EXHIBIT 10.1
================================================================================
COLLAGENEX PHARMACEUTICALS, INC.
--------------------------------------------------------------------------------
COMMON STOCK PURCHASE AGREEMENT
--------------------------------------------------------------------------------
SHARES OF COMMON STOCK
--------
Dated as of March 12, 2001
================================================================================
TABLE OF CONTENTS
1. AUTHORIZATION OF SECURITIES............................................1
2. SALE AND PURCHASE OF STOCK; ALLOCATION OF PURCHASE PRICE...............1
3. CLOSING................................................................1
4. REGISTER OF SECURITIES; RESTRICTIONS ON TRANSFER OF SECURITIES;
REMOVAL OF RESTRICTIONS ON TRANSFER OF SECURITIES; INVESTOR
REPRESENTATIONS AND WARRANTIES.........................................2
4.1 Register of Securities...........................................2
4.2 Restrictions on Transfer.........................................2
4.3 Removal of Transfer Restrictions.................................4
4.4 Representations and Warranties...................................4
5. REPRESENTATIONS AND WARRANTIES BY COMPANY..............................5
5.1 Confidential Private Placement Memorandum........................5
5.2 Organization, Standing, etc......................................5
5.3 Qualification....................................................5
5.4 Capitalization, Etc..............................................6
5.5 Securities.......................................................7
5.6 Corporate Acts and Proceedings...................................8
5.7 Compliance with Laws and Other Instruments.......................8
5.8 Binding Obligations..............................................8
5.9 Securities Laws..................................................8
5.10 No Brokers or Finders............................................9
5.11 Financial Statements.............................................9
5.12 Changes..........................................................9
5.13 Material Agreements.............................................10
5.14 Employees.......................................................11
5.15 Tax Returns and Audits..........................................11
5.16 Patents and Other Intangible Assets.............................13
5.17 Employment Benefit Plans--ERISA.................................15
5.18 Permits; Environmental Matters..................................17
5.19 Title to Property and Encumbrances; Leases......................18
5.20 Condition of Properties.........................................18
5.21 Insurance Coverage..............................................18
5.22 Litigation......................................................19
5.23 Registration Rights.............................................19
5.24 Licenses........................................................19
5.25 Interested Party Transactions...................................19
5.26 Accountants.....................................................19
5.27 Investment Company..............................................20
i
5.28 No Manipulation of Stock........................................20
5.29 Reporting Status................................................20
5.30 No Material Adverse Change......................................20
5.31 Exemption from Registration; Restrictions on Offer and Sale
of Same or Similar Securities...................................20
6. CONDITIONS OF PARTIES' OBLIGATIONS....................................21
6.1 Conditions of Investor's Obligations at Closing.................21
6.2 Conditions of Company's Obligations.............................23
7. AFFIRMATIVE COVENANTS.................................................23
7.1 Maintain Corporate Rights and Facilities........................23
7.2 Maintain Insurance..............................................23
7.3 Pay Taxes and Other Liabilities.................................23
7.4 Replacement of Certificates.....................................23
7.5 Compliance with Article 6.......................................23
7.6 Securities Law Filings..........................................24
7.7 Use of Proceeds.................................................24
7.8 Subsequent Offerings............................................24
7.9 Register Shares; Rule 144 Reporting.............................24
7.10 USRPHC..........................................................24
7.11 Conduct Prior to Closing........................................24
7.12 Shareholder Protection Rights Agreement.........................25
7.13 Waivers and Consents............................................26
8. NEGATIVE COVENANTS....................................................26
8.1 Changes in Type of Business.....................................26
8.2 Loans and Guarantees............................................26
8.3 Restrictive Agreements..........................................26
8.4 Publicity.......................................................26
9. ENFORCEMENT...........................................................27
9.1 Remedies at Law or in Equity....................................27
9.2 Cumulative Remedies.............................................27
9.3 No Implied Waiver...............................................27
10. ADDITIONAL DEFINITIONS................................................27
11. MISCELLANEOUS.........................................................29
11.1 Waivers and Amendments..........................................29
11.2 Rights of Holders Inter Se......................................29
11.3 Exculpation.....................................................30
11.4 Notices.........................................................30
11.5 Survival of Representations and Warranties, etc.................30
ii
11.6 Severability....................................................31
11.7 Parties in Interest.............................................31
11.8 Headings........................................................31
11.9 Choice of Law...................................................31
11.10 Expenses........................................................31
11.11 Investor Indemnities............................................32
11.12 Counterparts....................................................32
11.13 Termination.....................................................32
LIST OF ANNEXES
Annex A Wiring Instructions
Annex B Warrant
Annex C Registration Rights Agreement
Annex 1 Schedule of Investors
Annex 5.1 Confidential Private Placement Memorandum
Annex 5.3 Subsidiaries
Annex 5.4(b) 5% Beneficial Holders
Annex 5.4(c) Other Securities and Obligations
Annex 5.4(d) Anti-Dilution Adjustments
Annex 5.7 Compliance with Laws and Other Instruments
Annex 5.12 Changes
Annex 5.13 Material Agreements
Annex 5.16(a) Limitations on Patents and Other Intangible Assets
Annex 5.16(d) Intellectual Property, Licenses, etc.
Annex 5.17(a) Employee Benefits Plans
Annex 5.17(d) Employee Benefits Plan Litigation
Annex 5.22 Litigation
Annex 6.1(e) Form of Opinion of Company's Counsel
Annex 7.8 Subsequent Offerings
iii
COLLAGENEX PHARMACEUTICALS, INC.
COMMON STOCK PURCHASE AGREEMENT
This Common Stock Purchase Agreement (this "Agreement") is made and
entered into as of March 12, 2001, by and between CollaGenex Pharmaceuticals,
Inc., a Delaware corporation with principal offices located at ▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ (the "Company") and the undersigned investor (the
"Investor").
1. AUTHORIZATION OF SECURITIES. The Company has authorized the issuance
and sale of shares (the "Shares") of its common stock, $.01 par value
per share (the "Common Stock"), at a price per share equal to $5.00, which shall
be issued and sold pursuant to this Agreement and up to shares of
Common Stock which will be issued and sold pursuant to the other Common Stock
Purchase Agreements (the "Other Agreements") between the Company and the other
investors signatories (the "Other Investors") thereto which are listed on Annex
I and attached hereto. The Other Agreements will be identical to this Agreement
(except that the respective amounts of shares of Common Stock to be purchased
and the number of warrants to be issued will vary as specified on the signature
page of each such agreement) including, without limitation with respect to price
per share, which shall be $5.00 per share. The Company has authorized the
issuance of warrants (the "Warrants") to purchase shares of Common
Stock to the Investor and up to shares of Common Stock to the Other
Investors and has duly authorized and reserved a sufficient number of shares of
Common Stock with respect to the issuance thereof, in each case, at an exercise
price and upon the terms and conditions set forth in the Warrant in the form
attached hereto as Annex B. In addition, the Company has authorized and reserved
for issuance such number of shares of Common Stock as are issuable from time to
time upon exercise of the Warrants (the "Warrant Shares").
2. SALE AND PURCHASE OF STOCK; ALLOCATION OF PURCHASE PRICE. Upon the
terms and subject to the conditions herein contained, the Company will issue and
sell to the Investor, and the Investor will purchase from the Company, at the
Closing (as defined in Section 3) on the Closing Date (as defined in Section 3),
the Shares and the Warrants and will pay the Company the aggregate amount (the
"Purchase Price") specified on the signature page hereto. The Investor and the
Company agree that after the date hereof they shall allocate, in good faith, the
Purchase Price between the Shares and the Warrants so purchased.
3. CLOSING. The closing of the sale and purchase of the Shares and the
Warrants (a "Closing") will occur at the offices of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Sutro Capital
Markets (the "Placement Agent" or "TASCM"), ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, at 10:00 A.M., California time, or at such
other time or day as the Placement Agent and the Company agree with the written
consent of the Investor ("Closing Date"); provided that the Closing Date shall
be no earlier than the date on which the Company consummates the transactions
contemplated by the Other Agreements. At the Closing, the Company shall deliver
to the Investor a certificate evidencing the Shares being purchased by it and a
Warrant, each of which will be registered in the Investor's name as stated on
the signature page hereto, or in nominee name if the Investor so designates,
against delivery to the Placement Agent on behalf of the Company of payment by
wire transfer or transfers in accordance with the instructions in Annex A in an
amount equal to the Purchase Price of such Shares. The Investor shall make
payment by wire transfer within one business day after delivery by the Company
by fax, or other means, of an executed copy of this Agreement to the Placement
Agent and to the Investor; provided that such deliver shall be no sooner than
one business day prior to the Closing Date. The Investor acknowledges and agrees
that except as provided by this Agreement, the subscription for Shares may not
be revoked by the Investor once this Agreement is signed by the Investor and
delivered by fax, or any other means to the Placement Agent. The Investor
further acknowledges and agrees that a legally binding agreement between the
Investor and the Company shall occur only after this Agreement is executed by
the Company and the Investor and delivered to the Placement Agent, the Company
and the Investors.
4. REGISTER OF SECURITIES; RESTRICTIONS ON TRANSFER OF SECURITIES; REMOVAL
OF RESTRICTIONS ON TRANSFER OF SECURITIES; INVESTOR REPRESENTATIONS AND
WARRANTIES.
4.1 Register of Securities. The Company or its duly appointed transfer
agent will maintain a register for the Shares, the Warrants and the Warrant
Shares, in which it will register the issue and sale of all such Shares, the
Warrants and the Warrant Shares. All transfers of Shares will be recorded in the
register maintained by the Company or its transfer agent, and the Company will
be entitled to regard the registered holder of Shares, the Warrants, and the
Warrant Shares as the actual holder of such Shares, Warrants and Warrant Shares
until the Company or its transfer agent is required to record a transfer of such
Shares, Warrants and Warrant Shares on the appropriate register. Subject to
Section 4.2(b) hereof, the Company or its transfer agent will be required to
record any such transfer when it receives the Shares, Warrants and Warrant
Shares 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) The Investor understands and agrees that the Shares, the
Warrants and the Warrant Shares to be acquired by it have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"), and that
accordingly they will not be transferable except in accordance with this
Agreement and as permitted under various exemptions contained in the Securities
Act or upon satisfaction of the registration and prospectus delivery
requirements of the Securities Act. The Investor acknowledges that it must bear
the economic risk of its investment in the Shares, the Warrants and the Warrant
Shares for an indefinite period of time (subject, however, to the Company's
obligation to effect the registration of the Shares and the Warrant Shares under
the Securities Act in accordance with Annex C (the "Registration Rights
Agreement")) 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. References to this Agreement shall include the
Registration Rights Agreement.
2
(b) The Investor agrees with the Company that:
(i) Subject to Section 4.3 hereof, the certificates evidencing
the Shares, the Warrants and the Warrant Shares it has agreed to purchase, and
each 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, AS AMENDED (THE
"ACT") OR WITH ANY SECURITIES COMMISSION UNDER APPLICABLE STATE
SECURITIES OR BLUE SKY LAWS AND HAVE BEEN ACQUIRED FOR
INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. SUCH
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED,
ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS
THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
COVERING SUCH SECURITIES OR THE ISSUER RECEIVES AN OPINION OF
COUNSEL STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT."
(ii) The certificates representing such Shares, Warrants and
Warrant Shares, and each certificate issued in transfer thereof, will also bear
any legend required under any applicable state securities law.
(iii) Absent an effective registration statement under the
Securities Act covering any proposed disposition of Shares, Warrants and Warrant
Shares it will not offer for sale, sell, transfer, assign, pledge, hypothecate
or otherwise dispose of any or all of its Shares, Warrants or Warrant Shares
without first providing the Company with an opinion of counsel (at the expense
of the Company) to the effect that such offer, sale, transfer, assignment,
pledge, hypothecation or other disposition will be exempt from the registration
and the prospectus delivery requirements of the Securities Act and the
registration or qualification requirements of any applicable state securities or
blue sky laws, except that no such registration or opinion will be required with
respect to: (A) a transfer not involving a change in beneficial ownership or to
an Affiliate, (B) the distribution of Shares, Warrants or Warrant Shares by such
Investor to any of its partners or retired partners or to the estate of any of
its partners or retired partners, members, officers and directors or (C) a sale
to be effected in accordance with Rule 144 under the Securities Act (or any
comparable exemption).
(iv) It consents to the Company's making a notation on its
records or giving instructions to any transfer agent of the Shares, Warrants and
Warrant Shares in order to implement the restrictions on transfer of the Shares,
Warrants and Warrant Shares contemplated by this subsection.
3
4.3 Removal of Transfer Restrictions. The Company shall remove any
legend endorsed on a certificate evidencing Shares, Warrants or Warrant Shares
pursuant to Section 4.2(b)(i), and any stop transfer instructions and record
notations with respect to such Shares, Warrants or Warrant Shares and issue a
certificate without such legend to the holder of such Shares, Warrants or
Warrant Shares: (A) if such Shares, Warrants or Warrant Shares are registered
under the Securities Act, (B) if such Shares may be sold under Rule 144(k) under
the Securities Act or (C) if the Company receives an opinion of counsel (at the
expense of the Company) to the effect that a sale or transfer of such Shares,
Warrants or Warrant Shares may be made without registration under the Securities
Act.
4.4 Representations and Warranties. The Investor represents and
warrants that:
(a) It has the right, power, authority and capacity to execute and
deliver this Agreement and each other document contemplated by this Agreement.
(b) It is acquiring the Shares and the Warrants and, will acquire
the Warrant Shares, for its own account for investment purposes and not with a
view to, or in connection with, the distribution of all or any part thereof.
(c) It is not aware of, and in no way relying on, any form of
general solicitation or general advertising or the publication of any
advertisement in connection with the offer and sale of the Shares, the Warrants
or the Warrant Shares.
(d) It has, by reason of its business or financial experience or
the business or financial experience of its professional advisers who are
unaffiliated with and uncompensated by the Company, the ability to utilize the
information made available to it in connection with the offering of the Shares,
the Warrants and the Warrant Shares to evaluate the merits and risks of an
investment in the Shares, the Warrants and the Warrant Shares and to make an
informed investment decision with respect thereto; and it is an "accredited
investor" (as defined in Rule 501(a) promulgated by the Securities and Exchange
Commission (the "Commission") under the Securities Act).
(e) It has had the opportunity to meet or speak with
representatives of the Company and to have them answer any questions and provide
any information regarding the terms and conditions of the Shares, the Warrants
and the Warrant Shares and the finances, business and prospects of the Company
as it deemed relevant, and all such questions have been answered and information
provided to its and its professional advisers' satisfaction.
(f) It understands that the Shares, the Warrants and the Warrant
Shares have not been registered under the Securities Act or registered or
qualified under any applicable state securities or blue sky laws; that the
offering and sale of the Shares, the Warrants and the Warrant Shares is intended
to be exempt from registration under the Securities Act under Section 4(2)
thereof and Regulation D promulgated by the Commission thereunder and from
registration or qualification under applicable provisions of state securities or
blue sky laws; and that, accordingly, the Shares, the Warrants and the Warrant
Shares may not be offered for sale, sold, transferred, assigned, pledged,
hypothecated or otherwise disposed of unless registered
4
under the Securities Act and applicable state securities or blue sky laws or an
exception from such registration is available.
(g) It is a resident of the State indicated as part of its address
on its signature page hereto.
(h) It has not agreed and will not agree to act with any Other
Investor for the purpose of acquiring, holding, voting or disposing of the
Shares or the Warrant Shares.
(i) The Shares and Warrants purchased hereunder constitute the
Investor's entire ownership in the Company's Equity Securities.
5. REPRESENTATIONS AND WARRANTIES BY COMPANY. In order to induce the
Investor to enter into this Agreement and to purchase the Shares, the Warrants
and the Warrant Shares, the Company covenants with, and represents and warrants
to, the Investor as follows:
5.1 Confidential Private Placement Memorandum. The Confidential Private
Placement Memorandum of the Company attached hereto as Annex 5.1, dated February
2001, (as finally amended and supplemented on the Closing Date, the
"Memorandum") does not and, as of the Closing Date, will not include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein in light of the circumstances under which they were made
not misleading.
5.2 Organization, Standing, etc. The Company and each of its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization, and has all
requisite power and authority to carry on its business, as conducted, to own and
hold its properties and assets and, in the case of the Company, to enter into
this Agreement, the Registration Rights Agreement, the Warrant, to issue the
Shares and the Warrant Shares and to carry out the terms and provisions hereof
and thereof. The copies of the Certificate of Incorporation and Bylaws of the
Company which have been delivered to the Investor prior to execution of this
Agreement are true, complete and correct and have not been amended, modified,
repealed, revoked or rescinded in any manner.
5.3 Qualification. The Company and each of its Subsidiaries is duly
qualified, licensed or domesticated as a foreign corporation in good standing in
each jurisdiction wherein the nature of its activities or its properties,
whether owned or leased, makes such qualification, licensing or domestication
necessary and where the failure to be so qualified would have a Material Adverse
Effect (as defined below). The Company has no Subsidiaries and does not
otherwise own or control, directly or indirectly, any other person, corporation,
association, or business entity and is not a participant in any joint venture,
partnership, or similar arrangement except as described in the Company's annual
report on Form 10-K for the year ended December 31, 1999, any subsequent
quarterly report or as set forth on Annex 5.3 attached hereto.
5
5.4 Capitalization, Etc. The authorized capital stock of the Company
immediately upon the consummation at Closing of the transactions contemplated
hereby, and prior to giving effect thereto, shall consist of:
(a) Five Million (5,000,000) shares of undesignated preferred
stock, $0.01 par value, of which;
(i) Two Hundred Thousand (200,000) shares have been
designated as Series D Cumulative Convertible Preferred Stock ("Series D
Preferred Stock"), of which 200,000 shares are outstanding, all of which are
validly issued and outstanding, fully paid and non-assessable; and
(ii) Four Million Eight Hundred Thousand (4,800,000) shares
are currently undesignated preferred stock, none of which are issued and
outstanding.
(b) Twenty Five Million (25,000,000) shares of Common Stock, of
which (i) Nine Million Fifty Thousand Six Hundred Thirty Eight (9,050,638)
shares are outstanding, all of which are validly issued and outstanding, fully
paid and non-assessable; and (ii) Two Million Fifty Eight Thousand Two Hundred
Thirty Seven (2,058,237) shares are duly reserved for issuance in connection
with the conversion of the Series D Preferred Stock and payment of dividends on
the Series D Preferred Stock as set forth in the Company's Certificate of
Designation related thereto. 14,379,836 shares of Common Stock represent the
Company's total common equity on a Fully-Diluted Basis. For purposes of the
foregoing, "Fully-Diluted Basis" means (i) all shares of Equity Securities (as
defined below) outstanding, (ii) all securities convertible into or exercisable
for shares of Equity Securities, as if exercised and converted to the fullest
extent of their terms, (iii) all securities issuable pursuant to contractual or
other obligations of the Company, excluding Common Stock dividends to be issued
to the holders of the Company's Series D Preferred Stock after the date hereof
and excluding shares of capital stock issuable pursuant to the Company's
Shareholder Protection Rights Agreement, dated September 15, 1997, as amended
(the "Rights Plan"), (iv) all shares of Equity Securities reserved for issuance
to employees, consultants or directors of the Company or any other Person and
(v) all shares issuable upon the exercise of the options, warrants and all other
rights or securities referred to in Annex 5.4(c). Upon consummation of the
transactions contemplated hereby, the number of Shares purchased by the Investor
shall represent (i) % of the Company's total common equity on a Fully
Diluted Basis and (ii) % of the Company's total common equity on a diluted
basis calculated in accordance with Regulation 13D of the Exchange Act (i.e.,
the percentage the Investor would be required to set forth in any Schedule 13D
that the Investor may be required to file with the Commission as a result of the
consummation of the transactions contemplated hereby. Annex 5.4(b) attached
hereto contains a list of (y) all beneficial holders of record owning five
percent (5%) or more of outstanding capital stock and (z) all other beneficial
holders known to the Company, of five percent (5%) or more of the Company's
outstanding capital stock and beneficial holders known to the Company to have
filed a Schedule 13D or 13G under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") including, for both (y) and (z) above, the number
of shares of outstanding capital stock beneficially owned by each such holder;
and
6
(c) Annex 5.4(c) attached hereto lists all outstanding options,
warrants, convertible securities, agreements, commitments, arrangements or
undertakings of any kind pursuant to which the Company or its Subsidiaries are
or may become obligated to issue any shares of Common Stock or other Equity
Security and names all Persons (as defined in Section 10) entitled to receive
such Common Stock or other Equity Security and the amount of securities required
to be issued thereunder. There are no bonds, debentures, notes or other
indebtedness of the Company or its Subsidiaries having the right to vote (or
convertible into, or exchangeable for, Common Stock or other Equity Securities
having the right to vote) on any matters on which stockholders of the Company or
its Subsidiaries may vote. Except as set forth on Annex 5.4(c), there are no
outstanding securities, options, warrants, agreements, commitments, arrangements
or undertakings of any kind to which the Company or its Subsidiaries are a party
or by which the Company or its Subsidiaries are bound obligating the Company or
its Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, directly or indirectly, additional shares of Common Stock or other Equity
Securities or obligating the Company or its Subsidiaries to issue, grant, extend
or enter into any such option, warrant, agreement, commitment, arrangement or
undertaking. Except as set forth on Annex 5.4(c), there are no outstanding
contractual obligations of the Company or its Subsidiaries to repurchase, redeem
or otherwise acquire, or providing preemptive rights, stock purchase rights,
rights of first refusal, registration rights or similar rights with respect to,
any shares of Common Stock or other Equity Securities. The Company and its
Subsidiaries do not have outstanding any loans to any Person in respect of the
purchase of Common Stock or other Equity Securities. The Company is not a party
to any, and, to the Company's knowledge there is no, voting trust, agreement or
arrangement among any of the beneficial holders of Common Stock affecting the
exercise of the voting rights of such securities. The term "Equity Security"
means with respect to any Person, any and all shares, interests,
participation's, rights in, or other equivalents (however designated and whether
voting or non-voting) of, such Person's capital stock or similar security of the
Company or any and all rights, warrants, options or other security convertible
or exchangeable, with or without consideration, into or for any such shares or
similar security (including, but not limited to, any debt security that is
exchangeable for or convertible into such capital stock), or any security
carrying any warrant or right to subscribe to or purchase any such shares or
similar security, or any such warrant or right, including shares of preferred
stock.
(d) Except as set forth on Annex 5.4(d), neither the offer nor the
issuance or sale of the Shares, the Warrants or the Warrant Shares constitutes
or will constitute an event, under any Equity Security or any anti-dilution or
similar provision of any option, warrant, agreement, commitment, arrangement or
undertaking to which the Company is a party or by which it is bound or affected,
which would either increase the number of shares of Equity Securities issuable
upon conversion of any securities or upon exercise of any warrant or right to
subscribe to or purchase any Shares, Warrants or Warrant Shares or similar
security or decrease the consideration per share of Equity Security to be
received by the Company upon such conversion or exercise or otherwise result in
any change to any conversion or exchange ratio.
5.5 Securities. The Shares, the Warrants and the Warrant Shares are
duly authorized and, when issued and paid for pursuant to the terms of this
Agreement, will be validly issued, fully paid and non-assessable and will be
free and clear of all Liens (as defined in Section 10) and restrictions, other
than restrictions on transfer imposed by (a) Sections 4.2 and 4.3, (b)
applicable state securities laws and (c) the Securities Act.
7
5.6 Corporate Acts and Proceedings. The Company has the full corporate
power and authority to execute and deliver this Agreement, the Registration
Rights Agreement and the Warrant and to perform its obligations hereunder and
thereunder. All corporate acts and proceedings required for the authorization,
execution and delivery of this Agreement, the Registration Rights Agreement and
the Warrant, the offer, issuance and delivery of the Shares, the Warrants and
the Warrant Shares and the performance of this Agreement, the Registration
Rights Agreement and Warrant have been duly and validly taken or will have been
so taken prior to the Closing. This Agreement, the Registration Rights Agreement
and the Warrant have been duly executed and delivered by the Company.
5.7 Compliance with Laws and Other Instruments. The business and
operations of the Company and each of its Subsidiaries have been and are being
conducted in material compliance with all applicable federal, state local and
foreign laws, rules and regulations. The execution, delivery and performance by
the Company of this Agreement, the Registration Rights Agreement and the
Warrant: (a) will not require from the Company's Board of Directors (the
"Board") or stockholders any consent or approval that has not been validly and
lawfully obtained other than as set forth on Annex 5.7 hereto, (b) will not
require any authorization, consent, approval, license, exemption of or filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality of government, except such as will have been
lawfully and validly obtained prior to the Closing, (c) will not cause the
Company to violate or contravene (i) any provision of law, (ii) any rule or
regulation of any agency or government, domestic or foreign, (iii) any order,
writ, judgment, injunction, decree, determination or award or (iv) any provision
of the Certificate of Incorporation or Bylaws of the Company (or any of its
Subsidiaries), (d) will not violate or be in conflict with, result in a breach
of or constitute (with or without notice or lapse of time or both) a default
under, any indenture, loan or credit agreement, note agreement, deed of trust,
mortgage, security agreement or other 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 is bound or affected 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 is bound or affected. The Company is not subject to
any restriction of any kind or character which materially affects in any way its
business, properties, assets or prospects or which prohibits the Company from
entering into this Agreement, the Registration Rights Agreement or the Warrant
or would prevent or make burdensome its performance of or compliance with all or
any part of this Agreement, the Registration Rights Agreement or the Warrant or
the consummation of the transactions contemplated hereby or thereby.
5.8 Binding Obligations. This Agreement, the Registration Rights
Agreement and the Warrant constitute legal, valid and binding obligations of the
Company enforceable against the Company in accordance with their respective
terms.
5.9 Securities Laws. The offer, issuance and sale of the Shares, the
Warrants and the Warrant Shares are or will be (a) exempt from the registration
and prospectus delivery
8
requirements of the Securities Act, (b) registered or qualified (or are exempt
from registration or qualification) under the registration or qualification
requirements of all applicable state securities and blue sky laws, rules and
regulations and (c) accomplished in conformity with all other federal and
applicable state securities and blue sky laws, rules and regulations.
5.10 No Brokers or Finders. No Person has, or as a result of the
transactions contemplated herein will have, any right or valid claim against the
Company or any Investor for any commission, fee or other compensation as a
finder or broker, or in any similar capacity, except, in the case of the
Company, for compensation due TASCM, which is acting as the Company's financial
adviser in connection with such transactions. Such compensation shall include a
total cash payment of $450,000 and warrants to purchase 150,000 shares of the
Company's Common Stock, which warrants are substantially identical to the
Warrants with an exercise price of $5.70 and a term of three (3) years. The
Investor shall have no responsibility to pay any fee payable by the Company in
connection with the foregoing.
5.11 Financial Statements.
(a) The financial statements, together with the related notes, set
forth in the Memorandum or in reports filed by the Company with the Commission
and referred to in the Memorandum fairly present, on the basis set forth in the
Memorandum or in such reports, the financial position and results of operations
of the Company and its consolidated subsidiaries at the respective dates or for
the respective periods therein specified. Such statements and related notes have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis except as otherwise stated in the Memorandum or in
such reports.
(b) Neither the Company nor any of its Subsidiaries has any assets
or material debts, liabilities or obligations of any nature (whether absolute,
accrued, contingent or otherwise and whether due or to become due), which must
be disclosed on a balance sheet in accordance with generally accepted accounting
principles that are not reflected on the balance sheet (the "Balance Sheet") as
of September 30, 2000 (the "Balance Sheet Date"), included in the Company's
report on Form 10-Q filed with the Commission, except (i) to the extent set
forth on or reserved against in the Balance Sheet and (ii) current liabilities
incurred and obligations under agreements entered into, in the usual and
ordinary course of business, since the Balance Sheet Date, none of which
(individually or in the aggregate) materially affects the business, finances,
operations, assets or prospects of the Company and its Subsidiaries taken as a
whole.
5.12 Changes. Except as set forth on Annex 5.12, since the Balance
Sheet Date as to clauses (a) and (c) below, and since one year prior to the
Balance Sheet Date as to the remaining clauses of this Section, neither the
Company nor any of its Subsidiaries has (a) incurred any debts, obligations or
liabilities, absolute, accrued, contingent or otherwise, whether due or to
become due, except current liabilities incurred in the usual and ordinary course
of business, none of which (individually or in the aggregate) materially affects
the business, finances, operations, assets or prospects of the Company and its
Subsidiaries taken as a whole, (b) made or suffered any changes in its
contingent obligations by way of guaranty, endorsement (other than the
endorsement of checks for deposit in the usual and ordinary course of business),
indemnity, warranty or otherwise, (c) discharged or satisfied any Liens other
than those securing, or paid any obligation or liability other than, current
liabilities shown on the Balance Sheet and
9
current liabilities incurred since the Balance Sheet Date, in each case, in the
usual and ordinary course of business, (d) mortgaged, pledged or subjected to
Lien any of its assets, tangible or intangible, (e) sold, transferred or leased
any of its assets except in the usual and ordinary course of business, (f)
canceled or compromised any debt or claim, or waived or released any right, of
material value, (g) suffered any physical damage, destruction or loss (whether
or not covered by insurance) materially affecting the business, finances,
operations, assets or prospects of the Company and its Subsidiaries taken as a
whole, (h) entered into any transaction other than in the usual and ordinary
course of business except for this Agreement (and the transactions contemplated
hereby), (i) encountered any labor difficulties or labor union organizing
activities, (j) made or granted any wage or salary increase or entered into any
employment agreement, (k) issued or sold any shares of capital stock or other
Equity Securities or granted any options with respect thereto, or modified any
Equity Security, (l) declared or paid any dividends on or made any other
distributions with respect to, or purchased or redeemed, any of its outstanding
Equity Securities, (m) suffered or experienced any change in, or condition
affecting the business, finances, operations, assets or prospects of the Company
and its Subsidiaries other than changes, events or conditions in the usual and
ordinary course of its business, none of which (either by itself or in
conjunction with all such other changes, events and conditions) has been
material or is reasonably expected to be material, (n) made any change in the
accounting principles, methods or practices followed by it or depreciation or
amortization policies or rates theretofore adopted or (o) entered into any
agreement, or otherwise obligated itself, to do any of the foregoing
(collectively "changes") except for changes which, individually and in the
aggregate, would not reasonably be expected to have a Material Adverse Effect.
5.13 Material Agreements. Except as filed as Exhibits to the Company's
periodic filings with the Commission or as set forth on Annex 5.13 hereto,
neither the Company nor any of its Subsidiaries is a party to any written or
oral agreement, instrument arrangement or understanding not made in the ordinary
course of business that is material to the Company or such Subsidiary, neither
the Company nor any of its Subsidiaries is a party to any written or oral (a)
agreement with any labor union, (b) agreement for the purchase of fixed assets
or for the purchase of materials, supplies or equipment in excess of normal
operating requirements, (c) agreement for the employment of any officer,
individual employee or other Person on a full time basis or any agreement with
any Person for consulting services, (d) bonus, pension, profit sharing,
retirement, stock purchase, stock option, deferred compensation, medical,
hospitalization or life insurance (other than group medical, hospitalization or
insurance plans applicable to all employees in which benefit levels are not
related to compensation) or similar plan, contract or understanding with respect
to any or all of the employees of the Company or any other Person, (e)
indenture, loan or credit agreement, note agreement, deed of trust, mortgage,
security agreement, promissory note or other agreement or instrument relating to
or evidencing Indebtedness (as defined in Section 10) or subjecting any asset or
property of the Company to any Lien or evidencing any Indebtedness, (f) guaranty
of any Indebtedness, (g) lease or agreement under which the Company is lessee of
or holds or operates any property, real or personal, owned by any other Person
under which payments to such Person exceed $100,000 per annum, (h) lease or
agreement under which the Company is lessor or permits any Person to hold or
operate any property, real or personal, owned or controlled by the Company, (i)
except as set forth on Annex 5.4(c), agreement granting any preemptive right,
stock purchase right, right of first refusal, registration right or similar
right to any Person, (j) agreement or arrangement with any Affiliate (as defined
in Section 10) or any Associate (as defined in Rule 405 of the
10
Commission under the Securities Act) of the Company or any officer, director or
stockholder of the Company, (k) agreement obligating the Company to pay any
royalty or similar charge for the use or exploitation of any tangible or
intangible property, (l) agreement or license under which the Company has
granted or transferred to any Person the right to exploit or otherwise use any
patent, trademark, service ▇▇▇▇, copyright, trade name, trade secret,
intellectual property (as defined in Section 5.16(b)) or other intangible asset,
(m) covenant not to compete or other restriction on its ability to conduct a
business or engage in any other activity, (n) agreement to register securities
under the Securities Act or (o) agreement, instrument or other commitment or
arrangement with any Person continuing for a period of more than three months
from the Closing Date, which involves an expenditure or receipt by the Company
in excess of $50,000 (any such agreements or understandings, the "Material
Agreements"), except for agreements which, individually and in the aggregate,
would not reasonably be expected to have a Material Adverse Effect. All Material
Agreements are legal, valid, binding, and in full force and effect and are
enforceable by the Company in accordance with their respective terms, subject to
(x) laws of general applications relating to bankruptcy, insolvency and the
relief of debtors, (y) rules of law governing specific performance, injunctive
relief or other equitable remedies, and (z) actions or omissions of parties
other than the Company. Except as disclosed in Annex 5.13 hereto or the SEC
Documents (as defined below), the Company has not granted to any Person rights,
whether exclusive or nonexclusive, to develop, manufacture, assemble,
distribute, market, or sell its existing and proposed products (including,
without limitation, Periostat and Inhibitors of Multiple Proteases and Cytokines
compounds), and has not granted any rights that limit the Company's exclusive
right to develop, manufacture, assemble, distribute, market, or sell, such
products. The Company has not adopted a stockholders rights plan, poison pill or
similar arrangement other than the Rights Plan. Assuming the accuracy of the
Investor's representations and warranties as set forth in Section 4.4 hereof,
the consummation of the transactions contemplated by this Agreement (including,
without limitation, the (i) acquisition by the Investor of the Shares and the
Warrant, (ii) exercise of the Warrants and/or any anti-dilution adjustment
thereunder and/or (iii) issuance of the Dividend Shares as described in Section
1(a) of the Registration Rights Agreement) will in no way impact the Rights
Plan.
5.14 Employees. The Company and its Subsidiaries have complied in all
material respects with all laws relating to the employment of labor, including
provisions relating to wages, hours, equal opportunity, collective bargaining
and payment of Social Security and other taxes, and they have not encountered
any material labor difficulties. Except pursuant to ordinary arrangements for
employment compensation, the Company is not under any obligation or liability to
any officer, director, employee or Affiliate of the Company.
5.15 Tax Returns and Audits. All required federal, state and local Tax
Returns of the Company and its Subsidiaries have been completely and accurately
prepared and duly and timely filed, and all Taxes required to be paid, withheld
or remitted with respect to the periods covered by such returns have been so
paid, withheld or remitted. The Company is not and has not been delinquent in
the payment of any Tax, assessment or governmental charge. The Company has never
had any Tax deficiency proposed or assessed against it and has not executed any
waiver of any statute of limitations on the assessment or collection of any Tax
or governmental charge. None of the Company's Tax Returns has ever been audited
by governmental authorities and, to the knowledge of the Company, no such audit
is currently threatened. The reserves for Taxes, assessments and governmental
charges reflected on the
11
Balance Sheet are and will be sufficient for the payment of all unpaid Taxes,
assessments and governmental charges payable by the Company with respect to the
period ended on the Balance Sheet Date. Since the Balance Sheet Date, (i)
neither the Company nor any of its Subsidiaries has engaged in any transaction,
or taken any other action, other than in the ordinary course of business and
(ii) the Company has made adequate provisions on its books of account for all
taxes, assessments and governmental charges with respect to its business,
properties and operations for such period. The Company has withheld or collected
from each payment made to each of its employees, creditors, independent
contractors or other third parties, the amount of all Taxes (including, without
limitation, federal income taxes, Federal Insurance Contribution Act taxes and
Federal Unemployment Tax Act taxes) required to be withheld or collected
therefrom, and has paid the same to the proper Tax receiving officers or
authorized depositories.
No Liens for Taxes exist with respect to any assets or properties of the
Company and its Subsidiaries, except for statutory Liens for Taxes not yet due
and payable, and the Company and its Subsidiaries have no knowledge of any claim
relating to Taxes that, if adversely determined, would result in any Lien on any
of the assets or properties of the Company or any of its Subsidiaries.
Neither the Company nor any of its Subsidiaries (i) is a party to or bound
by any written Tax sharing, Tax indemnity or similar agreement with respect to
Taxes pursuant to which it will have any obligation to make any payment after
the Closing Date, or (ii) has any liability for Taxes of any person (other than
members of the affiliated group, within the meaning of Section 1504(a) of the
Code, filing consolidated federal income tax returns of which the Company is the
common parent) under Treasury Regulation ss. 1.1502-6, Treasury Regulation ss.
1.1502-78 or similar provision of state, local or foreign law, as a transferee
or successor, by contract, or otherwise.
The Company and each of its Subsidiaries have provided or otherwise made
available to Investor complete and accurate copies of all Tax Returns,
examination reports and statements of deficiencies for all open years.
Neither the Company nor any of its Subsidiaries has executed or entered
into a closing agreement pursuant to Section 7121 of the Code or any similar
provision of state, local or foreign law.
There is no contract, agreement, plan, or arrangement covering any person
that, individually or collectively, could give rise to the payment of any amount
that would not be deductible by the Company or any of its Subsidiaries by reason
of Section 280G of the Code. None of the Company and its Subsidiaries is a party
to any contract, agreement, or other arrangement which could result in the
payment of amounts that could be nondeductible by reason of Section 162(m) of
the Code.
There are no requests for rulings or determinations in respect of any Tax
(or Tax Asset) pending between the Company or any of its Subsidiaries and any
taxing authority.
12
Neither the Company nor any of its Subsidiaries has agreed to or is
required to make any adjustments under section 481 of the Code by reason of a
change of accounting method or otherwise.
None of the respective assets of the Company or any of its Subsidiaries is
required to be treated as being owned by any person, other than the Company or
any of its Subsidiaries, pursuant to the "safe harbor" leasing provisions of
Section 168(f)(8) of the Code.
The Company is not a "United States real property holding corporation" (a
"USRPHC") as that term is defined in Section 897(c)(2) of the Code and the
regulations promulgated thereunder.
Neither the Company nor any of its Subsidiaries knows of any change in the
rates or basis of assessment of any tax (other than federal income tax), of the
Company and its Subsidiaries which would reasonably be expected to have a
Material Adverse Effect.
As used in this Agreement, "Taxes" shall include (i) all federal, state,
local or foreign and other taxes, levies, fees, charges or assessments including
without limitation, all net income, gross income, franchise, profit or gross
receipts, ad valorem, capital gains, sales, use, real, or personal property,
capital stock, license, payroll, estimated withholding, employment,
compensation, utility, severance, production, excise, stamp, occupation,
transfer and gains taxes, and customs duties, and includes any interest or
penalties on or additions to any such taxes, and (ii) any transferee liability
in respect of any items described in clause (i) above. As used in this
Agreement, "Tax Return" means report, return, claim for refund or other written
information required to be supplied to a taxing authority in connection with
Taxes, including any schedule or attachment thereto or amendment thereof.
As used in this Agreement, "Tax Asset" means any net operating loss, net
capital loss, investment tax credit, foreign tax credit, charitable deduction or
any other credit or tax attribute that could be carried forward or back to
reduce Taxes (including, without limitation, deductions and credits related to
alternative minimum Taxes).
5.16 Patents and Other Intangible Assets.
(a) Except as set forth on Annex 5.16(a) hereto, the Company and
each of its Subsidiaries (i) owns or has the right to use, free and clear of all
Liens, claims, and contractual restrictions (whether express or implied), all of
its patents, trademarks, service marks, trade names, trade dress, brand names,
Internet domain names, web sites or web pages, designs, logos, corporate names,
copyrights, licenses, computer software programs and documentation related
thereto, Trade Secrets (as defined below) and rights or applications with
respect to the foregoing (collectively, "Intellectual Property"), used in or
necessary for the conduct of its business as now conducted or proposed to be
conducted, (ii) to its knowledge is not infringing upon or otherwise acting
adversely to the right or claimed right of any Person under or with respect to
any Intellectual Property and (iii) is not obligated or under any liability
whatsoever to make any payments by way of royalties, fees or otherwise to any
owner or licensee of, or other claimant to, any patent, trademark, service ▇▇▇▇,
trade name, copyright or other intangible asset, with respect to the use thereof
or in connection with the conduct of its business or otherwise.
13
(b) The Company and each of its Subsidiaries owns and has the
unrestricted contractual right (whether express or implied) to use all product
rights, manufacturing rights, development rights, trade secrets, including
know-how, negative know-how, formulas, patterns, compilations, programs,
devices, methods, techniques, processes, inventions, designs, computer programs
and technical data and all information that derives independent economic value,
actual or potential, from not being generally known or known by competitors and
which the Company has taken reasonable steps to maintain in secret ("Trade
Secrets") required for or incident to the development, manufacture, operation
and sale of all products and services sold or proposed to be sold by the Company
and its Subsidiaries, to knowledge of the Company, free and clear of any right,
Lien or claim of others, including, without limitation, former employers of its
employees.
(c) The Company and each of its Subsidiaries has taken all
commercially reasonably actions to maintain and protect each item of
Intellectual Property.
(d) Since its organization: (i) the Company has taken commercially
reasonable measures to protect the Company Confidential Information (as defined
below), and thereby preserve the rights and Intellectual Property of the
Company; (ii) each of the Company's employees has entered into an agreement with
the Company not to use or disclose or allow anyone else to use or disclose any
Company Confidential Information except as may be necessary in the performance
of the employees' work or as may be specifically authorized in advance by
appropriate officers of the Company; (iii) furthermore, the Company has required
other Persons having access to Company Confidential Information to enter into a
confidentiality agreement wherein such party acknowledges that it will have
access to Company Confidential Information and that such information is to be
maintained as secret and confidential to ensure the continued success of the
Company, all records remain the property of the originator and that any
recipient of Company Confidential Information will not use such information in
any way which is detrimental to the Company, and that such recipient agrees not
to publish or disclose the Company Confidential Information and that the
recipient will not disclose to any Person any of the terms, conditions or other
facts with respect to the transaction relating to the Company Confidential
Information. Company Confidential Information as used herein, includes
information consisting of or relating to the Company's products, business
relationships, business strategies, research and development, Intellectual
Property, technical information, innovations, concepts, data, reports,
techniques, pricing, marketing plans, customer and prospect lists, trade
secrets, financial information, salaries, business affairs, suppliers, profits,
markets, sales strategies, forecasts, employee information and any other
commercially useful or valuable information not available to the general public,
whether written or oral, which the Company considers confidential for any
purpose, such as maintaining competitive advantage or avoiding undesirable
publicity; with the exception that Company Confidential Information does not
include information which (i) becomes generally available to the public except
as a result of a disclosure by the recipient (or its representatives), (ii) was
available to the recipient on a non-confidential basis prior to its disclosure
to the recipient by the Company, or (iii) becomes available to the recipient on
a non-confidential basis from a source other than the Company (provided,
however, such source is not bound by a confidentiality with either party or
their respective representatives).
14
(e) Except as set forth on Annex 5.16(d), neither the Company nor
any of its Subsidiaries has sold, transferred, assigned, licensed or subjected
to any Lien, any Intellectual Property, trade secret, know-how, Invention
(defined below), design, process, computer program or technical data, or any
interest therein, necessary or useful for the development, manufacture, use,
operation or sale of any product or service presently under development or
manufactured, sold or rendered by the Company, except for licenses to use the
Company's and its Subsidiaries technology and products granted in the ordinary
course of business to distributors and other customers. As used herein,
"Invention" means all inventions, developments and discoveries which during the
period of an employee's or other Person's service to the Company and its
Subsidiaries he or she makes or conceives of that relate to any subject matter
with which his or her work for the Company may be concerned, or relate to or are
connected with the business, products, services or projects of the Company, or
relate to the actual or demonstrably anticipated research or development of the
Company or involve the use of the Company's time, material, facilities or trade
secret information.
(f) Except as set forth on Annex 5.16(a), no director, officer,
employee, agent or stockholder of the Company owns or has any right which has
not been assigned to the Company in the Intellectual Property of the Company or
any Inventions, developments or discoveries used in or necessary for the conduct
of the Company's business as now conducted or as proposed to be conducted.
(g) Neither the Company nor any of its Subsidiaries has received
any communication alleging or stating that the Company or any of its
Subsidiaries or any employee thereof has violated or infringed, or by conducting
business as proposed, would violate or infringe, any patent, trademark, service
▇▇▇▇, trade name, copyright, trade secret, proprietary right, process or other
intellectual property of any Person.
(h) To the knowledge of the Company and its Subsidiaries, no Person
is infringing upon or otherwise violating the Intellectual Property rights of
the Company or it Subsidiaries.
5.17 Employment Benefit Plans--ERISA.
(a) Set forth in Annex 5.17 attached hereto is an accurate and
complete list of all employee benefit plans, as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and all
other pension, retirement, supplemental retirement, deferred compensation,
excess benefit, profit sharing, bonus, incentive, stock purchase, stock
ownership, stock option, stock appreciation right, employment, severance, salary
continuation, termination, change-of-control, health, life, disability, group
insurance, vacation, holiday and fringe benefit plan, program, contract, or
arrangement (whether written or unwritten, qualified or nonqualified, funded or
unfunded and including any that have been frozen or terminated) maintained,
contributed to, or required to be contributed to, by the Company or any ERISA
Affiliate for the benefit of any employee, former employee, director or officer
of the Company or under which the Company or any ERISA Affiliate has or may
have, directly or indirectly, whether contingently or otherwise any liability
with respect to any employee, former employee, director or officer of the
Company ("Employee Benefit Plans"). The term "ERISA Affiliate" means (i) any
corporation included with the Company in a controlled group of
15
corporations within the meaning of Section 414(b) of the Internal Revenue Code
of 1986, as amended (the "Code"); (ii) any trade or business (whether or not
incorporated) which is under common control with the Company within the meaning
of Section 414(c) of the Code; (iii) any member of an affiliated service group
of which the Company is a member within the meaning of Section 414(m) of the
Code; or (iv) any other person or entity treated as an affiliate of the Company
under Section 414(o) of the Code.
(b) Each Employee Benefit Plan (including any related trust)
materially complies in form with, and has at all times been maintained and
operated in material compliance with its terms and, the requirements of all
applicable laws, including, without limitation, ERISA, the Code and the
Consolidated Omnibus Budget Reconciliation Act ("COBRA"). No known condition or
circumstance exists that would prevent the amendment or termination of any
Employee Benefit Plan.
(c) Neither the Company nor any current ERISA Affiliate is, or
within the seven (7) years immediately preceding the date of this Agreement was,
required to contribute to or maintain any multiemployer plan, as defined by
Section 3(37) of ERISA or any plan subject to Part 3, Subtitle B of Title I of
ERISA or Title IV of ERISA. Neither the Company nor any ERISA Affiliate, while
an ERISA Affiliate, has incurred any withdrawal liability, within the meaning of
Section 4201 of ERISA to any multiemployer plan, which liability has not been
fully paid as of the date hereof. No Employee Benefit Plan which is a "group
health plan" (as such term is defined in Section 5000(b)(1) of the Code or
Section 607(1) of ERISA) is a "multiple employer welfare arrangement," within
the meaning of Section 3(40) of ERISA. Neither the Company nor any of its
Subsidiaries has any obligation to provide or any direct or indirect liability,
whether contingent or otherwise with respect to the provision of post-employment
or retiree health, life insurance and/or other welfare benefits, except any
requirements pursuant to COBRA. Neither the Company nor any of its Subsidiaries
has any funded or unfunded liabilities pursuant to any employee benefit pension
plan (as defined in Section 3(2) of ERISA) that is not intended to be qualified
under Section 401(a) of the Code. No asset of the Company or any of its
Subsidiaries is subject to any lien arising under Section 302(f) of ERISA or
Section 412(n) of the Code, and, to the Company's knowledge, no event has
occurred and no condition or circumstance exists that is reasonably likely to
give rise to any such lien. Neither the Company nor any of its Subsidiaries has
been required to provide any security under Section 307 of ERISA or Section
401(a)(29) or 412(f) of the Code, and, to the Company's knowledge, no event has
occurred and no condition or circumstance exists that is reasonably likely to
give rise to any such requirement to provide any such security.
(d) Except as set forth on Annex 5.17(d), there are no actions,
suits, claims, or disputes pending, or, to the knowledge of the Company,
threatened or reasonably expected to be asserted against or with respect to any
Employee Benefit Plan or the assets of any such plan (other than routine claims
for benefits and appeals of denied routine claims).
(e) Full payment has been timely made of all amounts which the
Company or any ERISA Affiliate is required, under applicable law or under any
Employee Benefit Plan or any agreement relating to any Employee Benefit Plan to
which the Company or any ERISA Affiliate is a party, to have paid as
contributions or premiums thereto as of the last day of the most recent fiscal
year of such Employee Benefit Plan ended prior to the Closing.
16
(f) Each Employee Benefit Plan intended to be qualified under
Section 401(a) of the Code has, as currently in effect, been determined to be so
qualified by the IRS or an application for a determination letter will be
submitted to the IRS no later than the end of the applicable remedial amendment
period as described in Section 401(b) of the Code. Since the date of each most
recent determination referred to in this paragraph (f), no event has occurred
and no condition or circumstance has existed that resulted or is reasonably
likely to result in the revocation of any such determination or that would
adversely affect the qualified status of any such Employee Benefit Plan or the
exempt status of any such trust.
(g) Neither the Company nor any ERISA Affiliate nor any of their
respective directors, officers, employees or, to the knowledge of the Company,
other Persons who participate in the operation of any Employee Benefit Plan or
related trust or funding vehicle, has engaged in any transaction with respect to
any Employee Benefit Plan or breached any applicable fiduciary responsibilities
or obligations under Title I of ERISA with respect to such plans that would
subject any of them to a tax, penalty or liability for prohibited transactions
or which would constitute a breach of any obligations under ERISA or the Code or
which would result in any claim being made under, by or on behalf of any such
Employee Benefit Plan by any party with standing to make such claim.
(h) The execution of this Agreement and the consummation of the
transactions contemplated hereby, do not constitute a triggering event under any
Employee Benefit Plan or arrangement, whether or not legally enforceable, which
will or may result in any payment (whether of severance pay or otherwise),
"parachute payment" (as such term is defined in Section 280G of the Code),
acceleration, vesting or increase in benefits to any employee or former employee
or director of the Company or any of its Subsidiaries. No Employee Benefit Plan
provides for the payment of severance, termination, change in control or
similar-type payments or benefits.
5.18 Permits; Environmental Matters. The Company and its Subsidiaries
have accrued or otherwise provided, in accordance with generally accepted
accounting principles, consistently applied, for all damages, liabilities,
penalties or costs that they may incur in connection with any claim pending or
threatened against them, or any requirement that is or may be applicable to
them, under any Environmental Laws (defined below), and such accrual or other
provision is reflected in the Company's most recent filings with the Commission
and:
(a) The Company and its Subsidiaries are in compliance with all
applicable laws, rules, regulations, ordinances, orders decrees and common law
relating to contamination, pollution or the protection or human health or the
environment ("Environmental Laws"), and the Company and its Subsidiaries have
all permits, licenses, registrations and other governmental authorizations
required under such laws ("Environmental Permits") for their operations, and
there are no violations, investigations or proceedings pending or, to the
knowledge of Company or its Subsidiaries, threatened with respect to
Environmental Laws or such Environmental Permits except where the failure to
have such Environmental Permits or where the violation, investigation or
proceeding relating thereto would not, individually or in the aggregate, be
reasonably expected to have a Material Adverse Effect.
17
(b) No notice, notification, demand, request for information,
citation, summons, complaint or order is pending or has been received by or, to
the knowledge of the Company or its Subsidiaries, is threatened by any person
against the Company or its Subsidiaries under any Environmental Laws or in
respect of any of the properties or facilities now or previously owned, leased
or operated by the Company or its Subsidiaries. No penalty has been assessed
against the Company or its Subsidiaries, and no liability has been imposed upon
the Company or its Subsidiaries, under Environmental Law with respect to any
alleged notification, demand, request for information, citation, summons,
complaint or order except where such matters have been fully resolved, or where
resolution would not, individually or in the aggregate be reasonably expected
to, have a Material Adverse Effect or prevent or materially delay the
consummation of the transactions contemplated by this Agreement.
(c) No hazardous, toxic or regulated substance, waste, materials or
chemical ("Hazardous Substance") has been discharged, generated, treated,
manufactured, handled, stored, transported, emitted, released or is present at
any property now or previously owned, leased or operated by the Company or its
Subsidiaries in violation of any Environmental Law or under circumstance which,
individually or in the aggregate, would have in a Material Adverse Effect or
prevent or materially delay the consummation of the transactions contemplated by
this Agreement.
5.19 Title to Property and Encumbrances; Leases. The Company and each
of its Subsidiaries has good and marketable title to all of its properties and
assets, including, without limitation, the properties and assets reflected on
the Balance Sheet and the properties and assets used in the conduct of its
business, except for properties disposed of in the ordinary course of business
since the Balance Sheet Date and properties held under valid and subsisting
leases which are in full force and effect and which are not in default, subject
to no Lien other than Permitted Liens (as defined in Section 10). All leases
under which the Company or any such Subsidiary is lessee of any real or personal
property are valid, enforceable and effective in accordance with their terms;
there is not under any such lease any existing or claimed default by the Company
or such subsidiary or event or condition which with notice or lapse of time or
both would constitute a default by the Company.
5.20 Condition of Properties. All facilities, machinery, equipment,
fixtures, vehicles and other properties owned, leased or used by the Company and
its Subsidiaries are in good operating condition and repair and are adequate and
sufficient for their businesses.
5.21 Insurance Coverage. There is in full force and effect one or more
policies of insurance (including, but not limited to, product liability, fire
and casualty insurance policies) issued by insurers that are financially sound
and of recognized responsibility insuring the Company and its Subsidiaries and
their properties and businesses against such losses and risks, and in such
amounts, as are customary in the case of corporations of established reputation
engaged in the same or similar business and similarly situated. The Company has
not been refused any insurance coverage sought or applied for, and the Company
has no reason to believe that it will be unable to renew its existing insurance
coverage as and when the same expires upon terms at least as favorable as those
presently in effect, other than possible increases in premiums that do not
result from any act or omission of the Company.
18
5.22 Litigation. Except as set forth on Annex 5.22, there is no legal
action, suit, arbitration or other legal, administrative, regulatory or other
governmental investigation (including, but not limited to, the United States
Food and Drug Administration (the "FDA"), any state, local or foreign regulatory
equivalent of the FDA and any other regulatory entity that regulates the
business and/or products of the Company) (collectively, "Governmental Bodies"),
inquiry or proceeding (whether federal, state, local or foreign) pending or, to
the Company's knowledge, threatened against or affecting (a) the Company or any
of its Subsidiaries or any of their respective properties, assets or business
(existing or contemplated), (b) Intellectual Property, (c) Material Agreement or
(d) any employee of the Company or any such Subsidiary, before any court or
governmental department, commission, board, bureau, agency or instrumentality or
any arbitrator, except for suits, arbitrations, investigations, inquiries and
proceedings which would, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. After reasonable investigation,
neither the Company nor any employee or agent of nor attorney for the Company is
aware of any fact that might result in or form the basis for any such action,
suit, arbitration, investigation, inquiry or other proceeding. The Company has
not been subject to any adverse ruling by any Governmental Bodies and is not
aware of any potential adverse ruling by any Governmental Bodies against the
Company. Neither the Company nor any employee is in default with respect to any
order, writ, judgment, injunction, decree, determination or award of any court
or of any governmental agency or instrumentality (whether federal, state, local
or foreign).
5.23 Registration Rights. Except as disclosed in Annex 5.4(c), the
Company has not agreed to register under the Securities Act any of its
authorized or outstanding securities other than under the Registration Rights
Agreement.
5.24 Licenses. The Company and its Subsidiaries possess from the
appropriate agency, commission, board and governmental body and authority,
whether state, local or federal, all material licenses, permits, authorizations,
approvals, franchises and rights which are necessary for them to engage in the
business currently conducted by them and proposed to be conducted, including,
without limitation, the development, manufacture, use, sale and marketing of its
existing and proposed products and services. All such certificates, licenses,
permits, authorizations and rights have been lawfully and validly issued, are in
full force and effect.
5.25 Interested Party Transactions. No officer, director or, to the
Company's knowledge, beneficial holder of more than five percent (5%) of the
shares of Common Stock outstanding of the Company or any Affiliate or Associate
of any such individual or the Company has or has had, either directly or
indirectly, (a) an interest in any Person which (i) furnishes or sells services
or products which are furnished or sold or are proposed to be furnished or sold
by the Company or (ii) purchases from or sells or furnishes to the Company any
goods or services or (b) a beneficial interest in any contract or agreement to
which the Company is a party or by which it may be bound or affected, except, in
each case, as disclosed in the Memorandum.
5.26 Accountants. KPMG LLP, who the Company expects will express their
opinion with respect to the financial statements to be incorporated by reference
from the Company's Annual Report on Form 10-K for the year ended December 31,
2000 into the Registration Statement (as defined below) and the Prospectus which
forms a part thereof, are
19
independent accountants as required by the Securities Act and the rules and
regulations promulgated by the Commission thereunder (the "Rules and
Regulations").
5.27 Investment Company. The Company is not an "investment company" or
an "affiliated person" of, or "promoter" or "principal underwriter" for an
investment company, within the meaning of the Investment Company Act of 1940, as
amended.
5.28 No Manipulation of Stock. The Company has not taken and will not,
in violation of applicable law, take, any action designed to or that might
reasonably be expected to cause or result in manipulation of the price of the
Common Stock to facilitate the sale or resale of the Shares, the Warrants or the
Warrant Shares.
5.29 Reporting Status. The Company has filed in a timely manner all
documents that the Company was required to file under the Securities Act and
Exchange Act since its initial public offering. The following 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 an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein in light of the circumstances under which they were made not
misleading:
(a) Quarterly Reports on Form 10-Q for the Quarters ended March 31,
2000, June 30, 2000, and September 30, 2000 filed with the Commission on May 12,
2000, August 14, 2000, and November 14, 2000, respectively;
(b) Annual Report on Form 10-K for the Year Ended December 31,
1999, filed with the Commission on March 29, 2000; and
(c) All other documents, if any, filed by the Company with the
Commission since December 31, 1998 (collectively, the "SEC Documents").
No Subsidiary is subject to the periodic reporting requirements of the
Exchange Act or is otherwise required to file any documents with the Commission
or any national securities exchange or quotation service or comparable
governmental body, whether domestic or foreign.
5.30 No Material Adverse Change. Since September 30, 2000, there has
been no change, event or occurrence which has, individually or in the aggregate,
had or is reasonably expected to have a material adverse effect on the business,
assets, properties, liabilities, results of operations or condition (financial
or otherwise) of the Company and its Subsidiaries taken as a whole ("Material
Adverse Effect"), and to the knowledge of the Company no such change, event or
occurrence is threatened, nor has there been any damage, destruction or loss
which would, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect, whether or not covered by insurance.
5.31 Exemption from Registration; Restrictions on Offer and Sale of
Same or Similar Securities. Assuming the representations and warranties of the
Investor set forth in Section 4.4(b) hereof are true and correct in all material
respects, the offer and sale of the Shares made pursuant to this Agreement will
be exempt from the registration requirements of the Securities Act. Neither the
Company nor any Person acting on its behalf has, in connection with
20
the offering of the Shares, engaged in (i) any form of general solicitation or
general advertising (as those terms are used within the meaning of Rule 502(c)
under the Securities Act), (ii) any action involving a public offering within
the meaning of Section 4(2) of the Securities Act, or (iii) any action that
would require the registration under the Securities Act of the offering and sale
of the Shares pursuant to this Agreement or that would violate applicable state
securities or "blue sky" laws. The Company has not made and will not prior to
the Closing make, directly or indirectly, any offer or sale of shares of its
Equity Securities, or any options, if as a result the offer and sale of the
Shares contemplated hereby, or any of them, could fail to be entitled to
exemption from the registration requirements of the Securities Act. As used
herein, the terms "offer" and "sale" have the meanings specified in Section 2(3)
of the Securities Act.
6. CONDITIONS OF PARTIES' OBLIGATIONS.
6.1 Conditions of Investor's Obligations at Closing. The obligation of
the Investor to purchase and pay for the Shares and the Warrant that it has
agreed to purchase on the Closing Date is subject to the fulfillment prior to or
on the Closing Date of the following conditions, any of which may be waived in
whole or in part by the Investor.
(a) No Errors, etc. The representations and warranties of the
Company in this Agreement will be true and correct in all material respects,
except to the extent qualified by materiality, in which case such
representations and warranties shall be true and correct in all respects, on the
Closing Date.
(b) Compliance with Agreement. The Company will have performed and
complied with all agreements and conditions required by this Agreement to be
performed or complied with by it on or before the Closing Date.
(c) No Default. There will not exist on the Closing Date any
Default (as defined in Section 10) or Event of Default (as defined in Section
10) or any event or condition which, with the giving of notice or lapse of time
or both, would constitute a Default or Event of Default.
(d) Officer's Compliance Certificate. The Company will have
delivered to each Investor a certificate dated the Closing Date, executed by its
Chief Executive Officer and Chief Financial Officer certifying, upon having made
a reasonable investigation sufficient to express an informed view, the
satisfaction of the conditions specified in subsections (a), (b) and (c) of this
Section.
(e) Opinion of Company's Counsel. The Investors will have received
from ▇▇▇▇ and ▇▇▇▇ LLP, Princeton, New Jersey, counsel for the Company, a
favorable opinion dated the Closing Date substantially in the form of Annex
6.1(e) hereto.
(f) Supporting Documents. The Investor will have received:
(i) Copies of the actions of the Board, certified by the
Secretary of the Company, authorizing and approving the execution, delivery and
performance of this Agreement, the Registration Rights Agreement, the Warrant
and all other documents and instruments to be delivered pursuant hereto and
thereto;
21
(ii) A certificate of incumbency executed by the Secretary of
the Company certifying the names, titles and signatures of the officers
authorized to execute the documents referred to in subparagraph (i) above and
further certifying that the Certificate of Incorporation and Bylaws of the
Company delivered to the Investors at the time of the execution of this
Agreement have been validly adopted and have not been amended, modified,
repealed, revoked or rescinded; and
(iii) Such additional supporting documentation and other
information with respect to the transactions contemplated hereby as the
Investors through the Placement Agent may request.
(g) Proceedings and Documents. All corporate and other proceedings
and actions taken in connection with the transactions contemplated hereby and
all certificates, opinions, agreements, instruments and documents mentioned
herein or incident to any such transactions will be satisfactory in form and
substance to the Investors.
(h) Registration Rights Agreement. The Registration Rights
Agreement shall have been executed and delivered by the Company.
(i) Memorandum. The Investor shall have received a true, complete
and correct copy of the final Memorandum and any material changes set forth
therein from the Memorandum previously delivered to the Investor on or prior to
the date hereof shall be satisfactory to the Investor.
(j) Material Adverse Change. There shall have been no material
adverse change (actual or threatened) in the assets, liabilities (contingent or
other), affairs, operations, or condition (financial or other) of the Company or
any of its Subsidiaries prior to the Closing Date; and the Company shall have
performed all obligations and conditions herein required to be performed or
observed by the Company on or prior to the Closing Date.
(k) No Proceedings. No proceeding challenging this Agreement or the
transactions contemplated hereby, or seeking to prohibit, alter, prevent or
materially delay the Closing, shall have been instituted before any court,
arbitrator or governmental body, agency or official and shall be pending.
(l) Necessary Consents. The purchase of and payment for the Shares
and the Warrants by the Investor shall not be prohibited by any law or
governmental order or regulation. Except with respect to those stockholders set
forth on Annex 5.7 hereto, all necessary consents, approvals, licenses, permits,
orders and authorizations of, or registrations, declarations and filings with,
any governmental or administrative agency or of any other person with respect to
any of the transactions contemplated hereby shall have been duly obtained or
made and shall be in full force and effect, unless waived in writing by the
Investor.
(m) Corporate Proceedings, etc. All instruments and corporate
proceedings of the Company in connection with the transactions contemplated by
this Agreement to be consummated at the Closing shall be satisfactory in form
and substance to the Investor, and the Investor shall have received copies
(executed or certified, as may be appropriate) of all
22
documents which the Investor may have reasonably requested in connection with
such transactions.
(n) Other Agreements. The Investor shall have received true,
complete and correct copies of the final material agreement(s) between the
Company and the other Investors pursuant to the Other Agreements and the
transactions contemplated by the Other Agreements shall have been consummated.
6.2 Conditions of Company's Obligations. The Company's obligation to
issue and sell the Shares and the Warrants to the Investor on the Closing Date
is subject to: (i) the receipt and acceptance by the Company of a fully executed
Agreement for the Shares; (ii) the representations and warranties of the
Investor shall be true and correct in all material respects as of Closing; (iii)
receipt of the Investor's Purchase Price; and (iv) receipt of all requisite
consents and waivers with respect to the transactions contemplated hereby.
7. AFFIRMATIVE COVENANTS. The Company will, unless the Holders of a
Requisite Majority of the Restricted Shares (as hereinafter defined) otherwise
agree in writing, so long as any Investor is a Holder of Restricted Shares, (as
to itself and each of its Subsidiaries unless the context otherwise requires):
7.1 Maintain Corporate Rights and Facilities. Maintain and preserve its
corporate existence and all rights, franchises and other authority adequate for
the conduct of its business; maintain its properties, equipment and facilities
in good order and repair and conduct its business in an orderly manner without
voluntary interruption.
7.2 Maintain Insurance. Maintain in full force and effect the coverages
referred to in Section 5.20.
7.3 Pay Taxes and Other Liabilities. Pay and discharge, or cause to be
paid or discharged before the same become delinquent and before penalties accrue
thereon, all Taxes, assessments and governmental charges upon or against it or
any of its properties, and all its other material liabilities at any time
existing, except to the extent and so long as (a) the same are being contested
in good faith and by appropriate proceedings in such manner as not to cause any
materially adverse effect upon its financial condition or the loss of any right
of redemption from any sale thereunder, (b) it has set aside on its books
reserves (segregated to the extent required by generally accepted accounting
principles) deemed by it adequate with respect thereto, and (c) the Company will
pay all such Taxes, assessments, charges or levies forthwith upon the
commencement of proceedings to foreclose any lien which may have attached as
security therefor.
7.4 Replacement of Certificates. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
any certificate representing Shares, Warrants or Warrant Shares issue a new
certificate representing such Shares in lieu of the lost, stolen, destroyed or
mutilated certificate.
7.5 Compliance with Article 6. Use commercially reasonable efforts to
cause the conditions specified in Section 6.1 to be met by the Closing Date.
23
7.6 Securities Law Filings. Make all filings necessary to perfect in a
timely fashion exemptions from (a) the registration and prospectus delivery
requirements of the Securities Act and (b) the registration or qualification
requirements of all applicable securities or blue sky laws of any state or other
jurisdiction for the issuance of the Shares, the Warrants and the Warrant Shares
to the Investor.
7.7 Use of Proceeds. Use the proceeds from the sale of the Shares and
Warrants hereunder substantially for the Company's direct-to-consumer
advertising campaign and to fund working capital. Pending such use of the
proceeds, the Company shall invest the cash in short-term, interest-bearing,
investment grade securities.
7.8 Subsequent Offerings. Except with respect to those stockholders set
forth on Annex 5.7 hereto, the Company shall obtain Waivers of Rights In
Connection With A Private Placement of the Company's Common Stock, Warrants and
Warrant Shares ("Waivers") from all of the Company's stockholders having a right
to notice of, a right to participate in, a right to consent to or a right to
register shares in connection with the transactions contemplated hereby, all of
which stockholders are listed on Annex 7.8 hereto, which Annex 7.8 includes all
applicable stockholders listed on Annex 5.4(c) hereto, and shall use
commercially reasonable efforts to enforce such Waivers.
7.9 Register Shares; Rule 144 Reporting. The Company agrees to register
the Shares and the Warrant Shares in accordance with the Registration Rights
Agreement. From and after the date of this Agreement, the Company agrees that it
will use commercially reasonable efforts to file with the Commission, within the
time periods specified in the Commission's rules and regulations, (i) all
quarterly and annual financial information required to be filed with the SEC on
Forms 10-Q and 10-K, (ii) all current reports required to be filed with the
Commission on Form 8-K and (iii) any other information required to be filed with
the Commission. Further, the Company agrees that it will, for so long the
Investor or its Affiliates continues to hold any Shares or Shares issuable upon
exercise of the Warrants, use commercially reasonable efforts to qualify for use
of Form S-3 under the Securities Act.
7.10 USRPHC. The Company covenants that it will not become a USRPHC at
any time while the Investor owns the Shares. In the event that the Investor
desires to sell or dispose of any of the Shares, and upon demand by the
Investor, the Company agrees to deliver to the Investor a letter (the "Letter")
which complies with Sections 1.1445-2(c)(3) and 1.897-2(h) of the treasury
regulations promulgated under the Code (the "Treasury Regulations"), addressed
to the Investor, stating that the Company is not, and has not been, a USRPHC
during the period equal to the lesser of (i) the period beginning five years
prior to the date of the Letter through the date of the Letter and (ii) the
period from the date of this Agreement through the date of the Letter. The
Letter shall be delivered to the Investor one business day prior to the close of
any sale of the Shares by the Investor (the "Delivery Date"). The Letter shall
be dated as of the Delivery Date and signed by a corporate officer who must
verify under penalties of perjury that the statement is correct to his knowledge
and belief pursuant to Section 1.897-2(h) of the Treasury Regulations.
7.11 Conduct Prior to Closing. From and after the date of this
Agreement until the Closing, the Company and the Investor shall act with good
faith towards, and shall use their
24
reasonable efforts to consummate, the transactions contemplated by this
Agreement, and neither the Company nor the Investor will take any action that
would prohibit or impair its ability to consummate the transactions contemplated
by this Agreement. From the date hereof until the Closing, the Company shall
conduct its business in the ordinary course and shall use all reasonable efforts
to preserve intact its business organizations and relationships with third
parties and to keep available the services of the present directors, officers
and key employees. Without limiting the generality of the foregoing, from the
date hereof until the Closing, except as contemplated by this Agreement, without
the prior written consent of the Investor: (a) the Company shall not adopt or
propose (or agree to commit to) any change in the Certificate of Incorporation
or its By-Laws; (b) other than in the ordinary course of business of the Company
consistent with past practice, the Company shall not, sell or license any of the
assets of the Company; (c) other than in the ordinary course of business of the
Company consistent with past practice, the Company shall not acquire any assets
of any other Person or Persons or acquire any equity, partnership or other
interests in any other Person or Persons; (d) the Company shall not repay,
redeem or repurchase any indebtedness of the Company or any shares of capital
stock of the Company; (e) the Company shall not enter into any transaction with
any director, executive officer or Affiliate of the Company out of the ordinary
course of its business consistent with past practice; (f) the Company shall not
(i) grant to any employee any increase in salary or other remuneration not
consistent with past practices or any increase in severance or termination pay;
(ii) grant or approve any general increase in salaries of all or a substantial
portion of its employees not consistent with past practice; (iii) pay or award
any bonus, incentive, compensation, service award or other like benefit for or
to the credit of any employee except in accordance with written policy or
consistent with past practice; or (iv) enter into any employment contract or
severance arrangement with any employee except in accordance with written policy
or consistent with past practice or adopt or amend in any material respect any
of its employee benefit plans except as required by law; (g) the Company shall
not take or agree to commit to take any action that would make any
representation or warranty of the Company hereunder required to be true at and
as of the Closing as a condition to the Investor's obligations to consummate the
transactions contemplated hereby, inaccurate at the Closing; and (h) the Company
shall not agree or commit to do any of the foregoing. From the date hereof until
the Closing, each of the Subsidiaries will be prohibited from taking any of the
actions contemplated by the foregoing sentence without the prior written consent
of the Investor.
From and after the date of this Agreement until the Closing, the Company
will permit the Investor and its officers, directors, employees, counsel,
accountants and other authorized representatives of the Investor or any of its
Affiliates to visit and inspect any of its properties, to examine its corporate,
financial and operating records and make copies thereof or abstracts therefrom
and to discuss its affairs, business practices, finances and accounts with their
respective directors, officers and independent public accountants, as often as
may be reasonably requested, upon reasonable advance notice to the Company.
7.12 Shareholder Protection Rights Agreement. The Company shall use
commercially reasonable efforts to amend the Rights Plan to permit those persons
or entities who become Beneficial Owners (as defined in the Rights Plan) of more
than the Specified Percentage (as defined in the Rights Plan) of the outstanding
shares of Common Stock but who acquired Beneficial Ownership (as defined in the
Rights Plan) of shares of Common Stock without any plan or intention to seek or
affect control of the Company to enter into an irrevocable
25
commitment to divest such ownership within thirty (30) days of first having
knowledge of such ownership, provided they thereafter divest within such thirty
(30) day period (without exercising or retaining any power, including voting,
with respect to such shares), sufficient shares of Common Stock (or securities
convertible into, exchangeable into or exercisable for Common Stock) so that
such Person ceases to be the Beneficial Owner of more than the Specified
Percentage of the outstanding shares of Common Stock, without triggering the
Rights Plan.
7.13 Waivers and Consents. The Company agrees to use its commercially
reasonable efforts to obtain, as soon as possible, from each stockholder of the
Company listed on Annex 5.7 hereto, written waivers of any rights they may have
in connection with, and consents to, the transactions contemplated by this
Agreement.
8. NEGATIVE COVENANTS. From the Closing until the Shares and the Warrant
Shares are registered pursuant to an effective registration statement, the
Company agrees that unless the Holders of a Requisite Majority of the Restricted
Shares otherwise agree in writing, so long as any Investor is a Holder of
Securities, the Company (and each of its Subsidiaries unless the context
otherwise requires) will not:
8.1 Changes in Type of Business. Make any substantial change in the
character of its business.
8.2 Loans and Guarantees. Make any loan or advance to any Person,
including, without limitation, any employee or director of the Company or any
subsidiary, except advances for travel and entertainment expenses and similar
expenditures in the ordinary course of business or under the terms of an
employee stock option plan or stock purchase agreement approved by the Board; or
guarantee, directly or indirectly, any Indebtedness for Borrowed Money (as
defined in Section 10) of any other Person except for trade accounts of the
Company or any Subsidiary arising in the ordinary course of business.
8.3 Restrictive Agreements. Enter into or become a party to any
agreement or instrument which by its terms would violate or be in conflict with
or restrict the Company's performance of or its obligations under this Agreement
including the Registration Rights Agreement.
8.4 Publicity. Issue any public statement, press release or any other
public disclosure listing Investor as one of the purchasers of the Shares or the
Warrant Shares. From and after the date of this Agreement, except to the extent
required by applicable laws, rules, regulations or stock exchange requirements,
neither (i) the Company or any of its Affiliates nor (ii) the Investor or any of
its Affiliates shall, without the written consent of the other, make any public
announcement or issue any press release with respect to the transactions
contemplated by this Agreement. In no event will either (i) the Company or any
of its Affiliates or (ii) the Investor or any of its Affiliates make any public
announcement or issue any press release with respect to the transactions
contemplated by this Agreement without consulting with the other party, to the
extent feasible, as to the content of such public announcement or press release.
26
9. ENFORCEMENT.
9.1 Remedies at Law or in Equity. If any Default occurs or if any
representation or warranty made by or on behalf of the Company in this Agreement
or in any certificate, report or other instrument delivered hereunder or
pursuant hereto should be untrue or misleading in any material respect as of the
date of this Agreement or as of the Closing Date or as of the date it was made,
furnished or delivered, the Holder (as defined in Section 10) of any Shares or
Warrant Shares may proceed to protect and enforce its rights by suit in equity
or action at law, whether for the specific performance of any term contained in
this Agreement including the Registration Rights Agreement and the Warrant or
for an injunction against the breach of any such term or in aid of the exercise
of any power granted in this Agreement including the Registration Rights
Agreement and the Warrant, or to enforce any other legal or equitable right of
such Holder of any such Shares, or to take any one or more of such actions. In
the event a Holder brings such an action against the Company, the prevailing
party in such dispute will be entitled to recover from the losing party all
fees, costs and expenses of enforcing any right of the prevailing party under or
with respect to this Agreement including the Registration Rights Agreement and
the Warrant, and including, without limitation, reasonable fees and expenses of
attorneys and accountants and all fees, costs and expenses of appeals.
9.2 Cumulative Remedies. None of the rights, powers or remedies
conferred upon any Holder of Shares, Warrants or Warrant Shares is mutually
exclusive, and each such right, power or remedy is cumulative and in addition to
every other right, power or remedy, whether conferred hereby including the
Registration Rights Agreement and the Warrant or now or hereafter available at
law, in equity, by statute or otherwise.
9.3 No Implied Waiver. Except as expressly provided in this Agreement,
no course of dealing between the Company and the Investor or the Holder of any
Shares, Warrants or Warrant Shares and no delay in exercising any such right,
power or remedy conferred hereby including the Registration Rights Agreement or
the Warrant or now or hereafter existing at law, in equity, by statute or
otherwise, will operate as a waiver of, or otherwise prejudice, any such right,
power or remedy.
10. ADDITIONAL DEFINITIONS. Unless the context otherwise requires, the
terms defined in this Article have the meanings herein specified for all
purposes of this Agreement. All accounting terms used in this Agreement and not
defined in this Article should, except as otherwise provided for herein, be
construed in accordance with generally accepted accounting principles.
Accounting terms defined in this Article and those accounting terms appearing in
this Agreement but not defined in this Article should be determined on a
consolidated basis for the Company and its Subsidiaries.
"Affiliate" means any Person which directly or indirectly controls,
is controlled by, or is under common control with, the indicated Person.
"Default" means a default or failure in the due observance or
performance of any covenant, condition or agreement on the part of the Company
or any of its Subsidiaries to be observed or performed under the terms of this
Agreement, if such default or failure in performance remains unremedied for ten
days after written notification to the party in default.
27
"Event of Default" means (a) the failure of either the Company or
any Subsidiary thereof to pay any Indebtedness for Borrowed Money, or any
interest or premium thereon, within ten days after the same becomes due, whether
such Indebtedness becomes due by scheduled maturity, by required prepayment, by
acceleration, by demand or otherwise, (b) an event of default under any
agreement or instrument evidencing or securing or relating to any such
Indebtedness or (c) the failure of either the Company or any such subsidiary to
perform or observe any material term, covenant, agreement or condition on its
part to be performed or observed under any agreement or instrument evidencing or
securing or relating to any such Indebtedness when such term, covenant or
agreement is required to be performed or observed.
"Holder" of any Share, Warrant or Warrant Share means the record or
beneficial owner of such Share, Warrant or Warrant Share. A Holder of Shares or
Warrant Shares will be treated as the Holder of the Restricted Shares underlying
the Shares or Warrant Shares.
"Holders of a Requisite Majority of the Restricted Shares" means the
Person(s) who are the Holders at the time of determination of two-thirds or more
of the Restricted Shares.
"Indebtedness" means any obligation of the Company or any Subsidiary
thereof that under generally accepted accounting principles is required to be
shown on the balance sheet of the Company or such Subsidiary as a liability. Any
obligation secured by a Lien on, or payable out of the proceeds of property of
the Company or any Subsidiary is deemed to be Indebtedness even though such
obligation is not assumed by the Company or any Subsidiary thereof.
"Indebtedness for Borrowed Money" means (a) all Indebtedness in
respect of money borrowed including, without limitation, Indebtedness which
represents the unpaid amount of the purchase price of any property and is
incurred in lieu of borrowing money or using available funds to pay such amounts
and not constituting an account payable or expense accrual incurred or assumed
in the ordinary course of business of the Company or any Subsidiary, (b) all
Indebtedness evidenced by a promissory note, bond or similar written obligation
to pay money or (c) all such Indebtedness guaranteed by the Company or any
Subsidiary or for which the Company or any Subsidiary is otherwise contingently
liable.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind, including, without limitation, any conditional sale
or other title retention agreement, any lease in the nature thereof and the
filing of or agreement to give any financing statement under the Uniform
Commercial Code of any jurisdiction and including any lien or charge arising by
law.
"Permitted Liens" means: (a) Liens for taxes and assessments or
governmental charges or levies not at the time due or in respect of which the
validity thereof is being contested in good faith by appropriate proceedings;
(b) Liens in respect of pledges or deposits under workers' compensation laws or
similar legislation, carriers', warehousemen's, mechanics', laborers' and
materialmen's and similar Liens, if the obligations secured by such Liens are
not then delinquent or are being contested in good faith by appropriate
proceedings; and (c) Liens incidental to the conduct of the business of the
Company or any Subsidiary which were not
28
incurred in connection with the borrowing of money or the obtaining of advances
or credits, other than the Company's proposed credit facility with Silicon
Valley Bank, and which do not in the aggregate materially detract from the value
of its property or materially impair the use thereof in the operation of its
business.
"Person" includes any individual, corporation, trust, association,
company, partnership, limited liability company, joint venture and other entity
and any government, governmental agency, instrumentality or political
subdivision.
"Restricted Shares" means (a) the Shares and the Warrant Shares and
(b) any securities issued or issuable with respect to such Shares or Warrant
Shares by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger or consolidation or
reorganization; provided, however, that Shares and Warrant Shares will only be
treated as Restricted Shares if and so long as they have not been (i) sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction or (ii) 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 Shares or Warrant Shares are removed upon the consummation
of such sale and the seller and purchaser of such Shares or Warrant Shares
receives an opinion of counsel for the Company, which is in form and content
reasonably satisfactory to the seller and buyer and their respective counsel, to
the effect that such Shares or Warrant Shares in the hands of the purchaser are
freely transferable without restriction or registration under the Securities Act
in any public or private transaction.
"Subsidiary" means any corporation, association or other business
entity at least 50% of the outstanding equity of which entitled to vote in the
election of directors (or the equivalent) is at the time owned or controlled
directly or indirectly by the Company or by one or more of such subsidiary
entities or both.
11. MISCELLANEOUS.
11.1 Waivers and Amendments. Neither this Agreement nor the
Registration Rights Agreement nor the Warrant nor any provision hereof or
thereof, may be amended, waived, discharged or terminated orally or by course of
dealing, but only by a statement in writing signed by the Company and the
Investor. Specifically, but without limiting the generality of the foregoing,
the failure of the Investor at any time or times to require performance of any
provision hereof or of the Registration Rights Agreement by the Company will not
affect its right at a later time to enforce the same. No waiver by any party of
the breach of any term or provision contained in this Agreement, in any one or
more instances, will be deemed to be a further or continuing waiver of any such
breach, or a waiver of the breach of any other term or covenant contained in
this Agreement.
11.2 Rights of Holders Inter Se. Each Holder of Shares or Warrant
Shares has the absolute right to exercise or refrain from exercising any right
or rights which such Holder may have by reason of this Agreement, the Warrant or
any Shares or Warrant Shares, including, without limitation, the right to
consent to the waiver of any obligation of the Company under this Agreement or
the Warrant and to enter into an agreement with the Company for the purpose of
29
modifying this Agreement or the Warrant or any agreement effecting any such
modification. No such Holder will incur any liability to any other Holder or
Holders of Shares or Warrant Shares with respect to exercising or refraining
from exercising any such right or rights.
11.3 Exculpation. The Investor acknowledges that it is not relying upon
TASCM (or any Affiliate, controlling person, officer, director, stockholder,
partner, agent, employee, counsel or other representative thereof), in making
its decision to invest in the Company or in monitoring such investment. The
Investor agrees that neither TASCM nor any Affiliate, controlling person,
officer, director, stockholder, partner, agent, employee, counsel or other
representative thereof will be liable for any action heretofore or hereafter
(except in the case of fraud) taken or omitted to be taken by any of them
relating to or in connection with the Company, the Shares, the Warrant or the
Warrant Shares. Without limiting the generality of the foregoing, neither TASCM
nor any of its Affiliates, controlling persons, officers, directors,
stockholders, partners, agents, employees, counsels or other representatives
will 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. The Investor agrees that neither TASCM nor any of its Affiliates,
controlling persons, officers, directors, stockholders, partners, agents,
employees, counsels or other representatives shall have any obligation or
responsibility whatsoever to provide any information the Investor (or any other
Person) or to continue to provide any information if any information is
provided.
11.4 Notices. All notices, requests, consents and other communications
required or permitted hereunder will be in writing and will be delivered, or
mailed first class postage prepaid, registered or certified mail:
(a) if to any Holder of any of the Shares, Warrant or Warrant
Shares, addressed to such Holder at its address shown on its signature page
hereto, or at such other address as such Holder may specify by written notice to
the Company; or
(b) if to the Company at the address first above written or at such
other address as the Company may specify by written notice to the Investor,
and each such notice, request, consent and other communication will be effective
when delivered, if delivered personally, or, if sent by mail, at the earlier of
its actual receipt or three days after the same has been deposited in a
regularly maintained receptacle for the deposit of United States mail, addressed
and postage prepaid as aforesaid.
11.5 Survival of Representations and Warranties, etc. The
representations and warranties contained herein shall survive the execution and
delivery of this Agreement and the Closing hereunder. The foregoing
notwithstanding, the Company's liability to the Investor for breaches of, or
inaccuracies in, any of the Company's representations and warranties contained
in Section 5 (other than as set forth below), shall expire following the first
anniversary of the filing with the Commission of the Company's next annual
report on Form 10-K (unless the Investor shall have given notice to the Company
claiming a breach thereof prior to such date); liability for any breach of or
inaccuracy or misrepresentation in Sections 5.16 (Patents and Other Intangible
Assets) and 5.18 (Permits; Environmental Matters) shall expire following the
third anniversary
30
of the filing with the Commission of the Company's next annual report on Form
10-K (unless the Investor shall have given notice to the Company claiming a
breach thereof prior to such date), liability in respect of the breach of or
inaccuracy or misrepresentation in Sections 5.15 (Tax Returns and Audits) and
5.17 (Employment Benefit Plans -- ERISA) shall expire following the expiration
of the statute of limitations (after giving effect to any extensions granted
thereof) for any governmental authority or beneficiary to make any claim with
respect to the matters set forth in such Sections (unless the Investor shall
have given notice to the Company claiming a breach thereof prior to such time);
and there shall be no expiration of the time when a claim may be made by the
Investor for breach of or any inaccuracy or misrepresentation in Sections 5.4
(Capitalization) and 5.6 (Corporate Acts and Proceedings). All statements
contained in any certificate, instrument or other writing delivered by or on
behalf of the Company at Closing pursuant to Sections 6.1(d), 6.1(f)(i) or
6.1(f)(ii) hereto will constitute representations and warranties by the Company
hereunder.
11.6 Severability. Should any one or more of the provisions of this
Agreement be determined to be illegal, invalid or unenforceable, it is the
intention of the parties hereto that all other provisions of this Agreement
should be given effect separately from the provision or provisions determined to
be illegal, invalid or unenforceable and should not be affected thereby.
11.7 Parties in Interest. All the terms and provisions of this
Agreement are binding upon and inure to the benefit of and are enforceable by
the respective successors and assigns of the parties hereto, whether so
expressed or not, and, in particular, inure to the benefit of and are
enforceable by the Holder or Holders at the time of any of the Shares, Warrants
or Warrant Shares. Subject to the immediately preceding sentence, this Agreement
is not intended by the parties hereto to benefit or be enforceable by any Person
other than a party to this Agreement and its successors and assigns, except, in
the case of Section 11.3, for TASCM.
11.8 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. Any references herein to Sections or
Annexes are to Sections hereof or Annexes attached hereto unless the context
clearly requires otherwise.
11.9 Choice of Law. It is the intention of the parties that the
internal substantive laws, and not the laws of conflicts, of Delaware 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.
11.10 Expenses. The Company and the Investor will each pay all expenses
incurred by each such party in connection with the transactions contemplated
hereby provided, however, that the Company agrees, whether or not the
transactions contemplated hereby are consummated, to pay: (a) any allocation of
expenses as set forth in the Registration Rights Agreement, notwithstanding that
such allocation is in contradiction to the foregoing, (b) fees and expenses
incurred with respect to any amendments to this Agreement or the Warrant
proposed by the Company (whether or not the same become effective), (c) fees and
expenses incurred in connection with any requested waiver of the right of any
Holder of Shares, Warrants or Warrant Shares or the consent of any Holder of
Shares, Warrants or Warrant Shares to contemplated acts of the Company not
otherwise permissible by the terms of this Agreement, the Registration
31
Rights Agreement or the Warrant, (d) stamp and other taxes, excluding income
taxes, which may be payable with respect to the execution and delivery of this
Agreement or the issuance, delivery or acquisition of Shares, Warrants or
Warrant Shares, (e) fees and expenses incurred in respect of the enforcement of
the rights granted under this Agreement, the Registration Rights Agreement or
the Warrant provided that the Investor is the prevailing party in any such
enforcement action and (f) the reasonable out-of-pocket expenses (not to exceed
$50,000 in the aggregate) incurred by the lead Investor in connection with the
preparation, execution and/or performance of this Agreement and the transactions
contemplated hereby, including the reasonable fees and expenses of agents,
representatives, counsel and accountants, whether incurred prior to, on or after
the date hereof (which shall be paid by the Company to Perseus-▇▇▇▇▇ Management,
LLC or some other Person designated by the Investor or, at the option of the
Investor, by reducing the aggregate purchase price).
11.11 Investor Indemnities. The Company agrees to indemnify, defend and
hold the Investor and its shareholders, officers, trustees, directors, partners,
employees, consultants and agents (the "Investor Indemnitees") harmless from and
against any damages or third-party claims incurred or suffered by any of the
Investors' Indemnitees as a result of or arising out of or in connection with
the Company's breach of any representation, warranty, covenant or agreement of
the Company contained in this Agreement, the Registration Rights Agreement and
the Warrant and such indemnity shall survive the execution and delivery of this
Agreement for the respective survival period set forth in Section 11.5 hereof.
The applicable Investors' Indemnitees will promptly notify the Company of any
potential indemnification claim upon discovery of the facts supporting the
potential claim and, if such indemnification is based on a third-party claim,
allow the Company to defend, manage and resolve the matter at the Company's cost
and with the Investors' Indemnitees' reasonable cooperation. Notwithstanding
anything to the contrary stated herein, the indemnity set forth in this Section
11.11 shall cover any and all damages or third party claims incurred or suffered
as a result of or arising out of or in connection with the Company's failure,
whether before or after the Closing, to obtain written waivers of any rights in
connection with, and consents to, the transactions contemplated by this
Agreement, including without limitation the written waivers and consents of any
parties listed on Annex 5.7 hereto.
11.12 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 will be deemed an original, will be construed together and will
constitute one and the same instrument. The parties hereto confirm that any
facsimile copy of another party's executed counterpart of this Agreement (or its
signature page thereof) will be deemed to be an executed original thereof.
11.13 Termination.
(a) Termination. Subject to Section 11.13(b), this Agreement may be
terminated at any time prior to the Closing as follows:
(i) by the Investor if there has been a material breach by the
Company of any representation, warranty, covenant or agreement of the Company
contained in this Agreement, which has not been cured by the Company within 10
days after written notice from the Investor;
32
(ii) by the Company if there has been a material breach by the
Investor of any representation, warranty, covenant or agreement of the Investor
contained in this Agreement, which has not been cured by the Investor within 10
days after written notice from the Company;
(iii) by the Company or the Investor, if the Closing shall not
have occurred on or before April 30, 2001;
(iv) by the Company or the Investor if (A) there shall be a
final nonappealable order of a federal or state court in effect preventing
consummation of the transactions contemplated by this Agreement or (B) there
shall be any action taken, or any statute, rule, regulation or order enacted,
promulgated or issued or deemed applicable to the transactions contemplated by
this Agreement by any governmental entity which would make consummation of the
transactions contemplated by this Agreement illegal; provided, however, that the
party seeking to terminate this Agreement must use all reasonable efforts to
remove such judgment, injunction, order or decree; or
(v) by mutual written consent of the Company and the Investor.
(b) Effect of Termination. If this Agreement is terminated pursuant
to Section 11.13(a), this Agreement shall become void and of no effect with no
liability on the part of any party hereto, except that Section 8.4 (Publicity)
and Article II (Miscellaneous) shall survive the termination hereof.
33
[STOCK PURCHASE AGREEMENT SIGNATURE PAGE - COMPANY]
IN WITNESS WHEREOF, the Company and the Investor have caused this
Agreement to be executed by their duly authorized representatives.
COLLAGENEX PHARMACEUTICALS, INC.
By:
---------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: President and Chief Executive Officer
[STOCK PURCHASE AGREEMENT SIGNATURE PAGE - INVESTOR]
The foregoing Agreement is hereby accepted as of the date first above
written.
By:
---------------------------------------
Name:
Title:
Address:
---------------------------------
---------------------------------
---------------------------------
------------------------------------------
Tax ID Number
plus warrants for an additional
shares of common stock
------------------------------------------
Number of Shares Subscribed for
$
------------------------------------------
Purchase Price
ANNEX A
TASCM Wiring Instructions
A-1
ANNEX B
WARRANT
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") OR WITH ANY SECURITIES COMMISSION UNDER APPLICABLE STATE
SECURITIES OR BLUE SKY LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED,
ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING THIS WARRANT OR THE
ISSUER RECEIVES AN OPINION OF COUNSEL STATING THAT SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT.
No. W-
------
Warrant to Purchase
------
Shares of Common Stock
(subject to adjustment)
COLLAGENEX PHARMACEUTICALS, INC.
WARRANT TO PURCHASE SHARES
--------
OF COMMON STOCK
CollaGenex Pharmaceuticals, Inc., a Delaware corporation (the "Company"),
hereby certifies that, for good and valuable consideration,
, or its registered transferees, successors or assigns
(each, a "holder"), is the registered holder of warrants (the "Warrants") to
subscribe for and purchase from the Company ( ) shares
of validly issued, fully paid and nonassessable Common Stock (as adjusted
pursuant to Section 4 hereof, the "Warrant Shares") of the Company, at a
purchase price per share equal to dollars ($ ) (such price, as
adjusted pursuant to Section 4 hereof, the "Warrant Price"), subject to the
provisions and upon the terms and conditions hereinafter set forth. As used
herein, (a) the term "Common Stock" shall mean the Company's presently
authorized Common Stock, par value $.01 per share, and any stock into or for
which such Common Stock may hereafter be converted or exchanged, and (b) the
term "Date of Grant" shall mean March 12, 2001. The term "Warrant" shall include
any warrant issued upon transfer or partial exercise of this Warrant, unless the
context clearly requires otherwise. This Warrant is being issued pursuant to
that certain Common Stock Purchase Agreement (the "Purchase Agreement") of even
date herewith between the Company and the Investors as set forth therein.
Capitalized terms used in this letter and not defined herein shall have the
meanings ascribed to them in the Purchase Agreement.
1. Term. The purchase right represented by this Warrant is exercisable, in
whole or in part, at any time and from time to time from the Date of Grant
through and including the close of business on the third anniversary of the Date
of Grant (the "Expiration Date").
2. Exercise.
(a) Method of Exercise; Payment; Issuance of New Warrant. Subject to
Section 1 hereof, the purchase right represented by this Warrant may be
exercised by the holder hereof, in whole or in part, at any time or from time to
time, from and after the Date of Grant by
B-1
the surrender of this Warrant (with the notice of exercise form attached hereto
as Exhibit A duly executed) at the principal office of the Company, and, except
as otherwise provided for herein, by the payment to the Company of an amount in
cash or by check equal to the then applicable Warrant Price multiplied by the
number of Warrant Shares then being purchased. The person or persons in whose
name(s) any certificate(s) representing shares of Common Stock shall be issuable
upon exercise of this Warrant shall be deemed to have become the holder(s) of
record of, and shall be treated for all purposes as the record holder(s) of, the
shares represented thereby (and such shares shall be deemed to have been issued)
immediately prior to the close of business on the date or dates upon which this
Warrant is exercised if exercised prior to the close of business on such date;
otherwise, the date of record shall be the next business day. In the event of
any exercise of the rights represented by this Warrant, certificates for the
shares of Common Stock so purchased shall be delivered to the holder hereof as
soon as possible and in any event within five (5) business days after such
exercise and, unless this Warrant has been fully exercised (including without
limitation, exercise pursuant to Section 2(b) below), a new Warrant representing
the portion of the Warrant Shares, if any, with respect to which this Warrant
shall not then have been exercised shall also be issued to the holder hereof as
soon as possible and in any event within such five (5) business day period.
(b) Automatic Exercise. If, at any time after the date hereof, the
average of the daily Closing Price (as defined below) per share of Common Stock
for thirty (30) consecutive Trading Days (as defined below) is at least 2.25
times $ (with appropriate adjustment made for any stock dividend, split-up
or subdivision or any combination or reclassification made or effected
subsequent to the date hereof), then this Warrant shall be deemed to have been
exercised automatically immediately prior to the close of business on such day
(the "Automatic Exercise Date"), and the person entitled to receive the shares
of Common Stock issuable upon such exercise shall be treated for all purposes as
the holder of record of such Warrant Shares as of the close of business on such
Automatic Exercise Date. As soon as practicable after the Automatic Exercise
Date, not to exceed two business days, the Company shall provide written
notification (the "Notice") to the holder of the Automatic Exercise Date. This
Warrant shall be deemed to be surrendered to the Company on the Automatic
Exercise Date by virtue of this Section 2(b) and without any action by the
holder of this Warrant or any other person, and payment to the Company of the
then applicable Warrant Price multiplied by the number of Warrant Shares then
being purchased shall be deemed to be made pursuant to the terms of Section 2(c)
below (without payment by the holder of any exercise price or any cash or other
consideration), unless the holder notifies the Company in writing as soon as
practicable after receipt of the Notice, not to exceed two business days, that,
in its sole and absolute discretion, it chooses to pay the exercise price
pursuant to Section 2(a) above). As promptly as practicable on or after the
Automatic Exercise Date and in any event within five (5) business days
thereafter, the Company at its expense shall issue and deliver to the person or
persons entitled to receive the same a certificate or certificates for the
number of Warrant Shares issuable upon such exercise. For purposes of the
foregoing, "Closing Price" means, with respect to a share of Common Stock, as of
the date of determination, (a) the closing price per share of Common Stock on
such date published in The Wall Street Journal or, if no such closing price on
such date is published in The Wall Street Journal, the average of the closing
bid and asked prices on such date, as officially reported on the principal
national securities exchange (including, without limitation, The Nasdaq Stock
Market, Inc. (or its successor) ("NASDAQ")) on which the Common Stock is then
listed or admitted to trading; or (b) if the Common Stock are not then listed or
admitted to trading on
B-2
any national securities exchange but are designated as national market system
securities by the NASD, the last trading price per share of Common Stock on such
date; or (c) if there shall have been no trading on such date or if the Common
Stock is not so designated, the average of the reported closing bid and asked
prices of the Common Stock on such date as shown by NASDAQ and reported by any
member firm of The New York Stock Exchange, Inc. selected by the Company. If
trading is conducted on a continuous basis on any exchange, then the closing
price shall be at 4:00 p.m. New York City time. For purposes of the foregoing,
"Trading Day" means, so long as the Common Stock is listed or admitted to
trading on a national securities exchange, a day on which the principal national
securities exchange on which the Common Stock is listed is open for the
transaction of business, or, if the Common Stock is not so listed or admitted
for trading on any national securities exchange, a day on which NASDAQ is open
for the transaction of business.
(c) Net Issue Exercise. In lieu of the payment of the aggregate
Warrant Price, the holder shall have the right (but not the obligation), to
require the Company to convert this Warrant, in whole or in part, into shares of
Common Stock as provided for in this Section 2(c). In connection with the
foregoing and without limiting the rights of the holder under the terms of this
Warrant, the holder may elect to receive shares equal to the value (as
determined below) of this Warrant (or the portion thereof being canceled) by
surrender of this Warrant at the principal office of the Company (with the
notice of exercise form and notice of such election attached hereto as Exhibit A
duly executed) in which event the Company shall issue to the holder a number of
Warrant Shares computed using the following formula:
X = Y (A - B)
---------
A
Where:
X = the number of shares of Common Stock to be issued to the holder
Y = the number of shares of Common Stock purchasable under the
Warrant or, if only a portion of the Warrant is being
exercised, the portion of the Warrant being canceled (at the
date of such calculation)
A = the Fair Market Value (as defined in Section 4(i) below) of
one (1) share of Common Stock
B = the Warrant Price
3. Stock Fully Paid; Reservation of Shares. All Warrant Shares that may be
issued upon the exercise of the rights represented by this Warrant will, upon
issuance pursuant to the terms and conditions herein, be validly issued, fully
paid and nonassessable, and free from all taxes, liens, charges, pre-emptive
rights and other encumbrances with respect to the issue thereof. The Company
shall pay all transfer taxes, if any, attributable to the issuance of the
Warrant Shares upon the exercise of this Warrant. During the period within which
the rights represented by this Warrant may be exercised, the Company will at all
times have authorized, and reserved, and free from preemptive rights, for the
purpose of the issue upon exercise of the
B-3
purchase rights evidenced by this Warrant, a sufficient number of shares of its
Common Stock to provide for the exercise of the rights represented by this
Warrant.
4. Adjustment of Warrant Price and Number of Shares. The number and kind
of securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the occurrence of
certain events, as follows:
(a) Adjustments for Dividends in Stock. If the Company at any time
or from time to time while this Warrant, or any portion thereof, remains
outstanding and unexpired declares any dividend, or authorizes any other
distribution, upon any stock of the Company of any class, payable in Additional
Shares of Common Stock (as defined in this Section 4(a)) (except for any
distribution specifically provided for in Section 4(b), Section 4(c), or as set
forth in Section 4(j), then, and in each such case, (A) the aggregate number of
Warrant Shares for which this Warrant is exercisable (the "Warrant Share
Number") immediately prior to such event shall be adjusted (and any other
appropriate actions shall be taken by the Company) so that the holder shall be
entitled to receive upon exercise of this Warrant the number of shares of Common
Stock or other securities of the Company that it would have owned or would have
been entitled to receive upon or by reason of any of the events described above,
had this Warrant been exercised immediately prior to the occurrence of such
event and (B) the Warrant Price payable upon the exercise of this Warrant shall
be adjusted by multiplying such Warrant Price immediately prior to such
adjustment by a fraction, the numerator of which shall be the number of Warrant
Shares issuable upon the exercise of this Warrant immediately prior to such
adjustment, and the denominator of which shall be the number of Warrant Shares
issuable immediately thereafter. An adjustment made pursuant to this Section
4(a) shall become effective retroactively to a date immediately following the
close of business on the record date for the determination of holders of shares
of Common Stock entitled to receive such dividend or distribution. The term
"Additional Shares of Common Stock" as used in this Warrant shall mean all
shares of Capital Stock issued or issuable by the Company after the date of this
Warrant, except for the Warrant Shares. For purposes of the foregoing, "Capital
Stock" means, with respect to any Person, any and all shares, interests,
participations, rights in, or other equivalents (however designated and whether
voting or non-voting) of such Person's capital stock and any and all rights,
warrants or options exchangeable for or convertible into such capital stock.
(b) Subdivision or Combination of Shares. If the Company at any time
or from time to time while this Warrant, or any portion thereof, remains
outstanding and unexpired shall (x) subdivide the outstanding shares of Common
Stock into a larger number of shares, (y) combine the outstanding shares of
Common Stock into a smaller number of shares or (z) issue any shares of its
Capital Stock in a reclassification of the Common Stock (other than any such
event for which an adjustment is made pursuant to another clause of this Section
4), then, and in each such case, (A) the Warrant Share Number immediately prior
to such event shall be adjusted (and any other appropriate actions shall be
taken by the Company) so that the holder shall be entitled to receive upon
exercise of this Warrant the number of shares of Common Stock or other
securities of the Company that it would have owned or would have been entitled
to receive upon or by reason of any of the events described above, had this
Warrant been exercised immediately prior to the occurrence of such event and (B)
the Warrant Price payable upon the exercise of this Warrant shall be adjusted by
multiplying such Warrant Price immediately prior to such adjustment by a
fraction, the numerator of which shall be the number of Warrant Shares issuable
B-4
upon the exercise of this Warrant immediately prior to such adjustment, and the
denominator of which shall be the number of Warrant Shares issuable immediately
thereafter. An adjustment made pursuant to this Section 4(b) shall become
effective retroactively to the close of business on the day upon which such
corporate action becomes effective.
(c) Certain Distributions. If the Company at any time while this
Warrant, or any portion thereof, remains outstanding and unexpired shall declare
a dividend or otherwise make a distribution to the holders of its Common Stock
(other than dividends, distributions or issuances referred to in Section 4(a),
Section 4(b), Section 4(d), Section 4(e), or Section 4(j)) in the form of: (1)
cash or other property; (2) any evidence of indebtedness, any shares of its
capital stock or any other securities or property of any nature whatsoever
(including securities of a subsidiary), or (3) any warrants or other rights to
subscribe for or purchase any evidences of indebtedness, any shares of its
capital stock, or any other securities or property of any nature whatsoever
(including securities of a subsidiary), then the Warrant Price shall be reduced
by multiplying the Warrant Price in effect immediately prior to the record date
for such event by a fraction (a) the numerator of which shall be the Fair Market
Value per share of Common Stock on such record date less the amount allocated to
one share of Common Stock of any such cash so distributed and the Fair Market
Value, of any evidences of indebtedness, shares of capital stock, other
securities or property, or warrants or other subscriptions or purchase rights so
distributed, and (b) the denominator of which shall be such Fair Market Value
per share of Common Stock. Such adjustment shall be made successively whenever
such a record date is fixed; and in the event that such distribution is not so
made, the Warrant Price shall again be adjusted to be the Warrant Price which
would then be in effect if such record date had not been fixed, but such
subsequent adjustment shall not affect the number of Warrant Shares issued upon
any exercise of this Warrant prior to the date such subsequent adjustment was
made.
(d) Merger; Sale of Assets; Reclassification. If at any time while
this Warrant, or any portion thereof, remains outstanding and unexpired there
shall be (1) a reorganization or reclassification (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), (2) a merger or consolidation of the Company with or into another
corporation in which the Company is not the surviving entity, or a reverse
triangular merger in which the Company is the surviving entity but the shares of
the Company's capital stock outstanding immediately prior to the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash, or otherwise, or (3) a sale or transfer of the Company's
properties and assets as, or substantially as, an entirety to any other person,
then, as a part of such reorganization, reclassification, merger, consolidation,
sale or transfer, lawful provision shall be made so that the holder of this
Warrant shall thereafter be entitled to receive upon exercise of this Warrant,
during the period specified herein and upon payment of the Warrant Price then in
effect, the number of shares of stock or other securities or property of the
successor corporation (or the Company, as applicable) resulting from such
reorganization, reclassification, merger, consolidation, sale or transfer that a
holder of the shares deliverable upon exercise of this Warrant would have been
entitled to receive in such reorganization, reclassification, merger,
consolidation, sale or transfer if this Warrant had been exercised immediately
before such reorganization, merger, consolidation, sale or transfer, all subject
to further adjustment as provided in this Section 4. The foregoing provisions of
this Section 4(d) shall similarly apply to successive reorganizations,
reclassification, mergers, consolidations, sales and transfers and to the stock
or securities of any other corporation that are
B-5
at the time receivable upon the exercise of this Warrant. If the per-share
consideration payable to the holder hereof for shares in connection with any
such transaction is in a form other than cash or marketable securities, then the
value of such consideration shall be determined in the manner set forth under
Section 4(i). At the time of such event, the successor or acquiring corporation
(if other than the Company) shall expressly assume the due and punctual
performance of each and every covenant and condition of this Warrant to be
performed and observed by the Company and all the obligations and liabilities
hereunder, subject to such modifications as may be deemed appropriate (as
determined in good faith by the Board of Directors of the Company, with the
consent of the holder in such instances where the rights of the holder are
adversely affected in the reasonable opinion of the holder) in order to provide
for adjustments of shares of Common Stock for which this Warrant is exercisable.
These adjustments shall be as nearly equivalent as practicable to the
adjustments provided in this Section 4. In all events, appropriate adjustment
(as determined in good faith by the Company's Board of Directors, with the
consent of the holder in such instances where the rights of the holder are
adversely affected in the reasonable opinion of the holder) shall be made in the
application of the provisions of this Warrant with respect to the rights and
interests of the holder after the transaction, to the end that the provisions of
this Warrant shall be applicable after that event, as near as reasonably may be,
in relation to any shares or other property deliverable after that event upon
exercise of this Warrant.
In case any Additional Shares of Common Stock or evidence of indebtedness,
shares of stock or other securities which are at any time, directly or
indirectly, convertible into or exchangeable for Additional Shares of Common
Stock or any rights or options to purchase any Additional Shares of Common Stock
or convertible securities shall be issued in connection with any merger of
another corporation into the Company (with the Company surviving such merger),
the amount of consideration therefor shall be deemed to be the fair market value
of such portion of the assets of such merged corporation as the Board of
Directors of the Company shall in good faith determine to be attributable to
such Additional Shares of Common Stock, convertible securities or rights or
options, as the case may be, and the Warrant Price shall be adjusted in
accordance with this Section 4.
(e) Dissolution, Liquidation and Wind-Up. In case the Company shall,
at any time prior to the expiration of this Warrant, dissolve, liquidate or wind
up its affairs, the holder of this Warrant shall be entitled, upon the exercise
of this Warrant, to receive in lieu of the shares of Common Stock of the Company
which such holder would have been entitled to receive, the same kind and amount
of assets as would have been issued, distributed or paid to such holder upon any
such dissolution, liquidation or winding up with respect to such shares of
Common Stock of the Company, had such holder been the holder of record of the
Warrant Shares receivable upon the exercise of this Warrant on the record date
for the determination of those persons entitled to receive any such liquidating
distribution. After such dissolution, liquidation or winding up which shall
result in any cash distribution in excess of the Warrant Price provided for by
this Warrant, the holder of this Warrant may, at such holder's option, exercise
the same without making payment of the Warrant Price, and in such case the
Company shall, upon the distribution to the holder, consider that said Warrant
Price has been paid in full to it and in making settlement to the holder, shall
deduct from the amount payable to the holder of this Warrant an amount equal to
such Warrant Price.
B-6
(f) Consideration Other than Cash. In case the Company at any time
prior to the expiration of this Warrant shall issue or sell any shares of Common
Stock or convertible securities or other common stock equivalents for a
consideration other than cash, the amount of the consideration other than cash
payable to the Company shall be deemed to be the fair value (as determined in
accordance with Section 4(i) below) of such consideration. Whether or not the
consideration so received is cash, the amount thereof shall be determined after
deducting therefrom any expenses incurred or any underwriting commissions or
concessions or discounts paid or allowed by the Company in connection therewith.
(g) Record Date. In case at any time the Company shall fix a record
date of the holders of its Common Stock for the purpose of entitling them (1) to
receive a dividend or other distribution payable in Common Stock or convertible
securities or other common stock equivalents or rights or options to purchase
either thereof, or (2) to subscribe for or purchase Common Stock or convertible
securities or other common stock equivalents or rights or options to purchase
either thereof, then such record date shall be deemed to be the date of the
issue or sale of the shares of Common Stock deemed to have been issued or sold
upon the declaration of such dividend or the making of such other distribution
or the date of the granting of such right of subscription or purchase, as the
case may be.
(h) Adjustment of Number of Shares. Upon each adjustment in the
Warrant Price, the number of Warrant Shares purchasable hereunder shall be
adjusted, to the nearest whole share, to the product obtained by (1) multiplying
the number of Warrant Shares purchasable immediately prior to such adjustment in
the Warrant Price, by (2) a fraction, the numerator of which shall be the
Warrant Price immediately prior to such adjustment and the denominator of which
shall be the Warrant Price immediately thereafter.
(i) Maximum Warrant Price; Fair Market Value. The Warrant Price in
effect at any time shall not be increased as a result of any event described in
this Section 4, unless specifically indicated. Fair Market Value as of a
particular date shall mean the average of the daily closing prices for the
preceding thirty (30) trading days before the day in question. The closing price
for each day shall be the last reported sale price or, in case no such reported
sale takes place on such day, the average of the reported closing bid and asked
prices, in either case on the principal national securities exchange on which
the Common Stock is listed or admitted to trading or, if not listed or admitted
to trading on any national securities exchange, the average of the closing bid
and asked prices as reported by the National Association of Securities Dealers
Automated Quotation System. If such quotations are unavailable, or with respect
to other appropriate security, property, assets, business or entity, Fair Market
Value shall be determined mutually by the Board of Directors and the holder or,
if the Board of Directors and the holder shall fail to agree, at the Company's
expense, by an Appraiser (as defined in Section 4(k)). Any determination of the
Fair Market Value by an Appraiser shall be based on a valuation of the Company
as an entirety without regard to any discount for minority interests or
disparate voting rights among classes of capital stock.
(j) Notwithstanding any other provisions of this Warrant, there
shall be no adjustment hereto in connection with any issuance of dividends to
holders of the Company's Series D Cumulative Convertible Preferred Stock after
the date hereof.
B-7
(k) Company to Prevent Dilution. In case at any time or from time to
time conditions arise by reason of action taken by the Company which are not
adequately covered by the provisions of this Section 4, and which might
materially and adversely affect the exercise rights of the holder of this
Warrant under any provision of this Warrant, unless the adjustment necessary
shall be agreed upon by the Company and such holder, the Board of Directors of
the Company shall appoint a firm of independent certified public accountants of
recognized national standing (who have not been employed by the Company within
the last five years) (an "Appraiser"), acceptable to the holder, who at the
Company's expense shall give their opinion upon the adjustment, if any, on a
basis consistent with the standards established in the other provisions of this
Section 4, necessary with respect to the Warrant Price and the number of shares
purchasable upon exercise of the Warrants, so as to preserve, without dilution,
the exercise rights of the holder. Upon receipt of such opinion, such Board of
Directors shall forthwith make the adjustments described therein.
Notwithstanding the foregoing, the holder hereof shall have no right to an
adjustment of the Warrant Price solely because of a sale or issuance of
Additional Shares of Common Stock by the Company at a price per share less than
the Warrant Price or Fair Market Value.
5. Notice of Adjustments. Whenever the Warrant Price or the number of
Warrant Shares purchasable hereunder shall be adjusted pursuant to Section 4
hereof, the Company shall make a certificate signed by its chief financial
officer setting forth, in reasonable detail, the event requiring the adjustment,
the amount of the adjustment, the method by which such adjustment was
calculated, and the Warrant Price and the number of Warrant Shares purchasable
hereunder after giving effect to such adjustment, which shall be mailed, by
first class mail, postage prepaid) to the holder of this Warrant.
6. Fractional Shares. No fractional shares of Common Stock will be issued
in connection with any exercise hereunder, but in lieu of such fractional shares
the Company shall make a cash payment therefor based on the Fair Market Value of
a share of Common Stock on the date of exercise.
7. Transfer of Warrant.
(a) Warrant Register. The Company will maintain a register (the
"Warrant Register") containing the names and addresses of the holder or holders
of the Warrants. Any holder of this Warrant, or any portion thereof may change
his or her address as shown on the Warrant Register by written notice to the
Company requesting such change. Any notice or written communication required or
permitted to be given to the holder may be delivered or given by mail to such
holder as shown on the Warrant Register and at the address shown on the Warrant
Register. Until this Warrant is transferred on the Warrant Register of the
Company, the Company may treat the holder as shown on the Warrant Register as
the absolute owner of this Warrant for all purposes, notwithstanding any notice
to the contrary.
(b) Warrant Agent. The Company may, by written notice to the holder,
appoint an agent for the purpose of maintaining the Warrant Register referred to
in Section 7(a) above, issuing the Common Stock or other securities then
issuable upon the exercise of this Warrant, exchanging this Warrant, replacing
this Warrant, or any or all of the foregoing.
B-8
Thereafter, any such registration, issuance, exchange, or replacement, as the
case may be, shall be made at the office of such agent.
(c) Transferability and Nonnegotiability of Warrant. This Warrant
may not be transferred or assigned in whole or in part without compliance with
all applicable federal and state securities laws by the transferor and the
transferee (including the delivery of investment representation letters and
legal opinions reasonably satisfactory to the Company, if such are requested by
the Company). Subject to the provisions of this Warrant with respect to
compliance with the Securities Act of 1933, as amended (the "Securities Act"),
title to this Warrant may be transferred by endorsement (by the holder executing
the Assignment Form attached hereto as Exhibit B) and delivery in the same
manner as a negotiable instrument transferable by endorsement and delivery.
(d) Exchange of Warrant Upon a Transfer. On surrender of this
Warrant for exchange, properly endorsed on the Assignment Form and subject to
the provisions of this Warrant with respect to compliance with the Securities
Act and with the limitations on assignments and transfers contained in this
Section 7, the Company at its expense shall issue to or on the order of the
holder a new warrant or warrants of like tenor, in the name of the holder or as
the holder may direct, for the number of shares issuable upon exercise hereof.
(e) Compliance with Securities Laws.
(1) The holder of this Warrant, by acceptance hereof,
acknowledges that this Warrant and the shares of Common
Stock to be issued upon exercise hereof or conversion
thereof are being acquired solely for the holder's own
account and not as a nominee for any other party, and
for investment, and that the holder will not offer, sell
or otherwise dispose of this Warrant or any shares of
Common Stock to be issued upon exercise hereof or
conversion thereof except under circumstances that will
not result in a violation of the Securities Act or any
state securities laws.
(2) The Warrant Shares and any other securities issued upon
exercise hereof or conversion thereof shall be stamped
or imprinted with a legend in substantially the
following form (in addition to any legend required by
state securities laws):
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") OR WITH ANY SECURITIES COMMISSION
UNDER APPLICABLE STATE SECURITIES OR BLUE SKY LAWS AND
HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND NOT
WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. SUCH SECURITIES MAY NOT BE OFFERED
FOR
B-9
SALE, SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED
OR OTHERWISE DISPOSED OF UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH
SECURITIES OR THE ISSUER RECEIVES AN OPINION OF COUNSEL
STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE
ACT."
8. Replacement of Warrants or Stock Certificates. The Company covenants to
the holder hereof that, upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant or any
stock certificate and, in the case of any loss, theft or destruction, upon
receipt of an executed lost securities bond or indemnity reasonably satisfactory
to the Company, or in the case of any such mutilation upon surrender and
cancellation of such Warrant or stock certificate, the Company will make and
deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.
9. Rights as Stockholders; Information. No holder of this Warrant, as
such, shall be entitled to vote or receive dividends or be deemed the holder of
Common Stock or any other securities of the Company which may at any time be
issuable on the exercise hereof for any purpose, nor shall anything contained
herein be construed to confer upon the holder of this Warrant, as such, any of
the rights of a stockholder of the Company or any right to vote for the election
of the directors or upon any matter submitted to stockholders at any meeting
thereof, or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise, until this Warrant shall have been exercised
and the Warrant Shares purchasable upon the exercise hereof shall have become
deliverable, as provided herein. The foregoing notwithstanding, the Company will
transmit to the holder of this Warrant such information, documents and reports
as are generally distributed to the holders of any class or series of the
securities of the Company concurrently with the distribution thereof to the
stockholders.
(a) Registration. Holders of this Warrant and Warrant Shares shall
have the registration rights set forth in Annex C of that certain Common Stock
Purchase Agreement of even date herewith by and between the holder and the
Company (the "Stock Purchase Agreement").
10. Special Agreements of the Company.
(a) Reservation of Shares. The Company covenants and agrees that all
Warrant Shares will, upon issuance, be validly issued, fully paid and
non-assessable and free from all preemptive rights of any shareholder, and from
all taxes, liens and charges with respect to the issue thereof. The Company
further covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times have
authorized, and reserved, a sufficient number of shares of Common Stock to
provide for the exercise of the rights represented by this Warrant. The Company
hereby covenants and agrees to
B-10
take all such action as may be necessary to assure that the par
value per share of the Common Stock is at all times equal to or less than the
Warrant Price.
(b) Avoidance of Certain Actions. The Company will not, by amendment
of its articles of incorporation, certificate of incorporation or any other
charter document through any reorganization, transfer of assets, consolidation,
merger, issue or sale of securities or otherwise, avoid or take any action which
would have the effect of avoiding the observance or performance of any of the
terms to be observed or performed hereunder by the Company, but will at all
times in good faith assist in carrying out all of the provisions of this Warrant
and in taking all of such action as may be necessary or appropriate in order to
protect the rights of the holders against dilution or other impairment of their
rights hereunder.
(c) Securing Governmental Approvals. If any shares of Common Stock
required to be reserved for the purposes of exercise of this Warrant require
registration with or approval of any governmental authority under any federal
law (other than the Securities Act) or under any state law before such shares
may be issued upon exercise of this Warrant, the Company will, at its expense,
as expeditiously as possible, cause such shares to be duly registered or
approved, as the case may be.
(d) Listing on Securities Exchanges; Registration. If, and so long
as, any class of the Company's Common Stock shall be listed on any national
securities exchange (as defined in the Exchange Act) or NASDAQ, the Company
will, at its expense, obtain and maintain the approval for listing upon official
notice of issuance of all Warrant Shares and maintain the listing of Warrant
Shares after their issuance; and the Company will so list on such national
securities exchange or NASDAQ, will register under the Exchange Act (or any
similar statute then in effect), and will maintain such listing of, any other
securities that at any time are issuable upon exercise of this Warrant if and at
the time any securities of the same class shall be listed on such national
securities exchange or NASDAQ by the Company.
(e) Compliance with Law. The Company shall comply with all
applicable laws, rules and regulations of the United States and of all states,
municipalities and agencies and of any other jurisdiction applicable to the
Company and shall do all things necessary to preserve, renew and keep in full
force and effect and in good standing its corporate existence and authority
necessary to continue its business.
(f) Notices of Stock Dividends, Subscriptions, Reclassifications,
Consolidations, Mergers, etc. If at any time: (1) the Company shall declare a
cash dividend (or an increase in the then existing dividend rate), or declare a
dividend on Common Stock payable otherwise than in cash out of its net earnings
after taxes for the prior fiscal year; or (2) the Company shall authorize the
granting to the holders of Common Stock of rights to subscribe for or purchase
any shares of capital stock of any class or of any other rights; or (3) there
shall be any capital reorganization, or reclassification, or redemption of the
capital stock of the Company, or consolidation or merger of the Company with, or
sale of all or substantially all of its assets to, another corporation or firm;
or (4) there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Company, then the Company shall give to the holders at the
addresses of such holders as shown on the books of the Company, at least twenty
(20) days prior to the applicable record date hereinafter specified, a written
notice summarizing such action or
B-11
event and stating the record date for any such dividend or rights (or, if a
record date is not to be selected, the date as of which the holders of Common
Stock of record entitled to such dividend or rights are to be determined), the
date on which any such reorganization, reclassification, consolidation, merger,
sale of assets, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected the holders of Common Stock
of record shall be entitled to effect any exchange of their shares of Common
Stock for cash (or cash equivalent), securities or other property deliverable
upon any such reorganization, reclassification, consolidation, merger, sale of
assets, dissolution, liquidation or winding up.
11. Modification and Waiver. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
12. Notices. Unless otherwise specifically provided herein, all
communications under this Warrant shall be in writing and shall be deemed to
have been duly given if given in accordance with Section 11.4 of the Stock
Purchase Agreement.
13. Governing Law. It is the intention of the parties that the internal
substantive laws, and not the laws of conflicts, of Delaware should govern the
enforceability and validity of this Warrant, the construction of its terms and
the interpretation of the rights and duties of the parties.
14. Acceptance. Receipt of this Warrant by the holder hereof shall
constitute acceptance of and agreement to the foregoing terms and conditions.
[Signature page follows.]
B-12
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed on
its behalf by one of its officers thereunto duly authorized.
COLLAGENEX PHARMACEUTICALS, INC.
By:
------------------------------------
Name:
Title
Address:
Dated: as of , 2001
------------- -----
B-13
EXHIBIT A
NOTICE OF EXERCISE
------------------
To: COLLAGENEX PHARMACEUTICALS, INC.
1. The undersigned hereby:
o Elects to purchase shares of Common Stock of CollaGenex
Pharmaceuticals, Inc., pursuant to the terms of Section 2(a) of the
attached Warrant, and tenders herewith payment of the purchase price
of such shares in full.
o Elects to exercise this Warrant for the purchase of shares of
Common Stock, pursuant to the terms of Section 2(c) of the attached
Warrant.
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name or names as are specified
below:
--------------------------------------- ------------------------------------
(Name)
------------------------------------
(Address)
3. The undersigned represents that the aforesaid shares are being acquired
for the account of the undersigned for investment and not with a view to, or for
resale in connection with, the distribution thereof and that the undersigned has
no present intention of distributing or reselling such shares. In support
thereof, the undersigned has executed an Investment Representation Statement
attached hereto as Schedule 1.
----------------------------(Signature) --------------------------------(Date)
4. Please issue a new Warrant for the unexercised portion of the attached
Warrant in the name of the undersigned or in such other name as is specified
below:
--------------------------------------
By: (Warrantholder)
--------------------
Date: Name: (Print)
----------------------- --------------------------
Its:
-----------------------------------
EXHIBIT B
FORM OF ASSIGNMENT
------------------
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under the within Warrant, with respect to the number
of shares of Common Stock set forth below:
Name of Assignee Address No. of Shares
and does hereby irrevocably constitute and appoint Attorney to make
such transfer on the books of [Issuer], maintained for the purpose, with full
power of substitution in the premises.
The undersigned also represents that, by assignment hereof, the Assignee
acknowledges that this Warrant and the shares of stock to be issued upon
exercise hereof or conversion thereof are being acquired for investment and that
the Assignee will not offer, sell or otherwise dispose of this Warrant or any
shares of stock to be issued upon exercise hereof or conversion thereof except
under circumstances which will not result in a violation of the Securities Act
of 1933, as amended, or any state securities laws. Further, the Assignee has
acknowledged that upon exercise of this Warrant, the Assignee shall, if
requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the shares of stock so purchased are being acquired for investment
and not with a view toward distribution or resale.
Dated:
------------------------
------------------------------------
Signature of Holder
ANNEX C
REGISTRATION RIGHTS AGREEMENT
1. Registration of Shares and Warrant Shares.
(a) Not later than 30 days after the Closing Date, the Company will file
with the Commission a shelf registration statement (the "Shelf
Registration Statement"), on Form S-3 (or successor form), with
respect to the resale of the Shares and Warrant Shares acquired or
to be acquired by the Investors hereunder (the "Registrable
Securities"). The Company will use commercially reasonable efforts
to cause the Shelf Registration Statement to become effective as
soon as reasonably practicable (but in no event later than 90 days
after the Closing Date). In the event that the Company fails to
cause the Shelf Registration Statement to become effective within 90
days of the Closing Date, or if it fails to keep such registration
open for twenty-four continuous months thereafter, it will on the
first day after such date or period issue for no additional
consideration to each Holder of Registrable Securities a stock
dividend (the "Dividend Shares") in the amount of five percent of
the Registrable Securities purchased by such Holder under the
Agreement. The Company shall thereafter be obligated to maintain the
effectiveness of the Shelf Registration Statement (and any related
qualifications and compliance) until such time as the Company shall
deliver an opinion of counsel to each Investor still holding Shares
or Warrant Shares acquired hereunder that such Investor may sell in
a single transaction all Registrable Securities then held by such
Investor pursuant to Rule 144 (or any similar provision then in
force) without being subject to the volume limitations thereof or
otherwise under an applicable exemption from the registration
requirements of the Securities Act and all other applicable
securities and blue sky laws, at which time this agreement shall
terminate; provided further, that after such twenty-four month
period the Company shall have no obligation with respect to the
payment of Dividend Shares.
(b) Incidental Registration.
(i) In the event the Shelf Registration Statement is not
then effective and, the Shares and Warrant Shares cannot
be sold in a single transaction under Rule 144 (or any
similar provision then in force) without being subject
to the volume limitations thereof, then each time the
Company determines to file a registration statement
under the Securities Act (other than pursuant to Section
1(a) hereof and other than on Form ▇-▇, ▇-▇ or a
registration statement on Form S-1 covering solely an
employee benefit plan) in connection with the proposed
offer and sale for money of any of its securities,
either for its own account or on behalf of any other
security holder, it will give prompt written notice of
its determination to all Holders of Registrable
C-1
Securities. Upon the written request of a Holder of any
shares of Registrable Securities given within 15 days
after the receipt of such written notice, the Company
will cause all such Registrable Securities, the Holders
of which have so requested registration, to be included
in such registration statement and registered under the
Securities Act, all to the extent requisite to permit
the sale or other disposition by the prospective seller
or sellers of the Registrable Securities to be so
registered.
(ii) If the registration of which the Company gives written
notice pursuant to Subsection(b)(i) is for a public
offering involving an underwriting, the Company will so
advise the Holders as a part of its written notice. In
such event, the right of any Holder to registration
pursuant to this Section 1(b) is conditioned upon such
Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders
proposing to distribute their Registrable Securities
through such underwriting will enter into (together with
the Company and the other holders distributing their
securities through such underwriting) an underwriting
agreement with the underwriter or underwriters selected
for such underwriting by the Company, provided that such
underwriting agreement is in customary form and is
reasonably acceptable to the Holders of a Majority of
the Registrable Securities requested to be included in
such registration.
(iii) Notwithstanding any other provision of this Section
1(b), if the managing underwriter of an underwritten
distribution advises the Company and the Holders of the
Registrable Securities participating in such
registration in writing that in its good faith judgment
the number of shares of Registrable Securities and the
other securities requested to be registered exceeds the
number of shares of Registrable Securities and other
securities which can be sold in such offering, then (A)
the number of shares of Registrable Securities and other
securities so requested to be included in the offering
will be reduced to that number of shares which in the
good faith judgment of the managing underwriter can be
sold in such offering and (B) such reduced number of
shares will be allocated among first to the securities
the Company proposes to sell; second to those Company
stockholders having registration rights pursuant to the
terms of that certain Registration Rights Agreement
dated September 29, 1995 and that certain Stockholders
and Registration Rights Agreement dated March 19, 1999
in accordance with the terms of each such agreement; and
third, to the Holders of Registrable Securities
hereunder.
(c) Registration Procedures. In connection with the registration of any
Registrable Securities under the Securities Act as provided in this Annex C, the
Company will use commercially reasonable efforts:
(i) prepare and file with the Commission a Registration Statement
on Form S-3 or successor form and cause such Registration
Statement to become effective; provided, however, that (x)
before filing a Registration Statement or prospectus or any
amendments or supplements thereto, the
C-2
Company shall provide counsel selected by the Holders holding
a majority of the Registrable Securities being registered in
such registration ("Holders Counsel") and any other attorney,
accountant or other agent-retained by any such seller or any
managing underwriter with an adequate and appropriate
opportunity to review and comment on such Registration
Statement and each prospectus included therein (and each
amendment or supplement thereto) to be filed with the
Commission, subject to such documents being under the
Company's control, and (y) the Company shall notify the
Holders Counsel and each seller of Registrable Securities of
any stop order issued or threatened by the Commission and take
all action required to prevent the entry of such stop order or
to remove it if entered;
(ii) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus
used in connection therewith as may be necessary to keep such
Registration Statement effective for a period which will
terminate when all Registrable Securities covered by such
Registration Statement have been sold, and comply with the
provisions of the Securities Act with respect to the
disposition of all securities covered by such Registration
Statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in
such Registration Statement;
(iii) To furnish to each seller of such Registrable Securities such
number of copies of such registration statement and of each
such amendment and supplement (in each case including all
exhibits), such number of copies of the prospectus included in
such Registration Statement (including each preliminary
prospectus), in conformity with the requirements of the
Securities Act, and such other documents, as such seller may
reasonably request, in order to facilitate the disposition of
the Registrable Securities owned by such seller;
(iv) To register or qualify such Registrable Securities covered by
such registration statement under such other securities or
blue sky laws of such jurisdictions as any seller reasonably
requests, and do any and all other acts and things which may
be reasonably necessary or advisable to enable such seller to
consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller, except that the
Company will not for any such purpose be required to qualify
generally to do business as a foreign corporation in any
jurisdiction wherein it would not, but for the requirements of
this Annex C, be obligated to be qualified, to subject itself
to taxation in any such jurisdiction, or to consent to general
service of process in any such jurisdiction;
(v) To provide a transfer agent and registrar for all such
Registrable Securities covered by such registration statement
not later than the effective date of such Registration
Statement;
C-3
(vi) To notify in writing each seller of such Registrable
Securities at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus
included in such registration statement contains an untrue
statement of a material fact or omits any fact necessary to
make the statements therein not misleading, and, at the
request of any such seller, the Company will prepare a
supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable
Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading. The
Investors agree to suspend, upon written request of the
Company, any disposition of Registrable Securities pursuant to
the registration statement contemplated hereby during any
period, not to exceed one 30-day period per circumstance or
development, and not to exceed three 30-day periods in a 12
month period. Provided that such postponement or suspension is
pursuant to Section 1(d)(i) below, it shall not cause or
contribute to any obligation by the Company to issue the stock
dividend referenced in Section 1(a) hereof.
(vii) To cause all such Registrable Securities to be listed on each
securities exchange or automated over-the-counter trading
system on which similar securities issued by the Company are
then listed;
(viii)With a view to making available to the Investors the benefits
of Rule 144 (or its successor rule) and any other rule or
regulation of the Commission that may at any time permit the
Investors to sell Shares or Warrant Shares to the public
without registration, the Company covenants and agrees to: (A)
make and keep public information available, as those terms are
understood and defined in Rule 144; (B) file with the
Commission in a timely manner all reports and other documents
required of the Company under the Securities Act and under the
Exchange Act; and (C) furnish to each Investor upon request,
as long as the Investor owns at least 25,000 Shares and/or
Warrant Shares, (x) a written statement by the Company that it
has complied with the reporting requirements of the Securities
Act and the Exchange Act, (y) a copy of the Company's most
recent Annual Report on Form 10-K or Quarterly Report on Form
10-Q, and (z) such other information as may be reasonably
requested in order to avail the Investor of any rule or
regulation of the Commission that permits the selling of any
such Shares and/or Warrant Shares without registration.
The Company may require each Investor to furnish to the Company such
information regarding the Investor and the distribution of such securities as
the Company may from time to time reasonably request in writing in order to
comply with the Securities Act as part of the registration of such sellers'
Registrable Securities.
Each Investor agrees to furnish the Company a signed counterpart,
addressed to the Company and the underwriters, if any, of an opinion of counsel
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) as are customarily covered in
opinions of selling stockholder's counsel delivered to the underwriters in
underwritten public offerings of securities (and dated the dates such opinions
are customarily dated) and such other legal matters as the Company or the
underwriters may reasonably request.
C-4
(d) Limitations, Conditions and Qualifications to Obligations. The
obligations of the Company hereunder are subject to each of the
following limitations, conditions and qualifications:
(i) The Company shall be entitled to postpone the filing or
effectiveness of, or suspend the rights of the Investor to
make sales pursuant to, any registration statement otherwise
required to be prepared, filed and made and kept effective by
it hereunder if there is a material undisclosed development in
the business or affairs of the Company (including any pending
or proposed financing, recapitalization, acquisition or
disposition as determined in the good faith reasonable
business judgement of the Board of Directors), the disclosure
of which at such time could be materially adverse to the
Company's interests, provided that such postponement or
suspension is for a reasonable period not in excess of 30 days
and such right to postpone or suspend any registration
pursuant to the terms set forth herein by the Company is not
exercised more than twice in any twelve month period. Any such
postponement or suspension by the Company shall not cause or
contribute to any obligation by the Company to issue the stock
Dividend Shares referenced in Section 1(a) hereof.
(ii) The Company's obligations shall be subject to the obligations
of the Investor, which the Investor hereby acknowledges, to
furnish all information and materials and to take any and all
actions as may be required under applicable federal and state
securities and blue sky laws and regulations to permit the
Company to comply with all applicable requirements of the
Commission and state securities regulations and to obtain any
acceleration of the effective date of such registration
statement.
(e) Registration and Selling Expenses. All expenses incurred by the
Company in connection with the Company's performance of or
compliance with this Annex C, including, without limitation (i) all
registration and filing fees (including all expenses incident to
filing with the National Association of Securities Dealers, Inc.),
(ii) blue sky fees and expenses, (iii) all necessary printing and
duplicating expenses, and (iv) all fees and disbursements of counsel
and accountants retained by the Company (including the expenses of
any audit of financial statements) (all such expenses being called
"Registration Expenses"), will be paid by the Company. Each Investor
will pay its own expenses in connection with the transactions
contemplated by this Annex C, including but not limited to any
underwriters' expenses (such as but not limited to discounts,
commissions and fees of underwriters and expenses of selling
brokers, dealer managers or similar
C-5
securities industry professionals relating to the distribution of
the securities being registered).
(f) Payment of Expenses. The Company will, in any event, in connection
with any registration statement, pay its internal expenses
(including, without limitation, all salaries and expenses of its
officers and employees performing legal, accounting or other duties
in connection therewith and expenses of audits of year-end financial
statements), the expense of liability insurance and the expenses and
fees for listing the securities to be registered on one or more
securities exchanges or automated over-the-counter trading systems
on which similar securities issued by the Company are then listed.
(g) Legal Counsel. Nothing in this Agreement shall be construed to
prevent any Holder or Holders of Registrable Securities from
retaining such counsel as they shall choose at their own expense.
2. Indemnification.
(a) Company Indemnity. The Company shall indemnify, to the extent
permitted by law, each Holder of Registrable Securities, its
officers, trustees and directors, if any, and each person, if any,
who controls such Holder within the meaning of the Securities Act,
against all losses, claims, damages, liabilities and expenses (under
the Securities Act or common law or otherwise) caused by any untrue
statement or alleged untrue statement of a material fact contained
in any registration statement or prospectus (and as amended or
supplemented if the Company has furnished any amendments or
supplements) or any preliminary prospectus, which registration
statement, prospectus or preliminary prospectus shall be prepared in
connection with the contemplated registration, or caused by any
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses are caused solely by any untrue
statement or alleged untrue statement contained in or by any
omission or alleged omission from information furnished in writing
by such holder to the Company for inclusion in the registration
statement; provided the Company will not be liable pursuant to this
Annex C if such losses, claims, damages, liabilities or expenses
have been caused by any selling security holder's failure to deliver
a copy of the registration statement or prospectus, or any
amendments or supplements.
(b) Holder Indemnity. In connection with any registration statement in
which a Holder is participating, each such Holder shall furnish to
the Company in writing such information as is reasonably requested
by the Company for use in any such registration statement or
prospectus and shall severally, but not jointly, indemnify, to the
extent permitted by law, the Company, its directors and officers and
each person, if any, who controls the Company within the meaning of
the Securities Act, against any losses, claims, damages, liabilities
and expenses resulting solely from any untrue statement or alleged
untrue statement of a material fact or any
C-6
omission or alleged omission of a material fact required to be
stated in the registration statement or prospectus or any amendment
or supplement or necessary to make the statements therein not
misleading, but only to the extent such losses, claims, damages,
liabilities or expenses are caused solely by an untrue statement or
alleged untrue statement contained in or by an omission or alleged
omission from information so furnished in writing by such Holder for
inclusion in the registration statement. If the offering pursuant to
any such registration is made through underwriters, each such Holder
agrees to enter into an underwriting agreement in customary form
with such underwriters and to indemnify such underwriters, their
officers and directors, if any, and each person who controls such
underwriters within the meaning of the Securities Act to the same
extent as provided with respect to indemnification by such Holder to
the Company. Notwithstanding the foregoing or any other provision of
this Agreement, in no event shall a Holder be liable for any losses,
claims, damages, liabilities or expenses in excess of the net
proceeds received by such Holder in the offering.
(c) Notice. Promptly after receipt by an indemnified party of notice of
the commencement of any action or proceeding, such indemnified party
will, if a claim is made against the indemnifying party under such
Section, notify the indemnifying party in writing of the
commencement; but the omission so to notify the indemnifying party
will not relieve it from any liability which it may have to any
indemnified party otherwise than under such Section and then only to
the extent the indemnifying party is prejudiced by its failure to be
so notified. In case any such action or proceeding is brought
against any indemnified party, and it notifies the indemnifying
party of the commencement, the indemnifying party will be entitled
to participate, and, to the extent that it wishes, jointly with any
other indemnifying party similarly notified, to assume the defense,
with counsel reasonably approved by such indemnified party, and
after notice from the indemnifying party to such indemnified party
of its election so to assume the defense, the indemnifying party
will not be liable to such indemnified party under such Section for
any legal or any other expenses subsequently incurred by such
indemnified party in connection with the defense (other than
reasonable costs of investigation) unless incurred at the written
request of the indemnifying party. Notwithstanding the above, the
indemnified party will have the right to employ counsel of its own
choice in any such action or proceeding if the indemnified party has
reasonably concluded that there may be defenses available to it
which are different from or additional to those of the indemnifying
party, or counsel to the indemnified party is of the opinion that it
would not be desirable for the same counsel to represent both the
indemnifying party and the indemnified party because such
representation might result in a conflict of interest (in either of
which cases the indemnifying party will not have the right to assume
the defense of any such action or proceeding on behalf of the
indemnified party or parties and such legal and other expenses will
be borne by the indemnifying party). An indemnifying party will not
be liable to any indemnified party for any settlement of any such
action or proceeding effected without the consent of such
indemnifying party.
C-7
(d) Contribution. If the indemnification provided for in this Section 2
is unavailable under applicable law to an indemnified party in
respect of any losses, claims, damages, liabilities or expenses
referred to herein, then each applicable indemnifying party, in lieu
of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such
losses, claims, damages, liabilities or expenses in such proportion
as is appropriate to reflect the relative fault of the Company on
the one hand and of the Holders on the other in connection with the
statements or omissions which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of the Company on the
one hand and of the Holders on the other shall be determined by
reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the Company or by
the Holders and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above
shall be deemed to include, subject to the limitations set forth in
this Section 2, any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending
any action or claim. Notwithstanding the foregoing or any other
provision of this Agreement, in no event shall a Holder be required
to contribute any amount in excess of the net proceeds received by
such Holder in the offering less any amount paid by such Holder
pursuant to any other provision of this Section 2. No person guilty
of fraudulent misrepresentation (within the meaning of Section 2(f)
of the Securities Act) will be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation.
(e) Notice of Action. Promptly after receipt by the Company or any
Holder of notice of the commencement of any action or proceeding,
such party will, if a claim for contribution is to be made against
another party (the "contributing party"), notify the contributing
party of the commencement; but the omission so to notify the
contributing party will not relieve it from any liability which it
may have to any other party other than for contribution under this
Agreement. In case any such action, suit, or proceeding is brought
against any party, and such party notifies a contributing party of
the commencement, the contributing party will be entitled to
participate with the notifying party and any other contributing
party similarly notified in such action or proceeding.
The provisions of this Agreement shall apply to the full extent set forth
herein with respect to (i) the Shares and the Warrant Shares, (ii) any and all
shares of common stock of the Company into which the shares of Common Stock are
converted, exchanged or substituted in any recapitalization or other capital
reorganization by the Company and (iii) any and all equity securities of the
Company or any successor or assign of the Company (whether by merger,
consolidation, sale of assets or otherwise) which may be issued in respect of,
in conversion of, in exchange for or in substitution of the Shares and shall be
appropriately adjusted for any stock dividends, splits, reverse splits,
combinations, recapitalizations and the like occurring after the date hereof.
The Company shall cause any successor or assign (whether by merger,
C-8
consolidation, sale of assets or otherwise) to enter into a new registration
rights agreement with the Holders on terms substantially the same as this
Agreement as a condition of any such transaction.
The Company shall not enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Holders in this
Agreement or grant any additional registration rights to any Person or with
respect to any securities which are not Registrable Securities which are prior
in right to or inconsistent with the rights granted in this Agreement.
The Holders, in addition to being entitled to exercise all rights granted
by law, including recovery of damages, shall be entitled to specific performance
of their rights under this Agreement. The Company agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
by it of the provisions of this Agreement and hereby agrees to waive in any
action for specific performance the defense that a remedy at law would be
adequate.
This Agreement shall inure to the benefit of and be binding upon the
heirs, legatees, legal representatives, successors and permitted assigns of each
of the parties hereto as hereinafter provided. The rights set forth herein shall
be, with respect to any Registrable Security, automatically transferred to any
Person who is the transferee of such Registrable Security. All of the
obligations of the Company hereunder Shall survive any such transfer. Except as
provided in Section 2, no Person other than the parties hereto and their heirs,
legatees, legal representatives, successors and permitted assigns is intended to
be a beneficiary of any of the rights granted hereunder.
Each of the parties shall execute such documents and perform such further
acts as may be reasonably required or necessary to carry out or to perform the
provisions of this Agreement.
All Common Stock held or acquired by affiliated entities or Persons
(including, partners or constituent members and former partners and former
constituent members) shall be aggregated for the purpose of determining the
availability of or discharge of any rights under this Agreement. For purposes of
this paragraph, the Company may rely on such person whom a group of related
persons shall designate from time to time for information relating to the
affiliations of entities or persons. All references to numbers of shares in this
Agreement shall be appropriately adjusted to reflect any stock dividend, split,
combination or other recapitalization of shares by the Company occurring after
the date of this Agreement.
C-9