SUBSCRIPTION AND SECURITY AGREEMENT
Exhibit
10.2
This
Subscription and Security Agreement (this “Agreement”) is entered into as
of October 2, 2009, by and among ReGen Biologics, Inc., a Delaware corporation
(together with its successors and permitted assigns, the “Issuer”), and the undersigned
investors (together with their successors and permitted assigns, the “Investors” and each an “Investor”). Capitalized
terms used herein shall have the meanings set forth in Section 11.1. Capitalized terms used
but not otherwise defined in Section 11.1 herein shall have the meanings
set forth in the New York Uniform Commercial Code, as amended or supplemented
from time to time (the “UCC”).
RECITALS
Subject
to the terms and conditions of this Agreement the Issuer desires to issue and
sell to the Investors an aggregate principal amount of up to $3,000,000 of the
Issuer’s Secured Convertible Notes substantially in the form attached hereto as
Exhibit A (the
“Notes”) and warrants to
purchase the Issuer’s Common Stock, par value $0.01 per share (“Common Stock”) pursuant to the
terms of the warrant substantially in the form attached hereto as Exhibit B (the “Warrant”) and each Investor,
severally and not jointly, desires to subscribe for and purchase the principal
amount of Notes set forth on such Investor’s signature page hereto.
TERMS
OF AGREEMENT
In
consideration of the mutual representations and warranties, covenants and
agreements contained herein, the parties hereto agree as follows:
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1.
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SUBSCRIPTION AND ISSUANCE OF
NOTES.
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1.1 Subscription and Issuance of
the Notes. At Closing, upon the terms and subject to the
conditions set forth herein: (a) the Issuer agrees that it will issue to the
Investors an aggregate principal amount of up to $3,000,000 of the Notes for an
aggregate purchase price (the “Aggregate Purchase Price”) of
up to $3,000,000 (the “Offering”), and each Investor,
severally and not jointly, agrees that it will acquire from the Issuer Notes in
the amount set forth on its signature page hereto; (b) the Issuer agrees that it
will issue to each Investor, and each Investor severally and not jointly agrees
that it will acquire from the Issuer, Notes, in each case, up to the aggregate
principal amount set forth on the signature page for each Investor hereof (the
“Commitment Amount”);
(c) the Issuer agrees that it will issue to each Investor, and each Investor,
severally and not jointly, agrees that it will acquire from the Issuer, a
Warrant or Warrants; and (d) each Investor agrees to remit payment for its
Commitment Amount in accordance with the provisions of Section 1.3.
1.2 Interest. Interest
(“Interest”) at the rate
of 8.00% per annum shall be payable on the Due Date in arrears on the sum of the
principal amount of each Note then outstanding. Interest on the
principal amount outstanding shall accrue daily and shall commence accruing with
respect to (i) the First Tranche, from the date of Closing, and (ii) the Second
Tranche, if any, from the date of Subsequent Closing(s), and, in each case,
shall be computed on the basis of a 360-day year of twelve (12) 30-day months;
provided, however, if the Notes
are not repaid by the Due Date, then Interest on the sum of the principal amount
of each Note then outstanding shall accrue, from the day immediately after the
Due Date, at the rate of 12.00% per annum computed on the basis of a 360-day
year of twelve (12) 30-day months.
1.3 Payment for the
Notes.
(a) At
Closing, upon the terms and subject to the conditions set forth herein, each
Investor shall pay its first tranche commitment amount (the “First Tranche Commitment
Amount”) set forth on the signature page for each Investor hereof (all
such payments, together, the “First Tranche”).
(b) At
the Subsequent Closing(s), if any, upon the terms and subject to the conditions
set forth herein, including the election by the Investors in accordance with
Section 2.1(b), each
Investor shall pay its Subsequent Tranche Commitment Amount, up to the balance
of its Commitment Amount (all such payments, together, the “Subsequent
Tranche(s)”).
(c) All
payments by Investors shall be paid in cash, by wire transfer of immediately
available funds at the Closing or the Subsequent Closing, as applicable, or in
some other form deemed acceptable by the Issuer, to an account designated in a
written notice delivered by the Issuer to each Investor not later than two (2)
business days prior to the Closing or the Subsequent Closing(s), as
applicable. Issuer may request in writing that an Investor deliver
payment hereunder directly to a third party creditor or vendor of the Issuer and
to which Issuer owes an amount (the “Third Party Payment”); and if
such Investor accepts such request and delivers the Third Party Payment as
requested, such Third Party Payment shall be deemed for all purposes to have
been delivered to the Issuer for the purposes this Agreement and shall
constitute a payment made hereunder.
1.4 Repayment. All
outstanding principal and accrued and unpaid interest with respect to a Note
shall be due and payable (a) in the form of Equity Securities of the Issuer, if
elected by the Investor, in connection with a Future Private Placement and in
accordance with Section
3.1 or (b) if repayment in the form of Equity Securities has not been
elected by the Investor, in the form of cash on April 2, 2010 (the “Due Date”); provided, however, that if a
Note is to be paid, at the election of the Investor, in the form of Equity
Securities in connection with a Future Private Placement and such Future Private
Placement shall close after the Due Date, then the number of shares of Equity
Securities to be issued in repayment of such Note shall be determined in
accordance with Section
3.2. Unless a Future Private Placement has occurred, the
Issuer may not repay a Note in cash prior to the Due Date without the consent of
the Investor holding such Note. Notwithstanding the foregoing, if a
Future Private Placement has not occurred by the Due Date, each Investor may
elect to receive Equity Securities in lieu of cash pursuant to Section 3.3.
1.5 Fundamental Transaction
Premium. Upon the consummation of a Fundamental Transaction prior to
repayment, conversion or retirement of the Notes, a premium shall be applied to
the principal amount of each Note then outstanding equal to 300% of the
outstanding principal amount of such Note (the “Fundamental Transaction
Premium” the day immediately preceding the consummation of such
Fundamental Transaction and thereafter interest shall accrue in accordance with
Section 1.2 on the
principal amount of such Note the day immediately preceding the consummation of
such Fundamental Transaction plus the premium applied pursuant to this Section 1.5 (such sum totaling
four times the amount of outstanding principal the day immediately preceding the
consummation of such Fundamental Transaction).
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1.6 Legend. Any
certificate or certificates representing the Notes or any Conversion Shares of
any Note, or any Warrant or any shares issuable upon exercise of any Warrant
shall bear the following legend, in addition to any legend that may be required
by any Requirements of Law:
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED,
HYPOTHECATED OR OTHERWISE DISPOSED OF BY THE HOLDER EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS OF ANY STATE WITH
RESPECT THERETO OR IN ACCORDANCE WITH AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER THAT AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE AND ALSO MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT
IN COMPLIANCE WITH ANY APPLICABLE RULES OF THE SECURITIES AND EXCHANGE
COMMISSION.
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2.
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CLOSINGS;
TERMINATION.
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2.1
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Closings.
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(a) Closing. The
initial closing of the transactions contemplated herein in connection with the
First Tranche (the “Closing”) shall take place on
a date designated by the Issuer, which date shall be October 2,
2009. The Closing shall take place at the offices of Pillsbury
▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ LLP, counsel for the Issuer, ▇▇▇▇ ▇ ▇▇▇▇▇▇, ▇▇,
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ or such other location as determined by the
Issuer. At the Closing (i) each Investor shall remit payment in
accordance with Section 1.3(a)
and in the
manner specified in Section
1.3(c); (ii) the Issuer shall issue to each Investor a Note representing
the amount of such Investor’s First Tranche Commitment Amount; (iii) the Issuer
shall issue to each Investor a Warrant or Warrants, each exercisable for five
(5) years from the date of Closing at the applicable Warrant Price, to purchase
a number of shares of Common Stock equal to the amount of Conversion Shares into
which such Investor’s First Tranche Commitment Amount would be repaid; and (iv)
all other actions referred to in this Agreement which are required to be taken
for the Closing shall be taken and all other agreements and other documents
referred to in this Agreement which are required for the Closing shall be
executed and delivered. Notwithstanding the foregoing, if no Future
Private Placement is consummated prior to the Due Date, the Warrant(s) issued to
an Investor pursuant to Section 2.1(a)(iii) above will be immediately
exercisable for a number of shares of Common Stock of the Issuer equal to the
Investor’s First Tranche Commitment Amount divided by $0.03.
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(b) Subsequent
Closing(s). The subsequent closing or closings of the
transactions contemplated herein in connection with a Susbsequent Tranche (the
“Subsequent Closing(s)”)
shall take place, upon the affirmative election of the holders of two-thirds
(2/3) of the aggregate principal amount of the Notes then outstanding, in such
aggregate principal amount(s) of such Subsequent Tranche(s) and on such day(s)
as are determined by the affirmative election of the holders of two-thirds (2/3)
of the aggregate principal amount of the Notes then outstanding at the offices
of Pillsbury ▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ LLP, counsel for the Issuer, ▇▇▇▇ ▇ ▇▇▇▇▇▇,
▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ or such other location as determined by the
Issuer. At the Subsequent Closing(s) (i) each Investor shall remit
payment in accordance with Section 1.3(b) and in the
manner specified in Section
1.3(c); (ii) the Issuer shall issue to each Investor a Note representing
the amount paid by the Investor to the Issuer at such Subsequent Closing; (iii)
the Issuer shall issue to each Investor a Warrant or Warrants, each exercisable
for five (5) years from the date of Closing at the applicable Warrant Price, to
purchase a number of shares of Common Stock equal to the amount of Conversion
Shares into which the amount paid by such Investor to the Issuer at such
Subsequent Closing would be repaid; and (iv) all other actions referred to in
this Agreement which are required to be taken for the Subsequent Closing(s)
shall be taken and all other agreements and other documents referred to in this
Agreement which are required for the Subsequent Closing(s) shall be executed and
delivered; provided, however, if any
Investor shall fail to remit payment in a duly elected Subsequent Closing, such
Investor shall be deemed to have forfeited all Warrants issued to such Investor
at Closing or issuable to it at the Subsequent Closing(s) and all such Warrants
shall be deemed null and void without any further action by the Issuer or such
Investor. Notwithstanding the foregoing, if no Future Private
Placement is consummated prior to the Due Date, each Warrant issued to an
Investor pursuant to Section 2.1(b)(iii) above will be immediately exercisable
for a number of shares of Common Stock of the Issuer equal to the amount paid by
such Investor to the Issuer at such Subsequent Closing divided by
$0.03.
2.2 Termination. This
Agreement may be terminated at any time prior to the Closing or, upon conversion
of the Notes in accordance with the terms of this Agreement or payment in full
by Issuer of any Notes issued in connection with the Closing or the Subsequent
Closing(s):
(a) by
mutual written consent of the Issuer and the Investors;
(b) with
respect to any Investor’s obligations hereunder, by such Investor, upon a
materially inaccurate representation or breach of any material warranty,
covenant or agreement on the part of the Issuer set forth in this Agreement, in
either case such that the conditions in Section 10.1 would be
reasonably incapable of being satisfied on or prior to the date of the Closing
or the Subsequent Closing(s); or
(c) by
the Issuer, upon a materially inaccurate representation or breach of any
material warranty, covenant or agreement on the part of the Investors set forth
in this Agreement, in either case such that the conditions in Section 10.2 would be
reasonably incapable of being satisfied on or prior to the date of the Closing
or the Subsequent Closing(s).
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2.3 Effect of
Termination. In the event of termination of this Agreement
pursuant to Section 2.2,
this Agreement shall forthwith become void, there shall be no liability on the
part of the Issuer or the Investors to each other and all rights and obligations
of any party hereto shall cease; provided, however, that nothing
herein shall relieve any party from liability for the willful breach of any of
its representations and warranties, covenants or agreements set forth in this
Agreement. For the avoidance of doubt, for so long as the Issuer has any
outstanding indebtedness under any of the Notes, the Lien on the Collateral and
the security interest granted hereunder shall remain in effect for the benefit
of the Investors or holders of the Notes then outstanding.
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3.
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CONVERSION
TERMS.
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3.1 Conversion Prior to Due
Date. If repayment of a Note is to be made in the form of
Equity Securities pursuant to a Future Private Placement prior to or on the Due
Date, then the number of shares of Equity Securities to be issued in repayment
of such Note will be determined by dividing (a) the principal amount, the
Fundamental Transaction Premium (if applicable) and any accrued and unpaid
interest on that Note by (b) the purchase
price per share of the Equity Securities offered in the Future Private
Placement; provided, that any
fractional shares shall be rounded up to the nearest whole share (the shares of
Equity Securities to be issued pursuant to such conversion, the “3.1 Conversion
Shares”).
3.2 Conversion Subsequent to Due
Date. If repayment of a Note is to be made in the form of
Equity Securities pursuant to a Future Private Placement subsequent to the Due
Date, then the number of shares of Equity Securities to be issued in repayment
of such Note will be determined by dividing (a) the principal amount, the
Fundamental Transaction Premium (if applicable) and any accrued and unpaid
interest on that Note by (b) the product of
multiplying the purchase price per share of the Equity Securities offered in the
Future Private Placement by 0.75; provided, that any
fractional shares shall be rounded up to the nearest whole share (the shares of
Equity Securities to be issued pursuant to such conversion, the “3.2 Conversion
Shares”).
3.3 Conversion without a Future
Private Placement. Prior to any repayment of the Notes in cash
pursuant to Section 1.4,
and in the absence of a completed Future Private Placement, each Investor shall
have the option to elect to receive payment therefor in the form of Common Stock
of the Issuer, with the number of shares of Common Stock to be issued in
repayment of such Note to be determined by dividing (a) the principal amount,
the Fundamental Transaction Premium (if applicable) and any accrued and unpaid
interest on that Note by (b) the product of
multiplying the twenty (20) trading day volume weighted average price
per share of the Common Stock immediately preceding any conversion pursuant to
this Section 3.3 by 0.90; provided, that any
fractional shares shall be rounded up to the nearest whole share (the shares of
Equity Securities to be issued pursuant to such conversion, the “3.3 Conversion
Shares”).
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3.4 Terms of Conversion
Shares. The Conversion Shares issued in connection with a
Future Private Placement shall be subject to and limited by the same terms of
and granted the same rights of the participants in such Future Private
Placement, including, but not limited to, the issuance of any warrants, options
or other securities in addition to the Equity Securities offered in connection
with such Future Private Placement, as shall be determined in connection with
such transaction.
3.5 Increase of Authorized
Capital Stock. To the extent conversion of the Notes in
accordance with this Article
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capital stock authorized under the Certificate of Incorporation, the Issuer
shall, at such time, use its commercially reasonable efforts, subject to the
approval of the Issuer’s shareholders, to increase the authorized capital stock
of the Issuer such that all of the Conversion Shares are authorized under the
Certificate of Incorporation; provided, however, that, to the
extent that the Investors are shareholders of the Issuer entitled to vote shares
of Common Stock at an annual or special meeting of the shareholders of the
Company, the Investors shall not unreasonably withhold their votes in favor of
any such proposal to increase the authorized capital stock of the
Issuer.
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4.
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REPRESENTATIONS AND WARRANTIES
OF THE ISSUER.
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As a
material inducement to the Investors entering into this Agreement, subscribing
for the Notes and Warrants, except as set forth in the Disclosure Schedules
delivered to the Investors concurrently herewith, the Issuer represents and
warrants to the Investors as follows:
4.1 Corporate
Status. The Issuer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Each of
the Issuer and its Subsidiaries has full corporate power and authority to own
and hold its properties and to conduct its business as described in the Issuer’s
SEC Reports. Each of the Issuer and its Subsidiaries is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business requires qualification or good standing, except for any failure to be
so qualified or be in good standing that would not have a Material Adverse
Effect.
4.2 Corporate Power and
Authority. The Issuer has the corporate power and authority to
execute and deliver this Agreement and to perform its obligations hereunder and
to consummate the transactions contemplated hereby. At or prior to
the Closing, the Issuer will have taken all necessary corporate action to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby. No further
approval or authorization of any stockholder or the board of directors of the
Issuer is required for the issuance and sale of the Notes and Warrants, the
conversion or exercise thereof or, except as provided in Section 7.2, the filing of the
Registration Statement.
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4.3 Enforceability. This
Agreement has been duly executed and delivered by the Issuer and (assuming it
has been duly authorized, executed and delivered by the Investors) constitutes a
legal, valid and binding obligation of the Issuer, enforceable against the
Issuer in accordance with its terms, except (a) as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors’ rights generally, and (b) the indemnity
provisions of Section 9
of this Agreement, to the extent such provisions may not be enforceable
based upon public policy considerations, and general equitable principles,
regardless of whether such enforceability is considered in a proceeding at law
or in equity.
4.4 No
Violation. Except as set forth on Schedule 4.4, the
execution and delivery by the Issuer of this Agreement, the consummation of the
transactions contemplated hereby, and the compliance by the Issuer with the
terms and provisions hereof (including, without limitation, the Issuer’s
issuance to the Investors of the Notes as contemplated by and in accordance with
this Agreement), will not result in a default under (or give any other party the
right, with the giving of notice or the passage of time (or both), to declare a
default or accelerate any obligation under) or violate the Certificate of
Incorporation or Bylaws of the Issuer or any material Contract to which the
Issuer is a party (except to the extent such a default, acceleration, or
violation would not, in the case of a Contract, have a Material Adverse Effect
on the Issuer), or materially violate any Requirement of Law applicable to the
Issuer, or result in the creation or imposition of any material Lien upon any of
the capital stock, properties or assets of the Issuer or any of its Subsidiaries
(except where such violations of any Requirement of Law or creations or
impositions of any Liens would not have a Material Adverse Effect on the Issuer
or are specifically contemplated hereby). Neither the Issuer nor any
of its Subsidiaries is (a) in default under or in violation of any material
Contract to which it is a party or by which it or any of its properties is bound
or (b) to its knowledge, in violation of any order of any Governmental
Authority, which, in the case of clauses (a) and (b), could reasonably be
expected to have a Material Adverse Effect.
4.5 Consents/Approvals. Except
for the filing of a registration statement in accordance with Article 7 hereof and filings
with the SEC and the securities commissions of the states in which the Notes are
to be issued, no consents, filings, authorizations or other actions of any
Governmental Authority are required to be obtained or made by the Issuer for the
Issuer’s execution, delivery and performance of this Agreement which have not
already been obtained or made. No consent, approval, waiver or other
action by any Person under any Contract to which the Issuer is a party or by
which the Issuer or any of its properties or assets are bound is required or
necessary for the execution, delivery or performance by the Issuer of this
Agreement and the consummation of the transactions contemplated hereby, except
where the failure to obtain such consents would not have a Material Adverse
Effect on the Issuer.
4.6 Valid
Issuance. Upon payment of the applicable purchase price by the
Investor with respect to each Note purchased hereunder and delivery to the
Investors of such Notes and the accompanying Warrants, such Notes and Warrants
will be validly issued, fully paid and nonassessable and will be free and clear
of all Liens imposed by the Issuer. The Conversion Shares and the
shares issuable upon exercise of the Warrants (the “Warrant Shares”), when issued,
will be validly issued, fully paid and nonassessable and will be free and clear
of all Liens imposed by the Issuer and will not be subject to any preemptive
rights or other similar rights of stockholders of the Issuer.
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4.7 SEC Filings and Other
Filings. Except as set forth on Schedule 4.7, the
Issuer has timely made all filings required to be made by it under the Exchange
Act since December 31, 2008. The Issuer has delivered or made
accessible to the Investors true, accurate and complete copies of (a) the
Issuer’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008;
(b) the Issuer’s definitive proxy statement dated April 17, 2009 relating to its
2009 Annual Meeting of Stockholders; (c) the Issuer’s Period Reports on Form
10-Q filed May 11, 2009 for the quarter ended March 31, 2009 and August 11, 2009
for the quarter ended June 30, 2009; and (d) each of the Issuer’s Current
Reports on Form 8-K filed since January 1, 2009 (as such documents may have,
since the time of their filing, been amended or supplemented, and together with
all reports, documents and information filed or after the date first written
above through the date of Closing with the SEC, collectively the “SEC Reports”). The
SEC Reports, when filed (unless amended and superseded by a later Issuer filing
prior to the date hereof, then on the date of such later filing), complied in
all material respects with all applicable requirements of the Exchange Act and
the Securities Act, if and to the extent applicable, and the rules and
regulations of the SEC thereunder applicable to the SEC Reports. None
of the SEC Reports when filed (unless amended and superseded by a later Issuer
filing prior to the date hereof, then on the date of such later filing)
contained any misstatement of a material fact or omitted to state a material
fact necessary to prevent the statements made therein from being
misleading.
4.8 Commissions. Except
for those fees set forth on Schedule 4.8, the
Issuer has not incurred any other obligation for any finder’s or broker’s or
agent’s fees or commissions in connection with the transactions contemplated
hereby.
4.9 Capitalization. As
of August 31, 2009, the authorized capital stock of the Issuer consists of
165,000,000 shares of Common Stock and 60,000,000 shares of Preferred
Stock. Except as set forth on Schedule 4.9, all
issued and outstanding shares of capital stock of the Issuer have been, and as
of Closing will be, duly authorized and validly issued and are fully paid and
non-assessable, have been issued in compliance with all applicable state and
federal securities laws in all material respects and were not issued in
violation of, or subject to, any preemptive, subscription or other similar
rights of any stockholder of the Issuer imposed by law. As of August
31, 2009, the Issuer has issued and outstanding 9,778,940 shares of Common
Stock, and 3,372,212 shares of Preferred Stock, of which 1,990,331 shares have
been designated as Series A Convertible Preferred Stock and of which 1,381,881
shares have been designated as Series C Convertible Preferred Stock, which in
the aggregate are convertible into 168,612 shares of Common Stock, not
accounting for any fractional shares. Except for outstanding options
to purchase 4,233,500 shares of Common Stock and outstanding warrants to
purchase 1,422,627 shares of Common Stock, as of August 31, 2009, there were no
outstanding options, warrants, rights (including conversion or preemptive rights
and rights of first refusal and similar rights) or agreements, orally or in
writing, for the purchase or acquisition from the Issuer of any shares of
capital stock, and, except as set forth on Schedule 4.9, the
Issuer is not a party to or subject to any agreement or understanding and, to
the Issuer’s knowledge, there is no agreement or understanding between any
Persons, which affects or relates to the voting or giving of written consents
with respect to any security or by a director of the Issuer. The Issuer owns,
directly or indirectly, all of the capital stock of its Subsidiaries, free and
clear of any Liens or equitable interests other than as reflected in the SEC
Reports. Except as set forth in the SEC Reports, the Issuer has no
obligation, contingent or otherwise, to redeem or repurchase any Equity Security
or any security that is a combination of debt and equity.
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4.10 Material
Changes. Except as set forth on Schedule 4.10 and in
the SEC Reports (excluding any “risk factors” or “forward-looking statements”
sections thereof) or as otherwise contemplated herein, since December 31, 2008,
there has been no Material Adverse Effect in respect of the Issuer and its
Subsidiaries taken as a whole. Except as set forth in the SEC Reports
(excluding any “risk factors” or “forward-looking statements” sections thereof)
or as otherwise contemplated herein, since December 31, 2008, there has not
been: (i) any direct or indirect redemption, purchase or other acquisition by
the Issuer of any shares of the Common Stock; (ii) any declaration, setting
aside or payment of any dividend or other distribution by the Issuer with
respect to the Common Stock; (iii) any borrowings incurred or any material
liabilities (absolute, accrued or contingent) assumed, other than current
liabilities incurred in the ordinary course of business, liabilities under
Contracts entered into in the ordinary course of business, or liabilities not
required to be reflected on the Issuer’s financial statements pursuant to GAAP
or required to disclosed in the SEC Reports; (iv) any Lien or adverse claim on
any of the Issuer’s material properties or assets, except for Liens for taxes
not yet due and payable or otherwise in the ordinary course of business; (v) any
sale, assignment or transfer of any of the Issuer’s material assets, tangible or
intangible, except in the ordinary course of business; (vi) any extraordinary
losses or waiver of any rights of material value; (vii) any material capital
expenditures or commitments therefor other than in the ordinary course of
business; (viii) any other material transaction other than in the ordinary
course of business; (ix) any material change in the nature or operations of the
business of the Issuer and its Subsidiaries; (x) any default in the payment of
principal or interest in any material amount, or violation of any material
covenant, with respect to any outstanding debt obligations that are material to
the Issuer and its Subsidiaries as a whole; (xi) any material changes to the
Issuer’s critical accounting policies or material deviations from historical
accounting and other practices in connection with the maintenance of the
Issuer’s books and records; or (xii) any agreement or commitment to do any of
the foregoing.
4.11 Litigation;
Investigations. Except as set forth on Schedule 4.11 and in
the SEC Reports, there is no action, suit, proceeding or investigation pending
or, to the Issuer’s knowledge, currently threatened against the Issuer or any of
its Subsidiaries that questions the validity of this Agreement or the right of
the Issuer to enter into it, or to consummate the transactions contemplated
hereby, or that could reasonably be expected to result, either individually or
in the aggregate, in a Material Adverse Effect on the Issuer or any material
change in the current equity ownership of the Issuer. The foregoing includes,
without limitation, actions pending or, to the Issuer’s knowledge, threatened
involving the prior employment of any of the Issuer’s employees or their use in
connection with the Issuer’s business of any information or techniques allegedly
proprietary to any of their former employers. Neither the Issuer nor
any of its Subsidiaries is a party to or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or Governmental
Authority. Except as set forth in the SEC Reports, there is no
action, suit, proceeding or investigation by the Issuer or any of its
Subsidiaries currently pending or which the Issuer or any of its Subsidiaries
currently intends to initiate, which could reasonably be expected to have a
Material Adverse Effect.
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4.12 Rights of Registration,
Voting Rights, and Anti-Dilution. Except as contemplated in
this Agreement and as set forth on Schedule 4.12, the
Issuer has not granted or agreed to grant any registration rights, including
piggyback rights, to any Person and, to the Issuer’s knowledge, no stockholder
of the Issuer has entered into any agreements with respect to the voting of
capital shares of the Issuer. Except as set forth in Schedule 4.12, the
issuance of the Notes and Warrants does not constitute an anti-dilution event
for any existing security holders of the Issuer, pursuant to which such security
holders would be entitled to additional securities or a reduction in the
applicable conversion price or exercise price of any securities.
4.13 Offerings. Subject
in part to the truth and accuracy of the Investors’ representations and
warranties set forth in this Agreement, the offer, sale and issuance of the
Notes, Warrants and Conversion Shares (together, the “Securities”) as contemplated
by this Agreement are exempt from the registration requirements of the
Securities Act and any applicable state securities laws, and neither the Issuer
nor any authorized agent acting on its behalf will take any action hereafter
that would cause the loss of such exemption.
4.14 Licenses and
Permits. Except as disclosed in the SEC Reports or on Schedule 4.14, each
of the Issuer and its Subsidiaries has all Permits under applicable Requirements
of Law from all applicable Governmental Authorities that are necessary to
operate its businesses as presently conducted and all such Permits are in full
force and effect, except where the failure to have any such Permits in full
force and effect would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. Neither the Issuer nor
any of its Subsidiaries is in default under, or in violation of or noncompliance
with, any of such Permits, except for any such default, violation, or
noncompliance which would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. To the Issuer’s knowledge, other
than as disclosed in the SEC Reports, there is no proposed change in any
Requirements of Law which would require the Issuer and its Subsidiaries to
obtain any Permits in order to conduct its business as presently conducted that
the Issuer and its Subsidiaries do not currently possess and the lack of which
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.
4.15 Patents and
Trademarks. The Issuer and each of its Subsidiaries has, or
has rights to use, all intellectual property, including, without limitation, all
patents, patent applications, trademarks, trademark applications, service marks,
trade names, copyrights, licenses and know-how (including trade secrets or other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures) (collectively, the “Intellectual Property Rights”)
that are necessary for use in connection with its business as presently
conducted, except where the failure to have such Intellectual Property Rights
would not reasonably be expected to have a Material Adverse
Effect. To the Issuer’s knowledge, there is no existing infringement
by another person or entity of any of the Intellectual Property Rights that are
necessary for use in connection with the Issuer’s business as presently
conducted. The Issuer is not infringing on any intellectual property
rights of any other person, nor is there any claim of infringement made or, to
the Issuer’s knowledge, threatened by a third party against or involving the
Issuer.
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4.16 Insurance. The Issuer maintains and
will continue to maintain insurance with such insurers, and insuring against
such losses, in such amounts, and subject to such deductibles and exclusions as
are customary in the Issuer’s industry and otherwise reasonably prudent, all of
which insurance is in full force and effect.
4.17 Material Contracts.
All material Contracts to which the Issuer or any Subsidiary is a party and
which are required to have been filed by the Issuer on Exhibit 10 to the SEC
Reports have been filed by the Issuer with the SEC pursuant to the requirements
of the Exchange Act. Except as disclosed in the SEC Reports, each
such material Contract is in full force and effect, except as otherwise required
pursuant to its respective terms, and is binding on the Issuer or its
Subsidiaries, as the case may be, in each case, in accordance with its
respective terms, and neither the Issuer or any of its Subsidiaries nor, to the
Issuer’s knowledge, any other party thereto is in breach of, or in default
under, any such material Contract, which breach or default would reasonably be
expected to have a Material Adverse Effect. Except as set forth in
the SEC Reports, there exists no actual or, to the knowledge of the Issuer,
threatened termination, cancellation or limitation of, or any material adverse
modification or change in, the business relationship of the Issuer or any of its
Subsidiaries, or the business of the Issuer or any of its Subsidiaries, with any
customer or supplier or any group of customers or suppliers whose purchases or
inventories provided to the business of the Issuer or any of its Subsidiaries
would, individually or in the aggregate, have a Material Adverse
Effect.
4.18 Taxes. The
Issuer has filed all material federal, state and foreign income and franchise
tax returns which are due, unless validly extended, and has paid or accrued all
taxes shown as due thereon, unless validly extended, and the Issuer has no
knowledge of a tax deficiency which has been or might be asserted or threatened
against it which is reasonably likely to have a Material Adverse
Effect.
4.19 Private
Placement. Neither the Issuer nor any of its Subsidiaries or
Affiliates, nor any Person acting on its or their behalf, (i) has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the Securities, (ii) has, directly or indirectly, 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 Securities under the
Securities Act or (iii) has issued any shares of Common Stock or shares of any
series of preferred stock or other securities or instruments convertible into,
exchangeable for or otherwise entitling the holder thereof to acquire shares of
Common Stock which, to our knowledge, would be integrated with the sale of the
Securities hereunder for purposes of the Securities Act or of any applicable
stockholder approval provisions, nor will the Issuer or any of its Subsidiaries
or Affiliates take any action or steps that would, to our knowledge, require
registration of any of the Securities under the Securities Act or cause the
offering of the Securities to be integrated with other offerings; provided, however, that if any
integration shall have occurred prior to repayment or conversion of the Notes,
then the indemnification provisions under Section 9.1 shall apply
notwithstanding anything stated therein. Assuming the accuracy of the
representations and warranties of the Investors, the offer and sale of the
Securities by the Issuer to the Investors pursuant to this Agreement will be
exempt from the registration requirements of the Securities Act.
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4.20 Reservation of Warrant
Shares. The Issuer has validly reserved sufficient Warrant
Shares to provide for conversion of the Warrants issued or issuable pursuant to
this Agreement.
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5.
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REPRESENTATIONS AND WARRANTIES
OF EACH INVESTOR.
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As a
material inducement to the Issuer entering into this Agreement and issuing the
Notes and Warrants, and in reliance upon the representations and warranties of
the Issuer in Section 4 hereof, each of the Investors severally and not jointly
represents, warrants, and covenants to the Issuer as follows:
5.1 Power and
Authority. The Investor, if other than a natural person, is an
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation or formation. The Investor has
the corporate, partnership or other power (or capacity) and authority under
applicable law to execute and deliver this Agreement and consummate the
transactions contemplated hereby, and has all necessary authority to execute,
deliver and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. The Investor has taken all
necessary action to authorize the execution, delivery and performance of this
Agreement and the transactions contemplated hereby.
5.2 Enforceability. This
Agreement has been duly executed and delivered by the Investor and (assuming it
has been duly authorized, executed and delivered by the Issuer) constitutes a
legal, valid and binding obligation of the Investor, enforceable against the
Investor in accordance with its terms, except (a) as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditor’s rights generally, and (b)
the indemnity provisions of Section 9 of this Agreement,
to the extent they may not be enforceable based upon public policy
considerations, and general equitable principles, regardless of whether
enforceability is considered in a proceeding at law or in equity.
5.3 Investment
Intent. The Investor is acquiring the Notes and Warrants
hereunder for its own account and with no present intention of distributing or
selling any of the Securities and further agrees not to transfer such Securities
in violation of the Securities Act or any applicable state securities law, and
no one other than the Investor has any beneficial interest in the Notes (except
to the extent that the Investor may have delegated voting authority to its
investment advisor), the Warrants, the Conversion Shares and the Warrant
Shares. The Investor agrees that it will not sell or otherwise
dispose of any of the Securities unless such sale or other disposition has been
registered under the Securities Act or, in the opinion of counsel acceptable to
the Issuer, is exempt from registration under the Securities Act and has been
registered or qualified or, in the opinion of such counsel acceptable to the
Issuer, is exempt from registration or qualification under applicable state
securities laws. The Investor understands that the offer and sale by
the Issuer of the Notes and Warrants being acquired by the Investor hereunder
has not been registered under the Securities Act by reason of their contemplated
issuance in transactions exempt from the registration and prospectus delivery
requirements of the Securities Act pursuant to Section 4(2) thereof, and that
the reliance of the Issuer on such exemption from registration is predicated in
part on these representations and warranties of the Investor. The
Investor acknowledges that pursuant to Section 1.6 of this Agreement
a restrictive legend consistent with the foregoing has been or will be placed on
the certificates for the Securities.
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5.4 Accredited
Investor. The Investor is an “accredited investor” as such
term is defined in Rule 501(a) of Regulation D under the Securities Act, and has
such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the investment to be made by it
hereunder.
5.5 Adequate
Information. The Investor has received from the Issuer, and
has had the opportunity to review, such information which the Investor considers
necessary or appropriate to evaluate the risks and merits of an investment in
the Notes and Warrants. The Investor also acknowledges that the risk
factors set forth on Exhibit C and
contained in the SEC Reports have been delivered to the Investor and the
Investor has had the opportunity to review such risk factors; provided, however,
that delivery of such risk factors in no way alters or amends the
representations, warranties and covenants made in this Agreement.
5.6 Opportunity to
Question. The Investor has had the opportunity to question,
and has questioned, to the extent deemed necessary or appropriate,
representatives of the Issuer so as to receive answers and verify information
obtained in the Investor’s examination of the Issuer, including the information
that the Investor has received and reviewed as referenced in Section 5.6 hereof in relation
to its investment in the Notes and Warrants.
5.7 No Other
Representations. No oral or written material representations
have been made to the Investor in connection with the Investor’s acquisition of
the Notes and Warrants which were in any way inconsistent with the information
reviewed by the Investor. The Investor acknowledges that in deciding
whether to enter into this Agreement and to purchase the Notes and Warrants
hereunder, it has not relied on any representations or warranties of any type or
description made by the Issuer or any of its representatives with regard to the
Issuer, any of its Subsidiaries, any of their respective businesses or
properties, or the prospects of the investment contemplated herein, other than
the representations and warranties set forth in Section 4 hereof.
5.8 Knowledge and
Experience. The Investor has such knowledge and experience in
financial, tax and business matters, including substantial experience in
evaluating and investing in common stock and other securities (including the
common stock and other securities of speculative companies), so as to enable the
Investor to utilize the information referred to in Section 5.5 hereof and any
other information made available by the Issuer to the Investor in order to
evaluate the merits and risks of an investment in the Notes and Warrants and to
make an informed investment decision with respect thereto.
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5.9 Independent
Decision. The Investor is not relying on the Issuer or on any
legal or other opinion in the materials reviewed by the Investor with respect to
the financial or tax considerations of the Investor relating to its investment
in the Notes and Warrants. The Investor has relied solely on the
representations and warranties, covenants and agreements of the Issuer in this
Agreement (including the exhibits and schedules hereto) and on its examination
and independent investigation in making its decision to acquire the Notes and
Warrants.
5.10 Commissions. The
Investor has not incurred any obligation for any finder’s or broker’s or agent’s
fees or commissions in connection with the transactions contemplated
hereby.
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6.
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COVENANTS.
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6.1 Public
Announcements. The Issuer shall file within four (4) business
days after the Closing a Current Report on Form 8-K with the SEC in respect of
the transactions contemplated by this Agreement. Prior to the earlier
of the filing of such Current Report on Form 8-K or the fifth business day after
the Closing, each Investor agrees not to make any public announcement or issue
any press release or otherwise publicly disseminate any information about the
subject matter of this Agreement. Except as provided herein, the
Issuer shall have the right to make such public announcements and shall control,
in its sole and absolute discretion, the timing, form and content of all press
releases or other public communications of any sort relating to the subject
matter of this Agreement, and the method of their release, or publication
thereof. The Issuer may issue press releases relating to the
transactions contemplated by this Agreement, but shall not identify any Investor
in any such press release without the consent of such Investor, except as may be
required by any Requirement of Law or rule of any exchange on which the Issuer’s
securities are listed. Notwithstanding the foregoing, each Investor
may make such filings with and public disclosures to any Governmental Authority
as are required, including but not limited to filings on Form 4 and Schedule
13D/G with the SEC.
6.2 Further
Assurances. Each party shall execute and deliver such
additional instruments and other documents and shall take such further actions
as may be reasonably necessary or appropriate to effectuate, carry out and
comply with all of the terms of this Agreement and the transactions contemplated
hereby. Each of the Investors and the Issuer shall make on a prompt
and timely basis all governmental or regulatory notifications and filings
required to be made by it with or to any Governmental Authority in connection
with the consummation of the transactions contemplated hereby. The
Issuer and the Investors each agree to cooperate with the other in the
preparation and filing of all forms, notifications, reports and information, if
any, required or reasonably deemed advisable pursuant to any Requirement of Law
in connection with the transactions contemplated by this Agreement and to use
their respective commercially reasonable efforts to agree jointly on a method to
overcome any objections by any Governmental Authority to any such
transactions. Except as may be specifically required hereunder,
neither of the parties hereto nor their respective Affiliates shall be required
to agree to take any action that in the reasonable opinion of such party would
result in or produce a Material Adverse Effect on such party.
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6.3 Notification of Certain
Matters. Prior to the Closing, each party hereto shall give
prompt notice to the other party of the occurrence, or non-occurrence, of any
event which would be likely to cause any representation and warranty herein to
be untrue or inaccurate, or any covenant, condition or agreement herein not to
be complied with or satisfied.
6.4 Confidential
Information.
(a) Except
as contemplated by Sections
6.1 and 6.2
above, each of the Investors agrees that no portion of the Confidential
Information (as defined below) shall be disclosed to third parties, except as
may be required by law, without the prior express written consent of the Issuer;
provided, that
an Investor may share such information with such of its officers and
professional advisors as may need to know such information to assist such
Investor in its evaluation thereof on the condition that such parties agree to
be bound by the terms hereof. “Confidential Information”
means the existence and terms of this Agreement, the transactions contemplated
hereby, and the disclosures and other information contained herein, excluding
any disclosures or other information that is or becomes publicly available
without breach by the Investor of this Section 6.4. Each of the
Investors further agrees that it will not transfer the Notes acquired through
this Offering or any Common Stock owned by such Investor until the earlier of
the time the Issuer has publicly announced the completion of the Offering or the
fifth business day after the Closing.
6.5 Disposition or Encumbrance
of Collateral. The Issuer will not without the prior written
consent of the Collateral Agent (A) surrender or lose possession of (other than
to the Investors), sell, lease, rent or otherwise dispose of or transfer
(collectively, a “Transfer”) any of its property including without limitation
its intellectual property or any right or interest therein, other than: (i)
Transfers of inventory in the ordinary course of business, (ii) Transfers of
non-exclusive licenses and similar arrangements for the use of the property of
Issuer in the ordinary course of business, or (iii) Transfers of worn-out or
obsolete equipment; (B) create, incur, assume or allow any Lien with respect to
any of the Collateral, outside the ordinary course of business; or (C) remove
any material portion of the Collateral from its present location within the
State of California.
6.6 Covenants Regarding
Intellectual Property.
(a) The
Issuer shall register or cause to be registered on an expedited basis (to the
extent not already registered) with the United States Patent and Trademark
Office or the United States Copyright Office, as the case may be, those
registrable Intellectual Property Rights now owned or hereafter developed or
acquired by the Issuer, to the extent that the Issuer, in its reasonable
business judgment, deems it appropriate to so protect such Intellectual Property
Rights.
15
(b) The
Issuer shall promptly give Collateral Agent written notice of any applications
or registrations of Intellectual Property Rights filed with the United States
Patent and Trademark Office, including the date of such filing and the
registration or application numbers, if any.
(c) The
Issuer shall (i) give Collateral Agent not less than 30 days prior written
notice of the filing of any applications or registrations with the United States
Copyright Office, including the title of such Intellectual Property Rights to be
registered, as such title will appear on such applications or registrations, and
the date such applications or registrations will be filed; (ii) prior to the
filing of any such applications or registrations, execute such documents as
Collateral Agent may reasonably request for Collateral Agent to maintain its
perfection in such Intellectual Property Rights to be registered by Issuer;
(iii) upon the request of Collateral Agent, either deliver to Collateral Agent
or file such documents simultaneously with the filing of any such applications
or registrations; or (iv) upon filing any such applications or registrations,
promptly provide Collateral Agent with a copy of such applications or
registrations together with any exhibits, evidence of the filing of any
documents requested by Collateral Agent to be filed for Collateral Agent to
maintain the perfection and priority of its security interest in such
Intellectual Property Rights, and the date of such filing.
(d) The
Issuer shall execute and deliver such additional instruments and documents from
time to time as Collateral Agent shall reasonably request to perfect and
maintain the perfection and priority of Collateral Agent’s security interest in
Issuer’s Intellectual Property.
(e) The
Issuer shall (i) protect, defend and maintain the validity and enforceability of
the Intellectual Property including all trade secrets, trademarks, patents and
copyrights, (ii) use commercially reasonable efforts to detect infringements of
the Intellectual Property and promptly advise Collateral Agent in writing of
material infringements detected and (iii) not allow any material Intellectual
Property to be abandoned, forfeited or dedicated to the public without the
written consent of Collateral Agent, which shall not be unreasonably
withheld.
6.7 Amendments of
Notes. So long as the Notes are outstanding, the Issuer shall
be allowed to alter or change the terms of the Notes or the Warrants (including
any applicable provisions of this Agreement notwithstanding anything to the
contrary provided in Section
11.6) upon first obtaining the written consent of the Investors whose
investment constitutes two-thirds (2/3) of the aggregate principal amount of the
Notes then outstanding or any such subsequent holder (“Required Consent”), unless
such alteration or change shall be deemed by the Issuer in good faith to
adversely affect the Notes or the Warrants or the rights of any Holder, in which
case the Issuer must first obtain consent of each Investor.
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7.
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REGISTRATION
RIGHTS.
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The
Investors shall have the following registration rights with respect to the
Registrable Securities owned by it:
7.1 Transfer of Registration
Rights. An Investor may assign the registration rights with
respect to the Registrable Securities to any party or parties to which it may
from time to time transfer all of the Notes and Warrants in accordance with
Section
5.3 hereof; provided, that the
transferee agrees in writing with the Issuer to be bound by the applicable
provisions of this Agreement regarding such registration rights and
indemnification relating thereto. Upon assignment of any registration
rights pursuant to this Section
7.1, the Investor shall deliver to the Issuer a notice of such assignment
which includes the identity and address of any assignee and such other
information reasonably requested by the Issuer in connection with effecting any
such registration (collectively, each Investor and each such subsequent holder
is referred to as a “Holder”). The
Issuer shall maintain at one of its offices a register for the recordation of
the names and addresses of the Holders and principal amount of the Notes owing
to each Holder pursuant to the terms hereof from time to time (for the purposes
of this Section 7.1
only, the “Register”). The Issuer and Holders may treat each person
whose name is recorded in the Register pursuant to the terms hereof as a Holder
hereunder for all purposes of this Agreement.
7.2 Required
Registration. Following the Due Date, upon request of the
Holders of a majority of the Registrable Securities, either issued or issuable
upon conversion of the Notes and exercise of the Warrants, the Issuer will file
a registration statement on Form S-1 (or S-3 if conditions change to allow the
Issuer to use S-3) (the “Registration Statement”) for
the resale of the Registrable Securities. The Issuer shall subsequently use
commercially reasonable efforts to cause the SEC to declare the Registration
Statement effective as soon as possible. The Issuer shall thereafter
maintain the effectiveness of the Registration Statement until the earlier of
(a) the date on which all the Registrable Securities have been sold pursuant to
the Registration Statement or Rule 144 promulgated under the Securities Act
(“Rule 144”), (b) such
time as the Issuer reasonably determines, based on an opinion of counsel, that
all of the Holders will be eligible to sell under Rule 144 all of the Securities
then owned by the Holders within the volume limitations imposed by paragraph (e)
of Rule 144 in the three month period immediately following the termination of
the effectiveness of the Registration Statement, and (c) the first anniversary
of the date the Registration Statement was declared effective by the
SEC. The Registration Statement filed pursuant to this Section 7.2 may include other
securities of the Issuer that are held by Persons who, by virtue of agreements
with the Issuer, are entitled to similar registration rights.
7.3 Registration
Procedures.
(a) In
case of the Registration Statement effected by the Issuer subject to this Section 7, the Issuer shall
keep the Investors, on behalf of Holder, advised in writing as to the initiation
of such registration, and as to the completion thereof. In addition,
subject to Section 7.2
above, the Issuer shall, to the extent applicable to the Registration
Statement:
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(i) prepare
and file with the SEC such amendments and supplements to the Registration
Statement as may be necessary to keep such registration continuously effective
and free from any material misstatement or omission necessary to make the
statements therein, in light of the circumstances, not misleading, and comply
with provisions of the Securities Act with respect to the disposition of all
securities covered thereby during the period referred to in Section 7.2;
(ii) update,
correct, amend and supplement the Registration Statement as
necessary;
(iii) notify
the Holders promptly when the Registration Statement is declared effective by
the SEC, and furnish such number of prospectuses, including preliminary
prospectuses, and other documents incident thereto as any Holder may reasonably
request from time to time;
(iv)
use its commercially reasonable efforts to register or qualify
such Registrable Securities under such other securities or blue sky laws of such
jurisdictions of the United States where an exemption is not available and as
any Holder may reasonably request to enable it to consummate the disposition in
such jurisdiction of the Registrable Securities (provided that the Issuer will
not be required to (A) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this provision, or
(B) consent to general service of process in any such jurisdiction, or (C)
subject itself to taxation in any jurisdiction where it is not already subject
to taxation);
(v)
notify each Holder at any time when a prospectus relating to the Registrable
Securities is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included in the
Registration Statement contains an untrue statement of a material fact or omits
any fact necessary to make the statements therein not misleading and, subject to
Section 7.6, the Issuer
will prepare a supplement or amendment to such prospectus, so that, as
thereafter delivered to purchasers of such shares, such prospectus will not
contain any untrue statements of a material fact or omit to state any fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading;
(vi) cause
all such Registrable Securities to be listed on each securities exchange on
which similar securities issued by the Issuer are then listed and obtain all
necessary approvals for trading thereon;
(vii) provide
a transfer agent and registrar for all such Registrable Securities not later
than the effective date of the Registration Statement;
(viii) upon
the sale of any Registrable Securities pursuant to the Registration Statement,
direct the transfer agent to remove all restrictive legends from all
certificates or other instruments evidencing the Registrable
Securities;
(ix) with
a view to making available to the Holders the benefits of certain rules and
regulations of the SEC that at any time permit the sale of the Registrable
Securities to the public without registration, so long as any Registrable
Securities are outstanding, the Issuer shall use its commercially reasonable
efforts for a period of two years following the date of Closing:
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(1) to
make and keep public information available, as those terms are understood and
defined in Rule 144(c) under the Securities Act;
(2) to
file with the SEC in a timely manner all reports and other documents required of
the Issuer under the Exchange Act; and
(3) to
furnish to the Holders upon any reasonable request a written statement by the
Issuer as to its compliance with the public information requirements of Rule
144(c) under the Securities Act; and
(x)
to advise the Holder promptly after it has received notice or obtained
knowledge of the existence of any stop order by the SEC delaying or suspending
the effectiveness of the Registration Statement or of the initiation or threat
of any proceeding for that purpose, and to make every commercially reasonable
effort to obtain the withdrawal of any order suspending the effectiveness of the
Registration Statement at the earliest possible time.
(b) Notwithstanding
anything stated or implied to the contrary in Section 7.3(a) above, the
Issuer shall not be required to consent to any underwritten offering of the
Registrable Securities or to any specific underwriter participating in any
underwritten public offering of the Registrable Securities.
(c) Each
Holder agrees that upon receipt of any notice from the Issuer of the happening
of any event of the kind described in Section 7.3(a)(v), and subject
to Section 7.5, such
Holder will forthwith discontinue such Holder’s disposition of Registrable
Securities pursuant to the registration statement relating to such Registrable
Securities until such Holder’s receipt of the copies of the supplemented or
amended prospectus contemplated by Section 7.3(a)(v) and, if so
directed by the Issuer, will deliver to the Issuer at the Issuer’s expense all
copies, other than permanent file copies, then in such Holder’s possession, of
the prospectus relating to such Registrable Securities current at the time of
receipt of such notice.
(d) Except
as required by law, all expenses incurred by the Issuer in complying with this
Section 7, including but
not limited to, all registration, qualification and filing fees, printing
expenses, fees and disbursements of counsel and accountants for the Issuer, blue
sky fees and expenses (including fees and disbursements of counsel related to
all blue sky matters) incurred in connection with any registration,
qualification or compliance pursuant to this Section 7 shall be borne by
the Issuer. All underwriting discounts and selling commissions
applicable to a sale incurred in connection with any registration of Registrable
Securities and the legal fees and other expenses of a Holder shall be borne by
such Holder.
7.4 Further
Information. If Registrable Securities owned by a Holder are
included in any registration, such Holder shall furnish the Issuer such
information regarding itself as the Issuer may reasonably request and as shall
be required in connection with any registration (or amendment or supplement
thereto), referred to in this Agreement, and Holder shall indemnify the Issuer
with respect thereto in accordance with Section 9
hereof. Each Investor hereby represents and warrants to the Issuer
that, upon request and in connection with the filing of a Registration
Statement, it will accurately and completely provide any requested information,
including answers the questions listed in Exhibit E of this
Agreement, and the Investor agrees and acknowledges that the Issuer may rely on
such information as being true and correct for purposes of preparing and filing
the Registration Statement at the time of filing thereof and at the time it is
declared effective, unless the Investor has notified the Issuer in writing to
the contrary prior to such time.
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7.5 Right of
Suspension.
(a) Notwithstanding
any other provision of this Agreement or any related agreement to the contrary,
the Issuer shall have the right, at any time, to suspend the effectiveness of
the Registration Statement and offers and sales of the Registrable Securities
pursuant thereto whenever, in the good faith judgment of the Issuer, (i) there
exists a material development or a potential material development with respect
to or involving the Issuer that the Issuer would be obligated to disclose in the
prospectus used in connection with the Registration Statement, which disclosure,
in the good faith judgment of the Issuer, after considering the advice of
counsel, would be premature or otherwise inadvisable at such time or (ii) the
Registration Statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference contains an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances, not
misleading, including without limitation that period annually during which any
Registration Statement would require suspension pending the Issuer’s new fiscal
year financial statements (each, a “Suspension
Event”). In the event that the Issuer shall determine to so
suspend the effectiveness of the Registration Statement and offers and sales of
the Registrable Securities pursuant thereto, the Issuer shall, in addition to
performing those acts required to be performed under the Securities Act and/or
the Exchange Act or deemed advisable by the Issuer, deliver to each Holder
written notice thereof, signed by the Chief Financial Officer or Chief Executive
Officer of the Issuer. Upon receipt of such notice, the Holders shall
discontinue disposition of the Registrable Securities pursuant to the
Registration Statement and prospectus until such Holders (x) are advised in
writing by the Issuer that the use of the Registration Statement and prospectus
(and offers and sales thereunder) may be resumed, (y) have received copies of a
supplemental or amended prospectus, if applicable, and (z) have received copies
of any additional or supplemental filings which are incorporated or deemed to be
incorporated by reference into such prospectus. The Issuer will
exercise commercially reasonable efforts to ensure that the use of the
Registration Statement and prospectus may be resumed as quickly as
practicable.
(b) The
Issuer’s right to suspend the effectiveness of the Registration Statement and
the offers and sales of the Registrable Securities pursuant thereto, as
described above in this Section
7.5(a), shall be for a period of time (the “Suspension Period”) beginning
on the date of the occurrence of the Suspension Event and expiring on the
earlier to occur of (i) the date on which the Suspension Event ceases, or (ii)
ninety (90) days after the occurrence of the Suspension Event; provided, however, that there
shall not be more than two Suspension Periods in any 12-month
period. Notwithstanding the foregoing, the Issuer shall be able to
suspend the effectiveness of the Registration Statement and offers and sales of
the Registrable Securities for any time period as may reasonably be required in
order to update the Registration Statement to replace financial information
which is no longer current, as required by applicable securities
law.
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(c) In
addition, in connection with any underwritten public offering of securities of
the Issuer, if requested by the Issuer or its managing underwriter, each Holder
will enter into a lock-up agreement pursuant to which such Holder will not,
during the seven (7) days prior to, and for a period no longer than one hundred
eighty (180) days following, the date of the prospectus (or if the offering is
pursuant to a shelf registration statement, the date of the pricing prospectus
supplement) relating to the offering, offer, sell or otherwise dispose of any
securities of the Issuer without the prior consent of the Issuer and the
managing underwriter, provided that the executive officers and directors of the
Issuer enter into lock-up agreements for a period at least as long and on the
same terms.
7.6 Transfer of
Securities. An Investor may
transfer all or any part of its Securities to any Person under common management
with the Investor and may distribute all or any part of the Conversion Shares to
its equity holders or partners; provided, that any
such transfer shall be effected in full compliance with all applicable federal
and state securities laws, including, but not limited to, the Securities Act and
the rules of the SEC promulgated thereunder. The Issuer will effect
such transfer of restricted certificates and will promptly amend or supplement
the Prospectus forming a part of the Registration Statement to add the
transferee to the selling stockholders in the Registration Statement; provided that the
transferor and transferee shall be required to provide the Issuer with the
information requested of the Investor in this Agreement, information reasonably
necessary for the Issuer to determine that the transfer was effected in
accordance with all applicable federal and state securities laws, including, but
not limited to, the Securities Act and the rules of the SEC promulgated
thereunder, and all other information reasonably requested by the Issuer from
time to time in connection with any transfer, registration, qualification or
compliance referred to in Section 7.4.
7.7 SEC Comments.
Notwithstanding anything to the contrary contained in this Section 7, if the Issuer
receives comments from the SEC, and following discussions with and responses to
the SEC in which the Issuer uses its commercially reasonable efforts to cause as
many Registrable Securities for as many Holders as possible to be included in
the Registration Statement filed pursuant to Section 7.2 without
characterizing any Holder as an underwriter (and in such regard uses its
commercially reasonable efforts to cause the SEC to permit the affected
Holders), the Issuer is unable to cause the inclusion of all Registrable
Securities, then the Issuer may, upon written notice to the Holders, (i) remove
from the Registration Statement such Registrable Securities and/or (ii) agree to
such restrictions and limitations on the registration and resale of the
Registrable Securities, in each case as the SEC may require in order for the SEC
to allow such Registration Statement to become effective. In
furtherance of the foregoing, unless the SEC Restrictions otherwise require, any
cut-back imposed pursuant to this Section 7.7 shall be allocated
among the Registrable Securities of the Holders on a pro rata
basis.
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8.
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SECURITY.
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8.1 Collateral. To
secure repayment and performance of each and all of the obligations of the
Issuer hereunder and under the Notes, the Issuer hereby pledges, grants, assigns
and transfers to Collateral Agent, on behalf of the Investors and the Holders, a
continuing first priority security interest in the Collateral. The
Issuer’s grant of such security interest to the Collateral Agent shall secure
the payment and performance of any and all indebtedness, obligations and
liabilities arising from, or in any way related to, this Agreement and/or the
Notes.
8.2 Perfection. At
any time and from time to time Issuer shall execute and deliver such further
instruments and take such further action as may reasonably be requested by
Collateral Agent to effect the purposes of this Agreement. The Issuer
hereby agrees that the Collateral Agent shall have all the rights and remedies
of a secured party under the UCC and that at any time, and from time to time,
the Issuer shall execute and deliver (or cause to be executed and delivered) any
and all such further instruments and/or documents, including without limitation,
a UCC-1 financing statement and intellectual property security filings with the
United States Patent and Trademark Office and the Copyright Office, as
Collateral Agent may consider reasonably necessary or desirable in order to
effectuate, complete, perfect or preserve and maintain the Liens created hereby
including without limitation to cause any financial institution or other entity
with which Issuer maintains or invests any of its property to enter into an
account control agreement with Collateral Agent in form and substance
satisfactory to Collateral Agent.
8.3 Events of
Default. Any one or more of the following events shall
constitute an Event of Default by Issuer under this Agreement: (i) if the Issuer
fails to pay, when due, any amount owing in connection with this Agreement or
the Notes; (ii) if the Issuer fails to perform any material obligation under
this Agreement or the Notes; or (iii) if an Insolvency Proceeding is commenced
by or against Issuer.
8.4 Remedies. Upon
the occurrence of any one or more Events of Default, (i) each Investor’s
commitment to pay any unpaid Commitment Amount shall automatically expire, and
(ii) each Investor’s obligation to permit the Notes and the amounts due under
the Notes to remain outstanding shall automatically expire, and (iii) the
Collateral Agent may accelerate and demand payment of all or any part of the
Issuer’s obligations under the Notes or this Agreement and declare such amounts
and obligations to be immediately due and payable (provided, that upon the
occurrence of an Event of Default of the type described in Section 8.3(iii), the Notes
and all obligations under the Notes and this Agreement shall automatically be
accelerated and made due and payable without any further notice or
act). Collateral Agent may exercise all rights and remedies with
respect to the Collateral available under the UCC and other applicable law,
including without limitation the right to release, hold, sell, assign, lease,
liquidate, collect, realize upon, or otherwise dispose of all or any part of the
Collateral and the right to occupy, utilize, process and commingle the
Collateral and further including, without limitation, to: (a) foreclose the
Liens and security interests created under this Section 8 relating to the
Collateral by any valid judicial process, (b) enter any premises where any of
the Collateral may be located for the purpose of taking possession or removing
the same, and (c) sell, assign, lease or otherwise dispose of the Collateral or
any part thereof, either at public or private sale or at any broker’s board, in
lots or in bulk, for cash, on credit or otherwise, upon such terms as shall be
deemed acceptable to Collateral Agent, and to the extent permitted by law,
Collateral Agent may bid or become a purchaser at any such sale. All
Agent’s and each Investor’s rights and remedies shall be cumulative and not
exclusive.
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8.5 Collateral
Agent.
(a) Appointment. The
Investors hereby appoint Sanderling Management Company, LLC as collateral agent
for the Investors under this Agreement (in such capacity, the “Collateral Agent”) to serve
from the date hereof until the termination of this Agreement or replacement of
the Collateral Agent at the written request of the holders of two-thirds (2/3)
of the aggregate principal amount of the Notes then outstanding.
(b) Powers and Duties of
Collateral Agent, Indemnity by Investors.
(i) Each
Investor hereby irrevocably authorizes the Collateral Agent to take such action
and to exercise such powers hereunder as provided herein or as requested in
writing by the holders of two-thirds (2/3) of the aggregate principal amount of
the Notes then outstanding in accordance with the terms hereof, together with
such powers as are reasonably incidental thereto. Collateral Agent
may execute any of its duties hereunder by or through agents or employees and
shall be entitled to request and act in reliance upon the advise of counsel
concerning all matters pertaining to its duties hereunder and shall not be
liable for any action taken or omitted to be taken by it in good faith in
accordance therewith.
(ii) Neither
the Collateral Agent nor any of its directors, officers or employees shall be
liable or responsible to any Investor or to the Issuer for any action taken or
omitted to be taken by Collateral Agent or any other such person hereunder or
under any related agreement, instrument or document, except in the case of bad
faith, gross negligence or willful misconduct on the part of the Collateral
Agent, nor shall the Collateral Agent or any of its directors, officers or
employees be liable or responsible for (i) the validity, effectiveness,
sufficiency, enforceability or enforcement of the Notes, this Agreement or any
instrument or document delivered hereunder or relating hereto; (ii) the title of
Issuer to any of the Collateral or the freedom of any of the Collateral from any
prior or other Liens or security interests; (iii) the determination,
verification or enforcement of Issuer’s compliance with any of the terms and
conditions of this Agreement; (iv) the failure by Issuer to deliver any
instrument or document required to be delivered pursuant to the terms
hereof; or (v) the receipt, disbursement, waiver, extension or other handling of
payments or proceeds made or received with respect to the Collateral, the
servicing of the Collateral or the enforcement or the collection of any amounts
owing with respect to the Collateral.
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(iii) In
the case of this Agreement and the transactions contemplated hereby and any
related document relating to any of the Collateral, each of the Investors agrees
to pay to the Collateral Agent, on demand, its Pro Rata Share of all fees and
all expenses incurred in connection with the operation and enforcement of this
Agreement, the Notes or any related agreement to the extent that such fees or
expenses have not been paid by Issuer. In the case of this Agreement
and each instrument and document relating to any of the Collateral, each of the
Investors and the issuer hereby agrees to hold the Collateral Agent harmless,
and to indemnify the Collateral Agent from and against any and all loss, damage,
expense or liability which may be incurred by the Collateral Agent under this
Agreement and the transactions contemplated hereby and any related agreement or
other instrument or document, as the case may be, unless such liability shall be
caused by the willful misconduct or gross negligence of the Collateral
Agent. For purposes of this Agreement, the term “Pro Rata Share” shall mean,
when calculating an Investor’s portion of any distribution or amount, that
distribution or amount (expressed as a percentage) equal to a fraction (i) the
numerator of which is the original outstanding principal amount of such
Investor’s Note and (ii) the denominator of which is the original aggregate
outstanding principal amount of all Notes issued under the
Agreement. In the event that an Investor receives payments or
distributions in excess of its Pro Rata Share, then such Investor shall hold in
trust all such excess payments or distributions for the benefit of the other
Investors and shall pay such amounts held in trust to such other Investors upon
demand by such Investors.
8.6 Application of Collateral
Proceeds. The proceeds and/or avails of the Collateral, or any
part thereof, and the proceeds and the avails of any remedy hereunder (as well
as any other amounts of any kind held by Collateral Agent at the time of, or
received by Collateral Agent after, the occurrence of an Event of Default) shall
be paid to and applied as follows:
(a) First, to the payment
of reasonable costs and expenses, including all amounts expended to preserve the
value of the Collateral, of foreclosure or suit, if any, and of such sale and
the exercise of any other rights or remedies, and of all proper fees, expenses,
liability and advances, including reasonable legal expenses and attorneys’ fees,
incurred or made hereunder by Collateral Agent;
(b) Second, to the
payment to each Investor of the amount then owing or unpaid on such Investor’s
Note, and in case such proceeds shall be insufficient to pay in full the whole
amount so due, owing or unpaid upon such Note, then its Pro Rata Share of the
amount remaining to be distributed (to be applied first to accrued interest and
second to outstanding principal);
(c) Third, to the payment
of other amounts then payable to each Investor under this Agreement, the Notes
or any related agreement, and in case such proceeds shall be insufficient to pay
in full the whole amount so due, owing or unpaid, then its Pro Rata Share of the
amount remaining to be distributed; and
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(d) Fourth, to the
payment of the surplus, if any, to Issuer, its successors and assigns, or to
whomsoever may be lawfully entitled to receive the same.
8.7 Termination. At
Issuer’s request, upon the indefeasible payment or conversion in full of all
amounts owing by Issuer under the Notes in accordance with the terms of this
Agreement and the Notes and the cancellation or termination of any commitment to
extend credit or make loans, the security interest granted herein shall
terminate and Investors shall execute and
deliver (or cause to be executed and delivered) any and all such instruments
and/or documents reasonably requested by Issuer to effectuate such termination
of the Liens and security interest granted hereunder.
8.8 Authorized Action by
Collateral Agent. The Issuer hereby irrevocably appoints
Collateral Agent as its attorney-in-fact (which appointment is coupled with an
interest) and agrees that Collateral Agent may perform (but Collateral Agent
shall not be obligated to and shall incur no liability to the Issuer or any
third party for failure so to do) any act which the Issuer is obligated by this
Agreement to perform, and to exercise such rights and powers as the Issuer might
exercise with respect to the Collateral, including the right to (a) collect by
legal proceedings or otherwise and endorse, receive and receipt for all
dividends, interest, payments, proceeds and other sums and property now or
hereafter payable on or on account of the Collateral; (b) enter into any
extension, reorganization, deposit, merger, consolidation or other agreement
pertaining to, or deposit, surrender, accept, hold or apply other property in
exchange for the Collateral; (c) make any compromise or settlement, and take any
action it deems advisable, with respect to the Collateral; (d) insure, process
and preserve the Collateral; (e) pay any indebtedness of Issuer relating to the
Collateral; and (f) file UCC financing statements and execute other documents,
instruments and agreements required hereunder; provided, however, that
Collateral Agent shall not exercise any such powers granted pursuant to
subsections (a) through (e) prior to the occurrence of an Event of Default and
shall only exercise such powers during the continuance of an Event of
Default. The Issuer agrees to reimburse Collateral Agent upon demand
for any reasonable costs and expenses, including attorneys’ fees, Collateral
Agent may incur while acting as the Issuer’s attorney-in-fact hereunder in
perfecting and maintaining the Liens hereunder, all of which costs and expenses
are obligations hereunder. It is further agreed and understood
between the parties hereto that such care as Collateral Agent gives to the
safekeeping of its own property of like kind shall constitute reasonable care of
the Collateral when in Collateral Agent’s possession; provided, however, that
Collateral Agent shall not be required to make any presentment, demand or
protest, or give any notice and need not take any action to preserve any rights
against any prior party or any other person in connection with the Obligations
or with respect to the Collateral.
8.9 Litigation and Other
Proceedings.
(a)
The Issuer shall have the right and reasonable obligation to
commence and diligently prosecute such suits, proceedings or other actions for
infringement or other damage, or reexamination or reissue proceedings, or
opposition or cancellation proceedings as are reasonable to protect any of the
patents, trademarks, copyrights, mask works or trade secrets. No such
suit, proceeding or other actions shall be settled or voluntarily dismissed, nor
shall any party be released or excused of any claims of or liability for
infringement, without the prior written consent of Collateral Agent, which
consent shall not be unreasonably withheld.
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(b)
Upon the occurrence and during the continuation of
an Event of Default, Collateral Agent shall have the right but not the
obligation to bring suit or institute proceedings in the name of the Issuer or
Collateral Agent to enforce any rights in the Collateral, including any license
thereunder, in which event the Issuer shall at the request of Collateral Agent
do any and all lawful acts and execute any and all documents reasonably required
by Collateral Agent in aid of such enforcement. If Collateral Agent
elects not to bring suit to enforce any right under the Collateral, including
any license thereunder, the Issuer agrees to use all reasonable measures,
whether by suit, proceeding or other action, to cause to cease any infringement
of any right under the Collateral by any entity and for that purpose agrees to
diligently maintain any action, suit or proceeding against any entity so
infringing necessary to prevent such infringement.
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9.
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INDEMNIFICATION.
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9.1 Indemnification by the
Issuer. The Issuer will indemnify and hold harmless each
Holder of Registrable Securities which are included in a registration statement
pursuant to the provisions of Section 7 hereof and any
underwriter (as defined in the Securities Act) for such Holder, and any person
who controls such Holder within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act or such underwriter within the
meaning of the Securities Act, and any officer, director, investment adviser,
employee, agent, partner, member or affiliate of such Holder (each, a “Holder Indemnified Party”),
from and against, and will reimburse each such Holder Indemnified Party with
respect to, any and all claims, actions, demands, losses, damages, liabilities,
costs and reasonably incurred expenses to which such Holder or any such Holder
Indemnified Party may become subject under the Securities Act or otherwise,
insofar as such claims, actions, demands, losses, damages, liabilities, costs or
reasonably incurred expenses arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (ii) any materially
inaccurate representation or breach of any material warranty, agreement or
covenant of the Issuer contained herein; provided, however, that the
Issuer will not be liable in any such case to the extent that any such claim,
action, demand, loss, damage, liability, cost or expense is caused by an untrue
statement or alleged untrue statement or omission or alleged omission (1) made
in conformity with information furnished by such Holder in writing specifically
for use in the preparation thereof, or (2) which was cured in an amendment or
supplement to the prospectus (or any amendment or supplement thereto) delivered
to the Holder on a timely basis to permit proper delivery thereof prior to the
date on which any Registrable Securities were transferred or sold.
9.2 Indemnification by the
Holder. Each Holder of Registrable Securities which are
included in a registration statement pursuant to the provisions of Section 7 hereof will
indemnify and hold harmless the Issuer, and any Person who controls the Issuer
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act, and any officer, director, employee, agent, partner, member or
affiliate of the Issuer (each, an “Issuer Indemnified Party”)
from and against, and will reimburse the Issuer Indemnified Parties with respect
to, any and all losses, damages, liabilities, costs or reasonably incurred
expenses to which such Issuer Indemnified Parties may become subject under the
Securities Act or otherwise, insofar as such losses, damages, liabilities, costs
or reasonably incurred expenses are caused by any untrue or alleged untrue
statement of any material fact contained in such registration statement, any
prospectus contained therein or any amendment or supplement thereto, or are
caused by the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was so made solely in reliance
upon and in conformity with written information furnished by such Holder
specifically for use in the preparation thereof; provided, however, that the
liability of any Holder pursuant to this Section 9.2 shall be limited
to an amount not to exceed the net proceeds received by such Holder from the
sale of Registrable Securities pursuant to the registration statement which
gives rise to such obligation to indemnify.
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9.3 Procedures. Promptly
after receipt by a party indemnified pursuant to the provisions of Section 9.1 or Section 9.2 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions, such indemnified party will, if a claim thereof is to be
made against the indemnifying party pursuant to the provisions of Section 9.1 or Section 9.2, notify the
indemnifying party of the commencement thereof; but the omission to so notify
the indemnifying party will not relieve it from any liability which it may have
to an indemnified party otherwise than under this Section 9 and shall not
relieve the indemnifying party from liability under this Section 9, except to the
extent that such indemnifying party is materially prejudiced by such
omission. In case such action is brought against any indemnified
party and such indemnified party notifies the indemnifying party of the
commencement thereof, the indemnifying party shall have the right to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election to assume the defense thereof,
the indemnifying party will not be liable to such indemnified party pursuant to
the provisions of Section
9.1 or Section
9.2 for any legal or other expense subsequently incurred by such
indemnified party in connection with the defense thereof. No
indemnifying party shall be liable to an indemnified party for any settlement of
any action or claim without the consent of the indemnifying party. No
indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect to such claim or litigation.
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10.
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CONDITIONS TO
CLOSING.
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10.1 Conditions to the
Obligations of the Investors. The obligation of an Investor to
proceed with the Closing and the Subsequent Closing(s) (which, for purposes of
this Section 10, shall
be defined as a “Closing”) is subject to the
following conditions, any and all of which may be waived by such Investor, in
whole or in part, to the extent permitted by applicable law:
(a) Representations and
Warranties. Each of the representations and warranties of the
Issuer contained in this Agreement shall be true and correct in all material
respects as of the Closing as though made on and as of the Closing, except (i)
for changes specifically permitted by this Agreement, (ii) that those
representations and warranties which address matters only as of a particular
date shall remain true and correct as of such date, and (iii) such failures to
be true and correct which would not, individually or in the aggregate, have a
Material Adverse Effect on the Issuer. Unless the Investor receives
written notice to the contrary at the Closing, such Investor shall be entitled
to assume that the preceding is accurate in all respects at the
Closing.
(b) Agreement and
Covenants. The Issuer shall have performed or complied in all
material respects with all agreements and covenants required by this Agreement
to be performed or complied with by it on or prior to the
Closing. Unless the Investor receives written notice to the contrary
at the Closing, such Investor shall be entitled to assume that the preceding is
accurate in all respects at the Closing.
(c) No
Order. No Governmental Authority shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction, or other order (whether temporary, preliminary or permanent)
which is in effect and which materially restricts, prevents or prohibits
consummation of the Closing or any transaction contemplated by this
Agreement.
(d) Opinion of Issuer’s
Counsel. At each Subsequent Closing, the Investor shall have
received an opinion of Issuer’s counsel, dated the date of such Subsequent
Closing, in a form reasonably acceptable to such Investor.
(e) Closing Certificate.
The Investor shall have received a certificate executed by the Chief Executive
Officer or Chief Financial Officer of the Issuer, dated as of the Closing, to
the effect that the conditions set forth in Sections 10.1(a) and (b) have been fulfilled, and
providing representations to certain matters regarding security interest filings
by or on behalf of the Issuer.
10.2 Conditions to the
Obligations of the Issuer. The obligation of the Issuer to
proceed with the Closing is subject to the following conditions, any and all of
which may be waived by the Issuer, in whole or in part and with respect to any
or all Investors, to the extent permitted by applicable law:
(a) Representations and
Warranties. Each of the representations and warranties of the
Investors contained in this Agreement shall be true and correct as of the
Closing as though made on and as of the Closing, except (i) for changes
specifically permitted by this Agreement, and (ii) that those representations
and warranties which address matters only as of a particular date shall remain
true and correct as of such date. Unless the Issuer receives written
notification to the contrary at the Closing, the Issuer shall be entitled to
assume that the preceding is accurate in all respects at the
Closing.
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(b) Agreement and
Covenants. The Investors shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the
Closing. Unless the Issuer receives written notification to the
contrary at the Closing, the Issuer shall be entitled to assume that the
preceding is accurate in all respects at the Closing.
(c) No
Order. No Governmental Authority shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction, or other order (whether temporary, preliminary or permanent)
which is in effect and which materially restricts, prevents or prohibits
consummation of the Closing or any transaction contemplated by this
Agreement.
11. MISCELLANEOUS.
11.1 Defined
Terms. As used herein the following terms shall have the
following meanings:
(a) “Affiliate” has the meaning
ascribed to it in Rule 12b-2 of the General Rules and Regulations under the
Exchange Act, as in effect on the date hereof.
(b)
“Aggregate Purchase Price” has
the meaning specified in Section 1.1 of this
Agreement.
(c) “Agreement” has the meaning
specified in the Preamble to this Agreement.
(d) “Bylaws” means the Bylaws of
the Issuer, as the same may be supplemented, amended, or restated from time to
time.
(e) “Certificate of Incorporation”
means the Issuer’s Certificate of Incorporation, as the same may be
supplemented, amended or restated from time to time.
(f)
“Closing” has the meaning
specified in Section 2.1
of this Agreement.
(g) “Collateral” means the property
described on Appendix A
attached to this Agreement.
(h) “Commitment Amount” has the
meaning specified in Section
1.1 of this Agreement.
(i)
“Common Stock” has
the meaning specified in the Recitals of this Agreement.
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(j)
“Confidential
Information” has the meaning specified in Section 6.4 of this
Agreement.
(k) “Contract” means any indenture,
lease, sublease, loan agreement, mortgage, note, restriction, commitment,
obligation or other contract, agreement or instrument.
(l)
“Conversion Shares” means 3.1
Conversion Shares, 3.2 Conversion Shares or 3.3 Conversion Shares, as
applicable.
(m) “Due Date” has the meaning
specified in Section 1.4
of this Agreement.
(n) “Equity Security” means the
Issuer’s Common Stock or preferred stock that is convertible into Common Stock
which shall not be redeemable at the option of the holder of such preferred
stock.
(o) “Exchange Act” means the
Securities Exchange Act of 1934, as amended.
(p) “First Tranche” has the meaning
specified in Section
1.3(a).
(q) “First Tranche Commitment
Amount” has the meaning specified in Section 1.3(a).
(r)
“Fundamental Transaction” means
that the Issuer shall, directly or indirectly, in one or more related
transactions, (a) consolidate or merge with or into (whether or not the Issuer
is the surviving corporation or entity) another person or entity where either
(i) the Issuer’s stockholders immediately prior to such transaction own 50% or
less of the outstanding voting securities of the surviving entity or (ii) the
person or entity with which the Issuer is merging is not a subsidiary of the
Issuer, (b) sell, assign, transfer, convey or otherwise dispose of all or
substantively all of the properties or assets of the Issuer and its
subsidiaries, taken as a whole, to another person or entity (other than to a
subsidiary of the Issuer), (c) consummate a stock purchase agreement or other
business combination with another person or entity or group of persons whereby
such other person or entity or group of persons acquires 50% or more of the
outstanding voting securities of the Issuer on a fully diluted basis or (d)
otherwise dissolve or liquidate all or substantively all of the properties or
assets of the Issuer and its subsidiaries, taken as a whole; provided, however, under no
circumstances shall the consummation of the transactions contemplated by this
Agreement or by a Future Private Placement constitute a Fundamental
Transaction.
(s) “Future Private Placement”
means the consummation of a private placement of the Issuer’s Equity Securities
for an aggregate purchase price of at least $10,000,000, issued to and purchased
by those participants in such private placement, which amount shall not include
any existing debt of the Issuer, including the Notes issued pursuant to this
Agreement.
30
(t)
“GAAP” means generally accepted
accounting principles in effect in the United States of America.
(u) “Governmental Authority” means
any nation or government, any state or other political subdivision thereof, and
any entity or official exercising executive, legislative, judicial, regulatory
or administrative functions of or pertaining to government.
(v) “Holder” has the meaning
specified in Section 7.1
of this Agreement.
(w) “Holder Indemnified Party” has
the meaning specified in Section 9.1 of this
Agreement.
(x) “Insolvency Proceeding” means
any proceeding commenced by or against any entity under any provision of the
United States Bankruptcy Code, as amended, or under any other bankruptcy or
insolvency law, including assignments for the benefit of creditors, formal or
informal moratoria, compositions, extension generally with its creditors, or
proceedings seeking reorganization, arrangement, or other relief.
(y) “Intellectual Property” means
all property over which the Issuer has valid and legally binding Intellectual
Property Rights.
(z) “Intellectual Property Rights”
has the meaning specified in Section 4.15 of this
Agreement.
(aa) “Interest” has the meaning
specified in Section 1.2
of this Agreement.
(bb) “Investors” has the meaning
specified in the Preamble to this Agreement.
(cc) “Issuer” has the meaning
specified in the Preamble to this Agreement.
(dd) “Issuer Indemnified Party” has
the meaning specified in Section 9.2 of this
Agreement.
(ee) “Lien” means any mortgage,
pledge, security interest, encumbrance, lien or charge of any kind (including
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 UCC or comparable law of any jurisdiction in connection with such mortgage,
pledge, security interest, encumbrance, lien or charge).
(ff) “Material Adverse Effect” means
a material and adverse change in, or effect on, the financial condition,
properties, assets, liabilities, rights, obligations, operations or business, of
a Person and its Subsidiaries taken as a whole.
31
(gg) “Notes” has the meaning
specified in the Recitals to this Agreement.
(hh) “Offering” has the meaning
specified in Section 1.1
of this Agreement.
(ii) “Options” means any rights,
options or warrants, other than the Warrants, to subscribe for, purchase or
otherwise acquire Common Stock or Conversion Shares.
(jj) “Permit” means any permit,
certificate, consent, approval, authorization, order, license, variance,
franchise or other similar indicia of authority issued or granted by any
Governmental Authority.
(kk) “Person” means an individual,
partnership, corporation, business trust, joint stock company, estate, trust,
unincorporated association, joint venture, Governmental Authority or other
entity, of whatever nature.
(ll) “Preferred Stock” means the
Series A Convertible Preferred Stock, the Series C Convertible Preferred Stock,
the Series D Convertible Preferred Stock, the Series E Convertible Preferred
Stock and the Series F Convertible Preferred Stock.
(mm) “Register”, “registered” and “registration” refer to a
registration of the offering and sale or resale of Common Stock effected by
preparing and filing a registration statement in compliance with the Securities
Act and the declaration or ordering of the effectiveness of such registration
statement.
(nn)
“Registrable
Securities” means the Conversion Shares and Warrant Shares and any other
shares of Common Stock or other securities issued in respect of the Notes by way
of a stock dividend or stock split or in connection with a combination or
subdivision of the Common Stock or by way of a recapitalization, merger or
consolidation or reorganization of the Issuer; provided, however, that as to
any particular securities, such securities will cease to be Registrable
Securities upon the earlier of (i) the sale of such securities pursuant to
registration or in a transaction exempt from the registration and prospectus
delivery requirements of the Securities Act under Section 4(1) thereof, (ii) the
date that such securities are permitted to be disposed pursuant to Rule 144
under the Securities Act, regardless of whether current public information
regarding the Issuer is available, as such term is understood under Rule 144 of
the Securities Act, or (iii) the date on which all such securities cease to be
outstanding; and, as a result of the event or circumstance described in either
of the foregoing clauses (i) or (ii), all transfer restrictions and restrictive
legends with respect thereto are removed or removable in accordance with this
Agreement or such legends, as the case may be.
(oo) “Registration Statement” has
the meaning specified in Section 7.2 of this
Agreement.
32
(pp) “Required Consent” has the
meaning specified in Section
6.5 of this Agreement.
(qq) “Requirements of Law” means as
to any Person, the certificate of incorporation, bylaws or other organizational
or governing documents of such Person, and any domestic or foreign and federal,
state or local law, rule, regulation, statute or ordinance or determination of
any arbitrator or a court or other Governmental Authority, in each case
applicable to, or binding upon, such Person or any of its properties or to which
such Person or any of its property is subject.
(rr) “Rule 144” has the meaning
specified in Section 7.2
of this Agreement.
(ss) “SEC” means the Securities and
Exchange Commission.
(tt) “SEC Reports” has the meaning
specified in Section 4.7
of this Agreement.
(uu) “Securities” has the meaning specified in Section 4.13 of this
Agreement.
(vv) “Securities Act” means the
Securities Act of 1933, as amended.
(ww) “Subsequent Closing(s)” has the
meaning specified in Section
2.1(b) of this Agreement.
(xx)
“Subsequent
Tranche(s)” has the meaning specified in Section 1.3(b) of this
Agreement.
(yy) “Subsequent Tranche Commitment
Amount” means the Investor’s pro rata portion of each Subsequent Tranche
based on such Investor’s Commitment Amount divided by the aggregate Commitment
Amounts of all the Investors.
(zz) “Subsidiary” means as to any
Person, a corporation or limited partnership of which more than 50% of the
outstanding capital stock or partnership interests having full voting power is
at the time directly or indirectly owned or controlled by such
Person.
(aaa) “Suspension Event” has the
meaning specified in Section
7.5(a) of this Agreement.
(bbb) “Suspension Period” has the
meaning specified in Section
7.5(b) of this Agreement.
(ccc) “UCC” has the meaning specified
in the recitals to this Agreement.
33
(ddd) “Warrant” has the meaning
specified in the Recitals to this Agreement
(eee) “Warrant Price” means a price
equal to 1% of the purchase price per share of the securities offered in the
Future Private Placement or, if no Future Private Placement is consummated prior
to the Due Date, $0.01 per share of Common Stock.
(fff) “Warrant Shares” has the
meaning specified in Section
4.6 of this Agreement.
(ggg) “3.1 Conversion Shares” has the
meaning specified in Section
3.1 of this Agreement.
(hhh) “3.2 Conversion Shares” has the
meaning specified in Section
3.2 of this Agreement.
(iii) “3.3 Conversion Shares” has the
meaning specified in Section
3.3 of this Agreement.
11.2 Other Definitional
Provisions.
(a) All
terms defined in this Agreement shall have the defined meanings when used in any
certificates, reports or other documents made or delivered pursuant hereto or
thereto, unless the context otherwise requires.
(b) Terms
defined in the singular shall have a comparable meaning when used in the plural,
and vice versa.
(c) All
accounting terms shall have a meaning determined in accordance with
GAAP.
(d) The
words “hereof,” “herein” and “hereunder,” and words of similar import, when used
in this Agreement shall refer to this Agreement as a whole (including any
exhibits and schedules hereto) and not to any particular provision of this
Agreement.
11.3 Notices. All
notices, requests, demands, claims, and other communications hereunder shall be
in writing and shall be delivered by certified or registered mail (first class
postage pre-paid), guaranteed overnight delivery, or facsimile transmission if
such transmission is confirmed by delivery by certified or registered mail
(first class postage pre-paid) or guaranteed overnight delivery, to the
following addresses and telecopy numbers (or to such other addresses or telecopy
numbers which such party shall subsequently designate in writing to the other
party):
34
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(a)
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if
to the Issuer to:
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ReGen
Biologics, Inc.
▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Attention:
▇▇▇▇▇ ▇. ▇▇▇▇▇
Telecopy:
201.651.5141
with a
copy to:
Pillsbury
▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ LLP
▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Attention:
▇▇▇▇▇ ▇. Main, Esq.
Telecopy:
703.770.7901
(b) if
to an Investor, to the address or telecopy number set forth next to its name on
the signature page hereto.
Each such
notice or other communication shall for all purposes of this Agreement be
treated as effective or having been given when delivered if delivered by hand,
by messenger or by courier, or if sent by facsimile, upon confirmation of
receipt.
11.4 Entire
Agreement. This Agreement (including the exhibits and
schedules attached hereto) and other documents delivered at the Closing pursuant
hereto, contain the entire understanding of the parties in respect of its
subject matter and supersede all prior agreements and understandings between the
parties with respect to such subject matter.
11.5 Expenses;
Taxes. The parties shall pay their own fees and expenses,
including their own counsel fees, incurred in connection with this Agreement or
any transaction contemplated hereby; provided, however, that the
Issuer shall pay all Perfection Expenses incurred in connection with this
Agreement, the Notes and the transactions contemplated herein and therein as and
when such expenses are incurred or become due. As used herein
“Perfection Expenses” shall include all reasonable costs incurred in connection
with the filing, perfecting and maintaining the security interests and liens
granted in this Agreement including without limitation the filing of any
financing statements, intellectual property security agreements or control
agreements. Any sales tax, stamp duty, deed transfer or other tax
(except taxes based on the income of an Investor) arising out of the issuance of
the Securities (but not with respect to subsequent transfers) by the Issuer to
an Investor and consummation of the transactions contemplated by this Agreement
shall be paid by the Issuer.
11.6 Amendment;
Waiver. Subject to Section 6.7 of this Agreement,
this Agreement may not be modified, amended, supplemented, canceled or
discharged, except by written instrument executed by the Issuer and Collateral
Agent. No failure to exercise, and no delay in exercising, any right,
power or privilege under this Agreement shall operate as a waiver, nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
the exercise of any other right, power or privilege. No waiver of any
breach of any provision by Collateral Agent shall be deemed to be a waiver of
any preceding or succeeding breach of the same or any other provision, nor shall
any waiver be implied from any course of dealing between the
parties. No extension of time for performance of any obligations or
other acts hereunder or under any other agreement shall be deemed to be an
extension of the time for performance of any other obligations or any other
acts. The rights and remedies of the parties under this Agreement are
in addition to all other rights and remedies, at law or equity, that they may
have against each other.
35
11.7 Binding Effect;
Assignment. This Agreement shall bind and inure to the benefit
of each of the parties hereto and the respective successors and permitted
assigns of each of the parties and shall bind all persons who become bound as a
debtor to this Agreement; provided, however, that neither
this Agreement nor any rights hereunder may be assigned by Issuer without the
prior written consent of Collateral Agent.
11.8 Counterparts; Facsimile
Signature. This Agreement may be executed by facsimile
signature and in any number of counterparts, each of which shall be an original
but all of which together shall constitute one and the same
instrument.
11.9 Headings. The
headings contained in this Agreement are for convenience of reference only and
are not to be given any legal effect and shall not affect the meaning or
interpretation of this Agreement.
11.10 Governing Law; Jury Trial
Waiver. This Agreement shall be construed in accordance with
and governed for all purposes by the laws of the State of New York, without
regard to principles of conflicts of law. Jurisdiction shall lie in
the State of New York. THE UNDERSIGNED ACKNOWLEDGE THAT THE RIGHT TO
TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED UNDER CERTAIN
CIRCUMSTANCES. TO THE EXTENT PERMITTED BY LAW, EACH PARTY, AFTER
CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS
OR HER CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL
PARTIES, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION ARISING
OUT OF OR RELATED TO THIS AGREEMENT OR ANY OTHER DOCUMENT, INSTRUMENT OR
AGREEMENT BETWEEN THE UNDERSIGNED PARTIES.
11.11 Severability. The
parties stipulate that the terms and provisions of this Agreement are fair and
reasonable as of the date of this Agreement. However, if any
provision of this Agreement shall be determined by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or
invalidated. If, moreover, any of those provisions shall for any
reason be determined by a court of competent jurisdiction to be unenforceable
because excessively broad or vague as to duration, activity or subject, it shall
be construed by limiting, reducing or defining it, so as to be
enforceable.
[Signature
Pages Follow]
36
IN WITNESS WHEREOF, the
parties hereto have caused this Subscription Agreement to be duly executed and
delivered as of the date set forth below.
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NAME OF INVESTOR:
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ADDRESS FOR NOTICES (Please Print): | ||||
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SIGNATURE:
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| Attention: |
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By:
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Telecopy: |
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Name:
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Phone: |
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Title:
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Email Address: |
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| Tax Identification #: |
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Exact Name to appear on Note:
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Commitment
Amount (in dollars, including First Tranche Commitment Amount indicated below):
________________________________
First
Tranche Commitment Amount (in dollars):
________________________________
ACKNOWLEDGED
AND ACCEPTED AS OF THE DATE FIRST ABOVE WRITTEN BY:
REGEN
BIOLOGICS, INC.
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By:
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||||
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Name:
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▇▇▇▇▇▇
▇. ▇▇▇▇▇▇, ▇▇., Ph.D.
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Title:
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President
and Chief Executive Officer
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APPENDIX
A
COLLATERAL
DESCRIPTION
DEBTOR: ReGen Biologics,
Inc., a Delaware corporation
Subject
to the proviso set forth below, all personal property of Issuer (herein referred
to as “Debtor”, “Issuer”, “Borrower”), whether presently existing or hereafter
created or acquired, and wherever located, including, but not limited
to:
(a) all
accounts (including health-care-insurance receivables), chattel paper (including
tangible and electronic chattel paper), deposit accounts, documents (including
negotiable documents), equipment (including all accessions and additions
thereto), general intangibles (including all intellectual property, licenses,
payment intangibles and software), goods (including fixtures), instruments
(including promissory notes), inventory (including all goods held for sale or
lease or to be furnished under a contract of service, and including returns and
repossessions), investment property (including securities and securities
entitlements), letter of credit rights, money, and all of Debtor's books and
records with respect to any of the foregoing, and the computers and equipment
containing said books and records;
(b) all
common law and statutory copyrights and copyright registrations, applications
for registration, now existing or hereafter arising, in the United States of
America or in any foreign jurisdiction, obtained or to be obtained on or in
connection with any of the forgoing, or any parts thereof or any underlying or
component elements of any of the forgoing, together with the right to copyright
and all rights to renew or extend such copyrights and the right (but not the
obligation) of Secured Party to ▇▇▇ in its own name and/or in the name of the
Debtor for past, present and future infringements of copyright;
(c) all
trademarks, service marks, trade names and service names and the goodwill
associated therewith, together with the right to trademark and all rights to
renew or extend such trademarks and the right (but not the obligation) of
Secured Party to ▇▇▇ in its own name and/or in the name of the Debtor for past,
present and future infringements of trademark;
(d) all
(i) patents and patent applications filed in the United States Patent and
Trademark Office or any similar office of any foreign jurisdiction, and
interests under patent license agreements, including, without limitation, the
inventions and improvements described and claimed therein, (ii) licenses
pertaining to any patent whether Debtor is licensor or licensee,
(iii) income, royalties, damages, payments, accounts and accounts receivable now
or hereafter due and/or payable under and with respect thereto, including,
without limitation, damages and payments for past, present or future
infringements thereof, (iv) right (but not the obligation) to ▇▇▇ in the name of
Debtor and/or in the name of Secured Party for past, present and future
infringements thereof, (v) rights corresponding thereto throughout the world in
all jurisdictions in which such patents have been issued or applied for, and
(vi) reissues, divisions, continuations, renewals, extensions and
continuations-in-part with respect to any of the foregoing; and
(e) any
and all cash proceeds and/or noncash proceeds of any of the foregoing,
including, without limitation, insurance proceeds, and all supporting
obligations and the security therefor or for any right to
payment. All terms above have the meanings given to them in the New
York Uniform Commercial Code, as amended or supplemented from time to
time;
provided, however, that the
foregoing collateral description and the collateral pledged pursuant to this
Agreement shall not include the following (the “▇▇▇▇▇▇
Collateral”):
The
intellectual property of Borrower, rights in which shall constitute Collateral
(as defined in that certain Intellectual Property Security Agreement, dated
March 14, 2000, as amended or supplemented (the “▇▇▇▇▇▇ Security Agreement”),
and shall consist of all of Borrower’s right and title to, and interest in, any
copyrights, patents and trademarks (including without limitation those listed on
Schedules A, B and C of the ▇▇▇▇▇▇ Security Agreement), designs, mechanisms,
processes, methods and instrumentation, which constitute, or directly relate to,
the combination of Borrower’s collagen meniscus implant product and the NeOsteo
growth hormone, commonly known as “CMI-2”.
The
▇▇▇▇▇▇ Collateral shall not include (i) patent rights to the meniscus implant
product without the NeOsteo growth hormone, commonly known as “CMI-1” or (ii)
designs, mechanisms, processes, methods and instrumentation that constitute, or
directly relate to, CMI-1.
EXHIBIT
A
FORM OF
NOTE
EXHIBIT
B
FORM OF
WARRANT
EXHIBIT
C
RISK
FACTORS RELATED TO THE SALE
THE
ISSUER IS DEPENDENT ON THIRD PARTY FINANCING TO CONTINUE ITS OPERATIONS AND MAY
NOT BE ABLE TO SATISFY THE OBLIGATIONS UNDER THE NOTES.
The
Issuer depends on third party financing, such as that contemplated by the
Agreement, in order to fund and continue its operations. The Issuer
may require additional third party financing in order to satisfy its obligations
under the Notes. There can be no assurance that the Issuer will be
able to obtain the necessary funds from third parties on acceptable terms, if at
all, or that the Issuer will be able to satisfy the obligations under the
Notes.
THE
COLLATERAL SECURING THE NOTES MAY NOT BE SUFFICIENT TO REPAY THE
NOTES.
The
Collateral securing the Notes may not be sufficient to repay the
Notes. Further, a certain amount of the Collateral is subject to a
first Lien, and to the extent the Collateral shall be used to satisfy the debt
obligations of the Issuer, the proceeds received upon realization of such
portion of the Collateral will be applied first to amounts due to the holder(s)
of the first Lien.
THERE CAN
BE NO ASSURANCE THAT THE ISSUER WILL BE ABLE TO CONSUMMATE A FUTURE PRIVATE
PLACEMENT.
The
Issuer’s ability to consummate a Future Private Placement is subject to many
factors, including, but not limited to, the status of certain investigations,
reviews and/or proceedings by the FDA and the Congress, or any committee or
subcommittee thereof, as disclosed in the Issuer’s SEC Reports, and there can be
no assurance that these investigations, reviews and/or proceedings will end soon
or in a manner favorable to the Issuer or that the Issuer will be able to
consummate a Future Private Placement.
SALES OR
THE PERCEPTION OF FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
BECAUSE THE MARKET PRICES FOR BIOTECHNOLOGY AND MEDICAL DEVICE STOCKS ARE LIKELY
TO REMAIN VOLATILE, OUR STOCK PRICE MAY BE MORE ADVERSELY AFFECTED THAN OTHER
COMPANIES BY SUCH FUTURE SALES.
Sales of
substantial numbers of shares of our Common Stock in the public market, or the
perception that significant sales are likely, could adversely affect the market
price of our Common Stock. Compliance with the registration rights
provisions of the Subscription Agreement could create the perception that all
the shares of Common Stock that may be issuable upon conversion of the Notes
will soon be available for sale, and this number of shares is greater than the
average trading volume for our shares. No prediction can be made as
to the effect, if any, that market sales of such shares will have on the market
price of our Common Stock. Sales of substantial amounts of such
shares in the public market could adversely affect the market price of our
Common Stock.
THE
CONVERSION RATE OF THE NOTES FOR SHARES OF COMMON STOCK OR OTHER EQUITY
SECURITIES MAY NOT BEAR ANY RELATIONSHIP TO OUR ASSETS, BOOK VALUE, EARNINGS
HISTORY, OR OTHER ESTABLISHED CRITERIA. AS A RESULT, YOU MAY
EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.
The
conversion rate of the Notes for shares of the Common Stock or other Equity
Securities was established based on such factors as our capital requirements,
financial conditions and prospects, percentage of ownership to be held by
investors following this sale, and the general condition of securities markets
at the time of the sale. The conversion rate does not necessarily
bear any relationship to our assets, book value, earnings history or other
established criteria of value. As a result, you may experience
immediate and substantial dilution.
WE ARE
UNABLE TO DETERMINE WITH CERTAINTY WHEN THE REGISTRATION STATEMENT TO BE FILED
WITH THE SEC WILL BE DECLARED EFFECTIVE. CONSEQUENTLY, YOU MAY NOT BE
ABLE TO SELL YOUR SHARES OF COMMON STOCK FOR A SUBSTANTIAL PERIOD OF
TIME.
Although
we have undertaken to register the shares of Common Stock upon conversion of the
Notes for resale by you, you should be aware that we are unable to determine
with certainty when the registration statement to be filed with the SEC will
become effective. The SEC may seek to review our registration
statement, in which case, the period necessary to achieve effectiveness of the
registration statement with the SEC will be affected by our ability to provide
the SEC with sufficient disclosures satisfactory to the SEC. The
length of the SEC review process is uncertain and may extend to a number of
months. As you are aware, the shares of Common Stock that may issued
upon conversion of the Notes that are being sold in this sale are restricted in
nature and may not be publicly resold absent the effectiveness of the
registration statement or pursuant to an applicable exemption from registration.
Consequently, you may not be able to sell your shares of Common Stock for a
substantial period of time.
WE MAY
ALLOCATE THE NET PROCEEDS OF THIS SALE IN WAYS WITH WHICH YOU MAY NOT
AGREE.
We will
have broad discretion in how we apply the net proceeds from this
sale. Because the net proceeds of this sale are not required to be
allocated to any specific investment or transaction, you cannot determine at
this time the value or appropriateness of our application of the net proceeds,
and you and other shareholders may not agree with our decisions. For
example, we may attempt to acquire other businesses or assets using a portion of
the net proceeds of this sale which otherwise could have been used for working
capital. There can be no assurance that we will be able to acquire
any desirable businesses or assets or that, if acquired, that we will be able to
successfully develop or integrate such businesses or assets.
EXHIBIT
D
EXPLANATION
OF “BENEFICIAL OWNERSHIP”
Securities
that are subject to a power to vote or dispose are deemed beneficially owned by
the person who holds such power, directly or indirectly. This means
that the same securities may be deemed beneficially owned by more than one
person, if such power is shared. In addition, the beneficial
ownership rules provide that shares which may be acquired upon exercise of an
option or warrant, or which may be acquired upon the termination of a trust,
discretionary account or similar arrangement, which can be effected within a
period of sixty (60) days from the date of determination, are deemed to be
“beneficially” owned. Furthermore, shares that are subject to rights
or powers even though such rights or powers to acquire are not exercisable
within the 60-day period may also be deemed to be beneficially owned if the
rights or powers were acquired “with the purpose or effect of changing or
influencing the control of the issuer or in connection with or as a participant
in any transaction having such purpose or effect.”
In
determining whether securities are “beneficially owned,” benefits which are
substantially equivalent to those of ownership by virtue of any contract,
understanding, relationship, agreement or other arrangement should cause the
securities to be listed as “beneficially owned.”
Thus, for
example, securities held for a person’s benefit in the name of others or in the
name of any estate or trust in which such person may be interested should also
be listed. Securities held by a person’s spouse, children or other
members of such person’s family who are such person’s dependents or who live in
such person’s household should be listed as “beneficially owned” unless such
person does not enjoy benefits equivalent to those of ownership with respect to
such securities.
If a
person has a proprietary or beneficial interest in a controlled corporation,
partnership, personal holding company, trust or estate which owns of record or
beneficially any securities, such person should state the amount of such
securities owned by such controlled corporation, partnership, personal holding
company, trust or estate in lieu of allocating such person’s proprietary
interest, and by note or otherwise, please indicate that. In any
case, the name of the controlled corporation, partnership, personal holding
company, or estate must be stated.
In all
cases the nature of the beneficial ownership should be stated.
EXHIBIT
E
ADDITIONAL
INFORMATION
The
Investor hereby provides the following additional information:
(a) Excluding
the Notes (and any Conversion Shares into which such Notes may be converted)
subscribed for above, set forth below is the number of shares of preferred stock
of the Issuer (“Preferred
Stock”) or Common Stock and options, rights or warrants of the Issuer
(“Options” and together
with the Preferred Stock and Common Stock, “Owned Securities”) which the
Investor beneficially
owns or of which the Investor is the record owner on the date
hereof. Please refer to the definition of beneficial ownership
on Exhibit D
attached hereto. If none, please so state.
Number of
shares of Preferred Stock and Common Stock:_______________________ (excluding
the Notes, and any Conversion Shares into which such Notes may be converted,
subscribed for above)
Number of
Options: __________________
Please
indicate by an asterisk (*) above if the Investor disclaims “beneficial ownership”
of any of the above listed Owned Securities, and indicate in response to
question (b) below who has beneficial ownership.
(b) If
the Investor disclaims “beneficial ownership”
in question (a), please furnish the following information with
respect to the person(s) other than the Investor who is the beneficial owner(s)
of the Owned Securities in question. If not applicable, please check
box: ¨
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Name of Beneficial Owner:
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Relationship to the Investor:
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Number of Owned Securities Beneficially Owned:
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I
As to the Owned Securities indicated as being “beneficially owned”
in answers to question (a) and (b) does any person other than the person
identified as the “beneficial owner”
have:
(i)
the sole or shared power to vote or to direct the vote of any
such Owned Securities?
Yes _____ No _____
or
(ii) the
sole or shared power to dispose or to direct the disposition of any such Owned
Securities (referred to as “dispositive power”)?
Yes _____ No _____
If the
answer is “Yes” to either of the forgoing questions, the Investor should set
forth below the name and address of each person who has either such power or
with whom the indicated “beneficial owner”
shares such power, together with such number of shares to which such rights
relates.
IF
THE INVESTOR IS AN ENTITY OR A TRUST:
The
Investor must list the name of each natural person associated with the Investor
entity or trust who has or shares voting or dispositive power with respect to
the shares indicated as being “beneficially
owned” in answers to questions (a) or (c). For an investment
or holding company, the investment manager(s) would normally be the person(s)
who hold(s) or share(s) voting and dispositive power. For a trust,
the natural person(s) holding or sharing voting or dispositive power would
normally be the trustee(s). For other types of entities, the natural
person(s) holding or sharing voting or dispositive power would normally be the
officer(s) empowered by the board of directors to make such decisions, or if
there is no such officer, each of the directors. Disclosure is
required for each natural person who in practice has voting or dispositive
power, regardless of that person’s formal title or position within the
organization.
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NAME
OF INVESTOR:
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Name
of Natural Person
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Type
of Power: Voting/Dispositive/Both
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Address
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Position
or Title
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(d) In
any pending legal proceeding, is the Investor or any of its affiliates a party, or does
the Investor or any such affiliate have an interest,
adverse to the Issuer or any affiliate of the
Issuer?
Yes _____ No _____
If the
answer is “Yes,” please describe, and state the nature and amount of, such
interest.
(e) Is
there any family relationship (including relationships by blood, marriage, and
adoption, except those more remote than first cousin) between the Investor or
any of its affiliates
and any director or officer of the Issuer, any affiliate of the Issuer or
any person who has been chosen to become a director or officer of the
Issuer?
Yes _____ No
_____
If the
answer is “Yes,” please describe the relationship.
(f)
Are any of the Owned Securities listed in response to question
(a) the subject of a voting agreement, contract or other arrangement whereby
others have voting control over, or any other interest in, any of the Investor’s
Owned Securities?
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¨ Yes
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¨ No
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If the
answer is “Yes”, please give details:____________________________________________.
(g)
Please describe each position, office or other
material relationship which the Investor has had with the Issuer or any of its
affiliates, including any Subsidiary of the Issuer, within the past three
years. Please include a description of any loans or other
indebtedness, and any contracts or other arrangements or transactions involving
a material amount, payable by the Investor to the Issuer or any of its
affiliates, including its Subsidiaries, or by the Issuer or any of its
affiliates, including its Subsidiaries, to the Investor. “Affiliates” of the Issuer
include its directors and executive officers, and any other person controlling
or controlled by the Issuer. If none, please so
state.
Answer:
(h)
Please provide the name and address of other person(s), if any, to
whom any proxy statements, registration statements (including notice of
effectiveness thereof), prospectuses or similar documents and information should
be delivered by the Issuer on behalf of the Investor in the future, with respect
to the Investor’s shares:
(i)
Please advise if a Financial Industry Regulatory
Authority (FINRA) member has placed with you the Notes or Conversion Shares
being purchased hereunder: (Name of Member):
________________________________
(j)
Please
disclose if the Investor is a broker-dealer: ¨ Yes ¨ No
(k) Please
disclose if the Investor is affiliated with a
broker-dealer: ¨ Yes
¨ No
If the
answer is “Yes,” please answer the following: the shares being registered for
resale were purchased in the ordinary course of business, and at the time of the
purchase, the selling stockholder had no agreements or understandings, directly
or indirectly, with any person to distribute the securities: ¨ Yes
¨ No