EXHIBIT 4.6
EXECUTION VERSION
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SERIES F CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
among
ADOLOR CORPORATION
and
SR. ONE, LIMITED
Dated as of July 26, 1999
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TABLE OF CONTENTS
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ARTICLE I THE PREFERRED SHARES........................................................................ 1
SECTION 1.01 Issuance, Sale and Delivery of the Preferred Shares............................ 1
SECTION 1.02 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............................................... 2
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........................................................................ 10
SECTION 2.20 Officers....................................................................... 10
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 PURCHASER................................................. 13
ARTICLE IV CONDITIONS TO CLOSING; TERMINATION.......................................................... 14
SECTION 4.01 Conditions Precedent to Obligations of Purchaser............................... 14
SECTION 4.02 Conditions Precedent to Obligations of the Company............................. 16
SECTION 4.03 Termination.................................................................... 16
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.................................................. 19
SECTION 5.04 Corporate Existence............................................................ 19
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SECTION 5.05 Properties, Business, Insurance............................................... 19
SECTION 5.06 Inspection, Consultation and Advice........................................... 19
SECTION 5.07 Restrictive Agreements Prohibited............................................. 20
SECTION 5.08 Use of Proceeds............................................................... 20
SECTION 5.09 By-laws....................................................................... 20
SECTION 5.10 Employee Nondisclosure and Developments Agreements............................ 20
SECTION 5.11 Compliance with Laws.......................................................... 20
SECTION 5.12 Keeping of Records and Books of Account....................................... 20
SECTION 5.13 Rule 144A Information......................................................... 20
SECTION 5.14 Future Subsidiaries........................................................... 21
SECTION 5.15 Milestone Stock Purchase...................................................... 21
ARTICLE VI MISCELLANEOUS.............................................................................. 22
SECTION 6.01 Expenses...................................................................... 22
SECTION 6.02 Survival of Agreements........................................................ 22
SECTION 6.03 Brokerage..................................................................... 23
SECTION 6.04 Parties in Interest........................................................... 23
SECTION 6.05 Notices....................................................................... 23
SECTION 6.06 Governing Law................................................................. 23
SECTION 6.07 Entire Agreement.............................................................. 23
SECTION 6.08 Counterparts.................................................................. 23
SECTION 6.09 Amendments.................................................................... 23
SECTION 6.10 Severability.................................................................. 24
SECTION 6.11 Titles and Subtitles.......................................................... 24
SECTION 6.12 Certain Defined Term.......................................................... 24
SECTION 6.13 Prior Agreements.............................................................. 24
INDEX TO SCHEDULES
SCHEDULE I Disclosure Schedule
SCHEDULE II Security Holders
SCHEDULE III(A) Agreements
and III(B)
INDEX TO EXHIBITS
EXHIBIT A Form of Amendment No. 3 to Registration Rights Agreement
EXHIBIT B Form of Stock Purchase Warrant
EXHIBIT C Charter and All Amendments Thereto
EXHIBIT D Form of employee Nondisclosure and Developments
Agreement
EXHIBIT E Voting Agreement
SERIES F CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT dated as of July
26, 1999 among Adolor Corporation, a Delaware corporation (the "Company"), and
S.R. One, Limited, a Pennsylvania business trust ("Purchaser").
WHEREAS, the Company wishes to issue and sell to the Purchaser an aggregate
of 2,500,000 shares of the authorized but unissued Series F Convertible
Preferred Stock, $.01 par value, of the Company (the "Series F Convertible
Preferred Stock"); and
WHEREAS, the Purchaser wishes 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. On the
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Closing Date, the Company shall issue and sell to Purchaser, and Purchaser shall
purchase from the Company, 2,500,000 shares of Series F Convertible Preferred
Stock (the "Preferred Shares") at the aggregate purchase price of $2,500,000.
SECTION 1.02 Closing. The closing under this Agreement (the "Closing")
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shall take place at 10:00 a.m., Philadelphia time, on the date which is two
business days after the conditions to Closing set forth in Article IV of this
Agreement shall have been satisfied, or at such other location, date and time as
may be agreed upon between the Purchaser and the Company, at the offices of
Dechert Price & ▇▇▇▇▇▇, 4000 ▇▇▇▇ Atlantic Tower, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇. The date on which the Closing occurs is sometimes
referred to herein as the "Closing Date." At the Closing, the Company shall
issue and deliver to Purchaser a stock certificate or certificates in definitive
form, registered in the name of 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
Purchaser shall (i) deliver to the Company a check payable to the order of the
Company, in the amount of $2,500,000, (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.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Purchaser as of the date hereof,
except as set forth in the Disclosure Schedule attached as Schedule I, (which
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Disclosure Schedule 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.
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(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. 4 to that certain Registration Rights
Agreement by and among the Company and the Purchaser 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, Amendment No. 2 to Registration Rights
Agreement dated as of May 1, 1997 and Amendment No. 3 to Registration Rights
Agreement dated as of December 8, 1998 (as amended, the "Original Registration
Rights Agreement") in the form attached as Exhibit A (the "Registration Rights
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Agreement Amendment"), the Stock Purchase Warrant in the form attached as
Exhibit B (the "Stock Purchase Warrant"), to issue, sell and deliver the
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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."
(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.
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(a) The execution and delivery by the Company of this Agreement, the
Registration Rights Agreement Amendment and the Stock Purchase Warrant, the
performance by the Company of its obligations hereunder and thereunder, 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,
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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) On the Closing Date, the issuance, sale and delivery of the
Preferred Shares will have been duly authorized and, when issued in accordance
with this Agreement, will be validly issued, fully paid and nonassessable shares
of Series F 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. On the Closing Date, the
Conversion Shares will 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 will, on the Closing Date, be 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 will not have been waived.
SECTION 2.03 Validity. This Agreement has been duly executed and
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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 Stock Purchase Warrant, 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. As of the date hereof, the
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authorized capital stock of the Company consists of(i) 57,214,764 shares of
Preferred Stock, $.01 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 Convertible Preferred Stock, and (ii)
54,750,000 shares of Common Stock. As of the date hereof, 5,210,979 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, 960,000 shares of Series D Convertible
Preferred Stock and 11,366,667 shares of Series E Convertible Preferred Stock
are validly issued and outstanding, fully paid and nonassessable with no
personal liability attaching to the ownership thereof and no shares of Series F
Convertible Preferred Stock have been issued. Immediately prior to the Closing,
assuming the receipt by the Company of the approvals set forth in Section
4.02(a), the authorized capital stock of the Company will consist of (i)
57,873,098 shares of Preferred Stock, of which 6,000,000 shares will have been
designated Series A Convertible Preferred Stock, 23,107,145 will have been
designated Series B Convertible Preferred Stock, 13,814,286 shares will have
been designated as Series C Convertible Preferred Stock, 960,000 shares will
have been designated as Series D Convertible Preferred Stock,
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11,366,667 shares will have been designated as Series E Convertible Preferred
Stock and 2,625,000 shares will have been designates as Series F Convertible
Preferred Stock, and (ii) 69,218,821 shares of Common Stock. 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 II.
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Immediately prior to the Closing, assuming the receipt by the Company of the
approvals set forth in Section 4.02(a), the designations, powers, preferences,
rights, qualifications, limitations and restrictions in respect of each class
and series of authorized capital stock of the Company will be as set forth in
the Charter, a copy of which is attached as Exhibit C, and all such
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designations, powers, preferences, rights, qualifications, limitations and
restrictions will be valid, binding and enforceable and in accordance with all
applicable laws. Except as set forth in the attached Schedule II, (i) no person
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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 II, the Company has no obligation (contingent or
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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 II and except for
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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 ▇▇▇▇▇ ▇▇▇▇▇▇▇, and the Management Rights letter
agreements (the "Prior Management Rights Agreements") between the Company and
certain of its shareholders, 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
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Purchaser the unaudited consolidated balance sheet of the Company as of December
31, 1998 and May 31, 1999 (the latter of which is herein referred to as the
"Balance Sheet"), and the related unaudited consolidated statements of
operations and cash flows of the Company for the twelve months ended December
31, 1998 and the five months ended May 31, 1999. 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,
1998 and May 31, 1999, respectively, and the consolidated results of its
operations and cash flows for the twelve months ended December 31, 1998 and the
five months ended May 31, 1999, 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
4
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
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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,
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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 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
5
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
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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 I is a list
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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
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 I has been cited to the United
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States Patent and Trademark Office. To the best of the Company's
6
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
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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
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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
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the insurance required to be maintained by it under Section 5.05.
SECTION 2.13 Taxes. The Company has filed all tax returns, Federal,
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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 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
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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
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Schedule III(A). as of the 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 III(B). the Company is not a party
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to or otherwise bound by any written or oral:
(a) distributor, dealer, manufacturer's 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);
(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
8
Company (other than this Agreement, the Registration Rights Agreement Amendment,
the Voting Agreement (as defined in Section 4.01(k)), the Stock Purchase
Warrant, the 1994 Stock Restriction Agreements, 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), the Series D Agreement (as defined in
Section 6.13 hereof) and the Series E Agreement (as defined in Section 6.13
hereof);
(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 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.
9
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 Purchaser 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, the Stock Purchase
Warrant, 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.
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 I 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 1999.
10
SECTION 2.21 Transactions With Affiliates. Other than purchases of
----------------------------
Preferred Shares hereunder and under the Series A Agreement, Series B Agreement,
Series C Agreement, Series D Agreement and Series E Agreement (as such terms are
defined in Section 6.13 hereof) and except as set forth on Schedule II and
-----------
Schedule III(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 party 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 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
11
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 I 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 Purchaser. 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 I 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 Purchaser.
(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 I
----------
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
Purchaser 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.
(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 Purchaser 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
12
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 PURCHASER
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;
(d) the Preferred Shares, the Stock Purchase Warrant and, if any portion
of the Stock Purchase Warrant is exercised for shares (the "Warrant Shares"),
the Warrant 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;
13
(e) it understands that (i) the Preferred Shares, the Conversion Shares,
the Stock Purchase Warrant have not been registered, and, if any portion of
the Stock Purchase Warrant is exercised for Warrant Shares, the Warrant
Shares will not have 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, the Stock Purchase Warrant and, if
any portion of the Stock Purchase Warrant is exercised for Warrant Shares,
the Warrant 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, the Conversion Shares, the Stock
Purchase Warrant and the Warrant 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 Preferred Shares, any Conversion Shares, the Stock
Purchase Warrant or any Warrant 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 Purchaser that Rule 144A is being relied upon with
respect to such resale.
ARTICLE IV
CONDITIONS TO CLOSING; TERMINATION
SECTION 4.01 Conditions Precedent to Obligations of Purchaser. The
------------------------------------------------
obligation of 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 Purchaser 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 Purchaser and its counsel, and the Purchaser and
its counsel shall have received all such counterpart originals or certified
or other copies of such documents as they reasonably may request; provided,
that the Company has previously delivered to the Purchaser a copy of the
Waiver
14
Letter (as defined in Section 4.02(a) hereof) which such letter is in a form
acceptable to Purchaser.
(d) Supporting Documents. The Purchaser and their counsel shall have
--------------------
received copies of the following documents:
(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 Stock Purchase Warrant,
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 Stock Purchase Warrant.
(e) Registration Rights Agreement Amendment. The Company shall have
---------------------------------------
executed and delivered the Registration Rights Agreement Amendment.
(f) Charter. The Charter shall read in its entirety as set forth in
-------
Exhibit C.
---------
(g) Opinion of Counsel. Purchaser participating in such Closing shall have
------------------
received an opinion of Dechert Price & ▇▇▇▇▇▇, dated the date of such
Closing, satisfactory in form and substance to Purchaser and Purchaser's
counsel.
(h) 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.
(i) Stock Purchase Warrant. The Company shall have executed and delivered
----------------------
the Stock Purchase Warrant.
(j) License Agreement. The License Agreement (as defined in Section 5.15
-----------------
hereof) shall have been duly executed by the Company and SB Pharmco Puerto
Rico Inc.
(k) Voting Agreement. The Purchaser shall have executed and delivered to
----------------
the Company the Voting Agreement in the form attached as Exhibit E hereto
(the "Voting Agreement").
All such documents shall be satisfactory in form and substance to the Purchaser
and their counsel.
15
SECTION 4.02 Conditions Precedent to Obligations of the Company. The
--------------------------------------------------
obligation of the Company to issue and deliver the Preferred Shares being issued
and delivered 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) All Proceedings to be Satisfactory. All corporate and other
----------------------------------
proceedings to be taken by the Company in connection with the transactions
contemplated hereby, including receipt by the Company of all necessary board
and shareholder approvals (including, without limitation, the receipt of the
requisite shareholder approval of the Charter and the Registration Rights
Agreement and the receipt of waivers from the holders of the Preferred Stock
(other than the holders of the Series D Convertible Preferred Stock) of their
respective rights of first refusal or the termination of the twenty-day
period set forth in the letters (the "Waiver Letters") sent by the Company to
the such holders of Preferred Stock) and all documents incident thereto shall
be satisfactory in form and substance to the Company and its counsel.
SECTION 4.03 Termination.
-----------
(a) When Agreement May Be Terminated. This Agreement may be terminated at
--------------------------------
any time prior to Closing:
(i) By mutual consent of the Company and Purchaser; or
(ii) By the Company or Purchaser if Closing shall not have
occurred prior to September 15, 1999;
(b) Effect of Termination. In the event of termination of this Agreement
---------------------
by the Company or Purchaser, as provided in subparagraph (a) above, this
Agreement shall forthwith terminate and there shall be no liability on the
part of the Company or Purchaser or their respective officers or directors,
except for liabilities arising from a breach of this Agreement prior to such
termination.
ARTICLE V
COVENANTS OF THE COMPANY
The Company covenants and agrees with the Purchaser that:
SECTION 5.01 Financial Statements, Reports, Etc. Following the Closing
----------------------------------
Date, the Company shall furnish to Purchaser (provided that 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
16
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;
(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 Purchaser reasonably may request.
SECTION 5.02 Right of First Refusal. Following the Closing Date, 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
17
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 II 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. The Purchasers 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 agrees, 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 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
18
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,
the Series C Purchasers and the Series E 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, the shares of Series C Convertible Preferred Stock
and the shares of Series E Convertible Preferred Stock purchased pursuant to the
Series A Agreement, the Series B Agreement, the Series C Agreement and the
Series E 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
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existence, rights and franchises in full force and effect.
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.
SECTION 5.06 Inspection, Consultation and Advice. Following the Closing
-----------------------------------
Date, the Company shall permit Purchaser and such persons as it may designate,
at 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
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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 Stock
Purchase Warrant or the Charter.
SECTION 5.08 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 5.09 By-laws. The Company shall at all times maintain provisions
-------
in its Bylaws and/or Charter indemnifying all directors against liability and
absolving all directors from liability to the Company and its stockholders to
the maximum extent permitted under the laws of the State of Delaware.
SECTION 5.10 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 5.11 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 5.12 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 5.13 Rule 144A Information. Following the Closing Date, 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
Purchaser or a prospective buyer of Preferred Shares or Conversion Shares from
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 Purchaser,
cooperate with and assist 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 5.13 shall at all times be contingent upon the relevant Purchaser's
obtaining from the prospective buyer of Preferred Shares or Conversion Shares a
written
20
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.
SECTION 5.14 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.
SECTION 5.15 Milestone Stock Purchase.
------------------------
(a) Upon the occurrence of the Successful 2nd Pivotal Study (as
defined in Section 3.01(5) of the License Agreement (the "License Agreement"),
dated as of July 26, 1999, between the Company and SB Pharmco Puerto Rico Inc.)
(the "Milestone Event")), Purchaser shall, within 30 days of the occurrence of
the Milestone Event, purchase the Milestone Shares (as defined below) from the
Company at a price per share equal to the Milestone Price (as defined below).
(b) In the event that the Milestone Event occurs prior to the
completion by the Company of an Initial Public Offering (as defined below), (i)
"Milestone Shares" shall mean the number of shares of New Preferred Stock (as
----------------
defined below) of the Company equal to the amount obtained by dividing $500,000
by the Milestone Price; (ii) "Milestone Price" shall mean the fair market value
---------------
of the New Preferred Stock immediately following the Milestone Event as
determined in good faith by the Board of Directors of the Company, provided that
in no event will the Milestone Price be less than the price per share of the
Preferred Stock issued (other than pursuant to a Non-Investor Issuance (as
defined below) and as adjusted for stock splits, stock dividends and other
similar transactions) immediately prior to the Milestone Event; and (iii) "New
---
Preferred Stock" shall mean Series F Convertible Preferred Stock or, at the
---------------
election of the Company, a new series of Preferred Stock containing rights,
preferences and privileges which are substantially the same as those of the
Series F Convertible Preferred Stock, except that the New Preferred Stock will
not include a warrant to purchase shares of capital stock of the Company or any
additional rights. In the event that the Milestone Price as calculated pursuant
to this clause (b) is greater than the price per share of capital stock (the
"Next Price") paid in the first issuance of capital stock by the Company (other
than pursuant to a Non-Investor Issuance) immediately following the Milestone
Event (either pursuant to a preferred stock offering or an Initial Public
Offering, with such Next Price to be adjusted for stock splits, stock dividends
or other similar transactions) (the "Subsequent Issuance"), then Purchaser shall
be entitled to receive an additional amount of shares of New Preferred Stock at
the time of the Subsequent Issuance equal to (x) minus (y), where (x) equals
$500,000 divided by the Next Price and (y) equals the Milestone Shares. In the
event that the Subsequent Issuance is a Qualified Public Offering (as defined in
paragraph 6(O) of the Charter), the Company may, at its election, substitute
shares of Common Stock for shares of New Preferred Stock due under this clause
(b), with such substituted number of shares of Common Stock to be calculated on
the same basis as set forth in paragraph 6 of the Charter.
(c) In the event that the Milestone Event occurs after the completion by
the Company of an Initial Public Offering, (i) "Milestone Shares" shall mean the
----------------
number of shares of Common Stock of the Company equal to the amount obtained by
dividing $500,000 by the
21
Milestone Price (as defined in this clause (c)) and (ii) "Milestone Price" shall
---------------
mean the average closing bid price per share of the Common Stock as listed on
the principal national securities exchange on which the Common Stock is then
listed or admitted to trading or, if not then listed or traded on any such
exchange, on the National Market System of NASDAQ or, if not listed or traded on
any such exchange or system, the average of the bid and asked price per share on
NASDAQ or, if such quotations are not available, the fair market value as
reasonably determined by the Board of Directors of the Company during the
twenty-day period comprised of the ten trading days immediately prior to, and
the ten trading days immediately after, the public announcement by the Company
about the Milestone Event, provided that in no event will the Milestone Price be
less than $1.00 per share (as adjusted for stock splits, stock dividends and
other similar transactions).
(d) As used herein, (i) "Initial Public Offering" shall mean the
-----------------------
initial public offering of the Company's Common Stock pursuant to a registration
statement (other than on Form S-4 or S-8 or a successor form thereto) under the
Securities Act of 1933, as amended; and (ii) "Non-Investor Issuance" means an
---------------------
issuance of 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,
------------
(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 the exercise of options to purchase securities of
the Company or securities issued to directors, officers, employees or
consultants of the Company in connection with their service to the Company or
(F) to licensors or transferors of technology from or to the Company.
(e) Within 30 days following the occurrence of the Milestone Event,
Purchaser shall deliver to the Company, by check or wire transfer in immediately
available funds, an amount equal to $500,000. Within five days of receipt of
such amount, the Company shall issue and deliver to Purchaser a stock
certificate or certificates in definitive form, registered in the name of
Purchaser, representing the Preferred Shares being purchased by it pursuant to
this Section 5.15.
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.
SECTION 6.02 Survival of Agreements. All covenants, agreements,
----------------------
representations and warranties made herein or in the Registration Rights
Agreement Amendment or the Stock Purchase Warrant, or any certificate or
instrument delivered to the Purchaser pursuant to or in connection with this
Agreement, the Registration Rights Agreement
22
Amendment or the Stock Purchase Warrant, shall survive the execution and
delivery of this Agreement, the Registration Rights Agreement Amendment and the
Stock Purchase Warrant, 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 Purchaser 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
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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:
(a) if to the Company, at ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇,
Attention: President, with a copy to ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq., Dechert Price &
▇▇▇▇▇▇, 4000 ▇▇▇▇ Atlantic Tower, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇;
and
(b) if to Purchaser, at Four Tower Bridge, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇
▇▇▇, ▇. ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇, Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Ph.D.
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
23
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 titles 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 Agreements. By their signature below, the Purchaser,
----------------
to the extent it is also a party 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
Purchaser") 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 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") and that certain Series E Convertible
Preferred Stock Purchase Agreement (the "Series E Agreement") between the
Company and the purchasers named therein dated as of December 8, 1998 (each, a
"Series E Purchaser") hereby (i) waives, except to the extent set forth in this
Agreement, the right to purchase shares of Series F Convertible Preferred Stock
sold pursuant to this Agreement. The signature of each Series A Purchaser,
Series B Purchaser, Series C Purchaser and Series E 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, the Series C Agreement and the Series E
Agreement.
[Signature pages follow immediately.]
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