Exhibit 10.37
[LOGO of PROTEIN POLYMER TECHNOLOGIES]
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SECURITIES PURCHASE AGREEMENT
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July 19, 2001
PaulHastings
Paul, Hastings, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
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TABLE OF CONTENTS
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Page
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1. Definitions....................................................................... 1
2. Authorization of Securities....................................................... 4
3. Sale and Purchase of Preferred Stock and Warrants................................. 4
4. Register of Securities; Restrictions on Transfer of Securities; Removal of
Restrictions on Transfer of Securities............................................ 6
4.1 Register of Securities...................................................... 6
4.2 Restrictions on Transfer.................................................... 6
4.3 Removal of Transfer Restrictions............................................ 9
5. Representations and Warranties by and Covenants of the Company.................... 9
5.1 Organization, Standing, etc................................................. 9
5.2 Certificate of Incorporation and Bylaws..................................... 9
5.3 Subsidiaries................................................................ 9
5.4 Qualification............................................................... 9
5.5 Capital Stock............................................................... 10
5.6 Corporate Acts and Proceedings.............................................. 10
5.7 Compliance with Other Instruments........................................... 10
5.8 Binding Obligations......................................................... 11
5.9 Securities Laws............................................................. 12
5.10 Financial Statements........................................................ 12
5.11 Changes..................................................................... 12
5.12 Material Agreements of the Company.......................................... 12
5.13 Litigation.................................................................. 13
5.14 Brokers or Finders.......................................................... 13
5.15 Disclosure.................................................................. 13
5.16 Intellectual Property....................................................... 13
5.17 Retirement Obligations...................................................... 13
5.18 No Governmental Consent or Approval Required................................ 14
5.19 Registration................................................................ 14
5.20 Reporting Status............................................................ 14
5.21 Title to Property and Assets................................................ 14
5.22 Environmental and Safety Laws............................................... 14
5.23 Absence of Undisclosed Liabilities.......................................... 15
6. Conditions of Parties' Obligations................................................ 15
6.1 Conditions of Investors' Obligations at the Closing......................... 15
6.2 Conditions of Company's Obligations......................................... 16
7. [Intentionally Omitted.].......................................................... 16
8. Rights of First Refusal........................................................... 16
8.1 Subsequent Offerings........................................................ 16
8.2 Exercise of Rights.......................................................... 17
8.3 Issuance of Equity Securities to Other Persons.............................. 17
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TABLE OF CONTENTS
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(continued)
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8.4 Termination of Rights of First Refusal.................................... 17
8.5 Excluded Securities....................................................... 17
8.6 Prior Rights.............................................................. 18
9. Registration of Restricted Stock................................................. 18
9.1 Required Registration..................................................... 18
9.2 Registration Procedures................................................... 19
9.3 Expenses.................................................................. 20
9.4 Indemnification........................................................... 20
9.5 Reporting Requirements Under the Exchange Act............................. 23
9.6 Stockholder Information................................................... 23
10. Miscellaneous.................................................................... 23
10.1 Waivers and Amendments.................................................... 23
10.2 Effect of Waiver or Amendment............................................. 23
10.3 Rights of Holders Inter Se................................................ 24
10.4 Exculpation Among Investors and Holders................................... 24
10.5 Brokers or Finders........................................................ 24
10.6 Notices................................................................... 24
10.7 Severability.............................................................. 25
10.8 Parties in Interest....................................................... 25
10.9 Headings.................................................................. 25
10.10 Choice of Law............................................................. 25
10.11 Expenses.................................................................. 25
10.12 Counterparts.............................................................. 25
10.13 Publicity................................................................. 26
ANNEXES
A - Schedule of Investors and Required Payment
B - Certificate of Designation of Series H Preferred Stock
C - Form of First Warrant
D - Form of Second Warrant
E - Risk Factors
F - Schedule of Exceptions and Disclosure Schedule
G - Form of Legal Opinion
H - Form of Press Release
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SERIES H
SECURITIES PURCHASE AGREEMENT
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THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is entered into
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as of July 19, 2001 among Protein Polymer Technologies, Inc., a Delaware
corporation (the "Company"), and the other Persons listed on Annex A hereto
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(sometimes referred to herein individually as "Investor" and sometimes
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collectively as "Investors").
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1. Definitions. Unless the context otherwise requires, the
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terms defined in this Section 1 shall have the meanings herein specified for all
purposes of this Agreement, applicable to both the singular and plural forms of
any of the terms herein defined. All accounting terms defined in this Section 1
and those accounting terms used in this Agreement not defined in this Section 1
shall, except as otherwise provided for herein, be construed in accordance with
those generally accepted accounting principles that the Company is required to
employ by the terms of this Agreement. If and so long as the Company has any
Subsidiary, the accounting terms defined in this Section 1 and those accounting
terms appearing in this Agreement but not defined in this Section 1 shall be
determined on a consolidated basis for the Company and each of its Subsidiaries,
and the financial statements and other financial information to be furnished by
the Company pursuant to this Agreement shall be consolidated.
"2000 Annual Report" shall mean the Company's Report on Form
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10-KSB for the fiscal year ended December 31, 2000.
"Action" shall mean any action, suit, arbitration or other
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legal, administrative or other proceeding by or before any court, arbitrator or
Governmental Entity.
"Agreement" shall mean this Securities Purchase Agreement.
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"Balance Sheet" and "Balance Sheet Date" shall have the
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meaning assigned to such terms in Section 5.10 hereof.
"Board" shall mean the Board of Directors of the Company.
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"California Securities Law" shall mean the California
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Corporate Securities Law of 1968, as amended.
"Certificate" shall have the meaning assigned to it in
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Section 2 hereof.
"Closing" and "Closing Date" shall have the meanings
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assigned to such terms in Section 3(b) hereof.
"Common Stock" shall mean the Company's common stock, par
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value $0.01 per share.
"Commission" shall mean the Securities and Exchange
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Commission.
"Company" shall have the meaning assigned to it in the
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introductory paragraph of this Agreement.
"Conversion Stock" shall have the meaning assigned to it in
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Section 2 hereof.
"Equity Security" shall mean the Common Stock, or any
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security convertible into the Common Stock, or any security carrying any warrant
or right to subscribe to or purchase the Common Stock, or any such warrant or
right.
"First Warrants" shall have the meaning assigned to such
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term in Section 2 hereof.
"First Warrant Stock" shall have the meaning assigned to
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such term in Section 2 hereof.
"Form 10-QSB" shall mean the Company's Quarterly Report on
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Form 10-QSB for the quarterly period ended March 31, 2001.
"Governmental Entity" shall mean any federal, state, local
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or foreign governmental bureau, commission, board, agency or instrumentality.
"Holder" of any security shall mean the record or
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beneficial owner of such security. A Holder of Preferred Stock shall be treated
as the Holder of the Conversion Stock underlying the Preferred Stock and a
Holder of a Warrant shall be treated as the Holder of the Warrant Stock
underlying the Warrant.
"Holders of a Majority of the Preferred Stock" shall mean,
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on a given date, the Person or Persons who are the Holders of greater than 50%
of the outstanding Preferred Stock.
"Initial Investors" shall mean those Investors purchasing
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Preferred Stock and Warrants at the Closing.
"Investor" shall have the meaning assigned to it in the
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introductory paragraph of this Agreement.
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"Material Adverse Effect" shall mean a material and
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adverse effect on the business, assets, property, business prospects, or
financial condition of the Company.
"Person" shall mean any natural person, corporation, trust,
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association, company, partnership, joint venture and other entity and any
government, governmental agency, instrumentality or political subdivision.
"Preferred Stock" shall have the meaning assigned to it in
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Section 2 hereof.
"Required Payment" shall mean, with respect to each
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Investor, the number of shares of Preferred Stock purchased by such Investor,
multiplied by $100.00, as set forth on Annex A hereto.
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"Restricted Stock" means (i) the Common Stock issued or
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issuable to the Investors upon conversion of the Preferred Stock issued and sold
pursuant to this Agreement or upon exercise of the Warrants and (ii) any Common
Stock issued or issuable (either directly or upon the conversion or exercise of
any warrant, right, or other security) with respect to the Common Stock referred
to in clause (i) above by way of a stock dividend or stock split or in
connection with a combination of shares, reclassification, recapitalization,
merger or consolidation or reorganization; provided, however, that such shares
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of Common Stock shall only be treated as Restricted Stock if and so long as they
have not been (x) sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction, or (y) sold in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act under Section 4(1) thereof so that all transfer restrictions
and restrictive legends with respect to such Common Stock are removed upon the
consummation of such sale and the Company receives an opinion of counsel for the
Company (with a copy to the seller of such Common Stock), which shall be in form
and content reasonably satisfactory to the Company, to the effect that such
Common Stock in the hands of the purchaser is freely transferable without
restriction or registration under the Securities Act in any public or private
transaction.
"Rule 144" shall mean Rule 144 of the Commission under the
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Securities Act.
"Second Warrants" shall have the meaning assigned to such
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term in Section 2 hereof.
"Second Warrant Stock" shall have the meaning assigned to
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such term is Section 2 hereof.
"Securities" shall have the meaning assigned to it in
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Section 2 hereof.
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"Securities Act" shall mean the Securities Act of 1933, as
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amended.
"Stock Plans" shall mean the Company's 1989 Stock Option
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Plan, 1992 Stock Option Plan, 1996 Non-Employee Directors' Stock Option Plan and
Employee Stock Purchase Plan, collectively.
"Subsequent Closing" and "Subsequent Closing Date" shall
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have the meanings assigned to such terms in Section 3(c) hereof.
"Subsidiary" shall mean any Person, at least 50% of the
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outstanding voting stock of which is at the time owned or controlled directly or
indirectly by the Company or by one or more of such subsidiary entities or both,
where "voting stock" means any shares of stock having general voting power in
electing the board of directors.
"Suspension Period" shall have the meaning assigned to it in
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Section 9.1(b) hereof.
"Warrants" shall mean the First Warrants and Second
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Warrants, collectively.
"Warrant Stock" shall mean the First Warrant Stock and
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Second Warrant Stock, collectively.
2. Authorization of Securities. The Company has authorized the
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issue and sale of up to (i) 30,000 shares of its Series H Convertible Preferred
Stock, par value $0.01 per share (the "Preferred Stock"), having the rights,
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preferences and privileges set forth in the Certificate of Designation attached
hereto as Annex B (hereinafter referred to as the "Certificate"), (ii) warrants,
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having terms and conditions in the form of Warrant attached hereto as Annex C
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(collectively, the "First Warrants"), to purchase up to an aggregate of 450,000
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shares of Common Stock (the "First Warrant Stock") and (iii) warrants, having
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terms and conditions in the form of Warrant attached hereto as Annex D
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(collectively, the "Second Warrants"), to purchase up to an aggregate of 300,000
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shares of Common Stock (the "Second Warrant Stock"). The Common Stock into which
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the Preferred Stock is convertible is sometimes referred to herein as the
"Conversion Stock"; and the Preferred Stock, the Warrants, the Warrant Stock and
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the Conversion Stock are sometimes referred to herein individually and
collectively as the "Securities."
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3. Sale and Purchase of Preferred Stock and Warrants.
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(a) Upon the terms and subject to the conditions herein
contained, the Company agrees to sell to each Initial Investor, and each Initial
Investor severally agrees to purchase from the Company, at the Closing on the
Closing Date,
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(i) the number of shares of Preferred Stock, and (ii) the First Warrants and the
Second Warrants to purchase the number of shares of First Warrant Stock and
Second Warrant Stock, in each case as set forth opposite its name on Annex A
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hereto, and each Initial Investor shall pay to the Company the Required Payment.
(b) The initial closing of the sale to and purchase by the
Initial Investors of Preferred Stock and Warrants (the "Closing") shall occur at
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the offices of Paul, Hastings, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, at the hour of 10 o'clock A.M., California time, on July
24, 2001 or at such different time or day as the Initial Investors and the
Company shall agree (the "Closing Date"). At the Closing, the Company will
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deliver to each Investor instruments or certificates evidencing the Securities
being purchased by it, each of which shall be registered in such Initial
Investor's name as stated on Annex A hereto, against delivery to the Company of
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payment by cashier's check or wire transfer, or such other form acceptable to
the Company, in an amount equal to the Required Payment of such Initial
Investor; provided, however, that each of ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ Development
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Corporation and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ shall be deemed to have made its Required
Payment through the cancellation by the Company of a convertible promissory note
in the principal amount of $400,000 issued to such Initial Investor dated March
27, 2001.
(c) After the Closing, additional shares of Preferred Stock
(which, together with the Preferred Stock issued at the Closing, shall not
exceed 30,000 shares in the aggregate), additional First Warrants (which,
together with the First Warrants issued at the Closing, shall not represent the
right to acquire more than 450,000 shares of First Warrant Stock in the
aggregate) and additional Second Warrants (which together with the Second
Warrants issued at the Closing, shall not represent the right to acquire more
than 300,000 shares of Second Warrant Stock in the aggregate), may be issued at
one or more subsequent closings (each, a "Subsequent Closing") which shall be
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held on or before October 31, 2001. Each Subsequent Closing shall be effective
upon the date (a "Subsequent Closing Date") of the Company's receipt from an
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Investor of a cashier's check or wire transfer funds in the amount of such
Investor's Required Payment. Effective upon each such Subsequent Closing, the
applicable Investor shall also enter into and become a party to this Agreement
as if such Investor had executed such agreements at the Closing.
(d) Notwithstanding the foregoing, no shares of Preferred
Stock, and no Warrants, shall be offered or sold after the Closing to any
Investor if, in the opinion of the Company and its counsel, (i) such offer and
sale would not be exempt from the registration and prospectus delivery
requirements of the Securities Act and exempt from the registration or
qualification requirements of all applicable state securities laws, or (ii) such
offers and sales would detract from or adversely affect the availability and
effectiveness of the exemption from or compliance with such federal and state
requirements relied upon in respect of the offer and sale of Preferred Stock and
Warrants to the Initial Investors at the Closing.
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(e) At the Closing, the Company shall prepare Annex A with
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Investors purchasing Preferred Stock and Warrants at the Closing. Promptly after
each Subsequent Closing, the Company shall amend Annex A as appropriate.
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4. Register of Securities; Restrictions on Transfer of Securities;
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Removal of Restrictions on Transfer of Securities.
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4.1 Register of Securities. The Company or its duly appointed
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agent shall maintain a separate register for the shares of Preferred Stock,
Warrants and Common Stock, in which it shall register the issue and sale of all
such securities. All transfers of the Securities shall be recorded on the
register maintained by the Company or its agent, and the Company shall be
entitled to regard the registered holder of the Securities as the actual holder
of the Securities so registered until the Company or its agent is required to
record a transfer of such Securities on its register. Subject to Section 4.2(c)
hereof, the Company or its agent shall be required to record any such transfer
when it receives the Security to be transferred duly and properly endorsed by
the registered holder thereof or by its attorney duly authorized in writing.
4.2 Restrictions on Transfer.
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(a) Each Investor understands and agrees that the
Securities it will be acquiring have not been registered under the Securities
Act, and that accordingly they will not be fully transferable except as
permitted under various exemptions contained in the Securities Act, or upon
satisfaction of the registration and prospectus delivery requirements of the
Securities Act. Each Investor acknowledges that it must bear the economic risk
of its investment in the Securities for an indefinite period of time since they
have not been registered under the Securities Act and therefore cannot be sold
unless they are subsequently registered or an exemption from registration is
available.
(b) Each Investor hereby represents and warrants to
the Company that:
(i) Such Investor is acquiring the Securities
it has agreed to purchase (and, if applicable, will acquire the Warrant Stock
and Conversion Stock) for investment purposes only, for its own account, and not
as nominee or agent for any other Person, and not with the view to, or for
resale in connection with, any distribution thereof within the meaning of the
Securities Act.
(ii) Such Investor knows of no public
solicitation or advertisement of an offer in connection with the Securities.
(iii) Such Investor has carefully reviewed this
Agreement. Such Investor has had, during the course of the transaction and prior
to its
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purchase of the Preferred Stock and Warrants, the opportunity to ask questions
of and receive answers from the Company concerning the terms and conditions of
the offering and to obtain additional information necessary to verify the
accuracy of any information furnished to it or to which it had access. Such
Investor has received all information that it has requested regarding the
Company and believes that such information is sufficient to make an informed
decision with respect to the purchase of the Preferred Stock and Warrants.
Without limiting the generality of the foregoing, such Investor has received a
copy of (A) the 2000 Annual Report, (B) the Form 10-QSB, and (C) the "Risk
Factors" attached as Annex E hereto.
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(iv) Such Investor is able to bear the
economic risk of its investment in the Preferred Stock and Warrants and has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of, and protecting its interests with respect
to, its investment in the Preferred Stock and Warrants. Such Investor is aware
of the risk involved in its investment in the Preferred Stock and Warrants and
has determined that such investment is suitable for it in light of its financial
circumstances and available investment opportunities.
(v) This Agreement, when executed and
delivered by such Investor, constitutes the legal, valid and binding obligation
of such Investor and is enforceable against such Investor in accordance with its
terms.
(vi) Such Investor is an "accredited
investor" as that term is defined in Rule 501 of Regulation D promulgated under
the Securities Act.
(vii) Such Investor's jurisdiction of
formation or incorporation (if applicable) and principal place of business or
its residency as set forth on the signature page hereof or the annexes hereto by
such Investor are accurate.
(viii) The purchase by such Investor of the
Preferred Stock and Warrants hereunder does not violate or conflict with any law
or regulation applicable to such Investor.
(ix) No Person engaged by such Investor has,
or will have, any right or claim against the Company for any commission, fee or
other compensation as a finder or broker, or in any similar capacity.
(c) Each Investor hereby further agrees with the
Company as follows:
(i) Subject to Section 4.3 hereof, the
instruments or certificates evidencing the Securities it has agreed to purchase,
and each instrument or certificate issued in transfer thereof, will bear the
following legend:
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"The securities evidenced by this certificate have not been registered
under the Securities Act of 1933 and have been taken for investment
purposes only and not with a view to the distribution thereof, and,
except as stated in an agreement between the holder of this
certificate, or its predecessor in interest, and the issuer
corporation, such securities may not be sold or transferred unless
there is an effective registration statement under such Act covering
such securities or the issuer corporation receives an opinion, in form
and content reasonably satisfactory to the issuer corporation, of
counsel reasonably acceptable to the issuer corporation (which may be
counsel for the issuer corporation) stating that such sale or transfer
is exempt from the registration and prospectus delivery requirements
of such Act."
(ii) The instruments or certificates representing
such Securities, and each instrument or certificate issued in transfer thereof,
will also bear any legend required under any applicable state securities law.
(iii) Each Investor covenants that in no event will it
dispose of any of the Securities (other than pursuant to Rule 144 or pursuant to
a registration statement filed with the Commission pursuant to the Securities
Act) unless and until (i) such Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a statement of
the circumstances surrounding the proposed disposition, and (ii) if requested by
the Company, such Investor shall have furnished the Company with an opinion of
its counsel, reasonably satisfactory in form and substance to the Company, to
the effect that (a) such disposition will not require registration under the
Securities Act or (b) appropriate action necessary for compliance with the
Securities Act and any applicable state, local or foreign law has been taken.
The restrictions on transfer imposed by this Section 4.2(c)(iii) shall cease and
terminate as to the Securities when: (i) such securities shall have been
effectively registered under the Securities Act and sold by the holder thereof
in accordance with such registration, or (ii) an opinion of the kind described
in the preceding sentence states that all future transfers of such securities by
the holder thereof would be exempt from registration under the Securities Act.
(iv) Such Investor consents to the Company's making a
notation on its records to any transfer agent of the Common Stock, Warrants or
Preferred Stock in order to implement the restrictions on transfer of the
Securities mentioned in this subsection (c).
(d) Each Investor, or each Person executing this Agreement
on behalf of an Investor, further represents and warrants to the Company that
such Investor or other Person, as the case may be, has been duly authorized to,
and has, and as of the Closing, and Subsequent Closing if applicable, will have,
full power and authority (including corporate, if applicable) to, execute and
deliver this Agreement on
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behalf of such Investor, and to make the representations and warranties to the
Company in this Section 4 on behalf of such Investor, and to perform the
obligations of such Investor, if any, under this Agreement.
4.3 Removal of Transfer Restrictions. Any legend endorsed on a
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certificate evidencing a Security pursuant to Section 4.2(c)(i) hereof and the
stop transfer instructions and record notations with respect to such Security
shall be removed and the Company shall issue a certificate without such legend
to the holder of such Security (a) if such Security is registered under the
Securities Act, (b) if such holder provides the Company with an opinion, in form
and content reasonably satisfactory to the Company, of counsel (which may be
counsel for the Company) reasonably acceptable to the Company to the effect that
a public sale or transfer of such Security may be made without registration
under the Securities Act or (c) if such Security may be sold under Rule 144.
5. Representations and Warranties by and Covenants of the Company.
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In order to induce each Investor to enter into this Agreement and to purchase
the Preferred Stock and Warrants, the Company hereby represents and warrants to
each Investor that, except as set forth on Annex F hereto:
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5.1 Organization, Standing, etc. The Company is a corporation
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duly organized,In order to validly existing and in good standing under the laws
of the State of Delaware, and has all requisite corporate power and authority to
carry on its business as presently conducted and as proposed to be conducted, to
own and hold its properties and assets, to enter into this Agreement, to issue
the Securities and to carry out the provisions hereof and the terms of the
Certificate and the Securities.
5.2 Certificate of Incorporation and Bylaws. The copies of the
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Certificate of Incorporation and Bylaws of the Company which have been delivered
to (or made available for inspection by) the Investors prior to the execution of
this Agreement are true and complete and have not been amended or repealed,
except for the amendments to the Certificate of Incorporation that will be
accomplished by the filing of the Certificate with the Delaware Secretary of
State.
5.3 Subsidiaries. The Company has no Subsidiaries or
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affiliated companies and does not otherwise own or control, directly or
indirectly, any equity interest in any corporation, association or business
entity.
5.4 Qualification. The Company is duly qualified as a foreign
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corporation and in good standing in the State of California. The Company is not
qualified to do business as a foreign corporation in any other jurisdiction and
such qualification is not required as of the date hereof, except where the
failure to be so qualified would not have a Material Adverse Effect.
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5.5 Capital Stock.
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(a) As of the Closing Date, the authorized capital
stock of the Company will consist of (i) 5,000,000 shares of preferred stock,
par value $0.01 per share, 71,600 shares of which have been designated as Series
D Preferred Stock, 2,000,000 shares of which have been designated as Series X
Junior Participating Preferred Stock, 55,000 shares of which have been
designated as the Series E Preferred Stock, 27,317 shares of which have been
designated as the Series F Preferred Stock, and 35,000 of which have been
designated as Series G Preferred Stock and (ii) 60,000,000 shares of Common
Stock; and the Company will have no authority to issue any other capital stock.
There are 1,344.01 shares of Series D Preferred Stock issued and outstanding, no
shares of Series X Junior Participating Preferred Stock issued and outstanding,
29,312.50 shares of Series E Preferred Stock issued and outstanding, 26,420
shares of Series F Preferred Stock issued and outstanding and 21,000 shares of
Series G Preferred Stock issued and outstanding and, as of the Closing, before
giving effect to the transactions contemplated by this Agreement, 21,569,313
shares of Common Stock are issued and outstanding, and all such outstanding
shares of Series D Preferred Stock, Series E Preferred Stock, Series F Preferred
Stock, Series G Preferred Stock, and Common Stock have been duly authorized,
validly issued, fully paid and nonassessable.
(b) The Company has reserved a total of 19,644,017
shares of Common Stock for issuance upon the exercise of stock options or
purchase rights granted under the Stock Plans or under other stock option
agreements or warrants.
(c) Except as contemplated by this Agreement or as
expressly provided in Annex F to this Agreement, the Company has no outstanding
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subscription, option, warrant, right of first refusal, preemptive right, call,
contract, demand, commitment, convertible security or other instrument,
agreement or arrangement of any character or nature whatever under which the
Company is or may be obligated to issue Common Stock, preferred stock or other
Equity Security of any kind.
5.6 Corporate Acts and Proceedings. The Company has, and
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as of the Closing will have, full corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder and the
transactions contemplated hereby. All corporate acts and proceedings required
for the authorization, execution and delivery of this Agreement and the offer,
issuance and delivery of the Securities and the performance of this Agreement
and the terms of the Certificate have been lawfully and validly taken or will
have been so taken prior to the Closing.
5.7 Compliance with Other Instruments. The execution,
---------------------------------
delivery and performance by the Company of this Agreement and the observance of
the terms of the Certificate (a) will not require from the Board or stockholders
of the Company any consent or approval that has not been validly and lawfully
obtained, (b) will not require the Company to obtain or effect any
authorization, consent, approval, license, exemption of or filing or
registration with any Person, except such as shall have
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been lawfully and validly obtained prior to the Closing, (c) will not cause the
Company to violate or contravene, except where such violation or contravention
would not have a Material Adverse Effect, (i) any provision of law, (ii) any
rule or regulation of any Governmental Entity or the National Association of
Securities Dealers, (iii) any order, writ, judgment, injunction, decree,
determination or award binding upon the Company, or (iv) any provision of the
Certificate of Incorporation or Bylaws of the Company, (d) will not cause the
Company to violate or be in conflict with, result in a breach by the Company of
or constitute (with or without notice or lapse of time or both) a default by the
Company under, any material agreement, lease or instrument, commitment or
arrangement to which the Company is a party or by which the Company or any of
its properties, assets or rights are bound or affected, except where such
violation, conflict, breach or default would not have a Material Adverse Effect,
and (e) will not result in the creation or imposition of any lien. The Company
is not in violation of, or (with or without notice or lapse of time or both) in
default under, any term or provision of its Certificate of Incorporation or
Bylaws or of any indenture, loan or credit agreement, note agreement, deed of
trust, mortgage, security agreement or other agreement, lease or other
instrument, commitment or arrangement to which the Company is a party or by
which any of the Company's properties, assets or rights are bound or affected,
except where such violation or default would not have a Material Adverse Effect.
5.8 Binding Obligations.
-------------------
(a) This Agreement constitutes the legal,
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as such enforcement is limited by bankruptcy,
insolvency and other similar laws affecting the enforcement of creditors' rights
generally, and by general equitable principles.
(b) The Warrants are duly authorized and,
when executed, delivered and paid for in accordance with the terms of this
Agreement, will be free and clear of all liens and restrictions, other than
liens that may have been created or suffered by the Investor and restrictions
imposed by the Securities Act, state securities laws or this Agreement.
(c) The Preferred Stock is duly authorized
and, when issued and paid for in accordance with the terms of this Agreement,
will be duly authorized, validly issued and outstanding, fully paid and
nonassessable and free and clear of all liens and restrictions, other than liens
that might have been created or suffered by the Investors and restrictions
imposed by the Securities Act, state securities laws or this Agreement.
(d) The Conversion Stock and Warrant Stock
have been duly authorized and, when issued in accordance with the terms of the
Certificate and the Warrants, respectively, will be duly authorized, validly
issued and outstanding, fully paid and nonassessable and free and clear of all
liens and
11
might have been created or suffered by the Investors and restrictions imposed by
the Securities Act, state securities laws or this Agreement.
5.9 Securities Laws. Subject to the accuracy of the
---------------
representations and warranties contained in Section 4.2, the offer, issue and
sale of the Preferred Stock, Warrants, Conversion Stock and (assuming no
transfers of the Warrants and no change in applicable law between the date
hereof and the date of exercise of the Warrants) the Warrant Stock are and will
be exempt from the registration and prospectus delivery requirements of the
Securities Act, and are and will be exempt from qualification under the
California Securities Law and the state securities laws of the jurisdictions
where the Investors are resident.
5.10 Financial Statements. Included in the Form 10-QSB are the
--------------------
Company's unaudited balance sheet (the "Balance Sheet") as of March 31, 2001
-------------
(the "Balance Sheet Date"), and the unaudited statement of operations for the
------------------
three-month period then ended. Included in the 2000 Annual Report are the
Company's audited balance sheets as of December 31, 2000 and 1999 and the
audited statements of operations, cash flow and shareholders' equity for the
period then ended, together with the related opinion of Ernst & Young LLP,
independent certified public accountants. The foregoing financial statements (i)
are complete and correct in all material respects and are in accordance with the
books and records of the Company, (ii) present fairly the financial condition of
the Company at the Balance Sheet Date and other dates therein specified and the
results of operations and changes in financial position of the Company for the
periods therein specified, and (iii) have been prepared in accordance with
generally accepted accounting principles applied on a basis consistent with
prior accounting periods, except that the unaudited financial statements are
subject to year-end audit adjustments and do not contain footnotes or statements
of shareholders' equity and cash flow.
5.11 Changes. Since the Balance Sheet Date, except as disclosed
-------
in the Form 10-QSB or on Annex F, there has been no event which would have a
-------
Material Adverse Effect, and the Company has not (a) mortgaged, pledged or
subjected to lien any of its material assets, tangible or intangible, (b) sold,
transferred or leased any of its assets, (c) cancelled or compromised any
material debt or claim, or waived or released any right, of material value, (d)
suffered any physical damage, destruction or loss (whether or not covered by
insurance) having a material effect, (e) declared or paid any dividends on or
made any other distributions with respect to, or purchased or redeemed, any of
its outstanding Equity Securities, except for accrued dividends on the Series D
Preferred Stock and the Series F Preferred Stock, or (f) suffered or experienced
any material adverse change or loss in its business other than its continuing
losses from operations.
5.12 Material Agreements of the Company. The Company is not a
----------------------------------
party to or otherwise bound by any written or oral agreement, instrument or
arrangement that is material to the Company except for those agreements listed
in Item
12
13 of the 2000 Annual Report or as set forth on Annex F hereto. The Company has
-------
furnished or made available to each Investor true and complete copies of all
such agreements and all other agreements, instruments and other documents
requested by any Investor or its authorized representative.
5.13 Litigation. There is no Action pending and, to the best
----------
knowledge of the Company, there is no material Action threatened against the
Company or its properties, assets or business. To the Company's best knowledge,
the Company is not in default with respect to any order, writ, judgment,
injunction, decree, determination or award of any court or of any Governmental
Entity.
5.14 Brokers or Finders. Except as set forth on Annex F hereto,
------------------ -------
the Company has not incurred, and will not incur, directly or indirectly, as a
result of any action taken by the Company, any liability for brokerage or
finders' fees or agents' commissions or any similar charges in connection with
this Agreement. The Company agrees to indemnify and hold harmless the Investors
from any damages they incur as a result of any claims for such fees, commissions
or charges.
5.15 Disclosure. The representations and warranties of the
----------
Company contained herein, when read together with the annexes hereto and the
Form 10-QSB and the 2000 Annual Report do not contain any untrue statement of
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
5.16 Intellectual Property.
---------------------
(a) To the best of its knowledge, (i) the Company has
sufficient title to and ownership of, free and clear of all liens, claims and
encumbrances of any nature, all patents, patent rights, patent applications,
inventions, trademarks, service marks, trade names, copyrights and information,
proprietary rights and processes necessary for the conduct of its business, and
(ii) the use by the Company of the foregoing does not conflict with or
constitute an infringement of the rights of others.
(b) The Company has not received any communications
alleging that it has violated, and has no knowledge that the Company has
violated, or by conducting its business, the Company will not, to the best of
its knowledge, violate any of the patents, patent applications, inventions,
trademarks, service marks, trade names, copyrights or trade secrets,
confidential information, proprietary rights or processes of any other person.
5.17 Retirement Obligations. Except as set forth on Annex F
---------------------- -------
hereto, the Company does not have any Employee Benefit Plan as defined in the
Employee Retirement Income Security Act of 1974, as amended, other than as
disclosed in the 2000 Annual Report.
13
5.18 No Governmental Consent or Approval Required. Based in
--------------------------------------------
part on the representations made by the Investors in Section 4 of this
Agreement, no authorization, consent, approval or other order of, declaration
to, or registration, qualification, designation or filing with, any federal,
state or local governmental agency or body is required by or from the Company
for or in connection with the valid and lawful authorization, execution and
delivery by the Company of this Agreement or any other agreement entered into by
the Company in connection with this Agreement, and consummation of the
transactions contemplated hereby or thereby, or for or in connection with the
valid and lawful authorization, issuance, sale and delivery of the Preferred
Stock and the Warrants or for or in connection with the valid and lawful
authorization, reservation, issuance, sale and delivery of the Conversion Stock
and the Warrant Stock, other than the filing of the Certificate with the
Delaware Secretary of State, the qualification (or taking of such action as may
be necessary to secure an exemption from qualification, if available) of the
offer and sale of the Preferred Stock and Warrants under the California
Securities Law and other applicable state or federal securities laws, which
filings and qualifications, if required, will be accomplished in a timely manner
so as to comply with such qualification or exemption from qualification
requirements.
5.19 Registration. The Company's Common Stock is registered
------------
pursuant to Section 12(g) of the Exchange Act and, except as set forth on Annex
-----
F hereto, the Company has taken no action designed to, or likely to have the
-
effect of, terminating the registration of the Common Stock under the Exchange
Act, nor has the Company received any notification that the Securities and
Exchange Commission is contemplating terminating such registration.
5.20 Reporting Status. Except as set forth on Annex F hereto,
---------------- -------
the Company has filed in a timely manner all documents that the Company was
required to file under the Exchange Act during the 12 months preceding the date
of this Agreement and such documents complied in all material respects with the
Commission's requirements as of their respective filing dates, and the
information contained therein as of the date thereof did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein in light of the
circumstances under which they were made not misleading.
5.21 Title to Property and Assets. The Company owns its
----------------------------
property and assets free and clear of all mortgages, liens, loans and
encumbrances, except such encumbrances and liens that arise in the ordinary
course of business or except where such encumbrances and liens are not
reasonably likely to have a Material Adverse Effect. With respect to the
property and assets it leases, the Company is in compliance in all material
respects with such leases and, to the best of its knowledge, holds a valid
leasehold interest free of any liens, claims or encumbrances.
5.22 Environmental and Safety Laws. To the best of its
-----------------------------
knowledge, the Company is not in violation in any material respect of any
applicable
14
statute, law or regulation relating to the environment or occupational health
and safety, and to the best of its knowledge, no material expenditures are or
will be required in order to comply with any such existing statute, law or
regulation.
5.23 Absence of Undisclosed Liabilities. The Company has no
----------------------------------
material obligations or liabilities of any nature (matured or unmatured, fixed
or contingent) other than (i) those set forth or adequately provided for in the
Company's financial statements included in the Form 10-QSB and the 2000 Annual
Report or in the related Notes to Condensed Financial Statements included in the
Form 10-QSB, (ii) those incurred in the ordinary course of business and not
required to be set forth in the Balance Sheet under generally accepted
accounting principles, (iii) those incurred in the ordinary course of business
since the date of the Balance Sheet and not reasonably likely to have a Material
Adverse Effect and (iv) those incurred in connection with the execution of this
Agreement.
6. Conditions of Parties' Obligations.
----------------------------------
6.1 Conditions of Investors' Obligations at the Closing. The
---------------------------------------------------
obligation of each Investor to purchase and pay for the Preferred Stock and
Warrants which it has agreed to purchase on the Closing Date (or, if applicable,
the Subsequent Closing Date) is subject to the fulfillment prior to or on the
Closing Date (or, if applicable, the Subsequent Closing Date) of the following
conditions, any of which may be waived in whole or in part by such Investor:
(a) No Errors, etc. The representations and warranties of
--------------
the Company under this Agreement shall be deemed to have been made again on the
Closing Date (or, if applicable, the Subsequent Closing Date) and shall then be
true and correct in all material respects.
(b) Compliance with Agreement. The Company shall have
-------------------------
performed and complied with, in all material respects, all covenants,
agreements, obligations and conditions required by this Agreement to be
performed or complied with by it on or before the Closing Date.
(c) Certificate of the Company. The Company shall have
--------------------------
delivered to each Investor a certificate of the Company dated the Closing Date
(or, if applicable, the Subsequent Closing Date), executed by its President,
certifying the satisfaction of the conditions specified in subsections (a), (b),
(d), (e) and (g) of this Section 6.1.
(d) Certificate. The Certificate shall have been filed
-----------
with the Delaware Secretary of State.
(e) Qualification. All authorizations, approvals or
-------------
permits, if any, of any governmental authority or regulatory body of the United
States or
15
of any state that are required from the Company in connection with the lawful
issuance and sale of the Preferred Stock and Warrants to the Investors pursuant
to this Agreement shall have been duly obtained and shall be effective on and as
of the Closing.
(f) Opinion of Company Counsel. Upon request, each
--------------------------
Investor shall have received from Paul, Hastings, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, LLP,
counsel for the Company, an opinion, dated as of the Closing Date (or, if
applicable, as of the Subsequent Closing Date), in the form attached hereto as
Annex G.
-------
(g) Approval of Holders of Other Series of Preferred
------------------------------------------------
Stock. Each of (i) the holders of more than fifty percent of the outstanding
-----
Series D Preferred Stock, (ii) the holders of more than seventy-five percent of
the outstanding Series E Preferred Stock, (iii) the holders of more than fifty
percent of the outstanding Series F Preferred Stock, and (iv) the holders of
more than fifty percent of the outstanding Series G Preferred Stock shall have
consented to the issuance of the Preferred Stock and the other transactions
contemplated hereby, and shall have waived their respective rights of first
refusal with respect to the issuance of the Preferred Stock, the Warrants, the
Warrant Stock and the Conversion Stock.
(h) Minimum Investment. The Initial Investors shall be
------------------
committed to purchase not less than 12,000 shares of Preferred Stock at the
Closing.
(i) Proceedings and Documents. All corporate and other
-------------------------
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to the Investors and their counsel, and the Investors shall have
received all such counterpart originals and certified or other copies of such
documents as they may reasonably request.
6.2 Conditions of Company's Obligations. The Company's
-----------------------------------
obligation to issue and sell the Preferred Stock and Warrants to the Investors
on the Closing Date (or, if applicable, the Subsequent Closing Date) is subject
to the fulfillment prior to or at such date of (i) the conditions precedent
specified in paragraphs (d), (e), (g) and (h) of Section 6.1 hereof, (ii) the
condition described in Section 3(c) hereof, if applicable, and (iii) the
representations and warranties of the Investors under this Agreement shall be
deemed to have been made again on the Closing Date (or, if applicable, the
Subsequent Closing Date) and shall then be true and correct.
7. [Intentionally omitted.]
8. Rights of First Refusal.
-----------------------
8.1 Subsequent Offerings. Each Investor shall have the right
--------------------
of first refusal to purchase, pro rata, all (or any part of all) Equity
Securities that the Company may, from time to time, propose to sell and issue
after the Closing Date, other than the Equity Securities excluded by Section 8.5
hereof. Each Investor's pro rata share
16
of such Equity Securities is the ratio of the number of shares of Common Stock
with respect to which such Investor is deemed to be a Holder immediately prior
to the issuance of such Equity Securities (including in such number shares of
Common Stock issuable upon conversion of the Preferred Stock held by such
Investor) to the total number of shares of Common Stock with respect to which
all Investors are deemed to be Holders immediately prior to the issuance of such
Equity Securities (including in such number shares of Common Stock issuable upon
conversion of the Preferred Stock held by all Investors).
8.2 Exercise of Rights. If and each time the Company proposes
------------------
to issue any Equity Securities, it shall give each Investor written notice of
its intention, describing the Equity Securities, the price, and the general
terms and conditions upon which the Company proposes to issue the same. Each
Investor shall have twenty (20) days from the giving of such notice to agree to
purchase its pro rata share of such Equity Securities for the price and upon the
terms and conditions specified in the notice by giving written notice to the
Company and stating therein the quantity of Equity Securities to be purchased.
Each Investor shall have a right of over allotment such that if any Investor
fails to exercise its rights hereunder to agree to purchase its pro rata portion
of the Equity Securities, the other Investors may agree to purchase the
nonpurchasing Investor's portion on a pro rata basis, within ten (10) days from
the end of such twenty (20) day period.
8.3 Issuance of Equity Securities to Other Persons. If the
----------------------------------------------
Investors fail to exercise in full the rights of first refusal within such
twenty (20) plus ten (10) days, the Company shall have sixty (60) days
thereafter to complete the sale of the Equity Securities in respect of which the
Investors' rights were not exercised, at a price and upon general terms and
conditions no more favorable to the purchasers thereof than specified in the
Company's notice to the Investors pursuant to Section 8.2 hereof. If the Company
has not sold all of such Equity Securities within such sixty (60) days, the
Company shall not thereafter issue or sell any of such Equity Securities without
first offering such securities to the Investors in the manner provided above.
8.4 Termination of Rights of First Refusal. The rights of
--------------------------------------
first refusal established by this Section 8 shall terminate when there are no
longer more than 10,000 shares of Preferred Stock outstanding.
8.5 Excluded Securities. The rights of first refusal
-------------------
established by this Section 8 shall have no application to any of the following
Equity Securities: (a) Preferred Stock or Warrants issued pursuant to this
Agreement, including without limitation pursuant to Section 3(c) hereof, (b) the
Conversion Stock or the Warrant Stock, (c) stock issued pursuant to any rights
or agreements (including, without limitation, convertible securities, options
and warrants) outstanding on the date hereof as set forth on Annex F pursuant to
-------
Section 5.5(c) hereof, (d) any Common Stock issued to employees, officers,
directors, consultants or advisors of the Company for the primary purpose of
17
soliciting or retaining their services, whether issued pursuant to the Stock
Plans or otherwise, (e) any Equity Securities issued for a consideration other
than cash pursuant to a merger, consolidation, acquisition or similar business
combination, (f) any Equity Securities issued in connection with any stock
split, stock dividend or reverse stock split, (g) any Equity Securities issued
in a bona fide, firmly underwritten public offering registered under the
Securities Act, (h) any Equity Securities which the Holders of a Majority of
Preferred Stock agree shall not be subject to this Section 8 and (i) shares of
the Company's Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock or Series G Preferred Stock outstanding on the date hereof and
shares of Common Stock issuable upon conversion thereof or as a dividend
thereon.
8.6 Prior Rights. Nothwithstanding anything to the contrary
------------
herein, the rights set forth in this Section 8 are subject to the prior rights
of first refusal of the Series D Preferred Stock and Series F Preferred Stock.
9. Registration of Restricted Stock.
--------------------------------
9.1 Required Registration.
---------------------
(a) Subject to the existing registration rights of the
holders of Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock, within ninety (90) to one hundred
twenty (120) days after the Closing Date, the Company shall prepare and file a
registration statement under the Securities Act, on a form selected by the
Company, covering the Restricted Stock and shall use its commercially reasonable
efforts to cause such registration statement to become effective as
expeditiously as possible and to remain effective until the earlier to occur of
the date (i) the Restricted Stock covered thereby have been sold, or (ii) by
which all Restricted Stock covered thereby may be sold under Rule 144, without
volume limitations.
(b) Following the effectiveness of a registration
statement filed pursuant to this section, the Company may, at any time, suspend
the effectiveness of such registration for up to 45 days, as appropriate (a
"Suspension Period"), by giving notice to the Holders of Restricted Stock, if
-----------------
the Company shall have determined that the Company may be required to disclose
any material corporate development which disclosure may have a Material Adverse
Effect on the Company. Notwithstanding the foregoing, no more than two
Suspension Periods (i.e., 90 days) may occur in immediate succession. The
Company shall use its best efforts to limit the duration and number of any
Suspension Periods. The Holders of Restricted Stock agree that, upon receipt of
any notice from the Company of a Suspension Period, the Holders of Restricted
Stock shall forthwith discontinue disposition of Restricted Stock covered by
such registration statement or prospectus until the Holders of Restricted Stock
(i) are advised in writing by the Company that the use of the applicable
prospectus may be resumed, (ii) have received copies of a supplemental or
amended prospectus, if
18
applicable, and (iii) have received copies of any additional or supplemental
filings which are incorporated or deemed to be incorporated by reference into
such prospectus.
9.2 Registration Procedures. When the Company effects the
-----------------------
registration of the Securities under the Securities Act pursuant to Section
9.1(a) hereof, the Company will, at its expense, as expeditiously as possible:
(a) In accordance with the Securities Act and the rules
and regulations of the Commission, prepare and file with the Commission a
registration statement with respect to such securities and use its commercially
reasonable efforts to cause such registration statement to become and remain
effective for the period described herein, and prepare and file with the
Commission such amendments to such registration statement and supplements to the
prospectus contained therein as may be necessary to keep such registration
statement effective for such period and such registration statement and
prospectus accurate and complete for such period;
(b) Furnish to the Holders of securities participating in
such registration such reasonable number of copies of the registration
statement, preliminary prospectus, final prospectus and such other documents as
such Holders may reasonably request in order to facilitate the public offering
of such securities;
(c) Use its commercially reasonable efforts to register or
qualify the securities covered by such registration statement under such state
securities or blue sky laws of such jurisdictions as such participating Holders
may reasonably request within twenty (20) days following the original filing of
such registration statement, except that the Company shall not for any purpose
be required to execute a general consent to service of process or to qualify to
do business as a foreign corporation in any jurisdiction where it is not so
qualified;
(d) Notify the Holders participating in such registration,
promptly after it shall receive notice thereof, of the date and time when such
registration statement and each post-effective amendment thereto has become
effective or a supplement to any prospectus forming a part of such registration
statement has been filed;
(e) Notify such Holders promptly of any request by the
Commission for the amending or supplementing of such registration statement or
prospectus or for additional information;
(f) Prepare and file with the Commission, promptly upon
the request of any such Holders, any amendments or supplements to such
registration statement or prospectus which, in the opinion of counsel for such
Holders, is required under the Securities Act or the rules and regulations
thereunder in connection with the distribution of the Restricted Stock by such
Holders;
19
(g) Prepare and promptly file with the Commission, and
promptly notify such Holders of the filing of, such amendments or supplements to
such registration statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Securities Act, any event has
occurred as the result of which any such prospectus or any other prospectus as
then in effect would include an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading;
(h) In case any of such Holders is required to deliver a
prospectus at a time when the prospectus then in circulation is not in
compliance with the Securities Act or the rules and regulations of the
Commission, prepare promptly upon request such amendments or supplements to such
registration statement and such prospectus as may be necessary in order for such
prospectus to comply with the requirements of the Securities Act and such rules
and regulations; and
(i) Advise such Holders, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance of any stop order by the
Commission suspending the effectiveness of such registration statement or the
initiation or threatening of any proceeding for that purpose and promptly use
its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued.
9.3 Expenses. With respect to any registration effected
--------
pursuant to Section 9.1 hereof, all fees, costs and expenses of and incidental
to such registration and the public offering in connection therewith shall be
borne by the Company; provided, however, that the Holders of Restricted Stock
shall bear their own legal fees, if any, and their pro rata share of any
underwriting discounts or commissions, if any.
9.4 Indemnification.
---------------
(a) The Company will indemnify and hold harmless each
Holder of shares of Restricted Stock which are included in a registration
statement pursuant to the provisions of Section 9 hereof and any underwriter (as
defined in the Securities Act) for such Holder, and any person who controls such
Holder or such underwriter within the meaning of the Securities Act, and any
officer, director, employee, agent, partner or affiliate of such Holder, from
and against, and will reimburse such Holder and each such underwriter,
controlling person, officer, director, employee, agent, partner and affiliate
with respect to, any and all claims, actions, demands, losses, damages,
liabilities, costs and expenses to which such Holder or any such underwriter or
controlling person or any such officer, director, employee, agent, partner or
affiliate may become subject under the Securities Act or otherwise, insofar as
such claims, actions, demands, losses, damages, liabilities, costs or expenses
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in such registration statement, any
prospectus contained therein or any amendment or supplement
20
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or (ii) any breach of any representation,
warranty, agreement or covenant of the Company contained herein; provided,
however, that the Company will not be liable in any such case to the extent that
any such claim, action, demand, loss, damage, liability, cost or expense is
caused by an untrue statement or alleged untrue statement or omission or alleged
omission so made in strict conformity with information furnished by such Holder,
such underwriter or such controlling person or such officer, director, employee,
agent, partner or affiliate in writing specifically for use in the preparation
thereof.
(b) Each Holder of shares of the Restricted Stock which
are included in a registration pursuant to the provisions of Section 9 hereof
will indemnify and hold harmless the Company, and any Person who controls the
Company within the meaning of the Securities Act, from and against, and will
reimburse the Company and such controlling Persons with respect to, any and all
losses, damages, liabilities, costs or expenses to which the Company or such
controlling Person may become subject under the Securities Act or otherwise,
insofar as such losses, damages, liabilities, costs or expenses are caused by
any untrue or alleged untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or any amendment or
supplement thereto, or are caused by the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was
so made in reliance upon and in strict conformity with written information
furnished by such Holder specifically for use in the preparation thereof.
Notwithstanding the foregoing, the liability of any Holder of Restricted Stock
pursuant to this subsection (b) shall be limited to an amount equal to the per
share sale price (less any underwriting discount and commissions) multiplied by
the number of shares of Restricted Stock sold by such Holder pursuant to the
registration statement which gives rise to such obligation to indemnify (less
the aggregate amount of any damages which such Holder has otherwise been
required to pay in respect of such losses, damages, liabilities, costs or
expenses or any substantially similar losses, damages, liabilities, costs or
expenses arising from the sale of such Restricted Stock).
(c) Promptly after receipt by a party indemnified pursuant
to the provisions of paragraph (a) or (b) of this Section 9.4 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions, such indemnified party will, if a claim thereof is to be
made against the indemnifying party pursuant to the provisions of paragraph (a)
or (b), notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to an indemnified party otherwise than under this
Section 9.4 and shall not relieve the indemnifying party from liability under
this Section 9.4 unless such indemnifying party is
21
prejudiced by such omission. In case such action is brought against any
indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party shall have the right to participate in, and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party pursuant to the
provisions of such paragraph (a) or (b) for any legal or other expense
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation, unless an indemnified
party reasonably concludes that there may be defenses available to it that are
different from or additional to those available to the indemnifying party;
provided, however, that in such event, the indemnifying party shall bear the
fees and expenses of only one separate counsel for all indemnified parties. No
indemnifying party shall be liable to an indemnified party for any settlement of
any action or claim without the consent of the indemnifying party. No
indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect to such claim or litigation.
(d) If the indemnification provided for in subsection (a)
or (b) of this Section 9.4 is held by a court of competent jurisdiction to be
unavailable to a party to be indemnified with respect to any claims, actions,
demands, losses, damages, liabilities, costs or expenses referred to therein,
then each indemnifying party under any such subsection, in lieu of indemnifying
such indemnified party thereunder, hereby agrees to contribute to the amount
paid or payable by such indemnified party as a result of such claims, actions,
demands, losses, damages, liabilities, costs or expenses in such proportion as
is appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on the other in connection with the
statements or omissions which resulted in such claims, actions, demands, losses,
damages, liabilities, costs or expenses, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. Notwithstanding the foregoing, the amount
any Holder of Restricted Stock shall be obligated to contribute pursuant to this
subsection (d) shall be limited to an amount equal to the per share sale price
(less any underwriting discount and commissions) multiplied by the number of
shares of Restricted Stock sold by such Holder pursuant to the registration
statement which gives rise to such obligation to contribute (less the aggregate
amount of any damages which such Holder has otherwise been required to pay in
respect of such claim, action, demand, loss, damage, liability, cost or expense
or any substantially similar claim,
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action, demand, loss, damage, liability, cost or expense arising from the sale
of such Restricted Stock). No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution hereunder from any person who was not guilty of such fraudulent
misrepresentation.
9.5 Reporting Requirements Under the Exchange Act. The Company
---------------------------------------------
shall timely file such information, documents and reports as the Commission may
require or prescribe under Section 13 of the Exchange Act. The Company
acknowledges and agrees that the purpose of the requirements contained in this
Section 9.5 is to enable the Holders of Restricted Stock to comply with the
current public information requirement contained in paragraph (c) of Rule 144
should any such Holder ever wish to dispose of any of the Restricted Stock
without registration under the Securities Act in reliance upon Rule 144 (or any
other similar exemptive provision).
9.6 Stockholder Information. The Company may require each Holder
-----------------------
of Restricted Stock to furnish the Company such information with respect to such
Holder and the distribution of its Restricted Stock as the Company may from time
to time reasonably request in writing as shall be required by law or by the
Commission in connection therewith.
10. Miscellaneous.
-------------
10.1 Waivers and Amendments.
----------------------
(a) With the written consent of the Holders of a Majority
of the Preferred Stock then outstanding, the obligations of the Company and the
rights of the Holders of the Securities under this Agreement may be waived
(either generally or in a particular instance, either retroactively or
prospectively and either for a specified period of time or indefinitely), and
with the same consent the Company, when authorized by resolution of its Board,
may enter into a supplementary agreement for the purpose of changing in any
manner or eliminating any of the provisions of this Agreement or of any
supplemental agreement or modifying in any manner the rights hereunder of the
Holders of the Securities and the Company; provided, however, that no such
-------- -------
waiver or supplemental agreement shall reduce the aforesaid proportion of
Preferred Stock, the Holders of which are required to consent to any waiver or
supplemental agreement, without the consent of the Holders of all of the
Preferred Stock.
(b) Upon the effectuation of each such waiver, consent or
agreement of amendment or modification, the Company shall promptly give written
notice thereof to the Holders of the Preferred Stock who have not previously
consented thereto in writing.
10.2 Effect of Waiver or Amendment. Each Investor acknowledges
-----------------------------
that by operation of Section 10.1 hereof the Holders of a Majority of the
Preferred Stock then outstanding will, subject to the limitations contained in
such
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Section 10.1, have the right and power to diminish or eliminate certain
rights of such Investor under this Agreement.
10.3 Rights of Holders Inter Se. Each Holder of Securities shall
--------------------------
have the absolute right to exercise or refrain from exercising any right or
rights which such Holder may have by reason of this Agreement or any Security,
including, without limitation, the right to consent to the waiver of any
obligation of the Company under this Agreement and to enter into an agreement
with the Company for the purpose of modifying this Agreement or any agreement
effecting any such modification, and such Holder shall not incur any liability
to any other Holder or Holders of Securities with respect to exercising or
refraining from exercising any such right or rights.
10.4 Exculpation Among Investors and Holders. Each Investor
---------------------------------------
acknowledges that it is not relying upon any other Investor, or any officer,
director, employee, agent, partner or affiliate of any such other Investor, in
making its investment or decision to invest in the Company or in monitoring such
investment. Each Investor agrees that no Investor nor any controlling person,
officer, director, stockholder, partner, agent or employee of any Investor shall
be liable for any action heretofore or hereafter taken or omitted to be taken by
any of them relating to or in connection with the Company or the Securities, or
both. Without limiting the generality of the foregoing, no Investor (nor any of
its affiliates, officers, directors, stockholders, partners, agents or
employees) or other Holder of any Security shall have any obligation, liability
or responsibility whatsoever for the accuracy, completeness or fairness of any
or all information about the Company or any Subsidiary or their respective
properties, business or financial and other affairs, acquired by such Investor
or Holder from the Company or the respective officers, directors, employees,
agents, representatives, counsel or auditors of either, and in turn provided to
another Investor or Holder, nor shall any such Investor (or such other Person)
have any obligation or responsibility whatsoever to provide any such information
to any other Investor (or such other Person) or Holder or to continue to provide
any such information if any information is provided.
10.5 Brokers or Finders. Each Investor represents and warrants
------------------
to the Company and each other Investor that, as a result of such Investor's
actions, except as set forth under Section 5.14 of Annex F, no Person has, or as
-------
a result of the transaction as contemplated herein will have, any right or valid
claim against the Company or any other Investor for any commission, fee or other
compensation as a finder or broker, or in a similar capacity.
10.6 Notices. All notices, requests, consents and other
-------
communications required or permitted hereunder shall be in writing and shall be
given personally, by certified mail (return receipt requested, postage prepaid),
by air courier (with signed acknowledgment of receipt) or by facsimile
transmission (with confirmation of transmission):
24
(a) If to any Holder of any of the Securities, addressed to such
Holder at its address (or to its telecopier number) shown on his or
its signature page hereto, or at such other address (or telecopier
number) as such Holder may specify by written notice to the Company,
or
(b) If to the Company, addressed to it at ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (or, if by telecopier, to (▇▇▇) ▇▇▇-▇▇▇▇)
or at such other address (or telecopier number) as the Company may
specify by written notice to the Investors,
and each such notice, request, consent and other communication shall for all
purposes of the Agreement be treated as being effective or having been given
upon receipt.
10.7 Severability. Should any one or more of the provisions of
------------
this Agreement or of any agreement entered into pursuant to this Agreement be
determined to be illegal or unenforceable, all other provisions of this
Agreement and of each other agreement entered into pursuant to this Agreement,
shall be given effect separately from the provision or provisions determined to
be illegal or unenforceable and shall not be affected thereby.
10.8 Parties in Interest. All the terms and provisions of this
-------------------
Agreement shall be binding upon and inure to the benefit of the respective
successors of the parties hereto. This Agreement shall not run to the benefit of
or be enforceable by any Person other than a party to this Agreement and his or
its successors and permitted assigns.
10.9 Headings. The headings of the Sections and paragraphs of
--------
this Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
10.10 Choice of Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the substantive laws of the State of Delaware,
without regard to its principles of conflicts of laws.
10.11 Expenses. Each party to this Agreement shall bear its own
--------
costs and expenses incurred with the negotiation and execution of this Agreement
and the performance of the transactions contemplated hereby.
10.12 Counterparts. This Agreement may be executed in any number
------------
of counterparts and by different parties hereto in separate counterparts, with
the same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
25
10.13 Publicity. No party hereto shall originate any press
---------
release or other public announcement, written or oral, relating to this
Agreement, or to performance hereunder or the existence of any arrangement among
the parties hereto without the prior approval of the other parties hereto which
may be the subject of such press release or announcement, except to the extent
that such press release or announcement is reasonably concluded by a party to be
required by applicable law. The Investors acknowledge that the Company will be
required to file a copy of this Agreement, and the other agreements and
instruments contemplated hereby, with the Commission and to describe these
transactions in its public filings. Except as provided in the immediately
following sentence, the Company shall not use the name of ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
Development Corporation or any of its affiliates for advertising or promotional
purposes without the prior written consent of ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ Development
Corporation. ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ Development Corporation hereby consents to the
Company's issuing a press release substantially in the form attached hereto as
Annex H.
-------
26
IN WITNESS WHEREOF, the undersigned has caused this Agreement to be
duly executed as of the date first above written.
PROTEIN POLYMER TECHNOLOGIES, INC.
By _______________________________
J. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, President
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[INVESTOR SIGNATURE PAGE TO PURCHASE AGREEMENT]
The foregoing Agreement is hereby accepted as of the date first above written.
____________________________________
By: __________________________________
Name: ____________________________
Title: ___________________________
Address for Notices:
________________________
________________________
________________________
________________________
Attention: _____________
Telecopy: (___) ___-____
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