SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) May 12, 1999
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COLLAGENEX PHARMACEUTICALS, INC.
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(Exact Name of Registrant as Specified in Charter)
Delaware 0-28308 52-1758016
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(State or Other Jurisdiction (Commission File (IRS Employer
of Incorporation) Number) Identification No.)
41 University Drive
Newtown, Pennsylvania 18940
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (215) 579-7388
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301 South State Street
Newtown, Pennsylvania 18940
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(Former Name or Former Address, if Changed Since Last Report)
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ITEM 5. OTHER EVENTS.
On May 12, 1999, CollaGenex Pharmaceuticals, Inc. (the "Company")
consummated a $20.0 million financing (the "Financing") through the issuance of
its Series D Cumulative Convertible Preferred Stock (the "Preferred Stock"). OCM
Principal Opportunities Fund, L.P. ("OCM") led the investor group, which also
included certain current stockholders of the Company.
The issuance of the Preferred Stock was approved by a majority of the
Company's stockholders at the Company's Annual Meeting of Stockholders on May
11, 1999. The proceeds of such Financing will be used for general working
capital purposes, including the prepayment of a $10 million Senior Secured
Convertible Note provided by OCM on March 19, 1999 in connection with the
Financing.
The Preferred Stock is convertible at any time into shares of Common Stock
of the Company at an initial conversion price of $11.00 per common share. The
conversion price is not subject to reset except in the event that the Company
should fail to declare and pay dividends when due or the Company should issue
new equity securities or convertible securities at a price per share or having a
conversion price per share lower than the then applicable conversion price of
the Preferred Stock.
During the first three years following issuance, holders of the Preferred
Stock will be entitled to receive dividends payable in shares of fully
registered Common Stock at a rate of 8.4% per annum. Thereafter, dividends will
be payable in cash at a rate of 8.0% per annum.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits
Exhibit No. Document
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4.1 Certificate of Designation, Preferences and Rights
of Series D Cumulative Convertible Preferred stock
of CollaGenex Pharmaceuticals, Inc.
10.1 Stock Purchase Agreement, dated March 19, 1999, by
and among CollaGenex Pharmaceuticals, Inc., OCM
Principal Opportunities Fund, L.P. and the
Purchasers set forth therein (Incorporated herein
by reference to the Company's Current Report on
Form 8-K filed with the Securities and Exchange
Commission on March 25, 1999.)
10.2 Stockholders and Registration Rights Agreement,
dated March 19, 1999, by and among CollaGenex
Pharmaceuticals, Inc., OCM Principal Opportunities
Fund, L.P. and the Purchasers set forth therein.
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SIGNATURE
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COLLAGENEX PHARMACEUTICALS, INC.
By: /s/ Brian M. Gallagher, Ph.D.
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Name: Brian M. Gallagher, Ph.D.
Title: President, Chief Executive Officer and
Director
May 25, 1999
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EXHIBIT INDEX
Exhibit No. Document
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4.1 Certificate of Designation, Preferences and Rights
of Series D Cumulative Convertible Preferred stock
of CollaGenex Pharmaceuticals, Inc.
10.1 Stock Purchase Agreement, dated March 19, 1999, by
and among CollaGenex Pharmaceuticals, Inc., OCM
Principal Opportunities Fund, L.P. and the
Purchasers set forth therein (Incorporated herein
by reference to the Company's Current Report on
Form 8-K filed with the Securities and Exchange
Commission on March 25, 1999.)
10.2 Stockholders and Registration Rights Agreement,
dated March 19, 1999, by and among CollaGenex
Pharmaceuticals, Inc., OCM Principal Opportunities
Fund, L.P. and the Purchasers set forth therein.
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Exhibit 4.1
Certificate of Designation, Preferences and Rights
of Series D Cumulative Convertible Preferred Stock
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Exhibit A
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF SERIES D CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
COLLAGENEX PHARMACEUTICALS, INC.
CollaGenex Pharmaceuticals, Inc., a Delaware corporation (the
"Corporation"), pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware (the "DGCL"), does hereby make this
Certificate of Designation under the corporate seal of the Corporation and does
hereby state and certify that pursuant to the authority vested in the Board of
Directors of the Corporation by the Certificate of Incorporation, the Board of
Directors has duly adopted the following resolutions:
RESOLVED, that pursuant to Article Fifth of the Certificate of
Incorporation, as amended (which authorizes five million (5,000,000) shares of
Preferred Stock, par value $0.01 per share, none of which is presently issued
and outstanding), the Board of Directors hereby fixes the designations and
preferences and relative participating, optional and other special rights and
qualifications, limitations and restrictions of a series of Preferred Stock
consisting of 200,000 shares to be designated as Series D Cumulative Convertible
Preferred Stock.
Series D Convertible Preferred Stock
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RESOLVED, that the holders of Series D Cumulative Convertible
Preferred Stock, except as otherwise provided by law, shall have and possess the
following rights and preferences.
A. Series D Convertible Preferred Stock.
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1. DESIGNATION, NUMBER OF SHARES. This series of Preferred Stock shall
be designated as Series D Cumulative Convertible Preferred Stock ("Series D
Preferred Stock"), and the number of shares that shall constitute such series
shall be 200,000. The par value of Series D Preferred Stock shall be $0.01 per
share.
2. RANK. With respect to dividend rights and rights on liquidation,
winding up and dissolution of the Corporation, Series D Preferred Stock shall
rank senior to:
(i) the Common Stock, par value $0.01 per share ("Common Stock"), of
the Corporation; and
(ii) each other class of capital stock or class or series of preferred
stock issued by the Corporation after the date hereof (in accordance with
Paragraph A.8.(b)(ii) hereof), the terms of which shall specifically provide
that such class or series shall rank junior to Series D Preferred Stock as to
dividend distributions or distributions upon liquidation, winding up and
dissolution of the Corporation (each of the securities in clauses (i) and (ii)
above collectively referred to as "Junior Securities").
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3. DIVIDEND PROVISIONS.
(a) Each holder of Series D Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors, out of funds
legally available therefor, dividends on each share of Series D Preferred Stock
as follows: (i) during the first three (3) years after the date of the original
issuance of the Series D Preferred Stock (the "Common Stock Dividend Period"),
the Company shall pay such dividends at a rate equal to eight and four-tenths
percent (8.4%) per share per annum in fully paid, registered, non-assessable
shares of Common Stock which shares of such Common Stock shall be valued at one
hundred percent (100%) of the average trading price on the NASDAQ National
Market ("NASDAQ") for the five (5) trading days immediately prior to the
Dividend Declaration Date (as defined in Paragraph B. hereof); and (ii) after
the Common Stock Dividend Period, the Company shall pay cash dividends on each
share of Series D Preferred Stock at a rate equal to eight percent (8%) per
share per annum. At all times, dividends paid in cash shall be paid at a rate
equal to eight percent (8%) per share per annum and dividends paid in Common
Stock shall be paid at a rate of eight and four-tenths percent (8.4%) per share
per annum.
(b) All dividends, whether payable in cash or in shares of Common
Stock, shall be cumulative, whether or not earned or declared, and shall accrue
on a daily basis beginning on the date of the original issuance of Series D
Preferred Stock (whether or not funds are legally available for the declaration
and/or payment of such dividends), and shall be payable semi-annually in arrears
on each Dividend Payment Date (as defined in Paragraph B. hereof), commencing on
the first Dividend Payment Date after the date of the original issuance of such
Series D Preferred Stock. Each dividend on Series D Preferred Stock shall be
payable to the holders of record of Series D Preferred Stock as they appear on
the stock register of the Corporation on such record date as may be fixed by the
Board of Directors, which record date shall not be less than ten (10) nor more
than sixty (60) calendar days prior to the applicable Dividend Payment Date.
(c) Commencing on the sixth (6th) anniversary of the date of the
original issuance of the Series D Preferred Stock, the annual dividend rate
referenced above in Paragraph A.3.(a) shall increase by one percent (1%) per
annum until the earlier of the date that all of the shares of Series D Preferred
Stock are (i) converted into shares of Common Stock in accordance with Paragraph
A.5. hereof, or (ii) redeemed in accordance with Paragraph A.6. hereof.
(d) Dividends shall cease to accrue in respect of any shares of Series
D Preferred Stock on the date such shares are (i) converted into shares of
Common Stock in accordance with Paragraph A.5. hereof, or (ii) are redeemed in
accordance with Paragraph A.6. hereof.
(e) Accrued dividends on the Series D Preferred Stock, if not paid on
the first or any subsequent Dividend Payment Date following accrual, shall
thereafter accrue additional dividends ("Additional Dividends") in respect
thereof, compounded semi-annually, at the rate specified hereinabove in
Paragraph A.3.(a) hereof or as specified hereinbelow in Paragraph A.3.(h)
hereof; during the first six (6) years after the date of the original issuance
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of the Series D Preferred Stock, and at the applicable increased dividend rate
for each year thereafter.
(f) All dividends paid with respect to shares of Series D Preferred
Stock pursuant to Paragraph A.3.(a) shall be paid pro rata to the holders of
Series D Preferred Stock of record entitled thereto.
(g) Dividends on account of arrears for any past Dividend Period may
be declared and paid at any time, without reference to any regular Dividend
Payment Date, to the holders of Series D Preferred Stock of record on any date
as may be fixed by the Board of Directors, which date is not more than thirty
(30) calendar days prior to the payment of such dividends.
(h) The dividend payable to holders of Series D Preferred Stock as set
forth above in Paragraph A.3.(a) shall be doubled (the "Default Dividends"),
which Default Dividends shall be payable in either cash or Common Stock at the
choosing of each holder of Series D Preferred Stock upon the occurrence and
during the continuance of any of the following events (each an "Event of
Default" and collectively the "Events of Default") not cured or not curable,
upon the giving of written notice thereof to the Corporation by the holders of a
majority of the shares of Series D Preferred Stock then outstanding:
(i) in the event that the Corporation does not (A) declare the
dividend payable on the shares of Series D Preferred Stock within (30) calendar
days of the Dividend Declaration Date, (B) fulfill its dividend payment
obligation in full for the Series D Preferred Stock, as set forth herein, within
thirty (30) calendar days after said dividend payment is due and payable, or (C)
fulfill its dividend payment obligation in the form of either cash or stock as
required herein; or
(ii) in the event that the Corporation shall have materially
breached any of the representations and warranties contained in any of the Stock
Purchase Agreement or the Stockholders and Registration Rights Agreement and any
registration statement filed by the Company in relation thereto; or
(iii) in the event that the Corporation shall have materially
breached any of the covenants or agreements contained in any of the Stock
Purchase Agreement or the Stockholders and Registration Rights Agreement and
such breach shall not have been cured to the satisfaction of the holders of
record of a majority of the shares of Series D Preferred Stock then outstanding
within thirty (30) calendar days after the date of giving of notice of such
breach to the Corporation; or
(iv) in the event of the acceleration of any indebtedness of the
Corporation with a principal amount in excess of One Million Dollars
($1,000,000); or
(v) in the event of the receipt of a final non-appealable
judgment against the Corporation in an amount that is uninsured in excess of One
Million Dollars ($1,000,000); or
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(vi) in the event that the Corporation shall (A) apply for or
consent to the appointment of a receiver, trustee or liquidator for the
Corporation or any of its property; (B) admit in writing its inability to pay
debts as they mature; (C) make a general assignment for the benefit of
Creditors; (D) be adjudicated bankrupt or insolvent; (E) file a voluntary
petition in bankruptcy, a petition or answer seeking reorganization or an
arrangement with creditors to take advantage of any bankruptcy, reorganization,
insolvency, readjustment of debt, dissolution or liquidation law or statute, or
an answer admitting the material allegations of a petition filed against it in
any proceeding under any such law; or (F) have failed to have an involuntary
petition in bankruptcy filed against it dismissed and discharged within sixty
(60) calendar days after the date of such filing; corporate actions shall be
taken for the purpose of effecting any of the foregoing; or an order, judgment
or decree shall be entered without the application, approval or consent of the
Corporation, by any court of competent jurisdiction, approving a petition
seeking reorganization of the Corporation or of all or a substantial part of its
assets, and such order, judgment or decree shall continue unstayed and in effect
for sixty (60) calendar days (a "Bankruptcy"); or
(vii) in the event that either (A) any court of competent
jurisdiction finds that any of the patents owned or licensed by the Corporation
are invalid in any material respect; or (B) any of the patents owned or licensed
by the Corporation materially infringe upon any other patent; provided, however,
that in the event of either (A) or (B), Investor, in good faith, determines that
such finding will have a Material Adverse Effect on the Corporation; or
(viii) if at any time after the date the first share of Series D
Preferred Stock is issued, shares of Common Stock are not actively publicly
traded on the American Stock Exchange, NASDAQ or NYSE; or
(ix) in the event that the Corporation consolidates or merges the
Corporation with or into any other corporation or corporations, or sells,
conveys or disposes of all or substantially all of the assets of the Corporation
or enters into a transaction or series of related transactions in which more
than fifty percent (50%) of the voting power of the Corporation is sold or
otherwise disposed of (a "Change in Control").
In addition to the foregoing, in the event that the Board of
Directors continues to fail to declare and pay accrued dividends and/or Default
Dividends on the shares of Series D Preferred Stock after the Corporation has
been notified of an Event of Default in accordance with Paragraph A.3.(h)(i)
hereof, which is not curable or has not been cured within the period of time
prescribed for the Corporation to effectuate such a cure, the holders of record
of a majority of shares of Series D Preferred Stock shall have the option,
during the continuance of such an Event of Default, to elect to have the
Conversion Price reset to the then fair market value of the Common Stock of the
Corporation, as determined by using the five (5) day trailing average closing
price of the Common Stock of the Corporation, as reported on NASDAQ. Any reset
of the Conversion Price hereunder shall be effective on the day immediately
after the date of the holders' notice to the Corporation.
Notwithstanding the foregoing, in the event that the Corporation
is unable to meet its obligation to pay cash dividends in the form of cash
because of (a) a deficiency in the cash
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position of the Corporation such that the payment of such dividends in cash
would have a Material Adverse Effect on the Corporation, or (b) a prohibition by
the DGCL, then the Corporation shall be permitted to pay Default Dividends in
shares of Common Stock during such time the condition described in this
paragraph continues.
(i) The holders of Series D Preferred Stock shall be entitled to
receive the dividends provided for in Paragraph A.3.(a) hereof in preference to
and in priority over any dividends upon any of the Junior Securities. Such
dividends on the Series D Preferred Stock shall be cumulative, whether or not
earned or declared, so that if at any time full Accumulated Dividends (as
defined in Paragraph B. of this Agreement) on all shares of Series D Preferred
Stock then outstanding have not been paid for all Dividend Periods then elapsed
and a prorated dividend on the Series D Preferred Stock at the rate aforesaid
from the Dividend Payment Date immediately preceding the Junior Payment Date (as
defined below) to the Junior Payment Date have not been paid or set aside for
payment, the amount of such unpaid dividends shall be paid before any sum shall
be set aside for or applied by the Corporation to the purchase, redemption or
other acquisition for value of any shares of Junior Securities (either pursuant
to any applicable sinking fund requirement or otherwise) or any dividend or
other distribution shall be paid or declared and set apart for payment on any
Junior Securities (the date of any such actions to be referred to as the "Junior
Payment Date"); provided, however, that the restrictions set forth in this
sentence shall not apply to the purchase or other acquisition of Junior
Securities pursuant to any employee or director incentive or benefit plan or
arrangement (including any employment, severance or consulting agreement) of the
Corporation or any subsidiary of the Corporation heretofore or hereafter
adopted.
(j) Dividends payable on Series D Preferred Stock for any period
less than one (1) year shall be computed on the basis of a 360-day year
consisting of twelve 30-day months plus the actual number of calendar days
elapsed in the month for which such dividends are payable.
4. LIQUIDATION PREFERENCE. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of all shares of
Series D Preferred Stock then outstanding shall be entitled to be paid out of
the assets of the Corporation available for distribution to its stockholders an
amount in cash equal to One Hundred Dollars ($100.00) in cash per share, plus an
amount equal to full cumulative dividends (whether or not earned or declared)
accrued and unpaid thereon, including Default Dividends and Additional
Dividends, to the date of final distribution and no more, before any
distribution is made on any Junior Securities. After payment in full pursuant to
this Paragraph A.4., the holders of Series D Preferred Stock shall not be
entitled to any further participation in any distribution in the event of
liquidation, dissolution or winding up of the affairs of the Corporation.
5. CONVERSION.
(a) RIGHT OF CONVERSION. Each share of Series D Preferred Stock shall
be convertible, at the option of the holder thereof, at any time, and from time
to time, after the date of issuance of such share, at the office of the
Corporation or any transfer agent for the Series D Preferred Stock, into such
number of fully paid, registered, non-assessable shares of Common Stock as is
determined by dividing One Hundred Dollars ($100.00) by the Conversion Price.
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The "Conversion Price" for the Series D Preferred Stock shall be Eleven Dollars
($11.00) per share. The Conversion Price for the Series D Preferred Stock shall
be subject to adjustment as set forth in Paragraph A.5.(c) hereof.
(b) PROCEDURES FOR VOLUNTARY CONVERSION. Before any holder of shares
of Series D Preferred Stock shall be entitled to convert any of such shares into
shares of Common Stock, such holder shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or of any
transfer agent for the Series D Preferred Stock, and shall give written notice
by mail, postage prepaid, or hand delivery, to the Corporation at its principal
corporate office, of the election to convert the same and shall state therein
the name or names in which the certificate or certificates for shares of Common
Stock are to be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holders of shares of Series
D Preferred Stock, or to the nominee or nominees of such holders, a certificate
or certificates for the number of shares of Common Stock to which such holder
shall be entitled as aforesaid. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of such surrender of
the shares of Series D Preferred Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock as of such date. If the conversion is in connection
with an underwritten offering of securities registered pursuant to the
Securities Act of 1933, as amended, the conversion may, at the option of any
holder tendering the Series D Preferred Stock for conversion, be conditioned
upon the effectiveness of such offering, in which event the person(s) entitled
to receive Common Stock issuable upon such conversion of the Series D Preferred
Stock shall not be deemed to have converted such Series D Preferred Stock until
immediately prior to the effectiveness of such offering and the Corporation
shall deliver to such holders tendering Series D Preferred Stock for conversion
written notice of the anticipated date of such effectiveness no less than ten
(10) calendar days prior thereto.
(c) ADJUSTMENTS OF CONVERSION PRICE. So long as any shares of Series D
Preferred Stock are outstanding, the Conversion Price of the Series D Preferred
Stock shall be subject to adjustment from time to time as follows:
(i) (A) Upon issuance (or deemed issuance pursuant to the
provisions hereof) by the Corporation of any Additional Stock (as defined below)
after the date of issuance of Series D Preferred Stock, without consideration or
for an Effective Price per share, or, in the case of Convertible Securities, a
conversion price per share, less than the Conversion Price for the Series D
Preferred Stock in effect immediately prior to the issuance (or deemed issuance)
of such Additional Stock, then the Conversion Price for the Series D Preferred
Stock in effect immediately prior to each (such issuance or deemed issuance)
shall be adjusted, if the issuance occurs after the initial twelve (12) month
period after the date of original issuance of the Series D Preferred Stock, to a
price determined by the following formula: (A + B) / (C + D), where "A" equals
the number of shares of Common Stock outstanding immediately prior to such
issuance or sale multiplied by the then applicable Conversion Price, where "B"
equals the consideration, if any, received by the Corporation upon such issuance
or sale, where "C" equals the total number of shares of Common Stock outstanding
prior to issuance of the additional shares and where "D" equals any Additional
Stock or any conversion shares, or any other shares
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reserved for issuance which are associated with such financing, immediately
after such issuance or sale. See Exhibit A hereto for an example of the formula
set forth herein.
(B) No adjustment of the Conversion Price for Series D
Preferred Stock shall be made in an amount less than one-half of One Cent
($0.005) per share, provided that any adjustments which are not required to be
made by reason of this sentence shall be carried forward and shall be taken into
account in any subsequent adjustment to the Conversion Price. No adjustment of
the Conversion Price for the Series D Preferred Stock pursuant to this Paragraph
A.5.(c)(i) shall have the effect of increasing such Conversion Price for the
Series D Preferred Stock above the Conversion Price in effect immediately prior
to such adjustment.
(C) In the case of the issuance of securities of the
Corporation for cash, the amount of consideration received by the Corporation
for such securities shall be deemed to be the amount of cash paid therefor
before deducting any discounts, commissions or other expenses allowed, paid or
incurred by the Corporation for any underwriting or otherwise in connection with
the issuance and sale thereof.
(D) In the case of the issuance of securities of the
Corporation for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to have a dollar value equal to
the fair market value of such non-cash consideration, irrespective of any
accounting treatment thereof, as determined by a vote of the majority of the
Board of Directors including the affirmative vote of the Series D Preferred
Director.
(E) In the case of the issuance (whether before, on or after
the date of issuance of Series D Preferred Stock) of Options or Convertible
Securities, the following provisions shall apply for all purposes of this
Paragraph A.5.(c)(i) and Paragraph A.5.(c)(ii) hereof:
(1) With respect to Options to purchase Common Stock, the aggregate
maximum number of shares of Common Stock deliverable upon exercise of
such Options shall be deemed to have been issued at the time such
Options were issued and for a consideration equal to the consideration
(determined in the manner provided in Subparagraph A.5.(c)(i)(C) and
Subparagraph A.5.(c)(i)(D) hereof), if any, received by the
Corporation for such Options plus the minimum exercise price provided
in such Options for Common Stock issuable thereunder.
(2) With respect to Convertible Securities and Options to purchase
Convertible Securities, the aggregate maximum number of shares of
Common Stock deliverable upon the conversion or exchange of any such
Convertible Securities and the aggregate maximum number of shares of
Common Stock issuable upon the exercise of such Options to purchase
Convertible Securities and the subsequent conversion or exchange of
such Convertible Securities shall be deemed to have been issued at the
time such Convertible Securities or such Options were issued and for a
consideration equal to the consideration, if any, received by the
Corporation for any such Convertible Securities and Options, plus
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the minimum additional consideration, if any, to be received by the
Corporation upon the conversion or exchange of such Convertible
Securities or the exercise of such Options and the conversion or
exchange of the Convertible Securities issuable upon exercise of such
Options (the consideration in each case to be determined in the manner
provided in Subparagraphs A.5.(c)(i)(C) and A.5.(c)(i)(D) hereof).
(3) In the event of any change in the number of shares of Common Stock
deliverable, or in the consideration payable to the Corporation, upon
exercise of such Options or upon conversion or exchange of such
Convertible Securities, including, but not limited to, a change
resulting from the antidilution provisions thereof, the Conversion
Price of the Series D Preferred Stock, to the extent in any way
affected by or computed using such Options or Convertible Securities,
shall be recomputed to reflect such change, but no further adjustment
shall be made for the actual issuance of Common Stock or any payment
of such consideration upon the exercise of any such Options or the
conversion or exchange of such Convertible Securities.
(4) Upon the expiration or termination of any such Options or any such
rights to convert or exchange Convertible Securities, the Conversion
Price of the Series D Preferred Stock, to the extent in any way
affected by or computed using such Options or Convertible Securities,
shall be recomputed to reflect the issuance of only the number of
shares of Common Stock (and Options and Convertible Securities which
remain in effect) that were actually issued upon the exercise of such
Options or upon the conversion or exchange of such Convertible
Securities.
(5) The number of shares of Common Stock deemed issued and the
consideration deemed paid therefor pursuant to Subparagraphs
A.5.(c)(i)(E)(1) and (2) hereof shall be appropriately adjusted to
reflect any change, termination or expiration of the type described in
either Subparagraph A.5.(c)(i)(E)(3) or (4) hereof.
(ii) "Additional Stock" shall mean any shares of Common Stock or
shares of Common Stock issuable pursuant to Convertible Securities issued or
Options (or deemed to have been issued pursuant to Paragraph A.5.(c)(i)(E)
hereof) by the Corporation after the date of issuance of Series D Preferred
Stock, except:
(A) Common Stock issued pursuant to a transaction described
in Paragraph A.5.(c)(iii) hereof;
(B) Common Stock or options to purchase such Common Stock
issued to officers, employees or directors of, or consultants to, the
Corporation, pursuant to any agreement, plan or arrangement approved by the
Board of Directors of the Corporation; provided, however, that the maximum
number of shares of Common Stock heretofore or hereafter issued or issuable
pursuant to all such agreements, plans and arrangements shall not exceed an
aggregate (as constituted on the date hereof) of Two Million Three Hundred Two
Thousand (2,302,000) shares of Common Stock ("Permitted Options"); and
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(C) Common Stock issued or issuable upon conversion of
shares of Series D Preferred Stock.
(iii) In the event the Corporation at any time or from time to
time after the date of issuance of Series D Preferred Stock fixes a record date
for the effectuation of a split or subdivision of the outstanding shares of
Common Stock or the determination of holders of shares of Common Stock entitled
to receive a dividend or other distribution payable in additional shares of
Common Stock or other securities or rights convertible into, or entitling the
holder thereof to receive directly or indirectly, additional shares of Common
Stock (hereinafter referred to as "Common Stock Equivalents") without payment of
any consideration by such holder for the additional shares of Common Stock or
Common Stock Equivalents (including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then, as of such record date (or
the date of such dividend, distribution, split or subdivision if no record date
is fixed), the Conversion Price of the Series D Preferred Stock shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of each share of Series D Preferred Stock shall be increased in
proportion to such increase in the aggregate number of shares issuable with
respect to Common Stock Equivalents, with the number of shares issuable with
respect to Common Stock Equivalents determined from time to time in the manner
provided for deemed issuances in Subparagraph A.5.(c)(i)(E) hereof.
(iv) If the number of shares of Common Stock outstanding at any
time after the date of issuance of Series D Preferred Stock is decreased by a
combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Conversion Price for the Series D Preferred
Stock shall be appropriately increased so that the number of shares of Common
Stock issuable on conversion of each share of Series D Preferred Stock shall be
decreased in proportion to such decrease in the outstanding shares of Common
Stock.
(d) OTHER DISTRIBUTIONS. In the event the Corporation shall declare a
distribution payable in securities of other persons, evidences of indebtedness
issued by the Corporation or other persons, assets (excluding cash dividends) or
options or rights not referred to in Paragraph A.5.(c)(iii) hereof, then, in
each such case for the purpose of this Paragraph A.5.(d), the holders of shares
of Series D Preferred Stock shall be entitled to a proportionate share of any
such distribution as though they were holders of the number of shares of Common
Stock into which their shares of Series D Preferred Stock are convertible as of
the record date fixed for the determination of the holders of shares of Common
Stock entitled to receive such distribution.
(e) RECAPITALIZATION. If at any time or from time to time there shall
be a recapitalization or reclassification of Common Stock (other than a
subdivision, combination or consolidation, merger or sale of assets or stock
transaction provided for in Paragraph A.6. hereof), provision shall be made so
that each holder of shares of Series D Preferred Stock shall thereafter be
entitled to receive, upon conversion of the Series D Preferred Stock, the number
of shares of stock or other securities or property of the Corporation or
otherwise, receivable upon such recapitalization or reclassification by a holder
of the number of shares of Common Stock into which such shares of Series D
Preferred Stock could have been converted immediately prior to such
recapitalization. In any such case, appropriate adjustment shall be made in the
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application of the provisions of this Paragraph A.5. with respect to the rights
of the holders of shares of Series D Preferred Stock after the recapitalization
or reclassification to the end that the provisions of this Paragraph A.5.
(including adjustments of the Conversion Price then in effect and the number of
shares purchasable upon conversion of the Series D Preferred Stock) shall be
applicable after that event as nearly equivalent as may be practicable.
(f) NO IMPAIRMENT. The Corporation will not, by amendment of this
Certificate of Incorporation or through any reorganization, recapitalization or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed hereunder by the Corporation,
but will at all times in good faith assist in the carrying out of all the
provisions of this Paragraph A.5. and in the taking of all such action as may be
necessary or appropriate in order to protect the conversion rights of the
holders of shares of Series D Preferred Stock against impairment.
(g) NO FRACTIONAL SHARES. No fractional shares shall be issued upon
conversion of the Series D Preferred Stock, and the number of shares of Common
Stock to be issued shall be rounded upward to the nearest whole share, and there
shall be no payment to a holder of shares of Series D Preferred Stock for any
such rounded fractional share. Whether or not fractional shares result from such
conversion shall be determined on the basis of the total number of shares of
Series D Preferred Stock the holder is at the time converting into Common Stock
and the number of shares of Common Stock issuable upon such aggregate
conversion.
(h) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price of the Series D Preferred
Stock pursuant to this Paragraph A.5., the Corporation, at its expense, shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and prepare and furnish to each holder of shares of Series D Preferred
Stock a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based, certified
by the Corporation's President or Chief Financial Officer. The Corporation
shall, upon the written request at any time of any holder of shares of Series D
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustment and readjustment, (ii) the
Conversion Price at the time in effect, and (iii) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of a share of Series D Preferred Stock.
(i) NOTICES OF RECORD DATE. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of shares of Series D Preferred Stock, at least twenty
(20) calendar days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
(j) RESERVATION OF STOCK ISSUABLE UPON CONVERSION, DIVIDENDS. The
Corporation shall at all times take appropriate steps to reserve and keep
available out of its
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authorized but unissued shares of Common Stock, solely for the purpose of (i)
effecting the conversion of the shares of Series D Preferred Stock, such number
of its shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of Series D Preferred Stock, and (ii)
the payment of dividends as contemplated in Paragraph A.3.(a). If at any time
the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of Series D
Preferred Stock or the payment of dividends, then in addition to such other
remedies as shall be available to the holder of such shares of Series D
Preferred Stock, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes.
(k) NOTICES. Any notice required by the provisions of this Paragraph
A.5. to be given to the holders of shares of Series D Preferred Stock shall be
deemed given when received if delivered via courier or sent by facsimile, by
telex, or by United States mail, postage prepaid, and addressed to each holder
of record at his, her or its address appearing on the books of the Corporation.
(l) MANDATORY CONVERSION.
(i) All or a portion of the shares of Series D Preferred Stock
shall, at the option of the Corporation (as determined by the Board of
Directors), automatically be converted into fully paid, registered and
non-assessable shares of Common Stock in accordance with Paragraph A.5.(a)(i)
above, if at any time after the date the first share of Series D Preferred Stock
is issued, the following two conditions are met:
(A) the Closing Common Stock Market Price (as defined in
Paragraph B.(d) hereof) for forty (40) consecutive trading days is at least two
hundred percent (200%) of the Conversion Price then in effect; and
(B) an effective shelf registration (in accordance with
Section 5(b) of the Stockholders and Registration Rights Agreement) is in effect
for the shares of Common Stock to be issued upon conversion of the shares of
Series D Preferred Stock.
(ii) If the Corporation has elected to convert Series D Preferred
Stock into Common Stock pursuant to Paragraph A.5.(l)(i) above, the Corporation
will provide written notice of mandatory conversion of shares of Series D
Preferred Stock to each holder of record of Series D Preferred Stock no less
than thirty (30) nor more than sixty (60) calendar days prior to the date fixed
for conversion by first class mail, postage prepaid, to each holder at such
holder's address as it appears on the stock register of the Corporation. The
Corporation's obligation to deliver shares of Common Stock shall be deemed
fulfilled if, on the mandatory conversion date, the Corporation shall deposit
with a bank or trust company in New York, New York having capital of at least
One Hundred Million Dollars ($100,000,000), such number of shares of Common
Stock as are required to be delivered by the Corporation upon the conversion of
the shares of Series D Preferred Stock so called for conversion. Provided the
Corporation has fulfilled its obligation to deposit shares as provided in the
foregoing sentence, effective on the mandatory conversion date fixed by the
Corporation and notified to the holders of Series D Preferred Stock, each
outstanding share of Series D Preferred Stock shall be converted into a
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fully paid, registered, and non-assessable share of Common Stock at the
Conversion Price then in effect, automatically and without any action on the
part of any holder of shares of Series D Preferred Stock, and each such share of
Common Stock shall be deemed outstanding from and after the mandatory conversion
date.
6. OPTIONAL REDEMPTION.
(a) If at any time after the date of original issuance of the shares
of Series D Preferred Stock less than five percent (5%) of the shares of Series
D Preferred Stock originally issued are outstanding, the Corporation shall be
entitled, at the Corporation's option, to redeem the shares of Series D
Preferred Stock then outstanding for an amount equal to one hundred percent
(100%) of the original issue price per share plus an amount equal in full to
cumulative accrued dividends and Default Dividends (whether or not earned or
declared) accrued and unpaid thereon.
(b) In the event that on and after the third (3rd) anniversary of the
date of the original issuance of the Series D Preferred Stock and continuing
until the fifth (5th) anniversary thereof a Change in Control occurs, the
Corporation shall be entitled, at its option, to redeem all of the shares of
Series D Preferred Stock then outstanding for an amount equal to one hundred
twenty percent (120%) per share of the liquidation preference plus an amount
equal in full to cumulative accrued dividends and Default Dividends (whether or
not earned or declared) accrued and unpaid thereon from the date of original
issuance of the Series D Preferred Stock until the date of redemption.
(c) If at any time after the fifth (5th) anniversary of the date of
the original issuance of the Series D Preferred Stock a Change in Control
occurs, the Corporation shall be entitled, at its option, to redeem all of the
shares of Series D Preferred Stock then outstanding for an amount equal to one
hundred percent (100%) per share of the liquidation preference plus an amount
equal in full to cumulative dividends and Default Dividends (whether or not
earned or declared) accrued and unpaid thereon from the date of original
issuance of the Series D Preferred Stock until the date of redemption.
(d) If the Corporation elects to redeem Series D Preferred Stock
pursuant to this Paragraph 6A.(a), (b) or (c), the Corporation will provide
written notice of such optional redemption of shares of Series D Preferred Stock
to each holder of record of Series D Preferred Stock not less than thirty (30)
calendar days prior to the date fixed for redemption by first class mail,
postage prepaid, to each holder and such holder's address as it appears on the
stock register of the Corporation.
7. STATUS OF CONVERTED STOCK. In the event any shares of Series D Preferred
Stock are converted to Common Stock pursuant to Paragraph A.5. hereof, or are
redeemed by the Corporation pursuant to Paragraph A.6. hereof, the shares so
converted or so redeemed shall be canceled, retired and eliminated and shall not
be reissued by the Corporation. The Certificate of Incorporation of the
Corporation shall be appropriately amended to effect the corresponding reduction
in the Corporation's authorized capital stock.
8. VOTING RIGHTS.
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(a) GENERAL. The holders of Series D Preferred Stock shall be entitled
to vote together with the holders of Common Stock on all matters to be voted on
by the Corporation on an as-converted basis.
(b) CLASS VOTING RIGHTS.
(i) Except as otherwise provided below, a vote of at least a
majority of the shares of the Series D Preferred Stock then outstanding shall be
sufficient to take any action requiring the vote of the Series D Preferred Stock
as a separate class. At any meeting where the Series D Preferred Stock shall
have the right to vote as a separate class, the presence, in person or by proxy,
of a majority of the then outstanding shares of Series D Preferred Stock shall
constitute a quorum of such class.
(ii) So long as any Series D Preferred Stock is outstanding, the
Corporation shall not, without the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66 2/3%) of all outstanding shares of Series D
Preferred Stock voting separately as a class, given in person or by proxy,
either in writing or by resolution adopted at an annual or special meeting
called for this purpose (A) amend, alter or repeal any provision of the
Certificate of Incorporation or By-laws of the Corporation, each as amended, so
as to affect, in any manner adverse to the holders of Series D Preferred Stock,
the relative rights, preferences, qualifications, limitations or restrictions of
the Series D Preferred Stock; (B) create, authorize, designate or reclassify any
authorized stock of the Corporation into, or increase the authorized amount of,
or issue any capital stock that ranks senior to or pari passu with the Series D
Preferred Stock, or any Junior Securities, whether voluntary or involuntary, or
any security convertible into such a class or series, which are required to be
redeemed by the Corporation at any time that any shares of Series D Preferred
Stock are outstanding; (C) during the first twelve (12) months after Closing
issue Common Stock or securities convertible into Common Stock at a price or
conversion price (except options under the Option Plans) below the Conversion
Price then in effect; or (D) take any other action on which the holders of
Series D Preferred Stock shall be entitled by law to vote separately as a class.
(iii) The Corporation shall not, without the express written
approval of the holders of record of a majority of the shares of Series D
Preferred Stock then outstanding take any of the following actions:
(A) DIVIDENDS. The Corporation shall not declare or pay any
dividend or distribution on any shares of capital stock of the Corporation other
than dividends on Series D Preferred Stock.
(B) INDEBTEDNESS. The Corporation and its subsidiary shall
not (x) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or warrants or
other rights to acquire any debt securities of the Corporation, guarantee any
debt securities of another person, enter into any "keep well" or other agreement
to maintain any financial statement condition of another person or enter into
any arrangement having the economic effect of any of the foregoing, except that
the Corporation may incur such indebtedness in any amount not to exceed Ten
Million Dollars ($10,000,000) in the aggregate outstanding at any time only for
the Corporation's working
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capital requirements in the ordinary course of business ("Working Capital
Loans"); or (y) make any loans, advances of capital contributions to, or
investments in, any other person, other than to the Corporation or its
subsidiaries.
(C) DISPOSITIONS. The Corporation shall not enter into or
effect a recapitalization, corporate reorganization (including, without
limitation, any distribution of assets to a subsidiary of the Corporation) or
liquidation, sell, assign, lease or otherwise dispose (including by way of
mortgage, license, encumbrance or any lien) of any assets or securities, except
for (i) transactions in the ordinary course of business or (ii) any pledge,
assignment, encumbrance, lien or other disposition of working capital assets
(accounts receivable and inventory) directly related to the Working Capital Loan
(as defined in Section 2(b)(ii) above), or effectuate any split, subdivision or
combination of any Equity Securities, or enter into a material contract or
release or relinquish any material contract rights not in the ordinary course of
business, or make any amendments, or modifications thereto. Notwithstanding the
foregoing, the Corporation shall not, at any time, sell, assign, lease or
otherwise dispose (including by way of pledge, mortgage, license, encumbrance or
any lien) of any license, patent or Intellectual Property of the Corporation,
except in the ordinary course of business, without the express written approval
of the holders of a majority of the shares of Series D Preferred Stock then
outstanding. For purposes of the foregoing sentence, ordinary course of business
shall include, without limitation, (a) licenses for purposes of research,
development, manufacturing, marketing and/or distribution and (b) the
abandonment of any Intellectual Property which the Corporation determines is of
insignificant benefit to the Corporation and which could not, individually or in
the aggregate, have a Material Adverse Effect on the Corporation.
(D) RESEARCH AND DEVELOPMENT EXPENDITURES. The Corporation
shall not make research and development expenditures in excess of Seven Million
Dollars ($7,000,000) in any one (1) continuous twelve (12) month period, unless
the Corporation has reported positive net income (calculated in accordance with
generally accepted accounting principles consistently applied, reported on all
necessary and appropriate filings of SEC Documents and only excluding any
extraordinary or unusual gains) for four (4) consecutive quarters immediately
prior to such twelve (12) month period.
(E) ACQUISITIONS. The Corporation shall not merge or
consolidate with, purchase, lease or otherwise make any acquisition of all or
substantially all of the assets, properties or securities of, any person or
entity in a transaction or series of related transactions with any calendar year
period in excess of Ten Million Dollars ($10,000,000).
(F) PROTECTIVE AGREEMENTS. The Corporation shall not: (i)
enter into any non-disclosure agreement, that is not substantially in the form
utilized by the Corporation as of the effective date of this Certificate of
Designation, with each new employee hired after the date of Closing; and (ii)
enter into any non-competition agreement, that is not substantially in the form
utilized by the Corporation, with each new officer hired after the date of
Closing. The Corporation shall not terminate, amend or modify in any material
respect any agreement relating to matters of non-disclosure or non-competition.
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<PAGE>
(G) BENEFIT PLANS. The Corporation shall not adopt or amend
in any material respect any collective bargaining agreement or any Employee
Benefit Plan of the Corporation which, individually or in the aggregate, could
reasonably by expected to have a Material Adverse Effect.
(c) BOARD OF DIRECTORS. The Board of Directors of the Corporation
shall consist of not less than five (5) and not more than nine (9) directors. At
each annual meeting of the stockholders of the Corporation, and at each special
meeting of the stockholders of the Corporation called for the purpose of
electing directors of the Corporation, and at any time at which stockholders of
the Corporation shall have the right to, or shall, vote for or consent in
writing to the election of directors of the Corporation, then, and in each such
event, until the occurrence of an Event of Default, (i) the holders of record of
shares of Series D Preferred Stock voting together as a separate class shall be
entitled, but not obligated, to elect one (1) director, who shall be nominated
by the holders of record of a majority of the shares of Series D Preferred Stock
then outstanding (the "Series D Preferred Stock Director"), and (ii) the holders
of record of shares of Common Stock shall elect the remaining directors, up to a
maximum of eight (8), all of whom shall be nominated by the Board of Directors
of the Corporation (collectively, the "Common Directors"). At any such meeting
called for the purpose of electing directors, the presence in person or by proxy
of (i) the holders of record of a majority of the shares of Series D Preferred
Stock then outstanding, in the case of the election of the Series D Preferred
Stock Director and (ii) the holders of record of a majority of the shares of
each of the Common Stock, in the case of the election of a Common Director,
shall constitute a quorum for the election of directors to be elected by such
holders. A vacancy in any directorship entitled to be elected by the holders of
record of shares of Series D Preferred Stock (including without limitation, a
vacancy resulting from the decision during an earlier election by the holders of
the Series D Preferred Stock not to fill the directorship to be held by the
Series D Preferred Stock Director) shall be filled only by vote or written
consent of the holders of record of shares of Series D Preferred Stock, in the
manner set forth herein. A vacancy in any directorship elected by the holders of
record of Common Stock shall be filled only by vote or written consent of the
holders of record of shares of Common Stock, in the manner set forth herein.
Each Common Director who shall have been elected as provided in this Paragraph
A.8.(c) may be removed during his or her term of office, whether with or without
cause, only by the holders of record of a majority of the shares of Common Stock
then outstanding, and each Series D Preferred Stock Director who shall have been
elected as provided in this Paragraph A.8.(c) may be removed during his or her
term of office, whether with or without cause, by the holders of record of a
majority of the shares of Series D Preferred Stock then outstanding. Each Common
Director and the Series D Preferred Stock Director shall be entitled to one (1)
vote on all matters which directors are entitled to vote on. The holders of
record of a majority of the shares of Series D Preferred Stock then outstanding
shall have the right to call meetings of the Board of Directors and management
of the Corporation, upon no less than five (5) calendar days' prior written
notice; provided, that such meetings are called no more frequently than once per
fiscal quarter; and, provided, further, so long as no Event of Default has
occurred or is continuing, a meeting may be called only if the Board of
Directors has not held a board meeting or scheduled a board meeting for the
calendar quarter in which such holders of Series D Preferred Stock seek to call
a meeting. During such time as holders of record of a majority of the Series D
Preferred Stock then outstanding are entitled to elect the Series D Preferred
Stock Director to the Board of Directors, such holders
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shall also be entitled to have such Series D Preferred Stock Director serve on
the compensation committee of the Board of Directors and any special committee
created by the Board of Directors not in the ordinary course of business and the
Corporation shall cause such Series D Preferred Stock Director to be so
appointed; provided, however, that if such Series D Preferred Stock Director
would not be considered "independent" or "disinterested" (i) for purposes of any
applicable rule of NASDAQ or (ii) for purposes of any special committee formed
in connection with any transaction or potential transaction involving the
Corporation and Investor or any Purchaser, then such Series D Preferred Stock
Director shall not be eligible to be appointed to such committee.
9. LACK OF PUBLIC MARKET. If the Common Stock of the Corporation ceases to
be listed or authorized to be quoted on any national securities exchange or the
public market for the Common Stock of the Corporation otherwise ceases to exist,
the Corporation shall engage an investment bank, reasonably acceptable to the
Corporation and the holders of record of a majority of the shares of the Series
D Preferred Stock, to determine the fair market value price of the Common Stock,
from time to time, in connection with Paragraphs A.3., A.5. and A.6.
B. Definitions. As used herein, the following terms shall have the following
-----------
definitions:
(a) "Accumulated Dividends" means with respect to any share of
Series D Preferred Stock, the dividends that have accrued on such shares as of
such specific date for Dividend Periods ending on or prior to such date and that
have not previously been paid in cash, including Additional Dividends and
Default Dividends.
(b) "Additional Dividends" has the meaning given to such term in
Paragraph A.(3)(e).
(c) "Additional Stock" has the meaning set forth in Paragraph
A.(5)(c)(ii).
(d) "Closing Common Stock Market Price" for any day means the
last sale price regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices regular way, in either case as
reported on American Stock Exchange, NASDAQ, NYSE or any other national
securities market.
(e) "Common Stock Equivalents" has the meaning set forth in
Paragraph A.(5)(c)(iii) hereof.
(f) "Conversion Price" has the meaning set forth in Paragraph
A.(5)(a) hereof.
(g) "Convertible Securities" means any indebtedness or shares of
stock convertible into or exchangeable for Common Stock.
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(h) "Dividend Declaration Date" means the last trading day on
NASDAQ immediately prior to June 30 and December 31 of each year in which any
shares of the Series D Preferred Stock are outstanding.
(i) "Dividend Payment Dates" means July 31 and January 31 of each
year (or, if such day is not a business day, the next succeeding day that is a
business day); provided, however, that with respect to July 31, 1999, the
Dividend Declaration Date shall be the later to occur of (i) July 31, 1999, or
(ii) the date on which the Corporation's registration statement with respect to
the Common Stock with which dividends are then to be paid is declared effective
by the Securities and Exchange Commission.
(j) "Dividend Period" means the Initial Dividend Period and,
thereafter, each Semi-Annual Dividend Period.
(k) "Effective Price" of shares of Additional Stock means the
quotient determined by dividing (i) the total number of such shares of
Additional Stock issued or sold, or deemed to have been issued or sold, by the
Corporation under Paragraph A.(5)(c) hereof, into (ii) the consideration
received by the Corporation under Paragraph A.(5)(c) hereof for the issuance of
such shares of Additional Stock.
(l) "Initial Dividend Period" means the dividend period
commencing on the date of issuance of the Series D Preferred Stock and ending on
the first Dividend Payment Date to occur thereafter.
(m) "Investor" means OCM Principal Opportunities Fund, L.P.
(n) "Intellectual Property" has the meaning set forth in the
Stock Purchase Agreement.
(o) "Junior Payment Date" has the meaning set forth in Paragraph
A.(3)(i) hereof.
(p) "Junior Securities" has the meaning set forth in Paragraph
A.(2) hereof.
(q) "Material Adverse Effect" shall mean (i) any adverse change
in the condition (financial or otherwise), assets (including, without
limitation, patents and licenses to patents), liabilities, business, results of
operations or prospects of the Company or its Subsidiary, which change
individually or in the aggregate, is material to the Company or its Subsidiary,
or (ii) any event, matter, condition or effect which impairs the ability of the
Company or its Subsidiary to perform on a timely basis its obligations
hereunder. Materiality under clauses (i) or (ii) hereof shall be determined in
good faith by the holders of record of a majority of the shares of Series D
Preferred Stock.
(r) "NASDAQ" shall have the meaning set forth in Paragraph A.3(a)
hereof.
(s) "NYSE" shall mean the New York Stock Exchange.
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<PAGE>
(t) "Option" means rights, options or warrants to subscribe for,
purchase or otherwise acquire Common Stock or Convertible Securities.
(u) "Purchaser" and "Purchasers" shall mean those persons,
individually and collectively, other than Investor the Corporation who are
parties to the Stock Purchase Agreement, as identified on Exhibit D to the Stock
Purchase Agreement.
(v) "Permitted Options" has the meaning set forth in Paragraph
A.(5)(c)(ii)(B) hereof.
(w) "Semi-Annual Dividend Periods" means the semi-annual periods
(1) commencing on each January 1 and ending on each June 30 and (2) commencing
on July 1 and ending on each December 31.
(x) "Stockholders and Registration Rights Agreement" means the
Stockholders and Registration Rights Agreement dated as of March 19, 1999,
between the Corporation, the Investor and the Purchasers named therein, the
Schedules and Exhibits thereto, and any certificate or other document required
thereby, as the same may be amended from time to time.
(y) "Stock Purchase Agreement" means the Stock Purchase Agreement
dated as of March 19, 1999, between the Corporation, Investor and the Purchasers
named therein, the Schedules and Exhibits thereto, and any certificate or other
document required thereby, as the same may be amended from time to time.
IN WITNESS WHEREOF, the undersigned has caused this Certificate to be
signed on the 11th day of May, 1999.
/s/ Brian M. Gallagher
------------------------------
Brian M. Gallagher
President and Chief Executive Officer
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EXHIBIT A
Example of Application of Formula for Adjustment of Conversion Price.
If, twelve (12) months after the original issuance of the Series D
Preferred Stock, 9,000,000 shares of Common Stock were then outstanding and the
Company were to issue 100,000 shares of Common Stock (the Additional Stock) for
$10.00 per share (and thus, less than the $11 Conversion Price for Series D
Preferred Stock than in effect), the Conversion Price would be adjusted as
follows:
[(A+B)] / [(C +D)]
[(9,000,000 x $11) + (100,000 x $10)] / [(9,000,000) +(100,000)]
[(99,000,000)+($1,000,000 )] / [(9,100,000)]
[(100,000,000)] / [(9,100,000)]
= $10.99
Exhibit 10.2
Stockholders & Registration Rights Agreement
<PAGE>
STOCKHOLDERS AND REGISTRATION RIGHTS AGREEMENT
BY AND AMONG
COLLAGENEX PHARMACEUTICALS, INC.,
OCM PRINCIPAL OPPORTUNITIES FUND, L.P.,
AND
THE PURCHASERS NAMED HEREIN
Dated as of March 19, 1999
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. Definitions...................................................2
SECTION 2. Covenants Not Surviving Conversion............................6
SECTION 3. Covenants Surviving Conversion................................9
SECTION 4. Right of First Refusal.......................................11
SECTION 5. Registration Rights..........................................13
SECTION 6. Duration of Agreement........................................27
SECTION 7. Severability; Governing Law..................................27
SECTION 8. Benefits of Agreement........................................27
SECTION 9. Notices......................................................28
SECTION 10. Changes......................................................29
SECTION 11. Captions.....................................................29
SECTION 12. Nouns and Pronouns...........................................29
SECTION 13. Merger Provision.............................................29
SECTION 14. Counterparts.................................................29
SCHEDULE I...................................................................3
EXHIBIT A....................................................................4
EXHIBIT B....................................................................6
EXHIBIT C....................................................................7
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STOCKHOLDERS AND REGISTRATION RIGHTS AGREEMENT
THIS STOCKHOLDERS AND REGISTRATION RIGHTS AGREEMENT (this
"Agreement") made as of this 19th day of March, 1999, by and among CollaGenex
Pharmaceuticals, Inc., a Delaware corporation (the "Corporation"), having its
principal office at 301 South State Street, Newtown, Pennsylvania 18940 and OCM
Principal Opportunities Fund, L.P., a Delaware limited partnership, having its
principal office at c/o Oaktree Capital Management, LLC, 333 South Grand Avenue,
28th Floor, Los Angeles, California 90071 (the "Investor"), and the persons
named on Exhibit A to this Agreement (individually a "Purchaser" and
collectively the "Purchasers").
BACKGROUND
The Corporation is a corporation duly organized and existing under
the laws of the State of Delaware with an authorized capitalization of
30,000,000 shares of which (a) 200,000 shares are designated as Series D
Preferred Stock, par value $.01 per share, all of which shares are issued and
outstanding as of this date; and (b) 25,000,000 shares are designated as Common
Stock, par value $.01 per share, of which (i) 8,587,204 shares are issued and
outstanding as of this date, (ii) 1,818,182 shares are duly reserved for
issuance in connection with the conversion of Series D Preferred Stock, (iii)
458,182 shares are duly reserved for issuance in connection with the payment of
dividends in Common Stock on shares of the Series D Preferred Stock; (iv)
291,000 shares are duly reserved for issuance to directors, employees and
consultants of the Corporation in connection with the Corporation's 1992 Stock
Option Plan, (v) 1,500,000 shares (subject to stockholders' approval) are duly
reserved for issuance to employees and consultants of the Corporation in
connection with the Corporation's 1996 Stock Option Plan, (vi) 300,000 shares
are reserved for issuance to non-employee directors under the Corporation's
Non-Employee Director Stock Option Plan and (vii) 11,000 shares are reserved for
issuance pursuant to options granted outside any plan.
Investor and each Purchaser owns (or will own in connection with the
Closing of the Stock Purchase Agreement, as defined below) that number of shares
of Common Stock and Series D Preferred Stock (together with any other shares of
capital stock of the Corporation now owned or hereafter acquired by Investor,
each Purchaser, and their successors or assigns from any person by any means,
including without limitation, any acquisition by gift, purchase, dividend,
conversion, stock split, recapitalization or otherwise at or before the Closing
Date, collectively, the "Shares") set forth opposite the name of Investor and
each such Purchaser on Schedule I attached hereto. It is deemed to be in the
best interest of the Corporation, Investor and each Purchaser that provision be
made for the continuity and stability of the business and policies of the
Corporation and, to that end, the Corporation, Investor and Purchasers hereby
set forth their agreement with respect to the Shares.
Simultaneous with the execution and delivery of this Agreement, the
Corporation is entering into a Loan Agreement (as defined below) with Investor,
pursuant to which Investor
<PAGE>
will lend ten million dollars to the Corporation evidenced by the Convertible
Note (as defined below). In the event that the sale and purchase of the Series D
Preferred Stock are not consummated as contemplated in the Stock Purchase
Agreement, Investor at its option, will be entitled to convert the Convertible
Note into shares of the Corporation's Common Stock in accordance with the terms
and conditions of the Convertible Note.
NOW, THEREFORE, in consideration of the premises and of the mutual
consents and obligations hereinafter set forth, the parties hereto hereby
further agree as follows:
SECTION 1. DEFINITIONS. All capitalized terms used in this Agreement
shall have the meanings assigned to them elsewhere in this Agreement or as
specified below:
"Affiliate" of a person shall mean (i) a person that directly or
indirectly, through one or more intermediaries, controls, is controlled by or is
under common control with, the first mentioned person, and (ii) "an associate",
as the term is defined in Rule 12b-2 promulgated under the Exchange Act as in
effect as of the date of this Agreement.
"Certificate of Designation" shall have the meaning set forth in the
Stock Purchase Agreement. A copy of the Certificate of Designation is attached
hereto as Exhibit C.
"Certificate of Incorporation" shall mean the Corporation's Amended
and Restated Certificate of Incorporation, filed in the Office of the Secretary
of State of the State of Delaware on April 10, 1996, as amended to date, a copy
of which is attached hereto as Exhibit B.
"Closing" shall mean the closing of the transactions contemplated
under the Stock Purchase Agreement, which shall take place at the offices of
Dechert Price & Rhoads, 4000 Bell Atlantic Tower, 1717 Arch Street,
Philadelphia, Pennsylvania 19103-2793 on or before June 30, 1999, or such other
time as shall be mutually agreed upon by the parties hereto in writing.
"Closing Date" shall mean the date on which the Closing under the
Stock Purchase Agreement occurs.
"Commission" shall mean the United States Securities and Exchange
Commission.
"Common Stock" shall mean (a) the Corporation's Common Stock, par
value $.01 per share, as authorized on the date of this Agreement, (b) any other
capital stock of any class or classes (however designated) of the Corporation,
authorized on or after the date hereof, the holders of which shall have the
right, without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating distributions after the payment of
dividends and distributions on any shares entitled to preference under the
Certificate of Incorporation (as the same may be amended from time to time after
the Closing), and (c) any other securities into which or for which any of the
securities described in clause (a) or (b) of this definition may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger, sale
of assets or otherwise.
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<PAGE>
"Conversion Price" shall mean, with respect to the conversion of the
Series D Preferred Stock to Common Stock, Eleven Dollars ($11.00) per share, as
of the date of execution of this Agreement, subject to adjustment as provided in
the Certificate of Designation.
"Convertible Note" shall mean the 12% Senior Secured Convertible
Note due March 18, 2000 issued by the Corporation, dated as of the date hereof,
in favor of Investor.
"Default Dividends" shall have the meaning set forth in the
Certificate of Designation.
"Documents" shall mean this Agreement, the Stock Purchase Agreement,
the Certificate of Designation, the Loan Agreement and the Convertible Note.
"Employee Benefit Plan" shall have the meaning set forth in the
Stock Purchase Agreement.
"ERISA" shall have the meaning set forth in the Stock Purchase
Agreement.
"Event of Default" shall have the meaning set forth in the
Certificate of Designation.
"Equity Securities" shall have the meaning set forth in Section 4(a)
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated thereunder,
all as the same shall be in effect at the time.
"Exchange Act Registration Statement" shall mean a registration
statement filed pursuant to the Exchange Act, relating to any class of equity
securities of the Corporation.
"Excluded Form" shall mean a registration statement filed pursuant
to the Securities Act on Form S-8, S-4 or any similar or successor forms.
"Excluded Securities" shall mean those securities described in
Section 4(g) hereof.
"Form S-3" shall mean the form under the Securities Act as is in
effect on the date hereof or any successor registration forms under the
Securities Act subsequently adopted by the Commission which permit inclusion or
incorporation of substantial information by reference to other documents filed
by the Corporation with the Commission.
"Holder" shall mean any holder of Series D Preferred Stock owning of
record Registrable Securities that have not been sold to the public and, for
purposes of this Agreement, a record holder of the Series D Preferred Stock
convertible into such Registrable Securities shall be deemed to be the Holder of
such Registrable Securities; provided, however, that the Corporation shall in no
event be obligated to register the Series D Preferred Stock, and that Holders of
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<PAGE>
Registrable Securities shall not be required to convert their shares of Series D
Preferred Stock into Common Stock in order to exercise the registration rights
granted under Section 6 hereof, until immediately before the effectiveness of
the offering to which the registration relates.
"Initiating Holders" shall have the meaning set forth in Section
5(c)(ii) hereof.
"Investor Notice of Acceptance" shall have the meaning set forth in
Section 4(c) hereof.
"Loan Agreement" shall mean the Convertible Loan and Security
Agreement, dated as of the date hereof, by and between the Corporation, as
borrower, and Investor, as lender, under such agreement.
"Material Adverse Effect" shall mean (i) any adverse change in the
condition (financial or otherwise), assets (including without limitation,
patents and licenses to patents), liabilities, business, results of operations
or prospects of the Corporation and its subsidiary, which change, individually
or in the aggregate, is material to the Corporation or its subsidiary, or (ii)
any event, matter, condition or effect which impairs the ability of the
Corporation or its subsidiary to perform on a timely basis its obligations under
this Agreement or the Stock Purchase Agreement or the consummation of the
transactions contemplated by this Agreement and the Stock Purchase Agreement.
Materiality under clauses (i) or (ii) hereof shall be as determined in good
faith by Investor.
"NASDAQ" shall mean the NASDAQ National Market.
"Note Conversion Price" shall mean, with respect to the conversion
of the Convertible Note to Common Stock, the Note Conversion Price specified in
the Convertible Note, as the same may be adjusted in accordance with the terms
thereof.
"NYSE" shall mean the New York Stock Exchange.
"Person" shall mean and include an individual, a corporation, a
partnership, a trust, an unincorporated organization and a government or any
department, agency or political subdivision thereof.
"Register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of
effectiveness of such registration statement.
"Registrable Securities" shall mean: (a) all the shares of Common
Stock of the Corporation issued or issuable upon the conversion of the shares of
Series D Preferred Stock that are now owned or may hereafter be acquired by any
Holder or its permitted successors and assigns, all the shares of Common Stock
of the Corporation issued or issuable upon the conversion of the Convertible
Note that are now owned or hereafter acquired by Investor or its
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<PAGE>
permitted successors and assigns and any other shares of Common Stock acquired
by such Holder pursuant to Section 4 of this Agreement; and (b) any shares of
Common Stock of the Corporation issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of
all such shares of Common Stock described in clause (a) of this definition;
excluding in all cases, however, (i) any Registrable Securities sold pursuant to
registration under the Securities Act or (ii) any Registrable Securities sold,
subsequent to the Corporation's initial public offering of securities registered
under the Securities Act, pursuant to Rule 144 (or similar or successor rule)
promulgated under the Securities Act.
"Registrable Securities then outstanding" shall mean the number of
shares of Registrable Securities that are then issued and outstanding or are
then issuable pursuant to the exercise or conversion of then outstanding and
then exercisable options, warrants or convertible securities.
"Registration Expenses" shall have the meaning set forth in Section
5(d) hereof.
"Remaining Securities" shall have the meaning set forth in Section
4(d) hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations of the Commission promulgated thereunder, all as
the same shall be in effect at the time.
"Series D Preferred Stock Director" shall have the meaning set forth
in the Certificate of Designation.
"Series D Preferred Stock" shall mean the Corporation's authorized
200,000 shares of Series D Convertible Preferred Stock, par value $.01 per
share, having the designations, rights, preferences and privileges and
qualifications, limitations and restrictions of preferred stock set forth in the
Certificate of Designation.
"Shareholder Protection Rights Agreement" shall mean that
Shareholder Protection Rights Agreement dated September 15, 1997, by and between
the Corporation and the American Stock Transfer & Trust Company.
"Subsidiary" means any corporation with respect to which a majority
of the voting stock is owned directly or indirectly by the Corporation.
"Stock Purchase Agreement" shall mean the Stock Purchase Agreement
dated as of the date hereof, by and among the Corporation, Investor and the
Purchasers named therein, as the same may be amended from time to time.
"Violation" shall have the meaning set forth in Section 5(h)(i)
hereof.
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<PAGE>
SECTION 2. COVENANTS OF THE CORPORATION NOT SURVIVING CONVERSION. So
long as any shares of the Series D Preferred Stock are outstanding, the
Corporation hereby covenants and agrees as follows:
(a) Reserve for Reserved Shares. The Corporation currently has
reserved an aggregate of (i) Two Million Two Hundred Seventy-Six Thousand Three
Hundred Sixty-Four (2,276,364) shares of its authorized but unissued shares of
Common Stock for purposes of effecting the conversion of the shares of Series D
Preferred Stock and paying Investor and Purchasers dividends in Common Stock
during the three (3) years immediately following the date of original issuance
of Series D Preferred Stock; and (ii) One Million Five Hundred Thirty-Eight
Thousand Four Hundred Sixty-Two (1,538,462) shares of its authorized but
unissued Common Stock for purposes of effecting the conversion of the
Convertible Note. The Corporation shall at all times take appropriate steps to
reserve and keep available out of its authorized but unissued shares of Common
Stock, for the purpose of effecting the conversion of the shares of Series D
Preferred Stock, paying Investor and Purchasers dividends in Common Stock during
the three (3) years following the date of original issuance of the Series D
Preferred Stock and paying Default Dividends in respect to the Series D
Preferred Stock in accordance with the Certificate of Designation, the
conversion of the Convertible Note and otherwise complying with the terms of
this Agreement, such additional number of its duly authorized but unissued
shares of Common Stock as shall be sufficient to effect the conversion of the
shares of Series D Preferred Stock from time to time outstanding, the conversion
of the Convertible Note or otherwise to comply with the terms of this Agreement.
If at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of the shares of Series D
Preferred Stock, the conversion of the Convertible Note or otherwise to comply
with the terms of this Agreement, the Corporation shall forthwith take such
corporate action as may be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes. The Corporation shall obtain any authorization, consent, approval or
other action by or make any filing with any court or administrative body that
may be required under applicable state securities laws in connection with the
issuance of shares of Common Stock upon conversion of the shares of Series D
Preferred Stock or upon conversion of the Convertible Note.
(b) Financial Reports. The Corporation shall furnish Investor with
the following:
(i) Monthly Reports. As soon as practicable, and in any case
within thirty (30) calendar days after the end of each calendar month, the
Corporation shall furnish each holder of twenty percent (20%) or more of the
Series D Preferred Stock then outstanding with monthly unaudited financial
statements (all prepared in accordance with generally accepted accounting
principles consistently applied), including (A) an unaudited balance sheet as of
the last day of such month, (B) an unaudited statement of income for such month,
together with a cumulative statement of income from the first day of the then
current fiscal year to the last day of such month, (C) a cash flow statement for
such month, together with a cash flow statement from the first day of the then
current fiscal year to the last day of such month, (D) a schedule showing
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<PAGE>
all prescription data on new and existing users, (E) an aging schedule (or
summary thereof) of all accounts receivable and accounts payable, and (F) a
comparison between the actual figures for such month, the comparable figures
(with respect to clauses (A), (B) and (C) only) for the prior year period and
the comparable figures in the Budget. For the purposes of this Agreement,
"Budget" shall mean the Corporation's annual operating and capital budget with
monthly breakdowns prepared by management and signed by the President or the
Chief Financial Officer of the Corporation. The foregoing financial statements
shall be certified by the President or Chief Financial Officer of the
Corporation to the effect that such statements fairly present the financial
position and financial results of the Corporation for the fiscal period covered,
and shall be accompanied by a written explanation of (A) any material
differences between the operating and financial results and the Budget, (B) an
analysis of any significant problems, changes, events and achievements,
including without limitation, those involving sales and marketing activities and
staffing and (C) a commentary on developing changes in the business outlook of
the Corporation, together with a statement as to their anticipated effect on
future operations and previous forecasts.
(ii) Annual Reports. As soon as practicable and in any case
within ninety (90) calendar days after the end of each fiscal year (beginning
with the fiscal year ending December 31, 1998), the Corporation shall furnish
Investor with a balance sheet as of the end of such fiscal year, a statement of
income and a statement of cash flows of the Corporation for such year, setting
forth in each case in comparative form the figures from the Corporation's
previous fiscal year, all prepared in accordance with generally accepted
accounting principles consistently applied and audited by independent auditors.
With the financial statements referred to in Sections 2(b)(i), the Corporation
shall deliver to Investor a certificate executed by the President or Chief
Financial Officer of the Corporation, and with the financial statements referred
to in Section 2(b)(ii), there shall be delivered to Investor a certificate of
the form of certified public accountants auditing such financial statements of
the Corporation, in each case, to the effect that no knowledge has been obtained
of any violation or default by the Corporation in the performance of its
agreements or covenants contained herein, in the Certificate of Incorporation or
in any other material agreement to which the Corporation is a party or of the
occurrence of any condition, event or act which, with or without notice or lapse
of time, or both, would constitute a violation or an event of default, or, if
such firm or officer shall have obtained knowledge of any such violation,
condition, event or act, it or he (as the case may be) shall specify in such
certificate all such violations, conditions, events and acts and the nature and
status thereof.
(iii) Budget and Operating Forecast. For each fiscal year of
the Corporation, commencing with the fiscal year ending December 31, 1998,
within thirty (30) calendar days before the last day of such fiscal year (and
with respect to the fiscal year ending December 31, 1998, on or before the date
of Closing), and at least thirty (30) calendar days before the last day of each
fiscal year thereafter, management of the Corporation shall prepare and submit
the Budget for the immediately succeeding fiscal year to the Board of Directors.
The Budget shall be accepted as the Budget for such fiscal year when it has been
approved by a majority vote of the Board of Directors (the Budget approval
process shall hereinafter be referred
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<PAGE>
to as the "Budget Vote"). The Corporation shall furnish Investor with a copy of
the approved Budget no later than ten (10) business days after the Budget Vote.
The approved Budget shall be reviewed by the Corporation periodically and all
necessary changes or revisions to the Budget shall be resubmitted to the Board
of Directors and shall be accepted when approved in accordance with, and the
Corporation shall not make any such changes to, the Budget without approval in
accordance with, the Budget Vote.
(iv) Auditor's Letters. No later than five (5) business days
following receipt by the Corporation, the Corporation shall furnish Investor
with each audit response letter, accountant's management letter and other
written report submitted to the Corporation by its independent public
accountants in connection with an annual or interim audit of the books of the
Corporation.
(v) Notice of Actions. No later than five (5) business days
after the commencement thereof, the Corporation shall furnish Investor with
written notice of all actions, suits, claims, proceedings, investigations and
that could have, individually or in the aggregate, a Material Adverse Effect.
(vi) Other Information. Promptly, from time to time, the
Corporation shall furnish Investor with such other information regarding the
business, prospects, financial condition, operations, property or affairs of the
Corporation as Investor reasonably may request.
(vii) Subsidiaries. If for any period the Corporation shall
have any subsidiary or subsidiaries whose accounts are consolidated with those
of the Corporation, then in respect of such period, the Corporation shall
furnish Investor with the financial statements, letters, notices and other
information delivered pursuant to the foregoing Sections 2(b)(i) through
2(b)(vi) shall be the consolidated financial statements of the Corporation and
all such consolidated subsidiaries and the letters, notices and other
information relating to the Corporation and all such subsidiaries, as well.
(c) System of Accounting. The Corporation shall maintain a system of
accounting established and administered in accordance with generally accepted
accounting principles consistently applied, and shall set aside on its books all
such proper reserves as shall be required by generally accepted accounting
principles consistently applied.
(d) Related Transactions. The Corporation shall not, without the
approval by a majority vote of the Board of Directors (including the approval of
two (2) independent directors), directly or indirectly, except for employment
arrangements with its officers, enter into any Related Transactions in excess of
the amount set forth in Item 404(a) of Regulation S-K of the Exchange Act in
effect as of the date hereof. All such Related Transactions shall be conducted
only on an arm's length basis and on terms no less favorable to the Corporation
than could be obtained from non-related persons.
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<PAGE>
(e) Rule 144. As set forth in Section 5(l) hereto, the Corporation
shall take all necessary action to comply with the requirements of Rule 144
under the Securities Act.
SECTION 3. COVENANTS OF THE CORPORATION SURVIVING CONVERSION. At all
times from the date of this Agreement the Corporation hereby agrees to the
following covenants:
(a) NASDAQ Listing. The Corporation shall take all actions necessary
or appropriate to ensure that the shares of stock issuable upon conversion of
the Series D Preferred Stock or upon conversion of the Convertible Note are
listed or authorized to be quoted on the NASDAQ or listed on any national
securities exchange on which shares of Common Stock are then listed. The
Corporation will take all actions necessary or appropriate to ensure that it
maintains a public market for its Common Stock on the American Stock Exchange,
NASDAQ or the NYSE. If the Common Stock of the Corporation ceases to be listed
or authorized to be quoted on any national securities exchange or the public
market for the Common Stock of the Corporation otherwise ceases to exist, the
Corporation shall engage an investment bank, reasonably acceptable to the
Corporation and the holders of record of a majority of the shares of the Series
D Preferred Stock then outstanding (or if applicable, the Holder of the
Convertible Note), to determine the fair market value price of the Common Stock,
from time to time in connection with Paragraphs A.3., A.5. and A.6. of the
Certificate of Designation, or in connection with Section 3 of the Convertible
Note.
(b) VCOC Qualification. So long as Investor owns any fully-diluted
voting stock of the Corporation (assuming conversion in full of the share of
Series D Preferred Common Stock), such investment shall qualify as a venture
capital operation company under applicable ERISA laws ("VCOC"). The Corporation
covenants and agrees Investor shall therefore be entitled to meet periodically
with the management of Corporation on a timely basis to discuss financial
results, business prospects and other matters upon Investor's reasonable request
and that Investor or its designated representative shall be afforded free and
full access, at all reasonable times, and with reasonable prior notice, to all
of the books, records and properties of the Corporation and to all officers,
employees and accountants or auditors of the Corporation and to make proposals
to the Corporation, the Board of Directors of the Corporation and/or senior
management of the Corporation.
(c) Representation of the Board of Directors.
(i) So long as the holders of record of a majority of shares of
Series D Preferred Stock have the right to elect one (1) or more Series D
Preferred Stock Director (as set forth in the Certificate of Designation), then
provided that such Series D Preferred Stock Director(s) is (or are) not an
employee of Investor, the Corporation shall pay the Series D Preferred Stock
Director a director's fee equal to the fees received by non-employee directors
of the Corporation and shall be entitled to receive the same indemnification,
officers and directors insurance coverage and other protections as are made
available by the Corporation to non-employee directors of the Corporation. So
long as no Event of Default has occurred or is
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continuing, and so long as the proposed Series D Preferred Stock Director is not
an employee of Investor, the Corporation shall have the right to approve the
Series D Preferred Stock Director (which approval shall not be unreasonably
withheld or delayed). The Corporation shall reimburse the Series D Preferred
Stock Director for all reasonable out-of-pocket expenses associated with all
activities related to the Series D Preferred Stock Director's duties as a member
of the Board of Directors or any committee thereof. The Corporation hereby
agrees to take any and all steps necessary to effectuate the rights granted to
the holders of record of Series D Preferred Stock set forth in Paragraph A.8.(c)
of the Certificate of Designation.
(ii) So long as Investor owns ten percent (10%) of the shares
of the fully diluted voting stock of the Corporation then outstanding, the
Corporation shall take such necessary action to ensure that Investor is entitled
to elect one (1) director to the Board of Directors of the Corporation.
(d) Registration Rights. The Corporation shall take all necessary
action to give effect to the registration rights set forth in Section 5 hereto.
(e) Antitakeover Statute; Shareholder Protection Rights Agreement.
The Corporation and its Board of Directors shall (i) take all action necessary
to guarantee that no state takeover statute or similar statute or regulation is
or becomes applicable to this Agreement or any of the transactions contemplated
hereby and (ii) if any state takeover statute or similar statute or regulation
becomes applicable to this Agreement or any of the transactions contemplated
hereby, take all action necessary to guarantee that the transactions
contemplated by this Agreement may be consummated as promptly as practicable on
the terms contemplated by this Agreement and otherwise to minimize the effect of
such statute or regulation on the transactions contemplated by this Agreement.
The Corporation and its Board of Directors shall take all necessary action to
guarantee that no rights distributed pursuant to the Shareholder Protection
Rights Agreement become exercisable as a result of the transactions contemplated
by the Documents. The Corporation shall not take any action to create any new or
additional rights similar to those set forth in the Shareholder Protection
Rights Agreement, or in addition, any anti-takeover measures that could have the
effect of restricting the rights of Holders under the Documents.
(f) Securities Filings. The Corporation shall take all necessary or
appropriate actions requested by Investor to assist Investor in complying with
Investor's obligations to make
any and all securities filings under the Exchange Act, the Securities Act or the
applicable state securities laws of any state required in connection with the
transactions contemplated herein.
(g) Protective Agreements. The Corporation shall, and shall cause
its Subsidiary to, enter into agreements (substantially in the form utilized by
the Corporation as of the date of execution of this Agreement) with all Persons
with whom the Corporation or its Subsidiary plans to share, disclose or
otherwise make available its Confidential Information (as defined below)
pursuant to which such Persons will be bound contractually to protect from
disclosure and keep confidential such the Corporation' or its subsidiary's
Confidential Information
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and not to use any such Confidential Information for any purpose other than as
may be specifically provided in such agreement. For purposes of this Section
3(g) "Confidential Information" shall mean the Corporation's or its Subsidiary's
trade secrets, business plans, technology, procedures, manuals, confidential
reports and communications, lists of potential customers and clients, any
information and materials received by the Corporation or its Subsidiary from
third parties in confidence (or subject to non-disclosure or similar covenants),
production processes, product designs, marketing techniques and arrangements,
mailing lists, purchasing information, pricing policies, quoting procedures,
non-public financial information, customer and prospect names and requirements,
employee, customer, supplier and distributor data and other materials or
information relating to the Corporation's or its Subsidiary's business and
activities and the manner in which the Corporation or its Subsidiary does
business, discoveries, concepts, and ideas, including, without limitation, the
nature and results of research and development activities, processes, formulas,
inventions, techniques and "know-how," any other materials or information
related to the business or activities of the Corporation or its Subsidiary,
which are not generally known to others engaged in similar businesses or
activities and all ideas which are derived from or relate to the Corporation's
or its Subsidiary's access to any of the above mentioned materials and
information.
SECTION 4. RIGHT OF FIRST REFUSAL. Investor shall be entitled to the
following right of first refusal:
(a) Except in the case of Excluded Securities, in the event that the
Corporation, after the initial twelve (12) months from the date of issuance of
the Series D Preferred Stock, issues, sells or exchanges, agrees to issue, sell
or exchange, or reserves or sets aside for issuance, sale or exchange, (i) any
shares of Common Stock, (ii) any other equity security of the Corporation, (iii)
any debt security of the Corporation which by its terms is convertible into or
exchangeable for, with or without consideration, any equity security of the
Corporation, (iv) any security of the Corporation that is a combination of debt
and equity or (v) any option, warrant or other right to subscribe for, purchase
or otherwise acquire any equity security or any such debt security of the
Corporation (collectively, the "Equity Securities"), at a price or with a
conversion price below the Conversion Price while any shares of the Series D
Preferred Stock are outstanding (or, at any time that the Convertible Note is
outstanding or shares of Common Stock are outstanding upon conversion of the
Convertible Note, at a price per share less than the Note Conversion Price), the
Corporation shall first offer to sell to Investor the
Equity Securities by giving Investor Written Notice thereof delivered to
Investor (the "Offer"), which Offer by its terms shall remain open and
irrevocable for a period of twenty (20) business days from the date the Offer is
received by Investor.
(b) Investor shall have the right, but not the obligation, to
purchase any or all of the Equity Securities on the same terms as specified in
the Offer to purchase the Equity Securities.
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(c) Notice of Investor's intention to accept, in whole or in part,
an Offer shall be evidenced by a writing signed by Investor and delivered to the
Corporation at or prior to the end of the twenty (20) business day period
commencing with the date the Offer is received by Investor (or, if later, within
ten (10) calendar days after the giving of any written notice of a material
change in such Offer), setting forth such portion (specifying number of shares,
principal amount or the like) of the Equity Securities as the Investor elects to
purchase (the "Investor Notice of Acceptance").
(d) The Corporation shall have ninety (90) calendar days from the
expiration of the foregoing twenty (20) business day period to sell all or any
part of such Equity Securities as to which an Investor Notice of Acceptance has
not been given by Investor (the "Remaining Securities") to any other person or
persons, but only upon terms and conditions in all material respects, including
without limitation, unit price and interest rates (but excluding payment of
legal fees of counsel of the purchaser), which are no more favorable, in the
aggregate, to such other person or persons or less favorable to Corporation than
those set forth in the Offer. Upon the closing of the sale to such other person
or persons of all the Remaining Securities, which shall include payment of the
purchase price to the Corporation in accordance with the terms of the Offer, if
Investor has timely submitted an Investor Notice of Acceptance, Investor shall
purchase from the Corporation, and the Corporation shall sell to Investor, the
Equity Securities in respect of which an Investor Notice of Acceptance was
delivered to the Corporation by Investor, at the terms specified in the Offer.
The purchase by Investor of any Equity Securities is subject in all cases to the
preparation, execution and delivery by the Corporation and Investor of customary
documentation relating to such Equity Securities as is satisfactory in form and
substance to Investor and its counsel.
(e) In each case, any Equity Securities not purchased by Investor or
by a person or persons in accordance with Section 4(d) may not be sold or
otherwise disposed of until they are again offered to Investor under the
procedures specified in Sections 4(a), (b), (c), and (d) hereof.
(f) The Corporation hereby agrees that on or prior to the issuance
to any person of any Equity Securities not purchased by Investor hereunder, but
excluding issuances made pursuant to a public offering, the Corporation shall
cause such person to acknowledge in writing Investor's rights under this
Agreement.
(g) The rights of Investor under this Section 4 shall not apply to
the following securities (the "Excluded Securities"):
(i) Common Stock or options to purchase shares of Common Stock,
issued to officers, employees or directors of, or consultants to, the
Corporation, pursuant to the 1992 Stock Option Plan, the 1996 Stock Option Plan,
the Non-Employee Director Stock Option Plan or any other plan subsequently
approved by the Corporation; provided, however, that the maximum number of
shares of Common Stock heretofore or hereafter issued or issuable pursuant
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to all such agreements, plans and arrangements shall not exceed an aggregate (as
constituted on the date hereof) Two Million Three Hundred Two Thousand
(2,302,000) shares of Common Stock;
(ii) Common Stock issued as a stock dividend or upon any stock
split or other subdivision or combination of shares of Common Stock;
(iii) Common Stock issued upon conversion of any shares of
Series D Preferred Stock; and
(iv) any securities issued for consideration other than cash
pursuant to a merger, consolidation, acquisition or similar business
combination.
SECTION 5. REGISTRATION RIGHTS.
(a) Restrictive Legend. Each certificate for the Series D Preferred
Stock and each certificate for any such securities issued to subsequent
transferees of any such certificate shall be stamped or otherwise imprinted with
the following legend and shall not be transferable except in compliance with or
a valid exception from the Securities Act and applicable state "blue sky" laws:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW. THESE SECURITIES MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW."
(b) Shelf Registration.
(i) The Corporation shall, at its cost, file with the
Commission and thereafter shall use its best efforts to cause to be declared
effective, not later than 150 days after Closing, a registration statement (the
"Shelf Registration Statement"), on a Form S-3 or any successor form thereto, if
the Company is then eligible, or in connection with the Convertible Note in no
event later than one hundred fifty (150) days after the Date of Conversion of
the Convertible Note, on a Form S-3 or any successor form thereto, if the
Company is then eligible, relating to the offer and sale of the shares of Common
Stock issuable upon conversion of the shares of Series D Preferred Stock and
Common Stock issuable in respect of any dividends described in the Certificate
of Designation on the shares of Series D Preferred Stock as well as shares of
Common Stock issuable upon conversion of the Convertible Note (the "Securities")
by the Holders thereof from time to time in accordance with the methods of
distribution set forth in the Shelf Registration Statement and Rule 415 under
the Securities Act (hereinafter, the "Shelf Registration"); provided, however,
that no Holder of Securities (other than Investor or any Purchaser) shall be
entitled to have the Securities covered by such Shelf Registration Statement
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unless such Holder of Securities agrees in writing to be bound by all the
provisions of this Agreement applicable to such Holder of Securities.
(ii) The Corporation shall use its best efforts to keep the
Shelf Registration Statement continuously effective in order to permit the
prospectus included therein to be lawfully delivered by the Holders of
Securities until the expiration of the holding period with respect to the
Securities set forth in clause (k) of Rule 144 promulgated under the Securities
Act or such shorter period that will terminate when all the shares of Securities
covered by the Shelf Registration Statement have been sold pursuant thereto. The
Corporation shall be deemed not to have used its best efforts to keep the Shelf
Registration Statement effective during the requisite period if it voluntarily
takes any action that would result in Holders of the Securities covered thereby
not being able to offer and sell such Securities during that period, unless such
action is required by applicable law. (iii).Notwithstanding any other provisions
of this Agreement to the contrary, the Corporation shall cause the Shelf
Registration Statement and the related prospectus and any amendment or
supplement thereto, as of the effective date of the Shelf Registration
Statement, amendment or supplement, (i) to comply in all material respects with
the applicable requirements of the Securities Act and the rules and regulations
of the Commission and (ii) not to contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(c) Shelf Registration Procedures. In connection with any Shelf
Registration contemplated by Section 5(b) hereof, the following provisions shall
apply:
(i) The Corporation shall (A) furnish to Investor, each
Purchaser, and each Holder of Securities prior to the filing thereof with the
Commission, a copy of the Shelf Registration Statement and each amendment
thereof and each supplement, if any, to the prospectus included therein and, in
the event that Investor, any Purchaser or any Holder of Securities is
participating in the Shelf Registration Statement, shall use its best efforts to
reflect in each such document, when so filed with the Commission, such comments
as such Investor, Purchaser or any Holder of Securities reasonably may propose;
and (B) include the names of the Holders of Securities who propose to sell
Securities pursuant to the Shelf Registration Statement as selling security
holders.
(ii) The Corporation shall advise (and confirm such advice in
writing if requested by the recipient of the advice) Investor, Purchaser and the
Holders of Securities:
(A) when the Shelf Registration Statement or any amendment
thereto has been filed with the Commission and when the Shelf Registration
Statement or any post-effective amendment thereto has become effective;
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(B) of any request by the Commission for amendments or
supplements to the Shelf Registration Statement or the prospectus included
therein or for additional information;
(C) of the issuance by the Commission of any stop order
suspending the effectiveness of the Shelf Registration Statement or the
initiation of any proceedings for that purpose;
(D) of the receipt of the Corporation or its legal counsel
of any notification with respect to the suspension of the qualification of the
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; and
(E) of the happening of any event that requires the
Corporation to make changes in the Shelf Registration Statement or the
prospectus in order that the Shelf Registration Statement or the prospectus does
not contain an untrue statement of a material fact nor omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading.
(iii) The Corporation shall use its best efforts to obtain the
withdrawal at the earliest possible time of any order suspending the
effectiveness of the Shelf Registration Statement.
(iv) The Corporation shall furnish to each Holder of Securities
included within the coverage of the Shelf Registration, without charge, at least
one copy of the Shelf Registration Statement and any post-effective amendment
thereto, including financial statements and schedules, and, if the Holder of
Securities so requests in writing, all exhibits thereto (including those, if
any, incorporated by reference).
(v) The Corporation shall deliver to each Holder of Securities
included within the coverage of the Shelf Registration, without charge, as many
copies of the prospectus (including each preliminary prospectus) included in the
Shelf Registration Statement and any amendment or supplement thereto as such
person may reasonably request. The Corporation consents, subject to the
provisions of this Agreement, to the use of the prospectus or any amendment or
supplement thereto included in the Shelf Registration Statement by each of the
selling Holders of the Securities in connection with the offering and sale of
the Securities covered by such prospectus or any such amendment or supplement.
(vi) Prior to any public offering of the shares of Securities,
pursuant to any Shelf Registration Statement, the Corporation shall register or
qualify or cooperate with the Holders of Securities included therein and their
respective counsel in connection with the registration or qualification of the
Securities for offer and sale under the securities or "blue sky" laws of such
states of the United States as any Holder of Securities covered by such Shelf
Registration Statement; provided, however, that the Corporation shall not be
required to (A) qualify generally to do business in any jurisdiction where it is
not then so qualified or (B) take any
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<PAGE>
action which would subject it to general service of process or to taxation in
any jurisdiction where it is not then so subject.
(vii) The Corporation shall cooperate with the Holders of
Securities to facilitate the timely preparation and delivery of certificates
representing the Securities to be sold pursuant to any Shelf Registration
Statement free of any restrictive legends and in such denominations and
registered in such names as the Holders of Securities may request a reasonable
period of time prior to sales of the Securities pursuant to such Shelf
Registration Statement.
(viii) Upon the occurrence of any event contemplated by
paragraphs (B) through (E) of Section 5(c)(ii) above during the period for which
the Corporation is required to maintain an effective Shelf Registration
Statement, the Corporation shall promptly prepare and file a post-effective
amendment to the Shelf Registration Statement or a supplement to the related
prospectus and any other required document so that, as thereafter delivered to
Holders of Securities, the prospectus will not contain 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, in light of the circumstances under
which they were made, not misleading. If the Corporation notifies Investor,
Purchasers and the Holders of Securities then Investor, Purchasers and the
Holders of Securities shall suspend use of such prospectus, and the period of
effectiveness of the Shelf Registration Statement provided for in Section 5(b)
above shall be extended by the number of days from and including the date of the
giving of such notice to and including the date when Investor, Purchasers and
the Holders of Securities shall have received such amended or supplemented
prospectus pursuant to this Section 5(c)(viii).
(ix) The Corporation will comply with all rules and regulations
of the Commission to the extent and so long as they are applicable to the Shelf
Registration and will make generally available to its security holders (or
otherwise provide in accordance with Section 11(a) of the Securities Act) an
earnings statement (which need not be audited) satisfying the provisions of
Section 11(a) of the Securities Act, no later than 45 days after the end of a
12-month period (or 90 days, if such period is a fiscal year) beginning with the
first month of the Corporation's first fiscal quarter commencing after the
effective date of the Registration Statement, which statement shall cover such
12-month period.
(x) Each Holder of Securities to be sold pursuant to the Shelf
Registration Statement shall furnish to the Corporation such information
regarding the Holder and the distribution of the Securities as the Corporation
may from time to time reasonably require and request for inclusion in the Shelf
Registration Statement (and shall promptly correct any information previously
furnished if the inclusion of such information in such Shelf Registration
Statement would be materially misleading), and the Securities of any Holder that
unreasonably fails to furnish such information that unreasonably fails to
furnish such information within a reasonable time after receiving such request.
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<PAGE>
(xi) The Corporation shall enter into such customary agreements
(including if requested an underwriting agreement in customary form) and take
all such other action, if any, as any Holder of Securities shall reasonably
request in order to facilitate the disposition of the Securities pursuant to any
Shelf Registration. If an underwriting agreement is entered into pursuant to
this paragraph, the Corporation shall cause any such agreement to contain
indemnification provisions and procedures substantially similar to those set
forth in Section 5(j) hereof (or such other procedures acceptable to the Holders
of a majority of the aggregate principal amount of the Securities registered
under the applicable Shelf Registration Statement and the managing underwriters,
if any) with respect to all parties to be indemnified pursuant to Section 5(j)
hereof.
(xii) In the case of any Shelf Registration, the Corporation
shall (A) make reasonably available for inspection by the Holders of Securities,
any underwriter participating in any disposition pursuant to the Shelf
Registration Statement and any attorney, accountant or other agent retained by
the Holders of Securities or any such underwriter all relevant financial and
other records, pertinent corporate documents and properties of the Corporation
and (B) cause the Corporation's officers, directors, employees, accountants and
auditors to supply all relevant information reasonably requested by the Holders
of Securities or any such underwriter, attorney, accountant or agent in
connection with the Shelf Registration Statement, in each case as shall be
reasonably necessary, in the judgment of the Holder or any such underwriter,
attorney, accountant or agent referred to in this paragraph, to conduct a
reasonable investigation within the meaning of Section 11 of the Securities Act;
provided, however, that the foregoing inspection and information gathering shall
be coordinated on behalf of the Investor, Purchasers and Holders of Securities
by one counsel designated by and on behalf of such other parties and provided,
further, that as to any information that is designated in writing by the
Corporation, in good faith, as confidential at the time of delivery, such
information shall be kept confidential by the Holders of Securities or by any
such underwriter, attorney, accountant or other agent.
(xiii) In the case of any Shelf Registration, (A) the
Corporation, if reasonably requested by Holders of a majority of the Securities
covered by such Shelf Registration, which request shall not be more frequent
than once per fiscal quarter, shall cause its counsel to deliver an opinion and
updates thereof relating to the Securities in customary form addressed to such
Holders of Securities and dated, in the case of the initial opinion, the
effective date of such Shelf Registration Statement, provided such opinion is
requested prior to the effective date (it being agreed that the matters to be
covered by such opinion shall include such matters as are customarily included
in opinions requested in underwritten offerings); and (B) the Corporation, if
requested by any majority of Holders of Securities covered by such Shelf
Registration, shall cause its officers to execute and deliver all customary
documents and certificates and updates thereof reasonably requested.
(xiv) In the event that any broker-dealer registered under the
Exchange Act shall underwrite any Securities or participate as a member of an
underwriting syndicate or
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selling group or "assist in the distribution" (within the meaning of the Rules
of Fair Practice and the By-Laws of the National Association of Securities
Dealers, Inc. ("NASD")) thereof, whether as a Holder of such Securities or as an
underwriter, a placement or sales agent or a broker or dealer in respect
thereof, or otherwise, the Corporation shall use its best efforts to assist such
broker-dealer in complying with the requirements of such Rules and By-Laws,
including, without limitation, by (A) if such Rules or By-Laws shall so require,
engaging a "qualified independent underwriter" (as defined in Section 2720
thereof) to participate in the preparation of the Registration Statement
relating to such Securities, to exercise usual standards of due diligence in
respect thereto and, if any portion of the offering contemplated by such Shelf
Registration Statement is an underwritten offering or is made through a
placement or sales agent, to recommend the yield of such Securities, (B)
indemnifying any such qualified independent underwriter to the extent of the
indemnification of underwriters provided in Section 5(j) hereof and (C)
providing such information to such broker-dealer as may be required in order for
such broker-dealer to comply with the requirements of the Rules of Fair Practice
of the NASD.
(xv) The Corporation shall use its best efforts to take all
other steps necessary to effect the registration of the Securities covered by a
Shelf Registration Statement contemplated hereby.
(d) Demand Registration. In the event of the occurrence of any of
the following (1) the Corporation fails to file the Shelf Registration
Statement, (2) the Corporation fails to cause the Shelf Registration Statement
to be continuously effective, or (3) the expiration of the holding period
referred to in Section 5(b)(ii), provided, however, that the Holders of at least
fifty percent (50%) of the Registrable Securities then outstanding shall be
required in order to request registration of the Registrable Securities under
Section 5(d)(3):
(i) If the Corporation receives a written request from the
Holders of at least fifty percent (50%) of the Registrable Securities then
outstanding that the Corporation file a registration statement on Form S-1 (or
similar successor forms) under the Securities Act covering the registration of
the Registrable Securities, then the Corporation shall, within ten (10) business
days after the receipt thereof, give written notice of such request to all
Holders, and effect, as soon as practicable, the registration under the
Securities Act of all Registrable Securities which the Holders request to be
registered and included in such registration, subject only to the limitations of
this Section 5(d).
(ii) If the Holders initiating the registration request under
this Section 5(d) ("Initiating Holders") intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Corporation as a part of their request made pursuant to this Section
5(d) and the Corporation shall include such information in the written notice
referred to in Section 5(d)(i) hereof. In such event, the right of any Holder to
include such Holder's Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
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and such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall enter into an
underwriting agreement in customary form with the managing underwriter or
underwriters selected for such underwriting.
(iii) The Corporation is obligated to effect only two (2) such
registrations pursuant to Section 5(d)(3) set forth above; provided, however,
that no such limitation shall apply with respect to the circumstances set forth
in Section 5(d)(1) or 5(d)(2) set forth above.
(iv) All expenses incurred in connection with the demand
registrations effected pursuant to this Section 5(d), including without
limitation all federal and "blue sky" registration and qualification fees,
printers' and accounting fees, fees and disbursements of counsel for the
Corporation, and of one counsel for the participating Holders together (the
"Registration Expenses") shall be borne by the Corporation.
(v) Notwithstanding the requirement in Section 5(d)(i), under
the circumstances set forth in Section 5(d)(3) above, the Corporation may elect
to effect the registration of the Registrable Securities by filing a
registration statement on Form S-3 (or similar successor forms) if such
registration is not an underwritten offering of the Registrable Securities.
(e) Piggyback Registrations.
(i) The Corporation shall notify all Holders of Registrable
Securities in writing at least forty-five (45) calendar days prior to filing any
registration statement under the Securities Act for purposes of effecting a
public offering of securities of the Corporation (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Corporation, but excluding registration statements on an Excluded Form or
relating to any employee benefit plan or a corporate reorganization) and shall
afford each such Holder an opportunity to include in such registration statement
all or any part of the Registrable Securities then held by such Holder. Each
Holder desiring to include in any such registration statement all or any part of
the Registrable Securities held by such Holder shall, within twenty (20)
calendar days after receipt of the above-described notice from the Corporation,
so notify the Corporation in writing, and in such notice shall inform the
Corporation of the number of Registrable Securities such Holder wishes to
include in such registration statement. If a Holder decides not to include all
of its Registrable Securities in any registration statement thereafter filed by
the Corporation, such Holder shall nevertheless continue to have the right to
include any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Corporation with respect to
offerings of its securities, all upon the terms and conditions set forth herein.
(ii) If the registration statement under which the Corporation
gives notice under this Section 5(e) (the "Piggyback Registration") is for an
underwritten offering, the Corporation shall so advise the Holders of
Registrable Securities. In such event, the right of any such Holder's
Registrable Securities to be included in a registration pursuant to this Section
5(e)
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<PAGE>
shall be conditioned upon such Holder's participation in such underwriting and
the inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their Registrable
Securities through such underwriting shall enter into an underwriting agreement
in such customary form with the managing underwriter or underwriters selected
for such underwriting. If any Holder disapproves of the terms of any such
underwriting, such Holder may elect to withdraw therefrom by written notice to
the Corporation and the underwriter, delivered at least five (5) business days
prior to the effective date of the registration statement. Any Registrable
Securities excluded or withdrawn from such underwriting shall be excluded and
withdrawn from the registration.
(iii) If any of the Registrable Securities registered pursuant
to any Piggyback Registration are to be sold in one or more firm commitment
underwritten offerings, and the managing underwriters advise in writing the
Corporation and the holders of such Registrable Securities that in its or their
opinion or, in the case of a Piggyback Registration not being underwritten, the
Corporation shall reasonably determine (and notify the holders of Registrable
Securities of such determination), after consultation with an investment banker
of nationally recognized standing, that the number of shares of Common Stock
(including Registrable Securities) proposed to be sold in such offering exceeds
the maximum number of shares of Common Stock that can be sold in such offering,
the Corporation shall include in such registration only such maximum number of
shares of Common Stock (including Registrable Securities) which, in the opinion
of such underwriter or underwriters, or the Corporation, as the case may be,
selected in the following order of priority: (i) first, all of the shares of
Common Stock that the Corporation proposes to sell for its own account, if any,
and (ii) second, the securities requested to be included in such registration by
Holders and the Prior Holders (as defined below) that have requested their
securities to be included therein, and which the managing underwriters shall in
their reasonable discretion deem advisable, allocated pro rata, based upon the
number of shares of Common Stock that each such person shall have requested to
be included therein, among (X) the Holders and (Y) persons having registration
rights pursuant that certain Registration Rights Agreement, dated September 29,
1995, between the Corporation and the persons named therein (the "Prior
Holders").
(iv) All Registration Expenses incurred in connection with a
registration pursuant to this Section 5(e) shall be borne by the Corporation.
(f) Additional Registration Rights. If the Corporation grants
registration rights to holders of any security of the Corporation which are more
favorable to such holders than the registration rights granted hereunder, then
such more favorable registration rights shall also be deemed to be granted to
the Holders of the Registrable Securities hereunder, and the Corporation
covenants and agrees to take any and all steps necessary to modify the terms of
this Agreement to so provide.
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<PAGE>
(g) Obligations of the Corporation. Whenever required to effect the
registration of any Registrable Securities under this Agreement, the Corporation
shall, as expeditiously as reasonably possible:
(i) Prepare and file with the Commission a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become and remain effective within one
hundred fifty (150) days of notice from the Holders of the Registrable
Securities;
(ii) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement and to keep such registration
statement effective, in the case of a firm commitment underwriting, until each
underwriter has completed the distribution of all securities purchased by it
and, in the case of any other offering, until the earlier of the sale of all
Registrable Securities covered thereby or one hundred eighty (180) calendar days
after the effective date thereof; provided, however, that such 180-day period
shall be extended for a period of time equal to the period the Holder refrains
from selling any Registrable Securities included in such registration at the
request of an underwriter of the Common Stock or if the Corporation has provided
the notice described in subparagraph (vii) below;
(iii) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by them that are included in such registration;
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided, that the Corporation shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions;
(v) Use its best efforts to list the securities covered by such
registration statement with any securities exchange, if any, on which the Common
Stock of the Corporation is then listed;
(vi) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement;
(vii) Notify each Holder of Registrable Securities and each
underwriter under such registration statement at any time when a prospectus
relating thereto is required to be
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delivered under the Securities Act of the happening of any event as a result of
which the prospectus included in such registration statement, as then in effect,
includes 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
not misleading in the light of the circumstances then existing, and promptly
thereafter, prepare and furnish to all Holders a reasonable number of copies of
an amended or supplemental prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing;
(viii) Furnish, at the request of any Holder requesting
registration of Registrable Securities, on the date that such Registrable
Securities are delivered to the underwriters for sale, if such securities are
being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (A) an opinion, dated as of such date, of
the counsel representing the Corporation, for the purposes of such registration,
in form and substance as is customarily given to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (B) a
"comfort" letter dated as of such date, from the independent certified public
accountants of the Corporation, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of the Registrable Securities; and
(ix) Make available for inspection by each seller of
Registrable Securities, any underwriter participating in any distribution
pursuant to such registration statement, and any attorney, accountant or other
agent retained by such seller or underwriter, all financial and other records,
pertinent corporate documents and properties of the Corporation, and cause the
Corporation's officers, directors and employees to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement.
(h) Furnish Information. It shall be a condition precedent to the
obligations of the Corporation to take any action pursuant to Sections 5(b),
5(d) and 5(e) that the selling Holders shall furnish to the Corporation such
information regarding themselves, the Registrable Securities held by them, and
the intended method of disposition of such securities as shall be required to
effect the registration of their Registrable Securities.
(i) Indemnification. In the event any Registrable Securities are
included in a registration statement under Sections 5(b), 5(d) or 5(e):
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(i) To the extent permitted by law, the Corporation shall
indemnify and hold harmless each Holder, the partners, officers and directors of
each Holder, any underwriter (as defined in the Securities Act) for such Holder
and each person, if any, who controls such Holder or underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Securities Act, the Exchange Act or other federal or state law,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively, a "Violation"):
(A) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto,
(B) 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
(C) any violation or alleged violation by the Corporation of
the Securities Act, the Exchange Act, any federal or state securities law or any
rule or regulation promulgated under the Securities Act, the Exchange Act or any
federal or state securities law in connection with the offering covered by such
registration statement,
and the Corporation shall reimburse each such Holder, or a partner,
officer or director, underwriter or controlling person of such Holder for any
legal or other expenses reasonably incurred by them, as incurred, in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in this
Section 5(j) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Corporation (which consent shall not be unreasonably withheld or
delayed), nor shall the Corporation be liable in any case for any such loss,
claim, damage, liability or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by such Holder, or a partner, officer, director, underwriter or
controlling person of such Holder.
(ii) To the extent permitted by law, each selling Holder shall
indemnify and hold harmless the Corporation, each of its directors and officers
who have signed the registration statement, each person, if any, who controls
the Corporation within the meaning of the Securities Act, any underwriter and
any other Holder selling securities under such registration statement or any of
such other Holder's partners, directors or officers or any person who controls
such Holder within the meaning of the Securities Act or the Exchange Act,
against any losses, claims, damages or liabilities (joint or several) to which
the Corporation or any such director, officer, controlling person, underwriter
or other such Holder, or a partner, director, officer or controlling person of
such other Holder may become subject under the Securities Act, the Exchange Act
or other federal or state law, insofar as such losses, claims, damages or
liabilities
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<PAGE>
(or actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder shall reimburse any legal or other expenses reasonably incurred by the
Corporation or any such director, officer, controlling person, underwriter or
other Holder, partner, officer, director or controlling person of such other
Holder in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
contained in this Section 5(j) shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; and provided, further, that the total amounts payable in indemnity by
a Holder under this Section 5(j)(ii) in respect of any Violation shall not
exceed the net proceeds received by such Holder in the registered offering out
of which such Violation arises.
(iii) Promptly after receipt by an indemnified party under this
Section 5(j) of notice of the commencement of any action (including any
governmental action), such indemnified party shall, if a claim in respect
thereof is to be made against any indemnifying party under this Section 5(j),
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 5(j), but the omission so to deliver
written notice to the indemnifying party shall not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section
5(j).
(iv) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (A) any
Holder exercising rights under this Agreement, or any controlling person of any
such Holder, makes a claim for indemnification pursuant to this Section 5(j) but
it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 5(j) provides
for indemnification in such case, or (B) contribution under the Securities Act
may be required on the part of any such selling Holder or any such controlling
person in circumstances for which indemnification is provided under this Section
5(j), then, and in each such case, the Corporation or such Holder shall
contribute to the aggregate losses, claims, damages or liabilities as is
appropriate to reflect not only the relative benefits received by the
indemnified party and the indemnifying party, but also the relative fault of
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<PAGE>
the indemnified party and the indemnifying party, as well as any other relevant
equitable considerations. The relative fault of such indemnifying party and
indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action; provided,
however, that, in any such case, (1) no such Holder shall be required to
contribute any amount in excess of the public offering price of all such
Registrable Securities offered and sold by such Holder pursuant to such
registration statement; and (2) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(v) The obligations of the Corporation and Holders under this
Section 5(j) shall survive the completion of any offering of Registrable
Securities in a registration statement, and the termination of this Agreement.
(j) "Market Stand-Off" Agreement. Holder hereby agrees that it shall
not, to the extent requested by the Corporation and an underwriter of Common
Stock of the Corporation, sell or otherwise transfer or dispose of any
Registrable Securities (other than Registrable Securities being registered in
such offering) for up to that period of time following the effective date of a
registration statement of the Corporation filed under the Securities Act as is
requested by the managing underwriter(s) of such offering, not to exceed one
hundred twenty (120) calendar days; provided, however, that:
(i) such agreement shall be applicable only to the first such
registration statement of the Corporation which covers securities to be sold on
its behalf to the public in an underwritten offering but not to Registrable
Securities sold pursuant to such registration statement; and
(ii) all officers, directors and ten percent (10%) or greater
stockholders of the Corporation, provided such stockholders have acquired such
securities directly from the Corporation, then holding Common Stock of the
Corporation, shall enter into similar agreements.
In order to enforce the foregoing covenant, the Corporation may
impose stop transfer instructions with respect to the then-remaining Registrable
Securities of each Holder (and the shares or securities of every other person
subject to the foregoing restriction) until the end of such period.
(k) Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time permit
the sale of the Registrable Securities to the public without registration, the
Corporation agrees to:
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<PAGE>
(i) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act;
(ii) File with the Commission in a timely manner all reports
and other documents required of the Corporation under the Securities Act and the
Exchange Act; and
(iii) So long as a Holder owns any Registrable Securities,
furnish to the Holder forthwith upon request a written statement by the
Corporation as to its compliance with the reporting requirements of said Rule
144, and of the Securities Act and the Exchange Act, a copy of the most recent
annual or quarterly report of the Corporation, and such other reports and
documents of the Corporation as a Holder may reasonably request in availing
itself of any rule or regulation of the Commission allowing a Holder to sell any
such securities without registration.
(l) Removal of Legends, Etc. Notwithstanding the foregoing
provisions of this Section 5, the restrictions imposed by this Section 5 upon
the transferability of any Registrable Securities shall cease and terminate when
any such Registrable Securities are sold or otherwise disposed of in accordance
with the intended method of disposition by the seller or sellers thereof set
forth in the registration statement which does not require that the securities
transferred bear the legend set forth in Section 5(a). Whenever the restrictions
imposed by this Section 6 shall terminate as herein provided, the Holder of any
Registrable Securities as to which such restrictions have terminated shall be
entitled to receive from the Corporation, without expense, one or more new
certificates not bearing the restrictive legend set forth in Section 5(a) and
not containing any other reference to the restrictions imposed by this Section
5.
(m) Filing of Reports Under the Exchange Act. The Corporation shall
give prompt notice to the Investor and Purchasers of:
(i) the filing of an Exchange Act Registration Statement; and
(ii) the effectiveness of such Exchange Act Registration
Statement and the number of shares of such class of equity securities
outstanding as reported in such Exchange Act Registration Statement, in order to
enable the parties to this Agreement to comply with any reporting requirements
under the Exchange Act or the Securities Act. The Corporation shall, at any time
after the Corporation shall register any shares of Common Stock under the
Securities Act and upon the written request of Investor or any Purchaser, file
an Exchange Act Registration Statement relating to any class of Equity
Securities of the Corporation then held by Investor or Purchaser, whether or not
the class of equity securities with respect to which such request is made shall
be held by at least the number of persons which would require the filing of a
registration statement under Section 12(g)(1) of the Exchange Act. The
Corporation shall comply with all the reporting requirements of the Exchange
Act, and shall comply with all other public information reporting requirements
of the Commission as a condition to the availability of an exemption from the
Securities Act (under Rule 144 thereof, as amended from time to time, or
successor rule thereto or otherwise) for the sale of Common Stock by Investor or
the Purchasers. The Corporation shall cooperate with Investor and Purchasers in
supplying such information as may be
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<PAGE>
necessary for Investor or Purchasers to complete and file any information
reporting forms presently or hereafter required by the Commission as a condition
to the availability of an exemption from the Securities Act (under Rule 144
thereof or otherwise) for the sale of Common Stock by Investor or any Purchaser.
(n) Underwritten Registration. If any of the Registrable Securities
are to be sold in an underwritten offering, the investment banker or investment
bankers and manager or managers that will administer the offering will be
selected by the Corporation and, in the case of a registration effected under
Sections 5(b), 5(d) or 5(f), approved in writing by the Holders of at least
fifty (50%) percent of the Registrable Securities requesting inclusion of their
Registrable Securities in such registration statement.
SECTION 6. DURATION OF AGREEMENT. Except for those provisions that,
by their terms, terminate sooner, all rights and obligations of Investor or each
Purchaser under this Agreement shall terminate as to Investor and each Purchaser
upon written consent of the holders of at least sixty-six and 67/100 percent
(66.67%) of the shares of Series D Preferred Stock (including shares of Common
Stock into which converted).
SECTION 7. SEVERABILITY; GOVERNING LAW. If any provisions of this
Agreement shall be determined to be illegal and unenforceable by any court of
law, the remaining provisions shall be severable and enforceable in accordance
with their terms. The parties hereto agree that Investor would suffer
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached by the Corporation. It is accordingly agreed that Investor
shall be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
state court located in the State of New York, or the United States District
Court for the Southern District of New York or any federal court in the State of
New York (as to which the Corporation agrees to submit to jurisdiction for the
purposes of such or any other action), this being in addition to any other
remedy to which Investor is entitled at law or in equity, and, if Investor is
successful on the merits in any such action, that the costs and expenses
(including reasonable attorneys' fees) incurred by Investor in seeking
enforcement of this Agreement or the Certificate of Designation shall be the
sole and exclusive responsibility of the Corporation. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of Delaware
excluding its principles of conflicts of law.
SECTION 8. BENEFITS OF AGREEMENT. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
assigns, legal representatives and heirs. Subject to the terms of this
Agreement, including the five percent (5%) limitation set forth below, Investor
or any Purchaser may transfer any or all of its rights hereunder to any
purchaser or transferee of all or a portion of the currently outstanding shares
of Series D Preferred Stock, including any right or interest therein, without
the prior written consent of the Corporation or any stockholder of the
Corporation. In the event that a transfer involves at least five percent (5%) of
the currently outstanding shares of Series D Preferred Stock, including any
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<PAGE>
right or interest therein, such transferee shall be deemed to be "Investor," or
"Purchaser" and a "Holder", as appropriate, for purposes of this Agreement, and
may again transfer such rights in accordance with, and subject to, the terms of
this Agreement.
SECTION 9. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by cable, telegram, facsimile transmission
with confirmation of receipt, or telex, or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties as
follows:
if to Investor:
---------------
OCM Principal Opportunities Fund, L.P.
c/o Oaktree Capital Management, LLC
333 South Grand Avenue, 28th Floor
Los Angeles, CA 90071
Attention: Stephen Kaplan, Principal
Phone: 213-830-6350
Michael P. Harmon, Vice President
Phone: 213-830-6352
Fax: 213-830-6395
with a required copy to:
------------------------
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
Attention: Donna E. Ostroff, Esq.
Phone: 215-994-4000
Fax: 215-994-2222
If to Purchasers:
See Exhibit A hereto.
if to the Company:
------------------
CollaGenex Pharmaceuticals, Inc.
301 South State St.
Newtown, PA 18940
Attention: Nancy Broadbent,
Senior Vice President and
Chief Financial Officer
Phone: 215-579-7388
Fax: 215-579-8577
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<PAGE>
with a required copy to:
------------------------
Buchanan Ingersoll Professional Corporation
Princeton Forrestal Center
500 College Road East
Princeton, NJ 08540
Attention: David J. Sorin, Esq.
Phone: 609-987-6800
Fax: 609-520-0360
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
SECTION 10. CHANGES. The terms and provisions of this Agreement may
not be modified or amended, or any of the provisions hereof waived, temporarily
or permanently, except pursuant to the written consent of the holders of at
least sixty-six and 67/100 percent (66.67%) of the shares of Series D Preferred
Stock (including shares of Common Stock into which converted, or in the case of
the Convertible Note, the Holder of the Convertible Note or the holders of at
least sixty-six and 67/100 percent (66.67%) of the shares of Common Stock upon
conversion of the Convertible Note). Any rights applicable to Investor may be
waived by Investor without the consent of the Corporation, Purchasers or the
other stockholders of the Corporation.
SECTION 11. CAPTIONS. The captions herein are inserted for
convenience only and shall not define, limit, extend or describe the scope of
this Agreement or affect the construction hereof.
SECTION 12. NOUNS AND PRONOUNS. Whenever the context may require,
any pronouns used herein shall include the corresponding masculine, feminine or
neuter forms and the singular form of names and pronouns shall include the
plural and vice-versa.
SECTION 13. MERGER PROVISION. This Agreement (as the same may be
amended from time to time), the Stock Purchase Agreement, the Convertible Loan
Agreement and the Convertible Note constitute the entire agreement and
understanding among the parties pertaining to the subject matter hereof and
supersede all prior and contemporaneous agreements therewith.
SECTION 14. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which taken together shall constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed on their behalf.
CORPORATION:
------------
COLLAGENEX PHARMACEUTICALS, INC.
By: /s/ Brian M. Gallagher
-----------------------------------
Name: Brian M. Gallagher
Title: President and Chief Executive
Officer
By: /s/ Nancy C. Broadbent
-----------------------------------
Name: Nancy C. Broadbent
Title: Vice President and Chief Financial
Officer
INVESTOR:
---------
OAKTREE PRINCIPAL OPPORTUNITIES FUND, L.P.
By: Oaktree Capital Management, LLC, its
general partner
By: /s/ Stephen Kaplan
-----------------------------------
Name: Stephen Kaplan
Title: Principal
By: /s/ Michael Harmon
-----------------------------------
Name: Michael Harmon
Title: Vice President
PURCHASERS:
-----------
/s/ Richard A. Horstmann
--------------------------------------
Richard A. Horstmann
[SIGNATURES CONTINUE ON THE FOLLOWING PAGE]
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<PAGE>
MARQUETTE VENTURE PARTNERS II, L.P.
By: /s/ James E. Daverman
-----------------------------------
Name: James E. Daverman
Title: Authorized Signatory
MVP II AFFILIATES FUND, L.P.
By: /s/ James E. Daverman
-----------------------------------
Name: James E. Daverman
Title: Authorized Signatory
/s/ Robert J. Easton
--------------------------------------
Robert J. Easton
PEBBLEBROOK PARTNERS LTD
By: /s/ Stuart Schube
-----------------------------------
Name: Stuart Schube
Title: General Partner
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