EXHIBIT 10.34
SERIES E
SECURITIES PURCHASE AGREEMENT
-----------------------------
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is entered into
---------
as of April 13, 1998 among Protein Polymer Technologies, Inc., a Delaware
corporation (the "Company"), and the other Persons listed on Annex A hereto
-------
(sometimes referred to herein individually as "Investor" and sometimes
--------
collectively as "Investors").
---------
1. Definitions. Unless the context otherwise requires, the terms
-----------
defined in this Section 1 shall have the meanings herein specified for all
purposes of this Agreement, applicable to both the singular and plural forms of
any of the terms herein defined. All accounting terms defined in this Section 1
and those accounting terms used in this Agreement not defined in this Section 1
shall, except as otherwise provided for herein, be construed in accordance with
those generally accepted accounting principles that the Company is required to
employ by the terms of this Agreement. If and so long as the Company has any
Subsidiary, the accounting terms defined in this Section 1 and those accounting
terms appearing in this Agreement but not defined in this Section 1 shall be
determined on a consolidated basis for the Company and each of its Subsidiaries,
and the financial statements and other financial information to be furnished by
the Company pursuant to this Agreement shall be consolidated.
"1996 Annual Report" shall mean the Company's Report on Form
------------------
10-KSB for the fiscal year ended December 31, 1996.
"Action" shall mean any action, suit, arbitration or other
------
legal, administrative or other proceeding by or before any court, arbitrator or
Governmental Entity.
"Agreement" shall mean this Securities Purchase Agreement.
---------
"Board" shall mean the Board of Directors of the Company.
-----
"California Securities Law" shall mean the California
-------------------------
Corporate Securities Law of 1968, as amended.
"Certificate" shall have the meaning assigned to it in
-----------
Section 2 hereof.
"Closing" and "Closing Date" shall have the meanings
------- ------------
assigned to such terms in Section 3(b) hereof.
"Code" shall mean the Internal Revenue Code of 1986, as
----
amended.
"Common Stock" shall mean the Company's common stock, par
------------
value $0.01 per share.
"Commission" shall mean the Securities and Exchange
----------
Commission.
"Conversion Stock" shall have the meaning assigned to it in
----------------
Section 2 hereof.
"Equity Security" shall mean the Common Stock, or any
---------------
security convertible into the Common Stock, or any security carrying any warrant
or right to subscribe to or purchase the Common Stock, or any such warrant or
right.
"First Warrants" shall have the meaning assigned to such
--------------
term in Section 2 hereof.
"First Warrant Stock" shall have the meaning assigned to
-------------------
such term in Section 2 hereof.
"Form 10-QSB" shall mean the Company's Quarterly Report on
-----------
Form 10-QSB for the quarterly period ended September 30, 1997.
"Governmental Entity" shall mean any federal, state, local
-------------------
or foreign governmental bureau, commission, board, agency or instrumentality.
"Holder" of any security shall mean the record or
------
beneficial owner of such security. A Holder of Preferred Stock shall be treated
as the Holder of the Conversion Stock underlying the Preferred Stock and a
Holder of a Warrant shall be treated as the Holder of the Warrant Stock
underlying the Warrant.
"Holders of 75% of the Preferred Stock" shall mean, on a
-------------------------------------
given date, the Person or Persons who are the Holders of greater than 75% of the
outstanding Preferred Stock.
"Initial Investors" shall mean those Investors purchasing
-----------------
Preferred Stock and Warrants at the Closing.
"Investor" shall have the meaning assigned to it in the
--------
introductory paragraph of this Agreement.
"Material Adverse Effect" shall mean a material and adverse
-----------------------
effect on the business, assets, property, business prospects, or financial
condition of the Company.
"Person" shall mean any natural person, corporation, trust,
------
association, company, partnership, joint venture and other entity and any
government, governmental agency, instrumentality or political subdivision.
-2-
"Preferred Stock" shall have the meaning assigned to it in
---------------
Section 2 hereof.
"Required Payment" shall mean, with respect to each
----------------
Investor, the number of shares of Preferred Stock purchased by such Investor,
multiplied by $100.00, as set forth on Annex A hereto.
"Restricted Stock" means (i) the Common Stock issued or
----------------
issuable to the Investors upon conversion of the Preferred Stock issued and sold
pursuant to this Agreement or upon exercise of the Warrants and (ii) any Common
Stock issued or issuable (either directly or upon the conversion or exercise of
any warrant, right, or other security) with respect to the Common Stock referred
to in clause (i) above by way of a stock dividend or stock split or in
connection with a combination of shares, reclassification, recapitalization,
merger or consolidation or reorganization; provided, however, that such shares
-------- -------
of Common Stock shall only be treated as Restricted Stock if and so long as they
have not been (x) sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction, or (y) sold in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act under Section 4(1) thereof so that all transfer restrictions
and restrictive legends with respect to such Common Stock are removed upon the
consummation of such sale and the Company receives an opinion of counsel for the
Company (with a copy to the seller of such Common Stock), which shall be in form
and content reasonably satisfactory to the Company, to the effect that such
Common Stock in the hands of the purchaser is freely transferable without
restriction or registration under the Securities Act in any public or private
transaction.
"Rule 144" shall mean Rule 144 of the Commission under the
--------
Securities Act.
"Second Warrants" shall have the meaning assigned to such
---------------
term in Section 2 hereof.
"Second Warrant Stock" shall have the meaning assigned to
---------------------
such term is Section 2 hereof.
"Securities" shall have the meaning assigned to it in
----------
Section 2 hereof.
"Securities Act" shall mean the Securities Act of 1933, as
--------------
amended.
"Stock Plans" shall mean the Company's 1989 Stock Option
-----------
Plan, 1992 Stock Option Plan, 1996 Non-Employee Directors' Stock Option Plan and
Employee Stock Purchase Plan, collectively.
"Subsequent Closing" and "Subsequent Closing Date" shall
------------------ -----------------------
have the meanings assigned to such terms in Section 3(c) hereof.
-3-
"Subsidiary" shall mean any Person, at least 50% of the
----------
outstanding voting stock of which is at the time owned or controlled directly or
indirectly by the Company or by one or more of such subsidiary entities or both,
where "voting stock" means any shares of stock having general voting power in
electing the board of directors.
"Warrants" shall mean the First Warrants and Second
--------
Warrants, collectively.
"Warrant Stock" shall mean the First Warrant Stock and
-------------
Second Warrant Stock, collectively.
2. Authorization of Securities. The Company has authorized the
---------------------------
issue and sale of up to (i) 55,000 shares of its Series E Convertible Preferred
Stock, par value $0.01 per share (the "Preferred Stock"), having the rights,
---------------
preferences and privileges set forth in the Certificate of Designation
(hereinafter referred to as the "Certificate") attached hereto as Annex B, (ii)
-----------
warrants, having terms and conditions in the form of Warrant attached hereto as
Annex C (collectively, the "First Warrants"), to purchase up to an aggregate of
--------------
2,400,000 shares of Common Stock (the "First Warrant Stock") and (iii) warrants,
-------------------
having terms and conditions in the form of Warrant attached hereto as Annex D
(collectively, the "Second Warrants"), to purchase up to an aggregate of
---------------
1,200,000 shares of Common Stock (the "Second Warrant Stock"). The Common Stock
--------------------
into which the Preferred Stock is convertible is sometimes referred to herein as
the "Conversion Stock"; and the Preferred Stock, the Warrants, the Warrant Stock
----------------
and the Conversion Stock are sometimes referred to herein individually and
collectively as the "Securities."
----------
3. Sale and Purchase of Preferred Stock and Warrants.
-------------------------------------------------
(a) Upon the terms and subject to the conditions herein
contained, the Company agrees to sell to each Initial Investor, and each Initial
Investor severally agrees to purchase from the Company, at the Closing on the
Closing Date, (i) the number of shares of Preferred Stock, and (ii) the First
Warrants and the Second Warrants to purchase the number of shares of First
Warrant Stock and Second Warrant Stock, in each case as set forth opposite its
name on Annex A hereto, and each Initial Investor shall pay to the Company the
Required Payment.
(b) The initial closing of the sale to and purchase by the
Initial Investors of the Preferred Stock and Warrants (the "Closing") shall
-------
occur at the offices of Paul, Hastings, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, at the hour of 10 o'clock A.M., California
time, on April 24, 1998 or at such different time or day as the Initial
Investors and the Company shall agree (the "Closing Date"). At the Closing, the
------------
Company will deliver to each Investor instruments or certificates evidencing the
Securities being purchased by it, each of which shall be registered in such
Initial Investor's name as stated on Annex A hereto, against delivery to the
Company of payment by cashier's check or wire transfer, or such other form
acceptable to the Company, in an amount equal to the Required Payment of such
Initial Investor.
-4-
(c) After the Closing, additional shares of Preferred Stock
(which, together with the Preferred Stock issued at the Closing, shall not
exceed 55,000 shares in the aggregate), additional First Warrants (which,
together with the First Warrants issued at the Closing, shall not represent the
right to acquire more than 2,400,000 shares of First Warrant Stock in the
aggregate) and additional Second Warrants (which together with the Second
Warrants issued at the Closing, shall not represent the right to acquire more
than 1,200,000 shares of Second Warrant Stock in the aggregate), may be issued
at one or more subsequent closings (each, a "Subsequent Closing") which are held
------------------
May 15, 1998. Each Subsequent Closing shall be effective upon the date (a
"Subsequent Closing Date") of the Company's receipt from an Investor of a
------------------------
cashier's check or wire transfer funds in the amount of such Investor's Required
Payment. Effective upon each such Subsequent Closing, the applicable Investor
shall also enter into and become a party to this Agreement and the Registration
Rights Agreement as if such Investor had executed such agreements at the
Closing.
(d) Notwithstanding the foregoing, no shares of Preferred
Stock, and no Warrants, shall be offered or sold after the Closing to any
Investor if, in the opinion of the Company and its counsel, (i) such offer and
sale would not be exempt from the registration and prospectus delivery
requirements of the Securities Act and exempt from the registration or
qualification requirements of all applicable state securities laws, or (ii) such
offers and sales would detract from or adversely affect the availability and
effectiveness of the exemption from or compliance with such federal and state
requirements relied upon in respect of the offer and sale of Preferred Stock and
Warrants to the Initial Investors at the Closing.
(e) At the Closing, the Company shall prepare Annex A with
respect to the Investors purchasing Preferred Stock and Warrants at the Closing.
Promptly after each Subsequent Closing, the Company shall amend Annex A as
appropriate.
4. Register of Securities; Restrictions on Transfer of Securities;
---------------------------------------------------------------
Removal of Restrictions on Transfer of Securities.
-------------------------------------------------
4.1 Register of Securities. The Company or its duly
----------------------
appointed agent shall maintain a separate register for the shares of Preferred
Stock, Warrants and Common Stock, in which it shall register the issue and sale
of all such securities. All transfers of the Securities shall be recorded on the
register maintained by the Company or its agent, and the Company shall be
entitled to regard the registered holder of the Securities as the actual holder
of the Securities so registered until the Company or its agent is required to
record a transfer of such Securities on its register. Subject to Section 4.2(c)
hereof, the Company or its agent shall be required to record any such transfer
when it receives the Security to be transferred duly and properly endorsed by
the registered holder thereof or by its attorney duly authorized in writing.
4.2 Restrictions on Transfer.
------------------------
(a) Each Investor understands and agrees that the
Securities it will be acquiring have not been registered under the Securities
Act, and that accordingly they will not be fully transferable except as
permitted under various
-5-
exemptions contained in the Securities Act, or upon satisfaction of the
registration and prospectus delivery requirements of the Securities Act. Each
Investor acknowledges that it must bear the economic risk of its investment in
the Securities for an indefinite period of time since they have not been
registered under the Securities Act and therefore cannot be sold unless they are
subsequently registered or an exemption from registration is available.
(b) Each Investor hereby represents and warrants to the
Company that:
(i) Such Investor is acquiring the Securities it
has agreed to purchase (and, if applicable, will acquire the Warrant Stock and
Conversion Stock) for investment purposes only, for its own account, and not as
nominee or agent for any other Person, and not with the view to, or for resale
in connection with, any distribution thereof within the meaning of the
Securities Act.
(ii) Such Investor knows of no public solicitation
or advertisement of an offer in connection with the Securities.
(iii) Such Investor has carefully reviewed this
Agreement. Such Investor has had, during the course of the transaction and prior
to its purchase of the Preferred Stock and Warrants, the opportunity to ask
questions of and receive answers from the Company concerning the terms and
conditions of the offering and to obtain additional information necessary to
verify the accuracy of any information furnished to it or to which it had
access. Such Investor has received all information that it has requested
regarding the Company and believes that such information is sufficient to make
an informed decision with respect to the purchase of the Preferred Stock and
Warrants. Without limiting the generality of the foregoing, such Investor has
received a copy of (A) the 1996 Annual Report, (B) the Form 10-QSB, and (C) the
Risk Factors attached as Annex E hereto.
(iv) Such Investor is able to bear the economic
risk of its investment in the Preferred Stock and Warrants and has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of, and protecting its interests with respect
to, its investment in the Preferred Stock and Warrants. Such Investor is aware
of the risk involved in its investment in the Preferred Stock and Warrants and
has determined that such investment is suitable for it in light of its financial
circumstances and available investment opportunities.
(v) This Agreement, when executed and delivered by
such Investor, constitutes the legal, valid and binding obligation of such
Investor and is enforceable against such Investor in accordance with its terms.
(vi) Such Investor is an "accredited investor" as
that term is defined in Rule 501 of Regulation D promulgated under the
Securities Act.
(vii) Such Investor's jurisdiction of formation or
incorporation (if applicable) and principal place of business or its residency
as set forth on the signature page hereof or the annexes hereto by such Investor
are accurate.
-6-
(viii) The purchase by such Investor of the
Preferred Stock and Warrants hereunder does not violate or conflict with any law
or regulation applicable to such Investor.
(ix) No Person engaged by such Investor has, or
will have, any right or claim against the Company for any commission, fee or
other compensation as a finder or broker, or in any similar capacity.
(c) Each Investor hereby further agrees with the
Company as follows:
(i) Subject to Section 4.3 hereof, the instruments
or certificates evidencing the Securities it has agreed to purchase, and each
instrument or certificate issued in transfer thereof, will bear the following
legend:
"The securities evidenced by this certificate have not been
registered under the Securities Act of 1933 and have been taken for
investment purposes only and not with a view to the distribution
thereof, and, except as stated in an agreement between the holder of
this certificate, or its predecessor in interest, and the issuer
corporation, such securities may not be sold or transferred unless
there is an effective registration statement under such Act covering
such securities or the issuer corporation receives an opinion, in
form and content reasonably satisfactory to the issuer corporation,
of counsel reasonably acceptable to the issuer corporation (which
may be counsel for the issuer corporation) stating that such sale or
transfer is exempt from the registration and prospectus delivery
requirements of such Act."
(ii) The instruments or certificates representing
such Securities, and each instrument or certificate issued in transfer thereof,
will also bear any legend required under any applicable state securities law.
(iii) Prior to any proposed sale, assignment,
transfer or pledge of any Securities by an Investor, unless there is in effect a
registration statement under the Securities Act covering the proposed transfer,
the Investor shall give written notice to the Company of such Investor's
intention to effect such transfer, sale, assignment or pledge. Each such notice
shall describe the manner and circumstances of the proposed transfer, sale,
assignment or pledge in sufficient detail and shall be accompanied at such
holder's expense by either (A) an unqualified written opinion of legal counsel
who shall, and whose legal opinion shall, be reasonably satisfactory to the
Company addressed to the Company, to the effect that the proposed transfer of
the Securities may be effected without registration under the Securities Act, or
(B) a "no action" letter from the Commission to the effect that the transfer of
such securities without registration will not result in a recommendation by the
staff of the Commission that action be taken with respect thereto, whereupon the
holder of such Securities shall be entitled to transfer such Securities in
accordance with the terms of the notice delivered by the holder to the Company.
The Company will not require such a legal opinion or "no action" letter in any
transaction in compliance with Rule 144, unless otherwise required by the
Company's independent transfer agent.
-7-
(iv) Such Investor consents to the Company's making
a notation on its records or giving instructions to any transfer agent of the
Common Stock, Warrants or Preferred Stock in order to implement the restrictions
on transfer of the Securities mentioned in this subsection (c).
(d) Each Investor, or each Person executing this
Agreement on behalf of an Investor, further represents and warrants to the
Company that such Investor or other Person, as the case may be, has been duly
authorized to, and has, and as of the Closing, and Subsequent Closing if
applicable, will have, full power and authority (including corporate, if
applicable) to, execute and deliver this Agreement and the Registration Rights
Agreement on behalf of such Investor, and to make the representations and
warranties to the Company in this Section 4 on behalf of such Investor, and to
perform the obligations of such Investor, if any, under this Agreement and the
Registration Rights Agreement.
4.3 Removal of Transfer Restrictions. Any legend endorsed
--------------------------------
on a certificate evidencing a Security pursuant to Section 4.2(c)(i) hereof and
the stop transfer instructions and record notations with respect to such
Security shall be removed and the Company shall issue a certificate without such
legend to the holder of such Security (a) if such Security is registered under
the Securities Act, (b) if such holder provides the Company with an opinion, in
form and content reasonably satisfactory to the Company, of counsel (which may
be counsel for the Company) reasonably acceptable to the Company to the effect
that a public sale or transfer of such Security may be made without registration
under the Securities Act or (c) if such Security may be sold under Rule 144.
5. Representations and Warranties by and Covenants of the Company. In
--------------------------------------------------------------
order to induce each Investor to enter into this Agreement and to purchase the
Preferred Stock and Warrants, the Company hereby represents and warrants to each
Investor that, except as set forth on Annex F hereto:
5.1 Organization, Standing, etc. The Company is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware, and has all requisite corporate power and authority to carry on its
business as presently conducted and as proposed to be conducted, to own and hold
its properties and assets, to enter into this Agreement, to issue the Securities
and to carry out the provisions hereof and the terms of the Certificate and the
Securities.
5.2 Certificate and Bylaws. The copies of the Certificate of
----------------------
Incorporation and Bylaws of the Company which have been delivered to (or made
available for inspection by) the Investors prior to the execution of this
Agreement are true and complete and have not been amended or repealed, except
for the amendments to the Certificate of Incorporation that will be accomplished
by the filing of the Certificate with the Delaware Secretary of State.
5.3 Subsidiaries. The Company has no Subsidiaries or affiliated
------------
companies and does not otherwise own or control, directly or indirectly, any
equity interest in any corporation, association or business entity.
-8-
5.4 Qualification. The Company is duly qualified as a foreign
-------------
corporation and in good standing in the State of California. The Company is not
qualified to do business as a foreign corporation in any other jurisdiction and
such qualification is not required as of the date hereof, except where the
failure to be so qualified would not have a Material Adverse Effect.
5.5 Capital Stock.
-------------
(a) As of the Closing Date, the authorized capital stock of the
Company will consist of (i) 5,000,000 shares of preferred stock, par value $0.01
per share, 71,600 shares of which have been designated as Series D Preferred
Stock, 2,000,000 shares of which have been designated as Series X Junior
Participating Preferred Stock, 55,000 shares of which have been designated as
the Series E Preferred Stock and 27,317 shares of which have been designated as
the Series F Preferred Stock; and (ii) 25,000,000 shares of Common Stock; and
the Company will have no authority to issue any other capital stock. There are
28,213.42 shares of Series D Preferred Stock issued and outstanding, of which
(A) 26,420 shall be exchanged for an equal number of shares of Series F
Preferred Stock on or about the Closing, (B) 896.42 shares may be converted into
Common Stock and (C) 897 shares may be exchanged for an equal number of shares
of Series F Preferred Stock after the Closing, no shares of Series X Preferred
issued and outstanding, no shares of Series E Preferred Stock issued and
outstanding and no shares of Series F Preferred Stock issued and outstanding,
and, as of the Closing, before giving effect to the transactions contemplated by
this Agreement, 10,437,028 shares of Common Stock are issued and outstanding,
and all such outstanding shares of Series D Preferred Stock and Common Stock
have been duly authorized, validly issued, fully paid and nonassessable.
(b) The Company has reserved a total of 2,509,758 shares of
Common Stock for issuance upon the exercise of stock options or purchase rights
granted under the Stock Plans or under other stock option agreements.
(c) Except as contemplated by this Agreement or as expressly
provided in Annex F to this Agreement, the Company has no outstanding
subscription, option, warrant, right of first refusal, preemptive right, call,
contract, demand, commitment, convertible security or other instrument,
agreement or arrangement of any character or nature whatever under which the
Company is or may be obligated to issue Common Stock, preferred stock or other
Equity Security of any kind.
5.6 Corporate Acts and Proceedings. The Company has, and as of the
------------------------------
Closing will have, full corporate power and authority to execute and deliver
this Agreement and to perform its obligations hereunder and the transactions
contemplated hereby. All corporate acts and proceedings required for the
authorization, execution and delivery of this Agreement and the offer, issuance
and delivery of the Securities and the performance of this Agreement and the
terms of the Certificate have been lawfully and validly taken or will have been
so taken prior to the Closing.
5.7 Compliance with Other Instruments. The execution, delivery and
---------------------------------
performance by the Company of this Agreement and the observance of the terms of
the Certificate (a) will not require from the Board or stockholders of the
Company any
-9-
consent or approval that has not been validly and lawfully obtained, (b) will
not require the Company to obtain or effect any authorization, consent,
approval, license, exemption of or filing or registration with any Person,
except such as shall have been lawfully and validly obtained prior to the
Closing, (c) will not cause the Company to violate or contravene, except where
such violation or contravention would not have a Material Adverse Effect, (i)
any provision of law, (ii) any rule or regulation of any Governmental Entity or
the National Association of Securities Dealers, (iii) any order, writ, judgment,
injunction, decree, determination or award binding upon the Company, or (iv) any
provision of the Certificate of Incorporation or Bylaws of the Company, (d) will
not cause the Company to violate or be in conflict with, result in a breach by
the Company of or constitute (with or without notice or lapse of time or both) a
default by the Company under, any material agreement, lease or instrument,
commitment or arrangement to which the Company is a party or by which the
Company or any of its properties, assets or rights are bound or affected, except
where such violation, conflict, breach or default would not have a Material
Adverse Effect, and (e) will not result in the creation or imposition of any
lien. The Company is not in violation of, or (with or without notice or lapse of
time or both) in default under, any term or provision of its Certificate of
Incorporation or Bylaws or of any indenture, loan or credit agreement, note
agreement, deed of trust, mortgage, security agreement or other agreement, lease
or other instrument, commitment or arrangement to which the Company is a party
or by which any of the Company's properties, assets or rights are bound or
affected, except where such violation or default would not have a Material
Adverse Effect.
5.8 Binding Obligations.
-------------------
(a) This Agreement constitutes the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
its terms, except as such enforcement is limited by bankruptcy, insolvency and
other similar laws affecting the enforcement of creditors' rights generally, and
by general equitable principles.
(b) The Warrants are duly authorized and, when executed,
delivered and paid for in accordance with the terms of this Agreement, will be
free and clear of all liens and restrictions, other than liens that may have
been created or suffered by the Investor and restrictions imposed by the
Securities Act, state securities laws or this Agreement.
(c) The Preferred Stock is duly authorized and, when issued in
accordance with the terms of this Agreement, will be duly authorized, validly
issued and outstanding, fully paid and nonassessable and free and clear of all
liens and restrictions, other than liens that might have been created or
suffered by the Investors and restrictions imposed by the Securities Act, state
securities laws or this Agreement.
(d) The Conversion Stock and Warrant Stock have been duly
authorized and, when issued in accordance with the terms of the Certificate and
the Warrants, respectively, will be duly authorized, validly issued and
outstanding, fully paid and nonassessable and free and clear of all liens and
restrictions, other than liens that might have been created or suffered by the
Investors and restrictions imposed by the Securities Act, state securities laws
or this Agreement.
-10-
5.9 Securities Laws. Subject to the accuracy of the representations
---------------
and warranties contained in Section 4.2, the offer, issue and sale of the
Preferred Stock, Warrants, Conversion Stock and (assuming no transfers of the
Warrants and no change in applicable law between the date hereof and the date of
exercise of the Warrants) the Warrant Stock are and will be exempt from the
registration and prospectus delivery requirements of the Securities Act, and are
and will be exempt from qualification under the California Securities Law and
the state securities laws of the jurisdictions where the Investors are resident.
5.10 Financial Statements. Included in the Form 10-QSB are the
--------------------
Company's unaudited balance sheet (the "Balance Sheet") as of September 30, 1997
-------------
(the "Balance Sheet Date"), and the unaudited statement of operations for the
------------------
nine-month period then ended. Included in the 1996 Annual Report are the
Company's audited balance sheets as of December 31, 1995 and 1996 and the
audited statements of operations, cash flow and shareholders' equity for the
period then ended, together with the related opinion of Ernst & Young LLP,
independent certified public accountants. The foregoing financial statements
(i) are complete and correct in all material respects and are in accordance with
the books and records of the Company, (ii) present fairly the financial
condition of the Company at the Balance Sheet Date and other dates therein
specified and the results of operations and changes in financial position of the
Company for the periods therein specified, and (iii) have been prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with prior accounting periods, except that the unaudited financial
statements are subject to year-end audit adjustments and do not contain
footnotes or statements of shareholders' equity and cash flow.
5.11 Changes. Since the Balance Sheet Date, except as disclosed in
-------
the Form 10-QSB or on Annex F, there has been no event which would have a
Material Adverse Effect, and the Company has not (a) mortgaged, pledged or
subjected to Lien any of its material assets, tangible or intangible, (b) sold,
transferred or leased any of its assets, (c) cancelled or compromised any
material debt or claim, or waived or released any right, of material value, (d)
suffered any physical damage, destruction or loss (whether or not covered by
insurance) having a material effect, (e) declared or paid any dividends on or
made any other distributions with respect to, or purchased or redeemed, any of
its outstanding Equity Securities, except for accrued dividends on the Series D
Preferred Stock, or (f) suffered or experienced any material adverse change or
loss in its business other than its continuing losses from operations.
5.12 Material Agreements of the Company. The Company is not a party
----------------------------------
to or otherwise bound by any written or oral agreement, instrument or
arrangement that is material to the Company except for those agreements listed
in Item 13 of the 1996 Annual Report or as set forth on Annex F hereto. The
Company has furnished or made available to each Investor true and complete
copies of all such agreements and all other agreements, instruments and other
documents requested by any Investor or its authorized representative.
5.13 Litigation. There is no Action pending and, to the best
----------
knowledge of the Company, there is no material Action threatened against the
Company or its properties, assets or business. To the Company's best knowledge,
the Company is not in
-11-
default with respect to any order, writ, judgment, injunction, decree,
determination or award of any court or of any Governmental Entity.
5.14 Brokers or Finders. Except as set forth on Annex F hereto, the
------------------
Company has not incurred, and will not incur, directly or indirectly, as a
result of any action taken by the Company, any liability for brokerage or
finders' fees or agents' commissions or any similar charges in connection with
this Agreement. The Company agrees to indemnify and hold harmless the Investors
from any damages they incur as a result of any claims for such fees, commissions
or charges.
5.15 Disclosure. The representations and warranties of the Company
----------
contained herein, when read together with the annexes hereto and the Form 10-QSB
and the 1996 Annual Report do not contain any untrue statement of material fact
or omit to state a material fact necessary to make the statements therein, in
light of the circumstances under which they are made, not misleading.
5.16 Intellectual Property.
---------------------
(a) To the best of its knowledge, the Company has sufficient
title to and ownership of, free and clear of all liens, claims and encumbrances
of any nature, all patents, patent rights, patent applications, inventions,
trademarks, service marks, trade names, copyrights and information, proprietary
rights and processes necessary for the conduct of its business; and the use by
the Company of the foregoing does not conflict with or constitute an
infringement of the rights of others.
(b) The Company has not received any communications alleging
that it has violated, and has no knowledge that the Company has violated, or by
conducting its business, the Company will not, to the best of its knowledge,
violate, any of the patents, patent applications, inventions, trademarks,
service marks, trade names, copyrights or trade secrets, confidential
information, proprietary rights or processes of any other person.
5.17 Retirement Obligations. Except as set forth on Annex F hereto,
----------------------
the Company does not have any Employee Benefit Plan as defined in the Employee
Retirement Income Security Act of 1974, as amended, other than as disclosed in
the 1996 Annual Report.
5.18 No Governmental Consent or Approval Required. Based in part on
--------------------------------------------
the representations made by the Investors in Section 4 of this Agreement, no
authorization, consent, approval or other order of, declaration to, or
registration, qualification, designation or filing with, any federal, state or
local governmental agency or body is required by or from the Company for or in
connection with the valid and lawful authorization, execution and delivery by
the Company of this Agreement or any other agreement entered into by the Company
in connection with this Agreement, and consummation of the transactions
contemplated hereby or thereby, or for or in connection with the valid and
lawful authorization, issuance, sale and delivery of the Preferred Stock and the
Warrants or for or in connection with the valid and lawful authorization,
reservation, issuance, sale and delivery of the Conversion Stock and the Warrant
Stock, other than the filing of the Certificate with the Delaware Secretary of
State, the
-12-
qualification (or taking of such action as may be necessary to secure an
exemption from qualification, if available) of the offer and sale of the
Preferred Stock and Warrants under the California Securities Law and other
applicable state or federal securities laws, which filings and qualifications,
if required, will be accomplished in a timely manner so as to comply with such
qualification or exemption from qualification requirements.
5.19 NASD Compliance. The Company's Common Stock is registered
---------------
pursuant to Section 12(g) of the Exchange Act and is listed on the the Nasdaq
SmallCap Market and, except as set forth on Annex F hereto, the Company has
taken no action designed to, or likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or de-listing the Common
Stock from the Nasdaq SmallCap Market, nor has the Company received any
notification that the Securities and Exchange Commission or the National
Association of Securities Dealers, Inc. is contemplating terminating such
registration or listing.
5.20 Reporting Status. Except as set forth on Annex F hereto, the
----------------
Company has filed in a timely manner all documents that the Company was required
to file under the Exchange Act during the 12 months preceding the date of this
Agreement and such documents complied in all material respects with the
Commission's requirements as of their respective filing dates, and the
information contained therein as of the date thereof did 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 light of the
circumstances under which they were made not misleading.
5.21 Listing. The Company shall use its best efforts to comply with
-------
all requirements of the National Association of Securities Dealers, Inc. with
respect to the issuance of the Securities and the listing of the Common Stock
issuable upon exercise of the Warrants and conversion of the Preferred Stock on
the Nasdaq SmallCap Market.
5.22 No Financing Security Interests in Intellectual Property. For
--------------------------------------------------------
so long as at least 5,500 shares of Preferred Stock remain outstanding, the
Company agrees that it shall not give a security interest in or assign any of
its Intellectual Property in connection with any financing transaction without
the prior written consent of the Holders of 75% of the Preferred Stock. For the
purposes of this Section 5.22, Intellectual Property shall include, but not be
limited to, all copyrights, trademarks, trade names, service marks, patents,
patent applications, patents pending, developmental ideas and concepts,
proprietary processes, blueprints, drawings, formulas, designs, reports,
technical data and all other proprietary information used or useful in
connection with the Company's business.
6. Conditions of Parties' Obligations.
----------------------------------
6.1 Conditions of Investors' Obligations at the Closing. The
----------------------------------------------------
obligation of each Investor to purchase and pay for the Preferred Stock and
Warrants which it has agreed to purchase on the Closing Date (or, if applicable,
the Subsequent Closing Date) is subject to the fulfillment prior to or on the
Closing Date (or, if applicable, the Subsequent Closing Date) of the following
conditions, any of which may be waived in whole or in part by such Investor.
-13-
(a) No Errors, etc. The representations and warranties
--------------
of the Company under this Agreement shall be deemed to have been made again on
the Closing Date (or, if applicable, the Subsequent Closing Date) and shall then
be true and correct in all material respects.
(b) Compliance with Agreement. The Company shall have
-------------------------
performed and complied with, in all material respects, all agreements and
conditions required by this Agreement to be performed or complied with by it on
or before the Closing Date (or, if applicable, the Subsequent Closing Date).
(c) Certificate of the Company. With respect to the
--------------------------
Closing only, the Company shall have delivered to each Investor a certificate of
the Company dated the Closing Date, executed by its President, certifying the
satisfaction of the conditions specified in subsections (a), (b), (e), (f) and
(g) of this Section 6.1.
(d) Opinion of Counsel. Paul, Hastings, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
------------------
LLP, counsel to the Company, shall have furnished an opinion to the Investors
covering the matters set forth in Sections 5.1, 5.5(a), 5.6, 5.8 and 5.9.
(e) Certificate. The Certificate shall have been filed
-----------
with the Delaware Secretary of State.
(f) Qualification. All authorizations, approvals or
-------------
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required from the Company in connection with the
lawful issuance and sale of the Preferred Stock and Warrants to the Investors
pursuant to this Agreement shall have been duly obtained and shall be effective
on and as of the Closing.
(g) Exchange and Approval of Series D Preferred Stock.
-------------------------------------------------
The holders of 26,420 shares of Series D Preferred Stock shall have agreed to
exchange such shares for an equal number of Series F Preferred Stock, and the
holders of a majority of the outstanding shares of Series D Preferred Stock
shall have consented to the issuance of the Series E Preferred Stock and the
other transactions contemplated hereby.
(h) Minimum Investment. The Initial Investors shall be
------------------
committed to purchase not less than 25,000 shares of Preferred Stock at the
Closing.
(i) Proceedings and Documents. All corporate and other
-------------------------
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to the Investors and their counsel, and the Investors shall have
received all such counterpart originals and certified or other copies of such
documents as they may reasonably request.
(j) Expiration of Stockholder Notification Period. In
---------------------------------------------
accordance with the corporate governance requirements of the National
Association of Securities Dealers applicable to the Company and the financial
viability exception granted to the Company by Nasdaq in lieu of stockholder
approval of the transactions contemplated by this Agreement, the Company shall
have mailed the notification required by Nasdaq to its stockholders at least ten
days prior to the Closing Date and such ten day period shall have lapsed.
-14-
6.2 Conditions of Company's Obligations. The Company's
-----------------------------------
obligation to issue and sell the Preferred Stock and Warrants to the Investors
on the Closing Date (or, if applicable, the Subsequent Closing Date) is subject
to the fulfillment prior to or at such date of (i) the conditions precedent
specified in paragraphs (e), (f), (g) and (h) of Section 6.1 hereof, (ii) the
condition described in Section 3(c) hereof, if applicable, and (iii) the
representations and warranties of the Investors under this Agreement shall be
deemed to have been made again on the Closing Date (or, if applicable, the
Subsequent Closing Date) and shall then be true and correct.
7. Approvals Required for Subsequent Closings. Without the consent
------------------------------------------
of the Holders of 75% of the Preferred Stock, the Company shall not issue any
additional shares of the Preferred Stock after the Closing, whether at a
Subsequent Closing or otherwise.
8. Rights of First Refusal.
-----------------------
8.1 Subsequent Offerings. Each Investor shall have the right
--------------------
of first refusal to purchase, pro rata, all (or any part of all) Equity
Securities that the Company may, from time to time, propose to sell and issue
after the Closing Date, other than the Equity Securities excluded by Section 8.5
hereof. Each Investor's pro rata share of such Equity Securities is the ratio of
the number of shares of Common Stock with respect to which such Investor is
deemed to be a Holder immediately prior to the issuance of such Equity
Securities to the total number of shares of Common Stock with respect to which
all Investors are deemed to be Holders immediately prior to the issuance of such
Equity Securities.
8.2 Exercise of Rights. If and each time the Company proposes
------------------
to issue any Equity Securities, it shall give each Investor written notice of
its intention, describing the Equity Securities, the price, and the general
terms and conditions upon which the Company proposes to issue the same. Each
Investor shall have twenty (20) days from the giving of such notice to agree to
purchase its pro rata share of such Equity Securities for the price and upon the
terms and conditions specified in the notice by giving written notice to the
Company and stating therein the quantity of Equity Securities to be purchased.
Each Investor shall have a right of over allotment such that if any Investor
fails to exercise its rights hereunder to agree to purchase its pro rata portion
of the Equity Securities, the other Investors may agree to purchase the
nonpurchasing Investor's portion on a pro rata basis, within ten (10) days from
the end of such twenty (20) day period.
8.3 Issuance of Equity Securities to Other Persons. If the
----------------------------------------------
Investors fail to exercise in full the rights of first refusal within such
twenty (20) plus ten (10) days, the Company shall have sixty (60) days
thereafter to complete the sale of the Equity Securities in respect of which the
Investors' rights were not exercised, at a price and upon general terms and
conditions no more favorable to the purchasers thereof than specified in the
Company's notice to the Investors pursuant to Section 8.2 hereof. If the
Company has not sold all of such Equity Securities within such sixty (60) days,
the Company shall not thereafter issue or sell any of such Equity Securities,
without first offering such securities to the Investors in the manner provided
above.
8.4 Termination of Rights of First Refusal. The rights of
--------------------------------------
first refusal established by this Section 8 shall terminate when there are no
longer more than 10,000 shares of Preferred Stock outstanding.
-15-
8.5 Excluded Securities. The rights of first refusal
-------------------
established by this Section 8 shall have no application to any of the following
Equity Securities: (a) Preferred Stock or Warrants issued pursuant to this
Agreement, including without limitation pursuant to Section 3(c) or 7 hereof,
(b) the Conversion Stock or the Warrant Stock, (c) stock issued pursuant to any
rights or agreements (including, without limitation, convertible securities,
options and warrants) outstanding on the date hereof as set forth on Annex F
pursuant to Section 5.5(c) hereof, (d) any Common Stock issued to employees,
officers, directors, consultants or advisors of the Company for the primary
purpose of soliciting or retaining their services, whether issued pursuant to
the Stock Plans or otherwise, (e) any Equity Securities issued for a
consideration other than cash pursuant to a merger, consolidation, acquisition
or similar business combination, (f) any Equity Securities issued in connection
with any stock split, stock dividend or reverse stock split, (g) any Equity
Securities issued in a bona fide, firmly underwritten public offering registered
under the Securities Act, (h) any Equity Securities which the Holders of a 75%
of Preferred Stock agree shall not be subject to this Section 8 and (i) shares
of the Company's Series D Preferred Stock or Series F Preferred Stock
outstanding on the date hereof and shares of Common Stock issuable upon
conversion thereof or as a dividend thereon.
8.6 Prior Rights. Nothwithstanding anything to the contrary
------------
herein, the rights set forth in this Section 8 are subject to the prior rights
of first refusal of the Series D Preferred Stock and Series F Preferred Stock.
9. Registration of Restricted Stock.
--------------------------------
9.1 Required Registration.
---------------------
(a) Subject to the existing registration rights of the
holders of Series D Preferred Stock, within ninety (90) to one hundred twenty
(120) days after the Closing Date, the Company shall prepare and file a
registration statement under the Securities Act, on a form selected by the
Company, covering the Restricted Stock and shall use its commercially reasonable
efforts to cause such registration statement to become effective as
expeditiously as possible and to remain effective until the earlier to occur of
the date (i) the Restricted Stock covered thereby have been sold, or (ii) by
which all Restricted Stock covered thereby may be sold under Rule 144, without
volume limitations.
(b) Following the effectiveness of a registration statement
filed pursuant to this section, the Company may, at any time, suspend the
effectiveness of such registration for up to 45 days, as appropriate (a
"Suspension Period"), by giving notice to the Holders of Restricted Stock, if
------------------
the Company shall have determined that the Company may be required to disclose
any material corporate development which disclosure may have a Material Adverse
Effect on the Company. Notwithstanding the foregoing, no more than two
Suspension Periods (i.e., 90 days) may occur in immediate succession. The
Company shall use its best efforts to limit the duration and number of any
Suspension Periods. The Holders of Restricted Stock agree that, upon receipt of
any notice from the Company of a Suspension Period, the Holders of Restricted
Stock shall forthwith discontinue disposition of Restricted Stock covered by
such registration statement or prospectus until the Holders of Restricted Stock
(i) are advised in writing by the Company that the use of the applicable
prospectus may be resumed, (ii) have received copies of a supplemental or
amended prospectus, if applicable, and (iii) have received copies of any
additional or supplemental filings which are incorporated or deemed to be
incorporated by reference into such prospectus.
-16-
9.2 Registration Procedures. When the Company effects the
-----------------------
registration of the Securities under the Securities Act pursuant to Section
9.1(a) hereof, the Company will, at its expense, as expeditiously as possible:
(a) In accordance with the Securities Act and the rules and
regulations of the Commission, prepare and file with the Commission a
registration statement with respect to such securities and use its commercially
reasonable efforts to cause such registration statement to become and remain
effective for the period described herein, and prepare and file with the
Commission such amendments to such registration statement and supplements to the
prospectus contained therein as may be necessary to keep such registration
statement effective for such period and such registration statement and
prospectus accurate and complete for such period;
(b) Furnish to the Holders of securities participating in
such registration such reasonable number of copies of the registration
statement, preliminary prospectus, final prospectus and such other documents as
such Holders may reasonably request in order to facilitate the public offering
of such securities;
(c) Use its commercially reasonable efforts to register or
qualify the securities covered by such registration statement under such state
securities or blue sky laws of such jurisdictions as such participating Holders
may reasonably request within twenty (20) days following the original filing of
such registration statement, except that the Company shall not for any purpose
be required to execute a general consent to service of process or to qualify to
do business as a foreign corporation in any jurisdiction where it is not so
qualified;
(d) Notify the Holders participating in such registration,
promptly after it shall receive notice thereof, of the date and time when such
registration statement and each post-effective amendment thereto has become
effective or a supplement to any prospectus forming a part of such registration
statement has been filed;
(e) Notify such Holders promptly of any request by the
Commission for the amending or supplementing of such registration statement or
prospectus or for additional information;
(f) Prepare and file with the Commission, promptly upon the
request of any such Holders, any amendments or supplements to such registration
statement or prospectus which, in the opinion of counsel for such Holders, is
required under the Securities Act or the rules and regulations thereunder in
connection with the distribution of the Restricted Stock by such Holders;
(g) Prepare and promptly file with the Commission, and
promptly notify such Holders of the filing of, such amendments or supplements to
such registration statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Securities Act, any event has
occurred as the result of which any such prospectus or any other prospectus as
then in effect would include an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading;
(h) In case any of such Holders is required to deliver a
prospectus at a time when the prospectus then in circulation is not in
compliance with the Securities Act or the rules and regulations of the
Commission, prepare promptly upon
-17-
request such amendments or supplements to such registration statement and such
prospectus as may be necessary in order for such prospectus to comply with the
requirements of the Securities Act and such rules and regulations; and
(i) Advise such Holders, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance of any stop order by the
Commission suspending the effectiveness of such registration statement or the
initiation or threatening of any proceeding for that purpose and promptly use
its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued.
9.3 Expenses. With respect to any registration effected
--------
pursuant to Section 9.1 hereof, all fees, costs and expenses of and incidental
to such registration and the public offering in connection therewith shall be
borne by the Company; provided, however, that the Holders of Restricted Stock
shall bear their own legal fees, if any, and their pro rata share of any
underwriting discounts or commissions, if any.
9.4 Indemnification.
---------------
(a) The Company will indemnify and hold harmless each
Holder of shares of Restricted Stock which are included in a registration
statement pursuant to the provisions of Section 9 hereof and any underwriter (as
defined in the Securities Act) for such Holder, and any person who controls such
Holder or such underwriter within the meaning of the Securities Act, and any
officer, director, employee, agent, partner or affiliate of such Holder, from
and against, and will reimburse such Holder and each such underwriter,
controlling person, officer, director, employee, agent, partner and affiliate
with respect to, any and all claims, actions, demands, losses, damages,
liabilities, costs and expenses to which such Holder or any such underwriter or
controlling person or any such officer, director, employee, agent, partner or
affiliate may become subject under the Securities Act or otherwise, insofar as
such claims, actions, demands, losses, damages, liabilities, costs or expenses
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in such registration statement, any
prospectus contained therein or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (ii) any breach of any representation, warranty,
agreement or covenant of the Company contained herein; provided, however, that
the Company will not be liable in any such case to the extent that any such
claim, action, demand, loss, damage, liability, cost or expense is caused by an
untrue statement or alleged untrue statement or omission or alleged omission so
made in strict conformity with information furnished by such Holder, such
underwriter or such controlling person or such officer, director, employee,
agent, partner or affiliate in writing specifically for use in the preparation
thereof.
(b) Each Holder of shares of the Restricted Stock which are
included in a registration pursuant to the provisions of Section 9 hereof will
indemnify and hold harmless the Company, and any Person who controls the Company
within the meaning of the Securities Act, from and against, and will reimburse
the Company and such controlling Persons with respect to, any and all losses,
damages, liabilities, costs or expenses to which the Company or such controlling
Person may become subject under the Securities Act or otherwise, insofar as such
losses, damages, liabilities, costs or expenses are caused by any untrue or
alleged untrue statement of any material fact contained in such registration
statement, any prospectus contained therein or any amendment or supplement
thereto, or are caused by the omission or the alleged
-18-
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was so made in reliance upon and in strict conformity with
written information furnished by such Holder specifically for use in the
preparation thereof. Notwithstanding the foregoing, the liability of any Holder
of Restricted Stock pursuant to this subsection (b) shall be limited to an
amount equal to the per share sale price (less any underwriting discount and
commissions) multiplied by the number of shares of Restricted Stock sold by such
Holder pursuant to the registration statement which gives rise to such
obligation to indemnify (less the aggregate amount of any damages which such
Holder has otherwise been required to pay in respect of such losses, damages,
liabilities, costs or expenses or any substantially similar losses, damages,
liabilities, costs or expenses arising from the sale of such Restricted Stock).
(c) Promptly after receipt by a party indemnified pursuant
to the provisions of paragraph (a) or (b) of this Section 9.4 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions, such indemnified party will, if a claim thereof is to be
made against the indemnifying party pursuant to the provisions of paragraph (a)
or (b), notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to an indemnified party otherwise than under this
Section 9.4 and shall not relieve the indemnifying party from liability under
this Section 9.4 unless such indemnifying party is prejudiced by such omission.
In case such action is brought against any indemnified party and it notifies the
indemnifying party of the commencement thereof, the indemnifying party shall
have the right to participate in, and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party pursuant to the provisions of such paragraph
(a) or (b) for any legal or other expense subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall be liable to an indemnified
party for any settlement of any action or claim without the consent of the
indemnifying party. No indemnifying party will consent to entry of any judgment
or enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect to such claim or litigation.
(d) If the indemnification provided for in subsection (a)
or (b) of this Section 9.4 is held by a court of competent jurisdiction to be
unavailable to a party to be indemnified with respect to any claims, actions,
demands, losses, damages, liabilities, costs or expenses referred to therein,
then each indemnifying party under any such subsection, in lieu of indemnifying
such indemnified party thereunder, hereby agrees to contribute to the amount
paid or payable by such indemnified party as a result of such claims, actions,
demands, losses, damages, liabilities, costs or expenses in such proportion as
is appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on the other in connection with the
statements or omissions which resulted in such claims, actions, demands, losses,
damages, liabilities, costs or expenses, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a
-19-
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. Notwithstanding
the foregoing, the amount any Holder of Restricted Stock shall be obligated to
contribute pursuant to this subsection (d) shall be limited to an amount equal
to the per share sale price (less any underwriting discount and commissions)
multiplied by the number of shares of Restricted Stock sold by such Holder
pursuant to the registration statement which gives rise to such obligation to
contribute (less the aggregate amount of any damages which such Holder has
otherwise been required to pay in respect of such claim, action, demand, loss,
damage, liability, cost or expense or any substantially similar claim, action,
demand, loss, damage, liability, cost or expense arising from the sale of such
Restricted Stock). No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution hereunder from any person who was not guilty of such fraudulent
misrepresentation.
9.5 Reporting Requirements Under the Exchange Act. The Company
---------------------------------------------
shall timely file such information, documents and reports as the Commission may
require or prescribe under Section 13 of the Exchange Act. The Company
acknowledges and agrees that the purposes of the requirements contained in this
Section 7.5 are (a) to enable the Holders of Restricted Stock to comply with the
current public information requirement contained in paragraph (c) of Rule 144
should any such Holder ever wish to dispose of any of the Restricted Stock
without registration under the Securities Act in reliance upon Rule 144 (or any
other similar exemptive provision) and (b) to qualify the Company for the use of
registration statements on Form S-3.
9.6 Stockholder Information. The Company may require each
-----------------------
Holder of Restricted Stock to furnish the Company such information with respect
to such Holder and the distribution of its Restricted Stock as the Company may
from time to time reasonably request in writing as shall be required by law or
by the Commission in connection therewith.
10. Miscellaneous.
-------------
10.1 Waivers and Amendments.
----------------------
(a) With the written consent of the Holders of 75% of the
Preferred Stock then outstanding, the obligations of the Company and the rights
of the Holders of the Securities under this Agreement may be waived (either
generally or in a particular instance, either retroactively or prospectively and
either for a specified period of time or indefinitely), and with the same
consent the Company, when authorized by resolution of its Board, may enter into
a supplementary agreement for the purpose of changing in any manner or
eliminating any of the provisions of this Agreement or of any supplemental
agreement or modifying in any manner the rights hereunder of the Holders of the
Securities and the Company; provided, however, that no such waiver or
-------- -------
supplemental agreement shall reduce the aforesaid proportion of Preferred Stock,
the Holders of which are required to consent to any waiver or supplemental
agreement, without the consent of the Holders of all of the Preferred Stock.
(b) Upon the effectuation of each such waiver, consent or
agreement of amendment or modification, the Company shall promptly give written
notice thereof to the Holders of the Preferred Stock who have not previously
consented thereto in writing.
-20-
10.2 Effect of Waiver or Amendment. Each Investor acknowledges
-----------------------------
that by operation of Section 10.1 hereof the Holders of 75% of the Preferred
Stock then outstanding will, subject to the limitations contained in such
Section 10.1, have the right and power to diminish or eliminate certain rights
of such Investor under this Agreement.
10.3 Rights of Holders Inter Se. Each Holder of Securities
--------------------------
shall have the absolute right to exercise or refrain from exercising any right
or rights which such Holder may have by reason of this Agreement or any
Security, including, without limitation, the right to consent to the waiver of
any obligation of the Company under this Agreement and to enter into an
agreement with the Company for the purpose of modifying this Agreement or any
agreement effecting any such modification, and such Holder shall not incur any
liability to any other Holder or Holders of Securities with respect to
exercising or refraining from exercising any such right or rights.
10.4 Exculpation Among Investors and Holders. Each Investor
---------------------------------------
acknowledges that it is not relying upon any other Investor, or any officer,
director, employee, agent, partner or affiliate of any such other Investor, in
making its investment or decision to invest in the Company or in monitoring such
investment. Each Investor agrees that no Investor nor any controlling person,
officer, director, stockholder, partner, agent or employee of any Investor shall
be liable for any action heretofore or hereafter taken or omitted to be taken by
any of them relating to or in connection with the Company or the Securities, or
both. Without limiting the generality of the foregoing, no Investor (nor any of
its affiliates, officers, directors, stockholders, partners, agents or
employees) or other Holder of any Security shall have any obligation, liability
or responsibility whatsoever for the accuracy, completeness or fairness of any
or all information about the Company or any Subsidiary or their respective
properties, business or financial and other affairs, acquired by such Investor
or Holder from the Company or the respective officers, directors, employees,
agents, representatives, counsel or auditors of either, and in turn provided to
another Investor or Holder, nor shall any such Investor (or such other Person)
have any obligation or responsibility whatsoever to provide any such information
to any other Investor (or such other Person) or Holder or to continue to provide
any such information if any information is provided.
10.5 Brokers or Finders. Each Investor represents and warrants
------------------
to the Company and each other Investor that, as a result of such Investor's
actions, except as set forth under Section 5.14 of Annex F, no Person has, or as
a result of the transaction as contemplated herein will have, any right or valid
claim against the Company or any other Investor for any commission, fee or other
compensation as a finder or broker, or in a similar capacity.
10.6 Notices. All notices, requests, consents and other
-------
communications required or permitted hereunder shall be in writing and shall be
given personally, by air courier (with signed acknowledgment of receipt) or by
facsimile transmission (with confirmation of transmission):
(a) If to any Holder of any of the Securities, addressed to such
Holder at its address (or to its telecopier number) shown on his or
its signature page hereto, or at such other address (or telecopier
number) as such Holder may specify by written notice to the Company,
or
-21-
(b) If to the Company, addressed to it at ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (or, if by telecopier, to (▇▇▇) ▇▇▇-▇▇▇▇)
or at such other address (or telecopier number) as the Company may
specify by written notice to the Investors,
and each such notice, request, consent and other communication shall for all
purposes of the Agreement be treated as being effective or having been given
upon receipt.
10.7 Severability. Should any one or more of the provisions of
------------
this Agreement or of any agreement entered into pursuant to this Agreement be
determined to be illegal or unenforceable, all other provisions of this
Agreement and of each other agreement entered into pursuant to this Agreement,
shall be given effect separately from the provision or provisions determined to
be illegal or unenforceable and shall not be affected thereby.
10.8 Parties in Interest. All the terms and provisions of this
-------------------
Agreement shall be binding upon and inure to the benefit of the respective
successors of the parties hereto. This Agreement shall not run to the benefit
of or be enforceable by any Person other than a party to this Agreement and his
or its successors and permitted assigns.
10.9 Headings. The headings of the Sections and paragraphs of
--------
this Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
10.10 Choice of Law. Except where the issue for determination
-------------
is one of corporate law, in which case the Delaware General Corporation Law
shall govern, it is the intention of the parties that the internal substantive
laws, and not the laws of conflicts, of California should govern the
enforceability and validity of this Agreement, the construction of its terms and
the interpretation of the rights and duties of the parties.
10.11 Expenses. Each party to this Agreement shall bear its own
--------
costs and expenses incurred with the negotiation and execution of this Agreement
and the performance of the transactions contemplated hereby.
10.12 Counterparts. This Agreement may be executed in any
------------
number of counterparts and by different parties hereto in separate counterparts,
with the same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
10.13 Publicity. No party hereto shall originate any press
---------
release or other public announcement, written or oral, relating to this
Agreement, or to performance hereunder or the existence of any arrangement among
the parties hereto without the prior approval of the other parties hereto which
may be the subject of such press release or announcement, except to the extent
that such press release or announcement is reasonably concluded by a party to be
required by applicable law. The Investors acknowledge that the Company will be
required to file a copy of this
-22-
Agreement, and the other agreements and instruments contemplated hereby, with
the Commission and to describe these transactions in its public filings.
10.15 Board Seat. The Company shall use its best efforts to
----------
nominate one person proposed by the Holders of 75% of the Preferred Stock to
serve as a director on the Board.
IN WITNESS WHEREOF, the undersigned has caused this Agreement to be
duly executed as of the date first above written.
PROTEIN POLYMER TECHNOLOGIES, INC.
By _______________________________
J. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, President
-23-
[INVESTOR SIGNATURE PAGE TO PURCHASE AGREEMENT]
The foregoing Agreement is
hereby accepted as of the
date first above written.
____________________________________
By: __________________________________
Name: ____________________________
Title: _____________________________
Address for Notices:
_____________________
_____________________
_____________________
_____________________
Attention: ____________
Telecopy: (___) ___-____
-24-