Document:

Exhibit 4.12

 

REGISTRATION RIGHTS AGREEMENT

 

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

 

RECITALS

 

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

 

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

 

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

 

AGREEMENT

 

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

 

1.             Definitions.

 

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

 

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

 

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

 

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

 

(d)           “Effectiveness Deadline” means (i) with
respect to the initial Registration Statement required to be filed to pursuant
to Section 2(a), the earlier of (A) the 120th calendar 

 

1

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

2.             Registration.

 

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

 

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

 

(c)           [RESERVED]

 

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

 

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

 

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

 

(f)            Piggyback Registrations. Without limiting any of
the Company’s obligations hereunder or under the Purchase Agreement, if there
is not an effective Registration Statement covering all of the Registrable
Securities and the Company shall determine to prepare and file with the SEC a
registration statement relating to an offering for its own account or the
account of others under the Securities Act of any of its equity securities
(other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with the Company’s stock option or
other employee 

 

4

 

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

 

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

 

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

 

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3.             Related
Obligations.

 

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

 

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

 

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

 

6

 

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

 

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

 

7

 

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

 

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

 

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

 

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

 

8

 

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

 

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

 

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

 

9

 

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

 

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

 

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

 

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

 

10

 

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

 

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

 

(n)           The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with, and in the manner provided by, the provisions of Rule 158 under the
Securities Act) covering a twelve-month period beginning not later than the
first day of the Company’s fiscal quarter next following the applicable
Effective Date of each Registration Statement.

 

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

 

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

 

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

 

11

 

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

 

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

 

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

 

4.                                       Obligations of
the Investor.

 

(a)                                  At least five
Business Days prior to the first anticipated filing date of each Registration
Statement, the Company shall notify the Investor in writing of the information
the Company requires from the Investor with respect to such Registration
Statement. It shall be a condition precedent to the obligations of the Company
to complete the registration pursuant to this Agreement with respect to the
Registrable Securities of the Investor that the Investor shall furnish to the
Company such information regarding itself, the Registrable Securities held by
it and the intended method of disposition of the Registrable Securities held by
it, as shall be reasonably required to effect and maintain the effectiveness of
the registration of such Registrable Securities and shall execute such
documents in connection with such registration as the Company may reasonably
request.

 

(b)                                 The Investor,
by its acceptance of the Registrable Securities, agrees to cooperate with the
Company as reasonably requested by the Company in connection with the
preparation and filing of each Registration Statement hereunder, unless the
Investor has notified the Company in writing of the Investor’s election to
exclude all of the Investor’s Registrable Securities from such Registration
Statement.

 

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

 

12

 

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

 

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

 

5.                                       Expenses of
Registration.

 

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

 

6.                                       Indemnification.

 

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

 

13

 

made,
not misleading (the matters in the foregoing clauses (i) and (ii) being,
collectively, “Violations”). Subject to Section
6(c), the Company shall reimburse the Investor Parties, promptly as such
expenses are incurred and are due and payable, for any legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (i) shall
not apply to a Claim by an Investor Party arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by such Investor Party for such Investor
Party expressly for use in connection with the preparation of such Registration
Statement, prospectus or prospectus supplement or any such amendment thereof or
supplement thereto; (ii) shall not be available to the Investor to the extent
such Claim is based on a failure of the Investor to deliver or to cause to be
delivered the prospectus (as amended or supplemented) made available by the
Company (to the extent applicable), including, without limitation, a corrected
prospectus, if such prospectus (as amended or supplemented) or corrected
prospectus was timely made available by the Company pursuant to Section 3(d) and
then only if, and to the extent that, following the receipt of the corrected
prospectus no grounds for such Claim would have existed; and (iii) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld or delayed. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Investor
Party and shall survive the transfer of any of the Registrable Securities by
the Investor pursuant to Section 9.

 

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

 

14

 

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

 

15

 

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

 

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

 

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

 

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

 

7.                                       Contribution.

 

To the extent any
indemnification by an indemnifying party is prohibited or limited by law, the
indemnifying party agrees to make the maximum contribution with respect to any
amounts for which it would otherwise be liable under Section 6 to the fullest
extent permitted by law; provided, however: (i) no contribution
shall be made under circumstances where the maker would not have been liable
for indemnification under the fault standards set forth in Section 6 of this
Agreement, (ii) no Person involved in the sale of Registrable Securities which
Person is guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) in connection with such sale shall be entitled to
contribution from any Person involved in such sale of Registrable Securities
who was not guilty of fraudulent misrepresentation; and (iii) contribution by
any seller of Registrable Securities shall be limited in amount to the amount
of net proceeds received by such seller from the applicable sale of such
Registrable Securities pursuant to such Registration Statement. Notwithstanding
the provisions of this Section 7, the Investor shall not be required to
contribute, in the aggregate, any amount in excess of the amount by which the
net proceeds actually received by the Investor from the applicable sale of the
Registrable Securities subject to the Claim exceeds the amount of any damages
that the Investor has otherwise been required to pay, or would otherwise be
required to pay under Section 6(b), by reason of such untrue or alleged untrue
statement or omission or alleged omission.

 

8.                                       Reports Under
the 1934 Act.

 

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

 

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

 

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

 

16

 

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

 

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

 

9.                                       Assignment of
Registration Rights.

 

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

 

10.                                 Amendment of Registration
Rights.

 

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

 

17

 

11.                                 Miscellaneous.

 

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

 

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

 

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

 

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

 

18

 

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

 

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

 

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

 

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

 

(i)                                     Each party
shall do and perform, or cause to be done and performed, all such further acts
and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents as any other party may reasonably
request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated hereby.

 

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

 

[signature pages
follow]

 

19

 

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

 

	
   

  	
  COMPANY:

  
	
   

  	
   

  	
   

  
	
   

  	
  ARYX
  THERAPEUTICS, INC.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Paul Goddard

  
	
   

  	
   

  	
  Name:
  Paul Goddard, Ph.D.

  
	
   

  	
   

  	
  Title:   Chairman and Chief Executive Officer

  
				

 

20

 

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

 

	
   

  	
  INVESTOR:

  
	
   

  	
   

  
	
   

  	
  COMMERCE
  COURT SMALL CAP VALUE FUND, LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Peter Poole

  
	
   

  	
  Its:

  	
  Peter Poole

  

 

21

 

EXHIBIT A

 

FORM OF NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT

 

	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Attention:

  	
   

  	
   

  
			

 

Re:          [                                   ]

 

Ladies and Gentlemen:

 

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

 

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

 

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

 

	
   

  	
  Very
  truly yours,

  
	
   

  	
   

  
	
   

  	
  [ISSUER’S COUNSEL]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  

 

CC:          [INVESTOR]

 

A-1

 

EXHIBIT B

 

SELLING STOCKHOLDER

 

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

 

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

 

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

 

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

 

B-1

 

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

 

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

 

	
   

  	
   

  	
  Number of Shares of

  Common Stock Owned

  Prior to Offering

  	
   

  	
  Maximum Number of Shares

  of Common Stock to be

  Offered Pursuant to this

  	
   

  	
  Number of Shares of

  Common Stock Owned

  After Offering

  	
   

  
	
  Name of Selling Stockholder

  	
   

  	
  Number

  	
   

  	
  Percent

  	
   

  	
  Prospectus

  	
   

  	
  Number

  	
   

  	
  Percent

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  [                                     ]
  (1)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

B-2

 

PLAN OF DISTRIBUTION

 

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

 

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

 

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

 

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

 

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

 

B-3

 

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

 

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

 

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

 

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

 

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

 

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

 

·                  privately
negotiated transactions;

 

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

 

·                  a combination
of any such methods of sale;

 

·                  and any other
method permitted pursuant to applicable law.

 

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

 

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

 

B-4

 

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

 

·                  the number of
shares involved;

 

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

 

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

 

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

 

·                  other facts
material to the transaction.

 

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

 

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

 

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

 

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

 

B-5

 

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

 

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

 

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

 

B-6Exhibit
10.32

 

COMMON
STOCK PURCHASE AGREEMENT

 

Dated as of
October 6, 2009

 

by and
between

 

ARYX
THERAPEUTICS, INC.

 

and

 

COMMERCE
COURT SMALL CAP VALUE FUND, LTD.

 

 

TABLE OF
CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE I

  	
  DEFINITIONS

  	
  1

  
	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
  PURCHASE AND SALE OF COMMON STOCK

  	
  1

  
	
  Section 2.1.

  	
  Purchase and Sale of Stock

  	
  1

  
	
  Section 2.2.

  	
  Closing Date; Settlement Dates

  	
  2

  
	
  Section 2.3.

  	
  Initial Public Announcements and Required Filings

  	
  2

  
	
   

  	
   

  	
   

  
	
  ARTICLE III

  	
  FIXED REQUEST TERMS

  	
  3

  
	
  Section 3.1.

  	
  Fixed Request Notice

  	
  3

  
	
  Section 3.2.

  	
  Fixed Requests

  	
  3

  
	
  Section 3.3.

  	
  Share Calculation

  	
  5

  
	
  Section 3.4.

  	
  Limitation of Fixed Requests

  	
  6

  
	
  Section 3.5.

  	
  Reduction of Commitment

  	
  6

  
	
  Section 3.6.

  	
  Below Threshold Price

  	
  6

  
	
  Section 3.7.

  	
  Settlement

  	
  6

  
	
  Section 3.8.

  	
  Reduction of Pricing Period

  	
  7

  
	
  Section 3.9.

  	
  Failure to Deliver Shares

  	
  8

  
	
  Section 3.10.

  	
  Certain Limitations

  	
  8

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV

  	
  REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR

  	
  9

  
	
  Section 4.1.

  	
  Organization and Standing of the Investor

  	
  9

  
	
  Section 4.2.

  	
  Authorization and Power

  	
  9

  
	
  Section 4.3.

  	
  No Conflicts

  	
  10

  
	
  Section 4.4.

  	
  Investment Purpose

  	
  10

  
	
  Section 4.5.

  	
  Accredited Investor Status

  	
  10

  
	
  Section 4.6.

  	
  Reliance on Exemptions

  	
  10

  
	
  Section 4.7.

  	
  Information

  	
  11

  
	
  Section 4.8.

  	
  No Governmental Review

  	
  11

  
	
  Section 4.9.

  	
  No General Solicitation

  	
  11

  
	
  Section 4.10.

  	
  Not an Affiliate

  	
  11

  
	
  Section 4.11.

  	
  Statutory Underwriter Status

  	
  11

  
	
  Section 4.12.

  	
  Resales of Securities

  	
  11

  
	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
  REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY

  	
  12

  
	
  Section 5.1.

  	
  Organization, Good Standing and Power

  	
  12

  
	
  Section 5.2.

  	
  Authorization, Enforcement

  	
  12

  
	
  Section 5.3.

  	
  Capitalization

  	
  12

  
	
  Section 5.4.

  	
  Issuance of Securities

  	
  13

  
	
  Section 5.5.

  	
  No Conflicts

  	
  13

  
	
  Section 5.6.

  	
  Commission Documents, Financial Statements

  	
  14

  

 

i

 

	
  Section 5.7.

  	
  Subsidiaries

  	
  16

  
	
  Section 5.8.

  	
  No Material Adverse Effect

  	
  16

  
	
  Section 5.9.

  	
  No Undisclosed Liabilities

  	
  16

  
	
  Section 5.10.

  	
  No Undisclosed Events or Circumstances

  	
  16

  
	
  Section 5.11.

  	
  Indebtedness; Solvency

  	
  17

  
	
  Section 5.12.

  	
  Title To Assets

  	
  17

  
	
  Section 5.13.

  	
  Actions Pending

  	
  17

  
	
  Section 5.14.

  	
  Compliance With Law

  	
  18

  
	
  Section 5.15.

  	
  Certain Fees

  	
  18

  
	
  Section 5.16.

  	
  Disclosure

  	
  18

  
	
  Section 5.17.

  	
  Operation of Business

  	
  19

  
	
  Section 5.18.

  	
  Environmental Compliance

  	
  20

  
	
  Section 5.19.

  	
  Material Agreements

  	
  21

  
	
  Section 5.20.

  	
  Transactions With Affiliates

  	
  21

  
	
  Section 5.21.

  	
  Employees

  	
  22

  
	
  Section 5.22.

  	
  Use of Proceeds

  	
  22

  
	
  Section 5.23.

  	
  Investment Company Act Status

  	
  22

  
	
  Section 5.24.

  	
  ERISA

  	
  22

  
	
  Section 5.25.

  	
  Taxes

  	
  23

  
	
  Section 5.26.

  	
  Insurance

  	
  23

  
	
  Section 5.27.

  	
  U.S. Real Property Holding Corporation

  	
  23

  
	
  Section 5.28.

  	
  Exemption from Registration; Valid Issuances

  	
  23

  
	
  Section 5.29.

  	
  No General Solicitation or Advertising

  	
  23

  
	
  Section 5.30.

  	
  No Integrated Offering

  	
  24

  
	
  Section 5.31.

  	
  Dilutive Effect

  	
  24

  
	
  Section 5.32.

  	
  Manipulation of Price

  	
  24

  
	
  Section 5.33.

  	
  Securities Act

  	
  24

  
	
  Section 5.34.

  	
  Listing and Maintenance Requirements

  	
  25

  
	
  Section 5.35.

  	
  Application of Takeover Protections

  	
  25

  
	
  Section 5.36.

  	
  Acknowledgement Regarding Investor’s Acquisition of Securities

  	
  25

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI

  	
  ADDITIONAL COVENANTS

  	
  25

  
	
  Section 6.1.

  	
  Securities Compliance

  	
  25

  
	
  Section 6.2.

  	
  Reservation of Common Stock

  	
  26

  
	
  Section 6.3.

  	
  Registration and Listing

  	
  26

  
	
  Section 6.4.

  	
  Compliance with Laws

  	
  26

  
	
  Section 6.5.

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

  	
  27

  
	
  Section 6.6.

  	
  Limitations on Holdings and Issuances

  	
  27

  
	
  Section 6.7.

  	
  Other Agreements and Alternate Transactions

  	
  27

  
	
  Section 6.8.

  	
  Corporate Existence

  	
  29

  
	
  Section 6.9.

  	
  Fundamental Transaction

  	
  30

  
	
  Section 6.10.

  	
  Delivery of Registration Statement and Prospectus; Subsequent Changes

  	
  30

  
	
  Section 6.11.

  	
  Amendments to the Registration Statement; Prospectus Supplements

  	
  31

  
	
  Section 6.12.

  	
  Stop Orders

  	
  31

  
	
  Section 6.13.

  	
  Selling Restrictions

  	
  32

  
	
  Section 6.14.

  	
  Effective Registration Statement

  	
  32

  
	
  Section 6.15.

  	
  Blue Sky

  	
  33

  

 

ii

 

	
  Section 6.16.

  	
  Non-Public Information

  	
  33

  
	
  Section 6.17.

  	
  Broker/Dealer

  	
  33

  
	
  Section 6.18.

  	
  Additional Registration Statements

  	
  33

  
	
  Section 6.19.

  	
  Disclosure Schedule

  	
  33

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII

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

  	
  34

  
	
  Section 7.1.

  	
  Conditions Precedent to Closing

  	
  34

  
	
  Section 7.2.

  	
  Conditions Precedent to a Fixed Request

  	
  35

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII

  	
  TERMINATION

  	
  38

  
	
  Section 8.1.

  	
  Termination

  	
  38

  
	
  Section 8.2.

  	
  Other Termination

  	
  38

  
	
  Section 8.3.

  	
  Effect of Termination

  	
  39

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX

  	
  INDEMNIFICATION

  	
  40

  
	
  Section 9.1.

  	
  Indemnification of Investor

  	
  40

  
	
  Section 9.2.

  	
  Indemnification Procedures

  	
  41

  
	
   

  	
   

  	
   

  
	
  ARTICLE X

  	
  MISCELLANEOUS

  	
  42

  
	
  Section 10.1.

  	
  Fees and Expenses

  	
  42

  
	
  Section 10.2.

  	
  Specific Enforcement, Consent to Jurisdiction, Waiver of Jury Trial

  	
  44

  
	
  Section 10.3.

  	
  Entire Agreement; Amendment

  	
  45

  
	
  Section 10.4.

  	
  Notices

  	
  45

  
	
  Section 10.5.

  	
  No Waivers

  	
  46

  
	
  Section 10.6.

  	
  Headings

  	
  46

  
	
  Section 10.7.

  	
  Construction

  	
  47

  
	
  Section 10.8.

  	
  Successors and Assigns

  	
  47

  
	
  Section 10.9.

  	
  No Third Party Beneficiaries

  	
  47

  
	
  Section 10.10.

  	
  Governing Law

  	
  47

  
	
  Section 10.11.

  	
  Survival

  	
  47

  
	
  Section 10.12.

  	
  Counterparts

  	
  47

  
	
  Section 10.13.

  	
  Publicity

  	
  48

  
	
  Section 10.14.

  	
  Severability

  	
  48

  
	
  Section 10.15.

  	
  Further Assurances

  	
  48

  
	
   

  	
   

  	
   

  
	
  Annex I.

  	
  Definitions

  	
   

  
				

 

iii

 

COMMON
STOCK PURCHASE AGREEMENT

 

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

 

RECITALS

 

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

 

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

 

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

 

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

 

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

 

ARTICLE I

DEFINITIONS

 

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

 

ARTICLE II

PURCHASE AND SALE OF COMMON STOCK

 

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

 

 

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

 

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

 

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

 

2

 

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

 

ARTICLE III

FIXED REQUEST TERMS

 

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

 

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

 

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

 

3

 

	
  Threshold Price

  	
   

  	
  Fixed Amount Requested

  	
   

  	
  Discount Price

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Equal to or
  greater than $8.00

  	
   

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

  	
   

  	
  95.80% of the
  VWAP

  
	
   

  	
   

  	
   

  	
   

  	
   

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

  	
   

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

  	
   

  	
  95.60% of the
  VWAP

  
	
   

  	
   

  	
   

  	
   

  	
   

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

  	
   

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

  	
   

  	
  95.40% of the
  VWAP

  
	
   

  	
   

  	
   

  	
   

  	
   

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

  	
   

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

  	
   

  	
  95.20% of the
  VWAP

  
	
   

  	
   

  	
   

  	
   

  	
   

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

  	
   

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

  	
   

  	
  95.00% of the
  VWAP

  
	
   

  	
   

  	
   

  	
   

  	
   

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

  	
   

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

  	
   

  	
  94.000% of the
  VWAP

  
	
   

  	
   

  	
   

  	
   

  	
   

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

  	
   

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

  	
   

  	
  93.000% of the
  VWAP

  
	
   

  	
   

  	
   

  	
   

  	
   

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

  	
   

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

  	
   

  	
  93.000% of the
  VWAP

  

 

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

 

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

 

AFAR = A x B x C, where:

 

AFAR = Alternative Fixed Amount Requested,

 

A =         0.25

 

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

 

C =          the applicable Discount
Price;

 

4

 

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

 

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

 

Section 3.3.           Share
Calculation.

 

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

 

N =          (A x B)/C, where:

 

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

 

A =         0.10 (the “Multiplier”),

 

B =          the total Fixed Amount
Requested, and

 

C =          the applicable Discount
Price.

 

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

 

N =          A x B, where:

 

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

 

A =         0.25, and

 

5

 

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

 

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

 

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

 

Section 3.6.           Below
Threshold Price.

 

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

 

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

 

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

 

6

 

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

 

Section 3.8.           Reduction
of Pricing Period.

 

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

 

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

 

7

 

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

 

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

 

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

 

8

 

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

 

ARTICLE IV

REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR

 

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

 

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

 

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

 

9

 

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

 

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

 

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

 

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

 

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

 

10

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

11

 

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

 

ARTICLE V

REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY

 

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

 

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

 

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

 

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

 

12

 

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

 

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

 

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

 

13

 

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

 

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

 

14

 

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

 

(b)           The financial statements, together with the related notes
and schedules, of the Company included in the Commission Documents comply as to
form in all material respects with all applicable accounting requirements and
the published rules and regulations of the Commission and all other
applicable rules and regulations with respect thereto as may be subject to
any applicable out of period adjustments disclosed in the Commission Documents.
Such financial statements, together with the related notes and schedules, have
been prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements and are subject to customary year-end audit
adjustments), and fairly present in all material respects the financial
condition of the Company and its consolidated Subsidiaries as of the dates
thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).

 

15

 

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

 

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

 

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

 

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

 

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

 

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

 

16

 

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

 

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

 

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

 

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

 

17

 

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

 

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

 

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

 

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

 

18

 

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

 

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

 

19

 

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

 

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

 

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

 

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

 

20

 

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

 

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

 

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

 

21

 

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

 

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

 

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

 

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

 

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

 

22

 

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

 

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

 

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

 

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

 

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

 

23

 

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

 

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

 

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

 

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

 

24

 

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

 

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

 

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

 

ARTICLE VI

ADDITIONAL
COVENANTS

 

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

 

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

 

25

 

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

 

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

 

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

 

Section 6.4.           Compliance
with Laws.

 

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

 

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

 

26

 

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

 

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

 

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

 

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

 

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

 

Section 6.7.           Other
Agreements and Alternate Transactions.

 

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

 

27

 

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

 

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

 

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

 

28

 

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

 

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

 

29

 

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

 

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

 

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

 

30

 

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

 

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

 

31

 

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

 

Section 6.13.        Selling
Restrictions.

 

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

 

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

 

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

 

32

 

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

 

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

 

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

 

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

 

Section 6.19.        Disclosure
Schedule.

 

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

 

33

 

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

 

ARTICLE VII

CONDITIONS TO CLOSING AND CONDITIONS TO THE SALE AND

PURCHASE OF THE SHARES

 

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

 

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

 

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

 

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

 

34

 

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

 

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

 

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

 

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

 

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

 

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

 

35

 

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

 

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

 

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

 

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

 

36

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

37

 

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

 

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

 

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

 

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

 

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

 

ARTICLE VIII

TERMINATION

 

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

 

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

 

38

 

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

 

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

 

39

 

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

 

ARTICLE IX

INDEMNIFICATION

 

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

 

40

 

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

 

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

 

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

 

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

 

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

 

41

 

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

 

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

 

ARTICLE X

MISCELLANEOUS

 

Section 10.1.        Fees and
Expenses.

 

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

 

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

 

42

 

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

 

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

 

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

 

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

 

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

 

43

 

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

 

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

 

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

 

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

 

44

 

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

 

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

 

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

 

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

 

If to the Company:

 

ARYx Therapeutics, Inc.

6300 Dumbarton Circle

Freemont, California 94555

Telephone Number: (510)
585-2200

Fax: (510) 585-2202

Attention: John Varian

 

45

 

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

 

Cooley Godward Kronish LLP

Five Palo Alto Square

3000 El Camino Real

Palo Alto, California 94306-2155

Telephone Number: (650)
843-5005

Fax: (650) 849-7400

Attention:  Jim F. Fulton, Jr., Esq.

 

If to the Investor:

 

Commerce Court Small Cap
Value Fund, Ltd.

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

P.O. Box 3170

Road Town, Tortola British
Virgin Islands

Telephone Number: (284)
494-8086

Fax:  (284) 494-9474

Attention: Peter W. Pool

 

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

 

Greenberg Traurig, LLP

The MetLife Building

200 Park Avenue

New York, NY 10166

Telephone Number: (212) 801-9200

Fax:  (212) 801-6400

Attention: Anthony J.
Marsico, Esq.

 

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

 

Section 10.5.        No Waivers.  No failure or delay in the exercise of any
power, right or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power, right or privilege
preclude other or further exercises thereof or of any other right, power or
privilege.

 

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

 

46

 

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

 

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

 

Section 10.9.        No Third
Party Beneficiaries. 
Except as expressly provided in Article IX, this Agreement is intended
only for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other Person.

 

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

 

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

 

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

 

47

 

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

 

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

 

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

 

[Signature
Page Follows]

 

48

 

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

 

	
   

  	
  ARYX
  THERAPEUTICS, INC.:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Paul Goddard

  
	
   

  	
  Name:

  	
  Paul Goddard, Ph.D.

  
	
   

  	
  Title:

  	
  Chairman and Chief
  Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  COMMERCE
  COURT SMALL CAP VALUE FUND, LTD.:

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Peter Poole

  
	
   

  	
  Name:

  	
  Peter Poole

  
	
   

  	
  Title:

  	
  Director

  

 

49

 

ANNEX I TO THE

COMMON STOCK PURCHASE AGREEMENT

 

DEFINITIONS

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Closing Date” means
the date of this Agreement.

 

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

 

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

 

i

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

ii

 

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

 

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

 

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

 

“FINRA” means the
Financial Industry Regulatory Authority.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

iii

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

iv

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

v

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

vi

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

vii

 

EXHIBIT A TO THE

COMMON STOCK PURCHASE AGREEMENT

FORM OF REGISTRATION RIGHTS AGREEMENT

 

 

REGISTRATION RIGHTS AGREEMENT

 

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

 

RECITALS

 

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

 

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

 

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

 

AGREEMENT

 

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

 

1.                                       Definitions.

 

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

 

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

 

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

 

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

 

A-1

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

A-2

 

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

 

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

 

2.                                       Registration.

 

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

 

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

 

(c)                                  [RESERVED]

 

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

 

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

 

A-3

 

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

 

(f)                                    Piggyback
Registrations. Without limiting any of the Company’s obligations
hereunder or under the Purchase Agreement, if there is not an effective Registration
Statement covering all of the Registrable Securities and the Company shall
determine to prepare and file with the SEC a registration statement relating to
an offering for its own account or the account of others under the Securities
Act of any of its equity securities (other than on Form S-4 or Form S-8
(each as promulgated under the Securities Act) or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with the Company’s stock option or other employee

 

A-4

 

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

 

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

 

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

 

A-5

 

3.                                       Related
Obligations.

 

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

 

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

 

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

 

A-6

 

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

 

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

 

A-7

 

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

 

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

 

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

 

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

 

A-8

 

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

 

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

 

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

 

A-9

 

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

 

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

 

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

 

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

 

A-10

 

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

 

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

 

(n)                                 The Company
shall make generally available to its security holders as soon as practical,
but not later than ninety (90) days after the close of the period covered
thereby, an earnings statement (in form complying with, and in the manner
provided by, the provisions of Rule 158 under the Securities Act) covering
a twelve-month period beginning not later than the first day of the Company’s
fiscal quarter next following the applicable Effective Date of each
Registration Statement.

 

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

 

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

 

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

 

A-11

 

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

 

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

 

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

 

4.                                       Obligations of
the Investor.

 

(a)                                  At least five
Business Days prior to the first anticipated filing date of each Registration
Statement, the Company shall notify the Investor in writing of the information
the Company requires from the Investor with respect to such Registration
Statement. It shall be a condition precedent to the obligations of the Company
to complete the registration pursuant to this Agreement with respect to the
Registrable Securities of the Investor that the Investor shall furnish to the
Company such information regarding itself, the Registrable Securities held by
it and the intended method of disposition of the Registrable Securities held by
it, as shall be reasonably required to effect and maintain the effectiveness of
the registration of such Registrable Securities and shall execute such
documents in connection with such registration as the Company may reasonably
request.

 

(b)                                 The Investor,
by its acceptance of the Registrable Securities, agrees to cooperate with the
Company as reasonably requested by the Company in connection with the
preparation and filing of each Registration Statement hereunder, unless the
Investor has notified the Company in writing of the Investor’s election to
exclude all of the Investor’s Registrable Securities from such Registration
Statement.

 

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

 

A-12

 

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

 

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

 

5.                                       Expenses of
Registration.

 

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

 

6.                                       Indemnification.

 

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

 

A-13

 

made,
not misleading (the matters in the foregoing clauses (i) and (ii) being,
collectively, “Violations”). Subject to Section 6(c),
the Company shall reimburse the Investor Parties, promptly as such expenses are
incurred and are due and payable, for any legal fees or other reasonable
expenses incurred by them in connection with investigating or defending any
such Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a): (i) shall
not apply to a Claim by an Investor Party arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by such Investor Party for such Investor
Party expressly for use in connection with the preparation of such Registration
Statement, prospectus or prospectus supplement or any such amendment thereof or
supplement thereto; (ii) shall not be available to the Investor to the
extent such Claim is based on a failure of the Investor to deliver or to cause
to be delivered the prospectus (as amended or supplemented) made available by
the Company (to the extent applicable), including, without limitation, a
corrected prospectus, if such prospectus (as amended or supplemented) or
corrected prospectus was timely made available by the Company pursuant to Section 3(d) and
then only if, and to the extent that, following the receipt of the corrected
prospectus no grounds for such Claim would have existed; and (iii) shall
not apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of the Company, which consent shall
not be unreasonably withheld or delayed. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Investor Party and shall survive the transfer of any of the Registrable
Securities by the Investor pursuant to Section 9.

 

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

 

A-14

 

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

 

A-15

 

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

 

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

 

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

 

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

 

7.                                       Contribution.

 

To the extent any
indemnification by an indemnifying party is prohibited or limited by law, the
indemnifying party agrees to make the maximum contribution with respect to any
amounts for which it would otherwise be liable under Section 6 to the
fullest extent permitted by law; provided, however: (i) no
contribution shall be made under circumstances where the maker would not have
been liable for indemnification under the fault standards set forth in Section 6
of this Agreement, (ii) no Person involved in the sale of Registrable
Securities which Person is guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) in connection with
such sale shall be entitled to contribution from any Person involved in such
sale of Registrable Securities who was not guilty of fraudulent
misrepresentation; and (iii) contribution by any seller of Registrable
Securities shall be limited in amount to the amount of net proceeds received by
such seller from the applicable sale of such Registrable Securities pursuant to
such Registration Statement. Notwithstanding the provisions of this Section 7,
the Investor shall not be required to contribute, in the aggregate, any amount
in excess of the amount by which the net proceeds actually received by the
Investor from the applicable sale of the Registrable Securities subject to the
Claim exceeds the amount of any damages that the Investor has otherwise been
required to pay, or would otherwise be required to pay under Section 6(b),
by reason of such untrue or alleged untrue statement or omission or alleged
omission.

 

8.                                       Reports Under
the 1934 Act.

 

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

 

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

 

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

 

A-16

 

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

 

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

 

9.                                       Assignment of
Registration Rights.

 

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

 

10.                                 Amendment of Registration
Rights.

 

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

 

A-17

 

11.                                 Miscellaneous.

 

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

 

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

 

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

 

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

 

A-18

 

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

 

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

 

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

 

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

 

(i)                                     Each party
shall do and perform, or cause to be done and performed, all such further acts
and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents as any other party may reasonably
request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated hereby.

 

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

 

[signature pages follow]

 

A-19

 

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

 

	
   

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  ARYX
  THERAPEUTICS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  

 

A-20

 

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

 

	
   

  	
  INVESTOR:

  
	
   

  	
   

  
	
   

  	
  COMMERCE
  COURT SMALL CAP VALUE FUND, LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Its:

  	
   

  

 

A-21

 

EXHIBIT A

 

FORM OF
NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT

 

	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Attention:

  	
   

  	
   

  
			

 

Re:          [                                  ]

 

Ladies and Gentlemen:

 

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

 

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

 

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

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  [ISSUER’S COUNSEL]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  

 

CC:          [INVESTOR]

 

A-22

 

EXHIBIT B

 

SELLING STOCKHOLDER

 

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

 

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

 

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

 

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

 

A-23

 

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

 

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

 

	
   

  	
   

  	
  Number
  of Shares of 

  Common Stock Owned 

  Prior to Offering

  	
   

  	
  Maximum
  Number of Shares 

  of Common Stock to be 

  Offered Pursuant to this 

  	
   

  	
  Number
  of Shares of 

  Common Stock Owned 

  After Offering

  	
   

  
	
  Name of Selling Stockholder

  	
   

  	
  Number

  	
   

  	
  Percent

  	
   

  	
  Prospectus

  	
   

  	
  Number

  	
   

  	
  Percent

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  [                                    ]
  (1)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

A-24

 

PLAN OF DISTRIBUTION

 

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

 

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

 

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

 

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

 

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

 

A-25

 

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

 

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

 

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

 

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

 

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

 

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

 

·                  privately negotiated
transactions;

 

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

 

·                  a combination of any such
methods of sale;

 

·                  and any other method
permitted pursuant to applicable law.

 

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

 

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

 

A-26

 

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

 

·                  the number of
shares involved;

 

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

 

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

 

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

 

·                  other facts material to the
transaction.

 

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

 

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

 

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

 

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

 

A-27

 

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

 

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

 

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

 

A-28

 

EXHIBIT B TO THE

COMMON STOCK PURCHASE AGREEMENT

FORM OF FIXED REQUEST NOTICE

 

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

 

	
   

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

  	
   

  	
   

  
	
   

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

  	
   

  	
   

  
	
   

  	
  Pricing Period start date:

  	
   

  	
   

  
	
   

  	
  Pricing Period end date:

  	
   

  	
   

  
	
   

  	
  First Settlement Date:

  	
   

  	
   

  
	
   

  	
  Second Settlement Date:

  	
   

  	
   

  
	
   

  	
  Fixed Request Threshold
  Price:

  	
   

  	
   

  

 

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

 

	
   

  	
  Dated:

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address:

  Facsimile No.

  
	
   

  	
  AGREED AND ACCEPTED

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
  Name

  	
   

  
	
   

  	
  Title:

  	
   

  
						

 

B-1

 

EXHIBIT C TO THE

COMMON STOCK PURCHASE AGREEMENT

CERTIFICATE OF THE COMPANY

CLOSING CERTIFICATE

 

                  
200  

 

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

 

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

 

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

 

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

 

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

 

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

 

	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
  Title:

  

 

C-1

 

EXHIBIT D TO THE

COMMON STOCK PURCHASE AGREEMENT

COMPLIANCE CERTIFICATE

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

	
   

  	
  By:

  	
   

  
	
   

  	
   

  Name:

  	
   

  
	
   

  	
   

  Title:

  	
   

  

 

D-1

 

DISCLOSURE SCHEDULE

RELATING TO THE COMMON STOCK 

PURCHASE AGREEMENT, DATED AS OF OCTOBER 6, 2009 

BETWEEN ARYX THERAPEUTICS, INC. AND COMMERCE COURT SMALL CAP VALUE FUND, LTD.

 

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

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