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EXHIBIT 10-A
PRIVATE EQUITY LINE OF CREDIT AGREEMENT
Between
DEERE PARK CAPITAL MANAGEMENT
And
ZILA, INC.
Dated as of April 30, 1997
PRIVATE EQUITY LINE OF CREDIT AGREEMENT dated as of April 30, 1997 (the
"Agreement"), among DEERE PARK CAPITAL MANAGEMENT, a limited liability company
organized and existing under the laws of the State of Illinois (the "Investor
Agent"), ▇▇▇▇▇▇▇▇▇▇▇ INVESTMENT, L.P., an Illinois limited partnership (together
with the Investor Agent, the "Investors"), and ZILA, INC., a corporation
organized and existing under the laws of the State of Delaware (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue to the Investors, and the
Investors shall purchase from the Company, from time to time as provided herein,
the Company's Common Stock, par value $.001 per share (the "Common Stock"), for
an aggregate purchase price of up to $25,000,000; and
WHEREAS, except as otherwise provided in this Agreement, such investments
will be made in reliance upon the provisions of Section 4(2) promulgated by the
Securities and Exchange Commission ("SEC") under the United States Securities
Act of 1933, as amended (the "Securities Act"), and/or upon such other exemption
from the registration requirements of the Securities Act as may be available
with respect to any or all of the investments in Common Stock to be made
hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
Section 1.1 "Call." See Section 2.3.
Section 1.2 "Call Date" or "Optional Purchase Date" shall mean the date the
Company draws down a portion of the subscription amount pursuant to Section 2.3.
Section 1.3 "Closing" shall mean the consummation of each purchase and sale
of Common Stock pursuant to Section 2.1.
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Section 1.4 "Closing Date" shall mean, with respect to each purchase and
sale of Common Stock pursuant to this Agreement, (i) with respect to the Initial
Shares, the fifth Trading Day following the Subscription Date and the third
Trading Day following the First Effective Date and the Second Effective Date,
respectively, and (ii) with respect to Optional Shares, an Optional Purchase
Date, provided in each case that all conditions to the applicable Closing have
been satisfied.
Section 1.5 "Commitment Period" shall mean the period commencing on the
earlier to occur of (i) August 30, 1997 or (ii) such earlier date as the Company
and the Investors may mutually agree, and expiring on the earlier to occur of
(x) the date on which the Investors shall have purchased Common Stock pursuant
to this Agreement for an aggregate Purchase Price of $25,000,000, (y) the date
this Agreement is terminated pursuant to Section 2.7, or (z) September 30, 1998.
Section 1.6 [intentionally left blank]
Section 1.7 "Equity Credit" shall mean the equity credit incurred by the
Company from the Investors as a result of the Repricing Events. See Section
2.1(b) and (c).
Section 1.8 "Equity Offerings" shall mean the issuance or sale by the
Company in a transaction exempt from or not subject to the registration
requirements of the Securities Act of any shares of Common Stock or securities
which are convertible into or exchangeable for its Common Stock or any warrants,
options or other rights to subscribe for or purchase its Common Stock or any
such convertible or exchangeable securities (other than shares of Common Stock
which may be issued upon exercise of options under the Company's employee or
director stock option plans, upon the conversion or exchange of convertible or
exchangeable securities or upon the exercise of warrants, or other rights, which
options, convertible or exchangeable securities, warrants or other rights are
outstanding on the date of execution and delivery of the Agreement and are
listed in the SEC Documents on file with the Commission as of the date of this
Agreement (other than the Warrants and the Additional Warrants) and other than
(x) shares of Common Stock which may be issued upon exercise of options granted
under such plans, (y) shares of Common Stock which may be issued upon exercise
of the Warrants, and (z) shares of Common Stock or securities which are
convertible into or exchangeable for Common Stock or any warrants, options or
other rights to subscribe for or purchase Common Stock or any such convertible
or exchangeable securities issued in business combinations or strategic
corporate partnering transactions.)
Section 1.9 "Escrow Agent" shall mean, initially, the law firm of Morse,
Zelnick, Rose & Lander, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇,
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇, or such other entity or individual mutually agreed to
by the Company and the Investor Agent.
Section 1.10 "Escrow Agreement" shall mean that certain Escrow Agreement of
even date herewith entered into among the Company, the Escrow Agent, the
Investor Agent and ▇.▇. ▇▇▇▇▇▇ & Co., Inc., as the same may be amended from time
to time.
Section 1.11 The "Exchange Act". See Section 4.7.
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Section 1.12 "First Effective Date" shall mean the date on which the
Securities Exchange Commission declares effective the Registration Statement
pursuant to Section 3.2(a).
Section 1.13 "Initial Closing Date" shall mean the date upon which the
Closing of the purchase and sale of the Initial Shares shall occur.
Section 1.14 "Investment Amount" shall mean the amount required to be
invested by the Investors with respect to any Optional Purchase Date as notified
by the Company to the Investor Agent in accordance with Section 2.6 hereof.
Section 1.15 "Market Price" shall mean (i) with respect to sale of the
Initial Shares, the closing bid price (as reported by Bloomberg L.P.) of the
Company's Common Stock on the Trading Day immediately preceding the Subscription
Date and (ii) with respect to Repricing Events and sale of Optional Shares, the
average of the closing bid price (as reported by Bloomberg L.P.) of the
Company's Common Stock over the 10-Trading Day period following the First
Effective Date, the Second Effective Date, and the applicable Optional Purchase
Date.
Section 1.16 "Material Adverse Effect". See Section 5.5.
Section 1.17 "Optional Purchase Date" shall mean a Trading Day during the
Commitment Period on which the Company elects by delivery of an Optional
Purchase Notice pursuant to Section 2.6 to sell Common Stock to the Investors,
in conformity with the provisions of this Agreement.
Section 1.18 "Principal Market" shall mean the Nasdaq National Market, the
Nasdaq Small-Cap Market, the American Stock Exchange or the New York Stock
Exchange, whichever is at the time the principal trading exchange or market for
the Common Stock.
Section 1.19 "Registration Rights Agreement". See Section 2.9.
Section 1.20 "Registration Statement". See Section 3.2(a).
Section 1.21 "Second Effective Date" shall mean the thirtieth (30th) day
(or, if such day is not a Trading Day, the first Trading Day thereafter) after
the First Effective Date.
Section 1.22 "Securities Act". See the introductory paragraphs hereof.
Section 1.23 "SEC Documents". See Section 5.2.
Section 1.24 "Subscription Date" shall mean April 30, 1997.
Section 1.25 "Trading Cushion" shall mean the mandatory 15 Trading Days
between Optional Purchase Dates.
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Section 1.26 "Trading Day" shall mean any day during which the Principal
Market shall be open for business.
Section 1.27 "Warrants". See Section 2.9.
ARTICLE II
Purchase and Sale of Common Stock
Section 2.1 Investments. Upon the terms and conditions set forth herein
(including, without limitation, the provisions of Article III hereof), during
the Commitment Period the Company shall issue and sell to the Investors, and the
Investors shall purchase from the Company, Common Stock.
Section 2.2 Initial Purchase. (a) The Company agrees to sell and the
Investors agree to purchase that number of shares of Common Stock (the "Initial
Shares") determined by dividing $3,000,000 by 88% of the Market Price on the
Subscription Date. The Initial Shares will be subject to repricing as described
in Section 2.2(b) and (c).
(b) Fifty percent (50%) of the Initial Shares shall be subject to repricing
upon the First Effective Date. In the event the Market Price with respect to the
First Effective Date is lower than the Market Price on the Subscription Date,
the Company will be required with respect to such fifty percent (50%) of the
Initial Shares to issue additional shares of Common Stock to the Investors such
that the Investors shall receive an additional number of shares of Common Stock
equal to (i) the quotient of (x) One Million Five Hundred Thousand Dollars
($1,500,000) divided by (y) the number equal to 88% of the Market Price on the
First Effective Date less (ii) that number of shares of Common Stock equal to
fifty percent (50%) of the Initial Shares. In the event that the Market Price on
the First Effective Date is greater than the Market Price on the Subscription
Date, the Company will incur an Equity Credit with respect to the first fifty
percent (50%) of Initial Shares such that Investor shall be deemed to have
received excess shares (the "Equity Credit") of Common Stock in an amount
determined by subtracting (i) from that number equal to fifty percent (50%) of
the Initial Shares, (ii) the quotient of (x) One Million Five Hundred Thousand
Dollars ($1,500,000) divided by (y) the price equal to 88% of the Market Price
on the First Effective Date. Such credit will be applied first to shares subject
to repricing pursuant to Section 2.2(c) and then to shares purchased on any
Optional Purchase Date under this Agreement.
(c) The remaining fifty percent (50%) of the Initial Shares shall be
subject to repricing on the Second Effective Date. In the event the Market Price
on the Second Effective Date is lower than the Market Price on the Subscription
Date, the Company will be required with respect to such fifty percent (50%) of
the Initial Shares to issue additional shares of Common Stock to the Investors
such that the Investors shall receive an additional number of shares of Common
Stock equal to (i) the quotient of (x) One Million Five Hundred Thousand Dollars
($1,500,000) divided by (y) the number equal to 88% of the Market Price on the
Second Effective Date less (ii) that number of shares of Common Stock equal to
fifty percent (50%) of the Initial Shares. To the extent that there is an Equity
Credit arising from the repricing required pursuant to
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Section 2.2(b), such Equity Credit shall reduce the number of additional shares,
on a share for share basis, required to be issued to the Investors pursuant to
this Section 2.2(c).
In the event that the Market Price on the Second Effective Date is greater
than the Market Price on the Subscription Date, the Company will incur an Equity
Credit with respect to the second fifty percent (50%) of the Initial Shares to
be applied to Optional Shares to be issued to the Investors pursuant to this
Agreement. Such Equity Credit shall be in an amount determined by subtracting
(i) from that number equal to fifty percent (50%) of the Initial Shares, (ii)
the quotient of (x) One Million Five Hundred Thousand Dollars ($1,500,000)
divided by (y) the price equal to 88% of the Market Price on the Second
Effective Date.
Section 2.3. Optional Shares. (a) In addition to the purchase of the
Initial Shares pursuant to Section 2.2(a), the Investors agree to make
additional purchases of shares of Common Stock for up to Twenty-Two Million
Dollars ($22,000,000) in the aggregate (the "Optional Shares"). Each purchase of
such shares shall occur on an Optional Purchase Date. During the Commitment
Period, the Company will be obligated to draw down a minimum of Thirteen Million
Dollars ($13,000,000), including the Initial Shares commitment, from the full
subscription commitment of $25,000,000. The Company will have the option to set
the date of each draw down and the Investment Amount relating to such draw down
(each, a "Call"); provided, however, that under no circumstances will shares in
excess of 20% of the Company's currently outstanding shares be issued pursuant
to this Agreement and provided further that the average daily trading volume
over the course of the previous six months preceding each Call must be greater
than 75,000 shares per Trading Day as reported by Bloomberg L.P.
(b) The Company may in its sole discretion on any Optional Purchase Date
sell to the Investors the number of shares of Common Stock determined by
dividing the Investment Amount by the per share purchase price equal to 93% of
the Market Price on the Optional Purchase Date with respect to each Call
(provided, however, that in no event will such purchase price be greater than
150% of the Market Price on the Subscription Date). The Investment Amount
relating to each Call shall be determined by the Company, shall be in the
minimum amount of $200,000 and may be in increments of $10,000 in excess thereof
but shall not exceed $2,000,000. In addition, the Company shall not deliver an
Optional Purchase Notice until the expiration of an applicable Trading Cushion.
Notwithstanding the foregoing, the Company and the Investor Agent may by mutual
agreement from time to time provide for a greater Investment Amount per Call.
Section 2.4 [intentionally left blank]
Section 2.5 Closings.
(a) With respect to the sale of the Initial Shares (i) on or before the
Initial Closing Date, the Company shall deliver to the Escrow Agent for deposit
into escrow two or more certificates aggregating a total of 514,580 of shares of
Common Stock (based on the closing bid price as reported by Bloomberg L.P. of
6 5/8 on April 29, 1997) to be purchased by the Investors pursuant to Sections
2.2, registered in the names of the Investors as designated in writing by the
Investor Agent or, at the Investors' option,
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deposit such certificates into such account or accounts previously designated by
the Investor Agent and (ii) on or before the Initial Closing Date the Investor
Agent shall deliver or cause to be delivered to the Escrow Agent for deposit
into escrow the amount of $3,000,000 by wire transfer of immediately available
funds to the account provided for in the Escrow Agreement.
(b) With respect to repricing of the Initial Shares on the First and Second
Effective Dates, immediately following determination of the Market Price on the
First or Second Effective Dates, as applicable, the Company shall send a written
notice to the Investor Agent informing the Investor Agent of the applicable
Market Price, calculating the appropriate price per share in accordance with
Section 2.2(b) or (c) and setting forth the number of additional shares of
Common Stock to be delivered to the Investors or the amount of the Equity
Credit, as applicable in each case. Certificates for additional shares, if any,
shall be delivered to the Investor Agent within three (3) business days after
the notice is sent pursuant to written instructions of the Investor Agent
delivered to the Company.
(c) With respect to each Closing relating to Optional Shares (i)
concurrently with delivery of the Optional Purchase Notice to the Investor
Agent, the Company shall deliver to the Escrow Agent for deposit into escrow two
or more certificates representing the number of shares to be purchased by the
Investors pursuant to Section 2.3, provided, however, the number of shares
delivered pursuant to this clause (i) shall be determined based on the closing
bid price of the Company's Common Stock as reported by Bloomberg L.P. on the
Trading Day immediately preceding the date of the applicable Optional Purchase
Notice, such shares to be registered in the names of the Investors as designated
in writing by the Investor Agent or, at the Investors' option, deposited in such
account or accounts as previously designated by the Investor Agent, (ii) on or
before the Closing Date, the Investor Agent shall deliver to the Escrow Agent
for deposit into escrow the Investment Amount by wire transfer to the account
designated in the Escrow Agreement, (iii) concurrently with the delivery of the
Investment Amount by the Investors, the Escrow Agent shall be directed to
deliver the certificates representing the shares described in clause (i) to the
Investor Agent and release the Investment Amount to the Company, and (iv) upon
determination of the definitive number of shares to be sold to the Investors
with respect to the applicable Call in accordance with Section 2.3(b), if such
determination requires additional shares to be delivered to the Investors, the
Company shall immediately notify the Investor Agent and promptly cause the
issuance and delivery of certificates in the requisite number of shares to be
delivered to the Investor Agent in accordance with the Investor Agent's written
instructions and if such determination results in excessive shares having been
issued, the excess shall be deemed to constitute an Equity Credit to be applied
to subsequent Calls.
(d) In addition, on or prior to each Closing Date, each of the Company and
the Investor Agent shall deliver all documents, instruments and writings
required to be delivered or reasonably requested by either of them pursuant to
this Agreement in order to implement and effect the transactions contemplated
herein. Delivery of certificates to escrow shall occur three (3) business days
following the Subscription Date, the First or Second Effective Date or Call
Date, as applicable. Payment of funds to the Company shall occur out of escrow
on the business day following receipt of the related stock certificates,
concurrently with delivery of such certificates to the Investors. The 10-Trading
Day period applicable to a determination of Market Price with respect to any
Closing (other than the Initial Closing) shall not
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commence until all funds, certificates and other required documents, instruments
and writings have been deposited in escrow with the Escrow Agent or delivered to
the appropriate party, as provided herein.
Section 2.6 Mechanics of Exercise Relating to Optional Shares.
(a) Delivery of Optional Purchase Notice. At any time during the Commitment
Period following the Second Effective Date, the Company may deliver written
notices to the Investor Agent (each such notice hereinafter referred to as an
"Optional Purchase Notice") setting forth the Investment Amount, subject to the
limitations imposed by Sections 2.3 and 3.2 herein, which the Company proposes
to draw down. Any Optional Purchase Notice shall be revocable at the Company's
option. The Company may not deliver an Optional Purchase Notice to the Investor
Agent if the events described in Section 2.7 occur or if the conditions set
forth in Article III are not satisfied. If any of the events described in
Section 2.7 occur on or after the date on which an Optional Purchase Notice is
given, but prior to the closing of the transaction on the Closing Date
associated with such Optional Purchase Notice, or if the conditions set forth in
Article III are not satisfied as of the Closing Date (subject to any extension
as mutually agreed by the Company and the Investor Agent), such Optional
Purchase Notice shall be null, void and of no further force or effect.
(b) Date of Delivery of Optional Purchase Notice. An Optional Purchase
Notice shall be deemed delivered on (i) the Trading Day it is received by
facsimile or otherwise by the Investor Agent if such notice is received prior to
5:00 P.M. Chicago time, or (ii) the immediately succeeding Trading Day if it is
received by facsimile or otherwise after 5:00 P.M. Chicago time. No Optional
Purchase Notice may be delivered or deemed delivered, on a day which is not a
Trading Day.
Section 2.7 Termination or Suspension of Investment Obligation. The
Investors shall not be required to purchase any shares of Common Stock from the
Company on any Closing Date nor may an Optional Purchase Notice be delivered at
any time during the Commitment Period that there shall exist any one or more of
the following: (i) the withdrawal of the effectiveness of the Registration
Statement, (ii) the Company's failure to satisfy in all material respects the
requirements in Section 3.2, or (iii) any failure or interruption in the
compliance in all material respects with the Company's covenants provided in
Article VI; provided, however that the obligation of the Investors to purchase
shares of Common Stock shall be terminated (including with respect to a Closing
Date which has not yet occurred) in the event that (x) there shall occur any
stop order or suspension of the effectiveness of the Registration Statement, for
any reason other than as a result of subsequent corporate developments which
would require such Registration Statement to be amended to reflect such event in
order to maintain its compliance with the disclosure requirements of the
Securities Act, or (y) the Company shall at any time fail to comply with the
requirements of Sections 6.3, 6.4, 6.5 or 6.6.
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Section 2.8 Intentionally left blank.
Section 2.9 Commitment Fee. (a) On the Initial Closing Date, the Company
will issue to the Investors two or more warrants, exercisable beginning six
months from the Subscription Date (collectively the "Warrant") and then
exercisable at any time over the following three year period, to purchase an
aggregate of 300,000 shares of Common Stock at a price equal to 130% of the
Market Price on the Subscription Date. The shares of Common Stock to be issued
upon exercise of the Warrant shall be registered for resale on the Registration
Statement referenced in Section 3.2(a) herein. The resale by the Investors of
Common Stock issuable upon exercise of the Warrant shall be subject to a
registration rights agreement (the "Registration Rights Agreement") to be
entered into between the Company and the Investors on the Initial Closing Date.
(b) In the event at least Ten Million Dollars ($10,000,000) is not drawn
down by the Company during the Commitment Period (exclusive of the Initial
Shares) pursuant to this Agreement, the Company shall issue an additional three
(3) year Warrant to the Investors to purchase an additional 250,000 shares in
the aggregate at the Market Price of the Company's Common Stock on the last
Trading Day of the Commitment Period. Such additional warrant shall be subject
to the same terms and conditions as the Warrant. Each of the Warrants shall be
in form and substance reasonably acceptable to the Company and the Investor
Agent. The Company agrees that a breach of its obligations under this Section
2.9(b) could cause the Investors irreparable injury and that monetary damages
may not be an adequate remedy for any such breach.. In the event of a breach or
threatened breach by the Company of this Section 2.9(b), the Company agrees that
the Investors are entitled to equitable relief in any court of competent
jurisdiction, including the remedy of specific performance, in addition to all
other remedies available to the Investor at law or in equity.
ARTICLE III
Conditions to Closing
Section 3.1 Conditions Precedent to the Obligation of the Company to Issue
and Sell Common Stock. The obligation hereunder of the Company to issue and sell
Common Stock to the Investor incident to each Closing is subject to the
satisfaction, at or before each such Closing, of each of the conditions set
forth below.
(a) Accuracy of the Investors' Representations and Warranties. The
representations and warranties of the Investors shall be true and correct in all
material respects as of the date of this Agreement and as of the date of each
Closing as though made at each such time.
(b) Performance by the Investors. The Investors shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Investors at or prior to such Closing.
(c) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent
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jurisdiction which, in the reasonable opinion of the Company and its legal
counsel, prohibits or materially adversely affects any of the transactions
contemplated by this Agreement, and no proceeding shall have been commenced
which may have the effect of prohibiting or materially adversely affecting any
of the transactions contemplated by this Agreement.
Section 3.2 Conditions Precedent to the Right of the Company to Deliver an
Optional Purchase Notice and the Obligation of the Investors to Purchase Common
Stock. The right of the Company to deliver an Optional Purchase Notice and the
obligation of the Investors hereunder to acquire and pay for Common Stock
incident to a Closing for the sale and purchase of Optional Shares is subject to
the satisfaction, on the date of delivery of such Optional Purchase Notice and
on the applicable Closing Date (each a "Condition Satisfaction Date") of each of
the following conditions.
(a) Registration of the Common Stock with the SEC. The Company shall have
filed with the SEC a registration statement on Form S-3 (the "Registration
Statement") for the registration of the resale by the Investors of Common Stock
to be acquired pursuant to this Agreement (including Common Stock to be issued
upon exercise of the Warrants) under the Securities Act, which Registration
Statement shall have been declared effective by the SEC on the First Effective
Date, no later than August 30, 1997, and no stop order or suspension or
withdrawal of the effectiveness of or with respect to any such registration
statement or any other suspension of the use of any such registration statement
or related prospectus shall have been issued by the SEC or any state securities
commission during the Commitment Period; and the Company shall be in compliance
in all material respects with the terms of the Registration Rights Agreement.
(b) Effective Registration Statement. The Registration Statement shall have
previously become effective and shall remain effective on each Closing Date and
(i) neither the Company nor the Investors shall have received notice that the
SEC has issued or intends to issue a stop order with respect to the Registration
Statement or that the SEC otherwise has suspended or withdrawn the effectiveness
of the Registration Statement, either temporarily or permanently, or intends or
has threatened to do so, and (ii) no other suspension of the use of the
Registration Statement or prospectus shall exist pursuant to the Registration
Rights Agreement.
(c) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company shall be true and correct in all
material respects as of each Closing Date as though made at each such time
(except for representations and warranties specifically made as of a particular
date) with respect to all periods, and as to all events and circumstances
occurring or existing to and including each Closing Date.
(d) Performance by the Company. The Company shall have performed, satisfied
and complied in all material respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to each Closing Date.
(e) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
or materially adversely affects any of the transactions contemplated by this
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Agreement, and no proceeding shall have been commenced which may have the effect
of prohibiting or materially adversely affecting any of the transactions
contemplated by this Agreement.
(f) Adverse Changes. Since the date of filing of the Company's most recent
SEC Document prior to the Subscription Date, no event which had or is reasonably
likely to have a Material Adverse Effect (as that term is defined in Section 5.5
hereof) has occurred.
(g) No Suspension of Trading In or Delisting of Common Stock. The trading
of the Common Stock shall not have been suspended by the SEC, the Principal
Market or the National Association of Securities Dealers, Inc. (the "NASD") and
the Common Stock shall have been approved for listing or quotation on and shall
not have been delisted from the Principal Market. The issuance of shares of
Common Stock with respect to the applicable Closing, if any, shall not violate
the shareholder approval requirements of the Principal Market.
(h) Legal Opinions. The Company shall have caused to be delivered to the
Investor Agent, (i) within five (5) Trading Days prior to the effective date of
the Registration Statement and (ii) to the extent provided by Section 3.3, an
opinion of the Company's independent counsel in form and substance reasonably
acceptable to the Investor Agent and its counsel, addressed to the Investors
stating, inter alia, that nothing shall have come to such counsel's attention
that causes such counsel to believe that the Registration Statement (if
applicable, as so amended by such SEC Document) contains an untrue statement of
material fact or omits a material fact required to make the statements contained
therein, not misleading or that the underlying prospectus (if applicable, as so
amended or supplemented) contains an untrue statement of material fact or omits
a material fact required to make the statements contained therein, in light of
the circumstances in which they were made, not misleading, except with respect
to the financial statements and the notes thereto and the schedules and other
financial and statistical data derived therefrom in the Registration Statement
or the Prospectus, as to which such counsel shall express no opinion; provided,
however, that in the event that such an opinion cannot be delivered by the
Company's independent counsel to the Investors, the Company shall promptly
revise the Registration Statement and shall not deliver an Optional Purchase
Notice. If an Optional Purchase Notice shall have been delivered in good faith
without knowledge by the Company that an opinion of independent counsel cannot
be delivered as required, the Company may postpone such Closing Date for a
period of up to five (5) Trading Days until such an opinion is delivered to the
Investors (or such Closing shall otherwise be canceled). In the event of such a
postponement, the Purchase Price of the Common Stock to be issued at such
Closing as determined pursuant of Section 2.2 or Section 2.3 shall be the lower
of such Purchase Price as calculated as of the originally scheduled Closing Date
and as of the actual Closing Date. The Company's independent counsel shall also
deliver to the Investors on the Initial Closing Date an opinion in form and
substance satisfactory to the Investor Agent and its counsel addressing, among
other things, corporate matters and the exemption from registration under the
Securities Act of the issuance of the Initial Shares by the Company to the
Investors under this Agreement.
(i) Officer's Certificate. The Company shall have delivered to the Investor
Agent, on each Closing Date, a certificate dated as of such Closing Date ,
executed by an executive officer of the Company and to the effect that all the
conditions to such Closing have been satisfied as at the date of each such
certificate.
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(j) Due Diligence. No dispute between the Company and the Investor Agent
shall exist pursuant to Section 3.3 as to the adequacy of the disclosures
contained in the Registration Statement.
(k) Other. On each Closing Date, the Investor Agent shall have received and
been reasonably satisfied with such other certificates and documents as shall
have been reasonably requested by the Investor Agent in order for the Investor
Agent to confirm the Company's satisfaction of the conditions set forth in
Section 3.2.
Section 3.3 Due Diligence Review. The Company shall make available for
inspection and review by the Investor Agent, advisors to and representatives of
the Investor Agent (who may or may not be affiliated with the Investor Agent),
any underwriter participating in any disposition of Common Stock on behalf of
the Investors pursuant to the Registration Statement, any such registration
statement or amendment or supplement thereto or any blue sky, NASD or other
filing, all financial and other records, all SEC Documents and other filings
with the SEC, and all other corporate documents and properties of the Company as
may be reasonably necessary for the purpose of such review, and cause the
Company's officers, directors and employees to supply all such information
reasonably requested by the Investor Agent or any such representative, advisor
or underwriter in connection with such Registration Statement (including,
without limitation, in response to all questions and other inquiries reasonably
made or submitted by any of them), prior to and from time to time after the
filing and effectiveness of the Registration Statement for the sole purpose of
enabling the Investor Agent and such representatives, advisors and underwriters
and their respective accountants and attorneys to conduct initial and ongoing
due diligence with respect to the Company and the accuracy of the Registration
Statement.
The Company shall not disclose non-public information to the Investors,
advisors to or representatives of the Investors unless prior to disclosure of
such information the Company identifies such information as being non-public
information and provides the Investors, such advisors and representatives with
the opportunity to accept or refuse to accept such non-public information for
review. The Company may, as a condition to disclosing any non-public information
hereunder, require the Investors' advisors and representatives to enter into a
confidentiality agreement in form reasonably satisfactory to the Company and the
Investors.
Nothing herein shall require the Company to disclose non-public information
to the Investors, their respective advisors or representatives, and the Company
represents that it does not disseminate non-public information to any investors
who purchase stock in the Company in a public offering, to money managers or to
securities analysts, provided, however, that notwithstanding anything herein to
the contrary, the Company will, as hereinabove provided, immediately notify the
advisors and representatives of the Investors and underwriters, if any, of any
event or the existence of any circumstance (without any obligation to disclose
the specific event or circumstance) of which it becomes aware, constituting
non-public information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in the Registration Statement
would cause such prospectus to include a material misstatement or to omit a
material fact required to be stated therein in order to make the statements
therein, in light of the circumstances in which they were made, not misleading.
Nothing contained in this Section 3.3 shall be construed to mean that such
persons or entities other than the
12
Investors (without the written consent of the Investors prior to disclosure of
such information) may not obtain non-public information in the course of
conducting due diligence in accordance with the terms of this Agreement and
nothing herein shall prevent any such persons or entities from notifying the
Company of their opinion that based on such due diligence by such persons or
entities, that the Registration Statement contains an untrue statement of a
material fact or omits a material fact required to be stated in the Registration
Statement or necessary to make the statements contained therein, in light of the
circumstances in which they were made, not misleading; provided, however, that
in no event shall the Investors' advisors or representatives disclose to the
Investors the nature of the specific event or circumstances constituting any
non-public information discovered by such advisors or representatives in the
course of their due diligence (without the written consent of the Investors
prior to disclosure of such information).
The Investors' advisers or representatives shall make complete disclosure
to the Investors' independent counsel of all events or circumstances
constituting non-public information discovered by such advisors or
representatives in the course of their due diligence upon which such advisors or
representatives form the opinion that the Registration Statement contains an
untrue statement of a material fact or omits a material fact required to be
stated in the Registration Statement or necessary to make the statements
contained therein, in the light of the circumstances in which they were made,
not misleading. Upon receipt of such disclosure, the Investors' independent
counsel shall consult with the Company's independent counsel in order to address
the concern raised as to the existence of a material misstatement or omission
and to discuss appropriate disclosure with respect thereto. In the event after
such consultation the Investors' independent counsel believes that the
Registration Statement contains an untrue statement or a material fact or omits
a material fact required to be stated in the Registration Statement or necessary
to make the statements contained therein, in light of the circumstances in which
they were made, not misleading, (x) the Company shall file with the SEC an
amendment to the Registration Statement responsive to such alleged untrue
statement or omission and provide the Investor, as promptly as practicable with
copies of the Registration Statement and related prospectus, as so amended, (y)
if the Company disputes the existence of any such material misstatement or
omission, (i) the Company's independent counsel shall provide the Investors'
independent counsel with an opinion stating that nothing has come to their
attention that would lead them to believe that the Registration Statement or the
related prospectus, as of the date of such opinion contains an untrue statement
of a material fact or omits a material fact required to be stated in the
Registration Statement or the related prospectus or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading and (ii) in the event the dispute relates to the adequacy
of financial disclosure and the Investors shall reasonably request, the
Company's independent auditors shall provide to the Company a letter outlining
the performance of such "agreed upon procedures" as shall be reasonably
requested by the Investors and the Company shall provide the Investors with a
copy of such letter, or (z) if the Company disputes the existence of any such
material misstatement or omission, and the dispute relates to the timing of
disclosure of a material event and the Company's independent counsel is unable
to provide the opinion referenced in clause (y) above to the Investors, then
this Agreement shall be suspended for a period of up to thirty (30) days, at the
end of which, if the dispute still exists between the Company's independent
counsel and the Investors' independent counsel, the Company shall either (i)
amend the Registration Statement as provided above, (ii) provide to the
Investors the Company's independent counsel opinion and a copy of the letter of
the Company's independent auditors referenced above, or (iii) this Agreement
shall be suspended for an additional period of up to thirty (30) days; provided,
however, that at
13
the end of such sixty (60) day period, if the dispute still exists between the
Company's independent counsel and the Investor's independent counsel, the
Company shall either (i) amend the Registration Statement as provided above,
(ii) provide the Company's independent counsel opinion referenced above, or
(iii) the obligation of the Investors to purchase shares of Common Stock
pursuant to this Agreement shall terminate.
ARTICLE IV
Representations and Warranties of Investors
Each of the Investors represent and warrant to the Company that:
Section 4.1 Intent. The Investor is entering into this Agreement for its
own account and the Investor has no present arrangement (whether or not legally
binding) at any time to sell the Common Stock to or through any person or
entity; provided, however, that by making the representations herein, the
Investor does not agree to hold the Common Stock for any minimum or other
specific term and reserves the right to dispose of the Common Stock at any time
in accordance with federal and state securities laws applicable to such
disposition.
Section 4.2 Sophisticated and Accredited Investor. The Investor is a
sophisticated investor (as described in Rule 506(b)(2)(ii) of Regulation D) and
an accredited investor (as defined in Rule 501 of Regulation D), and Investor
has such experience in business and financial matters that it is capable of
evaluating the merits and risks of an investment in Common Stock. The Investor
acknowledges that an investment in the Common Stock is speculative and involves
a high degree of risk. The Investor acknowledges that the Initial Shares to be
issued pursuant to this Agreement are "restricted securities" within the meaning
of the Securities Act and the rules and regulations promulgated thereunder and
may not be resold in the absence of an effective registration statement under
the Securities Act or an available exemption from the Securities Act
registration requirements.
Section 4.3 Authority. This Agreement has been duly authorized and validly
executed and delivered by the Investor and is a valid and binding agreement of
the Investor enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.
Section 4.4 Not an Affiliate. The Investor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
Section 4.5 Organization and Standing. The Investor Agent is a limited
liability company duly organized, validly existing, and in good standing under
the laws of Illinois. ▇▇▇▇▇▇▇▇▇▇▇ Investment, L.P. is a limited partnership duly
organized, validly existing and in good standing under the laws of Illinois.
Section 4.6 Absence of Conflicts. The execution and delivery of this
Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions
14
contemplated thereby, and compliance with the requirements thereof, will not
violate any law, rule, regulation, order, writ, judgment, injunction, decree or
award binding on Investor, or the provision of any indenture, instrument or
agreement to which Investor is a party or is subject, or by which Investor or
any of its assets is bound, or conflict with or constitute a material default
thereunder, or result in the creation or imposition of any lien pursuant to the
terms of any such indenture, instrument or agreement, or constitute a breach of
any fiduciary duty owed by Investor to any third party, or require the approval
of any third-party (which has not been obtained) pursuant to any material
contract, agreement, instrument, relationship or legal obligation to which
Investor is subject or to which any of its assets, operations or management may
be subject.
Section 4.7 Disclosure; Access to Information. Investor has received all
documents, records, books and other information pertaining to Investor's
investment in the Company that have been requested by Investor. Investor further
acknowledges that it understands that the Company is subject to the periodic
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and Investor has reviewed or received copies of any such
reports that have been requested by it.
Section 4.8 Manner of Sale. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
ARTICLE V
Representations and Warranties of the Company
The Company represents and warrants to the Investors that:
Section 5.1 Company Status. The Company has registered its Common Stock
pursuant to Section 12(b) or 12(g) of the Exchange Act and is in full compliance
with all reporting requirements of the Exchange Act, and the Company has
maintained all requirements for the continued listing or quotation of its Common
Stock, and such Common Stock is currently listed or quoted on the Principal
Market. As of the date hereof, the Principal Market is the Nasdaq National
Market.
Section 5.2 Current Public Information. The Company has furnished the
Investor Agent with true and correct copies of all registration statements,
reports and documents, including proxy statements (other than preliminary proxy
statements), filed with the SEC by or with respect to the Company since February
1, 1996, pursuant to the Securities Act or Exchange Act. All such registration
statements, reports and documents, together with those registration statements,
reports and documents filed pursuant to the Securities Act or Exchange Act
subsequent to the date of this Agreement are collectively referred to herein as
the "SEC Documents").
Section 5.3 No General Solicitation in Regard to this Transaction. Neither
the Company nor any of its affiliates nor any distributor or any person acting
on its or their behalf has conducted any general solicitation (as that term is
used in Rule 502(c) of Regulation D) with respect to any of the Common Stock,
15
nor have they made any offers or sales of any security or solicited any offers
to buy any security under any circumstances that would require registration of
the Common Stock under the Securities Act.
Section 5.4 Valid Issuance of Common Stock. As of the date of this
Agreement, the Company has authorized capitalization consisting of 50,000,000
shares of Common Stock, par value $.001 and 2,500,000 shares of Preferred Stock,
par value $.001. Stock options granted or reserved for issuance to employees and
directors of the Company are as described in the SEC Documents on file with the
Commission as of the date of this Agreement. As of April 29, 1997, there were
issued and outstanding 31,384,610 shares of Common Stock and no shares of
Preferred Stock were issued or outstanding as of such date. As of the date of
this Agreement, the Company has no other outstanding securities convertible into
Common Stock other than as described in the SEC Documents on file with the
Commission as of the date of this Agreement. All of the outstanding shares of
Common Stock of the Company have been duly and validly authorized and issued and
are fully paid and nonassessable. Upon issuance of the Common Stock to the
Investors pursuant to the terms of this Agreement, the Common Stock will be duly
and validly issued, fully paid and nonassessable, and the holders of outstanding
Common Stock of the Company are not and shall not be entitled to preemptive or
other rights afforded by the Company or other rights afforded by the Company to
subscribe for the capital stock or other securities of the Company as a result
of the sale of the Common Stock to the Investors hereunder.
Section 5.5 Organization and Qualification. The Company is a corporation
duly incorporated and existing in good standing under the laws of the State of
Delaware and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. Except as disclosed in the SEC
Documents and except for Cygnus Imaging, Inc., the Company does not have any
subsidiaries. The Company and each subsidiary is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, other than those in which the failure so to qualify
would not have a Material Adverse Effect. "Material Adverse Effect" means any
effect on the business, operations, properties, prospects, or financial
condition of the Company and which is material and adverse to the Company or to
the Company and such other entities controlling or controlled by the Company,
taken as a whole and/or any condition or situation which would prohibit or
otherwise interfere in any material respect with the ability of the Company to
enter into and perform its obligations under this Agreement.
Section 5.6 Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement and to
issue the Common Stock and the Warrants, (ii) the execution, issuance and
delivery of this Agreement by the Company and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action and no further consent or authorization of the Company or its
Board of Directors or stockholders is required (other than such stockholder
approval as may be required by the standards imposed on companies listed on the
Nasdaq Stock Market with respect to issuances by such companies of greater than
20% of such companies' outstanding voting stock), (iii) this Agreement has been
duly executed and delivered by the Company and constitutes valid and binding
obligations of the Company enforceable against the Company in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other
16
equitable principles of general application and (iv) the Common Stock issuable
in accordance with the terms of this Agreement or upon exercise of the Warrants
will be validly issued, fully paid and nonassessable.
Section 5.7 Corporate Documents. The Company has furnished or made
available or will furnish and make available prior to the Initial Closing Date
to the Investor Agent true and correct copies of the Company's Certificate of
Incorporation, as amended and in effect on the date hereof (the "Certificate"),
and the Company's By-Laws, as amended and in effect on the date hereof (the
"By-Laws").
Section 5.8 No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby, including without limitation the issuance of Common Stock
and the Warrants do not and will not (i) result in a violation of the Company's
Certificate of Incorporation or By-Laws or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture or instrument
to which the Company or any of its subsidiaries is a party, or (iii) result in a
violation of any federal, state, local or foreign law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations)
applicable to the Company or any of its subsidiaries or by which any property or
asset of the Company or any of its subsidiaries is bound or affected (except for
such conflicts, defaults, terminations, amendments, accelerations, cancellations
and violations as would not, individually or in the aggregate, have a Material
Adverse Effect) nor is the Company otherwise in violation of, in conflict with
or in default under any of the foregoing; provided that, for purposes of the
Company's representations and warranties as to violations of foreign law, rule
or regulation referenced in clause (iii), such representations and warranties
are made only to the best of the Company's knowledge insofar as the execution,
delivery and performance of this Agreement by the Company and the consummation
by the Company of the transactions contemplated hereby are or may be affected by
the status of the Investors under or pursuant to any such foreign law, rule or
regulation). The business of the Company is not being conducted in violation of
any law, ordinance or regulation of any governmental entity, except for possible
violations which either singly or in the aggregate do not and will not have a
Material Adverse Effect. The Company is not required under federal, state or
local law, rule or regulation to obtain any consent, authorization or order of,
or make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Common Stock or the Warrants in accordance with
the terms hereof (other than any SEC, NASD or state securities filings which may
be required to be made by the Company subsequent to any Closing, and any
registration statement which may be filed pursuant hereto and other than any
shareholder approval required by the rules applicable to companies whose common
stock trades on the Nasdaq National Market referenced in Section 5.6); provided
that, for purposes of the representation made in this sentence, the Company is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Investor herein.
Section 5.9 SEC Documents. The Company has delivered or made available to
the Investor Agent true and complete copies of the SEC Documents (including,
without limitation, proxy information and solicitation materials). The Company
has not provided to the Investor Agent any information which, according to
applicable law, rule or regulation, should have been disclosed publicly prior to
the date hereof
17
by the Company but which has not been so disclosed. As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the Securities Act or the Exchange Act, as the case may be, and rules and
regulations of the SEC promulgated thereunder and other federal, state and local
laws, rules and regulations applicable to such SEC Documents, and none of the
SEC Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Company included in the
SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the financial position of the Company as of the dates
thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
Section 5.10 No Material Adverse Effect. Since January 1, 1996, no Material
Adverse Effect has occurred or exists with respect to the Company or its
subsidiaries, except as disclosed in the SEC Documents filed prior to April 15,
1997, copies of which have been delivered or made available to the Investor
Agent prior to the date hereof.
Section 5.11 No Undisclosed Liabilities. The Company and its subsidiaries
have no liabilities or obligations which are material, individually or in the
aggregate, and are not disclosed in the SEC Documents or otherwise publicly
announced, other than those incurred in the ordinary course of the Company's or
its subsidiaries' respective businesses since the filing of the Company's most
recent SEC Document, and which, individually or in the aggregate, do not or
would not have a Material Adverse Effect on the Company and upon any of its
subsidiaries.
Section 5.12 No Undisclosed Events or Circumstances. Since the filing of
the Company's most recent SEC Document, except for the matter of the Bio-Dental
stock certificates issue, a full and complete description of which has been
provided to the Investor Agent, no event or circumstance has occurred or exists
with respect to the Company or its subsidiaries or their respective businesses,
properties, prospects, operations or financial condition, which, under
applicable law, rule or regulation, requires public disclosure or announcement
prior to the date hereof by the Company but which has not been so publicly
announced or disclosed in the SEC Documents.
Section 5.13 No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, other than pursuant to this Agreement, under circumstances
that would require registration of the Common Stock under the Securities Act.
Section 5.14 Litigation and Other Proceedings. Except as may be set forth
in the SEC Documents, there are no lawsuits or proceedings pending or to the
best knowledge of the Company threatened, against
18
the Company, nor has the Company received any written or oral notice of any such
action, suit, proceeding or investigation, which could reasonably be expected to
have a Material Adverse Effect on the Company or which could reasonably be
expected to materially adversely affect the transactions contemplated by this
Agreement. Except as set forth in the SEC Documents no judgment, order, writ,
injunction or decree or award has been issued by or, so far as is known by the
Company, requested of any court, arbitrator or governmental agency which could
reasonably be expected to result in a Material Adverse Effect on the Company or
which could reasonably be expected to materially adversely affect the
transactions contemplated by this Agreement.
ARTICLE VI
Covenants of the Company
Section 6.1 Registration Rights. The Registration Rights Agreement shall
remain in full force and effect and the Company shall comply in all respects
with the terms thereof.
Section 6.2 Reservation of Common Stock. As of the date hereof, the Company
has reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to satisfy any obligation to issue shares of its Common
Stock incident to the Closings and incident to the exercise of the Warrants;
such amount of shares of Common Stock to be reserved to be calculated based upon
the minimum purchase price therefor under the terms of this Agreement, and
assuming the full exercise of the Warrants. The number of shares so reserved
from time to time, as theretofore increased or reduced as hereinafter provided,
may be reduced by the number of shares actually delivered hereunder and the
number of shares so reserved shall be increased to reflect (a) potential
increases in the Common Stock which the Company may thereafter be so obligated
to issue by reason of adjustments to the purchase price therefore and the
issuance of the Warrants and (b) stock splits and stock dividends and
distributions.
Section 6.3 Listing of Common Stock. The Company hereby agrees to maintain
the listing of the Common Stock on a Principal Market, and as soon as
practicable but in any event prior to the commencement of the Commitment Period
to list the additional shares of Common Stock issuable under this Agreement
(including Common Stock issuable upon exercise of the Warrant). The Company
further agrees, if the Company applies to have the Common Stock traded on any
other Principal Market, it will include in such application the Common Stock
issuable under this Agreement (including Common Stock issuable upon exercise of
the Warrant), and will take such other action as is necessary or desirable to
cause the Common Stock to be listed on such other Principal Market as promptly
as possible. The Company shall undertake its best efforts to obtain the
shareholder approval referenced in Section 5.6 required for the issuance of
Common Stock under this Agreement within such time period as shall not at any
time preclude the Company from providing an Optional Purchase Notice for the
maximum Investment Amount provided by Section 2.2.
Section 6.4 Exchange Act Registration. The Company will cause its Common
Stock to continue to be registered under Section 12(g) or 12(b) of the Exchange
Act, will comply in all respects with its reporting
19
and filing obligations under said Act, and will not take any action or file any
document (whether or not permitted by said Act or the rules thereunder) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under said Act. The Company will take all action to
continue the listing and trading of its Common Stock on the Principal Market and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the NASD and the Principal Market.
Section 6.5 Legends. The certificates evidencing the Common Stock to be
issued to the Investors at each Closing after the First Effective Date and upon
the exercise of the Warrants, subject to the continued effectiveness of the
appropriate registration statement, shall be free of legends, so-called "stop
transfer," or "stock transfer restrictions," or other restrictions upon transfer
by the Investors to a bona fide third party which is not an affiliate of the
Company. Notwithstanding the absence or such legends or restrictions, the
Investors agree to comply with Securities Act prospectus delivery requirements
in any sale of Common Stock not made in compliance with Rule 144 or another
available exemption. Immediately following the First Effective Date, the
Investors shall have the right to surrender certificates representing the
Initial Shares in exchange for new certificates free of legends, "stop transfer"
or "stock transfer restrictions," of other restrictions upon transfer, and the
Company agrees to perform whatever acts are reasonably necessary to facilitate
such exchange on a timely basis.
Section 6.6 Corporate Existence. The Company will take all steps necessary
to preserve and continue the corporate existence of the Company.
Section 6.7 Additional SEC Documents. The Company will furnish to the
Investor Agent upon request copies of all SEC Documents furnished or submitted
to the SEC.
Section 6.8 "Blackout Period." (a) The Company will immediately notify the
Investor Agent upon the occurrence of any of the following events in respect of
a registration statement or related prospectus in respect of an offering of
Registrable Securities; (i) receipt of any request for additional information by
the SEC or any other federal or state governmental authority during the period
of effectiveness of the registration statement for amendments or supplements to
the registration statement or related prospectus; (ii) the issuance by the SEC
or any other federal or state governmental authority of any stop order
suspending the effectiveness of the registration statement or the initiation of
any proceedings for that purpose; (iii) receipt of any notification with respect
to the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
which makes any statement made in the registration statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or which requires the making of any
changes in the registration statement, related prospectus or documents so that,
in the case of the registration statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (vi) the Company's
reasonable determination that a post-
20
effective amendment to the registration statement would be appropriate; and the
Company will promptly make available to the Investor any such supplement or
amendment to the related prospectus. The Company shall not deliver to the
Investor any Optional Purchase Notice during the continuation of any of the
foregoing events.
Section 6.9 Expectations Regarding Optional Purchase Notices. Within 10
days after the commencement of each calendar quarter occurring subsequent to the
commencement of the Commitment Period, the Company undertakes to notify the
Investor Agent as to its reasonable expectations as to the dollar amount it
intends to raise during such calendar quarter, if any, through the issuance of
Optional Purchase Notices. Such notification shall constitute only the Company's
good faith estimate and shall in no way obligate the Company to raise such
amount, or any amount, or otherwise limit its ability to deliver Optional
Purchase Notices. The failure by the Company to comply with this provision can
be cured by the Company's notifying the Investor Agent at any time as to its
reasonable expectations with respect to the current calendar quarter.
Section 6.10 Penalties for Failure to Obtain or Maintain Effectiveness of
Registration Statements. In the event the Company fails to obtain the
effectiveness of a Registration Statement on or before August 30, 1997 as set
forth in Section 3.2(a), the Company shall pay to the Investor Agent for the
benefit of the Investors at the end of each thirty (30) day period following the
date by which such Registration Statement was required to have been declared
effective, in cash, an amount equal to $60,000 for the first 30 days such
registration is not declared effective, pro-rated on a daily basis, and $90,000
per each 30-day period thereafter, pro-rated on a daily basis. Notwithstanding
the foregoing, the date by which a Registration Statement is required to become
effective shall be extended for up to sixty (60) days (that is, up to October
30, 1997) in the event that the failure to obtain the effectiveness of a
Registration Statement by August 30, 1997 results solely from the SEC's
disapproval of the structure of the transactions contemplated by this Agreement.
In such event, the parties agree to cooperate with one another in good faith to
arrive at a resolution acceptable to the SEC and the parties hereto.
ARTICLE VII
Legends
Section 7.1 Legends. The Initial Shares and each Warrant will bear the
following legend (the "Legend"):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
THEY MAY NOT BE SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN
APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
21
Upon the execution and delivery hereof, the Company is issuing to the
transfer agent for its Common Stock (and to any substitute or replacement
transfer agent for its Common Stock coterminous with the Company's appointment
of any such substitute or replacement transfer agent) irrevocable instructions.
Such instructions shall be irrevocable by the Company from and after the date
hereof or from and after the issuance thereof to any such substitute or
replacement transfer agent, as the case may be, except as otherwise expressly
provided in the Registration Rights Agreement. It is the intent and purpose of
such instructions, as provided therein, to require the transfer agent for the
Common Stock from time to time upon transfer of Common Stock by the Investors to
issue certificates evidencing Common Stock free of the Legend during the
following periods and under the following circumstances and without consultation
by the transfer agent with the Company or its counsel and without the need for
any further advice or instruction or documentation to the transfer agent by or
from the Company or its counsel or the Investor:
(a) At any time after the First Effective Date: (i) incident to any Closing
or other issuance of shares of Common Stock; (ii) incident to the exercise of
any Warrant; or (iii) upon any surrender of one or more certificates evidencing
Common Stock which bear the Legend, to the extent accompanied by a notice
requesting the issuance of new certificates free of the Legend to replace those
surrendered; and
(b) At any time upon any surrender of one or more certificates evidencing
Common Stock which bear the Legend, to the extent accompanied by a notice
requesting the issuance of new certificates free of the Legend to replace those
surrendered and containing representations that (i) the Investor has a bona fide
intention to dispose of such Common Stock pursuant to Rule 144 under the
Securities Act or is otherwise permitted to dispose thereof without limitation
as to amount or manner of sale pursuant to Rule 144(k) under the Securities Act;
or (ii) the Investor has sold, pledged or otherwise transferred or agreed to
sell, pledge or otherwise transfer such Common Stock in a manner other than
pursuant to an effective registration statement, to a transferee who will upon
such transfer be entitled to freely tradeable securities; provided that in
connection with an event described in clause (i) or (ii), the transfer agent
shall be entitled to receive an opinion of counsel to the Investor that in such
circumstances the Legend may be removed and that the transferee (provided that
such transferee is not an affiliate of the Company) shall be entitled to hold
freely tradeable securities.
Section 7.2 No Other Legend or Stock Transfer Restrictions. No Legend has
been or shall be placed on the share certificates representing the Common Stock
and no instructions or "stop transfers," so called, "stock transfer
restrictions," or other restrictions have been or shall be given to the
Company's transfer agent with respect thereto other than as expressly set forth
in this Article VII.
Section 7.3 Investors' Compliance. Nothing in this Article VII shall affect
in any way the Investors' obligations under any agreement to comply with all
applicable securities laws upon resale of the Common Stock.
Section 7.4 Covenants of the Investors. During the term of this Agreement
(i) the Investors' trading activities with respect to shares of the Company's
Common Stock will be in compliance with all applicable state and federal
securities laws, rules and regulations and rules and regulations of the
Principal Market on
22
which the Company's Common Stock is listed, and (ii) the Investor will not
engage in short sales of the Company's Common Stock.
ARTICLE VIII
Other Issuances of Common Stock
Section 8.1 Antidilution Prohibition. Except with the prior written consent
of the Investor Agent which consent shall not unreasonably be withheld, the
Company may not at any time within the time period commencing from the
Subscription Date to the last day of the Commitment Period, issue shares of
Common Stock without consideration (other than in the form of a dividend) at a
price per share less than the daily low trading price on the date of issue,
issue options, rights or warrants to subscribe for or purchase Common Stock (or
securities convertible into Common Stock) without consideration or at a price
per share (or having a conversion price per share, if a security convertible
into Common Stock) less than the daily low trading price of the Common Stock on
the date of issue, or in the case of securities convertible into Common Stock
having a conversion price less than the daily low trading price of the Common
Stock on the date of conversion. The foregoing prohibition shall not apply to
the issuance of shares of Common Stock which may be issued upon exercise of
options under the Company's employee or director stock option plans, upon the
conversion or exchange of convertible or exchangeable securities or upon the
exercise of warrants, or other rights, which options, convertible or
exchangeable securities, warrants or other rights are outstanding on the date of
execution and delivery of this Agreement and are listed in the SEC Documents on
file with the Commission as of the date of this Agreement.
ARTICLE IX
Choice of Law and Venue, Waiver of Jury Trial
Section 9.1 Choice of Law; Submission to Jurisdiction. THIS AGREEMENT SHALL
BE CONSTRUED UNDER THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW. The parties hereby agree that
all actions or proceedings arising directly or indirectly from or in connection
with this Agreement shall, at the option of either party, be litigated only in a
state or federal court located in the City of Chicago, ▇▇▇▇ County, Illinois.
The parties consent to the jurisdiction and venue of the foregoing court and
consent that any process or notice of motion or other application to said court
or a judge thereof may be served inside or outside the State of Illinois by
registered mail, return receipt requested, directed to the party for which it is
intended at its address set forth in this Agreement (and service so made shall
be deemed complete five (5) days after the same has been posted as aforesaid) or
by personal service or in such other manner as may be permissible under the
rules of said court.
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ARTICLE X
Assignment; Entire Agreement, Amendment; Termination
Section 10.1 Assignment. Neither this Agreement nor any rights of the
Investors or the Company hereunder may be assigned by either party to any other
person. Notwithstanding the foregoing, (a) the provisions of this Agreement
shall inure to the benefit of, and be enforceable by, any transferee of any of
the Common Stock purchased or acquired by the Investor hereunder with respect to
the Common Stock held by such person, and (b) the Investors' interest in this
Agreement may be assigned at any time, in whole or in part, to any other person
or entity (including any affiliate of any Investor) upon the prior written
consent of the Company, which consent shall not to be unreasonably withheld.
Section 10.2 Entire Agreement, Amendment. This Agreement, the Registration
Rights Agreement, and the other documents delivered or to be delivered pursuant
hereto constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereof and thereof, and no party shall be
liable or bound to any other party in any manner by any warranties,
representations or covenants except as specifically set forth in this Agreement
or therein. Except as expressly provided in this Agreement, neither this
Agreement nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the party against whom enforcement
of any such amendment, waiver, discharge or termination is sought.
Section 10.3 Publicity. The Company agrees that it will not disclose, and
will not include in any public announcement, the names of the Investors without
their consent, unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement.
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ARTICLE XI
Notices, Etc.; Cost and Expenses; Indemnification
Section 11.1 Notices, Etc. All notices, demands, requests, consents,
approvals or other communications required or permitted to be given hereunder or
which are given with respect to this Agreement shall be in writing and shall be
personally served or deposited in the mail, registered or certified, return
receipt requested, postage prepaid, or delivered by reputable air courier
service with charges prepaid, or transmitted by hand delivery, telegram, telex
or facsimile, addressed as set forth below, or to such other address as such
party shall have specified most recently by written notice: (i) if to the
Company, to: Zila, Inc., ▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇;
Attention: Mr. ▇▇▇▇▇▇ ▇▇▇▇▇, Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇, with copies (which
shall not constitute notice) to: Squire, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ L.L.P., ▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇., ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Facsimile No.:
(▇▇▇)▇▇▇-▇▇▇▇; ▇.▇. ▇▇▇▇▇▇ & Company, Inc., ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇, Attention: ▇▇▇ ▇▇▇▇▇▇▇▇, Facsimile No.: (▇▇▇)▇▇▇-▇▇▇▇; and (ii) if to the
Investors, to Deere Park Capital Management, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Facsimile No.: (847)
509-8529 and ▇▇▇▇▇▇▇▇▇▇▇ Investment, L.P., ▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇,
Facsimile No.: (▇▇▇)▇▇▇-▇▇▇▇, with copies (which shall not constitute notice) to
Ungaretti & ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇;
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, Esq., Facsimile No.: (▇▇▇)▇▇▇-▇▇▇▇. Notice shall
be deemed given on the date of service or transmission if personally served or
transmitted by telegram, telex or facsimile. Notice otherwise sent as provided
herein shall be deemed given on the third business day following the date mailed
or on the second business day following delivery of such notice by a reputable
air courier service.
Section 11.2 Indemnification.
(a) Indemnification of Investors. The Company agrees to indemnify and hold
harmless the Investor and each person, if any, who controls the Investor within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement of a material fact
contained in the Registration Statement (or any amendment thereto), including
any prospectus, or in any offering circular or other document, as applicable, or
the omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statement therein not misleading or
arising out of any untrue statement or alleged untrue statement of a material
fact contained in any prospectus (or any amendment or supplement thereto), or in
any offering circular or other document, as applicable, or the omission or
alleged omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever
based upon any
25
such statement or omission, or any such alleged untrue statement or omission;
provided that (subject to Section 11.3(d) below) any such settlement is effected
with the written consent of the Company; and
(iii) against any and all expenses whatsoever, as incurred (including
the fees and disbursements of counsel chosen by the Investors), reasonably
incurred in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, to the extent that
any such expense is not paid under (i ) or (ii) above; provided, however, that
this indemnity shall not apply to any loss, liability, claim, damage or expense
to the extent arising out of any untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with written
information furnished to the Company by the Investor expressly for use in the
Registration Statement (or any amendment thereto), including any prospectus (or
any amendment or supplement thereto), or in any offering circular or other
document, as applicable.
(b) Indemnification of Company. The Investors agree to indemnify and hold
harmless the Company its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act against any and all loss, liability, claim, damage and expense described in
the indemnity contained in subsection (a) of this Section, as incurred, but only
with respect to untrue statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement (or any amendment thereto),
including any prospectus (or any amendment or supplement thereto), or in
offering circular or other document, as applicable, in reliance upon and in
conformity with written information furnished to the Company by the Investors
expressly for use in the Registration Statement (or any amendment or supplement
thereto) or in any offering circular or other document, as applicable.
(c) Action against Parties; Notification. Each indemnified party shall give
notice as promptly as reasonably practicable to each indemnifying party of any
action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of his indemnity
agreement. In the case of parties indemnified pursuant to Section 11.3(a) above,
counsel to the indemnified parties shall be selected by the Investor, and in the
case of parties indemnified pursuant to Section 11.3(b) above, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with he
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnifies parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry or any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or
26
contribution could be sought under this Section or Section 11.4 hereof (whether
or not the indemnified parties are actual or potential parties thereto), unless
such settlement, compromise or consent (i) includes an unconditional release of
each indemnifies part form all liability arising out of such litigation ,
investigation proceeding or claim and (ii) does not include a statement as to or
an admission of fault, culpability or a failure to act by or on behalf of an any
indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for the fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 11.3(a)(ii) effected without its written consent if (i) such settlement
is entered into more than 45 days after receipt by such indemnifying party of
the aforesaid request, (ii) such indemnifying party shall have received notice
of the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
Section 11.4 Contribution. If the indemnification provided for in Section
11.3 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to herein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Investors on the other hand from the offering of the Common Stock
pursuant to this Agreement or (ii) if the allocation provided by clause (i) is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company on the one hand and of the Investors on the other
hand in connection with the statements or omissions which resulted in such
losses, liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
The relative benefits received by the Company on the one hand and the
Investors on the other hand in connection with the offering of the Common Stock
pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Common Stock
pursuant to this Agreement (before deducting expenses) received by the Company
and the total net proceeds received by the Investors (before deducting expenses)
bear to the aggregate public offering price.
The relative fault of the Company on the one hand and the Investors on the
other hand shall be determined by reference to, among other things, whether any
such untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
Company or by the Investors and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Company and the Investors agree that it would not be just and equitable
if contribution pursuant to this Section 11.4 were determined on a pro-rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section 11.4. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred
by an indemnified party and referred to
27
above in this Section 11.4 shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in investigating,
preparing or defending against any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened, or any
claim whatsoever based upon any such untrue or alleged untrue statement or
omission or alleged omission.
Notwithstanding the provisions of this Section 11.4, the Investors shall
not be required to contribute any amount in excess of the amount by which the
total price at which the Common Stock purchased by it and resold to the public
exceeds the amount of any damages which the Investors have otherwise been
required to pay by reason of any such untrue or alleged untrue statement or
omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 11.4, each person, if any, who controls the
Investors within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act shall have the same rights to contribution as such
Investors, and each director of the Company, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act shall have the same rights to contribution as the Company.
ARTICLE XII
Miscellaneous
Section 12.1 Counterparts. This Agreement may be executed in any number of
counterparts, all of which together shall constitute one instrument.
Section 12.2 Survival; Severability. The representations, warranties,
covenants and agreements of the parties hereto shall survive each Closing
hereunder. The indemnity and contribution agreements contained in Sections 11.3
and 11.4 hereof shall remain operative and in full force and effect regardless
of (i) any termination of this Agreement or of the Commitment Period, (ii) any
investigation made by or on behalf of any indemnified party or by or on behalf
of the Company, and (iii) the consummation of the sale or successive resales of
the Common Stock. In the event that any provision of this Agreement becomes or
is declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
Section 12.3 Title and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 12.4 Reporting Entity for the Common Stock. The reporting entity
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for
28
the purposes of this Agreement shall be Bloomberg L.P. or any other reputable
pricing service chosen by the Investor and reasonably acceptable to the Company.
29
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized offices as of the date hereof.
DEERE PARK CAPITAL MANAGEMENT ZILA, INC.
By: By:
Its Its
▇▇▇▇▇▇▇▇▇▇▇ INVESTMENT, L.P.
By:
Its