Document:

Exhibit 10.19

 

Loan
and Security Agreement

 

This Loan
and Security Agreement No. 4521 (this “Agreement”) is entered into as of March
28, 2005, by and between Lighthouse Capital Partners V, L.P. (“Lender”) and ARYx Therapeutics, Inc.,
a California corporation (“Borrower”)
and sets forth the terms and conditions upon which Lender will lend and
Borrower will repay money. In consideration of the mutual covenants herein
contained, the parties agree as follows:

 

1.             Definitions and Construction

 

1.1          Definitions.  Initially
capitalized terms used and not otherwise defined herein are defined in the
California Uniform Commercial Code (“UCC”).

 

“ACH”
means the Automated Clearing House electronic funds transfer system.

 

“Advance” means a Loan
advanced by Lender to Borrower hereunder.

 

“Borrower’s Books” means
all of Borrower’s books and records, including records concerning Collateral,
Borrower’s assets, liabilities, business operations or financial condition, on
any media, and the equipment containing such information.

 

“Collateral” means:  (i)
all property in which Lender now has or hereafter obtains a security interest
or which is listed on any UCC-1 naming Borrower as Debtor in any capacity and
Lender or an affiliate of Lender as Secured Party including Exhibit A attached
hereto; (ii) all property which
comes into Lender’s possession in which a security interest is perfected by
possession; and (iii) all products
and proceeds of the foregoing, including proceeds of insurance and proceeds of
proceeds. Notwithstanding the foregoing “Collateral” shall not include
Borrower’s rights as a licensee under a specific license if and to
the extent such license prohibits the creation of a security interest
in Borrower’s rights therein; provided, however, that the foregoing exclusion
shall not apply if (a) such
prohibition has been waived, or (b)
such prohibition is ineffective pursuant to Sections 9-407(a) or 9-408(a)
of the UCC or other applicable law, in which case “Collateral” shall
include Borrower’s rights therein.

 

“Commitment” means
$10,000,000.

 

“Commitment Fee” means
$15,000.

 

“Commitment Termination Date”
means the earliest to occur of (i)
January 1, 2006, provided however,
that this date shall be changed to October 1, 2005 in the event aggregate
Advances under this Agreement are less than $5,000,000 as of October 1, 2005, (ii) any Default or Event of Default, (iii) the date
upon which Borrower does not employ at least any two of the following
individuals on a full-time basis: (a) Paul Goddard as Chief Executive Officer,
(b) Peter Milner as President, R&D, (c) Pascal Druzgala as Chief Scientific
Officer and (d) John Varian as Chief Operating Officer, or (iv)
the date upon which at least any two of the following venture capital investors
cease activity with respect to Borrower: (a) MPM Ventures, (b) Orbimed and (c)
the representative from Nomura Ventures to be named later.

 

“Control Agreement”  means an agreement substantially in the
form of Exhibit H
or otherwise acceptable to Lender in its commercially reasonable judgment.

 

“Default” means any event
that with the passing of time or the giving of notice or both would become an
Event of Default.

 

“Default Rate” means the
lesser of the Basic Rate plus 5% per annum or the highest rate permitted by
applicable law.

 

“Disclosure Schedule” means the schedule
attached as Schedule 1
hereto.

 

“Event of Default” is
defined in Section 8.

 

“Funding Date” means any
date on which an Advance is made to or on account of Borrower hereunder.

 

“Indebtedness” means (i) all indebtedness for borrowed money
or the deferred purchase of property or services, (ii) all obligations evidenced by notes, bonds,
debentures or similar instruments, (iii) all
capital lease obligations, and (iv) all
contingent obligations, including guaranties and obligations of reimbursement
or respecting letters of credit.

 

“Intellectual Property Collateral” means
Borrower’s property described in the Negative Pledge Agreement.

 

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“Insolvency Event” occurs whenever
Borrower admits in writing that it is unable to pay its debts as they come
due, becomes insolvent, makes an assignment for the benefit of creditors,
or files or has filed against it a petition in bankruptcy.

 

“Lender’s
Expenses” means all reasonable costs or expenses (including
reasonable attorneys’ fees and expenses) actually incurred in connection with
the preparation, negotiation, modification, administration, or enforcement of
the Loan or Loan Documents, or the exercise or preservation of any rights or
remedies by Lender, whether or not suit is brought. Lender will apply deposits
received before the date hereof, if any, towards Lender’s Expenses.

 

“Lien” means any lien,
security interest, pledge, bailment, lease, mortgage, hypothecation,
conditional sales and title retention agreement, charge, claim, or other
encumbrance.

 

“Liquidation Event” means
any of: (i) a merger of Borrower
with another entity without Lender’s consent, which shall not be unreasonably
withheld; (ii) the sale of all or
substantially all of Borrower’s assets; or (iii)
any transaction (or series of related transactions) whereby the
shareholders of Borrower owning at least 50% of the outstanding voting
securities of Borrower immediately prior to such transaction(s) own less than
50% of the outstanding voting securities of Borrower immediately after such
transaction(s).

 

“Loan” means all of the
Advances, however evidenced, and all other amounts due or to become due
hereunder.

 

“Loan Documents” means,
collectively, this Agreement, the Warrants, the Notes
and all other documents, instruments and agreements entered into between
Borrower and Lender in connection with the Loan, all as amended or extended
from time to time.

 

“Negative Pledge Agreement” means an
agreement in the form of Exhibit
I.

 

“Note” means a Secured
Promissory Note in the form of Exhibit B.

 

“Notice of Borrowing”
means the form attached as Exhibit
D.

 

“Obligations” means all
Loans, debt, principal, interest, fees, charges, Lender’s Expenses and other
amounts, obligations, covenants, and duties owing by Borrower to Lender of any
kind or description (whether pursuant to the Loan Documents or otherwise (with
the exception of the Warrant), and whether or not for the payment of money),
whether direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising, and including any of the same obtained by Lender
by assignment or otherwise, and all amounts Borrower is required to pay or
reimburse by the Loan Documents, by law, or otherwise.

 

“Permitted Indebtedness”
means: (i) the Loan; (ii) trade debt incurred in the ordinary
course of Borrower’s business; (iii)
Indebtedness secured by clause (ii) and (v) of Permitted Liens; (iv) Indebtedness disclosed in the
Disclosure Schedule and approved by Lender; (v) other
Indebtedness not described in (ii) through (iv) above not to exceed $100,000 in
the aggregate at any given time; and (vi)
extensions, refinancings, modifications, amendments and restatements of any
items of Permitted Indebtedness identified above, provided that the principal amount thereof is not increased
or the terms thereof are not modified to impose more burdensome terms upon
Borrower.

 

“Permitted Liens” means: (i) Liens in favor of Lender; (ii)
Liens disclosed in the Disclosure Schedule and approved by Lender; (iii) Liens for taxes, fees, assessments or other
governmental charges or levies not delinquent or being contested in good faith
by appropriate proceedings, that do not jeopardize Lender’s interest in any
Collateral; (iv) Liens to secure payment of
worker’s compensation, employment insurance, old age pensions or other social
security obligations of Borrower on which Borrower is current and are in the
ordinary course of its business; provided none of the same diminish or impair
Lender’s rights and remedies respecting the Collateral and (v) Liens
upon or in any equipment acquired or held by Borrower (in addition to existing
liens on equipment disclosed in the Disclosure Schedule) to secure the purchase
price of such equipment or indebtedness incurred solely for the purposes of
financing the acquisition of such equipment, in an amount not to exceed
$3,000,000, provided that (a) any
Liens for such Indebtedness are confined to the equipment financed and are
subordinate to Lender’s security interest in such equipment, provided, further, that if Borrower
obtains such specific equipment financing from an equipment lender (“Equipment
Lender”) that so requires, Lender hereby authorizes the release of Lender’s
Lien in such equipment (the “Financed
Equipment”) to the extent and only to the extent (a) Equipment
Lender takes a security interest in the Financed Equipment; (b) for the
sole purpose of leasing the Financed Equipment back to Borrower, Equipment
Lender acquires title to the Financed Equipment, and further provided that the
Financed Equipment shall automatically become a part of the Collateral
concurrently with the release by Equipment Lender of its security interest in
the Financed Equipment or the purchase by Borrower of such Financed Equipment
from Equipment Lender in connection with an end-of-lease buy-out option; (c) such
Indebtedness is made on commercially reasonable terms as determined by
Borrower’s Board of Directors, and (d) Lender has been offered reasonably
in advance the opportunity to provide such financing to Borrower on comparable
terms; (vi) leases or subleases granted
in the ordinary course of Borrower’s business on commercially reasonable terms
in connection with Borrower’s leased real property; (vii) Liens
incurred in the extension, renewal or refinancing of the indebtedness 

 

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secured
by Liens described in (ii) and (v) above, but any extension, renewal or
replacement Lien must be limited to the property encumbered by the prior Lien
and the principal amount of the indebtedness may not increase; (viii)  Liens in favor of other financial institutions arising
in connection with Borrower’s deposit accounts held at such institutions to
secure standard fees for deposit services charged by, but not financing made
available by such institutions and banker’s liens, and rights of setoff
incurred in the ordinary course of business; and (ix) other Liens not described above, arising in the ordinary
course of Borrower’s business, as defined in clause (v) of the definition of
Permitted Indebtedness.

 

“Regulated Substance”
means any substance, material or waste the use, generation, handling, storage,
treatment or disposal of which is regulated by any local or state government
authority, including any of the same designated by any authority as hazardous,
genetic, cloning, fetal, or embryonic.

 

“Responsible Officer”
means each of the Chief Executive Officer and the Chief Operating Officer of
Borrower.

 

“Term” means the period
from and after the date hereof until the full, final and indefeasible payment
of all Obligations.

 

“Warrants” means the
Warrants in favor of Lender and its affiliated fund, Lighthouse Capital
Partners IV, L.P. (“LCP-IV”) to
purchase securities of Borrower substantially in the form of Exhibit C.

 

1.2          Interpretation.  References to “Articles,” “Sections,”
“Exhibits,” and “Schedules” are to articles, sections, exhibits and schedules
herein and hereto unless otherwise indicated. “Hereof,” “herein” and
“hereunder” refer to this Agreement as a whole. “Including” is not limiting. All
accounting and financial computations shall be computed in accordance with
generally accepted accounting principles consistently applied (“GAAP”). “Or” is not necessarily exclusive.
All interest computation interest shall be based on a 360-day year and actual
days elapsed.

 

2.             The Loans

 

2.1          Commitment.  Subject
to the terms hereof, Lender will make Advances to Borrower up to the principal
amount of the Commitment, before the Commitment Termination Date. The aggregate
principal amount of the Advances shall not exceed the Commitment. Notwithstanding
anything in the Loan Documents to the contrary, Lender’s obligation to make any
Advances or to lend the undisbursed portion of the Commitment shall terminate
on the Commitment Termination Date. Repaid principal of the Advances may not be
re-borrowed.

 

2.2          The Advances.  A Note setting
forth the specific terms of repayment will evidence each Advance. No Advance
will be made for less than $500,000. Absence of a Note evidencing any portion
of the Loan shall not impair Borrower’s obligation to repay it to Lender.

 

2.3          Terms of Payment,
Repayment.

 

(a)           Repayment.  Borrower shall pay principal and interest on
each Advance from the date it is made until it has been paid in full, on the
terms set forth in the applicable Note. Amounts not paid when due hereunder
shall bear interest at the applicable interest rate. If a court of competent
jurisdiction determines that Lender has received payments that, if interest,
would exceed the maximum lawfully permitted, Lender will instead apply such
money to fees and expenses and then to early prepayment of principal with all
applicable pre-payment penalties.

 

(b)           ACH.  All payments
due to Lender must be, at Lender’s option, paid to Lender in cash or through
ACH Borrower shall execute and deliver the ACH Authorization Form substantially
in the form of Exhibit E.
If the ACH payment arrangement is terminated for any reason, Borrower shall
make all payments due to Lender at Lender’s address specified in Section 11.

 

(c)           Default
Rate.  While an Event of
Default has occurred and is continuing, interest on the Loan shall be increased
to the Default Rate. Lender’s failure to charge or accrue interest at the
Default Rate during the existence of a Default shall not be deemed a waiver by
Lender of its right or claim thereto.

 

(d)           Date.  Whenever any payment due under the Loan
Documents due on a day other than a business day, such payment shall be made on
the next succeeding business day, and such extension of time shall be included
in the computation of interest or fees, as the case may be.

 

2.4          Fees.  Borrower
shall pay to Lender the following:

 

(a)           Commitment Fee.  The
Commitment Fee, which has been previously paid by Borrower, and shall be
applied by Lender to Lender’s Expenses and other Obligations;

 

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(b)           Late Fee.  On
demand, a late charge on any sums due hereunder that are not paid when due, in
an amount equal to 2% of the past due amount, payable on demand.

 

(c)           Lender’s Expenses.  The
payment of all Lender’s Expenses, which may become due to Lender by Borrower
hereunder shall be payable by Borrower promptly on demand by Lender. All
Lender’s Expenses not paid when due shall bear interest as principal at the
then-applicable rate of interest.

 

3.             Conditions of Advances; Procedure
for requesting Advances

 

3.1          Conditions Precedent to
any and all Advances.  The obligation of Lender to make any
Advances is subject to each and every of the following conditions precedent in
form and substance satisfactory to Lender in its sole discretion: (i) this Agreement, a Note evidencing the
Advance and all other financing statements, and other documents required or as
specified herein have been duly authorized, executed and delivered; (ii) Lender’s receipt of all items of due
diligence requested; (iii) all
third party consents required by Lender; (iv)
no Default or Event of Default has occurred and is continuing; (v) delivery of a Notice of Borrowing with
respect to the proposed Advance (vi)
Lender’s security interests in the Collateral are valid and first priority
except in connection with Permitted Liens or as otherwise specifically approved
herein; and (vii)  all such other information or documentation
as Lender may deem necessary or appropriate in its reasonable commercial
judgment has been delivered. The extension of an Advance prior to the receipt
by Lender of any of the foregoing shall not constitute a waiver by Lender of
Borrower’s obligation to deliver such item.

 

3.2          Procedure for Making Advances.  For
any Advance, Borrower shall provide Lender an irrevocable Notice of Borrowing
at least 10 business days prior to the desired Funding Date. Borrower shall
execute and deliver to Lender a Note and such other documents and instruments
as Lender may reasonably require consistent with the provisions of this
Agreement for each Advance made. Borrower will hold Lender harmless from any
losses on account of any Advance made pursuant to any oral or written request
that Lender in good faith believes to have been made by an authorized
representative of Borrower (including any employee of Borrower, whether or not
a Responsible Officer) and all such Advances shall be deemed Obligations
hereunder for all purposes hereunder.

 

4.             Creation of Security Interest

 

4.1          Grant of Security
Interest.  Borrower grants to Lender a valid, first priority,
continuing security interest in all present and future Collateral in order to
secure prompt, full, faithful and timely payment and performance of all
Obligations.

 

4.2          Inspections.  Lender
shall have the right upon reasonable prior notice to inspect Borrower’s Books
and records, including computer files, and to make copies, and to test, inspect
and appraise the Collateral, in order to verify any matter relating to Borrower
or the Collateral.

 

4.3          Authorization to File
Financing Statements.  Borrower irrevocably authorizes Lender at
any time and from time to time to file in any jurisdiction any financing
statements and amendments that: (i)
name Collateral as collateral thereunder, regardless of whether any particular
Collateral falls within the scope of the UCC; (ii)
contain any other information required by the UCC for sufficiency or filing
office acceptance, including organization identification numbers; and (iii) contain such language as Lender
determines helpful in acquiring or preserving rights against third parties. Borrower
ratifies any such filings made prior to the date hereof.

 

4.4          Automatic
Release of Security Interest In Intellectual Property Collateral.  Lender
agrees that its security interest in all 
Intellectual Property Collateral shall be released and Intellectual
Property Collateral shall no longer be considered Collateral, but Intellectual
Property Collateral shall remain subject to the Negative Pledge Agreement, at
such time as Borrower enters into any agreement with a third party to license,
exploit, or otherwise transfer any rights to a primary indication associated
with Borrower’s ATI-5923, ATI-2042, or ATI-7505 programs within the United
States or Europe. Upon such release and upon written notice to Lender, Borrower
is authorized without any further consent of Lender to file such notices of
termination of such security interest, but only of such security interest, in
the public record as are reasonable and appropriate, so long as the same do not
interfere or denigrate in any way Lender’s security interest in the remaining
Collateral.

 

5.             Representations and Warranties

 

Borrower represents, warrants and covenants as follows:

 

5.1          Due Organization and
Qualification.  Borrower is a corporation duly existing and in
good standing under the laws of its state of incorporation and qualified and
licensed to do business in, and is in good standing in, any state in which the
conduct of its business or its ownership of property requires that it be so
qualified or in which the Collateral is located.

 

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5.2          Authority.  Borrower
has all power, authority and third party consents necessary to execute,
deliver, and perform the Loan Documents.

 

5.3          Disclosure Schedule.   All
information on the Disclosure Schedule is true, correct and complete.

 

5.4          Authorization;
Enforceability.   The execution and delivery hereof, the granting
of the security interest in the Collateral, the incurring of the Loan, the
execution and delivery of all Loan Documents and the consummation of the
transactions herein and therein contemplated have been duly authorized by all
necessary action by Borrower. The Loan Documents constitute legal, valid and
binding obligations of Borrower, enforceable in accordance with their terms,
except as enforceability may be limited by bankruptcy or similar laws relating
to enforcement of creditors’ rights generally.

 

5.5          Name and Location.   Borrower
has not done business under any name other than that specified on the signature
page hereof. The chief executive office, principal place of business, and the
place where Borrower maintains its records concerning the Collateral are
presently located at the address set forth in Section
11. The Collateral is presently located at the addresses set forth
in Section 11 and on the
Disclosure Schedule.

 

5.6          Litigation.   All
actions or proceedings pending by or against Borrower before any court or
administrative agency are set forth on the Disclosure Schedule. Borrower will
promptly notify Lender in writing of any action, proceeding or governmental
investigation involving Borrower.

 

5.7          Financial Statements.   All
financial statements and statements respecting Collateral that have been or may
hereafter be delivered by Borrower to Lender are true, complete and correct in
all material respects for the periods indicated.

 

5.8          Solvency.   Borrower
is solvent and able to pay its debts (including trade debts) as they come due.

 

5.9          Taxes.   Borrower
has filed and will file all required tax returns, and has paid and will pay all
taxes it owes, provided that
Borrower need not make any payment if the amount or validity of such payment is
contested in good faith by appropriate proceedings and is reserved against (to
the extent required by GAAP) by Borrower.

 

5.10        Rights.   Borrower
possesses and owns all necessary assets, rights, trademarks, trade names,
copyrights, patents, patent rights, franchises and licenses which it needs to
conduct its business as now operated or proposed to be operated.

 

5.11        Full Disclosure.   No
representation, warranty or other statement made by Borrower in any Loan
Document, certificate or written statement furnished to Lender contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained in such certificates or statements
not misleading.

 

5.12        Regulated Substances.   Borrower
complies and will comply with all laws respecting Regulated Substances.

 

5.13        Automatic Reaffirmation.   Each
Notice of Borrowing will constitute (i)
an automatic warranty and representation that there does not exist any Default
and (ii) except as expressly
stated to the contrary therein, a reaffirmation as of the date thereof of all of
the representations and warranties contained in this Agreement and the Loan
Documents.

 

6.             Affirmative Covenants

 

Borrower covenants and agrees that it shall do all of the following:

 

6.1          Good Standing and
Compliance.   Borrower shall maintain all licenses, rights and
agreements necessary for its operations or business and comply with all
statutes, laws, ordinances and government rules and regulations to which it is
subject.

 

6.2          Financial Statements,
Reports, Certificates.   Prior to Borrower’s completion of an
initial public offering (“IPO”)
Borrower shall deliver to Lender:  (i) as soon as prepared, and no later
than 30 days after the end of each calendar month, a balance sheet, income
statement and cash flow statement covering Borrower’s operations during such
period; (ii) as soon as prepared,
but no later than 120 days after the end of the fiscal year, audited financial
statements prepared in accordance with GAAP, together with an opinion that such
financial statements fairly present Borrower’s financial condition by an
independent public accounting firm reasonably acceptable to Lender; (iii) immediately upon notice thereof, a
report of any legal or administrative action pending or threatened against
Borrower; and (iv) such other
financial information as Lender may reasonably request from time to time. Financial
statements delivered pursuant to subsections (i)
and (ii) above shall be
accompanied by a certificate signed by a Responsible Officer (each an “Officer’s Certificate”) in the form of Exhibit F. Following  the completion of Borrower’s IPO, in lieu
of delivery of the materials 

 

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described in the preceding sentence, Borrower shall cause to be filed
with the Securities and Exchange Commission (“SEC”)
all Forms 10-K and 10-Q within 10 days of the dates required to be filed,
including any applicable extensions, and Forms 8-K as required pursuant to
applicable SEC regulations.

 

6.3          Notice of Defaults.   Upon
any Default or Event of Default, an Officer’s Certificate setting forth the
facts relating to or giving rise thereto, and the Borrower’s proposed action
with respect thereto.

 

6.4          Use; Maintenance.   Borrower,
at its expense, shall (i) maintain
the Collateral in good condition, reasonable wear and tear excepted, and will
comply in all material respects with all laws, rules and regulations regarding
use and operation of the Collateral and (ii)
repair or replace any lost or damaged Collateral.

 

6.5          Insurance.   Borrower,
at its own expense, shall maintain in amounts and coverages reasonably
satisfactory to Lender. Each insurance shall: (i)
name Lender loss payee or additional insured, as appropriate, (ii) provide for insurer’s waiver of its
right of subrogation against Lender and Borrower, (iii) be primary without a right of contribution of Lender’s
insurance, if any, or any obligation on the part of Lender to pay premiums of
Borrower, and (iv) require the
insurer to give Lender at least 30 days prior written notice of cancellation. Borrower
shall furnish all certificates of insurance required by Lender.

 

6.6          Loss Proceeds.  So
long as no Default has occurred, any proceeds of insurance on or condemnation
of Collateral shall, at Borrower’s election and so long as Lender’s security
interest in such proceeds remains first priority, be used either to repair or
replace such Collateral.

 

6.7          Further Assurances.  At
any time and from time to time, Borrower shall execute and deliver such further
instruments and take such further action as Lender may reasonably request to
effect the intent and purposes hereof, to perfect and continue perfected and of
first priority Lender’s security interests in the Collateral, and to effect and
maintain ACH payment arrangements.

 

6.8          Collateral:  Accounts.  Following the
occurrence and during the continuance of an Event of Default, Borrower hereby
authorizes Lender to at any time notify account debtors that Lender has a
security interest in Accounts and direct such account debtors to make all
payments directly to Lender or to a lock box designated by Lender. Borrower
irrevocably makes, constitutes and appoints Lender as Borrower’s true and
lawful attorney-in-fact to endorse Borrower’s name on any checks, notes, drafts
or any other payment or proceeds of Collateral which come into Lender’s
possession or control. Lender has the right, in Lender’s or Borrower’s name, to
verify the validity, amount or any other matter relating to any Collateral. In
the event any Account over $15,000 is a subject of dispute between the account
debtor and Borrower, Borrower will provide Lender with written notice
explaining in detail the dispute.

 

6.9          Equipment Financing
Right of First Refusal.  In
the event that Borrower shall, at any time during the Term, determine to obtain
equipment financing (other than the equipment financing described in the
definition of Permitted Liens), Borrower shall be obligated to first allow
Lender a reasonable opportunity to propose terms for and offer to Borrower an
equipment facility (“Equipment Facility”); Lender shall have thirty (30) days
to prepare and submit its Equipment Facility proposal to Borrower after
receiving a request from Borrower.

 

7.             Negative Covenants

 

Borrower will not do any of the following:

 

7.1          Location of Collateral.  Change
its chief executive office or principal place of business or remove, except in
the ordinary course of Borrower’s business, the Collateral or Borrower’s Books
from the premises listed in Section 11
without giving 30 days prior written notice to Lender.

 

7.2          Extraordinary
Transactions.  Enter into any transaction not in the ordinary
course of Borrower’s business, including the sale, lease, license or other
disposition of its assets, other than sales of inventory or licenses of
intellectual property in the ordinary course of Borrower’s business or other
dispositions (such as of worn-out or obsolete equipment or goods) not to exceed
$100,000 in the aggregate in any calendar year. Notwithstanding the foregoing,
Borrower’s IPO shall not be considered an extraordinary transaction.

 

7.3          Restructure.  Make any
material change in Borrower’s financial structure or business operations (other
than through the sale of preferred stock to equity investors which does not
result in a change of control of Borrower or through the sale of stock in an
IPO or secondary public offering); cause a Liquidation Event; or suspend
operation of Borrower’s business.

 

7.4          Liens.   Create,
incur, assume or suffer to exist any Lien of any kind with respect to any of
its property, whether now owned or hereafter acquired, except for Permitted
Liens.

 

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7.5          Indebtedness.   Create, incur, assume or suffer to exist
any Indebtedness, other than Permitted Indebtedness or cause or suffer any
Subsidiary to create, incur, assume or suffer to exist any Indebtedness, other
than Permitted Indebtedness.

 

7.6          Distributions.   Pay
any dividends or distributions, or redeem or purchase, any capital stock, except for
repurchases of stock from former employees or directors of Borrower under the
terms of applicable repurchase agreements in an aggregate amount not to exceed
$100,000 in any fiscal year, provided that no Event of Default has occurred, is
continuing or would exist after giving effect to the repurchases.

 

7.7          Transactions with Affiliates.   Directly or
indirectly enter into any transaction with any affiliate not both in the
ordinary course of Borrower’s business and on terms no less favorable to
Borrower than would be obtained in an arm’s length transaction with a
non-affiliated entity.

 

7.8          Compliance.   Become
an “investment company” under the Investment Company Act of 1940 or extend
credit to purchase or carry margin stock; fail to meet the minimum funding
requirements of ERISA; permit a Reportable Event or Prohibited Transaction, as
defined in ERISA, to occur; fail to comply with the Federal Fair Labor
Standards Act or violate any other law or regulation, or permit any of its
subsidiaries to do so.

 

7.9          UCC Effectiveness.   Change its name, jurisdiction of
organization, or take any other action that could render Lender’s financing
statements misleading, without giving Lender 30 days advance written notice.

 

7.10        Deposit and Securities Accounts.
  Maintain any
deposit accounts or accounts holding securities owned by Borrower except
accounts in which Lender has obtained a perfected first priority security
interest. Notwithstanding the foregoing,  (i) Lender shall not have a perfected security interest in
Borrower’s account #8800057097  at
Silicon Valley Bank for the letter of credit issued in conjunction with
Borrower’s reimbursement obligations to its payroll processor, provided further, such account shall not
exceed $300,000 and (ii) Lender’s
security interest shall be subordinate to that of Comerica up to a maximum of
$903,200 of cash in Borrower’s account #1892765692  at Comerica supporting letter of credit #596267-43 issued to
Trinet Essential Facilities X, Inc. or its co-beneficiary, Istar Financial,
Inc. in conjunction with Borrower’s real property lease, provided further, such letter of credit
shall not exceed $903,200.

 

8.             Events of Default

 

Any one or more of the following shall constitute an Event of Default
by Borrower hereunder:

 

8.1          Payment.  Borrower
fails to pay within 1 business day of the date when due and payable in
accordance with the Loan Documents any portion of the Obligations, or cancels
an ACH payment or transfer Lender has initiated in conformity with the terms
hereof, provided, however, that
an Event of Default shall not occur on account of a failure to pay due solely
to an administrative or operational error if Borrower had the funds to make the
payment when due and makes the payment the business day following Borrower’s
knowledge of such failure to pay.

 

8.2          Certain Covenant
Defaults.  Borrower fails to perform any obligation under Section 6.5 or 6.6, or violates any of the covenants
contained in Section 7.

 

8.3          Other Covenant Defaults.  Borrower
fails or neglects to perform, keep, or observe any other term, provision,
condition, covenant, or agreement contained in this Agreement, in any of the
other Loan Documents, or in any other present or future agreement between
Borrower and Lender and has failed to cure such failure within 30 days after
its occurrence.

 

8.4          Attachment.  Any
material portion of Borrower’s assets is attached, seized, subjected to a
government levy, lien, writ or distress warrant, or comes into the possession
of any trustee or receiver and the same is not returned, removed, waived,
stayed, discharged or rescinded within 15 days.

 

8.5          Other Agreements.  There
is a default in any agreement after the expiration of any applicable cure
periods to which Borrower is a party resulting in a right by a third party,
whether or not exercised, to accelerate the maturity of any Indebtedness in
excess of $100,000.

 

8.6          Judgments.  One
or more judgments for an aggregate of at least $100,000 is rendered against
Borrower and remains unsatisfied and unstayed for more than 30 days.

 

7

 

8.7          Injunction.  Borrower
is enjoined, restrained, or in any way prevented by court order from continuing
to conduct any material part of its business affairs, or if a judgment or other
claim becomes a Lien upon any material portion of Borrower’s assets.

 

8.8          Misrepresentation.  Any
representation, statement, or report made to Lender by Borrower or any
Responsible Officer or authorized officer, employee, agent, or director of
Borrower purporting to speak on behalf of Borrower was false or intentionally
misleading in any material respect when made.

 

8.9          Enforceability.  Lender’s
ability to enforce its rights against Borrower or any Collateral is impaired in
any material respect, or Borrower asserts that any Loan Document is not a
legal, valid and binding obligation of Borrower enforceable in accordance with
its terms, or any subordinating creditor breaches or purports to rescind or
terminate its agreement with Lender.

 

8.10        Involuntary Bankruptcy.  An
involuntary bankruptcy case remains undismissed or unstayed for 30 days or, if
earlier, an order granting the relief sought is entered.

 

8.11        Voluntary Bankruptcy or
Insolvency.  Borrower commences a voluntary case under applicable
bankruptcy or insolvency law, consents to the entry of an order for relief in
an involuntary case under any such law, or consents or is subject to the
appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian or other similar official of Borrower or any substantial
part of its property, or makes an assignment for the benefit of creditors, or fails
generally or admits in writing to its inability to pay its debts as they become
due, or takes any corporate action in furtherance of any of the foregoing.

 

8.12        Merger without Assumption.  Borrower
is acquired by or merges into any other business entity, and such acquirer or
resulting entity either: (i) does
not provide an unconditional, unlimited guaranty of the Obligations in form and
substance satisfactory to Lender or (ii)
is of a credit quality unacceptable to Lender in its commercially reasonable judgment.

 

9.             Lender’s Rights and Remedies

 

9.1          Rights and Remedies.  Upon
the occurrence and continuance of any Event of Default, Lender may, at its
election, without notice of election and without demand, do any one or more of
the following, all of which are authorized by Borrower:  (i)
accelerate and declare the Loan and all Obligations immediately due and
payable; (ii) make such payments
and do such acts as Lender considers necessary or reasonable to protect its
security interest in the Collateral, with such amounts becoming Obligations
bearing interest at the Default Rate; (iii)
exercise any and all other rights and remedies available under the UCC or
otherwise; provided, however,
that notwithstanding anything to the contrary herein, Lender may not exercise
any remedies of foreclosure against Intellectual Property Collateral or
restrict Borrower’s use of, access to or control over the Intellectual Property
Collateral in any manner unless there has been an Insolvency Event; and
provided, further, that Lender will not take any action with respect to
Borrower’s deposit or securities accounts, including, without limitation,
freezing Borrower’s ability to make trades within such securities accounts, to
make withdrawals from such deposit or securities accounts and to received
dividends relating to the assets in such accounts, unless an Event of Default
has occurred, and provided, further, that prior to the occurrence of an Event
of Default, Lender shall take all appropriate action, including renewing
standing letters of authorization with the applicable securities
intermediaries, to ensure that Borrower retains the ability to make trades or
withdrawals and received dividends or distributions relating to such accounts; (iv) require Borrower to assemble the
Collateral at such places as Lender may designate; (v) enter premises where any Collateral is located, take,
maintain possession of, or render unusable the Collateral or any part of it; (vi) without notice to Borrower, set off
and recoup against any portion of the Obligations; (vii) ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell the Collateral, in connection
with which Borrower hereby grants Lender a license to use without charge
Borrower’s premises, labels, name, trademarks, and other property necessary to
complete, advertise, and sell any Collateral;
and (viii) sell the
Collateral at one or more public or private sales.

 

9.2          Power of Attorney in
Respect of the Collateral.  Borrower hereby irrevocably appoints
Lender (which appointment is coupled with an interest) its true and lawful
attorney in fact with full power of substitution, for it and in its name to,
upon and during the continuance of an Event of Default:  (i) ask,
demand, collect, receive, sue for, compound and give acquittance for any and
all Collateral with full power to settle, adjust or compromise any claim, (ii) receive payment of and endorse
the name of Borrower on any items of Collateral, (iii) make all demands, consents and waivers, or take any
other action with respect to, the Collateral, (iv) 
file any claim or take any other action, in Lender’s or Borrower’s name, which
Lender may reasonably deem appropriate to protect its rights in the Collateral,
or (v) otherwise act with
respect to the Collateral as though Lender were its outright owner.

 

9.3          Charges.  If
Borrower fails to pay any amounts required hereunder to be paid by Borrower to
any third party, Lender may at its option pay any part thereof and any amounts
so paid including Lender’s Expenses incurred shall become Obligations,
immediately due and payable, bearing interest at the Default Rate, and secured
by the Collateral. Any such payments by Lender shall not constitute an
agreement to make similar payments or a waiver of any Event of Default.

 

8

 

9.4          Remedies Cumulative.  Lender’s
rights and remedies under the Loan Documents and all other agreements with
Borrower shall be cumulative. Lender shall have all other rights and remedies
as provided under the UCC, by law, or in equity. No exercise by Lender of one
right or remedy shall be deemed an election, and no waiver by Lender of any
Event of Default shall be deemed a continuing waiver. No delay by Lender shall
constitute a waiver, election, or acquiescence.

 

9.5          Application of
Collateral Proceeds.  Lender will apply proceeds of sale, to the
extent actually received in cash, in the manner and order it determines in its
sole discretion, and as prescribed by applicable law.

 

10.          Waivers; Indemnification

 

10.1        Waivers.  Without
limiting the generality of the other waivers made by Borrower herein, to the
maximum extent permitted under applicable law, Borrower hereby irrevocably
waives all of the following: (i) any
right to assert against Lender as
a defense, counterclaim, set-off or crossclaim, any defense (legal or
equitable), set-off, counterclaim, crossclaim and/or other claim (a) which
Borrower may now or at any time hereafter have against any party liable to
Lender in any way or manner, or (b) arising directly or indirectly from the
present or future lack of perfection, sufficiency, validity and/or
enforceability of any Loan Document, or any security interest; (ii) presentment, demand and notice of
presentment, dishonor, notice of intent to accelerate, protest, default,
nonpayment, maturity, release, compromise, settlement, extension or renewal of
any or all accounts, documents, instruments, chattel paper and guaranties at
any time held by Lender on which Borrower may in any way be liable and hereby
ratifies and confirms whatever Lender may do in this regard; (iii) the benefit of all marshalling,
valuation, appraisal and exemption laws; (iv)  the right, if any, to require
Lender to (a) proceed against any person liable for any of the Obligations as a
condition to or before proceeding hereunder; or (b) foreclose upon, sell or
otherwise realize upon or collect or apply any other property, real or
personal, securing any of the Obligations, as a condition to, or before
proceeding hereunder; (v) any demand
for possession before the commencement of any suit or action to recover
possession of Collateral; and (vi)
any requirement that Lender retain possession and not dispose of Collateral
until after trial or final judgment.

 

10.2        Lender’s Liability for Collateral.  Lender
shall not in any way or manner be liable or responsible for:  (i)
the safekeeping of any Collateral; (ii) any
loss or damage thereto occurring or arising in any manner or fashion from any
cause; (iii) any diminution in the
value thereof; or (iv) any act or
default of any carrier, warehouseman, bailee, forwarding agency, or other
person or entity whomsoever. All risk of loss, damage or destruction of the
Collateral shall be borne by Borrower. Lender will have no responsibility for
taking any steps to preserve rights against any parties respecting any
Collateral. Lender’s powers hereunder are conferred solely to protect its
interest in the Collateral and do not impose any duty to exercise any such
powers. None of Lender or any of its officers, directors, employees, agents or
counsel will be liable for any action lawfully taken or omitted to be taken
hereunder or in connection herewith (excepting gross negligence or willful
misconduct), nor under any circumstances have any liability to Borrower for
lost profits or other special, indirect, punitive, or consequential damages. Lender
retains any documents delivered by Borrower only for its purposes and for such
period as Lender, at its sole discretion, may determine necessary, after which
time Lender may destroy such records without notice to or consent from
Borrower.

 

10.3        Indemnification.  Borrower shall,
on an after tax basis, defend, indemnify, and hold Lender and each of its
officers, directors, employees, counsel, partners, agents and attorneys-in-fact
(each, an “Indemnified Person”)
harmless from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, charges, expenses or
disbursements (including Lender’s Expenses and reasonable attorney’s fees and
the allocated cost of in-house counsel) of any kind or nature whatsoever with
respect to the execution, delivery, enforcement, performance and administration
of this Agreement and any other Loan Documents, or the transactions
contemplated hereby and thereby, with respect to noncompliance with laws or
regulations respecting Regulated Substances, government secrecy or technology
export, or any Lien not created by Lender or right of another against any
Collateral, even if the Collateral is foreclosed upon or sold pursuant hereto,
and with respect to any investigation, litigation or proceeding before any
agency, court or other governmental authority relating to this Agreement or the
Advances or the use of the proceeds thereof, whether or not any Indemnified
Person is a party thereto (all the foregoing, collectively, the “Indemnified Liabilities”); provided, that Borrower shall have no
obligation hereunder to any Indemnified Person with respect to Indemnified
Liabilities arising from the gross negligence or willful misconduct of such
Indemnified Person. The obligations in this Section  shall survive the Term. At the election of any Indemnified
Person, Borrower shall defend such Indemnified Person using legal counsel
satisfactory to such Indemnified Person, at the sole cost and expense of
Borrower. All amounts owing under this Section shall be paid within 30 days
after written demand.

 

11.          Notices

 

All notices shall be in writing and personally delivered or sent by
overnight mail or by confirmed facsimile, at the respective addresses set forth
below:

 

9

 

	
  If
  to Borrower:

  	
   

  	
  If to Lender:

  
	
   

  	
   

  	
   

  
	
  ARYx
  Therapeutics, Inc.

  	
   

  	
  Lighthouse Capital Partners V, LP

  
	
  6300
  Dumbarton Circle

  	
   

  	
  500 Drake’s Landing Road

  
	
  Fremont, CA
  94555

  	
   

  	
  Greenbrae, California 94904

  
	
  Attention:
  Chief Operating Officer

  	
   

  	
  Attention: Contract Administrator

  
	
  FAX: (510)
  585-2202

  	
   

  	
  FAX: (415) 925-3387

  
	
   

  	
   

  	
   

  
	
  With a copy
  to:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Cooley
  Godward

  	
   

  	
   

  
	
  Five Palo
  Alto Square

  	
   

  	
   

  
	
  3000 El
  Camino Real

  	
   

  	
   

  
	
  Palo Alto,
  California 94304-1130

  	
   

  	
   

  
	
  Attention:
  Jim Fulton, Esq.

  	
   

  	
   

  
	
  FAX: (650)
  849-7400

  	
   

  	
   

  

 

12.          General Provisions

 

12.1        Successors and Assigns.  This
Agreement shall bind and inure to the benefit of the parties’ respective
successors and permitted assigns. Borrower may not assign any rights hereunder
without Lender’s prior written consent, which consent may be granted or
withheld in Lender’s commercially reasonable discretion. Lender shall have the
right without the consent of or notice to Borrower to sell, transfer, negotiate,
or grant participations in all or any part of any Loan Document.

 

12.2        Time of Essence.  Time
is of the essence for the performance of all Obligations.

 

12.3        Severability of Provisions.  Each
provision hereof shall be severable from every other provision in determining
its legal enforceability.

 

12.4        Entire Agreement.  This
Agreement and each of the other Loan Documents dated as of the date hereof,
taken together, constitute and contain the entire agreement between Borrower
and Lender with respect to their subject matter and supersede any and all prior
agreements, negotiations, correspondence, understandings and communications
between the parties, whether written or oral. This Agreement is the result of
negotiations between and has been reviewed by the Borrower and Lender as of the
date hereof and their respective counsel; accordingly,
this Agreement shall be deemed to be the product of the parties hereto, and no
ambiguity shall be construed in favor of or against Borrower or Lender. This
Agreement may only be modified with the written consent of Lender. Any waiver
or consent with respect to any provision of the Loan Documents shall be
effective only in the specific instance and for the specific purpose for which
it was given. No notice to or demand on Borrower in any one case shall entitle
Borrower to any other or further notice or demand in similar or other
circumstances.

 

12.5        Reliance by Lender.  All
covenants, agreements, representations and warranties made herein by Borrower
shall, notwithstanding any investigation by Lender, be deemed to be material to
and to have been relied upon by Lender.

 

12.6        No Set-Offs by Borrower.  All
sums payable by Borrower pursuant to this Agreement or any of the other Loan
Documents shall be payable without notice or demand and shall be payable in
United States Dollars without set-off or reduction of any manner whatsoever.

 

12.7        Counterparts.  This
Agreement may be executed in any number of counterparts, each of which shall be
deemed to be an original, and all of which, when taken together, shall
constitute one and the same original instrument.

 

12.8        Survival.  All
covenants, representations and warranties made in this Agreement shall continue
in full force and effect so long as any Obligations remain outstanding.

 

12.9        No Original Issue Discount.  Borrower
and Lender acknowledge and agree that the Warrant is part of an investment unit
within the meaning of Section 1273(c)(2) of the Internal Revenue Code,
which includes the Loan. Borrower and Lender further agree as between them,
that the fair market value of the Warrant is $100 and that, pursuant to Treas.
Reg. § 1.1273-2(h), $100 of the issue price of the investment unit will be
allocable to the Warrant and the balance shall be allocable to the Loans. Borrower
and Lender agree to prepare their federal income tax returns in a manner
consistent with the foregoing and, pursuant to Treas. Reg. § 1.1273, the
original issue discount on the Loan shall be considered to be zero.

 

12.10      Relationship of Parties.  The relationship between
Borrower and Lender is, and at all times shall remain, solely that of a
borrower and lender. Lender is not a partner or joint venturer of Borrower; nor
shall Lender under any circumstances be deemed to be in a 

 

10

 

relationship of confidence or trust or have a fiduciary
relationship with Borrower or any of its affiliates, or to owe any fiduciary
duty to Borrower or any of its affiliates. Lender does not undertake or assume
any responsibility or duty to Borrower or any of its affiliates to select,
review, inspect, supervise, pass judgment upon or otherwise inform any of them
of any matter in connection with its or their property, the Loans, any
Collateral or the operations of Borrower or any of its affiliates. Borrower and
each of its affiliates shall rely entirely on their own judgment with respect
to such matters, and any review, inspection, supervision, exercise of judgment
or supply of information undertaken or assumed by Lender in connection with
such matters is solely for the protection of Lender and neither Borrower nor
any affiliate is entitled to rely thereon.

 

12.11      Choice of Law and Venue; Jury Trial Waiver.  This
Agreement shall be governed by and construed in 
accordance with, the internal laws of the State of California, without
regard to principles of conflicts of law. Each of Borrower and Lender hereby
submits to the exclusive jurisdiction of the State and Federal courts located
in the City and County of San Francisco, State of California. Borrower and
Lender hereby waive their respective rights to a jury trial of any claim or
cuase of action based upon or arising out of any of the Loan Documents or any
of the transactions contemplated therein, including contract claims, tort
claims, breach of duty claims, and all other common law or statutory claims.
Each party further waives any right to consolidate any action in which a jury
trial has been waived with any other action in which a jury trial cannot be or
has not been waived.

 

In Witness
Whereof, the parties hereto have executed this
Agreement as of the date first above written.

 

	
  ARYx Therapeutics, Inc.

  	
  Lighthouse Capital Partners V, L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Lighthouse
  Management Partners V, L.L.C., its general partner

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ John
  Varian

  	
   

  	
  By:

  	
  /s/ Thomas
  Conneely

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
  John Varian

  	
   

  	
  Name:

  	
  Thomas
  Conneely

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
  COO

  	
   

  	
  Title: 

  	
  Vice
  President

  	
   

  
																			

 

	
  Exhibit A

  	
   

  	
  Collateral Description

  
	
  Exhibit B

  	
   

  	
  Form of Note

  
	
  Exhibit C

  	
   

  	
  Form of Preferred Stock Warrant

  
	
  Exhibit D

  	
   

  	
  Form of Notice of Borrowing

  
	
  Exhibit E

  	
   

  	
  Form of Incumbency Certificate

  
	
  Exhibit F

  	
   

  	
  Form of Officers Certificate

  
	
  Exhibit G

  	
   

  	
  ACH Authorization

  
	
  Exhibit H

  	
   

  	
  Control Agreement

  
	
  Exhibit I

  	
   

  	
  Negative Pledge Agreement

  
	
  Schedule 1

  	
   

  	
  Disclosure Schedule

  

 

11

 

Exhibit
A

 

Collateral

 

This FINANCING STATEMENT and SECURITY AGREEMENT covers all of Debtor’s
interests in all of the following types or items of property, wherever located
and whether now owned or hereafter acquired, and Debtor hereby grants Secured
Party a security interest therein as collateral for the payment and performance
of all present and future indebtedness, liabilities, guarantees and obligations
of Debtor to Secured Party, howsoever arising. Debtor agrees that said security
interest may be enforced by Secured Party in accordance with the terms of all
security and other agreements between Secured Party and Debtor, the California
Uniform Commercial Code, or both, and that this document shall be fully
effective as a security agreement, even if there is no other security or other
agreement between Secured Party or Debtor:

 

All assets of the Debtor; all personal property of Debtor;

 

All “accounts”, “general intangibles”, “chattel paper”, “contract
rights”, “documents”, “instruments”, “deposit accounts”, “inventory”, “farm
products”, “fixtures” and “equipment”, as such terms are defined in Division 9
of the California Uniform Commercial Code in effect on the date hereof;

 

All general intangibles of every kind, including without limitation
intellectual property, patents, copyrights, trade names, and trademarks (and
the goodwill of the business symbolized thereby, federal, state and local tax
refunds and claims of all kinds; all rights as a licensor or licensee or any
kind; all customer lists, trade secrets, telephone numbers, processes,
proprietary information, and purchase orders, and all rights to purchase, lease
sell, or otherwise acquire or deal with real or personal property and all
rights relating thereto;

 

All returned and repossessed goods and all rights as a seller of goods;
all collateral securing any of the foregoing; all deposit accounts, special and
general, whether on deposit with Secured Party or others;

 

All life and other insurance policies, claims in contract, tort or
otherwise, and all judgments now or hereafter arising therefrom;

 

All right, title and interest of Debtor, and all of Debtor’s rights,
remedies, security and liens, in, to and in respect of all accounts and other
collateral, including, without limitation, rights of stoppage in transit,
replevin, repossession and reclamation and other rights and remedies of an
unpaid vendor, lienor or secured party, and all guarantees and other contracts
of suretyship with respect to any accounts and other collateral, and all
deposits and other security for any accounts and other collateral, and all
credit and other insurance;

 

All notes, drafts, letters of credit, contract rights, and things in
action; all drawings, specifications, blueprints and catalogs; and all raw
materials, work in process, materials used or consumed in Debtor’s business,
goods, finished goods, returned goods and all other goods and inventory of
whatsoever kind or nature, any and all wrapping, packaging, advertising and
shipping materials, and all documents relating thereto, and all labels and
other devices, names and marks affixed or to be affixed thereto for purposes of
selling or identifying the same or the seller or manufacturer thereof;

 

All inventory wherever located; all present and future claims against
any supplier of any of the foregoing, including claims for defective goods or
overpayments to or undershipments by suppliers; all proceeds arising from the
lease or rental of any of the foregoing; INVENTORY RETURNED BY DEBTOR TO ITS
SUPPLIERS SHALL REMAIN SUBJECT TO SECURED PARTY’S SECURITY INTEREST;

 

All equipment and fixtures, NONE OF WHICH THE DEBTOR IS AUTHORIZED TO
SELL, LEASE OR OTHERWISE DISPOSE OF WITHOUT THE WRITTEN CONSENT OF SECURED
PARTY, including without limitation all machinery, machine tools, motors,
controls, parts, vehicles, workstations, tools, dies, jigs, furniture,
furnishings and fixtures; and all attachments, accessories, accessions and
property now or hereafter affixed to or used in connection with any of the
foregoing, and all substitutions and replacements for any of the foregoing; all
warranty and other claims against any vendor or lessor of any of the foregoing;

 

All investment property;

 

All books, records, ledger cards, computer data and programs and other
property and general intangibles at any time evidencing or relating to any or
all of the foregoing; and

 

All cash and non-cash products and proceeds of any of the foregoing, in
whatever form, including proceeds in the form of inventory, equipment or any
other form of personal property, including proceeds of proceeds and proceeds of
insurance, and all claims by Debtor against third parties for loss or damage
to, or destruction of, or otherwise relating to, any or all of the foregoing.

 

1

 

NOTICE - PURSUANT TO AN AGREEMENT BETWEEN DEBTOR AND SECURED PARTY,
DEBTOR HAS AGREED NOT TO FURTHER ENCUMBER THE COLLATERAL DESCRIBED HEREIN, THE
FURTHER ENCUMBERING OF WHICH MAY CONSTITUTE THE TORTIOUS INTERFERENCE WITH
SECURED PARTY’S RIGHTS BY SUCH ENCUMBRANCER. IN THE EVENT THAT ANY ENTITY IS
GRANTED A SECURITY INTEREST IN DEBTOR’S ACCOUNTS, CHATTEL PAPER, GENERAL
INTANGIBLES OR OTHER ASSETS CONTRARY TO THE ABOVE, THE SECURED PARTY ASSERTS A
CLAIM TO ANY PROCEEDS THEREOF RECEIVED BY SUCH ENTITY.

 

	
  “Debtor”

  	
  “Secured Party”

  
	
   

  	
   

  
	
  ARYx Therapeutics, Inc.

  	
  Lighthouse Capital Partners V, L.P.

  
	
  A California Corporation

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Lighthouse
  Management Partners V, L.L.C., its general partner

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ John
  Varian

  	
   

  	
  By:

  	
  /s/ Thomas
  Conneely

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
  John Varian

  	
   

  	
  Name:

  	
  Thomas
  Conneely

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
  COO

  	
   

  	
  Title: 

  	
  Vice
  President

  	
   

  
																			

 

2

 

Exhibit B

 

[               ]

 

Secured Promissory Note

 

This Secured Promissory Note
(this “Note”) is made                     ,
2005, by ARYx Therapeutics, Inc. (“Borrower”) in favor of
Lighthouse Capital Partners V, L.P. (collectively with its assigns, “Lender”), and its assigns (collectively, “Holder”) with reference to the following:

 

For Value Received, Borrower
promises to pay in lawful money of the United States, to the order of Lender,
at 500 Drake’s Landing Road, Greenbrae, California 94904, or such other place
as Lender may from time to time designate (“Lender’s
Office”), the sum of $                
plus all other monies advanced under or owing on account of the Advance
evidenced hereby under that certain Loan and Security Agreement No. 4521
between Borrower and Lender dated March 28, 2005 (the “Loan Agreement”), including interest on the
unpaid balance of the Advance at the Basic Rate accruing from the Funding Date,
and all other amounts due or to become due hereunder according to the terms
hereof. Capitalized terms used and not otherwise defined herein are defined in
the Loan Agreement.

 

“Basic Rate” means a per annum rate of interest equal to the
higher of 7.00% or the Prime Rate quoted in the western edition of the
Wall Street Journal on the Funding Date plus 200 basis points. The Basic Rate
shall be fixed as of the Loan Commencement Date.

 

“Final Payment”  means 12.0% of the original principal
amount of the Note.

 

“Loan Commencement Date”
for this Note means April 1, 2006.

 

“Maturity Date” means
September 30, 2009, or if earlier, the date of prepayment under the Note.

 

“Payment Factor” means
2.676%, subject to adjustments in the Basic Rate in the event the Prime Rate is
greater than 5.00% on the date of determination.

 

“Repayment Period” means
the period beginning on the Loan Commencement Date and continuing for 42
calendar months.

 

1.             Repayment.  Borrower shall repay the principal and
interest thereupon will be paid as follows:

 

a.             Scheduled Payments.  From and after the Loan Commencement Date,
Borrower shall make amortizing payments of principal and interest in advance
(collectively, “Scheduled Payments”)
on the first day of each month during the Repayment Period (each a “Payment Date”), in an amount equal to the
Payment Factor multiplied by the original principal amount of the
Advance. In addition, all unpaid principal and accrued interest, together with
all Lenders Expenses associated with the Advance and this Note shall be due and
payable in full on the Maturity Date.

 

b.             Interim Payments.  In addition to the Scheduled Payments, Borrower
shall pay to Lender, monthly in advance, an amount (the “Interim Payment”) equal to accrued
interest on the aggregate principal amount of this Note calculated at the Basic
Rate from the Funding Date (and thereafter recalculated on the first business
day of each calendar month during which an Interim Payment is due), until the
Loan Commencement Date with respect to this Note.

 

c.             Final Payment.  On the Maturity Date, Borrower shall pay, in
addition to all unpaid principal and interest due hereunder, the Final Payment.

 

2.             Interest.  Interest
not paid when due will, to the maximum extent permitted under applicable law,
become part of principal, at Lender’s option, and thereafter bear like interest
as principal. All Obligations due not paid when due shall bear interest at the
Default Rate unless waived in writing by Lender. All amounts paid hereunder
including principal, interest or fees and expenses will be applied in Lender’s
discretion and as provided in the Loan Agreement.

 

3.             Prepayment.

 

a.             Mandatory Prepayment
Upon Acceleration.  If
this Note is accelerated following the occurrence of an Event of Default or
otherwise, then Borrower shall immediately pay to Lender (i) all unpaid Scheduled Payments due
before the date of 

 

1

 

prepayment,
(ii) the outstanding
principal amount of the Note, (iii)
the Final Payment and (iv) all
other sums, if any, that shall have become due and payable hereunder with
respect to this Note.

 

b.             Voluntary Prepayment.  Borrower may voluntarily prepay all of the
principal due under this Note, provided that
each of the following conditions is satisfied: 
Borrower pays to Lender (i)
all unpaid Scheduled Payments due before the date of prepayment, (ii) the outstanding principal amount of
this Note and any unpaid accrued interest, (iii)
the Final Payment, and (iv) all
other sums, if any, that shall have become due and payable.

 

c.             No Other Prepayment.  Borrower
may not prepay this Note except described herein.

 

4.             Collateral.  This
Note is secured by the Collateral.

 

5.             Waivers.  Borrower,
and all guarantors and endorsers of this Note, regardless of the time, order or
place of signing, hereby waive notice, demand, presentment, protest, and
notices of every kind, presentment for the purpose of accelerating maturity,
diligence in collection, and, to the fullest extent permitted by law, all
rights to plead any statute of limitations as a defense to any action on this
Note.

 

6.             Choice of Law; Venue.  This Note shall be governed by, and construed
in accordance with the internal laws of the State of California, without regard
to principles of conflicts of law. Each of Borrower and Lender hereby submits
to the exclusive jurisdiction of the State and Federal courts located in the
City and County of San Francisco, State of California. Borrower and Lender Each
hereby waive their respective rights to a jury trial of any claim or cause of
action based upon or arising out of this Note. Each party further waives any
right to consolidate any action in which a jury trial has been waived with any
other action in which a jury trial cannot be or has not been waived.

 

7.             Miscellaneous. This Note may be modified only by a writing
signed by Borrower and Lender. Each
provision hereof is severable from every other provision hereof and of the Loan
Agreement when determining its legal enforceability. Sections and subsections
are titled for convenience, and not for construction. “Hereof,” “herein,”
“hereunder,” and similar words refer to this Note in its entirety. “Or” is not
necessarily exclusive. “Including” is not limiting. The terms and conditions
hereof inure to the benefit of and are binding upon the parties’ respective
permitted successors and assigns. This Note is subject to all the terms and
conditions of the Loan Agreement.

 

In Witness
Whereof, Borrower has caused this Note to be executed by a duly
authorized officer as of the day and year first above written.

 

	
   

  	
  ARYx Therapeutics, Inc.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						

 

2

 

Exhibit c

 

Warrants

 

Please see
Attached

 

 

1

 

THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”), OR
ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED UNLESS
SUCH SALE OR TRANSFER IS IN ACCORDANCE WITH THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND APPLICABLE LAWS OR SOME OTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS IS AVAILABLE WITH RESPECT THERETO.

 

 

PREFERRED STOCK PURCHASE WARRANT

 

 

	
  Warrant No. 1

  	
   

  	
  Number of Shares: To be determined.

  
	
   

  	
   

  	
  Series D Preferred Stock

  

 

 

ARYX THERAPEUTICS, INC.

 

 

Effective as of March 28, 2005

 

Void after March 28, 2012

 

1.             Issuance.
This Preferred Stock Purchase Warrant (the “Warrant”)
is issued to LIGHTHOUSE CAPITAL PARTNERS V, L.P.
(the “Holder”)by ARYX
THERAPEUTICS, INC., a California corporation (hereinafter with its
successors called the “Company”).

 

2.             Purchase
Price; Number of Shares.

 

(a)                                  The
registered holder of this Warrant, commencing on the date hereof, is entitled
upon surrender of this Warrant with the subscription form annexed hereto duly
executed, at the principal office of the Company, to purchase from the Company,
at a price per share of $1.655 (the “Purchase Price”),
302,114 fully paid and nonassessable shares of the Company’s Series D Preferred
Stock (the “Exercise Quantity (the “Preferred Stock”).

 

(b)                                  The
Exercise Quantity shall automatically increase by an amount equal to 5% of the
Aggregate Advances under the Loan Agreement divided by the Purchase Price.

 

In addition to other
terms which may be defined herein, the following terms, as used in this
Warrant, shall have the following meanings:

 

(i)                                    “Aggregate Advances” means the aggregate
dollar amount of all Advances made under the Loan Agreement, whether such
Advances are outstanding or prepaid, at the time of any scheduled adjustment to
the Exercise Quantity.

 

(ii)                                “Loan Agreement” means that certain Loan
and Security Agreement No. 4521 dated March 28, 2005 between the Company and
Lighthouse Capital Partners V, L.P.

 

Any term not defined
herein shall have the meaning as set forth in the Loan Agreement.

 

Until such time as this
Warrant is exercised in full or expires, the Purchase Price and the securities
issuable upon exercise of this Warrant are subject to adjustment as hereinafter
provided. The person or persons in whose name or names any certificate
representing shares of Preferred Stock is issued hereunder shall be deemed to
have become the holder of record of the shares represented thereby as at the
close of business on the date this Warrant is exercised with respect to such
shares, whether or not the transfer books of the Company shall be closed.

 

1

 

3.                                      Payment
of Purchase Price. The Purchase Price may be paid (i) in cash or by check,
(ii) by the surrender by the Holder to the Company of any promissory notes or
other obligations issued by the Company, with all such notes and obligations so
surrendered being credited against the Purchase Price in an amount equal to the
principal amount thereof plus accrued interest to the date of surrender, or
(iii) by any combination of the foregoing.

 

4.                                      Net
Issue Election. The Holder may elect to receive, without the payment by the
Holder of any additional consideration, shares of Preferred Stock equal to the
value of this Warrant or any portion hereof by the surrender of this Warrant or
such portion to the Company, with the net issue election notice annexed hereto
duly executed, at the principal office of the Company. Thereupon, the Company
shall issue to the Holder such number of fully paid and nonassessable shares of
Preferred Stock as is computed using the following formula:

 

X= Y(A-B)

A

 

 

where:   
X =                              the
number of shares of Preferred Stock to be issued to the Holder pursuant to this
Section 4.

 

Y =                              the
number of shares of Preferred Stock covered by this Warrant in respect of which
the net issue election is made pursuant to this Section 4.

 

A =                            the
Fair Market Value (defined below) of one share of Preferred Stock, as
determined at the time the net issue election is made pursuant to this Section 4.

 

B =                              the
Purchase Price in effect under this Warrant at the time the net issue election
is made pursuant to this Section 4.

 

“Fair Market Value” of a share of Preferred Stock (or  fully paid and
nonassessable shares of the Company’s common stock (the “Common Stock”)
if the Preferred Stock has been automatically converted into Common Stock) as
of the date that the net issue election is made (the “Determination
Date”) shall mean:

 

(i)                                    If
the net issue election is made in connection with and contingent upon the
closing of the sale of the Company’s Common Stock to the public in a public
offering pursuant to a Registration Statement under the 1933 Act (a “Public Offering”), and if the Company’s Registration
Statement relating to such Public Offering (“Registration
Statement”) has been declared effective by the Securities and
Exchange Commission, then the initial “Price to Public” specified in the final
prospectus with respect to such offering multiplied by the number of shares of
Common Stock into which each share of Preferred Stock is then convertible.

 

(ii)                                If
the net issue election is not made in connection with and contingent upon a
Public Offering, then as follows:

 

(a)                                  If
traded on a securities exchange or the Nasdaq National Market, the fair market
value of the Common Stock shall be deemed to be the average of the closing or
last reported sale prices of the Common Stock on such exchange or market over
the five day period ending five trading days prior to the Determination Date,
and the fair market value of the Preferred Stock shall be deemed to be such
fair market value of the Common Stock multiplied by the number of shares of
Common Stock into which each share of Preferred Stock is then convertible;

 

(b)                                  If
otherwise traded in an over-the-counter market, the fair market value of the
Common Stock shall be deemed to be the average of the closing ask prices of the
Common Stock over the five day period ending five trading days prior to the
Determination Date, and the fair market value of the Preferred Stock shall be
deemed to be such fair market value of the Common Stock multiplied by the
number of shares of Common Stock into which each share of Preferred Stock is
then convertible; and

 

2

 

(c)                                  If
there is no public market for the Common Stock, then fair market value shall be
determined in good faith by the Company’s Board of Directors.

 

5.                                      Partial
Exercise. This Warrant may be exercised in part, and the Holder shall be
entitled to receive a new warrant, which shall be dated as of the date of this
Warrant, covering the number of shares in respect of which this Warrant shall
not have been exercised.

 

6.                                      Fractional
Shares. In no event shall any fractional share of Preferred Stock be issued
upon any exercise of this Warrant. If, upon exercise of this Warrant in its
entirety, the Holder would, except as provided in  this Section 6, be
entitled to receive a fractional share of Preferred Stock, then the Company
shall, in lieu of issuance of any fractional share, pay the Holder otherwise
entitled to such fraction a sum in cash equal to the product resulting from
multiplying the then current Fair Market Value of one share of Preferred Stock
by such fraction.

 

7.                                      Expiration
Date; Automatic Exercise. This Warrant shall expire at the earliest to
occur of (i) the close of business on March 28, 2012; (ii) two years after the
effective date of the initial Public Offering of the Company on the NASDAQ or
other stock exchange in the United States; or (iii) the effective date of a
Merger as defined below, unless otherwise assumed per the language below; (the “Expiration Date”) and shall be void
thereafter.

 

“Merger” means: (i) a sale of all or
substantially all of the Company’s assets to an Unaffiliated Entity (as defined
below), or (ii) the merger, consolidation or acquisition of the Company with,
into or by an Unaffiliated Entity (other than a merger or consolidation for the
principle purpose of changing the domicile of the Company or a bona fide round of
preferred stock equity financing), the result of which is that stockholders of
the Company immediately prior to the merger, consolidation or acquisition do
not own or control more than 50% of the voting power of the surviving entity
immediately following such merger, consolidation or acquisition. “Unaffiliated Entity” means any entity that is owned or
controlled by parties who own less than 20% of the combined voting power of the
voting securities of the Company immediately prior to such merger, consolidation
or acquisition. Notwithstanding the foregoing, in the event that any
outstanding warrants to purchase preferred equity securities of the Company are
assumed by the successor entity of a Merger (or parent thereof), this Warrant
will be similarly assumed. Notwithstanding anything to the contrary in this
Warrant, if Holder exercises this Warrant after receiving a notice from the
Company of a proposed merger or if the exercise was otherwise precipitated by
such proposed Merger, the Company will hold the exercise notice, without
processing such notice, until immediately prior to the consummation of the
Merger, at which time the exercise notice shall be processed. If the Merger is
terminated, the Holder will have 30 days from the date the Company gives Holder
notice indicating such termination to rescind its exercise notice, otherwise
the exercise notice shall be processed by the Company as set forth herein. In
the event of such rescission, this Warrant will continue to be exercisable on
the same terms and conditions.

 

Notwithstanding the
foregoing, this Warrant shall automatically be deemed to be exercised in full
pursuant to the provisions of Section 4
hereof, without any further action on behalf of the Holder, immediately prior
to the time this Warrant would otherwise expire pursuant to this Section 7, unless
otherwise assumed per above.

 

8.                                      Reserved
Shares; Valid Issuance. The Company covenants that it will at all times
from and after the date hereof reserve and keep available such number of its
authorized shares of Preferred Stock and Common Stock free from all preemptive
or similar rights therein, as will be sufficient to permit, respectively, the
exercise of this Warrant in full and the conversion into shares of Common Stock
of all shares of Preferred Stock receivable upon such exercise. The Company
further covenants that such shares as may be issued pursuant to such exercise
and/or conversion will, upon issuance, be duly and validly issued, fully paid
and nonassessable and free from all taxes, liens and charges with respect to
the issuance thereof.

 

9.                                      Stock
Splits and Dividends. If after the date hereof the Company shall subdivide
the Preferred Stock, by split-up or otherwise, or combine the Preferred Stock,
or issue additional shares of Preferred Stock in payment of a stock dividend on
the Preferred Stock, the number of shares of Preferred Stock issuable on the
exercise of this Warrant shall forthwith be proportionately increased in the
case of a subdivision or stock dividend, or

 

3

 

proportionately decreased
in the case of a combination, and the Purchase Price shall forthwith be
proportionately decreased in the case of a subdivision or stock dividend, or
proportionately increased in the case of a combination.

 

10.                               Adjustments
for Diluting Issuances. The other antidilution rights applicable to the
Preferred Stock and the Common Stock of the Company are set forth in the
Restated Articles of Incorporation, as amended from time to time (the “Certificate”), a true and complete copy in its current form
which is attached hereto as Exhibit A.
Such rights shall not be restated, amended or modified in any manner which
adversely affects the Holder differently than the holders of Preferred Stock
without such Holder’s prior written consent. The Company shall promptly provide
the Holder hereof with any restatement, amendment or modification to the
Certificate promptly after the same has been made.

 

11.                               Mergers
and Reclassifications. Subject to Section
7, if after the date hereof the Company shall enter into any
Reorganization (as hereinafter defined), then, as a condition of such
Reorganization, lawful provisions shall be made, and duly executed documents
evidencing the same from the Company or its successor shall be delivered to the
Holder, so that the Holder shall thereafter have the right to purchase, at a
total price not to exceed that payable upon the exercise of this Warrant in
full, the kind and amount of shares of stock and other securities and property
receivable upon such Reorganization by a holder of the number of shares of
Preferred Stock which might have been purchased by the Holder immediately prior
to such Reorganization, and in any such case appropriate provisions shall be
made with respect to the rights and interest of the Holder to the end that the
provisions hereof (including without limitation, provisions for the adjustment
of the Purchase Price and the number of shares issuable hereunder and the
provisions relating to the net issue election) shall thereafter be applicable
in relation to any shares of stock or other securities and property thereafter
deliverable upon exercise hereof. For the purposes of this Section 11,
the term “Reorganization” shall include without
limitation any reclassification, capital reorganization or change of the
Preferred Stock (other than as a result of a subdivision, combination or stock
dividend provided for in Section 9
hereof), or any consolidation of the Company with, or merger of the Company
into, another corporation or other business organization (other than a merger
in which the Company is the surviving corporation and which does not result in
any reclassification or change of the outstanding Preferred Stock), or any sale
or conveyance to another corporation or other business organization of all or
substantially all of the assets of the Company.

 

12.                               Certificate
of Adjustment. Whenever the Purchase Price is adjusted, as herein provided,
the Company shall promptly deliver to the Holder a certificate of the Company’s
chief financial officer setting forth the Purchase Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment.

 

13.                               Notices
of Record Date, Etc. In the event of:

 

(a)                                  any
taking by the Company of a record of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, or any right to subscribe for, purchase, sell
or otherwise acquire or dispose of any shares of stock of any class or any
other securities or property, or to receive any other right;

 

(b)                                  any
reclassification of the capital stock of the Company, capital reorganization of
the Company, consolidation or merger involving the Company, or sale or
conveyance of all or substantially all of its assets; or

 

(c)                                  any
voluntary or involuntary dissolution, liquidation or winding-up of the Company;

 

then in each such event the Company will provide or
cause to be provided to the Holder a written notice thereof. Such notice shall
be provided at least 10 business days prior to the date specified in such
notice on which any such action is to be taken.

 

14.                               Representations,
Warranties and Covenants. This Warrant is issued and delivered by the
Company and accepted by each Holder on the basis of the following
representations, warranties and covenants made by the Company:

 

4

 

(a)                                  The
Company has all necessary authority to issue, execute and deliver this Warrant
and to perform its obligations hereunder. This Warrant has been duly authorized
issued, executed and delivered by the Company and is the valid and binding
obligation of the Company, enforceable in accordance with its terms.

 

(b)                                  The
shares of Preferred Stock issuable upon the exercise of this Warrant have been
duly authorized and reserved for issuance by the Company and, when issued in
accordance with the terms hereof, will be validly issued, fully paid and
nonassessable.

 

(c)                                  The
issuance, execution and delivery of this Warrant do not, and the issuance of
the shares of Preferred Stock upon the exercise of this Warrant in accordance
with the terms hereof will not, (i) violate or contravene the Company’s
Certificate or by-laws, or any law, statute, regulation, rule, judgment or
order applicable to the Company, (ii) violate, contravene or result in a
material breach or default under any material contract, material agreement or
material instrument to which the Company is a party or by which the Company or
any of its assets are bound or (iii) require the consent or approval of or the
filing of any notice or registration with any person or entity.

 

(d)                                  As
of the date hereof, the authorized capital stock of the Company consists of (i)
75,787,832 shares of Common Stock, of which 5,330,082 shares are issued and
outstanding, (ii) 757,576 shares of Series A Preferred Stock, all of which are
issued and outstanding shares, (iii) 398,493 shares of Series B Preferred
Stock, all of which are issued and outstanding shares, (iv) 17,056,099 shares
of Series C Preferred Stock, of which 16,952,228  are issued and outstanding shares, and (v)
34,000,000 shares of Series D Preferred Stock, of which 33,232,629 are issued and outstanding shares. The Company shall
provide Holder on the date first written above a capitalization table
summarizing the capitalization of the Company. Upon request, the Company will
provide Holder with a current capitalization table indicating changes, if any,
to the number of outstanding shares of common stock and preferred stock;
provided that Holder shall not make such request more than once per calendar
quarter.

 

15.                               Registration
Rights. Upon receiving the requisite number of written consents required
under the Rights Agreement (as defined below) to amend such agreement, the
Company shall grant to the Holder all the rights of a “Holder” and an “Investor”
under the Company’s Amended and Restated Investors’ Rights Agreement dated as
of May 26, 2004 (the “Rights Agreement”),
including, without limitation, the right to receive financial information and
the registration rights contained therein, so that (i) the shares of Common
Stock issuable upon conversion of the shares of Preferred Stock issuable upon
exercise of this Warrant shall be “Registrable Securities,”
and (ii) the Holder shall be a “Holder” and an “Investor” for all purposes of
such Rights Agreement, subject to the terms and conditions set forth in the
Rights Agreements.

 

16.                               Amendment.
The terms of this Warrant may be amended, modified or waived only with the
written consent of the Holder and the Company.

 

17.                               Representations
and Covenants of the Holder. This Warrant has been entered into by the
Company in reliance upon the following representations and covenants of the
Holder, which by its execution hereof the Holder hereby confirms:

 

(a)                                  Investment
Purpose. The right to acquire Preferred Stock or the Preferred Stock
issuable upon exercise of the Holder’s rights contained herein will be acquired
for investment and not with a view to the sale or distribution of any part
thereof, and the Holder has no present intention of selling or engaging in any
public distribution of the same except pursuant to a registration or exemption.

 

(b)                                  Accredited
Investor. Holder is an “accredited investor” within the meaning of the
Securities and Exchange Rule 501 of Regulation D, as presently in effect.

 

(c)                                  Private
Issue. The Holder understands (i) that the Preferred Stock issuable upon
exercise of the Holder’s rights contained herein is not registered under the
1933 Act or qualified under applicable state securities laws on the ground that
the issuance contemplated by this Warrant will be exempt from the

 

5

 

registration and
qualifications requirements thereof, and (ii) that the Company’s reliance on
such exemption is predicated on the representations set forth in this Section 17.

 

(d)                                  Financial
Risk. The Holder has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of its
investment and has the ability to bear the economic risks of its investment.

 

(e)                                  Rule 144. The Holder is aware that neither the Warrant, the
Preferred Shares, nor the Common Stock issuable upon conversion thereof may be
sold pursuant to Rule 144 adopted under the 1933 Act unless certain conditions
are met, including, among other things, the existence of a public market for
the shares, the availability of certain current public information about the
Company, the resale following the required holding period under Rule 144 and
the number of shares being sold during any three month period not exceeding
specified limitations. Holder is aware that the conditions for resale set forth
in Rule 144 have not been satisfied and that the Company presently has no plans
to satisfy these conditions in the foreseeable future.

 

(f)                                    Market
Stand-Off Agreement.

 

Holder hereby agrees that
Holder shall not, without the prior written consent of the managing
underwriters, sell or otherwise transfer or dispose of any Common Stock (or
other securities) of the Company held by Holder immediately prior to the
effective date of the registration statement (other than those included in the
registration) for a period specified by the representative of the underwriters
of Common Stock (or other securities) of the Company not to exceed one hundred
eighty (180) days following the effective date of a registration statement of
the Company filed under the Securities Act; provided,  that:

 

(i)                                    such agreement shall apply only to the
Company’s Public Offering; and

 

(ii)                                all officers, directors and one percent
(1%) or greater shareholders of the Company are subject to similar agreements.

 

Holder agrees to execute and deliver such other
agreements as may be reasonably requested by the Company or the underwriter
which are consistent with the foregoing or which are necessary to give further
effect thereto. The obligations described in this Section 17(f) shall not apply to a registration relating
solely to employee benefit plans on Form S-1 or Form S-8 or similar forms that
may be promulgated in the future, or a registration relating solely to a
Commission Rule 145 transaction on Form S-4 or similar forms that may be
promulgated in the future. The Company may impose stop-transfer instructions
with respect to the shares of Common Stock (or other securities) subject to the
foregoing restriction until the end of said one hundred eighty (180) day
period.

 

18.                               Notices,
Transfers, Etc.

 

(a)                                  Any
notice or written communication required or permitted to be given to the Holder
may be given by certified mail or delivered to the Holder at the address most
recently provided by the Holder to the Company.

 

(b)                                  Subject
to compliance with applicable federal and state securities laws and the
transfer restrictions set forth in Section 2.1 of the Rights Agreement, this
Warrant may be transferred by the Holder with respect to any or all of the
shares purchasable hereunder. Upon surrender of this Warrant to the Company,
together with the assignment notice annexed hereto duly executed, for transfer
of this Warrant as an entirety by the Holder, the Company shall issue a new
warrant of the same denomination to the assignee. Upon surrender of this
Warrant to the Company, together with the assignment hereof properly endorsed,
by the Holder for transfer with respect to a portion of the shares of Preferred
Stock purchasable hereunder, the Company shall issue a new warrant to the
assignee, in such denomination as shall be requested by the Holder hereof, and
shall issue to such Holder a new warrant covering the number of shares in
respect of which this Warrant shall not have been transferred.

 

6

 

(c)                                  In
case this Warrant shall be mutilated, lost, stolen or destroyed, the Company
shall issue a new warrant of like tenor and denomination and deliver the same
(i) in exchange and substitution for and upon surrender and cancellation of any
mutilated Warrant, or (ii) in lieu of any Warrant lost, stolen or destroyed,
upon receipt of an affidavit of the Holder or other evidence reasonably satisfactory
to the Company of the loss, theft or destruction of such Warrant.

 

19.                               No
Impairment. The Company will not, by amendment of its Certificate or
through any reclassification, capital reorganization, consolidation, merger,
sale or conveyance of assets, dissolution, liquidation, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
of performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of
all such action as may be necessary or appropriate in order to protect the
rights of the Holder. Notwithstanding the foregoing, nothing in this Section 19 shall prohibit the Company from
amending its Certificate or taking any other action set forth above with the
requisite consent of the shareholders and the Board of Directors, so long as
such amendment or action does not affect the rights granted to Holder in a
manner differently than the holders of the Preferred Stock.

 

20.                               Governing
Law. The provisions and terms of this Warrant shall be governed by and
construed in accordance with the internal laws of the State of California
without giving effect to its principles regarding conflicts of laws.

 

21.                               Successors
and Assigns. This Warrant shall be binding upon the Company’s successors
and assigns and shall inure to the benefit of the Holder’s successors, legal
representatives and permitted assigns.

 

22.                               Business
Days. If the last or appointed day for the taking of any action required or
the expiration of any rights granted herein shall be a Saturday or Sunday or a
legal holiday in California, then such action may be taken or right may be
exercised on the next succeeding day which is not a Saturday or Sunday or such
a legal holiday.

 

23.                               Qualifying
Public Offering. If the Company shall effect a firm commitment underwritten
public offering of shares of Common Stock which results in the conversion of
the Preferred Stock into Common Stock pursuant to the Company’s Certificate in
effect immediately prior to such offering, then, effective upon such
conversion, this Warrant shall change from the right to purchase shares of
Preferred Stock to the right to purchase shares of Common Stock, and the Holder
shall thereupon have the right to purchase, at a total price equal to that
payable upon the exercise of this Warrant in full, the number of shares of
Common Stock which would have been receivable by the Holder upon the exercise
of this Warrant for shares of Preferred Stock immediately prior to such conversion
of such shares of Preferred Stock into shares of Common Stock, and in such
event appropriate provisions shall be made with respect to the rights and
interest of the Holder to the end that the provisions hereof (including,
without limitation, the provisions for the adjustment of the Purchase Price and
of the number of shares purchasable upon exercise of this Warrant and the
provisions relating to the net issue election) shall thereafter be applicable
to any shares of Common Stock deliverable upon the exercise hereof.

 

24.                               Value.
The Company and the Holder agree that the value of this Warrant on the date of
grant is $100.

 

7

 

25.                               No
Stockholder Rights. This Warrant in and of itself shall not entitle
the Holder to any voting rights or other rights as a stockholder of the
Company.

 

 

	
   

  	
  ARYX
  THERAPEUTICS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  	
   

  
							

 

Accepted and Agreed:

 

LIGHTHOUSE CAPITAL PARTNERS V, L.P.

 

 

By:                             Lighthouse
Management Partners V, L.L.C.

its
general partner

 

 

	
  By:

  	
   

  	
   

  
	
   

  
	
  Name:

  	
   

  	
   

  
	
   

  
	
  Title:

  	
   

  	
   

  
					

 

8

 

Subscription

 

	
  To:

  	
   

  	
   

  
	
   

  
	
  Date:

  	
   

  	
   

  
				

 

 

The undersigned hereby subscribes for                              
shares of Preferred Stock covered by this Warrant. The certificate(s) for such
shares shall be issued in the name of the undersigned or as otherwise indicated
below:

 

 

	
   

  	
   

  
	
  Signature

  
	
   

  
	
   

  	
   

  
	
  Name for Registration

  
	
   

  
	
   

  	
   

  
	
  Mailing Address

  

 

1

 

Net Issue Election Notice

 

	
  To:

  	
   

  	
   

  	
  Date:

  	
   

  

 

 

The undersigned hereby elects under Section 4 to surrender the right to purchase shares of
Preferred Stock pursuant to this Warrant. The certificate(s) for such shares
issuable upon such net issue election shall be issued in the name of the
undersigned or as otherwise indicated below:

 

 

	
   

  	
   

  
	
  Signature

  
	
   

  
	
   

  	
   

  
	
  Name for Registration

  
	
   

  
	
   

  	
   

  
	
  Mailing Address

  

 

1

 

Assignment

 

For value received
                                                                                                
hereby sells, assigns and transfers unto 

 

 

 

[Please print or typewrite name and address of
Assignee]

 

 

the within Warrant, and does hereby irrevocably
constitute and appoint
                                                      
 its attorney to transfer the within
Warrant on the books of the within named Company with full power of
substitution on the premises.

 

 

	
   

  	
   

  
	
  Dated:

  
	
   

  
	
   

  	
   

  
	
  Signature

  
	
   

  
	
   

  	
   

  
	
  Name for Registration

  

 

 

	
  In the Presence of:

  
	
   

  
	
   

  	
   

  

 

1

 

EXHIBIT A

 

Amended and Restated Articles of Incorporation

 

 

See attached pages.

 

1

 

RESTATED ARTICLES OF INCORPORATION

OF

ARYX THERAPEUTICS

 

PETER G. MILNER and JAMES F. FULTON, JR. hereby certify that:

 

ONE:      They are the duly
elected and acting President and Chief Executive Officer and Assistant
Secretary, respectively, of ARYx Therapeutics, a California corporation (the
“Corporation” or the “Company”).

 

TWO:    The Articles of Incorporation of this Corporation
are hereby amended and restated to read as follows:

 

I.

 

The name of the Corporation is ARYX THERAPEUTICS (the
“Corporation” or the “Company”).

 

II.

 

The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business
or the practice of a profession permitted to be incorporated by the California
Corporations Code.

 

III.

 

A.            This Corporation
is authorized to issue two classes of stock to be designated, respectively,
“Common Stock” and “Preferred Stock.” 
The total number of shares which the Corporation is authorized to issue
is 128,000,000 shares, 75,787,832 shares of which shall be Common Stock (the
“Common Stock”) and 52,212,168 shares of which shall be Preferred Stock (the
“Preferred Stock”).

 

B.            757,576 of the
authorized shares of Preferred Stock are hereby designated “Series A Preferred
Stock” (the “Series A Preferred”). 398,493 of the authorized shares of
Preferred Stock are hereby designated “Series B Preferred Stock” (the “Series B
Preferred”). 17,056,099 of the authorized shares of Preferred Stock are hereby
designated “Series C Preferred Stock” (the “Series C Preferred”). 34,000,000 of
the authorized shares of Preferred Stock are hereby designated “Series D
Preferred Stock” (the “Series D Preferred”).

 

C.            The rights,
preferences, privileges, restrictions and other matters relating to the Series
A Preferred, Series B Preferred, Series C Preferred and Series D Preferred
(collectively, the “Series Preferred”) are as follows:

 

1.             Dividend Rights.

 

a.             Holders of Series D Preferred, in preference to the
holders of Series A Preferred, Series B Preferred and Series C Preferred and
the holders of any other stock 

 

1

 

of the Company (the
“Junior Stock”), shall be entitled to receive, when and as declared by the
Board of Directors of the Company (the “Board”), but only out of funds that are
legally available therefor, cash dividends in an amount equal to the greater of
(i) five percent (5%) of the “Original Issue Price” per annum on each outstanding
share of Series D Preferred (as adjusted for any stock dividends, combinations,
splits, recapitalizations and the like with respect to such shares), or (ii)
the amount such holders of Series D Preferred would have received if such
holders had converted such Series D Preferred immediately prior to the record
date set by the Board for such dividends into the maximum number of shares of
Common Stock issuable upon exercise of the Conversion Rights describe in
Section 4 hereof. After payment of the dividend to the holders of Series D
Preferred described above, holders of Series C Preferred, in preference to the
holders of Series A Preferred and Series B Preferred, and the Junior Stock,
shall be entitled to receive, when and as declared by the Board, but only out
of funds that are legally available therefor, cash dividends in an amount equal
to the greater of (i) five percent (5%) of the “Original Issue Price” per
annum on each outstanding share of Series C Preferred (as adjusted for any
stock dividends, combinations, splits, recapitalizations and the like with
respect to such shares), or (ii) the amount such holders of Series C Preferred
would have received if such holders had converted such Series C Preferred
immediately prior to the record date set by the Board for such dividends into
the maximum number of shares of Common Stock issuable upon exercise of the
Conversion Rights describe in Section 4 hereof. After payment of the dividend
to the holders of the Series D Preferred and Series C Preferred described
above, holders of Series A Preferred and Series B Preferred in preference to
the holders of Junior Stock, shall be entitled to receive, when and as declared
by the Board, but only out of funds that are legally available therefor, cash
dividends in an amount equal to the greater of (i) five percent (5%) of the
applicable “Original Issue Price” per annum on each outstanding share of Series
A Preferred and Series B Preferred (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like with respect to such
shares), or (ii) the amount such holders of Series A Preferred and Series B
Preferred would have received if such holders had converted such Series A
Preferred and Series B Preferred immediately prior to the record date set by the
Board for such dividends into the maximum number of shares of Common Stock
issuable upon exercise of the Conversion Rights describe in Section 4 hereof. The
Original Issue Price of the Series A Preferred shall be thirty three cents
($0.33), the Original Issue Price of the Series B Preferred shall be three
dollars ($3.00), the Original Issue Price of the Series C Preferred shall be
one dollar forty-eight and one-half cents ($1.485) and the Original Issue Price
of the Series D Preferred shall be one dollar and sixty-five and one-half cents
($1.655). Such dividends shall be payable only when, as and if declared by the
Board and shall be non-cumulative. Any Series Preferred converted into Common
Stock shall receive any dividend payable on the Common Stock.

 

b.             So long as any (i) shares of Series D Preferred
shall be outstanding, no dividend, whether in cash or property, shall be paid
or declared, nor shall any other distribution be made, on any Series A
Preferred, Series B Preferred, Series C Preferred or Junior Stock, nor shall
any shares of any Series A Preferred, Series B Preferred, Series C Preferred or
Junior Stock of the Company be purchased, redeemed, or otherwise acquired for
value by the Company (except for acquisitions of Common Stock by the Company pursuant
to agreements which permit the Company to repurchase such shares at or below
cost upon termination of services to the Company until all dividends (set forth
in Section 1(a) above and Section 1(d) 

 

2

 

below) on the Series D
Preferred shall have been paid or declared and set apart, (ii) shares of
Series C Preferred shall be outstanding (subject to clause (i) hereof), no
dividend, whether in cash or property, shall be paid or declared, nor shall any
other distribution be made, on any Series A Preferred, Series B Preferred or
Junior Stock, nor shall any shares of any Series A Preferred, Series B
Preferred or Junior Stock of the Company be purchased, redeemed, or otherwise
acquired for value by the Company (except for acquisitions of Common Stock by
the Company pursuant to agreements which permit the Company to repurchase such
shares at or below cost upon termination of services to the Company or in
exercise of the Company’s right of first refusal upon a proposed transfer)
until all dividends (set forth in Section 1(a) above and Section 1(d) below) on
the Series D Preferred and the Series C Preferred shall have been paid or
declared and set apart or (iii) shares of Series A Preferred or Series B Preferred
shall be outstanding (subject to clauses (i) and (ii) hereof), no dividend,
whether in cash or property, shall be paid or declared, nor shall any other
distribution be made, on any Junior Stock, nor shall any shares of Junior Stock
of the Company be purchased, redeemed, or otherwise acquired for value by the
Company (except for acquisitions of Common Stock by the Company pursuant to
agreements which permit the Company to repurchase such shares at or below cost
upon termination of services to the Company or in exercise of the Company’s
right of first refusal upon a proposed transfer) until all dividends (set forth
in Section 1(a) above and Section 1(d) below) on the Series Preferred shall
have been paid or declared and set apart. In the event dividends are paid on
any share of Common Stock, an additional dividend shall be paid with respect to
all outstanding shares of Series Preferred in an amount equal per share (on an
as-if-converted to Common Stock basis) to the amount paid or set aside for each
share of Common Stock. The provisions of this Section 1(b) shall not, however,
apply to (i) a dividend payable in Common Stock, (ii) the acquisition of shares
of any Junior Stock in exchange for shares of any other Junior Stock, or (iii)
any repurchase of any outstanding securities of the Company that is unanimously
approved by the Board. The holders of the Series Preferred expressly waive
their rights, if any, as described in California Corporations Code Sections 502
and 503 as they relate to repurchase of shares at or below cost upon
termination of employment.

 

c.             Dividends on the Series Preferred shall be calculated
on the basis of a 360-day year, consisting of twelve 30-day months, and the
actual number of days elapsed in such period.

 

d.             Any partial payment of any dividend shall first be
made ratably among the holders of Series D Preferred in proportion to the
payment that each such holder is otherwise entitled to receive. After payment
in full of dividends on the Series D Preferred, any remaining partial payment
shall be made ratably among the holders of Series C Preferred in proportion to
the payment that each such holder is otherwise entitled to receive. After
payment in full of dividends on the Series D Preferred and Series C
Preferred, any remaining partial payment shall be made ratably among the
holders of Series A Preferred and Series B Preferred in proportion to the
payment that each such holder is otherwise entitled to receive.

 

e.             All declared and unpaid dividends, if any, on the
Series Preferred shall, (i) to the extent funds are legally available therefor,
be paid no later than the earlier to occur of (A) the applicable dividend
payment date as designated by the Board or (B) a liquidation pursuant to
Section 3 below (provided that to the extent funds are not legally available
therefor at 

 

3

 

any such time, such
dividends shall be paid in Common Stock based on the then fair value of the
Common Stock) or (ii) be delivered in accordance with Section 4 below upon a
conversion thereof .

 

2.             Voting Rights.

 

a.             General Rights.  Each holder of shares of the Series
Preferred shall be entitled to the number of votes equal to the number of
shares of Common Stock into which such shares of Series Preferred could be
converted (pursuant to Section 4 hereof) immediately after the close of
business on the record date fixed for any such shareholders’ meeting (or the
effective date of any such written consent of shareholders in lieu of meeting)
and shall have voting rights and powers equal to the voting rights and powers
of the Common Stock and shall be entitled to notice of any shareholders’
meeting in accordance with the bylaws of the Company. Except as otherwise
provided herein or as required by law, the Series Preferred shall vote together
with the Common Stock at any annual or special meeting of the shareholders and
not as a separate class, and may act by written consent in the same manner as
the Common Stock.

 

b.             Separate Vote of Series Preferred.  For so long as at least 10,000,000 shares
of Series Preferred (as adjusted for any stock dividends, combinations,
subdivisions, splits, recapitalizations and the like with respect to such
shares) remain outstanding, in addition to any other vote or consent required
herein or by law, the vote or written consent of the holders of at least
sixty-three percent (63%) of the outstanding Series Preferred, voting as a
separate class and on an as converted basis, shall be necessary for the Company
to effect or validate the following actions:

 

(i)            Any alteration or change to the designations, powers,
rights, preferences or privileges of the Series Preferred;

 

(ii)           Subject to Section 1, any repurchase, redemption or
acquisition (or payment into or setting aside for a sinking fund for such
purpose) with respect to Junior Stock or Series Preferred (except for
acquisitions of Common Stock by the Company permitted by Section 1 hereof);

 

(iii)         Any action that results in the payment or declaration
of a dividend on any shares of Common Stock or Series Preferred other than the
Series D Preferred as expressly authorized herein;

 

(iv)          Any authorization or any designation, whether by
reclassification or otherwise, or any agreement or obligation for any
authorization or designation, of any new class or series of stock or any other
securities convertible into equity securities of the Company ranking senior to
or on parity with the Series D Preferred in right of redemption, liquidation
preference, voting or dividends, or that otherwise materially adversely affects
the designations, powers, rights, preferences or privileges of the Series
Preferred, or any increase in the authorized or designated number of any such
new class or series;

 

4

 

(v)            Any agreement by the Company regarding an Acquisition
or an Asset Transfer (as defined in Section 3(h));

 

(vi)          Any recapitalization, reorganization, voluntary
dissolution, liquidation or winding up of the Company;

 

(vii)         Any increase (or decrease, but only to the extent it
adversely affects the rights of any Series Preferred under Sections 2(c)(i) or
2(c)(ii)) in the authorized number of members of the Company’s Board;

 

(viii)        Any acquisition of assets or equity securities of any
entity other than in the ordinary course of business which, in itself or when
aggregated with any other such acquisitions, is in excess of $10,000,000;

 

(ix)          Any transaction or series of transactions that results
in the Company incurring debt other than (i) trade payables and accrued
expenses incurred in the ordinary course of business and (ii) other debt not in
excess, at any point in time, of $2,000,000 in the aggregate;

 

(x)           Any material transaction with any “affiliate” or
“associate” (as such terms are defined under Rule 12b-2 of the Securities
Exchange Act of 1934, as amended) of the Company, except as (A) expressly
permitted by these Restated Articles of Incorporation, or (B) approved by the
Board, excluding, solely for this purpose, any directors who are affiliates or
associates of such affiliate or associate of the Company; or

 

(xi)          Any authorization, issue or any designation of any new
class or series of stock, including any increase in the authorized or
designated number of existing shares of Series Preferred or Common Stock or any
such new class or series of stock, or any other securities convertible into or
exchangeable for Common Stock of the Company, other than stock issued (A)
pursuant to one or more strategic alliances or pursuant to credit and equipment
financing arrangements resulting in the issue of less than ten percent (10%) in
the aggregate of the capital stock of the Company (on a fully diluted,
as-converted basis) at the Original Issue Date (as defined below), (B) on
conversion of any of the Preferred Stock, (C) on exercise of warrants outstanding
as of the Original Issue Date, or (D) pursuant to an option plan approved by
the Board; or

 

(xii)         Any issuances of securities of any subsidiary of the
Company other than issuances made to the Company.

 

(xiii)       Any issuances of shares of Common Stock and/or
options, warrants or other Common Stock purchase rights issued after the
Original Issue Date to employees, officers or directors of, or consultants or
advisors to the Company or any subsidiary, pursuant to stock purchase or stock
option plans or other arrangements in excess of 6,500,000 shares (the “Option
Plan Threshold”); provided, that
without increasing the Option Plan Threshold, any shares that revert back or
are otherwise available for reissuance in connection 

 

5

 

with the expiration or
termination of any option shall be available for issuance by the Company and
not require approval by the Preferred Stock in accordance with this Section
2.b.

 

In addition to the
foregoing, for so long as at least 2,500,000 shares of Series D Preferred (as
adjusted for any stock dividends, combinations, subdivisions, splits,
recapitalizations and the like with respect to such shares) remain outstanding,
in addition to any other vote or consent required herein or by law, the vote or
written consent of the holders of sixty percent (60%) of the outstanding Series
D Preferred, voting as a separate series, shall be necessary for the Company to
alter or amend the designations, powers, rights, preferences or privileges of the
Series D Preferred.

 

c.             Election of Board of Directors.

 

(i)            For so long as at least 5,000,000 shares of Series D
Preferred remain outstanding (as adjusted for any stock dividends,
combinations, subdivisions, splits, recapitalizations and the like with respect
to such shares), the holders of Series D Preferred, voting as a separate
series, shall be entitled to elect two (2) members of the Board at each meeting
or pursuant to each consent of the Company’s shareholders for the election of
directors, and to remove from office such directors and to fill any vacancy
caused by the resignation, death or removal of such directors. At any meeting
held for the purpose of electing directors at a time when the holders of shares
of Series D Preferred are entitled to vote as a separate class for the election
of directors, the presence in person or by proxy of the holders of a majority
of the shares of Series D Preferred then outstanding shall constitute a quorum
of shares of Series D Preferred for the election of the directors to be elected
solely by the holders of shares of Series D Preferred.

 

(ii)           For so long as at least 5,000,000 shares of Series C
Preferred remain outstanding (as adjusted for any stock dividends,
combinations, subdivisions, splits, recapitalizations and the like with respect
to such shares), the holders of Series C Preferred, voting as a separate
series, shall be entitled to elect two (2) members of the Board at each meeting
or pursuant to each consent of the Company’s shareholders for the election of
directors, and to remove from office such directors and to fill any vacancy
caused by the resignation, death or removal of such directors. At any meeting
held for the purpose of electing directors at a time when the holders of shares
of Series C Preferred are entitled to vote as a separate class for the
election of directors, the presence in person or by proxy of the holders of a
majority of the shares of Series C Preferred then outstanding shall
constitute a quorum of shares of Series C Preferred for the election of
the directors to be elected solely by the holders of shares of Series C
Preferred.

 

(iii)         The holders of Common Stock and Series Preferred,
voting together as a single class on an as-if-converted basis, shall be
entitled to elect all remaining members of the Board at each meeting or
pursuant to each consent of the Company’s shareholders for the election of
directors, and to remove from office such directors and to fill any vacancy
caused by the resignation, death or removal of such directors.

 

6

 

3.             Liquidation Rights.

 

a.             For a period of eighteen (18) months after the
Original Issue Date, upon any liquidation, dissolution, or winding up of the
Company, whether voluntary or involuntary, before any distribution or payment
shall be made to the holders of any other series of Preferred Stock or to the
holders of Junior Stock, the holders of Series D Preferred shall be entitled to
be paid out of the assets of the Company legally available for distribution, or
the consideration received in such transaction, an amount per share of Series D
Preferred equal to the applicable Original Issue Price (as adjusted for any
stock dividends, combinations, subdivisions, splits, recapitalizations and the
like with respect to the Series D Preferred) plus all declared and unpaid
dividends on such shares of Series D Preferred (the “the Pre-Eighteen Month
Series D Liquidation Preference”) for each share of Series D Preferred held by
them. If, upon any such liquidation, dissolution, or winding up, the assets of
the Company (or the consideration received in such transaction) shall be
insufficient to make payment in full to all holders of Series D Preferred of
the Pre-Eighteen Month Series D Liquidation Preference set forth in this
Section 3(a), then such assets (or consideration) shall be distributed
among the holders of Series D Preferred at the time outstanding, ratably in
proportion to the full amounts to which they would otherwise be entitled.

 

b.             For a period of eighteen (18) months after the
Original Issue Date, upon any liquidation, dissolution, or winding up of the
Company, whether voluntary or involuntary, before any distribution or payment
shall be made to the holders of any other series of Preferred Stock (other than
as contemplated by clause (a) above) or to the holders of Junior Stock and
after the payment in full of the Pre-Eighteen Month Series D Liquidation
Preference, the holders of Series C Preferred shall be entitled to be paid out
of the assets of the Company legally available for distribution, or the
consideration received in such transaction, an amount per share of Series C
Preferred equal to the applicable Original Issue Price (as adjusted for any
stock dividends, combinations, subdivisions, splits, recapitalizations and the
like with respect to the Series C Preferred) plus all declared and unpaid
dividends on such shares of Series C Preferred (the “Pre-Eighteen Month Series
C Liquidation Preference”) for each share of Series C Preferred held by them. If,
upon any such liquidation, dissolution, or winding up, the assets of the
Company (or the consideration received in such transaction) shall be
insufficient to make payment in full to all holders of Series C Preferred of
the Pre-Eighteen Month Series C Liquidation Preference set forth in this
Section 3(b), then such assets (or consideration) shall be distributed
among the holders of Series C Preferred at the time outstanding, ratably in
proportion to the full amounts to which they would otherwise be entitled.

 

c.             For a period of eighteen (18) months after the
Original Issue Date, upon any liquidation, dissolution, or winding up of the
Company, whether voluntary or involuntary, before any distribution or payment
shall be made to the holders of Junior Stock and after the payment in full of
the Pre-Eighteen Month Series D Liquidation Preference and the Pre-Eighteen
Month Series C Liquidation Preference, the holders of Series A Preferred and
Series B Preferred shall be entitled to be paid out of the assets of the Company
legally available for distribution, or the consideration received in such
transaction, an amount per share of Series A Preferred and Series B
Preferred equal to their applicable Original Issue Price (as adjusted for any
stock dividends, combinations, subdivisions, splits, recapitalizations and the
like with respect to such shares) plus all declared and unpaid dividends on
such shares of Series A Preferred or Series B Preferred held by them
(collectively, the “Pre-Eighteen Month Remaining 

 

7

 

Liquidation Preference”).
If, upon any such liquidation, dissolution, or winding up, the assets of the
Company (or the consideration received in such transaction) shall be
insufficient to make payment in full to all holders of Series A Preferred and
Series B Preferred of the Pre-Eighteen Month Remaining Liquidation Preference
set forth in this Section 3(c), then such assets (or consideration) shall
be distributed among the holders of Series A Preferred and Series B Preferred
at the time outstanding, ratably in proportion to the full amounts to which
they would otherwise be respectively entitled.

 

d.             For a period of eighteen (18) months after the
Original Issue Date, upon any liquidation, dissolution, or winding up of the
Company, whether voluntary or involuntary, and after the payment of the
Pre-Eighteen Month Series D Liquidation Preference, the Pre-Eighteen Month
Series C Liquidation Preference and the Pre-Eighteen Month Remaining
Liquidation Preference as set forth in Sections 3(a), 3(b) and 3(c) above, the
remaining assets of the Company legally available for distribution, if any,
shall be distributed ratably to the holders of the Common Stock, Series D
Preferred and Series C Preferred on an as-if-converted basis until such time as
the holders of Series C Preferred have received an aggregate amount per share
of Series C Preferred equal to four (4) times the Original Issue Price of the
Series C Preferred (as adjusted for any stock dividends, combinations,
subdivisions, splits, recapitalizations and the like with respect to such
shares) plus all declared and unpaid dividends for each share of Series C
Preferred held by them (including the Pre-Eighteen Month Series C Liquidation
Preference); thereafter, the remaining assets of the Company legally available
for distribution (or consideration received in such transaction), if any, shall
be distributed ratably to the holders of the Common Stock.

 

e.             Following the eighteen (18) month period after the
Original Issue Date, upon any liquidation, dissolution, or winding up of the
Company, whether voluntary or involuntary, before any distribution or payment
shall be made to the holders of any other series of Preferred Stock or to the
holders of Junior Stock, the holders of Series D Preferred and Series C
Preferred shall be entitled to be paid out of the assets of the Company legally
available for distribution, or the consideration received in such transaction,
an amount per share of Series D Preferred or Series C Preferred equal to the
applicable Original Issue Price (as adjusted for any stock dividends,
combinations, subdivisions, splits, recapitalizations and the like with respect
to the Series D Preferred and Series C Preferred) plus all declared and unpaid
dividends on such shares of Series D Preferred and Series C Preferred
(collectively, the “Post-Eighteen Month Series D and Series C Liquidation
Preference”) for each share of Series D Preferred and Series C Preferred held
by them. If, upon any such liquidation, dissolution, or winding up, the assets
of the Company (or the consideration received in such transaction) shall be
insufficient to make payment in full to all holders of Series D Preferred and Series
C Preferred of the Post-Eighteen Month Series D and Series C Liquidation Preference
set forth in this Section 3(e), then such assets (or consideration) shall
be distributed among the holders of Series D Preferred and Series C Preferred
at the time outstanding, ratably in proportion to the full amounts to which
they would otherwise be entitled.

 

f.              Following the eighteen (18) month period after the
Original Issue Date, upon any liquidation, dissolution, or winding up of the
Company, whether voluntary or involuntary, before any distribution or payment
shall be made to the holders of any Common 

 

8

 

Stock and after the
payment in full of the Post-Eighteen Month Series D and Series C Liquidation
Preference, the holders of Series A Preferred and Series B Preferred shall be
entitled to be paid out of the assets of the Company legally available for
distribution, or the consideration received in such transaction, an amount per
share of Series A Preferred and Series B Preferred equal to their applicable
Original Issue Price (as adjusted for any stock dividends, combinations,
subdivisions, splits, recapitalizations and the like with respect to such
shares) plus all declared and unpaid dividends on such shares of Series A
Preferred or Series B Preferred held by them (collectively, the “Post-Eighteen
Month Remaining Liquidation Preference”). If, upon any such liquidation,
dissolution, or winding up, the assets of the Company (or the consideration
received in such transaction) shall be insufficient to make payment in full to
all holders of Series A Preferred and Series B Preferred of the Post-Eighteen
Month Remaining Liquidation Preference set forth in this Section 3(f),
then such assets (or consideration) shall be distributed among the holders of
Series A Preferred and Series B Preferred at the time outstanding, ratably in
proportion to the full amounts to which they would otherwise be respectively
entitled.

 

g.             Following the eighteen (18) month period after the
Original Issue Date, upon any liquidation, dissolution, or winding up of the
Company, whether voluntary or involuntary, and after the payment of the
Post-Eighteen Month Series D and Series C Liquidation Preference and the Post-Eighteen
Month Remaining Liquidation Preference as set forth in

Sections 3(e) and 3(f) above, the remaining assets of the Company legally
available for distribution, if any, shall be distributed ratably to the holders
of the Common Stock, Series D Preferred and Series C Preferred on an
as-if-converted basis until such time as the holders of Series C Preferred have
received an aggregate amount per share of Series C Preferred (as adjusted for
any stock dividends, combinations, subdivisions, splits, recapitalizations and
the like with respect to such shares) equal to four (4) times the Original
Issue Price of the Series C Preferred plus all declared and unpaid
dividends  for each share of Series C
Preferred held by them (including the Pre-Eighteen Month Series C Liquidation
Preference); thereafter, the remaining assets of the Company legally available
for distribution (or consideration received in such transaction), if any, shall
be distributed ratably to the holders of the Common Stock.

 

h.             The following events shall be considered a liquidation
under this Section 3:

 

(i)            Any consolidation or merger of the Company with or
into any other corporation or other entity or person, or any other corporate
reorganization, business combination or tender offer, in which the shareholders
of the Company, as constituted immediately prior to such consolidation, merger,
reorganization, combination or tender offer, own less than 50% of the voting
power of the Company or the surviving or acquiring entity or person immediately
after such consolidation, merger, reorganization, combination or tender offer,
or the closing of the transfer (whether by merger, consolidation or otherwise),
in one  transaction or series of related
transactions, to a person or group of affiliated persons (other than the
underwriter of this Company’s securities), of securities of the Company if,
after such closing, such person or group of affiliated persons would hold in
excess of fifty percent (50%) of the Company’s voting power (an “Acquisition”);
provided, that an Acquisition
should not include (x) any consolidation or merger effected exclusively to
change the domicile of the Company, or (y) any transaction or series of
transactions principally for bona fide equity financing purposes, as 

 

9

 

approved pursuant to
Section 2, and pursuant to which the holders of the Series Preferred have
rights identical to those set forth herein.

 

(ii)           A sale or other disposition, lease or license of all
or substantially all of the assets of the Company (an “Asset Transfer”).

 

i.              In any of such liquidation events, if the
consideration received by the Company is other than cash, its value will be
deemed its fair market value as determined in good faith by the Board,
including the unanimous approval of the directors and, if the Company receives
a written request from the holders of thirty percent (30%) of the Series D
Preferred, an opinion from a nationally recognized financial advisor. Any
securities shall be valued as follows:

 

(i)            Securities not subject to investment letter or other
similar restrictions on free marketability covered by (ii) below:

 

(A)  If traded on a securities exchange or
through the Nasdaq National Market, the value shall be deemed to be the average
of the closing prices of the securities on such quotation system over the
thirty (30) day period ending three (3) days prior to the closing;

 

(B)  If actively traded over-the-counter, the
value shall be deemed to be the average of the closing bid or sale prices
(whichever is applicable) over the thirty (30) day period ending three (3) days
prior to the closing; and

 

(C)  If there is no active public market, the
value shall be the fair market value thereof, as determined in good faith by
the unanimous approval of the Board, if the Company receives a written request
from the holders of thirty percent (30%) of the Series D Preferred, an opinion
from a nationally recognized financial advisor.

 

(ii)           The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a shareholder’s status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (i)(A), (B) or (C) to reflect the approximate fair
market value thereof, as determined in good faith by the Board, including the
unanimous approval of the directors and, if the Company receives a written
request from the holders of thirty percent (30%) of the Series D Preferred, an
opinion from a nationally recognized financial advisor.

 

j.              Notwithstanding anything to the contrary in this
Section 3, upon any liquidation, dissolution or winding up of the Company, each
holder of Series Preferred shall be entitled to receive, for each share of
Series Preferred then held, the greater of (i) the amount of cash, securities
or other property to which such holder would be entitled to receive in a
liquidation pursuant to Section 3 hereof, or (ii) the amount of cash,
securities or other property to which such holder would be entitled to receive
in a liquidation pursuant to Section 3 hereof if 

 

10

 

such holder had converted
such shares of Series Preferred into Common Stock immediately prior to such
liquidation, dissolution or winding up of the Company.

 

k.            In the event the requirements of this Section 3
are not complied with, the Company shall forthwith either:

 

(i)            cause the closing of a liquidation transaction to be
postponed until such time as the requirements of this Section 3 have been
complied with; or

 

(ii)           cancel such liquidation transaction, in which event the
rights, preferences and privileges of the holders of the Series Preferred shall
revert to and be the same as such rights, preferences and privileges existing
immediately prior to the date of the first notice referred to in
Section 4(k) below.

 

4.             Conversion Rights.  The holders of the Series Preferred shall have the following rights with
respect to the conversion of the Series Preferred into shares of Common Stock
(the “Conversion Rights”):

 

a.             Optional Conversion.  Subject to and in compliance
with the provisions of this Section 4, any shares of Series Preferred may, at
the option of the holder, be converted at any time into fully-paid and
nonassessable shares of Common Stock. The number of shares of Common Stock to
which a holder of Series Preferred shall be entitled upon conversion shall be
the product obtained by multiplying the applicable “Series Preferred Conversion
Rate” then in effect (determined as provided in Section 4(b)) by the number of
shares of Series Preferred being converted.

 

b.             Series Preferred Conversion Rate.  The conversion rate in
effect at any time for conversion of the Series A Preferred (the “Series A
Conversion Rate”) shall be the quotient obtained by dividing the Original Issue
Price of the Series A Preferred (as adjusted for any stock dividends,
combinations, subdivisions, splits, recapitalizations and the like with respect
to such shares) by the “Series A Conversion Price,” calculated as provided in
Section 4(c). The conversion rate in effect at any time for conversion of
the Series B Preferred (the “Series B Conversion Rate”) shall be the quotient
obtained by dividing the Original Issue Price of the Series B Preferred (as
adjusted for any stock dividends, combinations, subdivisions, splits,
recapitalizations and the like with respect to such shares) by the “Series B
Conversion Price,” calculated as provided in Section 4(c). The conversion
rate in effect at any time for conversion of the Series C Preferred (the
“Series C Conversion Rate”) shall be the quotient obtained by dividing the
Original Issue Price of the Series C Preferred (as adjusted for any stock
dividends, combinations, subdivisions, splits, recapitalizations and the like
with respect to such shares) by the “Series C Conversion Price,” calculated as
provided in Section 4(c). The conversion rate in effect at any time for
conversion of the Series D Preferred (the “Series D Conversion Rate”) shall be
the quotient obtained by dividing the Original Issue Price of the Series D
Preferred (as adjusted for any stock dividends, combinations, subdivisions,
splits, recapitalizations and the like with respect to such shares) by the
“Series D Conversion Price,” calculated as provided in Section 4(c). Such
“Series A Conversion Rate”, “Series B Conversion

 

11

 

Rate”, “Series C
Conversion Rate” and “Series D Conversion Rate,” as the case may be, shall
be referred to as the “Series Preferred Conversion Rate.”

 

c.             Conversion Price.  The conversion price for the
Series A Preferred shall initially be the Original Issue Price of the Series A
Preferred (the “Series A Conversion Price”). The conversion price for the
Series B Preferred shall initially be $1.8925. The conversion price for the
Series C Preferred shall initially be the Original Issue Price of the Series C
Preferred (the “Series C Conversion Price”). The conversion price for the
Series D Preferred shall initially be the Original Issue Price of the Series D
Preferred (the “Series D Conversion Price”). Such initial Series A Conversion
Price, Series B Conversion Price, Series C Conversion Price and Series D
Conversion Price, as the case may be, shall be referred to as the “Series
Preferred Conversion Price” and shall be adjusted from time to time in
accordance with this Section 4. All references to the Series Preferred
Conversion Price herein at any date shall mean the Series Preferred Conversion
Price as so adjusted as of such date.

 

d.             Mechanics of Conversion.  Each holder of Series
Preferred who desires to convert the same into shares of Common Stock pursuant
to this Section 4 shall surrender the certificate or certificates therefor (or
if such holder shall notify the Company or its transfer agent that such
certificates have been lost, stolen or destroyed, a lost certificate affidavit
and indemnity agreement reasonably acceptable to the Company), duly endorsed,
at the office of the Company or any transfer agent for the Series Preferred,
and shall give written notice to the Company at such office that such holder
elects to convert the same. Such notice shall state the number of shares of
Series Preferred being converted. Thereupon, the Company shall promptly issue
and deliver at such office to such holder a certificate or certificates for the
number of shares of Common Stock to which such holder is entitled, together
with cash in lieu of any fraction of a share and as payment for any declared
and unpaid dividends on the shares of Series Preferred being converted. Such
conversion shall be deemed to have been made at the close of business on the date
of such surrender of the certificates (or lost certificate affidavit and
indemnity agreement, if necessary) representing the shares of Series Preferred
to be converted, and the person entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder of such shares of Common Stock on such date.

 

e.             Adjustment for Stock Splits and
Combinations.  If
the Company shall at any time or from time to time after the date that the
first share of Series D Preferred is issued (the “Original Issue Date”) effect
a subdivision of the outstanding Common Stock, the applicable Series Preferred
Conversion Price in effect immediately before that subdivision shall be
proportionately decreased, so that the holder of any share of Series Preferred
thereafter surrendered for conversion shall be entitled to receive (in lieu of
the number of shares of Common Stock that the holders would otherwise have been
entitled to receive) the number of shares of Common Stock or other securities
of the Company that such holder would have owned or would have been entitled to
receive upon or by reason of any of the events described above, had such share
of Series Preferred been converted immediately prior to the occurrence of such event.
Conversely, if the Company shall at any time or from time to time after the
Original Issue Date combine the outstanding shares of Common Stock into a
smaller number of shares, the applicable Series Preferred Conversion Price in
effect immediately before the combination shall be proportionately increased,
so that the holder of any share of Series Preferred thereafter 

 

12

 

surrendered for
conversion shall be entitled to receive (in lieu of the number of shares of
Common Stock that the holders would otherwise have been entitled to receive)
the number of shares of Common Stock or other securities of the Company that
such holder would have owned or would have been entitled to receive upon or by
reason of any of the events described above, had such share of Series Preferred
been converted immediately prior to the occurrence of such event. Any
adjustment under this Section 4(e) shall become effective at the close of
business on the date the subdivision or combination becomes effective.

 

f.              Adjustment for Common Stock
Dividends and Other Distributions.

 

(A)  If the Company at any time or from time
to time after the Original Issue Date makes, or fixes a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in additional shares of Common Stock, in each such
event the Series Preferred Conversion Price that is then in effect shall be
decreased as of the time of such issuance or, in the event such record date is
fixed, as of the close of business on such record date, by multiplying the
Series Preferred Conversion Price then in effect by a fraction (i) the
numerator of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date, and (ii) the denominator of which is the total
number of shares of Common Stock issued and outstanding immediately prior to
the time of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution; provided,  however, that if such record date is fixed and such dividend is
not fully paid or if such distribution is not fully made on the date fixed
therefor, the Series Preferred Conversion Price shall be recomputed accordingly
as of the close of business on such record date and thereafter the Series
Preferred Conversion Price shall be adjusted pursuant to this Section 4(f) to
reflect the actual payment of such dividend or distribution.

 

(B)  If the Company shall at any time or from
time to time, distribute to any holders of shares of Common Stock (including
any such distribution made in connection with a merger or consolidation in
which the Corporation is the resulting or surviving Person and the Common Stock
is not changed or exchanged) cash, evidence of indebtedness of the Company or
another issuer, securities of the Company (other than Common Stock) or another
issuer or other assets (excluding cash dividends in which holders of shares of
Series Preferred participate in the manner provided in Section 1 above and
dividends payable in shares of Common Stock for which adjustment is made under
paragraph (A) above) or rights or warrants to subscribe for or purchase of any
of the foregoing, then, and in each such case, the applicable
Series Preferred Conversion Price, then in effect shall be decreased (and
any other appropriate actions shall be taken by the Company) by multiplying
each such Series Preferred Conversion Price in effect immediately prior to the
date of such distribution by a fraction (x) the numerator of which shall be the
fair market value (as determined in good faith by the Board) of the Common
Stock immediately prior to the date of distribution less the fair market value
(as determined in good faith by the Board) of the portion of the cash,
evidences of indebtedness, securities or other assets so distributed or of such
rights or warrants applicable to one share of Common Stock and (y) the
denominator of which shall be the fair market value (as determined in good
faith by the Board) of the Common Stock immediately prior to the date of
distribution (but 

 

13

 

such fraction shall not
be greater than one). Such adjustment shall be made whenever any such
distribution is made and shall become effective retroactively to a date
immediately following the close of business on the record date for the
determination of stockholders entitled to receive such distribution.

 

g.             Adjustment for Reclassification,
Exchange and Substitution. If at any time or from time to time after the Original Issue Date,
the Common Stock issuable upon the conversion of the Series Preferred is
changed into the same or a different number of shares of any class or classes
of stock, whether by recapitalization, reclassification or otherwise (other
than an Acquisition or Asset Transfer as defined in Section 3(d) or a
subdivision or combination of shares or stock dividend or a reorganization,
merger, consolidation or sale of assets provided for elsewhere in this Section
4), in any such event, the applicable Series Preferred Conversion Price then in
effect shall, concurrently with the effectiveness of such recapitalization or
reclassification, be adjusted so that each holder of Series Preferred shall
thereafter be entitled to receive upon conversion of the Series Preferred, the
kind and amount of stock or other securities and property receivable upon such
recapitalization, reclassification or other change, which such holder of Series
Preferred would have owned or would have been entitled to receive upon or by
reason of such recapitalization, reclassification or other change, had such
share of Series Preferred been converted to Common Stock immediately prior to
the occurrence of such event. In any such case, appropriate adjustment shall be
made in the application of the provisions of this Section 4 with respect to the
rights of the holders of Series Preferred after the capital reorganization to
the end that the provisions of this Section 4 (including adjustment of the
Series Preferred Conversion Price then in effect and the number of shares
issuable upon conversion of the Series Preferred) shall be applicable after
that event and be as nearly equivalent as practicable.

 

h.             Adjustment for Reorganizations,
Mergers, Consolidations or Sales of Assets. If at any time or from time to time after the
Original Issue Date, there is a capital reorganization of the Common Stock
(other than an Acquisition or Asset Transfer as defined in Section 3(d) or a
recapitalization, subdivision, combination, reclassification, exchange or
substitution of shares provided for elsewhere in this Section 4), as a part of
such capital reorganization, provisions shall be made so that the applicable
Series Preferred Conversion Price then in effect shall, concurrently with the
effectiveness of such reorganization, be adjusted so that the holders of the
Series Preferred shall thereafter be entitled to receive upon conversion of the
Series Preferred the kind and amount of stock or other securities and property
receivable upon such reorganization, which such holder of Series Preferred
would have owned or would have been entitled to receive upon or by reason of
such reorganization had such shares of Series Preferred been converted to
Common Stock immediately prior to such event. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 4
with respect to the rights of the holders of Series Preferred after the capital
reorganization to the end that the provisions of this Section 4 (including
adjustment of the Series Preferred Conversion Price then in effect and the
number of shares issuable upon conversion of the Series Preferred) shall be
applicable after that event and be as nearly equivalent as practicable. Compliance
with this Section 4(h) shall be a condition for any capital reorganization
or reclassification.

 

14

 

i.              Sale of Shares Below Series
Preferred Conversion Price.

 

(i)            If at any time or from time to time after the Original
Issue Date, the Company issues or sells, or is deemed by the express provisions
of this Section 4(i) to have issued or sold, Additional Shares of Common
Stock (as defined below), other than as provided in Section 4(f), 4(g) or
4(h) above, for an Effective Price (as defined below) less than the then
effective applicable Series Preferred Conversion Price (a “Qualifying Dilutive
Issuance”), then and in each such case, the then existing Series D Conversion
Price and Series C Conversion Price, if applicable, shall be reduced, as of the
opening of business on the date of such issue or sale, to 1) in the case the
Effective Price in a Qualifying Dilutive Issuance is $1.485 or greater, but
less than the Series D Conversion Price then in effect, the Series D Conversion
Price shall be reduced to the Effective Price, and the Series C Conversion
Price shall remain unchanged, and 2) in the case that the Effective Price is less
than $1.485, with respect to the Series C Preferred, a price determined by
multiplying the Series C Conversion Price in effect immediately prior to such
issuance or sale, and in the case of the Series D Conversion Price, $1.485, by
a fraction equal to:

 

(A)  the numerator of which shall be (A) the
number of shares of Series Preferred deemed outstanding (as determined below)
immediately prior to such issue or sale, plus (B) the number of shares of
Common Stock which the Aggregate Consideration (as defined below) received or
deemed received by the Company for the total number of Additional Shares of
Common Stock so issued would purchase at such then-existing Series Preferred
Conversion Price, and

 

(B)  the denominator of which shall be the
number of shares of Series Preferred deemed outstanding (as determined below)
immediately prior to such issue or sale plus the total number of Additional
Shares of Common Stock so issued.

 

For the purposes of the
preceding sentence, the number of shares of Series Preferred deemed to be
outstanding as of a given date shall be the number of shares of Common Stock
into which the then outstanding shares of Series Preferred could be converted
if fully converted on the day immediately preceding the given date. Notwithstanding
the foregoing, 1) all references to $1.485 in this section shall be adjusted
for any stock splits or the like affecting the Series D Preferred, and 2) in
the event of a sale of Additional Shares of Common Stock at an Effective Price
of less than $1.485, the Series D Conversion Price shall equal to the Series C
Conversion Price.

 

(ii)           No adjustment shall be made to the Series Preferred
Conversion Price in an amount less than one cent per share. Any adjustment
otherwise required by this Section 4(i) that is not required to be made due to
the preceding sentence shall be included in any subsequent adjustment to the
Series Preferred Conversion Price. For the avoidance of doubt, no adjustment
shall be made to the Series B Conversion Price under this Section 4(i) in connection
with the issuance of 34,000,000 shares of Series D Preferred (or the issuance
of Common Stock upon the conversion of such shares of Series D Preferred). For
the purpose of making any adjustment required under this Section 4(i), the
aggregate consideration received by the Company for any issue or sale of
securities (the “Aggregate Consideration”) shall be defined as: (A) to the
extent it consists of cash, be computed at the gross amount of cash

 

15

 

received by the Company
before deduction of any underwriting or similar commissions, compensation or
concessions paid or allowed by the Company in connection with such issue or
sale and without deduction of any expenses payable by the Company, (B) to the
extent it consists of property other than cash, be computed at the fair value
of that property as determined in good faith by the Board, and (C) if
Additional Shares of Common Stock, Convertible Securities (as defined below) or
rights or options to purchase either Additional Shares of Common Stock or
Convertible Securities are issued or sold together with other stock or
securities or other assets of the Company for a consideration which covers
both, be computed as the portion of the consideration so received that may be
reasonably determined in good faith by the Board to be allocable to such
Additional Shares of Common Stock, Convertible Securities or rights or options.

 

(iii)         For the purpose of the adjustment required under this
Section 4(i), if the Company issues or sells (x) Preferred Stock or other
stock, options, warrants, purchase rights or other securities convertible into,
Additional Shares of Common Stock (such convertible stock or securities being
herein referred to as “Convertible Securities”) or (y) rights or options for
the purchase of Additional Shares of Common Stock or Convertible Securities and
if the Effective Price of such Additional Shares of Common Stock is less than
the Series Preferred Conversion Price, in each case, the Company shall be deemed
to have issued at the time of the issuance of such rights or options or
Convertible Securities the maximum number of Additional Shares of Common Stock
issuable upon exercise or conversion thereof and to have received as
consideration for the issuance of such shares an amount equal to the total
amount of the consideration, if any, received by the Company for the issuance
of such rights or options or Convertible Securities plus:

 

(A)  in the case of such rights or options,
the minimum amounts of consideration, if any, payable to the Company upon the
exercise of such rights or options; and

 

(B)  in the case of Convertible Securities,
the minimum amounts of consideration, if any, payable to the Company upon the
conversion thereof (other than by cancellation of liabilities or obligations
evidenced by such Convertible Securities); provided, that if the minimum amounts of such
consideration cannot be ascertained, but are a function of antidilution or
similar protective clauses, the Company shall be deemed to have received the
minimum amounts of consideration without reference to such clauses.

 

(iv)          If the minimum amount of consideration payable to the
Company upon the exercise or conversion of rights, options or Convertible
Securities is reduced over time or on the occurrence or non-occurrence of
specified events other than by reason of antidilution adjustments, the
Effective Price shall be recalculated using the figure to which such minimum
amount of consideration is reduced; provided,  further, that if the minimum amount
of consideration payable to the Company upon the exercise or conversion of such
rights, options or Convertible Securities is subsequently increased, the
Effective Price shall be again recalculated using the increased minimum amount
of consideration payable to the Company upon the exercise or conversion of such
rights, options or Convertible Securities, provided, that such recalculation shall not
apply to prior conversions of Series Preferred.

 

16

 

(v)            No further adjustment of the Series Preferred
Conversion Price, as adjusted upon the issuance of such rights, options or
Convertible Securities, shall be made as a result of the actual issuance of
Additional Shares of Common Stock or the exercise of any such rights or options
or the conversion of any such Convertible Securities. If any such rights or
options or the conversion privilege represented by any such Convertible
Securities shall expire without having been exercised, the Series Preferred
Conversion Price as adjusted upon the issuance of such rights, options or
Convertible Securities shall be readjusted to the Series Preferred Conversion
Price which would have been in effect had an adjustment been made on the basis
that the only Additional Shares of Common Stock so issued were the Additional
Shares of Common Stock, if any, actually issued or sold on the exercise of such
rights or options or rights of conversion of such Convertible Securities, and
such Additional Shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such exercise, plus the
consideration, if any, actually received by the Company for the granting of all
such rights or options, whether or not exercised, plus the consideration
received for issuing or selling the Convertible Securities actually converted,
plus the consideration, if any, actually received by the Company (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities) on the conversion of such Convertible Securities; provided,
that such readjustment shall not apply to prior conversions of
Series Preferred.

 

(vi)          For the purpose of making any adjustment to the
Conversion Price of the Series Preferred required under this Section 4(i),
“Additional Shares of Common Stock” shall mean all shares of Common Stock
issued by the Company or deemed to be issued pursuant to this Section 4(i)
(including shares of Common Stock subsequently reacquired or retired by the
Company), other than:

 

(A)  shares of Common Stock issued upon
conversion of the Series Preferred;

 

(B)  6,500,000 shares of Common Stock and/or
options, warrants or other Common Stock purchase rights (the “Plan Shares”),
and the Common Stock issued pursuant to such options, warrants or other rights
(as adjusted for any stock dividends, combinations, splits, recapitalizations
and the like) issued after the Original Issue Date to employees, officers or
directors of, or consultants or advisors to the Company or any subsidiary,
pursuant to stock purchase or stock option plans or other arrangements that are
approved by the Board of Directors; provided,
that without increasing the Plan Shares, any shares that revert back or are
otherwise available for reissuance in connection with the expiration or termination
of any option shall be available for issuance by the Company and will not be
considered Additional Shares of Common Stock;

 

(C)  shares of Common Stock issued pursuant to
the exercise of Convertible Securities outstanding as of the Original Issue Date;

 

(D)  shares of Common Stock or Convertible
Securities issued for consideration pursuant to a merger, consolidation,
acquisition, or similar business combination, in each case, if approved by the
Board;

 

17

 

(E)
any equity
securities issued pursuant to any equipment loan or leasing arrangement, real
property leasing arrangement, or debt financing from a bank or similar
financial or lending institution, in each case if approved by the Board;

 

(F)
any equity securities
issued in connection with strategic transactions involving the Company and
other entities, including (i) joint ventures, manufacturing, marketing or
distribution arrangements or (ii) technology transfer or development
arrangements; provided, that the issuance of
shares therein has been approved by the Company’s Board; and

 

(G)
any Equity
Securities that are issued by the Company pursuant to a registration statement
filed under the Securities Act that results in the conversion of all Preferred
Stock into Common Stock.

 

References to Common
Stock in the subsections of this clause (vii) above shall mean all shares of
Common Stock issued by the Company or deemed to be issued pursuant to this
Section 4(i). The “Effective Price” of Additional Shares of Common Stock
shall mean the quotient determined by dividing the total number of Additional
Shares of Common Stock issued or sold, or deemed to have been issued or sold by
the Company under this Section 4(i), into the Aggregate Consideration
received, or deemed to have been received by the Company for such issue under
this Section 4(i), for such Additional Shares of Common Stock. In the
event that the number of shares of Additional Shares of Common Stock or the
Effective Price cannot be ascertained at the time of issuance, the Board shall
in good faith determine the maximum number of Additional Shares of Common Stock
and the minimum amount of consideration, subject to adjustment under Section
4(v).

 

(vii)         In the event that the Company issues or sells, or is deemed
to have issued or sold, Additional shares of Common Stock in a Qualifying
Dilutive Issuance (the “First Dilutive Issuance”), then in the event that the
Company issues or sells, or is deemed to have issued or sold, Additional Shares
of Common Stock in a Qualifying Dilutive Issuance other than the First Dilutive
Issuance as a part of the same transaction or series of related transactions as
the First Dilutive Issuance, and such issuance occurs within a period of no
more than 30 days from the date of the First Dilutive Issuance (a “Subsequent
Dilutive Issuance”), then and in each such case upon a Subsequent Dilutive
Issuance the Series Preferred Conversion Price shall be reduced to the Series
Preferred Conversion Price that would have been in effect had the First
Dilutive Issuance and each Subsequent Dilutive Issuance all occurred on the
closing date of the First Dilutive Issuance.

 

j.              Certificate of Adjustment.  In each case of an
adjustment or readjustment of the Series Preferred Conversion Price for the
number of shares of Common Stock or other securities or property issuable upon
conversion of the Series Preferred, if the Series Preferred is then convertible
pursuant to this Section 4, the Company, at its expense, shall promptly compute
such adjustment or readjustment in accordance with the provisions hereof and
prepare a certificate showing such adjustment or readjustment, and shall then
promptly mail such certificate, by first class mail, postage prepaid, to each
registered holder of Series Preferred at the holder’s address as shown in the
Company’s books. The certificate shall set forth such 

 

18

 

adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (i) the Series Preferred
Conversion Price at the time in effect, and (ii) the type and amount, if any,
of other property which at the time would be received upon conversion of the
Series Preferred.

 

k.            Notices of Record Date.  Upon (i) any taking by the
Company of a record of the holders of any class of securities for the purpose
of determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any Acquisition (as defined in Section 3(h)) or other
capital reorganization of the Company, any reclassification or recapitalization
of the capital stock of the Company, any merger or consolidation of the Company
with or into any other corporation, or any Asset Transfer (as defined in
Section 3(h)), or any voluntary or involuntary dissolution, liquidation or
winding up of the Company, the Company shall mail to each holder of Series
Preferred at least twenty (20) days prior to the record date specified therein
(or such shorter period approved by the holders of a majority of the
outstanding Series Preferred) a notice specifying (A) the date on which any
such record is to be taken for the purpose of such dividend or distribution and
a description of such dividend or distribution, (B) the date on which any
such Acquisition, reorganization, reclassification, recapitalization, transfer,
consolidation, merger, Asset Transfer, dissolution, liquidation or winding up
is expected to become effective, and (C) the date, if any, that is to be fixed
as to when the holders of record of Common Stock (or other securities) shall be
entitled to exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such Acquisition, reorganization,
reclassification, recapitalization, transfer, consolidation, merger, Asset
Transfer, dissolution, liquidation or winding up.

 

l.              Automatic Conversion.

 

(i)            Each share of Series Preferred shall automatically be
converted into shares of Common Stock, based on the then-effective Series
Preferred Conversion Price, immediately upon the closing of a firmly
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of
Common Stock for the account of the Company in which (i) the aggregate
valuation of the Company at the time of the offering (based on the per share
price to the public in the registration statement multiplied by the outstanding
shares on a fully-diluted basis) is equal to or greater than two hundred million
dollars ($200,000,000) (ii) the gross cash proceeds to the Company (before
underwriting discounts, commissions and fees) are at least forty million
dollars ($40,000,000), and (iii) the Common Stock is to be listed for trading
on either the New York Stock Exchange or the Nasdaq National Market. Upon such
automatic conversion, any declared and unpaid dividends shall be paid in
accordance with the provisions of Section 4(d).

 

(ii)           Upon the occurrence of the event specified in
paragraph (i) above, the applicable outstanding shares of Series Preferred
shall be converted automatically without any  further
action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Company or its transfer agent; provided,  however,
that the Company shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such conversion unless the certificates
evidencing such shares of Series Preferred are either delivered to the Company
or its transfer agent as provided below, or the 

 

19

 

holder notifies the
Company or its transfer agent that such certificates have been lost, stolen or
destroyed and executes an agreement satisfactory to the Company to indemnify
the Company from any loss incurred by it in connection with the replacement of
such certificates. Upon the occurrence of such automatic conversion of the
Series Preferred, all holders of the Series Preferred shall be given notice of
the automatic conversion pursuant to this Section 4(l), including the effective
date on which such action took place and the then effective Series Preferred
Conversion Price. Upon receipt of such notice, the holders of Series Preferred
shall surrender the certificates (or lost certificate agreement) representing
such shares at the office of the Company or any transfer agent for the Series
Preferred. Thereupon, there shall be issued and delivered to such holder
promptly at such office and in its name as shown on such surrendered
certificate or certificates, a certificate or certificates for the number of
shares of Common Stock into which the shares of Series Preferred surrendered
were convertible on the date on which such automatic conversion occurred, and
any declared and unpaid dividends shall be paid in accordance with the
provisions of Section 4(d). If the conversion is in connection with an
underwritten offering of securities registered pursuant to the Securities Act
of 1933 or the closing of any other specified transaction, the conversion may,
at the option of any holder tendering Series Preferred for conversion, be
conditioned upon the closing with the underwriters of the sale of securities
pursuant to such offering or the closing of such transactions, in which event
the persons entitled to receive the Common Stock upon conversion of the Series
Preferred shall not be deemed to have converted such Series Preferred until
immediately prior to the closing of such sale of securities or such other
event.

 

m.            Fractional Shares.  No fractional shares of
Common Stock shall be issued upon conversion of Series Preferred. All shares of
Common Stock (including fractions thereof) issuable upon conversion of more
than one share of Series Preferred by a holder thereof shall be aggregated for
purposes of determining whether the conversion would result in the issuance of
any fractional share. If, after the aforementioned aggregation, the conversion
would result in the issuance of any fractional share, the Company shall, in
lieu of issuing any fractional share, pay cash equal to the product of such
fraction multiplied by the Common Stock’s fair market value (as determined by
the Board) on the date of conversion.

 

n.             Reservation of Stock Issuable
Upon Conversion.  The
Company shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series Preferred, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Series Preferred. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Series Preferred,
in addition to such other remedies as shall be available to the holder of such
Series Preferred, the Company will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose, including without limitation, engaging in commercially reasonable
efforts to obtain the requisite stockholder approval of any necessary amendment
to these Restated Articles of Incorporation. Before taking any action which
would cause an adjustment reducing any Series Preferred Conversion Price below
the then par value of the shares of Common Stock issuable upon conversion of
the Series Preferred, the Company will take any corporate action which may, in
the 

 

20

 

opinion of its counsel,
be necessary in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock at such adjusted Series Preferred
Conversion Price.

 

o.             Notices.  Any notice required by the
provisions of this Section 4 shall be in writing and shall be deemed
effectively given: (i) upon personal delivery to the party to be notified, (ii)
when sent by confirmed telex or facsimile if sent during normal business hours
of the recipient; if not, then on the next business day, (iii) five (5) days
after having been sent by registered or certified mail, return receipt
requested, postage prepaid, provided, that
this clause (iii) shall only apply if the notice is being sent to an address
within the United States, or (iv) one (1) business day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All notices shall be addressed to each holder
of record at the address of such holder appearing on the books of the Company.

 

p.             Payment of Taxes.  The Company will pay all
taxes (other than income taxes) and other governmental charges that may be
imposed with respect to the issue or delivery of shares of Common Stock upon
conversion of shares of Series Preferred, excluding any tax or other charge
imposed in connection with any transfer involved in the issue and delivery of
shares of Common Stock in a name other than that in which the shares of Series
Preferred so converted were registered.

 

q.             No Dilution or Impairment.  Without the appropriate vote
of its shareholders under the General Corporate Law of California or Section
(2)(b) of this Article III, the Company shall not amend its Restated Articles
of Incorporation or participate in any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or take any
other voluntary action, for the purpose of avoiding or seeking to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but shall at all times in good faith assist in carrying out all such
action as may be reasonably necessary or appropriate in order to protect all of
the rights of the holders of the Series Preferred, including the conversion
rights of the holders of the Series Preferred against dilution or other
impairment.

 

5.             No Reissuance of Series Preferred.  No share
or shares of Series Preferred acquired by the Company by reason of redemption,
purchase, conversion or otherwise shall be reissued; and in addition, these
Restated Articles of Incorporation shall be appropriately amended to effect the
corresponding reduction in the Company’s authorized stock.

 

6.             No Redemption.  The
Series Preferred shall not be redeemed or subject to redemption, whether at the
option of the Company or any holder thereof, or otherwise.

 

IV.

 

A.            The liability of
the directors of the Corporation for monetary damages shall be eliminated to
the fullest extent permissible under California law.

 

21

 

B.            The Corporation is
authorized to provide indemnification of agents (as defined in Section 317 of
the General Corporation Law of California) for breach of duty to the
Corporation and its shareholders through bylaw provisions or through agreements
with agents, or both, in excess of the indemnification otherwise permitted by
Section 317 of the General Corporation Law of California, subject to the limits
on such excess indemnification set forth in Section 204 of the General
Corporation Law of California. If, after the effective date of this Article,
California law is amended in a manner which permits a corporation to limit the
monetary or other liability of its directors or to authorize indemnification
of, or advancement of such defense expenses to, its directors or other persons,
in any such case to a greater extent than is permitted on such effective date,
the references in this Article to “California law” shall to that extent be
deemed to refer to California law as so amended.

 

C.            Any repeal or
modification of this Article shall only be prospective and shall not effect the
rights under this Article in effect at the time of the alleged occurrence of
any action or omission to act giving rise to liability.

 

THREE: 
The foregoing amendment and restatement of the
Articles of Incorporation has been duly approved by the Board.

 

FOUR:  The
foregoing amendment and restatement of the Articles of Incorporation has been
duly approved by the required vote of shareholders in accordance with Section
902 and Section 903 of the California Corporations Code. The Corporation has
two classes of stock outstanding and each such class of stock is entitled to
vote with respect to the amendment herein set forth. The total number of
outstanding shares of Common Stock of the Corporation is 5,071,397. The total
number of outstanding shares of Series A Preferred, Series B Preferred and
Series C Preferred is 757,576, 398,493 and 16,952,228, respectively. The number
of shares voting in favor of the amendment equaled or exceeded the vote
required. The percentage vote required was more than fifty percent (50%) of the
outstanding Common Stock voting as a single class, more than fifty percent
(50%) of the outstanding Series A Preferred, Series B Preferred and Series C
Preferred, voting together as a single class, more than fifty percent (50%) of
the outstanding Series C Preferred, voting together as a single class, and more
than fifty percent (50%) of the outstanding Common Stock, Series A Preferred,
Series B Preferred and Series C Preferred, voting together as a single class.

 

22

 

The undersigned, Peter G. Milner and James F. Fulton, Jr., the
President and Chief Executive Officer and the Assistant Secretary,
respectively, of ARYX THERAPEUTICS, declare under
penalty of perjury under the laws of the State of California that the matters
set out in the foregoing Certificate are true of their own knowledge.

 

Executed at Santa Clara, California on May 21, 2004.

 

	
   

  	
  /s/ Peter G. Milner

  
	
   

  	
  PETER G.
  MILNER

  
	
   

  	
  President and Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ James F. Fulton, Jr.

  
	
   

  	
  JAMES F.
  FULTON, JR.

  
	
   

  	
  Assistant Secretary

  

 

 

 

Exhibit d

 

Notice of Borrowing

 

                ,
       

 

Lighthouse Capital Partners V, L.P.

500 Drake’s Landing Road

Greenbrae, CA  94904-3011

 

Ladies and Gentlemen:

 

Reference is made to the Loan and Security
Agreement No. 4521 dated as of March 28, 2005 (as it has been and may be
amended from time to time, the “Loan
Agreement,” initially capitalized terms used herein as defined
therein), between Lighthouse
Capital Partners V, L.P. and ARYx Therapeutics, Inc.  (the “Company”)

 

The undersigned is the Chief
Executive Officer of the Company, and hereby irrevocably requests an Advance
under the Loan Agreement, and in that connection certifies as follows:

 

1.             The
amount of the proposed Advance is $                  .
The business day of the proposed Advance is                  .

 

2.             The
Loan Commencement Date for this Advance shall be April 1, 2006.

 

3.             As
of this date, no Event of Default, or event which with notice or the passage of
time would constitute an Event of Default, has occurred and is continuing, or
will result from the making of the proposed Advance, and the representations
and warranties of the Company contained in
Section 5 of the Loan Agreement are true and correct in all material
respects.

 

4.             No
event that could reasonably be expected to have a material adverse effect on
the ability of Borrower to fulfill its obligations under the Loan Agreement has
occurred since the date of the most recent financial statements, submitted to
you by the Company.

 

The Company agrees to notify you
promptly before the funding of the Advance if any of the matters to which I
have certified above shall not be true and correct on the Borrowing Date.

 

Very truly yours,

 

ARYx Therapeutics, Inc.

 

	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						

 

1

 

Exhibit e

 

Incumbency Certificate

 

The undersigned, Peter Milner,
hereby certifies that:

 

1.             He/She is the duly elected and acting President, R
& D of ARYx
Therapeutics, Inc., a California corporation (the “Company”).

 

2.             That on the date hereof, each person listed below
holds the office in the Company indicated opposite his or her name and that the
signature appearing thereon is the genuine signature of each such person:

 

	
  NAME

  	
  OFFICE

  	
  SIGNATURE

  
	
   

  	
   

  	
   

  
	
  Paul Goddard

  	
  Chief Executive Officer

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Peter Milner

  	
  President, R & D

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  John Varian

  	
  Chief Operating Officer

  	
   

  	
   

  

 

3.             Attached hereto as Exhibit A is a true
and correct copy of the Articles of Incorporation of the Company, as amended,
as in effect as of the date hereof.

 

4.             Attached hereto as Exhibit B is a true
and correct copy of the Bylaws of the Company, as amended, as in effect as of
the date hereof.

 

5.             Attached hereto as Exhibit C is a copy
of the resolutions of the Board of Directors of the Company authorizing and
approving the Company’s execution, delivery and performance of a loan facility
with Lighthouse Capital Partners V, L.P.

 

IN WITNESS WHEREOF, the undersigned
has executed this Incumbency Certificate on March 28, 2005.

 

	
   

  	
  ARYx
  Therapeutics, Inc.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
  Peter Milner

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
  President, R & D

  	
   

  
						

 

I, the Chief Operating Officer of
the Company, do hereby certify that Peter Milner is the duly qualified, elected
and acting President, R & D of the Company and that the above signature is
his or her genuine signature.

 

IN WITNESS WHEREOF, the undersigned
has executed and delivered this Officer’s Certificate on March 28, 2005.

 

	
   

  	
  ARYx
  Therapeutics, Inc.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
  John Varian

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
  Chief Operating Officer

  	
   

  
						

 

1

 

EXHIBIT F

 

OFFICER’S CERTIFICATE

 

The undersigned, to induce Lighthouse Capital Partners
V, L.P. (“Lender”), to extend
or continue financial accommodations to ARYx Therapeutics, Inc., a California corporation (the “Borrower”) pursuant to the terms of that certain Loan and
Security Agreement dated March 28, 2005 (the “Loan
Agreement”), hereby certifies that on the date hereof:

 

1.                                      I am the duly elected and acting Chief Executive
Officer of Borrower.

 

2.                                      I am a Responsible Officer as that term is defined
in the Loan Agreement.

 

3.                                      The information submitted herewith is in fact what
it purports to be.

 

4.                                      The information delivered herewith is true, correct
and complete

 

5.                                      Borrower is currently able to meet its obligations
as they come due.

 

6.                                      I understand that Lender is relying upon the
truthfulness, accuracy and completeness hereof in connection with the Loan
Agreement.

 

7.                                      I will advise you if it comes to my attention that,
as of the date hereof, the information submitted herewith was not in fact true,
correct and complete.

 

IN WITNESS WHEREOF, the undersigned
has executed this Officer’s Certificate on                                 .

 

	
   

  	
  ARYx
  Therapeutics, Inc.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
  Paul Goddard

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
  Chief Executive Officer

  	
   

  
						

 

1

 

EXHIBIT G

 

AUTHORIZATION FOR AUTOMATIC
PAYMENT

 

The undersigned ARYx Therapeutics, Inc. (“Borrower”)
authorizes Lighthouse
Capital Partners V, L.P. and any and all affiliated funds
(collectively, “Lender”) and the
bank / financial institution (“Bank”)
named below to initiate variable debit and/or credit entries to Borrower’s
deposit, checking or savings accounts as designated below and to cause funds
transfers to an account of Lender as payment of any and all amounts due under
the Loan and Security Agreement between Borrower and Lender dated March 28,
2005 (the “Loan Agreement”).

 

1.             Lender is hereby
authorized to initiate variable debit and/or credit transactions and resulting
funds transfers in Borrower’s designated accounts with respect to amounts
calculated by Lender to be due and owing to Lender by Borrower periodically
under the Loan Agreement. Borrower consents to all such debit and/or credit
transactions and resulting funds transfers and hereby authorizes Lender to take
all such actions as may be required by Bank with respect to such transactions.
Borrower acknowledges and agrees that such credit and/or debit entries may be
made in amounts due under the Loan Agreement in order to cause timely payments
as required by the terms of the Loan Agreement.

 

2.             Borrower hereby
authorizes Lender to release to Bank all information concerning Borrower that
may be necessary or desirable for Bank to investigate or recover any erroneous
funds transfers that may occur.

 

3.             Borrower acknowledges
and agrees that all such debit and/or credit transactions and funds transfers
are intended to be made through an Automated Clearing House system and in
compliance with the NACHA Rules and in compliance with Bank’s security
procedures.

 

4.             Borrower
represents and warrants that the account information set forth below is
accurate and complete and that each of the account(s) set forth below is a
business account maintained in Borrower’s name and for Borrower’s account.

 

This Consent shall be effective as of March 28, 2005
and shall remain in effect until the Loan Agreement has been terminated. Any
cancellation by Borrower of this consent shall (i) be made in writing and (ii)
delivered to Bank and Lender in such time as to afford Bank and Lender a reasonable
opportunity to act on said cancellation.

 

	
  Silicon Valley Bank

  
	
  (Name of Borrower’s Bank)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3003 Tasman Drive

  	
   

  	
  Santa Clara

  	
   

  	
  CA

  	
   

  	
  95054

  
	
  (Address of Bank)

  	
   

  	
  (City)

  	
   

  	
  (State)

  	
   

  	
  (Zip Code)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Bank Routing Number

  	
   

  	
   

  
	
   

  	
   

  	
  (between these symbols “
  /:”      “:/” on bottom left of check)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Account Number:

  	
                      
                                  (checking
  / deposit / savings)                        

  	
  (circle one)

  
															

 

Copy of a voided check is attached to this
form

 

	
  Borrower Name:

  	
  ARYX
  THERAPEUTICS, INC.

  
	
   

  	
   

  
	
  Borrower Address:

  	
  6300 Dumbarton Circle

  
	
   

  	
  Fremont, CA 94555

  
	
   

  	
   

  
	
  Authorized by:

  	
   

  	
   

  
	
   

  	
  Its:

  	
   

  	
   

  
	
  Date authorized:

  	
   

  	
   

  
	
   

  	
   

  
	
  Internal ACH Authorizations from Lender:

  
	
   

  	
   

  
	
  Approved by:

  	
   

  	
   

  	
  Date:

  	
   

  	
   

  
								

 

1

EXHIBIT H

 

CONTROL AGREEMENT

 

[In form and substance acceptable to Lender
in its reasonable discretion]

 

1

 

[GRAPHIC]

 

DEPOSIT ACCOUNT CONTROL AGREEMENT

 

 

	
  Customer:

  	
  ARYx Therapeutics, Inc.

  
	
  Creditor:

  	
  Lighthouse Capital Partners V, L.P.

  
	
  Date:

  	
  March 28, 2005

  

 

This Deposit
Account Control Agreement (“Agreement”) is entered into as of the above date
between Silicon Valley Bank (“Bank”), Creditor identified above (“Creditor”),
and Customer identified above (“Customer”).

 

All parties agree
as follows:

 

1.             Deposit Account.  Bank
maintains one or more demand, time, savings, passbook, certificates of deposit
or other similar accounts that are identified above in which Customer has an
interest. The referenced account(s) is (are) subject to the Bank’s Deposit
Agreement Disclosure Statement, unless specifically altered by this Agreement.
The parties acknowledge that the Deposit Account constitutes a “Deposit Account”
within the meaning of Section 9102 of the Uniform Commercial Code of the State
of California (“UCC”) and Bank is a “Bank” within the meaning of Section 9102
of the UCC. The provisions of this Agreement constitute “Control” over the
Deposit Account within the meaning of Section 9104 of the UCC.

 

2.             Security Interests.  Pursuant
to a security agreement or similar agreement identified in Exhibit A hereto (“Security
Agreement”), Customer has granted to Creditor a lien on and security interest
in the above account(s) and in all cash, funds, items, instruments and any
other amounts now or later deposited into or held therein (collectively, the “Deposit
Account”). Bank acknowledges the lien on and security interest in the Deposit
Account granted by Customer to Creditor. With respect to Bank’s rights pursuant
to Section 6 of this Agreement, Customer has granted to Bank a security
interest in the Deposit Account, or Bank has a lien or right of setoff under
the UCC or other laws applicable to the Deposit Account. Creditor acknowledges
the Bank’s lien or right of setoff on the Deposit Account under the UCC or
other laws applicable to the Deposit Account and/or the security interest in
the Deposit Account granted by Customer to Bank. Customer hereby ratifies and
confirms the security interests and/or liens and/or rights of setoff it has
granted in the Deposit Account to Bank and Creditor.

 

3.             Other Deposit Control Agreements.  Bank
has entered into Deposit Account Control Agreements with the parties listed on Exhibit A
attached hereto. Customer covenants and agrees that it will not enter into a
deposit control agreement with any other party without Creditor’s prior written
consent. Bank agrees that it will not enter into a deposit control agreement
with any other party with respect to the Deposit Account without Creditor’s
prior written consent

 

4.             Customer’s
Rights in Deposit Account.  For purposes of perfection under the UCC of Creditor’s
security interest in the Deposit Account(s), Creditor has control over the
Deposit Account(s), provided that until Bank receives a Notice of Exclusive
Control (as

 

1

 

described and set forth
below), Customer will be entitled to draw items on and otherwise to withdraw or
direct the disposition of funds from the Deposit Account. So long as this
Agreement is in effect, Customer may not close the Deposit Account without
Creditor’s prior written consent. Bank may close Customer’s Deposit Account in
accordance with Bank’s business practices and as required by applicable law.
Customer will notify Creditor if Bank closes Customer’s Deposit Account.

 

5.             Creditor’s Control of Deposit
Account.  Except as permitted in section 6 of
this Agreement, and except as required pursuant to the terms of any other
deposit account control agreement executed by Customer and/or referenced in
Section 3 and Exhibit A to this Agreement, after Bank receives a Notice of
Exclusive Control from Creditor and has had reasonable opportunity to comply
with it, but no later than two Business Days (“Business Days” means days which
Bank is open to the public for business and are measured in 24 hour
increments) after the Notice of Exclusive Control has been validly given (in
accordance with Section 13(B) below), Bank and Customer agree that: (a) Bank
will comply only with Creditor’s instructions as to the withdrawal or
disposition of any funds credited to the Deposit Account, and to any other
matters relating to the Deposit Account, without Customer’s further consent,
and (b) Bank will not comply with any instructions from Customer concerning the
Deposit Account or any funds in the Deposit Account. Creditor agrees that it
will not send a Notice of Exclusive Control unless it believes that it is
entitled to exercise its rights as to the Deposit Account under the Security
Agreement or any of the other documents executed in connection with the
Security Agreement. The Notice of Exclusive Control must be in the form set
forth in Exhibit B hereto and must be signed by an authorized representative of
Creditor. Creditor’s instructions may include the giving of stop payment orders
for any items being presented to the Deposit Account for payment. Bank will  be fully entitled to rely upon such
instructions from Creditor even if such instructions are contrary to any
instructions or demands given by Customer. Customer confirms that Bank should
follow instructions from Creditor even if the result of following such
instructions is that Bank dishonors items presented for payment from the
Deposit Account. Customer further confirms that Bank will have no liability to
Customer for wrongful dishonor of such items in following such instructions
from Creditor. Bank shall have no duty to inquire or determine whether Customer’s
obligations to Creditor are in default, or whether the Creditor is entitled to
send a Notice of Exclusive Control.

 

6.             Priorities of Security
Interests; Rights Reserved by Bank.  Creditor
agrees that nothing herein subordinates or waives, and that Bank expressly
reserves, any and/or all of Bank’s present and future rights (whether described
as rights of setoff, banker’s liens, chargeback or otherwise, and whether
available to Bank under the law or under any other agreement between Bank and
Customer concerning the Deposit Account) with respect to (a) items deposited to
the Deposit Account and returned unpaid, whether for insufficient funds or for
any other reason; (b) overdrafts on the Deposit Account; (c) automated clearing
house entries; (d) any provisional credits granted by Bank to the Deposit
Account; (e) claims of breach of the Uniform Commercial Code’s transfer or
presentment warranties made against Bank in connection with items deposited to
the Deposit Account; (f) Bank’s usual and customary charges for services
rendered in connection with the Deposit Account; or (g) Only with respect to
Account No. 8800057097, (the “Pledged Account”), any lien arising in connection
with any loan or other credit relationship between Customer and Bank, which
lien shall be subject to the provisions of the Subordination/ Intercreditor Agreement identified in Exhibit A
hereto. Creditor agrees that notwithstanding receipt of Creditor’s Notice of
Exclusive Control, subject to the terms and obligations in the Subordination/
Intercreditor Agreement listed in Exhibit A, Bank may exercise Bank’s rights
and remedies in connection with any liens, security interests or claims it may
have in or on the Deposit Account as described in this Section 6 provided that
with respect to Bank’s exercise of remedies in connection with Customer’s
reimbursement obligation to Bank under that certain Application for Cash
Secured Standby Letter of Credit relating to the letter of credit issued to
TriNet, as beneficiary, which reimbursement obligation is secured by the
Pledged Account, Bank shall marshal the Pledged Account before seeking recourse
against any other Deposit Account of Customer pledged by Customer to Bank.

 

2

 

7.             Statements.  At Customer’s
expense, Bank will send copies of all statements for the Deposit Account to
Creditor at Creditor’s address set forth below Creditor’s signature block at
the end of this Agreement. Until this Agreement is terminated, Customer
authorizes Bank to disclose to Creditor at Creditor’s request any information
concerning Customer’s Deposit Account, including but not limited to the
identity of any other party with which Customer and Bank have executed deposit
control agreements or similar agreements.

 

8.             Returned Items.  Bank
will pay returned items by debiting the Deposit Account. If at any time after
Creditor exercises exclusive control over the Deposit Account (a) funds are not
available in the Deposit Account to cover the amount of any returned item, and
(b) Customer fails to pay such amount within 15 Business Days of Bank’s
written demand therefor, then Creditor agrees that it will pay, within ten (10)
Business Days of a written demand by Bank, any amounts owed for a returned item
that is not paid in full by Customer up to the amount of the proceeds received
by Creditor from the corresponding returned item.

 

9.             Indemnity and Hold Harmless of
Bank by Customer.  Customer hereby agrees to
indemnify and hold harmless Bank, its affiliates and their respective directors,
officers, agents and employees (each, an “Indemnified Person”) against
any and all claims, causes of action, liabilities, lawsuits, demands and
damages (each, a “Claim”) asserted by Creditor or any other party (other
than an Indemnified Person), including without limitation, any and all court
costs and reasonable attorneys’ fees, in any way related to or arising out of
or in connection with this Agreement or any action taken or not taken pursuant
hereto, including any Claims arising as a result of Bank’s adherence (or
alleged failure of adherence) to the foregoing instructions including, without
limitation, Claims that allegedly result from Bank’s ceasing, based on this
Agreement, to permit withdrawals of or from the Deposit Account or the funds in
the Deposit Account or resulting from Bank’s paying over or delivering all or
any part of the Deposit Account or the funds in the Deposit Account pursuant to
the directions of Creditor; provided that no Indemnified Person shall be
entitled to be indemnified to the extent that such Claims result from an
Indemnified Person’s gross negligence or willful misconduct. Customer will
indemnify Creditor for any indemnity obligations Creditor owes to Bank under
this Agreement.

 

10.          Indemnification
and Hold Harmless of Bank by Creditor.  Creditor
hereby agrees to indemnify Indemnified Persons against any and all Claims
asserted by Customer or any other party (other than an Indemnified Person),
including, without limitation, any and all court costs and reasonable attorneys’
fees, arising directly out of Bank’s adherence or failure of adherence to
Creditor’s instructions in its Notice of Exclusive Control, including, without
limitation, any Claim that arises directly out of Bank’s ceasing, based on this
Agreement, to permit withdrawals of or from the Deposit Account or the funds in
the Deposit Account or resulting from Bank’s paying over or delivering all or
any part of the Deposit Account or the funds in the Deposit Account pursuant to
Creditor’s instructions in its Notice of Exclusive Control; provided,
that no Indemnified Person shall be entitled to be indemnified (a) to the
extent that such Claim results from an Indemnified Person’s gross negligence or
willful misconduct; (b) for any special, indirect, consequential or punitive
damages asserted by Customer if the waiver in Section 11 of this Agreement is
enforceable; or (c) any Claim asserted against Bank for Bank’s breach of the
Subordination/Intercreditor Agreement identified in Exhibit A. Creditor agrees
that it will not hold Indemnified Persons liable for any Claim arising out of
or relating to any Indemnified Person’s performance or failure of performance
under this Agreement other than those Claims that result directly from the acts
or omissions of an Indemnified Person which constitute gross negligence or
willful misconduct.

 

3

 

11.          Waiver.  NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN
THIS AGREEMENT OR ANYWHERE ELSE, CUSTOMER WAIVES AND AGREES THAT IT SHALL NOT SEEK
FROM BANK OR CREDITOR UNDER ANY THEORY OF LIABILITY (INCLUDING WITHOUT
LIMITATION ANY THEORY IN TORT), ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR
PUNITIVE DAMAGES RELATING TO THIS AGREEMENT.

 

12.          Amendments.  This
Agreement and all exhibits attached hereto may be amended only by a written
agreement, signed by Bank, Creditor, and Customer.

 

13.          Notices.

 

(A)          Any notice, other
than a Notice of Exclusive Control, or other communication provided for or
allowed hereunder shall be in writing and shall be considered to have been
validly given (a) when received if delivered personally (whether by messenger,
hand delivery or otherwise) or by overnight delivery or by facsimile to the
recipient to the address or facsimile number set forth below the signature of
the applicable party hereto, or (b) 72 hours after being deposited in the
United States mail, registered or certified, postage prepaid, return receipt
requested, if sent to the address and addressee as set forth below the
signature of the applicable party hereto. The addresses to which notices or
other communications are to be given (including a Notice of Exclusive Control
pursuant to subsection (B) below) may be changed from time to time by notice
served as provided herein.

 

(B)          A Notice of
Exclusive Control shall be in writing, must be in the form set forth in
Exhibit B hereto, must be delivered to the address listed below Bank’s
signature block at the end of this Agreement, must be delivered to Bank via
hand delivery, messenger, overnight delivery or facsimile and shall be
considered to have been validly given when actually received, except
that a facsimile will be considered to have been validly given only when
acknowledged in writing by Bank (Bank agrees that it will use its good faith
effort to acknowledge receipt of such facsimile). Creditor acknowledges that
Bank may not be able to respond to a Notice of Exclusive Control pursuant to
Section 5 above, and Creditor agrees that Bank will not be held liable for any
failure to respond to a Notice of Exclusive Control, if the Creditor does not
deliver the Notice of Exclusive Control as set forth in this Section 13 or to
the address listed below Bank’s signature block at the end of this Agreement.

 

In accordance with the
provisions of §326 of the USA PATRIOT Act, Creditor agrees that it will provide
the Bank with a copy of its formation documentation when delivering a Notice of
Exclusive Control.

 

14.          Integration Provision.  Except
for the Subordination/Intercreditor Agreement identified in Exhibit A, this
Agreement constitutes the entire agreement among Bank, Customer and Creditor
with respect to Creditor’s control over the Deposit Account and matters related
thereto, and all prior communications, whether verbal or written, between any
of the parties hereto with respect to the subject matter hereof shall be of no
further effect or evidentiary value.

 

15.          Counterparts.  This
Agreement may be signed in counterparts that, when signed by all parties, shall
constitute one agreement.

 

16.          Relationship of the Parties.  Nothing
in this Agreement shall create any agency or fiduciary relationship between
Customer, Creditor and Bank.

 

17.          Governing Law and Jurisdiction.  The
parties hereto agree that this Agreement shall be governed exclusively under
and in accordance with the laws of the State of California. All parties hereto
each submit to the exclusive jurisdiction of the State and Federal courts in
Santa Clara County, California.

 

18.          Jury Trial Waiver.  CUSTOMER, CREDITOR, AND BANK EACH WAIVES ITS RIGHT TO
A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS
AGREEMENT, OR ANY

 

4

 

CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS.
THIS WAIVER IS A MATERIAL INDUCEMENT FOR ALL PARTIES TO ENTER INTO THIS
AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

 

19.          Successors.  The
terms of this Agreement shall be binding upon, and shall inure to the benefit
of, the parties hereto and their respective corporate successors or heirs and
personal representatives. However, Customer may not assign this Agreement
without the prior written consent of the Creditor and Bank. Creditor may assign
this Agreement upon written notice to Bank; provided, that such assignee must assume
in a writing all of Creditor’s obligations under this Agreement. Bank may
assign this Agreement upon written notice to Creditor; provided, that such
assignee must assume in a writing or by law all of the Bank’s obligations under
this Agreement.

 

20.          Attorneys’ Fees, Costs and Expenses  In
any action or proceeding between Bank and any other party to this agreement,
the prevailing party will be entitled to recover its reasonable attorneys’ fees
and other reasonable costs and expenses incurred, in addition to any other
relief to which it may be entitled.

 

21.          Termination; Survival.  Creditor
may terminate this Agreement by giving Bank and Customer written notice of
termination; provided that, by giving such notice, Creditor acknowledges that
it will thereby be confirming that, as of the termination date, it will no
longer have a perfected security interest in the Deposit Account via control
pursuant to this Deposit Account Control Agreement, although Creditor may
continue to have a perfected security interest in the Deposit Account by other
means. Bank may terminate this Agreement by giving Creditor and Customer 30
days’ prior written notice of termination. Customer may only terminate this
Agreement with the written consent of Creditor; provided that, by giving such
notice with Creditor’s written consent, both Customer and Creditor acknowledge
that they will thereby be confirming that, as of the termination date, Creditor
will no longer have a perfected security interest in the Deposit Account via
control pursuant to this Deposit Account Control Agreement, although Creditor
may continue to have a perfected security interest in the Deposit Account by
other means. Subject to the foregoing, this Agreement automatically terminates
when the Deposit Account closes or when Creditor notifies Bank that all
obligations owed to Creditor have been paid in full and Creditor has terminated
its security interest in the Deposit Account. Sections 9, 10, 11, 17, 18 and 20
shall survive the termination of this Agreement.

 

[The rest of this page
intentionally left blank]

 

5

 

	
  BANK:

  	
  SILICON
  VALLEY BANK

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
  Title:

  
	
   

  	
  Account Control
  Department

  
	
   

  	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
  Silicon Valley Bank

  
	
   

  	
  Account Control
  Department

  
	
   

  	
  3003 Tasman Drive, Mail
  Sort HG180

  
	
   

  	
  Santa Clara, CA 95054

  
	
   

  	
  Telephone:
  408-654-5512/408-654-3099/408-654-5506

  
	
   

  	
  Facsimile: 408–496-2409

  
	
   

  	
   

  	
   

  
	
  CUSTOMER:

  	
  ARYx Therapeutics, Inc.,

  
	
   

  	
  a California
  corporation

  
	
   

  	
  TIN*

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
  Address
  for Notices:

  
	
   

  	
  6300
  Dumbarton Circle

  
	
   

  	
  Fremont,
  CA 94555

  
	
   

  	
  Attn:
  Chief Financial Officer

  
	
   

  	
  Telephone:
  (510) 585-2200

  
	
   

  	
  Facsimile:
  (510) 585-2202

  
	
   

  	
   

  	
   

  
	
  CREDITOR:

  	
  Lighthouse Capital Partners V, L.P.,

  
	
   

  	
  a
  Delaware limited partnership

  
	
   

  	
  TIN* 
  14-1854721

  
	
   

  	
  By:

  	
  Lighthouse
  Management Partners V, L.L.C., its general partner

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
  500
  Drakes Landing Road

  
	
   

  	
  Greenbrae,
  CA 94904

  
	
   

  	
  Attn:
  Contracts Administration

  
	
   

  	
  Telephone:
  (415) 464-5900

  
	
   

  	
  Facsimile:
  (415) 925-3387

  

 

*      Pursuant to §326 of the USA PATRIOT Act,
the Bank is required to obtain a Tax Identification Number (TIN) from all
parties to this Agreement.

 

6

 

Silicon Valley Bank

Deposit Account Control Agreement

Exhibit A

 

1.                         “Security
Agreement”:

 

Loan and Security
Agreement dated March 28, 2005

 

2.                         Deposit
Account Control Agreements Previously Executed by Silicon Valley Bank with
other Parties
Asserting  an Interest in the Deposit Account:

 

not applicable

 

3.                         Subordination/Intercreditor
Agreement(s) executed by Silicon Valley Bank and Creditor:

 

not applicable

 

7

 

Silicon Valley Bank

Deposit Account Control Agreement

Exhibit B

Notice of Exclusive Control

 

 

	
  To: 

  	
  Silicon Valley
  Bank (“Bank”)

  
	
  From: 

  	
   

  	
   

  	
  (“Creditor”)

  
	
  Re: 

  	
   

  	
   

  	
  (“Customer”)

  
	
  Date: 

  	
   

  	
   

  

 

Pursuant to the Deposit
Account Control Agreement dated                             
(“Agreement”) entered among Bank, Customer and Creditor, Creditor hereby
notifies Bank of Creditor’s exercise of Creditor’s rights under the Agreement
and directs Bank to cease complying with instructions or any directions
originated by Customer or its agents. Creditor hereby certifies that it is
entitled to exercise its rights under the Agreement, that Creditor has a right
to all or part of the funds in the Deposit Account (as defined in the
Agreement).

 

Creditor understands and
agrees that Bank shall have no duty or obligation whatsoever of any kind or
character to determine the validity of Creditor’s exercise of its rights under
the Agreement or the certification above, to determine if Bank is obligated to
take further instructions from Customer, or to determine whether Creditor has a
right to all or part of the funds in the Deposit Account. Creditor hereby agrees
to indemnify and hold harmless Bank, its affiliates, and their respective
directors, officers, employees and agents pursuant to the terms of Section 10
of the Agreement.

 

Creditor agrees that,
upon receipt of Creditor’s Notice of Exclusive Control, Bank may exercise Bank’s
rights and remedies as permitted under Sections 5 and 6 of the Agreement and
under any applicable laws, and may need to comply with obligations pursuant to
the deposit account control agreements set forth in Exhibit A of the Agreement.

 

Upon
execution of this Notice of Exclusive Control, Creditor must supply the Bank
with a copy of their formation documentation, pursuant to §326 of the USA
PATRIOT Act.

 

Creditor hereby certifies
that the person executing this Notice of Exclusive Control is an officer,
representative or agent of Creditor authorized to act on the behalf of Creditor
and to make the representations and agreements contained in this Notice of
Exclusive Control.

 

	
  CREDITOR:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
  ACKNOWLEDGED BY:

  	
  SILICON VALLEY BANK

  
	
  (for facsimile only)

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
  Date:

  
	
   

  	
  Time:

  

 

 

8

 

DEPOSIT ACCOUNT

CONTROL AGREEMENT

 

This Deposit
Account Control Agreement (this “Agreement”) is entered into as of March
28, 2005, by and among ARYx Therapeutics, Inc., a Delaware Corporation (“Customer”),
Lighthouse Capital Partners V, L.P., a Delaware Limited Partnership (“Secured
Party”), and COMERICA BANK (“Bank”), with reference to the following
facts:

 

A.               Customer
maintains the Deposit Account (as defined below) at Bank, located at 226
Airport Parkway, San José, California (the “Banking Office”).

 

B.                Customer has
granted Secured Party a security interest in the Deposit Account and all funds
now or at any time hereafter held in the Deposit Account.

 

C.                Secured Party,
Customer and Bank have agreed to enter into this Agreement to provide for the
control of the Deposit Account by Secured Party and to perfect Secured Party’s
security interests in the Deposit Account (as each such term is defined below).

 

NOW, THEREFORE, in
consideration of the mutual promises and covenants, contained herein the
parties hereto mutually agree as follows.

 

ARTICLE
1 -  DEFINITIONS

 

1.01             Definitions.  As
used in this Agreement, the following terms shall have the following meanings:

 

“Business Day”
means any day that is not a Saturday, Sunday, or other day on which banks in
the State of California are authorized or required to close.

 

“Code”
means the California Uniform Commercial Code, as amended and supplemented from
time to time, and any successor statute.

 

“Deposit
Account” means only Customer’s deposit account (as such term is defined in
the Code) with Bank, with the following number 1892765692.

 

“Notice of
Exclusive Control” means written notice to Bank which states that an event
of default has occurred and is continuing under the document, instrument or
agreement pursuant to which Customer has granted the security interest in the
Deposit Account to Secured Party, and that on the basis thereof, Secured Party
is exercising exclusive control over the Deposit Account.

 

“Order”
means any instruction issued by any person with respect to the disposition of
any funds contained in the Deposit Account.

 

1.02             Construction.  Any
reference herein to any document includes any and all alterations, amendments,
extensions, modifications, renewals, or supplements thereto or thereof, as
applicable. Neither this Agreement nor any uncertainty or ambiguity herein
shall be construed or resolved against Secured Party, whether under any rule of
construction or otherwise. This Agreement has been reviewed by each of the
parties hereto, and their respective counsel. This Agreement shall be construed
and interpreted according to the ordinary meaning of the words used so as to
fairly accomplish the purposes and intentions of Customer and Secured Party.

 

 

ARTICLE 2 -
CONTROL

 

2.01             No Withdrawals or Payments After
Receipt of Notice of Exclusive Control. Anything contained in Section
2.03 to the contrary notwithstanding, Customer hereby absolutely,
irrevocably and unconditionally authorizes and instructs Bank that, promptly
upon receipt of a Notice of Exclusive Control by Bank at the Banking Office,
Bank shall:

 

(a)    neither accept nor comply with any Order
from Customer, including an Order for the payment of any funds from the Deposit
Account to any third person nor permit Customer to withdraw any funds in the
Deposit Account without the specific prior written consent of Secured Party;
and

 

(b)    comply with all Orders originated by Secured
Party concerning the Deposit Account and all other requests or instructions
from Secured Party regarding disposition and/or delivery of funds contained in
the Deposit Account, without further consent or direction from Customer and
without regard to any inconsistent or conflicting Orders given to Bank by
Customer within two (2) Business Days.

 

(c)    anything contained in the foregoing to the
contrary notwithstanding, Secured Party hereby agrees that before it delivers
Orders to the Bank concerning the Account, Secured Party shall have delivered
to the Banking Office such documentation as Bank shall have reasonably
requested from time to time to evidence the authority of those partners,
officers, employees or agents whom Secured Party may designate to give Orders.
The Bank and Secured Party agree to use their best efforts to ensure that Bank
is prepared at all times to accept Orders from persons designated by Secured
Party as having authority to act under this Agreement and Secured Party agrees
to deliver such evidence related thereto as Bank may reasonably request.

 

2.02             Priority of Lien. Bank
hereby acknowledges and agrees that:

 

(a)    Bank has received notice of the existence of
the security interest of Secured Party in the Deposit Account, and recognizes
the security interest granted to Secured Party by Customer;

 

(b)    all of Bank’s present and future rights
against the Deposit Account are subordinate to Secured Party’s security
interest therein; provided, however, that Secured Party hereby
acknowledges and agrees that nothing herein subordinates or waives, and that
Bank expressly reserves, all of its present and future rights (whether
described as rights of setoff, banker’s lien, security interest, chargeback or
otherwise, and whether available to Bank under the law or under any other
agreement between Bank and Customer concerning the Deposit Account, or
otherwise) solely with respect to: (a) items deposited to the Deposit Account
and returned unpaid, whether for insufficient funds or for any other reason,
and without regard to the timeliness of return of any such items or the
occurrence or timeliness of any drawee’s notice of non-payment of such items;
(b) ACH entries credited to the Deposit Account and later reversed, whether for
insufficient funds or for any other reason, and without regard to the
timeliness of such entries’ reversal; (c) chargebacks to the Deposit
Account of credit card transactions; (d) erroneous entries to the Deposit
Account; (e) overdrafts on the Deposit Account, (f) claims of breach of the transfer
or presentment warranties made to Bank pursuant to the Code in connection with
items deposited to the Deposit Account; (g) that certain Pledge and Security
Agreement dated as of October 21, 2004 cash securing that certain Standby
Letter of Credit #596267-43 in the amount of $903,200.00 (as amended, restated,
supplemented from time to time); and (h) Bank’s usual and customary charges for
services rendered in connection with the Deposit Account; and;

 

(c)    Except as otherwise required by law, Bank
shall not enter into any agreement with any third party relating to the Deposit
Account or agree that it will comply with any Orders

 

2

 

concerning the Deposit
Account originated by any such third party without the prior written consent of
Secured Party and Customer.

 

2.03             Control of Deposit Account.  At
all times during the effectiveness of this Agreement, Customer hereby
absolutely, irrevocably and unconditionally instructs, and Bank hereby agrees,
that:

 

(a)    Bank shall not comply with any Orders or
other instructions concerning the Deposit Account, from any third party without
the prior written consent of Secured Party and Customer.

 

(b)    Except as otherwise provided in Sections
2.01 and 2.02, prior to the receipt of a Notice of Exclusive Control by
Bank at the Banking Office, Bank shall accept and execute Orders from Customer
with respect to the payment or withdrawal of any funds from the Deposit Account
or the payment of any funds in the Deposit Account to Customer.

 

2.04             Bank’s Representations,
Warranties and Acknowledgments.

 

(a)    Bank represents and warrants to Secured
Party that:

 

(i)          the Deposit Account has been
established and is maintained with Bank at the Banking Office solely in
Customer’s name as recited above;

 

(ii)         any balances in the Deposit Account are
valid and binding obligations of Bank;

 

(iii)        Bank has no knowledge of any claim to,
security interest in or lien upon the Deposit Account, except a senior lien of
Bank as described in Section 2.02 hereof;

 

(iv)       Bank has not entered into any agreement
with any third party regarding the Deposit Account or agreed that it will
comply with any Orders concerning the Deposit Account originated by any such
third party.

 

2.05             Agreements of Bank and Customer.  Bank
and Customer agree that:

 

(a)    Bank shall send copies of all statements
relating to the Deposit Account simultaneously to Customer and to Secured
Party;

 

(b)    Bank may disclose to Secured Party such
other information concerning the Deposit Account as Secured Party may from time
to time request; provided, however, that Bank shall have no
obligation to disclose to Secured Party any information which Bank does not
ordinarily make available to its depositors; and

 

(c)    Bank shall use reasonable efforts to promptly
notify Secured Party and Customer if any other party asserts any claim to,
security or property interest in or lien upon the Deposit Account; and Bank
shall provide at least 30 days prior written notice to Secured Party before it
closes the Account.

 

2.06             Bank’s Responsibility.  Anything
contained in the foregoing to the contrary notwithstanding:

 

(a)    Except for permitting a withdrawal in
violation of Section 2.01, Bank shall not be liable to Secured Party for
complying with Orders from Customer that are received by Bank before Bank
receives and has a reasonable opportunity (no more than 2 business days) to act
on Notice of Exclusive Control and any contrary Order from Secured Party.

 

3

 

(b)    Bank shall not be liable to Customer for
complying with Orders originated by Secured Party, even if Customer notifies
Bank that Secured Party is not legally entitled to issue Orders, unless Bank
takes the action after it is served with an injunction, restraining order, or
other legal process enjoining it from doing so, issued by a court of competent
jurisdiction, and had a reasonable opportunity to act on the injunction,
restraining order or other legal process.

 

(c)    This agreement does not create any
obligation of Bank except for those expressly set forth in this Agreement. In
particular, Bank need not investigate whether the Secured Party is entitled
under Secured Party’s agreements with Customer to give Orders. Bank may rely on
notices and communications it believes are given by the appropriate party.

 

(d)    Bank will not have any liability to Customer
or Secured Party for claims, losses, liabilities or damages suffered or
incurred by Customer or Secured Party as a result of or in connection with this
agreement except to the extent such losses, liabilities and damages directly
result from Bank’s gross negligence or willful misconduct.

 

(e)    In no event shall Bank have any liability to
Customer or Secured Party for any consequential, special, punitive or indirect
loss or damage whether or not any claim for such damages is based on tort or
contract or Bank knew or should have known the likelihood of such damages in
any circumstances.

 

2.07             Indemnity.

 

(a)    Customer shall indemnify and hold harmless
Bank, its officers, directors, employees, and agents against any and all
claims, liabilities, demands, damages and expenses arising out of this
Agreement (including reasonable attorneys’ fees and disbursements and the
reasonable estimate of the allocated costs and expenses of in-house legal
counsel and staff), except to the extent the claims, liabilities, or expenses
are caused by Bank’s gross negligence or willful misconduct. Customer shall
indemnify Secured Party for any indemnity obligations Secured Party owes to
Bank under this Agreement.

 

(b)    Secured Party shall indemnify and hold
harmless Bank, its officers, directors, employees, and agents against any and
all claims, liabilities, demands, damages and expenses arising out of this
Agreement (including reasonable attorneys’ fees and disbursements and the
reasonable estimate of the allocated costs and expenses of in-house legal
counsel and staff), except to the extent the claims, liabilities, or expenses
are caused by Bank’s gross negligence or willful misconduct; provided, however,
that in no event shall the Secured Party be liable for any special,
consequential, exemplary damages, or lost profits.

 

2.08             Termination,
Survival.

 

(a)                This
Agreement shall terminate:

 

(i)              immediately upon receipt by the
Bank at the Banking Office of written notice from Secured Party expressly
stating that Secured Party is terminating this Agreement;

 

(ii)             immediately upon receipt by the
Bank at the Banking Office of written notice from Secured Party expressly
stating that Secured Party’s security interest in the Deposit Account has
terminated; or

 

(iii)            thirty (30) days after the receipt
by Secured Party and Customer of written notice from Bank stating that it is
terminating this Agreement; provided, that in the event that the Bank
terminates this Agreement pursuant to this Section 2.08 (a), the Bank, at the
end of such thirty

 

4

 

(30) day period, shall
transfer the funds in the Deposit Account to the bank or other financial
institution that the Secured Party designates to the Bank in writing (with a
copy to the Customer).

 

(b)               Sections
2.06, “Bank’s Responsibility,” and Section 2.07, “Indemnity,” shall
survive termination of this Agreement.

 

ARTICLE 3 -
GENERAL PROVISIONS

 

3.01             Conflicts; Controlling Agreement.  As
to the matters specifically the subject of this Agreement, in the event of any
conflict between this Agreement and any other agreement between Bank and
Customer, the terms of this Agreement shall control.

 

3.02             Final Agreement; Amendments and
Waivers.  This Agreement, together with any other document,
instrument, or agreement entered into between Customer and Secured Party in
connection therewith with respect to the subject matter contained therein
constitutes the entire understanding among each of them with respect to the
subject matter thereof. This Agreement supersedes any and all prior oral or
written agreements relating to the subject matter hereof. Any provision of this
Agreement may be amended or waived if, but only if, such amendment or waiver is
in writing and is signed by the party asserted to be bound thereby, and then
such amendment or waiver shall be effective only in the specific instance and
specific purpose for which given.

 

3.03             Successors and Assigns.  This
Agreement shall be binding upon and inure to the benefit of the heirs,
executors, administrators, legal representatives, successors and assigns of the
parties.

 

3.04             Amendments, Modifications.  This
Agreement may be amended or modified only in writing signed by all parties
hereto.

 

3.05             Severability of Provisions.  If
any provision of this Agreement for any reason is held to be invalid, illegal
or unenforceable in any respect, that provision shall not affect the validity,
legality or enforceability of any other provision of this Agreement.

 

3.06             Section Headings.  Headings
and numbers used to identify sections and paragraphs of this Agreement have
been set forth herein for convenience only. Unless the contrary is compelled by
the context, everything contained in each section applies equally to this
entire Agreement.

 

3.07             Counterparts; Facsimile
Execution.  This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
Delivery of an executed counterpart of this Agreement by facsimile shall be
equally as effective as delivery of a manually executed counterpart of this
Agreement. Any party delivering an executed counterpart of this Agreement by
facsimile also shall deliver a manually executed counterpart of this Agreement
but the failure to deliver a manually executed counterpart shall not effect the
validity, enforceability, and binding effect of this Agreement.

 

3.08             Notices.  All
notices, requests and demands which any party is required or may desire to give
to any other party under any provision of this Agreement must be in writing
(unless otherwise specifically provided) and delivered to each party at the
following address:

 

 

	
  Customer
  

  	
  ARYx Therapeutics, Inc.

  
	
   

  	
  6300 Dumbarton Circle 

  
	
   

  	
  Fremont, CA 94555 

  
	
   

  	
  Fax. No. (510) 585-2202 

  Attn: Chief Financial Officer 

  

 

 

5

 

	
  Secured
  Party:

  	
  Lighthouse Capital Partners V, L.P.

  
	
   

  	
  500 Drakes Landing Road 

  
	
   

  	
  Greenbrae, CA 94904-3011

  
	
   

  	
  Fax. No. (415) 925-3387 

  
	
   

  	
  Attn: Contract Administrator

  
	
   

  	
   

  
	
  Bank:

  	
  Comerica Bank

  
	
   

  	
  Technology
  & Life Sciences Division 

  
	
   

  	
  3000
  El Camino Real, Suite 800 

  
	
   

  	
  Palo
  Alto, CA 94306 

  
	
   

  	
  Fax.
  No. (650) 213-1710 

  
	
   

  	
  Attn:
  Rob Ways 

  
	
   

  	
   

  
	
   

  	
  With a Copy To:

  
	
   

  	
   

  
	
   

  	
  Comerica
  Bank 

  
	
   

  	
  Technology
  & Life Sciences Division 

  
	
   

  	
  2321
  Rosecrans Ave., Suite 5000 

  
	
   

  	
  El
  Segundo, CA 90245 

  
	
   

  	
  FAX:
  (310) 297-2290 

  
	
   

  	
  Attn: Manager

  

 

or to such other address
or facsimile number as any party may designate by written notice to all other
parties. Each such notice, request and demand shall be deemed given or made as
follows: (i) if sent by hand delivery, upon delivery; (ii), if sent by national
overnight courier, upon receipt, and (iii) if sent by facsimile, upon receipt;
provided, however, that in either case, receipt by Bank of any Notice of
Exclusive Control shall not be deemed to have occurred until the Bank delivers
written notification (by email, fax or hard copy) confirming receipt to the
Secured Party. Bank shall attempt in good faith to deliver written notification
confirming receipt to the Secured Party promptly following Bank’s actual
receipt of the Notice of Exclusive Control.

 

3.09             Governing Law.  This
Agreement shall be deemed to have been made in the state of California and the
validity, construction, interpretation, and enforcement hereof, and the rights
of the parties hereto, shall be determined under, governed by, and construed in
accordance with the internal laws of the state of California, without regard to
principles regarding the conflicts or choice of law.

 

3.10             WAIVER OF JURY TRIAL.  TO
THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH PARTY
HERETO HEREBY ABSOLUTELY, IRREVOCABLY AND UNCONDITIONALLY WAIVES, AND COVENANTS
THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE ), ANY
RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM, DEMAND,
ACTION, OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE
SUBJECT MATTER HEREOF, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING
OR WHETHER IN CONTRACT OR TORT OR OTHERWISE. EACH PARTY HERETO ACKNOWLEDGES
THAT IT HAS BEEN INFORMED BY THE OTHER PARTIES HERETO THAT THE PROVISIONS OF
THIS SECTION CONSTITUTE A MATERIAL INDUCEMENT UPON WHICH THE OTHER PARTIES HAVE
RELIED, ARE RELYING AND WILL RELY IN ENTERING INTO THIS AGREEMENT. THE PARTIES
HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY
COURT AS WRITTEN EVIDENCE OF THE CONSENT OF SUCH OTHER PARTY TO THE WAIVER OF
ITS RIGHTS TO TRIAL BY JURY.

 

Nothing in this
Section shall prejudice the right of the Secured Party to exercise its
non-judicial foreclosure rights and remedies, or prejudice the right of any
party to obtain provisional relief or other

 

6

 

equitable remedies as
shall otherwise be available judicially pending submission of any issue, claim,
demand, action, or cause of action to trial by the court as provided in this
Section.

 

The parties prefer
that any dispute between them be resolved in litigation subject to a Jury Trial
Waiver as set forth above, but the availability of that process is in doubt
because of the opinion of the California Court of Appeal in Grafton Partners LP
v. Superior Court, 9 Cal.Rptr.3d 511. This Reference Provision will be
applicable until the California Supreme Court completes its review of that
case, and will continue to be applicable if either that court or a California
Court of Appeal publishes a decision holding that a pre-dispute Jury Trial
Waiver provision similar to that contained in the Documents (as defined below)
is invalid or unenforceable. Delay in requesting appointment of a referee
pending review of any such decision, or participation in litigation pending
review, will not be deemed a waiver of this reference provision (“Reference
Provision”).

 

(a) Other than (i)
nonjudicial foreclosure of security interests in real or personal property,
(ii) the appointment of a receiver or (iii) the exercise of other provisional
remedies (any of which may be initiated pursuant to applicable law), any
controversy, dispute or claim (each, a “Claim”) between the parties arising out
of or relating to this Agreement or any other document, instrument or agreement
between the Bank and the undersigned (collectively in this Section, the “Documents”),
will be resolved by a reference proceeding in California in accordance with the
provisions of Section 638 et seq. of the California Code of Civil Procedure (“CCP”),
or their successor sections, which shall constitute the exclusive remedy for
the resolution of any Claim, including whether the Claim is subject to the
reference proceeding. Except as otherwise provided in the Documents, venue for
the reference proceeding will be in the Superior Court or Federal District
Court in the County or District where venue is otherwise appropriate under
applicable law (the “Court”).

 

(b) The referee shall be
a retired Judge or Justice selected by mutual written agreement of the parties.
If the parties do not agree, the referee shall be selected by the Presiding
Judge of the Court (or his or her representative). A request for appointment of
a referee may be heard on an ex parte or expedited basis, and the parties agree
that irreparable harm would result if ex parte relief is not granted. The
referee shall be appointed to sit with all the powers provided by law. Each
party shall have one peremptory challenge pursuant to CCP §170.6. Pending
appointment of the referee, the Court has power to issue temporary or
provisional remedies.

 

(c) The parties agree
that time is of the essence in conducting the reference proceedings.
Accordingly, the referee shall be requested to (a) set the matter for a status
and trial-setting conference within fifteen (15) days after the date of
selection of the referee, (b) if practicable, try all issues of law or fact
within ninety (90) days after the date of the conference and (c) report a
statement of decision within twenty (20) days after the matter has been
submitted for decision. Any decision rendered by the referee will be final,
binding and conclusive, and judgment shall be entered pursuant to CCP §644.

 

(d) The referee will have
power to expand or limit the amount and duration of discovery. The referee may
set or extend discovery deadlines or cutoffs for good cause, including a party’s
failure to provide requested discovery for any reason whatsoever. Unless
otherwise ordered, no party shall be entitled to “priority” in conducting
discovery, depositions may be taken by either party upon seven (7) days written
notice, and all other discovery shall be responded to within fifteen (15) days
after service. All disputes relating to discovery which cannot be resolved by
the parties shall be submitted to the referee whose decision shall be final and
binding.

 

(e) Except as expressly
set forth in this Agreement, the referee shall determine the manner in which
the reference proceeding is conducted including the time and place of hearings,
the order of presentation of evidence, and all other questions that arise with
respect to the course of the reference proceeding. All proceedings and hearings
conducted before the referee, except for trial, shall be conducted without a
court reporter, except that when any party so requests, a court reporter will
be used at any hearing conducted before the referee, and the referee will be
provided a courtesy copy of the transcript. The party making such a request
shall have the obligation to arrange for and pay the court reporter. Subject

 

7

 

to the referee’s power to
award costs to the prevailing party, the parties will equally share the cost of
the referee and the court reporter at trial.

 

(f) The referee shall be
required to determine all issues in accordance with existing case law and the
statutory laws of the State of California. The rules of evidence applicable to
proceedings at law in the State of California will be applicable to the
reference proceeding. The referee shall be empowered to enter equitable as well
as legal relief, provide all temporary or provisional remedies, enter equitable
orders that will be binding on the parties and rule on any motion which would
be authorized in a trial, including without limitation motions for summary
judgment or summary adjudication. The referee shall issue a decision at the
close of the reference proceeding which disposes of all claims of the parties
that are the subject of the reference. The referee’s decision shall be entered
by the Court as a judgment or an order in the same manner as if the action had
been tried by the Court. The parties reserve the right to appeal from the final
judgment or order or from any appealable decision or order entered by the
referee. The parties reserve the right to findings of fact, conclusions of
laws, a written statement of decision, and the right to move for a new trial or
a different judgment, which new trial, if granted, is also to be a reference
proceeding under this provision.

 

(g) If the enabling
legislation which provides for appointment of a referee is repealed (and no
successor statute is enacted), any dispute between the parties that would
otherwise be determined by reference procedure will be resolved and determined
by arbitration. The arbitration will be conducted by a retired judge or
Justice, in accordance with the California Arbitration Act §1280 through
§1294.2 of the CCP as amended from time to time. The limitations with respect
to discovery set forth above shall apply to any such arbitration proceeding.

 

(h) THE PARTIES RECOGNIZE
AND AGREE THAT ALL DISPUTES RESOLVED UNDER THIS REFERENCE PROVISION WILL BE
DECIDED BY A REFEREE AND NOT BY A JURY, AND THAT THEY ARE IN EFFECT WAIVING
THEIR RIGHT TO TRIAL BY JURY IN AGREEING TO THIS REFERENCE PROVISION. AFTER
CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR OWN
CHOICE, EACH PARTY KNOWINGLY AND VOLUNTARILY AND FOR THEIR MUTUAL BENEFIT
AGREES THAT THIS REFERENCE PROVISION WILL APPLY TO ANY DISPUTE BETWEEN THEM
WHICH ARISES OUT OF OR IS RELATED TO THIS AGREEMENT OR THE DOCUMENTS.

 

3.11             Attorney Costs. The
prevailing party in any proceeding conducted in accordance with the provisions
of Section 3.10 hereof or any other action arising out of this Agreement
shall be reimbursed by the non-prevailing party(s) thereto for all costs and
expenses, including reasonable attorneys’ fees (to include outside counsel fees
and all allocated costs of the prevailing party’s in-house counsel), expended
or incurred by the prevailing party in connection therewith, in addition to any
other remedy or recovery awarded by the court.

 

IN WITNESS WHEREOF, the
parties hereto have executed and delivered this Agreement as of the date set
forth in the first paragraph hereof.

 

 

	
  CUSTOMER:

  	
  ARYx Therapeutics, Inc.

  a California Corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

8

 

	
  SECURED PARTY:

  	
   

  	
  Lighthouse Capital
  Partners V, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  By: Lighthouse
  Management Partners V, L.L.C.,

  
	
   

  	
   

  	
   

  	
   

  	
  its general partner

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  By: 

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name: 

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Title: 

  	
   

  
								

 

	
  BANK:

  	
   

  	
  COMERICA BANK

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  By: 

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name: 

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Title: 

  	
   

  
								

 

9

 

SECURITIES ACCOUNT CONTROL AGREEMENT

 

This Securities
Account Control Agreement (“Agreement”) is made this 28 day of March, 2005, by
and among Aryx Therapeutics Inc. (“Customer”), Lighthouse Capital Partners V,
L.P. (“Creditor”) and Bear, Stearns Securities Corp. (“Broker”). All references
herein to the “UCC” shall mean the Uniform Commercial Code as in effect in the
State of New York as of the date of this Agreement.

 

WHEREAS, Customer
maintains an account with Broker and has granted Broker and its affiliates
(collectively, “Bear Stearns” and each affiliate, individually, a “Bear Stearns
entity”) a perfected security interest in a securities account pursuant to that
certain Institutional Account Agreement or other form of customer agreement to
secure payment of all of Customer’s obligations under such Customer Agreement;

 

WHEREAS, Customer
has granted Creditor a security interest in the financial assets held in the
Account (defined below) to secure payment of Customer’s obligations to
Creditor;

 

WHEREAS, the
parties are entering into this Agreement to allow for Creditor to perfect its
junior security interest in the financial assets held in the Account; and

 

NOW, THEREFORE,
for good and valuable consideration and intending to be legally bound, the
parties hereto agree as follows:

 

Section
1. The Securities Account. Broker
hereby represents, warrants to and covenants with Creditor that:

 

(a)                    Broker has
established a securities account No. 220-04025 RC1 (the “Account”), which
Account holds as of the date hereof certain uncertificated financial assets for
which Customer has fully paid.

 

(b)                   In accordance
with this Agreement, Broker agrees to register the Account on its books and
records with the title “Lighthouse Capital Partners V, L:.P. as Secured Party
for the Benefit of Aryx Therapeutics Inc.,” with such abbreviations as may be
required to comply with the operating systems maintained by Broker for
Customer, but shall not take any further action to reflect the security
interest of the Creditor in the Account.

 

(c)                    Schedule A
hereto is a statement produced by Broker regarding the property credited to the
Account as of such statement’s date.

 

(d)                   As of the date
hereof, Broker has not received notice of any liens, claims or encumbrances
with respect to the Account, except with respect to (i)

 

 

Creditor pursuant to this Agreement and (ii) liens held
by Bear Stearns pursuant to the Customer Agreement, and Broker has not
confirmed any interest in the Account to any persons other than Creditor and
Bear Stearns.

 

(e)                    The Account is
and shall continue to be governed by the terms of the Institutional Account
Agreement or other form of customer agreement (“Customer Agreement”) executed
by Customer.

 

Section 2.  Entitlement Orders.
Subject to the Customer Agreement, if at any time Broker shall receive any
order from Creditor directing transfer or redemption of any financial asset held in the Account, Broker
shall comply with such Entitlement Order (as defined in Section 8-102(a)(8) of
the UCC) without the further consent of Customer. If Customer is otherwise
entitled to issue Entitlement Orders and an Entitlement Order conflicts with
any Entitlement Order issued by Creditor, Broker shall follow the Entitlement
Orders issued by Creditor without the further consent of Customer.

 

Section
3. Subordination of Rights  and Priority of Broker’s Security Interest. (a) Broker agrees that the
assets held in the Account shall not be used to satisfy obligations of Customer
arising out of any activities in any of the Customer’s accounts other than the
Account.

 

(b) Creditor has a first priority lien in the Account and
all financial assets held therein or credited thereto; provided, however, its
lien is subordinated in favor of Bear Stearns’ lien for the full satisfaction
of Customer’s obligations to Bear Stearns to pay fees,
commissions, and trading and regulatory obligations for the Account. (“Broker
Indebtedness”). Creditor further acknowledges and agrees that satisfaction of
an indebtedness owed by Customer to Creditor shall be subordinated to the
satisfaction of Broker Indebtedness and shall be subject in right of payment
and discharge to the prior indefeasible payment in full of the Broker
Indebtedness.

 

Section
4. Maintenance of the Account.

 

(a)                    Statements,
Confirmations and Proxies. Broker shall provide to Creditor, with duplicate
copies to Customer, copies of statements of account, confirmations and other
material correspondence concerning the Account. Unless otherwise specifically
provided in this Agreement, Broker shall send proxies to Creditor.

 

(b)                   Customer’s
Rights in Account. Until such time as a Notice of Sole Control is received
by Broker, this Agreement shall not affect Customer’s rights to engage in
transactions and Broker may continue to accept trading and other instructions
from Customer in the Account, including, without limitation, instructions to
make any free deliveries of funds or securities to Customer from the Account
including, but not limited to, (w) cash distributions (including cash dividends
or interest paid on assets held in

 

 

the Account); (x) stock dividends; (y) distributions
in property; or (z) cash returns of capital from the Account.

 

(c)                    Notice of
Sole Control. If Broker receives from Creditor a Notice of Sole Control in
substantially the form set forth in Exhibit A hereto, Broker will discontinue
taking any instructions with respect to Account from Customer and any designee.
A Notice of Sole Control shall be deemed received by  Broker only upon telephonic confirmation
of its receipt by an authorized person at Broker to whom such Notice of Sole
Control was mailed as provided herein.

 

The Notice of Sole
Control shall be addressed to shall be delivered to the following address Bear,
Stearns Securities Corp., One Metrotech Center North, Brooklyn, New York 11201
to the attention of one of the following

 

Wally Dye, email: wdye@bear.com

Telephone 347 643-2934

Facsimile: 917-849-0159

 

Harold Hirsch,
email: hhirsch@bear.com

Telephone 347-643-2934

Facsimile: 917-849-0160

 

Carole Powers,
email: cpowers@bear.com

Telephone 347-643-2111

Facsimile 917-849-0246

 

(d)                   Voting
Rights. Until such time as Broker receives a Notice of Sole Control
pursuant to subsection (c) of this Section 4, Creditor shall not direct Broker
with respect to the voting of any financial assets held in the Account.

 

(e)                    Tax
Reporting. All items of income, gain, expense and loss recognized in the
Account shall be reported to the Internal Revenue Service and all state and
local taxing authorities under the name and taxpayer identification number of the Customer.

 

Section
5. Broker’s Responsibility

 

(a)                    This Agreement
does not create any obligation of Broker except those expressly set forth in
this Agreement. Without limiting the generality of the foregoing, Broker shall
not be subject to, nor have any duty or obligation whatsoever of any kind or
character to have knowledge of or recognize, the terms of any agreement between
Customer and Creditor.

 

(b)                   Broker may rely
and shall be protected in acting upon any notice, instruction, or other
communication provided by either Creditor or

 

 

Customer, as the case may
be, which it reasonably believes to be genuine and authorized.

 

(c)                    In the absence
of Broker’s gross negligence or willful misconduct, each of Customer and
Creditor hereby agrees that Broker shall have no liability to either Customer
or Creditor arising from the terms of this Agreement or for any action or
failure to act by Broker with respect to the terms hereof.

 

(d)                   In the event
that Broker is sued or becomes involved in litigation or proceeding as a result
of complying with instructions from Creditor or Customer, as the case may be,
each of Customer and Creditor agree that Broker shall be entitled to charge all
the costs and fees (including reasonable attorneys’ fees and expenses) incurred
by it in connection with such litigation to the assets in the Account or in
Broker’s sole discretion, to the assets in any other account of Customer held
by or through Bear Stearns and to withdraw such sums as the costs and charges
accrue, and Customer shall be personally liable to Broker for any deficiency
resulting therefrom.

 

(e)                    Notwithstanding
anything contained herein to the contrary, in no event shall Broker, its
affiliates, their respective directors, officers, employees or agents be
responsible for indirect, special or consequential loss, liabilities, damages
or claims of any kind whatsoever, even if it is notified of the possibility of
such.

 

Section
6. Indemnity

 

(a)                    Customer shall
indemnify and hold harmless Broker, its affiliates, their respective officers,
directors, employees and agents from and against any and all losses, claims,
causes of action, liabilities, lawsuits, demands and/or damages, including,
without limitation, any and all court costs and reasonable attorneys’ fees and
expenses (collectively, “Losses”) arising out of or in connection with this
Agreement, or any action or failure to act by Broker with respect to this
Agreement, including but not limited to compliance with instructions from
Creditor in accordance with this Agreement.

 

(b)                   In the absence
of Broker’s gross negligence or willful misconduct, Creditor shall release and
discharge Broker, its affiliates, their respective officers, directors,
employees and agents from and against any and all liability for any Losses
arising out of or incurred in connection with Broker accepting orders from
Customer or such other person or entity authorized by Customer to trade
securities held in the Account until such time as a Notice of Sole Control is
received by Broker.

 

 

Section
7. Conflict with Other Agreements.

 

(a)                    Broker hereby
confirms and agrees that it has not entered into, and until termination of this
Agreement will not enter into, any agreement with any other person, except its
affiliates, relating to the Account and/or any financial assets credited thereto
pursuant to which it has agreed to comply with Entitlement Orders of such other
person.

 

(b)                   The parties
agree that the terms of the Customer Agreement shall continue to apply to the
Account. In the event of a conflict between the express terms of this Agreement
and the Customer Agreement, the terms of this Agreement shall prevail.

 

Section
8. Representations.

 

(a)                    Creditor
represents and covenants that: (i) it is authorized to enter into this
Agreement and perform its obligations hereunder; (ii) the person who is
executing this Agreement on its behalf is duly authorized to sign this
Agreement in its name; and (iii) if the Account qualifies as an employee
benefit plan as defined in Section 3(3) of the Employee Retirement Income
Security Act, it is not a party in interest with respect to such plan.

 

(b)                   Customer
represents and covenants that: (i) the Account does not presently and at no
time shall contain any securities on margin, or securities pledged to a third
party other than Bear Stearns and the Creditor, (ii) it is authorized to enter
into this Agreement and perform its obligations hereunder; and (iii) the person
who is executing this Agreement on its behalf is duly authorized to sign this
Agreement in its name.

 

(c)                    Broker
represents and covenants that: (i) it is authorized to enter into this
Agreement and perform its obligations hereunder; and (ii) the person who is
executing this Agreement on its behalf is duly authorized to sign this
Agreement in its name.

 

Section
9. Changes in Writing. No modification, amendment or waiver
of any provision of this Agreement nor consent to any departure by any party
therefrom will be binding unless made in a writing signed by all parties
hereto, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given.

 

Section
10. Notices.

 

All notices,
demands, requests, consents, approval and other communications (“Notices”)
required or permitted hereunder must be in writing and shall be deemed
effective upon receipt if (i) delivered personally, (ii) sent by facsimile
transmission with confirmation of delivery, or (iii) sent by nationally
recognized overnight courier service, freight pre-paid, addressed to the party
at the address set forth below.

 

ARYX THERAPEUTICS,
INC.

 

Attn: Chief
Financial Officer

6300 Dumbarton
Circle

Fremont, CA 94555

 

Tel: (408) 869-2761

Fax: (408) 869-2773

 

LIGHTHOUSE CAPITAL PARTNERS V, L.P.

Attn: Contracts
Administration

 

500 Drakes Landing Road

Greenbrae, CA
94904

 

Tel: (415) 464-5900

Fax: (415)
925-3387

 

BEAR, STEARNS SECURITIES
CORP.

 

All notices to Bear,
Stearns Securities Corp.

shall be addressed
as set forth in Section 4(c).

 

Any party may change its
address for notices on three (3) business days’ written notice to the other
parties.

 

Section
11. Counterparts. This Agreement may be signed in any number
of counterpart copies and by the parties hereto on separate counterparts, but
all such copies shall constitute one and the same instrument.

 

Section
12. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to any conflicts of law provisions thereof.

 

Section
13. ARBITRATION.

 

YOU
AGREE THAT CONTROVERSIES ARISING BETWEEN THE PARTIES HERETO ARISING OUT OF OR
RELATED TO THIS AGREEMENT SHALL BE DETERMINED BY ARBITRATION.

 

WITH
RESPECT TO THE RESOLUTION OF ANY SUCH CONTROVERSY, YOU FURTHER ACKNOWLEDGE
THAT:

 

•                  ARBITRATION IS FINAL AND BINDING ON THE PARTIES.

 

•                  EXCEPT AS OTHERWISE PROVIDED HEREIN, THE PARTIES ARE

 

 

WAIVING
THEIR RIGHT TO SEEK REMEDIES IN COURT, INCLUDING THE RIGHT TO JURY TRIAL.

 

• PRE-ARBITRATION
DISCOVERY IS GENERALLY MORE LIMITED THAN AND DIFFERENT FROM COURT PROCEEDINGS.

 

•
THE ARBITRATORS’ AWARD IS NOT REQUIRED TO INCLUDE FACTUAL FINDINGS OR LEGAL
REASONING AND ANY PARTY’S RIGHT TO APPEAL OR TO SEEK MODIFICATION OF RULINGS BY
THE ARBITRATORS IS STRICTLY LIMITED.

 

•
THE PANEL OF ARBITRATORS WILL TYPICALLY INCLUDE A MINORITY OF ARBITRATORS WHO
WERE OR ARE AFFILIATED WITH THE SECURITIES INDUSTRY.

 

• NO
PERSON SHALL BRING A PUTATIVE OR CERTIFIED CLASS ACTION TO ARBITRATION NOR SEEK
TO ENFORCE ANY PRE-DISPUTE ARBITRATION AGREEMENT AGAINST ANY PERSON WHO HAS
INITIATED IN COURT A PUTATIVE CLASS ACTION OR WHO IS A MEMBER OF A PUTATIVE
CLASS WHO HAS NOT OPTED OUT OF THE CLASS WITH RESPECT TO ANY CLAIMS ENCOMPASSED
BY THE PUTATIVE CLASS ACTION UNTIL: (I) THE CLASS CERTIFICATION IS DENIED; (II)
THE CLASS IS DECERTIFIED; OR (III) THE CUSTOMER IS EXCLUDED FROM THE CLASS BY
THE COURT. SUCH FORBEARANCE TO ENFORCE AN AGREEMENT TO ARBITRATE SHALL NOT
CONSTITUTE A WAIVER OF ANY RIGHTS UNDER THIS AGREEMENT EXCEPT TO THE EXTENT
STATED HEREIN.

 

•
ANY ARBITRATION UNDER THIS AGREEMENT SHALL BE HELD AT THE FACILITIES AND BEFORE
AN ARBITRATION PANEL APPOINTED BY THE NATIONAL ASSOCIATION OF SECURITIES
DEALERS, INC.

 

•
THE AWARD OF THE ARBITRATORS, OR OF A MAJORITY OF THEM, SHALL BE FINAL, AND
JUDGMENT UPON THE AWARD RENDERED MAY BE ENTERED IN ANY COURT, STATE OR FEDERAL,
HAVING JURISDICTION.

 

Section
14. Successors and Assigns. This Agreement will be binding
upon, and shall inure to the benefit of the parties hereto and their respective
corporate successors or heirs and personal representatives who obtain such
rights solely by operation of law. Creditor may assign its rights hereunder
only with the express written consent of Broker and by sending written notice
of such assignment to Customer.

 

Section
15. Entire Agreement. This Agreement (including the documents
and instruments referred to herein) constitutes the entire agreement and
supersedes all other prior agreements and understandings (except for the
Customer Agreement), both written and oral, among the parties concerning its
subject matter.

 

Section
16. Termination; Survival. Creditor may terminate this
Agreement by written notice to Broker and Customer. Broker may terminate this
Agreement on 30 day’s written notice to Creditor and Customer.

 

 

If Creditor
notifies Broker that Creditor’s security interest in the Account has
terminated, this Agreement will immediately terminate.

 

The provisions of
Sections 5 and 6 hereof shall survive termination of this Agreement.

 

 

This Agreement
shall be terminated upon entry of the appropriate judgment, award or decree.

 

IN WITNESS
WHEREOF, the undersigned have executed this Agreement as of the date first
written above.

 

 

	
   

  	
  BEAR,
  STEARNS SECURITIES CORP.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
   

  	
   

  	
   

  
	
   

  	
  Title: 

  	
   

  	
   

  	
   

  

 

 

 

	
   

  	
  ARYX
  THERAPEUTICS, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
   

  	
   

  	
   

  
	
   

  	
  Title: 

  	
   

  	
   

  	
   

  

 

 

 

	
   

  	
  LIGHTHOUSE
  CAPITAL PARTNERS V L.P.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  Lighthouse
  Management Partners V, L.L.C. its general partner

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
   

  	
   

  	
   

  
	
   

  	
  Title: 

  	
   

  	
   

  	
   

  

 

 

State of                         )

 

County of                               )

 

On the                 
day of                                 ,
2005, before me personally appeared                                     
to me known and known to me to be the                                       
of Aryx Therapeutics, Inc. and the person who executed the foregoing
instrument, and he/she
acknowledged to me that he/she executed the same.

 

 

	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Notary

  

State of                         )

 

County of                               )

 

On the                 
day of                                 ,
2005, before me personally appeared                                     
to me known and known to me to be the                                       
of Lighthouse Capital
Partners V, L.P. and the person who executed the foregoing instrument, and
he/she acknowledged to me that he/she executed the same.

 

 

	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Notary

  

 

 

SCHEDULE
A

 

[LIST OF
ASSETS]

 

 

EXHIBIT A

 

[LETTERHEAD
OF CREDITOR]

 

[DATE]

 

Bear,
Stearns Securities Corp.

One Metrotech Center North

Brooklyn, NY 11201

 

Attention:                                         

 

Re:
Notice of Sole Control

 

Ladies
and Gentlemen:

 

As referenced in the Securities Account Control Agreement, dated March
28, 2005, among Aryx Therapeutics, Inc., you and the undersigned (a copy of
which is attached) we hereby give you notice of our sole control over
Securities Account No. 220-04025 RC1 (the “Account”) and all financial assets credited
thereto. You are hereby instructed not to accept any direction, instructions or
entitlement orders with respect to the Account and the financial assets
credited thereto from Aryx Therapeutics, Inc. or other persons or entities, if
any, designated by Customer to trade the Account, unless otherwise ordered by a
court of competent jurisdiction.

 

We certify that we have delivered a copy of this notice by facsimile
transmission to Aryx Therapeutics, Inc. and, where applicable, other persons or
entities designated by Customer to trade the Account.

 

 

	
   

  	
   

  	
  Very truly yours,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  LIGHTHOUSE CAPITAL PARTNERS V L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  BY: 

  	
  Lighthouse Management Partners V, L.L.C.

  
	
   

  	
   

  	
   

  	
  its general partner

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Title

  

 

	
  cc:

  	
  Aryx Therapeutics, Inc.

  
	
   

  	
  [Other designated Persons]

  

 

 

SECURITIES ACCOUNT SOLE CONTROL AGREEMENT

 

This agreement, dated as of February 1, 2005 (the “Agreement”),
sets forth the Agreement between Credit Suisse First Boston LLC (“Broker”),
Pershing LLC (“Pershing”), ARYx Therapeutics, Inc. (“Debtor”)
and LCP V, L.P. *(“Secured Party”). All references herein to the “UCC”
shall mean the Uniform Commercial Code as in effect from time to time in the
State of New York.

 

Section
1. The Securities Account.

 

1.1.
Establishment of the Securities Account. Broker and Pershing hereby
confirm that:

 

1.1.1.
Account Number and Name. Broker, on behalf of Debtor, has established an
account of Debtor with Pershing bearing the name: “[Actual Name of Secured
Party], as Secured Party for [Actual Name of Debtor], acting through Credit
Suisse First Boston LLC”, and having account number 2C9-001803 (the “Securities
Account”); as such, all “security entitlements” (such term being
used herein as defined in UCC Section 8-102(a)17)) with respect to financial
assets credited to the Securities Account are held by Debtor, as the “entitlement
holder” (such term being used herein as defined under UCC Section
8-102(a)(7)).

 

1.1.2.
Status as a Securities Account. The Securities Account is a “securities
account” (such term being used herein as defined in UCC Section 8-501(a)).

 

1.1.3.
Account Contents. All property now or hereafter held in the Securities
Account, including, without limitation, interest, dividends and distributions,
whether payable in cash or stock, and shares or other proceeds of conversions
or splits of any securities, are “Pledged Securities” and shall be
treated as financial assets (such term being used herein as defined in UCC
Section 8-102(a)(9)).

 

1.2. Control of Securities Account by Secured Party. The parties
to this Agreement hereby agree that:

 

1.2.1.
Debtor, as entitlement holder in respect of the Securities Account, (a)
authorizes Secured Party to deliver such “entitlement orders” (such term
being used herein as defined in UCC Section 8-102(a)(8)) and other instructions
to Broker with respect to the Pledged Securities and the Securities Account as
Secured Party shall determine in its sole discretion (including, without
limitation, an entitlement order in the form attached hereto as Exhibit A),
in each case without any further consent or action by Debtor, (b) authorizes
and directs Broker to promptly relay such entitlement orders or other
instructions to Pershing without any further consent or action by Debtor, and
(c) authorizes and directs Pershing to comply with any entitlement orders or
other instructions relayed to it by Broker with respect to the Pledged
Securities or the Securities Account without further consent or action by
Debtor.

 

*LCP V, L.P. refers to
Lighthouse Capital Partners V. L.P.

 

 

1.2.2.  Pershing,
as securities intermediary (such term being used herein as defined in UCC
Section 8-102(a)(14)) with respect to the Securities Account, shall comply with
any entitlement orders or other instructions relayed to it by Broker with
respect to the Pledged Securities or the Securities Account without further
consent or action by Debtor.

 

1.2.3.  Secured
Party shall have sole control over the Pledged Securities and the Securities
Account and, as such, Secured Party shall have the exclusive right to provide
entitlement orders or other instructions to Broker (to be relayed by Broker to
Pershing as provided above) with respect to the Pledged Securities and the
Securities Account, except that Debtor may provide certain instructions
relating to the Pledged Securities and the Securities Account only as specified
herein and only by instructing Broker to relay such instructions to Pershing.

 

1.2.4.  With
respect to any entitlement order or other instruction received by Broker
relating to the Pledged Securities or the Securities Account, whether from
Secured Party or, to the extent permitted under Section 2.7, from Debtor in the
case of instructions to conduct trades in the account, Broker shall act as
agent for Secured Party or Debtor, as the case may be, in delivering such
entitlement order or other instruction to Pershing, and neither Secured Party
nor Debtor shall be entitled to deliver any entitlement orders or other
instructions to Pershing directly with respect to the Pledged Securities or the
Securities Account.

 

1.3. Debtor and
Secured Party agree and represent to Pershing and Broker that any credit
extended by Secured Party shall not be purpose credit and shall comply in all
respects with Regulation U of the Board of Governors of the Federal Reserve
System.

 

Section
2. Maintenance of Securities Account.

 

2.1.  Clearance
and Settlement.  The parties to this Agreement understand and
agree that (a) Broker uses Pershing to carry and clear accounts introduced to
Pershing by Broker, including the Securities Account; (b) Pershing has no
authority to follow entitlement orders or other instructions with respect to
the Pledged Securities or the Securities Account except those given by Broker
to Pershing; and (c) Debtor and Secured Party have no authority to, and shall
not to attempt to, give any such entitlement orders or other instructions
directly to Pershing.

 

2.2.  Reliance
on Entitlement Orders and Other Instructions.  Broker will be
entitled to rely on (and to relay to Pershing) entitlement orders and other instructions
that it receives from a person it reasonably believes to be authorized by
Secured Party (or Debtor, if permitted hereunder) to give such instructions.
Such entitlement orders or other instructions may be given to Broker orally,
provided that Secured Party or Debtor, as applicable, shall promptly thereafter
transmit such entitlement orders or other instructions to Broker in writing.
Broker shall transmit all such entitlement orders and other instructions to
Pershing in writing. Notwithstanding the

 

2

 

foregoing, neither Broker
nor Pershing shall be liable for taking actions on oral entitlement orders or
other instructions provided by Secured Party (or Debtor, if permitted
hereunder) to Broker despite the failure of Secured Party or Debtor, as
applicable, to subsequently provide such entitlement orders or other
instructions in writing to Broker; and Pershing agrees to comply with all
entitlement orders or other instructions received from Broker with respect to
the foregoing.

 

2.3.  Provision
of Statements, Confirmations and Other Information.  Broker will
send copies of confirmations of trades and all monthly statements concerning
the Securities Account simultaneously to both Debtor and Secured Party, and to
the extent Broker can make its system available to Secured Party and upon
Secured Party’s signing a separate website user agreement, Secured Party will
also be given daily access to the Securities Account via the Internet or
other online services selected by Broker. Broker will also send to Secured
Party, upon request, a copy of such personal financial statements, tax returns
and other financial information of or relating to Debtor as Debtor has made
available to Broker. Such confirmations, statements and other information shall
be sent to Debtor and Secured Party as provided in this Section 2.3 at the
address for each set forth in this Agreement. By signing the statement set
forth at the bottom of this Agreement, Debtor hereby consents to the provision
of all such statements, confirmations and other information to Secured Party,
Pershing and any affiliate, director, officer, agent, employee, counsel,
accountant, advisor or representative of Broker as Broker may deem appropriate,
but solely for the purpose of providing services to Debtor in connection with
this Agreement.

 

2.4.  Broker’s
and Pershing’s Duties With Respect to Agreements between Debtor and Secured
Party.  Broker and Pershing shall have no duty or obligation
whatsoever of any kind or character to determine whether or not an event of
default exists under any agreement between Debtor and Secured Party. Broker
shall relay to Pershing any entitlement orders or other instructions received
by Broker from Secured Party, irrespective of any knowledge that Broker may
have of whether or not an event of default shall exist or Secured Party shall
have any agreement with Debtor limiting or conditioning its right to give such
entitlement orders or other instructions, and Pershing shall honor any entitlement
orders or other instructions received by it from Broker, irrespective of any
knowledge Pershing may have of whether or not an event of default shall exist
or Secured Party shall have any agreement with Debtor limiting or conditioning
its right to give such entitlement orders or other instructions. Broker and
Pershing shall have no duty to investigate the circumstances under which either
Debtor or Secured Party is entitled to give any entitlement orders or other
instructions.

 

2.5.  Tax
Reporting.  All items of income, gain, expense and loss
recognized in the Securities Account shall be reported to the Internal Revenue
Service and all state and local taxing authorities under the name and taxpayer
identification number of Debtor.

 

3

 

2.6.  Voting
Rights.  Until such time as Broker receives an entitlement order
or other instruction from Secured Party directing otherwise, Debtor may give
instructions to Broker (which Broker shall relay to Pershing) with respect to
the voting of the Pledged Securities.

 

2.7.  Asset
Transfers.  Until such time as Broker receives an entitlement
order or other instruction from Secured Party directing otherwise, Debtor may
give entitlement orders and other instructions to Broker (which Broker shall
relay to Pershing) to conduct trades in the Securities Account. Anything
contained in this Agreement to the contrary notwithstanding, except upon the
written consent of Secured Party, Broker shall not relay to Pershing any
entitlement order or other instruction to withdraw specific Pledged Securities,
cash or other property from the Securities Account for transfer to or on behalf
of Debtor or any third party other than Secured Party. Broker and Pershing
shall not have any liability to Secured Party or Debtor for any loss of the
Pledged Securities which may result from trades in the Securities Account.

 

Section
3. Confirmation of the Priority of Broker and Pershing’s Lien and Right of
Set-Off.  In the event that Pershing or Broker
has or subsequently obtains, by agreement, by operation of law or otherwise,
any security interest in, or right of set-off with respect to, the Pledged
Securities to secure any obligations now or hereafter owed to Pershing or
Broker, as the case may be, each party to this Agreement hereby agrees that any
such security interest or right of set-off of Pershing or Broker shall have
priority over the rights of Secured Party. Debtor agrees not to engage in any
activities in connection with the Securities Account that would require the
Pledged Securities to be used as collateral or other security. Broker and
Pershing agree that Broker and Pershing will not extend any new credit after
the date of this Agreement to Debtor secured by the Pledged Securities without
Secured Party’s prior written consent.

 

Section
4. Choice of Law.  This Agreement shall be
governed by, and construed in accordance with, the law of the State of New
York. Regardless of any provision in any other agreement to the contrary, for
purposes of the UCC, New York shall be deemed to be the securities intermediary’s
jurisdiction, and the establishment and maintenance of the Securities Account
shall be governed by the law of the State of New York.

 

Section
5. Conflict with Other Agreements.

 

5.1.  In
the event of any conflict between this Agreement (or any portion hereof) and
any other agreement now existing or hereafter entered into, including, without
limitation, any agreement between Debtor and Secured Party or any third party,
or Debtor, Broker or Pershing relating to the establishment or maintenance of
the Securities Account, the terms of this Agreement shall prevail.

 

5.2.  No
amendment or modification of this Agreement or waiver of any right hereunder
shall be binding on any party hereto unless it is in writing and is signed by
all of the parties hereto.

 

4

 

5.3.  Until
the termination of this Agreement, neither Broker nor Pershing will enter into
any agreement with any other person pursuant to which it has agreed or will
agree to comply with entitlement orders or other instructions of such other
person relating to the Pledged Securities or the Securities Account.

 

5.4.  Broker
and Pershing have not entered into, and until the termination of this Agreement
will not enter into, any agreement with Debtor or Secured Party purporting to
limit or condition the obligation of Broker or Pershing to relay or comply with
entitlement orders or other instructions as set forth in Section 1.2 hereof.

 

5.5.  Broker,
Pershing and Debtor agree that they will not amend any agreement that relates
to the establishment or maintenance of the Securities Account and that affect
the Pledged Securities without the Secured Party’s prior written consent.

 

5.6.  Debtor
agrees with respect to any third-party investment managers of the Securities
Account that such managers will be bound by this Agreement to the same extent
as Debtor itself is bound with respect to Debtor’s ability and rights to give
entitlement orders and other instructions with respect to the Securities
Account. Debtor will inform such managers of the terms of this Agreement, and
specifically this Section 5.6, promptly upon execution hereof, and obtain the
agreement of such managers to be so bound. Debtor will promptly provide
evidence to Broker of Debtor’s having given such notice to its third-party
investment managers and shall promptly provide Broker with a list, updated
promptly from time to time, of its then current third-party investment
managers.

 

Section
6.  Representations, Warranties and Covenants of The Parties
Hereto.

 

6.1.  Enforceable
Agreement.  Each party to this Agreement hereby represents,
warrants and covenants that this Agreement is its, his or her valid and legal
obligation.

 

6.2.  Account
Name and Number.  Broker and Pershing each covenants that it
shall not change the name or account number of the Securities Account without
the prior written consent of Secured Party.

 

6.3.  Adverse
Claims.  Except for the claims and interest of Secured Party,
Broker, Pershing and Debtor in the Pledged Securities, neither Broker nor
Pershing has any actual knowledge of any claim to, or interest in, the Pledged
Securities. If any person asserts any lien, encumbrance or adverse claim
(including any writ, garnishment, judgment, warrant of attachment, execution or
similar process) against the Pledged Securities, Pershing or Broker will
promptly notify Secured Party and Debtor thereof. Nothing in this Section 6.3
imposes upon Broker or Pershing any duty to investigate or inquire whether an
adverse claim to, or interest in, the Pledged Securities exists.

 

5

 

6.4.  Independent
Transaction.  Each party to this Agreement hereby represents,
warrants, acknowledges and covenants that, notwithstanding any other provision
of this Agreement, and notwithstanding any role by Broker or Pershing or any of
its affiliates, directors, officers, agents, employees, counsel, accountants,
advisors or representatives in referring Debtor to Secured Party, or Secured
Party to Debtor, in respect of any loan or other transaction, including any
transaction contemplated by this Agreement or to which this Agreement relates
(each a “Referral”): (a) each of Debtor and Secured Party is making an
independent determination and evaluation as to whether, and on what terms, to
engage in any transaction with the other (including in respect of the
execution, delivery and performance of this Agreement), (b) Broker is not
acting as representative or in any representational capacity for or on behalf
of Secured Party, and is not acting as agent or broker for Secured Party except
as specifically provided herein, and (c) Broker and Pershing do not make any
representation or warranty of any type whatsoever to Secured Party with respect
to any information concerning Debtor which Secured Party may obtain from
Debtor, Broker or Pershing or any other person (including any statements,
confirmations or other information sent to Secured Party pursuant to Section
2.3 hereof), and Broker and Pershing shall have no obligation or responsibility
to ascertain the accuracy of, or update in any respect, any such information.

 

Section
7.  Indemnification.

 

7.1.  Debtor’s
and Secured Party’s Obligation to Hold Harmless and Indemnify Broker and
Pershing.  Each of Debtor and Secured Party hereby agree that (a)
Broker and Pershing and their respective affiliates, and their directors,
officers, agents, employees, counsel, accountants, advisors and representatives
(each an “Indemnified Party”)
are released from any and all liabilities to Debtor and Secured Party (and any
other person claiming through or on behalf of Debtor or Secured Party) in any
way related to or arising out of or in connection with this Agreement or any
action taken or not taken pursuant hereto or contemplated herein (including any
Referral) and the compliance by any Indemnified Party with the terms hereof,
except (with respect to any Indemnified Party) to the extent that such
liabilities arise from such Indemnified Party’s gross negligence or willful
misconduct, and (b) Debtor, its successors and assigns shall at all times
indemnify and save harmless each Indemnified Party from and against any and all
claims, actions and suits of others arising out of the terms of this Agreement,
any loan or other transaction contemplated hereby, or the compliance of any
Indemnified Party with the terms hereof, except (with respect to any
Indemnified Party) to the extent that such arises from the gross negligence or
willful misconduct of such Indemnified Party, and from and against any and all
liabilities, losses, demands, damages, costs, charges, counsel fees and other
expenses of every nature and character arising by reason of the same (including
any fees or charges with respect to the Securities Account).

 

7.2.  Value
of Pledged Securities.  Broker and Pershing shall not have any
responsibility or liability to Secured Party with respect to the value of the
Pledged Securities or any diminution thereof.

 

6

 

7.3.  Compliance
with Orders and Instructions.  Broker and Pershing shall not have
any responsibility or liability to Secured Party for complying with any
entitlement order or other instruction of Debtor (even if inconsistent with any
entitlement order or other instruction from Secured Party received subsequently
and before Broker or Pershing have had a reasonable time to comply therewith).
Broker and Pershing shall not have any responsibility or liability to Debtor
for complying with any entitlement order or other instruction from Secured
Party (even if inconsistent with any entitlement order or other instruction of
Debtor), and shall have no responsibility to investigate the appropriateness of
any such entitlement order or other instruction, even if Debtor or Secured
Party notifies Broker that the other is not legally entitled to give any such
entitlement order or other instruction, unless such notification is in writing
and (a) prior to any such notification, Broker has been served with an
injunction, restraining order or other legal process issued by a court of
competent jurisdiction (a “Court
Order”) enjoining it from complying with such entitlement order
other or instruction and has had a reasonable opportunity to act on such Court
Order, or (b) Broker acts in collusion with Secured Party with the purpose and
effect of violating Debtor’s rights. This Agreement does not create any
obligation or duty of Broker or Pershing other than those expressly set forth
herein. Without limiting the foregoing, this Agreement does not create any
obligation or duty of Broker to reconcile any inconsistent entitlement orders or
other instructions or to determine which inconsistent entitlement order or
other instruction was appropriately given.

 

Section
8.  Assignments Prohibited.  Each
party hereto agrees that it shall not assign its rights hereunder without the
prior written consent of the parties hereto and any purported or attempted
assignment of rights hereunder without such prior written consent shall be null
and void and of no effect.

 

Section
9.  Successors.   Subject to the
provisions of Section 8 hereof with respect to voluntary assignment of its
rights, the terms of this Agreement shall be binding upon, and shall inure to
the benefit of, the parties hereto and their respective corporate successors or
heirs and personal representatives who obtain such rights solely by operation
of law.

 

Section
10.  Notices.  Any notice,
notification, request or other communication required or permitted to be given
under this Agreement shall be in writing and deemed to have been properly given
when delivered in person, or when sent by telecopy or other electronic means
and electronic confirmation of error free receipt is received, or two days
after being sent by certified or registered United States mail, return receipt
requested, postage prepaid, addressed to the party at the address set forth
below. Any party may change its address for notices in the manner set forth
herein.

 

7

 

 

	
  Debtor:

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  ARYx Therapeutics, Inc.

  
	
   

  	
  Address:

  	
  2255 Martin Ave., Suite F.

  
	
   

  	
   

  	
  Santa Clara, CA 95050

  
	
   

  	
  Telephone:

  	
  (408) 869 – 2761

  
	
   

  	
  Facsimile:

  	
  (408) 869 – 2773

  
	
   

  	
  Attention:

  	
  Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
  Secured Party:

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Lighthouse Capital Partners V, L. P.

  
	
   

  	
  Address:

  	
  500 Drakes Landing Road

  
	
   

  	
   

  	
  Greenbrae, CA 94904

  
	
   

  	
  Telephone:

  	
  (415) 464 – 5900

  
	
   

  	
  Facsimile:

  	
  (415) 925 – 3387

  
	
   

  	
  Attention:

  	
  Contracts Administration

  
	
   

  	
   

  	
   

  
	
  Pershing:

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  PERSHING LLC

  
	
   

  	
  Address:

  	
  1 Pershing Plaza

  
	
   

  	
   

  	
  Jersey City, NJ 07440

  
	
   

  	
  Telephone:

  	
  201-413-4214

  
	
   

  	
  Facsimile:

  	
  201-413-4564

  
	
   

  	
  Attention:

  	
  Joseph W. Spatucci

  
	
   

  	
   

  	
   

  
	
  Broker:

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  CREDIT SUISSE FIRST BOSTON LLC

  
	
   

  	
  Address:

  	
  Eleven Madison Avenue

  
	
   

  	
   

  	
  New York, NY 10010

  
	
   

  	
  Telephone:

  	
  212-538-1864

  
	
   

  	
  Facsimile:

  	
  212-538-4244

  
	
   

  	
  Attention:

  	
  Lyle V. Monteserrato

  

 

Section 11. Termination.

 

11.1.  Termination
of this Agreement. The obligations of Broker and Pershing to Secured Party
pursuant to this Agreement shall continue in effect until Broker receives a
notice of termination in substantially the form of Exhibit B hereto from
Secured Party. Upon receipt by Broker of such notice of termination, (a copy of
which Broker shall promptly deliver to

 

8

 

Pershing), the
obligations of Broker and Pershing under this Agreement with respect to the
operation and maintenance of the Securities Account will terminate, Secured
Party shall have no further right to give entitlement orders or other
instructions concerning the Securities Account or the Pledged Securities, and
any previous entitlement orders or other instructions given by Secured Party
will be deemed to be of no further force and effect; provided, that the
provisions of Sections 2.4, 2.5, 2.7, 4, 5.1, 6.4, 7.1, 7.2, 7.3, 9, 10, 12 and
13 hereof and this Section 11.l will survive termination of this Agreement.

 

11.2.  Termination
of Account.  Broker may, upon 30 days written notice to Debtor
and Secured Party, resign with respect to its responsibilities hereunder and
(a) direct Pershing to transfer the Pledged Securities to another institution,
or (b) relay to Pershing entitlement orders or other instructions with respect
to the Pledged Securities that are received by Broker within 30 days from
either such notice of resignation, from either (i) Secured Party, or (ii)
Debtor; provided, that Debtor’s instructions are accompanied by the written
consent of Secured Party. Secured Party (or Debtor with the written consent of
Secured Party) shall have the right to identify the institution and the account
to which Pledged Securities shall be transferred by sending an entitlement
order to Broker at any time prior to the expiration of the thirtieth (30th)
day after written notice from Broker is received by Secured Party. If neither
Secured Party nor Debtor has delivered a suitable entitlement order with
respect to the Pledged Securities, Broker may, at its option, deposit such
Pledged Securities with a court of competent jurisdiction or establish a
successor account at another institution. Any such successor account
established by Broker at another institution shall be maintained in the same
name as the Securities Account but, other than the name in which the account is
maintained, Broker shall have no obligation to establish an account with the
same or even similar terms as the Securities Account. If Broker deposits
Pledged Securities with a court or establishes a successor account as provided
herein, it shall promptly give notice thereof to each other party to this
Agreement.

 

11.3.  Termination
by Pershing.  Pershing may, upon 30 days written notice to all
parties, resign as carrying broker with respect to the Securities Account;
provided, that it shall comply with entitlement orders or other instructions
and assist the parties hereto in transferring custody of the Securities Account
to a third-party carrying broker and follow all relevant terms of any applicable
clearing, carrying or custody agreement between Broker and Pershing.

 

Section
12.  Confidentiality.  Secured
Party shall maintain the confidentiality of all information provided to it by
Debtor, Broker or Pershing hereunder in accordance with its customary practices
for confidential personal information provided to it by individual borrowers or
other customers.

 

Section
13.  Arbitration.

 

13.1.  ARBITRATION
REQUIREMENT.  ANY DISPUTE RELATING TO THIS AGREEMENT THAT CANNOT
BE SETTLED SHALL BE TAKEN TO ARBITRATION AS SET FORTH IN THIS SECTION 13.

 

9

 

13.2.  ARBITRATION
DISCLOSURE.

 

a.                          ARBITRATION
IS FINAL AND BINDING ON THE PARTIES.

 

b.                          THE
PARTIES ARE WAIVING THEIR RIGHT TO SEEK REMEDIES IN COURT, INCLUDING THE RIGHT
TO JURY TRIAL.

 

c.                          PRE-ARBITRATION
DISCOVERY IS GENERALLY MORE LIMITED THAN AND DIFFERENT FROM COURT PROCEEDINGS.

 

d.                          THE
ARBITRATOR’S AWARD IS NOT REQUIRED TO INCLUDE FACTUAL FINDINGS OR LEGAL
REASONING AND ANY PARTY’S RIGHT TO APPEAL OR TO SEEK MODIFICATION OF RULINGS BY
THE ARBITRATORS IS STRICTLY LIMITED.

 

e.                          THE
PANEL OF ARBITRATORS WILL TYPICALLY INCLUDE A MINORITY OF ARBITRATORS WHO WERE
OR ARE AFFILIATED WITH THE SECURITIES INDUSTRY.

 

13.3.  ARBITRATION
AGREEMENT.

 

ANY
CONTROVERSY ARISING OUT OF THIS AGREEMENT SHALL BE SUBMITTED TO ARBITRATION
CONDUCTED BEFORE THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC., IN
ACCORDANCE WITH THEIR RULES. ARBITRATION MUST BE COMMENCED BY SERVICE UPON THE
OTHER PARTIES OF A WRITTEN DEMAND FOR ARBITRATION OR A WRITTEN NOTICE OF
INTENTION TO ARBITRATE, THEREIN ELECTING THE ARBITRATION TRIBUNAL.

 

NO
PERSON SHALL BRING A PUTATIVE OR CERTIFIED CLASS ACTION TO ARBITRATION, NOR
SEEK TO ENFORCE ANY PRE-DISPUTE ARBITRATION AGREEMENT AGAINST ANY PERSON WHO
HAS INITIATED IN COURT A PUTATIVE CLASS ACTION; OR WHO IS A MEMBER OF A
PUTATIVE CLASS AND WHO HAS NOT OPTED OUT OF THE CLASS WITH RESPECT TO ANY
CLAIMS ENCOMPASSED BY THE PUTATIVE CLASS ACTION UNTIL: (A) THE CLASS
CERTIFICATION IS DENIED; (B) THE CLASS IS DECERTIFIED; OR (C) THE CUSTOMER IS
EXCLUDED FROM THE CLASS BY THE COURT. SUCH FORBEARANCE TO ENFORCE AN AGREEMENT
TO ARBITRATE SHALL NOT CONSTITUTE WAIVER OF ANY RIGHTS

 

10

 

UNDER THIS AGREEMENT EXCEPT TO THE EXTENT STATED
HEREIN.

 

Section
14.  Counterparts.  This Agreement
may be executed in any number of counterparts, all of which shall constitute
one and the same instrument, and any party hereto may execute this Agreement by
signing and delivering one or more counterparts.

 

11

 

THIS AGREEMENT CONTAINS A
PRE-DISPUTE ARBITRATION CLAUSE ON PAGES 8 AND 9 IN SECTION 13. DEBTOR
ACKNOWLEDGES RECEIVING A COPY OF THIS AGREEMENT.

 

Debtor(s):
By signing below, the Debtor agrees to all of the terms of the Agreement, and
specifically consents as follows: I authorize and direct
Broker to furnish information about me relating to the Securities Account and
the Pledged Securities and to provide all such statements, confirmations and
other information to Secured Party, Pershing, and any affiliate, director,
officer, agent, employee, counsel, accountant, advisor or representative of
Broker as Broker may deem appropriate for use in connection with this Agreement
or any Referral, and to assist them in better serving me and so that they may
provide me with individually tailored advice and services.

 

	
  Debtor:

  	
  ARYx Therapeutics, Inc.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  [Print
  Name]

  	
   

  	
  [Signature of Debtor]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  [Print
  Name]

  	
   

  	
  [Signature of Debtor]

  
							

 

	
  Secured
  Party:

  	
  Lighthouse Capital
  Partners V, L.P.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Lighthouse Capital
  Partners V, L.P.

  	
   

  	
   

  	
   

  
	
  [Name
  of Secured Party]

  	
   

  	
   

  
	
  By: 

  	
  Lighthouse Management
  Partners V, L.L.C.

  	
   

  	
   

  	
   

  
	
   

  	
  its
  general partner

  	
   

  	
   

  
	
  Thomas Conneely

  	
   

  	
   

  	
   

  	
   

  
	
  [Print
  Name]

  	
   

  	
  [Signature of Debtor]

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Vice President

  	
   

  	
   

  	
  (415) 464 - 5900

  	
   

  
	
  [Title]

  	
   

  	
  [Telephone
  Number]

  
									

 

	
  Credit
  Suisse First Boston LLC

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  [Print
  Name]

  	
   

  	
  [Signature]

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  [Title]

  	
   

  	
  [Telephone
  Number]

  
						

 

12

 

	
  Pershing
  LLC

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  [Print
  Name]

  	
   

  	
  [Signature]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  [Title]

  	
   

  	
  [Telephone
  Number]

  
						

 

 

13

 

Exhibit A

 

[Letterhead
of Secured Party]

 

[Date]

 

Mr. Xxxxxxx

Credit Suisse First Boston LLC

Eleven Madison Avenue

New York, NY 10010

 

Re:                  Entitlement
Order for Securities

Account
No.              (the
“Securities Account”)

 

Ladies and Gentlemen:

 

As referenced in
the Securities Account Sole Control Agreement, dated February      , 2005 (the “Agreement”), among ARYX
Therapeutics, Inc. (“Debtor”), Credit Suisse First Boston LLC, Pershing
LLC and the undersigned, pursuant to Section 2 of the Agreement, we hereby give
you the following entitlement order with respect to the above-referred
Securities Account:

 

[[All property
credited to the Securities Account] [The Pledged Securities identified below]
should be transferred to            
for credit to Account No.
            maintained
in the name            .
You are hereby instructed promptly to instruct Pershing LLC accordingly.]

 

[and/or]

 

[We are hereby exercising
exclusive control over the Securities Account and you shall not accept, or
relay to Pershing, any further instructions of any kind from Debtor with
respect to the Securities Account. You are hereby instructed promptly to relay
this instruction to Pershing LLC.]

 

 

	
   

  	
   

  	
   

  	
  Very truly yours,

  [NAME OF SECURED PARTY]

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By: 

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name: 

  
	
   

  	
   

  	
   

  	
   

  	
  Title: 

  

 

 

cc: [Name of Debtor]

 

A-1

 

Exhibit B

 

[Letterhead
of Secured Party]

 

[Date]

 

Mr.
Xxxxxxxxx

Credit Suisse First Boston LLC

Eleven Madison Avenue

New York, NY 10010

 

Re:                  Termination
of Agreement

 

You are hereby
notified that the Securities Account Sole Control Agreement, dated February      , 2005 (the “Agreement”), among
Credit Suisse First Boston LLC,                                           
(“Debtor”), Pershing LLC and the undersigned is terminated and that
neither you nor Pershing LLC has any further obligations to the undersigned
pursuant to the Agreement. Notwithstanding any previous instructions to you,
you are hereby instructed to accept all future directions with respect to
Securities Account Number               
and the Pledged Securities (as defined in the Agreement) from Debtor. This
notice terminates any obligations you or Pershing LLC may have to the
undersigned with respect to such Account; however, nothing contained in this
notice shall alter any obligations which you or Pershing LLC may otherwise owe
to Debtor pursuant to any other agreement.

 

Broker is hereby
instructed to deliver a copy of this notice by facsimile transmission to
Pershing LLC and to [insert name of Debtor].

 

 

	
   

  	
   

  	
   

  	
  Very truly yours,

  [NAME OF SECURED PARTY]

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By: 

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name: 

  
	
   

  	
   

  	
   

  	
   

  	
  Title: 

  

 

B-1

 

EXHIBIT I

 

NEGATIVE
PLEDGE AGREEMENT

 

THIS NEGATIVE PLEDGE
AGREEMENT is made as of March 28, 2005, by and between
ARYX THERAPEUTICS, INC. (“Borrower”) and LIGHTHOUSE CAPITAL PARTNERS V, L.P. (“Lender”).

 

In consideration of the Loan and Security Agreement between the parties
of proximate date herewith (the “Loan
Agreement”), Borrower agrees as follows:

 

Except as otherwise permitted in the Loan Agreement,
Borrower shall not sell, transfer, assign, mortgage, pledge, lease, grant a
security interest in, or encumber any of Borrower’s intellectual property,
including, without limitation, the following:

 

(a)           Any and all copyright rights,
copyright applications, copyright registration and like protection in each work
or authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held (collectively, the “Copyrights”);

 

(b)           Any and all trade secrets, and any
and all intellectual property rights in computer software and computer software
products now or hereafter existing, created, acquired or held;

 

(c)           Any and all design rights which may
be available to Borrower now or hereafter existing, created, acquired or held;

 

(d)           All patents, patent applications and
like protections, including, without limitation, improvements, divisions,
continuations, renewals, reissues, extensions and continuations-in-part of the
same, including, without limitation, the patents and patent applications
(collectively, the “Patents”);

 

(e)           Any trademark and servicemark rights,
whether registered or not, applications to register and registrations of the
same and like protections, and the entire goodwill of the business of Borrower
connected with and symbolized by such trademarks (collectively, the “Trademarks”);

 

(f)            Any and all claims for damages by
way of past, present and future infringements of any of the rights included
above, with the right, but not the obligation, to sue for an collect such
damages for said use or infringement of the intellectual property rights
identified above;

 

(g)           Any and all licenses or other rights
to use any of the Copyrights, Patents or Trademarks and all license fees and
royalties arising from such use to the extent permitted by such license or rights;

 

(h)           Any and all amendments, extensions,
renewals and extensions of any of the Copyrights, Patents or Trademarks; and

 

(i)            Any and all proceeds and products of
the foregoing, including, without limitation, all payments under insurance or
any indemnity or warranty payable in respect of any of the foregoing.

 

It shall be an Event of Default under the Loan Agreement if
there is a breach of any term of this Negative Pledge Agreement. Borrower
agrees to properly execute all documents reasonably required by Lender in order
to fulfill the intent and purposes hereof.

 

	
  ARYX THERAPEUTICS, INC.

  	
  LIGHTHOUSE CAPITAL PARTNERS V, L.P.

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By: LIGHTHOUSE
  MANAGEMENT PARTNERS V, L.L.C., its 

  
	
   

  	
  general partner

  
	
  Name:

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
												

 

1

 

SUBSIDIARIES

 

ARYx Limited

 

LITIGATION
AND ADMINISTRATIVE PROCEEDINGS

 

None

 

BUSINESS
PREMISES

 

[TO BE PROVIDED BY BORROWER –
indicate street address and landlord contact information]

 

 

	
  ARYx
  Therapeutics Inc.

  	
   

  	
  Property Management:

  
	
  Location 1- (to be vacated during 2005):

  Organic & BioAnalytical Chemistry

  2255 Martin Ave Suite F & E

  Santa Clara, CA 95050

  Main Ph 408-869-2761

  Fax: 408-869-2773

  	
   

  	
  PJ
  Livingston Company

  4175 Business Center Drive

  Fremont CA 94538

  Owner: Mark Barkdull

  Contact: Elaine Beck

  Ph: 510-226-6957 ext 20

  Fax: 510-226-6905

  
	
  Location 2 (to be vacated during 2005):

  Metabolism& Pharmacology

  2338 Walsh Ave Bldg. G

  Santa Clara, CA 95051

  Main: 408-869-2761

  Fax: 408-988-8334

  	
   

  	
  Commerce
  Communities

  2316 Walsh Ave

  Santa Clara, CA 95051-1301

  Contact: Marcela Sioxson

  Ph: 408-496-6262 Ext 4

  Fax: 408-748-0341

  
	
  Location 3 - HeadQuarters:

  New Headquarters Location (as of 3/24/05)

  6300 Dumbarton Circle

  Fremont, CA 94555

  Main Ph: 510-585-2200

  Fax: 510-585-2202

  	
   

  	
  TriNet
  Essential Facilities Xc/o iStar Financial Inc.

  One Embarcadero Center

  Suite 3300

  San Francisco, CA 94111

  Phone: (415) 391-4300

  

 

2

 

AMENDMENT NO. 01

 

Dated April 22, 2005

 

TO

 

that certain Loan and Security Agreement No.
4521

dated as of March 28, 2005, (“Agreement”),
by and between

LIGHTHOUSE CAPITAL PARTNERS V, L.P. (“Lender”) and

ARYX THERAPEUTICS, INC., a
California corporation (“Borrower”).

 

(All capitalized terms not otherwise defined herein shall have the
meanings given to such terms in the Agreement.)

 

Without limiting or amending any other provisions of the Agreement,
Lender and Borrower agree to the following:

 

Section 7.10 of the
Agreement  shall be deleted in its
entirety and replaced with the following:

 

7.10        Deposit
and Securities Accounts.  Maintain any deposit accounts or
accounts holding securities owned by Borrower except accounts in which Lender
has obtained a perfected first priority security interest. Notwithstanding the
foregoing,  (i)
Lender shall not have a perfected security interest in Borrower’s account
#8800057097  at Silicon Valley Bank
for the letter of credit issued in conjunction with Borrower’s reimbursement
obligations to its payroll processor, provided
further, such account shall not exceed $300,000 and (ii) Lender’s security interest shall be
subordinate to that of Comerica up to a maximum of $921,264 of cash in Borrower’s
account #1892765692  at Comerica supporting
letter of credit #596267-43 issued to Trinet Essential Facilities X, Inc. or
its co-beneficiary, Istar Financial, Inc. in conjunction with Borrower’s real
property lease, provided further,
such letter of credit shall not exceed $921,264.

 

Except as amended hereby, the Agreement remains unmodified and
unchanged.

 

	
  BORROWER:

  	
  LENDER:

  
	
   

  	
   

  
	
  ARYX THERAPEUTICS, INC.

  	
  LIGHTHOUSE CAPITAL PARTNERS V, L.P.

  
	
   

  	
  By:

  	
  LIGHTHOUSE MANAGEMENT PARTNERS V, L.L.C.,
  its general partner

  
	
   

  	
   

  
	
  By:

  	
  /s/ John Varian

  	
   

  	
  By:

  	
  /s/ Thomas Conneely

  	
   

  
	
   

  	
   

  
	
  Name:

  	
  JOHN VARIAN

  	
   

  	
  Name:

  	
  Thomas Conneely

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
  COO

  	
   

  	
  Title:

  	
  Vice President

  	
   

  
								

 

 

 

 

 

AMENDMENT NO. 02

 

Dated July 25, 2005 to

that certain Loan and Security Agreement No. 4521

dated as of March 28, 2005, as amended (“Agreement”), by
and between

LIGHTHOUSE CAPITAL PARTNERS V, L.P. (“Lender”) and ARYX
THERAPEUTICS, INC. (“Borrower”).

 

(All capitalized terms not otherwise defined herein shall have the
meanings given to such terms in the Agreement.)

 

Without limiting or amending any other provisions of the Agreement,
Lender and Borrower agree to the following:

 

Section 1.1 of the
Agreement, the “Permitted Liens”
definition shall be deleted in its entirety and replaced with the following:

 

“Permitted Liens” means: (i) Liens in favor of Lender; (ii) Liens disclosed in the Disclosure
Schedule and approved by Lender; (iii) Liens for taxes, fees, assessments or other
governmental charges or levies not delinquent or being contested in good faith
by appropriate proceedings, that do not jeopardize Lender’s interest in any
Collateral; (iv) Liens to secure payment of worker’s
compensation, employment insurance, old age pensions or other social security
obligations of Borrower on which Borrower is current and are in the ordinary
course of its business; provided none of the same diminish or impair Lender’s
rights and remedies respecting the Collateral (v) Liens upon or in any equipment acquired or
held by Borrower (in addition to existing liens on equipment disclosed in the
Disclosure Schedule) to secure the purchase price of such equipment or
indebtedness incurred solely for the purpose of financing the acquisition of
such equipment, in an amount not to exceed $3,000,000, provided that (a) any Liens for such
Indebtedness are confined to the equipment financed and are subordinate to
Lender’s security interest in such equipment, provided,
however that Lender shall release its Lien in specific equipment in the event
that (i) an equipment lender (“Equipment
Lender”) requires a release of
Lender’s Lien in such equipment (the “Financed
Equipment”) only to the extent
Equipment Lender takes a security interest in the Financed Equipment; or (ii)
an Equipment Lender acquires title to the Financed Equipment solely for
purposes of leasing Financed Equipment back to Borrower; (b) such Indebtedness
is made on commercially reasonable terms as determined by Borrower’s Board of
Directors, (c) Lender has been offered reasonably in advance the opportunity to
provide such financing to Borrower on comparable terms and (d) the Financed
Equipment shall automatically become a part of the Collateral concurrent with
the release by Equipment Lender of its security interest in the Financed
Equipment or the purchase by Borrower of such Financed Equipment from Equipment
Lender in connection with an end-of-lease buy-out option (vi) leases or
subleases granted in the ordinary course of Borrower’s business on commercially
reasonable terms in connection with Borrower’s leased real property; (vii) Liens incurred
in the extension, renewal or refinancing of the indebtedness secured by Liens
described in (ii) and (v) above, but any extension, renewal or replacement Lien
must be limited to the property encumbered by the prior Lien and the principal
amount of the indebtedness may not increase; (viii) Liens in favor of other financial
institutions arising in connection with Borrower’s deposit accounts held at
such institutions to secure standard fees for deposit services charged
by, but not financing made available by such institutions and banker’s liens,
and rights of setoff incurred in the ordinary course of business; and (ix) other Liens not described above,
arising in the ordinary course of Borrower’s business, as defined in clause (v)
of the definition of Permitted Indebtedness.

 

Except as amended hereby, the Agreement remains unmodified and
unchanged.

 

	
  BORROWER:

  	
  LENDER:

  
	
   

  	
   

  
	
  ARYX
  THERAPEUTICS, INC.

  	
  LIGHTHOUSE
  CAPITAL PARTNERS V, L.P.

  
	
   

  	
  By:

  	
  LIGHTHOUSE
  MANAGEMENT PARTNERS 

  V, L.L.C., its general partner

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ John
  Varian

  	
   

  	
  By:

  	
  /s/ Thomas
  Conneely

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
  John Varian

  	
   

  	
  Name:

  	
  Thomas
  Conneely

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
  COO

  	
   

  	
  Title:

  	
  Vice
  President

  	
   

  

 

 

AMENDMENT NO. 03

 

Dated June 27, 2006

 

TO

 

that certain Loan and Security Agreement No.
4521

dated as of March 28, 2005, as amended (“Agreement”), by
and between

LIGHTHOUSE CAPITAL PARTNERS V, L.P. (“Lender”) and

ARYX THERAPEUTICS, INC. (“Borrower”).

 

(All capitalized terms not otherwise defined herein shall have the
meanings given to such terms in the Agreement.)

 

Without limiting or amending any other provisions of the Agreement,
Lender and Borrower agree to the following:

 

Section 4.4 of the
Agreement shall be deleted in its entirety and replaced with the following:

 

4.4           Automatic
Release of Security Interest In Intellectual Property Collateral.  Lender
agrees that its security interest in all Intellectual Property Collateral shall
be released and Intellectual Property Collateral shall no longer be considered
Collateral, but Intellectual Property Collateral shall remain subject to the
Negative Pledge Agreement (subject to the remainder of this Section 4.4), at
such time as Borrower enters into any agreement with a third party to license,
exploit, or otherwise transfer any rights to a primary indication associated
with Borrower’s ATI-5923, ATI-2042, or ATI-7505 programs within the United
States or Europe (a “Permitted Licensing Transaction”). Upon such release and
upon written notice to Lender, Borrower is authorized without any further
consent of Lender to file such notices of termination of such security
interest, but only of such security interest, in the public record as are
reasonable and appropriate, so long as the same do not interfere or denigrate
in any way Lender’s security interest in the remaining Collateral. Any portion
of the Intellectual Property Collateral that is licensed pursuant to a
Permitted Licensing Transaction shall be automatically excluded from the
Negative Pledge Agreement, effective immediately prior to Borrower’s entering
into such Permitted Licensing Transaction.

 

Except as amended hereby, the Agreement remains unmodified and
unchanged.

 

	
  BORROWER:

  	
   

  	
  LENDER:

  	 

	
   

  	
   

  	
   

  	 

	
  ARYX THERAPEUTICS, INC.

  	
   

  	
  LIGHTHOUSE CAPITAL PARTNERS V, L.P.

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
  By:

  	
  LIGHTHOUSE MANAGEMENT PARTNERS V, L.L.C.,
  its general partner

  	 

	
   

  	
   

  	
   

  	
   

  	 

	
  By:

  	
  /s/ John Varian

  	
   

  	
  By:

  	
  /s/ Thomas Conneely

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  	 

	
  Name:

  	
  JOHN VARIAN

  	
   

  	
  Name:

  	
  Thomas Conneely

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  	 

	
  Title:

  	
  COO

  	
   

  	
  Title:

  	
  Vice President

  	
   

  
										

 

 

AMENDMENT NO. 04

 

Dated August 30, 2007

 

TO

 

that certain Loan and Security Agreement No.
4521

dated as of March 28, 2005, as amended (“Agreement”), by and between

LIGHTHOUSE CAPITAL PARTNERS
V, L.P. (“Lender”) and

ARYX THERAPEUTICS, INC., a Delaware corporation (formerly a California
corporation) (“Borrower”).

 

(All capitalized terms not otherwise defined herein shall have the
meanings given to such terms in the Agreement.)

 

Without limiting or amending any other provisions of the Loan
Documents, Lender and Borrower agree to the following:

 

Effective August 6, 2007, Borrower’s state of incorporation has
reincorporated from the State of California to the State of Delaware.

 

Except as amended hereby, the Loan Documents remains unmodified and
unchanged.

 

	
  BORROWER:

  	
  LENDER:

  
	
   

  	
   

  
	
  ARYX THERAPEUTICS, INC.

  	
  LIGHTHOUSE CAPITAL PARTNERS
  V, L.P.

  
	
   

  	
   

  
	
  By:

  	
   /s/
  Jason Barker

  	
   

  	
  By:

  	
  LIGHTHOUSE MANAGEMENT

  
	
   

  	
   

  	
  PARTNERS V, L.L.C., its general partner

  
	
  Name:

  	
   Jason Barker

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   Chief Accounting Officer

  	
   

  	
  By:

  	
   /s/ Tom
  Conneely

  
	
   

  	
   

  
	
   

  	
  Name:

  	
  Tom Conneely

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   
   Vice President

  
							

 

 

AMENDMENT NO. 05 TO LOAN AND SECURITY
AGREEMENT

 

Dated October 19, 2007

 

THIS AMENDMENT NO. 05 (“Amendment”)  to that certain Loan and Security Agreement No. 4521 dated
March 28, 2005, as amended (the “Agreement”;  all capitalized terms not otherwise
defined herein are defined in the Agreement), is entered into as of October 19,
2007, by and between LIGHTHOUSE
CAPITAL PARTNERS V, L.P. (“Lender”)  and ARYX
THERAPEUTICS, INC., a Delaware corporation (“Borrower”).

 

WHEREAS, Borrower
and Lender have previously entered into the Agreement; and

 

WHEREAS, Borrower
has requested Lender provide additional term loan financing in the amount of
$9,000,000; and

 

WHEREAS, Lender has
agreed to do so, subject to all of the terms and conditions hereof and of the
Agreement;

 

NOW, THEREFORE, in
consideration of the foregoing and the mutual covenants herein contained, the
parties hereby agree to modify the Agreement and to perform such other
covenants and conditions as follows:

 

I.                                       Section 1.1,
the following definitions shall be added to the Agreement:

 

“Amendment
No. 05” means this Amendment No. 5 to Loan and Security
Agreement by and between Lender and Borrower.

 

“Commitment
Two” means $9,000,000.

 

“Commitment
Two Warrant” means the Warrant in favor of Lender to purchase
securities of Borrower, substantially in the form of Exhibit C-1  attached to Amendment No. 05 and issued
in conjunction with Commitment Two.

 

II.                                   Section 1.1, each
of the following definitions of the Agreement shall be deleted in its entirety
and replaced with the following:

 

“Commitment”
means collectively, the Commitment existing prior to
Amendment No. 5 and Commitment Two.

 

“Commitment
Fee” means (i)
$15,000 in conjunction with the Commitment prior to Amendment No. 05, and (ii) $15,000 in conjunction with Commitment
Two, the latter to be applied by Lender to amounts due hereunder until fully
applied.

 

“Commitment
Termination Date” means (a)
for the Commitment existing prior to Amendment No. 05, the Commitment
Termination Date has occurred, and (b)
for Commitment Two, the earliest to occur of (i)
March 1, 2008, (ii) any Default or
Event of Default, (iii) the date
upon which Borrower does not employ at least any two of the following
individuals on a full-time basis: (a) Paul Goddard as Chief Executive Officer,
(b) Peter Milner as President, R&D, (c) Pascal Druzgala as Chief Scientific
Officer and (d) John Varian as Chief Operating Officer, or (iv) the date upon which at least any two
of the following venture capital investors cease activity with respect to
Borrower: (a) MPM Ventures, (b) Orbimed and (c) Nomura Ventures.

 

“Disclosure
Schedule” means Schedule 1 delivered by Borrower to Lender
prior to the date of Amendment No. 05.

 

“Incumbency
Certificate” means the document in the form of Exhibit E  of the Agreement and in the form of Exhibit E-1  attached to Amendment No. 05.

 

1

 

“Loan
Documents” means, collectively, the Agreement, Amendments 01
through 05, the Warrants, the Notes and all other documents, instruments and
agreements entered into between Borrower or any subsidiary or affiliate of
Borrower and Lender in connection with the Loan, all as amended or extended
from time to time.

 

“Note” means
(i) a Secured Promissory Note in
the form of Exhibit B  attached to this Agreement for Advances
funded under the Commitment prior to Amendment No. 05; and (ii) a Secured Promissory Note in the form
of  Exhibit
B-1  attached to Amendment No. 02 for Advances funded
under Commitment Two.

 

“Notice
of Borrowing” means (i)
in the form of Exhibit D  attached to this Agreement for Advances
funded under the Commitment prior to Amendment No. 05; and (ii) the form attached to Amendment No. 05
as Exhibit D-1  for Advances under Commitment Two.

 

“Permitted
Indebtedness” means: (i)
the Loan; (ii) trade debt incurred
in the ordinary course of Borrower’s business; (iii) Indebtedness secured by clause (ii) and (v) of Permitted Liens; (iv) Indebtedness disclosed in the
Disclosure Schedule and approved by Lender; (v)
other Indebtedness not described in (ii) through (iv) above not to exceed
$500,000 in the aggregate at any given time; and (vi) extensions, refinancings, modifications, amendments and
restatements of any items of Permitted Indebtedness identified above, provided that the principal amount thereof
is not increased or the terms thereof are not modified to impose more
burdensome terms upon Borrower.

 

“Permitted
Liens” means: (i)
Liens in favor of Lender; (ii)
Liens disclosed in the Disclosure Schedule and approved by Lender; (iii) Liens for taxes, fees, assessments or
other governmental charges or levies not delinquent or being contested in good
faith by appropriate proceedings, that do not jeopardize Lender’s interest in
any Collateral; (iv) Liens to
secure payment of worker’s compensation, employment insurance, old age pensions
or other social security obligations of Borrower on which Borrower is current
and are in the ordinary course of its business; provided none of the same diminish
or impair Lender’s rights and remedies respecting the Collateral (v) Liens upon or in any equipment acquired
or held by Borrower (in addition to existing liens on equipment disclosed in
the Disclosure Schedule) to secure the purchase price of such equipment or
indebtedness incurred solely for the purpose of financing the acquisition of
such equipment, in an amount not to exceed $3,000,000, provided that (a) any Liens for such
Indebtedness are confined to the equipment financed and are subordinate to
Lender’s security interest in such equipment, provided,
however that Lender shall release its Lien in specific equipment in
the event that (i) an equipment lender “Equipment
Lender”)  requires a
release of Lender’s Lien in such equipment (the “Financed Equipment”)  only
to the extent Equipment Lender takes a security interest in the Financed
Equipment; or (ii) an Equipment Lender acquires title to the Financed Equipment
solely for purposes of leasing Financed Equipment back to Borrower; (b) such
Indebtedness is made on commercially reasonable terms as determined by
Borrower’s Board of Directors, (c) Lender has been offered reasonably in
advance the opportunity to provide such financing to Borrower on comparable
terms and (d) the Financed Equipment shall automatically become a part of the
Collateral concurrent with the release by Equipment Lender of its security
interest in the Financed Equipment or the purchase by Borrower of such Financed
Equipment from Equipment Lender in connection with an end-of-lease buy-out
option (vi) leases or subleases
granted in the ordinary course of Borrower’s business on commercially
reasonable terms in connection with Borrower’s leased real property; (vii) Liens incurred in the extension,
renewal or refinancing of the indebtedness secured by Liens described in (ii)
and (v) above, but any extension, renewal or replacement Lien must be limited
to the property encumbered by the prior Lien and the principal amount of the
indebtedness may not increase; (viii)
Liens in favor of other financial institutions arising in connection with
Borrower’s deposit accounts held at such institutions to secure standard fees
for deposit services charged by, but not financing made available by such
institutions and banker’s liens, and rights of setoff incurred in the ordinary
course of business; (ix) Liens
pursuant to facility lease agreements in favor of Borrower’s landlord(s) in
connection with leasehold improvements made to Borrower’s leased premises and
paid for by Borrower in an amount not to exceed $750,000; and (x) other Liens not described above,
arising in the ordinary course of Borrower’s business, as defined in clause (v)
of the definition of Permitted Indebtedness.

 

“Warrants”
means the Warrants in favor of Lender and its affiliated
fund, Lighthouse Capital Partners IV, L.P. (“LCP-IV”)  to purchase securities of Borrower
substantially in (i) the form of Exhibit C  and (ii)
the form attached to Amendment No. 05 as Exhibit C-1
for Advances under Commitment Two.

 

III.                                 The
following Sections shall be added to the Agreement:

 

2

 

2.2A                    The Commitment Two Advances. A
Note setting forth the specific terms of repayment will evidence each Advance
under Commitment Two. No Advance will be made under Commitment Two for less
than $1,000,000. Absence of a Note evidencing any portion of the Loan shall not
impair Borrower’s obligation to repay it to Lender.

 

The following new Section 3.3 shall be added to the
Agreement:

 

3.3                             Conditions Precedent to
Initial Advance under Commitment Two:

 

The obligation of
Lender to make any Advances pursuant to Commitment Two is subject to each and
every of the following conditions precedent in form and substance satisfactory
to lender in its sole discretion:

 

(a)
                       This
Amendment duly executed by Borrower.

 

(b)
                       The
Commitment Two Warrant has been issued to Lender duly executed by Borrower.

 

(c)
                       Without
limiting the foregoing or Lender’s rights or Borrower’s obligations under the
Agreement, such consents, amendments, filings, recordations, or other documents
from any persons or entities necessary to maintain the perfection and priority
of Lender’s security interest in the Collateral, in form and substance
satisfactory to Lender in its sole discretion.

 

(d)
                       A
good standing certificate from Borrower’s state of incorporation or formation
and the state in which Borrower’s principal place of business is located,
together with certificates of the applicable governmental authorities stating
that Borrower is in compliance with the franchise tax laws of each such state,
each dated as of a recent date.

 

(e)
                       All
necessary consents of shareholders, members, and other third parties with
respect to the execution, delivery and performance of this Agreement, Amendment
05, the Commitment Two Warrant, and the other Loan Documents.

 

(f)
                         Borrower
shall have satisfied all the conditions set forth in Section 3.1 and 3.2
of this Agreement.

 

The following new Section 4.5 shall be added to the
Agreement:

 

4.5                             Certain Equipment
Collateral. Except as provided in clause (c) below, the Collateral shall
not include the Financed Equipment (the “GECC
Financed Equipment”)  securing
the Indebtedness incurred by Borrower in favor of General Electric Capital
Corporation (“GECC”)  in connection with that certain Master
Security Agreement dated as of August 24, 2005 between GECC and Borrower (“GECC Indebtedness”) in an amount not to
exceed $3,000,000; provided, that (a) the GECC Indebtedness shall be
included in, and shall not exceed, the maximum amount for equipment financing set
forth in clause (v) of the definition of “Permitted Liens”, (b) such exception
to the Collateral is only to the extent that GECC has a security interest in
such Financed Equipment, and (c) such Financed Equipment shall automatically
become a part of the Collateral concurrent with the release by GECC of its
security interest in the GECC Financed Equipment. To the extent that Lender
shall have had a security interest in GECC Financed Equipment, Lender’s
security interest in such Financed Equipment shall be automatically released,
but only under the terms and to the extent set forth in clause (v) of the
definition of “Permitted Liens” and this Section
4.5.

 

The following new Section 7.10 shall be added to the
Agreement:

 

7.10                      Deposit and Securities Accounts.
Maintain any deposit accounts or accounts holding securities owned by Borrower
except accounts in which Lender has obtained a perfected first priority
security interest. Notwithstanding the foregoing, Lender’s security interest
shall be subordinate to that of Comerica (i) in that certain deposit account
#385107379682 held with Comerica Bank as security for a line of credit related
to corporate purchasing credit cards; provided, such account shall not exceed
$150,000 and (ii) in Borrower’s account #1892765692 at Comerica

 

3

 

supporting letter of
credit #596267-43 issued to Biomed Realty Trust, Inc. in conjunction with
Borrower’s real property lease; provided, such account and letter of credit
shall not exceed $921,264.

 

IV.                              Additional
Terms and Conditions

 

(a)                                             Further
Conditions. The following are conditions precedent to Lender’s obligations
hereunder, without delivery and performance of which to Lender’s satisfaction,
the original payment terms of the Loan Documents and the Promissory Notes shall
remain in full force and effect, unamended hereby, and Commitment Two will be
automatically cancelled:

 

(i)                                                Borrower
shall deliver an Incumbency Certificate, certified by responsible officers of
Borrower in the form attached hereto as Exhibit E-1,
and attachments thereto including the resolutions adopted by
Borrower’s board of directors authorizing the execution and delivery of this
Amendment No. 05 and the other documents referred to in this Amendment and the
performance by Borrower of its obligations under such documents.

 

(ii)                                             Borrower
shall execute and deliver all other documents, as Lender shall have reasonably
requested prior to the execution by Borrower and Lender of this Amendment.

 

(iii)                                          Borrower
shall pay all Lenders Expenses for the preparation and negotiation of this
Amendment No. 05, up to a maximum of $15,000.

 

(b)                                            Representations
and Warranties of Borrower. Borrower reaffirms the representations and
warranties made to Lender in the Agreement as of the date hereof as though
fully set forth herein. Borrower further warrants and represents, as a
significant material inducement to Lender to enter hereinto, that: (i) no
Events of Default have occurred that have not been disclosed to Lender by
Borrower in writing; (ii) it is not and has no reason to believe it may be
named as a party to any judicial or administrative proceeding, litigation or
arbitration, and has not received any communication from any person or entity
(whether private or governmental) threatening or indicating the same, except as
previously disclosed to Lender in writing; and (iii) it is in full compliance
with Section 7.10 of the Agreement, as amended.

 

(c)                                             No
Control. Borrower warrants and represents, as a significant material
inducement to Lender to enter hereinto, that none of Lender nor any affiliate,
officer, director, employee, agent, or attorney of Lender, have at any time,
from Borrower’s date of formation through to the date hereof, (i) exercised
management or other control over the Borrower, (ii) exercised undue influence
over Borrower or any of its officers, employees or directors, (iii) made any
representation or warranty, express or implied, to any party on behalf of
Borrower, (iv) entered into any joint venture, agency relationship, employment
relationship, or partnership with Borrower, (v) directed or instructed Borrower
on the manner, method, amount, or identity of payee of any payment made to any
creditor of Borrower, and further, Borrower warrants and represents that by entering
hereinto with Lender has not, are not and will not have engaged in any of the
foregoing.

 

V.                                  Integration Clause. This
Amendment represents and documents the entirety of the agreement and
understanding of the parties hereto with respect to its subject matter. All
prior understandings, whether oral or written, other than the Financing
Documents, are hereby merged hereinto. NONE
OF THE AGREEMENT OR THIS AMENDMENT MAY BE MODIFIED EXCEPT BY A WRITING SIGNED
BY LENDER AND BORROWER. Each provision hereof shall be severable
from every other provision when determining its legal en- forceability such
that Lender’s rights and remedies under this Amendment and the Agreement may be
enforced to the maximum extent permitted under applicable law. This Amendment
shall be binding upon, and inure to the benefit of, each party’s respective
permitted successors and assigns. This Amendment may be executed in counterpart
originals, all of which, when taken together, shall constitute one and the same
original document. No provision of any other document between Lender and
Borrower shall limit the effectiveness hereof or the rights and remedies of
Lender against Borrower. In the event of any contradiction or inconsistency
among the terms and conditions of this Amendment or the Agreement the
interpretation most favorable to the interests of Lender shall prevail.

 

4

 

Except as amended hereby,
the Agreement remains unmodified and unchanged.

 

	
  BORROWER:

  	
  LENDER:

  
	
   

  	
   

  
	
  ARYX THERAPEUTICS, INC.

  	
  LIGHTHOUSE CAPITAL PARTNERS V, L.P.

  
	
   

  	
   

  
	
  By:

  	
   /s/ Paul Goddard

  	
   

  	
  By:

  	
  LIGHTHOUSE MANAGEMENT

  
	
   

  	
   

  	
  PARTNERS V, L.L.C., its general partner

  
	
  Name:

  	
   Paul Goddard

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   CEO

  	
   

  	
  By:

  	
  /s/ Thomas Conneely

  
	
   

  	
   

  
	
   

  	
  Name:

  	
  Thomas Conneely

  
	
   

  	
   

  
	
   

  	
  Title:

  	
     Vice President

  
							

 

5

 

EXHIBIT
B-1

 

(COMMITMENT TWO)

 

$          

 

SECURED PROMISSORY NOTE

 

This SECURED PROMISSORY NOTE (this “Note”)
is made           ,
by ARYx THERAPEUTICS,
INC.  (“Borrower”)  in favor of LIGHTHOUSE CAPITAL PARTNERS V, L.P. (collectively
with its assigns, “Lender”),  and its assigns (collectively, “Holder”) with reference to the following:

 

FOR
VALUE RECEIVED, Borrower promises
to pay in lawful money of the United States, to the order of Lender, at 500
Drake’s Landing Road, Greenbrae, California 94904, or such other place as
Lender may from time to time designate (“Lender’s
Office”),  the sum of $        
plus all other monies advanced under or owing on account of the Advance
evidenced hereby under that certain Loan and Security Agreement No. 4521
between Borrower and Lender dated March 28, 2005, as amended (the “Loan Agreement”),  including interest on the unpaid balance
of the Advance at the Basic Rate accruing from the Funding Date, and all other
amounts due or to become due hereunder according to the terms hereof.
Capitalized terms used and not otherwise defined herein are defined in the Loan
Agreement.

 

“Basic
Rate” means a per annum rate
of interest equal to the higher of 7.75% or the Prime Rate quoted in the
western edition of the Wall Street Journal on the Funding Date plus 200 basis
points. The Basic Rate shall be fixed as of the Loan Commencement Date.

 

“Final
Payment” means 7.5% of the original principal amount of this
Note.

 

“Loan
Commencement Date” for this Note means October 1, 2008.

 

“Maturity
Date” means September 30, 2011, or if earlier, the date of
prepayment under the Note.

 

“Payment Factor” means
3.18908%, subject to adjustments in the Basic Rate in the event the Prime Rate
is greater than 7.75% on the date of determination.

 

“Prepayment
Fee” means 3% of the outstanding principal amount being
prepaid.

 

“Repayment
Perio" means the period beginning on the Loan
Commencement Date and continuing for 36 calendar months.

 

1.
                                   Repayment. Borrower shall repay the
principal and interest thereupon will be paid as follows:

 

a.
                Scheduled Payments.
From and after the Loan Commencement Date, Borrower shall make equal amortizing
payments of principal and interest in advance (collectively, “Scheduled Payments”) on the first day of
each month during the Repayment Period (each a “Payment
Date”),  in an amount
equal to the Payment Factor multiplied by the original principal amount
of the Advance. In addition, all unpaid principal and accrued interest,
together with all Lenders Expenses associated with the Advance and this Note
shall be due and payable in full on the Maturity Date.

 

b.
                Interim Payments.
In addition to the Scheduled Payments, Borrower shall pay to Lender, monthly in
advance, an amount (the “Interim Payment”)
equal to accrued interest on the aggregate principal amount of this Note
calculated at the Basic Rate from the Funding Date (and thereafter recalculated
on the first business day of each calendar month during which an Interim
Payment is due), until the Loan Commencement Date with respect to this Note.

 

c.
                Final Payment.
On the Maturity Date, Borrower shall pay, in addition to all unpaid principal
and interest due hereunder, the Final Payment.

 

1

 

2.                                    Interest.
Interest not paid when due will, to the maximum extent permitted under
applicable law, become part of principal, at Lender’s option, and thereafter
bear like interest as principal. All Obligations due not paid when due shall
bear interest at the Default Rate unless waived in writing by Lender. All
amounts paid hereunder including principal, interest or fees and expenses will
be applied in Lender’s discretion and as provided in the Loan Agreement.

 

3.             Prepayment.

 

a.
                                                 Mandatory
Prepayment Upon Acceleration. If this Note is accelerated following the
occurrence of an Event of Default or otherwise, then Borrower shall immediately
pay to Lender (i) all unpaid Scheduled Payments due before the date of
prepayment, (ii) the outstanding principal amount of the Note, (iii) the Final
Payment, (iv) the Prepayment Fee, and (v) all other sums, if any, that shall
have become due and payable hereunder with respect to this Note.

 

b.
                                                 Voluntary
Prepayment. Borrower may voluntarily prepay all of the principal due under
this Note, provided that each of
the following conditions is satisfied: Borrower pays to Lender (i) all unpaid
Scheduled Payments due before the date of prepayment, (ii) the outstanding
principal amount of this Note and any unpaid accrued interest, (iii) the Final
Payment, (iv) the Prepayment Fee, and (v) all other sums, if any, that shall
have become due and payable hereunder with respect to this Note.

 

c.
                                                 No
Other Prepayment. Borrower may not prepay this Note except described
herein.

 

4.
                                   Collateral. This Note is secured by the
Collateral.

 

5.                                    Waivers.
Borrower, and all guarantors and endorsers of this Note, regardless of the
time, order or place of signing, hereby waive notice, demand, presentment,
protest, and notices of every kind, presentment for the purpose of accelerating
maturity, diligence in collection, and, to the fullest extent permitted by law,
all rights to plead any statute of limitations as a defense to any action on
this Note.

 

6.                                    Choice of Law;
Venue.  THIS NOTE SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
CALIFORNIA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF BORROWER
AND LENDER HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND
FEDERAL COURTS LOCATED IN THE CITY AND COUNTY OF SAN FRANCISCO, STATE OF
CALIFORNIA. BORROWER AND LENDER EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
NOTE. EACH PARTY FURTHER WAIVES ANY RIGHT TO CONSOLIDATE ANY ACTION IN WHICH A
JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT
BE OR HAS NOT BEEN WAIVED.

 

7.                                    Miscellaneous.  THIS NOTE MAY BE MODIFIED ONLY BY A WRITING
SIGNED BY BORROWER AND LENDER. Each provision hereof is severable from
every other provision hereof and of the Loan Agreement when determining its
legal enforceability. Sections and subsections are titled for convenience, and
not for construction. “Hereof,” “herein,” “hereunder,” and similar words refer
to this Note in its entirety. “Or” is not necessarily exclusive. “Including” is
not limiting. The terms and conditions hereof inure to the benefit of and are
binding upon the parties’ respective permitted successors and assigns. This
Note is subject to all the terms and conditions of the Loan Agreement.

 

2

 

IN
WITNESS WHEREOF, Borrower has caused this Note to be executed by a duly
authorized officer as of the day and year first above written.

 

 

	
   

  	
   

  	
  ARYx THERAPEUTICS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Paul
  Goddard

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
     Chief
  Executive Officer

  
						

 

3

 

EXHIBIT C-1

 

COMMITMENT TWO WARRANT

 

THIS WARRANT HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”),  OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE
SOLD OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS IN ACCORDANCE WITH THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS OR SOME OTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS IS
AVAILABLE WITH RESPECT THERETO.

 

PREFERRED
STOCK PURCHASE WARRANT

 

 

	
  Warrant
  No.      

  	
  Number of
  Shares: TBD

  
	
   

  	
  Series E
  Preferred Stock

  

ARYx THERAPEUTICS,
INC.

 

Effective as of October 19, 2007

 

Void after October 19, 2014

 

1.
                                                Issuance.
This Preferred Stock Purchase Warrant (the “Warrant”)  is issued to LIGHTHOUSE  CAPITAL
PARTNERS V, L.P. (the “Holder”)  by ARYx
THERAPEUTICS, INC.,  a Delaware corporation (hereinafter
with its successors called the “Company”).

 

2.
                                                Purchase
Price; Number of Shares.

 

(a)
                                            The
registered holder of this Warrant, commencing on the date hereof, is entitled
upon surrender of this Warrant with the subscription form annexed hereto duly
executed, at the principal office of the Company, to purchase from the Company,
at a price per share of $1.80 (the “Purchase
Price”),  250,000
(before giving effect to a six-for-one reverse stock split of the Company’s
Preferred Stock to be effected in October 2007) fully paid and nonassessable
shares of the Company’s Series E Preferred Stock (the “Exercise Quantity (the “Preferred Stock”).

 

(b)
                                            The
Exercise Quantity shall automatically increase by an amount equal to 5% of the
Aggregate Advances under Commitment Two of the Loan Agreement divided by the
Purchase Price.

 

In addition to other
terms which may be defined herein, the following terms, as used in this
Warrant, shall have the following meanings:

 

(i)
                                              “Aggregate Advances” means the aggregate
dollar amount of all Advances made under Commitment Two of the Loan Agreement, whether
such Advances are outstanding or prepaid, at the time of any scheduled
adjustment to the Exercise Quantity.

 

(i)                      “Loan Agreement” means that certain Loan
and Security Agreement No. 4521 dated March 28, 2005 between the Company and
Lighthouse Capital Partners V, L.P., as amended.

 

Any term not
defined herein shall have the meaning as set forth in the Loan Agreement.

 

Until such
time as this Warrant is exercised in full or expires, the Purchase Price and
the securities issuable upon exercise of this Warrant are subject to adjustment
as hereinafter provided. The person or persons in whose name or names any
certificate representing shares of Preferred Stock is issued hereunder shall be
deemed to have become the holder of record of the shares represented thereby as
at the close of business on the date this Warrant is exercised with respect to
such shares, whether or not the transfer books of the Company shall be closed.

 

1

 

3.
                                                Payment
of Purchase Price. The Purchase Price may be paid (i) in cash or by check,
(ii) by the surrender by the Holder to the Company of any promissory notes or
other obligations issued by the Company, with all such notes and obligations so
surrendered being credited against the Purchase Price in an amount equal to the
principal amount thereof plus accrued interest to the date of surrender, or
(iii) by any combination of the foregoing.

 

4.
                                                Net
Issue Election. The Holder may elect to receive, without the payment by the
Holder of any additional consideration, shares of Preferred Stock equal to the
value of this Warrant or any portion hereof by the surrender of this Warrant or
such portion to the Company, with the net issue election notice annexed hereto
duly executed, at the principal office of the Company. Thereupon, the Company
shall issue to the Holder such number of fully paid and nonassessable shares of
Preferred Stock as is computed using the following formula:

 

X=  Y(A-B)

   A

	
  where: 

  	
  X = 

  	
   

  	
  the number of shares of Preferred Stock to be
  issued to the Holder pursuant to this Section 4.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Y = 

  	
   

  	
  the number of shares of Preferred Stock covered by
  this Warrant in respect of which the net issue election is made pursuant to
  this Section 4.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  A = 

  	
   

  	
  the Fair Market Value (defined below) of one share
  of Preferred Stock, as determined at the time the net issue election is made
  pursuant to this Section 4.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  B = 

  	
   

  	
  the Purchase Price in effect under this Warrant at
  the time the net issue election is made pursuant to this Section 4.

  

 

“Fair
Market Value” of a share of Preferred Stock (or fully paid
and nonassessable shares of the Company’s common stock (the “Common Stock”)  if the Preferred Stock has been automatically converted
into Common Stock) as of the date that the net issue election is made (the “Determination Date”)  shall mean:

 

(i)     If the net issue election is made in
connection with and contingent upon the closing of the sale of the Company’s
Common Stock to the public in a public offering pursuant to a Registration
Statement under the 1933 Act (a “Public
Offering”),  and if the
Company’s Registration Statement relating to such Public Offering (“Registration Statement”)  has been declared effective by the
Securities and Exchange Commission, then the initial “Price to Public” specified
in the final prospectus with respect to such offering multiplied by the number
of shares of Common Stock into which each share of Preferred Stock is then
convertible.

 

(ii)    If the net issue election is not made
in connection with and contingent upon a Public Offering, then as follows:

 

(a)         If traded on a securities exchange
or the Nasdaq National Market, the fair market value of the Common Stock shall
be deemed to be the average of the closing or last reported sale prices of the
Common Stock on such exchange or market over the five day period ending five
trading days prior to the Determination Date, and the fair market value of the
Preferred Stock shall be deemed to be such fair market value of the Common
Stock multiplied by the number of shares of Common Stock into which each share
of Preferred Stock is then convertible;

 

(b)         If otherwise traded in an
over-the-counter market, the fair market value of the Common Stock shall be
deemed to be the average of the closing ask prices of the Common Stock over the
five day period ending five trading days prior to the Determination Date, and
the fair market value of the Preferred Stock shall be deemed to be such fair
market value of the Common Stock multiplied by the number of shares of Common
Stock into which each share of Preferred Stock is then convertible; and

 

(c)         If there is no public market for
the Common Stock, then fair market value shall be determined in good faith by
the Company’s Board of Directors.

 

2

 

5.
                Partial Exercise. This
Warrant may be exercised in part, and the Holder shall be entitled to receive a
new warrant, which shall be dated as of the date of this Warrant, covering the
number of shares in respect of which this Warrant shall not have been
exercised.

 

6.
                Fractional Shares. In
no event shall any fractional share of Preferred Stock be issued upon any
exercise of this Warrant. If, upon exercise of this Warrant in its entirety,
the Holder would, except as provided in this Section
6, be entitled to receive a fractional share of Preferred Stock,
then the Company shall, in lieu of issuance of any fractional share, pay the
Holder otherwise entitled to such fraction a sum in cash equal to the product
resulting from multiplying the then current Fair Market Value of one share of
Preferred Stock by such fraction.

 

7.
                Expiration Date; Automatic
Exercise. This Warrant shall expire at the earliest to occur
of (i) the close of business on October 19, 2014; or (ii) the effective date of
a Merger as defined below, unless otherwise assumed per the language below (the
“Expiration Date”)  and shall be void thereafter.

 

“Merger”
means: (i) a sale of all or substantially all of the
Company’s assets to an Unafflliated Entity (as defined below), or (ii) the
merger, consolidation or acquisition of the Company with, into or by an
Unaffiliated Entity (other than a merger or consolidation for the principle
purpose of changing the domicile of the Company or a bona fide round of
preferred stock equity financing), the result of which is that stockholders of
the Company immediately prior to the merger, consolidation or acquisition do
not own or control more than 50% of the voting power of the surviving entity
immediately following such merger, consolidation or acquisition. “Unaffiliated Entity” means any entity
that is owned or controlled by parties who own less than 20% of the combined
voting power of the voting securities of the Company immediately prior to such
merger, consolidation or acquisition. Notwithstanding the foregoing, in the
event that any outstanding warrants to purchase preferred equity securities of
the Company are assumed by the successor entity of a Merger (or parent
thereof), this Warrant will be similarly assumed. Notwithstanding anything to
the contrary in this Warrant, if Holder exercises this Warrant after receiving
a notice from the Company of a proposed merger or if the exercise was otherwise
precipitated by such proposed Merger, the Company will hold the exercise
notice, without processing such notice, until immediately prior to the
consummation of the Merger, at which time the exercise notice shall be
processed. If the Merger is terminated, the Holder will have 30 days from the
date the Company gives Holder notice indicating such termination to rescind its
exercise notice, otherwise the exercise notice shall be processed by the
Company as set forth herein. In the event of such rescission, this Warrant will
continue to be exercisable on the same terms and conditions.

 

Notwithstanding the
foregoing, this Warrant shall automatically be deemed to be exercised in full
pursuant to the provisions of Section 4 hereof,
without any further action on behalf of the Holder, immediately prior to the
time this Warrant would otherwise expire pursuant to this Section 7,
unless otherwise assumed per above.

 

8.
                Reserved Shares; Valid
Issuance. The Company covenants that it will at all times
from and after the date hereof reserve and keep available such number of its
authorized shares of Preferred Stock and Common Stock free from all preemptive
or similar rights therein, as will be sufficient to permit, respectively, the
exercise of this Warrant in full and the conversion into shares of Common Stock
of all shares of Preferred Stock receivable upon such exercise. The Company further
covenants that such shares as may be issued pursuant to such exercise and/or
conversion will, upon issuance, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof.

 

9.
                Stock Splits and
Dividends. If after the date hereof the Company shall
subdivide the Preferred Stock, by split-up or otherwise, or combine the
Preferred Stock, or issue additional shares of Preferred Stock in payment of a
stock dividend on the Preferred Stock, the number of shares of Preferred Stock
issuable on the exercise of this Warrant shall forthwith be proportionately
increased in the case of a subdivision or stock dividend, or proportionately
decreased in the case of a combination, and the Purchase Price shall forthwith
be proportionately decreased in the case of a subdivision or stock dividend, or
proportionately increased in the case of a combination.

 

10.
              Adjustments for Diluting
Issuances. The other antidilution rights applicable to the
Preferred Stock and the Common Stock of the Company are set forth in the
Restated Articles of Incorporation, as amended from time to time (the “Certificate”),  a true and complete copy in its current form which is
attached hereto as Exhibit
A. Such rights
shall not be restated, amended or modified in any manner which adversely
affects the Holder differently than the holders of Preferred Stock without such
Holder’s prior written consent. The Company shall

 

3

 

promptly provide the
Holder hereof with any restatement, amendment or modification to the
Certificate promptly after the same has been made.

 

11.
              Mergers and
Reclassifications. Subject to Section 7, if after the date hereof the Company shall enter
into any Reorganization (as hereinafter defined), then, as a condition of such
Reorganization, lawful provisions shall be made, and duly executed documents
evidencing the same from the Company or its successor shall be delivered to the
Holder, so that the Holder shall thereafter have the right to purchase, at a
total price not to exceed that payable upon the exercise of this Warrant in
full, the kind and amount of shares of stock and other securities and property
receivable upon such Reorganization by a holder of the number of shares of
Preferred Stock which might have been purchased by the Holder immediately prior
to such Reorganization, and in any such case appropriate provisions shall be
made with respect to the rights and interest of the Holder to the end that the
provisions hereof (including without limitation, provisions for the adjustment
of the Purchase Price and the number of shares issuable hereunder and the
provisions relating to the net issue election) shall thereafter be applicable
in relation to any shares of stock or other securities and property thereafter
deliverable upon exercise hereof. For the purposes of this Section 11, the term “Reorganization” shall include without
limitation any reclassification, capital reorganization or change of the
Preferred Stock (other than as a result of a subdivision, combination or stock
dividend provided for in Section 9 hereof),
or any consolidation of the Company with, or merger of the Company into,
another corporation or other business organization (other than a merger in
which the Company is the surviving corporation and which does not result in any
reclassification or change of the outstanding Preferred Stock), or any sale or
conveyance to another corporation or other business organization of all or
substantially all of the assets of the Company.

 

12.
              Certificate of Adjustment. Whenever
the Purchase Price is adjusted, as herein provided, the Company shall promptly
deliver to the Holder a certificate of the Company’s chief financial officer
setting forth the Purchase Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment.

 

13.
                                         Notices
of Record Date, Etc. In the event of:

 

(a)     any taking by the Company
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or any right to subscribe for, purchase, sell or otherwise
acquire or dispose of any shares of stock of any class or any other securities
or property, or to receive any other right;

 

(b)    any reclassification of the capital
stock of the Company, capital reorganization of the Company, consolidation or
merger involving the Company, or sale or conveyance of all or substantially all
of its assets; or

 

(c)    any voluntary or involuntary
dissolution, liquidation or winding-up of the Company;

 

then in each such event
the Company will provide or cause to be provided to the Holder a written notice
thereof. Such notice shall be provided at least 10 business days prior to the
date specified in such notice on which any such action is to be taken.

 

14.
              Representations, Warranties
and Covenants.                                           This
Warrant is issued and delivered by the Company and accepted by each Holder on
the basis of the following representations, warranties and covenants made by
the Company:

 

(a)    The Company has all necessary authority
to issue, execute and deliver this Warrant and to perform its obligations
hereunder. This Warrant has been duly authorized issued, executed and delivered
by the Company and is the valid and binding obligation of the Company,
enforceable in accordance with its terms.

 

(b)    The shares of Preferred Stock issuable
upon the exercise of this Warrant have been duly authorized and reserved for
issuance by the Company and, when issued in accordance with the terms hereof,
will be validly issued, fully paid and nonassessable.

 

4

 

(c)    The issuance, execution and delivery of
this Warrant do not, and the issuance of the shares of Preferred Stock upon the
exercise of this Warrant in accordance with the terms hereof will not, (i)
violate or contravene the Company’s Certificate or by-laws, or any law,
statute, regulation, rule, judgment or order applicable to the Company, (ii)
violate, contravene or result in a material breach or default under any
material contract, material agreement or material instrument to which the
Company is a party or by which the Company or any of its assets are bound or
(iii) require the consent or approval of or the filing of any notice or
registration with any person or entity.

 

(d)    As of the date hereof and before giving
effect to a six-for-one reverse stock split of the Company’s Preferred Stock to
be effected in October 2007, the authorized capital stock of the Company
consists of: (i) 95,950,975 shares of Common Stock, of which 7,408,043 shares
are issued and outstanding; (ii) 757,576 shares of Series A Preferred Stock, of
which 757,576 are issued and outstanding shares; (iii) 398,493 shares of Series
B Preferred Stock, of which 398,493 are issued and outstanding shares; (iv)
17,056,099 shares of Series C Preferred Stock, of which 16,958,562 are issued
and outstanding shares; (v) 33,836,857 shares of Series D Preferred Stock, of
which 33,232,629 are issued and outstanding shares; and (vi) 17,000,000 shares
of Series E Preferred Stock, of which 16,910,775 are issued and outstanding
shares. The Company shall provide Holder on the date first written above a
capitalization table summarizing the capitalization of the Company. Upon
request, the Company will provide Holder with a current capitalization table
indicating changes, if any, to the number of outstanding shares of common stock
and preferred stock; provided that Holder shall not make such request more than
once per calendar quarter.

 

15.
              Registration Rights. Upon
receiving the requisite number of written consents required under the Rights
Agreement (as defined below) to amend such agreement, the Company shall grant
to the Holder all the rights of a “Holder” and an “Investor” under the
Company’s Amended and Restated Investors’ Rights Agreement dated as of October      ,
2007 (the “Rights Agreement”),  including, without limitation, the right
to receive financial information and the registration rights contained therein,
so that (i) the shares of Common Stock issuable upon conversion of the shares
of Preferred Stock issuable upon exercise of this Warrant shall be “Registrable Securities,” and (ii) the
Holder shall be a “Holder” and an “Investor” for all purposes of such Rights
Agreement except for the purposes of Section 4 therein, subject to the terms
and conditions set forth in the Rights Agreements.

 

16.
              Amendment. The
terms of this Warrant may be amended, modified or waived only with the written
consent of the Holder and the Company.

 

17.
              Representations and
Covenants of the Holder. This Warrant has been entered into
by the Company in reliance upon the following representations and covenants of
the Holder, which by its execution hereof the Holder hereby confirms:

 

(a)
   Investment Purpose. The
right to acquire Preferred Stock or the Preferred Stock issuable upon exercise
of the Holder’s rights contained herein will be acquired for investment and not
with a view to the sale or distribution of any part thereof, and the Holder has
no present intention of selling or engaging in any public distribution of the
same except pursuant to a registration or exemption.

 

(b)
   Accredited Investor. Holder
is an “accredited investor” within the meaning of the Securities and Exchange Rule
501 of Regulation D, as presently in effect.

 

(c)
   Private Issue. The
Holder understands (i) that the Preferred Stock issuable upon exercise of the
Holder’s rights contained herein is not registered under the 1933 Act or
qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant will be exempt from the registration and
qualifications requirements thereof, and (ii) that the Company’s reliance on
such exemption is predicated on the representations set forth in this Section 17.

 

(d)
   Financial Risk. The
Holder has such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of its investment and has the
ability to bear the economic risks of its investment.

 

5

 

(e)
          Rule 144. The
Holder is aware that neither the Warrant, the Preferred Shares, nor the Common
Stock issuable upon conversion thereof may be sold pursuant to Rule 144 adopted
under the 1933 Act unless certain conditions are met, including, among other
things, the existence of a public market for the shares, the availability of
certain current public information about the Company, the resale following the
required holding period under Rule 144 and the number of shares being sold
during any three month period not exceeding specified limitations. Holder is
aware that the conditions for resale set forth in Rule 144 have not been
satisfied and that the Company presently has no plans to satisfy these conditions
in the foreseeable future.

 

(f)
    Market Stand-Off Agreement.

 

Holder hereby agrees that
Holder shall not, without the prior written consent of the managing
underwriters, sell or otherwise transfer or dispose of any Common Stock (or
other securities) of the Company held by Holder immediately prior to the
effective date of the registration statement (other than those included in the
registration) for a period specified by the representative of the underwriters
of Common Stock (or other securities) of the Company not to exceed one hundred
eighty (180) days following the effective date of a registration statement of
the Company filed under the Securities Act; provided,
that:

 

(i)                        such
agreement shall apply only to the Company’s Public Offering; and

 

(ii)                     all officers,
directors and one percent (1%) or greater shareholders of the Company are
subject to similar agreements.

 

Holder agrees to
execute and deliver such other agreements as may be reasonably requested by the
Company or the underwriter which are consistent with the foregoing or which are
necessary to give further effect thereto. The obligations described in this Section 17(f) shall not apply to a
registration relating solely to employee benefit plans on Form S-l or Form S-8
or similar forms that may be promulgated in the future, or a registration
relating solely to a Commission Rule 145 transaction on Form S-4 or similar
forms that may be promulgated in the future. The Company may impose
stop-transfer instructions with respect to the shares of Common Stock (or other
securities) subject to the foregoing restriction until the end of said one
hundred eighty (180) day period.

 

18.
              Notices, Transfers, Etc.

 

(a)
   Any notice or written
communication required or permitted to be given to the Holder may be given by
certified mail or delivered to the Holder at the address most recently provided
by the Holder to the Company.

 

(b)    Subject to compliance with applicable
federal and state securities laws and the transfer restrictions set forth in
Section 2.1 of the Rights Agreement, this Warrant may be transferred by the
Holder with respect to any or all of the shares purchasable hereunder. Upon
surrender of this Warrant to the Company, together with the assignment notice
annexed hereto duly executed, for transfer of this Warrant as an entirety by
the Holder, the Company shall issue a new warrant of the same denomination to
the assignee. Upon surrender of this Warrant to the Company, together with the
assignment hereof properly endorsed, by the Holder for transfer with respect to
a portion of the shares of Preferred Stock purchasable hereunder, the Company
shall issue a new warrant to the assignee, in such denomination as shall be
requested by the Holder hereof, and shall issue to such Holder a new warrant
covering the number of shares in respect of which this Warrant shall not have
been transferred.

 

(c)    In case this Warrant shall be
mutilated, lost, stolen or destroyed, the Company shall issue a new warrant of
like tenor and denomination and deliver the same (i) in exchange and
substitution for and upon surrender and cancellation of any mutilated Warrant,
or (ii) in lieu of any Warrant lost, stolen or destroyed, upon receipt of an
affidavit of the Holder or other evidence reasonably satisfactory to the
Company of the loss, theft or destruction of such Warrant

 

19.
              No Impairment. The
Company will not, by amendment of its Certificate or through any
reclassification, capital reorganization, consolidation, merger, sale or
conveyance of assets, dissolution, liquidation, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance of
performance of any

 

6

 

of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder. Notwithstanding the
foregoing, nothing in this Section 19 shall
prohibit the Company from amending its Certificate or taking any other action
set forth above with the requisite consent of the shareholders and the Board of
Directors, so long as such amendment or action does not affect the rights
granted to Holder in a manner differently than the holders of the Preferred
Stock.

 

20.
              Governing Law. The
provisions and terms of this Warrant shall be governed by and construed in
accordance with the internal laws of the State of California without giving
effect to its principles regarding conflicts of laws.

 

21.
              Successors and Assigns. This
Warrant shall be binding upon the Company’s successors and assigns and shall
inure to the benefit of the Holder’s successors, legal representatives and
permitted assigns.

 

22.
              Business Days. If
the last or appointed day for the taking of any action required or the
expiration of any rights granted herein shall be a Saturday or Sunday or a
legal holiday in California, then such action may be taken or right may be
exercised on the next succeeding day which is not a Saturday or Sunday or such a
legal holiday.

 

23.
              Qualifying Public Offering. If
the Company shall effect a firm commitment underwritten public offering of
shares of Common Stock which results in the conversion of the Preferred Stock
into Common Stock pursuant to the Company’s Certificate in effect immediately
prior to such offering, then, effective upon such conversion, this Warrant
shall change from the right to purchase shares of Preferred Stock to the right
to purchase shares of Common Stock, and the Holder shall thereupon have the
right to purchase, at a total price equal to that payable upon the exercise of
this Warrant in full, the number of shares of Common Stock which would have
been receivable by the Holder upon the exercise of this Warrant for shares of
Preferred Stock immediately prior to such conversion of such shares of
Preferred Stock into shares of Common Stock, and in such event appropriate
provisions shall be made with respect to the rights and interest of the Holder
to the end that the provisions hereof (including, without limitation, the
provisions for the adjustment of the Purchase Price and of the number of shares
purchasable upon exercise of this Warrant and the provisions relating to the
net issue election) shall thereafter be applicable to any shares of Common Stock
deliverable upon the exercise hereof.

 

24.
              Value. The
Company and the Holder agree that the value of this Warrant on the date of
grant is $100.

 

7

 

25.
              No Stockholder Rights. This
Warrant in and of itself shall not entitle the Holder to any voting rights or
other rights as a stockholder of the Company.

 

	
   

  	
  ARYx THERAPEUTICS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
					

 

Accepted and Agreed;

 

	
  Lighthouse Capital Partners V, L.P.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By: 

  	
  Lighthouse
  Management Partners V, L.L.C.

  its general partner

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  	
   

  
										

 

8

 

Subscription

 

To:

Date:

 

The undersigned hereby
subscribes for                           shares
of Preferred Stock covered by this Warrant. The certificate(s) for such shares
shall be issued in the name of the undersigned or as otherwise indicated below:

 

	
   

  	
   

  	
   

  	
   

  
	
  Signature

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Name for Registration

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Mailing Address

  	
   

  	
   

  	
   

  

 

1

 

Net Issue Election Notice

 

	
  To:

  	
   

  	
   

  	
  Date:

  	
   

  

 

The undersigned hereby
elects under Section 4 to
surrender the right to purchase shares of Preferred Stock pursuant to this
Warrant. The certificate(s) for such shares issuable upon such net issue
election shall be issued in the name of the undersigned or as otherwise
indicated below:

 

	
   

  	
   

  	
   

  	
   

  
	
  Signature

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Name for Registration

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Mailing Address

  	
   

  	
   

  	
   

  

 

1

 

Assignment

 

For value received                                                                                                        hereby
sells, assigns and transfers unto

 

[Please print or
typewrite name and address of Assignee]

 

the within Warrant, and
does hereby irrevocably constitute and appoint                                       its
attorney to transfer the within Warrant on the books of the within named
Company with full power of substitution on the premises.

 

	
  Dated:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Signature

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Name for Registration

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  In the Presence of:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  

 

1

 

Exhibit A

 

Amended and Restated Articles of Incorporation

 

See attached pages.

 

2

 

Exhibit D-1

 

Notice of Borrowing

 

                   ,         

 

Lighthouse Capital
Partners V, L.P.

500 Drake’s Landing Road

Greenbrae, CA 94904-3011

 

Ladies and Gentlemen:

 

Reference is made to the
Loan and Security Agreement No. 4521 dated as of March 28, 2005 (as it has been
and may be amended from time to time, the “Loan
Agreement,” initially capitalized terms used herein as defined
therein), between LIGHTHOUSE
CAPITAL PARTNERS V, L.P. and ARYx THERAPEUTICS, INC. (the “Company”)

 

The undersigned is
the Chief Executive Officer of the Company, and hereby irrevocably requests an
Advance under the Loan Agreement, and in that connection certifies as follows:

 

1.             The amount of the proposed Advance
is $                .
The business day of the proposed Advance is

 

2.             The Loan Commencement Date for this
Advance shall be October 1, 2008.

 

3.             As of this date, no Event of
Default, or event which with notice or the passage of time would constitute an
Event of Default, has occurred and is continuing, or will result from the
making of the proposed Advance, and the representations and warranties of the
Company contained in Section 5 of
the Loan Agreement are true and correct in all material respects.

 

4.             No event that could reasonably be
expected to have a material adverse effect on the ability of Borrower to
fulfill its obligations under the Loan Agreement has occurred since the date of
the most recent financial statements, submitted to you by the Company.

 

The Company agrees to
notify you promptly before the funding of the Advance if any of the matters to
which I have certified above shall not be true and correct on the Borrowing
Date.

 

 

	
   

  	
   

  	
  Very truly yours,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARYx Therapeutics, Inc.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
								

 

1

 

Exhibit E-1

 

Incumbency
Certificate

 

The undersigned,                   ,
hereby certifies that:

 

1.             He is the duly
elected and acting Chief Financial Officer of ARYX THERAPEUTICS, INC., a Delaware corporation (the “Company”).

 

2.             That on the date
hereof, each person listed below holds the office in the Company indicated
opposite his or her name and that the signature appearing thereon is the
genuine signature of each such person:

 

	
  NAME

  	
   

  	
  OFFICE

  	
   

  	
  SIGNATURE

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

3.             Attached hereto
as Exhibit A  is a true and correct copy of the
Certificate of Incorporation of the Company, as amended, as in effect as of the
date hereof.

 

4.             Attached hereto
as Exhibit B  is a true and correct copy of the Bylaws
of the Company, as amended, as in effect as of the date hereof.

 

5.             Attached hereto
as Exhibit C  is a copy of the resolutions of the Board
of Directors of the Company authorizing and approving the Company’s execution,
delivery and performance of an amendment to the existing loan facility with
Lighthouse Capital Partners V, L.P.

 

IN WITNESS WHEREOF, the
undersigned has executed this Incumbency Certificate on October       ,
2007.

 

 

	
   

  	
   

  	
   

  	
  Aryx therapeutics, inc.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Title:

  	
  Chief Financial Officer

  	
   

  
										

 

I,           ,
the President Chief Executive Officer and Chairman of the Company, do hereby
certify that              is
the duly qualified, elected and acting Chief Financial Officer of the Company
and that the above signature is his genuine signature.

 

IN WITNESS WHEREOF, the
undersigned has executed and delivered this Officer’s Certificate on October    ,
2007.

 

	
   

  	
   

  	
   

  	
  Aryx therapeutics, inc.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Title:

  	
   

  	
   

  
										

 

1Exhibit 4.2

 

FINAL

 

EXPRESSION DIAGNOSTICS, INC.

 

 

FIFTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.

  	
  Information and Other Rights

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.1

  	
  Annual Financial Statements

  	
   

  	
  1

  
	
   

  	
  1.2

  	
  Quarterly Financial Statements

  	
   

  	
  2

  
	
   

  	
  1.3

  	
  Annual Budget and Business Plan

  	
   

  	
  2

  
	
   

  	
  1.4

  	
  Additional Information

  	
   

  	
  2

  
	
   

  	
  1.5

  	
  Proprietary Information Agreements

  	
   

  	
  2

  
	
   

  	
  1.6

  	
  Market Stand-Off

  	
   

  	
  2

  
	
   

  	
  1.7

  	
  Independent
  Accountants

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.9

  	
  Transfer
  of Information Rights

  	
   

  	
  3

  
	
   

  	
  1.10

  	
  Termination of Covenants

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  Registration Rights

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.1

  	
  Certain Definitions

  	
   

  	
  3

  
	
   

  	
  2.2

  	
  Demand Registration

  	
   

  	
  4

  
	
   

  	
  2.3

  	
  Piggyback Registration

  	
   

  	
  6

  
	
   

  	
  2.4

  	
  Registration on Form S-3

  	
   

  	
  7

  
	
   

  	
  2.5

  	
  Expenses of Registration

  	
   

  	
  8

  
	
   

  	
  2.6

  	
  Registration Procedures

  	
   

  	
  8

  
	
   

  	
  2.7

  	
  Delay of Registration

  	
   

  	
  10

  
	
   

  	
  2.8

  	
  Indemnification

  	
   

  	
  10

  
	
   

  	
  2.9

  	
  Information by Holder

  	
   

  	
  12

  
	
   

  	
  2.10

  	
  Rule 144 Reporting

  	
   

  	
  12

  
	
   

  	
  2.11

  	
  Transfer of Registration Rights

  	
   

  	
  13

  
	
   

  	
  2.12

  	
  Standoff Agreement

  	
   

  	
  13

  
	
   

  	
  2.13

  	
  Limitation on Subsequent
  Registration Rights

  	
   

  	
  14

  
	
   

  	
  2.14

  	
  Termination of Registration Rights

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  Preemptive Rights

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.1

  	
  General

  	
   

  	
  14

  
	
   

  	
  3.2

  	
  Right of First Refusal

  	
   

  	
  14

  
	
   

  	
  3.3

  	
  Offer After Sale to Third Parties

  	
   

  	
  15

  
	
   

  	
  3.4

  	
  Expiration of Right of First
  Refusal

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  Miscellaneous

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.1

  	
  Waivers and Amendments

  	
   

  	
  16

  
	
   

  	
  4.2

  	
  Notices

  	
   

  	
  16

  
	
   

  	
  4.3

  	
  Descriptive Headings

  	
   

  	
  16

  
	
   

  	
  4.4

  	
  Governing Law

  	
   

  	
  16

  
	
   

  	
  4.5

  	
  Counterparts

  	
   

  	
  16

  
	
   

  	
  4.6

  	
  Expenses

  	
   

  	
  17

  
	
   

  	
  4.7

  	
  Successors and Assigns

  	
   

  	
  17

  
						

 

i

 

	
   

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.8

  	
  Entire Agreement

  	
   

  	
  17

  
	
   

  	
  4.9

  	
  Separability; Severability

  	
   

  	
  17

  
	
   

  	
  4.10

  	
  Stock Splits

  	
   

  	
  17

  
	
   

  	
  4.11

  	
  Aggregation of Stock

  	
   

  	
  17

  

 

ii

 

EXPRESSION DIAGNOSTICS, INC.

 

FIFTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 

THIS FIFTH AMENDED AND
RESTATED INVESTORS’ RIGHTS AGREEMENT (this “Agreement”) is made as of May 7, 2007,
by and among Expression Diagnostics, Inc., a Delaware corporation (the “Company”)
and the undersigned holders of the Company’s Series A Preferred Stock (the “Series
A Preferred”), Series B Preferred Stock (the “Series B Preferred “), Series C
Preferred Stock (the “Series C Preferred”), Series D Preferred Stock (the “Series
D Preferred”), Series E Preferred Stock (the “Series E Preferred”)  and Series F Preferred Stock (the “Series F
Preferred”) listed on Exhibit A hereto (each an “Investor”, and
collectively, the “Investors”).

 

Recitals

 

WHEREAS, the Company, and
holders of Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred and Series E Preferred have entered into that certain Fourth Amended
and Restated Investors’ Rights Agreement, dated as of December 9, 2005 (the “Existing
Agreement”);

 

WHEREAS, the Company and
certain Investors are entering into that certain Series F Preferred Stock
Purchase Agreement (the “Series F Agreement”) of even date herewith;

 

WHEREAS, certain
Investors desire to obtain certain rights (“Registration Rights”) regarding
registration of the Company’s securities under the Securities Act of 1933, as
amended (the “Securities Act”), certain preemptive rights regarding the Company’s
equity offerings (“Preemptive Rights”), and certain rights to information (“Information
Rights”); and

 

WHEREAS, as a condition
of the initial closing of the financing provided for in the Series F Agreement,
and as a material inducement to the additional financing of the Company
provided for therein, the Company and the Investors desire to amend and restate
in full the Existing Agreement, in the form set forth herein.

 

NOW, THEREFORE, the
parties agree as follows:

 

1.                                       Information and Other Rights.

 

1.1                                 Annual
Financial Statements.  So long as an Investor (and its
affiliates) holds at least 700,000 shares (as adjusted for stock splits,
reverse stock splits, stock dividends, recapitalizations and similar events) of
the Company’s Preferred Stock (including any shares of Common Stock issued or
issuable upon conversion of Preferred Stock) (such an Investor, a “Major
Investor”), the Company will provide to such Major Investor as soon as
practicable after the end of each fiscal year, and in any event within 90 days
thereafter, a consolidated balance sheet of the Company and its subsidiaries,
if any, as of the end of such fiscal year, and consolidated statements of
income, stockholders’ equity and cash flows of the Company and its
subsidiaries, if any, for such year, prepared in accordance with generally
accepted accounting principles (“GAAP”) and setting forth in each case in
comparative form the figures for the

 

 

previous fiscal year, all
in reasonable detail and all audited by a nationally recognized public
accounting firm.

 

1.2                                 Quarterly
Financial Statements.  The Company shall provide each Major
Investor as soon as practicable after the end of each quarter, and in any event
within 30 days thereafter, a consolidated balance sheet of the Company and its
subsidiaries, if any, as of the end of each such quarter, consolidated
statements of income, and a consolidated statement of cash flow of the Company
and its subsidiaries for such period and for the current fiscal year to date,
and setting forth in each case in comparative form the figures for
corresponding periods in the previous fiscal year, and setting forth in
comparative form the budgeted figures for such period and for the current
fiscal year then reported, prepared in accordance with GAAP consistently
applied with prior practice for earlier periods (with the exception of
footnotes that may be required by GAAP and provided that the foregoing shall
not restrict the right of the Company to change its accounting principles
consistent with GAAP, if the Board of Directors of the Company (the “Board of
Directors”) determines that it is in the best interest of the Company to do
so), subject to changes resulting from year-end audit adjustments, all in
reasonable detail and signed by the principal financial or accounting officer
of the Company.

 

1.3                                 Annual
Budget and Business Plan.  The Company shall provide each Major
Investor as soon as practicable, but in any event at least thirty (30) days
prior to the end of each fiscal year, a budget and business plan for the next
fiscal year, prepared on a monthly basis, including balance sheets, projected
profit or loss for the year and sources and applications of funds statements
for such months, and as soon as prepared, any other budgets or revised budgets
prepared by the Company.

 

1.4                                 Additional
Information.  The Company will allow each Major Investor to visit
and inspect any of the properties of the Company (upon reasonable advance
notice) and will deliver or provide to such Major Investor with reasonable
promptness, (i) copies of all notices, minutes, consents and the like provided
to the Board of Directors, and (ii) such other information and data, including
access to books, records, officers and accountants, with respect to the Company
and its subsidiaries as any such Major Investor may from time to time
reasonably request; provided, however, that the Company shall not be obligated
to provide any information that it considers in good faith to be a trade secret
or to contain confidential or classified information.

 

1.5                                 Proprietary
Information Agreements.  The Company agrees to require each
employee of the Company to execute a standard Proprietary Information Agreement
and each consultant and advisor of the Company to execute an agreement that
provides for confidential treatment of the Company’s proprietary information
and the assignment of inventions developed during such individual’s
relationship with the Company, as a condition of employment or consulting
relationship or continued employment or consulting relationship, as the case
may be, unless otherwise approved by the Board of Directors.

 

1.6                                 Market
Stand-Off.  The Company hereby covenants and agrees that, except
as otherwise approved by the Company’s Board of Directors, it shall be a
condition of any issuance by the Company to any person or entity of shares of
capital stock of the Company or any options, warrants or other rights to
subscribe to or acquire any capital stock of the

 

2

 

Company, that such person
or entity execute and deliver to the Company a market stand-off agreement in
writing with, at a minimum, substantially similar terms as those set forth in
Section 2.12 (but permitting an extension of the lock-up period for up to 18
days) and covering all shares of capital stock owned by such person or entity
or issuable upon exercise of any options, warrants or other rights to subscribe
for or acquire the Company’s capital stock.

 

1.7                                 Independent Accountants. The
Company will retain independent pubic accountants of recognized national
standing who shall certify the Company’s financial statements at the end of
each fiscal year. In the event the services of the independent public
accountants so selected, or any firm of independent public accountants
hereafter employed by the Company, are terminated, the Company will promptly
notify the Investors and will request the firm of independent public
accountants whose services are terminated to deliver to the Investors a letter
from such firm setting forth the reasons for the termination of their services.
In its notice to the Investors, the Company shall state whether the change of
accountants was recommended or approved by the Board or any committee thereof.
In the event of such termination, the Company will promptly thereafter engage
another firm of independent public accountants of recognized national standing.

 

1.8                                 Transfer of Information Rights. The rights granted Holders under
Article I may be assigned to a transferee or assignee in connection with (i)
any transfer or assignment of Preferred Stock by a Holder of not less than
50,000 shares (or any lesser amount if all of such Holder’s Preferred Stock are
transferred or assigned to a transferee) of Preferred Stock, (ii) any transfer
or assignment of Preferred Stock by a Holder to any subsidiary, parent, member,
affiliate, general partner, limited partner, retired partner, retired member or
shareholder of such Holder or the estate of such constituent partner or
affiliate, or (iii) to any transferee or assignee who is a family member of the
Holder or a trust for the benefit of the Holder or any family member of the
Holder, provided that, with respect to each such transfer or assignment, the
Company be given prior written notice of the transfer and that such transfer
otherwise be effected in accordance with applicable securities laws.

 

1.9                                 Termination
of Covenants.  The rights set forth in this Section 1 shall
terminate and be of no further force or effect upon the closing of a public
offering of the Company’s securities pursuant to an effective registration
statement filed under the Securities Act that results in the automatic
conversion of all of the Company’s Preferred Stock.

 

2.                                       Registration Rights.

 

2.1                                 Certain
Definitions.  As used in this Agreement, the following terms
shall have the following respective meanings:

 

(a)                                  “Commission”
shall mean the Securities and Exchange Commission or any other federal agency
at the time administering the Securities Act.

 

(b)                                 “Holder”
shall mean the Investors holding Registrable Securities or securities
convertible or exercisable into Registrable Securities and any person holding
such securities to whom the rights under this Section 2 have been
transferred in accordance with Section 2.11 hereof.

 

3

 

(c)                                  “Initiating
Holders” shall mean any Holder or Holders who in the aggregate hold at
least 40% of the Registrable Securities.

 

(d)                                 “Participating
Holders” shall mean any Holder or Holders who propose to distribute their
securities through a registration pursuant to this Section 2.

 

(e)                                  “Registrable
Securities” means (i) any shares of Common Stock issued or issuable upon
conversion of Preferred Stock issued by the Company (or Preferred Stock issued
or issuable upon exercise of warrants issued by the Company) and (ii) any
shares of Common Stock of the Company issued or issuable in respect of the
Preferred Stock or other securities issuable pursuant to the conversion of the
Preferred Stock or upon any stock split, stock dividend, recapitalization, or
similar event provided however that shares of Common Stock or other securities
shall only be treated as Registrable Securities for purposes of
Section 2.3 hereof if and so long as they have not been (A) sold to or through
a broker or dealer or underwriter in a public distribution or a public
securities transaction, or (B) transferred in a transaction pursuant to which
the registration rights are not also assigned in accordance with Section 2.11
hereof.

 

(f)                                    The
terms “register,” “registered” and “registration” refer to
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.

 

(g)                                 “Registration
Expenses” shall mean all expenses incurred by the Company in complying with
Sections 2.2, 2.3 and 2.4 hereof, including the reasonable fees (not to exceed
$50,000) of one special counsel to the selling stockholders (but excluding
Selling Expenses).

 

(h)                                 “Restricted
Securities” shall mean the securities of the Company required to bear a
legend indicating that transfer is restricted in the absence of registration.

 

(i)                                     “Securities
Act” shall mean the Securities Act of 1933, as amended, or any similar federal
statute and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time.

 

(j)                                     “Selling
Expenses” shall mean all underwriting discounts, selling commissions and
stock transfer taxes, if any, applicable to the securities registered by the
Holders.

 

2.2                                 Demand
Registration.

 

(a)                                  Request
for Registration. In case the Company shall receive from Initiating Holders
a written request that the Company effect any registration, qualification or
compliance with respect to shares of Registrable Securities with an expected
aggregate offering price to the public of at least $25,000,000, the Company
will  (1) within ten days of the receipt
by the Company of such notice, give written notice of the proposed
registration, qualification or compliance to all other Holders and (2) use its
commercially reasonable best efforts to effect as soon as practicable (but in
any event within 120 days after receipt of the request of the Initiating
Holders) such registration, qualification or compliance (including, without
limitation, appropriate

 

4

 

qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act and any other
governmental requirements or regulations) as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any Holder or Holders joining in
such request as are specified in a written request received by the Company
within 20 days after receipt of such written notice from the Company; provided,
however, that the Company shall not be obligated to take any action to effect
any such registration, qualification or compliance pursuant to this
Section 2.2(a):

 

(i)                                     In
any particular jurisdiction in which the Company would be required to execute a
general consent to service of process in effecting such registration,
qualification or compliance unless the Company is already subject to service in
such jurisdiction and except as may be required by the Securities Act;

 

(ii)                                  Prior
to the earlier of three (3) years following the date of this Agreement or six
months after the effective date of the Company’s first registered public
offering of its securities;

 

(iii)                               During
the period starting with the date 60 days prior to the Company’s good faith
estimate of the date of filing of, and ending on the date six months
immediately following the effective date of, any registration statement
pertaining to securities of the Company (other than a registration of
securities in a Rule 145 transaction, with respect to an employee benefit plan or
with respect to the Company’s first registered public offering of its stock),
provided that the Company is actively employing in good faith all reasonable
efforts to cause such registration statement to become effective;

 

(iv)                              After
the Company has effected two registrations pursuant to this
Section 2.2(a), which registrations have been declared or ordered
effective and the securities offered pursuant to such registrations have been
sold; or

 

(v)                                 If
the Company shall furnish to such Holders a certificate signed by the President
of the Company stating that in the good faith judgment of the Board of
Directors it would be seriously detrimental to the Company or its stockholders
for a registration statement to be filed in the near future, then the Company’s
obligation to use its best efforts to register, qualify or comply under this
Section 2.2 shall be deferred for a period not to exceed 90 days from the
date of receipt of written request from the Initiating Holders; provided,
however, that the Company shall not exercise such right more than once in any
twelve-month period.

 

(b)                                 Underwriting.
In the event that a registration pursuant to this Section 2.2 is for a
registered public offering involving an underwriting, the Company shall so
advise the Holders as part of the notice given pursuant to Section 2.2(a).
In such event, the right of any Holder to registration pursuant to this
Section 2.2 shall be conditioned upon such Holder’s participation in the
underwriting arrangements required by this Section 2.2, and the inclusion
of such Holder’s Registrable Securities in the underwriting to the extent
requested shall be limited to the extent provided herein.

 

5

 

The Company shall,
together with all Participating Holders, enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by the Company and reasonably acceptable to Initiating Holders holding a
majority of Registrable Securities held by all Initiating Holders. Notwithstanding
any other provision of this Section 2.2, if the managing underwriter
advises the Company in writing that marketing factors require a limitation of
the number of shares to be underwritten, then the Company shall so advise all
Holders of Registrable Securities and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all Holders thereof in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities held by such Holders at the
time of filing the registration statement or in such other manner as shall be
agreed to by the Company and Holders of a majority of the Registrable
Securities proposed to be included in such registration; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities, including
securities for the Company’s account (i.e., primary shares), are first entirely
excluded from the underwriting. No Registrable Securities excluded from the
underwriting by reason of the underwriter’s marketing limitation shall be
included in such registration. To facilitate the allocation of shares in
accordance with the above provisions, the Company or the underwriters may round
the number of shares allocated to any Holder to the nearest 100 shares.

 

If any Holder of
Registrable Securities disapproves of the terms of the underwriting, such
Holder may elect to withdraw therefrom by written notice to the Company, the
managing underwriter and the Initiating Holders. The Registrable Securities
and/or other securities so withdrawn shall also be withdrawn from registration,
and such Registrable Securities shall not be transferred in a public
distribution prior to 90 days after the effective date of such registration, or
such other shorter period of time as the underwriters may require. If shares
are withdrawn from registration, the Company shall offer to all persons
retaining the right to include securities in the registration the right to
include additional securities in the registration, with such shares being
allocated among all such Participating Holders in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities held by such Participating
Holders at the time of filing the registration statement.

 

2.3                                 Piggyback
Registration.

 

(a)                                  Notice
of Registration. If at any time or from time to time the Company shall
determine to register any of its securities, either for its own account or the
account of a security holder or holders, other than a registration relating
solely to employee benefit plans, a registration relating solely to a
Commission Rule 145 transaction, or a registration pursuant to Section 2.2
hereof, the Company will (i) promptly give to each Holder written notice
thereof, and (ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made within 15 days after receipt of such written notice from the
Company, by any Holder. Such written requests may include all or a portion of
the Holder’s Registrable Securities.

 

(b)                                 Underwriting.
If the registration of which the Company gives notice is for a registered
public offering involving an underwriting, the Company shall so advise the
Holders as a part of the written notice given pursuant to 2.3(a). In such event
the right of any

 

6

 

Holder to registration
pursuant to 2.3 shall be conditioned upon such Holder’s participation in such
underwriting and the inclusion of Registrable Securities in the underwriting to
the extent provided herein. All Holders proposing to distribute their
securities through such underwriting shall (together with the Company) enter
into an underwriting agreement in customary form with the managing underwriter
selected for such underwriting by the Company. Notwithstanding any other
provision of this Section 2.3, if the managing underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may limit the Registrable Securities and
other securities to be distributed through such underwriting; provided,
however, that, in no event shall any Registrable Securities be so limited
unless all other securities of the Company (other than shares for the Company’s
account (i.e., primary shares)) are excluded in full from such offering;
provided, further, that in no event shall the number of Registrable Securities
included in such registration be reduced to less than 20% of the total number
of securities to be included in such registration except in connection with the
Company’s initial public offering, in which case all Registrable Securities may
be excluded in full. The Company shall so advise all Holders distributing their
securities through such underwriting of such limitation (or exclusion, if
applicable) and the number of shares of Registrable Securities that may be
included in the registration and underwriting shall be allocated (if
applicable) among all such Holders in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities held by such Holders at the
time of filing the registration statement. To facilitate the allocation of
shares in accordance with the above provisions, the Company may round the
number of shares allocated to any Holder or holder to the nearest 100 shares.

 

If any Holder of
Registrable Securities disapproves of the terms of any such underwriting, such
Holder may elect to withdraw therefrom by written notice to the Company and the
managing underwriter. Any securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration, and shall not be
transferred in a public distribution prior to 90 days after the effective date
of the registration statement relating thereto, or such other shorter period of
time as the underwriters may require. If shares are withdrawn from registration,
the Company shall offer to all persons retaining the right to include
securities in the registration the right to include additional securities in
the registration, with such shares being allocated among all such Participating
Holders in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities held by such Participating Holders at the time of filing
the registration statement.

 

(c)                                  Right
to Terminate Registration. The Company shall have the right to terminate or
withdraw any registration initiated by it under this Section 2.3 prior to
the effectiveness of such registration whether or not any Holder has elected to
include securities in such registration. The Registration Expenses of such
withdrawn registration shall be borne by the Company in accordance with
Section 2.5 hereof.

 

2.4                                 Registration
on Form S-3.

 

(a)                                  Request
for Registration. Following the Company’s initial public offering, the
Company shall use its best efforts to become eligible to register offerings of
securities on Commission Form S-3 or its successor form. After the Company has
qualified for the use of Form S-3, Holders of Registrable Securities shall have
the right to request registration on Form S-3 (which request shall be in
writing and shall state the number of shares of

 

7

 

Registrable Securities to
be registered and the intended method of disposition of shares by such
Holders), and upon receiving such request the Company shall use its best
efforts to effect such registration as soon as practicable and in any event
within 120 days of such request. The Company shall not be obligated to take any
action to effect any such registration, qualification or compliance pursuant to
this Section 2.4(a):

 

(i)                                     unless
the Holders requesting registration propose to dispose of Registrable
Securities having an anticipated aggregate price to the public (before
deduction of underwriting discounts and expenses of sale) of at least
$1,000,000;

 

(ii)                                  during
the period starting with the date 60 days prior to the Company’s estimated date
of filing of, and ending on the date three months immediately following the
effective date of, any registration statement pertaining to securities of the
Company (other than a registration of securities in a Rule 145 transaction or
with respect to an employee benefit plan), provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective;

 

(iii)                               more
than twice in any twelve-month period; or

 

(iv)                              if
the Company shall furnish to such Holders a certificate signed by the President
of the Company stating that in the good faith judgment of the Board of
Directors it would be seriously detrimental to the Company or its stockholders
for registration statements to be filed in the near future, then the Company’s
obligation to use its best efforts to file a registration statement under this
Section 2.4 shall be deferred for a period not to exceed 90 days from the
receipt of the request to file such registration by such Holder or Holders;
provided, however, that the Company shall not exercise such right more than
once in any twelve-month period.

 

(b)                                 Underwriting
Procedures. If a registration required under this Section 2.4 is for an
underwritten offering, the provisions of Sections 2.2(b) shall apply.

 

2.5                                 Expenses
of Registration.  All Registration Expenses incurred in
connection with registrations pursuant to Sections 2.2, 2.3 and 2.4 shall be
borne by the Company. All Selling Expenses relating to securities registered on
behalf of the Holders shall be borne by the holders of securities included in
such registration pro rata with the Company and among each other on the basis
of the number of shares so registered.

 

2.6                                 Registration
Procedures.  In the case of each registration, qualification or
compliance effected by the Company pursuant to this Section 2, the Company
will keep each Holder advised in writing as to the initiation of each
registration, qualification and compliance and as to the completion thereof. At
its expense the Company will use its commercially reasonable best efforts to:

 

(a)                                  Prepare
and file with the Commission a registration statement with respect to such
securities and use its best efforts to cause such registration statement to
become and remain effective at least ninety (90) days or until the distribution
described in the Registration Statement has been completed (up to a maximum of
120 days); provided, however, that in the case of any
registration of Registrable Securities on Form S-3 which are intended to

 

8

 

be offered on a
continuous or delayed basis, such period shall be extended, if necessary, to
keep the registration statement effective until all such Registrable Securities
are sold, provided that if Rule 415, or any successor rule under the Securities
Act, permits an offering on a continuous or delayed basis, and provided further
that if applicable rules under the Securities Act governing the obligation to file
a post-effective amendment permit, in lieu of filing a post-effective amendment
which (i) includes any prospectus required by Section 10(a)(3) of the
Securities Act or (ii) reflects facts or events representing a material or
fundamental change in the information set forth in the registration statement,
the incorporation by reference of information required to be included in
(i) and (ii) above shall be contained in periodic reports filed
pursuant to Section 13 or 15(d) of the Exchange Act in the registration
statement;

 

(b)                                 Prepare
and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by
such registration statement.

 

(c)                                  Furnish
to the Participating Holders and to the underwriters of the securities being
registered such reasonable number of copies of the registration statement,
preliminary prospectus, final prospectus and such other documents as they may
reasonably request in order to facilitate the public offering of such
securities.

 

(d)                                 Use
its commercially reasonable best efforts to register and qualify the securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions as shall be reasonably requested by the
Participating Holders, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions, unless the Company is already subject to service in such
jurisdiction and except as may be required by the Securities Act.

 

(e)                                  In
the event of any underwritten public offering, enter into and perform its
obligations under an underwriting agreement, in usual and customary form, with
the managing underwriter of such offering. Each Holder shall also enter into
and perform its obligations under such an agreement.

 

(f)                                    Notify
each Participating Holder at any time when a prospectus relating thereto is
required to be delivered under the Securities Act or upon the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they were
made,  not misleading, in the light of
the circumstances then existing, and, at the request of any Participating
Holder, prepare and furnish to such Participating Holder a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be reasonably
necessary so that, as thereafter delivered to the purchaser of such shares,
such prospectus shall not include 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 or incomplete in light of the
circumstances then existing.

 

9

 

(g)                                 Cause
all securities covered by such registration statement to be listed on each
securities exchange or authorized for quotation on each automated quotation
system on which similar securities issued by the Company are then listed or
authorized for quotation.

 

(h)                                 Provide
a transfer agent and registrar for all Registrable Securities covered by such
registration statement and a CUSIP number for all such Registrable Securities,
in each case not later than the effective date of such registration.

 

(i)                                     Furnish,
at the request of any Participating Holder, on the date that the securities are
delivered to the underwriters for sale in connection with a registration being
sold through underwriters, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Participating
Holders and (ii) a letter dated such date, from the independent certified
public accountants of the Company, in form and substance as is customarily
given by independent certified public accountants to underwriters in an
underwritten public offering, addressed to the underwriters, if any, and to the
Holders requesting registration of Registrable Securities.

 

2.7                                 Delay
of Registration.  No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 2.

 

2.8                                 Indemnification.  In
the event any Registrable Securities are included in a registration statement
under this Section 2:

 

(a)                                  To
the extent permitted by law, the Company will indemnify each Participating
Holder, each of its officers, directors, employees, partners, members,
affiliates, agents and legal counsel, and each person controlling such
Participating Holder within the meaning of Section 15 of the Securities
Act, with respect to which registration, qualification or compliance has been
effected pursuant to this Section 3, and each underwriter, if any, and
each person who controls any underwriter within the meaning of Section 15
of the Securities Act, against all expenses, claims, losses, damages or
liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising out
of or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement, prospectus, offering circular or
other document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by
the Company of the Securities Act or any rule or regulation promulgated under
the Securities Act applicable to the Company in connection with any such
registration, qualification or compliance, and the Company will pay to each
such Participating Holder, each of its officers, directors, partners, and legal
counsel and each person controlling such Participating Holder, each such
underwriter and each person who controls any such underwriter, as incurred, any
legal and any other expenses reasonably incurred in connection with
investigating, preparing, defending or settling any such claim, loss,

 

10

 

damage, liability or
action, provided that the Company will not be liable to a particular
Participating Holder in any such case to the extent that any such claim, loss,
damage, liability or expense arises out of or is based on any untrue statement
or omission or alleged untrue statement or omission, made in reliance upon and
in conformity with written information furnished to the Company by an
instrument duly executed by such Participating Holder  and stated to be specifically for use
therein.

 

(b)                                 To
the extent permitted by law, each Participating Holder, severally and not
jointly, will, if Registrable Securities held by such Participating Holder are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors,
officers, and legal counsel, each underwriter, if any, of the Company’s
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other Participating Holder, each of its officers,
directors, partners and legal counsel and each person controlling such
Participating Holder within the meaning of Section 15 of the Securities
Act, against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, and will pay the Company, such
Participating Holders, such directors, officers, persons, underwriters or
control persons, as incurred any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the
extent, that such untrue statement (or alleged untrue statement) or omission
(or alleged omission) is made in such registration statement, prospectus,
offering circular or other document in reliance upon and in conformity with
written information furnished to the Company in an instrument duly executed by
such Participating Holder and stated to be specifically for use therein. Notwithstanding
the foregoing, the liability of each Holder under this subsection (b)
shall be limited to an amount equal to the net proceeds to each such Holder of
Registrable Securities sold as contemplated herein, unless such liability
resulted from intentional misrepresentation by such Holder. A Holder will not
be required to enter into any agreement or undertaking in connection with any
registration under this Section 2 providing for any indemnification or
contribution on the part of such Holder greater than the Holder’s obligations
under this Section 2.8(b).

 

(c)                                  Each
party entitled to indemnification under this Section 2.8 (the “Indemnified
Party”) shall give notice to the party required to provide indemnification (the
“Indemnifying Party”) promptly after such Indemnified Party has actual
knowledge of any claim as to which indemnity may be sought, and shall permit
the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying Party,
who shall conduct the defense of such claim or litigation, shall be approved by
the Indemnified Party (whose approval shall not unreasonably be withheld), and
the Indemnified Party may participate in such defense at such party’s expense,
and provided further that the failure of any Indemnified Party to give notice
as provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 2 except to the extent that the failure to give such
notice is materially prejudicial to an Indemnifying Party’s ability to defend
such action and provided further, that the Indemnifying Party shall not assume
the defense for matters as to which there is a conflict of interest or separate
and different defenses but shall bear the expense of such defense nevertheless.
No Indemnifying Party, in the defense of any such claim or

 

11

 

litigation, shall, except
with the consent of each Indemnified Party, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party of a
full release from all liability in respect to such claim or litigation.

 

(d)                                 If
the indemnification provided for in this Section 2.8 is held by a court of
competent jurisdiction to be unavailable to an Indemnified Party with respect
to any claim, loss, damage, liability or action referred to therein, then the
Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder,
shall contribute to the amount paid or payable by such Indemnified Party as a
result of such claim, loss, damage, liability or action in such proportion as
is appropriate to reflect the relative fault of the Indemnifying Party on the
one hand and the Indemnified Party on the other in connection with the actions
that resulted in such claims, loss, damage, liability or action, as well as any
other relevant equitable considerations. The relative fault of the Indemnifying
Party and of the Indemnified Party shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact related to
information supplied by the Indemnifying Party or by the Indemnified Party and
the parties’ relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The Company and the Holders
agree that it would not be just and equitable if contribution pursuant to this
Section 2.8(d) were based solely upon the number of entities from whom
contribution was requested or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
Section 2.8(d). Notwithstanding the foregoing, the liability of each
Participating Holder under this subsection (d) shall be limited to an
amount equal to the net proceeds to each such Participating Holder of
Registrable Securities sold as contemplated herein, unless such liability resulted
from intentional misrepresentation by such Holder.

 

(e)                                  The
indemnification obligations of the Company and the Holders under this Section
2.8 shall survive the completion of any offering of Registrable Securities in a
registration statement filed pursuant to this Agreement.

 

2.9                                 Information
by Holder.  It shall be a condition precedent to the obligations
of the Company to take any action pursuant to this Section 2 with respect
to the Registrable Securities of any selling Holder that such holder shall furnish
to the Company such information regarding itself, the Registrable Securities
held by it, and the intended method of disposition of such securities as shall
be required to effect the registration of such Holder’s Registrable Securities.

 

2.10                           Rule
144 Reporting.  With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit
the sale of the Restricted Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to:

 

(a)                                  Make
and keep public information available, as those terms are defined in Rule 144
under the Securities Act, at all times after the date that the Company becomes
subject to the reporting requirements of the Securities Act or the Exchange
Act;

 

12

 

(b)                                 File
with the Commission in a timely manner all reports and other documents required
of the Company under the Securities Act and the Exchange Act (at any time after
it has become subject to such reporting requirements);

 

(c)                                  So
long as an Investor owns any Restricted Securities, furnish upon request, (i) a
written statement by the Company as to its compliance with the reporting
requirements of said Rule 144, and of the Securities Act and the Exchange Act
(at any time after it has become subject to such reporting requirements), (ii)
a copy of the most recent annual or quarterly report of the Company and (iii)
such other reports and documents of the Company and other information in the
possession of or reasonably obtainable by the Company as an Investor may
reasonably request in availing itself of any rule or regulation of the
Commission allowing an Investor to sell any such securities without registration.

 

2.11                           Transfer
of Registration Rights.  The rights granted Holders under this
Section 2 may be assigned (i) to a transferee or assignee in connection with
any transfer or assignment of Registrable Securities by a Holder of not less
than 50,000 shares (or any lesser amount if all of such Holder’s Registrable
Securities are transferred or assigned to a transferee) of Registrable
Securities, or (ii) to any subsidiary, parent, member, affiliate, general
partner, limited partner, retired partner, retired member or shareholder of a
Holder or the estate of such constituent partner or affiliate, or to any
transferee or assignee who is a family member of the Holder or a trust for the
benefit of the Holder or any family member of the Holder, provided that, with respect
to each such transfer or assignment, the Company be given prior written notice
of the transfer, the transferee or assignee agrees in writing to all provisions
contained in this Section 2 and that such transfer otherwise be effected
in accordance with applicable securities laws.

 

2.12                           Standoff
Agreement.  The Holder agrees in connection with the Company’s
initial public offering of the Company’s securities, upon request of the
Company or the underwriters managing any underwritten offering of the Company’s
securities, not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any the Company’s securities (other than
those included in the registration) without the prior written consent of the
Company or such underwriters, as the case may be, during the 180 days beginning
on and after the effective date of such registration statement, provided that
each officer, director and 1% stockholder of the Company shall also have
entered into a 180-day market stand-off agreement. The obligations described in
this Section 2.12 shall not apply to securities purchased in a public
market transaction following the effective date of such registration statement
or to a registration relating solely to employee benefit plans on Form S-1 or
Form S-8 or similar forms that may be promulgated in the future, or a
registration relating solely to a Commission Rule 145 transaction on Form
S-4 or similar forms that may be promulgated in the future. Notwithstanding the
foregoing, if the Company or the managing underwriter releases from the terms
of the foregoing lockup or from any other lockup provision any  share of Common Stock or Preferred Stock held
by any person or entity, the Company shall, within at least 5 days prior to
such release,  immediately so notify all
other Holders, and all other Holders shall automatically upon such release be
released from their respective lockup provided for in this Section 2.12
and be allowed to transfer a proportionate amount of such Holder’s Registrable
Securities subject thereto.

 

13

 

2.13                           Limitation
on Subsequent Registration Rights.  After the date of this
Agreement, the Company shall not, without the prior written consent of the
Holders of 66 2/3% of the Registrable Securities then outstanding, enter into
any agreement with any holder or prospective holder of any securities of the
Company that would grant such holder registration rights senior or on par with
to those granted to the Holders hereunder.

 

2.14                           Termination
of Registration Rights.  The rights granted under this
Section 2 shall terminate on the first to occur of (i) all shares of
Registrable Securities held or entitled to be held upon conversion by such
Holder may immediately be sold under Rule 144(k) during any ninety
(90) day period; provided, however, that the provisions of this
Section 2.14 shall not apply to any Holder who owns more than two percent
(2%) of the Company’s outstanding stock until such time as such Holder owns
less than two percent (2%) of the outstanding stock of the Company and
(ii) the five (5) year anniversary of the consummation of the initial
underwritten public offering of the Company’s securities pursuant to an
effective registration statement filed under the Securities Act that results in
the conversion of all of the Company’s Preferred Stock.

 

3.                                       Preemptive Rights.

 

3.1                                 General.  Except
for (i) shares of Common Stock issued upon conversion of the Preferred Stock,
(ii) securities issued pursuant to a public offering pursuant to an effective
registration statement under the Securities Act that results in the conversion
of all of the then-outstanding Preferred Stock, (iii) securities issued
pursuant to the acquisition of another corporation by the Company by merger,
purchase of substantially all of the assets, or other reorganization, in each
case as approved by the Board of Directors, (iv) securities issued in
connection with any stock split or stock dividend of the Company, , (v) shares
of Common Stock issued to employees, officers, or directors of, or contractors,
consultants or advisors to, the Company pursuant to stock purchase or stock
option plans, stock bonuses or awards, contracts or other arrangements that are
approved by the Company’s Board of Directors, (vi) securities issued to
financial institutions or lessors in connection with commercial credit
arrangements, equipment financings or similar transactions, the primary purpose
of which is other than equity financing, as approved by the Board of Directors
and (vii) securities issued pursuant to options, warrants, notes or other
rights to acquire securities of the Company outstanding as of the date of this
Agreement, the Company will not, nor will it permit any subsidiary to,
authorize or issue any shares of stock of the Company of any class and will not
authorize, issue or grant any options, warrants, conversion rights or other
rights to purchase or acquire any shares of stock of the Company of any class
without offering the Major Investors the right of first refusal described
below.

 

3.2                                 Right
of First Refusal.  Each Major Investor shall have a right of
first refusal to purchase an amount of securities of the Company of any class
or kind which the Company proposes to sell (other than the issuance of shares
contemplated by subsections (i) through (vii) of Section 3.1 above) (“Preemptive
Securities”) sufficient to maintain such Major Investor’s proportionate
beneficial ownership interest in the Company (as defined below). If the Company
wishes to make any such sale of Preemptive Securities, it shall give the Major
Investors written notice of the proposed sale. The notice shall set forth (i)
the Company’s bona fide intention to offer Preemptive Securities and (ii) the
material terms and conditions of the

 

14

 

proposed sale (including
the number of shares to be offered and the price, if any, for which the Company
proposes to offer such shares), and shall constitute an offer to sell
Preemptive Securities to the Investors on such terms and conditions. Any Major
Investor may accept such offer by delivering a written notice of acceptance (an
“Acceptance Notice”) to the Company within fifteen (15) days after receipt of
the Company’s notice of the proposed sale. Any Major Investor exercising its
right of first refusal shall be entitled to participate in the purchase of
Preemptive Securities on a pro rata basis to the extent necessary to maintain
such Major Investor’s proportionate beneficial ownership interest in the
Company (such Major Investor’s “Pro Rata Portion”). For purposes hereof, a
Major Investor’s Pro Rata Portion shall be determined by multiplying the number
of Preemptive Securities by a fraction, (X) the numerator of which shall be the
number of shares of Common Stock issued or issuable upon conversion of the
Preferred Stock  treating as fully
converted into Common Stock any convertible, exercisable or exchangeable
securities and other rights to acquire Common Stock held by such Major Investor)
held by such Major Investor and any other Common Stock held by such Majority
Investor and (Y) the denominator of which shall be the number of shares of
Common Stock into which any outstanding convertible securities may be converted
and for which any outstanding options and outstanding warrants may be exercised.
The Company shall, in writing, inform each Investor which elects to purchase
its Pro Rata Portion of Preemptive Securities of any other Major Investor’s
failure to do so, in which case the Investors electing to purchase such shares
of Preemptive Securities shall have the right to purchase all of such shares on
a pro rata basis. The closing of the sale of Preemptive Securities shall occur
within ten days after the Major Investors are given written notice of such
over-subscription right. If any Major Investor who elects to exercise its right
of first refusal does not complete the purchase of such Preemptive Securities
within such period, then unless such failure is caused by or results from any
action or inaction of the Company, the Company may complete the sale of
Preemptive Securities on the terms and conditions specified in the Company’s
notice within the 60-day period following the expiration of such 10-day period.
If the Company does not enter into an agreement for the sale of such shares
within such 10-day period, or if such agreement is not consummated within such
60-day period, the right provided hereunder shall be deemed to be revived and
all future shares of Preemptive Securities shall not be offered unless first
reoffered to the Major Investors in accordance with this Section 3. A
Major Investor shall be entitled to apportion the right of first refusal hereby
granted among itself and its subsidiaries, parent, members, affiliates,
partners and retired partners and members in such proportions it deems
appropriate.

 

3.3                                 Offer
After Sale to Third Parties.  In lieu of delivering to the Major
Investors written notice of a proposed sale of Preemptive Securities pursuant
to Section 3.2, the Company may elect first to sell Preemptive Securities
to third parties and then to offer to Major Investors the opportunity to
purchase their Pro Rata Portions of the Preemptive Securities. (The Pro Rata
Portions shall be calculated giving effect to all sales of the Preemptive
Securities, including sales to the Major Investors.)  Such offer shall remain in effect for 15 days
after notice to the Investors, and if accepted, the closing of the sale of
Preemptive Securities shall occur within ten days after the date of the
Acceptance Notice.

 

3.4                                 Expiration
of Right of First Refusal.  The right of first refusal granted
under this Agreement shall expire upon the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement on
Form S-1 or any successor form under the Securities Act, covering the offer and
sale of Common Stock for the account of the Company

 

15

 

to the public with gross
proceeds to the Company in excess of $40,000,000 and a pre-money valuation
(defined as the product of (A) of the number of shares of Common Stock
outstanding immediately prior to the closing of such offering, treating all
outstanding shares of Preferred Stock as converted into Common Stock,
multiplied by (B) the price to public in such offering) of at least
$200,000,000.

 

4.                                       Miscellaneous.

 

4.1                                 Waivers
and Amendments.  With the written consent of the Company and the
record or beneficial holders of a majority of the Registrable Securities, the
rights and obligations of the Company and the holders of Registrable Securities
under this Agreement may be waived (either generally or in a particular
instance, either retroactively or prospectively, and either for a specified
period of time or indefinitely) or amended; provided, however, that (i) no such amendment shall impose or
increase any liability or obligation on an Investor or eliminate or decrease
the rights of an Investor without the consent of such Investor, and (ii) no
such amendment shall have a disproportionately adverse effect on any Investor
in relation to the other Investors without the consent of such Investor, ,
and provided further, that no such modification, amendment or waiver shall
reduce the aforesaid percentage of Registrable Securities without the consent
of all of the Purchasers of the Registrable Securities. Upon the effectuation
of each such waiver, consent, agreement of amendment or modification, the
Company shall promptly give written notice thereof to the record holders of the
Registrable Securities who have not previously consented thereto in writing. This
Agreement or any provision hereof may be changed, waived, discharged or
terminated only by a statement in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is sought, except
to the extent provided in this Section 4.1.

 

4.2                                 Notices.  All
notices and other communications required or permitted hereunder shall be in
writing and, except as otherwise noted herein, shall be conclusively deemed
effectively given (i) upon personal delivery, (ii) two days after the
date of sending by commercial overnight courier or (iii) five days after
sending by first class U.S. mail postage prepaid:  (a) if to the Company, at the address on the
Company’s signature page to this Agreement (or at such other address as the
Company shall have furnished to the Holders in writing) and (b) if to a Holder,
at the latest address of such person shown on the Company’s records.

 

4.3                                 Descriptive
Headings.  The descriptive headings herein have been inserted for
convenience only and shall not be deemed to limit or otherwise affect the
construction of any provisions hereof.

 

4.4                                 Governing
Law.  This Agreement shall be governed by and interpreted under
the laws of the State of California as applied to agreements among California
residents, made and to be performed entirely within the State of California.

 

4.5                                 Counterparts.  This
Agreement may be executed in one or more counterparts, including those
transmitted via facsimile or electronic mail, each of which shall for all
purposes be deemed to be an original and all of which shall constitute the same
instrument, but only one of which need be produced.

 

16

 

4.6                                 Expenses.  If
any action at law or in equity is necessary to enforce or interpret the terms
of this Agreement, the prevailing party shall be entitled to reasonable
attorney’s fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled.

 

4.7                                 Successors
and Assigns.  Except as otherwise expressly provided in this
Agreement, this Agreement shall benefit and bind the successors, assigns,
heirs, executors and administrators of the parties to this Agreement.

 

4.8                                 Entire
Agreement.  This Agreement constitutes the full and entire understanding
and agreement between the parties with regard to the subject matter of this
Agreement.

 

4.9                                 Separability;
Severability.  Unless expressly provided in this Agreement, the
rights of each Investor under this Agreement are several rights, not rights
jointly held with any other Investors. Any invalidity, illegality or limitation
on the enforceability of this Agreement with respect to any Investor shall not
affect the validity, legality or enforceability of this Agreement with respect
to the other Investors. If any provision of this Agreement is judicially
determined to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not be affected or impaired.

 

4.10                           Stock
Splits.  All references to numbers of shares in this Agreement
shall be appropriately adjusted to reflect any stock dividend, split,
combination or other recapitalization of shares by the Company occurring after
the date of this Agreement.

 

4.11                           Aggregation
of Stock.  All shares of Preferred Stock held or acquired by
affiliated entities or persons shall be aggregated together for the purpose of
determining the availability of any rights under this Agreement.

 

[This space intentionally
left blank]

 

17

 

IN WITNESS WHEREOF, the
parties have executed this Fifth Amended and Restated Investors’ Rights
Agreement on the date first set forth above.

 

	
  THE COMPANY:

  	
   

  	
  EXPRESSION DIAGNOSTICS, INC.

  
	
   

  	
   

  	
  a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Pierre Cassigneul

  
	
   

  	
   

  	
   

  	
  Pierre Cassigneul, President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address:

  
	
   

  	
   

  	
  3260 Bayshore Blvd.

  
	
   

  	
   

  	
  Brisbane, CA 94005

  

 

[Signature Page to Expression
Diagnostics, Inc. Fifth Amended and Restated Investors' Rights Agreement]

 

 

	
  THE INVESTORS:

  	
   

  	
  INTEL CAPITAL (Cayman) CORPORATION,

  
	
   

  	
   

  	
  a Cayman Islands corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ James W. McCall

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  James W. McCall

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Assistant Treasurer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Intel Capital Corporation,

  
	
   

  	
   

  	
  a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ James W. McCall

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  James W. McCall

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Assistant Treasurer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Intel Capital Corporation

  
	
   

  	
   

  	
  c/o Intel Corporation

  
	
   

  	
   

  	
  Attn: Intel Capital Portfolio Manager

  
	
   

  	
   

  	
  2200 Mission College Blvd., M/S RN6-46

  
	
   

  	
   

  	
  Santa Clara, CA 95052

  
	
   

  	
   

  	
  Fax Number: (408) 765-6038

  
	
   

  	
   

  	
  With a copy by e-mail to:

  
	
   

  	
   

  	
  portfolio.manager@intel.com

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  THIS IS THE SIGNATURE PAGE FOR THE

  EXPRESSION DIAGNOSTICS, INC. (THE

  “COMPANY”) FIFTH AMENDED AND RESTATED

  INVESTORS’ RIGHTS AGREEMENT ENTERED INTO

  BY AND BETWEEN THE COMPANY, INTEL

  CAPITAL CORPORATION AND THE OTHER

  INVESTORS SET FORTH THEREIN.

  

 

[Signature Page to Expression
Diagnostics, Inc. Fifth Amended and Restated Investors' Rights Agreement]

 

 

	
  THE INVESTORS:

  	
   

  	
  DAG VENTURES QP, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  DAG Ventures Management, LLC,

  
	
   

  	
   

  	
   

  	
  its General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  by:

  	
  /s/ John Cadeddu

  
	
   

  	
   

  	
   

  	
  John Cadeddu, Managing Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  DAG VENTURES, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  DAG Ventures Management, LLC,

  
	
   

  	
   

  	
   

  	
  its General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  by:

  	
  /s/ John Cadeddu

  
	
   

  	
   

  	
   

  	
  John Cadeddu, Managing Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  DAG VENTURES GP FUND, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  DAG Ventures Management, LLC,

  
	
   

  	
   

  	
   

  	
  its Managing Member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  by:

  	
  /s/ John Cadeddu

  
	
   

  	
   

  	
   

  	
  John Cadeddu, Managing Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  BLACKBOARD VENTURES INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  by:

  	
  /s/ Terry Woodard

  
	
   

  	
   

  	
   

  	
  Terry Woodard, Designated Signatory

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  DAG VENTURES I-N, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  DAG Ventures Management, LLC,

  
	
   

  	
   

  	
   

  	
  its Managing Member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  by:

  	
  /s/ John Cadeddu

  
	
   

  	
   

  	
   

  	
  John Cadeddu, Managing Director

  
	
   

  	
   

  	
   

  	
   

  

 

[Signature Page to Expression
Diagnostics, Inc. Fifth Amended and Restated Investors' Rights Agreement]

 

 

	
  THE INVESTORS:

  	
   

  	
  KPCB HOLDINGS, INC., AS NOMINEE

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Brook Byers

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Brook Byers

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice President

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address:

  	
  c/o Kleiner Perkins Caufield Byers

  
	
   

  	
   

  	
   

  	
  2750 Sand Hill Road

  
	
   

  	
   

  	
   

  	
  Menlo Park, CA  94025

  
	
   

  	
   

  	
   

  	
  Facsimile:  650.233.0378

  
	
   

  	
   

  	
   

  	
  Attention:  Risa Stack

  
						

 

[Signature Page to Expression
Diagnostics, Inc. Fifth Amended and Restated Investors' Rights Agreement]

 

 

	
  THE INVESTORS:

  	
   

  	
  TPG VENTURES, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  TPG Ventures GenPar, L.P.

  
	
   

  	
   

  	
  By:

  	
  TPG Venture Advisors, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Jeffery D. Ekberg

  
	
   

  	
   

  	
  Name:

  	
  Jeffery D. Ekberg

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address:

  	
  301 Commerce St., Ste. 3300

  
	
   

  	
   

  	
   

  	
  Fort Worth, Texas  76102

  
	
   

  	
   

  	
   

  	
  Attn:  Jeffery D. Ekberg

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  TPG BIOTECHNOLOGY PARTNERS, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  TPG Biotechnology GenPar, L.P.

  
	
   

  	
   

  	
  By:

  	
  TPG Biotech Advisors, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Jeffery D. Ekberg

  
	
   

  	
   

  	
  Name:

  	
  Jeffery D. Ekberg

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address:

  	
  301 Commerce St., Ste. 3300

  
	
   

  	
   

  	
   

  	
  Fort Worth, Texas  76102

  
	
   

  	
   

  	
   

  	
  Attn:  Jeffery D. Ekberg

  
	
   

  	
   

  	
   

  
						

 

[Signature Page to Expression
Diagnostics, Inc. Fifth Amended and Restated Investors' Rights Agreement]

 

 

	
  THE INVESTORS:

  	
   

  	
  SPROUT CAPITAL IX, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  DLJ Capital Corporation

  
	
   

  	
   

  	
  Its:

  	
  Managing General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Vijay K. Lathi

  
	
   

  	
   

  	
  By:

  	
  Vijay K. Lathi

  
	
   

  	
   

  	
  Its:

  	
  Attorney in Fact

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  SPROUT ENTREPRENEURS FUND, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  DLJ Capital Corporation

  
	
   

  	
   

  	
  Its:

  	
  General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Vijay K. Lathi

  
	
   

  	
   

  	
  By:

  	
  Vijay K. Lathi

  
	
   

  	
   

  	
  Its:

  	
  Attorney in Fact

  

 

[Signature Page to Expression
Diagnostics, Inc. Fifth Amended and Restated Investors' Rights Agreement]

 

 

	
  THE INVESTORS:

  	
   

  	
  INTEGRAL CAPITAL PARTNERS VI,
  L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By Integral Capital Management VI, LLC

  
	
   

  	
   

  	
  its General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Pamela K. Hagenah

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Pamela K. Hagenah

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
  A Manager

  

 

[Signature Page to Expression
Diagnostics, Inc. Fifth Amended and Restated Investors' Rights Agreement]

 

 

	
  THE INVESTORS:

  	
   

  	
  BAY AREA EQUITY FUND I, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: Bay Area Equity Fund Managers I,

  L.L.C., its General Partner

  
	
   

  	
   

  	
  By: H&Q Venture Management L.L.C., its

  Managing Member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Michael C. Dorsey

  
	
   

  	
   

  	
   

  	
  Name: Michael C. Dorsey

  
	
   

  	
   

  	
   

  	
  Title: Managing Director

  
					

 

[Signature Page to Expression
Diagnostics, Inc. Fifth Amended and Restated Investors' Rights Agreement]

 

 

	
  THE INVESTORS:

  	
   

  	
  Burrill Life Sciences Capital Fund, L.P.

  
	
   

  	
   

  	
  By:

  	
  Burrill & Company (Life Sciences GP), LLC

  
	
   

  	
   

  	
   

  	
  Its General Manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ G. Steven Burrill

  
	
   

  	
   

  	
  Name:

  	
  G. Steven Burrill

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Managing Manager

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address:

  	
  One Embarcadero Center, Suite 2700

  
	
   

  	
   

  	
   

  	
  San Francisco, CA 94111

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Fax:

  	
  (415) 591-5401

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Burrill Indiana Life Sciences Capital Fund, L.P.

  
	
   

  	
   

  	
  By:

  	
  Burrill & Company (Indiana GP), LLC

  
	
   

  	
   

  	
   

  	
  Its General Manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ G. Steven Burrill

  
	
   

  	
   

  	
  Name:

  	
  G. Steven Burrill

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Managing Member

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address:

  	
  One Embarcadero Center, Suite 2700

  
	
   

  	
   

  	
   

  	
  San Francisco, CA 94111

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Fax:

  	
  (415) 591-5401

  	
   

  
	
   

  	
   

  	
   

  
								

 

[Signature Page to Expression
Diagnostics, Inc. Fifth Amended and Restated Investors' Rights Agreement]

 

 

	
  THE INVESTORS:

  	
   

  	
  TriplePoint Capital

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Sajal Srivastava

  
	
   

  	
   

  	
  Name:

  	
  Sajal Srivastava

  
	
   

  	
   

  	
  Title:

  	
  Chief Operating Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address:

  	
  2420 Sand Hill Road # 101

  
	
   

  	
   

  	
   

  	
  Menlo Park, CA 94025

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Fax:

  	
  (650) 854-2094

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Leader Ventures

  
	
   

  	
   

  	
  By:

  	
  Leader Ventures, LLC

  
	
   

  	
   

  	
  Its:

  	
  Manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Robert W. Molke

  
	
   

  	
   

  	
  Name:

  	
  Robert W. Molke

  
	
   

  	
   

  	
  Title:

  	
  Managing Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address:

  	
  311 California Street Suite 420

  
	
   

  	
   

  	
   

  	
  San Francisco, CA 94111

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Fax:

  	
  (415) 956-8233

  
	
   

  	
   

  	
   

  

 

[Signature Page to Expression
Diagnostics, Inc. Fifth Amended and Restated Investors' Rights Agreement]

 

 

	
  THE INVESTORS:

  	
   

  	
  PWP PARTNERSHIP FUND, LLC

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ William F. Dagley

  
	
   

  	
   

  	
  Name:

  	
  William F. Dagley

  
	
   

  	
   

  	
  Title:

  	
  Managing Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address:

  	
  80 Sir Francis Drake Boulevard

  
	
   

  	
   

  	
   

  	
  4th Floor

  
	
   

  	
   

  	
   

  	
  Larkspur, CA 94939

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Fax:

  	
  (415) 461-3299

  

 

[Signature Page to Expression
Diagnostics, Inc. Fifth Amended and Restated Investors' Rights Agreement]

 

 

	
  THE INVESTORS:

  	
  JAMES McKAY ARMSTRONG

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James McKay Armstrong

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address:

  	
  Two Embarcadero Center, Suite 2300

  
	
   

  	
   

  	
   

  	
  San Francisco, CA 94111

  
	
   

  	
   

  	
   

  	
   

  

 

[Signature page to Investors Rights
Agreement]

 

 

	
  THE INVESTORS:

  	
  WS INVESTMENT COMPANY LLC (2007C)

  
	
   

  	
  WS INVESTMENT COMPANY (2007A)

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James A. Terranova

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  

 

[Signature page to Investors Rights
Agreement]

 

 

EXHIBIT A

 

Investors

 

List of Preferred Stockholders

 

LIST OF
SERIES A HOLDERS:

 

Wally S. Buch,
Trustee of the Buch 1993 Revocable Trust

CN Investment Partners,
L.P.

Commercial San
Antonio S.A

K. David Crockett

Michael J. Danaher

Stephen Doros,
Trustee of the Gerald Doros and Myra Doros Irrevocable trust

First Clearing LLC
C/F John Urquhart, IRA #8531-1686

Randall J. Lee

Modern Version
Limited

OCI Ltd.

Puma Holdings
Limited

James M. Shapiro,
Trustee of the James and Sarah Shapiro Family Trust dated 9/91

Stertzer Family
Trust

Vichon Nevelle,
S.A.

WS Investment
2000A

Paul G. Yock,
Trustee of the Yock Family Revocable Trust dated 7/21/93

Paul G. Yock

 

LIST OF
SERIES B HOLDERS:

 

CN Investment
Partners L.P.

Commercial San Antonio S.A.

Michael J. Danaher

Stephen Doros,
Trustee of the Gerald Doros and Myra Doros Irrevocable Trust

Torcept (formerly
known as Dual Dimensions Limited)

Episode Holdings,
Inc.

Sanjeev S. Judge

Domini Kelly

Jeffrey J. Kimbell

Joshpe Maouad

OCi Ltd.

Puma Holdings
Limited

Stertzer Gamma
Trust

Stertzer Family
Trust

Vichon Nevelle
S.A.

 

 

Windrock
Enterprises, LLC

WS Investment
Company 2000B

WS Investment
Company

 

LIST OF
SERIES C HOLDERS:

 

Pierre Cassigneul

Julie and Adam
Cohen

Comercial San
Antonio S.A.

Michael J. Danaher

Duke University
Special Ventures Fund, Inc.

Episode Holdings,
Inc.

Sanjeev S. Judge

Judy Kishner

KPCB Holdings,
Inc., as nominee

Avi Kulkarni

Macdonald (Don)
Morris

Puma Holdings
Limited

The Elizabeth and
Steven Rosenberg Trust dtd 9/28/00

Stertzer Family
Trust

TPG Biotechnology
Partners, L.P.

TPG Ventures, L.P.

Vichon Nevelle, S.A.

Judith Wilbur

WS Investment
Company, LLC

 

LIST OF
SERIES D HOLDERS:

 

Bay Area Equity
Fund, L.P.

Burrill Indiana
Life Sciences Capital Fund, L.P.

Burrill Life
Sciences Capital Fund, L.P.

Integral Capital
Partners VIU, L.P.

KPCB Holdings,
Inc., as nominee

Sprout Capital IX, L.P.

Sprout Entrepreneurs Fund, L.P.

The Board of
Trustees of the Leland Stanford Junior University (DAPER I)

TPG Biotechnology
Partners, L.P.

TPG Ventures, L.P.

 

 

LIST OF
SERIES E HOLDERS:

 

DAG Ventures QP,
L.P.

DAG Ventures, L.P.

DAG Ventures GP
Fund, LLC

Blackboard
Ventures Inc.

DAG Ventures I-N,
LLC

KPCB Holdings,
Inc., as nominee

TPG Biotechnology
Partners, L.P.

TPG Ventures, L.P.

Sprout Capital IX, L.P.

Sprout Entrepreneurs Fund, L.P.

Integral Capital Partners VI, L.P.

Bay Area Equity
Fund I, L.P.

Burrill Indiana
Life Sciences Capital Fund, L.P.

Burrill Life
Sciences Capital Fund, L.P.

Intel Capital
(Cayman) Corporation

 

LIST OF
SERIES F INVESTORS:

 

DAG Ventures QP,
L.P.

DAG Ventures, L.P.

DAG Ventures GP
Fund, LLC

Blackboard
Ventures Inc.

DAG Ventures I-N,
LLC

James McKay
Armstrong

KPCB Holdings,
Inc., as nominee

TPG Biotechnology
Partners, L.P.

TPG Ventures, L.P.

Sprout Capital IX, L.P.

Sprout Entrepreneurs Fund, L.P.

Integral Capital Partners VI, L.P.

Bay Area Equity
Fund I, L.P.

Burrill Indiana
Life Sciences Capital Fund, L.P.

Burrill Life
Sciences Capital Fund, L.P.

Intel Capital
Corporation

TriplePoint Capital LLC

Leader Equity, LLC

PWP Partnership
Fund, LLC

WS Investment
Company (2007A)

WS Investment
Company (2007C)

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00131-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00131-of-00352.parquet"}]]