exv10w1






Exhibit 10.1




STANDBY EQUITY DISTRIBUTION AGREEMENT




     THIS AGREEMENT dated as of the 30th day of January 2009 (this “Agreement”) between YA
GLOBAL MASTER SPV LTD., a Cayman Islands company (the “Investor”), and RXI PHARMACEUTICALS
CORPORATION, a corporation organized and existing under the laws of the State of Delaware (the
“Company”).



     WHEREAS, the parties desire that, upon the terms and subject to the conditions contained
herein, the Company shall issue and sell to the Investor, from time to time as provided herein, and
the Investor shall purchase from the Company up to $25,000,000 of the Company’s common stock, par
value $0.0001 per share (the “Common Stock”); and



     WHEREAS, such investments will be made in reliance upon the provisions of Regulation D
(“Regulation D”) of the Securities Act of 1933, as amended, and the regulations promulgated
thereunder (the “Securities Act”), and or upon such other exemption from the registration
requirements of the Securities Act as may be available with respect to any or all of the
investments to be made hereunder.



     NOW, THEREFORE, the parties hereto agree as follows:



Article I. Certain Definitions



Section 1.01 “Advance” shall mean the portion of the Commitment Amount requested by the
Company in the Advance Notice.



Section 1.02 “Advance Date” shall mean the 1st Trading Day after expiration of
the applicable Pricing Period for each Advance.



Section 1.03 “Advance Notice” shall mean a written notice in the form of Exhibit A
attached hereto to the Investor executed by an officer of the Company and setting forth the Advance
amount that the Company requests from the Investor.



Section 1.04 “Advance Notice Date” shall mean each date the Company delivers (in accordance
with of this Agreement) to the Investor an Advance Notice requiring the Investor to advance funds
to the Company, subject to the terms of this Agreement. No Advance Notice Date shall be less than
5 Trading Days after the prior Advance Notice Date.



Section 1.05 “Affiliate” shall have the meaning set forth in Section 3.09.



Section 1.06 “By-laws” shall have the meaning set forth in Section 4.03.



Section 1.07 “Certificate of Incorporation” shall have the meaning set forth in Section 4.03.



Section 1.08 “Closing” shall mean one of the closings of a purchase and sale of Common
Stock pursuant to .




 









 







Section 1.09 “Commitment Amount” shall mean the aggregate amount of up to $25,000,000 which
the Investor has agreed to provide to the Company in order to purchase the Company’s Common Stock
pursuant to the terms and conditions of this Agreement; provided that, the Company shall not effect
any sales under this Agreement and the Investor shall not have the obligation to purchase shares of
Common Stock under this Agreement to the extent that after giving effect to such purchase and sale
the aggregate number of shares of Common Stock issued under this Agreement would exceed 2,752,646
shares of Common Stock (which is less than 20% of the 13,763,231 outstanding shares of Common Stock
as of the date of this Agreement) except that such limitation shall not apply in the event that
the Company (i) obtains the approval of its stockholders as required by the applicable rules of the
Principal Market for the Common Stock for issuances of Common Stock in excess of such amount or
(ii) obtains a written opinion from outside counsel to the Company that such approval is not
required, which opinion shall be reasonably satisfactory to the Investor.



Section 1.10 “Commitment Period” shall mean the period commencing on the Effective Date,
and expiring upon the termination of this Agreement in accordance with .



Section 1.11 “Common Stock” shall have the meaning set forth in the recitals of this
Agreement.



Section 1.12 “Company Indemnitees” shall have the meaning set forth in Section 5.01(b).



Section 1.13 “Condition Satisfaction Date” shall have the meaning set forth in .



Section 1.14 “Consolidation Event” shall have the meaning set forth in Section 6.07.



Section 1.15 “Damages” shall mean any loss, claim, damage, liability, costs and expenses
(including, without limitation, reasonable attorney’s fees and disbursements and costs and expenses
of expert witnesses and investigation).



Section 1.16 “Effective Date” shall mean the date on which the SEC first declares effective
a Registration Statement registering the resale of the Shares of Common Stock that, but for such
Registration Statement, would be Registrable Securities, as set forth in .



Section 1.17 “Environmental Laws” shall have the meaning set forth in Section 4.11.



Section 1.18 “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.



Section 1.19 “Excluded Day” shall have the meaning set forth in Section 2.02(c).



Section 1.20 “Indemnified Liabilities” shall have the meaning set forth in Section 5.01(a).



Section 1.21 “Investor’s Shares” shall have the meaning set forth in Section 12.04(b).



Section 1.22 “Investor Indemnitees” shall have the meaning set forth in Section 5.01(a).




 









 







Section 1.23 “Material Adverse Effect” shall mean any condition, circumstance, or situation
that may result in, or reasonably be expected to result in (i) a material adverse effect on the
legality, validity or enforceability of this Agreement or the transactions contemplated herein,
(ii) a material adverse effect on the results of operations, assets, business or condition
(financial or otherwise) of the Company, taken as a whole, or (iii) a material adverse effect on
the Company’s ability to perform in any material respect on a timely basis its obligations under
this Agreement, provided, that none of the following shall constitute a Material Adverse
Effect for the purposes of subsections (i) and (ii) of this definition: (a) any change in
conditions in the United States, foreign or global economy or capital or financial markets
generally, including any change in interest or exchange rates, (b) any change in conditions
(including any change in general legal, regulatory, political, economic or business conditions) in
the industry in which the Company conducts business, or (c) to the extent they do not have a
materially disproportionate effect on the Company taken as a whole, any natural disaster or
calamity, or act of terrorism, sabotage, military action or war or any escalation or worsening
thereof (in each case, threatened, pending or declared).



Section 1.24 “Market Price” shall mean the lowest daily VWAP of the Common Stock during the
relevant Pricing Period.



Section 1.25 “Maximum Advance Amount” shall be $500,000 per Advance Notice.



Section 1.26 “Minimum Acceptable Price” shall have the meaning set forth in Section
2.02(c).



Section 1.27 “Ownership Limitation” shall have the meaning set forth in Section 2.02(a).



Section 1.28 “Person” shall mean an individual, a corporation, a partnership, an
association, a trust or other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.



Section 1.29 “Pricing Period” shall mean the 5 consecutive Trading Days after the Advance
Notice Date subject to any reduction pursuant to Section 2.2(c).



Section 1.30 “Principal Market” shall mean the Nasdaq Global Select Market, the Nasdaq
Global Market, the Nasdaq Capital Market, the American Stock Exchange, the OTC Bulletin Board or
the New York Stock Exchange, whichever is at the time the principal trading exchange or market for
the Common Stock.



Section 1.31 “Purchase Price” shall be set at 95% of the Market Price during the Pricing
Period.



Section 1.32 “Registrable Securities” shall mean (i) the shares of Common Stock that are or
may be purchased by the Investor hereunder, (ii) the Investor’s Shares, and (iii) any securities
issued or issuable with respect to any of the foregoing by way of exchange, stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger, consolidation or
other reorganization or otherwise. As to any particular Registrable Securities, once issued such
securities shall cease to be Registrable Securities when (a) the Registration Statement has been
declared effective by the SEC and such Registrable Securities have been disposed of pursuant to the
Registration Statement, (b) such Registrable Securities have been sold under


 









 






circumstances under which all of the applicable conditions of Rule 144 (or any similar provision
then in force) under the Securities Act (“Rule 144”) are met, or (c) in the opinion of counsel to
the Company such Registrable Securities may permanently be sold without registration and without
any time, volume or manner limitations pursuant to Rule 144.



Section 1.33 “Registration Rights Agreement” shall mean the Registration Rights Agreement
dated the date hereof, regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company and the Investor.



Section 1.34 “Registration Statement” shall mean a registration statement on Form S-1 or
Form S-3 (or on such other form promulgated by the SEC for which the Company then qualifies and
which counsel for the Company shall deem appropriate, and which form shall be available for the
resale of the Registrable Securities to be registered thereunder in accordance with the provisions
of this Agreement and the Registration Rights Agreement, and in accordance with the intended method
of distribution of such securities), for the registration of the resale by the Investor of the
Registrable Securities under the Securities Act.



Section 1.35 “Regulation D” shall have the meaning set forth in the recitals of this
Agreement.



Section 1.36 “SEC” shall have the meaning set forth in the recitals of this Agreement.



Section 1.37 “SEC Documents” shall have the meaning set forth in Section 4.05.



Section 1.38 “Securities Act” shall have the meaning set forth in the recitals of this
Agreement.



Section 1.39 “Settlement Document” shall have the meaning set forth in Section 2.03(a).



Section 1.40 “Shares” shall mean the shares of Common Stock to be issued from time to time
hereunder pursuant to Advances and the Investor’s Shares.



Section 1.41 “Trading Day” shall mean any day during which the Principal Market shall be
open for business.



Section 1.42 “VWAP” means, for any Trading Day, the daily dollar volume-weighted average
price for such security as reported by Bloomberg, LP through its “Historical Price Table Screen
(HP)” with Market: Weighted Ave function selected, or, if no dollar volume-weighted average price
is reported for such security by Bloomberg, LP, then the average of the highest closing bid price
and the lowest closing ask price of any of the market makers for such security.




Article II. Advances



Section 2.01 Advances. Subject to the terms and conditions of this Agreement (including,
without limitation, the provisions of Article VII hereof), the Company, at its sole and exclusive
option, may issue and sell to the Investor, and the Investor shall purchase from the Company,
shares of the Company’s Common Stock by the delivery, in the Company’s sole discretion, of Advance
Notices.



Section 2.02 Mechanics.




 









 









	 	(a)	 	Advance Notice. At any time during the Commitment Period, the Company may
require the Investor to purchase shares of Common Stock by delivering an Advance Notice to
the Investor, subject to the conditions set forth in ; provided, however, that (i) the
amount for each Advance as designated by the Company in the applicable Advance Notice shall
not be more than the Maximum Advance Amount, (ii) the aggregate amount of the Advances
pursuant to this Agreement shall not exceed the Commitment Amount, and (iii) in no event
shall the number of shares of Common Stock issuable to the Investor pursuant to an Advance
cause the aggregate number of shares of Common Stock beneficially owned (as calculated
pursuant to Section 13(d) of the Exchange Act) by the Investor and its affiliates to exceed
9.99% of the then outstanding Common Stock (the “Ownership Limitation”). There
shall be a minimum of 5 Trading Days between each Advance Notice Date. Notwithstanding any
other provision in this Agreement, the Company acknowledges and agrees that upon receipt of
an Advance Notice, the Investor may sell shares that it is unconditionally obligated to
purchase under such Advance Notice prior to taking possession of such shares.
	 
	 	(b)	 	Date of Delivery of Advance Notice. Advance Notices shall be delivered in
accordance with the instructions set forth on the bottom of Exhibit A. An Advance Notice
shall be deemed delivered on (i) the Trading Day it is received by facsimile or otherwise
by the Investor if such notice is received prior to 5:00 pm Eastern Time, or (ii) the
immediately succeeding Trading Day if it is received by facsimile or otherwise after 5:00
pm Eastern Time on a Trading Day or at any time on a day which is not a Trading Day. No
Advance Notice may be deemed delivered on a day that is not a Trading Day.
	 
	 	(c)	 	Minimum Acceptable Price. For the purposes of this Agreement, the term
“Minimum Acceptable Price” shall mean, in connection with each Advance Notice
delivered by the Company, eighty five percent (85%) of the VWAP on the Trading Day
immediately preceding the Advance Notice Date for such Advance Notice. Upon the issuance
by the Company of an Advance Notice, the Minimum Acceptable Price with respect to that
Advance Notice shall be determined and (i) the Company shall automatically reduce the
amount of the Advance set forth in such Advance Notice by twenty percent (20%) for each
Trading Day during the Pricing Period that the VWAP of the Common Stock is below the
Minimum Acceptable Price (each such day, an “Excluded Day”), and (ii) each Excluded
Day shall be excluded from the Pricing Period for purposes of determining the Market Price.
The number of shares of Common Stock to be delivered to the Investor at the Closing shall
correspond with the Advance Notice amount as reduced pursuant to clause (i) above, except
that the Company shall be obligated to sell, and the Investor shall be obligated to
purchase any shares of Common Stock corresponding to such Advance Notice that have been
sold by the Investor on an Excluded Day and such shares will be purchased at a price equal
to such Minimum Acceptable Price.
	 
	 	(d)	 	Ownership Limitation. In connection with each Advance Notice delivered by the
Company, any portion of an Advance that would cause the Investor to exceed the Ownership
Limitation shall automatically be withdrawn. From time to time, and upon request of the
Company, the Investor shall provide a statement to the Company detailing the Investor’s
beneficial ownership of the Common Stock of the Company upon the date of such request.




 









 










Section 2.03 Closings. Each Closing shall take place as soon as practicable after each
Advance Date in accordance with the procedures set forth below.  In connection with each Closing
the Company and the Investor shall fulfill each of its obligations as set forth below:





	 	(a)	 	Within 1 Trading Day after each Advance Date, the Investor shall deliver to the Company
a written document (each a “Settlement Document”) setting forth the Ownership
Limitation, the amount of the Advance (taking into account any adjustments pursuant to
Sections 2.02(c) and 2.02(d)), the Purchase Price, the number of shares of Common Stock to
be issued and subscribed for (which in no event will be greater than the Ownership
Limitation), and a report by Bloomberg, LP indicating the VWAP for each of the Trading Days
during the Pricing Period, in each case taking into account the terms and conditions of
this Agreement.
	 
	 	(b)	 	Upon receipt of the Settlement Document with respect to each Advance, the Company shall
(i) immediately (and in any event not later than 1 Trading Day after receipt) review and
either approve such Settlement Document so that it is deemed final, or provide any
corrections to the Settlement Document and return it to the Investor and (ii) along with
the return of each Settlement Document confirm that it has obtained all material permits
and qualifications required for the issuance and transfer of the shares of Common Stock
applicable to such Advance, or shall have the availability of exemptions therefrom and that
the sale and issuance of such shares of Common Stock shall be legally permitted by all laws
and regulations to which the Company is subject.
	 
	 	(c)	 	Upon receipt of any revised Settlement Document pursuant to above, the Investor shall
immediately (and in any event not later than 1 Trading Day after receipt) review and either
approve such Settlement Document so that it is deemed final, or if the Investor disputes
any changes that the Company has made to such revised Settlement Document, then the
Investor and the Company agree to work together to resolve any such disputes by the close
of business on the next Trading Day.
	 
	 	(d)	 	Promptly after the Settlement Document with respect to each Advance is deemed final
(and, in any event, not later than six Trading Days after the Advance Date), the Company
will, or will cause its transfer agent to, electronically transfer such number of shares of
Common Stock registered in the name of the Investor as shall equal (x) the amount of the
Advance specified in such Advance Notice (as may be reduced according to the terms of this
Agreement), divided by (y) the Purchase Price by crediting the Investor’s account or its
designee’s account at the Depository Trust Company through its Deposit Withdrawal Agent
Commission 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 tradable, registered shares in good
deliverable form) against payment of the Purchase Price in same day funds to an account
designated by the Company. No fractional shares shall be issued, and any fractional
amounts shall be rounded to the next higher whole number of shares. The certificates
evidencing such shares of Common Stock delivered pursuant hereto shall be free of
restrictive legends.
	 
	 	(e)	 	On or prior to the Advance Date, each of the Company and the Investor shall deliver to
the other all documents, instruments and writings required to be delivered by either of




 









 






	 	 	 	them pursuant to this Agreement in order to implement and effect the transactions
contemplated herein.




Section 2.04 Hardship. In the event the Investor sells shares of the Company’s Common
Stock after receipt of an Advance Notice and the Company fails to perform its obligations as
mandated in Section 2.03, the Company agrees that in addition to and in no way limiting the rights
and obligations set forth in Section 5.01 hereto and in addition to any other remedy to which the
Investor is entitled at law or in equity, including, without limitation, specific performance, it
will hold the Investor 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 and acknowledges that irreparable damage would occur in the event that any such default.
It is accordingly agreed that Investor shall be entitled to an injunction or injunctions to prevent
such breaches of this Agreement and to specifically enforce, without the posting of a bond or other
security, the terms and provisions of this Agreement.




Article III. Representations and Warranties of Investor




     Investor hereby represents and warrants to, and agrees with, the Company that the following
are true and correct as of the date hereof and as of each Advance Date:


Section 3.01 Organization and Authorization. The Investor is duly incorporated or
organized and validly existing in the jurisdiction of its incorporation or organization and has all
requisite power and authority to purchase and hold the securities issuable hereunder. The decision
to invest and the execution and delivery of this Agreement by such Investor, the performance by
such Investor of its obligations hereunder and the consummation by such Investor of the
transactions contemplated hereby have been duly authorized and requires no other proceedings on the
part of the Investor. The undersigned has the right, power and authority to execute and deliver
this Agreement and all other instruments (including, without limitations, the Registration Rights
Agreement), on behalf of the Investor. This Agreement has been duly executed and delivered by the
Investor and, assuming the execution and delivery hereof and acceptance thereof by the Company,
will constitute the legal, valid and binding obligations of the Investor, enforceable against the
Investor in accordance with its terms.



Section 3.02 Evaluation of Risks. The Investor has such knowledge and experience in
financial, tax and business matters as to be capable of evaluating the merits and risks of, and
bearing the economic risks entailed by, an investment in the Company and of protecting its
interests in connection with this transaction. It recognizes that its investment in the Company
involves a high degree of risk.



Section 3.03 No Legal Advice From the Company. The Investor acknowledges that it had the
opportunity to review this Agreement and the transactions contemplated by this Agreement with his
or its own legal counsel and investment and tax advisors. The Investor is relying solely on such
counsel and advisors and not on any statements or representations of the Company or any of its
representatives or agents for legal, tax or investment advice with respect to this investment, the
transactions contemplated by this Agreement or the securities laws of any jurisdiction.




 









 







Section 3.04 Investment Purpose. The securities are being purchased by the Investor for its
own account, and for investment purposes. The Investor agrees not to assign or in any way transfer
the Investor’s rights to the securities or any interest therein and acknowledges that the Company
will not recognize any purported assignment or transfer except in accordance with applicable
Federal and state securities laws. No other person has or will have a direct or indirect
beneficial interest in the securities. The Investor agrees not to sell, hypothecate or otherwise
transfer the Investor’s securities unless the securities are registered under Federal and
applicable state securities laws or unless, in the opinion of counsel satisfactory to the Company,
an exemption from such laws is available.



Section 3.05 Accredited Investor. The Investor is an “Accredited Investor” as that
term is defined in Rule 501(a)(3) of Regulation D of the Securities Act.



Section 3.06 Information. The Investor and its advisors (and its counsel), if any, have
been furnished with all materials relating to the business, finances and operations of the Company
and information it deemed material to making an informed investment decision. The Investor and its
advisors, if any, have been afforded the opportunity to ask questions of the Company and its
management. Neither such inquiries nor any other due diligence investigations conducted by such
Investor or its advisors, if any, or its representatives shall modify, amend or affect the
Investor’s right to rely on the Company’s representations and warranties contained in this
Agreement. The Investor understands that its investment involves a high degree of risk. The
Investor is in a position regarding the Company, which, based upon employment, family relationship
or economic bargaining power, enabled and enables such Investor to obtain information from the
Company in order to evaluate the merits and risks of this investment. The Investor has sought such
accounting, legal and tax advice, as it has considered necessary to make an informed investment
decision with respect to this transaction.



Section 3.07 Receipt of Documents. The Investor and its counsel have received and read in
their entirety: (i) this Agreement and the Exhibits annexed hereto; (ii) all due diligence and
other information requested by them to verify the accuracy and completeness of such
representations, warranties and covenants; (iii) the Company’s Form 10-K for the year ended
December 31, 2007 and Form 10-Q for the period ended September 30, 2008; and (iv) answers to all
questions the Investor submitted to the Company regarding an investment in the Company; and the
Investor has relied on the information contained therein and has not been furnished any other
documents, literature, memorandum or prospectus.



Section 3.08 No General Solicitation. Neither the Company, nor any of its affiliates, nor
any person acting on its or their behalf, has engaged in any form of general solicitation or
general advertising (within the meaning of Regulation D under the Securities Act) in connection
with the offer or sale of the shares of Common Stock offered hereby.



Section 3.09 Not an Affiliate. The Investor is not an officer, director or a person that
directly, or indirectly through one or more intermediaries, controls or is controlled by, or is
under common control with the Company or any “Affiliate” of the Company (as that term is
defined in Rule 405 of the Securities Act).




 









 







Section 3.10 Trading Activities. The Investor’s trading activities with respect to the
Company’s Common Stock shall be in compliance with all applicable federal and state securities
laws, rules and regulations and the rules and regulations of the Principal Market on which the
Company’s Common Stock is listed or traded. Neither the Investor nor its affiliates has an open
short position in the Common Stock of the Company, the Investor agrees that it shall not, and that
it will cause its affiliates not to, engage in any short sales of or hedging transactions with
respect to the Common Stock.




Article IV. Representations and Warranties of the Company




     Except as stated below, on the disclosure schedules attached hereto or in the SEC Documents
(as defined herein), the Company hereby represents and warrants to, the Investor that the following
are true and correct as of the date hereof:


Section 4.01 Organization and Qualification. The Company is duly incorporated or organized
and validly existing in the jurisdiction of its incorporation or organization and has all requisite
corporate power to own its properties and to carry on its business as now being conducted. The
Company is duly qualified as a foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in good standing would
not have a Material Adverse Effect on the Company taken as a whole.



Section 4.02 Authorization, Enforcement, Compliance with Other Instruments. (i) The
Company has the requisite corporate power and authority to enter into and perform this Agreement,
the Registration Rights Agreement and any related agreements, in accordance with the terms hereof
and thereof, (ii) the execution and delivery of this Agreement, the Registration Rights Agreement
and any related agreements by the Company and the consummation by it of the transactions
contemplated hereby and thereby, have been duly authorized by the Company’s Board of Directors and
no further consent or authorization is required by the Company, its Board of Directors or its
stockholders, (iii) this Agreement, the Registration Rights Agreement and any related agreements
have been duly executed and delivered by the Company, (iv) this Agreement, the Registration Rights
Agreement and assuming the execution and delivery thereof and acceptance by the Investor and any
related agreements constitute the valid and binding obligations of the Company enforceable against
the Company in accordance with their terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
or similar laws relating to, or affecting generally, the enforcement of creditors’ rights and
remedies.



Section 4.03 Capitalization. The authorized capital stock of the Company consists of
50,000,000 shares of Common Stock and 5,000,000shares of Preferred Stock, (“Preferred
Stock”), of which 13,763,231 shares of Common Stock and no shares of Preferred Stock are issued
and outstanding. All of such outstanding shares have been validly issued and are fully paid and
nonassessable. Except as disclosed in the SEC Documents, no shares of Common Stock are subject to
preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by
the Company. Except as disclosed in the SEC Documents or on Schedule 4.03, as of the date hereof,
(i) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments
of any character whatsoever relating to, or securities or rights


 









 






convertible into, any shares of capital stock of the Company, or contracts, commitments,
understandings or arrangements by which the Company is or may become bound to issue additional
shares of capital stock of the Company or options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights convertible into,
any shares of capital stock of the Company, (ii) there are no outstanding debt securities
(iii) there are no outstanding registration statements other than on Form S-8 and (iv) there are no
agreements or arrangements under which the Company is obligated to register the sale of any of
their securities under the Securities Act (except pursuant to the Registration Rights Agreement).
Except as disclosed on Schedule 4.03, there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by this Agreement or any related
agreement or the consummation of the transactions described herein or therein. The Company has
furnished or made available to the Investor true and correct copies of the Company’s Certificate of
Incorporation, as amended and as in effect on the date hereof (the “Certificate of
Incorporation”), and the Company’s By-laws, as in effect on the date hereof (the
“By-laws”), and the terms of all securities convertible into or exercisable for Common
Stock and the material rights of the holders thereof in respect thereto.



Section 4.04 No Conflict. The execution, delivery and performance of this Agreement by the
Company and the consummation by the Company of the transactions contemplated hereby will not (i)
result in a violation of the Certificate of Incorporation, any certificate of designations of any
outstanding series of preferred stock of the Company or By-laws or (ii) conflict with or constitute
a default (or an event which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company is a party, or result in a violation of any
law, rule, regulation, order, judgment or decree (including federal and state securities laws and
regulations and the rules and regulations of the Principal Market on which the Common Stock is
quoted) applicable to the Company or by which any material property or asset of the Company is
bound or affected and which would cause a Material Adverse Effect. The business of the Company is
not being conducted in violation of any material law, ordinance, regulation of any governmental
entity. Except as specifically contemplated by this Agreement and as required under the Securities
Act and any applicable state securities laws, the Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its obligations under or contemplated
by this Agreement or the Registration Rights Agreement in accordance with the terms hereof or
thereof. All consents, authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to
the date hereof. The Company is unaware of any fact or circumstance which might give rise to any
of the foregoing.



Section 4.05 SEC Documents; Financial Statements. The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it with the SEC under the
Securities Exchange Act for the two years preceding the date hereof (or such shorter period as the
Company was required by law or regulation to file such material) (all of the foregoing filed prior
to the date hereof or amended after the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents incorporated by reference therein, being hereinafter
referred to as the “SEC Documents”) on timely basis or has received a valid extension of
such time of filing and has filed any such SEC Document prior to the expiration of


 









 






any such extension. The Company has delivered to the Investors or their representatives, or made
available through the SEC’s website at http://www.sec.gov, true and complete copies of the SEC
Documents. As of their respective dates, the SEC Documents complied in all material respects with
the requirements of the Exchange Act and the rules and regulations of the SEC promulgated
thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were
filed with the SEC, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC Documents complied as
to form in all material respects with applicable accounting requirements and the published rules
and regulations of the SEC with respect thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently applied, during the periods
involved (except (i) as may be otherwise indicated in such financial statements or the notes
thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all material respects
the financial position of the Company as of the dates thereof and the results of its operations and
cash flows for the periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). No other information provided by or on behalf of the Company to the
Investors which is not included in the SEC Documents contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make the statements therein, in the
light of the circumstance under which they are or were made and not misleading.



Section 4.06 10b-5. The SEC Documents do not include any untrue statements of material
fact, nor do they omit to state any material fact required to be stated therein necessary to make
the statements made, in light of the circumstances under which they were made, not misleading at
the time that they were filed with the SEC.



Section 4.07 No Default. Except as disclosed in the SEC Documents, the Company is not in
default in the performance or observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust or other material instrument or
agreement to which it is a party or by which it is or its property is bound and neither the
execution, nor the delivery by the Company, nor the performance by the Company of its obligations
under this Agreement or any of the exhibits or attachments hereto will conflict with or result in
the breach or violation of any of the terms or provisions of, or constitute a default or result in
the creation or imposition of any lien or charge on any assets or properties of the Company under
its Certificate of Incorporation, By-Laws, any material indenture, mortgage, deed of trust or other
material agreement applicable to the Company or instrument to which the Company is a party or by
which it is bound, or any statute, or any decree, judgment, order, rules or regulation of any court
or governmental agency or body having jurisdiction over the Company or its properties, in each case
which default, lien or charge is likely to cause a Material Adverse Effect.



Section 4.08 Absence of Events of Default. Except for matters described in the SEC
Documents and/or this Agreement, no Event of Default, as defined in the respective agreement to
which the Company is a party, and no event which, with the giving of notice or the passage of


 









 






time or both, would become an Event of Default (as so defined), has occurred and is continuing,
which would have a Material Adverse Effect.



Section 4.09 Intellectual Property Rights. The Company owns or possesses adequate rights
or licenses to use all material trademarks, trade names, service marks, service mark registrations,
service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective businesses as now
conducted. The Company does not have any knowledge of any infringement by the Company of
trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service
names, service marks, service mark registrations, trade secret or other similar rights of others,
and, to the knowledge of the Company, there is no claim, action or proceeding being made or brought
against, or to the Company’s knowledge, being threatened against, the Company regarding trademark,
trade name, patents, patent rights, invention, copyright, license, service names, service marks,
service mark registrations, trade secret or other infringement; and the Company is unaware of any
facts or circumstances which might give rise to any of the foregoing.



Section 4.10 Employee Relations. The Company is not involved in any labor dispute nor, to
the knowledge of the Company, is any such dispute threatened. None of the Company’s employees is a
member of a union and the Company believes that its relations with its employees are good.



Section 4.11 Environmental Laws. The Company is (i) in compliance with any and all
applicable material foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants (“Environmental Laws”), (ii) has received all permits, licenses
or other approvals required of it under applicable Environmental Laws to conduct its business and
(iii) is in compliance with all terms and conditions of any such permit, license or approval.



Section 4.12 Title. Except as set forth in the SEC Documents, the Company has good and
marketable title to its properties and material assets owned by it, free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest other than such as are not
material to the business of the Company. Any real property and facilities held under lease by the
Company is held under valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such property and
buildings by the Company.



Section 4.13 Insurance. The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as management of the Company
believes to be prudent and customary in the businesses in which the Company is engaged. The
Company has not been refused any insurance coverage sought or applied for and the Company has no
reason to believe that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not have a Material Adverse Effect.



Section 4.14 Regulatory Permits. The Company possesses all material certificates,
authorizations and permits issued by the appropriate federal, state or foreign regulatory


 









 






authorities necessary to conduct its business, and has not received any notice of proceedings
relating to the revocation or modification of any such certificate, authorization or permit.



Section 4.15 Internal Accounting Controls. The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurance that (i) transactions are executed
in accordance with management’s general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management’s general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.



Section 4.16 No Material Adverse Breaches, etc. Except as set forth in the SEC Documents,
the Company is not subject to any charter, corporate or other legal restriction, or any judgment,
decree, order, rule or regulation which in the judgment of the Company’s officers has or is
expected in the future to have a Material Adverse Effect.



Section 4.17 Absence of Litigation. Except as set forth in the SEC Documents, there is no
action, suit, proceeding, inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending against or affecting the Company or the Common
Stock, wherein an unfavorable decision, ruling or finding would have a Material Adverse Effect.



Section 4.18 Subsidiaries. The Company does not presently own or control, directly or
indirectly, any interest in any other corporation, partnership, association or other business
entity.



Section 4.19 Tax Status. Except as disclosed in the SEC Documents, the Company has made or
filed all federal and state income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject and (unless and only to the extent that the Company has set
aside on its books provisions reasonably adequate for the payment of all unpaid and unreported
taxes) has paid all taxes and other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports and declarations, except those being
contested in good faith and has set aside on its books provision reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such
claim.



Section 4.20 Certain Transactions. Except as set forth in the SEC Documents none of the
officers, directors, or employees of the Company is presently a party to any transaction with the
Company (other than for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner.




 









 







Section 4.21 Fees and Rights of First Refusal. Except as set forth in Section 4.21, the
Company is not obligated to offer the securities offered hereunder on a right of first refusal
basis or otherwise to any third parties including, but not limited to, current or former
shareholders of the Company, underwriters, brokers, agents or other third parties.



Section 4.22 Use of Proceeds. The Company shall use the net proceeds from this offering
for working capital and other general corporate purposes.



Section 4.23 Further Representation and Warranties of the Company. For so long as any
securities issuable hereunder held by the Investor remain outstanding, the Company acknowledges,
represents, warrants and agrees that it will maintain the listing of its Common Stock on the
Principal Market.



Section 4.24 Opinion of Counsel at Closing. Investor shall receive an opinion letter from
counsel to the Company on the date hereof in the form attached hereto as Exhibit B.



Section 4.25 Dilution. The Company is aware and acknowledges that issuance of shares of
the Company’s Common Stock could cause dilution to existing shareholders and could significantly
increase the outstanding number of shares of Common Stock.



Section 4.26 Acknowledgment Regarding Investor’s Purchase of Shares. The Company
acknowledges and agrees that the Investor is acting solely in the capacity of an arm’s length
investor with respect to this Agreement and the transactions contemplated hereunder. The Company
further acknowledges that the Investor is not acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to this Agreement and the transactions
contemplated hereunder and any advice given by the Investor or any of its representatives or agents
in connection with this Agreement and the transactions contemplated hereunder is merely incidental
to the Investor’s purchase of the Common Stock hereunder. The Company is aware and acknowledges
that it may not be able to request Advances under this Agreement if it cannot obtain an effective
Registration Statement or if any issuances of Common Stock pursuant to any Advances would violate
any rules of the Principal Market. The Company further is aware and acknowledges that any fees
paid pursuant to (a) hereunder or shares issued pursuant to Section 12.04(b) hereunder shall be
earned on the date hereof and not refundable or returnable under any circumstances.




Article V. Indemnification




     The Investor and the Company represent to the other the following with respect to itself:


Section 5.01 Indemnification.





	 	(a)	 	In consideration of the Investor’s execution and delivery of this Agreement, and in
addition to all of the Company’s other obligations under this Agreement, the Company shall
defend, protect, indemnify and hold harmless the Investor, and all of its officers,
directors, partners, employees and agents (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement) (collectively, the
“Investor Indemnitees”) from and against any and all actions, causes of action,
suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection




 









 






	 	 	 	therewith (irrespective of whether any such Investor Indemnitee is a party to the action for
which indemnification hereunder is sought), and including reasonable attorneys’ fees and
disbursements (the “Indemnified Liabilities”), incurred by the Investor Indemnitees
or any of them as a result of, or arising out of, or relating to (a) any misrepresentation
or breach of any representation or warranty made by the Company in this Agreement or the
Registration Rights Agreement or any other certificate, instrument or document contemplated
hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company
contained in this Agreement or the Registration Rights Agreement or any other certificate,
instrument or document contemplated hereby or thereby, or (c) any cause of action, suit or
claim brought or made against such Investor Indemnitee not arising out of any action or
inaction of an Investor Indemnitee, and arising out of or resulting from the execution,
delivery, performance or enforcement of this Agreement or any other instrument, document or
agreement executed pursuant hereto by any of the Investor Indemnitees. To the extent that
the foregoing undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities, which is permissible under applicable law.
	 
	 	(b)	 	In consideration of the Company’s execution and delivery of this Agreement, and in
addition to all of the Investor’s other obligations under this Agreement, the Investor
shall defend, protect, indemnify and hold harmless the Company and all of its officers,
directors, shareholders, employees and agents (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement) (collectively,
the “Company Indemnitees”) from and against any and all Indemnified Liabilities
incurred by the Company Indemnitees or any of them as a result of, or arising out of, or
relating to (a) any misrepresentation or breach of any representation or warranty made by
the Investor in this Agreement, the Registration Rights Agreement, or any instrument or
document contemplated hereby or thereby executed by the Investor, (b) any breach of any
covenant, agreement or obligation of the Investor(s) contained in this Agreement, the
Registration Rights Agreement or any other certificate, instrument or document contemplated
hereby or thereby executed by the Investor, or (c) any cause of action, suit or claim
brought or made against such Company Indemnitee not arising out of any action or inaction
of a Company Indemnitee and arising out of or resulting from the execution, delivery,
performance or enforcement of this Agreement or any other instrument, document or agreement
executed pursuant hereto by any of the Company Indemnitees. To the extent that the
foregoing undertaking by the Investor may be unenforceable for any reason, the Investor
shall make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities, which is permissible under applicable law.
	 
	 	(c)	 	Promptly after receipt by an Investor Indemnitee or Company Indemnitee under this
Section 5.01 of notice of the commencement of any action or proceeding (including any
governmental action or proceeding) involving an Indemnified Liability, such Investor
Indemnitee or Company Indemnitee shall, if an Indemnified Liability in respect thereof is
to be made against any indemnifying party under this Section 5.01 deliver to the
indemnifying party a written notice of the commencement thereof, and the indemnifying party
shall have the right to participate in, and, to the extent the indemnifying party so




 









 






	 	 	 	desires, jointly with any other indemnifying party similarly noticed, to assume control of
the defense thereof with counsel mutually satisfactory to the indemnifying party and the
Investor Indemnitee or Company Indemnitee, as the case may be; provided, however, that an
Investor Indemnitee or Company Indemnitee shall have the right to retain its own counsel
with the fees and expenses of not more than one counsel for such Investor Indemnitee or
Company Indemnitee to be paid by the indemnifying party, if, in the reasonable opinion of
counsel retained by the indemnifying party, the representation by such counsel of the
Investor Indemnitee or Company Indemnitee and the indemnifying party would be inappropriate
due to actual or potential differing interests between such Investor Indemnitee or Company
Indemnitee and any other party represented by such counsel in such proceeding. The Investor
Indemnitee or Company Indemnitee shall cooperate fully with the indemnifying party in
connection with any negotiation or defense of any such action or claim by the indemnifying
party and shall furnish to the indemnifying party all information reasonably available to
the Investor Indemnitee or Company Indemnitee which relates to such action or claim. The
indemnifying party shall keep the Investor Indemnitee or Company Indemnitee fully apprised
at all times as to the status of the defense or any settlement negotiations with respect
thereto. No indemnifying party shall be liable for any settlement of any action, claim or
proceeding effected without its prior written consent, provided, however, that the
indemnifying party shall not unreasonably withhold, delay or condition its consent. No
indemnifying party shall, without the prior written consent of the Investor Indemnitee or
Company Indemnitee, consent to entry of any judgment or enter into any settlement or other
compromise which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Investor Indemnitee or Company Indemnitee of a release from
all liability in respect to such claim or litigation. Following indemnification as provided
for hereunder, the indemnifying party shall be subrogated to all rights of the Investor
Indemnitee or Company Indemnitee with respect to all third parties, firms or corporations
relating to the matter for which indemnification has been made. The failure to deliver
written notice to the indemnifying party within a reasonable time of the commencement of any
such action shall not relieve such indemnifying party of any liability to the Investor
Indemnitee or Company Indemnitee under this Section 5.01, except to the extent that the
indemnifying party is prejudiced in its ability to defend such action.
	 
	 	(d)	 	The indemnification required by this Section 5.01 shall be made by periodic payments of
the amount thereof during the course of the investigation or defense, as and when bills are
received.
	 
	 	(e)	 	The indemnity agreements contained herein shall be in addition to (i) any cause of
action or similar right of the Investor Indemnitee or Company Indemnitee against the
indemnifying party or others, and (ii) any liabilities the indemnifying party may be
subject to pursuant to the law.
	 
	 	(f)	 	The obligations of the parties to indemnify or make contribution under this shall
survive termination.




 









 











Article VI.

Covenants of the Company



Section 6.01 Registration Rights. The Company shall comply in all material respects with
the terms of the Registration Rights Agreement.



Section 6.02 Listing of Common Stock. The Company shall at all times maintain the Common
Stock’s authorization for quotation on the Principal Market.



Section 6.03 Exchange Act Registration. The Company will cause its Common Stock to
continue to be registered under Section 12(g) of the Exchange Act, will file in a timely manner all
reports and other documents required of it as a reporting company under the Exchange Act and will
not take any action or file any document (whether or not permitted by Exchange Act or the rules
thereunder) to terminate or suspend such registration or to terminate or suspend its reporting and
filing obligations under said Exchange Act.



Section 6.04 Transfer Agent Instructions. Upon effectiveness of the Registration Statement
the Company shall deliver instructions to its transfer agent to issue shares of Common Stock to the
Investor free of restrictive legends on or before each Advance Date.



Section 6.05 Corporate Existence. The Company will take all steps necessary to preserve
and continue the corporate existence of the Company.



Section 6.06 Notice of Certain Events Affecting Registration; Suspension of Right to Make an
Advance. The Company will immediately notify the Investor upon its becoming aware of the
occurrence of any of the following events in respect of a Registration Statement or related
prospectus relating to an offering of Registrable Securities: (i) receipt of any request for
additional information by the SEC or any other Federal or state governmental authority during the
period of effectiveness of the Registration Statement for amendments or supplements to the
Registration Statement or related prospectus; (ii) the issuance by the SEC 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 of any notification
with respect to the suspension of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; (iv) the happening of any event that makes any statement made in the
Registration Statement or related prospectus of any 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 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 related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances under which they were
made, not misleading; and (v) the Company’s reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate; and the Company will promptly make
available to the Investor any such supplement or amendment to the related prospectus. The Company
shall not deliver to the Investor any Advance Notice, and the Investor shall not sell any


 









 






Shares pursuant to a Registration Statement, during the continuation of any of the foregoing
events.



Section 6.07 Consolidation; Merger. If an Advance Notice has been delivered to the
Investor and the transaction contemplated in such Advance Notice has not yet been closed in
accordance with Section 2.03 hereof, then the Company shall not effect any merger or consolidation
of the Company with or into, or a transfer of all or substantially all the assets of the Company to
another entity (a “Consolidation Event”) unless the resulting successor or acquiring entity
(if not the Company) assumes by written instrument the obligation to deliver to the Investor such
shares of stock and/or securities as the Investor is entitled to receive pursuant to such Advance
Notice.



Section 6.08 Issuance of the Company’s Common Stock. The sale of the shares of Common
Stock shall be made in accordance with the provisions and requirements of Regulation D and any
applicable state securities law.



Section 6.09 Review of Public Disclosures. All SEC filings (including, without limitation,
all filings required under the Exchange Act, which include Forms 10-Q, 10-K, 8-K, etc) and other
public disclosures made by the Company, including, without limitation, all press releases, investor
relations materials, and scripts of analysts meetings and calls, shall be reviewed and approved for
release by the Company’s attorneys and, if containing financial information, the Company’s
independent certified public accountants.



Section 6.10 Market Activities. The Company will not, directly or indirectly, 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 under
applicable laws and regulations to facilitate the sale or resale of the Common Stock.



Section 6.11 Opinion of Counsel Concerning Resales. Provided that the Investor’s resale of
Common Stock received pursuant to this Agreement may be freely sold by the Investor either pursuant
to an effective Registration Statement, in accordance with Rule 144, or otherwise, the Company
shall obtain for the Investor, at the Company’s expense, any and all opinions of counsel which may
be required by the Company’s transfer agent to issue such shares free of restrictive legends, or to
remove legends from such shares.




Article VII.

Conditions for Advance and Conditions to Closing



Section 7.01 Conditions Precedent to the Right of the Company to Deliver an Advance Notice.
The right of the Company to deliver an Advance Notice is subject to the fulfillment by the
Company, on such Advance Notice Date (a “Condition Satisfaction Date”), of each of the
following conditions:





	 	(a)	 	Accuracy of the Company’s Representations and Warranties. The representations
and warranties of the Company shall be true and correct in all material respects (except
for representations and warranties that speak as of a specific date), as such may be
modified by any disclosure schedule delivered by the Company to the Investor on or prior to
the applicable Condition Satisfaction Date.




 









 






	 	(b)	 	Registration of the Common Stock with the SEC. There is an effective
Registration Statement pursuant to which the Investor is permitted to utilize the
prospectus thereunder to resell all of the shares of Common Stock issuable pursuant to such
Advance Notice.
	 
	 	(c)	 	Authority. The Company shall have obtained all permits and qualifications
required by any applicable state in accordance with the Registration Rights Agreement for
the offer and sale of the shares of Common Stock, or shall have the availability of
exemptions therefrom. The sale and issuance of the shares of Common Stock shall be legally
permitted by all laws and regulations to which the Company is subject.
	 
	 	(d)	 	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
SEC or any other federal or state governmental, administrative or self regulatory authority
during the period of effectiveness of the Registration Statement, the response to which
would require any amendments or supplements to the Registration Statement or related
prospectus; (ii) the issuance by the SEC 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 Registrable Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose; (iv) the occurrence of any
event that makes any statement made in the Registration Statement or related prospectus or
any 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 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 related prospectus, it will not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances under and as of
the date which they were made, not misleading; and (v) the Company’s reasonable
determination that a post-effective amendment to the Registration Statement would be
required. There shall not exist any fundamental changes to the information set forth in the
Registration Statement which would require the Company to file a post-effective amendment
to the Registration Statement.
	 
	 	(e)	 	Performance by the Company. The Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions required by
this Agreement and the Registration Rights Agreement to be performed, satisfied or complied
with by the Company at or prior to each Condition Satisfaction Date.
	 
	 	(f)	 	No Injunction. No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction that prohibits or directly and adversely
affects any of the transactions contemplated by this Agreement, and no proceeding shall
have been commenced that may have a Material Adverse Effect.




 









 






	 	(g)	 	No Suspension of Trading in or Delisting of Common Stock. The Common Stock is
trading on a Principal Market and all of the shares issuable pursuant to such Advance
Notice will be listed or quoted for trading on such Principal Market and the Company
believes, in good faith, that trading of the Common Stock on a Principal Market will
continue uninterrupted for the foreseeable future. The issuance of shares of Common Stock
with respect to the applicable Advance Notice will not violate the shareholder approval
requirements of the Principal Market. The Company shall not have received any notice
threatening the continued listing of the Common Stock on the Principal Market (unless the
concerns of the Principal Market have been addressed and the Investor is reasonably
satisfied that the Principal Market no longer is considering or intends to take such
action).
	 
	 	(h)	 	Maximum Advance Amount. The amount of an Advance requested by the Company
shall not exceed the Maximum Advance Amount.
	 
	 	(i)	 	Authorized. There shall be a sufficient number of authorized but unissued and
otherwise unreserved shares of Common Stock for the issuance of all of the shares issuable
pursuant to such Advance Notice.
	 
	 	(j)	 	Executed Advance Notice. The Investor shall have received the Advance Notice
executed by an officer of the Company and the representations contained in such Advance
Notice shall be true and correct as of each Condition Satisfaction Date.





Article VIII.

Due Diligence Review; Non-Disclosure of Non-Public Information



Section 8.01 Non-Disclosure of Non-Public Information. The Company covenants and agrees
that it shall refrain from disclosing, and shall cause its officers, directors, employees and
agents to refrain from disclosing, any material non-public information to the Investor without also
disseminating such information to the public, unless prior to disclosure of such information the
Company identifies such information as being material non-public information and provides the
Investor with the opportunity to accept or refuse to accept such material non-public information
for review.




Article IX.

Choice of Law/Jurisdiction




     This Agreement shall be governed by and interpreted in accordance with the laws of the State
of New Jersey without regard to the principles of conflict of laws. The parties further agree that
any action between them shall be heard in Hudson County, New Jersey, and expressly consent to the
jurisdiction and venue of the Superior Court of New Jersey, sitting in Hudson County, New Jersey
and the United States District Court of New Jersey, sitting in Newark, New Jersey, for the
adjudication of any civil action asserted pursuant to this paragraph.



Article X. Assignment; Termination



Section 10.01 Assignment. Neither this Agreement nor any rights or obligations of either
party may be assigned to any other Person.




 









 







Section 10.02 Termination.





	 	(a)	 	Unless earlier terminated as provided hereunder, this Agreement shall terminate
automatically on the earliest of (i) the first day of the month next following the 24-month
anniversary of the Effective Date, or (ii) the date on which the Investor shall have made
payment of Advances pursuant to this Agreement in the aggregate amount of the Commitment
Amount.
	 
	 	(b)	 	The Company may terminate this Agreement effective upon fifteen Trading Days’ prior
written notice to the Investor; provided that (i) there are no Advances outstanding, and
(ii) the Company has paid all amounts owed to the Investor pursuant to this Agreement.
This Agreement may be terminated at any time by the mutual written consent of the parties,
effective as of the date of such mutual written consent unless otherwise provided in such
written consent. In the event of any termination of this Agreement by the Company
hereunder, so long as the Investor owns any shares of Common Stock issued hereunder, unless
all of such shares of Common Stock may be resold by the Investor without registration and
without any time, volume or manner limitations pursuant to Rule 144, the Company shall not
suspend (except as provided for in the Registration Rights Agreement) or withdraw the
Registration Statement or otherwise cause the Registration Statement to become ineffective,
or voluntarily delist the Common Stock from, the Principal Market without listing the
Common Stock on another Principal Market.
	 
	 	(c)	 	The obligation of the Investor to make an Advance to the Company pursuant to this
Agreement shall terminate permanently (including with respect to an Advance Date that has
not yet occurred) in the event that (i) there shall occur any stop order or suspension of
the effectiveness of the Registration Statement for an aggregate of fifty (50) Trading
Days, other than due to the acts of the Investor, during the Commitment Period, or (ii) the
Company shall at any time fail materially to comply with the requirements of Article VI and
such failure is not cured within 30 days after receipt of written notice from the Investor,
provided, however, that this termination provision shall not apply to any
period commencing upon the filing of a post-effective amendment to such Registration
Statement and ending upon the date on which such post effective amendment is declared
effective by the SEC
	 
	 	(d)	 	Nothing in this shall be deemed to release the Company or the Investor from any
liability for any breach under this Agreement, or to impair the rights of the Company and
the Investor to compel specific performance by the other party of its obligations under
this Agreement. The indemnification provisions contained in Sections 5.01 and 5.02 shall
survive termination hereunder.





Article XI. Notices




               Any notices, consents, waivers, or other communications required or permitted to be given
under the terms of this Agreement must be in writing and will be deemed to have been delivered(i)
upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and kept on



 









 




file by the sending party); or (iii) one business day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the party to receive the
same. The addresses and facsimile numbers for such communications, except for Advance Notices
which shall be delivered in accordance with Section 2.02 hereof, shall be:




	 	 	 
	If to the Company, to:

	 	RXi Pharmaceuticals Corporation
	 

	 	60 Prescott Street
	 

	 	Worcester, MA 01605
	 

	 	Attention:    Chief Financial Officer
	 

	 	Telephone:   (508) 767-3861
	 

	 	Facsimile:    (508) 767-3862
	 
	 	 
	With a copy to:

	 	Ropes & Gray LLP
	 

	 	One International Place
	 

	 	Boston, MA 02110
	 

	 	Attention:    Marc Rubenstein, Esq.
	 

	 	Telephone:   (617) 951-7000
	 

	 	Facsimile:    (617) 951-7010
	 
	 	 
	If to the Investor(s):

	 	YA Global Master SPV Ltd.
	 

	 	101 Hudson Street –Suite 3700
	 

	 	Jersey City, NJ 07302
	 

	 	Attention:    Mark Angelo
	 

	 	        
            Portfolio Manager
	 

	 	Telephone:   (201) 985-8300
	 

	 	Facsimile:     (201) 985-8266
	 
	 	 
	With a Copy to:

	 	David Gonzalez, Esq.
	 

	 	Yorkville Advisors, LLC
	 

	 	101 Hudson Street – Suite 3700
	 

	 	Jersey City, NJ 07302
	 

	 	Telephone:    (201) 985-8300
	 

	 	Facsimile:     (201) 985-8266





Each party shall provide 5 days’ prior written notice to the other party of any change in address
or facsimile number.




Article XII. Miscellaneous



Section 12.01 Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the other party. In
the event any signature page is delivered by facsimile transmission, the party using such means of
delivery shall cause 4 additional original executed signature pages to be physically delivered to
the other party within 5 days of the execution and delivery hereof, though failure to deliver such
copies shall not affect the validity of this Agreement.




 









 







Section 12.02 Entire Agreement; Amendments. This Agreement supersedes all other prior oral
or written agreements between the Investor, the Company, their affiliates and persons acting on
their behalf with respect to the matters discussed herein, and this Agreement, the Registration
Rights Agreement and the instruments referenced herein contain the entire understanding of the
parties with respect to the matters covered herein and therein and, except as specifically set
forth herein or therein, neither the Company nor the Investor makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this Agreement may be waived
or amended other than by an instrument in writing signed by the party to be charged with
enforcement.



Section 12.03 Reporting Entity for the Common Stock. The reporting entity relied upon for
the determination of the trading price or trading volume of the Common Stock on any given Trading
Day for the purposes of this Agreement shall be Bloomberg, L.P. or any successor thereto. The
written mutual consent of the Investor and the Company shall be required to employ any other
reporting entity.



Section 12.04 Fees and Expenses. The Company hereby agrees to pay the following fees:





	 	(a)	 	Structuring Fees. Each of the parties shall pay its own fees and
expenses (including the fees of any attorneys, accountants, appraisers or others engaged by
such party) in connection with this Agreement and the transactions contemplated hereby,
except that (i) the Company shall pay a structuring fee of $25,000 to Yorkville Advisors,
LLC, which has been paid prior to the date hereof, and (ii) on each Advance Date, the
Company shall pay Yorkville Advisors, LLC a structuring fee of $500 directly out the gross
proceeds of each Advance.
	 
	 	(b)	 	Commitment Fee. Upon the execution of this Agreement the Company shall issue
to the Investor 58,398 shares of Common Stock (the “Investor’s Shares”). The
Investor’s Shares shall be deemed fully earned as of the date hereof regardless of the
amount of Advances, if any, that the Company is able to, or chooses to, request hereunder.
The Investor’s Shares shall be included on any Registration Statement filed pursuant to the
Registration Rights Agreement, unless such shares may be resold without any limitation
pursuant to Rule 144. The Investor’s Shares shall be deemed fully earned as of the date
hereof.




Section 12.05 Brokerage. Each of the parties hereto represents that it has had no dealings
in connection with this transaction with any finder or broker who will demand payment of any fee or
commission from the other party. The Company on the one hand, and the Investor, on the other hand,
agree to indemnify the other against and hold the other harmless from any and all liabilities to
any person claiming brokerage commissions or finder’s fees on account of services purported to have
been rendered on behalf of the indemnifying party in connection with this Agreement or the
transactions contemplated hereby.




 









 







Section 12.06 Confidentiality. If for any reason the transactions contemplated by this
Agreement are not consummated, each of the parties hereto shall keep confidential any information
obtained from any other party (except information publicly available or in such party’s domain
prior to the date hereof, and except as required by court order) and shall promptly return to the
other parties all schedules, documents, instruments, work papers or other written information
without retaining copies thereof, previously furnished by it as a result of this Agreement or in
connection herein.




[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]





 











 





     IN WITNESS WHEREOF, the parties hereto have caused this Standby Equity Distribution Agreement
to be executed by the undersigned, thereunto duly authorized, as of the date first set forth above.



	 	 	 	 	 	 	 
	 	 	COMPANY:	 	 
	 	 	RXi Pharmaceuticals Corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Tod Woolf
 

	 	 
	 

	 	Name:
	 	Tod Woolf	 	 
	 

	 	Title:
	 	President & CEO	 	 
	 
	 	 	 	 	 	 
	 	 	INVESTOR:	 	 
	 	 	YA Global Master SPV Ltd.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	Yorkville Advisors, LLC	 	 
	 

	 	Its:
	 	Investment Manager	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Troy J. Rillo
 

	 	 
	 

	 	Name:
	 	Troy J. Rillo	 	 
	 

	 	Title:
	 	Senior Managing Director	 	 
















 






EXHIBIT A




ADVANCE NOTICE




RXI PHARMACEUTICALS CORPORATION




     The undersigned,                                          hereby certifies, with respect to the sale of shares
of Common Stock of RXI PHARMACEUTICALS CORPORATION (the “Company”) issuable in connection
with this Advance Notice, delivered pursuant to the Standby Equity Distribution Agreement (the
“Agreement”), as follows:



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



     2. There are no fundamental changes to the information set forth in the Registration Statement
which would require the Company to file a post effective amendment to the Registration Statement.



     3. The Company has performed in all material respects all covenants and agreements to be
performed by the Company and has complied in all material respects with all obligations and
conditions contained in this Agreement on or prior to the Advance Notice Date, and shall continue
to perform in all material respects all covenants and agreements to be performed by the Company
through the applicable Advance Date. All conditions to the delivery of this Advance Notice are
satisfied as of the date hereof.



     4. The undersigned hereby represents, warrants and covenants that it has made all filings
(“SEC Filings”) required to be made by it pursuant to applicable securities laws
(including, without limitation, all filings required under the Securities Exchange Act of 1934,
which include Forms 10-Q, 10-K, 8-K, etc.). All SEC Filings and other public disclosures made by
the Company, including, without limitation, all press releases, analysts meetings and calls, etc.
(collectively, the “Public Disclosures”), have been reviewed and approved for release by
the Company’s attorneys and, if containing financial information, the Company’s independent
certified public accountants. None of the Company’s Public Disclosures contain any untrue
statement of a material fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances under which they were
made, not misleading.



     5. The Advance requested is                                         .



     The undersigned has executed this Certificate this ___day of                     .



	 	 	 	 	 	 	 
	 	 	RXI PHARMACEUTICALS CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:	 	 	 	 





If Returning This Advance Notice via Facsimile Please Send To: (201) 946-0851




	 	 	 
	If by Mail, via Federal Express To:

	 	YA Global Master SPV Ltd., c/o/ Yorkville Advisors, LLC
	 

	 	101 Hudson Street, Suite 3700, Jersey City, NJ 07302