorization
of Placement Shares.  The
Placement Shares, when issued and delivered pursuant to the terms approved by
the Board of Directors or a duly designated committee thereof, against payment
therefor as provided herein, will be duly and validly authorized and issued and
fully paid and nonassessable, free and clear of any pledge, lien, encumbrance,
security interest or other claim, including any statutory or contractual
preemptive rights, resale rights, rights of first refusal or other similar
rights, and will be registered pursuant to Section 12 of the Exchange
Act.  The Placement Shares, when issued,
will conform in all material respects to the description thereof set forth in
or incorporated into the Prospectus.


 


(m)                               No Consents
Required.  No consent,
approval, authorization, order, registration or qualification of or with any
court or arbitrator or governmental or regulatory authority is required for the
execution, delivery and performance by the Company this Agreement, the issuance
and sale by the Company of the Placement Shares, except for the registration of
the Placement Shares under the Act and such consents, approvals,
authorizations, orders and registrations or qualifications as may be required
under applicable state securities laws or by the by-laws and rules of the
Financial Industry Regulatory Authority (“FINRA”) or the Exchange in
connection with the sale of the Placement Shares by Agents.


 


(n)                                 No Preferential
Rights.  Except as set forth in the
Registration Statement and the Prospectus, (i) no person, as such term is
defined in Rule 1-02 of Regulation S-X promulgated under the Securities
Act (each, a “Person”), has the right, contractual or otherwise, to
cause the Company to issue or sell to such Person any shares of Common Stock or
shares of any other capital stock or other securities of the Company, (ii) no
Person has any preemptive rights, resale rights, rights of first refusal, or
any other rights (whether pursuant to a “poison pill” provision or otherwise)
to purchase any shares of Common Stock or shares of any other capital stock or
other securities of the Company, (iii)  no Person has the right to act as
an underwriter or as a financial advisor to the Company in connection with the
offer and sale of the Shares, and (iv) no Person has the right,
contractual or otherwise, to require the Company to register under 


 


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the Securities Act any shares of Common Stock
or shares of any other capital stock or other securities of the Company, or to
include any such shares or other securities in the Registration Statement or
the offering contemplated thereby, whether as a result of the filing or
effectiveness of the Registration Statement or the sale of the Placement Shares
as contemplated thereby or otherwise.


 


(o)                                 Independent
Public Accountant.  Ernst &
Young LLP (the “Accountant”), whose report on the consolidated financial
statements of the Company is filed with the Commission as part of the
Registration Statement and the Prospectus, are and, during the periods covered
by their report, were independent public accountants within the meaning of the
Securities Act and the Public Company Accounting Oversight Board (United
States).  To the Company’s knowledge,
after due and careful inquiry, the Accountant is not in violation of the
auditor independence requirements of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley
Act”) with respect to the Company.


 


(p)                                 Enforceability
of Agreements.  To the
knowledge of the Company, all agreements between the Company and third parties
expressly referenced in the Prospectus are legal, valid and binding obligations
of the Company enforceable in accordance with their respective terms, except to
the extent that (i) enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors’
rights generally and by general equitable principles and (ii) the
indemnification provisions of certain agreements may be limited be federal or
state securities laws or public policy considerations in respect thereof and
except for any unenforceability that, individually or in the aggregate, would
not unreasonably be expected to have a Material Adverse Effect.


 


(q)                                 No Litigation.  Except as set forth in the Registration
Statement or the Prospectus, there are no legal, governmental or regulatory
actions, suits or proceedings pending, nor, to the Company’s knowledge, any
legal, governmental or regulatory investigations, to which the Company or its
Subsidiary is a party or to which any property of the Company or its Subsidiary
is the subject that, individually or in the aggregate, if determined adversely
to the Company or its Subsidiary, would reasonably be expected to have a
Material Adverse Effect or materially and adversely affect the ability of the
Company to perform its obligations under this Agreement; to the Company’s
knowledge, no such actions, suits or proceedings are threatened or contemplated
by any governmental or regulatory authority or threatened by others; and (i) there
are no current or pending legal, governmental or regulatory investigations,
actions, suits or proceedings that are required under the Act to be described
in the Prospectus that are not so described; and (ii) there are no
contracts or other documents that are required under the Act to be filed as
exhibits to the Registration Statement that are not so filed.


 


(r)                                    Licenses and
Permits.  Except as set forth in the
Registration Statement or the Prospectus, the Company and its Subsidiary
possess or have obtained, and at each Settlement Date will possess and will
have obtained, all licenses, certificates, consents, orders, approvals, permits
and other authorizations issued by, and have made all declarations and filings
with, the appropriate federal, state, local or foreign governmental or
regulatory authorities that are necessary for the ownership or lease of their
respective properties or the conduct of their respective businesses as
described in the Registration Statement and the Prospectus (the “Permits”),
except where the failure to possess, obtain or make the same would not,
individually 


 


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or in the aggregate, reasonably be expected
to have a Material Adverse Effect. 
Except as disclosed in the Registration Statement or the Prospectus,
neither the Company nor its Subsidiary have received written notice of any
proceeding relating to revocation or modification of any such Permit or has any
reason to believe that such Permit will not be renewed in the ordinary course,
except where the failure to obtain any such renewal would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect.


 


(s)                                  Not a Shell
Company.  The Company is not a shell
company (as defined in Rule 405 under the Securities Act) and has not been
a shell company for at least 12 calendar months previously and if it has been a
shell company at any time previously, has filed current Form 10
information (as defined in Instruction I.B.6 of Form S-3) with the
Commission at least 12 calendar months previously reflecting its status as an
entity that is not a shell company.


 


(t)                                    No Material
Defaults.  Neither the
Company nor the Subsidiary has defaulted on any installment on indebtedness for
borrowed money or on any rental on one or more long-term leases, which
defaults, individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect.  The
Company has not filed a report pursuant to Section 13(a) or 15(d) of
the Exchange Act since the filing of its last Annual Report on Form 10-K,
indicating that it (i) has failed to pay any dividend or sinking fund
installment on preferred stock or (ii) has defaulted on any installment on
indebtedness for borrowed money or on any rental on one or more long-term
leases, which defaults, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect.


 


(u)                                 Certain Market
Activities.  Neither the
Company, nor the Subsidiary, nor any of their respective directors, officers or
controlling persons has taken, directly or indirectly, any action designed, or
that has constituted or might reasonably be expected to cause or result in,
under the Exchange Act or otherwise, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Placement Shares.


 


(v)                                 Broker/Dealer
Relationships.  Neither the
Company nor the Subsidiary or any related entities (i) is required to
register as a “broker” or “dealer” in accordance with the provisions of the
Exchange Act or (ii) directly or indirectly through one or more
intermediaries, controls or is a “person associated with a member” or
“associated person of a member” (within the meaning of Article I of the
NASD Manual administered by FINRA).


 


(w)                               No Reliance.  The Company has not relied upon either Agent
or legal counsel for either Agent for any legal, tax or accounting advice in
connection with the offering and sale of the Placement Shares.


 


(x)                                   Taxes.  The Company and its Subsidiary have filed all
federal, state, local and foreign tax returns which have been required to be
filed and paid all taxes shown thereon through the date hereof, to the extent
that such taxes have become due and are not being contested in good faith.  Except as otherwise disclosed in or
contemplated by the Registration Statement or the Prospectus, no tax deficiency
has been determined adversely to the Company or its Subsidiary which has had,
or would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.  The Company has
no knowledge of any federal, state or 


 


10





















 


other governmental tax deficiency, penalty or
assessment which has been or might be asserted or threatened against it which
could have a Material Adverse Effect.


 


(y)                                 Title to Real
and Personal Property. 
Except as set forth in the Registration Statement or the Prospectus, the
Company and its Subsidiary have good and valid title in fee simple to all items
of real property and good and valid title to all personal property described in
the Registration Statement or Prospectus as being owned by them that are
material to the businesses of the Company or such Subsidiary, in each case free
and clear of all liens, encumbrances and claims, except those that (i) do
not materially interfere with the use made and proposed to be made of such
property by the Company and its Subsidiary or (ii) would not reasonably be
expected, individually or in the aggregate, to have a Material Adverse
Effect.  Any real property described in
the Registration Statement or Prospectus as being leased by the Company and its
Subsidiary is held by them under valid, existing and enforceable leases, except
those that (A) do not materially interfere with the use made or proposed
to be made of such property by the Company or its Subsidiary or (B) would
not be reasonably expected, individually or in the aggregate, to have a
Material Adverse Effect.


 


(z)                                   Intellectual
Property.  Except as
set forth in the Registration Statement or the Prospectus, the Company and its
Subsidiary own or possess adequate enforceable rights to use all patents,
patent applications, trademarks (both registered and unregistered), service
marks, trade names, trademark registrations, service mark registrations,
copyrights, licenses and know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures) (collectively, the “Intellectual Property”), necessary for
the conduct of their respective businesses as conducted as of the date hereof,
except to the extent that the failure to own or possess adequate rights to use
such Intellectual Property would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect; the Company and its
Subsidiary have not received any written notice of any claim of infringement or
conflict which asserted Intellectual Property rights of others, which
infringement or conflict, if the subject of an unfavorable decision, would
result in a Material Adverse Effect; the Company has conducted searches of the
United States patents of record and published foreign patents issued to third
parties that may interfere with any of the Company’s or its Subsidiary’s
patents or patent applications and it has determined that none of the Company’s
or its Subsidiary’s patents or patent applications interfere with any other
United States patents or United States patent applications which correspond to
published foreign patents; the Company has conducted an infringement search and
determined that no patent held by any third party is infringed by the
activities of the Company and its Subsidiary; there are no pending, or to the
Company’s knowledge, threatened judicial proceedings or interference
proceedings challenging the Company’s or its Subsidiary’s rights in or to or
the validity of the scope of any of the Company’s or its Subsidiary’s patents,
patent applications or proprietary information; no other entity or individual
has any right or claim in any of the Company’s or its Subsidiary’s patents,
patent applications or any patent to be issued therefrom by virtue of any
contract, license or other agreement entered into between such entity or
individual and the Company or by any non-contractual obligation, other than by
written licenses granted by the Company; the Company and its Subsidiary have
not received any written notice of any claim challenging the rights of the
Company or a Subsidiary in or to any Intellectual Property owned, licensed or
optioned by the Company or such Subsidiary which claim, if the subject of an
unfavorable decision would result in an Material Adverse Effect.


 


11
















 


(aa)                          Compliance
Program.  The Company has established
and administers a compliance program applicable to the Company, to assist the
Company and the directors, officers and employees of the Company in complying
with applicable regulatory guidelines.


 


(bb)                          Environmental
Laws.  Except as set forth in the
Registration Statement or the Prospectus, the Company and its Subsidiary (i) are
in compliance with any and all applicable federal, state, local and foreign
laws, rules, regulations, decisions and orders relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants (collectively, “Environmental Laws”);
(ii) have received and are in compliance with all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses as described in the Registration Statement and the
Prospectus; and (iii) have not received notice of any actual or potential
liability for the investigation or remediation of any disposal or release of
hazardous or toxic substances or wastes, pollutants or contaminants, except, in
the case of any of clauses (i), (ii) or (iii) above, for any such
failure to comply or failure to receive required permits, licenses, other
approvals or liability as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.


 


(cc)                            Disclosure
Controls.  The Company
has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15
and 15d-15) for the Company and designed such disclosure controls and
procedures to ensure that material information relating to the Company and its
Subsidiary is made known to the certifying officers by others within those
entities, particularly during the period in which the Company’s Annual Report
on Form 10-K or Quarterly Report on Form 10-Q, as the case may be, is
being prepared.  The Company’s certifying
officers have evaluated the effectiveness of the Company’s controls and
procedures as of a date within 90 days prior to the filing date of the Form 10-K
for the year ended December 31, 2009 (such date, the “Evaluation Date”).  The Company presented in its Form 10-K
for the year ended December 31, 2009 the conclusions of the certifying officers
about the effectiveness of the disclosure controls and procedures based on
their evaluations as of the Evaluation Date. 
Except as set forth in the Registration Statement or the Prospectus,
there have been no significant changes in the Company’s internal controls (as
such term is defined in Item 307(b) of Regulation S-K under the Act) since
the Evaluation Date.


 


(dd)                          Sarbanes-Oxley.  To the knowledge of the Company, there is and
has been no failure on the part of the Company and any of the Company’s directors
or officers, in their capacities as such, to comply with any applicable
provisions of the Sarbanes-Oxley Act and the rules and regulations
promulgated thereunder.  Each of the
principal executive officer and the principal financial officer of the Company
(or each former principal executive officer of the Company and each former
principal financial officer of the Company as applicable) has made all
certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act with
respect to all reports, schedules, forms, statements and other documents
required to be filed by it or furnished by it to the Commission.  For purposes of the preceding sentence,
“principal executive officer” and “principal financial officer” shall have the
meanings given to such terms in the Sarbanes-Oxley Act.


 


(ee)                            Finder’s Fees.  Neither the Company nor the Subsidiary has
incurred any liability for any finder’s fees, brokerage commissions or similar
payments in connection with the 


 


12





















 


transactions herein contemplated, except as
may otherwise exist with respect to Agents pursuant to this Agreement.


 


(ff)                              Labor Disputes.  No labor disturbance by or dispute with
employees of the Company or its Subsidiary exists or, to the knowledge of the
Company, is threatened which would reasonably be expected to result in a
Material Adverse Effect


 


(gg)                            Investment
Company Act.  Neither the
Company nor the Subsidiary is or, after giving effect to the offering and sale
of the Placement Shares, will be an “investment company” or an entity
“controlled” by an “investment company,” as such terms are defined in the
Investment Company Act of 1940, as amended (the “Investment Company Act”).


 


(hh)                          Operations.  The operations of the Company and its Subsidiary
are and have been conducted at all times in compliance with applicable
financial record keeping and reporting requirements of the Currency and Foreign
Transactions Reporting Act of 1970, as amended, the money laundering statutes
of all jurisdictions to which the Company or its Subsidiary are subject, the rules and
regulations thereunder and any related or similar rules, regulations or
guidelines, issued, administered or enforced by any governmental agency
(collectively, the “Money Laundering Laws”), except as would not
reasonably be expected to result in a Material Adverse Effect; and no action,
suit or proceeding by or before any court or governmental agency, authority or
body or any arbitrator involving the Company or its Subsidiary with respect to the
Money Laundering Laws is pending or, to the knowledge of the Company,
threatened.


 


(ii)                                  Off-Balance
Sheet Arrangements.  There are
no transactions, arrangements and other relationships between and/or among the
Company, and/or, to the knowledge of the Company, any of its affiliates and any
unconsolidated entity, including, but not limited to, any structural finance,
special purpose or limited purpose entity (each, an “Off Balance Sheet
Transaction”) that could reasonably be expected to affect materially the
Company’s liquidity or the availability of or requirements for its capital
resources, including those Off Balance Sheet Transactions described in the
Commission’s Statement about Management’s Discussion and Analysis of Financial
Conditions and Results of Operations (Release Nos.  33-8056; 34-45321; FR-61), required to be
described in the Prospectus which have not been described as required.


 


(jj)                                Underwriter
Agreements.  The Company
is not a party to any agreement with an agent or underwriter for any other
“at-the-market” or continuous equity transaction.


 


(kk)                          ERISA.  To the knowledge of the Company, each
material employee benefit plan, within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended (“ERISA”),
that is maintained, administered or contributed to by the Company or any of its
affiliates for employees or former employees of the Company and its Subsidiary
has been maintained in material compliance with its terms and the requirements
of any applicable statutes, orders, rules and regulations, including but
not limited to ERISA and the Internal Revenue Code of 1986, as amended (the “Code”);
no prohibited transaction, within the meaning of Section 406 of ERISA or Section 4975
of the Code, has occurred which would result in a material liability to the
Company with respect to any such plan excluding transactions 


 


13





















 


effected pursuant to a statutory or
administrative exemption; and for each such plan that is subject to the funding
rules of Section 412 of the Code or Section 302 of ERISA, no
“accumulated funding deficiency” as defined in Section 412 of the Code has
been incurred, whether or not waived, and the fair market value of the assets
of each such plan (excluding for these purposes accrued but unpaid
contributions) exceeds the present value of all benefits accrued under such
plan determined using reasonable actuarial assumptions.


 


(ll)                                  Forward Looking
Statements.  No
forward-looking statement (within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act) (a “Forward Looking
Statement”) contained in the Registration Statement and the Prospectus has
been made or reaffirmed without a reasonable basis or has been disclosed other
than in good faith.  The Forward Looking
Statements incorporated by reference in the Registration Statement and the
Prospectus from the Company’s Annual Report on Form 10-K for the year most
recently ended (i) are within the coverage of the safe harbor for forward
looking statements set forth in Section 27A of the Act, Rule 175(b) under
the Act or Rule 3b-6 under the Exchange Act, as applicable, (ii) were
made by the Company with a reasonable basis and in good faith and reflect the
Company’s good faith commercially reasonable best estimate of the matters
described therein, and (iii) have been prepared in accordance with Item 10
of Regulation S-K under the Act.


 


(mm)                  Agent Purchases.  The Company acknowledges and agrees that
Agents have informed the Company that either Agent may, to the extent permitted
under the Securities Act and the Exchange Act, purchase and sell shares of
Common Stock for its own account while this Agreement is in effect, provided,
that (i) no such purchase or sales shall take place while a Placement
Notice is in effect (except to the extent each Agent may engage in sales of
Placement Shares purchased or deemed purchased from the Company as a “riskless
principal” or in a similar capacity) and (ii) the Company shall not be
deemed to have authorized or consented to any such purchases or sales by either
Agent.


 


(nn)                          Margin Rules.  Neither the issuance, sale and delivery of
the Shares nor the application of the proceeds thereof by the Company as
described in the Registration Statement and the Prospectus will violate
Regulation T, U or X of the Board of Governors of the Federal Reserve System or
any other regulation of such Board of Governors.


 


(oo)                          Insurance.  The Company and its Subsidiary carry, or are
covered by, insurance in such amounts and covering such risks as the Company
and its Subsidiary reasonably believe are adequate for the conduct of their
properties and as is customary for companies engaged in similar businesses in
similar industries.


 


(pp)                          No Improper
Practices.  (i) Neither
the Company nor, to the Company’s knowledge, the Subsidiary, nor to the
Company’s knowledge, any of their respective executive officers has, in the
past five years, made any unlawful contributions to any candidate for any
political office (or failed fully to disclose any contribution in violation of
law) or made any contribution or other payment to any official of, or candidate
for, any federal, state, municipal, or foreign office or other person charged
with similar public or quasi-public duty in violation of any law or of the
character required to be disclosed in the Prospectus; (ii) no
relationship, direct or indirect, exists between or among the Company or, to
the Company’s knowledge, any Subsidiary or any affiliate of any of them, on the
one hand, and the directors, officers and stockholders of 


 


14





















 


the Company or, to the Company’s knowledge,
any Subsidiary, on the other hand, that is required by the Securities Act to be
described in the Registration Statement and the Prospectus that is not so
described; (iii) no relationship, direct or indirect, exists between or
among the Company or any Subsidiary or any affiliate of them, on the one hand,
and the directors, officers, stockholders or directors of the Company or, to the
Company’s knowledge, any Subsidiary, on the other hand, that is required by the
rules of FINRA to be described in the Registration Statement and the
Prospectus that is not so described; and (iv) except as described in the
Prospectus, there are no material outstanding loans or advances or material
guarantees of indebtedness by the Company or, to the Company’s knowledge, any
Subsidiary to or for the benefit of any of their respective officers or
directors or any of the members of the families of any of them.


 


(qq)                          Status Under
the Securities Act.  The Company
was not and is not an ineligible issuer as defined in Rule 405 under the
Securities Act at the times specified in Rules 164 and 433 under the Act
in connection with the offering of the Shares.


 


(rr)                                No Misstatement
or Omission in an Issuer Free Writing Prospectus.  Each issuer free writing prospectus, as
defined in Rule 405 under the Act relating to the Placement Shares (an “Issuer
Free Writing Prospectus,” and together with the Prospectus the “Pricing
Disclosure Materials”), when considered together with the Pricing
Disclosure Materials as of the applicable Point of Sale, did not or 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
light of the circumstances under which they were made, not misleading;
provided, however, that the Company makes no representation or warranty with
respect to any statement contained in any Issuer Free Writing Prospectus in
reliance upon and in conformity with information concerning either Agent and
furnished by either Agent to the Company expressly for use in the Issuer Free
Writing Prospectus.


 


(ss)                              Conformity of
Issuer Free Writing Prospectus.  Each Issuer Free Writing Prospectus conformed
or will conform in all material respects to the requirements of the Act on the
date of first use, and the Company has complied or will comply with any filing
requirements applicable to such Issuer Free Writing Prospectus pursuant to the
Act.  Each Issuer 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 or will conflict
with the information contained in the Registration Statement or the Prospectus,
including any document incorporated by reference therein that has not been
superseded or modified.  The Company has
not made any offer relating to the Shares that would constitute an Issuer Free
Writing Prospectus without the prior written consent of Agents.  The Company has retained in accordance with
the Act all Issuer Free Writing Prospectuses that were not required to be filed
pursuant to the Act.


 


(tt)                                Stock Transfer
Taxes.  On each Settlement Date, all
stock transfer or other taxes (other than income taxes) which are required to
be paid in connection with the sale and transfer of the Shares to be sold
hereunder will be, or will have been, fully paid or provided for by the Company
and all laws imposing such taxes will be or will have been fully complied with.


 


15





















 


7.                                      Covenants of
the Company.  The Company
covenants and agrees with Agents that:


 


(a)                                 Registration Statement
Amendments.  After the
date of the effectiveness of the Registration Statement with the Commission and
during any period in which a Prospectus relating to any Placement Shares is
required to be delivered by Agents under the Securities Act (including in
circumstances where such requirement may be satisfied pursuant to Rule 172
under the Securities Act), (i) the Company will notify Agents promptly of
the time when any subsequent amendment to the Registration Statement, other
than documents incorporated by reference, has been filed with the Commission
and/or has become effective or any subsequent supplement to the Prospectus has
been filed and of any request by the Commission for any amendment or supplement
to the Registration Statement or Prospectus or for additional information, (ii) the
Company will prepare and file with the Commission, promptly upon either Agent’s
request, any amendments or supplements to the Registration Statement or
Prospectus that, in such Agent’s reasonable opinion, may be necessary or
advisable in connection with the distribution of the Placement Shares by Agents
(provided, however, that the failure of either Agent to make such request shall
not relieve the Company of any obligation or liability hereunder, or affect
either Agent’s right to rely on the representations and warranties made by the
Company in this Agreement and provided, further, that the only remedy Agents
shall have with respect to the failure to make such filing shall be to cease
making sales under this Agreement until such amendment or supplement is filed);
(iii) the Company will not file any amendment or supplement to the
Registration Statement or Prospectus relating to the Placement Shares or a
security convertible into the Placement Shares unless a copy thereof has been
submitted to Agents within a reasonable period of time before the filing and
neither Agent has objected thereto (provided, however, that the failure of
either Agent to make such objection shall not relieve the Company of any
obligation or liability hereunder, or affect either Agent’s right to rely on
the representations and warranties made by the Company in this Agreement and
provided, further, that the only remedy Agents shall have with respect to the
failure to by the Company to obtain such consent shall be to cease making sales
under this Agreement) and the Company will furnish to Agents at the time of
filing thereof a copy of any document that upon filing is deemed to be
incorporated by reference into the Registration Statement or Prospectus, except
for those documents available via EDGAR; and (iv) the Company will cause
each amendment or supplement to the Prospectus to be filed with the Commission
as required pursuant to the applicable paragraph of Rule 424(b) of
the Securities Act or, in the case of any document to be incorporated therein
by reference, to be filed with the Commission as required pursuant to the
Exchange Act, within the time period prescribed (the determination to file or
not file any amendment or supplement with the Commission under this Section 7(a),
based on the Company’s reasonable opinion or reasonable objections, shall be
made exclusively by the Company).


 


(b)                                 Notice of
Commission Stop Orders.  The
Company will advise Agents, promptly after it receives notice or obtains knowledge
thereof, of the issuance or threatened issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement, of the
suspension of the qualification of the Placement Shares for offering or sale in
any jurisdiction, or of the initiation or threatening of any proceeding for any
such purpose; and it will promptly use its commercially reasonable efforts to
prevent the issuance of any stop order or to obtain its withdrawal if such a
stop order should be issued.  The Company
will advise Agents 


 


16





















 


promptly after it receives any request by the
Commission for any amendments to the Registration Statement or any amendment or
supplements to the Prospectus or any Issuer Free Writing Prospectus or for
additional information related to the offering of the Shares or for additional
information related to the Registration Statement, the Prospectus or any Issuer
Free Writing Prospectus.


 


(c)                                  Delivery of
Prospectus; Subsequent Changes.  During any period in which a Prospectus
relating to the Placement Shares is required to be delivered by Agents under
the Securities Act with respect to the offer and sale of the Placement Shares,
(including in circumstances where such requirement may be satisfied pursuant to
Rule 172 under the Securities Act), the Company will comply with all
requirements imposed upon it by the Securities Act, as from time to time in
force, and to file on or before their respective due dates all reports and any
definitive proxy or information statements required to be filed by the Company
with the Commission pursuant to Sections 13(a), 13(c), 14, 15(d) or any
other provision of or under the Exchange Act. 
If the Company has omitted any information from the Registration
Statement pursuant to Rule 430A under the Act, it will use its best
efforts to comply with the provisions of and make all requisite filings with
the Commission pursuant to said Rule 430A and to notify Agents promptly of
all such filings.  If during such period
any event occurs 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 a material fact necessary to make the statements therein, in the light of
the circumstances then existing, not misleading, or if during such period it is
necessary to amend or supplement the Registration Statement or Prospectus to
comply with the Securities Act, the Company will promptly notify Agents to
suspend the offering of Placement Shares during such period and the Company
will promptly amend or supplement the Registration Statement or Prospectus (at
the expense of the Company) so as to correct such statement or omission or
effect such compliance.


 


(d)                                 Listing of
Placement Shares.  During any
period in which the Prospectus relating to the Placement Shares is required to
be delivered by Agents under the Securities Act with respect to the offer and
sale of the Placement Shares, the Company will use its reasonable best efforts
to cause the Placement Shares to be listed on the Exchange and to qualify the
Placement Shares for sale under the securities laws of such jurisdictions as
Agents reasonably designate and to continue such qualifications in effect so
long as required for the distribution of the Placement Shares; provided,
however, that the Company shall not be required in connection therewith to
qualify as a foreign corporation or dealer in securities or file a general
consent to service of process in any jurisdiction.


 


(e)                                  Delivery of
Registration Statement and Prospectus.  The Company will furnish to Agents and their
respective counsel (at the expense of the Company) copies of the Registration
Statement, the Prospectus (including all documents incorporated by reference
therein) and all amendments and supplements to the Registration Statement or
Prospectus that are filed with the Commission during any period in which a
Prospectus relating to the Placement Shares is required to be delivered under
the Securities Act (including all documents filed with the Commission during
such period that are deemed to be incorporated by reference therein), in each
case as soon as reasonably practicable and in such quantities as Agents may
from time to time reasonably request and, at either Agent’s request, will also
furnish copies of the Prospectus to each exchange or market on which sales of
the Placement Shares may be made; provided, 


 


17





















 


however, that the Company shall not be
required to furnish any document (other than the Prospectus) to either Agent to
the extent such document is available on EDGAR.


 


(f)                                   Earnings
Statement.  The Company
will make generally available to its security holders as soon as practicable,
but in any event not later than 15 months after the end of the Company’s
current fiscal quarter, an earnings statement covering a 12-month period that
satisfies the provisions of Section 11(a) and Rule 158 of the
Securities Act.


 


(g)                                  Expenses.  The Company, whether or not the transactions
contemplated hereunder are consummated or this Agreement is terminated, in
accordance with the provisions of Section 12 hereunder, will pay all
expenses incident to the performance of its obligations hereunder, including,
but not limited to, expenses relating to (i) the preparation, printing and
filing of the Registration Statement and each amendment and supplement thereto,
of each Prospectus and of each amendment and supplement thereto, (ii) the
preparation, issuance and delivery of the Placement Shares, (iii) the
qualification of the Placement Shares under securities laws in accordance with
the provisions of Section 7(d) of this Agreement, including filing
fees, (iv) the printing and delivery to Agents of copies of the Prospectus
and any amendments or supplements thereto, and of this Agreement, (v) the
fees and expenses incurred in connection with the listing or qualification of
the Placement Shares for trading on the Exchange, (vi) filing fees and
expenses, if any, of the Commission and the FINRA Corporate Financing
Department.  The Company shall promptly
reimburse Agents for documented fees and expenses on part of one legal counsel
selected by Agents in an aggregate amount not to exceed $25,000.


 


(h)                                 Use of Proceeds.  The Company will use the Net Proceeds as
described in the Prospectus in the section entitled “Use of Proceeds.”


 


(i)                                     Notice of Other
Sales.  Without the prior written
consent of both Agents, the Company will not, directly or indirectly, offer to
sell, sell, contract to sell, grant any option to sell or otherwise dispose of
any shares of Common Stock (other than the Shares offered pursuant to the
provisions of this Agreement) or securities convertible into or exchangeable
for Common Stock, warrants or any rights to purchase or acquire, Common Stock
during the period beginning on the fifth (5th) Trading Day immediately prior to
the date on which any Placement Notice is delivered to Agents hereunder and
ending on the fifth (5th) Trading Day immediately following the final
Settlement Date with respect to Placement Shares sold pursuant to such
Placement Notice (or, if the Placement Notice has been terminated or suspended
prior to the sale of all Shares covered by a Placement Notice, the date of such
suspension or termination); and will not directly or indirectly in any other “at-the-market”
or continuous equity transaction offer to sell, sell, contract to sell, grant
any option to sell or otherwise dispose of any shares of Common Stock (other
than the Shares offered pursuant to the provisions of this Agreement) or
securities convertible into or exchangeable for Common Stock, warrants or any
rights to purchase or acquire, Common Stock prior to the later of the
termination of this Agreement and the sixtieth (60th) day immediately following
the final Settlement Date with respect to Placement Shares sold pursuant to
such Placement Notice; provided, however, that such restrictions will not be
required in connection with the Company’s issuance or sale of (i) Common
Stock, options to purchase shares of Common Stock or Common Stock issuable upon
the exercise of options, pursuant to any employee or director stock option or
benefits plan, stock ownership plan or dividend reinvestment plan (but not
shares subject to a waiver to exceed plan limits in its 


 


18





















 


dividend reinvestment plan) of the Company
whether now in effect or hereafter implemented, and (ii) Common Stock
issuable upon conversion of securities or the exercise of warrants, options or
other rights in effect or outstanding, and disclosed in filings by the Company
available on EDGAR or otherwise in writing to Agents.


 


(j)                                    Change of
Circumstances.  The Company
will, at any time during the pendency of a Placement Notice advise Agents
promptly after it shall have received notice or obtained knowledge thereof, of
any information or fact that would alter or affect in any material respect any
opinion, certificate, letter or other document required to be provided to
either Agent pursuant to this Agreement.


 


(k)                                 Due Diligence
Cooperation.  The Company
will cooperate with any reasonable due diligence review conducted by either
Agent or its representatives in connection with the transactions contemplated
hereby, including, without limitation, providing information and making
available documents and senior corporate officers, during regular business
hours and at the Company’s principal offices, as such Agent may reasonably
request.


 


(l)                                     Required
Filings Relating to Placement of Placement Shares.  The Company agrees that on such dates as the
Securities Act shall require, the Company will (i) file a prospectus
supplement with the Commission under the applicable paragraph of Rule 424(b) under
the Securities Act (each and every filing under Rule 424(b), a “Filing
Date”), which prospectus supplement will set forth, within the relevant
period, the amount of Placement Shares sold through Agents, the Net Proceeds to
the Company and the compensation payable by the Company to Agents with respect
to such Placement Shares, and (ii) deliver such number of copies of each
such prospectus supplement to each exchange or market on which such sales were
effected as may be required by the rules or regulations of such exchange
or market.


 


(m)                             Representation
Dates; Certificate.  During the
term of this Agreement, on the date of each Placement Notice given hereunder
and each time the Company (i) files the Prospectus relating to the
Placement Shares or amends or supplements the Registration Statement or the
Prospectus relating to the Placement Shares (other than a prospectus supplement
filed in accordance with Section 7(l) of this Agreement) by means of
a post-effective amendment, sticker, or supplement but not by means of
incorporation of document(s) by reference to the Registration Statement or
the Prospectus relating to the Placement Shares; (ii) files an annual
report on Form 10-K under the Exchange Act; (iii) files its quarterly
reports on Form 10-Q under the Exchange Act; (iv) files a report on Form 8-K
containing amended financial information (other than an earnings release, to
“furnish” information pursuant to Items 2.02 or 7.01 of Form 8-K or to
provide disclosure pursuant to Item 8.01 of Form 8-K relating to the
reclassifications of certain properties as discontinued operations in
accordance with Statement of Financial Accounting Standards No. 144) under
the Exchange Act or (v) files a Form 8-K under the Exchange Act for
any other purpose (other than to “furnish” information pursuant to Items 2.02
or 7.01 of revised Form 8-K) (each date of filing of one or more of the documents
referred to in clauses (i) through (v) shall be a “Representation
Date”); the Company shall furnish Agents (but in the case of clause (v) above
only if either Agent reasonably determines that the information contained in
such Form 8-K is material) with a certificate, in the form attached hereto
as Exhibit 7(m).  The requirement to
provide a certificate under this Section 7(m) shall be waived for any
Representation Date occurring at a time at which no Placement 


 


19





















 


Notice is pending, which waiver shall
continue until the earlier to occur of the date the Company delivers a
Placement Notice hereunder (which for such calendar quarter shall be considered
a Representation Date) and the next occurring Representation Date; provided,
however, that such waiver shall not apply for any Representation Date on which
the Company files its annual report on Form 10-K.  Notwithstanding the foregoing, if the Company
subsequently decides to sell Placement Shares following a Representation Date
when the Company relied on such waiver and did not provide Agents with a
certificate under this Section 7(m), then before the Company delivers the
Placement Notice or either Agent sells any Placement Shares, the Company shall
provide Agents with a certificate, in the form attached hereto as Exhibit 7(m),
dated the date of the Placement Notice.


 


(n)                                 Legal Opinion.  On or before the date of the initial
Placement Notice given hereunder and, thereafter, within ten Trading Days
following each date that the Company files an annual report on Form 10-K
under the Exchange Act or a quarterly report on Form 10-Q under the
Exchange Act during the term of this Agreement, the Company shall cause to be
furnished to Agents a written opinion of Cooley LLP (“Company Counsel”),
in form and substance satisfactory to Agents and their respective counsel,
modified, as necessary, to relate to the Registration Statement and the
Prospectus as then amended or supplemented; provided, however, the Company
shall be required to furnish to Agents no more than one opinion hereunder per
calendar quarter; provided, further, that in lieu of such opinions for
subsequent periodic filings under the Exchange Act, counsel may furnish Agents
with a letter (a “Reliance Letter”) to the effect that Agents may rely
on a prior opinion delivered under this Section 7(n) to the same
extent as if it were dated the date of such letter (except that statements in
such prior opinion shall be deemed to relate to the Registration Statement and the
Prospectus as amended or supplemented as of the date of the Reliance Letter).


 


(o)                                 Comfort Letter.  On or before the date of the initial
Placement Notice given hereunder and, thereafter, within ten Trading Days
following each date the Company files an annual report on Form 10-K under
the Exchange Act, during any period in which the Prospectus relating to the
Placement Shares is required to be delivered by Agents (including in
circumstances where such requirement may be satisfied pursuant to Rule 172
under the Act) and with respect to which the Company is obligated to deliver a
certificate in the form attached hereto as Exhibit 7(m) for which no
waiver is applicable, the Company shall cause its independent accountants to
furnish Agents letters (the “Comfort Letters”), dated the date the
Comfort Letter is delivered; provided, that if requested by either Agent, the
Company shall cause a Comfort Letter to be furnished to Agents within ten
Trading Days of the date of occurrence of any material transaction or event,
including the restatement of the Company’s financial statements.  The Comfort Letter from the Company’s
independent accountants shall be in a form and substance satisfactory to
Agents, (i) confirming that they are an independent public accounting firm
within the meaning of the Securities Act and the PCAOB, (ii) stating, as
of such date, the conclusions and findings of such firm with respect to the
financial information and other matters ordinarily covered by accountants’
“comfort letters” to underwriters in connection with registered public
offerings (the first such letter, the “Initial Comfort Letter”) and (iii) updating
the Initial Comfort Letter with any information that would have been included
in the Initial Comfort Letter had it been given on such date and modified as
necessary to relate to the Registration Statement and the Prospectus, as
amended and supplemented to the date of such letter.


 


20





















 


(p)                                 Market
Activities.  The Company
will not, directly or indirectly, (i) take any action designed to cause or
result in, or that constitutes or might reasonably be expected to constitute,
the stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Shares or (ii) sell, bid for, or
purchase the Shares, or pay anyone any compensation for soliciting purchases of
the Shares other than Agents.


 


(q)                                 Investment
Company Act.  The Company
will conduct its affairs in such a manner so as to reasonably ensure that neither
it nor the Subsidiary will be or become, at any time prior to the termination
of this Agreement, an “investment company,” as such term is defined in the
Investment Company Act, assuming no change in the Commission’s current
interpretation as to entities that are not considered an investment company.


 


(r)                                    No Offer to
Sell.  Other than an Issuer Free
Writing Prospectus approved in advance by the Company and both Agents in their
capacity as agent hereunder, neither of the Agents nor the Company (including
its agents and representatives, other than Agents in their capacity as such)
will make, use, prepare, authorize, approve or refer to any written
communication (as defined in Rule 405 under the Act), required to be filed
with the Commission, that constitutes an offer to sell or solicitation of an
offer to buy Shares hereunder.


 


(s)                                   Sarbanes-Oxley
Act.  The Company and the Subsidiary
will maintain and keep accurate books and records reflecting their assets and
maintain internal accounting controls in a manner designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles and including those policies and procedures
that (i) pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of the assets
of the Company, (ii) provide reasonable assurance that transactions are
recorded as necessary to permit the preparation of the Company’s consolidated
financial statements in accordance with generally accepted accounting
principals, (iii) that receipts and expenditures of the Company are being
made only in accordance with management’s and the Company’s directors’
authorization, and (iv) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on its financial
statements.  The Company and the
Subsidiary will maintain such controls and other procedures, including, without
limitation, those required by Sections 302 and 906 of the Sarbanes-Oxley Act,
and the applicable regulations thereunder that are designed to ensure that
information required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Commission’s rules and
forms, including, without limitation, controls and procedures designed to
ensure that information required to be disclosed by the Company in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the Company’s management, including its Chief Executive Officer and
principal financial officer, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure and to
ensure that material information relating to the Company or the Subsidiary is
made known to them by others within those entities, particularly during the
period in which such periodic reports are being prepared.


 


21





















 


8.                                      Covenants of
Agents.  Each Agents covenants and
agrees that it is duly registered as a broker-dealer under FINRA, the Exchange
Act and the applicable statutes and regulations of each state in which the
Shares will be offered and sold, except such states in which such Agent is
exempt from registration or such registration is not otherwise required.  Each Agent shall continue, for the term of
this Agreement, to be duly registered as a broker-dealer under FINRA, the
Exchange Act and the applicable statutes and regulations of each state in which
the Shares will be offered and sold, except such states in which such Agent is
exempt from registration or such registration is not otherwise required, during
the term of this Agreement.


 


9.                                      Conditions to
Each Agent’s Obligations.  The
obligations of Agents hereunder with respect to a Placement will be subject to
the continuing accuracy and completeness of the representations and warranties
made by the Company herein, to the due performance by the Company of its
obligations hereunder, to the completion by each Agent of a due diligence
review satisfactory to it in its reasonable judgment, and to the continuing
satisfaction (or waiver by each Agent in its sole discretion) of the following
additional conditions:


 


(a)                                 Registration
Statement Effective.  The
Registration Statement shall have become effective and shall be available for
the (i) resale of all Placement Shares issued to Agents and not yet sold
by Agents and (ii) the sale of all Placement Shares contemplated to be
issued by any Placement Notice.


 


(b)                                 No Material
Notices.  None of the following events
shall have occurred and be continuing: (i) receipt by the Company of any
request for additional information from the Commission or any other federal or
state governmental authority during the period of effectiveness of the
Registration Statement, the response to which would require any post-effective
amendments or supplements to the Registration Statement or the Prospectus; (ii) the
issuance by the Commission or any other federal or state governmental authority
of any stop order suspending the effectiveness of the Registration Statement or
the initiation of any proceedings for that purpose; (iii) receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Placement Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; or (iv) the occurrence of any event that makes any material
statement made in the Registration Statement or the Prospectus or any material
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in the
Registration Statement, related Prospectus or documents so that, in the case of
the Registration Statement, it will not contain any materially untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and, that in
the case of the Prospectus, it will not contain any materially untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.


 


(c)                                  No Misstatement
or Material Omission.  Neither
Agent shall have advised the Company that the Registration Statement or
Prospectus, or any amendment or supplement thereto, contains an untrue
statement of fact that in such Agent’s reasonable opinion is material, or omits
to state a fact that in such Agent’s opinion is material and is required to be
stated therein or is necessary to make the statements therein not misleading.


 


22
















 


(d)                                 Material
Changes.  Except as contemplated in the
Prospectus, or disclosed in the Company’s reports filed with the Commission,
there shall not have been any material adverse change, on a consolidated basis,
in the authorized capital stock of the Company or any Material Adverse Effect,
or any development that could reasonably be expected to cause a Material
Adverse Effect, or a downgrading in or withdrawal of the rating assigned to any
of the Company’s securities (other than asset backed securities) by any rating
organization or a public announcement by any rating organization that it has
under surveillance or review its rating of any of the Company’s securities
(other than asset backed securities), the effect of which, in the case of any
such action by a rating organization described above, in the reasonable
judgment of either Agent (without relieving the Company of any obligation or
liability it may otherwise have), is so material as to make it impracticable or
inadvisable to proceed with the offering of the Placement Shares on the terms
and in the manner contemplated in the Prospectus.


 


(e)                                  Legal Opinion.  Agents shall have received the opinions of
Company Counsel required to be delivered pursuant Section 7(n) on or
before the date on which such delivery of such opinion is required pursuant to Section 7(n).


 


(f)                                   Comfort Letter.  Agents shall have received the Comfort Letter
required to be delivered pursuant Section 7(o) on or before the date
on which such delivery of such opinion is required pursuant to Section 7(o).


 


(g)                                  Representation
Certificate.  Agents
shall have received the certificate required to be delivered pursuant to Section 7(m) on
or before the date on which delivery of such certificate is required pursuant
to Section 7(m).


 


(h)                                 No Suspension.  Trading in the Shares shall not have been
suspended on the Exchange.


 


(i)                                     Other Materials.  On each date on which the Company is required
to deliver a certificate pursuant to Section 7(m), the Company shall have
furnished to Agents such appropriate further information, certificates and
documents as Agents may reasonably request. 
All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof. 
The Company will furnish Agents with such conformed copies of such
opinions, certificates, letters and other documents as Agents shall reasonably
request.


 


(j)                                    Securities Act
Filings Made.  All filings
with the Commission required by Rule 424 under the Securities Act to have
been filed prior to the issuance of any Placement Notice hereunder shall have
been made within the applicable time period prescribed for such filing by Rule 424.


 


(k)                                 Approval for
Listing.  The Placement Shares shall
either have been approved for listing on the Exchange, subject only to notice
of issuance, or the Company shall have filed an application for listing of the
Placement Shares on the Exchange at, or prior to, the issuance of any Placement
Notice.


 


(l)                                     No Termination
Event.  There shall not have occurred
any event that would permit either Agent to terminate this Agreement pursuant
to Section 12(a).


 


23





















 


10.                               Indemnification
and Contribution.


 


(a)                                 Company
Indemnification.  The Company
agrees to indemnify and hold harmless each Agent, the respective directors,
officers, partners, employees and agents of each Agent and each person, if any,
who (i) controls either Agent within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, or (ii) is
controlled by or is under common control with either Agent from and against any
and all losses, claims, liabilities, expenses and damages (including, but not
limited to, any and all reasonable investigative, legal and other expenses
incurred in connection with, and any and all amounts paid in settlement (in
accordance with Section 10(c)) of, any action, suit or proceeding between
any of the indemnified parties and any indemnifying parties or between any
indemnified party and any third party, or otherwise, or any claim asserted), as
and when incurred, to which such Agent, or any such person, may become subject
under the Securities Act, the Exchange Act or other federal or state statutory
law or regulation, at common law or otherwise, insofar as such losses, claims,
liabilities, expenses or damages arise out of or are based, directly or
indirectly, on (i) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or the Prospectus or any
amendment or supplement to the Registration Statement or the Prospectus or in
any Issuer Free Writing Prospectus or in any application or other document
executed by or on behalf of the Company or based on written information
furnished by or on behalf of the Company filed in any jurisdiction in order to
qualify the Shares under the securities laws thereof or filed with the
Commission, (ii) the omission or alleged omission to state in any such
document a material fact required to be stated in it or necessary to make the
statements in it not misleading or (iii) any breach by any of the
indemnifying parties of any of their respective representations, warranties and
agreements contained in this Agreement; provided, however, that this indemnity
agreement shall not apply to the extent that such loss, claim, liability,
expense or damage arises from the sale of the Placement Shares pursuant to this
Agreement and is caused directly or indirectly by an untrue statement or
omission made in reliance on and in conformity with information relating to
either Agent.  This indemnity agreement
will be in addition to any liability that the Company might otherwise have.


 


(b)                                 Agent
Indemnification.  Each Agent
agrees to, severally and not jointly, indemnify and hold harmless the Company
and its directors and each officer of the Company who signed the Registration
Statement, and each person, if any, who (i) controls the Company within
the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act or (ii) is controlled by or is under common control with the
Company against any and all loss, liability, claim, damage and expense
described in the indemnity contained in Section 10(c), as incurred, but
only with respect to untrue statements or omissions, or alleged untrue
statements or omissions, made in the Registration Statement (or any amendments
thereto) or the Prospectus (or any amendment or supplement thereto) in reliance
upon and in conformity with information relating to such Agent and furnished to
the Company by such Agent.


 


(c)                                  Procedure.  Any party that proposes to assert the right
to be indemnified under this Section 10 will, promptly after receipt of
notice of commencement of any action against such party in respect of which a
claim is to be made against an indemnifying party or parties under this Section 10,
notify each such indemnifying party of the commencement of such action,
enclosing a copy of all papers served, but the omission so to notify such
indemnifying party will not relieve the indemnifying party from (i) any
liability that it might have to any 


 


24





















 


indemnified party otherwise than under this Section 10
and (ii) any liability that it may have to any indemnified party under the
foregoing provision of this Section 10 unless, and only to the extent
that, such omission results in the forfeiture of substantive rights or defenses
by the indemnifying party.  If any such
action is brought against any indemnified party and it notifies the
indemnifying party of its commencement, the indemnifying party will be entitled
to participate in and, to the extent that it elects by delivering written
notice to the indemnified party promptly after receiving notice of the
commencement of the action from the indemnified party, jointly with any other
indemnifying party similarly notified, to assume the defense of the action,
with counsel reasonably satisfactory to the indemnified party, and after notice
from the indemnifying party to the indemnified party of its election to assume
the defense, the indemnifying party will not be liable to the indemnified party
for any legal or other expenses except as provided below and except for the
reasonable costs of investigation subsequently incurred by the indemnified
party in connection with the defense. 
The indemnified party will have the right to employ its own counsel in
any such action, but the fees, expenses and other charges of such counsel will
be at the expense of such indemnified party unless (1) the employment of
counsel by the indemnified party has been authorized in writing by the
indemnifying party, (2) the indemnified party has reasonably concluded
(based on advice of counsel) that there may be legal defenses available to it
or other indemnified parties that are different from or in addition to those
available to the indemnifying party, (3) a conflict or potential conflict
exists (based on advice of counsel to the indemnified party) between the
indemnified party and the indemnifying party (in which case the indemnifying
party will not have the right to direct the defense of such action on behalf of
the indemnified party) or (4) the indemnifying party has not in fact
employed counsel to assume the defense of such action within a reasonable time
after receiving notice of the commencement of the action, in each of which
cases the reasonable fees, disbursements and other charges of counsel will be
at the expense of the indemnifying party or parties.  It is understood that the indemnifying party
or parties shall not, in connection with any proceeding or related proceedings
in the same jurisdiction, be liable for the reasonable fees, disbursements and
other charges of more than one separate firm admitted to practice in such
jurisdiction at any one time for all such indemnified party or parties.  All such fees, disbursements and other charges
will be reimbursed by the indemnifying party promptly as they are
incurred.  An indemnifying party will
not, in any event, be liable for any settlement of any action or claim effected
without its written consent.  No
indemnifying party shall, without the prior written consent of each indemnified
party, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action or proceeding relating to the matters
contemplated by this Section 10 (whether or not any indemnified party is a
party thereto), unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising or
that may arise out of such claim, action or proceeding.


 


(d)                                 Contribution.  In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in the
foregoing paragraphs of this Section 10 is applicable in accordance with
its terms but for any reason is held to be unavailable from the Company or either
Agent, the Company and each Agent will contribute to the total losses, claims,
liabilities, expenses and damages (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted, but after
deducting any contribution received by the Company from persons other than
either Agent, such as persons who control the Company within the meaning of the
Securities Act, officers of the Company who signed the Registration 


 


25





















 


Statement and directors of the Company, who
also may be liable for contribution) to which the Company and either Agent may
be subject in such proportion as shall be appropriate to reflect the relative
benefits received by the Company on the one hand and each Agent on the
other.  The relative benefits received by
the Company on the one hand and each Agent on the other hand shall be deemed to
be in the same proportion as the total net proceeds from the sale of the
Placement Shares (before deducting expenses) received by the Company bear to
the total compensation received by Agents (before deducting expenses) from the
sale of Placement Shares on behalf of the Company.  If, but only if, the allocation provided by
the foregoing sentence is not permitted by applicable law, the allocation of
contribution shall be made in such proportion as is appropriate to reflect not
only the relative benefits referred to in the foregoing sentence but also the
relative fault of the Company, on the one hand, and each Agent, on the other,
with respect to the statements or omission that resulted in such loss, claim,
liability, expense or damage, or action in respect thereof, as well as any
other relevant equitable considerations with respect to such offering.  Such relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company or Agents, the
intent of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission.  The Company and Agents agree that it would
not be just and equitable if contributions pursuant to this Section 10(d) were
to be determined by pro rata allocation or by any other method of allocation
that does not take into account the equitable considerations referred to
herein.  The amount paid or payable by an
indemnified party as a result of the loss, claim, liability, expense, or
damage, or action in respect thereof, referred to above in this Section 10(d) shall
be deemed to include, for the purpose of this Section 10(d), any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim to the extent consistent
with Section 10(c) hereof. 
Notwithstanding the foregoing provisions of this Section 10(d),
neither Agent shall be required to contribute any amount in excess of the
commissions received by it under this Agreement and no person found guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) will be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.  For purposes of this Section 10(d), any
person who controls a party to this Agreement within the meaning of the
Securities Act, and any officers, directors, partners, employees or agents of
either Agent, will have the same rights to contribution as that party, and each
officer of the Company who signed the Registration Statement will have the same
rights to contribution as the Company, subject in each case to the provisions
hereof.  Any party entitled to
contribution, promptly after receipt of notice of commencement of any action
against such party in respect of which a claim for contribution may be made
under this Section 10(d), will notify any such party or parties from whom
contribution may be sought, but the omission to so notify will not relieve that
party or parties from whom contribution may be sought from any other obligation
it or they may have under this Section 10(d) except to the extent
that the failure to so notify such other party materially prejudiced the
substantive rights or defenses of the party from whom contribution is
sought.  Except for a settlement entered
into pursuant to the last sentence of Section 10(c) hereof, no party
will be liable for contribution with respect to any action or claim settled
without its written consent if such consent is required pursuant to Section 10(c) hereof.


 


11.                               Representations
and Agreements to Survive Delivery.  The indemnity and contribution agreements
contained in Section 10 of this Agreement and all representations and 


 


26





















 


warranties of the Company herein or in
certificates delivered pursuant hereto shall survive, as of their respective
dates, regardless of (i) any investigation made by or on behalf of either
Agent, any controlling persons, or the Company (or any of their respective
officers, directors or controlling persons), (ii) delivery and acceptance
of the Placement Shares and payment therefor or (iii) any termination of
this Agreement.


 


12.                               Termination.


 


(a)                                 Each Agent
shall have the right by giving notice as hereinafter specified at any time to
terminate this Agreement if (i) any Material Adverse Effect, or any
development that has actually occurred and that is reasonably expected to cause
a Material Adverse Effect has occurred that, in the reasonable judgment of such
Agent, may materially impair the ability of such Agent to sell the Placement
Shares hereunder, (ii) the Company shall have failed, refused or been
unable to perform any agreement on its part to be performed hereunder;
provided, however, in the case of any failure of the Company to deliver (or
cause another person to deliver) any certification, opinion, or letter required
under Sections 7(m), 7(n), or 7(o), such Agent’s right to terminate shall not
arise unless such failure to deliver (or cause to be delivered) continues for
more than thirty days from the date such delivery was required; or (iii) any
other condition of such Agent’s material obligations hereunder is not fulfilled,
or (iv), any suspension or limitation of trading in the Placement Shares or in
securities generally on the Exchange shall have occurred.  Any such termination shall be without
liability of any party to any other party except that the provisions of Section 7(g) (Expenses),
Section 10 (Indemnification), Section 11 (Survival of
Representations), Section 17 (Applicable Law; Consent to Jurisdiction) and
Section 18 (Waiver of Jury Trial) hereof shall remain in full force and
effect notwithstanding such termination. 
If either Agent elects to terminate this Agreement as provided in this Section 12(a),
such Agent shall provide the required notice as specified in Section 13
(Notices).


 


(b)                                 The Company
shall have the right, by giving ten days notice as hereinafter specified to
terminate this Agreement in its sole discretion at any time after the date of
this Agreement.  Any such termination
shall be without liability of any party to any other party except that the
provisions of Section 7(g), Section 10, Section 11, Section 17
and Section 18 hereof shall remain in full force and effect
notwithstanding such termination.


 


(c)                                  Each Agent
shall have the right, by giving ten days notice as hereinafter specified to
terminate this Agreement in its sole discretion at any time after the date of
this Agreement.  Any such termination
shall be without liability of any party to any other party except that the
provisions of Section 7(g), Section 10, Section 11, Section 17
and Section 18 hereof shall remain in full force and effect
notwithstanding such termination.


 


(d)                                 Unless earlier
terminated pursuant to this Section 12, this Agreement shall automatically
terminate upon the issuance and sale of all of the Placement Shares through
Agents on the terms and subject to the conditions set forth herein; provided
that the provisions of Section 7(g), Section 10, Section 11, Section 17
and Section 18 hereof shall remain in full force and effect
notwithstanding such termination.


 


(e)                                  This Agreement
shall remain in full force and effect unless terminated pursuant to Sections
12(a), (b), (c), or (d) above or otherwise by mutual agreement of the
parties; 


 


27





















 


provided, however, that any such termination
by mutual agreement shall in all cases be deemed to provide that Section 7(g),
Section 10, Section 11, Section 17 and Section 18 shall
remain in full force and effect.


 


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


 


13.                               Notices.  All notices or other communications required
or permitted to be given by any party to any other party pursuant to the terms
of this Agreement shall be in writing, unless otherwise specified, and if sent
to Agents, shall be delivered to:


 


McNicoll,
Lewis & Vlak LLC

420 Lexington Ave., Suite 628 

New York, NY 10170

Attention:                                         Patrice McNicoll

Facsimile:                                         646-417-7205


 


and


 


Wm
Smith & Co.


1700
Lincoln Street, Suite 2545


Denver,
CO  80203


Attention:                                         William S. Smith


Facsimile:                                         303-831-0881


 


with a copy to:


 


Holme Roberts & Owen LLP


1700 Lincoln Street, Suite 4100


Denver, CO 
80203 


Attention:                                         Garth
B. Jensen


Facsimile:                                         303-866-0200




and if to the Company, shall
be delivered to:


 


ARYx
Therapeutics, Inc.


6300
Dumbarton Circle


Fremont,
CA 94555


Attention:                                         Paul Goddard, Ph.D.


Facsimile:                                         510-585-2202


 


28

















 


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


 


Cooley
LLP


3175
Hanover Street


Palo
Alto, CA  94304-1130

Attention:                                         Jim F. Fulton


Facsimile:                                         650-849-7400


 


Each party to this Agreement
may change such address for notices by sending to the parties to this Agreement
written notice of a new address for such purpose.  Each such notice or other communication shall
be deemed given (i) when delivered personally or by verifiable facsimile
transmission (with an original to follow) on or before 4:30 p.m., New York
City time, on a Business Day or, if such day is not a Business Day, on the next
succeeding Business Day, (ii) on the next Business Day after timely
delivery to a nationally-recognized overnight courier and (iii) on the
Business Day actually received if deposited in the U.S. mail (certified or
registered mail, return receipt requested, postage prepaid).  For purposes of this Agreement, “Business
Day” shall mean any day on which the Exchange and commercial banks in the
City of New York are open for business.


 


An electronic communication
(“Electronic Notice”) shall be deemed written notice for purposes of
this Section 13 if sent to the electronic mail address specified by the
receiving party under separate cover. 
Electronic Notice shall be deemed received at the time the party sending
Electronic Notice receives verification of receipt by the receiving party.  Any party receiving Electronic Notice may
request and shall be entitled to receive the notice on paper, in a
nonelectronic form (“Nonelectronic Notice”) which shall be sent to the
requesting party within ten (10) days of receipt of the written request
for Nonelectronic Notice.


 


14.                               Successors and
Assigns.  This Agreement shall inure to
the benefit of and be binding upon the Company and each Agent and their
respective successors and the affiliates, controlling persons, officers and
directors referred to in Section 10 hereof.  References to any of the parties contained in
this Agreement shall be deemed to include the successors and permitted assigns
of such party.  Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and permitted assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement. 
Neither party may assign its rights or obligations under this Agreement
without the prior written consent of the other party; provided, however, that
each Agent may assign its rights and obligations hereunder to an affiliate
thereof without obtaining the Company’s consent.


 


15.                               Adjustments for
Stock Splits.  The parties
acknowledge and agree that all share-related numbers contained in this
Agreement shall be adjusted to take into account any stock split, stock
dividend or similar event effected with respect to the Shares.


 


16.                               Entire
Agreement; Amendment; Severability.  This Agreement (including all schedules and
exhibits attached hereto and Placement Notices issued pursuant hereto)
constitutes the entire agreement and supersedes all other prior and
contemporaneous agreements and undertakings, both written and oral, among the
parties hereto with regard to the subject matter hereof.  Neither this Agreement nor any term hereof
may be amended except pursuant to a written instrument executed by the Company
and each Agent.  In the event that any
one or more 


 


29





















 


of the provisions contained herein, or the
application thereof in any circumstance, is held invalid, illegal or
unenforceable as written by a court of competent jurisdiction, then such
provision shall be given full force and effect to the fullest possible extent
that it is valid, legal and enforceable, and the remainder of the terms and
provisions herein shall be construed as if such invalid, illegal or
unenforceable term or provision was not contained herein, but only to the
extent that giving effect to such provision and the remainder of the terms and
provisions hereof shall be in accordance with the intent of the parties as
reflected in this Agreement.


 


17.                               Applicable Law;
Consent to Jurisdiction.  This
Agreement shall be governed by, and construed in accordance with, the internal
laws of the State of New York without regard to the principles of conflicts of
laws.  Each party hereby irrevocably
submits to the non-exclusive jurisdiction of the state and federal courts
sitting in New York, New York, for the adjudication of any dispute hereunder or
in connection with any transaction contemplated hereby, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper.  Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit,
action or proceeding by mailing a copy thereof (certified or registered mail,
return receipt requested) to such party at the address in effect for notices to
it under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to
limit in any way any right to serve process in any manner permitted by law.


 


18.                               Waiver of Jury
Trial.  The Company and each Agent
each hereby irrevocably waives any right it may have to a trial by jury in
respect of any claim based upon or arising out of this agreement or any
transaction contemplated hereby.


 


19.                               Counterparts.  This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.  Delivery of an executed Agreement by one party
to the other may be made by facsimile transmission.


 


[Remainder of Page Intentionally
Blank]


 


30

















 


If the foregoing correctly sets forth the
understanding between the Company, MLV and Wm Smith, please so indicate in the
space provided below for that purpose, whereupon this letter shall constitute a
binding agreement between the Company, MLV and Wm Smith.


 


	
   

  	
  Very
  truly yours,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ARYX THERAPEUTICS, INC.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Paul Goddard

  
	
   

  	
   

  	
  Name:

  	
  Paul
  Goddard, Ph.D.

  
	
   

  	
   

  	
  Title:
  

  	
  Chairman
  of the Board and 

  Chief
  Executive Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  ACCEPTED
  as of the date

  first-above written:

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  McNICOLL, LEWIS & VLAK LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/  Patrice McNicoll

  
	
   

  	
   

  	
  Name:  Patrice McNicoll

  
	
   

  	
   

  	
  Title:  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  WM SMITH & CO.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/  William S. Smith

  
	
   

  	
   

  	
  Name:  William S. Smith

  
	
   

  	
   

  	
  Title:  President

  



 
















 


SCHEDULE 1


 






 


FORM OF PLACEMENT
NOTICE


 






 


From:                                                                  ARYx
Therapeutics, Inc.


 


To:                                                                              McNicoll, Lewis &
Vlak LLC

                                                                                                Attention:  Patrice McNicoll


 


Subject:     At Market
Issuance—Placement Notice


 


Gentlemen:


 


Pursuant to the terms and subject to the conditions
contained in the At Market Issuance Sales Agreement between ARYx Therapeutics, Inc.,
a Delaware corporation (the “Company”), McNicoll, Lewis & Vlak
LLC, a Delaware limited liability company (“MLV”), and Wm Smith &
Co., a Colorado corporation (“Wm Smith”), dated May 20, 2010, the
Company hereby requests that MLV and Wm Smith sell up to
                        
shares of the Company’s common stock, par value $0.001 per share, at a minimum
market price of
$              
per share, during the time period beginning [month, day, time] and ending
[month, day, time].


 


The aggregate market value of securities sold by or
on behalf of the Company pursuant to Instruction I.B.6. of Form S-3 during
the 12 calendar month-period immediately prior to the sale contemplated by the
previous paragraph, together with the aggregate market value of securities to
be sold in the sale contemplated by the previous paragraph, will not exceed
one-third of the aggregate market value of the voting and non-voting common
equity held by non-affiliates of the Company, as measured immediately prior to
the sale contemplated by the previous paragraph.


 

















 


SCHEDULE 2


 






 


Compensation


 






 


The Company shall pay to each Agent in cash, upon
each sale of Shares pursuant to this Agreement (no matter which Agent actually
sold such Shares), an amount equal to 1.5% of the gross proceeds from each sale
of Shares (totaling 3.0% for both Agents).


 

















 


SCHEDULE 3


 


PAUL GODDARD, PH.D.


Chairman of the Board and Chief Executive Officer


 


JOHN VARIAN


Chief Operating Officer and Chief Financial Officer


 


DAVID NAGLER


Vice President, Corporate Affairs and Secretary


 


JASON BARKER


Senior Finance Director, Chief Accounting Officer


 

















 


EXHIBIT 7(m)


 


Form of
Representation Date Certificate


 


 


This Officers Certificate
(this “Certificate”) is executed and delivered in connection with Section 7(m) of
the At Market Issuance Sales Agreement (the “Agreement”), dated May 20,
2010, and entered into between ARYx Therapeutics, Inc. (the “Company”),
McNicoll, Lewis & Vlak LLC and Wm Smith & Co.  All capitalized terms used but not defined
herein shall have the meanings given to such terms in the Agreement


 


The undersigned, a duly
appointed and authorized officer of the Company, having made all necessary
inquiries to establish the accuracy of the statements below and having been
authorized by the Company to execute this certificate, hereby certifies as
follows:


 


                                                1.                                       As of the date
of this Certificate, (i) the Registration Statement does not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements therein not
misleading and (ii) neither the Prospectus nor the Pricing Disclosure
Materials contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading and (iii) no event has occurred as a result of which it is
necessary to amend or supplement the Prospectus in order to make the statements
therein not untrue or misleading.


 


                                                2.                                       Each of the
representations and warranties of the Company contained in the Agreement were,
when originally made, and are, as of the date of this Certificate, true and
correct in all material respects.


 


                                                3.                                       Each of the
covenants required to be performed by the Company in the Agreement on or prior
to the date of the Agreement, this Representation Date, and each such other
date as set forth in the Agreement, has been duly, timely and fully performed
in all material respects and each condition required to be complied with by the
Company on or prior to the date of the Agreement, this Representation Date, and
each such other date as set forth in the Agreement or in the Waivers has been
duly, timely and fully complied with in all material respects.


 


                                                4.                                       Subsequent to
the date of the most recent financial statements in the Prospectus, there has
been no material adverse change.


 


                                                5.                                       No stop order
suspending the effectiveness of the Registration Statement or of any part
thereof has been issued, and no proceedings for that purpose have been
instituted or are pending or threatened by any securities or other governmental
authority (including, without limitation, the Commission).


 


                                                6.                                       No order
suspending the effectiveness of the Registration Statement or the qualification
or registration of the Shares under the securities or Blue Sky laws of any
jurisdiction are in effect and no proceeding for such purpose is pending
before, or threatened, to 


 


35

















 


the Company’s knowledge or
in writing by, any securities or other governmental authority (including,
without limitation, the Commission).


 


                                                The undersigned
has executed this Officer’s Certificate as of the date first written above.


 


 


	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  



 


36