EXHIBIT 4.5
================================================================================
SERIES E CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
among
ADOLOR CORPORATION
and
THE PURCHASERS NAMED IN SCHEDULE I
Dated as of December 8, 1998
================================================================================
TABLE OF CONTENTS
Page
----
ARTICLE I THE PREFERRED SHARES............................................ 1
SECTION 1.01 Issuance, Sale and Delivery of the Preferred Shares.. 1
SECTION 1.02 Initial Closing...................................... 1
SECTION 1.03 Additional Closing................................... 1
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................. 2
SECTION 2.01 Organization, Qualifications and Corporate Power..... 2
SECTION 2.02 Authorization of Agreements, Etc..................... 3
SECTION 2.03 Validity............................................. 3
SECTION 2.04 Authorized Capital Stock............................. 3
SECTION 2.05 Financial Statements................................. 4
SECTION 2.06 Events Subsequent to the Date of the Balance Sheet... 5
SECTION 2.07 Litigation: Compliance with Law...................... 5
SECTION 2.08 Proprietary Information of Third Parties............. 6
SECTION 2.09 Patents, Trademarks, Etc............................. 6
SECTION 2.10 Title to Properties.................................. 7
SECTION 2.11 Leasehold Interests.................................. 7
SECTION 2.12 Insurance............................................ 7
SECTION 2.13 Taxes................................................ 7
SECTION 2.14 Other Agreements..................................... 8
SECTION 2.15 Significant Customers and Suppliers.................. 10
SECTION 2.16 Governmental Approvals............................... 10
SECTION 2.17 Disclosure........................................... 10
SECTION 2.18 Offering of the Preferred Shares..................... 10
SECTION 2.19 Brokers.............................................. 11
SECTION 2.20 Officers............................................. 11
SECTION 2.21 Transactions With Affiliates......................... 11
SECTION 2.22 Employees............................................ 11
SECTION 2.23 Environmental Protection............................. 11
SECTION 2.24 ERISA................................................ 12
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.............. 13
ARTICLE IV CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS................ 14
ARTICLE V COVENANTS OF THE COMPANY........................................ 16
SECTION 5.01 Financial Statements, Reports, Etc................... 16
SECTION 5.02 Right of First Refusal............................... 17
SECTION 5.03 Reserve for Conversion Shares........................ 18
SECTION 5.04 Corporate Existence.................................. 18
SECTION 5.05 Properties, Business, Insurance...................... 19
SECTION 5.06 Inspection, Consultation and Advice.................. 19
SECTION 5.07 Restrictive Agreements Prohibited.................... 19
SECTION 5.08 Transactions with Affiliates......................... 19
SECTION 5.09 Use of Proceeds...................................... 19
SECTION 5.10 By-laws.............................................. 19
SECTION 5.11 Performance of Contracts............................. 20
SECTION 5.12 Vesting of Reserved Employee Shares.................. 20
SECTION 5.13 Employee Nondisclosure and Developments Agreements... 20
SECTION 5.14 Compliance with Laws................................. 20
SECTION 5.15 Keeping of Records and Books of Account.............. 20
SECTION 5.16 Rule 144A Information................................ 20
SECTION 5.17 Future Subsidiaries.................................. 21
ARTICLE VI MISCELLANEOUS.................................................. 21
SECTION 6.01 Expenses............................................. 21
SECTION 6.02 Survival of Agreements............................... 21
SECTION 6.03 Brokerage............................................ 21
SECTION 6.04 Parties in Interest.................................. 21
SECTION 6.05 Notices.............................................. 21
SECTION 6.06 Governing Law........................................ 22
SECTION 6.07 Entire Agreement..................................... 22
SECTION 6.08 Counterparts......................................... 22
SECTION 6.09 Amendments........................................... 22
SECTION 6.10 Severability......................................... 22
SECTION 6.11 Titles and Subtitles................................. 22
SECTION 6.12 Certain Defined Term................................. 22
SECTION 6.13 Prior Assignments.................................... 22
ii
INDEX TO SCHEDULES
SCHEDULE I Purchasers
SCHEDULE II Disclosure Schedule
SCHEDULE III Security Holders
SCHEDULE IV(A)
AND IV(B) Agreements
INDEX TO EXHIBITS
EXHIBIT A Form of Amendment No. 3 to Registration Rights Agreement
EXHIBIT B Form of Management Rights Agreement
EXHIBIT C Charter and All Amendments Thereto
EXHIBIT D Form of Employee Nondisclosure and Developments
Agreement
iii
SERIES E CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT dated as of
December 8, 1998 among Adolor Corporation, a Delaware corporation (the
"Company"), and the several purchasers named in the attached Schedule I
----------
(individually a "Purchaser" and collectively the "Purchasers").
WHEREAS, the Company wishes to issue and sell to the Purchasers up to an
aggregate of 13,333,333 shares (the "Preferred Shares") of the authorized but
unissued Series E Convertible Preferred Stock, $01 par value, of the Company
(the "Series E Convertible Preferred Stock"); and
WHEREAS, the Purchasers, severally, wish to purchase the Preferred Shares
on the terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained in this Agreement, the parties agree as follows:
ARTICLE I
THE PREFERRED SHARES
SECTION 1.01 Issuance, Sale and Delivery of the Preferred Shares. The
---------------------------------------------------
Company agrees to issue and sell to each Purchaser, and each Purchaser hereby
agrees to purchase from the Company, the number of Preferred Shares set forth
opposite the name of such Purchaser under the heading "Number of Preferred
Shares to be Purchased" on Schedule I, at the aggregate purchase price set forth
opposite the name of such Purchaser under the heading "Aggregate Purchase Price
for Preferred Shares" on Schedule I.
SECTION 1.02 Initial Closing. The initial closing shall take place at the
---------------
offices of Dechert Price & ▇▇▇▇▇▇, 4000 ▇▇▇▇ Atlantic Tower, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, at 10:00 a.m., Philadelphia time, on November 30, 1998,
or at such other location, date and time as may be agreed upon between the
Purchasers and the Company (such closing being called the "Closing" and such
date and time being called the "Closing Date"). At the Closing, the Company
shall issue and deliver to each Purchaser a stock certificate or certificates in
definitive form, registered in the name of such Purchaser, representing the
Preferred Shares being purchased by it at the Closing. As payment in full for
the Preferred Shares being purchased by it under this Agreement, and against
delivery of the stock certificate or certificates therefor as aforesaid, on the
Closing Date each Purchaser shall (i) deliver to the Company a check payable to
the order of the Company, in the amount set forth opposite the name of such
Purchaser under the heading "Aggregate Purchase Price for Preferred Shares" on
Schedule I. (ii) transfer such sum to the account of the Company by wire
----------
transfer, or (iii) deliver or transfer such sum to the Company by any
combination of such methods of payments.
SECTION 1.03 Additional Closing. After the Closing Date and on or prior to
------------------
January 15, 1999 the Company may hold one or more additional closings (each an
"Additional Closing; and collectively the "Additional Closings") at which the
Company may issue and sell
up to the number of Preferred Shares equal to the difference between 13,333,333
and the aggregate number of Preferred Shares previously sold on the Closing Date
and, as applicable, on the date of any prior Additional Closing. The sale of
Preferred Shares pursuant to this Section 1.03 shall be on the same terms and
conditions (including price) as the sale of the Preferred Shares pursuant to
Section 1.02 hereof and shall be effected by the execution by any investor of a
counterpart signature page to this Agreement. Upon such execution: (i) each such
investor shall be deemed to be a Purchaser for all purposes of this Agreement
and Schedule I shall be amended to include such Purchaser; and (ii) each such
----------
Additional Closing shall be deemed to be a Closing hereunder and the date of
each such Additional Closing shall be a "Closing Date" hereunder. If necessary,
the Company will provide an updated Disclosure Schedule to Purchasers purchasing
in any Additional Closing.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each Purchaser that, as of each
Closing Date on which such Purchaser purchases Preferred Shares hereunder,
except as set forth in the Disclosure Schedule attached as Schedule II, as may
-----------
be updated in writing prior to any Additional Closing hereunder, (which
Disclosure Schedule, (as updated, if applicable), makes explicit reference to
the particular representation or warranty as to which exception is taken, which
in each case shall constitute the sole representation and warranty as to which
such exception shall apply):
SECTION 2.01 Organization, Qualifications and Corporate Power.
------------------------------------------------
(a) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware and is duly
licensed or qualified to transact business as a foreign corporation and is in
good standing in each jurisdiction in which the nature of the business
transacted by it or the character of the properties owned or leased by it
requires such licensing or qualification. The Company has the corporate power
and corporate authority to own and hold its properties and to carry on its
business as now conducted and as proposed to be conducted, to execute, deliver
and perform this Agreement, Amendment No. 3 to that certain Registration Rights
Agreement by and among the Company and the purchasers named therein dated as of
November 7, 1994, and as amended by Amendment No. 1 to Registration Rights
Agreement dated as of February 27, 1996 and Amendment No. 2 to Registration
Rights Agreement dated as of May 1, 1997 (as amended, the "Original Registration
Rights Agreement") in the form attached as Exhibit A (the "Registration Rights
---------
Agreement Amendment"), and the Management Rights letter agreement(s) between the
Company and certain of the Purchasers, if any, in the form attached as Exhibit B
---------
(the "Management Rights Agreements"), to issue, sell and deliver the Preferred
Shares and to issue and deliver the shares of Common Stock, $.0001 par value, of
the Company ("Common Stock") issuable upon conversion of the Preferred Shares
(the "Conversion Shares"). The Original Registration Rights Agreement as
amended by the Registration Rights Agreement Amendment is sometimes referred to
herein as the "Registration Rights Agreement."
2
(b) The Company does not (i) own of record or beneficially, directly
or indirectly, (A) any shares of capital stock or securities convertible into
capital stock of any other corporation or (B) any participating interest in any
partnership, joint venture or other non-corporate business enterprise or (ii)
control, directly or indirectly, any other entity.
SECTION 2.02 Authorization of Agreements, Etc.
--------------------------------
(a) The execution and delivery by the Company of this Agreement, the
Registration Rights Agreement Amendment and the Management Rights Agreements,
the performance by the Company of its obligations hereunder and thereunder, the
issuance, sale and delivery of the Preferred Shares and the issuance and
delivery of the Conversion Shares have been duly authorized by all requisite
corporate action and will not violate any provision of law, any order of any
court or other agency of government, the Certificate of Incorporation of the
Company, as amended (the "Charter") or the By-laws of the Company, as amended,
or any provision of any indenture, agreement or other instrument to which the
Company or any of its respective properties or assets is bound, or conflict
with, result in a breach of or constitute (with due notice or lapse of time or
both) a default under any such indenture, agreement or other instrument, or
result in the creation or imposition of any lien, charge, restriction, claim or
encumbrance of any nature whatsoever upon any of the properties or assets of the
Company.
(b) The Preferred Shares have been duly authorized and, when issued
in accordance with this Agreement, will be validly issued, fully paid and
nonassessable shares of Series E Convertible Preferred Stock with no personal
liability attaching to the ownership thereof and will be free and clear of all
liens, charges, restrictions, claims and encumbrances imposed by or through the
Company except as set forth in the Registration Rights Agreement. The Conversion
Shares have been duly reserved for issuance upon conversion of the Preferred
Shares and, when so issued, will be duly authorized, validly issued, fully paid
and nonassessable shares of Common Stock with no personal liability attaching to
the ownership thereof and will be free and clear of all liens, charges,
restrictions, claims and encumbrances imposed by or through the Company except
as set forth in the Registration Rights Agreement. Neither the issuance, sale or
delivery of the Preferred Shares nor the issuance or delivery of the Conversion
Shares is subject to any preemptive right of stockholders of the Company or to
any right of first refusal or other right in favor of any person which has not
been waived.
SECTION 2.03 Validity. This Agreement has been duly executed and delivered
--------
by the Company and constitutes the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms. The Registration Rights
Agreement Amendment and the Management Rights Agreements, when executed and
delivered in accordance with this Agreement, will constitute the legal, valid
and binding obligations of the Company, enforceable in accordance with their
respective terms.
SECTION 2.04 Authorized Capital Stock. The authorized capital stock of
------------------------
the Company consists of (i) 57,214,764 shares of Preferred Stock, 101 par value
(the "Preferred Stock"), of which 6,000,000 shares have been designated Series A
Convertible Preferred Stock, 23,107,145 have been designated Series B
Convertible Preferred Stock, 13,814,286 shares have been designated as Series C
Convertible Preferred Stock, 960,000 shares have been designated as Series D
Convertible Preferred Stock and 13,333,333 shares have been designated as Series
E
3
Convertible Preferred Stock, and (ii) 54,750,000 shares of Common Stock.
Immediately prior to the Closing, 5,114,423 shares of Common Stock, 6,000,000
shares of Series A Convertible Preferred Stock, 23,107,145 shares of Series B
Convertible Preferred Stock, 13,814,286 shares of Series C Convertible Preferred
Stock and 960,000 shares of Series D Convertible Preferred Stock will be validly
issued and outstanding, fully paid and nonassessable with no personal liability
attaching to the ownership thereof and no shares of Series E Convertible
Preferred Stock will have been issued. The stockholders of record and holders
of subscriptions, warrants, options, convertible securities, and other rights
(contingent or other) to purchase or otherwise acquire equity securities of the
Company, and the number of shares of Common Stock and the number of such
subscriptions, warrants, options, convertible securities, and other such rights
held by each, are as set forth in the attached Schedule III. The designations,
------------
powers, preferences, rights, qualifications, limitations and restrictions in
respect of each class and series of authorized capital stock of the Company are
as set forth in the Charter, a copy of which is attached as Exhibit C, and all
---------
such designations, powers, preferences, rights, qualifications, limitations and
restrictions are valid, binding and enforceable and in accordance with all
applicable laws. Except as set forth in the attached Schedule III, (i) no
------------
person owns of record or is known to the Company to own beneficially any share
of Common Stock, (ii) no subscription, warrant, option, convertible security, or
other right (contingent or other) to purchase or otherwise acquire equity
securities of the Company is authorized or outstanding that has been issued by
the Company, and (iii) there is no commitment by the Company to issue shares,
subscriptions, warrants, options, convertible securities, or other such rights
or to distribute to holders of any of its equity securities any evidence of
indebtedness or asset. Except as provided for in the Charter or as set forth in
the attached Schedule III, the Company has no obligation (contingent or
------------
otherwise) to purchase, redeem or otherwise acquire any of its equity securities
or any interest therein or to pay any dividend or make any other distribution in
respect thereof. Except as set forth in the attached Schedule III and except
for those certain Stock Restriction Agreements by and among the Company, the
purchasers named therein and each of Dr. ▇▇▇▇ ▇▇▇▇▇▇, Dr. ▇▇▇▇▇▇▇ ▇▇▇▇▇ and ARCH
Development Corporation dated as of November 7, 1994 (the "1994 Stock
Restriction Agreements") and the Restricted Stock Agreement dated May 31, 1996
by and between the Company and ▇▇▇▇▇ ▇▇▇▇▇▇▇, the Management Rights Agreements,
and the Management Rights letter agreements (the "Prior Management Rights
Agreements") between the Company and certain of the Series A Purchasers, the
Series B Purchasers and the Series C Purchasers (as such terms are defined in
Section 6.13 hereof), to the best of the Company's knowledge there are no voting
trusts or agreements, stockholders' agreements, pledge agreements, buy-sell
agreements, rights of first refusal, preemptive rights or proxies relating to
any securities of the Company (whether or not the Company is a party thereto).
All of the outstanding securities of the Company were issued in compliance with
all applicable Federal and state securities laws.
SECTION 2.05 Financial Statements. The Company has furnished to the
--------------------
Purchasers the unaudited consolidated balance sheet of the Company as of
December 31, 1997 and October 31, 1998 (the latter of which is herein referred
to as the "Balance Sheet"), and the related unaudited consolidated statements of
income and cash flows of the Company for the twelve months ended December 31,
1997 and the ten mouths ended October 31, 1998. All such financial statements
have been prepared in accordance with generally accepted accounting principles
consistently applied (except that such unaudited financial statements do not
contain all of the required footnotes) and fairly present in all material
respects the consolidated financial position of the Company as of December 31,
1997 and October 31, 1998, respectively, and the
4
consolidated results of its operations and cash flows for the twelve months
ended December 31, 1997 and the ten months ended October 31, 1998, respectively.
Since the date of the Balance Sheet, (i) there has been no change in the assets,
liabilities or financial condition of the Company (on a consolidated basis) from
that reflected in the Balance Sheet except for changes in the ordinary course of
business which in the aggregate have not been materially adverse and (ii) none
of the business, prospects, financial condition, operations, property or affairs
of the Company (on a consolidated basis) has been materially adversely affected
by any occurrence or development, individually or in the aggregate, whether or
not insured against.
SECTION 2.06 Events Subsequent to the Date of the Balance Sheet.
--------------------------------------------------
Since the date of the Balance Sheet, the Company has not (i) issued any stock,
bond or other corporate security, except pursuant to the exercise of stock
options outstanding as of the date of the Balance Sheet (ii) borrowed any amount
or incurred or become subject to any liability (absolute, accrued or
contingent), except current liabilities incurred and liabilities under contracts
entered into in the ordinary course of business, (iii) discharged or satisfied
any lien or encumbrance or incurred or paid any obligation or liability
(absolute, accrued or contingent) other than current liabilities shown on the
Balance Sheet and current liabilities incurred since the date of the Balance
Sheet in the ordinary course of business, (iv) declared or made any payment or
distribution to stockholders or purchased or redeemed any share of its capital
stock or other security, (v) mortgaged, pledged, encumbered or subjected to lien
any of its assets, tangible or intangible, other than liens of current real
property taxes not yet due and payable, (vi) sold, assigned or transferred any
of its tangible assets except in the ordinary course of business, or canceled
any debt or claim, (vii) sold, assigned, transferred or granted any exclusive
license with respect to any patent, trademark, trade name, service ▇▇▇▇,
copyright, trade secret or other intangible asset, (viii) suffered any loss of
property or waived any right of substantial value whether or not in the ordinary
course of business, (ix) made any change in officer compensation except in the
ordinary course of business and consistent with past practice, (x) made any
material change in the manner of business or operations of the Company, (xi)
entered into any transaction except in the ordinary course of-business or as
otherwise contemplated hereby or (xii) entered into any commitment (contingent
or otherwise) to do any of the foregoing.
SECTION 2.07 Litigation: Compliance with Law. There is no (i)
-------------------------------
action, suit, claim, proceeding or investigation pending or, to the best of the
Company's knowledge, threatened against or affecting the Company, at law or in
equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, (ii) arbitration proceeding relating to the Company pending under
collective bargaining agreements or otherwise or (iii) governmental inquiry
pending or, to the best of the Company's knowledge, threatened against or
affecting the Company (including without limitation any inquiry as to the
qualification of the Company to hold or receive any license or permit). The
Company is not in default with respect to any order, writ, injunction or decree
known to or served upon the Company of any court or of any Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign. There is no action or suit by the Company
pending or threatened against others. The Company has complied with all laws,
rules, regulations and orders applicable to its business, operations,
properties, assets, products and services, the Company has all necessary
permits, licenses and other authorizations required to conduct its business as
conducted and as proposed to be conducted, and the Company has been operating
its business pursuant to and in compliance
5
with the terms of all such permits, licenses and other authorizations except
where any instance or instances of noncompliance do not, individually or in the
aggregate, have a material adverse effect on the Company's business, prospects,
financial condition, operations, property or affairs. There is no existing law,
rule, regulation or order, and the Company after due inquiry is not aware of any
proposed law, rule, regulation or order, whether Federal, state, county or
local, which would prohibit or restrict the Company from, or otherwise
materially adversely affect the Company in, conducting its business in any
jurisdiction in which it is now conducting business or in which it proposes to
conduct business.
SECTION 2.08 Proprietary Information of Third Parties. To the best
----------------------------------------
of the Company's knowledge, no third party has claimed or has reason to claim
that any person employed by or affiliated with the Company has (a) violated or
may be violating any of the terms or conditions of his employment, non-
competition or non-disclosure agreement with such third party, (b) disclosed or
may be disclosing or utilized or may be utilizing any trade secret or
proprietary information or documentation of such third party or (c) interfered
or may be interfering in the employment relationship between such third party
and any of its present or former employees. No third party has requested
information from the Company which suggests that such a claim might be
contemplated. To the best of the Company's knowledge, no person employed by or
affiliated with the Company has employed or proposes to employ any trade secret
or any information or documentation proprietary to any former employer, and to
the best of the Company's knowledge, no person employed by or affiliated with
the Company has violated any confidential relationship which such person may
have had with any third party, in connection with the development, manufacture
or sale of any product or proposed product or the development or sale of any
service or proposed service of the Company, and the Company has no reason to
believe there will be any such employment or violation. To the best of the
Company's knowledge, none of the execution or delivery of this Agreement, or the
carrying on of the business of the Company as officers, employees or agents by
any officer, director or key employee of the Company, or the conduct or proposed
conduct of the business of the Company, will conflict with or result in a breach
of the terms, conditions or provisions of or constitute a default under any
contract, covenant or instrument under which any such person is obligated.
SECTION 2.09 Patents, Trademarks, Etc. Set forth in Schedule II is
------------------------ -----------
a list and brief description of all domestic and foreign patents, patent rights,
patent applications, trademarks, trademark applications, service marks, service
▇▇▇▇ applications, trade names and copyrights, and all applications for such
which are in the process of being prepared, owned by or registered in the name
of the Company, or of which the Company is a licensor or licensee or in which
the Company has any right, and in each case a brief description of the nature of
such right. The Company owns or possesses adequate licenses or other rights to
use all patents, patent applications, trademarks, trademark applications,
service marks, service ▇▇▇▇ applications, trade names, copyrights, manufacturing
processes, formulae, trade secrets, customer lists and know how (collectively,
"Intellectual Property") necessary to the conduct of its business as conducted
and as proposed to be conducted, and no claim is pending or, to the best of the
Company's knowledge, threatened to the effect that the operations of the Company
infringe upon or conflict with the asserted rights of any other person under any
Intellectual Property, and the Company reasonably believes that there is no
basis for any such claim (whether or not pending or threatened). No claim is
pending or threatened to the effect that any such Intellectual Property owned or
licensed by the Company, or which the Company otherwise has the right to use, is
6
invalid or unenforceable by the Company, and there is no basis for any such
claim (whether or not pending or threatened). All prior art known to the Company
which may be or may have been pertinent to the examination of any United
States patent or patent application listed in Schedule II has been cited to the
-----------
United States Patent and Trademark Office. To the best of the Company's
knowledge, all technical information developed by and belonging to the Company
which has not been patented has been kept confidential. The Company has not
granted or assigned to any other person or entity any right to manufacture, have
manufactured, assemble or sell the products or proposed products or to provide
the services or proposed services of the Company.
SECTION 2.10 Title to Properties. The Company has good, clear and
-------------------
marketable title to its properties and assets reflected on the Balance Sheet or
acquired by it since the date of the Balance Sheet (other than properties and
assets disposed of in the ordinary course of business since the date of the
Balance Sheet), and all such properties and assets are free and clear of
mortgages, pledges, security interests, liens, charges, claims, restrictions and
other encumbrances (including without limitation, easements and licenses),
except for liens for or current taxes not yet due and payable and minor
imperfections of title, if any, not material in nature or amount and not
materially detracting from the value or impairing the use of the property
subject thereto or impairing the operations or proposed operations of the
Company, including without limitation, the ability of the Company to secure
financing using such properties and assets as collateral. To the best of the
Company's knowledge after due inquiry, there are no condemnation, environmental,
zoning or other land use regulation proceedings, either instituted or planned to
be instituted, which would adversely affect the use or operation of the
Company's and its subsidiaries' properties and assets for their respective
intended uses and purposes, or the value of such properties, and the Company has
not received notice of any special assessment proceedings which would affect
such properties and assets.
SECTION 2.11 Leasehold Interests. Each lease or agreement to which
-------------------
the Company is a party under which it is a lessee of any property, real or
personal, is a valid and subsisting agreement, duly authorized and entered into,
without any default of the Company thereunder and, to the best of the Company's
knowledge, without any default thereunder of any other party thereto. No event
has occurred and is continuing which, with due notice or lapse of time or both,
would constitute a default or event of default by the Company under any such
lease or agreement or, to the best of the Company's knowledge, by any other
party thereto. The Company's possession of such property has not been disturbed
and, to the best of the Company's knowledge after due inquiry, no claim has been
asserted against the Company adverse to its rights in such leasehold interests.
SECTION 2.12 Insurance. The Company holds valid policies covering
---------
all of the insurance required to be maintained by it under Section 5.05.
SECTION 2.13 Taxes. The Company has filed all tax returns, Federal,
-----
state, county and local, required to be filed by it, and the Company has paid
all taxes shown to be due by such returns as well as all other taxes,
assessments and governmental charges which have become due or payable, including
without limitation all taxes which the Company is obligated to withhold from
amounts owing to employees, creditors and third parties. The Company has
established adequate reserves for all taxes accrued but not yet payable. The
Federal income tax
7
returns of the Company have never been audited by the Internal Revenue Service.
No deficiency assessment with respect to or proposed adjustment of the Company's
Federal, state, county or local taxes is pending or, to the best of the
Company's knowledge, threatened. There is no tax lien, whether imposed by any
Federal, state, county or local taxing authority, outstanding against the
assets, properties or business of the Company. Neither the Company nor any of
its present or former stockholders has ever filed an election pursuant to
Section 1362 of the Internal Revenue Code of 1986, as amended (the "Code"), that
the Company be taxed as an S corporation.
SECTION 2.14 Other Agreements. Except as set forth in the attached
----------------
Schedule IV(A), (which Schedule IV(A) may be updated in writing prior to any
-------------- --------------
Additional Closing hereunder) as of each Closing Date hereunder, the Company
reasonably believes after due investigation that it is not a party to or
otherwise bound by any written or oral agreement, instrument, commitment or
restriction which individually or in the aggregate could materially adversely
affect the business, prospects, financial condition, operations, property or
affairs of the Company. Except as set forth in the attached Schedule IV(B) the
--------------
Company is not a party to or otherwise bound by any written or oral:
(a) distributor, dealer, manufacturers representative or sales agency
agreement which is not terminable on less than ninety (90) days' notice without
cost or other liability to the Company (except for agreements which, in the
aggregate, are not material to the business of the Company);
(b) sales agreement which entitles any customer to a rebate or right
of set-off, to return any product to the Company after acceptance thereof or to
delay the acceptance thereof, or which varies in any material respect from the
Company's standard form agreements;
(c) agreement with any labor union (and, to the knowledge of the
Company, no organizational effort is being made with respect to any of its
employees);
(d) agreement with any supplier containing any provision permitting
any party other than the Company to renegotiate the price or other terms, or
containing any pay-back or other similar provision, upon the occurrence of a
failure by the Company to meet its obligations under the agreement when due or
the occurrence of any other event;
(e) agreement for the future purchase of fixed assets or for the
future purchase of materials, supplies or equipment in excess of its normal
operating requirements;
(f) agreement for the employment of any officer, employee or other
person on a full-time or consulting basis which is not terminable by the Company
at will without liability to the Company, except pursuant to severance and
accrued vacation pay policies applicable to all employees of the Company;
(g) bonus, pension, profit-sharing, retirement, hospitalization,
insurance, stock purchase, stock option or other plan, agreement or
understanding pursuant to which benefits are provided to any employee of the
Company (other than group insurance plans applicable to employees generally);
8
(h) agreement relating to the borrowing of money or to the mortgaging
or pledging of, or otherwise placing a lien or security interest on, any asset
of the Company;
(i) guaranty of any obligation for borrowed money or otherwise;
(j) voting trust or agreement, stockholders' agreement, pledge
agreement, buy-sell agreement or first refusal or preemptive rights agreement
relating to any securities of the Company (other than this Agreement, the
Registration Rights Agreement Amendment, the 1994 Stock Restriction Agreements,
the Management Rights Agreements and the Prior Management Rights Agreements),
the Series A Agreement (as defined in Section 6.13 hereof), the Series B
Agreement (as defined in Section 6.13 hereof), the Series C Agreement (as
defined in Section 6.13 hereof) and the Stock Purchase Agreement, dated as of
November 5, 1997, between the Company and ▇▇▇▇▇ ▇▇▇▇ Pharmaceutical Company);
(k) agreement, or group of related agreements with the same party or
any group of affiliated parties, under which the Company has advanced or agreed
to advance money or has agreed to lease any property as lessee or lessor;
(l) agreement or obligation (contingent or otherwise) to issue, sell
or otherwise distribute or to repurchase or otherwise acquire or retire any
share of its capital stock or any of its other equity securities other than
pursuant to its Charter as in effect on any Closing Date hereunder;
(m) assignment, license or other agreement with respect to any form
of intangible property;
(n) agreement under which it has granted any person any registration
rights, other than the Registration Rights Agreement;
(o) agreement under which it has limited or restricted its right to
compete with any person in any respect; and
(p) other agreement or group of related agreements with the same
party involving more than $40,000 or continuing over a period of more than six
months from the date or dates thereof (including renewals or extensions optional
with another party), which agreement or group of agreements is not terminable by
the Company without penalty upon notice of thirty (30) days or less, but
excluding any agreement or group of agreements with a customer of the Company
for the sale, lease or rental of the Company's products or services if such
agreement or group of agreements was entered into by the Company in the ordinary
course of business.
The Company, and to the best of the Company's knowledge after due inquiry, each
other party thereto have in all material respects performed all the obligations
required to be performed by them to date (or each non-performing party has
received a valid, enforceable and irrevocable written waiver with respect to its
non-performance), have received no notice of default and are not in default
(with due notice or lapse of time or both) under any agreement, instrument,
commitment, plan or arrangement to which the Company is a party or by which it
or its property may be bound. The Company has no present expectation or
intention of not fully performing all
9
its obligations under each such agreement, instrument, commitment, plan or
arrangement, and the Company has no knowledge of any breach or anticipated
breach by the other party to any agreement, instrument, commitment, plan or
arrangement to which the Company is a party. The Company is in full compliance
with all of the terms and provisions of its Charter and By-laws, as amended.
SECTION 2.15 Significant Customers and Suppliers. No customer or
-----------------------------------
supplier, or group of two or more thereof (whether or not affiliated) which was
material to the Company, individually or in the aggregate, during the period
covered by the financial statements referred to in Section 2.05 or which has
been material to the Company thereafter, has terminated, materially reduced or
threatened to terminate or materially reduce its or their purchases from or
provision of products or services to the Company, as the case may be.
SECTION 2.16 Governmental Approvals. Subject to the accuracy of the
----------------------
representations and warranties of the Purchasers set forth in Article III, no
registration or filing with, or consent or approval of or other action by, any
Federal, state or other governmental agency or instrumentality is or will be
necessary for the valid execution, delivery and performance by the Company of
this Agreement, the Registration Rights Agreement Amendment or the Management
Rights Agreements, the issuance, sale and delivery of the Preferred Shares or,
upon conversion thereof, the issuance and delivery of the Conversion Shares,
other than (i) filings pursuant to state securities laws (all of which filings
have been made by the Company, other than those which are required to be made
after the Closing and which will be duly made on a timely basis) in connection
with the sale of the Preferred Shares and (ii) with respect to the Registration
Rights Agreement, the registration of the shares covered thereby with the
Commission and filings pursuant to state securities laws.
SECTION 2.17 Disclosure. Neither this Agreement, nor any Schedule
----------
or Exhibit to this Agreement, contains an untrue statement of a material fact or
omits a material fact necessary to make the statements contained herein or
therein not misleading. None of the statements, documents, certificates or other
items prepared or supplied by the Company with respect to the transactions
contemplated hereby contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained therein not misleading.
SECTION 2.18 Offering of the Preferred Shares. Neither the Company
--------------------------------
nor any person authorized or employed by the Company as agent, broker, dealer or
otherwise in connection with the offering or sale of the Preferred Shares or any
security of the Company similar to the Preferred Shares has offered the
Preferred Shares or any such similar security for sale to, or solicited any
offer to buy the Preferred Shares or any such similar security from, or
otherwise approached or negotiated with respect thereto with, any person or
persons, and neither the Company nor any person acting on its behalf has taken
or will take any other action (including, without limitation, any offer,
issuance or sale of any security of the Company under circumstances which might
require the integration of such security with Preferred Shares under the
Securities Act of 1933, as amended (the "Securities Act") or the rules and
regulations of the Commission thereunder), in either case so as to subject the
offering, issuance or sale of the Preferred Shares to the registration
provisions of the Securities Act.
10
SECTION 2.19 Brokers. The Company has no contract, arrangement or
-------
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
SECTION 2.20 Officers. Set forth in Schedule II is a list of the
-------- -----------
names of the officers of the Company, together with the title or job
classification of each such person and the total cash compensation anticipated
to be paid to each such person by the Company in 1998.
SECTION 2.21 Transactions With Affiliates. Other than purchases of
----------------------------
Preferred Shares hereunder and under the Series A Agreement, Series B Agreement
and Series C Agreement (as such terms are defined in Section 6.13 hereof) and
except as set forth on Schedule III and Schedule IV(B) hereof, no director,
------------ -------------
officer, employee or stockholder of the Company, or member of the family of any
such person, or any corporation, partnership, trust or other entity in which any
such person, or any member of the family of any such person, has a substantial
interest or is an officer, director, trustee, partner or holder of more than 5%
of the outstanding capital stock thereof, is a party to any transaction with the
Company, including any contract, agreement or other arrangement providing for
the employment of, furnishing of services by, rental of real or personal
property from or otherwise requiring payments to any such person or firm, other
than employment-at-will arrangements in the ordinary course of business.
SECTION 2.22 Employees. Each of the officers of the Company, each
---------
key employee and each other employee now employed by the Company who has access
to confidential information of the Company has executed an Employee
Nondisclosure and Developments Agreement substantially in the form of Exhibit D
---------
and such agreements are in full force and effect. No officer or key employee of
the Company has advised the Company (orally or in writing) that he intends to
terminate employment with the Company. The Company has complied in all material
respects with all applicable laws relating to the employment of labor, including
provisions relating to wages, hours, equal opportunity, collective bargaining
and the payment of Social Security and other taxes, and with the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
SECTION 2.23 Environmental Protection. The Company has not caused
------------------------
or allowed, or contracted with any pasty for, the generation, use,
transportation, treatment, storage or disposal of any Hazardous Substances (as
defined below) in connection with the operation of its business or otherwise.
The Company, the operation of its business, and to the Company's knowledge, any
real property that the Company owns, leases or otherwise occupies or uses (the
"Premises") are in material compliance with all applicable Environmental Laws
(as defined below) and orders or directives of any governmental authorities
having jurisdiction under such Environmental Laws, including, without
limitation, any Environmental Laws or orders or directives with respect to any
cleanup or remediation of any release or threat of release of Hazardous
Substances. The Company has not received any citation, directive, letter or
other communication, written or oral, or any notice of any proceeding, claim or
lawsuit, from any person arising out of the ownership or occupation of the
Premises, or the conduct of its operations, and the Company is not aware of any
basis therefor. The Company has obtained and is maintaining in full force and
effect all necessary permits, licenses and approvals required by all
Environmental Laws applicable to the Premises and the Company's business
operations conducted thereon, and is in compliance with all such permits,
licenses and approvals. The
11
Company has not caused or allowed a release, or a threat of release, of any
Hazardous Substance unto, at or near the Premises, and, to the best of the
Company's knowledge, neither the Premises nor any property at or near the
Premises has ever been subject to a release, or a threat of release, of any
Hazardous Substance. For the purposes of this Agreement, the term "Environmental
Laws" shall mean any Federal, state or local law or ordinance or regulation
pertaining to the protection of human health or the environment, including,
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Sections 9601, et seq., the Emergency Planning and
Community Right-to-Know Act, 42 U.S.C. Sections 11001, et seq., and the Resource
Conservation and Recovery Act, 42 U.S.C. Sections 6901, et seq. For purposes of
this Agreement, the term "Hazardous Substances" shall include oil and petroleum
products, asbestos, polychlorinated biphenyls, urea formaldehyde and any other
materials classified as hazardous or toxic under any Environmental Laws.
SECTION 2.24 ERISA.
-----
(a) Schedule II lists each Employee Plan that covers any employee of the
-----------
Company, copies or descriptions of all of which have previously been made
available or furnished to the Purchasers. With respect to each Employee Plan,
the Company has provided the most recently filed Form 5500 and an accurate
summary description of such plan.
(b) Schedule II also includes a list of each Benefit Arrangement of the
-----------
Company, copies or descriptions of all of which have been made available or
furnished previously to the Purchasers.
(c) No Employee Plan is a Multiemployer Plan and no Employee Plan is
subject to Title IV of ERISA. The Company and its Affiliates have not incurred
any liability under Title IV of ERISA arising in connection with the termination
of any plan covered or previously covered by Title IV of ERISA.
(d) None of the Employee Plans or other arrangements listed on Schedule II
-----------
covers any non-United States employee or former employee of the Company.
(e) No "prohibited transaction," as defined in Section 406 of ERISA or
Section 4975 of the Code, has occurred with respect to any Employee Plan.
(f) Each Employee Plan which is intended to be qualified under Section
401(a) of the Code is so qualified and has been so qualified during the period
from its adoption to date, and each trust forming a part thereof is exempt from
tax pursuant to Section 501(a) of the Code. The Company has furnished to the
Purchasers copies of the most recent Internal Revenue Service determination
letters with respect to each such plan. Each Employee Plan has been maintained
in compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations, including but not limited to ERISA and
the Code, which are applicable to such plan.
(g) Each Employee Plan and each Benefit Arrangement has been maintained in
substantial compliance with its terms and with the requirements prescribed by
any and all statutes, orders, rules and regulations which are applicable to such
Employee Plan and Benefit Arrangement.
12
(h) All contributions and payments accrued under each Employee Plan and
Benefit Arrangement, determined in accordance with prior funding and accrual
practices, as adjusted to include proportional accruals for the period ending on
the Closing Date, will be discharged and paid on or prior to the Closing Date
except to the extent reflected on the Balance Sheet. Except as disclosed in
writing to the Purchasers prior to the date hereof, there has been no amendment
to, written interpretation of or announcement (whether or not written) by the
Company or any of its ERISA Affiliates relating to, or change in employee
participation or coverage under, any Employee Plan or Benefit Arrangement that
would increase materially the expense of maintaining such Employee Plan or
Benefit Arrangement above the level of the expense incurred in respect thereof
for the fiscal year ended prior to the date hereof.
(i) There is no contract, agreement, plan or arrangement covering any
employee or former employee of the Company that, individually or collectively,
could give rise to the payment of any amount that would not be deductible
pursuant to the terms of Section 280G of the Code.
(j) No tax under Section 4980B of the Code has been incurred in respect of
any Employee Plan that is a group health plan, as defined in Section 5000(b)(1)
of the Code.
(k) With respect to the employees and former employees of the Company,
there are no employee post-retirement medical or health plans in effect, except
as required by Section 4980B of the Code.
(l) No employee of the Company will become entitled to any bonus,
retirement, severance or similar benefit or enhanced benefit solely as a result
of the transactions contemplated hereby.
(m) The Company does not have, nor is it reasonably expected to have, any
liability under Title IV of ERISA.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser severally represents and warrants to the Company that:
(a) it is an "accredited investor" within the meaning of Rule 501 under
the Securities Act and was not organized for the specific purpose of
acquiring the Preferred Shares;
(b) it has sufficient knowledge and experience in investing in companies
similar to the Company in terms of the Company's stage of development so as
to be able to evaluate the risks and merits of its investment in the Company
and it is able financially to bear the risks thereof;
(c) it has had an opportunity to discuss the Company's proposed business,
management and financial affairs with the Company's management;
13
(d) the Preferred Shares being purchased by it are being acquired for its
own account for the purpose of investment and not with a view to or for sale
in connection with any distribution thereof;
(e) it understands that (i) the Preferred Shares and the Conversion Shares
have not been registered under the Securities Act by reason of their issuance
in a transaction exempt from the registration requirements of the Securities
Act pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated under the
Securities Act, (ii) the Preferred Shares and, upon conversion thereof, the
Conversion Shares must be held indefinitely unless a subsequent disposition
thereof is registered under the Securities Act or is exempt from such
registration, (iii) the Preferred Shares and the Conversion Shares will bear
a legend to such effect and (iv) the Company will make a notation on its
transfer books to such effect; and
(f) if it sells any Conversion Shares pursuant to Rule 144A promulgated
under the Securities Act, it will take all necessary steps in order to
perfect the exemption from registration provided thereby, including (i)
obtaining on behalf of the Company information to enable the Company to
establish a reasonable belief that the purchaser is a qualified institutional
buyer and (ii) advising such purchaser that Rule 144A is being relied upon
with respect to such resale.
ARTICLE IV
CONDITIONS TO THE OBLIGATIONS
OF THE PURCHASERS
The obligation of each Purchaser to purchase and pay for the Preferred
Shares being purchased by it on the Closing Date is, at its option, subject to
the satisfaction, on or before the Closing Date, of the following conditions:
(a) Representations and Warranties to be True and Correct. The
-----------------------------------------------------
representations and warranties contained in Article II shall be true,
complete and correct in all material respects on and as of the Closing Date
with the same effect as though such representations and warranties had been
made on and as of such date, and the President and Treasurer of the Company
shall have certified to such effect to the Purchasers in writing.
(b) Performance. The Company shall have performed and complied in all
-----------
material respects with all agreements contained herein required to be
performed or complied with by it prior to or at the Closing Date.
(c) All Proceedings to be Satisfactory. All corporate and other
----------------------------------
proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be satisfactory
in form and substance to the Purchasers and their counsel, and the Purchasers
and their counsel shall have received all such counterpart originals or
certified or other copies of such documents as they reasonably may request.
(d) Supporting Documents. The Purchasers and their counsel shall have
--------------------
received copies of the following documents:
14
(i) the Charter, certified as of a recent date by the Secretary of
State of the State of Delaware; and
(ii) (A) a complete copy of the By-laws of the Company as in effect on
the Closing Date; and (B) a complete copy of all resolutions adopted by
the Board of Directors and the stockholders of the Company authorizing
the execution, delivery and performance of this Agreement, the
Registration Rights Agreement Amendment and the Management Rights
Agreements, the issuance, sale and delivery of the Preferred Shares and
the reservation, issuance and delivery of the Conversion Shares, and a
secretary's certificate to the effect that all such resolutions are in
full force and effect and are all the resolutions adopted in connection
with the transactions contemplated by this Agreement, the Registration
Rights Agreement Amendment and the Management Rights Agreements.
(e) Registration Rights Agreement Amendment. The Company shall have
---------------------------------------
executed and delivered the Registration Rights Agreement Amendment.
(f) Management Rights Agreements. The Company shall have executed and
----------------------------
delivered the Management Rights Agreements to TGI Fund II, LC and to those
Purchasers who have made a request to the Company therefor and are subject in
any manner with respect to their investment in the Company to ERISA.
(g) Charter. The Charter shall read in its entirety as set forth in
-------
Exhibit C.
---------
(h) Opinion of Counsel. Purchasers participating in such Closing shall
------------------
have received an opinion of Dechert, Price & ▇▇▇▇▇▇, dated the date of such
Closing, satisfactory in form and substance to such Purchasers and
Purchasers' counsel.
(i) Fees of Purchasers' Counsel. The Company shall have paid in
---------------------------
accordance with Section 6.01 the fees and disbursements of Purchasers'
counsel invoiced at the Closing or any Additional Closing.
(j) Due Diligence. The Purchasers shall have completed their business,
-------------
tax, accounting, regulatory, legal and other due diligence review to the
reasonable satisfaction of the Purchasers.
(k) Approvals and Consents. The Company shall have received all
----------------------
governmental and regulatory approvals and consents and all other requisite
third party approvals and consents which are necessary to consummate this
Agreement and the transactions contemplated thereby.
All such documents shall be satisfactory in form and substance to the Purchasers
and their counsel.
15
ARTICLE V
COVENANTS OF THE COMPANY
The Company covenants and agrees with each of the Purchasers that:
SECTION 5.01 Financial Statements, Reports, Etc. The Company shall furnish
----------------------------------
to each Purchaser (provided that such Purchaser signs a customary
confidentiality agreement with the Company):
(a) within ninety (90) days after the end of each fiscal year of the
Company a consolidated balance sheet of the Company as of the end of such
fiscal year and the related consolidated statements of income, stockholders'
equity and cash flows for the fiscal year then ended, prepared in accordance
with generally accepted accounting principles and certified by a firm of
independent public accountants of recognized national standing selected by
the Board of Directors of the Company;
(b) within thirty (30) days after the end of each month in each fiscal year
(other than the last month in each fiscal year) a consolidated balance sheet
of the Company and the related consolidated statements of income,
stockholders' equity and cash flows, unaudited but prepared in accordance
with generally accepted accounting principles and certified by the Chief
Financial Officer of the Company, such consolidated balance sheet to be as of
the end of such month and such consolidated statements of income,
stockholders' equity and cash flows to be for such month and for the period
from the beginning of the fiscal year to the end of such month, in each case
with comparative statements for the prior fiscal year, provided that the
Company's obligations under this Section 5.01(b) shall terminate upon the
completion of a firm commitment underwritten public offering of the Company's
securities;
(c) at the time of delivery of each monthly statement pursuant to Section
5.01(b), a management narrative report explaining all significant variances
from forecasts and all significant current developments in staffing,
marketing, sales and operations;
(d) no later than sixty (60) days prior to the start of each fiscal year,
consolidated capital and operating expense budgets, cash flow projections and
income and loss projections for the Company in respect of such fiscal year,
all itemized in reasonable detail and prepared on a monthly basis, and,
promptly after preparation, any revisions to any of the foregoing;
(e) promptly following receipt by the Company, each audit response letter,
accountant's management letter and other written report submitted to the
Company by its independent public accountants in connection with an annual or
interim audit of the books of the Company;
(f) promptly after the commencement thereof, notice of all actions, suits,
claims, proceedings, investigations and inquiries of the type described in
Section 2.07 that could materially adversely affect the Company;
16
(g) promptly upon sending, making available or filing the same, all press
releases, reports and financial statements that the Company sends or makes
available to its stockholders or directors or files with the Commission; and
(h) promptly, from time to time, such other information regarding the
business, prospects, financial condition, operations, property or affairs of
the Company as such Purchaser reasonably may request.
SECTION 5.02 Right of First Refusal. So long as the Company has not
----------------------
consummated an Initial Public Offering (as hereafter defined), the Company
shall, prior to any issuance by the Company of any of its securities (other than
debt securities with no equity feature), offer to each Purchaser by written
notice the right, for a period of twenty (20) days, to purchase all of such
securities for cash at an amount equal to the price or other consideration for
which such securities are to be issued; provided, however, that the first
refusal rights of the Purchasers pursuant to this Section 5.02 shall not apply
to securities issued (A) upon conversion of any of the Preferred Shares, (B) as
a stock dividend or upon any subdivision of shares of Common Stock, provided
that the securities issued pursuant to such stock dividend or subdivision are
limited to additional shares of Common Stock, (C) pursuant to subscriptions,
warrants, options, convertible securities, or other rights which are listed in
Schedule III as being outstanding on the date of this Agreement, but not
------------
including those described in (F) below, (D) solely in consideration for the
acquisition (whether by merger or otherwise) by the Company of all or
substantially all of the stock or assets of any other entity, which such
acquisition has been approved by the Board of Directors of the Company, (E)
pursuant to a firm commitment underwritten public offering, (F) pursuant to the
exercise of options to purchase Common Stock granted to directors, officers,
employees or consultants of the Company in connection with their service to the
Company or pursuant to the exercise of options to purchase Common Stock granted
to or Common Stock issued to licensors or transferors of technology to the
Company, not to exceed in the aggregate 7,750,000 shares (appropriately adjusted
to reflect stock splits, stock dividends, combinations of shares and the like
with respect to the Common Stock) (the shares exempted by this clause (F) being
hereinafter referred to as the "Reserved Employee and Technology Shares"), and
(G) upon the exercise of any right which was not itself in violation of the
terms of this Section 5.02. The Company's written notice to the Purchasers
shall describe the securities proposed to be issued by the Company and specify
the number, price and payment terms. Each Purchaser may accept the Company's
offer as to the full number of securities offered to it or any lesser number, by
written notice thereof given by it to the Company prior to the expiration of the
aforesaid twenty (20) day period, in which event the Company shall promptly sell
and such Purchaser shall buy, upon the terms specified, the number of securities
agreed to be purchased by such Purchaser. Notwithstanding the foregoing, if the
Purchasers agree, in the aggregate, to purchase more than the full number of
securities offered by the Company, then each Purchaser accepting the Company's
offer shall first be allocated the lesser of (i) the number of securities which
such Purchaser agreed to purchase and (ii) the number of securities as is equal
to the full number of securities offered by the Company multiplied by a
fraction, the numerator of which shall be the number of shares of Common Stock
held by such Purchaser as of the date of the Company's notice of offer (treating
such Purchaser, for the purpose of such calculation, as the holder of the number
of shares of Common Stock which would be issuable to such Purchaser upon
conversion, exercise or exchange of all securities (including but not limited to
the Preferred Shares) held by such Purchaser on the date such offer
17
is made, that are convertible, exercisable or exchangeable into or for (whether
directly or indirectly) shares of Common Stock) and the denominator of which
shall be the aggregate number of shares of Common Stock (calculated as
aforesaid) held on such date by all Purchasers who accepted the Company's offer,
and the balance of the securities (if any) offered by the Company shall be
allocated among the Purchasers accepting the Company's offer in proportion to
their relative equity ownership interests in the Company (calculated as
aforesaid), provided that no Purchaser shall be allocated more than the number
of securities which such Purchaser agreed to purchase and provided further that
in cases covered by this sentence all Purchasers shall be allocated among them
the full number of securities offered by the Company. The Company shall be free
at any time prior to ninety (90) days after the date of its notice of offer to
the Purchasers, to offer and sell to any third party or parties the number of
such securities not agreed by the Purchasers to be purchased by them, at a price
and on payment terms no less favorable to the Company than those specified in
such notice of offer to the Purchasers. However, if such third party sale or
sales are not consummated within such ninety (90) day period, the Company shall
not sell such securities as shall not have been purchased within such period
without again complying with this Section 5.02. For purposes of this Section
5.02, (x) the term "Purchasers" shall include the Series A Purchasers, Series B
Purchasers and the Series C Purchasers (as such terms are defined in Section
6.13 hereof) and (y) the term "Preferred Shares" shall include the shares of
Series A Convertible Preferred Stock, the shares of Series B Convertible
Preferred Stock and the shares of Series C Convertible Preferred Stock purchased
pursuant to the Series A Agreement, the Series B Agreement and the Series C
Agreement (as such terms are defined in Section 6.13). "Initial Public Offering"
means a underwritten public offering pursuant to an effective registration
statement under the Securities Act in respect of the offer and sale of shares of
Common Stock for the account of the Company resulting in aggregate net proceeds
to the Company and any stockholder selling shares of Common Stock in such
offering of not less than $25,000,000 and a public offering price per share of
not less than $1.50 per share (as adjusted for any combination, division,
subdivision, stock split, reverse stock split or similar event relating to the
Common Stock).
SECTION 5.03 Reserve for Conversion Shares. The Company shall at all times
-----------------------------
reserve and keep available out of its authorized but unissued shares of Common
Stock, for the purpose of effecting the conversion of the Preferred Shares and
otherwise complying with the terms of this Agreement, such number of its duly
authorized shares of Common Stock as shall be sufficient to effect the
conversion of the Preferred Shares from time to time outstanding or otherwise to
comply with the terms of this Agreement. If at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of the Preferred Shares or otherwise to comply with the terms of this
Agreement, the Company will forthwith take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purposes. The Company will
obtain any authorization, consent, approval or other action by or make any
filing with any court or administrative body that may be required under
applicable state securities laws in connection with the issuance of shares of
Common Stock upon conversion of the Preferred Shares.
SECTION 5.04 Corporate Existence. The Company shall maintain corporate
-------------------
existence, rights and franchises in full force and effect.
18
SECTION 5.05 Properties, Business, Insurance. The Company shall maintain
-------------------------------
its properties and business, with financially sound and reputable insurers,
insurance against such casualties and contingencies and of such types and in
such amounts as is customary for companies similarly situated, which insurance
shall be deemed by the Company to be sufficient. The Company shall not cause or
permit any assignment or change in beneficiary and shall not borrow against any
such policy. If requested by Purchasers holding at least sixty percent (60%) of
the outstanding Preferred Shares, the Company will add one designee of such
Purchasers as a notice party for each such policy and shall request that the
issuer of each policy provide such designee with ten (10) days' notice before
such policy is terminated (for failure to pay premiums or otherwise) or assigned
or before any change is made in the beneficiary thereof.
SECTION 5.06 Inspection, Consultation and Advice. The Company shall permit
-----------------------------------
each Purchaser holding in excess of 10% of the Series E Convertible Preferred
Stock and such persons as it may designate, at such Purchaser's expense, and
subject to the execution of an appropriate confidentiality agreement, to visit
and inspect any of the properties of the Company, examine their books and take
copies and extracts therefrom, discuss the affairs, finances and accounts of the
Company with its officers, employees and public accountants (and the Company
hereby authorizes said accountants to discuss with such Purchaser and such
designees such affairs, finances and accounts), and consult with and advise the
management of the Company as to its affairs, finances and accounts, all at
reasonable times and upon reasonable notice.
SECTION 5.07 Restrictive Agreements Prohibited. The Company shall not
---------------------------------
become a party to any agreement which by its terms restricts the Company's
performance of this Agreement, the Registration Rights Agreement, the Management
Rights Agreements or the Charter.
SECTION 5.08 Transactions with Affiliates. Except for transactions
----------------------------
contemplated by this Agreement or as otherwise approved by the Board of
Directors, the Company shall not enter into any material transaction with any
director, officer, employee or holder of more than 5% of the outstanding capital
stock of any class or series of capital stock of the Company, member of the
family of any such person, or any corporation, partnership, trust or other
entity in which any such person, or member of the family of any such person, is
a director, officer, trustee, partner or holder of more than 5% of the
outstanding capital stock thereof, except for transactions on customary terms
related to such person's employment.
SECTION 5.09 Use of Proceeds. The Company shall use the cash proceeds from
---------------
the sale of the Preferred Shares solely for research and product development,
clinical trials, capital expenditures, working capital and other general
corporate purposes.
SECTION 5.10 By-laws. The Company shall at all times cause its By-laws to
-------
provide that, (a) unless otherwise required by the laws of the State of
Delaware, (i) any two directors and (ii) any holder or holders of at least 25%
of the outstanding shares of Series E Convertible Preferred Stock, shall have
the right to call a meeting of the Board of Directors or stockholders and (b)
the number of directors fixed in accordance therewith shall in no event conflict
with any of the terms or provisions of the Series E Convertible Preferred Stock
as set forth in the Charter. The Company shall at all times maintain provisions
in its By-laws and/or Charter indemnifying all directors against liability and
absolving all directors from liability to the
19
Company and its stockholders to the maximum extent permitted under the laws of
the State of Delaware.
SECTION 5.11 Performance of Contracts. The Company shall not materially
------------------------
amend, modify, terminate, waive or otherwise alter, in whole or in part, any of
the Employee Nondisclosure and Developments Agreements without the consent of
the Company's Board of Directors.
SECTION 5.12 Vesting of Reserved Employee Shares. The Company shall not
-----------------------------------
grant to any of its employees options to purchase Reserved Employee Shares which
will become exercisable at a rate in excess of 25% per annum from the date of
such grant without the approval of the Company's Board of Directors.
SECTION 5.13 Employee Nondisclosure and Developments Agreements. The
--------------------------------------------------
Company shall use its best efforts to obtain an Employee Nondisclosure and
Developments Agreement in substantially the form of Exhibit D, or in such other
---------
form as is approved by the Board of Directors, from all future officers, key
employees and other employees who will have access to confidential information
of the Company, upon their employment by the Company.
SECTION 5.14 Compliance with Laws. The Company shall comply with all
--------------------
applicable laws, rules, regulations and orders, noncompliance with which could
materially adversely affect its business or condition, financial or otherwise.
SECTION 5.15 Keeping of Records and Books of Account. The Company shall
---------------------------------------
keep adequate records and books of account, in which complete entries will be
made in accordance with generally accepted accounting principles consistently
applied, reflecting all financial transactions of the Company, 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.
SECTION 5.16 Rule 144A Information. The Company shall, at all times during
---------------------
which it is neither subject to the reporting requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), nor
exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act, provide
in writing, upon the written request of any Purchaser or a prospective buyer of
Preferred Shares or Conversion Shares from any Purchaser, all information
required by Rule 144A(d)(4)(i) of the General Regulations promulgated by the
Commission under the Securities Act ("Rule 144A Information"). The Company also
shall, upon the written request of any Purchaser, cooperate with and assist such
Purchaser or any member of the National Association of Securities Dealers, Inc.
PORTAL system in applying to designate and thereafter maintain the eligibility
of the Preferred Shares or Conversion Shares, as the case may be, for trading
through PORTAL. The Company's obligations under this Section 5.16 shall at all
times be contingent upon the relevant Purchaser's obtaining from the prospective
buyer of Preferred Shares or Conversion Shares a written agreement to take all
reasonable precautions to safeguard the Rule 144A Information from disclosure to
anyone other than a person who will assist such buyer in evaluating the purchase
of any Preferred Shares or Conversion Shares.
20
SECTION 5.17 Future Subsidiaries. In the event the Company shall acquire
-------------------
or create a subsidiary or subsidiaries, the Company agrees that the covenants
contained in this Article V shall apply to the Company and such subsidiaries on
a consolidated basis.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01 Expenses. Each party hereto will pay its own expenses in
--------
connection with the transactions contemplated hereby, whether or not such
transactions shall be consummated, provided, however, that in the event the
Closing occurs, the Company shall pay the reasonable invoiced, out of pocket
fees and expenses, not to exceed an aggregate amount of $15,000, incurred by the
Purchasers' attorneys in connection with legal, corporate and patent due
diligence.
SECTION 6.02 Survival of Agreements. All covenants, agreements,
----------------------
representations and warranties made herein or in the Registration Rights
Agreement Amendment, the Management Rights Agreements, or any certificate or
instrument delivered to the Purchasers pursuant to or in connection with this
Agreement, the Registration Rights Agreement Amendment or the Management Rights
Agreements, shall survive the execution and delivery of this Agreement, the
Registration Rights Agreement Amendment and the Management Rights Agreements,
the issuance, sale and delivery of the Preferred Shares, and the issuance and
delivery of the Conversion Shares, and all statements contained in any
certificate or other instrument delivered by the Company hereunder or thereunder
or in connection herewith or therewith shall be deemed to constitute
representations and warranties made by the Company; provided that all such
representations and warranties shall terminate two years from the date they are
made.
SECTION 6.03 Brokerage. Each party hereto will indemnify and hold harmless
---------
the others against and in respect of any claim for brokerage or other
commissions relative to this Agreement or to the transactions contemplated
hereby, based in any way on agreements, arrangements or understandings made or
claimed to have been made by such party with any third party.
SECTION 6.04 Parties in Interest. All representations, covenants and
-------------------
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto whether so expressed or not. Without limiting the
generality of the foregoing, all representations, covenants and agreements
benefiting the Purchasers shall inure to the benefit of any and all subsequent
holders from time to time of Preferred Shares or Conversion Shares.
SECTION 6.05 Notices. All notices, requests, consents and other
-------
communications hereunder shall be in writing and shall be delivered in person,
mailed by certified or registered mail, return receipt requested, or sent by
telecopier or telex, addressed as follows:
21
(a) if to the Company, at ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇,
Attention: President, with a copy to ▇▇▇▇▇ ▇. Nassau, Esq., Dechert, Price &
▇▇▇▇▇▇, 4000 ▇▇▇▇ Atlantic Tower, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇;
and
(b) if to any Purchaser, at the address of such Purchaser set forth in
Schedule I
----------
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
SECTION 6.06 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware.
SECTION 6.07 Entire Agreement. This Agreement, including the Schedules and
----------------
Exhibits hereto, constitutes the sole and entire agreement of the parties with
respect to the subject matter hereof. All Schedules and Exhibits hereto are
hereby incorporated herein by reference.
SECTION 6.08 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 6.09 Amendments. This Agreement may be amended or modified, and
----------
provisions hereof may be waived, with the written consent of the Company and the
holders of at least two-thirds (2/3) of the outstanding shares of Common Stock
issued or issuable upon conversion of the Preferred Shares. Otherwise this
Agreement may not be amended or waived or any provision hereof waived.
SECTION 6.10 Severability. If any provision of this Agreement shall be
------------
declared void or unenforceable by any judicial or administrative authority, the
validity of any other provision and of the entire Agreement shall not be
affected thereby.
SECTION 6.11 Titles and Subtitles. The tides and subtitles used in this
--------------------
Agreement are for convenience only and are not to be considered in construing or
interpreting any term or provision of this Agreement.
SECTION 6.12 Certain Defined Term. As used in this Agreement, the
--------------------
following term shall have the following meaning (such meaning to be equally
applicable to both the singular and plural forms of the term defined):
"person" shall mean an individual, corporation, trust, partnership, joint
venture, unincorporated organization, government agency or any agency or
political subdivision thereof or other entity.
SECTION 6.13 Prior Assignments. By their signature below, each of the
-----------------
Purchasers who are also parties to that certain Series A Convertible Preferred
Stock Purchase Agreement (the "Series A Agreement") between the Company and the
purchasers named therein dated as of November 7, 1994, (each, a "Series A
Purchase?') and that certain Series B Convertible Preferred Stock Purchase
Agreement (the "Series B Agreement") between the Company and the purchasers
named therein dated as of March 1, 1996, (each, a "Series B
22
Purchaser") and that certain Series C convertible Preferred Stock Purchase
Agreement (the "Series C Agreement") between the Company and the purchasers
named therein dated as of May 1, 1997 (each, a "Series C Purchaser") hereby (i)
waives, except to the extent set forth on Schedule I hereto, the right to
----------
purchase shares of Series E Convertible Preferred Stock sold pursuant to this
Agreement. The signature of each Series A Purchaser, Series B Purchaser and
Series C Purchaser below shall also constitute such party's agreement to the
right of first refusal granted in Section 5.02 hereof and the termination of
Sections 5.02 of the Series A Agreement, the Series B Agreement and the Series C
Agreement.
[Signature pages follow immediately.]
23